KKR picks physical settlement for conversions made Tuesday, Wednesday

By Angela McDaniels

Tacoma, Wash., Jan. 24 - KKR Financial Holdings LLC said holders who submitted their 7.5% convertible senior notes due 2017 for conversion as of Tuesday or Wednesday will receive common shares.

As previously reported, the notes will no longer be convertible as of Feb. 17. Under the indenture for the notes, the company may terminate beginning Jan. 15 the right to convert the notes into shares of its common stock if the closing share price has exceeded 150% of the conversion price for at least 20 trading days in a 30-day trading period.

In a Jan. 18 news release, the company said it expected to settle the principal amount of any converted notes in cash and the remainder of the amount due in shares.

According to a Thursday news release, holders submitted $135.97 million, or 79%, of the $172.5 million of outstanding notes for conversion on Tuesday and Wednesday.

Holders will receive 151.0580 shares per $1,000 principal amount of notes. This is equal to the conversion rate, 141.8256 shares, plus an additional 9.2324 shares to account for the make-whole premium.

Holders who submitted a conversion notice on Tuesday will receive their shares on Friday, and holders who submitted a conversion notice on Wednesday will receive their shares on Monday.

Holders may exercise their conversion rights at any time through Feb. 15. The company can settle conversions with cash, shares or a combination.

As of Thursday, the company expected to meet future conversion obligations by physical settlement, but it retained the right to pick an alternative settlement method based on market conditions.

KKR is a specialty finance company based in San Francisco.

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