KKR: Green Shoots

NYT Cyrus Sanati reports on KKR.
It may be too early to break out the bubbly, but Henry Kravis was probably feeling a little bit festive on Friday. Why? An affiliate of his giant buyout firm, Kohlberg Kravis Roberts, reported its latest quarterly results, and while they weren’t a return to the boom years, the numbers were modestly upbeat.
KKR Private Equity Investors, which trades in Amsterdam and invests in or alongside Kohlberg Kravis’ funds, showed a small increase in its net asset value from the prior quarter, and it was able to mark up the value of some of its investments in portfolio companies like HCA and Dollar General as the markets stabilized.
KPE reported that its net asset value for its various private equity investments was $2.36 billion as of March 31, up 0.3 percent from Dec. 31, 2008. That might not sound too impressive, but it is in stark contrast to the 32 percent decline in net asset value it experienced in the fourth quarter.
Mr. Kravis, a pioneer of the leveraged buyout business, continued to sound a cautious note. “We remain prudently on guard in terms of the operations of our portfolio companies given the environment,” he said in a statement announcing the results, adding that various teams inside the company had worked hard to cut costs and improve efficiency during the quarter.
The news wasn’t all good. While KPE recorded gains on many of its portfolio companies, including its investment in Sun Microsystems, which Oracle is buying, the fund wrote down several other investments, such as Energy Future Holdings, the Texas power company formerly known as TXU. It completely wrote off its investment in Capmark Financial Group, the former commercial mortgage arm of GMAC.
Investors still appear to be highly skeptical: While KPE’s net asset value per share was $12.82 at the end of the quarter, its stock has been trading at closer to $2.25 a share. That doesn’t seem to bode well for Kohlberg Kravis’ plan to go public through a merger with KPE, a transaction it announced last summer but which is now on the backburner (though not officially abandoned).
Here are some highlights of KPE’s markups and markdowns in the quarter, and how they compare to each investment’s original cost.
– Dollar General: an unrealized gain of $58.1 million, after the investment was marked up to 1.3 times cost from 1.1 times cost last quarter.
– HCA: an increase of $52.1 million after it was marked up to original cost from 0.8 times cost last quarter.
– Energy Future Holdings: a decrease of $73 million after it was marked down to 0.5 times cost from 0.7 times cost last quarter.
– Capmark Financial Group: a decrease of $15.3 million after it was marked down to zero from 0.1 times cost last quarter.