KKR Warns of Mortgage Loss

KKR Financial Holdings, a publicly traded affiliate of buyout firm Kohlberg, Kravitz, Roberts & Co., says it will take a $40 million loss on the sale of $5.1 billion of residential mortgage loans.The company bought floating-rate and hybrid-rate assets that were hedged with interest rate derivatives. KKR Financial continues to own $5.8 billion of home loan assets, mostly in the form of mortgage-backed securities, after the sale. Because of volatility in the secondary market, KKR Financial said it may have to record an additional charge of $200 million to $250 million to resolve potential funding disruptions. The company said its portfolio consists of home loan assets with a weighted average FICO score of 728 and a weighted average loan-to-value ratio of 71%. KKR Financial Holdings said it no longer intends to invest in residential home loan assets and will dispose of its portfolio either through runoff or through a "strategic alternative," which may include a sale of the common stock of its REIT subsidiary. KKR can be found on the Web at http://www.kkrfinancial.com.