KKR & Co. Inc. (KKR) Q2 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by and welcome to the KKR Financial Holdings LLC Second Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, today’s conference may be recorded. It’s now my pleasure to turn the floor over to Pam Testani. Please go ahead.

Thank you, [Hughie]. Welcome to our second quarter 2013 earnings call. I’m joined by Bill Sonneborn, our CEO, Mike McFerran, our COO and CFO and Craig Farr our President and CEO elect. We’d like to remind everyone that we’ll be discussing forward-looking statements based on management’s beliefs on today’s call. These don’t guarantee future events or performance and are subject to substantial risks that are described in greater detail both in our SEC filings and in the supplemental information presentation posted to our website. Actual results may vary materially from today’s statements. We’ll also be referencing non-GAAP measures on this call, which are reconciled to GAAP figures in the supplement. I’ll start with some quick second quarter highlights and then turn it to Mike to go over our results and Bill will then discuss the environment and his decision to retire and then Craig will wrap things up for us. Today, we reported second quarter net income available to common shareholders of $79 million or $0.39 per diluted common share. This compares to $92 million or $0.46 per diluted common share for the first quarter. We generated a 15% return on equity in Q2 making this the seventh consecutive quarter that we’ve been able to deliver returns in excess of our target of treasury by 2000 basis points. Our book value per common share increased to $10.41 at June 30 from $10.16 as of March 31. In connection with this quarter’s earnings, today our board of directors declared a cash distribution of $0.21 per common share. The distribution is payable on August 20 to common shareholders of record as of August 6. And I’ll now pass things to Mike.

Thanks, Pam and thanks everyone for joining our call today. Overall, we had a strong quarter generating a 15% return on equity, consistent with our last several quarters; our results were significantly driven by gains on investments both realized and unrealized. We did see some topline revenue compression, though not unexpectedly as four of our pre-priced CLOs are out of their reinvestment periods and currently amortizing. However, we’re beginning to see those offset by capital deployed to more recent CLOs and to our national resources and commercial real estate strategies. As Pam mentioned, our second quarter net income available to common shareholders was $79 million. This consisted of $137 million of total revenues, $65 million of total investment costs, $37 million of other income and $23 million of other expenses. Total revenues decreased 2% from the first quarter; this was driven by $7 million decline in the second quarter interest income, primarily due to amortization of those pre-priced of CLOs. The decline in interest income was partially offset by $4 million quarter-over-quarter increased in oil and gas revenue. The growth in our oil and gas revenue is driven by recent deployment we have made primarily to our drilling strategy where we have now made investments over $200 million. Total investment cost declined by $16 million from $81 million for the first quarter to $65 million for the second quarter. The decline was driven by having no incremental provision for loan losses in the second quarter after taking a $11 million provision for the first quarter. We also had a $4 million charge in the first quarter relating into our retirement of our 7.5% converts now it’s a one-time charge. Other income for the second quarter totaled $37 million, which included $25 million of realized and unrealized gains from investments during…

Thank you, Mike. For the last several quarters, we’ve talked to you about our sizable cash position. We’ve held this to anticipating increased market volatility and as we’ve discussed last quarter, higher long-term interest rates in the near-term. We have begun to witness that, thanks to recent Fed comments alluding to unwinding of QE3 later this year. The average loan price in the LST index fell almost a point in June, which was the first month in the red for the loan index since believe it or not May 2012, high yield bond yields moved from all-time lows near 5.5% its over 7% in just a matter of weeks from the interest rate fears, and a tenure yield almost 275 basis points at one point during the quarter. Despite that back drop, we generated a 15% return on equity. That means that nine out of the last 10 quarters, we’ve achieved our objective of generating returns on capital greater than our target, including as Pam mentioned the past seven quarters straight. As we’ve stated previously, we’ve been focused on building a business that can produce returns for shareholders, regardless of short-term volatility. Now let’s look at each strategy, starting with financial assets. In bank loans and high yield we generated a 18% run rate and a 26% total ROE for the second quarter. We mentioned last quarter that we’re being patient on timing for launch of a new CLO. By waiting until this quarter, we are able to price a new CLO 2013-1 near post crisis tights for liability spreads. The interest rate shock that hit fixed-income markets soon after allowed us to accumulate loans at more attractive levels than we actually had originally modeled. The new CLO was initially modeled to be more than our treasury’s plus at 1000…

Thanks, Bill. Well I'm new to having formal responsibility to the Company, I've been close to KFN since its IPO; I have had the pleasure of working closely with Bill, and Mike over the years since I joined KKR. And as my role at the firm has evolved, I’ve overseen certain of our credit strategies, so I've also spent a lot of time with some of the teams that invest KFN capital. I'm looking forward to be more directly involved with the company, and working with all of you in the coming years. Before we open up for questions, there are three subjects I’d like to cover. First, I’d like to share some reflections on Bill. Second, on KFN’s current positioning and finally on my near-term objective as CEO. With regard to Bill, how would I thank him for giving me such a strong starting point. When he took the reins at KFN, the situation was very different, the company faced the worst financial crisis since the Great Depression and KFN's shares were trading around $0.75. Bill's calm leadership, long-term focus and commitment to protecting shareholder value, not only navigated KFN through the crisis, but to a current position of stability and strength for Bill on behalf of KFN’s stakeholders, thank you for your contribution over the past five years. Today, I’m here at the Company with a capital structure that’s enviable for a specialty finance business. KFN has a sizable cash position, an undrawn credit facility, no mark-to-market liabilities, and no recourse debt maturities for over two decades, to put it simply, we have a very strong foundation for future prosperity. Over the next few months, I’ll be working closely with Mike, our team at KKR and our Board of Directors to view KFN strategic positioning, corporate structure in a plan for future growth. Bill will be serving as a Senior Adviser at KKR upon his departure. So I'll also have his continued benefit of his perspective and guidance. Finally I plan to use this time to get acquainted with many of you, with your input and support, Mike and I look forward to building on Bill's success, increasing the value of KFN on behalf of all its shareholders.

Thank you for joining us this afternoon. Operator, if you want to open the call for questions.

Sure, thanks. (Operator Instructions) And our first question will come from Daniel – our first question will come from Charles Miller. Please go ahead. Your line is open.

Hi, gentlemen thanks for taking my questions. With regards to the revenue mix, presuming we’ve continue to see a shift of the amortization within the credit strategy and redeployment in other strategies. How should we think about that mix going forward?

That’s a great question, Charles. The one strategy that you haven't seen any revenue contribution yet – deploying capital, two is commercial real estate, so I expect in the coming quarters and especially as we enter 2014, that to also start making a more modest reasonable revenue contribution. The credit strategies while we have the legacy CLO amortizing, as we mentioned at the end of then of the last year we had closed CLO 2012-1 and at the end of the second quarter we closed CLO 2013-1. So you are going to beginning to see some credit to actual revenue offset the amortization the old CLOs. And with respect to natural resources while we’re continuing to see that growth it's also going to be a function of revenue deployment and timing of cash flows. All in all, I think in the future if I were to fast-forward a few quarters based on how we’ve committed and deployed revenues to date, we continue to see some diversification, but again I think we will be starting to level off with the CLOs wrapping up.

Okay great thank you. And just as a follow-up, how should we think of the pipeline and the outlook of the commercial real estate strategy looking beyond your current commitments?

We’ve been pretty active over the last two quarters on that strategy. I think the pipeline remains robust, we’re continuing to look in new opportunities as you can appreciate the lead time from first looking at opportunity to actually making the investment decision to funding it can sometimes be longer compared to our credit decision to buy or a traded asset where its almost immediate, but I think the pipeline remains robust, we expect the capital allocated in that strategy to continue to grow.

And one aspect just to add to that is as a result of kind of some of the original real estate investments now kind of starting to hit maturity in terms of having them in the portfolio, we’re going to start seeing over the next couple of quarters outpacing substantial income produced and return produced on those investments as they mature.

Great I appreciate the color. Thank you very much.

Thank you sir. Our next question will come from with Lee Cooperman with Omega Advisors. Please go ahead, your line is now open. Lee Cooperman – Omega Advisors, Inc.: Thank you. Bill, let me first congratulate you. You’ve done a terrific job, a little bit of a tailwind helping you out. But I think you should upgrade the quality of literature you're reading because I don't know many great CEOs that have done it in five years and you cannot look no further than your own firm, I don’t know how long Henry and George have been around, but certainly more than five years and et cetera but anyway, let's not dwell on that. I envy you, I’m still doing it at 70 and you’re going on your next challenge at 43. So I was disappointed in the absence of the dividend action and I’m wondering what statement – I have four or five questions as usually the case maybe I'll get them all out write them down and you can tackle them one at a time. What statement is the Board making by not raising the dividend if the four consecutive quarters of $0.21? Second, how much unemployed capital is on the balance sheet earning essentially zero? In other words if you got all the capital, if you reduce your cash to what your minimum operating cash was, how much additional loan could you make and what was a traditional lending rate that you are lending at these days? And then thirdly, I'm a little confused by a statement in your release which I don't think is correct, it says total other expenses of $23.2 million for the quarter of 2013 reflected an increase of $18.6 million during the comparable period, your prior-year-period primarily due to a higher level of related party management compensation largely resulting from issuance of the companies (inaudible) perpetual referred. What does it have to do with management compensation, maybe you can elaborate on that and then finally on the Cengage you have a $186 million of – you say properly reserved, but you wouldn’t buy more because you think there is an opportunity to create value, you can elaborate on that a little bit so these would be my initial questions?

Sure. I'll take the first one in the context of the statement of the board and the distribution. As we’ve talked about in previous calls the Board meets quarterly to review the distribution anyone quarter and process of doing that takes into account a number of factors and circumstances of perspective to the company. And while it is certainly historically it appears over the last two years that right around now the Board has made a decision to increase the distribution as you note that’s not the case this July. But also instant in this particular point is this issue of transition of leadership. And so I think that’s also a factor of that the Board took in above beyond traditional factors and setting the distribution for this quarter. And so that’s basically hopefully answering your question. Lee Cooperman – Omega Advisors, Inc.: Not really, it is different.

The second aspect is what Mike mentioned in his prepared remarks, which is when you look at the portion of our run rate, we’re kind of operating what we earn on Saturday and Sundays cash that we are sending out as a result the $26 million shares, we issued to take out the converts, it’s gone up and in addition, we’re spreading taxable income now around 15% more shares, so taxable income per share would decline by 15% on an apples-to-apples basis. Lee Cooperman – Omega Advisors, Inc.: I know.

But the more share should bring in more capital and the firm, which brings in more earning power. The stock started the year $10.51; the S&P is up 19%. The stock is at probably getting this on way. It is clear that the income distribution to the shareholders of measure with the share can capitalize. It’s not a vehicle that people are kind of embracing with this greatest enthusiasm. We could talk about the stock rising for $0.75 it actually went public at $0.24. So it’s $0.24 to $10.05 or whatever, we are at $11 unchanged. So I think that the investors looking at a dividend some measure of management’s view of the ongoing earning power, the current nature of the earning power. So I guess we’re looking at is your 12% cash return that was $0.31, so we’re paying at 68% of cash earnings, retaining 32% and probably retaining on the balance sheet that is probably overcapitalized. So let’s get to the second question. How much unemployed capital do you have at the present time, if we look at the $507 million of cash and cash equivalents, what would be your minimum cash requirements to run the business?

Well, Lee, this is Mike. As far as minimum cash requirements, I’ll work backwards in the question. As far as minimum cash requirements to run the business, they’re deminimis because we have unfunded – undrawn revolver that has no borrowing base attached to us. So we feel very pretty comfortable actually running the business on minimal cash flow. So we think about our cash number, we’re comfortable effectively speaking for that amount. As we mentioned the balance sheet, we have over $500 million free cash at quarter end. The majority of that amount is actually earmarked to either deals that we’ve already made commitments too to which we’re actually funding at the moment through natural resources or commercial real estate or dealers that we’ve earmarked, but we haven’t actually signed commitments around yet, but we think are in later stage of completion. Lee Cooperman – Omega Advisors, Inc.: It’s not earning – but it’s not earning any return?

Exactly. Lee Cooperman – Omega Advisors, Inc.: So is it reasonable to assume the stake a number – round numbers easy that $500 million or to be returning net as before loan loss provisioning of 10 points or $15 million sometime in next year or so?

Our goal has always been treasuries plus 1,000, so that would imply although higher than your 10 points Lee. Lee Cooperman – Omega Advisors, Inc.: So that remain at somewhere out in the next year or so that will hopefully pickup $50 million more of income?

I think you have from our view Lee, that will be our objective and we expect to have the super majority of this capital that actually out the door. Lee Cooperman – Omega Advisors, Inc.: That’s why I get back to dividend. If you think you’re going to increment your earnings by $0.25 a share, I think you should have signaled that through the dividend policy, but let’s not be the dead horse.

Okay.

Yeah, I think two are the points you want to flag in relates to earnings and cash flow timing. As you know, we’ll do things like CLOs where you may go through a 90 day ramp up period within three month to four months; you actually are getting ratifying cash to pay debt. But natural resources and commercial real estate strategies is a longer lead time. So to-date we put about $150 million out to commercial real estate and as we mentioned on the call, we expect to start seeing over the next few quarters’ income coming back off that, but that hasn't happened yet. Similarly, in natural resources, we’re starting to see a pickup in income there talking about the J curve effect we have when the time we push the capital out and you go to a period trying to harvest that capital relatively being drilled production increases. We have over $400 million put out to natural resources and again we starting to see revenue growth there. So on a perfect road and things go as we hopeful we will make the investment decisions. We’ll see increased income across the Board not just from commercial real estate natural resources, but also from that undeployed capital. With respect to distributions, I think Bill’s – I echo Bill’s comments also say again this is evaluated on a quarterly basis based on what our cash flows are the forecast based on what we’re seeing at that point? Lee Cooperman – Omega Advisors, Inc.: Without revealing your trading strategies, can you talk about you said you were adequately reserved Cengage declared bankruptcy at $186 million of paper plus we have added some together. You're adequately reserved the paper I think the subordinate stuff trade to zero. So could you help us…

We only hold as Mike and Mike's comments the secured bonds and the senior secured term loan, we own nothing subordinated in the capital structure. Lee Cooperman – Omega Advisors, Inc.: So you think you have given but your view is without revealing your strategy given with your value, you think you’ll make money here?

Well, I mean to make it simple, we were actually because of the way we won allowance, so actually we are reserved through what the market price was at quarter end, so to us that’s the GAAP reserving approach, we hoped this upside from there and we’ve expressed that view as to buy more of the paper. But we think we are we are protected to a down side outcome. We though it gonna be worst than where it trades we would be selling it. Lee Cooperman – Omega Advisors, Inc.: Again Bill, congratulation to you.

Thank you. Lee Cooperman – Omega Advisors, Inc.: I don’t know if I’m envious or what, I have to figure it out.

Well I don’t, maybe actually be envious of you.

I don’t know, we’ll see. Lee Cooperman – Omega Advisors, Inc.: Okay.

Thank you sir. Our next question will come from John Hecht with Stephens. please go ahead your line is now open. John Hecht – Stephens Inc.: Good afternoon guys, (inaudible) and congratulating you Mick and Craig look forward to meeting you. First question is I think you guys outlined that there was about a $7 million reduction and interest income from the CLO portfolio this quarter. Two questions how should we think about the pace of cash flows, there is ongoing amortization in that in the other set of structures there and beyond just an amortization, is there any other variability of cash flows as these things start to wind down?

Sure. Great question, John. Yeah it’s not only the variability of cash flows but there are a couple of variables. The two actually the three key ones are, first, the pace of prepayments where the CLOs are amortizing, we experienced a pretty accelerated wave of prepayments beginning really in the middle of the first quarter through the beginning of the second quarter. And as Bill had mentioned you saw loans actually trade off in June, which was timed nicely around our new CLO to corresponding to back up and prices, vessel prepayment activity dropped significantly. The second variable is rates as we’re net LIBOR primarily through the CLOs positions, if you would start seeing LIBOR materially pickup but actually have a material impact on the cash flow and income generated from these. Third, I think material we talked about over two and a quarter percent. The third variable is, focusing around our largest CLO, where we have the most capital and we continue reinvestment to May 14, and we’ve begun the process now of two new CLOs of adding to that. So, I think look, you’re going to see, continue to see some tapering of income from the legacy CLOs but as we deploy more capital in new fields, we should start seeing offset. John Hecht – Stephens Inc.: And based on the position you held in the most recent CLO, can you give us sense of what yield once it’s fully ramped and cash flowing, what type of cash flow we’ll get on that one?

As Bill mentioned, we had, when we made the decision of price that deal. We were expecting something in that, what we usually expect in the CLO market around 13%, 14%. We’ve benefited from being able to deploy into over the down market. So, we can be about 200 basis points that so we’re feeling like (inaudible) we look out for 15%. John Hecht – Stephens Inc.: Okay, great. You guys have done a very good job outlining your interest rate risk and it just haven’t visited this subjects in a while. Can you discuss if any of mark-to-market risk done in the balance sheet at this point?

I mean as mark-to-market risk from P&L and so much as we carry some assets as fair value, there is no real business risk from assets that’s just GAAP earnings, none of the GAAP earnings are important, but it’s not going to impact cash flows, we have no debt tied to our assets. So we could go through for example, the fourth quarter of 2008 to repeat itself, We won’t have to post a dollar of collateral John Hecht – Stephens Inc.: Okay. And then the final question I guess is maybe my last time at least in this capacity as Mike, what’s your opinion of the economic trends and going of what are you guys doing strategically to account for that opinion?

And actually John, I’m actually staying with the company. So I’m going to pass it to Bill. John Hecht – Stephens Inc.: Oh, gosh I mean I apologize guys.

(inaudible). John Hecht – Stephens Inc.: And my brain got messed up there, of course I meant bill, sorry about that.

No problem John. How are you? John Hecht – Stephens Inc.: Good.

The answer is we’ve been spending a lot of time over the last couple of years preparing for the environment. We’re starting to move in today, whether that’s fixing the liability structure on the balance sheet long-dated over the two decades worth of time before the nearest maturity with no mark-to-market financing, a strong cash and liquidity position, deploying capital between financial assets and real assets. We feel really good from an economic perspective, particularly domestically here in the U.S. where we actually expect economic activity to pickup in the third and fourth quarters that will spurn quantitative or QE3 easing by the federal reserve coming down from their $85 billion a month to something beginning in the fourth quarter of something in the range of $10 billion to $20 billion less per month, pleasing out over the course of next year. We think higher economic growth in the U.S. will have some impact on inflation expectation. That’s one of the reasons we have long-dated long duration assets on our balance sheet, Europe is muddling along. We are concerned about the financial system in China and particularly in emerging markets and the export, import data continues to be very poor out of that part of the world. But we’re cautiously optimistic on the environment. The strong U.S. growth will be really good for our credit portfolio from a perspective of low default rates, very well positioned for the equity markets and we have a decent amount of equity market risk on our balance sheet for the first time over the course of the past kind of 18 to 24 months. So I think the business is pretty much set to perform really well based upon the macroeconomic backdrop that we see. John Hecht – Stephens Inc.: Okay. Thanks a lot. Sorry for the name mixup.

Okay, no problem, John.

Thank you sir. Our next question will come from Daniel Furtado with Jefferies. Please go ahead. Your line is open. Daniel Furtado – Jefferies & Company, Inc.: Good afternoon everybody and Bill congratulations and thank you. And Craig, I look forward to working with you in the future as well. And Mike I guess it’s not your five year anniversary, so, we’ll just (Inaudible). So I got a couple of one new one. One I want to kind of hone in on and then second or third one here, and when you talk about the spread, does the anticipated ROE on the CLO 13.1 can I infer that you’re looking at asset yields at about L+ 375 there?

Yeah. That sounds right. Daniel Furtado – Jefferies & Company, Inc.: Okay. And leverage of 7.5 times, it looks like it’s slightly less levered than 12.1 or is that just a miscount on my part?

No the miscount, the leverage was somewhere to 12.1 as about 10 times. Daniel Furtado – Jefferies & Company, Inc.: Okay.

With 10 times total leverage it was only 88%, as of July 19, it was 88% ramp. So, if you’re looking at the assets or supply base that maybe where you’re off. Daniel Furtado – Jefferies & Company, Inc.: Got you. Okay.

I wondered ramp will be about 10X. Daniel Furtado – Jefferies & Company, Inc.: Okay, perfect. And then this headwinds from the amortization of the pre-crisis deals and I get it that you’re kind of doing this maneuvering here to try to offset that. But assuming a static yield curve, which I know is not a valid assumption, what type of ROE headwind would you assume from those pre-crisis deals?

Yeah, look I mean those pre-crisis deals are generating upwards to that 18%, 19% return without taking into account the leverage we deployed capital against them. So those deals as we think can’t be replicated and so much as we benefited from pre-crisis, liability pricing being able to redeploy assets during the crisis and I’ll say being able to benefit from that activity. So I guess – certainly there is a possible we create. The way I think about the balance sheet and how you’ll think about the income going forward is the balance sheet today has been more of a barbell. We’ve done a lot of capital, both in cash and other assets that we deployed capital too but haven’t restarted our generating income yet. At the other end of the barbell, you had those legacy CLOs. As those legacy CLOs are clicking that 18%, 19% return start running off, you should start seeing income increase on the other end of the barbell, so they’ve all started reverting to the mean somewhere in the middle of that plus value level.

But just one way to think about it is to answer your question following on Mike’s point is, we just mentioned 2013-1 is a 15% ROE. The legacy were 18% or 19%. So that differential of kind of 400 to 500 basis points phased in over time is likely going to be the drag unless we go through another credit crisis where our liabilities become extraordinarily valuable at the new transactions we’re doing. Daniel Furtado – Jefferies & Company, Inc.: Understood, understood, thank you. And then how about turning to strategy for a little bit in terms of I get that – you guys not have a good exposure to the long end of the curve, but the short end, what’s the strategy for any headwinds you’ll face as the short end rises that first 100, 200 basis points. And I’m using the short end as a proxy for LIBOR. I mean is there anything in the near-term, LIBOR obviously hasn’t moved yet. Are you contemplating, putting something on the books that will help to alleviate some of that that first piece of the move will be negative move for your income there? And is there anything that you’re planning today to try to offset some of that?

No that would be playing fair, I think we are conscious that we will feel a little bit of compression as it starts moving up. That’s our view in the long-term that LIBOR will go past that level, once it starts moving and may not be an overnight shifts. So we might feel that for a couple of quarters. But we don’t think it would be there for an extended period of time. I think once you start see the rates moved and that while it probably won’t move as quickly as the 10 year to last quarter, I think we think start seeing rates move at a reasonably consistent pace. Yes.

May not as 1994, but we expect once they go, they start going that’s the historical presence and so to sell upside participation above 2% – 2.25% protect between 1% and 2% of LIBOR seeing that for a long period of time, it’s a pretty expensive insurance policy. Daniel Furtado – Jefferies & Company, Inc.: No, I get it. Okay. Well thanks for the time, everybody.

Thank you.

Thank you.

Thank you sir. (Operator Instructions) Our next question will come from Jason Stewart with Compass Point. Please go ahead, your line is open. Jason Stewart – Compass Point Research & Trading LLC: Hi, thanks. On the real estate strategy, I mean we’re seeing a lot of larger real estate investors pickup the pace of realizations and sale activity and then it looks like you’re taking a little bit of an opposite approach. Could you talk about what you’re looking at that’s different in the generic opportunity in commercial real estate and maybe your outlook for selling a property if you improve the fundamentals and it make sense, it doesn’t make sense to own it any longer?

Yeah, I mean our view of real estate is completely opportunistic, which is buy at a very good value cheap, operationally improve it and enhance it, get it leased up, get the existing lease rates up in terms of rate and then sell it. So we don’t plan on holding properties long-term. We are – we expect to have a weighted average holding period at somewhere between two and four years for each of our investments. Jason Stewart – Compass Point Research & Trading LLC: Okay. And if I could tie that question into Leon’s question earlier. How does that strategy deferred with the dividend policy given that we know it takes something like 18 months to get you to a cash fund rate of earnings? And then if you’re able to realize capital gains to the extent that you would desire to distribute those. Is that something we should consider core down the road or is that something that we should think would be opportunistic?

All right, it’s opportunistic but once these properties are repositioned CapEx is going to back into them. They’re cash flow positive and then it’s just a question of when you make the decision to actually capitalize that cash flow positive stream potentially to a core or a core plus fire, and so that’s a question based upon market conditions what cap rates are available as to when we take advantage of the option to exit but in the meantime once they’re repositioned, they become cash flow positive. Jason Stewart – Compass Point Research & Trading LLC: Okay. One last one even though it’s early on the maritime lending, I’m as far from being expert on this as probably anybody. I was wondering if you could give us a little bit more color on what this investment profile looks like in terms of leverage ROE, the size of the opportunity and perhaps your thoughts on how fast it could ramp?

We’re not prepared to go into details yet on it yet but we plan on informing shareholders in due course once something is finalized. Jason Stewart – Compass Point Research & Trading LLC: Thank you.

Thank you. And with that, that does conclude our time for questions. I would like to turn the program back over to Bill Sonneborn for any additional or closing remarks.

Thank you, and thank you all for all of your trust and patience over the course of the past five years, I really like to express my thanks to Mike McFerran, Nicole, Jeff Van Horn and all of the team within KKR that support KFN they have continue to do nothing but an outstanding job for many years. And I look forward to helping Craig continue to build lots of shareholder value for you going forward. Thank you.

Thank you presenters and thank you ladies and gentlemen. Again this does conclude today’s conference. Thank you for your participation and have a wonderful day. Attendees you may disconnect at this time.