TEXT-Fitch expects to rate KKR & Co unsecured debt 'A'

Fri Jan 25, 2013 10:54am EST

Jan 25 - Fitch Ratings has assigned a long-term Issuer Default Rating (IDR)
of 'A' to KKR Group Finance Co. II LLC (a subsidiary of KKR & Co. L.P.). The Rating Outlook is Stable. Concurrently, Fitch expects to assign
a rating of 'A' to the unsecured notes issued by KKR Group Finance Co. II. The
notes will rank equally with existing notes issued from KKR Group Finance Co.
LLC. The ratings reflect joint and several guarantees on indebtedness at finance
subsidiaries by KKR Management Holdings L.P. and KKR Fund Holdings L.P., which
collect all fee and incentive income from underlying funds, in addition to a
guarantee from KKR & Co. L.P.

Proceeds from the issuance are expected to be used for general corporate
purposes, including co-investment commitments to existing funds, the seeding of
new fund strategies, and potential acquisition opportunities, most of which
would be expected to generate incremental fee-related earnings before interest,
taxes, depreciation, and amortization (FEBITDA) for the firm.

At Sept. 30, 2012, KKR's leverage (debt/FEBITDA) was 1.54x, on a trailing
12-month basis, which compared favorably to peers. Leverage will increase with
this issuance, and could rise moderately above Fitch's longer-term tolerance
level of 2.5x in the short-term; however, Fitch expects KKR's leverage to
decline over time as cash is deployed into fee-generating opportunities, such as
the recent acquisition of Prisma Capital Partners, a fund-of-hedge-funds
manager. Additionally, KKR's short-term leverage profile is mitigated to some
extent by its superior liquidity position. Fitch expects the firm to remain in a
negative net debt position, adjusting for cash, and KKR has a significant amount
of investments on its balance sheet; over $5 billion at Sept. 30, 2012, a
meaningful portion of which is liquid.

SENSITIVITY / RATING DRIVERS

The Stable Outlooks for KKR and KKR Group Finance Co. II reflect Fitch's
expectation that KKR will continue to generate consistent management fees and
fee-related earnings, grow fee-earnings assets under management (FAUM) through
follow-on funds and expansion into new private equity and fixed-income products,
manage leverage down to the historical range, and maintain a solid liquidity
profile.

Negative rating action could be driven by declines in investment performance
which negatively impact the company's ability to raise FAUM and generate fees,
meaningful increases in leverage above 2.5x longer term, and/or impairment of
the liquidity profile. Positive rating momentum could be driven by an increase
in fund and fee diversity and reductions in leverage.

Founded in 1976, KKR is one of the largest alternative asset managers in the
world with $50.3 billion of FAUM at Sept. 30, 2012. Since its inception, the
company has completed more than 200 PE investments with a total transaction
value in excess of $465 billion.

Fitch has assigned the following rating:

KKR Group Finance Co. II LLC
-- Long-term IDR 'A'.

The Rating Outlook is Stable.

Fitch expects to assign the following rating:

KKR Group Finance Co. II LLC
-- Senior unsecured debt at 'A'.

Existing ratings for KKR are as follows:

KKR & Co. L.P.
-- Long-term IDR 'A'.

KKR Management Holdings L.P.
-- Long-term IDR 'A'.

KKR Fund Holdings L.P.
-- Long-term IDR 'A'.

KKR Group Finance Co. LLC
-- Long-term IDR at 'A';
-- Senior unsecured debt at 'A'.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
-- 'Global Financial Institutions Criteria' (Aug. 15. 2012);
-- 'Investment Manager and Alternative Funds Criteria' (Dec. 17, 2012).

Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Investment Manager and Alternative Funds Criteria
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