KKR builds distressed team, raises $800m

Kohlberg Kravis Roberts has created a distressed investing team that will focus on distressed debt, bankruptcy loans and rescue financing, and has at least $800 million to invest in the strategy.

KKR executives Jamie Weinstein and Nathaniel Zilkha will run the team, called global special situations. Zilkha joined the firm’s North American private equity business in 2007 after spending eight years in Goldman Sachs’ Principal Investment Area where he invested in private equity and principal debt deals. Weinstein joined KKR in 2005.

Globally, even though the economy has gotten a bit better, global deleveraging is going to continue. There's a substantial amount of covenant lite debt yet to mature carried by zombie businesses. Bill Sonneborn

The distressed investment team will be housed in the firm’s massive KKR Asset Management division, a $13 billion credit platform created in 2004.

“We’ve had capabilities investing in distressed opportunities in the past,” Bill Sonneborn, who runs KAM, told PEO. He said the firm is formalising the distressed strategy and “adding additional resources.”

KKR also is setting up a team focusing on leveraged credit strategies, including leveraged loans, high yield bonds and structured products, including collateralised loan obligations. The firm has made Erik Falk and Chris Sheldon responsible for the leveraged trading strategies. Falk joined KKR in 2008 after spending eight years at Deutsche Bank, and Sheldon joined the firm in 2004 from Wells Fargo.

The firm raised $800 million in the fourth quarter of 2009 to invest in the various distressed and special situations strategies, according to a transcript of the firm’s most recent quarterly earnings call, released at the end of February.

“We continue to expand our capital solutions effort, which is focused on special situations investing,” an executive said in the earnings report. “We raised $800 million during the fourth quarter to focus on … capital solutions opportunities.”

KKR is expanding its credit and distressed capabilities because of an expected increase in opportunities in the market, Sonneborn said.

“Globally, even though the economy has gotten a bit better, global deleveraging is going to continue. There’s a substantial amount of covenant lite debt yet to mature carried by zombie businesses,” Sonneborn said.

KKR launched its credit business in 2004. Today, KAM includes more than 75 employees and about $13.4 billion in assets under management.