kfn-20141231.xml

KKR FINANCIAL HOLDINGS LLC

(Registrant)

/s/ WILLIAM J. JANETSCHEK

William J. Janetschek

Chief Executive Officer

KKR FINANCIAL HOLDINGS LLC
(Exact name of registrant as specified in its charter)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ý Yes o No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes ý No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ý Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes ý No

The aggregate market value of the common shares held by non-affiliates of the registrant as of June 30, 2014 was $0 based on the closing price of the common shares on such date as reported on the New York Stock Exchange.

The number of shares of the registrant's common shares outstanding as of March 23, 2015 was 100.

Except where otherwise expressly stated or the context suggests otherwise, the terms "we," "us" and "our" refer to KKR Financial Holdings LLC and its subsidiaries; the "Manager" refers to KKR Financial Advisors LLC; "KKR" refers to Kohlberg Kravis Roberts & Co. L.P. and its affiliated companies; "Management Agreement" means the amended and restated management agreement between us and the Manager, as amended; "operating agreement" means the amended and restated operating agreement of KKR Financial Holdings LLC, as amended; "common shares" refers to our common shares, no par value, representing limited liability company membership interests in us; "preferred shares" refers to a class of our shares with preference or priority over any other class of our shares with respect to distribution rights or rights upon our dissolution or liquidation; and "shares" refers to limited liability company membership interests issued by us of any class or series.

This Annual Report on Form 10-K contains a summary of some of the terms of our operating agreement and our Management Agreement. Those summaries are not complete and are subject to, and qualified in their entirety by reference to, all of the provisions of our operating agreement and the Management Agreement. A copy of our operating agreement is included as an exhibit to the quarterly report on Form 10-Q that we filed with the SEC on August 6, 2009, a copy of Amendment No. 1 thereto is included as an exhibit to the annual report on Form 10-K that we filed with the SEC on March 1, 2010, a copy of Amendment No. 2 is included as an exhibit to the current report on Form 8-K that we filed with the SEC on January 11, 2013, a copy of Amendment No. 3 is included as an exhibit to the current report on Form 8-K that we filed with the SEC on June 27, 2014 and a copy of a share designation amending our operating agreement is included as an exhibit to the current report on Form 8-K that we filed with the SEC on January 17, 2013. A copy of our Management Agreement is included as an exhibit to the current report on Form 8-K that we filed with the SEC on May 4, 2007, a copy of the first amendment thereto is included as an exhibit to the current report on Form 8-K that we filed with the SEC on June 15, 2007, a copy of the second amendment thereto is included as an exhibit to the annual report on Form 10-K that we filed with the SEC on February 28, 2013 and a copy of the third amendment thereto is included as an exhibit to the current report on Form 8-K that we filed with the SEC on June 27, 2014. Copies of all such reports and exhibits are available on the SEC website at www.sec.gov.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain information contained in this Annual Report on Form 10-K constitutes "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are based on our current expectations, estimates and projections, including, but not limited to, statements regarding our deployment of capital among our strategies, our tax treatment and that of certain of our subsidiaries, the level of future collateralized loan obligation investments, our liquidity and the potential to issue future capital or refinance or replace existing indebtedness. Pursuant to those sections, we may obtain a "safe harbor" for forward-looking statements by identifying and accompanying those statements with cautionary statements, which identify factors that could cause actual results to differ from those expressed in the forward-looking statements. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. The words "believe," "anticipate," "intend," "aim," "expect," "strive," "plan," "estimate," and "project," and similar words identify forward-looking statements. Such statements are not guarantees of future performance, events or results and involve potential risks and uncertainties. Accordingly, actual results and the timing of certain events could differ materially from those addressed in forward-looking statements due to a number of factors including, but not limited to, changes in interest rates and market values, financing and capital availability, changes in prepayment rates, general economic and political conditions and events, declines in commodity prices, specifically oil and natural gas prices, changes in market conditions, particularly in the global fixed income, credit and equity markets, the impact of current, pending and future legislation, regulation and legal actions, and other factors not

presently identified. Other factors that may impact our actual results are discussed under "Risk Factors" in Item 1A of this Annual Report on Form 10-K. We do not undertake, and specifically disclaim, any obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements, except for as required by federal securities laws.

Our Internet website is http://ir.kkr.com/kfn_ir/kfn_overview.cfm. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge through our website, at http://ir.kkr.com/kfn_ir/kfn_sec.cfm as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission (the "SEC"). Our Code of Business Conduct and Ethics are available on our website at http://ir.kkr.com/kfn_ir/kfn_governance.cfm. Information on our website does not constitute a part of, and is not incorporated by reference into, this Annual Report on Form 10-K.

The public may read and copy any materials filed by us with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents of these websites are not incorporated into this filing. Further, our references to the URLs for these websites are intended to be inactive textual references only.

We are a specialty finance company with expertise in a range of asset classes. Our core business strategy is to leverage the proprietary resources of KKR Financial Advisors LLC (our "Manager") with the objective of generating current income. Our holdings primarily consist of below investment grade syndicated corporate loans, also known as leveraged loans, high yield debt securities, interests in joint ventures and partnerships, and royalty interests in oil and gas properties. The corporate loans that we hold are typically purchased via assignment or participation in the primary or secondary market.

The majority of our holdings consist of corporate loans and high yield debt securities held in collateralized loan obligation ("CLO") transactions that are structured as on-balance sheet securitizations and are used as long term financing for our investments in corporate debt. The senior secured debt issued by the CLO transactions is primarily owned by unaffiliated third party investors and we own the majority of the subordinated notes in the CLO transactions. As of December 31, 2014, our CLO transactions consisted of KKR Financial CLO 2005-1, Ltd. ("CLO 2005-1"), KKR Financial CLO 2005-2, Ltd. ("CLO 2005-2"), KKR Financial CLO 2006-1, Ltd. ("CLO 2006-1"), KKR Financial CLO 2007-1, Ltd. ("CLO 2007-1"), KKR Financial CLO 2007-A, Ltd. ("CLO 2007-A"), KKR Financial CLO 2011-1, Ltd. ("CLO 2011-1"), KKR Financial CLO 2012-1, Ltd. ("CLO 2012-1"), KKR Financial CLO 2013-1, Ltd. ("CLO 2013-1") KKR Financial, CLO 2013-2, Ltd. ("CLO 2013-2"), KKR CLO 9, Ltd. ("CLO 9") and KKR CLO 10, Ltd. ("CLO10") (collectively the "Cash Flow CLOs"). We execute our core business strategy through our majority-owned subsidiaries, including CLOs.

We are a Delaware limited liability company and were organized on January 17, 2007. We are the successor to KKR Financial Corp., a Maryland corporation. We intend to continue to operate so that we qualify, for United States federal income tax purposes, as a partnership and not as an association or publicly traded partnership taxable as a corporation.

Our Manager is a wholly-owned subsidiary of KKR Asset Management LLC, pursuant to an amended and restated management agreement, as amended (the "Management Agreement"). Effective as of September 30, 2014, KKR Asset Management LLC changed its name to KKR Credit Advisors (US) LLC. KKR Credit Advisors (US) LLC is a wholly-owned subsidiary of Kohlberg Kravis Roberts & Co. L.P. ("KKR"), which is a subsidiary of KKR & Co. L.P. ("KKR & Co.").

Our Manager is responsible for our operations and performs all services and activities relating to the management of our assets, liabilities and operations. Pursuant to the terms of the Management Agreement, our Manager provides us with our management team, along with appropriate support personnel. All of our executive officers are employees or members of KKR or one or more of its affiliates. Our Manager is under the direction of our board of directors and is required to manage our business affairs in conformity with the investment guidelines that are approved by a majority of our board of directors.

The executive offices of our Manager are located at 555 California Street, 50^th Floor, San Francisco, California 94104 and the telephone number of our Manager's executive offices is (415) 315-3620.

On December 16, 2013, we announced the signing of a definitive merger agreement pursuant to which KKR & Co. had agreed to acquire all of our outstanding common shares through an exchange of

equity through which our shareholders would receive 0.51 common units representing the limited partnership interests of KKR & Co. for each common share of KFN (the "Merger Transaction"). On April 30, 2014, the date of the Merger Transaction, the transaction was approved by our common shareholders and the merger was completed, resulting in KFN becoming a subsidiary of KKR & Co. As of the close of trading on April 30, 2014, our common shares were delisted on the New York Stock Exchange ("NYSE"). However, our 7.375% Series A LLC Preferred Shares ("Series A LLC Preferred Shares"), senior notes and junior subordinated notes remain outstanding and we continue to file periodic reports under the Securities Exchange Act of 1934.

Pursuant to the merger agreement, on the date of the Merger Transaction, (i) each outstanding option to purchase a KFN common share was cancelled, as the exercise price per share applicable to all outstanding options exceeded the cash value of the number of KKR & Co. common units that a holder of one KFN common share is entitled to in the merger, (ii) each outstanding restricted KFN common share (other than those held by our Manager) was converted into 0.51 KKR & Co. common units having the same terms and conditions as applied immediately prior to the effective time, and (iii) each phantom share under KFN's Non-Employee Directors' Deferred Compensation and Share Award Plan was converted into a phantom share in respect of 0.51 KKR & Co. common units and otherwise remains subject to the terms of the plan. Following the Merger Transaction, KKR Fund Holdings L.P. ("KKR Fund Holdings"), a subsidiary of KKR & Co., became the sole holder of all of our outstanding common shares and is our parent (our "Parent"). The merger was a taxable transaction for our common shareholders for U.S. federal income tax purposes. Our common shareholders generally recognized gain or loss in connection with the merger measured by the difference, if any, between (i) the sum of (a) the fair market value of any KKR common units received, (b) the amount of cash received and (c) their allocable share of our nonrecourse debt immediately prior to the merger and (ii) their adjusted tax basis in our common shares (which included their allocable share of our debt).

In connection with the Merger Transaction, on April 30, 2014, we terminated our three-year $150.0 million revolving credit facility, maturing on November 30, 2015 (the "2015 Facility"), with all amounts outstanding repaid as of March 31, 2014. In addition, we recognized approximately $24.2 million of aggregate transaction costs, including contingent fees owed to our financial and legal advisors. Of this total cost, $22.7 million was recorded during the four months ended April 30, 2014 in the consolidated statements of operations.

The merger agreement required that we and KKR & Co. coordinate the timing of the declaration of distributions on our respective common equity prior to the closing of the Merger Transaction so that, in any quarter, a holder of our common shares did not receive distributions in respect of both KFN common shares and in respect of the KKR & Co. common units that such holder received in the Merger Transaction. As such, our board of directors did not declare a distribution on our common shares for the first quarter of 2014. Instead, common shareholders who received and held KKR & Co. common units as of the record date for such distribution received KKR & Co.'s distribution of $0.43 per common unit on May 23, 2014.

We seek to provide long-term value for our shareholders by deploying capital opportunistically across capital structures and asset classes. As part of our strategy, we seek opportunities in those asset classes that can generate competitive leveraged risk-adjusted returns, subject to maintaining our exemption from registration under the Investment Company Act of 1940, as amended (the "Investment Company Act"). We currently expect future capital deployment to be focused on our credit-oriented strategies, largely consisting of bank loans and high yield securities primarily through CLO subsidiaries.

Our Manager utilizes its access to the global resources and professionals of KKR in order to create a portfolio that is constructed to generate recurring cash flows, long-term capital appreciation and overall competitive returns to investors. We make asset class allocation decisions based on various factors including: relative value, leveraged risk-adjusted returns, current and projected credit fundamentals, current and projected supply and demand, credit risk concentration considerations, current and projected macroeconomic considerations, liquidity, all-in cost of financing and financing availability, and maintaining our exemption from the Investment Company Act.

As of December 31, 2014, we determined that we operate our business through multiple reportable segments, which are differentiated primarily by their investment focuses.

The segments currently reported are consistent with the way decisions regarding the allocation of resources are made, as well as how operating results are reviewed by the Company. For further financial information related to our segments, refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Segment Results" and "Item 8. Financial Statements and Supplementary Data—Note 15. Segment Reporting" of this Form 10-K.

We intend to continue to operate so that we qualify, for United States federal income tax purposes, as a partnership and not as an association or a publicly traded partnership taxable as a corporation. Holders of our Series A LLC Preferred Shares are subject to United States federal income taxation and generally other taxes, such as state, local and foreign income taxes, on their allocable share of our gross ordinary income, regardless of whether or when they receive cash distributions. We generally allocate our gross ordinary income using a monthly convention, which means that we determine our taxable income and losses for the taxable year to be allocated to our Series A LLC Preferred Shares and then prorate that amount on a monthly basis. Our Series A LLC Preferred Shares will receive an allocation of gross ordinary income. If the amount of cash distributed to our Series A LLC Preferred Shares in any year exceeds our gross ordinary income for such year, additional gross ordinary income will be allocated to the Series A LLC Preferred Shares in future years until such excess is eliminated. Consequently, in some taxable years, holders of our Series A LLC Preferred Shares may recognize taxable income in excess of our cash distributions. Furthermore, even if we did not pay cash distributions with respect to a taxable year, holders of our Series A LLC Preferred Shares may still have a tax liability attributable to their allocation of our gross ordinary income from us during such year in the event that cash distributed in a prior year exceeded our gross ordinary income in such year.

We intend to continue to operate so that we qualify, for United States federal income tax purposes, as a partnership and not as an association or a publicly traded partnership taxable as a

corporation. In general, if a partnership is "publicly traded" (as defined in the Internal Revenue Code of 1986, as amended (the "Code")), it will be treated as a corporation for United States federal income tax purposes. A publicly traded partnership will be taxed as a partnership, however, and not as a corporation, for United States federal income tax purposes so long as it is not required to register under the Investment Company Act and at least 90% of its gross income for each taxable year constitutes "qualifying income" within the meaning of Section 7704(d) of the Code. We refer to this exception as the "qualifying income exception." Qualifying income generally includes rents, dividends, interest (to the extent such interest is neither derived from the "conduct of a financial or insurance business" nor based, directly or indirectly, upon "income or profits" of any person), income and gains derived from certain activities related to minerals and natural resources, and capital gains from the sale or other disposition of stocks, bonds and real property. Qualifying income also includes other income derived from the business of investing in, among other things, stocks and securities.

If we fail to satisfy the "qualifying income exception" described above, our gross ordinary income would not pass through to holders of our Series A LLC Preferred Shares and such holders would be treated for United States federal (and certain state and local) income tax purposes as shareholders in a corporation. In such case, we would be required to pay income tax at regular corporate rates on all of our net income. In addition, we would likely be liable for state and local income and/or franchise taxes on all of our income. Distributions to holders of our Series A LLC Preferred Shares would constitute ordinary dividend income taxable to such holders to the extent of our earnings and profits, and these distributions would not be deductible by us. If we were taxable as a corporation, it could result in a material reduction in cash flow and after-tax return for holders of our Series A LLC Preferred Shares and thus could result in a substantial reduction in the value of our Series A LLC Preferred Shares and any other securities we may issue.

As referenced above, we have made certain investments in natural resources and real estate. It is likely that the income from natural resources investments will be treated as effectively connected with the conduct of a United States trade or business with respect to holders of our Series A LLC Preferred Shares that are not "United States persons" within the meaning of Section 7701(a)(30) of the Code. Furthermore, any notional principal contracts that we enter into, if any, in connection with investments in natural resources likely would generate income that would be treated as effectively connected with the conduct of a United States trade or business. Further, our investments in real estate through pass-through entities may generate operating income that is treated as effectively connected with the conduct of a United States trade or business.

To the extent our income is treated as effectively connected income, a holder who is a non-United States person generally would be required to (i) file a United States federal income tax return for such year reporting its allocable share, if any, of our gross ordinary income effectively connected with such trade or business and (ii) pay United States federal income tax at regular United States tax rates on any such income. Moreover, if such a holder is a corporation, it might be subject to a United States branch profits tax on its allocable share of our effectively connected income. In addition, distributions to such a holder would be subject to withholding at the highest applicable federal income tax rate to the extent of the holder's allocable share of our effectively connected income. Any amount so withheld would be creditable against such holder's United States federal income tax liability, and such holder could claim a refund to the extent that the amount withheld exceeded such holder's United States federal income tax liability for the taxable year.

Moreover, if the fair market value of our investments in United States real property interests, which include our investments in natural resources, real estate and equity interests in certain subsidiaries that have elected or intend to elect to be taxed as real estate investment trusts under the Code ("REIT subsidiaries") that invest primarily in real estate, represent more than 10% of the total fair market value of our assets, our Series A LLC Preferred Shares could be treated as United States real property interests. In such case, gain recognized by an investor who is a non-United States person on the sale or exchange of its Series A LLC Preferred Shares would be treated for United States federal income tax purposes as effectively connected income (unless our Series A LLC Preferred Shares are regularly traded on a securities market and the non-United States person owned 5% or less of the shares of our Series A LLC Preferred Shares during the applicable compliance period). We believe that the fair market value of our investments in United States real property interests represented more than 10% of the total fair market value of our assets during the fourth quarter of 2014. As a result, although the Treasury regulations are not entirely clear, the Series A LLC Preferred Shares (unless our Series A LLC Preferred Shares are regularly traded on a securities market and the non-United States person owned 5% or less of the shares of our Series A LLC Preferred Shares during the applicable compliance period) could be treated as United States real property interests. Moreover, it is possible that the Internal Revenue Services ("IRS") could take the position that such shares would be treated as United States real property interests for the five years following the last date on which more than 10% of the total fair market value of our assets consisted of United States real property interests. If gain from the sale of our Series A LLC Preferred Shares is treated as effectively connected income, the holder may be subject to United States federal income and/or withholding tax on the sale or exchange.

In addition, all holders of our Series A LLC Preferred Shares will likely have state tax filing obligations in jurisdictions in which we have made investments in natural resources or real estate (other than through a REIT subsidiary). As a result, holders of our Series A LLC Preferred Shares will likely be required to file state and local income tax returns and pay state and local income taxes in some or all of these various jurisdictions. Further, holders may be subject to penalties if they fail to comply with those requirements. Our current investments may cause our holders to have state tax filing obligations in the following states: Kansas, Louisiana, Mississippi, North Dakota, Ohio, Oklahoma, Pennsylvania and West Virginia. We may make investments in other states or non-U.S. jurisdictions in the future.

For holders of our Series A LLC Preferred Shares that are regulated investment companies, to the extent that our income from our investments in natural resources and real estate exceeds 10% of our gross income, then we will likely be treated as a "qualified publicly traded partnership" for purposes of the income and asset diversification tests that apply to regulated investment companies. Although the calculation of our gross income for purposes of this test is not entirely clear, if our calculation of gross income is respected, it is likely that we will not be treated as a "qualified publicly traded partnership" for our 2014 tax year. No assurance can be provided that we will or will not be treated as a "qualified publicly traded partnership" in 2015 or any future year.

Section 3(a)(1)(A) of the Investment Company Act defines an investment company as any issuer that is, holds itself out as being, or proposes to be, primarily engaged in the business of investing, reinvesting or trading in securities and Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire "investment securities" (within the meaning of the Investment Company Act) having a value exceeding 40% of the value of the issuer's total assets (exclusive of United States government securities and cash items) on an unconsolidated basis (the "40% test"). Excluded from the term "investment securities" are, among others, securities issued by majority-owned subsidiaries unless the subsidiary is an investment company

or relies on the exceptions from the definition of an investment company provided by Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act (a "fund").

We are organized as a holding company. We conduct our operations primarily through our majority-owned subsidiaries. Each of our subsidiaries is either outside of the definition of an investment company in Sections 3(a)(1)(A) and 3(a)(1)(C), described above, or excepted from the definition of an investment company under the Investment Company Act. We believe that we are not, and that we do not propose to be, primarily engaged in the business of investing, reinvesting or trading in securities and we do not believe that we have held ourselves out as such. We intend to continue to conduct our operations so that we are not required to register as an investment company under the Investment Company Act.

We monitor our holdings regularly to confirm our continued compliance with the 40% test. In calculating our position under the 40% test, we are responsible for determining whether any of our subsidiaries is majority-owned. We treat as majority-owned subsidiaries for purposes of the 40% test entities, including those that issue CLOs, in which we own at least 50% of the outstanding voting securities or that are otherwise structured consistent with applicable SEC staff guidance. Some of our majority-owned subsidiaries may rely solely on the exceptions from the definition of "investment company" found in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act. In order for us to satisfy the 40% test, our ownership interests in those subsidiaries or any of our subsidiaries that are not majority-owned for purposes of the Investment Company Act, together with any other "investment securities" that we may own, may not have a combined value in excess of 40% of the value of our total assets on an unconsolidated basis and exclusive of United States government securities and cash items. However, many of our majority-owned subsidiaries either fall outside of the general definitions of an investment company or rely on exceptions provided by provisions of, and rules and regulations promulgated under, the Investment Company Act (other than Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act) and, therefore, the securities of those subsidiaries that we own and hold are not investment securities for purposes of the Investment Company Act. In order to conform to these exceptions, these subsidiaries are limited with respect to the assets in which each of them can invest and/or the types of securities each of them may issue. We must, therefore, monitor each subsidiary's compliance with its applicable exception and our freedom of action relating to such a subsidiary, and that of the subsidiary itself, may be limited as a result. For example, our subsidiaries that issue CLOs generally rely on the exception provided by Rule 3a-7 under the Investment Company Act, while our real estate subsidiaries, including those that are taxed as REITs for United States federal income tax purposes, generally rely on the exception provided by Section 3(c)(5)(C) of the Investment Company Act. Each of these exceptions requires, among other things that the subsidiary (i) not issue redeemable securities and (ii) engage in the business of holding certain types of assets, consistent with the terms of the exception. Similarly, any subsidiaries engaged in the ownership of oil and gas assets may, depending on the nature of the assets, be outside the definition of an investment company or rely on exceptions provided by Section 3(c)(5)(C) or Section 3(c)(9) of the Investment Company Act. While Section 3(c)(9) of the Investment Company Act does not limit the nature of the securities issued, it does impose business engagement requirements that limit the types of assets that may be held.

We do not treat our interests in majority-owned subsidiaries that are outside of the general definition of an investment company or that rely on Section 3(c)(5)(A), (B), (C) or Section 3(c)(9) of, or Rule 3a-7 under, the Investment Company Act as investment securities when calculating our 40% test.

things, the structured finance vehicle does not engage in certain portfolio management practices resembling those employed by management investment companies (e.g., mutual funds). Accordingly, each of these CLO subsidiaries is subject to an indenture (or similar transaction documents) that contains specific guidelines and restrictions limiting the discretion of the CLO subsidiary and its collateral manager. In particular, these guidelines and restrictions prohibit the CLO subsidiary from acquiring and disposing of assets primarily for the purpose of recognizing gains or decreasing losses resulting from market value changes. Thus, a CLO subsidiary cannot acquire or dispose of assets primarily to enhance returns to the owner of the equity in the CLO subsidiary; however, subject to this limitation, sales and purchases of assets may be made so long as doing so does not violate guidelines contained in the CLO subsidiary's relevant transaction documents. A CLO subsidiary generally can, for example, sell an asset if the collateral manager believes that its credit quality has declined since its acquisition or that the credit profile of the obligor will deteriorate and the proceeds of permitted dispositions may be reinvested in additional collateral, subject to fulfilling the requirements set forth in Rule 3a-7 under the Investment Company Act and the CLO subsidiary's relevant transaction documents. As a result of these restrictions, our CLO subsidiaries may suffer losses on their assets and we may suffer losses on our investments in those CLO subsidiaries.

We sometimes refer to our subsidiaries that rely on Section 3(c)(5)(C) of the Investment Company Act, as our "real estate subsidiaries." Section 3(c)(5)(C) of the Investment Company Act is available to companies that are primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate. While the SEC has not promulgated rules to address precisely what is required for a company to be considered to be "primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate," the SEC's Division of Investment Management, or the "Division," has taken the position, through a series of no-action and interpretive letters, that a company may rely on Section 3(c)(5)(C) of the Investment Company Act if, among other things, at least 55% of the company's assets consist of mortgage loans, other assets that are considered the functional equivalent of mortgage loans and certain other interests in real property (collectively, "qualifying real estate assets"), and at least 25% of the company's assets consist of real estate-related assets (reduced by the excess of the company's qualifying real estate assets over the required 55%), leaving no more than 20% of the company's assets to be invested in miscellaneous assets. The Division has also provided guidance as to the types of assets that can be considered qualifying real estate assets. Because the Division's interpretive letters are not binding except as they relate to the companies to whom they are addressed, if the Division were to change its position as to, among other things, what assets might constitute qualifying real estate assets our REIT subsidiaries might be required to change its investment strategy to comply with the changed position. We cannot predict whether such a change would be adverse.

Based on current guidance, our real estate subsidiaries classify investments in mortgage loans as qualifying real estate assets, as long as the loans are "fully secured" by an interest in real estate on which we retain the unilateral right to foreclose. That is, if the loan-to-value ratio of the loan is equal to or less than 100%, then the mortgage loan is considered to be a qualifying real estate asset. Mortgage loans with loan-to-value ratios in excess of 100% are considered to be only real estate-related assets. Our real estate subsidiaries consider agency whole pool certificates to be qualifying real estate assets. Examples of agencies that issue whole pool certificates are the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association. An agency whole pool certificate is a certificate issued or guaranteed as to principal and interest by the United States government or by a federally chartered entity, which represents the entire beneficial interest in the underlying pool of mortgage loans. By contrast, an agency certificate that represents less than the entire beneficial interest in the underlying mortgage loans is not considered to be a qualifying real estate asset, but is considered by our real estate subsidiaries to be a real estate-related asset.

Most non-agency mortgage-backed securities do not constitute qualifying real estate assets because they represent less than the entire beneficial interest in the related pool of mortgage loans; however, based on Division guidance, where our real estate subsidiaries' investment in non-agency mortgage-backed securities is the "functional equivalent" of owning the underlying mortgage loans, our real estate subsidiaries may treat those securities as qualifying real estate assets. Moreover, investments in mortgage-backed securities that do not constitute qualifying real estate assets are classified by our real estate subsidiaries as real estate-related assets. Therefore, based upon the specific terms and circumstances related to each non-agency mortgage-backed security that our real estate subsidiaries own, our real estate subsidiaries will make a determination of whether that security should be classified as a qualifying real estate asset or as a real estate-related asset; and there may be instances where a security is recharacterized from being a qualifying real estate asset to a real estate-related asset, or conversely, from being a real estate-related asset to being a qualifying real estate asset based upon the acquisition or disposition or redemption of related classes of securities from the same securitization trust. If our real estate subsidiaries acquire securities that, collectively, receive all of the principal and interest paid on the related pool of underlying mortgage loans (less fees, such as servicing and trustee fees, and expenses of the securitization), and that subsidiary has unilateral foreclosure rights with respect to those mortgage loans, then our real estate subsidiaries will consider those securities, collectively, to be qualifying real estate assets. If another entity acquires any of the securities that are expected to receive cash flow from the underlying mortgage loans, then our real estate subsidiaries will consider whether it has appropriate foreclosure rights with respect to the underlying loans and whether its investment is a first loss position in deciding whether these securities should be classified as qualifying real estate assets. If our real estate subsidiaries own more than one subordinate class, then, to determine the classification of subordinate classes other than the first loss class, our real estate subsidiaries will consider whether such classes are contiguous with the first loss class (with no other classes absorbing losses after the first loss class and before any other subordinate classes that our real estate subsidiaries own), whether our real estate subsidiaries own the entire amount of each such class and whether our real estate subsidiaries would continue to have appropriate foreclosure rights in connection with each such class if the more subordinate classes were no longer outstanding. If the answers to any of these questions is no, then our real estate subsidiaries would expect not to classify that particular class, or classes senior to that class, as qualifying real estate assets.

We have made or may make oil and gas and other mineral investments that are held through one or more subsidiaries and would refer to those subsidiaries as our "oil and gas subsidiaries". Depending upon the nature of the oil and gas assets held by an oil and gas subsidiary, such oil and gas subsidiary may rely on Section 3(c)(5)(C) or Section 3(c)(9) of the Investment Company Act or may fall outside of the general definition of an investment company. An oil and gas subsidiary that does not engage primarily, propose to engage primarily or hold itself out as engaging primarily in the business of investing, reinvesting or trading in securities will be outside of the general definition of an investment company provided that it passes the 40% test. This may be the case where an oil and gas subsidiary holds a sufficient amount of oil and gas assets constituting real estate interests together with other assets that are not investment securities such as equipment. Oil and gas subsidiaries that hold oil and gas assets that constitute real property interests, but are unable to pass the 40% test, may rely on Section 3(c)(5)(C), subject to the requirements and restrictions described above. Alternately, an oil and gas subsidiary may rely on Section 3(c)(9) of the Investment Company Act if substantially all of its business consists of owning or holding oil, gas or other mineral royalties or leases, certain fractional interests, or certificates of interest or participations in or investment contracts relating to such royalties, leases or fractional interests. These various restrictions imposed on our oil and gas subsidiaries by the Investment Company Act may have the effect of limiting our freedom of action with respect to oil and gas assets (or other assets) that may be held or acquired by such subsidiary or the manner in which we may deal in such assets.

In addition, we anticipate that one or more of our subsidiaries, will qualify for an exception from registration as an investment company under the 1940 Act pursuant to either Section 3(c)(5)(A) of the 1940 Act, which is available for entities primarily engaged in the business of purchasing or otherwise acquiring notes, drafts, acceptances, open accounts receivable, and other obligations representing part or all of the sales price of merchandise, insurance, and services, and/or Section 3(c)(5)(B) of the 1940 Act, which is available for entities primarily engaged in the business of making loans to manufacturers, wholesalers, and retailers of, and to prospective purchasers of, specified merchandise, insurance, and services and, in each case, the entities are not engaged in the business of issuing redeemable securities, face-amount certificates of the installment type or periodic payment plan certificates. In order to rely on Sections 3(c)(5)(A) and (B) and be deemed "primarily engaged" in the applicable businesses, at least 55% of an issuer's assets must represent investments in eligible loans and receivables under those sections. We intend to treat as qualifying assets for purposes of these exceptions the purchases of loans and leases representing part or all of the sales price of equipment and loans where the loan proceeds are specifically provided to finance equipment, services and structural improvements to properties and other facilities and maritime and infrastructure projects or improvements. We intend to rely on guidance published by the SEC or its staff in determining which assets are deemed qualifying assets.

As noted above, if the combined values of the securities issued to us by any non-majority-owned subsidiaries and our subsidiaries that must rely on Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act, together with any other investment securities we may own, exceed 40% of the value of our total assets (exclusive of United States government securities and cash items) on an unconsolidated basis, we may be deemed to be an investment company. If we fail to maintain an exception, exemption or other exclusion from the Investment Company Act, we could, among other things, be required either (i) to change substantially the manner in which we conduct our operations to avoid being subject to the Investment Company Act or (ii) to register as an investment company. Either of these would likely have a material adverse effect on us, the type of investments we make, our ability to service our indebtedness and to make distributions on our shares, and on the market price of our shares and any other securities we may issue. If we were required to register as an investment company under the Investment Company Act, we would become subject to substantial regulation with respect to our capital structure (including our ability to use leverage), management, operations, transactions with certain affiliated persons (within the meaning of the Investment Company Act), portfolio composition (including restrictions with respect to diversification and industry concentration) and other matters. Additionally, our Manager would have the right to terminate our Management Agreement effective the date immediately prior to our becoming an investment company. Moreover, if we were required to register as an investment company, we would no longer be eligible to be treated as a partnership for United States federal income tax purposes. Instead, we would be classified as a corporation for tax purposes and would be able to avoid corporate taxation only to the extent that we were able to elect and qualify as a regulated investment company ("RIC") under applicable tax rules. Because our eligibility for RIC status would depend on our assets and sources of income at the time that we were required to register as an investment company, there can be no assurance that we would be able to qualify as a RIC. If we were to lose partnership status and fail to qualify as a RIC, we would be taxed as a regular corporation. See "Partnership Tax Matters—Qualifying Income Exception".

do not constitute investment securities for purposes of the 40% test, or with our determinations as to the nature of the business in which we engage or the manner in which we hold ourselves out, we and/or one or more of our subsidiaries would need to adjust our operating strategies or assets in order for us to continue to pass the 40% test or register as an investment company, either of which could have a material adverse effect on us. Moreover, we may be required to adjust our operating strategy and holdings, or to effect sales of our assets in a manner that, or at a time or price at which, we would not otherwise choose, if there are changes in the laws or rules governing our Investment Company Act status or that of our subsidiaries, or if the SEC or its staff provides more specific or different guidance regarding the application of relevant provisions of, and rules under, the Investment Company Act. The SEC published on August 31, 2011 an advance notice of proposed rulemaking to potentially amend the conditions for reliance on Rule 3a-7 and the treatment of asset-backed issuers that rely on Rule 3a-7 under the Investment Company Act (the "3a-7 Release").

The SEC, in the 3a-7 Release, requested public comment on the nature and operation of issuers that rely on Rule 3a-7 and indicated various steps it may consider taking in connection with Rule 3a-7, although it did not formally propose any changes to the rule. Among the issues for which the SEC has requested comment in the 3a-7 Release is whether Rule 3a-7 should be modified so that parent companies of subsidiaries that rely on Rule 3a-7 should treat their interests in such subsidiaries as investment securities for purposes of the 40% test. The SEC also published on August 31, 2011 a concept release seeking information about the nature of entities that invest in mortgages and mortgage-related pools and public comment on how the SEC staff's interpretive positions in connection with Section 3(c)(5)(C) affect these entities, although it did not propose any new interpretive positions or changes to existing interpretive positions in connection with Section 3(c)(5)(C). Any guidance or action from the SEC or its staff, including changes that the SEC may ultimately propose and adopt to the way Rule 3a-7 applies to entities or new or modified interpretive positions related to Section 3(c)(5)(C), could further inhibit our ability, or the ability of a subsidiary, to pursue our current or future operating strategies, which could have a material adverse effect on us.

If the SEC or a court of competent jurisdiction were to find that we were required, but failed, to register as an investment company in violation of the Investment Company Act, we may have to cease business activities, we would breach representations and warranties and/or be in default as to certain of our contracts and obligations, civil or criminal actions could be brought against us, our contracts would be unenforceable unless a court were to require enforcement and a court could appoint a receiver to take control of us and liquidate our business, any or all of which would have a material adverse effect on our business.

We are party to a Management Agreement with our Manager, pursuant to which our Manager will provide for the day-to-day management of our operations.

The Management Agreement requires our Manager to manage our business affairs in conformity with the Investment Guidelines that are approved by a majority of our board of directors. Our Manager is under the direction of our board of directors. Our Manager is responsible for (i) the selection, purchase and sale of our investments, (ii) our financing and risk management activities, and (iii) providing us with investment advisory services.

The Management Agreement expired on December 31, 2014, was automatically renewed for a one-year term expiring on December 31, 2015 and will be automatically renewed for a one year term on each anniversary date thereafter, unless terminated. Our board of directors review our Manager's performance periodically and the Management Agreement may be terminated annually (upon 180 day prior written notice) upon the affirmative vote of at least two-thirds of our independent directors, or by a vote of the holders of a majority of our outstanding common shares, based upon (1) unsatisfactory

performance by the Manager that is materially detrimental to us or (2) a determination that the management fees payable to our Manager are not fair, subject to our Manager's right to prevent such a termination under this clause (2) by accepting a mutually acceptable reduction of management fees. We must provide a 180 day prior written notice of any such termination and our Manager will be paid a termination fee equal to four times the sum of the average annual base management fee and the average annual incentive fee for the two 12-month periods preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination.

We may also terminate the Management Agreement without payment of the termination fee with a 30 day prior written notice for cause, which is defined as (i) our Manager's continued material breach of any provision of the Management Agreement following a period of 30 days after written notice thereof, (ii) our Manager's fraud, misappropriation of funds, or embezzlement against us, (iii) our Manager's gross negligence in the performance of its duties under the Management Agreement, (iv) the commencement of any proceeding relating to our Manager's bankruptcy or insolvency, (v) the dissolution of our Manager, or (vi) a change of control of our Manager. "Cause" does not include unsatisfactory performance, even if that performance is materially detrimental to our business. Our Manager may terminate the Management Agreement, without payment of the termination fee, in the event we become regulated as an investment company under the Investment Company Act. Furthermore, our Manager may decline to renew the Management Agreement by providing us with a 180 day prior written notice. Our Manager may also terminate the Management Agreement upon 60 days prior written notice if we default in the performance of any material term of the Management Agreement and the default continues for a period of 30 days after written notice to us, whereupon we would be required to pay our Manager the termination fee described above.

We do not employ personnel and therefore rely on the resources and personnel of our Manager to conduct our operations. For performing these services under the Management Agreement, our Manager receives a base management fee and incentive compensation based on our performance. Our Manager also receives reimbursements for certain expenses.

We pay our Manager a base management fee quarterly in arrears in an amount equal to ¹/4 of our equity, as defined in the Management Agreement, multiplied by 1.75%. We believe that the base management fee that our Manager is entitled to receive is generally comparable to the base management fee received by the managers of comparable externally managed specialty finance companies. Our Manager uses the proceeds from its management fee in part to pay compensation to its officers and employees who, notwithstanding that certain of them also are officers of us, receive no compensation directly from us.

For purposes of calculating the base management fee, our equity means, for any quarter, the sum of (i) the net proceeds from any issuance of our common shares, after deducting any underwriting discount and commissions and other expenses and costs relating to the issuance, (ii) the net proceeds of any issuances of preferred shares or trust preferred stock (iii) the net proceeds of any issuances of convertible debt or other securities determined to be "equity" by our board of directors, provided that such issuances are approved by our board of directors, and (iv) our retained earnings at the end of such quarter (without taking into account any non-cash equity compensation expense incurred in current or prior periods), which amount shall be reduced by any amount that we pay for the repurchases of our common shares. The foregoing calculation of the base management fee is adjusted to exclude special one-time events pursuant to changes in accounting principles generally accepted in the United States of America ("GAAP"), as well as non-cash charges, after discussion between our Manager and our independent directors and approval by a majority of our independent directors in the case of non-cash charges.

Our Manager is required to calculate the base management fee within forty-five calendar days after the end of each quarter and deliver that calculation to us promptly. We are obligated to pay the base management fee within forty-five calendar days after the end of each quarter. We may elect to have our Manager allocate the base management fee among us and our subsidiaries, in which case the fee would be paid directly by each entity that received an allocation.

During the year ended December 31, 2014, certain related party fees received by affiliates of our Manager were credited to us via an offset to the base management fee ("Fee Credits"). Specifically, as described in further detail under "The Collateral Management Agreements" below, a portion of the CLO management fees received by an affiliate of our Manager for certain of our CLOs were credited to us via an offset to the base management fee. For some of these CLOs, we hold less than 100% of the subordinated notes, with the remainder held by third parties. As a result, the amount of Fee Credits for each applicable CLO was calculated by taking the product of (x) the total CLO management fees received by an affiliate of our Manager during the period for such CLO multiplied by (y) the percentage of the subordinated notes of such CLO held by us. The remaining portion of the CLO management fees paid by each of these CLOs was not credited to us, but instead resulted in a dollar-for-dollar reduction in the interest expense paid by us to the third party holder of the CLO's subordinated notes.

In addition, during 2014, we invested in a transaction that generated placement fees paid to a minority-owned affiliate of KKR. In connection with this transaction, our Manager agreed to reduce the base management fee payable to our Manager for the portion of these placement fees that were earned by KKR as a result of this minority-ownership. For the eight months ended December 31, 2014 and four months ended April 30, 2014, $15.1 million and $5.3 million, respectively, of net base management fees were earned by our Manager.

Our Manager waived base management fees related to the $230.4 million common share offering and $270.0 million common share rights offering that occurred during the third quarter of 2007 until such time as our common share closing price on the NYSE reached $20.00 or more for five consecutive trading days. Accordingly, our Manager permanently waived approximately $2.9 million of base management fees during the four months ended April 30, 2014.

Because our Manager's employees perform certain legal, accounting, due diligence tasks and other services that outside professionals or outside consultants otherwise would perform, our Manager is paid or reimbursed for the documented cost of performing such tasks, provided that such costs and reimbursements are no greater than those which would be paid to outside professionals or consultants on an arm's-length basis.

We also pay all operating expenses, except those specifically required to be borne by our Manager under the Management Agreement. The expenses required to be paid by us include, but are not limited to, rent, issuance and transaction costs incident to the acquisition, disposition and financing of our investments, legal, tax, accounting, consulting and auditing fees and expenses, the compensation and expenses of our directors, the cost of directors' and officers' liability insurance, the costs associated with the establishment and maintenance of any credit facilities and other indebtedness of ours (including commitment fees, accounting fees, legal fees and closing costs), expenses associated with other securities offerings of ours, expenses relating to making distributions to our shareholders, the costs of printing and mailing proxies and reports to our shareholders, costs associated with any computer software or hardware, electronic equipment, or purchased information technology services from third party vendors, costs incurred by employees of our Manager for travel on our behalf, the costs and expenses incurred with respect to market information systems and publications, research publications and materials, and settlement, clearing, and custodial fees and expenses, expenses of our transfer agent,

the costs of maintaining compliance with all federal, state and local rules and regulations or any other regulatory agency, all taxes and license fees and all insurance costs incurred by us or on our behalf. In addition, we will be required to pay our pro rata portion of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of our Manager and its affiliates required for our operations. Except as noted above, our Manager is responsible for all costs incident to the performance of its duties under the Management Agreement, including compensation of our Manager's employees and other related expenses, except that we may elect to have our Manager allocate expenses among us and our subsidiaries, in which case expenses would be paid directly by each entity that received an allocation. For the eight months ended December 31, 2014 and four months ended April 30, 2014, we incurred reimbursable expenses to our Manager of $3.0 million and $2.8 million, respectively.

In addition to the base management fee, our Manager receives quarterly incentive compensation in an amount equal to the product of: (i) 25% of the dollar amount by which: (a) our Net Income, before incentive compensation, per weighted average share of our common shares for such quarter, exceeds (b) an amount equal to (A) the weighted average of the price per share of the common stock of KKR Financial Corp. in its August 2004 private placement and the prices per share of the common stock of KKR Financial Corp. in its initial public offering and any subsequent offerings by KKR Financial Holdings LLC multiplied by (B) the greater of (1) 2.00% and (2) 0.50% plus one-fourth of the Ten Year Treasury Rate for such quarter, multiplied by (ii) the weighted average number of our common shares. The foregoing calculation of incentive compensation will be adjusted to exclude special one-time events pursuant to changes in GAAP, as well as non-cash charges, after discussion between our Manager and our independent directors and approval by a majority of our independent directors in the case of non-cash charges. In addition, any shares that by their terms are entitled to a specified periodic distribution, including our Series A LLC Preferred Shares, will not be treated as shares, nor included as shares offered or outstanding, for the purpose of calculating incentive compensation, and instead the aggregate distribution amount that accrues to these shares during the fiscal quarter of such calculation will be subtracted from our Net Income, before incentive compensation for purposes of clause (i)(A). The incentive compensation calculation and payment shall be made quarterly in arrears. For purposes of the foregoing: "Net Income" will be determined by calculating the net income available to shareholders before non-cash equity compensation expense, in accordance with GAAP; and "Ten Year Treasury Rate" means the average of weekly average yield to maturity for United States Treasury securities (adjusted to a constant maturity of ten years) as published weekly by the Federal Reserve Board in publication H.15 or any successor publication during a fiscal quarter.

Our ability to achieve returns in excess of the thresholds noted above in order for our Manager to earn the incentive compensation described in the preceding paragraph is dependent upon various factors, many of which are not within our control.

Our Manager is required to compute the quarterly incentive compensation within forty-five calendar days after the end of each fiscal quarter, and we are required to pay the quarterly incentive compensation with respect to each fiscal quarter within five business days following the delivery to us of our Manager's written statement setting forth the computation of the incentive fee for such quarter. We may elect to have our Manager allocate the incentive fee among us and our subsidiaries, in which case the fee would be paid directly by each entity that received an allocation.

For the eight months ended December 31, 2014 and four months ended April 30, 2014, the Manager earned incentive fees totaling zero and $12.9 million, respectively.

An affiliate of our Manager entered into separate management agreements with the respective investment vehicles for all of our Cash Flow CLOs pursuant to which it is entitled to receive fees for the services it performs as collateral manager for all of these CLOs, except for CLO 2011-1. The collateral manager has the option to waive the fees it earns for providing management services for the CLO.

We recorded management fees expense for CLO 2005-1, CLO 2007-1, CLO 2007-A, CLO 2012-1, CLO 2013-1 and CLO 2013-2 during the year ended December 31, 2014.

Beginning in June 2013, our Manager credited us for a portion of the CLO management fees received by an affiliate of our Manager from CLO 2007-1, CLO 2007-A and CLO 2012-1 via an offset to the base management fees payable to our Manager. As we own less than 100% of the subordinated notes of these three CLOs (with the remaining subordinated notes held by third parties), we received a Fee Credit equal only to our pro rata share of the aggregate CLO management fees paid by these CLOs. Specifically, the amount of the reimbursement for each of these CLOs was calculated by taking the product of (x) the total CLO management fees received by an affiliate of our Manager during the period for such CLO multiplied by (y) the percentage of the subordinated notes of such CLO held by us. The remaining portion of the CLO management fees paid by each of these CLOs was not credited to us, but instead resulted in a dollar-for-dollar reduction in the interest expense paid by us to the third party holder of the CLO's subordinated notes. Similarly, the Manager credited us the CLO management fees from CLO 2013-1 and CLO 2013-2 based on our 100% ownership of the subordinated notes in the CLO.

During the eight months ended December 31, 2014 and four months ended April 30, 2014, we recorded aggregate collateral management fees expense totaling $18.6 million and $11.0 million, respectively, of which we received Fee Credits totaling $10.0 million and $8.1 million, respectively to offset the quarterly base management fees payable to our Manager.

Our net income depends, in large part, on our ability to acquire assets at favorable spreads over our borrowing costs. A number of entities compete with us to make the types of investments that we make. We compete at varying levels with financial companies, oil and natural gas companies, public and private funds, commercial and investment banks and commercial finance companies. Some of the competitors are large and may have greater financial and technical resources and greater access to deal flow than are available to us. In addition, some competitors may have a lower cost of funds than us and access to financing sources that are not available to us. Finally, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us.

We cannot assure that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time, and we do not

offer any assurance that we will be able to identify and make investments that are consistent with our investment objectives.

We do not have any employees. We are managed by KKR Financial Advisors LLC, pursuant to the Management Agreement. Our Manager is a wholly-owned subsidiary of KKR Credit Advisors (US) LLC and all of our executive officers are employees of KKR or one or more of its affiliates.

We intend to continue to operate so that we qualify, for United States federal income tax purposes, as a partnership and not as an association or publicly traded partnership taxable as a corporation. Therefore, we generally are not subject to United States federal income tax at the entity level, but are subject to limited state and foreign taxes. Holders of our Series A LLC Preferred Shares will be allocated a share of our gross ordinary income for our taxable year ending within or with their taxable year. Holders of our Series A LLC Preferred Shares will not be allocated any gains or losses from the sale of our assets.

We hold equity interests in certain REIT subsidiaries under the Code. A REIT is not subject to United States federal income tax to the extent that it currently distributes its income and satisfies certain asset, income and ownership tests, and recordkeeping requirements, but it may be subject to some amount of federal, state, local and foreign taxes based on its taxable income.

We have wholly-owned domestic and foreign subsidiaries that are taxable as corporations for United States federal income tax purposes and thus are not consolidated by us for United States federal income tax purposes. For financial reporting purposes, current and deferred taxes are provided for on the portion of earnings recognized by us with respect to our interest in the domestic taxable corporate subsidiaries, because each is taxed as a regular corporation under the Code. Deferred income tax assets and liabilities are computed based on temporary differences between the GAAP consolidated financial statements and the United States federal income tax basis of assets and liabilities as of each consolidated balance sheet date. The foreign corporate subsidiaries were formed to make certain foreign and domestic investments from time to time. The foreign corporate subsidiaries are organized as exempted companies incorporated with limited liability under the laws of the Cayman Islands, and are anticipated to be exempt from United States federal and state income tax at the corporate entity level because they restrict their activities in the United States to trading in stock and securities for their own account. They generally will not be subject to corporate income tax in our financial statements on their earnings, and no provision for income taxes for the eight months ended December 31, 2014 and four months ended April 30, 2014 was recorded; however, we will be required to include their current taxable income in our calculation of our gross ordinary income allocable to holders of our Series A LLC Preferred Shares.

CLO 2005-1, CLO 2005-2, CLO 2006-1, CLO 2007-1, CLO 2007-A, CLO 2009-1 and CLO 2011-1 are our foreign subsidiaries that elected to be treated as disregarded entities or partnerships for United States federal income tax purposes. These subsidiaries were established to facilitate securitization transactions, structured as secured financing transactions.

We own equity interests in entities that have elected or intend to elect to be taxed as REITs. The Code requires, among other things, that at the end of each calendar quarter at least 75% of a REIT's total assets must be "real estate assets" as defined in the Code. The Code also requires that each year at least 75% of a REIT's gross income come from real estate sources and at least 95% of a REIT's gross income come from real estate sources and certain other passive sources itemized in the Code,

such as dividends and interest. As of December 31, 2014, we believe our REITs were in compliance with all requirements necessary to be taxed as a REIT. However, the sections of the Code and the corresponding United States Treasury Regulations that relate to qualification and taxation as a REIT are highly technical and complex, and qualification and taxation as a REIT depends upon the ability to meet various qualification tests imposed under the Code (such as those described above), including through actual annual operating results, asset composition, distribution levels and diversity of share ownership. Accordingly, no assurance can be given that any REIT in which we own an equity interest will be deemed to have been organized and to have operated, or to continue to be organized and operated, in a manner so as to qualify or remain qualified as a REIT.

Due to limitations on the concentration of ownership of a REIT imposed by the Code, our amended and restated operating agreement, among other limitations, generally prohibits any shareholder from beneficially or constructively owning more than 9.8% in value or in number of shares, whichever is more restrictive, of our Series A LLC Preferred Shares. Our board of directors has discretion to grant exemptions from the ownership limit, subject to terms and conditions as it deems appropriate.

We have made investments in the oil and natural gas industry. The operations underlying these investments are substantially affected by federal, state and local laws and regulations. In particular, oil and natural gas production and related operations are, or have been, subject to price controls, taxes and numerous other laws and regulations, including those relating to the transportation of oil and natural gas. All of the jurisdictions in which we own properties for oil and natural gas production have statutory provisions regulating the exploration for and production of oil and natural gas, including provisions related to permits for the drilling of wells, bonding requirements to drill or operate wells, the location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon which wells are drilled, sourcing and disposal of water used in the drilling and completion process and the abandonment of wells. The operations underlying our investments are also subject to various conservation laws and regulations. These include regulation of the size of drilling and spacing units or proration units, the number of wells which may be drilled in an area, and the unitization or pooling of oil and natural gas wells, as well as regulations that generally prohibit the venting or flaring of natural gas and impose certain requirements regarding the ratability or fair apportionment of production from fields and individual wells.

The exploration, development and production operations underlying our investments in oil and gas are also subject to stringent federal, regional, state and local laws and regulations governing occupational health and safety, the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations may, among other things, require the acquisition of permits to conduct exploration, drilling and production operations; govern the amounts and types of substances that may be released into the environment; limit or prohibit construction or drilling activities in sensitive areas such as wetlands, wilderness areas or areas inhabited by endangered species; require investigatory and remedial actions to mitigate pollution conditions; impose obligations to reclaim and abandon well sites and pits; and impose specific criteria addressing worker protection. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations and the issuance of orders enjoining some or all of our operations in affected areas. These laws and regulations may also restrict the rate of oil and natural gas production below the rate that would otherwise be possible. The regulatory burden on the oil and gas industry increases the cost of doing business in the industry and consequently affects profitability.

The trend in environmental regulation is to place more restrictions and limitations on activities that may affect the environment, and thus, any changes in federal or state environmental laws and regulations or re-interpretation of applicable enforcement policies that result in more stringent and costly well construction, drilling, water management or completion activities, or waste handling, storage, transport, disposal or remediation requirements could have a material adverse effect on our financial position. The operators of the oil and gas properties in which we invest may be unable to pass on such increased compliance costs to their customers. Moreover, accidental releases or spills may occur in the course of those operations, and we cannot assure you that we will not incur significant costs and liabilities as a result of such releases or spills, including any third party claims for damage to property, natural resources or persons. Failure to comply with applicable laws and regulations can result in substantial penalties.

Although we believe that the operations underlying our oil and gas investments are in substantial compliance with all applicable laws and regulations, and that continued substantial compliance with existing requirements will not have a material adverse effect on the value of our natural resources investments, our ability to use these investments as collateral, or our results of operations, such laws and regulations are frequently amended or reinterpreted. Additionally, currently unforeseen environmental incidents may occur or past non-compliance with environmental laws or regulations may be discovered. Therefore, we are unable to predict the future costs or impact of compliance. Additional proposals and proceedings that affect the oil and natural gas industry are regularly considered by Congress, the states, the Federal Energy Regulatory Commission and the courts. We cannot predict when or whether any such proposals may become effective.

Under the Iran Threat Reduction and Syrian Human Rights Act of 2012, which added Section 13(r) of the Exchange Act, we are required to include certain disclosures in our periodic reports if we or any of our "affiliates" knowingly engaged in certain specified activities during the period covered by the report. We are not presently aware that we and our consolidated subsidiaries have knowingly engaged in any transaction or dealing reportable under Section 13(r) of the Exchange Act during the year ended December 31, 2014.

Our investors should carefully consider the risks described below and the information contained in this Annual Report on Form 10-K and other filings that we make from time to time, including our consolidated financial statements and accompanying notes. Any of the following risks could materially adversely affect our business, financial condition or results of operations. The risks described below are not the only risks we face. We have only described the risks we consider to be material. However, we may face additional risks that are viewed by us as not material or are not presently known to us.

Our business and the businesses in which we invest are materially affected by conditions in the global financial markets and economic conditions generally.

Our business and the businesses of the companies in which we invest are materially affected by conditions in the global financial markets and economic conditions generally, such as interest rates, availability and cost of capital, inflation rates, economic uncertainty, default rates, commodity prices, currency exchange rates, changes in laws (including laws relating to taxation), downgrades in the credit ratings of the United States or other developed nations and other national and international political circumstances. While the adverse effects of the unprecedented turmoil in the global credit and securities markets in late 2007 through early 2009 have abated, ongoing developments in the United

States and global financial markets following that period, market volatility, slow economic growth and regulatory developments continue to illustrate that the current environment is still one of uncertainty.

These economic conditions resulted in, and may in future again result in, significant declines in the values of nearly all asset classes, a serious lack of liquidity in the credit markets, increases in margin calls for investors, requirements that derivatives counterparties post additional collateral, redemptions by mutual and hedge fund investors and outflows of client funds across the financial services industry. Although the global financial markets continued to recover in 2014, there can be no assurance that these markets will continue to improve and an elevated unemployment rate in the United States, slow recovery in many real estate markets, recessions in a number of European nations and slowing growth in developing countries all highlight the fact that economic conditions are still unstable and unpredictable. Also it is believed that the Federal Reserve may raise interest rates in the coming year, thus raising the cost of financing and possibly slowing economic growth in the United States. If the overall business environment worsens, our results of operations may be adversely affected.

In addition, low interest rates related to monetary stimulus and economic stagnation may negatively impact expected returns on all types of investments as the demand for relatively higher return assets increases and the supply decreases. Certain of our investments focused on the development of oil and natural gas properties have suffered and may continue to suffer from a decline in commodity prices.

Dislocations in the corporate credit sector could adversely affect us and one or more of our lenders, which could result in increases in our borrowing costs, reductions in our liquidity and reductions in the value of the investments in our portfolio.

Dislocations in the corporate credit sector, such as those experienced beginning in the third quarter of 2007 through the beginning of 2011, could adversely affect one or more of the counterparties providing funding for our investments and could cause those counterparties to be unwilling or unable to provide us with additional financing which may adversely affect our liquidity and financial condition. This could potentially limit our ability to finance our investments and operations, increase our financing costs and reduce our liquidity. If one or more major market participants were to fail or withdraw from the market, it could negatively impact the marketability of all fixed income securities and this could reduce the value of the securities in our portfolio. Furthermore, if one or more of our counterparties were unwilling or unable to provide us with ongoing financing, we could be forced to sell our investments at a time when prices are depressed.

Liquidity is essential to our businesses and we rely on external sources to finance a significant portion of our operations. If we are unable to raise funding from these external sources, we may be forced to liquidate certain of our assets and our results of operations may be adversely affected.

Liquidity is essential to our business. Our liquidity could be substantially adversely affected by an inability to access the secured lending markets or an inability to raise funding in the long-term or short-term debt capital markets. Factors that we cannot control, such as disruptions in the financial markets, increases in borrowing rates, the ongoing economic difficulties in Europe, the failure of the United States to reduce its deficit in amounts deemed to be sufficient, possible downgrades in the credit ratings of United States debt, changes to tax laws, contractions or limited growth in the economy or negative views about corporate credit investing and the specialty finance industry generally, could impair our ability to raise funding. In addition, our ability to raise funding could be impaired if lenders develop a negative perception of our long-term or short-term financial prospects. Such negative perceptions could develop if we incur large trading losses, or we suffer a decline in the level of our business activity, among other reasons. If we are unable to raise funding using the methods described above, we would likely need to liquidate unencumbered assets, such as our investment portfolio, to meet maturing liabilities. We may be unable to sell some of our assets, or we may have to sell assets at

a discount from market value, either of which could adversely affect our results of operations and may have a negative impact on our securities and any additional securities we may issue.

We seek to generate current income. The assets in which we invest may not appreciate in value, however, and, in fact, may decline in value, and the debt securities in which we invest may default on interest and/or principal payments. Accordingly, we may not be able to realize gains or income from our investments. Additionally, any gains that we do realize may not be sufficient to offset any other losses we experience or offset our expenses.

We leverage a portion of our portfolio investments, which may adversely affect our return on our investments and may reduce cash available for distribution.

We leverage a portion of our portfolio investments through borrowings, generally through the use of securitizations, including the issuance of CLOs, and other secured and unsecured borrowings. The percentage of leverage varies depending on lenders' and rating agencies' estimate of the stability of the portfolio investments' cash flow. Our ability to generate returns on our investments would be reduced to the extent that changes in market conditions cause the cost of our financing to increase relative to the income that can be derived from the assets acquired and financed.

We may change our investment strategies without shareholder consent, which may result in our making investments that entail more risk than our current investments.

Our investment strategy may evolve, in light of existing market conditions and investment opportunities, and this evolution may involve additional risks. Investment opportunities that present unattractive risk-return profiles relative to other available investment opportunities under particular market conditions may become relatively attractive under changed market conditions and changes in market conditions may therefore result in changes in the investments we target. We may not be successful in executing or managing the complexities of new investment strategies. Decisions to make investments in new asset categories present risks that may be difficult for us to adequately assess and could therefore have adverse effects on our financial condition. Changes in investment strategies may involve a number of risks, including that the expected results will not be achieved and that new strategies may draw capital or management attention from existing investments or otherwise conflict with or detract from the value of existing investments. A change in our investment strategy may also increase our exposure to interest rate, commodity, foreign currency, or credit market fluctuations as well as industry-specific risks. Our failure to accurately assess the risks inherent in new asset categories or the financing risks associated with such assets could adversely affect our results of operations and our financial condition.

We make non-United States dollar denominated investments, which subject us to currency rate exposure and the uncertainty of foreign laws and markets.

From time to time, we make investments that are denominated in foreign currencies. For example, as of December 31, 2014, $289.6 million estimated fair value, or 4.1%, of our corporate debt portfolio was denominated in foreign currencies, of which 86.7% was denominated in Euros. In addition, as of December 31, 2014, $117.1 million estimated fair value, or 14.6%, of our interests in joint ventures and partnerships, equity investments and other investments were denominated in foreign currencies, of which 41.9% was denominated in Euros, 33.7% was denominated in the British pound sterling and 13.7% was denominated in Canadian dollars. A change in foreign currency exchange rates, in particular that of the Euro relative to the United States dollar, may have an adverse impact on returns on any of these non-dollar denominated investments. For example, our returns on these investments may be adversely affected by events in Eurozone countries that could cause the euro to fall versus the dollar

such as defaults on sovereign debt, rating downgrades, continued economic contraction, the need for further financial relief of impacted countries, successions from the Eurozone or the perception that any such event may occur. See "Quantitative and Qualitative Disclosures About Market Risk—Foreign Currency Risks" in Item 7A of this Annual Report for further information about our currency rate exposure.

Although we may choose to hedge our foreign currency risk, we may not be able to do so successfully and may incur losses on these investments as a result of exchange rate fluctuations. Investments in foreign countries also subject us to certain additional risks, including risks relating to the potential imposition of non-United States taxes, compliance with multiple and potentially conflicting regulatory schemes and political and economic instability abroad, any of which could adversely affect our returns on these investments.

The majority of our assets consist of high-yield, below investment grade or unrated debt, which generally has a greater risk of loss than investment grade rated debt and, if those losses are realized, it could adversely affect our results of operations, our ability to service our indebtedness and our cash available for distribution to holders of our shares.

Our assets include below investment grade or unrated debt, including corporate loans and bonds, each of which generally involves a higher degree of risk than investment grade rated debt. Issuers of high yield or unrated debt may be highly leveraged, and their relatively high debt-to-equity ratios create increased risks that their operations might not generate sufficient cash flow to service their debt obligations. As a result, high yield or unrated debt is often less liquid than investment grade rated debt.

In addition to the above, numerous other factors may affect a company's ability to repay its debt, including the failure to meet its business plan, a downturn in its industry or negative economic conditions. Deterioration in a company's financial condition and prospects may be accompanied by deterioration in the collateral for the high yield debt. Losses on our high yield debt holdings could adversely affect our results of operations, which could adversely affect our ability to service our indebtedness and cash available for distribution to holders of our shares.

Our investment portfolio is and may continue to be concentrated in a limited number of companies and industries, which will subject us to a risk of significant loss if any of these companies defaults on its obligations to us or if there is a downturn in a particular industry.

Our investment portfolio is and may continue to be concentrated in a limited number of companies and industries. This lack of diversification may subject our investment portfolio to more rapid changes in value than would be the case if our assets were more widely diversified. For example, as of December 31, 2014, the twenty largest issuers which we have invested in represented approximately 36% of our total debt investment portfolio on an estimated fair value basis. As a result, our results of operations and financial condition may be adversely affected if a small number of borrowers default in their obligations to us or if we need to write down the value of any one investment. Moreover, securities are recorded at estimated fair value and our net income may be adversely affected if these fair value determinations are materially higher than the values that we ultimately realize upon disposal of such securities. Additionally, a downturn in any particular industry in which we are invested could also negatively impact our results of operations and our ability to pay distributions. For example, as of December 31, 2014, we had approximately 20% of our total debt investment portfolio on an estimated fair value basis in two industries—Healthcare, Education and Childcare and Diversified/Conglomerate Services.

If we are unable to continue to utilize CLOs or other similar financing vehicles successfully, we may be unable to grow or fully execute our business strategy and our results of operations may be adversely affected.

We have historically financed a substantial portion of our investments through, and derived a substantial portion of our revenue from, our CLO subsidiaries. These CLOs have served as long-term, non-recourse financing for debt investments and as a way to minimize refinancing risk, minimize maturity risk and secure a fixed cost of funds over an underlying market interest rate. An inability to continue to utilize CLOs or other similar financing vehicles successfully could limit our ability to fund future investments, grow our business or fully execute our business strategy and our results of operations may be adversely affected.

A number of our CLOs are outside of reinvestment periods, which may adversely affect our returns on investment and ability to maintain compliance with certain overcollateralization and interest coverage tests.

Our CLOs generally have periods during which, subject to certain restrictions, their managers can sell or buy assets at their discretion and can reinvest principal proceeds into new assets, commonly referred to as a "reinvestment period". Outside of a reinvestment period, the principal proceeds from the assets held in the CLO must generally be used to pay down the related CLO's debt, which causes the leverage on the CLO to decrease. Such leverage decreases may cause our return on investment to decline. In addition, in the past the ability to reinvest has been important in maintaining compliance with the overcollateralization and interest coverage tests for certain of our CLOs. Outside of a reinvestment period, our ability to maintain compliance with such tests for that CLO may be negatively impacted. Of our Cash Flow CLOs, CLO 2012-1, CLO 2013-1, CLO 2013-2, CLO 9 and CLO 10 are still in their reinvestment periods, which will end in December 2016, July 2017, January 2018, October 2018, and December 2018, respectively. In addition, CLO 2011-1 has no reinvestment period and is an amortizing static pool CLO transaction.

Downturns in the global credit markets may affect the collateral in our CLO investments, which may adversely affect our cash flows from CLO investments.

Among the sectors particularly challenged by adverse economic conditions, including those experienced during the credit crisis, are the CLO and leveraged finance markets. We have significant exposure to these markets through our investments held in our Cash Flow CLOs, each of which is a Cayman Islands incorporated special purpose company that issued to us and other investors notes secured by a pool of collateral consisting primarily of corporate leveraged loans. In most cases, our Cash Flow CLO investments are in deeply subordinated securities issued by the CLO issuers, representing highly leveraged investments in the underlying collateral, which increases both the opportunity for higher returns as well as the magnitude of losses when compared to other investors in these CLO structures that rank more senior to us in right of payment. As a result of our subordinated position in these CLO structures, we and our investors are at greater risk of suffering losses on our cash flow CLO investments during periods of adverse economic conditions.

During an economic downturn, the CLOs in which we invest may experience increases in downgrades, depreciations in market value and defaults in respect of their collateral. The CLOs' portfolio profile tests set limits on the amount of discounted obligations a CLO can hold. During any time that a CLO issuer exceeds such a limit, the ability of the CLO's manager to sell assets and reinvest available principal proceeds into substitute assets is restricted. In addition, discounted assets and assets rated "CCC" or lower in excess of applicable limits in the CLO issuers' investment criteria are not given full par credit for purposes of calculation of the CLO issuers' over-collateralization tests. As a result, these CLOs may fail one or more of their over-collateralization tests, which would cause diversions of cash flows away from us as holders of the more junior CLO securities in favor of investors more senior than us in right of repayment, until the relevant over-collateralization tests are satisfied. This diversion of cash flows may have a material adverse impact on our business. In addition, it is

possible that our Cash Flow CLOs' collateral could be depleted before we realize a return on our cash flow CLO investments.

At various times during the credit crisis, a number of our CLOs were out of compliance with the compliance tests outlined in their respective indentures. Although all of our CLOs were in compliance as of December 31, 2014, there can be no assurance that all of our CLOs will remain in compliance with their respective compliance tests during 2015 and that we will not, as a result, be required to pay cash flows to the senior note holders of the CLOs that were out of compliance that we would otherwise have expected to receive from our CLOs.

The ability of the CLOs to make interest payments to the holders of the senior notes of those structures is highly dependent upon the performance of the CLO collateral. If the collateral in those structures were to experience a significant decrease in cash flow due to an increased default level, the issuer may be unable to pay interest to the holders of the senior notes, which would allow such holders to declare an event of default under the indenture governing the transaction and accelerate all principal and interest outstanding on the senior notes. In addition, our CLO structures also contain certain events of default tied to the value of the CLO collateral, which events of default could also cause an acceleration of the senior notes. If the value of the CLO collateral within a CLO were to be less than the amount of senior notes issued and outstanding, the senior note holders would have the ability to declare an event of default.

There can be no assurance that market conditions giving rise to these types of consequences will not occur, subsist or become more acute in the future. Because our CLO structures involve complex collateral and other arrangements, the documentation for such structures is complex, is subject to differing interpretations and involves legal risk.

The derivatives that we use to hedge against interest rate, foreign currency and commodity exposure are volatile and may adversely affect our results of operations, which could adversely affect our ability to make payments due on our indebtedness.

From time to time, we enter into various derivative transactions as part of our strategy to manage or "hedge" our risk related to interest rates, holdings denominated in foreign currencies and energy prices in connection with our natural resources investments. Generally, derivatives are financial contracts whose values depend on, or are derived from, the value of an underlying asset, reference rate or index, and may relate to individual debt or equity instruments, interest rates, currencies or currency exchange rates, commodities, related indexes and other assets. We enter into swaps, including interest rate and credit default swaps, in addition to options, forwards and futures, to pursue our hedging and risk management strategy. However, in the future, we may enter into additional derivative instruments as part of these or other hedging and risk management strategies. Our hedging activity varies in scope based on the level of interest rates, the type of portfolio investments held, market prices for natural resources, and other changing market conditions. These hedging instruments may fail to protect us from interest rate, foreign currency or commodity price volatility or could adversely affect us because, among other things:

The cost of using hedging instruments increases as the period covered by the instrument increases and, with respect to interest rate hedges, during periods of rising and volatile interest rates, with respect to foreign currency hedges, during periods of volatile foreign currencies or, with respect to commodity hedges, during periods of falling and volatile commodity prices. We may increase our hedging activity and thus increase our hedging costs during such periods when hedging costs have increased.

Derivatives are also subject to risks arising from management's decision to enter or not to enter into such derivative transactions and/or the execution of management's risk management and hedging strategies. For instance, there can be no assurance that we will enter into derivative transactions to reduce exposure to other risks when it would be beneficial to do so. Furthermore, the skills needed to employ derivatives strategies are different from those needed to purchase or sell securities and, in connection with such strategies, we must make predictions with respect to market conditions, liquidity, currency movements, market values, interest rates and other applicable factors, which may be inaccurate. Thus, the use of derivative investments may require us to purchase or sell securities at inopportune times or for prices below or above the current market values, may limit the amount of appreciation we can realize on an investment or may cause us to hold a security that we might otherwise want to sell. We may also have to defer closing out certain derivative positions to avoid adverse tax consequences. In addition, there may be situations in which we elect not to use derivative investments that result in losses greater than if they had been used. Amounts paid by us as premiums and cash or other assets held in margin accounts with respect to our derivative investments would not be available to us for other investment purposes, which may result in lost opportunities for gain. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings or liabilities being hedged. Any such imperfect correlation may expose us to risk of loss. Changes to the derivatives markets as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act and other government regulation may also have an adverse effect on our ability to make use of derivative transactions.

As a result of the aforementioned risks, any hedging activity we engage in may adversely affect our results of operations, which could adversely affect our ability to make payments due on our indebtedness and cash available for distribution to holders of our shares. Therefore, while we may enter into such transactions to seek to reduce interest rate, foreign currency and commodity risks related to our natural resources investments, unanticipated changes in interest rates, foreign currency and commodity prices may result in poorer overall investment performance than if we had not engaged in any such hedging transactions.

Entering into derivative contracts could expose us to contingent liabilities in the future.

Entering into derivative contracts in order to pursue our various hedging strategies could require us to fund cash payments in the future under certain circumstances, including an event of default or other early termination event, or the decision by a counterparty to request margin in the form of

securities or other forms of collateral under the terms of the derivative contract. The amounts due with respect to a derivative contract would generally be equal to the unrealized loss of the swap positions with the respective counterparty and could also include other fees and charges. These payments are contingent liabilities and therefore may not appear on our balance sheet. Our ability to fund these contingent liabilities will depend on the liquidity of our assets and access to capital at the time, and the need to fund these contingent liabilities could adversely impact our financial condition.

The full impact of regulatory changes, including the Dodd-Frank Act, on our business is uncertain.

As a result of market disruption as well as highly publicized financial scandals in past years, regulators and investors have exhibited concerns over the integrity of the United States financial markets, and the business in which we operate both in and outside the United States will be subject to new or additional regulations. We may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC, the Commodity Futures Trading Commission ("CFTC") or other United States governmental regulatory authorities or self-regulatory organizations that supervise the financial markets. We also may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self-regulatory organizations.

On July 21, 2010, the United States enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"). The Dodd-Frank Act affects almost every aspect of the United States financial services industry, including certain aspects of the markets in which we operate. For example, the Dodd-Frank Act imposes additional disclosure requirements for public companies and generally requires issuers or originators of asset-backed securities to retain at least five percent of the credit risk associated with the securitized assets. Among other things, the Dodd-Frank Act also:

Many of the Dodd-Frank Act's provisions are subject to final rulemaking by the United States financial regulatory agencies, and the implications of the Dodd-Frank Act for our business will depend to a large extent on how such rules are adopted and implemented by various United States financial regulatory agencies, such as the FSOC, CFTC and SEC. For example, if the FSOC were to determine that we are a systemically important nonbank financial company, we would be subject to a heightened degree of regulation and supervision. In addition, the CFTC and SEC have proposed or adopted rules to establish a new regulatory framework for swaps and security-based swaps which could limit our

positions or trading in such instruments. Additionally, federal banking and housing agencies finalized rules implementing the Dodd-Frank Act's five percent risk retention requirement for originators of asset-backed securities. Such rules could disrupt the issuance of certain-asset backed securities and reduce our deal flow. We continue to analyze the impact of rules adopted under the Dodd-Frank Act. However, the full impact on our business and the markets in which we operate will not be known until the rules, and other regulatory initiatives that overlap with the rules, are finalized and their combined impacts can be understood.

In addition, in August 2013, the Financial Stability Board, an international body of which the United States is a member, issued set of policy recommendations to strengthen oversight and regulation of the so-called "shadow banking system", broadly described as credit intermediation involving entities and activities outside the regular banking system, such as private equity funds and hedge funds. The policy recommendations outlined initial steps to define the scope of the shadow banking system and proposed general governing principles for a monitoring and regulatory framework, including a "toolkit" of potential regulatory responses that national regulators could employ to reduce systemic risk. While at this stage it is difficult to predict the type and scope of any new regulations that may be adopted by member countries, if such regulations were to extend the regulatory and supervisory requirements currently applicable to banks, such as capital and liquidity standards, to our business, or were to otherwise classify all or a portion of our business as "shadow banking," our regulatory and operating costs, as well as the public scrutiny we face, would increase, which may have a material adverse effect on our business.

Legal, tax and regulatory changes could occur and may adversely affect our ability to pursue our hedging strategies and/or increase the costs of implementing such strategies.

The enforceability of agreements underlying hedging transactions may depend on compliance with applicable statutory and other regulatory requirements and, depending on the identity of the counterparty, applicable international requirements. New or amended regulations may be imposed by the CFTC, the SEC, the U.S. Federal Reserve or other financial regulators, other governmental regulatory authorities or self-regulatory organizations that supervise the financial markets that could adversely affect us. In particular, these agencies are empowered to promulgate a variety of new rules pursuant to recently enacted financial reform legislation in the United States. We also may be adversely affected by changes in the enforcement or interpretation of existing statutes and rules by these governmental regulatory authorities or self-regulatory organizations.

In addition, the financial markets are subject to comprehensive statutes, regulations and margin requirements. For example, the Dodd-Frank Act is designed to impose stringent regulation on the over-the-counter derivatives market in an attempt to increase transparency and accountability and provides for, among other things, new clearing, execution, margin, reporting, recordkeeping, business conduct, disclosure, position limit, minimum net capital and registration requirements. Although the CFTC has released final rules relating to clearing, execution, reporting, risk management, compliance, position limit, anti-fraud, consumer protection, portfolio reconciliation, documentation, recordkeeping, business conduct and registration requirements under the Dodd-Frank Act, many of the provisions are subject to further final rulemaking, and thus the Dodd-Frank Act's ultimate impact remains unclear. New regulations could, among other things, restrict our ability to engage in derivatives transactions (for example, by making certain types of derivatives transactions no longer available to us), increase the costs of using these instruments (for example, by increasing margin, capital or reporting requirements) and/or make them less effective and, as a result, we may be unable to execute our investment strategy. Limits or restrictions applicable to the counterparties with which we engage in derivative transactions could also prevent us from using these instruments, affect the pricing or other factors relating to these instruments or may change the availability of certain investments. It is unclear how the regulatory changes will affect counterparty risk.

Furthermore, for entities designated by the CFTC or the SEC as "swap dealers", "security-based swaps dealers", "major swap participants" or "major security-based swap participants", the Dodd-Frank Act imposes new regulatory, reporting and compliance requirements. On May 23, 2012, a joint final rulemaking by the CFTC and the SEC defining these key terms was published in the Federal Register. Based on those definitions, we do not believe that we would be a swap dealer, security-based swap dealer, major swap participant or major security-based swap participant at this time. If we are later designated as a swap dealer, security-based swap dealer, major swap participant or major security-based swap participant, our business will be subject to increased regulation, including registration requirements, additional recordkeeping and reporting obligations, external and internal business conduct standards, position limits monitoring and capital and margin thresholds.

We may make investments or obtain credit that may require us to post additional collateral in periods of adverse market volatility, which could adversely affect our financial condition and liquidity.

We may make investments or have credit sources in the future that, during periods of adverse market volatility, such as the periods we observed during the global credit crisis, could require us to post additional margin collateral, which may have a material adverse impact on our liquidity. For example, in the past, certain of our financing facilities allowed the counterparties to determine a new market value of the collateral to reflect current market conditions. In such cases, if a counterparty had determined that the value of the collateral had decreased, it could have initiated a margin call and required us to either post additional collateral or repay a portion of the outstanding borrowing, on minimal notice. If we make investments or obtain credit on similar terms in the future, periods of adverse market volatility could result in a significant increase in margin calls and our liquidity, results of operations, financial condition, and business prospects could suffer. In such a case, it is possible that in order to obtain cash to satisfy a margin call, we would be required to liquidate assets or raise capital at a disadvantageous time, which could cause us to incur further losses or otherwise adversely affect our results of operations and financial condition, could impair our ability to pay distributions to our shareholders and could have a negative impact on the market price of our shares and any other securities we may issue. In the event we are required to post additional collateral on investments, our contingent liquidity reserves may not be sufficient at such time in the event of a material adverse change in the credit markets and related market price market volatility.

We are subject to risks in using prime brokers, custodians, administrators and other agents.

We depend on the services of prime brokers, custodians, administrators and other agents to carry out certain of our securities transactions. In the event of the insolvency of a prime broker and/or custodian, we may not be able to recover equivalent assets in full as we will rank among the prime broker's and custodian's unsecured creditors in relation to assets which the prime broker or custodian borrows, lends or otherwise uses. In addition, our cash held with a prime broker or custodian may not be segregated from the prime broker's or custodian's own cash, and we therefore may rank as unsecured creditors in relation thereto. The inability to recover assets from the prime broker or custodian could have a material impact on the performance of our business, financial condition and results of operations.

We may not be able to generate sufficient cash to service or make required repayments of our indebtedness and we may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

As of December 31, 2014, we had approximately $657.3 million par amount of total recourse debt outstanding.

A breach of any of the covenants in certain of our debt agreements could result in a default under our 8.375% senior notes due November 15, 2041 ("8.375% Notes") and 7.500% senior notes due March 20, 2042 ("7.500% Senior Notes"). If a default occurs under any of these obligations and we are not able to obtain a waiver from the requisite debt holders, then, among other things, our debt holders could declare all outstanding principal and interest to be immediately due and payable. If our outstanding indebtedness were to be accelerated, we cannot assure you that our assets would be sufficient to repay in full that debt and any potential future indebtedness, which would cause the market price of our securities to decline significantly. We could also be forced into bankruptcy or liquidation.

There can be no assurances that our operations will generate sufficient cash flows or that new sources of credit will be available to us in an amount sufficient to enable us to pay our indebtedness or to fund other liquidity needs.

Our ability to make scheduled payments or prepayments on our debt and other financial obligations will depend on our future financial and operating performance and the value of our investments. There can be no assurances that our operations will generate sufficient cash flows or that new sources of credit will be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. Our financial and operating performance is subject to prevailing economic and industry conditions and to financial, business and other factors, some of which are beyond our control. Our substantial leverage exposes us to significant risk during periods of economic downturn such as the one we experienced beginning in 2007, as our cash flows may decrease, but our required principal payments in respect of indebtedness do not change and our interest expense obligations could increase due to increases in interest rates.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we will likely face increased pressure to dispose of assets, seek additional capital or restructure or refinance our indebtedness. These actions could have a material adverse effect on our business, financial condition and results of operations. In addition, we cannot assure that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled debt service obligations. For example, we may need to refinance all or a portion of our indebtedness on or before

maturity. There can be no assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. In the absence of improved operating results and access to capital resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations.

If we cannot make scheduled payments or prepayments on our debt, we will be in default and, as a result, among other things, our debt holders could declare all outstanding principal and interest to be due and payable and we could be forced into bankruptcy or liquidation or required to substantially restructure or alter our business operations or debt obligations.

Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

As of December 31, 2014, approximately $128.9 million of our recourse borrowings, consisting of certain of our junior subordinated notes issued in connection with our trust preferred securities, were at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same. We may use interest rate derivatives such as interest rate swap agreements to hedge the variability of the cash flows associated with our existing or forecasted variable rate borrowings. Although we may enter into additional interest rate swaps, involving the exchange of floating for fixed rate interest payments, to reduce interest rate volatility, such hedging may increase our costs of funding. We cannot provide assurances that we will be able to enter into interest rate hedges that effectively mitigate our exposure to interest rate risk.

If credit spreads on our borrowings increase and the credit spreads on our investments do not also increase, we are unlikely to achieve our projected leveraged risk-adjusted returns. Also, if credit spreads on investments increase in the future, our existing investments will likely experience a material reduction in value.

We make investment decisions based upon projected leveraged risk-adjusted returns. When making such projections we make assumptions regarding the long-term cost of financing such investments, particularly the credit spreads associated with our long-term financings. We define credit spread as the risk premium for taking credit risk which is the difference between the risk free rate and the interest rate paid on the applicable investment or loan, as the case may be. If credit spreads on our long-term financings increase and the credit spreads on our investments are not increased accordingly, we will likely not achieve our targeted leveraged risk-adjusted returns and we will likely experience a material adverse reduction in the value of our investments.

Ratings agencies may downgrade our credit ratings, which could make it more difficult for us to raise capital and could increase our financing costs.

We are currently rated by two nationally recognized statistical rating organizations. These rating agencies regularly evaluate us based on a number of factors, including our financial strength and leverage as well as factors not within our control, including conditions affecting our industry generally and the wider state of the economy. A negative change in our ratings outlook or any downgrade in our current investment-grade credit ratings by our rating agencies, particularly below investment grade, could, among other things, adversely affect our access to sources of liquidity and capital, cost of borrowing and may result in more stringent covenants under the terms of any new debt.

Declines in the fair values of our investments may adversely affect our results of operations and credit availability, which may adversely affect, in turn, our ability to make payments due on our indebtedness.

All of our investments, excluding our oil and gas properties, net, are carried at estimated fair value. Changes in the fair values of certain assets will directly affect our results of operations as unrealized gains or losses in each period even if no sale is made.

A decline in the market value of our assets may adversely affect our results of operations, particularly in instances where we have borrowed money based on the market value of those assets. If the market value of those assets declines, the lender may require us to post additional collateral to support the loan. If we were unable to post the additional collateral, we would have to sell the assets at a time when we might not otherwise choose to do so. A reduction in credit available may adversely affect our results of operations and our ability to make payments due on our indebtedness.

Further, financing counterparties may require us to maintain a certain amount of cash or to set aside unlevered assets sufficient to maintain a specified liquidity position intended to allow us to satisfy our collateral obligations. As a result, we may not be able to leverage our assets as fully as we would choose. In the event that we are unable to meet these contractual obligations, our financial condition could deteriorate rapidly because we may be required to sell our investments at distressed prices in order to meet such margin or liquidity requirements.

Market values of our investments may decline for a number of reasons, such as causes related to changes in prevailing market rates, increases in defaults, increases in voluntary prepayments for those investments that we have that are subject to prepayment risk, and widening of credit spreads.

Certain of our investments are illiquid and we may not be able to vary our portfolio in response to changes in economic and other conditions.

Certain of our investments may not be readily convertible to cash due to their illiquidity. For example, we are party to certain private, unregistered debt transactions in which the securities issued to us are not widely held and trade only in secondary, less established markets as well as being a party to certain private equity investments for which there is a limited market. As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be limited relative to our investment in securities that trade in more liquid markets. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our investments. Furthermore, our Manager conducts diligence on our investments and employees of our Manager may serve on the boards of directors of business entities in which we invest. These activities may provide our Manager with material non-public information with respect to business entities in which we invest. As a result, we may face additional restrictions on our ability to liquidate an investment in such business entities to the extent that we or our Manager has, or could be attributed with, material non-public information. See the risk factor entitled "Our access to confidential information may restrict our ability to take action with respect to some investments, which, in turn, may negatively affect our results of operations."

Our portfolio investments are recorded at fair value as determined by our Manager and, as a result, there is uncertainty as to the value of these investments.

Our portfolio investments are, and we believe are likely to continue to be, in the form of corporate loans, securities and partnership interests that have limited liquidity or are not publicly traded. The fair value of investments that have limited liquidity or are not publicly traded may not be readily determinable. We generally value these investments quarterly at fair value as determined by our Manager pursuant to applicable United States GAAP accounting guidance. Because such valuations are inherently uncertain and may fluctuate over short periods of time and be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready

market for these investments existed. The market value of our shares and any other securities we may issue could be adversely affected if our determinations regarding the fair value of these investments are materially higher than the values that we ultimately realize upon their disposal.

Our rights under our indirect investments in corporate leveraged loans may be more restricted than direct investments in such loans.

We hold interests in corporate leveraged loans originated by banks and other financial institutions. We acquire interests in corporate leveraged loans either directly by a direct purchase or an assignment, or indirectly through participation. The purchaser of an assignment typically succeeds to all the rights and obligations of the assigning institution and becomes a lender under the credit agreement with respect to the debt obligation. In contrast, participation interests in a portion of a debt obligation typically result in a contractual relationship only with the institution participating out the interest, not with the borrower. Thus, in purchasing participations, we generally will have no right to enforce compliance by the borrower with the terms of the credit agreement, nor any rights of offset against the borrower, and we may not directly benefit from the collateral supporting the debt obligation in which we have purchased the participation. As a result, we will assume the credit risk of both the borrower and the institution selling the participation.

Credit default swaps are subject to risks related to changes in credit spreads, credit quality and expected recovery rates of the underlying credit instrument.

We may enter into credit default swaps ("CDS") as investments or hedges. CDS involve greater risks than investing in the reference obligation directly. In addition to general market risks, CDS are subject to risks related to changes in interest rates, credit spreads, credit quality and expected recovery rates of the underlying credit instrument. A CDS is a contract in which the protection "buyer" is generally obligated to pay the protection "seller" an upfront or a periodic stream of payments over the term of the contract provided that no credit event, such as a default, on a reference obligation has occurred. These payments are based on the difference between an interest rate applicable to the relevant issuer less a benchmark interest rate for a given maturity. If a credit event occurs, the seller generally must pay the buyer the "par value" (full notional value) of the swap in exchange for an equal face amount of deliverable obligations of the issuer (also known as the reference entity) of the underlying credit instrument referenced in the CDS, or, if the swap is cash settled, the seller may be required to deliver the related net cash amount. The protection buyer will lose its investment and recover nothing should no event of default occur. If an event of default were to occur, the value of the reference obligation received by the protection seller (if any), coupled with the periodic payments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the seller. If we act as the protection seller in respect of a CDS contract, we would be exposed to many of the same risks of leverage described herein since if an event of default occurs the seller must pay the buyer the full notional value of the reference obligation.

If we act as the protection seller in respect of credit default swaps, we will seek to realize gains by writing credit default swaps that increase in value, to realize gains on writing credit default swaps, an active secondary market for such instruments must exist or we must otherwise be able to close out these transactions at advantageous times. If no such secondary market exists or we are otherwise unable to close out these transactions at advantageous times, writing credit default swaps may not be profitable for us. We may exit our obligations under a credit default swap only by terminating the contract and paying applicable breakage fees, or by entering into an offsetting credit default swap position, which may cause us to incur more losses.

The market for credit default swaps has become more volatile in recent years as the creditworthiness of certain counterparties has been questioned and/or downgraded. If a counterparty's

credit becomes significantly impaired, multiple requests for collateral posting in a short period of time could increase the risk that we may not receive adequate collateral.

We will be subject to credit risk with respect to our counterparties to the derivative contracts (whether a clearing corporation in the case of exchange-traded instruments or our hedge counterparty in the case of uncleared over-the-counter instruments) and other instruments entered into directly by us or held by special purpose or structured vehicles in which we invest. Counterparty risk is the risk that the other party in a derivative transaction will not fulfill its contractual obligation. Changes in the credit quality of our counterparties with respect to their derivative transactions may affect the value of those instruments. By entering into derivatives, we assume the risk that these counterparties could experience financial hardships that could call into question their continued ability to perform their obligations. As a result, concentrations of such derivatives in any one counterparty would subject our funds to an additional degree of risk with respect to defaults by such counterparty.

If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties, such bankruptcy or failure to perform is likely to result in a default under such derivative contract, unless such default is cured. Default by a party with whom we enter into a hedging transaction may result in the loss of unrealized profits, leaving us with unsecured exposure and force us to cover our resale commitments, if any, at the then current market price. It may not always be possible to dispose of or close out a hedging position without the consent of the hedging counterparty, and we may not be able to enter into an offsetting contract in order to cover our risk. We cannot assure our shareholders that a liquid secondary market will exist for hedging instruments purchased or sold, and we may be required to maintain a position until exercise or expiration, which could result in losses.

Furthermore, upon the bankruptcy of a counterparty, we may experience significant delays in obtaining any recovery under the derivative contract in a dissolution, assignment for the benefit of creditors, liquidation, winding-up, bankruptcy, or other analogous proceeding. In addition, in the event of the insolvency of a counterparty to a derivative transaction, the derivative transaction would typically be terminated at its fair market value. If we are owed this fair market value in the termination of the derivative transaction and these claims are unsecured, we will be treated as general creditors of such counterparty, and will not have any claim with respect to the underlying security. We may obtain only a limited recovery or may obtain no recovery in such circumstances and the enforceability of agreements for hedging transactions may depend on compliance with applicable statutory and other regulatory requirements and, depending on the identity of the counterparty, applicable international requirements.

Some, but not all, derivatives may be cleared, in which case a central clearing counterparty stands between each buyer and seller and effectively guarantees performance of each derivative contract, to the extent of its available resources for such purpose. As a result, the counterparty risk is now shifted from bilateral risk between the parties to the individual credit risk of the central clearing counterparty. Even in such case, there can be no assurance that a clearing house, or its members, will satisfy the clearing house's obligations to our funds. Uncleared derivatives have no such protection; each party bears the risk that its direct counterparty will default.

Our dependence on the management of other entities may adversely affect our business.

We do not control the management, investment decisions or operations of the business entities in which we invest. Management of those enterprises may decide to change the nature of their assets, or management may otherwise change in a manner that is not satisfactory to us or value enhancing for the investment we have made in such entities. We typically have no ability to affect these management decisions and we may have only limited ability to dispose of our investments.

Due diligence conducted by our Manager may not reveal all of the risks of the businesses in which we invest.

Before making an investment in a business entity, our Manager typically assesses the strength and skills of the entity's management and other factors that it believes will determine the success of the investment. In making the assessment and otherwise conducting due diligence, our Manager relies on the resources available to it and, in some cases, an investigation by third parties. This process is particularly important and subjective with respect to newly organized entities because there may be little or no information publicly available about the entities. Accordingly, there can be no assurance that this due diligence process will uncover all relevant facts or that any investment will be successful. In addition, we and KKR have established certain procedures relating to conflicts of interests that may restrict us from accessing certain confidential information in the possession of KKR or one of its affiliates. As a result, we may pursue investments without obtaining access to such confidential information, which information, if reviewed, might otherwise impact our judgment with respect to such investments.

We compete for investments with various other investors, such as other public and private funds, commercial and investment banks and other companies, including funds and companies affiliated with our Manager. Some of our competitors have greater resources than we possess or have greater access to capital or various types of financing structures than are available to us and may have investment objectives that overlap with ours, which may create competition for investment opportunities with limited supply. The competitive pressures we face could impair our business, financial condition and results of operations. As a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time. Furthermore, competition for investments may lead to a decrease in returns available from such investments, which may further limit our ability to generate our desired returns.

Purported class action complaints have been filed against KFN, KFN's board of directors and the other parties to the merger agreement and an unfavorable judgment or ruling in these lawsuits could result in substantial costs.

A number of class action lawsuits were filed challenging the Merger Transaction, one of which was dismissed but pending appeal. The lawsuit named as defendants some or all of KFN, KKR & Co., the individual members of KFN's board of directors, and the other parties to the merger agreement. Among other remedies, plaintiffs to the remaining active lawsuit have sought declaratory relief concerning alleged breaches of fiduciary duties, compensatory damages, attorneys' fees and costs and other relief. These lawsuits have already resulted in legal costs for KFN, including costs associated with indemnification of directors, and if the remaining lawsuit is not dismissed or otherwise resolved, it could result in substantial additional costs to KFN to the extent not covered by insurance. There can be no assurance that any of the defendants will prevail in the pending litigation or in any future litigation. The defense or settlement of any lawsuit or claim may adversely affect the combined organization's business, financial condition or results of operations.

There is an inherent risk that we may incur environmental costs and liabilities as a result of our natural resources and real estate investments.

We have made and may continue to make certain investments in real estate and oil and gas industries, which present inherent environmental and safety risks. The oil and gas industries, in particular, are subject to stringent and complex foreign, federal, state and local environmental laws, ordinances and regulations. Under these laws, ordinances and regulations, regardless of fault, owners and operators of oil and gas properties and facilities can be held jointly and severally liable for the cost of remediating contamination and providing compensation for damages to natural resources. Our

investments in oil and gas and real estate also present inherent risk of personal and property injury. We are not insured against all losses or liabilities that could arise from these investments. On-going compliance with environmental laws, ordinances and regulations applicable to these investments may entail significant expense. Environmental and safety obligations and liabilities can be substantial and could adversely impact the value of our natural resources investments, our ability to use these investments as collateral and may otherwise have a material adverse effect on our results of operations.

In addition, the trend in environmental regulation is to place more restrictions and limitations on activities that may affect the environment, and thus, any changes in federal or state environmental laws and regulations or re-interpretation of applicable enforcement policies that result in more stringent and costly well construction, drilling, water management or completion activities, or waste handling, storage, transport, disposal or remediation requirements could have a material adverse effect on our financial position. The operators of the oil and gas properties in which we invest may be unable to pass on such increased compliance costs to their customers.

The performance of our natural resources, commercial real estate and specialty lending investments depend on the skill, ability and decisions of third party operators.

The success of the drilling, development and production of the oil and natural gas properties in which we had and may have working interests is substantially dependent upon the decisions of third-party operators and their diligence to comply with various laws, rules and regulations affecting such properties. Likewise, the success of our commercial real estate and the specialty lending-focused businesses in which we invest depends upon the skill, ability, risk assessments and decisions of third party operators. The decisions of these third-party operators as well as any failure to perform their services, discharge their obligations, deal with regulatory agencies, and comply with laws, rules and regulations could result in material adverse consequences to our interest in such investments. Our natural resources investments in particular are subject to complex environmental laws and regulations. Such adverse consequences could result in liabilities to us, reduce the value of our interests in such investments and adversely affect our cash flows from such investments and our results of operations. In addition, our royalty interests in oil and natural gas properties are predicated on the overall operating performance of third party operators, which could result in a reduction in value of our royalty interests and adversely affect our cash flows from such investments.

Estimated oil, natural gas, and natural gas liquids ("NGL") reserve quantities and future production rates are based on many assumptions that may prove to be inaccurate. Any material inaccuracies in these reserve estimates or the underlying assumptions will materially affect the quantities and value of our reserves.

Numerous uncertainties are inherent in estimating quantities of oil, natural gas, and NGL reserves. The process of estimating oil, natural gas, and NGL reserves is complex, requiring significant decisions and assumptions in the evaluation of available geological, engineering and economic data for each reservoir, and reserve estimates also rely upon various assumptions, including assumptions regarding future oil, natural gas, and NGL prices, production levels, and operating and development costs. As a result, estimated quantities of proved reserves and projections of future production rates and the timing of development expenditures may prove to be inaccurate. Over time, we may make material changes to reserve estimates taking into account the results of actual drilling and production. Any significant variance in our assumptions and actual results could greatly affect our estimates of reserves, the economically recoverable quantities of oil, natural gas, and NGL attributable to any particular group of properties, the classifications of reserves based on risk of recovery, and estimates of the future net cash flows.

Our natural resources investments are subject to complex federal, state, local and other laws and regulations that could adversely affect the value of our natural resources investments.

The natural resources operations in which we invest are subject to complex federal, state and local laws and regulations as interpreted and enforced by governmental authorities possessing jurisdiction over various aspects of the exploration, production and transportation of natural resources. These operations must obtain and maintain numerous permits, approvals and certificates from various governmental authorities that may entail significant expense, impose onerous conditions on operations or place limitations on production methods or quantity. While compliance with such processes has not yet had a material impact on the value of our natural resources investments, new regulations, laws or enforcement policies could be more stringent and significantly increase compliance costs or otherwise materially decrease the value of our natural resources properties. For example, some states have adopted, and other states and the federal government are considering adopting, regulations that place restrictions of the use of an extraction process called hydraulic fracturing, used by the oil and gas operations in which we invest. This or other added regulation could lead to operational delays, increased operating costs, increased liability risks and reduced production of oil and gas, which could adversely impact the value of our natural resources investments, our ability to use these investments as collateral and may otherwise have a material adverse effect on our results of operations.

If commodity prices decline and remain depressed for a prolonged period, a significant portion of any development projects may become uneconomic and cause write downs of the value of our oil and natural gas properties, which may reduce the value of our natural resources investments, have a negative impact on our ability to use these investments as collateral or otherwise have a material adverse effect on our results of operations.

Oil and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. Historically, the markets for oil and natural gas have been volatile. For example, for the five years ended December 31, 2014, the WTI oil spot price ranged from a high of $113.39 per Bbl to a low of $53.45 per Bbl, while the Henry Hub natural gas spot price ranged from a high of $8.15 per MMBtu to a low of $1.82 per MMBtu. These markets will likely continue to be volatile in the future. The prices we receive for our production, and the levels of our production, depend on numerous factors beyond our control, including:

The value of our natural resources assets generally increase or decrease with the increase or decrease, respectively, of commodity prices, which could have a material adverse effect on our results of operations.

As a non-operator, our natural resources investments rely significantly on third-parties, which could have a material adverse effect on our natural resources investments.

We have only participated in wells operated by third-parties. The success of our natural resources investments depends on the success of our operators. If our operators are not successful in the development, exploitation, production and exploration activities relating to our leasehold interests, or are unable or unwilling to perform, our natural resources investments could be significantly impacted.

Our operators may make decisions in connection with their operations (subject to their contractual and legal obligations to other owners of working interests), which may not be in our best interests.

Additionally, we may have limited or virtually no ability to exercise influence over the operational decisions of our operators, including the setting of capital expenditure budgets and drilling locations and schedules. Dependence on our operators could prevent us from realizing our target returns for those locations. The success and timing of development activities by our operators will depend on a number of factors that could be outside of our control, including:

Maintenance of our Investment Company Act exemption imposes limits on our operations, which may adversely affect our results of operations.

As described above in "Item 1. Business—Our Investment Company Act Status" we conduct our operations through our subsidiaries. In order for us to exclude from "investment securities" our subsidiaries' securities that we hold, each such subsidiary must be structured to both meet the definition of "majority-owned subsidiary" in the Investment Company Act or under applicable SEC staff guidance, and to not fall within the definition of Investment Company in the Investment Company Act or meet an applicable exception from that definition (other than exceptions provided under 3(c)(1) or (7) of the Investment Company Act). As a result of this structuring, our subsidiaries are limited with respect to the assets in which each of them can invest and/or the types of securities each of them may issue, and we could suffer losses on our investments in our subsidiaries or be unable to take full advantage of all available investment opportunities. For example, our CLO subsidiaries cannot acquire or dispose of assets primarily to enhance returns to the owner of the equity in the CLO subsidiary, and, as a result, may suffer losses on their assets and we may suffer losses on our investments in those CLO subsidiaries. And our REIT subsidiaries and oil and gas subsidiaries are each limited in the type of assets they can acquire and must ensure that a large portion of their total assets relate to those assets, which may have the effect of limiting our freedom of action with respect to real estate and oil and gas

assets that may be held or acquired by such subsidiaries or the manner in which we may deal in such assets.

If the SEC were to disagree with our Investment Company Act determinations, our business could be adversely affected.

We have not requested approval or guidance from the SEC with respect to our Investment Company Act determinations, including, in particular: our treatment of any subsidiary as majority-owned; the compliance of any subsidiary with Section 3(c)(5)(A), (B) or (C) or Section 3(c)(9) of, or Rule 3a-7 under, the Investment Company Act, including any subsidiary's determinations with respect to the consistency of its assets or operations with the requirements thereof; or whether our interests in one or more subsidiaries constitute investment securities for purposes of the 40% test. If the SEC were to disagree with our treatment of one or more subsidiaries as being majority-owned, excepted from the Investment Company Act pursuant to Rule 3a-7, Section 3(c)(5)(A), (B) or (C), Section 3(c)(9) or any other exception, with our determination that one or more of our other holdings do not constitute investment securities for purposes of the 40% test, or with our determinations as to the nature of the business in which we engage or the manner in which we hold ourselves out, we and/or one or more of our subsidiaries would need to adjust our operating strategies or assets in order for us to continue to pass the 40% test or register as an investment company, either of which could have a material adverse effect on us. Moreover, we may be required to adjust our operating strategy and holdings, or to effect sales of our assets in a manner that, or at a time or price at which, we would not otherwise choose, if there are changes in the laws or rules governing our Investment Company Act status or that of our subsidiaries, or if the SEC or its staff provides more specific or different guidance regarding the application of relevant provisions of, and rules under, the Investment Company Act. The SEC published on August 31, 2011 an advance notice of proposed rulemaking to potentially amend the conditions for reliance on Rule 3a-7 and the treatment of asset-backed issuers that rely on Rule 3a-7 under the Investment Company Act (the "3a-7 Release"). The SEC, in the 3a-7 Release, requested public comment on the nature and operation of issuers that rely on Rule 3a-7 and indicated various steps it may consider taking in connection with Rule 3a-7, although it did not formally propose any changes to the rule. Among the issues for which the SEC has requested comment in the 3a-7 Release is whether Rule 3a-7 should be modified so that parent companies of subsidiaries that rely on Rule 3a-7 should treat their interests in such subsidiaries as investment securities for purposes of the 40% test. The SEC also published on August 31, 2011 a concept release seeking information about the nature of entities that invest in mortgages and mortgage-related pools and public comment on how the SEC staff's interpretive positions in connection with Section 3(c)(5)(C) affect these entities, although it did not propose any new interpretive positions or changes to existing interpretive positions in connection with Section 3(c)(5)(C). Any guidance or action from the SEC or its staff, including changes that the SEC may ultimately propose and adopt to the way Rule 3a-7 applies to entities or new or modified interpretive positions related to Section 3(c)(5)(C), could further inhibit our ability, or the ability of a subsidiary, to pursue our current or future operating strategies, which could have a material adverse effect on us.

If the SEC or a court of competent jurisdiction were to find that we were required, but failed, to register as an investment company in violation of the Investment Company Act, we would have to cease business activities, we would breach representations and warranties and/or be in default as to certain of our contracts and obligations, civil or criminal actions could be brought against us, our contracts would be unenforceable unless a court were to require enforcement and a court could appoint a receiver to take control of us and liquidate our business, any or all of which would have a material adverse effect on our business.

As the sole beneficial owner of our outstanding common shares, KKR Fund Holdings controls our corporate decisions and KKR Fund Holdings' interests as a common shareholder may conflict with the interests of the holders of our debt or our Series A LLC Preferred Shares.

KKR Fund Holdings, as the sole beneficial owner of our outstanding common shares, has the power to appoint all of our directors and control our corporate decisions, including decisions regarding the focus of our operations and our strategies and with respect to significant corporate transactions such as mergers and acquisitions, asset sales, borrowings, issuances of securities and our dissolution, as well as amendments to our Operating Agreement and Management Agreement, subject to compliance with our contractual obligations. To the extent permitted under our financing arrangements, KKR Fund Holdings may also cause us to pay distributions including distribution of assets or make loans for its benefit. The interests of KKR Fund Holdings may not in all cases be aligned with those of the holders of our debt or Series A LLC Preferred Shares.

As the indirect parent of our Manager, an affiliate of KKR manages and operates our business and the interests of affiliates of KKR may conflict with the interests of the holders of our debt or our Series A LLC Preferred Shares.

We have no employees and all of our executive officers are employees of our Manager, which may result in conflicts of interest for our management. Our Manager, and its officers and employees, allocate a portion of their time to businesses and activities that are not related to, or affiliated with us and, accordingly, its officers and employees do not spend all of their time managing our activities and our investment portfolio. We expect that the portion of our Manager's time and that of our executive officers that is allocated to other businesses and activities will increase in the future as our Manager and KKR expand their investment focus to include additional investment vehicles, including vehicles that compete more directly with us, which may cause our business, financial condition and results of operations to suffer.

Further, our Management Agreement with our Manager was negotiated in 2007 between related parties, and its terms, including fees payable, may not be as favorable to us as if it had been negotiated with an unaffiliated third party. Pursuant to the Management Agreement, our Manager will not assume any responsibility other than to render the services called for thereunder and will not be responsible for any action of our board of directors in following or declining to follow its advice or recommendations. See the risk factor entitled "Our Manager's liability is limited under the Management Agreement, and we have agreed to indemnify our Manager against certain liabilities."

We qualify for a number of exemptions from the corporate governance and other requirements of the NYSE.

We are a controlled company, have no common equity registered pursuant to the Exchange Act and are a subsidiary of another listed company. These qualities qualify us for exceptions from most corporate governance and related requirements of the rules of the NYSE. Pursuant to these exceptions, we may elect, and have elected, not to comply with most corporate governance requirements of the NYSE, including, without limitation, the requirements: (i) that the listed company have a majority of independent directors, (ii) that the listed company have an audit committee composed entirely of independent directors and persons with qualifying levels of financial literacy and expertise; (iii) that the listed company have a compensation committee composed entirely of independent directors; (iv) that the compensation committee be required to consider certain independence factors when engaging compensation consultants, legal counsel and other committee advisers and (v) that the listed company have a nominating and corporate governance committee. Accordingly, you do not have the same protections afforded to equity holders of entities that are subject to all of the corporate governance requirements of the NYSE.

We are highly dependent on our Manager and may not find a suitable replacement if our Manager terminates the Management Agreement.

We have no separate facilities and are completely reliant on our Manager, which has significant discretion as to the implementation and execution of our business and investment strategies and our risk management practices. We are also subject to the risk that our Manager will terminate the Management Agreement and that no suitable replacement will be found. We believe that our success depends to a significant extent upon the experience of our Manager's executive officers, whose continued service is not guaranteed.

The departure of any of the senior management and investment professionals of our Manager or the loss of our access to KKR's senior management and investment professionals may adversely affect our ability to achieve our investment objectives.

We depend on the diligence, skill and network of business contacts of the senior management and investment professionals of our Manager. We also depend on our Manager's access to the investment professionals and senior management of KKR and the information and deal flow generated by the KKR investment professionals and senior management during the normal course of their investment and portfolio management activities. The senior management and the investment professionals of our Manager evaluate, negotiate, structure, close and monitor our investments. Our future success will depend on the continued service of the senior management team and investment professionals of our Manager. The departure of any of the senior management or investment professionals of our Manager, or of a significant number of the investment professionals or senior management of KKR, could have a material adverse effect on our ability to achieve our investment objectives. In addition, we can offer no assurance that our Manager will remain our Manager or that we will continue to have access to KKR's investment professionals or senior management or KKR's information and deal flow.

If our Manager ceases to be our manager pursuant to the Management Agreement the availability of and cost of future financing to us may be adversely affected.

Financial institutions and investors that finance our investments or may finance future investments may require that our Manager continue to manage our operations pursuant to the Management Agreement as a condition to making financing available to us at all or on attractive terms. If our Manager ceases to be our manager for any reason and we are not able to obtain financing, our growth may be limited or we may be forced to sell our investments at a loss.

Our board of directors has approved very broad investment policies for our Manager and does not approve individual investment decisions made by our Manager except in limited circumstances.

Our Manager is authorized to follow very broad investment policies (our "Investment Policies"). Our board of directors generally does not approve any individual investments, other than approving a limited set of transactions with affiliates that require the prior approval of the Affiliated Transactions Committee of our board of directors. Furthermore, transactions entered into by our Manager may be difficult or impossible to terminate or unwind. Our Manager has significant latitude within the broad parameters of the Investment Policies in determining the types of assets it may decide are proper investments for us.

Certain of our investments may create a conflict of interest with KKR and other affiliates and may expose us to additional legal risks.

Subject to complying with our Investment Policies and the charter of the Affiliated Transactions Committee of our board of directors, a core element of our business strategy is that our Manager will

at times cause us to invest in corporate leveraged loans, high yield securities and equity securities of companies affiliated with KKR, provided that such investments meet our requirements.

To the extent KKR or its affiliates is the owner of a majority of the outstanding equity securities of such companies, KKR or its affiliates may have the ability to elect all of the members of the board of directors of a company we invest in and thereby control its policies and operations, including the appointment of management, future issuances of shares or other securities, the payments of dividends, if any, on its shares, the incurrence of debt by it, amendments to its certificate of incorporation and bylaws and entering into extraordinary transactions, and the interests of KKR and its affiliates may not in all cases be aligned with our interests. In addition, with respect to companies in which we have an equity investment, to the extent that KKR or its affiliates is the controlling shareholder it may be able to determine the outcome of all matters requiring shareholder approval and will generally be able to cause or prevent a change of control of a company we invest in or a change in the composition of its board of directors and could preclude any unsolicited acquisition of that company regardless as to whether we agree with such determination. So long as KKR or its affiliates continues to own a significant amount of the voting power of a company we invest in, even if such amount is less than 50%, it will continue to influence strongly, or effectively control, that company's decisions. Our interests with respect to the management, investment decisions, or operations of those companies may at times be in conflict with those of KKR. In addition, to the extent that affiliates of our Manager or KKR invest in companies in which we have an investment, similar conflicts between our interests and theirs may arise. In addition, our Manager has implemented policies and procedures to mitigate potential conflicts of interest, which policies impose limitations on our ability to make certain investments in companies affiliated with KKR.

In addition, our interests and those of KKR or its affiliates may at times be in conflict because the CLO issuers in whom we invest hold corporate leveraged loans the obligors on which are KKR-affiliated companies. KKR or its affiliates may have an interest in causing such companies to pursue acquisitions, divestitures, exchange offers, debt restructurings and other transactions that, in the judgment of KKR or its affiliates, could enhance its equity investment, even though such transactions might involve risks to holders of indebtedness, which include our CLO issuers. For example, KKR or its affiliates could cause a company that is the obligor on a loan held by one of our CLO issuers to make acquisitions that increase its indebtedness or to sell revenue generating assets, thereby potentially decreasing the ability of the company to repay its debt. In cases where a company's debt undergoes a restructuring, the interests of KKR or its affiliates as an equity investor and our CLO issuers as debt investors may diverge, and KKR or its affiliates may have an interest in pursuing a restructuring strategy that benefits the equity holders to the detriment of the lenders, such as our CLO issuers. This risk may be exacerbated in the current economic environment given reduced liquidity available for debt refinancing, among other factors.

If a KKR-affiliated company were to file for bankruptcy or similar action, we face the risk that a court may subordinate our debt investment in such company to the claims of more junior debt holders or may recharacterize our investment as an equity investment. Any such action by a court would have a material adverse impact on the value of these investments.

Conflicts may arise in connection with the allocation of investment opportunities by affiliates of our Manager.

Our Management Agreement with our Manager does not prevent our Manager and its affiliates from engaging in additional management or investment opportunities. The Management Agreement does not restrict our Manager and its affiliates from raising, sponsoring or advising any new investment fund, company or other entity, including a REIT, or holding proprietary investment accounts. As a result, our Manager and its affiliates, including KKR, currently are engaged in and may in the future engage in management or investment opportunities on behalf of others or themselves that would have been suitable for us and we may have fewer attractive investment opportunities.

In addition, affiliates of our Manager currently manage separate investment funds and separately managed accounts ("KKR Funds and Accounts"), including proprietary investment accounts that invest in the same non-mortgage-backed securities investments that we invest in, including other fixed income, natural resources and real estate investments. With respect to these other KKR Funds and Accounts and any other funds or accounts that may be established in the future, our Manager and its affiliates will face conflicts in the allocation of investment opportunities. Such allocation is at the discretion of our Manager and its affiliates in accordance with their respective allocation policies and procedures. These policies take into account a number of factors, including mandatory minimum investment rights, investment objectives, available capital, concentration limits, risk profiles and other investment restrictions applicable to us and these competing KKR Funds and Accounts. Our Manager and its affiliates have broad discretion in administering these policies and there is no guarantee that in making allocations our Manager and its affiliates will act in the best interests of holders of our shares or any other securities we may issue. In addition, certain of such other KKR Funds and Accounts may participate in investment opportunities on more favorable terms than us.

Conflicts may arise between our investments and investments held by other funds and accounts managed by our Manager and its affiliates.

We may invest in the same issuers as other KKR Funds and Accounts, although their investments may include different obligations of such issuer. For example, we might invest in senior corporate loans issued by a borrower and one or more KKR Funds and Accounts might invest in the borrower's junior debt and/or equity. Conflicts of interest may arise where we and other KKR Funds and Accounts simultaneously hold securities representing different parts of the capital structure of a stressed or distressed issuer. In such circumstances, decisions made with respect to the securities held by one KKR Fund or Account may cause (or have the potential to cause) harm to the different class of securities of the issuer held by us or other KKR Funds and Accounts. For example, if such an issuer goes into bankruptcy or reorganization, becomes insolvent or otherwise experiences financial distress or is unable to meet its payment obligations or comply with covenants relating to credit obligations held by us or by the other KKR Funds and Accounts, such other KKR Funds and Accounts may have an interest that conflicts with our interests. If additional financing for such an issuer is necessary as a result of financial or other difficulties, it may not be in our best interests to provide such additional financing, but such additional financing could be seen to benefit investments held by other KKR Funds and Accounts. In addition, other KKR Funds and Accounts may engage in short sales of (or otherwise take short positions in) securities or other instruments of issuers in which we invest, which could be seen as harming our performance for the benefit of the accounts taking short positions if such short positions cause the market value of our investments to fall. In conflict situations such as the ones discussed in this paragraph, the Manager and its affiliates will seek to resolve any such conflicts in accordance with its compliance procedures.

We compete with other investment entities affiliated with KKR for access to KKR's investment professionals.

KKR and its affiliates, including the parent of our Manager, manage several private equity, credit, energy and natural resources, and real estate funds, as well as other funds and separately managed accounts, and we believe that KKR and its affiliates, including the parent of our Manager, will establish and manage other investment entities in the future. Certain of these investment entities have, and any newly created entities may have, an investment focus similar to our focus. In addition, if our investment strategy evolves, our investment objectives may overlap with an increasing number of such entities. As a result we compete with these entities and may compete with an increasing number of such entities for access to the benefits that our relationship with KKR provides to us. Our ability to continue to engage in these types of opportunities in the future depends, to a significant extent, on competing demands for these investment opportunities by other investment entities established by KKR and its affiliates. To the extent that we and other KKR affiliated entities or related parties compete for investment

opportunities, there can be no assurances that we will get the best of those opportunities or that the performance of the investments allocated to us, even within the same asset classes, will perform as favorably as those allocated to others.

Termination of the Management Agreement with our Manager by us is difficult and costly.

The Management Agreement expires on December 31 of each year, but is automatically renewed for a one-year term on each December 31 unless terminated upon the affirmative vote of at least two-thirds of our independent directors, or by a vote of the holders of a majority of our outstanding common shares, based upon (i) unsatisfactory performance by our Manager that is materially detrimental to us or (ii) a determination that the management fee payable to our Manager is not fair, subject to our Manager's right to prevent such a termination under this clause (ii) by accepting a mutually acceptable reduction of management fees. Our Manager must be provided with 180 days' prior written notice of any such termination and will be paid a termination fee equal to four times the sum of the average annual base management fee and the average annual incentive fee for the two 12-month periods immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination. These provisions would result in substantial cost to us if we terminate the Management Agreement, thereby adversely affecting our ability to terminate our Manager.

Our access to confidential information may restrict our ability to take action with respect to some investments, which, in turn, may negatively affect our results of operations.

We, directly or through our Manager, may obtain confidential information about the companies in which we have invested or may invest. If we do possess confidential information about such companies, there may be restrictions on our ability to make, dispose of, increase the amount of, or otherwise take action with respect to, an investment in those companies. Our relationship with KKR could create a conflict of interest to the extent our Manager becomes aware of inside information concerning investments or potential investment targets. We have implemented compliance procedures and practices designed to ensure that inside information is not used for making investment decisions on our behalf. We cannot assure our shareholders, however, that these procedures and practices will be effective. In addition, this conflict and these procedures and practices may limit the freedom of our Manager to make potentially profitable investments which could have an adverse effect on our results of operations. Conversely, we may pursue investments without obtaining access to confidential information otherwise in the possession of KKR or one of its affiliates, which information, if reviewed, might otherwise impact our judgment with respect to such investments.

Our Manager's liability is limited under the Management Agreement, and we have agreed to indemnify our Manager against certain liabilities.

Pursuant to the Management Agreement, our Manager will not assume any responsibility other than to render the services called for thereunder in good faith and will not be responsible for any action of our board of directors in following or declining to follow its advice or recommendations. Our Manager and its members, managers, officers and employees will not be liable to us, any subsidiary of ours, our directors, our shareholders or any subsidiary's shareholders for acts or omissions pursuant to or performed in accordance with the Management Agreement, except by reason of acts constituting bad faith, willful misconduct, gross negligence, or reckless disregard of their duties under the Management Agreement. Pursuant to the Management Agreement, we have agreed to indemnify our Manager and its members, managers, officers and employees and each person controlling our Manager with respect to all expenses, losses, damages, liabilities, demands, charges and claims arising from acts or omissions of such indemnified party not constituting bad faith, willful misconduct, gross negligence, or reckless

disregard of duties, performed in good faith in accordance with and pursuant to the Management Agreement.

The incentive fee provided for under the Management Agreement may induce our Manager to make certain investments, including speculative investments.

The management compensation structure to which we have agreed with our Manager may cause our Manager to invest in high risk investments or take other risks, which, if they result in a loss, could harm our financial results. In addition to its base management fee, our Manager is entitled to receive incentive compensation based in part upon our achievement of specified levels of net income. See "Item 1. Business—Management Agreement" for further information regarding our management compensation structure. In evaluating investments and other management strategies, the opportunity to earn incentive compensation based on net income may lead our Manager to place undue emphasis on the maximization of net income at the expense of other criteria, such as preservation of capital, maintaining sufficient liquidity, and/or management of credit risk or market risk, in order to achieve higher incentive compensation. Investments with higher yield potential are generally riskier or more speculative. In addition, our Manager's compensation is partly based on GAAP results, which may not always correlate to economic results that increase the value of our shares. As a result, our Manager may still receive management fees and incentive compensation even in times of poor economic financial results that precipitate a decline in the value of our shares.

Holders of our Series A LLC Preferred Shares will be subject to United States federal income tax and generally other taxes, such as state, local and foreign income tax, on their share of our gross ordinary income, regardless of whether or when they receive any cash distributions from us, and may recognize income or have tax liability in excess of our cash distributions.

We intend to continue to operate so that we qualify, for United States federal income tax purposes, as a partnership and not as an association or a publicly traded partnership taxable as a corporation. Holders of our Series A LLC Preferred Shares are subject to United States federal income taxation and generally other taxes, such as state, local and foreign income taxes, on their allocable share of our items of gross ordinary for each of our taxable years ending with or within the holder's taxable year, regardless of whether or when they receive cash distributions. We generally allocate our taxable income and loss using a monthly convention, which means that we determine our gross ordinary income for the taxable year to be allocated to our Series A LLC Preferred Shares and then prorate that amount on a monthly basis. Our Series A LLC Preferred Shares will receive an allocation of our gross ordinary income. If the amount of cash distributed to our Series A LLC Preferred Shares in a year exceeds our gross ordinary income for such year, additional gross ordinary income will be allocated to such Series A LLC Preferred Shares in future years until such excess is eliminated. Consequently, in some taxable years, holders of our Series A LLC Preferred Shares may recognize taxable income in excess of our cash distributions. Furthermore, even if we did not pay cash distributions with respect to a taxable year, holders of our Series A LLC Preferred Shares may still have a tax liability attributable to their allocation of our gross ordinary income in the event that cash distributed in a prior year exceeded our gross ordinary income in such year. Accordingly, each shareholder should ensure that it has sufficient cash flow from other sources to pay all tax liabilities.

If we were treated as a corporation for United States federal income tax purposes, all of our income would be subject to an entity-level tax, which could result in a material reduction in cash flow and after-tax return for holders of our Series A LLC Preferred Shares and thus, could result in a substantial reduction in the value of our Series A LLC Preferred Shares and any other securities we may issue.

The value of your investment in us depends in part on our being treated as a partnership for United States federal income tax purposes. We intend to continue to operate so that we qualify, for United States federal income tax purposes, as a partnership and not as an association or a publicly traded partnership taxable as a corporation. In general, if a partnership is "publicly traded" (as defined in the Code), it will be treated as a corporation for United States federal income tax purposes. A publicly traded partnership will, however, be taxed as a partnership, and not as a corporation, for United States federal income tax purposes, so long as it is not required to register under the Investment Company Act and at least 90% of its gross income for each taxable year constitutes "qualifying income" within the meaning of Section 7704(d) of the Code. We refer to this exception as the "qualifying income exception." Qualifying income generally includes rents, dividends, interest (to the extent such interest is neither derived from the "conduct of a financial or insurance business" nor based, directly or indirectly, upon "income or profits" of any person), income and gains derived from certain activities related to minerals and natural resources, and capital gains from the sale or other disposition of stocks, bonds and real property. Qualifying income also includes other income derived from the business of investing in, among other things, stocks and securities.

If we fail to satisfy the "qualifying income exception" described above, our gross ordinary income would not pass through to holders of our Series A LLC Preferred Shares and such holders would be treated for United States federal (and certain state and local) income tax purposes as shareholders in a corporation. In such case, we would be required to pay income tax at regular corporate rates on all of our income. In addition, we would likely be liable for state and local income and/or franchise taxes on all of our income. Distributions to holders of our Series A LLC Preferred Shares would be taxable as ordinary dividend income to such holders to the extent of our earnings and profits, and these distributions would not be deductible by us. If we were taxable as a corporation, it could result in a material reduction in cash flow and after-tax return for holders of our Series A LLC Preferred Shares and thus could result in a substantial reduction in the value of our Series A LLC Preferred Shares and any other securities we may issue.

Complying with certain tax-related requirements may cause us to forego otherwise attractive business or investment opportunities.

To be treated as a partnership for United States federal income tax purposes, and not as an association or publicly traded partnership taxable as a corporation, we must satisfy the qualifying income exception, which requires that at least 90% of our gross income each taxable year consist of interest, dividends, capital gains and other types of "qualifying income." Interest income will not be qualifying income for the qualifying income exception if it is derived from "the conduct of a financial or insurance business." This requirement limits our ability to originate loans or acquire loans originated by our Manager and its affiliates. In order to comply with this requirement, we (or our subsidiaries) may be required to invest through foreign or domestic corporations that are subject to corporate income tax or forego attractive business or investment opportunities. Thus, compliance with this requirement may adversely affect our return on our investments and results of operations.

We cannot predict the tax liability attributable to our Series A LLC Preferred Shares for any particular holder of our Series A LLC Preferred Shares.

Each holder of our Series A LLC Preferred Shares will determine its tax liability attributable to its ownership of our Series A LLC Preferred Shares based on its own unique circumstances. Holders of our Series A LLC Preferred Shares may have different tax liabilities attributable to our Series A LLC

Preferred Shares for many reasons unique to the holders, including among other things, alternative minimum tax liabilities or the holder's status as a non-United States person or tax-exempt entity. As a result, we cannot predict the tax liability attributable to our Series A LLC Preferred Shares for any particular holder, and such tax liability may exceed the amount of cash actually distributed to such holder for the year.

We have made and may make investments, such as investments in natural resources and real estate, that generate income that is treated as "effectively connected" with a United States trade or business with respect to holders that are not "United States persons" within the meaning of section 7701(a)(30) of the Code. It is likely that income from our natural resources investments will be treated as effectively connected income. Furthermore, any notional principal contracts that we enter into, if any, in connection with investments in natural resources likely would generate income that would be treated as effectively connected with a United States trade or business. Our investments in real estate may also generate income that would be treated as effectively connected income. To the extent our income is treated as effectively connected income, a holder who is a non-United States person generally would be required to (i) file a United States federal income tax return (and possibly state income tax returns) for such year reporting its allocable share, if any, of our gross ordinary income effectively connected with such trade or business and (ii) pay United States federal income tax (and possibly state income tax) at regular United States tax rates on any such income. Moreover, if such a holder is a corporation, it might be subject to a United States branch profits tax on its allocable share of our effectively connected income. In addition, distributions to such a holder would be subject to withholding at the highest applicable federal income tax rate to the extent of the holder's allocable share of our effectively connected income. Any amount so withheld would be creditable against such holder's United States federal income tax liability, and such holder could claim a refund to the extent that the amount withheld exceeded such person's United States federal income tax liability for the taxable year.

If we are engaged in a United States trade or business, a portion of any gain recognized by an investor who is a non-United States person on the sale or exchange of its Series A LLC Preferred Shares may be treated for United States federal income tax purposes as effectively connected income, and hence such holder may be subject to United States federal income tax on the gain from the sale or exchange. Moreover, if the fair market value of our investments in "United States real property interests," which include our investments in natural resources, real estate and certain REIT subsidiaries that invest primarily in real estate, represent more than 10% of the total fair market value of our assets, our Series A LLC Preferred Shares could be treated as "United States real property interests." In such case, gain recognized by an investor who is a non-United States person on the sale or exchange of its Series A LLC Preferred Shares would be treated for United States federal income tax purposes as effectively connected income (unless our Series A LLC Preferred Shares are regularly traded on a securities market and the non-United States person owned 5% or less of the shares of our Series A LLC Preferred Shares during the applicable compliance period). If gain from the sale of our Series A LLC Preferred Shares is treated as effectively connected income, the holder may be subject to United States federal income tax on the sale or exchange.

Holders of our Series A LLC Preferred Shares may be subject to foreign, state and local taxes and return filing requirements as a result of investing in our Series A LLC Preferred Shares.

In addition to United States federal income taxes, holders of our Series A LLC Preferred Shares may be subject to other taxes, including foreign, state and local taxes, unincorporated business taxes and estate, inheritance or intangible property taxes that are imposed by the various jurisdictions in which we conduct business or own property, even if the holders of our Series A LLC Preferred Shares do not reside in any of those jurisdictions. For example, our holders may have state filing obligations in jurisdictions in which we have made investments in natural resources or real estate (other than through a REIT subsidiary). As a result, our holders may be required to file foreign, state and local income tax returns and pay foreign, state and local income taxes in some or all of these various jurisdictions. Further, holders may be subject to penalties for failure to comply with those requirements. It is the responsibility of each holder to file all United States federal, state and local tax returns that may be required of such holder.

Holders of our Series A LLC Preferred Shares may be subject to California income taxes or withholding on their allocable share of our gross ordinary income.

Our Manager has offices in California, and thus we could be deemed to have California source income. Based on our current and anticipated investment activities, we believe that holders of our Series A LLC Preferred Shares who are not residents of California and corporate holders of our Series A LLC Preferred Shares who do not have other income derived from California should not be subject to California income taxes on their share of our gross ordinary income. However, no assurance can be provided that our future activities will not cause holders of our Series A LLC Preferred Shares who are not residents of California and such corporate holders of our Series A LLC Preferred Shares to be subject to California income tax on all or a portion of their share of our income or gains, and no assurance can be provided that the California Franchise Tax Board will not successfully challenge our current position that such holders are not subject to California income tax on their share of our income and gains. If it were determined that we had California source income, we would be required to withhold at a rate of 7% of the distributions of California source income to domestic (non-foreign) nonresident holders of our Series A LLC Preferred Shares and at the highest rate of tax imposed on individuals and corporations, respectively, of the allocated share of California source income for foreign (non-U.S.) holders of our Series A LLC Preferred Shares.

If we have a termination for United States federal income tax purposes, holders of our Series A LLC Preferred Shares may be required to include more than 12 months of our gross ordinary income in their taxable income for the year of the termination.

We will be considered to have been terminated for United States federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a 12-month period. A termination of our partnership would, among other things, result in the closing of our taxable year for all holders. In the case of a holder of Series A LLC Preferred Shares reporting on a taxable year other than a fiscal year ending on our year end, which is expected to continue to be the calendar year, the closing of our taxable year may result in more than 12 months of our gross ordinary income being includable in the holder's taxable income for the year of termination. We would be required to satisfy the 90% "qualifying income" test for each tax period and to make new tax elections after a termination. A termination could also result in penalties if we were unable to determine that the termination had occurred. In the event that we become aware of a termination, we will use commercially reasonable efforts to minimize any such penalties. Moreover, a termination might either accelerate the application of, or subject us to, any tax legislation enacted before the termination. We have experienced terminations in the past, and it is likely that we will experience terminations in the future. The IRS has announced a publicly traded partnership technical termination relief program

whereby, if the taxpayer requests relief and such relief is granted by the IRS, among other things, the partnership would only have to provide one Schedule K-1 to most holders of Series A LLC Preferred Shares for the year notwithstanding two or more partnership tax years.

We could incur a significant tax liability if the IRS successfully asserts that the "anti-stapling" rules apply to certain of our subsidiaries, which could result in a reduction in cash flow and after-tax return for holders of Series A LLC Preferred Shares and thus could result in a reduction of the value of those Series A LLC Preferred Shares.

If we were subject to the "anti-stapling" rules of Section 269B of the Code, we would incur a significant tax liability as a result of owning (i) more than 50% of the value of both a domestic corporate subsidiary and a foreign corporate subsidiary, or (ii) more than 50% of both a REIT and a domestic or foreign corporate subsidiary. If the "anti-stapling" rules applied, our foreign corporate subsidiaries would be treated as domestic corporations, which would cause those entities to be subject to United States federal corporate income taxation, and any REIT subsidiary would be treated as a single entity with our domestic and foreign corporate subsidiaries for purposes of the REIT qualification requirements, which could result in the REIT subsidiary failing to qualify as a REIT and being subject to United States federal corporate income taxation. Currently, we have several subsidiaries that could be affected if we were subject to the "anti-stapling" rules, including subsidiaries taxed as REITs and several foreign and domestic corporate subsidiaries. Because we own, or are treated as owning, a substantial proportion of our assets directly for United States federal income tax purposes, we do not believe that the "anti-stapling" rules have applied or will apply. However, there can be no assurance that the IRS would not successfully assert a contrary position, which could result in a reduction in cash flow and after-tax return for holders of Series A LLC Preferred Shares and thus could result in a reduction of the value of those Series A LLC Preferred Shares.

Tax-exempt holders of our Series A LLC Preferred Shares will likely recognize significant amounts of "unrelated business taxable income."

An organization that is otherwise exempt from United States federal income tax is nonetheless subject to taxation with respect to its "unrelated business taxable income" ("UBTI"). Generally, a tax-exempt partner of a partnership would be treated as earning UBTI if the partnership regularly engages in a trade or business that is unrelated to the exempt function of the tax-exempt partner, if the partnership derives income from debt-financed property or if the partner interest itself is debt-financed. Because we have incurred "acquisition indebtedness" with respect to certain equity and debt securities we hold (either directly or indirectly through subsidiaries that are treated as partnerships or disregarded entities for United States federal income tax purposes), a proportionate share of a holder's income from us with respect to such securities will be treated as UBTI. In addition, we have made and may make investments, such as investments in natural resources and real estate, that likely will generate income treated as effectively connected with a United States trade or business. Accordingly, tax-exempt holders of our Series A LLC Preferred Shares will likely recognize significant amounts of UBTI. Tax-exempt holders of our Series A LLC Preferred Shares are strongly urged to consult their tax advisors regarding the tax consequences of owning our Series A LLC Preferred Shares.

Although we anticipate that our foreign corporate subsidiaries will not be subject to United States federal income tax on a net basis, no assurance can be given that such subsidiaries will not be subject to United States federal income tax on a net basis in any given taxable year.

We anticipate that our foreign corporate subsidiaries will generally continue to conduct their activities in such a way as not to be deemed to be engaged in a United States trade or business and not to be subject to United States federal income tax. There can be no assurance, however, that our foreign corporate subsidiaries will not pursue investments or engage in activities that may cause them to be

engaged in a United States trade or business. Moreover, there can be no assurance that as a result of any change in applicable law, treaty, rule or regulation or interpretation thereof, the activities of any of our foreign corporate subsidiaries would not become subject to United States federal income tax. Further, there can be no assurance that unanticipated activities of our foreign subsidiaries would not cause such subsidiaries to become subject to United States federal income tax. If any of our foreign corporate subsidiaries became subject to United States federal income tax (including the United States branch profits tax), it would significantly reduce the amount of cash available for distribution to us, which in turn could have an adverse impact on the value of our Series A LLC Preferred Shares and any other securities we may issue. Our foreign corporate subsidiaries are generally not expected to be subject to United States federal income tax on a net basis, but such subsidiaries may receive income that is subject to withholding taxes imposed by the United States or other countries. Any such withholding taxes would further reduce the amount of cash available for distribution to us.

Certain of our investments may subject us to United States federal income tax and could have negative tax consequences for our shareholders.

Although the law is not entirely clear, a portion of our distributions may constitute "excess inclusion income." Excess inclusion income is generated by residual interests in real estate mortgage investment conduits ("REMICs") and taxable mortgage pool arrangements owned by REITs. We own through a disregarded entity a small number of REMIC residual interests. In addition, one of our REIT subsidiaries has entered into financing arrangements that are treated as taxable mortgage pools. We will be taxable at the highest corporate income tax rate on any excess inclusion income from a REMIC residual interest that is allocable to the percentage of our shares held in record name by disqualified organizations. Although the law is not clear, we may also be subject to that tax if the excess inclusion income arises from a taxable mortgage pool arrangement owned by a REIT in which we invest. Disqualified organizations are generally certain cooperatives, governmental entities and tax-exempt organizations that are exempt from unrelated business tax (including certain state pension plans and charitable remainder trusts). They are permitted to own our shares. Because this tax would be imposed on us, all of the holders of our Series A LLC Preferred Shares, including holders that are not disqualified organizations, would bear a portion of the tax cost associated with our ownership of REMIC residual interests and with the classification of any of our REIT subsidiaries or a portion of the assets of any of our REIT subsidiaries as a taxable mortgage pool. A regulated investment company or other pass-through entity owning our Series A LLC Preferred Shares may also be subject to tax at the highest corporate rate on any excess inclusion income allocated to their record name owners that are disqualified organizations. Nominees who hold our Series A LLC Preferred Shares on behalf of disqualified organizations also potentially may be subject to this tax.

Excess inclusion income cannot be offset by losses of our shareholders. If the shareholder is a tax-exempt entity and not a disqualified organization, then this income would be fully taxable as UBTI under Section 512 of the Code. If the shareholder is a foreign person, it would be subject to United States federal income tax withholding on this income without reduction or exemption pursuant to any otherwise applicable income tax treaty.

Dividends paid by, and certain income inclusions derived with respect to our ownership of, our REIT subsidiaries and foreign corporate subsidiaries will not qualify for the reduced tax rates generally applicable to corporate dividends paid to taxpayers taxed at individual rates.

The maximum tax rate applicable to "qualified dividend income" payable to domestic shareholders taxed at individual rates is 20%. Dividends paid by, and certain income inclusions derived with respect to the ownership of, REITs, passive foreign investment companies ("PFICs") and certain controlled foreign corporations ("CFCs"), however, generally are not eligible for the reduced rates on qualified dividend income. We have treated and intend to continue to treat our foreign corporate subsidiaries as

the type of CFCs whose income inclusions are not eligible for lower tax rates on dividend income. The more favorable rates applicable to regular corporate qualified dividends could cause investors who are taxed at individual rates to perceive investments in companies such as us whose holdings include foreign corporations and REITs to be relatively less attractive than investments in the stocks of domestic non-REIT corporations that pay dividends treated as qualified dividend income, which could adversely affect the value of our Series A LLC Preferred Shares and any other securities we may issue.

Under the Foreign Account Tax Compliance Act ("FATCA"), withholding tax may apply to the portion of our distributions that constitute "withholdable payments" other than gross proceeds and, after December 31, 2016, to distributions of gross proceeds of certain asset sales by us and proceeds of sales in respect of our Series A LLC Preferred Shares.

Under current law, holders of our Series A LLC Preferred Shares that are not United States persons are generally subject to United States federal withholding tax at the rate of 30% (or such lower rate provided by an applicable tax treaty) on their share of our gross income from dividends, interest (other than interest that constitutes "portfolio interest" within the meaning of the Code) and certain other income that is not treated as effectively connected with a United States trade or business. In addition to this withholding tax, FATCA imposes, without duplication, a United States federal withholding tax at a 30% rate on "withholdable payments" made to foreign financial institutions (and their more than 50% affiliates) unless the payee foreign financial institution agrees, among other things, to disclose the identity of certain United States persons and United States owned foreign entities with accounts at the institution (or the institution's affiliates) and to annually report certain information about such accounts. "Withholdable payments" include payments of interest (including original issue discount), dividends, and other items of fixed or determinable annual or periodical gains, profits, and income, in each case, from sources within the United States, as well as gross proceeds from the sale of any property of a type which can produce interest or dividends from sources within the United States. FATCA will also require withholding on the gross proceeds of such sales for payments made after December 31, 2016. The FATCA withholding tax also applies to withholdable payments to certain foreign entities that do not disclose the name, address, and taxpayer identification number of any substantial United States owners (or certify that they do not have any substantial United States owners). We expect that some or all of our distributions will constitute "withholdable payments." Thus, if a holder holds our Series A LLC Preferred Shares through a foreign financial institution or foreign corporation or trust, a portion of payments to such holder may be subject to 30% withholding under FATCA.

If we are required to withhold any United States federal withholding tax on distributions made to any holder of our Series A LLC Preferred Shares, we will pay such withheld amount to the IRS. That payment, if made, will be treated as a distribution of cash to the holder of the Series A LLC Preferred Shares with respect to whom the payment was made and will reduce the amount of cash to which such holder would otherwise be entitled.

Ownership limitations in the operating agreement that apply so long as we own an interest in a REIT may restrict a change of control in which our holders might receive a premium for their Series A LLC Preferred Shares.

In order for each of our REIT subsidiaries to continue to qualify as a REIT, no more than 50% in value of each REIT's outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals during the last half of any calendar year and such REIT's shares must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year. "Individuals" for this purpose include natural persons, private foundations, some employee benefit plans and trusts, and some charitable trusts. We intend for each of our REIT subsidiaries to be owned, directly or indirectly, by us and by holders of the preferred

shares issued by such REIT subsidiary. In order to preserve the status of our current REIT subsidiaries and any future REIT subsidiaries, the operating agreement generally prohibits, subject to exceptions, any person from beneficially owning or constructively owning shares in excess of 9.8% in value or in number of any class or series of our outstanding shares, whichever is more restrictive, excluding shares not treated as outstanding for United States federal income tax purposes. This restriction may be terminated by our board of directors if it determines that it is no longer in our best interests for our REIT subsidiaries to continue to qualify as REITs under the Code or that compliance with those restrictions is no longer required to qualify as a REIT, and our board of directors may also, in its sole discretion, exempt a person from this restriction.

The ownership limitation could have the effect of discouraging a takeover or other transaction in which holders of our Series A LLC Preferred Shares might receive a premium for their Series A LLC Preferred Shares over the then prevailing market price or which holders might believe to be otherwise in their best interests.

The failure of any REIT subsidiary to qualify as a REIT would generally cause it to be subject to United States federal income tax on its taxable income, which could result in a reduction in cash flow and after-tax return for holders of our Series A LLC Preferred Shares and thus could result in a reduction of the value of those shares and any other securities we may issue.

We intend that each of our current and any future REIT subsidiaries will operate and continue to operate in a manner so as to qualify to be taxed as a REIT for United States federal income tax purposes. No ruling from the IRS, however, has been or will be sought with regard to the treatment of any REIT subsidiary as a REIT for United States federal income tax purposes, and the ability to qualify as a REIT depends on the satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis. Accordingly, no assurance can be given that any REIT subsidiary will satisfy such requirements for any particular taxable year. If any REIT subsidiary were to fail to qualify as a REIT in any taxable year, it would be subject to United States federal income tax, including any applicable alternative minimum tax, on its net taxable income at regular corporate rates, and distributions would not be deductible by it in computing its taxable income. Any such corporate tax liability could be substantial and could reduce the amount of cash available for distribution to us, which in turn would reduce the amount of cash available for distribution to holders of our Series A LLC Preferred Shares and could have an adverse impact on the value of those shares and any other securities we may issue. Unless entitled to relief under certain Code provisions, such REIT subsidiary also would be disqualified from taxation as a REIT for the four taxable years following the year during which it ceased to qualify as a REIT.

A holder whose Series A LLC Preferred Shares are loaned to a "short seller" to cover a short sale of shares may be considered as having disposed of those shares. If so, the holder would no longer be treated for tax purposes as a partner with respect to those shares during the period of the loan and may recognize gain or loss from the disposition.

Because a holder whose Series A LLC Preferred Shares are loaned to a "short seller" to cover a short sale of shares may be considered as having disposed of the loaned shares, the holder may no longer be treated for tax purposes as a partner with respect to those shares during the period of the loan to the short seller and the holder may recognize gain or loss from such disposition. Moreover, during the period of the loan to the short seller, any of our gross ordinary income with respect to those shares may not be reportable by the holder and any cash distributions received by the holder as to those shares could be fully taxable as ordinary income. Holders desiring to assure their status as partners and avoid the risk of gain recognition from a loan to a short seller are urged to modify any applicable brokerage account agreements to prohibit their brokers from borrowing their Series A LLC Preferred Shares.

The IRS Schedules K-1 we will provide will be significantly more complicated than the IRS Forms 1099 provided by REITs and regular corporations, and holders of our Series A LLC Preferred Shares may be required to request an extension of the time to file their tax returns.

Holders of our Series A LLC Preferred Shares are required to take into account their allocable share of our gross ordinary income for our taxable year ending within or with their taxable year. We will use reasonable efforts to furnish holders of our Series A LLC Preferred Shares with tax information (including IRS Schedule K-1), which describes their allocable share of our gross ordinary income for our preceding taxable year, as promptly as possible. However, we may not be able to provide holders of our Series A LLC Preferred Shares with tax information on a timely basis. Because holders of our Series A LLC Preferred Shares will be required to report their allocable share of our gross ordinary income on their tax returns, tax reporting for holders of our Series A LLC Preferred Shares will be significantly more complicated than for shareholders in a REIT or a regular corporation. In addition, delivery of this information to holders of our Series A LLC Preferred Shares will be subject to delay in the event of, among other reasons, the late receipt of any necessary tax information from an investment in which we hold an interest. It is therefore possible that, in any taxable year, holders of our Series A LLC Preferred Shares will need to apply for extensions of time to file their tax returns.

Our structure involves complex provisions of United States federal income tax law for which no clear precedent or authority may be available, and which is subject to potential change, possibly on a retroactive basis. Any such change could result in adverse consequences to the holders of our Series A LLC Preferred Shares and any other securities we may issue.

The United States federal income tax treatment of holders of our Series A LLC Preferred Shares depends in some instances on determinations of fact and interpretations of complex provisions of United States federal income tax law for which no clear precedent or authority may be available. The United States federal income tax rules are constantly under review by the IRS, resulting in revised interpretations of established concepts. The IRS pays close attention to the proper application of tax laws to partnerships and investments in foreign entities. The present United States federal income tax treatment of an investment in our Series A LLC Preferred Shares may be modified by administrative, legislative or judicial interpretation at any time, and any such action may affect investments and commitments previously made. We and holders of our Series A LLC Preferred Shares could be adversely affected by any such change in, or any new tax law, regulation or interpretation. Our operating agreement permits our board of directors to modify (subject to certain exceptions) the operating agreement from time to time, without the consent of the holders of our Series A LLC Preferred Shares. These modifications may address, among other things, certain changes in United States federal income tax regulations, legislation or interpretation. In some circumstances, such revisions could have an adverse impact on some or all of the holders of our Series A LLC Preferred Shares and of any other securities we may issue. Moreover, we intend to apply certain assumptions and conventions in an attempt to comply with applicable rules and to report gross ordinary income to holders of our Series A LLC Preferred Shares in a manner that reflects their distributive share of our gross ordinary income, but these assumptions and conventions may not be in compliance with all aspects of applicable tax requirements. It is possible that the IRS will assert successfully that the conventions and assumptions we use do not satisfy the technical requirements of the Code and/or United States Treasury Regulations and could require that items of gross ordinary income be adjusted or reallocated in a manner that adversely affects holders of our Series A LLC Preferred Shares and of any other securities we may issue.

We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our Series A LLC Preferred Shares.

At any time, the federal income tax laws or regulations governing publicly traded partnerships or the administrative interpretations of those laws or regulations may be amended. We cannot predict when or if any new federal income tax law, regulation or administrative interpretation, or any amendment to any existing federal income tax law, regulation or administrative interpretation, will be adopted or promulgated or will become effective and any such law, regulation or interpretation may take effect retroactively. We and our holders could be adversely affected by any change in, or any new, federal income tax law, regulation or administrative interpretation. Additionally, revisions in federal tax laws and interpretations thereof could cause us to change our investments and commitments and affect the tax considerations of an investment in us.

Our administrative and principal executive offices are located at 555 California Street, 50^th Floor, San Francisco, California 94104 and are leased by our Manager.

The section in "Item 8. Financial Statements and Supplementary Data—Note 10. Commitments and Contingencies" of this Annual Report on Form 10-K is incorporated herein by reference.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

As discussed above in "Part I—Item 1. Business—Merger with KKR & Co.", on April 30, 2014, we became a subsidiary of KKR & Co., whereby a subsidiary of KKR & Co. acquired all of our outstanding common shares through an exchange of equity through which our shareholders received 0.51 common units representing the limited partnership interests of KKR & Co. for each common share of KFN. Following the Merger Transaction, KKR Fund Holdings, a subsidiary of KKR & Co., became the sole holder of all of our outstanding common shares. As of the close of trading on April 30, 2014, our common shares were delisted on the NYSE.

In addition, on June 27, 2014, our board of directors approved a reverse stock split whereby the number of our issued and outstanding common shares was reduced to 100 common shares, all of which are held solely by KKR Fund Holdings.

Our common shares, prior to the Merger Transaction, were traded on the NYSE under the symbol "KFN."

The following table sets forth the high and low sale prices for our common shares for the period indicated as reported on the NYSE:

As of March 23, 2015, we had 100 issued and outstanding common shares that were all held by our Parent.

Under the Predecessor Company (as defined below), the amount and timing of distributions to our preferred and common shareholders was determined by our board of directors. Subsequently, under the Successor Company (as defined below), distributions are determined by the executive committee which was established by the board of directors. Under both periods, distributions were based upon a review of various factors including current market conditions, our liquidity needs, legal and contractual restrictions on the payment of distributions, including those under the terms of our preferred shares which would have impacted the common shareholders, the amount of ordinary taxable income or loss earned by us, gains or losses recognized by us on the disposition of assets and our liquidity needs. For this purpose, we generally determined gains or losses based upon the price we paid for those assets.

Shares will not be allocated any gains or losses from any sale of our assets. Shareholders may have taxable income or tax liability attributable to our shares for a taxable year that is greater than our cash distributions for such taxable year. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Non-Cash 'Phantom' Taxable Income" for further discussion about taxable income allocable to holders of our shares. We may not declare or pay distributions on our common shares unless all accrued distributions have been declared and paid, or set aside for payment, on our Series A LLC Preferred Shares.

The following table shows the distributions declared on common shares for the years ended December 31, 2013 and 2014:

We anticipate that we will continue to make quarterly cash distributions on our common shares.

The following table summarizes the total number of securities outstanding in our sole equity incentive plan and the number of securities remaining for future issuance, as well as the weighted average exercise price of all outstanding securities as of December 31, 2014.

(1): As of April 30, 2014, we had 1,932,279 common share options exercisable with a weighted average exercise price of $20.00. However, on April 30, 2014, in connection with the Merger Transaction described above in "Part I—Item 1. Business—Merger with KKR & Co.", (i) each outstanding option to purchase a KFN common share was cancelled, as the exercise price per share applicable to all outstanding options exceeded the cash value of the number of KKR & Co. common units that a holder of one KFN common share was entitled to in the merger and (ii) all outstanding equity awards made pursuant to the 2007 Share Incentive Plan (other than any restricted KFN commons shares held by our Manager) were converted into awards in respect of KKR common units having the same terms and conditions, including applicable vesting requirements, as applied to such KFN common share awards. No additional awards have been made pursuant to the 2007 Share Incentive Plan since such time. Accordingly, as of December 31, 2014, there were no outstanding equity awards in respect of KFN common shares outstanding. On December 31, 2014, a total of 3,421,694 KFN common shares were authorized and available for future issuances under the 2007 Share Incentive Plan, although we do not intend to make any future awards of KFN equity.

As our common shares are no longer traded on the NYSE subsequent to the Merger Transaction, we no longer present a total return comparison.

The following selected financial data is derived from our audited consolidated financial statements as of and for the years ended December 31, 2014, 2013, 2012, 2011 and 2010. The selected financial data should be read together with the more detailed information contained in the consolidated financial

statements and associated notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Annual Report on Form 10-K.

	Successor Company			Predecessor Company

(in thousands, except per share data)	Eight months ended December 31, 2014			Four months ended April 30, 2014		Year ended December 31, 2013		Year ended December 31, 2012			Year ended December 31, 2011		Year ended December 31, 2010
Consolidated Statements of Operations Data:
Total revenues		350,345		$	217,242	$	545,906	$	555,473		$	542,021	$	505,359
Total investment costs and expenses		181,136			101,825		305,705		318,375			215,162		188,952
Total other income (loss)		(344,382	)		56,334		150,925		205,822			93,447		143,352
Total other expenses		43,572			65,609		97,429		98,157			94,223		87,993

Income (loss) before income taxes		(218,745	)		106,142		293,697		344,763			326,083		371,766
Income tax expense (benefit)		484			162		467		(3,467	)		8,011		702

Net income (loss)	$	(219,229	)	$	105,980	$	293,230	$	348,230		$	318,072	$	371,064



Net income (loss) attributable to noncontrolling interests		(5,956	)		—		—		—			—		—
Preferred share distributions		20,673			6,891		27,411		—			—		—

Net income (loss) available to common shares	$	(233,946	)	$	99,089	$	265,819	$	348,230		$	318,072	$	371,064



Net income per common share:
Basic		N/A			0.48	$	1.31	$	1.95		$	1.79	$	2.33



Diluted		N/A			0.48	$	1.31	$	1.87		$	1.75	$	2.32



Weighted average number of common shares outstanding:
Basic		N/A			204,276		202,411		177,838			177,560		157,936



Diluted		N/A			204,276		202,411		187,423			180,897		158,771



Distributions declared per common share		N/A		$	0.22	$	0.90	$	0.86		$	0.67	$	0.43

	Successor Company		Predecessor Company

(in thousands, except per share data)	As of December 31, 2014		As of December 31, 2013		As of December 31, 2012		As of December 31, 2011		As of December 31, 2010
Consolidated Balance Sheets Data:
Cash and cash equivalents	$	163,405	$	157,167	$	237,606	$	392,154	$	313,829
Restricted cash and cash equivalents		447,507		350,385		896,396		399,620		571,425
Securities		638,605		573,312		533,520		922,603		932,823
Corporate loans, net		6,506,564		6,466,720		5,947,857		6,443,399		6,321,444
Equity investments, at estimated fair value		181,378		181,212		161,621		189,845		99,955
Oil and gas properties, net		120,274		400,369		289,929		138,525		33,797
Interests in joint ventures and partnerships		718,772		436,241		149,534		—		—
Total assets		8,951,625		8,717,198		8,358,879		8,647,228		8,418,412
Total borrowings		6,162,530		6,020,465		6,338,407		6,778,208		6,642,455
Total liabilities		6,463,577		6,189,464		6,519,757		6,971,396		6,775,364
Total shareholders' equity		2,387,879		2,527,734		1,839,122		1,675,832		1,643,048
Book value per common share		N/A	$	10.58	$	10.31	$	9.41	$	9.24

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Except where otherwise expressly stated or the context suggests otherwise, the terms "we," "us" and "our" refer to KKR Financial Holdings LLC and its subsidiaries.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Part II, Item 6, "Selected Consolidated Financial Data" and our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. In addition to historical data, this discussion contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those in this discussion as a result of various factors, including but not limited to those discussed in "Item I, Part 1A. Risk Factors" included elsewhere in this Annual Report on Form 10-K.

The majority of our holdings consist of corporate loans and high yield debt securities held in collateralized loan obligation ("CLO") transactions that are structured as on-balance sheet securitizations and are used as long term financing for our investments in corporate debt. The senior secured debt issued by the CLO transactions is primarily owned by unaffiliated third party investors and we own the majority of the subordinated notes in the CLO transactions. As of December 31, 2014, our CLO transactions consisted of KKR Financial CLO 2005-1, Ltd. ("CLO 2005-1"), KKR Financial CLO 2005-2, Ltd. ("CLO 2005-2"), KKR Financial CLO 2006-1, Ltd. ("CLO 2006-1"), KKR Financial CLO 2007-1, Ltd. ("CLO 2007-1"), KKR Financial CLO 2007-A, Ltd. ("CLO 2007-A"), KKR Financial CLO 2011-1, Ltd. ("CLO 2011-1"), KKR Financial CLO 2012-1, Ltd. ("CLO 2012-1"), KKR Financial CLO 2013-1, Ltd. ("CLO 2013-1") KKR Financial CLO 2013-2, Ltd. ("CLO 2013-2"), KKR CLO 9, Ltd. ("CLO 9") and KKR CLO 10, Ltd. ("CLO10") (collectively the "Cash Flow CLOs"). We execute our core business strategy through our majority-owned subsidiaries, including CLOs.

On December 16, 2013, we announced the signing of a definitive merger agreement pursuant to which KKR & Co. had agreed to acquire all of our outstanding common shares through an exchange of equity through which our shareholders would receive 0.51 common units representing the limited partnership interests of KKR & Co. for each common share of KFN (the "Merger Transaction"). On April 30, 2014, the date of the Merger Transaction, the transaction was approved by our common shareholders and the merger was completed, resulting in KFN becoming a subsidiary of KKR & Co. As of the close of trading on April 30, 2014, our common shares were delisted on the New York Stock

Exchange ("NYSE"). However, our 7.375% Series A LLC Preferred Shares ("Series A LLC Preferred Shares"), senior notes and junior subordinated notes remain outstanding and we will continue to file periodic reports under the Securities Exchange Act of 1934.

Pursuant to the merger agreement, on the date of the Merger Transaction, (i) each outstanding option to purchase a KFN common share was cancelled, as the exercise price per share applicable to all outstanding options exceeded the cash value of the number of KKR & Co. common units that a holder of one KFN common share is entitled to in the merger, (ii) each outstanding restricted KFN common share (other than those held by our Manager) was converted into 0.51 KKR & Co. common units having the same terms and conditions as applied immediately prior to the effective time, and (iii) each phantom share under KFN's Non-Employee Directors' Deferred Compensation and Share Award Plan was converted into a phantom share in respect of 0.51 KKR & Co. common units and otherwise remains subject to the terms of the plan. Following the Merger Transaction, KKR Fund Holdings L.P. ("KKR Fund Holdings"), a subsidiary of KKR & Co., became the sole holder of all of our outstanding common shares and is our parent (our "Parent"). The merger was a taxable transaction for our common shareholders for United States federal income tax purposes. Our common shareholders generally recognized gain or loss in connection with the merger measured by the difference, if any, between (i) the sum of (a) the fair market value of any KKR common units received, (b) the amount of cash received and (c) their allocable share of our nonrecourse debt immediately prior to the merger and (ii) their adjusted tax basis in our common shares (which included their allocable share of our debt).

The Merger Transaction was accounted for using the acquisition method of accounting, which requires that the assets purchased and the liabilities assumed all be reported in the acquirer's financial statements at their fair value, with any excess of net assets over the purchase price being reported as bargain purchase gain. The application of the acquisition method of accounting represented a push down of accounting basis to us, whereby we were also required to record the assets and liabilities at fair value as of the date of the Merger Transaction. This change in basis of accounting resulted in the termination of our prior reporting entity and a corresponding creation of a new reporting entity.

Accordingly, our consolidated financial statements and transactional records prior to the effective date, or May 1, 2014 (the "Effective Date"), reflect the historical accounting basis of assets and liabilities and are labeled "Predecessor Company," while such records subsequent to the Effective Date are labeled "Successor Company" and reflect the push down basis of accounting for the new estimated fair values in our consolidated financial statements. This change in accounting basis is represented in

the consolidated financial statements by a vertical black line which appears between the columns entitled "Predecessor Company" and "Successor Company" on the statements and in the relevant notes. The black line signifies that the amounts shown for the periods prior to and subsequent to the Merger Transaction are not comparable.

For the following assets not carried at fair value, as presented under the Predecessor Company, we adopted the fair value option of accounting as of the Effective Date: (i) corporate loans held for investment at amortized cost, net of an allowance for loan losses, (ii) corporate loans held for sale at lower of cost or estimated fair value and (iii) certain other investments at cost. In addition, we elected the fair value option of accounting for our collateralized loan obligation secured notes. As such, the accounting policies followed by us in the preparation of our consolidated financial statements for the Successor period present all financial assets and CLO secured notes at estimated fair value. The initial fair value presentation was a result of the push down basis of accounting, while the prospective fair value presentation is for the primary purpose of reporting values more closely aligned with KKR & Co.'s method of accounting.

Unrealized gains and losses for these financial assets and liabilities carried at estimated fair value are reported in net realized and unrealized gain (loss) on investments and net realized and unrealized gain (loss) on debt, respectively, in the consolidated statements of operations. Unrealized gains or losses primarily reflect the change in instrument values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the asset without regard to unrealized gains or losses previously recognized. For the Successor period, upon the sale of a corporate loan or debt security, the net realized gain or loss is computed using the specific identification method. Comparatively, for the Predecessor periods, the realized net gain or loss was computed on a weighted average cost basis.

Our net loss available to common shares for the eight months ended December 31, 2014 totaled $233.9 million. Our net income available to common shares for the four months ended April 30, 2014 totaled $99.1 million (or $0.48 per diluted common share), as compared to net income of $265.8 million and $348.2 million (or $1.31 and $1.87 per diluted common share) for the years ended December 31, 2013 and 2012, respectively. Additional discussion around our results, as well as the components of net income (loss) for our reportable segments, are detailed further below under "Results of Operations."

On December 18, 2014, we closed CLO 10, a $415.6 million secured financing transaction maturing on December 15, 2025. We issued $368.0 million par amount of senior secured notes to unaffiliated investors, of which $343.0 million was floating rate with a weighted-average coupon of three-month LIBOR plus 2.09% and $25.0 million was fixed rate with a weighted-average coupon of 4.90%. The investments that are owned by CLO 10 collateralize the CLO 10 debt, and as a result, those investments are not available to us, our creditors or shareholders.

On September 16, 2014, we closed CLO 9, a $518.0 million secured financing transaction maturing on October 15, 2026. We issued $463.8 million par amount of senior secured notes to unaffiliated investors, all of which was floating rate with a weighted-average coupon of three-month LIBOR plus 2.01%. We also issued $15.0 million of subordinated notes to unaffiliated investors. The investments that are owned by CLO 9 collateralize the CLO 9 debt, and as a result, those investments are not available to us, our creditors or shareholders.

On November 30, 2012, we entered into the 2015 Facility. We had the right to prepay loans under the 2015 Facility in whole or in part at any time. Loans under the 2015 Facility bore interest at a rate equal to, at our option, LIBOR plus 2.25% per annum, or an alternate base rate plus 1.25% per annum. As of December 31, 2013, we had $75.0 million of borrowings outstanding under the 2015 Facility. In connection with the merger, we terminated the 2015 Facility on April 30, 2014, with all amounts outstanding repaid as of March 31, 2014.

On May 20, 2014, our five-year nonrecourse, asset-based revolving credit facility maturing on November 5, 2015 (the "2015 Natural Resources Facility") was adjusted and reduced to $75.0 million, which was subject to, among other things, the terms of a borrowing base derived from the value of eligible specified oil and gas assets. We had the right to prepay loans under the 2015 Natural Resources Facility in whole or in part at any time. Loans under the 2015 Natural Resources Facility bore interest at a rate equal to LIBOR plus a tiered applicable margin ranging from 1.75% to 2.75% per annum. As of December 31, 2013, we had $50.3 million of borrowings outstanding under the 2015 Natural Resources Facility. On September 30, 2014, the 2015 Natural Resources Facility was terminated in connection with a transaction whereby certain of our entities holding natural resources assets were merged with certain investment entities of funds advised by KKR and partnerships held by wholly owned subsidiaries of Legend Production Holdings, LLC, a majority owned subsidiary of Riverstone Holdings LLC and the Carlyle Group, to create a new oil and gas company called Trinity River Energy, LLC ("Trinity"). All amounts outstanding under the facility were repaid as of September 30, 2014.

On February 27, 2013, we entered into a five-year non-recourse, asset-based revolving credit facility, maturing on February 27, 2018 (the "2018 Natural Resources Facility") that was subject to, among other things, the terms of a borrowing base derived from the value of eligible specified oil and gas assets. On May 15, 2014, the 2018 Natural Resources Facility was adjusted and increased to $68.5 million. We had the right to prepay loans under the 2018 Natural Resources Facility in whole or in part at any time. Loans under the 2018 Natural Resources Facility bore interest at a rate equal to LIBOR plus a tiered applicable margin ranging from 1.75% to 3.25% per annum. As of December 31, 2013, we had zero of borrowings outstanding under the 2018 Natural Resources Facility. On July 1, 2014, the 2018 Natural Resources Facility was terminated in connection with our distribution of certain natural resources assets to our Parent, with all amounts outstanding repaid as of July 1, 2014.

Our Cash Flow CLOs are all variable interest entities ("VIEs") that we consolidate as we have determined we have the power to direct the activities that most significantly impact these entities' economic performance and we have both the obligation to absorb losses of these entities and the right to receive benefits from these entities that could potentially be significant to these entities.

We also consolidate non-VIEs in which we hold a greater than 50 percent voting interest. The ownership interests held by third parties of our consolidated non-VIE entities are reflected as noncontrolling interests in our consolidated financial statements. We began consolidating a majority of these non-VIE entities as a result of the asset contributions from our Parent during the second half of 2014. For certain of these entities, we previously held a percentage ownership, but following the incremental contributions from our Parent, we were presumed to have control.

As our consolidated financial statements in this Annual Report on Form 10-K are presented to reflect the consolidation of the CLOs and above entities we hold investments in, the information contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations also reflects these entities on a consolidated basis, which is consistent with the disclosures in our consolidated financial statements.

We intend to continue to operate so that we qualify, for United States federal income tax purposes, as a partnership and not as an association or a publicly traded partnership taxable as a corporation. Holders of our Series A LLC Preferred Shares are subject to United States federal income taxation and generally other taxes, such as state, local and foreign income taxes, on their allocable share of our gross ordinary income, regardless of whether or when they receive cash distributions. We generally allocate our gross ordinary income using a monthly convention, which means that we determine our taxable income and losses for the taxable year to be allocated to our Series A LLC Preferred Shares and then prorate that amount on a monthly basis. Our Series A LLC Preferred Shares will receive an allocation of our gross ordinary income. If the amount of cash distributed to our Series A LLC Preferred Shares in any year exceeds our gross ordinary income for such year, additional gross ordinary income will be allocated to the Series A LLC Preferred Shares in future years until such excess is eliminated. Consequently, in some taxable years, holders of our Series A LLC Preferred Shares may recognize taxable income in excess of our cash distributions. Furthermore, even if we did not pay cash distributions with respect to a taxable year, holders of our Series A LLC Preferred Shares may still have a tax liability attributable to their allocation of our gross ordinary income from us during such year in the event that cash distributed in a prior year exceeded our gross ordinary income in such year.

Our consolidated financial statements are prepared by management in conformity with GAAP. Our significant accounting policies are fundamental to understanding our financial condition and results of operations because some of these policies require that we make significant estimates and assumptions that may affect the value of our assets or liabilities and financial results. We believe that certain of our policies are critical because they require us to make difficult, subjective, and complex judgments about matters that are inherently uncertain. In addition to the below, refer to "Item 8. Financial Statements and Supplemental Data—Note 2. Summary of Significant Accounting Policies" for further discussion, specifically with regards to those accounting policies that applied to our Predecessor Company.

In connection with the application of acquisition accounting related to the Merger Transaction, as presented under the Successor Company, we elected the fair value option of accounting for our financial assets and CLO secured notes for the primary purpose of reporting values more closely aligned with KKR & Co.'s method of accounting. The fair value option of accounting also enhances the transparency of our financial condition as fair value is consistent with how we manage the risks of these assets and liabilities. Related unrealized gains and losses are reported in net realized and unrealized gain (loss) on investments in the consolidated statements of operations.

the instruments' complexity for disclosure purposes. Assets and liabilities in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined under GAAP, are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets and liabilities, and are as follows:

A significant decrease in the volume and level of activity for the asset or liability is an indication that transactions or quoted prices may not be representative of fair value because in such market conditions there may be increased instances of transactions that are not orderly. In those circumstances, further analysis of transactions or quoted prices is needed, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value.

The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of factors, including, for example, the type of instrument, whether the instrument is new, whether the instrument is traded on an active exchange or in the secondary market, and the current market condition. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset. The variability of the observable inputs affected by the factors described above may cause transfers between Levels 1, 2, and/or 3, which we recognize at the end of the reporting period.

Many financial assets and liabilities have bid and ask prices that can be observed in the market place. Bid prices reflect the highest price that we and others are willing to pay for an asset. Ask prices represent the lowest price that we and others are willing to accept for an asset. For financial assets and liabilities whose inputs are based on bid-ask prices, we do not require that fair value always be a predetermined point in the bid-ask range. Our policy is to allow for mid-market pricing and adjusting to the point within the bid-ask range that meets our best estimate of fair value.

Depending on the relative liquidity in the markets for certain assets, we may transfer assets to Level 3 if we determine that observable quoted prices, obtained directly or indirectly, are not available. The valuation techniques used for the assets and liabilities that are valued using Level 3 of the fair value hierarchy are described below.

Securities and Corporate Loans, at Estimated Fair Value: Securities and corporate loans, at estimated fair value are initially valued at transaction price and are subsequently valued using market data for similar instruments (e.g., recent transactions or broker quotes), comparisons to benchmark derivative indices or valuation models. Valuation models are based on yield analysis techniques, where the key inputs are based on relative value analyses, which incorporate similar instruments from similar issuers. In addition, an illiquidity discount is applied where appropriate.

Equity and Interests in Joint Ventures and Partnerships, at Estimated Fair Value: Equity and interests in joint ventures and partnerships, at estimated fair value, are initially valued at transaction price and are subsequently valued using observable market prices, if available, or internally developed models in the absence of readily observable market prices. Interests in joint ventures and partnerships include certain investments related to the oil and gas, commercial real estate and specialty lending sectors. Valuation models are generally based on market comparables and discounted cash flow approaches, in which various internal and external factors are considered. Factors include key financial inputs and recent public and private transactions for comparable investments. Key inputs used for the discounted cash flow approach, which incorporates significant assumptions and judgment, include the weighted average cost of capital and assumed inputs used to calculate terminal values, such as earnings before interest, taxes, depreciation and amortization ("EBITDA") exit multiples. For natural resources investments, which are generally valued using a discounted cash flow analysis, key inputs that require estimates include commodity price forecasts and the weighted average cost of capital. In addition, the valuations of natural resources investments generally incorporate both commodity prices as quoted on indices and long-term commodity price forecasts, which may be substantially different from, and are currently higher than, commodity prices on certain indices for equivalent future dates. Long-term commodity price forecasts are utilized to capture the value of the investments across a range of commodity prices within the portfolio associated with future development and to reflect price expectations that are estimated to be required to balance demand and production in global commodity markets over the long-term.

Upon completion of the valuations conducted using these approaches, a weighting is ascribed to each approach and an illiquidity discount is applied where appropriate. The ultimate fair value recorded for a particular investment will generally be within the range suggested by the two approaches.

Over-the-counter ("OTC") Derivative Contracts: OTC derivative contracts include forward, swap and option contracts related to interest rates, foreign currencies, credit standing of reference entities and equity prices. OTC derivatives are initially valued using quoted market prices, if available, or models using a series of techniques, including closed-form analytic formulae, such as the Black-Scholes option-pricing model, and/or simulation models in the absence of quoted market prices. Many pricing models employ methodologies that have pricing inputs observed from actively quoted markets, as is the case for generic interest rate swap and option contracts.

Residential Mortgage-Backed Securities, at Estimated Fair Value: RMBS are initially valued at transaction price and are subsequently valued using a third party valuation servicer. The most significant inputs to the valuation of these instruments are default and loss expectations and constant prepayment rates.

Collateralized Loan Obligation Secured Notes: Collateralized loan obligation secured notes are initially valued at transaction price and are subsequently valued using a third party valuation servicer. The most significant inputs to the valuation of these instruments are default and loss expectations and discount margins.

observable. The election would effectively eliminate any measurement difference previously reflected in earnings and attributed to the reporting entity in the consolidated statements of operations. The effective date of the consensus will be for annual periods, and interim periods within those annual periods, beginning after December 15, 2015 for public companies. Early adoption will be permitted as of the beginning of an annual period. We are currently evaluating the impact of this accounting update on our financial statements should we elect adoption.

The following tables show data of our reportable segments reconciled to amounts reflected in the consolidated statements of operations for the eight months ended December 31, 2014, four months ended April 30, 2014, and years ended December 31, 2013 and 2012 (amounts in thousands):

	Successor Company

	Credit			Natural Resources			Other		Reconciling Items(1)			Total Consolidated
	For the eight months ended December 31, 2014			For the eight months ended December 31, 2014			For the eight months ended December 31, 2014		For the eight months ended December 31, 2014			For the eight months ended December 31, 2014
Total revenues	$	279,639		$	57,616		$	13,090	$	—		$	350,345
Total investment costs and expenses		142,204			38,117			815		—			181,136
Total other income (loss)		(241,035	)		(115,141	)		11,794		—			(344,382	)
Total other expenses		40,703			2,219			476		174			43,572
Income tax expense (benefit)		49			—			435		—			484

Net income (loss)	$	(144,352	)	$	(97,861	)	$	23,158	$	(174	)	$	(219,229	)

Net income (loss) attributable to noncontrolling interests		(1,797	)		(4,159	)		—		—			(5,956	)

Net income (loss) attributable to KKR Financial Holdings LLC and Subsidiaries	$	(142,555	)	$	(93,702	)	$	23,158	$	(174	)	$	(213,273	)

	Predecessor Company

	Credit					Natural Resources					Other				Reconciling Items(1)						Total Consolidated
Year ended	December 31, 2013		December 31, 2012			December 31, 2013			December 31, 2012		December 31, 2013		December 31, 2012		December 31, 2013			December 31, 2012			December 31, 2013		December 31, 2012
Total revenues	$	425,209	$	490,861		$	119,178		$	64,535	$	1,519	$	77	$	—		$	—		$	545,906	$	555,473
Total investment costs and expenses		218,600		257,269			86,174			60,668		931		438		—			—			305,705		318,375
Total other income (loss)		171,006		199,723			(13,642	)		1,881		13,576		4,663		(20,015	)		(445	)		150,925		205,822
Total other expenses		60,870		48,640			4,835			5,111		606		217		31,118			44,189			97,429		98,157
Income tax expense (benefit)		450		(3,468	)		—			—		17		1		—			—			467		(3,467	)

Net income (loss)	$	316,295	$	388,143		$	14,527		$	637	$	13,541	$	4,084	$	(51,133	)	$	(44,634	)	$	293,230	$	348,230

We consolidate majority owned entities for which we are presumed to have control. Noncontrolling interests represents the ownership interests that certain third parties hold in these entities that are consolidated in our financial results. The allocable share of income and expense attributable to these interests is accounted for as net income (loss) attributable to noncontrolling interests.

Successor Company net loss attributable to KKR Financial Holdings LLC and Subsidiaries for the eight months ended December 31, 2014 was $213.3 million, which was net of $6.0 million of net loss attributable to noncontrolling interests. During the second half of 2014, we acquired control of certain entities, largely as a result of the asset contributions by our Parent, and began consolidating the financial results of these entities; as such, prior periods do not reflect noncontrolling interests.

Successor Company net loss available to common shares for the eight months ended December 31, 2014 was $233.9 million, net of $20.7 million for preferred share distributions. Predecessor Company net income available to common shares for the four months ended April 30, 2014 was $99.1 million, net of $6.9 million for preferred share distributions. Predecessor Company net income available to common shares for the year ended December 31, 2013 was $265.8 million, net of $27.4 million for preferred share distributions. We issued our Series A LLC Preferred Shares on January 17, 2013.

Revenues consist primarily of interest income and discount accretion from our investment portfolio, as well as oil and gas revenue from our working and overriding royalty interest properties. In addition, revenues include dividend income primarily from our interests in joint ventures and partnerships focused on commercial real estate.

Revenues totaled $350.3 million for the eight months ended December 31, 2014 and was comprised primarily of corporate loan and security interest income and oil and gas revenue of $244.4 million and $57.6 million, respectively. We also received dividends totaling $48.3 million, largely driven by our interests in joint ventures and partnership focused on commercial real estate and specialty lending, as well as our equity investments. As of December 31, 2014, our interests in joint ventures and partnerships had a carrying value of $718.8 million. Comparatively, we had $491.3 million and $436.2 million carrying value of interests in joint ventures and partnerships as of April 30, 2014 and December 31, 2013, respectively. Refer to "Revenues" below in the Credit and Other segments for further discussion on dividend income.

Revenues totaled $217.2 million for the four months ended April 30, 2014 and was comprised primarily of corporate loan and security interest income and oil and gas revenue of $127.2 million and $61.8 million, respectively. We also received dividends totaling $28.3 million, largely driven by our interests in joint ventures and partnership focused on commercial real estate acquired in 2012 and early 2013. Refer to "Revenues" below in Other segment for further discussion on dividend income.

Revenues decreased $9.6 million in 2013 compared to 2012 primarily due to a reduction in loan and securities interest income of $78.6 million which was primarily driven by a decline in our corporate debt portfolio. The average par balance of our corporate debt securities portfolio declined $272.3 million while our corporate loan portfolio declined $147.1 million in 2013 as compared to 2012. In addition, the decline in interest income was attributable to less discount accretion earned during 2013 due to comparatively smaller discounts on our remaining corporate debt portfolio and a decrease in accelerated discount accretion as a result of fewer paydowns during 2013 compared to 2012. These decreases were partially offset by $54.6 million of incremental oil and gas revenue primarily as a result of increased oil production from the acquisition and development of additional working and royalty interests and $12.4 million of additional dividend income.

Investment costs and expenses is comprised of interest expense, oil and gas production costs, depreciation, depletion and amortization expense ("DD&A") related to our oil and gas properties, provision for loan losses and other investment expenses.

Investment costs and expenses totaled $181.1 million for the eight months ended December 31, 2014 and was comprised primarily of interest expense and oil and gas-related costs of $144.4 million and $34.7 million, respectively. During July 2014, we called CLO 2007-A and as a result made an interest payment to the subordinated note holders in October 2014. In addition, we closed three CLOs during 2014: CLO 2013-2 in January 2014, CLO 9 in September 2014 and CLO 10 in December 2014.

Investment costs and expenses totaled $101.8 million for the four months ended April 30, 2014 and was comprised primarily of interest expense of $64.4 million and oil and gas-related costs of $37.2 million. During January 2014, we closed CLO 2013-2 with $339.3 million par amount of senior secured notes issued to unaffiliated investors, of which $319.3 million was floating rate with a weighted-average coupon of three-month LIBOR plus 2.16% and $20.0 million was fixed rate at 3.74%.

Investment costs and expenses decreased $12.7 million in 2013 compared to 2012 due to a $26.4 million decrease in interest expense and interest expense to affiliates coupled with a $13.7 million decrease in provision for loan losses. Interest expense and interest expense to affiliates fell $26.4 million to $190.2 million in 2013 compared to $216.6 million in 2012 primarily due to two factors. First, during 2013, our Manager agreed to credit us for a portion of the CLO management fees received by an affiliate of our Manager from CLO 2007-1, CLO 2007-A and CLO 2012-1 via an offset to the monthly base management fees payable to our Manager. As we own less than 100% of the subordinated notes of these three CLOs, we received a credit equal only to our pro rata share of the aggregate CLO management fees paid by these CLOs. The remaining portion of the CLO management fees paid by each of these CLOs was not credited to us, but instead resulted in a dollar-for-dollar reduction in the interest paid by us to the third party holder of the CLO's subordinated notes (classified as interest expense on our consolidated statements of operation). See "Other Expenses" below for further discussion around CLO management fees. Second, the decline in interest expense and interest expense to affiliates was due to the continued amortization of outstanding senior notes in our legacy CLOs that are out of their reinvestment periods.

The comparatively larger provision for loan losses recorded in 2012 was as a result of an increase in the unallocated component of our allowance for loan losses based on a review of our unimpaired, held for investment loan portfolio, with particular sensitivity to the corporate loans we designated as high risk within our internally assigned risk grades.

These factors contributing to a decline in total investment costs and expenses were partially offset by a $22.1 million increase in oil and gas DD&A as a result of increased production from the acquisition and development of additional working and royalty interests in 2012 and 2013.

Other loss totaled $344.4 million for the eight months ended December 31, 2014 and was comprised primarily of a $349.4 million net realized and unrealized loss on investments, largely driven by unrealized losses in our corporate loan portfolio and interests in joint ventures and partnerships, at estimated fair value, specifically those interests focused on the oil and gas sector. In connection with the Merger Transaction and as of the Effective Date, all of our corporate loans are carried at estimated fair value with changes in estimated fair value recorded in net realized and unrealized gain (loss) on investments in the consolidated statements of operations. In addition, an $18.5 million net realized and unrealized loss on derivatives and foreign exchange was recorded for the eight months ended December 31, 2014, primarily as a result of unrealized losses on our interest rate swaps and realized losses in our foreign exchange contracts forward contracts and options.

Partially offsetting the above losses was a $16.5 million unrealized gain on debt. Pursuant to the Merger Transaction, we elected the fair value option of accounting for our collateralized loan obligation secured notes as of the Effective Date with any changes in estimated fair value recorded in net realized and unrealized gain (loss) on debt in the consolidated statements of operations.

Other income totaled $56.3 million for the four months ended April 30, 2014 and was comprised of a $61.6 million net realized and unrealized gain on investments, partially offset by a $9.8 million net realized and unrealized loss on derivatives and foreign exchange. The $61.6 million net realized and unrealized gain on investments was largely driven by favorable sales and mark-to-market changes in our corporate loan portfolio and equity investments, at estimated fair value.

Other income decreased $54.9 million in 2013 compared to 2012. This change was primarily as a result of a $36.0 million decline in net realized and unrealized gain on investments as a result of larger realized gains on sales and paydowns of certain individual investments during 2012, specifically three significant corporate loan holdings, combined with a $20.0 million loss on restructuring and extinguishment of debt in 2013 related to the conversion of our convertible notes during the first quarter of 2013.

Other expenses include related party management compensation, general, administrative and directors' expenses and professional services. Related party management compensation consists of base management fees payable to our Manager pursuant to the Management Agreement, collateral management fees and incentive fees. In connection with the Merger Transaction, our Predecessor Company's common shares were converted into 0.51 KKR & Co. common units. As such, prior to the Effective Date, we accounted for share-based compensation issued to our directors and to our Manager using the fair value based methodology. Share-based compensation related to restricted common shares and common share options granted to our Manager were also included in related party management compensation.

We pay our Manager a base management fee quarterly in arrears. During 2014 and 2013, certain related party fees received by affiliates of our Manager were credited to us via an offset to the base management fee ("Fee Credits"). Specifically, as described in further detail under "CLO Management Fees" below, a portion of the CLO management fees received by an affiliate of our Manager for certain of our CLOs were credited to us via an offset to the base management fee.

In addition, during 2014 and 2013, we invested in a transaction that generated placement fees paid to a minority-owned affiliate of KKR. In connection with this transaction, our Manager agreed to reduce the base management fee payable by us to our Manager for the portion of these placement fees that were earned by KKR as a result of this minority-ownership. Separately, certain third-party expenses accrued and paid by us in the fourth quarter of 2013 in connection with the merger with KKR & Co. were used to reduce the base management fees payable to our Manager in an amount equal to such third-party expenses.

The table below summarizes the aggregate base management fees (amounts in thousands):

Beginning in June 2013, our Manager credited us for a portion of the CLO management fees received by an affiliate of our Manager from CLO 2007-1, CLO 2007-A and CLO 2012-1 via an offset to the base management fees payable to our Manager. As we own less than 100% of the subordinated notes of these three CLOs (with the remaining subordinated notes held by third parties), we received a Fee Credit equal only to our pro rata share of the aggregate CLO management fees paid by these CLOs. Specifically, the amount of the reimbursement for each of these CLOs was calculated by taking the product of (x) the total CLO management fees received by an affiliate our Manager during the period for such CLO multiplied by (y) the percentage of the subordinated notes of such CLO held by us. The remaining portion of the CLO management fees paid by each of these CLOs was not credited to us, but instead resulted in a dollar-for-dollar reduction in the interest expense paid by us to the third party holder of the CLO's subordinated notes. Similarly, our Manager credited to us the CLO management fees from CLO 2013-1 and CLO 2013-2 based on our 100% ownership of the subordinated notes in the CLO.

The table below summarizes the aggregate CLO management fees, including the Fee Credits (amounts in thousands):

Subordinated note holders in CLOs have the first risk of loss and conversely, the residual value upside of the transactions. When CLO management fees are paid by a CLO, the residual economic

interests in the CLO transaction are reduced by an amount commensurate with the CLO management fees paid. We record any residual proceeds due to subordinated note holders as interest expense on the consolidated statements of operations. Accordingly, the increase in CLO management fees is directly offset by a decrease in interest expense.

Other expenses totaled $43.6 million for the eight months ended December 31, 2014, and was comprised primarily of related party management compensation of $33.8 million, of which $15.1 million was attributable to base management fees.

Other expenses totaled $65.6 million for the four months ended April 30, 2014, which was largely driven by two factors. First, related party management compensation totaled $29.8 million, $12.9 million of which was related to incentive fees, which are based in part upon our achievement of specified levels of net income and $11.0 million of which was related to CLO management fees. Second, professional services totaled $26.9 million, of which approximately $22.7 million was related to the Merger Transaction.

Other expenses decreased $0.7 million in 2013 compared to 2012 due to a few offsetting factors. Firstly, incentive fees, which are based in part upon our achievement of specified levels of net income, declined $14.8 million to $22.7 million in 2013 compared to $37.6 million in 2012, primarily as a result of our financial performance during the second half of 2013 not exceeding certain benchmarks. Secondly, net base management fees decreased $3.2 million primarily due to (i) Fee Credits of $10.0 million and $4.0 million in connection to CLO management fees and other related party fees earned by an affiliate of our Manager, respectively, which were credited to us via an offset to the base management fee, partially offset by (ii) an increase in gross base management fees of $10.8 million due to an increase in equity (as defined by the Management Agreement) related to the issuance of our 7.375% preferred shares and common shares in connection with our convertible notes conversion during the first quarter of 2013.

Partially offsetting the above changes was an increase in total CLO management fees of $13.0 million due to CLO 2007-1, CLO 2007-A, and CLO 2012-1 beginning to pay CLO management fees in 2013. In addition, professional services expenses increased $2.7 million in 2013 compared to 2012.

We operate our business through multiple reportable segments, which are differentiated primarily by their investment focuses.

The segments currently reported are consistent with the way decisions regarding the allocation of resources are made, as well as how operating results are reviewed by our chief operating decision maker.

We evaluate the performance of our reportable segments based on several net income (loss) components. Net income (loss) includes: (i) revenues; (ii) related investment costs and expenses; (iii) other income (loss), which is comprised primarily of unrealized and realized gains and losses on investments, debt and derivatives and (iv) other expenses, including related party management compensation and general and administrative expenses. Certain corporate assets and expenses that are not directly related to the individual segments, including interest expense and related costs on borrowings, base management fees and professional services are allocated to individual segments based on the investment portfolio balance in each respective segment as of the most recent period-end. Certain other corporate assets and expenses, including prepaid insurance, incentive fees, insurance expenses, directors' expenses and share-based compensation expense are not allocated to individual segments in our assessment of segment performance. Collectively, these items are included as reconciling items between reported segment amounts and consolidated totals. For further financial information related to our segments, refer to "Part II—Item 8. Financial Statements and Supplementary Data—Note 15. Segment Reporting."

The following discussion and analysis regarding our results of operations is based on our reportable segments.

The following table presents the net income (loss) components of our Credit segment (amounts in thousands):

	Successor Company			Predecessor Company

	For the eight months ended December 31, 2014			For the four months ended April 30, 2014			For the year ended December 31, 2013			For the year ended December 31, 2012
Revenues
Corporate loans and securities interest income	$	230,369		$	114,992		$	353,165		$	394,108
Residential mortgage-backed securities interest income		3,030			2,027			10,192			11,649
Net discount accretion		11,048			10,158			46,448			82,621
Dividend income		35,098			7,058			13,253			2,302
Other		94			20			2,151			181

Total revenues		279,639			134,255			425,209			490,861

Investment costs and expenses
Interest expense:
Collateralized loan obligation secured notes		98,610			39,923			86,792			71,749
Credit facilities		—			1,059			895			3,423
Convertible senior notes		—			1			4,178			18,595
Senior notes		17,748			9,234			28,059			26,937
Junior subordinated notes		10,510			4,681			14,313			14,885
Interest rate swaps		13,803			7,284			22,667			22,556
Other interest expense		—			14			208			331

Total interest expense		140,671			62,196			157,112			158,476
Interest expense to affiliates		—			—			26,943			51,586
Provision for loan losses		—			—			32,812			46,498
Other		1,533			289			1,733			709

Total investment costs and expenses		142,204			62,485			218,600			257,269

Other income (loss)
Realized and unrealized gain (loss) on derivatives and foreign exchange:
Interest rate swap		(6,890	)		—			—			—
Credit default swaps		—			(181	)		(4,220	)		(5,138	)
Total rate of return swaps		(470	)		(2,065	)		1,574			141
Common stock warrants		155			137			824			1,677
Foreign exchange(1)		(6,115	)		588			(2,056	)		(3,047	)
Options		(1,472	)		(19	)		242			—

Total realized and unrealized gain (loss) on derivatives and foreign exchange		(14,792	)		(1,540	)		(3,636	)		(6,367	)
Net realized and unrealized gain (loss) on investments(2)		(249,478	)		72,623			180,378			202,999
Net realized and unrealized gain (loss) on debt		16,478			—			—			—
Lower of cost or estimated fair value(2)		—			5,038			(5,899	)		(2,656	)
Impairment of securities available for-sale and private equity at cost(2)		—			(4,391	)		(19,512	)		(8,759	)
Other income		6,757			4,316			19,675			14,506

Total other income (loss)		(241,035	)		76,046			171,006			199,723

Other expenses
Related party management compensation:
Base management fees		13,935			4,786			23,159			26,706
CLO management fees		18,619			11,016			17,282			4,237

Total related party management compensation		32,554			15,802			40,441			30,943
Professional services		2,928			3,508			8,016			5,697
Other general and administrative		5,221			3,811			12,413			12,000

Total other expenses		40,703			23,121			60,870			48,640

Income (loss) before income taxes		(144,303	)		124,695			316,745			384,230
Income tax expense (benefit)		49			146			450			(3,468	)

Net income (loss)	$	(144,352	)	$	124,549		$	316,295		$	388,143

Revenues totaled $279.6 million for the eight months ended December 31, 2014 and was comprised primarily of corporate loan and security interest income of $203.1 million and $27.3 million, respectively. As of December 31, 2014, our corporate loan portfolio had an aggregate par value of $6.9 billion with a weighted average coupon of 4.7%, while our corporate debt securities portfolio had an aggregate par value of $634.7 million with a weighted average coupon of 7.8%, or 9.3% excluding subordinated notes in third-party-controlled CLOs. A majority of our corporate loan portfolio is floating rate indexed to the three-month LIBOR; as such, LIBOR rates impact our earnings. The three-month LIBOR was 0.26% as of December 31, 2014 and the percentage of our floating rate corporate debt portfolio with LIBOR floors was 74.3% as of December 31, 2014.

In addition, we received dividend income of $35.1 million for the eight months ended December 31, 2014, primarily from our equity investments and interests in joint ventures and partnerships, which we acquired during 2014 and 2013.

Furthermore, net discount accretion totaled $11.0 million for the eight months ended December 31, 2014, primarily from recurring accretion. As described above in "Executive Overview," in connection with the Merger Transaction, a new accounting basis was established for all assets and liabilities to reflect estimated fair value as of the Effective Date. Accordingly, total net discount accretion for the eight months ended December 31, 2014 was based on accretion and amortization of the new discounts and premiums.

Revenues totaled $134.3 million for the four months ended April 30, 2014 and was comprised primarily of corporate loan interest income of $103.6 million. A majority of our corporate loan portfolio is floating rate indexed to the three-month LIBOR; as such, LIBOR rates impact our earnings. The three-month LIBOR was 0.22% as of April 30, 2014 and the percentage of our floating rate corporate debt portfolio with LIBOR floors was 68.0% as of April 30, 2014.

In addition, for the four months ended April 30, 2014, net discount accretion totaled $10.2 million primarily as a result of recurring accretion, and dividend income totaled $7.1 million which was received primarily from our equity investments, at estimated fair value.

Revenues decreased $65.7 million in 2013 compared to 2012. The decrease was primarily attributable to a $40.9 million decline in corporate loans and securities interest income earned due to declining average par balances in the corporate debt portfolio. The average par balances for our corporate debt securities portfolio declined by $272.3 million to $427.4 million in 2013 compared to $699.8 million in 2012. The weighted average par balances for our corporate loan portfolio declined by $147.1 million to $6.5 billion in 2013 compared to $6.6 billion in 2012. This reduction was the result of fewer purchases during 2012 and 2013 as the majority of our legacy CLOs have ended their reinvestment periods. CLO 2006-1 ended its reinvestment period during 2012, while CLO 2005-1, CLO 2005-2 and CLO 2007-A ended their reinvestment periods in 2011 and 2010. Refer to "Investment Portfolio Overview" for further discussion on the principal proceeds from the assets held in each of these CLO transactions used to amortize the outstanding balance of the CLO senior notes outstanding. While we issued two new CLOs and upsized an existing CLO to offset the run-off of our

legacy CLOs, CLO 2012-1, CLO 2013-1 and the upsize of CLO 2011-1 did not close until December 2012, June 2013 and September 2013, respectively.

In addition, as the majority of our corporate debt portfolio is floating rate indexed to the three-month LIBOR, LIBOR rates impact our earnings. The average three-month LIBOR rate decreased to 0.27% for 2013 from 0.43% for 2012. Also, the percentage of our floating rate corporate debt portfolio with LIBOR floors totaled 61.6% as of December 31, 2013 with a weighted average floor of 1.0% compared to 51.6% as of December 31, 2012 with a weighted average floor of 1.4%.

Furthermore, net discount accretion decreased $36.2 million as a result of (i) a $22.6 million decline in recurring accretion income due to a smaller overall corporate loan portfolio and comparatively smaller discounts on the remaining portfolio and (ii) a $13.6 million decrease in accelerated discount accretion as a result of fewer paydowns in the corporate loan portfolio during 2013 compared to 2012.

These negative changes were partially offset by an $11.0 million increase in dividend income in 2013 compared to 2012 primarily driven by certain private equity investments carried at estimated fair value.

Investment costs and expenses totaled $142.2 million for the eight months ended December 31, 2014, of which $98.6 million was related to interest expense on collateralized loan obligation secured notes and $17.7 million was related to interest expense on senior notes. During 2014, we closed three CLOs: (i) CLO 2013-2 in January 2014, a $384.0 million secured financing transaction, (ii) CLO 9 in September 2014, a $518.0 million secured financing transaction and (iii) CLO 10 in December 2014, a $415.6 million secured financing transaction. As of December 31, 2014, the aggregate par amount of our collateralized loan obligation secured notes was $5.6 billion. Comparatively, the aggregate par amount of our collateralized loan obligation secured notes as of April 30, 2014 and December 31, 2013 was $5.7 billion and $5.3 billion, respectively.

Investment costs and expenses totaled $62.5 million for the four months ended April 30, 2014, of which $39.9 million was related to interest expense on collateralized loan obligation secured notes. In addition to the new CLOs and notes issued during the first four months of 2014, during the fourth quarter of 2013, an affiliate of our manager sold its interests in the junior notes of both CLO 2007-1 and CLO 2007-A to external parties. Accordingly, interest expense to affiliates was zero for the four months ended April 30, 2014 and any interest owed to external parties on these notes was included in interest expense on collateralized loan obligation secured notes.

Total investment costs and expenses decreased $38.7 million in 2013 compared to 2012. The decrease was attributable to three primary factors, including a reduction in the provision for loan losses of $13.7 million to $32.8 million in 2013 compared to $46.5 million in 2012. This decline was attributable to a comparatively larger provision for loan losses recorded in 2012 as a result of an increase in the unallocated component of our allowance for loan losses based on a review with particular sensitivity to those corporate loans that we designated as high risk.

Secondly, interest expense on CLO secured notes and interest expense to affiliates decreased $9.6 million to $113.7 million in 2013 compared to $123.3 million in 2012 due to (i) CLO management fees being charged for CLO 2007-1 and CLO 2007-A during the second half of 2013, thereby reducing the subordinated note payments to third parties for these CLOs and (ii) declining residual economic interests owed to subordinated note holders due to the continued amortization of outstanding senior notes in our legacy CLOs that are out of their reinvestment periods, partially offset by (iii) an increase in interest expense on CLO secured notes due to the fact that we closed CLO 2012-1 and CLO 2013-1 in 2012 and 2013, respectively.

Lastly, interest expense on our convertible senior notes decreased $14.4 million to $4.2 million in 2013 compared to $18.6 million in 2012 due to the retirement and extinguishment, respectively, of our 7.0% and 7.5% convertible notes.

Other income (loss) consists of gains and losses that can be highly variable, primarily driven by episodic sales, mark-to-market, commodity prices and foreign currency exchange rates as of each period-end.

The table below details the components of net realized and unrealized gain (loss) on investments, which is included in other income (loss), separated by financial instrument for the eight months ended December 31, 2014 and four months ended April 30, 2014 (amounts in thousands):

The table below details the components of net realized and unrealized gain (loss) on investments, which is included in other income (loss), separated by financial instrument for the years ended December 31, 2013 and 2012 (amounts in thousands):

As discussed above in "Executive Overview—Merger with KKR & Co.," in connection with the Merger Transaction, the Successor Company accounts for all of its corporate loans and collateralized loan obligation secured notes at estimated fair value. Accordingly, as of the Effective Date, the Successor Company (i) recognizes net realized and unrealized gains and losses on debt and (ii) no longer records lower of cost or estimated fair value adjustments for corporate loans held for sale or impairment for securities available-for-sale and private equity at cost.

Total other loss was $241.0 million for the eight months ended December 31, 2014, primarily driven by net realized and unrealized loss on investments which totaled $249.5 million. Of the $249.5 million net realized and unrealized loss on investments, $204.0 million was related to unrealized losses on our corporate loan portfolio largely attributable to general market conditions. For example, the S&P/LSTA Loan Index returned 0.28% for the eight months ended December 31, 2014 as compared to 1.31% for the four months ended April 30, 2014. Specifically, $88.9 million of unrealized losses were attributable to two investments focused on the education and energy sectors. The decreased valuations of these two investments were primarily related to individual company performance and the decline in commodity prices, respectively.

Partially offsetting these unrealized losses was a $16.5 million unrealized gain on collateralized loan obligation secured notes for the eight months ended December 31, 2014. As of the Effective Date, we elected the fair value option of accounting for both our corporate loan portfolio and our CLO liabilities. As such, any changes in estimated fair value are recorded in net realized and unrealized gain (loss) on investments and net realized and unrealized gain (loss) on debt, respectively, in the consolidated statements of operations.

Total other income was $76.0 million for the four months ended April 30, 2014. Net realized and unrealized gain on investments totaled $72.6 million for the four months ended April 30, 2014, primarily driven by net realized and unrealized gains on our equity investments, at estimated fair value

and corporate loan portfolio. In addition, during the four months ended April 30, 2014, a $5.0 million beneficial change in the lower of cost or estimated fair value adjustment for certain corporate loans held for sale was recorded. While the lower of cost or estimated fair value adjustment is impacted by activity held in the held for sale portfolio, including sales and transfers, fluctuations in the market value typically have the largest impact on the amount of adjustment. Refer to "Investment Portfolio" below for the components comprising the lower of cost or estimated fair value adjustment.

Total other income decreased $28.7 million to $171.0 million in 2013 compared to $199.7 million in 2012. This decrease was primarily driven by a $22.6 million reduction in net realized and unrealized gain on investments to $180.4 million in 2013 compared to $203.0 million in 2012. The key driver of this change included a $95.2 million decline in realized gains on our corporate debt securities portfolio to $9.3 million in 2013 compared to $104.4 million in 2012 primarily due to significant realized gains from sales and paydowns of certain investments during 2012. Specifically, $67.0 million of the total $104.4 million realized gains in 2012 was related to the sale of three corporate debt security holdings. Partially offsetting the $22.6 million decline in net realized and unrealized gain on investments was (i) a $54.7 million increase in net realized and unrealized gain on our corporate loan portfolio to $96.9 million in 2013 compared to $42.2 million in 2012 primarily due to the sale of certain of our corporate loan positions during the first half of 2013 and (ii) a $10.4 million increase in unrealized gains on interests in joint ventures and partnerships on various interests, including those acquired during the second half of 2013. Interests in joint ventures and partnerships are recorded at estimated fair value on our consolidated balance sheets with net realized and unrealized gain on investments recorded in other income on our consolidated statements of operation. We realized a substantial majority of the unrealized gains that were embedded in our bank loan and high yield portfolio prior to the second quarter of 2013.

In addition to the factors above, the decrease in other income was attributable to a $10.8 million increase in impairment losses recorded for securities available-for-sale that we determined to be other-than-temporarily impaired to $19.5 million in 2013 compared to $8.8 million in 2012. Lastly, there was an additional $3.2 million net charge to earnings for the lower of cost or estimated fair value adjustment to corporate loans held for sale to $5.9 million in 2013 compared to $2.7 million in 2012. As of December 31, 2013 and 2012, our corporate loans held for sale had a carrying value of $279.7 million and $128.3 million, respectively. While the lower of cost or estimated fair value adjustment is impacted by activity in the held for sale portfolio, including sales and transfers, fluctuations in the market value typically have the largest impact on the amount of adjustment. Refer to "Investment Portfolio" for the components comprising the lower of cost or estimated fair value adjustment.

The above declines were partially offset by a $5.2 million increase in trade-related income.

Other expenses totaled $40.7 million for the eight months ended December 31, 2014, primarily due to related party management compensation of $32.6 million. Related party management compensation includes base management fees and CLO management fees. CLO management fees expense for CLO 2005-1, CLO 2007-1, CLO 2007-A, CLO 2012-1, CLO 2013-1, and CLO 2013-2 were recorded during the eight months ended December 31, 2014.

Other expenses totaled $23.1 million for the four months ended April 30, 2014, primarily due to related party management compensation. Related party management compensation is comprised of base management fees and CLO management fees which totaled $4.8 million and $11.0 million, respectively, for the four months ended April 30, 2014. CLO management fees charged were for CLO 2005-1, CLO 2007-1, CLO 2007-A, CLO 2012-1, CLO 2013-1 and CLO 2013-2.

Total other expenses increased $12.2 million to $60.9 million in 2013 compared to $48.6 million in 2012 primarily due to an increase in related party management compensation. Total related party management, which includes base management fees and CLO management fees, increased $9.5 million to $40.4 million in 2013 compared to $30.9 million in 2012. CLO management fees increased $13.0 million in 2013 compared to 2012 due to the fact that CLO 2007-1, CLO 2007-A, and CLO 2012-1 began paying management fees during 2013. However, partially offsetting this increase was a decrease of $3.5 million in net base management fees primarily due to (i) certain related party fees received by affiliates of our Manager, which were credited to us via an offset to the base management fee, partially offset by (ii) an increase in gross base management fees due to higher equity (as defined by the Management Agreement) resulting from both net income and the issuance of our 7.375% preferred shares and common shares in connection with our convertible notes conversion during the first quarter of 2013. See "Consolidated Results" above for further discussion around the CLO management fee and base management fee offsets.

In addition to the factors above, the increase in other expenses was attributable to a $2.3 million increase in professional services expenses during 2013 compared to 2012.

The following table presents the net income (loss) components of our Natural Resources segment (amounts in thousands):

	Successor Company

	Successor Company			Predecessor Company
	For the eight months ended December 31, 2014			For the four months ended April 30, 2014			For the year ended December 31, 2013			For the year ended December 31, 2012
Revenues
Oil and gas revenue:
Natural gas sales	$	16,085		$	13,547		$	32,271		$	22,203
Oil sales		30,973			40,122			66,706			26,353
Natural gas liquids sales		7,026			6,211			15,415			12,773
Other		3,532			1,902			4,786			3,206

Total revenues		57,616			61,782			119,178			64,535

Investment costs and expenses
Oil and gas production costs:
Lease operating expenses		7,500			7,088			16,546			14,562
Workover expenses		572			811			2,899			3,335
Transportation and marketing expenses		4,030			4,415			10,054			7,477
Severance and ad valorem taxes		3,127			2,458			6,315			3,606

Total oil and gas production costs		15,229			14,772			35,814			28,980
Oil and gas depreciation, depletion and amortization		19,458			22,471			44,061			21,931
Interest expense:
Credit facilities		1,473			776			2,249			3,042
Convertible senior notes		—			—			244			944
Senior notes		934			641			1,774			1,366
Junior subordinated notes		553			325			905			755

Total interest expense		2,960			1,742			5,172			6,107
Other		470			(70	)		1,127			3,650

Total investment costs and expenses		38,117			38,915			86,174			60,668

Other income (loss)
Net realized and unrealized gain (loss) on derivatives and foreign exchange:
Commodity swaps		(1,660	)		(8,371	)		(4,266	)		4,275

Total net realized and unrealized gain (loss) on derivatives and foreign exchange		(1,660	)		(8,371	)		(4,266	)		4,275
Net realized and unrealized gain (loss) on investments(1)		(113,743	)		1			(10,407	)		(3,191	)
Other income		262			247			1,031			797

Total other income (loss)		(115,141	)		(8,123	)		(13,642	)		1,881

Other expenses
Related party management compensation:
Base management fees		818			332			1,437			1,355

Total related party management compensation		818			332			1,437			1,355
Professional services		298			580			1,140			930
Insurance		14			56			323			126
Other general and administrative		1,089			665			1,935			2,700

Total other expenses		2,219			1,633			4,835			5,111

Income (loss) before income taxes		(97,861	)		13,111			14,527			637
Income tax expense (benefit)		—			—			—			—

Net income (loss)	$	(97,861	)	$	13,111		$	14,527		$	637

As described previously, on September 30, 2014, we closed the Trinity transaction. As of December 31, 2014, the Trinity assets had a carrying value of $51.6 million and were classified as interests in joint ventures and partnerships, at estimated fair value, rather than oil and gas properties, net, on our consolidated balance sheets.

Revenues totaled $57.6 million for the eight months ended December 31, 2014, which represented sales from oil and gas production on our working and overriding royalty interest properties. As of December 31, 2014, our natural resources assets had a total carrying value of $259.3 million, which excluded $37.4 million of noncontrolling interests. Of the $259.3 million, $120.3 million represented our overriding royalty interest properties and the remainder represented interests in joint ventures and partnerships focused on oil and gas, including Trinity.

For our interests in joint ventures and partnerships, changes in value were reflected as unrealized gains or losses in the consolidated statements of operations. As such, oil and gas revenues and associated expenses, including production costs and DD&A, were not applicable and pertained only to our oil and gas properties. Unless we acquire additional properties, oil and gas revenues and associated expenses will only be reported for our overriding royalty interest properties.

Revenues totaled $61.8 million for the four months ended April 30, 2014 which represented sales from oil and gas production on our working and overriding royalty interest properties.

Revenue increased $54.6 million to $119.2 million in 2013 compared to $64.5 million in 2012 due to an increase in production resulting from the drilling and completion of undeveloped working and overriding royalty interest properties, as well as a full year of results in 2013 for acquisitions of producing oil and natural gas properties made in 2012. As of December 31, 2013 and 2012, our working and overriding royalty interests had a carrying amount of $400.4 million and $289.9 million, respectively.

Average daily production increased 36% in 2013 compared to 2012 primarily due to both the drilling and completion of undeveloped properties during 2013 and a full year of results in 2013 for acquisitions made in 2012.

Investment costs and expenses primarily consist of production costs, DD&A and other expenses related to acquisitions.

Production costs represent costs incurred to operate and maintain our wells and include lease operating expenses and transportation and marketing expenses. Lease operating expenses include expenses such as labor, rented equipment, field office, saltwater disposal, maintenance, tools and supplies. Furthermore, we have agreements with third parties to act as managers of certain of our oil and natural gas properties. Services provided by these third party managers include making business

and operational decisions related to the production and sale of oil, natural gas and NGLs, collection and disbursement of revenues, operating expenses, general and administrative expenses and other necessary and useful services for the operation of the assets.

Production costs also include severance and ad valorem taxes, which are primarily affected by the price of oil and natural gas in addition to changes in production and property values.

DD&A represents recurring charges related to the exhaustion of mineral reserves for our oil and natural gas properties. DD&A is calculated using the units-of-production method, which depletes capitalized costs of producing oil and natural gas properties based on the ratio of current production to estimated total net proved oil, natural gas and NGL reserves, and total net proved developed oil, natural gas and NGL reserves. Our depletion expense is affected by factors including positive and negative reserve revisions primarily related to well performance, commodity prices, additional capital expended to develop new wells and reserve additions resulting from development activity and acquisitions.

Investment costs and expenses totaled $38.1 million for the eight months ended December 31, 2014. A majority was related to DD&A, which totaled $19.5 million for the eight months ended December 31, 2014 due to continued production and depletable costs that resulted from the drilling and completion of additional wells. As a result of the Trinity transaction and distribution of natural resources assets to our Parent during the eight months ended December 2014, DD&A decreased compared to prior periods and will only apply to our overriding royalty interest properties going forward.

In addition, investment costs and expenses was comprised of oil and gas production costs totaling $15.2 million, of which $7.5 million was from lease operating expenses for the eight months ended December 31, 2014.

Investment costs and expenses totaled $38.9 million for the four months ended April 30, 2014. A majority was related to DD&A, which totaled $22.5 million for the four months ended April 30, 2014 due to continued production and depletable costs that resulted from the drilling and completion of additional wells. Oil and gas production costs totaled $14.8 million for the four months ended April 30, 2014, of which $7.1 million was from lease operating expenses.

Total investment costs and expenses increased $25.5 million to $86.2 million in 2013 compared to $60.7 million in 2012. As described above, we acquired additional producing oil and natural gas properties during 2012 and developed previously undeveloped properties in 2013 and thus, the costs associated with operating and managing the wells increased. Total oil and gas production costs increased $6.8 million to $35.8 million in 2013 compared to $29.0 million in 2012. Most notable was the increase in severance and ad valorem taxes of $2.7 million and transportation and marketing expenses of $2.6 million related to an increase in well count and production. Similarly, DD&A increased $22.1 million to $44.1 million in 2013 compared to $21.9 million in 2012 due to an increase in production and depletable costs that resulted from the drilling and completion of additional wells and a full year of results in 2013 for acquisitions made in 2012.

Our oil and gas results and estimated fair values depend substantially on natural gas, oil and NGL prices and production levels, as well as drilling and operating costs. The price we realize for our production is affected by our hedging activities. In order to help mitigate the potential exposure and effects of changing commodity prices on our revenues and cash flows from operations, we entered into commodity swaps for a portion of our working and overriding royalty interests. Our policy was to hedge a portion of the total estimated oil, natural gas and/or NGL production on our working and overriding royalty interests for a specified amount of time.

Realized gain or loss on commodity swaps represented amounts related to the settlement of derivative instruments which, for commodity derivatives, were aligned with the underlying production. Unrealized losses on commodity swaps resulted from changes in commodity prices from period to period, as well as changes in market valuations of derivatives as future commodity price expectations change compared to the contract prices on the derivatives. If the expected future commodity prices increased compared to the contract prices on the derivatives, unrealized losses were recognized; if the expected future commodity prices decreased compared to the contract prices on the derivatives, unrealized gains were recognized.

Total other loss was $115.1 million for the eight months ended December 31, 2014. This loss was primarily as a result of a $113.7 million net realized and unrealized loss on our investments, of which $95.1 million was related to unrealized losses on Trinity. As described above, during the third quarter of 2014, certain of our working interests in oil and gas properties, which were previously carried at cost, net of DD&A, were contributed along with assets from a third party to form Trinity and were classified as interests in joint ventures and partnerships, at estimated fair value. Changes in estimated fair value are recorded in net realized and unrealized gain (loss) on investments in the consolidated statements of operations. This change in accounting treatment, coupled with declining commodity prices, negatively impacted the fair value of Trinity. Specifically, this decrease in value was primarily attributable to a drop in long-term oil, condensate, natural gas liquids, and natural gas prices during the year ended December 31, 2014 with the greatest declines occurring in the fourth quarter. For example, the 2017 price of WTI crude oil declined from approximately $85 per barrel to $67 per barrel and the 2017 price of natural gas declined from approximately $4.22 per mcf to $3.76 per mcf as of September 30, 2014 and December 31, 2014, respectively. For additional information regarding our natural resources valuation methodologies, see "Fair Value of Financial Instruments" in Note 2 to the consolidated financial statements included elsewhere in this report.

Total other loss totaled $8.1 million for the four months ended April 30, 2014 primarily attributable to an $8.4 million net realized and unrealized loss on our commodity swaps, of which $2.5 million was from derivative settlements and the remaining was from changes in market valuations on the derivatives.

Total other loss changed $15.5 million resulting in total other loss of $13.6 million in 2013 compared to total other income of $1.9 million in 2012, primarily attributable to unrealized losses on our commodity swaps combined with impairment recorded on certain of our oil and natural gas properties.

In 2013 and 2012 we used commodity derivative contracts, consisting of oil, natural gas and certain NGL products receive-fixed, pay-floating swaps for certain years through 2016 as described above. Net realized and unrealized gain (loss) on commodity swaps totaled a loss of $4.3 million in 2013 compared to a gain of $4.3 million in 2012. Unrealized gains and losses on commodity swaps result from changes in commodity prices from period to period, as well as changes in market valuations of derivatives as future commodity price expectations change compared to the contract prices on the derivatives. If the expected future commodity prices increase compared to the contract prices on the derivatives, unrealized losses are recognized; if the expected future commodity prices decrease compared to the contract prices on the derivatives, unrealized gains are recognized.

Realized gains and losses represent amounts related to the settlement of derivative instruments which, for commodity derivatives, are aligned with the underlying production. During the years ended December 31, 2013 and 2012, net realized gains on commodity swaps totaled $1.3 million and $3.6 million, respectively.

Included in total other loss in 2013 was $10.4 million of impairment charges recorded during 2013 on certain of our oil and natural gas properties. In comparison, we recorded impairment charges of $3.3 million during 2012. We evaluate our proved oil and natural gas properties and related equipment and facilities for impairment whenever events or changes in circumstances indicate that the carrying amounts of such properties may not be recoverable. Downward revisions in estimates of reserve quantities, expectations of falling commodity prices or rising operating or development costs could indicate and result in impairments. The amount of impairment loss, if any, is determined by comparing the fair value, as determined by a discounted cash flow analysis, with the carrying value of the related asset. In addition, we periodically and, at a minimum, annually evaluate our unproved oil and natural gas properties for impairment on a property-by-property basis.

Other expenses totaled $2.2 million for the eight months ended December 31, 2014, and is comprised primarily of general and administrative expenses and related party management compensation. As mentioned above, corporate expenses are allocated based on the investment portfolio balance in each respective segment as of period-end. General and administrative expenses include reimbursable costs and payments due to the third party engaged to operate and manage a portion of our interests.

Other expenses totaled $1.6 million for the four months ended April 30, 2014 and is comprised primarily of general and administrative expenses and professional services. As mentioned above, corporate expenses are allocated based on the investment portfolio balance in each respective segment as of period-end. General and administrative expenses include reimbursable costs and payments due to the third party engaged to operate and manage a portion of our interests.

Total other expenses decreased $0.3 million to $4.8 million in 2013 compared to $5.1 million in 2012, primarily due to a $0.8 million reduction in other general and administrative expenses primarily due to the reversal of certain accrued expenses based on actual amounts due, such as reimbursable costs and payments due to the third party we engaged to operate and manage a portion of our interests. These declines were partially offset by additional allocated corporate expenses, including base management fees and professional services expenses. As mentioned above, corporate expenses are allocated based on the investment portfolio balance in each respective segment.

The following table presents the net income (loss) components of our Other segment (amounts in thousands):

	Successor Company

	Successor Company			Predecessor Company
	For the eight months ended December 31, 2014			For the four months ended April 30, 2014			For the year ended December 31, 2013		For the year ended December 31, 2012
Revenues
Dividend income	$	13,090		$	21,205		$	1,519	$	77

Total revenues		13,090			21,205			1,519		77

Investment costs and expenses
Interest expense:
Credit facilities		—			29			18		23
Convertible senior notes		—			—			50		128
Senior notes		501			262			572		185
Junior subordinated notes		298			134			291		102
Other interest expense		7			—			—		—

Total interest expense		806			425			931		438
Other		9			—			—		—

Total investment costs and expenses		815			425			931		438

Other income (loss)
Net realized and unrealized gain (loss) on derivatives and foreign exchange:
Foreign exchange(1)		(2,055	)		128			1,064		—

Total realized and unrealized gain (loss) on derivatives and foreign exchange		(2,055	)		128			1,064		—
Net realized and unrealized gain (loss) on investments(2)		13,849			(11,717	)		12,512		4,663

Total other income (loss)		11,794			(11,589	)		13,576		4,663

Other expenses
Related party management compensation:
Base management fees		392			135			433		183

Total related party management compensation		392			135			433		183
Professional services		84			95			173		34

Total other expenses		476			230			606		217

Income (loss) before income taxes		23,593			8,961			13,558		4,085
Income tax expense (benefit)		435			16			17		1

Net income (loss)	$	23,158		$	8,945		$	13,541	$	4,084

Our commercial real estate assets are included within interests in joint ventures and partnerships, at estimated fair value on our consolidated balance sheets.

Revenues totaled $13.1 million for the eight months ended December 31, 2014, from dividend payments on certain of our commercial real estate assets, specifically those that we acquired during 2012 and early 2013. Our commercial real estate assets typically require development before incremental revenues can be expected. As of December 31, 2014, our commercial real estate assets had a carrying value of $212.1 million.

Revenues totaled $21.2 million for the four months ended April 30, 2014, of which $19.2 million represented income from our first commercial real estate investment. We began acquiring commercial real estate assets during the second quarter of 2012 and these investments require development before meaningful revenues can be expected. As of April 30, 2014, our commercial real estate assets had a carrying value of $194.0 million.

As of December 31, 2013 and 2012, our commercial real estate assets had carrying values of $186.6 million and $52.5 million, respectively and were included within interests in joint ventures and partnerships on our consolidated balance sheets. Revenues totaled $1.5 million and $0.1 million for 2013 and 2012, respectively. The $1.5 million represented a dividend payment related to one of our commercial real estate investments paid in 2013.

Certain corporate assets and expenses that are not directly related to an individual segment, including interest expense and related costs on borrowings, are allocated to individual segments based on the investment portfolio balance in each respective segment as of the most recent period-end.

Investment costs and expenses totaled $0.8 million for the eight months ended December 31, 2014 and represented allocated interest expense. During 2014, we continued to make incremental commercial real estate asset acquisitions, which increased our investment portfolio balance and amounts allocated for costs and expenses. As of December 31, 2014, our commercial real estate assets had a carrying value of $212.1 million.

Investment costs and expenses totaled $0.4 million for the four months ended April 30, 2014 and represented allocated interest expense. During 2014, we continued to make incremental commercial real estate asset acquisitions which increased our investment portfolio balance and amounts allocated for costs and expenses. As of April 30, 2014, our commercial real estate assets had a carrying value of $194.0 million.

Investment costs and expenses increased $0.5 million in 2013 compared to 2012 as a result of the commercial real estate asset acquisitions made in 2013, thereby increasing the investment portfolio balance and amounts allocated for costs and expenses.

Our commercial real estate assets are carried at estimated fair and are included within interests in joint ventures and partnerships, at estimated fair value on our consolidated balance sheets. Net realized and unrealized gains or losses on these holdings are recorded in other income (loss) on our consolidated statements of operation.

Other income totaled $11.8 million for the eight months ended December 31, 2014, and primarily represented unrealized gains on our commercial real estate assets, partially offset by unrealized losses on our foreign exchange forward contracts and remeasurement related to our foreign denominated commercial real estate assets.

Other loss totaled $11.6 million for the four months ended April 30, 2014 and primarily represented net realized and unrealized losses on our commercial real estate assets as of period-end.

Other income increased $8.9 million to $13.6 million in 2013 compared to $4.7 million in 2012 which primarily represented net unrealized gains on our holdings. Commercial real estate holdings are recorded at estimated fair value on our consolidated balance sheets with net realized and unrealized gain on investments recorded in other income on our consolidated statements of operation. Also included in total other income in 2013 was $1.1 million of unrealized gains on foreign exchange forward contracts and remeasurement related to our foreign denominated commercial real estate assets.

Other expenses are comprised of certain corporate expenses that are not directly related to an individual segment, including base management fees and professional services, and are allocated to individual segments based on the investment portfolio balance in each respective segment as of the most recent period-end.

Other expenses totaled $0.5 million for the eight months ended December 31, 2014 and was comprised primarily of allocated net base management fees expense. As described above, as a result of incremental commercial real estate asset acquisitions made in 2014, the investment portfolio balance and amounts allocated for costs and expenses have increased. As of December 31, 2014, our commercial real estate assets had a carrying value of $212.1 million.

Other expenses totaled $0.2 million for the four months ended April 30, 2014 and is comprised of allocated net base management fees expense and professional services. As described above, as a result of incremental commercial real estate asset acquisitions made in 2014, the investment portfolio balance and amounts allocated for costs and expenses have increased. As of April 30, 2014, our commercial real estate assets had a carrying value of $194.0 million.

Other expenses increased $0.4 million in 2013 compared to 2012 primarily due to commercial real estate asset acquisitions made in 2013, thereby increasing the investment portfolio balance and corporate expenses charged and allocated during 2013.

We hold equity interests in certain subsidiaries that have elected or intend to elect to be taxed as real estate investment trusts ("REIT subsidiaries") under the Internal Revenue Code of 1986, as amended (the "Code"). A REIT is not subject to United States federal income tax to the extent that it currently distributes its income and satisfies certain asset, income and ownership tests, and recordkeeping requirements, but it may be subject to some amount of federal, state, local and foreign taxes based on its taxable income.

own account. They generally will not be subject to corporate income tax in our financial statements on their earnings, and no provision for income taxes for the eight months ended December 31, 2014 and four months ended April 30, 2014 was recorded; however, we will be required to include their current taxable income in our calculation of our gross ordinary income allocable to holders of our Series A LLC Preferred Shares.

Our REIT subsidiaries are not expected to incur a federal tax expense, but are subject to limited state and foreign income tax expense related to the 2014 tax year. For the eight months ended December 31, 2014, we recorded $0.5 million of state and foreign tax expense, and for the four months ended April 30, 2014, we recorded $0.2 million of state and foreign tax expense. Cumulative tax assets and liabilities are included in other assets and accounts payable, accrued expenses and other liabilities, respectively, on our consolidated balance sheets.

Our investment portfolio primarily consists of corporate debt holdings, consisting of corporate loans and corporate debt securities. The details of our corporate debt portfolio are discussed below under "Corporate Debt Portfolio". Also included in our investment portfolio are our other holdings, including oil and gas assets, equity investments, and interests in joint ventures and partnerships, which are all discussed below under "Other Holdings".

Our corporate debt investment portfolio primarily consists of investments in corporate loans and corporate debt securities. Our corporate loans primarily consist of senior secured, second lien and subordinated loans. The corporate loans we invest in are generally below investment grade and are primarily floating rate indexed to either one-month or three-month LIBOR. Our investments in corporate debt securities primarily consist of fixed rate investments in below investment grade corporate bonds that are senior secured, senior unsecured and subordinated. We evaluate and monitor the asset quality of our investment portfolio by performing detailed credit reviews and by monitoring key credit statistics and trends. The key credit statistics and trends we monitor to evaluate the quality of our investments include credit ratings of both our investments and the issuer, financial performance of the issuer including earnings trends, free cash flows of the issuer, debt service coverage ratios of the issuer, financial leverage of the issuer, and industry trends that have or may impact the issuer's current or future financial performance and debt service ability.

We do not require specific collateral or security to support our corporate loans and debt securities; however, these loans and debt securities are either secured through a first or second lien on the assets of the issuer or are unsecured. We do not have access to any collateral of the issuer of the corporate loans and debt securities, rather the seniority in the capital structure of the loans and debt securities determines the seniority of our investment with respect to prioritization of claims in the event that the issuer defaults on the outstanding debt obligation.

Our corporate loan portfolio had an aggregate par value of $6.9 billion as of both December 31, 2014 and 2013. Our corporate loan portfolio consists of debt obligations of corporations, partnerships and other entities in the form of senior secured loans, second lien loans and subordinated loans.

As of the Effective Date, we account for all of our corporate loans at estimated fair value. Prior to the Effective Date, loans that were not deemed to be held for sale were carried at amortized cost net of allowance for loan losses on our consolidated balance sheets. Loans that were classified as held for sale were carried at the lower of net amortized cost or estimated fair value on our consolidated balance sheets. We also had certain loans that we elected to carry at estimated fair value.

The following table summarizes our corporate loans portfolio stratified by type:

	Successor Company						Predecessor Company

	December 31, 2014						December 31, 2013(1)
	Par		Amortized Cost		Estimated Fair Value		Par		Carrying Value			Amortized Cost		Estimated Fair Value
Senior secured	$	6,735,553	$	6,565,011	$	6,357,273	$	6,374,004	$	6,212,663		$	6,212,663	$	6,128,193
Second lien		20,569		17,116		18,961		361,520		349,523			349,523		316,783
Subordinated		151,251		128,443		130,330		156,250		130,434			130,434		125,423

Subtotal		6,907,373		6,710,570		6,506,564		6,891,774		6,692,620			6,692,620		6,570,399
Lower of cost or fair value adjustment		—		—		—		—		(15,920	)		—		—
Allowance for loan losses		—		—		—		—		(224,999	)		—		—
Unrealized gains		—		—		—		—		15,019			—		—

Total	$	6,907,373	$	6,710,570	$	6,506,564	$	6,891,774	$	6,466,720		$	6,692,620	$	6,570,399

As of December 31, 2014, $6.7 billion par amount, or 96.9%, of our corporate loan portfolio was floating rate and $213.2 million par amount, or 3.1%, was fixed rate. In addition, as of December 31, 2014, $234.3 million par amount, or 3.4%, of our corporate loan portfolio was denominated in foreign currencies, of which 78.1% was denominated in Euros. As of December 31, 2013, $6.7 billion par amount, or 97.8%, of our corporate loan portfolio was floating rate and $148.9 million par amount, or 2.2%, was fixed rate. In addition, as of December 31, 2013, $291.0 million par amount, or 4.2%, of our corporate loan portfolio was denominated in foreign currencies, of which 74.0% was denominated in Euros.

As of December 31, 2014, our fixed rate corporate loans had a weighted average coupon of 8.8% and a weighted average years to maturity of 2.8 years, as compared to 11.2% and 5.1 years, respectively, as of December 31, 2013. All of our floating rate corporate loans have index reset frequencies of less than twelve months with the majority resetting at least quarterly. The weighted average coupon on our floating rate corporate loans was 4.5% as of December 31, 2014 and 4.8% as of December 31, 2013, and the weighted average coupon spread to LIBOR of our floating rate corporate loan portfolio was 3.7% as of December 31, 2014 and 3.9% as of December 31, 2013. The weighted average years to maturity of our floating rate corporate loans was 4.1 years as of both December 31, 2014 and 2013.

Loans are placed on non-accrual when there is uncertainty regarding whether future income amounts on the loan will be earned and collected. While on non-accrual status, interest income is recognized using the cost-recovery method, cash-basis method or some combination of the two methods. A loan is placed back on accrual status when the ultimate collectability of the principal and interest is not in doubt. When placed on non-accrual status, previously recognized accrued interest is reversed and charged against current income.

As of December 31, 2014, we held a total par value and estimated fair value of $580.1 million and $342.1 million, respectively, of non-accrual loans.

Defaulted loans consist of corporate loans that have defaulted under the contractual terms of their loan agreements. As of December 31, 2014, we held four corporate loans that were in default with a total estimated fair value of $266.9 million from two issuers.

Our corporate loan portfolio has certain credit risk concentrated in a limited number of issuers. As of December 31, 2014, approximately 38% of the total estimated fair value of the our corporate loan portfolio was concentrated in twenty issuers, with the three largest concentrations of corporate loans in loans issued by U.S. Foods Inc., Texas Competitive Electric Holdings Company LLC ("TXU") and First Data Corp., which combined represented $700.4 million, or approximately 11% of the aggregate estimated fair value of our corporate loans.

Under the Predecessor Company, we held certain corporate loans designated as being non-accrual, impaired and/or in default. Non-accrual loans consisted of (i) corporate loans held for investment, including impaired loans, (ii) corporate loans held for sale and (iii) loans carried at estimated fair value. Any of these three classifications may have included those loans modified in a troubled debt restructuring ("TDR"), which were typically designated as being non-accrual (see "Troubled Debt Restructurings" section below).

The following table summarizes our recorded investment in non-accrual loans as of December 31, 2013 (amounts in thousands):

During the four months ended April 30, 2014, we recognized $5.3 million of interest income from cash receipts for loans on non-accrual status. Comparatively, during the years ended December 31,

2013 and 2012, we recognized $25.1 million and $19.6 million, respectively, of interest income from cash receipts for loans on non-accrual status.

As discussed in "Executive Overview—Merger with KKR & Co.", beginning the Effective Date, the new basis of accounting for corporate loans at estimated fair value eliminated the need to assess loans for impairment. Accordingly, disclosures related to impaired loans pertain to the Predecessor Company. Prior to the Effective Date, impaired loans consisted of loans held for investment where we had determined that it was probable that we would not recover our outstanding investment in the loan under the contractual terms of the loan agreement. Impaired loans may or may not have been in default at the time a loan was designated as being impaired and all impaired loans were placed on non-accrual status. The recorded investment of impaired loans totaled $554.4 million as of December 31, 2013.

Under the Predecessor Company, the balance of defaulted loans may have been comprised of loans held for investment, loans held for sale and loans at estimated fair value. Loans that were held for sale were carried at the lower of amortized cost or estimated fair value and, accordingly, no allowance for loan losses was maintained for such loans. In contrast, loans that were specifically identified as being impaired had a specific allocated reserve that represented the excess of the loan's amortized cost amount over its estimated fair value. Since defaulted loans may have primarily consisted of loans classified as held for sale and impaired loans consisted of only loans held for investment, fluctuations in the balances of defaulted loans did not necessarily correspond to fluctuations in impaired loans.

As of December 31, 2013, we held six corporate loans that were in default with a total amortized cost of $215.7 million from two issuers. Of the $215.7 million total amortized cost, $203.7 million were included in the loans that comprised the allocated component of our allowance for loan losses and $12.0 million were included in loans carried at estimated fair value.

As discussed above, in connection with the Merger Transaction, we account for all of our corporate loans at estimated fair value as of the Effective Date. Accordingly, required disclosure related to TDRs pertains to the Predecessor Company. The recorded investment balance of TDRs at December 31, 2013 totaled $55.4 million, related to three issuers. Loans whose terms had been modified in a TDR were considered impaired, unless accounted for at fair value or the lower of cost or estimated fair value, and were typically placed on non-accrual status, but could have been moved to accrual status when, among other criteria, payment in full of all amounts due under the restructured terms was expected and the borrower had demonstrated a sustained period of repayment performance, typically six months. As of December 31, 2013, $55.4 million of TDRs were included in non-accrual loans (see "Non-Accrual Loans" section above). As of December 31, 2013, the allowance for loan losses included specific reserves of $22.1 million related to TDRs.

The following table presents the aggregate balance of loans whose terms have been modified in a TDR during the four months ended April 30, 2014 and years ended December 31, 2013 and 2012 (dollar amounts in thousands):

	Four months ended April 30, 2014						Year ended December 31, 2013						Year ended December 31, 2012

	Number of TDRs		Pre- modification outstanding recorded investment(1)		Post- modification outstanding recorded investment(1)(2)		Number of TDRs		Pre- modification outstanding recorded investment(1)		Post- modification outstanding recorded investment(1)(3)		Number of TDRs		Pre- modification outstanding recorded investment(1)		Post- modification outstanding recorded investment(1)(4)
Troubled debt restructurings:
Loans held for investment		1	$	154,075	$	—		2	$	68,358	$	39,430		1	$	13,807	$	4,679
Loans held for sale		—		—		—		—		—		—		1		53,875		20,886
Loans at estimated fair value		2		41,347		24,571		1		1,670		1,229		—		—		—

Total			$	195,422		24,571			$	70,028	$	40,659			$	67,682	$	25,565

During the four months ended April 30, 2014, the Company modified an aggregate recorded investment of $195.4 million related to two issuers in restructurings which qualified as TDRs. These restructurings involved conversions of the loans into one of the following: (i) a combination of equity carried at estimated fair value and cash, or (ii) a combination of equity and loans carried at estimated fair value with extended maturities ranging from an additional three to five-year period and a higher spread of 4.0%. Prior to the restructurings, one of the TDRs described above was already identified as impaired and had specific allocated reserves, while the other two were loans carried at estimated fair value. Upon restructuring the impaired loans held for investment, the difference between the recorded investment of the pre-modified loans and the estimated fair value of the new assets plus cash received was charged-off against the allowance for loan losses. The TDRs resulted in $1.1 million of charge-offs, or 76% of the total $1.5 million of charge-offs recorded during the four months ended April 30, 2014.

During the year ended December 31, 2013, we modified an aggregate recorded investment of $70.0 million related to three issuers in restructurings which qualified as TDRs. These restructurings occurred during the first quarter of 2013 and involved conversions of the loans into one of the following: (i) new term loans with extended maturities and fixed, rather than floating, interest rates, (ii) equity carried at estimated fair value, or (iii) a combination of equity and loans carried at estimated fair value. The modification involving an extension of maturity date was for an additional four-year period with a higher coupon of 6.8%. Prior to the restructurings, two of the TDRs described above were already identified as impaired and had specific allocated reserves, while the third was a loan carried at estimated fair value. Upon restructuring the impaired loans held for investment, the difference between the recorded investment of the pre-modified loans and the estimated fair value of the new assets was charged-off against the allowance for loan losses. The TDRs resulted in $26.8 million of charge-offs for the year ended December 31, 2013, which comprised 86% of the total $31.3 million of charge-offs recorded during the year ended December 31, 2013.

During the year ended December 31, 2012, we exchanged an aggregate recorded investment of $67.7 million of loans from a single issuer for new loans of varying extended maturities and equity, with a combined estimated fair value of $25.6 million, in a modification which qualified as a TDR. The interest rate did not change as a result of this modification. Prior to the TDR, certain of the loans were

included in the allocated component of the allowance for loan losses, while the remaining loans were in loans held for sale and were on non-accrual status. The difference between the recorded investment of the loans and the estimated fair value of the new loans and equity was charged-off against the allowance for loan losses and the lower of cost or estimated fair value allowance. The new loans were included in the allocated component of the allowance for loan losses and in loans held for sale and will be maintained on non-accrual status until performance has been demonstrated by the borrower for a suitable period of time, while the equity was carried at estimated fair value. The loans modified in the TDR were not in default at December 31, 2012.

As of April 30, 2014 and December 31, 2013 there were no commitments to lend additional funds to the issuers whose loans had been modified in a TDR.

As of April 30, 2014 and December 31, 2013 no loans modified as TDRs were in default within a twelve month period subsequent to their original restructuring.

During the four months ended April 30, 2014, we modified $1.1 billion amortized cost of corporate loans that did not qualify as TDRs. During the year ended December 31, 2013, we modified $2.4 billion amortized cost of corporate loans that did not qualify as TDRs. These modifications involved changes in existing rates and maturities to prevailing market rates/maturities for similar instruments and did not qualify as TDRs as the respective borrowers were not experiencing financial difficulty or seeking (or granted) a concession as part of the modification. In addition, these modifications of non-troubled debt holdings were accomplished with modified loans that were not substantially different from the loans prior to modification.

The following table summarizes the changes in the allowance for loan losses for our corporate loan portfolio (amounts in thousands):

As of December 31, 2013, we had an allowance for loan loss of $225.0 million. As described under "Critical Accounting Policies", our allowance for loan losses represented our estimate of probable credit losses inherent in our corporate loan portfolio held for investment as of the balance sheet date. Estimating our allowance for loan losses involved a high degree of management judgment and was based upon a comprehensive review of our loan portfolio that was performed on a quarterly basis. Our allowance for loan losses consisted of two components, an allocated component and an unallocated component. The allocated component of our allowance for loan losses pertained to specific loans that we had determined were impaired. We determined a loan was impaired when we estimated that it was probable that we would be unable to collect all amounts due according to the contractual terms of the loan agreement. On a quarterly basis we performed a comprehensive review of our entire loan portfolio

and identified certain loans that we had determined were impaired. Once a loan was identified as being impaired we placed the loan on non-accrual status, unless the loan was already on non-accrual status, and recorded a reserve that reflected our best estimate of the loss that we expected to recognize from the loan. The expected loss was estimated as being the difference between our current cost basis of the loan, including accrued interest receivable, and the loan's estimated fair value.

The unallocated component of our allowance for loan losses represented our estimate of probable losses inherent in our loan portfolio as of the balance sheet date where the specific loan that the loan loss related to was indeterminable. We estimated the unallocated component of our allowance for loan losses through a comprehensive quarterly review of our loan portfolio and identified certain loans that demonstrated possible indicators of impairment, including internally assigned credit quality indicators. This assessment excluded all loans that were determined to be impaired and as a result, an allocated reserve had been recorded as described in the preceding paragraph. Such indicators included, but were not limited to, the current and/or forecasted financial performance and liquidity profile of the issuer, specific industry or economic conditions that may have impacted the issuer, and the observable trading price of the loan if available. All loans were first categorized based on their assigned risk grade and further stratified based on the seniority of the loan in the issuer's capital structure. The seniority classifications assigned to loans were senior secured, second lien and subordinate. Senior secured consisted of loans that were the most senior debt in an issuer's capital structure and therefore had a lower estimated loss severity than other debt that was subordinate to the senior secured loan. Senior secured loans often had a first lien on some or all of the issuer's assets. Second lien consisted of loans that were secured by a second lien interest on some or all of the issuer's assets; however, the loan was subordinate to the first lien debt in the issuer's capital structure. Subordinate consisted of loans that were generally unsecured and subordinate to other debt in the issuer's capital structure.

There were three internally assigned risk grades that were applied to loans that had not been identified as being impaired: high, moderate and low. High risk meant that there was evidence of possible loss due to the financial or operating performance and liquidity of the issuer, industry or economic concerns specific to the issuer, or other factors that indicated that the breach of a covenant contained in the related loan agreement was possible. Moderate risk meant that while there was no observable evidence of possible loss, there were issuer- and/or industry-specific trends that indicated a loss may have occurred. Low risk meant that while there was no identified evidence of loss, there was the risk of loss inherent in the loan that had not been identified. All loans held for investment, with the exception of loans that had been identified as impaired, were assigned a risk grade of high, moderate or low.

We applied a range of default and loss severity estimates in order to estimate a range of loss outcomes upon which to base our estimate of probable losses that resulted in the determination of the unallocated component of our allowance for loan losses.

As of December 31, 2013, the allocated component of our allowance for loan losses totaled $142.7 million and related to investments in certain loans issued by four issuers with an aggregate par amount of $594.4 million and an aggregate recorded investment of $554.4 million.

The unallocated component of our allowance for loan losses totaled $82.3 million as of December 31, 2013. As discussed above, we estimated the unallocated reserve by first categorizing our corporate loans held for investment portfolio based on their assigned risk grade and then based on the seniority of the loan in the issuer's capital structure. Of the three internally assigned risk grades, as of December 31, 2013, loans classified as high risk primarily consisted of Modular Space Corporation, which paid off at par its outstanding second lien term loan facility on February 25, 2014.

At September 30, 2012, we transferred TXU from the high risk grade of the unallocated component to the allocated component of our allowance for loan losses upon determination that the loans were impaired. Management believed it probable that we would be unable to collect all payments due in accordance with the contractual terms of the loan agreement. To calculate the recovery value of the loans, we estimated the loss as being the difference between our current cost basis of the loan, including accrued interest receivable, and the present value of expected future cash flows discounted using the effective discount rate. At December 31, 2013, the calculation resulted in a specific reserve of $66.9 million related to TXU, or an implied recovery value of approximately 76% of par. As of December 31, 2013, TXU had a total amortized cost of $311.6 million. In addition, we held TXU loans held for sale with a recorded investment of $29.8 million as of December 31, 2013.

During the four months ended April 30, 2014, we recorded charge-offs totaling $1.5 million comprised primarily of loans modified in TDRs. During the years ended December 31, 2013 and 2012, we recorded charge-offs totaling $31.3 million and $14.4 million, respectively, comprised primarily of loans modified in TDRs and loans transferred to loans held for sale.

As discussed in "Executive Overview—Merger with KKR & Co.", beginning the Effective Date, the new basis of accounting for corporate loans at estimated fair value eliminated the need for the bifurcation between corporate loans held for investment and loans held for sale. Accordingly, disclosures related to corporate loans held for sale pertain to the Predecessor Company.

The following table summarizes the changes in our corporate loans held for sale balance (amounts in thousands):

As of December 31, 2013, we had $279.7 million of loans held for sale. During the four months ended April 30, 2014, we transferred $348.8 million amortized cost amount of loans from held for investment to held for sale. During the year ended December 31, 2013, we transferred $323.4 million amortized cost amount of loans from held for investment to held for sale. The transfers of certain loans to held for sale were due to our determination that credit quality of a loan in relation to its expected risk-adjusted return no longer met our investment objective and the determination by us to reduce or eliminate the exposure for certain loans as part of our portfolio risk management practices. During the four months ended April 30, 2014 and year ended December 31, 2013, we did not transfer any loans held for sale back to loans held for investment. Transfers back to held for investment may have occurred as the circumstances that led to the initial transfer to held for sale were no longer present. Such circumstances may have included deteriorated market conditions often resulting in price depreciation or assets becoming illiquid, changes in restrictions on sales and certain loans amending

their terms to extend the maturity, whereby we determined that selling the asset no longer met our investment objective and strategy.

The following table summarizes the changes in the lower of cost or estimated fair value adjustment for our corporate loans held for sale portfolio (amounts in thousands):

We recorded a $5.0 million reduction to the lower of cost or estimated fair value adjustment for the four months ended April 30, 2014 for certain loans held for sale, which had a carrying value of $546.1 million as of April 30, 2014. We recorded a $5.9 million and $2.7 million net charge to earnings during the years ended December 31, 2013 and 2012, respectively, for the lower of cost or estimated fair value adjustment for certain loans held for sale which had a carrying value of $279.7 million and $128.3 million as of December 31, 2013 and 2012, respectively.

As of December 31, 2013, approximately 46% of the total amortized cost basis of our corporate loan portfolio was concentrated in twenty issuers, with the three largest concentrations of corporate loans in loans issued by TXU, Modular Space Corporation and U.S. Foods Inc., which combined represented $935.2 million, or approximately 14% of the aggregate amortized cost basis of our corporate loans.

Our corporate debt securities portfolio had an aggregate par value of $634.7 million and $524.3 million as of December 31, 2014 and 2013, respectively. Our corporate debt securities portfolio consists of debt obligations of corporations, partnerships and other entities in the form of senior secured, senior unsecured and subordinated bonds. Our corporate debt securities are included in securities on our consolidated balance sheets.

In connection with the Merger Transaction and as of the Effective Date, we account for all of our securities, including RMBS, at estimated fair value. Prior to the Effective Date, we accounted for securities based on the following categories: (i) securities available-for-sale, which were carried at estimated fair value, with unrealized gains and losses reported in accumulated other comprehensive loss; (ii) other securities, at estimated fair value, with unrealized gains and losses recorded in the consolidated statements of operations; and (iii) RMBS, at estimated fair value, with unrealized gains and losses recorded in the consolidated statements of operations.

The following table summarizes our corporate debt securities portfolio stratified by type as of December 31, 2014 and 2013:

As of December 31, 2014, $413.2 million par amount, or 77.8%, of our corporate debt securities portfolio was fixed rate and $118.2 million par amount, or 22.2%, was floating rate. In addition, we had $103.4 million par amount of subordinated notes in third-party-controlled CLOs. In addition, as of December 31, 2014, $85.2 million par amount, or 13.4%, of our corporate debt securities portfolio, was denominated in foreign currencies, of which 95.8% was denominated in Euros. As of December 31, 2013, $461.3 million par amount, or 88.0%, of our corporate debt securities portfolio was fixed rate and $63.1 million par amount, or 12.0%, was floating rate. In addition, as of December 31, 2013, $26.5 million par amount, or 5.0%, of our corporate debt securities portfolio, was denominated in foreign currencies, of which 85.2% was denominated in Euros.

As of December 31, 2014, our fixed rate corporate debt securities had a weighted average coupon of 8.2% and a weighted average years to maturity of 4.4 years, as compared to 7.9% and 5.6 years, respectively, as of December 31, 2013. All of our floating rate corporate debt securities have index reset frequencies of less than twelve months. The weighted average coupon on our floating rate corporate debt securities was 13.3% as of December 31, 2014, which included a single PIK security totaling $98.6 million earning 15% and excluded $103.4 million par amount of subordinated notes in third-party-controlled CLOs that do not earn a stated rate. The weighted average coupon on our floating rate corporate debt securities was 4.3% as of December 31, 2013. The weighted average coupon spread to LIBOR of our floating rate corporate debt securities was 1.7% as of December 31, 2014 and 4.1% as of December 31, 2013, respectively. The weighted average years to maturity of our floating rate corporate debt securities was 7.7 years and 7.6 years as of December 31, 2014 and 2013, respectively.

As of December 31, 2014, we had a corporate debt security from one issuer in default with an estimated fair value of $8.7 million, which was on non-accrual status.

Our corporate debt securities portfolio has certain credit risk concentrated in a limited number of issuers. As of December 31, 2014, approximately 70% of the estimated fair value of our corporate debt

securities portfolio was concentrated in ten issuers, with the three largest concentrations of debt securities in securities issued by Preferred Proppants LLC, JC Penney Corp. Inc. and LCI Helicopters Limited which combined represented $213.6 million, or approximately 37% of the estimated fair value of our corporate debt securities.

During the four months ended April 30, 2014, we recognized losses totaling $4.4 million, compared to $19.5 million and $8.2 million for the years ended December 31, 2013 and 2012, respectively, for securities available-for-sale that we determined to be other-than-temporarily impaired. These securities were determined to be other-than-temporarily impaired either due to our determination that recovery in value was no longer likely or because we decided to sell the respective security in response to specific credit concerns regarding the issuer.

As of December 31, 2013, we had a corporate debt security from one issuer in default with an estimated fair value of $25.4 million, which was on non-accrual status.

As of December 31, 2013, approximately 55% of the estimated fair value of our corporate debt securities portfolio was concentrated in ten issuers, with the three largest concentrations of debt securities in securities issued by LCI Helicopters Limited, JC Penney Corp. Inc. and NXP Semiconductor NV, which combined represented $104.5 million, or approximately 21% of the estimated fair value of our corporate debt securities.

Our other holdings primarily consisted of oil and gas assets, marketable and private equity investments, as well as interests in joint ventures and partnerships.

On September 30, 2014, we closed the Trinity transaction. In connection with the transaction, the 2015 Natural Resources Facility was terminated with all amounts outstanding repaid as of September 30, 2014. As of December 31, 2014, Trinity had a carrying value of $51.6 million and was classified as interests in joint ventures and partnerships, rather than oil and gas properties, net, on our consolidated balance sheets.

In addition, during the third quarter of 2014, certain of our natural resources assets focused on development of oil and gas properties, with an approximate aggregate fair value of $179.2 million, were distributed to our Parent. The 2018 Natural Resources Facility, which was used to partially finance these natural resources assets, was terminated with all amounts outstanding repaid as of July 1, 2014.

Accordingly, as of December 31, 2014 and 2013, our working interests, classified as oil and gas properties on the consolidated balance sheets, had a net carrying value of zero and $359.1 million, respectively.

In addition to natural resources working interests, we own overriding royalty interests in acreage located in south Texas. The overriding royalty interests include producing oil and natural gas properties. We had approximately 571 and 359 gross productive wells as of December 31, 2014 and 2013, respectively, in which we own an overriding royalty interest only, and the acreage is still under development. The overriding royalty interest properties are operated by unaffiliated third parties and as of December 31, 2014 and 2013, had net carrying values of $120.3 million and $41.3 million, respectively. The difference in carrying value between these two periods was a result of the new accounting basis established for all assets and liabilities to reflect estimated fair value as of the Effective Date in connection with the Merger Transaction.

As of December 31, 2014, our equity investments carried at estimated fair value had an estimated fair value of $181.4 million. Comparatively, as of December 31, 2013, our equity investments consisted of (i) private equity investments carried at cost (included in other assets on our consolidated balance sheet) with an aggregate cost amount of $0.4 million and an estimated fair value of $4.5 million and (ii) equity investments carried at estimated fair value, with an aggregate cost amount of $160.6 million and an estimated fair value of $181.2 million. As discussed further below under "Contributions and Distributions," we distributed certain equity investments, at estimated fair value totaling $101.0 million to our Parent during the second half of 2014.

As of December 31, 2014, our interests in joint ventures and partnerships, which primarily hold assets related to commercial real estate, natural resources and specialty lending, had an aggregate estimated fair value of $718.8 million, which includes noncontrolling interests of $100.2 million. As of December 31, 2013, our interests in joint ventures and partnerships had an aggregate estimated fair value of $436.2 million.

As discussed in "Executive Overview—Merger with KKR & Co.", in connection with the Merger Transaction, purchase accounting required the reclassification of any retained earnings or accumulated deficit from periods prior to the acquisition and the elimination of any accumulated other comprehensive income or loss be recognized within the shareholders' equity section of our consolidated financial statements. In addition, as of the Effective Date, we discontinued hedge accounting for our cash flow hedges and elected the fair value option of accounting for our securities available-for-sale, both of which resulted in any changes in estimated fair value to be recorded in the consolidated statements of operations, rather than accumulated other comprehensive loss.

On June 27, 2014, our board of directors approved a reverse stock split whereby the number of our issued and outstanding common shares was reduced to 100 common shares, all of which are held solely by our Parent.

Our total equity at December 31, 2014 totaled $2.5 billion, which included $100.2 million of noncontrolling interests related to entities we now consolidate. Noncontrolling interests represent the equity component held by third parties. Included in our total equity of $2.5 billion as of December 31, 2013, was accumulated other comprehensive loss totaling $15.7 million.

Under the Predecessor Company, our average common shareholders' equity and return on average common shareholders' equity for the four months ended April 30, 2014 was $2.2 billion and 13.8%. Comparatively, our average common shareholders' equity and return on average common shareholders'

equity for the year ended December 31, 2013 was $2.1 billion and 12.6%, respectively, and for the year ended December 31, 2012, was $1.8 billion and 19.7%, respectively. Return on average common shareholders' equity is defined as net income available to common shareholders divided by weighted average common shareholders' equity.

Our book value per common share as of December 31, 2013 was $10.58 and was computed based on 204,824,159 common shares issued and outstanding as of December 31, 2013.

On June 27, 2014 and July 31, 2014, our board of directors approved the distribution of certain of our private equity and natural resources assets and cash to our Parent, as the sole holder of our common shares. The estimated fair value of these distributions totaled approximately $294.6 million, comprised of $14.4 million of cash and $280.2 million of assets at the time of transfer. These distributions were completed during the third quarter of 2014.

In addition, on December 26, 2014, our board of directors approved the distribution of cash totaling $177.7 million to our Parent, which was paid on December 29, 2014.

Separately, on June 27, 2014 and July 31, 2014, our board of directors approved the receipt of contributions by us from our Parent of cash, CLO subordinated notes controlled by a third-party, a corporate loan and interests in joint ventures and partnerships focused on specialty lending. The estimated fair value of these contributions totaled approximately $291.5 million, comprised of $235.8 million cash and $55.7 million assets at the time of transfer. These contributions were completed during the third quarter of 2014.

In addition, on December 26, 2014, our board of directors approved the receipt of contributions by us from our Parent of corporate loans, debt securities, equity investments at estimated fair value and interests in joint ventures and partnerships. The estimated fair value of these contributions totaled approximately $182.5 million at the time of transfer and were completed on December 29, 2014. In connection with these contributions, we received $0.9 million of other assets as a result of consolidating a non-VIE in which we now hold a greater than 50 percent voting interest.

On December 22, 2014, our board of directors declared a cash distribution of $0.460938 per share on our Series A LLC Preferred Shares. The distribution was paid on January 15, 2015 to preferred shareholders as of the close of business on January 8, 2015.

On September 25, 2014, our board of directors declared a cash distribution of $0.460938 per share on our Series A LLC Preferred Shares. The distribution was paid on October 15, 2014 to preferred shareholders as of the close of business on October 8, 2014.

On June 27, 2014, our board of directors declared a cash distribution of $0.460938 per share on our Series A LLC Preferred Shares. The distribution was paid on July 15, 2014 to preferred shareholders as of the close of business on July 8, 2014.

On March 25, 2014, our board of directors declared a cash distribution of $0.460938 per share on our Series A LLC Preferred Shares. The distribution was paid on April 15, 2014 to preferred shareholders as of the close of business on April 8, 2014.

On February 26, 2015, our board of directors declared a cash distribution for the quarter ended December 31, 2014 of $551,627 per share to common shareholders of record on February 26, 2015. The distribution was paid on February 27, 2015.

On November 13, 2014, our board of directors declared a cash distribution for the quarter ended September 30, 2014 of $464,892 per share to common shareholders of record on November 13, 2014. The distribution was paid on November 14, 2014.

On August 11, 2014, our board of directors declared a cash distribution for the quarter ended June 30, 2014 of $297,322 per share to common shareholders of record on August 11, 2014. The distribution was paid on August 12, 2014.

Common shareholders of the Predecessor Company received a quarterly distribution in respect of the KKR & Co. common units that such holders received in connection with the merger to the extent they held those shares through May 9, 2014, which was the record date for the KKR & Co. distribution. The distribution was in an amount equal to $0.43 per KKR & Co. common unit and was paid on May 23, 2014 to unitholders.

On January 30, 2014, our board of directors declared a cash distribution for the quarter ended December 31, 2013 of $0.22 per share to common shareholders of record on February 13, 2014. The distribution was paid on February 27, 2014.

Under the Predecessor Company, the amount and timing of our distributions to our preferred shareholders and common shareholders was determined by our board of directors. Subsequently, under the Successor Company, distributions are determined by the executive committee, which was established by the board of directors. Under both periods, distributions are determined based upon a review of various factors including current market conditions, our liquidity needs, legal and contractual restrictions on the payment of distributions, including those under the terms of our preferred shares which would have impacted our common shareholders, the amount of ordinary taxable income or loss earned by us, gains or losses recognized by us on the disposition of assets and our liquidity needs. For this purpose, we generally determined gains or losses based upon the price we paid for those assets.

We note, however, because of the tax rules applicable to partnerships, the gains or losses recognized by our Predecessor Company's common shareholders on the sale of assets held by the Predecessor Company may have been higher or lower depending upon the purchase price such shareholders paid for our Predecessor Company's common shares. Holders of Series A LLC Preferred Shares will not be allocated any gains or losses from any sale of our assets. Shareholders may have taxable income or tax liability attributable to our shares for a taxable year that is greater than our cash distributions for such taxable year. See "Non-Cash 'Phantom' Taxable Income" below for further discussion about taxable income allocable to holders of our shares. We may not declare or pay distributions on our common shares unless all accrued distributions have been declared and paid, or set aside for payment, on our Series A LLC Preferred Shares.

We actively manage our liquidity position with the objective of preserving our ability to fund our operations and fulfill our commitments on a timely and cost-effective basis. Although we believe our current sources of liquidity are adequate to preserve our ability to fund our operations and fulfill our commitments, we may evaluate opportunities to issue incremental capital. As of December 31, 2014, we had unrestricted cash and cash equivalents totaling $163.4 million.

The majority of our investments are held in Cash Flow CLOs. Accordingly, the majority of our cash flows have historically been received from our investments in the mezzanine and subordinated notes of our Cash Flow CLOs. However, during the period in which a Cash Flow CLO is not in compliance with an over-collateralization test ("OC Test") as outlined in its respective indenture, the cash flows we would generally expect to receive from our Cash Flow CLO holdings are paid to the senior note holders of the Cash Flow CLOs. As described in further detail below, as of December 31, 2014, all of our Cash Flow CLOs were in compliance with their respective coverage tests (specifically,

their OC Tests and interest coverage ("IC") tests) and made cash distributions to mezzanine and/or subordinate note holders, including us.

As of December 31, 2014, we had eleven Cash Flow CLO transactions outstanding. In accordance with GAAP, we consolidate each of our CLO subsidiaries as we have the power to direct the activities of these VIEs, as well as the obligation to absorb losses of the VIEs or the right to receive benefits of the VIEs that could potentially be significant to the VIEs. We utilize CLOs to fund our investments in corporate loans and corporate debt securities.

On January 23, 2014, we closed CLO 2013-2, a $384.0 million secured financing transaction maturing on January 23, 2026. We issued $339.3 million par amount of senior secured notes to unaffiliated investors, of which $319.3 million was floating rate with a weighted-average coupon of three-month LIBOR plus 2.16% and $20.0 million was fixed rate at 3.74%. The investments that are owned by CLO 2013-2 collateralize the CLO 2013-2 debt, and as a result, those investments are not available to us, our creditors or shareholders.

During the eight months ended December 31, 2014, we issued $15.0 million par amount of CLO 2006-1 Class E notes for proceeds of $15.0 million and $37.5 million par amount of CLO 2007-1 Class E notes for proceeds of $37.6 million.

During the four months ended April 30, 2014, we issued: (i) $61.1 million par amount of CLO 2007-A class D and E notes for proceeds of $61.3 million, (ii) $72.0 million par amount of CLO 2005-1 class D through F notes for proceeds of $71.5 million, (iii) $21.9 million par amount of CLO 2007-1 class E notes for proceeds of $21.9 million, (iv) $29.8 million par amount of CLO 2007-A class G notes for proceeds of $30.2 million and (v) $29.8 million par amount of CLO 2007-A class H notes for proceeds of $30.1 million.

On September 27, 2013, we amended the CLO 2011-1 senior loan agreement (the "CLO 2011-1 Agreement") to upsize the transaction by $300.0 million, of which CLO 2011-1 is now able to borrow up to an incremental $225.0 million. Under the amended CLO 2011-1 Agreement, CLO 2011-1 matures on August 15, 2020 and borrowings under the CLO 2011-1 Agreement bear interest at a rate of three-month LIBOR plus 1.35%.

On June 25, 2013, we closed CLO 2013-1, a $519.4 million secured financing transaction maturing on July 15, 2025. We issued $458.5 million par amount of senior secured notes to unaffiliated investors, of which $442.0 million was floating rate with a weighted-average coupon of three-month LIBOR plus 1.67% and $16.5 million was fixed rate at 3.73%. The investments that are owned by CLO 2013-1 collateralize the CLO 2013-1 debt, and as a result, those investments are not available to us, our creditors or shareholders.

The indentures governing our Cash Flow CLOs include numerous compliance tests, the majority of which relate to the CLO's portfolio.

In the case of CLO 2011-1, the agreement specifies a par value ratio test ("PVR Test"), whereby if the PVR Test is below 120.0%, up to 50% of all interest collections that otherwise are payable to us are used to amortize the senior loan amount outstanding by the lower of the amount required to bring the PVR Test into compliance and the outstanding loan amount. Similarly, if the PVR Test is below 120.0%, the principal collections that otherwise would be payable to us are used to amortize the senior loan amount outstanding by the lower of the amount required to bring the PVR Test into compliance and the outstanding loan amount. The par value ratio is calculated based on the par value portfolio collateral value divided by the outstanding loan balance. For purposes of the calculation, collateral value is the par value of the assets unless an asset is in default or is a CCC-rated asset in excess of the CCC-rated asset limit percentage specified for CLO 2011-1, in which case the collateral value of such asset is the market value of such asset.

In the case of our other Cash Flow CLOs, which vary from CLO 2011-1's compliance tests, in the event that a portfolio profile test is not met, the indenture places restrictions on the ability of the CLO's manager to reinvest available principal proceeds generated by the collateral in the CLOs until the specific test has been cured. In addition to the portfolio profile tests, the indentures for these CLOs include OC Tests which set the ratio of the collateral value of the assets in the CLO to the tranches of debt for which the test is being measured, as well as interest coverage tests. For purposes of the calculation, collateral value is the par value of the assets unless an asset is in default, is a discounted obligation, or is a CCC-rated asset in excess of the percentage of CCC-rated asset limit specified for each CLO.

If an asset is in default, the indenture for each CLO transaction defines the value used to determine the collateral value, which value is the lower of the market value of the asset or the recovery value proscribed for the asset based on its type and rating by Standard & Poor's or Moody's.

A discount obligation is an asset with a purchase price of less than a particular percentage of par. The discount obligation amounts are specified in each CLO and are generally set at a purchase price of less than 80% of par for corporate loans and 75% of par for corporate debt securities.

The indenture for each CLO specifies a CCC-threshold for the percentage of total assets in the CLO that can be rated CCC. All assets in excess of the CCC threshold specified for the respective CLO are also included in the OC Tests at market value and not par.

Defaults of assets in CLOs, ratings downgrade of assets in CLOs to CCC, price declines of CCC assets in excess of the proscribed CCC threshold amount, and price declines in assets classified as discount obligations may reduce the over-collateralization ratio such that a CLO is not in compliance. If a CLO is not in compliance with an OC Test, cash flows normally payable to the holders of junior classes of notes will be used by the CLO to amortize the most senior class of notes until such point as the OC Test is brought back into compliance. While being out of compliance with an OC Test would not impact our investment portfolio or results of operations, it would impact our unrestricted cash flows available for operations, new investments and cash distributions. As of December 31, 2014, all of our CLOs were in compliance with their respective OC Tests.

An affiliate of our Manager has entered into separate management agreements with our Cash Flow CLOs and is entitled to receive fees for the services performed as collateral manager. The indentures governing the CLO transactions stipulate the reinvestment period during which the collateral manager can generally sell or buy assets at its discretion and can reinvest principal proceeds into new assets. CLO 2007-A, CLO 2005-1, CLO 2005-2, CLO 2006-1 and CLO 2007-1 are no longer in their reinvestment periods as of December 31, 2014. As a result, principal proceeds from the assets

held in each of these transactions are generally used to amortize the outstanding balance of senior notes outstanding.

During the eight months ended December 31, 2014, $500.8 million of original CLO 2005-1, CLO 2005-2, CLO 2006-1 and CLO 2007-1 senior notes were repaid. Pursuant to the terms of the indentures governing our CLO transactions, we have the ability to call our CLO transactions after the end of their respective non-call periods. During July 2014, we called CLO 2007-A and subsequently repaid aggregate senior and mezzanine notes totaling $494.9 million. During the four months ended April 30, 2014, $182.6 million of original CLO 2007-A, CLO 2005-1, CLO 2005-2 and CLO 2006-1 senior notes were repaid. Comparatively, during the year ended December 31, 2013, $759.2 million of original CLO 2007-A, CLO 2005-1, CLO 2005-2 and CLO 2006-1 senior notes were repaid. CLO 2012-1, CLO 2013-1, CLO 2013-2, CLO 9 and CLO 10 will end their reinvestment periods during December 2016, July 2017, January 2018, October 2018 and December 2018, respectively. Accordingly, absent any new CLO transactions that we may enter into, our total investments held through CLOs will continue to decline as investments are paid down or paid off once the reinvestment period ends.

CLO 2011-1 does not have a reinvestment period and all principal proceeds from holdings in CLO 2011-1 are used to amortize the transaction. During the eight months ended December 31, 2014, $49.4 million of original CLO 2011-1 senior notes were repaid, while during the four months ended April 30, 2014, $39.4 million of original CLO 2011-1 senior notes were repaid. Comparatively, during the year ended December 31, 2013, $77.2 million of original CLO 2011-1 senior notes were repaid.

On November 30, 2012, we entered into the $150.0 million 2015 Facility. We had the right to prepay loans under the 2015 Facility in whole or in part at any time. Loans under the 2015 Facility bore interest at a rate equal to, at our option, LIBOR plus 2.25% per annum, or an alternate base rate plus 1.25% per annum. As of December 31, 2013, we had $75.0 million of borrowings outstanding under the 2015 Facility. On the date of the Merger Transaction, we terminated the 2015 Facility, with all amounts repaid as of March 31, 2014.

On May 20, 2014, our 2015 Natural Resources Facility was adjusted and reduced to $75.0 million, which was subject to, among other things, the terms of a borrowing base derived from the value of eligible specified oil and gas assets. We had the right to prepay loans under the 2015 Natural Resources Facility in whole or in part at any time. Loans under the 2015 Natural Resources Facility bore interest at a rate equal to LIBOR plus a tiered applicable margin ranging from 1.75% to 2.75% per annum. As of December 31, 2013, we had $50.3 million of borrowings outstanding under the 2015 Natural Resources Facility. On September 30, 2014, the 2015 Natural Resources Facility was terminated in connection with the Trinity transaction, with all amounts outstanding repaid as of September 30, 2014.

On February 27, 2013, we entered into the 2018 Natural Resources Facility, that was subject to, among other things, the terms of a borrowing base derived from the value of eligible specified oil and gas assets. On May 15, 2014, the 2018 Natural Resources Facility was adjusted and increased to $68.5 million. We had the right to prepay loans under the 2018 Natural Resources Facility in whole or in part at any time. Loans under the 2018 Natural Resources Facility bore interest at a rate equal to LIBOR plus a tiered applicable margin ranging from 1.75% to 3.25% per annum. As of December 31, 2013, we had zero of borrowings outstanding under the 2018 Natural Resources Facility. On July 1, 2014, the 2018 Natural Resources Facility was terminated in connection with our distribution of certain natural resources assets to our Parent, with all amounts outstanding repaid as of July 1, 2014.

As of the termination date for each of the respective credit facilities and December 31, 2013, we believe we were in compliance with the covenant requirements for our credit facilities.

On January 18, 2013, in accordance with the indenture relating to our $172.5 million 7.5% convertible senior notes due January 15, 2017 ("7.5% Notes"), we issued a Termination Notice to holders of the 7.5% Notes whereby we terminated the right to convert the 7.5% Notes to common shares. Per the indenture, we were able to terminate the conversion rights of the notes if the closing price of our shares exceeded 150% of the conversion price then in effect for 20 or more trading days in a period of 30 consecutive trading days ending on the trading day prior to the date on which we provide notice of the election to terminate the conversion rights. Holders of $172.5 million 7.5% Notes submitted their notes for conversion for which we satisfied by physical settlement with 26.1 million common shares, or 151.0580 shares per $1,000 principal amount of 7.5% Notes. As set forth in the Termination Notice, the 7.5% Notes were no longer convertible to common shares as of February 17, 2013.

On January 17, 2013, we issued 14.95 million of Series A LLC Preferred Shares for gross proceeds of $373.8 million, and net proceeds of $362.0 million. The Series A LLC Preferred Shares trade on the NYSE under the ticker symbol "KFN.PR" and began trading on January 28, 2013. Distributions on the Series A LLC Preferred Shares are cumulative and are payable, when, as, and if declared by our board of directors, quarterly on January 15, April 15, July 15 and October 15 of each year, at a rate per annum equal to 7.375%.

We commit to purchase corporate loans in the secondary market, and as such, we bear the risks and benefits of changes in the fair value from the trade date forward. As of December 31, 2013, we had committed to purchase corporate loans with an aggregate par amount totaling $62.7 million. As described above in "Executive Overview—Merger with KKR & Co.", as of the Effective Date, we account for all corporate loans on trade date. As such, as of December 31, 2014, all corporate loans were included in the consolidated balance sheets. In addition, we participate in certain financing arrangements, whereby we are committed to provide funding of up to a specific predetermined amount at the discretion of the borrower or have entered into an agreement to acquire interests in certain assets. As of December 31, 2014 and 2013, we had unfunded financing commitments totaling $9.5 million and $17.4 million, respectively.

We participate in joint ventures and partnerships alongside KKR and its affiliates through which we contribute capital for assets, including development projects related to our interests in joint ventures and partnerships that hold commercial real estate and natural resources investments, as well as specialty lending focused businesses. We estimated these future contributions to total approximately $162.0 million as of December 31, 2014, whereby approximately 31% was related to our credit segment, 32% was related to our other segment and 37% was related to our natural resources segment. Comparatively, we estimated these future contributions to total approximately $325.5 million as of December 31, 2013, whereby approximately 60% was related to our credit segment, 24% was related to our other segment and 16% was related to our natural resources segment.

As of December 31, 2014 and 2013, we had investments, held alongside KKR and its affiliates, in real estate entities that were financed with non-recourse debt totaling $457.3 million and $231.7 million, respectively. Under non-recourse debt, the lender generally does not have recourse against any other

assets owned by the borrower or any related parties of the borrower, except for certain specified exceptions listed in the respective loan documents including customary "bad boy" acts. In connection with these investments, joint and several non-recourse "bad boy" guarantees were provided for losses relating solely to specified bad faith acts that damage the value of the real estate being used as collateral. As of December 31, 2014 and 2013, we also had financial guarantees related to our natural resources investments totaling zero and $17.9 million, respectively.

The table below summarizes our contractual obligations as of December 31, 2014 and are subject to material changes based on factors including interest rates, compliance with OC Tests and pay downs subsequent to December 31, 2014. The remaining contractual maturities in the table below were allocated assuming no prepayments and represent the principal amount of all notes, excluding any discount. Expected maturities may differ from contractual maturities because we, as the borrower, may have the right to call or prepay certain obligations, with or without call or prepayment penalties. The table below excludes contractual commitments related to our derivatives and amounts payable under the Management Agreement that we have with our Manager because those contracts do not have fixed and determinable payments (amounts in thousands):

	Payments Due by Period

	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
CLO 2005-1 notes(1)	$	200,574	$	3,531	$	197,043	$	—	$	—
CLO 2005-2 notes(1)		247,698		1,643		246,055		—		—
CLO 2006-1 notes(1)		174,647		2,139		4,277		168,231		—
CLO 2007-1 notes(1)		2,747,664		34,064		68,128		68,128		2,577,344
CLO 2007-A notes(1)		15,096		—		15,096		—		—
CLO 2011-1 debt(1)		425,603		6,374		12,748		406,481		—
CLO 2012-1 notes(1)		470,903		8,578		17,157		17,157		428,011
CLO 2013-1 notes(1)		553,445		9,009		18,018		18,018		508,400
CLO 2013-2 notes(1)		422,345		7,512		15,025		15,025		384,783
CLO 9 notes(1)		603,195		10,556		21,112		21,112		550,415
CLO 10 notes(1)		468,932		9,213		18,426		18,426		422,867
Senior notes(2)		1,190,897		30,295		60,591		60,591		1,039,420
Junior subordinated notes(3)		453,570		15,285		18,503		14,526		405,256
Other commitments(4)		170,941		14,827		121,114		—		35,000

Total	$	8,145,510	$	153,026	$	833,293	$	807,695	$	6,351,496

We intend to continue to operate so that we qualify, for United States federal income tax purposes, as a partnership and not as an association or a publicly traded partnership taxable as a corporation. Holders of our Series A LLC Preferred Shares are subject to United States federal income taxation and generally other taxes, such as state, local and foreign income taxes, on their allocable share of our gross ordinary income, regardless of whether or when they receive cash distributions. We generally allocate our gross ordinary income using a monthly convention, which means that we determine our taxable income and losses for the taxable year to be allocated to our Series A LLC Preferred Shares and then prorate that amount on a monthly basis. Our Series A LLC Preferred Shares will receive an allocation of our gross ordinary income. If the amount of cash distributed to our Series A LLC Preferred Shares in any year exceeds our gross ordinary income for such year, additional gross ordinary income will be allocated to the Series A LLC Preferred Shares in future years until such excess is eliminated. Consequently, in some taxable years, holders of our Series A LLC Preferred Shares may recognize taxable income in excess of our cash distributions. Furthermore, even if we did not pay cash distributions with respect to a taxable year, holders of our Series A LLC Preferred Shares may still have a tax liability attributable to their allocation of gross ordinary income from us during such year in the event that cash distributed in a prior year exceeded our gross ordinary income in such year.

We intend to continue to operate so that we qualify, for United States federal income tax purposes, as a partnership and not as an association or a publicly traded partnership taxable as a corporation. In general, if a partnership is "publicly traded" (as defined in the Code), it will be treated as a corporation for United States federal income tax purposes. A publicly traded partnership will be taxed as a partnership, however, and not as a corporation, for United States federal income tax purposes so long as it is not required to register under the Investment Company Act and at least 90% of its gross income for each taxable year constitutes "qualifying income" within the meaning of Section 7704(d) of the Code. We refer to this exception as the "qualifying income exception." Qualifying income generally includes rents, dividends, interest (to the extent such interest is neither derived from the "conduct of a financial or insurance business" nor based, directly or indirectly, upon "income or profits" of any person), income and gains derived from certain activities related to minerals and natural resources, and capital gains from the sale or other disposition of stocks, bonds and real property. Qualifying income also includes other income derived from the business of investing in, among other things, stocks and securities.

on all of our income. Distributions to holders of our Series A LLC Preferred Shares would constitute ordinary dividend income taxable to such holders to the extent of our earnings and profits, and these distributions would not be deductible by us. If we were taxable as a corporation, it could result in a material reduction in cash flow and after-tax return for holders of our Series A LLC Preferred Shares and thus could result in a substantial reduction in the value of our Series A LLC Preferred Shares and any other securities we may issue.

If we are engaged in a United States trade or business, a portion of any gain recognized by an investor who is a non-United States person on the sale or exchange of its Series A LLC Preferred Shares may be treated for United States federal income tax purposes as effectively connected income, and hence such holder may be subject to United States federal income tax on the sale or exchange. Moreover, if the fair market value of our investments in United States real property interests, which include our investments in natural resources, real estate and REIT subsidiaries that invest primarily in real estate, represent more than 10% of the total fair market value of our assets, our Series A LLC Preferred Shares could be treated as United States real property interests. In such case, gain recognized by an investor who is a non-United States person on the sale or exchange of its Series A LLC Preferred Shares would be treated for United States federal income tax purposes as effectively connected income (unless our Series A LLC Preferred Shares are regularly traded on a securities market and the non-United States person owned 5% or less of the shares of our Series A LLC Preferred Shares during the applicable compliance period). We believe that the fair market value of our investments in United States real property interests represented more than 10% of the total fair market value of our assets during the fourth quarter of 2014. As a result, although the Treasury regulations are not entirely clear, the Series A LLC Preferred Shares (unless our Series A LLC Preferred Shares are regularly traded on a securities market and the non-United States person owned 5% or less of the shares of our Series A LLC Preferred Shares during the applicable compliance period) could be treated as United States real property interests. Moreover, it is possible that the IRS could take the position that such shares would be treated as United States real property interests for the five years following the last date on which more than 10% of the total fair market

value of our assets consisted of United States real property interests. If gain from the sale of our Series A LLC Preferred Shares is treated as effectively connected income, the holder may be subject to United States federal income and/or withholding tax on the sale or exchange.

2014 Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. were available to shareholders at the end of March 2015.

securities or that are otherwise structured consistent with applicable SEC staff guidance. Some of our majority-owned subsidiaries may rely solely on the exceptions from the definition of "investment company" found in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act. In order for us to satisfy the 40% test, our ownership interests in those subsidiaries or any of our subsidiaries that are not majority-owned for purposes of the Investment Company Act, together with any other "investment securities" that we may own, may not have a combined value in excess of 40% of the value of our total assets on an unconsolidated basis and exclusive of United States government securities and cash items. However, many of our majority-owned subsidiaries either fall outside of the general definitions of an investment company or rely on exceptions provided by provisions of, and rules and regulations promulgated under, the Investment Company Act (other than Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act) and, therefore, the securities of those subsidiaries that we own and hold are not investment securities for purposes of the Investment Company Act. In order to conform to these exceptions, these subsidiaries are limited with respect to the assets in which each of them can invest and/or the types of securities each of them may issue. We must, therefore, monitor each subsidiary's compliance with its applicable exception and our freedom of action relating to such a subsidiary, and that of the subsidiary itself, may be limited as a result. For example, our subsidiaries that issue CLOs generally rely on the exception provided by Rule 3a-7 under the Investment Company Act, while our real estate subsidiaries, including those that are taxed as REITs for United States federal income tax purposes, generally rely on the exception provided by Section 3(c)(5)(C) of the Investment Company Act. Each of these exceptions requires, among other things that the subsidiary (i) not issue redeemable securities and (ii) engage in the business of holding certain types of assets, consistent with the terms of the exception. Similarly, any subsidiaries engaged in the ownership of oil and gas assets may, depending on the nature of the assets, be outside the definition of an investment company or rely on exceptions provided by Section 3(c)(5)(C) or Section 3(c)(9) of the Investment Company Act. While Section 3(c)(9) of the Investment Company Act does not limit the nature of the securities issued, it does impose business engagement requirements that limit the types of assets that may be held.

We sometimes refer to our subsidiaries that rely on Rule 3a-7 under the Investment Company Act as "CLO subsidiaries." Rule 3a-7 under the Investment Company Act is available to certain structured financing vehicles that are engaged in the business of holding financial assets that, by their terms, convert into cash within a finite time period and that issue fixed income securities entitling holders to receive payments that depend primarily on the cash flows from these assets, provided that, among other things, the structured finance vehicle does not engage in certain portfolio management practices resembling those employed by management investment companies (e.g., mutual funds). Accordingly, each of these CLO subsidiaries is subject to an indenture (or similar transaction documents) that contains specific guidelines and restrictions limiting the discretion of the CLO subsidiary and its collateral manager. In particular, these guidelines and restrictions prohibit the CLO subsidiary from acquiring and disposing of assets primarily for the purpose of recognizing gains or decreasing losses resulting from market value changes. Thus, a CLO subsidiary cannot acquire or dispose of assets primarily to enhance returns to the owner of the equity in the CLO subsidiary; however, subject to this limitation, sales and purchases of assets may be made so long as doing so does not violate guidelines contained in the CLO subsidiary's relevant transaction documents. A CLO subsidiary generally can, for example, sell an asset if the collateral manager believes that its credit quality has declined since its acquisition or that the credit profile of the obligor will deteriorate and the proceeds of permitted dispositions may be reinvested in additional collateral, subject to fulfilling the requirements set forth in Rule 3a-7 under the Investment Company Act and the CLO subsidiary's relevant transaction

documents. As a result of these restrictions, our CLO subsidiaries may suffer losses on their assets and we may suffer losses on our investments in those CLO subsidiaries.

interest paid on the related pool of underlying mortgage loans (less fees, such as servicing and trustee fees, and expenses of the securitization), and that subsidiary has unilateral foreclosure rights with respect to those mortgage loans, then our real estate subsidiaries will consider those securities, collectively, to be qualifying real estate assets. If another entity acquires any of the securities that are expected to receive cash flow from the underlying mortgage loans, then our real estate subsidiaries will consider whether it has appropriate foreclosure rights with respect to the underlying loans and whether its investment is a first loss position in deciding whether these securities should be classified as qualifying real estate assets. If our real estate subsidiaries own more than one subordinate class, then, to determine the classification of subordinate classes other than the first loss class, our real estate subsidiaries will consider whether such classes are contiguous with the first loss class (with no other classes absorbing losses after the first loss class and before any other subordinate classes that our real estate subsidiaries own), whether our real estate subsidiaries own the entire amount of each such class and whether our real estate subsidiaries would continue to have appropriate foreclosure rights in connection with each such class if the more subordinate classes were no longer outstanding. If the answers to any of these questions is no, then our real estate subsidiaries would expect not to classify that particular class, or classes senior to that class, as qualifying real estate assets.

other facilities and maritime and infrastructure projects or improvements. We intend to rely on guidance published by the SEC or its staff in determining which assets are deemed qualifying assets.

We have not requested approval or guidance from the SEC or its staff with respect to our Investment Company Act determinations, including, in particular: our treatment of any subsidiary as majority-owned; the compliance of any subsidiary with Section 3(c)(5)(A), (B), (C) or Section 3(c)(9) of, or Rule 3a-7 under, the Investment Company Act, including any subsidiary's determinations with respect to the consistency of its assets or operations with the requirements thereof; or whether our interests in one or more subsidiaries constitute investment securities for purposes of the 40% test. If the SEC were to disagree with our treatment of one or more subsidiaries as being majority-owned, excepted from the Investment Company Act pursuant to Rule 3a-7, Section 3(c)(5)(A), (B), (C), Section 3(c)(9) or any other exception, with our determination that one or more of our other holdings do not constitute investment securities for purposes of the 40% test, or with our determinations as to the nature of the business in which we engage or the manner in which we hold ourselves out, we and/or one or more of our subsidiaries would need to adjust our operating strategies or assets in order for us to continue to pass the 40% test or register as an investment company, either of which could have a material adverse effect on us. Moreover, we may be required to adjust our operating strategy and holdings, or to effect sales of our assets in a manner that, or at a time or price at which, we would not otherwise choose, if there are changes in the laws or rules governing our Investment Company Act status or that of our subsidiaries, or if the SEC or its staff provides more specific or different guidance regarding the application of relevant provisions of, and rules under, the Investment Company Act. The SEC published on August 31, 2011 an advance notice of proposed rulemaking to potentially amend the conditions for reliance on Rule 3a-7 and the treatment of asset-backed issuers that rely on Rule 3a-7 under the Investment Company Act (the "3a-7 Release").

In August 2012, the U.S. Commodities Futures Trading Commission ("CFTC") adopted a series of rules to establish a new regulatory framework for swaps that may cause certain users of swaps to be deemed commodity pools or to register as commodity pool operators. In October 2012, the CFTC delayed the implementation of the relevant rules until December 31, 2012. Although we believe that KKR Financial Holdings LLC is not a commodity pool, we have requested confirmation of this conclusion from the CFTC. To the extent that any of our subsidiaries may be deemed to be a commodity pool, we believe they should satisfy certain exemptions to these rules available to privately offered entities. However, if the CFTC were to take the position that KKR Financial Holdings LLC is a commodity pool, our directors may be required to register as commodity pool operators. Such registration would add to our operating and compliance costs and could affect the manner in which we use swaps as part of our operating and hedging strategies.

From time to time, we may make investments that are denominated in a foreign currency through which we may be subject to foreign currency exchange risk. As of December 31, 2014, $289.6 million estimated fair value, or 4.1%, of our corporate debt portfolio was denominated in foreign currencies, of which 86.7% was denominated in Euros. In addition, as of December 31, 2014, $117.1 million estimated fair value, or 14.6%, of our interests in joint ventures and partnerships, equity investments and other investments were denominated in foreign currencies, of which 41.9% was denominated in Euros, 33.7% was denominated in the British pound sterling and 13.7% was denominated in Canadian dollars.

Based on these investments, we are exposed to movements in foreign currency exchange rates which may impact earnings if the United States dollar significantly strengthens or weakens against foreign currencies. Accordingly, we may use derivative instruments from time to time, including foreign exchange options and forward contracts, to manage the impact of fluctuations in foreign currency

exchange rates. As of December 31, 2014, the net contractual notional balance of our foreign exchange options and forward contract liabilities totaled $442.2 million, the majority of which related to certain of our foreign currency denominated assets. Refer to "Derivative Risk" below for further discussion on our derivatives.

Our investments are subject to spread risk. Our investments in floating rate loans and securities are valued based on a market credit spread over LIBOR and for which the value is affected by changes in the market credit spreads over LIBOR. Our investments in fixed rate loans and securities are valued based on a market credit spread over the rate payable on fixed rate United States Treasuries of like maturity. Increased credit spreads, or credit spread widening, will have an adverse impact on the value of our investments while decreased credit spreads, or credit spread tightening, will have a positive impact on the value of our investments. However, tightening credit spreads will increase the likelihood that certain holdings will be refinanced at lower rates that would negatively impact our earnings.

Interest rate risk is defined as the sensitivity of our current and future earnings to interest rate volatility, variability of spread relationships, the difference in repricing intervals between our assets and liabilities and the effect that interest rates may have on our cash flows and the prepayment rates experienced on our investments that have embedded borrower optionality. The objective of interest rate risk management is to achieve earnings, preserve capital and achieve liquidity by minimizing the negative impacts of changing interest rates, asset and liability mix, and prepayment activity.

We are exposed to basis risk between our investments and our borrowings. Interest rates on our floating rate investments and our variable rate borrowings do not reset on the same day or with the same frequency and, as a result, we are exposed to basis risk with respect to index reset frequency. Our floating rate investments may reprice on indices that are different than the indices that are used to price our variable rate borrowings and, as a result, we are exposed to basis risk with respect to repricing index. The basis risks noted above, in addition to other forms of basis risk that exist between our investments and borrowings, could have a material adverse impact on our future net interest margins.

Interest rate risk impacts our interest income, interest expense, prepayments, as well as the fair value of our investments, interest rate derivatives and liabilities. We generally fund our variable rate investments with variable rate borrowings with similar interest rate reset frequencies. Based on our variable rate investments and related variable rate borrowings as of December 31, 2014, we estimated that increases in interest rates would impact net income by approximately (amounts in thousands):

As of December 31, 2014, approximately 74.3% of our floating rate corporate debt portfolio had LIBOR floors with a weighted average floor of 1.03%. Given these LIBOR floors, increases in short-term interest rates above a certain point beginning between 2% and 3% will result in a greater positive impact as yields on interest-earning assets are expected to rise faster than the cost of funding sources. The simulation above assumes that the asset and liability structure of the consolidated balance sheet would not be changed as a result of the simulated changes in interest rates.

We manage our interest rate risk using various techniques ranging from the purchase of floating rate investments to the use of interest rate derivatives. The use of interest rate derivatives is a component of our interest risk management strategy. As of December 31, 2014, we had interest rate swaps with a contractual notional amount of $426.0 million, of which $301.0 million was related to two pay-fixed, receive-variable interest rate swaps through certain of our CLOs. These interest rate derivatives consisted of swaps to hedge a portion of the interest rate risk associated with our borrowings under the CLO senior secured notes. The remaining $125.0 million of interest rate swaps were used to hedge a portion of the interest rate risk associated with our floating rate junior subordinated notes. The objective of the interest rate swaps is to eliminate the variability of cash flows in the interest payments of these notes due to fluctuations in the indexed rate. Refer to "Derivative Risk" below for further discussion on our derivatives.

Derivative transactions including engaging in swaps and foreign currency transactions are subject to certain risks. There is no guarantee that a company can eliminate its exposure under an outstanding swap agreement by entering into an offsetting swap agreement with the same or another party. Also, there is a possibility of default of the other party to the transaction or illiquidity of the derivative instrument. Furthermore, the ability to successfully use derivative transactions depends on the ability to predict market movements which cannot be guaranteed. As such, participation in derivative instruments may result in greater losses as we would have to sell or purchase an investment at inopportune times for prices other than current market prices or may force us to hold an asset we might otherwise have sold. In addition, as certain derivative instruments are unregulated, they are difficult to value and are therefore susceptible to liquidity and credit risks.

Collateral posting requirements are individually negotiated between counterparties and there is currently no regulatory requirement concerning the amount of collateral that a counterparty must post to secure its obligations under certain derivative instruments. Currently, there is no requirement that parties to a contract be informed in advance when a credit default swap is sold. As a result, investors may have difficulty identifying the party responsible for payment of their claims. If a counterparty's credit becomes significantly impaired, multiple requests for collateral posting in a short period of time could increase the risk that we may not receive adequate collateral. Amounts paid by us as premiums and cash or other assets held in margin accounts with respect to derivative instruments are not available for investment purposes.

The following table summarizes the aggregate notional amount and estimated net fair value of our derivative instruments held as of December 31, 2014 (amounts in thousands):

For our derivatives, our credit exposure is directly with our counterparties and continues until the maturity or termination of such contracts. The following table sets forth the estimated net fair values of our primary derivative investments by remaining contractual maturity as of December 31, 2014 (amounts in thousands):

We have credit risks that are generally related to the counterparties with which we do business. If a counterparty becomes bankrupt, or otherwise fails to perform its obligations under a derivative contract due to financial difficulties, we may experience significant delays in obtaining any recovery under the derivative contract in a bankruptcy or other reorganization proceeding. These risks of non-performance may differ from risks associated with exchange-traded transactions which are typically backed by guarantees and have daily mark-to-market and settlement positions. Transactions entered into directly between parties do not benefit from such protections and thus, are subject to counterparty default. It may be the case where any cash or collateral we pledged to the counterparty may be unrecoverable and we may be forced to unwind our derivative agreements at a loss. We may obtain only a limited recovery or may obtain no recovery in such circumstances, thereby reducing liquidity and earnings.

The preparation of our financial statements requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Significant estimates, assumptions and judgments are applied in situations including the determination of our allowance for loan losses and the valuation of certain investments. We revise our estimates when appropriate. However, actual results could materially differ from management's estimates.

See discussion of quantitative and qualitative disclosures about market risk in "Quantitative and Qualitative Disclosures About Market Risk" section of Item 7 of this Annual Report on Form 10-K.

Our consolidated financial statements and the related notes to the consolidated financial statements, together with the Report of Independent Registered Public Accounting Firm thereon, are set forth on pages 154 through 238 in this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

We have carried out an evaluation, under the supervision and with the participation of our management including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as that term is defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of December 31, 2014. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2014, our disclosure controls and procedures are effective.

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance regarding the reliability of our financial reports and preparation of our financial statements for external purposes in accordance with GAAP.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control—Integrated Framework (2013). Based on that assessment, management concluded that, as of December 31, 2014, our internal control over financial reporting was effective.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management's report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management's report in this Annual Report on Form 10-K. Therefore, this Annual Report on Form 10-K does not include such an attestation.

During the quarter ended December 31, 2014, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

KKR & Co. periodically issues press releases, hosts calls and webcasts, publishes presentations on its website, and files reports with the Securities and Exchange Commission, including, for example, earnings releases containing financial results for its completed fiscal quarters, related conference calls and quarterly reports on Form 10-Q or annual reports on Form 10-K. Such presentations, reports, calls and webcasts may contain information regarding KFN, which is now a subsidiary of KKR & Co.

Additional information regarding such filings and events may be found at the Investor Center for KKR & Co. L.P. under "Events & Presentations," "Press Releases" and "SEC Filings", and KKR's periodic filings with the SEC are accessible on the Securities and Exchange Commission's website at www.sec.gov. Such presentations, reports, calls and webcasts whether published on KKR & Co.'s

website or filed with the Securities and Exchange Commission are not incorporated by reference in this report and shall not be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.

The following tables set forth information about our directors as of March 23, 2015.

Name	Age	Biography

*William J. Janetschek*	52	William J. Janetschek has been our President and Chief Executive Officer since June 2014 and a director since May 2014. He joined KKR in 1997 and is Chief Financial Officer of the managing partner of KKR & Co. L.P. Prior to joining KKR, he was a tax partner at Deloitte & Touche LLP. He holds a B.S. from St. John's University and an M.S., Taxation from Pace University. Mr. Janetschek is actively involved in the community, serving as a sponsor and member of a variety of non-profit organizations including Student Sponsor Partners and St. John's University. Mr. Janetschek brings strong experience within the finance industry as well as a demonstrated track record of leadership to the Company as our Chief Executive Officer and to our board of directors.
*Richard Kreider*	53	Richard Kreider has been a director since May 2014. He spent 28 years working at KKR prior to retiring in April 2014, with the last five years as a director in business operations. Mr. Kreider graduated from Villanova University with a B.S. in Accountancy and received his M.B.A. from New York University. Mr. Kreider brings extensive experience working with KKR to our board of directors.

Name	Age	Biography

*Jonathan David Thomas*	38	Jonathan David Thomas has been a director since May 2014. Mr. Thomas is the Chief Financial Officer for Jakov P. Dulcich & Sons and its affiliates, a leading grower, shipper and marketer of table grapes. Prior to his current role, Mr. Thomas worked at KKR in various roles including financial planning and SEC reporting and worked in the audit practice at PricewaterhouseCoopers. Mr. Thomas graduated from the University of Maine with a B.S. in Business Administration. Mr. Thomas brings valuable accounting and financial reporting experience to our board of directors.
*John P. McGlinchey*	61	John P. McGlinchey has been a director since May 2014. Mr. McGlinchey worked at KKR from June 2000 until his retirement in March 2012. From March 2012 through April 2014, Mr. McGlinchey served as a part-time consultant of KKR. Prior to joining KKR, he worked at Deloitte & Touche for 15 years and Bankers Trust for three years. Mr. McGlinchey graduated from Pace University in New York. Mr. McGlinchey brings extensive finance experience to our board of directors.

Name		Age		Biography

*Jeffrey B. Van Horn*		54		Jeffrey B. Van Horn has been a director and our Chief Operating Officer since February 2015, our Executive Vice President and Director of Tax since November 2010 and was our Chief Financial Officer from May 2006 through November 2010. Mr. Van Horn joined KKR in 2004 and is currently the Co-Head of the KKR Global Tax Team, the KKR Global Public Markets Tax Director, and the Chief Financial Officer of KKR Credit Advisors (US) LLC. Before joining KKR, Mr. Van Horn worked in various finance positions, including Senior Vice President of Investments and Chief Financial Officer of Avalon Bay Communities, Inc. and its predecessor, Bay Apartment Communities, Inc., respectively. Prior to that, he was a tax partner with Arthur Andersen LLP serving clients in the real estate, leasing, private equity, and REIT industries. Mr. Van Horn was also a member of Arthur Andersen's firmwide Partnership and REIT Tax Specialty Teams. He graduated summa cum laude with a B.A. in Business Administration from California State University, Stanislaus. Mr. Van Horn is also a California licensed Certified Public Accountant. Mr. Van Horn brings in-depth experience and understanding of our business as well as a substantial background in finance and tax to our board of directors.

In accordance with the Merger Agreement and in connection with the Merger Transaction, Paul M. Hazen, Tracy L. Collins, Robert L. Edwards, Vincent Paul Finigan, R. Glenn Hubbard, Ross J. Kari, Ely L. Licht, Deborah H. McAneny, Scott A. Ryles and Willy R. Strothotte (the "Pre-Merger Independent Directors") ceased to serve as directors of the Company as of April 30, 2014. In May 2014, William J. Janetschek, Michael R. McFerran, Richard Kreider, John P. McGlinchey and Jonathan David Thomas were appointed to the board of directors and Scott Nuttall and Craig Farr resigned from the board of directors. In June 2014, Craig Farr resigned as President and Chief Executive Officer of the Company, and the board of directors elected William Janetschek to succeed Mr. Farr in these roles effective as of such date.

On February 25, 2015, Michael R. McFerran provided notice of his resignation from the board of directors and its Executive Committee and as Chief Financial Officer and Chief Operating Officer of the Company, effective February 27, 2015. The board of directors elected Thomas N. Murphy to succeed Mr. McFerran as Chief Financial Officer and Treasurer of the Company and appointed Jeffrey B. Van Horn as a member of the board of directors and its Executive Committee and as Chief Operating Officer of the Company, in each case effective February 27, 2015. For additional information regarding Mr. Murphy, see "Executive Officers" below.

We are externally managed and advised by our Manager. Our Manager was formed in July 2004. All of our executive officers are employees of our Manager or one or more of its affiliates. The following sets forth certain information with respect to our executive officers:

Name and Position	Age	Biography

*William J. Janetschek* President and Chief Executive Officer	52	For biographical information on Mr. Janetschek see table above under the heading "Directors".
*Jeffrey B. Van Horn* Chief Operating Officer	54	For biographical information on Mr. Van Horn, see table above under the heading "Directors".
*Thomas N. Murphy* Chief Financial Officer and Treasurer	48	Mr. Murphy has been our Chief Financial Officer and Treasurer since February 2015. He has been our chief accounting officer since February 2009. Prior to joining KKR, he was executive vice president of finance and accounting with Countrywide Bank, a subsidiary of Countrywide Home Loans from 2005 to 2009. Mr. Murphy has also worked as a compliance and Sarbanes Oxley analyst for Europe, Middle East and Africa for Dell, Inc. and with Deloitte & Touche LLP in audit and assurance. Mr. Murphy holds a B.A. in Economics and Math from the University College Cork, Ireland and is a California licensed Certified Public Accountant.

Name and Position		Age		Biography

*Nicole J. Macarchuk* General Counsel and Secretary		46		Ms. Macarchuk has been our General Counsel and Secretary since November 2010. Ms. Macarchuk has been employed by KKR since July 2010 and is a Managing Director and General Counsel to KKR Credit. Prior to joining KKR, Ms. Macarchuk was Co-General Counsel of Och-Ziff Capital Management Group LLC, a global institutional asset management firm from 2005 to April 2010. At Och-Ziff, Ms. Macarchuk was head counsel responsible for supporting the firm's global private equity, energy and transactional business groups and initiatives, as well as provided coverage to the U.S. public distressed debt and structured products business units and public equity business units with respect to transactional matters. Ms. Macarchuk was Counsel at O'Melveny & Myers LLP and O'Sullivan LLP from 1996 to 2005 where she focused on private equity transactions and fund formation. From 1993 to 1996, Ms. Macarchuk was an associate at White & Case where she focused on banking and corporate credit transactions. Ms. Macarchuk received a B.A. in Economics from Fordham University and a J.D., cum laude, from Fordham University Law School.

No family relationships exist among any of our directors or executive officers. For information regarding the resignations of Craig Farr as President and Chief Executive Officer of the Company and Michael R. McFerran as Chief Financial Officer and Chief Operating Officer of the Company and as a member of the board of directors and the appointments of Jeffrey B. Van Horn as Chief Operating Officer and as a member of the board of directors and its executive committee and Thomas N. Murphy as Chief Financial Officer, see "—Directors."

Section 16(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, requires our executive officers, directors and persons who own more than ten percent of a registered class of our equity securities, or Reporting Persons, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC and the NYSE. We have two classes of equity securities, our 7.375% Series A LLC Preferred Shares and our common shares. Reporting Persons are required by SEC regulations to furnish us with copies of all Forms 3, 4 and 5 they file with the SEC. Based on the review of filings made with the SEC and representations made by the Reporting Persons, we believe that during 2014 all of our executive officers, directors and 10% stockholders complied with all Section 16(a) filing requirements applicable to them.

Our board of directors has established a Code of Business Conduct and Ethics that applies to our executive officers, directors and employees (should we in the future have any employees) and to the officers and employees of the Manager and its affiliates, when such individuals are acting for or on our behalf. Among other matters, our Code of Business Conduct and Ethics is designed to promote our commitment to ethics and compliance with the law, provide reporting mechanisms for known or suspected ethical or legal violations and help prevent and detect wrongdoing. We have specific policies in place to address:

Any waiver of the Code of Business Conduct and Ethics for our executive officers or directors may be made only by our board of directors and will be promptly disclosed as required by law or stock exchange regulations. The Code of Business Conduct and Ethics is available on our website at http://ir.kkr.com/kfn_ir/documentdisplay.cfm?DocumentID=1214 and is also available in print by writing to KKR Financial Holdings LLC, Attn: Investor Relations, 555 California Street, 50th Floor, San Francisco, California 94104. Any modifications to the Code of Business Conduct and Ethics will be reflected on our website.

In April 2014, following the closing of the Merger Transaction, the Company became a controlled company and in May 2014 we delisted our common shares from the NYSE and terminated their registration pursuant to Rule 12(g) of the Exchange Act. Accordingly, we are no longer required by NYSE or SEC rules to have any directors that satisfy NYSE independence criteria. Our Operating Agreement provides that a majority of our board of directors be made up of "Independent Directors", as defined in the Operating Agreement. For the purposes of the Operating Agreement, an Independent Director is a director who (i)(a) is not an officer or employee of the Company, or an officer, director or employee of any subsidiary of the Company, (b) was not appointed as a director pursuant to the terms of the Management Agreement, and (c) for so long as the Management Agreement is in effect, is not affiliated with the Manager or any of its affiliates, and (ii) who satisfies any NYSE independence requirements applicable to directors of the Company (none of which, as discussed above, currently apply to us). Richard Kreider, John McGlinchey and Jonathan Thomas are our Independent Directors under the Operating Agreement.

Nominees for directors may be proposed by our Manager, our sole common shareholder, members of the board of directors, and in certain circumstances holders of our Series A LLC Preferred Shares.

Interested parties who wish to communicate with a member or members of our board of directors, including communications directed to the Independent Directors, may do so by addressing their correspondence to such member or members; the Company will forward all such correspondence to the member or members of the board of directors to whom such correspondence was addressed:

The board of directors has established procedures for employees of our Manager and its affiliates and others to report openly, confidentially or anonymously concerns regarding our compliance with legal and regulatory requirements or concerns regarding our accounting, internal accounting controls or auditing matters. Reports may be made orally or in writing to our General Counsel and Secretary:

Our board of directors directs the management of our business and affairs, as provided by our Operating Agreement and Delaware law, and conducts its business through meetings of the board of directors and its committees. We have two standing committees of the board of directors, the Affiliated Transactions Committee and the Executive Committee. The Affiliated Transaction Committee is made up entirely of Independent Directors. Matters put to a vote at either of these committees must be approved by a majority of the directors on the committee who are present at a meeting at which there is a quorum or by unanimous written or electronic consent of the directors on that committee. Our board of directors has adopted a written charter for the Affiliated Transactions Committee. Our board of directors may from time to time appoint other committees as circumstances warrant. Any new committees will have authority and responsibility as delegated by our board of directors. Because we are a controlled company and a subsidiary of KKR, another listed issuer, we are not required by NYSE or SEC rules to establish an audit committee, a compensation committee, a nominating and corporate governance committee or to meet other substantive NYSE corporate governance requirements.

The members of the Affiliated Transactions Committee are Richard Kreider, John McGlinchey and Jonathan Thomas. The Affiliated Transactions Committee is responsible for considering and taking action with respect to: any matters that, in the determination of the Manager, are reserved for action by the Independent Directors under the Management Agreement; any other matter involving the Manager or its affiliates that, in the determination of the Manager, involve a material conflict of interest with the Company; and any other matter that the board of directors (including its Executive Committee) determines to refer to the Affiliated Transactions Committee for its consideration. The Affiliated Transactions Committee has the authority to act (including the power to take action on behalf of the Company without further action from the board of directors) with respect to any matter described above reserved for action by the Independent Directors or involving a material conflict with the Manager or its affiliates as well as to exercise any additional powers delegated to it by the board of directors or Executive Committee.

The members of the Executive Committee are William Janetschek and Jeffrey Van Horn. The Executive Committee exercises the powers of our board of directors between meetings of our board of directors.

Because our Management Agreement provides that our Manager is responsible for managing our affairs, our executive officers, who are employees of our Manager or one or more of its affiliates, do not receive compensation from us or any of our subsidiaries for serving as our executive officers. Accordingly, we do not have employment agreements with our executive officers, we do not provide pension or retirement benefits, perquisites or other personal benefits to our executive officers and we do not have arrangements to make payments to our executive officers upon their termination or in the event of a change in control of the Company.

Additionally, the Management Agreement does not require our executive officers to dedicate a specific amount of time to fulfilling our Manager's obligations to us under the Management Agreement. Accordingly, our Manager has informed us that it cannot identify the portion of the compensation awarded to our executive officers that relates solely to their services to us, as our Manager and its affiliates do not compensate its employees specifically for such services.

Because our executive officers do not receive compensation from us or any of our subsidiaries and because our Manager has informed us that it cannot identify the portion of the compensation awarded to our executive officers that relates solely to their services to us, we do not provide executive compensation disclosure pursuant to Item 402 of Regulation S-K. As a result, the say-on-pay and say-on-when provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 are inapplicable to us.

We are party to the Management Agreement with our Manager pursuant to which our Manager will provide for the day-to-day management of our operations.

The Management Agreement requires our Manager to manage our business affairs in conformity with the investment guidelines that are approved by a majority of our board of directors. Our Manager is under the direction of our board of directors. Our Manager is responsible for (1) the selection, purchase and sale of our investments, (2) our financing and risk management activities and (3) providing us with investment advisory services.

The Management Agreement expired on December 31, 2014, was automatically renewed for a one-year term expiring on December 31, 2015 and will be automatically renewed for a one-year term on each anniversary date thereafter, unless terminated. Our board of directors review our Manager's performance periodically and the Management Agreement may be terminated annually (upon 180 day prior written notice) upon the affirmative vote of at least two-thirds of our independent directors, or by a vote of the holders of a majority of our outstanding common shares, based upon (1) unsatisfactory performance by the Manager that is materially detrimental to us or (2) a determination that the management fees payable to our Manager are not fair, subject to our Manager's right to prevent such a termination under this clause (2) by accepting a mutually acceptable reduction of management fees. We must provide a 180 day prior written notice of any such termination and our Manager will be paid a termination fee equal to four times the sum of the average annual base management fee and the average annual incentive fee for the two 12-month periods preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination.

We may also terminate the Management Agreement without payment of the termination fee with a 30 day prior written notice for "cause", which is defined as:

"Cause" does not include unsatisfactory performance, even if that performance is materially detrimental to our business. Our Manager may terminate the Management Agreement, without payment of the termination fee, in the event we become regulated as an investment company under the Investment Company Act of 1940, as amended, or the Investment Company Act. Furthermore, our Manager may decline to renew the Management Agreement by providing us with a 180 day prior written notice. Our Manager may also terminate the Management Agreement upon 60 days prior written notice if we default in the performance of any material term of the Management Agreement and the default continues for a period of 30 days after written notice to us, whereupon we would be required to pay our Manager the termination fee described above.

For purposes of calculating the base management fee, our equity means, for any quarter, the sum of:

The foregoing calculation of the base management fee is adjusted to exclude special one-time events pursuant to changes in accounting principles generally accepted in the United States of America, or GAAP, as well as non-cash charges, after discussion between our Manager and our independent directors and approval by a majority of our independent directors in the case of non-cash charges.

Our Manager is required to calculate the base management fee within 45 calendar days after the end of each quarter and deliver that calculation to us promptly. We are obligated to pay the base management fee within 45 calendar days after the end of each quarter. We may elect to have our Manager allocate the base management fee among us and our subsidiaries, in which case the fee would be paid directly by each entity that received an allocation.

Our Manager waived base management fees related to the $230.4 million common share offering and $270.0 million common share rights offering that occurred during the third quarter of 2007 until such time as our common share closing price on the NYSE was $20.00 or more for five consecutive trading days. Accordingly, our Manager permanently waived approximately $2.9 million of base management fees during the four months ended April 30, 2014.

Because our Manager's employees and affiliates perform certain legal, accounting and due diligence tasks and other services that outside professionals or outside consultants otherwise would perform, our Manager is paid or reimbursed for the documented cost of performing such tasks, provided that such costs and reimbursements are no greater than those which would be paid to outside professionals or consultants on an arm's-length basis.

We also pay all operating expenses, except those specifically required to be borne by our Manager under the Management Agreement. Our Manager is required to calculate its reimbursable expenses within 45 calendar days after the end of each quarter and deliver that calculation to us promptly. We are obligated to repay such expenses on the first business day of the month immediately following delivery, although such amount may be offset against amounts owed to us by our Manager. The expenses required to be paid by us include, but are not limited to, rent, issuance and transaction costs incident to the acquisition, disposition and financing of our investments, legal, tax, accounting, consulting and auditing fees and expenses, the compensation and expenses of our directors, the cost of directors' and officers' liability insurance, the costs associated with the establishment and maintenance of any credit facilities and other indebtedness of ours (including commitment fees, accounting fees, legal fees and closing costs), expenses associated with other securities offerings of ours, expenses relating to making distributions to our shareholders, the costs of printing and mailing proxies and reports to our shareholders, costs associated with any computer software or hardware, electronic

equipment, or purchased information technology services from third party vendors, costs incurred by employees of our Manager for travel on our behalf, the costs and expenses incurred with respect to market information systems and publications, research publications and materials, and settlement, clearing, and custodial fees and expenses, expenses of our transfer agent, the costs of maintaining compliance with all federal, state and local rules and regulations or any other regulatory agency, all taxes and license fees and all insurance costs incurred by us or on our behalf. In addition, we will be required to pay our pro rata portion of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of our Manager and its affiliates required for our operations. Except as noted above, our Manager is responsible for all costs incident to the performance of its duties under the Management Agreement, including compensation of our Manager's employees and other related expenses, except that we may elect to have our Manager allocate expenses among us and our subsidiaries, in which case expenses would be paid directly by each entity that received an allocation.

For the eight months ended December 31, 2014 and four months ended April 30, 2014, we incurred reimbursable expenses to our Manager of $3.0 million and $2.8 million, respectively.

In addition to the base management fee, our Manager receives quarterly incentive compensation in an amount equal to the product of: (1) 25% of the dollar amount by which: (a) our Net Income, before incentive compensation, per weighted-average share of our common shares for such quarter, exceeds (b) an amount equal to (A) the weighted-average of the price per share of the common stock of KKR Financial Corp. in its August 2004 private placement and the prices per share of the common stock of KKR Financial Corp. in its initial public offering and any subsequent offerings by KKR Financial Holdings LLC multiplied by (B) the greater of (i) 2.00% and (ii) 0.50% plus one-fourth of the Ten Year Treasury Rate for such quarter, multiplied by (2) the weighted average number of our common shares. The foregoing calculation of incentive compensation will be adjusted to exclude special one-time events pursuant to changes in GAAP, as well as non-cash charges, after discussion between our Manager and our independent directors and approval by a majority of our independent directors in the case of non-cash charges. In addition, any shares that by their terms are entitled to a specified periodic distribution, including our 7.375% Series A LLC Preferred Shares, will not be treated as shares, nor included as shares offered or outstanding, for the purpose of calculating incentive compensation, and instead the aggregate distribution amount that accrues to these shares during the fiscal quarter of such calculation will be subtracted from our Net Income, before incentive compensation for purposes of clause (1)(a). The incentive compensation calculation and payment shall be made quarterly in arrears. For purposes of the foregoing: "Net Income" will be determined by calculating the net income available to shareholders before non-cash equity compensation expense, in accordance with GAAP; and "Ten Year Treasury Rate" means the average of weekly average yield to maturity for United States Treasury securities (adjusted to a constant maturity of ten years) as published weekly by the Federal Reserve Board in publication H.15 or any successor publication during a fiscal quarter.

Our Manager is required to compute the quarterly incentive compensation within 45 calendar days after the end of each fiscal quarter, and we are required to pay the quarterly incentive compensation with respect to each fiscal quarter within five business days following the delivery to us of our Manager's written statement setting forth the computation of the incentive fee for such quarter. We may elect to have our Manager allocate the incentive fee among us and our subsidiaries, in which case the fee would be paid directly by each entity that received an allocation.

For the eight months ended December 31, 2014 and four months ended April 30, 2014, zero and $12.9 million, respectively, of incentive fees were earned by our Manager.

An affiliate of our Manager entered into separate management agreements with the respective investment vehicles for all of our Cash Flow CLOs pursuant to which it is entitled to receive fees for the services it performs as collateral manager for all of these CLOs, except for KKR Financial CLO 2011-1, Ltd ("CLO 2011-1"). The collateral manager has the option to waive the fees it earns for providing management services for the CLO.

The collateral manager waived CLO management fees totaling $4.2 million for KKR Financial CLO 2005-2, Ltd. ("CLO 2005-2") and KKR Financial CLO 2006-1, Ltd. ("CLO 2006-1") during the eight months ended December 31, 2014 and $1.6 million during the four months ended April 30, 2014.

During the year ended December 31, 2014, our Manager agreed to credit us for a portion of the CLO management fees received by an affiliate of our Manager from KKR Financial CLO 2007-1, Ltd ("CLO 2007-1"), KKR Financial CLO 2007-A, Ltd ("CLO 2007-A") and KKR Financial CLO 2012-1, Ltd ("CLO 2012-1") via an offset to the quarterly base management fees payable to our Manager. As we own less than 100% of the subordinated notes for these CLOs (with the remaining subordinated notes held by third parties), we received a Fee Credit equal only to our pro rata share of the aggregate CLO management fees paid by these CLOs. Specifically, the amount of the reimbursement for each of these CLOs was calculated by taking the product of (x) the total CLO management fees received by an affiliate of our Manager during the period for such CLO multiplied by (y) the percentage of the subordinated notes of such CLO held by us. The remaining portion of the CLO management fees paid by each of these CLOs was not credited to us, but instead resulted in a dollar-for-dollar reduction in the interest expense paid by us to the third party holder of the CLO's subordinated notes. Similarly, our Manager credited us the CLO management fees from KKR Financial CLO 2013-1, Ltd ("CLO 2013-1") and KKR Financial CLO 2013-2, Ltd ("CLO 2013-2") based on our 100% ownership of the subordinated notes in the CLO.

During the eight months ended December 31, 2014 and four months ended April 30, 2014, we recorded aggregate collateral management fees expense totaling $18.6 million and $11.0 million, respectively, of which we received Fee Credits totaling $10.0 million and $8.1 million, respectively, to offset the quarterly base management fees payable to our Manager.

We adopted the 2007 Share Incentive Plan to provide incentives to employees (should we have any employees), Pre-Merger Independent Directors (as defined below), our Manager and other service providers. In connection with the Merger Transaction, each KFN restricted common share (other than any restricted Company Common Shares held by our Manager) issued and outstanding under the 2007 Share Incentive Plan was converted into a number of restricted KKR common units (having the same terms and conditions, including applicable vesting requirements, as applied to such KFN restricted common shares). Unless terminated earlier, the 2007 Share Incentive Plan will terminate in May 2015, but will thereafter continue to govern unexpired awards. As of December 31, 2014, all restricted KFN common shares and KFN common share options outstanding at the time of the Merger Transaction (other than any restricted Company Common Shares held by our Manager) had been converted to grants in respect of KKR common units and there were no outstanding equity awards in respect of

KFN common shares outstanding. As of December 31, 2014, a total of 3,421,694 KFN common shares were available for future equity grants under our 2007 Share Incentive Plan, although we do not intend to make any future equity grants under such plan.

The 2007 Share Incentive Plan permitted the granting of options to purchase KFN common shares intended to qualify as incentive stock options under the Code, and common share options that do not qualify as incentive stock options. The exercise price of each KFN common share option could not be less than 100% of the fair market value of KFN common shares on the date of grant. The plan administrator could determine the terms of each option, including when each option may be exercised and the period of time, if any, after retirement, death, disability or termination of employment during which options may be exercised. Options would become vested and exercisable in installments and the exercisability of options could be accelerated by the plan administrator.

The 2007 Share Incentive Plan also permitted the grant of KFN common shares in the form of restricted KFN common shares. A restricted KFN common share award was an award of KFN common shares that would be subject to forfeiture (vesting), restrictions on transferability and such other restrictions, if any, as the plan administrator could have imposed at the date of grant. The KFN common shares would vest and the restrictions would lapse separately or in combination at such times, under such circumstances, including, without limitation, a specified period of employment or the satisfaction of pre-established criteria, in such installments or otherwise, as the plan administrator could have determined. Unrestricted KFN common shares, which are KFN common shares awarded at no cost to the participant or for a purchase price determined by the plan administrator, may also be issued under the 2007 Share Incentive Plan.

The plan administrator was also permitted to grant KFN common shares, KFN common share appreciation rights, performance awards and other KFN common share and non-common share-based awards under the 2007 Share Incentive Plan. These awards would be subject to such conditions and restrictions as the plan administrator determined. Each award under the 2007 Share Incentive Plan would not be exercisable more than 10 years after the date of grant.

Our board of directors may at any time amend, alter or discontinue the 2007 Share Incentive Plan, but cannot, without a participant's consent, take any action that would diminish the rights of such participant under any award granted under the 2007 Share Incentive Plan. To the extent required by law, our board of directors will obtain approval of a participant for any amendment that would, other than through adjustment as provided in the incentive plan:

The 2007 Share Incentive Plan provides that the plan administrator has the discretion to provide that all or any outstanding awards (including those converted into grants in respect of KKR common units) will become fully exercisable, vested and transferable or earned, as applicable, and all or any outstanding awards may be cancelled in exchange for a payment of cash and/or all or any outstanding awards may be substituted for awards that will substantially preserve the otherwise applicable terms of any affected awards previously granted under the 2007 Share Incentive Plan if there is a change in control of us. A change in control is defined by the plan as our dissolution, the sale or disposition of substantially all of our assets, the acquisition by one person or group of a majority of our voting shares, a change in the majority of the board of directors or the adoption of a board of directors resolution that a change of control has effectively occurred, except that no change of control will result from a transaction with our Manager or any affiliate of our Manager. The Merger Transaction was not deemed to be a change in control for the purposes of the 2007 Share Incentive Plan.

In accordance with the Merger Agreement and in connection with the Merger Transaction, Paul M. Hazen, Tracy L. Collins, Robert L. Edwards, Vincent Paul Finigan, R. Glenn Hubbard, Ross J. Kari, Ely L. Licht, Deborah H. McAneny, Scott A. Ryles and Willy R. Strothotte (the "Pre-Merger Independent Directors") ceased to serve as directors of the Company as of April 30, 2014. In May 2014, William Janetschek, Michael McFerran, Richard Kreider, John McGlinchey and Jonathan Thomas were appointed to the board of directors and Scott Nuttall and Craig Farr resigned from the board of directors. Effective February 27, 2015, Mr. McFerran resigned from the board of directors and Jeffrey B. Van Horn was appointed as director. Only the Pre-Merger Independent Directors and Messrs. Kreider, McGlinchey and Thomas (the "Outside Directors") were compensated for their service on our board of directors during 2014. The following table sets forth information concerning the compensation for those of our directors who received compensation for their service on our board of directors during 2014.

Name	Fees Earned or Paid in Cash(1)(2)		All Other Compensation(2)(3)(4)		Total

Pre-Merger Independent Directors:
Tracy L. Collins	$	18,500	$	—	$	18,500
Robert L. Edwards	$	15,500	$	—	$	15,500
Vincent Paul Finigan	$	23,250	$	86,490	$	109,740
Paul M. Hazen	$	46,750	$	11,283	$	58,033
R. Glenn Hubbard	$	25,125	$	235,836	$	260,961
Ross J. Kari	$	23,250	$	—	$	23,250
Ely L. Licht	$	15,500	$	—	$	15,500
Deborah H. McAneny	$	20,750	$	61,236	$	81,986
Scott A. Ryles	$	18,500	$	—	$	18,500
Willy R. Strothotte	$	17,000	$	198,268	$	215,268
Outside Directors:
Jonathan David Thomas	$	5,918	$	—	$	5,918
Richard Kreider	$	5,918	$	20,480	$	26,398
John P. McGlinchey	$	5,918	$	20,480	$	26,398

(1): Consists of the amounts described below under "Cash Compensation", including cash compensation deferred by Mr. Hubbard and Mr. Strothotte as described below. In the case of Mr. Hazen, includes the pro rata portion of an annual retainer of $175,000 for serving as our chairman through April 2014; in the case of Mr. Hubbard, includes the pro rata portion an annual retainer of $25,000 for serving as the Lead Independent Director through April 2014 and the pro rata portion of an annual retainer of $7,500 for serving as chair of our Nominating and Corporate Governance Committee through April 2014; in the case of Mr. Kari and Mr. Finigan, includes the pro rata portion of an annual retainer of $25,000 for serving as chairs of our Audit Committee and Affiliated Transactions Committee, respectively, through April 2014; in the case of Ms. McAneny, includes the pro rata portion of an annual retainer of $15,000 for serving as chair of our Compensation Committee through April 2014; and, in the case of the Outside Directors, includes the pro rata portion of an annual retainer of $10,000 for service from the date of their appointment to the board of directors. For services performed through April 2014, Mr. Hubbard and Mr. Strothotte deferred a total of $25,125 and $17,000, respectively, in cash compensation in exchange for 2,056 and 1,391 phantom shares, respectively, pursuant to the KKR Financial Holdings LLC Non-Employee Directors' Deferred Compensation and Share Award Plan, or the

Name

Tracy L. Collins	—	—	—	—	—	—
Robert L. Edwards	—	—	—	—	—	—
Vincent Paul Finigan	—	3,595	3,595	42,215	2,920	45,135
Paul M. Hazen	—	1,057	1,057	3,482	241	3,723
R. Glenn Hubbard	2,056	9,645	11,701	115,440	7,986	123,426
Ross J. Kari	—	—	—	—	—	—
Ely L. Licht	—	—	—	—	—	—
Deborah H. McAneny	—	2,824	2,824	28,933	2,002	30,935
Scott A. Ryles	—	—	—	—	—	—
Willy R. Strothotte	1,391	8,029	9,420	97,329	6,733	104,062

Each Pre-Merger Independent Director (other than Mr. Hazen) received an annual retainer of $50,000, a fee of $1,500 for each full board of directors meeting attended in person or telephonically and a fee of $1,500 for each committee meeting attended in person or telephonically. Mr. Hazen, in his capacity as our chairman, received an annual retainer of $175,000 for services in such capacity and a fee of $3,000 for each full Board meeting attended in person or telephonically. Prior to the Merger Transaction, the chairperson of the board of directors received an annual retainer of $175,000, the Audit Committee and the Affiliated Transactions Committee chairs and the Lead Independent Director each received an annual retainer of $25,000, the Compensation Committee chair received an annual retainer of $15,000 and the Nominating and Corporate Governance Committee chair received an annual retainer of $7,500. Subsequent to the Merger Transaction, each Outside Director receives an annual retainer of $10,000. We also reimburse all directors for their travel expenses incurred in connection with their attendance at full board of directors and committee meetings.

The Pre-Merger Independent Directors were eligible to receive restricted common shares, common share options and other share-based awards under our 2007 Share Incentive Plan. No equity awards were granted in 2014 and the Company does not expect to grant equity-based awards in the future.

Effective May 4, 2007, the board of directors adopted the Deferred Compensation Plan pursuant to which non-employee directors were provided with an opportunity to defer payment of all or a portion of their annual fees and/or receipt of all or a portion of their restricted share awards in accordance with the terms of the plan. Generally, directors who wished to defer all or a portion of their compensation were required to file an election on or before December 31 of the year preceding the year in which such fees and restricted share awards were earned. All deferrals were credited to individual accounts as a bookkeeping entry on our records. Additionally, directors were permitted to elect to receive current payment of all or a portion of their fees in common shares.

If a director elected to defer a portion of his or her fees, his or her account is credited, on the fifteenth day after the end of our fiscal quarter (or if such day is not a business day, the immediately preceding business day), with a number of phantom shares equal to the fees deferred divided by the average fair market value of the shares over the applicable fiscal quarter. If a director elected to defer a portion of any restricted share award, his or her account was credited, as of the date on which such award was granted, with the number of phantom shares equal to the number of restricted shares deferred pursuant to the election. Directors become vested in the phantom shares to the same extent that he or she would have become vested in such restricted shares had they been issued under the terms of the 2007 Share Incentive Plan. Directors' accounts were credited with phantom shares representing distribution equivalents on the phantom shares held in his or her account when distributions were paid with respect to our common shares. The number of phantom shares credited as distribution equivalents was equal to (i) the product of (a) the distribution amount, multiplied by (b) the number of phantom shares in the director's account on the relevant record date, divided by (ii) the fair market value of our common shares on the relevant distribution payment date.

At the closing of the Merger Transaction, each outstanding KFN Phantom Share was converted into a KKR Phantom Share in respect of 0.51 KKR common units and otherwise remained subject to the terms of the Deferred Compensation Plan. On January 2, 2015, these phantom shares were converted to KKR & Co. common units and cash and all obligations under the Deferred Compensation Plan were satisfied. On March 24, 2015, the board of directors terminated the Deferred Compensation Plan.

Our Outside Directors are permitted to invest and have invested their own capital in side-by-side investments with KKR's funds. Side-by-side investments are investments made on the same terms and conditions as those available to the applicable fund, except that these side-by-side investments are not subject to management fees or a carried interest.

The board of directors does not have a compensation committee. The entire board of directors has reviewed and discussed the Executive Compensation section with management. Based on its review and discussion with management, the board of directors has determined that the Executive Compensation section should be included in this annual report.

This Compensation Committee Report shall not be deemed to be filed under the Exchange Act or incorporated by reference by any general statement incorporating the Form 10-K by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates this information by reference.

Until April 2014, the Company had a Compensation Committee made up of the following directors: Tracy L. Collins, Vincent Paul Finigan, Deborah H. McAneny and Willy R. Strothotte. None of these persons was a current or former officer or employee of the Company or its affiliates. In April 2014, following the closing of the Merger Transaction, the Company became a controlled company and, accordingly, is no longer required by NYSE rules to maintain a compensation committee. The board of directors dissolved the Compensation Committee in June 2014 and since such time the full board of directors has overseen all compensation matters for the Company. For a description of the relationships between certain members of our board of directors and the Company or its affiliates, see "Item 10. Directors, Executive Officers and Corporate Governance—Directors" and "—Executive Officers". For a description of certain transactions between us and members of our board of directors or between us and KKR and its affiliates, which employ certain members of our board of directors, see "Certain Relationships and Related Transactions, and Director Independence."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

The following table presents certain information known to us regarding the beneficial ownership of our common shares. In accordance with SEC rules, each listed person's beneficial ownership includes:

Information is given as of March 23, 2015. The table presents information regarding:

Name and Address of Beneficial Owner(1)

KKR Fund Holdings L.P.(3)	100	100	%
John P. McGlinchey	—	0	%
William J. Janetschek	—	0	%
Richard Kreider	—	0	%
Michael R. McFerran(4)	—	0	%
Nicole J. Macarchuk	—	0	%
Thomas N. Murphy	—	0	%
Jonathan David Thomas	—	0	%
Jeffrey B. Van Horn	—	0	%
All officers and directors as a group (6 persons)	—	0	%

(1): The address for all officers and directors of KFN is c/o KKR Financial Advisors LLC, 555 California Street, 50th Floor, San Francisco, California 94104.
(2): Based on 100 KFN common shares outstanding as of March 23, 2015.
(3): KKR Fund Holdings L.P. (as the sole shareholder of the KFN common shares); KKR Fund Holdings GP Limited (as a general partner of KKR Fund Holdings L.P.); KKR Group Holdings L.P. (as a general partner of KKR Fund Holdings L.P. and the sole shareholder of KKR Fund Holdings GP Limited); KKR Group Limited (as the sole general partner of KKR Group Holdings L.P.); KKR & Co. L.P. (as the sole shareholder of KKR Group Limited); and KKR Management LLC (as the sole general partner of KKR & Co. L.P.) may be deemed to be the beneficial owner of the KFN common shares held by KKR Fund Holdings L.P. Henry Kravis and George Roberts are the designated members of KKR Management LLC. Each of Messrs. Kravis and Roberts disclaims beneficial ownership of all KFN common shares. The principal business address of KKR Fund Holdings L.P., KKR Fund Holdings GP Limited, KKR Group Holdings L.P., KKR Group Limited, KKR & Co. L.P., KKR Management LLC and Mr. Kravis is 9 West 57th Street, Suite 4200, New York, NY 10019. The principal business address of Mr. Roberts is 2800 Sand Hill Road, Suite 200, Menlo Park, CA 94025.
(4): Mr. McFerran served as our Chief Operating Officer, Chief Financial Officer and a member of the board of directors until February 2015.

(1): As of April 30, 2014, we had 1,932,279 common share options exercisable with a weighted average exercise price of $20.00. However, on April 30, 2014, in connection with the Merger Transaction (i) each outstanding option to purchase a KFN common share was cancelled, as the exercise price per share applicable to all outstanding options exceeded the cash value of the number of KKR & Co. common units that a holder of one KFN common share is entitled to in the merger and (ii) all outstanding equity awards made pursuant to the 2007 Share Incentive (other than any restricted KFN commons shares held by our Manager) were converted into awards in respect of KKR common units having the same terms and conditions, including applicable vesting requirements, as applied to such KFN common share awards. No additional awards have been made pursuant to the 2007 Share Incentive Plan since such time. Accordingly, as of December 31, 2014, there were no outstanding equity awards in respect of KFN common shares outstanding. On December 31, 2014, a total of 3,421,694 KFN common shares were authorized and available for future issuances under the 2007 Share Incentive Plan, although we do not intend to make any future awards of KFN equity.

For additional information about the 2007 Share Incentive Plan see "Item 11—Executive Compensation—2007 Share Incentive Plan" of this Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

As of March 23, 2015, KKR Fund Holdings, an affiliate of our Manager, beneficially owned 100% of our common shares. As a result, the Management Agreement was negotiated between related parties and its terms, including fees payable, may not be as favorable to us as if it had been negotiated with an unaffiliated third party.

We are a party to the Management Agreement with our Manager pursuant to which our Manager provides for the day-to-day management of our operations. We do not have any employees and therefore rely on the resources and personnel of our Manager to conduct our operations. For performing services under the Management Agreement, our Manager receives a base management fee and incentive compensation based on our performance. The Manager also receives reimbursement for certain expenses. For the eight months ended December 31, 2014 and four months ended April 30, 2014, our Manager earned $15.1 million and $5.3 million, respectively, in net base management fees. In

addition, for the eight months ended December 31, 2014 and four months ended April 30, 2014, our Manager earned zero and $12.9 million, respectively, in incentive fees. We are required to reimburse our Manager for certain expenses incurred on our behalf during any given year. For the eight months ended December 31, 2014 and four months ended April 30, 2014, we reimbursed our Manager for allocable general and administrative expenses of $3.0 million and $2.8 million, respectively. So long as the Management Agreement remains in effect, we are required to continue to make quarterly payments of the base management fee and, if applicable, quarterly payments of incentive compensation to the Manager, and to reimburse the Manager for certain expenses. The base management fee is calculated as a percentage of our equity (as defined in the Management Agreement) and the incentive compensation is based upon our quarterly net income and, as a result, we cannot quantify the amount of those fees that will be payable in the future.

For additional information about the Management Agreement, including additional information on how the base management fee and incentive compensation are calculated, see "Item 11—Executive Compensation—The Management Agreement" of this Form 10-K.

During the year ended December 31, 2014, our Manager agreed to credit us for a portion of the CLO management fees received by an affiliate of our Manager from CLO 2007-1, CLO 2007-A and CLO 2012-1 via an offset to the quarterly base management fees payable to our Manager. As we own less than 100% of the subordinated notes of these CLOs (with the remaining subordinated notes held by third parties), we received a Fee Credit equal only to our pro rata share of the aggregate CLO management fees paid by these CLOs. Specifically, the amount of the reimbursement for each of these CLOs was calculated by taking the product of (x) the total CLO management fees received by an affiliate of our Manager during the period for such CLO multiplied by (y) the percentage of the subordinated notes of such CLO held by us. The remaining portion of the CLO management fees paid by each of these CLOs was not credited to us, but instead resulted in a dollar-for-dollar reduction in the interest expense paid by us to the third party holder of the CLO's subordinated notes. Similarly, our Manager credited us the CLO management fees from CLO 2013-1 and CLO 2013-2 based on our 100% ownership of the subordinated notes in the CLO.

During the eight months ended December 31, 2014 and four months ended April 30, 2014, we recorded aggregate collateral management fees expense totaling $18.6 million and $11.0 million, respectively, of which we received Fee Credits totaling $10.0 million and $8.1 million, respectively, to offset the quarterly base management fees payable to our Manager.

On December 16, 2013, we announced the signing of a definitive merger agreement pursuant to which KKR acquired all of our outstanding common shares through an exchange of equity through which our shareholders will receive 0.51 common units representing the limited partnership interests of KKR for each of our common shares.

The Manager is an indirect subsidiary of KKR. The Merger Transaction was approved by our common shareholders and on April 30, 2014, the Merger Transaction closed and we became an indirect subsidiary of KKR. For additional information about the merger agreement see "Item 1. Business—Merger with KKR & Co." of this Form 10-K.

On June 27, 2014, in connection with the Merger Transaction, we entered into the Third Amendment Agreement to the Management Agreement, principally to reflect the Company's status, as in indirect subsidiary of KKR.

In the ordinary course of business, we invest in entities that are affiliated with KKR. As of December 31, 2014, our investments in KKR affiliated companies consisted of an aggregate $1.7 billion par amount, which is primarily comprised of $1.6 billion par amount of corporate loans. In addition, as of December 31, 2014, we invested in certain joint ventures and partnerships alongside KKR and its affiliates with an aggregate estimated fair value of $618.6 million. Our board of directors has adopted a set of amended and restated investment guidelines and procedures, or the Investment Policies, to govern our relationship with KKR. The Investment Policies referred to below are those that were adopted by our board of directors on July 28, 2011. In addition to the policies described below, our Manager has adopted policies and guidelines related to affiliate transactions and relationships that are designed to address conflicts that may arise from such situations.

Pursuant to the Investment Policies, we are required to seek the approval of the majority of the independent members of our board of directors or the Affiliated Transactions Committee before making any investment in an entity affiliated with KKR. The Affiliated Transactions Committee Charter provides the Committee with the authority to act on such matters without further action from the board of directors.

Each member of the board of directors (the "Indemnitee") has entered into an Indemnification Agreement (each, an "Indemnification Agreement") with the Company. Each Indemnification Agreement provides that the Indemnitee, subject to the limitations set forth in each Indemnification Agreement, shall be indemnified and held harmless by the Company on an after tax basis from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts arising from any and

all threatened, pending or completed claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, and whether formal or informal and including appeals, in which the Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, by reason of being or having been or having agreed to serve as a member of the board of directors, or while serving as a member of the board of directors, being or having been serving or having agreed to serve at the request of the Company as a director, officer, employee or agent (which, for purposes hereof, shall include a trustee, partner or manager or similar capacity) of another corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise, whether arising from acts or omissions to act occurring on, before or after the date of such Indemnification Agreement. Each Indemnification Agreement provides that the Indemnitee shall not be indemnified and held harmless if there has been a final and non-appealable judgment entered by an arbitral tribunal or court of competent jurisdiction determining that, in respect of the matter for which the Indemnitee is seeking indemnification pursuant to the Indemnification Agreement, the Indemnitee acted in bad faith or engaged in fraud or willful misconduct. Each Indemnification Agreement also provides for the advancement of expenses incurred by the Indemnitee who is indemnified under the Indemnification Agreement by the Company, subject to certain conditions.

Certain members of Mr. Janetschek's immediate family have an indirect interest in $100,000 principal amount of the Company's 8.375% senior notes due 2041, $300,000 principal amount of the Company's 7.500% senior notes due 2042 and in each case the related payments of periodic interest. These securities were acquired before Mr. Janetschek was an executive officer or director of the Company.

The Affiliated Transaction Committee Charter provides that such Committee shall approve any matter involving the Manager or its affiliates that, in the determination of the Manager, involve a material conflict of interest with the Company; provided, however, that transactions are not deemed to involve a material conflict of interest merely because of the fact that the Manager or its affiliate receives a transaction fee (including, but not limited to, arrangement, commitment, syndication or underwriting fees) in connection with such transaction. Our board of directors has not adopted a policy with respect to transactions reportable pursuant to Regulation S-K 404(a) although many such transactions will fall within the scope of authority granted to the Affiliated Transactions Committee pursuant to its Charter as described above and in "Item 10—Board of Directors and Committees—Affiliated Transactions Committee" of this Form 10-K. Any related party transactions not delegated to the Affiliated Transactions Committee pursuant to its Charter will be considered by the board of directors or referred to the Affiliated Transactions Committee on a case-by-case basis.

The aggregate fees and expenses billed by Deloitte for professional services rendered for the years ended December 31, 2014 and 2013 are set forth below.

Audit Fees were for the audits of our annual consolidated financial statements included in this Annual Report, reviews of the consolidated financial statements included in our Quarterly Reports on Form 10-Q and other assistance required to complete the year-end audits.

Audit-Related Fees include professional services performed in connection with the Merger Transaction, our natural resources segment, as well as review of covenant compliance calculations and XBRL-related services.

All Other Fees would include services not otherwise described above—none were incurred in 2014 or 2013.

Pre-Approval Policy for Services of Independent Registered Public Accounting Firm

All financial statement schedules are omitted because of the absence of conditions under which they are required or because the required information is included in our consolidated financial statements or notes thereto, included in Part II, Item 8, of this Annual Report on Form 10-K.

In accordance with Rule 3-09 of Regulation S-X, we are required to include in this Form 10-K for the year ended December 31, 2014, consolidated financial statements of KNR Trinity Holdings LLC and Trinity River Energy, LLC, which are incorporated herein by reference to Exhibit 99.1 and 99.2, respectively.

			Incorporated by Reference

Exhibit Number		Exhibit Description	Form		File No.		Exhibit		Filing Date	Filed Herewith
	2.1	Agreement and Plan of Merger, dated as of February 9, 2007, among the Registrant, KKR Financial Holdings Corp. and KKR Financial Merger Corp.		S-4		333-140586		2	02/09/07
	2.2	Agreement and Plan of Merger, dated as of December 16, 2013, by and among KKR & Co. L.P., KKR Fund Holdings L.P., Copal Merger Sub LLC and the Company		8-K		001-33437		10.18	12/16/13
	2.3	Agreement and Plan of Merger, dated as of December 16, 2013, by and among KKR & Co. L.P., KKR Fund Holdings L.P., Copal Merger Sub LLC and the Company*		8-K		001-33437		2.1	12/16/13
	3.1	Amended and Restated Operating Agreement of the Registrant, dated May 3, 2007, as amended May 7, 2009		10-Q		001-33437		3.1	08/06/09
	3.2	Amendment No.1 to the Amended and Restated Operating Agreement of the Registrant, dated February 28, 2010		10-K		001-33437		3.2	03/01/10
	3.3	Amendment No. 2 to the Amended and Restated Operating Agreement of the Company, effective as of January 10, 2013		8-K		001-33437		3.1	01/11/13
	3.4	Share Designation of the 7.375% Series A LLC Preferred Shares, dated as of January 17, 2013		8-K		001-33437		3.1	01/17/13
	3.5	Amendment No. 3 to the Amended and Restated Operating Agreement of the Company, dated as of June 27, 2014		8-K		001-33437		3.1	06/27/14
	4.1	Form of Certificate for Common Shares		S-4		333-140586		A	02/09/07
	4.2	Indenture, dated as of January 15, 2010, between the Registrant and Wells Fargo Bank, National Association		8-K		001-33437		4.1	01/15/10

			Incorporated by Reference

Exhibit Number		Exhibit Description	Form		File No.		Exhibit		Filing Date	Filed Herewith
	4.3	Supplemental Indenture, dated as of January 15, 2010, between the Registrant and Wells Fargo Bank, National Association		8-K		001-33437		4.2	01/15/10
	4.4	Form of 7.50% Convertible Senior Note due January 15, 2017		8-K		001-33437		4.2	01/15/10
	4.5	Indenture, dated as of November 15, 2011, between the Registrant and Wilmington Trust, National Association		8-K		001-33437		4.1	11/15/11
	4.6	Supplemental Indenture, dated as of November 15, 2011, between the Registrant and Wilmington Trust, National Association and Citibank, N.A.		8-K		001-33437		4.2	11/15/11
	4.7	Form of 8.375% Senior Note due November 15, 2041		8-K		001-33437		4.3	11/15/11
	4.8	Supplemental Indenture, dated as of March 20, 2012, between the Company, Wilmington Trust, National Association, as Trustee, and Citibank N.A., as Authenticating Agent, Paying Agent and Security Registrar		8-K		001-33437		4.2	03/20/12
	4.9	Form of 7.500% Senior Note due March 20, 2042		8-K		001-33437		4.2	03/20/12
	4.10	Form of 7.375% Series A LLC Preferred Share Global Certificate		8-K		001-33437		4.1	01/17/13
	10.1	Amended and Restated Management Agreement, dated as of May 4, 2007, among the Registrant, KKR Financial Advisors LLC and KKR Financial Corp.		8-K		001-33437		10.1	05/04/07
	10.2	First Amendment Agreement to Amended and Restated Management Agreement, dated as of June 15, 2007, among the Registrant, KKR Financial Advisors LLC and KKR Financial Corp.		8-K		001-33437		10.1	06/15/07
	10.3	2007 Share Incentive Plan		8-K		001-33437		10.2	05/04/07
	10.4	Non-Employee Directors' Deferred Compensation and Share Award Plan		8-K		001-33437		10.3	05/04/07

				Incorporated by Reference

Exhibit Number			Exhibit Description	Form		File No.		Exhibit		Filing Date	Filed Herewith
	10.5		Form of Nonqualified Share Option Agreement		8-K		001-33437		10.4	05/04/07
	10.6		Form of Restricted Share Award Agreement		8-K		001-33437		10.5	05/04/07
	10.7		Form of Restricted Share Award Agreement for Non-Employee Directors		8-K		001-33437		10.6	05/04/07
	10.8		Amended and Restated License Agreement, dated as of May 4, 2007, among the Registrant, Kohlberg Kravis Roberts & Co. L.P. and KKR Financial Corp.		8-K		001-33437		10.8	05/04/07
	10.9	**	Indenture, dated as of March 30, 2005, by and among KKR Financial CLO 2005-1, Ltd., KKR Financial CLO 2005-1 Corp. and JPMorgan Chase Bank, National Association(1)		S-11/A		333-124103		10.6	06/09/05
	10.10	***	Letter Agreement, dated as of August 12, 2004, between KKR Financial Corp. and KKR Financial Advisors LLC		S-11/A		333-124103		10.8	06/21/05
	10.11	***	Collateral Management Agreement, dated as of March 30, 2005, between KKR Financial CLO 2005-1, Ltd. and KKR Financial Advisors II, LLC		S-11/A		333-124103		10.11	06/21/05
	10.12	***	Fee Waiver Letter, dated April 15, 2005, between KKR Financial CLO 2005-1, Ltd., KKR Financial Advisors II, LLC and JPMorgan Chase Bank, N.A.		S-11/A		333-124103		10.12	06/21/05
	10.13		Letter Agreement, dated February 27, 2009, between the Company and KKR Financial Advisors LLC		10-K		001-33437		10.21	03/02/09
	10.14		Credit Agreement, dated as of November 5, 2010, by and among the Borrower, JP Morgan Chase Bank, N.A., Bank of America, N.A., and Bank of Montreal		10-Q		001-33437		10.18	05/02/11

			Incorporated by Reference

Exhibit Number		Exhibit Description	Form		File No.		Exhibit		Filing Date	Filed Herewith
	10.15	First Omnibus Amendment, dated as of May 13, 2011, to Credit Agreement, dated as of November 5, 2010, by and among the Borrower, JP Morgan Chase Bank, N.A., Bank of America, N.A., and Bank of Montreal		10-Q		001-33437		10.19	08/04/11
	10.16	Credit Agreement, dated as of November 30, 2012, among KKR Financial Holdings LLC, each lender from time to time party thereto, Citibank, N.A., as Swingline Lender and Issuing Bank, and Citibank, N.A., as Administrative Agent		8-K		001-33437		10.1	12/05/12
	10.17	Second Amendment Agreement to the Amended and Restated Management Agreement, dated as of February 27, 2013, between the Registrant and KKR Financial Advisors LLC		10-K		001-33437		10.17	02/28/13
	10.18	Third Amendment Agreement to the Amended and Restated Management Agreement, dated as of June 27, 2014, between the Company and KKR Financial Advisors LLC		8-K		001-33437		10.1	06/27/14
	10.19	Form of Indemnification Agreement by and among each member of the Board of Directors and the Company		8-K		001-33437		10.1	05/30/14
	12.1	Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Share Distributions								X
	21.1	List of Subsidiaries of the Registrant								X
	23.1	Consent of Deloitte & Touche LLP with respect to KKR Financial Holdings LLC								X
	23.2	Consent of Deloitte & Touche LLP with respect to KNR Trinity Holdings LLC								X
	23.3	Consent of Deloitte & Touche LLP with respect to Trinity River Energy, LLC								X

			Incorporated by Reference

Exhibit Number		Exhibit Description	Form	File No.	Exhibit	Filing Date	Filed Herewith
	31.1	Certification pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended					X
	31.2	Certification pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended					X
	32	Certification pursuant to 18 U.S.C. Section 1350					X
	99.1	KNR Trinity Holdings LLC Financial Statements as of and for the Period from September 30, 2014 (Commencement of Operations) to December 31, 2014 (Audited)					X
	99.2	Trinity River Energy, LLC Financial Statements as of and for the Three Months Ended December 31, 2014 (Audited)					X
	101.INS	XBRL Instance Document					X
	101.SCH	XBRL Taxonomy Extension Schema Document					X
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document					X
	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document					X
	101.LAB	XBRL Taxonomy Extension Label Linkbase Document					X
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document					X

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this annual report on Form 10-K for the fiscal year ended December 31, 2014, to be signed on its behalf by the undersigned, and in the capacities indicated, thereunto duly authorized, on March 31, 2015.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

KKR FINANCIAL HOLDINGS LLC AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

For Inclusion in Form 10-K
Filed with
Securities and Exchange Commission
December 31, 2014

KKR FINANCIAL HOLDINGS LLC AND SUBSIDIARIES
Index to Consolidated Financial Statements

To the Board of Directors and Shareholders of
KKR Financial Holdings LLC
San Francisco, California

We have audited the accompanying consolidated balance sheets of KKR Financial Holdings LLC and subsidiaries (the "Company") as of December 31, 2014 (Successor) and 2013 (Predecessor), and the related consolidated statements of operations, comprehensive income, changes in shareholders' equity, and cash flows for the eight months ended December 31, 2014 (Successor), the four months ended April 30, 2014 (Predecessor), and the years ended December 31, 2013 and 2012 (Predecessor). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of KKR Financial Holdings LLC and subsidiaries as of December 31, 2014 (Successor) and 2013 (Predecessor), and the results of their operations and their cash flows for the eight months ended December 31, 2014 (Successor), the four months ended April 30, 2014 (Predecessor), and the years ended December 31, 2013 and 2012 (Predecessor), in conformity with accounting principles generally accepted in the United States of America.

	Successor Company			Predecessor Company



	December 31, 2014			December 31, 2013


Assets
Cash and cash equivalents	$	163,405		$	157,167
Restricted cash and cash equivalents		447,507			350,385
Securities, at estimated fair value		638,605			573,312
Corporate loans, net (includes $6,506,564 measured at estimated fair value as of December 31, 2014 and $237,480 measured at estimated fair value and $279,748 loans held for sale as of December 31, 2013)		6,506,564			6,466,720
Equity investments, at estimated fair value ($61,543 and zero pledged as collateral as of December 31, 2014 and December 31, 2013, respectively)		181,378			181,212
Oil and gas properties, net		120,274			400,369
Interests in joint ventures and partnerships, at estimated fair value		718,772			436,241
Derivative assets		33,566			30,224
Interest and principal receivable		54,598			33,570
Other assets		86,956			87,998

Total assets	$	8,951,625		$	8,717,198



Liabilities
Collateralized loan obligation secured notes (includes $5,501,099 and zero measured at estimated fair value as of December 31, 2014 and December 31, 2013, respectively)	$	5,501,099		$	5,249,383
Credit facilities		—			125,289
Senior notes		414,524			362,276
Junior subordinated notes		246,907			283,517
Accounts payable, accrued expenses and other liabilities		221,114			58,215
Accrued interest payable		19,402			23,575
Related party payable		5,404			5,574
Derivative liabilities		55,127			81,635

Total liabilities		6,463,577			6,189,464



Equity
Preferred shares, no par value, 50,000,000 shares authorized and 14,950,000 issued and outstanding as of both December 31, 2014 and December 31, 2013		—			—
Common shares, no par value, 500,000,000 shares authorized, and 100 shares and 204,824,159 shares issued and outstanding as of December 31, 2014 and December 31, 2013, respectively		—			—
Paid-in-capital		2,764,061			3,315,117
Accumulated other comprehensive loss		—			(15,652	)
Accumulated deficit		(376,182	)		(771,731	)

Total KKR Financial Holdings LLC and Subsidiaries shareholders' equity		2,387,879			2,527,734
Noncontrolling interests		100,169			—

Total equity		2,488,048			2,527,734

Total liabilities and equity	$	8,951,625		$	8,717,198

	Successor Company


				Predecessor Company
	For the eight months ended December 31, 2014			Predecessor Company
				For the four months ended April 30, 2014			Year ended December 31, 2013			Year ended December 31, 2012


Revenues
Loan interest income	$	212,431		$	114,096		$	360,287		$	411,736
Securities interest income		32,016			13,081			49,518			76,642
Oil and gas revenue		57,616			61,782			119,178			64,535
Other		48,282			28,283			16,923			2,560

Total revenues		350,345			217,242			545,906			555,473

Investment costs and expenses
Interest expense		144,437			64,362			163,216			165,022
Interest expense to affiliates		—			—			26,943			51,586
Provision for loan losses		—			—			32,812			46,498
Oil and gas production costs		15,229			14,772			35,814			28,980
Oil and gas depreciation, depletion and amortization		19,458			22,471			44,061			21,931
Other		2,012			220			2,859			4,358

Total investment costs and expenses		181,136			101,825			305,705			318,375

Other income (loss)
Net realized and unrealized gain (loss) on investments		(349,372	)		61,553			157,074			193,056
Net realized and unrealized gain (loss) on derivatives and foreign exchange		(18,507	)		(9,783	)		(6,838	)		(2,091	)
Net realized and unrealized gain (loss) on debt		16,478			—			—			—
Net gain (loss) on restructuring and extinguishment of debt		—			—			(20,015	)		(445	)
Other income		7,019			4,564			20,704			15,302

Total other income (loss)		(344,382	)		56,334			150,925			205,822

Other expenses
Related party management compensation		33,764			29,841			68,576			72,339
General, administrative and directors' expenses		6,498			8,891			19,524			19,157
Professional services		3,310			26,877			9,329			6,661

Total other expenses		43,572			65,609			97,429			98,157

Income (loss) before income taxes		(218,745	)		106,142			293,697			344,763
Income tax expense (benefit)		484			162			467			(3,467	)

Net income (loss)	$	(219,229	)	$	105,980		$	293,230		$	348,230



Net income (loss) attributable to noncontrolling interests		(5,956	)		—			—			—

Net income (loss) attributable to KKR Financial Holdings LLC and Subsidiaries		(213,273	)		105,980			293,230			348,230
Preferred share distributions		20,673			6,891			27,411			—

Net income (loss) available to common shares	$	(233,946	)	$	99,089		$	265,819		$	348,230



Net income (loss) per common share:
Basic		N/A		$	0.48		$	1.31		$	1.95



Diluted		N/A		$	0.48		$	1.31		$	1.87



Weighted-average number of common shares outstanding:
Basic		N/A			204,276			202,411			177,838



Diluted		N/A			204,276			202,411			187,423



Distributions declared per common share		N/A		$	0.22		$	0.90		$	0.86

	Successor Company

				Predecessor Company
				Predecessor Company
	For the eight months ended December 31, 2014			For the four months ended April 30, 2014
							Year ended December 31, 2013		Year ended December 31, 2012


Net income (loss)	$	(219,229	)	$	105,980		$	293,230	$	348,230
Other comprehensive income (loss):
Unrealized gains (losses) on securities available-for-sale		—			(5,253	)		6,095		(44,776	)
Unrealized gains (losses) on cash flow hedges		—			(5,442	)		48,479		10,169

Total other comprehensive income (loss)		—			(10,695	)		54,574		(34,607	)

Comprehensive income (loss)	$	(219,229	)	$	95,285		$	347,804	$	313,623
Less: Comprehensive income (loss) attributable to noncontrolling interests		—			—			—		—

Comprehensive income (loss) attributable to KKR Financial Holdings LLC and Subsidiaries	$	(219,229	)	$	95,285		$	347,804	$	313,623

	Predecessor Company

	Preferred Shares				Common Shares
	Shares		Paid-In Capital		Shares			Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Shareholders' Equity
Balance at December 31, 2011		—	$	—		178,145,482		$	2,759,478		$	(35,619	)	$	(1,048,027	)	$	1,675,832

Net income (loss)		—		—		—			—			—			348,230			348,230
Other comprehensive income (loss)		—		—		—			—			(34,607	)		—			(34,607	)
Distributions declared on common shares		—		—		—			—			—			(153,439	)		(153,439	)
Grant of restricted common shares		—		—		301,860			—			—			—			—
Repurchase and cancellation of common shares		—		—		(10,264	)		(96	)		—			—			(96	)
Share-based compensation expense related to restricted common shares		—		—		—			3,202			—			—			3,202

Balance at December 31, 2012		—		—		178,437,078			2,762,584			(70,226	)		(853,236	)		1,839,122

Net income (loss)		—		—		—			—			—			293,230			293,230
Other comprehensive income (loss)		—		—		—			—			54,574			—			54,574
Distributions declared on preferred shares		—		—		—			—			—			(27,411	)		(27,411	)
Distributions declared on common shares		—		—		—			—			—			(184,314	)		(184,314	)
Issuance of common shares		—		—		30,000			321			—			—			321
Grant of restricted common shares		—		—		331,297			—			—			—			—
Repurchase and cancellation of common shares		—		—		(25,204	)		(223	)		—			—			(223	)
Issuance of common shares in exchange for convertible notes		—		—		26,050,988			186,254			—			—			186,254
Issuance of preferred shares		14,950,000		361,622		—			—			—			—			361,622
Share-based compensation expense related to restricted common shares		—		—		—			4,559			—			—			4,559

Balance at December 31, 2013		14,950,000		361,622		204,824,159			2,953,495			(15,652	)		(771,731	)		2,527,734

Net income (loss)		—		—		—			—			—			105,980			105,980
Other comprehensive income (loss)		—		—		—			—			(10,695	)		—			(10,695	)
Distributions declared on preferred shares		—		—		—			—			—			(6,891	)		(6,891	)
Distributions declared on common shares		—		—		—			—			—			(45,061	)		(45,061	)
Share-based compensation expense related to restricted common shares		—		—		—			1,018			—			—			1,018

Balance at April 30, 2014		14,950,000	$	361,622		204,824,159		$	2,954,513		$	(26,347	)	$	(717,703	)	$	2,572,085

	Successor Company

	KKR Financial Holdings LLC and Subsidiaries
	Preferred Shares				Common Shares
	Preferred Shares				Common Shares						Accumulated Other Comprehensive Loss
	Shares		Paid-In Capital		Shares			Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Noncontrolling interests			Total Equity
Balance at April 30, 2014		14,950,000	$	361,622		204,824,159		$	2,954,513		$	(26,347	)	$	(717,703	)	$	—		$	2,572,085
Purchase accounting adjustments		—		17,361		—			(570,040	)		26,347			717,703			—			191,371

Balance at May 1, 2014		14,950,000		378,983		204,824,159			2,384,473			—			—			—			2,763,456

Reverse stock split		—		—		(204,824,059	)		—			—			—			—			—
Contribution of assets of previously unconsolidated entities		—		—		—			—			—			—			106,125			106,125
Net income (loss)		—		—		—			—			—			(213,273	)		(5,956	)		(219,229	)
Distributions declared on preferred shares		—		—		—			—			—			(20,673	)		—			(20,673	)
Distributions to Parent		—		—		—			—			—			(617,080	)		—			(617,080	)
Contributions from Parent		—		—		—			—			—			474,844			—			474,844
Capital contributions from Parent		—		—		—			605			—			—			—			605

Balance at December 31, 2014		14,950,000	$	378,983		100		$	2,385,078		$	—		$	(376,182	)	$	100,169		$	2,488,048

	Successor Company			Predecessor Company

	For the eight months ended December 31, 2014			For the four months ended April 30, 2014
							Year ended December 31, 2013			Year ended December 31, 2012


Cash flows from operating activities
Net income (loss)	$	(219,229	)	$	105,980		$	293,230		$	348,230
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized and unrealized (gain) loss on derivatives and foreign exchange		18,507			9,783			6,838			2,091
Net (gain) loss on restructuring and extinguishment of debt		—			—			20,015			445
Unrealized appreciation on investments allocable to noncontrolling interests		5,956			—			—			—
Write-off of debt issuance costs		—			1,472			6,674			4,224
Lower of cost or estimated fair value adjustment on corporate loans held for sale		—			(5,038	)		5,899			2,656
Provision for loan losses		—			—			32,812			46,498
Impairment charges		—			4,391			19,512			12,067
Share-based compensation		—			1,018			4,559			3,202
Net realized and unrealized (gain) loss on investments		343,416			(60,906	)		(182,485	)		(207,779	)
Depreciation and net amortization		21,391			15,832			7,123			(51,982	)
Net realized and unrealized (gain) loss on debt		(16,478	)		—			—			—
Changes in assets and liabilities:
Interest receivable		(11,485	)		(6,753	)		3,333			11,415
Other assets		(21,117	)		(19,668	)		(37,660	)		5,329
Related party payable		5,724			(1,815	)		(4,144	)		(80	)
Accounts payable, accrued expenses and other liabilities		(20,561	)		27,211			(13,674	)		1,304
Preferred share distribution payable		—			—			(6,891	)		—
Accrued interest payable		1,769			(1,470	)		3,056			(5,017	)
Accrued interest payable to affiliates		—			—			(6,632	)		71

Net cash provided by (used in) operating activities		107,893			70,037			151,565			172,674

Cash flows from investing activities
Principal payments from corporate loans		634,536			906,166			1,437,139			1,829,492
Principal payments from securities		60,056			21,223			169,646			92,920
Proceeds from sales of corporate loans		575,099			36,595			270,204			349,279
Proceeds from sales of securities		38,342			44,373			39,431			505,015
Proceeds from equity and other investments		89,697			48,911			155,132			113,365
Purchases of corporate loans		(1,245,460	)		(886,230	)		(2,099,033	)		(1,595,317	)
Purchases of securities		(95,881	)		(78,106	)		(228,131	)		(135,354	)
Purchases of equity and other investments		(158,618	)		(104,301	)		(513,933	)		(376,831	)
Net change in proceeds, purchases, and settlements of derivatives		(7,295	)		(7,265	)		(3,110	)		(6,401	)
Net change in restricted cash and cash equivalents		202,355			(299,579	)		546,011			(496,776	)

Net cash provided by (used in) investing activities		92,831			(318,213	)		(226,644	)		279,392

	Successor Company			Predecessor Company

	For the eight months ended December 31, 2014			For the four months ended April 30, 2014
							Year ended December 31, 2013			Year ended December 31, 2012


Cash flows from financing activities
Issuance of collateralized loan obligation secured notes		885,983			648,197			665,188			489,480
Retirement of collateralized loan obligation secured notes		(1,045,041	)		(221,914	)		(839,625	)		(979,667	)
Proceeds from credit facilities		115,100			13,300			79,200			69,489
Repayment of credit facilities		(95,000	)		(75,400	)		(61,700	)		—
Repayment of convertible senior notes		—			—			—			(135,531	)
Net proceeds from senior notes		—			—			—			111,418
Net proceeds from issuance of preferred shares		—			—			361,622			—
Distributions on common shares		(121,088	)		(45,061	)		(184,314	)		(153,439	)
Distributions on preferred shares(1)		(13,782	)		(13,782	)		(20,520	)		—
Distributions to Parent		(203,568	)		—			—			—
Contributions from Parent		235,759			—			—			—
Capital contributions noncontrolling interests		1,110			—			—			—
Capital contributions from Parent		605			—			—			—
Repurchase and cancellation of common shares		—			—			—			(96	)
Other capitalized costs		(7,810	)		(3,918	)		(5,211	)		(8,268	)

Net cash (used in) provided by financing activities		(247,732	)		301,422			(5,360	)		(606,614	)

Net increase (decrease) in cash and cash equivalents		(47,008	)		53,246			(80,439	)		(154,548	)
Cash and cash equivalents at beginning of period		210,413			157,167			237,606			392,154

Cash and cash equivalents at end of period	$	163,405		$	210,413		$	157,167		$	237,606



Supplemental cash flow information
Cash paid for interest	$	114,939		$	53,576		$	155,184		$	186,131
Net cash paid (refunded) for income taxes	$	93		$	157		$	7,685		$	(274	)
Non-cash investing and financing activities
Assets distributed to Parent	$	(292,425	)	$	—		$	—		$	—
Assets contributed from Parent	$	239,085		$	—		$	—		$	—
Assets contributed from noncontrolling interests	$	105,015		$	—		$	—		$	—
Natural resources assets transferred out	$	(114,546	)	$	—		$	—		$	—
Interest in Trinity transferred in	$	114,546		$	—		$	—		$	—
Preferred share distributions declared, not yet paid	$	6,891		$	—		$			$
Loans transferred from held for investment to held for sale	$	—		$	348,808		$	323,416		$	114,995
Loans transferred from held for sale to held for investment	$	—		$	—		$	—		$	114,871
Conversion of convertible senior notes to common shares	$	—		$	—		$	186,254		$	—
Issuance of restricted common shares	$	—		$	—		$	3,282		$	2,849

In connection with the merger with KKR & Co. L.P., KKR Financial Holdings LLC and subsidiaries recorded acquisition accounting adjustments, which resulted in changes to equity. Refer to Note 2 to these consolidated financial statements for further details.

KKR Financial Holdings LLC together with its subsidiaries (the "Company" or "KFN") is a specialty finance company with expertise in a range of asset classes. The Company's core business strategy is to leverage the proprietary resources of KKR Financial Advisors LLC (the "Manager") with the objective of generating current income. The Company's holdings primarily consist of below investment grade syndicated corporate loans, also known as leveraged loans, high yield debt securities, interests in joint ventures and partnerships, and royalty interests in oil and gas properties. The corporate loans that the Company holds are typically purchased via assignment or participation in the primary or secondary market.

The majority of the Company's holdings consist of corporate loans and high yield debt securities held in collateralized loan obligation ("CLO") transactions that are structured as on-balance sheet securitizations and are used as long term financing for the Company's investments in corporate debt. The senior secured debt issued by the CLO transactions is generally owned by unaffiliated third party investors and the Company owns the majority of the subordinated notes in the CLO transactions. The Company executes its core business strategy through its majority-owned subsidiaries, including CLOs.

The Manager, a wholly-owned subsidiary of KKR Asset Management LLC, manages the Company pursuant to an amended and restated management agreement, as amended (the "Management Agreement"). Effective as of September 30, 2014, KKR Asset Management LLC changed its name to KKR Credit Advisors (US) LLC. KKR Credit Advisors (US) LLC is a wholly-owned subsidiary of Kohlberg Kravis Roberts & Co. L.P. ("KKR"), which is a subsidiary of KKR & Co. L.P. ("KKR & Co.").

On April 30, 2014, the Company became a subsidiary of KKR & Co., whereby KKR & Co. acquired all of the Company's outstanding common shares through an exchange of equity through which the Company's shareholders received 0.51 common units representing the limited partnership interests of KKR & Co. for each common share of KFN (the "Merger Transaction"). Following the Merger Transaction, KKR Fund Holdings L.P. ("KKR Fund Holdings"), a subsidiary of KKR & Co., became the sole holder of all of the outstanding common shares of the Company and is the parent of the Company (the "Parent").

As of the close of trading on April 30, 2014, the Company's common shares were delisted on the New York Stock Exchange ("NYSE"). The Company's 7.375% Series A LLC Preferred Shares ("Series A LLC Preferred Shares"), senior notes and junior subordinated notes remain outstanding and the Company continues to file periodic reports under the Securities Exchange Act of 1934, as amended. Refer to Note 3 to these consolidated financial statements for further details around the Merger Transaction.

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The consolidated financial statements include the accounts of the Company and entities established to complete secured financing transactions that are considered to be variable interest entities ("VIEs") and for which the Company is the primary beneficiary. Also included in the consolidated financial statements are the financial results of certain entities, which are not considered VIEs, but in which the Company is

presumed to have control. The ownership interests held by third parties are reflected as noncontrolling interests in the accompanying financial statements.

As further described in Note 3 to these consolidated financial statements, the Merger Transaction was accounted for using the acquisition method of accounting, which required that the assets purchased and the liabilities assumed all be reported in the acquirer's financial statements at their fair value, with any excess of net assets over the purchase price being reported as a bargain purchase gain. The application of the acquisition method of accounting represented a push down of accounting basis to the Company, whereby it was also required to record the assets and liabilities at fair value as of the date of the Merger Transaction. This change in accounting basis resulted in the termination of the prior reporting entity and a corresponding creation of a new reporting entity.

Accordingly, the Company's consolidated financial statements and transactional records prior to the effective date, or May 1, 2014 (the "Effective Date"), reflect the historical accounting basis of assets and liabilities and are labeled "Predecessor Company," while such records subsequent to the Effective Date are labeled "Successor Company" and reflect the push down basis of accounting for the new estimated fair values in the Company's consolidated financial statements. This change in accounting basis is represented in the consolidated financial statements by a vertical black line which appears between the columns entitled "Predecessor Company" and "Successor Company" on the statements and in the relevant notes. The black line signifies that the amounts shown for the periods prior to and subsequent to the Merger Transaction are not comparable.

In addition to the new accounting basis established for assets and liabilities, purchase accounting also required the reclassification of any retained earnings or accumulated deficit from periods prior to the acquisition and the elimination of any accumulated other comprehensive income or loss to be recognized within the Company's shareholders' equity section of the Company's consolidated financial statements. Accordingly, the Company's accumulated deficit at December 31, 2014 represents only the results of operations subsequent to April 30, 2014, the date of the Merger Transaction.

For the following assets not carried at fair value, as presented under the Predecessor Company, the Company adopted the fair value option of accounting as of the Effective Date: (i) corporate loans held for investment at amortized cost, net of an allowance for loan losses, (ii) corporate loans held for sale at lower of cost or estimated fair value and (iii) certain other investments at cost. In addition, the Company elected the fair value option of accounting for its collateralized loan obligation secured notes. As such, the accounting policies followed by the Company in the preparation of its consolidated financial statements for the Successor period present all financial assets and CLO secured notes at estimated fair value. The Company's adoption of fair value accounting was for the primary purpose of reporting values that more closely aligned with KKR & Co.'s method of accounting.

Unrealized gains and losses for the financial assets and liabilities carried at estimated fair value are reported in net realized and unrealized gain (loss) on investments and net realized and unrealized gain (loss) on debt, respectively, in the consolidated statements of operations. Unrealized gains or losses primarily reflect the change in instrument values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the asset without regard to unrealized gains or losses previously recognized. For the Successor period, upon the sale of a corporate loan or debt security, the net realized gain or loss is computed using the

specific identification method. Comparatively, for the Predecessor period, the realized net gain or loss was computed on a weighted average cost basis.

In addition, for the Successor period, all purchases and sales of assets are recorded on the trade date. Comparatively, for the Predecessor periods, corporate loans were recorded on the settlement date.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company uses historical experience and various other assumptions and information that are believed to be reasonable under the circumstances in developing its estimates and judgments. Estimates and assumptions about future events and their effects cannot be predicted with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company's operating environment changes. While the Company believes that the estimates and assumptions used in the preparation of the consolidated financial statements are appropriate, actual results could differ from those estimates.

KKR Financial CLO 2005-1, Ltd. ("CLO 2005-1"), KKR Financial CLO 2005-2, Ltd. ("CLO 2005-2"), KKR Financial CLO 2006-1, Ltd. ("CLO 2006-1"), KKR Financial CLO 2007-1, Ltd. ("CLO 2007-1"), KKR Financial CLO 2007-A, Ltd. ("CLO 2007-A"), KKR Financial CLO 2011-1, Ltd. ("CLO 2011-1"), KKR Financial CLO 2012-1, Ltd. ("CLO 2012-1"), KKR Financial CLO 2013-1, Ltd. ("CLO 2013-1"), KKR Financial CLO 2013-2, Ltd. ("CLO 2013-2"), KKR CLO 9, Ltd. ("CLO 9") and KKR CLO 10, Ltd. ("CLO 10") (collectively the "Cash Flow CLOs") are entities established to complete secured financing transactions. These entities are VIEs which the Company consolidates as the Company has determined it has the power to direct the activities that most significantly impact these entities' economic performance and the Company has both the obligation to absorb losses of these entities and the right to receive benefits from these entities that could potentially be significant to these entities. In CLO transactions, subordinated notes have the first risk of loss and conversely, the residual value upside of the transactions.

The Company finances the majority of its corporate debt investments through its CLOs. As of December 31, 2014, the Company's CLOs held $6.9 billion par amount, or $6.5 billion estimated fair value, of corporate debt investments. As of December 31, 2013, the Company's CLOs held $6.7 billion par amount, or $6.4 billion estimated fair value, of corporate debt investments. The assets in each CLO can be used only to settle the debt of the related CLO. As of December 31, 2014 and 2013, the aggregate par amount of CLO debt totaled $5.6 billion and $5.3 billion, respectively, held by unaffiliated third parties.

The Company consolidates all non-VIEs in which it holds a greater than 50 percent voting interest. Specifically, the Company consolidates majority owned entities for which the Company is presumed to have control. The ownership interests of these entities held by third parties are reflected as noncontrolling interests in the accompanying financial statements. The Company began consolidating a

majority of these non-VIE entities as a result of the asset contributions from its Parent during the second half of 2014. For certain of these entities, the Company previously held a percentage ownership, but following the incremental contributions from its Parent, were presumed to have control.

In addition, the Company has noncontrolling interests in joint ventures and partnerships that do not qualify as VIEs and do not meet the control requirements for consolidation as defined by GAAP.

All inter-company balances and transactions have been eliminated in consolidation.

In connection with the application of acquisition accounting related to the Merger Transaction, the Successor Company elected the fair value option of accounting for its financial assets and CLO secured notes for the primary purpose of reporting values that more closely aligned with KKR & Co.'s method of accounting. Related unrealized gains and losses are reported in net realized and unrealized gain (loss) on investments in the consolidated statements of operations.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation techniques are applied. These valuation techniques involve varying levels of management estimation and judgment, the degree of which is dependent on a variety of factors including the price transparency for the instruments or market and the instruments' complexity for disclosure purposes. Assets and liabilities in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined under GAAP, are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets and liabilities, and are as follows:

less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset. The variability and availability of the observable inputs affected by the factors described above may cause transfers between Levels 1, 2, and/or 3, which the Company recognizes at the end of the reporting period.

Many financial assets and liabilities have bid and ask prices that can be observed in the marketplace. Bid prices reflect the highest price that the Company and others are willing to pay for an asset. Ask prices represent the lowest price that the Company and others are willing to accept for an asset. For financial assets and liabilities whose inputs are based on bid-ask prices, the Company does not require that fair value always be a predetermined point in the bid-ask range. The Company's policy is to allow for mid-market pricing and adjusting to the point within the bid-ask range that meets the Company's best estimate of fair value.

Depending on the relative liquidity in the markets for certain assets, the Company may transfer assets to Level 3 if it determines that observable quoted prices, obtained directly or indirectly, are not available. The valuation techniques used for the assets and liabilities that are valued using Level 3 of the fair value hierarchy are described below.

Equity and Interests in Joint Ventures and Partnerships, at Estimated Fair Value: Equity and interests in joint ventures and partnerships, at estimated fair value, are initially valued at transaction price and are subsequently valued using observable market prices, if available, or internally developed models in the absence of readily observable market prices. Interests in joint ventures and partnerships include certain equity investments related to the oil and gas, commercial real estate and specialty lending sectors. Valuation models are generally based on market comparables and discounted cash flow approaches, in which various internal and external factors are considered. Factors include key financial inputs and recent public and private transactions for comparable investments. Key inputs used for the discounted cash flow approach, which incorporates significant assumptions and judgment, include the weighted average cost of capital and assumed inputs used to calculate terminal values, such as earnings before interest, taxes, depreciation and amortization ("EBITDA") exit multiples. For natural resources investments, which are generally valued using a discounted cash flow analysis, key inputs include commodity price forecasts and the weighted average cost of capital. In addition, the valuations of natural resources investments generally incorporate both commodity prices as quoted on indices and long-term commodity price forecasts, which may be substantially different from, and are currently higher than, commodity prices on certain indices for equivalent future dates. Long-term commodity

price forecasts are utilized to capture the value of the investments across a range of commodity prices within the portfolio associated with future development and to reflect price expectations that are estimated to be required to balance demand and production in global commodity markets over the long-term.

Key unobservable inputs that have a significant impact on the Company's Level 3 valuations as described above are included in Note 14 to these consolidated financial statements. The Company utilizes several unobservable pricing inputs and assumptions in determining the fair value of its Level 3 investments. These unobservable pricing inputs and assumptions may differ by asset and in the application of the Company's valuation methodologies. The reported fair value estimates could vary materially if the Company had chosen to incorporate different unobservable pricing inputs and other assumptions or, for applicable investments, if the Company only used either the discounted cash flow methodology or the market comparables methodology instead of assigning a weighting to both methodologies.

Investments are generally valued based on quotations from third party pricing services, unless such a quotation is unavailable or is determined to be unreliable or inadequately representing the fair value of the particular assets. In that case, valuations are based on either valuation data obtained from one or more other third party pricing sources, including broker dealers, or will reflect the valuation committee's good faith determination of estimated fair value based on other factors considered relevant. The Company utilizes a valuation committee, whose members consist of certain employees of the Manager. The valuation committee is responsible for coordinating and implementing the Company's quarterly valuation process.

The valuation process involved in Level 3 measurements for assets and liabilities is completed on a quarterly basis and is designed to subject the valuation of Level 3 investments to an appropriate level of consistency, oversight and review. For assets classified as Level 3, valuations may be performed by the relevant investment professionals or by independent third parties with input from the relevant investment professionals and are based on various factors including evaluation of financial and operating data, company specific developments, market discount rates and valuations of comparable companies and model projections. Asset valuations are approved by the valuation committee.

Cash and cash equivalents include cash on hand, cash held in banks and highly liquid investments with original maturities of three months or less. Interest income earned on cash and cash equivalents is recorded in other within total revenues on the consolidated statements of operations.

Restricted cash and cash equivalents represent amounts that are held by third parties under certain of the Company's financing and derivative transactions. Interest income earned on restricted cash and cash equivalents is recorded in other within total revenues on the consolidated statements of operations.

On the consolidated statements of cash flows, net additions or reductions to restricted cash and cash equivalents are classified as an investing activity as restricted cash and cash equivalents reflect the receipts from collections or sales of investments, as well as payments made to acquire investments held by third parties.

The Predecessor and Successor Company both classify certain of their investments in securities as available-for-sale as the Companies may sell them prior to maturity and do not hold them principally for the purpose of selling them in the near term. These investments are carried at estimated fair value. The Successor Company elected the fair value option of accounting for its securities, with changes in estimated fair value reported in net realized and unrealized gain (loss) on investments in the consolidated statements of operations. Comparatively, the Predecessor Company reported all unrealized gains and losses in accumulated other comprehensive loss on the consolidated balance sheets.

The Predecessor Company monitored its available-for-sale securities portfolio for impairments. A loss was recognized when it was determined that a decline in the estimated fair value of a security below its amortized cost was other-than-temporary. The Company considered many factors in determining whether the impairment of a security was deemed to be other-than-temporary, including, but not limited to, the length of time the security had a decline in estimated fair value below its amortized cost and the severity of the decline, the amount of the unrealized loss, recent events specific to the issuer or industry, external credit ratings and recent changes in such ratings. In addition, for debt securities, the Company considered its intent to sell the debt security, the Company's estimation of whether or not it expected to recover the debt security's entire amortized cost if it intended to hold the debt security, and whether it was more likely than not that the Company was required to sell the debt

security before its anticipated recovery. For equity securities, the Company also considered its intent and ability to hold the equity security for a period of time sufficient for a recovery in value.

The amount of the loss that was recognized when it was determined that a decline in the estimated fair value of a security below its amortized cost was other-than-temporary was dependent on certain factors. If the security was an equity security or if the security was a debt security that the Company intended to sell or estimated that it was more likely than not that the Company would be required to sell before recovery of its amortized cost, then the impairment amount recognized in earnings was the entire difference between the estimated fair value of the security and its amortized cost. For debt securities that the Company did not intend to sell or estimated that it was not more likely than not to be required to sell before recovery, the impairment was separated into the estimated amount relating to credit loss and the estimated amount relating to all other factors. Only the estimated credit loss amount was recognized in earnings, with the remainder of the loss amount recognized in accumulated other comprehensive loss.

Unamortized premiums and unaccreted discounts on securities available-for-sale were recognized in interest income over the contractual life, adjusted for actual prepayments, of the securities using the effective interest method.

The Predecessor and Successor Company both elected the fair value option of accounting for certain of their securities for the purpose of enhancing the transparency of their financial condition as fair value is consistent with how the Companies manage the risks of these securities. All securities, at estimated fair value are included within securities on the consolidated balance sheets.

Estimated fair values are based on quoted market prices, when available, on estimates provided by independent pricing sources or dealers who make markets in such securities, or internal valuation models when external sources of fair value are not available. In accounting for the Merger Transaction, the difference between the estimated fair value, as of the Effective Date, and the par amount became the new premium or discount to be amortized or accreted over the remaining terms, adjusted for actual prepayments, of the securities using the effective interest method.

The Predecessor and Successor Company both elected the fair value option of accounting for their residential mortgage investments for the purpose of enhancing the transparency of their financial condition as fair value is consistent with how the Companies manage the risks of these investments. RMBS, at estimated fair value are included within securities on the consolidated balance sheets.

The Predecessor and Successor Company both elected the fair value option of accounting for certain of their equity investments, at estimated fair value, including private equity investments received through restructuring debt transactions or issued by an entity in which the Company may have significant influence. The Companies elected the fair value option for certain of their equity investments for the purpose of enhancing the transparency of their financial condition as fair value is

consistent with how the Companies manage the risks of these investments. Equity investments carried at estimated fair value are presented separately on the consolidated balance sheets.

The Predecessor and Successor Company both elected the fair value option of accounting for certain of their interests in joint ventures and partnerships. The Companies elected the fair value option of accounting for certain of their noncontrolling interests in joint ventures and partnerships for the purpose of enhancing the transparency of their financial condition as fair value is consistent with how the Companies manage the risks of these interests. Interests in joint ventures and partnerships are presented separately on the consolidated balance sheets.

The Company holds certain investments where the Company does not control the investee and where the Company is not the primary beneficiary, but can exert significant influence over the financial and operating policies of the investee. Significant influence typically exists if the Company has a 20% to 50% ownership interest in the investee unless predominant evidence to the contrary exists. The evaluation of whether the Company exerts control or significant influence over the financial and operational policies of an investee may also require significant judgment based on the facts and circumstances surrounding each individual investment. Factors include investor voting or other rights, any influence the Company may have on the governing board of the investee and the relationship between the Company and other investors in the entity. The Company elected the fair value option to account for these equity investments with any changes in estimated fair value recorded in net realized and unrealized gain (loss) on investments in the consolidated statements of operations.

In connection with the Company's application of acquisition accounting related to the Merger Transaction and to align more closely with KKR & Co.'s method of accounting, the Company elected to carry all of its corporate loans at estimated fair value as of the Effective Date, with changes in estimated fair value recorded in net realized and unrealized gain (loss) on investments in the consolidated statements of operations. As presented under the Predecessor Company, corporate loans had previously been accounted for based on the following three categories: (i) corporate loans held for investment, which were measured based on their principal plus or minus unaccreted purchase discounts and unamortized purchase premiums, net of an allowance for loan losses; (ii) corporate loans held for sale, which were measured at lower of cost or estimated fair value; and (iii) corporate loans at estimated fair value, which were measured at fair value. As such, the disclosures related to loans held for investment and loans held for sale pertain to the Predecessor Company.

Prior to the Effective Date, corporate loans were generally held for investment and the Company initially recorded corporate loans at their purchase prices. The Company subsequently accounted for corporate loans based on their outstanding principal plus or minus unaccreted purchase discounts and unamortized purchase premiums and corporate loans that the Company transferred to held for sale were transferred at the lower of cost or estimated fair value. As of the Effective Date, the Company

initially recorded corporate loans at their purchase prices and subsequently accounts for all corporate loans at estimated fair value.

For both the Predecessor and Successor Companies, interest income on corporate loans includes interest at stated coupon rates adjusted for accretion of purchase discounts and the amortization of purchase premiums. Unamortized premiums and unaccreted discounts are recognized in interest income over the contractual life, adjusted for actual prepayments, of the corporate loans using the effective interest method.

A corporate loan is typically placed on non-accrual status at such time as: (i) management believes that scheduled debt service payments may not be paid when contractually due; (ii) the corporate loan becomes 90 days delinquent; (iii) management determines the borrower is incapable of, or has ceased efforts toward, curing the cause of the impairment; or (iv) the net realizable value of the collateral securing the corporate loan decreases below the Company's carrying value of such corporate loan. As such, corporate loans placed on non-accrual status may or may not be contractually past due at the time of such determination. While on non-accrual status, previously recognized accrued interest is reversed if it is determined that such amounts are not collectible and interest income is recognized using the cost-recovery method, cash-basis method or some combination of the two methods. A corporate loan is placed back on accrual status when the ultimate collectability of the principal and interest is not in doubt.

Prior to the Effective Date, other than corporate loans measured at estimated fair value, corporate loans acquired with deteriorated credit quality are recorded at initial cost and interest income is recognized as the difference between the Company's estimate of all cash flows that it will receive from the loan in excess of its initial investment on a level-yield basis over the life of the corporate loan (accretable yield) using the effective interest method.

In addition, prior to the Effective Date, the Company may have modified corporate loans in transactions where the borrower was experiencing financial difficulty and a concession was granted to the borrower as part of the modification. These concessions may have included one or a combination of the following: a reduction of the stated interest rate; payment extensions; forgiveness of principal; or an exchange of assets. Such modifications typically qualified as troubled debt restructurings ("TDRs"). In order to determine whether the borrower was experiencing financial difficulty, an evaluation was performed including the following considerations: whether the borrower was or would have been in payment default on any of its debt in the foreseeable future without the modification; whether there was a potential for a bankruptcy filing; whether there was a going-concern issue; or whether the borrower was unable to secure financing elsewhere.

Corporate loans whose terms had been modified in a TDR were considered impaired, unless accounted for at fair value or the lower of cost or estimated fair value, and were typically placed on non-accrual status, but could have been moved to accrual status when, among other criteria, payment in full of all amounts due under the restructured terms was expected and the borrower demonstrated a sustained period of repayment performance, typically six months.

TDRs were separately identified for impairment disclosures and were measured at either the estimated fair value or the present value of estimated future cash flows using the respective corporate loan's effective rate at inception. Impairments associated with TDRs were included within the allocated component of the Company's allowance for loan losses.

The Company may have also identified receivables that were newly considered impaired and disclosed the total amount of receivables and the allowance for credit losses as of the end of the period of adoption related to those receivables that were newly considered impaired.

The corporate loans the Company invested in were generally deemed in default upon the non-payment of a single interest payment or as a result of the violation of a covenant in the respective corporate loan agreement. The Company charged-off a portion or all of its amortized cost basis in a corporate loan when it determined that it was uncollectible due to either: (i) the estimation based on a recovery value analysis of a defaulted corporate loan that less than the amortized cost amount would have been recovered through the agreed upon restructuring of the corporate loan or as a result of a bankruptcy process of the issuer of the corporate loan or (ii) the determination by the Company to transfer a corporate loan to held for sale with the corporate loan having an estimated fair value below the amortized cost basis of the corporate loan.

In addition to TDRs, the Company may have also modified corporate loans which usually involved changes in existing interest rates combined with changes of existing maturities to prevailing market rates/maturities for similar instruments at the time of modification. Such modifications typically did not meet the definition of a TDR since the respective borrowers were neither experiencing financial difficulty nor were seeking a concession as part of the modification.

As a result of the Merger Transaction, the acquisition method of accounting and adoption of fair value for corporate loans eliminated the need for an allowance for loan losses. The reevaluation of assets required by the acquisition method of accounting resulted in all loans being reported at their estimated fair values as of the Effective Date. The estimated fair value took into account the contractual payments on loans that were not expected to be received and consequently, no allowance for loan losses was carried over for the Successor Company. As of the Effective Date, no allowance for loan losses will be recorded as all corporate loans are carried at estimated fair value. As such, the disclosure related to the allowance for loan losses pertains to the Predecessor Company.

The Company's corporate loan portfolio is comprised of a single portfolio segment which includes one class of financing receivables, that is, high yield loans that are typically purchased via assignment or participation in either the primary or secondary market. High yield loans are generally characterized as having below investment grade ratings or being unrated.

Prior to the Effective Date, the Company's allowance for loan losses represented its estimate of probable credit losses inherent in its corporate loan portfolio held for investment as of the balance sheet date. Estimating the Company's allowance for loan losses involved a high degree of management judgment and was based upon a comprehensive review of the Company's corporate loan portfolio that was performed on a quarterly basis. The Company's allowance for loan losses consisted of two components, an allocated component and an unallocated component. The allocated component of the allowance for loan losses pertained to specific corporate loans that the Company had determined were impaired. The Company determined a corporate loan was impaired when management estimated that it was probable that the Company would be unable to collect all amounts due according to the contractual terms of the corporate loan agreement. On a quarterly basis the Company performed a comprehensive review of its entire corporate loan portfolio and identified certain corporate loans that it had determined were impaired. Once a corporate loan was identified as being impaired, the Company

placed the corporate loan on non-accrual status, unless the corporate loan was already on non-accrual status, and recorded an allowance that reflected management's best estimate of the loss that the Company expected to recognize from the corporate loan. The expected loss was estimated as being the difference between the Company's current cost basis of the corporate loan, including accrued interest receivable, and the present value of expected future cash flows discounted at the corporate loan's effective interest rate, except as a practical expedient, the corporate loan's observable estimated fair value may have been used. The Company also estimated the probable credit losses inherent in its unfunded loan commitments as of the balance sheet date. Any credit loss reserve for unfunded loan commitments was recorded in accounts payable, accrued expenses and other liabilities on the Company's consolidated balance sheets.

The unallocated component of the Company's allowance for loan losses represented its estimate of probable losses inherent in the corporate loan portfolio as of the balance sheet date where the specific loan that the loan loss relates to was indeterminable. The Company estimated the unallocated component of the allowance for loan losses through a comprehensive review of its corporate loan portfolio and identified certain corporate loans that demonstrated possible indicators of impairment, including internally assigned credit quality indicators. This assessment excluded all corporate loans that were determined to be impaired and as a result, an allocated reserve had been recorded as described in the preceding paragraph. Such indicators included the current and/or forecasted financial performance, liquidity profile of the issuer, specific industry or economic conditions that may have impacted the issuer, and the observable trading price of the corporate loan if available. All corporate loans were first categorized based on their assigned risk grade and further stratified based on the seniority of the corporate loan in the issuer's capital structure. The seniority classifications assigned to corporate loans were senior secured, second lien and subordinate. Senior secured consisted of corporate loans that were the most senior debt in an issuer's capital structure and therefore had a lower estimated loss severity than other debt that was subordinate to the senior secured loan. Senior secured corporate loans often had a first lien on some or all of the issuer's assets. Second lien consisted of corporate loans that were secured by a second lien interest on some or all of the issuer's assets; however, the corporate loan was subordinate to the first lien debt in the issuer's capital structure. Subordinate consisted of corporate loans that were generally unsecured and subordinate to other debt in the issuer's capital structure.

There were three internally assigned risk grades that were applied to loans that have not been identified as being impaired: high, moderate and low. High risk meant that there was evidence of possible loss due to the current and/or forecasted financial performance, liquidity profile of the issuer, specific industry or economic conditions that may have impacted the issuer, observable trading price of the corporate loan if available, or other factors that indicated that the breach of a covenant contained in the related loan agreement was possible. Moderate risk meant that while there was not observable evidence of possible loss, there were issuer and/or industry specific trends that indicated a loss may have occurred. Low risk meant that while there was no identified evidence of loss, there was the risk of loss inherent in the loan that had not been identified. All loans held for investment, with the exception of loans that had been identified as impaired, were assigned a risk grade of high, moderate or low.

The Company applied a range of default and loss severity estimates in order to estimate a range of loss outcomes upon which to base its estimate of probable losses that resulted in the determination of the unallocated component of the Company's allowance for loan losses.

As described above, corporate loans held for sale related to the Predecessor Company. From time to time the Company made the determination to transfer certain of its corporate loans from held for investment to held for sale. The decision to transfer a loan to held for sale was generally as a result of the Company determining that the respective loan's credit quality in relation to the loan's expected risk-adjusted return no longer met the Company's investment objective and/or the Company deciding to reduce or eliminate its exposure to a particular loan for risk management purposes. Corporate loans held for sale were stated at lower of cost or estimated fair value and were assessed on an individual basis. Prior to transferring a loan to held for sale, any difference between the carrying amount of the loan and its outstanding principal balance was recognized as an adjustment to the yield by the effective interest method. The loan was transferred from held for investment to held for sale at the lower of its cost or estimated fair value and was carried at the lower of its cost or estimated fair value thereafter. Subsequent to transfer and while the loan was held for sale, recognition as an adjustment to yield by the effective interest method was discontinued for any difference between the carrying amount of the loan and its outstanding principal balance.

From time to time the Company also made the determination to transfer certain of its corporate loans from held for sale back to held for investment. The decision to transfer a loan back to held for investment was generally as a result of the circumstances that led to the initial transfer to held for sale no longer being present. Such circumstances may have included deteriorated market conditions often resulting in price depreciation or assets becoming illiquid, changes in restrictions on sales and certain loans amending their terms to extend the maturity, whereby the Company determined that selling the asset no longer met its investment objective and strategy. The loan was transferred from held for sale back to held for investment at the lower of its cost or estimated fair value, whereby a new cost basis was established based on this amount.

Interest income on corporate loans held for sale was recognized through accrual of the stated coupon rate for the loans, unless the loans were placed on non-accrual status, at which point previously recognized accrued interest was reversed if it was determined that such amounts were not collectible and interest income was recognized using either the cost-recovery method or on a cash-basis.

The Predecessor and Successor Company both elected the fair value option of accounting for certain of their corporate loans for the purpose of enhancing the transparency of their financial condition as fair value is consistent with how the Companies manage the risks of these corporate loans. All corporate loans carried at estimated fair value are included within corporate loans, net on the consolidated balance sheets.

Estimated fair values are based on quoted prices for similar instruments in active markets and inputs other than observable quoted prices, or internal valuation models when external sources of fair value are not available. In accounting for the Merger Transaction, the difference between the estimated fair value, as of the Effective Date, and the par amount became the new premium or discount to be amortized or accreted over the remaining terms, adjusted for actual prepayments, of the corporate loans using the effective interest method.

As described above under "Basis of Presentation," as of the Effective Date, purchases and sales of corporate loans are recorded on the trade date.

As described further in Note 6, during the third quarter of 2014, the Company closed a certain transaction and distributed certain assets focused on the development of oil and gas properties to its Parent, leaving only overriding royalty interests as oil and natural gas properties, net on the consolidated balance sheets. As such, the policies below including matters such as drilling, repairs and maintenance, and production pertain to those properties owned prior to the transaction and distribution.

Oil and natural gas producing activities are accounted for under the successful efforts method of accounting. Under this method, exploration costs, other than the costs of drilling exploratory wells, were charged to expense as incurred. Costs that are associated with the drilling of successful exploration wells were capitalized if proved reserves are found. Lease acquisition costs were capitalized when incurred. Costs associated with the drilling of exploratory wells that do not find proved reserves, geological and geophysical costs and costs of certain nonproducing leasehold costs were expensed as incurred.

Expenditures for repairs and maintenance, including workovers, were charged to expense as incurred.

The capitalized costs of producing oil and natural gas properties were depleted on a field-by-field basis using the units-of production method based on the ratio of current production to estimated total net proved oil, natural gas and NGL reserves. Proved developed reserves were used in computing depletion rates for drilling and development costs and total proved reserves were used for depletion rates of leasehold costs.

Estimated dismantlement and abandonment costs for oil and natural gas properties, net of salvage value, were capitalized at their estimated net present value and amortized on a unit-of-production basis over the remaining life of the related proved developed reserves.

Oil, natural gas and natural gas liquid ("NGL") revenues are recognized when production is sold to a purchaser at fixed or determinable prices, when delivery has occurred and title has transferred and collectability of the revenue is reasonably assured. The Company follows the sales method of accounting for natural gas revenues. Under this method of accounting, revenues are recognized based on volumes sold, which may differ from the volume to which the Company is entitled based on the Company's working interest. An imbalance is recognized as a liability only when the estimated remaining reserves will not be sufficient to enable the under-produced owners to recoup their entitled share through future production. Under the sales method, no receivables are recorded when the Company has taken less than its share of production and no payables are recorded when the Company has taken more than its share of production.

Whenever events or changes in circumstances indicate that the carrying amounts of such properties may not be recoverable, the Company evaluates its proved oil and natural gas properties and related equipment and facilities for impairment on a field-by-field basis. The determination of recoverability is made based upon estimated undiscounted future net cash flows. The amount of impairment loss, if any, is determined by comparing the fair value, as determined by a discounted cash flow analysis, with the carrying value of the related asset. The factors used to determine fair value include, but are not limited to, estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures, future operating costs and a discount rate commensurate with the risk on the properties and cost of capital. Unproved oil and natural gas properties were assessed periodically and, at a minimum, annually on a property-by-property basis, and any impairment in value was recognized when incurred.

The Company finances the majority of its investments through the use of secured borrowings in the form of securitization transactions structured as non-recourse secured financings and other secured and unsecured borrowings. In addition, the Company financed certain of its oil and gas asset acquisitions through borrowings. The Company recognizes interest expense on all borrowings on an accrual basis.

Trusts formed by the Company for the sole purpose of issuing trust preferred securities are not consolidated by the Company as the Company has determined that it is not the primary beneficiary of such trusts. The Company's investment in the common securities of such trusts is included within other assets on the consolidated balance sheets.

Distributions on the Company's Series A LLC Preferred Shares are cumulative and payable quarterly when and if declared by the Company's board of directors at a 7.375% rate per annum. The Company accrues for the distribution upon declaration and is included within accounts payable, accrued expenses and other liabilities on the consolidated balance sheets.

The Company recognizes all derivatives on the consolidated balance sheet at estimated fair value. On the date the Company enters into a derivative contract, the Company designates and documents each derivative contract as one of the following at the time the contract is executed: (i) a hedge of a

recognized asset or liability ("fair value" hedge); (ii) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow" hedge); (iii) a hedge of a net investment in a foreign operation; or (iv) a derivative instrument not designated as a hedging instrument ("free-standing derivative"). For a fair value hedge, the Company records changes in the estimated fair value of the derivative instrument and, to the extent that it is effective, changes in the fair value of the hedged asset or liability in the current period earnings in the same financial statement category as the hedged item. For a cash flow hedge, the Company records changes in the estimated fair value of the derivative to the extent that it is effective in accumulated other comprehensive loss and subsequently reclassifies these changes in estimated fair value to net income in the same period(s) that the hedged transaction affects earnings. The effective portion of the cash flow hedges is recorded in the same financial statement category as the hedged item. For free-standing derivatives, the Company reports changes in the fair values in net realized and unrealized gain (loss) on derivatives and foreign exchange on the consolidated statements of operations.

The Company formally documents at inception its hedge relationships, including identification of the hedging instruments and the hedged items, its risk management objectives, strategy for undertaking the hedge transaction and the Company's evaluation of effectiveness of its hedged transactions. Periodically, the Company also formally assesses whether the derivative it designated in each hedging relationship is expected to be and has been highly effective in offsetting changes in estimated fair values or cash flows of the hedged item using either the dollar offset or the regression analysis method. If the Company determines that a derivative is not highly effective as a hedge, it discontinues hedge accounting.

In connection with the Merger Transaction, the Company discontinued hedge accounting for its cash flow hedges and, as of the Effective Date, classifies all derivative instruments as free-standing derivatives. As a result, the Company records changes in the estimated fair value of the derivative instruments in net realized and unrealized gain (loss) on derivatives and foreign exchange on the consolidated statements of operations.

The Company makes investments in non-United States dollar denominated assets including securities, loans, equity investments and interests in joint ventures and partnerships. As a result, the Company is subject to the risk of fluctuation in the exchange rate between the United States dollar and the foreign currency in which it makes an investment. In order to reduce the currency risk, the Company may hedge the applicable foreign currency. All investments denominated in a foreign currency are converted to the United States dollar using prevailing exchange rates on the balance sheet date.

Income, expenses, gains and losses on investments denominated in a foreign currency are converted to the United States dollar using the prevailing exchange rates on the dates when they are recorded. Foreign exchange gains and losses are recorded in net realized and unrealized gain (loss) on derivatives and foreign exchange on the consolidated statements of operations.

Noncontrolling interests represent noncontrolling interests in consolidated entities held by third party investors. Income (loss) is allocated to noncontrolling interests based on the relative ownership

interests of third party investors and is presented as net income attributable to noncontrolling interests on the consolidated statements of operations. Noncontrolling interests are also presented separately within equity in the consolidated balance sheets.

The Management Agreement provides for the payment of a base management fee to the Manager, as well as an incentive fee if the Company's financial performance exceeds certain benchmarks. Additionally, the Management Agreement provides for the Manager to be reimbursed for certain expenses incurred on the Company's behalf. The base management fee and the incentive fee are accrued and expensed during the period for which they are earned by the Manager.

In connection with the Merger Transaction, the Predecessor Company's common shares were converted into 0.51 KKR & Co. common units. Prior to the Effective Date, the Company accounted for share-based compensation issued to its directors and to its Manager using the fair value based methodology in accordance with relevant accounting guidance. Compensation cost related to restricted common shares issued to the Company's directors was measured at its estimated fair value at the grant date, and was amortized and expensed over the vesting period on a straight-line basis. Compensation cost related to restricted common shares and common share options issued to the Manager was initially measured at estimated fair value at the grant date, and was remeasured on subsequent dates to the extent the awards were unvested. The Company elected to use the graded vesting attribution method to amortize compensation expense for the restricted common shares and common share options granted to the Manager.

The Company intends to continue to operate so as to qualify, for United States federal income tax purposes, as a partnership and not as an association or publicly traded partnership taxable as a corporation. Therefore, the Company generally is not subject to United States federal income tax at the entity level, but is subject to limited state and foreign taxes. Holders of the Company's Series A LLC Preferred Shares will be allocated a share of the Company's gross ordinary income for the taxable year of the Company ending within or with their taxable year. Holders of the Company's Series A LLC Preferred Shares will not be allocated any gains or losses from the sale of the Company's assets.

The Company owns equity interests in entities that have elected or intend to elect to be taxed as a real estate investment trust (a "REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). A REIT generally is not subject to United States federal income tax to the extent that it currently distributes its income and satisfies certain asset, income and ownership tests, and recordkeeping requirements, but it may be subject to some amount of federal, state, local and foreign taxes based on its taxable income.

The Company has wholly-owned domestic and foreign subsidiaries that are taxable as corporations for United States federal income tax purposes and thus are not consolidated with the Company for United States federal income tax purposes. For financial reporting purposes, current and deferred taxes are provided for on the portion of earnings recognized by the Company with respect to its interest in the domestic taxable corporate subsidiaries, because each is taxed as a regular corporation under the

Code. Deferred income tax assets and liabilities are computed based on temporary differences between the GAAP consolidated financial statements and the United States federal income tax basis of assets and liabilities as of each consolidated balance sheet date. The foreign corporate subsidiaries were formed to make certain foreign and domestic investments from time to time. The foreign corporate subsidiaries are organized as exempted companies incorporated with limited liability under the laws of the Cayman Islands, and are anticipated to be exempt from United States federal and state income tax at the corporate entity level because they restrict their activities in the United States to trading in stock and securities for their own account. However, the Company will be required to include their current taxable income in the Company's calculation of its gross ordinary income allocable to holders of its Series A LLC Preferred Shares.

The Company must recognize the tax impact from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax impact recognized in the financial statements from such a position is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. Penalties and interest related to uncertain tax positions are recorded as tax expense. Significant judgment is required in the identification of uncertain tax positions and in the estimation of penalties and interest on uncertain tax positions. If it is determined that recognition for an uncertain tax provision is necessary, the Company would record a liability for an unrecognized tax expense from an uncertain tax position taken or expected to be taken.

In connection with the Merger Transaction, as of the Effective Date, the Company is now a subsidiary of KKR Fund Holdings, a subsidiary of KKR & Co., which owns 100 common shares of the Company constituting all of the Company's outstanding common shares. As KKR Fund Holdings is the Company's sole shareholder, earnings per common share is not reported for the Successor Company. Prior to the Effective Date, the Company presented both basic and diluted earnings per common share ("EPS") in its consolidated financial statements and footnotes thereto. Basic earnings per common share ("Basic EPS") excluded dilution and was computed by dividing net income or loss available to common shareholders by the weighted average number of common shares, including vested restricted common shares, outstanding for the period. The Company calculated EPS using the more dilutive of the two-class method or the if-converted method. The two-class method was an earnings allocation formula that determined EPS for common shares and participating securities. Unvested share-based payment awards that contained non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) were participating securities and were included in the computation of EPS using the two-class method. Accordingly, all earnings (distributed and undistributed) were allocated to common shares, preferred shares and participating securities based on their respective rights to receive dividends. Diluted earnings per common share ("Diluted EPS") reflected the potential dilution of common share options and unvested restricted common shares using the treasury method or if-converted method.

In August 2014, the FASB amended existing standards to provide an entity that consolidates a collateralized financing entity ("CFE") that had elected the fair value option for the financial assets and financial liabilities of such CFE an alternative to current fair value measurement guidance. If elected, the Company could measure both the financial assets and the financial liabilities of the CFE by using the fair value of the financial assets or the fair value of the financial liabilities, whichever is more observable. The election would effectively eliminate any measurement difference previously reflected in earnings and attributed to the reporting entity in the consolidated statements of operations. The effective date of the consensus will be for annual periods, and interim periods within those annual periods, beginning after December 15, 2015 for public companies. Early adoption will be permitted as of the beginning of an annual period. The Company is currently evaluating the impact of this accounting update on its financial statements should it elect adoption.

On December 16, 2013, the Company announced the signing of a definitive merger agreement pursuant to which KKR & Co. had agreed to acquire all of the Company's outstanding common shares through an exchange of equity through which the Company's shareholders would receive 0.51 common units representing the limited partnership interests of KKR & Co. for each common share of KFN. On April 30, 2014, the date of the Merger Transaction, the transaction was approved by the Company's common shareholders and the merger was completed, resulting in KFN becoming a subsidiary of KKR & Co. The merger was a taxable transaction for the Company's common shareholders for U.S. federal income tax purposes.

The Merger Transaction was recorded under the acquisition method of accounting by KKR & Co. and pushed down to the Company by allocating the total purchase consideration of $2.4 billion to the cost of the assets purchased and the liabilities assumed based on their estimated fair values at the date of the Merger Transaction. The excess of the total estimated fair values of the assets acquired and liabilities assumed over the purchase price and value of the preferred shares, which constitute noncontrolling interests in the Company, was recorded as a bargain purchase gain by KKR & Co.

In connection with the Merger Transaction, the Company recognized approximately $24.2 million of total transaction costs. Of this total, $22.7 million was recorded during the four months ended April 30, 2014 within general, administrative and directors' expenses on the consolidated statements of

operations. These costs included the contingent consideration owed to the Company's financial and legal advisors upon the merger closing.

The following table summarizes the estimated fair values assigned to the assets purchased and liabilities assumed (amounts in thousands):



Assets acquired:
Cash and cash equivalents	$	210,413
Restricted cash and cash equivalents		649,967
Securities		541,149
Corporate loans		6,649,054
Equity investments		297,054
Oil and gas properties, net		505,238
Interests in joint ventures and partnerships		491,324
Derivative assets		26,383
Interest and principal receivable		35,992
Other assets		208,144

Total assets		9,614,718

Liabilities assumed:
Collateralized loan obligation secured notes		5,663,666
Credit facilities		63,189
Senior notes		415,538
Junior subordinated notes		245,782
Accounts payable, accrued expenses and other liabilities		357,084
Accrued interest payable		17,647
Derivative liabilities		88,356

Total liabilities		6,851,262

Fair value of preferred shares		378,983

Fair value of net assets acquired		2,384,473
Less: Purchase price		2,369,559

Bargain purchase gain(1)	$	14,914

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The estimated fair values of assets acquired and liabilities assumed were primarily based on information that was available as of the Merger Transaction date. The methodology used to estimate the fair values to apply purchase accounting are summarized below.

The carrying values of cash, restricted cash, interest and principal receivable, credit facilities, accounts payable, accrued expenses and other liabilities, and accrued interest payable represented the fair values. Fair value measurements for financial instruments and other assets included (i) market data for similar instruments (e.g. recent transactions or broker quotes), comparisons to benchmark derivative indices or valuation models for corporate loans and securities, (ii) third party valuation servicers for residential mortgage-backed securities, (iii) observable market prices, if available, or internally developed models, for equity investments, oil and gas properties, interests in joint ventures and partnerships, and (iv) quoted market prices, if available, or models using a series of techniques for derivative assets and liabilities. The fair value measurements for the liabilities assumed included (i) third party valuation servicers for the collateralized loan obligation secured notes and junior subordinated notes and (ii) observable market prices for the senior notes.

In connection with the Merger Transaction and as of the Effective Date, the Company accounts for all of its securities, including RMBS, at estimated fair value. Prior to the Effective Date, the Company accounted for securities based on the following categories: (i) securities available-for-sale, which were carried at estimated fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss); (ii) other securities, at estimated fair value, with unrealized gains and losses recorded in the consolidated statements of operations; and (iii) RMBS, at estimated fair value, with unrealized gains and losses recorded in the consolidated statements of operations.

The following table summarizes the Company's securities as of December 31, 2014, which was carried at estimated fair value (amounts in thousands):

Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the asset without regard to unrealized gains or losses previously recognized. Unrealized gains or losses are computed as the difference between the estimated fair value of the asset and the amortized cost basis of such asset. Unrealized gains or losses primarily reflect the change in asset values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized. The following table presents the Company's realized and

unrealized gains (losses) from securities for the eight months ended December 31, 2014 (amounts in thousands):

The following table summarizes the amortized cost and estimated fair value of securities available-for-sale by remaining contractual maturity and weighted average coupon based on par values as of December 31, 2014 (dollar amounts in thousands):

The remaining contractual maturities in the table above were allocated assuming no prepayments. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties.

As of December 31, 2014, the Company had a corporate debt security from one issuer in default with an estimated fair value of $8.7 million, which was on non-accrual status.

The Company's corporate debt securities portfolio has certain credit risk concentrated in a limited number of issuers. As of December 31, 2014, approximately 70% of the estimated fair value of the Company's corporate debt securities portfolio was concentrated in ten issuers, with the three largest concentrations of debt securities in securities issued by Preferred Proppants LLC, JC Penney Corp. Inc. and LCI Helicopters Limited, which combined represented $213.6 million, or approximately 37% of the estimated fair value of the Company's corporate debt securities.

Note 8 to these consolidated financial statements describes the Company's borrowings under which the Company has pledged securities for borrowings. The following table summarizes the estimated fair value of securities pledged as collateral as of December 31, 2014 (amounts in thousands):

The following table summarizes the Company's securities as of December 31, 2013, which were carried at estimated fair value (amounts in thousands):

The following table shows the gross unrealized losses and estimated fair value of the Company's available-for-sale securities, aggregated by length of time that the individual securities had been in a continuous unrealized loss position as of December 31, 2013 (amounts in thousands):

The unrealized losses in the table above were considered to be temporary impairments due to market factors and were not reflective of credit deterioration. The Company considered many factors when evaluating whether impairment was other-than-temporary. For securities available-for-sale included in the table above, the Company did not intend to sell or believe that it was more likely than not that the Company would be required to sell any of its securities available-for-sale prior to recovery. In addition, based on the analyses performed by the Company on each of its securities

available-for-sale, the Company believed that it was able to recover the entire amortized cost amount of the securities available-for-sale included in the table above.

During the four months ended April 30, 2014, the Company recognized losses totaling $4.4 million for securities available-for-sale that it determined to be other-than-temporarily impaired. During the years ended December 31, 2013 and 2012, the Company recognized losses totaling $19.5 million and $8.2 million, respectively, for securities available-for-sale that it determined to be other-than-temporarily impaired. The Company intended to sell these securities and as a result, the entire amount of the loss was recorded through earnings in net realized and unrealized gain (loss) on investments in the consolidated statements of operations.

For common and preferred stock, the Company considers many factors when evaluating whether impairment is other-than-temporary, including its intent and ability to hold the common and preferred stock for a period of time sufficient for recovery to cost. If the Company believes it will not recover the cost basis based on its intent or ability, an other-than-temporary loss will be recorded through earnings in net realized and unrealized gain on investments in the consolidated statements of operations.

As of April 30, 2014 and December 31, 2013, the Company had no investments in common or preferred stock classified as available-for-sale. During the year ended December 31, 2012, the Company recognized losses totaling $0.2 million for common and preferred stock that it determined to be other-than-temporary impaired.

Securities available-for-sale sold at a loss typically include those that the Company determined to be other-than-temporarily impaired or had deterioration in credit quality. The following table shows the net realized gains (losses) on the sales of securities available-for-sale (amounts in thousands):

As discussed above in Note 2 to these consolidated financial statements, beginning the Effective Date, the Company accounts for all of its securities at estimated fair value with unrealized gains and losses recorded in the consolidated financial statements. Accordingly, TDR disclosure pertains to the Predecessor Company. During the four months ended April 30, 2014, the Company modified a security with an amortized cost of $24.1 million related to a single issuer in a restructuring that qualified as a TDR. The TDR involving this security, along with corporate loans related to the same issuer, were converted into a combination of equity carried at estimated fair value and cash. Post-modification, the equity securities received from the security TDR had an estimated fair value of $16.1 million. Refer to "Troubled Debt Restructurings" section within Note 5 to these consolidated financial statements for further discussion on the loan TDRs related to this single issuer. There were no securities that qualified as TDRs during the year ended December 31, 2013.

As of April 30, 2014, no securities modified as TDRs were in default within a twelve month period subsequent to their original restructuring.

As of December 31, 2013, the Company had a corporate debt security from one issuer in default with an estimated fair value of $25.4 million, which was on non-accrual status.

As of December 31, 2013, approximately 55% of the estimated fair value of the Company's corporate debt securities portfolio was concentrated in ten issuers, with the three largest concentrations of debt securities in securities issued by LCI Helicopters Limited, JC Penney Corp. Inc. and NXP Semiconductor NV, which combined represented $104.5 million, or approximately 21% of the estimated fair value of the Company's corporate debt securities.

In connection with the Merger Transaction and as of the Effective Date, the Company accounts for all of its corporate loans at estimated fair value. Prior to the Effective Date, the Company accounted for loans based on the following categories: (i) corporate loans held for investment, which were measured based on their principal plus or minus unaccreted purchase discounts and unamortized purchase premiums, net of an allowance for loan losses; (ii) corporate loans held for sale, which were measured at lower of cost or estimated fair value; and (iii) corporate loans, at estimated fair value, which were measured at fair value.

The following table summarizes the Company's corporate loans, at estimated fair value as of December 31, 2014 (amounts in thousands):

As of December 31, 2014, the Company held four corporate loans that were in default with a total estimated fair value of $266.9 million from two issuers.

The Company's corporate loan portfolio has certain credit risk concentrated in a limited number of issuers. As of December 31, 2014 under the Successor Company where all corporate loans are carried at estimated fair value, approximately 38% of the total estimated fair value of the Company's corporate loan portfolio was concentrated in twenty issuers, with the three largest concentrations of corporate loans in loans issued by U.S. Foods Inc., Texas Competitive Electric Holdings Company LLC ("TXU") and First Data Corp., which combined represented $700.4 million, or approximately 11% of the aggregate estimated fair value of the Company's corporate loans.

Note 8 to these consolidated financial statements describes the Company's borrowings under which the Company has pledged loans for borrowings. The following table summarizes the corporate loans pledged as collateral as of December 31, 2014 (amounts in thousands):

The following table summarizes the Company's corporate loans as of December 31, 2013 (amounts in thousands):

As discussed above in Note 2 to these consolidated financial statements, beginning the Effective Date, the new basis of accounting for corporate loans at estimated fair value eliminated the need for an allowance for loan losses. Accordingly, disclosure related to allowance for loan losses pertains to the Predecessor Company. As of December 31, 2013, the Company had an allowance for loan losses of $225.0 million. As described in Note 2 to these consolidated financial statements, the allowance for loan losses represented the Company's estimate of probable credit losses inherent in its loan portfolio as of the balance sheet date. The Company's allowance for loan losses consisted of two components, an allocated component and an unallocated component. The allocated component of the allowance for loan losses consisted of individual loans that were impaired. The unallocated component of the allowance for loan losses represented the Company's estimate of losses inherent, but not identified, in its portfolio as of the balance sheet date.

The following table summarizes the changes in the allowance for loan losses for the Company's corporate loan portfolio during the four months ended April 30, 2014 and years ended December 31, 2013 and 2012 (amounts in thousands):

The following table summarizes the ending balances of the allowance and corporate loans portfolio by basis of impairment method as of December 31, 2013 (amounts in thousands):

As of December 31, 2013, the allocated component of the allowance for loan losses totaled $142.7 million and related to investments in certain loans issued by four issuers with an aggregate par

amount of $594.4 million and an aggregate recorded investment of $554.4 million. Of the allocated component totaling $142.7 million, $66.9 million related to TXU, which had an aggregate amortized cost of $311.6 million as of December 31, 2013.

The following table summarizes the Company's recorded investment and unpaid principal balance in impaired loans, as well as the related allowance for credit losses as of December 31, 2013 (amounts in thousands):

The Company recognized $4.5 million of interest income related to impaired loans with a related allowance recorded for the four months ended April 30, 2014. The following table summarizes the Company's average recorded investment in impaired loans and interest income recognized for the years ended December 31, 2013 and 2012 (amounts in thousands):

As of December 31, 2013, the allocated component of the allowance for loan losses included all impaired loans. While all of the Company's impaired loans were on non-accrual status, the Company's non-accrual loans also included (i) other loans held for investment, (ii) corporate loans held for sale and (iii) loans carried at estimated fair value, which were not reflected in the table above. Any of these three classifications may have included those loans modified in a TDR, which were typically designated as being non-accrual (see "Troubled Debt Restructurings" section below).

The following table summarizes the Company's recorded investment in non-accrual loans as of December 31, 2013 (amounts in thousands):

For the four months ended April 30, 2014, the amount of interest income recognized using the cash-basis method during the time within the period that the loans were on non-accrual status was $5.3 million, which included $4.5 million for non-accrual loans that were held for investment, $0.7 million for non-accrual loans held for sale and $0.1 million for non-accrual loans carried at estimated fair value. Comparatively, the amount of interest income recognized using the cash-basis method during the time within the period that the loans were impaired was $25.1 million, which included $18.2 million for impaired loans that were held for investment and $6.9 million for non-accrual loans held for sale for the year ended December 31, 2013. The amount of interest income recognized using the cash-basis method during the time within the period that the loans were impaired was $19.6 million, which included $9.5 million for impaired loans that were held for investment and $10.1 million for non-accrual loans held for sale for the year ended December 31, 2012.

A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. A loan may be placed on non-accrual status regardless of whether or not such loan is considered past due. As of December 31, 2013, the Company held a total recorded investment of $237.2 million of non-accrual and past due loans held for investment from three issuers, certain of which were in default as of December 31, 2013. The associated past due interest payments related to the $237.2 million recorded investment was $5.6 million, of which $0.9 million was less than 30 days past due, $2.3 million was 60-89 days past due, and $2.4 million was 90 or more days past due. In addition, as of December 31, 2013, the Company held $15.5 million par amount and $12.2 million estimated fair value of non-accrual and past due loans carried at estimated fair value from one issuer, which was also in default as of December 31, 2013. The associated interest payments related to the $12.2 million loans at estimated fair value that were 90 or more days past due was $0.2 million.

The unallocated component of the allowance for loan losses totaled $82.3 million as of December 31, 2013. As described in Note 2 to these consolidated financial statements, the Company estimated the unallocated components of the allowance for loan losses through a comprehensive review of its loan portfolio and identified certain loans that demonstrated possible indicators of impairments, including credit quality indicators. The following table summarizes how the Company determined internally assigned grades related to credit quality based on a combination of concern as to probability

of default and the seniority of the loan in the issuer's capital structure as of December 31, 2013 (amounts in thousands):

Internally Assigned Grade	Capital Hierarchy	Recorded Investment December 31, 2013(1)

High	Senior Secured Loan	$	26,886
	Second Lien Loan		286,996
	Subordinated		11,643

		$	325,525



Moderate	Senior Secured Loan	$	1,033,065
	Second Lien Loan		27,504
	Subordinated		39,329

		$	1,099,898



Low	Senior Secured Loan	$	4,148,913
	Second Lien Loan		25,864
	Subordinated		38,590

		$	4,213,367



	Total Unallocated	$	5,638,790
	Total Allocated		554,442

	Total Loans Held for Investment	$	6,193,232

During the four months ended April 30, 2014, the Company recorded charge-offs totaling $1.5 million, comprised primarily of loans modified in TDRs. During the years ended December 31, 2013 and 2012, the Company recorded charge-offs totaling $31.3 million and $14.4 million, respectively, comprised primarily of loans modified in TDRs and loans transferred to loans held for sale.

As discussed above in Note 2 to these consolidated financial statements, beginning the Effective Date, the new basis of accounting for corporate loans at estimated fair value eliminated the need for the bifurcation between corporate loans held for investment and loans held for sale. Accordingly, related disclosure pertains to the Predecessor Company. As of December 31, 2013, the Company had $279.7 million of loans held for sale. During the four months ended April 30, 2014, the Company transferred $348.8 million amortized cost amount of loans from held for investment to held for sale. During the year ended December 31, 2013, the Company transferred $323.4 million amortized cost amount of loans from held for investment to held for sale. The transfers of certain loans to held for sale were due to the Company's determination that credit quality of a loan in relation to its expected risk-adjusted return no longer met the Company's investment objective and the determination by the Company to reduce or eliminate the exposure for certain loans as part of its portfolio risk management practices. During the four months ended April 30, 2014 and year ended December 31, 2013, the Company did not transfer any loans held for sale back to loans held for investment. Transfers back to

held for investment may have occurred as the circumstances that led to the initial transfer to held for sale were no longer present. Such circumstances may have included deteriorated market conditions often resulting in price depreciation or assets becoming illiquid, changes in restrictions on sales and certain loans amending their terms to extend the maturity, whereby the Company determined that selling the asset no longer met its investment objective and strategy.

The Company recorded a $5.0 million reduction to the lower of cost or estimated fair value adjustment for the four months ended April 30, 2014 for certain loans held for sale, which had a carrying value of $546.1 million as of April 30, 2014. Comparatively, the Company recorded a $5.9 million and $2.7 million net charge to earnings during the years ended December 31, 2013 and 2012, respectively, for the lower of cost or estimated fair value adjustment for certain loans held for sale, which had carrying values of $279.7 million and $128.3 million as of December 31, 2013 and 2012, respectively.

As discussed above in Note 2 to these consolidated financial statements, as of the Effective Date, the Company accounts for all of its corporate loans at estimated fair value. Accordingly, required disclosure related to TDRs pertains to the Predecessor Company. The recorded investment balance of TDRs at December 31, 2013 totaled $55.4 million, related to three issuers. Loans whose terms have been modified in a TDR were considered impaired, unless accounted for at fair value or the lower of cost or estimated fair value, and were typically placed on non-accrual status, but could have been moved to accrual status when, among other criteria, payment in full of all amounts due under the restructured terms was expected and the borrower had demonstrated a sustained period of repayment performance, typically six months. As of December 31, 2013, $55.4 million of TDRs were included in non-accrual loans (see "Non-Accrual Loans" section above). As of December 31, 2013, the allowance for loan losses included specific reserves of $22.1 million related to TDRs.

	Four months ended April 30, 2014						Year ended December 31, 2013						Year ended December 31, 2012

	Number of TDRs		Pre- modification outstanding recorded investment(1)		Post- modification outstanding recorded investment(1)(2)		Number of TDRs		Pre- modification outstanding recorded investment(1)		Post- modification outstanding recorded investment(1)(3)		Number of TDRs		Pre- modification outstanding recorded investment(1)		Post- modification outstanding recorded investment(1)(4)
Troubled debt restructurings:
Loans held for investment		1	$	154,075	$	—		2	$	68,358	$	39,430		1	$	13,807	$	4,679
Loans held for sale		—		—		—		—		—		—		1		53,875		20,886
Loans at estimated fair value		2		41,347		24,571		1		1,670		1,229		—		—		—

Total			$	195,422		24,571			$	70,028	$	40,659			$	67,682	$	25,565

During the year ended December 31, 2013, the Company modified an aggregate recorded investment of $70.0 million related to three issuers in restructurings which qualified as TDRs. These restructurings occurred during the first quarter of 2013 and involved conversions of the loans into one of the following: (i) new term loans with extended maturities and fixed, rather than floating, interest rates, (ii) equity carried at estimated fair value, or (iii) a combination of equity and loans carried at estimated fair value. The modification involving an extension of maturity date was for an additional four-year period with a higher coupon of 6.8%. Prior to the restructurings, two of the TDRs described above were already identified as impaired and had specific allocated reserves, while the third was a loan carried at estimated fair value. Upon restructuring the impaired loans held for investment, the difference between the recorded investment of the pre-modified loans and the estimated fair value of the new assets was charged-off against the allowance for loan losses. The TDRs resulted in $26.8 million of charge-offs for the year ended December 31, 2013, which comprised 86% of the total $31.3 million of charge-offs recorded during the year ended December 31, 2013.

During the year ended December 31, 2012, the Company exchanged an aggregate recorded investment of $67.7 million of loans from a single issuer for new loans of varying extended maturities and equity, with a combined estimated fair value of $25.6 million, in a modification which qualified as a TDR. The interest rate did not change as a result of this modification. Prior to the TDR, certain of the loans were included in the allocated component of the allowance for loan losses, while the remaining loans were in loans held for sale and were on non-accrual status. The difference between the recorded investment of the loans and the estimated fair value of the new loans and equity was charged-off against the allowance for loan losses and the lower of cost or estimated fair value allowance. The new loans were included in the allocated component of the allowance for loan losses and in loans held for sale and will be maintained on non-accrual status until performance has been demonstrated by the borrower for a suitable period of time, while the equity was carried at estimated fair value. The loans modified in the TDR were not in default at December 31, 2012.

As of April 30, 2014 and December 31, 2013, there were no commitments to lend additional funds to the issuers whose loans had been modified in a TDR.

As of April 30, 2014 and December 31, 2013, no loans modified as TDRs were in default within a twelve month period subsequent to their original restructuring.

During the four months ended April 30, 2014, the Company modified $1.1 billion amortized cost of corporate loans that did not qualify as TDRs. During the year ended December 31, 2013, the Company modified $2.4 billion amortized cost of corporate loans that did not qualify as TDRs. These

modifications involved changes in existing rates and maturities to prevailing market rates/maturities for similar instruments and did not qualify as TDRs as the respective borrowers were not experiencing financial difficulty or seeking (or granted) a concession as part of the modification. In addition, these modifications of non-troubled debt holdings were accomplished with modified loans that were not substantially different from the loans prior to modification.

As of December 31, 2013, the Company held six corporate loans that were in default with a total amortized cost of $215.7 million from two issuers. Of the $215.7 million total amortized cost, $203.7 million were included in the loans that comprised the allocated component of the Company's allowance for loan losses and $12.0 million were included in loans carried at estimated fair value.

The Company's corporate loan portfolio has certain credit risk concentrated in a limited number of issuers. As of December 31, 2013, approximately 46% of the total amortized cost basis of the Company's corporate loan portfolio was concentrated in twenty issuers, with the three largest concentrations of corporate loans in loans issued by TXU, Modular Space Corporation and U.S. Foods Inc., which combined represented $935.2 million, or approximately 14% of the aggregate amortized cost basis of the Company's corporate loans.

As described in Note 2 to these consolidated financial statements, as a result of the Merger Transaction and new accounting basis established for assets and liabilities, oil and gas properties were adjusted to reflect estimated fair value as of the Effective Date, but will continue to be carried at cost

net of depreciation, depletion and amortization expense ("DD&A"). The following table summarizes the Company's oil and gas properties as of December 31, 2014 and 2013 (amounts in thousands):

On September 30, 2014, the Company closed a transaction whereby certain of the Company's entities holding natural resources assets were merged with certain investment entities of funds advised by KKR and partnerships held by wholly owned subsidiaries of Legend Production Holdings, LLC, a majority owned subsidiary of Riverstone Holdings LLC and the Carlyle Group, to create a new oil and gas company called Trinity River Energy, LLC ("Trinity"). As of December 31, 2014, the Trinity assets had a carrying value of $51.6 million and were classified as interests in joint ventures and partnerships, rather than oil and gas properties, net, on the Company's consolidated balance sheets.

For both the eight months ended December 31, 2014 and four months ended April 30, 2014, the Company recorded no impairments. Comparatively, for the years ended December 31, 2013 and 2012, the Company recorded $10.4 million and $3.3 million, respectively, of impairments, which are included in net realized and unrealized gain (loss) on investments in the consolidated statements of operations.

The Company accounted for certain of its initial oil and natural gas properties as business combinations under the acquisition method of accounting, whereby the Company (i) conducted assessments of net assets acquired and recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values and (ii) expensed as incurred transaction and integration costs associated with the acquisitions. Separate from these acquisitions, the Company deployed capital to develop and purchase other interests and assets in the natural resources sector.

During the third quarter of 2014, certain of the Company's natural resources assets focused on development of oil and gas properties, with an approximate aggregate fair value of $179.2 million, were distributed to the Company's Parent.

During the eight months ended December 31, 2014, four months ended April 30, 2014 and year ended December 31, 2013, the Company capitalized $30.9 million, $54.1 million and $154.1 million, respectively, as a result of purchasing natural resources assets or covering costs related to the development of oil and gas properties. Accordingly, these amounts were included in oil and gas properties, net on the consolidated balance sheets.

Under the equity method of accounting, the Company records its proportionate share of net income or loss based on the investee's financial results. Given that the Company elected the fair value option to account for these equity method investments, the Company's share of the investee's underlying net income or loss predominantly represents fair value adjustments in the investments. Changes in estimated fair value are recorded in net realized and unrealized gain (loss) on investments in the consolidated statements of operations.

As described above in Note 6 to these consolidated financial statements, Trinity was a joint venture formed on September 30, 2014. The Company holds its interest in Trinity through KNR Trinity Holdings LLC. Separate audited financial information for KNR Trinity Holdings LLC and Trinity are included as exhibits to this Annual Report on Form 10-K.

The following table shows summarized financial information for the Company's equity method investments reported under the fair value option of accounting assuming 100% ownership as of December 31, 2014 and 2013 (amounts in thousands):

The following table shows summarized financial information for the Company's equity method investments reported under the fair value option of accounting assuming 100% ownership for the eight months ended December 31, 2014, four months ended April 30, 2014 and years ended December 31, 2013 and 2012 (amounts in thousands):

As described in Note 2 to these consolidated financial statements, as a result of the Merger Transaction and new accounting basis established for assets and liabilities, all borrowings were adjusted to reflect estimated fair value as of the Effective Date. In addition, effective May 1, 2014, the Successor Company elected to account for its collateralized loan obligation secured notes at estimated fair value, with changes in estimated fair value recorded in the consolidated statements of operations. Prior to the Effective Date, all liabilities were carried at amortized cost.

Certain information with respect to the Company's borrowings as of December 31, 2014 is summarized in the following table (dollar amounts in thousands):

	Par		Carrying Value(1)					Collateral(2)

CLO 2005-1 senior secured notes	$	192,384	$	192,260	1.84	%	847	$	224,716
CLO 2005-2 senior secured notes		242,928		242,365	0.68		1,061		381,362
CLO 2006-1 senior secured notes		166,841		166,710	1.28		1,333		400,165
CLO 2007-1 senior secured notes		1,906,409		1,891,228	0.80		2,327		2,182,078
CLO 2007-1 mezzanine notes		489,723		486,575	3.84		2,327		560,538
CLO 2007-1 subordinated notes(3)		134,468		119,112	13.75		2,327		153,912
CLO 2007-A subordinated notes(3)		15,096		25,921	88.02		1,019		66,044
CLO 2011-1 senior debt		402,515		402,515	1.58		1,323		508,625
CLO 2012-1 senior secured notes		367,500		364,063	2.33		3,637		365,662
CLO 2012-1 subordinated notes(3)		18,000		12,986	16.86		3,637		17,910
CLO 2013-1 senior secured notes		458,500		441,153	1.96		3,849		477,691
CLO 2013-2 senior secured notes		339,250		331,383	2.21		4,041		357,722
CLO 9 senior secured notes		463,750		449,349	2.28		4,306		474,072
CLO 9 subordinated notes(3)		15,000		13,531	—		4,306		15,334
CLO 10 senior notes		368,000		361,948	2.50		4,002		343,090

Total collateralized loan obligation secured debt		5,580,364		5,501,099					6,528,921
8.375% Senior notes		258,750		290,861	8.38		9,816		—
7.500% Senior notes		115,043		123,663	7.50		9,941		—
Junior subordinated notes		283,517		246,907	5.39		7,949		—

Total borrowings	$	6,237,674	$	6,162,530				$	6,528,921

Certain information with respect to the Company's borrowings as of December 31, 2013 is summarized in the following table (dollar amounts in thousands):

	Outstanding Borrowings					Collateral(1)

CLO 2005-1 senior secured notes	$	193,909	0.73	%	1,212	$	303,104
CLO 2005-2 senior secured notes		335,570	0.63		1,426		496,917
CLO 2006-1 senior secured notes		384,925	0.69		1,698		649,894
CLO 2007-1 senior secured notes		2,075,040	0.79		2,692		2,354,938
CLO 2007-1 mezzanine notes		406,428	3.65		2,692		461,250
CLO 2007-1 subordinated notes(2)		136,097	18.15		2,692		154,456
CLO 2007-A senior secured notes		428,152	1.57		1,384		540,677
CLO 2007-A mezzanine notes		55,327	7.44		1,384		69,867
CLO 2007-A subordinated notes(2)		15,096	42.22		1,384		19,063
CLO 2011-1 senior debt		388,703	1.25		1,688		517,597
CLO 2012-1 senior secured notes		362,727	2.34		4,002		376,603
CLO 2012-1 subordinated notes(2)		18,000	11.67		4,002		18,689
CLO 2013-1 senior secured notes		449,409	1.98		4,214		468,915

Total collateralized loan obligation secured debt		5,249,383					6,431,970
Senior secured credit facility(3)		75,000	1.39		699		—
2015 Asset-based borrowing facility		50,289	2.42		674		213,935
2018 Asset-based borrowing facility(4)		—	—		1,519		—

Total credit facilities		125,289					213,935
8.375% Senior notes		250,800	8.38		10,181		—
7.500% Senior notes		111,476	7.50		10,306		—
Junior subordinated notes		283,517	5.39		8,347		—

Total borrowings	$	6,020,465				$	6,645,905

(1): Collateral for borrowings consists of the estimated fair value of certain corporate loans, securities available-for-sale and equity investments at estimated fair value. Also includes the carrying value of oil and gas assets. For purposes of this table, collateral for CLO senior, mezzanine and subordinated notes are calculated pro rata based on the outstanding borrowings for each respective CLO.
(2): Subordinated notes do not have a contractual coupon rate, but instead receive a pro rata amount of the net distributions from each respective CLO. Accordingly, weighted average borrowing rates for the subordinated notes were calculated based on year-to-date estimated distributions, if any.
(3): Capital stock of material domestic and foreign subsidiaries, as defined by the senior secured credit facility agreement, are eligible to be pledged as collateral. As of December 31, 2013, the total investments held within these eligible subsidiaries exceeded the amount of the outstanding debt.
(4): Borrowing rates range from 1.75% to 3.25% plus London interbank offered rate ("LIBOR") per annum based on the amount outstanding.

The indentures governing the Company's CLO transactions stipulate the reinvestment period during which the collateral manager, which is an affiliate of the Company's Manager, can generally sell or buy assets at its discretion and can reinvest principal proceeds into new assets. CLO 2007-A, CLO 2005-1, CLO 2005-2, CLO 2006-1 and CLO 2007-1 are no longer in their reinvestment periods as of December 31, 2014. As a result, principal proceeds from the assets held in each of these transactions are generally used to amortize the outstanding balance of senior notes outstanding.

During the eight months ended December 31, 2014, $500.8 million of original CLO 2005-1, CLO 2005-2, CLO 2006-1 and CLO 2007-1 senior notes were repaid. Pursuant to the terms of the indentures governing our CLO transactions, the Company has the ability to call its CLO transactions after the end of the respective non-call periods. During July 2014, the Company called CLO 2007-A and subsequently repaid aggregate senior and mezzanine notes totaling $494.9 million in 2014. During the four months ended April 30, 2014, $182.6 million of original CLO 2007-A, CLO 2005-1, CLO 2005-2 and CLO 2006-1 senior notes were repaid. Comparatively, during the year ended December 31, 2013, $759.2 million of original CLO 2007-A, CLO 2005-1, CLO 2005-2 and CLO 2006-1 senior notes were repaid. CLO 2012-1, CLO 2013-1, CLO 2013-2, CLO 9 and CLO 10 will end their reinvestment periods during December 2016, July 2017, January 2018, October 2018 and December 2018 respectively.

During February 2015, the Company called CLO 2006-1 and repaid aggregate senior and mezzanine notes totaling $181.8 million par amount. As described below in Note 9 to these consolidated financial statements, the Company used a pay-fixed, receive-variable interest rate swap to hedge interest rate risk associated with CLO 2006-1. In connection with the repayment of CLO 2006-1 notes, the related interest rate swap, with a contractual notional amount of $84.0 million, was terminated.

On December 18, 2014, the Company closed CLO 10, a $415.6 million secured financing transaction maturing on December 15, 2025. The Company issued $368.0 million par amount of senior secured notes to unaffiliated investors, of which $343.0 million was floating rate with a weighted-average coupon of three-month LIBOR plus 2.09% and $25.0 million was fixed rate with a weighted-average coupon of 4.90%. The investments that are owned by CLO 10 collateralize the CLO 10 debt, and as a result, those investments are not available to the Company, its creditors or shareholders.

On September 16, 2014, the Company closed CLO 9, a $518.0 million secured financing transaction maturing on October 15, 2026. The Company issued $463.8 million par amount of senior secured notes to unaffiliated investors, all of which was floating rate with a weighted-average coupon of three-month LIBOR plus 2.01%. The Company also issued $15.0 million of subordinated notes to unaffiliated investors. The investments that are owned by CLO 9 collateralize the CLO 9 debt, and as a result, those investments are not available to the Company, its creditors or shareholders.

On January 23, 2014, the Company closed CLO 2013-2, a $384.0 million secured financing transaction maturing on January 23, 2026. The Company issued $339.3 million par amount of senior secured notes to unaffiliated investors, of which $319.3 million was floating rate with a weighted-average coupon of three-month LIBOR plus 2.16% and $20.0 million was fixed rate at 3.74%. The investments that are owned by CLO 2013-2 collateralize the CLO 2013-2 debt, and as a result, those investments are not available to the Company, its creditors or shareholders.

During the eight months ended December 31, 2014, the Company issued $15.0 million par amount of CLO 2006-1 Class E notes for proceeds of $15.0 million and $37.5 million par amount of CLO 2007-1 Class E notes for proceeds of $37.6 million.

During the four months ended April 30, 2014, the Company issued: (i) $61.1 million par amount of CLO 2007-A class D and E notes for proceeds of $61.3 million, (ii) $72.0 million par amount of CLO 2005-1 class D through F notes for proceeds of $71.5 million, (iii) $21.9 million par amount of CLO 2007-1 class E notes for proceeds of $21.9 million, (iv) $29.8 million par amount of CLO 2007-A class G notes for proceeds of $30.2 million and (v) $29.8 million par amount of CLO 2007-A class H notes for proceeds of $30.1 million.

On September 27, 2013, the Company amended the CLO 2011-1 senior loan agreement (the "CLO 2011-1 Agreement") to upsize the transaction by $300.0 million, of which CLO 2011-1 is now able to borrow up to an incremental $225.0 million. Under the amended CLO 2011-1 Agreement, CLO 2011-1 matures on August 15, 2020 and borrowings under the CLO 2011-1 Agreement bear interest at a rate of the three-month LIBOR plus 1.35%.

On June 25, 2013, the Company closed CLO 2013-1, a $519.4 million secured financing transaction maturing on July 15, 2025. The Company issued $458.5 million par amount of senior secured notes to unaffiliated investors, of which $442.0 million was floating rate with a weighted-average coupon of three-month LIBOR plus 1.67% and $16.5 million was fixed rate at 3.73%. The investments that are owned by CLO 2013-1 collateralize the CLO 2013-1 debt, and as a result, those investments are not available to the Company, its creditors or shareholders.

On November 30, 2012, the Company entered into a credit agreement for a three-year $150.0 million revolving credit facility, maturing on November 30, 2015 (the "2015 Facility"). The Company had the right to prepay loans under the 2015 Facility in whole or in part at any time. Loans under the 2015 Facility bore interest at a rate equal to, at the Company's option, LIBOR plus 2.25% per annum, or an alternate base rate plus 1.25% per annum. As of December 31, 2013, the Company had $75.0 million of borrowings outstanding under the 2015 Facility. In connection with the merger, the Company terminated the 2015 Facility on April 30, 2014, with all amounts outstanding repaid as of March 31, 2014.

On May 20, 2014, the Company's five-year nonrecourse, asset-based revolving credit facility, maturing on November 5, 2015 (the "2015 Natural Resources Facility"), was adjusted and reduced to $75.0 million, that was subject to, among other things, the terms of a borrowing base derived from the

value of eligible specified oil and gas assets. The Company had the right to prepay loans under the 2015 Natural Resources Facility in whole or in part at any time. Loans under the 2015 Natural Resources Facility bore interest at a rate equal to LIBOR plus a tiered applicable margin ranging from 1.75% to 2.75% per annum. The 2015 Natural Resources Facility contained customary covenants applicable to the Company. As of December 31, 2013, the Company had $50.3 million of borrowings outstanding under the 2015 Natural Resources Facility. On September 30, 2014, the 2015 Natural Resources Facility was terminated in connection with the Trinity transaction, with all amounts outstanding repaid as of September 30, 2014.

On February 27, 2013, the Company entered into a separate credit agreement for a five-year $6.0 million non-recourse, asset-based revolving credit facility, maturing on February 27, 2018 (the "2018 Natural Resources Facility"), that was subject to, among other things, the terms of a borrowing base derived from the value of eligible specified oil and gas assets. On May 15, 2014, the 2018 Natural Resources Facility was adjusted and increased to $68.5 million. The Company had the right to prepay loans under the 2018 Natural Resources Facility in whole or in part at any time. Loans under the 2018 Natural Resources Facility bore interest at a rate equal to LIBOR plus a tiered applicable margin ranging from 1.75% to 3.25% per annum. The 2018 Natural Resources Facility contained customary covenants applicable to the Company. As of December 31, 2013, the Company had zero outstanding under the 2018 Natural Resources Facility. On July 1, 2014, the 2018 Natural Resources Facility was terminated in connection with the Company's distribution of certain natural resources assets to its Parent, with all amounts outstanding repaid as of July 1, 2014.

As of the termination date for each of the respective credit facilities and December 31, 2013, the Company believed it was in compliance with the covenant requirements for its credit facilities.

On January 18, 2013, in accordance with the indenture relating to the Company's $172.5 million 7.5% convertible senior notes due January 15, 2017 ("7.5% Notes"), the Company issued a conversion rights termination notice ("Termination Notice") to holders of the 7.5% Notes whereby it terminated the right to convert the 7.5% Notes to common shares. The conversion rate as of January 18, 2013 was equal to 141.8256 common shares for each $1,000 principal amount of 7.5% Notes, plus an additional 9.2324 common shares per $1,000 principal amount to account for the make-whole premium. Holders of $172.5 million 7.5% Notes submitted their notes for conversion for which the Company satisfied by physical settlement with 26.1 million common shares.

The table below summarizes the Company's contractual obligations (excluding interest) under borrowing agreements as of December 31, 2014 (amounts in thousands):

	Payments Due by Period

	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
CLO 2005-1 notes	$	192,384	$	—	$	192,384	$	—	$	—
CLO 2005-2 notes		242,928		—		242,928		—		—
CLO 2006-1 notes		166,841		—		—		166,841		—
CLO 2007-1 notes		2,530,600		—		—		—		2,530,600
CLO 2007-A notes		15,096		—		15,096		—		—
CLO 2011-1 debt		402,515		—		—		402,515		—
CLO 2012-1 notes		385,500		—		—		—		385,500
CLO 2013-1 notes		458,500		—		—		—		458,500
CLO 2013-2 notes		339,250		—		—		—		339,250
CLO 9 notes		478,750		—		—		—		478,750
CLO 10 notes		368,000		—		—		—		368,000
Senior notes		373,793		—		—		—		373,793
Junior subordinated notes		283,517		—		—		—		283,517

Total	$	6,237,674	$	—	$	450,408	$	569,356	$	5,217,910

The remaining contractual maturities in the table above were allocated assuming no prepayments and represent the principal amount of all notes, excluding any discount and accounting adjustments. Expected maturities may differ from contractual maturities because the Company, as the borrower, may have the right to call or prepay certain obligations, with or without call or prepayment penalties.

The Company enters into derivative transactions in order to hedge its interest rate risk exposure to the effects of interest rate changes. Additionally, the Company enters into derivative transactions in the course of its portfolio management activities. The counterparties to the Company's derivative agreements are major financial institutions with which the Company and its affiliates may also have other financial relationships. In the event of nonperformance by the counterparties, the Company is potentially exposed to losses. The counterparties to the Company's derivative agreements have investment grade ratings and, as a result, the Company does not anticipate that any of the counterparties will fail to fulfill their obligations.

The table below summarizes the aggregate notional amount and estimated net fair value of the derivative instruments as of December 31, 2014 and 2013 (amounts in thousands):

	As of December 31, 2014						As of December 31, 2013

	Notional			Estimated Fair Value			Notional			Estimated Fair Value
Cash Flow Hedges:
Interest rate swaps	$	—		$	—		$	478,333		$	(42,078	)
Free-Standing Derivatives:
Interest rate swaps		426,000			(54,071	)		—			—
Commodity swaps		—			—			—			1,493
Credit default swaps—protection purchased		—			—			(100,000	)		(2,019	)
Foreign exchange forward contracts		(442,181	)		27,428			(320,380	)		(25,258	)
Foreign exchange options		—			—			129,900			8,941
Common stock warrants		—			—			—			945
Total rate of return swaps		—			(130	)		—			(229	)
Options		—			5,212			—			6,794

Total				$	(21,561	)				$	(51,411	)

As described above in Note 2 to these consolidated financial statements, in connection with the Merger Transaction and as of the Effective Date, the Company discontinued hedge accounting for its cash flow hedges and records changes in the estimated fair value of the derivative instruments in the consolidated statements of operations. Accordingly, disclosures related to cash flow hedges pertain to the Predecessor Company.

The Company uses interest rate swaps to hedge a portion of the interest rate risk associated with its borrowings under CLO senior secured notes as well as certain of its floating rate junior subordinated notes. The Predecessor Company designated these interest rate swaps as cash flow hedges and as of December 31, 2013, had interest rate swaps with a notional amount totaling $478.3 million. Changes in the estimated fair value of the interest rate swaps were recorded through accumulated other comprehensive loss, with gains or losses representing hedge ineffectiveness, if any, recognized in earnings during the reporting period.

The following table presents the net gains (losses) recognized in other comprehensive loss related to derivatives in cash flow hedging relationships for the four months ended April 30, 2014 and years ended December 31, 2013 and 2012 (amounts in thousands):

For all hedges where hedge accounting was applied, effectiveness testing and other procedures to ensure the ongoing validity of the hedges were performed at least quarterly. During the four months ended April 30, 2014 and years ended December 31, 2013 and 2012, the Company did not recognize any ineffectiveness in income on the consolidated statements of operations from its cash flow hedges.

As of December 31, 2014, the Successor Company had interest rate swaps with a notional amount of $426.0 million, which were classified as free-standing derivatives, rather than cash flow hedges.

Free-standing derivatives are derivatives that the Company has entered into in conjunction with its investment and risk management activities, but for which the Company has not designated the derivative contract as a hedging instrument for accounting purposes. Such derivative contracts may include commodity derivatives, credit default swaps ("CDS") and foreign exchange contracts and options. Free-standing derivatives also include investment financing arrangements (total rate of return swaps) whereby the Company receives the sum of all interest, fees and any positive change in fair value amounts from a reference asset with a specified notional amount and pays interest on such notional amount plus any negative change in fair value amounts from such reference asset.

Gains and losses on free-standing derivatives are reported in net realized and unrealized gain (loss) on derivatives and foreign exchange in the consolidated statements of operations. Unrealized gains (losses) represent the change in fair value of the derivative instruments and are noncash items.

A CDS is a contract in which the contract buyer pays, in the case of a short position, or receives, in the case of long position, a periodic premium until the contract expires or a credit event occurs. In return for this premium, the contract seller receives a payment from or makes a payment to the buyer if there is a credit default or other specified credit event with respect to the issuer (also known as the reference entity) of the underlying credit instrument referenced in the CDS. Typical credit events include bankruptcy, dissolution or insolvency of the reference entity, failure to pay and restructuring of the obligations of the reference entity.

As of December 31, 2014 and 2013, the Company had purchased protection with a notional amount of zero and $100.0 million, respectively. The Company sells or purchases protection to replicate fixed income securities and to complement the spot market when cash securities of the referenced entity of a particular maturity are not available or when the derivative alternative is less expensive compared to other purchasing alternatives. In addition, the Company may purchase protection to hedge economic exposure to declines in value of certain credit positions. The Company purchases its protection from banks and broker dealers, other financial institutions and other counterparties.

The Company holds certain positions that are denominated in a foreign currency, whereby movements in foreign currency exchange rates may impact earnings if the United States dollar significantly strengthens or weakens against foreign currencies. In an effort to minimize the effects of these fluctuations on earnings, the Company will from time to time enter into foreign exchange options or foreign exchange forward contracts related to the assets denominated in a foreign currency. As of

December 31, 2014 and 2013, the net contractual notional balance of our foreign exchange options and forward contract liabilities totaled $442.2 million and $190.5 million, respectively, the majority of which related to certain of our foreign currency denominated assets.

The following table presents the amounts recorded in net realized and unrealized gain (loss) on derivatives and foreign exchange on the consolidated statements of operations for the eight months ended December 31, 2014 and four months ended April 30, 2014 (amounts in thousands):

	Successor Company									Predecessor Company

	Eight months ended December 31, 2014									Four months ended April 30, 2014


	Realized gains (losses)			Unrealized gains (losses)						Realized gains (losses)			Unrealized gains (losses)
							Total									Total
							Total									Total
Interest rate swaps	$	—		$	(6,890	)	$	(6,890	)	$	—		$	—		$	—
Commodity swaps		(962	)		(698	)		(1,660	)		(2,515	)		(5,856	)		(8,371	)
Credit default swaps(1)		—			—			—			(2,167	)		1,986			(181	)
Foreign exchange forward contracts and options(2)		(6,609	)		(1,561	)		(8,170	)		(2,068	)		2,784			716
Common stock warrants		1,237			(1,082	)		155			—			137			137
Total rate of return swaps		(286	)		(184	)		(470	)		(2,349	)		284			(2,065	)
Options		—			(1,472	)		(1,472	)		—			(19	)		(19	)

Net realized and unrealized gains (losses)	$	(6,620	)	$	(11,887	)	$	(18,507	)	$	(9,099	)	$	(684	)	$	(9,783	)

The following table presents the amounts recorded in net realized and unrealized gain (loss) on derivatives and foreign exchange on the consolidated statements of operations for the years ended December 31, 2013 and 2012 (amounts in thousands):

	Predecessor Company

	Year ended December 31, 2013									Year ended December 31, 2012
	Realized gains (losses)(1)			Unrealized gains (losses)			Total			Realized gains (losses)(1)			Unrealized gains (losses)			Total
Commodity swaps	$	1,296		$	(5,562	)	$	(4,266	)	$	3,554		$	721		$	4,275
Credit default swaps		(4,408	)		188			(4,220	)		(6,079	)		942			(5,137	)
Foreign exchange forward contracts and options(2)		1,104			(2,096	)		(992	)		(503	)		(2,544	)		(3,047	)
Common stock warrants		2,327			(1,503	)		824			691			986			1,677
Total rate of return swaps		1,803			(229	)		1,574			—			141			141
Options		(91	)		333			242			—			—			—

Net realized and unrealized gains (losses)	$	2,031		$	(8,869	)	$	(6,838	)	$	(2,337	)	$	246		$	(2,091	)

The Company is not subject to a master netting arrangement and the Company's derivative instruments are presented on a gross basis on its consolidated balance sheets.

As part of its strategy of investing in corporate loans, the Company commits to purchase interests in primary market loan syndications, which obligate the Company, subject to certain conditions, to acquire a predetermined interest in such loans at a specified price on a to-be-determined settlement date. Consistent with standard industry practices, once the Company has been informed of the amount of its syndication allocation in a particular loan by the syndication agent, the Company bears the risks and benefits of changes in the fair value of the syndicated loan from that date forward. In addition, the Company also commits to purchase corporate loans in the secondary market that similar to the above, the Company bears the risks and benefits of changes in the fair value from the trade date forward. As of December 31, 2013, the Company had committed to purchase corporate loans with aggregate par amounts totaling $62.7 million. As described above in Note 2 to these consolidated financial statements, as of the Effective Date, the Company accounts for all corporate loans on trade date. As such, as of December 31, 2014, all corporate loans were included in the consolidated balance sheets. In addition, the Company participates in certain contingent financing arrangements, whereby the Company is committed to provide funding of up to a specific predetermined amount at the discretion of the borrower or has entered into an agreement to acquire interests in certain assets. As of December 31, 2014 and 2013, the Company had unfunded financing commitments for corporate loans totaling $9.5 million and $17.4 million, respectively. The Company did not have any significant losses as of

December 31, 2014, nor does it expect any significant losses related to those assets for which it committed to purchase and fund.

The Company participates in joint ventures and partnerships alongside KKR and its affiliates through which the Company contributes capital for assets, including development projects related to the Company's interests in joint ventures and partnerships that hold commercial real estate and natural resources investments, as well as specialty lending focused businesses. The Company estimated these future contributions to total approximately $162.0 million as of December 31, 2014 and $325.5 million as of December 31, 2013.

As of December 31, 2014 and 2013, the Company had investments, held alongside KKR and its affiliates, in real estate entities that were financed with non-recourse debt totaling $457.3 million and $231.7 million, respectively. Under non-recourse debt, the lender generally does not have recourse against any other assets owned by the borrower or any related parties of the borrower, except for certain specified exceptions listed in the respective loan documents including customary "bad boy" acts. In connection with these investments, joint and several non-recourse "bad boy" guarantees were provided for losses relating solely to specified bad faith acts that damage the value of the real estate being used as collateral. The Company does not expect any related losses. As of December 31, 2014 and 2013, the Company also had financial guarantees related to its natural resources investments totaling zero and $17.9 million, respectively, for which the Company did not expect any significant losses.

From time to time, the Company is involved in various legal proceedings, lawsuits and claims incidental to the conduct of the Company's business. The Company's business is also subject to extensive regulation, which may result in regulatory proceedings against it. It is inherently difficult to predict the ultimate outcome, particularly in cases in which claimants seek substantial or unspecified damages, or where investigations or proceedings are at an early stage and the Company cannot predict with certainty the loss or range of loss that may be incurred. The Company has denied, or believes it has a meritorious defense and will deny liability in the significant cases pending against the Company. Based on current discussion and consultation with counsel, management believes that the resolution of these matters will not have a material impact on the Company's condensed consolidated financial statements.

From December 19, 2013 to January 31, 2014, multiple putative class action lawsuits were filed in the Superior Court of California, County of San Francisco, the United States District Court of the District of Northern California, and the Court of Chancery of the State of Delaware by KFN shareholders against KFN, individual members of KFN's board of directors, KKR & Co., and certain of KKR & Co.'s affiliates in connection with KFN's entry into a merger agreement pursuant to which it would become a subsidiary of KKR & Co. The merger transaction was completed on April 30, 2014. The actions filed in California state court were consolidated, and prior to the filing or designation of an operative complaint for the consolidated action, the consolidated action was voluntarily dismissed without prejudice on December 1, 2014. The complaint filed in the California federal court action, which was never served on the defendants, was voluntarily dismissed without prejudice on May 6, 2014.

Two of the Delaware actions were voluntarily dismissed without prejudice, and the remaining Delaware actions were consolidated. On February 21, 2014, a consolidated complaint was filed in the consolidated Delaware action which all defendants moved to dismiss on March 7, 2014. On October 14, 2014, the Delaware Court of Chancery granted defendants' motions to dismiss with prejudice. On November 13, 2014, plaintiffs filed a notice of appeal in the Supreme Court of the State of Delaware and the appeal is currently pending.

The consolidated complaint in the Delaware action alleges that the members of the KFN board of directors breached fiduciary duties owed to KFN shareholders by approving the proposed transaction for inadequate consideration; approving the proposed transaction in order to obtain benefits not equally shared by other KFN shareholders; entering into the merger agreement containing preclusive deal protection devices; and failing to take steps to maximize the value to be paid to the KFN shareholders. The Delaware action also alleges variously that KKR & Co., and certain of KKR & Co.'s affiliates aided and abetted the alleged breaches of fiduciary duties and that KKR & Co. is a controlling shareholder of KFN by means of a management agreement between KFN and KKR Financial Advisors LLC, and KKR & Co. breached a fiduciary duty it allegedly owed to KFN shareholders by causing KFN to enter into the merger agreement. The relief sought in the Delaware action includes, among other things, declaratory relief concerning the alleged breaches of fiduciary duties, compensatory damages, attorneys' fees and costs and other relief.

On January 17, 2013, the Company issued 14.95 million of Series A LLC Preferred Shares for gross proceeds of $373.8 million, and net proceeds of $362.0 million. The Series A LLC Preferred Shares trade on the NYSE under the ticker symbol "KFN.PR" and began trading on January 28, 2013. Distributions on the Series A LLC Preferred Shares are cumulative and are payable, when, as, and if declared by the Company's board of directors, quarterly on January 15, April 15, July 15 and October 15 of each year at a rate per annum equal to 7.375%.

Pursuant to the merger agreement, on the date of the Merger Transaction (i) each outstanding option to purchase a KFN common share was cancelled, as the exercise price per share applicable to all outstanding options exceeded the cash value of the number of KKR & Co. common units that a holder of one KFN common share is entitled to in the merger, (ii) each outstanding restricted KFN common share (other than those held by the Company's Manager) was converted into 0.51 KKR & Co. common units having the same terms and conditions as applied immediately prior to the effective time, and (iii) each phantom share under KFN's Non-Employee Directors' Deferred Compensation and Share Award Plan was converted into a phantom share in respect of 0.51 KKR & Co. common units and otherwise remains subject to the terms of the plan. On January 2, 2015, these phantom shares were converted to KKR & Co. common units and cash. In addition, on June 27, 2014, the Company's board of directors approved a reverse stock split whereby the number of the Company's issued and outstanding common shares was reduced to 100 common shares, all of which are held solely by the Parent. As such, disclosure related to common shares below pertains to the Predecessor Company.

On May 4, 2007, the Company adopted an amended and restated share incentive plan (the "2007 Share Incentive Plan") that provides for the grant of qualified incentive common share options that meet the requirements of Section 422 of the Code, non-qualified common share options, share appreciation rights, restricted common shares and other share-based awards. Share options and other share-based awards may be granted to the Manager, directors, officers and any key employees of the Manager and to any other individual or entity performing services for the Company.

The exercise price for any share option granted under the 2007 Share Incentive Plan may not be less than 100% of the fair market value of the common shares at the time the common share option is granted. Each option to acquire a common share must terminate no more than ten years from the date it is granted. As of April 30, 2014, the 2007 Share Incentive Plan authorized a total of 8,964,625 shares that could be used to satisfy awards under the 2007 Share Incentive Plan. No new awards are intended to be issued subsequent to the Effective Date.

The following table summarizes the restricted common share transactions that occurred prior to the Merger Transaction:



Unvested shares as of December 31, 2011	240,845		145,676		386,521
Issued	258,303		43,557		301,860
Vested	(60,211	)	(96,980	)	(157,191	)

Unvested shares as of December 31, 2012	438,937		92,253		531,190
Issued	292,009		39,288		331,297
Vested	(146,312	)	(46,347	)	(192,659	)

Unvested shares as of December 31, 2013	584,634		85,194		669,828
Issued	—		—		—
Vested and cancelled	(243,648	)	—		(243,648	)

Unvested shares as of April 30, 2014	340,986		85,194		426,180

The Company was required to value any unvested restricted common shares granted to the Manager at the current market price. The Company valued the unvested restricted common shares granted to the Manager at $11.54 per share at April 30, 2014. The Company valued the unvested restricted common shares granted to the Manager at $12.19 and $10.56 per share at December 31, 2013 and 2012, respectively. There were $2.2 million of total unrecognized compensation costs related to unvested restricted common shares granted as of April 30, 2014. As of December 31, 2013 and 2012, there were $3.4 million and $2.9 million, respectively, of total unrecognized compensation costs related to unvested restricted common shares granted. These costs were expected to be recognized through 2016.

		Weighted Average Exercise Price

Outstanding as of December 31, 2011	1,932,279	$	20.00
Granted	—		—
Exercised	—		—
Forfeited	—		—

Outstanding as of December 31, 2012	1,932,279	$	20.00
Granted	—		—
Exercised	—		—
Forfeited	—		—

Outstanding as of December 31, 2013	1,932,279	$	20.00
Granted	—		—
Exercised	—		—
Forfeited	—		—

Outstanding as of April 30, 2014	1,932,279	$	20.00

As of April 30, 2014, December 31, 2013 and December 31, 2012, 1,932,279 common share options were fully vested and exercisable.

For the four months ended April 30, 2014 and years ended December 31, 2013 and 2012, the components of share-based compensation expense were as follows (amounts in thousands):

The Manager manages the Company's day-to-day operations, subject to the direction and oversight of the Company's board of directors. The Management Agreement expires on December 31 of each year, but is automatically renewed for a one-year term each December 31 unless terminated upon the affirmative vote of at least two-thirds of the Company's independent directors, or by a vote of the holders of a majority of the Company's outstanding common shares, based upon (1) unsatisfactory performance by the Manager that is materially detrimental to the Company or (2) a determination that the management fee payable by the Manager is not fair, subject to the Manager's right to prevent such a termination under this clause (2) by accepting a mutually acceptable reduction of management fees. The Manager must be provided 180 days prior notice of any such termination and will be paid a

termination fee equal to four times the sum of the average annual base management fee and the average annual incentive fee for the two 12-month periods immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination.

The Management Agreement contains certain provisions requiring the Company to indemnify the Manager with respect to all losses or damages arising from acts not constituting bad faith, willful misconduct, or gross negligence. The Company has evaluated the impact of these guarantees on its consolidated financial statements and determined that they are not material.

The following table summarizes the components of related party management compensation on the Company's consolidated statements of operations, which are described in further detail below (amounts in thousands):

The Company pays its Manager a base management fee quarterly in arrears. During 2014 and 2013, certain related party fees received by affiliates of the Manager were credited to the Company via an offset to the base management fee ("Fee Credits"). Specifically, as described in further detail under "CLO Management Fees" below, a portion of the CLO management fees received by an affiliate of the Manager for certain of the Company's CLOs were credited to the Company via an offset to the base management fee.

In addition, during 2014 and 2013, the Company invested in a transaction that generated placement fees paid to a minority-owned affiliate of KKR. In connection with this transaction, the Manager agreed to reduce the Company's base management fee payable to the Manager for the portion of these placement fees that were earned by KKR as a result of this minority-ownership. Separately, certain third-party expenses accrued and paid by the Company in the fourth quarter of 2013 in connection with the merger with KKR & Co. were used to reduce the Company's base management fees payable to the Manager in an amount equal to such third-party expenses.

The table below summarizes the aggregate base management fees (amounts in thousands):

The Manager waived base management fees related to the $230.4 million common share offering and $270.0 million common share rights offering that occurred during the third quarter of 2007 until such time as the Company's common share closing price on the NYSE was $20.00 or more for five consecutive trading days. Accordingly, the Manager permanently waived approximately $2.9 million during the four months ended April 30, 2014, and $8.8 million of base management fees during each of the years ended December 31, 2013 and 2012.

An affiliate of the Manager entered into separate management agreements with the respective investment vehicles for all of the Company's Cash Flow CLOs pursuant to which it is entitled to receive fees for the services it performs as collateral manager for all of these CLOs, except for CLO 2011-1. The collateral manager has the option to waive the fees it earns for providing management services for the CLO.

The collateral manager waived CLO management fees totaling $4.2 million for CLO 2005-2 and CLO 2006-1 during the eight months ended December 31, 2014 and $1.6 million during the four months ended April 30, 2014. During the year ended December 31, 2013, the collateral manager waived CLO management fees totaling $19.7 million for all CLOs, except for CLO 2005- 1 and CLO 2012-1, and for partial periods for CLO 2007-1 and CLO 2007-A. During the year ended December 31, 2012, the collateral manager waived CLO management fees totaling $32.2 million for all CLOs, except for CLO 2005-1 and CLO 2012-1.

The Company recorded management fees expense for CLO 2005-1, CLO 2007-1, CLO 2007-A, CLO 2012-1, CLO 2013-1 and CLO 2013-2 during the eight months ended December 31, 2014 and four months ended April 30, 2014. The Company recorded management fees expense for CLO 2005-1, CLO 2007-1, CLO 2007-A and CLO 2012-1 during the year ended December 31, 2013. The Company

recorded management fees expense for CLO 2005-1 and CLO 2012-1 during the year ended December 31, 2012.

Beginning in June 2013, the Manager credited the Company for a portion of the CLO management fees received by an affiliate of the Manager from CLO 2007-1, CLO 2007-A and CLO 2012-1 via an offset to the base management fees payable to the Manager. As the Company owns less than 100% of the subordinated notes of these three CLOs (with the remaining subordinated notes held by third parties), the Company received a Fee Credit equal only to the Company's pro rata share of the aggregate CLO management fees paid by these CLOs. Specifically, the amount of the reimbursement for each of these CLOs was calculated by taking the product of (x) the total CLO management fees received by an affiliate of the Manager during the period for such CLO multiplied by (y) the percentage of the subordinated notes of such CLO held by the Company. The remaining portion of the CLO management fees paid by each of these CLOs was not credited to the Company, but instead resulted in a dollar-for-dollar reduction in the interest expense paid by the Company to the third party holder of the CLO's subordinated notes. Similarly, the Manager credited the Company the CLO management fees from CLO 2013-1 and CLO 2013-2 based on the Company's 100% ownership of the subordinated notes in the CLO.

The table below summarizes the aggregate CLO management fees, including the Fee Credits (amounts in thousands):

Subordinated note holders in CLOs have the first risk of loss and conversely, the residual value upside of the transactions. When CLO management fees are paid by a CLO, the residual economic interests in the CLO transaction are reduced by an amount commensurate with the CLO management fees paid. The Company records any residual proceeds due to subordinated note holders as interest expense on the consolidated statements of operations. Accordingly, the increase in CLO management fees is directly offset by a decrease in interest expense.

The Manager earned incentive fees totaling zero for the eight months ended December 31, 2014 and $12.9 million for the four months ended April 30, 2014. Incentive fees of $22.7 million and

$37.6 million were earned by the Manager during the years ended December 31, 2013 and 2012, respectively.

The Company recognized share-based compensation expense related to restricted common shares granted to the Manager of $0.7 million for the four months ended April 30, 2014. In addition, the Company recognized share-based compensation expense related to restricted common shares granted to the Manager of $3.5 million and $2.3 million for the years ended December 31, 2013 and 2012, respectively. Refer to Note 11 to these consolidated financial statements for further discussion on share-based compensation.

Certain general and administrative expenses are incurred by the Company's Manager on its behalf that are reimbursable to the Manager pursuant to the Management Agreement. The Company incurred reimbursable general and administrative expenses to its Manager totaling $3.0 million for the eight months ended December 31, 2014 and $2.8 million for the four months ended April 30, 2014. The Company incurred reimbursable general and administrative expenses to its Manager of $9.8 million and $10.2 million for the years ended December 31, 2013 and 2012, respectively. Expenses incurred by the Manager and reimbursed by the Company are reflected in general, administrative and directors' expenses on the consolidated statements of operations.

During the eight months ended December 31, 2014, certain assets and cash were contributed from and distributed to the Parent. The table below summarizes the estimated fair value of certain contributions and distributions at the time of transfer, which may differ from the carrying value of assets transferred (amounts in thousands):

The Company has invested in corporate loans, debt securities and other investments of entities that are affiliates of KKR. As of December 31, 2014, the aggregate par amount of these affiliated investments totaled $1.7 billion, or approximately 20% of the total investment portfolio, and consisted of 19 issuers. The total $1.7 billion in affiliated investments was comprised of $1.6 billion of corporate loans, $9.5 million of corporate debt securities and $13.6 million of equity investments, at estimated fair value. As of December 31, 2013, the aggregate par amount of these affiliated investments totaled $2.1 billion, or approximately 27% of the total investment portfolio, and consisted of 28 issuers. The total $2.1 billion in affiliated investments was comprised of $1.9 billion of corporate loans, $52.8 million of corporate debt securities and $84.5 million of equity investments, at estimated fair value.

In addition, the Company has invested in certain joint ventures and partnerships alongside KKR and its affiliates. As of December 31, 2014, the estimated fair value of these interests in joint ventures and partnerships totaled $618.6 million. As of December 31, 2013, the aggregate cost amount of these interests in joint ventures and partnerships totaled $400.3 million.

The Company intends to continue to operate so as to qualify, for United States federal income tax purposes, as a partnership, and not as an association or publicly traded partnership taxable as a corporation. As such, the Company generally is not subject to United States federal income tax at the entity level, but is subject to limited state and foreign taxes.

The Company owns both REIT and domestic taxable corporate subsidiaries. The Company's REIT subsidiaries are not expected to incur federal tax expense, but are subject to limited state income tax expense related to the 2014 tax year. The domestic taxable corporate subsidiaries taxed as regular corporations under the Code are expected to incur federal and state tax expense related to the 2014 tax year. The income tax expense (benefit) for the four months ended April 30, 2014, eight months ended December 31, 2014 and years ended December 31, 2013 and 2012 consisted of the following components (amounts in thousands):

The tax provision for domestic taxable corporate subsidiaries taxed as regular corporations was based on a combined federal and state income tax rate of 39.81% at December 31, 2014, 41.50% at December 31, 2013 and 39.55% at December 31, 2012. The tax rate is equivalent to the combined federal statutory income tax rate and the state statutory income tax rate, net of federal benefit.

The following table presents a reconciliation of income before taxes at the statutory rate to the effective tax expense (benefit) for the eight months ended December 31, 2014, four months ended April 30, 2014, and each of the years ended December 31, 2013 and 2012 (amounts in thousands):

Deferred tax assets are recognized if, in management's judgment, their realizability is determined to be more likely than not. If a deferred tax asset is determined to be unrealizable, a valuation allowance is established. The significant components of deferred tax assets and liabilities are reflected in the following table as of December 31, 2014 and 2013 (amounts in thousands):

As described above in Note 2 to these consolidated financial statements, as of the Effective Date, the Successor Company accounts for its investments, as well as its collateralized loan obligation secured notes at estimated fair value. Comparatively, the Predecessor Company accounted for certain of its corporate loans and its collateralized loan obligation secured notes at amortized cost.

The following table presents the carrying value and estimated fair value, as well as the respective hierarchy classifications, of the Company's financial assets and liabilities that are not carried at estimated fair value on a recurring basis as of December 31, 2014 (amounts in thousands):

	Predecessor Company

	As of December 31, 2013				Fair Value Hierarchy
	As of December 31, 2013				Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	Carrying Amount		Estimated Fair Value				Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash, restricted cash, and cash equivalents	$	507,552	$	507,552	$	507,552	$	—	$	—
Corporate loans, net of allowance for loan losses of $224,999 as of December 31, 2013(1)		5,949,492		6,051,641		—		5,691,988		359,653
Corporate loans held for sale(1)		279,748		281,278		—		267,169		14,109
Private equity investments, at cost(2)		405		4,496		—		—		4,496
Other assets		5,763		5,513		—		5,513		—
Liabilities:
Collateralized loan obligation secured debt	$	5,249,383	$	5,179,207	$	—	$	—	$	5,179,207
Credit facilities		125,289		125,289		—		—		125,289
Senior notes		362,276		393,772		393,772		—		—
Junior subordinated notes		283,517		247,416		—		—		247,416

The following table presents information about the Company's assets and liabilities measured at fair value on a recurring basis as of December 31, 2014, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (amounts in thousands):

	Successor Company

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2014
Assets:
Securities:
Corporate debt securities	$	—	$	266,387	$	317,034	$	583,421
Residential mortgage-backed securities		—		—		55,184		55,184

Total securities		—		266,387		372,218		638,605
Corporate loans		—		6,159,487		347,077		6,506,564
Equity investments, at estimated fair value		25,692		73,967		81,719		181,378
Interests in joint ventures and partnerships		—		—		718,772		718,772
Other assets		—		4,645		—		4,645
Derivatives:
Foreign exchange forward contracts		—		28,354		—		28,354
Options		—		—		5,212		5,212

Total derivatives		—		28,354		5,212		33,566

Total	$	25,692	$	6,532,840	$	1,524,998	$	8,083,530



Liabilities:
Collateralized loan obligation secured notes	$	—	$	—	$	5,501,099	$	5,501,099
Derivatives:
Interest rate swaps		—		54,071		—		54,071
Foreign exchange forward contracts		—		926		—		926
Total rate of return swaps		—		130		—		130

Total derivatives		—		55,127		—		55,127

Total	$	—	$	55,127	$	5,501,099	$	5,556,226

The following table presents information about the Company's assets and liabilities measured at fair value on a recurring basis as of December 31, 2013, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (amounts in thousands):

	Predecessor Company

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2013
Assets:
Securities:
Securities available-for-sale	$	—	$	326,940	$	23,401	$	350,341
Other securities, at estimated fair value		—		39,437		107,530		146,967
Residential mortgage-backed securities		—		—		76,004		76,004

Total securities		—		366,377		206,935		573,312
Corporate loans, at estimated fair value		—		84,680		152,800		237,480
Equity investments, at estimated fair value		39,515		3,638		138,059		181,212
Interests in joint ventures and partnerships		14,836		—		415,247		430,083
Derivatives:
Interest rate swaps		—		3,290		—		3,290
Commodity swaps		—		5,408		—		5,408
Foreign exchange forward contracts		—		4,846		—		4,846
Foreign exchange options		—		—		8,941		8,941
Common stock warrants		—		945		—		945
Options		—		—		6,794		6,794

Total derivatives		—		14,489		15,735		30,224

Total	$	54,351	$	469,184	$	928,776	$	1,452,311



Liabilities:
Derivatives:
Interest rate swaps		—		45,368		—		45,368
Commodity swaps		—		3,915		—		3,915
Credit default swaps—protection purchased		—		2,019		—		2,019
Foreign exchange forward contracts		—		30,104		—		30,104
Total rate of return swaps		—		229		—		229

Total derivatives		—		81,635		—		81,635

Total	$	—	$	81,635	$	—	$	81,635

The following table presents information about the Company's assets measured at fair value on a non-recurring basis as of December 31, 2013, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (amounts in thousands). There were no liabilities measured at fair value on a non-recurring basis:

Whenever events or changes in circumstances indicate that the carrying amounts of the Company's oil and gas properties may not be recoverable, the Company evaluates its proved oil and natural gas properties and related equipment and facilities for impairment on a field-by-field basis. For the year ended December 31, 2013, the Company recorded impairment charges totaling $10.4 million to write down certain of its oil and natural gas properties with a carrying amount of $16.1 million to an estimated fair value of $5.7 million.

The following table presents additional information about assets and liabilities, including derivatives, that are measured at fair value on a recurring basis for which the Company has utilized

Level 3 inputs to determine fair value, for the eight months ended December 31, 2014 (amounts in thousands):

	Successor Company

	Assets																					Liabilities
	Corporate Debt Securities			Residential Mortgage- Backed Securities			Corporate Loans			Equity Investments, at Estimated Fair Value			Interests in Joint Ventures and Partnerships			Foreign Exchange Options, Net			Options			Collateralized Loan Obligation Secured Notes
Beginning balance as of May 1, 2014	$	156,500		$	59,623		$	294,218		$	157,765		$	472,467		$	8,854		$	6,684		$	5,663,665
Total gains or losses (for the period):
Included in earnings(1)		(16,973	)		4,981			(15,346	)		(2,005	)		(102,158	)		(8,854	)		(1,472	)		(4,123	)
Transfers into Level 3(2)		—			—			66,250			—			—			—			—			—
Transfers out of Level 3(3)		—			—			—			(1,230	)		—			—			—			—
Purchases		83,402			—			2,588			—			90,566			—			—			885,983
Sales		(26,433	)		—			(2,912	)		(17,535	)		(13,795	)		—			—			—
Settlements		120,538			(9,420	)		2,279			(55,276	)		271,692			—			—			(1,044,426	)

Ending balance as of December 31, 2014	$	317,034		$	55,184		$	347,077		$	81,719		$	718,772		$	—		$	5,212		$	5,501,099



Change in unrealized gains or losses for the eight months ended December 31, 2014 included in earnings for assets held at the end of the reporting period(1)	$	(16,787	)	$	386		$	(15,305	)	$	(791	)	$	(106,215	)	$	—		$	(1,472	)	$	(4,393	)

Certain interests in joint ventures and partnerships were transferred from Level 1 to Level 2 during the eight months ended December 31, 2014 due to illiquid market conditions.

The following table presents additional information about assets, including derivatives, that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value, for the four months ended April 30, 2014 (amounts in thousands):

	Predecessor Company

	Securities Available- For-Sale			Other Securities, at Estimated Fair Value			Residential Mortgage- Backed Securities			Corporate Loans, at Estimated Fair Value			Equity Investments, at Estimated Fair Value			Interests in Joint Ventures and Partnerships			Foreign Exchange Options, Net			Options
Beginning balance as of January 1, 2014	$	23,401		$	107,530		$	76,004		$	152,800		$	138,059		$	415,247		$	8,941		$	6,794
Total gains or losses (for the period):
Included in earnings(1)		22			3,059			3,088			(5,123	)		9,076			22,377			(813	)		(302	)
Included in other comprehensive income		121			—			—			—			—			—			—			—
Transfers into Level 3		—			—			—			—			—			—			—			—
Transfers out of Level 3(3)		—			—			—			—			(8,751	)		—			—			—
Purchases		—			25,000			—			8,822			—			42,683			—			—
Sales		—			—			(17,810	)		—			—			—			—			—
Settlements		(16	)		(10,078	)		(2,529	)		(3,104	)		120,593			14,113			—			—

Ending balance as of March 31, 2014		23,528			125,511			58,753			153,395			258,977			494,420			8,128			6,492

Total gains or losses (for the period):
Included in earnings(1)		44			479			1,416			1,240			12,126			(24,158	)		726			192
Included in other comprehensive income		33			—			—			—			—			—			—			—
Transfers into Level 3(2)		6,937			—			—			—			—			—			—			—
Transfers out of Level 3(3)		—			—			—			—			(119,033	)		—			—			—
Purchases		—			—			—			—			—			1,615			—			—
Sales		—			—			—			—			—			—			—			—
Settlements		(32	)		—			(546	)		2,272			—			(1,184	)		—			—

Ending balance as of April 30, 2014	$	30,510		$	125,990		$	59,623		$	156,907		$	152,070		$	470,693		$	8,854		$	6,684



Change in unrealized gains or losses for the period included in earnings for the four months ended April 30, 2014 for assets held at the end of the reporting period(1)	$	66		$	2,683		$	5,242		$	4,445		$	20,499		$	(1,781	)	$	(87	)	$	(110	)

There were no transfers between Level 1 and Level 2 during the four months ended April 30, 2014.

The following table presents additional information about assets, including derivatives that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value, for the year ended December 31, 2013 (amounts in thousands):

	Securities Available- For-Sale: Corporate Debt Securities			Other Securities, at Estimated Fair Value			Residential Mortgage- Backed Securities			Corporate Loans, at Estimated Fair Value		Equity Investments, at Estimated Fair Value			Interests in Joint Ventures and Partnerships			Foreign Exchange Options, Net		Common Stock Warrants			Options

Beginning balance as of January 1, 2013	$	42,221		$	2,909		$	83,842		$	16,141	$	97,746		$	142,477		$	8,277	$	1,574		$	—
Total gains or losses (for the period):
Included in earnings(1)		1,729			3,485			7,711			8,996		10,555			21,926			664		167			211
Included in other comprehensive loss		(1,808	)		—			—			—		—			—			—		—			—
Transfers out of Level 3(2)		—			—			—			—		—			—			—		(945	)		—
Purchases		4,613			103,616			—			123,409		30,113			299,039			—		—			8,787
Sales		—			—			—			—		(198	)		—			—		—			—
Settlements		(23,354	)		(2,480	)		(15,549	)		4,254		(157	)		(48,195	)		—		(796	)		(2,204	)

Ending balance as of December 31, 2013	$	23,401		$	107,530		$	76,004		$	152,800	$	138,059		$	415,247		$	8,941	$	—		$	6,794



Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period(1)	$	74		$	3,485		$	21,796		$	8,700	$	10,854		$	21,926		$	954	$	—		$	211

The following table presents additional information about valuation techniques and inputs used for assets and liabilities, including derivatives, that are measured at fair value and categorized within Level 3 as of December 31, 2014 (dollar amounts in thousands):

Successor Company

	Balance as of December 31, 2014		Valuation Techniques(1)	Unobservable Inputs(2)	Weighted Average(3)	Range	Impact to Valuation from an Increase in Input(4)
Assets:
Corporate debt securities	$	317,034	Yield analysis	Yield	17%	3% - 19%	Decrease
				Net leverage	6x	5x - 12x	Decrease
				EBITDA multiple	7x	4x - 11x	Increase
				Discount margin	905bps	625bps - 1100bps	Decrease
			Broker quotes	Offered quotes	101	101	Increase
Residential mortgage—backed	$	55,184	Discounted cash flows	Probability of default	8%	0% - 21%	Decrease
securities				Loss severity	26%	12% - 45%	Decrease
				Constant prepayment rate	12%	4% - 19%	(5)
Corporate loans	$	347,077	Yield Analysis	Yield	12%	3% - 21%	Decrease
				Net leverage	6x	1x - 13x	Decrease
				EBITDA multiple	9x	5x - 12x	Increase

Successor Company

	Balance as of December 31, 2014		Valuation Techniques(1)	Unobservable Inputs(2)	Weighted Average(3)	Range	Impact to Valuation from an Increase in Input(4)
Equity investments, at estimated fair value(6)	$	81,719	Inputs to both market comparables and	Weight ascribed to market comparables	97%	0% - 100%	(7)
			discounted cash flow	Weight ascribed to	83%	0% - 100%	(8)
				discounted cash flows
			Market comparables	LTM EBITDA multiple	4x	1x - 12x	Increase
				Forward EBITDA multiple	7x	4x - 11x	Increase
			Discounted cash flows	Weighted average cost of capital	13%	9% - 16%	Decrease
				LTM EBITDA exit multiple	8x	5x - 10x	Increase
Interests in joint ventures and partnerships(9)	$	718,772	Inputs to both market comparables and	Weight ascribed to market comparables	54%	0% - 100%	(7)
			discounted cash flow	Weight ascribed to	79%	0% - 100%	(8)
				discounted cash flows
			Market comparables	Current capitalization rate	7%	4% - 15%	Decrease
				LTM EBITDA multiple	11x	10x - 13x	Increase
				Control Premium	15%	15%	Increase
			Discounted cash flows	Weighted average cost of capital	12%	7% - 20%	Decrease
				Average price per BOE(10)	$30.16	$21.46 - $35.67	Increase
Options(11)	$	5,212	Inputs to both market comparables and	Weight ascribed to market comparables	50%	50%	(7)
			discounted cash flow	Weight ascribed to	50%	50%	(8)
				discounted cash flows
			Market comparables	LTM EBITDA multiple	9x	9x	Increase
			Discounted cash flows	Weighted average cost of capital	14%	14%	Decrease
				LTM EBITDA exit multiple	11x	11x	Increase
Liabilities:
Collateralized loan obligation secured notes	$	5,501,099	Yield analysis	Discount margin	255bps	95bps - 1000bps	Decrease
			Discounted cash flows	Probability of default	3%	2% - 3%	Decrease
				Loss severity	32%	30% - 37%	Decrease

(1): For the assets that have more than one valuation technique, the Company may rely on the techniques individually or in aggregate based on a weight ascribed to each one ranging from 0-100%. When determining the weighting ascribed to each valuation methodology, the Company considers, among other factors, the availability of direct market comparables, the applicability of a discounted cash flow analysis and the expected hold period and manner of realization for the investment. These factors can result in different weightings among the investments and in certain instances, may result in up to a 100% weighting to a single methodology. Broker quotes obtained for valuation purposes are reviewed by the Company through other valuation techniques.
(2): In determining certain of these inputs, management evaluates a variety of factors including economic conditions, industry and market developments; market valuations of comparable companies; and company specific developments including exit strategies and realization opportunities.
(3): Weighted average amounts are based on the estimated fair values.
(4): Unless otherwise noted, this column represents the directional change in the fair value of the Level 3 investments that would result from an increase to the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect. Significant increases and decreases in these inputs in isolation could result in significantly higher or lower fair value measurements.
(5): The impact of changes in prepayment speeds may have differing impacts depending on the seniority of the instrument. Generally, an increase in the constant prepayment speed will positively impact the overall valuation of traditional mortgage assets. In contrast, an increase in the constant prepayment rate will negatively impact the overall valuation of interest-only strips.
(6): When determining the illiquidity discount to be applied to equity investments, at estimated fair value, the Company seeks to take a uniform approach across its portfolio and generally applies a minimum 5% discount to all private equity investments carried at estimated fair value. The Company then evaluates such investments to determine if factors exist that could make it more challenging to monetize the investment and, therefore, justify applying a higher illiquidity discount. These factors generally include the salability of the investment, whether the issuer is undergoing significant restructuring activity or similar factors, as well as characteristics about the issuer including its size and/or whether it is experiencing, or expected to experience, a significant decline in earnings. Depending on the applicability of these factors, the Company determines the amount of any incremental illiquidity discount to be applied above the 5% minimum, and during the time the Company holds

the investment, the illiquidity discount may be increased or decreased, from time to time, based on changes to these factors. The amount of illiquidity discount applied at any time requires considerable judgment about what a market participant would consider and is based on the facts and circumstances of each individual investment. Accordingly, the illiquidity discount ultimately considered by a market participant upon the realization of any investment may be higher or lower than that estimated by the Company in its valuations. Of the $81.7 million, $9.5 million was valued solely using a discounted cash flow technique, while $67.4 million was valued solely using a market comparables technique.

(7): The directional change from an increase in the weight ascribed to the market comparables approach would increase the fair value of the Level 3 investments if the market comparables approach results in a higher valuation than the discounted cash flow approach. The opposite would be true if the market comparables approach results in a lower valuation than the discounted cash flow approach.
(8): The directional change from an increase in the weight ascribed to the discounted cash flow approach would increase the fair value of the Level 3 investments if the discounted cash flow approach results in a higher valuation than the market comparables approach. The opposite would be true if the discounted cash flow approach results in a lower valuation than the market comparables approach.
(9): Inputs exclude an asset that was valued using an independent third party valuation firm. Of the $718.8 million, $207.6 million was valued solely using a discounted cash flow technique, while $20.4 million was valued solely using a market comparables technique.
(10): Natural resources assets with an estimated fair value of $176.4 million as of December 31, 2014 were valued using commodity prices. Commodity prices may be measured using a common volumetric equivalent where one barrel of oil equivalent ("BOE") is determined using the ratio of six thousand cubic feet of natural gas to one barrel of oil, condensate or natural gas liquids. The price per BOE is provided to show the aggregate of all price inputs for these investments over a common volumetric equivalent although the valuations for specific investments may use price inputs specific to the asset for purposes of our valuations. The discounted cash flows include forecasted production of liquids (oil, condensate, and natural gas liquids) and natural gas with a forecasted revenue ratio of approximately 23% liquids and 77% natural gas.
(11): The entire $5.2 million was valued using 50% a discount cash flow technique and 50% a market comparables technique.

The following table presents additional information about valuation techniques and inputs used for assets, including derivatives, that are measured at fair value and categorized within Level 3 as of December 31, 2013 (dollar amounts in thousands):

	Balance as of December 31, 2013		Valuation Techniques(1)	Unobservable Inputs(2)	Weighted Average(3)	Range	Impact to Valuation from an Increase in Input(4)

Assets:
Securities available-for-sale:	$	23,401	Yield Analysis	Yield	10%	6% - 12%	Decrease
Corporate debt securities				Net leverage	12x	11x - 12x	Decrease
				EBITDA multiple	8x	8x - 9x	Increase
			Broker quotes	Offered quotes	105	104 - 105	Increase
Other securities, at estimated fair value	$	107,530	Yield Analysis	Yield	12%	7% - 17%	Decrease
				EBITDA multiple	8x	7x - 8x	Increase
				Illiquidity discount	3%	3%	Decrease
				Net leverage	1x	1x - 2x	Decrease
			Broker quotes	Offered quotes	102	101 - 102	Increase
Residential mortgage-backed securities	$	76,004	Discounted cash flows	Probability of default	7%	0% - 21%	Decrease
				Loss severity	28%	16% - 77%	Decrease
				Constant prepayment rate	15%	3% - 35%	(5)
Corporate loans, at estimated fair value	$	152,800	Yield Analysis	Yield	16%	14% - 23%	Decrease
				Net leverage	7x	4x - 12x	Decrease
				EBITDA multiple	8x	6x - 11x	Increase
Equity investments, at estimated fair value(6)	$	138,059	Inputs to both	Weight ascribed to market	50%	33% - 100%	(7)
			market	comparables
			comparables and	Weight ascribed to	59%	50% - 100%	(8)
			discounted cash	discounted cash flows
			flow
			Market comparables	LTM EBITDA multiple	12x	6x - 16x	Increase
				Forward EBITDA multiple	12x	10x - 14x	Increase
			Discounted cash flows	Weighted average cost of capital	11%	8% - 14%	Decrease
				LTM EBITDA exit multiple	10x	4x - 11x	Increase

	Balance as of December 31, 2013		Valuation Techniques(1)	Unobservable Inputs(2)	Weighted Average(3)	Range	Impact to Valuation from an Increase in Input(4)

Interests in joint ventures and partnerships	$	415,247	Inputs to both	Weight ascribed to market	50%	50% - 100%	(7)
			market	comparables
			comparables and	Weight ascribed to	50%	50% - 100%	(8)
			discounted cash	discounted cash flows
			flow
			Market	Current capitalization rate	7%	6% - 9%	Decrease
			comparables	LTM EBITDA	9x	9x	Increase
			Discounted cash flows	Weighted average cost of capital	12%	8% - 24%	Decrease
Foreign exchange options	$	8,941	Option pricing model	Forward and spot rates	1	0 - 1	(9)
Options	$	6,794	Inputs to both	Weight ascribed to market	50%	50%	(7)
			market	comparables
			comparables and	Weight ascribed to	50%	50%	(8)
			discounted cash	discounted cash flows
			flow
			Market comparables	LTM EBITDA	9x	9x	Increase
			Discounted cash flows	Weighted average cost of capital	12%	12%	Decrease
				LTM EBITDA exit multiple	10x	9x - 10x	Increase

(1): For the assets that have more than one valuation technique, the Company may rely on the techniques individually or in aggregate based on a weight ascribed to each one ranging from 0-100%. When determining the weighting ascribed to each valuation methodology, the Company considers, among other factors, the availability of direct market comparables, the applicability of a discounted cash flow analysis and the expected hold period and manner of realization for the investment. These factors can result in different weightings among the investments and in certain instances, may result in up to a 100% weighting to a single methodology. Broker quotes obtained for valuation purposes are reviewed by the Company through other valuation techniques.
(2): In determining certain of these inputs, management evaluates a variety of factors including economic conditions, industry and market developments; market valuations of comparable companies; and company specific developments including exit strategies and realization opportunities.
(3): Weighted average amounts are based on the estimated fair values.
(4): Unless otherwise noted, this column represents the directional change in the fair value of the Level 3 investments that would result from an increase to the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect. Significant changes in these inputs in isolation could result in significantly higher or lower fair value measurements.
(5): The impact of changes in prepayment speeds may have differing impacts depending on the seniority of the instrument. Generally, an increase in the constant prepayment speed will positively impact the overall valuation of traditional mortgage assets. In contrast, an increase in the constant prepayment rate will negatively impact the overall valuation of interest-only strips.
(6): When determining the illiquidity discount to be applied to equity investments, at estimated fair value, the Company takes a uniform approach across its portfolio and generally applies a minimum 5% discount to all private equity investments carried at estimated fair value. The Company then evaluates such investments to determine if factors exist that could make it more challenging to monetize the investment and, therefore, justify applying a higher illiquidity discount. These factors generally include the salability of the investment, whether the issuer is undergoing significant restructuring activity or similar factors, as well as characteristics about the issuer including its size and/or whether it is experiencing, or expected to experience, a significant decline in earnings. Depending on the applicability of these factors, the Company determines the amount of any incremental illiquidity discount to be applied above the 5% minimum, and during the time the Company holds the investment, the illiquidity discount may be increased or decreased, from time to time, based on changes to these factors. The amount of illiquidity discount applied at any time requires considerable judgment about what a market participant would consider and is based on the facts and circumstances of each individual investment. Accordingly, the illiquidity discount ultimately considered by a market participant upon the realization of any investment may be higher or lower than that estimated by the Company in its valuations.
(7): The directional change from an increase in the weight ascribed to the market comparables approach would increase the fair value of the Level 3 investments if the market comparables approach results in a higher valuation than the discounted cash flow approach. The opposite would be true if the market comparables approach results in a lower valuation than the discounted cash flow approach.
(8): The directional change from an increase in the weight ascribed to the discounted cash flow approach would increase the fair value of the Level 3 investments if the discounted cash flow approach results in a higher valuation than the market comparables approach. The opposite would be true if the discounted cash flow approach results in a lower valuation than the market comparables approach.
(9): The directional change from an increase in forward and spot rates varies and is dependent on the specific option.

Operating segments are defined as components of a company that engage in business activities that may earn revenues and incur expenses for which separate financial information is available and reviewed by the chief operating decision maker or group in determining how to allocate resources and assessing performance. The Company operates its business through the following reportable segments: credit ("Credit"), natural resources ("Natural Resources") and other ("Other") segments.

The Company's reportable segments are differentiated primarily by their investment focuses. The Credit segment consists primarily of below investment grade corporate debt comprised of senior secured and unsecured loans, mezzanine loans, high yield bonds, private and public equity investments, and distressed and stressed debt securities. The Natural Resources segment consists of non-operated working and overriding royalty interests in oil and natural gas properties, as well as interests in joint ventures and partnerships focused on the oil and gas sector. The Other segment includes all other portfolio holdings, consisting solely of commercial real estate. The segments currently reported are consistent with the way decisions regarding the allocation of resources are made, as well as how operating results are reviewed by the Company.

The Company evaluates the performance of its reportable segments based on several net income (loss) components. Net income (loss) includes (i) revenues, (ii) related investment costs and expenses, (iii) other income (loss), which is comprised primarily of unrealized and realized gains and losses on investments, debt and derivatives, and (iv) other expenses, including related party management compensation and general and administrative expenses. Certain corporate assets and expenses that are not directly related to the individual segments, including interest expense and related costs on borrowings, base management fees and professional services are allocated to individual segments based on the investment portfolio balance in each respective segment as of the most recent period-end. Certain other corporate assets and expenses, including prepaid insurance, incentive fees, insurance expenses, directors' expenses and share-based compensation expense are not allocated to individual segments in the Company's assessment of segment performance. Collectively, these items are included as reconciling items between reported segment amounts and consolidated totals.

The following table presents the net income (loss) components of our reportable segments reconciled to amounts reflected in the consolidated statements of operations for the eight months ended December 31, 2014 (amounts in thousands):

	Successor Company

	Credit			Natural Resources			Other		Reconciling Items(1)			Total Consolidated
	For the eight months ended December 31, 2014			For the eight months ended December 31, 2014			For the eight months ended December 31, 2014		For the eight months ended December 31, 2014			For the eight months ended December 31, 2014
Total revenues	$	279,639		$	57,616		$	13,090	$	—		$	350,345
Total investment costs and expenses		142,204			38,117			815		—			181,136
Total other income (loss)		(241,035	)		(115,141	)		11,794		—			(344,382	)
Total other expenses		40,703			2,219			476		174			43,572
Income tax expense (benefit)		49			—			435		—			484

Net income (loss)	$	(144,352	)	$	(97,861	)	$	23,158	$	(174	)	$	(219,229	)

Net income (loss) attributable to noncontrolling interests		(1,797	)		(4,159	)		—		—			(5,956	)

Net income (loss) attributable to KKR Financial Holdings LLC and Subsidiaries	$	(142,555	)	$	(93,702	)	$	23,158	$	(174	)	$	(213,273	)

The following table presents the net income (loss) components of our reportable segments reconciled to amounts reflected in the consolidated statements of operations for the four months ended April 30, 2014 (amounts in thousands):

The following table presents the net income (loss) components of our reportable segments reconciled to amounts reflected in the consolidated statements of operations for the years ended December 31, 2013 and 2012 (amounts in thousands):

	Predecessor Company

	Credit					Natural Resources					Other				Reconciling Items(1)						Total Consolidated
For the years ended	2013		2012			2013			2012		2013		2012		2013			2012			2013		2012
Total revenues	$	425,209	$	490,861		$	119,178		$	64,535	$	1,519	$	77	$	—		$	—		$	545,906	$	555,473
Total investment costs and expenses		218,600		257,269			86,174			60,668		931		438		—			—			305,705		318,375
Total other income (loss)		171,006		199,723			(13,642	)		1,881		13,576		4,663		(20,015	)		(445	)		150,925		205,822
Total other expenses		60,870		48,640			4,835			5,111		606		217		31,118			44,189			97,429		98,157
Income tax expense (benefit)		450		(3,468	)		—			—		17		1		—			—			467		(3,467	)

Net income (loss)	$	316,295	$	388,143		$	14,527		$	637	$	13,541	$	4,084	$	(51,133	)	$	(44,634	)	$	293,230	$	348,230

The following table shows total assets of reportable segments reconciled to amounts reflected in the consolidated balance sheets as of December 31, 2014 and 2013 (amounts in thousands):

Earnings per common share is not provided for the eight months ended December 31, 2014 as the Company is now a subsidiary of KKR Fund Holdings, which owns 100 common shares of the Company constituting all of the Company's outstanding common shares. The following table presents a reconciliation of basic and diluted net income (loss) per common share for the Predecessor Company (amounts in thousands, except per share information):

	Predecessor Company

	Four months ended April 30, 2014		Year ended December 31, 2013		Year ended December 31, 2012
Net income (loss)	$	105,980	$	293,230	$	348,230
Less: Preferred share distributions		6,891		27,411		—

Net income (loss) available to common shares	$	99,089	$	265,819	$	348,230
Less: Dividends and undistributed earnings allocated to participating securities		292		904		1,116

Net income (loss) allocated to common shares	$	98,797	$	264,915	$	347,114



Effect of dilutive securities:
Interest on convertible senior notes		—		—		3,234

Net income (loss) allocated to common shares for diluted earnings per share	$	98,797	$	264,915	$	350,348



Basic:
Basic weighted average common shares outstanding		204,276		202,411		177,838



Net income (loss) per common share	$	0.48	$	1.31	$	1.95



Diluted:
Basic weighted average common shares outstanding		204,276		202,411		177,838
Dilutive effect of convertible senior notes(1)		—		—		9,585

Diluted weighted average common shares outstanding(2)		204,276		202,411		187,423



Net income (loss) per common share	$	0.48	$	1.31	$	1.87

In connection with the Merger Transaction, accumulated other comprehensive loss is not provided for the eight months ended December 31, 2014, as changes in the estimated fair value of all securities and cash flow hedges are recorded in the consolidated statements of operations, within net realized and unrealized gain (loss) on investments and net realized and unrealized gain (loss) on derivatives and foreign exchange, respectively. The components of changes in accumulated other comprehensive loss for the Predecessor Company were as follows (amounts in thousands):

	Predecessor Company

	Year ended December 31, 2013(1)									Year ended December 31, 2012(1)
	Net unrealized gains on available- for-sale securities			Net unrealized losses on cash flow hedges			Total			Net unrealized gains on available- for-sale securities			Net unrealized losses on cash flow hedges			Total
Beginning balance	$	17,472		$	(87,698	)	$	(70,226	)	$	62,248		$	(97,867	)	$	(35,619	)
Other comprehensive income (loss) before reclassifications		(9,668	)		48,479			38,811			48,358			10,169			58,527
Amounts reclassified from accumulated other comprehensive loss(2)		15,763			—			15,763			(93,134	)		—			(93,134	)

Net current-period other comprehensive income (loss)		6,095			48,479			54,574			(44,776	)		10,169			(34,607	)

Ending balance	$	23,567		$	(39,219	)	$	(15,652	)	$	q17,472		$	(87,698	)	$	(70,226	)

The following is a presentation of the results of operations for the years ended December 31, 2014 and 2013:


	Successor Company								Predecessor Company
		2014								2014

(amounts in thousands, except per share information)	Fourth Quarter			Third Quarter			Two months ended June 30		One month ended April 30			First Quarter
Total revenues	$	131,276		$	124,756		$	94,313	$	76,652		$	140,590
Total investment costs and expenses		64,132			61,340			55,664		28,055			73,770
Total other income (loss)		(239,584	)		(125,685	)		20,887		(16,506	)		72,840
Total other expenses		14,310			14,898			14,364		34,151			31,458

Income (loss) before income taxes		(186,750	)		(77,167	)		45,172		(2,060	)		108,202
Income tax expense (benefit)		422			34			28		143			19

Net income (loss)		(187,172	)		(77,201	)		45,144		(2,203	)		108,183



Net income (loss) attributable to non-controlling interests		(6,772	)		816			—		—			—

Net income (loss) attributable to KKR Financial Holdings LLC and subsidiaries		(180,400	)		(78,017	)		45,144		(2,203	)		108,183
Preferred share distributions		6,891			6,891			6,891		—			6,891

Net income (loss) available to common shares	$	(187,291	)	$	(84,908	)	$	38,253	$	(2,203	)	$	101,292



Net income (loss) per common share:
Basic		N/A			N/A			N/A	$	(0.01	)	$	0.49
Diluted		N/A			N/A			N/A	$	(0.01	)	$	0.49
Weighted average number of common shares outstanding:
Basic		N/A			N/A			N/A		204,398			204,236
Diluted		N/A			N/A			N/A		204,398			204,236

	Predecessor Company

	2013
(amounts in thousands, except per share information)	Fourth Quarter		Third Quarter		Second Quarter			First Quarter
Total revenues	$	139,510	$	128,702	$	137,244		$	140,450
Total investment costs and expenses		81,586		77,877		65,193			81,049
Total other income (loss)		33,244		6,226		37,235			74,220
Total other expenses		22,259		17,147		23,196			34,827

Income (loss) before income taxes		68,909		39,904		86,090			98,794
Income tax expense (benefit)		33		18		(42	)		458

Net income (loss)	$	68,876	$	39,886	$	86,132		$	98,336



Preferred share distributions		6,891		6,891		6,891			6,738

Net income (loss) available to common shares	$	61,985	$	32,995	$	79,241		$	91,598



Net income (loss) per common share:
Basic(1)	$	0.30	$	0.16	$	0.39		$	0.46
Diluted(1)	$	0.30	$	0.16	$	0.39		$	0.46
Weighted average number of common shares outstanding:
Basic		204,154		204,134		204,108			197,153
Diluted		204,154		204,134		204,108			197,153

On March 26, 2015, the Company's board of directors declared a cash distribution on its Series A LLC Preferred Shares totaling $6.9 million, or $0.460938 per share. The distribution is payable on April 15, 2015 to preferred shareholders as of the close of business on April 8, 2015.

On February 26, 2015, the Company's board of directors declared a cash distribution for the quarter ended December 31, 2014 on its common shares totaling $55.2 million, or $551,627 per common share. The distribution was paid on February 27, 2015 to common shareholders of record as of the close of business on February 26, 2015.

On February 25, 2015, Michael R. McFerran provided notice of his resignation from the board of directors and its executive committee and as Chief Financial Officer and Chief Operating Officer of the Company, effective February 27, 2015. The board of directors elected Thomas N. Murphy to succeed Mr. McFerran as Chief Financial Officer and Treasurer of the Company and appointed Jeffrey B. Van Horn as a member of the board of directors and its executive committee and as Chief Operating Officer of the Company, in each case effective February 27, 2015.

On December 22, 2014, the Company's board of directors declared a cash distribution on its Series A LLC Preferred Shares totaling $6.9 million, or $0.460938 per share. The distribution was paid on January 15, 2015 to preferred shareholders as of the close of business on January 8, 2015.

Computation of Ratio of Earnings to Fixed Charges and
Ratio of Earnings to Fixed Charges and Preferred Share Distributions
(Amounts in thousands)

	Successor Company			Predecessor Company

	Eight months ended December 31, 2014			Four months ended April 30, 2014		Year ended December 31, 2013		Year ended December 31, 2012		Year ended December 31, 2011		Year ended December 31, 2010
Earnings:
Income (loss) before income taxes	$	(218,745	)	$	106,142	$	293,697	$	348,230	$	326,083	$	371,766
Add: Fixed charges from below		144,437			64,362		190,159		216,608		183,067		156,852

Total earnings before income taxes and fixed charges	$	(74,308	)	$	170,504	$	483,856	$	564,838	$	509,150	$	528,618
Fixed charges:
Interest expense	$	144,437		$	64,362	$	190,159	$	216,608	$	183,067	$	156,852

Total fixed charges	$	144,437		$	64,362	$	190,159	$	216,608	$	183,067	$	156,852
Ratio of earnings (loss) to fixed charges			(1)		2.6x		2.5x		2.6x		2.8x		3.4x
Total fixed charges	$	144,437		$	64,362	$	190,159	$	216,608	$	183,067	$	156,852
Preferred share distributions		20,673			6,891		27,411		—		—		—

Total fixed charges and preferred share distributions	$	165,110		$	71,253	$	217,570	$	216,608	$	183,067	$	156,852
Ratio of earnings (loss) to fixed charges and preferred share distributions			(1)		2.4x		2.2x		2.6x		2.8x		3.4x

The following is a list of the consolidated subsidiaries of KKR Financial Holdings LLC as of December 31, 2014.

Company		Jurisdiction of Incorporation or Formation

KKR TRS Holdings, Ltd.		Cayman Islands
KKR Financial Holdings, Ltd.		Cayman Islands
KKR Financial Holdings II, Ltd.		Cayman Islands
KKR Financial Holdings III, Ltd.		Cayman Islands
KKR Financial Holdings, Inc.		Delaware
KKR Financial Holdings II, LLC		Delaware
KKR Financial Holdings III, LLC		Delaware
KKR Financial CLO Holdings, LLC		Delaware
KKR Financial CLO Holdings II, LLC		Delaware
KKR Spark Power Holdings I (Mauritius), Ltd.		Mauritius
KFH III Holdings Ltd		Cayman Islands
KKR Financial CDO 2005-1, Ltd.		Cayman Islands
KKR Financial CLO 2005-1, Ltd.		Cayman Islands
KKR Financial CLO 2005-2, Ltd.		Cayman Islands
KKR Financial CLO 2006-1, Ltd.		Cayman Islands
KKR Financial CLO 2007-1, Ltd.		Cayman Islands
KKR Financial CLO 2007-A, Ltd.		Cayman Islands
KKR Financial CLO 2009-1, Ltd.		Cayman Islands
KKR Financial CLO 2011-1, Ltd		Cayman Islands
KKR Financial CLO 2012-1, Ltd.		Cayman Islands
KKR Financial CLO 2013-1, Ltd.		Cayman Islands
KKR Financial CLO 2013-1 Holdings, Ltd.		Cayman Islands
KKR Financial CLO 2013-2, Ltd.		Cayman Islands
KKR Financial CLO 2013-2 Holdings, Ltd.		Cayman Islands
KKR CLO 9 Ltd.		Cayman Islands
KKR CLO 10 Ltd.		Cayman Islands
KFH PE Holdings I LLC		Delaware
KFH PE Holdings II LLC		Delaware
KFH PE Holdings III LLC		Delaware
KFH PE Holdings IV LLC		Delaware
KFN PEI V, LLC		Delaware
KFN PEI IX, LLC		Delaware
KFN PEI XI, LLC		Delaware
KKR Financial Capital Trust I		Delaware
KKR Financial Capital Trust II		Delaware
KKR Financial Capital Trust III		Delaware
KKR Financial Capital Trust IV		Delaware
KKR Financial Capital Trust V		Delaware
KKR Financial Capital Trust VI		Delaware
KFN NR Investors L.P.		Delaware
KFN NR Investors GP LLC		Delaware
KFH Royalties L.P.		Delaware
KFH Royalties GP LLC		Delaware
KFH Royalties LLC		Delaware

We consent to the incorporation by reference in Registration Statement No. 333-189717 on Form S-3 of our report dated March 31, 2015, relating to the consolidated financial statements of KKR Financial Holdings LLC and subsidiaries, appearing in this Annual Report on Form 10-K of KKR Financial Holdings LLC for the year ended December 31, 2014.

We consent to the incorporation by reference in Registration Statement No. 333-189717 on Form S-3 of our report dated March 31, 2015, relating to the financial statements of KNR Trinity Holdings LLC, appearing in this Annual Report on Form 10-K of KKR Financial Holdings LLC for the year ended December 31, 2014.

We consent to the incorporation by reference in Registration Statement No. 333-189717 on Form S-3 of our report dated March 31, 2015, relating to the consolidated financial statements of Trinity River Energy LLC, appearing in this Annual Report on Form 10-K of KKR Financial Holdings LLC for the year ended December 31, 2014.

In connection with the Annual Report of KKR Financial Holdings LLC (the "Company") on Form 10-K for the year ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), William J. Janetschek, Chief Executive Officer of the Company, and Thomas N. Murphy, Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

Financial Statements as of and for the Period from September 30, 2014 (Commencement of Operations) to December 31, 2014, and Independent Auditors' Report

We have audited the accompanying financial statements of KNR Trinity Holdings LLC (the "Company"), which comprise the statement of assets and liabilities as of December 31, 2014, and the related statements of operations, changes in capital, and cash flows for the period from September 30, 2014 (commencement of operations) to December 31, 2014, and the related notes to the financial statements.

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of KNR Trinity Holdings LLC as of December 31, 2014, and the results of its operations, changes in its capital and its cash flows for the period from September 30, 2014 (commencement of operations) to December 31, 2014 in accordance with accounting principles generally accepted in the United States of America.

PERIOD FROM SEPTEMBER 30, 2014 (COMMENCEMENT OF OPERATIONS) TO
DECEMBER 31, 2014


CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)	$	(426,868	)
Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities:
Net Unrealized (Gains) Losses from Investment in Trinity River Energy, LLC		426,842
Change in Assets and Liabilities:
Accounts Payable and Accrued Liabilities		26

Net Cash Provided by Operating Activities		—

NET CHANGE IN CASH		—
CASH—Beginning of Period, September 30, 2014		—

CASH—End of Period, December 31, 2014	$	—



NON CASH ACTIVITY:
Contributions for Investment in Trinity River Energy LLC		635,542

AS OF AND FOR THE PERIOD FROM SEPTEMBER 30, 2014
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 2014

KNR Trinity Holdings LLC (the "Aggregator"), a Delaware limited liability company, was formed on July 18, 2014 and commenced operations on September 30, 2014. The Aggregator's primary purpose is to invest in Trinity River Energy, LLC ("Trinity River"). The members of the Aggregator contributed approximately $635.5 million of equity interests in Trinity River on September 30, 2014 in exchange for their pro-rata membership interests in the Aggregator.

Basis of Presentation—The accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that could affect the amounts reported in the Aggregator's financial statements and accompanying notes. Actual results could differ from management's estimates.

Investments—Investments are carried at estimated fair value and are accounted for on a trade-date basis. Distribution income, if any, is recorded when declared.

Fair Value Option—The Aggregator elected the fair value option of accounting for its investments for the primary purpose of enhancing the transparency of its financial condition. Related unrealized gains and losses are reported in the consolidated statement of operations.

Fair Value Measurements—Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments' complexity for disclosure purposes.

Assets and liabilities recorded at fair value in the statement of assets and liabilities are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined under GAAP, are directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities, and are as follows:

The Aggregator did not have any assets valued using Level 1 inputs as of December 31, 2014.

The Aggregator did not have any assets valued using Level 2 inputs as of December 31, 2014.

AS OF AND FOR THE PERIOD FROM SEPTEMBER 30, 2014
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 2014

As of December 31, 2014, the Aggregator's investment in Trinity River Energy, LLC was valued using Level 3 inputs.

The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new, whether the product is traded on an active exchange or in the secondary market, and the current market condition. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Aggregator in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Aggregator's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset. The variability of the observable inputs affected by the factors described above may cause transfers between Levels 1, 2, and/or 3, which the Aggregator recognizes at the beginning of the reporting period.

Many financial assets and liabilities have bid and ask prices that can be observed in the marketplace. Bid prices reflect the highest price that the Aggregator and others are willing to pay for an asset. Ask prices represent the lowest price that the Aggregator and others are willing to accept for an asset. For financial assets and liabilities whose inputs are based on bid-ask prices, the Aggregator does not require that fair value always be a predetermined point in the bid-ask range. The Aggregator's policy is to allow for mid-market pricing and adjusting to the point within the bid-ask range that meets the Aggregator's best estimate of fair value.

Depending on the relative liquidity in the markets for certain assets, the Aggregator may transfer assets to Level 3 if the Aggregator determines that observable quoted prices, obtained directly or indirectly, are not available. The valuation techniques used for the assets and liabilities that are valued using Level 3 inputs of the fair value hierarchy are described below.

Investment in Trinity River Energy, LLC—The investment in Trinity River Energy, LLC was initially valued at the transaction price and subsequently valued using internally developed models in the absence of readily observable market prices. The valuation model is based on a discounted cash flow analysis, which incorporates significant assumptions and judgments. Estimates of key inputs used in this methodology include commodity price forecasts and the weighted average cost of capital, and the valuation for Trinity River does not include a minimum illiquidity discount. In addition, the valuation

AS OF AND FOR THE PERIOD FROM SEPTEMBER 30, 2014
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 2014

generally incorporates both commodity prices as quoted on indices and long-term commodity price forecasts, which may be substantially different from, and are currently higher than, commodity prices on certain indices for equivalent future dates. Long-term commodity price forecasts are utilized to capture the value of the investment across a range of commodity prices and to reflect price expectations that are estimated to be required to balance demand and production in global commodity markets over the long-term.

Key unobservable inputs that have a significant impact on the Aggregator's Level 3 valuations as described above are included in Note 2. The Aggregator utilizes several unobservable pricing inputs and assumptions in determining the fair value of its Level 3 investments. These unobservable pricing inputs and assumptions may differ in the application of the Aggregator's valuation methodologies. The reported fair value estimates could vary materially if the Aggregator had chosen to incorporate different unobservable pricing inputs and other assumptions or if the Aggregator used a different methodology. The unobservable inputs used to determine fair value of recurring assets may have similar or diverging impacts on valuation. Significant increases and decreases in these inputs in isolation and interrelationships between those inputs could result in significantly higher or lower fair value measurement.

The valuation process involved for Level 3 measurements is completed on a quarterly basis and is designed to subject the valuation of Level 3 investments to an appropriate level of consistency, oversight, and review. KKR has a private markets valuation committee for real assets investments. The private markets valuation committee may be assisted by subcommittees and a valuation team. The energy valuation teams contain investment professionals who participate in the preparation of preliminary valuations and oversight for those investments. The valuation committees and teams are responsible for coordinating and consistently implementing the valuation policies, guidelines and processes.

For these investments classified as Level 3, investment professionals prepare preliminary valuations based on their evaluation of financial and operating data, asset specific developments, and other factors. These preliminary valuations are reviewed with the investment professionals by the applicable valuation team and are also reviewed by an independent valuation firm engaged by KKR to perform certain procedures in order to assess the reasonableness of its valuations quarterly for Level 3 investments.

All of the above preliminary valuations are then reviewed by the applicable valuation committee, and after reflecting any input by their respective valuation committees, the preliminary valuations are presented to KKR's management committee.

The investment in Trinity River is an equity method investment. The financial statements for Trinity River have been attached as the following document.

AS OF AND FOR THE PERIOD FROM SEPTEMBER 30, 2014
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 2014

The following table presents information about the Aggregator's investments measured at fair value on a recurring basis as of December 31, 2014, and indicates the fair value hierarchy of the inputs utilized by the Aggregator to determine such fair value (amounts in thousands):

For the period from September 30, 2014 (commencement of operations) to December 31, 2014, there were no transfers between levels.

The following table presents additional information about investments that are measured at fair value on a recurring basis for which the Aggregator has utilized Level 3 inputs to determine fair value as of December 31, 2014 (amounts in thousands):

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

	Investment in Trinity River Energy, LLC
Beginning balance, September 30, 2014	$	—
Purchases		—
Contributions		635,542
Sales		—
Settlements		—
Transfer into Level 3(1)		—
Transfer out of Level 3(1)		—
Total realized and unrealized losses included in earnings		(426,842	)

Ending balance, December 31, 2014	$	208,700



Change in unrealized gains or losses for the period included in earnings for assets still held at the end of the reporting period(2)	$	(426,842	)

AS OF AND FOR THE PERIOD FROM SEPTEMBER 30, 2014
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 2014

The following table presents additional information about valuation techniques and inputs used for assets that are measured at fair value and categorized within Level 3 as of December 31, 2014 (dollar amounts in thousands):

In the ordinary course of business, the Aggregator manages a variety of risks, including market risk and credit risk. Market conditions such as commodity prices, interest rates, availability of credit, inflation rates, economic uncertainty, changes in regulations and laws, and trade barriers may affect the level and volatility of the value and liquidity of the Aggregator's investment. Market risk is a risk of potential adverse changes to the value of the investment because of changes in market conditions such as volatility in commodity prices and interest rate movements.

As the investment in Trinity River is concentrated in oil and natural gas working interests, fluctuations in oil and natural gas commodity prices have a significant impact on value.

From time to time, the Aggregator may be subject to legal proceedings and claims in the ordinary course of business. The Aggregator is not currently aware of any such legal proceedings or claims that are expected to have, individually or in the aggregate, a material adverse effect on its business, financial position, operating results or cash flows.

The Aggregator evaluated subsequent events through March 31, 2015 and determined that no additional disclosures were necessary.

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Trinity River Energy, LLC
As of and for the Three Months Ended December 31, 2014

We have audited the accompanying consolidated financial statements of Trinity River Energy, LLC (the "Company"), which comprise the Consolidated Balance Sheet as of December 31, 2014, and the related statements of operations, members' equity, and cash flows for the three months then ended, and the related notes to the consolidated financial statements.

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Trinity River Energy, LLC as of December 31, 2014, and the results of its operations and its cash flows for the three months then ended in accordance with accounting principles generally accepted in the United States of America.

	December 31, 2014

CURRENT ASSETS:
Cash	$	3,715
Accounts receivable, net		42,527
Prepaid and other		1,921
Derivative contracts		85,668

Total current assets		133,831
PROPERTY AND EQUIPMENT:
Oil and natural gas properties (successful efforts method)		1,476,870
Other fixed assets		2,657
Less: accumulated depreciation, depletion and amortization		(288,289	)

Net property and equipment		1,191,238
OTHER NONCURRENT ASSETS:
Deferred financing costs, net		4,898
Derivative contracts		23,802

TOTAL ASSETS	$	1,353,769



CURRENT LIABILITIES:
Accounts payable	$	23,978
Accrued liabilities		33,733
Royalties and revenue payable		19,195
Derivative contracts		1,742

Total current liabilities		78,648
LONG-TERM DEBT		486,000
OTHER NONCURRENT LIABILITIES:
Derivative contracts		4,985
Asset retirement obligations		44,851
Other		995

TOTAL LIABILITIES		615,479
COMMITMENTS AND CONTINGENCIES (Note 11)
MEMBERS' EQUITY		738,022
NONCONTROLLING INTEREST		268

TOTAL EQUITY		738,290

TOTAL LIABILITIES AND MEMBERS' EQUITY	$	1,353,769

	Three Months Ended December 31, 2014

REVENUES:
Oil, natural gas and natural gas liquids	$	71,395
Gathering, transportation and marketing		334

Total revenues		71,729
OPERATING EXPENSES:
Lease operating		23,550
Workover		744
Gathering, transportation and marketing		9,306
Production and ad valorem taxes		3,556
Exploration costs		845
Depreciation, depletion and amortization		27,134
Impairment of oil and natural gas properties		114,458
General and administrative		26,656

Total operating expenses		206,249

OPERATING LOSS		(134,520	)
OTHER INCOME (EXPENSE):
Interest expense, net of amounts capitalized		(5,227	)
Other income, net		252
Loss on sale of assets, net		(62	)
Gain on derivative contracts, net		79,231

Total other income		74,194

LOSS BEFORE INCOME TAX EXPENSE (BENEFIT)		(60,326	)
Income tax expense (benefit)		—

NET LOSS	$	(60,326	)
NONCONTROLLING INTEREST		8

NET LOSS ATTRIBUTABLE TO TRINITY RIVER ENERGY, LLC	$	(60,334	)

	Three Months Ended December 31, 2014

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(60,326	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion and amortization		27,134
Impairment of oil and natural gas properties		114,458
Loss on sale of assets, net		62
Unrealized gain on derivative contracts		(70,529	)
Amortization of deferred financing costs		1,814
Other operating		(579	)
Changes in assets and liabilities:
Accounts receivable		6,236
Prepaid and other		(756	)
Accounts payable		(5,012	)
Accrued liabilities		4,250
Royalties and revenue payable		(913	)

Net cash provided by operating activities		15,839

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in merger		13,919
Oil and natural gas properties capital expenditures		(18,216	)
Other fixed assets capital expenditures		(801	)

Net cash used in investing activities		(5,098	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt		522,000
Reduction of long-term debt		(805,800	)
Proceeds from payment of shareholder loans		839
Deferred financing costs		(5,156	)
Distributions		(8	)
Contributions		253,690

Net cash used in financing activities		(34,435	)
NET DECREASE IN CASH		(23,694	)
CASH AT SEPTEMBER 30, 2014		27,409

CASH AT DECEMBER 31, 2014	$	3,715



Supplemental cash flow disclosures:
Interest paid, net of amounts capitalized	$	2,870
Noncash investing and financing activities:
Capital expenditures included in accrued liabilities	$	3,497

(Except per-unit amounts, or as noted within the context of each footnote disclosure, the dollar amounts presented in the tabular data within these footnote disclosures are stated in thousands of dollars.)

References to "we," "us" and "our" mean Trinity River Energy, LLC ("TRE") and subsidiaries.

We are a Delaware limited liability company formed on September 30, 2014, through a merger of partnerships held by wholly owned subsidiaries of Legend Production Holdings, LLC ("Legend"), a majority owned subsidiary of Riverstone Holdings, LLC and the Carlyle Group (collectively, "Riverstone/Carlyle"), and certain investment entities (together the "KNR Investors") of funds advised by Kohlberg Kravis Roberts & Co. L.P. (together with its affiliates, "KKR"). We have authorized and issued approximately 831 million Class A units, of which KKR and Riverstone/Carlyle each own approximately 77% and 23%, respectively.

We are an independent exploration and production company focused on the acquisition, exploration, development and production of oil, natural gas and natural gas liquids ("NGLs") reserves. We operate and have non-operating interests in producing wells and future drilling locations in the Barnett Shale in north central Texas, the Permian basin region in southeastern New Mexico and within various formations in south Texas, Louisiana and Mississippi.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and include our accounts and those of our majority-owned, controlled subsidiaries for the relevant period and, in the opinion of management, reflect all adjustments necessary to present fairly the results of the period presented. All intercompany transactions have been eliminated in consolidation. We operate in one oil and natural gas exploration and production segment. We evaluated subsequent events through March 31, 2015, the date our financial statements were available to be issued.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the respective reporting periods. The most significant estimates pertain to:

1. Organization, Description of Operations and Basis of Presentation (Continued)

Actual results may differ from our estimates, judgments and assumptions used in the preparation of our consolidated financial statements.

Cash represents unrestricted cash on hand and highly liquid investments with original maturities of three months or less from the date of original issuance.

Our accounts receivable are primarily from purchasers of our oil, natural gas and NGL production and exploration and production companies which own interests in properties we operate. Receivables from purchasers of oil, natural gas and NGL production were $37.1 million at December 31, 2014. We generally do not require collateral or other security as a condition of sale; rather we rely on credit ratings and ongoing monitoring procedures.

We establish provisions for losses on accounts receivable if we determine that it is probable that we will not collect all or part of the outstanding balance. We regularly review collectability and establish or adjust the allowance as necessary using relevant attributes, such as recent loss experience, current economic conditions and other factors. We recorded an allowance for doubtful accounts of $0.3 million at December 31, 2014.

AROs associated with the legal obligation to retire tangible long-lived assets are recognized as liabilities with an increase to the carrying amounts of the related long-lived assets in the period incurred. AROs are recorded at estimated fair value, measured by reference to the expected future cash outflows required to satisfy the retirement obligations discounted at our credit-adjusted risk-free interest rate. Accretion expense is recognized over time as the discounted liabilities are accreted to their expected settlement value. If estimated future costs of AROs change, an adjustment is recorded to both the asset retirement obligation and the long-lived asset. Revisions to estimated AROs can result from changes in retirement cost estimates, revisions to estimated inflation rates, and changes in the estimated timing of abandonment. Accretion expense is included in depreciation, depletion and amortization expense in the Consolidated Statement of Operations. See Note 8 for further information.

We are subject to legal proceedings, claims, and liabilities that arise in the ordinary course of business. Except for legal contingencies acquired in a business combination, which are recorded at fair value at the time of acquisition, we accrue losses associated with legal claims when such losses are probable and reasonably estimable. If we determine that a loss is probable and cannot estimate a specific amount for that loss, but can estimate a range of loss, the best estimate within the range is accrued. If no amount within the range is a better estimate than any other, the minimum amount of

the range is accrued. Estimates are adjusted as additional information becomes available or circumstances change. Legal defense costs associated with loss contingencies are expensed in the period incurred. See Note 11 for further information.

We sell a significant amount of our oil, natural gas and NGL production to a limited number of purchasers. One of our purchasers accounted for 27% of our revenues for the three months ended December 31, 2014. No other purchaser accounted for 10% or more of our revenues for the three months ended December 31, 2014.

We use derivative contracts to reduce our exposure to commodity price volatility and interest rate changes. We do not use derivative contracts for trading purposes. We record all derivative contracts at fair value on the Consolidated Balance Sheet as either an asset or liability and do not designate any of our derivative contracts as hedging instruments for accounting purposes. Therefore, unrealized gains and losses from valuation changes in our unsettled derivative contracts are reported in gain on derivative contracts, net, in our Consolidated Statement of Operations.

We are party to various physical commodity contracts for the sale of oil, natural gas and NGLs that have varying terms and pricing provisions. While some of these physical commodity contracts meet the definition of a derivative instrument, the contracts qualify for and we elect the normal purchase and normal sale exception at inception and, therefore, are not subject to hedge or mark-to-market accounting. The financial impact of physical commodity contracts is included in oil, natural gas and natural gas liquids revenues at the time of settlement.

We are exposed to the credit risk of our counterparties. Credit risk is the potential failure of the counterparty to perform under the terms of the derivative contract. To minimize the credit risk in derivative contracts, the majority of our derivative contracts are with counterparties that are lenders under our revolving credit facility. As of December 31, 2014, we had no past-due receivables from any counterparty. See Notes 6 and 7 for a discussion of the use of financial instruments, management of credit risk inherent in financial instruments and fair value information.

We follow the successful efforts method of accounting for exploration and development expenditures. Under this method, costs of acquiring unproved and proved oil and natural gas leasehold acreage are capitalized. When proved reserves are found on unproved property, the associated leasehold cost is transferred to proved properties. The value of unproved leases included in oil and natural gas properties at December 31, 2014 is $45.9 million. Unproved leases are reviewed annually, and an impairment loss is recorded for any estimated decline in value. Development costs are capitalized, including the costs of unsuccessful development wells.

Exploration expenditures, including geological and geophysical costs, delay rentals and exploratory dry hole costs, are expensed as incurred. Costs of drilling exploratory wells are initially capitalized pending determination of whether proved reserves have been found and are subsequently expensed if it is determined that commercial quantities of hydrocarbons have not been discovered.

Depreciation, depletion and amortization ("DD&A") of producing oil and natural gas properties are calculated using the units-of-production method. Proved developed reserves are used to compute the DD&A rate for unamortized tangible and intangible drilling and completion costs, and total proved reserves are used to compute the DD&A rate for unamortized leasehold costs.

Gains and losses on disposals are included in operating income. Costs related to maintenance, repairs and minor renewals necessary to maintain properties in operating condition are expensed as incurred and recorded as lease operating expense. Major betterments, replacements and renewals are capitalized to the appropriate oil and natural gas property accounts.

We capitalize interest on capital invested in projects related to unevaluated properties and significant development projects. As proved reserves are established, the related capitalized interest is transferred into costs subject to amortization. Capitalized interest costs for the three months ended December 31, 2014, was $0.2 million.

Our oil and natural gas properties are assessed for impairment on a field-by-field basis annually and when events or changes in circumstances indicate that the carrying value may not be recoverable. The asset impairment review compares the carrying value of an oil and natural gas property to its estimated undiscounted future cash flows. When estimated undiscounted future cash flows are less than its carrying value, an impairment loss is recognized, and the oil and natural gas property is reduced to its estimated fair value. Fair value is calculated by discounting the future cash flows at an appropriate risk-adjusted discount rate consistent with that used by market participants.

The factors used to determine fair value include, but are not limited to, recent sales prices of comparable properties, the present value of future cash flows, net of estimated operating and development costs using estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures and discount rates commensurate with the risk associated with realizing the projected cash flows. See note 7 for further information.

Proved oil, natural gas and NGL reserves are defined by the Financial Accounting Standards Board ("FASB") and the US Securities and Exchange Commission ("SEC"). This definition includes oil, natural gas, and NGLs that geological and engineering data demonstrate with reasonable certainty to be economically producible in future periods from known reservoirs under existing economic conditions, operating methods and government regulations, using price and cost assumptions as of the date the reserve estimates are made. Reserves are determined using a beginning-of-period 12-month average price with no provision for price and cost escalations in future years except by contractual arrangements. Our reserve estimates were prepared by third-party reservoir engineers.

The reserve estimation process is inherently uncertain for numerous reasons, including many factors beyond our control. Reservoir engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner.

The accuracy of any reserve estimate is a function of the quality of data available and of engineering and geological interpretation and judgment. In addition, estimates of reserves may be revised based on actual production, results of subsequent exploration and development activities,

prevailing commodity prices, operating costs and other factors. These revisions may be material and could materially affect future DD&A expense, plugging and abandonment costs and impairment expense.

We are not a taxpaying entity for federal income tax purposes and, accordingly, do not recognize any expense for such taxes. The federal income tax liability resulting from our activities is the responsibility of the members.

Some of our subsidiaries are subject to Texas margin tax and recognize deferred taxes for the future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Such differences arise primarily from the differences in accounting treatment of intangible drilling costs and impairment losses for tax and financial reporting purposes, and basis adjustments for assets recorded at fair value for GAAP versus historical cost for tax.

Oil, natural gas and NGL sales are recognized based on actual volumes sold to customers and the contracted sales prices, and are reported net of royalties. Sales require delivery of the product to the customer, passage of title and probability of collection of customer amounts owed.

We use the sales method of accounting for natural gas imbalances. An imbalance is created when the volumes of natural gas sold by us pertaining to a property do not equate to the volumes produced to which we are entitled based on our interest in the property. An asset or liability is recognized to the extent that we have an imbalance in excess of our share of the remaining reserves on the underlying properties.

In April, 2014, the FASB issued Accounting Standards Update ("ASU") 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The ASU changes the criteria for reporting discontinued operations and requires additional disclosures, both for discontinued operations and for individually significant dispositions and assets classified as held for sale not qualifying as discontinued operations. This ASU is effective for annual and interim periods beginning in 2015. We are currently evaluating the impact of the adoption of this ASU on our consolidated financial statements.

In May, 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and industry-specific guidance in Subtopic 932-605, Extractive Activities—Oil and Gas—Revenue Recognition, and requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. This ASU is effective for annual and interim periods beginning in 2017 and is required to be adopted using one of two retrospective application methods, with no early adoption permitted. We

are currently evaluating the impact of the adoption of this ASU on our consolidated financial statements.

In August, 2014, the FASB issued ASU 2014-15—Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. This guidance requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued. The standard also provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new guidance is effective for the annual period ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We are currently evaluating the impact of the adoption of this ASU on our consolidated financial statements.

In November, 2014, the FASB issued ASU 2014-17, Business Combinations (Topic 805): Pushdown Accounting. The ASU gives an acquired business or not-for-profit organization the option to apply pushdown accounting in their separate financial statements when an acquirer obtains control of them. Pushdown accounting occurs in an acquisition when an acquired organization uses the acquirer's basis of accounting to prepare its financial statements. The new standard also requires disclosures designed to help financial statement users evaluate the effects of pushdown accounting. The SEC rescinded portions of its interpretive guidance for pushdown accounting to bring its guidance into conformity with the new FASB standard. The new guidance did not have a material impact on our financial position or results of operations.

The September 30, 2014 Merger between KNR Investors and Legend represents a business combination that was accounted for using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. KNR Investors was determined to be the accounting acquirer. The merger was motivated by the desire of KNR Investors to generate benefits of scale resulting from operational expense synergies (especially within the Barnett Shale in north central Texas), and obtain the ability to better access the capital markets. We assumed debt and other liabilities of approximately $616.8 million in exchange for oil and natural gas properties and other assets of approximately that amount. In connection with the merger, we incurred acquisition-related costs of approximately $7.3 million, which are included in general and administrative expenses in the accompanying Consolidated Statement of Operations. The following table summarizes the preliminary fair value assessment of the contributed assets and liabilities assumed as of the acquisition date (in thousands):

On September 30, 2014, we entered into a senior secured revolving credit agreement (the "Credit Agreement") with a group of financial institutions (the "Lenders") that provides a facility with a $1.0 billion commitment and a current borrowing base of $650.0 million (the "Revolving Credit Facility"). The borrowing base will be re-determined on a semi-annual basis, or as requested by our Lenders or us. To the extent that the borrowing base is re-determined at an amount that is below the amount currently outstanding, we have options under the Credit Agreement, including repayment over a period of up to six months, provision of additional collateral, or other negotiated alternatives with the Lenders. We used the borrowings from the Revolving Credit Facility to repay existing indebtedness of Legend and KNR Investors and provide additional working capital. The obligations under the Credit Agreement and guarantees of those obligations are secured by substantially all of our oil and natural gas properties. The maturity date of the revolving credit facility is September 30, 2019. As of December 31, 2014, the amount outstanding under the credit agreement was $486.0 million and the amount available for borrowing was $164.0 million.

Pursuant to the credit agreement, interest on borrowings is calculated using the adjusted base rate plus an applicable margin or the London Interbank Offered Rate ("LIBOR") plus an applicable margin. The adjusted base rate is defined as the greater of (a) the prime rate established by the administrative agent, (b) the federal funds rate in effect plus 0.50% and (c) the daily one-month LIBOR plus 1.00%. The applicable margin ranges from 0.50% to 1.50% for the adjusted base rate loans and from 1.50% to 2.50% for LIBOR loans, depending on the percentage of the borrowing base utilization level. In addition to interest, the banks receive various fees, including a commitment fee on the unutilized commitment, which ranges from 0.375% to 0.50% per annum. The weighted-average interest rate on loan amounts outstanding during the three months ended December 31, 2014, was 2.59%.

Our credit agreement contains financial covenants typical for these types of agreements, including a total debt to EBITDAX (earnings before interest, taxes, depreciation, depletion, and amortization, and exploration) ratio and a current assets to current liabilities ratio. At December 31, 2014, we were in compliance with all of our covenants under the credit agreement.

Our liquidity outlook has changed since September 30, 2014 primarily as a result of the substantial decrease in oil and natural gas prices. This has resulted in lower operating revenues than expected and if commodity prices remain low compared to recent historical prices, will result in significantly lower future levels of operating cash flows as current derivative contracts expire.

As discussed above, our Revolving Credit Facility's borrowing base is subject to re-determination on a semi-annual basis. Although it is unknown what impact the lower commodity price environment will have on our borrowing base, we believe we are strategically positioned to sustain a low price environment for the next 12 to 18 months. Our derivative contracts are significantly in excess of current commodity prices and provide price protection for a significant portion of our 2015 and 2016 production. Additionally, our plans are to conserve cash through mid-2016 by focusing on internal cost reductions and limiting drilling activities (we have no firm commitments in place for drilling on our operated properties as of year-end). Assuming limited drilling activities, excess operating cash flow will be used to reduce borrowings under our Revolving Credit Facility.

Our forecasts indicate that current unutilized borrowing capacity under the Revolving Credit Facility of $164.0 million, coupled with repayment efforts and cash flows from existing derivative contracts, are sufficient to ensure ongoing compliance with our financial performance covenants under the Revolving Credit Facility for at least the next 12 to 18 months.

We capitalize costs incurred in connection with obtaining financing and amortize such costs as additional interest expense over the life of the underlying indebtedness. Deferred financing costs charged to interest expense for the three months ended December 31, 2014 was $1.8 million.

In the normal course of business, we are exposed to certain risks, including changes in the prices of oil, natural gas and NGLs and interest rates. We enter into derivative contracts to manage our exposure to these risks. Our risk management activity is generally accomplished through over-the-counter derivative contracts with large financial institutions.

As of December 31, 2014, we had natural gas swap contracts based on West Texas hub (WAHA) and Houston Ship Channel ("HSC") index prices, oil swap contracts and natural gas swap contracts based on the New York Mercantile Exchange ("NYMEX") futures index and NGL swap contracts based on the trading prices at Mont Belvieu. The fair values, notional quantities and weighted-average swap prices of these contracts as of December 31, 2014, are summarized in the table below.

Volumes are presented in million British Thermal Units ("MMBtu") for natural gas and in barrels ("Bbls") for oil and NGLs.

			Weighted- Average Swap Price			Fair Value (in thousands)

Natural Gas Swap Contracts (MMBtu):	2015	44,200,000	$	4.53		$	66,966
	2016	30,971,000		4.13			20,364
	2017	7,259,000		4.17			2,542

Total natural gas		82,430,000					89,872



Oil Swap Contracts (Bbls):	2015	195,300		93.18			7,142
	2016	33,000		84.45			695
	2017	13,000		82.30			201

Total oil		241,300					8,038



NGL Swap Contracts (Bbls):	2015	551,000		44.46	(1)		11,550

Total NGLs		551,000					11,550



Basis Swap Contracts:
Oil (Bbls)	2015	57,400		2.57			10

		57,400					10



Total oil, natural gas, NGL and basis contracts						$	109,470

The following table summarizes the fair value, notional amount and swap rate of the interest rate swap contracts in place at December 31, 2014:

Type	Effective Date	Maturity Date			Notional Amount (in thousands)		Fair Value (in thousands)

Swap	May 26, 2011	March 1, 2015	1.6410	%	$	40,000	$	(225	)
Swap	May 26, 2011	March 1, 2015	1.6400	%		40,000		(225	)
Swap	May 26, 2011	March 1, 2015	1.6400	%		60,000		(338	)
Swap	May 26, 2011	March 1, 2015	1.6410	%		60,000		(338	)
Swap	January 2, 2015	June 1, 2023	2.8532	%		71,000		(4,100	)
Swap	January 2, 2015	December 1, 2019	2.1339	%		13,000		(310	)
Swap	January 2, 2015	December 1, 2021	2.5782	%		13,000		(541	)
Swap	January 2, 2015	June 1, 2023	2.8532	%		9,000		(520	)
Swap	January 2, 2015	December 1, 2021	2.5782	%		2,000		(83	)
Swap	January 2, 2015	December 1, 2019	2.1339	%		2,000		(47	)

							$	(6,727	)

Our derivative contracts are subject to master netting arrangements and are presented on a net basis in our Consolidated Balance Sheet. The following table summarizes the location and fair value of our derivative contracts as of December 31, 2014 (in thousands):

The following table summarizes the effects of our derivative contracts on the Combined and Consolidated Statement of Operations for the three months ended December 31, 2014 (in thousands):

We classify financial assets and liabilities that are measured and reported at fair value on a recurring basis using a hierarchy based on the inputs used in measuring fair value. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We classify the inputs used to measure fair value into the following hierarchy:

Our financial assets and liabilities that were accounted for at fair value on a recurring basis at December 31, 2014 are as follows (in thousands):

Our derivative contracts consist of swaps for oil, natural gas, NGLs, oil basis, and interest rates and are carried at fair value. Commodity derivative contracts are valued using market inputs such as

indexes, pricing and interest rates in a discounted cash flow model. Interest rate derivative contracts are valued using inputs such as LIBOR futures and interest rates using a discounted cash flow model. As such, these derivative contracts are classified within Level 2.

The initial measurement of ARO at fair value is calculated using discounted cash flow techniques and based on internal estimates of future retirement costs associated with property and equipment. Significant Level 3 inputs used in the calculation of ARO include plugging costs and reserve lives. A reconciliation of our ARO is presented in Note 8.

Certain nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis (e.g., oil and natural gas properties) and are subject to fair value adjustments under certain circumstances. The inputs used to determine such fair value are primarily based upon internally developed cash flow models and are classified within Level 3.

During the three months ended December 31, 2014, using a discounted cash flow valuation technique, we adjusted the carrying value of certain oil and natural gas properties and recorded impairment charges of $114.5 million. The impairment charges primarily resulted from a decline in oil and natural gas prices and to a much lesser extent to minor changes in management's assumptions, based on an extensive review of operating results, production history, price realizations and costs.

The estimated fair value of cash, accounts receivable and accounts payable approximates their carrying value due to their short-term nature. The estimated fair value of our long-term debt approximates carrying value because it carries a variable interest rate reflective of market rates. We categorized our long-term debt within Level 2 of the fair value hierarchy.

We record an ARO for our future plugging, abandonment and site restoration costs related to our oil and natural gas properties. The changes in our AROs for the three months ended December 31, 2014 are presented in the table below (in thousands):

The amount of the obligation expected to be incurred in the upcoming year is included in accrued liabilities in our Consolidated Balance Sheet.

We record deferred income taxes related to Texas margin tax for the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for Texas margin tax provisions. At December 31, 2014, we recorded a long-term deferred tax asset of $2.8 million and a valuation allowance of the same amount, due to low probability of realization.

We maintain separate capital accounts for each of our members and capital contributions, distributions and net income (loss) are recorded pro rata to each in accordance with their ownership percentage. On September 30, 2014, in connection with the Merger, we received $253.7 million in cash contributions from our members to fund the Company.

We have an agreement with certain of our officers to purchase 2,525,000 Class A Units at a price of $1 per unit. The agreement provides for officer loans which are to be paid in 2014 and 2015. The outstanding loans as of December 31, 2014 were $1.7 million and are presented net within Members' Equity until cash payment occurs.

We lease office space under operating leases in Houston, Texas, and Fort Worth, Texas, and rent expense related to these lease agreements for the three months ended December 31, 2014 was $0.3 million.

We contract with various companies to transport the natural gas we produce to purchasers and processing plants. The contracts are based on actual amounts transported with minimum amounts committed to be paid.

We have programs in the form of cash retention bonuses and performance bonuses for eligible key employees. The payments are contingent upon the successful completion of the Merger, as well as certain future liquidity events leading to change in control. We expect to pay $8.0 million in 2015. At December 31, 2014, we accrued a liability of $3.2 million for these programs, included in accrued liabilities on the Consolidated Balance Sheet.

We have a compensation program for certain key service providers. We accrued a liability of $2.7 million at December 31, 2014, which we expect to pay in 2015.

The future minimum payments related to these contracts as of December 31, 2014, are presented in the table below (in thousands):

We are party to various legal actions arising in the normal course of business. Management believes the disposition of these outstanding legal actions will not have a material impact on our financial condition, results of operations or cash flows.


(Mark One)
ý		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to


Delaware (State or other jurisdiction of incorporation or organization)		11-3801844 (I.R.S. Employer Identification No.)
555 California Street, 50^th Floor San Francisco, CA (Address of principal executive offices)		94104 (Zip Code)

Title of each class		Name of each exchange on which registered

Shares representing limited liability company membership interests		New York Stock Exchange
8.375% Senior Notes due 2041		New York Stock Exchange
7.500% Senior Notes due 2042		New York Stock Exchange


Large accelerated filer o		Accelerated filer o		Non-accelerated filer ý (Do not check if a smaller reporting company)		Smaller reporting company o



PART I
ITEM 1.	BUSINESS	5
ITEM 1A.	RISK FACTORS	21
ITEM 1B.	UNRESOLVED STAFF COMMENTS	55
ITEM 2.	PROPERTIES	55
ITEM 3.	LEGAL PROCEEDINGS	55
ITEM 4.	MINE SAFETY DISCLOSURE	55
PART II
ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	56
ITEM 6.	SELECTED CONSOLIDATED FINANCIAL DATA	58
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	61
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	122
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	122
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	123
ITEM 9A.	CONTROLS AND PROCEDURES	123
ITEM 9B.	OTHER INFORMATION	123
PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	124
ITEM 11.	EXECUTIVE COMPENSATION	132
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS	142
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	143
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	147
PART IV
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	147

	Sales Price

	High		Low
Year ended December 31, 2013
First Quarter ended March 31, 2013	$	11.93	$	10.74
Second Quarter ended June 30, 2013	$	11.30	$	10.05
Third Quarter ended September 30, 2013	$	11.31	$	10.02
Fourth Quarter ended December 31, 2013	$	12.39	$	8.91
Year ended December 31, 2014
First Quarter ended March 31, 2014	$	13.38	$	11.17
Month ended April 30, 2014	$	12.53	$	10.88

Year ended December 31, 2013	Record Date	Payment Date	Cash Distribution Declared per Common Share

First Quarter ended March 31, 2013	May 14, 2013	May 28, 2013	$	0.21
Second Quarter ended June 30, 2013	August 6, 2013	August 20, 2013	$	0.21
Third Quarter ended September 30, 2013	November 6, 2013	November 20, 2013	$	0.22
Fourth Quarter ended December 31, 2013	February 13, 2014	February 27, 2014	$	0.22

Year ended December 31, 2014	Record Date	Payment Date	Cash Distribution Declared per Common Share

First Quarter ended March 31, 2014(1)	—	—		—
Second Quarter ended June 30, 2014(2)	August 11, 2014	August 12, 2014	$	297,322
Third Quarter ended September 30, 2014(2)	November 13, 2014	November 14, 2014	$	464,892
Fourth Quarter ended December 31, 2014(2)	February 26, 2015	February 27, 2015	$	551,627



Equity compensation plan approved by shareholders	—	—	—
Equity compensation plan not approved by shareholders	—	—	3,421,694

Total	—	—	3,421,694

		Page

EXECUTIVE OVERVIEW			62
CRITICAL ACCOUNTING POLICIES			66
RESULTS OF OPERATIONS			69
LIQUIDITY AND CAPITAL RESOURCES			106
PARTNERSHIP TAX MATTERS			112
OUR INVESTMENT COMPANY ACT STATUS			114
OTHER REGULATORY ITEMS			119
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			119

	Successor Company

				Predecessor Company
				Predecessor Company
	For the eight months ended December 31, 2014			For the four months ended April 30, 2014			For the year ended December 31, 2013			For the year ended December 31, 2012


Base management fees, gross	$	25,883		$	13,364		$	39,065		$	28,244
CLO management fees credit(1)		(9,968	)		(8,111	)		(10,042	)		—
Other related party fees credit		(770	)		—			(3,994	)		—

Total base management fees, net	$	15,145		$	5,253		$	25,029		$	28,244

	Successor Company									Predecessor Company

	For the eight months ended December 31, 2014									For the four months ended April 30, 2014
	Unrealized gains (losses)			Realized gains (losses)			Total			Unrealized gains (losses)		Realized gains (losses)			Total
Corporate loans	$	(204,006	)	$	1,411		$	(202,595	)	$	10,586	$	10,761		$	21,347
Corporate debt securities		(11,847	)		4,889			(6,958	)		4,060		7,429			11,489
RMBS		387			(1,998	)		(1,611	)		14,889		(9,839	)		5,050
Equity investments, at estimated fair value		(30,168	)		(556	)		(30,724	)		12,406		11,991			24,397
Other(1)		(12,094	)		4,504			(7,590	)		10,340		—			10,340

Total	$	(257,728	)	$	8,250		$	(249,478	)	$	52,281	$	20,342		$	72,623

	Predecessor Company

	For the year ended December 31, 2013							For the year ended December 31, 2012
	Unrealized gains (losses)		Realized gains (losses)			Total		Unrealized gains (losses)		Realized gains (losses)			Total
Corporate loans	$	13,709	$	83,207		$	96,916	$	2,226	$	39,958		$	42,184
Corporate debt securities		9,228		9,271			18,499		10,412		104,423			114,835
RMBS		24,909		(14,222	)		10,687		34,584		(25,285	)		9,299
Equity investments, at estimated fair value		40,396		2,049			42,445		31,629		5,193			36,822
Other(1)		12,486		(655	)		11,831		2,088		(2,229	)		(141	)

Total	$	100,728	$	79,650		$	180,378	$	80,939	$	122,060		$	202,999

Change in interest rates	Annual Impact

Increase of 1.0%	$	(21,232	)
Increase of 2.0%	$	(3,049	)
Increase of 3.0%	$	15,134
Increase of 4.0%	$	33,317
Increase of 5.0%	$	51,500

	Less than 1 year			1 - 3 years		3 - 5 years			More than 5 years			Total

Free-Standing Derivatives:
Interest rate swaps(1)	$	—		$	—	$	(6,188	)	$	(47,883	)	$	(54,071	)
Foreign exchange forward contracts		11,156			12,941		3,331			—			27,428
Total rate of return swaps		(130	)		—		—			—			(130	)

Total	$	11,026		$	12,941	$	(2,857	)	$	(47,883	)	$	(26,773	)


By mail:		KKR Financial Holdings LLC
		Attn: Investor Relations
		555 California Street, 50th Floor
		San Francisco, California 94104


By mail:		KKR Financial Holdings LLC
		Attn: General Counsel and Secretary
		555 California Street, 50th Floor
		San Francisco, California 94104
By phone:		(415) 315-6538


		William Janetschek Richard Kreider John McGlinchey Jonathan Thomas Jeffrey Van Horn

	2014		2013

Audit Fees	$	1,375,000	$	2,090,591
Audit-Related Fees	$	394,454	$	339,700
Tax Fees	$	971,179	$	568,432
All Other Fees	$	—	$	—

Total Fees	$	2,740,633	$	2,998,723

Signature	Title	Date


/s/ WILLIAM J. JANETSCHEK William J. Janetschek	Chief Executive Officer and Director (Principal Executive Officer)	March 31, 2015
/s/ JEFFREY B. VAN HORN Jeffrey B. Van Horn	Chief Operating Officer and Director	March 31, 2015
/s/ THOMAS N. MURPHY Thomas N. Murphy	Chief Financial Officer (Principal Financial and Accounting Officer)	March 31, 2015
/s/ RICHARD KREIDER Richard Kreider	Director	March 31, 2015
/s/ JOHN P. MCGLINCHEY John P. McGlinchey	Director	March 31, 2015
/s/ JONATHAN DAVID THOMAS Jonathan David Thomas	Director	March 31, 2015

		Page

Report of Independent Registered Public Accounting Firm			156
Consolidated Balance Sheets			157
Consolidated Statements of Operations			158
Consolidated Statements of Comprehensive Income			159
Consolidated Statements of Changes in Shareholders' Equity			160
Consolidated Statements of Cash Flows			162
Notes to Consolidated Financial Statements			164

	December 31, 2014

	Par		Amortized Cost		Estimated Fair Value
Securities, at estimated fair value	$	721,094	$	654,257	$	638,605

Total	$	721,094	$	654,257	$	638,605

	Eight months ended December 31, 2014

Net realized gains (losses)	$	2,891
Net change in unrealized gains (losses)		(11,460	)

Net realized and unrealized gains (losses)	$	(8,569	)

Description	Amortized Cost		Estimated Fair Value

Due within one year	$	8,079	$	6,129	7.1	%
One to five years		250,972		242,990	8.7
Five to ten years		216,519		215,728	11.0
Greater than ten years		123,889		118,574	0.7

Total	$	599,459	$	583,421

	As of December 31, 2014

Pledged as collateral for collateralized loan obligation secured debt	$	262,085

Total	$	262,085

	December 31, 2013

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Securities available-for-sale	$	326,775	$	24,791	$	(1,225	)	$	350,341
Other securities, at estimated fair value(1)		135,968		12,436		(1,437	)		146,967
Residential mortgage-backed securities, at estimated fair value(1)		138,284		2,809		(65,089	)		76,004

Total securities	$	601,027	$	40,036	$	(67,751	)	$	573,312

	Less Than 12 months					12 Months or More					Total

	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
December 31, 2013
Securities available-for-sale	$	25,543	$	(658	)	$	30,034	$	(567	)	$	55,577	$	(1,225	)

	For the four months ended April 30, 2014		Year ended December 31, 2013			Year ended December 31, 2012

Gross realized gains	$	2,516	$	2,829		$	85,982
Gross realized losses		—		(42	)		(12	)

Net realized gains (losses)	$	2,516	$	2,787		$	85,970

	As of December 31, 2013

Pledged as collateral for collateralized loan obligation secured debt	$	324,830

Total	$	324,830

	As of December 31, 2014

	Estimated Fair Value
Pledged as collateral for collateralized loan obligation secured debt	$	6,205,292

Total	$	6,205,292

	December 31, 2013

	Corporate Loans Held for Investment			Corporate Loans Held for Sale			Corporate Loans, at Estimated Fair Value			Total Corporate Loans
Principal(1)	$	6,280,470		$	315,738		$	277,458		$	6,873,666
Net unamortized discount		(105,979	)		(20,070	)		(54,997	)		(181,046	)

Total amortized cost		6,174,491			295,668			222,461			6,692,620
Lower of cost or fair value adjustment		—			(15,920	)		—			(15,920	)
Allowance for loan losses		(224,999	)		—			—			(224,999	)
Net unrealized gains		—			—			15,019			15,019

Net carrying value	$	5,949,492		$	279,748		$	237,480		$	6,466,720

	For the four months ended April 30, 2014			Year ended December 31, 2013			Year ended December 31, 2012

Allowance for loan losses:
Beginning balance	$	224,999		$	223,472		$	191,407
Provision for loan losses		—			32,812			46,498
Charge-offs		(1,458	)		(31,285	)		(14,433	)

Ending balance	$	223,541		$	224,999		$	223,472

	December 31, 2013

Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	142,682
Ending balance: collectively evaluated for impairment		82,317

	$	224,999



Corporate loans (recorded investment)(1):
Ending balance: individually evaluated for impairment	$	554,442
Ending balance: collectively evaluated for impairment		5,638,790

	$	6,193,232

	December 31, 2013

	Recorded Investment(1)		Unpaid Principal Balance		Related Allowance
With no related allowance recorded	$	—	$	—	$	—
With an allowance recorded		554,442		594,416		142,682

Total	$	554,442	$	594,416	$	142,682