KKR Affiliate Sets Deal

KKR Financial Holdings LLC, a specialty finance company affiliated with buyout shop Kohlberg Kravis Roberts & Co., has struck an agreement to turn over mortgage-backed securities to satisfy $3.5 billion in obligations to commercial-paper holders.

The move ends months of negotiations over an issue that at times had rattled markets. The KKR unit had already written off its investment in the securities, taking a $243.7 million hit last year, but was hoping to recover some of the value via the negotiations.

Instead, the company said Monday that it will take an additional $5.5 million charge to cover remaining costs from the settlement as well as a deal to sell a controlling interest in KKR Financial Corp., the subsidiary that sponsored commercial paper, to Rock Capital 2 LLC. Terms weren't disclosed.

Separately, KKR Financial said it would sell 20 million shares of common stock to raise funds to repay debt or fund investments. The unit has 116 million shares outstanding.