KKR Credit Income Fund

KKR Credit Income Fund (Proposed ASX Code: KKC) is an investment trust being managed by KKR Australia Investment Management Pty Ltd. Two credit investment strategies underlying the trust include the Global Credit Opportunities Fund (GCOF) that will account for a long-term target portfolio allocation of 50-60% and the European Direct Lending (EDL) investment strategy, accounting for long-term target allocation of 40-50%.

About KKR: KKR is a global alternative investment firm with over $199 billion in assets under management. The firm comprises of a large network of investment professionals, spanning across four continents in 20 cities with extensive knowledge in areas of credit, private equity, real estate, and infrastructure.

GCOF:The Global Credit Opportunities Fund invests in a portfolio of sub-investment grade traded credit securities, mainly comprising bank loans, high yield bonds, opportunistic credit, revolving credit and Collateralised Loan Obligation’s (CLO’s). 90% of the fund’s investments are based in the US domiciled companies. It is based on KKR Credit’s Opportunity Credit Strategy that holds an 11-year track record with exceptional performance across the full credit cycle.

EDL: The EDL strategy, to be launched through the KLPE II fund, has a track record of 7 years and seeks to generate income through investments, solely originated from the senior debt of European companies.The strategy is currently being run by KKR Lending Partners Europe I fund that reported a weighted average EBITDA of 60 million euros as at 31 March 2019.


Important Dates (Source: Company Reports)
 
Listing Update:The trust is expected to list on the ASX on 21 November 2019 with units to be issued at a price of $2.50 each. The proposed ASX code for the trust post listing will be ‘KKC’. Capital raising for the trust will be in the range of $200 million - $750 million, with oversubscriptions up to a further amount of $75 million. The offer opened on 23 September 2019 with closing date scheduled for 06 November 2019.

Investment Information: The trust is targeting a distribution in the range of 4% - 6% per annum, net of fees and expenses, which will be payable quarterly. The medium-average total return is expected to be in the range of 6% - 8% per annum, net of fees and expenses.

Investment Strategy: The listed investment trust is aimed at providing the investors with access to KKR’s income generating global credit investments. Through a highly diversified credit investment portfolio, the trust aims to achieve long-term capital appreciation over a full market cycle and generates a stable income stream for its Unitholders.

Portfolio Characteristics:Through a combination of the above stated strategies, namely GCOF and EDL, the trust will comprise of fixed income securities, representing a geographical diversification across Europe and North America at 54% and 46%, respectively. In addition, approximately 86% of the investments are done in Senior securities and remaining 14% into Subordinated securities. Investments in floating rate securities is targeted at around 72% against 28% on fixed rate securities.

Overall, KKR Credit Investment Trust is supported by a renowned private-markets asset manager, led by a highly experienced team, which consists of 120 dedicated investment professionals, supported by 425 KKR investment professionals globally. Although, the recent rate cuts by the RBA have extended the later stages of the current credit cycle, posing a risk to all asset classes, KKR is confident on its capabilities with KKR CIT’s high level of diversification, reduced correlation with traditional fixed income instruments and KKR’s experience in successfully navigating similar strategies through market downturns. We suggest investors to take a watch stance on the stock post listing.

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