KKR Income Opportunities Fund · NYSE:KIO
KKR Income Opportunities Fund — KKR Credit Opportunities Portfolio — Investor Presentation (March 2024)
62 slides from KKR Income Opportunities Fund's investor presentation, March 2024
Slide 1: KKR Credit Opportunities Portfolio (KCOP)
KKR Credit Opportunities Portfolio (“KCOP”) MARCH 2024 All information as of March 31, 2024 unless otherwise noted CONFIDENTIAL AND PROPRIETARY: For Investment Professionals Only
Slide 2: Important Disclosure and Risk Factors
Important Disclosure and Risk Factors Investment Strategies. The Fund invests in a select portfolio of the Fund’s investment adviser’s (the “Adviser”) do so. In the event that the Board determines not to repurchase more than the repurchase offer amount, or if publicly traded and private credit throu
Slide 3: Important Disclosure and Risk Factors
Important Disclosure and Risk Factors Investment and Market Risk. An investment in the Fund involves a considerable amount of risk. Before making Counterparty Risk, Counterparty and Prime Brokerage Risk, Lender Liability Risk, Borrower Fraud; Covenant-Lite an investment decision, a prospective inves
Slide 4: Important Information
Important Information References to “assets under management” or “AUM” represent the assets as to which KKR Credit Advisors (US) LLC (“KKR Credit” or the “Advisor”) or its affiliates (collectively, “KKR”) is entitled to receive a fee or carried interest. KKR’s calculation of AUM may differ from the
Slide 5: KKR Credit Opportunities Portfolio (KCOP)
KKR Credit Opportunities Portfolio (“KCOP”) KCOP is a continuously offered, unlisted interval fund that provides individual investors direct exposure to KKR’s Credit platform1 01 02 03 Single entry-point to KKR’s A flexible investment mandate Investing alongside an public and private credit to captu
Slide 6: KCOP's Building Blocks
KCOP’s Building Blocks Primary Investment Universe Anticipated Portfolio Composition1 High Yield Bonds • Publicly traded, primarily fixed rate bonds issued by borrowers rated below investment grade Leveraged Loans • Publicly traded, floating-rate loans issued by sub-investment grade borrowers • Seni
Slide 7: Table of Contents
Table of Contents Page 01 KKR and KKR Credit 8 02 Fund Investment Strategy 13 03 Fund Terms 22 04 Credit Market Overview 28 05 Case Studies 30 Appendix A. Performance Attribution 32 B. 2024 Distribution and Repurchase Calendar C. Glossary Important Information 7
Slide 8: KKR and KKR Credit
S EC T I O N 0 1 KKR and KKR Credit
Slide 9: KKR Overview
KKR Overview KKR is a global investment firm with a culture deeply rooted in the pursuit of excellence and shared success with our clients, our companies, and our communities. ~$578BN in ~2,650 Multi-asset 26 ~$24BN 48 Years client AUM employees expertise offices invested of investment invested in i
Slide 10: Scaled Credit Platform
Scaled Credit Platform KKR Global Credit Platform ~220 Professionals Across 11 Cities in 9 Countries Leveraged Loans High Yield Bonds Leveraged Credit Multi-Asset Credit Total $130.3BN Opportunistic Credit Credit Assets Structured Credit $232BN Direct Corporate Credit Private Credit Asset-Based Fina
Slide 11: KKR Credit Investment Philosophy
KKR Credit Investment Philosophy A fundamental investment approach that leverages proprietary resources to source long-term capital appreciation and attractive risk-adjusted returns Active Proprietary Capital Portfolio Sourcing Preservation Management Note: Portfolio managers may use some or all of
Slide 12: Evolution of KKR Credit Over the Past Two Decades
Evolution of KKR Credit Over the Past Two Decades 2006 2007 2010 2012 2013 • Launch of KKR Capital Markets • KKR Credit London and • Private Credit AUM reaches $1.0bn in investments • KLP I Final Close • Launch of KKR Income Opportunities Fund Hong Kong offices opened made through opportunistic sepa
Slide 13: Fund Investment Strategy
S EC T I O N 0 2 Fund Investment Strategy
Slide 14: KCOP Summary
KCOP Summary • Dislocations often coincide with periods of volatility, presenting incremental buying opportunities • KCOP aims to generate consistent alpha by being nimble, having conviction and allocating dynamically KCOP Opportunistic Credit Strategy Private Credit • Conviction-based strategy inve
Slide 15: Opportunistic Strategies Seek Value Between Borders
Opportunistic Strategies Seek Value Between Borders Market Buyers KCOP Absolute Return Buyers (ETFs, Index Mutual Funds) (Hedge Funds, Distressed Debt Investors) Constraints on Constraints on absolute market buyers return buyers • Need to hold more liquid • Need to pursue riskier, bonds to meet pote
Slide 16: A Flexible Investment Mandate Is Key For Building Income And Diversification
A Flexible Investment Mandate Is Key For Building Income And Diversification Credit Markets Offer A Compelling Yield Versus Potential Diversification Benefit Of KCOP Traditional Fixed Income Markets1 Underscored By Its Low Correlations2 16.0% 1.0 KCOP’s Primary Investment Universe Correlation to KCO
Slide 17: We Believe Our Team and Resources Are Differentiators
We Believe Our Team and Resources Are Differentiators • Leveraged Credit analysts are asset class agnostic and aligned by sector o This affords analysts flexibility to seek alpha up and down the capital structure and also across comparable companies • Size and scale fuels broad Private Credit sourci
Slide 18: Powerful Cross Firm Synergies
Powerful Cross Firm Synergies KKR Credit Leverages the Firm’s Intelligence, Resources and Relationships to Source and Analyze Investment Ideas KKR Private Equity KKR Senior Advisors Team of ~300 Deep industry/sector-specific Industry adjacencies provide expertise and relationships sourcing, underwri
Slide 19: Fund Positioning
Fund Positioning Portfolio Statistics Asset Class Exposure Ratings Exposure3 KCOP CLOs, 6% Other, 4% BBB & Above, 2% BB, 7% Managed Assets $978.6 million CCC & Below, Asset-Based 33% Fund Leverage1 24.7% Finance, 3% High Yield Bonds, 38% Issuer / Position Count 299 / 487 B, 27% Public / Private Cred
Slide 20: Fund Performance
Fund Performance Total net return as of March 31, 20241 1-Month 3-Month YTD 1-Year 3-Year2 ITD2 Credit Opportunities Portfolio – Class I (KCOPX) 2.22% 4.99% 4.99% 19.36% 4.74% 7.78% Credit Opportunities Portfolio – Class T (KOTX) 2.17% 4.78% 4.78% 18.47% 3.96% 6.82% Credit Opportunities Portfolio –
Slide 21: Historical Fund Performance
Historical Fund Performance Total net return as of March 31, 20241 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD Class I (KCOPX) - - -9.66% 4.69% 6.29% 1.83% 2.96% 1.86% 0.28% 0.96% 4.44% 2.18% 16.01% Class T (KOTX) - - - - - - 3.04% 1.81% 0.17% 0.88% 4.34% 2.17% - Class T (KOTX) with 2% Sales
Slide 22: Fund Terms
S EC T I O N 0 3 Fund Terms
Slide 23: Fund Terms
Fund Terms Fund name KKR Credit Opportunities Portfolio Structure Unlisted, 1940 Act registered, closed-end interval fund Fund inception February 28, 2020 Subscriptions Daily subscriptions at NAV1 Shareholder liquidity Quarterly repurchase offers of 10% of the Fund’s outstanding shares at NAV2 Manag
Slide 24: Credit Market Overview
S EC T I O N 0 4 Credit Market Overview
Slide 25: Credit Market Snapshot
Credit Market Snapshot As of March 31, 2024 Total Return (%) Price ($) Yield (%)1 Spread (bps)2 MTD QTD YTD L-12M US High Yield 93.2 7.9% 315 1.2% 1.5% 1.5% 11.0% Investment Grade 92.6 5.4% 94 1.2% -0.1% -0.1% 4.7% BB Bonds 95.5 6.6% 190 1.3% 1.1% 1.1% 9.0% B Bonds 94.8 7.9% 308 1.0% 1.5% 1.5% 11.4%
Slide 26: Credit Market Fundamentals
Credit Market Fundamentals EBITDA vs Prior Year Revenue vs Prior Year 30% 30% 20% 20% 10% 10% 0% 0% -10% -10% -20% Mar-23 Mar-21 Mar-22 Mar-24 Sep-23 Sep-20 Sep-21 Sep-22 Jun-22 Jun-23 Dec-22 Dec-23 Jun-20 Jun-21 Dec-20 Dec-21 Mar-21 Mar-22 Mar-23 Mar-24 Sep-20 Sep-21 Sep-22 Sep-23 Jun-20 Jun-21 Jun
Slide 27: KKR Believes Credit Markets Provide a Compelling Opportunity
KKR Believes Credit Markets Provide a Compelling Opportunity Relative Value by Spread, Yield and Price (1) Spread Levels As of 3/31/24 As of 2/29/24 As of 12/31/23 5y (% tile) 7y (% tile) 10y (% tile) US High Yield 312 329 339 95% 97% 98% EU High Yield 356 350 401 70% 62% 68% US Bank Loans 440 448 4
Slide 28: Case Studies
S EC T I O N 0 5 Case Studies
Slide 29: Case Studies: Opportunistic Credit
Case Studies: Opportunistic Credit Regional Amusement Park Operator Diversified Industrial – Aerospace & Metal Coating Segments Investment Overview: Investment Overview: • Company sought financing for liquidity during the pandemic and to repay its facilities • Investment team built a position opport
Slide 30: Case Studies: Private Direct Lending
Case Studies: Private Direct Lending US-Based Wood Shipping Pallet Recycler Specialty And Branded Food Distributor Investment Overview: Investment Overview: • Company’s private equity sponsor approached KKR Credit to provide financing to • KKR Credit provided staple financing package for the acquisi
Slide 31: Case Studies: Private Asset-Based Finance
Case Studies: Private Asset-Based Finance Large PC & Global Tech Equipment Manufacturer Online Real Estate Platform For Single-Family Homes Investment Overview: Investment Overview: • “Amend & extend” of an existing financing arrangement with the company • Refinancing of existing mezzanine financing
Slide 32: Appendix
Appendix
Slide 33: Performance Attribution (YTD 2024)
APPENDIX A Performance Attribution (YTD 2024) By Asset Type By Rating Average Contribution to Average Contribution to Weight (%) Return (%) Weight (%) Return (%) High Yield 53.10 2.04 A 0.03 0.00 Loan 58.30 3.18 BBB 2.67 0.12 Other 13.84 0.90 BB 8.98 0.33 B 27.84 0.80 CCC 49.44 3.00 CC and Below 1.3
Slide 34: Performance Attribution (2023)
APPENDIX A Performance Attribution (2023) By Asset Type By Rating Average Contribution to Average Contribution to Weight (%) Return (%) Weight (%) Return (%) High Yield 50.09 12.77 AA 0.43 0.04 Loan 64.24 11.28 A 0.54 0.06 Other 13.63 2.23 BBB 1.06 0.13 BB 7.68 1.62 B 30.47 5.74 CCC 48.69 11.76 CC a
Slide 35: Performance Attribution (2022)
APPENDIX A Performance Attribution (2022) By Asset Type By Rating Average Contribution to Average Contribution to Weight (%) Return (%) Weight (%) Return (%) High Yield 59.32 -11.18 AA 0.22 0.03 Loan 65.91 -0.06 A 0.09 0.00 Other 12.10 -0.31 BBB 0.14 -0.01 BB 7.51 -0.40 B 31.73 -1.45 CCC 65.55 -10.6
Slide 36: Performance Attribution (2021)
APPENDIX A Performance Attribution (2021) By Asset Type By Rating Average Contribution to Average Contribution to Weight (%) Return (%) Weight (%) Return (%) High Yield 2.74 2.74 BBB 1.41 -0.09 Loan 4.69 4.69 BB 4.23 0.27 Other 0.31 0.31 B 31.58 2.20 CCC 80.72 4.63 CC and Below 0.19 0.09 NR 8.05 0.6
Slide 37: Performance Attribution (2020)
APPENDIX A Performance Attribution (2020)1 By Asset Type By Rating Average Contribution to Average Contribution to Weight (%) Return (%) Weight (%) Return (%) High Yield 51.57 8.77 A 0.03 0.02 Loan 42.03 5.12 BBB 5.23 1.74 Other 1.76 0.33 BB 6.75 3.60 B 35.26 2.07 CCC 45.67 5.38 CC and Below 0.86 0.
Slide 38: 2024 Distribution and Repurchase Schedule
APPENDIX B 2024 Distribution and Repurchase Schedule Distribution Schedule The Fund intends to distribute monthly in accordance with the distribution schedule below. Unless the shareholder elects to receive cash, all dividends declared on shares will be automatically reinvested in additional shares
Slide 39: Glossary
APPENDIX C Glossary Asset-based finance (ABF): Refers to the provision of privately originated financing across the consumer, middle market corporate, and real assets sectors where each investment is backed by a portfolio of cash flow generating financial (e.g. leases) or real assets (e.g. aircraft)
Slide 40: Important Information
Important Information Repurchase Offers Risk. The Fund is an interval fund and, in order to provide liquidity to Shareholders, the Fund, quarantines, supply chain disruptions and reduced consumer demand, as well as general concern and subject to applicable law, conducts quarterly repurchase offers o
Slide 41: Important Information
Important Information Although investments by the Fund are expected to generate current income, the return of capital and the is unable to manage interest rate risk effectively, the Fund’s performance could be adversely affected. realization of gains, if any, from an investment generally will occur
Slide 42: Important Information
Important Information The Fund will, from time to time, invest in investments that the Adviser believes are secured by specific commitment agreement, and such unfunded commitment agreement will not be subject to the asset coverage collateral, the value of which exceeds the principal amount of the in
Slide 43: Important Information
Important Information Subordinated and Unsecured or Partially Secured Loans Risk. The Fund will, from time to time, invest in Risk of Investments in Highly Leveraged Companies. The Fund’s investments are expected to include investments unsecured loans and secured subordinated loans, including second
Slide 44: Important Information
Important Information Risk of Investments in the Shipping Industry. The Fund will, from time to time, make equity, debt or hybrid disasters; and the ability of the Fund or third-party borrowers to manage the real properties. The Fund could investments in companies that acquire financial and/or hard
Slide 45: Important Information
Important Information Short Selling Risk. Short selling involves a number of risks. Short sales are transactions in which the Fund sells a Credit Derivatives Risk. The use of credit derivatives is a highly specialized activity which involves strategies and security or other instrument that it does n
Slide 46: Important Information
Important Information OTC derivatives generally are more difficult to purchase, sell or value than other investments. Although both CFTC and the relevant exchanges, the Adviser could in the future reduce the size of positions that would OTC and exchange-traded derivatives markets can experience a la
Slide 47: Important Information
Important Information Typically, Structured Products are privately offered and sold, and thus, are not registered under the securities Repurchase Agreements Risk. Subject to its investment objective and policies, the Fund will, from time to time, laws and can be thinly traded or have a limited tradi
Slide 48: Important Information
Important Information Options and Futures Risk. The Fund will, from time to time, use options and futures contracts and so-called Investment Companies Risk. The Fund will, from time to time, invest in securities of exchange-traded funds “synthetic” options or other derivatives written by broker-deal
Slide 49: Important Information
Important Information In addition, under common law principles that in some cases form the basis for lender liability claims, if a lender conveyance, the court could void or otherwise refuse to recognize the payment obligations under the debt or bondholder (i) intentionally takes an action that resu
Slide 50: Important Information
Important Information The value of a convertible security is a function of its “investment value” (determined by its yield in comparison with participation by one or more third parties in such investment. As a co-investor, the Fund could have with the yields of other securities of comparable maturit
Slide 51: Important Information
Important Information Emerging Markets Risk. Because of less developed markets and economies and, in some countries, less mature On January 31, 2020, the UK officially withdrew from the EU. On December 24, 2020, the UK and EU governments and governmental institutions, the risks of investing in forei
Slide 52: Important Information
Important Information Abandonment of or modifications to LIBOR could lead to significant short-term and long-term uncertainty and on a price. Due to the lack of centralized information and trading, the valuation of loans or fixed-income market instability. In connection with supervisory guidance fro
Slide 53: Important Information
Important Information Conflicts of Interest Risk. The Adviser will experience conflicts of interest in connection with the management of the number of opportunities available to the Fund. Such supply-side competition could adversely affect the the Fund, relating to the allocation of the Adviser’s ti
Slide 54: Important Information
Important Information These developments could increase the volatility of the value of securities owned by the Fund. These Risks Relating to Fund’s RIC Status. To qualify and remain eligible for the special tax treatment accorded to RICs developments also could make it more difficult for the Fund to
Slide 55: Important Information
Important Information Private and Middle Market Companies. The Fund will, from time to time, acquire loans from issuers, including, Determinations as to the amount of capital available for investment are based on such factors as: the amount but not limited to, private and middle-market companies, wh
Slide 56: Important Information
Important Information KKR and the Adviser sponsor and advise, and expect in the future to sponsor and advise, a broad range of entities and accounts rather than to the Fund. To mitigate this conflict, KKR will allocate investment investment funds, vehicles and other accounts, including proprietary v
Slide 57: Important Information
Important Information The nature of the Adviser’s businesses and the participation by its employees in creditors’ committees, steering tax treatment of the other KKR client accounts or proprietary accounts and the Fund or the regulatory status of committees or boards of directors of portfolio compan
Slide 58: Important Information for Non-US Residents
Important Information IMPORTANT INFORMATION FOR ALL NON-US RESIDENTS Companies in Bermuda (ROC) nor the Bermuda Monetary Authority or any other regulatory body in Bermuda has reviewed this presentation and accepts no responsibility for the financial soundness of any proposal or for This presentation
Slide 59: Important Information for Residents of Chile and Costa Rica
Important Information IMPORTANT INFORMATION FOR RESIDENTS OF CHILE IMPORTANT INFORMATION FOR RESIDENTS OF COSTA RICA Date of the offer: June 9, 2020 The Shares are not intended for the Costa Rican public or market and are neither registered nor will be registered before the General Superintendence o
Slide 60: Important Information for Residents of Guernsey and Israel
Important Information IMPORTANT INFORMATION FOR RESIDENTS OF GUERNSEY that would permit the public offering of the Fund, or distribution of materials that relate to investment therein to the public in Israel. Neither this presentation, nor any other document that relates to the Fund, has been Neithe
Slide 61: Important Information for Residents of New Zealand, Japan, Panama
Important Information IMPORTANT INFORMATION FOR RESIDENTS OF NEW ZEALAND IMPORTANT INFORMATION FOR RESIDENTS OF PANAMA No Shares are offered to the public in New Zealand. Accordingly, the Shares may not, directly or indirectly, be The Shares have not been and will not be registered with the Superint
Slide 62: Important Information for Residents of Taiwan and Thailand
Important Information IMPORTANT INFORMATION FOR RESIDENTS OF TAIWAN The Fund is being made available in Taiwan on a private placement basis only to banks, bills houses, trust enterprises, insurance companies, securities firms, financial holding companies and other qualified entities or institutions
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