KKR Announces Offering of Mandatory Convertible Preferred Stock

Rhea-AI Summary

KKR (NYSE: KKR) has announced a $1.5 billion offering of Series D Mandatory Convertible Preferred Stock, consisting of 30 million shares at $50.00 per share liquidation preference. The company is also granting underwriters a 30-day option for an additional $225 million (4.5 million shares) to cover potential over-allotments.

The proceeds will be used to acquire additional equity interests in core private equity portfolio companies within KKR's Strategic Holdings segment and for general corporate purposes. The preferred stock will automatically convert into a variable number of common stock shares around March 1, 2028, unless converted earlier by holders.

Morgan Stanley & Co. and KKR Capital Markets are serving as joint book-running managers for the offering, which is being conducted through an effective shelf registration statement filed with the SEC.

Positive

• Large capital raise of $1.5 billion with potential for additional $225 million
• Strategic investment in core private equity portfolio companies
• Flexible financing structure through convertible preferred stock

Negative

• Potential dilution for existing shareholders upon conversion
• Additional dividend obligations from preferred stock
• Increased financial leverage

Insights

Financial Markets Expert

KKR's announcement of a $1.5 billion mandatory convertible preferred stock offering represents a sophisticated capital raising strategy with significant implications. The structure - mandatory conversion to common stock by 2028 unless converted earlier - provides immediate capital while delaying potential dilution. This three-year timeframe suggests confidence in long-term growth potential that would support favorable conversion terms when mandatory conversion occurs.

The stated use of proceeds for acquiring additional equity interests in core private equity portfolio companies is particularly noteworthy. This indicates KKR is likely seeing attractive valuations or strategic opportunities within its existing portfolio that warrant increasing ownership stakes. The $1.5 billion size (potentially $1.725 billion with overallotments) represents a material capital commitment that could significantly enhance the Strategic Holdings segment.

From a capital structure perspective, preferred equity sits between debt and common equity, offering KKR flexibility without immediately impacting debt covenants or credit ratings. The $50 liquidation preference per share provides a floor value for the security, while the conversion feature offers upside potential tied to KKR's common stock performance. Without specified dividend rates or conversion ratios (to be determined at pricing), investors can't yet fully evaluate the offering's attractiveness.

This transaction demonstrates KKR's ability to access capital markets efficiently, even using its own capital markets division as a book-runner alongside Morgan Stanley, showcasing its internal capabilities and potentially reducing issuance costs.

Private Equity Expert

This offering signals an important strategic pivot for KKR toward increasing ownership in its highest-conviction portfolio companies. The Strategic Holdings segment is where KKR maintains longer-term positions in select portfolio companies beyond traditional fund timelines. By specifically earmarking these proceeds for additional equity interests in core private equity portfolio companies, KKR is likely executing a strategy to capture more upside in its best-performing assets.

This approach has several strategic advantages. First, KKR already possesses deep knowledge of these businesses through its existing investments, reducing information asymmetry risks. Second, increasing stakes in proven performers allows for potentially higher returns than new, unproven investments. Third, by holding these positions on balance sheet rather than in time- funds, KKR can optimize exit timing rather than facing fund lifecycle pressures.

The structure of a mandatory convertible preferred stock is particularly well-suited for this strategy. It provides immediate capital for acquisitions while aligning the conversion timeline (March 2028) with the expected maturation period of private equity investments. This suggests KKR anticipates value creation in these portfolio companies over a similar timeframe.

For investors, this represents KKR doubling down on its highest-conviction investments, effectively saying "we want more of what's working well." However, the ultimate value creation depends entirely on the performance of these increased stakes and whether KKR can successfully manage potential conflicts between its role as both fund manager and direct investor in these portfolio companies.

NEW YORK--(BUSINESS WIRE)-- KKR & Co. Inc. (“KKR”) (NYSE: KKR) today announced that it has commenced an offering of $1.5 billion (30,000,000 shares) of its Series D Mandatory Convertible Preferred Stock, par value $0.01 per share (the “mandatory convertible preferred stock”), subject to market and other conditions (the “offering”). KKR expects to grant the underwriters a 30-day option to purchase up to an additional $225 million (4,500,000 shares) of mandatory convertible preferred stock, solely to cover over-allotments, if any.

KKR intends to use the net proceeds from the offering for the acquisition of additional equity interests in core private equity portfolio companies reported in its Strategic Holdings segment and for other general corporate purposes.

Each share of mandatory convertible preferred stock will have a liquidation preference of $50.00 per share. Unless earlier converted at the option of the holders, each share of mandatory convertible preferred stock will automatically convert into a variable number of shares of common stock on or around March 1, 2028. The conversion rates, dividend rate and the other terms of the mandatory convertible preferred stock will be determined at the time of pricing.

Morgan Stanley & Co. LLC and KKR Capital Markets LLC are acting as joint book-running managers for the offering.

The offering is being made pursuant to an effective shelf registration statement on file with the U.S. Securities and Exchange Commission (the “SEC”). The offering will be made by means of a prospectus and related preliminary prospectus supplement only. An electronic copy of the preliminary prospectus supplement, together with the accompanying prospectus, is available on the SEC’s website at www.sec.gov. Alternatively, copies of the preliminary prospectus supplement and accompanying prospectus may be obtained by contacting the joint book-running managers: Morgan Stanley & Co. LLC, Attention: Prospectus Department, 180 Varick Street, 2nd Floor, New York, NY 10014, or by email to prospectus@morganstanley.com; and KKR Capital Markets LLC, by telephone at (212) 750-8300 or by email to ECMCapitalMarkets@kkr.com.

This press release shall not constitute an offer to sell or a solicitation of an offer to purchase the mandatory convertible preferred stock or any other securities, and shall not constitute an offer, solicitation or sale of the mandatory convertible preferred stock in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This press release contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, pertaining to KKR. Forward-looking statements relate to expectations, estimates, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. These forward-looking statements can be identified by the use of words such as “outlook,” “believe,” “think,” “expect,” “potential,” “continue,” “may,” “should,” “seek,” “approximately,” “predict,” “intend,” “will,” “plan,” “estimate,” “anticipate,” visibility,” “positioned,” “path to,” “conviction,” the negative version of these words, other comparable words or other statements that do not relate strictly to historical or factual matters. These forward-looking statements are based on KKR’s beliefs, assumptions and expectations, but these beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to KKR or within its control. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking statements. We believe these factors include those in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. These factors should be read in conjunction with the other cautionary statements that are included in our periodic filings. Past performance is no guarantee of future results. All forward-looking statements speak only as of the date of this press release. KKR does not undertake any obligation to update any forward-looking statements to reflect circumstances or events that occur after the date of this press release except as required by law.

View source version on businesswire.com: https://www.businesswire.com/news/home/20250304232380/en/

Investor Relations:

Craig Larson

Tel: +1 (877) 610-4910 (U.S.) / +1 (212) 230-9410

investor-relations@kkr.com

Media:

Kristi Huller, Miles Radcliffe-Trenner or Julia Kosygina

Tel: + 1 (212) 750-8300

media@kkr.com

Source: KKR & Co. Inc.

FAQ

What is the size of KKR's Series D Mandatory Convertible Preferred Stock offering?

KKR is offering $1.5 billion (30 million shares) of Series D Mandatory Convertible Preferred Stock, with an additional $225 million over-allotment option.

When will KKR's Mandatory Convertible Preferred Stock convert to common shares?

The mandatory conversion is scheduled for around March 1, 2028, unless holders opt for earlier conversion.

What is the liquidation preference per share for KKR's new preferred stock?

Each share of the Series D Mandatory Convertible Preferred Stock has a liquidation preference of $50.00 per share.

How will KKR use the proceeds from the preferred stock offering?

KKR will use the proceeds to acquire additional equity interests in core private equity portfolio companies in its Strategic Holdings segment and for general corporate purposes.