Laurie Poggi - IR Bill Sonneborn - CEO, President Mike McFerran - CFOfficer

Lee Cooperman - Omega Advisors Gabe Poggi - FBR Capital Markets Alan Mark - Raymond Asset Management

Ladies and gentlemen, thank you for standing by. Welcome to the KKR Financial Holdings LLC second quarter 2009 conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation of the conference we will open the conference up for questions. (Operator Instructions) This conference call is being recorded. I would now like to turn the conference over to Laurie Poggi, Investor Relations for KKR Asset Management. Please go ahead.

Thanks, Sony. Good afternoon and welcome to KFN’s second quarter 2009 conference call. I'm Laurie Poggi, Director of Investor Relations for KKR Asset Management and participating on today’s call are Bill Sonneborn, the company’s Chief Executive Officer; Michael McFerran, the company’s Chief Operating Officer; Jeff Van Horn, the company’s Chief Financial Officer; and Andrew Sossen, the company’s General Counsel. Our financial results released for the second quarter was issued today and as with prior quarters, a supplemental information packet was posted on our website. Today’s call is being webcast live on our website and a recording will be available beginning later today through August 20. The audio webcast will be archived in the Investor Relations section of the company’s website as well. At this time, I’d like to remind you that this conference call contains forward-looking statements that are based on the beliefs of the management team regarding the operations and the results of the operations of the company, as well as general economic conditions. These beliefs and the related forward-looking statements are subject to substantial risks and uncertainties, which are described in greater detail in the filings we have made with the Securities and Exchange Commission. These filings are available on the Securities and Exchange Commission’s website at www.sec.gov. Our actual results may vary materially from those described in these forward-looking statements. And now, I’ll turn the call over to management. Bill, please go ahead.

Thank you, Laurie and good afternoon. Our team accomplished a great deal during the quarter. We made progress on liquidity issues around KFN's capital structure, the goal we've discussed in the last several calls. These steps and others on which we are focused will help maximize the value of our assets over the long-term. First, as indicated in our earnings release today, we successfully amended our credit facility to both extend its maturity date by one year and provide additional flexibility to the company. Second, as previously disclosed, we took specific actions to enhance the over-collateralization on three of our cash flow CLOs, which improved the opportunity for KFN to generate cash flow and permit more flexibility in continuing to maintain our low cost LIBOR plus 33 basis point term financing in this new credit spread environment on those structures. Finally, we have paid down the senior debt in CLO 2009-1, our most expensive structured finance debt, and have freed-up the remaining loan collateral in that CLO for purposes of cash flow and corporate flexibility. Excluding our CLO notes, mortgages and private equity and other assets, we now have cash and a market value of loans and bonds with a cushion compared to face amount of debt maturing between now and 2036. A number of these accomplishments were significantly assisted by the strong credit performance during the quarter, as well as year-to-date, the market value of our corporate debt portfolio has appreciated 26% year-to-date through June 30 and 33% year-to-date through July 31. As of July 31, our corporate debt portfolio including our bond positions had a weighted average market value of approximately 78% of par. I note that under a GAAP our loan portfolio is carried at amortized costs, less than allowance for loan losses. During the quarter, we generated operating income of $0.33 per share that figure differed from our reported EPS of $0.14 by a series of items, which Mike will describe in detail later on in this call. So before I turn the call over to Mike, I'd like to expand upon these three key milestones the company accomplished during the quarter. First, the details on our amended senior secured credit facility. Prior to this amendment, we had a 300 million facility that was due to step-down to a 150 million in November of this year. We have amended that facility to reflect the following: one, the size of the facility was reduced to 200 million. As of June 30, we had 257 million in borrowings outstanding and have paid this amount down to the 200 million facility size. Second, the final maturity of the facility is extended to November 2011 from November 2010. Third, the facility reduces in size by 12.5 million on each of September 30, 2009 and each subsequent quarter until June 30, 2010. This results in a 150 million facility size as of June 30, 2010 through the maturity of the facility as opposed to a step down to a 150 million in November of this year. This is an asset-backed borrowing based facility according to the amount of actual borrowings outstanding will be determined by the market value of the assets pledged to the facility. As of today, the company's available collateral supports the ability to have default 200 million drawn under this facility. The cost of funding for this facility increased from LIBOR plus three to LIBOR plus 4% and we paid the lenders 4.5 million in fees in relation to this amendment. The amendment allows us now to issue second-lien debt or as we are restricted from doing so, prior to this amendment. The amendment reduces our adjustable tangible net worth covenant to 700 million from one billion to provide additional flexibility given the GAAP recording of amortized costs. Also under the amendment we are able to use up to 50 million of unrestricted cash to repurchase convertible notes or trust-preferred securities, whereas we were unable to use cash to do so prior to the amendment. Finally, in addition to these terms, the amended credit facility provides the ability to pay annual dividends up to 50% of estimated annual taxable income. As of today, based on both the market value of assets collateralizing the credit facility and the advanced rates applied to those market values we have approximately 250 million of collateral support based on underlying advance rates within this facility, against the 200 million outstanding. Extending the duration of this facility has provided us with increased flexibility to address the maturity dates of our borrowings. We consider this an important step in improving KFN’s overall capital structure. Now, let’s move on to the important action that we took in relation to our cash flow CLOs. Specifically, CLO 2005-1, CLO 2005-2 and CLO 2006-1 for which we hold 100% of the subordinated notes, or more simply the equity in these vehicles. As we've described on previous calls the primary source of the company’s liquidity challenges has been due to non-compliance of our CLOs with their irrespective over-collateralization or OC tests. As described in detail in the MD&A section of our Form 10-Q filed today and previously, when the CLO is out of compliance with its OC tests the cash flows that would normally be received by the mezzanine and subordinated noteholders is used to amortize the principal amount of the most senior class of notes issued by that CLO. During the latter part of 2008, certain of our CLOs began failing their respective OC tests. Due to ratings agency downgrade, the material asset price declined. Subsequent to the end of the second quarter, the company took the action of surrendering for cancellation at total of 298 million of mezzanine and junior notes issued by CLO 2005-1, CLO 2005-2 and CLO 2006-1 Page 13 of the supplemental presentation shows the results of our OC tests based on the June monthly reports for our CLOs prior to this action, and Page 14 of the presentation shows the results of our OC tests from the July monthly reports, which reflect this action. As the company holds all of the subordinated notes in these CLOs the company and shareholders still have all the upside in these deals as the CLOs have simply removed debt from their respective capital structures and all residual benefits and cash flow of the deal still flow to the company. The cancellation of these notes brought the OC test into compliance, as the result has materially improved the cash flow outlook for KFN. Finally, the action we took for 2009-1, our cash flow CLO which replaced our market value CLO was out of funding LLC earlier this year. CLO 2009-1 was a triple amortizing structure, such that all principal and interest from the assets in CLO 2009-1 were to be used to pay-off the senior debt prior to the company receiving any cash distribution from its structure. As a result, we did not expect to receive any cash flows in CLO 2009-1 for at least the next two plus years. The rally in loan prices over the past quarter provide us the opportunity to sell higher priced investments held in that structure to generate sufficient cash within the vehicle to pay-off its outstanding senior debt, which was the most expensive financing of any of our structured financing vehicle. We were able to sell 423.1 million of corporate debt investments at a weighted average price of 88% on par. The assets we sold had a cash yield of 3.9% as compared with the interest rate on the senior debt within the structure of LIBOR plus 4.25. On July 24, we retired the senior notes issued by CLO 2009-1 and subsequently distributed to an affiliate [rolled at] 20% interest in the subordinated notes issued by that structure, its pro rata interest in the residual assets. The net result of this transaction is that KFN now owns the residual assets of CLO 2009-1, which consists of corporate debt investments with the par value of 317.4 million at an estimated fair value of 242.4 million as of June 30, 2009 as well as cash and receivables totaling 14.9 million. KFN will receive the interest coupon payments on these assets which we currently estimate to be approximately 11.5 million per year. Subject to a variety of risks as we have both noted in our public filings in previous calls, we expect the CLO modifications and the pay down of senior notes within 2009-1 will generate approximately 60 to 70 million of cash flow to KFN on a run rate basis. In addition to these actions, I also want you to – want to provide you with an update on our total rate of returns swaps. We currently have approximately 33.5 million of net debt related to loans with an estimated fair value of 59.2 million that are financed on total rate of return swap. During our last earnings call, we highlighted that most of these swaps were scheduled to mature during the fourth quarter of 2009. Since that call, we have successfully extended the terms of those swaps; and as of today, we have no swaps maturing prior to June 2010. Next, I want to summarize where KFN's balance sheet stands as of today. On the pro forma basis, have adjust our June 30 balances for the pay down of our senior secured credit facility to 200 million and a deleveraging of 2009-1. Our balance sheet would reflect net cash of 68.2 million and total corporate investments held on balance sheet outside of our CLOs with a par amount of 862.8 million and an estimated fair value of 456.7 million. In comparison, our debt that is maturing over the next three years consists of the 200 million secured credit facility and 275.8 million of convertible notes. Accordingly, excluding our mortgages, investments held through swap all of our private equity investments and all of our CLO interest, the combined value of our corporate debt investments and unrestricted cash up $525 million is approximately 50 million in excess of our debt that will mature over the next several years. Simply put, we now have cash and on balance sheet loans and bonds with the market value in excess of the total amount of debt under our credit facility in remaining senior convertible notes. Additionally, let’s spend a moment on our book value, loss provisions and outlook. As of June 30, the carrying value of our corporate debt investments was 86% of par; this means that our current book value of $5.69 per share as of June 30 reflects the loss rate of 14% of our investments in corporate debt. Based on our current expectations, we believe that the carrying value of our corporate debt investments is appropriate and while improved market conditions could result in our portfolio performing better than this. We have taken loan loss provisions and bond impairments during the past several quarters that reflect the current challenging economic environment. With that, I'd like to turn the call over to Mike to discuss our financial results in more detail. Mike?

Thanks, Bill and good afternoon. We reported net income for the quarter of 20.6 million or $0.14 per diluted common share. Our operating income for the quarter reflecting net investment income before provision for loan losses totaled 67.5 million less non-investments expenses of 17.4 million, total operating income was 50.1 million or $0.33 per share. The $29.5 million difference between our operating income of 50.1 million and net income of 20.6 million, this is the several one-off items that I'll walk you through. First, we recorded a provision for loan losses of $12.8 million, which were netted against charge-offs to our allowance for loan losses during the quarter of 47.4 million resulted in an ending allowance for loan loss balance of $473.2 million as of June 30. Next, we have realized and unrealized gains on derivatives and foreign exchange of 26.5 million, this amount primarily consisted of mark-to-market gains on loans financed the total rate of return swaps and gain from single name credit default swaps where we are allowing certain credits. We also had realized and unrealized losses on investments totaling 46.6 million during the quarter. The largest component of this was 27.2 million and losses recognized from the disposition of 423.1 million par amount of investment sold as part of deleveraging CLO 2009-1. We also recorded an impairment charges on two bond investments totaling 6.2 million. As we have previous reported, we recorded material impartment charges for several bond positions over the past several quarters, particular at year end 2008. During the second quarter these positions experienced significant material price appreciation, and as reflected in our other comprehensive income on our balance sheet as of June 30, the aggregate market value of our bond positioned that have been impaired have a market value now or as of June 30 was a 66 million higher than the market value of these bond positions were previously written down to. This gain would flow through income upon realization. In addition of these items, we also had realized and unrealized losses on our residential mortgage-backed securities investments totaling 7.4 million. Gains from certain short positions totaling 2.5 million and gains from exchanges of convertible notes for common shares is 6.9 million. During the quarter, we executed two separate exchanges through which the company issued approximately 7.2 million shares of common stock and exchange for 15.7 million face amounts of convertible notes. Next, I’m going to review our balance sheet as of quarter end. At June 30, our unrestricted cash balance totaled 114.4 million when adjusted to pay down for when adjusted for the pay down of our senior secured credit facility to 200 million and the related fees and receipt of residual assets, specifically cash from 2009-1 upon its deleveraging. Our pro forma June 30, cash balance would be 68 million. As described in the MD&A section of our Form 10-Q filed today, we held corporate loans and bonds outside of our CLOs excluding loans held (inaudible) return swaps for the total par value of 545.4 million and an estimated market value of 214.3 million. As Bill previously described, when adjusted reflect the residual assets we now hold from the deleveraging of CLO 2009-1 the total par and estimated fair value of our investments held on balance sheet is 862.8 of par with a fair value of 456.7 million. As of June 30, our loan portfolio was carried on our balance sheet at 88% of par value and our bond portfolio was carried at 68% of par value and when combined our total corporate debt investment portfolio is carried to 86% of par value. Next, I’ll cover the liability section of our balance sheet. As of June 30, the weighted average cost of financing of the senior notes issued or as CLOs was LIBOR plus 86 basis points. On a pro forma basis excluding the senior notes issued by 2009-1 that were retired subsequent to quarter end, the weighted average cost of financing of the senior notes issued by our CLOs was LIBOR plus 52 basis points. The CLO note to affiliates line items in our balance sheet reflects the minority interest of the mezzanine and subordinated tranches issued by CLO 2007-1, 2007-8 and CLO 2009-1 which are held by an affiliate. Other than our CLOs, our debt consists of our senior secured credit facility, which has been paid down to 200 million subsequent to quarter end. Our convertible notes through July 2012, the outstanding balance of 275.8 million and our 30 year trust preferred securities totaling 288.7 million. Before handing this back to Bill, I will spend a minute on our liquidity outlook. Last quarter, we indicated that we expect to generate sufficient cash flows from our investments held outside of CLOs to meet our expense obligations. We believe that the actions taken this quarter, specifically the deleveraging of 2009-1 and the cancellation of debt issued by 2005-1, CLO 2005-2 and CLO 2006-1 improves the company’s cash flow outlook by 60 to $70 million, annually. And I do want to highlight that this estimate is based on several assumptions it could be impacted by changes in market conditions. Most notably, changes in LIBOR can affect the cash flows we receive, as well as defaults, decline in asset prices and rating agency downgrades could cause each of the three CLOs that we brought into compliance 2005-1, 2005-2 and 2006-1 to fall out of compliance with the respective over-collateralization tests. Similarly, defaults of investments held outside of our CLOs could negatively impact our cash flow. With that, I’m going to hand it back to Bill.

Thanks Mike. Since December 2008, we have specified that our immediate priority was to address the company's near-term liquidity, cash flow and debt refinancing issues. We believe that those actions we have taken over the past few months have accomplished that objective. A great deal was taken place during the last quarter and a lot of information has been shared on this call. But I want to summarize what it means to our shareholders. We have taken actions to extend the maturity profile of our debt to a manageable schedule and create the potential for an increase in our forecasted cash flows by 60 to 70 million annually and we increased our asset holdings out of CLOs, such that when combined with cash we currently have, total cash and market value of corporate debt investments are 50 million in excess of our debt and will mature over the next three years. This question is before we include our other holdings, including mortgages, private equity investments, and loans held through total rate of return swaps. Looking ahead, we are focused on several key topics. First and foremost, we recognized the importance of resuming dividends to our shareholders, and therefore focused on cash flow maximization without value destruction. At this point it is too early to predict whether the Board will decide to make a dividend payment in 2009. However, we all remain focused on creating ability for KFN to return a portion of its profits to shareholders. Next, we continue to concentrate on addressing our long-term debt maturities, which consists of our amended credit facility in our convertible notes maturing in 2012. In addition to these items, value creation is a constant objective as we manage our investment portfolio and seek opportunities to identify accretive incremental investments with quite attractive risk return profiles. The current environment will continue to present interesting investment ideas, through which the low-weighted average cost of funding that our CLO structures provide will enable us to participate with low cost modest leverage. Our CLOs provided the opportunity for great returns over the next several years, this is to illustrate the yield on the average leverage loan today is somewhere around seven to 8% over LIBOR. If you apply that to the average cost of funding from our CLOs of 52 basis points over LIBOR and with three times leverage now that we preserve the senior low cost financing within our structures, we generate a levered return in the mid 20s. This is the simplest way to understand the long-term value of our CLOs. Our CLOs have weighted average investment periods that will continue for at least the next three years. We thank you again for joining us on the call. Now we would like to open it up to questions. Operator, can you please open up the line.

(Operator Instructions). We will take our first question from [Lee Cooperman] of Omega Advisors. Lee Cooperman - Omega Advisors: Thank you. You’ve given a lot of information, which I’m very appreciative for. But, frankly, maybe it’s my average IQ. Can you give some help interpreting the significance of the information and your intentions? And with your permission, what I'd like to do is I have a half a dozen question, but I don’t want to monopolies the call. So, I would like to tell you my questions, I suspect that of interest to everybody on the call. And you take them in any way you want or you can have me come back in the queue, et cetera. So assuming you have no objection. Let me just kind of tell you what my questions are.

I said, go ahead, Lee. Lee Cooperman - Omega Advisors: Thank you very much, I appreciate it. Again, it was very good call, but so many numbers I think -- I got to listen to the replay. S&P you said is going to downgrade KFN’s CLOs because of retirements of notes for no compensation. Even though, I think, we essentially owe the notes to ourselves. What affect will this have on the CLOs, specifically are their trading restrictions that result from the downgrades, that’s one. Now let me just take the questions. CLO 2009-1 is the old wise data, which is now adjust to liquidating trust whose assets are distributed to shareholders. Can you give us some range or likely value to us? Third, you have cured three of the CLOs, you’ve dissolved one, what is the prospect for curing the other two CLOs, 2007-1 and I think in 2007-8. Four, you kind of mention it, but I want to (inaudible) on it, what is the likely run rate of recurring distributable earnings in the company as you reconstituted it? Five, basically, are you now comfortable with your financial position such that we are not likely to issue equity any near present prices for exchange for our debt, because you mentioned you have 50 million more in cash than you had in maturing debt and this seems to me as we spoke when you did that exchange work for $1.47 for $47 converts, that was a marginal transaction. Sixth, you have touched on this, but it is very important, the prospects for cash distribution to cover out tax liability. Can you give us a sense of what the management would recommend to the Board, recognizing you can't speak to the Board. You are going to love this one, and it's a philosophical point, but I was there at 24, I was there at 1440, emergency write-offs become 01185 and I think that philosophically, if we are not going to pay a distribution to cover out taxable income, I think KKR should forego its fees until a dividend is distributed sufficient to cover our tax liability or basically give up that LLC status and got to a C-Corp and then use this cash flow and asset value basically to create value, but buying back (inaudible) discount. And the finally question is, do you believe that the $5.69 book value is an accurate reflection of the underlying asset value of that business or do you think it understates the value of the business. Any help it could be will be very much appreciated. Thank you.

Okay. Thank you Lee. We will try to take a couple of those questions. I can't promise we will get through all. First of all your question on the issues of downgrading of any of the senior or rated notes of our CLOs that has no impact whatsoever our ability to invest within the CLOs. The only downgrades we care about within the CLOs are downgrades of individual assets within the CLOs which have downgraded, say to, CCC can create restrictions in the context of the over collateralizing test and thereby the cash flows again. But again, there is no impact of actual downgrades of the securities that are being issued by our CLOs with respect to our ability to make good investments within those structures. Second, you question was on the 2009-1 form of audit transaction. Right now the company holds directly in that entity with access to it, 317.4 million of par loans and bonds, 242.4 million fair market value, plus about 15 million of cash and receivables. So after basically paying down the independent third-party Senior Note holder that’s the residual par and assets in cash left in that entity which KFN has complete and full access to for purposes of any of its corporate purposes. Now, Mike, why don’t you take his question on recurring revenue?

Lee. As we talked about on the call, or actually reporting earning standpoint, we said, our run rate was about $0.33 for the quarter that obviously can bounce on a little bit, most probably because of interest rate changes, but we didn’t have a reasonable proxy going forward. As far as the point on, what would our cash flow run rate be on a perspective basis? We have set up till today that we generated a net income from the assets that we held to cover our debt service needs and all of our G&A expenses, we talked about on the call that we think the actions statement with CLO in ‘09-1 will have 60 to 70 million, we estimate to our annual cash flow run rate. So I think that’s a reasonable way to think about us is, we’ll probably generate somewhere north of 60 million above what we need to meet our expenses.

And (inaudible) to your point on dividends or tax distributions, as I said in my opening remarks, it’s something that we very much care about delivering and wanting to return profits to our shareholders. We also talked about a 50 million of cushion in the market value relative to debt maturing between now and the end of 2012. I think from the Board’s perspective and management's perspective it’s all a question of how much cushion you want relative to market price risk in an interim period given you have a market debt facility in the context of the senior secured credit facility and once you get to that point where you feel comfortable, imagine the Board would consider making tax distribution because I know the Board is focused on that as well. Lee Cooperman - Omega Advisors: In terms of prospect for curing 2007-1, 2007-8. Any comment on that?

Well, if you look through the supplemental materials that we have sent or just put out on our website with respect to our CLOs. In particular, on page 14 of the supplemental materials, you will see that the senior OC test, particularly in the case of 2007-1 is substantially below, it’s necessary threshold. So it is unlikely that any type of similar restructuring would make sense in the context of fixing that potential structure. As to note that those CLOs have independent third-party affiliate holders and so it’s not as clear cut as the situation with the first three that were entirely owned by KFN. Lee Cooperman - Omega Advisors: And lastly, do you have rendered opinion as to, do you think the 569 book value realistically reflects the underlying assets of the business and that represents the measure of value?

569 of book value reflects through our allowance and impairments of our bond positions, 14% permanent loss on our loan and bond positions of the portfolio relative to their par. Our reasonable guess as to what that could be, but we can’t make predictions into the future. But just our best guess as to what is a fair and reasonable book value and carrying value of our portfolio. Lee Cooperman - Omega Advisors: I won't ask you to respond to my philosophical point, but I do think we should think about how we deal with the shareholders, we don’t restore the dividends. And since we sold originally as a dividend paying vehicle, you guys have done well, before your time, but despite the devastation of stock, I think, taking your fees since inception are over $200 million. So it's been kind of a one sided win here and hopefully we can get both sides in the same pages soon enough. Thank you. I appreciate all the information on the call.

Thank you Lee.

Next we will go to Gabe Poggi from FBR Capital Markets. Gabe Poggi - FBR Capital Markets: Hey. Good afternoon, guys. Nice job with all the restructurings. I want to get your guys thoughts on the overall levered loan market. How you feel about current level? Where current levels are? What's was your thoughts processes in the second half of the year and 2010 regarding defaults? And then are you comfortable with your top 50 or your holdings in general and where you kind of have those? Where your allocations are? Just general color, if you don’t mind.

Sure, absolutely. I mean, the loan market has had a substantial rally, it'll always be bond market is rallied even more interesting because of its relative yields and a low interest rate environment. And the overall leverage loan market has shrunk a lot, shrunk in a record pace over the course of the last several months, predominantly because of the strength of the high yield market which has resulted in a large number of issues. Prepaying at par is a result of refinancing and extending maturities and as a result of that, as long as the high yield market stays anywhere in the range of strength that it has been over the last eight weeks that is extraordinarily bullish for the leverage loan market. Even though its LIBOR based and doesn’t produce the same amount of yield, LIBOR can’t really get lower, it can’t go higher and the higher LIBOR will be more attractive, loans even become relative to their exiting prices. So given that they are super senior in the context of capital structure, 80% of our portfolio is in loans and 80% of that is senior secured. We like the risk reward of where we sit in the capital structure, particularly with our financing arrangements in place today that will allow us to basically get pay down through high yield market and par and redeploy that capital at 8% effective yields in the loan market today. Gabe Poggi - FBR Capital Markets: Great. And then one other follow-up. See page 14 in the supplemental, how comfortable are you with those cushions if you will for the OC Tests?

Gabe, we just took the action. So -- Gabe Poggi - FBR Capital Markets: I got you. Just general viewing, obviously ‘05 to ‘06-1 have much better shape than ‘05-1, just trying to get a idea how you feel what’s inside of those?

To Bill's point, we are comfortable with the assets as much we can be in the current environment. We think we've got reasonable cushion. We actively manage these portfolios, so it’s not that these are just static poles that we just watch and it happens -- Gabe Poggi - FBR Capital Markets: Right.

At their mercy. So, yes, we're reasonably comfortable and we wouldn’t have emphasized the points what we think it does to our cash flow outlook. And we think we could keep these in compliance.

And what's interesting Gabe is, once you are in compliance with those, it’s easier to stay in compliance and once you are out of compliance getting back in the compliance. Gabe Poggi - FBR Capital Markets: Right.

In terms of investment flexibility, if you look at page eight of our supplemental materials, we have a number of names on our watch list, that being said, we still kind of like where we are in the capital structure and we manage actively as Mike mentioned, each one of these names in terms of our investment team to generate the best risk adjusted return taking through account the cash flow needs for KFN. So we can improve the cash flow and liquidity and ability to return profits to shareholders. Gabe Poggi - FBR Capital Markets: Got you. That’s what I was getting at. Thanks a lot, I appreciate it.

Next we will go to [Alan Mark] from Raymond Asset Management. Alan Mark - Raymond Asset Management: Yes, thanks. On the 2007-8, the fact that you got your amount, you're in compliance with your senior OC tests, does that help getting any cash flows out of that given what you own?

No, unfortunately doesn’t Alan. The different OC tests are really based on where you actually own the bonds and the capital structure of the CLO. So if you pass the senior OC tests, I think for the class c, our tranche will actually receive cash flows, but as we own the mezzanine subordinate tranches, we need really to be in compliance with that subordinate OC test. Alan Mark - Raymond Asset Management: Right. (inaudible).

Yes, if you look on page 12, Alan, you can see that KFN owns in 2007-8 really starts the class absence so you have to get through the OC levels to get to there before what is now picking becomes cash balance. Alan Mark - Raymond Asset Management: Right. So, based on your comments from earlier in 2007-1 and 2007-8 which are the largest ones, the fact there are non-affiliates involved in that. Would it be fair to say we should not expect any cash flows from those, because of that structure as well as may be on the 2007-1 being sort of far out of money.

No. Things are very large, but they produce cash within the structures and it’s just amortizing the senior notes. So, it's not, don’t expect cash, it's just don’t expect cash now? Alan Mark - Raymond Asset Management: Well, it's trapping the cash. Or it's paying down as you guys have pointed out, and you have done great job. And the other, other CLOs it's paying down at really very attractive (inaudible), I guess along the way --

It is paying down, that would be attractive cheap debt, but at some point it will do so to the point where the OC becomes compliant and then will stop doing that. So and we continue to focus on managing those to generate as much risk adjusted return given the constraints of the OC to try to speed up the ability to kind of get the cash going again and not paying down LIBOR plus 50 financing within that structure. Alan Mark - Raymond Asset Management: But those two CLOs and I don’t understand how its tax works, but I know it's unfavorable. They generate taxable income for stockholders in effect. Are there any message, I know you guys have talked little about this in the past. Are there any methods to sort of take those and sort of put them in account form, typically for tax purposes, given the fact that there is no cash coming out of there?

We continued to do lots of work on ways to mitigate the tax flow income allocations to shareholders, particularly in a situation of phantom income allocations that we've experience over the last year. That remains one of our priorities. It is a difficult problem to solve, but we continue to look at it. Alan Mark - Raymond Asset Management: As you mentioned earlier about of the downgrades of the individual instruments being the key aspect as far as future cash flow. Is there any, what’s your perspective on the ratings agency downgrades and your ability to stay within the compliance of the ones that you are in right now.

Well, our team has 32 investment professionals and credit analysts constantly look each one of our underlying holdings. They do estimates of ratings ratings migrations, trying to guess what rating agencies might do, that’s what we are seeing in the fundamentals. We try to leverage that quote of information relative to what we are seeing the market and new investment opportunities and then we try to stay one step ahead of that, but again we can only control what we can control, the rating agencies can control stuff that we can't, so -- Alan Mark - Raymond Asset Management: I understand, and that you don’t control rating agencies, but do you have a reasonable expectations about those downgrades and are coming up or not?

No, I think the strength of the high-yield market, I think has helped slow. If you look at the number of downgrades that have occurred in the market relative to upgrades, are basically stable ratings. The negative trend that we experienced at the end of last year through the first part of this year has dramatically slowed, that second derivative is much better rate and I think it’s because situations that may not have been able to result in an amendment or a refinancing transaction may have hit a wall and that helps. So I can’t guarantee how long those market conditions will be present, but right now it’s definitely feeling better from that perspective. Alan Mark - Raymond Asset Management: Like keep on going to your staff. As far as the instruments that you've sold, recently, it sounds like you're focused on selling of the higher priced loans. Just share with us and I guess, instead of holding on to the more stressed or low priced loans or bonds, if I understood that correctly.

In 2009-1 remember that was a structure that had our most expensive financing at LIBOR plus 425. Alan Mark - Raymond Asset Management: Right. Why did you --

If you have a discount margin of a security, let’s say 425, and you are financing it with LIBOR plus 425, you are actually creating negative present value to the shareholders at that price. This is an example and so it’s actually better for the shareholders to sell that loan at that imputed discount margin and pay-off debt than it is to kind of maintain it in that financing form, particularly you think that the upside is you can make that 425 go to 350, but the downside is that company could have a problem in the future. So from our perspective in that vehicle it was a clear positive rate of return relative to the risk to sell those specific securities, which isn’t just all the highest, because there are certain circumstances where we had concerns from the credit perspective relative to their current trading value from our perspective. Alan Mark - Raymond Asset Management: And from a tax perspective, again, if you would have sold some of the stuff that that had fallen further would that have helped mitigate some of the tax issues?

We will throw (inaudible) that have held through the whole year, or particularly once that have been here for a while, we are going throw off capital losses. So we have ordinary income allocations to the phantom, but we also generate capital losses. So I think, shareholders had to consult their tax advisors in their own specific circumstances. But KFN is not just a taxable income generator has advantage, also a capital loss generator at least recent past.

And Alan, we appreciate your questions, but we’re going to have to move on to other callers and give our people a chance. Alan Mark - Raymond Asset Management: No problem. Thank you very much.

We will go back to [Lee Cooperman] of Omega Advisors.

Let me just get you off the speaker, I apologize. Lee Cooperman - Omega Advisors: Can you hear me? Can you hear me?

Yes.

Yes, we can hear. Lee Cooperman - Omega Advisors: I don’t know if you want to address this question, but being someone ancient and probably before your time, in the 70s many of the banks underwrote REITs, like Chase Manhattan REIT, where they put their name on the security only to regret it when real estate went through its less bust, back then. And they either retired them or took them into the parent company. This is before your time, you don’t respond to, you've done a wonderful job since you and your team have been installed, I congratulate you by the way. But it's been a bit of embracement to sponsor, I am wondering with the KPE effectively taking KKR public, whether you think it's ultimately better off to remove all these conflicts where I guess 40% of your investments are KKR deals, if something goes wrong you look kind of a like embarrassed et cetera. What is the prospect of KPE, KKR taking in KFN at a fair consideration, you think that that’s kind of a pipe dream or is that a possible realistic scenario?

I have no comment on that Lee. Lee Cooperman - Omega Advisors: I think you would.

In my role as CEO of KFN, I'd focus on improving the operations of KFN and generating the best results of our shareholder over time and so that’s not something that we will discuss today. Lee Cooperman - Omega Advisors: Got you. I didn’t think you wouldn’t, but you got to give it a shot, right.

Thank you, Lee.

I will thank you all for listening to the call today and yours questions. We will continue to focus on improving shareholder value and have a good evening.

Ladies and gentlemen, that does conclude today's call. Thank you all for your participation.