MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS	3 Months Ended
Mar. 31, 2013
MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS
MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS	NOTE 12. MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS The Manager manages the Company’s day-to-day operations, subject to the direction and oversight of the Company’s board of directors. The Management Agreement expires on December 31 of each year, but is automatically renewed for a one-year term each December 31 unless terminated upon the affirmative vote of at least two-thirds of the Company’s independent directors, or by a vote of the holders of a majority of the Company’s outstanding common shares, based upon (1) unsatisfactory performance by the Manager that is materially detrimental to the Company or (2) a determination that the management fee payable by the Manager is not fair, subject to the Manager’s right to prevent such a termination under this clause (2) by accepting a mutually acceptable reduction of management fees. The Manager must be provided 180 days prior notice of any such termination and will be paid a termination fee equal to four times the sum of the average annual base management fee and the average annual incentive fee for the two 12-month periods immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination. The Management Agreement contains certain provisions requiring the Company to indemnify the Manager with respect to all losses or damages arising from acts not constituting bad faith, willful misconduct, or gross negligence. The Company has evaluated the impact of these guarantees on its condensed consolidated financial statements and determined that they are not material. Base Management Fees and Manager Share-Based Compensation For the three months ended March 31, 2013, the Company incurred $9.6 million in base management fees. As of March 31, 2013, the Company had $3.2 million base management fee payable to the Manager. In addition, the Company recognized share-based compensation expense related to restricted common shares granted to the Manager of $0.7 million for the three months ended March 31, 2013 (see Note 11). For the three months ended March 31, 2012, the Company incurred $7.0 million in base management fees. In addition, the Company recognized share-based compensation expense related to restricted common shares granted to the Manager of $0.4 million for the three months ended March 31, 2012 (see Note 11). Base management fees incurred and share-based compensation expense relating to common share options and restricted common shares granted to the Manager are included in related party management compensation on the condensed consolidated statements of operations. The Manager is waiving base management fees related to the $230.4 million common share offering and $270.0 million common share rights offering that occurred during the third quarter of 2007 until such time as the Company’s common share closing price on the NYSE is $20.00 or more for five consecutive trading days. Accordingly, the Manager permanently waived approximately $2.2 million of base management fees during each of the three months ended March 31, 2013 and 2012. Incentive Fees During the three months ended March 31, 2013, the Manager earned $17.2 million of incentive fees. As of March 31, 2013, the Company had $17.2 million incentive fee payable to the Manager. During the three months ended March 31, 2012, the Manager earned $9.7 million of incentive fees. Incentive fees are included in related party management compensation on the Company’s condensed consolidated statement of operations. CLO Management Fees An affiliate of the Manager entered into separate management agreements with the respective investment vehicles for CLO 2005-1, CLO 2005-2, CLO 2006-1, CLO 2007-1, CLO 2007-A, CLO 2011-1 and CLO 2012-1 and is entitled to receive fees for the services performed as collateral manager for all of these CLOs, except for CLO 2011-1. The collateral manager has the option to waive the fees it earns for providing management services for the CLO. During the three months ended March 31, 2013 and 2012, the collateral manager waived all management fees for all CLOs, except for CLO 2005-1 and CLO 2012-1, and waived aggregate CLO management fees of $7.7 million and $8.3 million, respectively. For the three months ended March 31, 2013 and 2012, the Company recorded an expense for CLO management fees totaling $0.8 million and $1.1 million, respectively. Reimbursable General and Administrative Expenses Certain general and administrative expenses are incurred by the Company’s Manager on its behalf that are reimbursable to the Manager pursuant to the Management Agreement. During the three months ended March 31, 2013 and 2012, the Company incurred reimbursable general and administrative expenses to its Manager of $1.7 million and $2.0 million, respectively. Expenses incurred by the Manager and reimbursed by the Company are reflected in general, administrative and directors expenses on the condensed consolidated statements of operations. Affiliated Investments The Company has invested in corporate loans, debt securities and other investments of entities that are affiliates of KKR. As of March 31, 2013, the aggregate par amount of these affiliated investments totaled $2.0 billion, or approximately 30% of the total investment portfolio, and consisted of 31 issuers. The total $2.0 billion in affiliated investments was comprised of $1.9 billion of corporate loans, $39.7 million of corporate debt securities and $81.0 million of equity investments, at estimated fair value. As of December 31, 2012, the aggregate par amount of these affiliated investments totaled $2.1 billion, or approximately 29% of the total investment portfolio, and consisted of 32 issuers. The total $2.1 billion in affiliated investments was comprised of $2.0 billion of corporate loans, $39.3 million of corporate debt securities and $73.8 million of equity investments, at estimated fair value. In addition, the Company has invested in certain joint ventures and partnerships alongside KKR and its affiliates. As of March 31, 2013 and December 31, 2012, the aggregate cost amount of these interests in joint ventures and partnerships, which are included in other assets on the condensed consolidated balance sheets, totaled $157.6 million and $137.6 million, respectively.

NOTE 12. MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS

The Manager manages the Company’s day-to-day operations, subject to the direction and oversight of the Company’s board of directors. The Management Agreement expires on December 31 of each year, but is automatically renewed for a one-year term each December 31 unless terminated upon the affirmative vote of at least two-thirds of the Company’s independent directors, or by a vote of the holders of a majority of the Company’s outstanding common shares, based upon (1) unsatisfactory performance by the Manager that is materially detrimental to the Company or (2) a determination that the management fee payable by the Manager is not fair, subject to the Manager’s right to prevent such a termination under this clause (2) by accepting a mutually acceptable reduction of management fees. The Manager must be provided 180 days prior notice of any such termination and will be paid a termination fee equal to four times the sum of the average annual base management fee and the average annual incentive fee for the two 12-month periods immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination.

The Management Agreement contains certain provisions requiring the Company to indemnify the Manager with respect to all losses or damages arising from acts not constituting bad faith, willful misconduct, or gross negligence. The Company has evaluated the impact of these guarantees on its condensed consolidated financial statements and determined that they are not material.

Base Management Fees and Manager Share-Based Compensation

For the three months ended March 31, 2013, the Company incurred $9.6 million in base management fees. As of March 31, 2013, the Company had $3.2 million base management fee payable to the Manager. In addition, the Company recognized share-based compensation expense related to restricted common shares granted to the Manager of $0.7 million for the three months ended March 31, 2013 (see Note 11). For the three months ended March 31, 2012, the Company incurred $7.0 million in base management fees. In addition, the Company recognized share-based compensation expense related to restricted common shares granted to the Manager of $0.4 million for the three months ended March 31, 2012 (see Note 11). Base management fees incurred and share-based compensation expense relating to common share options and restricted common shares granted to the Manager are included in related party management compensation on the condensed consolidated statements of operations.

The Manager is waiving base management fees related to the $230.4 million common share offering and $270.0 million common share rights offering that occurred during the third quarter of 2007 until such time as the Company’s common share closing price on the NYSE is $20.00 or more for five consecutive trading days. Accordingly, the Manager permanently waived approximately $2.2 million of base management fees during each of the three months ended March 31, 2013 and 2012.

Incentive Fees

During the three months ended March 31, 2013, the Manager earned $17.2 million of incentive fees. As of March 31, 2013, the Company had $17.2 million incentive fee payable to the Manager. During the three months ended March 31, 2012, the Manager earned $9.7 million of incentive fees. Incentive fees are included in related party management compensation on the Company’s condensed consolidated statement of operations.

CLO Management Fees

An affiliate of the Manager entered into separate management agreements with the respective investment vehicles for CLO 2005-1, CLO 2005-2, CLO 2006-1, CLO 2007-1, CLO 2007-A, CLO 2011-1 and CLO 2012-1 and is entitled to receive fees for the services performed as collateral manager for all of these CLOs, except for CLO 2011-1. The collateral manager has the option to waive the fees it earns for providing management services for the CLO.

During the three months ended March 31, 2013 and 2012, the collateral manager waived all management fees for all CLOs, except for CLO 2005-1 and CLO 2012-1, and waived aggregate CLO management fees of $7.7 million and $8.3 million, respectively. For the three months ended March 31, 2013 and 2012, the Company recorded an expense for CLO management fees totaling $0.8 million and $1.1 million, respectively.

Reimbursable General and Administrative Expenses

Certain general and administrative expenses are incurred by the Company’s Manager on its behalf that are reimbursable to the Manager pursuant to the Management Agreement. During the three months ended March 31, 2013 and 2012, the Company incurred reimbursable general and administrative expenses to its Manager of $1.7 million and $2.0 million, respectively. Expenses incurred by the Manager and reimbursed by the Company are reflected in general, administrative and directors expenses on the condensed consolidated statements of operations.

Affiliated Investments

The Company has invested in corporate loans, debt securities and other investments of entities that are affiliates of KKR. As of March 31, 2013, the aggregate par amount of these affiliated investments totaled $2.0 billion, or approximately 30% of the total investment portfolio, and consisted of 31 issuers. The total $2.0 billion in affiliated investments was comprised of $1.9 billion of corporate loans, $39.7 million of corporate debt securities and $81.0 million of equity investments, at estimated fair value. As of December 31, 2012, the aggregate par amount of these affiliated investments totaled $2.1 billion, or approximately 29% of the total investment portfolio, and consisted of 32 issuers. The total $2.1 billion in affiliated investments was comprised of $2.0 billion of corporate loans, $39.3 million of corporate debt securities and $73.8 million of equity investments, at estimated fair value.

In addition, the Company has invested in certain joint ventures and partnerships alongside KKR and its affiliates. As of March 31, 2013 and December 31, 2012, the aggregate cost amount of these interests in joint ventures and partnerships, which are included in other assets on the condensed consolidated balance sheets, totaled $157.6 million and $137.6 million, respectively.