BORROWINGS

The Company accounts for its collateralized loan obligation secured notes at estimated fair value, with changes in estimated fair value recorded in the condensed consolidated statements of operations, and all of its other borrowings at amortized cost.

Certain information with respect to the Company’s borrowings as of March 31, 2017 is summarized in the following table (dollar amounts in thousands):



	Par		Carrying Value(1)		Weighted Average Borrowing Rate		Weighted Average Remaining Maturity (in days)	Collateral(2)
CLO 2012-1 secured notes	$	287,123	$	295,410	3.34	%	2816	$	262,828
CLO 2012-1 subordinated notes(3)	18,000		9,245		12.99		2816	16,477
CLO 2012-1 subordinated notes to affiliates(3)	19,663		10,099		12.99		2816	17,999
CLO 2013-1 secured notes	458,500		472,370		2.73		3028	399,223
CLO 2013-1 subordinated notes to affiliates(3)	23,063		15,103		13.85		3028	20,081
CLO 2013-2 secured notes	339,250		341,193		3.03		3220	324,987
CLO 2013-2 subordinated notes to affiliates(3)	30,959		19,621		13.06		3220	29,657
CLO 9 secured notes	463,750		470,705		3.03		3485	454,314
CLO 9 subordinated notes(3)	15,000		10,003		14.42		3485	14,695
CLO 9 subordinated notes to affiliates(3)	33,400		22,274		14.42		3485	32,720
CLO 10 secured notes	368,000		372,462		3.33		3181	355,284
CLO 10 subordinated notes to affiliates(3)	39,146		25,123		10.24		3181	37,794
CLO 15 secured notes	370,500		370,466		3.08		4219	383,509
CLO 15 subordinated notes(3)	12,100		11,029		—		4219	12,525
CLO 16 secured notes	644,300		635,858		3.16		4313	696,213
CLO 16 subordinated notes(3)	4,500		4,152		—		4313	4,863
Total collateralized loan obligation secured debt	3,127,254		3,085,113					3,063,169
7.500% Senior notes(4)	115,000		122,908		7.50		9120	—
5.50% Senior notes	375,000		367,845		5.50		5478	—
Junior subordinated notes	264,767		234,979		3.50		7126	—
Total borrowings	$	3,882,021	$	3,810,845				$	3,063,169


(1)	Carrying value represents estimated fair value for the collateralized loan obligation secured debt and amortized cost for all other borrowings.


(2)	Collateral for borrowings consists of the estimated fair value of certain corporate loans, securities and equity investments at estimated fair value. For purposes of this table, collateral for CLO secured and subordinated notes are calculated pro rata based on the par amount for each respective CLO.


(3)	Subordinated notes to unaffiliated and affiliated parties do not have a contractual coupon rate, but instead receive a pro rata amount of the net distributions from each respective CLO. Accordingly, weighted average borrowing rates for the subordinated notes were calculated based on annualized cash distributions during the year, if any.


(4)	On April 24, 2017, the Company redeemed all of its outstanding 7.500% Senior Notes due 2042 (the "Notes due 2042"). Refer to Note 12 to these condensed consolidated financial statements for further discussion.

Certain information with respect to the Company’s borrowings as of December 31, 2016 is summarized in the following table (dollar amounts in thousands):



	Par		Carrying Value(1)		Weighted Average Borrowing Rate		Weighted Average Remaining Maturity (in days)	Collateral(2)
CLO 2012-1 secured notes	$	367,500	$	378,978	3.01	%	2906	$	333,931
CLO 2012-1 subordinated notes(3)	18,000		9,613		15.40		2906	16,356
CLO 2012-1 subordinated notes to affiliates(3)	19,663		10,501		—		2906	17,867
CLO 2013-1 secured notes	458,500		470,354		2.59		3118	450,836
CLO 2013-1 subordinated notes to affiliates(3)	23,063		14,970		—		3118	22,678
CLO 2013-2 secured notes	339,250		343,208		2.88		3310	323,644
CLO 2013-2 subordinated notes to affiliates(3)	30,959		19,074		—		3310	29,535
CLO 9 secured notes	463,750		471,824		2.89		3575	437,048
CLO 9 subordinated notes(3)	15,000		10,170		15.58		3575	14,136
CLO 9 subordinated notes to affiliates(3)	33,400		22,646		6.11		3575	31,477
CLO 10 secured notes	368,000		377,369		3.18		3271	356,393
CLO 10 subordinated notes to affiliates(3)	39,146		22,416		7.53		3271	37,912
CLO 15 secured notes	370,500		370,632		3.06		4309	376,971
CLO 15 subordinated notes(3)	12,100		11,430		—		4309	12,311
CLO 16 secured notes	644,300		640,386		3.16		4403	596,916
CLO 16 subordinated notes(3)	4,500		3,977		—		4403	4,169
Total collateralized loan obligation secured debt	3,207,631		3,177,548					3,062,180
CLO warehouse facility(4)	20,000		20,000		2.25		305	101,976
7.500% Senior notes	115,043		123,008		7.50		9210	—
Junior subordinated notes	283,517		250,154		3.34		7218	—
Total borrowings	$	3,626,191	$	3,570,710				$	3,164,156


(1)	Carrying value represents estimated fair value for the collateralized loan obligation secured debt and amortized cost for all other borrowings.


(2)	Collateral for borrowings consists of the estimated fair value of certain corporate loans, securities and equity investments at estimated fair value. For purposes of this table, collateral for CLO secured and subordinated notes are calculated pro rata based on the par amount for each respective CLO.


(3)	Subordinated notes to unaffiliated and affiliated parties do not have a contractual coupon rate, but instead receive a pro rata amount of the net distributions from each respective CLO. Accordingly, weighted average borrowing rates for the subordinated notes were calculated based on cash distributions during the year, if any.


(4)	Represents a $200.0 million CLO warehouse facility.

CLO Debt

For the CLO secured notes, there were no gains (losses) attributable to changes in instrument specific credit risk for both the three months ended March 31, 2017 and 2016.

The indentures governing the Company’s CLO transactions stipulate the reinvestment period during which the collateral manager, which is an affiliate of the Company’s Manager, can generally sell or buy assets at its discretion and can reinvest principal proceeds into new assets. CLO 2013-1, CLO 2013-2, CLO 9, CLO 10, CLO 15 and CLO 16 will end their reinvestment periods during July 2017, January 2018, October 2018, December 2018, October 2020 and January 2021, respectively.

Pursuant to the terms of the indentures governing our CLO transactions, the Company has the ability to call its CLO transactions after the end of the respective non-call periods. During August 2016, the Company called CLO 2007-1 and repaid all senior and mezzanine notes totaling $945.6 million par amount. In addition, during October 2016, the remaining $134.5 million par amount of CLO 2007-1 subordinated notes owned by third parties were deemed repaid in full, whereby the Company distributed assets held as collateral in CLO 2007-1 to the subordinated note holders. As described below in Note 7 to these condensed consolidated financial statements, the Company used pay-fixed, receive-variable interest rate swaps to hedge interest rate risk associated with its CLOs. In connection with the repayment of the CLO 2007-1 notes, the related interest rate swap, with a contractual notional amount of $142.3 million was terminated.

During the three months ended March 31, 2017, the Company repaid $80.4 million par amount of original CLO 2012-1 secured notes. During the three months ended March 31, 2016, excluding the amounts repaid for called CLOs, $112.2 million of original CLO 2007-1 senior notes were repaid.

CLO 2011-1 and CLO 2016-1 do not have reinvestment periods and all principal proceeds from holdings in the respective CLOs are used to amortize the transaction. During the year ended December 31, 2016, $348.4 million par amount of original CLO 2016-1 secured and subordinated notes were repaid in full. In addition, during December 2016, the remaining $8.2 million par amount of CLO 2016-1 subordinated notes owned by third parties were deemed paid in full, whereby the Company distributed assets held as collateral in CLO 2016-1 to subordinated note holders. During March 2016, the Company called CLO 2011-1 and repaid all senior debt totaling $249.3 million par amount.

On March 30, 2017, the Company closed KKR CLO 17 LLC ("CLO 17"), a $608.5 million secured financing transaction maturing on April 15, 2029. The Company issued $552.0 million par amount of senior secured notes to unaffiliated investors, all of which was floating rate with a weighted-average coupon of three-month LIBOR plus 1.81%. The Company also issued $22.0 million par amount of subordinated notes to unaffiliated investors and $34.5 million par amount of subordinated notes to affiliated investors. Upon closing CLO 17, it was determined that the Company no longer met the consolidation criteria and therefore de-consolidated CLO 17, resulting in a reduction of both consolidated assets and liabilities of approximately $760.0 million.

During December 2016, the Company declared a distribution in kind on its common shares of certain subordinated notes to its Parent as the sole holder of its common shares and distributed an aggregate $106.5 million par amount of CLO 2012-1, CLO 2013-1, CLO 2013-2, CLO 9, CLO 10, CLO 11 and CLO 13 subordinated notes. These notes were previously owned by the Company and eliminated in consolidation. Following the distribution, certain of the subordinated notes were held by an affiliate of the Manager and reflected as collateralized loan obligation junior secured notes to affiliates, at estimated fair value, on the Company's consolidated balance sheets. However, for certain CLOs, specifically CLO 11 and CLO 13, it was determined that the Company no longer met the consolidation criteria and therefore de-consolidated these two CLOs, resulting in a reduction of consolidated CLO liabilities of approximately $967.3 million.

On December 15, 2016, the Company closed CLO 16, a $711.3 million secured financing transaction maturing on January 20, 2029. The Company issued $644.3 million par amount of senior secured notes to unaffiliated investors, $634.8 million of which was floating rate with a weighted-average coupon of three-month LIBOR plus 2.04% and $9.5 million of which was fixed rate with a coupon of 4.80%. The Company also issued $4.5 million par amount of subordinated notes to unaffiliated investors. The investments that are owned by CLO 16 collateralize the CLO 16 debt, and as a result, those investments are not available to the Company, its creditors or shareholders.

On September 14, 2016, the Company closed CLO 15, a $410.8 million secured financing transaction maturing on October 18, 2028. The Company issued $370.5 million par amount of senior secured notes to unaffiliated investors, all of which was floating rate with a weighted-average coupon of three-month LIBOR plus 2.05%. The Company also issued $12.1 million par amount of subordinated notes to unaffiliated investors. The investments that are owned by CLO 15 collateralize the CLO 15 debt, and as a result, those investments are not available to the Company, its creditors or shareholders.

During August 2016, the Company issued $3.6 million par amount of CLO 13 class F notes for proceeds of $3.0 million. During September 2016, the Company issued $3.4 million par amount of CLO 13 class F notes for proceeds of $2.9 million.

On June 7, 2016, the Company closed CLO 2016-1, a $426.4 million secured financing transaction maturing on June 7, 2018, which was funded during the third quarter of 2016. The Company issued $330.9 million par amount of senior secured notes to unaffiliated investors at a rate of three-month LIBOR plus 1.70% and $25.7 million par amount of subordinated notes to unaffiliated investors. The investments that are owned by CLO 2016-1 collateralize the CLO 2016-1 debt, and as a result, those investments are not available to the Company, its creditors or shareholders.

During May 2016, the Company declared a distribution in kind on its common shares of certain subordinated notes to its Parent as the sole holder of its common shares and distributed an aggregate $96.5 million par amount of CLO 9, CLO 10, CLO 11 and CLO 13 subordinated notes. These notes were previously owned by the Company and eliminated in consolidation. Following the distribution, the subordinated notes were held by an affiliate of the Manager and reflected as collateralized loan obligation junior secured notes to affiliates, at estimated fair value, on the Company's condensed consolidated balance sheets.

During April 2016, the remaining $15.1 million par amount of CLO 2007-A subordinated notes owned by third parties were deemed repaid in full, whereby the Company distributed assets held as collateral in CLO 2007-A to the subordinated note holders.

CLO Warehouse Facility

On November 1, 2016, CLO 17 entered into a $200.0 million CLO warehouse facility ("CLO 17 Warehouse"), which matured upon the closing of CLO 17. The CLO 17 Warehouse was used to purchase assets for the CLO transaction in advance of its closing date upon which the proceeds of the CLO closing were used to repay the CLO 17 Warehouse in full. Debt issued under the CLO 17 warehouse was non-recourse to the Company beyond the assets of CLO 17 and bore interest rates ranging from three-month LIBOR plus 1.25% to 2.20%. Upon the closing of CLO 17 on March 30, 2017, as discussed above, the aggregate amount outstanding under the CLO 17 Warehouse was repaid.

Senior Notes

On March 30, 2017, the Company issued $375.0 million aggregate principal amount of 5.50% senior unsecured notes due March 30, 2032 ("Notes due 2032") in a private placement, resulting in net proceeds of $368.6 million. Interest on the Notes due 2032 is payable semi-annually on March 30 and September 30 of each year. The Company may redeem the Notes due 2032 in whole, but not in part, at a redemption price equal to 100% of the outstanding principal amount plus accrued and unpaid interest to, but excluding, the date of redemption on or after March 30, 2022 and annually thereafter, after providing notice to noteholders of such redemption not less than 30 and no more than 60 business days prior to such redemption date. At any time prior to March 30, 2022, the Company may redeem the Notes due 2032 in whole, but not in part, at a redemption price equal to (i) 100% of the outstanding principal amount, (ii) plus accrued and unpaid interest to, but excluding, the date of redemption, (iii) plus the excess, if any, of (a) the sum of the present values of the remaining scheduled payments of principal and interest on the Notes due 2032 (as if the Notes due 2032 matured on March 30, 2022), discounted to the redemption date on a semi-annual basis (assuming a 360-day year of twelve 30-day months) at a rate equal to the sum of the applicable treasury rate plus 50 basis points, minus accrued and unpaid interest, if any, on the Notes due 2032 being redeemed to, but excluding, the redemption date over (b) the principal amount of the Notes due 2032 being redeemed.

On November 15, 2016, the Company redeemed $258.8 million aggregate principal amount of 8.375% Senior Notes due 2041 (the "Notes due 2041"), in accordance with the optional redemption provisions provided in the documents governing the Notes due 2041. The transaction resulted in the Company recording a gain of $29.8 million.

Junior Subordinated Notes

In January 2017, the Company repurchased $18.8 million par amount of junior subordinated notes, which resulted in a gain on extinguishment of debt of $2.4 million.