KKR Ignores Swirling Trouble at Affiliate

Kohlberg Kravis Roberts raises money in Europe this morning? Don't you love it? Just what we needed -- another private-equity pool of capital.

I mention this because you would think they would be focused on KKR Financial Holdings (KFN - commentary - Cramer's Take), a publicly traded company with a 21% yield, which, as we all know, is now the kiss of death. I guess we are supposed to be gratified that KKR Financial has $452 million dollars of "liquidity," which means nothing these days other than a couple of days of defense.

As usual, there is some gigantic book value: $21 a share vs. the stock's $11 price. That tells you the bonds, which is what this company owns -- and it owned $17 billion of them in May -- aren't worth anywhere near that if you have to sell them, and KKR, like all of these companies, has to sell them to make its dividend payments.

When I say "all of these companies," there were tons of these entities set up to buy cheap bonds and sell dear bonds, and everyone had that trade on -- including these guys -- so everyone has to sell cheap when cheap, and the mortgage-backed area has no buyers.

So who the heck knows what it is worth.

Also, like these entities, it seems that this one is beholden to no one. It may have KKR in the title, but I don't know if is backed up by anything.

In the meantime, KKR can keep raising money, content in the notion that KKR Financial is just a black eye -- code for, "Sorry, investors, but we don't own it."

How can KKR raise billions more in Europe and insist on coming to market now in a horrible moment when the Fed wants to crush these leveraged pools? Because KKR is a giant fee generator, so why say no? Just insist that the initial tranche, the public tranche, is sold low and then maybe a pop can be had as the Wall Street PR machine cranks out stories about how exciting it is to own a piece of one of the greatest investment firms ever. Just like Blackstone (BX - commentary - Cramer's Take)!

So the juggernaut continues to roll as if nothing's happening with an affiliate, KKR Financial, and nothing's happening in the leveraged-buyout world, and we wonder why Bill Poole wants to crush the markets?

Sometimes we do deserve it.

At the time of publication, Cramer was held no positions in the stocks mentioned although holdings can change at any time.

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