425: KKR Income Opportunities Fund to Acquire Assets of Insight Select Income Fund

KKR Income Opportunities Fund (KIO) will acquire the assets of Insight Select Income Fund (INSI), with INSI shareholders receiving KIO shares and a potential cash option.

Summary

• KKR Income Opportunities Fund (KIO) and Insight Select Income Fund (INSI) have entered into a definitive agreement for KIO to acquire INSIs assets.
• Following the transaction, INSI shares will be delisted from public markets.
• INSI shareholders will receive KIO shares, with an option to receive up to 5% of the consideration in cash.
• The transaction is intended to be a tax-free reorganization.
• KKR will offer a management fee waiver, reducing the fee from 1.10% to 0.99% for 12 months post-acquisition.
• The combined fund is expected to have over $500 million in net assets on a pro forma basis.
• KIOs monthly dividend is $0.1215 per share, representing a 9.9% annual distribution rate as of 9/30/2024, and this dividend rate has been announced for October, November, and December 2024.
• The transaction is expected to close in the fourth quarter of 2024, pending shareholder approvals and other closing conditions.

Sentiment

Score: 8

Explanation: The announcement is generally positive, highlighting the benefits of the acquisition for both KIO and INSI shareholders. The management comments are optimistic, and the transaction is expected to close in a timely manner.

Positives

• The combined fund will have increased size and scale, with over $500M in net assets on a pro forma basis, potentially leading to additional investment opportunities.
• INSI shareholders may benefit from access to KKRs scaled credit platform ($237B in AUM as of 6/30/2024) and differentiated credit sourcing and diligencing capabilities.
• KIO shareholders are expected to benefit from economies of scale and lower operating expenses (exclusive of management fee and interest expenses on borrowings).
• The combined fund is expected to have enhanced liquidity and investor visibility due to a higher share count.
• KKR will offer a management fee waiver, decreasing the fee from 1.10% to 0.99% for the 12-month period after the acquisition.

Negatives

• INSI shares will be delisted from any public market following the close of the transaction.

Risks

• The transaction is subject to shareholder approvals and other closing conditions, which may not be met.
• Forward-looking statements are subject to uncertainties and other factors that could cause actual results to differ materially.
• KIO invests in loans and other types of fixed-income instruments and securities, which may be secured, partially secured or unsecured and may be unrated, and whether or not rated, may have speculative characteristics.
• The market price of KIOs investments will change in response to changes in interest rates and other factors.
• Use of leverage creates an opportunity for increased income and return for common shareholders of KIO but, at the same time, creates risks, including the likelihood of greater volatility in the NAV and market price of, and distributions on, the common shares of KIO.

Future Outlook

The combined fund is expected to benefit from increased size and scale, enhanced liquidity, and access to KKR's credit platform, potentially leading to improved investment opportunities and returns.

Management Comments

• Jeremiah Lane, Co-Head of Global Leveraged Credit at KKR, stated: 'We are excited to welcome the INSI shareholders to the KIO shareholder base. We see a compelling opportunity in credit and are confident we can continue to deliver strong outcomes in the years ahead.'
• David Leduc, Chief Executive Officer of Insight North America said: 'We are pleased to announce this transaction with KKR, which we believe will offer a compelling opportunity for INSIs shareholders. We have worked closely with the KKR team and have been impressed with their expertise and with KIOs investment process.'

Industry Context

This acquisition reflects a trend of consolidation within the closed-end fund industry, where larger funds can benefit from economies of scale and improved access to investment opportunities. KKR's acquisition of INSI is similar to other mergers in the asset management space, where larger firms seek to expand their AUM and diversify their investment strategies.

Comparison to Industry Standards

• KKR's $237B AUM credit platform is comparable to other large credit asset managers such as Apollo Global Management and Ares Management.
• The management fee waiver offered by KKR is a common practice in fund mergers to incentivize shareholder approval and ensure a smooth transition.
• The 9.9% annual distribution rate of KIO is competitive with other closed-end funds focused on high-yield corporate debt.

Stakeholder Impact

• INSI shareholders will receive KIO shares and may elect to receive up to 5% of the consideration in cash.
• KIO shareholders are expected to benefit from economies of scale and lower operating expenses.
• The combined fund is expected to have enhanced liquidity and investor visibility, potentially attracting a broader investor base.

Next Steps

• KIO and INSI shareholders need to approve the transaction.
• Proxy statements/prospectuses will be provided to INSI and KIO shareholders at their respective shareholder meetings.
• The transaction is expected to close in the fourth quarter of 2024, subject to approvals and other closing conditions.

Key Dates