Fitch Rates KKR Financial CLO 2013-2, Ltd./LLC

Fitch Ratings assigns the following ratings to KKR Financial CLO 2013-2, Ltd./LLC:

--$100,000,000 class A-1A notes 'AAAsf'; Outlook Stable;

--$10,000,000 class A-1B notes 'AAAsf'; Outlook Stable;

--$115,000,000 class A-1C notes 'AAAsf'; Outlook Stable.

TRANSACTION SUMMARY

KKR Financial CLO 2013-2, Ltd. (the issuer) and KKR Financial CLO 2013-2, LLC (the co-issuer) comprise an arbitrage cash flow collateralized loan obligation (CLO) that will be managed by KKR Financial Advisors II, LLC, a wholly-owned subsidiary of KKR Asset Management LLC (KAM). Net proceeds from the issuance of the secured and subordinated notes will be used to purchase a portfolio of approximately $369 million of primarily senior secured leveraged loans. The CLO will have a four-year reinvestment period, scheduled to end in January 2018.

KEY RATING DRIVERS

Sufficient Credit Enhancement: Credit enhancement (CE) of 39% for class A-1A, A-1B and A-1C notes (collectively referred to herein as class A-1 notes), in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in a 'AAAsf' stress scenario. The degree of CE available to class A-1 notes is in line with, although slightly higher than, the average CE of recent CLO issuances.

'B/B-' Asset Quality: The average credit quality of the indicative portfolio is 'B/B-', which is comparable to recent CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, in Fitch's opinion, class A-1 notes are unlikely to be affected by the foreseeable level of defaults. Class A-1 notes are projected to be able to withstand default rates of up to 66.4%.

Strong Recovery Expectations: The indicative portfolio consists of 100% first lien senior secured loans. Approximately 92.7% of the indicative portfolio has either strong recovery prospects or a Fitch-assigned Recovery Rating of 'RR2' or higher.

Portfolio Parameters: Most of the concentration limitations and collateral quality test levels are within the range of limits set in the majority of recent CLOs. Fitch addressed the impact of the most prominent risk-presenting concentration allowances in the Fitch stressed portfolio analysis.

RATING SENSITIVITIES

Fitch evaluated the structure's sensitivity to the potential variability of key model assumptions including decreases in weighted average spread or recovery rates and increases in default rates or correlation. Fitch expects the class A-1 notes to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'A+sf' and 'AAAsf' for the class A-1 notes.

Key Rating Drivers and Rating Sensitivities are further described in the accompanying new issue report, which will be available shortly to investors on Fitch's website at 'www.fitchratings.com'.

For more information about Fitch's comprehensive subscription service FitchResearch, which includes all presale reports, surveillance and credit reports on more than 20 asset classes, contact product sales at [phone] or at '[e-mail]'.

Additional information is available at 'www.fitchratings.com'.

The sources of information used to assess these ratings were the transaction documents provided by the co-placement agent, GreensLedge Capital Markets LLC, and the public domain.

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (May 24, 2013);

--'Global Rating Criteria for Corporate CDOs' (Aug. 8, 2013);

--'Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds' (Jan. 25, 2013);

--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 13, 2013).

Applicable Criteria and Related Research: KKR Financial CLO 2013-2, Ltd./LLC

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=730196

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661

Global Rating Criteria for Corporate CDOs

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715492

Criteria for Interest Rate Stresses in Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695535

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707155

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=816653

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Fitch Ratings
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Robert Rhein
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Aaron Hughes
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