On 15 September, the KKR Credit Income Fund (ASX: KKC) provided details on its discount control initiatives for at least the next 12-month period, on which is a new development. Specifically, KKC announced the resumption of its buy-back program for the FY22 period as well as fact that it is currently sounding the market out about launching an unlisted unit trust with similar objectives to KKC. The unlisted unit trust would have the ability to buy units in KKC should there be a material discount to NTA.
Such an investment vehicle, and its use in respective to KKC, would be to what Metrics has in place with respect to MXT. We would envisage the unlisted unit trust as being a wholesale only product (‘stickier’ money) and having the ability to ‘put the gates up’ in respect to redemption requests. This latter ability is necessary in an investment vehicle that invests in private debt. We would also envisage it would hold a residual cash position (perhaps 5%) to assist in potential buying of KKC units.
Additionally, the relatively short dated maturity of the private debt holdings in the underlying KKR European Direct Lending vehicle may also assist in any required cash in which to potentially purchase KKC units should the need arise.
These initiatives following on from KKC recently moving from quarterly distributions to monthly distributions, which was also designed to partly address the discount to NTA.
RRM notes the KKC unit price moved up following this announcement, with KKC now trading at its thinnest discount to NTA (10% discount) since the March 2020 market sell-off.
As RRM has previously expressed, it is our view that buy-backs often do not have an immediate material impact on a discount to NTA. Rather, the benefit tends to be more over the medium to long term, assisting in settle a share / unit register. Additionally, a buy back provides important messaging to the market, namely that a manager is prepared to act in the interest of investors.