Angela Yang – Investor Relations William Sonneborn – Chief Executive Officer Michael McFerran – Chief Financial Officer and Chief Operations Officer

Gabe Poggi - FBR & Co. Daniel Furtado - Jefferies Michael Sarcone - Sandler O'Neill & Partners

In our natural resources, working interest and royalty holdings are carried at amortized cost under GAAP. For our debt and natural resource holdings are adjusted to estimated fair value and our book value per share is $10.67 or a $0.68 premium to the book value we reported this quarter.

For the first quarter our run rate cash earnings per share totaled $0.26 per common share, which equates to an 11% cash return on equity and total net cash earnings per share totaled $0.36, which equates to a 15% cash return on equity. I do want to highlight that our run rate cash earnings per share reflects semi-annual coupon payments on our convertible notes payable on our first and third quarters, which when normalized in a straight-line basis results in run rate cash earnings per share of $0.29 or at 12% cash return on equity for the first quarter of 2012, compared to $0.27, a $0.02 decrease, normalized earnings per share for the fourth quarter of 2011.

As we have discussed on previous calls, one of our strategic goals for the past year has been to source low-cost, long-term capital so that we could deploy it accretively when market opportunities are attractive. During the quarter we sourced incremental capital through the issuance of $115 million of 30-year of senior notes that bear interest at 7.5%.

This pricing compares favorably to our first 30-year senior note offering we did last November, which was done at a rate 8.38%. We have now raised $374 million of 30-year financing at a blended cost of 8.1%.

In addition to sourcing incremental capital through issuing holding company debt, another attractive source of investible cash, given the current credit environment, has been through divesting certain rated tranches we hold in our CLO subsidiaries. During the quarter we generated approximately $32 million of incremental capital through the sale of $42 million face amount of our holdings of Class D notes from our CLO 2007-1 transaction.

This sale enables us to redeploy capital that had a sub-4% cash yield based on the sales price we achieved through incremental opportunities that we believe will be accretive to both earnings and cash flows for shareholders going forward. We currently hold an additional $162.5 million face amount of these Class D notes, which have divested at the same price as the transactions we did in the first quarter, would raise an additional $124 million of low-cost capital for redeployment to incremental opportunities.

Taking our 30-year debt issuances together with the CLO truancy sales we accomplished in the quarter, we have now generated approximately $406 million of capital with the blended cash cost of 7.6% that we believe we can deploy attractively for shareholders. Next, Mike will take you through the specifics of this quarter’s results.

Mike?

In our natural resources, working interest and royalty holdings are carried at amortized cost under GAAP. For our debt and natural resource holdings are adjusted to estimated fair value and our book value per share is $10.67 or a $0.68 premium to the book value we reported this quarter.

For the first quarter our run rate cash earnings per share totaled $0.26 per common share, which equates to an 11% cash return on equity and total net cash earnings per share totaled $0.36, which equates to a 15% cash return on equity. I do want to highlight that our run rate cash earnings per share reflects semi-annual coupon payments on our convertible notes payable on our first and third quarters, which when normalized in a straight-line basis results in run rate cash earnings per share of $0.29 or at 12% cash return on equity for the first quarter of 2012, compared to $0.27, a $0.02 decrease, normalized earnings per share for the fourth quarter of 2011.

As we have discussed on previous calls, one of our strategic goals for the past year has been to source low-cost, long-term capital so that we could deploy it accretively when market opportunities are attractive. During the quarter we sourced incremental capital through the issuance of $115 million of 30-year of senior notes that bear interest at 7.5%.

This pricing compares favorably to our first 30-year senior note offering we did last November, which was done at a rate 8.38%. We have now raised $374 million of 30-year financing at a blended cost of 8.1%.

In addition to sourcing incremental capital through issuing holding company debt, another attractive source of investible cash, given the current credit environment, has been through divesting certain rated tranches we hold in our CLO subsidiaries. During the quarter we generated approximately $32 million of incremental capital through the sale of $42 million face amount of our holdings of Class D notes from our CLO 2007-1 transaction.

This sale enables us to redeploy capital that had a sub-4% cash yield based on the sales price we achieved through incremental opportunities that we believe will be accretive to both earnings and cash flows for shareholders going forward. We currently hold an additional $162.5 million face amount of these Class D notes, which have divested at the same price as the transactions we did in the first quarter, would raise an additional $124 million of low-cost capital for redeployment to incremental opportunities.

Taking our 30-year debt issuances together with the CLO truancy sales we accomplished in the quarter, we have now generated approximately $406 million of capital with the blended cash cost of 7.6% that we believe we can deploy attractively for shareholders. Next, Mike will take you through the specifics of this quarter’s results.

Mike?

Thanks, Bill, and good morning. Today we announce net income for the first quarter of 2012 of $88 million or $0.47 per diluted common share.

This compares the net income for the fourth quarter of 2011 of $77 million or $0.43 per diluted common share. Net income for the quarter consisted of net investment income, before provision for loan losses, of $84.4 million, a provision of loan losses of $46.5 million, other income totaling $78.9 million and non-investment expenses of $32.8 million.

Comparatively, net income for the fourth quarter of 2011 consists of net investment income of $90 million, no provision for loan losses, other income of $13.7 million and non-investment expenses of $27.1 million. Then investment income reflects gross investment income of $137.9 million as compared to gross investment income of $136.4 million for fourth quarter of 2011.

Interest expense, including interest expense to affiliates, for the quarter totaled $53.6 million compared to $46.4 million for the fourth quarter of 2011. The increase in interest expense is driven by $5.7 million of interest expense for the HR senior note offerings from last November and this past March as well as an increase of $2.3 million in interest expense due to payments on CLO 2007-1 and 2007-A subordinate notes held by affiliates that increased due to the higher cash distributions on these notes during the first quarter of 2012 as compared to the fourth quarter of 2011.

It is worth noting that $2.1 million of interest expense for the quarter relates to $112 million of our outstanding 7% convertible notes that mature this coming July. We are currently holding cash on balance sheet to pay for the redemption of these notes and currently don’t expect to issue any additional debt to refinance them.

During the quarter we recorded a provision for loan losses of $46.5 million. I did want to spend some time reviewing this amount and our allowance for loan losses with you.

As disclosed in detail in our quarterly filings with SEC, our allowance for loan losses consist of two components; an allocated reserve and an unallocated reserve. The allocated reserve pertains to loans that we have determined are impaired or, put another way, where we believe it is probable we’ll be unable to collect all payment due.

The unallocated component of our allowance for loan losses pertain our portfolio of loans held for investment that are not impaired. Our balance of loans held for sale are not included in our allowance for loan loss reserve analysis as they are already carried at the lower of cost or estimated market value.

Reflected at $46.5 million provision we recorded during the quarter, our allowance for loan losses totaled $235.8 million as of March 31. Of this amount, $34.5 million reflects our allocated reserve, $241.4 million reflects our unallocated reserve.

We estimate the appropriate level of our unallocated reserve by risk stratifying our loans held for investment portfolio into three categories which are loans where we have heightened concern, loans where we have moderate concern and loans where our concerns are low. For each category we apply a range of probability of default and loss severity assumptions to arrive at an upside case, base case, and downside case.

As of March 31, we have loans issued from ten issuers with an aggregate par value of $1.12 billion and an amortized cost of $1.08 billion that we classified as being of heightened concern. Approximately 88% of the amortized cost balance of loans classified as being of heightened concern, consists of the following holdings: First, $311.4 million amortized cost amount of loans issued by Modular Space Corporation, second, $309.2 million amortized cost amount of loans issued by Texas Competitive Electric Holdings Company, or TXU, third, $205.3 million amortized cost amount of loans issued by First Data Corporation, fourth, $69.2 million amortized cost amount of loans issued by Realogy Corporation and, fifth, $60.7 million amortized cost amount of loans issued by Caesars Entertainment Operating Company.

Through review of our loan portfolio this quarter with particular sensitivity to the loans we have designated as being of heightened concern, especially TXU, we determined that it was prudent to increase our allowance for loan losses to $235.8 million, which represents approximately 4% of the amortized cost amount of our higher loans held for investment portfolio. Another way to think about it, is that of our $235.8 million total allowance for loan losses, $201.4 million is unallocated, which represents approximately 20% of the $1.08 billion of loans where we have heightened concern.

The next topic is our other income for the quarter, which totals $78.9 million. Of this amount, $63.6 million stems from net realized and unrealized gains on investments, of which $43.5 million consists of realized gains during the quarter.

Other income also includes $9.1 million of net realized and unrealized gains on derivatives and foreign exchange, of which $4.7 million is from our commodity hedges related to our oil and gas work in interest holdings. Next I'll review our performance by strategy for the quarter with you briefly.

Page 15 of our supplemental presentation, which Andrew referred to in our opening remarks, shows our run rate return on equity and total return on equity by strategy for the first quarter. The total run rate return on equity for the quarter of 6.8% reflects the $46.5 million provision for loan offices we reported during the quarter.

Similarly, our bank loan in high yield and mezzanine strategies reflect approximately $46.1 million, and $400,000 of the $46.5 million total provision, respectively. Next, with respect to our natural resources strategy ROE computations there are two key points to note.

First, net investment income reflects our unhedged revenue. As we head to the majority of the production from our work and interest investments, the benefit from the hedges we have in place is reflected in other income, which is included in total rate of return, ROE, but not run rate.

This amount totaled approximately $900,000 within the quarter. Second, our returns were negatively impacted from $1.4 million of acquisition costs which is a $69.8 million of working interest we acquired during the quarter.

As we've disclosed in the past, acquisition costs related to incremental oil and gas purchases are expensed at the time of purchase rather than capitalized and deferred. Next I wanted to spend a moment reviewing our current liquidity.

As of March 31 we reported unrestricted cash on our balance sheet of $526.8 million. Of this amount, $112 million is being reserved for the repayment of our outstanding 7% convertible notes that we repay this coming July.

In addition, approximately $142 million is earmarked for identified and/or committed opportunities that are expected to fund during the second quarter. This results in approximately in $273 million of investable capital as of March 31 available for further deployment and excessive opportunities that we've already committed to and expect to fund.

Now I'm going to hand this back to Bill.

Thanks, Mike. Last year we reached a key milestone in diversifying and lowering our cost of capital through becoming an investment grade company for the first time in the company's history.

We leveraged this ratings issue nearly $375 million in 30-year notes at weighted average interest cost of 8.1%. Why is this important?

Because we are concerned with the implications of massive global central bank easing. Even setting aside Europe and the long term refinancing operation or LTRO, U.S.

monetary and fiscal policy has been sized at four and a half times what authorities did in this country during the great depression and now total nearly 38% of GDP. When you include actions taken in addition by the ECB and Japanese Central Bank, we felt it was prudent for our shareholders to lock in a long-term fixed low cost of capital in a period in which global interest rates represent negative real returns.

We cannot predict whether significant effects will emerge in 2013, 2014 or beyond, but we see substantial inflationary pressures building on the global economy, particularly in emerging markets through wages. Just look at the commodity markets as an early indicator.

In addition to lowering our cost of capital and extending the maturity profile, we made great strides in moving our assets more toward our strategic asset allocation targets. As we have previously shared, we have felt it prudent to balance our financial assets consisting predominately of corporate credit with real assets, natural resources and commercial real estate.

While a majority of our exposures will remain focused on opportunities within credit markets, we believe that we can achieve very attractive and consistent cash flow and total rates of return in real assets while improving risk adjusted returns in aggregate to our shareholders. We currently are targeting approximately 60% of our capital to global credit opportunities, 20% to natural resources and 15% to commercial real estate with the remainder to other opportunities including some modest private equity.

At last year we executed on several transactions through our growing natural resources strategy and deployed our committed deploy over $210 million of capital. We have continued this phase of activity into 2012 including additional capital deployed or committed to be deployed during the first quarter to acquisitions of overriding royalty and working interests in oil and gas properties as well as a commitment to a consortium alongside Schlumberger and Tech Petrol, which will redevelop and provide service and optimize production of certain wells in Ecuador and returned for a fixed dollar fee per barrel of incremental production produced.

In addition, earlier this month we announced our investment in Yorktown Mall outside of Chicago. We're excited about the current pipeline of opportunities we are working on within commercial real estate.

Shareholders may ask why we have created such substantial exposure within these real assets to natural gas as part of our natural resources strategy. The answer is supply and demand.

We believe it is only a matter of time before natural gas becomes more of a global commodity such as gold or oil. While the U.S.

has tremendous supply, areas such as Europe, Japan, China, Korea and India will likely have even bigger demand. It's not difficult to see the attractive arbitrage opportunity in buying 20 plus years of natural gas at a spot price of $2/mcf when global markets price it at much higher premiums.

In addition, because of our propriety sourcing and use of hedging and ability to add operational improvement, even with natural gas prices down 56% for the 12-month period ending March 31, 2012, we have generated attractive risk-adjusted returns through this strategy to our shareholders. But even with all that deployment, we ended the quarter with $527 million of cash.

We're almost $415 million net of our $112 million of convertible bonds maturing in July. Again, shareholders might ask, "What is management doing with all that cash?"

The answer to that is simple. It's not a surprise because we believe that Greece will likely default again within the next 12 months.

It's also not a surprise since Greece has been in default the majority of the time since 1800. We also believe that global sovereign debt imbalances will continue to substantially shorten credit cycles relative to what we've experienced in the past from historic averages of two to three years to even short periods like six months.

We are focused on driving returns for our shareholders and the best time to have capital is the same time that it is hardest to obtain. We are ready.

We expect a substantial opportunity to deploy this cash to very attractive returns in the near future. We did this in August and September of 2007 when markets dislocated and we did it in May of 2010, both of which have resulted in very good returns for our shareholders, some of which have been realized in the first quarter.

We believe we can do it again. In addition to pulling capital, we continue to deliver substantial total and cash returns to shareholders.

For the first quarter of 2012, a return of equity was 20% and our total cash return in equity to shareholders was 15%. Our current strategy for capital deployment is born through the philosophy that different asset classes will provide differing risk-adjusted return profiles across changing macro and micro economic cycles.

Ultimately we are focused on opportunities where we believe our manager has a pronounced and defined competitive advantage to which we can continue to drive returns for our shareholders. With that, we'll open this call for questions.

Operator, please go ahead.

In the case of your question on capital appointment and the first quarter was an interesting one which we kind of met our pace in terms of deploying capital. We had raised in the context of the November debt offering.

But because of the strength of credit markets, we were able to realize on a number of investments we had made in previous quarters prior to raising that debt offering at attractive prices where we felt those assets had the chief fair value. So, what you see is effectively a recycling, if you will, of capital deployment in accordance with what our plan was based upon the pipeline with realizations, taking advantage of what the market gave us.

And so, as we've said today we have a pretty attractive pipeline, as Mike went through, in the context of a number of investments that we will expect to deploy in the second quarter and we're waiting with some good dry powder for the next turn in the context of market volatility event which we expect will happen in the near future and we want to be ready for it.

In the case of your question on capital appointment and the first quarter was an interesting one which we kind of met our pace in terms of deploying capital. We had raised in the context of the November debt offering.

But because of the strength of credit markets, we were able to realize on a number of investments we had made in previous quarters prior to raising that debt offering at attractive prices where we felt those assets had the chief fair value. So, what you see is effectively a recycling, if you will, of capital deployment in accordance with what our plan was based upon the pipeline with realizations, taking advantage of what the market gave us.

And so, as we've said today we have a pretty attractive pipeline, as Mike went through, in the context of a number of investments that we will expect to deploy in the second quarter and we're waiting with some good dry powder for the next turn in the context of market volatility event which we expect will happen in the near future and we want to be ready for it.

In the case of your question on capital appointment and the first quarter was an interesting one which we kind of met our pace in terms of deploying capital. We had raised in the context of the November debt offering.

But because of the strength of credit markets, we were able to realize on a number of investments we had made in previous quarters prior to raising that debt offering at attractive prices where we felt those assets had the chief fair value. So, what you see is effectively a recycling, if you will, of capital deployment in accordance with what our plan was based upon the pipeline with realizations, taking advantage of what the market gave us.

And so, as we've said today we have a pretty attractive pipeline, as Mike went through, in the context of a number of investments that we will expect to deploy in the second quarter and we're waiting with some good dry powder for the next turn in the context of market volatility event which we expect will happen in the near future and we want to be ready for it.

In the case of your question on capital appointment and the first quarter was an interesting one which we kind of met our pace in terms of deploying capital. We had raised in the context of the November debt offering.

But because of the strength of credit markets, we were able to realize on a number of investments we had made in previous quarters prior to raising that debt offering at attractive prices where we felt those assets had the chief fair value. So, what you see is effectively a recycling, if you will, of capital deployment in accordance with what our plan was based upon the pipeline with realizations, taking advantage of what the market gave us.

And so, as we've said today we have a pretty attractive pipeline, as Mike went through, in the context of a number of investments that we will expect to deploy in the second quarter and we're waiting with some good dry powder for the next turn in the context of market volatility event which we expect will happen in the near future and we want to be ready for it.

In the case of your question on capital appointment and the first quarter was an interesting one which we kind of met our pace in terms of deploying capital. We had raised in the context of the November debt offering.

But because of the strength of credit markets, we were able to realize on a number of investments we had made in previous quarters prior to raising that debt offering at attractive prices where we felt those assets had the chief fair value. So, what you see is effectively a recycling, if you will, of capital deployment in accordance with what our plan was based upon the pipeline with realizations, taking advantage of what the market gave us.

And so, as we've said today we have a pretty attractive pipeline, as Mike went through, in the context of a number of investments that we will expect to deploy in the second quarter and we're waiting with some good dry powder for the next turn in the context of market volatility event which we expect will happen in the near future and we want to be ready for it.

In the case of your question on capital appointment and the first quarter was an interesting one which we kind of met our pace in terms of deploying capital. We had raised in the context of the November debt offering.

But because of the strength of credit markets, we were able to realize on a number of investments we had made in previous quarters prior to raising that debt offering at attractive prices where we felt those assets had the chief fair value. So, what you see is effectively a recycling, if you will, of capital deployment in accordance with what our plan was based upon the pipeline with realizations, taking advantage of what the market gave us.

And so, as we've said today we have a pretty attractive pipeline, as Mike went through, in the context of a number of investments that we will expect to deploy in the second quarter and we're waiting with some good dry powder for the next turn in the context of market volatility event which we expect will happen in the near future and we want to be ready for it.

Okay, that's helpful. One quick follow-up because you guys are obviously, seeing as evidence by what you've done over the last two quarters a lot of pitches to hit in natural resources on the commercial real estate side.

Do you think, just from 20,000 feet has KKR's or KFN's vantage point from the commercial real estate perspective turned the corner? Are you seeing better pitches to hit there?

Is there more flow, more Yorktown-esque opportunities as compared to call it nine months ago or a year or so ago, as you guys talked about increasing equity allocation to that asset class?

Yes, as were getting closer to see MBS maturities and interesting enough you have this weird dynamic going on in commercial real estate between very, very low cap rates in traditional core real estate and very, very high cap rates when you go 20 miles outside of city center in the context of things that need some operational enhancement. And so, where we're seeing much more activity in terms of our pipeline is in those opportunistic situations where, again, we, through the managers’ competitive relationships, can drive some enhanced value creation at those properties as a major source of return.

And that pipeline has continued to build both domestically and internationally.

That's helpful. Thanks guys, good quarter.

And thanks for the color on the provision.

Thanks, Gabe.

Morning, everybody. Thank you for the time.

I'm sorry if I missed this but the detail on the OpEx increased, can you help me to understand the movement from 4Q to 1Q and how to think about that going forward?

Sure. When we acquire a working interest in for our natural resources strategy, acquisition possibly related to those are expensed rather than capitalized and amortized over the life or natural life of the asset.

That is just really a function of GAAP as acquisition of oil and gas working interest is treated as business combinations.

GAAP follows cash basically there. So, you will see lower initial returns and then much higher returns once you get through the initial acquisition cost being expensed.

Got you. Thank you.

And then the other question is did something occur in the first quarter that made you adjust your probability and severity outlook assumptions for these "heightened" concerned loans or was this an inclusion of additional loans into that category?

There was no change in the category. We continue to look at that portfolio, while we are hopeful for good outcomes, we thought it was prudent to increase it.

We are conscious that we did see some of TXC's bonds get downgraded during the quarter and price declined and some of its loans were as witnessed. But all in all, we felt, especially as Bill referenced in his comments, we are going to be entering an environment where concerns are on Greece and sovereign debt.

It could create some choppy waters. We felt it was better to strengthen the balance sheet with additional reserves before that period is experienced.

Got you. Okay, thank you.

Then one more, quick one if you don't mind? This $150 million debt issuance, is it safe to assume that no interest was recognized in the quarter from that issuance?

No, interest? No, we accrued interest expense from, I mean it was a small allowance from the date we did the deal in March through the end of the quarter, but it was a small amount.

There was no cash interest expense on it.

Okay, okay. Great.

Thanks a lot for your time, I appreciate it.

Thanks, Dan.

Hey, good morning, guys.

Good morning, Michael.

First question on the allowance, again. I know things can change over time and situations can get worse, but do you feel like this resent provision you took in the increase in the allowance, is that really a kind of very worst case scenario you've built in there or could you foresee another allowance build?

I think, look, worse case is definitely a hard statement to make, so I wouldn't want to go that far. I mean, 4% of our entire portfolio is reserved for it, which people look at historical performance leverage loans, feels pretty prudent to us.

We feel very comfortable with that reserve level. But that being said, I wouldn't want to make any statements because, frankly, I don't have a crystal ball on how the future can play out.

No, I understand.

We feel good with where we're sitting today.

Okay. And then can you just give us an update on what you are seeing in the CLO market, you're thoughts there and the potential for any new transactions?