KKR Financial Holdings LLC, a debt fund managed by private equity firm Kohlberg Kravis Roberts & Co, said a debtholder swapped $3 million of convertible notes for 1.18 million shares in the company.

The notes, which pay a 7 percent coupon, were issued in July 2007 by KKR Financial and trustee Wells Fargo, according to a regulatory filing on Friday. KKR Financial will pay accrued interest through June 8, when the exchange took place.

KKR Financial in March reported a $1.2 billion quarterly loss, reflecting losses and writedowns on loans and other assets. At the time, it said it probably would not pay a dividend this year.

The shares issued represent less than 1 percent of KKR Financial's outstanding stock.

(Reporting by Joseph A. Giannone; editing by John Wallace)

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