KKR debt delay fans credit fears

KKR Financial, the firm's listed arm, said it had begun talks with creditors after deferring payment of billions of dollars of debt for a second time.

It had borrowed money to invest in home loans, which have lost value following the crisis in the US housing market.

The news unsettled stock markets and hurt the dollar.

KKR Financial had borrowed to invest in home loans - particularly the Alt-A category of loans that are riskier than mainstream borrowers, but safer than sub-prime loans, the Financial Times reported.

The value of these loans has been hit by record defaults in the US mortgage market, particularly among sub-prime borrowers with poor credit histories.

'Confidence dented'

"The mood was generally bad already, and then this came out. It really dented confidence," said Hiroaki Osakabe, fund manager at Chibagin Asset Management in Japan.

Japan's main Nikkei stock index fell more than 3% on Wednesday and European stock markets fell in morning trade.

It is a further embarrassment for KKR after founders Henry Kravis and George Roberts were forced to inject their own cash as part of a $270m bailout of the fund in September.

In another sign that the credit crunch is far from over, Standard Chartered said that deteriorating market conditions had led it to abandon a plan to refinance its $7.15bn Whistlejacket Capital structured investment vehicle (SIV).

SIVs, funds that raise short-term debt and invest the proceeds in longer-term securities, face problems because the sub-prime crisis has made lenders wary.

At the same time, the crisis has also reduced the value of their assets.