Legg Mason gets cash from KKR

Money manager Legg Mason Inc. on Monday said it turned to private-equity giant Kohlberg Kravis Roberts & Co. to beef up its capital.

The Baltimore-based firm, whose stable of fund managers includes fixed-income investment unit Western Asset Management in Pasadena, said it raised $1.25 billion by selling convertible notes to KKR, which is expected to gain a seat on Legg Mason’s board.

A number of Wall Street’s financial titans have sought to bolster their balance sheets in recent months after suffering blows from the sub-prime mortgage mess.

Legg Mason, which manages about $1 trillion in bonds, stocks and money market assets, since November has pumped $1.5 billion into some of its money funds and other cash-management funds that were hurt by short-term IOUs linked to sub-prime mortgages and other dicey securities.

Legg Mason’s shares have tumbled 47% since peaking at $136 in February 2006. The stock closed at $72.36, up 72 cents, before the announcement Monday.

Chairman Raymond A. “Chip” Mason said the company considered “a number of options with a number of institutions” before settling on a deal with KKR. The cash infusion “materially increased the company’s liquidity, which enables us to better manage in a volatile marketplace, as well as to position the firm for future growth,” he said.

Legg Mason said it would use part of the proceeds of the deal to buy back from Citigroup Inc. preferred stock that was convertible into 2.5 million common shares.