Sunday, May 24, 2015

Credit investors seem really bored these days

Fortress credit chief gets more bearish amid strong fundraising

Credit investors seem really bored these days.
In several first-quarter earnings calls, credit pros described an environment that is not ripe for investment – though it is a good time to sell.
The latest was credit chief Peter Briger of Fortress Investment Group, who gave a bearish stance on the credit world during the firm’s Q1 earnings call Thursday.
“You have captured my lack of interest in the market,” Briger, principal and co-chairman of Fortress, said in response to an analyst who called him bearish. “This is an environment that is really not interesting from an investment perspective.”
Distressed investors expect to see a downturn in relatively short time after a period of high valuations and easy credit. However, the financial services sector is healthy, which even in the face of increasing defaults, would keep people confident in the market.
“We may have a high default rate environment without an environment with high perception of risk, and a lot of people working through restructurings without people getting paid for it,” Briger said. “It could be a while before we see really great opportunities.”
Briger’s perspective on the call mirrored what he said during the firm’s fourth-quarter earnings call in March. “The perception of risk and credit is not interesting from a general investment perspective,” he said. The difference on Thursday’s call was that Briger was even more bearish. “It has gotten even worse,” he said about the distressed opportunity.
That doesn’t mean the firm is not preparing for a downturn. Fortress’ credit private equity funds are sitting on $8.3 billion of uncalled capital and raised more than $5 billion in the first quarter, according to the firm’s earnings report. The bulk of that amount – $4.7 billion – was raised for Fortress Credit Opportunities Fund IV, the firm said. That fund is expected to close on a total of $5 billion – with about $2.8 billion in a commingled fund, and the rest in related accounts, Buyouts previously reported.
Fortress also has raised $800 million for its third Japan Opportunities Fund and $600 million for its second Credit Real Estate Fund, according to the earnings report.
In the private equity space, Fortress said Fund V crossed its high water mark and entered carry mode in the first quarter. Fund V, a 2007 vintage vehicle that closed on more than $4 billion, has seen its net asset value increase 22.5 percent, Fortress said.
By Chris Witkowsky, PE HUB


Monday, May 4, 2015

Apollo Goes on the Road to Appease Debt Investors

Where there is smoke there is fire with PE guys overpaying for assets.  Aivars Lode

Apollo’s decision follows a series of spats with creditors in some of its deals

Apollo Global Management LLC is embarking on an unusual campaign to improve its image with debt investors after a series of spats between the private-equity firm and creditors in some of its troubled deals.
Apollo is preparing to meet with big debt investors including mutual fund managers in several cities over the next few months to ease concerns that the firm protects its investments in troubled companies at the expense of creditors, according to people familiar with the matter.

In the meetings, which are slated to begin in May, Apollo will try to persuade investors that the debt issued to fund its corporate buyouts is a good investment, the people said. The ongoing restructuring of casino owner Caesars Entertainment Corp. , which Apollo bought in 2008 with fellow private-equity firm TPG, angered creditors who felt burned by the firm’s moves.

Buyout firms often walk away from insolvent companies, taking losses, but Apollo has made money for itself and investors in its funds by salvaging soured leveraged buyouts, such as Realogy Holdings Corp. , which owns a collection of real-estate brokerages, and Momentive Performance Materials Inc., a silicone and quartz producer.

But Apollo’s tactics have angered some creditors of the companies it owns, who have argued that the firm is profiting at their expense. That could potentially scare off the big investors who buy the debt that fuels Apollo’s deals.

Apollo plans to say that, over time, bonds and loans backing its leveraged buyouts have delivered market-beating returns, the people said. The stakes are high. In such deals, firms like Apollo purchase companies using a combination of cash and borrowed money, typically provided by high-yield debt investors. Persistently low interest rates in recent years have fueled investor demand for riskier, high-yield bonds and loans.

Apollo partner David Sambur, who has helped oversee the firm’s Caesars investment, is planning to participate in the meetings, one of the people said. The meetings will also serve to introduce big investors to Michael Konigsberg, whom Apollo hired last year to run its broker-dealer that sells securities issued by Apollo companies, the person added.
Creditors, many of whom bought up the Caesars debt at a discount, have bristled at Apollo’s tactics. Some bondholder groups sued Apollo over its restructuring of Caesars, claiming that the firm went too far in trying to save some of its $1.7 billion investment in the gambling empire.
Apollo engineered sales of some of the casino chain’s most valuable properties—including a key piece of the Las Vegas Strip’s Caesars Palace—from Caesars Entertainment Operating Co. to other Caesars affiliates. That left holders of $18.4 billion in debt owed by Caesars Entertainment Operating Co., which filed for bankruptcy protection in January, with claims on far fewer assets.
Apollo, however, stands to keep a significant stake in the part of the company that didn’t file for bankruptcy. Caesars’ creditors have argued that Apollo’s moves upended the traditional pecking order of bankruptcy, which requires creditors to be paid in full before shareholders can recover anything.
The firm has said the creditor lawsuits, which are still pending, are without merit. An examiner appointed in the Caesars Entertainment Operating Co. bankruptcy is investigating the pre-bankruptcy transactions.
“Large, complex transactions involve tough negotiations and Apollo takes its fiduciary responsibility for its funds very seriously,” Apollo spokesman Charles V. Zehren told The Wall Street Journal earlier this year. “As such, we will aggressively protect our investments and defend our companies using all the tools available to us, which greatly differentiates us from our peers.”
Apollo and its executives are familiar players in the debt markets. The firm was founded in 1990 by a small group of bankers and executives from Drexel Burnham Lambert, a now-defunct investment bank that pioneered the use of junk bonds in corporate takeovers. Led by Leon Black, Apollo’s chief executive and chairman, they drew on their debt-market expertise to execute their own buyouts at Apollo. The firm’s credit market expertise helped it flourish coming out of the financial crisis and helped it become one of the world’s largest private-equity firms
At the end of 2014, Apollo managed $160 billion in a variety of private-equity, credit and real estate funds, up from $44 billion in 2008. Apollo, which went public in 2011, is scheduled to report its first-quarter results on Thursday.

By Ryan Dezember And Gillian Tan- Wall Street Journal