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
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