Bloomberg News

Apollo’s Realogy Plans to Draw on Credit Line for Bond Payments

October 06, 2011

Oct. 6 (Bloomberg) -- Realogy Corp, the real-estate company controlled by Leon Black’s Apollo Global Management LLC, plans to borrow from its bank line to make $215 million in interest payments.

The owner of Century 21 and Coldwell Banker will this month use its $652 million revolving credit facility to fund payments on its unsecured notes and second-lien loans, Parsippany, New Jersey-based Realogy said yesterday in a regulatory filing.

Apollo acquired Realogy in 2007 for $6.6 billion amid the worst U.S. housing slump since the 1930s. Its notes slumped more than 10 percent last month as investors shunned the lowest- ranked bonds as Europe’s fiscal crisis roiled markets. The company is burdened with about $7.7 billion in debt and said it lost $30 million in the third quarter, according to data compiled by Bloomberg and the regulatory filing.

The revolver will decline to $363 million in April 2013, which is not “sufficient to meet Realogy’s liquidity needs” during that year, Moody’s Investors Service analysts Lenny Ajzenman and Peter Abdill wrote in an Oct. 3 report. “Realogy may be required to refinance or recapitalize by late 2012 or early 2013,” they said.

“We continue to manage through this challenging economy,” Tony Hull, Realogy’s chief financial officer, said in an e- mailed statement. “Our capital structure is flexible and positions us to capitalize on a recovery in housing.”

The company had used $50 million of the bank line as of Sept. 30, Realogy said in the filing. In a revolving credit facility, money can be borrowed again once it’s repaid.

Moody’s downgraded Realogy’s speculative grade liquidity ratings to SGL-4 from SGL-3 on Oct. 3 and changed the rating outlook to stable from positive.

‘Decreasing Headroom’

The ratings company cited “decreasing headroom” under financial maintenance tests, expected negative free cash flow over the next year and substantial use of its revolving credit facility for the downgrade.

Realogy reported third-quarter preliminary earnings before interest, taxes, depreciation and amortization of $185 million on sales of $1.2 billion. Leverage, or debt to Ebitda, was about 4.1 times to 4.2 times through the senior loans, within the 4.75 times requirement in the credit agreement, the company said.

“What we’re counting on now is what’s going to happen next year in the housing market,” Evan Mann, senior high yield analyst at Gimme Credit LLC, said in a telephone interview. “The company’s not bad, it’s just too levered. They’d be okay if they can just get their debt down. All along they’ve been doing this financial engineering, they just need more of it.”

--Editors: Pierre Paulden, Chapin Wright

To contact the reporter on this story: Krista Giovacco in New York at kgiovacco1@bloomberg.net.

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net.


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