Bloomberg News

Apollo Global Posts $1.14 Billion Loss as Buyout Values Fall

November 04, 2011

(Adds private-equity writedowns in third paragraph.)

Nov. 3 (Bloomberg) -- Apollo Global Management LLC, the private-equity firm that went public in March, reported a third- quarter loss after writing down the value of its buyout holdings amid turbulent securities markets.

Pretax economic net income, a measure of profit excluding some costs from the firm’s initial public offering, fell to a loss of $1.14 billion from a gain of $315.3 million a year earlier, New York-based Apollo said today in a statement. The loss was $2.89 a share.

Apollo, led by Leon Black, and its publicly traded rivals faced volatile markets in the third quarter as global stocks fell 18 percent, slowing the deal making that boosted earnings in the first half. Apollo wrote down almost $1.4 billion in the value of its private-equity portfolio, including Charter Communications Inc., Noranda Aluminum Inc. and Ceva Group Plc.

Assets under management fell to $65.1 billion from $71.7 billion on June 30. Real estate assets ended the quarter at $7.9 billion. The firm’s portion of profits from investments, known as carried interest, was a negative $1.16 billion as write downs erased earlier gains.

Apollo’s economic net income doesn’t comply with U.S. generally accepted accounting principles. The net loss under those standards was $467 million in the quarter, or $3.86 a share, from a profit of $24.1 million, or 23 cents, a year earlier.

Portfolio Sales Slow

Apollo rose 2.1 percent to close yesterday at $13.09 in New York trading. The shares have declined 31 percent since being offered for $19 each in an initial public offering on March 29.

The value of global leveraged buyouts fell 33 percent to $23.2 billion in the third quarter from the second, according to data compiled by Bloomberg, as banks hesitated to finance deals amid Europe’s debt crisis and a slowdown in U.S. economic growth.

Unsettled markets have also slowed planned sales of portfolio companies. Apollo has done “a lot of work” preparing to sell companies, President Marc Spilker said in August. The timing depends on market conditions for IPOs and strategic companies’ appetites for mergers and acquisitions, which is growing, he said then.

Companies owned by Apollo that have filed IPO plans with regulators include Norwegian Cruise Line Holdings Ltd., AMC Entertainment Holdings Inc., Momentive Performance Materials Holdings LLC., Aleris Corp. and Rexnord Corp.

Last month Apollo completed its acquisition of Gulf Stream Asset Management, a Charlotte, North Carolina-based manager of about $3 billion of collateralized loan obligations, as it moves into capital markets. The firm said today it won a $500 million investment from a sovereign wealth fund to invest in European credit.

Real Estate Purchases

Black and co-founders Joshua Harris and Marc Rowan have expanded the firm’s holdings with credit investments and real estate purchases. Those businesses tend to deliver more predictable profits than private equity.

Private-equity firms pool investor money to take over companies, using mostly debt, with the intention of selling the companies or taking them public later for a profit. They typically charge an annual management fee equal to 1.5 percent to 2 percent of committed funds, and keep 20 percent of profit from investments.

Apollo, created in 1990, participated in some of the biggest deals of the leveraged-buyout peak, including the 2007 acquisition of real estate group Realogy Corp. and the 2008 takeover of Caesars Entertainment Corp., then known as Harrah’s, the world’s biggest casino company.

--Editors: Larry Edelman, Steven Crabill

To contact the reporters on this story: Beth Jinks in New York at bjinks1@bloomberg.net; Devin Banerjee in New York at dbanerjee2@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net


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