Frozen credit markets aren't stopping Apollo Management LP from putting its money to work, as the New York private equity firm is spending $1 billion on distressed securities, including reducing debt at companies it already owns by buying their bonds, according to a
Bloomberg report.
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"We are doing exactly what you would expect of us in this market -- using our distressed expertise and appetite for complexity to find investments in good companies that are available at significantly discounted levels," Apollo founder Leon Black wrote in a Feb. 29 letter to clients of the firm.
Apollo has made a fortune buying undervalued cyclical businesses, although in a handful of deals last year, its timing was off. In 2007, financial filings show it pledged up to $5 billion to a mix of industrial companies, retailers and two residential mortgage brokers: U.K.-based Countrywide plc (not to be confused with the troubled U.S.-based Countrywide Financial Corp.) and real estate services firm Realogy, the firm's biggest single investment.
Apollo is unlikely to be the only buyout firm out picking up distressed debt at a discount.
- Cerberus Capital Management LP specializes in buying and turning around ailing businesses;
- Carlyle Group has a distressed debt unit, Carlyle Strategic Partners LP;
- Blackstone Group LP bought debt fund manager GSO Capital Partners LP for $930 million in January; and
- Kohlberg Kravis Roberts & Co. is rumored to be interested in distressed securities as well.
Overall private equity firms think that LBO debt is selling well below its true value, but for the most part sellers are holding on in the hopes that prices will come up. - George White
See Bloomberg story
See Deal.com story on PE firms buying distressed debt
See Deal.com story on Realogy
See Deal.com story on GSO acquisition
