April 29 (Bloomberg) -- Apollo Management LP founder Leon Black said investment banks have pared their backlog of debt committed to leveraged buyouts and will resume funding deals this year.

``We're well on our way'' to a credit-market recovery, Black said during a panel discussion in Beverly Hills, California. As more LBO debt is sold off in the next six months, ``the banks will be in business again.''

Banks and brokerage firms have cut their holdings of leveraged loans, used to finance LBOs, to $95 billion from $245 billion in July, according to New York-based Standard & Poor's. That may pave the way for more deal-making, reversing a 69 percent decline in announced transactions in the first quarter.

``Things feel better,'' David Solomon, co-head of investment banking at New York-based Goldman Sachs Group Inc., said in the discussion at the Milken Institute Global Conference.

The reduction in loans may be less about a healthy market and more about opportunistic buying on the part of New York-based Apollo and rivals including Blackstone Group LP and Carlyle Group, according to Nigel Sillis, director of fixed-income and currency research at Baring Asset Management in London.

Forced Selling

Citigroup Inc. sold $8 billion of the debt this month after giving buyers $6 billion of financing at cheaper rates than it can borrow itself, according to people familiar with the transaction, who declined to be identified because the terms aren't public. Deutsche Bank AG and Royal Bank of Scotland Plc are also offering credit to buyers to help cut their holdings.

``The forced sellers are cutting deals with the only buyers in town,'' Sillis said in an interview. ``Getting bona-fide lending going again is way down the line.''

Purchases by private-equity firms have accounted for about $65 billion of the LBO debt reduction. The remainder fell off the books as deals such as Blackstone's $6.6 billion takeover of Dallas-based credit-card processor Alliance Data Systems Corp. fell apart.

``There's more work to do in recycling some of that capital,'' Solomon said.

Black, 56, said Apollo has invested about $4 billion in equity since October, mostly in deals that don't require debt. The firm will pursue more transactions as buyers lower their price expectations, he said.

Share Sale

Apollo registered on April 8 to sell 29.8 million shares to public investors, following a private share sale last year through a Goldman Sachs exchange. The sale comes after Blackstone's initial public offering in June 2007.

Blackstone has dropped almost 40 percent since the stock's debut, reflecting investors' concern that the firm's fees and profits will fall amid the LBO drought.

``With private equity and hedge funds going public, the market is still confused about what they actually do,'' Black said today. ``I don't think what's happened with Blackstone's price will be that relevant over time.''

To contact the reporter on this story: Jason Kelly in New York at jkelly14@bloomberg.net

Last Updated: April 29, 2008 16:34 EDT