Apollo’s Realogy Files to Raise Up to $1.1 Billion in IP0

Realogy Holdings Corp., the real- estate services provider owned by Apollo Global Management LLC (APO), filed to raise as much as $1.08 billion in its U.S. initial public offering.

Realogy is offering 40 million shares, almost one-third of its common stock, at $23 to $27 each, according to a regulatory filing today. Apollo, the New York-based private-equity firm run by Leon Black, will still hold a majority of the voting power following the IPO, the filing shows.

Realogy, whose brokerage brands include Coldwell Banker and Century 21, is going public as U.S. home prices start to recover after the worst collapse since the 1930s. The Parsippany, New Jersey-based company was taken private by Apollo in 2007 for $6.8 billion after the housing market peaked. At the midpoint of the IPO price range, it would be valued at about $3.25 billion.

“They see a window of opportunity here,” said Evan Mann, credit analyst for Gimme Credit in New York, who raised his rating on the company’s bonds today to improving from stable. “They have a little bit of wind at their back and there’s uncertainty around the corner so why wouldn’t they try now?”

Apollo’s net proceeds from the sale would be about $946 million at the midpoint of the price range, according to the filing.

Paulson Stake

All of the shares in the latest offering are being sold by Realogy. The stake belonging to Apollo’s funds will decline to 50 percent from 73 percent in the IPO, according to the filing. Paulson & Co., the New York-based hedge fund run by John Paulson, will see its stake drop to 10 percent from almost 15 percent, the document shows.

Apollo bought Realogy in April 2007, almost two years after U.S. home sales peaked, in a bet that the real estate market would rebound. Annual U.S. existing home sales fell 34 percent from 2007 through 2011, according to the National Association of Realtors. Prices, as measured by the S&P/Case-Shiller index of 20 metropolitan areas, plunged as much as 35 percent from a July 2006 peak.

Demand for homes has improved in the past year as low interest rates and an improving job market draw in buyers who are competing for a dwindling supply of listings. U.S. home prices climbed 1.2 percent in July from a year earlier, the biggest 12-month increase since August 2010, the Case-Shiller index showed this week.

Higher Revenue

Realogy’s second-quarter revenue rose 11 percent from a year earlier to $1.3 billion. The company recorded a net loss for the quarter of $25 million after $176 million of interest expense and $44 million of depreciation and amortization costs

Reducing debt is key to Realogy’s strategy. While Realogy’s total debt has climbed 16 percent to $7.28 billion since the buyout, the money from its IPO combined with the conversion of about $1.9 billion of debt owned by firms such as Apollo and Paulson into equity will cut the company’s obligations by more than a third and reduce interest expenses, according to the filing.

Optimism is increasing among creditors. Realogy’s $492 million of 11.5 percent notes maturing in 2017, which traded as low as 65 cents on the dollar a year ago, have increased to 107.75 cents as of 1:49 p.m. in New York to yield 9.4 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Cutting Debt

The company, ranked eight levels below investment grade at Caa2 by Moody’s Investors Service, has $4.7 billion of bonds outstanding with an average maturity of 5.7 years, according to data compiled by Bloomberg.

“Although we do not have any significant debt maturities until 2016, it is our primary objective to use a substantial portion of future free cash flow generation to further reduce our outstanding indebtedness,” Realogy said in the filing.

Apollo has been seeking to monetize investments to return money to clients as it prepares to market a new flagship buyout fund. The firm expects to start marketing the pool later this year, seeking $10 billion to $12 billion, two people with knowledge of the plans said last month.

Berry Plastics Group Inc. (BERY), the container maker owned by Apollo, said in a regulatory filing on Sept. 19 that it plans to raise as much as $529.4 million in its initial public offering. It is offering 29.4 million shares at $16 to $18 each, according to the filing.

Realogy’s brands also include Better Homes and Gardens, the Corcoran Group and ERA. The firm has about 13,500 franchised and company-owned offices in more than 100 countries, according to the filing.

Goldman Sachs Group Inc. (GS) and JPMorgan Chase & Co. (JPM) are leading the IPO, first filed in June. The company plans to list on the New York Stock Exchange under the symbol RLGY.

To contact the reporters on this story: Prashant Gopal in New York at pgopal2@bloomberg.net; Charles Mead in New York at cmead11@bloomberg.net

To contact the editors responsible for this story: Kara Wetzel at kwetzel@bloomberg.net; Alan Goldstein at agoldstein5@bloomberg.net

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