Apollo's Josh Harris Says LBO Financing Is Back in All Its Glory

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  • `Good times are rolling,' Harris says months after market shut
  • Buyout firm deploying $6.6 billion in deals so far this year

Apollo Global Management LLC, which couldn’t do deals in December and January because of stalled financing, is now benefiting from a rebound in the market for debt backing its buyouts, co-founder Josh Harris said.

“The financing markets are back -- they’re back in all their glory,” Harris said Thursday. “The good times are rolling again, at least for this month.”

The private equity firm had one of its busiest deal making periods just months after billionaire Harris declared the lending market “shut down” and said Apollo’s buyout pipeline dried up after appetite for high-yield debt evaporated.

That’s since reversed, with U.S. high-yield bonds gaining 7.7 percent for the year through April, according to data compiled by Bloomberg, after speculative-grade bonds fell 1.5 percent in January.

New York-based Apollo last month closed a $1.4 billion buyout of grocery chain Fresh Market Inc. and this week finalized its acquisition of home-security company ADT Corp., which at $12 billion is the biggest private equity-backed acquisition announced this year. Apollo’s bid to buy for-profit schools operator Apollo Education Group Inc., recently increased to $1.14 billion, is waiting for shareholder approval.

The firm on Thursday said its funds deployed $2.2 billion in the first three months of the year and $4.4 billion has been committed to deals awaiting completion.

New Fund

Anticipating more deal making, Apollo said it’s raising money for a new private equity special-situations fund, which attracted $257 million in the first quarter. Harris said the vehicle will be able to acquire royalties and minority stakes in companies. It will also be able to buy companies that can be held for longer than the typical buyout fund holding period of three to six years. Carlyle Group LP and Blackstone Group LP are raising similar funds.

“We’re expecting to be able to spend it quickly and then go back for more” money from investors, said Harris.

Harris’s comments, made on a conference call with investors and analysts, came after Apollo absorbed its first quarterly loss since 2011 as gains in its investments slowed and it sold fewer assets than a year ago. The firm posted a loss in economic net income, which reflects both realized and unrealized investment gains, of $73 million, or 18 cents a share, compared with a $93.5 million profit, or per-share earnings of 23 cents, a year earlier.

Analysts had expected earnings of 3 cents a share in this year’s first quarter, according to the average of 15 estimates in a Bloomberg survey.

Apollo joined Blackstone, KKR & Co. and Carlyle in suffering steep earnings declines. The firms rode out a global stock slump at the start of the year that hampered deal making and hurt values of companies they have taken public and still own. A market rebound in March allayed some of the losses. The firms mark the value of the investments they hold, a key determinant of economic net income, in line with the market.

“A difficult quarter for economic net income results,” Wells Fargo & Co. analyst Chris Harris wrote in a note to clients Thursday.

Shares of Apollo fell 1.1 percent to $16.57 at 11:35 a.m. in New York. Including reinvested dividends, the stock was up 13 percent this year through Wednesday.

Norwegian, Athene

The firm, led by Chief Executive Officer Leon Black, said its private equity holdings appreciated 0.5 percent in the quarter, compared with a 2.3 percent gain a year earlier and a 1.3 percent rise, with dividends reinvested, in the S&P 500 index of large U.S. companies.

Apollo’s investment in oil producer EP Energy Corp. rose by $9 million, or 3.2 percent, after plummeting by 66 percent in last year’s second half. Apollo’s largest stake by market value, in Norwegian Cruise Line Holdings Ltd., fell by $120 million, or 5.6 percent, during the quarter.

Apollo also marked down the value of its nearly 10 percent interest in Athene Holding Ltd. to $512 million from $582 million. An annuities seller Apollo created in 2009, Athene plans to go public this year.

Distributable earnings, which reflect profits on asset sales and fund management fees, were $102 million in the quarter, compared with $144 million a year earlier. Apollo said it will pay stockholders a dividend of 25 cents a share -- all of the firm’s cash earnings for the quarter -- on May 31.

Assets under Apollo’s management rose to $172.5 billion as of March 31 from $170.1 billion at the end of 2015.