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Apollo, Blackstone to acquire $13bn in LBO loans

The private equity mega-firms have agreed to purchase some $8bn in debt from Royal Bank of Scotland in addition to $5bn in debt related to the $18bn buyout of Clear Channel by Bain Capital and Thomas H Lee.

Apollo Global Management and The Blackstone Group’s credit unit GSO Capital have agreed to acquire a total of approximately $13 billion  (€8.7 billion) in leveraged loans across two separate transactions, PEO has confirmed.

A Financial Times report this morning said the firms have agreed to purchase “as much as $8 billion” in discounted leveraged loans from the Royal Bank of Scotland.

“In ballpark figures, it’s pretty close,” said one source familiar with the transaction, while another said the reported figure seemed high based on RBS’s pipeline.

TPG was not involved in the transaction, PEO has confirmed, contrary to the Financial Times report.

You can buy levered bank loans and get min-20s-type returns. That's highly attractive.

Leon Black

Apollo and GSO have also purchased $5 billion in debt related to the buyout of Clear Channel by Bain Capital and Thomas H Lee held by backers RBS, Credit Suisse and Deutsche Bank.

Blackstone, RBS and TPG declined to comment. Apollo did not immediately respond to requests for comment.

GSO purchased three portfolios of leveraged loans in the second quarter of 2008 aggregating $7.8 billion dollars, Blackstone president, Tony James, said last week on the firm’s second quarter earnings call. The leveraged loans were purchased at an average price of 85 cents on the dollar, with long term financing from the sellers making up 75 to 80 percent of the purchase price.

“We expect these transactions to generate 20 to 30 percent returns with very low risk of loss of principal,” James said.

Dislocation in the credit markets has left banks backing large buyouts with billions in leveraged loans on their books for which they have struggled to find buyers. In April, RBS wrote down £1.36 billion of debt related to leveraged loans amid net write-downs of £5.9 billion before tax.

The leveraged loans have attracted substantial interest from investors due to the steep discounts at which they are being sold; in addition to Apollo and Blackstone, Providence Equity Partners, TPG, The Carlyle Group, and Oaktree Capital Management are among the firms that have raised or are raising hung bridge or distressed credit funds.

“There are tremendous opportunities [today], certainly on the credit market side when you can buy levered bank loans and get mid-20s-type returns. That’s highly attractive,” Apollo founder Leon Black said at a conference in April. He noted that Apollo had recently snapped up some $6 billion in LBO debt from Citi’s balance sheet.