The move to acquire roughly $15 billion in performing senior loans a year ago was “probably a little early”, according to Leon Black, founder of New York alternative investment giant Apollo Global Management.
Black, being interviewed before a crowd of industry professionals and students at the Wharton Private Equity & Venture Capital Conference in Philadelphia Friday, added that the underlying credits acquired by Apollo remained strong and presented an excellent risk/return investment profile.
Apollo closed its seventh buyout fund on $14.8 billion in December, slightly under its $15 billion target. In addition to buyouts and pursuing other alternative investment strategies, Apollo manages a large programme for acquiring performing corporate senior debt.
Black said much of the debt had been bought at approximately 80 cents on the dollar, but that prices subsequently fell to roughly 60 cents on the dollar today. Because the debt had been acquired on a levered basis, Apollo now must respond to margin calls, requiring it to inject further collateral against the holdings. The firm is “traversing our way through that” situation, Black said.
He said his firm would continue to pursue attractive senior loan acquisitions, in addition to its distressed-for-control, hedge fund and private equity strategies.
Black, appearing calm and candid, said he and his partners were probably spending some 60 percent of their time “playing defense” and tending to the current portfolio.
Commenting on the broader economy, Black said the environment was “very bleak” and “as bad as I’ve ever seen it”. Noting the collapse of the lending market and halt to nearly all markets, Black said, to some laughter from the crowd, “There is no private equity and there hasn’t been for the past year”.