Report: Buyout firms to buy $12.5bn of Citi's LBO debt

Apollo, TPG and Blackstone are reportedly close to a deal to buy assets including leveraged loans linked to the firms’ own portfolio companies.

Apollo Management, Texas Pacific Group and the Blackstone Group are nearing a deal to purchase $12.5 billion (€8 billion) of leveraged loans from Citigroup which were used to finance buyouts, according to reports.

The firms will pay in the mid-80 cents on the dollar following a competitive process. Apollo is said to be acquiring approximately half the loans with TPG and Blackstone acquiring the remainder.

The firms will, in fact, be purchasing the debt of some of their own portfolio companies including Harrah’s, Alltel and TXU. Loans financing the buyouts of other private equity firms will also be included in the transaction.

The leveraged loans of Harrah’s, Alltel and TXU are all currently being quoted in the low 90 cents on the dollar, indicating that the private equity firms may be receiving a significant discount on their purchase. Harrah's is trading at approximately 93.5 cents on the dollar, Alltel at approximately 91 and TXU at approximately 93.

In the wake of last summer’s credit crunch, banks funding buyouts were left with some $300 billion in backlogged leveraged loans on their books for which they have struggled to find buyers. Citi had $43 billion in leveraged loans on its books as of December 2007.

Selling pressure has driven down the price of the leveraged loans. “The market effectively repriced par,” said Stacey Maman, head of investor relations at distressed debt investor Monarch Alternative Capital.

“You’re beginning to see some stability,” says Maman of the leveraged loan market in recent weeks. Low prices have attracted new buyers to the distressed debt market, Maman said pointing to private equity firms as one of the new buyers coming to market.