Target: Stone Tower Capital LLC
Sponsor: Apollo Global Management LLC
Seller: Stone Tower Capital LLC
Financial Adviser: Stone Tower: GreensLedge Capital Markets LLC; Apollo, Citigroup Global Markets Inc.
Legal Counsel: Stone Tower, Weil, Gotshal & Manges LLP; Apollo, Paul, Weiss, Rifkind, Wharton & Garrison LLP
The latest fashion for public mega-fund investing: credit.
Apollo joins The
Credit funds have a special appeal for publicly traded buyout shops, providing a steady flow of loan payments in an industry that is notorious among investors for the lumpiness of its revenues and profits, as relatively infrequent transactions produce disproportionate, occasional returns. Apollo went public in March, while KKR launched on the U.S. market in July 2010. Carlyle registered to go public in September.
Leon Black, Apollo’s chairman and CEO, alluded to the economic conditions in announcing the deal. “We believe the global macro environment, secular trends in the financial services sector, and Apollo’s long history and track record in credit asset management will result in significant growth,” Black said in the press release announcing the Stone Tower Capital deal.
New York-based Stone Tower Capital, was founded in 2001 by Michael Levitt and Anthony Edson, who left one-time buyouts behemoth
Levitt, the chairman and chief executive of Stone Tower Capital, will join Apollo, becoming vice chairman of Apollo Credit Management, Apollo’s credit management business under a long-term employment agreement, Apollo said.
Apollo had assets of more than $65 billion as of Sept. 30, earmarked for a number of strategies, including buyouts, credit-oriented capital markets and real estate funds. The addition of Stone Tower Capital will bring Apollo’s capital markets assets to approximately $39 billion, making credit strategies Apollo’s largest business segment, based n assets. Apollo’s total assets will increase to $82 billion.
Financial terms of the acquisition were not disclosed. The deal is expected to close in the first quarter. Stone Tower was advised by GreensLedge Capital Markets LLC and Weil, Gotshal & Manges LLP. Apollo was advised by Citigroup Global Markets Inc. and Paul, Weiss, Rifkind, Wharton & Garrison LLP.
Credit strategies are likely to be a profitable approach for investors in 2012, said Theodore L. Koenig, the president and chief executive officer of Monroe Capital LLC, a specialty finance company in Chicago.
“There are large overhangs of committed but undeployed capital. There is a need for exits, and there is decent liquidity in the market from a financing standpoint,” Koenig told Buyouts, although he was not discussing these buyout shops in particular. “High-yield is a forward-looking instrument. Investors are betting on good news in the future.” Looking into 2012, he added, “I see a better story than in 2011.”
Mezzanine might be an exception, with mezz lenders being disintermediated both from the top of the equity stack, where senior lenders are offering one-stop financing through instruments such as unitranche loans, and from the bottom, where sponsors are putting up larger equity stakes and accepting the lower returns of reduced leverage, Koenig said. “Mezzanine is getting squeezed.”
Limited partners also are under pressure, especially public pension funds that are beginning to face the retirement of the Baby Boom generation and a growing demand for payouts. That will only increase in the future, providing additional impetus for credit strategies, Koenig said. “Current return is the new watchword for limited partners.”