Looking Back – April 2004, BDC Fever

Spurred on by the successful pricing of Apollo Investment Corp. (NASDAQ NV:AINV), the BDC raised Apollo Management, three U.S.-based buyout shops hastily hopped on the public debt the bandwagon. In a single week in April 2004, Kohlberg Kravis Roberts & Co., The Blackstone Group and Evercore Partners all filed to raise public-market capital for newly-formed BDCs. However, none of the three were ever consummated.

In a matter of months, with almost the same unifying gusto the three firms used to leap into the BDC pool, they used to clamor out. The waters, apparently, were too cold. After shaving down the anticipated size of its BDC from $850 million to $650 million, the first to walk away was from an IPO was Blackstone in June 2004.

The next to bow out of the group was KKR, which, in August 2004, scrapped plans for its proposed $780 million BDC, opting instead to create a $700 million real estate investment trust (REIT). Evercore followed shortly thereafter butting the breaks on its attempt to raise up to $240 million from public investors.

In all, 15 private equity firms-and related entities filed to raise a combined $7.5 billion for newly-formed BDCs in 2004, according to Buyouts. That amount was never realized.

Apollo, which priced its IPO, also in April 2004, benefited from its first-mover advantage, and priced a $930 million IPO at $15 per common share. The stock took a dip in the months following the offering however—trading for a time at an average discount of approximately 10 percent. But things have since turned around for the sub-debt provider. As of press time (April 10, 2006) Apollo Investment Corp.’s shares were trading at $18.81 a piece.