Blackstone makes 1.4x on Stiefel

Reporting first quarter earnings, the New York-based firm said it wrote-down its private equity investments by an average of 3%. President Tony James said the firm was concentrating on debt opportunities.

The Blackstone Group may have made a 1.4x multiple on its investment in pharmaceutical company Stiefel, but the firm's private equity investments still had to be written down by 3 percent in the first three months of this year.

Blackstone president Tony James said the New York-based firm recorded losses of $68.4 million in the first quarter, compared to losses of $193.6 million in the last quarter of 2008 and negative $116.7 million in the first quarter of 2008.

Those losses were offset though with its recent exit from Stiefel Laboratories.

The firm made a $500 million investment for a minority stake in Stiefel, a Florida-based pharmaceutical company, in 2007. In April, pharmaceutical giant GlaxoSmithKline agreed to pay $2.9 billion in cash for the whole company, assuming roughly $400 million in debt and with plans to make further cash payments of up to $300 million contingent on performance.

James said the deal represented a 1.4x multiple to the original cost to Blackstone, adding: “We made 2x the mark to value we were carrying it at.”

Other investments though haven't fared so well. James, speaking to journalists on an earnings conference call, noted that Blackstone's investment in the Las Vegas casino company Harrah's wasn't performing quite so well.

The firm invested $350 million in Harrah's, when the casino company was bought by Apollo and TPG in January 2008 for $27.8 billion. James today said the investment, made through Blackstone's private equity and real estate funds, was being carried at “less than the original cost”.

Overall, The Blackstone Group reported losses of $93 million in the first quarter, compared to negative $827 million in the last three months of 2008.

Blackstone has more than $13 billion in dry powder for private equity investments, on top of $12 billion in dry powder for real estate and another $3 billion in dry powder for its asset management arm, GSO Capital Partners.

James said Blackstone's private equity operations and GSO would team up to target debt and rescue financing to corporations. Stressing the need for non-bank financing in the economy, James said the corporate loan world was “something that will be significant for us”.

He added that half of the uninvested capital in the $21.7 billion Blackstone Capital Partners V fund would be used to target debt opportunities of existing portfolio companies and “accretive” acquisitions for those companies. The portfolio companies in BCP V were not facing “defaults or bankruptcies or having a crisis of capital”, James said, but Blackstone would look to “opportunistically” buy their debt if it was “cheap”.