Private Equity News & Analysis

Listed Apollo affiliate suffers $1.2bn in write-downs

Euronext-listed AP Alternative Assets saw its NAV fall 60% last year amid a ‘challenging market’ that caused valuations to fall ‘across the board’. Managing partner Marc Rowan told analysts he doesn’t expect any of the write-downs tied to AAA’s largest private equity investments – including Harrah’s Entertainment – to be permanent.

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AP Alternative Assets, an Amsterdam-listed fund that invests in or alongside private equity and capital markets funds raised by Apollo Global Management, has joined the ranks of quoted vehicles reporting grim year-end results. Contractions in industries including leisure and industrials have hit many of the fund’s investments hard.

AAA’s net asset value at 31 December 2008 was roughly $851 million, or $8.77 per unit, down nearly 60 percent from $2.1 billion at the end of 2007.

Not all declines are equal.

Marc Rowan

The fund had growth assets at the end of 2008 of approximately $1.8 billion, down 27.7 percent from about $2.6 billion the prior quarter, managing partner Marc Rowan said during an analyst call today.

“AAA is levered and has roughly $900 million of debt, so a 27.7 percent decrease in growth assets on a capital structure levered approximately one time, results in an approximate 45 percent decrease in net asset value,” he said. “Clearly the impact of leverage here was negative.”

Rowan was cautiously optimistic the fund will reverse many of the roughly $1.2 billion in write-downs it made to investments last year. AAA said its private equity co-investments lost $740 million in value, while its capital markets portfolio lost $496 million last year.

“Not all declines are equal,” said Rowan, who noted none of the write-downs applied to the largest investments in AAA’s private equity portfolio are expected to be permanent [see chart below].

“Clearly across the board valuations are down,” he said. “As a result of taking a snapshot at any one point in time under FAS 157, even if our companies are performing well”, decreasing multiples in comparable companies automatically dictate portfolio valuation decreases. He pointed to Prestige cruise lines and West Coast discount retailer Smart & Final as businesses doing quite well.

 AAA's largest private equity investments

 Cost (m)

 Fair Value
as of 31 Dec. 2008

 Debt investment vehicles

 $430,370   

 $201,003

 Rexnord Corporation   

 37,461

 90,400

 Harrah's Entertainment

 165,625

 56,900

 Prestige Cruise Holdings

 100,019

 72,045

 CEVA Logistics

 17,174

 53,367

 NCL Corporation

 98,906

 50,400

 Smart & Final

 32,750

 49,800

AAA co-invests in Apollo’s sixth and seventh buyout funds, plus four of Apollo’s capital markets funds. To preserve liquidity, AAA began last quarter exercising its right to opt-out of new co-investments and this year is set to invest 0 percent in Fund VII. AAA’s cash balance as of 30 March 2009 was $530 million.