The Dimming Lights of Apollo Global
The original version of this story incorrectly identified Apollo Global as the owner of Dave & Busters .
Apollo has a track record of buying companies, loading them up with millions in debt and then dumping them on the public. Bankers, though, may be getting tired of being Apollo's enablers as the offerings are beginning to get pulled. Who wants to jeopardize customer performance to keep Apollo happy?
Realogy is the next big offering on the way from Apollo. It too has great name recognition. The company is home to some of the most famous real estate brokerages, brands like Century 21 , Better Homes & Gardens , Coldwell Banker and Sotheby's International . Realogy is hoping to raise $1 billion and price its shares between $24 and $26 with a planned launch on Oct. 11.
If the IPO goes off as planned, Realogy will have a net worth of $1 billion, but also debt totaling $4.56 billion. That's a lot of houses to sell. But Apollo says, not to worry. Why? Realogy has a net operating loss of $2.1 billion that it can use to offset tax liabilities related to future income. That will allow the company to use more of its cash flow to pay down debt.
Realogy and its new investors, though, will be at the mercy of the housing market, hardly a stable business since the financial crisis.
Let's look back at another Apollo deal that has followed this strategy: Caesars Entertainment (CZR) . The giant gambling concern was taken private by Apollo and TPG in 2008. They piled on $12 billion debt and then suckered some investors into buying the stock. The stock went public in February with shares price at $9 each. The stock nearly doubled shortly after its debut but it has since steadily deteriorated, closing this past Friday at $6.58.
Caesars missed out on the Macau market and is now looking to India as a source of growth. Otherwise the company is completely dependent on Las Vegas and Atlantic City. Another IPO sold on a hope and a prayer. The big winners with Caesars are bond holders that are earning yields of 15%.
The financials are ugly as Caesars has had five straight quarters of losses and may now need to restructure its debt. Moody's gives the company a credit rating level reserved for customers in "poor standing." Remember if this company goes under, those bond holders come first and those unlucky IPO buyers? Well, buying this stock was a roll of the dice.
Berry Plastics (BERY) is another Apollo deal that fell flat. It too was bought by Apollo in 2006 and then sold to the public last week. Debt? $3.8 billion. It was priced at $16, but opened at $15.25 and can now be bought for $15.00. Apollo still owns 59% of Berry, but with the way they've burned the public on these deals investors have less appetite to help Apollo out.