Although the company has shares that trade here in the OTC market under the symbol APLVF, the company's shares primarily trade in Amsterdam under the symbol AAA NA.

 

AP Alternative Assets, L.P. (AAA) is an investment partnership managed by Apollo Global Management. Apollo Global Management (APO is its symbol) has $75 billion of assets under management and is headed by Leon Black. AP went public on 6/15/2006 at $20.00 a share. Since that time the company has distributed $1.17 of dividends and tax distributions, and the shares trade in the market at $10.00. Investors have not had a wonderful experience. At year-end 2011, the company had 90,183,200 shares outstanding after a tender offer for 6,777,000 shares at $7.00 a share in 2010. In March of this year, the company repurchased 5,000,000 at $10.00 a share. This month the company has announced another $50,000,000 tender for stock between $9.00 and $10.50 a share. I assume that they will be able to buy 5,000,000 shares, and the capitalization numbers above assume a sucessful tender.

 

In the April 20, 2012 press release announcing its latest stock tender, the company reported that net assets were $1,560.3 million and that NAV per share was $18.32. The tender is for shares offered between $9.00 and $10.50 a share. The company estimates that the tender will improve NAV by between $0.46 and $0.65 per share. Assuming a sucessful tender at $10.50, NAV will increase to $18.78. With the stock at $10.00, it will be selling at a 46.7% discount to NAV. The company has not disclosed its 3/31/2012 balance sheet, but it has produced a very good presentation dated 2/10/2012 detailing its positions as of 12/31/2011. The details are as follows;

 

Assets

Cash                    $230 million ($103 mil after tenders)

Private Equity       $904 million

Capital Markets     $332 million

Athene                 $431 million

Other                   ($14 million)

Asset Value          $1,883 million

Liabilities

Debt                    $403 million

 

Net asset value    $1,480 million

 

$904 million of Private Equity is broken down into three categories:

 

1) $303 million of publicly traded securities which includes,

Caesars Entertainment

Charter Communications - 75 % of stake sold in 4th Qtr - $34 million remaining as of 2/9/2012

LyondelllBasell Industries - $67 million as of 2/9/2012

Noranda Aluminum

Verso Paper

Quoted debt

 

 2) $295 million of equities which are not public but which have filed S-1's

Aleris International

Momentive - 12/31/2011 fair value $85.3 million

NCL Corporation

Rexnord - Has subsequently gone public - 12/31/2011 fair value $139.1 million

 

3) $276 million of private equity holdings

Berry Plastics

CEVA Logistics

Claire's Stores

Countrywide Plc

Jacuzzi Brands

Prestige Cruise Holdings

Realogy Corporation

Smart & Final

Skylink

Sprouts

 

Most of these investments were made through Apollo Fund VI which began investing in 2006. As a result, it is a mature portfolio. I have no idea how the remaining investments will turn out. However, I am confident of several things;

1) Apollo's managers are clever and hard-working. They will do everything that they can to make every investment sucessful.

2) Whether every investment is sucessful or not, the portfolio will liquidate over time. The proceeds will then be reinvested in new opportunities or used to tender for AAA's shares. In its 2/12/2012 presentation and during its 2/10/2012 investor call, the thought process and calculations behind the decision to invest or tender are laid out. In the conference call, it is clear that Apollo does not like having its public vehicle trade at a 40+% discount to NAV. "I want everyone on the phone and those who listen to the playback to understand that we are committed to narrowing the discount."

3) I believe that Apollo's portfolio valuations are as fair and honest as they can be. Looking back through the history of AAA, you will see that there have been very wide swings in NAV. This is as it should be. Markets have been volatile, and the portfolio's investments will reflect that volatilty magnified by the leverage of the underlying companies. This is an LBO portfolio.

 

 $332 million of Capital Markets investments is held in four silos

1) $165 million in Apollo Strategic Value Fund - Value investments in leveraged companies in North America and Europe - Partial liquidation in 4th qtr. with a complete liquidation over near-to medium term - $80.9 million of Bradco Supply, a building materials and supply company

2) $86 million in Apollo Asia Opportunity Fund - Public and private securities in Asia (ex japan) - Partial liquidation in the 4th qtr. with a complete liquidation in 2012.

3) $60 million in Aolllo European Principal Finance Fund - European non-performing loans - Sale of $35 million in final stages of negotiation - $40 million funding commitment still outstanding.

4) $21 million in AP Investment Europe Limited - Secured and unsecured loans, bonds and equity, primarily in Europe - Partial liquidation in the 4th qtr. with complete liquidation in 2012.

 

All of the $332 million of Capital Markets Investments are being liquidated. The proceeds will go into new investments or tenders for AAA stock.

 

$431 million in Athene Holdings Ltd, a Bermuda-based annuity reinsurance company. The company is led by Jim Belardi who had formerly been President of SunAmerica Life Insurance and EVP and CIO of AIG Retirement Services. In its presentation, Apollo states that they hope to triple their money in this investment. They estimate that they will exit the investment 5 to 7 years after commencement or in 2014 to 2016. AAA has committed to invest a further $43 million of capital in Athene to bring their total investment at cost to $400 million. Athene's portfolio is invested 35-40% in investment grade bonds and whole loans, 50-55% in structured products such as CLOs, RMBS and CMBS, and 10% to alternative investments. As of 12/31/2011, the book yield of the portfolio was between 6 and 7%. This maybe a very good investment. Essentially, it is an arbitrage. Athene borrows cheaply as a reinsurer and invests at an attractive spread. During AAA's 4th qtr 2011 conference call on 2/10/2012, Marc Rowan, one of APO's founders and a director of AAA, estimated that Athene should be able to realize 20% to 25% rates of return. I think that he maybe correct. If so, Athene should be a very profitable investment. As it is a large investment, its results will be important to AAA whichever way they go. I think that they have a good chance of being successful.

 

On 12/31/2008, AAA had $900 million of debt outstanding. As of 12/21/2011, debt had been reduced to $402.5 million and a revolver was amended to a term loan. S&P rated the loan BBB. It carries an iterest rate of LIBOR + 375. 20% of the outstanding principal amortizes quarterly beginning 12/30/2014 and has a maturity of 6/30/2015. It also calls for mandatory repayments of 50% to 100% of certain investment realizations.

 

Apollo Global Management (APO) has been a very sucessful business and has made its principals rich. To continue to be sucessful, it must continue to raise investment funds. Having a public fund trade at a 40+% discount to NAV is a vote of "no confidence" by the markets. It is a situation that Apollo must rectify. Why invest new 100% dollars when you can buy a fully matured, freshly priced, liquid portfolio at a big discount to NAV? In addition, Apollo principals own almost 10% of the shares of the fund. Every dollar of AAA stock appreciation is about $8,000,000 more of personal wealth.

 

APO charges an annual "service" fee of 1.25% of NAV. All of APO's carried-interest and other fees are charged to the underlying funds in which AAA has invested. Accordingly, AAA's fees to APO are not as important as the discount to NAV.

 

 

 

 

   

 

 

 

 

 

 

 Time. The portfolio will liquidate and the proceeds will be used to reduce the discount or make new, profitable investments, if the discount is narrower.