The Apollo Group may inject up to $150 million in its ailing portfolio company Realogy to help the real estate broker avoid violating covenants governing its debt and meet its liquidity needs.
Apollo agreed to the equity infusion after Realogy, which the firm bought in 2007 in a deal valued at about $8.5 billion, reported a loss of $1.91 billion for the full-year 2008. Apollo and co-investors used about $2 billion of cash in the acquisition.
“If necessary, Apollo will provide [Realogy] with an equity infusion of up to $150 million although management believes such full amount will not be required during this period,” Realogy said in its annual report, filed at the end of February.
“Based on its current financial forecast, and to the extent necessary, Apollo’s financial assistance, the company believes that it will continue to be in compliance with, or be able to avoid an event of default … during the next 12 months,” Realogy said.
The company has about $8.5 billion in total debt, including $582 million in senior toggle notes for which the company exercised a payment-in-kind option in October. The annual report lists Apollo’s total equity interest in the company at negative $742 million.
Realogy, which owns the Century 21 and Coldwell Bankers brands, has been hammered by the turmoil in the US housing market. Home sales have decreased from 6.5 million to 4.9 million from 2006 to 2008, and the national median price of existing homes decreased from $221,600 to $198,000 in that time period, Realogy said in its annual report.
Last year, Realogy attempted a debt exchange of $1.1 billion of old bonds for about $500 million in new loans, but was sued by activist investor Carl Icahn, who argued the move could harm bondholders. Icahn won a court case in December when a Delaware judge ruled the debt exchange violated contracts with bondholders, including Icahn.
Another buyout firm, BC Partners, is considering injecting capital into its struggling portfolio company Foxtons, a real estate agency in the UK. The firm is considering a fresh equity injection, “in the right circumstances”, specifically if Foxtons’ debt load is reduced, the firm’s managing partner said during a press conference.
BC Partners bought Foxtons in 2007 for £400 million, using about £50 million in equity in the transaction. Foxtons trouble is linked to the UK housing market, where sales have crashed by 60 percent to 70 percent.