Monday, June 22, 2009

Clawing at Leon Black

Huh, private equity guys usually have all the angles covered. Not Leon Black.

Black and his partners have been cashing out to the tune of hundreds of millions of dollars in their partnerships, as they liquidated various investments and have taken 20% of profits. But, here is the kicker, they are only supposed to get profits equal to 20% of net profits of an entire fund, not of individual investments. By pulling 20% of each individual deal that was liquidated, Black and crew were, for all practical purposes, assuming that all deals would be sold off at a profit.

The downturn, however, has changed all that, and Black is so underwater with the remaining investments in Black's Apollo Fund IV that it will show big time losses and Black will have to payback hundreds of millions that he has withdrawn based on the assumption of a profitable liquidation of all investments. According to NyPo, Black's firm, Apollo Management, needs to payback $365 million--money which flowed through to Black and other Apollo partners.

Attempting to get money back from a PE partner in these situations is known as a clawback.

This could get interesting.

1 comment:

  1. I have seen Apollo's investments...and been offered the debt in many of them. They are ridiculous. The number of companies they hold where the equity is worth zero (and held at $1.00 or $.50) is enormous.

    I swore off Apollo deals in 2006 and I have been proven correct about 90% of the time. The leverage they put on these companies is a crime.

    I'll never understand how they can keep raising money.