Sunday, January 5, 2020

Apollo Global Puts Constellis Holdings in Default

Bloomberg reported:

Constellis Holdings LLC, a security contractor backed by Apollo Global Management Inc., is in talks with creditors on a deal to restructure its $1 billion of debt, according to people with knowledge of the discussions. The firm, which has provided some security services around the U.S. embassy complex in Iraq -- the site of anti-American protests this week -- is seeking to restructure out of court. But it’s also considering a pre-negotiated bankruptcy filing, said the people, who asked not to be identified because the matter is private

Reston, Virginia-based Constellis entered into a forbearance agreement with a group of lenders after missing a principle payment due Dec. 31 on an $872 million loan, the people said.  A representative for Apollo didn’t immediately comment. 
Apollo Global acquired Constellis in 2016 and had over three years to pull cash from it's highly levered affiliate via management/deal fees and special dividends/distributions.  Moody's reported:

Notwithstanding what appeared to have been a turn-around in the company's financial performance, with $25 million of free cash flow generated in the third quarter, Moody's noted what it believes to have been a sudden and material outflow of cash and an ensuing liquidity crunch as the cause of the default and requisite restructuring. 
Was PEU Apollo the recipient of this large cash outflow?  Apollo dominated the Constellis board and could easily have sent funds up to their employer/sponsor, like Phildadelphia Energy Solutions did to sponsor Carlyle Group prior to PES first bankruptcy.

The Carlyle-led consortium collected at least $594 million in cash distributions from PES before it collapsed, according to a Reuters review of bankruptcy filings. Carlyle paid $175 million in 2012 for its two-thirds stake in the refiner. 
Also, how much dry powder does Apollo have and why did it not put any into Constellis?  Private Equity International reported Apollo had $44 billion in dry powder, $34 billion available for private equity investments. 

Apollo would rather use its dry powder to acquire distressed companies not save the company it placed into distress.  Moody's reports showed the impact of Apollo's ownership.

03 Jan 2020 --Revenues for the twelve months ended September 30, 2019 were about $1.7 billion.

13 Nov 2019--Significant business combination activity in recent years has reduced working capital efficiency and added non-recurring costs. Operational integration proceeded sluggishly, which extended a period of high financial leverage and stretched the liquidity profile. The company's new management team has begun to achieve better results however and we expect free cash flow generation during the second half of 2019 that strengthens across 2020. Existing backlog should support low single digit percentage revenue growth in 2020. 

11 Mar 2019 -- New business opportunities are promising, enabling the pursuit of larger contracts and task awards than previously. Indeed the company's backlog grew to $5.3 billion from $4.6 billion over the first 9 months of 2018.

Three people could tell the world why Apollo placed Constellis into default.  Apollo Global founder Leon Black pulled the strings that sent Constellis into a financial plummet, yet he hides behind an "Apollo representative."  Former Senator Evan Bayh likely knows something as an Apollo Senior Advisor.  

Constellis board member John Ashcroft highlighted his aim of helping "domestic and international corporations apply the leadership principles, sound judgment, and high goals he embraced during his more than three decades of public service."

Ashcroft is the most visible of Constellis' two independent board members. I am not sure how Ashcroft qualifies as independent given TAG Holdings ownership stake in Constellis.

"TAG Holdings joins in entrepreneurial ventures with other organizations and individuals on a limited, selective basis."  John Ashcroft knows the PEU code. 

As none of these three are talking the public gets to hear from people who "ask not to be identified," likely Leon's leakers.