Apollo Global Management, the publicly traded investment firm run by Leon Black, has scored the biggest profit ever made on a private-equity investment. Apollo’s total profit, on paper at least: $9.6 billion.

It wasn’t an easy win. Apollo invested more than $1.4 billion in the debt of LyondellBasell Industries (NYSE: LYB), the world’s largest maker of polypropylene, and kept buying as the company suffered from the global slowdown in the wake of the financial crisis. LyondellBasell filed for bankruptcy in 2009 – a move that, among other things, allowed it to avoid $4.75 billion in fines levied by the Environmental Protection Agency because of alleged polluting at 23 sites. Apollo converted its debt into equity as part of the bankrupt company’s reorganization, and it kept betting on the company by buying more stock.

LyondellBasell emerged from Chapter 11 in April 2010 and began trading on the New York Stock Exchange in October of that year. Since then, its stock has soared as an improving economy lifted cash flow and earnings. The company last month authorized a stock buyback of up to 10 percent of its shares and hiked its interim dividend by 25 percent. Apollo, with $114 billion in total assets under management, has been exiting its stake in LyondellBasell.

Apollo stoked its results by snapping up loans and bonds — an unusual move in an industry famous for issuing debt, not buying it. For Apollo, such wagers have been an instrument of profit since the firm’s creation.

After the financial crisis hit, Apollo gathered billions of dollars of debt, including some in its own battered companies. Often the firm purchased debt from panicky lenders and bondholders before companies converted it to equity through bankruptcy or a negotiated restructuring. Before that, Apollo calculated what the value might be after a financial overhaul.

The strategy was central to Lyondell. Apollo also used it to transform a looming wipeout of an almost $1 billion bet on Realogy, acquired in 2007, into an 85 percent gain.

Source: The Fiscal Times | Bloomberg Markets

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