Leon Black’s Apollo Global Management LLC is using fancy footwork to get one of the biggest leveraged buyouts in years through an increasingly jittery debt market.
The private-equity firm said Tuesday that it has agreed to buy ADT Corp. in a deal that values the burglar-alarm vendor at about $7 billion. It comes at a time when falling oil prices and concerns about a global economic slowdown have soured banks and many investors on the junk-rated debt used to back leveraged buyouts.
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Those conditions have forced private-equity buyers to line up alternative lenders or put up more money themselves to get deals done.
Apollo APO, -1.56% took an unusual tack with ADT: It is raising $750 million of the purchase price by selling preferred shares to a unit of Koch Industries Inc.
The use of preferred stock is rare when bond markets run smoothly, because it is more expensive for issuers, but Koch’s investment is crucial. The preferred-share sale, and $4.5 billion invested by Apollo and co-investors, will allow the purchase of ADT without refinancing $3.75 billion of existing bonds, something that would prove difficult in current markets, people close to the deal said. Preferred shares generally have priority over common stockholders when it comes to paying dividends.
Read the full story on WSJ.com, by MATT WIRZ
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