Apollo and TPG hit by USD 600m Harrah’s writedown

Buy-out firms Apollo and TPG have written off around USD 600m (GBP 321m) of their investment in American casino business Harrah’s, in the biggest ever known private equity markdown.

The writedowns equate to more than 20pc of the value of the private equity houses‘ investment in Harrah’s.

Apollo and TPG, the private equity house that walked away from Bradford & Bingley last month, paid USD 17bn for Harrah’s in January, but since then economic woes have hit US gaming companies hard.

Harrah’s reported a 20.6pc fall in earnings before interest, tax, depreciation and amortisation to USD 436.7m, and the company also has a large debt burden to service.

The writedowns emerged when Apollo’s listed arm, Apollo Alternative Assets (AAA), announced its second-quarter results this week. AAA, which holds 8.8pc of Apollo, wrote down the value of its stake from USD 179.5m in the first quarter to USD 134.3m in the second quarter. TPG is believed to have written off a similar amount.

The losses are a blow for Apollo, which reported a first-quarter loss of USD 96.4m in a separate US Securities and Exchange Commission filing this week, and for TPG.

Apollo spent heavily at the height of last year’s buy-out boom, buying companies such as UK estate agency Countrywide, which is now likely to be worth much less than the £1bn Apollo paid for it. Other private equity houses, including KKR, which took Alliance Boots private before the credit crunch hit last summer, are also expected to suffer from falling valuations.

Apollo managing partner Josh Harris defended the Harrah’s acquisition yesterday, saying: „The gaming industry has attractive long-term fundamentals and we believe we acquired a leading company in the industry.“

TPG declined to comment.

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