Blackstone reports loss, but sees markets thawing

Fri, May 16 02:29 AM

By Megan Davies

NEW YORK (Reuters) - Private equity company Blackstone Group reported a first-quarter loss on Thursday as it cut the value of its investments, but said it saw signs of recovery in the markets and in banks' ability to lend for deals.

Its 6-cent loss per share missed analysts' expectations but Blackstone's stock closed up 5.3 percent at $20.54.

"The focus hadn't been on the number," said Matthew Fischer, analyst at Deutsche Bank. "What investors wanted to see was sustained asset growth, some insight into what they were investing in and the outlook. It's not a stock you hold short term."

"The 'miss' is all related to mark-to-market, unrealized losses that are transitory in nature and that are seemingly on good assets that are going to reverse," Fischer said.

Blackstone, which has taken part in some of the largest leveraged buyouts ever, like the $23 billion purchase of Equity Office Properties Trust, suffered along with the rest of the private equity industry as last summer's credit crunch froze the debt markets to large leveraged buyouts.

But Chief Executive Stephen Schwarzman saw signs of thawing. "Since the quarter end, markets have stabilized and we have even seen signs of recovery and improvement," Schwarzman said on a conference call.

"Banks that had been holding close to $400 billion of leveraged loans, are now down to $140 billion and much of that is tied to a few large transactions that are pending," Schwarzman said, citing the $17.9 billion buyout of Clear Channel Communications <CCU.N>, the $34.1 billion takeover of BCE Inc <BCE.TO> and the $6.1 billion acquisition of Penn National Gaming Inc <PENN.O>. Blackstone wasn't involved in those deals.

Chief Operating Officer Tony James said: "We are getting leverage from the banks now and new commitments -- I wouldn't call it aggressive, but they're open for business again."

James said that since the credit crunch began, Blackstone has invested $4.5 billion in new equity in new transactions.

He added that Blackstone was "extremely busy with new transactions -- the deal list is as long as has been in several years" -- but said that credit availability in the U.S. was still scarce for deals needing debt of $2 billion or more.

LARGE LOSS

The loss of $93.6 million, excluding income taxes, noncash charges for vesting equity-based compensation and amortization of intangible assets, compares with a year-earlier profit of $957.8 million.

Blackstone prefers to focus on this measure, which it calls "economic net income," because of the huge payouts associated with its more than $4 billion initial public offering in June 2007.

The economic net loss after taxes was 6 cents a share, compared with a year-earlier profit of 75 cents. Analysts on average were expecting a profit of 11 cents a share, according to Reuters Estimates.

Blackstone adjusts the value of its investments every quarter for accounting purposes, known as the "carrying value." This assumes its assets are "all being sold in today's hostile environment, even if we have no intention or obligation of doing so," James said.

Revenue from corporate private equity was negative $116.7 million, which James said was due nearly entirely to a drop in the value of its investment in German telecoms firm Deutsche Telekom AG <DTEGn.DE>.

"We are pleased with the performance of Deutsche Telekom at the operating level although obviously we're not happy with the stock price," James said. "But we feel it is still a good investment long term for us."

Blackstone said it bought $6 billion of debt in the quarter and committed to buying another $1 billion.

James said the leveraged loan debt Blackstone was buying was typically not debt of its existing portfolio companies. The investments are typically in companies Blackstone had previously considered buying, but was outbid on, he said.

Blackstone said its $21 billion buyout fund, was about 75 percent invested and its $10.9 billion real estate fund was about 40 percent invested.

The company said its assets under management rose 37 percent to $113.5 billion.

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