{"efta_number": "EFTA01463275", "page_count": 8, "url": "https://epstein-data.com/EFTA01463275", "pdf_url": "https://epstein-data.com/pdf/EFTA01463275.pdf", "pages": [{"efta_number": "EFTA01463275", "page_number": 0, "text_content": "Leon Black: $500MM Line Request \nBackground: \nLeon Black (61), Chairman/CEO of the Apollo Group, was referred to new AWM \nbanker Paul Morris by Jeffrey Epstein, Black's estate/tax planning \nattorney. Morris has previously worked with Epstein on mutual clients. \nBlack is listed in the Forbes 400 and World's Billionaire list at #113 and \n#299 respectively with a reported net worth of $4.3BN. \nBlack founded Apollo in 1990, which has grown to become one of the world's \nlargest alternative investment managers. As of March 31, 2013, Apollo had \ntotal assets under management of $114 billion, with a team <http://-\nwww.agm.com/OurTeam.aspx> of 644 employees located in ten offices <http://-\nwww.agm.com/AboutUs/Offices_Contact_Us.aspx> around the world. Black owns \n24.9% of Apollo Group which is valued at over $9BN. Apollo is a platinum \nrelationship in our Financial Sponsors Group. The trend for Apollo has been \npositive with price target of $30.85 per share compared to the current price \nof $25.00. There are 10 equity analysts covering the stock with 4 strong \nbuy recommendations, 5 buy recommends and 1 hold. \nPer Jeffrey Epstein, the loan request is resulting from the movement of \nBlack's Apollo interests out from the Family Trust and into his name \npersonally, in order to better align the income generating asset with the \ntaxes. The value of the Apollo interests (specifically his Apollo Operating \nGroup \"AOG\" units that are convertible into Class A shares) is $2.3BN and he \nis considering a debt structure of approx. $1.5BN in cash and potentially \nup to a $1.0BN in a note payable to the Family Trusts. The reason for the \ncash (which would be cash from bank loans) is to step-up his basis \n(according to Epstein, a note does not step-up the basis). \nBofA (Jane Heller) already has a relationship with Black that includes a \n$400MM art secured line. Epstein is considering BofA, DB and JPM. \nThe client representatives have not yet provided financial statements, but \ngiven the publically available information on Apollo and his art collection, \nhe would like us to give him an indication of our interest and a framework \nfor a structure that will be more fully developed as information is shared \nand the final estate/tax plan is determined. \nStructure: \nBorrower/Guarantor: Leon Black, personally, and any other individuals or \nentities holding title to Collateral. \nAmount: Up to $500MM (of the $1.5BN in total Bank debt being sought of which \n$400MM is currently outstanding) \nTerm: 1-Year Term Loan \nPricing: L+175-200 bps, upfront fee of 25-50 bps \nCollateral: A mix of fine art collateral and Apollo units that are \nexchangeable 1:1 to Apollo common stock. A general outline of the proposed \ncollateral structure includes: \nArt: 50% advance on Art Collateral acceptable to DB with all of DB's \nstandard concentration limitations (minimum 20 pieces, each with a FMV of \nEFTA01463275\n", "char_count": 2908}, {"efta_number": "EFTA01463275", "page_number": 1, "text_content": "≥$1MM, 20% per piece limitation, 50% per artist limitation, etc.). \nFurthermore, the Art collateral will be limited to no more than 70% of the \nBorrowing Base. \nApollo: A perfected security interest in AOG units that are convertible 1:1 \ninto Apollo Class A shares and publicly traded (NYSE:APO). The number of \nshares pledged will be limited by the maximum amount allowable (as \ndetermined by Bank counsel) before triggering an SEC reportable event by the \nBank. This tranche of collateral is further complicated by a transfer \nlimitation resulting from APO's 4/4/2011 IPO whereby conversion of AOG units \nto APO Class A shares is limited to 7.5% following the 2nd anniversary of \nthe IPO (4/4/2013) (7.5% Transfer Limitation\") and then steps up each year \nuntil the 6th anniversary (4/4/2017) when all units are convertible. Black \nhas the right, upon 60 days notice prior to a designated quarterly date, to \nexchange the AOG Units for Class A APO Shares subject to the Transfer \nLimitation and any Security Act limitation. Therefore, the collateral value \nof the Apollo tranche will be limited to the lesser of: \n35% of the fair market value of Apollo collateral, subject to an $18.00/-\nshares floor price, or \n100% of the fair market value of Apollo collateral that is convertible & \neligible for resale based on the transfer limitations \nFurthermore, the Apollo collateral will be limited to no more than 50% of \nthe Borrowing Base \nFor illustrative purposes, below is a chart outlining the proposed initial \nborrowing base using the above assumptions: \nCollateral \nUnits \n$/Shs \nFMV \nAdv \nLending Value \nConc. Limit \nBorrowing Base \nEffective A/R \nArt \nn/a \nn/a \n$660,000,000 \n50% \n$330,000,000 \n70% \n$330,000,000 \n50% \nApollo unitsl \n20,000,000 \n$25.00 \n$500,000,000 \n35% \n$175,000,000 \n6,954,537 \nEFTA01463276\n", "char_count": 1818}, {"efta_number": "EFTA01463275", "page_number": 2, "text_content": "$173,863,425 \n35% \nTotal \n$1,160,000,000 \n43% \n$505,000,000 \n$503,863,436 \n43% \nAssumes 20,000,000 units pledged as collateral, limited via the 7.5% \nTransfer Limitation (7.5%*92,727,166 total Black holdings) \nCovenants: Financial covenants will be established upon receipt and review \nof financial information and will include, net worth minimum, maximum bank \ndebt levels, subordination of any debt from affiliates and minimum liquidity/-\nunencumbered assets. \nFinancial Profile: \nPlease note that DB has not yet received any financial information on \nBlack. The pro-forma financial summary provided below is based on a verbal \nrepresentation with Jeffrey Epstein and assumes completion of the purchase \nof Apollo units by Black personally: \nAssets: \n$2.50BN \nFine Art (FMV, $2.0BN Cost) \n$2.30BN AOG units (92.7MM units@$25/unit) \n$0.40BN \nOther Partnerships (Apollo and 3rd Party managed) \n$0.15BN \nCash (Epstein says he maintain usually no less than $0.1BN \nat all times in checking at BofA) \n$5.35BN \nTotal Assets (Note: Epstein advised that there is another \n$0.5-$0.7BN through Tax Receivable Agmt) \nLiabilities: \n$0.40BN Existing Loan with BofA \n$1.10BN New Bank lines (BofA, DB, JPM) \n$1.00BN \nNew N/P to Family Trust up to $1BN depending on final bank \nlines amount and amount of \nunits to be purchased \n$2.50BN \nTotal Liabilities \n$2.85BN \nNet Worth \nCash Flow: $200-$300MM/year derived predominantly from Apollo distributions \nbased on Black's ownership of 92.7MM units ($360MM on 2012 1040 as advised \nby Epstein). Here is a look at historical distributions, along with \nestimated distributions through 2015 for Black. \nEFTA01463277\n", "char_count": 1647}, {"efta_number": "EFTA01463275", "page_number": 3, "text_content": "Year \nDistribution/Share \nDistribution to Black \n2011 \n0.83 \n$76,963,548 \n2012 \n1.35 \n$125,181,674 \n2013 (est) \n2.50 \n$231,817,915 \n2014 (est) \n2.30 \n$213,272,482 \n2015 (est) \n2.00 \n$185,454,332 \nNote: \nAssuming $2.5BN in Total Liabilities and assuming a 3% all-in interest rate, \nI/O DS would be $75MM. \nDistribution Estimates are based on Credit Suisse Research Report with all \nother research reports in line with those projections. \nRisks/Mitigants: \nRisks: \nBlack's ability to \"top-up\" in the event of margin calls. \nBlack's reliance on the sale of assets to repay the total $1.5BN in Bank \ndebt. \nIncreased Debt level and encumbered assets. \nMitigants: \nCurrent Liquidity: Per our conversation with Epstein, Black currently has \n$150MM in cash (checking account at US Trust) and typically maintains no \nless than $100MM at any point in time. This cash could be used to \"top-up\" \nany margin calls. We would covenant to a certain level of unencumbered \nassets. Such covenants could include an unencumbered liquidity covenant (of \n$100MM) and/or an unencumbered asset covenant. \nDebt Restriction: We would propose a covenant such that all other debt, \nincluding up to $1.0BN N/P to the Family Trust be subordinated to DB's debt \nStrong Cash Flow: Assuming Black receives $250MM/yr in distributions, and \nassuming 50% is for taxes/living expenses, this leaves him $125MM. With \nestimated I/O DS of $75MM, he would have an extra $50MM/year that could be \napplied to reduce debt. Quarterly recurring cash flow from his AGO interest \nis projected to remain strong. There is also the possibility of a large tax \nreceivable payment by APO upon conversion of AGO units. \nUncorrelated Collateral: Black's two largest assets (Art & Apollo), and \nhence our collateral pool, is uncorrelated. Additionally, the mix between \nthis collateral pool is governed by covenants that 1) the Art collateral \nwill be limited to no more than 70% of the Borrowing Base, and 2) the Apollo \nEFTA01463278\n", "char_count": 1980}, {"efta_number": "EFTA01463275", "page_number": 4, "text_content": "collateral will be limited to no more than 50% of the Borrowing Base. \nThe Family Trusts may also be a source of liquidity should he need to borrow \nfrom them to repay bank debt. \nRisks: \nBalance sheet and collateral concentration in fine art. \nBlack is a market maker in Impressionist/Modern art. The foreclosure on \ncollateral to repay art secured loans would most certainly have a negative \neffect on the market. \nMitigants: \nQuality of the fine art collateral: Black's portfolio includes many marquee \nworks of art by marquee artists. While the number of individual buyers for \nthis quality of art may be limited, it is broadened by the appeal to \nmuseum's (and even governments). Given the expected quality of Black's \nportfolio, we believe there would be significant interest by fine art \ncollectors should the Borrower himself wish to sell or if DB were to \nexercise its rights on the Collateral. \nLTV: DB's proposed structure will include all our standard diversification \nlanguage, including a minimum 20 of pieces, each with a FMV of ≥$1MM, the \ncollateral value of each specific piece would be limited to no more than 20% \nof the total art collateral, the collateral value from any single artist \nwould be limited to 50% of the total art collateral, and would only include \npieces domiciled in the US. \nRisks: \nBalance sheet and collateral concentration in Apollo. \nThe limited \"float\" of Apollo Class A shares with only 141MM shares issued \nand outstanding versus a fully diluted total of 372MM (38%). \nTransfer Limitations per the 4/4/2011 IPO. \nConversion risks associated with the exchange of Apollo units to Class A \nshares. \nMitigants: \nHistoric Performance: The Managing Partners of Apollo (Black, Rowan & \nHarris) have worked together for more than 22 years. They have a proven \ntrack record with $114.3BN in AUMs, including $39.2BN in private equity, \n$63.5BN in credit and $9.4BN in real estate. They have consistently \nproduced long-term investment returns in their private equity funds with a \n39% gross IRR and a 26% net IRR on a compound annual basis since inception. \nIn addition, the positive trends for the firm are expected to continue and \nthe near term forecast remains strong. \nLTV: DB's blended LTV at loan origination is estimated at 43% ($500MM/-\n$1.16BN collateral market value.) Total Bank debt blended LTV at loan \norigination is estimated at only 31% ($1.5BN/$4.8BN collateral market \nvalue). Assuming Black maximizes the borrowing power against his art \n($1.25BN), only $0.25BN is reliant upon the liquidation of Apollo shares. \nEFTA01463279\n", "char_count": 2582}, {"efta_number": "EFTA01463275", "page_number": 5, "text_content": "At a floor price of $18.00/share, it would require the sale of only 13.89MM \nshares, which is only 9.85% of current outstanding shares, and only 3.73% of \nfully diluted shares. \nImproved Liquidity: The Transfer Limitation increases to 15% on 4/4/14, for \na total of 13.91MM shares (92.7MM Black holdings*.15), which is just \nslightly greater than the number of shares all Banks would need to sell at \nour $18.00/share floor price of 13.89MM shares. In the first year, due to \nthe Transfer Limitation of 7.5% (6.95MM shares), at a floor price of $18.00/-\nshare, only $125.2MM could be liquidated, which could be done in 5 days \n(assuming 100% of the market). This leaves $124.8MM in additional reliance \non the art ($250MM Apollo supported debt-$125.2MM in Black Apollo \nliquidity). Adding this to the $1.25BN in debt reliant on the art results \nin only a 55% advance ($1.375BN/$2.5BN) against a high quality art \nportfolio. \nDocumentation: DB will require all necessary registration documents to be \nmaintained and will also require Apollo consent to the pledge. These items \nwill help to minimize any delays during conversion. \nRelationship Summary: \nApollo is a platinum relationship in our Financial Sponsors Group. \nAWM has a $150MM participation in a $400MM JPM led subscription finance \nfacility to Apollo Investment Fund VII LP \nAWM Lending has asked the Banker to provide a formal business case, which is \nforthcoming. In general, Lending sees additional business opportunities to \ninclude a mandate under the proposed loan structure requiring liquidity held \nwith DB in addition to investment opportunities with the Family Trust, which \nis on the receiving end of the $1.5BN in loan proceeds. \nConfidential \nConfidential \nConfidential \nEFTA01463280\n", "char_count": 1758}, {"efta_number": "EFTA01463275", "page_number": 6, "text_content": "AOG / APO Details \nShares \nMarket Cap \nLeon Black Yearly Max Transfer \nCurrent APO Class A Shares Outstanding \n141,064,697 \n37.89% \n3,526,617,425 \n$ \nYear 1 \n6,954,537 \nLeon Black AOG Units \n92,727,166 \n24.91% \n2,318,179,150 \nYear 2 \n13,909,075 \nOther AOG Units \n138,503,469 \n37.20% \n3,462,586,725 \nYear 3 \n20,863,612 \nFully Diluted APO Class A Shares \n372,295,332 \nEFTA01463281\n", "char_count": 379}, {"efta_number": "EFTA01463275", "page_number": 7, "text_content": "100.00% \n9,307,383,300 \n$ \nClosing Price \n25.00 \n$ \nAverage Daily Trading Volume (shares) \n1,500,000 \nAverage Daily Trading Volume (dollars) \n37,500,000 \n$ \n# Days to Liquidate APO shares \n100% Market \n20% Market \nTotal Pledged APO shares \n13.33 \n66.67 \nAPO shares to cover $500MM \n13.33 \n66.67 \nAPO shares less Art collateral BB \n4.53 \n22.67 \nEFTA01463282\n", "char_count": 357}]}