Conversus Capital, L.P. (NYSE Euronext Amsterdam: CCAP) ("Conversus") today reported its financial results for the nine months and quarter ended 30 September 2011.
As of 30 September 2011, Conversus had an estimated net asset value ("NAV") per unit of $26.80, representing a decrease of 3.3% from the 31 December 2010 NAV per unit of $27.71 and a decrease of 10.9% from the 30 June 2011 NAV per unit of $30.08. NAV per unit as of 30 September reflects distributions to unit holders of $2.00 per unit paid or declared on a year-to-date basis. Investment NAV was $1,698.6 million while unfunded commitments were $467.0 million as of 30 September.
"The quality and maturity of our portfolio continue to drive our positive performance in 2011 in the face of volatile market conditions," commented Bob Long, President and CEO of Conversus Asset Management ("CAM"). "During a challenging third quarter, the portfolio produced distributions at a pace more than double that of capital calls. Our robust cash flows have allowed us to return $255 million to unit holders year to date through cash distributions and unit repurchases and we expect to continue taking similar actions throughout 2012."
As of 30 September, 74% of investment NAV was comprised of private holdings valued based on general partner estimates as of 30 June and 5% was comprised of direct co-investments valued based on Conversus´ estimates as of 30 September. A further 20% of investment NAV was comprised of public equity securities marked to market as of 30 September as further described below in Valuation and Reporting Policies. The remaining 1% of investment NAV represented cash and other net assets held by the funds in which Conversus is invested.
| Net Asset Value Estimates as of 30 September 2011 | ||||||||||||||||||
| (in millions except per unit data) | ||||||||||||||||||
| Quarterly | YTD | |||||||||||||||||
| 30 Sep 2011 | 30 June 2011 | % Change | 31 Dec 2010 | % Change | ||||||||||||||
| Investment NAV | $ | 1,698.6 | $ | 1,812.1 | (6.3 | )% | $ | 1,885.3 | (9.9 | )% | ||||||||
| Cash and Cash Equivalents | 64.8 | 154.2 | (58.0 | )% | 77.5 | (16.4 | )% | |||||||||||
| Notes Payable | (1.0 | ) | (1.0 | ) | - | (1.0 | ) | - | ||||||||||
| Distributions Payable | (19.4 | ) | (9.7 | ) | (100.0 | )% | - | - | ||||||||||
| Other Net Assets (Liabilities) | (11.8 | ) | (11.6 | ) | (1.7 | )% | (12.7 | ) | 7.1 | % | ||||||||
| Estimated NAV | $ | 1,731.2 | $ | 1,944.0 | (10.9 | )% | $ | 1,949.1 | (11.2 | )% | ||||||||
| Common Units Outstanding | 64.6 | 64.6 | - | 70.3 | (8.1 | )% | ||||||||||||
| Estimated NAV per Unit | $ | 26.80 | $ | 30.08 | (10.9 | )% | $ | 27.71 | (3.3 | )% | ||||||||
| Financial Highlights for the Nine Months and Quarter Ended 30 September 2011 | ||||||||
| (in millions) | ||||||||
| Quarter ended | Nine Months ended | |||||||
| 30 Sep 2011 | 30 Sep 2011 | |||||||
| Net Change in Unrealized Appreciation on Investments | $ | (102.0 | ) | $ | (38.8 | ) | ||
| Net Realized Gains on Investments | 18.5 | 99.8 | ||||||
| Investment Income | 3.5 | 17.2 | ||||||
| Total Expenses | (13.0 | ) | (41.3 | ) | ||||
| Total Increase (Decrease) in Net Assets Resulting from Operations | (93.0 | ) | 36.9 | |||||
| Distributions to Unit Holders | (119.5 | ) | (129.2 | ) | ||||
| Unit Repurchases | (0.3 | ) | (125.6 | ) | ||||
| Net Decrease in Net Assets | $ | (212.8 | ) | $ | (217.9 | ) | ||
Liquidity and Capital Resources
For the nine months ended 30 September, Conversus received $431.5 million in distributions, funded $136.4 million in capital calls and funded $32.2 million in direct co-investments, resulting in net positive portfolio cash flow of $262.9 million. For the quarter ended 30 September, Conversus received $103.9 million in distributions, funded $45.1 million in capital calls and funded $27.2 million in direct co-investments, resulting in net positive portfolio cash flow of $31.6 million.
As of 30 September, Conversus had a cash balance of $64.8 million and $1.0 million in principal and interest was outstanding under a $325.0 million credit facility with Citigroup. The credit facility is committed until December 2014 and subject to various covenants and conditions.
Unit Repurchase Activity
During the nine months ended 30 September 2011, Conversus deployed $125.6 million to repurchase units in the following transactions:
- completed a tender offer in February and repurchased 3.5 million units at a price of $21.25 per unit for a total of $75.0 million;
- completed a tender offer in May and repurchased 1.6 million units at a price of $23.00 per unit for a total of $36.1 million;
- repurchased 0.6 million units in June through a block repurchase at a price of $23.00 per unit for a total of $13.8 million; and
- repurchased 33,000 units on various dates at an average price of $21.19 per unit pursuant to a Liquidity Enhancement Agreement with The Royal Bank of Scotland (the "Agreement") for a total of $0.7 million.
Repurchased units are held on Conversus´ balance sheet as treasury units, and Conversus held 8.9 million units in treasury as of 30 September. Conversus may, from time to time, cancel some or all treasury units held. Effective 2 September, Conversus suspended repurchases of units under the Agreement.
Quarterly Distribution Policy
Conversus expects to make quarterly distributions to unit holders based on net cash flow during the quarter, the forecast for net cash flows and appropriate cash reserves based on the circumstances prevailing at the time. The ultimate timing and amount of any future distributions may vary and is subject to the discretion of Conversus´ Board.
During the nine months ended 30 September 2011, Conversus paid cash distributions to unit holders totaling $109.8 million, or $1.70 per unit. In addition, on 28 September, Conversus declared a distribution of $19.4 million, or $0.30 per unit, that was paid on 14 October.
Conversus´ distribution policy can be found in the Investor Relations section of Conversus´ website under the heading "Distribution & Tax Information."
Portfolio Activity
For the nine months ended 30 September, distributions of $431.5 million were driven by general partner sales of public equity securities, sales of private companies to strategic buyers and realizations related to debt investments. Buyout funds comprised 67% of the distributions, special situation funds comprised 14% and venture capital funds comprised 12%, with the remaining 7% coming from sales of directly held public equity securities. The ten largest portfolio company distributions for the nine month period totaled $97.0 million and included Hughes Communications, Rockwood Holdings, Graham Packaging, MetroPCS, Kabel Deutschland, Republic Services, Netflix, Warner Music, SAVVIS and Nusil Technology.
For the quarter ended 30 September, $103.9 million in distributions were comprised of 77% from buyout funds, 13% from venture capital funds and 5% from special situation funds, with the remaining 5% coming from sales of directly held public equity securities. The five largest portfolio company distributions for the quarter totaled $26.9 million and included Graham Packaging, QTC Management, Spie, Caremore and Dollar General.
Funded capital of $168.6 million for the nine months ended 30 September was comprised of $109.5 million for buyout funds, $23.2 million for venture capital funds, $3.7 million for special situation funds and $32.2 million for direct co-investments. During the period, 81% of capital calls came from fund vintage years 2008 (36%), 2006 (24%) and 2007 (21%).
Funded capital of $72.3 million for the quarter ended 30 September was comprised of $35.1 million for buyout funds, $9.4 million for venture funds, $0.6 million for special situation funds and $27.2 million for direct co-investments. During the quarter, 79% of capital calls came from fund vintage years 2008 (40%), 2006 (26%) and 2009 (13%).
During the nine months ended 30 September, twenty-one Conversus portfolio companies completed IPOs. The companies had a combined investment NAV of $77.7 million as of 30 September and have generated $6.4 million in distributions year-to-date. The five largest IPOs included Nielsen, Kosmos Energy, HCA, Dunkin Brands and HomeAway. Thirty-five additional portfolio companies representing $100.4 million of investment NAV as of 30 September have formally filed for IPOs, which may or may not be completed.
Market Commentary
Global market conditions during the third quarter continued to be driven by recessionary fears, financial institution instability and political uncertainty. Investors fled to cash and U.S. treasuries, with the yield on the U.S. ten-year note falling to its lowest level since the 1940s. The S&P 500 Index and MSCI EAFE Index fell by 14% and 17%, respectively. The VIX, a measure of volatility also known as the "investor fear gauge," rose to forty-three, a level not seen since early 2009.
Softening credit markets led to a 35% quarter over quarter reduction in private equity-backed M&A activity, to $54 billion globally, in an environment where overall global M&A fell 25%. While debt remains available for LBOs, particularly in the U.S., spreads are wider, required equity contributions are larger and covenant-light financing packages have once again disappeared. These conditions will likely dampen both new investments and exits in private equity over the near term. Meanwhile, cash balances continue to grow on corporate balance sheets, and pressure is expected to build for the capital to be put to work through acquisitions or returned to shareholders.
Given the market volatility, private equity-backed IPOs have slowed to their lowest levels since the third quarter of 2009. Only nine private equity-backed IPOs were completed during the third quarter, compared to an average of twenty-eight per quarter since the end of 2009. Conversus believes that new offerings will be scarce until the broader equity markets stabilize.
Harvesting Strategy
On 1 September 2011, in response to market conditions and the levels at which Conversus´ units have traded compared to net asset value, Conversus adopted a permanent harvesting strategy. Under the harvesting strategy, Conversus has discontinued all new private equity investments other than funding existing commitments, making follow-on private equity investments to protect, support or enhance existing investments, and engaging in hedging activities related to the portfolio, unless otherwise approved by the Conversus Board. CAM will continue to actively manage the current portfolio of funded investments and unfunded commitments including the consideration of opportunistic sales of assets when appropriate. Conversus will seek to maximize long-term unit holder value by returning capital to unit holders through a combination of methods deemed most appropriate under the circumstances, including cash distributions and unit repurchases.
Quarterly Financial Report
Conversus has filed its Quarterly Financial Report with the Netherlands Authority for the Financial Markets for the nine months and quarter ended 30 September. The report can be accessed on Conversus´ website in the Investor Relations section under the heading "Financial Reports." Other than as disclosed in this release or the Quarterly Financial Report, there have been no events or transactions which have materially impacted the financial position of Conversus.
Valuation and Reporting Policies
Conversus carries investments on its books at fair value in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). Conversus uses the best information it has available to estimate fair value. Fair value for private equity interests begins with the most recent financial information provided by the general partners, adjusted for subsequent transactions, such as calls or distributions, as well as other information judged to be reliable that indicates valuation changes, including realizations and other portfolio company events. The value of any public equity security known to be owned by the funds based on the most recent information reported to us by the general partners has been marked to market as of 30 September, and a discount has been applied to such securities based on an estimate of the discount applied by the general partners in calculating NAV.
Conversus issues Quarterly Financial Reports as of 31 March, 30 June and 30 September as well as an Annual Financial Report as of 31 December of each year. These reports include financial statements prepared in accordance with U.S. GAAP. Conversus is required to consider, and will consider, all known material information in preparing such financial statements, including information that may become known subsequent to the issuance of each monthly report. Accordingly, amounts included in the Quarterly and Annual Financial Reports may differ from amounts included in the monthly NAV reports.
About Conversus Capital
Conversus is a publicly traded portfolio of third party private equity funds with approximately $2.2 billion in assets under management. Conversus provides immediate exposure to a diversified portfolio of private equity assets managed by best-in-class general partners. Conversus´ objective is to maximize long-term unit holder value by harvesting its existing portfolio and returning capital to unit holders. CAM, an independent asset manager, implements Conversus´ investment policies and carries out the day to day operations of Conversus pursuant to a services agreement.
Legal Disclaimer
These materials are not an offer to sell, or a solicitation of an offer to buy, securities in the United States or elsewhere. Securities may not be sold in the United States absent registration with the U.S. Securities and Exchange Commission or an exemption from registration under the U.S. Securities Act of 1933, as amended. Conversus is not a registered investment company under the U.S. Investment Company Act of 1940, as amended (the "Investment Company Act"), and the resale of Conversus securities in the United States or to U.S. persons other than to qualified purchasers as defined in the Investment Company Act is prohibited. Conversus does not intend to register any offering in the United States or to conduct a public offering of its securities in the United States. Conversus is an authorised closed-ended investment scheme for Guernsey regulatory purposes. Past performance is not necessarily indicative of future results.
The common units and related restricted depositary units of Conversus are subject to a number of ownership and transfer restrictions. Information concerning these ownership and transfer restrictions is included in the Investor Relations section of Conversus´ website at www.conversus.com.
Forward-Looking Statements
These materials contain certain forward-looking statements. In some cases, forward-looking statements can be identified by terms such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "should," "will," and "would," or the negative of those terms or other comparable terminology. Forward-looking statements speak only as of the date of these materials and include statements relating to expectations, beliefs, forecasts, projections (which may include statements regarding future economic performance, and the financial condition, results of operations, liquidity, cash flows, investments, business, net asset value and prospects of Conversus), future plans and strategies and anticipated results thereof, anticipated events or trends and similar matters that are not historical facts. By their nature, forward-looking statements involve risk and uncertainty, because they relate to events and depend on circumstances that will occur in the future, and there are many factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements including, but not limited to, the following: our ability to implement successful investment strategies; risks associated with private equity investments generally, the performance and financial condition of the funds in our portfolio and their portfolio companies, and the actual realized value of investments; the size, volume and timing of capital calls, distributions and other transactions involving our investments; changes in our relationship with CAM and its relationships; potential conflicts of interest; changes in our financial condition, liquidity (including availability and cost of capital), cash flows and ability to meet our funding needs and satisfy our contractual obligations; general economic and political conditions and conditions in the equity, debt, credit, currency, foreign exchange and private equity markets; the trading price, liquidity and volatility, of our common units; competitive conditions; regulatory and legislative developments; and the risks, uncertainties and other factors discussed elsewhere in these materials or in our public filings and documents on our website (www.conversus.com). Conversus does not undertake to update any of these forward-looking statements.
EXCERPTS FROM CONVERSUS´ UNAUDITED COMBINED FINANCIAL STATEMENTS FOLLOW
| Combined Statements of Net Assets | ||||||||
| As of 30 September 2011 and 31 December 2010 | ||||||||
| (US$ in thousands except for per unit amounts) | ||||||||
| 30 Sep 2011 | 31 Dec 2010 | |||||||
| (Unaudited) | (Audited) | |||||||
| Assets | ||||||||
| Investments, at fair value | ||||||||
| (cost $1,628,917 as of 30 Sep 2011; $1,776,768 as of 31 Dec 2010) | $ | 1,698,617 | $ | 1,891,996 | ||||
| Cash and cash equivalents | 64,836 | 77,467 | ||||||
| Receivables and prepaid expenses | 2,219 | 1,483 | ||||||
| Total Assets | 1,765,672 | 1,970,946 | ||||||
| Liabilities | ||||||||
| Management fees payable | 4,565 | 4,346 | ||||||
| Derivative instrument | - | 6,718 | ||||||
| Notes and interest payable | 1,000 | 1,000 | ||||||
| Distributions payable to unit holders | 19,381 | - | ||||||
| Other liabilities | 9,557 | 9,809 | ||||||
| Total Liabilities | 34,503 | 21,873 | ||||||
| NET ASSETS | $ | 1,731,169 | $ | 1,949,073 | ||||
| Net Assets | ||||||||
| General Partners´ capital | $ | - | $ | - | ||||
| Limited Partners´ capital | ||||||||
| (73,530 units issued and 64,603 units outstanding as of 30 Sep 2011; 73,530 units issued and 70,335 units outstanding as of 31 Dec 2010) | 1,905,979 | 1,998,276 | ||||||
| Treasury units | ||||||||
| (8,927 units as of 30 Sep 2011; 3,195 units as of 31 Dec 2010) | (174,810 | ) | (49,203 | ) | ||||
| NET ASSETS | $ | 1,731,169 | $ | 1,949,073 | ||||
| NET ASSET VALUE PER UNIT OUTSTANDING | $ | 26.80 | $ | 27.71 | ||||
| Combined Statement of Operations | ||||||||
| For the quarter and nine months ended 30 September 2011 | ||||||||
| (US$ in thousands except for per unit amount) | ||||||||
| (Unaudited) | ||||||||
| Quarter ended | Nine months ended | |||||||
| 30 Sep 2011 | 30 Sep 2011 | |||||||
| Investment Income | ||||||||
| Dividend income | $ | 2,074 | $ | 10,487 | ||||
| Interest and other income | 1,431 | 6,700 | ||||||
| Total Investment Income | 3,505 | 17,187 | ||||||
| Expenses | ||||||||
| Management fees | 4,562 | 15,033 | ||||||
| Fund fees and expenses | 4,130 | 12,005 | ||||||
| Professional service fees | 1,594 | 4,703 | ||||||
| Personnel | 588 | 3,109 | ||||||
| Public company costs | 628 | 1,850 | ||||||
| Interest | 8 | 25 | ||||||
| Other general and administrative | 1,546 | 6,650 | ||||||
| Total Expenses | 13,056 | 43,375 | ||||||
| Management fees waived | - | (2,095 | ) | |||||
| Total Expenses, Net of Fees Waived | 13,056 | 41,280 | ||||||
| Net Investment Loss | (9,551 | ) | (24,093 | ) | ||||
| Net Realized Gains and Net Change in Unrealized Appreciation on Investments | ||||||||
| Net realized gains on investments | 18,519 | 99,815 | ||||||
| Net change in unrealized appreciation on investments | (101,963 | ) | (38,810 | ) | ||||
| Total Net Realized Gains and Net Change in Unrealized Appreciation on Investments | (83,444 | ) | 61,005 | |||||
| NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $ | (92,995 | ) | $ | 36,912 | |||
| GAIN (LOSS) PER UNIT OUTSTANDING | $ | (1.44 | ) | $ | 0.56 | |||
| Combined Condensed Schedule of Investments | ||||||||||||
| As of 30 September 2011 | ||||||||||||
| (US$ in thousands and Unaudited) | ||||||||||||
| % of Net | Unfunded | |||||||||||
| Â | Â | Cost | Â | Fair Value | Â | Assets | Â | Commitments | ||||
| FUND INVESTMENTS | Â | Â | Â | Â | Â | Â | Â | Â | ||||
| North America | Â | Â | Â | Â | Â | Â | Â | Â | ||||
| Buyout | Â | $ | 1,066,592 | Â | $ | 1,115,080 | Â | 64.4 | % | Â | $ | 361,464 |
| Venture Capital | Â | Â | 251,834 | Â | Â | 261,140 | Â | 15.1 | Â | Â | Â | 58,180 |
| Special Situation | Â | Â | 68,827 | Â | Â | 96,552 | Â | 5.6 | Â | Â | Â | 7,922 |
| Total North America | Â | Â | 1,387,253 | Â | Â | 1,472,772 | Â | 85.1 | Â | Â | Â | 427,566 |
| Â | Â | Â | Â | Â | Â | Â | Â | Â | ||||
| Europe, Asia and RoW | Â | Â | Â | Â | Â | Â | Â | Â | ||||
| Buyout | Â | Â | 130,207 | Â | Â | 122,351 | Â | 7.1 | Â | Â | Â | 38,964 |
| Venture Capital | Â | Â | 2,266 | Â | Â | 2,839 | Â | 0.1 | Â | Â | Â | 498 |
| Total Europe, Asia and RoW | Â | Â | 132,473 | Â | Â | 125,190 | Â | 7.2 | Â | Â | Â | 39,462 |
| Â | Â | Â | Â | Â | Â | Â | Â | Â | ||||
| Total Fund Investments | Â | Â | 1,519,726 | Â | Â | 1,597,962 | Â | 92.3 | Â | Â | Â | 467,028 |
| Â | Â | Â | Â | Â | Â | Â | Â | Â | ||||
| DIRECT INVESTMENTS (1) | Â | Â | Â | Â | Â | Â | Â | Â | ||||
| Direct Co-Investments | Â | Â | Â | Â | Â | Â | Â | Â | ||||
| Industrials | Â | Â | 52,544 | Â | Â | 55,213 | Â | 3.2 | Â | Â | Â | - |
| Telecommunication Services | Â | Â | 25,000 | Â | Â | 16,250 | Â | 0.9 | - | |||
| Consumer Discretionary | 10,000 | 10,000 | 0.6 | - | ||||||||
| Health Care | 5,000 | 5,000 | 0.3 | - | ||||||||
| Total Direct Co-Investments | 92,544 | 86,463 | 5.0 | - | ||||||||
| Publicly Traded Equity Securities (2) | ||||||||||||
| Financials | 6,653 | 6,687 | 0.4 | - | ||||||||
| Industrials |
| |||||||||||
