GUERNSEY, Channel Islands (BUSINESS WIRE), April 29, 2010 - Conversus Capital, L.P. (Euronext Amsterdam: CCAP) (“Conversus” or the “Company”) today reported its financial results for the quarter ended 31 March 2010.
As of 31 March, Conversus had an estimated net asset value (“NAV”) per unit of $23.79. This represents an increase of 1.2% since 31 December 2009. Investment NAV was $1,881.5 million while unfunded commitments were $685.4 million as of 31 March. By comparison, as of 31 December investment NAV was $1,907.6 million while unfunded commitments were $731.7 million.
“We are off to a promising start for 2010,” commented Bob Long, President and CEO of Conversus Asset Management, LLC. “Distributions of $91 million represented almost 5% of our beginning of the year funded assets and tripled last year’s first quarter. Organic cash flow of $58 million reduced our net debt by 24% in addition to fully covering all expenses. The twelve portfolio company IPOs we saw in the first quarter of 2010 and the substantial pipeline of announced exits indicate that market conditions are increasingly receptive to transactions involving stronger private equity portfolio companies.”
As of 31 March, 76% of the investment NAV was comprised of private holdings valued based on general partner estimates as of 31 December and 3% was comprised of direct co-investments valued as of 31 March based on Conversus’ estimates. A further 19% of the investment NAV was comprised of public equity securities and a derivative marked to market as of 31 March as further described below in Valuation and Reporting Policies. The remaining 2% of the investment NAV represented cash and other net assets held by the funds in which Conversus is invested.
| Net Asset Value Estimates as of 31 March 2010 (in millions except per unit data) | ||||||||||
| 31 Mar 2010
Unaudited | 31 Dec 2009
Audited | YTD
% Change | ||||||||
| Estimated NAV of Investments | $ | 1,881.5 | $ | 1,907.6 | (1.4 | %) | ||||
| Cash and Cash Equivalents | 46.0 | 32.3 | 42.4 | % | ||||||
| Other Net Assets (Liabilities) | (205.6 | ) | (239.3 | ) | 14.1 | % | ||||
| Estimated NAV | $ | 1,721.9 | $ | 1,700.6 | 1.3 | % | ||||
| Common Units Outstanding | 72.4 | 72.4 | 0.0 | % | ||||||
| Estimated NAV per Unit | $ | 23.79 | $ | 23.50 | 1.2 | % | ||||
Financial Results
Financial highlights for Conversus for the quarter ended 31 March 2010 were as follows:
- Net unrealized gains on investments of $29.7 million
- Net realized gains on investments of $5.5 million
- Net unrealized currency losses of $6.4 million
- Investment income of $8.0 million
- Expenses of $15.5 million
- Net increase in net assets of $21.3 million
Liquidity and Capital Resources
As of 31 March, Conversus had a cash balance of $46.0 million. For the quarter ended 31 March, Conversus received $91.0 million in distributions and funded $33.4 million in capital calls. In addition to using cash flows from the existing portfolio to meet liquidity needs, Conversus has a $650.0 million credit facility available, subject to covenants, which is committed until July 2012. As of 31 March, principal and interest borrowings of $194.8 million were outstanding under the credit facility.
Portfolio Activity
For the quarter ended 31 March, $91.0 million in distributions were driven by our funds’ sales of portfolio companies to strategic buyers. Buyout funds comprised 69% of the distributions, venture funds comprised 19% and special situation funds comprised 8%, with the remaining 4% coming from sales of directly held public equities. The four largest distributions totaled $35.9 million and related to portfolio companies CB Richard Ellis, NuVox Communications, Unity Media and Vitality Foodservice.
Capital calls of $33.4 million for the quarter ended 31 March included $27.4 million for buyout funds, $5.6 million for venture funds and $0.4 million for special situation funds. Capital called by our fund investments came largely from more recent vintage year funds, with 77% of the calls coming from fund vintage years 2008 (23%), 2007 (18%), 2006 (20%) and 2005 (16%).
During the quarter ended 31 March, twelve Conversus portfolio companies completed IPOs. The companies had a combined investment NAV of $25.5 million as of 31 March and included Brenntag, Calix Networks, Financial Engines, Graham Packaging, Kabel Deutschland, Maxlinear, Medica, Meru Networks, Promethean World, QuinStreet, Symetra Financial and Tiger Airways.
Market Outlook and Portfolio Commentary
The broad equity market rally reached its one year anniversary in the first quarter of 2010, with the S&P 500 and MSCI indices adding 4.9% and 2.7%, respectively, to their impressive gains of 2009. Against a backdrop of low interest rates, the bond markets also produced strong total returns of 2.3% for investment grade and 3.9% for high yield, according to UBS Investment Research.
In this improving environment, new private equity investment activity grew on a year over year basis with $27.5 billion of leveraged buyouts in the first quarter of 2010. This activity more than doubled last years’ $12.1 billion first quarter, but represented a decrease from the fourth quarter of 2009, according to Dealogic. Although debt markets continue to thaw and have become more receptive to private equity deals, it should be noted that a substantial portion of the activity refinanced existing debt which allowed portfolio companies to improve their balance sheets.
Exit activity has picked up more sharply than the pace of new deal activity. Across the entire private equity landscape, trade sale exits of private equity investments more than doubled in the first quarter of 2010 when compared to the same period in 2009, according to Dow Jones. The IPO markets also remain receptive, a trend that appears to be spreading beyond the U.S. markets which were the first to open in 2009.
For venture capital firms, the difficult fund raising environment and lower average returns over the past few years are leading to consolidation within the sector. In the meantime, innovation continues to be funded as attractive opportunities exist in life sciences, next generation IT, clean tech and the energy sectors. A pickup in venture exits, as well as the sentiment expressed by the veteran venture capital managers, leads Conversus to believe that the prospects for the venture industry appear brighter than they have been in several years.
In summary, the global recovery appears to be gaining firmer footing, and credit markets are clearly strengthening. Private equity valuations appear to have bottomed and have begun to trend upward, along with realizations. Consistent with those macro trends, discounts of share price to NAV for stronger listed private equity firms have narrowed significantly in the first quarter.
Realization Strategy
During the second quarter of 2009, Conversus implemented a realization strategy designed to deliver the value of its portfolio to investors. The realization strategy is designed to increase the confidence of investors that the value of Conversus’ current portfolio will be delivered to its unit holders over time. Conversus has discontinued substantially all investments and new commitments and is focused on realizing the value of the existing portfolio by applying cash flow to fund capital calls and expenses, repay debt and, eventually, return capital to unit holders through unit repurchases and cash distributions. Conversus will continue to manage actively its current portfolio of funded investments and unfunded commitments as well as its liquidity and capital resources to maximize unit holder value.
Conversus will consider a return to a growth strategy if it believes three criteria are met: (i) the market price for its units fairly reflects the value of the portfolio, (ii) the trading volume in its units provides sufficient liquidity for investors and (iii) the reflection of fair value in the unit price and the level of trading volume are sustainable. Conversus will continue to review its strategy in response to market conditions and will make strategic decisions consistent with the goal of maximizing unit holder value.
Quarterly Financial Report
Conversus has filed its Quarterly Financial Report with the Netherlands Authority for the Financial Markets for the quarter ended 31 March. The Report can be accessed in the Investor Relations portion of the Conversus website at www.conversus.com under the heading of “Reports and Financial Statements.”
Earnings Presentation
A quarterly earnings presentation has been posted to the Conversus website and can be accessed in the Investor Relations portion of Conversus’ website under the heading “Presentations.”
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 31 March, 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 will issue 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 will 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 statements may differ from amounts included in the monthly NAV reports.
About Conversus Capital
Conversus Capital, L.P. (Euronext Amsterdam: CCAP) (“Conversus”) is a permanent capital vehicle and the largest publicly-traded portfolio of third party private equity funds. Conversus’ objective is to provide unit holders with immediate exposure to a diversified portfolio of private equity assets, access to best-in-class general partners and consistent NAV growth that outperforms the public markets. Conversus Asset Management, LLC (“CAM”), an independent asset manager, implements Conversus’ investment policies and carries out the day to day operations of Conversus pursuant to a services agreement. CAM leverages the platforms of Bank of America and Oak Hill, its primary owners.
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.
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, projections (which may include statements regarding future economic performance, and the financial condition, results of operations, liquidity, 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; our limited operating history and the limited track record of CAM; 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. Past performance is not necessarily indicative of future results.
EXCERPTS FROM CONVERSUS’ UNAUDITED COMBINED FINANCIAL STATEMENTS FOLLOW
| Combined Statements of Net Assets As of 31 March 2010 and 31 December 2009 (US$ in thousands except for per unit amounts) | |||||||
| 31 March | 31 December | ||||||
| 2010 | 2009 | ||||||
| (Unaudited) | (Audited) | ||||||
| Assets | |||||||
| Investments, at fair value (cost $1,947,170 as of 31 March 2010; $1,996,580 as of 31 December 2009)
| $ | 1,891,738 | $ | 1,912,192 | |||
| Cash and cash equivalents | 46,012 | 32,313 | |||||
| Receivables and prepaid expenses | 3,385 | 3,087 | |||||
| Total Assets | 1,941,135 | 1,947,592 | |||||
| Liabilities | |||||||
| Management fees payable | 4,515 | 4,553 | |||||
| Derivative instrument | 10,238 | 4,620 | |||||
| Notes and interest payable | 194,828 | 229,004 | |||||
| Other | 9,679 | 8,855 | |||||
| Total Liabilities | 219,260 | 247,032 | |||||
| NET ASSETS | $ | 1,721,875 | $ | 1,700,560 | |||
| Net Assets | |||||||
| General Partners' capital | $ | - | $ | - | |||
| Limited Partners' capital (73,530 units issued and 72,367 units outstanding as of 31 March 2010 and 31 December 2009)
| 1,740,752 | 1,719,437 | |||||
| Treasury units (1,163 units as of 31 March 2010 and 31 December 2009)
| (18,877 | ) | (18,877 | ) | |||
| NET ASSETS | $ | 1,721,875 | $ | 1,700,560 | |||
| NET ASSET VALUE PER UNIT OUTSTANDING | $ | 23.79 | $ | 23.50 | |||
| Combined Statement of Operations For the quarter ended 31 March 2010 (US$ in thousands except for per unit amount) (Unaudited) | |||
| Quarter ended | |||
| 31 March 2010 | |||
| Investment Income | |||
| Dividends | $ | 6,004 | |
| Interest and other income | 1,950 | ||
| Total Investment Income | 7,954 | ||
| Expenses | |||
| Fund fees and expenses | 5,146 | ||
| Management fees | 5,569 | ||
| Interest | 915 | ||
| Professional service fees | 1,680 | ||
| Personnel | 2,061 | ||
| Public company costs | 573 | ||
| Other general and administrative | 661 | ||
| Total Expenses | 16,605 | ||
| Management fees waived | (1,114 | ) | |
| Total Expenses, Net of Fees Waived | 15,491 | ||
| Net Investment Loss | (7,537 | ) | |
| Net Realized Gains and Net Change in Unrealized
Depreciation on Investments | |||
| Net realized gains on investments | 5,514 | ||
| Net change in unrealized depreciation on investments | 23,338 | ||
| Net Realized Gains and Net Change in Unrealized
Depreciation on Investments | 28,852 | ||
| NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS | $ | 21,315 | |
| GAIN PER UNIT OUTSTANDING | $ | 0.29 | |
| Combined Condensed Schedule of Investments As of 31 March 2010 (US$ in thousands) (Unaudited) | |||||||||||||
| Cost | Fair Value | % of Net | Unfunded | ||||||||||
| FUND INVESTMENTS |
| ||||||||||||
| North America | |||||||||||||
| Buyout | $ | 1,283,577 | $ | 1,226,507 | 71.2 | % | $ | 505,911 | |||||
| Venture Capital | 309,013 | 290,610 | 16.9 | 95,506 | |||||||||
| Special Situation | 134,661 | 162,920 | 9.5 | 10,506 | |||||||||
| Total North America | 1,727,251 | 1,680,037 | 97.6 | 611,923 | |||||||||
| Europe, Asia and RoW | |||||||||||||
| Buyout | 141,633 | 142,647 | 8.2 | 71,726 | |||||||||
| Venture Capital | 1,156 | 999 | 0.1 | 1,795 | |||||||||
| Total Europe, Asia and RoW | 142,789 | 143,646 | 8.3 | 73,521 | |||||||||
| Total Fund Investments | 1,870,040 | 1,823,683 | 105.9 | 685,444 | |||||||||
| DIRECT INVESTMENTS (1) | |||||||||||||
| Direct Co-Investments | |||||||||||||
| Industrials | 35,372 | 35,793 | 2.1 | - | |||||||||
| Telecommunication Services | 25,000 | 16,250 | 0.8 | - | |||||||||
| Total Direct Co-Investments | 60,372 | 52,043 | 2.9 | - | |||||||||
| Publicly Traded Equity Securities (2) | |||||||||||||
| Consumer Discretionary | 1,773 | 1,710 | 0.1 | - | |||||||||
| Energy | 939 | 633 | 0.0 | - | |||||||||
| Financials | 4,860 | 5,805 | 0.3 | - | |||||||||
| Industrials | 8,473 | 7,263 | 0.6 | - | |||||||||
| Information Technology | 176 | 158 | 0.0 | - | |||||||||
| Materials | 538 | 443 | 0.0 | - | |||||||||
| Total Publicly Traded Equity Securities | 16,759 | 16,012 | 1.0 | - | |||||||||
| Derivative Instrument | - | (10,238 | ) | (0.5 | ) | - | |||||||
| Total Direct Investments | 77,131 | 57,817 | 3.4 | - | |||||||||
| TOTAL | $ | 1,947,171 | $ | 1,881,500 | 109.3 | % | $ | 685,444 | |||||
| (1) Industry classifications are determined at the individual portfolio company level and are based on the North American Industry Classification System ("NAICS"). | |||||||||||||
| (2) Publicly traded equity securities represent equity security distributions from fund investments and direct public equity investments. | |||||||||||||
| Combined Condensed Schedule of Investments As of 31 December 2009 (US$ in thousands) (Audited) | |||||||||||||
| Cost | Fair Value | % of Net | Unfunded | ||||||||||
| FUND INVESTMENTS |
| ||||||||||||
| North America | |||||||||||||
| Buyout | $ | 1,320,170 | $ | 1,226,620 | 72.1 | % | $ | 531,716 | |||||
| Venture Capital | 313,779 | 299,649 | 17.6 | 100,842 | |||||||||
| Special Situation | 141,174 | 170,019 | 10.0 | 11,172 | |||||||||
| Total North America | 1,775,123 | 1,696,288 | 99.7 | 643,730 | |||||||||
| Europe, Asia and RoW | |||||||||||||
| Buyout | 142,957 | 152,865 | 8.9 | 85,951 | |||||||||
| Venture Capital | 1,059 | 881 | 0.1 | 2,046 | |||||||||
| Total Europe, Asia and RoW | 144,016 | 153,746 | 9.0 | 87,997 | |||||||||
| Total Fund Investments | 1,919,139 | 1,850,034 | 108.7 | 731,727 | |||||||||
| DIRECT INVESTMENTS (1) | |||||||||||||
| Direct Co-Investments | |||||||||||||
| Industrials | 35,371 | 31,863 | 1.9 | - | |||||||||
| Telecommunication Services | 25,000 | 16,250 | 0.9 | - | |||||||||
| Total Direct Co-Investments | 60,371 | 48,113 | 2.8 | - | |||||||||
| Publicly Traded Equity Securities (2) | |||||||||||||
| Energy | 573 | 315 | 0.0 | - | |||||||||
| Financials | 6,213 | 5,608 | 0.3 | - | |||||||||
| Health Care | 315 | 245 | 0.0 | - | |||||||||
| Industrials | 8,742 | 6,894 | 0.6 | - | |||||||||
| Information Technology | 681 | 563 | 0.0 | - | |||||||||
| Materials | 546 | 420 | 0.0 | - | |||||||||
| Total Publicly Traded Equity Securities | 17,070 | 14,045 | 0.9 | - | |||||||||
| Derivative Instrument | - | (4,620 | ) | (0.2 | ) | - | |||||||
| Total Direct Investments | 77,441 | 57,538 | 3.5 | - | |||||||||
| TOTAL | $ | 1,996,580 | $ | 1,907,572 | 112.2 | % | $ | 731,727 | |||||
| (1) Industry classifications are determined at the individual portfolio company level and are based on the NAICS. | |||||||||||||
| (2) Publicly traded equity securities represent equity security distributions from fund investments and direct public equity investments. | |||||||||||||
| Combined Condensed Schedule of Investments As of 31 March 2010 and 31 December 2009 (US$ in thousands) | |||||||
| 31 March 2010 | 31 December 2009 | ||||||
| (Unaudited) | (Audited) | ||||||
| Industry (1) | Fair Value | % of Total Net |
| Fair Value | % of Total Net | ||
| Industrials | $ 430,909 | 25.0% | $ 419,586 | 24.7% | |||
| Consumer Discretionary | 237,643 | 13.8 | 229,018 | 13.5 | |||
| Health Care | 228,795 | 13.3 | 218,629 | 12.9 | |||
| Information Technology | 204,556 | 11.8 | 201,589 | 11.8 | |||
| Financials | 184,437 | 10.7 | 181,062 | 10.6 | |||
| Media | 131,973 | 7.7 | 130,306 | 7.7 | |||
| Telecommunication Services | 92,384 | 5.4 | 98,404 | 5.8 | |||
| Materials | 88,758 | 5.2 | 90,182 | 5.3 | |||
| Other Industries | 87,994 | 5.1 | 92,087 | 5.4 | |||
| Consumer Staples | 70,500 | 4.1 | 74,200 | 4.4 | |||
| Other (net other assets) | 123,551 | 7.2 | 172,509 | 10.1 | |||
| TOTAL | $ 1,881,500 | 109.3% | $ 1,907,572 | 112.2% | |||
| (1) Industry classifications are determined on a look-through basis at the individual portfolio company level and are based on the NAICS. | |||||||