As the golden era of easy dealmaking and cheap debt comes to an end, Apollo Global Management Inc. is cashing in by stepping up unorthodox lending to private equity firms.
(Bloomberg) — As the golden era of easy dealmaking and cheap debt comes to an end, Apollo Global Management Inc. is cashing in by stepping up unorthodox lending to private equity firms.
With fundraising becoming more challenging in a high-cost environment, the New York-based asset manager is expanding its capabilities in so-called NAV loans, which allow PEs to borrow against a pool of their portfolio companies. Apollo is poised to sign more than $4 billion in such loans in the coming months to a handful of PEs looking to raise cash for investor payouts, according to people familiar with the matter.
Some of the transactions include multiple loans of more than $1 billion each, the people said, asking not to be identified discussing confidential information. The financing will originate in part from Apollo’s sponsor and secondary solutions business, known as S3, as well as from other divisions, some of the people said.
A representative for Apollo declined to comment.
PE firms — and private credit firms — have ramped up their use of net asset value financing as traditional borrowing options dry up. The move also demonstrates how Apollo is taking more steps to become an “alternative asset manager,” offering choices away from Wall Street banks who are scaling back on higher-risk lending. Apollo has been beefing up its presence in direct lending and structured credit, driven by the growth of its insurance arm Athene.
Read More: Private Equity Deal Rut Spurs Firms to Raise Cash Creatively
The debt the PE industry is taking on doesn’t come cheap. Deals of this nature typically come with floating rates of 550-700 basis points above base rates. For lenders such as Apollo, the financing is secured by capital that investors commit to PE funds, and deals of this nature typically have loan-to-value ratios of as much as 30%, and a maturity of three to five years.
Apollo’s $4 billion loan to SoftBank Group Corp. in late 2021 — backed by holdings of SoftBank Vision Fund 2 — spurred incoming calls from firms looking for NAV financing, one person said.
Apollo joins a niche field of lenders looking to capitalize on creative ways buyout firms are now using to raise money. Oaktree Capital Management-backed 17Capital is looking to raise around $10 billion across two new funds for NAV financing, Bloomberg News reported in July. Private credit specialist HPS Investment Partners hired a former Goldman Sachs Group Inc. banker last year to focus on NAV lending.
Read More: Marc Rowan Wants to Turn Feared Apollo Into Admired Stalwart
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