Apollo Expands Direct Lending Platform to Individuals With New Fund
(Bloomberg) -- Apollo Global Management Inc. set up a new company that is lending directly to big corporations using money raised from individual investors, the latest asset manager to take advantage of soaring retail demand for higher-yielding floating-rate instruments.
The new firm, called Apollo Debt Solutions, is a business development company with more than $1 billion of assets under management, it said in a statement on Tuesday. BDCs sell shares to individual investors and pay out almost all their earnings as dividends. Most are listed, but Apollo Debt Solutions isn’t.
It’s the latest entrant in the booming private-lending market, which has been raising vast amounts of capital to lend outside of the banking system -- a record $195 billion last year, according to financial research firm Preqin.
Blue Owl Capital Inc. is targeting high-net worth investors in Canada for one of its U.S. middle-market funds, while Blackstone Inc. and Carlyle Group Inc. have also offered products for individuals to invest in loans to midsized companies that banks won’t touch.
Investors are pouring money into private credit to earn higher yields that often rise even further as rates go up. That’s particularly attractive as high inflation and a strong U.S. job market have money managers bracing for increasingly aggressive rate hikes from the Federal Reserve.
As the private credit market including BDCs has grown, so too has the size of the loans that the biggest players can offer.
Apollo last month agreed to provide a $4 billion loan to SoftBank Group Corp., the biggest deal of its kind in the private credit market. In 2019, it also backed New Media Investment Group’s purchase of Gannett Co. with a $1.8 billion loan, and made a commitment in 2020 to lend roughly $12 billion over a three-year period via a new private credit platform aimed at big businesses. A few years ago, $500 million would have been a large transaction.
The new Apollo BDC, which will operate under the firm’s global wealth business, raised $657 million in net equity proceeds from the sale of 26.2 million shares, and will continue to sell shares on a monthly basis. Bloomberg was the first to report about the BDC.
Part of the appeal of direct lending is that taking credit risk now seems like a good bet to many investors. Default rates in the private credit market fell to 1.3% in the second quarter of 2021, according to data from law firm Proskauer Rose, compared with 8.1% a year earlier, when credit fears were high amid the pandemic.
“Private credit proved to be a lot more resilient during the pandemic. Lenders were flexible in agreeing to amendments and providing the incremental capital companies needed,” said Austin Witt, partner at law firm Paul Weiss Rifkind Wharton & Garrison, in a separate interview about the private credit market.
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