Apollo Global Management is working to expand its credit business with a deeper push into investment-grade debt offerings for large corporates.
The high-grade debt market, historically served by large commercial and investment banks, is one of the few remaining untapped markets for private credit, which has focused primarily on increasingly competitive direct lending to middle market borrowers.
The firm can go where other sponsors haven't in part because of its relationship with retirement annuities business Athene, an Apollo-owned entity that gives the firm access to a ready source of long-duration capital.
Apollo believes it can originate more than $200 billion in corporate loans annually by 2026 through the new "high-grade capital solutions" strategy. The opportunity, says CEO Mark Rowan, is about servicing a “voracious need for capital, most of which we believe to be investment grade.”
Investment-grade debt can seem at odds with a firm whose reputation is built on flashier buyouts and ‘hybrid value’ deals. But, Apollo is coming to market with a more differentiated offering than traditional banks, focusing on bespoke structured financing solutions that can combine elements of traditional bank loans, bonds, and private credit.
Without the regulatory capital requirements of banks, the firm can operate with relatively few constraints. For borrowers, its willingness to engage on unique opportunities and its ability to quickly deploy capital at scale makes it an attractive partner — as do terms that are comparable or even superior to those on offer from banks.
As it competes to take share, Apollo has adopted a playbook that borrows heavily from the banks it’s trying to displace. The Financial Times cites sources at the firm who describe an internal operation that looks remarkably similar to the type of sell-side business development efforts you'd find at a J.P. Morgan or Bank of America: aggressively courting corporate C-Suites to build relationships and pitch them on various Apollo-led financings.
Typical pricing on such deals can be around 1 to 2 percentage points higher than that of more conventional loans or bonds. An attractive opportunity for Apollo’s Athene annuities business, which benefits from swapping out lower-yielding traditional debt instruments with more lucrative Apollo-originated credit.
It’s not just Athene. Apollo has built a business out of originating similar loans for outside insurance clients as well (and other asset managers), to whom it can charge management fees and transaction fees. The business is growing double-digits year-over-year, and its contribution is now north of $3 billion.
To date, the limiting factor hasn't been a lack of capital to deploy but rather an ability to source enough deployment opportunities to meet insurance demand.