Apollo Global Management is in talks to sell its $3bn BDC MidCap Financial Investment Corp after defaults jumped to 5.3% and the fund posted a $61m first-quarter loss, the Wall Street Journal (gated) reported.
Summary:
- Apollo is in talks to sell MidCap Financial Investment Corp., its publicly listed BDC valued at around $3 billion, with any deal likely involving a share-based rather than cash purchase, according to the Wall Street Journal
- Loan defaults rose to 5.3% in Q1 from 3.9% in December; the fund posted a $61 million net loss and its shares trade at roughly 85% of net asset value
- Apollo restructured a separate vehicle in January, transferring $9 billion of commercial property mortgages to its insurance arm Athene
- Investors in Apollo’s private BDC requested redemptions of 11% of shares last quarter, part of a sector-wide withdrawal trend hitting private credit managers
Apollo Global Management has been in discussions to sell MidCap Financial Investment Corp., its publicly listed private credit fund, as rising loan defaults and a widening discount to net asset value make the vehicle increasingly difficult to operate, the Wall Street Journal reported.
MFIC is a business development company that makes loans primarily to mid-sized businesses through Apollo’s MidCap Financial platform. Apollo values the fund’s investments at roughly $3 billion, though no deal is guaranteed. Loan defaults climbed to 5.3% in the first quarter from 3.9% in December, contributing to a net loss of $61 million, and the fund’s shares trade at around 85 cents on the dollar relative to net asset value. MFIC has largely stopped new lending, directing repayment proceeds toward share buybacks and debt reduction instead.
The situation reflects broader stress across the BDC sector, which has traded at discounts since last autumn on fears of mounting losses. Apollo’s private BDC saw redemption requests equivalent to 11% of its shares last quarter. The firm has already restructured one other vehicle this year, moving $9 billion of commercial property mortgages from its REIT into its insurance subsidiary Athene in January.
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The potential sale of MFIC is a symptom of broader stress in the private credit and direct lending space, where rising corporate defaults tied in part to higher borrowing costs and energy-driven input price pressures have eroded loan valuations across the sector. For energy-linked borrowers in the mid-market, where direct lenders have been particularly active, the tightening of credit conditions implied by this story could raise the cost of capital and reduce the availability of financing for smaller oil and gas operators.
The sector-wide discount at which publicly traded BDCs are trading reflects a market-wide reassessment of private credit risk, and Apollo’s move to potentially restructure or exit MFIC follows its earlier decision to shift $9 billion of commercial property mortgages off a separate vehicle. Taken together, these actions point to a broader deleveraging and consolidation dynamic within alternative asset management that could affect the flow of private capital into energy and commodities lending more broadly.
This article was written by Eamonn Sheridan at investinglive.com.
