Apollo Global Management is in talks to unload a $3 billion publicly traded private credit fund, a move that underscores mounting pressure across the business development company sector.
The Wall Street Journal reported Sunday that Apollo has held discussions about selling MidCap Financial Investment Corp., or MFIC, a listed BDC that invests in loans originated by Apollo's MidCap Financial unit, which lends to midsize companies.
According to the Journal's reporting, the fund's default rate climbed to 5.3% in the first quarter from 3.9% in December – a sharp deterioration that has forced management to repurchase shares trading at steep discounts to net asset value. Any sale would likely involve another BDC as the buyer, potentially using its own shares as currency.
The development comes weeks after Apollo Chief Executive Marc Rowan took a combative stance at a CNBC-hosted forum in Washington, where he brushed off concerns about his firm's exposure to private credit and took pointed aim at competitors struggling with redemption requests.
"If you can't, as a first lien credit manager, meet 5% redemptions per quarter, I'll say it frankly: You're an idiot," Rowan said in April. "This is not that hard to do."
Apollo's own Apollo Debt Solutions BDC received redemption requests equal to 11% of assets, limiting payouts to the industry-standard 5% threshold – a decision that satisfied roughly $750 million in withdrawals. Rowan argued that figure was inconsequential relative to the firm's trillion-dollar scale, noting that the fund holds about 12% of its loans in enterprise software, the sector at the heart of private credit anxiety.
Apollo is not alone. Blackstone and BlackRock both disclosed markdowns in their private credit funds during the first quarter, each citing troubled loans to software companies and other sectors.
As reported by Reuters, Blackstone Secured Lending Fund's net asset value per share fell 2.4% to $26.26, with roughly 20% of the portfolio in software at fair value. BlackRock TCP Capital Corp reported a steeper 5% decline in NAV to $6.72 per share, while disclosing $32.7 million in net realized losses – losses tied in part to loans to Pluralsight, a troubled software training firm.
Blue Owl Capital's two private credit funds – Blue Owl Capital Corp and Blue Owl Technology Finance Corp – also cut their NAV per share last week. Blue Owl had already sold $1.4 billion in assets in February to shore up liquidity after elevated withdrawal requests at one of its funds.
Fitch Ratings issued a warning last month that the BDC sector faces a "deteriorating" outlook, citing elevated investor redemptions and above-average troubled loan volumes that could constrain liquidity for some managers.
The common thread running through most of these write-downs is enterprise software, a sector that became a dominant destination for private credit lending over the past decade and is now facing disruption from artificial intelligence.
"Private equity spent a decade where 30% of the activity was enterprise software," Rowan said at the April forum. "It's concentration in one industry being affected by technological change. Enterprise software stocks are down 60 to 70%. It is all about selection of business. It's over-concentration, it's too much growth, too much risk."
Rowan argued that the risk is contained, noting that Apollo's new investment originations last year totaled $310 billion, 80% of which was investment-grade financing – deals with Intel, BP, Shell, Air France and Meta among others. His view of the broader private credit market is that the $40 trillion space is not uniformly exposed, with the levered direct lending segment that has drawn the most concern representing closer to $2 trillion of that total.
Still, Rowan admitted to feeling uneasy about what lies in less-regulated corners of the market. "I do worry about what we don't know in the Caymans, in Barbados, and Anguilla," he said.
BlackRock CEO Larry Fink offered his own calibrated defense in March, telling the BBC that redemption limits were disclosed prominently. "It's not like it's on Page 92 of a prospectus. It's on Page 1," Fink said.
Rowan offered one potential silver lining, noting that beaten-up software valuations may have bottomed and that widened spreads in most sectors – outside of enterprise software – will eventually attract institutional buyers back to the market. He also flagged the growing role of technology's largest companies in investment-grade debt markets, predicting that within five years, half of the ten largest issuers of investment-grade debt globally will be major tech firms.
"The entire Silicon Valley ecosystem spent the past 50 years not needing capital, and all of a sudden it's the most capital-intensive business anywhere on the planet," Rowan said.
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