Apollo: private credit today is ‘recipe’ for caution

The current private credit climate has made Apollo Global Management wary of – but not deterred by – certain investment opportunities, executives said on Friday’s earnings call.

Josh Harris, Apollo’s co-founder and a senior managing director, said on the call that market trends, like rising interest rates, tighter spreads and large amounts of liquidity in the capital markets, constitute a “recipe leading our team to be cautious”. But with a disciplined investment strategy, Harris said the firm will continue to build its mid-market loan originations, collateralised loan obligations liabilities and energy credit portfolios.

He added that Apollo’s sizable direct origination capability allows the firm to
“pivot from broadly syndicated credit to non-traded direct credit when value is scarce, which is important in an extended credit cycle”.

Apollo deployed $1 billion across its credit platform over the first quarter and $3.4 billion over the twelve months leading up to 31 March, the earnings release shows.

Harris highlighted the firm’s $800 million bankruptcy financing to Westinghouse Electrical Company approved earlier this month as a sign of its capacity for large size debt originations.

That debtor-in-possession loan provides the California energy company a revolving credit facility to fund current operations while the company restructures, as Private Debt Investor previously reported. The facility’s senior secured loans are priced at either a to-be-determined base rate plus 5.25 percent or LIBOR plus 6.25 percent.

Apollo had $141 billion in credit assets under management at the end of the quarter, compared with total AUM of $197.5 billion. The credit platform, including liquid strategies, showed a total gross return of 1.9 percent over the Q1 and a gross return of 12.1 percent over the last twelve months. For drawdown funds specifically, those figures stood at 1.6 percent and 16.5 percent, respectively.

The firm’s credit portfolio had $10.5 billion in dry powder at the end of the three-month period, earnings results show, compared with $24.2 billion in dry powder across all platforms.