Apollo Pushes Further Into Credit

Chicago leveraged lender Madison Capital Funding LLC announced this month that the New York buyout firm had agreed to back a $250 million portfolio of mid-market loans that it has made, through its publicly traded affiliate, Apollo Investment Corp.

Separately, Apollo said it has completed its acquisition of Stone Tower Capital, an alternative credit manager with about $18 billion of assets under management, including 12 collateralized debt obligation funds.

James C. Zelter, Apollo Global Management’s managing director of capital markets and the chief executive officer of Apollo Investment Corp., told Buyouts that “secular changes” in the regulatory environment are permanently changing the lending landscape. “We believe the more successful, larger players in credit will continue to provide solutions to companies going forward. We have played a large role historically and expect to play a large role going forward.”

Madison Capital, the private equity financing arm of New York Life Investment Management Holdings LLC, is one of the largest mid-market loan originators in the United States. “Apollo was interested in expanding their assets in the middle market cash flow sector and they chose Madison as the origination vehicle to help do it,” said Christopher G. Williams, a senior managing director at Madison Capital.

The deal with Apollo Investment Corp. is only the second time that Madison Capital has turned to a source outside New York Life for capital, Williams said. The company structured a similar, $225 million vehicle in 2010 with OFS Capital WM LLC, an affiliate of mid-market lender Orchard First Source Capital Inc. of Rolling Meadlow, Ill.

 “These types of loan vehicles allow us to take up our hold sizes in certain transactions,” Williams said. Until now, Madison Capital  has limited itself to a maximum hold size of about $45 million on the deals it did, Williams said. “Now we can go north of that.”

The Stone Tower Capital deal is Apollo Global Management’s second acquisition in six months in the CLO space. In October, the firm completed the acquisition of Gulf Stream Asset Management, a CLO manager with $3 billion in assets.Although credit may never be the dominant strategy for Apollo, Zelter said, “it plays a critical role in our success as a private equity investor.”