Apollo pushes into high-grade debt business long dominated by banks
Led by a onetime dealer in death benefit settlements, a leveraged buyout pioneer evolves into a bulge-bracket lender
Jamshid Ehsani began his Apollo career betting on death. Now he’s the central executive behind its effort to help companies breathe fresh life into their operations.
In the process, Apollo’s private credit strategy is taking on the largest traditional banks in the race to fund the billions needed by highly rated multinationals such as Intel, AT&T, AB InBev and Sony Music, which historically relied on high-rated bonds or vanilla credit facilities.
Asset managers have long been established as alternatives to banks in the lending industry. But Apollo’s rapid growth over the years has created a unique opportunity: to be the one financial sponsor with the firepower to move beyond the mid-market clientele typical of the sector and step into underwriting the biggest companies in the world.
Apollo says it could originate more than $200bn in overall corporate loans annually by 2026. One part of that effort is what it calls its “high grade capital solutions” strategy. Apollo then places the paper it spins up into its retirement annuities affiliate Athene, as well as third-party insurers and other asset managers, the latter two generating management and transaction fees.
In the middle of the effort is Ehsani, who has a PhD in energy economics from the Sorbonne and arrived at Apollo in 2010 after stints at Swiss Re, UBS and the World Bank. Among Ehsani’s original assignments were “structured settlement” deals, a common if controversial business of acquiring life insurance policies that pay out to the buyer upon the customer’s death.
Colleagues describe Ehsani, whose title now is global head of principal structured finance, as a hard-charging dealmaker, prone to speaking sharply to colleagues.
“He’s probably the most powerful person at Apollo that a limited amount of people know about,” said one fellow Apollo executive.
Marc Rowan, Apollo’s chief executive, has told investors the firm’s biggest private credit opportunity is not the competitive “direct lending” business of funding risky leveraged buyouts.
Instead, many creditworthy companies — including large ones — have unique projects or strategic objectives better served by customised structured financing. Each deal has different terms but all transform a cash flow waterfall into investment-grade debt that is supposed to simultaneously solve a challenge for the Apollo counterparty, supports retirement savings of Athene’s elderly customers and give Apollo a higher rate of return for its shareholders.
In the instance of AB InBev, the beverage company sold half of an unwanted metals plant for $3bn to Apollo. For Intel, Apollo invested $11bn to help pay for the completion of an Irish semiconductor fabrication facility. At AT&T, Apollo contributed $2bn to the telco’s wireless segment used to build out mobile phone networks.
For the $50bn or so that Apollo has cumulatively originated in high-grade debt, Apollo also earns placement and management fees for the portion syndicated to other asset managers or insurers. Apollo can charge interest rates that are 1 to 2 percentage point higher over more conventional loans or bonds as a premium paid for illiquid private debt.
Annual profits from lending out insurance customers’ funds at Apollo top $3bn and are growing at double-digit rates; the company’s market cap has soared to about $65bn. Since the start of 2020, shares of Apollo have more than doubled, far outperforming the S&P 500.
The pitch to corporate clients is just one part of Apollo’s broader lending push, as it looks for loans of all kinds that can feed both its own and third- party insurers. It provides financing underlying rail cars, aeroplanes, music royalties, machinery, inventory, real estate and even other asset managers who are in need of capital.
“They just really understand how to drive through these alternative structured pathways and then they get paid for it,” said an executive from one firm that is financed by Apollo. “They have worked out a way to make sure they are compensating themselves pretty richly.”
And for a firm whose heritage lies in swashbuckling corporate takeovers, its $500bn credit business has essentially become about replicating a traditional banking model. Insiders describe an intensive marketing effort resembling a Wall Street sellside apparatus, where Apollo executives are relentlessly trying to get an audience with Fortune 500 treasurers and chief financial officers in order to pitch them on Apollo-designed transactions.
Apollo, for example, had intensely pursued a transaction with Boeing, the cash-strapped jet maker, including dispatching William Lewis, the veteran sellside investment banker who joined Apollo in 2021, to court Boeing’s management. Ultimately, the company decided to sell $10bn of ordinary bonds.
“These are the kinds of things that are not well-suited for [banking] institutions, who are funded short,” Rowan recently told investors. “These are exactly the kinds of transactions in the investment-grade market that we expect to drive our business and are driving our business.”
Whether its risk assessments, underwriting and lending designs actually work will play out over several years. But Intel’s sudden unravelling is a cautionary tale.
Intel shares have dropped 60 per cent this year as it suddenly missed revenue targets and slashed forecasts as it struggles to keep up with chip rivals. Its overall credit rating has dipped from A to BBB in response. Apollo told the Financial Times the credit rating on the particular debt it structured for Intel remains unchanged and capital charges faced by insurers have not increased, though that could still change if Intel’s fortunes continue to slide.
Apollo declined to make Ehsani available to speak to the FT and said multiple senior executives were responsible for its corporate origination effort.
Rowan has said Apollo can accumulate more than enough cash from insurance customers to fund loans. Rather, the limiting factor for the firm is creating enough clever investments — including those that resemble big cap deals exemplified by the Intel transaction — to generate larger and safer returns.
Jim Zelter, the co-president of Apollo, told the FT that the market for conventional high-yield direct loans was about $1tn to $2tn, a fraction of the $40tn investment-grade landscape.
“We want to invest in investment-grade companies at scale,” he said. “The traditional markets alone are not large enough to be responsive to these companies.”