Prime Highlights
- MFIC’s default rate surged to 5.3% in the first quarter, prompting the fund to halt most new lending.
- Apollo’s fund chief stated the firm remains focused on maximising shareholder value across its public vehicles.
Key Facts
- A BDC is a public market fund that lends primarily to small and midsize businesses in place of traditional banks.
- MFIC’s stock trades at roughly 85% of its net asset value, reflecting investor concern over future loan losses.
Background
Apollo Global Management is in talks to sell MidCap Financial Investment Corp. (MFIC), its publicly listed business development company (BDC). The fund holds assets that Apollo values at roughly $3 billion. However, the talks are still ongoing, and a deal is not certain.
MFIC lends primarily to midsize companies through Apollo’s MidCap Financial unit, which Apollo acquired in 2013 to build its direct-lending platform. The fund’s default rate climbed to 5.3% in the first quarter, up from 3.9% in December. As a result, management has been buying back shares, since they trade at around 85% of their net asset value, a sign that investors remain cautious about potential future losses.
A deal, if finalised, would most likely involve another BDC using its own shares to purchase MFIC. Analysts believe an all-cash deal at full net asset value is unlikely.
Publicly listed BDCs have been trading at discounts since last autumn, driven by concerns over rising loan losses, particularly in the software sector. Apollo had already restructured another underperforming public fund earlier this year, when its real-estate investment trust sold $9 billion in commercial property mortgages to its insurance arm, Athene.
MFIC largely stopped new lending this year and is directing most incoming loan repayments toward share buybacks and debt repayment. The fund posted a net loss of $61 million in the first quarter. Apollo’s private BDC also faced pressure, with investors seeking to redeem 11% of shares in a single quarter. Apollo’s chief executive of the fund said the firm remained focused on maximising shareholder value.