Let’s face it. The BDC industry does not get much coverage in the business paper of record (the Wall Street Journal). So any time there is an article written we’re curious. This piece about Apollo and goings on in the BDC industry is relatively short and has one glaring mistake in it (more on that later), but there’s always something to learn.
The main take-away is that Apollo Investment (AINV) has been looking at all distressed deals and BDCs around (“we’ve looked at everybody”). Apollo’s President - Patrick Dalton - made the distinction that some BDCs “focus more on the asset management business”, while his firm focuses more on “direct investment”. This suggests Apollo is talking about known and suspected targets such as American Capital, Allied Capital, Kohlberg Capital and GSC Investments (which has a CLO).
Apollo’s President stressed that “running the asset management business requires a different skill set and may offer distraction to acquirers”. That seems to mean Apollo does not see that business model as a fit. This suggests Apollo may not be a bidder in the BDC consolidation game, or it may be a sleight of hand. After all, the article closes with this Delphic quote from Apollo’s Dalton: “We’re very selective. Right now,we haven’t done anything yet”.
As for the mistake, the WSJ article talks about Allied Capital’s (ALD) asset management business (eight debt and equity funds). However, these businesses were recently acquired by Ares Capital (ARCC), as covered on our blog. Not a big deal, but a bit out of date.
Another random point coming out of the article is that veteran BDC analyst Greg Mason believes that Ares Capital has the advantage over Prospect Capital (PSEC) in being able to assume or repay Allied Capital’s huge debt load. This is in line with our own view, so we thought it was worth mentioning.
All in all, nothing earth shattering from the WSJ but every blog item can’t be a hostile take-over or a bank restructuring.