Apollo Global Management: New Preferred Is Worth A Look

| About: Apollo Global (APO)

Summary

Apollo Global Management has added preferred to its capital structure.

The new issue offers the ability to add an alternative investment manager to a preferred portfolio.

My thoughts on the offering.

Apollo Global Management (NYSE:APO) has issued shares in the preferred market in order to raise permanent capital.

Apollo is a global alternative investment manager which operates within the private equity, credit and real estate space with a focus on distressed investment. It invests and manages funds on behalf of pension, endowment and sovereign wealth funds, as well as other institutional and individual investors. As of December 31, 2016, APO had total AUM of $192 billion, including approximately $44 billion in private equity, $137 billion in credit and $11 billion in real estate.

The term sheet is here, and prospectus is here.

This is APO's inaugural issue in the preferred market, and the following are the details:

Current pricing on the issue is as follows:

While 6.41% (stripped) may not seem earth-shattering, it is important to remember that this is a BBB+ rated issuer (yes, I realize the "limitations" of ratings). Note that the ticker used above is the temporary OTC ticker. Apollo has applied for the ticker APOpA, which is where it should trade soon and going forward.

Because this is the inaugural issue, there is no other issue within Apollo Global to compare it to. So, a look at the "peer group" is in order. Among the peers chosen are some of the funds managed by Apollo, including Apollo Commercial Real Estate (NYSE:ARI) and Apollo Investment Corp. (NASDAQ:AINV).

Peer data:

What I find interesting about this new issuer is that it is a way to add an alternative investment manager to the preferred portfolio. As compared with the peers above, the new issue is compelling due to the yield, the period until the optional redemption date, the rated nature of the issuer and the exposure to numerous markets and fund strategies.

Below is the stripped yield presented graphically:

And the stripped price in the following chart:

The "cost" of investing in the preferred shares rather than the equity of the issuer is the lowest across the Apollo entities and, next to Main Street Capital (NYSE:MAIN), the lowest of the peers:

APO is compelling versus peers from this perspective. Note the cost for the senior debt of AINV and Ares. The ranking adds nearly 100 bps to the cost.

Main Street Capital is often used by income investors. Take a look at the difference between the yields on the equity and unsecured - something investors might want to take a look at.

Finally, a look at the equity of the issuer.

One year:

Chart

APO data by YCharts

Five years:

Chart

APO data by YCharts

Apollo has held its own (yes, Blackstone is the king of the space) and continues to perform. The bottom line is that while its affiliates AINV and ARI have higher yields (especially ARI), adding the holding company that manages the various funds and affiliates is attractive and can help round out sector exposure within a preferred portfolio (with an industry leader).

Disclosure: I am/we are long MAIN,.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Looking at AINV as well.

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