Apollo exec forecasts rise in hybrid bank/private credit deals
Hybrid deals between banks and private credit funds are set to increase in Europe, according to Apollo Global Management’s co-head of global performing credit Jim Vanek.
In a recent Q&A published by the alternative asset manager, focused on Europe’s credit market, Vanek noted an uptick in these types of transactions over the past two years.
“You are…seeing an uptick in what some refer to as hybrid deals, wherein there are both traditional bank-led components alongside direct private instruments or asset-backed structures,” he said.
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“Privately placed deals often support the overall financing outcomes for the corporate borrower, whether helping the business to deleverage, unlock value from unencumbered assets, or demonstrate strong conviction from a long-term institutional partner.
“The frequency of these dual-type transactions has certainly increased over the past two years and it’s a place where Apollo has been very active, but I also believe management teams are seeing the value private capital can bring to their businesses. “We expect this activity will persist and grow in improved markets, too.”
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Veck also said that Apollo is seeking strong demand for another type of hybrid deals – solutions which sit in between traditional debt and equity.
He said these tend to include some structure and a hybrid cost of capital, which is lower than traditional private equity but higher than syndicated credit.
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“Hybrid financings – including things like preferred equity and convertible solutions – can be an effective tool to deleverage balance sheets in a non-dilutive manner and bridge companies through to a different rate environment, or provide liquidity to owners in an environment where exiting via a sale or IPO may not be desirable,” he added.
Veck’s comments come after Apollo’s co-president James Zelter said financial markets are undergoing a “massive transition” as use of private credit options begins to outstrip bank financing.
Speaking at the Asia Pacific Financial and Innovation Symposium in Melbourne in April, Zelter said the role of banks was not going to be “eliminated” but was going to “evolve”.
“The new paradigm in the last decade is a variety of private capital solutions. Mostly on the credit side, some degree on the equity side,” he said.