Ares Private-Credit Fund Agrees to Buy BDC From Apollo
An Ares private-credit fund is buying a competitor business-development company from Apollo Global Management Inc., according to a Wall Street Journal report. The merger of the two business-development companies would lift Ares Capital Corp. to more than $31 billion.
For readers outside the niche, a business-development company, or BDC, is a closed-end vehicle that makes loans to private companies and must distribute most of its taxable income to shareholders to keep its tax treatment. Some BDCs trade on public exchanges, and others do not. Ares Capital states on its own website that it is the largest publicly traded BDC, which makes it the natural acquirer of a listed peer with a comparable lending book.
The deal lands in a sector that Bloomberg described in October as a $1.8 trillion market in which managers are looking to offload battered funds. That framing is the important part. A sponsor with a large, liquid vehicle can use it to absorb a weaker one, and the seller gets an exit it could not easily build on its own.
Apollo's side of the story is a liquidity problem. In March, Apollo Global capped withdrawals from its Apollo Debt Solutions fund at 5% of outstanding shares, according to Bloomberg. In August, Reuters reported that the fund, which totals $26 billion, said it would redeem the customary maximum of 5% of its shares after investors asked to redeem.
It is worth being precise about what those numbers do and do not tell us. A 5% ceiling means that only a small slice of a vehicle's shares can be redeemed in any given window, so a fund with more requests than capacity has to either meet them in part or find another route. Investors who wanted out of a non-traded vehicle were, in effect, told that the exit would be paced. Whether a sale of a sister BDC is one such route is an open question.
In my view, the more useful lens is the direction of travel. Large managers with publicly traded or scaled vehicles are positioned to buy, while managers holding weaker funds are positioned to sell. Those are two sides of the same consolidation, and the price each side accepts will tell us more about the health of the book than any single headline figure. The $31 billion combined figure for Ares Capital is a measure of the buyer's scale, not of the assets' quality, and the quality of the loans is what should matter to anyone holding these shares.
For ordinary savers, the practical point is narrow. A pending acquisition does not change what a shareholder owns today, and the terms, timing and any closing conditions will determine how the transaction affects holders of either vehicle. Those are the details to watch as the deal moves forward. None of this is a recommendation on either stock or fund.
