Ares Buys a Rival Lender From Apollo: What It Means and What It Doesn't
An Ares fund is buying a similar lending company from Apollo Global Management Inc., according to a Wall Street Journal report. The deal would lift Ares Capital Corp. to more than $31 billion.
The lending companies in question are called business-development companies, or BDCs. A BDC is a fund that makes loans to private companies. Under tax rules, it has to pay out most of its taxable income to its shareholders. Some BDCs trade on public stock exchanges. Others do not.
Ares Capital says on its own website that it is the largest publicly traded BDC. That makes it a natural buyer for a listed peer with a similar set of loans.
Bloomberg reported in October that the sector is a $1.8 trillion market, and that managers are looking to sell off struggling funds.
The bigger picture is simple. A large fund with plenty of shares that can be bought and sold can absorb a weaker one. For the seller, that is a way out it would struggle to build on its own.
Apollo's side of the story is about cash. Liquidity is how easily an investor can turn an asset into cash, and a fund with too many requests to leave is short on it.
In March, Apollo 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 buy back the customary maximum of 5% of its shares after investors asked to redeem.
Those numbers are worth reading slowly. A 5% cap works like a bank that limits how much money savers can pull out in one period. Only a small slice of shares can be cashed out at once. When more investors ask to leave than the cap allows, the fund has to pay part of the requests or find another route. Whether selling a sister fund counts as one of those routes is an open question.
In my view, the direction of travel tells us more than any single number. Large managers with big or publicly traded vehicles look like buyers. Managers holding weaker funds look like sellers. The price each side accepts will say more about the health of the loans than any one headline. The $31 billion figure measures the buyer's size, not the quality of what it owns. For anyone holding these shares, the quality of the loans is what counts.
For ordinary savers, the point is narrow. A pending deal does not change what you own today. The terms, the timing and any conditions for closing will decide how the deal affects shareholders of both vehicles, and those are the details to watch. None of this is a recommendation on either stock or fund.
