Ares Moves to Buy a Rival BDC From Apollo, Lifting Its Size Past $31 Billion
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 would lift Ares Capital Corp. to more than $31 billion.
A business-development company, or BDC, is a closed-end vehicle that makes loans to private companies. It 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.
In my view, that makes Ares the natural buyer of a listed peer with a comparable lending book.
Bloomberg described in October the sector as a $1.8 trillion market in which managers are looking to offload battered funds.
In my view, 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 alone.
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.
In my view, Apollo's side of the story is a liquidity problem. A 5% ceiling means only a small slice of a vehicle's shares can be redeemed in any window. A fund with more requests than capacity has to meet them in part or find another route. Investors who wanted out of a non-traded vehicle were, in effect, told 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. The price each side accepts will tell us more about the health of the loan book than any single headline. The $31 billion figure measures the buyer's scale, not the quality of the assets, and the loans are what 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. The terms, timing and closing conditions will determine how the deal affects holders of either vehicle. None of this is a recommendation on either stock or fund.
