(Bloomberg) -- Apollo Global Management Inc.'s "next generation" of credit vehicles, which the firm unveiled during last week's earnings call, are backed by a grab-bag of loans and stakes in its own funds. In one case, a portion of investments will be overseen by an Apollo-backed money manager.
The deals, known as AMAPS or Apollo Multi-Asset Prime Securities, break with typical securitizations by bundling together not just one type of asset class but many different ones. Apollo has rolled out four deals so far and plans to create more, heralding them as the future of securitization.
The latest vehicle is partly invested in an account sub-advised by Diameter Capital Partners, a detail that underscores the wide-ranging nature of the collateral. Apollo has owned a small stake in Diameter since 2022.
Some institutional money managers say AMAPS reminds them of collateralized debt obligations, a type of securitization that offers greater diversity but can also add complexity. CDOs, which boomed before 2008, were largely spurned after helping to fuel the creation of subprime assets that led to the global financial crisis.
AMAPS isn't the same as those earlier deals, according to Apollo, which is telling investors it's taking stakes in the deals itself and that the collateral behind them is stronger, higher rated and more diversified. Still, the parallels with pre-crisis practices on Wall Street should be scrutinized, some market observers said.
"Perhaps it was inevitable that the CDO would make a comeback, albeit in a different form and scale than the subprime-filled CDOs of the 2000s," said Michael Hislop, an analyst at Curasset Capital Management. "Structured finance innovations tend to arise when there is an issuer need for them rather than just investor appetite."
Details on the specific assets and fund interests in the vehicle haven't been made public, but Chief Executive Officer Marc Rowan outlined the strategy during the firm's May 6 earnings call and the firm posted some materials online. Rowan portrayed AMAPS as the successor to collateralized loan obligations, or CLOs, another kind of securitization that bundles interests in hundreds of leveraged loans into tranches of varying size and risk.
AMAPS "essentially takes the benefits of CLOs and adds greater numbers of issuers, less leverage, better structure for investors," Rowan said.
Fourth Version
The most recent one, known as AMAPS 4, is valued at about $5 billion. Direct lending assets make up nearly half the underlying collateral, while one-fifth is private corporate credit and another 15% is spread across asset-backed, residential and commercial mortgage loans, people with knowledge of the matter said. They asked for anonymity to discuss information about the offering, which isn't open to the general public.
Around 20% of the deal consists of a pair of investment accounts. One is advised by global credit manager Diameter Capital Partners, while the other consists largely of middle-market loans from Apollo's MidCap Financial, the people said. Apollo bought 5% of Diameter in 2022, while MidCap is one of Apollo's 16 origination platforms. Apollo is reportedly trying to sell a business development company tied to MidCap.
Diameter wasn't part of the previous deals but is being tapped in the latest one to help source more collateral, the people said. Representatives for New York-based Apollo and Diameter declined to comment.
Apollo contends that AMAPS is less risky than traditional CLOs, which today constitute a roughly $1.3 trillion market worldwide. Unlike CLOs, which consist almost entirely of junk-rated leveraged loans, AMAPS are roughly evenly divided between junk and investment-grade assets, the people said. The vehicle's capital structure will be rated 85% investment-grade by leading agencies.
AMAPS have some similarity to still another type of securitization called collateralized fund obligations, or CFOs, market observers told Bloomberg. CFOs package shares of private funds into debt and equity as a way to entice a bigger range of buyers.
Some CFOs are known to combine shares of funds from multiple money managers under one roof. A money manager arm of global bank UBS Group AG is seeking to combine funds from six private credit managers into one deal, Bloomberg reported last month.
Complex Holdings
Combining many types of collateral can make it harder for investors to analyze because some of the mix falls outside their normal area of expertise. In addition, Apollo's multiple roles as a buyer for itself, as well as manager of both the AMAPS transactions and the underlying funds, combined with the overall complexity, could create the perception of conflicts of interest, according to some institutional money managers.
Apollo says that, to the contrary, the firm and its Athene insurance arm have made significant investments in AMAPS, giving it a strong incentive to ensure the deals perform well. That's in contrast to CLOs, where sponsors frequently sell all of the debt to outside investors.
Prior to the latest AMAPS deal, Apollo created three of the structures with Athene buying about $11 billion worth, or around half of the total so far. By year's end, Athene will have around twice that much in AMAPS exposure as new deals are printed.
AMAPS differs in key ways from what CDOs became in the run-up to the 2008 financial crisis, many of which were built to offload risk in so-called "originate to distribute" models, according to Tracy Chen, a portfolio manager at Brandywine. AMAPS doesn't follow that template and appears safer from the perspective of asset type diversification, rating quality and skin in the game, she said.
Higher Yield
Similar to most CLOs, AMAPS will not be fixed vehicles but instead will have reinvestment periods, the people said. Investment-grade rated portions of the deals pay about 2.1 percentage points of interest above a floating interest rate benchmark, compared with only 1.4 percentage points for the typical CLO, according to public investor materials.
Apollo has been at the forefront of financial engineering. Last year Bloomberg reported on the existence of Fox Hedge, a structure that similarly bundled a wide variety of assets. Part of the collateral for Fox Hedge included equity in Apollo funds. Another Apollo innovation is its plan to provide daily pricing on more than $830 billion of the firm's credit assets to bring transparency to opaque markets.
The firm says it wants to inspire the creation of more AMAPS-style structures. It's holding talks with other asset managers interested in assembling their own versions.
(Updates with Apollo's plan to provide daily pricing of credit assets in the penultimate paragraph.)
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