Defaults Surge, Deep Losses! Apollo Plans to Sell $3 Billion Private Credit Fund

A distressed private credit fund under Apollo Global Management is seeking a buyer, reflecting deeper concerns within the entire Business Development Company (BDC) sector amid mounting default pressures.

According to a Wall Street Journal report on Sunday, insiders revealed that Apollo is in talks to sell its listed BDC, MidCap Financial Investment Corp., which has approximately $3 billion in assets. Negotiations are still ongoing, and it is uncertain whether a deal will ultimately be reached.

MFIC's predicament already shows clear financial signals. The fund has essentially ceased making new loans this year, reported a net loss of $61 million in the first quarter, and its default rate jumped from 3.9% in December last year to 5.3% in the first quarter this year, with its stock price currently trading at about 85% of net asset value. The discounted trading reflects continuing market concerns over future losses.

Defaults Rising, Fund Trapped in Losses

MFIC mainly invests in loans originated by MidCap Financial, Apollo’s large-scale direct lending platform, which focuses on providing financing to mid-sized companies. Apollo acquired MidCap Financial in 2013 to expand its direct lending business. Notably, MidCap Financial does not charge fees when selling loans to MFIC.

Since entering 2025, MFIC’s operating conditions have continued to deteriorate. The default rate climbed to 5.3% in the first quarter, and loan markdowns combined with default losses resulted in a net loss of $61 million for the fund. Due to the persistent deep discounts in its stock price, management has continued to use cash for share buybacks this year, which further restricts the capital available for new investments.

During last week's MidCap Financial earnings call, a JPMorgan analyst directly questioned whether, given the recent precedent of asset sales by Apollo’s real estate investment trust, MFIC is considering strategic alternatives. CEO Tanner Powell responded: "As a company, we are very focused on managing public market vehicles and ensuring that they are operated to maximize shareholder value."

Potential Buyers Likely to Pursue Stock-for-Stock Deals, All-Cash Acquisitions Unlikely

According to insiders, the potential buyer for this sale is most likely another BDC, which would use its own fund shares to acquire MFIC rather than paying cash. Analysts indicate that, given MFIC's current discount, it is highly unlikely that any buyer would be willing to acquire with all cash at net asset value.

This choice of transaction structure itself reflects the overall valuation pressures within today’s BDC market. Since last autumn, listed BDC stocks have generally been trading at discounts, and concerns about loan losses have continued to mount, especially regarding exposure to software company loans.

Industry Faces Pressure as Private BDC Redemption Wave Emerges

To avoid the sharp volatility in listed BDC stocks, leading institutions such as Apollo, Blackstone, and Blue Owl have in recent years launched private versions of BDC products aimed mainly at individual investors. However, this strategy is also facing new tests.

Investors in private BDCs typically enjoy the right to redeem on a quarterly basis, and in recent months, redemption requests have poured in. The redemption requests for Apollo’s private BDC in the last quarter reached 11% of the fund’s shares, indicating substantial redemption pressure.

This is not the first time this year that Apollo has restructured underperforming public vehicles under its management. In January, Apollo’s real estate investment trust sold $9 billion in commercial real estate mortgage loans to its group insurance company Athene, leaving the REIT with only $466 million in net equity investment after the transaction. The negotiation for the sale of MFIC may become a continuation of Apollo’s series of efforts to clean up its publicly traded market assets.