Apollo Debt Solutions BDC Q3 Redemption Requests Ease to 14.7%, Still Nearly Triple Cap

Shareholders in Apollo Debt Solutions BDC asked to redeem about 14.7% of outstanding shares in the fund’s third-quarter tender offer, which expired Sept. 14. That is down from 16.8% in the second quarter, but still nearly three times the 5% the fund will buy back.

Under its quarterly cap, the nontraded business development company will honor requests for up to 5% of shares outstanding. Apollo estimated that will mean about $700 million of gross outflows for the quarter, according to a Sept. 22 letter to shareholders.

Apollo said much of the demand is not new. “Repurchase requests declined sequentially across both U.S. onshore and offshore investors and we estimate that the vast majority of third-quarter requests reflect investors re-tendering unfulfilled requests from prior quarters,” the company said in the letter.

Third-quarter gross subscriptions were $200 million, down from $300 million in the second quarter and about $724 million in the first quarter. Year-to-date gross inflows are $1.3 billion, or 9% of net asset value. Apollo expects quarterly net outflows of about $500 million, or 3% of NAV, up from about $400 million in the second quarter. First-quarter net flows were roughly flat, according to Apollo.

Redemption demand has exceeded the fund’s cap in each of the past three quarters. In the first quarter, shareholders tendered 66.9 million shares, or about 11.2% of shares outstanding, more than double the 5% limit. The fund accepted 30.3 million shares, about 45% of those tendered, and paid about $722.6 million at $23.90 per share, its March 31 NAV.

Demand rose further in the second quarter. Requests reached 16.8% of shares outstanding, or about $2.4 billion. Offshore investors drove most of the increase, with requests equal to 12.5% of shares, while U.S. onshore requests eased to 4.3%. Apollo again capped repurchases at 5% and fulfilled 29.8% of the requests.

NAV per share has held steady through three quarters of elevated redemption requests. It was $23.84 as of Aug. 31, compared with $23.83 on July 31, $23.87 on May 31, and $23.90 on March 31. Aggregate NAV was $14.2 billion at the end of August, down from $14.6 billion at the end of May.

The fund declared a September distribution of $0.18 per share before class-specific fees. That works out to $0.18 net for Class I shares, $0.1633 for Class S, and $0.1751 for Class D. The record date is Sept. 30, and the distribution is payable on or about Oct. 29.

As of Aug. 31, the portfolio held about $25.9 billion in investments across 386 companies in 57 industries. That compares with 405 companies at the end of May. The portfolio is 99% first-lien debt and 96% floating rate, with a weighted-average yield of 8.63%. Fund-level net leverage was 0.83x, and the fund had about $4.8 billion of available liquidity.

Nonaccruals were 0.8% of the portfolio at cost and 0.4% at fair value as of June 30, according to Apollo. The company said Class I shares have returned 8.2% annualized since inception and 3.7% year to date through Aug. 31. Apollo described the year-to-date return as top-quartile among nontraded BDC peers.

“ADS has substantial sources of liquidity and will continue to work through outstanding repurchase requests in a manner consistent with the terms of the fund’s repurchase program,” the company said.

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