APOLLO Global Management is poised to sign more than US$4 billion in so-called net asset value (NAV) loans, as the asset manager steps up unorthodox lending to private equity (PE) firms looking to raise cash in a challenging high-cost environment.

Some of the transactions include multiple loans of more than US$1 billion each, people familiar with the matter said, asking not to be identified discussing confidential information. Net asset value financing allows PEs to borrow against a pool of their portfolio companies, and helps them to return money to investors.

PE firms – and private credit firms – have ramped up their use of NAV financing as traditional borrowing options dry up with the end of the cheap-debt and easy-dealmaking era. The New York-based giant’s expansion of its NAV financing capabilities also demonstrates how it is taking more steps to become an “alternative asset manager,” offering choices away from Wall Street banks who are scaling back on risk.

The loans will originate in part from Apollo’s sponsor and secondary solutions business, known as S3, as well as from other divisions, some of the people said. A representative for Apollo declined to comment.

Apollo has been beefing up its presence in direct lending and structured credit, driven by the growth of its insurance arm Athene.

The firm’s US$4 billion loan to SoftBank Group in late 2021 – backed by holdings of SoftBank Vision Fund 2 – spurred incoming calls from firms looking for NAV financing, one person said.

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The asset manager is part of a niche field of lenders looking to capitalise on creative ways buyout firms are now using to raise money. Oaktree Capital Management-backed 17Capital is looking to raise around US$10 billion across two new funds for NAV financing, Bloomberg News reported in July. Private credit specialist HPS Investment Partners hired a former Goldman Sachs Group banker last year to focus on NAV lending.

17Capital predicts the NAV market will balloon to US$700 billion by the end of the decade from about US$100 billion now.

The debt the PE industry is taking on doesn’t come cheap. Deals of this nature typically come with floating rates of 550-700 basis points above base rates. For lenders such as Apollo, the financing is secured by capital that investors commit to PE funds, and deals of this nature typically have loan-to-value ratios of as much as 30 per cent, and a maturity of three to five years. BLOOMBERG