Apollo took loss on zeroed out asset-backed loan deemed safe
The fallout from the e-commerce aggregator boom is still rippling through credit markets
[LOS ANGELES] Apollo Global Management took a loss on a portion of a US$170 million asset-backed financing for Amazon brand aggregator Perch that was written off to zero, a rare stumble for a strategy touted as one of private credit’s safest and most promising.
The loss represents a share of an up to US$500 million commitment that Apollo and its insurance arm, Athene, made to credit facilities run by Victory Park Capital (VPC), a firm now owned by Janus Henderson Group.
Other investors, including BlackRock and Oaktree Capital Management, have lost hundreds of millions of US dollars in recent years betting on e-commerce aggregators, a sector that boomed during the pandemic before cooling and being rocked by restructurings. Apollo’s setback is notable, however, because the firm held only indirect exposure to Perch through a layered structure that included additional protections not afforded to other lenders, the sources said.
The hit, which Apollo booked roughly a year ago and has not been previously reported, underscores how asset-backed finance, long promoted by the firm as a safer alternative to traditional private loans backing leveraged buyouts, can still inflict steep losses on investors. Apollo is one of a number of private capital providers that have made ABF a central pillar of their strategy, arguing that the investments can be well suited to insurance portfolios.
“VPC was a senior, asset-backed financing (ABF) arrangement made in 2021 that was immaterial to our performance – on an annualised basis, Apollo’s ABF loss rates are approximately 0.02 per cent, inclusive of VPC,” a spokesperson for Apollo said in an e-mailed response to questions. “While never a substitute for ongoing credit quality, ABF structures can provide seniority, diversification and other protections, which resulted in recoveries estimated to be 50 per cent higher than those achieved by many direct lenders in the Amazon aggregator space.”
Representatives for BlackRock and Oaktree declined to comment.
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The Victory Park investment was initially run by Apollo’s Financial Institutions Group, which counts Joshua Black, son of Apollo co-founder Leon Black, as a partner, alongside the asset-backed finance group run by Bret Leas, said the sources, who asked not to be identified discussing confidential information.
Apollo’s capital was used to partly finance loans that Victory Park originated for brand aggregators, meaning Apollo wasn’t directly invested in the underlying companies. The investment was structured so that Victory Park would be the first to absorb losses, the sources said.
The loans were backed by inventory and accounts receivables, as well as cash flow from the aggregators and the third-party sellers they owned, according to a separate source familiar with the matter.
“Victory Park Capital has a nearly two-decade track record within asset-based lending, investing more than US$11 billion across diverse sectors with strong risk-adjusted returns,” a representative for Janus Henderson said. “These specific investments, dating back several years, pertain to a particular sector that was impacted by broader macroeconomic and external factors. We continue to see strong demand for asset-backed credit from a wide range of investors, including insurance companies.”
Apollo and Victory Park’s partnership, announced in 2021, was part of a ‘gold rush’ for e-commerce aggregators, which raised billions of US dollars from Wall Street banks and private capital firms on the premise that they could consolidate third-party vendors, streamline operations and become the online equivalents of Procter & Gamble or Unilever.
Many were small operations without factories, stores or logistics facilities, but held physical inventory. When e-commerce growth started to cool in 2021, some of these companies landed in financial trouble.
Apollo and Victory Park described the sector as the beneficiary of “powerful secular trends” towards e-commerce, and characterised the investments in asset-backed loans to these companies as being “downside protected”, according to a press release at the time.
Perch was founded by former Wayfair operations executive Chris Bell with backing from SoftBank Group. It was at one point the second-largest aggregator in the US, selling hundreds of products, including mosquito-zapping rackets, plastic cutlery and teeth whitening kits.
By early 2022, Victory Park had extended around US$425 million of financing to Perch, according to sources with knowledge of the matter. Apollo financed a roughly US$170 million piece of that through an asset-backed facility in which Victory Park retained an equity cushion, according to one of the sources. Victory Park syndicated another US$125 million to BlackRock, which then allocated chunks to some of the insurance clients it advised, the sources said.
The following year, however, the investment was already in trouble. Apollo brought in various teams to help salvage the position, according to the sources familiar, and took a more active role in trying to find a potential buyer for the company.
In early 2024, Perch sold itself to Razor Group, a competitor that also counted Victory Park as a backer, in a transaction that converted all of Perch’s outstanding debt into preferred equity in the combined company, the sources said. The restructuring wiped out US$775 million of equity financing that SoftBank had led three years earlier, the sources added.
A representative for SoftBank declined to comment. Razor did not respond to a request for comment.
After the merger, Razor’s performance continued to deteriorate due to a meaningful decline in demand and delays in the delivery of inventory. By December, all of the preferred equity in Razor was written off to zero, the sources said, wiping out investors.
The fallout from the e-commerce aggregator boom is still rippling through credit markets. Last week, a BlackRock private debt fund said that it expects to mark down the net value of its assets by 19 per cent, in part because of Razor’s performance. The fund, which fell about 13 per cent on Monday to its lowest in almost six years, also included positions in SellerX, a German competitor. BLOOMBERG
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