Apollo's credit hedge fund posts 10% gain thanks to Hertz and grocery bets: sources

[NEW YORK] Apollo Global Management's flagship credit hedge fund posted double-digit gain last year largely on the back of Hertz Global Holdings, according to people with knowledge of the matter.

The US$4.2 billion Apollo Credit Strategies Fund returned a net 10 per cent through December 2021, said the people, who asked not to be identified because the matter is confidential. The return easily bested the ICE Bank of America High-Yield Index, which gained 5.4 per cent last year.

A representative from Apollo declined to comment.

Apollo, which committed US$1.5 billion preferred equity to Hertz, reaped a windfall after the car-rental company sold a junk bond to repay the investment in less than 5 months after its June bankruptcy exit.

Estero, Florida-based Hertz saw competing takeover bids out of bankruptcy as travel demand rebounded and used car value soared last summer. A group led by Apollo, Knighthead Capital Management and Certares Management eventually prevailed, and the exit plan handed healthy returns to even common equity holders that are typically wiped out in a restructuring.

Apollo's performance last year was also helped by wagers on the grocery and media sectors, and capital structure arbitrage trades, the people said.

The firm provided nearly US$1.8 billion of debt to support New Media Investment Group's acquisition of Gannett Co in 2019, one of biggest financing ever arranged outside of the syndicated loan market for a corporate takeover. The newspaper chain paid off that loan during the third quarter of 2021, according to Gannett's regulatory filings.

Apollo's credit hedge fund is run by John Zito, deputy chief investment officer and co-head of global credit business.

BLOOMBERG