FROM A LEVFIN BANKER - This is how an Apollo LBO Deal works

I saw in an earlier post ("Is Apollo that bad") and it brought back some memories. I was just going to respond in that thread but my post ended up being much longer than I had expected so I decided to start a new thread, and maybe address some questions you may have regarding LevFin deal dynamics.

I worked in LevFin at a BB and I can confirm that Apollo is one of the toughest clients to handle - both from a junior standpoint as well as from a senior standpoint (basically at the MD-level). I unfortunately had the pleasure of working with Apollo on multiple deals (both closed deals and lost bids), so here's one story:

  • APO Principal calls our MD on a Thursday afternoon. Wants $800m of committed financing by next week. Our MD tries to push back on timing, asking for a bit more time. Principal goes on a 5 minute stern discussion basically saying "stfu, I don't care, get it done. You should be thankful we called you to begin with. If you can't accommodate the timing then you're off the deal. Your call."
  • After working frantically with my M&A team over the course of 6 days (including up to midnight on both Sat / Sun) going through the data room and going back and forth on the commitment papers / terms, we churn out an underwriting credit memo and go to committee.
  • Committee hates the deal. This is unsurprising - the target company is shit, the terms are shit, and Apollo is setting the new low bar in the market for minimum equity (APO is notorious for being extremely adamant in terms of putting in as little equity as possible). On top of that, Apollo had recently started asking for a specific "discount" in terms of fees - basically Apollo rebates X amount of financing fees by virtue that they are Apollo and they do a ton of business (ridiculous I know, and LevFin groups now call this the "Apollo discount"). But of course my LevFin MD and the Coverage MD push back with the Ace-card argument: "but it's Apollo, one of our highest paying clients. If we don't do this deal, they'll just replace us with CS or something. The deal's gonna get done either way. Not to mention it'll create bad will for future deals with them..".
  • As with all underwriting processes, business rationale always trumps all credit rationale. Committee conditionally approves deal - the two conditions being a pushback regarding one of the mechanics of the RP (restricted payment) covenants and a pushback on the whole "Apollo discount" fee mechanism. Despite pleas from the deal team, the Head of Credit Risk swears that he will do everything in his power to shoot down this shitty deal if the deal team does not attempt to push back on this clause and the fees.
  • Our MD calls the APO Principal, tells him we are conditionally approved to come in for 25% of the financing as planned, but that we need to push back on the RP clause and fees. There proceeds to be a 5 second silence. APO Principal tells us in a dark tone that we'll hear back from them shortly.
  • 30 minutes later, our MD gets a call from APO's Head of Capital Markets. The APO of Cap Markets starts to yell at our MD as if he had just found out he was secretly sleeping with his wife. The APO message was basically the following: "Do you know how much fees your bank earned from us last year? It's $XXX million. I repeat, triple digit million. And this is how you pay us back? Tell your committee that these clauses are non-negotiable. If you expect any further business from us going forward, then you WILL get this through. Did I make myself clear?"
  • Phone call ends. Our MD takes a deep breath and blankly stares at his computer screen for a few minutes. It's humbling even for myself, to see a grown man literally get yelled at and belitted like that. I had initially viewed Investment Banking MDs as these BSDs on top of the finance food chain, but here I see for the first time that MD's are human beings just like the rest of us, and while we (analysts) complain about getting shit on by senior bankers, they too get shit on by clients and upper management internally.
  • Our MD proceeds to speak with our Global Head of LevFin and Global Head of Capital Markets, seeking their advice / support on how to approach this situation. My MD does not want to give off the image to committee that he's a pushover, but at the same time, he doesn't want our institution's relationship with Apollo to be damaged over this deal. Not to mention the lashback my MD would receive internally if the deal were to get hung. My MD comes back to me and asks me to arrange an ad-hoc call with committee members for this evening (10pm) and make sure to include the Global head of LevFin and Cap Markets in this committee call.
  • We get on the call, but Global Head of LevFin / Cap markets join late. For the 20 minutes they are late, the Head of Credit Risk berates our MD on how he can't even push back on a single clause and why bother having a credit committee if we're just going to offer the client whatever they want. Our MD remains calm and just asks that we wait for the Global Heads to join. Global heads join at 10:30pm. They proceed to assure the Head of Credit Risk that they are on board with this, are fully aware of the risks from a relationship and bank balance sheet standpoint, and are signed off on it. Credit Risk head is clearly overpowered, and reluctantly offers full approval on the financing. Deal is now fully approved.
  • LevFin grinds throughout the night with lawyers to finalize the commitment papers. We seem to keep going back and forth on some minor terms so we (LevFin / Underwriter counsel & Apollo / Sponsor counsel) hop on a call at 2:45am to finalize the terms. Turns out APO didn't really care about those minor terms, it was just the sponsor counsel trying to stir some shit up to score some goodwill points (Kirkland is notorious for doing this). At 3:15am, final clean version of papers come in for final review and we release our signature pages. It's 3:30am and I finally go home and crash, utterly exhausted from the past 7 days of this shitshow.
  • Apollo eventually wins bid and syndication of the term loans surprisingly go smoothly. I guess it helped that the LevFin markets were absolutely on fire at the time. 12 months later, the company goes into default. LMAO. Why am I not even surprised. I guess that's what happens when you overlever the shit out of a shitty company. Not my problem, we already collected our U/W fees and the risk is off our balance sheet. Good luck to the RX teams pitching for that business, you couldn't pay me to touch this shit and deal with this kind of sponsor again.
  • Just check my inbox and receive a direct email from my MD. "Hey ___, Apollo just reached out to us for another underwritten financing, can you help out on this one? It's a bit of hairy situation and I need an experienced junior who can run this as they want signed papers by next week. I've already informed ____ (the staffer). Pls let me knw asap. Thx."

Fuck my life.


That was a great read, thank you! Would be super interested in similar writeups like this from M&A or from the sponsor side.


No problem, I do have several stories with regards to my interactions with the M&A / Coverage team on a number of deals that I would say are both quite educational but also absolutely hilarious (the M&A guys I worked on many of my deals with were absolute clowns, in a good way haha) - maybe I'll write one up down the line when I have more time


I worked with them on the M&A side. Advised them over the period of a year or so on a take-private of a decent company in a declining industry. The team was super polite, well-mannered and always treated us (the buy-side M&A advisor) with a ton of respect. I would echo that the (fourth year) associate (and soon to be principal) seemed to be running the deal and he was certainly getting smoked. Not to take away from what others said, but I always found them to be total gentlemen.


Not going to have much negotiating power when you write a check for 25%, just going to get bent over the barrel even harder and told how terrible your bank is. But yeah, Apollo has a less than favorable rep with creditors. Can’t say I won’t be a bit pleased to see them take a hit on their Chuck E Cheese investment soon.


Ah I should have clarified - typically we would underwrite the entire 100%, but "with the expectation" that our pro forma hold will be for 25% (as guided by the sponsor). Apollo will always demand a 100% underwrite at least on paper, so they have the flexibility to shift other underwriters' economics as they see fit

But yea agree not much leverage with a sponsor like Apollo for a 25% pro forma hold, but when your credit risk guys go off the deal team like that then well.. kind of expected


Lucky you, hope the sponsors you deal with a much more humane

And totally agree with you, hung deals are the absolute worst and arguably the funniest because everyone is panicking. I have 2 hung deals that I've been part of which have been absolute shitshows but I guess I'll save that for another thread down the line hah


Great story. How did you respond to your MD at the end? I'm assuming you didn't really have a choice.


Have worked on an Apollo deal and this sounds 100000% spot on. The third bullet is classic...the whole "this is happening with or without you, so your call" nonsense.

Third to last bullet is also spot on....have seen this with K&E and DPW consistently. Newer partners trying to get some brownie points with the client. Then you point it out and they act confused and try and throw breadcrumbs down a different path so you don't catch them.


Saw this on the forum earlier but have seen it to be true, with K&E guys referring to their whiteshoe biglaw firm as "shop". Ridiculous


Deffo can relate to this as well, even at a very junior level several summers ago. I understand interns are supposed to sit there, stfu, and take notes, but my god did they extend those phone calls by an extra 30-60 minutes at the end of every DD call.

All of the seniors would get off the call the minute the lawyers crawled in for the questionnaires at the end. Their self-promotion marketing schpiel was also very unnecessary and sounded scripted af


Great read, thank you for this. When you say that the sponsor counsel added some minor terms to stir up shit, were they some minor commercial terms that the counsel unilaterally added/changed without really running them by APO? Does this happen frequently (I guess at least with Kirkland this seems typical)?


Sounds like a typical lawyer thing to do. The more frustrating and annoying part is when the lawyers fight to the death on the minor points that they added to the agreement just to show some "value add" (perhaps also to distinguish themselves from the other law firms that don't push for such terms).


typically the lawyers read through all recent deals and try to weave in points from those deals that are aggressive / beneficial to the borrower. Apollo probably knew they were adding these, but it wasn’t anything they cared about and would have been fine without

Ex - lawyer here who now works in special sits. IDGAF about minor terms and hate when counsel drags on deals like that. We do give negotiating points that are must haves but anything beyond.


Good write up. Sounds like a terrible culture. Apollo has a reputation in the leveraged loan / high yield bond markets for screwing lenders if things at a portfolio company start going the wrong way. I haven't formally tracked this but I bet Apollo portco debt on average trades at x bps wide of a similarly capitalized industry comp. All that said I give these guys credit for fighting hard to defend their equity investment if portfolio company performance deteriorates (usually via a super aggressive reading of the credit docs to the detriment of lenders). I don't condone what they do to lenders, but they don't just hand the keys over if things blow up - they fulfill their fiduciary duty to their LP's by getting creative in their reading of the docs / maximizing liquidity runway / transferring assets / etc. Also, if creditors don't want to get shafted by Apollo, then there's two simple solutions; avoid apollo deals or spend more time readings the docs.


You are correct, our syndicate desk also tends to add some "Apollo premium" when pricing and APO deals. With that said Apollo-backed new issuances are usually some of the higher yielding paper you see in the leveraged finance market, so CLOs seeking yield will pile in regardless, especially when there is a heavy influx of demand relative to supply as we've seen in the last 4-5 years


I need to be very careful, but I would say that in my experience, the types of firms behaving like the one OP described now outnumber the types of firms who are frankly, for lack of a better word, better partners with the rest of the transaction - bankers, lawyers, credit investors, and even management.

I am not convinced that being a marginally better fiduciary to your LPs in a given deal through the squeezing of fees and terms is worth sacrificing long term certainty and comfort of deal execution and support going forward. It is not at all obvious to me that you will never run out of bankers and credit investors to burn, recent history notwithstanding. And in fact, there are still many successful PE firms, both MF and MM, who would agree with this position.

Would be curious to hear what OP has to say on the matter.

Be excellent to each other, and party on, dudes.

It is a mixture of MF and MM firms. Certainly a lot of MM firms do very dicey deals and have the added benefit of threatening us with direct lenders. MF firms can lean on their fees and relationship banks. Different way to accomplish the same thing. Certainly not all MF or MM firms operate like this, though, see my comment above.

Be excellent to each other, and party on, dudes.

Paul Weiss typically does Apollos docs, not Kirkland. Apollo is doing its job - the best for its LPs - and it's doing it well at that. It has no obligation to its creditors once an agreed upon document is executed. You can try blame the stupid par money buyers and massive inflows into CLO asset class for taking shitty terms, but end of the day it's a market being created for a buyer and seller and if APO can syndicate out terms wide of a friendlier sponsor that nets them a higher IRR, it is what it is.

There's plenty of APO blowups or soon to be blowups...again there's good reason they price significantly wider from typical sponsor deals and they clearly don't always take a donut on their equity checks given how loose the covenants are. Platinum, BC...there are many other sponsors who will also go out aggressive on terms similar to APO but are less talked about.

  • Chuck E Cheese
  • Lumileds
  • Shutterfly
  • Realogy
  • Westcorp
  • Clubcorp
  • Fresh Market
  • Rackspace
  • Linen N Things
  • EP Energy
  • Hexion + Momentive
  • Claire's
  • Caesar's

I'm sure there's many more but those were the first to come to mind. You can't blame a distressed fund either who try to catch a falling knife and gets buttf*cked by the sponsor because they don't know how to properly read docs.

End of the day, Apollo is an opportunistic and distressed-focused investment manager. If you want to make money and the pie (biz) can't grow, guess what...somebody is going to get their face ripped off. I never worked in LevFin but the OP story seems about right...nothing controversial, a bank can either make money or they'll go CS/JEF to get the deal done. The only knock on Apollo is simply they don't sugar coat it and go out like "hey lets be partners and get the deal done, LETS ALL WIN, HOORAY!". Most sponsors when it comes down to the line think alike, just the presentation may be different.


Paul Weiss tends to cover Apollo due to a partner Taurie Zeitzer (who was from K&E) and the fact that they're more a creditor-side law firm - Kirkland's practice is 99% debtor. The other Apollo law firm is Akin Gump

If you've ever been in a negotiation between Paul Weiss and Kirkland, you'd think WWIII was about to happen...