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.
Genuinely enjoyed reading this. Brutal situation I know, but a great inside look as to how the sausage is made. Appreciate the write-up.
F
Please join me in giving this poor soul an F in the chat.
F
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
would pay to read more of these.
One of the best posts of the year - I really feel for your MD lol there's literally nothing he can do in that situation.
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.
Ha, I wish I could remember exactly how my old boss used to phrase this, but essentially he would say that there are two types of credit terms: the kind he cared to negotiate and the kind that Davis Polk spends a bunch of time discussing because they’re paid by the hour
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
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.
Jesus, it's like reading my daily life. Did we work together?
This might be the most accurate piece ever written about doing LBO underwriting. It unfortunately is not limited to Apollo but I won't name names (if you know, you know).
Name em! Btw are you still in Levfin?
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.
Nice write up! Sb'd.
Question though, how does Apollo stay strong / performing with all the defaults? Equity would definitely be underwater in those situations and in this case they're taking a write down 12 months into a deal
Just because you default on debt doesn't mean you didn't make money.
Could you elaborate?
And I thought my ex was crazy
I just tried adding every member of Apollo on my LinkedIn with a link to this thread. Will let you know how many fishies I catch.
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.
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.
PW and K&E both work with APO extensively
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...
https://nypost.com/2020/06/11/leon-black-suing-mattress-giant-serta-sim…
Timing couldn’t be better, I’m eagerly awaiting watching this shit show now. Going to court over getting primed because your attempt to prime existing lenders through a collateral transfer wasn’t chosen lols
First of all, really enjoyed reading and the OP couldn't have depicted it better. Playing devil's advocate for PE, because this is something I didn't truly appreciate until I jumped ship from banking. Part of their performance is judged on how little money they have left on the table. I think it's more true at megafunds, where you just know you have lots of levers with banks. And when the lev fin had been so hot up until recently, you would've been questioned by your billionaire founder/CEO who never retires why you couldn't have lowered the fee more. I'm not saying that PE guys do that out of pressure, but it's more of a buyer's mentality.
Great post. It takes me back to 06/07 when I was in sponsors coverage (FEG) at Citi. We were underwriting so much crap for PE funds that made no sense, and everyone knew it. I asked my group head who was on the commitment committee, and he said "What are we going to do, win zero mandates? We'll be out of a job in either case (of this blowing up or us not generating fees)."
That is the inherent problem in highly optimistic markets with easy credit terms.
beautiful write up and love the reference to CS - no mandate gets past them
posts like this make me so fucking glad I get to choose my clients.
I am so sorry you had to deal with entitled assholes like that. the language they use "do you have any idea how much in fees we paid you?" dude, please, you're giving an IB your clients' money, fuck off. "terms are non negotiable" is code for "there are plenty of assholes who don't care about doing a quality deal, we're not altering terms just because you asked" and finally the low equity thing, this should tell you all you need to know. skin in the game, or lack thereof, means they have no confidence in the business, otherwise principals would be lining up to coinvest.
anecdotally, met apollo, BX, KKR, oaktree, ares, and goldman at a conference. apollo reps were uniquely douchey, had the same attitude "you know who we are, this is our fund, invest in it." (guy goes back to texting). I didn't invest with them.
Surely the best way to piss those guys off at a conference is to straight up pretend you have no idea who they are
KKR - entitled, silver spoony, unapproachable, spent more time talking about shoes and handbags and vacations than investment process
goldman - good friend works in PE there so I can't talk too much shit. they're a fine shop but the people I met acted like they were too cool for school, even if they were a bit nicer during cocktail hour
oaktree - nerdy contrarians, best people to talk to about investments, most awkward during cocktail hour, but I've placed money with them several times and have been impressed every time
ares - I feel like the kids who got laid in high school who didn't go to oaktree go to ares. impressive investment process, but a little bro-ey (in a good way). fun during cocktails
BX - pretty balanced overall, seems like a good shop. if KKR had personality, they'd be blackstone
forgot one, Carlyle - all I can remember is how weak the investment presentation was and how bad the MD's breath was. also, the fund I got pitched on is getting fucked right now (I didn't invest)
keep in mind, I'm not a whale (my firm is, I'm not) so maybe my experience is driven by that, but this was a pretty exclusive conference, I'd hope the faces of these orgs would be on their best behavior.
Fantastic post, thank you. Very insightful into the actual mechanics of an underwriting situation. I just wanted to expand on two areas pertinent to LevFin that OP touches upon that others may find interesting:
1) The 'innovations' that the high yield & leveraged loan markets have seen from law firms in the past few years have been truly scary. Often PE firms do not fully know everything in their grids (which counsel creates) that they're asking banks to underwrite, and often they're sneaked into commitment papers in such a furtive manner that given the time-crunch, as described in OP's deal, it's very difficult for banks to fully grasp all the terms they're signing into. Separately, frequently banks will underwrite crazy terms too, because unlike with pricing flex, banks take the view that the sponsor will fix doc terms in market if they need at no cost to the banks, even if this is outside their flex. This becomes dangerous because with the very strong market we've seen in recent years, investors have limited scope to push back on terms too; they simply won't be allocated on a transaction if they push back too much. The market probably needs a body of some sort which represents and speaks for lenders on doc terms because at the moment LBO doc terms are incredibly loose. The game is too skewed in favor of private equity firms in this regard in my opinion. It will be interesting to see how this documentation looseness impacts restructuring processes that we'll see due to Covid-19.
2) OP mentions capital markets roles at PE firms. There has been a proliferation of this role at PE funds in the past 5 years or so, and many of these positions are filled by ex-LevFin bankers. The role drives me crazy in a way; these guys are paid purely to squeeze the best terms out of the banks. This is traditionally something that the deal team partner would be more than capable of doing. I understand that this division of labor helps deal teams focus on the M&A process, but I find it surprising that people view the capital markets role so attractively. You're essentially paid to beat up the banks and your 'value add' is you arguing that you managed to drive 0.25x more of leverage or squeeze pricing by 25bps (I'm skeptical of this - the market is competitive enough to ensure the best terms are achieved in my view). As a LevFin banker, at least you're taking underwriting risk and are rewarded with chunky fees to do so - to me that is a more challenging job than being a capital markets guy at a PE firm who really has no skin in the game (I know they receive carry etc. but they're not heavily involved in the investment process). Sorry this was a bit of a rant. Curious to know if others share a similar view; perhaps there's an angle of these financing roles that I do not fully appreciate.
The value-add of someone from capital markets isn't just for doing syndicate deals with banks, but it also has to do with ever-increasing abundance of private credit capital. I mean on one hand you see megafunds increasing their credit funds because opportunity is there, which is actually a testament that the LBO financing universe has become more "complex"--not the financing structure itself, but matching the right appetite for the right shops (or however you want to phrase them).
We need another post like this for similarly horrible corporate/M&A clients. i.e. PepsiCo ...
Apollo guys are the type of guys to sleep with your wife because you accidentally bumped into them in the subway 4 years ago
Excellent post, on may dimensions: fun to read, anecdotical of such a tx, but also Reflexion/thought-provocative.
The level of entitlement is beyond description. Haven't had much direct interaction with APO, so I can't contribute. In my experience, some of the most down-to-earth (purposely did not use humble), open, value-adding -and perhaps humane- people I have professionally dealt with, have been the most successful. Most of them entrepreneurs, founders of vast companies in their respective countries/industries. Massive amounts of own money, self made (if money is the measure), with tons of interests economic, charitable, intellectual etc. People with a high degree of self-awareness, self reflection, critical thinking, deep curiosity, insightful views, but also respect and class. Sure, business oriented and very much aware of the value of each minute of their time. There are many fools that think of themselves highly beyond description, acting like kings and behaving link despots. Unfortunately many in our industry. Just for many of them to find out, that they are just another brick on the wall or hamster in the wheel of life. Look at your MD, a BSD eating his tongue when dealing with such "business partners". For sure, the big kings of the MF will also have their own experiences. The latest, when you are dealing with a situation out of your (supposed) control such as a illness, to find out how empty and delusional this behaviour is. Money or power can help in many situations, not always. Having power and money (in the PE case trusted money from LPs) obligues more from character and values that many people have, assume or act accordingly.
Thank you for your story @10x Leveraged and keep more of these war stories coming!
Wow, that is a tough story.
I worked with Apollo on a small deal many (many) years ago, and while they were a bit superior, we surely didn't have such experience. There were some really smart junior bankers on their side. and I learned some cool Excel tricks from their model. I was DCM and we only prepared more simplified debt projection/coverage/covenant coverage models.
That's something I really disdain about the business, tho, the veiled threats, the condescension. I guess ---- -swinging is part of the game in IB, but honestly I find it juvenile and showing someone who has no self-control. If you can only get your point through by demeaning and berating someone, that's weak. Weak, Apollo-man, weak! ; )
I was lucky to always work with straight-talking yet dignified guys. They got hot under the collar, but never raised voices or threatened, and we did just fine -
What were the cool Excel tricks you learned?
This was early in my banking career, a while (!) back...I'd never seen a circuit breaker in a model. They also had an unusual data validation methodology (apologies I can't recall the exactly) for running alternative scenarios. Anyhow, once I learned them I remember incorporating them into my models going forwards. I feel like the advanced use of Excel (in addition to the many updates over the years) is much more pervasively known by junior professionals in general. I'm quite sure anything I saw then that was newer to me you already know!
I'm a return-to-work professional having been home for years raising children, and when I returned I learned sooooo much. I had several "millennial mentors" who helped an ol' dawg learn many new tricks. I absolutely love Excel and PPT wizardry.
WSPrep has super Excel and PPT courses, and they are inexpensive - my firm had paid for them, but I know there's a discount if you purchase through WSO - even my "mentors" who were little Excel gurus found useful information. I like courses like that because once you have access, you do indefinitely (as far as I'm aware), so it's awesome for a quick reference when you forget something. Of course, there's always 'just Google it' too.
Anyhow, times when I was able to teach a college student intern at my firm an Excel trick, I felt very good about the progress I'd made in upgrading/updating my skills-
As the same guy who posted on the other apo thread as an associate who is currently here, I will say that you hit the nail on the head. People here run and get off on the name. Seniors honestly get away with a lot more here than they would at a smaller fund, but that's pretty apparent by now it seems. But I will say, you think the bankers are treated poorly? You should see how legal counsel is spoken to lmao. Inhumane at times, especially to Counsel or Junior Partners ie. those who aren't critical to the relationship with the firm. Also to corroborate the above, Paul Weiss is retained counsel on everything just for the record