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