Apollo Global Management said Sunday it is looking to transform a $9 billion position in ONEOK Inc. into investment-grade debt that can be marketed to buyers. For ONEOK, the Tulsa, Oklahoma-based energy company, the financing is treated as permanent equity, allowing it to raise funds without taking on traditional debt or straining its credit rating.
Apollo is aiming to structure the transaction so that securities tied to its stake can be rated investment grade, per a person with knowledge of the matter who requested anonymity because the details are private. The funding counts as a minority equity position that sits behind ONEOK's existing obligations. Apollo then divides the exposure into tiers of seniority, some of which can qualify for investment-grade ratings. Slices are allocated to its insurer Athene and to other external insurers, and additional tranches are distributed to Apollo vehicles and client funds.
Apollo's ownership is held in a new vehicle, ONEOK Holdings, that is structurally below ONEOK's existing senior debt, which carries a BBB rating.
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Based in New York, the alternative-asset giant has been honing this strategy across an expanding roster of deals, providing equity-like capital that avoids leverage and downgrade risks tied to issuing debt. So far, the firm has executed in excess of $100 billion in comparable transactions with partners such as Intel Corp.; Vonovia SE - the largest residential landlord in Germany - Anheuser-Busch InBev, Air France-KLM, and BP Plc. It said its pipeline of comparable transactions exceeds $100 billion. Today the firm manages in excess of $1 trillion, and its lending approach relies on steady expansion and a pipeline of high-grade assets to backstop Athene's balance sheet. Apollo's Capital Solutions unit originated the ONEOK deal, with leadership that includes Jamshid Ehsani.
The money will go toward ONEOK's $4.4 billion deal for Brazos Midstream Holdings' West Texas natural gas operations and will also be used to pay down debt. Apollo's return is limited to 7% for the first nine years, begins to increase in the 10th year, and reaches 7.85% by the 15th year.
