Apollo Global Management: This 6.375% Preferred Stock Started Trading On The NYSE


Introduction

In this article, we want to shed light on a new Preferred Stock issued by Apollo Global Management (APO).


Our goal is purely to inform you about the product while refraining ourselves from an investment recommendation. Even though the product may not be of interest to us and our financial objectives, it definitely is worth taking a look at.

The New Issue

Before we submerge into our brief analysis, here is a link to the 424B5 Filing by Apollo Global Management – the prospectus.
Source: SEC.gov

For a total of 12M shares issued, the total gross proceeds to the company are $300M. You can find some relevant information about the new preferred stock in the table below:


Source: Author’s spreadsheet

Apollo Global Management’s 6.375% Series B Preferred Shares pays a non-cumulative fixed dividend at a rate of 6.375%. The new preferred stock has a ‘BBB+’ Standard & Poor’s rating and is callable as of 03/15/2023. Currently, the new issue trades a little below its par value at a price of $24.80 and has a Current Yield of 6.43% and Yield-to-Call of 6.64%. The dividends paid by this preferred stock are not eligible for the preferential 15-20% tax rate on dividends. They are also not eligible for the dividend received deduction for corporate holders. This means that the “qualified equivalent” Current Yield and YTC would be 5.36% and 5.54%, respectively.


Here is how the stock’s YTC curve looks like right now:

Source: Author’s spreadsheet

The Company

Apollo Global Management, LLC (Apollo), incorporated on July 3, 2007, is an alternative investment manager in private equity, credit, and real estate. The Company raises, invests, and manages funds on behalf of pension, endowment, and sovereign wealth funds as well as other institutional and individual investors. The Company’s segments include private equity, credit, and real estate. The private equity segment invests in control equity and related debt instruments, convertible securities, and distressed debt investments. The credit segment invests in non-control corporate and structured debt instruments, including performing, stressed and distressed investments across the capital structure. The real estate segment invests in real estate equity for the acquisition and recapitalization of real estate assets, portfolios, platforms, and operating companies, and real estate debt, including first mortgage and mezzanine loans, preferred equity and commercial mortgage backed securities.


Source: Reuters.com – Apollo Global Management

Below, you can see a price chart of the common stock, APO:

Source: Tradingview.com


For 2017, the common stock has paid $1.85 yearly. With a market price of $30.15, the current yield of APO is 6.14%. As an absolute value, this means it has a $372.84M yearly dividend. For comparison, the yearly dividend for all outstanding preferred stocks (with the newly issued preferred stock) of the company is around $35.06M.

In addition, with a market capitalization of around $6.15B, APO is one of the biggest companies in the ‘Diversified Investments’ (according to Finviz.com).

Capital Structure


Source: Morningstar.com – Company’s Balance Sheet

As of Q4 2017, Apollo Global Management had a total debt of $2.36B ranking senior to the newly issued preferred stock. The new Series B preferred shares rank junior to all outstanding debt and pari passu to the other outstanding preferred shares, which worth $264M – Series A preferred shares (APO-A).

The Compass Diversified Holdings Family

APO has one more outstanding preferred stock: Apollo Global Management 6.375% Non-Cumulative Series A Preferred Shares (NYSE: APO-A).


Source: Author’s spreadsheet

APO-A was issued in March last year, and like APO-B, pays a non-cumulative non-qualified fixed dividend at the same rate – 6.375%. The only difference between the two securities is the call date, as APO-A becomes callable a year earlier than the newly issued APO-B. As regards to their Yield-to-Worst, APO-B gives us almost the same as APO-A with its 6.43% Yield-to-Worst (equal to its Current Yield) compared to 6.42% Yield-to-Worst of the “older” security. In addition, something we have to keep in mind is that APO-B as a newly issued preferred stock will have some IPO pressure and may experience some weakness in the short term.


Furthermore, there are 3 Corporate Bonds issued by the company:

Source: FINRA

The 2024 Corporate Bond has the closest maturity date to the call date of APO-B and has a Yield-to-Maturity of 3.64%. This should be compared to the 6.64% Yield-to-Call of APO-B, but when making that comparison, do remember that APO-B’s YTC is the maximum you could realize if you hold the preferred stock until 2023. Still, there is a yield spread of 3% between the two securities.


Some more information about the bond could be found in the table below.

Source: FINRA – U0044VAA4

Sector Comparison


The chart below contains all preferred stocks and baby bonds in the ‘Diversified Investments’ sector (according to Finviz.com) that pay a fixed dividend. It is important to take note that, except for GGN-B, none of these preferred stocks are eligible for the 15% federal tax rate.


Source: Author’s database

Here is the full list:

Source: Author’s database

All ‘BBB+’ Preferred Stocks


The next chart contains all preferred stocks that pay a fixed dividend rate, have a par value of $25, a ‘BBB+’ Standard & Poor’s rating, and positive Yield-to-Call.


Source: Author’s database

All “K-1” Preferreds

The last chart contains all preferred stocks and units that pay a fixed dividend rate with Schedule K-1. For a better idea, SPLP-A is excluded from this chart, as it has a Yield-to-Call of 280%.


Source: Author’s database

The full list

Source: Author’s database

Schedule K-1

Holders of Series B Preferred Shares will be required to take into account items of gross ordinary income that are allocated to them for our taxable year ending within or with their taxable year. We have agreed to furnish holders of Series B Preferred Shares, as soon as reasonably practicable after the close of each calendar year, with tax information (including Internal Revenue Service (“IRS”) Schedules K-1), which describes the gross ordinary income that is allocated to them for our preceding taxable year. However, it may require longer than 90 days after the end of our fiscal year to obtain the requisite information from all lower-tier entities so that K-1s may be prepared by us.


Source: 424B5 Filing by Apollo Global Management

Other Special Clauses in the Prospectus Change of Control Redemption

If a Change of Control Event (as described in the prospectus supplement) occurs prior to March 15, 2023, the shares may be redeemed at the Company’s option, in whole but not in part, upon at least 30 days’ notice, within 60 days of the occurrence of such Change of Control Event, at a price of $25.25 per share, plus declared and unpaid distributions to, but excluding, the redemption date, without payment of any undeclared distributions.


Tax Redemption

If a Tax Redemption Event (as described in the prospectus supplement) occurs prior to March 15, 2023, the shares may be redeemed at the Company’s option, in whole but not in part, upon at least 30 days’ notice, within 60 days of the occurrence of such Tax Redemption Event, at a price of $25.25 per share, plus declared and unpaid distributions to, but excluding, the redemption date, without payment of any undeclared distributions.

Distribution Rate Step-Up Following Change of Control Event

If (i) a Change of Control Event occurs (whether before, on, or after March 15, 2023) and (ii) the Company does not give notice prior to the 31st day following the Change of Control Event to redeem all the outstanding shares, the distribution rate per annum on the shares will increase by 5.00%, beginning on the 31st day following such Change of Control Event.


Rating Agency Redemption

If a Rating Agency Event (as defined in the prospectus supplement) occurs prior to March 15, 2023, the units may be redeemed at the Company’s option, in whole but not in part, upon at least 30 days’ notice, within 60 days of the occurrence of such Rating Agency Event, at a price of $25.50 per share, plus declared and unpaid distributions to, but excluding, the redemption date, without payment of any undeclared distributions.

Source: FWP Filing by Apollo Global Management

Use of Proceeds

We intend to contribute the net proceeds from the sale of the Series B Preferred Shares to the members of the Apollo Operating Group. In exchange, we expect that each member of the Apollo Operating Group will issue to us (or a wholly-owned subsidiary of ours) a new series of preferred shares with economic terms designed to materially mirror those of the Series B Preferred Shares.

Source: 424B5 Filing by Apollo Global Management

Addition to the S&P preferred stock index

With the current market capitalization of the new issue of around $298M, it is a potential addition to the S&P US Preferred Stock iShares Index (NASDAQ: PFF). If the average monthly volume of APO-B after its first six months trading on the NYSE is more than 250,000, it would be eligible to be included in the S&P U.S. Preferred Stock Index. With fewer than six months of trading history, issues are evaluated over the available period and may be included if available trading history infers the issue will satisfy this requirement.

Conclusion

This is an informational article about the new preferred stock APO-B. With this kind of articles, we want to keep you in touch with all new preferred stock and baby bonds IPOs.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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