Apollo Global Management is exploring a sale for one of its struggling private credit funds, highlighting deeper concerns within the Business Development Company (BDC) sector under mounting default pressures.

According to reports on Sunday, people familiar with the matter disclosed that Apollo is in discussions to sell its publicly traded BDC, MidCap Financial Investment Corp., which holds approximately $3 billion in assets. Negotiations are ongoing, and whether a final deal will be reached remains uncertain.

MFIC's difficulties are evident in its financial indicators. The fund has largely halted new lending this year, reported a net loss of $61 million in the first quarter, and saw its default rate jump from 3.9% in December last year to 5.3% in the first quarter of this year. Its current stock price trades at about 85% of net asset value, reflecting persistent market worries over future losses.

Defaults Rise, Fund Enters Loss Territory MFIC primarily invests in loans originated by Apollo's large direct lending platform, MidCap Financial, which focuses on providing financing to mid-sized companies. Apollo acquired MidCap Financial in 2013 to build its direct lending business. Notably, MidCap Financial does not collect fee income when selling loans to MFIC.

Since the beginning of 2025, MFIC's operational conditions have continued to deteriorate. The first-quarter default rate rose to 5.3%, and combined loan valuation adjustments and default losses led the fund to record a $61 million net loss. With its stock trading at a significant discount for an extended period, management has been using cash to repurchase shares this year, further reducing available capital for new investments.

During MidCap Financial's earnings call last week, an analyst from JPMorgan directly inquired, given Apollo's recent asset sale precedent involving its real estate investment trust, whether MFIC was considering strategic alternatives. Fund CEO Tanner Powell responded, "As a company, we are very focused on managing our public market vehicles and ensuring we operate them with the goal of maximizing shareholder value."

Potential Buyers May Opt for Stock Swap, Full Cash Purchase Challenging According to informed sources, potential buyers for this sale are likely to be another BDC, which could exchange shares of its own fund for MFIC rather than paying cash. Analysts point out that given MFIC's current discounted status, it is unlikely any buyer would be willing to acquire it at full net asset value entirely in cash.

This choice of transaction structure itself reflects the overall valuation pressure in the current BDC market. Since last fall, publicly traded BDC stocks have generally traded at discounts, with ongoing market concerns over loan losses, particularly concentrated in exposures to software companies.

Sector Under Pressure, Redemption Wave Hits Private BDCs To avoid the sharp volatility of publicly traded BDC stock prices, leading firms like Apollo, Blackstone, and Blue Owl have in recent years launched private versions of BDC products, primarily marketed to individual investors. However, this strategy now faces its own test.

Investors in private BDCs typically have the right to redeem their shares quarterly, and in recent months, redemption requests have surged significantly. Redemption applications received by Apollo's private BDC last quarter amounted to 11% of the fund's shares, indicating substantial redemption pressure.

This is not the first time this year Apollo has restructured its underperforming public market vehicles. In January, Apollo's real estate investment trust sold $9 billion in commercial real estate mortgages to the group's insurance company, Athene. After completing the transaction, the REIT retained only $466 million in net equity investment. The sale negotiations for MFIC may represent a continuation of Apollo's series of actions to clean up its public market assets.