Apollo Converts $9 Billion Oneok Stake into Hybrid Debt to Fund Acquisition

Apollo Global Management is converting its $9 billion stake in energy infrastructure company Oneok Inc. into investment-grade debt securities, according to a joint announcement. The complex transaction provides Oneok with capital to fund a major acquisition and pay down debt using a structure that avoids the balance sheet impact of traditional borrowing.

A Hybrid Financing Solution

The deal employs a sophisticated structure that has become a hallmark of the New York-based alternative asset manager. Apollo’s investment is held in a newly created entity, ONEOK Holdings, which is structurally subordinate to Oneok’s existing senior debt, currently rated BBB.

According to a Bloomberg report citing a person familiar with the matter, Apollo slices this holding into tranches with varying levels of seniority. This process allows some of the newly created securities to achieve investment-grade credit ratings, making them attractive to a wider pool of institutional buyers. The securities are being placed with investors including Apollo's affiliated insurer Athene, third-party insurance companies, and other Apollo and client funds.

Strategic Rationale for Oneok

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For Tulsa-based Oneok, the proceeds will finance its planned $4.4 billion acquisition of Brazos Midstream Holdings’ natural gas operations in West Texas and be used for debt repayment. The key benefit of this financing is that the capital is treated as a minority equity investment.

This approach allows Oneok to raise significant funds without increasing its conventional debt load or risking a potential downgrade to its credit rating. It provides the financial flexibility of an equity issuance without diluting existing shareholders, a crucial consideration for large-cap public companies.

Broader Market Context

This transaction highlights a growing trend where large corporations turn to alternative asset managers like Apollo for flexible and customized capital solutions that fall outside of traditional debt and equity markets. By fine-tuning this strategy across numerous deals, Apollo has positioned itself as a key financier for companies undertaking large-scale strategic moves that require significant, non-traditional funding.