Apollo seeks to convert multibillion-dollar equity deal into debt

Apollo Global Management is engineering one of the more creative financial transactions of the year: a $9 billion equity investment in pipeline operator ONEOK that’s built from the ground up to eventually become investment-grade debt.

The deal, structured as a nonvoting minority equity stake through Apollo’s funds and affiliates, will funnel capital into ONEOK to accomplish two things simultaneously. First, it bankrolls ONEOK’s $4.425 billion acquisition of Brazos Midstream’s natural gas gathering and processing assets in the Permian Midland Basin. Second, it lets ONEOK pay down roughly $5 billion of existing debt, targeting a leverage ratio of about 3.25 times debt-to-EBITDA by 2027.

The structure behind the structure

Apollo’s investment takes the form of a Class B interest in a newly created holding company. That’s deliberately subordinate to ONEOK’s traditional debt obligations, which means if things go sideways, Apollo stands behind the senior creditors in line. In exchange for that risk, Apollo’s returns are capped at a 7% internal rate of return for the first nine years. Excess distributions gradually amortize Apollo’s capital.

The transaction received unanimous approval from ONEOK’s board. Apollo’s investment is expected to close in September 2026, with the Brazos Midstream acquisition following in the fourth quarter of that year.

What ONEOK gets out of this

For ONEOK, the appeal is straightforward: growth capital without diluting existing shareholders. The company gets to bulk up its Permian Basin footprint, which currently covers approximately 600,000 dedicated acres with around 700 miles of gathering pipelines and 1.2 billion cubic feet per day of processing capacity.

The Brazos Midstream assets are expected to nearly double ONEOK’s processing capacity in the region to roughly 2.3 billion cubic feet per day.

Meanwhile, using $5 billion of Apollo’s capital to pay down existing debt gives ONEOK a cleaner balance sheet heading into 2027. A 3.25x leverage target is comfortably within investment-grade territory for a midstream energy company.

Apollo’s bigger play

Apollo has been aggressively expanding its presence in hybrid financing, deals that blur the line between equity and debt. The firm’s CEO Marc Rowan has repeatedly signaled that Apollo sees a massive addressable market in providing capital that traditional banks and public markets struggle to structure efficiently.

Apollo manages vast pools of insurance capital through its Athene subsidiary, and those pools need investment-grade assets measured in the tens of billions. The structure allows excess distributions to gradually amortize Apollo’s capital contributions, with returns capped at 7% IRR for the first nine years — a profile designed to eventually be repackaged as investment-grade debt for insurance and retirement fund clients.

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