In the cutthroat world of risky loans, a private equity firm’s aggressive reputation during times of corporate distress carries a steeper price tag: 60 basis points, to be precise.
That’s one finding of a new academic paper, “The Sponsor Premium,” co-authored by Vincent Buccola of the University of Chicago Law School and Greg Nini of Drexel University.
After assessing 25 of the largest sponsors and leveraged loan deals in the decade through 2025, the researchers found that portfolio companies owned by the more combative firms pay higher yields on their borrowings, after credit risk and market conditions are accounted for.
The authors identified five firms in what they called the bottom category for reputation score: TPG Capital, KKR & Co., Clearlake Capital, Platinum Equity and Apollo Global Management Inc.
That means these sponsors are seen as likely to push boundaries during periods of corporate distress — behavior which underpins the recent rise of liability management exercises in leveraged loan markets. Companies are increasingly taking advantage of legal loopholes to raise capital from select creditors, often at the expense of others.
While large sponsors tend to borrow at lower yields, “a weak reputation for fair dealing predicts a substantial yield premium,” authors Vincent Buccola, a University of Chicago Law School professor, and Greg Nini, professor of finance at Drexel University, wrote. “Reputation in this market is not solely about being established. It is about how a sponsor behaves toward creditors when a portfolio company runs into trouble.”
Reputations Measured
To test if lenders price behavioral reputation into yields, the authors analyzed nearly 2,000 first-lien loans issued between 2016 and 2025.
Researchers evaluated reputation in three ways, beginning with comparisons between borrowers backed by Apollo and other sponsors, since Apollo was “likely the first sponsor to recognize the potential of loose documentation,” they wrote.
They found that Apollo loans carried a premium of about 100 basis points, which they called “considerable” when compared to the sample’s mean yield of 717 basis points. The authors analyzed around 41 Apollo deals.
Apollo’s reputation for sharp-elbowed tactics stems from controversial bankruptcy negotiations, such as for casino mogul Caesars Entertainment in the mid-2010s.
But that perception has waned among lenders in recent years as the firm sought to shake off that image under boss Marc Rowan. In July, US Bankruptcy Court ruled in favor of Apollo and other debt investors left out of Serta Simmons Bedding’s infamous 2020 debt exchange.
Apollo disputed the findings.
“While coverage of a single transaction from over a decade ago may influence an algorithm – and produce a flawed study – it does not change the facts,” a representative for the firm said. “Our funds’ portfolio companies borrow at competitive rates and enjoy wide support from the lending community.”
The representative added that Apollo portfolio borrowers have lower leverage and tighter documentation than comparable borrowers, “leading to strong outcomes for lenders and equity investors alike.”
The study also noted that Apollo-owned borrowers have first-lien leverage about 1.14 turns of earnings before interest, taxes, depreciation and amortization below comparable borrowers.
In January, Apollo repriced a $1.23 billion term loan for Barnes Aerospace at 250 basis points above benchmarks, which a person familiar with the matter said was a post financial crisis low for the firm’s similarly-rated credits.
An internal analysis using third-party data found Apollo’s US buyout term loan Bs over the last ten years rated below Ba3 or BB- and at least $500 million priced at comparable levels with the market, the person said.
Beyond Apollo, the authors looked at borrower LME history, finding that roughly half of sponsors surveyed had conducted an LME through 2025, with loans to their borrowers carrying a yield premium of about 20 basis points.
Language Models
Thirdly, the researchers built a sponsor reputation index using the assessments of three large language models — and found “a spread of roughly 60 basis points between the most genial and the most aggressive sponsors.”
The authors noted the limitations and risks of using LLMs, saying the “models’ training data may embed the very market commentary whose price effects we are trying to detect, and the assessments cannot be replicated exactly.”
A representative for KKR said the firm disagreed with the analysis and noted the reliance on LLM outputs.
“Our strong and longstanding lender relationships, coupled with our capital markets capabilities, enable us to consistently secure competitive financing terms for our deals – a fact reflected in the study’s own loan-pricing data,” the representative said.
Representatives for TPG and Clearlake declined to comment. A representative for Platinum didn’t respond to a request for comment.
There could be an upside to the aggressive behavior. While portfolio companies may face steeper interest costs, they can also benefit from audacious maneuvers like dividend recapitalization deals that funnel money to their equity owners.
“If sponsors differ in their willingness to push the bounds of putative, contractual latitude, then investors might use sponsor reputation as an imperfect substitute for pricing terms themselves,” the authors wrote.
This article was provided by Bloomberg News.