The deal includes $1.25bn of funded seven-year secured notes, with an initial coupon of 9.875% that steps up to 11.875% in the fifth year, according to sources. It was placed at an OID of 96, and includes a call option in year three at 109.5.

Apollo’s credit arm provided $920m of that note, with $230m coming from Koch Investments Group and another $100m from Capital Research & Management Company, otherwise known as CapRe.

The senior secured note also includes an accordion that could be drawn to provide an additional $750m, taking the full amount of committed capital to $2bn.

Wolfspeed, formerly known as Cree Inc, manufactures silicon carbide and compound semiconductor wafers, components used in semiconductors and key inputs for electric vehicle production. It is publicly listed with a market cap of $7bn — not exactly a typical private credit borrower.

One of the main attractions of the private markets was discretion: according to a source close to the deal, the disclosures associated with a public deal would have been unattractive for Wolfspeed because of the competitive nature of the intellectual property it pledged as collateral.

The semiconductor components that Wolfspeed makes are a critical input for the intensely competitive electric vehicle market, making its IP highly sensitive, the source said. The collateral package includes production facilities in New York and North Carolina, and cash reserves.

Another advantage of the private credit option, even for a publicly listed company like Wolfspeed, is the flexibility that such lenders have to take a long-term view, the source said. Wolfspeed is in the middle of an ambitious expansion plan, with some $6.5bn of capex spending earmarked for the next couple of years according to a company press release.

“Public markets don’t tend to give you credit for growth that hasn’t happened yet, and neither do rating agencies,” the source said. “We can lean into it and give them credit for stuff that is yet to come. It’s a bridge for things that aren’t set up yet.”

The structure reflects the interim nature of this financing: the coupon step-up in year five incentivizes Wolfspeed to refinance down the line.

Fix you

There could be more private credit deals from large borrowers like Wolfspeed in the coming months.

With the broadly syndicated markets still a little tepid, and regional banks retrenching from riskier lending, private credit is an attractive option, said Michael Moore, a managing director at boutique investment bank Union Square Advisors.

“[Wolfspeed] would have certainly been met with a very solid reception in the public markets 12 months ago and even today,” he said. ”But they went to Apollo for this, and it speaks to the fact that private credit can do these deals with speed and certainty.”

One especially bespoke feature of this deal is the fixed-rate coupon, as most private credit deals are floating rate.

This is attractive for Apollo and the other lenders, who have locked in a chunky coupon at what many commentators believe is the peak of the rate cycle. But the fixed rate also gives the borrower a relatively certain cost of capital that may be appealing.

“From a CFO and corporate finance perspective, a [fixed rate] allows me to know what my cost of capital will be, with no ambiguity,” said Moore.

The flipside is that rates are at historic highs, and many expect the Fed to soon start tapering down its rate hikes. With the prospect of rising rates less certain, and even the possibility of rates coming down in the not-too-distant future, floating rate coupons could be attractive again.

“There will be demand on the buy side for [fixed rate debt] but will it be palatable from an issuer perspective?” said Moore.

Apollo, Koch, CapRe, and Wolfspeed did not respond to requests for comment.