Athene Annuity and Life Co.-linked prepaid energy muni bonds are facing a selloff as private-credit concerns ripple through the market. Investors are demanding higher yields on deals tied to the insurer, which is owned by Apollo Global Management, amid fears of potential losses from its private-credit portfolio. These bonds, which let municipalities lock in discounted energy prices, rely on third-party funders like Athene to make payments. Moody’s Ratings emphasizes the credit quality of these funders when assessing deals, making their stability critical.

The $100 billion prepaid energy muni market—growing rapidly since 2022—is now grappling with volatility. A California bond sold in 2024 through an Athene-funded deal saw spreads widen to nearly 2 percentage points above top-rated munis, up from 1.7% in February. Similar spreads have widened for Athene-linked bonds in Alabama and New York, reflecting investor anxiety. Experts like Jude Scaglione of Alvarez & Marsal stress understanding these complex structures, where funders’ creditworthiness directly impacts returns.

Athene insists its 97% investment-grade portfolio and zero leveraged lending disprove the selloff narrative. Yet, analysts like Shannon Rinehart of Columbia Threadneedle note the lack of transparency around private equity-owned insurers warrants higher spreads. JPMorgan strategists observed that bonds backed by insurers lag those tied to banks, as private-credit jitters intensify.

With $6 billion of Athene-issued prepaid energy bonds in 2024 alone, the sector’s turbulence underscores risks in a market where low borrowing costs attract funders. Apollo President Jim Zelter called recent private-credit issues “growing pains,” but investor unease persists, highlighting the fragility of interconnected financial systems.