APOLLO

APOLLO Strictly Confidential Intercompany Loan A Discussion Document September 10th, 2014 EFTA01192635 Key Considerations The proposal is to interpose an intercompany note between AGM and APO Corp, which would be effected by way of a dividend. The intercompany note should result in future ongoing interest deductions which should in turn reduce AGM's ETR and cash taxes, which should in turn increase DNI and increase the trading price of AGM's Class A Shares. Key Considerations Legal, tax or reputational issues Sizing and Pricing of the Note Tax Implications • Conflicts and disclosure • Compliance with tax covenants • Compliance with credit facilities • Commentary on Asset Manager peers • Tax risk to AGM • Note must be respected as debt for tax purposes • Note must contains arm's length terms and reflect market pricing • Consistency with AGM's dividend policy ■ Size must be limited to ensure deductibility ■ Impact on projections including an analysis of whether a valuation allowance is required on the DTA • For US Shareholders of AGM (tax rate differential between interest income and qualified dividends) • For Non-US Shareholders of AGM (increase in withholding for ADIA) 2 EFTA01192636 General Background and Discussion Points The proposal is to interpose an intercompany note between AGM and APO Corp, which would be effected by way of a dividend. The intercompany note should result in future ongoing interest deductions which should in turn reduce AGM's ETR and cash taxes, which should in turn increase DNI and increase the trading price of AGM's Class A Shares. ClassA Shareholders APOLLO GLOBAL MANAGEMENT, LLC ("AGM") I son% APO Asset Co LLC 1.3 A0G Partnerships t GP Carry and AGM Co-Invest which we-block' which we don't need to "block' which we -block" for our AGII PIP for ourAGII PIP for ourAGM PTP because incaneis not eliejble because incaneMATiNt becasseincomemnynotbeehible for exemption for exemption for exemptico APO Corp Proposed Inttrcornpanv Note between: AGM as lender and APO Corp as borronr I —AOG Partnenhip Units Founders and AGM Class AShares—es Contributing Partners currently own 'AOC Partnership Units' CP Professional Holdings, CP) (Cayman) 58.7% 41.3% 58.7% ;LA 58.7% A0G Partnerships A0G Partnership - AMH t GP Carry and AGM Co-Invest t Management Fees and Special Fees 3 EFTA01192637 APOLLO Economic Impact — Cash Taxes We arc proposing to issue a $950M note @ 6.74% coupon. The following tables shows the estimated impact on cash taxes: Cash Tax Projection !Yid Budget FY 'IS Nam FY'16 Pfau FY '17 Plan n"is Plea Pre-Tax DNI 1,232 892 1,236 1,130 1,552 Total Taxable Income 555 507 680 853 1,039 Cash Taxes @ Marginal Tax Rate 36.4% 35.9% 35.0% 37.2% 37.3% Corporate Taxes 42 28 54 79 107 TRA Payment 37 39 40 42 44 Pretax Payment to Founders 115 102 142 183 229 Statutory Taxes 12 8 14 17 18 Total Cash Taxes 206 176 249 320 398 Effect allnaaawntalUeatItron ea Interest Expense to APO Carp 19 64 64 64 64 Pre-Tax DNI' 1,232 892 1,236 1,130 1,552 Corporate Taxes' 35 5 28 53 81 TRA Payment' 37 39 40 42 44 Pretax Payment to Founders° 104 67 103 144 189 Statutory Taxes' 12 8 14 17 18 Total Cash Taxes 189 119 185 255 333 Reduction in Cash Taxes (After-lax DNI Yiew) 18 57 65 65 65 Increase .n ON I Payments to Founders 11 34 39 39 39 Inaease in DNI Payments to Common Unit Holders 7 23 26 26 26 Net increase (decrease) in cash (0) - - - 'Pre•Tax DNI would remain unchanged, however after-tax DNI would increase by the amount of the tax benefit (which would incense DNI cistributable to common shareholders by the same tax benefit) 'Overt year period corporate taxes are reduced by 5107M CM% avg. marginal rate on S275M of new interest expense 'TRA Payments are unchanged in total over the five year period but are deferred to later years due to the decrease in taxable income in initial years 'Total cash cgstributions to Founders remains the same (equivalent to the Founders share of pretax DNI). The reduction in corporate taxes and TRA payments incenses the amounts the regular dividend payment to the Founders and decreases the pretax payment (gross-up) by an equivalent amount 'Statutory taxes are unchanged as interest expense is at the P1,0 Corp level the note was sized at $950M as Apollo should keep its debt-to-equity ratio under 1.5 to 1 as calculated under §163(j). Staying within these bounds allows AGM to benefit from a "safe harbor" from rules that could disallow deductions for interest expense Corp Note Calculation Note 950,000,000 Interest Rate 6.74% Interest Expense 64,030,000 Months 12 Interest Expense Per Month 5,335,833 Sept 15th Issue Date Months 3.5 2014 Interest Expense 18,675,417 Pretax Payment to Founders Rec INIthOut Note With NOte Difference Tax Payments 79 72 7 Per Share 0.51 0.46 0 Founder Share 225.0 225.0 - Pretax Payment 114.74 104.17 11 4 EFTA01192638 APOLLO Economic Impact — ENI Tax Provision The following table shows the estimated impact on AGM's Tax Provision: ENI Tax P ojection oommogo Total ENI I ncentive Co. - Pass thru ENI Tax Base Management Company Pre-Tax ENI Management Company Tax Adjustments Incentive Company Taxed ENI Incentive Company Private Equity Taxed EN! Incentive Company Credit/Real Estate Taxed ENI Incentive Company Taxable Balance Sheet PIC14 Budget PIPIS Pint 1,107 1,223 266 471 552 426 (243) (272) 310 327 79 99 142 140 53 87 FY'16 Plan FY '17 Plan 1,574 1,779 565 545 (128) 464 119 182 163 625 635 (53) 519 132 241 146 Total Tax Base ENI Tax Provision ENI Corporate Tax Provision Tax True Up (Due to Changes in State Tax Rates) Statutory Taxes FY 'Is Plan 1,666 493 675 (35) 498 88 287 123 619 481 881 1,101 1,138 . 222 3 11 178 10 333 10 419 10 444 10 Total ENI Provision 236 189 343 429 454 EN! Effective Tax Rate GAAP Provision Effect of Incremental $56 Million of Interest Expense Total Tax Effect # 4035% Marginal Rate ENI Tax Provision 21.3% 15.4% 21.8% 24.1% 27.3% 98 80 140 174 183 (19) (64) (64) (64) (64) (7) (26) (26) (26) (26) 229 164 318 404 429 20.7% 13.4% 20.2% 22.7% 25.8% GAAP Provision 91 55 115 149 158 Interest expense is at the APO Corp level. As such, the tax benefit for GAAP and ENI Provisions are the same. 2 Assumes $950M note at 6.74% coupon. Assumes only 3.5 months of interest expense for 2014. 5 EFTA01192639 Appendix Pricing and Support The credit rating, size and interest rate on the corporate note were determined based on comparison to existing Apollo debt and industry benchmarks. Intercompany Loan The starting point for the credit rating was the ten year bonds we recently issued in May 2014 @ 4% with an A- rating, but given the following factors we concluded that a BB is appropriate for the intercompany loan: 1. The 4% Bonds issuance is guaranteed by the APH and AMH entities and the APO borrowings from related parties is not guaranteed. 2. In bankruptcy proceedings third party debt is (and in fact many other payments to third parties are also) senior to related party debt. Thus, related party debt is structurally subordinate to debt like that in the I44A issue. 3. The APO loan includes a PIK provision and prepayment rights without penalty. [ Characteristics of the Intercompany Loan Rating: Maturity: Amount: Int. Rate: Convertibility: BB 10 years $5OOm - $1,OOOm 5.22% - 7.07% None 6 EFTA01192640 APOLLO Appendix — Pricing and Support ( Given the above features, we ran a screening of all recently issued comparable fixed income securities. We ran two analyses, each based on a different set of comparable securities: I. a broader Finance industry including diversified firms and banks 2. a set focused on the Capital Market sector including asset management firms Both analyses arrived at similar ranges with Median Interest Rates of 6.13% and 5.93%, respectively. Transfer Pricing Study — Interest Rate Analysis We engaged Deloitte to assist with a Transfer Pricing Study to help determine the optimal characteristics of the potential intercompany financing. Based on their finding, a similar 10 yr loan would require a rate between 5.22% and 7.07%, with a median of 6.21%. Notes Min Low ()- tile Median Up Q-tile )Jax 10-Year Note 8-Year Note 5-Year Note 5.22% 5.57% 6.21% 6.74% 7.07% 5.00% 5.34% 5.97% 6.52% 6.83% 111 4.20% 4.53% 5.15% 5.72% 6.02% 3-Year No all 3.18% 3.47% 4.06% 4.70% 4.93% 7 EFTA01192641