BETHESDA, MD—Well that came out of nowhere.

Earlier this week locally-based MidCap Financial, a subsidiary of Apollo Global Management, announced it had to acquire some $3.6 billion in corporate and real estate middle market loans in the US and Europe from Mubadala GE Capital.

Mubadala GE Capital is a joint venture between Abu Dhabi state fund Mubadala and General Electric's finance business. It is based in Abu Dhabi. This transaction is part of General Electric's initiative to sell off most of its assets in GE Capital, including its real estate loans, announced earlier this year.

GE Capital Continues To Unwind

GE has been unwinding GE Capital since its announcement in April, so the fact that it is selling off loans following the high-profile $23-billion sale to Blackstone and Wells Fargo when it announced its decision, is not necessarily a surprise.

In June, Blackstone Mortgage Trust announced it had closed on its $4.8 billion acquisition of GE Capital Real Estate's mortgage loan portfolio -- including the debt held by Mubadala GE Capital.

Two weeks prior to that, Bloomberg Business reported that Mubadala was seeking a buyer for the remainder of GE's 50% stake in Mubadala GE Capital.

Who is MidCap Finco?

This time around, it is the buyer that is attracting the second glance, not the seller: Like so many boutique finance companies Midcap Finco, despite its parentage, maintains a low profile.

It also has a focus on the middle market for both corporate and commercial real estate loans and it is rare to see loan portfolios of this size trading. After all, with loans averaging anywhere from $10 million to, say, $50 million, getting to $3.6 billion can be a lot of work.

Probably, though, that is Midcap Finco's thinking as it seeks to expand in this space: it will be vastly faster to scale through acquisition.

"This acquisition advances our strategy to be a significant player in the middle market lending space and builds on our market leading franchises in a number of markets," said Steve Curwin, CEO of MidCap Financial, in a prepared statement.

"The opportunity to add a highly diversified portfolio of this quality to our platform is unique."

The $3.6 billion portfolio acquisition makes greater sense considering the two companies' launch in February of a direct origination platform for the middle market.

This acquisition "will greatly accelerate our direct origination efforts in the middle market," said Howard Widra, partner of Apollo Global Management's credit business, which manages MidCap Financial and who joined the company earlier this year to help align MidCap Financial's and Apollo's direct origination efforts.

Some Background

MidCap Financial's roots are in the healthcare sector, as one will see from some of its recent transactions (more on those in a minute). It provides senior secured loans, including asset -based loans, revolving credit facilities, and other senior secured facilities. Apollo, which acquired MidCap in November of 2013 some five years after it was founded, tends to use other credit vehicles to originate subordinated and oppor tunistic credit.

A Focus on Direct Origination

In February of this year the companies formally rolled out a direct origination offering for not only senior secured lending but a range of other industries including energy, financial sponsors, aircraft, financial services, mining and other industries.

The companies had concluded that, as a result of the secular shifts in the traditional lending market, "direct origination is one of the most compelling opportunities in credit today," Apollo co-founder and managing director Marc Rowan said in a prepared statement at the time.

Today MidCap offers debt for general and healthcare asset-based working capital loans, leveraged loans for private equity-backed companies, life science loans to VC-backed companies and real estate loans of all types of commercial properties.

Recent deals include a $14.4 refi of construction debt on a recently-completed memory care facility in suburban Austin, Texas, with Meridian Realty Advisors and a $31 million refi for LifeHouse Health Services on five properties.

The latter deal was atypical of the usual vanilla-flavored middle market transactions. It was a floating-rate, three-year bridge loan that also provided acquisition financing for LifeHouse to exercise its purchase option on one of the facilities.

LifeHouse eventually plans to the five facilities refinance with the US Housing and Urban Development Administration.

A call to MidCap was not returned in time for publication.