AINV

Apollo Investment Corporation (AINV)

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Apollo Investment (AINV)

Q3 2013 Earnings Call

February 06, 2013 10:00 am ET

Executives

Elizabeth Besen

James Charles Zelter - Chief Executive Officer and Director

Edward J. Goldthorpe - President

Gregory W. Hunt - Chief Financial Officer and Treasurer

Analysts

Richard B. Shane - JP Morgan Chase & Co, Research Division

Arren Cyganovich - Evercore Partners Inc., Research Division

Jason Arnold - RBC Capital Markets, LLC, Research Division

Jonathan Bock - Wells Fargo Securities, LLC, Research Division

John W. Stilmar - JMP Securities LLC, Research Division

Douglas Mewhirter - SunTrust Robinson Humphrey, Inc., Research Division

Robert J. Dodd - Raymond James & Associates, Inc., Research Division

Greg M. Mason - Stifel, Nicolaus & Co., Inc., Research Division

Presentation

Operator

Good morning, and welcome to Apollo Investment Corporation Earnings Conference Call for its quarter ended December 31, 2012. [Operator Instructions] The call will be open for a question-and-answer session following the speaker's remarks. [Operator Instructions] I will now turn the call over to Elizabeth Besen, Investor Relations Manager for Apollo Investment Corporation.

Elizabeth Besen

Thank you, operator, and thank you, everyone, for joining us today. With me are Jim Zelter, Chief Executive Officer; Ted Goldthorpe, President and Chief Investment Officer; and Greg Hunt, Chief Financial Officer. I'd like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of Apollo Investment Corporation, and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our earnings press release.

I'd like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements. Forward-looking statements involve risks and uncertainties, including, but not limited to, statements as to our future results, our business prospects and the prospects of our portfolio of companies. You should refer to our registration statement and shareholder reports for risks that apply to our business and may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law.

To obtain copies of our SEC filings, please visit our website at www.apolloic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our website, which contains information about the portfolio, as well as the company's financial performance.

At this time, I'd like to turn the call over to Jim Zelter.

James Charles Zelter

Thank you, Elizabeth. This morning, we issued our earnings press release and filed our quarterly 10K -- 10Q. I'll begin my remarks with a review of some of our accomplishments since we announced a series of strategic initiatives, approximately 1 year ago. I will then discuss our financial highlights for the quarter. Following my remarks, Ted will then provide an overview of the market environment and will review our investment portfolio activity for the quarter. And finally, Greg will discuss our financial results in greater detail. We will then open the call to questions.

Last February, we announced a variety of strategic changes, and we believe we have made significant progress relative to those initiatives. First, we laid out a plan to reposition the portfolio over a 2-year period and provide you with a hypothetical target asset mix, which included increasing our exposure to secured loans. With the market backdrop of lower yields, we believe that we have made significant progress migrating the portfolio to more secured loans while maintaining the yield on our overall portfolio. For example, at the end of December, 40% of our portfolio is invested in secured loans, up from 29% last December. We also invested over $80 million in the equity tranche of 2 senior secured loan vehicles. While repositioning the portfolio as a dynamic process, we believe that we have made significant progress relative to our initial expectations.

Second, we have enhanced our origination platform. Over the past year, we have expanded our direct origination capabilities in select industries, which we believe provides attractive risk-adjusted returns as Apollo Investment Management, our investment advisor, established an energy financing team based in Houston. And we established an aircraft leasing team based in New York. The energy team has sourced many assets, which has resulted in the closure of nearly $170 million of investments to date. And at the end of December, energy investments accounted for approximately 4% of our portfolio. In addition, subsequent to quarter end, we completed our first aircraft investment, which Ted will discuss in his remarks. We continue to look for ways to expand our direct origination capabilities.

Third, we made several improvements to our funding structure, including the renewal of our credit facility at a lower rate and the issuance of our first unsecured debt offering of $150 million of 30-year retail baby bonds. We will continue to evaluate opportunities to further diversify our capital structure.

Fourth, we have reduced our leverage ratio from last December, while maintaining yields and without significantly sacrificing net investment income. While I have just highlighted the significant progress that we have made in the past year, as a credit investor, there's always work to be done. And we will remain focused on improving the credit quality of our overall portfolio.

Moving to some financial highlights. For the December quarter, we reported net investment income per share of $0.21. Net asset value was $8.14 as of December 31, compared to $8.46 at the end of December, a 3.8% decline. This decrease was driven primarily by realized and unrealized losses on 2 investments, partially offset by gains on the remainder of the portfolio.

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