AINV

Apollo Investment Corporation (AINV)

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Apollo Investment (AINV)

Q4 2013 Earnings Call

May 23, 2013 10:00 am ET

Executives

Elizabeth Besen - Investor Relations Manager, Apollo Investment Corporation

James Charles Zelter - Chief Executive Officer and Director

Edward J. Goldthorpe - President

Gregory W. Hunt - Chief Financial Officer and Treasurer

Analysts

Christopher York - JMP Securities LLC, Research Division

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

Bo Ladyman

Presentation

Operator

Good morning, and welcome to Apollo Investment Corporation earnings conference call for the period ending March 31, 2013. [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 today 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 also like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking statements. 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 annual report on Form 10-K. I'll begin my remarks with some financial highlights for the quarter and for our fiscal year, followed by some other recent business highlights. Following my remarks, Ted will provide an overview of the market environment and review our investment portfolio activity for the quarter. And finally, Greg will discuss our financial results in greater detail, then, we will open up the call to questions.

Starting with financial highlights. We reported net investment income per share of $0.21 for the March quarter. Results were driven by stable recurring interest income and dividends offset slightly by a decrease in other nonrecurring income. Fourth quarter GAAP EPS was $0.32, which included the net gain on assets of $0.12 per share.

For the full year ending March 31, 2013, we reported net investment income of $0.83 and GAAP EPS of $0.51. Our net asset value per share was $8.27 on March 31, and that compares to $8.14 at the end of December 2012, an increase of 1.6%.

Over the past year, our investment approach has allowed us not only to increase the secured portion of our portfolio, while maintaining a stable yield, but also, to expand our investment platform in the 2 significant industry verticals: energy and aviation. During the March quarter, we invested $428 million, which was driven primarily by origination activity from our specialty industry verticals.

Net industry activity was $199 million for the quarter, and for the full year, we invested $1.5 billion, and our net investment activity was $200 million. We are pleased with our repositioning of the portfolio over the past year. At the end of March, secured investments accounted for 44% of the portfolio compared to 32% a year ago.

Despite a market backdrop of lower yields, we achieved our target mix while maintaining the overall portfolio yield and adhering to our underwriting standards. Given the current liquid market conditions and the easing of credit standards in the broadly syndicated credit markets, we believe that our direct origination capabilities have provided us with attractive opportunities to deploy capital throughout this past year.

In addition, we made progress further integrating our platform into the broader Apollo credit business. The development of our verticals in energy and aviation were created using the resources, expertise and knowledge base of Apollo's broader credit and private equity businesses.

During the year, these resources allowed us to deploy approximately $325 million of capital, and the pipeline of these verticals continues to remain solid. Given the level of investment activity during the quarter and our leverage ratio at the end of March, we determined that it was prudent to raise equity capital and de-lever our balance sheet.

Adjusting for last week's equity offering, our debt-to-equity ratio at the end of March would have been near the low end of our target range.

Finally, turning our discussion to our dividend. The Board of Directors approved a $0.20 dividend for shareholders of record as of June 20, 2013. Based on our closing share price yesterday and annualizing the dividend, our stock currently offers a dividend yield of approximately 9.4%.

With that, I will turn the call over to Ted to discuss the current market environment and our investment portfolio.

Edward J. Goldthorpe

Thank you, Jim. The credit markets were stronger in the March quarter, reflecting economic optimism in the muted impact of our -- of the budget sequester. Investors continue to put money into high yield and bank loan markets creating strong demand for both primary and secondary paper. Dealers responded by bringing transactions to lock in attractive yields and leverage multiples. The mezzanine market was virtually nonexistent given the strength in the broader credit market and tight spreads found at high yields.

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