AINV

Apollo Investment Corporation (AINV)

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Apollo Investment Corporation (AINV)

RBC Capital Markets Financial Institutions Conference Transcript

September 17, 2013 2:30 PM ET

Executives

Ted Goldthorpe - President, Apollo Investment Corp.

Mike Arougheti - CEO, Ares Capital Corp.

Len Tannenbaum - Fifth Street Financial, CEO

Manuel Henriquez - CEO, Hercules Technology Growth Capital

Analysts

Jason Arnold - RBC Capital Markets

Presentation

Jason Arnold - RBC Capital Markets

Let’s get started here. For those of you that don’t know me, I’m Jason Arnold. I’m Specialty Finance here at RBC. So I guess to kick off the next panel here, just want to start with the comment, whenever I go out marketing, media being up with the financial investors. I hear about the challenges of finding attractive investment ideas from a growth standpoint, from a valuation standpoint, what priced in from a rate risk perspective standpoint? And I think the next group of presenters on our panel, which the BDCs offer answers to lot of those challenges given that they are seeing a lot of intriguing growth opportunities. They do have low rate risk for the most part, some of them even have leveraged to rising rates and modest valuation and attractive dividend.

So joining us here today from your left side to right, we’ve got Ted Goldthorpe, President of Apollo Investment Corp.; Mike Arougheti, the CEO of Ares Capital Corp.; Fifth Street Financial CEO, Len Tannenbaum next to him; and Manuel Henriquez, the CEO of Hercules Technology Capital there.

So one thing I just want to mention, if anyone has any questions just feel free to raise hand, I’ll inter check, but just to kind of kick it off I’m going to start with my list here. So maybe we’ll start with Ted here, but we’ll start with maybe a brief introduction from each of the respective companies and then maybe since you are all BDCs you can perhaps share with us differentiated component of your strategy versus kind of the plans in all of BDC.

Ted Goldthorpe

I’m Ted Goldthorpe, the President of Apollo Investment Corporation. I think, one thing that all of us in the sector have really emphasis to last 12 to 18 months is going out proprietary origination. And I think, when you look at what’s going on macro wise around some recent transactions, there is clearly a huge premium, the market has been a big premium proprietary origination, which I don’t think has been reflected in any of our multiples.

So, I think, each of us has gone down a little bit different road. I think I will just refer to what is BDC 1.0 versus 2.0, which is BDC is very, very similar to each other call it five years ago and today I think everybody is taking different path.

So in a path that’s kind of we’ve decided to go down is one out of and everybody is kind of doing things, they are doing in a slightly different way which is investing in what I call specialty vertical.

So obviously a big chunk of the market today has been vacated by the investment bank, by European bank, hedge funds are no longer by and large doing illiquid middle market transaction.

So we -- that's been a huge opportunity to not only deploy capital but also attract very strong talent. So you guys have seen us what we’ve done over the last 18 months. We just had an aircraft vertical. We just have energy vertical. We just have whole bunch of different what I call specialist vertical to kind of take advantage some of this macro themes that are benefiting actually all other companies not just ours.

Jason Arnold - RBC Capital Markets

Okay. Mike?

Mike Arougheti

So, just briefly, Ares Capital Corp. is the largest BDC by market cap. We are actually external managed and affiliated with a very large alternative asset manager called Ares Management and Ares is a global player in the leveraged credit space both through private equity business, a commercial real estate private equity and lending business and a large tradable debt business similar to our friends at Apollo.

So I do think there is some differentiation just in terms of the view that we bring to the illiquid credit market in terms of the ability to support our due diligence with fundamental research coming out of our other businesses and interestingly also really you need to view on funds flows in the both the private and public market that effect the way we think about either raising or deploying capital.

And I think the biggest differentiator for us and its speak to some of what Ted’s talking about, hopefully we’ll cover more detail throughout the panel. There has been a massive secular shift of assets out of the banking system into what we like to call the institutional or non-bank finance sector.

We’ve seen a significant now cyclical increase the amount of assets coming out of the banking space on the heels of the credit dislocations and in the space of all such of regulatory headwinds and regulatory capital charges and I know we will discuss some of the earlier panels.

And we’ll talk about some of the things like rates sensitivity and credit sensitivity. But suffices to say that the space that we are playing has been growing quite dramatically and I think one thing that we do that is differentiated, just we have gotten to a size in balance sheet scale that has allowed us to invest in our origination and in our product that in a way that we think is quite unique which enable us to talk that later.

Jason Arnold - RBC Capital Markets

Okay. Well, Len?

Read the rest of this transcript for free on seekingalpha.com