Apollo Investment Corporation (AINV)

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Apollo Investment (AINV)

Q3 2014 Earnings Call

February 06, 2014 12:00 pm ET


Elizabeth Besen - Investor Relations Manager

James Charles Zelter - Chief Executive Officer, Director and Member of Investment Committee

Edward J. Goldthorpe - President and Member of Investment Committee

Gregory William Hunt - Chief Financial Officer, Principal Accounting Officer and Treasurer


Arren Cyganovich - Evercore Partners Inc., Research Division

Terry Ma - Barclays Capital, Research Division

Ryan Lynch - Keefe, Bruyette, & Woods, Inc., Research Division

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

Jonathan Bock - Wells Fargo Securities, LLC, Research Division

Christopher York - JMP Securities LLC, Research Division

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

John T. G. Rogers - Janney Montgomery Scott LLC, Research Division



Good afternoon, and welcome to Apollo Investment Corporation's earnings conference call for the period ending December 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 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 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

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 report on Form 10-Q. I'll begin my remarks with some financial highlights for the quarter, followed by some other recent business highlights. Following my brief 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, and then we will open up the call for general questions.

We are pleased to report strong results for the December quarter, including solid earnings, a meaningful increase in our net asset value, an increase in the overall portfolio yield and continued strong credit quality. We reported net investment income per share of $0.22 for the quarter, which reflects an increased level of recurring interest income and higher origination-related fees, offset by lower level of prepayment income compared to the September quarter. Net asset value per share rose 3.3% quarter-over-quarter to $8.57, driven by strong appreciation across most of our portfolio.

Underlying fundamentals in the credit markets remain sound. However, as we said before, we believe that the persistent bid for yield continues to result in the mispricing of risk, and we see increasing signs that warrant us to be conservative, cautious and selective about investment opportunities. As always, we are focused on risk-adjusted returns not absolute returns.

In addition, the banking industry continues to grapple with an evolving regulatory backdrop, which is having a direct impact on primary origination in the marketplace, and we are constantly evaluating the opportunities that this can present to our business. That being said, we believe the risk-adjusted reward is most attractive for senior -- for secured debt opportunities in the primary market, which account for 59% of our investments made during the quarter. In addition, the markets provided us with the opportunity to derisk the portfolio by monetizing select higher-risk assets, which Ted will cover. We are pleased with the current accomplishment of our portfolio, and we are disciplined in our approach and favor security over incremental yield as we deploy capital.

Turning our discussion to the dividend. The Board of Directors approved a $0.20 dividend for shareholders of record as of March 21, 2014. Based on our closing price -- share price yesterday and annualizing the dividend, our current dividend offers in excess of 9.7%.

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. Beginning with the market environment. Despite some economic uncertainty, the leveraged credit market strengthened throughout the December quarter as volatility remained low and credit spreads tightened. Mutual fund inflows into leveraged loan and high-yield were both positive, and CLO issuance rose as demand for high-yield assets remained strong. High-yield and leveraged loan issuance remain at elevated levels, and debt investors appeared to be increasingly tolerant of higher leverage and covenant-light structures. With this backdrop, we continue to find select opportunities in our pipeline that meet our strict underwriting standards and remain focused on covenants.

Through the December quarter, we invested $630 million in and 21 new and 22 existing portfolio of companies. Since early 2012, we have been focused on investing in secured debt, which we believe continues to offer the most attractive risk-adjusted returns. Accordingly, 63% of investments made during the period were secured debt. And at the end of December, secured debt accounted for 51% of the portfolio, up from 32% when we started to reposition the portfolio.

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