AINV

Apollo Investment Corporation (AINV)

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Apollo Investment Corporation (AINV)

F4Q10 Earnings Call

May 26, 2010 11:00 am ET

Executives

James C. Zelter – Chief Executive Officer & Director

Patrick J. Dalton – President & Chief Operating Officer

Richard L. Peteka – Chief Financial Officer & Treasurer

Analysts

Sanjay Sakhrani – Keefe, Bruyette & Woods

Faye Elliott – Bank of America Merrill Lynch

Donald Fandetti – Citigroup

Chris Harris – Wells Fargo Securities

Scott Valentin – FBR Capital Markets & Co.

Jason Arnold – RBC Capital Markets

Greg Mason – Stifel Nicolaus & Company, Inc.

Jasper Birch – Macquarie

John Stilmar – SunTrust Robison Humphrey

Arren Cyganovich – Ladenburg Thalmann & Co.

Presentation

Operator

At this time I would like to welcome everyone to the Apollo Investment Corporation fourth quarter and fiscal year end 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer session. (Operator Instructions) I would now like to turn the call over to Jim Zelter, Chief Executive Officer of Apollo Investment Corporation.

James C. Zelter

I am joined today by Patrick Dalton, Apollo Investment Corporation’s President and Chief Operating Officer and Richard Peteka, our Chief Financial Officer. Rich, before we begin would you start off by disclosing some general conference call information and include the comments about forward-looking statements?

Richard L. Peteka

I’d like to remind 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 and projections and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these statements and projections. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.ApolloIC.com or call us at 212-515-3450.

At this time I’d like to turn the call back to our Chief Executive Officer Jim Zelter.

James C. Zelter

Let me begin by saying that our management team recognizes that having a conference call today to discuss our financial performance for a quarter and fiscal year that ended two months ago can be less relevant than we would like especially give the current velocity of change that is happening in the capital markets environment. In that light, we will endeavor to balance our financial performance discussion with comments about the current state of the capital markets and also potential opportunities for Apollo Investment Corporation.

The quarter ended March 2010 was the second consecutive quarter of record high yield issuance in a fairly robust capital markets environment. Issuances totaled $69 billion as compared to $60 billion in the quarter that ended December 2009 as market demand continued to be fueled by cash inflows from a variety of high yield mutual funds, corporate loan funds, new financing and vehicles and improved economic conditions. Two way trading and credit remained robust which further improved liquidity and tightened spreads.

In the January to March quarter and through our fiscal 2010 year end these technical improvements in the capital markets generated renewed interest in the subordinated debt market. As we stand here in late May, certainly some of the technicals in the equity and debt capital markets has swung in the other direction and overall volatility has increased and we expect volatility to continue through the end of 2010 and beyond.

Earlier this month we were pleased to increase the company’s capital base by closing on our most recent equity capital market issuances raising $204 million of additional net investment capital at a significant and attractive premium to book value. The raise was opportunistic as it strategically complemented our recent extension of the company’s multi currency revolving credit facility in the fourth calendar quarter. As a reminder, the facility’s amendment was completed well ahead of its maturity and was strategically important.

Taken together we believe we have significantly strengthened our company’s balance sheet, positioning it well for growth as we head in to this economic recovery. For example, if we were simply to add the $204 million of capital raised to our March 31, 2010 balance sheet we would currently have approximately $700 million of available capital for new investments. We believe that this will be a differentiating factor in the BDC sector going forward. Having substantial available capital at what we believe is one of the lowest costs of capital in the sector has been one of our objectives since the IPO in 2004.

Now, let me briefly go over some portfolio and financial highlights. During the quarter, we continued with our portfolio optimization strategy of selling underperforming assets and were active in finalizing certain restructurings at effective exchanges or we received equity stakes in lieu of our debt securities. While debt exchanges generated realized losses, we are hopeful that these new equity securities will generate offsetting gains in the future. Ultimately, our net portfolio activity for the fourth fiscal quarter came to $120 million with $287 million in new core investments and $167 million in prepayments and selected asset sales.

We closed the fiscal year with a $2.85 billion portfolio measured at fair market value representing 67 different portfolio companies diversified amongst 32 different industries. Our leverage level at March 31, 2010 stood at .6 to one debt to equity and pro forma for the most recent equity raise is now only .43 to one leaving all current valuation levels significant room to grow our portfolio and corresponding earnings over time. That said, let me remind everyone that we do not have quarterly goals or budgets for gross or net investments and therefore cannot provide any guidance or assurance. Therefore, our shareholders should expect a highly variable investment pace and lumpiness in earnings quarter-to-quarter especially when considered together with the timing of equity raising initiatives.

Before I turn the call over to Rich, I would also like to acknowledge the situation with our investment in Innkeepers USA Trust through Grand Prix Holdings. To be clear, this is an investment that with the benefit of hindsight, we are clearly dissatisfied with its performance. We will not look to make this type of investment in the future. Now, let me turn the call over to Rich to provide more information on our financial performance and highlights for the quarter.

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