AINV

Apollo Investment Corporation (AINV)

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Apollo Investment Corporation (AINV)

F1Q11 (Qtr End 06/30/10) Earnings Call Transcript

August 5, 2010 11:00 am ET

Executives

Jim Zelter – CEO

Richard Peteka – CFO and Treasurer

Patrick Dalton – President and COO

Analysts

Sanjay Sakhrani – KBW

Faye Elliott – Bank of America

Vernon Plack – BB&T Capital Markets

John Stilmar – Suntrust

Troy Ward – Stifel Nicolaus

Jasper Birch – Macquarie Holdings

Robert Fether [ph] – RIS Investments [ph]

Presentation

Operator

Good morning. And welcome to the Apollo Investment Corporation earnings conference call for our first fiscal quarter ended June 30th, 2010. At this time, all participants have been placed on listen-only mode. The call will be open for question-and-answer session following the speakers' remarks. (Operator Instructions) It is now my pleasure to turn the call over to Mr. Jim Zelter, chief executive officer of Apollo Investment Corporation. Mr. Zelter, you may begin your conference.

Jim Zelter

Thank you, and good morning to everyone. I'm 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 Peteka

Thank you, Jim. 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 Web site 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.

Jim Zelter

Thank you, Rich. Early in the quarter we saw continued strength in the capital markets with strong high yield issuance and active industrial demand. However, in May and through the end of the quarter, the markets became more volatile and ultimately ended weaker as investors had heightened concerns over sovereign risks in Europe and the overall global economic recovery.

In addition, there were several reports of inconsistent economic data that kept many investors on the sidelines as they continue to access the potential contagion of perceived issues that arose out of the sovereign debt crisis in Europe. These concerns, among others, also grew high yield credit spreads wider during the quarter by approximately 70 basis points among reasonable steady two-way trading. High yield issuance for the quarter ultimately remains strong totaling $44 billion as compared to the record $69 billion for the quarter ended March 2010.

As we’ve said, we believe that periods of increased volatility present windows of opportunity for our company as volatility provides greater potential uncertainty on deal execution and pricing for larger companies that seek to issue high yield debt. Accordingly, and as evidenced by our commitment on the Altegrity-Kroll transaction, financial sponsor’s place additional value on the stability and certainty of the mezzanine marketplace, especially from capital providers of scale, who can be relevant – who can be a relevant solution like a Apollo Investment Corporation.

Currently there’s an active debate in the overall marketplace on the state of the economy. One group of investors is positioned for double dip as they expect to decline in economic activity. The other group grounds their view on a recent earnings season that has surpassed expectations. Irrespective of that debate, we continue to find interesting risk reward investment opportunities.

Now, let me briefly go over some portfolio highlights. During the quarter we were active investors. In total, we invested $221 million in three new and eight existing portfolio companies for the quarter. We also received prepayments and sold select assets totaling $114 million. Accordingly, our net investment growth for the quarter totaled $107 million. At June 30th, our portfolio of investments totaled $2.85 billion measured at fair market value, and was represented by 68 distinct portfolio companies diversified among 31 industries.

At this time, I’d like to remind everyone of what we have told investors repeatedly going back to our IPO in 2004. We are long term investors that invest selectively in long term assets, seeking superior risk adjusted returns over time. We do not view ourselves as a specialty finance company, and therefore, do not approach our investment operations as a quarterly business with quarterly goals and budgets. Accordingly, we do not provide quarterly guidance on our growth or net portfolio growth, or how the timing of such net growth may impact quarterly results. That said, we do believe that our results are more representative if viewed at, at least a rolling four-quarter basis and our business strategy remains the same as we laid out at the time of our IPO.

As a reminder, we were able – we are pleased to further grow our company’s capital base during the June quarter by closing on our most recent equity capital markets issuance in May, raising approximately $204 million of additional capital at a premium that was accretive to book value. As is typical, that capital initially reduces the outstanding balance of our revolving credit facility until we fully invest the proceeds. Accordingly, the company had approximately $566 million currently available for new investment in operations at June 30th, 2010.

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