Apollo Investment Corporation (AINV)

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Apollo Investment Corporation (AINV)

Wells Fargo Specialty Finance Symposium Conference Call

May 21, 2014 9:15 AM ET


Edward J. Goldthorpe – President


Unidentified Analyst

Okay, so moving on to the next presentation, it is an absolute pleasure to introduce, Ted Goldthorpe, the Chief Investment Officer of Apollo Investment Corporation. This is the first time Apollo Investment Corporation has presented at the Wells Fargo Specialty Finance Conference, and we appreciate that because believe it or not normally they report earnings this time of the year, they report at year end. And they decided to move the date of the call to accommodate this conference, and then Greg and Ted we really very much appreciate that and so I look forward to introducing, Ted Goldthorpe, go ahead and take it away.

Edward J. Goldthorpe

Thank you, John. Good morning, that’s actually true story. We’ve missed the Wells conference and got berated for it, for the last couple of years. So we actually really did move up our board meeting and earnings necessary events.

So very happy to be here, I was going to make the same comment. So I don’t have a whole bunch of prepared remarks. So please hopefully you guys have lots of questions. I’m going to spend most of the time today talking about the sector, which I just think about what's going on today in the BDC space and the opportunities for the space which I think are unbelievably compelling.

The other foot side of that obviously is where the sector is trading today because there is some short-term headwinds. So I’ll spend most of my time today talking about the sector and less time talking about Apollo.

It’s our disclaimers you guys can read those. So, this is who we are. I think you guys have seen a lot of the BDC speak yesterday. So I think you guys are pretty well versed in what we do. We are a provider of debt solutions to the middle market in the U.S and we target investments that are 20 to 250 most of our average investments around $30 million today. So our average investment size has come down, and we’ve invested $13 billion since our IPO.

The next thing talked about a little bit of our competitive advantages, which we obviously go through, but really the BDC space has one characteristic that is a huge advantage which is we’re not subject to ratings, we’re not subject to NAIC ratings or anything else. We don’t have origination constrains and we all permanent capital.

And so if you think about what’s short in the world today is illiquid capital and we talk about that a little bit latter, but we think that the whole space actually has a massive, massive advantage vis-à-vis other capital providers.

Obviously we’re attached to a very large global manager Apollo. We get tons and tons of benefits out of this, which we can walk through in detail, obviously we get a lot of sourcing. We source half our deals from the broader platform. We obviously get a lot of diligence benefits. We get a lot of industry expertise. So we could drive a ton of benefit from Apollo and quite frankly, since I’ve been here it’s been a big positive surprise that I think us TPG and Ares all benefit from be attached to a very smart global asset manager.

And if you think about our investment objectives, it’s first and foremost, it’s about principal protection, and then we focus on return later. So it’s not about return, it’s about risk-adjusted returns and that’s kind of where we focused.

So this is a snapshot of our company today obviously secured debt now makes up a very large part of our business, and it’s increasing every quarter. So we are 56% secured debt, we are 27% unsecured debt, I wouldn’t be surprised to see that secured debt number go over 60% relatively soon, and just where we see the best risk award today. We just think there is no – it’s very little opportunities on the bottom of the capital structure. With $3.5 billion of assets, see the number of portfolio companies we’ve almost doubled the number of portfolio companies and our assets really haven’t grown that much.

So obviously we’ve reduced concentration exposure pressure book for the last couple of years. You can see the bottom-middle is, we’ve maintained yields pretty effectively over the last two or three years despite the fact we are in zero interest rate environment and that just goes back to where it was seen earlier which is the spread between liquid and illiquid risk is wide as I’ve seen it in my carrier. We are really capturing the benefits of that.

So, when you look at where triple Cs are rated look at our portfolio, and you look at the amount of secured debt, a lot of people scratch their heads, it all has to do with ratings. So you think about who is buying syndicated loans, who is buying high yield bonds, these are all institutions that are very, very ratings constraints, liquidity constraints, obviously keep harping on the same theme. We are not constrained by that and so, it was just a real shortage of people playing in our sandbox and that’s a huge advantage for our shareholders.

And if you look at the bottom right, and this is a differentiator for Apollo, every BDC has gone a different way, so the BDC’s were pretty comparable seven or eight years ago. Today we’ve all gone a different direction, so at Apollo we decided to focus on what we call our specialty verticals. So these are areas like, oil and gas, aviation, certain types of strategic structure products, we’ll talk about that later.

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