AINV

Apollo Investment Corporation (AINV)

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Apollo Investment Corporation (AINV)

F2Q2011 (Qtr 09/30/10) Earnings Conference Call

November 5, 2010 11:00 AM ET

Executives

Jim Zelter – CEO

Richard Peteka – CFO and Treasurer

Patrick Dalton – President and COO

Analysts

Sanjay Sakhrani – KBW

Jason (ph) – Bank of America

Chris Harris – Wells Fargo

Vernon Plack – BB&T Capital

Jason Arnold – RBC Capital

John Stilmar – SunTrust

Troy Ward – Stifel Nicolaus

Jeremy Banker – Citi

Jasper Burch – Macquarie

Ram Shankar – FBR Capital Markets

Arren Cyganovich – Evercore

Presentation

Operator

Good morning and welcome to Apollo Investment Corporation earnings conference call for second quarter fiscal quarter ended September 30, 2010. At this time, all participants have been placed on listen only mode. The call will be opened for a 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 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

Thanks Jim. 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 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.

Jim Zelter

Thank you Rich. The broad capital markets posted strong returns as well as record activity for the quarter ending September 30, 2010. Improved demand allowed the high yield market to surpass previous issuance records with third quarter volume exceeding $70 billion in the U.S.

The ongoing trend of refinancing senior debt with new facilities as well as various subordinated issuances drove two-way trading and enhanced liquidity. Benchmark yields ultimately tightened by more than 70 basis points of reports of improved economic conditions out weighted doubled dipped and softened debt concerns.

Now let me briefly go over some portfolio highlights. During the quarter, we continued to make selective investment decisions. In total, we invested $184 million in two new and four existing portfolio companies during the quarter ended September 30.

We also received pre-payments and sold select assets, which in the aggregate, totaled $127 million. At September 30, our portfolio of investments totaled $2.95 billion, measured at fair market value, and was represented by 67 distinct portfolio companies diversified amongst 31 different industries.

During the quarter, we strategically timed two significant debt capital raises at what we believe to be attractive and disciplined prices in order to further and efficiently grow the company’s capital base in these early yet volatile stages of an economic recovery, again understanding that volatility creates further investment opportunity.

We were certainly pleased to add another new lender, a large well capitalized bank to our existing multi-currency revolving lending syndicate during the quarter, contributing $50 million as we work with a number of new relationship lenders in structuring our private note.

Ultimately, we issued a five-year $225 million private note on October 4, 2010 at a fixed rate of 6.25%. These capital raises bring our current total debt capacity under our revolver and private notes to $1.8 billion. Accordingly, on a pro forma basis considering the October 4 private note issuance, the company has approximately $715 million currently available for new investment and operations.

At September 30, our outstanding leverage measured as a ratio of stockholders equity, stood at .59 to one, and we continue to believe our capital and relatively modest leverage remains a competitive advantage in our industry as we continue to operate with what we believe to be the lowest cost of capital in the sector and with significantly greater flexibility than with other more restrictive facilities.

Now with that, I’ll ask Rich to take you through some financial details for the quarter.

Richard Peteka

Thanks Jim. I’ll start off with some September 30 balance sheet highlights. As Jim noted earlier, our total investment portfolio had a fair market value of $1.96 billion, which is an increase of approximately 3.5% since June 30.

Our September 30 net assets totaled $1.86 billion with a net asset value per share of $9.58. This compares to net asset totaling $1.84 billion at June 30 and a net asset value per share of $9.51. The increase in NAV for the quarter was driven primarily from net unrealized appreciation on our investment portfolio.

Positive contributors to performance for the quarter included investment in Alliance Boots, Altegrity, Sun Gauge and Tel-Sat. The positive impact was primarily due to improving valuations. Partially offsetting the unrealized depreciation during the quarter was unrealized depreciation from MEG Energy Generation Brands, Square Two Financial and Assuring Corporation.

MEG Energy successfully completed its IPO during the quarter and the stock has traded higher since September 30, 2010. However, and as with any public stock, we should not be surprised to see some volatility.

On the liability side, we had total debt outstanding of $1.09 billion at September 30 as compared to $993 million at June 30. This left our debt to equity leverage ratio at a relatively modest .59 to one at September 30 as compared to .54 to one at June 30.

No investments were placed on non-accrual status during the quarter. However, we did exit from our investments in American Safety Razor and European Directories, which were both previously on non-accrual status.

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