AINV

Apollo Investment Corporation (AINV)

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Apollo Investment (AINV)

Q3 2011 Earnings Call

February 04, 2011 11:00 am ET

Executives

James Zelter - Chief Executive Officer and Director

Patrick Dalton - President and Chief Operating Officer of Apollo Investment Corporation

Richard Peteka - Chief Financial Officer, Principal Accounting Officer and Treasurer

Analysts

Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc.

Arren Cyganovich - Evercore Partners Inc.

John Stilmar - SunTrust Robinson Humphrey Capital Markets

Martin Ji - ClearBridge Advisors

Joel Houck

Jasper Burch

Jason Arnold - RBC Capital Markets, LLC

James Ballan - Lazard Capital Markets LLC

Richard Shane - Jefferies & Co.

Greg Mason - Stifel, Nicolaus & Co., Inc.

Jason Shum

Presentation

Operator

Good morning, and welcome to Apollo Investment Corporation's Earnings Conference Call for its third fiscal quarter ended December 31, 2010. [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.

James 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

Sure. 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.

James Zelter

Thanks, Rich. I'll start off with a brief description of market conditions during the December quarter and then move to some of our more strategic initiatives before touching on some portfolio highlights of the business.

The strong credit markets during the December 2010 quarter continued to offer enhanced liquidity for primary issuers and secondary paper. For the full year ended December 2010, high yield had a strong record issuance of north of $300 billion as compared to $180 billion for 2009. Concerns over a double-dip recession and sovereign issuer defaults also waned significantly during the quarter, improving the economic outlook and contributing to a tightening of yield spreads across the spectrum.

This dynamic only further increased demand for secondary paper, driving bond prices higher, lowering yields and finishing a year of strong returns for investors in credit. Investors in the public stock of Apollo Investment Corporation, ticker AINV, achieved a total return of 28.5% for the 12 months ended December 31, 2010, including reinvested dividends.

Strategically, we set out to accomplish three goals during the December quarter. One was to complete the necessary steps to add additional long-term fixed rate debt to our balance sheet. Two was to finalize our due diligence on the credits we liked and were about to add in our portfolio and had been working on. And three, we wanted to further optimize and improve the quality of our portfolio.

That said, Apollo Investment Corporation recently completed its debt raising and capital structure initiatives announced last call. This January, we were pleased to again issue in the strength of the credit markets and issue $200 million senior unsecured five-year convertible notes with what we believe are attractive terms, a 5 3/4% coupon with a conversion premium of 17 1/2%. We anticipate this access to the unsecured credit markets will generate long-term benefits to AIC and introduce us to a new investor base.

Furthermore, and also in January, we were pleased to add another new relationship bank to our revolving credit facility, which added a $50 million commitment to our growing syndicate of revolver lenders. Accordingly, and with the significant recent expansion of our debt capacity, we have deliberately accumulated our liquidity in capital resources as we look ahead and prepare for what may be a long period of M&A activity and related investment opportunity for Apollo Investment Corporation. With our new January debt capital raises, our total debt capacity currently exceeds $2 billion. Pro forma for our 2011 debt maturities later this year, Apollo Investment Corporation will have approximately $680 million available for new investment.

At December 31, 2010, our outstanding leverage stood at 0.53:1, measured as a ratio to stockholders' equity. Now let me briefly go over some portfolio highlights for the quarter ended December 31, 2010. It was an active quarter for us. In total, we invested $382 million in eight new and three existing portfolio companies. We also received prepayments totaling $326 million and sold Collect assets totaling $155 million. At December 31, 2010, our portfolio of investments totaled $2.92 billion, measured at fair value, and was represented by 69 distinct portfolio companies diversified amongst 30 different industries.

Now with that, I'll ask Rich to take you through some detailed financial highlights for the quarter. Rich?

Richard Peteka

Thanks, Jim. I'll start off with some December 31, 2010 balance sheet highlights. As Jim noted earlier, our total investment portfolio had a fair market value of $2.92 billion. Our December 31 net assets totaled $1.9 billion, with a net asset value per share of $9.73. This compares to net assets totaling $1.86 billion at September 30 and a net asset value per share of $9.58. The increase in NAV for the quarter was driven primarily from net unrealized appreciation on our investment portfolio.

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