AINV

Apollo Investment Corporation (AINV)

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Apollo Investment (AINV)

Q1 2012 Earnings Call

August 04, 2011 12:00 pm ET

Executives

James Zelter - Chief Executive Officer, President and Director

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

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

Analysts

Troy Ward - Stifel, Nicolaus & Co., Inc.

Richard Shane - JP Morgan Chase & Co

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

Joel Houck

John Stilmar - SunTrust Robinson Humphrey, Inc.

James Ballan - Lazard Capital Markets LLC

Presentation

Operator

Good morning, and welcome to Apollo Investment Corporation's First Quarter 2012 Earnings Conference Call. [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 Corp.'s President and COO; 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

Yes. Thank you, Jim. I'd like to advise everyone that today's call and webcast is 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'm going to go ahead, give some overall comments and then I'll pass it over to Rich and Patrick in accordance, and then will go through question-and-answer.

But the quarter ended June 30, 2011, saw capital markets activity remain robust, overall. A variety of strong technical factors continue to drive near-record issuances in both the high-yield and leverage loan markets as investors continued their search for yield. The quarter also saw a strong retail demand, with inflows remaining steady into a variety of credit products. That said, by June, we saw overall investor -- investment demand stall as the capital markets grew more volatile with increased concern regarding the U.S. economic growth and the European sovereign crisis. At that time, even the brewing debate over the U.S. debt ceiling caused some initial angst.

By the time the quarter closed on June 30, 2011, we saw yields on -- in our principal markup -- market back up by approximately 25 basis points from March 31. Accordingly, these technical macroeconomic factors generated a nominal mark-to-market decline in the NAV of Apollo Investment Corp. for the quarter.

As a reminder, the benefits of investing in larger companies is offset by shorter-dated market volatility. We always seek to reward our long-term value investors, and those benefits also come with a need to understand the differences between a NAV impact from market volatility and interest rate changes and knows from fundamental credit impairments. As we have since our IPO and in accordance with our Investment Company Act of 1940 obligations, when market quotes are readily available and are deemed to represent fair value, we use them.

Again, it is important for AINV investors to understand the difference between quarter-to-quarter NAV movements affected by the volatility and changes in the yields on the capital markets and longer-term NAV movements from markdowns, reflecting expected or actual credit impairment.

Now let me go over the quarter and some of the highlights for a moment. We were very active in the quarter. In total, we invested $836 million in 9 new and 10 existing portfolio companies. We also received prepayments totaling $570 million and sold select assets totaling $163 million during the quarter. Some of the more substantial portfolio highlights include the restructuring of our NAV performing investment in PlayPower, which we now control. Patrick will take you through some additional details later on the call, but we believe PlayPower's management team and its prospects to provide shareholder value over the long term.

Other notable changes were the successful harvest and reinvestments in Asurion and Ranpak, 2 of our larger portfolio company investments during the quarter. Each company had generated consistently strong free cash flow, grew its earnings and had successfully delevered over the last few years. We were delighted to use our legacy positions to reinvest in those successful companies, companies that we have monitored closely for years and grew to know well.

For Asurion, we were pleased to reinvest at the higher spread to LIBOR, as well as on a LIBOR floor, all while improving our attachment point and moving up the capital structure on average.

For Ranpak, we chose to reinvest in the company at a lower blended yield but did so significantly higher up in the capital structure on average than our original investment.

Ultimately in the June 30, our portfolio investments closed the quarter totaling $3.12 billion, measured at fair value and was represented by 72 distinct portfolio companies, diversified amongst 31 different industries.

Read the rest of this transcript for free on seekingalpha.com