AINV

Apollo Investment Corporation (AINV)

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Apollo Investment (AINV)

Q2 2013 Earnings Call

November 08, 2012 10:00 am ET

Executives

Elizabeth Besen

James Charles Zelter - Chief Executive Officer and Director

Edward J. Goldthorpe - President

Gregory W. Hunt - Chief Financial Officer and Treasurer

Analysts

Richard B. Shane - JP Morgan Chase & Co, Research Division

Troy L. Ward - Stifel, Nicolaus & Co., Inc., Research Division

John W. Stilmar - JMP Securities LLC, Research Division

Jasper Burch - Macquarie Research

Kannan Venkateshwar - Barclays Capital, Research Division

Jonathan Bock - Wells Fargo Securities, LLC, Research Division

David J. Chiaverini - BMO Capital Markets U.S.

Presentation

Operator

Good morning, and welcome to Apollo Investment Corporation's Earnings Conference Call Fourth Quarter ended September 30, 2012. [Operator Instructions] I will now turn the call over to Elizabeth Besen, Investor Relations Manager for Apollo Investment Corporation.

Elizabeth Besen

Thank you, operator, and thank you, everyone, for joining us today. With me today are Jim Zelter, Chief Executive Officer; Ted Goldthorpe, President and Chief Investment Officer; and Greg Hunt, Chief Financial Officer.

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. Forward-looking statements involve risks and uncertainties, including, but not limited to, statements as to our future results, our business prospects and the prospects of our portfolio companies. You should refer to our prospectus and shareholder reports for risks that apply to our business and may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit our website at www.apolloic.com.

I'd also like to remind everyone that we posted a supplemental financial information package on our website, which contains information about the portfolio, as well as the company's financial performance.

At this time, I'd like to turn the call over to Jim Zelter.

James Charles Zelter

Thank you, Elizabeth. This morning, we issued our earnings press release and filed our quarterly 10-Q. I'll begin my remarks with some financial highlights for the quarter, followed by a discussion about our investment strategy and some other recent business highlights. Following my remarks, Ted will provide an overview of the market environment and then we'll review our investment portfolio activity for the quarter. And finally, Greg will discuss our financial results in detail. And then we will open the call to general questions.

Starting with financial highlights, today, we reported solid second quarter results as we continue to reposition and optimize our portfolio. For the September quarter, we reported net investment income per share of $0.22. Net asset value was $8.46 per share at September 30, compared to $8.30 at the end of June, a 1.9% increase. The increase was driven primarily by unrealized appreciation from our liquid securities.

Regarding our investment strategy, we continue to broaden our investment footprint to provide a more diverse array of private market debt solutions. We believe that a broader investment footprint enables us to shift our investment activity into asset classes with attractive risk-adjusted returns as markets change and evolve. With that said, we continue to expand on our core strategy of providing debt solutions to middle-market companies by increasing our exposure to senior secured loans.

With the unprecedented flow of funds into the high-yield mutual funds, the market has been extremely favorable for issuers and we have seen a return of covenant light and PIK securities. We believe this could be evidence that the market may be chasing for yield at the expense of credit. That being said, in today's robust market, we are focusing our investment activity on secured loans rather than unsecured debt, and we are taking liquidity and complexity risk instead of credit risk.

We also see attractive risk-adjusted returns in less liquid senior secured loans, energy lending and aircraft leasing, a new origination specialty for us that Ted will discuss in detail. The spread between liquid and less liquid investments allowed us to continue to improve our security position with little impact to our overall yield or net investment income. During the quarter, investments totaled $395 million and we received $143 million of proceeds from selected sales and $200 million from repayments. Accordingly, our net investment activity before repayments was a positive $252 million.

Net investment activity, including the impact of repayments, was a positive $52 million. The fair value of our investment portfolio was approximately $2.68 billion at September 30, up from $2.58 billion at the end of June. We believe that we are well-positioned to take advantage of future market opportunities.

Completing the growth on the assets side of the business, we also took advantage of the strong demand for fixed income products with the issuance of 150 million of retail notes in early October. We believe it is important for us to actively manage both the asset and liability side of our balance sheet and we are currently focused on diversifying our funding sources.

Greg will discuss our retail note issuance and our funding strategy in more detail when he comes up.

Turning our attention to our dividend, the Board of Directors approved a $0.20 dividend for shareholders of record as of December 18, 2012, and based on our closing price yesterday and annualizing the dividend, our stock currently offers a dividend yield of approximately 10%. With that, I will turn the call over to Ted to discuss the current market environment and our investment portfolio.

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