Apollo Investment Corporation Investor Presentation November 2016 - - PowerPoint PPT Presentation
Apollo Investment Corporation Investor Presentation November 2016 Information is as of September 30, 2016 except as otherwise noted. It should not be assumed that investments made in the future will be profitable or will equal the performance of
November 2016
Information is as of September 30, 2016 except as otherwise noted. It should not be assumed that investments made in the future will be profitable or will equal the performance of investments in this document.
Forward-Looking Statements We make forward-looking statements in this presentation and other filings we make with the Securities and Exchange Commission (“SEC”) within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives, including information about our ability to generate attractive returns while attempting to mitigate risk. When used in this release, the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may” or similar expressions, are intended to identify forward- looking statements. Statements regarding the following subjects, among others, may be forward-looking: the return on equity; the yield on investments; the ability to borrow to finance assets; and risks associated with investing in real estate assets, including changes in business conditions and the general economy. The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Forward- looking statements are not predictions of future events. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Some of these factors are described in the company's filings with the SEC. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward- looking statements, whether as a result of new information, future events or otherwise. This presentation may contain statistics and other data that in some cases has been obtained from
Past Performance Past performance is not indicative nor a guarantee of future returns, the realization of which is dependent on many factors, many of which are beyond the control of Apollo Global Management, LLC (“AGM”); Apollo Investment Management, L.P.; and Apollo Investment Corporation (collectively “Apollo”). There can be no assurances that future dividends will match or exceed historic ones, or that they will be made at all. Net returns give effect to all fees and expenses. Unless otherwise noted, information included herein is presented as of the date indicated on the cover page and may change at any time without notice. Apollo Investment Corporation (the “Corporation” or “AINV” or the “Fund”) is subject to certain significant risks relating to our business and investment objective. For more detailed information on risks relating to the Corporation, see the latest Form 10-K and subsequent quarterly reports filed on Form 10-Q. Financial Data Financial data used in this presentation for the periods shown is from the Corporation’s Form 10-K and Form 10-Q filings with the SEC during such periods. Unless otherwise indicated, the numbers shown herein are rounded and unaudited. Quarterly financial information about the Company refers to fiscal quarters. The Company’s fiscal year 2017 ends March 31, 2017.
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AUM Definition Assets Under Management (“AUM”) refers to the investments AGM manages or with respect to which it has control, including capital it has the right to call from its investors pursuant to their capital commitments to various funds. AGM’s AUM equals the sum of: (i) the fair value of its private equity investments plus the capital that it is entitled to call from its investors pursuant to the terms of their capital commitments plus non-recallable capital to the extent a fund is within the commitment period in which management fees are calculated based on total commitments to the fund; (ii) the net asset value of AGM’s capital markets funds, other than certain senior credit funds, which are structured as collateralized loan
available leverage and/or capital commitments; (iii) the gross asset values or net asset values of AGM’s real estate entities and the structured portfolio vehicle investments included within the funds AGM manages, which includes the leverage used by such structured portfolio vehicles; (iv) the incremental value associated with the reinsurance investments of the portfolio company assets that AGM manages; and (v) the fair value of any other investments that AGM manages plus unused credit facilities, including capital commitments for investments that may require pre-qualification before investment plus any other capital commitments available for investment that are not otherwise included in the clauses above. AGM’s AUM measure includes AUM for which it charges either no or nominal fees. AGM’s definition of AUM is not based on any definition of AUM contained in its operating agreement or in any of its Apollo fund management agreements. AGM considers multiple factors for determining what should be included in its definition of AUM. Such factors include but are not limited to (1) its ability to influence the investment decisions for existing and available assets; (2) its ability to generate income from the underlying assets in its funds; and (3) the AUM measures that it uses internally or believes are used by other investment managers. Given the differences in the investment strategies and structures among other alternative investment managers, AGM’s calculation of AUM may differ from the calculations employed by other investment managers and, as a result, this measure may not be directly comparable to similar measures presented by other investment managers.
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1) On a fair value basis. (2) As of September 30, 2016. (3) Apollo Investment Management, L.P. (4) See definition of AUM at beginning of presentation. (5) MidCap Financial refers to MidCap FinCo Limited, a private limited company domiciled in Ireland, and its subsidiaries, including MidCap Financial Services, LLC. MidCap Financial is managed by Apollo Capital Management, L.P., a subsidiary of Apollo Global Management, LLC, pursuant to an investment management agreement between Apollo Capital Management, L.P. and MidCap FinCo Designated Activity Company. (6) On March 29, 2016, the Company received an exemptive order from the SEC permitting greater flexibility to participate in co-investment transactions with certain of its affiliates where terms other than price and quantity are negotiated, subject to the conditions included therein.
Middle Market Lender Competitive Advantages Externally Managed by Apollo Global Management
Apollo Affiliation
significant benefits
engine across AINV & MidCap Financial (“MidCap”) (5)
approximately $189 billion of AUM (2) (4) with expertise in private equity, credit and real estate
company (“RIC”) for tax purposes
industries, spanning a broad range of asset types (1) (2) Exemptive Relief to Co-Invest (6)
competitive positioning
Flexible Mandate
levels of the capital structure – flexible mandate
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Large and Diverse Direct Origination Team Broad Product Offering Significant Scale Active Investor Strong External Manager Co-investment Exemptive Relief Ongoing Commitment To Repurchase Stock
Founded: 1990 AUM: $189bn Employees: 974
Global Offices: 15
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(1) As of September 30, 2016. Please refer to the definition of Assets Under Management at the beginning of the presentation. AUM components may not sum due to rounding. (2) Apollo’s core industry sectors include chemicals, natural resources, consumer and retail, distribution and transportation, financial and business services, manufacturing and industrial, media and cable and leisure, packaging and materials and the satellite and wireless industries.
Global Footprint (1)
Private Equity
$42bn AUM
investments
Credit
$135bn AUM
Real Estate
$11bn AUM
investments
(CMBS, CRE Loans)
Firm Profile(1) Investment Approach
Value-oriented Contrarian Integrated investment platform Opportunistic across market cycles and capital structures Focus on nine core industries (2)
Business Segments (1)
Toronto Bethesda Chicago
New York Bethesda Los Angeles Houston Chicago Toronto Madrid London Frankfurt Luxembourg Mumbai Delhi Singapore Hong Kong Shanghai
Apollo Global Management, LLC (NYSE: APO) “AGM” is a leading global alternative investment manager with approximately $189 billion of AUM (1)
Portfolio by Security Type (1) (2) Market Information (5) Portfolio by Strategy (1) (2)
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Selected Financial Data (1)
Market Capitalization $1.33 bn Share Price $6.06 Price-to-Book 0.87x Dividend Yield at Share Price (6) 9.9% Dividend Yield at NAV (7) 8.6%
(1) As of September 30, 2016. (2) On a fair value basis. (3) Net leverage ratio is defined as debt outstanding plus payable for investments purchased, less receivable for investments sold, less cash, less foreign currencies at fair value, divided by net assets. (4) On November 7, 2016, the Board of Directors declared a dividend of $0.15 per common share to shareholders of record as of December 21, 2016 payable on January 5, 2017. (5) As of November 9, 2016. (6) Most recent quarterly dividend annualized divided by share price. There can be no assurances that AINV’s dividend will remain at the current level. (7) Most recent quarterly dividend annualized divided by net asset value per
(7)
(8)
1st Lien 42% 2nd Lien 22% Unsecured 9% Structured Products and Other 12% Common Equity and Warrants 12% Preferred Equity 3% Corporate Lending 42% Aircraft Leasing 19% Existing Specialty Verticals 34% Life Sciences 0.3% Other 5% Investment Portfolio (2) $2.55 bn # of Portfolio Companies 82 Debt Outstanding $1.01 bn Net Assets $1.54 bn Net Leverage Ratio (3) 0.63x Net Asset Value Per Share $6.95 Most Recent Quarterly Dividend (4) $0.15
(8)
Premier U.S. Private Debt Platform
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(1) As of September 30, 2016.
MidCap is a full service finance company focused on middle market senior debt ~ $6.3 Billion Portfolio (1) AINV is a business development company or “BDC” focused on middle market debt $2.5 Billion Portfolio (1)
AGM is a Leading Alternative Credit Manager with Permanent Capital Vehicles Focused on Direct Origination
Best-in-Class Middle Market Loan Originator
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Direct Origination Investment Committee
By Title Average Years of Work Experience Average Years at Apollo 3 Managing Directors 25 9 3 Principals 10 5 7 Junior Staff Name Title Years of Work Experience Years at Apollo Jim Zelter Managing Partner and Chief Investment Officer, Credit Chief Executive Officer of Apollo Investment Corporation 32 10 Howard Widra Global Head of Direct Origination President of Apollo Investment Corporation 27 2 Tanner Powell Chief Investment Officer, Apollo Investment Management, L.P. 14 10 Pat Ryan Chief Credit Officer, Credit Chief Credit Officer, Apollo Investment Management, L.P. 31 1
Underwriting Team Origination / Sourcing Team
35+ people focused on direct origination / sourcing
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(1) On March 29, 2016, the Company received an exemptive order from the SEC permitting greater flexibility to participate in co-investment transactions with certain of its affiliates where terms other than price and quantity are negotiated, subject to the conditions included therein.
AINV received exemptive relief from the SEC permitting it to enter into previously prohibited negotiated joint transactions with other funds / entities managed by AGM, including MidCap, (1)
We believe that the scale of AINV, MidCap and other Apollo managed capital, on a combined basis, makes us one of the largest market participants uniquely positioned to make large commitments
– Allows AINV to compete more on the basis of size / scale and certainty of execution, rather than simply on price – Enhances ability to originate larger transactions with the ability to hold and / or syndicate loans – Expected to increase deal flow ─ number and variety of deals – Ability to partner with MidCap which provides AINV with access to MidCap’s expertise in niche markets with high barriers to entry – Already seeing a strong pipeline of co-investment opportunities with MidCap
Recent Accomplishments
Reduced exposure to CLO’s (1) and structured credit
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(1) Collateralized loan obligation. (2) On March 29, 2016, the Company received an exemptive order from the SEC permitting greater flexibility to participate in co-investment transactions with certain of its affiliates where terms other than price and quantity are negotiated, subject to the conditions included therein.
We believe that we have already made good progress executing on our strategy, and we will endeavor to continue to do so
Future Objectives
Transition away from certain existing specialty verticals
Maximize benefits of unified direct
Maximize benefits of co-investment exemptive relief (2)
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If the middle market were a stand-alone country, it would be the 3rd largest economy in the world (1) Middle Market Businesses Require Capital to Support Growth (1) (2) Significant need for refinancing of existing loans made to middle market companies (3) Significant un-invested private equity capital should translate into strong loan demand (4)
United States China U.S. Middle Market Japan Germany
38% 24% 18% 17% 3% Capital Expenditure Information Technology Acquisitions Human Resources Other
There are nearly 200,000 U.S. middle market businesses that represent one- third of private sector GDP, employing 47.9 million people.
$534 $800
Un-invested U.S. private equity capital Implied potential loan demand (assuming 40% capitalization rate) $ in billions $ in billions
$4 $16 $19 $24 $31 $34 $18 $5
2016 2017 2018 2019 2020 2021 2022 2023
Middle Market Institutional Loan Maturities
(1) Source: National Center for the Middle Market 3Q 2016 Middle Market Indicator. (2) Chart represents capital investment allocation of U.S. middle market companies willing to invest. 64% expressed a desire to invest. (3) Source: Thomson Reuters LPC. (4) Source: PitchBook Private Equity 2H‐15 Fundraising and Capital Overhang Report.
Impact on Banks New Regulations Asset Quality Review Solvency II Directive Basel III Dodd-Frank / Volcker Rule Large Bank Supplementary Leverage Ratio
– Higher capital requirements (>10% likely)
– Captures all bank assets, including off balance sheet assets and unfunded commitments
– More difficulty underwriting higher leveraged transactions
– Limits dependence on short-term funding markets
Although phase-in will be over the next 5 years, banks are already retrenching
OCC Leverage Lending Guidelines
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Increased bank regulation and deleveraging represents the single largest opportunity for non-bank capital providers to the middle market
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(1) Source: SNL. Gross leverage defined as tangible assets divided by tangible common equity. Capital markets firms include: Bank of America, Bear Stearns, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase , Lehman Brothers, Merrill Lynch, Morgan Stanley, and Wells Fargo & Co. (2) Source: S&P Global Market Intelligence, LCD Quarterly Leveraged Lending Review: 3Q16, Primary Market for Highly Leveraged Loans: Banks vs Non-Banks.
40.8x 16.2x 3/31/2008 6/30/2016
18% 82% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1Q-3Q16 Banks & Securities Firms Non-banks (institutional investors and finance companies)
Average Gross Leverage Ratio for Capital Markets Firms (1) Banks vs Non-Bank Participation in Levered Loans (2) Business Exited or Curtailed by Banks
Opportunity Asset Types
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Benefits Broadly Syndicated Loans Middle Market Loans Control Over Credit Documentation
Due Diligence Access
Partial Full
Credit Performance
–
Enhanced
Relationship With Borrower
Limited Comprehensive
Hold Size Flexibility / Control
Origination Economics
Premium Asset Spreads
Syndication Control
1 2 3 4 5 6 7 8
Middle market loans historically have had lower default rates and higher recovery rates than broadly syndicated loans
Control of origination for middle market loans is designed to result in better economics and risk-adjusted returns
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We intend to reposition our portfolio in such a way that we believe will have a lower risk profile and less volatility Specifically, we will endeavor to:
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With the successful execution of this repositioning plan, we believe that AINV should generate consistent and sustainable ROEs
Corporate Lending 42% Aircraft Leasing 19% Existing Specialty Verticals 34% Life Sciences 0.3% Other 5% Corporate Lending ~ 50% ─ 60% Aircraft Leasing ~15% Existing Specialty Verticals and Other ~7% Life Sciences, Asset-Based Lending and Lender Finance ~20% to 25%
Current Portfolio Asset Mix (1)
We intend to increase our exposure to senior secured loans sourced by Apollo’s direct
lending, and lender finance – areas with significant barriers to entry and areas in which MidCap has expertise
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(1) As of September 30, 2016. On a fair value basis. (2) Existing specialty verticals includes oil & gas, renewables, shipping and structured credit.
(2)
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We believe that Apollo has one of the largest and most diverse origination teams in the marketplace covering a diverse array of end markets Combined with the recent receipt of exemptive relief to co-invest, we believe that the Apollo platform is one that very few alternative asset managers can compete against
Financial Sponsors Origination Channels Wall Street Niche Markets
transactions with 100+ different sponsors
effort into financial sponsors
products increases relevancy
areas with high barriers to entry
teams
specialized teams
relationship with Wall Street intermediaries
good access
may be used to fund core investments Direct Origination
Corporate Lending Life Sciences, ABL, Lender Finance and Aviation
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Origination Channel Asset Yield AINV MidCap Corporate Lending Senior 4% ─ 6% Stretch Senior 6% ─ 8% Junior 8% ─ 11% Real Estate Lending 4.5% ─ 7.5% Life Sciences Lending 9% ─ 12% Asset─Based Lending 5% ─ 11% Lender Finance 5.5% ─ 11.5% Aviation (1) 11% ─ 14% Total Investments (in billions) $2.5 (2) $6.3 (2) Primary Mandate Senior and subordinated debt yielding ~ 8% to 12% Senior debt yielding ~ 5% to 8%
We believe the Apollo platform has one of the broadest suites of direct lending products in the marketplace
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(1) Investment in aviation made via Merx Aviation Finance , LLC, a wholly owned portfolio company. (2) As of September 30, 2016. (3) Co-investments that are subject to the exemptive order are to be pari-passu
Occasional
certain asset classes will be suitable for both AINV and MidCap (3)
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Portfolio Key Statistics (1) Investment Portfolio (2) $2.55 bn # of Portfolio Companies 82 Weighted Average Yield 11.0% % Floating Rate (3) 52% Average Company Exposure (2) $31 mn Median Company Exposure (2) $18 mn Median EBITDA (at close) $65 mn Net Leverage Through AINV Position At Close 5.62 x Current 5.52 x Interest Coverage At Close 2.48 x Current 2.64 x
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(1) As of September 30, 2016. (2) On a fair value basis. (3) Based on income-bearing portfolio.(4) Existing specialty verticals includes oil & gas, renewables, shipping and structured credit.
Portfolio by Security Type(1) (2) Portfolio by Strategy(1) (2)
1st Lien 42% 2nd Lien 22% Unsecured 9% Structured Products and Other 12% Common Equity and Warrants 12% Preferred Equity 3% Corporate Lending 42% Aircraft Leasing 19% Existing Specialty Verticals 34% Life Sciences 0.3% Other 5%
(4)
Fixed Rate vs. Floating Rate (1) (2) (4) Sponsored vs. Non-Sponsored (1) (2)
Non-Sponsored 61% Sponsored 39%
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Portfolio by Industry (1) (2)
Fixed Rate Assets 48% Floating Rate Assets 52%
Business Services 19% Aviation and Consumer Transport 19% Diversified Investment Vehicles, Banking, Finance, Real Estate 12% Energy – Oil & Gas 10% Energy – Electricity 8% Transportation – Cargo, Distribution 8% High Tech Industries 6% Insurance 3% Telecommunications 3% Chemicals, Plastics & Rubber 2% Other 10%
(1) On a fair value basis. (2) As of September 30, 2016. (3) Other consists of: Hotel, Gaming, Leisure, Restaurants; Consumer Services; Healthcare & Pharmaceuticals; Manufacturing, Capital Equipment; Utilities – Electric; Food & Grocery; Consumer Goods – Durable; Advertising, Printing & Publishing; Environmental Industries; Containers, Packaging & Glass; Media – Diversified & Production; Broadcasting & Subscription; Metals & Mining; and Education . (4) Based on income-bearing portfolio. (3)
Corporate lending represents ~42% of portfolio ~86% of corporate lending is sponsored
Top Ten Industries (1) Average Position Size, at fair value
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Rank Industry Market Value % of Portfolio 1 Business Services 483,614 $ 19.0% 2 Aviation and Consumer Transport 482,096 18.9% 3 Diversified Investment Vehicles, Banking, Finance, Real Estate 305,805 12.0% 4 Energy – Oil & Gas 246,471 9.7% 5 Energy – Electricity 215,688 8.5% 6 Transportation – Cargo, Distribution 213,912 8.4% 7 High Tech Industries 161,010 6.3% 8 Insurance 66,125 2.6% 9 Telecommunications 64,598 2.5% 10 Chemicals, Plastics & Rubber 60,510 2.4% Top Ten Total 2,299,830 $ 90.2% Other 248,738 9.8% Total Portfolio 2,548,568 $ 100.0%
$32,592 $32,305 $32,773 $32,317 $31,080 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16
$ in thousands
Top ten companies and top ten industries based on market value as of September 30, 2016.
Top Ten Portfolio Companies (1)
Rank Portfolio Company Market Value % of Portfolio 1 Merx Aviation Finance, LLC 482,096 $ 18.9% 2 Solarplicity Group Limited (f/k/a AMP Solar UK) 184,146 7.2% 3 U.S. Security Associates Holdings, Inc. 135,000 5.3% 4 MSEA Tankers LLC 83,361 3.3% 5 Golden Bear Warehouse LLC 73,457 2.9% 6 Canacol Energy Ltd. 72,825 2.9% 7 Spotted Hawk 63,661 2.5% 8 Glacier Oil & Gas Corp. (f/k/a Miller Energy Resources, Inc.)
56,050
2.2% 9 Skyline Data, News and Analytics LLC (Dodge)
55,428
2.2% 10 Maxus Capital Carbon SPE I, LLC (Skyonic)
53,668
2.0% Top Ten Total 1,259,693 $ 49.4% Other 1,288,875 50.6% Total Portfolio 2,548,568 $ 100.0%
Net Leverage through AINV Position
(weighted average by cost)
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Median LTM EBITDA
$63 $65 $72 $66
Sep-15 Sep-16 At Close Current
5.74 x 5.62 x 5.63x 5.52x
Sep-15 Sep-16 At Close Current 2.46x 2.48x 2.85x 2.64x Sep-15 Sep-16 At Close Current
Source: Company data. Includes all portfolio company investments except structured products, common equities, warrants and investments on non-accrual status. Also excludes select investments where debt-to-EBITDA is not a relevant or appropriate metric, or data is not available.
Total Cash Interest Coverage
(weighted average by cost)
Asset-Based Lending
selectively include term loans against fixed assets or as supported by cash flow
expertise, borrowing base monitoring capabilities and complex cash dominion structures
Life Sciences Lending
product development (e.g., biotech companies) or early commercialization
across market
and liquidation value
Lender Finance
their underlying collateral
underlying borrowers
specific assets, and corporate and/or personal recourse with various restrictive covenants
diversification of underlying collateral
asset class
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(1) On a fair value basis. (2) As of September 30, 2016. (3) See definition of AUM at beginning of presentation.
Deal Sourcing Underwriting & Due Diligence Structuring, Pricing & Approval Portfolio Monitoring
team
non-sponsor transactions with a focus on specialty verticals
− Long-term relationships − Transactions with > 100
sponsors
− 39% of portfolio is
sponsor-backed (1) (2)
restrictions
− Coverage and
experience
− Market insights − Proprietary research − Apollo’s credit segment
AUM ~$135 billion (2) (3)
philosophy
− Preservation of capital − Strong asset coverage
Apollo platform
− Access to management
teams of private equity portfolio companies
review
− Iterative process
portfolio reviews
valuation for non-quoted investments
managerial assistance
problem investments
− Dedicated professionals
for managing problem investments
− Weekly review of watch
list
− Structuring and terms − Typical forms include:
strong covenants, collateral package, prepayment protection, Board seat or
Committee approval
− Weekly meetings to
discuss and vote on new deals
− Comprised of senior
personnel from across Apollo Multi-Channel Sourcing Engine Focus on Risk-Adjusted Returns Protect Downside Risk Comprehensive and Regular Review and Dialogue
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(1) Source: Airbus. (2) Source: IATA
Favorable Industry Fundamentals
AINV established a wholly owned portfolio company Merx Aviation Finance, LLC (“Merx”) to participate in aircraft leasing
– Since the 1970’s, air traffic has roughly doubled every 15 years (1) – During the past 20 years global passenger traffic has expanded at an average annual growth rate of 5.1%, while global GDP grew by an average annual rate of 3.7% over the same period. (2)
movement of aircraft off of airlines’ balance sheets to lessor balance sheets
new deliveries) have been pulling back
causes market to be inefficient
Investment Thesis / Strategy
– Generally targeting used current generation Boeing and Airbus commercial aircraft
by the underlying “metal” value of the aircraft
strategy while leveraging strong relationships and specialized knowledge creates attractive investment
acquisitions and dispositions
aircraft type, lessee, geography
Aircraft by Type (1) (2)
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70 aircraft 11 aircraft types 37 lessees in 19 countries
Weighted average age of aircraft
~7.5 years
Weighted average lease maturity
~4.8 years
B737-800 42% A320-200 26% A330-200 7% 777- 200LRF 6% A321-200 4% A319-100 4% E-195 3% B737-700 3% E-190 2% B737- 900ER 2% E-170 1% (1) As of September 30, 2016. (2) Based on base value. (3) Revenue for next four quarters.
Merx Portfolio (1) Aircraft by Region (1) (2)
Asia 28% Europe 20% North America 20% LATAM 16% Africa 5% Australia 8% Middle East 3%
Aircraft Value by Lessee (1) (2)
10 9 9 8 8 6 4 8 4 4
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
# of leases maturing by year
9% 7% 6% 5% 5% 4% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% 2% 2% 2% 23%
17 Lessees Each < 2% 37 Lessees
Staggered Lease Maturity (1) Revenue by Lessee (1) (3)
8.6% 7.3% 5.8% 4.8%
37 Lessees
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In our view, AINV is an attractive investment for the following reasons:
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(1) Net leverage ratio is defined as debt outstanding plus payable for investments purchased, less receivable for investments sold, less cash, less foreign currencies at fair value, divided by net assets.
AINV has managed down its net leverage ratio over the last several quarters while also repurchasing stock over the same period
0.73 x 0.76 x 0.75 x 0.66 x 0.63 x 0.00 x 0.10 x 0.20 x 0.30 x 0.40 x 0.50 x 0.60 x 0.70 x 0.80 x 0.90 x 1.00 x Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Net Leverage Ratio Target Range Previous Upper Target
Upper Target ~ 0.70x Lower Target ~ 0.60x Previous Upper Target ~ 0.75x
Security Position of Oil & Gas Portfolio(1) (2) Oil & Gas Companies(1)
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(1) As of September 30, 2016. (2) On a fair value basis.
Oil & Gas Represents 9.7% of Portfolio (1) (2)
Energy ─ Oil & Gas $246 9.7%
$ in millions
Secured 45% Unsecured 30% Preferred Equity, Common Equity and Warrants 25%
$ in millions
Company Cost Fair Value FV / Cost Geography Oil Gas Play 1 Canacol Energy Ltd. $73.6 $72.8 99% Colombia Conventional 2 Glacier Oil & Gas Corp. (f/k/a Miller Energy Resources, Inc.) $62.9 $56.1 89% Alaska Cook Inlet 3 Spotted Hawk Development, LLC $85.2 $63.7 75% North Dakota Bakken 4 Pelican Energy, LLC $27.8 $14.9 54% Diversified SPV rights to Chesapeake Energy drilled wells 5 Venoco, Inc. $89.0 $39.1 44% California California Total $338.5 $246.5 73%
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We believe the evolving bank regulatory environment will limit banks’ willingness and / or ability to make leveraged loans, which is expected to result in new opportunities for non-bank capital providers, such as BDCs
KEY DATES DESCRIPTION IMPACT
Risk-based Capital Ratios Basel III Phase-in 2014-2019
banks (“G-SIBs”) and their U.S. insured depository institutions (“IDI”)
are 7.0%, 8.5% and 10.5%, respectively, inclusive of 2.5% capital conservation buffer
G-SIBs Supplementary Leverage Ratio Implementation January 2018
sheet exposures including unfunded commitments
for others Leveraged Lending Guidance Guidance Effective May 2013 More Specific Guidance December 2013 and November 2014 Reviews Began May 2014 Heighted Scrutiny September 2014
higher leverage transactions (i.e., LBOs) more difficult for the largest banks
distribute, even if entire deal is syndicated
monthly
‒ Senior Debt-to-EBITDA > 3:1 ‒ Total Debt-to-EBITDA > 4:1
structures Risk Retention Rules Final Rules Approved October 2014 Implementation 2016
without selling or hedging for the life of the securitization
sponsor The Volcker Rule Finalized December 2013 Implementation July 2015
hedge fund, private equity fund), subject to limited exceptions
exceptions
covered funds they are permitted to sponsor
November 8, 2016
Forward-Looking Statements We make forward-looking statements in this presentation and other filings we make with the Securities and Exchange Commission (“SEC”) within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward- looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of
this release, the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may” or similar expressions, are intended to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking: the return on equity; the yield on investments; the ability to borrow to finance assets; and risks associated with investing in real estate assets, including changes in business conditions and the general economy. The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Forward-looking statements are not predictions of future events. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Some of these factors are described in the company’s filings with the SEC. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking
possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This presentation may contain statistics and
Past Performance Past performance is not indicative nor a guarantee of future returns, the realization of which is dependent on many factors, many of which are beyond the control of Apollo Global Management, LLC; Apollo Investment Management, L.P.; and Apollo Investment Corporation (collectively “Apollo”). There can be no assurances that future dividends will match or exceed historic ones, or that they will be made at all. Net returns give effect to all fees and expenses. Unless otherwise noted, information included herein is presented as of the date indicated on the cover page and may change at any time without notice. Apollo Investment Corporation (the “Corporation”) is subject to certain significant risks relating to our business and investment
10-Q. Financial Data Financial data used in this presentation for the periods shown is from the Corporation’s Form 10-K and Form 10-Q filings with the SEC during such
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$36.1 million, or $0.16 per share for the quarter ended June 30, 2016
$0.00 per share, compared to ($78.2) million, or ($0.35) per share, for the quarter ended June 30, 2016
– Oil and gas exposure reduced to 9.7% of the portfolio as of the of the end of the quarter, down from 11.6% as of June 30, 2016, measured at fair value – Structured credit exposure reduced to 7.8% of the portfolio as of the of the end of the quarter, down from 9.1% as of June 30, 2016, measured at fair value; Subsequent to quarter end, exited another structured credit position further reducing exposure to approximately 6.5% (1) – Closed two life sciences co-investment transactions along with MidCap during the quarter
repurchased to $150 million, and continued to actively repurchase stock during the quarter – Repurchased 3.1 million shares of common stock for an aggregate cost of $18.3 million during the quarter – Since the end of the quarter (2), repurchased 2.2 million shares of common stock for an aggregate cost of $13.1 million – Since the inception of the share repurchase program(2), repurchased 17.0 million shares of common stock for an aggregate cost of $99.8 million
shareholders of record as of December 21, 2016 Second Quarter of Fiscal Year 2017 (Three Months Ended September 30, 2016) and Other Recent Highlights
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(1) Assumes the fair value of the total investment portfolio remains unchanged.. (2) Through November 7, 2016,
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(1) Numbers may not sum due to rounding. (2) In applying the if-converted method, conversion shall not be assumed for purposes of computing diluted EPS if the effect would be anti-dilutive. For the three months ended June 30, 2016, and September 30, 2016, the Company did not have any convertible notes. As such, diluted EPS was not applicable. (3) Numbers for March 31, 2016 were updated due to the retrospective application of the new accounting pronouncements (ASU 2015-03 and ASU 2015-15) adopted as of June 30, 2016. (4) The Company’s net leverage ratio is defined as debt outstanding plus payable for investments purchased, less receivable for investments sold, less cash, less foreign currencies, divided by net assets. (5) On a cost basis. Exclusive of securities on non-accrual status.
($ in thousands, except per share data) 2Q'17 1Q'17 4Q'16 3Q'16 2Q'16 Operating Results (1) Net investment income 39,537 $ 36,064 $ 44,618 $ 48,091 $ 49,561 $ Net realized and change in unrealized gains (losses) 1,577 (78,149) (68,015) (73,863) (51,308) Net increase (decrease) in net assets resulting from operations 41,114 $ (42,086) $ (23,397) $ (25,772) $ (1,747) $ Net investment income per share 0.18 $ 0.16 $ 0.20 $ 0.21 $ 0.21 $ Net realized and change in unrealized gain (loss) per share 0.00 (0.35) (0.30) (0.32) (0.22) Earnings (Loss) per share - basic 0.18 $ (0.19) $ (0.10) $ (0.11) $ (0.01) $ Earnings (Loss) per share - diluted (2) N/A N/A (0.10) $ (0.11) $ (0.01) $ Dividend recorded per common share 0.15 $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ Select Balance Sheet and Other Data Investment portfolio (at fair value) 2,548,568 $ 2,617,714 $ 2,916,829 $ 3,068,993 $ 3,194,049 $ Debt outstanding (3) 1,014,794 $ 1,098,977 $ 1,312,960 $ 1,384,719 $ 1,370,163 $ Net assets 1,541,938 $ 1,552,409 $ 1,645,581 $ 1,724,209 $ 1,826,860 $ Net asset value per share 6.95 $ 6.90 $ 7.28 $ 7.56 $ 7.83 $ Debt-to-equity ratio (3) 0.66 x 0.71 x 0.80 x 0.80 x 0.75 x Net leverage ratio (3) (4) 0.63 x 0.66 x 0.75 x 0.76 x 0.73 x Weighted average shares outstanding 223,835,344 225,940,769 226,474,566 231,537,374 235,873,005 Shares outstanding 221,994,770 225,067,696 226,156,496 228,168,622 233,400,951 Number of portfolio companies, at period end 82 81 89 95 98 Weighted Average Yields, at period end (5) Secured debt 11.0% 11.0% 11.0% 11.4% 11.3% Unsecured debt 10.8% 10.8% 10.7% 11.2% 11.3% Total debt portfolio 11.0% 11.0% 11.0% 11.4% 11.6%
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(1) Numbers may not sum due to rounding. (2) Yield on activity is for debt investments and excludes select short-term trades and securities on non-accrual status.
($ in thousands) 2Q'17 1Q'17 4Q'16 3Q'16 2Q'16 Portfolio Activity (1) Investments made 127,629 $ 122,718 $ 178,507 $ 197,085 $ 204,237 $ Investments sold (17,924) (146,040) (189,911) (135,378) (80,132) Net investment activity before repayments 109,705 $ (23,322) $ (11,404) $ 61,707 $ 124,105 $ Investments repaid (197,130) (193,376) (75,380) (126,216) (199,546) Net investment activity (87,425) $ (216,698) $ (86,784) $ (64,509) $ (75,441) $ Number of portfolio companies, at beginning of period 81 89 95 98 102 Number of new portfolio companies 6 5 4 4 4 Number of exited portfolio companies (5) (13) (10) (7) (8) Number of portfolio companies, at period end 82 81 89 95 98 Number of investments in existing portfolio companies 10 12 12 19 9 Yield on Activity (2) Yield on investments made 10.3% 10.8% 11.2% 11.0% 10.3% Yield on sales and repayments 10.7% 10.5% 10.2% 11.2% 11.0%
Portfolio Yield (1) (2) Net Investment Activity ($ in millions) Yield on Investment Activity (2) (3)
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(1) Weighted average yield on total debt portfolio on a cost basis at period end, exclusive of investments on non-accrual status. (2) Change in terms on investments may impact the weighted average yield of the total debt portfolio but are not reflected in new, sold or repaid investments. (3) Yield on activity is for debt investments and excludes select short-term trades and securities on non-accrual status..
Investment Activity ($ in millions)
($75) ($65) ($87) ($217) ($87) Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 10.3% 11.0% 11.2% 10.8% 10.3% 11.3% 11.2% 10.5% 11.9% 13.1% 10.9% 11.7% 9.6% 9.9% 10.4% Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 New Investments Sales Repayments 11.6% 11.4% 11.0% 11.0% 11.0% Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 $204 $197 $179 $123 $128 ($80) ($135) ($190) ($146) ($18) ($200) ($126) ($75) ($193) ($197) Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 New Investments Sales Repayments
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(1) Numbers may not sum due to rounding. (2) First lien purchases include revolver drawdowns; first lien sales and repayments includes revolver repayments. (3) Yield on activity is for debt investments and excludes select short-term trades and securities on non-accrual status.
($ in thousands) 2Q'17 1Q'17 4Q'16 3Q'16 2Q'16 Purchases (1) First lien (2) 55,021 $ 58,225 $ 104,393 $ 66,279 $ 22,443 $ Second lien 51,154 46,476 31,510 44,827 103,642 Total secured debt 106,175 104,700 135,903 111,105 126,085 Unsecured debt 5,154
23,003
16,301 11,270 14,035 12,444 18,012 Preferred equity
30,529 27,140 Common equity/interests and warrants
9,350 20,004 33,000 Total Purchases 127,629 $ 122,718 $ 178,507 $ 197,085 $ 204,237 $ Yield at Cost on Debt Purchases (3) First lien 10.5% 11.2% 11.7% 10.8% 10.0% Second lien 10.0% 10.3% 9.7% 9.8% 9.4% Total secured debt 10.3% 10.8% 11.2% 10.4% 9.5% Unsecured debt 10.2% N/A N/A 10.2% N/A Preferred equity N/A N/A N/A 14.4% 14.0% Yield at Cost on Debt Purchases 10.3% 10.8% 11.2% 11.0% 10.3% Sales and Repayments (1) First lien (2) 26,172 $ 89,874 $ 115,085 $ 70,708 $ 138,879 $ Second lien 128,578 140,586 80,701 57,943 41,928 Total secured debt 154,750 230,459 195,786 128,651 180,807 Unsecured debt 4,461 13,473 40,722 25,997 14,708 Structured products and other 48,239 31,561 10,751 87,389 11,287 Preferred equity 306 1,016 157 726
7,298 62,907 17,874 18,831 72,876 Total Sales and Repayments 215,054 $ 339,416 $ 265,291 $ 261,594 $ 279,678 $ Yield at Cost on Debt Sales and Repayments (3) First lien 10.3% 12.1% 10.9% 12.2% 11.5% Second lien 10.8% 9.8% 9.4% 9.8% 9.9% Total secured debt 10.7% 10.6% 10.2% 11.1% 11.1% Unsecured debt 12.0% 9.4% 9.7% 10.9% 10.4% Preferred equity 4.0% 4.0% 4.0% 8.0% N/A Yield at Cost on Debt Sales and Repayments 10.7% 10.5% 10.2% 11.2% 11.0% Yield at Cost on Sales 13.1% 11.9% 10.5% 11.2% 11.3% Yield at Cost on Debt Repayments 10.4% 9.9% 9.6% 11.7% 10.9%
Net Asset Value Per Share
Numbers may not sum due to rounding..
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$6.95 $6.90 $7.28 $7.56 $7.83 Sep-16 Jun-16 Mar-16 Dec-15 Sep-15
($ in thousands, except per share data) 2Q'17 1Q'17 4Q'16 3Q'16 2Q'16 Per Share NAV, beginning of period 6.90 $ 7.28 $ 7.56 $ 7.83 $ 8.01 $ Net investment income 0.18 0.16 0.20 0.21 0.21 Net realized and change in unrealized gain (loss) 0.00 (0.35) (0.30) (0.32) (0.22) Net increase (decrease) in net assets resulting from operations 0.18 (0.19) (0.10) (0.11) (0.01) Repurchase of common stock 0.02 0.01 0.02 0.04 0.03 Dividend recorded (0.15) (0.20) (0.20) (0.20) (0.20) NAV, end of period 6.95 $ 6.90 $ 7.28 $ 7.56 $ 7.83 $ Total NAV, beginning of period 1,552,409 $ 1,645,581 $ 1,724,209 $ 1,826,860 $ 1,896,650 $ Net investment income 39,537 36,064 44,618 48,091 49,561 Net realized and change in unrealized gains (losses) 1,577 (78,150) (68,015) (73,863) (51,308) Net increase (decrease) in net assets resulting from operations 41,114 (42,086) (23,397) (25,772) (1,747) Repurchase of common stock (18,270) (6,073) (10,000) (31,244) (21,193) Dividends recorded (33,315) (45,013) (45,231) (45,634) (46,851) NAV, end of period 1,541,938 $ 1,552,409 $ 1,645,581 $ 1,724,209 $ 1,826,860 $
Fixed Rate vs. Floating Rate (1) (2) By Industry (1) (3) Sponsored vs. Non-sponsored (1)
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(1) On a fair value basis. (2) Based on income-bearing portfolio. (3) Other consists of: Hotel, Gaming, Leisure, Restaurants; Consumer Services; Healthcare & Pharmaceuticals; Manufacturing, Capital Equipment; Utilities – Electric; Food & Grocery; Consumer Goods – Durable; Advertising, Printing & Publishing; Environmental Industries; Containers, Packaging & Glass; Media – Diversified & Production; Broadcasting & Subscription; Metals & Mining; and Education
By Asset Class (1)
Secured debt 64% Unsecured debt 9% Structured products and
12% Preferrred equity, common equity/interests and w arrants 15%
Fixed Rate Assets 48% Floating Rate Assets 52% Sponsored 39% Non- sponsored 61%
Business Services 19.0% Aviation and Consumer Transport 18.9% Diversified Investment Vehicles, Banking, Finance, Real Estate 12.0% Energy – Oil & Gas 9.7% Energy – Electricity 8.5% Transportation – Cargo, Distribution 8.4% High Tech Industries 6.3% Insurance 2.6% Telecommunications 2.5% Chemicals, Plastics & Rubber 2.4% Other 9.7%
47 ($ in thousands) 2Q'17 1Q'17 4Q'16 3Q'16 2Q'16 Portfolio Composition, measured at fair value ($) First lien 1,060,606 $ 1,055,120 $ 1,106,150 $ 1,134,542 $ 1,067,013 $ Second lien 559,782 647,203 799,752 910,318 943,065 Total secured debt 1,620,388 $ 1,702,323 $ 1,905,903 $ 2,044,860 $ 2,010,078 $ Unsecured debt 234,645 233,136 255,823 285,889 295,679 Structured products and other 307,052 315,443 329,602 329,752 413,465 Preferred equity 67,602 67,538 68,562 83,153 160,108 Common equity/interests and warrants 318,881 299,274 356,940 325,339 314,719 Total investment portfolio 2,548,568 $ 2,617,714 $ 2,916,829 $ 3,068,993 $ 3,194,049 $ Portfolio Composition, measured at fair value (%) First lien 42% 40% 38% 37% 33% Second lien 22% 25% 27% 30% 30% Total secured debt 64% 65% 65% 67% 63% Unsecured debt 9% 9% 9% 9% 9% Structured products and other 12% 12% 11% 11% 13% Preferred equity 3% 3% 2% 3% 5% Common equity/interests and warrants 12% 11% 13% 10% 10% Income-bearing investment portfolio composition, measured at fair value Fixed rate % 48% 48% 47% 48% 42% Floating rate % 52% 52% 53% 52% 58% Sponsored vs. Non-sponsored, measured at fair value Sponsored 39% 41% 44% 46% 45% Non-sponsored 61% 59% 56% 54% 55%
During the quarter ended September 30, 2016, no investments were placed on non-accrual status. As of September 30, 2016, 11.1% of total investments at amortized cost, or 3.9% of total investments at fair value, were on non-accrual status.
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(1) Source: Company data. Includes all portfolio company investments except structured products, common equities, warrants and investments on non-accrual status. Also excludes select investments where debt-to-EBITDA is not a relevant or appropriate metric, or data is not available. Weighted average by cost. (2) The investments in SquareTwo Financial Corporation are included in AIC SPV Holdings I, LLC.
($ in thousands) 2Q'17 1Q'17 4Q'16 3Q'16 2Q'16 Investments on Non-Accrual Status Non-accrual investments at amortized cost 312,955 $ 339,970 $ 259,166 $ 194,358 $ 157,044 $ Non-accrual investments / total portfolio, at amortized cost 11.1% 11.8% 8.4% 6.0% 4.7% Non-accrual investments at fair value 99,521 $ 118,292 $ 121,508 $ 76,664 $ 69,234 $ Non-accrual investments / total portfolio, at fair value 3.9% 4.5% 4.2% 2.5% 2.2% Portfolio Company Credit Metrics (1) Net Leverage (Close) 5.6 x 5.6 x 5.5 x 5.5 x 5.7 x Net Leverage (Current) 5.5 x 5.4 x 5.4 x 5.5 x 5.6 x Interest Coverage (Close) 2.5 x 2.5 x 2.5 x 2.5 x 2.5 x Interest Coverage (Current) 2.6 x 2.8 x 2.7 x 2.7 x 2.9 x ($ in thousands) Industry Cost Fair Value Investments on Non-Accrual Status as of September 30, 2016 Garden Fresh 53,649 $
Gryphon Colleges Corporation / (Delta Educational Systems) Education 71,051
Metals & Mining 12,427 43 Pelican Energy – Oil & Gas 26,665 14,864 Spotted Hawk Energy – Oil & Gas 84,380 63,661 SquareTwo (CA Holdings, Collect America, Ltd.) (2) 64,783 20,954 Total 312,955 $ 99,521 $ Hotel, Gaming, Leisure, Restaurants Diversified Investment Vehicles, Banking, Finance, Real Estate
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(1) Includes the stated interest expense and commitment fees on the unused portion of the Senior Secured Facility. Excludes amortized debt issuance costs. For the three months ended September 30, 2016. Based on average debt
Debt Facilities Debt Issued / Amended Final Maturity Date Interest Rate Principal Amount Outstanding
(in thousands)
Senior Secured Facility ($1.31 billion) 4/25/2015 4/24/2020 L + 200 bps 367,991 $ Senior Secured Notes (Series B) 9/29/2011 9/29/2018 6.25% 16,000 2042 Notes 10/9/2012 10/15/2042 6.625% 150,000 2043 Notes 6/17/2013 7/15/2043 6.875% 150,000 2025 Notes 3/3/2015 3/3/2025 5.25% 350,000 $ Weighted Average Annualized Interest Cost (1) & Total Debt Obligations 5.213% 1,033,991 $ Deferred Financing Cost and Debt Discount (19,197) Total Debt Obligations,Net of Deferred Financing Cost and Debt Discount 1,014,794 $
Apollo Investment Corporation has taken several steps to prepare for higher interest rates including: increasing the floating rate portion of the portfolio and issuing fixed rate debt.
Funding Sources (3) Floating Rate Debt Floor Net Investment Income Interest Rate Sensitivity (4)
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(1) On a fair value basis. (2) Income-bearing investment portfolio. (3) Based on total debt obligations before deferred financing cost and debt discount. (4) The table shows the estimated annual impact on net investment income
structure.
Investment Portfolio (1) (2)
($ in millions, except per share data) Annual Net Investment Income Annual Net Investment Income Per Share Basis Point Change Up 400 basis points 22,746 $ 0.102 $ Up 300 basis points 16,696 $ 0.075 $ Up 200 basis points 10,645 $ 0.048 $ Up 100 basis points 4,595 $ 0.021 $ Fixed Rate Debt 26% Floating Rate Debt 14% Common Equity 60% Fixed Rate Assets 48% Floating Rate Assets 52% ($ in millions) Par or Cost % of Floating Rate Portfolio Interest Rate Floors No Floor 200 $ 18% < =1.24% 832 $ 75% 1.25% to 1.49% 73 $ 7% 1.50% to 1.74% 3 $ 0% > =1.75%
0% Total 1,107 $ 100%
For more information, please contact: Elizabeth Besen Investor Relations Manager Phone: (212) 822-0625 Email: ebesen@apollolp.com Gregory W. Hunt Chief Financial Officer and Treasurer Phone: (212) 822-0655 Email: ghunt@apollolp.com
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