Apollo Investment Corporation Investor Presentation November 2017 - - PowerPoint PPT Presentation
Apollo Investment Corporation Investor Presentation November 2017 Information is as of September 30, 2017 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 2017
Information is as of September 30, 2017 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 other risks associated with 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 or compiled from information made available by third- party service providers. 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
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 ended March 31, 2017. 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 obligations or certain collateralized loan obligation and collateralized debt obligation credit funds that have a fee generating basis other than mark-to-market asset values, plus used or 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
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. 1
2
3
4
(1) On a fair value basis. (2) As of September 30, 2017. (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 $242 billion of AUM (2) (4) with expertise in private equity, credit and real estate
company (“RIC”) for tax purposes
different 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
5
Large and Diverse Direct Origination Team Broad Product Offering Significant Scale Active Investor Strong External Manager Co-investment Exemptive Relief Commitment To Repurchase Stock
Founded: 1990 AUM: $242bn Employees: 1,024
Global Offices: 16
6
(1) As of September 30, 2017. Please refer to the definition of Assets Under Management at the beginning of this presentation. Note: AUM components may not sum due to rounding.
Global Footprint Credit
$158bn AUM
investments
Private Equity
$70bn AUM
Real Assets
$13bn 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
Business Segments
Toronto Bethesda Chicago
New York Bethesda Los Angeles Houston Chicago Toronto Madrid London Frankfurt Luxembourg Mumbai Delhi Singapore Hong Kong Shanghai
Premier U.S. Private Debt Platform
7
(1) As of September 30, 2017.
MidCap is a full service finance company focused on middle market senior debt ~ $7.4 Billion Portfolio (1) AINV is a business development company or “BDC” focused on middle market debt $2.4 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
8
Total Years
Experience Years at Apollo
Jim Zelter Managing Partner and Chief Investment Officer, Apollo Credit Chief Executive Officer of Apollo Investment Corporation 33 11 Howard Widra Global Head of Direct Origination, Apollo President of Apollo Investment Corporation 29 4 Tanner Powell Chief Investment Officer, Apollo Investment Management, L.P. 15 11 Pat Ryan Chief Credit Officer, Apollo Credit Chief Credit Officer, Apollo Investment Management, L.P. 32 2
Average Total Years of Work Experience Average Total Years at Apollo
3 Managing Directors 26 10 6 Principals 10 5 7 Junior Staff 35+ people focused on direct origination / sourcing
Direct Origination Investment Committee Underwriting Team Origination / Sourcing Team
9
(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. (2) Through September 30, 2017.
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
investment exemptive order (2)
10
11
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; Bulk of deals come due in 2021 (3) Significant un-invested private equity capital should translate into strong loan demand (4)
United States China U.S. Middle Market Japan Germany
30% 23% 14% 27% 6% 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.
$553 $800
Dry Powder (Middle-market focused PE Firms) Implied potential loan demand (assuming 40% capitalization rate)
$ in billions $ in billions
$4 $17 $21 $28 $34 $31 $16 $17
2017 2018 2019 2020 2021 2022 2023 2024
Middle Market Institutional Loan Maturities
(1) Source: National Center for the Middle Market 2Q 2017 and 3Q 2017 Middle Market Indicator. (2) Chart represents capital investment allocation of U.S. middle market companies willing to invest. 67% expressed a desire to invest. (3) Middle market institutional estimated maturities. 2017 represents 4Q17. Source: Thomson Reuters LPC. (4) Source: PitchBook US PE Middle Market Report 2017 1Q.
2,000 4,000 6,000 8,000 10,000 12,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Total Number of U.S. Banks Continues to Decline (1) Leveraged Lending Guidance Banks’ Reduced Participation in Loan Market (2)
12
traditional financing sources and the global capital markets – Banks have markedly decreased their underwriting exposure
noticeable with the Office of the Comptroller of the Currency (“OCC”) leveraged lending guidance. Originally introduced in 2013, but has recently been more broadly enforced to reduce banks’ exposure to certain types of loans. – Impacting significant portion of high yield and loan markets
Banks’ Cautious Approach
Banks are participating in fewer junior capital transactions or syndicating increasing portions of their exposure
transactions include: – Leverage: cannot exceed 4x EBITDA for senior debt or 6x for total debt (including all committed capital and assuming revolvers are drawn) – Repayment: senior debt must fully amortize or total debt must be reduced by half using free cash flow within 5-7 years – Covenants: adequate covenant protections, including financial maintenance covenants – Collateral: protection against dilution, sale or exchange of collateral or cash flow producing assets
Source: (1) FDIC as of June 30, 2017 FDIC-Insured commercial banks and savings institutions. (2) S&P Global Market Intelligence. LCD’s Quarterly Leveraged Lending Review: 3Q17. (3) Non-banks includes institutional investors and finance companies.
> 40% Decline since 2000
10% 90% 0% 20% 40% 60% 80% 100% 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 3Q17 Banks & Securities Firms Non-banks (3)
13
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
14
Our portfolio repositioning strategy is based on the following key principles:
– Senior secured traditional corporate loans sourced by Apollo’s direct origination platform with a focus on first lien and floating rate loans – First lien loans in life sciences, asset-based lending and lender finance, areas with significant barriers to entry and areas in which MidCap has expertise
which are higher on the risk spectrum and have more volatile returns
15
(1) Oil & gas, renewables, shipping and structured credit.
With the continued successful execution of this repositioning plan, we believe that AINV should generate consistent and sustainable ROEs
Core Strategies 59% Non-Core Strategies & Legacy 41% As of June 30, 2016 (3) Core Strategies 73% Non-Core Strategies & Legacy 27% As of September 30, 2017 (3)
16
(1) Core strategies include corporate lending, aviation, life sciences, asset based and lender finance.(2) Non-core strategies include oil & gas, structured credit, renewables, shipping and commodities. (3) At fair value. (4) From July 1, 2016 through September 30, 2017. (5) The Company’s interest rate type information is based on its corporate debt portfolio, exclusive of investments on non-accrual status. (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.
Deployed Significant Capital in Core Strategies (1) and Meaningfully Reduced Exposure to Non-Core (2) Strategies and Legacy Assets
As of June 30, 2017 (3) Increased exposure to first lien and floating rate debt, reduced average company exposure and benefitted from co-investment exemptive relief (5)
Improved Risk Profile / Portfolio Composition
As of June 30, 2016 (3) As of September 30, 2017 (3) First Lien Debt, as % of Total Portfolio 40% 48% Floating Rate Debt, as % of Total Portfolio (5) 77% 91% Average Company Exposure $ 32.3 million $27.1 million Co-Investments, as % of Total Portfolio (6) 0% 16%
Invested approximately $1 billion in core strategies (1) (4) Reduced exposure to non-core strategies (2) and legacy assets by $432 million (4)
Corporate Lending ~ 50% ─ 60% Aircraft Leasing ~15% Existing Specialty Verticals and Other ~7% Life Sciences, Asset-Based Lending and Lender Finance ~20% to 25% Corporate Lending 50% Aircraft Leasing 18% Existing Specialty Verticals 23% Life Sciences & Asset Based 5% Other 4%
Current Portfolio Asset Mix (1)
We intend to continue to increase our exposure to senior secured loan sourced by Apollo’s direct
lender finance – areas with significant barriers to entry and areas in which MidCap has expertise
17
(1) As of September 30, 2017. On a fair value basis. (2) Existing specialty verticals includes oil & gas, renewables, shipping, structured credit and commodities.
(2) (2)
18
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
19
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% Aircraft Leasing (1) 11% ─ 14% Total Investments (in billions) $2.4 (2) $7.4 (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
1 2 3 4 5 6
(1) Investment in aviation made via Merx Aviation Finance , LLC, a wholly owned portfolio company. (2) As of September 30, 2017. (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)
20
Corporate Lending 50% Aircraft Leasing 18% Existing Specialty Verticals 23% Life Sciences & Asset Based 5% Other 4% 1st Lien 48% 2nd Lien 32% Unsecured 5% Structured Products and Other 5% Preferred Equity 1% Common Equity and Warrants 9%
Portfolio Key Statistics (1)
Investment Portfolio (2) $2.36 bn Debt Outstanding $0.86 bn Net Assets $1.47 bn Net Leverage Ratio (3) 0.59x Net Asset Value Per Share $6.72 Most Recent Quarterly Dividend (4) $0.15 per share # of Portfolio Companies 87 Weighted Average Yield (5) 10.3% % Floating Rate (2) (6) 91% Average Company Exposure (2) $27.1 mn Median Company Exposure (2) $17.0 mn Median EBITDA (4) $76 mn Net Leverage Through AINV Position (7) 5.5 x Interest Coverage (7) 2.7 x
21
(1) As of September 30, 2017. (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 and cash equivalents, less foreign currencies at fair value, divided by net assets. (4) On November 2, 2017, the Board of Directors declared a dividend of $0.15 per common share to shareholders of record as of December 21, 2017 payable on January 5, 2018. (5) On total debt portfolio. At amortized cost, exclusive of investment on non-accrual status. (6) The interest type information is calculated using the Company’s corporate debt portfolio and excludes aviation, oil and gas, structured credit, renewables, shipping, commodities and investments on non-accrual status. (7) Current. (8) As of October 31, 2017. (9) Most recent quarterly dividend annualized divided by share price. There can be no assurances that AINV’s dividend will remain at the current level. (10) Most recent quarterly dividend annualized divided by net asset value per share. There can be no assurances that AINV’s dividend will remain at the current level. (11) Existing specialty verticals includes oil & gas, renewables, shipping and structured credit.
Portfolio by Security Type (1) (2) Portfolio by Strategy (1) (2) Market Information (8)
Market Capitalization $1.30 bn Share Price $5.92 Price-to-Book 0.88x Dividend Yield at Share Price (9) 10.1% Dividend Yield at NAV (10) 8.9%
(11)
Non-Sponsored 19% Sponsored 81% Fixed Rate Assets 9% Floating Rate Assets 91%
Metals & Mining
Fixed Rate vs. Floating Rate (1) (2) (4) Sponsored vs. Non-Sponsored (1) (2) (5)
22
Portfolio by Industry (1) (2)
(1) On a fair value basis. (2) As of September 30, 2017. (3) Other consists of: Manufacturing, Capital Equipment; Aerospace & Defense; Utilities – Electric; Food & Grocery; Consumer Goods – Durable; Advertising, Printing & Publishing; Automotive; Consumer Goods – Non-durable; Hotel, Gaming, Leisure, Restaurants; Insurance; Containers, Packaging & Glass; Retail; Media – Diversified & Production and Metals & Mining. (4) The interest type information is calculated using the Company’s corporate debt portfolio and excludes aviation, oil and gas, structured credit, renewables, shipping, commodities and investments on non-accrual status. (5) The sponsored / non-sponsored percentages are calculated using the Company’s corporate debt portfolio and excludes aviation, oil and gas, structured credit, renewables, shipping and commodities. (3) Business Services 19.5% Aviation and Consumer Transport 18.2% Energy – Electricity 9.3% High Tech Industries 7.2% Energy – Oil & Gas 6.9% Healthcare & Pharmaceuticals 6.8% Transportation – Cargo, Distribution 5.6% Diversified Investment Vehicles, Banking, Finance, Real Estate 4.3% Telecommunications 2.8% Chemicals, Plastics & Rubber 2.8% Other 16.6%
(3)
Top Ten Industries (1) Average Position Size, at fair value ($ in millions)
23
(1) Top ten portfolio companies and top ten industries based on market value as of September 30, 2017.
Top Ten Portfolio Companies (1) $31.1 $29.7 $26.9 $28.8 $27.1 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17
Rank Industry Fair Value % of Portfolio 1 Business Services 460,096 $ 19.5% 2 Aviation and Consumer Transport 429,164 18.2% 3 Energy – Electricity 219,171 9.3% 4 High Tech Industries 169,494 7.2% 5 Energy – Oil & Gas 162,723 6.9% 6 Healthcare & Pharmaceuticals 160,595 6.8% 7 Transportation – Cargo, Distribution 131,434 5.6% 8 Diversified Investment Vehicles, Banking, Finance, Real Estate 101,761 4.3% 9 Telecommunications 67,213 2.8% 10 Chemicals, Plastics & Rubber 66,871 2.8% Top Ten Total 1,968,522 $ 83.4% Other 391,768 16.6% Total Portfolio 2,360,290 $ 100.0% Rank Portfolio Company Fair Value % of Portfolio 1 Merx Aviation Finance, LLC 429,164 18.2% 2 Solarplicity Group Limited (f/k/a AMP Solar UK) 141,697 6.0% 3 Spotted Hawk 89,185 3.8% 4 U.S. Security Associates Holdings, Inc. 80,000 3.4% 5 MSEA Tankers LLC 71,442 3.0% 6 Glacier Oil & Gas Corp. (f/k/a Miller Energy Resources, Inc.) 61,742 2.6% 7 Skyline Data, News and Analytics LLC (Dodge) 53,590 2.3% 8 Electro Rent Corporation 51,806 2.2% 9 Access Information 50,608 2.1% 10 Maxus Capital Carbon SPE I, LLC (Skyonic) 49,544 2.1% Top Ten Total 1,078,779 $ 45.7% Other 1,281,511 54.3% Total Portfolio 2,360,290 $ 100.0%
Net Leverage through AINV Position
(weighted average by cost)
24
Median LTM EBITDA
($ in millions)
$65 $76 $66 $82 Sep-16 Sep-17 At Close Current 5.6 x 5.5 x 5.5 x 5.5 x Sep-16 Sep-17 At Close Current 2.5 x 2.7 x 2.6 x 2.7 x Sep-16 Sep-17 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)
25
(1) On a fair value basis. (2) As of September 30, 2017. (3) The sponsored / non-sponsored percentages are calculated using the Company’s corporate debt portfolio and excludes aviation, oil and gas, structured credit, renewables, shipping and commodities. (4) 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
− 81% of corporate
portfolio is sponsor- backed (1) (2) (3)
restrictions
− Coverage and
experience
− Market insights − Proprietary research − Apollo’s credit segment
AUM ~$158 billion (2) (4)
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
26
(1) As of September 30, 2017. At fair value. (2) Source: Airbus. (3) Source: IATA
Favorable Industry Fundamentals
In 2012, AINV founded a wholly owned portfolio company - Merx Aviation Finance (“Merx”) - to participate in aircraft leasing. Merx currently represents 18.2% of AINV’s portfolio (1)
– Since the 1970’s, air traffic has roughly doubled every 15 years (2) – 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. (3)
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
8% 6% 6% 4% 4% 4% 4% 3% 3% 3% 3% 3% 3% 3% 2% 2% 2% 2% 2% 33%
23 Lessees Each < 2% 45 Lessees
Aircraft by Type (1) (2)
27
83 aircraft 11 aircraft types 45 lessees in 23 countries
Weighted average age of aircraft
~8.4 years
Weighted average lease maturity
~5.1 years
B737-800 43% A320-200 29% 777- 200LRF 6% A321-200 5% A319-100 3% B737-700 3% A330-200 3% E-195 3% E-190 2% B737- 900ER 2% E-170 1% 0% (1) As of September 30, 2017 Based on calendar year. (2) Based on base value. (3) Revenue for next four quarters. For more information about Merx, please visit www.merxaviation.com.
Merx Portfolio (1) Aircraft by Region (1) (2)
Asia 33% Europe 23% North America 21% LATAM 12% Africa 4% Australia 4% Middle East 3%
Aircraft Value by Lessee (1) (2)
1 4 8 11 10 7 12 12 6 8 3 1
2017 2019 2021 2023 2025 2027 2029
# of leases maturing by year
Staggered Lease Maturity (1) Revenue by Lessee (1) (3)
8.5% 5.8% 5.2%
45 Lessees
28
29
30
31
(1) Net leverage ratio is defined as debt outstanding plus payable for investments purchased, less receivable for investments sold, less cash and cash equivalents, less foreign currencies at fair value, divided by net assets.
0.63 x 0.66 x 0.55 x 0.62 x 0.59 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-16 Dec-16 Mar-17 Jun-17 Sep-17 Net Leverage Ratio Target Range Previous Upper Target
Upper Target ~ 0.70x Lower Target ~ 0.60x Previous Upper Target ~ 0.75x
Asset Based
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
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
32
33
(1) Numbers may not sum due to rounding. (2) The Company’s net leverage ratio is defined as debt outstanding plus payable for investments purchased, less receivable for investments sold, less cash and cash equivalents, less foreign currencies, divided by net assets. (3) On a cost basis. Exclusive of investments on non-accrual status.
($ in thousands, except per share data) 2Q'18 1Q'18 4Q'17 3Q'17 2Q'17 Sep-17 Jun-17 Mar-17 Dec-16 Sep-16 Operating Results (1) Net investment income 34,157 $ 33,320 $ 37,290 $ 36,352 $ 39,537 $ Net realized and change in unrealized gains (losses) (2,370) (4,539) (29,238) (25,062) 1,577 Net increase (decrease) in net assets resulting from operations 31,787 $ 28,781 $ 8,052 $ 11,290 $ 41,114 $ Net investment income per share 0.16 $ 0.15 $ 0.17 $ 0.17 $ 0.18 $ Net realized and change in unrealized gain (loss) per share (0.01) (0.02) (0.13) (0.12) 0.00 Earnings (Loss) per share - basic 0.14 $ 0.13 $ 0.04 $ 0.05 $ 0.18 $ Distribution recorded per common share 0.15 $ 0.15 $ 0.15 $ 0.15 $ 0.15 $ Select Balance Sheet and Other Data Investment portfolio (at fair value) 2,360,290 $ 2,416,579 $ 2,316,708 $ 2,526,333 $ 2,548,568 $ Debt outstanding 864,906 $ 920,674 $ 848,449 $ 1,033,958 $ 1,014,794 $ Net assets 1,472,600 $ 1,477,624 $ 1,481,797 $ 1,506,699 $ 1,541,938 $ Net asset value per share 6.72 $ 6.73 $ 6.74 $ 6.86 $ 6.95 $ Debt-to-equity ratio 0.59 x 0.62 x 0.57 x 0.69 x 0.66 x Net leverage ratio (2) 0.59 x 0.62 x 0.55 x 0.66 x 0.63 x Weighted average shares outstanding 219,519,803 219,694,654 219,694,654 220,168,710 223,835,344 Shares outstanding 219,034,354 219,694,654 219,694,654 219,694,654 221,994,770 Number of portfolio companies, at period end 87 84 86 85 82 Weighted Average Yields, at period end (3) Secured debt 10.3% 10.2% 10.2% 10.9% 11.0% Unsecured debt 11.2% 11.1% 11.1% 10.7% 10.8% Total debt portfolio 10.3% 10.3% 10.3% 10.9% 11.0%
34
(1) Numbers may not sum due to rounding. (2) Yield on activity is for debt investments and excludes select short-term trades and investments on non-accrual status.
($ in thousands) 2Q'18 1Q'18 4Q'17 3Q'17 2Q'17 Sep-17 Jun-17 Mar-17 Dec-16 Sep-16 Portfolio Activity (1) Investments made 265,439 $ 342,036 $ 149,408 $ 201,309 $ 127,629 $ Investments sold (11,703) (9,949) (38,393) (17,114) (17,924) Net investment activity before repayments 253,737 $ 332,087 $ 111,015 $ 184,195 $ 109,705 $ Investments repaid (328,096) (241,998) (306,449) (178,208) (197,130) Net investment activity (74,359) $ 90,089 $ (195,434) $ 5,987 $ (87,425) $ Number of portfolio companies, at beginning of period 84 86 85 82 81 Number of new portfolio companies 12 11 13 13 6 Number of exited portfolio companies (9) (13) (12) (10) (5) Number of portfolio companies, at period end 87 84 86 85 82 Number of investments in existing portfolio companies 11 11 10 8 10 Yield on Activity (2) Yield on investments made 10.0% 10.3% 9.8% 10.1% 10.3% Yield on debt sales and repayments 10.3% 11.3% 9.9% 10.5% 10.7%
Portfolio Yield (1) (2) Net Investment Activity ($ in millions) Yield on Investment Activity (2) (3)
35
(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 investments on non-accrual status.
Investment Activity ($ in millions)
($87) $6 ($195) $90 ($74) Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 10.3% 10.1% 9.8% 10.3% 10.0% 13.1% 8.8% 10.2% 9.4% 9.3% 10.4% 10.7% 9.9% 11.4% 10.3% Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 New Investments Sales Repayments $128 $201 $149 $342 $265 ($18) ($17) ($38) ($10) ($12) ($197) ($178) ($306) ($242) ($328) Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 New Investments Sales Repayments 11.0% 10.9% 10.3% 10.3% 10.3% Sep-16 Dec-16 Mar-17 Jun-17 Sep-17
36
(1) Numbers may not sum due to rounding. (2) First lien purchases include revolver drawdowns; first lien sales and repayments includes revolver repayments. (3) Yield on activity is for debt investments and excludes select short-term trades and investments on non-accrual status.
($ in thousands) 2Q'18 1Q'18 4Q'17 3Q'17 2Q'17 Sep-17 Jun-17 Mar-17 Dec-16 Sep-16 Purchases (1) First lien (2) 111,229 $ 236,735 $ 52,018 $ 34,174 $ 55,021 $ Second lien 152,972 103,819 92,742 153,657 51,154 Total secured debt 264,201 340,554 144,760 187,831 106,175 Unsecured debt
12,713 5,154 Structured products and other
206 16,301 Preferred equity
1,238 1,481 2,043 560
265,439 $ 342,036 $ 149,408 $ 201,309 $ 127,629 $ Yield at Cost on Debt Purchases (3) First lien 9.3% 10.3% 9.2% 10.0% 10.5% Second lien 10.4% 10.3% 10.2% 10.3% 10.0% Total secured debt 10.0% 10.3% 9.8% 10.2% 10.3% Unsecured debt N/A N/A 8.0% 8.5% 10.2% Preferred equity N/A N/A N/A N/A N/A Yield at Cost on Debt Purchases 10.0% 10.3% 9.8% 10.1% 10.3% Sales and Repayments (1) First lien (2) 128,848 $ 136,063 $ 52,662 $ 22,904 $ 26,172 $ Second lien 140,034 53,838 96,892 35,888 128,578 Total secured debt 268,882 189,901 149,554 58,792 154,750 Unsecured debt 55,000
Structured products and other 8,961 33,166 55,102 96,647 48,239 Preferred equity
306 Common equity/interests and warrants 6,956 28,879 47,350 3,016 7,298 Total Sales and Repayments 339,799 $ 251,947 $ 344,842 $ 195,322 $ 215,054 $ Yield at Cost on Debt Sales and Repayments (3) First lien 10.4% 12.0% 9.3% 10.5% 10.3% Second lien 9.9% 9.7% 10.1% 9.6% 10.8% Total secured debt 10.1% 11.3% 9.8% 9.9% 10.7% Unsecured debt 11.0% N/A 10.0% N/A 12.0% Preferred equity N/A N/A N/A 11.5% 4.0% Yield at Cost on Debt Sales and Repayments 10.3% 11.3% 9.9% 10.5% 10.7% Yield at Cost on Sales 9.3% 9.4% 10.2% 8.8% 13.1% Yield at Cost on Debt Repayments 10.3% 11.4% 9.9% 10.7% 10.4%
Net Asset Value Per Share
Numbers may not sum due to rounding.
37
$6.72 $6.73 $6.74 $6.86 $6.95 Sep-17 Jun-17 Mar-17 Dec-16 Sep-16
($ in thousands, except per share data) 2Q'18 1Q'18 4Q'17 3Q'17 2Q'17 Sep-17 Jun-17 Mar-17 Dec-16 Sep-16 Per Share NAV, beginning of period 6.73 $ 6.74 $ 6.86 $ 6.95 $ 6.90 $ Net investment income 0.16 0.15 0.17 0.17 0.18 Net realized and change in unrealized gain (loss) (0.01) (0.02) (0.13) (0.12) 0.00 Net increase (decrease) in net assets resulting from operations 0.14 0.13 0.04 0.05 0.18 Repurchase of common stock 0.00
0.02 Distribution recorded (0.15) (0.15) (0.15) (0.15) (0.15) NAV, end of period 6.72 6.73 6.74 6.86 6.95 Total NAV, beginning of period 1,477,624 $ 1,481,797 $ 1,506,699 $ 1,541,938 $ 1,552,409 $ Net investment income 34,157 33,320 37,290 36,352 39,537 Net realized and change in unrealized gains (losses) (2,370) (4,539) (29,238) (25,062) 1,577 Net increase (decrease) in net assets resulting from operations 31,787 28,781 8,052 11,290 41,114 Repurchase of common stock (3,956)
(18,270) Distributions recorded (32,855) (32,954) (32,954) (32,954) (33,315) NAV, end of period 1,472,600 $ 1,477,624 $ 1,481,797 $ 1,506,699 $ 1,541,938 $
Fixed Rate vs. Floating Rate (1) (2) By Industry (1) (3) Sponsored vs. Non-sponsored (1) (4)
38
(1) On a fair value basis. (2) The interest type information is calculated using the Company’s corporate debt portfolio and excludes aviation, oil and gas, structured credit, renewables, shipping, commodities and investments on non- accrual status. (3) Other consists of: Manufacturing, Capital Equipment; Aerospace & Defense; Utilities – Electric; Food & Grocery; Consumer Goods – Durable; Advertising, Printing & Publishing; Automotive; Consumer Goods – Non-durable; Hotel, Gaming, Leisure, Restaurants; Insurance; Containers, Packaging & Glass; Retail; Media – Diversified & Production and Metals & Mining. (4) The sponsored / non-sponsored percentages are calculated using the Company’s corporate debt portfolio and excludes aviation, oil and gas, structured credit, renewables, shipping and commodities.
By Asset Class (1)
Secured debt 80% Unsecured debt 5% Structured products and
5% Preferrred equity, common equity/interests and w arrants 10%
Fixed Rate Assets 9% Floating Rate Assets 91% Sponsored 81% Non- sponsored 19%
Business Serv ices 19.5% Av iation and Consumer Transport 18.2% Energy – Electricity 9.3% High Tech Industries 7.2% Energy – Oil & Gas 6.9% Healthcare & Pharmaceuticals 6.8% Transportation – Cargo, Distribution 5.6% Div ersif ied Inv estment Vehicles, Banking, Finance, Real Estate 4.3% Telecommunications 2.8% Chemicals, Plastics & Rubber 2.8% Other 16.6%
39 ($ in thousands) 2Q'18 1Q'18 4Q'17 3Q'17 2Q'17 Sep-17 Jun-17 Mar-17 Dec-16 Sep-16 Portfolio Composition, measured at fair value ($) First lien 1,142,148 $ 1,140,215 $ 1,049,232 $ 1,052,890 $ 1,060,606 $ Second lien 750,710 734,946 685,268 683,858 559,782 Total secured debt 1,892,857 $ 1,875,161 $ 1,734,500 $ 1,736,748 $ 1,620,388 $ Unsecured debt 107,558 162,028 161,385 249,121 234,645 Structured products and other 124,269 135,863 166,893 217,748 307,052 Preferred equity 25,780 25,754 25,637 30,785 67,602 Common equity/interests and warrants 209,826 217,772 228,293 291,930 318,881 Total investment portfolio 2,360,290 $ 2,416,579 $ 2,316,708 $ 2,526,333 $ 2,548,568 $ Portfolio Composition, measured at fair value (%) First lien 48% 47% 45% 42% 42% Second lien 32% 30% 30% 27% 22% Total secured debt 80% 78% 75% 69% 64% Unsecured debt 5% 7% 7% 10% 9% Structured products and other 5% 6% 7% 9% 12% Preferred equity 1% 1% 1% 1% 3% Common equity/interests and warrants 9% 9% 10% 11% 12% Portfolio Composition by Strategy, measured at fair value (%) Core strategies (1) 73% 74% 71% 66% 61% Non-core strategites (2) 23% 23% 24% 29% 34% Legacy & Other 4% 4% 5% 5% 5% Interest Rate Type, measured at fair value (3) Fixed rate % 9% 14% 16% 16% 21% Floating rate % 91% 86% 84% 84% 79% Sponsored / Non-sponsored, measured at fair value (4) Sponsored % 81% 83% 86% 86% 84% Non-sponsored % 19% 17% 14% 14% 16%
(1) Core strategies include corporate lending, aviation, life sciences, asset based and lender finance. (2) Non-core strategies include oil & gas, structured credit, renewables, shipping and commodities. (3) The interest type information is calculated using the Company’s corporate debt portfolio and excludes aviation, oil and gas, structured credit, renewables, shipping, commodities and investments on non-accrual status. (4) The sponsored / non- sponsored percentages are calculated using the Company’s corporate debt portfolio and excludes aviation, oil and gas, structured credit, renewables, shipping and commodities.
As of September 30, 2017, 1.9% of total investments at amortized cost, or 1.3% of total investments at fair value, were on non-accrual status.
40
(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. ($ in thousands) 2Q'18 1Q'18 4Q'17 3Q'17 2Q'17 Sep-17 Jun-17 Mar-17 Dec-16 Sep-16 Investments on Non-Accrual Status Non-accrual investments at amortized cost 46,199 $ 46,430 $ 183,141 $ 236,453 $ 312,955 $ Non-accrual investments / total portfolio, at amortized cost 1.9% 1.9% 7.0% 8.2% 11.1% Non-accrual investments at fair value 30,204 $ 27,458 $ 68,571 $ 65,587 $ 99,521 $ Non-accrual investments / total portfolio, at fair value 1.3% 1.1% 3.0% 2.6% 3.9% Portfolio Company Credit Metrics (1) Net Leverage (Close) 5.5 x 5.4 x 5.5 x 5.6 x 5.6 x Net Leverage (Current) 5.5 x 5.5 x 5.5 x 5.7 x 5.5 x Interest Coverage (Close) 2.7 x 2.7 x 2.5 x 2.4 x 2.5 x Interest Coverage (Current) 2.7 x 2.7 x 2.5 x 2.5 x 2.6 x ($ in thousands) Industry Industry Cost Fair Value Investments on Non-Accrual Status as of September 30, 2017 Magnetation, LLC Metals & Mining Metals & Mining 1,819 $ 654 $ Spotted Hawk Energy – Oil & Gas Energy – Oil & Gas 44,380 29,550 Total 46,199 $ 30,204 $
41
(1) The Company redeemed the 2042 Notes on October 16, 2017. (2) 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, 2017. Based on average debt obligations outstanding.
Debt Facilities Debt Issued / Amended Final Maturity Date Interest Rate Principal Amount Outstanding
(in thousands)
Senior Secured Facility ($1.19 billion) 12/22/2016 12/22/2021 L + 200 bps 216,675 $ Senior Secured Notes (Series B) 9/29/2011 9/29/2018 6.250% 16,000 2042 Notes (redeemable on or after 10/15/17) (1) 10/9/2012 10/15/2042 6.625% 150,000 2043 Notes (redeemable on or after 7/15/18) 6/17/2013 7/15/2043 6.875% 150,000 2025 Notes 3/3/2015 3/3/2025 5.250% 350,000 $ Weighted Average Annualized Interest Cost (2) & Total Debt Obligations 5.511% 882,675 $ Deferred Financing Cost and Debt Discount (17,769) Total Debt Obligations,Net of Deferred Financing Cost and Debt Discount 864,906 $
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 Asset Floor Net Investment Income Interest Rate Sensitivity (4)
42
(1) On a fair value basis. (2) The interest type information is calculated using the Company’s corporate debt portfolio and excludes aviation, oil and gas, structured credit, renewables, shipping, commodities and investments on non-accrual status. (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 of base rate changes in interest rates (considering interest rate floors for floating rate instruments) to our loan portfolio and outstanding debt as of September 30, 2017, assuming no changes in our investment and borrowing structure.
Investment Portfolio (1) (2)
Fixed Rate Debt 28% Floating Rate Debt 9% Common Equity 63% Fixed Rate Assets 9% Floating Rate Assets 91% ($ in millions) Par or Cost % of Floating Rate Portfolio Interest Rate Floors No Floor 202 $ 15% < 1.00% 33 3% 1.00% to 1.24% 976 74% 1.25% to 1.49% 86 7% 1.50% to 1.74% 13 1% > =1.75% 8 1% Total 1,318 $ 100% Annual Net Investment Income (in millions) Annual Net Investment Income Per Share Basis Point Change Up 400 basis points 34.5 $ 0.158 $ Up 300 basis points 25.9 $ 0.118 $ Up 200 basis points 17.2 $ 0.079 $ Up 100 basis points 8.6 $ 0.039 $ Down 100 basis points (1.7) $ (0.008) $
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
43
44