First Quarter Fiscal Year 2019 Earnings Three Months Ended June 30, 2018

Transcription

1 APOLLO INVESTMENT CORPORATION First Quarter Fiscal Year 2019 Earnings Three Months Ended June 30, 2018 August 8, 2018

2 Disclaimers, Definitions, and Important Notes 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. Words such as 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 investing 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. Forwardlooking 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; 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 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 and annual financial information for the Corporation refers to fiscal periods. 2

3 Summary of Quarterly Results First quarter of fiscal year 2019 (Three months ended June 30, 2018) and other recent highlights Fiscal First Quarter Results and Other Recent Highlights Net investment income for the quarter ended June 30, 2018 was $31.5 million, or $0.15 per share, compared to $31.9 million, or $0.15 per share for the quarter ended March 31, 2018 Net realized and change in unrealized losses for the quarter ended June 30, 2018 were ($18.3) million, or ($0.08) per share, compared to ($11.3) million, or ($0.05) per share for the quarter ended March 31, 2018 Net asset value per share as of June 30, 2018 was $6.47 compared to $6.56 as of March 31, 2018, a 1.3% decline Net leverage 1 as of June 30, 2018 was 0.78 x compared to 0.57x as of March 31, 2018 Continued to successfully execute our portfolio repositioning strategy, including increasing exposure to core 2 strategies to 80% of the portfolio 3 as of June 30, 2018 Invested $359 million across 7 new and 20 existing portfolio companies during the quarter - 100% of investments made were in core strategies 2-100% of investments made were in floating rate debt 4-92% of investments made were in first lien debt - 50% of investments made were pursuant to our co-investment order 5 Investments sold totaled $15 million and investments repaid totaled $94 million Net investment activity before repaid investments was $344 million, and net investment activity after repayments was $250 million for the quarter Repurchased 1,386,802 shares of common stock at a weighted average price per share of $5.68, inclusive of commissions, for an aggregate cost of $7.9 million during the quarter During the period from July 1, 2018 through August 7, 2018, the Company repurchased 26,600 shares of common stock at a weighted average price per share of $5.58, inclusive of commissions, for a total cost of $0.1 million, leaving a maximum of $21.9 million available for future purchases under the current Board authorization On August 8, 2018, the Board of Directors declared a distribution of $0.15 per share payable on October 9, 2018 to shareholders of record as of September 24, 2018 Fitch Ratings affirmed the Company s investment grade rating in June, and Kroll Bond Rating Agency assigned an investment grade rating to the Company in July 6 1 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. 2 Core strategies include corporate lending, aviation, life sciences, asset based and lender finance. 3 On a fair value basis. 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 On March 29, 2016, the Company received an exemptive order from the SEC permitting greater flexibility to participate in coinvestment transactions with certain of its affiliates where terms other than price and quantity are negotiated, subject to the conditions included therein. 6 Fitch Ratings affirmed the Company s BBB- long-term issuer default rating, secured debt rating and unsecured debt rating in June. Fitch also removed the ratings from rating watch negative and assigned a negative rating outlook. Kroll Bond Rating Agency assigned BBB- issuer and senior unsecured debt ratings with a stable outlook to the Company in July. 3

4 Financial Highlights ($ in thousands, except per share data) 1Q'19 4Q'18 3Q'18 2Q'18 1Q'18 Jun-18 Mar-18 Dec-17 Sep-17 Jun-17 Operating Results 1 Net investment income $31,547 $31,943 $33,966 $34,157 $33,320 Net realized and change in unrealized gains (losses) from investments and foreign currencies (18,297) (11,316) (22,342) (2,370) (4,539) Net realized loss on extinguishment of debt (5,790) Net increase in net assets resulting from operations $13,251 $20,627 $5,834 $31,787 $28,781 Net investment income per share $0.15 $0.15 $0.16 $0.16 $0.15 Net realized and change in unrealized gains (losses) from investments and foreign currencies p/s ($0.08) ($0.05) ($0.10) ($0.01) ($0.02) Net realized loss on extinguishment of debt per share ($0.03) Earnings per share $0.06 $0.10 $0.03 $0.14 $0.13 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) $2,495,459 $2,248,047 $2,352,562 $2,360,290 $2,416,579 Debt outstanding $1,102,679 $789,846 $875,165 $864,906 $920,674 Net assets $1,391,166 $1,418,086 $1,441,050 $1,472,600 $1,477,624 Net asset value per share $6.47 $6.56 $6.60 $6.72 $6.73 Debt-to-equity ratio 0.79 x 0.56 x 0.61 x 0.59 x 0.62 x Net leverage ratio x 0.57 x 0.62 x 0.59 x 0.62 x Weighted average shares outstanding 215,914, ,700, ,550, ,519, ,694,654 Shares outstanding 214,925, ,312, ,255, ,034, ,694,654 Number of portfolio companies, at period end Weighted Average Yields, at period end Secured debt % 10.7% 10.5% 10.3% 10.2% Unsecured debt % 11.3% 11.2% 11.2% 11.1% Total debt portfolio % 10.7% 10.5% 10.3% 10.3% Total portfolio 4 9.7% 9.6% 9.6% 9.7% 9.7% 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. 4 On a cost basis. Inclusive of all income generating investments, non-income generating investments and investments on non-accrual status. 4

5 Summary Investment Activity ($ in thousands) 1Q'19 4Q'18 3Q'18 2Q'18 1Q'18 Jun-18 Mar-18 Dec-17 Sep-17 Jun-17 Portfolio Activity 1 Investments made $358,950 $243,329 $198,355 $265,439 $342,036 Investments sold (14,832) (119,302) (48,084) (11,703) (9,949) Net investment activity before repayments $344,117 $124,027 $150,271 $253,737 $332,087 Investments repaid (93,786) (238,131) (156,716) (328,096) (241,998) Net investment activity $250,331 ($114,104) ($6,445) ($74,359) $90,089 Number of portfolio companies, at beginning of period Number of new portfolio companies Number of exited portfolio companies (1) (4) (9) (9) (13) Number of portfolio companies, at period end Number of investments in existing portfolio companies Yield on Activity 2 Yield on investments made 9.4% 9.7% 9.9% 10.0% 10.3% Yield on debt sales and repayments 9.4% 9.6% 10.2% 10.3% 11.3% 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. 5

6 Quarterly Investment Activity Investment Activity ($ in millions) Total Debt Portfolio Yield 1,2 $342 $265 $198 $243 $ % 10.3% 10.5% 10.7% 10.7% ($10) ($12) ($48) ($242) ($157) ($328) ($119) ($238) ($15) ($94) Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 New Investments Sales Repayments Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Net Investment Activity ($ in millions) Yield on Investment Activity 2,3 11.4% 10.8% $ % 10.2% 11.2% $90 ($6) 10.3% 9.4% 10.0% 9.9% 9.3% 10.2% 9.7% 9.4% 7.6% 9.1% ($74) ($114) Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 New Investments Sales Repayments 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. 6

7 Detailed Quarterly Investment Activity ($ in thousands) 1Q'19 4Q'18 3Q'18 2Q'18 1Q'18 Jun-18 Mar-18 Dec-17 Sep-17 Jun-17 Purchases 1 First lien 2 $319,224 $186,265 $108,008 $111,229 $236,735 Second lien 39,323 49,426 89, , ,819 Total secured debt 358, , , , ,554 Unsecured debt 0 0 Structured products and other Preferred equity Common equity/interests and warrants 360 7, ,238 1,481 Total Purchases $358,950 $243,329 $198,355 $265,439 $342,036 Yield at Cost on Debt Purchases 3 First lien 9.3% 9.5% 9.3% 9.3% 10.3% Second lien 10.4% 10.3% 10.7% 10.4% 10.3% Total secured debt 9.4% 9.7% 9.9% 10.0% 10.3% Unsecured debt N/A N/A N/A N/A N/A Preferred equity N/A N/A N/A N/A N/A Yield at Cost on Debt Purchases 9.4% 9.7% 9.9% 10.0% 10.3% Sales and Repayments 1 First lien 2 $93,006 $228,989 $79,659 $128,848 $136,063 Second lien 8,728 91,255 90, ,034 53,838 Total secured debt 101, , , , ,901 Unsecured debt 2,453 2, ,000 0 Structured products and other 92 27,349 27,292 8,961 33,166 Preferred equity (30) Common equity/interests and warrants 4,369 7,780 6,814 6,956 28,879 Total Sales and Repayments $108,618 $357,433 $204,800 $339,799 $251,947 Yield at Cost on Debt Sales and Repayments 3 First lien 9.3% 9.0% 10.0% 10.4% 12.0% Second lien 10.0% 11.2% 10.5% 9.9% 9.7% Total secured debt 9.3% 9.6% 10.2% 10.1% 11.3% Unsecured debt 10.8% 10.2% 13.0% 11.0% N/A Preferred equity N/A N/A N/A N/A N/A Yield at Cost on Debt Sales and Repayments 9.4% 9.6% 10.2% 10.3% 11.3% Yield at Cost on Sales 11.2% 7.6% 10.2% 9.3% 9.4% Yield at Cost on Debt Repayments 9.1% 10.8% 10.2% 10.3% 11.4% 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. 7

8 Detailed Quarterly Investment Activity (Continued) ($ in thousands) 1Q'19 4Q'18 3Q'18 2Q'18 1Q'18 Jun-18 Mar-18 Dec-17 Sep-17 Jun-17 Investment Activity, excluding Merx Aviation and Revolver Activity Deployment $199,714 $157,985 $165,066 $234,414 $189,917 Sales ($14,832) ($119,302) ($48,084) ($11,703) ($9,949) Repayments ($13,464) ($157,061) ($119,070) ($276,601) ($153,579) Net Investment Activity $171,418 ($118,378) ($2,087) ($53,890) $26,389 Merx Aviation Deployment $91,000 $18,500 $5,800 $10,000 $105,400 Repayments - ($25,000) ($26,000) ($37,334) ($65,650) Net funding into Merx $91,000 ($6,500) ($20,200) ($27,334) $39,750 Revolvers, excluding Merx Aviation Deployment $68,236 $66,844 $27,489 $21,025 $46,718 Repayments ($80,322) ($56,070) ($11,646) ($14,161) ($22,769) Net funding on revolvers ($12,086) $10,774 $15,843 $6,864 $23,950 Total Deployment $358,950 $243,329 $198,355 $265,439 $342,035 Sales ($14,832) ($119,302) ($48,084) ($11,703) ($9,949) Repayments ($93,786) ($238,131) ($156,716) ($328,096) ($241,998) Net Investment Activity $250,331 ($114,104) ($6,445) ($74,359) $90,089 Note: Numbers may not sum due to rounding. 8

9 Net Asset Value ($ in thousands, except per share data) 1Q'19 4Q'18 3Q'18 2Q'18 1Q'18 Jun-18 Mar-18 Dec-17 Sep-17 Jun-17 Per Share NAV, beginning of period $6.56 $6.60 $6.72 $6.73 $6.74 Net investment income Net realized and change in unrealized gain (loss) (0.08) (0.05) (0.10) (0.01) (0.02) Net realized loss on extinguishment of debt (0.03) Net increase (decrease) in net assets resulting from operations Repurchase of common stock Distribution recorded (0.15) (0.15) (0.15) (0.15) (0.15) NAV, end of period $6.47 $6.56 $6.60 $6.72 $6.73 Total NAV, beginning of period $1,418,086 $1,441,050 $1,472,600 $1,477,624 $1,481,797 Net investment income 31,547 31,943 33,966 34,157 33,320 Net realized and change in unrealized gains (losses) (18,297) (11,316) (22,342) (2,370) (4,539) Net realized loss on extinguishment of debt (5,790) Net increase (decrease) in net assets resulting from operations 13,251 20,627 5,834 31,787 28,781 Repurchase of common stock (7,877) (11,145) (4,645) (3,956) 0 Distributions recorded (32,293) (32,447) (32,738) (32,855) (32,954) NAV, end of period $1,391,166 $1,418,086 $1,441,050 $1,472,600 $1,477,624 Net Asset Value Per Share $6.73 $6.72 $6.60 $6.56 $6.47 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Note: Numbers may not sum due to rounding. 9

10 Portfolio as of June 30, 2018 By Asset Class 1 Fixed Rate vs. Floating Rate 1,2 By Industry 1,3 Sponsored vs. Non-sponsored 1,4 2.5% 2.9% 3.0% 16.8% 20.1% 19% 3.4% 16.8% 6.6% 7.3% 8.4% 12.2% 81% Aviation and Consumer Transport Business Services Healthcare & Pharmaceuticals High Tech Industries Energy Oil & Gas Transportation Cargo, Distribution Energy Electricity Telecommunications Aerospace & Defense Chemicals, Plastics & Rubber Other Sponsored Non-sponsored 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: Diversified Investment Vehicles, Banking, Finance, Real Estate; Manufacturing, Capital Equipment; Food & Grocery; Advertising, Printing & Publishing; Automotive; Consumer Goods Durable; Utilities Electric; Consumer Goods Non-durable; Beverage, Food & Tobacco; Consumer Services; Insurance; Containers, Packaging & Glass; Media Diversified & Production; Hotel, Gaming, Leisure, Restaurants; 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. 10

11 Portfolio Composition ($ in thousands) 1Q'19 4Q'18 3Q'18 2Q'18 1Q'18 Jun-18 Mar-18 Dec-17 Sep-17 Jun-17 Portfolio Composition, measured at fair value ($) First lien $1,363,867 $1,131,942 $1,169,317 $1,142,148 $1,140,215 Second lien 737, , , , ,946 Total secured debt $2,100,991 $1,837,953 $1,912,616 $1,892,857 $1,875,161 Unsecured debt 90, , , , ,028 Structured products and other 67,373 67,968 97, , ,863 Preferred equity 31,401 31,053 25,690 25,780 25,754 Common equity/interests and warrants 205, , , , ,772 Total investment portfolio $2,495,459 $2,248,047 $2,352,562 $2,360,290 $2,416,579 Portfolio Composition, measured at fair value (%) First lien 55% 50% 50% 48% 47% Second lien 30% 31% 32% 32% 30% Total secured debt 84% 82% 81% 80% 78% Unsecured debt 4% 5% 5% 5% 7% Structured products and other 3% 3% 4% 5% 6% Preferred equity 1% 1% 1% 1% 1% Common equity/interests and warrants 8% 9% 9% 9% 9% Portfolio Composition by Strategy, measured at fair value (%) Core strategies 1 80% 77% 74% 73% 74% Non-core strategies 2 17% 19% 22% 23% 23% Legacy & Other 3% 4% 4% 4% 4% Interest Rate Type, measured at fair value 3 Fixed rate % 6% 8% 8% 9% 14% Floating rate % 94% 92% 92% 91% 86% Sponsored / Non-sponsored, measured at fair value 4 Sponsored % 81% 81% 82% 81% 83% Non-sponsored % 19% 19% 18% 19% 17% Note: Numbers may not sum due to rounding. 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. 11

12 Credit Quality As of June 30, 2018, 3.0% of total investments at amortized cost, or 2.3% of total investments at fair value, were on non-accrual status. ($ in thousands) 1Q'19 4Q'18 3Q'18 2Q'18 1Q'18 Investments on Non-Accrual Status Jun-18 Mar-18 Dec-17 Sep-17 Jun-17 Non-accrual investments at amortized cost $75,671 $75,671 $57,928 $46,199 $46,430 Non-accrual investments/total portfolio, at amortized cost 3.0% 3.3% 2.4% 1.9% 1.9% Non-accrual investments at fair value $57,646 $51,426 $35,175 $30,204 $27,458 Non-accrual investments/total portfolio, at fair value 2.3% 2.3% 1.5% 1.3% 1.1% Portfolio Company Credit Metrics 1 Net Leverage (Close) 5.5 x 5.5 x 5.4 x 5.5 x 5.4 x Net Leverage (Current) 5.6 x 5.5 x 5.5 x 5.5 x 5.5 x Interest Coverage (Close) 2.4 x 2.5 x 2.7 x 2.7 x 2.7 x Interest Coverage (Current) 2.3 x 2.5 x 2.7 x 2.7 x 2.7 x Industry Cost Fair Value Investments on Non-Accrual Status as of June 30, 2018 Elements Behavioral Health, Inc. Healthcare & Pharmaceuticals $11,911 $0 Magnetation, LLC Metals & Mining 1, Spotted Hawk Energy Oil & Gas 44,380 45,470 Sprint Industrial Holdings, LLC. Containers, Packaging & Glass 18,107 11,770 Total $75,671 $57,646 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. 12

13 Diversified Funding Sources as of June 30, 2018 Debt Facilities Debt Issued/ Amended Final Maturity Date Interest Rate Principal Amount Outstanding (in thousands) Senior Secured Facility ($1.19 billion) 12/22/ /22/2021 L bps $597,751 Senior Secured Notes (Series B) 9/29/2011 9/29/ % 16, Notes (redeemable on or after 7/15/18) 6/17/2013 7/15/ % 150, Notes 3/3/2015 3/3/ % 350,000 Weighted Average Annualized Interest Cost 1 & Total Debt Obligations 5.246% 1,113,751 Deferred Financing Cost and Debt Discount (11,072) Total Debt Obligations,Net of Deferred Financing Cost and Debt Discount $1,102,679 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 June 30, Based on average debt obligations outstanding. 13

14 Interest Rate Exposure as of June 30, 2018 Investment Portfolio 1,2 Funding Sources 3 21% 55% 24% Fixed Rate Debt Floating Rate Debt Common Equity Floating Rate Asset Floor Net Investment Income Interest Rate Sensitivity 4 ($ in millions) Par or Cost Interest Rate Floors % of Floating Rate Portfolio No Floor $306 20% < 1.00% 90 6% 1.00% to 1.24% 1,095 70% 1.25% to 1.49% 30 2% 1.50% to 1.74% 13 1% > =1.75% 23 1% Basis Point Change Annual Net Investment Income (in millions) Annual Net Investment Income Per Share Up 400 basis points $28.7 $0.134 Up 300 basis points $21.5 $0.100 Up 200 basis points $14.4 $0.067 Up 100 basis points $7.2 $0.033 Down 100 basis points ($7.0) ($0.032) Total $1, % 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 June 30, 2018, assuming no changes in our investment and borrowing structure. 14

15 Contact Information For more information, please contact: Elizabeth Besen Investor Relations Manager Phone: (212) Gregory W. Hunt Chief Financial Officer and Treasurer Phone: (212)