The JMP Securities Financial Services & Real Estate Conference September 13, 2012

Transcription

1 The JMP Securities Financial Services & Real Estate Conference September 13, 2012 Information is as of June 30, 2012 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.

2 Disclaimers Forward-Looking Statements We make forward-looking statements in this presentation and other filings we make with the 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 forwardlooking: 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 Securities and Exchange Commission. 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. Credit Rating Disclaimer Apollo, its affiliates, and third parties that provide information to Apollo, such rating agencies, do not guarantee the accuracy, completeness, timeliness or availability of any information, including ratings, and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or the results obtained from the use of such content. Apollo, its affiliates and third party content providers give no express or implied warranties, including, but not limited to, any warranties of merchantability or fitness for a particular purpose or use, and they expressly disclaim any responsibility or liability for direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs expenses, legal fees or losses (including lost income or profits and opportunity costs) in connection with the use of the information herein. Credit ratings are statements of opinions and not statements of facts or recommendations to purchase, hold or sell securities. They do not address the suitability of securities for investment purposes and should not be relied on as investment advice. Neither Apollo nor any of its respective affiliates have any responsibility to update any of the information provided in this summary document. AUM Definition Assets Under Management ( AUM ) refers to the investments we manage or with respect to which we have control, including capital we have the right to call from our investors pursuant to their capital commitments to various funds. Our AUM equals the sum of: (i) the fair value of our private equity investments plus the capital that we are entitled to call from our 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 our 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 our real estate entities and the structured portfolio vehicle investments included within the funds we manage, 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 we manage; and (v) the fair value of any other investments that we manage 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. Our AUM measure includes AUM for which we charge either no or nominal fees. Our definition of AUM is not based on any definition of AUM contained in our operating agreement or in any of our Apollo fund management agreements. We consider multiple factors for determining what should be included in our definition of AUM. Such factors include but are not limited to (1) our ability to influence the investment decisions for existing and available assets; (2) our ability to generate income from the underlying assets in our funds; and (3) the AUM measures that we use internally or believe are used by other investment managers. Given the differences in the investment strategies and structures among other alternative investment managers, our 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

3 Agenda Apollo Investment Corporation Overview BDC Opportunity Corporate and Strategic Overview Investment Strategy and Portfolio Repositioning 2

4 Apollo Investment Corporation (AIC) Overview Apollo Investment Corporation provides private debt market solutions to middle market companies in the form of senior secured, mezzanine and asset based loans and may also acquire equity interests. Ticker: Exchange: AINV NASDAQ Trading Price (1) $8.08 Market Capitalization (1) Most Recent Quarterly Dividend (2) $1.64 billion $0.20 per share Indicated Dividend Yield (3) 9.9% Net Asset Value Per Share (4) $8.30 (1) As of September 11, (2) Declared a dividend of $0.20 per common share on August 8, 2012 to stockholders of record as of September 13, (3) Current quarterly dividend annualized divided by stock price as of September 11, (4) As of June 30,

5 Apollo Investment Corporation (AIC) Overview Flagship U.S. private debt vehicle of Apollo with $2.6 billion portfolio at fair value (1) Company Business Development Company, Regulated Investment Company ( BDC-RIC ) Externally managed by Apollo Investment Management, L.P. ( AIM ) Largest public externally managed Apollo Global Management, LLC ( AGM ) fund Objective Current income and capital appreciation, principally through private debt solutions in the form of senior secured loans, senior unsecured debt and subordinated debt Portfolio Highlights Since IPO, has invested approximately $9.0 billion in 176 companies As of June 30, 2012 investment portfolio of $2.6 billion (at FMV) in 64 companies Weighted-average yields on senior secured debt portfolio, subordinated debt portfolio and total debt portfolio at cost were 10.6%, 12.9% and 12.1%, respectively, as of June 30, 2012 Dividend Payout At least 90% of net investment income and net realized capital gains payable each year Investment Grade Credit Ratings (2) S&P: BBB, Outlook Stable Fitch: BBB, Outlook Negative (1) As of June 30, (2) See credit rating disclaimer at the beginning of the presentation. 4

6 Agenda Apollo Investment Corporation Overview BDC Opportunity Corporate and Strategic Overview Investment Strategy and Portfolio Repositioning 5

7 BDC Opportunity We believe changes in the financial system have created a compelling opportunity for providers of long-dated capital, such as BDCs Structural Changes Impact Regulation Dodd-Frank, Volcker Rule, Basel III Banks & hedge fund models have changed Reconstitution of the securitization market Risk aversion of banks Shortage of illiquid capital Demand Annual maturity volumes M&A activity Economic growth business expansion Ability to invest in all macro environments We believe the result is that BDCs are in a unique position and more flexible than traditional banks to provide capital up and down the balance sheet with measured risk 6

8 Lending Environment Banks Loans Outstanding (1) in $ billions 1,853-13% 1,665 1,566 1,607 1,501 1,478 1,430 1,246 Assets of Top Financial Institutions (2), (3) ($ in billions) Then Now % Change Bank of America $2,948 $2,161-27% JP Morgan $2,285 $2,290 0% Citigroup $2,187 $1,916-12% Wells Fargo $1,358 $1,336-2% Goldman Sachs $1,120 $949-15% Morgan Stanley $1,045 $749-28% GE Capital $621 $559-10% Total $11,564 $9,960-14% Wall Street balance sheets have shrunk by $1.6 trillion since the credit crisis Level 3 Assets (2), (3) ($ and in billions) Then Now % Change Citigroup $133 $51-61% Deutsche Bank % Goldman Sachs $69 $47-33% Morgan Stanley $74 $26-64% Level 3 assets have declined significantly (1) Source: Federal Reserve Statistical Release, for nonfinancial sectors as of 1Q (2) Source: Bloomberg. (3) Note: Then is as of December 31, 2007, Now is as of June 30, BofA includes Merrill Lynch and Countrywide. JP Morgan includes Bear Stearns and Washington Mutual. Wells Fargo includes Wachovia. 7

9 Size of BDC Market While the BDC sector is comparatively small, we believe the sector can grow significantly and fill some of the void in today s lending market BDC Total Market Capitalization (1) BDC Total Assets (1) In billions In billions 54% $29.8 $ % $24.8 $24.1 $20.7 $19.4 $19.2 $15.6 $14.4 $16.1 $12.9 $13.7 $10.6 $8.3 $5.2 $ Current (2) /12 (1) Based on calendar year end, unless otherwise noted. Includes: AINV, ACAS, ARCC, BKCC, FSC, GAIN, GBDC, GLAD, HRZN, HTGC, KCAP, MAIN, MCC, MCGC, MVC, NGPC, NMFC, PNNT, PSEC, SLRC, SUNS, TCPC, TCAP, TCRD and TICC. (2) As of September 11,

10 Agenda Apollo Investment Corporation Overview BDC Opportunity Corporate and Strategic Overview Investment Strategy and Portfolio Repositioning 9

11 Overview of Apollo Global Management, LLC AIC is externally managed by Apollo Investment Management, L.P. (AIM), an affiliate of Apollo Global Management, LLC (AGM), a leading investment firm with $105 bn of AUM. There are meaningful benefits to AIC from this relationship including sourcing, research, due diligence and other expertise. Firm Profile Founded: 1990 AUM (1) : Offices: $105 bn 9 Worldwide Principal Investment Businesses Private Equity Capital Markets Real Estate Natural Resources (3) AUM: $38.2 bn (1) AUM: $56.1 bn (1,2) AUM: $7.9 bn (1) ~$0.8 bn (3) (1) As of June 30, Please refer to the definition of AUM at the beginning of the presentation. (2) Includes three funds that are denominated in Euros and translated into U.S. dollars at an exchange rate of 1.00 to $1.27 as of June 30, (3) Total commitments as of June 30, There can be no assurance as to the committed capital. Note, several of Apollo s Private Equity investment professionals also fall under the headcount for the Natural Resources strategy. 10

12 AGM - Capital Markets - $56.1 bn AUM We believe Apollo s Differentiated Capabilities include: Market leading, scale credit platform History of seizing opportunity in during market cycles Rigorous bottoms-up Private Equity-style approach to credit research Broad capabilities with a distinct ability to evaluate relative value across credit asset classes and geographies 22-Year Credit History $56.1bn in Capital Markets AUM (1) > $5bn in Capital Markets AUM Senior Loans Corporate Credit $41.1bn High Yield Structured Debt Distressed Debt 1990 Apollo Founding Structured Credit $15.0bn June 2012 (1) As of June 30,

13 Robust Investment Process Hard to Buy, Easy to Sell APPROVAL INVESTMENT COMMITTEE NETWORK OF EXPERTISE & PE PROFESSIONALS ENTERPRISE VALUE COVERAGE LIQUIDITY RANKING Deep dive, private equity- style analysis STRUCTURAL ANALYSIS PRICING & RELATIVE VALUE INDUSTRY ANALYSIS Analyze COMPANY ANALYSIS DESK REVIEW BETWEEN PORTFOLIO MANAGER & ANALYST Initial screen Financial Institutions Analyst Library Sponsors Apollo Network Primary Wall St Opportunities Secondary Wall St Opportunities Strategic Originator Relationships Source Portfolio managers may use some or all of the techniques described above. 12

14 AIC Sourcing Model Incorporated within AGM s capital markets group is a dedicated team of investment professionals sourcing and analyzing investments. Sourcing Deals Sponsors AIC has completed transactions with over 100 different sponsors since IPO AIC remains committed to providing financing solutions to sponsor clients Industry Specific Greater focus on industry expertise Hired energy team in Houston Leveraging Apollo s broader Natural Resources platform Capital markets investment professionals organized in industry verticals Leverage Apollo Platform Global alternative investment manager Apollo s capital markets business has approximately $56 billion of assets under management Strategic Transactions Madison Capital Funding LLC (middle market) Madison Capital, founded in 2001, is one of the largest middle market loan originators in the United States AIC is the anchor equity investor in a middle market senior loan vehicle New vehicle purchased an existing pool of senior secured loans with $250 million of face value from Madison Capital 13

15 Agenda Apollo Investment Corporation Overview BDC Opportunity Corporate and Strategic Overview Investment Strategy and Portfolio Repositioning 14

16 Recent Company and Portfolio Repositioning Senior management changes Appointed new President and CIO Ted Goldthorpe Appointed new CFO Gregory Hunt Financial Actions Raised $50 million of non-dilutive equity capital from AGM Aligned dividend more closely with net investment income De-levered Replaced senior secured revolver credit facility Entered transaction to increase exposure to middle market senior secured lending Made $40.4 million equity investment in newly launched Madison Capital Funding senior loan vehicle Hired Houston-based energy team Increased breadth and depth of investment committee Organized the investment team into industry verticals to leverage firm wide expertise 15

17 Current Portfolio at 6/30/12 Portfolio Highlights Portfolio Composition (at Fair Value) $2.6 billion investment portfolio at fair value consisting of 64 portfolio companies Weighted-average yields at cost: senior secured loan portfolio: 10.6% subordinated debt portfolio: 12.9% total debt portfolio: 12.1% Asset Grocery Management 4% 5% Packaging 5% Insurance 6% Energy 4% Other 32% Weighted-average EBITDA of underlying portfolio companies greater than $250 million Distribution 6% Weighted average interest coverage of portfolio over 2x Weighted average risk rating: 2.3 at cost 2.2 at fair value Broadcasting & Entertainment 6% Market Research 7% Education 8% Business Services 9% Diversified Service 8% 16

18 Improving Portfolio Yield During the first half of , we sold select investments and reduced leverage without materially sacrificing net investment income. We are focused on improving portfolio yield without compromising relative risk. NEW INVESTMENTS Investment Type Cost Yield at Cost 1 st lien $ 74,359, % 2 nd lien 56,418, % Subordinated 162,511, % Total debt 293,288, % Equity 52,355,383 Total $345,644,247 During the first half of the calendar year, we invested $345.6 million across 14 new and 10 existing companies. The weighted average yield on new debt investments was 12.4%. INVESTMENTS SOLD OR REPAID Investment Type Proceeds Yield at Cost 1 st lien $34,641, % 2 nd lien 144,900, % Subordinated 388,863, % Total debt 568,405, % Equity 26,131,205 Total $594,536,577 During the first half of the calendar year, investments sold or prepaid totaled $594.5 million. The weighted average yield on sold debt investments was 10.5% Leverage Ratio Weighted Average Yield on Total Debt Portfolio % 12.1% 11.7% Dec-11 Mar-12 Jun-12 Dec-11 Mar-12 Jun-12 (1) Based on calendar year. (2) On a cost basis. 17

19 Portfolio Repositioning Asset Mix at June 30, 2012 Target Asset Mix (1) 12% 5% 25% 5-10% 0-10% 20-40% 58% 40-50% 10-20% 1st lien 2nd lien subordinated equity other Higher NAV VOLATILITY Lower (1) No assurances that AIC will be able to rebalance the portfolio as shown above, or that such rebalance will occur at favorable rates. 18

20 AINV Value Proposition (1) Dividend Yield of Alternative Investments (2) 9.9% 9.3% 2.1% 1.2% 1.9% 1.7% AINV BDC Index (3) S&P 500 NASDAQ Composite KBW Bank Index Financial Select Sector SPDR (Fund) (XLF) (1) There can be no assurances that AINV s dividend will remain at current level. (2) As of September 11, (3) Market cap weighted divided yield of ARCC, PNNT, PSEC, and SLRC. 19

21 Takeaways Favorable Macro Environment Bank regulation Global deleveraging Change in lending landscape Capital Deployment Repositioning portfolio with a balance of liquid and nonliquid investments Focused on secured assets higher in capital structure Balanced approach between liquidity and NAV volatility Strategic Initiatives Broader strategic investing (energy, DIP loans, rescue financing, collateral-based loans) Focused on proprietary and specialized origination Optimize BDC structure Leverage Apollo Global Management Platform Access to a leading global alternative investment manager Assistance in sourcing and due diligence Creativity in transaction structuring 20

22 The JMP Securities Financial Services & Real Estate Conference September 13, 2012

23 Appendices 22

24 AIC Financial Highlights Qtr ended Jun-12 Year ended Mar-12 Year ended Mar-11 Year ended Mar-10 Year ended Mar-09 Year ended Mar-08 Year ended Mar-07 Total assets (000 s) $2,885,693 $2,775,263 $3,148,813 $3,465,116 $2,548,639 $3,724,324 $3,523,218 Net assets (000 s) 1,683,011 1,685,231 1,961,031 1,772,806 1,396,138 1,897,908 1,849,748 Net asset value per share Net increase (decrease) in net assets from operations (000 s) (11,642) (86,264) 180, ,920 (611,879) (33,438) 312,166 Net investment income per share* Net increase (decrease) in net assets from operations per share (basic and diluted)* (0.05) (0.44) (4.39) (0.30) 3.64 Dividends declared per share Cumulative capital invested (in billions) New investments (000 s) 198,613 1,480,508 1,085, , ,995 1,755,913 1,446,730 Investments sales and prepayments (000 s) 254,834 1,634, , , , , ,485 Number of portfolio companies at end of period * Exclusive of non-recurring expenses related to refinancing of revolving credit facility. During the June quarter, the company recognized net $1.1 million, or $0.01 per share, in non-recurring expenses relating to the refinancing of its revolving credit facility. 23

25 Quarterly Financial Highlights Q (Jun-12) Q (Mar-12) Q (Dec-11) Q (Sep-11) Q (Jun-11) Q (Mar-11) Investment portfolio at fair value (000 s) 2,579,584 $2,677,080 $2,778,855 $2,827,305 $3,123,260 $3,050,158 Net assets (000 s) 1,683,011 $1,685,231 $1,607,407 $1,593,976 $1,911,232 $1,961,031 Net asset value per share $8.30 $8.55 $8.16 $8.12 $9.76 $10.03 Net investment income per common share $ $0.21 $0.20 $0.23 $0.24 $0.26 Net realized and unrealized gain (loss) per share $(0.24) $0.39 $0.12 $(1.59) $(0.24) $0.32 Total earnings (loss) per share basic $(0.05) 1 $0.60 $0.32 $(1.36) $0.00 $ Dividend declared per common share $0.20 $0.20 $0.28 $0.28 $0.28 $0.28 Weighted average yield on total debt 12.1% 11.9% 11.7% 11.6% 11.1% 11.6% portfolio 2 Number of portfolio companies at period end Debt outstanding (000 s) 1,019,887 1,009,337 1,213,185 1,223,473 1,249,203 1,053,443 Debt-to-equity Leverage ratio Excludes $0.01 per share, in non-recurring expenses related to the refinancing of its revolving credit facility. 2. On a cost basis 3. Numbers do not sum due to rounding 4. The Company s leverage ratio is defined as debt outstanding plus payable for investments purchased and cash equivalents, plus due to custodian, less receivable for investments sold, less cash equivalents, less cash, less foreign currency, divided by total net assets.. 24

26 Quarterly Portfolio Highlights Portfolio Composition (fair value) Q (June-12) Q (Mar-12) Q (Dec-11) Q (Sep-11) Q (Jun-11) Senior secured 1 st lien 5% 4% 3% 2% 2% 4% Senior secured 2 nd lien 25% 26% 26% 28% 30% 29% Subordinated debt 58% 60% 60% 60% 57% 58% Preferred equity 1% 1% 1% 1% 1% 1% Common equity and warrants 11% 9% 10% 9% 10% 8% Q (Mar-11) Investment Activity (in millions) Q (June-12) Q (Mar-12) Q (Dec-11) Q (Sep-11) Q (Jun-11) New Investments (cost) $199 $147 $95 $403 $836 $298 Investments sold / repaid (proceeds) $255 $340 $175 $387 $733 $255 Q (Mar-11) 25

27 Contact Information For investor inquiries regarding Apollo Investment Corporation: Elizabeth Besen Investor Relations Manager