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spk13: Good afternoon and welcome to the Apollo Investment Corporation's earning conference call for the period ended December 31st, 2021. At this time, all participants have been placed in listen-only mode. The call will be open for a question and answer session following the speaker's prepared remarks. If you would like to ask a question at that time, simply press the star and one on your telephone keypad. If you would like to withdraw your question from the queue, press the pound key. I'll now turn the call over to Elizabeth Besson, Investor Relations Manager for the Apollo Investment Corporation. Please go ahead.
spk04: Thank you, Operator, and thank you, everyone, for joining us today. Speaking on today's call are Howard Widgred, Chief Executive Officer, Tanner Powell, President and Chief Investment Officer, and Greg Hunt, Chief Financial Officer. I'd like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of Apollo Investment Corporation and and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our customary earnings press release. I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements. You should refer to our most recent filings with the SEC for risks that apply to our business, and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit our website at www.apolloic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our website, which contains information about the portfolio as well as the company's financial performance. At this time, I'd like to turn the call over to our Chief Executive Officer, Howard Widress.
spk09: Thanks, Elizabeth. Good afternoon, and thank you for joining us today. I'll begin my remarks with an overview of the quarter and will then provide some additional business highlights. Following my remarks, Tanner will discuss the market environment, review our investment activity for the quarter, and provide an update on credit quality. Greg will then review our financial results in greater detail. We'll then open the call for questions. Over the last several years, we have built a well-diversified portfolio of true first lien floating rate corporate loans invested in less cyclical industries with granular position sizes. Our ability to co-invest with other funds and entities managed by Apollo, including MidCap, allows AIB to participate in larger deals while maintaining relatively small hold sizes on our balance sheet. As you know, MidCap is the hub of Apollo's middle market direct origination business, and it's on par with any lender in the marketplace. The overall MidCap direct origination platform was very active during the period, closing approximately $7.7 billion in new commitments during the quarter and $19.6 billion in commitments in 2021. The MidCap platform provides AID with access to a wide funnel of opportunities, which allows us to be selective and find attractive investments. After market close day, we reported net investment income for the December quarter of $0.35 per share. Results for the quarter benefited from strong fee and prepayment income and reflect operating with average net leverage in the middle of our target leverage range. We ended the period with net asset value per share of $16.08, up $0.01 per share. Our corporate lending portfolio on Merck had net gains during the quarter. The corporate lending portfolio continues to improve, which Tanner will discuss later during the call. Results for December also reflect the benefit from the monetization of non-earning and under-earning assets and redeploying those proceeds into our core strategies. We have consistently generated cash from our non-core assets, and we are focused on executing some more significant progress in the coming quarters. During the December quarter, we received repayments of approximately $10 million from three of our non-core positions, two of which were non-earning, which included $4 million from one position without any reduction in NAV and $2 million from one investment, which was $2 million above fair value. We also received approximately $29 million from the repayment of second lien positions. Post-quarter end, Dynamic Product Tankers, one of our shipping investments, closed on the sale of three ships, which will be generating an additional $18 million in cash proceeds at our December 31st NAV in the March quarter. We have visibility into additional monetizations from our non-core portfolio in the coming quarters, and we look forward to reporting our continued progress. Pro forma for the dynamic sale, non-core assets represented only 6% of AI&V's total investment portfolio. Second leaves represented only 5% of the corporate lending portfolio at the end of December. Lastly, we repurchased stock during the period of meaningful discount to NAB, which was accretive to NAB per share and moderately accretive to net income per share. Moving on to other business highlights, our board has increased our share repurchase authorization by $25 million, having nearly completed our existing authorization. We obviously hope opportunities to repurchase our share at a meaningful discount to NAV do not occur, but when they do, this authorization will allow us to create value for our shareholders. Turning to our distribution, for the quarter, the board has declared a base distribution of $0.31 per share and a supplemental distribution of $0.05 per share. Both distributions are payable on April 7th. 2022 to shareholders of record as of March 21st, 2022. As a reminder, the dividends being cleared today are the last of the dividends that we previously indicated would be maintained at $0.31 for the base distribution and $0.05 for the supplemental distribution. One of our objectives is to provide greater visibility for our shareholders with respect to the distribution. So for the next two quarters, we intend to declare a base dividend of $0.31 per share plus a supplemental dividend in an amount such that the base and supplemental combined will equal the prior quarter's net investment income per share. This means that next quarter we expect to declare a base dividend of $0.31 plus a supplemental dividend of $0.04, or $0.35 in total, which is equivalent to the NII per share for the December quarter. We expect to have greater clarity in the coming quarters regarding the timing of the embedded upside in our portfolio and the impact of interest rates on our earnings. With that, I'll turn the call over to Tanner to discuss the market environment and our investment activity.
spk07: Thank you, Howard. The broader market environment is mixed as economic expansion, good corporate earnings growth, and increased valuations are being balanced by inflationary pressures, the emergence of COVID-19 variants, ongoing supply chain issues, and a more hawkish posture by the Federal Reserve. Specific to our business during the pandemic, non-bank financial institutions have become an even more important source of financing for corporates than banks. Private equity firms were extremely active in 2021 and continue to raise more capital resulting in significant dry powder. As this dry powder is deployed, the demand for financing is expected to result in considerable investment opportunities for lenders like MidCap and AI&V. Moving to AI&V's investment activity, new corporate lending commitments for the quarter totaled $271 million across 24 companies for an average new commitment of $11.3 million. 71% of new commitments were leveraged lending, 13% asset-based, 10% life sciences, and 6% franchise finance. Consistent with our strategy, all new commitments were first-lane loans with weighted average spread of 639 basis points and a weighted average net leverage of 4.7 times, and 96% were made pursuant to our co-investment order. Elevated repayments offset strong gross fundings, resulting in net repayments for the quarter. Gross fundings for the quarter totaled $234 million excluding revolvers. Sales and repayments totaled $287 million excluding revolvers. As Howard mentioned, repayments included $29 million of corporate second liens and $10 million of non-core assets. Net funding for revolvers were $30 million, and aggregate net repayments for the quarter totaled $23 million. Regarding our aircraft leasing portfolio company, we believe Merck has successfully navigated this challenging period. During the December quarter, the fair value of AI&V's investment in Merck increased by 3.4 million, or 1.1%, as aircraft leasing fundamentals are showing minor improvements. Turning to the overall AI&V portfolio, our investment portfolio had a fair value of $2.59 billion at the end of December across 139 companies in 26 different industries. We ended the quarter with core assets representing 93% of the portfolio and non-core assets representing 7%. First lien assets represented 93% of the corporate lending portfolio. At the end of December, the weighted average spread on the corporate lending portfolio was 605 basis points. We are closely monitoring the impact of cost inflation within our portfolio and its impact on profitability. We believe our portfolio is generally weighted towards industries that are less likely to be impacted by inflation and supply chain issues. We continue to see improvement in our credit metrics as we reduce our exposure to second lien positions. The weighted average net leverage of our corporate lending portfolio declined to 5.03 times down from 5.1 times last quarter. The weighted average attachment point declined to 0.2 times down from 0.3 times last quarter. Our low attachment point is a clear indication of the seniority of our corporate lending portfolio compared to loans which are classified as senior but have much deeper attachment points. The weighted average interest coverage improved to 3.1 times, up from three times last quarter. Investments made pursuant to our co-investment order represented 85% of the corporate lending portfolio at the end of the quarter. No investments were placed on non-accrual status during the quarter. At the end of December, investments on non-accrual status totaled $14 million, or 0.5% of the total portfolio at fair value, down from $28 million, or 1.1% last quarter. The quarter-over-quarter decline was attributable to the restructuring of our investment and sequential brands during the quarter. With that, I will now turn the call over to Greg, who will discuss the financial performance for the quarter.
spk10: Thanks, Tanner, and good afternoon, everyone. Beginning with AI&V's statement of operations, total investment income was $55 million for the quarter of 3.9% quarter-over-quarter, reflecting higher fee income and prepayment income as well as higher interest income, partially offset by lower dividends. Pre-payment income was $4 million, up $700,000 for the quarter. Fee income was $1.6 million, up $600,000 for the quarter. The increase in interest income was attributable to a larger average investment portfolio. Dividend income was $500,000 for the quarter, a decrease of $2.3 million compared is a September quarter. We received a $2.7 million cash distribution from MC, one of our shipping investments, which was recorded as a return of capital during the period. The weighted average yield at cost on our corporate lending portfolio was 7.6% at the end of December, unchanged quarter over quarter. The weighted average spread of our corporate lending portfolio was 605 basis points compared to 602 basis points last quarter. Expenses for the quarter were $32.5 million, up $800,000 for the quarter, and included an incentive fee of $5.4 million. The increase in interest expense reflects the growth in the portfolio. Net investment income per share for the December quarter was 35 cents. Net leverage at the end of December was 5.1.52 times, up slightly from last quarter, as the average net leverage for the December quarter was 1.51 times compared to 1.46 times for the September quarter. On page 16 in the earnings supplement, we disclosed the net gain and loss by strategy over the past five quarters. During the current quarter, Our corporate lending portfolio had a net gain of $3.7 million or $0.06 per share. Merck had a net gain of $3.4 million or $0.05 per share. Non-core and legacy assets had a loss of $9.1 million or $0.14 per share, driven by losses on our shipping investments. The loss on shipping primarily relates to the sale of the three ships that closed in January. NAB per share at the end of December was $16.08, a one cent increase quarter over quarter. The one cent increase was attributable to a five cents per share accretive impact from stock buybacks partially offset by the three cents per share net loss in the portfolio and the one cent from distribution relative to net investment income. Moving to stock buybacks, during the quarter, AINV purchased approximately 955,000 shares at an average price of $12.99, including commissions, for a total cost of $12.4 million. Since the end of the quarter and through yesterday, AINV had purchased an additional 61,000 shares at an average price of $12.70, for a total cost of approximately $800,000, leaving us with $5.8 million available under the previous authorization. As Howard mentioned, our Board has increased our share for purchase authorization by $25 million, which increases the amount available for future stock repurchases of just over $30 million. This concludes our prepared remarks, and please open the call to questions.
spk13: At this time, if you'd like to ask a question, please press the star and one keys on your telephone keypad. Keep in mind, you may remove yourself from the question queue at any time by pressing the pound key. Once again, to ask a question, please press the star and one keys on your touchtone telephone keypad. And we'll take our first question from Kyle Joseph with Jefferies. Please go ahead, your line is open.
spk01: Hey, good afternoon, guys. Thanks for taking my questions. Just refresh us, if you don't mind, given what's going on with the Fed. What percentage of your debt portfolio has floors and where those floors are versus rates at this time?
spk07: Yeah, Elizabeth grabbed it. Hey, Kyle, thanks for the question. Elizabeth grabbed the specific number, but it's in the 90% range that has floors, almost entirely 1%. We see on the life sciences side or some of the specialty verticals, sometimes we see a little bit higher floors. Almost everything we've done on the corporate side is at 1%, and then, as will not be as much of a surprise, In instances where you have a company that is bumping up against the syndicated market, we'll see something slightly lower than 1% at, you know, kind of 75 bps. But that's very few. So about, and she has the data for me now, 91% have 1% or higher, and only 3% have no fluoridol.
spk03: Got it. Very helpful. Sorry, Cal. Go ahead. No, no problem.
spk01: And then I was just going to ask one follow-up, probably also for Tanner. You know, obviously your credit performance has been very sound, but can you just give us an update – in terms of your portfolio companies, in terms of what they're seeing in terms of inflation, whether it be on the wage side or the raw material side, and any sort of impacts you've seen in terms of EBITDA margins or growth?
spk07: Yeah, absolutely. Absolutely. It's everywhere, and it's just a question of to what extent the underlying issuer is seeing it, just how pronounced it is, be it on the wave side, as you alluded to, and or from a supply chain standpoint. We do track underlying revenue and EVA-DA growth. We do try to strip out for the companies that are highly acquisitive. And on a like-for-like basis, this is the first quarter that EVDA did not grow. It was still positive, but not as strongly as revenue, belaboring that underlying dynamic which you're getting at. We continue to believe that, you know, where we're creating these companies and the fact that we are top of the structure, that, you know, our ultimate credit performance will have less to do. I just say nothing about, you know, whether these type pressures ease over the coming months or not. But notwithstanding, given where we're creating these companies and our underwriting performance, believe that they can stomach a certain amount of cost pressure before such time as we would expect our loss experience to change materially.
spk03: Got it. Very helpful. Thanks a lot for answering my questions.
spk13: We'll take our next question from Kenneth Lee with RBC Capital Markets. Please go ahead. Your line is open.
spk06: Hi, thanks for taking my question. Wondering if you could elaborate on the visibility that you have into additional monetizations from the non-core portfolio over the near term, and perhaps just talk about what could be driving that potential activity there. Thanks.
spk09: Yeah, sure. Basically, we're focusing on sale processes on a couple of the more meaningful positions. And so we hope to have at least one of those sort of uh uh you know something to say on one of those in the near future uh so that's and then and then separately you know we are generating cash off of a few of the positions uh uh now like most notably glacier is producing quite a bit of cash uh and you know we expect that to continue to produce cash i mean it may not uh like this quarter than that may may not go down despite the uh the cash coming in because of you know the price of oil and the performance so there could be more upside there but there's clearly an ability for for that company made more cash and then you know uh and then uh strategically i mean we're now the dpt transaction is is off the books but the uh The MC transaction has historically generated some cash, and, you know, that can generate cash that goes towards basis or for earnings, but, you know, is a positive cash generator. So all of those combined, you know, is where it comes from. So but basically, you know, the focus is on Spotted Hawk and MC to get some significant cash out of those in the near future.
spk06: Gotcha. Very helpful. And wondering, one follow-up, if I may, wondering if you could share with us your thoughts around potential originations activity this year, especially in comparison to what you saw last year. Thanks.
spk09: Yeah, I mean, you know, Obviously, we had a record year of origination, I think, as did a lot of our peers. That was the result, I think, of two things, of a lot of private equity activity and dry powder. There's still a lot of dry powder. Maybe the activity probably doesn't go up. And then, as importantly, the continually increased market share of private credit versus both banks and the broadly syndicated markets. That trend we expect to continue. So if you assume, you know, the pie is getting bigger, which I think is sort of the right assumption, you know, we would expect, you know, origination volumes to be, you know, lower than the run rate of the fourth quarter, but at least as good as it was for the full year. next year. You know, there continues to be an advantage for the people who have the ability to speak for larger commitments and have size and multiple pockets of capital, of which, you know, Apollo falls into that category of one of them. So that's obviously important. And it's like, you know, an arms race in some regards. So you got to just keep on working on that. But we continue, you know, we continue to make progress there. So, and if you looked at, you know, origination activity through this first five weeks of the year is good, is strong, is on a run rate as good as that. But frankly, that's, you know, some carryover from the end of last year. So, you know, you'd have to sort of look forward to the pipeline over the next two or three months to corroborate what I just said. But that's, I feel like our full-year origination should be close to what our full-year origination was this year. It would be a reasonably conservative estimate.
spk07: And I might add to that quickly, Ken, as you'll know all too well, the lion's share of the originations for us and our peers will and always be likely from the sponsor part of our business. We continue, as we called out in our prepared remarks, and to see in the market good flow that hits our target zip code from a yield perspective in our other verticals, such as life sciences and ABL. And that's a nice adder to the opportunity set for AIMB in this year and others as well.
spk03: Great. Very helpful. Thank you very much.
spk13: We'll take our next question from Casey Alexander with Compass Point. Please go ahead. Your line is open.
spk12: Yeah, good afternoon. Well, first of all, I'd like to applaud you for going to the, you know, essentially a variable dividend structure. I think that is going to be the soup du jour for many BDCs going forward. I'm wondering, did the board consider setting the next quarter's dividend at somewhere around, you know, between 96% and 98% of the previous quarter's NII, just so that you could retain dividends? some of that income for NAV growth and to put, you know, sort of a rainy day fund away for when there may or could be credit losses at some point in time in the future.
spk09: Yeah, I mean, you know, 98% is less than a penny, right? So, you know, I think it's a very good question. I think what we are trying to focus on is we believe we will be able to provide great visibility into our earnings capability, you know, X, these core assets, which we're very, very focused on lowering. and uh obviously now there's going to be some interest rate changes you know given the floors that will impact something too so i think our thought process is let's keep it variable based on the earnings as you said and then and then provide real visibility going forward which you think will be very predictable and and expect to be you know like a growing dividend base once we have that that clear picture you know we have a guess of where that's going to be and at that point you know, it would be right to set the dividend, you know, below the sort of the core, you know, slightly below the core earnings power for the reason you said. But it's just, it's more that we still think we're in this transition, and that transition also includes, you know, what has been a process pre-COVID and now it's becoming a process again, which is lowering the concentration of MERCs as well. Okay. Great, thank you. Does that make sense?
spk12: Yeah. Yeah, no, definitely. I also want to ask about the share repurchase program. Again, I think shareholders welcome the aggressive nature of the share repurchase program, but you are at, you know, over 1.5 times levered, and when you repurchase shares, that automatically increases your leverage ratio. So how do you think about the share repurchase program? Are you thinking about it in terms of as you sell down non-core, you're using proceeds from non-core to repurchase shares? I'm just curious how you think about it because at some point in time, without raising new equity, the share repurchase program is going to push that leverage ratio up towards the top of your target range.
spk09: Well, I think the way we think about it is, you know, like this quarter we did, you know, 200 plus million of new origination and we had, you know, net neutral growth. So this is just some of that origination, right? So it's like the return on this investment is, you know, at 80 cents of NAV is better than a new loan. On the other hand, it does shrink stuff and it's permanent, right? It doesn't get paid off and roll. So it has to be, you know, pretty accretive. But I think if you asked us, like, how do we think about it, we don't think about it like, oh, we're using non-core money. I think we're thinking about it as, like, it is an investment that is, you know, really positive for the shareholders. You know, it's basically a higher return than a loan with no credit risk and no fee against it. So you have to consider it in the full package of things, especially while you're repositioning everything. But you're definitely right that higher leverage, you know, the higher your leverage is, the higher premium you have to get to be able to make that the right choice.
spk12: Right. Okay, great. Thank you. I'll step back in the queue and perhaps come back later.
spk13: We'll take our next question from Matt Yadin with Raymond James. Please go ahead. Your line is open.
spk11: Hey, everyone. Afternoon and appreciate you taking my questions. First one for me on the dividend income line. So, no, there's a little noise there with the return of capital from MC. Howard, I think you said last quarter we could expect about a $1 million run rate in that line item from MC going ahead. Does that still hold today?
spk09: Yeah, I mean, I think, you know, it generates those types of returns and cash. So we would expect to produce that type of cash. You know, whether it's a return on capital really depends on sort of, you know, effectively the valuation. You know, it is income, but you don't, if you're going to, it is either income or return of capital. But if you're going to, like if the valuation of the asset is going down, we don't think it's right to be taking income off something that should go to basis. You know, so the right way to think about it is, yes, it generates that income going. That is effectively its return on a run rate basis on average over quarters. But we sold one ship last quarter, and so that caused some change in the valuation greater than it would be based on sort of, you know, shipping rates. Got it.
spk11: Makes sense. Maybe next one for me, pivoting in the non-core book to maybe – More so oil and gas. It sounds like the shipping activity is pretty healthy. Does recent strength in the oil and gas markets, does that maybe speed up the timeline at which you think you can dispose of glacier and spotted hog?
spk09: Yeah, well, yes, Spotted Hawk, I mean, I think it definitely speeds it up. There's more interest in it, and we're focused on sort of, you know, having a process, and we have, you know, a number of interested parties who have, you know, much more capabilities now. You know, that has always been sort of a, you know, it is a, it's an exploration play as opposed to oil currently coming out of the ground, so its valuation has always been, sort of have a broader range but there's definitely more interest because more people are building up assets glacier is actually more interesting which is you know we basically invested a little bit of money to uh to reopen some wells and and we're benefiting from that from a cash basis so i don't know if it was clear in the remarks but like in glacier we we realized four million dollars of cash out of there and the mark didn't go down at all because effectively there's a four million dollar increase in value in glacier and oil's only gone up since then and it's continuing to produce well So, one, we do think that there's more likely to be buyers out there, and we will look to that, but we're also pretty comfortable with the cash it's producing real time.
spk03: Got it. Fair enough.
spk09: And that's solely oil price related.
spk11: Got it. Got it. Last one for me, maybe following up on Casey's question. So understand, you know, kind of from a no net growth perspective on the share repurchases. If you were to get into visibility, you know, on maybe like repurchases slowing down or something like that, given where you sit above the midpoint of your leverage range, if you got more into a net growth position, would you expect the pace of share repurchases to slow down?
spk03: Yes.
spk09: I mean, you're saying if we got a net growth, if we were growing from here, yes. I mean, I think you would expect if we're holding this, even this leverage level now at the same stock price, you would expect it to slow down a little bit. So, yes. I mean, I think is the answer. You know, if there's significant monetization, such our leverage goes down meaningfully, then that's when more likely it's supposed to pick up. But this, you know, is a pretty active quarter this quarter.
spk03: Got it. That's it for me. I appreciate the time.
spk13: We'll take our next question from Ryan Lynch with KPW. Please go ahead. Your line is open.
spk08: Hey, good afternoon. Can you guys go over your comments relating to Dynamic Product Tanker? I didn't quite follow it all the way. It looks like you guys had about a $12 million loss right down this quarter in your shipping book, but then you talked about the closing of the three shifts, and I thought I heard maybe $18 million of unrealized gains in the March quarter. So can you just recap all that? I want to make sure I have all the details correct.
spk07: Yeah, I'm happy to. Thanks for the question, Ryan. So the three of the four shifts within our prime dynamic tanker investment were monetized in this quarter. And we had negotiated those sales as of the end of last quarter. So the write-down reflected the monetization of those positions. And so the $18 million, which has largely been received to date, subject to some normal closing conditions and closing process, was the return of capital and not a gain in this particular quarter. And then we're very focused on looking to monetize the fourth ship as well.
spk08: Okay, so the $18 million that you mentioned, that's just cash coming back in from the monetization as just be recorded as return of capital, no impact on your income statement, correct? Correct. Okay. Thanks for the clarification on that. And then, you know, you mentioned Merckx is sort of, you think, got into the worst of it regarding kind of the COVID downturn. What specifically this quarter drove the increase in the valuation of Merckx?
spk07: Yeah, sure. As you can probably imagine, it's a portfolio across 75 planes, and there's normal puts and takes, but on the margin, more positive than negatives. As we continue to work through our COVID-related challenges with respect to our underlying lessees, And then, importantly, another driver in this particular quarter is the dynamic we've talked about at length, Ryan, with respect to the fact that we have other pools of capital at Apollo for which we serve as the exclusive servicer for those assets and as we get those opportunities. We get the benefit of the servicing revenues without stretching the AINV balance sheet. And so some of that gain that we saw in the particular quarter was owing to the stabilization that Howard and myself alluded to, augmented by this dynamic as we continue to invest capital away from AINV and benefiting our servicing revenue.
spk08: Okay, understood. I appreciate the time this afternoon.
spk13: And as a reminder, if you'd like to ask a question today, please press the star and one keys on your telephone keypad. We'll take our next question from Melissa Wendell with JP Morgan. Please go ahead. Your line is open.
spk05: Thank you for taking my questions. Good afternoon. I wanted to touch on the yield on debt investments. It's been quite stable, quite resilient over the last few quarters despite some spread compression in the market. I was hoping you could kind of go over the drivers of that stability and if that's something that you think can persist through this year. Thank you.
spk09: yeah uh it you know it's been stable because of just like our and we've said this before like you know there was 7.7 billion of origination at mid cap uh this quarter you know and so we are choosing the assets here that uh you know that fit our criteria which is like you know the right credit uh the right credit components, but also that hit the yield profile. So if we had to originate six times as much, you would have seen more yield compression, because there's certainly that yield compression across all of the business. But just because of the breadth of the pipeline, you know, we're able to sort of, you know, select what fits, including, as Tanner said, you know, assets that aren't necessarily all leverage loans, but in some of the more, you know, bespoke asset classes. So You know, the stability is the result of sort of the selectivity of AIMD versus the pool of everything that's available.
spk07: And at the risk of overemphasizing, but you do often see with the dynamics of people trying to get deals done before year end, I wouldn't read into it a spread widening, but sometimes just the sheer surfeit of deals that were – in the market gave a little bit of pricing power to lenders on the market that I wouldn't necessarily read too much into it, but that helped to, you know, augment or give some benefit in what we were able to do from a spread perspective in Q4.
spk05: So as a follow-up to that, given the strength of, you know, the credit profiles of companies right now, is that something that you're willing to sort of use, you know, a benign credit environment to sort of subsidize and spread when it comes to new investments? Thank you.
spk09: I don't know if I understand the question. Just make sure. What do you mean?
spk05: Sure. To the extent that, you know, losses – It could be lower terms to borrowers are quite friendly. It could speak to a supportive credit environment, especially with the macro tailwinds for companies, despite recent sort of inflationary pressures. I guess I'm wondering if your outlook is for continued benign you know, solid credit performance from portfolio companies, does that make you willing to dip down a little bit more on spread than you otherwise might?
spk09: No, I mean, I think, you know, our – first of all, I mean, again, it's a different question where we are on our leverage point. But, you know, we have a certain – you know, we – there's a certain level of sort of, you know, return we want to deliver the shareholders that we feel like we can do at these yields while keeping ourselves at our target leverage. So unless one of those measures change, like, you know, you know, things don't change unless the macro environment doesn't allow those assets to become available. Obviously, like if there was something like we thought the risk was way too high, you know, we'd have to dip down if we thought. But I don't think, you know, right now for us it's actually an issue of us not doing as many of the deals we want to do at the yield we're at, or not as many of the deals, having our hold size as big as we might otherwise be because of our leverage point. Because, you know, diversity is important for us, and that helps. But, you know, so from time to time, you know, we're choosing, you know, multiple assets as opposed to, like, bigger holds. So, you know, the macro environment obviously is whether it's benign or not. I mean, frankly, like we always try to under, you know, these are five, six-year loans. We're underwriting like it ultimately won't be benign. You know, it has to withstand pressures. And there are some macro pressures on companies across the board. So I don't know if the macro environment impacts our choices, at least where we are today.
spk03: Thank you so much. We'll take our next question from Finian O'Shea with Wells Fargo Securities.
spk13: Please go ahead. Your line is open.
spk02: Hi, everyone. Good afternoon. Can you remind us or touch on the interplay with Apollo's broader platform with the newer non-traded BDC up and running now?
spk09: Sure. The non-traded BDC has a different focus. Its strategy is basically larger deals that are originated through, you know, like basically originated through sort of relationship with larger sponsors. So, you know, they expect to have a portfolio that's 75%, not like in the range of assets that AI and V use as core to its strategy. They do expect to do 20% of their portfolio in assets that sort of fit a part that's core to, AIMD strategy in the leveraged loans, so not the other asset class we do, in leveraged loans. Those deals, though, will be in the higher end of the middle market that we do, so say, take companies in 60, 70 million of EBITDA, where there is lots of, effectively, there's plenty of loan to go around, if you will. Those are $300 million underwrites, and there's lots of vehicles at Apollo that are taking part of it, including this non-traded BDC. So we view sort of the non-traded BDC as very complementary to our overall, and when I say we, it's Apollo, Apollo's overall strategy. approach to the market because it just gives us a lot more capabilities to underwrite the deals at the higher end of the middle market and then obviously also in the larger market for them. So that's where it falls. And we've seen that, like, in this first quarter now in closing some of the bigger deals where, you know, both AIND and ADS are in.
spk02: Sure, that's very helpful. Just to recap, actually, so I have it right, it's about 20% overlap with sort of a core mid-cap asset, 60, 70 of EBITDA, but 75% of it, the bulk of their assets are issuers that are much too large or upmarket for you. Is that right?
spk09: Well, either broadly syndicated or large, right? And when I say, like, they have something that says 20% to 30% middle market lending. So I said, like, a quarter, you know. Obviously, as they build their portfolio and the market, you know, has more and more large origination, their percentage will fluctuate. But that will be right directionally as it sort of grows. So they expect to have, you know, 50% to 70% of their assets in larger corporate loans that are originated and 20% to 30% in middle market and 20% and the rest in broadly syndicated. And, you know, obviously we're not doing broadly syndicated anymore and the larger loans we're not doing as well.
spk03: Very well. That's helpful. All for me. Thank you.
spk13: And there are no further questions in the line at this time. I'll turn the program back to our speakers for any continued or closing remarks.
spk09: Thanks. And thank you, everybody, for listening to today's call and for your questions on behalf of the team. Thank you for all your time, and feel free to reach out with us if you have any other questions. Have a good day.
spk13: This does conclude today's program. Thank you for your participation, and you may now disconnect.
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