Apollo Investment Corporation

Good morning and welcome to the earnings conference call for the period ended March 31st, 2022 for Apollo Investment Corporation. At this time, all participants have been placed in a 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 any time, simply press star one on your telephone keypad. If you would like to withdraw your question, press the pound key. I will now turn the call over to Ms. Elizabeth Besson, Investor Relations Manager for Apollo Investment Corporation.

Thank you, Operator, and thank you, everyone, for joining us today. Speaking on today's call are Howard Widra, 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 that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our 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 Widra.

Good morning, everyone, and thank you for joining us today. I'll begin today's call with an overview of results for the quarter, followed by an update on our non-core assets, which we are pleased to say have been reduced to a nominal amount. Following my remarks, Tanner will discuss the market environment, review our investment activity, provide an update on MERX, and discuss the portfolio's credit quality. Lastly, Gray will review our financial results in detail. We'll then open up the call to questions. Beginning with our results, debt investment income for the quarter was $0.42, which reflects a slight increase in interest income and strong fee and prepayment income. We recorded a net gain on our corporate lending portfolio, which continues to perform well. Overall, we had a net loss in our portfolio, primarily driven by a net loss on Merck's due to exposure to Russia, which Tanner will discuss later during the call, and on our remaining shipping investment, which was adjusted based on the expected net proceeds from a pending sale. Given the total return feature in our incentive fee structure and the net loss in our portfolio, incentive fees significantly declined quarter over quarter. We ended the period with net asset value per share, $15.79. Shifting to an update of our portfolio, we continue to successfully execute our strategy of investing in senior secured first lien middle market loans and also continue to make substantial progress reducing non-core assets with the receipt of significant cash proceeds from the repayment of non-core assets. During fiscal 2022, proceeds from the sale of non-core assets totaled $47 million, including $32 million in the March quarter. At the end of March, non-core assets totaled $135 million at fair value and represented about 5% of the portfolio. Post-quarter end, we have received approximately $6 million of additional proceeds from non-core assets, and we have good visibility into additional repayments in the coming quarters as we are in exclusive negotiations on two of our names, which will reduce our non-core exposure to approximately 3% of the portfolio. I will now provide some color on these sales. Beginning with our shipping investments during the March quarter, The dynamic product anchors close on the sale of four vessels in its fleets, generating approximately $28 million of cash in the quarter. You will see a $3.1 million position in dynamic at the end of March on our scheduled investment, which relates to net working capital adjustments. Since the end of the quarter, we have received a $1.4 million payment from dynamic and expect to receive the remaining balance by the end of June, at which time we will have fully exited that investment. We're in the process of selling the investment, vessels at MC, and our other shipping investment. The fair value of investment at MC was $34.3 million at the end of March, reflecting the anticipated exit values from two proposed transactions, which would be supported by a small amount of seller financing. We assigned a PSA on two vessels, which we expect to close by the end of June, and we anticipate closing on the sale of the remaining vessels in the MC fleet in the September quarter. Moving to our oil and gas investments, we have some positive developments to announce. First, we've signed a letter of intent to sell our investment in Spotted Hawk, and we expect the purchase agreement to be finalized in the next couple of weeks. We expect the sale to close in the next few months, which we estimate will generate debt proceeds at or above our $30.1 million mark at the end of March. The demand for this asset is high, and there are multiple interested parties. Glacier, another oil and gas position, is also benefiting from the increase in the price of oil. At the end of March, the fair value of the investment in Glacier was $62 million. The company continues to perform well as AINV received a $3.5 million pay down during the quarter and also rode up the investment by $3.6 million. Post-quarter end, Glacier paid AINV an additional $4.5 million on its outstanding obligations, which represented approximately 73% of the fair value of the position at the end of March. Performer for post-quarter end activity, including pending sales, Non-core assets total approximately $63 million, representing approximately 3% of the total portfolio at fair value. We are focused on monetizing the remaining non-core assets and are cautiously optimistic that there may be some upside in some of the remaining non-core positions. Our $42 million investment in carbon-free chemicals makes up the vast majority of the remaining non-core assets. As a reminder, our investment in carbon-free consists of an investment in the company's proprietary carbon capture technologies, and the company's chemical plant. Carbon-free is benefiting from strong interest in carbon capture, utilization, and storage as part of broader ESG trends. Going forward, we do not intend to break out non-core assets as a separate category in our supplemental reporting. Of course, we will continue to disclose the detail of each investment on our scheduled investments and will provide updates each quarter. We also continue to reduce our exposure to junior capital positions and receive $7 million of second lien corporate loan paydowns during the quarter. Shifting gears a bit, let me take a minute to remind everyone about the construction of our corporate lending portfolio, given the current operating environment, which is characterized by elevated inflation, higher interest rates, higher energy prices, and other geopolitical factors. Similar to our positioning heading into the pandemic, we have built what we believe to be a well-diversified corporate lending portfolio of true first-lead floating rate loads invested in less cyclical industries. Our corporate lending portfolio is 94% first-lead, with weighted average attachment point of 0.2 times, a key metric which demonstrates that we are truly invested at the most senior level of the capital structure. Additionally, 87% of the corporate lending portfolio is sponsor-backed, which means these companies have financial and operational support from the financial sponsors who own them. We feel very good about the ability of our corporate lending portfolio to withstand potential economic headwinds. In terms of new opportunities, we believe AIB's ability to invest in loans originated by MidCap Financial, is one of our most significant competitive advantages. In addition to cash flow loans to middle market sponsor-backed companies, MidCap's product offering includes life sciences lending, asset-based lending, lender finance, and franchise finance, products which are typically less competitive and have a lower correlation with the broader credit markets. At the end of March, these specialty products totaled approximately $340 million, representing about 16% of the AIB's corporate lending portfolio at fair value. 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 for a total distribution of $0.36 per share, consistent with NII for the March quarter, adjusted for a normal level of incentive fees. Both distributions are payable on July 7, 2022, to shareholders of record as of June 16, 2022. With that, I'll turn the call over to Tanner to discuss the market environment and our investment activity.