Filed Pursuant to Rule 497(e)
File No. 333-170519
PROSPECTUS SUPPLEMENT
(To the prospectus dated September 14, 2012)
$150,000,000
6.625% Senior Notes due 2042
We are offering $150,000,000 in aggregate principal amount of our 6.625% Senior Notes due 2042, which we refer to in this prospectus supplement as the Notes. The Notes will mature on October 15, 2042. We will pay interest on the Notes on January 15, April 15, July 15 and October 15 of each year, beginning January 15, 2013. We may redeem the Notes in whole or in part at any time or from time to time on or after October 15, 2017, at the redemption price discussed under the caption Specific Terms of the Notes and the OfferingOptional redemption in this prospectus supplement. The Notes will be issued in minimum denominations of $25 and integral multiples of $25 in excess thereof. We may offer other debt securities from time to time other than the Notes under our Registration Statement or in private placements.
The Notes will be our direct senior unsecured obligations and rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by Apollo Investment Corporation.
We intend to list the Notes on The New York Stock Exchange and we expect trading in the Notes on The New York Stock Exchange to begin within 30 days of the original issue date. The Notes are expected to trade flat. This means that purchasers will not pay, and sellers will not receive, any accrued and unpaid interest on the Notes that is not reflected in the trading price. Currently, there is no public market for the Notes and it is not expected that a market for the Notes will develop unless and until the Notes are listed on The New York Stock Exchange.
Apollo Investment Corporation is an externally managed closed-end, non-diversified management investment company that has elected to be treated as a business development company, or BDC, under the Investment Company Act of 1940, or 1940 Act. Our primary investment objective is to generate current income and capital appreciation. We invest primarily in various forms of debt investments, including senior secured loans, subordinated and mezzanine investments and/or equity in private middle market companies. From time to time, we may also invest in the securities of public companies.
Investing in our Notes involves risks that are described in the Risk Factors sections beginning on page S-7 of this prospectus supplement and page 8 of the accompanying prospectus.
Per Note |
Total |
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Public Offering Price |
100.00 | % | $ | 150,000,000 | ||||
Underwriting Discounts |
3.15 | % | $ | 4,725,000 | ||||
Proceeds, before expenses, to Apollo Investment Corporation (1) |
96.85 | % | $ | 145,275,000 |
(1) Before deducting expenses payable by us related to this offering, estimated at $300,000.
The public offering price set forth above does not include accrued interest, if any. Interest on the Notes will accrue from October 9, 2012 and must be paid by the purchaser if the notes are delivered after October 9, 2012.
THE NOTES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
Delivery of the Notes in book-entry form only through the facilities of The Depository Trust Company will be made on or about October 9, 2012.
This prospectus supplement and the accompanying prospectus contain important information you should know before investing in our Notes. Please read it before you invest and keep it for future reference. We file annual, quarterly and current reports, proxy statements and other information about us with the Securities and Exchange Commission, or the SEC. This information is available free of charge by contacting us at 9 West 57th Street, New York, New York 10019, or by calling us at (212) 515-3450. The SEC maintains a website at www.sec.gov where such information is available without charge upon written or oral request. Our Internet website address is www.apolloic.com. Information contained on our website is not incorporated by reference into this prospectus supplement or the accompanying prospectus and you should not consider information contained on our website to be part of this prospectus.
We invest in securities that have been rated below investment grade by independent rating agencies or that would be rated below investment grade if they were rated. These securities, which are often referred to as junk, have predominantly speculative characteristics with respect to the issuers capacity to pay interest and repay principal. They may also be difficult to value and illiquid.
Neither the SEC nor any state securities commission, nor any other regulatory body, has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Joint Book-Running Managers
BofA Merrill Lynch | Morgan Stanley |
The date of this prospectus supplement is October 1, 2012
You should rely only on the information contained in this prospectus supplement and the accompanying prospectus. We have not, and the underwriters have not, authorized anyone to provide you with additional information, or information different from that contained in this prospectus supplement and the accompanying prospectus. If anyone provides you with different or additional information, you should not rely on it. We are not, and the underwriters are not, offering to sell, and seeking offers to buy, securities in any jurisdictions where offers and sales are not permitted. The information contained in this prospectus supplement and the accompanying prospectus is accurate only as of the date of this prospectus supplement or such prospectus, respectively. Our business, financial condition, results of operations and prospects may have changed since then.
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SPECIFIC TERMS OF THE NOTES AND THE OFFERING
This prospectus supplement sets forth certain terms of the Notes that we are offering pursuant to this prospectus supplement and the accompanying prospectus that is attached to the back of this prospectus supplement. This section outlines the specific legal and financial terms of the Notes that are more generally described in the accompanying prospectus under the heading Description of Our Debt Securities. Capitalized terms used in this prospectus supplement and not otherwise defined shall have the meanings ascribed to them in the accompanying prospectus or in the indenture governing, or the supplemental indenture establishing, the terms of the Notes (collectively, the indenture and the supplemental indenture are referred to as the Indenture).
Issuer |
Apollo Investment Corporation |
Title of securities |
6.625% Senior Notes due 2042 |
Initial aggregate principal amount being offered |
$150,000,000 |
Initial public offering price |
100% of the aggregate principal amount of Notes. |
Principal payable at maturity |
100% of the aggregate principal amount; the principal amount of each Note will be payable on its stated maturity date at the office of the Paying Agent, Registrar and Transfer Agent for the Notes or at such other office in The City of New York as we may designate. |
Type of Note |
Fixed rate note |
Listing |
We intend to list the Notes on The New York Stock Exchange within 30 days of the original issue date. The Notes will not be listed or quoted for trading on any national securities exchange or trading market on the original issue date. |
Interest rate |
6.625% per year |
Day count basis |
360-day year of twelve 30-day months |
Original issue date |
October 9, 2012 |
Stated maturity date |
October 15, 2042 |
Date interest starts accruing |
October 9, 2012 |
Interest payment dates |
Every January 15, April 15, July 15 and October 15, commencing January 15, 2013. If an interest payment date falls on a non-business day, the applicable interest payment will be made on the next business day and no additional interest will accrue as a result of such delayed payment. |
Interest periods |
The initial interest period will be the period from and including October 9, 2012, to, but excluding, the initial interest payment date, |
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and the subsequent interest periods will be the periods from and including an interest payment date to, but excluding, the next interest payment date or the stated maturity date, as the case may be. |
Regular record dates for Interest |
January 1, April 1, July 1 and October 1, commencing January 1, 2013. |
Specified currency |
U.S. Dollars |
Place of payment |
New York City |
Ranking of Notes |
The Notes will be our general, unsecured obligations and will rank: |
| pari passu with all of our existing and future senior, unsecured indebtedness (including, but not limited to, our $200 million in aggregate principal amount of 5.75% Convertible Senior Notes due 2016, or the Unsecured Notes); |
| senior in right of payment to any of our subordinated indebtedness; and |
| effectively subordinated to our existing and future secured indebtedness (including, but not limited to, as of September 27, 2012, approximately $478 million aggregate principal amount of our indebtedness under our $1.14 billion senior secured facility, or the senior secured facility, our $225 million in aggregate principal amount of 6.25% Senior Secured Notes due 2015, or the 2015 Notes, our $29 million in aggregate principal amount of 5.875% Senior Secured Notes due 2016, or the 2016 Notes, and our $16 million in aggregate principal amount of 6.25% Senior Secured Notes due 2018, or the 2018 Notes, and collectively with our 2015 Notes and 2016 Notes, the Senior Secured Notes) to the extent of the value of the assets securing such indebtedness and structurally subordinated to any existing and future liabilities and other indebtedness of our subsidiaries. |
As of September 27, 2012, we and our subsidiaries had approximately $948 million of senior indebtedness outstanding, $748 million of which was secured indebtedness and $200 million of which was unsecured indebtedness.
Denominations |
We will issue the Notes in denominations of $25 and integral multiples of $25 in excess thereof. |
Business day |
Each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in New York City are authorized or required by law or executive order to close. |
Optional redemption |
The Notes may be redeemed in whole or in part at any time or from time to time at our option on or after October 15, 2017 upon not |
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less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof, at a redemption price of $25 per Note plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to, but excluding, the date fixed for redemption. |
You may be prevented from exchanging or transferring the Notes when they are subject to redemption. In case any Notes are to be redeemed in part only, the redemption notice will provide that, upon surrender of such Note, you will receive, without a charge, a new Note or Notes of authorized denominations representing the principal amount of your remaining unredeemed Notes.
Any exercise of our option to redeem the Notes will be done in compliance with the 1940 Act, to the extent applicable. |
If we redeem only some of the Notes, the Trustee will determine the method for selection of the particular Notes to be redeemed, in accordance with the 1940 Act to the extent applicable. Unless we default in payment of the redemption price, on and after the date of redemption, interest will cease to accrue on the Notes called for redemption. |
Sinking fund |
The Notes will not be subject to any sinking fund. |
Repayment at option of Holders |
Holders will not have the option to have the Notes repaid prior to the stated maturity date. |
Defeasance |
The Notes are subject to defeasance by us. |
Covenant defeasance |
The Notes are subject to covenant defeasance by us. |
Form of Notes |
The Notes will be represented by global securities that will be deposited and registered in the name of The Depository Trust Company (DTC) or its nominee. This means that, except in limited circumstances, you will not receive certificates for the Notes. Beneficial interests in the Notes will be represented through book-entry accounts of financial institutions acting on behalf of beneficial owners as direct and indirect participants in DTC. Investors may elect to hold interests in the Notes through either DTC, if they are a participant, or indirectly through organizations which are participants in DTC. |
Trustee, Paying Agent, Registrar and Transfer Agent |
U.S. Bank National Association. |
Events of Default |
If an event of default on the Notes occurs, the principal amount of the Notes, plus accrued and unpaid interest (including additional interest, if any) may be declared immediately due and payable, subject to certain conditions set forth in the Indenture. These amounts automatically become due and payable in the case of certain types of |
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bankruptcy or insolvency events of default involving the Company or a significant subsidiary of the Company as defined in the Indenture. |
Other covenants |
In addition to the covenants described in the prospectus attached to this prospectus supplement, the following covenants shall apply to the Notes: |
| We agree that for the period of time during which the Notes are outstanding, we will not violate Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions. |
| If, at any time, we are not subject to the reporting requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, to file any periodic reports with the SEC, we agree to furnish to holders of the Notes and the Trustee, for the period of time during which the Notes are outstanding, our audited annual consolidated financial statements, within 90 days of our fiscal year end, and unaudited interim consolidated financial statements, within 45 days of our fiscal quarter end. All such financial statements will be prepared, in all material respects, in accordance with applicable United States generally accepted accounting principles. |
Global Clearance and Settlement Procedures |
Interests in the Notes will trade in DTCs Same Day Funds Settlement System, and any permitted secondary market trading activity in such Notes will, therefore, be required by DTC to be settled in immediately available funds. None of the Company, the Trustee or the paying agent will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. |
Governing Law |
The Notes and the Indenture shall be governed by, and construed in accordance with, the laws of the State of New York. |
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This summary highlights some of the information in this prospectus supplement. It is not complete and may not contain all of the information that you may want to consider. You should read carefully the more detailed information set forth under Risk Factors in this prospectus supplement and the accompanying prospectus and the other information included in this prospectus supplement and the accompanying prospectus. In this prospectus supplement and the accompanying prospectus, except where the context suggests otherwise, the terms we, us, our, the Company, and Apollo Investment refer to Apollo Investment Corporation; AIM or investment adviser refers to Apollo Investment Management, L.P.; Apollo Administration or AIA refers to Apollo Investment Administration, LLC; and Apollo refers to the affiliated companies of Apollo Investment Management, L.P.
Apollo Investment
Apollo Investment Corporation, a Maryland corporation organized on February 2, 2004, is a closed-end, externally managed, non-diversified management investment company that has elected to be treated as a BDC under the 1940 Act. In addition, for tax purposes we have elected to be treated as a regulated investment company, or RIC, under the Internal Revenue Code of 1986, as amended (the Code).
Our investment objective is to generate current income and capital appreciation. We invest primarily in various forms of debt investments, including senior secured loans, subordinated and mezzanine investments and/or equity in private middle market companies. From time to time, we may also invest in the securities of public companies.
Our portfolio is comprised primarily of investments in subordinated debt, sometimes referred to as mezzanine debt, and senior secured loans of private middle-market companies that, in the case of senior secured loans, generally are not broadly syndicated and whose aggregate tranche size is typically less than $300 million. From time to time our portfolio also includes equity interests such as common stock, preferred stock, warrants or options. In this prospectus supplement, we use the term middle-market to refer to companies with annual revenues between $50 million and $2 billion. While our investment objective is to generate current income and capital appreciation through investments in U.S. senior and subordinated loans, other debt securities and equity, we may also invest a portion of the portfolio in other investment opportunities, including foreign securities. Most of the debt instruments we invest in are unrated or rated below investment grade, which is an indication of having predominantly speculative characteristics with respect to the capacity to pay interest and principal, such securities are often referred to as junk. See Risk FactorsRisks Related to Our Investments in the accompanying prospectus.
AIM is our investment adviser and an affiliate of Apollo Global Management, LLC, and its consolidated subsidiaries (AGM). AGM and other affiliates manage other funds that may have investment mandates that are similar, in whole or in part, with ours. AIM and its affiliates may determine that an investment is appropriate both for us and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, AIM may determine that we should invest on a side-by-side basis with one or more other funds. We may make all such investments subject to compliance with applicable regulations and interpretations, and our allocation procedures. In certain circumstances negotiated co-investments may be made only if we receive an order from the SEC permitting us to do so. There can be no assurance that any such order will be obtained.
During the three months ended June 30, 2012, we invested $199 million in 10 new and 3 existing portfolio companies, through a combination of primary and secondary market purchases. This compares to investing $836 million in 9 new and 10 existing portfolio companies for the three months ended June 30, 2011. Investments sold or prepaid during the three months ended June 30, 2012 totaled $255 million versus $733 million for the three months ended June 30, 2011. The weighted average yields on our senior secured loan portfolio, subordinated debt portfolio and total debt portfolio as of June 30, 2012 at our current cost basis were 10.6%, 12.9% and 12.1%, respectively. At June 30, 2011, the yields were 9.2%, 12.3% and 11.1%, respectively.
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Our targeted investment size typically ranges between $20 million and $250 million, although this investment size may vary proportionately as the size of our available capital base changes. At June 30, 2012, our portfolio consisted of 64 portfolio companies and was invested 30% in senior secured loans, 58% in subordinated debt, 1% in preferred equity and 11% in common equity and warrants measured at fair value versus 72 portfolio companies invested 32% in senior secured loans, 57% in subordinated debt, 1% in preferred equity and 10% in common equity and warrants at June 30, 2011.
Since our initial public offering in April 2004, and through June 30, 2012, invested capital totaled $9.0 billion in 176 portfolio companies. Over the same period, we completed transactions with more than 100 different financial sponsors. A financial sponsor is a term commonly used to refer to private equity investment firms, particularly those private equity firms that engage in leveraged buyout transactions.
At June 30, 2012, 64% or $1.5 billion of our income-bearing investment portfolio is fixed rate debt and 36% or $0.8 billion is floating rate debt, measured at fair value. On a cost basis, 63% or $1.5 billion of our income-bearing investment portfolio is fixed rate debt and 37% or $0.9 billion is floating rate debt. At June 30, 2011, 60% or $1.7 billion of our income-bearing investment portfolio is fixed rate debt and 40% or $1.1 billion is floating rate debt. On a cost basis, 61% or $1.7 billion of our income-bearing investment portfolio is fixed rate debt and 39% or $1.1 billion is floating rate debt.
About Apollo Investment Management
AIM, our investment adviser, is led by a dedicated team of investment professionals. The investment committee of AIM currently consists of Marc Rowan, a Senior Managing Director of AGM; James C. Zelter, our Chief Executive Officer and a Vice President of the general partner of AIM; Edward Goldthorpe, our President, Chief Investment Officer and a Partner of AIM; Eileen Patrick, Executive Vice President of Corporate Strategy; Justin Sendak, a Partner of AIM; Phil Guerin, a Partner of AIM; Greg Beard, Head of Natural Resources at AGM; and Bret Leas, Senior Portfolio Manager of Structured Credit at AGM. The participation of Greg Beard and Bret Leas in the decision making activity of the investment committee are limited to their respective areas of investment expertise within AGM. The composition of the investment committee of AIM may change from time to time. In 2012, Edward Goldthorpe began his term as our President and as Chief Investment Officer of AIM and Eileen Patrick began her term as our Executive Vice President of Corporate Strategy in 2012. Additionally, Phil Guerin, Greg Beard and Bret Leas increased their participation in the investment committee of AIM in 2012. AIM draws upon AGMs more than 20 year history and benefits from the broader firms significant capital markets, trading and research expertise developed through investments in many core sectors in over 150 companies since inception.
About Apollo Investment Administration
In addition to furnishing us with office facilities, equipment, and clerical, bookkeeping and record keeping services, AIA also oversees our financial records as well as prepares our reports to stockholders and reports filed with the SEC. AIA also performs the calculation and publication of our net asset value, the payment of our expenses and oversees the performance of various third-party service providers and the preparation and filing of our tax returns. Furthermore, AIA provides on our behalf managerial assistance to those portfolio companies to which we are required to provide such assistance.
Our Corporate Information
Our administrative and principal executive offices are located at 730 Fifth Avenue, New York, NY 10019 and 9 West 57th Street, New York, NY, 10019, respectively. Our common stock is quoted on The Nasdaq Global Select Market under the symbol AINV. Our Internet website address is www.apolloic.com. Information contained on our website is not incorporated by reference into this prospectus supplement and you should not consider information contained on our website to be part of this prospectus supplement or the accompanying prospectus.
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Your investment in the Notes will involve certain risks. You should carefully consider the risks described below and all of the information contained in this prospectus supplement and the accompanying prospectus before deciding whether to purchase any Notes. The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition and results of operations would suffer. The risks discussed below also include forward-looking statements and our actual results may differ substantially from those discussed in these forward-looking statements. See the section entitled Forward-Looking Statements included elsewhere in this prospectus supplement. You should, in consultation with your own financial and legal advisors, carefully consider the following discussion of risks before deciding whether an investment in the Notes is suitable for you.
Our amount of debt outstanding will increase as a result of this offering. Our current indebtedness could adversely affect our business, financial condition and results of operations and our ability to meet our payment obligations under the Notes and our other debt.
As of September 27, 2012, we and our subsidiaries had approximately $948 million of senior indebtedness outstanding, $748 million of which was secured indebtedness and $200 million of which was unsecured indebtedness.
The use of debt could have significant consequences on our future operations, including:
| making it more difficult for us to meet our payment and other obligations under the Notes and our other outstanding debt; |
| resulting in an event of default if we fail to comply with the financial and other restrictive covenants contained in our debt agreements, which event of default could result in substantially all of our debt becoming immediately due and payable; |
| reducing the availability of our cash flow to fund investments, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes; |
| subjecting us to the risk of increased sensitivity to interest rate increases on our indebtedness with variable interest rates, including borrowings under our senior secured facility; and |
| limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industry in which we operate and the general economy. |
Any of the above-listed factors could have an adverse effect on our business, financial condition and results of operations and our ability to meet our payment obligations under the Notes and our other debt.
Our ability to meet our payment and other obligations under our debt instruments depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control. We cannot assure you that our business will generate cash flow from operations, or that future borrowings will be available to us under our senior secured facility or otherwise, in an amount sufficient to enable us to meet our payment obligations under the Notes and our other debt and to fund other liquidity needs. If we are not able to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, including the Notes, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives, we may not be able to meet our payment obligations under the Notes and our other debt.
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A downgrade, suspension or withdrawal of the rating assigned by a rating agency to us or the Notes, if any, could cause the liquidity or market value of the Notes to decline significantly.
Our credit ratings are an assessment by rating agencies of our ability to pay our debts when due. Consequently, real or anticipated changes in our credit ratings will generally affect the market value of the Notes. These credit ratings may not reflect the potential impact of risks relating to the structure or marketing of the Notes. Credit ratings are not a recommendation to buy, sell or hold any security, and may be revised or withdrawn at any time by the issuing organization in its sole discretion. Neither we nor any underwriter undertakes any obligation to maintain the ratings or to advise holders of Notes of any changes in ratings.
The Notes will be rated by Standard & Poors Ratings Services, or S&P, and Fitch Ratings, or Fitch. There can be no assurance that their respective ratings will remain for any given period of time or that such ratings will not be lowered or withdrawn entirely by S&P or Fitch if in either of their respective judgments future circumstances relating to the basis of the rating, such as adverse changes in our company, so warrant.
The Notes will be effectively subordinated to any existing and future secured indebtedness and structurally subordinated to existing and future liabilities and other indebtedness of our subsidiaries, and are due after our other outstanding notes.
The Notes will be our general, unsecured obligations and will rank equal in right of payment with all of our existing and future senior, unsecured indebtedness (including, but not limited to, our $200 million in aggregate principal amount of our Unsecured Notes and senior in right of payment to any of our subordinated indebtedness. As a result, the Notes will be effectively subordinated to our existing and future secured indebtedness (including, but not limited to, as of September 27, 2012, approximately $478 million aggregate principal amount of our indebtedness under our $1.14 billion senior secured facility, our $225 million in aggregate principal amount of our 2015 Notes, our $29 million in aggregate principal amount of our 2016 Notes, and our $16 million in aggregate principal amount of our 2018 Notes to the extent of the value of the assets securing such indebtedness and structurally subordinated to any existing and future liabilities and other indebtedness of our subsidiaries. These liabilities may include indebtedness, trade payables, guarantees, lease obligations and letter of credit obligations. The Notes do not restrict us or our subsidiaries from incurring indebtedness, including senior secured indebtedness in the future, nor do they limit the amount of indebtedness we can issue that is equal in right of payment to the Notes. As of September 27, 2012, we and our subsidiaries had approximately $948 million of senior indebtedness outstanding, $748 million of which was secured indebtedness and $200 million of which was unsecured indebtedness.
Each of the Unsecured Notes and the Senior Secured Notes are due prior to the Notes. We do not currently know whether we will be able to replace any of the Unsecured Notes or the Senior Secured Notes, or if we do, whether we will be able to do so on terms that are as favorable as such notes. In the event that we are not able to replace the Unsecured Notes or any of the Senior Secured Notes at the time of their respective maturities, this could have a material adverse effect on our liquidity and ability to fund new investments, our ability to make distributions to our stockholders, our ability to repay the Notes and our ability to qualify as a regulated investment company, or RIC.
The Indenture under which the Notes will be issued will contain limited protection for holders of the Notes.
The Indenture under which the Notes will be issued will offer limited protection to holders of the Notes. The terms of the Indenture and the Notes do not restrict our or any of our subsidiaries ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have an adverse impact on your investment in the Notes. In particular, the terms of the Indenture and the Notes will not place any restrictions on our or our subsidiaries ability to:
| issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to the Notes, (2) any |
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indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the Notes to the extent of the values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to the Notes and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the Notes with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions; |
| pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the Notes; |
| sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets); |
| enter into transactions with affiliates; |
| create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions; |
| make investments; or |
| create restrictions on the payment of dividends or other amounts to us from our subsidiaries. |
Furthermore, the terms of the Indenture and the Notes do not protect holders of the Notes in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity.
Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the Notes may have important consequences for you as a holder of the Notes, including making it more difficult for us to satisfy our obligations with respect to the Notes or negatively affecting the trading value of the Notes.
Certain of our current debt instruments include more protections for their holders than the Indenture and the Notes. See in the accompanying prospectus Risk FactorsWe currently use borrowed funds to make investments and are exposed to the typical risks associated with leverage. In addition, other debt we issue or incur in the future could contain more protections for its holders than the Indenture and the Notes, including additional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of the Notes.
We may be subject to certain corporate-level taxes which could adversely affect our cash flow and consequently adversely affect our ability to make payments on the Notes.
We may be subject to certain corporate-level taxes regardless of whether we continue to qualify as a RIC. Additionally, should we fail to qualify as a RIC, we would be subject to corporate-level taxes on all of our taxable income. The imposition of corporate-level taxes could adversely affect our cash flow and consequently adversely affect our ability to make payments on the Notes.
The Notes may not be approved by The New York Stock Exchange and an active trading market for the Notes may not develop, which could limit the market price of the Notes or your ability to sell them.
The Notes are a new issue of debt securities for which there currently is no trading market. Although we expect the Notes to be listed on The New York Stock Exchange, we cannot provide any assurances that The New
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York Stock Exchange will approve the listing of the Notes or that an active trading market will develop for the Notes or that you will be able to sell your Notes. If the Notes are traded after their initial issuance, they may trade at a discount from their initial offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, general economic conditions, our financial condition, performance and prospects and other factors. The underwriters have advised us that they intend to make a market in the Notes, but they are not obligated to do so. The underwriters may discontinue any market-making in the Notes at any time at their sole discretion. Accordingly, we cannot assure you that a liquid trading market will develop for the Notes, that you will be able to sell your Notes at a particular time or that the price you receive when you sell will be favorable. To the extent an active trading market does not develop, the liquidity and trading price for the Notes may be harmed. Accordingly, you may be required to bear the financial risk of an investment in the Notes for an indefinite period of time.
The optional redemption provision may materially adversely affect your return on the Notes.
The Notes are redeemable in whole or in part upon certain conditions at any time or from time to time at our option on or after October 15, 2017. We may choose to redeem the Notes at times when prevailing interest rates are lower than the interest rate paid on the Notes. In this circumstance, you may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the Notes being redeemed.
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We estimate that the net proceeds from this offering will be approximately $144.98 million after deducting estimated underwriting discounts and commissions and estimated offering expenses of approximately $0.3 million payable by us.
We expect to use the net proceeds from the sale of the Notes to repay indebtedness owed under our senior secured facility.
At September 27, 2012, we had approximately $478 million outstanding under our senior secured facility. Our senior secured facility matures on May 23, 2016 and bears interest at an annual rate of 225 basis points over the London Interbank Offered Rate, or LIBOR.
Affiliates of the underwriters are lenders under the senior secured facility. Accordingly, affiliates of the underwriters will receive the net proceeds of this offering.
We intend to use any net proceeds from this offering that are not applied as described above for general corporate purposes, which includes investing in portfolio companies in accordance with our investment objective.
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The Statement of Operations, Per Share and Balance Sheet data for the fiscal years ended March 31, 2012, 2011, 2010, 2009 and 2008 are derived from our financial statements, which have been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm. Quarterly financial information is derived from unaudited financial data, but in the opinion of management, reflects all adjustments (consisting only of normal recurring adjustments) that are necessary to present fairly the results of such interim periods. Interim results for the three months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the fiscal quarter ending September 30, 2012. This selected financial data should be read in conjunction with our financial statements and related notes thereto and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this prospectus supplement and the accompanying prospectus. All amounts are in thousands except per share data.
For the Three Months Ended June 30, (unaudited) |
For the Year Ended March 31, | |||||||||||||||||||||||||||
Statement of Operations Data: |
2012 | 2011 | 2012 | 2011 | 2010 | 2009 | 2008 | |||||||||||||||||||||
Total Investment Income |
$ | 80,333 | $ | 94,592 | $ | 357,584 | $ | 358,779 | $ | 340,238 | $ | 377,304 | $ | 357,878 | ||||||||||||||
Total Expenses (including excise taxes) |
$ | 41,601 | $ | 46,930 | $ | 184,842 | $ | 167,607 | $ | 140,828 | $ | 170,973 | $ | 156,272 | ||||||||||||||
Net Investment Income |
$ | 38,732 | $ | 47,662 | $ | 172,742 | $ | 191,172 | $ | 199,410 | $ | 206,331 | $ | 201,606 | ||||||||||||||
Net Realized and Unrealized Gains (Losses) |
$ | (50,374 | ) | $ | (47,606 | ) | $ | (259,006 | ) | $ | (10,760 | ) | $ | 63,880 | $ | (818,210 | ) | $ | (235,044 | ) | ||||||||
Net Increase (Decrease) in Net Assets Resulting from Operations |
$ | (11,642 | ) | $ | 56 | $ | (86,264 | ) | $ | 180,412 | $ | 263,290 | $ | (611,879 | ) | $ | (33,438 | ) | ||||||||||
Per Share Data: |
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Net Asset Value |
$ | 8.30 | $ | 9.76 | $ | 8.55 | $ | 10.03 | $ | 10.06 | $ | 9.82 | $ | 15.83 | ||||||||||||||
Net Investment Income |
$ | 0.19 | $ | 0.24 | $ | 0.88 | $ | 0.99 | $ | 1.26 | $ | 1.48 | $ | 1.82 | ||||||||||||||
Net Increase (Decrease) in Net Assets Resulting from Operations (Basic and Diluted) |
$ | (0.06 | ) | $ | 0.00 | $ | (0.44 | ) | $ | 0.93 | $ | 1.65 | $ | (4.39 | ) | $ | (0.30 | ) | ||||||||||
Distributions Declared |
$ | 0.20 | $ | 0.28 | $ | 1.04 | $ | 1.12 | $ | 1.10 | $ | 1.82 | $ | 2.07 | ||||||||||||||
Balance Sheet Data: |
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Investments |
$ | 2,579,584 | $ | 3,123,260 | $ | 2,677,080 | $ | 3,050,158 | $ | 2,853,580 | $ | 2,486,891 | $ | 3,233,548 | ||||||||||||||
Prepaid Expenses and Other Assets |
$ | 27,253 | $ | 24,798 | $ | 17,442 | $ | 27,447 | $ | 24,070 | $ | 4,934 | $ | 5,896 | ||||||||||||||
Total Assets |
$ | 2,885,693 | $ | 3,259,302 | $ | 2,775,263 | $ | 3,148,813 | $ | 3,465,116 | $ | 2,548,639 | $ | 3,724,324 | ||||||||||||||
Borrowings Outstanding |
$ | 1,019,887 | $ | 1,249,203 | $ | 1,009,337 | $ | 1,053,443 | $ | 1,060,616 | $ | 1,057,601 | $ | 1,639,122 | ||||||||||||||
Net Assets |
$ | 1,683,011 | $ | 1,911,232 | $ | 1,685,231 | $ | 1,961,031 | $ | 1,772,806 | $ | 1,396,138 | $ | 1,897,908 | ||||||||||||||
Other Data: |
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Total Return (1) |
9.7 | % | (13.1 | )% | (32.4 | )% | 5.1 | % | 313.0 | % | (73.9 | )% | (17.5 | )% | ||||||||||||||
Number of Portfolio Companies at Period End |
64 | 72 | 62 | 69 | 67 | 72 | 71 | |||||||||||||||||||||
Total Portfolio Investments for the Period |
$ | 198,613 | $ | 835,811 | $ | 1,480,508 | $ | 1,085,601 | $ | 716,425 | $ | 434,995 | $ | 1,755,913 | ||||||||||||||
Investment Sales and Prepayments for the Period |
$ | 254,834 | $ | 733,119 | $ | 1,634,520 | $ | 977,493 | $ | 451,687 | $ | 339,724 | $ | 714,225 | ||||||||||||||
Weighted Average Yield on Debt Portfolio at Period End |
12.1 | % | 11.1 | % | 11.9 | % | 11.6 | % | 11.8 | % | 11.7 | % | 12.0 | % | ||||||||||||||
Weighted Average Shares Outstanding at Period End (Basic) (2) |
202,827 | 195,900 | 196,584 | 193,192 | 159,369 | 139,469 | 112,050 |
(1) | Total return is based on the change in market price per share and takes into account dividends and distributions, if any, reinvested in accordance with our dividend reinvestment plan. |
(2) | Weighted Average Shares Outstanding on a diluted basis for the three months ended June 30, 2012 were 217,375. Weighted Average Shares Outstanding on a diluted basis for the three months ended June 30, 2011 were 210,449. Weighted Average Shares Outstanding on a diluted basis for the fiscal year ended March 31, 2012 were 211,132. Weighted Average Shares Outstanding on a diluted basis for the fiscal year ended March 31, 2011 were 195,823. For the fiscal years ended 2010, 2009, 2008 and 2007, basic and diluted weighted average shares were the same. |
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The following table sets forth our cash and capitalization as of June 30, 2012 (1) on an actual basis and (2) as adjusted to reflect the effects of the offering of the Notes and the application of net proceeds from this offering as described under Use of Proceeds. You should read this table together with Use of Proceeds and Managements Discussion and Analysis of Financial Condition and Results of Operations set forth in this prospectus supplement and our financial statements and notes thereto, as well as Managements Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and notes thereto included in the accompanying prospectus. The adjusted information is illustrative only; our capitalization following the completion of this offering is subject to adjustment based on the actual offering of the Notes, which will be determined at pricing.
All amounts in thousands, except per share data
As of June 30, 2012 | ||||||||
Actual | As Adjusted for this Offering (1) |
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(unaudited) | ||||||||
Cash |
$ | 1,380 | $ | 1,380 | ||||
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Debt |
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Borrowings under senior secured facility (2) |
549,887 | 404,912 | ||||||
Senior Secured Notes |
270,000 | 270,000 | ||||||
Unsecured Notes |
200,000 | 200,000 | ||||||
Notes |
| 150,000 | ||||||
Stockholders Equity |
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Common stock, par value $0.001 per share; 400,000 shares authorized, 202,891 shares issued and outstanding |
203 | 203 | ||||||
Capital in excess of par value |
2,936,321 | 2,936,321 | ||||||
Distributable earnings (3) |
(1,253,513 | ) | (1,253,513 | ) | ||||
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|
|
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Total stockholders equity |
1,683,011 | 1,683,011 | ||||||
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Total capitalization |
$ | 2,702,898 | $ | 2,707,923 | ||||
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(1) | Does not include the underwriters over-allotment option. |
(2) | As described under Use of Proceeds, we intend to use the net proceeds from this offering to repay a portion of the borrowings outstanding under our senior secured facility. |
(3) | Includes cumulative net investment income or loss, cumulative amounts of gains and losses realized from investment and foreign currency transactions and net unrealized appreciation or depreciation of investments and foreign currencies, and distributions paid to stockholders other than tax return of capital distributions. Distributable earnings is not intended to represent amounts we may or will distribute to our stockholders. |
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Some of the statements in this prospectus supplement constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained in this prospectus supplement involve risks and uncertainties, including statements as to:
| our future operating results; |
| our business prospects and the prospects of our portfolio companies; |
| the impact of investments that we expect to make or have made; |
| our contractual arrangements and relationships with third parties; |
| the dependence of our future success on the general economy and its impact on the industries in which we invest; |
| the ability of our portfolio companies to achieve their objectives; |
| our expected financings and investments; |
| the adequacy of our cash resources and working capital; and |
| the timing of cash flows, if any, from the operations of our portfolio companies. |
We generally use words such as anticipates, believes, expects, intends and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including the factors set forth in Risk Factors and elsewhere in this prospectus supplement.
We have based the forward-looking statements included in this prospectus on information available to us on the date of this prospectus. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, we have a general obligation to update to reflect material changes in our disclosures and you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial statements and related notes and other financial information appearing elsewhere in this prospectus supplement and the accompanying prospectus. In addition to historical information, the following discussion and other parts of this prospectus supplement contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under Risk Factors and Forward-Looking Statements appearing elsewhere in this prospectus supplement and the accompanying prospectus.
OVERVIEW
Apollo Investment was incorporated under the Maryland General Corporation Law in February 2004. We have elected to be treated as a BDC under the 1940 Act. As such, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in qualifying assets, including securities of private or thinly traded public U.S. companies, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. In addition, for federal income tax purposes we have elected to be treated as a RIC under Subchapter M of the Code. Pursuant to this election and assuming we qualify as a RIC, we generally do not have to pay corporate-level federal income taxes on any income we distribute to our stockholders. Apollo Investment commenced operations on April 8, 2004 upon completion of its initial public offering that raised $870 million in net proceeds selling 62 million shares of its common stock at a price of $15.00 per share. Since then, and through June 30, 2012, we have raised approximately $1.9 billion in net proceeds from additional offerings of common stock.
Investments
Our level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle market companies, the level of merger and acquisition activity for such companies, the general economic environment and the competitive environment for the types of investments we make. As a business development company, we must not acquire any assets other than qualifying assets specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions).
Revenue
We generate revenue primarily in the form of interest and dividend income from the securities we hold and capital gains, if any, on investment securities that we may acquire in portfolio companies. Our debt investments, whether in the form of mezzanine or senior secured loans, generally have a stated term of five to ten years and bear interest at a fixed rate or a floating rate usually determined on the basis of a benchmark: LIBOR, EURIBOR, GBP LIBOR, or the prime rate. Interest on debt securities is generally payable quarterly or semiannually and while U.S. subordinated debt and corporate notes typically accrue interest at fixed rates, some of our investments may include zero coupon and/or step-up bonds that accrue income on a constant yield to call or maturity basis. In addition, some of our investments provide for payments-in-kind (PIK) interest or dividends. Such amounts of accrued PIK interest or dividends are added to the cost of the investment on the respective capitalization dates and generally become due at maturity of the investment or upon the investment being called by the issuer. We may also generate revenue in the form of commitment, origination, structuring fees, fees for providing managerial assistance and, if applicable, consulting fees.
Expenses
All investment professionals of the investment adviser and their staff, when and to the extent engaged in providing investment advisory and management services to us, and the compensation and routine overhead
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expenses of that personnel which is allocable to those services are provided and paid for by AIM. We bear all other costs and expenses of our operations and transactions, including those relating to:
| investment advisory and management fees; |
| expenses incurred by AIM payable to third parties, including agents, consultants or other advisors, in monitoring our financial and legal affairs and in monitoring our investments and performing due diligence on our prospective portfolio companies; |
| calculation of our net asset value (including the cost and expenses of any independent valuation firm); |
| direct costs and expenses of administration, including independent registered public accounting and legal costs; |
| costs of preparing and filing reports or other documents with the SEC; |
| interest payable on debt, if any, incurred to finance our investments; |
| offerings of our common stock and other securities; |
| registration and listing fees; |
| fees payable to third parties, including agents, consultants or other advisors, relating to, or associated with, evaluating and making investments; |
| transfer agent and custodial fees; |
| taxes; |
| independent directors fees and expenses; |
| marketing and distribution-related expenses; |
| the costs of any reports, proxy statements or other notices to stockholders, including printing and postage costs; |
| our allocable portion of the fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; |
| organizational costs; and |
| all other expenses incurred by us or Apollo Administration in connection with administering our business, such as our allocable portion of overhead under the Administration Agreement, including rent and our allocable portion of the cost of our chief financial officer and chief compliance officer and their respective staffs. |
We expect our general and administrative operating expenses related to our ongoing operations to increase moderately in dollar terms. During periods of asset growth, we generally expect our general and administrative operating expenses to decline as a percentage of our total assets and increase during periods of asset declines. Incentive fees, interest expense and costs relating to future offerings of securities, among others, may also increase or reduce overall operating expenses based on portfolio performance, interest rate benchmarks, and offerings of our securities relative to comparative periods, among other factors.
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Portfolio and Investment Activity
During the three months ended June 30, 2012, we invested $199 million in 10 new and 3 existing portfolio companies, through a combination of primary and secondary market purchases. This compares to investing $836 million in 9 new and 10 existing portfolio companies for the three months ended June 30, 2011. Investments sold or prepaid during the three months ended June 30, 2012 totaled $255 million versus $733 million for the three months ended June 30, 2011.
At June 30, 2012, our portfolio consisted of 64 portfolio companies and was invested 30% in senior secured loans, 58% in subordinated debt, 1% in preferred equity and 11% in common equity and warrants measured at fair value versus 72 portfolio companies invested 32% in senior secured loans, 57% in subordinated debt, 1% in preferred equity and 10% in common equity and warrants at June 30, 2011.
The weighted average yields on our senior secured loan portfolio, subordinated debt portfolio and total debt portfolio as of June 30, 2012 at our current cost basis were 10.6%, 12.9% and 12.1%, respectively. At June 30, 2011, the yields were 9.2%, 12.3% and 11.1%, respectively.
Since the initial public offering of Apollo Investment in April 2004, and through June 30, 2012, invested capital totaled $9.0 billion in 176 portfolio companies. Over the same period, Apollo Investment completed transactions with more than 100 different financial sponsors.
At June 30, 2012, 64% or $1.5 billion of our income-bearing investment portfolio is fixed rate and 36% or $0.8 billion is floating rate, measured at fair value. On a cost basis, 63% or $1.5 billion of our income-bearing investment portfolio is fixed rate and 37% or $0.9 billion is floating rate. At June 30, 2011, 60% or $1.7 billion of our income-bearing investment portfolio is fixed rate and 40% or $1.1 billion is floating rate. On a cost basis, 61% or $1.7 billion of our income-bearing investment portfolio is fixed rate and 39% or $1.1 billion is floating rate.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ materially. In addition to the discussion below, our critical accounting policies are further described in the notes to the financial statements.
Valuation of Portfolio Investments
Under procedures established by our board of directors, we value investments, including certain senior secured debt, subordinated debt, and other debt securities with maturities greater than 60 days, for which market quotations are readily available, at such market quotations (unless they are deemed not to represent fair value). We attempt to obtain market quotations from at least two brokers or dealers (if available, otherwise from a principal market maker or a primary market dealer or other independent pricing service). We utilize mid-market pricing as a practical expedient for fair value unless a different point within the range is more representative. If and when market quotations are deemed not to represent fair value, we typically utilize independent third party valuation firms to assist us in determining fair value. Accordingly, such investments go through our multi-step valuation process as described below. In each case, our independent valuation firms consider observable market inputs together with significant unobservable inputs in arriving at their valuation recommendations for such Level 3 categorized assets. Debt investments with remaining maturities of 60 days or less shall each be valued at cost with interest accrued or discount amortized to the date of maturity, unless such valuation, in the judgment of
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our investment adviser, does not represent fair value, in which case such investments shall be valued at fair value as determined in good faith by or under the direction of our board of directors. Investments that are not publicly traded or whose market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of our board of directors. Such determination of fair values may involve subjective judgments and estimates.
With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our board of directors has approved a multi-step valuation process each quarter, as described below:
(1) our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of our investment adviser responsible for the portfolio investment;
(2) preliminary valuation conclusions are then documented and discussed with senior management of our investment adviser;
(3) independent valuation firms are engaged by our board of directors to conduct independent appraisals by reviewing our investment advisers preliminary valuations and then making their own independent assessment;
(4) the audit committee of the board of directors reviews the preliminary valuation of our investment adviser and the valuation prepared by the independent valuation firm and responds to the valuation recommendation of the independent valuation firm to reflect any comments; and
(5) the board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of our investment adviser, the respective independent valuation firm and the audit committee.
Investments in all asset classes are valued utilizing a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio companys ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, our principal market (as the reporting entity) and enterprise values, among other factors. When readily available, broker quotations and/or quotations provided by pricing services are considered in the valuation process of independent valuation firms. For the quarter ended June 30, 2012, there was no change to the Companys valuation techniques and related inputs considered in the valuation process.
ASC 820 classifies the inputs used to measure these fair values into the following hierarchy:
Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by the Company at the measurement date.
Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.
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Level 3: Unobservable inputs for the asset or liability.
In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment.
Revenue Recognition
The Company records interest and dividend income, adjusted for amortization of premium and accretion of discount, on an accrual basis. Some of our loans and other investments, including certain preferred equity investments, may have contractual PIK interest or dividends. PIK interest and dividends computed at the contractual rate are accrued into income and reflected as receivable up to the capitalization date. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, the Company capitalizes the accrued interest or dividends receivable (reflecting such amounts as the basis in the additional securities received). PIK generally becomes due at maturity of the investment or upon the investment being called by the issuer. At the point the Company believes PIK is not expected to be realized, the PIK investment will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are reversed from the related receivable through interest or dividend income, respectively. The Company does not reverse previously capitalized PIK interest or dividends. Upon capitalization, PIK is subject to the fair value estimates associated with their related investments. PIK investments on non-accrual status are restored to accrual status if the Company again believes that PIK is expected to be realized. For the three months ended June 30, 2012, accrued PIK totaled $4.3 million, on total investment income of $80.3 million. Loan origination fees, original issue discount, and market discounts are capitalized and amortized into income using the interest method or straight-line, as applicable. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. We record prepayment premiums on loans and other investments as interest income when we receive such amounts. Structuring fees are recorded as other income when earned. Investments that are expected to pay regularly scheduled interest and/or dividends in cash are generally placed on non-accrual status when principal or interest/dividend cash payments are past due 30 days or more and/or when it is no longer probable that principal or interest/dividend cash payments will be collected. Such non-accrual investments are restored to accrual status if past due principal and interest or dividends are paid in cash, and in managements judgment, are likely to continue timely payment of their remaining interest or dividend obligations. Interest or dividend cash payments received on non-accrual designated investments may be recognized as income or applied to principal depending upon managements judgment.
Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation
We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation.
Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.
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RESULTS OF OPERATIONS
Results comparisons are for the three months ended June 30, 2012 and June 30, 2011.
Investment Income
For the three months ended June 30, 2012 and June 30, 2011, gross investment income totaled $80.3 million and $94.6 million, respectively. The decrease in gross investment income from the three months ended June 30, 2011 to the three months ended June 30, 2012 was primarily due to a decrease in the size of the income-producing portfolio and a decrease in other income and was partially offset by an increase in the weighted average portfolio yield.
Expenses
Expenses totaled $41.6 million and $46.9 million, respectively, for the three months ended June 30, 2012 and June 30, 2011, of which $22.7 million and $24.3 million, respectively, were base management fees and performance-based incentive fees and $15.6 million and $16.0 million, respectively, were interest and other debt expenses. Administrative services and other general and administrative expenses totaled $3.4 million and $6.7 million, respectively, for the three months June 30, 2012 and June 30, 2011, respectively. Expenses consist of base investment advisory and management fees, insurance expenses, administrative services fees, legal fees, directors fees, audit and tax services expenses, and other general and administrative expenses. The decrease in expenses from the June 2011 to the June 2012 quarter was primarily due to smaller base management fees and performance-based incentive fees due to a smaller portfolio base and a resultant decrease in net investment income. In addition, in the June 2011 quarter, the Company recognized approximately $3.5 million in net non-recurring expenses, including legal and other professional expenses of $4.2 million net of a non-recurring reduction of administrative expenses. Partially offsetting this decrease were $1.1 million in net non-recurring expenses relating to the refinancing of our senior secured facility in the June 2012 quarter.
Net Investment Income
The Companys net investment income totaled $38.7 million and $47.7 million, or $0.19 and $0.24, on a per average share basis, respectively, for the three months ended June 30, 2012 and June 30, 2011. For the three months ended June 30, 2012, the $38.7 million was net of $1.1 million of net non-recurring expenses relating to the refinancing of our senior secured facility.
Net Realized Losses
The Company had investment sales and prepayments totaling $255 million and $733 million, respectively, for the three months ended June 30, 2012 and June 30, 2011. Net realized losses for the three months ended June 30, 2012 and June 30, 2011 were $18.8 million and $45.9 million, respectively. Net realized losses for the June 2012 quarter include a foreign exchange loss of $9.9 million derived from the sale of our investment in AB Acquisitions and losses derived from the sale of Catalina Marketing, Avaya, Ceridian and Sorenson Communications, among others. Net realized losses for the June 2011 quarter were primarily derived from the realization of previously reported unrealized losses on our investment in Playpower Holdings.
Net Unrealized Appreciation (Depreciation) on Investments, Cash Equivalents and Foreign Currencies
For the three months ended June 30, 2012 and June 30, 2011, net change in unrealized depreciation on the Companys investments, cash equivalents, foreign currencies and other assets and liabilities totaled $31.5 million and $1.7 million, respectively. For the three months ended June 30, 2012, the increase in unrealized depreciation was derived from a decline in some of our third party valued investments offset by improving
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conditions in our quoted portfolio and the recognition of realized losses which reversed unrealized depreciation. For the three months ended June 30, 2011, the increase in unrealized depreciation was derived from a decline in general capital market conditions offset by the recognition of realized losses which reversed unrealized depreciation.
Net Increase (Decrease) in Net Assets From Operations
For the three months ended June 30, 2012, the Company had a net decrease in net assets resulting from operations of $11.6 million. For the three months ended June 30, 2011, the Company had a net increase in net assets resulting from operations of $0.1 million. For the three months ended June 30, 2012 basic and diluted losses per average share were $0.06. The earnings per average share were $0.00 for the three months ended June 30, 2011. Exclusive of the non-recurring expenses relating to the refinancing of our senior secured facility, the Company had a net decrease in net assets resulting from operations of $10.6 million for the three months ended June 30, 2012. This would equate to basic and diluted losses per average share of $0.05 for the three months ended June 30, 2012.
LIQUIDITY AND CAPITAL RESOURCES
The Companys liquidity and capital resources are generated and generally available through periodic follow-on equity and debt offerings, our senior secured, multi-currency $1.14 billion senior secured facility, maturing on May 23, 2016 (see note 10 within the Notes to Financial Statements), our senior secured notes, investments in special purpose entities in which we hold and finance particular investments on a non-recourse basis, as well as from cash flows from operations, investment sales of liquid assets and prepayments of senior and subordinated loans and income earned from investments. The Company also has investments in its portfolio that contain PIK provisions. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, the Company capitalizes the accrued interest or dividends receivable (reflecting such amounts as the basis in the additional securities received). PIK generally becomes due at maturity of the investment or upon the investment being called by the issuer. In order to maintain the Companys status as a RIC, this non-cash source of income must be paid out to stockholders annually in the form of dividends, even though the Company has not yet collected the cash. For the three months ended June 30, 2012, accrued PIK totaled $4.3 million, on total investment income of $80.3 million. At June 30, 2012, the Company had $550 million in borrowings outstanding on its senior secured facility and $590 million of unused capacity. As of June 30, 2012, aggregate lender commitments under the senior secured facility total $1.14 billion.
On September 30, 2010, the Company entered into a note purchase agreement, providing for a private placement issuance of $225 million in aggregate principal amount of five-year, senior secured notes with a fixed interest rate of 6.25% and a maturity date of October 4, 2015. On October 4, 2010, the 2015 Notes were sold to certain institutional accredited investors pursuant to an exemption from registration under the Securities Act of 1933, as amended, or the Securities Act. Interest on the 2015 Notes will be due semi-annually on April 4 and October 4, commencing on April 4, 2011. The proceeds from the issuance of the 2015 Notes were primarily used to reduce other outstanding borrowings and/or commitments on the Companys then existing facility.
On January 25, 2011, we closed a private offering of $200 million aggregate principal amount of senior unsecured convertible notes. The Unsecured Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The Unsecured Notes bear interest at an annual rate of 5.75%, payable semi-annually in arrears on January 15 and July 15 of each year, commencing on July 15, 2011. The Unsecured Notes will mature on January 15, 2016 unless earlier converted or repurchased at the holders option. Prior to December 15, 2015, the Unsecured Notes will be convertible only upon certain corporate reorganizations, dilutive recapitalizations or dividends, or if, during specified periods our shares trade
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at more than 130% of the then applicable conversion price or the Unsecured Notes trade at less than 97% of their conversion value and, thereafter, at any time. The Unsecured Notes will be convertible by the holders into shares of common stock, initially at a conversion rate of 72.7405 shares of the Companys common stock per $1,000 principal amount of Unsecured Notes (14,548,100 common shares) corresponding to an initial conversion price of approximately $13.75, which represents a premium of 17.5% to the $11.70 per share closing price of the Companys common stock on The NASDAQ Global Select Market on January 19, 2011. The conversion rate will be subject to adjustment upon certain events, such as stock splits and combinations, mergers, spin-offs, increases in dividends in excess of $0.28 per share per quarter and certain changes in control. Certain of these adjustments, including adjustments for increases in dividends, are subject to a conversion price floor of $11.70 per share. The Unsecured Notes are senior unsecured obligations and rank senior in right of payment to our existing and future indebtedness that is expressly subordinated in right of payment to the Unsecured Notes; equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness (including existing unsecured indebtedness that we later secure) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by our subsidiaries, financing vehicles or similar facilities.
On August 11, 2011, the Company adopted a plan for the purpose of repurchasing up to $200 million of its common stock in accordance with the guidelines specified in Rule 10b-18 and Rule 10b5-1 of the Exchange Act. The Companys plan was designed to allow it to repurchase its shares both during its open window periods and at times when it otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. A broker selected by the Company will have the authority under the terms and limitations specified in the plan to repurchase shares on the Companys behalf in accordance with the terms of the plan. Repurchases are subject to SEC regulations as well as certain price, market volume and timing constraints specified in the plan. While the portion of the plan reliant on Rule 10b-18 remains in effect, the portion reliant on Rule 10b5-1 is subject to periodic renewal and is not currently in effect. As of June 30, 2012, no shares have been repurchased.
On September 29, 2011, the Company closed a private offering of $45 million aggregate principal amount of senior secured notes consisting of two series: (1) 5.875% Senior Secured Notes, Series A, of the Company due September 29, 2016 in the aggregate principal amount of $29 million; and (2) 6.250% Senior Secured Notes, Series B, of the Company due September 29, 2018, in the aggregate principal amount of $16 million. The notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act.
On April 2, 2012, the Company announced that a subsidiary of Apollo Global Management, LLC purchased approximately $50 million, or approximately 5,900,000 newly issued shares, of the Companys common stock, at an estimated NAV of $8.45 per share. The final number of shares issued is 5,847,953, based on the NAV as of March 31, 2012 of $8.55 per share. AICs Investment Advisor, Apollo Investment Management, L.P., or AIM, is waiving the base management and incentive fees associated with this equity capital for a one year period between April 2, 2012 and April 1, 2013.
Cash Equivalents
We deem certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities as cash equivalents. (See note 2(m) within the accompanying financial statements.) At the end of each fiscal quarter, we consider taking proactive steps utilizing cash equivalents with the objective of enhancing our investment flexibility during the following quarter, pursuant to Section 55 of the 1940 Act. More specifically, we may purchase U.S. Treasury bills from time-to-time on the last business day of the quarter and typically close out that position on the following business day, settling the sale transaction on a net cash basis with the purchase, subsequent to quarter end. Apollo Investment may also utilize repurchase agreements or other balance sheet transactions, including drawing down on our senior secured facility, as we deem appropriate. The amount of
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these transactions or such drawn cash for this purpose is excluded from total assets for purposes of computing the asset base upon which the management fee is determined. There were $100 million of cash equivalents held as of June 30, 2012.
Contractual Obligations
Payments due by Period as of June 30, 2012 (dollars in millions) | ||||||||||||||||||||
Total | Less than 1 year |
1-3 years | 3-5 years | More than 5 years |
||||||||||||||||
Senior Secured Facility (1) |
$ | 550 | $ | | $ | | $ | 550 | $ | | ||||||||||
Senior Secured Notes |
$ | 270 | $ | | $ | | $ | 254 | $ | 16 | ||||||||||
Unsecured Notes |
$ | 200 | $ | | $ | | $ | 200 | $ | |
(1) | At June 30, 2012, the senior secured facility had $590 million of unused capacity. |
We have entered into two contracts under which we have future commitments: the Investment Advisory Agreement, pursuant to which AIM has agreed to serve as our investment adviser, and the Administration Agreement, pursuant to which AIA has agreed to furnish us with the facilities and administrative services necessary to conduct our day-to-day operations and provide on our behalf managerial assistance to those portfolio companies to which we are required to provide such assistance. Payments under the Investment Advisory Agreement are equal to (1) a percentage of the value of our average gross assets and (2) a two-part incentive fee. Payments under the Administration Agreement are equal to an amount based upon our allocable portion of AIAs overhead in performing its obligations under the Administration Agreement, including rent, technology systems, insurance and our allocable portion of the costs of our chief financial officer and chief compliance officer and their respective staffs. Either party may terminate each of the Investment Advisory Agreement and Administration Agreement without penalty upon not more than 60 days written notice to the other. Please see note 3 within our financial statements for more information.
Off-Balance Sheet Arrangements (dollars in thousands)
As of June 30, 2012, the Company had outstanding commitments with banks to purchase secured term loans and unsecured bridge loans in the aggregate amount of $75,000. AICs commitments are subject to the consummation of the underlying corporate transactions and conditional upon receipt of all necessary shareholder, regulatory and other applicable approvals.
The Company also has commitments to fund senior loans in the amount of $75,500. As of June 30, 2012, $69,441 of these senior loan commitments remained unfunded.
AIC Credit Opportunity Fund LLC (amounts in thousands)
We own all of the common member interests in AIC Credit Opportunity Fund LLC (AIC Holdco). AIC Holdco was formed for the purpose of holding various financed investments. AIC Holdco wholly owns three special purpose entities, each of which in 2008 acquired directly or indirectly an investment in a particular security from an unaffiliated entity that provided leverage for the investment as part of the sale. Each of these transactions is described in more detail below together with summary financial information.
In the first of these investments, in June 2008 we invested through AIC Holdco $39,500 in AIC (FDC) Holdings LLC (Apollo FDC). Apollo FDC used the proceeds to purchase a Junior Profit-Participating Note due 2013 in principal amount of $39,500 (the Junior Note) issued by Apollo I Trust (the Trust). The Trust also issued a Senior Floating Rate Note due 2013 (the Senior Note) to an unaffiliated third party in principal amount of $39,500 paying interest at Libor plus 1.50%, increasing over time to Libor plus 2.0%. The Trust used the aggregate $79,000 proceeds to acquire $100,000 face value of a senior subordinated loan of First Data Corporation (the FDC Loan) due 2016. The FDC Loan pays interest at 11.25% per year. The Junior Note of the Trust owned by Apollo FDC pays to Apollo FDC all of the interest and other proceeds received by the Trust on
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the FDC Loan after satisfying the Trusts obligations on the Senior Note. The holder of the Senior Note has no recourse to Apollo FDC, AIC Holdco or us with respect to any interest on, or principal of, the Senior Note. However, if the value of the FDC Loan held by the Trust declines sufficiently, the investment would be unwound unless Apollo FDC posts additional collateral for the benefit of the Senior Note. Consequently, the maximum exposure on this investment is the amount of our investment in the Junior Note and any additional collateral we determine to post. During the fiscal year ended March 31, 2012, we sold $47,145 face value of the FDC Loan. As a result of this transaction, as of June 30, 2012, the FDC Loan balance is $52,855, the Junior Note balance is $21,472 and the Senior Note balance is $20,283.
In the second of these investments, in June 2008 we invested through AIC Holdco $11,375 in AIC (TXU) Holdings LLC (Apollo TXU). Apollo TXU acquired exposure to $50,000 notional amount of a LIBOR plus 3.5% senior secured delayed draw term loan of Texas Competitive Electric Holdings (TXU) due 2014 through a non-recourse total return swap (the TRS) with an unaffiliated third party expiring on October 10, 2013. Pursuant to such delayed draw term loan, Apollo TXU pays an unaffiliated third-party interest at LIBOR plus 1.5% and generally receives all proceeds due under the delayed draw term loan of TXU (the TXU Term Loan). Like Apollo FDC, Apollo TXU is entitled to 100% of any realized appreciation in the TXU Term Loan and, since the TRS is a non-recourse arrangement, Apollo TXU is exposed only up to the amount of its investment in the TRS, plus any additional margin we decide to post, if any, during the term of the financing. The TRS does not constitute a senior security or a borrowing of Apollo TXU. In connection with the amendment and extension of the TXU Term Loan in April 2011, for which Apollo TXU received a consent fee along with an increase in the rate of the TXU Term Loan to LIBOR plus 4.5%, Apollo TXU extended its TRS to 2016 at a rate of LIBOR plus 2.0%. As of June 30, 2012, Apollo TXUs notional exposure to the TXU term loan is $47,471.
In the third of these investments, in September 2008 we invested through AIC Holdco $10,022 in AIC (Boots) Holdings, LLC (Apollo Boots). Apollo Boots acquired 23,383 and £12,465 principal amount of senior term loans of AB Acquisitions Topco 2 Limited, a holding company for the Alliance Boots group of companies (the Boots Term Loans), out of the proceeds of our investment and a multicurrency $40,876 equivalent non-recourse loan to Apollo Boots (the Acquisition Loan) by an unaffiliated third party that matures in September 2013 and pays interest at LIBOR plus 1.25% or, in certain cases, the higher of the Federal Funds Rate plus 0.50% or the lenders prime-rate. The Boots Term Loans pay interest at the rate of LIBOR plus 3% per year and mature in June 2015. During the quarter ended June 30, 2012, we sold 10,108 and £904 principal amount of the Boots Term Loans. At June 30, 2012, the outstanding principal balance of the Boots Term Loans was 13,275 and £11,561.
We do not consolidate AIC Holdco or its wholly owned subsidiaries and accordingly only the value of our investment in AIC Holdco is included on our statement of assets and liabilities. Our investment in AIC Holdco is valued in accordance with our normal valuation procedures and is based on the values of the underlying assets held by each of Apollo FDC, Apollo TXU and Apollo Boots net of associated liabilities.
The Senior Note, TRS and Acquisition Loan are non-recourse to AIC Holdco, its subsidiaries and us and have standard events of default including failure to pay contractual amounts when due and failure by each of the underlying Apollo special purpose entities to provide additional credit support, sell assets or prepay a portion of its obligations if the value of the FDC Term Loan, the TXU Term Loan or the Boots Term Loans, as applicable, declines below specified levels. We may unwind any of these transactions at any time without penalty. From time to time we may provide additional capital to AIC Holdco for purposes of reserving for or funding margin calls under one or more of the transactions described above among other reasons. During the fiscal year ended March 31, 2009, we provided $18,480 in additional net capital to AIC Holdco. During the fiscal year ended March 31, 2010, $9,336 of net capital was returned to us from AIC Holdco. During the fiscal year ended March 31, 2011, $1,700 of net capital was provided to AIC Holdco. During the fiscal year ended March 31, 2012, $8,712 of net capital was returned to us from AIC Holdco. During the three months ended June 30, 2012,
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$575 of net capital was provided to AIC Holdco. The Junior Note, TRS and Boots Term Loans were performing assets as of the date of these financial statements.
Below is summarized financial information for AIC Holdco as of and for the three months ended June 30, 2012 and the fiscal year ended March 31, 2012 (in thousands).
June 30, 2012 (unaudited) |
March
31, 2012 (audited) |
|||||||
Assets |
||||||||
Cash |
$ | 10 | $ | 15 | ||||
Apollo FDC1 |
29,841 | 27,947 | ||||||
Apollo TXU2 |
26,641 | 26,066 | ||||||
Apollo Boots3 |
47,214 | 47,999 | ||||||
Other Assets |
| 2,886 | ||||||
|
|
|
|
|||||
Total Assets |
$ | 103,706 | $ | 104,913 | ||||
|
|
|
|
|||||
Liabilities |
||||||||
Apollo FDC4 |
$ | | $ | | ||||
Apollo TXU5 |
14,178 | 16,045 | ||||||
Apollo Boots6 |
28,876 | 29,948 | ||||||
Other Liabilities |
| 2,886 | ||||||
|
|
|
|
|||||
Total Liabilities |
$ | 43,054 | $ | 48,879 | ||||
|
|
|
|
|||||
Net Assets |
||||||||
Apollo FDC |
$ | 29,841 | $ | 27,947 | ||||
Apollo TXU |
12,463 | 10,021 | ||||||
Apollo Boots |
18,338 | 18,051 | ||||||
Other |
10 | 15 | ||||||
|
|
|
|
|||||
Total Net Assets |
$ | 60,652 | $ | 56,034 | ||||
|
|
|
|
Three Months Ended June 30, 2012 (unaudited) |
Fiscal Year Ended March 31, 2012 (audited) |
|||||||
Net Operating Income (Loss) |
||||||||
Apollo FDC7 |
$ | | $ | 9,412 | ||||
Apollo TXU7 |
344 | 2,809 | ||||||
Apollo Boots7 |
274 | 1,243 | ||||||
Other |
(5 | ) | (26 | ) | ||||
|
|
|
|
|||||
Total Operating Income |
$ | 613 | $ | 13,438 | ||||
|
|
|
|
|||||
Net Realized Gain (Loss) |
||||||||
Apollo FDC |
$ | | $ | 2,862 | ||||
Apollo Boots |
(439 | ) | | |||||
|
|
|
|
|||||
Total Net Realized Gain (Loss) |
$ | (439 | ) | $ | 2,862 | |||
|
|
|
|
|||||
Net Change in Unrealized Gain (Loss) |
||||||||
Apollo FDC |
$ | 1,894 | $ | (14,484 | ) | |||
Apollo TXU |
1,867 | (13,126 | ) | |||||
Apollo Boots |
727 | (2,852 | ) | |||||
|
|
|
|
|||||
Total Net Change in Unrealized Gain (Loss) |
$ | 4,488 | $ | (30,462 | ) | |||
|
|
|
|
|||||
Net Income (Loss)8 |
||||||||
Apollo FDC |
$ | 1,894 | $ | (2,210 | ) | |||
Apollo TXU |
2,211 | (10,317 | ) | |||||
Apollo Boots |
562 | (1,609 | ) |
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June 30, 2012 (unaudited) |
March 31,
2012 (audited) |
|||||||
Other |
(5 | ) | (26 | ) | ||||
|
|
|
|
|||||
Total Net Income (Loss) |
$ | 4,662 | $ | (14,162 | ) | |||
|
|
|
|
(1) | Represents fair value of the Junior Note held by Apollo FDC. Cost: $21,472 and $21,472, respectively. |
(2) | Represents fair value of collateral posted in relation to the TRS held by Apollo TXU. Cost: $26,641 and $26,066, respectively. |
(3) | Represents fair value of the Boots Term Loans held by Apollo Boots and fair value of receivable for Boots Term Loans sold during the quarter. Cost: $50,109 and $50,109, respectively. |
(4) | Apollo FDCs interest is subject to a senior note of a separate entity of $20,283 and $20,283, respectively; However, Apollo FDC has no liability for such senior note. |
(5) | Represents liability on the TRS held by Apollo TXU. |
(6) | Represents liability of Apollo Boots on the Acquisition Loan. |
(7) | In the case of Apollo FDC, net operating income consists of interest income on the Junior Note less interest paid on the senior note together with immaterial administrative expenses. In the case of Apollo TXU, net operating income consists of net payments from (to) the swap counterparty of Apollo TXUs obligation to pay interest and its right to receive the proceeds in respect of the reference asset, together with immaterial administrative expenses. In the case of AIC Boots, net operating income consists of interest income on the Boots Term Loans, less interest payments on the Acquisition Loan together with immaterial administrative expenses. There are no management or incentive fees. |
(8) | Net income is the sum of operating income, realized gain (loss) and net change in unrealized gain (loss). |
Dividends
Dividends paid to stockholders for the three months ended June 30, 2012 and June 30, 2011 totaled $40.6 million or $0.20 per share, and $54.9 million or $0.28 per share, respectively. Tax characteristics of all dividends are reported to shareholders on Form 1099 after the end of the calendar year. Our quarterly dividends, if any, will be determined by our Board of Directors.
We have elected to be taxed as a RIC under Subchapter M of the Code. To maintain our RIC status, we must distribute at least 90% of our investment company taxable income (generally ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, reduced by certain deductible expenses). In addition, although we currently intend to distribute realized net capital gains (i.e., net long-term capital gains in excess of short-term capital losses), if any, at least annually, we may in the future decide to retain such capital gains for investment.
We maintain an opt out dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend, then stockholders cash dividends will be automatically reinvested in additional shares of our common stock, unless they specifically opt out of the dividend reinvestment plan so as to receive cash dividends.
We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, due to the asset coverage test applicable to us as a BDC, we may in the future be limited in our ability to make distributions. Also, our senior secured facility may limit our ability to declare dividends if we default under certain provisions or fail to satisfy other conditions. If we do not distribute a certain percentage of our income annually, we may suffer adverse tax consequences, including possible loss of the tax benefits available to us as a RIC. In addition, in accordance with U.S. generally accepted accounting principles and tax regulations, we include in income certain amounts that we have not yet received in cash, such as contractual PIK interest, which represents contractual interest added to the loan balance that becomes due at the end of the loan term, or the accrual of original issue or market discount. Since we may recognize income before or without receiving cash representing such income, we may not be able
S-26
to meet the requirement to distribute at least 90% of our investment company taxable income to obtain tax benefits as a RIC.
With respect to the dividends to stockholders, income from origination, structuring, closing, commitment and other upfront fees associated with investments in portfolio companies is treated as taxable income and accordingly, is required to be distributed to stockholders.
Pursuant to a recent revenue procedure (Revenue Procedure 2010-12), issued by the Internal Revenue Service (the IRS) (the Revenue Procedure), the IRS has indicated that it will treat distributions from certain publicly traded RICs (including BDCs) that are paid part in cash and part in stock as dividends that would satisfy the RICs annual distribution requirements and qualify for the dividends paid deduction for federal income tax purposes. In order to qualify for such treatment, the Revenue Procedure requires that at least 10% of the total distribution be payable in cash and that each stockholder have a right to elect to receive its entire distribution in cash. If too many stockholders elect to receive cash, each stockholder electing to receive cash must receive a proportionate share of the cash to be distributed (although no stockholder electing to receive cash may receive less than 10% of such stockholders distribution in cash). This Revenue Procedure applies to distributions declared on or before December 31, 2012 with respect to taxable years ending on or before December 31, 2011.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to financial market risks, including changes in interest rates. During the three months ended June 30, 2012, many of the loans in our portfolio had floating interest rates. These loans are usually based on floating LIBOR and typically have durations of one to six months after which they reset to current market interest rates. The Company also has a senior secured facility that is based on floating LIBOR rates. Assuming no changes to our balance sheet as of June 30, 2012, a hypothetical one percent increase in LIBOR on our floating rate assets and liabilities would decrease our earnings by approximately two cents per average share over the next twelve months. Assuming no changes to our balance sheet as of June 30, 2012, a hypothetical one percent decrease in LIBOR on our floating rate assets and liabilities would increase our earnings by approximately two cents per average share over the next twelve months. However, we may hedge against interest rate fluctuations from time-to-time by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the 1940 Act and applicable commodities laws. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio of investments. During the three months ended June 30, 2012, we did not engage in interest rate hedging activities.
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Information about our senior securities is shown in the following table as of each year ended March 31 since we commenced operations, unless otherwise noted. The indicates information which the SEC expressly does not require to be disclosed for certain types of senior securities.
Class and Year |
Total Amount Outstanding (dollars in thousands) (1) |
Asset Coverage Per Unit (2) |
Involuntary Liquidating Preference Per Unit (3) |
Average Market Value Per Unit (4) |
||||||||||||
Senior Secured Facility |
||||||||||||||||
Fiscal 2013 (as of June 30, 2012, unaudited) |
$ | 549,887 | $ | 1,429 | $ | | N/A | |||||||||
Fiscal 2012 |
539,337 | 1,427 | | N/A | ||||||||||||
Fiscal 2011 |
628,443 | 1,707 | | N/A | ||||||||||||
Fiscal 2010 |
1,060,616 | 2,671 | | N/A | ||||||||||||
Fiscal 2009 |
1,057,601 | 2,320 | | N/A | ||||||||||||
Fiscal 2008 |
1,639,122 | 2,158 | | N/A | ||||||||||||
Fiscal 2007 |
492,312 | 4,757 | | N/A | ||||||||||||
Fiscal 2006 |
323,852 | 4,798 | | N/A | ||||||||||||
Fiscal 2005 |
| | | N/A | ||||||||||||
Senior Secured Notes |
||||||||||||||||
Fiscal 2013 (as of June 30, 2012, unaudited) |
$ | 270,000 | $ | 701 | $ | | N/A | |||||||||
Fiscal 2012 |
270,000 | 714 | | N/A | ||||||||||||
Fiscal 2011 |
225,000 | 611 | | N/A | ||||||||||||
Fiscal 2010 |
| | | N/A | ||||||||||||
Fiscal 2009 |
| | | N/A | ||||||||||||
Fiscal 2008 |
| | | N/A | ||||||||||||
Fiscal 2007 |
| | | N/A | ||||||||||||
Fiscal 2006 |
| | | N/A | ||||||||||||
Fiscal 2005 |
| | | N/A | ||||||||||||
Unsecured Notes |
||||||||||||||||
Fiscal 2013 (as of June 30, 2012, unaudited) |
$ | 200,000 | $ | 520 | $ | | N/A | |||||||||
Fiscal 2012 |
200,000 | 529 | | N/A | ||||||||||||
Fiscal 2011 |
200,000 | 544 | | N/A | ||||||||||||
Fiscal 2010 |
| | | N/A | ||||||||||||
Fiscal 2009 |
| | | N/A | ||||||||||||
Fiscal 2008 |
| | | N/A | ||||||||||||
Fiscal 2007 |
| | | N/A | ||||||||||||
Fiscal 2006 |
| | | N/A | ||||||||||||
Fiscal 2005 |
| | | N/A |
(1) | Total amount of each class of senior securities outstanding at the end of the period presented. |
(2) | The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by senior securities representing indebtedness. This asset coverage ratio is multiplied by $1,000 to determine the Asset Coverage Per Unit. In order to determine the specific Asset Coverage Per Unit for each class of debt, the total Asset Coverage Per Unit was divided based on the amount outstanding at the end of the period for each. |
(3) | The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it. |
(4) | Not applicable, as senior securities are not registered for public trading. |
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RATIO OF EARNINGS TO FIXED CHARGES
For the period ended June 30, 2012 and the years ended March 31, 2012, 2011, 2010, 2009 and 2008, the ratios of earnings to fixed charges of the Company, computed as set forth below, were as follows:
For the Three Months Ended June 30, 2012 |
For the Year Ended March 31, 2012 |
For the Year Ended March 31, 2011 |
For the Year Ended March 31, 2010 |
For the Year Ended March 31, 2009 |
For the Year Ended March 31, 2008 |
|||||||||||||||||||
Earnings to Fixed Charges (1) |
(2) | (2) | 4.76 | 11.81 | (2) | (2) |
For purposes of computing the ratios of earnings to fixed charges, earnings represent net increase in net assets resulting from operations plus (or minus) income tax expense including excise tax expense plus fixed charges. Fixed charges include interest and senior secured facility fees expense and amortization of debt issuance costs.
(1) Earnings include the net change in unrealized appreciation or depreciation. Net change in unrealized appreciation or depreciation can vary substantially from year to year. Excluding the net change in unrealized appreciation or depreciation, the earnings to fixed charges ratio would be 2.28 for the three months ended June 30, 2012, 1.82 for the year ended March 31, 2011, 3.52 for the year ended March 31, 2009, and 5.62 for the year ended March 31, 2008. Excluding the net change in unrealized appreciation or depreciation, the ratio coverage for the years ended March 31, 2012 and March 31, 2010, was less than one-to-one. The Company would have needed to generate additional earnings of $168,701 and $272,399 (in thousands) to achieve a coverage of one-to-one in 2012 and 2010, respectively. Excluding the net change in unrealized appreciation or depreciation in the calculation of earnings to fixed charges ratio is a non-GAAP measure.
(2) Due to the Companys loss for the years ended March 31, 2012 and March 31, 2009, the ratio coverage was less than one-to-one. The Company would have needed to generate additional earnings of $86,264 and $611,359 (in thousands) to achieve a coverage of one-to-one for the years ended March 31, 2012 and March 31, 2009, respectively. Further, the Company would have needed to generate additional earnings of $11,642 and $31,571 (in thousands) to achieve a ratio coverage of one-to-one for the period ended June 30, 2012 and year ended March 31, 2008, respectively.
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SUPPLEMENT TO MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain U.S. federal income tax considerations supplements the discussion set forth under the heading Material U.S. Federal Income Tax Considerations in the accompanying prospectus and is subject to the qualifications and assumptions set forth therein.
The following is a general summary of certain U.S. federal income tax considerations relating to the purchase, ownership and disposition of the Notes. This discussion is based upon the Code, Treasury Regulations and judicial decisions and administrative interpretations thereof, all as of the date hereof and all of which are subject to change or differing interpretations, possibly with retroactive effect. No ruling from the IRS has been sought regarding any matter discussed herein. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax aspects set forth below.
This discussion applies only to a holder of Notes that acquires the Notes for cash pursuant to this offering at the initial offering price and who holds the Notes as a capital asset (generally, property held for investment) under the Code. This discussion does not address any U.S. federal estate or gift tax consequences or any state, local or non-U.S. tax consequences. In addition, this discussion does not address all aspects of U.S. federal income taxation that may be applicable to investors in light of their particular circumstances, or to investors subject to special treatment under U.S. federal income tax law, including, but not limited to:
| banks, insurance companies or other financial institutions; |
| persons subject to the alternative minimum tax; |
| cooperatives; |
| tax-exempt organizations; |
| dealers in securities; |
| traders in securities that elect a mark-to-market method of accounting; |
| U.S. Noteholders (as defined below) whose functional currency is not the U.S. dollar; |
| U.S. expatriates; |
| foreign persons or entities (except to the extent set forth below); |
| persons deemed to sell the Notes under the constructive sale provisions of the Code; or |
| persons that hold the Notes as part of a straddle, hedge, conversion transaction or other integrated investment. |
If a partnership (including any entity or arrangement treated as a partnership for U.S. federal income tax purposes) owns Notes, the tax treatment of a partner in the partnership will depend upon the status of the partner and the activities of the partnership. Partners in a partnership that owns Notes should consult their tax advisors as to the particular U.S. federal income tax consequences applicable to them.
We encourage investors to consult their tax advisors regarding the specific consequences of an investment in our Notes, including tax reporting requirements, the applicability of U.S. federal, state, local and non-U.S. tax laws, eligibility for the benefits of any applicable tax treaty and the effect of any possible changes in the tax laws.
Consequences to U.S. Noteholders
The following is a general summary of certain U.S. federal income tax consequences that will apply to you if you are a U.S. Noteholder. Certain U.S. federal income tax consequences to non-U.S. Noteholders are described under Consequences to Non-U.S. Noteholders below. For purposes of this summary, the term U.S.
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Noteholder means a beneficial owner of a Note that is, for U.S. federal income tax purposes (i) an individual who is a citizen or resident of the U.S., (ii) a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, that is created or organized under the laws of the U.S., any of the States or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust (A) if a court within the U.S. is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all substantial decisions of such trust, or (B) that has made a valid election to be treated as a U.S. person for U.S. federal income tax purposes.
Stated interest on the Notes
A U.S. Noteholder generally will be required to recognize stated interest as ordinary income at the time it is paid or accrued on the Notes in accordance with its regular method of accounting for U.S. federal income tax purposes.
Sale, exchange, redemption or other taxable disposition of the Notes
Upon the sale, exchange, redemption or other taxable disposition of a Note, a U.S. Noteholder generally will recognize capital gain or loss in an amount equal to the difference between (1) the sum of cash plus the fair market value of all other property received on such disposition (except to the extent such cash or property is attributable to accrued but unpaid interest, which, to the extent not previously included in income, generally will be taxable as ordinary income) and (2) its adjusted tax basis in the Note. A U.S. Noteholders adjusted tax basis in a Note generally will equal the price the U.S. Noteholder paid for the Note. Such capital gain or loss will be long-term capital gain or loss if, at the time of such taxable disposition, the U.S. Noteholder has held the Note for more than one year. The deductibility of capital losses is subject to limitations.
Consequences to Non-U.S. Noteholders
The following is a general summary of certain U.S. federal income tax consequences that will apply to you if you are a non-U.S. Noteholder. A beneficial owner of a Note that is not a partnership or other pass through entity for U.S. federal income tax purposes or a U.S. Noteholder is referred to herein as a non-U.S. Noteholder.
Stated interest on the Notes
Stated interest paid or accrued to a non-U.S. Noteholder will generally not be subject to U.S. federal income or withholding tax if the interest is not effectively connected with its conduct of a trade or business within the U.S., and the non-U.S. Noteholder:
| does not own, actually or constructively, 10% or more of the total combined voting power of all classes of our stock entitled to vote; |
| is not a controlled foreign corporation with respect to which we are, directly or indirectly, a related person; |
| is not a bank whose receipt of interest on the Notes is described in section 881(c)(3)(A) of the Code; and |
| provides its name and address, and certifies, under penalties of perjury, that it is not a U.S. person (on a properly executed IRS Form W-8BEN or other applicable form), or holds its Notes through certain foreign intermediaries and satisfies the certification requirements of applicable Treasury Regulations. |
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If a non-U.S. Noteholder does not qualify for an exemption under these rules, interest income from the Notes may be subject to withholding tax at the rate of 30% (or lower applicable treaty rate). Stated interest that is effectively connected with a non-U.S. Noteholders conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, is attributable to a United States permanent establishment), however, would not be subject to a 30% withholding tax so long as the non-U.S. Noteholder provides us or our paying agent an adequate certification (currently on IRS Form W-8ECI); such payments of interest generally would be subject to U.S. federal income tax on a net basis at the rates applicable to U.S. persons generally. In addition, if a non-U.S. Noteholder is a foreign corporation and the stated interest is effectively connected with its conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, is attributable to a United States permanent establishment), it may also be subject to a 30% (or lower applicable treaty rate) branch profits tax on its effectively connected earnings and profits for the taxable year, subject to adjustments. To claim the benefit of a tax treaty, a non-U.S. Noteholder must provide a properly executed IRS Form W-8BEN (or other applicable form) to us or our paying agent before the payment of stated interest, and may be required to obtain a U.S. taxpayer identification number and provide documentary evidence issued by foreign governmental authorities to prove residence in the foreign country.
Sale, exchange, redemption or other taxable disposition of the Notes
Any gain recognized by a non-U.S. Noteholder on the sale, exchange, redemption or other taxable disposition of the Notes (except with respect to accrued and unpaid interest, which would be taxed as described under Consequences to Non-U.S. NoteholdersStated interest on the Notes above) generally will not be subject to U.S. federal income tax unless:
| the non-U.S. Noteholders gain is effectively connected with its conduct of a U.S. trade or business (and, if required by an applicable income tax treaty, is attributable to a United States permanent establishment); or |
| the non-U.S. Noteholder is a nonresident alien individual present in the U.S. for 183 or more days in the taxable year within which the sale, exchange, redemption or other disposition takes place and certain other requirements are met. |
If a non-U.S. Noteholder is a holder described in the first bullet point above, the net gain derived from the sale, exchange, redemption or other taxable disposition of its Notes generally will be subject to U.S. federal income tax on a net basis at the rates applicable to U.S. persons generally. In addition, if such non-U.S. Noteholder is a foreign corporation, it may also be subject to a 30% (or lower applicable treaty rate) branch profits tax on its effectively connected earnings and profits for the taxable year, subject to adjustments. If a non-U.S. Noteholder is a holder described in the second bullet point above, it will be subject to a flat 30% U.S. federal income tax on the gain derived from the sale, exchange, redemption or other taxable disposition of its Notes, which may be offset by U.S. source capital losses, even though it is not considered a resident of the United States.
Non-U.S. Noteholders should consult any applicable income tax treaties that may provide for different rules. In addition, non-U.S. Noteholders are urged to consult their tax advisors regarding the tax consequences of the purchase, ownership and disposition of the Notes.
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Information Reporting and Backup Withholding
U.S. Noteholders
Payments of principal and interest on, or the proceeds of the sale or other disposition of, a note are generally subject to information reporting unless the U.S. Noteholder is an exempt recipient (such as a corporation). Such payments, along with principal payments on the note, may also be subject to U.S. federal backup withholding tax at the applicable rate if the recipient of such payment fails to supply a taxpayer identification number, certified under penalties of perjury, as well as certain other information or otherwise fails to establish an exemption from backup withholding. Any amounts withheld under the backup withholding rules will be allowed as a refund or credit against that U.S. Noteholders U.S. federal income tax liability provided the required information is timely furnished to the IRS.
Non-U.S. Noteholders
A non-U.S. Noteholder may be required to comply with certain certification procedures to establish that the holder is not a U.S. person (as defined under the Code) in order to avoid backup withholding tax with respect to our payment of principal and interest on, or the proceeds of the sale or other disposition of, a Note. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against that non-U.S. Noteholders U.S. federal income tax liability provided the required information is timely furnished to the IRS. In certain circumstances, the name and address of the beneficial owner and the amount of interest paid on a Note, as well as the amount, if any, of tax withheld, may be reported to the IRS. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the non-U.S. Noteholder resides.
Under recently enacted legislation (generally referred to as FATCA) and administrative guidance, unless an exception applies, the relevant withholding agent generally will be required to withhold 30% on interest income paid after December 31, 2013 and the gross proceeds from a disposition of obligations paid after December 31, 2014 to (i) a foreign financial institution unless such foreign financial institution agrees to verify, report and disclose its U.S. account holders and meets certain other specified requirements or (ii) a non-financial foreign entity that is the beneficial owner of the payment unless such entity certifies that it does not have any substantial U.S. owners or provides the name, address and taxpayer identification number of each substantial U.S. owner and such entity meets certain other specified requirements. Proposed Treasury Regulations contain a grandfathering provision that exempts from withholding any payment under, or gross proceeds from a disposition of, an obligation that is outstanding on January 1, 2013. These proposed Treasury Regulations are not effective until finalized, however, and unless and until they are so finalized, taxpayers are not entitled to rely on them. Investors should consult their own tax advisors regarding this legislation and whether it may be relevant to their purchase, ownership and disposition of the Notes.
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The Depository Trust Company
The Notes will be issued in book-entry only form. This means that we will not issue certificates for the Notes, except in the limited case described below. Instead, we will issue the global note in registered form. The global note will be held through DTC and will be registered in the name of Cede & Co., as nominee of DTC.
Accordingly, Cede & Co. will be the holder of record of the Notes. The Notes represented by the global note evidences a beneficial interest in the global note.
Beneficial interest in the global note will be shown on, and transfers are effected through, records maintained by DTC or its participants. In order to own a beneficial interest in the Notes, you must be an institution that has an account with DTC or have a direct or indirect account with such an institution. Transfers of ownership interests in the Notes will be accomplished by making entries in DTC participants books acting on behalf of beneficial owners.
So long as DTC or its nominee is the registered holder of the global note, DTC or its nominee, as the case may be, will be the sole holder and owner of the Notes represented thereby for all purposes, including payment of principal and interest, under the indenture. Except as otherwise provided below, you will not be entitled to receive physical delivery of certificated notes and will not be considered the holder of the Notes for any purpose under the indenture. Accordingly, you must rely on the procedures of DTC and the procedures of the DTC participant through which you own your Note in order to exercise any rights of a holder of a Note under the indenture. The laws of some jurisdictions require that certain purchasers of notes take physical delivery of such notes in certificated form. Those limits and laws may impair the ability to transfer beneficial interests in the Notes.
The global note representing the Notes will be exchangeable for certificated notes of like tenor and terms and of differing authorized denominations in a like aggregate principal amount, only if (1) DTC notifies us that it is unwilling or unable to continue as depositary for the global note or we become aware that DTC has ceased to be a clearing agency registered under the Exchange Act and, in any such case we fail to appoint a successor to DTC within 60 calendar days, (2) we, in our sole discretion, determine that the global note shall be exchangeable for certificated notes or (3) an event of default has occurred and is continuing with respect to the Notes under the indenture. Upon any such exchange, the certificated notes shall be registered in the names of the beneficial owners of the global note representing the Notes.
The following is based on information furnished by DTC:
DTC will act as securities depositary for the Notes. The Notes will be issued as fully-registered notes registered in the name of Cede & Co. (DTCs partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered global note will be issued for all of the principal amount of the Notes.
The global note representing the Notes will be exchangeable for certificated notes of like tenor and terms and of differing authorized denominations in a like aggregate principal amount, only if (1) DTC notifies us that it is unwilling or unable to continue as depositary for the global note or we become aware that DTC has ceased to be a clearing agency registered under the Exchange Act and, in any such case we fail to appoint a successor to DTC within 60 calendar days, (2) we, in our sole discretion, determine that the global note shall be exchangeable for certificated notes or (3) an event of default has occurred and is continuing with respect to the Notes under the indenture. Upon any such exchange, the certificated notes shall be registered in the names of the beneficial owners of the global note representing the Notes.
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DTC is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Exchange Act. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues and money market instruments from over 100 countries that DTCs direct participants deposit with DTC.
DTC also facilitates the post-trade settlement among direct participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between direct participants accounts. This eliminates the need for physical movement of securities certificates. Direct participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (DTCC). DTCC, in turn, is owned by a number of direct participants of DTC and members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, as well as by The New York Stock Exchange, Inc., the American Stock Exchange LLC, and the Financial Industry Regulatory Authority, Inc. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a direct participant, either directly or indirectly. The DTC rules applicable to its participants are on file with the SEC. More information about DTC can be found at www.dtcc.com.
Purchases of the Notes under the DTC system must be made by or through direct participants, which will receive a credit for the Notes on DTCs records. The beneficial interest of each actual purchaser of the Notes is in turn to be recorded on the direct and indirect participants records. Beneficial owners will not receive written confirmation from DTC of their purchase. Beneficial owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the direct or indirect participant through which the beneficial owner entered into the transaction. Transfers of beneficial interests in the Notes are to be accomplished by entries made on the books of direct and indirect participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates representing their beneficial interests in the Notes, except in the event that use of the book-entry system for the Notes is discontinued.
To facilitate subsequent transfers, all Notes deposited by direct participants with DTC will be registered in the name of DTCs partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of the Notes with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual beneficial owners of the Notes; DTCs records reflect only the identity of the direct participants to whose accounts such Notes will be credited, which may or may not be the beneficial owners. The direct and indirect participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct participants, by direct participants to indirect participants, and by direct participants and indirect participants to beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial owners of the Notes may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Notes, such as redemption, tenders, defaults, and proposed amendments to the security documents. For example, beneficial owners of the Notes may wish to ascertain that
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the nominee holding the Notes for their benefit has agreed to obtain and transmit notices to beneficial owners. In the alternative, beneficial owners may wish to provide their names and addresses to the registrar of the Notes and request that copies of the notices be provided to them directly. Any such request may or may not be successful.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Notes unless authorized by a direct participant in accordance with DTCs procedures. Under its usual procedures, DTC mails an Omnibus Proxy to us as soon as possible after the regular record date. The Omnibus Proxy assigns Cede & Co.s consenting or voting rights to those direct participants to whose accounts the notes are credited on the record date (identified in a listing attached to the Omnibus Proxy).
We will pay principal and or interest payments on the Notes in same-day funds directly to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTCs practice is to credit direct participants accounts on the applicable payment date in accordance with their respective holdings shown on DTCs records upon DTCs receipt of funds and corresponding detail information. Payments by participants to beneficial owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of these participants and not of DTC or any other party, subject to any statutory or regulatory requirements that may be in effect from time to time. Payment of principal and interest to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC, is our responsibility, disbursement of such payments to direct participants is the responsibility of DTC, and disbursement of such payments to the beneficial owners is the responsibility of the direct or indirect participant.
We will send any redemption notices to DTC. If less than all of the Notes are being redeemed, DTCs practice is to determine by lot the amount of the interest of each direct participant in such issue to be redeemed.
A beneficial owner, or its authorized representative, shall give notice to elect to have its Notes repaid by us, through its direct or indirect participant, to the trustee, and shall effect delivery of such Notes by causing the direct participant to transfer that participants interest in the global note representing the Notes, on DTCs records, to the trustee. The requirement for physical delivery of the Notes in connection with a demand for repayment will be deemed satisfied when the ownership rights in the global note representing the Notes are transferred by the direct participants on DTCs records.
DTC may discontinue providing its services as securities depository for the Notes at any time by giving us reasonable notice. Under such circumstances, if a successor securities depositary is not obtained, we will print and deliver certificated notes. We may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depositary). In that event, we will print and deliver certificated notes.
The information in this section concerning DTC and DTCs system has been obtained from sources that we believe to be reliable, but neither we, the underwriters nor any agent takes any responsibility for its accuracy.
Registration, Transfer and Payment of Certificated Notes
If we ever issue notes in certificated form, those notes may be presented for registration, transfer and payment at the office of the registrar or at the office of any transfer agent designated and maintained by us. We have originally designated U.S. Bank National Association to act in those capacities for the Notes. The registrar or transfer agent will make the transfer or registration only if it is satisfied with the documents of title and identity of the person making the request. There will not be a service charge for any exchange or registration of transfer of the Notes, but we may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the exchange. At any time, we may change transfer agents or approve a change in the location through which any transfer agent acts. We also may designate additional transfer agents for any notes at any time.
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We will not be required to: (1) issue, exchange or register the transfer of any Note to be redeemed for a period of 15 days after the selection of the Notes to be redeemed; (2) exchange or register the transfer of any Note that was selected, called or is being called for redemption, except the unredeemed portion of any Note being redeemed in part; or (3) exchange or register the transfer of any Note as to which an election for repayment by the holder has been made, except the unrepaid portion of any Note being repaid in part.
We will pay principal of and interest on any certificated notes at the offices of the paying agents we may designate from time to time. Generally, we will pay interest on a note by check on any interest payment date other than at stated maturity or upon earlier redemption or repayment to the person in whose name the note is registered at the close of business on the regular record date for that payment. We will pay principal and interest at stated maturity or upon earlier redemption or repayment in same-day funds against presentation and surrender of the applicable notes.
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Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. LLC are acting as representatives of each of the underwriters named below. Subject to the terms and conditions set forth in a firm commitment underwriting agreement among us and the underwriters, we have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us, the principal amount of Notes set forth opposite its name below.
Underwriter | Principal Amount of Notes |
|||
Merrill Lynch, Pierce, Fenner & Smith Incorporated |
$68,625,000 | |||
Morgan Stanley & Co. LLC |
68,625,000 | |||
RBC Capital Markets, LLC |
4,500,000 | |||
Stifel, Nicolaus & Company, Incorporated |
2,250,000 | |||
Janney Montgomery Scott LLC |
1,500,000 | |||
B.C. Ziegler and Company |
750,000 | |||
BB&T Capital Markets, a division of Scott & Stringfellow, LLC |
750,000 | |||
C.L. King & Associates, Inc. |
750,000 | |||
HRC Investment Services, Inc. |
750,000 | |||
Wedbush Securities Inc. |
750,000 | |||
William Blair & Company, L.L.C. |
750,000 | |||
|
|
|||
Total |
$150,000,000 | |||
|
|
Subject to the terms and conditions set forth in the underwriting agreement, the underwriters have agreed, severally and not jointly, to purchase all of the Notes sold under the underwriting agreement if any of these Notes are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be terminated.
We, AIM and AIA have agreed to indemnify the underwriters and their controlling persons against certain liabilities in connection with this offering, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.
The underwriters are offering the Notes, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the Notes, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officers certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Commissions and Discounts
The representatives have advised us that the underwriters propose initially to offer the Notes to the public at the public offering price set forth on the cover page of this prospectus supplement and to certain dealers at such price less a concession not in excess of 2.00% of the principal amount of the Notes. Any underwriter may allow, and any such dealer may reallow, a concession not in excess of 1.80% of the principal amount of the Notes to certain other dealers. After the initial offering, the public offering price, concession or any other term of the offering may be changed.
The expenses of the offering, not including the underwriting discount, are estimated at $300,000 and are payable by us.
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New Issue of Notes
The Notes are a new issue of securities with no established trading market. We intend to apply to list the Notes on The New York Stock Exchange. If the application is approved, we expect trading in the Notes on The New York Stock Exchange to begin within 30 days after the original issue date. Currently there is no public market for the Notes. We have been advised by the underwriters that they presently intend to make a market in the Notes after completion of the offering. However, they are under no obligation to do so and may discontinue any market-making activities at any time without any notice. We cannot assure the liquidity of the trading market for the Notes or that an active public market for the Notes will develop. If an active public trading market for the Notes does not develop, the market price and liquidity of the Notes may be adversely affected. If the Notes are traded, they may trade at a discount from their initial offering price, depending on prevailing interest rates, the market for similar securities, our operating performance and financial condition, general economic conditions and other factors.
Settlement
We expect that delivery of the Notes will be made to investors on or about October 9, 2012, which will be the fifth business day following the date of this prospectus supplement (such settlement being referred to as T+5). Under Rule 15c6-1 under the Exchange Act, trades in the secondary market are required to settle in three business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade Notes prior to the delivery of the Notes hereunder will be required, by virtue of the fact that the Notes initially settle in T+5, to specify an alternate settlement arrangement at the time of any such trade to prevent a failed settlement. Purchasers of the Notes who wish to trade the Notes prior to their date of delivery hereunder should consult their advisors.
No Sales of Similar Securities
We have agreed that for a period of 30 days after the date of this prospectus supplement we will not, without first obtaining the prior written consent of the representatives, directly or indirectly, issue, sell, offer to contract or grant any option to sell, pledge, transfer or otherwise dispose of, any debt securities or securities exchangeable for or convertible into debt securities, except for the Notes sold to the underwriters pursuant to the underwriting agreement and any increase in borrowings under our senior secured facility.
Short Positions
In connection with the offering, the underwriters may purchase and sell the Notes in the open market. These transactions may include short sales and purchases on the open market to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater principal amount of Notes than they are required to purchase in the offering. The underwriters must close out any short position by purchasing Notes in the open market. A short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the Notes in the open market after pricing that could adversely affect investors who purchase in the offering.
Similar to other purchase transactions, the underwriters purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of the Notes or preventing or retarding a decline in the market price of the Notes. As a result, the price of the Notes may be higher than the price that might otherwise exist in the open market.
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Notes. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
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Other Relationships
Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions.
In addition, in the ordinary course of their business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. If any of the underwriters or their affiliates has a lending relationship with us, certain of those underwriters or their affiliates routinely hedge, and certain other of those underwriters or their affiliates may hedge, their credit exposure to us consistent with their customary risk management policies. Typically, these underwriters and their affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities, including potentially the Notes offered hereby. Any such credit default swaps or short positions could adversely affect future trading prices of the Notes offered hereby. The underwriters and their respective affiliates may also make investment recommendations and/ or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
We intend to use the proceeds of this offering to repay indebtedness owed under our senior secured facility. See Use of Proceeds. The underwriters and their respective affiliates are full service financial institutions engaged in various investment activities. Certain affiliates of the underwriters are lenders under the senior secured facility being repaid and as a result will receive the net proceeds of this offering. Amounts repaid under our senior secured facility will remain available for future borrowings.
Other Jurisdictions
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the Notes offered by this prospectus supplement in any jurisdiction where action for that purpose is required. The Notes offered by this prospectus supplement may not be offered or sold, directly or indirectly, nor may this prospectus supplement or any other offering material or advertisements in connection with the offer and sale of any such Notes be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus supplement comes are advised to inform themselves about and to observe any restriction relating to the offering and the distribution of this prospectus supplement. This prospectus supplement and the accompanying prospectus do not constitute an offer to sell or a solicitation of an offer to buy the Notes offered by this prospectus supplement and the accompanying prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
S-40
TRUSTEE, PAYING AGENT, REGISTRAR AND TRANSFER AGENT
U.S. Bank National Association will act as the trustee. The principal business address of U.S. Bank National Association is 100 Wall Street, Suite 1600, New York, NY 10005.
Certain legal matters regarding the securities offered by this prospectus will be passed upon for Apollo Investment by Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, and Venable LLP, Baltimore, MD. Certain legal matters will be passed upon for the underwriters by Simpson Thacher & Bartlett LLP, New York, NY. Simpson Thacher & Bartlett LLP may rely as to certain matters of Maryland law upon the opinion of Venable LLP.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The financial statements as of March 31, 2012 and 2011 and for each of the three years in the period ended March 31, 2012 and managements assessment of the effectiveness of internal control over financial reporting (which is included in Managements Report on Internal Control over Financial Reporting) as of March 31, 2012 have been included in the accompanying prospectus in reliance upon the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in accounting and auditing.
With respect to the unaudited financial information for the three months ended June 30, 2012 and 2011, included in this prospectus supplement, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with professional standards for a review of such financial information. However, their separate report dated August 8, 2012 appearing herein, states that they did not audit and they do not express an opinion on that unaudited financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act for their report on the unaudited financial information because such report is not a report or a part of the registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Securities Act.
S-41
Index to Financial Statements |
||||
F-2 | ||||
Statements of Assets and Liabilities as of June 30, 2012 and March 31, 2012 |
F-3 | |||
Statements of Operations for the three months ended June 30, 2012 and June 30, 2011 |
F-4 | |||
|
F-5 |
| ||
Statements of Cash Flows for the three months ended June 30, 2012 and June 30, 2011 |
F-6 | |||
F-7 | ||||
F-15 | ||||
F-22 |
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Apollo Investment Corporation
We have reviewed the accompanying statement of assets and liabilities of Apollo Investment Corporation (the Company), including the schedule of investments, as of June 30, 2012 and the related statements of operations for the three month periods ended June 30, 2012 and June 30, 2011, and the statements of cash flows for the three month periods ended June 30, 2012 and June 30, 2011 and the statement of changes in net assets for the three month period ended June 30, 2012. These interim financial statements are the responsibility of the Companys management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the statement of assets and liabilities, including the schedule of investments, as of March 31, 2012, and the related statement of operations, statement of changes in net assets and statement of cash flows for the year then ended (not presented herein), and in our report dated May 23, 2012, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying statement of assets and liabilities as of March 31, 2012 and in the statement of changes in net assets for the year then ended, is fairly stated in all material respects in relation to the statement of assets and liabilities from which it has been derived.
/s/ PricewaterhouseCoopers LLP
New York, New York
August 8, 2012
F-2
STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except per share amounts)
June 30,
2012 (unaudited) |
March 31, 2012 | |||||||
Assets |
||||||||
Non-controlled/non-affiliated investments, at fair value (cost$2,534,935 and $2,642,702, respectively) |
$ | 2,353,980 | $ | 2,490,672 | ||||
Controlled investments, at fair value (cost$258,530 and $208,882, respectively) |
225,604 | 186,408 | ||||||
Cash equivalents, at fair value (cost$99,990 and $0, respectively) |
99,988 | | ||||||
Cash |
1,380 | 1,665 | ||||||
Foreign currency (cost$1,104 and $1,013, respectively) |
1,422 | 1,013 | ||||||
Receivable for investments sold |
126,018 | 19,606 | ||||||
Interest receivable |
48,811 | 54,409 | ||||||
Dividends receivable |
761 | 2,898 | ||||||
Miscellaneous income receivable |
476 | 1,150 | ||||||
Prepaid expenses and other assets |
27,253 | 17,442 | ||||||
|
|
|
|
|||||
Total assets |
$ | 2,885,693 | $ | 2,775,263 | ||||
|
|
|
|
|||||
Liabilities |
||||||||
Debt (see note 7, 9 & 10) |
$ | 1,019,887 | $ | 1,009,337 | ||||
Payable for investments and cash equivalents purchased |
102,581 | | ||||||
Dividends payable |
40,578 | 39,409 | ||||||
Management and performance-based incentive fees payable (see note 3) |
22,671 | 24,402 | ||||||
Interest payable |
9,852 | 10,102 | ||||||
Accrued administrative expenses |
3,543 | 3,420 | ||||||
Other liabilities and accrued expenses |
3,570 | 3,362 | ||||||
|
|
|
|
|||||
Total liabilities |
$ | 1,202,682 | $ | 1,090,032 | ||||
|
|
|
|
|||||
Net Assets |
||||||||
Common stock, par value $.001 per share, 400,000 and 400,000 common shares authorized, respectively, and 202,891 and 197,043 issued and outstanding, respectively |
$ | 203 | $ | 197 | ||||
Paid-in capital in excess of par (see note 2f) |
2,936,321 | 2,886,327 | ||||||
Over-distributed net investment income (see note 2f) |
(36,742 | ) | (34,896 | ) | ||||
Accumulated net realized loss (see note 2f) |
(1,014,270 | ) | (995,426 | ) | ||||
Net unrealized depreciation |
(202,501 | ) | (170,971 | ) | ||||
|
|
|
|
|||||
Total net assets |
$ | 1,683,011 | $ | 1,685,231 | ||||
|
|
|
|
|||||
Total liabilities and net assets |
$ | 2,885,693 | $ | 2,775,263 | ||||
|
|
|
|
|||||
Net asset value per share |
$ | 8.30 | $ | 8.55 | ||||
|
|
|
|
See notes to financial statements.
F-3
STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share amounts)
Three months ended | ||||||||
June 30, 2012 |
June 30, 2011 |
|||||||
INVESTMENT INCOME: |
||||||||
From non-controlled/non-affiliated investments: |
||||||||
Interest |
$ | 72,637 | $ | 81,619 | ||||
Dividends |
1,006 | 3,195 | ||||||
Other income |
4,044 | 7,275 | ||||||
From non-controlled/affiliated investments: |
||||||||
Interest |
| 405 | ||||||
From controlled investments: |
||||||||
Interest |
1,278 | 14 | ||||||
Dividends |
1,368 | 2,084 | ||||||
|
|
|
|
|||||
Total Investment Income |
$ | 80,333 | $ | 94,592 | ||||
|
|
|
|
|||||
EXPENSES: |
||||||||
Management fees (see note 3) |
$ | 13,426 | * | $ | 15,929 | |||
Performance-based incentive fees (see note 3) |
9,245 | * | 8,381 | |||||
Interest and other debt expenses |
15,577 | 15,951 | ||||||
Administrative services expense |
750 | 887 | ||||||
Other general and administrative expenses |
2,603 | 5,782 | ||||||
|
|
|
|
|||||
Total expenses |
41,601 | 46,930 | ||||||
|
|
|
|
|||||
Net investment income |
$ | 38,732 | $ | 47,662 | ||||
|
|
|
|
|||||
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS, CASH EQUIVALENTS AND FOREIGN CURRENCIES: |
||||||||
Net realized loss: |
||||||||
Investments and cash equivalents |
$ | (18,241 | ) | $ | (44,197 | ) | ||
Foreign currencies |
(603 | ) | (1,751 | ) | ||||
|
|
|
|
|||||
Net realized loss |
(18,844 | ) | (45,948 | ) | ||||
|
|
|
|
|||||
Net change in unrealized gain (loss): |
||||||||
Investments and cash equivalents |
(39,392 | ) | (2,544 | ) | ||||
Foreign currencies |
7,862 | 886 | ||||||
|
|
|
|
|||||
Net change in unrealized loss |
(31,530 | ) | (1,658 | ) | ||||
|
|
|
|
|||||
Net realized and unrealized loss from investments, cash equivalents and foreign currencies |
(50,374 | ) | (47,606 | ) | ||||
|
|
|
|
|||||
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |
$ | (11,642 | ) | $ | 56 | |||
|
|
|
|
|||||
EARNINGS (LOSS) PER SHAREBASIC AND DILUTED (see note 5) |
$ | (0.06 | ) | $ | 0.00 | |||
|
|
|
|
* | Net of voluntary fee waiver on proceeds from common shares issued on April 2, 2012. Management and performance-based incentive fees without the waiver would be $13,820 and $9,517, respectively. |
See notes to financial statements.
F-4
STATEMENTS OF CHANGES IN NET ASSETS
(in thousands, except shares)
Three months ended June 30, 2012 (unaudited) |
Year
ended March 31, 2012 |
|||||||
Increase (decrease) in net assets from operations: |
||||||||
Net investment income |
$ | 38,732 | $ | 172,742 | ||||
Net realized loss |
(18,844 | ) | (341,443 | ) | ||||
Net change in unrealized gain (loss) |
(31,530 | ) | 82,437 | |||||
|
|
|
|
|||||
Net decrease in net assets resulting from operations |
(11,642 | ) | (86,264 | ) | ||||
|
|
|
|
|||||
Dividends and distributions to stockholders: |
||||||||
From net investment income |
(38,732 | ) | (172,742 | ) | ||||
From other sources |
(1,846 | ) | (31,685 | ) | ||||
|
|
|
|
|||||
Net dividends and distributions to stockholders: |
(40,578 | ) | (204,427 | ) | ||||
|
|
|
|
|||||
Capital share transactions: |
||||||||
Net proceeds from shares sold |
50,000 | | ||||||
Less offering costs |
| (6 | ) | |||||
Reinvestment of dividends |
| 14,897 | ||||||
|
|
|
|
|||||
Net increase in net assets from capital share transactions |
50,000 | 14,891 | ||||||
|
|
|
|
|||||
Total decrease in net assets: |
(2,220 | ) | (275,800 | ) | ||||
Net assets at beginning of period |
1,685,231 | 1,961,031 | ||||||
|
|
|
|
|||||
Net assets at end of period |
$ | 1,683,011 | $ | 1,685,231 | ||||
|
|
|
|
|||||
Capital share activity: |
||||||||
Shares sold |
5,847,953 | | ||||||
Shares issued from reinvestment of dividends |
| 1,541,849 | ||||||
|
|
|
|
|||||
Net increase in capital share activity |
5,847,953 | 1,541,849 | ||||||
|
|
|
|
See notes to financial statements.
F-5
STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
Three months ended June 30, | ||||||||
2012 | 2011 | |||||||
Cash Flows from Operating Activities: |
||||||||
Net Increase (Decrease) in Net Assets Resulting from Operations |
$ | (11,642 | ) | $ | 56 | |||
Adjustments to reconcile net decrease: |
||||||||
PIK interest and dividends |
(9,751 | ) | (5,117 | ) | ||||
Net amortization on investments |
(6,756 | ) | (4,205 | ) | ||||
Decrease from foreign currency transactions |
(470 | ) | (1,861 | ) | ||||
Net change in unrealized loss on investments, cash equivalents and foreign currencies |
31,530 | 1,658 | ||||||
Net realized loss on investments, cash equivalents and foreign currencies |
18,844 | 45,948 | ||||||
Changes in operating assets and liabilities: |
||||||||
Purchase of investments |
(198,613 | ) | (835,810 | ) | ||||
Proceeds from disposition of investments and cash equivalents |
254,936 | 725,376 | ||||||
Decrease in interest and dividends receivable |
7,735 | 4,323 | ||||||
Decrease in prepaid expenses and other assets |
2,832 | 3,213 | ||||||
Decrease in management and performance-based incentive fees payable |
(1,731 | ) | (459 | ) | ||||
Increase (decrease) in interest payable |
(250 | ) | 157 | |||||
Increase (decrease) in accrued expenses and other liabilities |
331 | (1,739 | ) | |||||
Increase (decrease) in payable for investments purchased |
102,581 | (33,547 | ) | |||||
Increase in receivable for investments sold |
(106,412 | ) | (42,044 | ) | ||||
|
|
|
|
|||||
Net Cash Provided (Used) by Operating Activities |
$ | 83,164 | $ | (144,051 | ) | |||
|
|
|
|
|||||
Cash Flows from Financing Activities: |
||||||||
Net proceeds from the issuance of common stock |
$ | 50,000 | $ | | ||||
Offering costs from the issuance of common stock |
| (7 | ) | |||||
Dividends paid in cash |
(39,409 | ) | (49,733 | ) | ||||
Proceeds from debt |
205,210 | 1,150,480 | ||||||
Payments on debt* |
(199,171 | ) | (953,846 | ) | ||||
|
|
|
|
|||||
Net Cash Provided by Financing Activities |
$ | 16,630 | $ | 146,894 | ||||
|
|
|
|
|||||
NET INCREASE IN CASH AND CASH EQUIVALENTS |
$ | 99,794 | $ | 2,843 | ||||
Effect of exchange rates on cash balances |
318 | 8 | ||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
$ | 2,678 | $ | 6,354 | ||||
|
|
|
|
|||||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 102,790 | $ | 9,205 | ||||
|
|
|
|
Non-cash financing activities consist of the reinvestment of dividends totaling $0 and $5,008, respectively.
* | Includes deferred financing costs of $12 and $27, respectively. |
See notes to financial statements.
F-6
SCHEDULE OF INVESTMENTS (unaudited)
June 30, 2012
(in thousands)
INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED |
Industry | Par Amount* |
Cost | Fair Value (1) |
||||||||||
CORPORATE DEBT132.1% |
||||||||||||||
BANK DEBT/SENIOR SECURED LOANS46.6% |
||||||||||||||
1st Lien Bank Debt/Senior Secured Loans7.6% |
||||||||||||||
Advantage Sales & Marketing, Inc., P+300, 12/17/15 (Revolving loan) |
Grocery | $ | 5,500 | $ | 715 | $ | 661 | |||||||
ATI Acquisition Company, P+1400 (P+1000 Cash / 4.00% PIK), 6/30/12*** |
Education | 4,539 | 3,895 | 2,350 | ||||||||||
ATI Acquisition Company, P+900 (P+500 Cash / 4.00% PIK), 12/30/14*** |
Education | 15,037 | 12,596 | | ||||||||||
Aventine Renewable Energy Holdings, Inc., L+850, 12/22/15 |
Chemicals | 24,874 | 20,197 | 18,531 | ||||||||||
Grocery Outlet Inc., L+900, 12/15/17 |
Grocery | 18,315 | 18,315 | 18,663 | ||||||||||
Miller Energy Resources, Inc., 18.00% (15.00% Cash / 3.00% PIK Option), 6/29/17 |
Energy | 40,000 | 40,000 | 40,000 | ||||||||||
Pelican Energy, LLC, 10.00% or 11.00% PIK, 12/31/2018 |
Energy | 5,344 | 5,345 | 5,344 | ||||||||||
Penton Media, Inc., L+400 (L+300 Cash / 1.00% PIK), 8/1/14 |
Media | 34,911 | 30,465 | 26,779 | ||||||||||
RBS Holding Company, LLC, L+500, 3/23/17 |
Business Services | 15,800 | 15,668 | 9,875 | ||||||||||
Travelport LLC, L+950, 11/22/15 |
Business Services | 5,000 | 5,000 | 5,006 | ||||||||||
|
|
|
|
|||||||||||
Total 1st Lien Bank Debt/Senior Secured Loans |
$ | 152,196 | $ | 127,209 | ||||||||||
|
|
|
|
|||||||||||
2nd Lien Bank Debt/Senior Secured Loans39.0% |
||||||||||||||
Advantage Sales & Marketing, Inc., L+775, 6/18/18 |
Grocery | $ | 58,000 | $ | 57,584 | $ | 58,072 | |||||||
Allied Security Holdings, LLC, L+750, 2/2/18 |
Business Services | 31,000 | 30,737 | 31,039 | ||||||||||
Asurion Corporation, L+750, 5/24/19 |
Insurance | 73,111 | 72,985 | 75,030 | ||||||||||
Brock Holdings III, Inc., L+825, 3/16/18 |
Environmental & Facilities Services |
39,000 | 38,324 | 38,708 | ||||||||||
Clean Earth, Inc., 13.00%, 8/1/14 |
Environmental & Facilities Services |
25,000 | 25,000 | 24,875 | ||||||||||
Garden Fresh Restaurant Corp., L+975, 12/11/13 |
Retail | 46,600 | 47,095 | 47,532 | ||||||||||
Insight Pharmaceuticals, LLC, L+1175, 8/25/17 |
Consumer Products | 20,000 | 19,639 | 19,900 | ||||||||||
IPC Systems, Inc., L+525, 6/1/15 |
Telecommunications | 44,250 | 42,310 | 37,281 | ||||||||||
Kronos, Inc., L+1000, 6/11/18 |
Electronics | 35,000 | 35,000 | 35,175 | ||||||||||
Ozburn-Hessey Holding Company LLC, L+950, 10/8/16 |
Logistics | 38,000 | 37,972 | 33,060 | ||||||||||
Ranpak Corp., L+750, 10/20/17 |
Packaging | 85,000 | 85,000 | 83,300 | ||||||||||
Ranpak Corp., E+775, 10/20/17 |
Packaging | | 40,000 | 58,042 | 49,747 | |||||||||
Sedgwick Holdings, Inc., L+750, 5/26/17 |
Business Services | $ | 15,225 | 15,050 | 15,301 | |||||||||
TransFirst Holdings, Inc., L+600 Cash or L+675 PIK, 6/15/15 |
Financial Services | 19,012 | 18,413 | 18,133 |
See notes to financial statements.
F-7
APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2012
(in thousands)
INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED |
Industry | Par Amount* |
Cost | Fair Value (1) |
||||||||||||
2nd Lien Bank Debt/Senior Secured Loans(continued) |
||||||||||||||||
Valerus Compression Services, LP, 11.50%, 3/26/18 |
Industrial | $ | 40,000 | $ | 40,000 | $ | 40,640 | |||||||||
Vertafore, Inc., L+825, 10/29/17 |
Software | 49,260 | 48,856 | 48,891 | ||||||||||||
|
|
|
|
|||||||||||||
Total 2nd Lien Bank Debt/Senior Secured Loans |
$ | 672,007 | $ | 656,684 | ||||||||||||
|
|
|
|
|||||||||||||
TOTAL BANK DEBT/SENIOR SECURED LOANS |
$ | 824,203 | $ | 783,893 | ||||||||||||
|
|
|
|
|||||||||||||
Subordinated Debt/Corporate Notes85.5% |
||||||||||||||||
Advantage Sales & Marketing, Inc., 13.00%, 12/31/18 |
Grocery | $ | 25,000 | $ | 25,000 | $ | 24,625 | |||||||||
Altegrity Inc., 0.00%, 8/2/16 ¿ |
Diversified Service | 3,545 | 2,151 | 1,928 | ||||||||||||
Altegrity Inc., 11.75%, 5/1/16 ¿ |
Diversified Service | 14,639 | 11,299 | 12,956 | ||||||||||||
Altegrity Inc., 12.00%, 11/1/15 ¿ |
Diversified Service | 100,000 | 100,000 | 97,100 | ||||||||||||
Altegrity Inc., 10.50%, 11/1/15 ¿ |
Diversified Service | 13,475 | 12,457 | 12,330 | ||||||||||||
American Tire Distributors, Inc., 11.50%, 6/1/18 ¿ |
Distribution | 25,000 | 25,000 | 26,600 | ||||||||||||
Angelica Corporation, 15.00% (12.00% Cash / 3.00% PIK), 10/15/16 |
Healthcare | 46,284 | 46,284 | 46,284 | ||||||||||||
ATI Acquisition Company, P+1400 (P+1000 Cash / 4.00% PIK), 12/30/15*** |
Education | 45,153 | 37,867 | | ||||||||||||
Avaya Inc., 10.125% Cash or 10.875% PIK, 11/1/15 |
Telecommunications | 18,577 | 16,399 | 15,500 | ||||||||||||
BCA Osprey II Limited (British Car Auctions), 12.50% PIK, 8/17/17 |
Transportation | £ | 25,609 | 40,524 | 33,339 | |||||||||||
BCA Osprey II Limited (British Car Auctions), 12.50% PIK, 8/17/17 |
Transportation | | 15,528 | 21,449 | 16,355 | |||||||||||
Catalina Marketing Corporation, 11.625%, 10/1/17 ¿ |
Grocery | $ | 5,000 | 4,648 | 4,450 | |||||||||||
Ceridian Corp., 12.25% Cash or 13.00% PIK, 11/15/15 |
Diversified Service | 55,950 | 55,860 | 54,551 | ||||||||||||
Ceridian Corp., 11.25%, 11/15/15 |
Diversified Service | 9,300 | 9,083 | 8,998 | ||||||||||||
Chesapeake Energy Corporation, L+700, 12/02/17 |
Energy | 58,477 | 57,191 | 58,057 | ||||||||||||
Clearwire Communications, 12.00%, 12/1/15 ¿ |
Telecommunications | 24,843 | 24,330 | 22,659 | ||||||||||||
Clearwire Communications, 14.75%, 12/1/16 ¿ |
Telecommunications | 1,000 | 1,000 | 986 | ||||||||||||
Delta Educational Systems, Inc., 14.20% (13.00% Cash / 1.20% PIK), 5/12/13 |
Education | 20,050 | 19,921 | 20,150 | ||||||||||||
Exova Limited, 10.50%, 10/15/18 ¿ |
Market Research | £ | 18,000 | 28,823 | 25,974 | |||||||||||
Exova Limited, 10.50%, 10/15/18 |
Market Research | 17,655 | 25,018 | 25,476 | ||||||||||||
FoxCo Acquisition Sub LLC, 13.375%, 7/15/16 ¿ |
|
Broadcasting & Entertainment |
|
$ | 26,125 | 26,688 | 28,084 | |||||||||
Hub International Holdings, 10.25%, 6/15/15 ¿ |
Insurance | 36,232 | 35,292 | 37,138 | ||||||||||||
Intelsat Bermuda Ltd., 11.25%, 2/4/17 |
|
Broadcasting & Entertainment |
|
79,000 | 81,123 | 81,913 |
See notes to financial statements.
F-8
APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2012
(in thousands)
INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED |
Industry | Par Amount* |
Cost | Fair Value (1) |
||||||||||
Subordinated Debt/Corporate Notes(continued) |
||||||||||||||
Intelsat Bermuda Ltd., 11.50% Cash or 12.50% PIK, 2/4/17 |
Broadcasting & Entertainment |
$ | 20,000 | $ | 19,627 | $ | 20,775 | |||||||
inVentiv Health, Inc., 11.00%, 8/15/18 |
Market Research | 160,000 | 160,000 | 136,000 | ||||||||||
Laureate Education, Inc., 12.75%, 8/15/17 ¿ |
Education | 53,540 | 53,867 | 57,288 | ||||||||||
Lonestar Intermediate Super Holdings (Asurion), LLC, L+950, 9/2/19 |
Insurance | 31,922 | 31,276 | 33,518 | ||||||||||
Nara Cable Funding Limited, 8.875%, 12/01/18 ¿ |
Broadcasting & Entertainment |
22,334 | 19,007 | 19,375 | ||||||||||
SeaCube Container Leasing Ltd., 11.00%, 4/28/16 |
Shipping | 50,000 | 50,000 | 51,200 | ||||||||||
SquareTwo Financial Corp. (Collect America, Ltd.), 11.625%, 4/1/17 |
Consumer Finance | 40,000 | 39,470 | 36,500 | ||||||||||
SRA International, Inc., 11.00%, 10/1/19 |
Consulting Services | 25,000 | 25,000 | 25,250 | ||||||||||
Texas Competitive Electric Holdings Company LLC, 11.50%, 10/1/20 ¿ |
Utilities | 50,000 | 49,674 | 34,313 | ||||||||||
The ServiceMaster Company, 10.75% Cash or 11.50% PIK, 7/15/15 ¿ |
Diversified Service | 15,731 | 15,841 | 16,232 | ||||||||||
TL Acquisitions, Inc. (Thomson Learning), 10.50%, 1/15/15 ¿ |
Education | 120,500 | 102,919 | 92,032 | ||||||||||
Travelport LLC, 9.875%, 9/1/14 |
Business Services | 19,779 | 18,711 | 14,686 | ||||||||||
Travelport LLC, L+462.5, 9/1/14 |
Business Services | 13,000 | 11,151 | 8,353 | ||||||||||
Univar Inc., 12.00%, 6/30/18 |
Distribution | 78,750 | 79,845 | 78,590 | ||||||||||
U.S. Security Associates Holdings, Inc., 11.00%, 7/28/18 |
Business Services | 135,000 | 135,000 | 136,350 | ||||||||||
Varietal Distribution, 10.75%, 6/30/17 |
Distribution | | 1,127 | 1,412 | 1,448 | |||||||||
Varietal Distribution, 10.75%, 6/30/17 |
Distribution | $ | 22,204 | 21,788 | 22,493 | |||||||||
|
|
|
|
|||||||||||
Total Subordinated Debt/Corporate Notes |
$ | 1,541,995 | $ | 1,439,856 | ||||||||||
|
|
|
|
|||||||||||
TOTAL CORPORATE DEBT |
$ | 2,366,198 | $ | 2,223,749 | ||||||||||
|
|
|
|
|||||||||||
COLLATERALIZED LOAN OBLIGATIONS0.5% |
||||||||||||||
Westbrook CLO Ltd., Series 2006-1A, L+370, 12/20/20 ¿ |
Asset Management | $ | 11,000 | $ | 7,170 | $ | 7,626 | |||||||
|
|
|
|
|||||||||||
TOTAL COLLATERALIZED LOAN OBLIGATIONS |
$ | 7,170 | $ | 7,626 | ||||||||||
|
|
|
|
See notes to financial statements.
F-9
APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2012
(in thousands, except shares)
INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED |
Industry |
Shares | Cost | Fair Value (1) |
||||||||||
PREFERRED EQUITY1.9% |
||||||||||||||
AHC Mezzanine LLC (Advanstar) ** |
Media | | $ | 1,063 | $ | 273 | ||||||||
CA Holding, Inc. (Collect America, Ltd.) Series A ** |
Consumer Finance | 7,961 | 788 | 1,592 | ||||||||||
Gryphon Colleges Corporation (Delta Educational Systems, Inc.), 13.50% PIK, 5/12/14 |
Education | 12,360 | 26,717 | 27,087 | ||||||||||
Gryphon Colleges Corporation (Delta Educational Systems, Inc.), 12.50% PIK (Convertible) *** |
Education | 332,500 | 6,863 | | ||||||||||
Varietal Distribution Holdings, LLC, 8.00% PIK |
Distribution | 3,097 | 4,603 | 2,969 | ||||||||||
|
|
|
|
|||||||||||
TOTAL PREFERRED EQUITY |
$ | 40,034 | $ | 31,921 | ||||||||||
|
|
|
|
|||||||||||
EQUITY5.4% |
||||||||||||||
Common Equity/Interests4.7% |
||||||||||||||
Accelerate Parent Corp. (American Tire) ** |
Distribution | 3,125,000 | $ | 3,125 | $ | 4,630 | ||||||||
Altegrity Holding Corp.** |
Diversified Service | 353,399 | 13,797 | 6,199 | ||||||||||
CA Holding, Inc. (Collect America, Ltd.) Series A ** |
Consumer Finance | 25,000 | 2,500 | 1,410 | ||||||||||
CA Holding, Inc. (Collect America, Ltd.) Series AA ** |
Consumer Finance | 4,294 | 429 | 859 | ||||||||||
Clothesline Holdings, Inc. ** |
Healthcare | 6,000 | 6,000 | 1,351 | ||||||||||
Explorer Coinvest LLC (Booz Allen) ** |
Consulting Services | 430 | 4,300 | 6,110 | ||||||||||
Garden Fresh Restaurant Holding, LLC ** |
Retail | 50,000 | 5,000 | 6,205 | ||||||||||
Gryphon Colleges Corporation (Delta Educational Systems, Inc.)** |
Education | 17,500 | 175 | | ||||||||||
GS Prysmian Co-Invest L.P. (Prysmian Cables & Systems) (2,3) ** |
Industrial | | | 198 | ||||||||||
JV Note Holdco LLC (DSI Renal Inc.) |
Healthcare | 9,303 | 85 | 86 | ||||||||||
New Omaha Holdings Co-Invest LP (First Data) ** |
Financial Services | 13,000,000 | 65,000 | 22,230 | ||||||||||
Penton Business Media Holdings, LLC ** |
Media | 124 | 4,950 | 8,319 | ||||||||||
RC Coinvestment, LLC (Ranpak Corp.) ** |
Packaging | 50,000 | 5,000 | 8,363 | ||||||||||
Sorenson Communications Holdings, LLC Class A ** |
Consumer Services | 454,828 | 45 | 1,300 | ||||||||||
Univar Inc. ** |
Distribution | 900,000 | 9,000 | 11,830 | ||||||||||
Varietal Distribution Holdings, LLC Class A ** |
Distribution | 28,028 | 28 | | ||||||||||
|
|
|
|
|||||||||||
Total Common Equity/Interests |
$ | 119,434 | $ | 79,090 | ||||||||||
|
|
|
|
See notes to financial statements.
F-10
APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2012
(in thousands, except shares and warrants)
INVESTMENTS IN NON-CONTROLLED/ NON-AFFILIATED |
Industry |
Warrants | Cost | Fair Value (1) |
||||||||||
Warrants0.7% |
||||||||||||||
CA Holding, Inc. (Collect America, Ltd.), Common ** |
Consumer Finance | 7,961 | $ | 8 | $ | | ||||||||
Fidji Luxco (BC) S.C.A., Common (FCI) (2) ** |
Electronics | 48,769 | 491 | 9,472 | ||||||||||
Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Common ** |
Education | 9,820 | 98 | | ||||||||||
Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Class A-1 Preferred ** |
Education | 45,947 | 459 | 976 | ||||||||||
Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Class B-1 Preferred ** |
Education | 104,314 | 1,043 | | ||||||||||
Osage Exploration & Development, Inc. |
Energy | 1,496,843 | | 1,146 | ||||||||||
|
|
|
|
|||||||||||
Total Warrants |
$ | 2,099 | $ | 11,594 | ||||||||||
|
|
|
|
|||||||||||
TOTAL EQUITY |
$ | 121,533 | $ | 90,684 | ||||||||||
|
|
|
|
|||||||||||
Total Investments in Non-Controlled/ Non-Affiliated Investments |
$ | 2,534,935 | $ | 2,353,980 | ||||||||||
|
|
|
|
See notes to financial statements.
F-11
APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2012
(in thousands, except shares)
INVESTMENTS IN CONTROLLED INVESTMENTS13.4% (4) |
Industry |
Shares | Cost | Fair Value (1) |
||||||||||
COLLATERALIZED LOAN OBLIGATIONS2.8% |
||||||||||||||
Kirkwood Fund I LLC Common Interest (5) |
Asset Management | | $ | 40,385 | $ | 40,475 | ||||||||
Slater Mill Loan Fund LP 2012-1X LP Certificates |
Asset Management | 8,375,000 | 7,370 | 7,370 | ||||||||||
|
|
|
|
|||||||||||
TOTAL COLLATERALIZED LOAN OBLIGATIONS |
$ | 47,755 | $ | 47,845 | ||||||||||
|
|
|
|
|||||||||||
Par Amount* | ||||||||||||||
CORPORATE DEBT2.3% |
||||||||||||||
Subordinated Debt/Corporate Notes2.3% |
||||||||||||||
Playpower Holdings Inc., 14.00% PIK, 12/15/15 |
Leisure Equipment | | 17,196 | $ | 22,864 | $ | 21,331 | |||||||
Playpower, Inc., 12.50% PIK, 12/31/15 |
Leisure Equipment | £ | 11,225 | 16,950 | 17,166 | |||||||||
|
|
|
|
|||||||||||
Total Subordinated Debt/Corporate Notes |
$ | 39,814 | $ | 38,497 | ||||||||||
|
|
|
|
|||||||||||
TOTAL CORPORATE DEBT |
$ | 39,814 | $ | 38,497 | ||||||||||
|
|
|
|
|||||||||||
Shares | ||||||||||||||
EQUITY8.3% |
||||||||||||||
Common Equity/Interests8.3% |
||||||||||||||
AIC Credit Opportunity Fund LLC (6) |
Asset Management | | $ | 63,604 | $ | 60,652 | ||||||||
Generation Brands Holdings, Inc. (Quality Home Brands) ** |
Consumer Products | 750 | | 73 | ||||||||||
Generation Brands Holdings, Inc. Series H (Quality Home Brands) ** |
Consumer Products | 7,500 | 2,297 | 735 | ||||||||||
Generation Brands Holdings, Inc. Series 2L (Quality Home Brands) ** |
Consumer Products | 44,957 | 11,242 | 4,405 | ||||||||||
LVI Parent Corp. (LVI Services, Inc.) |
Environmental & Facilities Services | 14,981 | 16,096 | 20,772 | ||||||||||
Playpower Holdings Inc. ** |
Leisure Equipment | 1,000 | 77,722 | 52,625 | ||||||||||
|
|
|
|
|||||||||||
Total Common Equity/Interests |
$ | 170,961 | $ | 139,262 | ||||||||||
|
|
|
|
|||||||||||
TOTAL EQUITY |
$ | 170,961 | $ | 139,262 | ||||||||||
|
|
|
|
|||||||||||
Total Investments in Controlled Investments |
$ | 258,530 | $ | 225,604 | ||||||||||
|
|
|
|
|||||||||||
Total Investments153.3% (7) |
$ | 2,793,465 | $ | 2,579,584 | ||||||||||
Par Amount* | ||||||||||||||
CASH EQUIVALENTS5.9% |
||||||||||||||
US Treasury Bill, 0.056%, 9/6/12 |
Government | $ | 100,000 | $ | 99,990 | $ | 99,988 | |||||||
|
|
|
|
|||||||||||
Total Investments and Cash Equivalents159.2% (7,8) |
$ | 2,893,455 | $ | 2,679,572 | ||||||||||
Liabilities in Excess of Other Assets(59.2%) |
(996,561 | ) | ||||||||||||
|
|
|||||||||||||
Net Assets100.0% |
$ | 1,683,011 | ||||||||||||
|
|
(1) | Fair value is determined in good faith by or under the direction of the Board of Directors of the Company (see Note 2). |
(2) | Denominated in Euro (). |
(3) | The Company is the sole Limited Partner in GS Prysmian Co-Invest L.P. |
See notes to financial statements.
F-12
APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (unaudited) (continued)
June 30, 2012
(in thousands)
(4) | Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the three months ended June 30, 2012 in these Controlled investments are as follows: |
Name of Issuer |
Fair Value at March 31, 2012 |
Gross Additions |
Gross Reductions |
Interest/Dividend/ Other Income |
Fair Value at June 30, 2012 |
|||||||||||||||
Playpower Holdings, Inc., 14.00% PIK |
$ | 21,576 | $ | 734 | $ | | $ | 743 | $ | 21,331 | ||||||||||
Playpower, Inc., 12.50% PIK |
16,960 | 531 | | 535 | 17,166 | |||||||||||||||
AIC Credit Opportunity Fund LLC Common Equity |
56,034 | 575 | | 618 | 60,652 | |||||||||||||||
Generation Brands Holdings, Inc. (Quality Home Brands) Common Equity |
130 | | | | 73 | |||||||||||||||
Generation Brands Holdings, Inc. (Quality Home Brands) Series H Common Equity |
1,300 | | | | 735 | |||||||||||||||
Generation Brands Holdings, Inc. (Quality Home Brands) Series 2L Common Equity |
7,793 | | | | 4,405 | |||||||||||||||
Kirkwood Fund I LLC CLO Equity Interest |
| 40,385 | | 750 | 40,475 | |||||||||||||||
LVI Parent Corp. Common Equity |
21,504 | | | | 20,772 | |||||||||||||||
Playpower Holdings Inc. Common Equity |
61,111 | | | | 52,625 | |||||||||||||||
Slater Mill Loan Fund LP CLO Equity Interest |
| 7,370 | | | 7,370 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 186,408 | $ | 49,595 | $ | | $ | 2,646 | $ | 225,604 |
As of June 30, 2012, the Company has a 100%, 32%, 98%, 33%, 100% and 26% equity ownership interest in AIC Credit Opportunity Fund LLC, Generation Brands Holdings, Inc., Kirkwood Fund I LLC, LVI Parent Corp., Playpower Holdings Inc. and Slater Mill Loan Fund LP, respectively.
(5) | See Note 12. |
(6) | See Note 6. |
(7) | Aggregate gross unrealized appreciation for federal income tax purposes is $70,144; aggregate gross unrealized depreciation for federal income tax purposes is $389,278. Net unrealized depreciation is $319,134 based on a tax cost of $2,998,705. |
(8) | Substantially all securities are pledged as collateral to our multicurrency revolving credit facility (the Facility). As such these securities are not available as collateral to our general creditors. |
¿ | These securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. |
* | Denominated in USD unless otherwise noted. |
** | Non-income producing security |
*** | Non-accrual status (see Note 2d) |
| Denotes debt securities where the Company owns multiple tranches of the same broad asset type but whose security characteristics differ. Such differences may include level of subordination, call protection and pricing, differing interest rate characteristics, among other factors. Such factors are usually considered in the determination of fair values. |
| Investments that the Company has determined are not qualifying assets under Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. The status of these assets under the 1940 Act are subject to change. The Company monitors the status of these assets on an ongoing basis. |
See notes to financial statements.
F-13
APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (unaudited) (continued)
Industry Classification |
Percentage of Total Investments (at fair value) as of June 30, 2012 |
|||
Business Services |
8.5 | % | ||
Diversified Service |
8.2 | % | ||
Education |
7.7 | % | ||
Market Research |
7.3 | % | ||
Broadcasting & Entertainment |
5.8 | % | ||
Distribution |
5.8 | % | ||
Insurance |
5.6 | % | ||
Packaging |
5.5 | % | ||
Asset Management |
4.5 | % | ||
Grocery |
4.1 | % | ||
Energy |
4.0 | % | ||
Leisure Equipment |
3.5 | % | ||
Environmental & Facilities Services |
3.3 | % | ||
Telecommunications |
3.0 | % | ||
Retail |
2.1 | % | ||
Shipping |
2.0 | % | ||
Transportation |
1.9 | % | ||
Software |
1.9 | % | ||
Healthcare |
1.8 | % | ||
Electronics |
1.7 | % | ||
Industrial |
1.6 | % | ||
Financial Services |
1.6 | % | ||
Consumer Finance |
1.6 | % | ||
Media |
1.4 | % | ||
Utilities |
1.3 | % | ||
Logistics |
1.3 | % | ||
Consulting Services |
1.2 | % | ||
Consumer Products |
1.0 | % | ||
Chemicals |
0.7 | % | ||
Consumer Services |
0.1 | % | ||
|
|
|||
Total Investments |
100.0 | % | ||
|
|
See notes to financial statements.
F-14
SCHEDULE OF INVESTMENTS
March 31, 2012
(in thousands)
INVESTMENTS IN NON-CONTROLLED/NON AFFILIATED INVESTMENTS147.8% |
Industry | Par Amount* |
Cost | Fair Value (1) |
||||||||||
CORPORATE DEBT139.2% |
||||||||||||||
BANK DEBT/SENIOR SECURED LOANS47.0% |
||||||||||||||
1st Lien Bank Debt/Senior Secured Loans5.6% |
||||||||||||||
Advantage Sales & Marketing, Inc., P+300, 12/17/15 (Revolving loan) |
Grocery | $ | 5,500 | $ | 2,200 | $ | 2,035 | |||||||
ATI Acquisition Company, P+1400 (P+1000 Cash / 4.00% PIK), 6/30/12*** |
Education | 4,494 | 4,015 | 3,600 | ||||||||||
ATI Acquisition Company, P+900 (P+500 Cash / 4.00% PIK), 12/30/14*** |
Education | 14,889 | 12,596 | | ||||||||||
Aventine Renewable Energy Holdings, Inc., L+850, 12/22/15 |
Chemicals | 24,937 | 20,009 | 19,825 | ||||||||||
Eastman Kodak Company, DIP L+750, 7/20/13 |
Technology | 11,231 | 11,016 | 11,427 | ||||||||||
Grocery Outlet Inc., L+900, 12/15/17 |
Grocery | 18,408 | 18,408 | 18,812 | ||||||||||
Penton Media, Inc., L+400 (L+300 Cash / 1.00% PIK), 8/1/14 |
Media | 34,906 | 29,986 | 27,794 | ||||||||||
RBS Holding Company, LLC, L+500, 3/23/17 |
Business Services | 15,840 | 15,703 | 9,900 | ||||||||||
|
|
|
|
|||||||||||
Total 1st Lien Bank Debt/Senior Secured Loans |
$ | 113,933 | $ | 93,393 | ||||||||||
|
|
|
|
|||||||||||
2nd Lien Bank Debt/Senior Secured Loans41.4% |
||||||||||||||
Advantage Sales & Marketing, Inc., L+775, 6/18/18 |
Grocery | $ | 58,000 | $ | 57,571 | $ | 57,855 | |||||||
Allied Security Holdings, LLC, L+750, 2/2/18 |
Business Services | 31,000 | 30,728 | 31,233 | ||||||||||
Asurion Corporation, L+750, 5/24/19 |
Insurance | 78,111 | 77,959 | 79,234 | ||||||||||
Brock Holdings III, Inc., L+825, 3/16/18 |
Environmental & | 39,000 | 38,302 | 38,561 | ||||||||||
Facilities Services | ||||||||||||||
Clean Earth, Inc., 13.00%, 8/1/14 |
Environmental & | 25,000 | 25,000 | 24,875 | ||||||||||
Facilities Services | ||||||||||||||
Garden Fresh Restaurant Corp., L+975, 12/11/13 |
Retail | 46,600 | 47,027 | 47,532 | ||||||||||
Insight Pharmaceuticals, LLC, L+1175, 8/25/17 |
Consumer Products | 20,000 | 19,627 | 19,900 | ||||||||||
IPC Systems, Inc., L+525, 6/1/15 |
Telecommunications | 44,250 | 42,170 | 38,497 | ||||||||||
Kronos, Inc., L+1000, 6/11/18 |
Electronics | 35,000 | 35,000 | 35,700 | ||||||||||
Ozburn-Hessey Holding Company LLC, L+950, 10/8/16 |
Logistics | 38,000 | 37,971 | 30,780 | ||||||||||
Ranpak Corp., L+750, 10/20/17 |
Packaging | 85,000 | 85,000 | 82,025 | ||||||||||
Ranpak Corp., E+775, 10/20/17 |
Packaging | | 40,000 | 58,042 | 52,602 | |||||||||
Sedgwick Holdings, Inc., L+750, 5/26/17 |
Business Services | $ | 15,225 | 15,043 | 15,149 | |||||||||
Sheridan Holdings, Inc., L+575 Cash or L+650 PIK, 6/15/15 |
Healthcare | 24,047 | 23,446 | 23,518 | ||||||||||
TransFirst Holdings, Inc., L+600 Cash or L+675 PIK, 6/15/15 |
Financial Services | 19,012 | 18,372 | 17,795 | ||||||||||
Valerus Compression Services, LP, 11.50%, 3/26/18 |
Industrial | 40,000 | 40,000 | 40,680 | ||||||||||
Vertafore, Inc., L+825, 10/29/17 |
Software | 49,260 | 48,842 | 49,383 | ||||||||||
Wall Street Systems Holdings, Inc., L+750, 6/20/18 |
Software | 13,000 | 12,881 | 13,098 | ||||||||||
|
|
|
|
|||||||||||
Total 2nd Lien Bank Debt/Senior Secured Loans |
$ | 712,981 | $ | 698,417 | ||||||||||
|
|
|
|
|||||||||||
TOTAL BANK DEBT/SENIOR SECURED LOANS |
$ | 826,914 | $ | 791,810 | ||||||||||
|
|
|
|
See notes to financial statements.
F-15
APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (continued)
March 31, 2012
(in thousands)
INVESTMENTS IN NON-CONTROLLED/NON AFFILIATED |
Industry | Par Amount* |
Cost | Fair Value (1) |
||||||||||
Subordinated Debt/Corporate Notes92.2% |
||||||||||||||
AB Acquisitions UK Topco 2 Limited (Alliance Boots), GBP L+650 (GBP L+300 Cash / 3.50% PIK), 7/9/17 |
Retail | £ | 22,580 | $ | 44,368 | $ | 33,612 | |||||||
Advantage Sales & Marketing, Inc., 13.00%, 12/31/18 |
Grocery | $ | 25,000 | 25,000 | 24,625 | |||||||||
Altegrity Inc., 0.00%, 8/2/16 ¿ |
Diversified Service | 3,545 | 2,087 | 1,965 | ||||||||||
Altegrity Inc., 11.75%, 5/1/16 ¿ |
Diversified Service | 14,639 | 11,112 | 13,907 | ||||||||||
Altegrity Inc., 12.00%, 11/1/15 ¿ |
Diversified Service | 100,000 | 100,000 | 100,600 | ||||||||||
Altegrity Inc., 10.50%, 11/1/15 ¿ |
Diversified Service | 13,475 | 12,387 | 12,869 | ||||||||||
American Tire Distributors, Inc., 11.50%, 6/1/18 ¿ |
Distribution | 25,000 | 25,000 | 26,450 | ||||||||||
Angelica Corporation, 15.00% (12.00% Cash / 3.00% PIK), 10/15/16 |
Healthcare | 53,343 | 53,343 | 52,756 | ||||||||||
ATI Acquisition Company, P+1400 (P+1000 Cash / 4.00% PIK), 12/30/15*** |
Education | 43,296 | 37,867 | | ||||||||||
Avaya Inc., 10.125% Cash or 10.875% PIK, 11/1/15 |
Telecommunications | 43,577 | 40,713 | 43,468 | ||||||||||
BCA Osprey II Limited (British Car Auctions), 12.50% PIK, 8/17/17 |
Transportation | £ | 22,750 | 35,957 | 32,078 | |||||||||
BCA Osprey II Limited (British Car Auctions), 12.50% PIK, 8/17/17 |
Transportation | | 13,773 | 19,138 | 16,186 | |||||||||
Catalina Marketing Corporation, 11.625%, 10/1/17 ¿ |
Grocery | $ | 27,175 | 27,157 | 25,001 | |||||||||
Ceridian Corp., 12.25% Cash or 13.00% PIK, 11/15/15 |
Diversified Service | 55,950 | 55,845 | 51,334 | ||||||||||
Ceridian Corp., 11.25%, 11/15/15 |
Diversified Service | 34,300 | 34,035 | 31,642 | ||||||||||
Clearwire Communications, 12.00%, 12/1/15 ¿ |
Telecommunications | 24,843 | 24,289 | 24,595 | ||||||||||
Clearwire Communications, 14.75%, 12/1/16 ¿ |
Telecommunications | 1,000 | 1,000 | 1,098 | ||||||||||
Delta Educational Systems, Inc., 14.20% (13.00% Cash / 1.20% PIK), 5/12/13 |
Education | 19,991 | 19,828 | 20,221 | ||||||||||
Exova Limited, 10.50%, 10/15/18 ¿ |
Market Research | £ | 18,000 | 28,823 | 25,524 | |||||||||
Exova Limited, 10.50%, 10/15/18 |
Market Research | 17,655 | 24,942 | 25,035 | ||||||||||
FoxCo Acquisition Sub LLC, 13.375%, 7/15/16 ¿ |
Broadcasting & Entertainment |
$ | 26,125 | 26,620 | 28,607 | |||||||||
Hub International Holdings, 10.25%, 6/15/15 ¿ |
Insurance | 36,232 | 35,228 | 37,410 | ||||||||||
Intelsat Bermuda Ltd., 11.25%, 2/4/17 |
Broadcasting & Entertainment |
84,000 | 86,285 | 87,570 | ||||||||||
Intelsat Bermuda Ltd., 11.50% Cash or 12.50% PIK, 2/4/17 |
Broadcasting & Entertainment |
20,000 | 19,500 | 20,850 | ||||||||||
inVentiv Health, Inc., 11.00%, 8/15/18 |
Market Research | 160,000 | 160,000 | 144,000 | ||||||||||
Laureate Education, Inc., 12.75%, 8/15/17 ¿ |
Education | 53,540 | 53,512 | 57,422 | ||||||||||
Lonestar Intermediate Super Holdings (Asurion), LLC, |
Insurance | 26,922 | 26,116 | 27,376 | ||||||||||
SeaCube Container Leasing Ltd., 11.00%, 4/28/16 |
Shipping | 50,000 | 50,000 | 51,250 | ||||||||||
Sorenson Communications, Inc., 10.50%, 2/1/15 ¿ |
Consumer Services | 16,500 | 16,303 | 13,695 | ||||||||||
SquareTwo Financial Corp. (Collect America, Ltd.), 11.625%, 4/1/17 ¿ |
Consumer Finance | 40,000 | 39,450 | 39,800 |
See notes to financial statements.
F-16
APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (continued)
March 31, 2012
(in thousands)
INVESTMENTS IN NON-CONTROLLED/NON AFFILIATED |
Industry | Par Amount* |
Cost | Fair Value (1) |
||||||||||
Subordinated Debt/Corporate Notes(continued) |
||||||||||||||
SRA International, Inc., 11.00%, 10/1/19 |
Consulting Services | $ | 25,000 | $ | 25,000 | $ | 26,500 | |||||||
Texas Competitive Electric Holdings Company LLC, 11.50%, 10/1/20 ¿ |
Utilities | 50,000 | 49,668 | 32,875 | ||||||||||
The ServiceMaster Company, 10.75% Cash or 11.50% PIK, 7/15/15 ¿ |
Diversified Service | 15,731 | 15,967 | 16,596 | ||||||||||
TL Acquisitions, Inc. (Thomson Learning), 10.50%, 1/15/15 ¿ |
Education | 120,500 | 101,356 | 94,291 | ||||||||||
Travelport LLC, 9.875%, 9/1/14 |
Business Services | 19,779 | 18,606 | 12,733 | ||||||||||
Travelport LLC, L+462.5, 9/1/14 |
Business Services | 13,000 | 10,970 | 7,150 | ||||||||||
Univar Inc., 12.00%, 6/30/18 |
Distribution | 78,750 | 79,652 | 78,830 | ||||||||||
U.S. Renal Care, Inc., 13.25% (11.25% Cash / 2.00% PIK), 6/2/17 |
Healthcare | 50,824 | 50,824 | 52,603 | ||||||||||
U.S. Security Associates Holdings, Inc., 11.00%, 7/28/18 |
Business Services | 135,000 | 135,000 | 138,110 | ||||||||||
Varietal Distribution, 10.75%, 6/30/17 |
Distribution | | 1,127 | 1,408 | 1,497 | |||||||||
Varietal Distribution, 10.75%, 6/30/17 |
Distribution | $ | 22,204 | 21,773 | 22,160 | |||||||||
|
|
|
|
|||||||||||
Total Subordinated Debt/Corporate Notes |
$ | 1,646,129 | $ | 1,554,291 | ||||||||||
|
|
|
|
|||||||||||
TOTAL CORPORATE DEBT |
$ | 2,473,043 | $ | 2,346,101 | ||||||||||
|
|
|
|
|||||||||||
COLLATERALIZED LOAN OBLIGATIONS0.5% |
||||||||||||||
Westbrook CLO Ltd., Series 2006-1A, L+370, |
Asset Management | $ | 11,000 | $ | 7,109 | $ | 7,691 | |||||||
|
|
|
|
|||||||||||
TOTAL COLLATERALIZED LOAN OBLIGATIONS |
$ | 7,109 | $ | 7,691 | ||||||||||
|
|
|
|
|||||||||||
Shares | ||||||||||||||
PREFERRED EQUITY2.1% |
||||||||||||||
AHC Mezzanine LLC (Advanstar) ** |
Media | | $ | 1,063 | $ | 279 | ||||||||
CA Holding, Inc. (Collect America, Ltd.) Series A ** |
Consumer Finance | 7,961 | 788 | 1,592 | ||||||||||
Gryphon Colleges Corporation (Delta Educational Systems, Inc.), 13.50% PIK, 5/12/14 |
Education | 12,360 | 25,789 | 26,207 | ||||||||||
Gryphon Colleges Corporation (Delta Educational Systems, Inc.), 12.50% PIK (Convertible) |
Education | 332,500 | 6,863 | 3,708 | ||||||||||
Varietal Distribution Holdings, LLC, 8.00% PIK |
Distribution | 3,097 | 4,514 | 3,141 | ||||||||||
|
|
|
|
|||||||||||
TOTAL PREFERRED EQUITY |
$ | 39,017 | $ | 34,927 | ||||||||||
|
|
|
|
See notes to financial statements.
F-17
APOLLO INVESTMENT CORPORATION
SCHEDULE OF INVESTMENTS (continued)
March 31, 2012
(in thousands, except shares and warrants)
INVESTMENTS IN NON-CONTROLLED/NON AFFILIATED |
Industry |
Shares | Cost | Fair Value (1) |
||||||||||
EQUITY6.0% |
||||||||||||||
Common Equity/Interests5.4% |
||||||||||||||
AB Capital Holdings LLC (Allied Security) |
Business Services | 2,000,000 | $ | 2,000 | $ | 3,040 | ||||||||
Accelerate Parent Corp. (American Tire) ** |
Distribution | 3,125,000 | 3,125 | 4,750 | ||||||||||
Altegrity Holding Corp.** |
Diversified Service | 353,399 | 13,797 | 9,063 | ||||||||||
CA Holding, Inc. (Collect America, Ltd.) Series A ** |
Consumer Finance | 25,000 | 2,500 | 1,058 | ||||||||||
CA Holding, Inc. (Collect America, Ltd.) Series AA ** |
Consumer Finance | 4,294 | 429 | 859 | ||||||||||
Clothesline Holdings, Inc. ** |
Healthcare | 6,000 | 6,000 | 1,729 | ||||||||||
Explorer Coinvest LLC (Booz Allen) ** |
Consulting Services | 430 | 4,300 | 6,810 | ||||||||||
Garden Fresh Restaurant Holding, LLC ** |
Retail | 50,000 | 5,000 | 7,600 | ||||||||||
Gryphon Colleges Corporation (Delta Educational Systems, Inc.)** |
Education | 17,500 | 175 | | ||||||||||
GS Prysmian Co-Invest L.P. (Prysmian Cables & Systems) (2,3) ** |
Industrial | | | 208 | ||||||||||
JV Note Holdco LLC (DSI Renal Inc.) |
Healthcare | 9,303 | 85 | 84 | ||||||||||
New Omaha Holdings Co-Invest LP (First Data) ** |
Financial Services | 13,000,000 | 65,000 | 24,960 | ||||||||||
Penton Business Media Holdings, LLC ** |
Media | 124 | 4,950 | 8,308 | ||||||||||
RC Coinvestment, LLC (Ranpak Corp.) ** |
Packaging | 50,000 | 5,000 | 8,535 | ||||||||||
Sorenson Communications Holdings, LLC Class A ** |
Consumer Services | 454,828 | 45 | 1,380 | ||||||||||
Univar Inc. ** |
Distribution | 900,000 | 9,000 | 13,840 | ||||||||||
Varietal Distribution Holdings, LLC Class A ** |
Distribution | 28,028 | 28 | | ||||||||||
|
|
|
|
|||||||||||
Total Common Equity/Interests |
$ | 121,434 | $ | 92,224 | ||||||||||
|
|
|
|
|||||||||||
Warrants | ||||||||||||||
Warrants0.6% |
||||||||||||||
CA Holding, Inc. (Collect America, Ltd.), Common ** |
Consumer Finance | 7,961 | $ | 8 | $ | | ||||||||
Fidji Luxco (BC) S.C.A., Common (FCI) (2) ** |
Electronics | 48,769 |