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As filed with the Securities and Exchange Commission on January 19, 2016

Securities Act Registration No. 333-205660

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-2

 

 

x Registration Statement under the Securities Act of 1933

x Pre-Effective Amendment No. 2

¨ Post-Effective Amendment No.

and/or

¨ Registration Statement Under the Investment Company Act of 1940

¨  Amendment No.

 

 

Apollo Investment Corporation

(Exact Name of Registrant as Specified in the Charter)

 

9 West 57th Street

New York, NY 10019

(Address of Principal Executive Offices)

Registrant’s Telephone Number, including Area Code: (212) 515-3450

Joseph D. Glatt

Cindy Z. Michel

c/o Apollo Investment Corporation

9 West 57th Street

New York, NY 10019

(Name and Address of Agent for Service)

 

 

Copies to:

Richard T. Prins, Esq.

Skadden, Arps, Slate, Meagher & Flom LLP

Four Times Square

New York, New York 10036

 

 

Approximate date of proposed public offering:

From time to time after the effective date of this Registration Statement

 

 

If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with dividend or interest reinvestment plans, check the following box    x

It is proposed that this filing will become effective (check appropriate box):

¨    when declared effective pursuant to section 8(c)

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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

 

Title of Securities Being Registered		Amount Being Registered		Proposed Maximum Offering Price per Unit		Proposed Maximum Aggregate Offering Price		Amount of Registration Fee
Common Stock, $0.001 par value per share (2)(3)
Preferred Stock, $0.001 par value per share (2)
Subscription Rights (2)
Warrants (4)
Debt Securities (5)
Units (6)
Purchase Contracts (7)
Total (8)						$1,500,000,000 (8)		$174,300 (1)(9)

(1)

Estimated pursuant to Rule 457(o) under the Securities Act of 1933, as amended, solely for the purpose of determining the registration fee. The proposed maximum offering price per security will be determined, from time to time, by the Registrant in connection with the sale by the Registrant of the securities registered under this registration statement. Prior to the initial filing of this registration statement, $1,045,720,000 aggregate principal amount of securities remained registered and unsold pursuant to Registration Statement No. 333-189817, which was initially filed by the Registrant on July 5, 2013. Pursuant to Rule 457(p), $142,637 of the total filing fee of $174,300 required in connection with the initial registration of $1,500,000,000 aggregate principal amount of securities under this registration statement is being offset against the $142,637 filing fee associated with the unsold securities registered under Registration Statement No. 333-189817, and an additional $31,663 is being paid in connection herewith. Upon effectiveness of this registration statement, the offering of securities pursuant to Registration Statement No. 333-189817 will be terminated.

 

(2)

Subject to Note 8 below, there is being registered hereunder an indeterminate principal amount of common stock or preferred stock, or subscription rights to purchase shares of common stock as may be sold, from time to time separately or as units in combination with other securities registered hereunder.

 

(3)	Includes such indeterminate number of shares of common stock as may, from time to time, be issued upon conversion or exchange of other securities registered hereunder, to the extent any such securities are, by their terms, convertible or exchangeable for common stock.

 

(4)	Subject to Note 8 below, there is being registered hereunder an indeterminate principal amount of warrants as may be sold, from time to time, representing rights to purchase common stock, preferred stock or debt securities.

 

(5)

Subject to Note 8 below, there is being registered hereunder an indeterminate principal amount of debt securities as may be sold, from time to time. If any debt securities are issued at an original issue discount, then the offering price shall be in such greater principal amount as shall result in an aggregate price to investors not to exceed $1,500,000,000.

 

(6)

Subject to Note 8 below, there is being registered hereunder an indeterminate principal amount of units issuable upon conversion or exchange of securities registered hereunder to the extent any such securities, are, by their terms convertible into or exchangeable for units, including upon the exercise of warrants or delivery upon settlement of purchase contracts. Each unit may consist of a combination of any two or more of the securities being registered hereby or debt obligations of third parties, including U.S. Treasury securities.

 

(7)

Subject to Note 8 below, there is being registered hereunder an indeterminate principal amount of purchase contracts issuable upon conversion or exchange of securities registered hereunder to the extent any such securities are, by their terms convertible into or exchangeable for purchase contracts. Each purchase contract obligates the registrant to sell, and the holder thereof to purchase, an indeterminate number of debt securities, common stock, preferred stock or other securities registered hereunder.

 

(8)	In no event will the aggregate offering price of all securities issued from time to time pursuant to this registration statement exceed $1,500,000,000.

 

(9)	Previously paid.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer and sale is not permitted.

 

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION JANUARY 19, 2016

$1,500,000,000

 

 

Common Stock

Preferred Stock

Warrants

Debt Securities

Units

Subscription Rights

Purchase Contracts

 

 

Apollo Investment Corporation is a closed-end, externally managed, 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 investment objective is to generate current income and capital appreciation. We invest primarily in various forms of debt investments including secured and unsecured debt, loan investments and/or equity in private middle market companies. We may also invest in the securities of public companies and structured products such as collateralized loan obligations and credit-linked notes. We fund a portion of our investment with borrowed money, a practice commonly known as leverage. We can offer no assurances that we will continue to achieve our objective.

Apollo Investment Management, L.P., an affiliate of Apollo Global Management, LLC, a leading global alternative investment manager, serves as our investment adviser. Apollo Investment Administration, LLC provides the administrative services necessary for us to operate.

We may offer, from time to time, in one or more offerings, together or separately, up to $1,500,000,000 of our common stock, preferred stock, debt securities, units, subscription rights, purchase contracts or warrants representing rights to purchase shares of our common stock, preferred stock or debt securities, which we refer to, collectively, as the “securities.” The securities may be offered at prices and on terms to be described in one or more supplements to this prospectus. Pursuant to approval granted at a special meeting of stockholders held on August 5, 2015, we currently are permitted to sell or otherwise issue shares of our common stock at a price below net asset value, subject to certain limitations and determinations that must be made by our board of directors.

Our common stock is quoted on The Nasdaq Global Select Market under the symbol “AINV.” The last reported closing price for our common stock on January 15, 2016 was $5.00 per share.

This prospectus, and the accompanying prospectus supplement, contains important information you should know before investing in our securities. Please read it before you invest and keep it for future reference. We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. This information is available free of charge by contacting us at 9 West 57th Street, New York, NY 10019 or by calling us collect at (212) 515-3450 or on our website at www.apolloic.com. The SEC also maintains a website at www.sec.gov that contains such information free of charge.

Investing in our securities involves a high degree of risk and is highly speculative. Before buying any securities, you should read the discussion of the material risks of investing in our securities in “Risk Factors” beginning on page 9 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” or “high yield,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. They may also be difficult to value and illiquid.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

This prospectus may not be used to consummate sales of securities unless accompanied by a prospectus supplement.

 

 

The date of this Prospectus is                     , 2016.

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You should rely only on the information contained in this prospectus and the accompanying prospectus supplement. We have not authorized anyone to provide you with additional information, or information different from that contained in this prospectus and the accompanying prospectus supplement. If anyone provides you with different or additional information, you should not rely on it. We are offering to sell, and seeking offers to buy, securities only in jurisdictions where offers and sales are permitted. The information contained in or incorporated by reference in this prospectus and the accompanying prospectus supplement is accurate only as of the date of this prospectus or such prospectus supplement. We will update these documents to reflect material changes. Our business, financial condition, results of operations and prospects may have changed since then.

TABLE OF CONTENTS

 

Prospectus Summary			1
Fees and Expenses			6
Risk Factors			9
Use of Proceeds			41
Distributions			42
Selected Financial Data			44
Forward-Looking Statements			45
Management’s Discussion and Analysis of Financial Condition and Results of Operations			46
Sales of Common Stock Below Net Asset Value			60
Price Range of Common Stock			65
Business			66
Management			76
Certain Relationships			95
Control Persons and Principal Stockholders			96
Portfolio Companies			97
Determination of Net Asset Value			107
Dividend Reinvestment Plan			108
Certain U.S. Federal Income Tax Considerations			109
Description of our Capital Stock			116
Description of our Preferred Stock			123
Description of our Warrants			124
Description of our Debt Securities			125
Description of our Units			142
Description of our Subscription Rights			143
Description of our Purchase Contracts			144
Regulation			145
Custodian, Transfer and Dividend Paying Agent, Registrar and Trustee			149
Brokerage Allocation and Other Practices			149
Plan of Distribution			150
Legal Matters			151
Independent Registered Public Accounting Firm			151
Available Information			152

 

 

 

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ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement that we have filed with the Securities and Exchange Commission, or the SEC, using the “shelf” registration process. Under the shelf registration process, we may offer, from time to time, up to $1,500,000,000 of our common stock, preferred stock, debt securities, units, subscription rights, purchase contracts or warrants representing rights to purchase shares of our common stock, preferred stock or debt securities on the terms to be determined at the time of the offering. The securities may be offered at prices and on terms described in one or more supplements to this prospectus. This prospectus provides you with a general description of the securities that we may offer. Each time we use this prospectus to offer securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. If applicable, the prospectus supplement will identify any selling stockholders acting under the terms of certain registration rights agreements we may enter into from time to time. The prospectus supplement may also add, update or change information contained in this prospectus. Please carefully read this prospectus and any prospectus supplement together with any exhibits and the additional information described under the headings “Available Information” and “Risk Factors” before you make an investment decision.

 

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20% of our realized capital gains for the calendar year, if any, computed net of all realized capital losses and unrealized capital depreciation (and incorporating unrealized depreciation on a gross investment-by-investment basis) and is payable in arrears at the end of each calendar year. The net incentive fees are currently entirely attributable to net investment income incentive fees. For a more detailed discussion of the calculation of this fee, see “Management—Investment Advisory and Management Agreement.”

 

(7)

Our interest and other debt expenses are based on estimated amounts for the annual current fiscal year, which are based on prior year amounts adjusted for new debt issuances. As of March 31, 2015, we had $860 million available and $385 million in borrowings outstanding under our $1.27 billion senior secured credit facility and $1.499 billion of total debt outstanding. As of March 31, 2015, the Company had $25 million in standby letters of credit issued through the senior secured credit facility. The amount available for borrowing under the senior secured credit facility is reduced by any standby letters of credit issued. On April 24, 2015, the Company amended and restated the senior secured credit facility. The amendment increased the lenders’ commitments to $1.31 billion, extended the final maturity date to April 24, 2020, and allows the Company to seek additional commitments from new and existing lenders in the future, up to an aggregate facility size not to exceed $1.965 billion. For more information, see “Risk Factors—Risks relating to our business and structure—We fund a portion of our investments with borrowed money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in us” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in this base prospectus.

 

(8)

Includes our estimated overhead expenses, including payments under the administration agreement based on our allocable portion of overhead and other expenses incurred by AIA in performing its obligations under the administration agreement. See “Management—Administration Agreement” in this base prospectus.

 

(9)

“Total annual expenses” as a percentage of net assets attributable to common stock are higher than the total annual expenses percentage would be for a company that is not leveraged. We borrow money to leverage our net assets and increase our total assets. The SEC requires that the “Total annual expenses” percentage be calculated as a percentage of net assets (defined as total assets less indebtedness), rather than the total assets, including assets that have been funded with borrowed monies. If the “Total annual expenses” percentage were calculated instead as a percentage of total assets, our “Total annual expenses” would be 5.95% of total assets.

 

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RISK FACTORS

Before you invest in our shares, you should be aware of various risks, including those described below and those set forth under the caption “Recent Developments” in the accompanying prospectus supplement. You should carefully consider these risk factors, together with all of the other information included in this base prospectus and accompanying prospectus supplement, before you decide whether to make an investment in our securities. The risks set out below and in the accompanying prospectus supplement are not the only risks we face. If any of the following events occur, our business, financial condition and results of operations could be materially adversely affected. In such case, our net asset value and the trading price of our common stock could decline or the value of our preferred stock, debt securities, units, subscription rights, purchase contracts or warrants may decline, and you may lose all or part of your investment.

CERTAIN RISKS IN THE CURRENT ENVIRONMENT

Capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely affect debt and equity capital markets in the United States and abroad, which may have a negative impact on our business and operations.

From time to time, capital markets may experience periods of disruption and instability. For example, between 2007 and 2009, the global capital markets experienced an extended period of disruption as evidenced by a lack of liquidity in the debt capital markets, write-offs in the financial services sector, the re-pricing of credit risk and the failure of certain major financial institutions. Despite actions of the United States, federal government and foreign governments, these events contributed to worsening general economic conditions that materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular. While market conditions have experienced relative stability in recent years, there have been continuing periods of volatility and there can be no assurance that adverse market conditions will not repeat themselves in the future. During such market disruptions, we may have difficulty raising debt or equity capital especially as a result of regulatory constraints.

Market conditions may in the future make it difficult to extend the maturity of or refinance our existing indebtedness, including the final maturity of our senior secured credit facility in April 2020, and any failure to do so could have a material adverse effect on our business. The illiquidity of our investments may make it difficult for us to sell such investments if required. As a result, we may realize significantly less than the value at which we have recorded our investments.

Given the extreme volatility and dislocation that the capital markets have historically experienced, many BDCs have faced, and may in the future face, a challenging environment in which to raise capital. We may in the future have difficulty accessing debt and equity capital, and a severe disruption in the global financial markets or deterioration in credit and financing conditions could have a material adverse effect on our business, financial condition and results of operations. In addition, significant changes in the capital markets, including the extreme volatility and disruption, have had, and may in the future have, a negative effect on the valuations of our investments and on the potential for liquidity events involving our investments. An inability to raise capital, and any required sale of our investments for liquidity purposes, could have a material adverse impact on our business, financial condition or results of operations. AIM monitors developments and seeks to manage our investments in a manner consistent with achieving our investment objective, but there can be no assurance that it will be successful in doing so; and AIM may not timely anticipate or manage existing, new or additional risks, contingencies or developments, including regulatory developments in the current or future market environment.

Price declines and illiquidity in the corporate debt markets have adversely affected, and may in the future adversely affect, the fair value of our portfolio investments, reducing our net asset value through increased net unrealized depreciation.

As a business development company, we are required to carry our investments at fair value or, if no market value is ascertainable, at fair value as determined in good faith by or under the direction of our board of

 

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directors. Decreases in the market values or fair values of our investments are recorded as unrealized depreciation, which reduces our net asset value. Depending on market conditions, we could incur substantial realized losses and may suffer additional unrealized losses in future periods, which could have a material adverse impact on our business, financial condition and results of operations.

Uncertainty about the financial stability of the United States and of several countries in the European Union (EU) and China could have a significant adverse effect on our business, financial condition and results of operations.

Due to federal budget deficit concerns, S&P downgraded the federal government’s credit rating from AAA to AA+ for the first time in history on August 5, 2011. Further, Moody’s and Fitch had warned that they may downgrade the federal government’s credit rating. Further downgrades or warnings by S&P or other rating agencies, and the United States government’s credit and deficit concerns in general, could cause interest rates and borrowing costs to rise, which may negatively impact both the perception of credit risk associated with our debt portfolio and our ability to access the debt markets on favorable terms. In addition, a decreased U.S. government credit rating could create broader financial turmoil and uncertainty, which may weigh heavily on our financial performance and the value of our common stock.

In 2010, a financial crisis emerged in Europe, triggered by high budget deficits and rising direct and contingent sovereign debt in Greece, Ireland, Italy, Portugal and Spain, which created concerns about the ability of these nations to continue to service their sovereign debt obligations. While the financial stability of such countries has improved significantly, risks resulting from any future debt crisis in Europe or any similar crisis could have a detrimental impact on the global economic recovery, sovereign and non-sovereign debt in these countries and the financial condition of European financial institutions. Market and economic disruptions have affected, and may in the future affect, consumer confidence levels and spending, personal bankruptcy rates, levels of incurrence and default on consumer debt and home prices, among other factors. We cannot assure you that market disruptions in Europe, including the increased cost of funding for certain governments and financial institutions, will not impact the global economy, and we cannot assure you that assistance packages will be available, or if available, be sufficient to stabilize countries and markets in Europe or elsewhere affected by a financial crisis. To the extent uncertainty regarding any economic recovery in Europe negatively impacts consumer confidence and consumer credit factors, our business, financial condition and results of operations could be adversely affected.

In the second quarter of 2015, stock prices in China experienced a significant drop, resulting primarily from continued sell-off of shares trading in Chinese markets. In August 2015, Chinese authorities sharply devalued China’s currency. These market and economic disruptions affected, and may in the future affect, the U.S. capital markets, which could adversely affect our business.

In October 2014, the Federal Reserve announced that it was concluding its bond-buying program, or quantitative easing, which was designed to stimulate the economy and expand the Federal Reserve’s holdings of long-term securities, suggesting that key economic indicators, such as the unemployment rate, had showed signs of improvement since the inception of the program. It is unclear what effect, if any, the conclusion of the Federal Reserve’s bond-buying program will have on the value of our investments. However, it is possible that, without quantitative easing by the Federal Reserve, these developments, along with the United States government’s credit and deficit concerns and the European sovereign debt crisis, could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms. Additionally, in January 2015, the Federal Reserve reaffirmed its view that the current target range for the federal funds rate was appropriate based on current economic conditions. However, if key economic indicators, such as the unemployment rate or inflation, do not progress at a rate consistent with the Federal Reserve’s objectives, the target range for the federal funds rate may increase and cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms.

 

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Rising interest rates may adversely affect the value of our portfolio investments which could have an adverse effect on our business, financial condition and results of operations.

Our debt investments may be based on floating rates, such as London Interbank Offer Rate (“LIBOR”), EURIBOR, the Federal Funds Rate or the Prime Rate. General interest rate fluctuations may have a substantial negative impact on our investments, the value of our common stock and our rate of return on invested capital. A reduction in the interest rates on new investments relative to interest rates on current investments could also have an adverse impact on our net interest income. An increase in interest rates could decrease the value of any investments we hold which earn fixed interest rates, including subordinated loans, senior and junior secured and unsecured debt securities and loans and high yield bonds, and also could increase our interest expense, thereby decreasing our net income. Also, an increase in interest rates available to investors could make investment in our common stock less attractive if we are not able to increase our dividend rate, which could reduce the value of our common stock.

Because we have borrowed money, and may issue preferred stock to finance investments, our net investment income depends, in part, upon the difference between the rate at which we borrow funds or pay distributions on preferred stock and the rate that our investments yield. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.

You should also be aware that a change in the general level of interest rates can be expected to lead to a change in the interest rate we receive on many of our debt investments. Accordingly, a change in the interest rate could make it easier for us to meet or exceed the performance threshold and may result in a substantial increase in the amount of incentive fees payable to our investment adviser with respect to the portion of the incentive fee based on income.

Risks Associated with Recent Commodity Futures Trading Commission (“CFTC”) Actions

AIM has claimed relief available under a no-action letter (“Letter 12-40”) issued by the staff of the CFTC. Letter 12-40 relieves AIM from registering with the CFTC as the commodity pool operator (“CPO”) of AIC, provided that AIC (i) continues to be regulated by the SEC as a business development company, (ii) allocates no more than a designated percentage of its liquidation value to futures contracts, certain swap contracts and certain other derivative instruments that are within the jurisdiction of the Commodity Exchange Act (collectively, “CEA-regulated products”), and (iii) is not marketed to the public as a commodity pool or as a vehicle for trading in CEA-regulated products. If AIC can no longer satisfy the conditions of Letter 12-40, AIM could be subject to the CFTC’s CPO registration requirements, and the disclosure and operations of AIC would need to comply with all applicable regulations governing commodity pools and CPOs. If AIM were required to register as a CPO, it would also be required to become a member of the National Futures Association (“NFA”) and be subject to the NFA’s rules and bylaws. Compliance with these additional registration and regulatory requirements may increase AIM’s operating expenses, which, in turn, could result in AIC’s investors being charged additional fees.

The continued uncertainty related to the sustainability and pace of economic recovery in the U.S. and globally could have a negative impact on our business.

Our business is directly influenced by the economic cycle, and could be negatively impacted by a downturn in economic activity in the US as well as globally. Fiscal and monetary actions taken by U.S. and non-U.S. government and regulatory authorities could have a material adverse impact on our business. To the extent uncertainty regarding the U.S. or global economy negatively impacts consumer confidence and consumer credit factors, our business, financial condition and results of operations could be adversely affected. Moreover, Federal Reserve policy, including with respect to certain interest rates and the decision to end its quantitative easing policy, may also adversely affect the value, volatility and liquidity of dividend- and interest-paying securities. Market volatility, rising interest rates and/or a return to unfavorable economic conditions could adversely affect our business.

 

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RISKS RELATING TO OUR BUSINESS AND STRUCTURE

We may suffer credit losses.

Investment in small and middle-market companies is highly speculative and involves a high degree of risk of credit loss. These risks are likely to increase during volatile economic periods, as the U.S. and many other economies have experienced. See “Risks Related to Our Investments.”

We are dependent upon Apollo Investment Management’s key personnel for our future success and upon their access to AGM’s investment professionals and partners.

We depend on the diligence, skill and network of business contacts of the senior management of AIM specifically and AGM generally. Members of our senior management may depart at any time. We also depend, to a significant extent, on AIM’s access to the investment professionals and partners of AGM and the information and deal flow generated by the AGM investment professionals in the course of their investment and portfolio management activities. The senior management of AIM evaluates, negotiates, structures, closes and monitors our investments. Our future success depends on the continued service of senior members of AGM’s credit platform, including the senior management team of AIM. The departure of our senior management, any senior managers of AIM, or of a significant number of the investment professionals or partners of AGM, could have a material adverse effect on our ability to achieve our investment objective. In addition, we can offer no assurance that AIM will remain our investment adviser or that we will continue to have access to AGM’s partners and investment professionals or its information and deal flow.

Our financial condition and results of operations depend on our ability to manage future growth effectively.

Our ability to achieve our investment objective depends, in part, on our ability to grow, which depends, in turn, on AIM’s ability to identify, invest in and monitor companies that meet our investment criteria. Accomplishing this result on a cost-effective basis is largely a function of AIM’s structuring of the investment process, its ability to provide competent, attentive and efficient services to us and our access to financing on acceptable terms. The senior management team of AIM has substantial responsibilities under the investment advisory and management agreement, and with respect to certain members, in connection with their roles as officers of other AGM funds.

They may also be called upon to provide managerial assistance to our portfolio companies. These demands on their time may distract them or slow the rate of investment. In order to grow, we and AIM need to hire, train, supervise and manage new employees. Any failure to manage our future growth effectively could have a material adverse effect on our business, financial condition and results of operations.

We operate in a highly competitive market for investment opportunities.

A number of entities compete with us to make the types of investments that we make. We compete with public and private funds, commercial and investment banks, commercial financing companies, other BDCs and, to the extent they provide an alternative form of financing, private equity funds. Competition for investment opportunities intensifies from time to time and may intensify further in the future. Some of our existing and potential competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions and valuation requirements that the 1940 Act imposes on us as a BDC and that the Code imposes on us as a RIC. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this existing and potentially increasing

 

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competition, we may not be able to take advantage of attractive investment opportunities from time to time, and we can offer no assurance that we will be able to identify and make investments that are consistent with our investment objective.

We do not seek to compete primarily based on the interest rates we offer, and we believe that some of our competitors make loans with interest rates that are comparable to or lower than the rates we offer.

We may lose investment opportunities if we do not match our competitors’ pricing, terms and structure. If we match our competitors’ pricing, terms and structure, we may experience decreased net interest income and increased risk of credit loss.

Any failure on our part to maintain our status as a BDC would reduce our operating flexibility.

If we do not remain a BDC, we might be regulated as a closed-end investment company under the 1940 Act, which would subject us to substantially more regulatory restrictions under the 1940 Act and correspondingly decrease our operating flexibility.

We will be subject to corporate-level income tax if we are unable to maintain our status as a RIC.

To maintain our RIC status under the Code, we must meet certain source-of-income, asset diversification and annual distribution requirements. The annual distribution requirement for a RIC generally is satisfied if we distribute at least 90% of our “investment company taxable income” (generally, our ordinary income and the excess, if any, of our net short-term capital gains over our net long-term capital losses), if any, to our stockholders on an annual basis. To the extent we use debt financing, we are subject to certain asset coverage ratio requirements and other financial covenants under loan and credit agreements, and could in some circumstances also become subject to such requirements under the 1940 Act, that could, under certain circumstances, restrict us from making distributions necessary to maintain our status as a RIC. If we are unable to obtain cash from other sources, we may fail to maintain our status as a RIC and, thus, may be subject to corporate-level income tax. To maintain our status as a RIC, we must also meet certain asset diversification requirements at the end of each calendar quarter. Failure to meet these tests may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments are in private companies, any such dispositions could be made at disadvantageous prices and may result in substantial losses. If we fail to maintain our status as a RIC for any reason and become subject to corporate-level income tax, the resulting corporate-level taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions. Such a failure would have a material adverse effect on us and our stockholders.

To maintain our status as a RIC in a subsequent year, we would be required to distribute to our stockholders our earnings and profits attributable to non-RIC years. In addition, if we failed to maintain our status as a RIC for a period greater than two taxable years, then we would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss that would have been realized if we had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of ten years, in order to qualify as a RIC in a subsequent year.

We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.

For U.S. federal income tax purposes, we include in income certain amounts that we have not yet received in cash, such as original issue discount, which may arise if, for example, we receive warrants in connection with the making of a loan or payment-in-kind interest, which represents contractual interest added to the loan balance and typically due at the end of the loan term or possibly in other circumstances. Such original issue discount is included in income before we receive any corresponding cash payments and could be significant

 

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relative to our overall investment activities. Loans structured with these features may represent a higher level of credit risk than loans the interest on which must be paid in cash at regular intervals. We also may be required to include in income certain other amounts that we do not receive in cash.

The incentive fee payable by us that relates to our net investment income is computed and paid on income that may include some interest that has been accrued but not yet received in cash. If a portfolio company defaults on a loan, it is possible that accrued interest previously used in the calculation of the incentive fee will become uncollectible. Consequently, while we may make incentive fee payments on income accruals that we may not collect in the future and with respect to which we do not have a formal clawback right against our investment adviser per se, the amount of accrued income written off in any period will reduce the income in the period in which such write-off was taken and thereby reduce such period’s incentive fee payment. For the period between April 1, 2012 and March 31, 2015, the portion of the incentive fee that is attributable to deferred interest, such as PIK income, will not be paid to AIM until the Company receives such deferred interest in cash. The accrual of incentive fees shall be reversed if such interest is reversed in connection with any write-off or similar treatment of the investment.

Since in certain cases we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the tax requirement to distribute at least 90% of our investment company taxable income to maintain our status as a RIC. Accordingly, we may have to sell some of our investments at times we would not consider advantageous, raise additional debt or equity capital or reduce new investment originations in order to meet distribution and/or leverage requirements.

Regulations governing our operation as a BDC affect our ability to, and the way in which we raise, additional capital.

We may issue debt securities or preferred stock and/or borrow money from banks or other financial institutions, which we refer to collectively as “senior securities,” up to the maximum amount permitted by the 1940 Act. Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue senior securities only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after each issuance of senior securities. If the value of our assets declines, we may be unable to maintain asset coverage above the 200% level. If that happens, the contractual arrangements governing these securities may require us to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous.

BDCs may issue and sell common stock at a price below net asset value per share only in limited circumstances, one of which is during the one-year period after stockholder approval. In the past, our stockholders have approved a plan so that during the subsequent 12 month period we could, in one or more public or private offerings of our common stock, sell or otherwise issue shares of our common stock at a price below the then current net asset value per share, subject to certain conditions including parameters on the level of permissible dilution, approval of the sale by a majority of our independent directors and a requirement that the sale price be not less than approximately the market price of the shares of our common stock at specified times, less the expenses of the sale. We may in the future seek to renew such authority on terms and conditions set forth in the corresponding proxy statement. There is no assurance such approvals will be obtained.

In the event we sell, or otherwise issue, shares of our common stock at a price below net asset value per share, existing stockholders will experience net asset value dilution and the investors who acquire shares in such offering may thereafter experience the same type of dilution from subsequent offerings at a discount. For example, if we sell an additional 10% of our common shares at a 5% discount from net asset value, a stockholder who does not participate in that offering for its proportionate interest will suffer net asset value dilution of up to 0.5% or $5 per $1000 of net asset value.

In addition to issuing securities to raise capital as described above, we may in the future securitize our loans to generate cash for funding new investments. To securitize loans, we may create a wholly-owned

 

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subsidiary, contribute a pool of loans to the subsidiary and have the subsidiary issue primarily investment grade debt securities to purchasers who we would expect would be willing to accept a substantially lower interest rate than the loans earn. We would retain all or a portion of the equity in the securitized pool of loans. Our retained equity would be exposed to any losses on the portfolio of loans before any of the debt securities would be exposed to such losses. An inability to successfully securitize our loan portfolio could limit our ability to grow our business and fully execute our business strategy and adversely affect our earnings, if any. Moreover, the successful securitization of our loan portfolio might expose us to losses as the residual loans in which we do not sell interests will tend to be those that are riskier and more apt to generate losses.

We currently use borrowed funds to make investments and are exposed to the typical risks associated with leverage.

We are exposed to increased risk of loss due to our use of debt to make investments. A decrease in the value of our investments will have a greater negative impact on the value of our common stock than if we did not use debt. Our ability to make distributions will be restricted if we fail to satisfy certain of our asset coverage ratios and other financial covenants and any amounts that we use to service our indebtedness are not available for distributions to our common stockholders.

The agreements governing certain of our debt instruments require us to comply with certain financial and operational covenants. These covenants require us to, among other things, maintain certain financial ratios, including asset coverage and minimum stockholders’ equity. As of March 31, 2015, we were in compliance with these covenants. However, our continued compliance with these covenants depends on many factors, some of which are beyond our control. In the event of deterioration in the capital markets and pricing levels subsequent to this period, net unrealized loss in our portfolio may increase in the future. Absent an amendment to our Senior Secured Facility (as defined below), continued unrealized loss in our investment portfolio could result in non-compliance with certain covenants.

Accordingly, there are no assurances that we will continue to comply with these covenants. Failure to comply with these covenants would result in a default which, if we were unable to obtain a waiver from the debt holders, could accelerate repayment under the instruments and thereby have a material adverse impact on our liquidity, financial condition, results of operations and ability to make distributions.

Our current and future debt securities are and may be governed by an indenture or other instrument containing covenants restricting our operating flexibility. We, and indirectly our stockholders, bear the cost of issuing and servicing such securities. Our currently outstanding convertible securities have, and any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common stock.

We fund a portion of our investments with borrowed money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in us.

Borrowings and other types of financing, also known as leverage, magnify the potential for gain or loss on amounts invested and, therefore, increase the risks associated with investing in our securities. Our lenders and debt holders have fixed dollar claims on our assets that are superior to the claims of our common stockholders or any preferred stockholders. If the value of our assets increases, then leveraging would cause the net asset value to increase more sharply than it would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged. Similarly, any increase in our income in excess of consolidated interest payable on the borrowed funds would cause our net income to increase more than it would without the leverage, while any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to make distributions to our common stockholders. Leverage is generally considered a speculative investment technique.

 

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We may in the future determine to fund a portion of our investments with preferred stock, which would magnify the potential for gain or loss and the risks of investing in us in the same way as our borrowings.

Preferred stock, which is another form of leverage, has the same risks to our common stockholders as borrowings because the dividends on any preferred stock we issue must be cumulative. Payment of such dividends and repayment of the liquidation preference of such preferred stock must take preference over any dividends or other payments to our common stockholders, and preferred stockholders are not subject to any of our expenses or losses and are not entitled to participate in any income or appreciation in excess of their stated preference.

Changes in interest rates may affect our cost of capital and net investment income.

Because we borrow money, and may issue preferred stock to finance investments, our net investment income will depend, in part, upon the difference between the rate at which we borrow funds or pay dividends on preferred stock and the rate at which we invest these funds. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds would increase except to the extent we have issued fixed rate debt or preferred stock, which could reduce our net investment income. Our long-term fixed-rate investments are financed primarily with equity and long-term debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act and applicable commodities laws. Interest rate hedging activities do not protect against credit risk. We have analyzed the potential impact of changes in interest rates on interest income net of interest expense. Assuming no changes to our balance sheet as of March 31, 2015, a hypothetical one percent increase in London Interbank Offered Rate (LIBOR) on our floating rate assets and liabilities would decrease our earnings by approximately less than 1 cent per average share over the next twelve months. Assuming no changes to our balance sheet as of March 31, 2015, a hypothetical two percent increase in LIBOR on our floating rate assets and liabilities would increase our earnings by two cents per average share over the next twelve months. Assuming no changes to our balance sheet as of March 31, 2015, a hypothetical three percent increase in LIBOR on our floating rate assets and liabilities would increase our earnings by approximately six cents per average share over the next twelve months. Assuming no changes to our balance sheet as of March 31, 2015, a hypothetical four percent increase in LIBOR on our floating rate assets and liabilities would increase our earnings by approximately nine cents per average share over the next twelve months. In addition, we believe that our interest rate matching strategy and our ability to hedge mitigates the effects any changes in interest rates may have on our investment income. Although management believes that this is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in credit quality, size and composition of the assets on the balance sheet and other business developments that could affect net increase or decrease in net assets resulting from operations, or net income. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by this estimate. For more information, see “Management’s Discussion and Analysis of Financial Condition and Result of Operations—Quantitative and Qualitative Disclosure about Market Risk.”

A portion of our floating rate investments may include features such as LIBOR floors. To the extent we invest in credit instruments with LIBOR floors, we may lose some of the benefits of incurring leverage. Specifically, if we issue preferred stock or debt (or otherwise borrow money), our costs of leverage will increase as rates increase. However, we may not benefit from the higher coupon payments resulting from increased interest rates if our investments in LIBOR floors and rates do not rise to levels above the LIBOR floors. In this situation, we will experience increased financing costs without the benefit of receiving higher income. This in turn may result in the potential for a decrease in the level of income available for dividends or distributions made by us.

You should also be aware that a change in the general level of interest rates can be expected to lead to a change in the interest rates we receive on many of our debt investments. Accordingly, a change in interest rates

 

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could make it easier for us to meet or exceed the performance threshold and may result in a substantial increase in the amount of incentive fees payable to our investment adviser with respect to pre-incentive fee net investment income.

Our business requires a substantial amount of capital to grow because we must distribute most of our income.

Our business requires a substantial amount of capital. We have issued equity securities and have borrowed from financial institutions. A reduction in the availability of new capital could limit our ability to grow. We must distribute at least 90% of our investment company taxable income to maintain our regulated investment company status. As a result, any such cash earnings may not be available to fund investment originations. We expect to continue to borrow from financial institutions and issue additional debt and equity securities. If we fail to obtain funds from such sources or from other sources to fund our investments, it could limit our ability to grow, which may have an adverse effect on the value of our securities. In addition, as a BDC, our ability to borrow or issue additional preferred stock may be restricted if our total assets are less than 200% of our total borrowings and preferred stock.

Many of our portfolio investments are recorded at fair value as determined in good faith by or under the direction of our board of directors and, as a result, there is uncertainty as to the value of our portfolio investments.

A large percentage of our portfolio investments are not publicly traded. The fair value of these investments may not be readily determinable. We value these investments quarterly at fair value (based on ASC 820, its corresponding guidance and the principal markets in which these investments trade) as determined in good faith by or under the direction of our board of directors pursuant to a written valuation policy and a consistently applied valuation process utilizing the input of our investment adviser, independent valuation firms, third party pricing services and the audit committee. Our board of directors utilizes the services of independent valuation firms to aid it in determining the fair value of these investments. The types of factors that may be considered in fair value pricing of these investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings, the markets in which the portfolio company does business, comparison to more liquid securities, indices and other market-related inputs, discounted cash flow, our principal market and other relevant factors. For these securities for which a quote is either not readily available or deemed not to represent fair value, we utilize independent valuation firms to assist with valuation of such investments. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a readily available market for these investments existed and may differ materially from the amounts we realize on any disposition of such investments. Our net asset value could be adversely affected if our determinations regarding the fair value of these investments were materially higher than the values that we ultimately realize upon the disposal of such investments.

In addition, decreases in the market values or fair values of our investments are recorded as unrealized loss. Unprecedented declines in prices and liquidity in the corporate debt markets have resulted in significant net unrealized loss in our portfolio in the past. The effect of all of these factors on our portfolio has reduced our NAV by increasing net unrealized loss in our portfolio. Depending on market conditions, we could incur substantial realized losses and may continue to suffer additional unrealized losses in future periods, which could have a material adverse impact on our business, financial condition and results of operations.

The lack of liquidity in our investments may adversely affect our business.

We generally make investments in private companies. Substantially all of these securities are subject to legal and other restrictions on resale or are otherwise less liquid than publicly traded securities. The illiquidity of our investments may make it difficult for us to sell such investments if the need arises. In addition, if we are

 

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required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our investments. In addition, we may face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we or an affiliated manager of AGM has material non-public information regarding such portfolio company.

We may experience fluctuations in our periodic results.

We could experience fluctuations in our periodic operating results due to a number of factors, including the interest rates payable on the debt securities we acquire, the default rate on such securities, the level of our expenses (including the interest rates payable on our borrowings), the dividend rates on preferred stock we issue, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

Our ability to enter into transactions with our affiliates is restricted.

We are prohibited under the 1940 Act from knowingly participating in certain transactions with certain of our affiliates without the prior approval of our independent directors and, in some cases, of the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities will be our affiliate for purposes of the 1940 Act and we are generally prohibited from buying or selling any security (other than our securities) from or to such affiliate, absent the prior approval of our independent directors. The 1940 Act also prohibits certain “joint” transactions with certain of our affiliates, which could include investments in the same portfolio company (whether at the same or different times), without prior approval of our independent directors and, in some cases, of the SEC. We are prohibited from buying or selling any security from or to any person who owns more than 25% of our voting securities or certain of that person’s affiliates, or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC through an exemptive order (other than in certain limited situations pursuant to current regulatory guidance). The analysis of whether a particular transaction constitutes a joint transaction requires a review of the relevant facts and circumstances then existing. Similar restrictions limit our ability to transact business with our officers or directors or their affiliates.

We have applied for an exemptive order from the SEC that would permit us and certain of our affiliates, including investment funds managed by our affiliates, to co-invest. Any such order will be subject to certain terms and conditions and there can be no assurance that such order will be granted by the SEC. Accordingly, we cannot assure you that we or our affiliates, including investment funds managed by our affiliates, will be permitted to co-invest, other than in the limited circumstances currently permitted by regulatory guidance or in the absence of a joint transaction.

There are significant potential conflicts of interest which could adversely affect our investment returns.

Allocation of Personnel

Potential investment and disposition opportunities are generally approved by one or more committees composed of personnel across AGM, including Mr. Zelter and Mr. Goldthorpe, and/or Mr. Zelter or Mr. Goldthorpe depending on the underlying investment type and/or the amount of such investment. Our executive officers and directors, and the partners of our investment adviser, AIM, serve or may serve as officers, directors or principals of entities that operate in the same or a related line of business as we do or of investment funds managed by our affiliates. Accordingly, they may have obligations to investors in those entities, the fulfillment of which might not be in the best interests of us or our stockholders. Moreover, we note that, notwithstanding the difference in principal investment objectives between us and other AGM funds, such other AGM sponsored funds, including new affiliated potential pooled investment vehicles or managed accounts not yet established (whether managed or sponsored by AGM or AIM itself), have and may from time to time have overlapping investment objectives with us and, accordingly, invest in, whether principally or secondarily, asset classes similar

 

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to those targeted by us. To the extent such other investment vehicles have overlapping investment objectives, the scope of opportunities otherwise available to us may be adversely affected and/or reduced. As a result, certain partners of AIM may face conflicts in their time management and commitments as well as in the allocation of investment opportunities to other AGM funds. In addition, in the event such investment opportunities are allocated among us and other investment vehicles managed or sponsored by, or affiliated with, AIM our desired investment portfolio may be adversely affected. Although AIM endeavors to allocate investment opportunities in a fair and equitable manner, it is possible that we may not be given the opportunity to participate in certain investments made by investment funds managed by AIM or investment managers affiliated with AIM.

No Information Barriers

There are no information barriers amongst AGM and certain of its affiliates. If AIM were to receive material non-public information about a particular company, or have an interest in investing in a particular company, AGM or certain of its affiliates may be prevented from investing in such company. Conversely, if AGM or certain of its affiliates were to receive material non-public information about a particular company, or have an interest in investing in a particular company, we may be prevented from investing in such company.

This risk may affect us more than it does other investment vehicles, as AIM generally does not use information barriers that many firms implement to separate persons who make investment decisions from others who might possess material, non-public information that could influence such decisions. AIM’s decision not to implement these barriers could prevent its investment professionals from undertaking certain transactions such as advantageous investments or dispositions that would be permissible for them otherwise. In addition, AIM could in the future decide to establish information barriers, particularly as its business expands and diversifies.

Co-Investment Activity and Allocation of Investment Opportunities

AGM and its affiliated investment managers, including AIM, may determine that an investment is appropriate both for us and for one or more 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.

AGM has adopted allocation procedures that are intended to ensure that each fund or account managed by AGM or certain of its affiliates (“Apollo-advised funds”) is treated in a manner that, over time, is fair and equitable. Allocations generally are made pro rata based on order size. In certain circumstances, the allocation policy provides for the allocation of investments pursuant to a predefined arrangement that is other than pro rata. As a result, in situations where a security is appropriate for us but is limited in availability, we may receive a lower allocation than may be desired by our portfolio managers or no allocation if it is determined that the investment is more appropriate for a different Apollo-advised fund because of its investment mandate. Investment opportunities may be allocated on a basis other than pro rata to the extent it is done in good faith and does not, or is not reasonably expected to, result in an improper disadvantage or advantage to one participating Apollo-advised fund as compared to another participating Apollo-advised fund.

In the event investment opportunities are allocated among us and other Apollo-advised funds, we may not be able to structure our investment portfolio in the manner desired. Although AGM endeavors to allocate investment opportunities in a fair and equitable manner, it is possible that we may not be given the opportunity to participate in certain investments made by other Apollo-advised funds or portfolio managers affiliated with AIM. Furthermore, we and the other Apollo-advised funds may make investments in securities where the prevailing trading activity may make impossible the receipt of the same price or execution on the entire volume of securities purchased or sold by us and such other Apollo-advised funds. When this occurs, the various prices may be

 

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averaged, and we will be charged or credited with the average price. Thus, the effect of the aggregation may operate on some occasions to our disadvantage. In addition, under certain circumstances, we may not be charged the same commission or commission equivalent rates in connection with a bunched or aggregated order.

It is possible that other Apollo-advised funds may make investments in the same or similar securities at different times and on different terms than we do. From time to time, we and the other Apollo-advised funds may make investments at different levels of an issuer’s capital structure or otherwise in different classes of an issuer’s securities. Such investments may inherently give rise to conflicts of interest or perceived conflicts of interest between or among the various classes of securities that may be held by such entities. Conflicts may also arise because portfolio decisions regarding us may benefit such other Apollo-advised funds. For example, the sale of a long position or establishment of a short position by us may impair the price of the same security sold short by (and therefore benefit) one or more Apollo-advised funds, and the purchase of a security or covering of a short position in a security by us may increase the price of the same security held by (and therefore benefit) one or more Apollo-advised funds. In these circumstances AIM and its affiliates will seek to resolve each conflict in a manner that is fair to the various clients involved in light of the totality of the circumstances. In some cases the resolution may not be in our best interests.

AGM and its clients may pursue or enforce rights with respect to an issuer in which we have invested, and those activities may have an adverse effect on us. As a result, prices, availability, liquidity and terms of our investments may be negatively impacted by the activities of AGM or its clients, and transactions for us may be impaired or effected at prices or terms that may be less favorable than would otherwise have been the case.

Fees and Expenses

In the course of our investing activities, we pay management and incentive fees to AIM, and reimburse AIM for certain expenses it incurs. As a result, investors in our common stock invest on a “gross” basis and receive distributions on a “net” basis after expenses, resulting in, among other things, a lower rate of return than one might achieve through direct investments. As a result of this arrangement, there may be times when the management team of AIM has interests that differ from those of our common stockholders, giving rise to a conflict.

AIM receives a quarterly incentive fee based, in part, on our pre-incentive fee income, if any, for the immediately preceding calendar quarter. This incentive fee will not be payable to AIM unless the pre-incentive net investment income exceeds the performance threshold. To the extent we or AIM are able to exert influence over our portfolio companies, the quarterly pre-incentive fee may provide AIM with an incentive to induce our portfolio companies to prepay interest or other obligations in certain circumstances.

Allocation of Expenses

We have entered into a royalty-free license agreement with AGM, pursuant to which AGM has agreed to grant us a non-exclusive license to use the name “Apollo.” Under the license agreement, we have the right to use the “Apollo” name for so long as AIM or one of its affiliates remains our investment adviser. In addition, we rent office space from AIA, an affiliate of AIM, and pay AIA our allocable portion of overhead and other expenses incurred by AIA in performing its obligations under the administration agreement, including our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and their respective staffs, which can create conflicts of interest that our board of directors must monitor.

In the past following periods of volatility in the market price of a company’s securities, securities class action litigation has, from time to time, been brought against that company.

If our stock price fluctuates significantly, we may be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from our business.

 

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To the extent OID and PIK interest constitute a portion of our income, we will be exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash representing such income.

Our investments may include original issue discount, or OID, instruments and payment in kind, or PIK, interest arrangements, which represents contractual interest added to a loan balance and due at the end of such loan’s term. To the extent OID or PIK interest constitute a portion of our income, we are exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash, including the following:

 

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The higher interest rates of OID and PIK instruments reflect the payment deferral and increased credit risk associated with these instruments, and OID and PIK instruments generally represent a significantly higher credit risk than coupon loans.

 

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Even if the accounting conditions for income accrual are met, the borrower could still default when our actual collection is supposed to occur at the maturity of the obligation.

 

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OID and PIK instruments may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of any associated collateral. OID and PIK income may also create uncertainty about the source of our cash distributions.

 

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For accounting purposes, any cash distributions to shareholders representing OID and PIK income are not treated as coming from paid-in capital, even if the cash to pay them comes from offering proceeds. As a result, despite the fact that a distribution representing OID and PIK income could be paid out of amounts invested by our stockholders, the 1940 Act does not require that stockholders be given notice of this fact by reporting it as a return of capital.

Changes in the laws or regulations governing our business or the businesses of our portfolio companies and any failure by us or our portfolio companies to comply with these laws or regulations, could negatively affect the profitability of our operations or of our portfolio companies.

We are subject to changing rules and regulations of federal and state governments, as well as the stock exchange on which our common stock is listed. These entities, including the Public Company Accounting Oversight Board, the SEC and The NASDAQ Global Select Market, have issued a significant number of new and increasingly complex requirements and regulations over the course of the last several years and continue to develop additional regulations. In particular, changes in the laws or regulations or the interpretations of the laws and regulations that govern BDCs, RICs or non-depository commercial lenders could significantly affect our operations and our cost of doing business. We are subject to federal, state and local laws and regulations and are subject to judicial and administrative decisions that affect our operations, including our loan originations, maximum interest rates, fees and other charges, disclosures to portfolio companies, the terms of secured transactions, collection and foreclosure procedures and other trade practices. If these laws, regulations or decisions change, or if we expand our business into jurisdictions that have adopted more stringent requirements than those in which we currently conduct business, we may have to incur significant expenses in order to comply, or we might have to restrict our operations. In addition, if we do not comply with applicable laws, regulations and decisions, we may lose licenses needed for the conduct of our business and be subject to civil fines and criminal penalties, any of which could have a material adverse effect upon our business, financial condition and results of operations.

 

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Provisions of the Maryland General Corporation Law and of our charter and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock.

The Maryland General Corporation Law, our charter and our bylaws contain provisions that may discourage, delay or make more difficult a change in control of us or the removal of our directors. We are subject to the Maryland Business Combination Act, subject to any applicable requirements of the 1940 Act. Our board of directors has adopted a resolution exempting from the Business Combination Act any business combination between us and any other person, subject to prior approval of such business combination by our board of directors, including approval by a majority of our disinterested directors. If the resolution exempting business combinations is repealed or our board of directors does not approve a business combination, the Business Combination Act may discourage third parties from trying to acquire control of us and increase the difficulty of consummating such an offer. Our bylaws exempt from the Maryland Control Share Acquisition Act acquisitions of our common stock by any person. If we amend our bylaws to repeal the exemption from the Control Share Acquisition Act, the Control Share Acquisition Act also may make it more difficult for a third party to obtain control of us and increase the difficulty of consummating such an offer. We intend to give the SEC prior notice should our board of directors elect to amend our bylaws to repeal the exemption from the Control Share Acquisition Act.

We have also adopted other measures that may make it difficult for a third party to obtain control of us, including provisions of our charter classifying our board of directors in three classes serving staggered three-year terms, and provisions of our charter authorizing our board of directors to classify or reclassify shares of our stock in one or more classes or series, to cause the issuance of additional shares of our stock, and to amend our charter, without stockholder approval, to increase or decrease the number of shares of stock that we have authority to issue. These provisions, as well as other provisions of our charter and bylaws, may delay, defer or prevent a transaction or a change in control that might otherwise be in the best interests of our stockholders.

We may choose to pay dividends in our own common stock, in which case you may be required to pay federal income taxes in excess of the cash dividends you receive.

We may distribute taxable dividends that are payable in cash and shares of our common stock at the election of each stockholder. The Internal Revenue Service has issued private letter rulings on cash/stock dividends paid by RICs and real estate investment trusts where the cash component is limited to 20% of the total distribution if certain requirements are satisfied. Stockholders receiving such dividends will be required to include the full amount of the dividend (including the portion payable in stock) as ordinary income (or, in certain circumstances, long-term capital gain) to the extent of our current and accumulated earnings and profits for federal income tax purposes. As a result, stockholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. If a U.S. stockholder sells the common stock that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our common stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in common stock. In addition, if a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock. It is unclear whether and to what extent we will be able to pay taxable dividends in cash and common stock (whether pursuant to a private letter ruling or otherwise).

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure

 

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to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act, or the subsequent testing by our independent registered public accounting firm (when undertaken, as noted below), may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our consolidated financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors and lenders to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

We may experience cyber-security incidents and are subject to cyber-security risks.

Our business operations rely upon secure information technology systems for data processing, storage and reporting. Despite careful security and controls design, implementation and updating, our information technology systems could become subject to cyber-attacks. Cyberattacks include, but are not limited to, gaining unauthorized access to digital systems (e.g., through “hacking” or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. Cyberattacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of service attacks on websites (i.e., efforts to make network services unavailable to intended users). Network, system, application and data breaches could result in operational disruptions or information misappropriation, which could have a material adverse effect on our business, results of operations and financial condition.

Cyber security failures or breaches by our investment adviser and other service providers (including, but not limited to, accountants, custodians, transfer agents and administrators), and the issuers of securities in which we invest, have the ability to cause disruptions and impact business operations, potentially resulting in financial losses, interference with our ability to calculate its net asset value, impediments to trading, the inability of our stockholders to transact business, violations of applicable privacy and other laws, regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, or additional compliance costs. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. While we have established a business continuity plan in the event of, and risk management systems to prevent, such cyberattacks, there are inherent limitations in such plans and systems including the possibility that certain risks have not been identified. Furthermore, we cannot control the cyber security plans and systems put in place by our service providers and issuers in which we invest. We and our stockholders could be negatively impacted as a result.

The failure in cyber-security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning could impair our ability to conduct business effectively.

The occurrence of a disaster such as a cyber-attack, a natural catastrophe, an industrial accident, a terrorist attack or war, events unanticipated in our disaster recovery systems, or a support failure from external providers, could have an adverse effect on our ability to conduct business and on our results of operations and financial condition, particularly if those events affect our computer-based data processing, transmission, storage, and retrieval systems or destroy data. If a significant number of our managers were unavailable in the event of a disaster, our ability to effectively conduct our business could be severely compromised.

We depend heavily upon computer systems to perform necessary business functions. Despite our implementation of a variety of security measures, our computer systems could be subject to cyber-attacks and unauthorized access, such as physical and electronic break-ins or unauthorized tampering. Like other companies, we may experience threats to our data and systems, including malware and computer virus attacks, unauthorized access, system failures and disruptions. If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result in damage to our reputation, financial losses, litigation, increased costs and/or regulatory penalties.

 

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We are dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay dividends.

Our business is dependent on our and third parties’ communications and information systems. Any failure or interruption of those systems, including as a result of the termination of an agreement with any third-party service providers, could cause delays or other problems in our activities. Our financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control and adversely affect our business. There could be:

 

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sudden electrical or telecommunications outages;

 

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natural disasters such as earthquakes, tornadoes and hurricanes;

 

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disease pandemics;

 

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events arising from local or larger scale political or social matters, including terrorist acts; and

 

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cyber-attacks.

These events, in turn, could have a material adverse effect on our operating results and negatively affect the market price of our common stock and our ability to pay dividends to our stockholders.

The effect of global climate change may impact the operations of our portfolio companies.

There is evidence of global climate change. Climate change creates physical and financial risk and some of our portfolio companies may be adversely affected by climate change. For example, the needs of customers of energy companies vary with weather conditions, primarily temperature and humidity. To the extent weather conditions are affected by climate change, energy use could increase or decrease depending on the duration and magnitude of any changes. Increased energy use due to weather changes may require additional investments by our portfolio companies engaged in the energy business in more pipelines and other infrastructure to serve increased demand. Increases in the cost of energy also could adversely affect the cost of operations of our portfolio companies if the use of energy products or services is material to their business. A decrease in energy use due to weather changes may affect some of our portfolio companies’ financial condition, through decreased revenues. Extreme weather conditions in general require more system backup, adding to costs, and can contribute to increased system stresses, including service interruptions. Energy companies could also be affected by the potential for lawsuits against or taxes or other regulatory costs imposed on greenhouse gas emitters, based on links drawn between greenhouse gas emissions and climate change.

Our investment adviser and administrator have the right to resign on 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our business, financial condition and results of operations.

Our investment adviser and administrator have the right, under our investment management agreement and administration agreement, respectively, to resign at any time upon not less than 60 days’ written notice, whether we have found a replacement or not. If our investment adviser or our administrator resigns, we may not be able to find a replacement or hire internal management or administration with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our business, financial condition and results of operations as well as our ability to pay distributions are likely to be adversely affected and the market price of our shares may decline. In addition, the coordination of our internal management and investment activities or our internal administration activities, as applicable, is likely to suffer if we are unable to identify and reach an

 

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agreement with a single institution or group of executives having the expertise possessed by our investment adviser and its affiliates or our administrator and its affiliates. Even if we are able to retain comparable management or administration, whether internal or external, the integration of such management or administration and their lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect our business, financial condition and results of operations.

RISKS RELATED TO OUR INVESTMENTS

Our investments in prospective portfolio companies are risky, and you could lose all or part of your investment.

Investment in middle-market companies is speculative and involves a number of significant risks including a high degree of risk of credit loss. Middle-market companies may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees we may have obtained in connection with our investment. In addition, they typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns. Middle-market companies are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us. Middle-market companies also generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. In addition, our executive officers, directors and our investment adviser may, in the ordinary course of business, be named as defendants in litigation arising from our investments in the portfolio companies.

We invest primarily in secured and unsecured debt of private middle-market companies. We also may invest in equity and structured products, such as CLOs and CLNs. We may not realize gains from our equity investments.

Secured loans, which we define to include first lien and second lien debt, are the most senior form of indebtedness of an issuer and, due to the ability of the lender to sell the collateral to repay its loan in the event of default, the lender will likely experience more favorable recovery than more junior creditors in the event of the issuer defaults on its indebtedness.

Unsecured debt or loans, also referred to as mezzanine loans or subordinated debt are generally unsecured and junior to other indebtedness of the issuer. As a consequence, the holder of a mezzanine loan may lack adequate protection in the event the issuer becomes distressed or insolvent and will likely experience a lower recovery than more senior debtholders in the event the issuer defaults on its indebtedness. In addition, mezzanine loans of middle-market companies are often highly illiquid and in adverse market conditions may experience steep declines in valuation even if they are fully performing.

We may invest in debt and equity positions of structured products, such as CLOs and CLNs. A CLO is a form of securitization in which the cash flows of a portfolio of loans are pooled and passed on to different classes of owners in various tranches. A CLN is a synthetic obligation between two or more parties where the payment of principal and/or interest is based on the performance of some reference obligation. Credit-linked notes are created by embedding a credit default swap in a funded asset to form an investment whose credit risk and cash flow characteristics resemble those of a bond or loan. These credit-linked notes pay an enhanced coupon to the investor for taking on the added credit risk of the reference issuer. In addition to the credit risk of the reference entity and interest rate risk, the buyer/seller of credit-linked notes is subject to counterparty risk.

 

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When we invest in unsecured and secured loans, we have acquired and may continue to acquire warrants or other equity securities as well. In addition, we may invest directly in the equity securities of portfolio companies. Our goal is ultimately to dispose of such equity interests and realize gains upon our disposition of such interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.

Our investments in structured products may be riskier and less transparent to us and our stockholders than direct investments in the underlying companies.

We invest in structured products. Generally, there may be less information available to us regarding the underlying debt investments held by structured products than if we had invested directly in the debt of the underlying companies. As a result, our stockholders will not know the details of the underlying securities of the structured products in which we will invest. Our structured product investments will also be subject to the risk of leverage associated with the debt issued by such structured products and the repayment priority of senior debt holders in such structured products. Our investments in prospective portfolio companies may be risky, and we could lose all or part of our investment.

Structured products typically will have no significant assets other than their underlying loans; payments on structured product investments are and will be payable solely from the cashflows from such loans.

Structured products typically will have no significant assets other than their underlying loans. Accordingly, payments on structured product investments are and will be payable solely from the cashflows from such loans, net of all management fees and other expenses. Payments to us as a holder of structured product investments are and will be met only after payments due on the senior notes (and, where appropriate, the junior secured notes) from time to time have been made in full. This means that relatively small numbers of defaults of loans may adversely impact our returns.

Our structured product investments are exposed to leveraged credit risk.

We may be in a subordinated position with respect to realized losses on loans underlying our investments in structured products. The leveraged nature of structured products, in particular, magnifies the adverse impact of loan defaults. Structured product investments represent a leveraged investment with respect to the underlying loans. Therefore, changes in the market value of the structured product investments could be greater than the change in the market value of the underlying loans, which are subject to credit, liquidity and interest rate risk.

There is the potential for interruption and deferral of cashflow from CLO investments.

If certain minimum collateral value ratios and/or interest coverage ratios are not met by a CLO, primarily due to loan defaults, then cashflow that otherwise would have been available to pay distributions to us on our CLO investments may instead be used to redeem any senior notes or to purchase additional loans, until the ratios again exceed the minimum required levels or any senior notes are repaid in full. This could result in an elimination, reduction or deferral in the distribution and/or principal paid to the holders of the CLO investments, which would adversely impact our returns.

Investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.

Our CLO investment strategy involves investments in foreign CLOs. Investing in foreign entities may expose us to additional risks not typically associated with investing in U.S. issuers. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the United States, higher transaction

 

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costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility. Further, we, and the CLOs in which we invest, may have difficulty enforcing creditor’s rights in foreign jurisdictions. In addition, the underlying companies of the CLOs in which we invest may be foreign, which may create greater exposure for us to foreign economic developments.

The payment of underlying portfolio manager fees and other charges on CLO investments could adversely impact our returns.

We may invest in CLO investments where the underlying portfolio securities may be subject to management, administration and incentive or performance fees, in addition to those payable by us. Payment of such additional fees could adversely impact the returns we achieve.

The inability of a CLO collateral manager to reinvest the proceeds of the prepayment of loans may adversely affect us.

There can be no assurance that for any CLO investment, in the event that any of the loans of a CLO underlying such investment are prepaid, the CLO collateral manager will be able to reinvest such proceeds in new loans with equivalent investment returns. If the CLO collateral manager cannot reinvest in new loans with equivalent investment returns, the interest proceeds available to pay interest on the rated liabilities and investments may be adversely affected.

Our CLO investments are subject to prepayments and calls, increasing re-investment risk.

Our CLO investments and/or the underlying senior secured loans may be prepaid more quickly than expected, which could have an adverse impact on our value. Prepayment rates are influenced by changes in interest rates and a variety of economic, geographic and other factors beyond our control, and consequently cannot be predicted with certainty. In addition, for a CLO collateral manager there is often a strong incentive to refinance well performing portfolios once the senior tranches amortize. The yield to maturity of the investments will depend on the amount and timing of payments of principal on the loans and the price paid for the investments. Such yield may be adversely affected by a higher or lower than anticipated rate of prepayments of the debt.

Furthermore, our CLO investments generally do not contain optional call provisions, other than a call at the option of the holders of the equity tranches for the senior notes and the junior secured notes to be paid in full after the expiration of an initial period in the deal (referred to as the “non-call period”).

The exercise of the call option is by the relevant percentage (usually a majority) of the holders of the equity tranches and, therefore, where we do not hold the relevant percentage we will not be able to control the timing of the exercise of the call option. The equity tranches also generally have a call at any time based on certain tax event triggers. In any event, the call can only be exercised by the holders of equity tranches if they can demonstrate (in accordance with the detailed provisions in the transaction) that the senior notes and junior secured notes will be paid in full if the call is exercised.

Early prepayments and/or the exercise of a call option other than at our request may also give rise to increased re-investment risk with respect to certain investments, as we may realize excess cash earlier than expected. If we are unable to reinvest such cash in a new investment with an expected rate of return at least equal to that of the investment repaid, this may reduce our net income and, consequently, could have an adverse impact on our ability to pay dividends.

We have limited control of the administration and amendment of loans owned by the CLOs in which we invest.

We may not be able to directly enforce any rights and remedies in the event of a default of a loan held by a CLO vehicle. In addition, the terms and conditions of the Senior Secured Loans underlying our CLO investments may be amended, modified or waived only by the agreement of the underlying lenders. Generally,

 

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any such agreement must include a majority or a super majority (measured by outstanding loans or commitments) or, in certain circumstances, a unanimous vote of the lenders. Consequently, the terms and conditions of the payment obligations arising from loans could be modified, amended or waived in a manner contrary to our preferences.

We have limited control of the administration and amendment of any CLO in which we invest.

The terms and conditions of target securities may be amended, modified or waived only by the agreement of the underlying security holders. Generally, any such agreement must include a majority or a super majority (measured by outstanding amounts) or, in certain circumstances, a unanimous vote of the security holders. Consequently, the terms and conditions of the payment obligation arising from the CLOs in which we invest be modified, amended or waived in a manner contrary to our preferences.

Loans of CLOs may be sold and replaced resulting in a loss to us.

The loans underlying our CLO investments may be sold and replacement collateral purchased within the parameters set out in the relevant CLO indenture between the CLO and the CLO trustee and those parameters may typically only be amended, modified or waived by the agreement of a majority of the holders of the senior notes and/or the junior secured notes and/or the equity tranche once the CLO has been established. If these transactions result in a net loss, the magnitude of the loss from the perspective of the equity tranche would be increased by the leveraged nature of the investment.

Our financial results may be affected adversely if one or more of our significant equity or junior debt investments in a CLO vehicle defaults on its payment obligations or fails to perform as we expect.

We expect that a majority of our portfolio of CLO investments will consist of equity and junior debt investments in CLOs, which involve a number of significant risks. CLOs are typically highly levered up to approximately 10 times, and therefore the junior debt and equity tranches that we will invest in are subject to a higher risk of total loss than the senior debt portion. In particular, investors in CLOs indirectly bear risks of the underlying debt investments held by such CLOs. We will generally have the right to receive payments only from the CLOs, and will generally not have direct rights against the underlying borrowers or the entities that sponsored the CLOs. Although it is difficult to predict whether the prices of indices and securities underlying CLOs will rise or fall, these prices, and therefore, the prices of the CLOs, will be influenced by the same types of political and economic events that affect issuers of securities and capital markets generally.

The investments we make in CLOs are thinly traded or have only a limited trading market. CLO investments are typically privately offered and sold, in the primary and secondary markets. As a result, investments in CLOs may be characterized as illiquid securities. In addition to the general risks associated with investing in debt securities, CLOs carry additional risks, including, but not limited to: (i) the possibility that distributions from the underlying loans will not be adequate to make interest or other payments; (ii) the quality of the underlying loans may decline in value or default; and (iii) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the CLO or unexpected investment results. Further, our investments in equity and junior debt tranches of CLOs are subordinate to the senior debt tranches thereof.

Investments in structured vehicles, including equity and junior debt instruments issued by CLOs, involve risks, including credit risk and market risk. Changes in interest rates and credit quality may cause significant price fluctuations. Additionally, changes in the underlying Senior Secured Loans held by a CLO may cause payments on the instruments we hold to be reduced, either temporarily or permanently. Structured investments, particularly the subordinated interests in which we invest, are less liquid than many other types of securities and may be more volatile than the Senior Secured Loans underlying the CLOs in which we invest.

 

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Non-investment grade debt involves a greater risk of default and higher price volatility than investment grade debt.

The loans underlying our CLO investments typically are rated non-investment grade and, in limited circumstances, are unrated. Non-investment grade securities are predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal when due and therefore involve a greater risk of default and higher price volatility than investment grade debt.

We will have no influence on management of underlying investments managed by non-affiliated third party CLO collateral managers.

We are not responsible for and have no influence over the asset management of the portfolios underlying the CLO investments we hold as those portfolios are managed by non-affiliated third party CLO collateral managers. Similarly, we are not responsible for and have no influence over the day-to-day management, administration or any other aspect of the issuers of the individual securities.

As a result, the values of the portfolios underlying our CLO investments could decrease as a result of decisions made by third party CLO collateral managers.

Our CLN investments are subject to counterparty risk, interest rate risk and credit risk.

Certain credit-linked notes also may be thinly traded or have a limited trading market. Credit-linked notes are typically privately offered and sold. Holders of credit-linked notes bear risks of the underlying investments, index or reference obligation and are subject to counterparty risk. Credit-linked notes are used to transfer credit risk. The performance of the notes is linked to the performance of some underlying reference obligation. The notes are usually issued by a special purpose vehicle (“SPV”) that sells credit protection through a credit default swap transaction in return for a premium and an obligation to pay the transaction sponsor should a reference entity experience a certain credit event or events, such as bankruptcy. The SPV invests the proceeds from the notes to cover its contingent payment obligation. Revenue from the investments and the money received as premium are used to pay interest to note holders. The main risk of credit-linked notes is the risk of the reference entity experiencing a credit event that triggers the contingent payment obligation. Should such an event occur, the SPV would have to pay the transaction sponsor and payments to the note holders would be subordinated.

Economic recessions or downturns could impair our portfolio companies and harm our operating results.

Many of our portfolio companies may be susceptible to economic slowdowns or recessions and may be unable to repay our loans during these periods. Therefore, our non-performing assets may increase and the value of our portfolio may decrease during these periods if we are required to write down the values of our investments. Adverse economic conditions also may decrease the value of collateral securing some of our loans and the value of our equity investments. Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could prevent us from increasing investments and harm our operating results.

A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, acceleration of the time when the loans are due and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize the portfolio company’s ability to meet its obligations under the debt that we hold. We may incur additional expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company.

 

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There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to, among other things, lender liability or fraudulent conveyance claims.

We could, in certain circumstances, become subject to potential liabilities that may exceed the value of our original investment in a portfolio company that experiences severe financial difficulties. For example, we may be adversely affected by laws related to, among other things, fraudulent conveyances, voidable preferences, lender liability, and the bankruptcy court’s discretionary power to disallow, subordinate or disenfranchise particular claims or re-characterize investments made in the form of debt as equity contributions.

If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC or be precluded from investing according to our current business strategy.

As a BDC, we may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. We believe that most of the investments that we may acquire in the future will constitute qualifying assets. However, we may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets for purposes of the 1940 Act. If we do not invest a sufficient portion of our assets in qualifying assets, we could be found to be in violation of the 1940 Act provisions applicable to BDCs, which would have a material adverse effect on our business, financial condition and results of operations. Similarly, these rules could prevent us from making follow-on investments in existing portfolio companies (which could result in the dilution of our position) or could require us to dispose of investments at inappropriate times in order to come into compliance with the 1940 Act. Because most of our investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.

Our portfolio contains a limited number of portfolio companies, which subjects us to a greater risk of significant loss if any of these companies defaults on its obligations under any of its debt securities.

A consequence of the limited number of investments in our portfolio is that the aggregate returns we realize may be significantly adversely affected if one or more of our significant portfolio company investments perform poorly or if we need to write down the value of any one significant investment. Beyond our income tax diversification requirements, we do not have fixed guidelines for diversification, and our portfolio could contain relatively few portfolio companies.

Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.

Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as “follow-on” investments, in order to: (1) increase or maintain in whole or in part our equity ownership percentage; (2) exercise warrants, options or convertible securities that were acquired in the original or subsequent financing or (3) attempt to preserve or enhance the value of our investment.

We may elect not to make follow-on investments, may be constrained in our ability to employ available funds, or otherwise may lack sufficient funds to make those investments. We have the discretion to make any follow-on investments, subject to the availability of capital resources. The failure to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result in a missed opportunity for us to increase our participation in a successful operation. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to increase our concentration of risk, because we prefer other opportunities, or because we are inhibited by compliance with BDC requirements or the desire to maintain our tax status.

 

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When we do not hold controlling equity interests in our portfolio companies, we may not be in a position to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments.

We do not generally take controlling equity positions in our portfolio companies. To the extent that we do not hold a controlling equity interest in a portfolio company, we are subject to the risk that a portfolio company may make business decisions with which we disagree, and the stockholders and management of a portfolio company may take risks or otherwise act in ways that are adverse to our interests. Due to the lack of liquidity for the debt and equity investments that we typically hold in our portfolio companies, we may not be able to dispose of our investments in the event we disagree with the actions of a portfolio company, and may therefore suffer a decrease in the value of our investments.

An investment strategy focused primarily on privately-held companies presents certain challenges, including the lack of available information about these companies, a dependence on the talents and efforts of only a few key portfolio company personnel and a greater vulnerability to economic downturns.

We have invested and will continue to invest primarily in privately-held companies. Generally, little public information exists about these companies, and we are required to rely on the ability of AIM’s investment professionals to obtain adequate information to evaluate the potential returns from investing in these companies.

If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our investments. Also, privately-held companies frequently have less diverse product lines and smaller market presence than public company competitors, which often are larger. These factors could affect our investment returns.

Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.

We have invested and intend to invest primarily in mezzanine and senior debt securities issued by our portfolio companies. The portfolio companies usually have, or may be permitted to incur, other debt that ranks equally with, or senior to, the debt securities in which we invest. By their terms, such debt instruments may provide that the holders are entitled to receive payment of interest or principal on or before the dates on which we are entitled to receive payments in respect of the debt securities in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution in respect of our investment. After repaying such senior creditors, such portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt securities in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company. In addition, we may not be in a position to control any portfolio company by investing in its debt securities. As a result, we are subject to the risk that a portfolio company in which we invest may make business decisions with which we disagree and the management of such company, as representatives of the holders of their common equity, may take risks or otherwise act in ways that do not serve our interests as debt investors.

Our incentive fee may induce AIM to make certain investments, including speculative investments.

The incentive fee payable by us to AIM may create an incentive for AIM to make investments on our behalf that are risky or more speculative than would be the case in the absence of such compensation arrangement. The way in which the incentive fee payable to AIM is determined, which is calculated separately in two components as a percentage of the net investment income (subject to a performance threshold) and as a percentage of the realized gain on invested capital, may encourage our investment adviser to use leverage to increase the return on our investments. Under certain circumstances, the use of leverage may increase the

 

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likelihood of default, which would disfavor the holders of our common stock, including investors in offerings of common stock, securities convertible into our common stock or warrants representing rights to purchase our common stock or securities convertible into our common stock. In addition, AIM receives the incentive fee based, in part, upon net capital gains realized on our investments. Unlike the portion of the incentive fee based on net investment income, there is no performance threshold applicable to the portion of the incentive fee based on net capital gains. As a result, AIM may have a tendency to invest more in investments that are likely to result in capital gains as compared to income producing securities. Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns.

The incentive fee payable by us to AIM also may create an incentive for AIM to invest on our behalf in instruments that have a deferred interest feature such as investments with PIK provisions. Under these investments, we would accrue the interest over the life of the investment but would typically not receive the cash income from the investment until the end of the term or upon the investment being called by the issuer. Our net investment income used to calculate the income portion of our incentive fee, however, includes accrued interest. For the time period between April 1, 2012 and March 31, 2015, the portion of the incentive fee that is attributable to deferred interest, such as PIK, will not be paid to AIM until Apollo Investment receives such interest in cash. Even though such portion of the incentive fee will be paid only when the accrued income is collected, the accrued income is capitalized and included in the calculation of the base management fee. The accrual of incentive fees shall be reversed if such interest is reversed in connection with any write-off or similar treatment of the investment. The payment of incentive fees to AIM is made on accruals of expected cash interest. If a portfolio company defaults on a loan, it is possible that accrued interest previously used in the calculation of the incentive fee will become uncollectible. Thus, while a portion of this incentive fee would be based on income that we have not yet received in cash and with respect to which we do not have a formal claw-back right against our investment adviser per se, the amount of accrued income to the extent written off in any period will reduce the income in the period in which such write-off was taken and thereby reduce such period’s incentive fee payment. However, even if a loan is put on non-accrual status, its capitalized interest will not be reversed and may continue to be included in the calculation of the base management fee based on an estimation of the loan’s fair value.

We may invest, to the extent permitted by law, in the securities and instruments of other investment companies, including private funds, and, to the extent we so invest, will bear our ratable share of any such investment company’s expenses, including management and performance fees. We will also remain obligated to pay management and incentive fees to AIM with respect to the assets invested in the securities and instruments of other investment companies. With respect to each of these investments, each of our common stockholders will bear his or her share of the management and incentive fee of AIM as well as indirectly bearing the management and performance fees and other expenses of any investment companies in which we invest.

We may be obligated to pay our investment adviser incentive compensation even if we incur a loss.

Our investment adviser is entitled to incentive compensation for each fiscal quarter in an amount equal to a percentage of the excess of our pre-incentive fee net investment income for that quarter (before deducting incentive compensation) above a performance threshold for that quarter. Accordingly, since the performance threshold is based on a percentage of our net asset value, decreases in our net asset value make it easier to achieve the performance threshold. Our pre-incentive fee net investment income for incentive compensation purposes excludes realized and unrealized capital losses or depreciation that we may incur in the fiscal quarter, even if such capital losses or depreciation result in a net loss on our statement of operations for that quarter. Thus, we may be required to pay AIM incentive compensation for a fiscal quarter even if there is a decline in the value of our portfolio or we incur a net loss for that quarter. In addition, increases in interest rates may increase the amount of incentive fees we pay to our investment adviser even though our performance relative the market has not increased.

Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.

Our investment strategy contemplates that a portion of our investments may be in securities of foreign companies. Investing in foreign companies may expose us to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social

 

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instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility. These risks are likely to be more pronounced for investments in companies located in emerging markets and particularly for middle-market companies in these economies.

Although most of our investments are denominated in U.S. dollars, our investments that are denominated in a foreign currency are subject to the risk that the value of a particular currency may change in relation to one or more other currencies. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation, and political developments. We may employ hedging techniques to minimize these risks, but we can offer no assurance that we will, in fact, hedge currency risk or, that if we do, such strategies will be effective.

Hedging transactions may expose us to additional risks.

If we engage in hedging transactions, we may expose ourselves to risks associated with such transactions. We may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates. Hedging against a decline in the values of our portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions may also limit the opportunity for gain if the values of the underlying portfolio positions should increase. Moreover, it may not be possible to hedge against an exchange rate or interest rate fluctuation that is so generally anticipated that we are not able to enter into a hedging transaction at an acceptable price. Our ability to engage in hedging transactions may also be adversely affected by recent rules adopted by the CFTC.

While we may enter into transactions to seek to reduce currency exchange rate and interest rate risks, unanticipated changes in currency exchange rates or interest rates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged may vary. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss. In addition, it may not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities is likely to fluctuate as a result of factors not related to currency fluctuations. Our ability to engage in hedging transactions may also be adversely affected by recent rules adopted by the CFTC.

The effects of various environmental regulations may negatively affect the aviation industry and some of our portfolio companies.

The effects of various environmental regulations may negatively affect the airline industry. This may adversely affect some of our portfolio companies.

Governmental regulations regarding aircraft and engine noise and emissions levels apply based on where the relevant aircraft is registered and operated. For example, jurisdictions throughout the world have adopted noise regulations which require all aircraft to comply with noise level standards. In addition to the current requirements, the United States and the International Civil Aviation Organization (“ICAO”) have adopted a new, more stringent set of standards for noise levels which applies to engines manufactured or certified on or after January 1, 2006. Currently, U.S. regulations would not require any phase-out of aircraft that qualify with the

 

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older standards applicable to engines manufactured or certified prior to January 1, 2006, but the European Union has established a framework for the imposition of operating limitations on aircraft that do not comply with the new standards and incorporated aviation-related emissions into the European Union’s Emissions Trading Scheme (“ETS”) beginning in 2012.

In addition to more stringent noise restrictions, the United States and other jurisdictions are beginning to impose more stringent limits on nitrogen oxide, carbon monoxide and carbon dioxide emissions from engines, consistent with current ICAO standards. Concerns over global warming also could result in more stringent limitations on the operation of aircraft.

European countries generally have relatively strict environmental regulations that can restrict operational flexibility and decrease aircraft productivity. The European Parliament has confirmed that all emissions from flights within the European Union are subject to the ETS requirement, even those emissions that are emitted outside of the European Union. The European Union suspended the enforcement of the ETS requirements for international flights outside of the European Union due to a proposal issued by the ICAO in October 2013 to develop a global program to reduce international aviation emissions, which would be enforced by 2020. In response to this, the European Commission has proposed to amend the ETS so that only flights or portions thereof that take place in European regional airspace are subject to the ETS requirements. The potential impact of ETS and the forthcoming ICAO requirements on costs have not been completely identified. Any of these regulations could limit the economic life of the aircraft and engines, reduce their value, limit our portfolio companies’ ability to lease or sell the non-compliant aircraft and engines or, if engine modifications are permitted, require our portfolio companies to make significant additional investments in the aircraft and engines to make them compliant.

In addition, compliance with current or future regulations, taxes or duties imposed to deal with environmental concerns could cause our portfolio companies to incur higher costs, thereby generating lower net revenues and resulting in an adverse impact on the financial condition of such portfolio companies.

Investments in the energy sector are subject to many risks.

We have made certain investments in and relating to the energy sector. The operations of energy companies are subject to many risks inherent in the transporting, processing, storing, distributing, mining or marketing of natural gas, natural gas liquids, crude oil, coal, refined petroleum products or other hydrocarbons, or in the exploring, managing or producing of such commodities, including, without limitation: damage to pipelines, storage tanks or related equipment and surrounding properties caused by hurricanes, tornadoes, floods, fires and other natural disasters or by acts of terrorism, inadvertent damage from construction and farm equipment, leaks of natural gas, natural gas liquids, crude oil, refined petroleum products or other hydrocarbons, and fires and explosions. These risks could result in substantial losses due to personal injury or loss of life, severe damage to and destruction of property and equipment and pollution or other environmental damage, and may result in the curtailment or suspension of their related operations, any and all of which could adversely affect our portfolio companies in the energy sector. In addition, the energy sector has experienced significant volatility at times, which may occur in the future, and which could negatively affect the returns on any investment made by the Company in this sector.

Crude oil and natural gas prices are volatile. A substantial and/or extended decline in crude oil and natural gas prices could have a material adverse effect on some of our portfolio companies in the energy sector.

Crude oil and natural gas prices historically have been volatile and likely will continue to be volatile given current geopolitical conditions. The prices for crude oil and natural gas are subject to a variety of factors beyond our control, such as the domestic and foreign supply of crude oil and natural gas; consumer demand for crude oil and natural gas, and market expectations regarding supply and demand. These factors and the volatility of the energy markets make it extremely difficult to predict price movements. Accordingly, our portfolio companies in the energy sector is at risk for the volatility in crude oil and natural gas prices. A prolonged decline in crude oil and/or natural gas prices may have an adverse effect on our business, financial condition and/or operating results.

 

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RISKS RELATED TO MATURITY OF OUR DEBT INSTRUMENTS

Our senior secured credit facility begins amortizing in April 2019 and any inability to renew, extend or replace the facility could adversely impact our liquidity and ability to find new investments or maintain distributions to our stockholders.

We maintain a senior secured multi-currency revolving credit facility (the “Senior Secured Facility”) with a group of lenders, under which we had approximately $385 million of indebtedness outstanding at March 31, 2015. On April 24, 2015, the Company amended and restated the Senior Secured Facility. The amendment increased the lenders’ commitments to $1.31 billion. Our lenders’ obligation to make new loans or other extensions of credit under the Senior Secured Facility ceases on April 24, 2019, and the facility has a final stated maturity date of April 24, 2020. In addition, commencing on May 31, 2019, Apollo Investment is required to repay, in twelve consecutive monthly installments of equal size, the outstanding amount under the Senior Secured Facility as of April 24, 2019. There can be no assurance that we will be able to renew, extend or replace the Senior Secured Facility upon the termination of the lenders’ obligations to make new loans or the Senior Secured Facility’s final maturity on terms that are favorable to us, if at all. Our ability to renew, extend or replace the Senior Secured Facility will be constrained by then-current economic conditions affecting the credit markets. In the event that we are not able to renew, extend or replace the Senior Secured Facility at the time of the termination of the lenders’ obligations to make new loans or the Senior Secured Facility’s final maturity, this could have a material adverse effect on our liquidity and ability to fund new investments, our ability to make distributions to our stockholders and our ability to qualify as a RIC.

Our senior secured notes, unsecured notes and senior unsecured convertible notes have maturity dates over the course of the next several years, and any inability to replace or repay our senior secured notes, unsecured notes or senior unsecured convertible notes could adversely impact our liquidity and ability to fund new investments or maintain distributions to our stockholders.

On September 30, 2010, we 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 (the “Senior Secured Notes”). On January 25, 2011, we closed a private offering of $200 million aggregate principal amount of senior unsecured convertible notes (the “Convertible Notes”). The Convertible Notes bear interest at an annual rate of 5.75% and will mature on January 15, 2016 unless earlier converted or repurchased at the holder’s option. On September 29, 2011, we 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 Apollo Investment due September 29, 2016 in the aggregate principal amount of $29 million (the “Series A Notes”); and (2) 6.250% Senior Secured Notes, Series B, of Apollo Investment due September 29, 2018, in the aggregate principal amount of $16 million (the “Series B Notes”).

On October 9, 2012, Apollo Investment issued $150 million in aggregate principal amount of 6.625% senior unsecured notes due October 15, 2042 (the “2042 Notes”). On June 17, 2013 Apollo Investment issued $135 million in aggregate principal amount of 6.875% senior unsecured notes due July 15, 2043 (the “2043 Notes”). An additional $15 million in aggregate principal amount of the 2043 Notes was issued on June 24, 2013 pursuant to the underwriters’ exercise of their option to purchase additional notes. On March 3, 2015, Apollo Investment issued $350 million in aggregate principal amount of 5.250% unsecured notes due 2025 (the “2025 Notes”).

There can be no assurance that we will be able to replace the Senior Secured Notes, the Convertible Notes, the Series A Notes, the Series B Notes, the 2025 Notes, the 2042 Notes or the 2043 Notes upon their maturity on terms that are favorable to us, if at all. Our ability to replace the Senior Secured Notes, the Convertible Notes, the Series A Notes, the Series B Notes, the 2025 Notes, the 2042 Notes or the 2043 Notes will be constrained by then-current economic conditions affecting the credit markets. In the event that we are not able to replace or repay the Senior Secured Notes, the Convertible Notes, the Series A Notes, the Series B Notes, the 2025 Notes, the 2042 Notes or the 2043 Notes at the time of their maturity, this could have a material adverse

 

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effect on our liquidity and ability to fund new investments, our ability to make distributions to our stockholders and our ability to qualify as a RIC.

The trading market or market value of our debt securities may fluctuate.

Our publicly issued debt securities may or may not have an established trading market. We cannot assure you that a trading market for debt securities will ever develop or be maintained if developed. In addition to our creditworthiness, many factors may materially adversely affect the trading market for, and market value of, debt securities we may issue. These factors include, but are not limited to, the following:

 

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the time remaining to the maturity of these debt securities;

 

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the outstanding principal amount of debt securities with terms identical to these debt securities;

 

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the ratings assigned by national statistical ratings agencies;

 

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the general economic environment;

 

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the supply of debt securities trading in the secondary market, if any;

 

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the redemption or repayment features, if any, of these debt securities;

 

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the level, direction and volatility of market interest rates generally; and

 

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market rates of interest higher or lower than rates borne by the debt securities.

You should also be aware that there may be a limited number of buyers if and when you decide to sell your debt securities. This too may materially adversely affect the market value of the debt securities or the trading market for the debt securities.

Terms relating to redemption may materially adversely affect your return on any debt securities that we may issue.

If our noteholders’ debt securities are redeemable at our option, we may choose to redeem your debt securities at times when prevailing interest rates are lower than the interest rate paid on your debt securities. In addition, if our noteholders’ debt securities are subject to mandatory redemption, we may be required to redeem such debt securities also at times when prevailing interest rates are lower than the interest rate paid on such debt securities. In this circumstance, a noteholder may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the debt securities being redeemed.

Our credit ratings may not reflect all risks of an investment in our debt securities.

Our credit ratings are an assessment by third parties of our ability to pay our obligations. Consequently, real or anticipated changes in our credit ratings will generally affect the market value of our debt securities. Our credit ratings, however, may not reflect the potential impact of risks related to market conditions generally or other factors discussed above on the market value of or trading market for the publicly issued debt securities.

RISKS RELATED TO ISSUANCE OF OUR PREFERRED STOCK

An investment in our preferred stock should not constitute a complete investment program.

If we issue preferred stock, the net asset value and market value of our common stock may become more volatile.

We cannot assure you that the issuance of preferred stock would result in a higher yield or return to the holders of the common stock. The issuance of preferred stock would likely cause the net asset value and market

 

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value of the common stock to become more volatile. If the dividend rate on the preferred stock were to approach the net rate of return on our investment portfolio, the benefit of leverage to the holders of the common stock would be reduced. If the dividend rate on the preferred stock were to exceed the net rate of return on our portfolio, the leverage would result in a lower rate of return to the holders of common stock than if we had not issued preferred stock. Any decline in the net asset value of our investments would be borne entirely by the holders of common stock. Therefore, if the market value of our portfolio were to decline, the leverage would result in a greater decrease in net asset value to the holders of common stock than if we were not leveraged through the issuance of preferred stock. This greater net asset value decrease would also tend to cause a greater decline in the market price for the common stock. We might be in danger of failing to maintain the required asset coverage of the preferred stock or of losing our ratings on the preferred stock or, in an extreme case, our current investment income might not be sufficient to meet the dividend requirements on the preferred stock. In order to counteract such an event, we might need to liquidate investments in order to fund a redemption of some or all of the preferred stock. In addition, we would pay (and the holders of common stock would bear) all costs and expenses relating to the issuance and ongoing maintenance of the preferred stock, including higher advisory fees if our total return exceeds the dividend rate on the preferred stock. Holders of preferred stock may have different interests than holders of common stock and may at times have disproportionate influence over our affairs.

The issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could adversely affect the market price for our common stock by making an investment in the common stock less attractive. In addition, the dividends on any preferred stock we issue must be cumulative. Payment of dividends and repayment of the liquidation preference of preferred stock must take preference over any dividends or other payments to our common stockholders, and holders of preferred stock are not subject to any of our expenses or losses and are not entitled to participate in any income or appreciation in excess of their stated preference (other than convertible preferred stock that converts into common stock). In addition, under the 1940 Act, preferred stock constitutes a “senior security” for purposes of the 200% asset coverage test.

Holders of any preferred stock we might issue would have the right to elect members of the board of directors and class voting rights on certain matters.

Holders of any preferred stock we might issue, voting separately as a single class, would have the right to elect two members of the board of directors at all times and in the event dividends become two full years in arrears would have the right to elect a majority of the directors until such arrearage is completely eliminated. In addition, preferred stockholders have class voting rights on certain matters, including changes in fundamental investment restrictions and conversion to open-end status, and accordingly can veto any such changes. Restrictions imposed on the declarations and payment of dividends or other distributions to the holders of our common stock and preferred stock, both by the 1940 Act and by requirements imposed by rating agencies or the terms of our credit facilities, might impair our ability to maintain our qualification as a RIC for federal income tax purposes. While we would intend to redeem our preferred stock to the extent necessary to enable us to distribute our income as required to maintain our qualification as a RIC, there can be no assurance that such actions could be effected in time to meet the tax requirements.

RISKS RELATING TO AN INVESTMENT IN OUR COMMON STOCK

Investing in our securities involves a high degree of risk and is highly speculative.

The investments we make in accordance with our investment objective may result in a higher amount of risk than alternative investment options and volatility or loss of principal. Our investments in portfolio companies may be highly speculative and aggressive, therefore, an investment in our securities may not be suitable for someone with a low risk tolerance.

 

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There is a risk that investors in our equity securities may not receive distributions or that our distributions may not grow over time and that investors in our debt securities may not receive all of the interest income to which they are entitled.

We intend to make distributions on a quarterly basis to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. In addition, due to the asset coverage test applicable to us as a business development company, we may in the future be limited in our ability to make distributions. Also, our revolving credit facility may limit our ability to declare dividends if we default under certain provisions or fail to satisfy certain other conditions. If we do not distribute a certain percentage of our income annually, we will 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 payment-in-kind 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 have difficulty meeting the requirement to distribute at least 90% of our investment company taxable income to obtain tax benefits as a RIC.

We will be subject to a 4% nondeductible federal excise tax on certain undistributed income of RICs unless we distribute in a timely manner an amount at least equal to the sum of (1) 98% of our ordinary income for each calendar year, (2) 98.2% of our capital gain net income for the one-year period ending October 31 in that calendar year and (3) any income recognized, but not distributed, in preceding years. We will not be subject to excise taxes on amounts on which we are required to pay corporate income taxes (such as retained net capital gains).

Finally, if more stockholders opt to receive cash distributions rather than participate in our dividend reinvestment plan, we may be forced to liquidate some of our investments and raise cash in order to make cash distribution payments.

Our shares may trade at discounts from net asset value or at premiums that are unsustainable over the long term.

Shares of business development companies may trade at a market price that is less than the net asset value that is attributable to those shares. The possibility that our shares of common stock will trade at a discount from net asset value or at a premium that is unsustainable over the long term are separate and distinct from the risk that our net asset value will decrease. It is not possible to predict whether shares will trade at, above, or below net asset value.

Investigations and reviews of Apollo affiliates’ use of placement agents could harm Apollo Investment’s reputation, depress its stock price or have other negative consequences.

While Apollo Investment has not, to date, raised any funds through the use of placement agents (other than through the ordinary course engagement of underwriters, from time to time, in connection with the public offering of Apollo Investment’s securities), affiliates of AIM sometimes use placement agents to assist in marketing certain of the investment funds that they manage. Various state attorneys general and federal and state agencies have initiated industry-wide investigations into the use of placement agents in connection with the solicitation of investments, particularly with respect to investments by public pension funds. Certain affiliates of AGM have received subpoenas and other requests for information from various government regulatory agencies and investors in AGM’s funds, seeking information regarding the use of placement agents. The California Public Employees’ Retirement System (“CalPERS”), one of AGM’s strategic investors, announced on October 14, 2009, that it had initiated a special review of placement agents and related issues. The report of the CalPERS special review was issued on March 14, 2011. That report does not allege any wrongdoing on the part of AGM or its affiliates. AGM is continuing to cooperate with all such investigations and other revisions. In addition, on May 6, 2010, the California Attorney General filed a civil complaint against Alfred Villalobos and his company, Arvco Capital Research, LLC

 

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(a placement agent that AGM has used) and Federico Buenrostro Jr., the former CEO of CalPERS, alleging conduct in violation of certain California laws in connection with CalPERS’ purchase of securities in various funds managed by AGM and another asset manager. No AGM entity is a party to the civil lawsuit, nor does the lawsuit allege any misconduct on the part of Apollo Investment, AIM or AGM. Likewise, on April 23, 2012, the United States Securities and Exchange Commission filed a lawsuit alleging securities fraud on the part of Arvco, as well as Messrs. Buenrostro and Villalobos, in connection with their activities concerning certain CalPERS investments in funds managed by AGM. This lawsuit also does not allege wrongdoing on the part of AGM, and in fact alleges that AGM was defrauded by Arvco, Villalobos, and Buenrostro. On March 14, 2013, the United States Department of Justice unsealed an indictment against Messrs. Villalobos and Buenrostro alleging, among other crimes, fraud in connection with those same activities; again, AGM is not accused of any wrongdoing and in fact is alleged to have been defrauded by the defendants. The criminal action was set for trial in a San Francisco federal court in July 2014, but was put on hold after Mr. Buenrostro pleaded guilty on July 11, 2014. As part of Mr. Buenrostro’s plea agreement, he admitted to taking cash and other bribes from Mr. Villalobos in exchange for several improprieties, including attempting to influence CalPERS’ investing decisions and improperly preparing disclosure letters to satisfy AGM’s requirements. There is no suggestion that AGM was aware that Mr. Buenrostro had signed the letters with a corrupt motive. The government has indicated that they will file new charges against Mr. Villalobos incorporating Mr. Buenrostro’s admissions. On August 7, 2014, the government filed a superseding indictment against Mr. Villalobos asserting additional charges. Trial had been scheduled for February 23, 2015, but Mr. Villalobos passed away on January 13, 2015. Additionally, on April 15, 2013, Mr. Villalobos, Arvco and related entities (the “Arvco Debtors”) brought a civil action in the United States Bankruptcy Court for the District of Nevada (the “Bankruptcy Court”) against AGM. The action is related to the ongoing bankruptcy proceedings of the Arvco Debtors. This action alleges that Arvco served as a placement agent for AGM in connection with several funds associated with AGM, and seeks to recover purported fees the Arvco Debtors claim AGM has not paid them for a portion of Arvco’s placement agent services. In addition, the Arvco Debtors allege that AGM has interfered with the Arvco Debtors’ commercial relationships with third parties, purportedly causing the Arvco Debtors to lose business and to incur fees and expenses in the defense of various investigations and litigations. The Arvco Debtors also seek compensation from AGM for these alleged lost profits and fees and expenses. The Arvco Debtors’ complaint asserts various theories of recovery under the Bankruptcy Code and common law. AGM denies the merit of all of the Arvco Debtors’ claims and will vigorously contest them. The Bankruptcy Court has stayed this action pending the result in the criminal case against Mr. Villalobos. For these reasons, no estimate of possible loss, if any, can be made at this time.

The market price of our securities may fluctuate significantly.

The market price and liquidity of the market for our securities may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include:

 

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volatility in the market price and trading volume of securities of business development companies or other companies in our sector, which are not necessarily related to the operating performance of these companies;

 

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changes in regulatory policies or tax guidelines, particularly with respect to RICs or business development companies;

 

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loss of RIC status;

 

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changes in earnings or variations in operating results;

 

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changes in the value of our portfolio of investments;

 

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any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;

 

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•

departure of AIM’s key personnel;

 

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operating performance of companies comparable to us;

 

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general economic trends and other external factors; and

 

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loss of a major funding source.

We may be unable to invest the net proceeds raised from offerings on acceptable terms, which would harm our financial condition and operating results.

Until we identify new investment opportunities, we intend to either invest the net proceeds of future offerings in interest-bearing deposits or other short-term instruments or use the net proceeds from such offerings to reduce then-outstanding obligations under our credit facility. We cannot assure you that we will be able to find enough appropriate investments that meet our investment criteria or that any investment we complete using the proceeds from an offering will produce a sufficient return.

Sales of substantial amounts of our securities may have an adverse effect on the market price of our securities.

Sales of substantial amounts of our securities, or the availability of such securities for sale, could adversely affect the prevailing market prices for our securities. If this occurs and continues, it could impair our ability to raise additional capital through the sale of securities should we desire to do so.

If you do not fully exercise your subscription rights in any rights offering of our common stock, your interest in us may be diluted and, if the subscription price is less than our net asset value per share, you may experience an immediate dilution of the aggregate net asset value of your shares.

In the event we issue subscription rights to acquire shares of our common stock, stockholders who do not fully exercise their subscription rights should expect that they will, at the completion of the rights offering, own a smaller proportional interest in us than would be the case if they fully exercised their rights.

In addition, if the subscription price is less than the net asset value per share of our common stock, a stockholder who does not fully exercise its subscription rights may experience an immediate dilution of the aggregate net asset value of its shares as a result of the offering.

We would not be able to state the amount of any such dilution prior to knowing the results of the offering. Such dilution could be substantial.

Stockholders may experience dilution in their ownership percentage if they do not participate in our dividend reinvestment plan.

All distributions declared in cash payable to stockholders that are participants in our dividend reinvestment plan are generally automatically reinvested in shares of our common stock. As a result, stockholders that do not participate in the dividend reinvestment plan may experience dilution over time. Stockholders who do not elect to receive distributions in shares of common stock may experience accretion to the net asset value of their shares if our shares are trading at a premium and dilution if our shares are trading at a discount. The level of accretion or discount would depend on various factors, including the proportion of our stockholders who participate in the plan, the level of premium or discount at which our shares are trading and the amount of the distribution payable to a stockholder.

 

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USE OF PROCEEDS

Unless otherwise specified in a prospectus supplement, we intend to use the net proceeds from selling securities pursuant to this prospectus for general corporate purposes, which include investing in portfolio companies in accordance with our investment objective and strategies. We anticipate that substantially all of the net proceeds of an offering of securities pursuant to this prospectus will be used within two years, depending on the availability of appropriate investment opportunities consistent with our investment objective and market conditions. Our portfolio is comprised primarily of investments in debt, including secured and unsecured debt 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 $250 million. Our portfolio also includes equity interests such as common stock, preferred stock, warrants or options. Pending our investments in new debt investments, we plan to invest a portion of the net proceeds from an offering in cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less from the date of investment, to reduce then-outstanding obligations under our debt instruments, or for other general corporate purposes. The management fee payable by us will not be reduced while our assets are invested in such securities. See “Regulation—Temporary investments” for additional information about temporary investments we may make while waiting to make longer-term investments in pursuit of our investment objective. The supplement to this prospectus relating to an offering will more fully identify the use of the proceeds from such offering.

 

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DISTRIBUTIONS

We intend to continue to pay dividends or make other distributions on a quarterly basis to our stockholders. Our quarterly distributions, if any, will be determined by our board of directors. We expect that our distributions to shareholders generally will be from accumulated net investment income and from cumulative net realized capital gains, as applicable, although a portion may represent a return of capital.

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 ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. In addition, although we currently intend to distribute realized net capital gains (i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may in the future decide to retain such capital gains for investment. In addition, we have substantial net capital loss carryforwards and consequently do not expect to generate cumulative net capital gains in the foreseeable future.

We maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a distribution, 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 business development company, we may in the future be limited in our ability to make distributions. Also, our revolving credit facility may limit our ability to declare dividends if we default under certain provisions or fail to satisfy certain 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 regulated investment company. 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 to meet the requirement to distribute at least 90% of our investment company taxable income to obtain tax benefits as a regulated investment company.

With respect to the distributions 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, distributed to stockholders.

All distributions declared in cash payable to stockholders that are participants in our dividend reinvestment plan are generally automatically reinvested in shares of our common stock. As a result, stockholders that do not participate in the dividend reinvestment plan may experience dilution over time. Stockholders who do not elect to receive distributions in shares of common stock may experience accretion to the net asset value of their shares if our shares are trading at a premium and dilution if our shares are trading at a discount. The level of accretion or discount would depend on various factors, including the proportion of our stockholders who participate in the plan, the level of premium or discount at which our shares are trading and the amount of the distribution payable to a stockholder.

 

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The following table lists the quarterly distributions per share from our common stock for the past two fiscal years.

 

		Declared Distributions
Fiscal Year Ended March 31, 2015
Fourth Fiscal Quarter		$	0.20
Third Fiscal Quarter		$	0.20
Second Fiscal Quarter		$	0.20
First Fiscal Quarter		$	0.20
Fiscal Year Ended March 31, 2014
Fourth Fiscal Quarter		$	0.20
Third Fiscal Quarter		$	0.20
Second Fiscal Quarter		$	0.20
First Fiscal Quarter		$	0.20

 

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SELECTED FINANCIAL DATA

The following selected financial and other data for the fiscal years ended March 31, 2015, 2014, 2013, 2012 and 2011 are derived from our financial statements which have been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm.

This selected financial data should be read in conjunction with our financial statements and related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

 

		For the Year Ended March 31, (dollar amounts in thousands, except per share data)
Statement of Operations Data:		2015				2014				2013				2012				2011
Total Investment Income		$	433,631			$	381,346			$	331,994			$	357,584			$	358,779
Net Expenses (including excise taxes)		$	205,658			$	180,098			$	164,634			$	184,842			$	167,607
Net Investment Income		$	227,973			$	201,248			$	167,360			$	172,742			$	191,172
Net Realized and Unrealized Gains (Losses)		$	(152,551	)		$	69,624			$	(62,889	)		$	(259,006	)		$	(10,760	)
Net Increase (Decrease) in Net Assets Resulting from Operations		$	75,422			$	270,872			$	104,471			$	(86,264	)		$	180,412
Per Share Data:
Net Asset Value		$	8.18			$	8.67			$	8.27			$	8.55			$	10.03
Net Investment Income		$	0.96			$	0.91			$	0.83			$	0.88			$	0.99
Net Earnings (Loss) Per Share (Basic)		$	0.32			$	1.21			$	0.51			$	(0.44	)		$	0.93
Net Earnings (Loss) Per Share (Diluted)		$	0.32			$	1.18			$	0.51			$	(0.44	)		$	0.93
Distributions Declared		$	0.80			$	0.80			$	0.80			$	1.04			$	1.12
Balance Sheet Data:
Total Assets		$	3,560,891			$	3,641,951			$	2,944,312			$	2,775,263			$	3,148,813
Debt Outstanding		$	1,498,759			$	1,372,261			$	1,156,067			$	1,009,337			$	1,053,443
Total Net Assets		$	1,937,608			$	2,051,611			$	1,677,389			$	1,685,231			$	1,961,031
Other Data:
Total Return (1)		$	1.9	%			9.4	%			28.2	%			(32.4	)%			5.1	%
Number of Portfolio Companies at Year End			105				111				81				62				69
Total Portfolio Investments for the Year		$	2,211,081			$	2,816,149			$	1,537,366			$	1,480,508			$	1,085,601
Investment Sales and Repayments for the Year		$	2,250,782			$	2,322,189			$	1,337,431			$	1,634,520			$	977,493
Weighted Average Yield on Debt Portfolio at Year End			11.2	%			11.1	%			11.9	%			11.9	%			11.6	%
Weighted Average Shares Outstanding at Year End (Basic) (2)			236,741				222,800				202,875				196,584				193,192
Weighted Average Shares Outstanding at Year End (Diluted) (2)			251,289				237,348				217,423				211,132				195,823

 

(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)	In applying the if-converted method, conversion is not assumed for purposes of computing diluted earnings per share if the effect would be anti-dilutive. For fiscal years ended March 31, 2015, March 31, 2013 and March 31, 2012, anti-dilution would total $0.02, $0.02 and $0.08, respectively.

 

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FORWARD-LOOKING STATEMENTS

Some of the statements in this prospectus constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained in this prospectus 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;

 

•

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.

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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MANAGEMENT’S 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. In addition to historical information, the following discussion and other parts of this prospectus 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.

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 from selling 62 million shares of its common stock at a price of $15.00 per share. Since then, and through March 31, 2015, we have raised approximately $2.2 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, Euro Interbank Offered Rate (EURIBOR), British pound sterling LIBOR (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 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, etc.

Expenses

For 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, the compensation and routine

 

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overhead 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 the Administrator 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, 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

Our portfolio and investment activity during the fiscal years ended March 31, 2015 and 2014 is as follows:

 

(amounts in millions)		For the fiscal year ended March 31, 2015				For the fiscal year ended March 31, 2014
Investment made in portfolio companies (1)		$	2,211			$	2,816
Investments sold			(1,407	)			(1,006	)
Net activity before repaid investments			804				1,810
Investments repaid			(844	)			(1,316	)
Net investment activity		$	(40	)		$	494
Portfolio companies, at beginning of period			111				81
Number of new portfolio companies			60				81
Number of exited companies			(66	)			(51	)
Portfolio companies, at end of period			105				111
Number of investments in existing portfolio companies			47				50

 

(1)	Investments were primarily made through a combination of primary and secondary debt investments.

Our portfolio composition and weighted average yields at March 31, 2015 and at March 31, 2014 are as follows:

 

		March 31, 2015				March 31, 2014
Portfolio composition, measured at fair value:
Secured debt			60	%			56	%
Unsecured debt			14	%			27	%
Structured products and other (1)			11	%			6	%
Preferred equity			5	%			3	%
Common equity and warrants			10	%			8	%
Weighted average yields, at current cost basis, exclusive of securities on non-accrual status (2):
Secured debt portfolio			11.2	%			10.8	%
Unsecured debt portfolio			10.9	%			11.5	%
Total debt portfolio			11.2	%			11.1	%
Income-bearing investment portfolio composition, measured at fair value:
Fixed rate amount		$	1.3 billion			$	1.7 billion
Floating rate amount		$	1.4 billion			$	1.3 billion
Fixed rate %			48	%			58	%
Floating rate %			52	%			42	%
Income-bearing investment portfolio composition, measured at cost:
Fixed rate amount		$	1.4 billion			$	1.7 billion
Floating rate amount		$	1.4 billion			$	1.2 billion
Fixed rate %			50	%			58	%
Floating rate %			50	%			42	%

 

(1)	Structured products and other such as collateralized loan obligations (“CLOs”) and credit-linked notes (“CLNs”) are typically a form of securitization in which the cash flows from a portfolio of loans are pooled and passed on to different classes of debt and residual interest in order of seniority.

 

(2)	An investor’s yield may be lower than the portfolio yield due to sales loads and other expenses.

 

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Since the initial public offering of Apollo Investment in April 2004 and through March 31, 2015, invested capital totaled $15.4 billion in 350 portfolio companies. Over the same period, Apollo Investment completed transactions with more than 100 different financial sponsors.

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.

Fair Value Measurements

The Company follows guidance in ASC 820, Fair Value Measurement, where fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are determined within a framework that establishes a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability based on the information available. For more information about the effects from changes in interest rate, see “Management’s Discussion and Analysis of Financial Condition and Result of Operations—Quantitative and Qualitative Disclosure about Market Risk.” The inputs or methodology used for valuing assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities. Under procedures established by our board of directors, we value investments, including certain secured debt, unsecured 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. Mid-market pricing is utilizing the average of the range of bid and ask quotations when determining fair value. 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 investments. Debt investments with remaining maturities of 60 days or less may each be valued at cost with interest accrued or discount amortized to the date of maturity, unless such valuation, in the judgment of our investment adviser, does not represent fair value. In this case, such investments shall be valued at fair value as determined in good faith by or under the direction of our board of directors, using market quotations where available. 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.

 

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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 which is 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 adviser’s 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 in good faith the fair value of each investment in our portfolio based on the input of our investment adviser, the applicable independent valuation firm, third party pricing services, 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, seniority of investment in the investee company’s capital structure, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s 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 fiscal year ended March 31, 2015, there was no change to the Company’s 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.

Level 3: Unobservable inputs for the asset or liability.

 

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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. Of the Company’s investments at March 31, 2015, $2.8 billion or 82.2% of the Company’s investments were classified as Level 3.

The high proportion of Level 3 investments relative to our total investments is directly related to our investment philosophy and target portfolio, which consists primarily of long-term secured debt, as well as unsecured and mezzanine positions of private middle-market companies. A fundamental difference exists between our investments and those of comparable publicly traded fixed income investments, namely high yield bonds, and this difference affects the valuation of our private investments relative to comparable publicly traded instruments.

Senior secured loans, or senior loans, are higher in the capital structure than high yield bonds, and are typically secured by assets of the borrowing company. This improves their recovery prospects in the event of default and affords senior loans a structural advantage over high yield bonds. Many of the Company’s investments are also privately negotiated and contain covenant protections that limit the issuer to take actions that could harm us as a creditor. High yield bonds typically do not contain such covenants.

Given the structural advantages of capital seniority and covenant protection, the valuation of our private debt portfolio is driven more by investment specific credit factors than movements in the broader debt capital markets. Each security is evaluated individually and as indicated above, we value our private investments based upon a multi-step valuation process, including valuation recommendations from independent valuation firms.

Investment Income 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 payment-in-kind (“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 believes that PIK is expected to be realized.

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 management’s 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 management’s judgment.

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

 

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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. Other income generally includes administrative fee, and structuring fees, which are recorded when earned.

The Company records as dividend income the accretable yield from its beneficial interests in structured products such as CLOs based upon a number of cash flow assumptions that are subject to uncertainties and contingencies. Such assumptions include the rate and timing of principal and interest receipts (which may be subject to prepayments and defaults) of the underlying pools of assets. These assumptions are updated on at least a quarterly basis to reflect changes related to a particular security, actual historical data, and market changes. A structured product investment typically has an underlying pool of assets. Payments on structured product investments are payable solely from the cash flows from such assets. As such any unforeseen event in these underlying pools of assets might impact the expected recovery and future accrual of income.

Expenses

Expenses include management fees, performance-based incentive fees, insurance expenses, administrative service fees, legal fees, directors’ fees, audit and tax service expenses, and other general and administrative expenses. Expenses are recognized on an accrual basis.

Net Realized Gains or Losses and Net Change in Unrealized Gain (Loss)

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 gain (loss) reflects the net change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized gains or losses.

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

Operating results for the fiscal years ended March 31, 2015, 2014 and 2013 were as follows:

 

(in thousands)		March 31, 2015				March 31, 2014				March 31, 2013
Investment income
Interest		$	388,612			$	336,658			$	296,205
Dividends			32,533				31,835				19,060
Other			12,486				12,853				16,729
Total investment income		$	433,631			$	381,346			$	331,994
Expenses
Base management fees and performance-based incentive fees, net of amounts waived		$	(111,168	)		$	(97,651	)		$	(94,076	)
Interest and other debt expenses, net of expense reimbursements			(79,247	)			(68,590	)			(58,200	)
Administrative services expenses, net of expense reimbursements			(5,700	)			(5,600	)			(4,389	)
Other general and administrative expenses			(9,543	)			(8,257	)			(7,969	)
Net expenses			(205,658	)			(180,098	)			(164,634	)
Net investment income		$	227,973			$	201,248			$	167,360
Realized and unrealized gain (loss) on investments, cash equivalents, derivatives and foreign currencies
Net realized loss		$	(13,368	)		$	(106,507	)		$	(74,673	)
Net change in unrealized gain (loss)			(139,183	)			176,131				11,784
Net realized and unrealized gain (loss) from investments, cash equivalents, derivatives and foreign currencies			(152,551	)			69,624				(62,889	)
Net increase in net assets resulting from operations		$	75,422			$	270,872			$	104,471
Net investment income on per average share basis		$	0.96			$	0.91			$	0.83
Earnings per share—basic		$	0.32			$	1.21			$	0.51
Earnings per share—diluted		$	0.32			$	1.18			$	0.51

Total Investment Income

The increase in total investment income for the fiscal year 2015 compared to the fiscal year 2014 was primarily due to the increase in interest income. Interest income increased due to an increase in the investment portfolio size, which increased to an average cost of $3.5 billion for the fiscal year 2015 from an average cost of $3.2 billion for the fiscal year 2014. The increase in investment income was also due to increase in prepayment fees and acceleration of original issue discount on repaid investments, which totaled approximately $44.0 million for the fiscal year 2015 as compared to $24.8 million for the fiscal year 2014.

The increase in total investment income for the fiscal year 2014 compared to the fiscal year 2013 was due to a larger investment portfolio and interest and dividend income from our investments in structured products, partially offset by a decline in yield. An additional factor contributing to the increase in investment income was higher income from prepayment fees, which totaled approximately $24.8 million and $7.3 million for the fiscal years 2014 and 2013, respectively.

Net Expenses

The increase in expenses for the fiscal year 2015 compared to the fiscal year 2014 was primarily driven by an increase of $10.7 million in interest and other debt related expenses and an increase of $13.5 million in

 

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management and performance-based incentive fees, net of amounts waived. Management and performance-based incentive fees increased primarily due to the increase in the size and net investment income earned on the portfolio. Interest and other debt related costs were higher due to a higher average debt balance, which increased to $1.59 billion during the fiscal year 2015 from $1.24 billion during the fiscal year 2014. The total cost of debt for the fiscal year 2015 declined to 4.98% from 5.52% during the fiscal year 2014 primarily as a result of the utilization of our Senior Secured Credit Facility.

The increase in expenses for the fiscal year 2014 compared to fiscal year 2013 was primarily driven by increased interest and other debt expenses of $10.4 million and $3.6 million of incremental management and performance-based incentive fees (net of amount waived). Interest and other debt costs were higher as a result of a larger average debt balance outstanding during the year coupled with higher average interest costs attributed to the 2042 Notes and 2043 Notes, which were issued in October 2012 and June 2013, respectively.

There were no accrued excise tax expenses for the fiscal years ended March 31, 2015, 2014 and 2013.

Net Realized Gains (Losses)

Net realized losses for the fiscal year 2015 were $13.4 million and comprised of $50.3 million of gross realized gains and $63.7 million of gross realized losses. Significant realized gains (losses) for the fiscal year 2015 are summarized below:

 

(in millions)		Net Realized Gain (Loss)
Aventine Renewable Energy Holdings, Inc.		$	11.6
Walter Energy Inc.			(26.5	)
Altegrity, Inc. *			(17.7	)
Other (net)			19.2
Total net realized loss		$	(13.4	)

Net realized losses for the fiscal year 2014 were $106.5 million and comprised of $165.4 million of gross realized losses and $58.9 million of gross realized gains. Significant realized gains (losses) for the fiscal year 2014 are summarized below:

 

(in millions)		Net Realized Gain (Loss)
Penton Business Media Holdings, LLC *		$	11.5
ATI Acquisition Company *			(54.4	)
Cengage Learning Acquisitions, Inc. *			(44.6	)
Texas Competitive Electric Holdings *			(13.5	)
Altegrity, Inc.			(10.2	)
Other (net)			4.7
Total net realized loss		$	(106.5	)

 

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Net realized losses for the fiscal year 2013 were $74.7 million and comprised of $103.0 million of gross realized losses and $28.3 million of gross realized gains. Significant realized gains (losses) for the fiscal year 2013 are summarized below:

 

(in millions)		Net Realized Gain (Loss)
New Omaha Holdings Co-Invest LP		$	(42.8	)
Cengage Learning Acquisitions, Inc.			(24.0	)
RBS Holdings Company, LLC			(10.8	)
Other (net)			2.9
Total net realized loss		$	(74.7	)

 

*	The realized gains (losses) incurred upon the exit of these investments reversed out previously reported unrealized gains (losses).

Net Change in Unrealized Gain (Loss)

Net change in unrealized losses for the fiscal year 2015 was $139.2 million and was comprised of $137.1 million of gross unrealized gains and $276.3 million of gross unrealized losses. Significant unrealized gains (losses) for the fiscal year 2015 are summarized below:

 

(in millions)		Net Change in Unrealized Loss
Generation Brands Holdings, Inc. (Quality Homes)		$	30.0
Altegrity, Inc. *			16.6
Asset Repackaging Trust Six B.V.			11.7
Merx Aviation Finance, LLC			11.2
Venoco, Inc. (Denver Parent)			(35.0	)
LVI Group Investments, LLC			(26.9	)
Magnetation LLC			(22.1	)
Molycorp, Inc.			(20.4	)
Delta Educational Systems, Inc. (Gryphon Colleges Corp.)			(14.1	)
SquareTwo (CA Holdings, Collect America, Ltd.)			(11.2	)
First Data Corp.			(11.2	)
Aveta, Inc.			(11.0	)
PetroBakken Energy Ltd.			(10.4	)
Other (net)			(46.4	)
Total net change in unrealized loss		$	(139.2	)

 

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Net change in unrealized gains for the fiscal year 2014 was $176.1 million and was comprised of $276.4 million of gross unrealized gains and $100.3 million of gross unrealized losses. Significant unrealized gains (losses) for the fiscal year 2014 are summarized below:

 

(in millions)		Net Change in Unrealized Gain
ATI Acquisition Company *		$	53.9
Cengage Learning Acquisitions Inc. *			44.3
PlayPower Holdings Inc.			17.1
inVentiv Health, Inc.			12.9
Garden Fresh Restaurant Corp.			12.9
Texas Competitive Electric Holdings *			12.0
BCA Osprey II Limited			10.6
Penton Business Media Holdings, LLC *			(10.8	)
Other (net)			23.2
Total net change in unrealized gain		$	176.1

Net change in unrealized gains for the fiscal year 2013 was $11.8 million and was comprised of $205.8 million of gross unrealized gains and $194.0 million of gross unrealized gains. Significant unrealized gains (losses) for the fiscal year 2013 are summarized below:

 

(in millions)		Net Change in Unrealized Gain
New Omaha Holdings Co-Invest LP (First Data)		$	40.0
Ceridian Corp.			16.3
Penton Business Media Holdings, LLC			11.1
AB Acquisitions UK Topco 2 Limited			10.8
Cengage Learning Acquisitions, Inc.			(44.3	)
Delta Educational Systems, Inc. (Gryphon Colleges Corp.)			(26.8	)
Altegrity, Inc.			(24.6	)
PlayPower Holdings, Inc.			(24.5	)
Garden Fresh Restaurant Corp.			(22.9	)
Other (net)			76.7
Total net change in unrealized gain		$	11.8

 

*	The unrealized gains (losses) incurred upon the exit of these investments are reported as realized gains (losses).

Recent Accounting Pronouncements

See note 2 within the Notes to the Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s liquidity and capital resources are generated and generally available through periodic follow-on equity and debt offerings, our senior secured, multi-currency Senior Secured Facility (as defined in note 9 within the Notes to Financial Statements), our senior secured notes, our senior unsecured 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 repayments of senior and subordinated loans and income earned from investments.

 

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Debt

At March 31, 2015 the Company had $385 million in borrowings outstanding on its Senior Secured Facility and $860 million of unused capacity⁽¹⁾. As of March 31, 2015, aggregate lender commitments under the Senior Secured Facility totaled $1.27 billion. The Senior Secured Facility allows the Company to seek additional commitments in the future up to an aggregate facility size not to exceed $1.71 billion. See note 9 and note 10 within the Notes to Financial Statements for information on the Company’s debt and public offerings.

The Company’s debt maturities by period are summarized below.

 

		Payments due by Period as of March 31, 2015 (dollars  in millions)
		Total				Less than 1 year				1-3 years				3-5 years				More than 5 years
Senior Secured Facility(1)		$	385			$	—			$	—			$	385			$	—
Senior Secured Notes		$	225			$	225			$	—			$	—			$	—
Senior Secured Notes (Series A)		$	29			$	—			$	29			$	—			$	—
Senior Secured Notes (Series B)		$	16			$	—			$	—			$	16			$	—
2042 Notes		$	150			$	—			$	—			$	—			$	150
2043 Notes		$	150			$	—			$	—			$	—			$	150
2025 Notes		$	344			$	—			$	—			$	—			$	344
Convertible Notes		$	200			$	200			$	—			$	—			$	—

 

(1)	At March 31, 2015, there was $25 million of letters of credit issued under the Senior Secured Facility that are not recorded as liabilities on the Company’s Statement of Assets and Liabilities, and the Company had $860 million of unused capacity under its Senior Secured Facility.

On April 24, 2015, the Company amended and restated the Senior Secured Facility. The amendment increased the lenders’ commitments to $1,310,000, extended the final maturity date to April 24, 2020, and allows the Company to seek additional commitments from new and existing lenders in the future, up to an aggregate facility size not to exceed $1,965,000. In addition, the stated interest rate on the facility was changed from LIBOR plus 2.00% to a formula-based calculation, based on a minimum borrowing base, resulting in a stated interest rate of either LIBOR plus 1.75%, or LIBOR plus 2.00%. As of May 19, 2015, the stated interest rate on the facility is LIBOR plus 2.00%. Commencing April 30, 2019, the Company is required to repay, in twelve consecutive monthly installments of equal size, the outstanding amount under the Senior Secured Facility as of April 24, 2019.

PIK Interest and Dividends

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 Company’s 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 fiscal year ended March 31, 2015, PIK income totaled $34.1 million, on total investment income of $433.6 million. See note 5 within the Notes to the Financial Statements for more information on the Company’s PIK interest and dividends.

 

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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 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 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 no cash equivalents held as of March 31, 2015.

Related Party Transactions

See note 3 within the Notes to the Financial Statements for information on the Company’s related party transactions.

Dividends

Dividends paid to stockholders for the fiscal years ended March 31, 2015, 2014 and 2013 totaled $189 million or $0.80 per share, $182 million or $0.80 per share, and $162 million or $0.80 per share, respectively. Tax characteristics of all dividends will be reported to stockholders on Form 1099 after the end of the calendar year. Our quarterly dividends, if any, will be determined by our Board of Directors.

The following table summarizes our quarterly dividends paid to stockholders for the fiscal years ended March 31, 2015, 2014 and 2013, respectively:

 

		Declared Dividends per Share
Fiscal Year Ended March 31, 2015
Fourth Fiscal Quarter		$	0.20
Third Fiscal Quarter		$	0.20
Second Fiscal Quarter		$	0.20
First Fiscal Quarter		$	0.20
Fiscal Year Ended March 31, 2014
Fourth Fiscal Quarter		$	0.20
Third Fiscal Quarter		$	0.20
Second Fiscal Quarter		$	0.20
First Fiscal Quarter		$	0.20
Fiscal Year Ended March 31, 2013
Fourth Fiscal Quarter		$	0.20
Third Fiscal Quarter		$	0.20
Second Fiscal Quarter		$	0.20
First Fiscal Quarter		$	0.20

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 ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. In addition, although we currently intend to distribute realized net capital gains (i.e., net long-term capital gains in excess of short-term

 

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capital losses), if any, at least annually, out of the assets legally available for such distributions, 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 business development company, 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 certain 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 regulated investment company. 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 payment-in-kind 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 to meet the requirement to distribute at least 90% of our investment company taxable income to obtain tax benefits as a regulated investment company.

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, distributed to stockholders.

Recent Events

On May 18, 2015, the Board of Directors declared a dividend of $0.20 per share for the fourth fiscal quarter of 2015, payable on July 6, 2015 to stockholders of record as of June 19, 2015.

Quantitative and Qualitative Disclosure about Market Risk

We are subject to financial market risks, including changes in interest rates. During the fiscal year ended March 31, 2015, 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.

The following table shows the approximate annual impact on net investment income of base rate changes in interest rates (considering interest rate floors for variable rate instruments) to our loan portfolio and outstanding debt as of March 31, 2015, assuming no changes in our investment and borrowing structure:

 

(in thousands except per share data) Basis Point Change		Net Investment Income				Net Investment Income per Share
Up 400 basis points		$	22,015			$	0.093
Up 300 basis points		$	13,541			$	0.057
Up 200 basis points		$	5,691			$	0.024
Up 100 basis points		$	(986	)		$	(0.004	)

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.

 

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SALES OF COMMON STOCK BELOW NET ASSET VALUE

We submitted to our stockholders, for their approval, a proposal seeking authorization for our ability, in one or more public or private offerings of our common stock, to sell or otherwise issue shares of our common stock at a price below our then current net asset value (“NAV”) per share, subject to certain conditions discussed below. The stockholders voted and approved the proposal at a special meeting of stockholders held on August 5, 2015. The current authorization is effective for a twelve-month period expiring on the anniversary date of such stockholder approval. We intend to seek stockholder approval to continue for an additional year our ability to issue shares of common stock below net asset value, subject to the same conditions.

Conditions to Sales Below NAV. From time to time we may sell shares of our common stock at a price below NAV, exclusive of sales compensation, only if the following conditions are met:

 

•

a majority of our independent directors who have no financial interest in the sale have approved the sale;

 

•

a majority of such directors, who are not interested persons of Apollo Investment, in consultation with the underwriter or underwriters of the offering if it is to be underwritten, have determined in good faith, and as of a time immediately prior to the first solicitation by or on behalf of Apollo Investment of firm commitments to purchase such securities or immediately prior to the sale of such securities, that the price at which such securities are to be sold is not less than a price which closely approximates the market value of those securities, less any underwriting commission or discount; and

 

•

the number of shares sold pursuant to such authority does not exceed 25% of our then outstanding common stock immediately prior to each such sale.

There is no maximum level of discount from NAV at which we may sell shares pursuant to this authority. In making a determination that an offering below NAV per share is in our and our stockholders’ best interests, our board of directors may also consider a variety of factors including:

 

•

The effect that an offering below NAV per share would have on our stockholders, including the potential dilution they would experience as a result of the offering;

 

•

The amount per share by which the offering price per share and the net proceeds per share are less than the most recently determined NAV per share;

 

•

The relationship of recent market prices of common stock to NAV per share and the potential impact of the offering on the market price per share of our common stock;

 

•

Whether the estimated offering price would closely approximate the market value of our shares and would not be below current market price;

 

•

The potential market impact of being able to raise capital in the current financial market;

 

•

The nature of any new investors anticipated to acquire shares in the offering;

 

•

The anticipated rate of return on and quality, type and availability of investments; and

 

•

The leverage available to us.

 

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We will not sell shares under a prospectus supplement to the registration statement or current post-effective amendment thereto of which this prospectus forms a part (the “current registration statement”) if the cumulative dilution to our NAV per share from offerings under the current registration statement exceeds 15%. This limit would be measured separately for each offering pursuant to the current registration statement by calculating the percentage dilution or accretion to aggregate NAV from that offering and then summing the percentage from each offering. For example, if our most recently determined NAV per share at the time of the first offering is $10.00 and we have 140 million shares outstanding, sale of 35 million shares at net proceeds to us of $5.00 per share (a 50% discount) would produce dilution of 10.0%. If we subsequently determined that our NAV per share increased to $11.00 on the then 175 million shares outstanding and then made an additional offering, we could, for example, sell approximately an additional 43.75 million shares at net proceeds to us of $8.25 per share, which would produce dilution of 5.0%, before we would reach the aggregate 15% limit. If we file a new post-effective amendment, the threshold would reset.

Sales by us of our common stock at a discount from NAV pose potential risks for our existing stockholders whether or not they participate in the offering, as well as for new investors who participate in the offering.

The following three headings and accompanying tables will explain and provide hypothetical examples on the impact of an offering at a price less than NAV per share on three different set of investors:

 

•

existing shareholders who do not purchase any shares in the offering.

 

•

existing shareholders who purchase a relatively small amount of shares in the offering or a relatively large amount of shares in the offering.

 

•

new investors who become shareholders by purchasing shares in the offering.

Impact on Existing Stockholders who do not Participate in the Offering

Our existing stockholders who do not participate in an offering below NAV per share or who do not buy additional shares in the secondary market at the same or lower price we obtain in the offering (after expenses and commissions) face the greatest potential risks. These stockholders will experience an immediate decrease (often called dilution) in the NAV of the shares they hold and their NAV per share. These stockholders will also experience a disproportionately greater decrease in their participation in our earnings and assets and their voting power than the increase we will experience in our assets, potential earning power and voting interests due to the offering. These stockholders may also experience a decline in the market price of their shares, which often reflects to some degree announced or potential increases and decreases in NAV per share. This decrease could be more pronounced as the size of the offering and level of discounts increase.

The following table illustrates the level of net asset value dilution that would be experienced by a nonparticipating stockholder in four different hypothetical offerings of different sizes and levels of discount from net asset value per share, although it is not possible to predict the level of market price decline that may occur. Actual sales prices and discounts may differ from the presentation below.

The examples assume that we have 1,000,000 common shares outstanding, $15,000,000 in total assets and $5,000,000 in total liabilities. The current net asset value and net asset value per share are thus $10,000,000 and $10.00. The table illustrates the dilutive effect on a nonparticipating stockholder of (1) an offering of 50,000 shares (5% of the outstanding shares) at $9.50 per share after offering expenses and commission (a 5% discount from net asset value), (2) an offering of 100,000 shares (10% of the outstanding shares) at $9.00 per share after offering expenses and commissions (a 10% discount from net asset value), (3) an offering of 250,000 shares (25% of the outstanding shares) at $7.50 per share after offering expenses and commissions (a 25% discount from net asset value) and (4) an offering of 250,000 shares (25% of the outstanding shares) at par value of $0.001 per share after offering expenses and commissions (effectively a 100% discount from net asset value). We do not currently anticipate offering shares of common stock at a

 

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discount in excess of 25%, which is illustrated in Example 3, although we reserve the right to do so. The 100% column in the following table is the maximum discount at which we may legally offer shares of common stock. It is presented for illustrative purposes only, as it is unlikely our management or Board of Directors would consider offering shares at a discount near such a level.

 

						Example 1 5% Offering at 5% Discount								Example 2 10% Offering at 10% Discount								Example 3 25% Offering at 25% Discount								Example 4 25% Offering at 100% Discount
		Prior to Sale Below NAV				Following Sale				% Change				Following Sale				% Change				Following Sale				% Change				Following Sale				% Change
Offering Price
Price per Share to Public			—			$	10.00				—			$	9.47				—			$	7.89				—			$	0.001				—
Net Proceeds per Share to Issuer			—			$	9.50				—			$	9.00				—			$	7.50				—			$	0.001				—
Decrease to NAV
Total Shares Outstanding			1,000,000				1,050,000				5.00	%			1,100,000				10.00	%			1,250,000				25.00	%			1,250,000				25.00	%
NAV per Share		$	10.00			$	9.98				(0.20	)%		$	9.91				(0.90	)%		$	9.50				(5.00	)%		$	8.00				(20.00	)%
Dilution to Stockholder
Shares Held by Stockholder			10,000				10,000				—				10,000				—				10,000				—				10,000				—
Percentage Held by Stockholder			1.0	%			0.95	%			(4.76	)%			0.91	%			(9.09	)%			0.80	%			(20.00	)%			0.80	%			(20.00	)%
Total Asset Values
Total NAV Held by Stockholder		$	100,000			$	99,800				(0.20	)%		$	99,100				(0.90	)%		$	95,000				(5.00	)%		$	80,000				(20.00	)%
Total Investment by Stockholder (Assumed to be $10.00 per Share)		$	100,000			$	100,000				—			$	100,000				—			$	100,000				—			$	100,000				—
Total Dilution to Stockholder (Total NAV Less Total Investment)			—			$	(200	)			—			$	(900	)			—			$	(5,000	)			—			$	(20,000	)			—
Per Share Amounts
NAV Per Share Held by Stockholder			—			$	9.98				—			$	9.91				—			$	9.50				—			$	8.00				—
Investment per Share Held by Stockholder (Assumed to be $10.00 per Share on Shares Held prior to Sale)		$	10.00			$	10.00				—			$	10.00				—			$	10.00				—			$	10.00				—
Dilution per Share Held by Stockholder (NAV per Share Less Investment per Share)			—			$	(0.02	)			—			$	(0.09	)			—			$	(0.50	)			—			$	(2.00	)			—
Percentage Dilution to Stockholder (Dilution per Share Divided by Investment per Share)			—				—				(0.20	)%			—				(0.90	)%			—				(5.00	%)			—				(20.00	)%

Impact on Existing Stockholders who do Participate in the Offering

Our existing stockholders who participate in an offering below NAV per share or who buy additional shares in the secondary market at the same or lower price as we obtain in the offering (after expenses and commissions) will experience the same types of NAV dilution as the nonparticipating stockholders, albeit at a lower level, to the extent they purchase less than the same percentage of the discounted offering as their interest in our shares immediately prior to the offering. The level of NAV dilution will decrease as the number of shares such stockholders purchase increases. Existing stockholders who buy more than such percentage will experience NAV dilution but will, in contrast to existing stockholders who purchase less than their proportionate share of the offering, experience an increase (often called accretion) in NAV per share over their investment per share and will also experience a disproportionately greater increase in their participation in our earnings and assets and their voting power than our increase in assets, potential earning power and voting interests due to the offering. The level of accretion will increase as the excess number of shares such stockholder purchases increases. Even a stockholder who over-participates will, however, be subject to the risk that we may make additional discounted offerings in which such stockholder does not participate, in which case such a stockholder will experience NAV dilution as described above in such subsequent offerings. These stockholders may also experience a decline in the market price

 

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of their shares, which often reflects to some degree announced or potential increases and decreases in NAV per share. This decrease could be more pronounced as the size of the offering and level of discount to NAV increases.

The following chart illustrates the level of dilution and accretion in the hypothetical 25% discount offering from the prior chart for a stockholder that acquires shares equal to (1) 50% of its proportionate share of the offering (i.e., 1,250 shares, which is 0.50% of the offering 250,000 shares rather than its 1.00% proportionate share) and (2) 150% of such percentage (i.e., 3,750 shares, which is 1.50% of an offering of 250,000 shares rather than its 1.00% proportionate share). The prospectus supplement pursuant to which any discounted offering is made will include a chart for this example based on the actual number of shares in such offering and the actual discount from the most recently determined NAV per share.

 

						50% Participation								150% Participation
		Prior to Sale Below NAV				Following Sale				% Change				Following Sale				% Change
Offering Price
Price per Share to Public			—			$	7.89				—			$	7.89				—
Net Proceeds per Share to Issuer			—			$	7.50				—			$	7.50				—
Increases in Shares and Decrease to NAV
Total Shares Outstanding			1,000,000				1,250,000				25.00	%			1,250,000				25.00	%
NAV per Share		$	10.00			$	9.50				(5.00	)%		$	9.50				(5.00	)%
Dilution/Accretion to Stockholder
Shares Held by Stockholder			10,000				11,250				12.50	%			13,750				37.50	%
Percentage Held by Stockholder			1.0	%			0.90	%			(10.00	)%			1.10	%			10.00	%
Total Asset Values
Total NAV Held by Stockholder		$	100,000			$	106,875				6.88	%		$	130,625				30.63	%
Total Investment by Stockholder (Assumed to be $10.00 per Share on Shares Held prior to Sale)		$	100,000			$	109,863				9.86	%		$	129,588				29.59	%
Total Dilution/Accretion to Stockholder (Total NAV Less Total Investment)			—			$	(2,988	)			—			$	1,038				—
Per Share Amounts
NAV Per Share Held by Stockholder			—			$	9.50				—			$	9.50				—
Investment per Share Held by Stockholder (Assumed to be $10.00 per Share on Shares Held prior to Sale)		$	10.00			$	9.77				(2.30	)%		$	9.42				(5.80	)%
Dilution/Accretion per Share Held by Stockholder (NAV per Share Less Investment per Share)			—			$	(0.27	)			—			$	0.08				—
Percentage Dilution/Accretion to Stockholder (Dilution/Accretion per Share Divided by Investment per Share)			—				—				(2.76	)%			—				0.85	%

Impact on New Investors

Investors who are not currently stockholders, but who participate in an offering below NAV and whose investment per share is greater than the resulting NAV per share (due to selling compensation and expenses paid by us) will experience an immediate decrease, albeit small, in the NAV of their shares and their NAV per share compared to the price they pay for their shares. Investors who are not currently stockholders and who participate in an offering below NAV per share and whose investment per share is also less than the resulting NAV per share due to selling compensation and expenses paid by the issuer being significantly less than the discount per share will experience an immediate increase in the NAV of their shares and their NAV per share compared to the price they pay for their shares. These investors will experience a disproportionately greater participation in our

 

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earnings and assets and their voting power than our increase in assets, potential earning power and voting interests. These investors will, however, be subject to the risk that we may make additional discounted offerings in which such new stockholder does not participate, in which case such new stockholder will experience dilution as described above in such subsequent offerings. These investors may also experience a decline in the market price of their shares, which often reflects to some degree announced or potential increases and decreases in NAV per share. This decrease could be more pronounced as the size of the offering and level of discounts increases.

The following chart illustrates the level of dilution or accretion for new investors that would be experienced by a new investor in the same 5%, 10%, 25% and 100% discounted offerings as described in the first chart above. The illustration is for a new investor who purchases the same percentage (1.00%) of the shares in the offering as the stockholder in the prior examples held immediately prior to the offering. The prospectus supplement pursuant to which any discounted offering is made will include a chart for this example based on the actual number of shares in such offering and the actual discount from the most recently determined NAV per share.

 

						Example 1 5% Offering at 5% Discount								Example 2 10% Offering at 10% Discount								Example 3 25% Offering at 25% Discount								Example 4 25% Offering at 100% Discount
		Prior to Sale Below NAV				Following Sale				% Change				Following Sale				% Change				Following Sale				% Change				Following Sale				% Change
Offering Price
Price per Share to Public			—			$	10.00				—			$	9.47				—			$	7.89				—			$	0.001				—
Net Proceeds per Share to Issuer			—			$	9.50				—			$	9.00				—			$	7.50				—			$	0.001				—
Decrease to NAV
Total Shares Outstanding			1,000,000				1,050,000				5.00	%			1,100,000				10.00	%			1,250,000				25.00	%			1,250,000				25.00	%
NAV per Share		$	10.00			$	9.98				(0.20	)%		$	9.91				(0.90	)%		$	9.50				(5.00	)%		$	8.00				(20.00	)%
Dilution/Accretion to Stockholder
Shares Held by Stockholder			—				500				—				1,000				—				2,500				—				2,500				—
Percentage Held by Stockholder			0.0	%			0.05	%			—				0.09	%			—				0.20	%			—				0.20	%			—
Total Asset Values
Total NAV Held by Stockholder			—			$	4,990				—			$	9,910				—			$	23,750				—			$	20,000				—
Total Investment by Stockholder			—			$	5,000				—			$	9,470				—			$	19,725				—			$	2.50				—
Total Dilution/ Accretion to Stockholder (Total NAV Less Total Investment)			—			$	(10	)			—			$	440				—			$	4,025				—			$	19,997.50				—
Per Share Amounts
NAV Per Share Held by Stockholder			—			$	9.98				—			$	9.91				—			$	9.50				—			$	8.00				—
Investment per Share Held by Stockholder			—			$	10.00				—			$	9.47				—			$	7.89				—			$	0.001				—
Dilution/Accretion per Share Held by Stockholder (NAV per Share Less Investment per Share)			—			$	(0.02	)			—			$	0.44				—			$	1.61				—			$	8.00				—
Percentage Dilution/ Accretion to Stockholder (Dilution/Accretion per Share Divided by Investment per Share)			—				—				(0.20	)%			—				4.65	%			—				20.41	%			—				—

 

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PRICE RANGE OF COMMON STOCK

Our common stock is traded on the NASDAQ Global Select Market under the symbol “AINV.” The following table lists the high and low closing sale price for our common stock, the closing sale price as a premium (discount) to net asset value, or NAV, and quarterly distributions per share for the past two fiscal years and each full quarter since the beginning of the current fiscal year. The last reported closing sales price of our common stock on January 15, 2016 was $5.00 per share. As of January 14, 2016, we had 82 stockholders of record. While our common stock has from time to time traded in excess of our net asset value, there can be no assurance, however, that it will trade at such a premium (to net asset value) in the future.

 

						Closing Sales Price								Premium or Discount of High Sales Price to NAV (2)				Premium or Discount of Low Sales Price to NAV (2)				Declared Distribution
		NAV (1)				High				Low
Fiscal Year Ending March 31, 2016
Third Fiscal Quarter		$	**			$	6.35			$	4.92				**	%			*	*%		$	*
Second Fiscal Quarter		$	7.83			$	7.23			$	5.40				(7.66	)%			(31.03	)%		$	0.20
First Fiscal Quarter		$	8.01			$	8.03			$	7.07				0.25	%			(11.74	)%		$	0.20
Fiscal Year Ending March 31, 2015
Fourth Fiscal Quarter		$	8.18			$	7.88			$	7.10				(3.67	)%			(13.20	)%		$	0.20
Third Fiscal Quarter		$	8.43			$	8.36			$	7.20				(0.83	)%			(14.59	)%		$	0.20
Second Fiscal Quarter		$	8.72			$	8.83			$	8.17				1.26	%			(6.31	)%		$	0.20
First Fiscal Quarter		$	8.74			$	8.61			$	7.89				(1.49	)%			(9.73	)%		$	0.20
Fiscal Year Ending March 31, 2014
Fourth Fiscal Quarter		$	8.67			$	9.15			$	8.14				5.53	%			(6.11	)%		$	0.20
Third Fiscal Quarter		$	8.57			$	9.02			$	8.05				5.25	%			(6.07	)%		$	0.20
Second Fiscal Quarter		$	8.30			$	8.47			$	7.77				2.04	%			(6.38	)%		$	0.20
First Fiscal Quarter		$	8.16			$	8.87			$	7.37				8.70	%			(9.68	)%		$	0.20

 

(1)	NAV per share is determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices. The NAVs shown are based on outstanding shares at the end of each period.

 

(2)	Calculated as of the respective high or low closing sales price divided by the quarter end NAV.

 

*	Distribution not yet declared.

**	NAV not yet determined.

 

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BUSINESS

Apollo Investment

Apollo Investment Corporation (“Apollo Investment,” “Company,” “AIC,” “we,” “us,” and “our”), 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 business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). In addition, for tax purposes we have elected to be treated as a regulated investment company (“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 secured and unsecured debt, loan investments and/or equity in private middle-market companies. We may also invest in the securities of public companies and structured products such as collateralized loan obligations and credit-linked notes. These structured products are typically a form a securitization in which the cash flows of a portfolio of loans are pooled and passed on to different classes of owners in various tranches.

Our portfolio is comprised primarily of investments in debt, including secured and unsecured debt of private middle-market companies that, in the case of senior secured loans, generally are not broadly syndicated and whose aggregate tranche size is less than $250 million. Our portfolio also includes equity interests such as common stock, preferred stock, warrants or options. In this prospectus, 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. secured and unsecured loans, other debt securities and equity, we may also invest a portion of the portfolio in other investment opportunities, including foreign securities and structured products. Most of the debt instruments we invest in are unrated or rated below investment grade, which is often an indication of size, credit worthiness and speculative nature relative to the capacity of the borrower to pay interest and principal.

Apollo Investment Management, L.P. (“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 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 our fiscal year ended March 31, 2015, we invested $2.2 billion across 60 new and 47 existing portfolio companies through a combination of primary and secondary debt investments. This compares to $2.8 billion across 81 new and 50 existing portfolio companies for the previous fiscal year ended March 31, 2014. Investments sold or repaid during the fiscal year ended March 31, 2015 totaled $2.3 billion versus $2.3 billion for the fiscal year ended March 31, 2014. The weighted average yields on our secured debt portfolio, unsecured debt portfolio and total debt portfolio as of March 31, 2015 at our current cost basis were 11.2%, 10.9% and 11.2%, respectively. At March 31, 2014, the yields were 10.8%, 11.5% and 11.1%, respectively. The portfolio yields may be higher than an investor’s yield on an investment in us due to sales load and other expenses. For the year ended March 31, 2015, the total return based on the change in market price per share and taking into account dividends and distributions, if any, reinvested in accordance with the dividend reinvestment plan was 1.9% versus 9.4% for the year ended March 31, 2014. Such returns do not reflect any sales load that stockholders may have paid in connection with their purchase of shares of our common stock.

 

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At March 31, 2015, our portfolio consisted of 105 portfolio companies and was invested 60% in secured debt, 14% in unsecured debt, 11% in structured products and other, 5% in preferred equity and 10% in common equity and warrants measured at fair value versus 111 portfolio companies invested 56% in secured debt, 27% in unsecured debt, 6% in structured products and other, 3% in preferred equity and 8% in common equity and warrants at March 31, 2014.

Since the initial public offering of Apollo Investment in April 2004 and through March 31, 2015, invested capital totaled $15.4 billion in 350 portfolio companies. Over the same period, Apollo Investment completed transactions with more than 100 different financial sponsors.

At March 31, 2015, 48% or $1.3 billion of our income-bearing investment portfolio is fixed rate debt and 52% or $1.4 billion is floating rate debt, measured at fair value. On a cost basis, 50% or $1.4 billion of our income-bearing investment portfolio is fixed rate debt and 50% or $1.4 billion is floating rate debt. At March 31, 2014, 58% or $1.7 billion of our income-bearing investment portfolio was fixed rate debt and 42% or $1.3 billion was floating rate debt, measured at fair value. On a cost basis, 58% or $1.7 billion of our income-bearing investment portfolio was fixed rate debt and 42% or $1.2 billion was floating rate debt.

About Apollo Investment Management

AIM, our investment adviser, is led by John Hannan, James Zelter and Edward Goldthorpe. Potential investment and disposition opportunities are generally approved by one or more committees composed of personnel across AGM, including Mr. Zelter and Mr. Goldthorpe, and/or Mr. Zelter or Mr. Goldthorpe depending on the underlying investment type and/or the amount of such investment. The composition of such committees and the overall approval process for Apollo Investment’s investments may change from time to time. AIM draws upon AGM’s more than 25 year history and benefits from the broader firm’s significant capital markets, trading and research expertise developed through investments in many core sectors in over 200 companies since inception.

About Apollo Investment Administration

In addition to furnishing us with office facilities, equipment, and clerical, bookkeeping and record keeping services, AIA, an affiliate of AGM, 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.

Operating and Regulatory Structure

Our investment activities are managed by AIM and supervised by our board of directors, a majority of whom are independent of AGM and its affiliates. AIM is an investment adviser that is registered under the Investment Advisers Act of 1940, or the Advisers Act. Under our investment advisory and management agreement, we pay AIM an annual base management fee based on our average gross assets as well as an incentive fee. See “Management—Investment Advisory and Management Agreement.”

As a BDC, we are required to comply with certain regulatory requirements. Also, while we are permitted to finance investments using debt, our ability to use debt is limited in certain significant respects. See “Regulation.” We have elected to be treated for federal income tax purposes as a RIC under Subchapter M of the Code. For more information, see “Certain U.S. Federal Income Tax Considerations.”

Investments

We seek to create a portfolio that includes primarily debt investments including secured loans and unsecured loans and, to a lesser extent, equity investments by investing, on an individual portfolio company

 

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basis, approximately $20 million to $250 million of capital, on average, in the securities of middle-market companies, as well as structured products such as collateralized loan obligations. The average investment size will vary as the size of our capital base varies. Our target portfolio consists primarily of long-term secured debt, as well as unsecured and mezzanine positions of private middle-market companies. Structurally, unsecured and mezzanine debt usually ranks subordinate in priority of payment to senior debt, such as bank debt, and is characterized as unsecured. As such, other creditors may rank senior to us in the event of an insolvency. However, unsecured and mezzanine debt ranks senior to common and preferred equity in a borrowers’ capital structure. Unsecured and mezzanine debt may have a fixed or floating interest rate. Additional income can be generated from upfront fees, call protection including call premiums, equity co-investments or warrants. We may also invest in debt and equity positions of structured products, such as collateralized loan obligations (“CLOs”) and credit-linked notes (“CLNs”). A CLO is a form of securitization in which the cash flows of a portfolio of loans are pooled and passed on to different classes of owners in various tranches. A CLN is a note where the payment of principal and/or interest is based on the performance of one or more debt obligations. CLNs are not securitizations.

Our principal focus is to provide capital to middle-market companies in a variety of industries. We generally seek to target companies that generate positive free cash flows or that may support debt investments with strong asset coverage, and we may provide debtor-in-possession or reserve financing. Additionally we may acquire investments in the secondary market if we believe the risk-adjusted returns are attractive.

The following is a representative list of the industries in which we have invested:

 

•    Aerospace and Defense   •    Aviation   •    Broadcasting & Entertainment   •    Buildings and Real Estate   •    Business Services   •    Cable Television   •    Cargo Transport   •    Chemicals   •    Consumer Products		•    Containers, Packaging and Glass   •    Distribution   •    Diversified Investment Vehicle   •    Diversified Natural Resources, Precious Metals and Minerals   •    Diversified Service   •    Education   •    Electronics   •    Energy		•    Environmental Services   •    Finance   •    Financial Services   •    Grocery   •    Healthcare   •    Home and Office Furnishings and Durable Consumer Products   •    Hotels, Motels, Inns and Gaming   •    Insurance		•    Leisure   •    Media   •    Mining   •    Oil and Gas   •    Packing   •    Printing and Publishing   •    Restaurants   •    Telecommunications   •    Transportation   •    Utilities

We may also invest in other industries if we are presented with attractive opportunities. In an effort to increase our returns and the number of investments that we can make, we may in the future seek to securitize our debt investments. To the extent we elect to include higher quality portfolio holdings in the securitization vehicle and retain lower quality holdings in our portfolio, investing in our shares may be riskier. To securitize debt investments, we may create a wholly owned subsidiary and contribute a pool of loans to the subsidiary. We may sell debt of or interests in the subsidiary on a non-recourse basis to purchasers whom we would expect to be willing to accept a lower interest rate to invest in investment-grade securities. We may use the proceeds of such sales to reduce indebtedness or to fund additional investments. We may also invest through special purpose entities or other arrangements, including total return swaps and repurchase agreements, in order to obtain non-recourse financing or for other purposes.

 

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We may invest, to the extent permitted by law, in the securities and instruments of other investment companies and in private funds. We may also co-invest on a concurrent basis with affiliates of ours, subject to compliance with applicable regulations and our allocation procedures. Certain types of 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.

At March 31, 2015, our portfolio consisted of 105 portfolio companies and was invested 60% in secured debt, 14% in unsecured debt, 11% in structured products and other, 5% in preferred equity and 10% in common equity and warrants measured at fair value.

Listed below are our top ten portfolio companies and industries based on their fair value and represented as a percentage of the portfolio as of March 31, 2015 and 2014, measured at fair value:

TOP TEN PORTFOLIO COMPANIES AND INDUSTRIES AS OF MARCH 31, 2015

 

PORTFOLIO COMPANY		% of Portfolio				INDUSTRY		% of Portfolio
Merx Aviation Finance, LLC			15.4	%		Business Services			15.6	%
U.S. Security Associates Holdings, Inc.			4.1	%		Aviation			15.4	%
PlayPower Holdings, Inc.			3.4	%		Oil and Gas			13.9	%
Miller Energy Resources, Inc.			2.5	%		Diversified Investment Vehicle			9.6	%
Spotted Hawk Development, LLC			2.4	%		Financial Services			4.0	%
Golden Hill CLO I, LLC			2.2	%		Chemicals			3.8	%
Maxus Capital Carbon SPE I, LLC			2.2	%		Leisure			3.4	%
AMP Solar (UK) Limited			1.9	%		Utilities			3.0	%
Skyline Data, News and Analytics LLC (Dodge Data & Analytics LLC)			1.9	%		Aerospace and Defense			2.9	%
My Alarm Center, LLC			1.8	%		Distribution			2.9	%

TOP TEN PORTFOLIO COMPANIES AND INDUSTRIES AS OF MARCH 31, 2014

 

PORTFOLIO COMPANY		% of Portfolio				INDUSTRY		% of Portfolio
Merx Aviation Finance Holdings II, LLC			12.2	%		Business Services			14.6	%
U.S. Security Associates Holdings, Inc.			4.0	%		Aviation			12.2	%
Playpower Holdings, Inc.			3.0	%		Oil and Gas			11.8	%
inVentiv Health, Inc.			2.8	%		Financial Services			7.4	%
Kronos, Inc.			2.8	%		Healthcare			6.6	%
First Data Corp.			2.7	%		Diversified Investment Vehicle			5.5	%
Asurion Corporation			2.7	%		Distribution			4.9	%
Ceridian Corp.			2.6	%		Chemicals			4.2	%
Miller Energy Resources, Inc.			2.5	%		Diversified Service			3.7	%
Accelerate Parent Corp. (American Tire)			2.1	%		Insurance			3.5	%

Listed below is the geographic breakdown of the portfolio based on fair value as of March 31, 2015 and 2014:

 

Geographic Region		% of Portfolio at March 31, 2015				Geographic Region		% of Portfolio at March 31, 2014
United States			89.8	%		United States			92.8	%
Western Europe			7.3	%		Western Europe			5.3	%
Cayman Islands			1.9	%		Cayman Islands			1.3	%
Australia			1.0	%		Australia			0.6	%
			100.0	%					100.0	%

 

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Investment Selection & Due Diligence

We are committed to a value oriented philosophy of, among other things, capital preservation and commit resources to managing risks associated with our investment portfolio. Our investment adviser conducts due diligence on prospective portfolio companies. In conducting its due diligence, our investment adviser uses information provided by the company and its management team, publicly available information, as well as information from their extensive relationships with former and current management teams, consultants, competitors and investment bankers and the direct experience of the senior partners of our affiliates.

Our investment adviser’s due diligence will typically include:

 

•

review of historical and prospective financial information;

 

•

on-site visits;

 

•

interviews with management, employees, customers and vendors of the potential portfolio company;

 

•

review of loan documents;

 

•

background checks; and

 

•

research relating to the company’s management, industry, markets, products and services, and competitors.

Upon the completion of due diligence and a decision to seek approval for an investment in a company, the professionals leading the proposed investment generally present the investment opportunity to and seek approval in accordance with our investment approval process. Additional due diligence with respect to any investment may be conducted on our behalf by attorneys and accountants prior to the closing of the investment, as well as other outside advisers, as appropriate.

Prospective portfolio company characteristics

We have identified several criteria that we believe are important in identifying and investing in prospective portfolio companies. These criteria provide general guidelines for our investment decisions; however, we caution you that not all of these criteria will be met by each prospective portfolio company in which we choose to invest. Generally, we seek to utilize our access to information generated by our investment professionals to identify investment candidates and to structure investments quickly and effectively.

Value orientation/positive cash flow

Our investment philosophy places a premium on fundamental analysis from an investor’s perspective and has a distinct value orientation. We focus on companies in which we can invest at relatively low multiples of operating cash flow and that are profitable at the time of investment on an operating cash flow basis. Typically, we do not expect to invest in start-up companies or companies having speculative business plans.

Experienced management

We generally seek to invest in portfolio companies that have experienced management teams. We also require the portfolio companies to have in place proper incentives to induce management to succeed and to act in concert with our interests as investors, including having significant equity interests.

 

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Strong competitive position in industry

We seek to invest in target companies that have developed leading market positions within their respective markets, have established businesses and are well positioned to capitalize on growth opportunities. We seek companies that demonstrate significant competitive advantages versus their competitors, which should help to protect their market position and profitability.

Exit strategy

We seek to invest in companies that we believe will provide a steady stream of cash flow to repay our loans. We expect that such internally generated cash flow, leading to the payment of interest on, and the repayment of the principal of, our investments in portfolio companies to be a key means by which we exit from our investments over time. In addition, we seek to invest in companies whose business models and expected future cash flows offer attractive exit possibilities. These companies include candidates for strategic acquisition by other industry participants and companies that may repay our investments through an initial public offering of common stock or another capital market transaction.

Liquidation value of assets

The prospective liquidation value of the assets, if any, collateralizing loans in which we invest is an important factor in our credit analysis. We emphasize both tangible assets, such as accounts receivable, inventory, equipment and real estate, and intangible assets, such as intellectual property, customer lists, networks and databases.

The investment approval process

Potential investment and disposition opportunities are generally approved by one or more committees composed of personnel across AGM, including Mr. Zelter and Mr. Goldthorpe, and/or Mr. Zelter or Mr. Goldthorpe depending on the underlying investment type and/or the amount of such investment. AGM personnel approving our investments do not receive compensation from us for such services.

Investment structure

Once we have determined that a prospective portfolio company is suitable for investment, we work with the management of that company and its other capital providers, including senior, junior and equity capital providers, to structure an investment.

We generally seek to structure our investments as secured loans with a direct lien on the assets or cash flows of the company that provide for increased downside protection in the event of insolvency while maintaining attractive risk-adjusted returns and current interest income. We generally seek for these secured loans to obtain security interests in the assets of our portfolio companies that serve as collateral in support of the repayment of these loans. This collateral may take the form of first or second priority liens on the assets of a portfolio company. In some cases, we may enter into debt investments that, by their terms, convert into equity or additional debt securities or defer payments (PIK) of interest after our investment. Also, in some cases our debt investments may be collateralized by a subordinated lien on some or all of the assets of the borrower. Typically, our loans have maturities of three to ten years.

We seek to tailor the terms of our investments to the facts and circumstances of the transaction and the prospective portfolio company, negotiating a structure that protects our rights and manages our risk while creating incentives for the portfolio company to achieve its business plan and improve its profitability. For

 

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example, in addition to seeking a senior position in the capital structure of our portfolio companies, we seek to limit the downside potential of our investments by:

 

•

requiring an expected total return on our investments (including both interest and potential equity appreciation) that compensates us for credit risk;

 

•

generally incorporating call protection into the investment structure where possible; and

 

•

negotiating covenants and information rights in connection with our investments that afford our portfolio companies flexibility in managing their businesses, but which are still consistent with our goal of preserving our capital. Such restrictions may include affirmative and negative covenants, default penalties, lien protection, change of control provisions and board rights, including either observation or participation rights. Our investments may include equity features, such as warrants or options to buy a minority interest in the portfolio company. Any warrants we receive with our debt securities generally require only a nominal cost to exercise, and thus, as a portfolio company appreciates in value, we may achieve additional investment return from this equity interest. We may structure the warrants to provide provisions protecting our rights as a minority-interest holder, as well as puts, or rights to sell such securities back to the company, upon the occurrence of specified events. In many cases, we may also seek to obtain registration rights in connection with these equity interests, which may include demand and “piggyback” registration rights.

We expect to hold most of our investments to maturity or repayment, but we may sell certain of our investments sooner if a liquidity event takes place such as a sale or recapitalization or worsening of credit quality of a portfolio company, among other reasons.

Ongoing relationships with portfolio companies

Monitoring

AIM monitors our portfolio companies on an ongoing basis and also monitors the financial trends of each portfolio company to determine if each is meeting its respective business plans and to assess the appropriate course of action for each company. In addition, senior investment professionals of AIM may take board seats or obtain board observation rights for our portfolio companies.

AIM has several methods of evaluating and monitoring the performance and fair value of our investments, which can include, but are not limited to, the assessment of success of the portfolio company in adhering to its business plan and compliance with covenants; periodic and regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor, to discuss financial position, requirements and accomplishments; comparisons to other portfolio companies in the industry; attendance at and participation in board meetings; and review of monthly and quarterly financial statements and financial projections for portfolio companies.

AIM also uses an investment rating system to characterize and monitor our expected level of returns on each investment in our portfolio. These ratings are just one of several factors that AIM uses to monitor our portfolio, are not in and of themselves determinative of fair value or revenue recognition and are presented for indicative purposes. AIM grades the credit risk of all investments on a scale of 1 to 5 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment (i.e., at the time of acquisition), although it may also take into account under certain circumstances the performance of the portfolio company’s business, the collateral coverage of the investment and other relevant factors.

Under this system, investments with a grade of 1 involve the least amount of risk to our initial cost basis. The trends and risk factors for this investment since origination or acquisition are generally favorable,

 

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which may include the performance of the portfolio company or a potential exit. Investments graded 2 involve a level of risk to our initial cost basis that is similar to the level of risk underwritten at the time of origination or acquisition. This portfolio company is generally performing in accordance with our analysis of its business and the full return of principal and interest or dividend is expected. Investments graded 3 indicate that the risk to our ability to recoup the cost of such investment has increased since origination or acquisition, but full return of principal and interest or dividend is expected. A portfolio company with an investment grade of 3 requires closer monitoring. Investments graded 4 indicate that the risk to our ability to recoup the cost of such investment has increased significantly since origination or acquisition, including as a result of factors such as declining performance and noncompliance with debt covenants, and we expect some loss of interest, dividend or capital appreciation, but still expect an overall positive internal rate of return on the investment. Investments graded 5 indicate that the risk to our ability to recoup the cost of such investment has increased materially since origination or acquisition and the portfolio company likely has materially declining performance. Loss of interest or dividend and some loss of principal investment is expected, which would result in an overall negative internal rate of return on the investment. For investments graded 4 or 5, AIM enhances its level of scrutiny over the monitoring of such portfolio company.

AIM monitors and, when appropriate, changes the investment ratings assigned to each investment in our portfolio. In connection with our valuation process, AIM reviews these investment ratings on a quarterly basis, and our audit committee monitors such ratings. It is possible that the grade of certain of these portfolio investments may be reduced or increased over time.

Managerial Assistance

As a BDC, we must offer, and must provide upon request, significant managerial assistance to certain of our portfolio companies. This assistance could involve, among other things, monitoring the operations of our portfolio companies, participating in board and management meetings, consulting with and advising officers of portfolio companies and providing other organizational and financial guidance. We may receive fees for these services.

Valuation Process

The following is a description of the steps we take each quarter to determine the value of our portfolio. Our portfolio of investments is recorded at fair value as determined in good faith by or under the direction of our board of directors pursuant to a written valuation policy and a consistently applied valuation process utilizing the input of our investment adviser, independent valuation firms, third party pricing services and the audit committee. Since this process necessarily involves the use of judgment and the engagement of independent valuation firms, there is no certainty as to the value of our portfolio investments. Investments for which market quotations are readily available are recorded in our financial statements at such market quotations if they are deemed to represent fair value. Market quotations may be deemed not to represent fair value where AIM believes that facts and circumstances applicable to an issuer, a seller or purchaser or the market for a particular security causes current market quotes not to reflect the fair value of the security, among other reasons. Examples of these events could include cases in which material events are announced after the close of the market on which a security is primarily traded, when a security trades infrequently causing a quoted purchase or sale price to become stale or in the event of a “fire sale” by a distressed seller.

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;

 

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(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 adviser’s 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 in good faith the fair value of each investment in our portfolio based on the input of our investment adviser, the applicable independent valuation firm, third party pricing services and the audit committee.

In addition, some of our investments provide for 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. Upon capitalization, PIK is subject to the fair value estimates associated with their related investments.

Competition

Our primary competitors in providing financing to middle-market companies include public and private funds, commercial and investment banks, commercial financing companies, other BDCs or hedge funds, and, to the extent they provide an alternative form of financing, private equity funds. Some of our existing and potential competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC or the restrictions that the Code imposes on us as a RIC. We also expect to use the industry information of AGM’s investment professionals to which we have access to assess investment risks and determine appropriate pricing for our investments in portfolio companies. In addition, we believe that the relationships of the senior managers of AIM and those of our affiliates enable us to learn about, and compete effectively for, financing opportunities with attractive middle-market companies in the industries in which we seek to invest.

Staffing

Apollo Investment has no employees. All of the services we utilize are provided by third parties. Our chief financial officer and chief compliance officer and additional personnel assisting them in such functions are employees of AIA and perform their respective functions under the terms of the administration agreement with AIA. Certain of our other executive officers are managing partners of our investment adviser. Our day-to-day investment operations are managed by our investment adviser, which draws on the broader capabilities of the Opportunistic Credit segment of AGM’s credit business. In addition, we generally reimburse AIA for our allocable portion of expenses incurred by it in performing its obligations under the administration agreement, including rent and our allocable portion of the cost of our chief financial officer, chief compliance officer and corporate secretary and their respective staffs.

Properties

As of March 31, 2015, we do not own any real estate or other physical properties materially important to our operation. Our administrative and principal executive offices are located at 730 Fifth Avenue, New York,

 

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NY 10019 and 9 West 57th Street, New York, NY 10019, respectively. We believe that our office facilities are suitable and adequate for our business as it is contemplated to be conducted.

Legal Proceedings

From time to time, we may become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business. Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. While we do not expect that the resolution of these matters if they arise would materially affect our business, financial condition or results of operations, resolution will be subject to various uncertainties and could result in the expenditure of significant financial and managerial resources.

On May 20, 2013, we were named as a defendant in a complaint by the bankruptcy trustee of DSI Renal Holdings and related companies (“DSI”). The complaint alleges, among other things, that Apollo Investment participated in a “fraudulent conveyance” involving a restructuring and subsequent sale of DSI in 2010 and 2011. The complaint seeks, jointly and severally from all defendants, (1) damages of approximately $425 million, of which Apollo Investment’s share would be approximately $41 million, and the return of 9,000 shares of common stock of DSI obtained by Apollo Investment in the restructuring and sale and (2) punitive damages. At this point in time, we are unable to assess whether we may have any liability in this action. We have not made any determination that this action is or may be material to us and we intend to vigorously defend our self. We have filed a motion to dismiss this litigation.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 imposes a wide variety of regulatory requirements on publicly-held companies and their insiders. Many of these requirements affect us. For example:

 

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Pursuant to Rule 13a-14 under the Securities Exchange Act of 1934 (“the 1934 Act”), our Chief Executive Officer and Chief Financial Officer must certify the accuracy of the financial statements contained in our periodic reports;

 

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Pursuant to Item 307 of Regulation S-K, our periodic reports must disclose our conclusions about the effectiveness of our disclosure controls and procedures;

 

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Pursuant to Rule 13a-15 of the 1934 Act, our management must prepare a report regarding its assessment of our internal control over financial reporting; and

 

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Pursuant to Item 308 of Regulation S-K and Rule 13a-15 of the 1934 Act, our periodic reports must disclose whether there were significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to material weaknesses.

The Sarbanes-Oxley Act requires us to review our current policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the regulations promulgated thereunder. We will continue to monitor our compliance with all regulations that are adopted under the Sarbanes-Oxley Act and will take actions necessary to ensure that we are in compliance therewith.

 

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MANAGEMENT

Our business and affairs are managed under the direction of our board of directors. The board of directors currently consists of eight members, five of whom are not “interested persons” of Apollo Investment as defined in Section 2(a)(19) of the 1940 Act. We refer to these individuals as our independent directors (the “Independent Directors”). Our board of directors elects our officers, who serve at the discretion of the board of directors.

BOARD OF DIRECTORS

Under our charter, our directors are divided into three classes. Each class of directors holds office for a three year term. At each annual meeting of our stockholders, the successors to the class of directors whose terms expire at such meeting will be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. Each director holds office for the term to which he or she is elected and until his or her successor is duly elected and qualifies.

Directors

As of the date of this prospectus, information regarding the board of directors is as follows:

 

Name		Age				Position		Director Since				Expiration of Term
Interested Directors
John J. Hannan			62			Chairman of the Board and Director			2004				2018
James C. Zelter			53			Chief Executive Officer and Director			2008				2016
Bradley J. Wechsler (1)			63			Director			2004				2016
Independent Directors
Hilary E. Ackermann			59			Director			2015				2018
Jeanette Loeb			63			Director			2011				2017
Frank C. Puleo			69			Director			2008				2017
R. Rudolph Reinfrank			60			Director			2013				2018
Carl Spielvogel			86			Director			2004				2017
Elliot Stein, Jr.			66			Director			2004				2016

 

(1)	Bradley J. Wechsler is an interested director since January 5, 2015.

The address for each director is c/o Apollo Investment Corporation, 9 West 57^th Street, New York, NY 10019.

Executive officers who are not directors

Information regarding our executive officers who are not directors is as follows:

 

Name		Age				Position
Edward J. Goldthorpe			38			President
Gregory W. Hunt			58			Chief Financial Officer and Treasurer
Cindy Z. Michel			41			Vice President and Chief Compliance Officer
Joseph D. Glatt			42			Chief Legal Officer, Vice President and Secretary

The address for each executive officer is c/o Apollo Investment Corporation, 9 West 57^th Street, New York, NY 10019.

 

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Board of Directors’ Oversight Role in Management

The board of directors’ role in management of Apollo Investment is oversight. As is the case with virtually all investment companies, including business development companies (as distinguished from operating companies), our service providers, primarily AIM, AIA and their affiliates, have responsibility for our day-to-day management, which includes responsibility for risk management (including management of investment performance and investment risk, valuation risk, issuer and counterparty credit risk, compliance risk and operational risk). As part of its oversight, the board of directors, acting at its scheduled meetings, or the chairman or the lead Independent Director acting between board of directors’ meetings, regularly interacts with and receives reports from senior personnel of service providers, including Apollo Investment’s Chief Executive Officer, its President and Chief Operating Officer and its Chief Financial Officer (or a senior representative of their respective offices), Apollo Investment’s and AIM’s Chief Compliance Officer and portfolio management personnel.

The audit committee of the board of directors (which consists of all the Independent Directors), meets regularly, and between meetings the audit committee chair maintains contact, with our independent registered public accounting firm, our Chief Financial Officer and the internal auditor. In addition, at its quarterly meetings, the audit committee meets with the independent valuation services that evaluate certain of our securities holdings for which there are not readily available market values. The board of directors also receives periodic presentations from senior personnel of AIM or its affiliates regarding risk management generally, as well as periodic presentations regarding specific operational, compliance or investment areas such as business continuity, personal trading, valuation, credit and investment research.

The board of directors has adopted policies and procedures designed to address certain of our risks. In addition, Apollo Investment, AIM, AIA and other of our service providers have adopted a variety of policies, procedures and controls designed to address our particular risks. However, it is not possible to eliminate all of the risks applicable to us. The board of directors also receives reports from our counsel or counsel to AIM and the board of directors’ own independent legal counsel regarding regulatory compliance and governance matters. The board of directors’ oversight role does not make the board of directors a guarantor of our investments or activities or the activities of any of our service providers on behalf of Apollo Investment.

Board of Directors Composition and Leadership Structure

The 1940 Act requires that at least a majority of our directors not be “interested persons” (as defined in the 1940 Act) of Apollo Investment. Currently, six of our nine directors are Independent Directors. The chairman of the board of directors is an interested person of Apollo Investment, and the Independent Directors have designated a Lead Independent Director who chairs meetings or executive sessions of the Independent Directors, reviews and comments on board of directors’ meeting agendas, represents the views of the Independent Directors to management and facilitates communication among the Independent Directors and their counsel and between management and the Independent Directors. The board of directors has determined that its leadership structure, in which over 60% of the directors are not affiliated with AIM, is appropriate in light of the services that AIM and its affiliates provide to us and potential conflicts of interest that could arise from these relationships.

Biographical Information

Directors

Our directors have been divided into two groups—Independent Directors and interested directors. Interested directors are interested persons as defined in the 1940 Act.

 

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Information About Each Director’s Experience, Qualifications, Attributes or Skills.

Additional information about each director follows (supplementing the information provided in the tables above) that describes some of the specific experiences, qualifications, attributes or skills that each director possesses which the board believes has prepared them to be effective directors. The board of directors believes that the significance of each director’s experience, qualifications, attributes or skills is an individual matter (meaning that experience that is important for one director may not have the same value for another) and that these factors are best evaluated at the board level, with no single director, or particular factor, being indicative of board effectiveness. However, the board of directors believes that directors need to have the ability to critically review, evaluate, question and discuss information provided to them, and to interact effectively with our management, service providers and counsel, in order to exercise effective business judgment in the performance of their duties; the board of directors believes that its members satisfy this standard. Experience relevant to having this ability may be achieved through a director’s educational background; business, professional training or practice (e.g., medicine, accounting or law), public service or academic positions; experience from service as a board member (including the board of directors of Apollo Investment) or as an executive of investment funds, public companies or significant private or not-for-profit entities or other organizations; and/or other life experiences. To assist them in evaluating matters under federal and state law, the directors are counseled by their own independent legal counsel, who participates in board of directors’ meetings and interacts with AIM, and also may benefit from information provided by our or AIM’s counsel; both board of directors and our counsel have significant experience advising funds and fund board members. The board of directors and its committees have the ability to engage other experts as appropriate. The board of directors evaluates its performance on an annual basis.

Independent Directors

Hilary E. Ackermann (59) Director. Ms. Ackermann became a Director of the Company in August 2015. Ms. Ackermann currently serves as a Director of Dynegy Inc., where she also serves as Chair of the Finance and Commercial Oversight Committee, and The Hartford Funds mutual fund complex. Ms. Ackermann was Chief Risk Officer with Goldman Sachs Bank USA from October 2008 until October 2011 where she also served as Vice Chair of the Bank Risk Committee, was a member of Community Investment, Business Standards and New Activities Committees; was a member of GS Group level Credit Policy and Capital Committees; and chaired GS Group level Operational Risk Committee. Ms. Ackermann served as Managing Director, Credit Department of Goldman Sachs & Co. from January 2002 until October 2008, as VP Credit Department from 1989 to 2001, and as an Associate in the Credit Department from 1985 to 1988. Prior to joining Goldman Sachs, Ms. Ackermann served as Assistant Department Head of the Credit Department at Swiss Bank Corporation from 1981 until 1985.

Jeanette Loeb (63) Director. Ms. Loeb became a Director of the Company in August 2011. Ms. Loeb currently serves as a Director of PetCareRx, Inc., and is a former Chairman and Chief Executive Officer of the company, a leading e-commerce pet pharmacy that sells pet medications, supplies and food directly to the consumer. Ms. Loeb joined PetCareRx, Inc. in 2001. From 1977 until 1994, Ms. Loeb was an investment banker at Goldman Sachs & Co., where she served as the head of the Structured Finance Department in the U.S. Ms. Loeb was named the first woman partner of Goldman Sachs & Co. in 1986 and served as a partner from 1986 to 1994. Ms. Loeb received an MBA from Harvard Business School and graduated Phi Beta Kappa from Wellesley College with a BA in economics. She currently serves on the board and the finance committee of New York City Center and the board for Alliance Bernstein Multi-Manager Alternative Fund, and has previously been on the board and audit committee of the United Nations Development Corporation, a member of the board of the Collegiate School, the Treasurer and a board member of the Society of Memorial Sloan Kettering, and a founding member of the Wellesley Business Leadership Council.

Frank C. Puleo (69) Director. Mr. Puleo became a Director of the Company in February 2008. Mr. Puleo currently serves as a Director of South Street Holdings, LLC (formerly known as CMET Finance

 

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Holdings, Inc.), a company that finances securities inventory for customers and dealers and licenses trade processing software, SLM Corp., a student loan company, and Syncora Capital Assurance, Inc., a monoline financial guaranty and insurance company. From 2006 to 2014, Mr. Puleo was a Director of CIFC Corp. (formerly known as CIFC Deerfield Corp.), a credit asset manager. Previously, Mr. Puleo was also a partner at Milbank, Tweed, Hadley & McCloy LLP where he advised clients on structured finance transactions, bank and bank holding company regulatory and securities law matters. Mr. Puleo became a partner of Milbank, Tweed, Hadley & McCloy LLP in 1978 and Co-Chair of the firm’s Global Finance Group in 1995 until retiring at the end of 2006. He was a member of the firm’s Executive Committee from 1982 to 1991 and from 1996 to 2002. Mr. Puleo served as a Lecturer at Columbia University School of Law from 1997 to 2001.

R. Rudolph Reinfrank (60) Director. Mr. Reinfrank became a Director of the Company in June 2013. Mr. Reinfrank currently serves as a Director of Parker Drilling Company Inc. Since October 2009 Mr. Reinfrank has served as the Managing General Partner of Riverford Partners, LLC, a strategic advisory and investment firm based in Los Angeles, CA (“Riverford”). Riverford acts as an investor, board member and strategic adviser to growth companies and companies in transition. In 2000, Mr. Reinfrank co-founded and served as a Managing General Partner of Clarity Partners, L.P. until 2009. In 1997, he co-founded and serves as a Managing General Partner of Rader Reinfrank & Co. In 2006, he co-founded Clarity China, L.P. Mr. Reinfrank is also a Senior Adviser to Pall Mall Capital, Limited (London) and Transnational Capital Corporation.

Carl Spielvogel (86) Director. Ambassador Spielvogel became a Director of the Company in March 2004. Ambassador Spielvogel was and is currently Chairman and Chief Executive Officer of Carl Spielvogel Enterprises, Inc., an international management and counseling company, from 1997 to 2000, and from 2001 to present. From 2000 to 2001, Ambassador Spielvogel served as U.S. Ambassador to the Slovak Republic, based in Bratislava, Slovakia. He served as a Director of Interactive Data Corporation, Inc. from 1996 to 2009, and as a member of its Audit Committee and Chairman of the Independent Shareholders Committee. From 1994 to 1997, Ambassador Spielvogel was Chairman and Chief Executive Officer of the United Auto Group, Inc., one of the first publicly-owned auto dealership groups. Earlier, Ambassador Spielvogel was Chairman and Chief Executive Officer of Backer Spielvogel Bates Worldwide, a global marketing communications company from 1985 to 1994. Ambassador Spielvogel is a trustee of the Metropolitan Museum of Art; a member of the Board of Trustees and Chairman of the Business Council of the Asia Society; a member of the Board of Trustees of Lincoln Center for the Performing Arts; a member of the Council on Foreign Relations; a member of the Executive Committee of the Council of American Ambassadors; a Trustee and member of the Executive Committee of the State University of New York, and a former Fellow of the Kennedy School of Government at Harvard University. Before becoming an Ambassador, he was a Governor of the United States Government Board of Broadcasting.

Elliot Stein, Jr. (66) Director. Mr. Stein became a Director of the Company in March 2004 and currently serves as lead Independent Director. Mr. Stein has also been a Director of Apollo Senior Floating Rate Fund Inc. since 2011 and a Director of Apollo Tactical Income Fund Inc. since 2013. He served as a Director of Bizzingo, Inc., from 2012 to 2013. He also served as Chairman of Acertas LLC and Senturion Forecasting (consulting firms) since 2013 and Caribbean International News Corporation from 1985 to 2013, and is a board member of various private companies including Multi-Pak Solutions and Cohere Communications. Mr. Stein was a Managing Director of Commonwealth Capital Partners and has served as a Director of VTG Holdings, Bargain Shop Holdings, Inc. and various other private companies. Mr. Stein is a Trustee of Claremont Graduate University and the New School University. He is a member of the Council on Foreign Relations. Mr. Stein received a BA from Claremont McKenna College.

Interested Directors

John J. Hannan (62) Chairman of the Board of Directors. Mr. Hannan became a Director of the Company in March 2004 and was elected as Chairman of the Board of Directors in August 2006. He served as the Chief Executive Officer from February 2006 to November 2008. Mr. Hannan, a senior partner of Apollo Management, L.P., co-founded Apollo Management, L.P. in 1990. He is also currently on the Board of Directors of EP Energy Corporation. Mr. Hannan formerly served as a Director of Vail Resorts, Inc. and Goodman Global, Inc.

 

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Bradley J. Wechsler (63) Director. Mr. Wechsler became a Director of the Company in April 2004. Mr. Wechsler was the Co-Chairman and Co-Chief Executive Officer of IMAX Corporation from May 1996 through April 2009 and is currently Chairman. Since January 2015, Mr. Wechsler is the Managing Partner of Elysium, LLC, a limited liability company that manages the family office for Leon Black, the CEO of Apollo Global Management, LLC (“AGM”). Previously Mr. Wechsler has had several executive positions in the entertainment and finance industries and has made a number of private investments. Mr. Wechsler is a Vice-Chairman of the board of the NYU Hospital and Medical Center, a member of the Executive Committee and chairs its Finance Committee. He also sits on the board of Math for America and is a member of the Academy of Motion Picture Arts and Sciences.

James Zelter (53) Chief Executive Officer and Director. Mr. Zelter became the Chief Executive Officer and a Director of the Company in 2006. Mr. Zelter is the Managing Partner of Apollo Capital Management, L.P., where he oversees the firm’s activities in a broad array of asset classes. Prior to joining Apollo, Mr. Zelter was with Citigroup and its predecessor companies from 1994 to 2006. He was responsible for the global expansion and strong financial performance of the Special Situations Investment Group, a proprietary investment group he founded within Citigroup’s Fixed Income Division. As head of Citigroup’s Special Situations Investment Group, Mr. Zelter was responsible for the acquisition of approximately $5 billion of non-performing loan portfolios and ancillary investments. While with Citigroup, Mr. Zelter also served on the Global Fixed Income Management Committee. In this role, he oversaw the firm’s High Yield Trading, Sales and Capital Market Groups. From 2003 to 2005, Mr. Zelter was Chief Investment Officer of Citigroup Alternative Investments. In addition, he was a standing member of the Citigroup Pension Investment Committee, the Salomon Smith Barney Capital Partners Investment Committee and the Citigroup Mezzanine Partners Investment Committee. Prior to joining Citigroup in 1994, Mr. Zelter was a High Yield Trader at Goldman Sachs & Co. Mr. Zelter is a board member of DUMAC, the investment management company that oversees the Duke Endowment and Duke Foundation, and is on the board of the Dalton School. Mr. Zelter has a BA in Economics from Duke University.

Executive Officers who are not directors

Joseph D. Glatt (42) Chief Legal Officer, Secretary and Vice President. Mr. Glatt was appointed Chief Legal Officer of the Company in 2014, Secretary in 2010 and Vice President in 2009. Mr. Glatt is also currently General Counsel of Apollo Capital Management, L.P., a position he has held since 2007. Since 2011 he has served as the Chief Legal Officer of Apollo Senior Floating Rate Fund Inc., and since 2013, he has served as the Chief Legal Officer of Apollo Tactical Income Fund Inc. Mr. Glatt joined Apollo in 2007 and serves as General Counsel for Apollo Capital Management, L.P. Prior to that time, Mr. Glatt was associated with the law firms of Simpson Thacher & Bartlett LLP from 1998 to 2003 and Schulte Roth & Zabel LLP from 2003 to 2007, in each case, primarily focusing on mergers and acquisitions, leveraged buyouts and capital markets activities. Mr. Glatt serves on the Board of Trustees for FamilyConnections, a community based counseling and family service agency, and also serves on the Board of Advisors for the Institute of Law and Economics, a joint research center of the Law School, Wharton and the Department of Economics at the University of Pennsylvania. Mr. Glatt received his JD from University of Pennsylvania Law School and graduated summa cum laude from Rutgers College with a BA in Political Science, Psychology and Hebraic Studies.

Edward J. Goldthorpe (38) President. Mr. Goldthorpe is President of the Company, Chief Investment Officer of Apollo Investment Management, and Senior Portfolio Manager, U.S. Opportunistic Credit. Mr. Goldthorpe joined Apollo in April 2012 and oversees the Opportunistic Credit platform within Apollo. Previously, Mr. Goldthorpe was employed by Goldman Sachs & Co. for 13 years. He most recently ran the Bank Loan Distressed Investing Desk and prior to that was a Managing Director in the Special Situations Group, running both their Middle Market Private Equity business and the Canadian business (CSSG). Prior to that, Mr. Goldthorpe worked in the High Yield Distressed business, the Merchant Banking Division and the Investment Banking Division. Mr. Goldthorpe received a B.A. in Commerce from Queen’s University in Kingston, Ontario. Mr. Goldthorpe currently serves on the Global Advisory Board for the Queen’s School of Business. He is also the Chairman of the Young Fellowship of The Duke of Edinburgh’s Award.

 

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Gregory W. Hunt (58) Chief Financial Officer and Treasurer. Mr. Hunt began his term as Chief Financial Officer and Treasurer of the Company in May 2012. Previously, Mr. Hunt was Executive Vice President and Chief Financial Officer for Yankee Candle, which he joined in April 2010. Prior to joining Yankee Candle, Mr. Hunt served as the Executive Vice President of Strategic and Commercial Development for Norwegian Cruise Lines from 2007 to 2009. Prior to joining Norwegian Cruise Lines, Mr. Hunt served as Chief Financial Officer and Chief Restructuring Officer of Tweeter Home Entertainment Group, Inc. from 2006 to 2007 and Chief Financial Officer and Co-Chief Executive of Syratech Corporation from 2001 to 2006. Prior to Syratech, Mr. Hunt held several senior financial leadership positions including Chief Financial Officer of NRT Inc., Culligan Water Technologies, Inc. and Samsonite Corporation. Mr. Hunt also serves as a Director of LogicSource, Inc. and as a member of the Board of Advisors for the University of Vermont School of Business. Mr. Hunt earned a bachelor’s degree in accounting and finance from the University of Vermont and is a Certified Public Accountant.

Cindy Z. Michel (41) Vice President and Chief Compliance Officer. Ms. Michel joined Apollo in 2007. Ms. Michel is also the Chief Compliance Officer of AGM. Prior to joining Apollo, Ms. Michel served as the Director of Compliance of the Private Equity Division and the Global Trading Strategies Group at Lehman Brothers. Prior to that, she was associated with the investment bank Credit-Suisse Securities as a member of its Compliance Department supporting the Private Equity and Investment Banking businesses. Before joining Credit-Suisse, Ms. Michel was associated with the law firm of DLA Piper. Ms. Michel graduated from Columbia University with an AB in English and Economics and holds a JD from Boston University School of Law.

COMMITTEES OF THE BOARD OF DIRECTORS

Audit committee

The audit committee operates pursuant to an audit committee charter approved by our board of directors. The charter sets forth the responsibilities of the audit committee, which include selecting or retaining each year an independent registered public accounting firm (the “auditors”) to audit our annual financial statements; reviewing and discussing with management and the auditors our annual audited financial statements, including disclosures made in management’s discussion and analysis, and recommending to the board of directors whether the audited financial statements should be included in our annual report on Form 10-K; reviewing and discussing with management and the auditors our quarterly financial statements prior to the filings of its quarterly reports on Form 10-Q; pre-approving the auditors’ engagement to render audit and/or permissible non-audit services; evaluating the qualifications, performance and independence of the auditors; reviewing preliminary valuations of the investment adviser and independent valuation firms and recommending valuations to the board of directors; and recommending compensation of the chief financial officer to the board of directors for determination. The audit committee is presently composed of six persons: Messrs. Reinfrank, Puleo, Spielvogel, Stein, Ms. Loeb and Ms. Ackermann, all of whom are Independent Directors and are otherwise considered independent under NASDAQ Marketplace Rule 5605(a)(2). Each member of the audit committee is expected to continue to serve on the audit committee after the Meeting. Mr. Reinfrank currently serves as the chairperson of the audit committee. Our board of directors has determined that Mr. Reinfrank is an “audit committee financial expert” as that term is defined under Item 401 of Regulation S-K under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The audit committee charter is available on our website (http://www.apolloic.com). During the fiscal year ended March 31, 2015, the audit committee met eight times.

Nominating and corporate governance committee

The nominating and corporate governance committee is responsible for selecting qualified nominees to be elected to the board of directors by stockholders; identifying, selecting or recommending qualified nominees to fill any vacancies on the board of directors or a committee thereof; developing and recommending to the board of directors a set of corporate governance principles applicable to us; overseeing the evaluation of the board of directors and management; and undertaking such other duties and responsibilities as may from time to time be

 

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delegated by the board of directors to the nominating and corporate governance committee. The nominating and corporate governance committee is presently composed of six persons: Messrs. Puleo, Reinfrank, Spielvogel, Stein, Ms. Loeb and Ms. Ackermann. Mr. Stein currently serves as the chairman of the nominating and corporate governance committee. The nominating and corporate governance committee has adopted a written nominating and corporate governance committee charter which is available on our website (www.apolloic.com). During the fiscal year ended March 31, 2015, the nominating and corporate governance committee met four times.

Compensation committee

The compensation committee is responsible for determining, or recommending to the board of directors for determining, the compensation of our chief executive officer and all other executive officers, paid directly by us, if any. The compensation committee also assists the board of directors with all matters related to compensation, as directed by the board of directors. The current members of the compensation committee are Messrs. Reinfrank, Puleo, Spielvogel, Stein, Ms. Loeb and Ms. Ackermann, each of whom is not an interested person of us for purposes of the 1940 Act and the NASDAQ corporate governance rules. As shown below, none of our executive officers is directly compensated by us and, as a result, the compensation committee does not produce and/or review and report on executive compensation practices. The compensation committee Charter is available on our website (www.apolloic.com). During the fiscal year ended March 31, 2015, the compensation committee met three times.

COMPENSATION OF DIRECTORS AND OFFICERS

The following table shows information regarding the compensation expected to be received by the independent directors and executive officers for the fiscal year ended March 31, 2015. No compensation is paid to directors who are “interested persons.”

 

Name

Aggregate compensation  from Apollo Investment

Pension or retirement benefits accrued as part of our expenses(1)

Total compensation  from Apollo Investment paid to director/ officer

Independent directors

R. Rudolph Reinfrank

$

171,000

None

$

171,000

Jeanette Loeb

156,000

None

156,000

Frank C. Puleo

154,500

None

154,500

Carl Spielvogel

156,000

None

156,000

Elliot Stein, Jr.

183,500

None

183,500

Interested directors

John J. Hannan

None

None

None

James C. Zelter(2)

None

None

None

Bradley J. Wechsler(3)

144,000

None

104,250

Executive Officers

Edward J. Goldthorpe

None

None

None

Gregory W. Hunt

None

None

None

Cindy Michel

None

None

None

Joseph Glatt

None

None

None

 

(1)	We do not have a profit sharing or retirement plan, and directors do not receive any pension or retirement benefits.

 

(2)	James C. Zelter is also an executive officer of Apollo Investment Corporation.

 

(3)	Effective January 5, 2015, Mr. Wechsler became an interested director. His compensation for the fiscal year ended March 1, 2015 is pro-rata based upon the portion of the fiscal year when he was an independent director.

The independent directors’ annual fee is $125,000. The independent directors also receive $2,500 plus reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each board meeting, $1,000

 

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plus reimbursement of reasonable out-of-pocket expenses incurred in connection with each committee meeting attended, and $1,500 for each telephonic committee or board meeting attended. In addition, the Lead Independent Director receives an annual fee of $25,000, the Chairman of the Audit Committee receives an annual fee of $15,000 and each chairman of any other committee receives an annual fee of $2,500 for additional services in these capacities. Further, we purchase directors’ and officers’ liability insurance on behalf of our directors and officers.

Additional information required by this item, including for example, compensation of officers and directors, is contained in the Registrant’s definitive Proxy Statement for its 2014 Annual Stockholders Meeting under the caption, “Compensation of Directors and Executive Officers” to be filed with the Securities and Exchange Commission within 120 days after March 31, 2015 and is incorporated herein by reference.

INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT

Management services

AIM serves as our investment adviser and is controlled by Apollo. AIM is registered as an investment adviser under the Advisers Act. Subject to the overall supervision of our board of directors, the investment adviser manages the day-to-day operations of, and provides investment advisory and management services to, Apollo Investment. Under the terms of an investment advisory and management agreement, AIM:

 

•

determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes;

 

•

identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio companies); and

 

•

closes and monitors the investments we make.

AIM’s services under the investment advisory and management agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to us are not impaired.

Management fee

Pursuant to the investment advisory and management agreement, we pay AIM a fee for investment advisory and management services consisting of two components—a base management fee and an incentive fee. For the fiscal years ended March 31, 2015, 2014 and 2013, we paid $73.60 million, $62.82 million and $55.7 million, respectively, in base management fees and expensed $53.18 million, $46.92 million and $41.1 million, respectively, in performance-based incentive fees.

The base management fee is calculated at an annual rate of 2.00% of our average gross assets. The base management fee is payable quarterly in arrears. The base management fee is calculated based on the average value of our gross assets net of payable for investments and cash equivalents purchased at the end of the two most recently completed calendar quarters. Base management fees for any partial month or quarter are appropriately prorated.

The incentive fee has two parts, as follows: one part is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, any expenses payable under the Administration Agreement, and any interest expense and dividends paid on any

 

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issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income does not include any realized capital gains computed net of all realized capital losses and unrealized capital depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, is compared to the rate of 1.75% per quarter (7% annualized). Our net investment income used to calculate this part of the incentive fee is also included in the amount of our gross assets used to calculate the 2% base management fee.

We pay AIM an incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows:

 

•

no incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed the performance threshold of 1.75%;

 

•

100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the performance threshold but does not exceed 2.1875% in any calendar quarter (8.75% annualized); and

 

•

20% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized).

The following is a graphical representation of the calculation of the income-related portion of the incentive fee:

Quarterly Incentive Fee Based on Net Investment Income

PRE-INCENTIVE FEE NET INVESTMENT INCOME

(EXPRESSED AS A PERCENTAGE OF THE VALUE OF NET ASSETS)

 

PERCENTAGE OF PRE-INCENTIVE FEE NET INVESTMENT INCOME

ALLOCATED TO INCOME-RELATED PORTION OF INCENTIVE FEE

These calculations are appropriately pro rated for any period of less than three months. The effect of the fee calculation described above is that if pre-incentive fee net investment income is equal to or exceeds 2.1875%, AIM will receive a fee of 20% of our pre-incentive fee net investment income for the quarter. You should be aware that a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debt investments. Accordingly, an increase in interest rates would make it easier for us to meet or exceed the incentive fee performance threshold and may result in a substantial increase of the amount of incentive fees payable to our investment adviser with respect to pre-incentive fee net investment income. Furthermore, since the performance threshold is based on a percentage of our net asset value, decreases in our net asset value make it easier to achieve the performance threshold.

The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory and Management Agreement, as of the termination date) and will equal 20% of our realized capital gains for each calendar year computed net of all realized capital losses and unrealized capital depreciation and incorporating unrealized depreciation on a gross investment-by-investment basis at the end of such year. Capital gains with respect to any investment will equal the difference between the proceeds from the sale of such investment and the accreted or amortized cost basis of such investment.

 

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Examples of Quarterly Incentive Fee Calculation

Example 1: Income Related Portion of Incentive Fee (*):

Alternative 1

Assumptions

Investment income (including interest, dividends, fees, etc.) = 1.25%

Performance threshold (1) = 1.75%

Management fee (2) = 0.50%

Other expenses (legal, accounting, custodian, transfer agent, etc.) (3) = 0.20%

Pre-incentive fee net investment income

(investment income—(management fee + other expenses)) = 0.55%

Pre-incentive net investment income does not exceed performance threshold, therefore there is no incentive fee.

Alternative 2

Assumptions

Investment income (including interest, dividends, fees, etc.) = 2.70%

Performance threshold (1) = 1.75%

Management fee (2) = 0.50%

Other expenses (legal, accounting, custodian, transfer agent, etc.) (3) = 0.20%

Pre-incentive fee net investment income

(investment income—(management fee + other expenses)) = 2.00%

Incentive fee = 100% × pre-incentive fee net investment income, in excess of the performance threshold (4)

= 100% × (2.00% – 1.75%)

= 0.25%

Alternative 3

Assumptions

Investment income (including interest, dividends, fees, etc.) = 3.00%

Performance threshold (1) = 1.75%

Management fee (2) = 0.50%

Other expenses (legal, accounting, custodian, transfer agent, etc.) (3) = 0.20%

Pre-incentive fee net investment income

(investment income—(management fee + other expenses)) = 2.30%

Incentive fee = 100% × (2.1875% – 1.75%) + (20% × (pre-incentive fee net investment income—

2.1875%))

= 0.4375%

Incentive fee = (100% × 0.4375%) + (20% × (2.30% – 2.1875%))

= 0.4375% + (20% × 0.1125%)

= 0.4375% + 0.0225%

= 0.46%

 

(*)	The hypothetical amount of pre-incentive fee net investment income shown is based on a percentage of total net assets.

 

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(1)	Represents 7.0% annualized performance threshold.

 

(2)	Represents 2.0% annualized management fee.

 

(3)	Excludes organizational and offering expenses.

 

(4)	This provides our investment adviser with an incentive fee of 20% on all of our pre-incentive fee net investment income when our net investment income equals or exceeds 2.1875% in any calendar quarter.

Example 2: Capital Gains Portion of Incentive Fee:

Alternative 1:

Assumptions

 

•

Year 1: $20 million investment made in Company A (“Investment A”), and $30 million investment made in Company B (“Investment B”)

 

•

Year 2: Investment A sold for $50 million and fair market value (“FMV”) of Investment B determined to be $32 million

 

•

Year 3: FMV of Investment B determined to be $25 million

 

•

Year 4: Investment B sold for $31 million

The capital gains portion of the incentive fee would be:

 

•

Year 1: None

 

•

Year 2: Capital gains incentive fee of $6 million ($30 million realized capital gains on sale of Investment A multiplied by 20%)

 

•

Year 3: None

$5 million (20% multiplied by ($30 million cumulative capital gains less $5 million cumulative capital depreciation)) less $6 million (previous capital gains fee paid in Year 2)

 

•

Year 4: Capital gains incentive fee of $200,000

$6.2 million ($31 million cumulative realized capital gains multiplied by 20%) less $6 million (capital gains fee taken in Year 2)

Alternative 2

Assumptions

 

•

Year 1: $20 million investment made in Company A (“Investment A”), $30 million investment made in Company B (“Investment B”) and $25 million investment made in Company C (“Investment C”)

 

•

Year 2: Investment A sold for $50 million, FMV of Investment B determined to be $25 million and FMV of Investment C determined to be $25 million

 

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•

Year 3: FMV of Investment B determined to be $27 million and Investment C sold for $30 million

 

•

Year 4: FMV of Investment B determined to be $35 million

 

•

Year 5: Investment B sold for $20 million

The capital gains incentive fee, if any, would be:

 

•

Year 1: None

 

•

Year 2: $5 million capital gains incentive fee

 

•

20% multiplied by $25 million ($30 million realized capital gains on Investment A less unrealized capital depreciation on Investment B)

 

•

Year 3: $1.4 million capital gains incentive fee (1)

 

•

$6.4 million (20% multiplied by $32 million ($35 million cumulative realized capital gains less $3 million unrealized capital depreciation)) less $5 million capital gains fee received in Year 2

 

•

Year 4: None

 

•

Year 5: None

$5 million (20% multiplied by $25 million (cumulative realized capital gains of $35 million less realized capital losses of $10 million)) less $6.4 million cumulative capital gains fee paid in Year 2 and Year 3”

Payment of our expenses

All investment professionals of the investment adviser and their respective staffs when and to the extent engaged in providing investment advisory and management services, and the compensation and routine overhead expenses of such personnel allocable to such services, are provided and paid for by AIM. We bear all other costs and expenses of our operations and transactions, including those relating to: calculation of our net asset value (including the cost and expenses of any independent valuation firm); expenses incurred by AIM payable to third parties, including agents, consultants or other advisers, in monitoring our financial and legal affairs and in monitoring our investments and performing due diligence on our prospective portfolio companies; interest payable on debt, if any, incurred to finance our investments; offerings of our common stock and other securities; investment advisory and management fees; fees payable to third parties, including agents, consultants or other advisers, relating to, or associated with, evaluating and making investments; transfer agent and custodial fees; registration fees; listing fees; taxes; independent directors’ fees and expenses; costs of preparing and filing reports or other documents of the SEC; the costs of any reports, proxy statements or other notices to stockholders, including printing costs; our allocable portion of the fidelity bond, directors’ and officers’ errors and omissions liability insurance, and any other insurance premiums; direct costs and expenses of administration, including auditor and legal 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 compliance officer, chief financial officer and corporate secretary and their respective staffs.

 

(1)

As illustrated in Year 3 of Alternative 1 above, if Apollo Investment were to be wound up on a date other than December 31st of any year, Apollo Investment may have paid aggregate capital gain incentive fees that are more than the amount of such fees that would be payable if Apollo Investment had been wound up on December 31st of such year.

 

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Duration and termination

The continuation of our investment advisory and management agreement was approved by our board of directors on March 12, 2015. Unless terminated earlier as described below, it will remain in effect from year to year if approved annually by our board of directors or by the affirmative vote of the holders of a majority of our outstanding voting securities, including, in either case, approval by a majority of our directors who are not “interested persons” as defined in the 1940 Act. The investment advisory and management agreement will automatically terminate in the event of its assignment. Either party may terminate the investment advisory and management agreement without penalty upon not more than 60 days’ written notice to the other party. See “Risk Factors—Risks relating to our business and structure—We are dependent upon AIM’s key personnel for our future success and upon their access to Apollo’s investment professionals and partners.”

Indemnification

The investment advisory and management agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or reckless disregard of its duties and obligations, AIM and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from Apollo Investment for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of AIM’s services under the investment advisory and management agreement or otherwise as an investment adviser of Apollo Investment.

Organization of the investment adviser

AIM is a Delaware limited partnership that is registered as an investment adviser under the Advisers Act. The principal executive offices of AIM are at 9 West 57th Street, New York, NY 10019.

Portfolio Managers

AIM, our investment adviser, is led by John Hannan, James C. Zelter and Edward Goldthorpe. Potential investment and disposition opportunities are generally approved by one or more committees comprised of personnel across AGM, including Mr. Zelter and Mr. Goldthorpe, and/or Mr. Zelter or Mr. Goldthorpe depending on the underlying investment type and/or the amount of such investment. The composition of such committees and the overall approval process for our investments may change from time to time. AIM draws upon AGM’s more than 25 year history and benefits from the broader firm’s significant capital markets, trading and research expertise developed through investments in many core sectors in over 200 companies since inception.

Within the context of the structure described above, the following individuals (the “Portfolio Managers”) have senior responsibility for the management of our investment portfolio: Edward Goldthorpe, James C. Zelter, Tanner Powell, Justin Sendak and Robert Ruberton. Mr. Goldthorpe is also AIM’s Chief Investment Officer and has primary responsibility for the day-to-day implementation and management of our investment portfolio.

 

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Other Accounts Managed. As of March 31, 2015 (and in the case of Mr. Powell, as of June 30, 2015), the Portfolio Managers were primarily responsible for the day-to-day portfolio management of the following accounts:

 

Name of Portfolio Manager		Type of Accounts		Total Number of Accounts Managed				Total Assets (in millions) (1)				Number of Accounts Managed for which Advisory Fee is Based on Performance				Total Assets for which Advisory Fee is Based on Performance (in millions) (2)
Edward Goldthorpe		Registered Investment Companies:			None				—				—				—
		Other Pooled Investment Vehicles:			2			$	3,568				2			$	3,568
		Other Accounts:			3			$	1,337				3			$	1,337
James C. Zelter		Registered Investment Companies:			None				—				—				—
		Other Pooled Investment Vehicles:			None				—				—				—
		Other Accounts:			1				601				—				—
Tanner Powell		Registered Investment Companies:			None				—				—				—
		Other Pooled Investment Vehicles:			None				—				—				—
		Other Accounts:			None				—				—				—
Justin Sendak		Registered Investment Companies:			None				—				—				—
		Other Pooled Investment Vehicles:			None				—				—				—
		Other Accounts:			None				—				—				—
Robert Ruberton		Registered Investment Companies:			None				—				—				—
		Other Pooled Investment Vehicles:			6			$	4,786				6			$	4,786
		Other Accounts:			9			$	2,268				8			$	1,891

 

(1)	Total assets represents assets under management as defined by Apollo Global Management, LLC, which includes unfunded commitments.

 

(2)	Represents the assets under management of the accounts managed that generate incremental fees in addition to management fees.

 

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Compensation. AIM’s financial arrangements with the Portfolio Managers, its competitive compensation and its career path emphasis at all levels reflect the value senior management places on key resources. Compensation may include a variety of components and may vary from year to year based on a number of factors. The principal components of compensation include base compensation and discretionary compensation.

Base Compensation. Generally, Portfolio Managers receive an annual salary that is consistent with the market rate of annual salaries paid to similarly situated investment professionals.

Discretionary Compensation. Portfolio Managers also receive discretionary compensation generally consisting of two components: an annual bonus and carried interest.

 

•

Annual Bonus. Generally, a Portfolio Manager receives an annual bonus based on such person’s individual performance, operational performance for the Apollo-advised accounts for which such person serves, and such Portfolio Manager’s impact on the overall operating performance and potential to contribute to long-term value and growth. A portion of each annual bonus may be deferred, and, at the discretion of Apollo, may be in the form of cash or equity of an Apollo entity, such as restricted stock units of Apollo Global Management, LLC.

 

•

Carried Interest. Generally, a Portfolio Manager receives carried interests with respect to the Apollo-advised accounts for which such person serves as a Portfolio Manager, subject to standard terms and conditions, including vesting.

Material Conflicts of Interest. Actual or apparent conflicts of interest may arise when a Portfolio Manager has day-to-day management responsibilities with respect to more than one fund or other account.

Certain inherent conflicts of interest arise from the fact that the Portfolio Managers, AIM and its affiliates provide investment management services both to us and the other Apollo-advised accounts, including other funds, client accounts, proprietary accounts and any other investment vehicles that AIM and its affiliates may establish from time to time, in which we will not have an interest. The Portfolio Managers, AIM and its affiliates may give advice and recommend securities to the other Apollo-advised accounts that may differ from advice given to, or securities recommended or bought for, us, even though their investment objectives may be the same or similar to ours.

AIM will seek to manage potential conflicts of interest in good faith; nonetheless, the portfolio strategies employed by the Portfolio Managers, AIM and its affiliates in managing the other Apollo-advised accounts could conflict with the transactions and strategies employed by the Portfolio Managers in managing us and may affect the prices and availability of the securities and instruments in which we invest. Conversely, participation in specific investment opportunities may be appropriate, at times, for both us and the other Apollo-advised accounts. It is the policy of AIM to generally share appropriate investment opportunities (and sale opportunities) with the other Apollo-advised accounts to the extent consistent with applicable legal requirements. In general, this policy will result in such opportunities being allocated pro rata among us and the other Apollo-advised accounts. Nevertheless, investment and/or opportunities may be allocated other than on a pro rata basis, to the extent it is done in good faith and does not, or is not reasonably expected to, result in an improper disadvantage or advantage to one participating Apollo-advised account as compared to another participating Apollo-advised account.

In the event investment opportunities are allocated among us and the other Apollo-advised accounts, we may not be able to structure its investment portfolio in the manner desired. Although AIM endeavors to allocate investment opportunities in a fair and equitable manner, it is possible that we may not be given the opportunity to participate in certain investments made by the other Apollo-advised accounts or portfolio managers affiliated with AIM. Furthermore, we and the other Apollo-advised accounts may make investments in securities where the

 

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prevailing trading activity may make impossible the receipt of the same price or execution on the entire volume of securities purchased or sold by us and the other Apollo-advised accounts. When this occurs, the various prices may be averaged, and we will be charged or credited with the average price. Thus, the effect of the aggregation may operate on some occasions to our disadvantage. In addition, under certain circumstances, we may not be charged the same commission or commission equivalent rates in connection with a bunched or aggregated order.

It is possible that other Apollo-advised accounts may make investments in the same or similar securities at different times and on different terms than us. From time to time, we and the other Apollo-advised accounts may make investments at different levels of an issuer’s capital structure or otherwise in different classes of an issuer’s securities. Such investments may inherently give rise to conflicts of interest or perceived conflicts of interest between or among the various classes of securities that may be held by such entities. Conflicts may also arise because portfolio decisions regarding us may benefit the other Apollo-advised accounts. For example, the sale of a long position or establishment of a short position by us may impair the price of the same security sold short by (and therefore benefit) one or more Apollo-advised accounts, and the purchase of a security or covering of a short position in a security by us may increase the price of the same security held by (and therefore benefit) one or more Apollo-advised accounts.

Although the professional staff of AIM will devote as much time to our management as AIM deems appropriate to perform its obligations, the professional staff of AIM may have conflicts in allocating its time and services among us and AIM’s other investment vehicles and accounts. AIM and its affiliates are not restricted from forming additional investment funds, from entering into other investment advisory relationships or from engaging in other business activities, even though such activities may be in competition with us and/or may involve substantial time and resources of AIM and its professional staff. These activities could be viewed as creating a conflict of interest in that the time and effort of the members of AIM and their officers and employees will not be devoted exclusively to our business but will be allocated between our business and the management of the monies of other clients of AIM.

Variation in Compensation. A conflict of interest may arise where the financial or other benefits available to a Portfolio Manager differ among the accounts that he or she manages. If the structure of AIM’s management fee or the Portfolio Manager’s compensation differs among accounts (such as where certain accounts pay higher management fees or performance based management fees), the Portfolio Managers may be motivated to favor certain accounts over others. The Portfolio Managers also may be motivated to favor accounts in which they have investment interests, or in which AIM or its affiliates have investment interests. Similarly, the desire to maintain assets under management or to enhance a Portfolio Manager’s performance record or to derive other rewards, financial or otherwise, could influence the Portfolio Manager in affording preferential treatment to those accounts that could most significantly benefit the Portfolio Manager. For example, as reflected above, if a Portfolio Manager manages accounts which have performance fee arrangements, certain portions of his or her compensation will depend on the achievement of performance milestones on those accounts. The Portfolio Manager could be incented to afford preferential treatment to those accounts and thereby be subject to a potential conflict of interest.

We and AIM have adopted compliance policies and procedures that are reasonably designed to address the various conflicts of interest that may arise for AIM and its staff members. However, there is no guarantee that such policies and procedures will be able to detect and prevent every situation in which an actual or potential conflict may arise.

 

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Beneficial Ownership of Securities. The following table sets forth the dollar range of our equity securities beneficially owned by each of the Portfolio Managers as of March 31, 2015 (and in the case of Mr. Powell, as of June 30, 2015).

 

Name of Portfolio Manager		Dollar Range of Equity Securities in Apollo Investment (1)
Tanner Powell			$1-$10,000
Edward Goldthorpe			$100,001-$500,000
Robert Ruberton			$10,001-$50,000
Justin Sendak			$10,001-$50,000
James C. Zelter			over $1,000,000

 

(1)	Dollar ranges are as follows: None, $1—$10,000, $10,001—$50,000, $50,001—$100,000, $100,001—$500,000, $500,001—$1,000,000 or over $1,000,000.

Board Approval of the Investment Advisory and Management Agreement

At a meeting of our board of directors held on March 12, 2015, the board, including our directors who are not “interested persons” as defined in the 1940 Act, voted to approve the continuation of the investment advisory and management agreement between us and AIM for another annual period in accordance with the requirements of the 1940 Act. Our independent directors had the opportunity to consult in executive session with their counsel regarding the approval of such agreement. In reaching a decision to approve the continuation of the investment advisory and management agreement, our board of directors reviewed a significant amount of information and considered, among other things:

 

•

the nature, extent and quality of the advisory and other services provided and to be provided to us by the investment adviser;

 

•

the investment performance of us and our investment adviser;

 

•

the reasonableness of the fee payable by us to the investment adviser in light of comparative performance, expense and advisory fee information, costs of the services provided, and profits realized and benefits derived or to be derived by the investment adviser from its relationship with us;

 

•

the potential for economies of scale to be realized by the investment adviser in managing our assets and the extent to which material economies of scale may be shared with us; and

 

•

various other matters.

In approving the continuation of the investment advisory and management agreement, our board of directors, including the directors who are not “interested persons,” made the following determinations:

 

•

Nature, Extent and Quality of Services. Our board of directors received and considered information regarding the nature, extent and quality of the investment selection process employed by the investment adviser. In addition, our board of directors received and considered other information regarding the administrative and other services rendered to us by affiliates of the investment adviser and noted information received at regular meetings throughout the year related to the services rendered by the investment adviser in its management of our affairs. Our board of directors also considered the backgrounds and responsibilities of the investment adviser’s senior personnel and their qualifications and experience in connection with the types of investments made by us. The board noted recent additions to the investment adviser’s personnel and the investment adviser’s commitment to providing us with qualified investment and compliance personnel. Our

 

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board also considered the financial resources available to the investment adviser. Our board of directors determined that the nature, extent and quality of the services provided or to be provided by the investment adviser are adequate and appropriate.

 

•

Investment Performance. Our board of directors reviewed the long-term and short-term investment performance of Apollo Investment and the investment adviser, as well as comparative data with respect to the long-term and short-term investment performance of other externally-managed business development companies. Our board of directors concluded that our investment performance was sufficient.

 

•

The reasonableness of the fee payable by us to the investment adviser. Our board of directors considered comparative data based on publicly available information and information provided by a third party retained to provide comparative data on other business development companies with respect to services rendered and the advisory fees (including the management fees and incentive fees) of other business development companies as well as our operating expenses and expense ratio compared to other business development companies, including business development companies with similar investment objectives. Based upon its review, the board of directors concluded that the fee schedule is comparable with the fee schedules of business development companies with similar investment objectives. Additionally, our board of directors concluded that our investment adviser’s investment staff appears sufficient to support our investment program and our investment adviser’s parent company appears willing and able to support our investment adviser’s investment activities through shared resources and financial commitments.

 

•

Economies of Scale. Our board of directors considered information about the potential of the investment adviser to realize economies of scale in managing our assets, and determined that at this time there were no material economies of scale to be realized by the investment adviser managing our assets and that, to the extent future material economies of scale were not shared, our board of directors would seek to have such economies of scale shared with us.

Based on the information reviewed and the discussions above, our directors (including those directors who are not “interested persons”) concluded that the terms of the investment advisory and management agreement, including the fee rates thereunder, are fair and reasonable in relation to the services provided and approved the continuation of the investment advisory and management agreement with the investment adviser as being in the best interests of Apollo Investment and its stockholders.

In view of the wide variety of factors that our board of directors considered in connection with its evaluation of the investment advisory and management agreement, it is not practical to quantify, rank or otherwise assign relative weights to the specific factors our board considered in reaching its decision. Our board of directors did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate determination of our board of directors. Rather, our board of directors based its approval on the totality of information presented to, and reviewed by, it. In considering the factors discussed above, individual directors may have given different weights to different factors.

ADMINISTRATION AGREEMENT

Pursuant to a separate administration agreement, AIA furnishes us with office facilities, equipment and clerical, bookkeeping and record keeping services at such facilities. Under the administration agreement, AIA also performs, or oversees the performance of, our required administrative services, which include, among other things, being responsible for the financial records that we are required to maintain and preparing reports to our stockholders and reports filed with the SEC. In addition, AIA assists us in determining and publishing our net asset value, oversees the preparation and filing of our tax returns and the printing and dissemination of reports to

 

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our stockholders, and generally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others. Payments under the administration agreement are equal to an amount based upon our allocable portion of AIA’s overhead in performing its obligations under the administration agreement, including rent and our allocable portion of the cost of our chief compliance officer and chief financial officer and their respective staffs. Under the administration agreement, AIA also provides on our behalf managerial assistance to those portfolio companies to which we are required to provide such assistance. Either party may terminate the administration agreement without penalty upon 60 days’ written notice to the other party.

At the fiscal years ended March 31, 2015, 2014 and 2013, expenses accrued under the administration agreement were $5.85 million, $5.6 million and $4.39 million, respectively. For administrative expenses accrued during the most recently completed fiscal quarter, please see “Management’s Discussion and Analysis of Financial Condition and Result of Operations—Results of Operations—Expenses.”

Indemnification

The administration agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or reckless disregard of its duties and obligations, AIA and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of AIA’s services under the administration agreement or otherwise as administrator for us.

LICENSE AGREEMENT

We have entered into a license agreement with AGM pursuant to which AGM has agreed to grant us a non-exclusive, royalty-free license to use the name “Apollo.” Under this agreement, we have the right to use the “Apollo” name, for so long as AIM or one of its affiliates remains our investment adviser. Other than with respect to this limited license, we will have no legal right to the “Apollo” name. This license agreement will remain in effect for so long as the investment advisory and management agreement with our investment adviser is in effect.

 

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CERTAIN RELATIONSHIPS

We have entered into an investment advisory and management agreement with AIM. Certain of our senior officers and our chairman of the board of directors have ownership and financial interests in AIM. Certain of our senior officers also serve as principals of other investment managers affiliated with AIM that may in the future manage investment funds with investment objectives similar to ours. In addition, our executive officers and directors and the partners of our investment adviser, AIM, serve or may serve as officers, directors or principals of entities that operate in the same or related line of business as we do, or of investment funds managed by its affiliates, although we may not be given the opportunity to participate in certain investments made by investment funds managed by advisers affiliated with AIM. However, our investment adviser and its affiliates intend to allocate investment opportunities in a fair and equitable manner consistent with our investment objectives and strategies so that we are not disadvantaged in relation to any other client.

We have entered into a royalty-free license agreement with AGM, pursuant to which AGM has agreed to grant us a non-exclusive license to use the name “Apollo.” Under the license agreement, we have the right to use the “Apollo” name for so long as AIM or one of its affiliates remains our investment adviser. In addition, we rent office space from AIA, an affiliate of AIM, and pay Apollo Administration our allocable portion of overhead and other expenses incurred by Apollo Administration in performing its obligations under our administration agreement with AIA, including our allocable portion of the cost of our chief financial officer and chief compliance officer and their respective staffs, which can create conflicts of interest that our board of directors must monitor. We may invest, to the extent permitted by law, on a concurrent basis with affiliates of AIM, subject to compliance with applicable regulations and our allocation procedures.

 

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CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS

As of January 14, 2016, to our knowledge, there were no persons that owned 25% or more of our outstanding voting securities, and no person would be deemed to control us, as such term is defined in the 1940 Act.

The following table sets forth, as of January 14, 2016, certain ownership information with respect to our common stock for each person whom we believe, based upon Schedule 13D, Schedule 13G, Form 13F or other filings by such person with the SEC and other information obtained from such person, may beneficially own 5% or more of our outstanding common stock, and for all officers and directors as a group as of January 14, 2016. Unless otherwise indicated, we believe that each beneficial owner set forth in the table has sole voting and investment power over such securities.

 

Name and address

Type of ownership (1)

Shares owned

Percentage of common stock outstanding (2)

FMR LLC (3)

Beneficial

12,106,855

5.31

%

Thornburg Investment Management Inc. (4)

Beneficial

24,804,855

10.87

%

All officers and directors as a group (12 persons) (5)

Beneficial

608,840

*

 

*	Represents less than 1%.

 

(1)	All of our common stock is owned of record by Cede & Co., as nominee of The Depository Trust Company.

 

(2)	Based on 228,168,622 shares of common stock outstanding on January 14, 2016.

 

(3)

The principal address for FMR LLC (“FMR”) is 245 Summer Street, Boston, Massachusetts 02210. Information obtained from a Form 13F filed by FMR with the SEC reporting share ownership as of September 30, 2015. Based on that filing, FMR maintains the sole power to vote 622,505 shares and has no power to vote 11,484,350 shares and has shared power with investment advisers under common control to dispose of 12,106,855 shares.

 

(4)

The principal address for Thornburg Investment Management Inc. (“Thornburg”) is 2300 North Ridgetop Road, Santa Fe, New Mexico 87506. Information obtained from a Form 13F filed by Thornburg with the SEC reporting share ownership as of September 30, 2015. Based on that filing, Thornburg maintains the sole power to vote or dispose of 24,804,855 shares.

 

(5)	The address for all officers and directors is c/o Apollo Investment Corporation, 9 West 57th Street, New York, NY 10019.

The following table sets forth the dollar range of our equity securities beneficially owned by each of our directors as of January 14, 2016. Information as to the beneficial ownership is based on information furnished to Apollo Investment Corporation by such persons. (We are not part of a “family of investment companies” as that term is defined in the 1940 Act).

 

Name of Director		Dollar Range of Equity Securities in Apollo Investment Corporation (1)
Independent Directors
Hilary E. Ackermann			None
Jeanette Loeb (2)		$	100,001 – $500,000
Frank C. Puleo		$	100,001 – $500,000
R. Rudolph Reinfrank		$	100,001 – $500,000
Carl Spielvogel (2)		$	1 – $  10,000
Elliot Stein, Jr. (2)		$	100,001 – $500,000
Interested Directors
John J. Hannan (2)		$	500,001 – $1,000,000
James C. Zelter			Over $1,000,000
Bradley J. Wechsler		$	100,001 – $500,000

 

(1)	Dollar ranges are as follows: None, $1—$10,000, $10,001—$50,000, $50,001—$100,000, $100,001—$500,000, $500,001—$1,000,000 or over $1,000,000.

 

(2)	Dollar range includes shares held through indirect beneficial ownership of a family trust.

 

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PORTFOLIO COMPANIES

The following is a listing of each portfolio company or its affiliate, together referred to as portfolio companies, in which we had an investment at March 31, 2015. A percentage shown for a class of investment securities held by us represents the percentage of the class owned and does not necessarily represent voting ownership. A percentage shown for equity securities, other than warrants or options, represents the actual percentage of the class of security held on a fully diluted basis. A percentage shown for warrants and options held represents the percentage of a class of security we may own assuming we exercise our warrants or options after dilution. See the financial statements to this base prospectus and any accompanying prospectus supplement for information regarding the fair value of these securities and for the general terms of any loans to the portfolio companies.

The portfolio companies are presented in three categories: “companies more than 25% owned,” which represent portfolio companies with respect to which we directly or indirectly own more than 25% of the outstanding voting securities of such portfolio company and, therefore, unless otherwise noted, are presumed to be controlled by us under the 1940 Act; “companies owned 5% to 25%,” which represent portfolio companies with respect to which we directly or indirectly own 5% to 25% of the outstanding voting securities of such portfolio company or with respect to which we hold one or more seats on the portfolio company’s board of directors and, therefore, are deemed to be an affiliated person under the 1940 Act; and “companies less than 5% owned,” which represent portfolio companies with respect to which we directly or indirectly own less than 5% of the outstanding voting securities of such portfolio company and with respect to which we have no other affiliations. We make available significant managerial assistance to our portfolio companies. We generally request and may receive rights to observe the meetings of our portfolio companies’ board of directors.

 

Name and Address of Portfolio Company		Nature of its Principal Business		Title of Securities Held by Apollo Investment		Percentage of Class Held (1)
Companies More Than 25% Owned
AMP Solar (UK) Limited (2) Suite 326 20 Birchin Court Lane London, England EC3V 9DU		Utilities		Preferred Equity			100.00	%(6)
Generation Brands Holdings, Inc. 7400 Linder Ave Skokie, IL 60077		Home and Office Furnishings and Durable Consumer Products		Common Equity/ Interests			27.90	%(6)
Golden Bear Warehouse LLC (2) 1201 North Organ Street Suite 800 Wilmington, Delaware 19801-1186		Diversified Investment Vehicle		Structured Products and Other			100.00	%
Golden Hill CLO I, LLC (2) 1209 Orange Street Wilmington, DE 19801		Diversified Investment Vehicle		Structured Products and Other			100.00	%
Highbridge Loan Management 3-2014, Ltd. (2) c/o Maples FS Limited P.O. Box 1093 Boundary Hall, Cricket Square Grand Cayman KY1-1108 Cayman Islands		Diversified Investment Vehicle		Structured Products and Other, Class E Notes, Subordinated Notes			25.96	%(6)
Ivy Hill Middle Market Credit Fund IX, Ltd. (2) 245 Park Avenue, 44th Floor New York, NY 10167		Diversified Investment Vehicle		Structured Products and Other, Subordinated Notes			32.00	%

 

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Name and Address of Portfolio Company		Nature of its Principal Business		Title of Securities Held by Apollo Investment		Percentage of Class Held (1)
MCF CLO I LLC (2) c/o Madison Capital Funding 30 South Wacker Dr., Suite 3700 Chicago, IL 60606		Diversified Investment Vehicle		Structured Products and Other, Membership Interests,			97.49	%(6)
MCF CLO III LLC (2) c/o Madison Capital Funding 30 South Wacker Drive, Suite 3700 Chicago, IL 60606		Diversified Investment Vehicle		Structured Products and Other, Class E Notes, Membership Interests			97.67	%(6)
Merx Aviation Finance, LLC 57 W. 57th St., Suite 325 New York, NY 10019		Aviation (7)		Common Equity/ Interests, Secured Debt (Revolver), Unfunded Revolver Obligations			100.00	%
MSEA Tankers LLC (2) c/o Trust Company of the Marshall Islands, Inc., Trust Company Complex Suite 206, 3055 Ajeltake Road Majuro, Marshall Islands MH 96960		Cargo Transport		Common Equity/ Membership Interests			100.00	%
Northstar Group Holdings, LLC (formerly LVI Group Investments, LLC) Seven Penn Plaza 370 Seventh Avenue, Suite 1803 New York, NY 10001		Environmental Services		Common Equity/Interests			36.24	%(6)
Playpower Holdings Inc. 11515 Vanstory Drive Suite 100 Huntersville, NC 28078		Leisure		Common Equity/Interests, Preferred Equity			100.00	%
Slater Mill Loan Fund LP (2) Appleby Trust (Cayman) Ltd. Clifton House 75 Fort St., P.O. Box 1350 Georgetown, Grand Cayman, HY-1108 Cayman Islands		Diversified Investment Vehicle		Structured Products and Other, LP Certificates			26.17	%(6)
Companies 5% to 25% Owned
Crowley Holdings, Series A 9487 Regency Square Blvd. Jacksonville, FL 32225		Cargo Transport		Preferred Equity			11.25	%
Energy & Exploration Partners, Inc. Two City Place, Suite 1700 One Hundred Throckmorton St. Fort Worth, TX 76102		Oil and Gas		Warrants			7.10	%
Garden Fresh Restaurant Corp. 15822 Bernardo Center Drive Suite A San Diego, CA 92127		Restaurants		Secured Debt, Common Equity/Interests			8.53	%

 

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Name and Address of Portfolio Company		Nature of its Principal Business		Title of Securities Held by Apollo Investment		Percentage of Class Held (1)
Jamestown CLO I Ltd. (2) Clifton House, 75 Fort St. P.O. Box 1350 Grand Cayman KY1-1108 Cayman Islands		Diversified Investment Vehicle		Structured Products and Other, Subordinated Notes			8.84	%
Renewable Funding Group, Inc. 500 12th Street Suite 300 Oakland, CA 94067		Finance		Secured Debt, Preferred Equity			11.64	%
Companies Less Than 5% Owned
Access CIG, LLC 6902 Patterson Pass Road Suite G Livermore, CA 94550		Business Services		Secured Debt			—
Active Networks, Inc. 10182 Telesis Court, Suite 100 San Diego, CA 92121		Business Services		Secured Debt			—
Alion Science & Technology Corporation 1750 Tysons Blvd Suite 1300 McLean, VA 22102		Aerospace and Defense		Secured Debt			—
American Energy – Woodford LLC/AEW Finance Corp 310 NW 63rd Suite 600 Oklahoma City, OK 73116		Oil and Gas		Unsecured Debt			—
American Tire Distributors 12200 Herbert Wayne Court Suite 150 Huntersville, NC 28078		Distribution		Unsecured Debt, Common Equity/Interests			0.21	%
AMP Solar Group, Inc. (2) 55 Port St E Port Credit, ON L5G 4P3 Canada		Energy		Unsecured Debt, Common Equity/Interests			2.33	%
Angelica Corporation (Clothesline Holdings, Inc.) 1105 Lakewood Parkway Suite 210 Alpharetta, GA 30004		Healthcare		Common Equity/Interests			4.16	%
Appriss Holdings, Inc. 10401 Linn Station Road Suite 200 Louisville, KY 40223		Business Services		Secured Debt			—
Archroma Management LLC (2) Neuhofstrasse 11 4153 Reinach Switzerland		Chemicals		Secured Debt			—

 

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Name and Address of Portfolio Company		Nature of its Principal Business		Title of Securities Held by Apollo Investment		Percentage of Class Held (1)
Armor Holdings, Inc. (American Stock Transfer and Trust Company) 6201 15th Avenue Brooklyn, NY 11219		Financial Services		Secured Debt			—
Artsonig Pty Limited (2) Level 18, 109 St Georges Terrace Perth, WA 6000, Australia		Transportation		Unsecured Debt			—
Asset Repackaging Trust Six B.V. (Israel Electric) (2) Wilmington Trust N.A. 166 Mercer Street Suite 2R New York, NY 10012		Utilities		Structured Products and Other, Credit Linked Notes			—
Avaya Inc 4655 Great America Parkway Santa Clara, CA 95054		Telecommunications		Secured Debt (Revolver), Unfunded Revolver Obligations, Letters of Credit			—
Aventine Renewable Energy Holdings, Inc. 1300 South 2nd Street Pekin, IL 61554		Chemicals		Secured Debt			—
Aveta, Inc. 173 Bridge Plaza N. Fort Lee, NJ 07024		Healthcare		Secured Debt			—
BCA Osprey II Limited (2) (British Car Auctions) Headway House Crosby Way Farnham, Surrey GU9 7XG United Kingdom		Transportation		Unsecured Debt			—
BMC Software Inc. 2101 City West Boulevard Houston, TX 77042		Business Services		Unfunded Revolver Obligations			—
Canacol Energy Ltd. (2) 4500, 525 – 8th Avenue SW Calgary, AB T2P 1G1 Canada		Oil and Gas		Unsecured Debt			—
Caza Petroleum Inc. 10077 Grogan’s Mill Rd., St. 200 The Woodlands, TX 77380		Oil and Gas		Secured Debt, Common Equity/ Interests			—	(4)(5)
Ceridian Corp. 3311 E. Old Shakopee Road Minneapolis, MN 55425		Diversified Service		Unsecured Debt			—
ChryonHego Corp. 5 Hub Drive Melville, NY 11747		Business Services		Secured Debt			—

 

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Name and Address of Portfolio Company		Nature of its Principal Business		Title of Securities Held by Apollo Investment		Percentage of Class Held (1)
CIT Group, Inc. (2) 11 West 42nd Street New York, NY 10036		Financial Services		Unfunded Revolver Obligations			—
CITGO Holding, Inc. 1293 Eldridge Parkway Houston, TX 77077		Energy		Secured Debt			—
Confie Seguros Holding II Co., 7711 Center Avenue, Suite 200 Huntington Beach, CA 92647		Insurance		Secured Debt (Revolver), Unfunded Revolver Obligations, Letters of Credit			—
Consolidated Precision Products Corp. 526 Superior Avenue, Suite 1440 Cleveland, OH 44114		Aerospace and Defense		Secured Debt			—
Craft CLO Ltd 2013 (2) Taunusanlage 12 60325 Frankfurt am Main Germany		Diversified Investment Vehicle		Structured Products and Other, Credit Linked Note			—
Craft CLO Ltd 2014 Taunusanlage 12 60325 Frankfurt am Main Germany		Diversified Investment Vehicle		Structured Products and Other, Credit Linked Note			—
Dark Castle Holdings, LLC 10203 Santa Monica Blvd., Suite 300a Los Angeles, CA 90067		Media		Structured Products and Other			—
Deep Gulf Energy II, LLC 738 Highway 6 South Suite 800 Houston, TX 77079		Oil and Gas		Secured Debt			—
Delta Educational Systems, Inc. (Gryphon Colleges Corp.) 4525 Columbus St., Suite 101 Virginia Beach, VA 23462		Education		Common Equity/ Interests, Preferred Equity, Warrants			4.96	%
Deltek, Inc. 2291 Wood Oak Drive, Herndon, VA 20171		Business Services		Secured Debt			—
Elements Behavioral Health, Inc. 5000 East Spring Street Suite 650 Long Beach, CA 90806		Healthcare		Secured Debt			—
Explorer Coinvest LLC (Booz Allen) (2) 8283 Greensboro Drive McLean, VA 22102		Business Services		Common Equity/ Interests			0.45	%
Extraction Oil & Gas Holdings, LLC 1888 Sherman Street Suite 200 Denver, CO 80203		Oil and Gas		Secured Debt			—

 

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Name and Address of Portfolio Company		Nature of its Principal Business		Title of Securities Held by Apollo Investment		Percentage of Class Held (1)
Fidji Luxco (FCI) (2) 145 rue Yves le Coz 78035 Versailles Cedex, France		Electronics		Warrants			0.60	%
GCA Services Group, Inc. 1350 Euclid Avenue, Suite 1500 Cleveland, OH 44115		Diversified Services		Secured Debt			—
GenCorp, Inc. (2) 2001 Aerojet Road Rancho Cordova, CA 95742		Aerospace and Defense		Unsecured Debt			—
Great Bear Petroleum Operating, LLC 601 W. 5th Ave., Suite 505 Anchorage, AK 99501		Oil and Gas		Secured Debt			—
Grocery Outlet, Inc. 5650 Hollis Street Emeryville, CA 94068		Grocery		Secured Debt			—
GTCR Valor Companies, Inc. (Cision+Vocus) 332 S. Michigan Ave. Chicago, IL 60604		Business Services		Secured Debt			—
Hunt Companies, Inc. 4401 North Mesa El Paso, TX 79902		Buildings and Real Estate		Secured Debt			—
Institutional Shareholder Services 7 World Trade Center New York, NY 10007		Financial Services		Secured Debt			—
JP Morgan Chase & Co, Credit-Linked Note (2) 270 Park Avenue New York, NY 10017-2070		Diversified Investment Vehicle		Structured Products and Other, Credit Linked Note			—
JV Note Holdco LLC (DSI Renal Inc.) 511 Union Street, Suite 1800 Nashville, TN 37219		Healthcare		Common Equity/ Interests			—
Kronos, Inc. 297 Billerica Road Chelmsford, MA 01824		Business Services		Secured Debt			—
Laureate Education, Inc. (2) 650 S. Exeter Street Baltimore, MD 21202		Education		Secured Debt (Revolver), Unfunded Revolver Obligations, Letters of Credit			—
Lonestar Intermediate Super Holdings, LLC (Asurion) 648 Grassmere Park, Suite 300 Nashville, TN 37211		Insurance		Secured Debt			—
Magnetation, LLC 102 NE 3rd St., Suite 120 Grand Rapids, MN 55744		Mining		Secured Debt			—

 

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Name and Address of Portfolio Company		Nature of its Principal Business		Title of Securities Held by Apollo Investment		Percentage of Class Held (1)
Maxus Capital Carbon SPE I, LLC (Skyonic Corp.) 1300 Bainbridge Road Cleveland, OH 44139		Chemicals		Secured Debt			—
Miller Energy Resources, Inc. (2) 9051 Executive Park Drive, Suite 103 Knoxville, TN 37932		Oil and Gas		Secured Debt			—
Molycorp Inc. (2) 569 Denver Tech Center Parkway, Suite 1000 Greenwood Village, CO 80111		Diversified Natural Resources, Precious Metals & Minerals		Secured Debt			—
MSC Software Corp. (2) 4675 MacArthur Court Newport Beach, CA 92660		Business Services		Secured Debt			—
My Alarm Center, LLC 3803 West Chester Pike, Suite 100 Newtown Square, PA 19073		Business Services		Secured Debt, Unsecured Debt			—
Novolex Holdings, Inc. 101 E. Carolina Avenue Hartsville, SC 29550		Packing		Secured Debt			—
NXT Capital CLO LLC (2) c/o Corporation Service Company 2711 Centerville Road, Suite 400 Wilmington, DE 19808		Diversified Investment Vehicle		Structured Products and Other, Class E Notes			—
Osage Exploration & Development, Inc. (2)		Oil and Gas		Secured Debt,			2.24	%
2445 Fifth Ave, Suite 310 San Diego, CA 92101				Warrants
Pabst Brewing Company 10635 Santa Monica Blvd Suite 350 Los Angeles, CA 90025		Consumer Products		Secured Debt			—
Pelican Energy, LLC (2)		Oil and Gas		Secured Debt			4.48	%(3)
6100 North Western Ave.				Common Equity/
Oklahoma City, OK 73118				Interests
PetroBakken Energy Ltd. (2) 2800, 525 – 8th Avenue S.W. Calgary, Alberta T2P 1G1 Canada		Oil and Gas		Unsecured Debt			—
Premier Trailer Leasing, Inc. 401 E. Corporate Drive Suite 252 Lewisville, TX 75057		Financial Services		Secured Debt			—
Radio One Inc. 1010 Wayne Avenue, 14th Floor Silver Spring, MD 20910		Broadcasting and Entertainment		Unsecured Debt			—

 

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Name and Address of Portfolio Company		Nature of its Principal Business		Title of Securities Held by Apollo Investment		Percentage of Class Held (1)
Renaissance Umiat, LLC (2) 3000 “C” Street, Suite 103 Anchorage, AK 99503		Oil and Gas		Structured Products and Other, Tax Receivable			—
River Cree Enterprises LP (2) 300 East Lapotac Blvd Enoch, Alberta T7X 3Y3		Hotels, Motels, Inns and Gaming		Secured Debt			—
Canada
Saba Software, Inc. 2400 Bridge Parkway Redwood Chores, CA 94065		Business Services		Secured Debt			—
Salix Pharmaceuticals, Ltd. (2) 8510 Colonnade Center Drive Raleigh, NC 27615		Healthcare		Unfunded Revolver Obligations, Letters of Credit			—
SCM Insurance Services, Inc. (2) #101, 5083 Windermere Boulevard S.W. Edmonton, Alberta T6W 0J5		Business Services		Secured Debt			—
SiTV, Inc. (NuvoTV) 700 N. Central Ave., Suite 600 Glendale, CA 91203		Cable Television		Secured Debt			—
Skyline Data, News, and Analytics LLC (Dodge) 2 Penn Plaza, 10th Floor New York, NY 10121		Printing and Publishing		Secured Debt, Common Equity/Interests			4.46	%
SMG 300 Conshohocken State Rd, Suite 770 Conshohocken, PA 19428		Business Services		Secured Debt			—
Sorenson Holdings, LLC		Consumer Products		Common Equity/			0.06	%
4393 South Riverboat Road				Interests,
Suite 300				Unsecured Debt
Salt Lake City, UT 84123
Spotted Hawk Development, LLC		Oil and Gas		Secured Debt,			4.80	%
1650 Tysons Blvd., Suite 900				Warrants
McLean, VA 22102
Sprint Industrial Holdings, LLC 5300 Memorial Drive, Suite 270 Houston, TX 77007		Containers, Packaging and Glass		Secured Debt			—
SquareTwo Financial, CA Holding, Inc. (Collect America, Ltd.) Corp. (2) 370 17th Street Denver, CO 80202		Financial Services		Secured Debt, Common Equity/Interests, Preferred Equity, Warrants			1.56 1.60	%  %

 

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Name and Address of Portfolio Company		Nature of its Principal Business		Title of Securities Held by Apollo Investment		Percentage of Class Held (1)
Sunrun Solar Owner IX, LLC/Sunrun Inc.		Energy		Secured Debt			—
45 Fremont Street, 32nd Floor
San Francisco, CA 94105
TASC, Inc. 4801 Stonecroft Blvd Chantilly, VA 20151		Aerospace and Defense		Secured Debt			—
Telestream Holdings Corporation 848 Gold Flat Road, Suite 1 Nevada City, CA 95959		Business Services		Secured Debt			—
Tibco Software, Inc. 3303 Hillview Avenue Palo Alto, CA 94304		Business Services		Unsecured Debt, Unfunded Revolver Obligations			—
TMK Hawk Parent Corp		Distribution		Secured Debt			—
505 Collins Street
South Attleboro, MA 02703
TransFirst Holdings, Inc. 1393 Veterans Memorial Highway Suite 3075 Hauppauge, NY 11788		Financial Services		Secured Debt (Revolver), Unfunded Revolver Obligations, Letters of Credit			—
U.S. Security Associates Holdings, Inc.		Business Services		Unsecured Debt			—
200 Mansell Court Fifth Floor
Roswell, GA 30076
UniTek Global Services Inc. 1777 Sentry Parkway West Gwynedd Hall Suite 202 Blue Bell, PA 19422		Telecommunications		Secured Debt, Unsecured Debt, Unfunded Revolver Obligations, Letters of Credit			—
Univar, Inc.		Distribution		Unsecured Debt,			0.45	%
17425 NE Union Hill Road				Common Equity/
Redmond, WA 98052				Interests
Varietal Distribution Holdings, LLC		Distribution		Common Equity/ Interests, Preferred Equity			0.20	%
Radnor Corporate Center							0.22	%
Building One, Suite 200
100 Matsonford Rd.
P.O. Box 6660
Radnor, PA 19011
Velocity Technology Solutions, Inc.		Business Services		Secured Debt			—
1901 Roxbury Road
Charlotte, NC 28211

 

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Name and Address of Portfolio Company		Nature of its Principal Business		Title of Securities Held by Apollo Investment		Percentage of Class Held (1)
Venoco, Inc. (Denver Parent) 370 17th Street, Suite 3900 Denver, CO 80202		Oil and Gas		Unsecured Debt			—
Vertafore, Inc.		Business Services		Secured Debt			—
11724 NE 195th St.
Bothell, WA, 98011
Walter Energy Inc. (2) 3000 Riverchase Galleria, Suite 1700 Birmingham, AL 35244		Mining		Unfunded Revolver Obligations, Letters of Credit			—

 

(1)	This information is based on data made available to us as of March 31, 2015. We have no independent ability to verify this information. Some, if not all, portfolio companies are subject to voting agreements with varied voting rights.

 

(2)

Certain investments that Apollo Investment 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. Apollo Investment monitors the status of these assets on an ongoing basis.

 

(3)	Ownership is in the form of Net Profits interest that will entitle Apollo Investment to 31% of the net profits once Secured Debt has been repaid in full.

 

(4)	Ownership is in the form of Net Profits interest, that will entitle Apollo Investment to 25% of the net profits once Secured Debt has been repaid in full.

 

(5)	Ownership is in the form of Overriding Revenue Royalty Interest, that will entitle Apollo Investment to 2% of the net revenues as long as debt is outstanding.

 

(6)	There are governing documents that precludes us from controlling management of the portfolio companies and therefore we disclaim such portfolio companies are controlled companies of us.

 

(7)

Merx Aviation Finance, LLC and its subsidiaries (“Merx Aviation”) is principally engaged in acquiring and leasing commercial aircraft to airlines. Its focus is on current generation aircraft, held either domestically or internationally. Merx Aviation may acquire fleets of aircraft through securitized, non-recourse debt or individual aircraft. Merx Aviation is not intended to compete with the numerous large lessors but rather to be complementary to them, providing them capital for various transactions. Merx Aviation also may outsource its aircraft servicing requirements to the large lessors that have the global staff necessary to complete such tasks. See “Risk Factors—Risks Related to Our Investments—The effects of various environmental regulations may negatively affect the aviation industry and some of our portfolio companies.”

 

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DETERMINATION OF NET ASSET VALUE

The net asset value per share of our outstanding shares of common stock is determined quarterly by dividing the value of our total assets minus our liabilities by the total number of our shares outstanding.

In calculating the value of our total assets, we value investments for which market quotations are readily available at such market quotations if they are deemed to represent fair value. Debt and equity securities that are not publicly traded or whose market price is not readily available or whose market quotations are not deemed to represent fair value are valued at fair value as determined in good faith by or under the direction of our board of directors. Market quotations may be deemed not to represent fair value in certain circumstances where AIM reasonably believes that facts and circumstances applicable to an issuer, a seller or purchaser or the market for a particular security causes current market quotes not to reflect the fair value of the security. Examples of these events could include cases in which material events are announced after the close of the market on which a security is primarily traded, when a security trades infrequently causing a quoted purchase or sale price to become stale or in the event of a “fire sale” by a distressed seller.

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 considered observable market inputs together with significant unobservable inputs in arriving at their valuation recommendations for such Level 3 categorized assets.

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 adviser’s 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 in good faith the fair value of each investment in our portfolio based on the input of our investment adviser, the applicable independent valuation firm, third party pricing services and the audit committee.

Investments 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

 

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provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s 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.

Determination of fair values involves subjective judgments and estimates not susceptible to substantiation by auditing procedures. Accordingly, under current auditing standards, the notes to our financial statements refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our financial statements.

Our board of directors reviews the accuracy of the valuations of our portfolio investments and, no less frequently than annually, the adequacy of our policies and procedures regarding valuations and the effectiveness of their implementation.

 

DIVIDEND REINVESTMENT PLAN

We have adopted a dividend reinvestment plan that provides for reinvestment of our dividend distributions on behalf of our stockholders, unless a stockholder elects to receive cash as provided below. As a result, if our board of directors authorizes, and we declare, a cash dividend, then our stockholders who have not “opted out” of our dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of our common stock, rather than receiving the cash dividends.

No action is required on the part of a registered stockholder to have such stockholder’s cash dividend reinvested in shares of our common stock. A registered stockholder may elect to receive a dividend in cash by notifying American Stock Transfer and Trust Company, the plan administrator and our transfer agent and registrar, in writing so that such notice is received by the plan administrator not less than 10 days prior to the record date for dividends to stockholders. The plan administrator will set up an account for shares acquired through the plan for each stockholder who has not elected to receive dividends in cash and hold such shares in non-certificated form. Upon request by a stockholder participating in the plan, received in writing not less than 10 days prior to the record date, the plan administrator will, instead of crediting shares to the participant’s account, issue a certificate registered in the participant’s name for the number of whole shares of our common stock and a check for any fractional share.

Those stockholders whose shares are held by a broker or other financial intermediary may receive dividends in cash by notifying their broker or other financial intermediary of their election.

We intend to use primarily newly-issued shares to implement the plan, whether our shares are trading at a premium or at a discount to net asset value. However, we reserve the right to purchase shares in the open market in connection with our implementation of the plan. The number of shares to be issued to a stockholder is determined by dividing the total dollar amount of the dividend payable to such stockholder by the market price per share of our common stock at the close of regular trading on The Nasdaq Global Select Market on the valuation date for such dividend. Market price per share on that date will be the closing price for such shares on The Nasdaq Global Select Market or, if no sale is reported for such day, at the average of the reported bid and asked prices. The number of shares of our common stock to be outstanding after giving effect to payment of the dividend cannot be established until the value per share at which additional shares will be issued has been determined and elections of our stockholders have been tabulated. Stockholders who do not elect to receive dividends in shares of common stock may experience accretion to the net asset value of their shares if our shares are trading at a premium and dilution if our shares are trading at a discount. The level of accretion or discount would depend on various factors, including the proportion of our stockholders who participate in the plan, the level of premium or discount at which our shares are trading and the amount of the dividend payable to a stockholder.

 

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The plan administrator’s fees under the plan will be paid by us. If a participant elects by written notice to the plan administrator to have the plan administrator sell part or all of the shares held by the plan administrator in the participant’s account and remit the proceeds to the participant, the plan administrator is authorized to deduct a $15 transaction fee plus a 10¢ per share brokerage commission from the proceeds.

Stockholders are subject to U.S. federal income tax on dividends automatically reinvested in additional shares of our common stock.

Participants may terminate their accounts under the plan by notifying the plan administrator via its website at www.amstock.com, by filling out the transaction request form located at the bottom of their statement and sending it to the plan administrator at P.O. Box 922, Wall Street Station, NY, NY 10269-0560 or by calling the plan administrator’s Interactive Voice Response System at 1-888-777-0324.

The plan may be terminated by us upon notice in writing mailed to each participant at least 30 days prior to any record date for the payment of any dividend by us. All correspondence, including requests for additional information, concerning the plan should be directed to the plan administrator by mail at American Stock Transfer and Trust Company, 6201 15^th Avenue, Brooklyn NY 11219 or by telephone at (718)  921-8200.

CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following discussion is a general summary of certain U.S. federal income tax considerations applicable to us and to an investment in shares of our common stock. This summary does not purport to be a complete description of the income tax considerations applicable to such an investment. For example, we have not described tax consequences that we assume to be generally known by investors or certain considerations that may be relevant to certain types of holders subject to special treatment under U.S. federal income tax laws, including stockholders subject to the alternative minimum tax, tax-exempt organizations, insurance companies, dealers in securities, pension plans and trusts, and financial institutions. This summary assumes that investors hold our common stock as capital assets (generally property held for investment). The discussion is based upon the Code, Treasury regulations, administrative and judicial interpretations, and other applicable authorities all as in effect as of the date of this prospectus and all of which are subject to differing interpretations or change, possibly retroactively, which could affect the continuing validity of this discussion. We have not sought and will not seek any ruling from the Internal Revenue Service (the “IRS”) regarding any matters discussed herein. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to those set forth below. This summary does not discuss any aspects of U.S. estate or gift tax or foreign, state or local tax. It does not discuss the special treatment under U.S. federal income tax laws that could result if we invested in tax-exempt securities or certain other investment assets.

This summary does not discuss the consequences of an investment in shares of our preferred stock, debt securities or warrants representing rights to purchase shares of our common stock, preferred stock or debt securities. The tax consequences of such an investment will be discussed in a relevant prospectus supplement.

A “U.S. stockholder” is a beneficial owner of shares of our common stock that is for U.S. federal income tax purposes:

 

•

a citizen or individual resident of the United States;

 

•

a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or any state thereof or the District of Columbia; or

 

•

a trust or an estate, the income of which is subject to U.S. federal income taxation regardless of its source.

 

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A “non-U.S. stockholder” is a beneficial owner of shares of our common stock that is neither a U.S. stockholder nor a partnership for U.S. federal income tax purposes.

If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds shares of our common stock, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A prospective stockholder that is a partner of a partnership holding shares of our common stock should consult its tax advisers with respect to the purchase, ownership and disposition of shares of our common stock.

Tax matters are very complicated, and the tax consequences to an investor of an investment in our shares will depend on the facts of his, her or its particular situation. We encourage investors to consult their own tax advisers regarding the specific consequences of such an investment, including tax reporting requirements, the applicability of federal, state, local and foreign tax laws, eligibility for the benefits of any applicable tax treaty and the effect of any possible changes in the tax laws.

Election to be Taxed as a RIC

As a BDC, we have elected to be treated as a RIC under Subchapter M of the Code. As a RIC, we generally will not have to pay corporate-level federal income taxes on any ordinary income or capital gains that we distribute to our stockholders as dividends. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, to obtain RIC tax treatment we must distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income” (determined without regard to the dividends paid deduction), which is generally our ordinary income plus the excess of net short-term capital gains over net long-term capital losses (the “Annual Distribution Requirement”).

Taxation as a RIC

If we qualify as a RIC and satisfy the Annual Distribution Requirement, then we will not be subject to federal income tax on the portion of our investment company taxable income and net capital gain (i.e., net long-term capital gains in excess of net short-term capital losses) we distribute to stockholders with respect to that year. We will be subject to U.S. federal income tax at the regular corporate rates on any income or capital gain not distributed (or deemed distributed) to our stockholders.

We will be subject to a 4% nondeductible federal excise tax on certain undistributed income of RICs unless we distribute in a timely manner an amount at least equal to the sum of (1) 98% of our ordinary income for each calendar year, (2) 98.2% of our capital gain net income for the one-year period ending October 31 in that calendar year and (3) any income recognized, but not distributed, in preceding years (the “Excise Tax Avoidance Requirement”). We will not be subject to excise taxes on amounts on which we are required to pay corporate income taxes (such as retained net capital gains).

In order to qualify as a RIC for federal income tax purposes, we must, among other things:

 

•

qualify and have in effect an election to be treated as a BDC under the 1940 Act at all times during each taxable year;

 

•

derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale of stock or other securities or foreign currencies, or other income derived with respect to our business of investing in such stock or securities or foreign currencies, and net income derived from an interest in a “qualified publicly traded partnership” (as defined in the Code) (the “90% Income Test”); and

 

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•

diversify our holdings so that at the end of each quarter of the taxable year:

 

•

at least 50% of the value of our assets consists of cash, cash equivalents, U.S. Government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and

 

•

no more than 25% of the value of our assets is invested (1) in the securities, other than U.S. Government securities or securities of other RICs, of one issuer or of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or (2) in securities of one or more qualified publicly traded partnerships (the “Diversification Tests”).

We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, increasing interest rates or issued with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. Because any original issue discount accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount.

Gain or loss recognized by us from the sale or exchange of warrants or other securities acquired by us, as well as any loss attributable to the lapse of such warrants, generally will be treated as capital gain or loss. Such gain or loss generally will be long-term or short-term, depending on how long we held a particular warrant or other security.

Although we do not presently expect to do so, we are authorized to borrow funds and to sell assets in order to satisfy the Annual Distribution Requirement. However, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met. See “Regulation—Senior Securities.” Moreover, our ability to dispose of assets to meet the Annual Distribution Requirements may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the Diversification Tests. If we dispose of assets in order to meet the Annual Distribution Requirement or the Excise Tax Avoidance Requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous. Alternatively, to satisfy our Annual Distribution Requirement, we may declare a taxable dividend payable in cash or stock at the election of each stockholder. In such case, for federal income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock. See “Taxation of U.S. Stockholders” and “Taxation of Non-U.S. Stockholders” below for tax consequences to stockholders upon receipt of such dividends.

If we fail to satisfy the Annual Distribution Requirement or otherwise fail to qualify as a RIC in any taxable year (for example, because we fail the 90% Income Test described above), we will be subject to tax in that year on all of our taxable income, regardless of whether we make any distributions to our stockholders. In that case, all of our income would be subject to corporate-level federal income tax, reducing the amount available to be distributed to our stockholders. In contrast, assuming we qualify as a RIC, our corporate-level federal income tax should be substantially reduced or eliminated. See “Election to be Taxed as a RIC” above.

Certain of our investment practices may be subject to special and complex federal income tax provisions that may, among other things, (i) treat dividends that would otherwise constitute qualified dividend income as non-qualified dividend income, (ii) treat dividends that would otherwise be eligible for the corporate dividends-received deduction as ineligible for such treatment, (iii) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (iv) convert lower-taxed long-term capital gain into higher-taxed short-term capital gain or ordinary

 

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income, (v) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (vi) cause us to recognize income or gain without a corresponding receipt of cash, (vii) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (viii) adversely alter the characterization of certain complex financial transactions and (ix) produce income that will not be qualifying income for purposes of the 90% Income Test. We intend to monitor our transactions and may make certain tax elections to mitigate the effect of these provisions and prevent our disqualification as a RIC.

Except as discussed below under the heading “Failure to Qualify as a RIC,” the remainder of this discussion assumes that we qualify as a RIC and have satisfied the Annual Distribution Requirement.

Taxation of U.S. Stockholders

Distributions by us (including distributions pursuant to our dividend reinvestment plan or where stockholders can elect to receive cash or stock) generally are taxable to U.S. stockholders as ordinary income or capital gains. Distributions of our “investment company taxable income” (which is, generally, our ordinary income plus net short-term capital gains in excess of net long-term capital losses) will be taxable as ordinary income to U.S. stockholders to the extent of our current or accumulated earnings and profits, whether paid in cash or reinvested in additional common stock through our dividend reinvestment plan. To the extent such distributions paid by us to non-corporate stockholders (including individuals) are attributable to dividends received by us from U.S. corporations and certain qualified foreign corporations, and provided that certain holding period and other requirements are met, such distributions generally will be eligible for a reduced maximum federal income tax rate. In this regard, it is anticipated that distributions paid by us will generally not be attributable to dividends and, therefore, generally will not qualify for the reduced maximum rate. Distributions of our net capital gain (which is generally our net long-term capital gains in excess of net short-term capital losses) properly designated by us as “capital gain dividends” will be taxable to U.S. stockholders as long-term capital gains (currently taxed at a reduced maximum rate in the case of individuals, trusts or estates), regardless of the U.S. stockholder’s holding period for his, her or its common stock and regardless of whether paid in cash or reinvested in additional common stock. Distributions in excess of our earnings and profits first will reduce a U.S. stockholder’s adjusted tax basis in such stockholder’s common stock and, after the adjusted tax basis is reduced to zero, will constitute capital gains to such U.S. stockholder.

Although we currently intend to distribute any net capital gain at least annually, we may in the future decide to retain some or all of our net capital gain, but designate the retained amount as a “deemed distribution.” In that case, among other consequences, we will pay tax on the retained amount, each U.S. stockholder will be required to include his, her or its share of the deemed distribution in income as if it had been actually distributed to the U.S. stockholder, and the U.S. stockholder will be entitled to claim a credit equal to his, her or its allocable share of the tax paid thereon by us. The amount of the deemed distribution net of such tax will be added to the U.S. stockholder’s tax basis for his, her or its common stock. Since we expect to pay tax on any retained capital gains at our regular corporate tax rate and since that rate is in excess of the maximum rate currently payable by individuals on long-term capital gains, the amount of tax that individual stockholders will be treated as having paid and for which they will receive a credit will exceed the tax they owe on the retained net capital gain. Such excess generally may be claimed as a credit against the U.S. stockholder’s other federal income tax obligations or may be refunded to the extent it exceeds a stockholder’s liability for federal income tax. A stockholder that is not subject to federal income tax or otherwise required to file a federal income tax return would be required to file a federal income tax return on the appropriate form in order to claim a refund for the taxes we paid. In order to utilize the deemed distribution approach, we must provide written notice to our stockholders prior to the expiration of 60 days after the close of the relevant taxable year. We cannot treat any of our investment company taxable income as a “deemed distribution.”

For purposes of determining (1) whether the Annual Distribution Requirement is satisfied for any year and (2) the amount of capital gain dividends paid for that year, we may, under certain circumstances, elect to treat a dividend that is paid during the following taxable year as if it had been paid during the taxable year in question. If we make such an election, the U.S. stockholders will still be treated as receiving the dividend in the

 

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taxable year in which the distribution is made. However, any dividend declared by us in October, November or December of any calendar year, payable to stockholders of record on a specified date in such a month and actually paid during January of the following year, will be treated as if it had been paid by us and received by our U.S. stockholders on December 31 of the year in which the dividend was declared.

If an investor purchases shares of our common stock shortly before the record date of a distribution, the price of the shares will include the value of the distribution and the investor will be subject to tax on the distribution even though it represents a return of his, her or its investment.

A U.S. stockholder generally will recognize taxable gain or loss if the stockholder sells or otherwise disposes of his, her or its shares of our common stock. The gain or loss will be measured by the difference between the sale price and the shareholder’s tax basis in his, her or its shares. Any gain or loss arising from such sale or disposition generally will be treated as long-term capital gain or loss if the stockholder has held his, her or its shares for more than one year. Otherwise, it would be classified as short-term capital gain or loss. However, any capital loss arising from the sale or disposition of shares of our common stock held for six months or less will be treated as long-term capital loss to the extent of the amount of capital gain dividends received, or undistributed capital gain deemed received, with respect to such shares. In addition, all or a portion of any loss recognized upon a disposition of shares of our common stock may be disallowed if other shares of our common stock are acquired (whether through reinvestment of distributions or otherwise) within 30 days before or after the disposition, in which case the basis of the shares acquired will be adjusted to reflect the disallowed loss.

In general, individual and other non-corporate U.S. taxable stockholders currently are subject to a reduced maximum federal income tax rate on their net capital gain, i.e., the excess of net long-term capital gain over net short-term capital loss for a taxable year, including any long-term capital gain derived from an investment in our shares. Corporate U.S. stockholders currently are subject to federal income tax on net capital gain at the rates applied to ordinary income. Non-corporate stockholders with net capital losses for a year (i.e., capital losses in excess of capital gains) generally may deduct up to $3,000 of such losses against their ordinary income each year; any net capital losses of a non-corporate stockholder in excess of $3,000 generally may be carried forward and used in subsequent years as provided in the Code. Corporate stockholders generally may not deduct any net capital losses against ordinary income for a year, but may carry back such losses for three years or carry forward such losses for five years.

Certain U.S. stockholders who are individuals, estates or trusts and whose income exceeds certain thresholds will be required to pay a 3.8% Medicare tax on all or a portion of their “net investment income”, which includes dividends received from us and capital gains from the sale or other disposition of our stock.

We will send to each of our U.S. stockholders, as promptly as possible after the end of each calendar year, a notice detailing, on a per share and per distribution basis, the amounts includible in such U.S. stockholder’s taxable income for such year as ordinary income and as long-term capital gain. In addition, the federal tax status of each year’s distributions generally will be reported to the IRS (including the amount of dividends, if any, eligible for the reduced maximum rate). Distributions may also be subject to additional state, local and foreign taxes depending on a U.S. stockholder’s particular situation. Dividends distributed by us generally will not be eligible for the dividends-received deduction or the reduced maximum rate applicable to qualifying dividends.

We may be required to withhold federal income tax (“backup withholding”) from all taxable distributions to any non-corporate U.S. stockholder (1) who fails to furnish us with a correct taxpayer identification number or a certificate that such stockholder is exempt from backup withholding or (2) with respect to whom the IRS notifies us that such stockholder has failed to report properly certain interest and dividend income to the IRS and to respond to notices to that effect. An individual’s taxpayer identification number is his or her social security number. Any amount withheld under backup withholding is allowed as a credit against the U.S. stockholder’s federal income tax liability and may entitle such stockholder to a refund, provided that proper information is timely provided to the IRS.

 

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Taxation of Non-U.S. Stockholders

Whether an investment in the shares is appropriate for a non-U.S. stockholder will depend upon that person’s particular circumstances. An investment in the shares by a non-U.S. stockholder may have adverse tax consequences. Non-U.S. stockholders should consult their tax advisers before investing in our common stock.

Distributions of our “investment company taxable income” to non-U.S. stockholders, subject to the discussion below, will be subject to withholding of federal tax at a 30% rate (or lower rate provided by an applicable treaty) to the extent of our current and accumulated earnings and profits unless the distributions are effectively connected with a U.S. trade or business of the non-U.S. stockholder, and, if an income tax treaty applies, attributable to a permanent establishment in the United States, in which case the distributions will be subject to federal income tax at the rates applicable to U.S. stockholders, and we will not be required to withhold federal tax if the non-U.S. stockholder complies with applicable certification and disclosure requirements. Special certification requirements apply to a non-U.S. stockholder that is a foreign partnership or a foreign trust, and such entities are urged to consult their own tax advisers.

Properly reported dividends are generally exempt from U.S. federal withholding tax where they (i) are paid in respect of our “qualified net interest income” (generally, our U.S.-source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which we are at least a 10% shareholder, reduced by expenses that are allocable to such income) or (ii) are paid in respect of our “qualified short-term capital gains” (generally, the excess of our net short-term capital gain over our long-term capital loss for such taxable year). Depending on the circumstances, we may report all, some or none of our potentially eligible dividends as such qualified net interest income or as qualified short-term capital gains, and/or treat such dividends, in whole or in part, as ineligible for this exemption from withholding. In order to qualify for the exemption from withholding for qualified net interest income, a foreign investor would need to comply with applicable certification requirements relating to its non-U.S. status (including, in general, furnishing an IRS Form W-8BEN or W-8BEN-E or substitute Form). In the case of common shares held through an intermediary, the intermediary may withhold even if we designate the payment as qualified net interest income or qualified short-term capital gain. Foreign investors should contact their intermediaries with respect to the application of these rules to their accounts. There can be no assurance as to what portion of our distributions would qualify for favorable treatment as qualified net interest income or qualified short-term capital gains.

Except as discussed below, actual or deemed distributions of our net capital gain to a non-U.S. stockholder and gains realized by a non-U.S. stockholder upon the sale of our common stock will not be subject to federal withholding tax and generally will not be subject to federal income tax unless the distributions or gains, as the case may be, are effectively connected with a U.S. trade or business of the non-U.S. stockholder and, if an income tax treaty applies, are attributable to a permanent establishment maintained by the non-U.S. stockholder in the United States (in which case, such distributions or gains will be subject to federal income tax at the rates applicable to U.S. stockholders).

Withholding at a rate of 30% will be generally required on dividends in respect of, and after December 31, 2016, on gross proceeds from the sale of, our common stock held by or through certain foreign financial institutions (including investment funds), unless such institution enters into an agreement with the Secretary of the Treasury to report, on an annual basis, certain information with respect to shares in, and accounts maintained by, the institution to the extent such shares or accounts are held by certain United States persons or by certain non-U.S. entities that are wholly or partially owned by United States persons, and to withhold on certain payments. Accordingly, the entity through which our common stock is held will affect the determination of whether such withholding is required. Similarly, dividends in respect of, and after December 31, 2016, gross proceeds from the sale of, our common stock held by an investor that is a non-financial non-U.S. entity will be

 

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subject to withholding at a rate of 30%, unless such entity either (i) certifies to us that such entity does not have any “substantial United States owners” or (ii) provides certain information regarding the entity’s “substantial United States owners,” which we will in turn provide to the Secretary of the Treasury. An intergovernmental agreement between the United States and an applicable foreign country, or future Treasury regulations or other guidance, may modify these requirements. Non-U.S. stockholders are encouraged to consult with their tax advisers regarding the possible implications of these requirements on their investment in our common stock.

If we distribute our net capital gain in the form of deemed rather than actual distributions (which we may do in the future), a non-U.S. stockholder will be entitled to a federal income tax credit or tax refund equal to the stockholder’s allocable share of the tax we pay on the capital gains deemed to have been distributed. In order to obtain the refund, the non-U.S. stockholder must obtain a U.S. taxpayer identification number and file a federal income tax return even if the non-U.S. stockholder would not otherwise be required to obtain a U.S. taxpayer identification number or file a federal income tax return. For a corporate non-U.S. stockholder, distributions (both actual and deemed), and gains realized upon the sale of our common stock that are effectively connected with a U.S. trade or business may, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate (or at a lower rate if provided for by an applicable tax treaty). Accordingly, investment in the shares may not be appropriate for certain non-U.S. stockholders.

A non-U.S. stockholder who is a non-resident alien individual, and who is otherwise subject to withholding of federal income tax, may be subject to information reporting and backup withholding of federal income tax on dividends unless the non-U.S. stockholder provides us or the dividend paying agent with an IRS Form W-8BEN (or an acceptable substitute form) or otherwise meets documentary evidence requirements for establishing that it is a non-U.S. stockholder or otherwise establishes an exemption from backup withholding.

Non-U.S. persons should consult their own tax advisers with respect to the U.S. federal income tax and withholding tax, and state, local and foreign tax consequences of an investment in the shares.

Failure to Qualify as a RIC

If we were unable to qualify for treatment as a RIC (for example, because we fail the 90% Income Test described above), we would be subject to federal income tax on all of our taxable income at regular corporate rates. We would not be able to deduct distributions to stockholders, nor would they be required to be made. Distributions would generally be taxable to our individual and other non-corporate taxable stockholders as ordinary dividend income eligible for the reduced maximum rate to the extent of our current and accumulated earnings and profits. Subject to certain limitations under the Code, corporate distributees would be eligible for the dividends-received deduction. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s adjusted tax basis, and any remaining distributions would be treated as a capital gain. Moreover, if we fail to qualify as a RIC in any year, we must pay out our earnings and profits accumulated in that year in order to qualify again as a RIC. If we fail to qualify as a RIC for a period of greater than two taxable years, we would be required to recognize any net built-in gains with respect to certain of our assets (i.e., the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized with respect to such assets if we had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of ten years, in order to qualify as a RIC in a subsequent year.

 

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DESCRIPTION OF OUR CAPITAL STOCK

The following description is based on relevant portions of the Maryland General Corporation Law and on our charter and bylaws. This summary is not necessarily complete, and we refer you to the Maryland General Corporation Law and our charter and bylaws for a more detailed description of the provisions summarized below.

Capital Stock

As of the date of this base prospectus, our authorized capital stock consists of 400,000,000 shares of stock, par value $0.001 per share, all of which is initially designated as common stock. Our common stock is quoted on The Nasdaq Global Select Market under the ticker symbol “AINV.” There are no outstanding options or warrants to purchase our stock, and no stock has been authorized for issuance under any equity compensation plans. Under Maryland law, our stockholders generally are not personally liable for our debts or obligations. The last reported closing market price of our common stock on January 15, 2016 was $5.00 per share. As of January 14, 2016, we had 82 stockholders of record.

Under our charter, our board of directors is authorized to classify and reclassify any unissued shares of stock into other classes or series of stock and authorize the issuance of shares of stock without obtaining stockholder approval. As permitted by the Maryland General Corporation Law, our charter provides that the board of directors, without any action by our stockholders, may amend the charter from time to time to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have authority to issue.

The following table sets forth information of our capital stock as of January 14, 2016:

 

Title of Class of Securities		Amount Authorized		Amount Held by Registrant or for its Account		Amount Outstanding Exclusive of Amount held by Registrant or for its Account
Common stock, par value $0.001 per share		400,000,000		None		228,168,622
						shares

Common stock

All shares of our common stock have equal rights as to earnings, assets, dividends and voting and, when they are issued, will be duly authorized, validly issued, fully paid and nonassessable. Distributions may be paid to the holders of our common stock if, as and when authorized by our board of directors and declared by us out of funds legally available therefor. Shares of our common stock have no preemptive, exchange, conversion or redemption rights and are freely transferable, except where their transfer is restricted by federal and state securities laws or by contract. In the event of a liquidation, dissolution or winding up of Apollo Investment, each share of our common stock would be entitled to share ratably in all of our assets that are legally available for distribution after we pay all debts and other liabilities and subject to any preferential rights of holders of our preferred stock, if any preferred stock is outstanding at such time. Each share of our common stock is entitled to one vote on all matters submitted to a vote of stockholders, including the election of directors. Except as provided with respect to any other class or series of stock, the holders of our common stock will possess exclusive voting power. There is no cumulative voting in the election of directors, which means that holders of a majority of the outstanding shares of common stock can elect all of our directors, and holders of less than a majority of such shares will be unable to elect any director.

 

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Preferred stock

Our charter authorizes our board of directors to classify and reclassify any unissued shares of stock into other classes or series of stock, including preferred stock. Prior to issuance of shares of each class or series, the board of directors is required by Maryland law and by our charter to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Thus, the board of directors could authorize the issuance of shares of preferred stock with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for holders of our common stock or otherwise be in their best interest. You should note, however, that any issuance of preferred stock must comply with the requirements of the 1940 Act. The 1940 Act requires, among other things, that (1) immediately after issuance and before any dividend or other distribution is made with respect to our common stock and before any purchase of common stock is made, such preferred stock together with all other senior securities must not exceed an amount equal to 50% of our total assets after such issuance and after deducting the amount of such dividend, distribution or purchase price, as the case may be, and (2) the holders of shares of preferred stock, if any are issued, must be entitled as a class to elect two directors at all times and to elect a majority of the directors if dividends on such preferred stock become in arrears by two years or more until the arrears are eliminated. Certain matters under the 1940 Act require the separate vote of the holders of any issued and outstanding preferred stock. For example, holders of preferred stock would vote separately from the holders of common stock on a proposal to cease operations as a BDC. We believe that the availability for issuance of preferred stock will provide us with increased flexibility in structuring future financings and acquisitions.

Limitation on Liability of Directors and Officers; Indemnification and Advance of Expenses

Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and deliberate dishonesty established by a final judgment as being material to the cause of action. Our charter contains such a provision which eliminates directors’ and officers’ liability to the maximum extent permitted by Maryland law, subject to the requirements of the 1940 Act.

Our charter authorizes us, to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to obligate ourselves to indemnify any present or former director or officer or any individual who, while a director or officer and at our request, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner or trustee, from and against any claim or liability to which that person may become subject or which that person may incur by reason of his or her status as a present or former director or officer and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding. Our bylaws obligate us, to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to indemnify any present or former director or officer or any individual who, while a director or officer and at our request, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner or trustee and who is made, or threatened to be made, a party to the proceeding by reason of his or her service in that capacity and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding. The charter and bylaws also permit us to indemnify and advance expenses to any person who served a predecessor of us in any of the capacities described above and any of our employees or agents or any employees or agents of our predecessor, if any. In accordance with the 1940 Act, we will not indemnify any person for any liability to which such person would be subject by reason of such person’s willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.

Maryland law requires a corporation (unless its charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any

 

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proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service in that capacity. Maryland law permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made, or threatened to be made, a party by reason of their service in those or other capacities unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed in bad faith or (2) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. However, under Maryland law, a Maryland corporation may not indemnify for an adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on the basis that a personal benefit was improperly received, unless in either case a court orders indemnification, and then only for expenses. In addition, Maryland law permits a corporation to advance reasonable expenses to a director or officer upon the corporation’s receipt of (a) a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation and (b) a written undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the standard of conduct was not met.

Provisions of the Maryland General Corporation Law and Our Charter and Bylaws

Provisions of the Maryland General Corporation Law and of our charter and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock. The Maryland General Corporation Law, our charter and our bylaws contain provisions that may discourage, delay or make more difficult a change in control of Apollo Investment or the removal of our directors. We are subject to the Maryland Business Combination Act, subject to any applicable requirements of the 1940 Act. Our board of directors has adopted a resolution exempting from the Business Combination Act any business combination between us and any other person, subject to prior approval of such business combination by our board of directors, including approval by a majority of our disinterested directors. If the resolution exempting business combinations is repealed or our board of directors does not approve a business combination, the Business Combination Act may discourage third parties from trying to acquire control of us and increase the difficulty of consummating such an offer. Our bylaws exempt from the Maryland Control Share Acquisition Act acquisitions of our common stock by any person. If we amend our bylaws to repeal the exemption from the Control Share Acquisition Act, the Control Share Acquisition Act also may make it more difficult for a third party to obtain control of us and increase the difficulty of consummating such an offer.

We have also adopted other measures that may make it difficult for a third party to obtain control of us, including provisions of our charter classifying our board of directors in three classes serving staggered three-year terms, and provisions of our charter authorizing our board of directors to classify or reclassify shares of our stock in one or more classes or series, to cause the issuance of additional shares of our stock, and to amend our charter, without stockholder approval, to increase or decrease the number of shares of stock that we have authority to issue. These provisions, as well as other provisions of our charter and bylaws, may delay, defer or prevent a transaction or a change in control that might otherwise be in the best interests of our stockholders.

Classified board of directors

Our board of directors is divided into three classes of directors serving staggered three-year terms. At each annual meeting of our stockholders, the successors to the class of directors whose terms expire at such meeting will be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. Each director holds office for the term to which he or she is elected and until his or her successor is duly elected and qualifies. A classified board of directors may render a change in control of us or removal of our incumbent management more difficult. We believe, however, that the longer time required to elect a majority of a classified board of directors will help to ensure the continuity and stability of our management and policies.

 

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Election of directors

Our charter provides that the affirmative vote of the holders of a majority of the shares of stock outstanding and entitled to vote in the election of directors will be required to elect a director, unless our bylaws provide otherwise. Our bylaws provide that a nominee for director shall be elected as a director only if such nominee receives the affirmative vote of a majority of the total votes cast for and affirmatively withheld as to such nominee at a meeting of stockholders duly called and at which a quorum is present, unless there is a contested election, in which case, directors will be elected by a plurality of the votes cast.

Number of directors; vacancies; removal

Our charter provides that the number of directors will be set only by the board of directors in accordance with our bylaws. Our bylaws provide that a majority of our entire board of directors may at any time increase or decrease the number of directors. However, unless our bylaws are amended, the number of directors may never be less than four nor more than nine. We have elected to be subject to the provision of Subtitle 8 of Title 3 of the Maryland General Corporation Law regarding the filling of vacancies on the board of directors. Accordingly, at such time, except as may be provided by the board of directors in setting the terms of any class or series of preferred stock, any and all vacancies on the board of directors may be filled only by the affirmative vote of a majority of the remaining directors in office, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy will serve for the remainder of the full term of the directorship in which the vacancy occurred and until a successor is elected and qualifies, subject to any applicable requirements of the 1940 Act.

Our charter provides that a director may be removed only for cause, as defined in our charter, and then only by the affirmative vote of at least two-thirds of the votes entitled to be cast in the election of directors.

Action by stockholders

Under the Maryland General Corporation Law, stockholder action can be taken only at an annual or special meeting of stockholders, unless the charter provides for a lesser percentage (which our charter does not provide for common stock), by unanimous written or electronically transmitted consent in lieu of a meeting. These provisions, combined with the requirements of our bylaws regarding the calling of a stockholder-requested special meeting of stockholders discussed below, may have the effect of delaying consideration of a stockholder proposal until the next annual meeting.

Advance notice provisions for stockholder nominations and stockholder proposals

Our bylaws provide that with respect to an annual meeting of stockholders, nominations of persons for election to the board of directors and the proposal of business to be considered by stockholders may be made only (1) pursuant to our notice of the meeting, (2) by or at the direction of the board of directors or (3) by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice procedures of the bylaws. With respect to special meetings of stockholders, only the business specified in our notice of the meeting may be brought before the meeting. Nominations of persons for election to the board of directors at a special meeting may be made (1) by or at the direction of the board of directors or (2) provided that, the special meeting has been called for the purpose of electing directors, by a stockholder who is entitled to vote at the meeting and who has complied with the advance notice provisions of the bylaws.

The purpose of requiring stockholders to give us advance notice of nominations and other business is to afford our board of directors a meaningful opportunity to consider the qualifications of the proposed nominees and the advisability of any other proposed business and, to the extent deemed necessary or desirable by our board of directors, to inform stockholders and make recommendations about such qualifications or business, as well as to provide a more orderly procedure for conducting meetings of stockholders. Although our bylaws do not give

 

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our board of directors any power to disapprove stockholder nominations for the election of directors or proposals recommending certain action, they may have the effect of precluding a contest for the election of directors or the consideration of stockholder proposals if proper procedures are not followed and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposal without regard to whether consideration of such nominees or proposals might be harmful or beneficial to us and our stockholders.

Calling of special meetings of stockholders

Our bylaws provide that special meetings of stockholders may be called by our board of directors and certain of our officers. Additionally, our bylaws provide that, subject to the satisfaction of certain procedural and informational requirements by the stockholders requesting the meeting, a special meeting of stockholders will be called by our secretary upon the written request of stockholders entitled to cast not less than a majority of all the votes entitled to be cast at such meeting.

Approval of extraordinary corporate action; amendment of charter and bylaws

Under Maryland law, a Maryland corporation generally cannot dissolve, amend its charter, merge, sell all or substantially all of its assets, engage in a share exchange or engage in similar transactions outside the ordinary course of business, unless approved by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter. However, a Maryland corporation may provide in its charter for approval of these matters by a lesser percentage, but not less than a majority of all of the votes entitled to be cast on the matter. Our charter generally provides for approval of charter amendments and extraordinary transactions by the stockholders entitled to cast at least a majority of the votes entitled to be cast on the matter. Our charter also provides that certain charter amendments and any proposal for our conversion, whether by merger or otherwise, from a closed-end company to an open-end company or any proposal for our liquidation or dissolution requires the approval of the stockholders entitled to cast at least 80 percent of the votes entitled to be cast on such matter. However, if such amendment or proposal is approved by at least two-thirds of our continuing directors (in addition to approval by our board of directors), such amendment or proposal may be approved by a majority of the votes entitled to be cast on such a matter. The “continuing directors” are defined in our charter as our current directors as well as those directors whose nomination for election by the stockholders or whose election by the directors to fill vacancies is approved by a majority of the continuing directors then on the board of directors. The holders of any preferred stock outstanding would have a separate class vote on any conversion to an open-end company.

Our charter and bylaws provide that the board of directors will have the exclusive power to adopt, alter or repeal any provision of our bylaws and to make new bylaws.

No appraisal rights

Except with respect to appraisal rights arising in connection with the Maryland Control Share Acquisition Act discussed below, as permitted by the Maryland General Corporation Law, our charter provides that stockholders will not be entitled to exercise appraisal rights.

Control share acquisitions

The Control Share Acquisition Act provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquiror, by officers or by directors who are employees of the corporation are excluded from shares entitled to vote on the matter. Control shares are voting shares of stock which, if aggregated with all other shares of stock owned by the acquiror or in respect of which the acquiror is able to

 

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exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror to exercise voting power in electing directors within one of the following ranges of voting power:

 

•

one-tenth or more but less than one-third;

 

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one-third or more but less than a majority; or

 

•

a majority or more of all voting power.

The requisite stockholder approval must be obtained each time an acquiror crosses one of the thresholds of voting power set forth above. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A control share acquisition means the acquisition of control shares, subject to certain exceptions.

A person who has made or proposes to make a control share acquisition may compel the board of directors of the corporation to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the calling of a special meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the expenses of the meeting. If no request for a meeting is made, the corporation may itself present the question at any stockholders’ meeting.

If voting rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then the corporation may repurchase for fair value any or all of the control shares, except those for which voting rights have previously been approved. The right of the corporation to repurchase control shares is subject to certain conditions and limitations, including, as provided in our bylaws, compliance with the 1940 Act. Fair value is determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquiror or of any meeting of stockholders at which the voting rights of the shares are considered and not approved. If voting rights for control shares are approved at a stockholders’ meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition.

The Control Share Acquisition Act does not apply (a) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or (b) to acquisitions approved or exempted by the charter or bylaws of the corporation.

Our bylaws contain a provision exempting from the Control Share Acquisition Act any and all acquisitions by any person of our shares of stock. There can be no assurance that such provision will not be amended or eliminated at any time in the future. However, we will amend our bylaws to be subject to the Control Share Acquisition Act only if the board of directors determines that it would be in our best interests based on our determination that our being subject to the Control Share Acquisition Act does not conflict with the 1940 Act.

Business combinations

Under Maryland law, “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. “Business combinations” include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:

 

•

any person who beneficially owns 10% or more of the voting power of the corporation’s shares; or

 

•

an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation.

 

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A person is not an interested stockholder under this statute if the board of directors approved in advance the transaction by which the person otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board of directors.

After the five-year prohibition, any business combination between the corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:

 

•

80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and

 

•

two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.

These super-majority vote requirements do not apply if the corporation’s common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares.

The statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder. Our board of directors has adopted a resolution that any business combination between us and any other person is exempted from the provisions of the Business Combination Act, provided that the business combination is first approved by the board of directors, including a majority of the directors who are not interested persons as defined in the 1940 Act. This resolution, however, may be altered or repealed in whole or in part at any time. If this resolution is repealed, or the board of directors does not otherwise approve a business combination, the statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.

Conflict with 1940 Act

Our bylaws provide that, if and to the extent that any provision of the Maryland General Corporation Law, including the Control Share Acquisition Act (if we amend our bylaws to be subject to such Act) and the Business Combination Act, or any provision of our charter or bylaws conflicts with any provision of the 1940 Act, the applicable provision of the 1940 Act will control.

 

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DESCRIPTION OF OUR PREFERRED STOCK

In addition to shares of common stock, our charter authorizes the issuance of preferred stock. We may issue preferred stock from time to time, although we have no immediate intention to do so. If we offer preferred stock under this prospectus, we will issue an appropriate prospectus supplement. We may issue preferred stock from time to time in one or more classes or series, without stockholder approval. Prior to issuance of shares of each class or series, our board of directors is required by Maryland law and by our charter to set the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Any such an issuance must adhere to the requirements of the 1940 Act, Maryland law and any other limitations imposed by law.

The following is a general description of the terms of the preferred stock we may issue from time to time. Particular terms of any preferred stock we offer will be described in the prospectus supplement relating to such preferred stock.

If we issue preferred stock, it will pay dividends to the holders of the preferred stock at either a fixed rate or a rate that will be reset frequently based on short-term interest rates, as described in a prospectus supplement accompanying each preferred share offering.

The 1940 Act requires, among other things, that (1) immediately after issuance and before any distribution is made with respect to common stock, the liquidation preference of the preferred stock, together with all other senior securities, must not exceed an amount equal to 50% of our total assets (taking into account such distribution), (2) the holders of shares of preferred stock, if any are issued, must be entitled as a class to elect two directors at all times and to elect a majority of the directors if dividends on the preferred stock are in arrears by two years or more and (3) such shares be cumulative as to dividends and have a complete preference over our common stock to payment of their liquidation preference in the event of a dissolution.

For any series of preferred stock that we may issue, our board of directors or a committee thereof will determine and the Articles Supplementary and prospectus supplement relating to such series will describe:

 

•

the designation and number of shares of such series;

 

•

the rate, whether fixed or variable, and time at which any dividends will be paid on shares of such series, as well as whether such dividends are participating or non-participating;

 

•

any provisions relating to convertibility or exchangeability of the shares of such series;

 

•

the rights and preferences, if any, of holders of shares of such series upon our liquidation, dissolution or winding up of our affairs;

 

•

the voting powers, if any, of the holders of shares of such series;

 

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any provisions relating to the redemption of the shares of such series;

 

•

any limitations on our ability to pay dividends or make distributions on, or acquire or redeem, other securities while shares of such series are outstanding;

 

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any conditions or restrictions on our ability to issue additional shares of such series or other securities;

 

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if applicable, a discussion of certain U.S. federal income tax considerations; and

 

•

any other relative powers, preferences and participating, optional or special rights of shares of such series, and the qualifications, limitations or restrictions thereof.

All shares of preferred stock that we may issue will be identical and of equal rank except as to the particular terms thereof that may be fixed by our board of directors, and all shares of each series of preferred stock will be identical and of equal rank except as to the dates from which dividends thereon will be cumulative.

 

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DESCRIPTION OF OUR WARRANTS

The following is a general description of the terms of the warrants we may issue from time to time. Particular terms of any warrants we offer will be described in the prospectus supplement relating to such warrants.

We may issue warrants to purchase shares of our common stock. Such warrants may be issued independently or together with shares of common stock and may be attached or separate from such shares of common stock. We will issue each series of warrants under a separate warrant agreement to be entered into between us and a warrant agent. The warrant agent will act solely as our agent and will not assume any obligation or relationship of agency for or with holders or beneficial owners of warrants.

A prospectus supplement will describe the particular terms of any series of warrants we may issue, including the following:

 

•

the title of such warrants;

 

•

the aggregate number of such warrants;

 

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the price or prices at which such warrants will be issued;

 

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the currency or currencies, including composite currencies, in which the price of such warrants may be payable;

 

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the number of shares of common stock issuable upon exercise of such warrants;

 

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the price at which and the currency or currencies, including composite currencies, in which the shares of common stock purchasable upon exercise of such warrants may be purchased;

 

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the date on which the right to exercise such warrants shall commence and the date on which such right will expire;

 

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whether such warrants will be issued in registered form or bearer form;

 

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if applicable, the minimum or maximum amount of such warrants which may be exercised at any one time;

 

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if applicable, the number of such warrants issued with each share of common stock;

 

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if applicable, the date on and after which such warrants and the related shares of common stock will be separately transferable;

 

•

information with respect to book-entry procedures, if any;

 

•

if applicable, a discussion of certain U.S. federal income tax considerations; and

 

•

any other terms of such warrants, including terms, procedures and limitations relating to the exchange and exercise of such warrants.

We and the warrant agent may amend or supplement the warrant agreement for a series of warrants without the consent of the holders of the warrants issued thereunder to effect changes that are not inconsistent with the provisions of the warrants and that do not materially and adversely affect the interests of the holders of the warrants.

Under the 1940 Act, we may generally only offer warrants provided that (1) the warrants expire by their terms within ten years; (2) the exercise or conversion price is not less than the current market value at the date of issuance; (3) our stockholders authorize the proposal to issue such warrants, and our board of directors approves such issuance on the basis that the issuance is in the best interests of Apollo Investment and its stockholders; and (4) if the warrants are accompanied by other securities, the warrants are not separately transferable unless no class of such warrants and the securities accompanying them has been publicly distributed. The 1940 Act also provides that the amount of our voting securities that would result from the exercise of all outstanding warrants at the time of issuance may not exceed 25% of our outstanding voting securities.

 

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DESCRIPTION OF OUR DEBT SECURITIES

We may issue debt securities in one or more series. The specific terms of each series of debt securities will be described in the particular prospectus supplement relating to that series. The prospectus supplement may or may not modify the general terms found in this prospectus and will be filed with the SEC. For a complete description of the terms of a particular series of debt securities, you should read both this prospectus and the prospectus supplement relating to that particular series. We may also issue debt securities privately. Such securities are not subject to the terms described below.

As required by federal law for all bonds and notes of companies that are publicly offered, the debt securities are governed by a document called an “indenture.” An indenture is a contract between us and U.S. Bank National Association, a financial institution acting as trustee on your behalf, and is subject to and governed by the Trust Indenture Act of 1939, as amended. The trustee has two main roles. First, the trustee can enforce your rights against us if we default. There are some limitations on the extent to which the trustee acts on your behalf, described in the second paragraph under “Events of Default—Remedies if an Event of Default Occurs.” Second, the trustee performs certain administrative duties for us.

Because this section is a summary, it does not describe every aspect of the debt securities and the indenture. We urge you to read the indenture because it, and not this description, defines your rights as a holder of debt securities. For example, in this section, we use capitalized words to signify terms that are specifically defined in the indenture. Some of the definitions are repeated in this prospectus, but for the rest you will need to read the indenture. We will file the form of the indenture with the SEC prior to the commencement of any debt offering, at which time the form of indenture would be publicly available See “Available Information” for information on how to obtain a copy of the indenture.

The prospectus supplement, which will accompany this prospectus, will describe the particular series of debt securities being offered by including:

 

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the designation or title of the series of debt securities;

 

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the total principal amount of the series of debt securities;

 

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the percentage of the principal amount at which the series of debt securities will be offered;

 

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the date or dates on which principal will be payable;

 

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the rate or rates (which may be either fixed or variable) and/or the method of determining such rate or rates of interest, if any;

 

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the date or dates from which any interest will accrue, or the method of determining such date or dates, and the date or dates on which any interest will be payable;

 

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the terms for redemption, extension or early repayment, if any;

 

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the currencies in which the series of debt securities are issued and payable;

 

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whether the amount of payments of principal, premium or interest, if any, on a series of debt securities will be determined with reference to an index, formula or other method (which could be based on one or more currencies, commodities, equity indices or other indices) and how these amounts will be determined;

 

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the place or places, if any, other than or in addition to The City of New York, of payment, transfer, conversion and/or exchange of the debt securities;

 

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the denominations in which the offered debt securities will be issued;

 

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the provision for any sinking fund;

 

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any restrictive covenants;

 

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any Events of Default;

 

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whether the series of debt securities are issuable in certificated form;

 

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any provisions for defeasance or covenant defeasance;

 

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any special federal income tax implications, including, if applicable, federal income tax considerations relating to original issue discount;

 

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whether and under what circumstances we will pay additional amounts in respect of any tax, assessment or governmental charge and, if so, whether we will have the option to redeem the debt securities rather than pay the additional amounts (and the terms of this option);

 

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any provisions for convertibility or exchangeability of the debt securities into or for any other securities;

 

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whether the debt securities are subject to subordination and the terms of such subordination;

 

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the listing, if any, on a securities exchange; and

 

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any other terms.

The debt securities may be secured or unsecured obligations. Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue debt only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after each issuance of debt. Unless the prospectus supplement states otherwise, principal (and premium, if any) and interest, if any, will be paid by us in immediately available funds.

General

The indenture provides that any debt securities proposed to be sold under this prospectus and the attached prospectus supplement (“offered debt securities”) and any debt securities issuable upon the exercise of warrants or upon conversion or exchange of other offered securities (“underlying debt securities”), may be issued under the indenture in one or more series.

For purposes of this prospectus, any reference to the payment of principal of or premium or interest, if any, on debt securities will include additional amounts if required by the terms of the debt securities.

The indenture limits the amount of debt securities that may be issued thereunder from time to time. Debt securities issued under the indenture, when a single trustee is acting for all debt securities issued under the indenture, are called the “indenture securities”. The indenture also provides that there may be more than one trustee thereunder, each with respect to one or more different series of indenture securities. See “Resignation of Trustee” below. At a time when two or more trustees are acting under the indenture, each with respect to only certain series, the term “indenture securities” means the one or more series of debt securities with respect to which each respective trustee is acting. In the event that there is more than one trustee under the indenture, the powers and trust obligations of each trustee described in this prospectus will extend only to the one or more series of indenture securities for which it is trustee. If two or more trustees are acting under the indenture, then the indenture securities for which each trustee is acting would be treated as if issued under separate indentures.

 

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The indenture does not contain any provisions that give you protection in the event we issue a large amount of debt or we are acquired by another entity.

We refer you to the prospectus supplement for information with respect to any deletions from, modifications of or additions to the Events of Default or our covenants that are described below, including any addition of a covenant or other provision providing event risk or similar protection.

We have the ability to issue indenture securities with terms different from those of indenture securities previously issued and, without the consent of the holders thereof, to reopen a previous issue of a series of indenture securities and issue additional indenture securities of that series unless the reopening was restricted when that series was created.

Senior Securities

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. The report of our independent registered public accounting firm covering the total amount of senior securities outstanding as of March 31, 2015, 2014, 2013, 2012, 2011, 2010, 2009, 2008, 2007 and 2006 is attached as an exhibit to the registration statement of which this prospectus is a part.

 

Class and Year		Total Amount Outstanding (1)				Asset Coverage Per Unit (2)				Involuntary Liquidating Preference Per Unit (3)				Estimated Market Value
Senior Secured Facility
Fiscal 2015		$	384,648			$	588			$	—				N/A	(5)
Fiscal 2014			602,261				1,095				—				N/A
Fiscal 2013			536,067				1,137				—				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
Senior Secured Notes
Fiscal 2015		$	270,000			$	413			$	—				N/A
Fiscal 2014			270,000				491				—				N/A
Fiscal 2013			270,000				572				—				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

 

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Class and Year		Total Amount Outstanding (1)				Asset Coverage Per Unit (2)				Involuntary Liquidating Preference Per Unit (3)				Estimated Market Value
2042 Notes
Fiscal 2015		$	150,000			$	230			$	—			$	99.59
Fiscal 2014			150,000				273				—				92.11
Fiscal 2013			150,000				318				—				97.43
Fiscal 2012			—				—				—				N/A
Fiscal 2011			—				—				—				N/A
Fiscal 2010			—				—				—				N/A
Fiscal 2009			—				—				—				N/A
Fiscal 2008			—				—				—				N/A
Fiscal 2007			—				—				—				N/A
Fiscal 2006			—				—				—				N/A
2043 Notes
Fiscal 2015		$	150,000			$	230			$	—			$	99.74
Fiscal 2014			150,000				273				—				89.88
Fiscal 2013			—				—				—				N/A
Fiscal 2012			—				—				—				N/A
Fiscal 2011			—				—				—				N/A
Fiscal 2010			—				—				—				N/A
Fiscal 2009			—				—				—				N/A
Fiscal 2008			—				—				—				N/A
Fiscal 2007			—				—				—				N/A
Fiscal 2006			—				—				—				N/A
2025 Notes
Fiscal 2015		$	344,111			$	526			$	—				N/A
Fiscal 2014			—				—				—				N/A
Fiscal 2013			—				—				—				N/A
Fiscal 2012			—				—				—				N/A
Fiscal 2011			—				—				—				N/A
Fiscal 2010			—				—				—				N/A
Fiscal 2009			—				—				—				N/A
Fiscal 2008			—				—				—				N/A
Fiscal 2007			—				—				—				N/A
Fiscal 2006			—				—				—				N/A
Convertible Notes
Fiscal 2015		$	200,000			$	306			$	—			$	104.43
Fiscal 2014			200,000				364				—				106.60
Fiscal 2013			200,000				424				—				102.84
Fiscal 2012			200,000				529				—				97.81	(6)
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

 

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Class and Year		Total Amount Outstanding (1)				Asset Coverage Per Unit (2)				Involuntary Liquidating Preference Per Unit (3)				Estimated Market Value
Total Debt Securities
Fiscal 2015		$	1,498,759			$	2,293			$	—				N/A
Fiscal 2014			1,372,261				2,496				—				N/A
Fiscal 2013			1,156,067				2,451				—				N/A
Fiscal 2012			1,009,337				2,670				—				N/A
Fiscal 2011			1,053,443				2,862				—				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

 

(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, except for with respect to the 2042 Notes, the 2043 Notes, and the Convertible Notes, as other senior securities do not have sufficient trading for an average market value per unit to be determined. The average market value per unit for each of the 2042 Notes, the 2043 Notes, and the Convertible Notes is based on the closing daily prices of such notes and is expressed per $100 of indebtedness (including for the 2042 Notes and the 2043 Notes, which were issued in $25 increments).

 

(5)	Included in this amount is foreign currency debt obligations as outlined in the table in note 6.

 

(6)	Restrictive legends were removed in 2012.

Conversion and Exchange

If any debt securities are convertible into or exchangeable for other securities, the prospectus supplement will explain the terms and conditions of the conversion or exchange, including the conversion price or exchange ratio (or the calculation method), the conversion or exchange period (or how the period will be determined), if conversion or exchange will be mandatory or at the option of the holder or us, provisions for adjusting the conversion price or the exchange ratio and provisions affecting conversion or exchange in the event of the redemption of the underlying debt securities. These terms may also include provisions under which the number or amount of other securities to be received by the holders of the debt securities upon conversion or exchange would be calculated according to the market price of the other securities as of a time stated in the prospectus supplement.

 

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Issuance of Securities in Registered Form

We may issue the debt securities in registered form, in which case we may issue them either in book-entry form only or in “certificated” form. Debt securities issued in book-entry form will be represented by global securities. We expect that we will usually issue debt securities in book-entry only form represented by global securities.

We also will have the option of issuing debt securities in non-registered form as bearer securities if we issue the securities outside the United States to non-U.S. persons. In that case, the prospectus supplement will set forth the mechanics for holding the bearer securities, including the procedures for receiving payments, for exchanging the bearer securities, including the procedures for receiving payments, for exchanging the bearer securities for registered securities of the same series, and for receiving notices. The prospectus supplement will also describe the requirements with respect to our maintenance of offices or agencies outside the United States and the applicable U.S. federal tax law requirements.

Book-Entry Holders

We will issue registered debt securities in book-entry form only, unless we specify otherwise in the applicable prospectus supplement. This means debt securities will be represented by one or more global securities registered in the name of a depositary that will hold them on behalf of financial institutions that participate in the depositary’s book-entry system. These participating institutions, in turn, hold beneficial interests in the debt securities held by the depositary or its nominee. These institutions may hold these interests on behalf of themselves or customers.

Under the indenture, only the person in whose name a debt security is registered is recognized as the holder of that debt security. Consequently, for debt securities issued in book-entry form, we will recognize only the depositary as the holder of the debt securities and we will make all payments on the debt securities to the depositary. The depositary will then pass along the payments it receives to its participants, which in turn will pass the payments along to their customers who are the beneficial owners. The depositary and its participants do so under agreements they have made with one another or with their customers; they are not obligated to do so under the terms of the debt securities.

As a result, investors will not own debt securities directly. Instead, they will own beneficial interests in a global security, through a bank, broker or other financial institution that participates in the depositary’s book-entry system or holds an interest through a participant. As long as the debt securities are represented by one or more global securities, investors will be indirect holders, and not holders, of the debt securities.

Street Name Holders

In the future, we may issue debt securities in certificated form or terminate a global security. In these cases, investors may choose to hold their debt securities in their own names or in “street name.” Debt securities held in street name are registered in the name of a bank, broker or other financial institution chosen by the investor, and the investor would hold a beneficial interest in those debt securities through the account he or she maintains at that institution.

For debt securities held in street name, we will recognize only the intermediary banks, brokers and other financial institutions in whose names the debt securities are registered as the holders of those debt securities and we will make all payments on those debt securities to them. These institutions will pass along the payments they receive to their customers who are the beneficial owners, but only because they agree to do so in their customer agreements or because they are legally required to do so. Investors who hold debt securities in street name will be indirect holders, and not holders, of the debt securities.

 

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Legal Holders

Our obligations, as well as the obligations of the applicable trustee and those of any third parties employed by us or the applicable trustee, run only to the legal holders of the debt securities. We do not have obligations to investors who hold beneficial interests in global securities, in street name or by any other indirect means. This will be the case whether an investor chooses to be an indirect holder of a debt security or has no choice because we are issuing the debt securities only in book-entry form.

For example, once we make a payment or give a notice to the holder, we have no further responsibility for the payment or notice even if that holder is required, under agreements with depositary participants or customers or by law, to pass it along to the indirect holders but does not do so. Similarly, if we want to obtain the approval of the holders for any purpose (for example, to amend an indenture or to relieve us of the consequences of a default or of our obligation to comply with a particular provision of an indenture), we would seek the approval only from the holders, and not the indirect holders, of the debt securities. Whether and how the holders contact the indirect holders is up to the holders.

When we refer to you, we mean those who invest in the debt securities being offered by this prospectus, whether they are the holders or only indirect holders of those debt securities. When we refer to your debt securities, we mean the debt securities in which you hold a direct or indirect interest.

Special Considerations for Indirect Holders

If you hold debt securities through a bank, broker or other financial institution, either in book-entry form or in street name, we urge you to check with that institution to find out:

 

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how it handles securities payments and notices,

 

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whether it imposes fees or charges,

 

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how it would handle a request for the holders’ consent, if ever required,

 

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whether and how you can instruct it to send you debt securities registered in your own name so you can be a holder, if that is permitted in the future for a particular series of debt securities,

 

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how it would exercise rights under the debt securities if there were a default or other event triggering the need for holders to act to protect their interests, and

 

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if the debt securities are in book-entry form, how the depositary’s rules and procedures will affect these matters.

Global Securities

As noted above, we usually will issue debt securities as registered securities in book-entry form only. A global security represents one or any other number of individual debt securities. Generally, all debt securities represented by the same global securities will have the same terms.

Each debt security issued in book-entry form will be represented by a global security that we deposit with and register in the name of a financial institution or its nominee that we select. The financial institution that we select for this purpose is called the depositary. Unless we specify otherwise in the applicable prospectus supplement, The Depository Trust Company, New York, New York, known as DTC, will be the depositary for all debt securities issued in book-entry form.

 

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A global security may not be transferred to or registered in the name of anyone other than the depositary or its nominee, unless special termination situations arise. We describe those situations below under “Special Situations when a Global Security Will Be Terminated”. As a result of these arrangements, the depositary, or its nominee, will be the sole registered owner and holder of all debt securities represented by a global security, and investors will be permitted to own only beneficial interests in a global security. Beneficial interests must be held by means of an account with a broker, bank or other financial institution that in turn has an account with the depositary or with another institution that has an account with the depositary. Thus, an investor whose security is represented by a global security will not be a holder of the debt security, but only an indirect holder of a beneficial interest in the global security.

Special Considerations for Global Securities

As an indirect holder, an investor’s rights relating to a global security will be governed by the account rules of the investor’s financial institution and of the depositary, as well as general laws relating to securities transfers. The depositary that holds the global security will be considered the holder of the debt securities represented by the global security.

If debt securities are issued only in the form of a global security, an investor should be aware of the following:

 

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An investor cannot cause the debt securities to be registered in his or her name, and cannot obtain certificates for his or her interest in the debt securities, except in the special situations we describe below.

 

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An investor will be an indirect holder and must look to his or her own bank or broker for payments on the debt securities and protection of his or her legal rights relating to the debt securities, as we describe under “Issuance of Securities in Registered Form” above.

 

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An investor may not be able to sell interests in the debt securities to some insurance companies and other institutions that are required by law to own their securities in non-book-entry form.

 

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An investor may not be able to pledge his or her interest in a global security in circumstances where certificates representing the debt securities must be delivered to the lender or other beneficiary of the pledge in order for the pledge to be effective.

 

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The depositary’s policies, which may change from time to time, will govern payments, transfers, exchanges and other matters relating to an investor’s interest in a global security. We and the trustee have no responsibility for any aspect of the depositary’s actions or for its records of ownership interests in a global security. We and the trustee also do not supervise the depositary in any way.

 

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If we redeem less than all the debt securities of a particular series being redeemed, DTC’s practice is to determine by lot the amount to be redeemed from each of its participants holding that series.

 

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An investor is required to give notice of exercise of any option to elect repayment of its debt securities, through its participant, to the applicable trustee and to deliver the related debt securities by causing its participant to transfer its interest in those debt securities, on DTC’s records, to the applicable trustee.

 

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DTC requires that those who purchase and sell interests in a global security deposited in its book-entry system use immediately available funds. Your broker or bank may also require you to use immediately available funds when purchasing or selling interests in a global security.

 

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Financial institutions that participate in the depositary’s book-entry system, and through which an investor holds its interest in a global security, may also have their own policies affecting payments,

 

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notices and other matters relating to the debt securities. There may be more than one financial intermediary in the chain of ownership for an investor. We do not monitor and are not responsible for the actions of any of those intermediaries.

Special Situations when a Global Security will be Terminated

In a few special situations described below, a global security will be terminated and interests in it will be exchanged for certificates in non-book-entry form (certificated securities). After that exchange, the choice of whether to hold the certificated debt securities directly or in street name will be up to the investor. Investors must consult their own banks or brokers to find out how to have their interests in a global security transferred on termination to their own names, so that they will be holders. We have described the rights of legal holders and street name investors under “Issuance of Securities in Registered Form” above.

The special situations for termination of a global security are as follows:

 

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if the depositary notifies us that it is unwilling, unable or no longer qualified to continue as depositary for that global security, and we do not appoint another institution to act as depositary within 60 days,

 

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if we notify the trustee that we wish to terminate that global security, or

 

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if an event of default has occurred with regard to the debt securities represented by that global security and has not been cured or waived; we discuss defaults later under “Events of Default.”

The prospectus supplement may list situations for terminating a global security that would apply only to the particular series of debt securities covered by the prospectus supplement. If a global security is terminated, only the depositary, and not we or the applicable trustee, is responsible for deciding the names of the institutions in whose names the debt securities represented by the global security will be registered and, therefore, who will be the holders of those debt securities.

Payment and Paying Agents

We will pay interest to the person listed in the applicable trustee’s records as the owner of the debt security at the close of business on a particular day in advance of each due date for interest, even if that person no longer owns the debt security on the interest due date. That day, usually about two weeks in advance of the interest due date, is called the “record date.” Because we will pay all the interest for an interest period to the holders on the record date, holders buying and selling debt securities must work out between themselves the appropriate purchase price. The most common manner is to adjust the sales price of the debt securities to prorate interest fairly between buyer and seller based on their respective ownership periods within the particular interest period. This prorated interest amount is called “accrued interest.”

Payments on Global Securities

We will make payments on a global security in accordance with the applicable policies of the depositary as in effect from time to time. Under those policies, we will make payments directly to the depositary, or its nominee, and not to any indirect holders who own beneficial interests in the global security. An indirect holder’s right to those payments will be governed by the rules and practices of the depositary and its participants, as described under “—Special Considerations for Global Securities.”

Payments on Certificated Securities

We will make payments on a certificated debt security as follows. We will pay interest that is due on an interest payment date by check mailed on the interest payment date to the holder at his or her address shown on

 

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the trustee’s records as of the close of business on the regular record date. We will make all payments of principal and premium, if any, by check at the office of the applicable trustee in New York, NY and/or at other offices that may be specified in the prospectus supplement or in a notice to holders against surrender of the debt security.

Alternatively, if the holder asks us to do so, we will pay any amount that becomes due on the debt security by wire transfer of immediately available funds to an account at a bank in New York City, on the due date. To request payment by wire, the holder must give the applicable trustee or other paying agent appropriate transfer instructions at least 15 business days before the requested wire payment is due. In the case of any interest payment due on an interest payment date, the instructions must be given by the person who is the holder on the relevant regular record date. Any wire instructions, once properly given, will remain in effect unless and until new instructions are given in the manner described above.

Payment When Offices Are Closed

If any payment is due on a debt security on a day that is not a business day, we will make the payment on the next day that is a business day. Payments made on the next business day in this situation will be treated under the indenture as if they were made on the original due date, except as otherwise indicated in the attached prospectus supplement. Such payment will not result in a default under any debt security or the indenture, and no interest will accrue on the payment amount from the original due date to the next day that is a business day.

Book-entry and other indirect holders should consult their banks or brokers for information on how they will receive payments on their debt securities.

Events of Default

You will have rights if an Event of Default occurs in respect of the debt securities of your series and is not cured, as described later in this subsection.

The term “Event of Default” in respect of the debt securities of your series means any of the following:

 

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We do not pay the principal of, or any premium on, a debt security of the series on its due date.

 

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We do not pay interest on a debt security of the series within 30 days of its due date.

 

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We do not deposit any sinking fund payment in respect of debt securities of the series on its due date.

 

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We remain in breach of a covenant in respect of debt securities of the series for 60 days after we receive a written notice of default stating we are in breach. The notice must be sent by either the trustee or holders of at least 25% of the principal amount of debt securities of the series.

 

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We file for bankruptcy or certain other events of bankruptcy, insolvency or reorganization occur.

 

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Any other Event of Default in respect of debt securities of the series described in the prospectus supplement occurs.

An Event of Default for a particular series of debt securities does not necessarily constitute an Event of Default for any other series of debt securities issued under the same or any other indenture. The trustee may withhold notice to the holders of debt securities of any default, except in the payment of principal, premium or interest, if it considers the withholding of notice to be in the best interests of the holders.

 

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Remedies if an Event of Default Occurs

If an Event of Default has occurred and has not been cured, the trustee or the holders of at least 25% in principal amount of the debt securities of the affected series may declare the entire principal amount of all the debt securities of that series to be due and immediately payable. This is called a declaration of acceleration of maturity. A declaration of acceleration of maturity may be canceled by the holders of a majority in principal amount of the debt securities of the affected series.

Except in cases of default, where the trustee has some special duties, the trustee is not required to take any action under the indenture at the request of any holders unless the holders offer the trustee reasonable protection from expenses and liability (called an “indemnity”). (Section 315 of the Trust Indenture Act of 1939) If reasonable indemnity is provided, the holders of a majority in principal amount of the outstanding debt securities of the relevant series may direct the time, method and place of conducting any lawsuit or other formal legal action seeking any remedy available to the trustee. The trustee may refuse to follow those directions in certain circumstances. No delay or omission in exercising any right or remedy will be treated as a waiver of that right, remedy or Event of Default.

Before you are allowed to bypass your trustee and bring your own lawsuit or other formal legal action or take other steps to enforce your rights or protect your interests relating to the debt securities, the following must occur:

 

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You must give your trustee written notice that an Event of Default has occurred and remains uncured.

 

•

The holders of at least 25% in principal amount of all outstanding debt securities of the relevant series must make a written request that the trustee take action because of the default and must offer reasonable indemnity to the trustee against the cost and other liabilities of taking that action.

 

•

The trustee must not have taken action for 60 days after receipt of the above notice and offer of indemnity.

 

•

The holders of a majority in principal amount of the debt securities must not have given the trustee a direction inconsistent with the above notice during that 60-day period.

However, you are entitled at any time to bring a lawsuit for the payment of money due on your debt securities on or after the due date.

Holders of a majority in principal amount of the debt securities of the affected series may waive any past defaults other than

 

•

the payment of principal, any premium or interest or

 

•

in respect of a covenant that cannot be modified or amended without the consent of each holder.

Book-entry and other indirect holders should consult their banks or brokers for information on how to give notice or direction to or make a request of the trustee and how to declare or cancel an acceleration of maturity.

Each year, we will furnish to each trustee a written statement of certain of our officers certifying that to their knowledge we are in compliance with the indenture and the debt securities or else specifying any default.

 

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Merger or Consolidation

Under the terms of the indenture, we are generally permitted to consolidate or merge with another entity. We are also permitted to sell all or substantially all of our assets to another entity. However, we may not take any of these actions unless all the following conditions are met:

 

•

Where we merge out of existence or sell our assets, the resulting entity must agree to be legally responsible for our obligations under the debt securities.

 

•

The merger or sale of assets must not cause a default on the debt securities and we must not already be in default (unless the merger or sale would cure the default). For purposes of this no-default test, a default would include an Event of Default that has occurred and has not been cured, as described under “Events of Default” above. A default for this purpose would also include any event that would be an Event of Default if the requirements for giving us a notice of default or our default having to exist for a specific period of time were disregarded.

 

•

Under the indenture, no merger or sale of assets may be made if as a result any of our property or assets or any property or assets of one of our subsidiaries, if any, would become subject to any mortgage, lien or other encumbrance unless either (i) the mortgage, lien or other encumbrance could be created pursuant to the limitation on liens covenant in the indenture (see “Indenture Provisions—Limitation on Liens” below) without equally and ratably securing the indenture securities or (ii) the indenture securities are secured equally and ratably with or prior to the debt secured by the mortgage, lien or other encumbrance.

 

•

We must deliver certain certificates and documents to the trustee.

 

•

We must satisfy any other requirements specified in the prospectus supplement relating to a particular series of debt securities.

Modification or Waiver

There are three types of changes we can make to the indenture and the debt securities issued thereunder.

Changes Requiring Your Approval

First, there are changes that we cannot make to your debt securities without your specific approval. The following is a list of those types of changes:

 

•

change the stated maturity of the principal of, or interest on, a debt security;

 

•

reduce any amounts due on a debt security;

 

•

reduce the amount of principal payable upon acceleration of the maturity of a security following a default;

 

•

adversely affect any right of repayment at the holder’s option;

 

•

change the place (except as otherwise described in the prospectus or prospectus supplement) or currency of payment on a debt security;

 

•

impair your right to sue for payment;

 

•

adversely affect any right to convert or exchange a debt security in accordance with its terms;

 

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•

modify the subordination provisions in the indenture in a manner that is adverse to holders of the debt securities;

 

•

reduce the percentage of holders of debt securities whose consent is needed to modify or amend the indenture;

 

•

reduce the percentage of holders of debt securities whose consent is needed to waive compliance with certain provisions of the indenture or to waive certain defaults;

 

•

modify any other aspect of the provisions of the indenture dealing with supplemental indentures, modification and waiver of past defaults, changes to the quorum or voting requirements or the waiver of certain covenants; and

 

•

change any obligation we have to pay additional amounts.

Changes Not Requiring Approval

The second type of change does not require any vote by the holders of the debt securities. This type is limited to clarifications and certain other changes that would not adversely affect holders of the outstanding debt securities in any material respect. We also do not need any approval to make any change that affects only debt securities to be issued under the indenture after the change takes effect.

Changes Requiring Majority Approval

Any other change to the indenture and the debt securities would require the following approval:

 

•

If the change affects only one series of debt securities, it must be approved by the holders of a majority in principal amount of that series.

 

•

If the change affects more than one series of debt securities issued under the same indenture, it must be approved by the holders of a majority in principal amount of all of the series affected by the change, with all affected series voting together as one class for this purpose.

In each case, the required approval must be given by written consent.

The holders of a majority in principal amount of all of the series of debt securities issued under an indenture, voting together as one class for this purpose, may waive our compliance with some of our covenants in that indenture. However, we cannot obtain a waiver of a payment default or of any of the matters covered by the bullet points included above under “—Changes Requiring Your Approval.”

Further Details Concerning Voting

When taking a vote, we will use the following rules to decide how much principal to attribute to a debt security:

 

•

For original issue discount securities, we will use the principal amount that would be due and payable on the voting date if the maturity of these debt securities were accelerated to that date because of a default.

 

•

For debt securities whose principal amount is not known (for example, because it is based on an index), we will use a special rule for that debt security described in the prospectus supplement.

 

•

For debt securities denominated in one or more foreign currencies, we will use the U.S. dollar equivalent.

 

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Debt securities will not be considered outstanding, and therefore not eligible to vote, if we have deposited or set aside in trust money for their payment or redemption. Debt securities will also not be eligible to vote if they have been fully defeased as described later under “Defeasance—Full Defeasance.”

We will generally be entitled to set any day as a record date for the purpose of determining the holders of outstanding indenture securities that are entitled to vote or take other action under the indenture. If we set a record date for a vote or other action to be taken by holders of one or more series, that vote or action may be taken only by persons who are holders of outstanding indenture securities of those series on the record date and must be taken within eleven months following the record date.

Book-entry and other indirect holders should consult their banks or brokers for information on how approval may be granted or denied if we seek to change the indenture or the debt securities or request a waiver.

Defeasance

The following provisions will be applicable to each series of debt securities unless we state in the applicable prospectus supplement that the provisions of covenant defeasance and full defeasance will not be applicable to that series.

Covenant Defeasance

Under current United States federal tax law, we can make the deposit described below and be released from some of the restrictive covenants in the indenture under which the particular series was issued. This is called “covenant defeasance”. In that event, you would lose the protection of those restrictive covenants but would gain the protection of having money and government securities set aside in trust to repay your debt securities. If applicable, you also would be released from the subordination provisions described under “Indenture Provisions—Subordination” below. In order to achieve covenant defeasance, we must do the following:

 

•

If the debt securities of the particular series are denominated in U.S. dollars, we must deposit in trust for the benefit of all holders of such debt securities a combination of money and United States government or United States government agency notes or bonds that will generate enough cash to make interest, principal and any other payments on the debt securities on their various due dates.

 

•

We must deliver to the trustee a legal opinion of our counsel confirming that, under current United States federal income tax law, we may make the above deposit without causing you to be taxed on the debt securities any differently than if we did not make the deposit and just repaid the debt securities ourselves at maturity.

We must deliver to the trustee a legal opinion of our counsel stating that the above deposit does not require registration by us under the 1940 Act, as amended, and a legal opinion and officers’ certificate stating that all conditions precedent to covenant defeasance have been complied with.

If we accomplish covenant defeasance, you can still look to us for repayment of the debt securities if there were a shortfall in the trust deposit or the trustee is prevented from making payment. In fact, if one of the remaining Events of Default occurred (such as our bankruptcy) and the debt securities became immediately due and payable, there might be a shortfall. Depending on the event causing the default, you may not be able to obtain payment of the shortfall.

 

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Full Defeasance

If there is a change in United States federal tax law, as described below, we can legally release ourselves from all payment and other obligations on the debt securities of a particular series (called “full defeasance”) if we put in place the following other arrangements for you to be repaid:

 

•

If the debt securities of the particular series are denominated in U.S. dollars, we must deposit in trust for the benefit of all holders of such debt securities a combination of money and United States government or United States government agency notes or bonds that will generate enough cash to make interest, principal and any other payments on the debt securities on their various due dates.

 

•

We must deliver to the trustee a legal opinion confirming that there has been a change in current United States federal tax law or an IRS ruling that allows us to make the above deposit without causing you to be taxed on the debt securities any differently than if we did not make the deposit and just repaid the debt securities ourselves at maturity. Under current United States federal tax law, the deposit and our legal release from the debt securities would be treated as though we paid you your share of the cash and notes or bonds at the time the cash and notes or bonds were deposited in trust in exchange for your debt securities and you would recognize gain or loss on the debt securities at the time of the deposit.

 

•

We must deliver to the trustee a legal opinion of our counsel stating that the above deposit does not require registration by us under the 1940 Act, as amended, and a legal opinion and officers’ certificate stating that all conditions precedent to defeasance have been complied with.

If we ever did accomplish full defeasance, as described above, you would have to rely solely on the trust deposit for repayment of the debt securities. You could not look to us for repayment in the unlikely event of any shortfall. Conversely, the trust deposit would most likely be protected from claims of our lenders and other creditors if we ever became bankrupt or insolvent. If applicable, you would also be released from the subordination provisions described later under “Indenture Provisions—Subordination”.

Form, Exchange and Transfer of Certificated Registered Securities

If registered debt securities cease to be issued in book-entry form, they will be issued:

 

•

only in fully registered certificated form,

 

•

without interest coupons, and

 

•

unless we indicate otherwise in the prospectus supplement, in denominations of $1,000 and amounts that are multiples of $1,000.

Holders may exchange their certificated securities for debt securities of smaller denominations or combined into fewer debt securities of larger denominations, as long as the total principal amount is not changed.

Holders may exchange or transfer their certificated securities at the office of their trustee. We have appointed the trustee to act as our agent for registering debt securities in the names of holders transferring debt securities. We may appoint another entity to perform these functions or perform them ourselves.

Holders will not be required to pay a service charge to transfer or exchange their certificated securities, but they may be required to pay any tax or other governmental charge associated with the transfer or exchange. The transfer or exchange will be made only if our transfer agent is satisfied with the holder’s proof of legal ownership.

 

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If we have designated additional transfer agents for your debt security, they will be named in your prospectus supplement. We may appoint additional transfer agents or cancel the appointment of any particular transfer agent. We may also approve a change in the office through which any transfer agent acts.

If any certificated securities of a particular series are redeemable and we redeem less than all the debt securities of that series, we may block the transfer or exchange of those debt securities during the period beginning 15 days before the day we mail the notice of redemption and ending on the day of that mailing, in order to freeze the list of holders to prepare the mailing. We may also refuse to register transfers or exchanges of any certificated securities selected for redemption, except that we will continue to permit transfers and exchanges of the unredeemed portion of any debt security that will be partially redeemed.

If a registered debt security is issued in book-entry form, only the depositary will be entitled to transfer and exchange the debt security as described in this subsection, since it will be the sole holder of the debt security.

Resignation of Trustee

Each trustee may resign or be removed with respect to one or more series of indenture securities provided that a successor trustee is appointed to act with respect to these series. In the event that two or more persons are acting as trustee with respect to different series of indenture securities under the indenture, each of the trustees will be a trustee of a trust separate and apart from the trust administered by any other trustee.

Indenture Provisions—Limitation on Liens

If we issue indenture securities that are denominated as senior debt securities, we covenant in the indenture that neither we nor any of our subsidiaries, if any, will pledge or subject to any lien any of our or their property or assets unless those senior debt securities issued under the indenture are secured by this pledge or lien equally and ratably with other indebtedness thereby secured. There are excluded from this covenant liens created to secure obligations for the purchase price of physical property, liens of a subsidiary securing indebtedness owed to us, liens existing on property acquired upon exercise of rights arising out of defaults on receivables acquired in the ordinary course of business, sales of receivables accounted for as secured indebtedness in accordance with generally accepted accounting principles, certain liens not related to the borrowing of money and other liens not securing borrowed money aggregating less than $500,000.

Indenture Provisions—Subordination

Upon any distribution of our assets upon our dissolution, winding up, liquidation or reorganization, the payment of the principal of (and premium, if any) and interest, if any, on any indenture securities denominated as subordinated debt securities is to be subordinated to the extent provided in the indenture in right of payment to the prior payment in full of all Senior Indebtedness (as defined below), but our obligation to you to make payment of the principal of (and premium, if any) and interest, if any, on such subordinated debt securities will not otherwise be affected. In addition, no payment on account of principal (or premium, if any), sinking fund or interest, if any, may be made on such subordinated debt securities at any time unless full payment of all amounts due in respect of the principal (and premium, if any), sinking fund and interest on Senior Indebtedness has been made or duly provided for in money or money’s worth.

In the event that, notwithstanding the foregoing, any payment by us is received by the trustee in respect of subordinated debt securities or by the holders of any of such subordinated debt securities before all Senior Indebtedness is paid in full, the payment or distribution must be paid over to the holders of the Senior Indebtedness or on their behalf for application to the payment of all the Senior Indebtedness remaining unpaid until all the Senior Indebtedness has been paid in full, after giving effect to any concurrent payment or distribution to the holders of the Senior Indebtedness. Subject to the payment in full of all Senior Indebtedness upon this distribution by us, the holders of such subordinated debt securities will be subrogated to the rights of the holders of the Senior Indebtedness to the extent of payments made to the holders of the Senior Indebtedness out of the distributive share of such subordinated debt securities.

 

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By reason of this subordination, in the event of a distribution of our assets upon our insolvency, certain of our senior creditors may recover more, ratably, than holders of any subordinated debt securities. The indenture provides that these subordination provisions will not apply to money and securities held in trust under the defeasance provisions of the indenture.

Senior Indebtedness is defined in the indenture as the principal of (and premium, if any) and unpaid interest on:

 

•

our indebtedness (including indebtedness of others guaranteed by us), whenever created, incurred, assumed or guaranteed, for money borrowed (other than indenture securities issued under the indenture and denominated as subordinated debt securities), unless in the instrument creating or evidencing the same or under which the same is outstanding it is provided that this indebtedness is not senior or prior in right of payment to the subordinated debt securities, and

 

•

renewals, extensions, modifications and refinancings of any of this indebtedness.

If this prospectus is being delivered in connection with the offering of a series of indenture securities denominated as subordinated debt securities, the accompanying prospectus supplement will set forth the approximate amount of our Senior Indebtedness outstanding as of a recent date.

The Trustee under the Indenture

U.S. Bank National Association will serve as the trustee under the indenture.

Certain Considerations Relating to Foreign Currencies

Debt securities denominated or payable in foreign currencies may entail significant risks. These risks include the possibility of significant fluctuations in the foreign currency markets, the imposition or modification of foreign exchange controls and potential illiquidity in the secondary market. These risks will vary depending upon the currency or currencies involved and will be more fully described in the applicable prospectus supplement.

 

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DESCRIPTION OF OUR UNITS

As specified in the applicable prospectus supplement, we may issue units comprised of one or more of the other securities described in this prospectus in any combination. Each unit may also include debt obligations of third parties, such as U.S. Treasury securities. Each unit will be issued so that the holder of the unit is also the holder of each security included in the unit. Thus, the holder of a unit will have the rights and obligations of a holder of each included security. The prospectus supplement will describe:

 

•

the designation and terms of the units and of the securities comprising the units, including whether and under what circumstances the securities comprising the units may be held or transferred separately;

 

•

a description of the terms of any unit agreement governing the units;

 

•

a description of the provisions for the payment, settlement, transfer or exchange of the units; and

 

•

whether the units will be issued in fully registered or global form.

The descriptions of the units and any applicable underlying security or pledge or depositary arrangements in this prospectus and in any prospectus supplement are summaries of the material provisions of the applicable agreements and are subject to, and qualified in their entirety by reference to, the terms and provisions of the applicable agreements, forms of which have been or will be filed as exhibits to the registration statement of which this prospectus forms a part.

 

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DESCRIPTION OF OUR SUBSCRIPTION RIGHTS

We may issue subscription rights to our stockholders to purchase common stock or other securities. Subscription rights may or may not be transferable by the person purchasing or receiving the subscription rights. Any subscription rights offered as a combination with other securities would be treated as an offering of our units. See “Description of our Units.” In connection with a subscription rights offering to our stockholders, we would distribute certificates evidencing the subscription rights and a prospectus supplement to our stockholders on the record date that we set for receiving subscription rights in such subscription rights offering.

The applicable prospectus supplement would describe the following terms of subscription rights in respect of which this prospectus is being delivered:

 

•

the period of time the offering would remain open (which shall be open a minimum number of days such that all record holders would be eligible to participate in the offering and shall not be open longer than 120 days);

 

•

the title of such subscription rights;

 

•

the exercise price for such subscription rights (or method of calculation thereof if the price is not a specific dollar amount);

 

•

the ratio of the offering (which, in the case of transferable rights for common stock, will require a minimum of three shares to be held of record before a person is entitled to purchase an additional share);

 

•

the number of such subscription rights issued to each stockholder;

 

•

the extent to which such subscription rights are transferable and the market on which they may be traded if they are transferable;

 

•

if applicable, a discussion of certain U.S. federal income tax considerations applicable to the issuance or exercise of such subscription rights;

 

•

the date on which the right to exercise such subscription rights shall commence, and the date on which such right shall expire (subject to any extension);

 

•

the extent to which such subscription rights include an over-subscription privilege with respect to unsubscribed securities and the terms of such over-subscription privilege;

 

•

any termination right we may have in connection with such subscription rights offering; and

 

•

any other terms of such subscription rights, including exercise, settlement and other procedures and limitations relating to the transfer and exercise of such subscription rights.

Exercise of Subscription Rights

Each subscription right would entitle the holder of the subscription right to purchase for cash such amount of shares of the security being offered at such exercise price as shall in each case be set forth in, or be determinable as set forth in, the prospectus supplement relating to the subscription rights offered thereby. Subscription rights may be exercised at any time up to the close of business on the expiration date for such subscription rights set forth in the prospectus supplement. After the close of business on the expiration date, all unexercised subscription rights would become void.

Subscription rights may be exercised as set forth in the prospectus supplement relating to the subscription rights offered thereby. Upon receipt of payment and the subscription rights certificate properly completed and duly executed at the corporate trust office of the subscription rights agent or any other office indicated in the prospectus supplement we will forward, as soon as practicable, the shares of common stock purchasable upon such exercise. To the extent permissible under applicable law, we may determine to offer any unsubscribed offered securities directly to persons other than stockholders, to or through agents, underwriters or dealers or through a combination of such methods, as set forth in the applicable prospectus supplement.

 

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DESCRIPTION OF OUR PURCHASE CONTRACTS

As may be specified in a prospectus supplement, we may issue purchase contracts obligating holders to purchase from us, and us to sell to the holders, a number of debt securities, shares of common stock or preferred stock, or other securities described in this prospectus or the applicable prospectus supplement at a future date or dates. The price of the securities or other property subject to the purchase contracts may be fixed at the time the purchase contracts are issued or may be determined by reference to a specific formula described in the purchase contracts. The purchase contracts may require us to make periodic payments to the holders of the purchase contracts. These payments may be unsecured or prefunded on some basis to be specified in the applicable prospectus supplement.

The applicable prospectus supplement relating to any purchase contracts will specify the material terms of the purchase contracts and any applicable pledge or depositary arrangements, including one or more of the following:

 

•

The stated amount that a holder will be obligated to pay under the purchase contract in order to purchase debt securities, common stock, preferred stock, or other securities described in this prospectus or the formula by which such amount shall be determined.

 

•

The settlement date or dates on which the holder will be obligated to purchase such securities. The prospectus supplement will specify whether the occurrence of any events may cause the settlement date to occur on an earlier date and the terms on which an early settlement would occur.

 

•

The events, if any, that will cause our obligations and the obligations of the holder under the purchase contract to terminate.

 

•

The settlement rate, which is a number that, when multiplied by the stated amount of a purchase contract, determines the number of securities that we or a trust will be obligated to sell and a holder will be obligated to purchase under that purchase contract upon payment of the stated amount of that purchase contract. The settlement rate may be determined by the application of a formula specified in the prospectus supplement. If a formula is specified, it may, subject to compliance with the 1940 Act, be based on the market price of such securities over a specified period or it may be based on some other reference statistic.

 

•

Whether the purchase contracts will be issued separately or as part of units consisting of a purchase contract and an underlying security with an aggregate principal amount equal to the stated amount. Any underlying securities will be pledged by the holder to secure its obligations under a purchase contract.

 

•

The type of underlying security, if any, that is pledged by the holder to secure its obligations under a purchase contract. Underlying securities may be debt securities, common stock, preferred stock, or other securities described in this prospectus or the applicable prospectus supplement.

 

•

The terms of the pledge arrangement relating to any underlying securities, including the terms on which distributions or payments of interest and principal on any underlying securities will be retained by a collateral agent, delivered to us or be distributed to the holder.

 

•

The amount of the contract fee, if any, that may be payable by us to the holder or by the holder to us, the date or dates on which the contract fee will be payable and the extent to which we or the holder, as applicable, may defer payment of the contract fee on those payment dates. The contract fee may be calculated as a percentage of the stated amount of the purchase contract or otherwise.

The preceding description sets forth certain general terms and provisions of the purchase contracts to which any prospectus supplement may relate. The particular terms of the purchase contracts to which any prospectus supplement may relate and the extent, if any, to which the general provisions may apply to the purchase contracts so offered will be described in the applicable prospectus supplement. To the extent that any particular terms of the purchase contracts described in a prospectus supplement differ from any of the terms described above, then the terms described above will be deemed to have been superseded by that prospectus supplement.

 

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REGULATION

We have elected to be treated as a BDC under the 1940 Act and have elected to be treated as a RIC under Subchapter M of the Code. The 1940 Act contains prohibitions and restrictions relating to transactions between business development companies and their affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than “interested persons,” as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by a majority of our outstanding voting securities voting as a class. A majority of our outstanding voting securities is defined under the 1940 Act as the lesser of (i) 67% or more of our shares present at a meeting or represented by proxy if more than 50% of our outstanding shares are present or represented by proxy or (ii) more than 50% of our outstanding shares.

We may invest up to 100% of our assets in securities acquired directly from issuers in privately negotiated transactions. With respect to such securities, we may, for the purpose of public resale, be deemed an “underwriter” as that term is defined in the Securities Act. However, we may purchase or otherwise receive warrants to purchase the common stock of our portfolio companies in connection with acquisition financing or other investment. Similarly, in connection with an acquisition, we may acquire rights to require the issuers of acquired securities or their affiliates to repurchase them under certain circumstances. We also do not intend to acquire securities issued by any investment company that exceed the limits imposed by the 1940 Act. Under these limits, we generally cannot acquire more than 3% of the voting stock of any registered investment company, invest more than 5% of the value of our total assets in the securities of one registered investment company or invest more than 10% of the value of our total assets in the securities of more than one registered investment company. With regard to that portion of our portfolio invested in securities issued by registered investment companies, it should be noted that such investments might subject our stockholders to additional expenses. None of our policies is fundamental, and each may be changed without stockholder approval.

Qualifying Assets

Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as “qualifying assets,” unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. The principal categories of qualifying assets relevant to our business are the following:

(1) Securities of an “eligible portfolio company,” purchased in transactions not involving any public offering. An eligible portfolio company is defined in the 1940 Act as any issuer which:

(a) is organized under the laws of, and has its principal place of business in, the United States;

(b) is not an investment company (other than a small business investment company wholly owned by the BDC) or a company that would be an investment company but for certain exclusions under the 1940 Act; and

(c) satisfies any of the following:

 

•

does not have any class of securities listed on a national securities exchange or has a class of securities listed on a national securities exchange but has an aggregate market value of outstanding equity of less than $250 million.

 

•

is controlled by a BDC or a group of companies including a BDC, and the BDC has an affiliated person who is a director of the eligible portfolio company; or

 

•

is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less than $2 million.

 

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(2) Securities of any eligible portfolio company that we control.

(3) Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities were unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements.

(4) Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company.

(5) Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of options, warrants or rights relating to such securities.

(6) Cash, cash equivalents, U.S. Government securities or high-quality debt securities maturing in one year or less from the time of investment.

Managerial Assistance to Portfolio Companies

In addition, a BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described in (1), (2) or (3) above. However, in order to count portfolio securities as qualifying assets for the purpose of the 70% test, the BDC must either control the issuer of the securities or must offer to make available to the issuer of the securities (other than small and solvent companies described above) significant managerial assistance; except that, where the BDC purchases such securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company.

Temporary Investments

Pending investment in other types of “qualifying assets,” as described above, our investments may consist of cash, cash equivalents, U.S. Government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets. Typically, we will invest in U.S. Treasury bills or in repurchase agreements, provided that such agreements are fully collateralized by cash or securities issued by the U.S. Government or its agencies. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price that is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements.

Senior Securities

We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. In addition, while any of these types of senior securities remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency

 

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purposes without regard to asset coverage. For a discussion of the risks associated with leverage, see “Risk Factors—Risks relating to our business and structure—Regulations governing our operation as a BDC will affect our ability to, and the way in which we, raise additional capital.”

Code of Ethics

We have adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act and we have also approved AIM’s code of ethics that was adopted by it in accordance with Rule 17j-1 and Rule 204A-1 under the Advisers Act. These codes of ethics establish procedures for personal investments and restrict certain personal securities transactions. Personnel subject to a code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the code’s requirements. For information on how to obtain a copy of each code of ethics, see “Available Information.”

Proxy Voting Policies and Procedures

SEC-registered investment advisers that have the authority to vote (client) proxies (which authority may be implied from a general grant of investment discretion) are required to adopt policies and procedures reasonably designed to ensure that the investment adviser votes proxies in the best interests of its clients. Registered investment advisers also must maintain certain records on proxy voting. When Apollo Investment does have voting rights, it will delegate the exercise of such rights to AIM. AIM’s proxy voting policies and procedures are summarized below:

In determining how to vote, officers of our investment adviser will consult with each other and other investment professionals of Apollo, taking into account the interests of Apollo Investment and its investors as well as any potential conflicts of interest. Our investment adviser will consult with legal counsel to identify potential conflicts of interest. Where a potential conflict of interest exists, our investment adviser may, if it so elects, resolve it by following the recommendation of a disinterested third party, by seeking the direction of the independent directors of Apollo Investment or, in extreme cases, by abstaining from voting. While our investment adviser may retain an outside service to provide voting recommendations and to assist in analyzing votes, our investment adviser will not delegate its voting authority to any third party.

An officer of AIM will keep a written record of how all such proxies are voted. Our investment adviser will retain records of (1) proxy voting policies and procedures, (2) all proxy statements received (or it may rely on proxy statements filed on the SEC’s EDGAR system in lieu thereof), (3) all votes cast, (4) investor requests for voting information, and (5) any specific documents prepared or received in connection with a decision on a proxy vote. If it uses an outside service, our investment adviser may rely on such service to maintain copies of proxy statements and records, so long as such service will provide a copy of such documents promptly upon request.

Our investment adviser’s proxy voting policies are not exhaustive and are designed to be responsive to the wide range of issues that may be subject to a proxy vote. In general, our investment adviser will vote our proxies in accordance with these guidelines unless: (1) it has determined otherwise due to the specific and unusual facts and circumstances with respect to a particular vote, (2) the subject matter of the vote is not covered by these guidelines, (3) a material conflict of interest is present, or (4) we find it necessary to vote contrary to our general guidelines to maximize shareholder value or the best interests of Apollo Investment. In reviewing proxy issues, our investment adviser generally will use the following guidelines:

Elections of Directors: In general, our investment adviser will vote in favor of the management-proposed slate of directors. If there is a proxy fight for seats on a portfolio company’s board of directors or our investment adviser determines that there are other compelling reasons for withholding our vote, it will determine the appropriate vote on the matter. We may withhold votes for directors that fail to act on key issues, such as

 

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failure to: (1) implement proposals to declassify a board of directors, (2) implement a majority vote requirement, (3) submit a rights plan to a shareholder vote or (4) act on tender offers where a majority of shareholders have tendered their shares. Finally, our investment adviser may withhold votes for directors of non-U.S. issuers where there is insufficient information about the nominees disclosed in the proxy statement.

Appointment of Independent Registered Public Accounting Firm: We believe that a portfolio company remains in the best position to choose its independent registered public accounting firm, and our investment adviser will generally support management’s recommendation in this regard.

Changes in Capital Structure: Changes in a portfolio company’s charter or bylaws may be required by state or federal regulation. In general, our investment adviser will cast our votes in accordance with the management on such proposals. However, our investment adviser will consider carefully any proposal regarding a change in corporate structure that is not required by state or federal regulation.

Corporate Restructurings, Mergers and Acquisitions: We believe proxy votes dealing with corporate reorganizations are an extension of the investment decision. Accordingly, our investment adviser will analyze such proposals on a case-by-case basis and vote in accordance with its perception of our interests.

Proposals Affecting Shareholder Rights: We will generally vote in favor of proposals that give shareholders a greater voice in the affairs of a portfolio company and oppose any measure that seeks to limit such rights. However, when analyzing such proposals, our investment adviser will balance the financial impact of the proposal against any impairment of shareholder rights as well as of our investment in the portfolio company.

Corporate Governance: We recognize the importance of good corporate governance. Accordingly, our investment adviser will generally favor proposals that promote transparency and accountability within a portfolio company.

Anti-Takeover Measures: Our investment adviser will evaluate, on a case-by-case basis, any proposals regarding anti-takeover measures to determine the measure’s likely effect on shareholder value dilution.

Stock Splits: Our investment adviser will generally vote with management on stock split matters.

Limited Liability of Directors: Our investment adviser will generally vote with management on matters that could adversely affect the limited liability of directors.

Social and Corporate Responsibility: Our investment adviser will review proposals related to social, political and environmental issues to determine whether they may adversely affect shareholder value. Our investment adviser may abstain from voting on such proposals where they do not have a readily determinable financial impact on shareholder value.

Other

We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our board of directors who are not interested persons and, in some cases, prior approval by the SEC.

We will be periodically examined by the SEC for compliance with the 1940 Act.

We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to Apollo Investment or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.

 

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We and AIM have adopted and implemented written policies and procedures reasonably designed to prevent violation of the federal securities laws and intend to review these policies and procedures annually for their adequacy and the effectiveness of their implementation. We have designated a chief compliance officer to be responsible for administering our compliance policies and procedures.

Compliance with the Sarbanes-Oxley Act of 2002 and The Nasdaq Global Select Market Corporate Governance Regulations

The Sarbanes-Oxley Act of 2002 imposes a wide variety of regulatory requirements on publicly-held companies and their insiders. Many of these requirements affect us. The Sarbanes-Oxley Act has required us to review our policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the regulations promulgated thereunder. We will continue to monitor our compliance with all future regulations that are adopted under the Sarbanes-Oxley Act and will take actions necessary to ensure that we are in compliance therewith.

In addition, The Nasdaq Global Select Market also adopted corporate governance changes to its listing standards. We believe we are in compliance with such corporate governance listing standards. We will continue to monitor our compliance with all future listing standards and will take actions necessary to ensure that we are in compliance therewith.

CUSTODIAN, TRANSFER AND DIVIDEND PAYING AGENT,

REGISTRAR AND TRUSTEE

Our securities are held under a custody agreement by JPMorgan Chase Bank, a global financial services firm. The address of the custodian is: 270 Park Avenue, New York, NY 10017. American Stock Transfer and Trust Company will act as our transfer agent, dividend paying agent and registrar. The principal business address of American Stock Transfer & Trust Company is: 6201 15^th Avenue, Brooklyn, NY 11219, telephone number: (718) 921-8200. U.S. Bank National Association will act as the trustee. The principal business address of U.S. Bank National Association is: Global Corporate Trust Services, 100 Wall Street, New York, NY 10005.

BROKERAGE ALLOCATION AND OTHER PRACTICES

Since we generally acquire and dispose of our investments in privately negotiated transactions, we infrequently use brokers in the normal course of our business. From the commencement of our operations through March 31, 2015, we have not paid any brokerage commissions. Subject to policies established by our board of directors, our investment adviser is primarily responsible for the execution of the publicly traded securities portion of our portfolio transactions and the allocation of brokerage commissions. Our investment adviser does not execute transactions through any particular broker or dealer, but seeks to obtain the best net results for us, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution, and operational facilities of the firm and the firm’s risk and skill in positioning blocks of securities. While our investment adviser generally seeks reasonably competitive trade execution costs, we will not necessarily pay the lowest spread or commission available. Subject to applicable legal requirements, our investment adviser may select a broker based partly upon brokerage or research services provided to the investment adviser and us and any other clients. In return for such services, we may pay a higher commission than other brokers would charge if our investment adviser determines in good faith that such commission is reasonable in relation to the services provided.

 

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PLAN OF DISTRIBUTION

We may sell the securities in any of three ways (or in any combination): (a) through underwriters or dealers; (b) directly to a limited number of purchasers or to a single purchaser; or (c) through agents. The securities may be sold “at-the-market” to or through a market maker or into an existing trading market for the securities, on an exchange or otherwise. The prospectus supplement will set forth the terms of the offering of such securities, including:

 

•

the name or names of any underwriters, dealers or agents and the amounts of securities underwritten or purchased by each of them;

 

•

the offering price of the securities and the proceeds to us and any discounts, commissions or concessions allowed or reallowed or paid to dealers; and

 

•

any securities exchanges on which the securities may be listed.

In addition, pursuant to the terms of certain applicable registration rights agreements entered into by us, or that we may enter into in the future, certain holders of our securities may resell securities under this prospectus and as described in any related prospectus supplement.

Any offering price and any discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time.

If underwriters are used in the sale of any securities, the securities will be acquired by the underwriters for their own accounts and may be resold from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. The securities may be either offered to the public through underwriting syndicates represented by managing underwriters, or directly by underwriters. Generally, the underwriters’ obligations to purchase the securities will be subject to certain conditions precedent. The underwriters will be obligated to purchase all of the securities if they purchase any of the securities.

In compliance with the guidelines of FINRA, the maximum compensation to the underwriters or dealers in connection with the sale of our securities pursuant to this prospectus and the accompanying supplement to this prospectus may not exceed 8% of the aggregate offering price of the securities as set forth on the cover page of the supplement to this prospectus.

We may sell the securities through agents from time to time. The prospectus supplement will name any agent involved in the offer or sale of the securities and any commissions we pay to them. Generally, any agent will be acting on a best efforts basis for the period of its appointment.

To the extent permissible under applicable law, we may determine to offer any unsubscribed offered securities directly to persons other than stockholders, to or through agents, underwriters or dealers or through a combination of such methods, as set forth in the applicable prospectus supplement.

If so indicated in the applicable prospectus supplement, we will authorize underwriters or other persons acting as our agents to solicit offers by certain institutions to purchase our securities from us pursuant to contracts providing for payment and delivery on a future date. Institutions with which such contracts may be made include commercial and savings banks, insurance companies, pension funds, investment companies, educational and charitable institutions and others, but in all cases such institutions must be approved by us. The obligations of any purchaser under any such contract will be subject to the condition that the purchase of our securities shall not at the time of delivery be prohibited under the laws of the jurisdiction to which such purchaser is subject. The underwriters and such other agents will not have any responsibility in respect of the validity or performance of such contracts. Such contracts will be subject only to those conditions set forth in the prospectus supplement, and the prospectus supplement will set forth the commission payable for solicitation of such contracts.

 

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Agents and underwriters may be entitled to indemnification by us against certain civil liabilities, including liabilities under the Securities Act of 1933 or to contribution with respect to payments which the agents or underwriters may be required to make in respect thereof. Agents and underwriters may be customers of, engage in transactions with, or perform services for us in the ordinary course of business.

We may enter into derivative transactions with third parties or sell securities not covered by this prospectus to third parties in privately negotiated transactions. If the prospectus supplement applicable to those derivatives so indicates, the third parties may sell securities covered by this prospectus and the applicable prospectus supplement, including in short sale transactions. If so, the third party may use securities pledged by us or borrowed from us or others to settle those sales or to close out any related open borrowings of stock, and may use securities received from us in settlement of those derivatives to close out any related open borrowings of stock. The third party in such sale transactions will be an underwriter and, if not identified in this prospectus, will be identified in the applicable prospectus supplement (or a post-effective amendment). We or one of our affiliates may loan or pledge securities to a financial institution or other third party that in turn may sell the securities using this prospectus. Such financial institution or third party may transfer its short position to investors in our securities or in connection with a simultaneous offering of other securities offered by this prospectus or otherwise.

In order to comply with the securities laws of certain states, if applicable, our securities offered hereby will be sold in such jurisdictions only through registered or licensed brokers or dealers.

LEGAL MATTERS

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 in connection with the offering will be passed upon for the underwriters, if any, by the counsel named in the applicable prospectus supplement.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

PricewaterhouseCoopers LLP, located at 300 Madison Ave, New York, NY 10017, is the independent registered public accounting firm of the Company.

The financial statements as of March 31, 2015 and March 31, 2014 and for each of the three years in the period ended March 31, 2015 and management’s assessment of the effectiveness of internal control over financial reporting (which is included in Management’s Report on Internal Control over Financial Reporting) as of March 31, 2015 included in this Prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

The financial statements of Merx Aviation Finance LLC for the year ended March 31, 2015 included in this Prospectus have been so included in reliance on the report of PricewaterhouseCoopers, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

With respect to the unaudited financial information of Apollo Investment Corporation for the three and six months periods ended September 30, 2015 and 2014, included in this Prospectus, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated November 5, 2015 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 of 1933 for their report on the unaudited financial information because that 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 Act.

 

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AVAILABLE INFORMATION

We have filed with the SEC a registration statement on Form N-2, together with all amendments and related exhibits, under the Securities Act of 1933, with respect to our securities offered by this prospectus. The registration statement contains additional information about us and the securities being offered by this prospectus.

We file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements, codes of ethics and other information meeting the informational requirements of the Exchange Act. You may inspect and copy these reports, proxy statements and other information, as well as the registration statement and related exhibits and schedules, at the Public Reference Room of the SEC at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information filed electronically by us with the SEC which are available on the SEC’s Internet site at http://www.sec.gov. In addition, information specifically regarding how we voted proxies relating to portfolio securities for the year ended March 31, 2015 is available without charge, upon request, by calling 212-515-3450. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, Washington, D.C. 20549-0102.

 

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INDEX TO FINANCIAL STATEMENTS

 

Index to Financial Statements
Management’s Report on Internal Control over Financial Reporting			F-2
Report of Independent Registered Public Accounting Firm			F-3
Statements of Assets & Liabilities as of March 31, 2015 and March 31, 2014			F-4
Statement of Operations for the years ended March 31, 2015, March 31, 2014 and March  31, 2013			F-5
Statement of Changes in Net Assets for the years ended March 31, 2015, March  31, 2014 and March 31, 2013			F-6
Statement of Cash Flows for the years ended March 31, 2015, March 31, 2014 and March  31, 2013			F-7
Schedule of Investments as of March 31, 2015 and March 31, 2014			F-8
Notes to Financial Statements			F-38

 

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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of March 31, 2015. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Management performed an assessment of the effectiveness of the Company’s internal control over financial reporting as of March 31, 2015 based upon criteria in Internal Control—Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment, management determined that the Company’s internal control over financial reporting was effective as of March 31, 2015 based on the criteria on Internal Control—Integrated Framework issued by COSO.

The effectiveness of the Company’s internal control over financial reporting as of March 31, 2015 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

 

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Apollo Investment Corporation:

In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations, changes in net assets and cash flows present fairly, in all material respects, the financial position of Apollo Investment Corporation (“the Company”) at March 31, 2015 and March 31, 2014, and the results of its operations, the changes in net assets, and its cash flows for each of the three years in the period ended March 31, 2015 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2015, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing on page 48 of the annual report to stockholders. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. Our procedures included confirmation of securities at March 31, 2015 by correspondence with the custodians, and where replies were not received, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

New York, New York

May 19, 2015

 

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APOLLO INVESTMENT CORPORATION

STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except per share amounts)

 

		March 31, 2015				March 31, 2014
Assets
Non-controlled/non-affiliated investments, at fair value (cost—$2,514,328 and $2,714,971, respectively)		$	2,357,042			$	2,751,896
Non-controlled/affiliated investments, at fair value (cost—$231,594 and $153,721, respectively)			262,047				144,628
Controlled investments, at fair value (cost—$740,653 and $590,060, respectively)			730,738				582,147
Total investments (cost—$3,486,575 and $3,458,752, respectively)			3,349,827				3,478,671
Cash			3,766				13,413
Foreign currency (cost—$4,856 and $1,305, respectively)			4,651				1,323
Receivable for investments sold			114,884				72,918
Interest receivable			43,312				40,106
Dividends receivable			5,425				3,627
Deferred financing costs			29,743				31,601
Prepaid expenses and other assets			9,283				292
Total assets		$	3,560,891			$	3,641,951
Liabilities
Debt (see note 8 & 9)		$	1,498,759			$	1,372,261
Payable for investments purchased			10,736				119,577
Dividends payable			47,348				47,348
Management and performance-based incentive fees payable (see note 3)			37,361				31,108
Interest payable			15,851				14,318
Accrued administrative expenses			2,000				1,915
Other liabilities and accrued expenses			11,228				3,813
Total liabilities		$	1,623,283			$	1,590,340
Commitments and contingencies (see note 13)
Net Assets
Common stock, par value $.001 per share, 400,000,000 and 400,000,000 common shares authorized, respectively, 236,741,351 and 236,741,351 issued and outstanding, respectively		$	237			$	237
Paid-in capital in excess of par (see note 11)			3,197,715				3,221,829
Over-distributed net investment income (see note 11)			(35,589	)			(53,995	)
Accumulated net realized loss (see note 11)			(1,102,517	)			(1,133,405	)
Net unrealized gain (loss)			(122,238	)			16,945
Total net assets		$	1,937,608			$	2,051,611
Total liabilities and net assets		$	3,560,891			$	3,641,951
Net asset value per share		$	8.18			$	8.67

 

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

 

		Year Ended March 31,
		2015				2014				2013
INVESTMENT INCOME:
From non-controlled/non-affiliated investments:
Interest		$	345,887			$	310,031			$	286,253
Dividends			5,298				7,149				4,813
Other income			11,899				12,012				16,532
From non-controlled/affiliated investments:
Interest			3,744				3,252				1,020
Dividends			18,014				19,765				6,825
Other income			87				—				—
From controlled investments:
Interest			38,981				23,375				8,932
Dividends			9,221				4,921				7,422
Other income			500				841				197
Total investment income		$	433,631			$	381,346			$	331,994
EXPENSES:
Management fees (see note 3)		$	73,604			$	62,819			$	55,717
Performance-based incentive fees (see note 3)			53,179				46,924				41,144
Interest and other debt expenses			79,329				68,639				58,200
Administrative services expense			5,850				5,600				4,389
Other general and administrative expenses			9,543				8,257				7,969
Total expenses			221,505				192,239				167,419
Management and performance-based incentive fees waived (see note 3)		$	(15,615	)		$	(12,092	)		$	(2,785	)
Expense reimbursements (see note 3)			(232	)			(49	)			—
Net expenses		$	205,658			$	180,098			$	164,634
Net investment income		$	227,973			$	201,248			$	167,360
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, CASH EQUIVALENTS, FOREIGN CURRENCIES AND DERIVATIVES:
Net realized gain (loss):
Investments and cash equivalents
Non-controlled/non-affiliated investments		$	(27,451	)		$	(118,745	)		$	(78,659	)
Non-controlled/affiliated investments			11,300				2,078				—
Controlled investments			—				(969	)			3,015
Foreign currency transactions			2,783				2,588				971
Derivatives			—				8,541				—
Net realized loss		$	(13,368	)		$	(106,507	)		$	(74,673	)
Net change in unrealized gain (loss):
Investments and cash equivalents
Non-controlled/non-affiliated investments		$	(191,645	)		$	163,972			$	24,884
Non-controlled/affiliated investments			22,867				(2,115	)			(6,977	)
Controlled investments			12,111				26,840				(12,303	)
Foreign currency translations			17,484				(12,566	)			6,180
Net change in unrealized gain (loss)		$	(139,183	)		$	176,131			$	11,784
Net realized and unrealized gain (loss) from investments, cash equivalents, foreign currencies and derivatives			(152,551	)			69,624				(62,889	)
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS		$	75,422			$	270,872			$	104,471
EARNINGS PER SHARE—BASIC (see note 4)		$	0.32			$	1.21			$	0.51
EARNINGS PER SHARE—DILUTED (see note 4)		$	0.32			$	1.18			$	0.51

 

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

STATEMENTS OF CHANGES IN NET ASSETS

(in thousands, except shares)

 

		Year Ended March 31,
		2015				2014				2013
Increase (decrease) in net assets from operations:
Net investment income		$	227,973			$	201,248			$	167,360
Net realized loss			(13,368	)			(106,507	)			(74,673	)
Net change in unrealized gain (loss)			(139,183	)			176,131				11,784
Net increase in net assets resulting from operations			75,422				270,872				104,471
Dividends and distributions to stockholders (see note 11):
Distribution of income			(165,626	)			(182,193	)			(159,629	)
Distribution of return of capital			(23,767	)			—				(2,684	)
Total dividends and distributions to stockholders			(189,393	)			(182,193	)			(162,313	)
Capital share transactions (see note 10):
Net proceeds from shares sold			—				286,553				50,000
Less offering costs			(32	)			(1,010	)			—
Reinvestment of dividends			—				—				—
Net increase in net assets from capital share transactions			(32	)			285,543				50,000
Total increase (decrease) in net assets:			(114,003	)			374,222				(7,842	)
Net assets at beginning of year			2,051,611				1,677,389				1,685,231
Net assets at end of year		$	1,937,608			$	2,051,611			$	1,677,389
Capital share activity
Shares sold			—				33,850,000				5,847,953
Shares issued from reinvestment of dividends			—				—				—
Net capital share activity			—				33,850,000				5,847,953

 

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

STATEMENTS OF CASH FLOWS

(in thousands)

 

		Year Ended March 31,
		2015				2014				2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations		$	75,422			$	270,872			$	104,471
Adjustments to reconcile net increase (decrease):
PIK interest and dividends (see note 5)			(31,036	)			(28,884	)			(17,891	)
Net amortization on investments			(11,409	)			(34,366	)			(25,579	)
Accretion of discount on notes			85				—				—
Amortization of deferred financing costs			6,676				7,168				8,889
Increase from foreign currency transactions and translation			1,797				3,240				769
Net change in unrealized (gain) loss on investments, cash equivalents and foreign currencies			139,183				(176,131	)			(11,784	)
Net realized loss on investments, cash equivalents, foreign currencies and derivatives			13,368				106,507				74,673
Changes in operating assets and liabilities:
Purchase of investments and cash equivalents			(2,319,922	)			(2,722,593	)			(1,511,345	)
Proceeds from derivatives			—				8,541				—
Proceeds from disposition of investments and cash equivalents			2,167,586				2,254,984				1,351,320
Decrease (increase) in interest receivable			(3,206	)			11,884				2,419
Decrease (increase) in dividends receivable			(1,798	)			(924	)			195
Decrease in prepaid expenses and other assets			(8,991	)			28				963
Decrease (increase) in deferred financing costs			(1,020	)			—				—
Increase in management and performance-based incentive fees payable			6,253				4,599				2,107
Increase in interest payable			1,533				2,306				1,910
Increase (decrease) in accrued administrative expenses			85				(304	)			(1,201	)
Increase in other liabilities and accrued expenses			7,415				296				155
Net cash provided by (used in) operating activities		$	42,021			$	(292,777	)		$	(19,929	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the issuance of common stock		$	—			$	286,553			$	50,000
Offering costs for the issuance of common stock			(32	)			(1,010	)			—
Dividends paid in cash			(189,393	)			(175,423	)			(161,144	)
Proceeds from debt			3,176,136				2,537,088				1,374,940
Payments on debt			(3,031,030	)			(2,334,130	)			(1,221,780	)
Deferred financing costs paid			(3,798	)			(11,778	)			(18,570	)
Net cash provided by (used in) financing activities		$	(48,117	)		$	301,300			$	23,446
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		$	(6,096	)		$	8,523			$	3,517
Effect of exchange rates on cash balances			(223	)			16				2
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		$	14,736			$	6,197			$	2,678
CASH AND CASH EQUIVALENTS, END OF YEAR		$	8,417			$	14,736			$	6,197
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash interest paid during the year		$	69,098			$	56,584			$	44,757
PIK income (see note 5)		$	34,092			$	28,974			$	20,292
Non-cash re-organizations/restructuring of investments*		$	165,410			$	238,457			$	—

 

*	Includes non-cash transfers not included in purchase or proceeds of investments and cash equivalents.

 

 

See notes to financial statements.

 

F-7

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS

March 31, 2015

(in thousands)

 

INVESTMENTS IN NON- CONTROLLED/NON- AFFILIATED INVESTMENTS— 121.6% (10)		Interest Rate		Maturity Date		Industry		Par Amount (12)				Cost				Fair Value (1)
CORPORATE DEBT—109.5%
SECURED DEBT—85.0%
1st Lien Secured Debt—41.7%
Alion Science & Technology Corporation		11.000% (L+1000, 1.00% Floor)		8/16/19		Aerospace and Defense		$	32,003			$	31,038			$	31,843
Archroma (17)		9.500% (L+825, 1.25% Floor)		10/1/18		Chemicals			40,128				39,795				40,354
Aventine Renewable Energy Holdings, Inc.		15.00% PIK or 10.50% Cash		9/22/17		Chemicals			15,742				18,031				14,601
Aveta, Inc.		9.750% (L+825, 1.50% Floor)		12/12/17		Healthcare			53,296				52,331				43,169
Caza Petroleum, Inc.		12.000% (L+1000, 2.00% Floor)		5/23/17		Oil and Gas			45,000				43,992				42,660
ChyronHego Corp.		9.000% (L+800, 1.00% Floor)		3/9/20		Business Services			25,000				24,505				24,500
CITGO Holding, Inc. (11)		10.750%		2/15/20		Energy			25,000				23,792				25,781
CITGO Holding, Inc.		9.50% (L+850, 1.00% Floor)		5/12/18		Energy			19,435				18,306				19,344
Deep Gulf Energy II, LLC		14.000% (14.00% or L+1250, 1.50% Floor)		3/31/17		Oil and Gas			35,000				35,000				33,530
Delta Educational Systems, Inc.		16.00% (8.00% Cash / 8.00% PIK)		12/11/16		Education			5,892				5,892				5,892
Dodge Data & Analytics LLC		9.750% (L+875, 1.00% Floor)		10/31/19		Printing and Publishing			60,349				59,223				58,689
Extraction Oil & Gas Holdings, LLC		10.00% & 11.00%		5/29/19		Oil and Gas			52,633				51,932				51,843
Great Bear Petroleum Operating, LLC		12.000%		10/1/17		Oil and Gas			5,064				5,064				5,064
Hunt Companies, Inc. (11)		9.625%		3/1/21		Buildings and Real Estate			21,008				20,776				21,586
Magnetation, LLC (11)		11.000%		5/15/18		Mining			38,454				39,878				19,804
Maxus Capital Carbon SPE I, LLC (Skyonic Corp.)		13.000%		9/18/19		Chemicals			73,104				73,104				73,104
Molycorp, Inc. (17)		10.000%		6/1/20		Diversified Natural Resources, Precious Metals and Minerals			42,977				42,699				22,276
My Alarm Center, LLC (16)		8.500% (L+750, 1.00% Floor)		1/9/18		Business Services			42,614				42,614				42,613
My Alarm Center, LLC (16)		8.500% (L+750, 1.00% Floor)		1/9/18		Business Services			12,731				12,731				12,731
Osage Exploration & Development, Inc. (11)(17)		13.000% (L+1100, 2.00% Floor)		4/27/16		Oil and Gas			25,000				24,741				23,600
Pelican Energy, LLC (17)		10.00% (7.00% Cash / 3.00% PIK)		12/31/18		Oil and Gas			26,957				26,057				25,340
Saba Software, Inc.		12.417% (L+1142, 1.00% Floor)		3/26/21		Business Services			10,000				10,000				9,850
SCM Insurance Services, Inc. (17)		9.250%		8/22/19		Business Services			CAD 30,000				27,135				23,569
Spotted Hawk Development, LLC		13.00% (12.00% Cash / 1.00% PIK)		9/12/16		Oil and Gas		$	80,900				79,911				78,878
Sunrun Solar Owner IX, LLC		9.079%		12/31/24		Energy			3,424				3,284				3,527
Telestream Holdings Corporation		10.254% (L+925, 1.00% Floor)		1/15/20		Business Services			32,500				32,500				31,769
UniTek Global Services Inc. (16)		9.500% (L+750, 1.00% PIK, 1.00% Floor)		1/13/19		Telecommunications			21,442				21,442				21,442
Total 1st Lien Secured Debt excluding Revolvers and Letters of Credit												$	865,773			$	807,359

 

See notes to financial statements.

 

F-8

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands)

 

INVESTMENTS IN NON- CONTROLLED/NON- AFFILIATED INVESTMENTS— 121.6% (10)		Interest Rate		Maturity Date		Industry		Par Amount (12)				Cost				Fair Value (1)
Funded and Unfunded Revolver Obligations—-1.7%
Avaya, Inc., (Revolver) (16)		2.92% (L+275, 0.17% Floor) / 5.00% (P+175, 3.25% Floor) Funded		10/26/16		Telecommunications		$	16,553			$	16,553			$	15,436
Avaya, Inc., (Unfunded Revolver) (8)(16)		0.50% Unfunded		10/26/16		Telecommunications			10,431				(3,181	)			(704	)
BMC Software, Inc., (Unfunded Revolver) (8)		0.50% Unfunded		9/10/18		Business Services			20,760				(1,857	)			(1,868	)
CIT Group, Inc., (Unfunded Revolver) (8)(17)		L+275		1/27/17		Financial Services			25,000				(107	)			(1,250	)
Confie Seguros Holding II Co., (Revolver) (16)		4.67% (L+450, 0.17% Floor) / 6.75% (P+350, 3.25% Floor) Funded		12/10/18		Insurance			2,190				2,190				1,949
Confie Seguros Holding II Co., (Unfunded Revolver) (8)(16)		0.50% Unfunded		12/10/18		Insurance			1,625				(340	)			(179	)
Laureate Education Inc., (Revolver) (16)(17)		5.000% (L+375, 1.25% Floor) Funded		6/16/16		Education			23,566				23,566				21,445
Laureate Education, Inc., (Unfunded Revolver) (8)(16)(17)		0.625% Unfunded		6/16/16		Education			5,212				(1,833	)			(469	)
Salix Pharmaceuticals, Ltd., (Unfunded Revolver) (16)(17)		0.50% Unfunded		1/2/19		Healthcare			24,867				(1,519	)			—
Tibco Software Inc., (Unfunded Revolver) (8)		0.50% Unfunded		12/5/19		Business Services			6,000				(56	)			(30	)
Transfirst Holdings, Inc., (Unfunded Revolver) (8)(16)		0.50% Unfunded		11/12/19		Financial Services			2,943				(14	)			(88	)
UniTek Global Services, Inc., (Unfunded Revolver) (16)		0.50% Unfunded		1/13/19		Telecommunications			5,000				241				—
Walter Energy, Inc., (Unfunded Revolver) (8)(16)(17)		0.625% Unfunded		10/1/17		Mining			275				(176	)			(48	)
Total Funded and Unfunded Revolver Obligations												$	33,467			$	34,194
Letters of Credit—(0.0)%
Avaya, Inc., Letter of Credit (8)(9)(16)		2.750%		10/30/15-4/6/16		Telecommunications		$	9,800			$	—			$	(662	)
Confie Seguros Holding II Co., Letter of Credit (8)(16)		4.500%		10/27/15		Insurance			600				—				(66	)
Confie Seguros Holding II Co., Letter of Credit (8)(16)		4.500%		1/13/16		Insurance			85				—				(9	)
Laureate Education Inc., Letter of Credit (8)(16)(17)		3.750%		6/16/16		Education			101				—				(9	)
Salix Pharmaceuticals, Ltd., Letter of Credit (16)(17)		3.000%		2/10/16		Healthcare			8				—				—
Salix Pharmaceuticals, Ltd., Letter of Credit (16)(17)		3.000%		2/10/16		Healthcare			125				—				—
Transfirst Holdings, Inc., Letter of Credit (8)(16)		4.500%		11/12/19		Financial Services			57				—				(2	)
UniTek Global Services Inc., Letter of Credit (16)		7.500%		1/13/19		Telecommunications			17,946				—				—
UniTek Global Services Inc., Letter of Credit (16)		7.500%		1/13/19		Telecommunications			1,850				—				—
Walter Energy, Inc., Letter of Credit (8)(9)(16)(17)		5.500%		9/18/15-7/4/16		Mining			86				—				(15	)
Walter Energy, Inc., Letter of Credit (8)(9)(16)(17)		5.500%		8/31/15-11/28/15		Mining			CAD 192				—				(27	)
Total Letters of Credit												$	—			$	(790	)
Total 1st Lien Secured Debt												$	899,240			$	840,763

 

See notes to financial statements.

 

F-9

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands)

 

INVESTMENTS IN NON- CONTROLLED/NON-AFFILIATED INVESTMENTS—121.6% (10)		Interest Rate		Maturity Date		Industry		Par Amount (12)				Cost				Fair Value (1)
2nd Lien Secured Debt—41.6%
Access CIG, LLC		9.750% (L+875, 1.00% Floor)		10/17/22		Business Services		$	25,600			$	24,103			$	24,192
Active Network, Inc.		9.500% (L+850, 1.00% Floor)		11/15/21		Business Services			19,672				19,586				19,082
Appriss Holdings, Inc.		9.250% (L+825, 1.00% Floor)		5/21/21		Business Services			25,000				24,641				25,000
Armor Holdings, Inc. (American Stock Transfer and Trust Company)		10.250% (L+900, 1.25% Floor)		12/26/20		Financial Services			8,000				7,867				7,760
Asurion Corporation		8.500% (L+750, 1.00% Floor)		3/3/21		Insurance			40,622				40,163				40,876
Confie Seguros Holding II Co.		10.250% (L+900, 1.25% Floor)		5/8/19		Insurance			28,844				28,691				28,844
Consolidated Precision Products Corp.		8.750% (L+775, 1.00% Floor)		4/30/21		Aerospace and Defense			1,940				1,932				1,930
Deltek, Inc.		10.000% (L+875, 1.25% Floor)		10/10/19		Business Services			17,273				17,137				17,424
Elements Behavioral Health, Inc.		9.750% (L+875, 1.00% Floor)		2/11/20		Healthcare			9,500				9,420				9,434
Garden Fresh Restaurant Corp. (16)		7.750% (L+625 PIK, 1.50% Floor)		1/1/19		Restaurants			8,250				6,522				5,775
Garden Fresh Restaurant Corp. (16)		15.000% (L+1350 PIK, 1.50% Floor)		1/1/19		Restaurants			39,921				38,064				35,529
GCA Services Group, Inc.		9.250% (L+800, 1.25% Floor)		11/1/20		Diversified Service			17,838				17,961				17,882
Grocery Outlet, Inc.		9.250% (L+825, 1.00% Floor)		10/21/22		Grocery			28,000				27,592				27,580
GTCR Valor Companies, Inc.		9.500% (L+850, 1.00% Floor)		11/30/21		Business Services			35,000				34,666				33,775
Institutional Shareholder Services, Inc.		8.500% (L+750, 1.00% Floor)		4/30/22		Financial Services			6,640				6,579				6,540
Kronos, Inc.		9.750% (L+850, 1.25% Floor)		4/30/20		Business Services			13,525				13,466				13,931
Miller Energy Resources, Inc. (17)		14.750% (9.750% Cash / 2.000% PIK, 3.00% Floor)		2/3/18		Oil and Gas			88,123				88,123				82,527
MSC Software Corp. (17)		8.500% (L+750, 1.00% Floor)		5/28/21		Business Services			13,448				13,320				13,246
Novolex Holdings, Inc.		9.750% (L+875, 1.00% Floor)		6/5/22		Packaging			42,045				41,013				42,150
Pabst Brewing Company		9.25% (L+825, 1.00% Floor)		11/14/22		Consumer Products			27,000				26,665				27,203
Premier Trailer Leasing, Inc.		10.000% (L+900, 1.00% Floor)		9/24/20		Financial Services			52,000				51,029				52,000
River Cree Enterprises LP (11)(17)		11.000%		1/20/21		Hotels, Motels, Inns and Gaming			CAD 33,000				31,111				26,952
SiTV, Inc. (11)		10.375%		7/1/19		Cable Television		$	2,219				2,219				2,003
SMG		9.250% (L+825, 1.00% Floor)		2/27/21		Business Services			19,900				19,900				20,000

 

See notes to financial statements.

 

F-10

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands)

 

INVESTMENTS IN NON- CONTROLLED/NON-AFFILIATED INVESTMENTS—121.6% (10)		Interest Rate		Maturity Date		Industry		Par Amount (12)				Cost				Fair Value (1)
2nd Lien Secured Debt—41.6% (continued)
Sprint Industrial Holdings, LLC		11.250% (L+1000, 1.25% Floor)		11/14/19		Containers, Packaging, and Glass			14,163				13,959				13,526
SquareTwo Financial Corp. (Collect America, Ltd.) (17)		11.625%		4/1/17		Financial Services			65,152				64,316				58,420
TASC, Inc.		12.000%		5/21/21		Aerospace and Defense			21,815				21,028				23,178
TMK Hawk Parent Corp.		8.500% (L+750, 1.00% Floor)		10/1/22		Distribution			34,000				33,675				34,000
Transfirst Holdings, Inc.		9.000% (L+800, 1.00% Floor)		11/11/22		Financial Services			11,340				11,221				11,404
UniTek Global Services Inc. (16)		8.500% (L+750, 1.00% Floor)		1/13/19		Telecommunications			32,367				32,367				30,748
Velocity Technology Solutions, Inc.		9.000% (L+775, 1.25% Floor)		9/28/20		Business Services			16,500				16,209				16,005
Vertafore, Inc.		9.750% (L+825, 1.50% Floor)		10/27/17		Business Services			36,436				36,295				36,709
Total 2nd Lien Secured Debt												$	820,840			$	805,625
TOTAL SECURED DEBT												$	1,720,080			$	1,646,388
UNSECURED DEBT—24.5%
American Energy—Woodford LLC/AEW Finance Corp. (11)		9.000%		9/15/22		Oil and Gas		$	5,000			$	4,805			$	2,850
American Tire Distributors, Inc. (11)		10.250%		3/1/22		Distribution			24,281				24,281				25,252
Artsonig Pty Ltd. (11)(17)		11.50% (12.00% PIK Toggle)		4/1/19		Transportation			21,227				20,974				17,830
BCA Osprey II Limited (British Car Auctions) (16)(17)		12.50% PIK		8/17/17		Transportation		£	23,566				37,704				36,033
BCA Osprey II Limited (British Car Auctions) (16)(17)		12.50% PIK		8/17/17		Transportation		€	14,333				19,779				15,855
Canacol Energy Ltd. (17)		9.500% (L+850, 1.00% Floor)		12/31/19		Oil and Gas		$	50,000				48,595				47,625
Ceridian Corp. (11)		11.000%		3/15/21		Diversified Service			16,760				16,760				17,430
Delta Educational Systems, Inc.		16.00% PIK or 10.00% Cash / 6.00% PIK		5/12/17		Education			24,172				23,929				21,416
Denver Parent Corp. (Venoco) (13)(14)(16)		12.25% (13.00% PIK Toggle)		8/15/18		Oil and Gas			9,572				9,411				1,460
GenCorp, Inc. (17)		9.500% (L+850, 1.00% Floor)		4/18/22		Aerospace and Defense			40,500				40,500				40,500
My Alarm Center, LLC		16.25% (12.00% Cash / 4.25% PIK)		7/9/18		Business Services			4,236				4,236				4,236
PetroBakken Energy Ltd. (11)(17)		8.625%		2/1/20		Oil and Gas			34,980				35,972				25,361
Radio One, Inc. (11)(17)		9.250%		2/15/20		Broadcasting & Entertainment			15,804				15,709				15,160
Sorenson Holdings, LLC (11)		13.00% PIK		10/31/21		Consumer Products			68				45				68
Tibco Software Inc. (11)		11.375%		12/1/21		Business Services			11,389				11,069				11,595
U.S. Security Associates Holdings, Inc.		11.000%		7/28/18		Business Services			135,000				135,000				137,700
UniTek Global Services Inc.		15.000%		7/13/2019		Telecommunications			6,565				6,565				6,565
Univar, Inc.		10.500%		6/30/2018		Distribution			20,000				20,000				19,900
Venoco, Inc. (16)		8.875%		2/15/2019		Oil and Gas			54,996				55,032				28,598
TOTAL UNSECURED DEBT												$	530,366			$	475,434
TOTAL CORPORATE DEBT												$	2,250,446			$	2,121,822

 

See notes to financial statements.

 

F-11

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands)

 

INVESTMENTS IN NON- CONTROLLED/NON-AFFILIATED INVESTMENTS—121.6% (10)		Interest Rate		Maturity Date		Industry		Par Amount (12)				Cost				Fair Value (1)
STRUCTURED PRODUCTS AND OTHER—9.0%
Asset Repackaging Trust Six B.V., Credit-Linked Note (11)(17)(20)		N/A		5/18/2027		Utilities		$	58,411			$	24,994			$	36,731
Craft 2013-1, Credit-Linked Note (11)(16)(17)		9.503% (L+925)		4/17/2022		Diversified Investment Vehicle			25,000				25,092				24,282
Craft 2013-1, Credit-Linked Note (16)(17)		9.503% (L+925)		4/17/2022		Diversified Investment Vehicle			7,625				7,753				7,412
Craft 2014-1A, Credit-Linked Note (11)(17)		9.882% (L+965)		5/15/2021		Diversified Investment Vehicle			42,500				42,460				41,898
Dark Castle Holdings, LLC		N/A		N/A		Media			24,395				1,189				2,565
JP Morgan Chase & Co., Credit-Linked Note (17)		12.520% (L+1225)		12/20/2021		Diversified Investment Vehicle			43,250				42,053				42,700
NXT Capital CLO 2014-1, LLC, Class E Notes (11)(17)		5.731% (L+550)		4/23/2026		Diversified Investment Vehicle			5,000				4,670				4,350
Renaissance Umiat, LLC, ACES Tax Receivable (15)(17)		N/A		N/A		Oil and Gas			—				13,014				14,432
TOTAL STRUCTURED PRODUCTS AND OTHER												$	161,225			$	174,370
PREFERRED EQUITY—1.6%									Shares
CA Holding, Inc. (Collect America, Ltd.), Series A Preferred Stock (13)(17)		N/A		N/A		Financial Services			32,961			$	788			$	297
Crowley Holdings, Series A Preferred Stock (11)		12.00% (10.00% Cash / 2.00% PIK)		N/A		Cargo Transport			22,500				23,079				23,645
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Preferred Stock (Convertible) (13)(14)		12.50% PIK		N/A		Education			332,500				6,863				—
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Preferred Stock (13)(14)		13.50% PIK		5/12/2018		Education			12,360				27,685				1,613
Varietal Distribution Holdings, LLC, Class A Preferred Unit		8.00% PIK		N/A		Distribution			3,097				5,724				5,655
TOTAL PREFERRED EQUITY												$	64,139			$	31,210

 

See notes to financial statements.

 

F-12

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands)

 

INVESTMENTS IN NON- CONTROLLED/NON-AFFILIATED INVESTMENTS—121.6% (10)		Interest Rate		Maturity Date		Industry		Par Amount (12)				Cost				Fair Value (1)
EQUITY—1.5%
Common Equity/Interests—1.2%									Shares
ATD Corporation (Accelerate Parent Corp.), Common Stock (11)		N/A		N/A		Distribution			1,664,046			$	1,714			$	2,690
CA Holding, Inc. (Collect America, Ltd.), Series A Common Stock (13)(17)		N/A		N/A		Financial Services			25,000				2,500				—
CA Holding, Inc. (Collect America, Ltd.), Series AA Common Stock (13)(17)		N/A		N/A		Financial Services			4,294				429				—
Caza Petroleum, Inc., Net Profits Interest (13)		N/A		N/A		Oil and Gas			—				1,202				1,290
Caza Petroleum, Inc., Overriding Royalty Interest		N/A		N/A		Oil and Gas			—				340				235
Clothesline Holdings, Inc. (Angelica Corporation), Common Stock (13)		N/A		N/A		Healthcare			6,000				6,000				519
Explorer Coinvest, LLC (Booz Allen), Common Stock (17)		N/A		N/A		Business Services			192				1,468				5,162
Garden Fresh Restaurant Holdings, LLC., Common Stock (13)		N/A		N/A		Restaurants			50,000				5,000				—
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Common Stock (13)		N/A		N/A		Education			17,500				175				—
JV Note Holdco, LLC (DSI Renal, Inc.), Common Equity / Interest (13)		N/A		N/A		Healthcare			9,303				85				—
Pelican Energy, LLC, Net Profits Interest (13)(17)		N/A		N/A		Oil and Gas			—				1,061				272
Skyline Data, News and Analytics LLC, Class A Common Unit (13)		N/A		N/A		Printing and Publishing			4,500				4,500				4,500
Sorenson Holdings, LLC, Membership Interests (13)		N/A		N/A		Consumer Products			587				—				81
Univar, Inc., Common Stock (13)		N/A		N/A		Distribution			900,000				9,000				9,320
Varietal Distribution Holdings, LLC, Class A Common Unit (13)		N/A		N/A		Distribution			28,028				28				—
Total Common Equity/Interests												$	33,502			$	24,069

 

See notes to financial statements.

 

F-13

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands, except warrants)

 

INVESTMENTS IN NON- CONTROLLED/NON-AFFILIATED INVESTMENTS—121.6% (10)		Interest Rate		Maturity Date		Industry		Warrants				Cost				Fair Value (1)
Warrants—0.3%
CA Holding, Inc. (Collect America, Ltd.), Common Stock Warrants (13)(17)		N/A		N/A		Financial Services			12,255			$	8			$	—
Energy & Exploration Partners, Inc., Common Stock Warrants (13)		N/A		N/A		Oil and Gas			60,778				2,374				58
Fidji Luxco (BC) S.C.A., Common Stock Warrants (2)(13)(17)		N/A		N/A		Electronics			18,113				182				3,950
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Class A-1 Preferred Stock Warrants (13)		N/A		N/A		Education			45,947				459				—
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Class B-1 Preferred Stock Warrants (13)		N/A		N/A		Education			104,314				1,043				—
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Common Stock Warrants (13)		N/A		N/A		Education			9,820				98				—
Osage Exploration & Development, Inc., Common Stock Warrants (13)(17)		N/A		N/A		Oil and Gas			1,496,843				—				222
Spotted Hawk Development, LLC, Common Stock Warrants (13)		N/A		N/A		Oil and Gas			54,545				852				1,341
Total Warrants												$	5,016			$	5,571
TOTAL EQUITY												$	38,518			$	29,640
Total Non-Controlled/ Non-Affiliated Investments												$	2,514,328			$	2,357,042

 

See notes to financial statements.

 

F-14

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands, except shares)

 

INVESTMENTS IN NON- CONTROLLED/AFFILIATED INVESTMENTS—13.5% (4)(10)		Interest Rate		Maturity Date		Industry		Par Amount (12)				Cost				Fair Value (1)
CORPORATE DEBT—0.0%
SECURED DEBT—0.0%
1st Lien Secured Debt—0.0%
Renewable Funding Group, Inc., (4)(13)		0.00%		9/30/15		Finance		$	1,000			$	1,000			$	1,000
Total 1st Lien Secured Debt												$	1,000			$	1,000
TOTAL SECURED DEBT												$	1,000			$	1,000
TOTAL CORPORATE DEBT												$	1,000			$	1,000
STRUCTURED PRODUCTS AND OTHER—10.3%
Golden Bear Warehouse, LLC, Equity (3)(4)(17)		N/A		N/A		Diversified Investment Vehicle		$	4,234			$	4,234			$	6,833
Golden Hill CLO I, LLC, Equity (3)(4)(17)		N/A		N/A		Diversified Investment Vehicle			70,944				71,478				73,587
Highbridge Loan Management 3-2014, Ltd., Class E Notes (3)(4)(11)(17)		6.257% (L+600)		1/18/25		Diversified Investment Vehicle			2,485				2,277				2,121
Highbridge Loan Management 3-2014, Ltd., Subordinated Notes (3)(4)(11)(17)		N/A		1/18/25		Diversified Investment Vehicle			8,163				6,537				6,722
Ivy Hill Middle Market Credit Fund IX, Ltd, Subordinated Notes (3)(4)(11)(17)		N/A		10/18/25		Diversified Investment Vehicle			12,500				11,375				11,375
Jamestown CLO I LTD, Subordinated Notes (3)(4)(11)(17)		N/A		11/5/24		Diversified Investment Vehicle			4,325				3,432				3,698
MCF CLO I, LLC, Membership Interests (3)(4)(11)(17)		N/A		4/20/23		Diversified Investment Vehicle			38,918				35,087				38,490
MCF CLO III, LLC, Class E Notes (3)(4)(11)(17)		4.681% (L+445)		1/20/24		Diversified Investment Vehicle			12,750				11,456				11,220
MCF CLO III, LLC, Membership Interests (3)(4)(11)(17)		N/A		1/20/24		Diversified Investment Vehicle			41,900				36,957				38,984
Slater Mill Loan Fund LP, LP Certificates (3)(4)(17)		N/A		N/A		Diversified Investment Vehicle			8,375				5,755				6,968
TOTAL STRUCTURED PRODUCTS AND OTHER												$	188,588			$	199,998
PREFERRED EQUITY—0.5%									Shares
Renewable Funding Group, Inc., Series B Preferred Stock (4)(13)		N/A		N/A		Finance			1,505,868			$	7,461			$	9,309
TOTAL PREFERRED EQUITY												$	7,461			$	9,309
EQUITY—2.7%
Common Equity/Interests—2.7%
AMP Solar Group, Inc., Class A Common Shares (3)(4)(17)		N/A		N/A		Energy			81,493			$	3,500			$	3,500
Generation Brands Holdings, Inc. (Quality Home Brands), Basic Common Stock (3)(4)(13)(18)		N/A		N/A		Home and Office Furnishings and Durable Consumer Products			9,007				—				6,699
Generation Brands Holdings, Inc. (Quality Home Brands), Series 2L Common Stock (3)(4)(13)(18)		N/A		N/A		Home and Office Furnishings and Durable Consumer Products			36,700				11,242				27,294
Generation Brands Holdings, Inc. (Quality Home Brands), Series H Common Stock (3)(4)(13)(18)		N/A		N/A		Home and Office Furnishings and Durable Consumer Products			7,500				2,298				5,578

 

See notes to financial statements.

 

F-15

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands, except shares)

 

INVESTMENTS IN NON- CONTROLLED/AFFILIATED INVESTMENTS—13.5% (4)(10)		Interest Rate		Maturity Date		Industry		Shares				Cost				Fair Value (1)
EQUITY—2.7%
Common Equity/Interests—2.7%
LVI Group Investments, LLC,Common Units (3)(4)(13)(19)		N/A		N/A		Environmental Services			212,460			$	17,505			$	8,669
Total Common Equity/Interests												$	34,545			$	51,740
TOTAL EQUITY												$	34,545			$	51,740
Total Non-Controlled/Affiliated Investments												$	231,594			$	262,047

 

See notes to financial statements.

 

F-16

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands, except shares)

 

 

INVESTMENTS IN CONTROLLED INVESTMENTS—37.7% (5)(10)		Interest Rate		Maturity Date		Industry				Par Amount (12)				Cost				Fair Value (1)
CORPORATE DEBT—18.2%
SECURED DEBT—18.2%
1st Lien Secured Debt—18.2%
Merx Aviation Finance, LLC, (Revolver) (5)(16)		12.00% Funded		10/31/18			Aviation			$	352,084			$	352,084			$	352,084
Total 1st Lien Secured Debt														$	352,084			$	352,084
Unfunded Revolver Obligation—0.0%
Merx Aviation Finance, LLC, (Unfunded Revolver) (5)(16)		12.00% Funded, 0.00% Unfunded		10/31/18			Aviation			$	47,916			$	—			$	—
Total Unfunded Revolver Obligation														$	—			$	—
Letters of Credit—0.0%
Merx Aviation Finance Assets Ireland Limited, Letter of Credit (5)		2.250%		9/30/15			Aviation			$	1,800			$	—			$	—
Merx Aviation Finance Assets Ireland Limited, Letter of Credit (5)		2.250%		9/30/15			Aviation				1,800				—				—
Total Letters of Credit														$	—			$	—
TOTAL SECURED DEBT														$	352,084			$	352,084
TOTAL CORPORATE DEBT														$	352,084			$	352,084
PREFERRED EQUITY—6.4%											Shares
AMP Solar (UK) Limited, Class A Preference Shares (2)(5)(17)		8.500%		10/31/49			Utilities				43,277,916			$	66,354			$	65,171
PlayPower Holdings, Inc., Series A Preferred (5)		14.00% PIK		11/15/20			Leisure				49,178				59,411				59,411
TOTAL PREFERRED EQUITY														$	125,765			$	124,582
EQUITY—13.1%
Common Equity/Interests—13.1%											Shares
Merx Aviation Finance, LLC, Membership Interest (5)(13)		N/A		N/A			Aviation				—			$	152,082			$	165,172
MSEA Tankers LLC, Membership Interest (5)(17)		N/A		N/A			Cargo Transport				—				33,000				33,000
PlayPower Holdings, Inc., Common Stock (5)(13)		N/A		N/A			Leisure				1,000				77,722				55,900
Total Common Equity/Interests														$	262,804			$	254,072
TOTAL EQUITY														$	262,804			$	254,072
Total Controlled Investments														$	740,653			$	730,738
Total Investments—172.9% (6)(7)														$	3,486,575			$	3,349,827
Liabilities in Excess of Other Assets—(72.9)%																		$	(1,412,219	)
Net Assets—100.0%																		$	1,937,608

 

See notes to financial statements.

 

F-17

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands)

 

 

(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)	Fidji Luxco (BC) S.C.A. is a EUR denominated investment and AMP Solar (UK) Limited is a GBP denominated investment.

 

(3)	Denotes investments where the governing documents of the entity preclude the Company from controlling management of the entity and therefore the Company has determined that the entity is not a controlled affiliate.

 

(4)

Denotes investments in which we are an “Affiliated Person”, as defined in the 1940 Act, due to owning or holding the power to vote 5% or more of the outstanding voting securities of the investment but not controlling the company. Fair value as of March 31, 2015 and March 31, 2014 along with transactions during the fiscal year ended March 31, 2015 in these Affiliated investments are as follows:

 

Name of Issue		Fair Value at March 31, 2014				Gross Additions (Cost) •				Gross Reductions (Cost) ¡				Change in Unrealized Gain (Loss)				Fair Value at March 31, 2015				Net Realized Gain (Loss)				Interest/Dividend/ Other Income
AMP Solar Group, Inc., Class A Common Shares		$	—			$	3,500			$	—			$	—			$	3,500			$	—			$	—
AMP Solar Group, Inc., 15.000%, 7/7/15			—				3,619				(3,619	)			—				—				(57	)			53
Aventine Renewable Energy Holdings, Inc., 15.00% (12.00% Cash / 3.00% PIK), 9/23/16			2,405				21				(2,642	)			216				—				116				184
Aventine Renewable Energy Holdings, Inc., 10.50% Cash or 15.00% PIK, 9/22/17			8,884				1,481				(15,306	)			4,941				—				—				1,496
Aventine Renewable Energy Holdings, Inc., 25.00% PIK, 9/24/16			3,769				238				(4,007	)			—				—				—				433
Aventine Renewable Energy Holdings, Inc., Common Stock			99				—				(688	)			589				—				1,804				—
Aventine Renewable Energy Holdings, Inc., Common Stock Warrants			574				—				(3,996	)			3,422				—				9,713				—
Generation Brands Holdings, Inc. (Quality Home Brands), Basic Common Stock (18)			—				1,615				—				5,084				6,699				—				—
Generation Brands Holdings, Inc. (Quality Homes Brands), Series H Common Stock (18)			—				1,345				—				4,233				5,578				—				—
Generation Brands Holdings, Inc. (Quality Homes Brands), Series 2L Common Stock (18)			—				6,582				—				20,712				27,294				—				—
Golden Bear Warehouse LLC, Equity			—				4,233				—				2,600				6,833				—				—
Golden Hill CLO I, LLC, Equity			1,097				69,847				—				2,643				73,587				—				1,515
Highbridge Loan Management 3-2014, Ltd., Class D Notes, L+500, 1/18/25			4,680				21				(4,659	)			(42	)			—				(169	)			205
Highbridge Loan Management 3-2014, Ltd., Class E Notes, L+600, 1/18/25			2,314				14				—				(207	)			2,121				—				171

 

See notes to financial statements.

 

F-18

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands)

 

 

Name of Issue		Fair Value at March 31, 2014				Gross Additions (Cost) •				Gross Reductions (Cost) ¡				Change in Unrealized Gain (Loss)				Fair Value at March 31, 2015				Net Realized Gain (Loss)				Interest/Dividend/ Other Income
Highbridge Loan Management 3-2014, Ltd., Subordinated Notes, 1/18/25			7,278				—				(989	)			433				6,722				—				652
Ivy Hill Middle Market Credit Fund IX, Ltd, Subordinated Notes, 10/18/25			—				11,375				—				—				11,375				—				414
Jamestown CLO I LTD, Subordinated Notes, 11/5/24			3,828				—				(121	)			(9	)			3,698				—				559
LVI Parent Corp. (LVI Services, Inc.), 12.50%, 4/20/14 (19)			—				10,387				(10,200	)			(187	)			—				—				269
LVI Group Investments, LLC, Common Units (formerly known as LVI Services, Inc.) (19)			—				35,429				—				(26,760	)			8,669				—				87
MCF CLO I LLC, Class E Notes, L+575, 4/20/23			12,357				13				(12,344	)			(26	)			—				(107	)			215
MCF CLO I LLC, Membership Interests			40,391				—				(2,471	)			570				38,490				—				7,176
MCF CLO III LLC, Class E Notes L+445, 1/20/24			11,325				107				—				(212	)			11,220				—				718
MCF CLO III LLC, Membership Interests, 1/20/24			38,266				—				(2,227	)			2,945				38,984				—				6,271
Renewable Funding Group, Inc. 0.00%, 9/30/15			—				1,000				—				—				1,000				—				—
Renewable Funding Group, Inc., Series B Preferred Stock			—				8,750				(1,289	)			1,848				9,309				—				—
Slater Mill Loan Fund LP, LP Certificates			7,361				—				(467	)			74				6,968				—				1,427
		$	144,628			$	159,577			$	(65,025	)		$	22,867			$	262,047			$	11,300			$	21,845

 

•

Gross additions includes increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the accretion of discounts, the exchange of one or more existing securities for one or more new securities, the movement of an existing portfolio company into this category from a different category, and the transfers of one or more securities into non-controlled/affiliated. Transfers are assumed to have occurred at the end of the period.

 

¡

Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the amortization of premiums, the exchange of one or more existing securities for one or more new securities, the movement of an existing portfolio company out of this category into a different category, and the transfers of one or more securities out of non-controlled/affiliated. Transfers are assumed to have occurred at the end of the period.

As of March 31, 2015, the Company has a 28%, 100%, 100%, 26%, 32%, 36%, 97%, 98% and 26% equity ownership interest in Generation Brands Holdings, Inc., Golden Bear Warehouse LLC, Golden Hill CLO I, LLC, Highbridge Loan Management, Ltd., Ivy Hill Middle Market Credit Fund IX, Ltd, LVI Group Investments, LLC, MCF CLO I LLC, MCF CLO III LLC, and Slater Mill Loan Fund LP, respectively. Investments that the Company owns greater than 25% of the equity and are shown in “Non-Controlled/Affiliated” have governing documents that preclude the Company from controlling management of the entity and therefore the Company has determined that the entity is not a controlled affiliate.

 

See notes to financial statements.

 

F-19

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands)

 

(5)

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. Fair value as of March 31, 2015 and March 31, 2014 along with transactions during the fiscal year ended March 31, 2015 in these Controlled investments are as follows:

 

Name of Issue		Fair Value at March 31, 2014				Gross Additions (Cost) •				Gross Reductions (Cost) ¡				Change in Unrealized Gain (Loss)				Fair Value at March 31, 2015				Net Realized Gain (Loss)				Interest/Dividend/ Other Income
AMP Solar (UK) Limited, Class A Preference Shares		$	—			$	66,355			$	—			$	(1,184	)		$	65,171			$	—			$	1,580
Generation Brands Holdings, Inc. (Quality Home Brands), Basic Common Stock (18)			1,615				—				(1,615	)			—				—				—				—
Generation Brands Holdings, Inc. (Quality Homes Brands), Series H Common Stock (18)			1,345				—				(1,345	)			—				—				—				—
Generation Brands Holdings, Inc. (Quality Homes Brands), Series 2L Common Stock (18)			6,582				—				(6,582	)			—				—				—				—
LVI Parent Corp. (LVI Services, Inc.), 12.50%, 4/20/14 (19)			10,200				—				(10,200	)			—				—				—				—
LVI Group Investments, LLC, Common Units (formerly known as LVI Services, Inc.) (19)			34,020				—				(34,020	)			—				—				—				—
Merx Aviation Finance, LLC (formerly known as Merx Aviation Finance Holdings II, LLC), (Revolver) 12.00% Funded, 10/31/18			282,334				69,750				—				—				352,084				—				39,231
Merx Aviation Finance, LLC (formerly known as Merx Aviation Finance Holdings II, LLC), (Unfunded Revolver) 0.00% Unfunded, 10/31/18			—				—				—				—				—				—				—
Merx Aviation Finance Assets Ireland Limited, Letter of Credit, 2.25%, 9/30/15			—				—				—				—				—				—				—
Merx Aviation Finance Assets Ireland Limited, Letter of Credit, 2.25%, 9/30/15			—				—				—				—				—				—				—
Merx Aviation Finance, LLC (formerly known as Merx Aviation Finance Holdings II, LLC), Membership Interest			140,465				13,499				—				11,208				165,172				—				—
MSEA Tankers LLC, Membership Interest			—				33,000				—				—				33,000				—				—
PlayPower Holdings, Inc., Common Stock			53,813				—				—				2,087				55,900				—				—
PlayPower Holdings, Inc., Series A Preferred, 14.00% PIK, 11/15/20			51,773				7,638				—				—				59,411				—				7,891
		$	582,147			$	190,242			$	(53,762	)		$	12,111			$	730,738			$	—			$	48,702

 

See notes to financial statements.

 

F-20

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands)

 

 

•

Gross additions includes increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the accretions of discounts, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.

 

¡

Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the amortization of premiums, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.

As of March 31, 2015, the Company has a 100% equity ownership interest in AMP Solar (UK) Limited, Merx Aviation Finance, LLC, MSEA Tankers LLC and PlayPower Holdings, Inc.

 

(6)	Aggregate gross unrealized gain for federal income tax purposes is $143,557; aggregate gross unrealized loss for federal income tax purposes is $302,058. Net unrealized loss is $158,501 based on a tax cost of $3,508,328.

 

(7)	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.

 

(8)	The negative fair value is the result of the unfunded commitment or letter of credit being valued below par.

 

(9)	These letters of credit represent multiple commitments made on various dates. As a result, maturity dates may vary and a maturity range has been provided.

 

(10)	The percentage is calculated over net assets.

 

(11)	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.

 

(12)	Denominated in USD unless otherwise noted, Euro (“€”), British Pound (“£”), and Canadian Dollar (“CAD”).

 

(13)	Non-income producing security.

 

(14)	Non-accrual status (see note 2).

 

(15)	The investment has a put option attached to it and the combined instrument has been recorded in its entirety at fair value as a hybrid instrument in accordance with ASC 815-15-25-4 with subsequent changes in fair value charged or credited to investment gains/losses for each period.

 

(16)

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, and differing interest rate characteristics, among other factors. Such factors are usually considered in the determination of fair values.

 

See notes to financial statements.

 

F-21

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands)

 

(17)

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.

 

(18)

Generation Brands Holdings, Inc. was previously incorrectly reported as a controlled investment in the financial statements for the year ended March 31, 2014. After further assessment, the Company does not control more than 25% of the voting power and has no power to direct or cause the direction of the policies and management of the company. As such, $9,542 of the fair value of Generation Brands Holdings, Inc., Common Stock was transferred from “Controlled” to “Non-Controlled/Affiliated” in 2015 to correctly reflect Generation Brands Holdings, Inc. as a non-controlling/ affiliated investment. Management evaluated the impact of the error to the financial statements and determined that this adjustment was not material to any prior annual or interim periods, and the resulting correction is not material to the current financial statements.

 

(19)

As a result of a restructuring in April 2014, the Company investment was moved to LVI Group Investments, LLC from LVI Services Inc. LVI Group Investments, LLC further invested in NorthStar Group Holdings. The Company no longer controls more than 25% of the voting power and has no power to direct or cause the direction of the policies and management of NorthStar Group Holdings. As such, $44,220 of the fair value of LVI Services, Inc., Common Stock, was transferred from “Controlled” to “Non-Controlled/Affiliated” in LVI Group Investments, LLC prior to the fiscal year ended March 31, 2015.

 

(20)	This investment represents a leveraged subordinated interest in a trust that holds one foreign currency denominated bond and a derivative instrument.

 

N/A	Not applicable.

 

See notes to financial statements.

 

F-22

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

 

Industry Classification		Percentage of Total Investments (at fair value) as of March 31, 2015
Business Services			15.6%
Aviation			15.4%
Oil and Gas			13.9%
Diversified Investment Vehicle			9.6%
Financial Services			4.0%
Chemicals			3.8%
Leisure			3.4%
Utilities			3.0%
Aerospace and Defense			2.9%
Distribution			2.9%
Telecommunications			2.2%
Insurance			2.1%
Transportation			2.1%
Printing and Publishing			1.9%
Cargo Transport			1.7%
Healthcare			1.6%
Energy			1.6%
Education			1.5%
Packaging			1.3%
Restaurants			1.2%
Home and Office Furnishings and Durable Consumer Products			1.2%
Diversified Service			1.1%
Grocery			0.8%
Consumer Products			0.8%
Hotels, Motels, Inns and Gaming			0.8%
Diversified Natural Resources, Precious Metals and Minerals			0.7%
Buildings and Real Estate			0.6%
Mining			0.6%
Broadcasting & Entertainment			0.4%
Containers, Packaging, and Glass			0.4%
Finance			0.3%
Environmental Services			0.3%
Electronics			0.1%
Media			0.1%
Cable Television			0.1%
Total Investments			100.0%

 

See notes to financial statements.

 

F-23

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS

March 31, 2014

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/ NON-AFFILIATED INVESTMENTS— 134.1% (17)		Interest Rate		Maturity Date		Industry		Par Amount (10)				Cost				Fair Value (1)
CORPORATE DEBT—125.9%
SECURED DEBT—80.0%
1st Lien Secured Debt—32.5%
Archroma (15)		9.50% (L+825, 1.25% Floor)		10/1/18		Chemicals		$	35,422			$	34,762			$	35,511
Avanti Communication Group PLC (9)(15)		10.000%		10/1/19		Telecommunications			9,000				9,000				9,608
Aveta, Inc.		9.75% (L+825, 1.50% Floor)		12/12/17		Healthcare			59,951				58,535				60,325
Caza Petroleum, Inc.		12.00% (L+1000, 2.00% Floor)		5/23/17		Oil and Gas			35,000				33,988				33,845
Charming Charlie LLC		9.00% (L+800, 1.00% Floor)		12/24/19		Retail			5,305				5,241				5,315
Confie Seguros Holding II Co., (Revolver) (14)		6.75% (P+350) Funded, 0.50% Unfunded		12/10/18		Insurance			240				240				218
Delta Educational Systems, Inc.		16.00% (8.00% Cash/8.00% PIK)		12/11/16		Education			5,437				5,437				5,437
Endeavour International Corp. (14)(15)		12.000%		3/1/18		Oil and Gas			18,262				17,960				17,760
Endeavour International Corp. (14)(15)		8.25% (L+700, 1.25% Floor)		11/30/17		Oil and Gas			3,157				3,105				3,126
Endeavour International Corp. (14)(15)		8.25% (L+700, 1.25% Floor)		11/30/17		Oil and Gas			4,412				4,338				4,368
Evergreen Tank Solutions, Inc.		9.50% (L+800, 1.50% Floor)		9/28/18		Containers, Packaging, and Glass			41,771				41,260				41,980
Great Bear Petroleum Operating, LLC		12.000%		10/1/17		Oil and Gas			4,464				4,464				4,464
Hunt Companies, Inc. (9)		9.625%		3/1/21		Buildings and Real Estate			41,210				40,701				42,807
Lee Enterprises, Inc (9)(15)		9.500%		3/15/22		Media			25,000				25,000				25,844
Magnetation, LLC (9)		11.000%		5/15/18		Mining			16,400				16,458				18,450
Maxus Capital Carbon SPE I, LLC (Skyonic Corp.)		13.000%		9/18/19		Chemicals			60,000				60,000				60,000
Molycorp, Inc. (15)		10.000%		6/1/20		Diversified Natural Resources, Precious Metals and Minerals			35,849				35,532				35,547
My Alarm Center, LLC (14)		8.50% (L+750, 1.00% Floor)		1/9/18		Business Services			42,614				42,614				42,614
My Alarm Center, LLC (14)		8.50% (L+750, 1.00% Floor)		1/9/18		Business Services			2,930				2,930				2,930
Osage Exploration & Development, Inc. (15)		17.00% (L+1500, 2.00% Floor)		4/27/15		Oil and Gas			20,000				19,752				20,040
Panda Sherman Power, LLC		9.00% (L+750, 1.50% Floor)		9/14/18		Energy			15,000				14,821				15,450
Panda Temple Power, LLC		11.50% (L+1000, 1.50% Floor)		7/17/18		Energy			25,500				25,099				26,169
Pelican Energy, LLC (15)		10.00% (7.00% Cash / 3.00% PIK)		12/31/18		Oil and Gas			19,330				18,634				19,717
Reichhold Holdings International B.V. (15)		10.75% (L+975, 1.00% Floor)		12/19/16		Chemicals			22,500				22,500				22,500
Sand Waves, S.A. (Endeavour Energy UK Limited) (15)		9.750%		12/31/15		Oil and Gas			12,500				12,500				12,500
Southern Pacific Resource Corp. (15)		11.00% (L+1000, 1.00% Floor)		3/29/19		Oil and Gas			9,080				8,808				9,216
Spotted Hawk Development, LLC (15)		14.00% (13.00% Cash/1.00% PIK)		6/30/16		Oil and Gas			24,308				23,712				23,615
Sunrun Solar Owner IX, LLC		9.079%		12/31/24		Energy			3,622				3,466				3,467

 

See notes to financial statements.

 

F-24

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2014

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/ NON-AFFILIATED INVESTMENTS— 134.1% (17)		Interest Rate		Maturity Date		Industry		Par Amount (10)				Cost				Fair Value (1)
1st Lien Secured Debt—32.5% (continued)
Travel Leaders Group, LLC		7.00% (L+600, 1.00% Floor)		12/5/18		Business Services		$	2,568			$	2,414			$	2,548
UniTek Global Services, Inc., (Revolver) (14)		10.25% (L+925, 1.00% Floor) Funded, 2.00% Unfunded		4/15/16		Telecommunications			44,802				44,802				44,802
Walter Energy, Inc. (9)(15)		9.500%		10/15/19		Mining			17,000				17,307				17,345
Total 1st Lien Secured Debt												$	655,380			$	667,518
Unfunded Revolver Obligations—(0.4)%
Avaya, Inc. (8)		L+275 Funded, 0.50% Unfunded		10/26/16		Telecommunications		$	36,785			$	(5,203	)		$	(3,035	)
BMC Software Inc. (8)		L+400 Funded, 0.50% Unfunded		9/10/18		Business Services			30,760				(3,243	)			(2,307	)
Confie Seguros Holding II Co. (8)(14)		P+350 Funded, 0.50% Unfunded		12/10/18		Insurance			3,627				(450	)			(326	)
Laureate Education, Inc. (8)(15)		L+375 Funded, 0.625% Unfunded		6/16/16		Education			28,880				(2,888	)			(2,599	)
Reichhold Holdings International B.V. (15)		L+600 Funded, 1.50% Unfunded		12/19/16		Chemicals			12,500				—				—
Salix Pharmaceuticals, Ltd. (8)(15)		L+300 Funded, 0.50% Unfunded		1/2/19		Healthcare			25,000				(1,923	)			(125	)
UniTek Global Services Inc., (14)		L+925 Funded, 2.00% Unfunded		4/15/16		Telecommunications			18,052				—				—
Total Unfunded Revolver Obligations												$	(13,707	)		$	(8,392	)
Letters of Credit— (0.0)%
Confie Seguros Holding II Co., Letter of Credit (8)(14)		4.500%		10/27/14		Insurance		$	600			$	—			$	(54	)
Confie Seguros Holding II Co., Letter of Credit (8)(14)		4.500%		1/13/15		Insurance			33				—				(3	)
UniTek Global Services Inc., Letter of Credit (14)		9.250%		3/26/15		Telecommunications			3,000				—				—
UniTek Global Services Inc., Letter of Credit (14)		9.250%		3/18/15		Telecommunications			1,000				—				—
UniTek Global Services Inc., Letter of Credit (14)		9.250%		3/18/15		Telecommunications			2,700				—				—
UniTek Global Services Inc., Letter of Credit (14)		9.250%		12/15/14		Telecommunications			5,446				—				—
Total Letters of Credit												$	—			$	(57	)
Total 1st Lien Secured Debt												$	641,673			$	659,069
2nd Lien Secured Debt—47.9%
Active Network, Inc.		9.50% (L+850, 1.00% Floor)		11/15/21		Business Services		$	25,000			$	24,879			$	25,344
Applied Systems, Inc.		7.50% (L+650, 1.00% Floor)		1/24/22		Business Services			9,110				9,043				9,281
Aptean, Inc.		8.50% (L+750, 1.00% Floor)		2/26/21		Business Services			11,322				11,153				11,478
Armor Holdings, Inc. (American Stock Transfer and Trust Company)		10.25% (L+900, 1.25% Floor)		12/26/20		Financial Services			8,000				7,851				8,000
Asurion Corporation		8.50% (L+750, 1.00% Floor)		3/3/21		Insurance			90,400				89,050				93,413
Bennu Oil & Gas, LLC		10.25% (L+900, 1.25% Floor)		11/1/18		Oil and Gas			8,999				8,927				9,123
BJ’s Wholesale Club, Inc		8.50% (L+750, 1.00% Floor)		3/26/20		Retail			20,000				19,904				20,537

 

See notes to financial statements.

 

F-25

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2014

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/ NON-AFFILIATED INVESTMENTS— 134.1% (17)		Interest Rate		Maturity Date		Industry		Par Amount (10)				Cost				Fair Value (1)
2nd Lien Secured Debt—47.9% (continued)
Brock Holdings III, Inc.		10.00% (L+825, 1.75% Floor)		3/16/18		Environmental Services		$	19,500			$	19,245			$	19,805
Confie Seguros Holding II Co.		10.25% (L+900, 1.25% Floor)		5/8/19		Insurance			27,344				27,096				27,566
Consolidated Precision Products Corp.		8.75% (L+775, 1.00% Floor)		4/30/21		Aerospace and Defense			8,940				8,897				9,096
Del Monte Foods Co		8.25% (L+725, 1.00% Floor)		8/18/21		Beverage, Food, and Tobacco			12,140				12,019				12,110
Deltek, Inc.		10.00% (L+875, 1.25% Floor)		10/10/19		Business Services			27,273				27,023				27,887
Elements Behavioral Health, Inc.		9.25% (L+825, 1.00% Floor)		2/11/20		Healthcare			9,500				9,407				9,500
Flexera Software LLC		8.00% (L+700, 1.00% Floor)		4/2/21		Business Services			7,000				6,965				7,053
Garden Fresh Restaurant Corp. (14)		7.25% (L+575 PIK, 1.50% Floor)		1/1/19		Restaurants			7,661				5,618				5,210
Garden Fresh Restaurant Corp. (14)		14.50% (L+1300 PIK, 1.50% Floor)		1/1/19		Restaurants			34,513				32,326				30,716
GCA Services Group, Inc.		9.25% (L+800, 1.25% Floor)		11/1/20		Diversified Service			22,838				22,940				23,194
Grocery Outlet, Inc.		10.50% (L+925, 1.25% Floor)		6/17/19		Grocery			8,674				8,526				8,847
HD Vest Inc. (15)		9.25% (L+800, 1.25% Floor)		6/18/19		Financial Services			9,396				9,290				9,302
Healogics, Inc.		9.25% (L+800, 1.25% Floor)		2/5/20		Healthcare			10,000				10,109				10,242
IMG Worldwide, Inc.		8.25% (L+725, 1.00% Floor)		3/21/22		Leisure			2,167				2,145				2,199
Insight Pharmaceuticals, LLC		13.25% (L+1175, 1.50% Floor)		8/25/17		Consumer Products			15,448				15,243				15,139
Kronos, Inc.		9.75% (L+850, 1.25% Floor)		4/30/20		Business Services			92,516				91,531				96,332
Landslide Holdings, Inc.		8.25% (L+725, 1.00% Floor)		2/25/21		Business Services			5,630				5,588				5,672
Learfield Communications, Inc.		8.75% (L+775, 1.00% Floor)		10/8/21		Media			15,000				14,856				15,375
Miller Energy Resources, Inc. (15)		11.75% (L+975, 2.00% Floor)		2/3/18		Oil and Gas			87,500				85,804				85,750
Ranpak Corp.		8.50% (L+725, 1.25% Floor)		4/23/20		Packaging		$	22,000			$	21,802			$	22,522
River Cree Enterprises LP (9)(15)		11.000%		1/20/21		Hotels, Motels, Inns and Gaming			CAD33,000				31,110				31,767
SESAC Holdco II LLC		10.00% (L+875, 1.25% Floor)		4/9/14		Broadcasting & Entertainment		$	10,750				10,758				10,978
Sprint Industrial Holdings, LLC		11.25% (L+1000, 1.25% Floor)		11/14/19		Containers, Packaging, and Glass			14,163				13,928				14,305
SquareTwo Financial Corp. (Collect America, Ltd.) (15)		11.625%		4/1/17		Financial Services			61,079				59,929				61,690
Stadium Management Corp		9.25% (L+825, 1.00% Floor)		2/27/21		Business Services			19,900				19,900				20,348
Tectum Holdings, Inc.		10.25% (P+700, 3.25% Floor)		3/12/19		Auto Sector			17,670				17,582				17,626

 

See notes to financial statements.

 

F-26

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2014

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/ NON-AFFILIATED INVESTMENTS— 134.1% (17)		Interest Rate		Maturity Date		Industry		Par Amount (10)				Cost				Fair Value (1)
2nd Lien Secured Debt—47.9% (continued)
Transfirst Holdings, Inc.		7.50% (L+650, 1.00% Floor)		6/27/18		Financial Services		$	59,750			$	59,601			$	60,422
TriMark USA, LLC		10.00% (L+900, 1.00% Floor)		8/12/19		Distribution			27,000				26,470				27,338
U.S. Renal Care, Inc. (14)		10.25% (L+900, 1.25% Floor)		1/3/20		Healthcare			11,927				11,980				12,195
U.S. Renal Care, Inc. (14)		8.50% (L+750, 1.00% Floor)		7/3/20		Healthcare			12,120				11,930				12,325
Velocity Technology Solutions, Inc.		9.00% (L+775, 1.25% Floor)		9/28/20		Business Services			16,500				16,170				16,170
Vertafore, Inc.		9.75% (L+825, 1.50% Floor)		10/27/17		Business Services			50,436				50,167				51,397
Walter Energy, Inc. (9)(15)		11.000%		4/1/20		Mining			27,798				26,308				25,192
Total 2nd Lien Secured Debt												$	963,070			$	982,446
TOTAL SECURED DEBT												$	1,604,743			$	1,641,515
UNSECURED DEBT—45.9%
Altegrity, Inc. (14)		0.000% (12.5% effective)		8/2/16		Diversified Service		$	3,545			$	2,664			$	957
Altegrity, Inc. (9)(14)		12.000%		11/1/15		Diversified Service			14,667				14,667				13,567
American Energy—Utica, LLC (9)		3.500%		3/1/21		Oil and Gas			10,868				10,868				11,031
American Tire Distributors, Inc. (9)(14)		11.500%		6/1/18		Distribution			25,000				25,000				25,700
American Tire Distributors, Inc. (14)		11.500%		6/1/18		Distribution			40,000				39,321				41,120
Artsonig Pty Ltd (9)(15)		11.500%		4/1/19		Transportation			20,000				19,701				20,025
BCA Osprey II Limited (British Car Auctions) (14)(15)		12.50% PIK		8/17/17		Transportation		€	12,721				17,489				18,102
BCA Osprey II Limited (British Car Auctions) (14)(15)		12.50% PIK		8/17/17		Transportation		£	20,948				33,173				36,058
Ceridian Corp. (9)(14)		11.000%		3/15/21		Diversified Service		$	34,000				34,000				39,335
Ceridian Corp. (14)		11.250%		11/15/15		Diversified Service			35,800				35,800				36,154
Ceridian Corp. (14)		12.25% Cash (12.25% Cash or 13.00% PIK)		11/15/15		Diversified Service			14,420				14,420				14,562
CRC Health Corp.		10.750%		2/1/16		Healthcare			13,000				13,079				13,077
Delta Educational Systems, Inc.		16.00% (10.00% Cash/6.00% PIK)		5/12/17		Education			21,684				21,353				20,708
Denver Parent Corp. (Venoco) (9)		12.250%		8/15/18		Oil and Gas			15,000				14,633				15,150
Energy & Exploration Partners, Inc. (14)		15.000%		4/8/18		Oil and Gas			25,000				22,410				23,750
Energy & Exploration Partners, Inc. (14)		15.000%		12/12/18		Oil and Gas		$	4,464			$	4,263			$	4,241
Energy & Exploration Partners, Inc. (14)		15.000%		12/12/18		Oil and Gas			2,679				2,469				2,545
Energy & Exploration Partners, Inc. (14)		15.000%		3/27/19		Oil and Gas			8,036				7,650				7,634
Exova Limited (14)(15)		10.50%		5/20/14		Business Services		£	4,655				6,606				8,537
Exova Limited (9)(14)(15)		10.50%		5/20/14		Business Services			18,000				28,165				33,010
First Data Corp. (14)		10.625%		6/15/21		Financial Services		$	10,000				10,000				11,288
First Data Corp. (14)		11.250%		1/15/21		Financial Services			67,000				66,977				76,548
First Data Corp. (14)		12.625%		1/15/21		Financial Services			5,000				5,641				5,963
inVentiv Health, Inc. (9)		11.000%		8/15/18		Healthcare			106,500				106,500				98,646
My Alarm Center, LLC		16.25% (12.00% Cash/4.25%PIK)		7/9/18		Business Services			4,101				4,101				4,101
Niacet Corporation		13.000%		8/28/18		Chemicals			12,500				12,500				12,625
PetroBakken Energy Ltd. (9)(15)		8.625%		2/1/20		Oil and Gas			44,082				44,390				44,206
Prospect Holding Company LLC (9)		10.250%		10/1/18		Financial Services			20,000				19,106				19,450
Radio One, Inc. (9)(15)		9.250%		2/15/20		Broadcasting & Entertainment			14,804				14,804				15,778
Symbion, Inc.		11.000%		8/23/15		Healthcare			8,488				8,501				8,538
Tervita Corporation (9)(15)		10.875%		2/15/18		Environmental Services			22,438				21,739				22,662

 

See notes to financial statements.

 

F-27

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2014

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/ NON-AFFILIATED INVESTMENTS— 134.1% (17)		Interest Rate		Maturity Date		Industry		Par Amount (10)				Cost				Fair Value (1)
UNSECURED DEBT—45.9% (continued)
U.S. Security Associates Holdings, Inc.		11.000%		7/28/18		Business Services			135,000				135,000				139,590
Univar, Inc.		10.500%		6/30/18		Distribution			20,000				20,000				19,960
Varietal Distribution (9)(14)		10.750%		6/30/17		Distribution			22,204				21,908				22,426
Varietal Distribution (9)(14)		10.750%		6/30/17		Distribution		€	11,574				15,092				16,111
Venoco, Inc.		8.875%		2/15/19		Oil and Gas		$	38,050				38,463				38,573
TOTAL UNSECURED DEBT												$	912,453			$	941,728
TOTAL CORPORATE DEBT												$	2,517,196			$	2,583,243
STRUCTURED PRODUCTS AND OTHER—3.9%
Craft 2013-1, Credit Linked Note (15)		9.49% (L+925)		4/17/22		Diversified Investment Vehicle		$	20,000			$	20,000			$	19,802
Dark Castle Holdings, LLC		N/A		N/A		Media			25,302				2,094				3,077
JP Morgan Chase & Co., Credit-Linked Note (15)		12.50% (L+1225)		12/20/21		Diversified Investment Vehicle			43,250				43,010				42,935
Renaissance Umiat, LLC, ACES (13)(14)(15)		N/A		N/A		Oil and Gas			—				7,153				7,799
Renaissance Umiat, LLC, ACES (13)(14)(15)		N/A		N/A		Oil and Gas			—				6,351				6,391
TOTAL STRUCTURED PRODUCTS AND OTHER												$	78,608			$	80,004
								Shares
PREFERRED EQUITY—2.0%
CA Holding, Inc. (Collect America, Ltd.), Series A Preferred Stock (11)(15)		N/A		N/A		Financial Services			7,961			$	788			$	1,592
Crowley Holdings, Series A Preferred Stock		12.00% (10.00% Cash / 2.00% PIK)		N/A		Cargo Transport			22,500				22,623				22,620
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Preferred Stock (12)		13.50% PIK		N/A		Education			12,360				27,685				13,802
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Preferred Stock (12)		12.50% PIK		N/A		Education			332,500				6,863				—
Varietal Distribution Holdings, LLC, Class A Preferred Unit		8.00% PIK		N/A		Distribution			3,097				5,288				3,275
TOTAL PREFERRED EQUITY												$	63,247			$	41,289

 

See notes to financial statements.

 

F-28

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2014

(in thousands, except shares and warrants)

 

INVESTMENTS IN NON- CONTROLLED/NON-AFFILIATED INVESTMENTS—134.1% (17)		Interest Rate		Maturity Date		Industry		Shares				Cost				Fair Value (1)
EQUITY—2.3%
Common Equity/Interests—1.8%
Accelerate Parent Corp. (American Tire Distributors), Common Stock (11)		N/A		N/A		Distribution			3,225,514			$	3,276			$	4,710
AHC Mezzanine, LLC (Advanstar), Common Stock (11)		N/A		N/A		Media			25,016				1,063				350
Altegrity Holding Corp., Common Stock (11)		N/A		N/A		Diversified Service			353,399				13,797				—
CA Holding, Inc. (Collect America, Ltd.), Series A Common Stock (11)(15)		N/A		N/A		Financial Services			25,000				2,500				1,380
CA Holding, Inc. (Collect America, Ltd.), Series AA Common Stock (11)(15)		N/A		N/A		Financial Services			4,294				430				859
Caza Petroleum, Inc., Net Profits Interest (11)		N/A		N/A		Oil and Gas			—				940				946
Caza Petroleum, Inc., Overriding Royalty Interest (11)		N/A		N/A		Oil and Gas			—				265				228
Clothesline Holdings, Inc. (Angelica Corporation), Common Stock (11)		N/A		N/A		Healthcare			6,000				6,000				3,282
Explorer Coinvest, LLC (Booz Allen), Common Stock (11)(15)		N/A		N/A		Business Services			340,090				2,603				6,958
Garden Fresh Restaurant Holdings, LLC., Common Stock (11)		N/A		N/A		Restaurants			50,000				5,000				138
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Common Stock (11)		N/A		N/A		Education			17,500				175				—
GS Prysmian Co-Invest L.P. (Prysmian Cables & Systems), Limited Partnership (2)(3) (11)(15)		N/A		N/A		Manufacturing			—				—				17
JV Note Holdco, LLC (DSI Renal Inc.), Common Equity / Interest (11)		N/A		N/A		Healthcare			9,303				85				—
Pelican Energy, LLC, Net Profit Interest (11)(15)		N/A		N/A		Oil and Gas			—				697				477
RC Coinvestment, LLC (Ranpak Corp.), Common Stock (11)		N/A		N/A		Packaging			50,000				5,000				7,674
Sorenson Communications Holdings, LLC, Class A, Common Stock (11)		N/A		N/A		Consumer Products			454,828				45				61
Univar Inc., Common Stock (11)		N/A		N/A		Distribution			900,000				9,000				9,680
Varietal Distribution Holdings, LLC, Class A Common Unit (11)		N/A		N/A		Distribution			28,028				28				—
Total Common Equity/Interests												$	50,904			$	36,760
								Warrants
Warrants—0.5%
CA Holding, Inc. (Collect America, Ltd.), Common Stock Warrants (11)(15)		N/A		N/A		Financial Services			7,961			$	8			$	—
Energy & Exploration Partners, Inc., Common Stock Warrants (11)		N/A		N/A		Oil and Gas			60,778				2,374				1,829
Fidji Luxco (BC) S.C.A., Common Stock Warrants (2)(11)(15)		N/A		N/A		Electronics			18,113				182				5,069
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Common Stock (11)		N/A		N/A		Education			9,820				98				—
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Class A-1 Preferred Stock Warrants (11)		N/A		N/A		Education			45,947				459				—
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Class B-1 Preferred Stock Warrants (11)		N/A		N/A		Education			104,314				1,043				—

 

See notes to financial statements.

 

F-29

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2014

(in thousands, except shares and warrants)

 

INVESTMENTS IN NON- CONTROLLED/NON-AFFILIATED INVESTMENTS—134.1% (17)		Interest Rate		Maturity Date		Industry		Warrants				Cost				Fair Value (1)
Warrants—0.5% (continued)
Osage Exploration & Development, Inc., Common Stock Warrants (11)(15)		N/A		N/A		Oil and Gas			1,496,843				—				1,398
Spotted Hawk Development, LLC, Common Stock Warrants (11)(15)		N/A		N/A		Oil and Gas			54,545				852				2,304
Total Warrants												$	5,016			$	10,600
TOTAL EQUITY												$	55,920			$	47,360
Total Non-Controlled/ Non-Affiliated Investments												$	2,714,971			$	2,751,896

 

See notes to financial statements.

 

F-30

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2014

(in thousands, except shares and warrants)

 

INVESTMENTS IN NON- CONTROLLED/AFFILIATED INVESTMENTS—7.0%(4)(17)		Interest Rate		Maturity Date		Industry		Warrants				Cost				Fair Value (1)
CORPORATE DEBT—0.7%
SECURED DEBT—0.7%
1st Lien Secured Debt—0.7%
Aventine Renewable Energy Holdings, Inc. (4)(14)		15.00% (12.00% Cash/3.00% PIK)		9/23/16		Chemicals		$	2,737			$	2,621			$	2,405
Aventine Renewable Energy Holdings, Inc. (4)(14)		15.00% PIK or 10.50% Cash		9/22/17		Chemicals			14,068				16,391				8,884
Aventine Renewable Energy Holdings, Inc. (4)(14)		25.00% PIK		9/24/16		Chemicals			3,769				3,769				3,769
Total 1st Lien Secured Debt												$	22,781			$	15,058
TOTAL SECURED DEBT												$	22,781			$	15,058
TOTAL CORPORATE DEBT												$	22,781			$	15,058
STRUCTURED PRODUCTS AND OTHER—6.3%
Golden Hill CLO I, LLC, Equity (4)(15)(16)		N/A		N/A		Diversified Investment Vehicle		$	1,097			$	1,631			$	1,097
Highbridge Loan Management 3-2014, Ltd., Class D Notes (4)(14)(15)(16)		5.22%(L+500)		1/18/25		Diversified Investment Vehicle			5,000				4,638				4,680
Highbridge Loan Management 3-2014, Ltd., Class E Notes (4)(14)(15)(16)		6.22%(L+600)		1/18/25		Diversified Investment Vehicle			2,485				2,263				2,314
Highbridge Loan Management 3-2014, Ltd., Subordinated Notes (4)(14)(15)(16)		N/A		1/18/25		Diversified Investment Vehicle			8,163				7,527				7,278
Jamestown CLO I LTD, Subordinated Notes (4)(15)(16)		N/A		11/5/24		Diversified Investment Vehicle			4,325				3,553				3,828
MCF CLO I LLC, Class E Notes (4)(15)(16)		5.99%(L+575)		4/20/23		Diversified Investment Vehicle			13,000				12,330				12,357
MCF CLO I LLC, Membership Interests (4)(15)(16)		N/A		N/A		Diversified Investment Vehicle			38,918				37,560				40,391
MCF CLO III LLC, Class E Notes (4)(15)(16)		4.81%(L+445)		1/20/24		Diversified Investment Vehicle			12,750				11,349				11,325
MCF CLO III LLC, Membership Interests (4)(15)(16)		N/A		1/20/24		Diversified Investment Vehicle			41,900				39,183				38,266
Slater Mill Loan Fund LP, LP Certificates (4)(15)(16)		N/A		N/A		Diversified Investment Vehicle			8,375				6,222				7,361
TOTAL STRUCTURED PRODUCTS AND OTHER												$	126,256			$	128,897
EQUITY—0.0%
Common Equity/Interests—0.0%									Shares
Aventine Renewable Energy Holdings, Inc., Common Stock (4)(11)		N/A		N/A		Chemicals			262,036			$	688			$	99
Total Common Equity/Interests												$	688			$	99
								Warrants
Warrants—0.0%
Aventine Renewable Energy Holdings, Inc., Common Stock Warrants (4)(11)		N/A		N/A		Chemicals			1,521,193			$	3,996			$	574
Total Warrants												$	3,996			$	574
TOTAL EQUITY												$	4,684			$	673
Total Non-Controlled/Affiliated Investments												$	153,721			$	144,628

 

See notes to financial statements.

 

F-31

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2014

(in thousands, except shares)

 

INVESTMENTS IN CONTROLLED INVESTMENTS—28.4%(5)(17)		Interest Rate		Maturity Date		Industry		Par Amount (10)				Cost				Fair Value (1)
CORPORATE DEBT—14.3%
SECURED DEBT—14.3%
1st Lien Secured Debt—13.8%
Merx Aviation Finance Holdings II, LLC (Revolver) (5)		12.00% Funded, 0.00% Unfunded		10/31/18		Aviation		$	282,334			$	282,334			$	282,334
Total 1st Lien Secured Debt												$	282,334			$	282,334
Unfunded Revolver Obligation—0.0%
Merx Aviation Finance Holdings II, LLC (5)		12.00% Funded, 0.00% Unfunded		10/31/18		Aviation		$	117,666			$	—			$	—
Total Unfunded Revolver Obligation												$	—			$	—
Letters of Credit—0.0%
Merx Aviation Finance Assets Ireland Limited, LLC, Letter of Credit (5)		2.250%		9/30/14		Aviation		$	1,800			$	—			$	—
Merx Aviation Finance Assets Ireland Limited, LLC, Letter of Credit (5)		2.250%		9/30/14		Aviation			1,800				—				—
Total Letters of Credit												$	—			$	—
2nd Lien Secured Debt—0.5%
LVI Parent Corp. (LVI Services, Inc.) (5)		12.500%		4/20/14		Environmental Services		$	10,000			$	10,013			$	10,200
Total 2nd Lien Secured Debt												$	10,013			$	10,200
TOTAL SECURED DEBT												$	292,347			$	292,534
TOTAL CORPORATE DEBT												$	292,347			$	292,534
								Shares
PREFERRED EQUITY—2.5%
Playpower Holdings, Inc., Series A Preferred (5)		14.00% PIK		11/15/20		Leisure			49,178			$	51,773			$	51,773
TOTAL PREFERRED EQUITY												$	51,773			$	51,773
EQUITY—11.6%
								Shares
Common Equity/Interests—11.6%
Generation Brands Holdings, Inc. (Quality Home Brands), Basic Common Stock (5)(11)		N/A		N/A		Home and Office Furnishings and Durable Consumer Products			9,007			$	—			$	1,615
Generation Brands Holdings, Inc. (Quality Home Brands), Series H Common Stock (5)(11)		N/A		N/A		Home and Office Furnishings and Durable Consumer Products			7,500				2,297				1,345
Generation Brands Holdings, Inc. (Quality Home Brands), Series 2L Common Stock (5)(11)		N/A		N/A		Home and Office Furnishings and Durable Consumer Products			36,700				11,242				6,582
LVI Parent Corp., Common Stock (5)(11)		N/A		N/A		Environmental Services			14,981				16,097				34,020
Merx Aviation Finance Holdings II, LLC, Partnership Interest (5)(11)		N/A		N/A		Aviation			—				138,582				140,465
PlayPower Holdings, Inc., Common Stock (5)(11)		N/A		N/A		Leisure			1,000				77,722				53,813
Total Common Equity/Interests												$	245,940			$	237,840
TOTAL EQUITY												$	245,940			$	237,840
Total Controlled Investments												$	590,060			$	582,147
Total Investments—169.5%(6)(7)												$	3,458,752			$	3,478,671
Liabilities in Excess of Other Assets—(69.5)%																$	(1,427,061	)
Net Assets—100.0%																$	2,051,611

 

See notes to financial statements.

 

F-32

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2014

(in thousands)

 

 

(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)	GS Prysmian Co-Invest L.P. and Fidji Luxco (BC) S.C.A. are EUR denominated investments.

 

(3)	The Company is the sole Limited Partner in GS Prysmian Co-Invest L.P.

 

(4)

Denotes investments in which we are an “Affiliated Person”, as defined in the 1940 Act, due to owning or holding the power to vote 5% or more of the outstanding voting securities of the investment but not controlling the company. Fair value as of March 31, 2013 and March 31, 2014 along with transactions during the fiscal year ended March 31, 2014 in these Affiliated investments are as follows:

 

Name of Issue		Fair Value at March  31, 2013				Gross Additions (Cost) •				Gross Reductions (Cost) ¡				Change in Unrealized Gain (Loss)				Fair Value at March 31, 2014				Net Realized Gain (Loss)				Interest/Dividend/ Other Income
Aventine Renewable Energy Holdings, Inc., 15.00% (12.00% Cash/3.00% PIK), 9/23/16		$	3,866			$	85			$	(1,314	)		$	(232	)		$	2,405			$	—			$	607
Aventine Renewable Energy Holdings, Inc., 10.50% Cash or 15.00% PIK, 9/22/17			9,682				1,965				(1,581	)			(1,182	)			8,884				—				370
Aventine Renewable Energy Holdings, Inc., 25.00% PIK, 9/24/16			N/A				5,347				(1,578	)			—				3,769				—				1,044
Aventine Renewable Energy Holdings, Inc., Common Stock			2,347				—				(3,996	)			1,748				99				—				—
Aventine Renewable Energy Holdings, Inc., Common Stock Warrants			N/A				3,996				—				(3,422	)			574				—				—
Golden Hill CLO I, LLC, Equity			N/A				1,631				—				(534	)			1,097				—				—
Highbridge Loan Management 3-2014, Ltd., Class D Notes L+500, 1/18/25			N/A				4,638				—				42				4,680				—				49
Highbridge Loan Management 3-2014, Ltd., Class E Notes L+600, 1/18/25			N/A				2,264				—				50				2,314				—				29
Highbridge Loan Management 3-2014, Ltd., Subordinated Notes, 1/18/25			N/A				7,527				—				(249	)			7,278				—				96
Highbridge Loan, Ltd., Preference Shares			6,174				6,655				(12,829	)			—				—				—				1,876
Jamestown CLO I LTD, Class C L+400, 11/5/24			1,109				3				(1,027	)			(85	)			—				71				30
Jamestown CLO I LTD, Class D L+550, 11/5/24			3,537				13				(3,386	)			(164	)			—				250				139
Jamestown CLO I LTD, Subordinated Notes, 11/5/24			13,568				—				(10,501	)			761				3,828				1,757				1,473
Kirkwood Fund II LLC, Common Interest			43,144				—				(41,067	)			(2,077	)			—				—				5,923
MCF CLO I LLC, Class E Notes, L+575, 4/20/23			12,273				52				—				32				12,357				—				854
MCF CLO I LLC, Membership Interests			38,918				—				(1,359	)			2,832				40,391				—				8,108
MCF CLO III LLC, Class E Notes L+445, 1/20/24			N/A				11,349				—				(24	)			11,325				—				165
MCF CLO III LLC, Membership Interests, 1/20/24			N/A				39,183				—				(917	)			38,266				—				1,166
Slater Mill Loan Fund LP, LP Certificates			6,951				—				(896	)			1,306				7,361				—				1,088
		$	141,569			$	84,708			$	(79,534	)		$	(2,115	)		$	144,628			$	2,078			$	23,017

 

See notes to financial statements.

 

F-33

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2014

(in thousands)

 

 

•

Gross additions includes increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the accretion of discounts, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.

 

¡

Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the amortization of premiums, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.

As of March 31, 2014, the Company has a 13%, 26%, 100%, 9%, 97%, 98%, and 26% equity ownership interest in Aventine Renewable Energy Holdings, Inc., Highbridge Loan Management, Ltd, Golden Hill CLO I, LLC, Jamestown CLO I LTD, MCF CLO I LLC, MCF CLO III LLC, and Slater Mill Loan Fund LP, respectively. Investments that the Company owns greater than 25% of the equity and are shown in “Non- Controlled/Affiliated” have governing documents that preclude the Company from controlling management of the entity and therefore the Company has determined that the entity is not a controlled affiliate.

 

(5)

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. Fair value as of March 31, 2013 and March 31, 2014 along with transactions during the fiscal year ended March 31, 2014 in these Controlled investments are as follows:

 

Name of Issue		Fair Value at March 31, 2013				Gross Additions (Cost) •				Gross Reductions (Cost) ¡				Change in Unrealized Gain (Loss)				Fair Value at March 31, 2014				Net Realized Gain (Loss)				Interest/Dividend/ Other Income
AIC Credit Opportunity Fund, LLC Common Equity		$	50,696			$	20,387			$	(68,489	)		$	(2,594	)		$	—			$	(2,338	)		$	2,306
Generation Brands Holdings, Inc. (Quality Home Brands), Basic Common Stock			432				—				—				1,183				1,615				—				—
Generation Brands Holdings, Inc. (Quality Home Brands), Series H Common Stock			360				—				—				985				1,345				—				—
Generation Brands Holdings, Inc. (Quality Home Brands), Series 2L Common Stock			1,760				—				—				4,822				6,582				—				—
Grand Prix Holdings, LLC, Series A Preferred Interests, 12.00% PIK			N/A				N/A				N/A				N/A				N/A				99				—
LVI Parent Corp. (LVI Services, Inc.), 12.50%, 4/20/14			10,000				198				—				2				10,200				—				1,448
LVI Services, Inc., Common Stock			30,575				—				—				3,445				34,020				—				153
Merx Aviation Finance Holdings, LLC, 12.00%, 1/9/21			92,000				—				(92,000	)			—				—				—				6,761
Merx Aviation Finance Holdings, LLC, 12.00%, 2/1/21			5,303				—				(5,303	)			—				—				—				392
Merx Aviation Finance Holdings, LLC, 12.00%, 3/28/21			4,684				—				(4,684	)			—				—				—				347
Merx Aviation Finance Holdings, LLC, 12.00%, 6/25/21			N/A				13,500				(13,500	)			—				—				—				621

 

See notes to financial statements.

 

F-34

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2014

(in thousands)

 

Name of Issue		Fair Value at March 31, 2013				Gross Additions (Cost) •				Gross Reductions (Cost) ¡				Change in Unrealized Gain (Loss)				Fair Value at March 31, 2014				Net Realized Gain (Loss)				Interest/Dividend/ Other Income
Merx Aviation Finance Holdings, LLC, 12.00%, 7/25/21			N/A				14,600				(14,600	)			—				—				—				286
Merx Aviation Finance Holdings, LLC, 12.00%, 8/19/21			N/A				4,000				(4,000	)			—				—				—				124
Merx Aviation Finance Holdings, LLC, 12.00%, 9/12/21			N/A				4,600				(4,600	)			—				—				—				80
Merx Aviation Finance Holdings, LLC, 12.00%, 10/28/21			N/A				31,150				(31,150	)			—				—				—				154
Merx Aviation Finance Holdings II, LLC, (Revolver) 12.00% Funded, 0.00% Unfunded, 10/31/18			N/A				282,334				—				—				282,334				—				9,205
Merx Aviation Finance Holdings II, LLC, Partnership Interest			33,820				107,120				(2,358	)			1,883				140,465				—				—
Merx Aviation Finance Assets Ireland Limited, Letter of Credit, 2.25%, 9/30/14			—				—				—				—				—				—				—
Merx Aviation Finance Assets Ireland Limited, Letter of Credit, 2.25%, 9/30/14			—				—				—				—				—				—				—
PlayPower Holdings, Inc., 14.00% PIK, 12/15/15			24,173				2,293				(27,577	)			1,111				—				442				2,271
PlayPower, Inc., 12.50% PIK, 12/31/15			18,458				1,713				(20,550	)			379				—				870				1,686
PlayPower Holdings, Inc., Series A Preferred, 14.00% PIK, 11/15/20			N/A				51,773				—				—				51,773				—				3,303
PlayPower Holdings, Inc., Common Stock			38,157				—				—				15,656				53,813				—				—
		$	310,418			$	533,668			$	(288,811	)		$	26,872			$	582,147			$	(927	)		$	29,137

 

•

Gross additions includes increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the accretions of discounts, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.

 

¡

Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the amortization of premiums, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.

As of March 31, 2014, the Company has a 28%, 33%, 100%, and 100% equity ownership interest in Generation Brands Holdings, Inc., LVI Parent Corp., Merx Aviation Finance Holdings II, LLC, and Playpower Holdings, Inc., respectively.

 

(6)	Aggregate gross unrealized gain for federal income tax purposes is $124,819; aggregate gross unrealized loss for federal income tax purposes is $154,176. Net unrealized loss is $29,357 based on a tax cost of $3,508,028.

 

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2014

(in thousands)

 

(7)	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.

 

(8)	The negative fair value is the result of the unfunded commitment/letter of credit being valued below par.

 

(9)	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.

 

(10)	Denominated in USD unless otherwise noted, Euro (“€”), British Pound (“£”), and Canadian Dollar (“CAD”).

 

(11)	Non-income producing security.

 

(12)	Non-accrual status (see note 2).

 

(13)	The investment has a put option attached to it and the combined instrument has been recorded in its entirety at fair value as a hybrid instrument in accordance with ASC 815-15-25-4 with subsequent changes in fair value charged or credited to investment gains/losses for each period.

 

(14)

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, and differing interest rate characteristics, among other factors. Such factors are usually considered in the determination of fair values.

 

(15)

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.

 

(16)	Denotes investments where the governing documents of the entity preclude the Company from controlling management of the entity and accordingly the Company has determined that the entity is not a controlled affiliate.

 

(17)	The percentage is calculated over net assets.

 

N/A	Not applicable.

 

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2014

 

Industry Classification		Percentage of Total Investments (at fair value) as of March 31, 2014
Business Services			14.6	%
Aviation			12.2	%
Oil and Gas			11.8	%
Financial Services			7.4	%
Healthcare			6.6	%
Diversified Investment Vehicle			5.5	%
Distribution			4.9	%
Chemicals			4.2	%
Diversified Service			3.7	%
Insurance			3.5	%
Leisure			3.1	%
Environmental Services			2.5	%
Transportation			2.1	%
Mining			1.8	%
Containers, Packaging, and Glass			1.6	%
Telecommunications			1.5	%
Energy			1.3	%
Media			1.3	%
Buildings and Real Estate			1.2	%
Education			1.1	%
Restaurants			1.0	%
Diversified Natural Resources, Precious Metals and Minerals			1.0	%
Hotels, Motels, Inns and Gaming			0.9	%
Packaging			0.9	%
Broadcasting & Entertainment			0.8	%
Retail			0.7	%
Cargo Transport			0.6	%
Auto Sector			0.5	%
Consumer Products			0.4	%
Beverage, Food and Tobacco			0.3	%
Home and Office Furnishings and Durable Consumer Products			0.3	%
Aerospace and Defense			0.3	%
Grocery			0.2	%
Electronics			0.2	%
Manufacturing			—	%
Total Investments			100.0	%

 

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS

(in thousands except share and per share amounts)

Note 1. Organization

Apollo Investment Corporation (“Apollo Investment”, the “Company”, “AIC”, “we”, “us”, or “our”), a Maryland corporation incorporated on February 2, 2004, is a closed-end, externally managed, non-diversified management investment company that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”) and operate in a manner so as to qualify for the tax treatment applicable to RICs. In addition, for tax purposes we have elected to be treated as a regulated investment company (“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 secured and unsecured debt, loan investments, and/or equity in private middle-market companies. We may also invest in the securities of public companies and in structured products and other investments such as collateralized loan obligations and credit-linked notes (“CLOs” and “CLNs”, respectively). Our portfolio is comprised primarily of investments in debt, including secured and unsecured debt 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 $250 million. Our portfolio also includes equity interests such as common stock, preferred stock, warrants or options.

Apollo Investment commenced operations on April 8, 2004 when it received net proceeds of $870,000 from its initial public offering by selling 62 million shares of common stock at a price of $15.00 per share. Since then, and through March 31, 2015, we have raised approximately $2,210,099 in net proceeds from additional offerings of common stock.

Note 2. Significant Accounting Policies

The following is a summary of the significant accounting and reporting policies used in preparing the financial statements.

Basis of Presentation and Use of Estimates

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company is an investment company following accounting and reporting guidance in Accounting Standards Codification (“ASC”) 946. In accordance with Regulation S-X, the Company generally will not consolidate its interest in any company other than in investment company subsidiaries and controlled operating companies substantially all of whose business consists of providing services to the Company. Consequently, the Company has not consolidated special purpose entities through which the special purpose entity acquires and holds investments subject to financing with third parties. At March 31, 2015, the Company did not have any subsidiaries or controlled operating companies that were consolidated (see additional information within note 5).

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported periods. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially.

Cash and Cash Equivalents

The Company defines cash equivalents as securities that are readily convertible into known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in

 

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interest rates. Generally, only securities with a maturity of three months or less from the date of purchase would qualify, with limited exceptions. The Company deems that certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities would qualify as cash equivalents.

Fair Value Measurements

The Company follows guidance in ASC 820, Fair Value Measurement, where fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are determined within a framework that establishes a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability based on the information available. The inputs or methodology used for valuing assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities. Under procedures established by our board of directors, we value investments, including certain secured debt, unsecured 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 unavailable or 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 third party valuation firms consider observable market inputs together with significant unobservable inputs in arriving at their valuation recommendations for such investments. Debt investments with remaining maturities of 60 days or less may each be valued at cost with interest accrued or discount amortized to the date of maturity, unless such valuation, in the judgment of our investment adviser, does not represent fair value. In this case such investments shall be valued at fair value as determined in good faith by or under the direction of our board of directors, using market quotations where available. 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 which is 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 adviser’s preliminary valuations and then making their own independent assessment;

 

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(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 in good faith the fair value of each investment in our portfolio based on the input of our investment adviser, the applicable independent valuation firm, third party pricing services 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, seniority of investment in the investee company’s capital structure, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s 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 as an input in the valuation process. As of March 31, 2015, there has been no change to the Company’s 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.

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. The level assigned to the investment valuations may not be indicative of the risk or liquidity associated with investing in such investments. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may differ materially from the values that would be received upon an actual disposition of such investments.

Realized Gains and Losses

Security transactions are accounted for on the trade date. Realized gains or losses on investments are calculated by using the specific identification method. Securities that have been called by the issuer are recorded on the call effective date at the call price.

Investment Income 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

 

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investments, may have contractual payment-in-kind (“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 believes that PIK is expected to be realized.

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 management’s 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 management’s judgment.

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, OID, or market discounts are recorded as interest income. We record prepayment premiums on loans and other investments as interest income when earned. Other income generally includes amendment fees, bridge fees, and structuring fees, which are recorded when earned.

The Company records as interest or dividend income the accretable yield from its beneficial interests in structured products such as CLOs and CLNs based upon a number of cash flow assumptions that are subject to uncertainties and contingencies. Such assumptions include the rate and timing of principal and interest receipts (which may be subject to prepayments and defaults) of the underlying pools of assets. These assumptions are updated on at least a quarterly basis to reflect changes related to a particular security, actual historical data, and market changes. A structured product investment typically has an underlying pool of assets. Payments on structured product investments are payable solely from the cash flows from such assets. As such, any unforeseen event in these underlying pools of assets might impact the expected recovery of principal and future accrual of income.

Expenses

Expenses include management fees, performance-based incentive fees, insurance expenses, administrative service fees, legal fees, directors’ fees, audit and tax service expenses, third-party valuation fees, and other general and administrative expenses. Expenses are recognized on an accrual basis.

Dividends to Common Stockholders

Dividends and distributions to common stockholders are recorded as of the record date. The amount to be paid out as dividends is determined by the board of directors each quarter. Net realized capital gains, if any, are generally distributed or deemed distributed at least annually.

 

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Income Taxes

The Company complies with the applicable provisions of the Code pertaining to regulated investment companies that make distributions of taxable income sufficient to relieve it of substantially all federal income taxes. The Company, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income. The Company will accrue excise tax on estimated excess taxable income, if any, as required.

Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are reclassified among the Company’s capital accounts. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP.

Foreign Currency

The accounting records of the Company are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. The Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. The Company’s investments in foreign securities may involve certain risks, including without limitation: foreign exchange restrictions, expropriation, taxation or other political, social or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments and therefore the earnings of the Company.

Investment Transactions

For the years ended March 31, 2015, 2014, and 2013 purchases of investments on a trade date basis were $2,211,081, $2,816,149 and $1,537,366, respectively. For the years ended March 31, 2015, 2014, and 2013 sales of investments on a trade date basis were $2,250,782, $2,322,189, and $1,337,431, respectively.

Equity Offering Expenses

The Company records expenses related to shelf filings and applicable offering costs as deferred financing costs in the Statement of Assets and Liabilities. To the extent such expenses relate to equity offerings, these expenses are charged as a reduction of capital upon utilization, in accordance with ASC 946-20-25.

Debt Issuance Costs

The Company records origination and other expenses related to its debt obligations as deferred financing costs in the Statement of Assets and Liabilities. These expenses are deferred and amortized using the straight-line method over the stated life of the obligation, which approximates the effective yield method.

Derivative Instruments

The Company may make investments in derivative instruments. The derivative instruments are fair valued with changes to the fair value reflected in net unrealized gain/loss during the reporting period and recorded within realized gain/loss upon exit and settlement of the contract. The accrual of periodic payment settlements is recorded in net change in unrealized gain/loss and subsequently recorded as net realized gain or loss on the interest settlement date.

The Company may enter into forward exchange contracts in order to hedge against foreign currency risk. These contracts are marked-to-market by recognizing the difference between the contract exchange rate and the current market rate as unrealized gain or loss. Realized gains or losses are recognized when contracts are settled.

 

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Recent Accounting Pronouncements

In June 2013, the FASB issued guidance to change the assessment of whether an entity is an investment company by developing a new two-tiered approach that requires an entity to possess certain fundamental characteristics while allowing judgment in assessing certain typical characteristics. The fundamental characteristics that an investment company is required to have include the following: (1) it obtains funds from one or more investors and provides the investor(s) with investment management services; (2) it commits to its investor(s) that its business purpose and only substantive activities are investing the funds solely for returns from capital appreciation, investment income or both; and (3) it does not obtain returns or benefits from an investee or its affiliates that are not normally attributable to ownership interests. The typical characteristics of an investment company that an entity should consider before concluding whether it is an investment company include the following: (1) it has more than one investment; (2) it has more than one investor; (3) it has investors that are not related parties of the parent or the investment manager; (4) it has ownership interests in the form of equity or partnership interests; and (5) it manages substantially all of its investments on a fair value basis. The new approach requires an entity to assess all of the characteristics of an investment company and consider its purpose and design to determine whether it is an investment company. The guidance includes disclosure requirements about an entity’s status as an investment company and financial support provided or contractually required to be provided by an investment company to its investees. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2013. Earlier application is prohibited. This guidance did not have a material impact on the Company’s financial statements.

In May 2014, the FASB issued guidance to establish a comprehensive and converged standard on revenue recognition to enable financial statement users to better understand and consistently analyze an entity’s revenue across industries, transactions, and geographies. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The new guidance also specifies the accounting for certain costs to obtain or fulfill a contract with a customer. The new guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. Qualitative and quantitative information is required to be disclosed about: (1) contracts with customers, (2) significant judgments and changes in judgments, and (3) assets recognized from costs to obtain or fulfill a contract. The new guidance will apply to all entities. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2016. Early application is not permitted. The Company is in the process of evaluating the impact that this guidance will have on its financial statements.

In February 2015, the FASB issued new guidance which changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. Existing guidance includes different requirements for performing a consolidation analysis if, among other factors, the entity under evaluation is any one of the following: (1) a legal entity that qualifies for the indefinite deferral under the amended consolidation rules, (2) a legal entity that is within the scope of the amended consolidation rules, or (3) a limited partnership or similar entity that is considered a voting interest entity. Under the new guidance, all reporting entities are within the scope of the new standard, including limited partnerships and similar legal entities, unless a scope exception applies. The presumption that a general partner controls a limited partnership has been eliminated. In addition, fees paid to decision makers that meet certain conditions (e.g., are both customary and commensurate with the level of effort required for the services provided) no longer cause decision makers to consolidate variable interest entities (each a “VIE”) in certain instances. The new guidance places more emphasis in the consolidation evaluation on variable interests other than the fee arrangements such as principal investment risk (for example, debt or equity interests), guarantees of the value of the assets or liabilities of the VIE, written put options on the assets of the VIE, or similar obligations, including some liquidity

 

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commitments or agreements (explicit or implicit). Additionally, the new guidance reduces the extent to which related party arrangements cause an entity to be considered a primary beneficiary. The indefinite deferral of the amended consolidation rules for certain investment funds has been eliminated and a scope exception from the new consolidation standard has been added for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period, and adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. A reporting entity may apply the new guidance using either a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or by applying the amendments retrospectively. The Company is in the process of evaluating the impact that this new guidance will have on its financial statements.

In April 2015, the FASB issued guidance to simplify the presentation of debt issuance costs. The guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability (i.e., versus being capitalized as an asset and amortized as required under existing guidance), consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the new guidance (i.e., debt issuance costs will continue to be amortized as an increase to interest expense). The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. The Company is in the process of evaluating the impact that this new guidance will have on its financial statements.

Note 3. Agreements

The Company has an Investment Advisory and Management Agreement (the “Investment Advisory Agreement”) with Apollo Investment Management, L.P. (the “Investment Adviser” or “AIM”), under which the Investment Adviser, subject to the overall supervision of our board of directors, manages the day-to-day operations of, and provides investment advisory services to the Company. For providing these services, the Investment Adviser receives a fee from the Company, consisting of two components — a base management fee and a performance-based incentive fee. The base management fee is determined by taking the average value of our gross assets, net of the average of any payable for cash equivalents at the end of the two most recently completed calendar quarters, calculated at an annual rate of 2.00%. The incentive fee has two parts, as follows: one part is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, any expenses payable under an administration agreement (the “Administration Agreement”) between the Company and Apollo Investment Administration, LLC (the “Administrator”), and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income does not include any realized capital gains computed net of all realized capital losses and unrealized capital depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, is compared to the rate of 1.75% per quarter (7% annualized). For the period between April 2, 2012 and March 31, 2016, AIM has agreed to voluntarily waive the management and incentive fees on the common shares issued on April 2, 2012 and May 20, 2013.

The Investment Adviser has also entered into an investment sub-advisory agreement with CION Investment Corporation (“CION”) (the “Sub-Advisory Agreement”) under which AIM receives management and

 

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incentive fees from CION in connection with the investment advisory services provided. For the period between April 1, 2014 and March 31, 2016, the Investment Adviser has agreed to waive all base management fees receivable under the Investment Advisory Agreement with the Company in the amount equal to the amount actually received by AIM from CION, less the fully allocated incremental expenses accrued by AIM.

The Company pays the Investment Adviser an incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows: (1) no incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed 1.75%, which we commonly refer to as the performance threshold; (2) 100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds 1.75% but does not exceed 2.1875% in any calendar quarter; and (3) 20% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter. These calculations are appropriately prorated for any period of less than three months. The effect of the fee calculation described above is that if pre-incentive fee net investment income is equal to or exceeds 2.1875%, the Investment Adviser will receive a fee of 20% of our pre-incentive fee net investment income for the quarter.

The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date) and will equal 20% of our cumulative realized capital gains less cumulative realized capital losses, unrealized capital loss (unrealized loss on a gross investment-by-investment basis at the end of each calendar year) and all capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the Investment Adviser. For accounting purposes only, we are required under GAAP to accrue a theoretical capital gains incentive fee based upon net realized capital gains and unrealized capital gain and loss on investments held at the end of each period. The accrual of this theoretical capital gains incentive fee assumes all unrealized capital gain and loss is realized in order to reflect a theoretical capital gains incentive fee that would be payable to the Investment Adviser at each measurement date. There was no accrual for theoretical capital gains incentive fee for the fiscal years ended March 31, 2015, 2014 and 2013. It should be noted that a fee so calculated and accrued would not be payable under the Investment Advisers Act of 1940 (“Advisers Act”) or the Investment Advisory Agreement, and would not be paid based upon such computation of capital gains incentive fees in subsequent periods. Amounts actually paid to the Investment Adviser will be consistent with the Advisers Act and formula reflected in the Investment Advisory Agreement which specifically excludes consideration of unrealized capital gain.

For the time period between April 1, 2013 and March 31, 2016, AIM has agreed to be paid the portion of the performance-based incentive fee that is attributable to deferred interest, such as PIK, when the Company receives such interest in cash. The accrual of incentive fees shall be reversed if such interest is reversed in connection with any write off or similar treatment of the investment. Upon payment of the deferred incentive fee, AIM will also receive interest on the deferred interest at an annual rate of 3.25% for the period between the date in which the incentive fee is earned and the date of payment.

For the fiscal years ended March 31, 2015, 2014 and 2013, the Company recognized $73,604, $62,819 and $55,717, respectively, of base management fees and $53,179, $46,924 and $41,144, respectively, of performance-based incentive fees. For the fiscal years ended March 31, 2015, 2014 and 2013, total management fees waived were $9,407, $6,960, and $1,602. For the fiscal years ended March 31, 2015, 2014 and 2013, total incentive fees waived were $6,208, $5,132, and $1,183.

The amount of the deferred incentive fees on PIK income for the fiscal years ended March 31, 2015, 2014 and 2013, are $5,863, $3,898, and $3,935, respectively. The cumulative deferred incentive fee payable on PIK income included in management and performance-based incentive fee payable line of the Statement of Assets and Liabilities at March 31, 2015, 2014 and 2013 is $12,671, $6,936, and $3,935, respectively.

The Company has also entered into an Administration Agreement with the Administrator under which the Administrator provides administrative services for the Company. For providing these services, facilities and

 

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personnel, the Company reimburses the Administrator for the allocable portion of overhead and other expenses incurred and requested to be reimbursed by the Administrator in performing its obligations under the Administration Agreement. The expenses include rent and the Company’s allocable portion of its chief financial officer, chief compliance officer, and their respective staffs. The Administrator will also provide, on our behalf, managerial assistance to those portfolio companies to which the Company is required to provide such assistance. For the fiscal years ended March 31, 2015, 2014 and 2013 the Company recognized expenses under the Administration Agreement of $5,850, $5,600 and $4,389, respectively.

Merx Aviation Finance, LLC (“Merx”), a wholly-owned portfolio company of the Company, has also entered into an administration agreement (“Merx Administration Agreement”) with the Administrator under which the Administrator provides administrative services to Merx for an annual fee of $150. The fee received from Merx by the Company is included in expense reimbursements in the Statement of Operations. For the fiscal year ended March 31, 2015, 2014, and 2013 the Company recognized expense reimbursements of $150, $0, and $0 respectively, under the Merx Administration Agreement.

The Company has also entered into an expense reimbursement agreement with Merx Aviation Finance Assets Ireland Limited, a affiliate of Merx that will reimburse the Company for reasonable out-of-pocket expenses incurred, including any interest, fees or other amounts incurred by the Company in connection with letters of credit issued on its behalf. For the fiscal years ended March 31, 2015, 2014 and 2013, the Company recognized expenses that were reimbursed under the expense reimbursement agreement of $82, $49, and $0 respectively.

Note 4. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings (loss) per share, pursuant to ASC 260-10, for the fiscal years ended March 31, 2015, 2014 and 2013, respectively:

 

		Year Ended March 31,
		2015				2014				2013
Earnings per share—basic
Numerator for increase in net assets per share:		$	75,422			$	270,872			$	104,471
Denominator for basic weighted average shares:			236,741,351				222,800,255				202,875,329
Basic earnings per share:		$	0.32			$	1.21			$	0.51
Earnings per share—diluted*
Numerator for increase in net assets per share:		$	75,422			$	270,872			$	104,471
Adjustment for interest on convertible notes and for incentive fees, net			10,148				10,138				10,308
Numerator for increase in net assets per share, as adjusted		$	85,570			$	281,010			$	114,779
Denominator for weighted average shares, as adjusted for dilutive effect of convertible notes:			251,289,451				237,348,355				217,423,429
Diluted earnings per share:		$	0.32			$	1.18			$	0.51

 

*

In applying the if-converted method, conversion is not assumed for purposes of computing diluted EPS if the effect would be anti-dilutive. For the fiscal year ended March 31, 2014, there was no anti-dilution. For the fiscal years ended March 31, 2015 and March 31, 2013, anti-dilution would total $0.02 and $0.02, respectively.

Note 5. Investments

AIC Credit Opportunity Fund LLC—We owned 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 owned three special purpose entities, each of which in 2008 acquired directly or

 

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indirectly an investment in a particular security from an unaffiliated entity that provided leverage for the investment as part of the sale. As of March 31, 2014, the three special purpose entities along with AIC Holdco, were dissolved. Each of these transactions is described in more detail below together with summary financial statements.

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 the London Interbank Offered Rate (“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 the FDC Loan after satisfying the Trust’s 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. During the quarter ended June 30, 2013, we unwound the transaction by investing $20,386 into the Trust which then repaid the Senior Note. Subsequent to the repayment of the Senior Note, $10,993 of face value of the FDC Loan was prepaid by First Data Corporation resulting in a distribution of $11,556 to the Company. The remaining FDC Loan, which consisted of $41,862 of face value, was transferred to the Company at an accreted cost of $38,728 with a fair value of $40,397 on the transfer date and the Trust was closed.

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%. During the year ended March 31, 2014, Apollo TXU terminated the entire TRS resulting in a realized loss of $10,314. The excess collateral posted was returned to Apollo TXU.

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 was scheduled to mature in September 2013 and paid interest at LIBOR plus 1.25% or, in certain cases, the higher of the Federal Funds Rate plus 0.50% or the lender’s prime-rate. The Boots Term Loans paid interest at the rate of LIBOR plus 3% per year and was scheduled to mature in June 2015. During the fiscal year ended March 31, 2014, Apollo Boots sold the entire position of the Boots Term Loans in the amount of €23,383 and £12,465 of principal.

We do not consolidate AIC Holdco or its wholly owned subsidiaries. Our investment in AIC Holdco was valued in accordance with our normal valuation procedures and was based on the values of the underlying assets held by each special purpose entities net of associated liabilities.

 

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As of March 31, 2015 and March 31, 2014, the consolidated AIC Holdco had no outstanding assets and liabilities. Below is summarized financial information for AIC Holdco for the fiscal year ended March 31, 2014. There was no operating activity during the fiscal year ended March 31, 2015.

 

		Fiscal Year End March 31, 2014				Fiscal Year End March 31, 2013
Net Operating Income (Loss)
Apollo FDC(1)		$	1,559			$	5,388
Apollo TXU(1)			692				1,237
Apollo Boots(1)			8				745
Other			4				(5	)
Total Operating Income		$	2,263			$	7,365
Net Realized Gain (Loss)
Apollo FDC		$	9,634			$	—
Apollo TXU			(10,314	)			—
Apollo Boots			—				659
Total Net Realized Loss		$	(680	)		$	659
Net Change in Unrealized Loss
Apollo FDC		$	(11,509	)		$	5,034
Apollo TXU			8,936				7,110
Apollo Boots			—				(244	)
Total Net Change in Unrealized Gain (Loss)		$	(2,573	)		$	11,900
Net Income (Loss)(2)
Apollo FDC		$	(316	)		$	10,422
Apollo TXU			(686	)			8,347
Apollo Boots			8				1,160
Other			4				(5	)
Total Net Loss		$	(990	)		$	19,924

 

(1)

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 the swap counterparty of Apollo TXU’s 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.

 

(2)	Net loss is the sum of operating income, realized gain (loss) and net change in unrealized gain (loss).

 

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Fair Value Measurement and Disclosures

At March 31, 2015, our investments, measured at fair value, were categorized as follows in the fair value hierarchy for ASC 820 purposes:

 

										Fair Value Measurement at Reporting Date Using:
Description		Cost				Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant  Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
1st Lien Secured Debt		$	1,252,324			$	1,193,847			$	—			$	177,817			$	1,016,030
2nd Lien Secured Debt			820,840				805,625				—				293,515				512,110
Unsecured Debt			530,366				475,434				—				123,463				351,971
Structured Products and Other			349,813				374,368				—				—				374,368
Preferred Equity			197,365				165,101				—				—				165,101
Common Equity/Interests			330,851				329,881				—				81				329,800
Warrants			5,016				5,571				—				—				5,571
Total Investments		$	3,486,575			$	3,349,827			$	—			$	594,876			$	2,754,951

At March 31, 2014, our investments that were measured at fair value were categorized as follows in the fair value hierarchy for ASC 820 purposes:

 

										Fair Value Measurement at Reporting Date Using:
Description		Cost				Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant  Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
1st Lien Secured Debt		$	946,789			$	956,461			$	—			$	343,667			$	612,794
2nd Lien Secured Debt			973,082				992,646				—				669,757				322,889
Unsecured Debt			912,453				941,728				—				526,649				415,079
Structured Products and Other			204,864				208,901				—				—				208,901
Preferred Equity			115,020				93,062				—				—				93,062
Common Equity/Interests			297,532				274,699				—				—				274,699
Warrants			9,012				11,174				—				—				11,174
Total Investments		$	3,458,752			$	3,478,671			$	—			$	1,540,073			$	1,938,598

 

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The following chart shows the components of change in our investments categorized as Level 3, for the fiscal year ended March 31, 2015.

 

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)*
		1st Lien Secured Debt (2)				2nd Lien Secured Debt (2)				Unsecured Debt				Structured Products and Other				Preferred Equity				Common Equity/ Interests				Warrants				Total
Beginning Balance, March 31, 2014		$	612,794			$	322,889			$	415,079			$	208,901			$	93,062			$	274,699			$	11,174			$	1,938,598
Total realized gains (losses) included in earnings			625				211				(1,961	)			(276	)			—				(3,558	)			9,713				4,754
Total change in unrealized gain (loss) included in earnings			(11,426	)			(8,848	)			(19,990	)			20,517				(10,306	)			21,782				(1,607	)			(9,878	)
Net amortization on investments			4,511				1,365				821				343				—				—				—				7,040
Purchases, including capitalized PIK(3)			634,773				304,217				124,814				180,932				83,634				57,108				—				1,385,478
Sales(3)			(253,815	)			(167,904	)			(186,014	)			(36,049	)			(1,289	)			(20,231	)			(13,709	)			(679,011	)
Transfers out of Level 3 (1)			(14,601	)			—				(68	)			—				—				—				—				(14,669	)
Transfers into Level 3 (1)			43,169				60,180				19,290				—				—				—				—				122,639
Ending Balance, March 31, 2015		$	1,016,030			$	512,110			$	351,971			$	374,368			$	165,101			$	329,800			$	5,571			$	2,754,951
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gain (loss) relating to our Level 3 assets still held at the reporting date and reported within the net change in unrealized gain (loss) on investments in our Statement of Operations.		$	(25,002	)		$	(7,991	)		$	(27,254	)		$	22,214			$	(10,306	)		$	29,927			$	(5,028	)		$	(23,440	)

 

(1)

Transfers out of Level 3 are due to an increase in the availability of qualified observable inputs and transfers into Level 3 are due to a decrease in the availability of qualified observable inputs as assessed by the Adviser. Transfers are assumed to have occurred at the end of the period. There were no transfers between Level 1 and Level 2 fair value measurements during the period shown.

 

(2)	Includes unfunded revolver obligations and letters of credit measured at fair value of $(4,060).

 

(3)	Includes reorganizations and restructurings.

 

*	Pursuant to fair value measurement and disclosure guidance, the Company currently categorizes investments by class as shown above.

 

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The following chart shows the components of change in our investments categorized as Level 3, for the fiscal year ended March 31, 2014.

 

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)*
		1st Lien Secured Debt (2)				2nd Lien Secured Debt (2)				Unsecured Debt				Structured Products and Other				Preferred Equity				Common Equity/ Interests				Warrants				Total
Beginning Balance, March 31, 2013		$	254,400			$	386,409			$	631,047			$	185,995			$	11,550			$	162,580			$	9,273			$	1,641,254
Total realized gains or losses included in earnings			(17,944	)			(15,365	)			(47,284	)			2,460				—				10,875				1,808				(65,450	)
Total change in unrealized gain (loss) included in earnings			16,525				22,168				59,747				(2,483	)			6,714				15,107				(4,401	)			113,377
Net amortization on investments			(8	)			4,322				11,951				347				—				—				—				16,612
Purchases, including capitalized PIK (3)			665,229				274,518				121,825				140,150				74,798				109,035				6,369				1,391,924
Sales			(294,916	)			(370,206	)			(307,094	)			(89,332	)			—				(22,898	)			(1,875	)			(1,086,321	)
Transfers out of Level 3 (1)			(10,492	)			—				(55,113	)			(38,728	)			—				—				—				(104,333	)
Transfers into Level 3 (1)			—				21,043				—				10,492				—				—				—				31,535
Ending Balance, March 31, 2014		$	612,794			$	322,889			$	415,079			$	208,901			$	93,062			$	274,699			$	11,174			$	1,938,598
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gain (loss) relating to our Level 3 assets still held at the reporting date and reported within the net change in unrealized gain (loss) on investments in our Statement of Operations		$	2,921			$	397			$	10,341			$	4,210			$	6,713			$	24,017			$	(2,898	)		$	45,701

 

(1)

Transfers represent (a) a transfer of $10,492 out of Secured Debt into Structured Products due to the change in the nature of the investment and (b) transfers in and out of Level 3 due to changes in the quantity and quality of information obtained to support the fair value of each investment as assessed by the Adviser. Transfers out of Level 3 are due to an increase in the availability of qualified observable inputs and transfers into Level 3 are due to a decrease in the availability of qualified observable inputs as assessed by the Adviser. Transfers are assumed to have occurred at the end of the period. There were no transfers between Level 1 and Level 2 fair value measurements during the period shown.

 

(2)	Includes unfunded revolver obligations and letters of credit measured at fair value of $(5,415).

 

(3)	Includes reorganizations and restructurings.

 

*	Pursuant to fair value measurement and disclosure guidance, the Company currently categorizes investments by class as shown above.

 

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The following tables summarize the significant unobservable inputs the Company used to value the majority of its investments categorized within Level 3 as of March 31, 2015. In addition to the techniques and inputs noted in the table below, according to our valuation policy we may also use other valuation techniques and methodologies when determining our fair value measurements. The below table is not intended to be all-inclusive, but rather provides information on the significant unobservable inputs as they relate to the Company’s determination of fair values.

 

						Quantitative Information about Level 3 Fair Value  Measurements
		Fiscal Year Ended March 31, 2015				Valuation Techniques/ Methodologies		Unobservable Input		Range				Weighted Average
1st Lien Secured Debt		$	531,654			Yield Analysis		Discount Rate		7.9%		20.9%		13.0%
			352,084			Discounted Cash Flow		Discount Rate		12.0%		12.0%		12.0%
			14,377			Recent Transactions		Recent Transactions		N/A		N/A		N/A
			117,915			Broker Quoted		Broker Quote		N/A		N/A		N/A
2nd Lien Secured Debt			247,585			Yield Analysis		Discount Rate		9.7%		19.7%		14.5%
			264,525			Broker Quoted		Broker Quote		N/A		N/A		N/A
Unsecured Debt			329,831			Yield Analysis		Discount Rate		9.7%		22.0%		11.4%
			22,140			Broker Quoted		Broker Quote		N/A		N/A		N/A
Structured Products and Other			39,296			Yield Analysis		Discount Rate		8.4%		15.0%		8.8%
			317,381			Discounted Cash Flow		Discount Rate		3.8%		15.0%		12.4%
			17,691			Broker Quoted		Broker Quote		N/A		N/A		N/A
Preferred Equity			66,976			Market Comparable Approach		Comparable Multiple		2.2x		11.7x		7.3x
			23,645			Yield Analysis		Discount Rate		10.8%		10.8%		10.8%
			9,309			Discounted Cash Flow		Discount Rate		15.9%		15.9%		15.9%
			65,171			Options Pricing Model		Expected Volatility		70.0%		70.0%		70.0%
Common Equity/Interests			121,169			Market Comparable Approach		Comparable Multiple		2.2x		10.8x		8.3x
			203,469			Discounted Cash Flow		Discount Rate		11.4%		30.0%		13.0%
			5,162			Other		Illiquidity/ Restrictive discount		7.0%		7.0%		7.0%
Warrants			1,399			Market Comparable Approach		Comparable Multiple		4.8x		11.4x		11.2x
			222			Other		Illiquidity/ Restrictive discount		20.0%		20.0%		20.0%
			3,950			Recent Transactions		Recent Transactions		N/A		N/A		N/A
Total		$	2,754,951

N/A – Not applicable

 

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Quantitative Information about Level 3 Fair Value  Measurements

Fiscal Year Ended March 31, 2014

Valuation Techniques/ Methodologies

Unobservable Input

Range

Weighted Average

1st Lien Secured Debt

$

593,324

Yield Analysis

Discount Rate

8.2%

27.3%

13.1%

19,470

Broker Quoted

Broker Quote

N/A

N/A

N/A

2nd Lien Secured Debt

121,675

Yield Analysis

Discount Rate

11.9%

19.1%

14.0%

174,844

Broker Quoted

Broker Quote

N/A

N/A

N/A

26,370

Recent Transactions

Recent Transactions

N/A

N/A

N/A

Unsecured Debt

395,630

Yield Analysis

Discount Rate

9.3%

45.0%

11.7%

19,449

Broker Quoted

Broker Quote

N/A

N/A

N/A

Structured Products and Other

30,158

Yield Analysis

Discount Rate

11.6%

15.0%

12.3%

146,970

Discounted Cash Flow

Discount Rate

10.0%

15.5%

13.9%

1,097

Recent Transactions

Recent Transactions

N/A

N/A

N/A

30,676

Broker Quoted

Broker Quote

N/A

N/A

N/A

Preferred Equity

70,442

Market Comparable Approach

Comparable Multiple

2.0x

10.0x

7.1x

22,620

Yield Analysis

Discount Rate

12.3%

12.3%

12.3%

Common Equity/Interests

125,607

Market Comparable Approach

Comparable Multiple

2.0x

12.0x

8.1x

17

Net Asset Value

Underlying Assets/ Liabilities

N/A

N/A

N/A

142,117

Yield Analysis

Discount Rate

13.1%

30.0%

13.2%

6,958

Other

Illiquidity/ Restrictive discount

7.0%

7.0%

7.0%

Warrants

4,707

Market Comparable Approach

Comparable Multiple

5.3x

6.0x

2.9x

1,398

Other

Illiquidity/ Restrictive discount

20.0%

20.0%

20.0%

5,069

Recent Transactions

Recent Transactions

N/A

N/A

N/A

Total

$

1,938,598

 

N/A – Not applicable

The significant unobservable inputs used in the fair value measurement of the Company’s debt and equity securities are primarily earnings before interest, taxes, depreciation and amortization (“EBITDA”) comparable multiples and market discount rates. The Company typically uses EBITDA comparable multiples on its equity securities to determine the fair value of investments. The Company uses market discount rates for debt securities to determine if the effective yield on a debt security is commensurate with the market yields for that type of debt security. If a debt security’s effective yield is significantly less than the market yield for a similar debt security with a similar credit profile, then the resulting fair value of the debt security may be lower. Significant increases or decreases in either of these inputs in isolation would result in a significantly lower or higher fair value measurement. The significant unobservable inputs used in the fair value measurement of the structured products include the discount rate applied in the valuation models in addition to default and recovery rates applied to projected cash flows in the valuation models. Specifically, when a discounted cash flow model is used to determine fair value, the significant input used in the valuation model is the discount rate applied to present value the projected cash flows. Increases in the discount rate can significantly lower the fair value of an investment; conversely decreases in the discount rate can significantly increase the fair value of an investment. The discount rate is determined based on the market rates an investor would expect for a similar investment with similar risks.

 

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PIK Interest and Dividends

The Company holds loans and investments, including certain preferred equity investments that 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 income for the fiscal years ended March 31, 2015 and March 31, 2014 are summarized below:

 

		Fiscal Year Ended
		March 31, 2015				March 31, 2014				March 31, 2013
PIK income for the year		$	34,092			$	28,974			$	20,292

Capitalized PIK income for the fiscal years ended March 31, 2015 and March 31, 2014 are summarized below:

 

		Fiscal Year Ended March 31, 2015				Fiscal Year Ended March 31, 2014
PIK balance at beginning of year		$	58,185			$	45,658
Gross PIK income capitalized			31,036				28,884
Adjustments due to investment exits			—				(25	)
Proceeds from capitalized PIK investments			(2,318	)			(16,332	)
PIK balance at end of year		$	86,903			$	58,185

Investments on Non-Accrual Status

As of March 31, 2015, 1.3% of total investments at amortized cost (or 0.1% of total investments at fair value) were on non-accrual status. As of March 31, 2014, 1.0% of total investments at amortized cost (or 0.4% of total investments at fair value) were on non-accrual status.

Derivatives

During the three months ended June 30, 2013, we entered into interest rate swap and interest rate cap agreements to manage interest rate risk associated with one of our structured product investments. During the three months ended September 30, 2013, we exited the investment and unwound the derivatives. We do not hold or issue derivative contracts for speculative purposes. We recorded the accrual of periodic interest settlements in net unrealized gain/loss and subsequently recorded the cash payments as a net realized gain or loss on the interest settlement date, activities which are classified under operating activities in our Statement of Cash Flows.

As of March 31, 2015, 2014, and 2013, we did not hold any derivative investments and during the fiscal year ended March 31, 2015, we did not enter into any derivative transactions. The table below summarizes the effect of derivative instruments on our Statement of Operations for the fiscal year ended March 31, 2014:

 

Derivative Instruments		Unrealized Gain/(Loss)				Realized Gain/(Loss)				Total Gain (Loss)
Interest rate swaps		$	—			$	13,162			$	13,162
Interest rate caps			—				(4,621	)			(4,621	)
Total		$	—			$	8,541			$	8,541

The interest income and interest expense on derivatives is shown in the Statement of Operations within net realized and unrealized gain/loss from investments, cash equivalents, foreign currencies and derivatives.

 

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Credit Risk-Related Contingent Features

The use of derivatives creates exposure to counterparty credit risk that may result in potential losses in the event that the counterparties to these instruments fail to perform their obligations under the agreements governing such derivatives. The Company seeks to minimize this risk by limiting the Company’s counterparties to major financial institutions with acceptable credit ratings and monitoring positions with individual counterparties.

The International Swaps and Derivatives Association (“ISDA”) Master Agreement that the Company has in place together with the Schedule thereto, the ISDA Agreement contains customary default provisions including a cross acceleration provision relating to third-party indebtedness including, for the avoidance of doubt, the JPM Credit Agreement in excess of a specified threshold. Following an event of default, the Company could be required to settle its obligations under the ISDA Agreement at their termination values. Additionally, under the Company’s ISDA Agreement, the Company could be required to settle its obligations under the ISDA Agreement at their termination values if the Company fails to comply with certain specified covenants.

Note 6. Foreign Currency Transactions and Translations

The Company had outstanding non-US borrowings on its Senior Secured Facility (as defined in note 9) as of March 31, 2015 and March 31, 2014 as summarized below:

As of March 31, 2015:

 

Foreign Currency		Local Currency				Original Borrowed Value				Current Value				Reset Date				Unrealized Gain
British Pound		£	6,500			$	9,926			$	9,649				4/7/2015			$	277
British Pound		£	25,000				37,525				37,112				4/13/2015				413
British Pound		£	27,000				39,956				40,082				4/20/2015				(126	)
British Pound		£	7,600				12,124				11,282				4/30/2015				842
Euro		€	19,200				25,803				20,621				4/30/2015				5,182
Canadian Dollars			CAD 65,100				60,245				51,402				4/30/2015				8,843
						$	185,579			$	170,148							$	15,431

As of March 31, 2014:

 

Foreign Currency		Local Currency				Original Borrowed Value				Current Value				Reset Date				Unrealized Gain (Loss)
British Pound		£	45,100			$	72,078			$	75,188				4/30/2014			$	(3,110	)
Euro		€	18,200				24,474				25,084				4/30/2014				(610	)
Euro		€	9,500				12,680				13,093				4/24/2014				(413	)
Canadian Dollars			CAD 34,100				31,766				30,895				4/24/2014				871
						$	140,998			$	144,260							$	(3,262	)

Note 7. Cash Equivalents

There were no cash equivalents held as of March 31, 2015 and March 31, 2014.

 

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Note 8. Financial Highlights

The following is a schedule of financial highlights for the years ended March 31, 2015, 2014, 2013, 2012, and 2011.

 

		March 31,
		2015				2014				2013				2012				2011
Per Share Data:
Net asset value, beginning of period		$	8.67			$	8.27			$	8.55			$	10.03			$	10.06
Net investment income			0.96				0.91				0.83	***			0.88				0.99
Net realized and unrealized gain (loss)			(0.64	)			0.30				(0.31	)***			(1.32	)			(0.05	)
Net increase (decrease) in net assets resulting from operations			0.32				1.20	***			0.51	***			(0.44	)			0.94
Dividends to stockholders from income (1)			(0.70	)			(0.80	)			(0.78	)			(1.04	)			(1.13	)
Dividends to stockholders from return of capital (1)			(0.10	)			—				(0.02	)			—				—
Effect of anti-dilution (dilution)			—				—	*			—	*			—	*			0.16
Offering costs			—	*			—	*			—	*			—	*			—	*
Net asset value at end of period		$	8.18	***		$	8.67			$	8.27			$	8.55			$	10.03
Per share market value at end of period		$	7.68			$	8.31			$	8.36			$	7.17			$	12.07
Total return (2)			1.9	%			9.4	%			28.2	%			(32.4	)%			5.1	%
Shares outstanding at end of period			236,741,351				236,741,351				202,891,351				197,043,398				195,501,549
Ratio/Supplemental Data:
Net assets at end of period (in millions)		$	1,937.6			$	2,051.6			$	1,677.4			$	1,685.2			$	1,961.0
Ratio of net investment income to average net assets			11.27	%			10.85	%			9.87	%			9.77	%			10.19	%
Ratio of operating expenses to average net assets (3)**			6.25	%			6.01	%			6.28	%			6.70	%			6.37	%
Ratio of interest and other debt expenses to average net assets			3.91	%			3.70	%			3.43	%			3.76	%			2.56	%
Ratio of total expenses to average net assets (3)**			10.16	%			9.71	%			9.71	%			10.46	%			8.93	%
Average debt outstanding		$	1,586,493			$	1,238,940			$	1,036,780			$	1,213,943			$	1,072,646
Average debt per share		$	6.70			$	5.56			$	5.11			$	6.18			$	5.55
Portfolio turnover ratio			62.1	%			75.9	%			49.9	%			50.6	%			33.6	%

 

(1)	Dividends and distributions are determined based on taxable income calculated in accordance with income tax regulations which may differ from amounts determined under GAAP. Per share amounts reflect total dividends paid divided by average shares for the respective periods.

 

(2)	Total return is based on the change in market price per share during the respective periods. Total return also takes into account dividends and distributions, if any, reinvested in accordance with the Company’s dividend reinvestment plan.

 

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(3)	The ratio of operating expenses to average net assets and the ratio of total expenses to average net assets are shown inclusive of the expense offset arrangement. For all periods presented there were no expense offsets during these periods and as such, there was no effect on the ratio.

 

*	Represents less than one cent per average share.

 

**

The ratio of operating expenses to average net assets and the ratio of total expenses to average net assets is shown net of all voluntary management and incentive fee waivers (see note 3). At March 31, 2015, the ratio of operating expenses to average net assets and the ratio of total expenses to average net assets would be 7.03% and 10.95%, respectively, without the voluntary fee waivers. At March 31, 2014, the ratio of operating expenses to average net assets and the ratio of total expenses to average net assets would be 6.66% and 10.36%, respectively, without the voluntary fee waivers. At March 31, 2013, the ratio of operating expenses to average net assets and the ratio of total expenses to average net assets would be 6.44% and 9.87%, respectively, without the voluntary fee waivers. At March 31, 2012, the ratio of operating expenses to average net assets and the ratio of total expenses to average net assets would be 6.70% and 10.46%, respectively, inclusive of the expense offset arrangement. At March 31, 2011, the ratio of operating expenses to average net assets and the ratio of total expenses to average net assets would be 6.37% and 8.93%, respectively.

 

***	Numbers may not sum due to rounding.

Information about our senior securities is shown in the following table as of each year ended March 31 since the Company 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 (1)				Asset Coverage Per Unit (2)				Involuntary Liquidating Preference Per Unit (3)				Average Market Value Per Unit (4)
Senior Secured Facility
Fiscal 2015		$	384,648			$	588			$	—				N/A	(5)
Fiscal 2014			602,261				1,095				—				N/A
Fiscal 2013			536,067				1,137				—				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 2015		$	270,000			$	413			$	—				N/A
Fiscal 2014			270,000				491				—				N/A
Fiscal 2013			270,000				572				—				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

 

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Class and Year		Total Amount Outstanding (1)				Asset Coverage Per Unit (2)				Involuntary Liquidating Preference Per Unit (3)				Average Market Value Per Unit (4)
2042 Notes
Fiscal 2015		$	150,000			$	230			$	—			$	99.59
Fiscal 2014			150,000				273				—				92.11
Fiscal 2013			150,000				318				—				97.43
Fiscal 2012			—				—				—				N/A
Fiscal 2011			—				—				—				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
2043 Notes
Fiscal 2015		$	150,000			$	230			$	—			$	99.74
Fiscal 2014			150,000				273				—				89.88
Fiscal 2013			—				—				—				N/A
Fiscal 2012			—				—				—				N/A
Fiscal 2011			—				—				—				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
2025 Notes
Fiscal 2015		$	344,111			$	526			$	—				N/A
Fiscal 2014			—				—				—				N/A
Fiscal 2013			—				—				—				N/A
Fiscal 2012			—				—				—				N/A
Fiscal 2011			—				—				—				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
Convertible Notes
Fiscal 2015		$	200,000			$	306			$	—			$	104.43
Fiscal 2014			200,000				364				—				106.60
Fiscal 2013			200,000				424				—				102.84
Fiscal 2012			200,000				529				—				97.81
Fiscal 2011			200,000				544				—				N/A	(6)
Fiscal 2010			—				—				—				N/A
Fiscal 2009			—				—				—				N/A
Fiscal 2008			—				—				—				N/A
Fiscal 2007			—				—				—				N/A
Fiscal 2006			—				—				—				N/A
Fiscal 2005			—				—				—				N/A

 

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Class and Year		Total Amount Outstanding (1)				Asset Coverage Per Unit (2)				Involuntary Liquidating Preference Per Unit (3)				Average Market Value Per Unit (4)
Total Debt Securities
Fiscal 2015		$	1,498,759			$	2,293			$	—				N/A
Fiscal 2014			1,372,261				2,496				—				N/A
Fiscal 2013			1,156,067				2,451				—				N/A
Fiscal 2012			1,009,337				2,670				—				N/A
Fiscal 2011			1,053,443				2,862				—				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

 

(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 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 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, except for with respect to the 2042 Notes, the 2043 Notes, and the Convertible Notes, as other senior securities do not have sufficient trading for an average market value per unit to be determined. The average market value per unit for each of the 2042 Notes, the 2043 Notes, and the Convertible Notes is based on the closing daily prices of such notes and is expressed per $100 of indebtedness (including for the 2042 Notes and the 2043 Notes, which were issued in $25 increments).

 

(5)	Included in this amount is foreign currency debt obligations as outlined in the table in note 6.

 

(6)	Restrictive legends were removed in 2012.

Note 9. Debt

The Company’s outstanding debt obligations as of March 31, 2015 were as follows:

 

		March 31, 2015
		Date Issued  / Amended				Total  Aggregate Principal Amount Committed				Principal  Amount Outstanding				Fair Value				Final Maturity Date
Senior Secured Facility			2013			$	1,270,000			$	384,648	*		$	384,253	(1)		8/31/2018
Senior Secured Notes			2010				225,000				225,000				227,363	(1)		10/4/2015
Senior Secured Notes (Series A)			2011				29,000				29,000				29,684	(1)		9/29/2016
Senior Secured Notes (Series B)			2011				16,000				16,000				16,952	(1)		9/29/2018
2042 Notes			2012				150,000				150,000				152,646	(2)		10/15/2042
2043 Notes			2013				150,000				150,000				153,438	(2)		7/15/2043
2025 Note			2015				350,000				344,111				352,100	(1)		3/3/2025
Convertible Notes			2011				200,000				200,000				206,250	(2)		1/15/2016
Total Debt Obligations						$	2,390,000			$	1,498,759			$	1,522,686

 

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*	Included in this amount is foreign currency debt obligations as outlined in the table in note 6.

 

(1)	The fair value of these debt obligations are categorized as Level 3 under ASC 820 as of March 31, 2015 and March 31, 2014. The valuation is based on a yield analysis and discount rate commensurate with the market yields for similar types of debt.

 

(2)	The fair value of these debt obligations are categorized as Level 1 under ASC 820 as of March 31, 2015 and March 31, 2014. The valuation is based on quoted prices of identical liabilities in active markets.

Senior Secured Facility

On September 13, 2013, the Company amended and restated its senior secured, multi-currency, revolving credit facility (the “Senior Secured Facility”). The facility increased the lenders’ commitments totaling approximately $1,270,000 and extended the final maturity date to through August 31, 2018, and allows the Company to seek additional commitments from new and existing lenders in the future, up to an aggregate facility size not to exceed $1,710,000. The Senior Secured Facility is secured by substantially all of the assets in Apollo Investment’s portfolio, including cash and cash equivalents. Commencing September 30, 2017, the Company is required to repay, in twelve consecutive monthly installments of equal size, the outstanding amount under the Senior Secured Facility as of August 31, 2017. Pricing for Alternate Base Rate (ABR) borrowings is 100 basis points over the applicable Prime Rate and pricing for eurocurrency borrowings is 200 basis points over the LIBOR Rate. The Company is required to pay a commitment fee of 0.375% per annum on any unused portion of the Senior Secured Facility and a letter of credit participation fee of 2.00% per annum plus a letter of credit fronting fee of 0.25% per annum on the letters of credit issued. The Senior Secured Facility contains affirmative and restrictive covenants, including: (a) periodic financial reporting requirements, (b) maintaining minimum stockholders’ equity of the greater of (i) 40% of the total assets of Apollo Investment and its consolidated subsidiaries as at the last day of any fiscal quarter and (ii) the sum of (A) $845,000 plus (B) 25% of the net proceeds from the sale of equity interests in Apollo Investment after the closing date of the Senior Secured Facility, (c) maintaining a ratio of total assets, less total liabilities (other than indebtedness) to total indebtedness, in each case of Apollo Investment and its consolidated subsidiaries, of not less than 2.0:1.0, (d) limitations on the incurrence of additional indebtedness, including a requirement to meet a certain minimum liquidity threshold before Apollo Investment can incur such additional debt, (e) limitations on liens, (f) limitations on investments (other than in the ordinary course of Apollo Investment’s business), (g) limitations on mergers and disposition of assets (other than in the normal course of Apollo Investment’s business activities), (h) limitations on the creation or existence of agreements that permit liens on properties of Apollo Investment’s consolidated subsidiaries and (i) limitations on the repurchase or redemption of certain unsecured debt and debt securities. In addition to the asset coverage ratio described in clause (c) of the preceding sentence, borrowings under the Senior Secured Facility (and the incurrence of certain other permitted debt) are subject to compliance with a borrowing base that applies different advance rates to different types of assets in Apollo Investment’s portfolio. The Senior Secured Facility also provides for the issuance of letters of credit for up to an aggregate amount of $125,000. As of March 31, 2015 and March 31, 2014 the Company had $25,246 and $15,746, respectively in standby letters of credit issued through the Senior Secured Facility. The amount available for borrowing under the Senior Secured Facility is reduced by any standby letters of credit issued. The available remaining capacity under the Senior Secured Facility was $860,106 at March 31, 2015. Terms used in the this paragraph have the meanings set forth in the Senior Secured Facility.

On April 24, 2015, the Company amended and restated the Senior Secured Facility. The amendment increased the lenders’ commitments to $1,310,000, extended the final maturity date to April 24, 2020, and allows the Company to seek additional commitments from new and existing lenders in the future, up to an aggregate facility size not to exceed $1,965,000. In addition, the stated interest rate on the facility was changed from LIBOR plus 2.00% to a formula-based calculation, based on a minimum borrowing base, resulting in a stated interest rate of either LIBOR plus 1.75%, or LIBOR plus 2.00%. As of May 19, 2015, the stated interest rate on the facility is LIBOR plus 2.00%. Commencing April 30, 2019, the Company is required to repay, in twelve

 

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consecutive monthly installments of equal size, the outstanding amount under the Senior Secured Facility as of April 24, 2019.

Senior Secured Notes

On September 30, 2010, the Company entered into a note purchase agreement with certain institutional accredited investors providing for a private placement issuance of $225,000 in aggregate principal amount of five-year, senior secured notes with an annual fixed interest rate of 6.25% and a maturity date of October 4, 2015 (the “Senior Secured Notes”). On October 4, 2010, the Senior Secured Notes issued by Apollo Investment were sold to certain institutional accredited investors pursuant to an exemption from registration under the Securities Act of 1933, as amended. Interest on the Senior Secured Notes is due semi-annually on April 4 and October 4, commencing on April 4, 2011.

On September 29, 2011, the Company closed a private offering of $45,000 aggregate principal amount of senior secured notes (the “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 $29,000; and (2) 6.250% Senior Secured Notes, Series B, of the Company due September 29, 2018, in the aggregate principal amount of $16,000. The Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. Interest on the Senior Secured Notes is due semi-annually on March 29 and September 29, commencing on March 29, 2012.

The Senior Secured Notes and the Notes rank parri-passu with the Senior Secured Facility.

2042 Notes

On October 9, 2012, the Company issued $150,000 in aggregate principal amount of 6.625% senior unsecured notes due 2042 for net proceeds of $145,275 (the “2042 Notes”). Interest on the 2042 Notes is paid quarterly on January 15, April 15, July 15 and October 15, at an annual rate of 6.625%, commencing on January 15, 2013. The 2042 Notes will mature on October 15, 2042. The Company may redeem the 2042 Notes in whole or in part at any time or from time to time on or after October 15, 2017. The 2042 Notes are general, unsecured obligations and rank equal in right of payment with all of our existing and future senior, unsecured indebtedness. The 2042 Notes are listed on The New York Stock Exchange under the ticker symbol “AIB”.

2043 Notes

On June 17, 2013, the Company issued $135,000 in aggregate principal amount of 6.875% senior unsecured notes due 2043 and on June 24, 2013 an additional $15,000 in aggregate principal amount of such notes was issued pursuant to the underwriters’ over-allotment option exercise. In total, $150,000 of aggregate principal was issued for net proceeds of $145,275 (the “2043 Notes”). Interest on the 2043 Notes is paid quarterly on January 15, April 15, July 15 and October 15, at an annual rate of 6.875%, commencing on October 15, 2013. The 2043 Notes will mature on July 15, 2043. The Company may redeem the 2043 Notes in whole or in part at any time or from time to time on or after July 15, 2018. The 2043 Notes are general, unsecured obligations and rank equal in right of payment with all of our existing and future senior, unsecured indebtedness. The 2043 Notes are listed on The New York Stock Exchange under the ticker symbol “AIY”.

2024 Note

On October 30, 2014, the Company entered into a note purchase agreement with an institutional accredited investor providing a private placement issuance of $150,000 in aggregate principal amount of a ten-year note with an annual fixed rate of 5.25% and a maturity of October 30, 2024 (the “2024 Note”). On October 30, 2014, the Company issued the 2024 Note for net proceeds of $148,875. Interest on the 2024 Note is due quarterly on January 15, April 15, July 15 and October 15, commencing on January 15, 2015. The 2024 Note was a general, unsecured obligation and ranked equal in right of payment with all of our existing unsecured

 

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indebtedness. The 2024 Note was repurchased and retired by the Company on March 3, 2015 and was accounted for as a debt modification in accordance with ASC Topic 470 Debt.

2025 Notes

On March 3, 2015, the issued $350,000 in the aggregate principal amount of 5.25% unsecured notes due 2025 for net proceeds off $343,650 (the “2025 Notes”). Interest on the 2025 Notes is due semi-annually on March 3 and September 3, commencing on September 3, 2015. The 2025 Notes are a general, unsecured obligation and rank equal in right of payment with all of our existing unsecured indebtedness.

Convertible Notes

On January 25, 2011, the Company closed a private offering of $200,000 aggregate principal amount of senior unsecured convertible notes (the “Convertible Notes”). The Convertible Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The Convertible 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 Convertible Notes will mature on January 15, 2016 unless earlier converted or repurchased at the holder’s option. Prior to December 15, 2015, the Convertible Notes will be convertible only upon certain corporate reorganizations, dilutive recapitalizations or dividends, or if, during specified periods our shares trade at more than 130% of the then applicable conversion price or the Convertible Notes trade at less than 97% of their conversion value and, thereafter, at any time. The Convertible Notes will be convertible by the holders into shares of common stock, initially at a conversion rate of 72.7405 shares of the Company’s common stock per $1 principal amount of Convertible Notes (14,548,100 common shares) corresponding to an initial conversion price per share of approximately $13.75, which represents a premium of 17.5% to the $11.70 per share closing price of the Company’s 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 Convertible 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 Convertible 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. As more fully reflected in note 5, the issuance is to be considered as part of the if-converted method for calculation of diluted EPS.

The following chart summarizes the components of average outstanding debt, maximum amount of debt outstanding, and the annualized interest cost, including commitment fees, for the fiscal years ended March 31, 2015 and 2014:

 

		Fiscal Year Ended March 31, 2015				Fiscal Year Ended March 31, 2014
Average outstanding debt balance		$	1,586,493			$	1,238,940
Maximum amount of debt outstanding			1,834,405				1,564,228
Weighted average annualized interest cost, including commitment fees, but excluding debt issuance costs (1)			4.55	%			4.95	%
Annualized amortized debt issuance cost			0.43	%			0.57	%
Total annualized interest cost			4.98	%			5.52	%

 

(1)	Commitment fees for the fiscal years ended March 31, 2015 and March 31, 2014 were $1,923 and $2,659, respectively.

 

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As of March 31, 2015, the Company is in compliance with all debt covenants.

Note 10. Stockholders’ Equity

There were no equity offerings of common stock during the year ended March 31, 2015. The following table summarizes the total shares issued and proceeds received in public offerings of the Company’s common stock net of underwriting discounts and offering costs for the fiscal year ended March 31, 2014 :

 

		Shares Issued				Offering Price per Share				Proceeds net of underwriting discounts and offering costs
May 2013 public offering			21,850,000			$	8.60			$	181,819
February 2014 public offering			12,000,000				8.69				103,724
Total for the fiscal year ended March 31, 2014			33,850,000							$	285,543

The Company used the net proceeds from the public offerings during fiscal year March 31, 2014 to repay outstanding debt.

AIM has agreed to waive the base management and incentive fees associated with the incremental shares issued on the May 20, 2013 offering through March 31, 2016.

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 Securities Exchange Act of 1934. The Company’s 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 Company’s 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 March 31, 2015, no shares have been repurchased.

On September 12, 2014, the Company announced an At the Market (“ATM”) program through which the Company can sell up to 16 million shares of its common stock from time to time. As of March 31, 2015, no shares had been sold through the Company’s ATM program.

Note 11. Income Tax Information and Distributions to Stockholders

Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are reclassified among the Company’s capital accounts. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America; accordingly, at March 31, 2015, reclassifications were made on our statement of asset and liabilities to reduce accumulated net realized loss by $44,257, and to increase accumulated over-distributed net investment income by $20,174. Total earnings and net asset value are not affected.

The tax character of dividends for the fiscal year ended March 31, 2015 was as follows:

 

Ordinary income		$	165,626
Tax Return of Capital		$	23,767

 

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As of March 31, 2015, the components of accumulated losses on a tax basis were as follows(1):

 

Distributable ordinary income		$	—
Capital loss carryforward (2)(3)			(1,042,277	)
Other book/tax temporary differences			(74,084	)
Unrealized depreciation			(143,983	)
Total net accumulated losses		$	(1,260,344	)

As of March 31, 2015, we had a net post-October capital loss deferral of $10,791 which is deemed to arise on April 1, 2015.

 

(1)	Tax information for the fiscal year ended March 31, 2015 is an estimate and will not be finally determined until the Company files its 2015 tax return in December 2015.

 

(2)

On March 31, 2015, the Company had net capital loss carryforwards of $36,089, $199,331 and $411,998 which expire in 2017, 2018 and 2019, respectively. These amounts will be available to offset like amounts of any future taxable gains. It is unlikely that capital gains distributions will be paid to stockholders of the Company until net gains have been realized in excess of such capital loss carryforward or the carryforward expires.

 

(3)

On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term losses rather than being considered all short-term as under previous law. As of March 31, 2015, the Company had a post-enactment short-term capital loss carryforward of $78,104 and long-term capital loss carryforward of $316,755. This loss is deemed to arise on April 1, 2015.

The tax character of dividends for the fiscal year ended March 31, 2014 was as follows:

 

Ordinary income		$	182,193
Tax Return of Capital		$	—

As of March 31, 2014, the components of accumulated losses on a tax basis were as follows (1):

 

Distributable ordinary income		$	11,005
Capital loss carryforward (2)(3)			(1,053,971	)
Other book/tax temporary differences			(95,158	)
Unrealized depreciation			(32,331	)
Total net accumulated losses		$	(1,170,455	)

As of March 31, 2014, we had a post-October capital loss deferral of $40,874 which is deemed to arise on April 1, 2014.

 

(1)	Tax information for the fiscal year ended March 31, 2014 was finally determined when the Company filed its 2013 tax return in December 2014.

 

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(2)

On March 31, 2014, the Company had net capital loss carryforwards of $36,089, $199,331 and $411,998 which expire in 2017, 2018 and 2019, respectively. These amounts will be available to offset like amounts of any future taxable gains. It is unlikely that capital gains distributions will be paid to stockholders of the Company until net gains have been realized in excess of such capital loss carryforward or the carryforward expires.

 

(3)

On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. Under the Act, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term losses rather than being considered all short-term as under previous law. As of March 31, 2014, the Company had a post-enactment short-term capital loss of $57,724 and long-term capital loss carryforward of $348,829. This loss is deemed to arise on April 1, 2014.

Management has analyzed the Company’s tax positions taken, or to be taken, on Federal income tax returns for all open tax years, and has concluded that no provision for income tax is required in the Company’s financial statements. The Company’s federal tax returns are subject to examination by the Internal Revenue Service for a period of three fiscal years after they are filed.

Note 12. Selected Quarterly Financial Data (unaudited)

 

		Investment Income								Net Investment Income (1)								Net Realized And Unrealized Gain (Loss) On Assets (1)								Net Increase (Decrease) In Net Assets From Operations (on a basic, non-diluted basis)								Net Increase (Decrease) In Net Assets From Operations (on a diluted basis)
Quarter Ended		Total				Per Share				Total				Per Share				Total				Per Share				Total				Per Share				Total				Per Share
March 31, 2015		$	102,115			$	0.43			$	52,071			$	0.22			$	(63,800	)		$	(0.27	)		$	(11,729	)		$	(0.05	)		$	(9,189	)		$	(0.05	)*
December 31, 2014			110,026				0.46				56,662				0.24				(76,114	)			(0.33	)			(19,452	)			(0.09	)			(16,913	)			(0.09	)*
September 30, 2014			118,910				0.50				65,688				0.28				(23,721	)			(0.10	)			41,967				0.18				44,491				0.18
June 30, 2014			102,580				0.43				53,551				0.23				11,085				0.04				64,636				0.27				67,192				0.27
March 31, 2014			96,404				0.42				49,612				0.22				20,293				0.09				69,905				0.31				72,392				0.30
December 31, 2013			94,561				0.42				49,683				0.22				56,055				0.25				105,738				0.47				108,286				0.45
September 30, 2013			93,708				0.42				49,586				0.22				26,839				0.12				76,425				0.34				78,973				0.33
June 30, 2013			96,673				0.45				52,367				0.25				(33,563	)			(0.16	)			18,804				0.09				21,359				0.09
March 31, 2013			84,617				0.42				42,066				0.21				23,755				0.12				65,821				0.32				68,389				0.31
December 31, 2012			83,212				0.41				42,080				0.21				(64,824	)			(0.32	)			(22,744	)			(0.11	)			(20,169	)			(0.11	)
September 30, 2012			83,832				0.41				44,482				0.22				28,554				0.14				73,036				0.36				75,610				0.35
June 30, 2012			80,333				0.40				38,732				0.19				(50,374	)			(0.25	)			(11,642	)			(0.06	)			(9,048	)			0.06

 

(1)	Represent rounded numbers

 

*	In applying the if-converted method, conversion is not assumed for purposes of computing diluted EPS if the effect would be anti-dilutive. For the quarters ended March 31, 2015 and December 31, 2014 anti-dilution would total $0.01 and $0.01, respectively.

 

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Note 13. Commitments and Contingencies

As of March 31, 2015, the Company’s commitments and contingencies were as follows:

 

		As of March 31, 2015				As of March 31, 2014
Unfunded revolver obligations and bridge loans commitments (1)		$	206,294			$	408,554
Unfunded delayed draw commitments on senior loans to portfolio companies (2)			102,092				138,680
Unfunded delayed draw commitments on senior loans to portfolio companies (performance thresholds not met) (3)			23,436				48,923
Standby letters of credit issued for certain portfolio companies for which the Company and portfolio companies are liable (4)			34,433				16,379

 

(1)

The unfunded revolver obligations may or may not be funded to the borrowing party in the future. The amounts relate to loans with various maturity dates, but the entire amount was eligible for funding to the borrowers as of March 31, 2015, subject to the terms of each loan’s respective credit agreements which includes borrowing covenants that needs to be met prior to funding.

 

(2)	The Company’s commitment to fund delayed draw loans is triggered upon the satisfaction of certain pre-negotiated terms and conditions which can include covenants to maintain specified leverage levels and other related borrowing base covenants.

 

(3)	The borrowers are required to meet certain performance thresholds before the Company is obligated to fulfill the commitments and those performance thresholds were not met as of March 31, 2015.

 

(4)

For all these letters of credit issued and outstanding, the Company would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. None of the letters of credit issued and outstanding are recorded as a liability on the Company’s balance sheet as such letters of credit are considered in the valuation of the investments in the portfolio company.

As of May 19, 2015 the outstanding commitments to purchase secured term loans and unsecured bridge loans, which existed as of March 31, 2015 were reduced by $89,180.

Note 14. Subsequent Events

On April 24, 2015, the Company amended and restated the Senior Secured Facility (see note 9).

On May 18, 2015, the Board of Directors declared a dividend of $0.20 per share for the fourth fiscal quarter of 2015, payable on July 6, 2015 to stockholders of record as of June 19, 2015.

 

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The information in this preliminary prospectus supplement is not complete and may be changed. A registration statement relating to these securities has been filed with and declared effective by the Securities and Exchange Commission. This preliminary prospectus supplement is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED JANUARY 19, 2016

[FORM OF [PRELIMINARY] PROSPECTUS SUPPLEMENT TO BE USED IN CONJUNCTION WITH FUTURE COMMON STOCK OFFERINGS]¹

[PRELIMINARY] PROSPECTUS SUPPLEMENT

(To Prospectus dated             , 201     )

            Shares

 

 

Common Stock

$            

 

 

Apollo Investment Corporation is a closed-end, externally managed, 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 secured and unsecured loans, loan investments, and/or equity in private middle-market companies. We may also invest in the securities of public companies and structured products such as collateralized loan obligations and credit-linked notes.

We are offering for sale             shares of our common stock. We have granted the underwriters a 30-day option to purchase up to              additional shares of our common stock at the public offering price, less the underwriting discounts and commissions, to cover over-allotments.

Our common stock is traded on the Nasdaq Global Select Market under the symbol “AINV”. The last reported closing price for our common stock on [    ], 201     was $[        ] per share.

This prospectus supplement and the accompanying prospectus contain important information you should know before investing in our securities. 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. 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 Securities and Exchange Commission 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 supplement or the accompanying prospectus.

 

 

Investing in our securities involves a high degree of risk, including the risk of the use of leverage, and is highly speculative. Before buying any securities, you should read the discussion of the material risks of investing in our securities in “Risk Factors” beginning on page 8 of the accompanying prospectus and the additional risks noted in “Recent Developments “ beginning on page S-[    ] of this prospectus supplement.

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” or “high yield,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. They may also be difficult to value and illiquid.

Neither the Securities and Exchange Commission 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.

 

 

 

		Per share				Total
Public Offering Price		$				$
Sales Load (Underwriting Discounts and Commissions)		$				$
Proceeds to Apollo Investment Corporation (before estimated expenses of $            )		$				$

The underwriters expect to deliver the shares to purchasers on or about             , 201    .

[The underwriters have the option to purchase up to an additional shares of common stock at the public offering price, less the sales load (underwriting discounts and commissions), within days from the date of this prospectus supplement [solely to cover over-allotments]. If the [over-allotment] option is exercised in full, the total public offering price will be $            , and the total sales load (underwriting discounts and commissions) will be $            . The proceeds to us would be $            , before deducting estimated offering expenses payable by us of approximately $            .]

 

 

Prospectus Supplement dated             , 201    

 

1

In addition to the sections outlined in this form of prospectus supplement, each prospectus supplement actually used in connection with an offering conducted pursuant to the registration statement to which this form of prospectus supplement is attached will be updated to include such other information as may then be required to be disclosed therein pursuant to applicable law or regulation as in effect as of the date of each such prospectus supplement, including, without limitation, information particular to the terms of each security offered thereby and any related risk factors or tax considerations pertaining thereto. This form of prospectus supplement is intended only to provide a rough approximation of the nature and type of disclosure that may appear in any actual prospectus supplement used for the purposes of offering securities pursuant to the registration statement to which this form of prospectus supplement is attached, and is not intended to and does not contain all of the information that would appear is any such actual prospectus supplement, and should not be used or relied upon in connection with any offer or sale of securities.

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You should rely only on the information contained in this prospectus supplement and the accompanying prospectus, which we refer to collectively as the “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. If anyone provides you with different or additional information, you should not rely on it. We are offering to sell, and seeking offers to buy, securities only in jurisdictions where offers and sales are 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 base prospectus, respectively. Our business, financial condition, results of operations and prospects may have changed since then.

 

 

TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT

 

FEES AND EXPENSES			S-1
BUSINESS			S-3
SELECTED CONDENSED FINANCIAL DATA			S-6
USE OF PROCEEDS			S-7
PRICE RANGE OF COMMON STOCK			S-8
CAPITALIZATION			S-9
FORWARD-LOOKING STATEMENTS			S-10
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			S-11
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK			S-25
UNDERWRITING			S-26
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			S-29
FINANCIAL STATEMENTS			S-30

PROSPECTUS

 

Prospectus Summary			1
Fees and Expenses			6
Risk Factors			9
Use of Proceeds			41
Distributions			42
Selected Financial Data			44
Forward-Looking Statements			45
Management’s Discussion and Analysis of Financial Condition and Results of Operations			46
Sales of Common Stock Below Net Asset Value			60
Price Range of Common Stock			65
Business			66
Management			76
Certain Relationships			95
Control Persons and Principal Stockholders			96
Portfolio Companies			97
Determination of Net Asset Value			107
Dividend Reinvestment Plan			108
Material U.S. Federal Income Tax Considerations			109
Description of our Capital Stock			116
Description of our Preferred Stock			123

 

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Description of our Warrants			124
Description of our Debt Securities			125
Description of our Units			142
Description of our Subscription Rights			143
Description of our Purchase Contracts			144
Regulation			145
Custodian, Transfer and Dividend Paying Agent, Registrar and Trustee			149
Brokerage Allocation and Other Practices			149
Plan of Distribution			150
Legal Matters			151
Independent Registered Public Accounting Firm			151
Available Information			152

 

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FEES AND EXPENSES

The following table is intended to assist you in understanding the costs and expenses that an investor in shares of our common stock will bear directly or indirectly. We caution you that the percentage indicated for “Other expenses” in the table below is an estimate and may vary. Except where the context suggests otherwise, whenever this prospectus contains a reference to fees or expenses paid by “you,” “us” or “Apollo Investment,” or that “we” will pay fees or expenses, stockholders will indirectly bear such fees or expenses as investors in Apollo Investment.

 

Stockholder transaction expenses:
Sales load (as a percentage of offering price)		%(1)
Offering expenses (as a percentage of offering price)		%(2)
Dividend reinvestment plan expenses		None(3)
Total stockholder transaction expenses (as a percentage of offering price)		%
Estimated annual expenses (as percentage of net assets attributable to common stock)(4):
Management fees		%(5)
Incentive fees payable under investment advisory and management agreement		%(6)
Interest and other debt expenses on borrowed funds		%(7)
Other expenses		%(8)
Total annual expenses as a percentage of net assets(9)		%(9)

Example

The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock. These dollar amounts are based upon payment by an investor of a             % sales load (underwriting discounts and commissions) and the assumption that our annual operating expenses and leverage would remain at the levels set forth in the table above (other than performance-based incentive fees).

 

1 year

3 years

5 years

10 years

You would pay the following expenses on a $1,000 investment, assuming a 5% annual return

$

$

$

$

While the example assumes, as required by the SEC, a 5% annual return, our performance will vary and may result in a return greater or less than 5%. Assuming a 5% annual return, the incentive fee under the investment advisory and management agreement may not be earned or payable and is not included in the example. This illustration assumes that we will not realize any capital gains computed net of all realized capital losses and gross unrealized capital depreciation in any of the indicated time periods. If we achieve sufficient returns on our investments, including through the realization of capital gains, to trigger an incentive fee of a material amount, our expenses, and returns to our investors, would be higher. In addition, while the example assumes reinvestment of all dividends and distributions at net asset value, participants in our dividend reinvestment plan will receive a number of shares of our common stock, determined by dividing the total dollar amount of the dividend payable to a participant by the market price per share of our common stock at the close of trading on the valuation date for the dividend. See “Dividend Reinvestment Plan” in the accompanying prospectus for additional information regarding our dividend reinvestment plan.

This example and the expenses in the table above should not be considered a representation of our future expenses, and actual expenses may be greater or less than those shown.

 

(1)	Represents the underwriting discounts and commissions with respect to the shares to be sold by us in this offering.

(2)	Based on the public offering price of $             per share, which was the last reported closing price on             , 20    .

 

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(3)	The expenses of the dividend reinvestment plan per share are included in “Other expenses.”

(4)	“Net assets attributable to common stock” equals net assets as of                 , 20     plus the anticipated net proceeds from this offering.

(5)

The contractual management fee is calculated at an annual rate of 2.00% of our average total assets. Annual expenses are based on current fiscal year estimates. For more detailed information about our computation of average total assets, please see Note 3 of our financial statements dated March 31, 2013 included in the accompanying prospectus.

(6)

Assumes that annual incentive fees earned by our investment adviser, AIM, remain consistent with the incentive fees accrued by AIM for the current fiscal quarter. AIM earns incentive fees consisting of two parts. The first part, which is payable quarterly in arrears, is based on our pre-incentive fee net investment income for the immediately preceding calendar quarter. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, is compared to the rate of 1.75% quarterly (7% annualized). Our net investment income used to calculate this part of the incentive fee is also included in the amount of our gross assets used to calculate the 2% base management fee (see footnote 5 above). Accordingly, we pay AIM an incentive fee as follows: (1) no incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed 1.75%, which we commonly refer to as the performance threshold; (2) 100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the performance threshold but does not exceed 2.1875% in any calendar quarter; and (3) 20% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter. These calculations are appropriately pro rated for any period of less than three months. The effect of the fee calculation described above is that if pre-incentive fee net investment income is equal to or exceeds 2.1875%, AIM will receive a fee of 20% of our pre-incentive fee net investment income for the quarter. You should be aware that a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debt investments. Accordingly, an increase in interest rates would make it easier for us to meet or exceed the incentive fee performance threshold and may result in a substantial increase of the amount of incentive fees payable to our investment adviser with respect to pre-incentive fee net investment income. Furthermore, since the performance threshold is based on a percentage of our net asset value, decreases in our net asset value make it easier to achieve the performance threshold. The second part of the incentive fee will equal 20% of our realized capital gains for the calendar year, if any, computed net of all realized capital losses and unrealized capital depreciation (and incorporating unrealized depreciation on a gross investment-by-investment basis) and is payable in arrears at the end of each calendar year. The net incentive fees are currently entirely attributable to net investment income incentive fees. For a more detailed discussion of the calculation of this fee, see “Management — Investment Advisory and Management Agreement” in the accompanying prospectus.

(7)

Our interest and other debt expenses are based on current fiscal year estimates. We currently have $             billion available under our credit facility, of which we had $             billion in borrowings outstanding as of                 , 20     and $             in total debt outstanding. For more information, see “Risk Factors — Risks relating to our business and structure — We fund a portion of our investments with borrowed money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in us.” In the accompanying prospectus and “Interim Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in this prospectus supplement.

(8)

Includes our estimated overhead expenses, including payments under the administration agreement based on our estimated allocable portion of overhead and other expenses incurred by Apollo Investment Administration in performing its obligations under the administration agreement between the Company and Apollo Investment Administration, LLC (the “Administration Agreement”). See “Management — Administration Agreement” in the accompanying prospectus.

(9)

“Total annual expenses” as a percentage of net assets attributable to common stock are higher than the total annual expenses percentage would be for a company that is not leveraged. We borrow money to leverage our net assets and increase our total assets. The SEC requires that the “Total annual expenses” percentage be calculated as a percentage of net assets (defined as total assets less indebtedness), rather than the total assets, including assets that have been funded with borrowed monies. If the “Total annual expenses” percentage were calculated instead as a percentage of total assets as of                 , 20     plus anticipated net proceeds from this offering, our “Total annual expenses” would be         % of total assets.

 

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BUSINESS

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 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,”, “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 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 business development company (“BDC”) under the Investment Company Act of 1940 (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 secured and unsecured debt, loan investments and/or equity in private middle market companies. We may also invest in the securities of public companies and structured products and other investments such as collateralized loan obligations and credit-linked notes.

Our portfolio is comprised primarily of investments in debt, including secured and unsecured debt of private middle-market companies that, in the case of senior secured loans, generally are not broadly syndicated and whose aggregate tranche size is less than $250 million. Our portfolio also includes equity interests such as common stock, preferred stock, warrants or options. In this prospectus, 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. secured and unsecured loans, other debt securities and equity, we may also invest a portion of the portfolio in other investment opportunities, including foreign securities and structured products. Most of the debt instruments we invest in are unrated or rated below investment grade, which is often an indication of size, credit worthiness and speculative nature relative to the capacity of the borrower to pay interest and principal. Generally, if the Company’s unrated investments were rated, they would be rated below investment grade. These securities, which are often referred to as “junk” or “high yield,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. They may also be difficult to value and illiquid.

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 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 September 30, 2015, we invested $204.2 million across 4 new and 9 existing portfolio companies, through a combination of primary and secondary market purchases. This compares to investing $581.1 million in 15 new and 18 existing portfolio companies for the three months ended September 30, 2014. Investments sold or repaid during the three months ended September 30, 2015 totaled $279.6 million versus $559.1 million for the three months ended September 30, 2014. The weighted average yields on our secured debt portfolio, unsecured debt portfolio, and total debt portfolio as of September 30, 2015 at our current

 

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cost basis were 11.3%, 11.3%, and 11.6%, respectively, exclusive of securities on non-accrual status. The weighted average yields on our secured debt portfolio, unsecured debt portfolio, and total debt portfolio as of March 31, 2015 at the current cost basis were 11.2%, 10.9% and 11.2%, respectively, exclusive of securities on non-accrual status.

Our targeted investment size typically ranges between $20 million and $250 million, although this investment size may vary as the size of our available capital base changes. At September 30, 2015, our portfolio consisted of 98 portfolio companies (which reflects counting investments in operating and holding companies within the same corporate structure as one portfolio company) and was invested 63% in secured debt, 9% in unsecured debt, 13% in structured products and other, 5% in preferred equity and 10% in common equity and warrants measured at fair value versus 105 portfolio companies invested 60% in secured debt, 14% in unsecured debt, 11% in structured products and other, 5% in preferred equity and 10% in common equity and warrants measured at fair value at March 31, 2015.

Since the initial public offering of Apollo Investment in April 2004, and through September 30, 2015, we invested capital totaled $16.1 billion in 364 portfolio companies. Over the same period, Apollo Investment 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 September 30, 2015, 42% or $1.0 billion of our income-bearing investment portfolio was fixed rate debt and 58% or $1.5 billion was floating rate debt, measured at fair value. On a cost basis, 42% or $1.1 billion of our income-bearing investment portfolio was fixed rate debt and 58% or $1.5 billion was floating rate debt. At March 31, 2015, 48% or $1.3 billion of our income-bearing investment portfolio was fixed rate debt and 52% or $1.4 billion was floating rate debt at fair value. On a cost basis, 50% or $1.4 billion of our income-bearing investment portfolio was fixed rate debt and 50% or $1.4 billion was floating rate debt.

About Apollo Investment Management

AIM, our investment adviser, is led by John Hannan, James Zelter and Edward Goldthorpe. Potential investment opportunities are generally approved by one or more committees composed of personnel across AGM, including Mr. Zelter and Mr. Goldthorpe, and/or Mr. Zelter or Mr. Goldthorpe depending on the underlying investment type and/or the amount of such investment. The composition of such committees and the overall approval process for Apollo Investment’s investments may change from time to time. AIM draws upon AGM’s more than 25 year history and benefits from the broader firm’s significant capital markets, trading and research expertise developed through investments in many core sectors in over 200 companies since inception.

About Apollo Investment Administration

In addition to furnishing us with office facilities, equipment, and clerical, bookkeeping and record keeping services, AIA, an affiliate of AGM, 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 or the accompanying prospectus 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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Recent Developments

[                                     ]

 

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SELECTED CONDENSED FINANCIAL DATA

The following selected financial and other data for the fiscal years ended March 31, 2015, 2014, 2013, 2012 and 2011 are derived from our financial statements which have been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm. The selected consolidated financial data at and for the six months ended September 30, 2015 and 2014 has been derived from unaudited financial data. Interim results for the six months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending March 31, 2016.

This selected financial data should be read in conjunction with our financial statements and related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus supplement.

 

		For the Six Months Ended September 30, (unaudited)								For the Year Ended March 31,
Statement of Operations Data:		2015				2014				2015				2014				2013				2012				2011
Total Investment Income		$	200,086			$	221,490			$	433,631			$	381,346			$	331,994			$	357,584			$	358,779
Net Expenses (including excise taxes)		$	99,538			$	102,250			$	205,658			$	180,098			$	164,634			$	184,842			$	167,607
Net Investment Income		$	100,548			$	119,240			$	227,973			$	201,248			$	167,360			$	172,742			$	191,172
Net Realized and Unrealized Gains (Losses)		$	(95,904	)		$	(12,637	)		$	(152,551	)		$	69,624			$	(62,889	)		$	(259,006	)		$	(10,760	)
Net Increase (Decrease) in Net Assets Resulting from Operations		$	4,644			$	106,603			$	75,422			$	270,872			$	104,471			$	(86,264	)		$	180,412
Per Share Data:
Net Asset Value		$	7.83			$	8.72			$	8.18			$	8.67			$	8.27			$	8.55			$	10.03
Net Investment Income		$	0.43			$	0.50			$	0.96			$	0.91			$	0.83			$	0.88			$	0.99
Net Earnings (Loss)		$	0.02			$	0.45			$	0.32			$	1.21			$	0.51			$	(0.44	)		$	0.93
Net Earnings (Loss) (Diluted)		$	0.02			$	0.44			$	0.32			$	1.18			$	0.51			$	(0.44	)		$	0.93
Distributions Declared		$	0.40			$	0.40			$	0.80			$	0.80			$	0.80			$	1.04			$	1.12
Balance Sheet Data:
Total Assets		$	3,302,855			$	3,833,163			$	3,560,891			$	3,641,951			$	2,944,312			$	2,775,263			$	3,148,813
Borrowings Outstanding		$	1,370,163			$	1,577,472			$	1,498,759			$	1,372,261			$	1,156,067			$	1,009,337			$	1,053,443
Total Net Assets		$	1,826,860			$	2,063,491			$	1,937,608			$	2,051,611			$	1,677,389			$	1,685,231			$	1,961,031
Other Data:
Total Return (1)			(24.1	)%			3.0	%			1.9	%			9.4	%			28.2	%			(32.4	)%			5.1	%
Number of Portfolio Companies at Period End			98				113				105				111				81				62				69
Total Portfolio Investments for the Period		$	713,585			$	1,230,604			$	2,211,081			$	2,816,149			$	1,537,366			$	1,480,508			$	1,085,601
Investment Sales and Prepayments for the Period		$	812,463			$	1,075,947			$	2,250,782			$	2,322,189			$	1,337,431			$	1,634,520			$	977,493
Weighted Average Yield on Debt Portfolio at Period End			11.6	%			11.0	%			11.2	%			11.1	%			11.9	%			11.9	%			11.6	%
Weighted Average Shares Outstanding at Period End (Basic)			236,304,806				236,741,351				236,741				222,800				202,875				196,584				193,192
Weighted Average Shares Outstanding at Period End (Diluted) (2)			236,304,806				251,289,451				251,289				237,348				217,423				211,132				195,823

 

(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)	In applying the if-converted method, conversion is not assumed for purposes of computing diluted EPS if the effect would be anti-dilutive. For the fiscal years ended March 31, 2015, March 31, 2013 and March 31, 2012, anti-dilution would total $0.02, $0.02 and $0.08, respectively.

 

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USE OF PROCEEDS

Assuming the sale of all              shares of common stock offered under this prospectus supplement and the accompanying prospectus, at the last reported sale price of $[        ] per share for our common stock on the NASDAQ Global Select Market as of              [        ], 201    , we estimate that the net proceeds of this offering will be approximately $             million after deducting the estimated Underwriter commissions and our estimated offering expenses (or approximately $             million if the underwriters fully exercise their option).

[Describe use of proceeds and include any other relevant information to the extent required to be disclosed by applicable law or regulation.]

 

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PRICE RANGE OF COMMON STOCK

Our common stock is traded on the NASDAQ Global Select Market under the symbol “AINV.” The following table lists the high and low closing sale price for our common stock, the closing sale price as a premium (discount) to net asset value, or NAV, and quarterly dividends per share for the past two fiscal years. The last reported closing sales price of our common stock on                 , 201     was $             per share. As of                 , 201    , we had              stockholders of record. While our common stock has from time to time traded in excess of our net asset value, there can be no assurance, however, that it will trade at such a premium (to net asset value) in the future.

 

						Closing Sales Price								Premium or Discount of High Sales Price to NAV (2)				Premium or Discount of Low Sales Price to NAV (2)				Declared Dividends
		NAV (1)				High				Low
Fiscal Year Ending March 31, 2016
Third Fiscal Quarter		$	**			$	6.35			$	4.92				*	*%			*	*%		$	*
Second Fiscal Quarter		$	7.83			$	7.23			$	5.40				(7.66	)%			(31.03	)%		$	0.20
First Fiscal Quarter		$	8.01			$	8.03			$	7.07				0.25	%			(11.74	)%		$	0.20
Fiscal Year Ending March 31, 2015
Fourth Fiscal Quarter		$	8.18			$	7.88			$	7.10				(3.67	)%			(13.20	)%		$	0.20
Third Fiscal Quarter		$	8.43			$	8.36			$	7.20				(0.83	)%			(14.59	)%		$	0.20
Second Fiscal Quarter		$	8.72			$	8.83			$	8.17				1.26	%			(6.31	)%		$	0.20
First Fiscal Quarter		$	8.74			$	8.61			$	7.89				(1.49	)%			(9.73	)%		$	0.20
Fiscal Year Ending March 31, 2014
Fourth Fiscal Quarter		$	8.67			$	9.15			$	8.14				5.53	%			(6.11	)%		$	0.20
Third Fiscal Quarter		$	8.57			$	9.02			$	8.05				5.25	%			(6.07	)%		$	0.20
Second Fiscal Quarter		$	8.30			$	8.47			$	7.77				2.04	%			(6.38	)%		$	0.20
First Fiscal Quarter		$	8.16			$	8.87			$	7.37				8.70	%			(9.68	)%		$	0.20

 

(1)	NAV per share is determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices. The NAVs shown are based on outstanding shares at the end of each period.

(2)	Calculated as of the respective high or low closing sales price divided by the quarter end NAV.

*	Dividend not yet declared.

**	NAV not yet determined.

 

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CAPITALIZATION

The following table sets forth our cash and capitalization as of             , 20    (1) on an actual basis and (2) as adjusted to reflect the effects of the sale of             shares of our common stock in this offering at an offering price of $            per share, which was the last reported closing price of our common stock on             , 20    . You should read this table together with “Use of Proceeds” and “Interim Management’s 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 “Management’s 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 public offering price of our common stock and the actual number of shares of common stock we sell in this offering, both of which will be determined at pricing.

All amounts in thousands, except share data

 

		As of            , 20
		Actual				As Adjusted for             20     Offering (1)
Cash and cash equivalents		$				$
Total assets		$				$
Borrowings under senior credit facility		$				$
Common stock, par value $0.001 per share; 400,000,000 shares authorized,             shares issued and outstanding,             shares issued and outstanding, as adjusted, respectively		$				$
Capital in excess of par value		$				$
Distributable earnings (2)		$				$
Total stockholders’ equity		$				$
Total capitalization		$				$

 

(1)	Does not include the underwriters’ over-allotment option.

(2)

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.

(3)

As described under “Use of Proceeds,” we intend to use a part of the net proceeds from this offering initially to repay a portion of the borrowings outstanding under our senior credit facility. We have not yet determined how much of the net proceeds of this offering will be used for this purpose and, as a result, we have not reflected the consequences of such repayment in this table.

 

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FORWARD-LOOKING STATEMENTS

Some of the statements in this prospectus supplement and the accompanying prospectus 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 and the accompanying prospectus 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;

 

•

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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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

The following analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto contained 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 from selling 62 million shares of its common stock at a price of $15.00 per share. Since then, and through September 30, 2015, we have raised approximately $2.21 billion in net proceeds from additional offerings of common stock and we have repurchased common stock for $21.2 million.

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 BDC, 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, Euro Interbank Offered Rate (EURIBOR), British pound sterling LIBOR (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 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, etc.

 

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Expenses

For all investment professionals of AIM and their staff, when and to the extent engaged in providing investment advisory and management services to us, the compensation and routine overhead 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 shareholders, 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 the Administrator 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, 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

Our portfolio and investment activity during the three and six months ended September 30, 2015 and 2014 is as follows:

 

		Three Months Ended September 30,								Six Months Ended September 30,
(in millions)		2015				2014				2015				2014
Investment made in portfolio companies (1)		$	204.2			$	581.1			$	713.6			$	1,230.6
Investments sold			(80.1	)			(229.0	)			(414.8	)			(279.7	)
Net activity before repaid investments			124.1				352.1				298.8				950.9
Investments repaid			(199.5	)			(330.1	)			(397.6	)			(812.5	)
Net investment activity		$	(75.4	)		$	22.0			$	(98.8	)		$	138.4
Portfolio companies, at beginning of period			102				117				105				111
Number of new portfolio companies			4				15				14				40
Number of exited companies			(8	)			(19	)			(21	)			(38	)
Portfolio companies, at end of period			98				113				98				113
Number of investments in existing portfolio companies			9				18				29				42

 

(1)	Investments were primarily made through a combination of primary and secondary debt investments.

Our portfolio composition and weighted average yields at September 30, 2015 and at March 31, 2015 are as follows:

 

		September 30, 2015				March 31, 2015
Portfolio composition, at fair value:
Secured debt			63	%			60	%
Unsecured debt			9	%			14	%
Structured products and other (1)			13	%			11	%
Preferred equity			5	%			5	%
Common equity and warrants			10	%			10	%
Weighted average yields, at amortized cost basis, exclusive of securities on non-accrual status (2):
Secured debt portfolio			11.3	%			11.2	%
Unsecured debt portfolio			11.3	%			10.9	%
Total debt portfolio			11.6	%			11.2	%
Income-bearing investment portfolio composition, at fair value:
Fixed rate amount		$	1.0 billion			$	1.3 billion
Floating rate amount		$	1.5 billion			$	1.4 billion
Fixed rate %			42	%			48	%
Floating rate %			58	%			52	%
Income-bearing investment portfolio composition, at amortized cost:
Fixed rate amount		$	1.1 billion			$	1.4 billion
Floating rate amount		$	1.5 billion			$	1.4 billion
Fixed rate %			42	%			50	%
Floating rate %			58	%			50	%

 

(1)	Structured products and other such as collateralized loan obligations (“CLOs”) and credit-linked notes (“CLNs”) are typically a form of securitization in which the cash flows of a portfolio of loans are pooled and passed on to different classes of debt and residual interest in order of seniority.

(2)	An investor’s yield may be lower than the portfolio yield due to sales loads and other expenses.

 

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Since the initial public offering of Apollo Investment in April 2004 and through September 30, 2015, invested capital totaled $16.1 billion in 364 portfolio companies. Over the same period, Apollo Investment completed transactions with more than 100 different financial sponsors.

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 (“GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, gains and losses. Changes in the economic environment, financial markets, credit worthiness of portfolio companies 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.

Fair Value Measurements

The Company follows guidance in ASC 820, Fair Value Measurement, where fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are determined within a framework that establishes a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability based on the information available. The inputs or methodology used for valuing assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities.

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.

 

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. Of the Company’s investments at September 30, 2015, $2.70 billion or 84% of the Company’s investments were classified as Level 3.

The high proportion of Level 3 investments relative to our total investments is directly related to our investment philosophy and target portfolio, which consists primarily of long-term secured debt, as well as unsecured and mezzanine positions of private middle-market companies. A fundamental difference exists between our investments and those of comparable publicly traded fixed income investments, namely high yield bonds, and this difference affects the valuation of our private investments relative to comparable publicly traded instruments.

 

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Senior secured loans, or senior loans, are higher in the capital structure than high yield bonds, and are typically secured by assets of the borrowing company. This improves their recovery prospects in the event of default and affords senior loans a structural advantage over high yield bonds. Many of the Company’s investments are also privately negotiated and contain covenant protections that limit the issuer to take actions that could harm us as a creditor. High yield bonds typically do not contain such covenants.

Given the structural advantages of capital seniority and covenant protection, the valuation of our private debt portfolio is driven more by investment specific credit factors than movements in the broader debt capital markets. Each security is evaluated individually and as indicated above, we value our private investments based upon a multi-step valuation process, including valuation recommendations from independent valuation firms.

Investment Valuation Process

Under procedures established by our board of directors, we value investments, including certain secured debt, unsecured 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 investments. Investments purchased within 15 days before the valuation date and debt investments with remaining maturities of 60 days or less may each be valued at cost with interest accrued or discount amortized to the date of maturity (although they are typically valued at available market quotations), unless such valuation, in the judgment of our Investment Adviser, does not represent fair value. In this case, such investments shall be valued at fair value as determined in good faith by or under the direction of our board of directors, including using market quotations where available. 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 which is 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 Adviser’s 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 in good faith the fair value of each investment in our portfolio based on the input of our Investment Adviser, the applicable independent valuation firm, third party pricing services and the audit committee.

 

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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, seniority of investment in the investee company’s capital structure, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s 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 three and six months ended September 30, 2015, there was no change to the Company’s valuation techniques and related inputs considered in the valuation process.

Investment Income 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 payment-in-kind (“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 believes that PIK is expected to be realized.

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 management’s 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 management’s judgment.

Loan origination fees, original issue discount (“OID”), and market discounts are capitalized and accreted into interest income over the respective terms of the applicable loans using the effective interest method or straight-line, as applicable. Upon the prepayment of a loan, prepayment premiums, any unamortized loan origination fees, OID, or market discounts are recorded as interest income. Other income generally includes amendment fees, bridge fees, and structuring fees which are recorded when earned.

The Company records as dividend income the accretable yield from its beneficial interests in structured products such as CLOs based upon a number of cash flow assumptions that are subject to uncertainties and contingencies. Such assumptions include the rate and timing of principal and interest receipts (which may be subject to

 

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prepayments and defaults) of the underlying pools of assets. These assumptions are updated on at least a quarterly basis to reflect changes related to a particular security, actual historical data, and market changes. A structured product investment typically has an underlying pool of assets. Payments on structured product investments are payable solely from the cash flows from such assets. As such any unforeseen event in these underlying pools of assets might impact the expected recovery and future accrual of income.

Expenses

Expenses include management fees, performance-based incentive fees, insurance expenses, administrative service fees, legal fees, directors’ fees, audit and tax service expenses, third-party valuation fees and other general and administrative expenses. Expenses are recognized on an accrual basis.

Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses)

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 gains or losses previously recognized, but considering unamortized upfront fees and prepayment penalties. Net change in unrealized gain (loss) reflects the net change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized gains or losses.

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.

Recent Accounting Pronouncements

See Note 2 within the Notes to the Financial Statements for the period ended September 30, 2015.

RESULTS OF OPERATIONS

Operating results for the three and six months ended September 30, 2015 and September 30, 2014 were as follows:

 

		Three Months Ended								Six Months Ended
(in millions) *		September 30, 2015				September 30, 2014				September 30, 2015				September 30, 2014
Investment income
Interest		$	81.1			$	107.2			$	165.5			$	200.8
Dividends			14.4				7.3				28.2				13.9
Other income			2.9				4.4				6.4				6.8
Total investment income		$	98.4			$	118.9			$	200.1			$	221.5
Expenses
Management fees and performance-based incentive fees, net of amounts waived		$	(22.8	)		$	(30.2	)		$	(47.5	)		$	(56.7	)
Interest and other debt expenses, net of expense reimbursements			(21.8	)			(18.9	)			(44.2	)			(37.8	)
Administrative services expenses, net of expense reimbursements			(1.6	)			(1.5	)			(3.0	)			(2.9	)
Other general and administrative expenses			(2.7	)			(2.6	)			(4.9	)			(4.9	)
Net expenses		$	(48.9	)		$	(53.2	)		$	(99.6	)		$	(102.3	)
Net investment income		$	49.6			$	65.7			$	100.5			$	119.2

 

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		Three Months Ended								Six Months Ended
(in millions) *		September 30, 2015				September 30, 2014				September 30, 2015				September 30, 2014
Net realized and net change in unrealized gain (loss) on investments and foreign currencies
Net realized gain (loss)		$	(30.2	)		$	11.6			$	(111.1	)		$	(1.7	)
Net change in unrealized gain (loss)			(21.2	)			(35.3	)			15.2				(10.9	)
Net realized and net change in unrealized gain (loss) on investments and foreign currencies			(51.4	)			(23.7	)			(95.9	)			(12.6	)
Net increase (decrease) in net assets resulting from operations		$	(1.7	)		$	42.0			$	4.6			$	106.6
Net investment income on per average share basis		$	0.21			$	0.28			$	0.43			$	0.50
Earnings (Loss) per share — basic		$	(0.01	)		$	0.18			$	0.02			$	0.45
Earnings (Loss) per share — diluted		$	(0.01	)		$	0.18			$	0.02			$	0.44

 

*	Totals may not foot due to rounding.

Total Investment Income

For the three months ended September 30, 2015 as compared to the three months ended September 30, 2014

The decrease in total investment income for the three months ended September 30, 2015 compared to the three months ended September 30, 2014 was due to a decrease in interest income of $26.1 million primarily due to a lower income-bearing investment portfolio, an increase in investments on non-accrual and a decrease in prepayment fees and acceleration of original issue discount on repaid investments which totaled $4.5 million and $21.9 million for the three months ended September 30, 2015 and September 30, 2014, respectively. This decrease in interest income was offset by an increase in dividend income by $7.1 million, primarily due to investments in AMP Solar (UK) Limited, Dynamic Product Tankers (Prime), LLC, Golden Hill CLO I, Ivy Hill Middle Market Fund IX, Ltd, and MSEA Tankers LLC.

For the six months ended September 30, 2015 as compared to the six months ended September 30, 2014

The decrease in total investment income for the six months ended September 30, 2015 compared to the six months ended September 30, 2014 was due to a decrease in interest income of $35.4 million primarily due to a lower income-bearing investment portfolio, an increase in investments on non-accrual and a decrease in prepayment fees and acceleration of original issue discount on repaid investments which totaled $12.5 million and $28.0 million for the six months ended September 30, 2015 and September 30, 2014, respectively. This decrease in interest income was offset by an increase in dividend income by $14.3 million, primarily due to investments in AMP Solar (UK) Limited, Dynamic Product Tankers (Prime), LLC, Golden Hill CLO I, Ivy Hill Middle Market Fund IX, Ltd, and MSEA Tankers LLC.

Net Expenses

For the three months ended September 30, 2015 as compared to the three months ended September 30, 2014

The decrease in expenses for the three months ended September 30, 2015 compared to three months ended September 30, 2014 was primarily driven by a decrease of $7.5 million in management and performance-based incentive fees (net of amounts waived) due to lower gross assets, more fee offset from CION, lower pre-incentive fee net investment income (mostly resulting from investments being placed on non-accrual status) and reversal of prior quarter incentive fee due to lower than par realization on certain PIK investments. The decrease was offset

 

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by an increase in interest and other debt costs which were higher due to the issuance of the 2025 Notes issued in March 2015, increasing total annualized cost of debt to 6.09% for the three months ended September 30, 2015 from 4.92% for the three months ended September 30, 2014. This increase was partially offset by a decrease in the average debt outstanding balance, which decreased to $1.43 billion during the three months ended September 30, 2015 from $1.54 billion during the three months ended September 30, 2014.

For the six months ended September 30, 2015 as compared to the six months ended September 30, 2014

The decrease in expenses for the six months ended September 30, 2015 compared to six months ended September 30, 2014 was primarily driven by a decrease of $9.3 million in management and performance-based incentive fees (net of amounts waived) due to lower gross assets, more fee offset from CION, lower pre-incentive fee net investment income (mostly, resulting from investments being placed on non-accrual status) and reversal of prior quarter incentive fee due to lower than par realization on certain PIK investments. The decrease was offset by an increase in interest and other debt costs which were higher due to the issuance of the 2025 Notes issued in March 2015, increasing total annualized cost of debt to 5.93% for the six months ended September 30, 2015 from 4.86% for the six months ended September 30, 2014. This increase was partially offset by a decrease in the average debt outstanding balance, which decreased to $1.48 billion during the six months ended September 30, 2014 from $1.55 billion during the six months ended September 30, 2014.

Net Realized Loss

For the three months ended September 30, 2015 as compared to the three months ended September 30, 2014

Net realized losses for the three months ended September 30, 2015 were $30.2 million and comprised of $5.5 million of realized gains and $35.7 million of realized losses. Significant realized gains (losses) for the three months ended September 30, 2015 are summarized below:

 

(in millions)		Net Realized Gain (Loss)
Artsonig Pty Ltd. *		$	(21.7	)
Venoco, Inc. (Denver Parent) *			(12.0	)
BMC Software Inc. *			(1.1	)
PlayPower Holdings Inc. *			3.1
Other (net)			1.5
		$	(30.2	)

Net realized gains for the three months ended September 30, 2014 were $11.6 million and comprised of $13.7 million of realized gains and $2.1 million of realized losses. Significant realized gains (losses) for the three months ended September 30, 2014 are summarized below:

 

(in millions)		Net Realized Gain (Loss)
Aventine Renewable Energy Holdings, Inc. *		$	11.6
inVentiv Health, Inc. *			(1.4	)
Other (net)			1.4
		$	11.6

 

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For the six months ended September 30, 2015 as compared to the six months ended September 30, 2014

Net realized losses for the six months ended September 30, 2015 were $111.1 million and comprised of $10.7 million of realized gains and $121.8 million of realized losses. Significant realized gains (losses) for the six months ended September 30, 2015 are summarized below:

 

(in millions)		Net Realized Gain (Loss)
PlayPower Holdings Inc. *		$	(39.7	)
Molycorp, Inc. *			(22.1	)
Artsonig Pty Ltd. *			(21.7	)
Venoco, Inc. (Denver Parent) *			(16.2	)
PetroBakken Energy Ltd. *			(9.0	)
BCA Osprey II Limited *			(7.4	)
Other (net)			5.0
		$	(111.1	)

Net realized losses for the six months ended September 30, 2014 were $1.7 million and comprised of $23.2 million of realized gains and $24.9 million of realized losses. Significant realized gains (losses) for the six months ended September 30, 2014 are summarized below:

 

(in millions)		Net Realized Gain (Loss)
Aventine Renewable Energy Holdings, Inc. *		$	11.6
Altegrity Inc. *			(17.7	)
Other (net)			4.4
		$	(1.7	)

 

*	For these investments with realized losses and realized gains, we had recorded unrealized losses and unrealized gains in prior quarters, respectively.

Net Change in Unrealized Gains (Losses)

For the three months ended September 30, 2015 as compared to the three months ended September 30, 2014

Net change in unrealized losses for the three months ended September 30, 2015 was $21.2 million and was comprised of $64.7 million of gross unrealized gains and $85.9 million of gross unrealized losses. Significant unrealized gains (losses) for the three months ended September 30, 2015 are summarized below:

 

(in millions)		Net Change in Unrealized Gain (Loss)
LVI Group Investments, LLC		$	13.4
Miller Energy Resources, Inc.			(12.2	)
Osage Exploration & Development, Inc.			(7.9	)
SquareTwo (CA Holdings, Collect America, Ltd.)			(7.5	)
Lonestar Intermediate Super Holdings, LLC. (Asurion)			(6.6	)
Other (net)			(0.4	)
			(21.2	)

 

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Net change in unrealized losses for the three months ended September 30, 2014 was $35.3 million and was comprised of $43.6 million of gross unrealized gains and $78.9 million of gross unrealized losses. Significant unrealized gains (losses) for the three months ended September 30, 2014 are summarized below:

 

(in millions)		Net Change in Unrealized Gain (Loss)
Generation Brands Holdings, Inc.		$	6.9
Playpower Holdings, Inc.			6.8
Asset Repackaging Trust Six B.V.			5.5
LVI Group Investments, LLC			(11.8	)
Walter Energy, Inc.			(11.8	)
Molycorp, Inc.			(11.3	)
First Data Corp.			(5.2	)
PetroBakken Energy Ltd.			(4.0	)
Other (net)			(10.4	)
		$	(35.3	)

For the six months ended September 30, 2015 as compared to the six months ended September 30, 2014

Net change in unrealized gains for the six months ended September 30, 2015 was $15.2 million and was comprised of $137.7 million of gross unrealized gains and $122.5 million of gross unrealized losses. Significant unrealized gains (losses) for the six months ended September 30, 2015 are summarized below:

 

(in millions)		Net Change in Unrealized Gain (Loss)
PlayPower Holdings Inc. *		$	21.8
Molycorp, Inc. *			20.4
LVI Group Investments, LLC			15.5
Venoco, Inc. (Denver Parent) *			15.2
Miller Energy Resources, Inc.			(20.0	)
SquareTwo (CA Holdings, Collect America, Ltd.)			(18.2	)
Osage Exploration & Development, Inc.			(9.5	)
Magnetation, LLC			(8.1	)
Other (net)			(1.9	)
		$	15.2

Net change in unrealized losses for the six months ended September 30, 2014 was $10.9 million and was comprised of $99.3 million of gross unrealized gains and $110.2 million of gross unrealized losses. Significant unrealized gains (losses) for the six months ended September 30, 2014 are summarized below:

 

(in millions)		Net Change in Unrealized Gain (Loss)
Altegrity Inc.		$	16.6
Playpower Holding Inc.			13.7
Generation Brands Holdings, Inc.			12.3
Molycorp, Inc			(14.9	)
LVI Group Investments, LLC			(14.1	)
Walter Energy, Inc.			(12.9	)
Other (net)			(11.6	)
		$	(10.9	)

 

*	These investments had unrealized losses and unrealized gain as of prior quarter, which were reversed in the current quarter upon the exit of the investments.

 

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LIQUIDITY AND CAPITAL RESOURCES

The Company’s liquidity and capital resources are generated and generally available through periodic follow-on equity and debt offerings, our senior secured, multi-currency Senior Secured Facility (as defined in Note 6 within the Notes to Financial Statements), our senior secured notes, our senior unsecured 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 repayments of senior and subordinated loans and income earned from investments.

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 within the Notes to Financial Statements for the period ended September 30, 2015.) 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 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 no cash equivalents held as of September 30, 2015.

Debt

See Note 6 and note 7 within the Notes to Financial Statements for the period ended September 30, 2015 for information on the Company’s debt and public offerings.

The Company’s debt maturities by period are summarized below:

 

		Payments due by Period as of September 30, 2015 (in millions)
		Total				Less than 1 year				1-3 years				3-5 years				More than 5 years
Senior Secured Facility (1)		$	255.8			$	—			$	—			$	255.8			$	—
Senior Secured Notes			225.0				225.0				—				—				—
Senior Secured Notes (Series A)			29.0				29.0				—				—				—
Senior Secured Notes (Series B)			16.0				—				16.0				—				—
2042 Notes			150.0				—				—				—				150.0
2043 Notes			150.0				—				—				—				150.0
2025 Notes			344.4				—				—				—				344.4
Convertible Notes			200.0				200.0				—				—				—
Total		$	1,370.2			$	454.0			$	16.0			$	255.8			$	644.4

 

(1)

As of September 30, 2015, aggregate lender commitments under the Senior Secured Facility totaled $1.31 billion and $1.03 billion of unused capacity. As of September 30, 2015, there was $23.2 million of letters of credit issued under the Senior Secured Facility that are not recorded as liabilities on the Company’s Statement of Assets and Liabilities

On April 24, 2015, the Company amended and restated the Senior Secured Facility. The amendment increased the lenders’ commitments to $1.31 billion, extended the final maturity date to April 24, 2020, and allows the Company to seek additional commitments from new and existing lenders in the future, up to an aggregate facility size not to exceed $1.97 billion. In addition, the stated interest rate on the facility was changed from LIBOR plus

 

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2.00% to a formula-based calculation, based on a minimum borrowing base, resulting in a stated interest rate of either LIBOR plus 1.75%, or LIBOR plus 2.00%. As of September 30, 2015, the stated interest rate on the facility is LIBOR plus 2.00%. Commencing April 30, 2019, the Company is required to repay, in twelve consecutive monthly installments of equal size, the outstanding amount under the Senior Secured Facility as of April 24, 2019.

PIK Interest and Dividends

For the three and six months ended September 30, 2015, PIK income totaled $6.8 million and $16.3 million, respectively, on total investment income of $98.4 million and $200.1 million, respectively. In order to maintain the Company’s status as a RIC, this non-cash source of income must be paid out to shareholders annually in the form of dividends, even though the Company has not yet collected the cash. See Note 5 within the Notes to the Financial Statements for the period ended September 30, 2015 for more information on the Company’s PIK interest and dividends.

Related Party Transactions

See Note 3 within the Notes to the Financial Statements for the period ended September 30, 2015 for information on the Company’s related party transactions.

Shareholder’s Equity

On August 6, 2015, the Company adopted a plan for the purpose of repurchasing up to $50 million of its common stock in accordance with applicable rules specified in the Securities Exchange Act of 1934 (the “2015 Repurchase Plan”). On September 15, 2015, the Company allocated $5million to be repurchased under the 2015 Repurchase Plan in accordance with SEC Rule 10b5-1 (the “10b5-1 Repurchase Plan”). The 10b5-1 Repurchase Plan terminated on November 4, 2015. See Note 7 within the Notes to the Financial Statements for details.

Under the 2015 Repurchase Plan and 10b5-1 Repurchase Plan (the “Plans”), the Company repurchased 3,340,400 shares with a weighted average price per share of $6.34, inclusive of commissions. This represents a discount of approximately 19.89% of the average net asset value per share for the quarter ended September 30, 2015. Since the inception of the Plans, the total dollar amount of shares repurchased is $21.2 million, leaving a maximum of $28.8 million available for future purchases under the Plans.

Distributions

Distributions paid to shareholders for the three and six months ended September 30, 2015 totaled $47.3 million or $0.20 per share and $94.7 million or $0.40 per share, respectively. Distributions paid to shareholders for the three and six months ended September 30, 2014 totaled $47.3 million or $0.20 per share and $94.7 million or $0.40 per share, respectively. Tax characteristics of all distributions will be reported to shareholders on Form 1099 after the end of the calendar year. Our quarterly distributions, if any, will be determined by our board of directors.

To maintain our RIC status, we must distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. 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, out of the assets legally available for such distributions, we may in the future decide to retain such capital gains for investment.

We maintain an “opt out” dividend reinvestment plan for our common shareholders. As a result, if we declare a dividend, then shareholders’ 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.

 

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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 revolving credit facility may limit our ability to declare dividends if we default under certain provisions or fail to satisfy certain 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 GAAP and tax regulations, we include in income certain amounts that we have not yet received in cash, such as contractual PIK, 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 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 distributions to shareholders, income from origination, structuring, closing, commitment and other upfront fees associated with investments in portfolio companies is treated as taxable income and accordingly, distributed to shareholders.

 

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QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We are subject to financial market risks, including changes in interest rates. During the three and six months ended September 30, 2015, 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 twelve 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.

The following table shows the approximate annual impact on net investment income of base rate changes in interest rates (considering interest rate flows for variable rate instruments) to our loan portfolio and outstanding debt as of September 30, 2015, assuming no changes in our investment and borrowing structure:

 

(in millions except per share data) Basis Point Change		Net Investment Income				Net Investment Income per Share
Up 400 basis points		$	28.14			$	0.121
Up 300 basis points		$	18.59			$	0.080
Up 200 basis points		$	9.07			$	0.039
Up 100 basis points		$	0.52			$	0.002

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.

 

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UNDERWRITING

                are acting as joint bookrunning managers of the offering and as representatives of the underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus, each underwriter named below has agreed to purchase, and we have agreed to sell to that underwriter, the number of shares set forth opposite the underwriter’s name.

 

Underwriter		Number of Shares

The underwriting agreement provides that the obligations of the underwriters to purchase the shares included in this offering are subject to certain conditions precedent, including the absence of any material adverse change in our business and the receipt of certain certificates, opinions and letters from us, our counsel and our independent registered public accounting firm. The underwriters are committed to purchase all shares included in this offering, other than those shares covered by the over-allotment option described below, if they purchase any of the shares.

The underwriters propose to offer some of the shares directly to the public at the public offering price set forth on the cover page of this prospectus and some of the shares to dealers at the public offering price less a concession not to exceed $            per share. If all of the shares are not sold at the initial offering price, the representatives may change the public offering price and the other selling terms.

We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to             additional shares of common stock at the public offering price less the underwriting discount. The underwriters may exercise the option solely for the purpose of covering over-allotments, if any, in connection with this offering. To the extent the option is exercised, each underwriter will be obligated, subject to certain conditions, to purchase a number of additional shares approximately proportionate to that underwriter’s initial purchase commitment.

We, our officers and directors, AIM, AIA and certain of the partners and officers of AIM (or any entities through which such partners and officers may invest in our shares) have agreed that, for a period of 90 days from the date of this prospectus, we and they will not, without the prior written consent of the representatives, dispose of or hedge any shares of our common stock or any securities convertible into or exchangeable for our common stock.             in its sole discretion may release any of the securities subject to these lock-up agreements at any time without notice. Notwithstanding the foregoing, for the purpose of allowing the underwriters to comply with NASD Rule 2711(f)(4), if (1) during the last 17 days of the initial 90-day lock-up period, we release earnings results or material news or a material event relating to us occurs or (2) prior to the expiration of the initial 90-day lock-up period, we announce that we will release earnings results during the 16-day period beginning on the last day of the initial 90-day lock-up period, then in each case the initial 90-day lock-up period will be extended until the expiration of the 18-day period beginning on the date of release of the earnings results or the occurrence of the material news or material event, as applicable.

The common stock is quoted on the Nasdaq Global Select Market under the symbol “AINV”.

 

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Notice to Prospective Investors in the European Economic Area

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, each underwriter has represented and agreed that, with effect from and including the date on which the Prospectus Directive is implemented in that Member State, it has not made and will not make an offer of shares of our common stock to the public in that Member State except that it may, with effect from and including such date, make an offer of shares of our common stock to the public in that Member State:

 

•

at any time to legal entities which are authorized or registered to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

 

•

at any time to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000; and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or

 

•

at any time in any other circumstances which do not require the publication by us of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of the above, the expression an “offer of shares of our common stock to the public” in relation to any shares of our common stock in any Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares of our common stock to be offered so as to enable an investor to decide to purchase or subscribe for the shares of our common stock, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in that Member State.

Notice to Prospective Investors in the United Kingdom

Each underwriter has represented and agreed that it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000) in connection with the issue or sale of the shares of our common stock in circumstances in which Section 21(1) of such Act does not apply to us and it has complied and will comply with all applicable provisions of such Act with respect to anything done by it in relation to any shares of our common stock in, from or otherwise involving the United Kingdom.

The following table shows the sales load (underwriting discounts and commissions) that we are to pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares of common stock.

 

		Paid by Apollo Investment
		No exercise				Full exercise
Per share		$				$
Total		$				$

In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, syndicate covering transactions and stabilizing transactions. Short sales involve syndicate sales of common stock in excess of the number of shares to be purchased by the underwriters in the offering, which creates a syndicate short position. “Covered” short sales are sales of shares made in an amount up to the number of shares represented by the underwriters’ over-allotment option. In determining the source of shares to close out the covered syndicate short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. Transactions to close out the covered syndicate short involve either purchases of the common stock in the open market after the distribution has been

 

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completed or the exercise of the over-allotment option. The underwriters may also make “naked” short sales of shares in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing shares of common stock in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of bids for or purchases of shares in the open market while the offering is in progress.

The underwriters may also impose a penalty bid. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when an underwriter repurchases shares originally sold by that syndicate member in order to cover syndicate short positions or make stabilizing purchases.

Any of these activities may have the effect of preventing or retarding a decline in the market price of the common stock. They may also cause the price of the common stock to be higher than the price that would otherwise exist in the open market in the absence of these transactions. The underwriters may conduct these transactions on the Nasdaq Global Select Market or in the over-the-counter market, or otherwise. If the underwriters commence any of these transactions, they may discontinue them at any time.

In addition, in connection with this offering, some of the underwriters may engage in passive market making transactions in the common stock on the Nasdaq Global Select Market, prior to the pricing and completion of the offering. Passive market making consists of displaying bids on the Nasdaq Global Select Market no higher than the bid prices of independent market makers and making purchases at prices no higher than those independent bids and effected in response to order flow. Net purchases by a passive market maker on each day are limited to a specified percentage of the passive market maker’s average daily trading volume in the common stock during a specified period and must be discontinued when that limit is reached. Passive market making may cause the price of the common stock to be higher than the price that otherwise would exist in the open market in the absence of those transactions. If the underwriters commence passive market making transactions, they may discontinue them at any time.

We estimate that our portion of the total expenses of this offering will be $            . In addition, the underwriters have agreed to pay certain of our expenses associated with this offering.

As described under “Use of Proceeds,” we intend to use a part of the net proceeds from this offering to repay a portion of the borrowings outstanding under our senior credit facility. Affiliates of each of             and certain of the other underwriters are lenders under such credit facility and therefore will receive a portion of the net proceeds from this offering through the repayment of those borrowings. Accordingly, this offering is being made pursuant to NASD Rule 2710(h).

The underwriters have performed investment banking and advisory services for us, AIM, and our affiliates from time to time for which they have received customary fees and expenses. The underwriters may, from time to time, engage in transactions with and perform services for us, AIM, and our affiliates in the ordinary course of their business.

A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters. Other than the prospectus in electronic format, the information on any such underwriter’s website is not part of this prospectus. The representatives may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. The representatives will allocate shares to underwriters that may make Internet distributions on the same basis as other allocations. In addition, shares may be sold by the underwriters to securities dealers who resell shares to online brokerage account holders.

We, AIM and AIA have agreed to indemnify the underwriters against, or reimburse losses arising out of, certain liabilities, including liabilities under the Securities Act of 1933, as amended or to contribute to payments the underwriters may be required to make because of any of those liabilities.

This offering is being conducted in accordance with Rule 2710 of the NASD Rules of Conduct.

 

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LEGAL MATTERS

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             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, 201     and 201     and for each of the three years in the period ended March 31, 201     and management’s assessment of the effectiveness of internal control over financial reporting (which is included in Management’s Report on Internal Control over Financial Reporting) as of March 31, 201     included in this prospectus supplement have been so included in reliance upon the report of                                         , an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

With respect to the unaudited financial information of Apollo Investment Corporation for the              month periods ended                 , 201     and 201    , included in this prospectus supplement,                      reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated                 , 201     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.                      is not subject to the liability provisions of Section 11 of the Securities Act of 1933, as amended, for their report on the unaudited financial information because that report is not a “report” or a “part” of the registration statement prepared or certified by                      within the meaning of Sections 7 and 11 of the Securities Act of 1933, as amended.

 

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INDEX TO FINANCIAL STATEMENTS

 

Unaudited Quarterly Financial Statements:
Statements of Assets and Liabilities as of September 30, 2015 and March 31, 2015			SF-2
Statements of Operations for the three and six months ended September 30, 2015 and September  30, 2014			SF-3
Statements of Changes in Net Assets for the six months ended September  30, 2015 and the year ended March 31, 2015			SF-4
Statements of Cash Flows for the six months ended September 30, 2015 and September 30, 2014			SF-5
Schedule of Investments as of September 30, 2015			SF-6
Schedule of Investments as of March 31, 2015			SF-21
Notes to Financial Statements			SF-34
Report of Independent Registered Public Accounting Firm			SF-65

 

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APOLLO INVESTMENT CORPORATION

STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except share and per share data)

 

		September 30, 2015 (unaudited)				March 31, 2015
Assets
Non-controlled/non-affiliated investments (cost — $2,399,503 and $2,514,328, respectively)		$	2,198,354			$	2,357,042
Non-controlled/affiliated investments (cost — $372,477 and $297,948, respectively)			430,480				327,218
Controlled investments (cost — $539,194 and $674,299, respectively)			565,215				665,567
Total investments, at fair value (cost — $3,311,174 and $3,486,575, respectively) (Note 5)			3,194,049				3,349,827
Cash			11,418				3,766
Foreign currencies (cost — $1,099 and $4,856, respectively)			1,098				4,651
Receivable for investments sold			19,045				114,884
Interest receivable			29,131				43,312
Dividends receivable			12,640				5,425
Deferred financing costs			31,531				29,743
Prepaid expenses and other assets			3,943				9,283
Total Assets		$	3,302,855			$	3,560,891
Liabilities
Debt (Note 6)		$	1,370,163			$	1,498,759
Payable for investments purchased			396				10,736
Dividends payable			46,851				47,348
Management and performance-based incentive fees payable (Note 3)			29,557				37,361
Interest payable			15,745				15,851
Accrued administrative services expense			1,631				2,000
Other liabilities and accrued expenses			11,652				11,228
Total Liabilities		$	1,475,995			$	1,623,283
Net Assets
Common stock, par value $.001 per share, 400,000,000 common shares authorized, 233,400,951 and 236,741,351 issued and outstanding, respectively		$	233			$	237
Paid-in capital in excess of par			3,176,526				3,197,715
Over-distributed net investment income			(29,240	)			(35,589	)
Accumulated net realized loss			(1,213,600	)			(1,102,517	)
Net unrealized loss			(107,059	)			(122,238	)
Total Net Assets		$	1,826,860			$	1,937,608
Total Liabilities and Net Assets		$	3,302,855			$	3,560,891
Net asset value per share (Note 9)		$	7.83			$	8.18

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except per share data)

 

		Three Months Ended September 30,								Six Months Ended September 30,
		2015				2014				2015				2014
Investment Income
From non-controlled/non-affiliated investments:
Interest		$	70,255			$	96,146			$	143,829			$	178,693
Dividends			911				1,275				1,787				2,116
Other income			2,828				4,038				6,145				6,294
From non-controlled/affiliated investments:
Interest			224				971				451				3,196
Dividends			9,503				4,128				18,670				8,074
Other income			70				44				227				87
From controlled investments:
Interest			10,629				10,104				21,183				18,955
Dividends			4,000				1,891				7,731				3,699
Other income			—				313				63				376
Total Investment Income		$	98,420			$	118,910			$	200,086			$	221,490
Expenses
Management fees (Note 3)		$	16,727			$	18,878			$	34,079			$	36,989
Performance-based incentive fees (Note 3)			10,774				15,393				22,641				27,860
Interest and other debt expenses			21,764				18,946				44,200				37,848
Administrative services expense			1,650				1,525				3,083				2,958
Other general and administrative expenses			2,725				2,617				4,889				4,904
Total Expenses		$	53,640			$	57,359			$	108,892			$	110,559
Management and performance-based incentive fees waived (Note 3)			(4,722	)			(4,041	)			(9,237	)			(8,193	)
Expense reimbursements (Note 3)			(59	)			(96	)			(117	)			(116	)
Net Expenses		$	48,859			$	53,222			$	99,538			$	102,250
Net Investment Income		$	49,561			$	65,688			$	100,548			$	119,240
Realized and Unrealized Gain (Loss) on Investments and Foreign Currencies
Net realized gain (loss):
Investments
Non-controlled/non-affiliated investments		$	(34,124	)		$	(173	)		$	(76,785	)		$	(11,889	)
Non-controlled/affiliated investments			—				11,633				(67	)			11,526
Controlled investments			3,148				—				(39,714	)			—
Foreign currencies			819				134				5,483				(1,376	)
Net realized gain (loss) on investments and foreign currencies		$	(30,157	)		$	11,594			$	(111,083	)		$	(1,739	)
Net change in unrealized gain (loss):
Investments
Non-controlled/non-affiliated investments		$	(48,094	)		$	(51,169	)		$	(43,863	)		$	(48,574	)
Non-controlled/affiliated investments			12,916				(1,961	)			28,733				8,869
Controlled investments			7,980				10,700				34,753				22,080
Foreign currencies			6,047				7,115				(4,444	)			6,727
Net change in unrealized gain (loss) on investments and foreign currencies		$	(21,151	)		$	(35,315	)		$	15,179			$	(10,898	)
Net realized and net change in unrealized loss on investments and foreign currencies			(51,308	)			(23,721	)			(95,904	)			(12,637	)
Net Increase (Decrease) In Net Assets Resulting From Operations		$	(1,747	)		$	41,967			$	4,644			$	106,603
Earnings (Loss) Per Share — Basic (Note 4)		$	(0.01	)		$	0.18			$	0.02			$	0.45
Earnings (Loss) Per Share — Diluted (Note 4)		$	(0.01	)		$	0.18			$	0.02			$	0.44

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

STATEMENTS OF CHANGES IN NET ASSETS

(in thousands, except shares)

 

		Six Months Ended September 30, 2015 (unaudited)				Year ended March 31, 2015
Net Increase in Net Assets Resulting From Operations
Net investment income		$	100,548			$	227,973
Net realized loss on investments and foreign currencies			(111,083	)			(13,368	)
Net change in unrealized gain (loss) on investments and foreign currencies			15,179				(139,183	)
Net Increase In Net Assets Resulting From Operations		$	4,644			$	75,422
Distributions To Shareholders
Distribution of net investment income		$	(94,199	)		$	(165,626	)
Distribution of return of capital			—				(23,767	)
Net Decrease In Net Assets Resulting From Distributions To Shareholders		$	(94,199	)		$	(189,393	)
Capital Share Transactions
Offering costs from issuance of common stock		$	—			$	(32	)
Repurchase of common stock			(21,193	)			—
Net Decrease In Net Assets From Capital Share Transactions		$	(21,193	)		$	(32	)
Total Decrease in Net Assets		$	(110,748	)		$	(114,003	)
Net Assets at Beginning of Period			1,937,608				2,051,611
Net Assets at End of Period		$	1,826,860			$	1,937,608
Capital Share Activity
Shares Repurchased			3,340,400				—

 

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

 

		Six months ended September 30,
		2015				2014
Cash Flows from Operating Activities
Net increase in net assets resulting from operations		$	4,644			$	106,603
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:
Paid-in-kind (“PIK”) interest and dividends (Note 5)			(21,732	)			(17,058	)
Net amortization on investments			(3,521	)			(4,742	)
Accretion of discount on notes			300				—
Amortization of deferred financing costs			3,788				3,315
Increase (decrease) from foreign currency transactions			6,129				(1,953	)
Net change in unrealized (gain) loss on investments and foreign currencies			(15,179	)			10,898
Net realized loss on investments and foreign currencies			111,083				1,739
Changes in operating assets and liabilities:
Purchase of investments			(726,206	)			(1,264,949	)
Proceeds from disposition of investments			895,793				1,033,304
Decrease in interest receivable			14,181				4,821
Decrease (increase) in dividends receivable			(7,215	)			123
Increase in deferred financing costs			—				(225	)
Decrease (increase) in prepaid expenses and other assets			5,340				(736	)
Increase (decrease) in management and performance-based incentive fees payable			(7,804	)			7,263
Increase (decrease) in interest payable			(106	)			386
Decrease in accrued administrative services expense			(369	)			(217	)
Increase in other liabilities and accrued expenses			424				1,034
Net Cash (Used in) Provided by Operating Activities		$	259,550			$	(120,394	)
Cash Flows From Financing Activities
Offering costs for the issuance of common stock		$	—			$	(26	)
Repurchase of common stock			(21,193	)			—
Dividends paid in cash			(94,697	)			(94,697	)
Proceeds from debt			1,011,973				1,759,696
Payments on debt			(1,146,162	)			(1,547,163	)
Deferred financing costs paid			(5,576	)			(391	)
Net Cash (Used In) Provided by Financing Activities		$	(255,655	)		$	117,419
Net Increase (Decrease) In Cash		$	3,895			$	(2,975	)
Effect of exchange rates on cash balances			204				(79	)
Cash at the Beginning of Period			8,417				14,736
Cash at the End of Period		$	12,516			$	11,682
Supplemental Disclosure of Cash Flow Information
Cash interest paid		$	38,480			$	33,091
Non-Cash Financing Activities
PIK income (Note 5)		$	16,328			$	14,625
Non-cash re-organizations/restructuring of investments		$	134,089			$	16,141

See notes to financial statements.

 

SF-5

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited)

September 30, 2015

(in thousands except share data)

 

INVESTMENTS IN NON- CONTROLLED/NON-AFFILIATED INVESTMENTS — 120.3%(10)		Interest Rate (20)				Maturity Date				Industry (9)		Par Amount (12)				Cost				Fair Value (1)
CORPORATE DEBT — 106.8%
SECURED DEBT — 90.6%
1ST LIEN SECURED DEBT — 39.0%
1st Lien Secured Debt (excluding Revolvers and Letters of Credit) — 38.9%
Aventine Renewable Energy Holdings, Inc.			10.500% Cash (15.000% PIK Toggle)				9/22/17			Chemicals, Plastics & Rubber		$	16,339			$	18,192			$	16,252
Aveta, Inc.			9.750% (3M L+825, 1.50% Floor)				12/12/17			Healthcare & Pharmaceuticals			51,315				50,538				38,144
Caza Petroleum Inc.			12.000% (12M L+1000, 2.00% Floor)				5/23/17			Energy — Oil & Gas			45,000				44,202				42,666
ChyronHego Corporation (18)			6.625% (3M L+563, 1.00% Floor)				3/9/20			High Tech Industries			32,638				32,032				31,985
CITGO Holding, Inc. (11)			9.500% (3M L+850, 1.00% Floor)				5/12/18			Utilities — Oil and Gas			16,737				15,899				16,497
Deep Gulf Energy II, LLC (23)			14.500% (14.500% or 6M L+1300, 1.50% Floor)				9/30/18			Energy — Oil & Gas			50,000				50,000				48,000
Delta Educational Systems, Inc.			16.000% PIK				12/11/16			Education			6,008				6,008				6,008
Dodge Data & Analytics LLC			9.750% (3M L+875, 1.00% Floor)				10/31/19			Business Services			53,902				52,986				52,419
Emergency Communications Network, LLC (18)			8.000% (3M L+700, 1.00% Floor)				6/12/21			High Tech Industries			22,444				22,121				22,107
Hunt Companies, Inc. (11)			9.625%				3/1/21			Diversified Investment Vehicles, Banking, Finance, Real Estate			19,008				18,812				17,677
Magnetation, LLC (16)			12.000% PIK				12/7/15			Metals & Mining			12,673				12,673				12,267
Magnetation, LLC (11)(13)(14)(16)			11.000%				5/15/18			Metals & Mining			32,632				33,927				6,119
Maxus Capital Carbon SPE I, LLC (Skyonic Corp.)			13.000%				9/18/19			Chemicals, Plastics & Rubber			66,765				66,765				66,765
My Alarm Center, LLC (16)			9.000% (12M L+800, 1.00% Floor)				1/9/18			Business Services			42,614				42,614				42,614
My Alarm Center, LLC (16)(23)			9.000% (12M L+800 Funded, 0.350% Unfunded, 1.00% Floor)				1/9/18			Business Services			12,789				12,789				12,789
My Alarm Center, LLC (16)(23)			9.000% (3M L+800 Funded, 0.350% Unfunded, 1.00% Floor)				1/9/18			Business Services			3,868				3,868				3,868
Osage Exploration & Development, Inc. (11)(17)			13.000% (12M L+1100, 2.00% Floor)				4/27/16			Energy — Oil & Gas			25,000				24,856				14,465
Pelican Energy, LLC (17)			10.000% (7.000% Cash / 3.000% PIK)				12/31/18			Energy — Oil & Gas			28,098				27,256				24,782

 

See notes to financial statements.

 

SF-6

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2015

(in thousands except share data)

 

INVESTMENTS IN NON- CONTROLLED/NON-AFFILIATED INVESTMENTS — 120.3%(10)		Interest Rate (20)		Maturity Date		Industry (9)		Par Amount (12)				Cost				Fair Value (1)
1st Lien Secured Debt (excluding Revolvers and Letters of Credit) — 38.9% (continued)
Saba Software, Inc. (18)		9.750% (12M L+875, 1.00% Floor)		3/30/21		High Tech Industries		$	9,975			$	9,975			$	9,825
SCM Insurance Services, Inc. (17)		9.250%		8/22/19		Business Services		C$	33,000				29,603				24,368
Spotted Hawk Development, LLC		19.000% (13.000% Cash / 6.000% PIK)		9/12/16		Energy — Oil & Gas			83,106				83,106				79,574
Telestream Holdings Corporation (18)		7.430% (3M L+643, 1.00% Floor)		1/15/20		High Tech Industries			32,094				32,094				31,372
UniTek Global Services Inc. (16)		9.500% (3M L+750, 1.000% PIK, 1.00% Floor)		1/13/19		Telecommunications			19,501				19,501				19,501
UniTek Global Services Inc. (16)		8.500% (3M L+750, 1.00% Floor)		1/13/19		Telecommunications			32,367				32,367				30,748
Venoco, Inc.		12.000%		2/28/19		Energy — Oil & Gas			40,517				40,517				39,301
Total 1st Lien Secured Debt (excluding Revolvers and Letters of Credit)												$	782,701			$	710,113
Funded and Unfunded Revolver Obligations — 0.1%
Alliant Holdings, (Unfunded Revolver) (8)(21)(23)		0.500% Unfunded		8/14/20		Insurance		$	15,000			$	(1,575	)		$	(1,575	)
Avaya Inc., (Revolver) (23)		2.933% (12M L+275, 0.190% Floor)		10/26/16		Telecommunications			3,303				3,106				3,138
CIT Group, Inc., (Unfunded Revolver) (8)(17)(21)(23)		0.625% Unfunded		1/27/17		Diversified Investment Vehicles, Banking, Finance, Real Estate			25,000				(11	)			(750	)
Confie Seguros Holding II Co., (Revolver) (16)(23)		4.672% (3M L+450, 0.17% Floor) / 6.750% (3M P+350, 3.25% Floor) Funded		12/10/18		Insurance			1,800				1,800				1,611
Confie Seguros Holding II Co., (Unfunded Revolver) (8)(16)(21)		0.500% Unfunded		12/10/18		Insurance			1,864				(294	)			(196	)
My Alarm Center, LLC, (Revolver) (16)(23)		9.000% (3M L+800, 1.00% Floor)		1/9/18		Business Services			833				833				833
My Alarm Center, LLC, (Unfunded Revolver) (16)(21)(23)		0.350% Unfunded		1/9/18		Business Services			5,417				—				—
Tibco Software Inc., (Unfunded Revolver) (8)(21)(23)		0.500% Unfunded		12/5/19		High Tech Industries			6,000				(50	)			(450	)
Transfirst Holdings, Inc., (Unfunded Revolver) (8)(16)(21)		0.500% Unfunded		11/12/19		Diversified Investment Vehicles, Banking, Finance, Real Estate			2,943				(12	)			(88	)
UniTek Global Services Inc., (Unfunded Revolver) (16)(21)		0.500% Unfunded		1/13/19		Telecommunications			5,000				—				—
Total Funded and Unfunded Revolver Obligations												$	3,797			$	2,523

 

See notes to financial statements.

 

SF-7

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2015

(in thousands except share data)

 

INVESTMENTS IN NON- CONTROLLED/NON-AFFILIATED INVESTMENTS — 120.3%(10)		Interest Rate (20)		Maturity Date				Industry (9)		Par Amount (12)				Cost				Fair Value (1)
Letters of Credit — 0.0%
Confie Seguros Holding II Co., Letter of Credit (8)(16)(23)		4.500%			6/29/16			Insurance		$	500			$	—			$	(53	)
Confie Seguros Holding II Co., Letter of Credit (8)(16)(23)		4.500%			1/13/16			Insurance			336				—				(35	)
Transfirst Holdings, Inc., Letter of Credit (8)(16)(23)		3.750%			11/12/19			Diversified Investment Vehicles, Banking, Finance, Real Estate			57				—				(2	)
UniTek Global Services Inc., Letter of Credit (16)(23)		7.500%			1/13/19			Telecommunications			15,711				—				—
UniTek Global Services Inc., Letter of Credit (16)(23)		7.500%			1/13/19			Telecommunications			1,850				—				—
Total Letters of Credit														$	—			$	(90	)
TOTAL 1ST LEIN SECURED DEBT														$	786,498			$	712,546
2nd Lien Secured Debt — 51.6%
Access CIG, LLC		9.750% (3M L+875, 1.00% Floor)			10/17/22			Business Services		$	35,755			$	34,096			$	34,861
Active Network, Inc.		9.500% (3M L+850, 1.00% Floor)			11/15/21			Business Services			19,672				19,591				18,615
American Energy — Woodford LLC/AEW Finance Corp (11)		12.000%			12/30/20			Energy — Oil & Gas			3,500				2,409				1,199
Appriss Holdings, Inc.		9.250% (3M L+825, 1.00% Floor)			5/21/21			Business Services			32,750				32,299				32,750
Armor Holdings, Inc. (American Stock Transfer and Trust Company)		10.250% (3M L+900, 1.25% Floor)			12/26/20			Diversified Investment Vehicles, Banking, Finance, Real Estate			8,000				7,876				7,930
Asurion Corporation		8.500% (3M L+750, 1.00% Floor)			3/3/21			Insurance			67,590				67,301				61,507
1A Smart Start, LLC		9.500% (3M L+850, 1.00% Floor)			8/19/22			Consumer Services			35,000				34,308				34,300
Confie Seguros Holding II Co.		10.250% (3M L+900, 1.25% Floor)			5/8/19			Insurance			22,344				22,236				22,288
Delta Educational Systems, Inc.		35.000% PIK			6/10/18			Education			1,083				1,083				1,603
Deltek, Inc.		9.500% (3M L+850, 1.00% Floor)			6/26/23			Business Services			33,736				33,243				33,841
Elements Behavioral Health, Inc.		11.750% (3M L+875 Cash / 2.000% PIK, 1.00% Floor)			2/11/20			Healthcare & Pharmaceuticals			9,500				9,426				9,443
Extraction Oil & Gas Holdings, LLC		11.000% & 10.000%			5/29/19			Energy — Oil & Gas			52,633				52,000				52,264
Garden Fresh Restaurant Corp. (16)		7.750% (3M L+625 PIK, 1.50% Floor)			1/1/19			Hotel, Gaming, Leisure, Restaurants			8,585				7,034				6,267
Garden Fresh Restaurant Corp. (16)		15.000% (12M L+1350 PIK, 1.50% Floor)			1/1/19			Hotel, Gaming, Leisure, Restaurants			43,037				41,367				38,303

 

See notes to financial statements.

 

SF-8

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2015

(in thousands except share data)

 

INVESTMENTS IN NON- CONTROLLED/NON-AFFILIATED INVESTMENTS — 120.3%(10)		Interest Rate (20)		Maturity Date				Industry (9)		Par Amount (12)				Cost				Fair Value (1)
2nd Lien Secured Debt — 51.6% (continued)
GCA Services Group, Inc.		9.250% (3M L+800, 1.25% Floor)			11/2/20			Business Services		$	19,333			$	19,464			$	19,333
Grocery Outlet, Inc.		9.250% (3M L+825, 1.00% Floor)			10/21/22			Food & Grocery			28,000				27,614				27,930
GTCR Valor Companies, Inc.		9.500% (3M L+850, 1.00% Floor)			11/30/21			Business Services			35,000				34,685				34,475
Infiltrator Systems Integrated, LLC		9.750% (3M L+875, 1.00% Floor)			5/26/23			Manufacturing, Capital Equipment			13,889				13,619				13,819
Institutional Shareholder Services, Inc.		8.500% (3M L+750, 1.00% Floor)			4/30/22			Business Services			6,640				6,582				6,408
Kronos, Inc.		9.750% (3M L+850, 1.25% Floor)			4/30/20			Business Services			4,525				4,502				4,621
MediaOcean, LLC		9.500% (3M L+850, 1.00% Floor)			8/15/23			Business Services			18,000				17,468				18,000
Miller Energy Resources, Inc. (17)(14)		14.750% (3M L+1075 Cash / 2.000% PIK, 2.000% Floor)			2/3/18			Energy — Oil & Gas			88,568				88,568				62,978
MSC Software Corp. (17)		8.500% (3M L+750, 1.00% Floor)			5/31/21			High Tech Industries			13,448				13,333				13,078
Novolex Holdings, Inc.		9.750% (3M L+875, 1.00% Floor)			6/5/22			Containers, Packaging & Glass			42,045				41,065				41,782
Pabst Brewing Company		9.250% (3M L+825, 1.00% Floor)			11/14/22			Consumer Goods — Durable			27,000				26,687				26,663
Premier Trailer Leasing, Inc.		10.000% (3M L+900, 1.00% Floor)			9/24/20			Transportation — Cargo, Distribution			52,000				51,098				53,040
River Cree Enterprises LP (11)(17)		11.000%			1/20/21			Hotel, Gaming, Leisure, Restaurants		C$	23,000				21,683				17,198
SiTV, Inc. (11)		10.375%			7/1/19			Broadcasting & Subscription			2,219				2,219				1,642
SMG		9.250% (3M L+825, 1.00% Floor)			2/27/21			Hotel, Gaming, Leisure, Restaurants			19,900				19,900				20,000
Sprint Industrial Holdings, LLC		11.250% (3M L+1000, 1.25% Floor)			11/14/19			Containers, Packaging & Glass			16,163				15,431				12,688
SquareTwo Financial Corp. (Collect America, Ltd.) (17)		11.625%			4/1/17			Diversified Investment Vehicles, Banking, Finance, Real Estate			65,152				64,516				40,720
STG-Fairway Acquisitions, Inc.		10.250% (3M L+925, 1.00% Floor)			6/26/23			Business Services			15,000				14,633				14,700
TASC, Inc.		12.000%			5/21/21			Aerospace & Defense			21,815				21,072				22,197
TMK Hawk Parent, Corp.		8.500% (3M L+750, 1.00% Floor)			10/1/22			Transportation — Cargo, Distribution			34,000				33,692				34,170

 

See notes to financial statements.

 

SF-9

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2015

(in thousands except share data)

 

INVESTMENTS IN NON- CONTROLLED/NON-AFFILIATED INVESTMENTS — 120.3%(10)		Interest Rate (20)		Maturity Date				Industry (9)		Par Amount (12)				Cost				Fair Value (1)
2nd Lien Secured Debt — 51.6% (continued)
Transfirst Holdings, Inc.		9.000% (3M L+800, 1.00% Floor)			11/11/22			Diversified Investment Vehicles, Banking, Finance, Real Estate		$	21,840			$	21,674			$	21,663
Velocity Technology Solutions, Inc.		9.000% (3M L+775, 1.25% Floor)			9/28/20			Business Services			16,500				16,230				16,005
Venoco, Inc.		8.875% Cash (12.000% PIK Toggle)			2/28/19			Energy – Oil & Gas			35,843				46,020				28,029
Vertafore, Inc.		9.750% (3M L+825, 1.50% Floor)			10/27/17			Business Services			36,436				36,320				36,755
Total 2nd Lien Secured Debt														$	1,022,344			$	943,065
TOTAL SECURED DEBT														$	1,808,842			$	1,655,611
UNSECURED DEBT — 16.2%
Aerojet Rocketdyne Holdings, Inc. (formerly GenCorp, Inc.) (17)		9.500% (3M L+850, 1.00% Floor)			4/18/22			Aerospace & Defense		$	10,500			$	10,500			$	10,500
American Tire Distributors, Inc. (11)		10.250%			3/1/22			Transportation — Cargo, Distribution			24,281				24,281				24,888
Canacol Energy Ltd. (17)(23)		9.500% (3M L+850, 1.00% Floor)			12/31/19			Energy — Oil & Gas			75,000				73,256				71,813
Delta Educational Systems, Inc.		16.000% PIK			5/12/17			Education			26,128				25,935				20,314
My Alarm Center, LLC		16.250% (13.000% Cash/ 3.250% PIK)			7/9/18			Business Services			4,320				4,320				4,320
Radio One, Inc. (11)		9.250%			2/15/20			Broadcasting & Subscription			15,804				15,717				13,611
Sorenson Holdings, LLC (11)		13.000% Cash (13.000% PIK Toggle)			10/31/21			Consumer Goods — Durable			68				45				68
Tibco Software Inc. (11)		11.375%			12/1/21			High Tech Industries			6,984				6,798				7,001
U.S. Security Associates Holdings, Inc.		11.000%			7/28/18			Business Services			135,000				135,000				136,350
UniTek Global Services Inc.		15.000% PIK			7/13/19			Telecommunications			6,814				6,814				6,814
TOTAL UNSECURED DEBT														$	302,666			$	295,679
TOTAL CORPORATE DEBT														$	2,111,508			$	1,951,290
STRUCTURED PRODUCTS AND OTHER — 10.7%
Asset Repackaging Trust Six B.V. (11)(17) (19)		13.945%			5/18/27			Utilities — Electric		$	58,411			$	25,139			$	33,294
Craft 2013-1, Credit-Linked Note (11)(16) (17)		9.524% (3M L+925)			4/17/22			Diversified Investment Vehicles, Banking, Finance, Real Estate			25,000				25,071				24,259
Craft 2013-1, Credit-Linked Note (16)(17)		9.524% (3M L+925)			4/17/22			Diversified Investment Vehicles, Banking, Finance, Real Estate			7,625				7,736				7,402
Craft 2014-1A, Credit-Linked Note (11)(17)		9.924% (3M L+965)			5/15/21			Diversified Investment Vehicles, Banking, Finance, Real Estate			42,500				42,443				41,516

 

See notes to financial statements.

 

SF-10

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2015

(in thousands except share data)

 

INVESTMENTS IN NON- CONTROLLED/NON-AFFILIATED INVESTMENTS — 120.3%(10)		Interest Rate (20)		Maturity Date		Industry (9)		Par Amount (12)				Cost				Fair Value (1)
STRUCTURED PRODUCTS AND OTHER — 10.7% (continued)
Craft 2015-2, Credit-Linked Note (11) (17)		9.589% (3M L+925)		1/16/24		Diversified Investment Vehicles, Banking, Finance, Real Estate		$	26,000			$	26,000			$	24,797
Dark Castle Holdings, LLC		35.400%		N/A		Media — Diversified & Production			24,395				1,189				2,270
JP Morgan Chase & Co., Credit-Linked Note (17)		12.531% (12M L+1225)		12/20/21		Diversified Investment Vehicles, Banking, Finance, Real Estate			43,250				41,727				42,506
NXT Capital CLO 2014-1, LLC, Class E Notes (11)(17)		5.777% (3M L+550)		4/23/26		Diversified Investment Vehicles, Banking, Finance, Real Estate			5,000				4,680				4,462
Renaissance Umiat, LLC, ACES Tax Receivable (15)(17)		11.240% — 12.370%		N/A		Energy — Oil & Gas			—				15,296				15,236
TOTAL STRUCTURED PRODUCTS AND OTHER												$	189,281			$	195,742
PREFERRED EQUITY — 1.6%								Shares
CA Holding, Inc. (Collect America, Ltd.), Series A Preferred Stock (13)(17)		N/A		N/A		Diversified Investment Vehicles, Banking, Finance, Real Estate			32,961			$	788			$	—
Crowley Holdings, Series A Preferred Stock (11)		12.000% (10.000% Cash/ 2.000% PIK)		N/A		Transportation — Cargo, Distribution			22,500				23,310				23,712
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Preferred Stock (Convertible) (13)(14)		12.500% PIK		N/A		Education			332,500				6,863				—
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Preferred Stock (13)(14)		13.500% PIK		5/12/18		Education			12,360				27,685				138
Varietal Distribution Holdings, LLC, Class A Preferred Unit		8.000% PIK		N/A		Transportation — Cargo, Distribution			3,097				4,842				4,842
TOTAL PREFERRED EQUITY												$	63,488			$	28,692
EQUITY — 1.2%
Common Equity/Interests — 1.0%								Shares
ATD Corporation (Accelerate Parent Corp), Common Stock		N/A		N/A		Transportation — Cargo, Distribution			1,664,046			$	1,714			$	2,640
CA Holding, Inc. (Collect America, Ltd.), Series A Common Stock (13)(17)		N/A		N/A		Diversified Investment Vehicles, Banking, Finance, Real Estate			25,000				2,500				—
CA Holding, Inc. (Collect America, Ltd.), Series AA Common Stock (13)(17)		N/A		N/A		Diversified Investment Vehicles, Banking, Finance, Real Estate			4,294				429				—
Caza Petroleum Inc., Net Profits Interest (13)		N/A		N/A		Energy — Oil & Gas			—				1,202				—
Caza Petroleum Inc., Overriding Royalty Interest		N/A		N/A		Energy — Oil & Gas			—				339				34
Clothesline Holdings, Inc. (Angelica Corporation), Common Stock (13)		N/A		N/A		Healthcare & Pharmaceuticals			6,000				6,000				1,014
Explorer Coinvest, LLC (Booz Allen), Common Stock (17)		N/A		N/A		Business Services			192				1,468				4,675
Garden Fresh Restaurant Holdings, LLC., Common Stock (13)		N/A		N/A		Hotel, Gaming, Leisure, Restaurants			50,000				5,000				—
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Common Stock (13)		N/A		N/A		Education			17,500				175				—
Pelican Energy, LLC, Net Profits Interest (13)(17)		N/A		N/A		Energy — Oil & Gas			1,098,572				1,099				—
Skyline Data, News and Analytics LLC, Class A Common Unit (13)		N/A		N/A		Business Services			4,500				4,500				4,500
Sorenson Holdings, LLC, Membership Interests (13)		N/A		N/A		Consumer Goods — Durable			587				—				103
Univar, Inc., Common Stock (13)		N/A		N/A		Wholesale			290,015				5,755				5,264
Varietal Distribution Holdings, LLC, Class A Common Unit (13)		N/A		N/A		Transportation — Cargo, Distribution			28,028				28				73
Total Common Equity/Interests												$	30,209			$	18,303

 

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2015

(in thousands, except warrants)

 

INVESTMENTS IN NON-CONTROLLED/NON- AFFILIATED INVESTMENTS — 120.3%(10)		Interest Rate (20)		Maturity Date		Industry (9)		Warrants				Cost				Fair Value (1)
Warrants—0.2%
CA Holding, Inc. (Collect America, Ltd.), Common Stock Warrants (13)(17)		N/A		N/A		Diversified Investment Vehicles, Banking, Finance, Real Estate			12,255			$	8			$	—
Energy & Exploration Partners, Inc., Common Stock Warrants (13)		N/A		N/A		Energy — Oil & Gas			60,778				2,374				—
Fidji Luxco (BC) S.C.A., Common Stock Warrants (2)(13)(17)		N/A		N/A		High Tech Industries			18,113				182				4,105
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Class A-1 Preferred Stock Warrants (13)		N/A		N/A		Education			45,947				459				—
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Class B-1 Preferred Stock Warrants (13)		N/A		N/A		Education			104,314				1,043				—
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Common Stock Warrants (13)		N/A		N/A		Education			9,820				98				—
Osage Exploration & Development, Inc., Common Stock Warrants (13)(17)		N/A		N/A		Energy — Oil & Gas			1,496,843				—				—
Spotted Hawk Development, LLC, Common Stock Warrants (13)		N/A		N/A		Energy — Oil & Gas			54,545				852				222
Total Warrants												$	5,016			$	4,327
TOTAL EQUITY												$	35,225			$	22,630
Total Investments in Non-Controlled/ Non-Affiliated Investments												$	2,399,503			$	2,198,354

 

See notes to financial statements.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2015

(in thousands, except share data)

 

INVESTMENTS IN NON-CONTROLLED/ AFFILIATED INVESTMENTS — 23.6%(4)(10)		Interest Rate (20)				Maturity Date				Industry (9)		Par Amount (12)				Cost				Fair Value (1)
CORPORATE DEBT — 0.1%
SECURED DEBT — 0.1%
1st Lien Secured Debt — 0.1%
Renewable Funding Group, Inc. (16)			8.000%				6/3/16			Diversified Investment Vehicles, Banking, Finance, Real Estate		$	2,014,941			$	2,015			$	2,383
Total 1st Lien Secured Debt																$	2,015			$	2,383
TOTAL SECURED DEBT																$	2,015			$	2,383
TOTAL CORPORATE DEBT																$	2,015			$	2,383
STRUCTURED PRODUCTS AND OTHER — 11.9%
Golden Bear Warehouse LLC, Equity (3)(17)			N/A				N/A			Diversified Investment Vehicles, Banking, Finance, Real Estate		$	20,741			$	20,741			$	23,268
Golden Hill CLO I, LLC, Equity (3)(17)			N/A				N/A			Diversified Investment Vehicles, Banking, Finance, Real Estate			70,944				70,752				73,072
Highbridge Loan Management 3-2014, Ltd, Subordinated Notes (3)(11)(17)(22)			14.510%				1/18/25			Diversified Investment Vehicles, Banking, Finance, Real Estate			8,163				5,974				5,922
Ivy Hill Middle Market Credit Fund IX, Ltd, Subordinated Notes (3)(11)(17)(22)			16.410%				10/18/25			Diversified Investment Vehicles, Banking, Finance, Real Estate			12,500				10,790				10,448
Ivy Hill Middle Market Credit Fund X, Ltd, Subordinated Notes (3)(11)(17)(22)			13.780%				7/18/27			Diversified Investment Vehicles, Banking, Finance, Real Estate			14,000				12,457				12,154
Jamestown CLO I LTD, Subordinated Notes (3)(11)(17)(22)			—				11/5/24			Diversified Investment Vehicles, Banking, Finance, Real Estate			4,325				3,261				2,803
MCF CLO I, LLC, Membership Interests (3)(4)(11)(17)(22)			23.740%				4/20/23			Diversified Investment Vehicles, Banking, Finance, Real Estate			38,918				34,035				36,548
MCF CLO III, LLC, Class E Notes (3)(11)(17)			4.725% (3M L+445)				1/20/24			Diversified Investment Vehicles, Banking, Finance, Real Estate			12,750				11,512				10,959
MCF CLO III, LLC, Membership Interests (3)(11)(17)(22)			19.840%				1/20/24			Diversified Investment Vehicles, Banking, Finance, Real Estate			41,900				35,676				37,020
Slater Mill Loan Fund LP, LP Certificates (3)(17)(22)			8.200%				N/A			Diversified Investment Vehicles, Banking, Finance, Real Estate			8,375				5,569				5,529
TOTAL STRUCTURED PRODUCTS AND OTHER																$	210,767			$	217,723
PREFERRED EQUITY — 7.2%													Shares
AMP Solar (UK) Limited, Class A Preference Shares (2)(17)			16.430	%			10/31/49			Energy — Electricity			74,429,212			$	114,307			$	112,302
Renewable Funding Group, Inc., Series B Preferred Stock (13)			N/A				N/A			Diversified Investment Vehicles, Banking, Finance, Real Estate			1,505,868			$	8,343			$	19,114
TOTAL PREFERRED EQUITY																$	122,650			$	131,416

 

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2015

(in thousands, except share data)

 

INVESTMENTS IN NON-CONTROLLED/ AFFILIATED INVESTMENTS — 23.6%(4)(10)		Interest Rate (20)				Maturity Date				Industry (9)		Par Amount (12)				Cost				Fair Value (1)
EQUITY — 4.3%
Common Equity/Interests — 4.3%
AMP Solar Group, Inc., Class A Common Unit (3)(13)(17)			N/A				N/A			Energy — Electricity			140,688			$	6,000			$	6,000
Generation Brands Holdings, Inc., Basic Common Stock (3)(13)			N/A				N/A			Consumer Goods — Durable			9,007				—				8,264
Generation Brands Holdings, Inc., Series 2L Common Stock (3)(13)			N/A				N/A			Consumer Goods — Durable			36,700				11,242				33,674
Generation Brands Holdings, Inc., Series H Common Stock (3)(13)			N/A				N/A			Consumer Goods — Durable			7,500				2,298				6,881
LVI Group Investments, LLC, Common Units (3)(13)			N/A				N/A			Environmental Industries			212,460				17,505				24,139
Total Common Equity/Interests																$	37,045			$	78,958
TOTAL EQUITY																$	37,045			$	78,958
Total Investments in Non-Controlled/Affiliated Investments																$	372,477			$	430,480

 

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2015

(in thousands except share data)

 

INVESTMENTS IN CONTROLLED INVESTMENTS — 30.9%(5)(10)		Interest Rate (20)		Maturity Date		Industry (9)		Par Amount (12)				Cost				Fair Value (1)
CORPORATE DEBT — 19.3%
SECURED DEBT — 19.3%
Funded and Unfunded Revolver Obligations — 19.3%
Merx Aviation Finance, LLC, (Revolver) (5)(16)		12.000% Funded		10/31/18		Aviation and Consumer Transport		$	352,084			$	352,084			$	352,084
Merx Aviation Finance, LLC, (Unfunded Revolver) (5)(13)(16)		0.000% Unfunded		10/31/18		Aviation and Consumer Transport			47,916				—				—
Total Funded and Unfunded Revolver Obligations												$	352,084			$	352,084
Letters of Credit — 0.0%
Merx Aviation Finance Assets Ireland Limited, Letter of Credit (5)(16)(23)		2.250%		9/30/16		Aviation and Consumer Transport		$	1,800			$	—			$	—
Merx Aviation Finance Assets Ireland Limited, Letter of Credit (5)(16)(23)		2.250%		9/30/16		Aviation and Consumer Transport			1,800				—				—
Merx Aviation Finance, LLC, Letter of Credit (5)(16)(23)		2.250%		7/13/16		Aviation and Consumer Transport			177				—				—
Total Letters of Credit												$	—			$	—
TOTAL SECURED DEBT												$	352,084			$	352,084
TOTAL CORPORATE DEBT												$	352,084			$	352,084
EQUITY — 11.7%
Common Equity/Interests — 11.7%
Dynamic Product Tankers (Prime), LLC, Class A Units (5)(17)(24)		N/A		N/A		Transportation — Cargo, Distribution			—			$	38,756			$	38,756
Merx Aviation Finance, LLC, Membership Interests (5)(13)		N/A		N/A		Aviation and Consumer Transport			—				82,354				108,375
MSEA Tankers LLC, Class A Units (5)(17)(25)		N/A		N/A		Transportation — Cargo, Distribution			—				66,000				66,000
Total Common Equity/Interests												$	187,110			$	213,131
TOTAL EQUITY												$	187,110			$	213,131
Total Investments in Controlled Investments												$	539,194			$	565,215
Total Investments —174.8% (6)(7)												$	3,311,174			$	3,194,049
Liabilities in Excess of Other Assets — (74.8)%																$	(1,367,189	)
Net Assets — 100.0%																$	1,826,860

 

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2015

(in thousands except share data)

 

 

(1)	Fair value is determined in good faith by or under the direction of the Board of Directors of the Company (Note 2).

(2)	Fidji Luxco (BC) S.C.A. is a EUR denominated investment and AMP Solar (UK) Limited is a GBP denominated investment.

(3)	Denotes investments where the governing documents of the entity preclude the Company from controlling management of the entity and therefore the Company has determined that the entity is not a controlled affiliate.

(4)

Denotes investments in which we are an “Affiliated Person”, as defined in the 1940 Act, due to holding the power to vote or owning 5% or more of the outstanding voting securities of the investment but not controlling the company. Fair value as of March 31, 2015 and September 30, 2015 along with transactions during the six months ended September 30, 2015 in these Affiliated investments are as follows:

 

Name of Issue		Fair Value at March 31, 2015				Gross Additions (Cost) •				Gross Reductions (Cost) ¡				Change in Unrealized Gain (Loss)				Fair Value at September 30, 2015				Net Realized Gain (Loss)				Interest/ Dividend/ Other Income
AMP Solar Group, Inc., Class A Common Unit		$	3,500			$	2,500			$	—			$	—			$	6,000			$	—			$	—
AMP Solar (UK) Limited, Class A Preference Shares			65,171				47,952				—				(821	)			112,302				—				5,020
Generation Brands Holdings, Inc. (Quality Homes), Basic Common Stock			6,699				—				—				1,565				8,264				—				—
Generation Brands Holdings, Inc. (Quality Homes), Series 2L Common Stock			27,294				—				—				6,380				33,674				—				—
Generation Brands Holdings, Inc. (Quality Homes), Series H Common Stock			5,578				—				—				1,303				6,881				—				—
Golden Bear Warehouse LLC, Equity			6,833				25,096				(8,589	)			(72	)			23,268				—				473
Golden Hill CLO I, LLC, Equity			73,587				—				(726	)			211				73,072				—				3,991
Highbridge Loan Management 3-2014, Ltd., Class E Notes, L+600, 1/18/25			2,121				3				(2,280	)			156				—				(67	)			34
Highbridge Loan Management 3-2014, Ltd., Subordinated Notes, 1/18/25			6,722				—				(563	)			(237	)			5,922				—				431
Ivy Hill Middle Market Credit Fund IX, Ltd., Subordinated Notes, 10/18/25			11,375				—				(585	)			(342	)			10,448				—				875
Ivy Hill Middle Market Credit Fund X, Ltd., Subordinated Notes, 7/18/27			—				12,457				—				(303	)			12,154				—				303
Jamestown CLO I LTD, Subordinated Notes, 11/5/24			3,698				—				(172	)			(723	)			2,803				—				175
LVI Group Investments, LLC, Common Units			8,669				—				—				15,470				24,139				—				175
MCF CLO I, LLC, Membership Interests, 4/20/23			38,490				—				(1,052	)			(890	)			36,548				—				3,625
MCF CLO III, LLC, Class E Notes L+445, 1/20/24			11,220				56				—				(317	)			10,959				—				363
MCF CLO III, LLC, Membership Interests, 1/20/24			38,984				—				(1,280	)			(684	)			37,020				—				3,263
Renewable Funding Group, Inc., 0.000%, 9/30/15			1,000				—				(1,000	)			—				—				—				—
Renewable Funding Group, Inc., 8.000%, 6/3/16			—				2,015				—				368				2,383				—				54
Renewable Funding Group, Inc., Series B Preferred Stock			9,309				1,000				(118	)			8,923				19,114				—				—
Slater Mill Loan Fund LP, LP Certificates			6,968				—				(185	)			(1,254	)			5,529				—				566
		$	327,218			$	91,079			$	(16,550	)		$	28,733			$	430,480			$	(67	)		$	19,348

 

•

Gross additions includes increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the accretion of discounts, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.

¡

Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the amortization of premiums, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.

 

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2015

(in thousands)

As of September 30, 2015, the Company has a 28%, 26%, 33%, 32%, 100%, 100%, 97%, 98%, and 26% equity ownership interest in Generation Brands Holdings, Inc. (Quality Homes), Highbridge Loan Management, Ltd., Ivy Hill Middle Market Credit Fund IX, Ltd., Ivy Hill Middle Market Credit Fund X, Ltd., Golden Hill CLO I, LLC, Golden Bear Warehouse, LLC, MCF CLO I, LLC, MCF CLO III, LLC, and Slater Mill Loan Fund LP, respectively. With respect to these portfolio companies, shown under “Non-Controlled/Affiliated”, the Company does not have the right to elect or appoint more than 25% of the directors or another party has the right to elect or appoint more directors than the Company and has the right to appoint certain members of senior management. Therefore, the Company has determined that these entities are not controlled affiliates.

 

(5)

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. Fair value as of March 31, 2015 and September 30, 2015 along with transactions during the six months ended September 30, 2015 in these Controlled investments are as follows:

 

Name of Issue		Fair Value at March 31, 2015				Gross Additions (Cost) •				Gross Reductions (Cost) ¡				Change in Unrealized Gain (Loss)				Fair Value at September 30, 2015				Net Realized Gain (Loss)				Interest/ Dividend/ Other Income
Dynamic Product Tankers (Prime), LLC, Class A Units		$	—			$	38,800			$	(44	)		$	—			$	38,756			$	—			$	2,000
Merx Aviation Finance, LLC, (Revolver), 12.000% Funded			352,084				—				—				—				352,084				—				21,183
Merx Aviation Finance, LLC, (Unfunded Revolver), 0.000% Unfunded			—				—				—				—				—				—				—
Merx Aviation Finance Assets Ireland Limited, Letters of Credit, 2.250%, 9/30/15			—				—				—				—				—				—				—
Merx Aviation Finance Assets Ireland Limited, Letters of Credit, 2.250%, 9/30/15			—				—				—				—				—				—				—
Merx Aviation Finance, LLC, Letters of Credit, 2.250%, 9/30/15			—				—				—				—				—				—				—
Merx Aviation Finance, LLC, Membership Interests			165,172				—				(69,729	)			12,932				108,375				—				—
MSEA Tankers LLC, Class A Units			33,000				33,000				—				—				66,000				—				3,863
PlayPower Holdings, Inc., Common Stock			55,900				—				(77,721	)			21,821				—				(39,714	)			—
PlayPower Holdings, Inc., Series A Preferred, 14.000% PIK, 11/15/20			59,411				1,891				(61,302	)			—				—				—				1,931
		$	665,567			$	73,691			$	(208,796	)		$	34,753			$	565,215			$	(39,714	)		$	28,977

 

•

Gross additions includes increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the accretions of discounts, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.

¡

Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the amortization of premiums, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.

 

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2015

(in thousands)

 

As of September 30, 2015, the Company has a 85%, 100%, and 98% equity ownership interest in Dynamic Product Tankers (Prime), LLC, Merx Aviation Finance, LLC, and MSEA Tankers, LLC, respectively.

 

(6)	Aggregate gross unrealized gain and loss for federal income tax purposes is $156,142 and $293,905, respectively. Net unrealized loss is $137,763 based on a tax cost of $3,331,813.

(7)	Substantially all securities are pledged as collateral to our multicurrency revolving credit facility. As such these securities are not available as collateral to our general creditors.

(8)	The negative fair value is the result of the unfunded commitment or letter of credit being valued below par.

(9)	As a result of the amendment of our Senior Secured Facility on April 24, 2015, the industry classifications were updated in the Schedule of Investments as of September 30, 2015.

(10)	The percentage is calculated over net assets.

(11)	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.

(12)	Denominated in USD unless otherwise noted, Euro (“€”), British Pound (“£”), and Canadian Dollar (“C$”).

(13)	Non-income producing security.

(14)	Non-accrual status (Note 2).

(15)	The investment has a put option attached to it and the combined instrument has been recorded in its entirety at fair value as a hybrid instrument in accordance with ASC 815-15-25-4 with subsequent changes in fair value charged or credited to investment gains/losses for each period.

(16)

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, and differing interest rate characteristics, among other factors. Such factors are usually considered in the determination of fair values.

(17)

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 is subject to change. The Company monitors the status of these assets on an ongoing basis.

(18)	In addition to the interest earned based on the stated rate of this loan, the Company may be entitled to receive additional interest as a result of its arrangement with other lenders in a syndication.

(19)	This investment represents a leveraged subordinated interest in a trust that holds one foreign currency denominated bond and a derivative instrument.

(20)

Generally, the interest rate on variable interest rate investments is at benchmark rate plus spread. The borrower has an option to choose the benchmark rate which can be LIBOR , ABR, prime or any other similarly defined rate. The spread may change based on the type of rate used. The terms in the schedule of investments disclose the actual interest rate in effect which is at LIBOR plus spread or ABR plus spread as of reporting period. LIBOR loans are typically indexed to 30-day, 90-day, 180-day or 360-day LIBOR rates (1M L, 3M L, 6M L or 12M L, respectively), at the borrower’s option, and ABR rates are typically indexed to the current prime rate or federal funds rate. Both LIBOR and ABR rates are subject to interest floors. As of September 30, 2015, rates for 1M L, 3M L, 6M L or 12M L are 0.193%, 0.325%, 0.534% and 0.851%, respectively.

(21)	The rates associated with these undrawn committed revolvers and delayed draw term loans represent rates for commitment and unused fees.

(22)

The CLO equity investments are entitled to recurring distributions which are generally equal to the excess cash flow generated from the underlying investments after payment of the contractual payments to debt holders and fund expenses. The current estimated yield is based on the current projections of this excess cash flow taking into account assumptions which have been made regarding expected prepayments, losses and future reinvestment rates. These assumptions are periodically reviewed and adjusted. Ultimately, the actual yield may be higher or lower than the estimated yield if actual results differ from those used for the assumptions.

 

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2015

(in thousands)

 

(23)

As of September 30, 2015, the Company had the following commitments to fund various revolving and delayed draw senior secured and subordinated loans, including commitments to issue letters of credit through a financial intermediary on behalf of certain portfolio companies. Such commitments are subject to the satisfaction of certain conditions set forth in the documents governing these loans and letters of credit and there can be no assurance that such conditions will be satisfied. See Note 8 to the financial statements for further information on revolving and delayed draw loan commitments, including commitments to issue letters of credit, related to certain portfolio companies.

 

Name of Issue		Total Revolving and Delayed Draw Loan Commitments				Drawn Commitments				Letters of Credit				Total Undrawn Commitments
Alliant Holdings		$	15,000			$	—			$	—			$	15,000
Avaya, Inc.			3,303				3,303				—				—
Canacol Energy Ltd.			100,000				75,000				—				25,000
CIT Group, Inc.			25,000				—				—				25,000
Confie Seguros Holding II Co.			4,500				1,800				836				1,864
Deep Gulf Energy II, LLC			50,000				50,000				—				—
Merx Aviation Finance Assets Ireland Limited			3,600				—				3,600				—
Merx Aviation Finance, LLC			177				—				177				—
My Alarm Center, LLC			25,817				17,490				—				8,327
Tibco Software Inc.			6,000				—				—				6,000
Transfirst Holdings, Inc.			3,000				—				57				2,943
UniTek Global Services Inc.			22,561				—				17,561				5,000
Total		$	258,958			$	147,593			$	22,231			$	89,134

 

(24)

As of September 30, 2015, Dynamic Product Tankers (Prime), LLC has various classes of limited liability interests outstanding of which Company holds Class A-1 and Class A-3 units which are identical except that Class A-1 unit is voting and Class A-3 unit is non-voting. The units entitle the Company to appoint three out of five managers to the board of managers.

(25)

As of September 30, 2015, MSEA Tankers, LLC has various classes of limited liability interests outstanding of which the Company holds Class A-1 and Class A-2 units which are identical except that Class A-1 unit is voting and Class A-2 unit is non-voting. The units entitle the Company to appoint two out of three managers to the board of managers.

N/A	Not applicable.

 

See notes to financial statements.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2015

 

Industry Classification		Percentage of Total Investments (at fair value) as of September 30, 2015
Business Services			17.4	%
Energy — Oil & Gas			15.0	%
Diversified Investment Vehicles, Banking, Finance, Real Estate			14.8	%
Aviation and Consumer Transport			14.4	%
Transportation — Cargo, Distribution			7.8	%
High Tech Industries			3.7	%
Energy — Electricity			3.7	%
Insurance			2.6	%
Chemicals, Plastics & Rubber			2.6	%
Hotel, Gaming, Leisure, Restaurants			2.5	%
Consumer Goods — Durable			2.4	%
Telecommunications			1.9	%
Containers, Packaging & Glass			1.7	%
Healthcare & Pharmaceuticals			1.5	%
Consumer Services			1.1	%
Utilities — Electric			1.0	%
Aerospace & Defense			1.0	%
Education			0.9	%
Food & Grocery			0.9	%
Environmental Industries			0.8	%
Metals & Mining			0.6	%
Utilities — Oil and Gas			0.5	%
Broadcasting & Subscription			0.5	%
Manufacturing, Capital Equipment			0.4	%
Wholesale			0.2	%
Media — Diversified & Production			0.1	%
Total Investments			100.0	%

 

See notes to financial statements.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS

March 31, 2015

(in thousands)

 

INVESTMENTS IN NON -CONTROLLED/NON- AFFILIATED INVESTMENTS — 121.6% (10)		Interest Rate		Maturity Date		Industry		Par Amount (12)				Cost				Fair Value (1)
CORPORATE DEBT — 109.5%
SECURED DEBT — 85.0%
1st Lien Secured Debt — 41.7%
Alion Science & Technology Corporation		11.000% (L+1000, 1.00% Floor)		8/16/19		Aerospace and Defense		$	32,003			$	31,038			$	31,843
Archroma (17)		9.500% (L+825, 1.25% Floor)		10/1/18		Chemicals			40,128				39,795				40,354
Aventine Renewable Energy Holdings, Inc.		15.00% PIK or 10.50% Cash		9/22/17		Chemicals			15,742				18,031				14,601
Aveta, Inc.		9.750% (L+825, 1.50% Floor)		12/12/17		Healthcare			53,296				52,331				43,169
Caza Petroleum, Inc.		12.000% (L+1000, 2.00% Floor)		5/23/17		Oil and Gas			45,000				43,992				42,660
ChyronHego Corp.		9.000% (L+800, 1.00% Floor)		3/9/20		Business Services			25,000				24,505				24,500
CITGO Holding, Inc. (11)		10.750%		2/15/20		Energy			25,000				23,792				25,781
CITGO Holding, Inc.		9.50% (L+850, 1.00% Floor)		5/12/18		Energy			19,435				18,306				19,344
Deep Gulf Energy II, LLC		14.000% (14.00% or L+1250, 1.50% Floor)		3/31/17		Oil and Gas			35,000				35,000				33,530
Delta Educational Systems, Inc.		16.00% (8.00% Cash / 8.00% PIK)		12/11/16		Education			5,892				5,892				5,892
Dodge Data & Analytics LLC		9.750% (L+875, 1.00% Floor)		10/31/19		Printing and Publishing			60,349				59,223				58,689
Extraction Oil & Gas Holdings, LLC		10.00% & 11.00%		5/29/19		Oil and Gas			52,633				51,932				51,843
Great Bear Petroleum Operating, LLC		12.000%		10/1/17		Oil and Gas			5,064				5,064				5,064
Hunt Companies, Inc. (11)		9.625%		3/1/21		Buildings and Real Estate			21,008				20,776				21,586
Magnetation, LLC (11)		11.000%		5/15/18		Mining			38,454				39,878				19,804
Maxus Capital Carbon SPE I, LLC (Skyonic Corp.)		13.000%		9/18/19		Chemicals			73,104				73,104				73,104
Molycorp, Inc. (17)		10.000%		6/1/20		Diversified Natural Resources, Precious Metals and Minerals			42,977				42,699				22,276
My Alarm Center, LLC (16)		8.500% (L+750, 1.00% Floor)		1/9/18		Business Services			42,614				42,614				42,613
My Alarm Center, LLC (16)		8.500% (L+750, 1.00% Floor)		1/9/18		Business Services			12,731				12,731				12,731
Osage Exploration & Development, Inc. (11)(17)		13.000% (L+1100, 2.00% Floor)		4/27/16		Oil and Gas			25,000				24,741				23,600
Pelican Energy, LLC (17)		10.00% (7.00% Cash / 3.00% PIK)		12/31/18		Oil and Gas			26,957				26,057				25,340
Saba Software, Inc.		12.417% (L+1142, 1.00% Floor)		3/26/21		Business Services			10,000				10,000				9,850
SCM Insurance Services, Inc. (17)		9.250%		8/22/19		Business Services			CAD 30,000				27,135				23,569
Spotted Hawk Development, LLC		13.00% (12.00% Cash / 1.00% PIK)		9/12/16		Oil and Gas			80,900				79,911				78,878
Sunrun Solar Owner IX, LLC		9.079%		12/31/24		Energy			3,424				3,284				3,527
Telestream Holdings Corporation		10.254% (L+925, 1.00% Floor)		1/15/20		Business Services			32,500				32,500				31,769
UniTek Global Services Inc. (16)		9.500% (L+750, 1.00% PIK, 1.00% Floor)		1/13/19		Telecommunications			21,442				21,442				21,442
Total 1st Lien Secured Debt excluding Revolvers and Letters of Credit												$	865,773			$	807,359

 

See notes to financial statements.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands)

 

INVESTMENTS IN NON -CONTROLLED/NON- AFFILIATED INVESTMENTS — 121.6% (10)		Interest Rate		Maturity Date		Industry		Par Amount (12)				Cost				Fair Value (1)
Funded and Unfunded Revolver Obligations — -1.7%
Avaya, Inc., (Revolver) (16)		2.92% (L+275, 0.17% Floor) / 5.00% (P+175, 3.25% Floor) Funded		10/26/16		Telecommunications		$	16,553			$	16,553			$	15,436
Avaya, Inc., (Unfunded Revolver) (8)(16)		0.50% Unfunded		10/26/16		Telecommunications			10,431				(3,181	)			(704	)
BMC Software, Inc., (Unfunded Revolver) (8)		0.50% Unfunded		9/10/18		Business Services			20,760				(1,857	)			(1,868	)
CIT Group, Inc., (Unfunded Revolver) (8)(17)		L+275		1/27/17		Financial Services			25,000				(107	)			(1,250	)
Confie Seguros Holding II Co., (Revolver) (16)		4.67% (L+450, 0.17% Floor) / 6.75% (P+350, 3.25% Floor) Funded		12/10/18		Insurance			2,190				2,190				1,949
Confie Seguros Holding II Co., (Unfunded Revolver) (8)(16)		0.50% Unfunded		12/10/18		Insurance			1,625				(340	)			(179	)
Laureate Education Inc., (Revolver) (16)(17)		5.000% (L+375, 1.25% Floor) Funded		6/16/16		Education			23,566				23,566				21,445
Laureate Education, Inc., (Unfunded Revolver) (8)(16)(17)		0.625% Unfunded		6/16/16		Education			5,212				(1,833	)			(469	)
Salix Pharmaceuticals, Ltd., (Unfunded Revolver) (16)(17)		0.50% Unfunded		1/2/19		Healthcare			24,867				(1,519	)			—
Tibco Software Inc., (Unfunded Revolver) (8)		0.50% Unfunded		12/5/19		Business Services			6,000				(56	)			(30	)
Transfirst Holdings, Inc., (Unfunded Revolver) (8)(16)		0.50% Unfunded		11/12/19		Financial Services			2,943				(14	)			(88	)
UniTek Global Services, Inc., (Unfunded Revolver) (16)		0.50% Unfunded		1/13/19		Telecommunications			5,000				241				—
Walter Energy, Inc., (Unfunded Revolver) (8)(16)(17)		0.625% Unfunded		10/1/17		Mining			275				(176	)			(48	)
Total Funded and Unfunded Revolver Obligations												$	33,467			$	34,194
Letters of Credit — (0.0)%
Avaya, Inc., Letter of Credit (8)(9)(16)		2.750%		10/30/15- 4/6/16		Telecommunications		$	9,800			$	—			$	(662	)
Confie Seguros Holding II Co., Letter of Credit (8)(16)		4.500%		10/27/15		Insurance			600				—				(66	)
Confie Seguros Holding II Co., Letter of Credit (8)(16)		4.500%		1/13/16		Insurance			85				—				(9	)
Laureate Education Inc., Letter of Credit (8)(16)(17)		3.750%		6/16/16		Education			101				—				(9	)
Salix Pharmaceuticals, Ltd., Letter of Credit (16)(17)		3.000%		2/10/16		Healthcare			8				—				—
Salix Pharmaceuticals, Ltd., Letter of Credit (16)(17)		3.000%		2/10/16		Healthcare			125				—				—
Transfirst Holdings, Inc., Letter of Credit (8)(16)		4.500%		11/12/19		Financial Services			57				—				(2	)
UniTek Global Services Inc., Letter of Credit (16)		7.500%		1/13/19		Telecommunications			17,946				—				—
UniTek Global Services Inc., Letter of Credit (16)		7.500%		1/13/19		Telecommunications			1,850				—				—
Walter Energy, Inc., Letter of Credit (8)(9)(16)(17)		5.500%		9/18/15- 7/4/16		Mining			86				—				(15	)
Walter Energy, Inc., Letter of Credit (8)(9)(16)(17)		5.500%		8/31/15- 11/28/15		Mining			CAD 192				—				(27	)
Total Letters of Credit												$	—			$	(790	)
Total 1st Lien Secured Debt												$	899,240			$	840,763

 

See notes to financial statements.

 

SF-22

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands)

 

INVESTMENTS IN NON -CONTROLLED/NON- AFFILIATED INVESTMENTS — 121.6% (10)		Interest Rate		Maturity Date		Industry		Par Amount (12)				Cost				Fair Value (1)
2nd Lien Secured Debt — 41.6%
Access CIG, LLC		9.750% (L+875, 1.00% Floor)		10/17/22		Business Services		$	25,600			$	24,103			$	24,192
Active Network, Inc.		9.500% (L+850, 1.00% Floor)		11/15/21		Business Services			19,672				19,586				19,082
Appriss Holdings, Inc.		9.250% (L+825, 1.00% Floor)		5/21/21		Business Services			25,000				24,641				25,000
Armor Holdings, Inc. (American Stock Transfer and Trust Company)		10.250% (L+900, 1.25% Floor)		12/26/20		Financial Services			8,000				7,867				7,760
Asurion Corporation		8.500% (L+750, 1.00% Floor)		3/3/21		Insurance			40,622				40,163				40,876
Confie Seguros Holding II Co.		10.250% (L+900, 1.25% Floor)		5/8/19		Insurance			28,844				28,691				28,844
Consolidated Precision Products Corp.		8.750% (L+775, 1.00% Floor)		4/30/21		Aerospace and Defense			1,940				1,932				1,930
Deltek, Inc.		10.000% (L+875, 1.25% Floor)		10/10/19		Business Services			17,273				17,137				17,424
Elements Behavioral Health, Inc.		9.750% (L+875, 1.00% Floor)		2/11/20		Healthcare			9,500				9,420				9,434
Garden Fresh Restaurant Corp. (16)		7.750% (L+625 PIK, 1.50% Floor)		1/1/19		Restaurants			8,250				6,522				5,775
Garden Fresh Restaurant Corp. (16)		15.000% (L+1350 PIK, 1.50% Floor)		1/1/19		Restaurants			39,921				38,064				35,529
GCA Services Group, Inc.		9.250% (L+800, 1.25% Floor)		11/1/20		Diversified Service			17,838				17,961				17,882
Grocery Outlet, Inc.		9.250% (L+825, 1.00% Floor)		10/21/22		Grocery			28,000				27,592				27,580
GTCR Valor Companies, Inc.		9.500% (L+850, 1.00% Floor)		11/30/21		Business Services			35,000				34,666				33,775
Institutional Shareholder Services, Inc.		8.500% (L+750, 1.00% Floor)		4/30/22		Financial Services			6,640				6,579				6,540
Kronos, Inc.		9.750% (L+850, 1.25% Floor)		4/30/20		Business Services			13,525				13,466				13,931
Miller Energy Resources, Inc. (17)		14.750% (9.750% Cash / 2.000% PIK, 3.00% Floor)		2/3/18		Oil and Gas			88,123				88,123				82,527
MSC Software Corp. (17)		8.500% (L+750, 1.00% Floor)		5/28/21		Business Services			13,448				13,320				13,246
Novolex Holdings, Inc.		9.750% (L+875, 1.00% Floor)		6/5/22		Packaging			42,045				41,013				42,150
Pabst Brewing Company		9.25% (L+825, 1.00% Floor)		11/14/22		Consumer Products			27,000				26,665				27,203
Premier Trailer Leasing, Inc.		10.000% (L+900, 1.00% Floor)		9/24/20		Financial Services			52,000				51,029				52,000
River Cree Enterprises LP (11)(17)		11.000%		1/20/21		Hotels, Motels, Inns and Gaming			CAD 33,000				31,111				26,952
SiTV, Inc. (11)		10.375%		7/1/19		Cable Television			2,219				2,219				2,003
SMG		9.250% (L+825, 1.00% Floor)		2/27/21		Business Services			19,900				19,900				20,000
Sprint Industrial Holdings, LLC		11.250% (L+1000, 1.25% Floor)		11/14/19		Containers, Packaging, and Glass			14,163				13,959				13,526
SquareTwo Financial Corp. (Collect America, Ltd.) (17)		11.625%		4/1/17		Financial Services			65,152				64,316				58,420

 

See notes to financial statements.

 

SF-23

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands)

 

INVESTMENTS IN NON -CONTROLLED/NON- AFFILIATED INVESTMENTS — 121.6% (10)		Interest Rate		Maturity Date		Industry			Par Amount (12)				Cost				Fair Value (1)
2nd Lien Secured Debt — 41.6% (continued)
TASC, Inc.		12.000%		5/21/21		Aerospace and Defense			21,815				21,028				23,178
TMK Hawk Parent Corp.		8.500% (L+750, 1.00% Floor)		10/1/22		Distribution			34,000				33,675				34,000
Transfirst Holdings, Inc.		9.000% (L+800, 1.00% Floor)		11/11/22		Financial Services			11,340				11,221				11,404
UniTek Global Services Inc. (16)		8.500% (L+750, 1.00% Floor)		1/13/19		Telecommunications			32,367				32,367				30,748
Velocity Technology Solutions, Inc.		9.000% (L+775, 1.25% Floor)		9/28/20		Business Services			16,500				16,209				16,005
Vertafore, Inc.		9.750% (L+825, 1.50% Floor)		10/27/17		Business Services			36,436				36,295				36,709
Total 2nd Lien Secured Debt												$	820,840			$	805,625
TOTAL SECURED DEBT												$	1,720,080			$	1,646,388
UNSECURED DEBT — 24.5%
American Energy — Woodford LLC/AEW Finance Corp. (11)		9.000%		9/15/22		Oil and Gas		$	5,000			$	4,805			$	2,850
American Tire Distributors, Inc. (11)		10.250%		3/1/22		Distribution			24,281				24,281				25,252
Artsonig Pty Ltd. (11)(17)		11.50% (12.00% PIK Toggle)		4/1/19		Transportation			21,227				20,974				17,830
BCA Osprey II Limited (British Car Auctions) (16)(17)		12.50% PIK		8/17/17		Transportation		£	23,566				37,704				36,033
BCA Osprey II Limited (British Car Auctions) (16)(17)		12.50% PIK		8/17/17		Transportation		€	14,333				19,779				15,855
Canacol Energy Ltd. (17)		9.500% (L+850, 1.00% Floor)		12/31/19		Oil and Gas			50,000				48,595				47,625
Ceridian Corp. (11)		11.000%		3/15/21		Diversified Service			16,760				16,760				17,430
Delta Educational Systems, Inc.		16.00% PIK or 10.00% Cash / 6.00% PIK		5/12/17		Education			24,172				23,929				21,416
Denver Parent Corp. (Venoco) (13)(14)(16)		12.25% (13.00% PIK Toggle)		8/15/18		Oil and Gas			9,572				9,411				1,460
GenCorp, Inc. (17)		9.500% (L+850, 1.00% Floor)		4/18/22		Aerospace and Defense			40,500				40,500				40,500
My Alarm Center, LLC		16.25% (12.00% Cash / 4.25% PIK)		7/9/18		Business Services			4,236				4,236				4,236
PetroBakken Energy Ltd. (11)(17)		8.625%		2/1/20		Oil and Gas			34,980				35,972				25,361
Radio One, Inc. (11)(17)		9.250%		2/15/20		Broadcasting & Entertainment			15,804				15,709				15,160
Sorenson Holdings, LLC (11)		13.00% PIK		10/31/21		Consumer Products			68				45				68
Tibco Software Inc. (11)		11.375%		12/1/21		Business Services			11,389				11,069				11,595
U.S. Security Associates Holdings, Inc.		11.000%		7/28/18		Business Services			135,000				135,000				137,700
UniTek Global Services Inc.		15.000%		7/13/2019		Telecommunications			6,565				6,565				6,565
Univar, Inc.		10.500%		6/30/2018		Distribution			20,000				20,000				19,900
Venoco, Inc. (16)		8.875%		2/15/2019		Oil and Gas			54,996				55,032				28,598
TOTAL UNSECURED DEBT												$	530,366			$	475,434
TOTAL CORPORATE DEBT												$	2,250,446			$	2,121,822
STRUCTURED PRODUCTS AND OTHER — 9.0%
Asset Repackaging Trust Six B.V., Credit-Linked Note (11)(17)(20)		N/A		5/18/2027		Utilities		$	58,411			$	24,994			$	36,731
Craft 2013-1, Credit-Linked Note (11)(16)(17)		9.503% (L+925)		4/17/2022		Diversified Investment Vehicle			25,000				25,092				24,282
Craft 2013-1, Credit-Linked Note (16)(17)		9.503% (L+925)		4/17/2022		Diversified Investment Vehicle			7,625				7,753				7,412

 

See notes to financial statements.

 

SF-24

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands)

 

INVESTMENTS IN NON -CONTROLLED/NON- AFFILIATED INVESTMENTS — 121.6% (10)		Interest Rate		Maturity Date		Industry		Par Amount (12)				Cost				Fair Value (1)
STRUCTURED PRODUCTS AND OTHER — 9.0% (continued)
Craft 2014-1A, Credit-Linked Note (11)(17)		9.882% (L+965)		5/15/2021		Diversified Investment Vehicle			42,500				42,460				41,898
Dark Castle Holdings, LLC		N/A		N/A		Media			24,395				1,189				2,565
JP Morgan Chase & Co., Credit-Linked Note (17)		12.520% (L+1225)		12/20/2021		Diversified Investment Vehicle			43,250				42,053				42,700
NXT Capital CLO 2014-1, LLC, Class E Notes (11)(17)		5.731% (L+550)		4/23/2026		Diversified Investment Vehicle			5,000				4,670				4,350
Renaissance Umiat, LLC, ACES Tax Receivable (15)(17)		N/A		N/A		Oil and Gas			—				13,014				14,432
TOTAL STRUCTURED PRODUCTS AND OTHER												$	161,225			$	174,370
PREFERRED EQUITY — 1.6%									Shares
CA Holding, Inc. (Collect America, Ltd.), Series A Preferred Stock (13)(17)		N/A		N/A		Financial Services			32,961			$	788			$	297
Crowley Holdings, Series A Preferred Stock (11)		12.00% (10.00% Cash / 2.00% PIK)		N/A		Cargo Transport			22,500				23,079				23,645
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Preferred Stock (Convertible) (13)(14)		12.50% PIK		N/A		Education			332,500				6,863				—
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Preferred Stock (13)(14)		13.50% PIK		5/12/2018		Education			12,360				27,685				1,613
Varietal Distribution Holdings, LLC, Class A Preferred Unit		8.00% PIK		N/A		Distribution			3,097				5,724				5,655
TOTAL PREFERRED EQUITY												$	64,139			$	31,210
EQUITY — 1.5%
Common Equity/Interests — 1.2%									Shares
ATD Corporation (Accelerate Parent Corp.), Common Stock (11)		N/A		N/A		Distribution			1,664,046			$	1,714			$	2,690
CA Holding, Inc. (Collect America, Ltd.), Series A Common Stock (13)(17)		N/A		N/A		Financial Services			25,000				2,500				—
CA Holding, Inc. (Collect America, Ltd.), Series AA Common Stock (13)(17)		N/A		N/A		Financial Services			4,294				429				—
Caza Petroleum, Inc., Net Profits Interest (13)		N/A		N/A		Oil and Gas			—				1,202				1,290
Caza Petroleum, Inc., Overriding Royalty Interest		N/A		N/A		Oil and Gas			—				340				235
Clothesline Holdings, Inc. (Angelica Corporation), Common Stock (13)		N/A		N/A		Healthcare			6,000				6,000				519
Explorer Coinvest, LLC (Booz Allen), Common Stock (17)		N/A		N/A		Business Services			192				1,468				5,162
Garden Fresh Restaurant Holdings, LLC., Common Stock (13)		N/A		N/A		Restaurants			50,000				5,000				—
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Common Stock (13)		N/A		N/A		Education			17,500				175				—
JV Note Holdco, LLC (DSI Renal, Inc.), Common Equity / Interest (13)		N/A		N/A		Healthcare			9,303				85				—
Pelican Energy, LLC, Net Profits Interest (13)(17)		N/A		N/A		Oil and Gas			—				1,061				272
Skyline Data, News and Analytics LLC, Class A Common Unit (13)		N/A		N/A		Printing and Publishing			4,500				4,500				4,500
Sorenson Holdings, LLC, Membership Interests (13)		N/A		N/A		Consumer Products			587				—				81
Univar, Inc., Common Stock (13)		N/A		N/A		Distribution			900,000				9,000				9,320
Varietal Distribution Holdings, LLC, Class A Common Unit (13)		N/A		N/A		Distribution			28,028				28				—
Total Common Equity/Interests												$	33,502			$	24,069

 

See notes to financial statements.

 

SF-25

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands, except warrants)

 

INVESTMENTS IN NON-CONTROLLED/ NON-AFFILIATED INVESTMENTS — 121.6% (10)		Interest Rate				Maturity Date				Industry		Warrants				Cost				Fair Value (1)
Warrants — 0.3%
CA Holding, Inc. (Collect America, Ltd.), Common Stock Warrants (13)(17)			N/A				N/A			Financial Services			12,255			$	8			$	—
Energy & Exploration Partners, Inc., Common Stock Warrants (13)			N/A				N/A			Oil and Gas			60,778				2,374				58
Fidji Luxco (BC) S.C.A., Common Stock Warrants (2)(13)(17)			N/A				N/A			Electronics			18,113				182				3,950
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Class A-1 Preferred Stock Warrants (13)			N/A				N/A			Education			45,947				459				—
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Class B-1 Preferred Stock Warrants (13)			N/A				N/A			Education			104,314				1,043				—
Gryphon Colleges Corp. (Delta Educational Systems, Inc.), Common Stock Warrants (13)			N/A				N/A			Education			9,820				98				—
Osage Exploration & Development, Inc., Common Stock Warrants (13)(17)			N/A				N/A			Oil and Gas			1,496,843				—				222
Spotted Hawk Development, LLC, Common Stock Warrants (13)			N/A				N/A			Oil and Gas			54,545				852				1,341
Total Warrants																$	5,016			$	5,571
TOTAL EQUITY																$	38,518			$	29,640
Total Non-Controlled/ Non-Affiliated Investments																$	2,514,328			$	2,357,042

 

See notes to financial statements.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands, except shares)

 

INVESTMENTS IN NON-CONTROLLED/ AFFILIATED INVESTMENTS — 16.9%(4)(10)		Interest Rate		Maturity Date				Industry		Par Amount (12)				Cost				Fair Value (1)
CORPORATE DEBT — 0.0%
SECURED DEBT — 0.0%
1st Lien Secured Debt — 0.0%
Renewable Funding Group, Inc., (4)(13)		0.00%			9/30/15			Finance		$	1,000			$	1,000			$	1,000
Total 1st Lien Secured Debt														$	1,000			$	1,000
TOTAL SECURED DEBT														$	1,000			$	1,000
TOTAL CORPORATE DEBT														$	1,000			$	1,000
STRUCTURED PRODUCTS AND OTHER — 10.3%
Golden Bear Warehouse, LLC, Equity (3)(4)(17)		N/A			N/A			Diversified Investment Vehicle		$	4,234			$	4,234			$	6,833
Golden Hill CLO I, LLC, Equity (3)(4)(17)		N/A			N/A			Diversified Investment Vehicle			70,944				71,478				73,587
Highbridge Loan Management 3-2014, Ltd., Class E Notes (3)(4)(11)(17)		6.257% (L+600)			1/18/25			Diversified Investment Vehicle			2,485				2,277				2,121
Highbridge Loan Management 3-2014, Ltd., Subordinated Notes (3)(4)(11)(17)		N/A			1/18/25			Diversified Investment Vehicle			8,163				6,537				6,722
Ivy Hill Middle Market Credit Fund IX, Ltd, Subordinated Notes (3)(4)(11)(17)		N/A			10/18/25			Diversified Investment Vehicle			12,500				11,375				11,375
Jamestown CLO I LTD, Subordinated Notes (3)(4)(11)(17)		N/A			11/5/24			Diversified Investment Vehicle			4,325				3,432				3,698
MCF CLO I, LLC, Membership Interests (3)(4)(11)(17)		N/A			4/20/23			Diversified Investment Vehicle			38,918				35,087				38,490
MCF CLO III, LLC, Class E Notes (3)(4)(11)(17)		4.681% (L+445)			1/20/24			Diversified Investment Vehicle			12,750				11,456				11,220
MCF CLO III, LLC, Membership Interests (3)(4)(11)(17)		N/A			1/20/24			Diversified Investment Vehicle			41,900				36,957				38,984
Slater Mill Loan Fund LP, LP Certificates (3)(4)(17)		N/A			N/A			Diversified Investment Vehicle			8,375				5,755				6,968
TOTAL STRUCTURED PRODUCTS AND OTHER														$	188,588			$	199,998
PREFERRED EQUITY — 3.9%										Shares
AMP Solar (UK) Limited, Class A Preference Shares (2)(5)(17)(21)		8.500%			10/31/49			Utilities			43,277,916			$	66,354			$	65,171
Renewable Funding Group, Inc., Series B Preferred Stock (4)(13)		N/A			N/A			Finance			1,505,868				7,461				9,309
TOTAL PREFERRED EQUITY														$	73,815			$	74,480
EQUITY — 2.7%
Common Equity/Interests — 2.7%
AMP Solar Group, Inc., Class A Common Shares (3)(4)(17)		N/A			N/A			Energy			81,493			$	3,500			$	3,500
Generation Brands Holdings, Inc. (Quality Home Brands), Basic Common Stock (3)(4)(13)(18)		N/A			N/A			Home and Office Furnishings and Durable Consumer Products			9,007				—				6,699
Generation Brands Holdings, Inc. (Quality Home Brands), Series 2L Common Stock (3)(4)(13)(18)		N/A			N/A			Home and Office Furnishings and Durable Consumer Products			36,700				11,242				27,294

 

See notes to financial statements.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands, except shares)

 

INVESTMENTS IN NON- CONTROLLED/ AFFILIATED INVESTMENTS — 16.9%(4)(10)		Interest Rate		Maturity Date		Industry		Shares				Cost				Fair Value (1)
EQUITY — 2.7%
Common Equity/Interests — 2.7%
Generation Brands Holdings, Inc. (Quality Home Brands), Series H Common Stock (3)(4)(13)(18)		N/A		N/A		Home and Office Furnishings and Durable Consumer Products			7,500			$	2,298			$	5,578
LVI Group Investments, LLC, Common Units (3)(4)(13)(19)		N/A		N/A		Environmental Services			212,460				17,505				8,669
Total Common Equity/Interests												$	34,545			$	51,740
TOTAL EQUITY												$	34,545			$	51,740
Total Non-Controlled/Affiliated Investments												$	297,948			$	327,218

 

See notes to financial statements.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands, except shares)

 

INVESTMENTS IN CONTROLLED INVESTMENTS — 34.4%(5)(10)		Interest Rate		Maturity Date		Industry		Par Amount (12)				Cost				Fair Value (1)
CORPORATE DEBT — 18.2%
SECURED DEBT — 18.2%
1st Lien Secured Debt — 18.2%
Merx Aviation Finance, LLC, (Revolver) (5)(16)		12.00% Funded		10/31/18		Aviation		$	352,084			$	352,084			$	352,084
Total 1st Lien Secured Debt												$	352,084			$	352,084
Unfunded Revolver Obligation — 0.0%
Merx Aviation Finance, LLC, (Unfunded Revolver) (5)(16)		12.00% Funded, 0.00% Unfunded		10/31/18		Aviation		$	47,916			$	—			$	—
Total Unfunded Revolver Obligation												$	—			$	—
Letters of Credit — 0.0%
Merx Aviation Finance Assets Ireland Limited, Letter of Credit (5)		2.250%		9/30/15		Aviation		$	1,800			$	—			$	—
Merx Aviation Finance Assets Ireland Limited, Letter of Credit (5)		2.250%		9/30/15		Aviation			1,800				—				—
Total Letters of Credit												$	—			$	—
TOTAL SECURED DEBT												$	352,084			$	352,084
TOTAL CORPORATE DEBT												$	352,084			$	352,084
PREFERRED EQUITY — 3.1%									Shares
PlayPower Holdings, Inc., Series A Preferred (5)		14.00% PIK		11/15/20		Leisure			49,178			$	59,411			$	59,411
TOTAL PREFERRED EQUITY												$	59,411			$	59,411
EQUITY — 13.1%
Common Equity/Interests — 13.1%									Shares
Merx Aviation Finance, LLC, Membership Interest (5)(13)		N/A		N/A		Aviation			—			$	152,082			$	165,172
MSEA Tankers LLC, Membership Interest (5)(17)		N/A		N/A		Cargo Transport			—				33,000				33,000
PlayPower Holdings, Inc., Common Stock (5)(13)		N/A		N/A		Leisure			1,000				77,722				55,900
Total Common Equity/Interests												$	262,804			$	254,072
TOTAL EQUITY												$	262,804			$	254,072
Total Controlled Investments												$	674,299			$	665,567
Total Investments — 172.9% (6)(7)												$	3,486,575			$	3,349,827
Liabilities in Excess of Other Assets — (72.9)%																$	(1,412,219	)
Net Assets — 100.0%																$	1,937,608

 

(1)	Fair value is determined in good faith by or under the direction of the Board of Directors of the Company (Note 2).

(2)	Fidji Luxco (BC) S.C.A. is a EUR denominated investment and AMP Solar (UK) Limited is a GBP denominated investment.

(3)	Denotes investments where the governing documents of the entity preclude the Company from controlling management of the entity and therefore the Company has determined that the entity is not a controlled affiliate.

(4)

Denotes investments in which we are an “Affiliated Person”, as defined in the 1940 Act, due to owning or holding the power to vote 5% or more of the outstanding voting securities of the investment but not controlling the company. Fair value as of March 31, 2015 and March 31, 2014 along with transactions during the fiscal year ended March 31, 2015 in these Affiliated investments are as follows:

 

See notes to financial statements.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands)

 

Name of Issue		Fair Value at March 31, 2014				Gross Additions (Cost) ●				Gross Reductions (Cost) n				Change in Unrealized Gain (Loss)				Fair Value at March 31, 2015				Net Realized Gain (Loss)				Interest/ Dividend/ Other Income
AMP Solar Group, Inc., Class A Common Shares		$	—			$	3,500			$	—			$	—			$	3,500			$	—			$	—
AMP Solar Group, Inc., 15.000%, 7/7/15			—				3,619				(3,619	)			—				—				(57	)			53
AMP Solar (UK) Limited, Class A Preference Shares (21)			—				66,355				—				(1,184	)			65,171				—				1,580
Aventine Renewable Energy Holdings, Inc., 15.00% (12.00% Cash / 3.00% PIK), 9/23/16			2,405				21				(2,642	)			216				—				116				184
Aventine Renewable Energy Holdings, Inc., 10.50% Cash or 15.00% PIK, 9/22/17			8,884				1,481				(15,306	)			4,941				—				—				1,496
Aventine Renewable Energy Holdings, Inc., 25.00% PIK, 9/24/16			3,769				238				(4,007	)			—				—				—				433
Aventine Renewable Energy Holdings, Inc., Common Stock			99				—				(688	)			589				—				1,804				—
Aventine Renewable Energy Holdings, Inc., Common Stock Warrants			574				—				(3,996	)			3,422				—				9,713				—
Generation Brands Holdings, Inc. (Quality Home Brands), Basic Common Stock (18)			—				1,615				—				5,084				6,699				—				—
Generation Brands Holdings, Inc. (Quality Homes Brands), Series H Common Stock (18)			—				1,345				—				4,233				5,578				—				—
Generation Brands Holdings, Inc. (Quality Homes Brands), Series 2L Common Stock (18)			—				6,582				—				20,712				27,294				—				—
Golden Bear Warehouse LLC, Equity			—				4,233				—				2,600				6,833				—				—
Golden Hill CLO I, LLC, Equity			1,097				69,847				—				2,643				73,587				—				1,515
Highbridge Loan Management 3-2014, Ltd., Class D Notes, L+500, 1/18/25			4,680				21				(4,659	)			(42	)			—				(169	)			205
Highbridge Loan Management 3-2014, Ltd., Class E Notes, L+600, 1/18/25			2,314				14				—				(207	)			2,121				—				171
Highbridge Loan Management 3-2014, Ltd., Subordinated Notes, 1/18/25			7,278				—				(989	)			433				6,722				—				652
Ivy Hill Middle Market Credit Fund IX, Ltd, Subordinated Notes, 10/18/25			—				11,375				—				—				11,375				—				414
Jamestown CLO I LTD, Subordinated Notes, 11/5/24			3,828				—				(121	)			(9	)			3,698				—				559
LVI Parent Corp. (LVI Services, Inc.), 12.50%, 4/20/14 (19)			—				10,387				(10,200	)			(187	)			—				—				269
LVI Group Investments, LLC, Common Units (formerly known as LVI Services, Inc.) (19)			—				35,429				—				(26,760	)			8,669				—				87
MCF CLO I LLC, Class E Notes, L+575, 4/20/23			12,357				13				(12,344	)			(26	)			—				(107	)			215
MCF CLO I LLC, Membership Interests			40,391				—				(2,471	)			570				38,490				—				7,176
MCF CLO III LLC, Class E Notes L+445, 1/20/24			11,325				107				—				(212	)			11,220				—				718
MCF CLO III LLC, Membership Interests, 1/20/24			38,266				—				(2,227	)			2,945				38,984				—				6,271
Renewable Funding Group, Inc. 0.00%, 9/30/15			—				1,000				—				—				1,000				—				—
Renewable Funding Group, Inc., Series B Preferred Stock			—				8,750				(1,289	)			1,848				9,309				—				—
Slater Mill Loan Fund LP, LP Certificates			7,361				—				(467	)			74				6,968				—				1,427
		$	144,628			$	225,932			$	(65,025	)		$	21,683			$	327,218			$	11,300			$	23,425

 

•

Gross additions includes increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the accretion of discounts, the exchange of one or more existing securities for one or more new securities, the movement of an existing portfolio company into this category from a different category, and the transfers of one or more securities into non-controlled/affiliated. Transfers are assumed to have occurred at the end of the period.

¡

Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the amortization of premiums, the exchange of one or more existing securities for one or more new securities, the movement of an existing portfolio company out of this category into a different category, and the transfers of one or more securities out of non-controlled/affiliated. Transfers are assumed to have occurred at the end of the period.

 

See notes to financial statements.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands)

 

As of March 31, 2015, the Company has a 28%, 100%, 100%, 26%, 32%, 36%, 97%, 98% and 26% equity ownership interest in Generation Brands Holdings, Inc., Golden Bear Warehouse LLC, Golden Hill CLO I, LLC, Highbridge Loan Management, Ltd., Ivy Hill Middle Market Credit Fund IX, Ltd, LVI Group Investments, LLC, MCF CLO I LLC, MCF CLO III LLC, and Slater Mill Loan Fund LP, respectively. Investments that the Company owns greater than 25% of the equity and are shown in “Non-Controlled/Affiliated” have governing documents that preclude the Company from controlling management of the entity and therefore the Company has determined that the entity is not a controlled affiliate.

 

(5)

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. Fair value as of March 31, 2015 and March 31, 2014 along with transactions during the fiscal year ended March 31, 2015 in these Controlled investments are as follows:

 

Name of Issue		Fair Value at March 31, 2014				Gross Additions (Cost) ●				Gross Reductions (Cost) n				Change in Unrealized Gain (Loss)				Fair Value at March  31, 2015				Net Realized Gain (Loss)				Interest /Dividend/ Other Income
Generation Brands Holdings, Inc. (Quality Home Brands), Basic Common Stock (18)		$	1,615			$	—			$	(1,615	)		$	—			$	—			$	—			$	—
Generation Brands Holdings, Inc. (Quality Homes Brands), Series H Common Stock (18)			1,345				—				(1,345	)			—				—				—				—
Generation Brands Holdings, Inc. (Quality Homes Brands), Series 2L Common Stock (18)			6,582				—				(6,582	)			—				—				—				—
LVI Parent Corp. (LVI Services, Inc.), 12.50%, 4/20/14 (19)			10,200				—				(10,200	)			—				—				—				—
LVI Group Investments, LLC, Common Units (formerly known as LVI Services, Inc.) (19)			34,020				—				(34,020	)			—				—				—				—
Merx Aviation Finance, LLC (formerly known as Merx Aviation Finance Holdings II, LLC), (Revolver) 12.00% Funded, 10/31/18			282,334				69,750				—				—				352,084				—				39,231
Merx Aviation Finance, LLC (formerly known as Merx Aviation Finance Holdings II, LLC), (Unfunded Revolver) 0.00% Unfunded, 10/31/18			—				—				—				—				—				—				—
Merx Aviation Finance Assets Ireland Limited, Letter of Credit, 2.25%, 9/30/15			—				—				—				—				—				—				—
Merx Aviation Finance Assets Ireland Limited, Letter of Credit, 2.25%, 9/30/15			—				—				—				—				—				—				—
Merx Aviation Finance, LLC (formerly known as Merx Aviation Finance Holdings II, LLC), Membership Interest			140,465				13,499				—				11,208				165,172				—				—
MSEA Tankers LLC, Membership Interest			—				33,000				—				—				33,000				—				—
PlayPower Holdings, Inc., Common Stock			53,813				—				—				2,087				55,900				—				—
PlayPower Holdings, Inc., Series A Preferred, 14.00% PIK, 11/15/20			51,773				7,638				—				—				59,411				—				7,891
		$	582,147			$	123,887			$	(53,762	)		$	13,295			$	665,567			$	—			$	47,122

 

•

Gross additions includes increases in the cost basis of investments resulting from new portfolio investments, PIK interest or dividends, the accretions of discounts, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company into this category from a different category.

 

¡

Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, the amortization of premiums, the exchange of one or more existing securities for one or more new securities and the movement of an existing portfolio company out of this category into a different category.

 

See notes to financial statements.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

(in thousands)

 

As of March 31, 2015, the Company has a 100% equity ownership interest in Merx Aviation Finance, LLC, MSEA Tankers LLC and PlayPower Holdings, Inc.

(6)	Aggregate gross unrealized gain for federal income tax purposes is $143,557; aggregate gross unrealized loss for federal income tax purposes is $302,058. Net unrealized loss is $158,501 based on a tax cost of $3,508,328.

(7)	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.

(8)	The negative fair value is the result of the unfunded commitment or letter of credit being valued below par.

(9)	These letters of credit represent multiple commitments made on various dates. As a result, maturity dates may vary and a maturity range has been provided.

(10)	The percentage is calculated over net assets.

(11)	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.

(12)	Denominated in USD unless otherwise noted, Euro (“€”), British Pound (“£”), and Canadian Dollar (“CAD”).

(13)	Non-income producing security.

(14)	Non-accrual status (Note 2).

(15)	The investment has a put option attached to it and the combined instrument has been recorded in its entirety at fair value as a hybrid instrument in accordance with ASC 815-15-25-4 with subsequent changes in fair value charged or credited to investment gains/losses for each period.

(16)

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, and differing interest rate characteristics, among other factors. Such factors are usually considered in the determination of fair values.

(17)

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 is subject to change. The Company monitors the status of these assets on an ongoing basis.

(18)

Generation Brands Holdings, Inc. was previously incorrectly reported as a controlled investment in the financial statements for the year ended March 31, 2014. After further assessment, the Company does not control more than 25% of the voting power and has no power to direct or cause the direction of the policies and management of the company. As such, $9,542 of the fair value of Generation Brands Holdings, Inc., Common Stock was transferred from “Controlled” to “Non-Controlled/Affiliated” in 2015 to correctly reflect Generation Brands Holdings, Inc. as a non-controlling/ affiliated investment. Management evaluated the impact of the error to the financial statements and determined that this adjustment was not material to any prior annual or interim periods, and the resulting correction is not material to the current financial statements.

(19)

As a result of a restructuring in April 2014, the Company ‘s investment was moved to LVI Group Investments, LLC from LVI Services Inc. LVI Group Investments, LLC further invested in NorthStar Group Holdings. The Company no longer controls more than 25% of the voting power and has no power to direct or cause the direction of the policies and management of NorthStar Group Holdings. As such, $44,220 of the fair value of LVI Services, Inc., Common Stock, was transferred from “Controlled” to “Non-Controlled/Affiliated” in LVI Group Investments, LLC prior to the fiscal year ended March 31, 2015.

(20)	This investment represents a leveraged subordinated interest in a trust that holds one foreign currency denominated bond and a derivative instrument.

(21)

AMP Solar (UK) Limited was previously incorrectly reported as a controlled investment in the financial statements for the year ended March 31, 2015. After further assessment, it was determined that the Company does not control more than 25% of the voting power and has no power to direct or cause the direction of the policies and management of the company. As such, $65,171 of the ending fair value as of March 31, 2015 of AMP Solar (UK) Limited, Class A Preference Shares was reclassified from “Controlled” to “Non-Controlled/Affiliated” to correctly reflect AMP Solar (UK) Limited as a non-controlling/ affiliated investment. Management evaluated the impact of the error to the financial statements and determined that this adjustment was not material to any prior annual or interim periods, and the resulting correction is not material to the current financial statements.

 

N/A	Not applicable.

 

See notes to financial statements.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2015

 

Industry Classification		Percentage of Total Investments (at fair value) as of March 31, 2015
Business Services			15.6	%
Aviation			15.4	%
Oil and Gas			13.9	%
Diversified Investment Vehicle			9.6	%
Financial Services			4.0	%
Chemicals			3.8	%
Leisure			3.4	%
Utilities			3.0	%
Aerospace and Defense			2.9	%
Distribution			2.9	%
Telecommunications			2.2	%
Insurance			2.1	%
Transportation			2.1	%
Printing and Publishing			1.9	%
Cargo Transport			1.7	%
Healthcare			1.6	%
Energy			1.6	%
Education			1.5	%
Packaging			1.3	%
Restaurants			1.2	%
Home and Office Furnishings and Durable Consumer Products			1.2	%
Diversified Service			1.1	%
Grocery			0.8	%
Consumer Products			0.8	%
Hotels, Motels, Inns and Gaming			0.8	%
Diversified Natural Resources, Precious Metals and Minerals			0.7	%
Buildings and Real Estate			0.6	%
Mining			0.6	%
Broadcasting & Entertainment			0.4	%
Containers, Packaging, and Glass			0.4	%
Finance			0.3	%
Environmental Services			0.3	%
Electronics			0.1	%
Media			0.1	%
Cable Television			0.1	%
Total Investments			100.0	%

 

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited)

(in thousands except share and per share data)

Note 1. Organization

Apollo Investment Corporation (“Apollo Investment”, the “Company”, “AIC”, “we”, “us”, or “our”), a Maryland corporation incorporated on February 2, 2004, is a closed-end, externally managed, non-diversified management investment company that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). In addition, for tax purposes we have elected to be treated as a regulated investment company (“RIC”), under the Internal Revenue Code of 1986, as amended (“the Code”). Our investment objective is to generate current income and capital appreciation.

Apollo Investment Management, L.P. ( the “Investment Adviser” or “AIM”) is our investment adviser and an affiliate of Apollo Global Management, LLC and its consolidated subsidiaries (“AGM”). The Investment Adviser, subject to the overall supervision of our board of directors, manages the day-to-day operations of, and provides investment advisory services to the Company.

Apollo Investment Administration, LLC (“AIA” or “Administrator”), an affiliate of AGM, provides, among other things, administrative services and facilities for the Company. Furthermore, AIA provides on our behalf managerial assistance to those portfolio companies to which we are required to provide such assistance.

We invest primarily in various forms of debt investments, including secured and unsecured debt, loan investments, and/or equity in private middle-market companies. We may also invest in the securities of public companies and in structured products and other investments such as collateralized loan obligations and credit-linked notes (“CLOs” and “CLNs”, respectively). Our portfolio is comprised primarily of investments in debt, including secured and unsecured debt 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 $250 million. Our portfolio also includes equity interests such as common stock, preferred stock, warrants or options.

Apollo Investment commenced operations on April 8, 2004 receiving net proceeds of $870,000 from its initial public offering by selling 62 million shares of common stock at a price of $15.00 per share. Since then, and through September 30, 2015, we have raised approximately $2,210,099 in net proceeds from additional offerings of common stock and repurchased common stock for $21,193.

Note 2. Significant Accounting Policies

The following is a summary of the significant accounting and reporting policies used in preparing the financial statements.

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) pursuant to the requirements on Form 10-Q, ASC 946, Financial Services — Investment Companies (“ASC 946”), and Articles 6, 10, and 12 of Regulation S-X. In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair presentation of the financial statements for the interim period, have been included.

Under the 1940 Act, ASC 946, and the regulations pursuant to Article 6 of Regulation S-X, we are precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services to benefit us. Consequently, as of September 30, 2015, the Company did not consolidate any subsidiary or controlled entity or any special purpose entities through which the special purpose entity acquires and holds investments subject to financing with third parties.

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

These financial statements should be read in conjunction with the audited financial statements and accompanying notes included in the Annual Report on Form 10-K for the year ended March 31, 2015.

Certain amounts have been reclassified on the Statement of Assets and Liabilities and Statement of Operations. For the year ended March 31, 2015, $65,171 of fair value and $66,354 of cost previously classified as controlled investments was reclassified to non-controlled/affiliated investments. For the three and six months ended September 30, 2014, $4,905 and $1,784 of net change on unrealized gain (loss) previously classified as net change on unrealized gain (loss) from controlled investments was reclassified to net change on unrealized gain (loss) from non-controlled/affiliated investments. For the three and six months ended September 30, 2014, $44 and $356, respectively, of investment income previously classified as investment income from controlled investments was reclassified to investment income from non-controlled/affiliated investments.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of income, expenses, gains and losses during the reported periods. Changes in the economic environment, financial markets, credit worthiness of our portfolio companies and any other parameters used in determining these estimates could cause actual results to differ materially.

Cash and Cash Equivalents

The Company defines cash equivalents as securities that are readily convertible into known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only securities with a maturity of three months or less from the date of purchase would qualify, with limited exceptions. The Company deems that certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities would qualify as cash equivalents.

Cash and cash equivalents are carried at cost which approximates fair value. There were no cash equivalents held as of September 30, 2015 and March 31, 2015.

Investment Transactions

Investments are recognized when we assume an obligation to acquire a financial instrument and assume the risks for gains and losses related to that instrument. Investments are derecognized when we assume an obligation to sell a financial instrument and forego the risks for gains or losses related to that instrument. Specifically, we record all security transactions on a trade date basis. Amounts for investments recognized or derecognized but not yet settled are reported as receivables for investments sold and payables for investments purchased, respectively, in the Statements of Assets and Liabilities.

Fair Value Measurements

The Company follows guidance in ASC 820, Fair Value Measurement, where fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are determined within a framework that establishes a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability based on the information available. The inputs or methodology used for valuing assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities.

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.
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. The level assigned to the investment valuations may not be indicative of the risk or liquidity associated with investing in such investments. Because of the inherent uncertainties of valuation, the values reflected in the financial statements may differ materially from the values that would be received upon an actual disposition of such investments.

Investment Valuation Process

Under procedures established by our board of directors, we value investments, including certain secured debt, unsecured 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 unavailable or 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 third party valuation firms consider observable market inputs together with significant unobservable inputs in arriving at their valuation recommendations for such investments. Investments purchased within 15 days before the valuation date and debt investments with remaining maturities of 60 days or less may each be valued at cost with interest accrued or discount amortized to the date of maturity (although they are typically valued at available market quotations), unless such valuation, in the judgment of our investment adviser, does not represent fair value. In this case such investments shall be valued at fair value as determined in good faith by or under the direction of our board of directors including using market quotations where available. 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.

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

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 which is 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 adviser’s 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 in good faith the fair value of each investment in our portfolio based on the input of our investment adviser, the applicable independent valuation firm, third party pricing services 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, seniority of investment in the investee company’s capital structure, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s 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 as an input in the valuation process. For the six months ended September 30, 2015, there has been no change to the Company’s valuation techniques and related inputs considered in the valuation process.

Valuation of Other Financial Assets and Financial Liabilities

ASC 825, Financial Instruments, permits an entity to choose, at specified election dates, to measure certain assets and liabilities at fair value (the “Fair Value Option”). We have not elected the Fair Value Option to report selected financial assets and financial liabilities. The carrying value of all other financial assets and liabilities approximates fair value due to their short maturities or their close proximity of the originations to the measurement date. Debt issued by the Company is reported at amortized cost (see Note 6).

Realized Gains or Losses

Security transactions are accounted for on a trade date basis. Realized gains or losses on investments are calculated by using the specific identification method. Securities that have been called by the issuer are recorded at the call price on the call effective date at the call price.

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

Investment Income 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 payment-in-kind (“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 fully 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 believes that PIK is expected to be realized.

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 management’s 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 management’s judgment.

Loan origination fees, original issue discount (“OID”), and market discounts are capitalized and accreted into interest income over the respective terms of the applicable loans using the effective interest method or straight-line, as applicable. Upon the prepayment of a loan, prepayment premiums, any unamortized loan origination fees, OID, or market discounts are recorded as interest income. Other income generally includes amendment fees, bridge fees, and structuring fees which are recorded when earned.

The Company records as dividend income the accretable yield from its beneficial interests in structured products such as CLOs based upon a number of cash flow assumptions that are subject to uncertainties and contingencies. Such assumptions include the rate and timing of principal and interest receipts (which may be subject to prepayments and defaults) of the underlying pool of assets. These assumptions are updated on at least a quarterly basis to reflect changes related to a particular security, actual historical data, and market changes. A structured product investment typically has an underlying pool of assets. Payments on structured product investments are and will be payable solely from the cash flows from such assets. As such, any unforeseen event in these underlying pools of assets might impact the expected recovery of principal and future accrual of income.

Expenses

Expenses include management fees, performance-based incentive fees, insurance expenses, administrative service fees, legal fees, directors’ fees, audit and tax service expenses, third-party valuation fees and other general and administrative expenses. Expenses are recognized on an accrual basis.

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

Financing Costs

The Company records expenses related to shelf filings and applicable offering costs as deferred financing costs in the Statement of Assets and Liabilities. To the extent such expenses relate to equity offerings, these expenses are charged as a reduction of capital upon utilization, in accordance with ASC 946-20-25 or charged to expense if no offering is completed.

The Company records origination and other expenses related to its debt obligations as deferred financing costs in the Statement of Assets and Liabilities. These expenses are deferred and amortized as part of interest expense using the straight-line method over the stated life of the obligation which approximates the effective yield method.

Foreign Currency Translations

The accounting records of the Company are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the foreign exchange rate on the date of valuation. The Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. The Company’s investments in foreign securities may involve certain risks, including without limitation: foreign exchange restrictions, expropriation, taxation or other political, social or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments and therefore the earnings of the Company.

Dividends and Distributions

Dividends and distributions to common shareholders are recorded as of the ex-dividend date. The amount to be paid out as dividends is determined by the board of directors each quarter. Net realized capital gains, if any, are generally distributed or deemed distributed at least annually.

Share Repurchase

In connection with the Company’s share repurchase program, the cost of shares repurchased is charged to net assets on the settlement date.

Federal and State Income Taxes

We have elected to be treated as a RIC under the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, the Company must (among other requirements) meet certain source-of-income and asset diversification requirements and timely distribute to its shareholders at least 90% of its investment company taxable income and net capital gain, as defined by the Code, for each year. The Company (among other requirements) has made and intends to continue to make the requisite distributions to its shareholders, which will generally relieve the Company from corporate-level income taxes. The character of income and gains that we will distribute is determined in accordance with income tax regulations that may differ from GAAP. Book and tax basis differences relating to shareholder dividend and distributions and other permanent book and tax difference are reclassified to paid-in capital.

If we do not distribute (or are not deemed to have distributed) at least 98% of our annual ordinary income and 98.2% of our capital gains in the calendar year earned, we will general be required to pay excise tax equal to 4%

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

of the amount by which 98% of our annual ordinary income and 98.2% of our capital gains exceed the distributions from such taxable income for the year. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, we accrue excise taxes, if any, on estimated undistributed taxable income.

If we fail to satisfy the annual distribution requirement or otherwise fail to qualify as a RIC in any taxable year, we would be subject to tax on all of our taxable income at regular corporate rates. Distribution would generally be taxable to our individual and other non-corporate taxable shareholders as ordinary dividend income eligible for the reduced maximum rate applicable to qualified dividend income to the extent of our current and accumulated earnings and profits provided certain holding period and other requirements are met. Subject to certain limitation under the Code, corporate distributions would be eligible for the dividend-received deduction. To qualify again to be taxed as a RIC in a subsequent year, we would be required to distribute to our shareholders our accumulated earnings and profits payable by us as an additional tax. In addition, if we failed to qualify as a RIC for a period greater than two taxable years, then, in order to qualify as a RIC in a subsequent year, we would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss that would have been realized if we had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of ten years.

We follow ASC 740, Income Taxes (“ASC 740”). ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. As of September 30, 2015, and for the three and six months ended, there were no uncertain tax positions. Management’s determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof. Although we file both federal and state income tax returns, our major tax jurisdiction is federal. Our tax returns for each of our federal tax years since 2012 remain subject to examination by the Internal Revenue Service.

Derivative Instruments

The Company may make investments in derivative instruments. The derivative instruments are fair valued with changes to the fair value reflected in net unrealized gain/loss during the reporting period and recorded within realized gain/loss upon exit and settlement of the contract. The accrual of periodic payment settlements is recorded in net change in unrealized gain/loss and subsequently recorded as net realized gain or loss on the interest settlement date.

The Company may enter into forward exchange contracts in order to hedge against foreign currency risk. These contracts are marked-to- market by recognizing the difference between the contract exchange rate and the current market rate as unrealized gain or loss. Realized gains or losses are recognized when contracts are settled.

Recent Accounting Pronouncements

In May 2014, the FASB issued guidance to establish a comprehensive and converged standard on revenue recognition to enable financial statement users to better understand and consistently analyze an entity’s revenue across industries, transactions, and geographies. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The new guidance also specifies the accounting for certain costs to obtain or fulfill a contract with a customer. The new guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized. Qualitative and quantitative information is required to be disclosed about: (1) contracts with customers, (2) significant judgments and changes in judgments, and (3) assets recognized from costs to obtain or fulfill a contract. The new guidance will apply to all entities. In August 2015, the FASB approved a one-year deferral of the effective date of the new revenue guidance. The amended guidance permits public business entities to apply the new revenue guidance to interim reporting periods within annual reporting periods beginning after December 15, 2017 (i.e., beginning in the first interim period within the year of adoption). Public business entities would be permitted to apply the new revenue guidance early, but not before the original public business entity effective date (i.e., annual periods beginning after December 15, 2016). Public business entities choosing this option will apply the new revenue guidance to all interim reporting periods within the year of adoption. This guidance is not expected to have an impact on the financial statements of the Company.

In August 2014, the FASB issued guidance regarding management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new guidance requires that management evaluate each annual and interim reporting period whether conditions exist that give rise to substantial doubt about the entity’s ability to continue as a going concern within one year from the financial statement issuance date, and if so, provide related disclosures. Disclosures are only required if conditions give rise to substantial doubt, whether or not the substantial doubt is alleviated by management’s plans. No disclosures are required specific to going concern uncertainties if an assessment of the conditions does not give rise to substantial doubt. Substantial doubt exists when conditions and events, considered in the aggregate, indicate that it is probable that a company will be unable to meet its obligations as they become due within one year after the financial statement issuance date. If substantial doubt is alleviated as a result of the consideration of management’s plans, a company should disclose information that enables users of financial statements to understand all of the following (or refer to similar information disclosed elsewhere in the footnotes): 1) principal conditions that initially give rise to substantial doubt, 2) management’s evaluation of the significance of those conditions in relation to the company’s ability to meet its obligations, and 3) management’s plans that alleviated substantial doubt. If substantial doubt is not alleviated after considering management’s plans, disclosures should enable investors to understand the underlying conditions, and include the following: 1) a statement indicating that there is substantial doubt about the company’s ability to continue as a going concern within one year after the issuance date, 2) the principal conditions that give rise to substantial doubt, 3) management’s evaluation of the significance of those conditions in relation to the company’s ability to meet its obligations, and 4) management plans that are intended to mitigate the adverse conditions. The new guidance applies to all companies. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2016. Early adoption is permitted. This guidance is not expected to have an impact on the financial statements of the Company.

In February 2015, the FASB issued new guidance which changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. Existing guidance includes different requirements for performing a consolidation analysis if, among other factors, the entity under evaluation is any one of the following: (1) a legal entity that qualifies for the indefinite deferral under the amended consolidation rules, (2) a legal entity that is within the scope of the amended consolidation rules, or (3) a limited partnership or similar entity that is considered a voting interest entity. Under the new guidance, all reporting

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

entities are within the scope of the new standard, including limited partnerships and similar legal entities, unless a scope exception applies. The presumption that a general partner controls a limited partnership has been eliminated. In addition, fees paid to decision makers that meet certain conditions (e.g., are both customary and commensurate with the level of effort required for the services provided) no longer cause decision makers to consolidate variable interest entities (each a “VIE”) in certain instances. The new guidance places more emphasis in the consolidation evaluation on variable interests other than the fee arrangements such as principal investment risk (for example, debt or equity interests), guarantees of the value of the assets or liabilities of the VIE, written put options on the assets of the VIE, or similar obligations, including some liquidity commitments or agreements (explicit or implicit). Additionally, the new guidance reduces the extent to which related party arrangements cause an entity to be considered a primary beneficiary. The indefinite deferral of the amended consolidation rules for certain investment funds has been eliminated and a scope exception from the new consolidation standard has been added for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the 1940 Act for registered money market funds. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period, and adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. A reporting entity may apply the new guidance using either a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or by applying the amendments retrospectively. The Company is in the process of evaluating the impact that this new guidance will have on its financial statements.

In April 2015, the FASB issued guidance to simplify the presentation of debt issuance costs. The guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability (i.e., versus being capitalized as an asset and amortized as required under existing guidance), consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the new guidance (i.e., debt issuance costs will continue to be amortized as an increase to interest expense). The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. The Company is in the process of evaluating the impact that this new guidance will have on its financial statements.

In May 2015, the FASB issued guidance to eliminate diversity in practice related to how certain investments measured at net asset value are categorized within the fair value hierarchy. The guidance removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. A reporting entity should continue to disclose information on investments for which fair value is measured at net asset value (or its equivalent) as a practical expedient to help users understand the nature and risks of the investments and whether the investments, if sold, are probable of being sold at amounts different from net asset value. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2015. A reporting entity should apply the amendments retrospectively to all periods presented. The retrospective approach requires that an investment for which fair value is measured using the net asset value per share practical expedient be removed from the fair value hierarchy in all periods presented in an entity’s financial statements. Earlier application is permitted. This guidance is not expected to have an impact on the financial statements of the Company.

Note 3. Related Party Agreements and Transactions

The Company has an Investment Advisory and Management Agreement (the “Investment Advisory Agreement”) with the Investment Adviser, under which the Investment Adviser receives a fee from the Company, consisting

 

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NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

of two components — a base management fee and a performance-based incentive fee. The base management fee is determined by taking the average value of our gross assets, net of the average of any payable for investments at the end of the two most recently completed calendar quarters calculated at an annual rate of 2.00%. The incentive fee has two parts, as follows: one part is calculated and payable quarterly in arrears based on our pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, any expenses payable under an administration agreement (the “Administration Agreement”) between the Company and the Administrator, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income does not include any realized capital gains computed net of all realized capital losses and unrealized capital depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets at the end of the immediately preceding calendar quarter, is compared to the rate of 1.75% per quarter (7% annualized). For the period between April 2, 2012 and March 31, 2016, AIM has agreed to voluntarily waive the management and incentive fees on the common shares issued on April 2, 2012 and May 20, 2013.

The Investment Adviser has also entered into an investment sub-advisory agreement with CION Investment Corporation (“CION”) (the “Sub-Advisory Agreement”) under which AIM receives management and incentive fees from CION in connection with the investment advisory services provided. For the period between April 1, 2014 and March 31, 2016, the Investment Adviser has agreed to waive all base management fees receivable under the Investment Advisory Agreement with the Company in the amount equal to the amount actually received by AIM from CION less the fully allocated incremental expenses accrued by AIM. AIM’s arrangement with CION is subject to the annual renewal of an investment sub-advisory agreement with CION which has a renewal date of December 2015.

The Company pays the Investment Adviser an incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows: (1) no incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed 1.75%, which we commonly refer to as the performance threshold; (2) 100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds 1.75% but does not exceed 2.1875% in any calendar quarter; and (3) 20% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter. These calculations are appropriately prorated for any period of less than three months. The effect of the fee calculation described above is that if pre-incentive fee net investment income is equal to or exceeds 2.1875%, the Investment Adviser will receive a fee of 20% of our pre-incentive fee net investment income for the quarter.

The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date) and will equal 20% of our cumulative realized capital gains less cumulative realized capital losses, unrealized capital loss (unrealized loss on a gross investment-by-investment basis at the end of each calendar year) and all capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the Investment Adviser. For accounting purposes only, we are required under GAAP to accrue a theoretical capital gains incentive fee based upon net realized capital gains and unrealized capital gain and loss on investments held at the end of each period.

The accrual of this theoretical capital gains incentive fee assumes all unrealized capital gain and loss is realized in order to reflect a theoretical capital gains incentive fee that would be payable to the Investment Adviser at

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

each measurement date. There was no accrual for theoretical capital gains incentive fee for the three and six months ended September 30, 2015 and 2014. It should be noted that a fee so calculated and accrued would not be payable under the Investment Advisers Act of 1940 (“Advisers Act”) or the Investment Advisory Agreement, and would not be paid based upon such computation of capital gains incentive fees in subsequent periods. Amounts actually paid to the Investment Adviser will be consistent with the Advisers Act and formula reflected in the Investment Advisory Agreement which specifically excludes consideration of unrealized capital gain.

For the period between April 1, 2013 and March 31, 2016, AIM has agreed to be paid the portion of the performance-based incentive fee that is attributable to deferred interest, such as PIK, when the Company receives such interest in cash. The accrual of incentive fees shall be reversed if such interest is reversed in connection with any write off or similar treatment of the investment. Upon payment of the deferred incentive fee, AIM will also receive interest on the deferred interest at an annual rate of 3.25% for the period between the date in which the incentive fee is earned and the date of payment.

For the three and six months ended September 30, 2015, the Company recognized $16,727 and $34,079, respectively, of base management fees and $10,774 and $22,641, respectively, of performance-based incentive fees before impact of waived fees. For the three and six months ended September 30, 2014, the Company recognized $18,878 and $36,989, respectively, of base management fees and $15,393 and $27,860, respectively, of performance-based incentive fees. For the three and six months ended September 30, 2015, management fees waived were $3,425 and $6,578, respectively. For the three and six months ended September 30, 2014, management fees waived were $2,241 and $4,948, respectively. For the three and six months ended September 30, 2015, incentive fees waived were $1,297 and $2,659, respectively. For the three and six months ended September 30, 2014, incentive fees waived were $1,800 and $3,245, respectively.

At September 30, 2015 and March 31, 2015, management and performance-based incentive fees payable were $29,557 and $37,361, respectively.

The amount of the incentive fees on PIK income for which payments have been deferred for the three and six months ended September 30, 2015 were $1,457 and $2,484, respectively. The amount of the incentive fees on PIK income for which payments have been deferred for the three and six months ended September 30, 2014 were $1,328 and $2,487, respectively. The cumulative incentive fee on PIK income included in management and performance-based incentive fee payable line of the Statement of Assets and Liabilities as of September 30, 2015 and March 31, 2015 were $7,565 and $5,863, respectively.

The Company has also entered into an Administration Agreement with AIA under which AIA provides administrative services for the Company. For providing these services, facilities and personnel, the Company reimburses the Administrator for the allocable portion of overhead and other expenses incurred by the Administrator and requested to be reimbursed by the Administrator in performing its obligations under the Administration Agreement. The expenses include rent and the Company’s allocable portion of its chief financial officer and chief compliance officer and their respective staffs. For the three and six months ended September 30, 2015, the Company recognized expenses under the Administration Agreement of $1,650 and $3,083, respectively. For the three and six months ended September 30, 2014, the Company recognized expenses under the Administration Agreement of $1,525 and $2,958, respectively.

Merx Aviation Finance, LLC (“Merx”), a wholly-owned portfolio company of the Company, has also entered into an administration agreement (“Merx Administration Agreement”) with the Administrator under which the Administrator provides administrative services to Merx for an annual fee of $150. The fee received from Merx by the Company is included in expense reimbursements in the Statement of Operations. For the three and six

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

months ended September 30, 2015, the Company recognized expense reimbursements of $38 and $75 respectively, under the Merx Administration Agreement. For the three and six months ended September 30, 2014, the Company recognized expense reimbursements of $38 and $75 respectively, under the Merx Administration Agreement.

The Company has also entered into an expense reimbursement agreement with Merx Aviation Finance Assets Ireland, Limited, an affiliate of Merx that will reimburse the Company for reasonable out-of-pocket expenses incurred, including any interest, fees or other amounts incurred by the Company in connection with letters of credit issued on its behalf. For the three and six months ended September 30, 2015, the Company recognized expenses that were reimbursed under the expense reimbursement agreement of $21 and $42 respectively. For the three and six months ended September 30, 2014, the Company recognized expenses that were reimbursed under the expense reimbursement agreement of $21 and $41 respectively.

Note 4. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share, pursuant to ASC 260-10, for the three and six months ended September 30, 2015 and September 30, 2014, respectively:

 

		Three Months Ended September 30,								Six Months Ended September 30,
		2015				2014				2015				2014
Basic Earnings per Share
Net increase (decrease) in net assets resulting from operations		$	(1,747	)		$	41,967			$	4,644			$	106,603
Weighted average shares outstanding			235,873,005				236,741,351				236,304,806				236,741,351
Basic earnings per share		$	(0.01	)		$	0.18			$	0.02			$	0.45
Diluted Earnings per Share*
Net increase (decrease) in net assets resulting from operations		$	(1,747	)		$	41,967			$	4,644			$	106,603
Adjustment for interest on convertible notes net of incentive fees			—				2,524				—				5,068
Net increase (decrease) in net assets resulting from operations, as adjusted		$	(1,747	)		$	44,491			$	4,644			$	111,671
Weighted average shares outstanding, as adjusted for dilutive effect of convertible notes			235,873,005				251,289,451				236,304,806				251,289,451
Diluted earnings per share:		$	(0.01	)		$	0.18			$	0.02			$	0.44

 

*	In applying the if-converted method, conversion is not assumed for purposes of computing diluted EPS if the effect would be anti-dilutive. For the three and six months ended September 30, 2015, anti-dilution would total $0.01 and $0.02, respectively.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

Note 5. Investments

Fair Value Measurement and Disclosures

At September 30, 2015, our investments were categorized as follows in the fair value hierarchy for ASC 820 purposes.

 

										Fair Value Measurement at Reporting Date Using:
Description		Cost				Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
1st Lien Secured Debt		$	1,140,597			$	1,067,013				—			$	34,174			$	1,032,839
2nd Lien Secured Debt			1,022,344				943,065				—				411,749				531,316
Unsecured Debt			302,666				295,679				—				45,500				250,179
Structured Products and Other			400,048				413,465				—				—				413,465
Preferred Equity			186,138				160,108				—				—				160,108
Common Equity/Interests			254,365				310,392				5,264				—				305,128
Warrants			5,016				4,327				—				—				4,327
Total Investments		$	3,311,174			$	3,194,049			$	5,264			$	491,423			$	2,697,362

At March 31, 2015, our investments were categorized as follows in the fair value hierarchy for ASC 820 purposes.

 

										Fair Value Measurement at Reporting Date Using:
Description		Cost				Fair Value				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
1st Lien Secured Debt		$	1,252,324			$	1,193,847			$	—			$	177,817			$	1,016,030
2nd Lien Secured Debt			820,840				805,625				—				293,515				512,110
Unsecured Debt			530,366				475,434				—				123,463				351,971
Structured Products and Other			349,813				374,368				—				—				374,368
Preferred Equity			197,365				165,101				—				—				165,101
Common Equity/Interests			330,851				329,881				—				81				329,800
Warrants			5,016				5,571				—				—				5,571
Total Investments		$	3,486,575			$	3,349,827			$	—			$	594,876			$	2,754,951

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

The following chart shows the components of change in our investments categorized as Level 3, for the three months ended September 30, 2015.

 

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)*
		1st Lien Secured Debt (2)				2nd Lien Secured Debt				Unsecured Debt				Structured Products and Other				Preferred Equity				Common Equity/ Interests				Warrants				Total
Beginning Balance, June 30, 2015		$	1,095,901			$	490,136			$	268,852			$	412,564			$	128,302			$	322,941			$	5,573			$	2,724,269
Total realized gains (losses)			(1,923	)			(5	)			(21,657	)			—				—				(85	)			—				(23,670	)
Total change in unrealized gain (loss)			(20,579	)			(17,458	)			10,899				(6,386	)			3,454				19,000				(1,246	)			(12,316	)
Net amortization on investments			1,076				1,164				121				107				—				—				—				2,468
Purchases, including capitalized PIK (3)			24,330				81,845				1,013				18,466				28,352				33,000				—				187,006
Sales (3)			(82,218	)			(19,600	)			(9,117	)			(11,286	)			—				(69,728	)			—				(191,949	)
Transfers out of Level 3 (1)			—				(6,408	)			—				—				—				—				—				(6,408	)
Transfers into Level 3 (1)			16,252				1,642				68				—				—				—				—				17,962
Ending Balance, September 30, 2015		$	1,032,839			$	531,316			$	250,179			$	413,465			$	160,108			$	305,128			$	4,327			$	2,697,362
The amount of total gains or losses for the period attributable to the change in unrealized gain (loss) relating to our Level 3 assets still held at the reporting date		$	(24,239	)		$	(32,227	)		$	(2,196	)		$	(6,689	)		$	3,454			$	18,915			$	(1,246	)		$	(44,228	)

 

(1)

Transfers out of Level 3 are due to an increase in the quantity and reliability of broker quotes obtained and transfers into Level 3 are due to a decrease in the the quantity and reliability of broker quotes obtained as assessed by the Investment Adviser. Transfers are assumed to have occurred at the end of the period. There were no transfers between Level 1 and Level 2 fair value measurements during the period shown.

(2)	Includes unfunded revolver obligations and letters of credit measured at fair value of $(3,149).

(3)	Includes reorganizations and restructurings.

*	Pursuant to fair value measurement and disclosure guidance, the Company currently categorizes investments by class as shown above.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

The following chart shows the components of change in our investments categorized as Level 3, for the six months ended September 30, 2015.

 

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)*
		1st Lien Secured Debt (2)				2nd Lien Secured Debt				Unsecured Debt				Structured Products and Other				Preferred Equity				Common Equity/ Interests				Warrants				Total
Beginning Balance, March 31, 2015		$	1,016,030			$	512,110			$	351,971			$	374,368			$	165,101			$	329,800			$	5,571			$	2,754,951
Total realized gains (losses)			(2,048	)			14				(40,602	)			(67	)			—				(39,662	)			—				(82,365	)
Total change in unrealized gain (loss)			(22,156	)			(40,050	)			13,812				(11,138	)			6,233				56,975				(1,244	)			2,432
Net amortization on investments			1,635				885				241				214				—				—				—				2,975
Purchases, including capitalized PIK (3)			233,772				211,679				31,784				65,835				51,281				74,338				—				668,689
Sales (3)			(219,903	)			(52,299	)			(107,095	)			(15,747	)			(62,507	)			(111,162	)			—				(568,713	)
Transfers out of Level 3 (1)			—				(102,665	)			—				—				—				(5,264	)			—				(107,929	)
Transfers into Level 3 (1)			25,509				1,642				68				—				—				103				—				27,322
Ending Balance, September 30, 2015		$	1,032,839			$	531,316			$	250,179			$	413,465			$	160,108			$	305,128			$	4,327			$	2,697,362
The amount of total gains or losses for the period attributable to the change in unrealized gain (loss) relating to our Level 3 assets still held at the reporting date		$	85,208			$	55,028			$	6,453			$	(35,527	)		$	58,295			$	(77,137	)		$	133			$	92,453

 

(1)

Transfers out of Level 3 are due to an increase in the quantity and reliability of broker quotes obtained and transfers into Level 3 are due to a decrease in the the quantity and reliability of broker quotes obtained as assessed by the Investment Adviser. Transfers are assumed to have occurred at the end of the period. There were no transfers between Level 1 and Level 2 fair value measurements during the period shown.

(2)	Includes unfunded revolver obligations and letters of credit measured at fair value of $(3,149).

(3)	Includes reorganizations and restructurings.

*	Pursuant to fair value measurement and disclosure guidance, the Company currently categorizes investments by class as shown above.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

The following chart shows the components of change in our investments categorized as Level 3, for the three months ended September 30, 2014.

 

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)*
		1st Lien Secured Debt (2)				2nd Lien Secured Debt				Unsecured Debt				Structured Products and Other				Preferred Equity				Common Equity/ Interests				Warrants				Total
Beginning Balance, June 30, 2014		$	776,858			$	417,658			$	420,044			$	275,604			$	103,624			$	301,805			$	13,879			$	2,309,472
Total realized gains (losses)			185				—				—				—				—				1,936				9,713				11,834
Total change in unrealized gain (loss)			3,377				(2,833	)			(5,957	)			5,353				2,941				6,076				888				9,845
Net amortization on investments			340				350				164				60				—				—				—				914
Purchases, including capitalized PIK (3)			188,714				103,145				333				47,969				2,113				107				—				342,381
Sales (3)			(48,355	)			(59,352	)			(36,963	)			(11,608	)			—				(2,624	)			(13,709	)			(172,611	)
Transfers out of Level 3 (1)			(15,306	)			(56,990	)			—				—				—				—				—				(72,296	)
Transfers into Level 3 (1)			(2,634	)			59,371				—				—				—				—				—				56,737
Ending Balance, September 30, 2014		$	903,179			$	461,349			$	377,621			$	317,378			$	108,678			$	307,300			$	10,771			$	2,486,276
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gain (loss) relating to our Level 3 assets still held at the reporting date		$	(649	)		$	(9,490	)		$	(4,718	)		$	6,284			$	2,941			$	6,265			$	1,317			$	1,950

 

(1)

Transfers out of Level 3 are due to an increase in the availability of qualified observable inputs and transfers into Level 3 are due to a decrease in the availability of qualified observable inputs as assessed by the Investment Adviser. Transfers are assumed to have occurred at the end of the period. There were no transfers between Level 1 and Level 2 fair value measurements during the period shown.

(2)	Includes unfunded revolver obligations and letters of credit measured at fair value of $(5,607).

(3)	Includes reorganizations and restructurings.

*	Pursuant to fair value measurement and disclosure guidance, the Company currently categorizes investments by class as shown above.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

The following chart shows the components of change in our investments categorized as Level 3, for the six months ended September 30, 2014.

 

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)*
		1st Lien Secured Debt (2)				2nd Lien Secured Debt				Unsecured Debt				Structured Products and Other				Preferred Equity				Common Equity/ Interests				Warrants				Total
Beginning Balance, March 31, 2014			612,794				322,889				415,079				208,901				93,062				274,699				11,174			$	1,938,598
Total realized gains (losses)			367				336				(1,752	)			(107	)			—				(11,169	)			9,713				(2,612	)
Total change in unrealized gain (loss)			4,312				(2,051	)			(6,799	)			7,617				2,727				33,288				3,593				42,687
Net amortization on investments			2,464				6,911				13,120				114				—				—				—				22,609
Purchases, including capitalized PIK (3)			387,059				214,310				11,983				126,692				12,889				14,188				—				767,121
Sales (3)			(88,511	)			(96,200	)			(74,360	)			(25,839	)			—				(3,661	)			(13,709	)			(302,280	)
Transfers out of Level 3 (1)			(15,306	)			(22,165	)			—				—				—				(45	)			—				(37,516	)
Transfers into Level 3 (1)			—				37,319				20,350				—				—				—				—				57,669
Ending Balance, September 30, 2014		$	903,179			$	461,349			$	377,621			$	317,378			$	108,678			$	307,300			$	10,771			$	2,486,276
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gain (loss) relating to our Level 3 assets still held at the reporting date		$	(6	)		$	(10,246	)		$	(6,481	)		$	9,273			$	2,727			$	37,429			$	171			$	32,867

 

(1)

Transfers out of Level 3 are due to an increase in the availability of qualified observable inputs and transfers into Level 3 are due to a decrease in the availability of qualified observable inputs as assessed by the Investment Adviser. Transfers are assumed to have occurred at the end of the period. There were no transfers between Level 1 and Level 2 fair value measurements during the period shown.

(2)	Includes unfunded revolver obligations and letters of credit measured at fair value of $(5,607).

(3)	Includes reorganizations and restructurings.

*	Pursuant to fair value measurement and disclosure guidance, the Company currently categorizes investments by class as shown above.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

The following tables summarize the significant unobservable inputs the Company used to value the majority of its investments categorized within Level 3 as of September 30, 2015 and March 31, 2015. In addition to the techniques and inputs noted in the table below, according to our valuation policy we may also use other valuation techniques and methodologies when determining our fair value measurements. The below table is not intended to be all-inclusive, but rather provides information on the significant unobservable inputs as they relate to the Company’s determination of fair values.

 

						Quantitative Information about Level 3 Fair Value Measurements
		Fair Value as of September 30, 2015				Valuation Techniques/ Methodologies		Unobservable Input		Range								Weighted Average
1st Lien		$	577,424			Yield Analysis		Discount Rate			7.9	%			20.0	%			13.8	%
			352,084			Discounted Cash Flow		Discount Rate			12.0	%			12.0	%			12.0	%
			808			Recent Transaction		Recent Transaction			N/A				N/A				N/A
			14,465			Recovery Analysis		N/A			N/A				N/A				N/A
			88,058			Broker Quoted		Broker Quote			N/A				N/A				N/A
2nd Lien			280,561			Yield Analysis		Discount Rate			9.6	%			19.9	%			12.8	%
			62,978			Recovery Analysis		N/A			N/A				N/A				N/A
			187,777			Broker Quoted		Broker Quote			N/A				N/A				N/A
Unsecured Debt			250,110			Yield Analysis		Discount Rate			10.1	%			32.5	%			12.5	%
			69			Broker Quoted		Broker Quote			N/A				N/A				N/A
Structured Products and Other			2,269			Yield Analysis		Discount Rate			11.8	%			11.8	%			11.8	%
			383,621			Discounted Cash Flow		Discount Rate			6.3	%			16.0	%			11.8	%
			12,154			Recent Transaction		Recent Transaction			N/A				N/A				N/A
			15,421			Broker Quoted		Broker Quote			N/A				N/A				N/A
Preferred Equity			4,980			Market Comparable Approach		Comparable Multiple			2.1x				11.9x				11.7x
			23,712			Yield Analysis		Discount Rate			10.8	%			10.8	%			10.8	%
			112,302			Options Pricing Model		Expected Volatility			70.0	%			70.0	%			70.0	%
			19,114			Recent Transaction		Recent Transaction			N/A				N/A				N/A
Common Equity/Interests			81,185			Market Comparable Approach		Comparable Multiple			2.1x				12.3x				8.5x
			219,165			Discounted Cash Flow		Discount Rate			10.0	%			30.0	%			12.7	%
			4,675			Other		Illiquidity/Restrictive discount			7.0	%			7.0	%			7.0	%
			103			Broker Quoted		Broker Quote			N/A				N/A				N/A
Warrants			222			Market Comparable Approach		Comparable Multiple			5.0x				9.4x				9.4x
			4,105			Recent Transaction		Recent Transaction			N/A				N/A				N/A
			—			Recovery Analysis		N/A			N/A				N/A				N/A
Total		$	2,697,362

N/A – Not applicable

 

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NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

						Quantitative Information about Level 3 Fair Value Measurements
		Fair Value as of March 31, 2015				Valuation Techniques/ Methodologies		Unobservable Input		Range								Weighted Average
1st Lien Secured Debt		$	531,654			Yield Analysis		Discount Rate			7.9	%			20.9	%			13.0	%
			352,084			Discounted Cash Flow		Discount Rate			12.0	%			12.0	%			12.0	%
			14,377			Recent Transactions		Recent Transactions			N/A				N/A				N/A
			117,915			Broker Quoted		Broker Quote			N/A				N/A				N/A
2nd Lien Secured Debt			247,585			Yield Analysis		Discount Rate			9.7	%			19.7	%			14.5	%
			264,525			Broker Quoted		Broker Quote			N/A				N/A				N/A
Unsecured Debt			329,831			Yield Analysis		Discount Rate			9.7	%			22.0	%			11.4	%
			22,140			Broker Quoted		Broker Quote			N/A				N/A				N/A
Structured Products and Other			39,296			Yield Analysis		Discount Rate			8.4	%			15.0	%			8.8	%
			317,381			Discounted Cash Flow		Discount Rate			3.8	%			15.0	%			12.4	%
			17,691			Broker Quoted		Broker Quote			N/A				N/A				N/A
Preferred Equity			66,976			Market Comparable Approach		Comparable Multiple			2.2x				11.7x				7.3x
			23,645			Yield Analysis		Discount Rate			10.8	%			10.8	%			10.8	%
			9,309			Discounted Cash Flow		Discount Rate			15.9	%			15.9	%			15.9	%
			65,171			Options Pricing Model		Expected Volatility			70.0	%			70.0	%			70.0	%
Common Equity/Interests			121,169			Market Comparable Approach		Comparable Multiple			2.2x				10.8x				8.3x
			203,469			Discounted Cash Flow		Discount Rate			11.4	%			30.0	%			13.0	%
			5,162			Other		Illiquidity/Restrictive discount			7.0	%			7.0	%			7.0	%
Warrants			1,399			Market Comparable Approach		Comparable Multiple			4.8x				11.4x				11.2x
			222			Other		Illiquidity/ Restrictive discount			20.0	%			20.0	%			20.0	%
			3,950			Recent Transactions		Recent Transactions			N/A				N/A				N/A
Total		$	2,754,951

 

N/A – Not applicable

 

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NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

The significant unobservable inputs used in the fair value measurement of the Company’s debt and equity securities are primarily earnings before interest, taxes, depreciation and amortization (“EBITDA”) comparable multiples and market discount rates. The Company typically uses EBITDA comparable multiples on its equity securities to determine the fair value of investments. The Company uses market discount rates for debt securities to determine if the effective yield on a debt security is commensurate with the market yields for that type of debt security. If a debt security’s effective yield is significantly less than the market yield for a similar debt security with a similar credit profile, then the resulting fair value of the debt security may be lower. Significant increases or decreases in either of these inputs in isolation would result in a significantly lower or higher fair value measurement. The significant unobservable inputs used in the fair value measurement of the structured products include the discount rate applied in the valuation models in addition to default and recovery rates applied to projected cash flows in the valuation models. Specifically, when a discounted cash flow model is used to determine fair value, the significant input used in the valuation model is the discount rate applied to present value the projected cash flows. Increases in the discount rate can significantly lower the fair value of an investment; conversely decreases in the discount rate can significantly increase the fair value of an investment. The discount rate is determined based on the market rates an investor would expect for a similar investment with similar risks.

Investment Transactions

For the three months ended September 30, 2015 and September 30, 2014, purchases of investments on a trade date basis were $204,237 and $581,092, respectively. For the six months ended September 30, 2015 and September 30, 2014, purchases of investments on a trade date basis were $713,585 and $1,230,604, respectively.

For the three months ended September 30, 2015 and September 30, 2014 sales and repayments of investments on a trade date basis were $279,678 and $559,121, respectively. For the six months ended September 30, 2015 and September 30, 2014, sales and repayments of investments on a trade date basis were $812,463 and $1,075,947, respectively.

PIK Interest and Dividends

PIK income for the three and six months ended September 30, 2015 and September 30, 2014 is summarized below:

 

		Three Months Ended								Six Months Ended
		September 30, 2015				September 30, 2014				September 30, 2015				September 30, 2014
PIK income for the period		$	6,832			$	7,798			$	16,328			$	14,625

Capitalized PIK income for the three and six months ended September 30, 2015 and September 30, 2014 is summarized below:

 

		Three Months Ended,								Six Months Ended,
		September 30, 2015				September 30, 2014				September 30, 2015				September 30, 2014
PIK balance at beginning of period		$	54,155			$	69,730			$	86,903			$	58,185
Gross PIK income capitalized			6,136				5,513				21,732				17,058
Adjustments due to investment exits			(3,396	)			—				(3,396	)			—
PIK income received in cash			(104	)			(1,635	)			(48,448	)			(1,635	)
PIK balance at end of period		$	56,791			$	73,608			$	56,791			$	73,608

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

Investments on Non-Accrual Status

As of September 30, 2015, 4.7% of total investments at amortized cost, or 2.2% of total investments at fair value, were on non-accrual status. As of March 31, 2015, 1.3% of total investments at amortized cost, or 0.1% of total investments at fair value, were on non-accrual status.

Significant Unconsolidated Subsidiaries

The following unconsolidated subsidiaries are considered significant subsidiaries under SEC Regulation S-X Rule 10-01(b)(1) and Regulation S-X Rule 4-08(g) as of September 30, 2015. Accordingly, summarized, comparative financial information, in aggregate, is presented below for these significant subsidiaries.

Merx Aviation Finance, LLC

Merx and its subsidiaries (“Merx Aviation”) are principally engaged in acquiring and leasing commercial aircraft to airlines. Its focus is on current generation aircraft, held either domestically or internationally. Merx Aviation may acquire fleets of aircraft primarily through securitized, non-recourse debt or individual aircraft. Merx Aviation may outsource its aircraft servicing requirements to third parties that have the global staff and expertise necessary to complete such tasks.

 

		For the six months ended
		September 30, 2015 (unaudited)				September 30, 2014 (unaudited)
Net revenue		$	61,258			$	37,704
Net operating income			37,125				23,864
Earnings before taxes			5,540				931
Net profit (loss)			3,370				929

Dynamic Product Tankers, LLC

Dynamic Product Tankers and its subsidiaries (“DPT”) are principally engaged in acquiring and operating LR1 Product Tankers. Its focus is on long-range product tankers transporting refined products for various customers. Vessels owned by DPT are operated primarily in the spot markets but also on opportunistic long-term time charters.

 

		For period from April 7, 2015 (commencement of operations) to September 30, 2015 (unaudited)
Net revenue		$	16,995
Net operating income			5,158
Earnings before taxes			3,620
Net profit			3,620

MSEA Tankers LLC

MSEA Tankers and its subsidiaries (“MSEA”) are engaged in acquiring and leasing tanker vessels to oil majors, commodity traders and shipping companies. Its focus is on tankers transporting refined products for its charterers through long-term charters. MSEA engages in a variety of income-generating structured equity transactions,

 

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NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

ranging from bridge loans to sale-leaseback structures either on individual vessels or vessel packages sourced from bank balance sheets and other sources. MSEA may also outsource its technical management requirements through engaging in bareboat charters.

 

		For the six months ended September 30, 2015 (unaudited) *
Net revenue		$	5,520
Net operating income			3,624
Earnings before taxes			3,163
Net profit			3,163

 

*	MSEA commenced operations on December 16, 2014, therefore, comparable prior period data is not available.

Note 6. Debt and Foreign Currency Transactions and Translations

The Company’s outstanding debt obligations as of September 30, 2015 were as follows:

 

		As of September 30, 2015
		Date Issued  / Amended				Total  Aggregate Principal Amount Committed				Principal  Amount Outstanding				Fair Value				Final Maturity Date
Senior Secured Facility			2015			$	1,310,000			$	255,755	*		$	255,499	(1)			4/24/2020
Senior Secured Notes			2010				225,000				225,000				225,045	(1)			10/4/2015
Senior Secured Notes (Series A)			2011				29,000				29,000				29,534	(1)			9/29/2016
Senior Secured Notes (Series B)			2011				16,000				16,000				16,933	(1)			9/29/2018
2042 Notes			2012				150,000				150,000				149,460	(2)			10/15/2042
2043 Notes			2013				150,000				150,000				151,320	(2)			7/15/2043
2025 Notes			2015				350,000				344,408				358,015	(1)			3/3/2025
Convertible Notes			2011				200,000				200,000				198,500	(2)			1/15/2016
Total Debt Obligations						$	2,430,000			$	1,370,163			$	1,384,306

 

*	Included in this amount is foreign currency debt obligations as outlined under foreign currency transactions and translations within this note.

(1)	The fair value of these debt obligations are categorized as Level 3 under ASC 820 as of September 30, 2015. The valuation is based on a yield analysis and discount rate commensurate with the market yields for similar types of debt.

(2)	The fair value of these debt obligations are categorized as Level 1 under ASC 820 as of September 30, 2015. The valuation is based on quoted prices of identical liabilities in active markets.

 

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NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

The Company’s outstanding debt obligations as of March 31, 2015 were as follows:

 

		As of March 31, 2015
		Date Issued  / Amended				Total  Aggregate Principal Amount Committed				Principal  Amount Outstanding				Fair Value				Final Maturity Date
Senior Secured Facility			2013			$	1,270,000			$	384,648	*		$	384,253	(1)			8/31/2018
Senior Secured Notes			2010				225,000				225,000				227,363	(1)			10/4/2015
Senior Secured Notes (Series A)			2011				29,000				29,000				29,684	(1)			9/29/2016
Senior Secured Notes (Series B)			2011				16,000				16,000				16,952	(1)			9/29/2018
2042 Notes			2012				150,000				150,000				152,646	(2)			10/15/2042
2043 Notes			2013				150,000				150,000				153,438	(2)			7/15/2043
2025 Note			2015				350,000				344,111				352,100	(1)			3/3/2025
Convertible Notes			2011				200,000				200,000				206,250	(2)			1/15/2016
Total Debt Obligations						$	2,390,000			$	1,498,759			$	1,522,686

 

*	Included in this amount is foreign currency debt obligations as outlined under foreign currency transactions and translations within this note.

(1)	The fair value of these debt obligations are categorized as Level 3 under ASC 820 as of March 31, 2015. The valuation is based on a yield analysis and discount rate commensurate with the market yields for similar types of debt.

(2)	The fair value of these debt obligations are categorized as Level 1 under ASC 820 as of March 31, 2015. The valuation is based on quoted prices of identical liabilities in active markets.

Senior Secured Facility

On April 24, 2015, the Company amended and restated its senior secured, multi-currency, revolving credit facility (the “Senior Secured Facility”). The facility increased the lenders’ commitments to $1,310,000 and extended the final maturity date through April 24, 2020, and allows the Company to seek additional commitments from new and existing lenders in the future, up to an aggregate facility size not to exceed $1,965,000. The Senior Secured Facility is secured by substantially all of the assets in Apollo Investment’s portfolio, including cash and cash equivalents. Commencing April 24, 2019, the Company is required to repay, in twelve consecutive monthly installments of equal size, the outstanding amount under the Senior Secured Facility as of April 24, 2020. In addition, the stated interest rate on the facility was changed from LIBOR plus 2.00% to a formula-based calculation, based on a minimum borrowing base, resulting in a stated interest rate of either LIBOR plus 1.75%, or LIBOR plus 2.00%. As of September 30, 2015, the stated interest rate on the facility is LIBOR plus 2.00%. The Company is required to pay a commitment fee of 0.375% per annum on any unused portion of the Senior Secured Facility and a letter of credit participation fee of 2.00% per annum plus a letter of credit fronting fee of 0.25% per annum on the letters of credit issued. The Senior Secured Facility contains affirmative and restrictive covenants, including: (a) periodic financial reporting requirements, (b) maintaining minimum shareholders’ equity of the greater of (i) 40% of the total assets of Apollo Investment and its consolidated subsidiaries as at the last day of any fiscal quarter and (ii) the sum of (A) $870,000 plus (B) 25% of the net proceeds from the sale of equity interests in Apollo Investment after the closing date of the Senior Secured Facility, (c) maintaining a ratio of total assets, less total liabilities (other than indebtedness) to total indebtedness, in each case of Apollo Investment and its consolidated subsidiaries, of not less than 2.0:1.0, (d) limitations on the incurrence of additional indebtedness, including a requirement to meet a certain minimum liquidity threshold before Apollo Investment can incur such additional debt, (e) limitations on liens,

 

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NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

(f) limitations on investments (other than in the ordinary course of Apollo Investment’s business), (g) limitations on mergers and disposition of assets (other than in the normal course of Apollo Investment’s business activities), (h) limitations on the creation or existence of agreements that permit liens on properties of Apollo Investment’s consolidated subsidiaries and (i) limitations on the repurchase or redemption of certain unsecured debt and debt securities. In addition to the asset coverage ratio described in clause (c) of the preceding sentence, borrowings under the Senior Secured Facility (and the incurrence of certain other permitted debt) are subject to compliance with a borrowing base that applies different advance rates to different types of assets in Apollo Investment’s portfolio. The Senior Secured Facility also provides for the issuance of letters of credit for up to an aggregate amount of $150,000. As of September 30, 2015 and March 31, 2015, the Company had $23,188 and $25,246, respectively, in standby letters of credit issued through the Senior Secured Facility. The amount available for borrowing under the Senior Secured Facility is reduced by any standby letters of credit issued. Under GAAP, these letters of credit are considered commitments because no funding has been made and as such are not considered a liability. These letters of credit are not senior securities because they are not in form of a typical financial guarantee and the portfolio companies are obligated to refund any drawn amounts. The available remaining capacity under the Senior Secured Facility was $1,031,057 and $860,106 at September 30, 2015 and March 31, 2015, respectively. Terms used in this paragraph have the meanings set forth in the Senior Secured Facility.

Senior Secured Notes

On September 30, 2010, the Company entered into a note purchase agreement with certain institutional accredited investors providing for a private placement issuance of $225,000 in aggregate principal amount of five-year, senior secured notes with an annual fixed interest rate of 6.25% and a maturity date of October 4, 2015 (the “Senior Secured Notes”). On October 4, 2010, the Senior Secured Notes issued by Apollo Investment were sold to certain institutional accredited investors pursuant to an exemption from registration under the Securities Act of 1933, as amended. Interest on the Senior Secured Notes is due semi-annually on April 4 and October 4, commencing on April 4, 2011.

On September 29, 2011, the Company closed a private offering of $45,000 aggregate principal amount of senior secured notes (the “Series A and B 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 $29,000; and (2) 6.250% Senior Secured Notes, Series B, of the Company due September 29, 2018, in the aggregate principal amount of $16,000. The Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. Interest on the Series A and B Notes is due semi-annually on March 29 and September 29, commencing on March 29, 2012.

On October 4, 2015, the Company’s Senior Secured Notes, which had an outstanding principal amount of $225,000, matured and were repaid.

2042 Notes

On October 9, 2012, the Company issued $150,000 in aggregate principal amount of senior unsecured notes for net proceeds of $145,275 (the “2042 Notes”). The 2042 Notes will mature on October 15, 2042. Interest on the 2042 Notes is paid quarterly on January 15, April 15, July 15 and October 15, at an annual rate of 6.625%, commencing on January 15, 2013. The Company may redeem the 2042 Notes in whole or in part at any time or from time to time on or after October 15, 2017. The 2042 Notes are general, unsecured obligations and rank equal in right of payment with all of our existing and future senior, unsecured indebtedness. The 2042 Notes are listed on The New York Stock Exchange under the ticker symbol “AIB.”

 

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NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

2043 Notes

On June 17, 2013, the Company issued $135,000 in aggregate principal amount of senior unsecured notes and on June 24, 2013 an additional $15,000 in aggregate principal amount of such notes was issued pursuant to the underwriters’ over-allotment option exercise. In total, $150,000 of aggregate principal was issued for net proceeds of $145,275 (the “2043 Notes”). The 2043 Notes will mature on July 15, 2043. Interest on the 2043 Notes is paid quarterly on January 15, April 15, July 15 and October 15, at an annual rate of 6.875%, commencing on October 15, 2013. The Company may redeem the 2043 Notes in whole or in part at any time or from time to time on or after July 15, 2018. The 2043 Notes are general, unsecured obligations and rank equal in right of payment with all of our existing and future senior, unsecured indebtedness. The 2043 Notes are listed on The New York Stock Exchange under the ticker symbol “AIY.”

2025 Notes

On March 3, 2015, the issued $350,000 in the aggregate principal amount of unsecured notes for net proceeds of $343,650 (the “2025 Notes”). The 2025 Notes will mature on March 3, 2025. Interest on the 2025 Notes is due semi-annually on March 3 and September 3, at an annual rate of 5.25%, commencing on September 3, 2015. The 2025 Notes are a general, unsecured obligation and rank equal in right of payment with all of our existing unsecured indebtedness.

Convertible Notes

On January 25, 2011, the Company closed a private offering of $200,000 aggregate principal amount of senior unsecured convertible notes (the “Convertible Notes”). The Convertible Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The Convertible 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 Convertible Notes will mature on January 15, 2016 unless earlier converted or repurchased at the holder’s option. Prior to December 15, 2015, the Convertible Notes will be convertible only upon certain corporate reorganizations, dilutive recapitalizations or dividends, or if, during specified periods our shares trade at more than 130% of the then applicable conversion price or the Convertible Notes trade at less than 97% of their conversion value and, thereafter, at any time. The Convertible Notes will be convertible by the holders into shares of common stock, initially at a conversion rate of 72.7405 shares of the Company’s common stock per $1 principal amount of Convertible Notes (14,548,100 common shares) corresponding to an initial conversion price per share of approximately $13.75, which represents a premium of 17.5% to the $11.70 per share closing price of the Company’s 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 Convertible 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 Convertible 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. As more fully reflected in note 4, the issuance is to be considered as part of the if-converted method for calculation of diluted EPS.

 

 

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NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

The following table summarizes the components of average outstanding debt, maximum amount of debt outstanding, and the annualized interest cost, including commitment fees, for the three and six months ended September 30, 2015 and 2014:

 

		Three Months Ended								Six Months Ended
		September 30, 2015				September 30, 2014				September 30, 2015				September 30, 2014
Average outstanding debt balance		$	1,430,439			$	1,537,993			$	1,482,412			$	1,545,092
Maximum amount of debt outstanding			1,501,528				1,686,196				1,657,288				1,686,196
Weighted average annualized interest cost, including commitment fees, but excluding debt issuance costs (1)			5.54	%			4.49	%			5.38	%			4.43	%
Annualized amortized debt issuance cost			0.55	%			0.43	%			0.55	%			0.43	%
Total annualized interest cost			6.09	%			4.92	%			5.93	%			4.86	%

 

(1)	Commitment fees for the three and six months ended September 30, 2015 were $929 and $1,741, respectively. commitment fees for the three and six months ended September 30, 2014 were $456 and $897, respectively.

Foreign Currency Transactions and Translations

The Company had the following outstanding non-US borrowings on its Senior Secured Facility at September 30, 2015 and March 31, 2015 as summarized below.

 

		As of September 30, 2015
Foreign Currency		Local Currency				Original Borrowed Value				Current Value				Reset Date				Unrealized  Gain (Loss)
Canadian Dollar		C	54,100			$	50,066			$	40,352				10/28/2015			$	9,714
Euro		€	3,700				4,972				4,130				10/28/2015				842
British Pound		£	14,500				22,209				21,964				10/13/2015				245
British Pound		£	14,000				21,582				21,207				10/19/2015				375
British Pound		£	27,000				39,956				40,898				10/26/2015				(942	)
British Pound		£	20,600				31,105				31,204				10/28/2015				(99	)
						$	169,890			$	159,755							$	10,135

 

		As of March 31, 2015
Foreign Currency		Local Currency				Original Borrowed Value				Current Value				Reset Date				Unrealized  Gain (Loss)
British Pound		£	6,500			$	9,926			$	9,649				4/7/2015			$	277
British Pound		£	25,000				37,525				37,112				4/13/2015				413
British Pound		£	27,000				39,956				40,082				4/20/2015				(126	)
British Pound		£	7,600				12,124				11,282				4/30/2015				842
Euro		€	19,200				25,803				20,621				4/30/2015				5,182
Canadian Dollar		C	65,100				60,245				51,402				4/30/2015				8,843
						$	185,579			$	170,148							$	15,431

 

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NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

As of September 30, 2015 and March 31, 2015, the Company is in compliance with all debt covenants.

Note 7. Shareholders’ Equity

There were no equity offerings of common stock during the six months ended September 30, 2015 and fiscal year ended March 31, 2015.

On August 6, 2015, the Company adopted a plan for the purpose of repurchasing up to $50 million of its common stock in accordance with applicable rules specified in the Securities Exchange Act of 1934 (the “2015 Repurchase Plan”). This plan replaces the plan which was previously authorized and approved on August 11, 2011. The 2015 Repurchase Plan is designed to allow the Company to repurchase its shares both during its open window periods and at times when it otherwise might be prevented from doing so under applicable 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 an agreement with the Company to repurchase shares on the Company’s behalf in accordance with the terms of the 2015 Repurchase Plan. Repurchases are subject to SEC regulations as well as certain price, market volume and timing constraints specified in the 2015 Repurchase Plan. Pursuant to the 2015 Repurchase Plan, the Company may from time to time repurchase a portion of its shares of common stock and the Company is hereby notifying shareholders of its intention as required by applicable securities law.

On September 15, 2015, the Company allocated $5million to be repurchased under the 2015 Repurchase Plan in accordance with SEC Rule 10b5-1 (the “10b5-1 Repurchase Plan”). The 10b5-1 Repurchase Plan terminated on November 4, 2015.

Under the 2015 Repurchase Plan and 10b5-1 Repurchase Plan (the “Plans”), the Company repurchased 3,340,400 shares with a weighted average price per share of $6.34, inclusive of commissions. This represents a discount of approximately 19.89% of the average net asset value per share for the quarter ended September 30, 2015. Since the inception of the Plans, the total dollar amount of shares repurchased is $21,193, leaving a maximum of $28,807 available for future purchases under the Plans.

On September 12, 2014, the Company announced an At the Market (“ATM”) program through which the Company can sell up to 16 million shares of its common stock from time to time. As of September 30, 2015, no shares had been sold through the Company’s ATM program.

Note 8. Commitments and Contingencies

As of September 30, 2015 and March 31, 2015, the Company’s unfunded commitments and contingencies were as follows:

 

		September 30, 2015				March 31, 2015
Unfunded revolver obligations and bridge loans commitments (1)		$	61,224			$	206,294
Unfunded delayed draw commitments on senior loans to portfolio companies (2)			27,910				102,092
Unfunded delayed draw commitments on senior loans to portfolio companies (performance thresholds not met) (3)			—				23,436
Standby letters of credit issued for certain portfolio companies for which the Company and portfolio companies are liable (4)			22,231				34,433

 

(1)

The unfunded revolver obligations may or may not be funded to the borrowing party in the future. The amounts relate to loans with various maturity dates, but the entire amount was eligible for funding to the borrowers as of September 30, 2015, subject to the terms of each loan’s respective credit agreements which includes borrowing covenants that needs to be met prior to funding.

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

(2)	The Company’s commitment to fund delayed draw loans is triggered upon the satisfaction of certain pre-negotiated terms and conditions which can include covenants to maintain specified leverage levels and other related borrowing base covenants.

(3)	The borrowers are required to meet certain performance thresholds before the Company is obligated to fulfill the commitments and those performance thresholds were not met as of September 30, 2015.

(4)

For all these letters of credit issued and outstanding, the Company would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. None of the letters of credit issued and outstanding are recorded as a liability on the Company’s balance sheet as such letters of credit are considered in the valuation of the investments in the portfolio company.

As of November 5, 2015, there were no changes to the outstanding commitments to purchase secured term loans and unsecured bridge loans which existed as of September 30, 2015.

Note 9. Financial Highlights

The following is a schedule of financial highlights for the six months ended September 30, 2015 and the fiscal year ended March 31, 2015:

 

		Six Months Ended September 30, 2015(unaudited)				Fiscal Year Ended March 31, 2015
Per Share Data
Net asset value, beginning of period		$	8.18			$	8.67
Net investment income (1)			0.43				0.96
Net realized and net change in unrealized loss (1)			(0.41	)			(0.64	)
Net increase in net assets resulting from operation			0.02				0.32
Distributions to shareholders from net investment income (2)			(0.40	)			(0.70	)
Distributions to shareholders from return of capital (2)			—				(0.10	)
Effect of share repurchases			0.03				—
Offering costs (6)			—				—
Net asset value, end of period		$	7.83			$	8.18	*
Per share market value at end of period		$	5.48			$	7.68
Total return (3)			(24.1	)			1.9	%
Shares outstanding at end of period			233,400,951				236,741,351
Ratio/Supplemental Data
Net assets at end of period (in millions)		$	1,826.9			$	1,937.6
Ratio of net investment income to average net assets (5)			10.66	%			11.27	%
Ratio of operating expenses to average net assets (4)(5)			5.87	%			6.25	%
Ratio of interest and other debt expenses to average net assets (5)			4.68	%			3.91	%
Ratio of net expenses to average net assets (4)(5)			10.55	%			10.16	%
Average debt outstanding (in millions)		$	1,482			$	1,586
Average debt per share (1)		$	6.27			$	6.70
Portfolio turnover ratio (5)			43.1	%			62.1	%

 

(1)	Financial highlights are based on the weighted average number of shares outstanding for the period presented.

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

(2)	Dividends and distributions are determined based on taxable income calculated in accordance with income tax regulations which may differ from amounts determined under GAAP. Per share amounts is based on actual rate per share.

(3)	Total return is based on the change in market price per share during the respective periods. Total return also takes into account dividends and distributions, if any, reinvested in accordance with the Company’s dividend reinvestment plan.

(4)

The ratio of operating expenses to average net assets and the ratio of total expenses to average net assets are shown inclusive of all voluntary management and incentive fee waivers (Note 3). For the six months ended September 30, 2015, the ratio of operating expenses to average net assets and the ratio of total expenses to average net assets would be 6.86% and 11.54%, respectively, without the voluntary fee waivers. For the fiscal year ended March 31, 2015, the ratio of operating expenses to average net assets and the ratio of total expenses to average net assets would be 7.03% and 10.95%, respectively, without the voluntary fee waivers.

(5)	Annualized for the six months ended September 30, 2015.

(6)	Offering costs per share represent less than one cent per average share for the fiscal year ended March 31, 2015.

*	Numbers may not sum due to rounding.

Information about our senior securities is shown in the following table as of each year ended March 31 since the Company 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 (1)				Asset Coverage Per Unit (2)				Involuntary Liquidating Preference Per Unit (3)				Average Market Value Per Unit (4)
Senior Secured Facility
Fiscal 2016 (through September 30, 2015)		$	255,755	(5)		$	436			$	—				N/A
Fiscal 2015			384,648				588				—				N/A
Fiscal 2014			602,261				1,095				—				N/A
Fiscal 2013			536,067				1,137				—				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
Senior Secured Notes
Fiscal 2016 (through September 30, 2015)		$	270,000			$	460			$	—				N/A
Fiscal 2015			270,000				413				—				N/A
Fiscal 2014			270,000				491				—				N/A
Fiscal 2013			270,000				572				—				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

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

Class and Year		Total Amount Outstanding (1)				Asset Coverage Per Unit (2)				Involuntary Liquidating Preference Per Unit (3)				Average Market Value Per Unit (4)
2042 Notes
Fiscal 2016 (through September 30, 2015)		$	150,000			$	255			$	—			$	99.64
Fiscal 2015			150,000				230				—				99.59
Fiscal 2014			150,000				273				—				92.11
Fiscal 2013			150,000				318				—				97.43
Fiscal 2012			—				—				—				N/A
Fiscal 2011			—				—				—				N/A
Fiscal 2010			—				—				—				N/A
Fiscal 2009			—				—				—				N/A
Fiscal 2008			—				—				—				N/A
Fiscal 2007			—				—				—				N/A
Fiscal 2006			—				—				—				N/A
2043 Notes
Fiscal 2016 (through September 30, 2015)		$	150,000			$	255			$	—			$	100.88
Fiscal 2015			150,000				230				—				99.74
Fiscal 2014			150,000				273				—				89.88
Fiscal 2013			—				—				—				N/A
Fiscal 2012			—				—				—				N/A
Fiscal 2011			—				—				—				N/A
Fiscal 2010			—				—				—				N/A
Fiscal 2009			—				—				—				N/A
Fiscal 2008			—				—				—				N/A
Fiscal 2007			—				—				—				N/A
Fiscal 2006			—				—				—				N/A
2025 Notes			—				—				—				N/A
Fiscal 2016 (through September 30, 2015)		$	344,408			$	586			$	—				N/A
Fiscal 2015			344,111				526				—				N/A
Fiscal 2014			—				—				—				N/A
Fiscal 2013			—				—				—				N/A
Fiscal 2012			—				—				—				N/A
Fiscal 2011			—				—				—				N/A
Fiscal 2010			—				—				—				N/A
Fiscal 2009			—				—				—				N/A
Fiscal 2008			—				—				—				N/A
Fiscal 2007			—				—				—				N/A
Fiscal 2006			—				—				—				N/A
Convertible Notes
Fiscal 2016 (through September 30, 2015)		$	200,000			$	341			$	—			$	99.25
Fiscal 2015			200,000				306				—				104.43
Fiscal 2014			200,000				364				—				106.60
Fiscal 2013			200,000				424				—				102.84
Fiscal 2012			200,000				529				—				97.81
Fiscal 2011			200,000				544				—				N/A	(6)
Fiscal 2010			—				—				—				N/A
Fiscal 2009			—				—				—				N/A
Fiscal 2008			—				—				—				N/A
Fiscal 2007			—				—				—				N/A
Fiscal 2006			—				—				—				N/A

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share data)

 

Class and Year		Total Amount Outstanding (1)				Asset Coverage Per Unit (2)				Involuntary Liquidating Preference Per Unit (3)				Average Market Value Per Unit (4)
Total Debt Securities
Fiscal 2016 (through September 30, 2015)		$	1,370,163			$	2,333			$	—				N/A
Fiscal 2015			1,498,759				2,293				—				N/A
Fiscal 2014			1,372,261				2,496				—				N/A
Fiscal 2013			1,156,067				2,451				—				N/A
Fiscal 2012			1,009,337				2,670				—				N/A
Fiscal 2011			1,053,443				2,862				—				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

 

N/A Not applicable

(1)	Total amount of each class of senior securities outstanding at the end of the period presented.

(2)

The asset coverage ratio for the total senior securities representing indebtedness is calculated as our total assets, less all liabilities and indebtedness not represented by senior securities, divided by the total senior securities representing indebtedness. This asset coverage ratio is multiplied by one thousand to determine the Asset Coverage Per Unit. In order to determine the Asset Coverage Per Unit for each class of debt, the Asset Coverage Per Unit was allocated based on the amount of indebtedness outstanding at the end of the period for each class of debt.

(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, except for with respect to the 2042 Notes, the 2043 Notes, and the Convertible Notes, as other senior securities do not have sufficient trading for an average market value per unit to be determined. The average market value per unit for each of the 2042 Notes, the 2043 Notes, and the Convertible Notes is based on the closing daily prices of such notes and is expressed per $100 of indebtedness (including for the 2042 Notes and the 2043 Notes, which were issued in $25 increments).

(5)	Included in this amount are foreign currency debt obligations as outlined in the table in note 6.

(6)	Restrictive legends were removed in 2012.

Note 10. Subsequent Events

On October 4, 2015, the Company’s Senior Secured Notes, which had an outstanding principal amount of $225,000, matured and were repaid.

On November 2, 2015 , the Board of Directors declared a dividend of $0.20 per share for the second quarter of 2016, payable on January 5, 2016 to shareholders of record as of December 21, 2015.

 

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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 September 30, 2015, the related statements of operations for the three and six month periods ended September 30, 2015 and September 30, 2014, the statement of changes in net assets for the six month period ended September 30, 2015, and the statements of cash flows for the six month periods ended September 30, 2015 and September 30, 2014. These interim financial statements are the responsibility of the Company’s 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, 2015, and the related statements of operations (not presented herein), of changes in net assets and of cash flows (not presented herein) for the year then ended, and in our report dated May 19, 2015, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying statement of assets and liabilities, including the schedule of investments, as of March 31, 2015, and the related statement of changes in net assets for the year then ended, is fairly stated in all material respects in relation to the statements of assets and liabilities, including the schedule of investments, and of changes in net assets from which it has been derived.

/s/ PricewaterhouseCoopers LLP

New York, New York

November 5, 2015

 

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                     Shares

 

Common Stock

 

 

PROSPECTUS SUPPLEMENT

 

 

[Underwriters]

 

 

                    , 201

 

 

 

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PART C

OTHER INFORMATION

 

ITEM 25.

FINANCIAL STATEMENTS AND EXHIBITS

(1) Financial Statements

The following statements of Apollo Investment Corporation (the “Company” or the “Registrant”) are included in Part A of this Registration Statement:

 

Annual Audited Financial Statements:
Report of Independent Registered Public Accounting Firm
Statement of Assets & Liabilities as of March 31, 2015 and March 31, 2014
Statement of Operations for the years ended March 31, 2015, March  31, 2014 and March 31, 2013
Statement of Changes in Net Assets for the years ended March 31, 2015, March  31, 2014 and March 31, 2013
Statement of Cash Flows for the years ended March 31, 2015, March  31, 2014 and March 31, 2013
Schedule of Investments as of March 31, 2015 and March 31, 2014
Notes to Financial Statements
Unaudited Quarterly Financial Statements:
Statements of Assets and Liabilities as of September 30, 2015 and March 31, 2015
Statements of Operations for the three and six months ended September 30, 2015 and September 30, 2014
Statements of Changes in Net Assets for the six months ended September 30, 2015 and the year ended March 31, 2015
Statements of Cash Flows for the six months ended September 30, 2015 and September 30, 2014
Schedule of Investments as of September 30, 2015
Schedule of Investments as of March 31, 2015
Notes to Financial Statements
Report of Independent Registered Public Accounting Firm

(2) Exhibits

 

(a)(1)		Articles of Amendment(1)
(a)(2)		Articles of Amendment and Restatement(2)
(b)(2)		Fourth Amended and Restated By-laws(5)
(c)		Not applicable
(d)(1)		Form of Stock Certificate (3)
(d)(2)		Form of Indenture for debt securities (7)
(d)(3)		Form T-1 Statement of Eligibility of U.S. Bank National Association, as Trustee, with respect to the Form of Indenture for debt securities (11)
(d)(4)		Indenture, dated as of October 9, 2012, between the Company and U.S. Bank National Association, as trustee (9)
(d)(5)		First Supplemental Indenture, dated as of October 9, 2012, relating to the 6.625% Senior Notes due 2042, between the Company and U.S. Bank National Association, as trustee (9)
(d)(6)		Form of 6.625% Senior Notes due 2042 (contained in the First Supplemental Indenture filed as Exhibit (d)(5) hereto) (10)
(d)(7)		Second Supplemental Indenture, dated as of June 17, 2013, relating to the 6.875% Senior Notes due 2043, between the Company and U.S. Bank National Association, as trustee (9)

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(d)(8)		Form of 6.875% Senior Notes due 2043 (contained in the Second Supplemental Indenture filed as Exhibit (d)(7) hereto) (10)
(d)(9)		Fourth Supplemental Indenture, dated as of March 3, 2015, relating to the 5.250% Notes due 2025, between the Company and U.S. Bank National Association, as trustee (13)
(d)(10)		Form of 5.250% Notes due 2025 (contained in the Fourth Supplemental Indenture filed as Exhibit (d)(9) hereto) (16)
(e)		Dividend Reinvestment Plan (3)
(f)		Not applicable
(g)		Amended and Restated Investment Advisory and Management Agreement between Registrant and Apollo Investment Management, L.P. (6)
(h)		Underwriting Agreement*
(i)		Not applicable
(j)		Custodian Agreement (2)
(k)(1)		Form of Transfer Agency and Service Agreement (2)
(k)(2)		Amended and Restated Administration Agreement between Registrant and Apollo Investment Administration, LLC (6)
(k)(3)		Amended and Restated License Agreement between the Registrant and Apollo Management, L.P. (8)
(k)(4)		Amended and Restated Senior Secured Revolving Credit Agreement (12)
(l)(1)		Opinion and Consent of Venable LLP, special Maryland counsel for Registrant (11)
(l)(2)		Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom LLP (11)
(m)		Not applicable
(n)(1)		Report of Independent Registered Public Accounting Firm on Financial Statement Schedule (11)
(n)(2)		Independent Registered Public Accounting Firm Consent †
(n)(3)		Consent of PricewaterhouseCoopers LLP relating to the financial statements of Merx Aviation Finance LLC †
(n)(4)		Power of Attorney (11)
(n)(5)		Awareness Letter of Independent Registered Public Accounting Firm †
(o)(1)		Financial Statements of Merx Aviation Finance LLC as of and for the year ended March 31, 2015 (audited) †
(o)(2)		Financial Statements of Merx Aviation Finance LLC as of and for the years ended March 31, 2014 and March 31, 2013 (unaudited) †
(p)		Not applicable
(q)		Not applicable
(r)(1)		Amended and Restated Code of Ethics for Apollo Investment Corporation (4)
(r)(2)		Code of Ethics of Apollo Investment Management, L.P.(4)

 

(1)	Incorporated by reference to the corresponding exhibit number to the Registrant’s pre-effective Amendment No. 1 to the Registration Statement under the Securities Act of 1933, as amended (333-124007), on Form N-2, filed on June 20, 2005.

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(2)	Incorporated by reference to the corresponding exhibit number to the Registrant’s pre-effective Amendment No. 3 to the Registration Statement under the Securities Act of 1933, as amended (333-112591), on Form N-2, filed on April 1, 2004.

 

(3)	Incorporated by reference to the corresponding exhibit number to the Registrant’s pre-effective Amendment No. 1 to the Registration Statement under the Securities Act of 1933, as amended (333-112591), on Form N-2, filed on March 12, 2004.

 

(4)	Incorporated by reference to the corresponding exhibit number to the Registrant’s Registration Statement under the Securities Act of 1933, as amended (333-153879), on Form N-2, filed on October 7, 2008.

 

(5)	Incorporated by reference from the Registrant’s Form 10-K, filed on May 19, 2015.

 

(6)	Incorporated by reference from the Registrant’s Form 10-K, filed on May 26, 2010.

 

(7)	Incorporated by reference to the corresponding exhibit number to the Registrant’s pre-effective Amendment No. 1 to the Registration Statement under the Securities Act of 1933, as amended (333-170519), on Form N-2, filed on April 8, 2011.

 

(8)	Incorporated by reference from the Registrant’s Form 10-K, filed on May 23, 2012.

 

(9)	Incorporated by reference to Exhibits 4.1, 4.2 and 4.3, as applicable, to the Registrant’s Form 8-K (File No. 814-00646), filed on October 9, 2012.

 

(10)	Incorporated by reference to Exhibits 4.1 and 4.2, as applicable, to the Registrant’s Form 8-K (File No. 814-00646), filed on June 17, 2013.

 

(11)	Incorporated by reference to the corresponding exhibit number to the Registrant’s Registration Statement under the Securities Act of 1933, as amended (333-205660), on Form N-2, filed on July 14, 2015.

 

(12)	Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K (File No. 811-00646), filed on April 30, 2015.

 

(13)	Incorporated by reference to Exhibits 4.1, 4.2, 5.1 and 5.2, as applicable, to the Registrant’s Form 8-K (File No. 814-00646), filed on March 3, 2015.

 

†	Filed herewith.

 

*	To be filed by amendment.

 

ITEM 26.

MARKETING ARRANGEMENTS

The information contained under the heading “Plan of Distribution” in this Registration Statement is incorporated herein by reference and any information concerning any underwriters for a particular offering will be contained in the prospectus supplement related to that offering.

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ITEM 27.

OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses to be incurred in connection with the offering described in this registration statement:

 

Registration and filing fees		$	174,300
Nasdaq Stock Market Listing Fee		$	65,000
Printing (other than certificates)		$	875,000
Accounting fees and expenses related to the offering		$	500,000
Legal fees and expenses related to the offering		$	1,000,000
Miscellaneous (e.g. travel) related to the offering		$	18,750
Total (1)		$	2,633,050

 

(1)	These amounts are estimates.

All of the expenses set forth above shall be borne by us.

 

*	$ 142,637 of this amount has been offset against a filing fee associated with unsold securities registered under a previous registration statement.

 

ITEM 28.

PERSONS CONTROLLED BY OR UNDER COMMON CONTROL

The following list sets forth each of the companies considered to be “controlled” by us as defined by the Investment Company Act of 1940.

 

Name of Entity and Place of Organization		% of Voting Securities Owned
Apollo Asset Management LLC (Delaware)			100	%(2)
Dynamic Product Tankers (Prime), LLC (Marshall Islands)			85	%(1)
Merx Aviation Finance LLC (Delaware)			100	%(1)
MSEA Tankers LLC (Marshall Islands)			98.03	%(1)
Solarplicity Group Limited (United Kingdom)			28.25	%(1)

 

1	This entity is not consolidated for purposes of financial reporting.

 

2	Wholly-owned, non-operational entity.

 

ITEM 29.

NUMBER OF HOLDERS OF SECURITIES

The following table sets forth the approximate number of record holders of our common stock at January 15, 2016.

 

Title of Class		Number of Record Holders
Common stock, $0.001 par value per share			82

 

ITEM 30.

INDEMNIFICATION

Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and

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deliberate dishonesty established by a final judgment as being material to the cause of action. Our charter contains such a provision which eliminates directors’ and officers’ liability to the maximum extent permitted by Maryland law, subject to the requirements of the 1940 Act.

Our charter authorizes us, to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to obligate ourselves to indemnify any present or former director or officer or any individual who, while a director or officer and at our request, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner or trustee, from and against any claim or liability to which that person may become subject or which that person may incur by reason of his or her status as a present or former director or officer and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding. Our bylaws obligate us, to the maximum extent permitted by Maryland law and subject to the requirements of the 1940 Act, to indemnify any present or former director or officer or any individual who, while a director or officer and at our request, serves or has served another corporation, real estate investment trust, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner or trustee and who is made, or threatened to be made, a party to the proceeding by reason of his or her service in that capacity and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding. The charter and bylaws also permit us to indemnify and advance expenses to any person who served a predecessor of us in any of the capacities described above and any of our employees or agents or any employees or agents of our predecessor, if any. In accordance with the 1940 Act, we will not indemnify any person for any liability to which such person would be subject by reason of such person’s willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.

Maryland law requires a corporation (unless its charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service in that capacity. Maryland law permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made, or threatened to be made, a party by reason of their service in those or other capacities unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed in bad faith or (2) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. However, under Maryland law, a Maryland corporation may not indemnify for an adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on the basis that a personal benefit was improperly received, unless in either case a court orders indemnification, and then only for expenses. In addition, Maryland law permits a corporation to advance reasonable expenses to a director or officer upon the corporation’s receipt of (a) a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation and (b) a written undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the standard of conduct was not met.

The Investment Advisory and Management Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, Apollo Investment Management, L.P. (the “Adviser”) and its officers, managers, agents, employees, controlling persons, members and any other person or entity affiliated with it are entitled to indemnification from the Apollo Investment for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of the Adviser’s services under the Investment Advisory and Management Agreement or otherwise as an investment adviser of Apollo Investment.

The Administration Agreement provides that, absent willful misfeasance, bad faith or negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, Apollo Investment Administration, LLC and its officers, manager, agents, employees, controlling persons, members and any other

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person or entity affiliated with it are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of Apollo Investment Administration, LLC’s services under the Administration Agreement or otherwise as administrator for Apollo Investment.

Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Apollo Investment pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of Apollo Investment in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

 

ITEM 31.

BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

A description of any other business, profession, vocation or employment of a substantial nature in which the Adviser, and each managing director, director or executive officer of the Adviser, is or has been during the past two fiscal years, engaged in for his or her own account or in the capacity of director, officer, employee, partner or trustee, is set forth in Part A of this Registration Statement in the sections entitled “Management.” Additional information regarding the Adviser and its officers and directors is set forth in its Form ADV, as filed with the SEC (SEC File No. 801-62840), and is incorporated herein by reference.

 

ITEM 32.

LOCATION OF ACCOUNTS AND RECORDS

All accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940, and the rules thereunder are maintained at the offices of:

 

(1)

the Registrant, Apollo Investment Corporation, 9 West 57th Street, New York, NY 10019;

 

(2)

the Transfer Agent, American Stock Transfer and Trust Company, 6201 15th Avenue, Brooklyn, NY 11219;

 

(3)

the Custodian, JPMorgan Chase Bank, 270 Park Avenue, New York, NY 10017;

 

(4)

the Adviser, Apollo Investment Management, L.P., 9 West 57th Street, New York, NY 10019; and

 

(5)

the Trustee, U.S. Bank National Association, Global Corporate Trust Services, 100 Wall Street, New York, NY 10005.

 

ITEM 33.

MANAGEMENT SERVICES

Not Applicable.

 

ITEM 34.

UNDERTAKINGS

(1) The Registrant hereby undertakes to suspend the offering of its units until it amends its prospectus if (a) subsequent to the effective date of its registration statement, the net asset value declines more than 10 percent from its net asset value as of the effective date of the Registration Statement or (b) the net asset value increases to an amount greater than its net proceeds as stated in the prospectus.

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(2) Not applicable.

(3) Not applicable.

(4) The Registrant hereby undertakes:

(a) To file, during any period in which offers or sales are being made, a post-effective amendment to the registration statement:

(i) to include any prospectus required by Section 10(a)(3) of the 1933 Act;

(ii) to reflect in the prospectus any facts or events after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and

(iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

(b) That, for the purpose of determining any liability under the 1933 Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of those securities at that time shall be deemed to be the initial bona fide offering thereof; and

(c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; and

(d) That, for the purpose of determining liability under the 1933 Act to any purchaser, if the Registrant is subject to Rule 430C: Each prospectus filed pursuant to Rule 497(b), (c), (d) or (e) under the 1933 Act as part of a registration statement relating to an offering, other than prospectuses filed in reliance on Rule 430A under the 1933 Act, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness; PROVIDED, HOWEVER, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

(e) That, for the purpose of determining liability of the Registrant under the 1933 Act to any purchaser in the initial distribution of securities, the undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to the purchaser:

(1) any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 497 under the 1933 Act;

(2) the portion of any advertisement pursuant to Rule 482 under the 1933 Act relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and

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(3) any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.

(f) To file a post-effective amendment to the registration statement, and to suspend any offers or sales pursuant the registration statement until such post-effective amendment has been declared effective under the 1933 Act, in the event the shares of Registrant are trading below its net asset value and either (i) Registrant receives, or has been advised by its independent registered accounting firm that it will receive, an audit report reflecting substantial doubt regarding the Registrant’s ability to continue as a going concern or (ii) Registrant has concluded that a material adverse change has occurred in its financial position or results of operations that has caused the financial statements and other disclosures on the basis of which the offering would be made to be materially misleading.

(5) (a) For the purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant under Rule 497 (h) under the Securities Act of 1933 shall be deemed to be part of the Registration Statement as of the time it was declared effective.

(b) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.

(6) The Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery within two business days of receipt of a written or oral request, any Statement of Additional Information.

(7) The Registrant undertakes that it will not sell any units consisting of combinations of securities that have not previously been described in a registration statement of the Registrant or an amendment thereto that was subject to review by the Commission and that subsequently became effective.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement on Form N-2 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, and State of New York, on the 19^th day of January, 2016.

 

Pursuant to the requirements of the Securities Act of 1933, this registration statement on Form N-2 has been signed by the following persons in the capacities and on the dates indicated.

 

SIGNATURE		TITLE		DATE
/s/ John J. Hannan		Chairman of the Board and Director		January 19, 2016
John J. Hannan
/s/ Gregory W. Hunt		Chief Financial Officer and Treasurer (principal financial and accounting officer)		January 19, 2016
Gregory W. Hunt
/s/ James C. Zelter		Chief Executive Officer and Director (principal executive officer)		January 19, 2016
James C. Zelter
/s/ Edward J. Goldthorpe		President		January 19, 2016
Edward J. Goldthorpe
/s/ Jeanette Loeb*		Director		January 19, 2016
Jeanette Loeb
/s/ Frank C. Puleo*		Director		January 19, 2016
Frank C. Puleo
/s/ R. Rudolph Reinfrank*		Director		January 19, 2016
R. Rudolph Reinfrank
/s/ Carl Spielvogel*		Director		January 19, 2016
Carl Spielvogel
/s/ Elliot Stein, Jr.*		Director		January 19, 2016
Elliot Stein, Jr.
/s/ Bradley J. Wechsler*		Director		January 19, 2016
Bradley J. Wechsler

 

*By:		/s/ Joseph D. Glatt
		Joseph D. Glatt as Attorney-in-Fact

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INDEX TO EXHIBITS

 

Exhibit Number		Exhibit
(n)(2)		Independent Registered Public Accounting Firm Consent
(n)(3)		Consent of PricewaterhouseCoopers LLP relating to the financial statements of Merx Aviation Finance LLC
(n)(5)		Awareness Letter of Independent Registered Public Accounting Firm
(o)(1)		Financial Statements of Merx Aviation Finance LLC as of and for the year ended March 31, 2015 (audited)
(o)(2)		Financial Statements of Merx Aviation Finance LLC as of and for the years ended March 31, 2014 and March 31, 2013 (unaudited)