Business Context and Reporting Period
This Form 8-K, filed on May 29, 2007, reports the financial results for Apollo Investment Corporation (NASDAQ: AINV) for the quarter and fiscal year ended March 31, 2007. Apollo is a closed-end investment company operating as a business development company, primarily investing in senior secured loans, mezzanine debt, and equity in middle-market private companies.
Key Financial Metrics
Quarter Ended March 31, 2007
- Net Income: $102.8 million ($1.04 per share)
- Net Investment Income (after incentive fee accrual): $21.7 million ($0.22 per share)
- Net Realized Gains: $106.6 million ($1.08 per share)
- Net Change in Unrealized Appreciation: ($25.6 million) ($0.26 per share)
- Dividends Declared: $0.51 per share
- Investment Portfolio Value: $2.35 billion
- Net Assets: $1.85 billion
- Net Asset Value (NAV) per Share: $17.87
Fiscal Year Ended March 31, 2007
- Net Income: $312.2 million ($3.64 per share)
- Net Investment Income (after incentive fee accrual): $125.3 million ($1.46 per share)
- Net Realized Gains: $132.9 million ($1.55 per share)
- Net Change in Unrealized Appreciation: $54.0 million ($0.63 per share)
- Total Dividends Declared: $1.93 per share
Liquidity and Capital Resources
- Credit Facility: $1.7 billion total commitment; $492 million outstanding; $1.208 billion available.
- Equity Offering: Closed a follow-on offering in the quarter, issuing 20.7 million shares for $443 million in net proceeds.
- Portfolio Composition: 61% subordinated debt, 26% senior secured loans, 9% common equity/warrants, 4% preferred equity.
- Weighted Average Yields: 13.1% on total debt portfolio.
Material Changes vs. Prior Period
- Net Income Growth: Net income for the quarter increased from $42.3 million in the prior year to $102.8 million, driven primarily by a $107.6 million realized gain from the sale of equity securities in Prysmian (Lux) Sarl.
- Realized Gains: Net realized gains surged from $0.3 million in the prior quarter to $106.6 million. For the fiscal year, gains increased from $11.2 million to $132.9 million.
- Unrealized Appreciation: The quarter saw a decrease of $25.6 million in unrealized appreciation, largely due to the reversal of unrealized gains on the Prysmian investment upon realization. The fiscal year showed an increase of $54.0 million compared to $20.1 million in the prior year.
- Expenses: Net expenses rose to $53.1 million for the quarter (from $19.8 million) and $139.7 million for the fiscal year (from $63.7 million). This increase was primarily due to a $21.3 million accrual for net realized capital gain incentive fees and higher base management fees associated with portfolio growth.
- Portfolio Activity: Investment sales and prepayments totaled $349 million for the quarter and $845 million for the fiscal year, compared to $91 million and $452 million in the respective prior periods.
Outlook, Management Commentary, and Risks
- Management Commentary: CEO John J. Hannan highlighted strong relationships with sponsors and banks, noting total invested capital since IPO exceeds $3.4 billion with an IRR over 21%. The company remains well-positioned with significant capital resources and good dividend visibility for fiscal 2008.
- Recent Transactions:
- Prysmian: Apollo indirectly owns approximately 4% of Prysmian SpA following an IPO in Milan. The position is subject to a 180-day lock-up.
- Innkeepers USA Trust: Apollo agreed to acquire Innkeepers for $17.75 per share in cash plus assumption of debt. Apollo committed up to $200 million in equity. Closing is expected in the second quarter of 2007.
- Risks and Contingencies: The filing includes standard forward-looking statement disclaimers regarding future operating results, portfolio company performance, general economic conditions, and the timing of cash flows. The Prysmian investment is subject to a lock-up period, and the Innkeepers acquisition is subject to shareholder approval and customary closing conditions.
Investor Verification Checklist
- Verify the sustainability of net investment income excluding the one-time $107.6 million Prysmian realized gain.
- Confirm the status and closing timeline of the Innkeepers USA Trust acquisition.
- Monitor the 180-day lock-up expiration for the Prysmian SpA equity position.
- Review the impact of the $21.3 million accrued incentive fee on future cash distributions.
- Assess the utilization of the $1.208 billion available credit facility for future investments.