Business Context and Reporting Period
This summary covers the Form 10-Q filed by Apollo Investment Corporation (AINV) for the quarterly period ended December 31, 2020. The Company is a closed-end, externally managed business development company (BDC) and regulated investment company (RIC) that invests primarily in debt and equity of private middle-market companies. As of December 31, 2020, the Company had 65,259,176 shares of common stock outstanding.
Key Financial Metrics
| Metric | Three Months Ended Dec 31, 2020 | Nine Months Ended Dec 31, 2020 | Net Assets (Dec 31, 2020) |
|---|---|---|---|
| Total Investment Income | $54.4 million | $165.9 million | $1.017 billion |
| Net Investment Income | $28.3 million | $84.4 million | |
| Net Realized & Unrealized Gains (Losses) | $4.9 million | $(14.9) million | |
| Net Increase in Net Assets from Operations | $33.2 million | $69.5 million | |
| Earnings Per Share (Basic) | $0.51 | $1.06 | Net Asset Value Per Share: $15.59 |
| Total Debt Outstanding | $1.512 billion (Net of deferred financing costs) | ||
| Cash and Cash Equivalents | $32.9 million |
Material Changes vs. Prior Comparable Period
- Investment Income Decline: Total investment income decreased by approximately 20.6% for the three months ended December 31, 2020, compared to the same period in 2019 ($54.4 million vs. $68.5 million). This was driven by a lower average yield on the debt portfolio (8.1% vs. 9.2%) and a smaller income-bearing portfolio.
- Expense Reduction: Net expenses decreased by 19.0% for the three months ended December 31, 2020, compared to 2019 ($26.1 million vs. $32.3 million). This reduction was primarily due to lower interest and debt expenses (annualized cost of debt dropped to 3.42% from 4.55%) and lower management fees.
- Realized Losses: The Company recognized net realized losses of $6.7 million for the quarter, compared to net realized gains of $3.8 million in the prior year quarter. Significant losses were attributed to KLO Holdings, Garden Fresh, and Learfield Communications.
- Unrealized Gains: Net change in unrealized gains was $11.6 million for the quarter, a significant improvement from a net unrealized loss of $39.8 million in the prior year quarter. Notable unrealized gains were recorded for ChyronHego Corporation and KLO Holdings.
- Portfolio Composition: As of December 31, 2020, 99.98% of investments were classified as Level 3 (unobservable inputs). Non-qualifying assets represented approximately 16.8% of total assets.
Guidance, Outlook, and Risks
- COVID-19 Impact: Management notes that the pandemic has adversely impacted the fair value of investments and created uncertainty regarding portfolio company performance. The downturn in the aviation industry specifically impacted Merx Aviation Finance, LLC, leading to impairment losses.
- LIBOR Transition: The Company faces operational challenges and potential valuation impacts due to the phase-out of LIBOR by the end of 2021. A significant portion of the debt portfolio and borrowings are LIBOR-linked.
- Distributions: On February 4, 2021, the Board declared a quarterly distribution of $0.31 per share and a supplemental distribution of $0.05 per share, payable April 5, 2021. The Board expects to continue declaring a base distribution of $0.31 per share plus a supplemental amount, though no assurances are given.
- Share Repurchases: The Company suspended its stock repurchase program on March 19, 2020. No shares were repurchased during the nine months ended December 31, 2020. Approximately $26.9 million remains available under existing repurchase plans.
- Liquidity: The Company maintains a Senior Secured Facility with $1.81 billion in commitments. As of December 31, 2020, $643.5 million of unused capacity remained available.
Investor Verification Checklist
- Debt Covenants: Verify continued compliance with the Senior Secured Facility covenants, specifically the asset coverage ratio (1.5:1.0) and minimum stockholders' equity requirements.
- Non-Accrual Status: Monitor the 5.6% of total investments at amortized cost (1.1% at fair value) currently on non-accrual status and potential future impairments.
- LIBOR Exposure: Assess the timeline and strategy for transitioning LIBOR-linked assets and liabilities to alternative reference rates (e.g., SOFR) before the 2021 deadline.
- Portfolio Concentration: Review the concentration in Level 3 assets and the specific valuation methodologies used for significant unrealized gains/losses in portfolio companies like KLO Holdings and ChyronHego.
- Legal Proceedings: Track the status of the DSI Renal Holdings bankruptcy litigation, where the Company is a defendant facing potential claims of fraudulent conveyance.