XNAS:AINV Apollo Investment Corp Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarter Ended June 30, 2012

 

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 814-00646

APOLLO INVESTMENT CORPORATION

(Exact name of registrant as specified in its charter)

 

Maryland    52-2439556
(State or other jurisdiction of incorporation or organization)    (I.R.S. Employer Identification No.)

9 West 57th Street

37th Floor

New York, N.Y.

   10019
(Address of principal executive office)    (Zip Code)

(212) 515-3450

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  x

  Accelerated filer  ¨   Non-accelerated filer  ¨   Smaller Reporting Company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares of the registrant’s Common Stock, $.001 par value, outstanding as of August 7, 2012 was 202,891,351.

 

 

 


Table of Contents

APOLLO INVESTMENT CORPORATION

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2012

TABLE OF CONTENTS

 

        PAGE   
   PART I. FINANCIAL INFORMATION   

Item 1.

   FINANCIAL STATEMENTS      3   
   Statements of Assets and Liabilities as of June 30, 2012 and March 31, 2012      3   
  

Statements of Operations for the three months ended June 30, 2012 and June 30, 2011

     4   
  

Statements of Changes in Net Assets for the three months ended June 30, 2012 and the year ended March 31, 2012

     5   
  

Statements of Cash Flows for the three months ended June 30, 2012 and June 30, 2011

     6   
   Schedule of Investments as of June 30, 2012      7   
   Schedule of Investments as of March 31, 2012      15   
   Notes to Financial Statements      22   
   Report of Independent Registered Public Accounting Firm      41   

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     42   

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      54   

Item 4.

   Controls and Procedures      54   
   PART II. OTHER INFORMATION   

Item 1.

   Legal Proceedings      55   

Item 1A.

   Risk Factors      55   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      55   

Item 3.

   Defaults Upon Senior Securities      55   

Item 4.

   Mine Safety Disclosures      55   

Item 5.

   Other Information      55   

Item 6.

   Exhibits      56   
   Signatures      57   

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

In this Quarterly Report, “Apollo Investment”, the “Company”, “AIC”, “we”, “us” and “our” refer to Apollo Investment Corporation unless the context otherwise states.

Item 1. Financial Statements

APOLLO INVESTMENT CORPORATION

STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except per share amounts)

 

     June 30, 2012
(unaudited)
    March 31, 2012  

Assets

    

Non-controlled/non-affiliated investments, at fair value (cost—$2,534,935 and $2,642,702, respectively)

   $ 2,353,980      $ 2,490,672   

Controlled investments, at fair value (cost—$258,530 and $208,882, respectively)

     225,604        186,408   

Cash equivalents, at fair value (cost—$99,990 and $0, respectively)

     99,988        —     

Cash

     1,380        1,665   

Foreign currency (cost—$1,104 and $1,013, respectively)

     1,422        1,013   

Receivable for investments sold

     126,018        19,606   

Interest receivable

     48,811        54,409   

Dividends receivable

     761        2,898   

Miscellaneous income receivable

     476        1,150   

Prepaid expenses and other assets

     27,253        17,442   
  

 

 

   

 

 

 

Total assets

   $ 2,885,693      $ 2,775,263   
  

 

 

   

 

 

 

Liabilities

    

Debt (see note 7, 9 & 10)

   $ 1,019,887      $ 1,009,337   

Payable for investments and cash equivalents purchased

     102,581        —     

Dividends payable

     40,578        39,409   

Management and performance-based incentive fees payable (see note 3)

     22,671        24,402   

Interest payable

     9,852        10,102   

Accrued administrative expenses

     3,543        3,420   

Other liabilities and accrued expenses

     3,570        3,362   
  

 

 

   

 

 

 

Total liabilities

   $ 1,202,682      $ 1,090,032   
  

 

 

   

 

 

 

Net Assets

    

Common stock, par value $.001 per share, 400,000 and 400,000 common shares authorized, respectively, and 202,891 and 197,043 issued and outstanding, respectively

   $ 203      $ 197   

Paid-in capital in excess of par (see note 2f)

     2,936,321        2,886,327   

Over-distributed net investment income (see note 2f)

     (36,742     (34,896

Accumulated net realized loss (see note 2f)

     (1,014,270     (995,426

Net unrealized depreciation

     (202,501     (170,971
  

 

 

   

 

 

 

Total net assets

   $ 1,683,011      $ 1,685,231   
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 2,885,693      $ 2,775,263   
  

 

 

   

 

 

 

Net asset value per share

   $ 8.30      $ 8.55   
  

 

 

   

 

 

 

See notes to financial statements.

 

3


Table of Contents

APOLLO INVESTMENT CORPORATION

STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except per share amounts)

 

     Three months ended  
     June 30,
2012
    June 30,
2011
 

INVESTMENT INCOME:

    

From non-controlled/non-affiliated investments:

    

Interest

   $ 72,637      $ 81,619   

Dividends

     1,006        3,195   

Other income

     4,044        7,275   

From non-controlled/affiliated investments:

    

Interest

     —          405   

From controlled investments:

    

Interest

     1,278        14   

Dividends

     1,368        2,084   
  

 

 

   

 

 

 

Total Investment Income

   $ 80,333      $ 94,592   
  

 

 

   

 

 

 

EXPENSES:

    

Management fees (see note 3)

   $ 13,426   $ 15,929   

Performance-based incentive fees (see note 3)

     9,245     8,381   

Interest and other debt expenses

     15,577        15,951   

Administrative services expense

     750        887   

Other general and administrative expenses

     2,603        5,782   
  

 

 

   

 

 

 

Total expenses

     41,601        46,930   
  

 

 

   

 

 

 

Net investment income

   $ 38,732      $ 47,662   
  

 

 

   

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS, CASH EQUIVALENTS AND FOREIGN CURRENCIES:

    

Net realized loss:

    

Investments and cash equivalents

   $ (18,241   $ (44,197

Foreign currencies

     (603     (1,751
  

 

 

   

 

 

 

Net realized loss

     (18,844     (45,948
  

 

 

   

 

 

 

Net change in unrealized gain (loss):

    

Investments and cash equivalents

     (39,392     (2,544

Foreign currencies

     7,862        886   
  

 

 

   

 

 

 

Net change in unrealized loss

     (31,530     (1,658
  

 

 

   

 

 

 

Net realized and unrealized loss from investments, cash equivalents and foreign currencies

     (50,374     (47,606
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

   $ (11,642   $ 56   
  

 

 

   

 

 

 

EARNINGS (LOSS) PER SHARE—BASIC AND DILUTED (see note 5)

   $ (0.06   $ 0.00   
  

 

 

   

 

 

 

 

* Net of voluntary fee waiver on proceeds from common shares issued on April 2, 2012. Management and performance-based incentive fees without the waiver would be $13,820 and $9,517, respectively.

See notes to financial statements.

 

4


Table of Contents

APOLLO INVESTMENT CORPORATION

STATEMENTS OF CHANGES IN NET ASSETS

(in thousands, except shares)

 

     Three months ended
June  30, 2012
(unaudited)
    Year ended
March 31, 2012
 

Increase (decrease) in net assets from operations:

    

Net investment income

   $ 38,732      $ 172,742   

Net realized loss

     (18,844     (341,443

Net change in unrealized gain (loss)

     (31,530     82,437   
  

 

 

   

 

 

 

Net decrease in net assets resulting from operations

     (11,642     (86,264
  

 

 

   

 

 

 

Dividends and distributions to stockholders:

    

From net investment income

     (38,732     (172,742

From other sources

     (1,846     (31,685
  

 

 

   

 

 

 

Net dividends and distributions to stockholders:

     (40,578     (204,427
  

 

 

   

 

 

 

Capital share transactions:

    

Net proceeds from shares sold

     50,000        —     

Less offering costs

     —          (6

Reinvestment of dividends

     —          14,897   
  

 

 

   

 

 

 

Net increase in net assets from capital share transactions

     50,000        14,891   
  

 

 

   

 

 

 

Total decrease in net assets:

     (2,220     (275,800

Net assets at beginning of period

     1,685,231        1,961,031   
  

 

 

   

 

 

 

Net assets at end of period

   $ 1,683,011      $ 1,685,231   
  

 

 

   

 

 

 

Capital share activity:

    

Shares sold

     5,847,953        —     

Shares issued from reinvestment of dividends

     —          1,541,849   
  

 

 

   

 

 

 

Net increase in capital share activity

     5,847,953        1,541,849   
  

 

 

   

 

 

 

See notes to financial statements.

 

5


Table of Contents

APOLLO INVESTMENT CORPORATION

STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

 

     Three months ended June 30,  
             2012                     2011          

Cash Flows from Operating Activities:

    

Net Increase (Decrease) in Net Assets Resulting from Operations

   $ (11,642   $ 56   

Adjustments to reconcile net decrease:

    

PIK interest and dividends

     (9,751     (5,117

Net amortization on investments

     (6,756     (4,205

Decrease from foreign currency transactions

     (470     (1,861

Net change in unrealized loss on investments, cash equivalents and foreign currencies

     31,530        1,658   

Net realized loss on investments, cash equivalents and foreign currencies

     18,844        45,948   

Changes in operating assets and liabilities:

    

Purchase of investments

     (198,613     (835,810

Proceeds from disposition of investments and cash equivalents

     254,936        725,376   

Decrease in interest and dividends receivable

     7,735        4,323   

Decrease in prepaid expenses and other assets

     2,832        3,213   

Decrease in management and performance-based incentive fees payable

     (1,731     (459

Increase (decrease) in interest payable

     (250     157   

Increase (decrease) in accrued expenses and other liabilities

     331        (1,739

Increase (decrease) in payable for investments purchased

     102,581        (33,547

Increase in receivable for investments sold

     (106,412     (42,044
  

 

 

   

 

 

 

Net Cash Provided (Used) by Operating Activities

   $ 83,164      $ (144,051
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Net proceeds from the issuance of common stock

   $ 50,000      $ —     

Offering costs from the issuance of common stock

     —          (7

Dividends paid in cash

     (39,409     (49,733

Proceeds from debt

     205,210        1,150,480   

Payments on debt*

     (199,171     (953,846
  

 

 

   

 

 

 

Net Cash Provided by Financing Activities

   $ 16,630      $ 146,894   
  

 

 

   

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

   $ 99,794      $ 2,843   

Effect of exchange rates on cash balances

     318        8   

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

   $ 2,678      $ 6,354   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 102,790      $ 9,205   
  

 

 

   

 

 

 

Non-cash financing activities consist of the reinvestment of dividends totaling $0 and $5,008, respectively.

 

* Includes deferred financing costs of $12 and $27, respectively.

See notes to financial statements.

 

6


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited)

June 30, 2012

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED
INVESTMENTS—139.9%

   Industry    Par
Amount*
     Cost      Fair
Value (1)
 

CORPORATE DEBT—132.1%

           

BANK DEBT/SENIOR SECURED LOANS—46.6%

           

1st Lien Bank Debt/Senior Secured Loans—7.6%

           

Advantage Sales & Marketing, Inc., P+300, 12/17/15 (Revolving loan)

   Grocery    $ 5,500       $ 715       $ 661   

ATI Acquisition Company, P+1400 (P+1000 Cash / 4.00% PIK), 6/30/12*** †

   Education      4,539         3,895         2,350   

ATI Acquisition Company, P+900 (P+500 Cash / 4.00% PIK), 12/30/14*** †

   Education      15,037         12,596         —     

Aventine Renewable Energy Holdings, Inc., L+850, 12/22/15

   Chemicals      24,874         20,197         18,531   

Grocery Outlet Inc., L+900, 12/15/17

   Grocery      18,315         18,315         18,663   

Miller Energy Resources, Inc., 18.00% (15.00% Cash / 3.00% PIK Option), 6/29/17 ‡

   Energy      40,000         40,000         40,000   

Pelican Energy, LLC, 10.00% or 11.00% PIK, 12/31/2018 ‡

   Energy      5,344         5,345         5,344   

Penton Media, Inc., L+400 (L+300 Cash / 1.00% PIK), 8/1/14

   Media      34,911         30,465         26,779   

RBS Holding Company, LLC, L+500, 3/23/17

   Business Services      15,800         15,668         9,875   

Travelport LLC, L+950, 11/22/15 ‡

   Business Services      5,000         5,000         5,006   
        

 

 

    

 

 

 

Total 1st Lien Bank Debt/Senior Secured Loans

         $ 152,196       $ 127,209   
        

 

 

    

 

 

 

2nd Lien Bank Debt/Senior Secured Loans—39.0%

           

Advantage Sales & Marketing, Inc., L+775, 6/18/18

   Grocery    $ 58,000       $ 57,584       $ 58,072   

Allied Security Holdings, LLC, L+750, 2/2/18

   Business Services      31,000         30,737         31,039   

Asurion Corporation, L+750, 5/24/19

   Insurance      73,111         72,985         75,030   

Brock Holdings III, Inc., L+825, 3/16/18

   Environmental &
Facilities Services
     39,000         38,324         38,708   

Clean Earth, Inc., 13.00%, 8/1/14

   Environmental &
Facilities Services
     25,000         25,000         24,875   

Garden Fresh Restaurant Corp., L+975, 12/11/13

   Retail      46,600         47,095         47,532   

Insight Pharmaceuticals, LLC, L+1175, 8/25/17

   Consumer Products      20,000         19,639         19,900   

IPC Systems, Inc., L+525, 6/1/15

   Telecommunications      44,250         42,310         37,281   

Kronos, Inc., L+1000, 6/11/18

   Electronics      35,000         35,000         35,175   

Ozburn-Hessey Holding Company LLC, L+950, 10/8/16

   Logistics      38,000         37,972         33,060   

Ranpak Corp., L+750, 10/20/17 †

   Packaging      85,000         85,000         83,300   

Ranpak Corp., E+775, 10/20/17 †

   Packaging    40,000         58,042         49,747   

Sedgwick Holdings, Inc., L+750, 5/26/17

   Business Services    $ 15,225         15,050         15,301   

TransFirst Holdings, Inc., L+600 Cash or L+675 PIK, 6/15/15

   Financial Services      19,012         18,413         18,133   

See notes to financial statements.

 

7


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

June 30, 2012

(in thousands)

 

 

INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED
INVESTMENTS—139.9%

  Industry   Par
Amount*
    Cost     Fair
Value (1)
 

2nd Lien Bank Debt/Senior Secured Loans—(continued)

       

Valerus Compression Services, LP, 11.50%, 3/26/18

  Industrial   $ 40,000      $ 40,000      $ 40,640   

Vertafore, Inc., L+825, 10/29/17

  Software     49,260        48,856        48,891   
     

 

 

   

 

 

 

Total 2nd Lien Bank Debt/Senior Secured Loans

      $ 672,007      $ 656,684   
     

 

 

   

 

 

 

TOTAL BANK DEBT/SENIOR SECURED LOANS

      $ 824,203      $ 783,893   
     

 

 

   

 

 

 

Subordinated Debt/Corporate Notes—85.5%

       

Advantage Sales & Marketing, Inc., 13.00%, 12/31/18

  Grocery   $ 25,000      $ 25,000      $ 24,625   

Altegrity Inc., 0.00%, 8/2/16 ¨

  Diversified Service     3,545        2,151        1,928   

Altegrity Inc., 11.75%, 5/1/16 ¨

  Diversified Service     14,639        11,299        12,956   

Altegrity Inc., 12.00%, 11/1/15 ¨

  Diversified Service     100,000        100,000        97,100   

Altegrity Inc., 10.50%, 11/1/15 ¨

  Diversified Service     13,475        12,457        12,330   

American Tire Distributors, Inc., 11.50%, 6/1/18 ¨

  Distribution     25,000        25,000        26,600   

Angelica Corporation, 15.00% (12.00% Cash / 3.00% PIK), 10/15/16

  Healthcare     46,284        46,284        46,284   

ATI Acquisition Company, P+1400 (P+1000
Cash / 4.00% PIK), 12/30/15***

  Education     45,153        37,867        —     

Avaya Inc., 10.125% Cash or 10.875% PIK, 11/1/15

  Telecommunications     18,577        16,399        15,500   

BCA Osprey II Limited (British Car Auctions), 12.50% PIK, 8/17/17 ‡

  Transportation   £ 25,609        40,524        33,339   

BCA Osprey II Limited (British Car Auctions), 12.50% PIK, 8/17/17 ‡

  Transportation   15,528        21,449        16,355   

Catalina Marketing Corporation, 11.625%, 10/1/17 ¨

  Grocery   $ 5,000        4,648        4,450   

Ceridian Corp., 12.25% Cash or 13.00% PIK,
11/15/15 †

  Diversified Service     55,950        55,860        54,551   

Ceridian Corp., 11.25%, 11/15/15 †

  Diversified Service     9,300        9,083        8,998   

Chesapeake Energy Corporation, L+700, 12/02/17 ‡

  Energy     58,477        57,191        58,057   

Clearwire Communications, 12.00%, 12/1/15 ¨ † ‡

  Telecommunications     24,843        24,330        22,659   

Clearwire Communications, 14.75%, 12/1/16 ¨ † ‡

  Telecommunications     1,000        1,000        986   

Delta Educational Systems, Inc., 14.20% (13.00%
Cash / 1.20% PIK), 5/12/13

  Education     20,050        19,921        20,150   

Exova Limited, 10.50%, 10/15/18 ¨

  Market Research   £ 18,000        28,823        25,974   

Exova Limited, 10.50%, 10/15/18 ‡

  Market Research     17,655        25,018        25,476   

FoxCo Acquisition Sub LLC, 13.375%, 7/15/16 ¨

  Broadcasting &
Entertainment
  $ 26,125        26,688        28,084   

Hub International Holdings, 10.25%, 6/15/15 ¨

  Insurance     36,232        35,292        37,138   

Intelsat Bermuda Ltd., 11.25%, 2/4/17 † ‡

  Broadcasting &
Entertainment
    79,000        81,123        81,913   

 

See notes to financial statements.

 

8


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

June 30, 2012

(in thousands)

 

 

INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED
INVESTMENTS—139.9%

  Industry   Par
Amount*
    Cost     Fair
Value (1)
 

Subordinated Debt/Corporate Notes—(continued)

       

Intelsat Bermuda Ltd., 11.50% Cash or 12.50% PIK, 2/4/17 † ‡

  Broadcasting &
Entertainment
  $ 20,000      $ 19,627      $ 20,775   

inVentiv Health, Inc., 11.00%, 8/15/18

  Market Research     160,000        160,000        136,000   

Laureate Education, Inc., 12.75%, 8/15/17 ¨

  Education     53,540        53,867        57,288   

Lonestar Intermediate Super Holdings (Asurion), LLC, L+950, 9/2/19

  Insurance     31,922        31,276        33,518   

Nara Cable Funding Limited, 8.875%, 12/01/18 ¨

  Broadcasting &
Entertainment
    22,334        19,007        19,375   

SeaCube Container Leasing Ltd., 11.00%, 4/28/16 ‡

  Shipping     50,000        50,000        51,200   

SquareTwo Financial Corp. (Collect America, Ltd.), 11.625%, 4/1/17 ‡

  Consumer Finance     40,000        39,470        36,500   

SRA International, Inc., 11.00%, 10/1/19

  Consulting
Services
    25,000        25,000        25,250   

Texas Competitive Electric Holdings Company LLC, 11.50%, 10/1/20 ¨

  Utilities     50,000        49,674        34,313   

The ServiceMaster Company, 10.75% Cash or 11.50% PIK, 7/15/15 ¨

  Diversified Service     15,731        15,841        16,232   

TL Acquisitions, Inc. (Thomson Learning), 10.50%, 1/15/15 ¨

  Education     120,500        102,919        92,032   

Travelport LLC, 9.875%, 9/1/14 † ‡

  Business Services     19,779        18,711        14,686   

Travelport LLC, L+462.5, 9/1/14 † ‡

  Business Services     13,000        11,151        8,353   

Univar Inc., 12.00%, 6/30/18

  Distribution     78,750        79,845        78,590   

U.S. Security Associates Holdings, Inc., 11.00%, 7/28/18

  Business Services     135,000        135,000        136,350   

Varietal Distribution, 10.75%, 6/30/17 ‡

  Distribution   1,127        1,412        1,448   

Varietal Distribution, 10.75%, 6/30/17

  Distribution   $ 22,204        21,788        22,493   
     

 

 

   

 

 

 

Total Subordinated Debt/Corporate Notes

      $ 1,541,995      $ 1,439,856   
     

 

 

   

 

 

 

TOTAL CORPORATE DEBT

      $ 2,366,198      $ 2,223,749   
     

 

 

   

 

 

 

COLLATERALIZED LOAN OBLIGATIONS—0.5%

       

Westbrook CLO Ltd., Series 2006-1A, L+370, 12/20/20 ¨

  Asset Management   $ 11,000      $ 7,170      $ 7,626   
     

 

 

   

 

 

 

TOTAL COLLATERALIZED LOAN OBLIGATIONS

      $ 7,170      $ 7,626   
     

 

 

   

 

 

 

 

See notes to financial statements.

 

9


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

June 30, 2012

(in thousands, except shares)

 

INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED
INVESTMENTS—139.9%

  Industry    Shares      Cost      Fair
Value (1)
 

PREFERRED EQUITY—1.9%

          

AHC Mezzanine LLC (Advanstar) **

  Media      —         $ 1,063       $ 273   

CA Holding, Inc. (Collect America, Ltd.) Series A ** ‡

  Consumer Finance      7,961         788         1,592   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), 13.50% PIK, 5/12/14

  Education      12,360         26,717         27,087   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), 12.50% PIK (Convertible) ***

  Education      332,500         6,863         —     

Varietal Distribution Holdings, LLC, 8.00% PIK

  Distribution      3,097         4,603         2,969   
       

 

 

    

 

 

 

TOTAL PREFERRED EQUITY

        $ 40,034       $ 31,921   
       

 

 

    

 

 

 

EQUITY—5.4%

          

Common Equity/Interests—4.7%

          

Accelerate Parent Corp. (American Tire) **

  Distribution      3,125,000       $ 3,125       $ 4,630   

Altegrity Holding Corp.**

  Diversified Service      353,399         13,797         6,199   

CA Holding, Inc. (Collect America, Ltd.) Series A ** ‡

  Consumer Finance      25,000         2,500         1,410   

CA Holding, Inc. (Collect America, Ltd.) Series AA ** ‡

  Consumer Finance      4,294         429         859   

Clothesline Holdings, Inc. **

  Healthcare      6,000         6,000         1,351   

Explorer Coinvest LLC (Booz Allen) ** ‡

  Consulting Services      430         4,300         6,110   

Garden Fresh Restaurant Holding, LLC **

  Retail      50,000         5,000         6,205   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.)**

  Education      17,500         175         —     

GS Prysmian Co-Invest L.P. (Prysmian Cables & Systems) (2,3) ** ‡

  Industrial      —           —           198   

JV Note Holdco LLC (DSI Renal Inc.)

  Healthcare      9,303         85         86   

New Omaha Holdings Co-Invest LP
(First Data) ** ‡

  Financial Services      13,000,000         65,000         22,230   

Penton Business Media Holdings, LLC **

  Media      124         4,950         8,319   

RC Coinvestment, LLC (Ranpak Corp.) ** ‡

  Packaging      50,000         5,000         8,363   

Sorenson Communications Holdings, LLC Class A **

  Consumer Services      454,828         45         1,300   

Univar Inc. **

  Distribution      900,000         9,000         11,830   

Varietal Distribution Holdings, LLC Class A **

  Distribution      28,028         28         —     
       

 

 

    

 

 

 

Total Common Equity/Interests

        $ 119,434       $ 79,090   
       

 

 

    

 

 

 

 

See notes to financial statements.

 

10


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

June 30, 2012

(in thousands, except shares and warrants)

 

INVESTMENTS IN NON-CONTROLLED/
NON-AFFILIATED INVESTMENTS—139.9%

  Industry    Warrants      Cost      Fair
Value (1)
 

Warrants—0.7%

          

CA Holding, Inc. (Collect America, Ltd.), Common **

  Consumer Finance      7,961       $ 8       $ —     

Fidji Luxco (BC) S.C.A., Common
(FCI) (2) ** ‡

  Electronics      48,769         491         9,472   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Common **

  Education      9,820         98         —     

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Class A-1 Preferred **

  Education      45,947         459         976   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Class B-1 Preferred **

  Education      104,314         1,043         —     

Osage Exploration & Development, Inc. ‡

  Energy      1,496,843         —           1,146   
       

 

 

    

 

 

 

Total Warrants

        $ 2,099       $ 11,594   
       

 

 

    

 

 

 

TOTAL EQUITY

        $ 121,533       $ 90,684   
       

 

 

    

 

 

 

Total Investments in Non-Controlled/ Non-Affiliated Investments

        $ 2,534,935       $ 2,353,980   
       

 

 

    

 

 

 

 

See notes to financial statements.

 

11


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

June 30, 2012

(in thousands, except shares)

 

 

INVESTMENTS IN CONTROLLED INVESTMENTS—13.4% (4)

  Industry   Shares     Cost     Fair
Value (1)
 

COLLATERALIZED LOAN OBLIGATIONS—2.8%

     

Kirkwood Fund I LLC Common Interest (5) ‡

  Asset Management     —        $ 40,385      $ 40,475   

Slater Mill Loan Fund LP 2012-1X LP Certificates ‡

  Asset Management     8,375,000        7,370        7,370   
     

 

 

   

 

 

 

TOTAL COLLATERALIZED LOAN OBLIGATIONS

      $ 47,755      $ 47,845   
     

 

 

   

 

 

 
         Par Amount*              

CORPORATE DEBT—2.3%

       

Subordinated Debt/Corporate Notes—2.3%

       

Playpower Holdings Inc., 14.00% PIK, 12/15/15

  Leisure Equipment   17,196      $ 22,864      $ 21,331   

Playpower, Inc., 12.50% PIK, 12/31/15

  Leisure Equipment   £ 11,225        16,950        17,166   
     

 

 

   

 

 

 

Total Subordinated Debt/Corporate Notes

      $ 39,814      $ 38,497   
     

 

 

   

 

 

 

TOTAL CORPORATE DEBT

      $ 39,814      $ 38,497   
     

 

 

   

 

 

 
         Shares              

EQUITY—8.3%

       

Common Equity/Interests—8.3%

       

AIC Credit Opportunity Fund LLC (6) ‡

  Asset Management     —        $ 63,604      $ 60,652   

Generation Brands Holdings, Inc. (Quality Home Brands) **

  Consumer
Products
    750        —          73   

Generation Brands Holdings, Inc. Series H (Quality Home Brands) **

  Consumer
Products
    7,500        2,297        735   

Generation Brands Holdings, Inc. Series 2L (Quality Home Brands) **

  Consumer
Products
    44,957        11,242        4,405   

LVI Parent Corp. (LVI Services, Inc.)

  Environmental &
Facilities Services
    14,981        16,096        20,772   

Playpower Holdings Inc. **

  Leisure Equipment     1,000        77,722        52,625   
     

 

 

   

 

 

 

Total Common Equity/Interests

      $ 170,961      $ 139,262   
     

 

 

   

 

 

 

TOTAL EQUITY

      $ 170,961      $ 139,262   
     

 

 

   

 

 

 

Total Investments in Controlled Investments

      $ 258,530      $ 225,604   
     

 

 

   

 

 

 

Total Investments—153.3% (7)

      $ 2,793,465      $ 2,579,584   
         Par Amount*              

CASH EQUIVALENTS—5.9%

       

US Treasury Bill, 0.056%, 9/6/12

  Government   $ 100,000      $ 99,990      $ 99,988   
     

 

 

   

 

 

 

Total Investments and Cash Equivalents—159.2% (7,8)

    $ 2,893,455      $ 2,679,572   

Liabilities in Excess of Other Assets—(59.2%)

          (996,561
       

 

 

 

Net Assets—100.0%

        $ 1,683,011   
       

 

 

 

 

(1) Fair value is determined in good faith by or under the direction of the Board of Directors of the Company (see Note 2).
(2) Denominated in Euro (€).
(3) The Company is the sole Limited Partner in GS Prysmian Co-Invest L.P.

 

See notes to financial statements.

 

12


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

June 30, 2012

(in thousands)

 

(4) Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the three months ended June 30, 2012 in these Controlled investments are as follows:

 

Name of Issuer

  Fair Value at
March 31, 2012
    Gross
Additions
    Gross
Reductions
    Interest/Dividend/
Other Income
    Fair Value at
June  30,
2012
 

Playpower Holdings, Inc., 14.00% PIK

  $ 21,576     $ 734      $ —        $ 743      $ 21,331  

Playpower, Inc., 12.50% PIK

    16,960       531        —          535        17,166  

AIC Credit Opportunity Fund LLC Common Equity

    56,034        575       —          618        60,652   

Generation Brands Holdings, Inc. (Quality Home Brands) Common Equity

    130        —          —          —          73   

Generation Brands Holdings, Inc. (Quality Home Brands) Series H Common Equity

    1,300        —          —          —          735   

Generation Brands Holdings, Inc. (Quality Home Brands) Series 2L Common Equity

    7,793        —          —          —          4,405   

Kirkwood Fund I LLC CLO Equity Interest

    —          40,385       —          750        40,475   

LVI Parent Corp. Common Equity

    21,504        —          —          —          20,772   

Playpower Holdings Inc. Common Equity

    61,111        —          —          —          52,625   

Slater Mill Loan Fund LP CLO Equity Interest

    —          7,370       —          —          7,370   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 186,408      $ 49,595      $ —        $ 2,646      $ 225,604   

As of June 30, 2012, the Company has a 100%, 32%, 98%, 33%, 100% and 26% equity ownership interest in AIC Credit Opportunity Fund LLC, Generation Brands Holdings, Inc., Kirkwood Fund I LLC, LVI Parent Corp., Playpower Holdings Inc. and Slater Mill Loan Fund LP, respectively.

 

(5) See Note 12.
(6) See Note 6.
(7) Aggregate gross unrealized appreciation for federal income tax purposes is $70,144; aggregate gross unrealized depreciation for federal income tax purposes is $389,278. Net unrealized depreciation is $319,134 based on a tax cost of $2,998,705.
(8) Substantially all securities are pledged as collateral to our multicurrency revolving credit facility (the “Facility”). As such these securities are not available as collateral to our general creditors.
¨ These securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions that are exempt from registration, normally to qualified institutional buyers.
* Denominated in USD unless otherwise noted.
** Non-income producing security
*** Non-accrual status (see Note 2d)
Denotes debt securities where the Company owns multiple tranches of the same broad asset type but whose security characteristics differ. Such differences may include level of subordination, call protection and pricing, differing interest rate characteristics, among other factors. Such factors are usually considered in the determination of fair values.
Investments that the Company has determined are not “qualifying assets” under Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. The status of these assets under the 1940 Act are subject to change. The Company monitors the status of these assets on an ongoing basis.

 

See notes to financial statements.

 

13


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

 

Industry Classification

   Percentage of Total
Investments (at
fair value) as of
June 30, 2012

Business Services

           8.5%      

Diversified Service

           8.2%      

Education

           7.7%      

Market Research

           7.3%      

Broadcasting & Entertainment

           5.8%      

Distribution

           5.8%      

Insurance

           5.6%      

Packaging

           5.5%      

Asset Management

           4.5%      

Grocery

           4.1%      

Energy

           4.0%      

Leisure Equipment

           3.5%      

Environmental & Facilities Services

           3.3%      

Telecommunications

           3.0%      

Retail

           2.1%      

Shipping

           2.0%      

Transportation

           1.9%      

Software

           1.9%      

Healthcare

           1.8%      

Electronics

           1.7%      

Industrial

           1.6%      

Financial Services

           1.6%      

Consumer Finance

           1.6%      

Media

           1.4%      

Utilities

           1.3%      

Logistics

           1.3%      

Consulting Services

           1.2%      

Consumer Products

           1.0%      

Chemicals

           0.7%      

Consumer Services

           0.1%      
  

 

Total Investments

       100.0%      
  

 

See notes to financial statements.

 

14


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APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS

March 31, 2012

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON
AFFILIATED INVESTMENTS—147.8%

  Industry   Par
Amount*
    Cost     Fair
Value (1)
 

CORPORATE DEBT—139.2%

       

BANK DEBT/SENIOR SECURED LOANS—47.0%

       

1st Lien Bank Debt/Senior Secured Loans—5.6%

       

Advantage Sales & Marketing, Inc., P+300, 12/17/15 (Revolving loan)

  Grocery   $ 5,500      $ 2,200      $ 2,035   

ATI Acquisition Company, P+1400 (P+1000 Cash / 4.00% PIK), 6/30/12*** †

  Education     4,494        4,015        3,600   

ATI Acquisition Company, P+900 (P+500 Cash / 4.00% PIK), 12/30/14*** †

  Education     14,889        12,596        —     

Aventine Renewable Energy Holdings, Inc., L+850, 12/22/15

  Chemicals     24,937        20,009        19,825   

Eastman Kodak Company, DIP L+750, 7/20/13

  Technology     11,231        11,016        11,427   

Grocery Outlet Inc., L+900, 12/15/17

  Grocery     18,408        18,408        18,812   

Penton Media, Inc., L+400 (L+300 Cash / 1.00% PIK), 8/1/14

  Media     34,906        29,986        27,794   

RBS Holding Company, LLC, L+500, 3/23/17

  Business Services     15,840        15,703        9,900   
     

 

 

   

 

 

 

Total 1st Lien Bank Debt/Senior Secured Loans

      $ 113,933      $ 93,393   
     

 

 

   

 

 

 

2nd Lien Bank Debt/Senior Secured Loans—41.4%

       

Advantage Sales & Marketing, Inc., L+775, 6/18/18

  Grocery   $ 58,000      $ 57,571      $ 57,855   

Allied Security Holdings, LLC, L+750, 2/2/18

  Business Services     31,000        30,728        31,233   

Asurion Corporation, L+750, 5/24/19

  Insurance     78,111        77,959        79,234   

Brock Holdings III, Inc., L+825, 3/16/18

  Environmental &
Facilities Services
    39,000        38,302        38,561   

Clean Earth, Inc., 13.00%, 8/1/14

  Environmental &
Facilities Services
    25,000        25,000        24,875   

Garden Fresh Restaurant Corp., L+975, 12/11/13

  Retail     46,600        47,027        47,532   

Insight Pharmaceuticals, LLC, L+1175, 8/25/17

  Consumer Products     20,000        19,627        19,900   

IPC Systems, Inc., L+525, 6/1/15

  Telecommunications     44,250        42,170        38,497   

Kronos, Inc., L+1000, 6/11/18

  Electronics     35,000        35,000        35,700   

Ozburn-Hessey Holding Company LLC, L+950, 10/8/16

  Logistics     38,000        37,971        30,780   

Ranpak Corp., L+750, 10/20/17 †

  Packaging     85,000        85,000        82,025   

Ranpak Corp., E+775, 10/20/17 †

  Packaging   40,000        58,042        52,602   

Sedgwick Holdings, Inc., L+750, 5/26/17

  Business Services   $ 15,225        15,043        15,149   

Sheridan Holdings, Inc., L+575 Cash or L+650 PIK, 6/15/15

  Healthcare     24,047        23,446        23,518   

TransFirst Holdings, Inc., L+600 Cash or L+675 PIK, 6/15/15

  Financial Services     19,012        18,372        17,795   

Valerus Compression Services, LP, 11.50%, 3/26/18

  Industrial     40,000        40,000        40,680   

Vertafore, Inc., L+825, 10/29/17

  Software     49,260        48,842        49,383   

Wall Street Systems Holdings, Inc., L+750, 6/20/18 ‡

  Software     13,000        12,881        13,098   
     

 

 

   

 

 

 

Total 2nd Lien Bank Debt/Senior Secured Loans

      $ 712,981      $ 698,417   
     

 

 

   

 

 

 

TOTAL BANK DEBT/SENIOR SECURED LOANS

      $ 826,914      $ 791,810   
     

 

 

   

 

 

 

See notes to financial statements.

 

15


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2012

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON AFFILIATED
INVESTMENTS—147.8%

  Industry   Par
Amount*
    Cost     Fair
Value (1)
 

Subordinated Debt/Corporate Notes—92.2%

       

AB Acquisitions UK Topco 2 Limited (Alliance Boots), GBP L+650 (GBP L+300 Cash / 3.50% PIK), 7/9/17 ‡

  Retail   £ 22,580      $ 44,368      $ 33,612   

Advantage Sales & Marketing, Inc., 13.00%, 12/31/18

  Grocery   $ 25,000        25,000        24,625   

Altegrity Inc., 0.00%, 8/2/16 ¨

  Diversified Service     3,545        2,087        1,965   

Altegrity Inc., 11.75%, 5/1/16 ¨

  Diversified Service     14,639        11,112        13,907   

Altegrity Inc., 12.00%, 11/1/15 ¨

  Diversified Service     100,000        100,000        100,600   

Altegrity Inc., 10.50%, 11/1/15 ¨

  Diversified Service     13,475        12,387        12,869   

American Tire Distributors, Inc., 11.50%, 6/1/18 ¨

  Distribution     25,000        25,000        26,450   

Angelica Corporation, 15.00% (12.00% Cash / 3.00% PIK), 10/15/16

  Healthcare     53,343        53,343        52,756   

ATI Acquisition Company, P+1400 (P+1000 Cash / 4.00% PIK), 12/30/15***

  Education     43,296        37,867        —     

Avaya Inc., 10.125% Cash or 10.875% PIK, 11/1/15

  Telecommunications     43,577        40,713        43,468   

BCA Osprey II Limited (British Car Auctions), 12.50% PIK, 8/17/17 ‡

  Transportation   £ 22,750        35,957        32,078   

BCA Osprey II Limited (British Car Auctions), 12.50% PIK, 8/17/17 ‡

  Transportation   13,773        19,138        16,186   

Catalina Marketing Corporation, 11.625%, 10/1/17 ¨

  Grocery   $ 27,175        27,157        25,001   

Ceridian Corp., 12.25% Cash or 13.00% PIK, 11/15/15 †

  Diversified Service     55,950        55,845        51,334   

Ceridian Corp., 11.25%, 11/15/15 †

  Diversified Service     34,300        34,035        31,642   

Clearwire Communications, 12.00%, 12/1/15 ¨† ‡

  Telecommunications     24,843        24,289        24,595   

Clearwire Communications, 14.75%, 12/1/16 ¨† ‡

  Telecommunications     1,000        1,000        1,098   

Delta Educational Systems, Inc., 14.20% (13.00% Cash / 1.20% PIK), 5/12/13

  Education     19,991        19,828        20,221   

Exova Limited, 10.50%, 10/15/18 ¨

  Market Research   £ 18,000        28,823        25,524   

Exova Limited, 10.50%, 10/15/18 ‡

  Market Research     17,655        24,942        25,035   

FoxCo Acquisition Sub LLC, 13.375%, 7/15/16 ¨

  Broadcasting &
Entertainment
  $ 26,125        26,620        28,607   

Hub International Holdings, 10.25%, 6/15/15 ¨

  Insurance     36,232        35,228        37,410   

Intelsat Bermuda Ltd., 11.25%, 2/4/17 † ‡

  Broadcasting &
Entertainment
    84,000        86,285        87,570   

Intelsat Bermuda Ltd., 11.50% Cash or 12.50% PIK,
2/4/17 † ‡

  Broadcasting &
Entertainment
    20,000        19,500        20,850   

inVentiv Health, Inc., 11.00%, 8/15/18

  Market Research     160,000        160,000        144,000   

Laureate Education, Inc., 12.75%, 8/15/17 ¨

  Education     53,540        53,512        57,422   

Lonestar Intermediate Super Holdings (Asurion), LLC, L+950, 9/2/19

  Insurance     26,922        26,116        27,376   

SeaCube Container Leasing Ltd., 11.00%, 4/28/16 ‡

  Shipping     50,000        50,000        51,250   

Sorenson Communications, Inc., 10.50%, 2/1/15 ¨

  Consumer Services     16,500        16,303        13,695   

SquareTwo Financial Corp. (Collect America, Ltd.), 11.625%, 4/1/17 ¨

  Consumer Finance     40,000        39,450        39,800   

 

See notes to financial statements.

 

16


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2012

(in thousands)

 

 

INVESTMENTS IN NON-CONTROLLED/NON AFFILIATED
INVESTMENTS—147.8%

  Industry   Par
Amount*
    Cost     Fair
Value (1)
 

Subordinated Debt/Corporate Notes—(continued)

       

SRA International, Inc., 11.00%, 10/1/19

  Consulting Services   $ 25,000      $ 25,000      $ 26,500   

Texas Competitive Electric Holdings Company LLC, 11.50%, 10/1/20 ¨

  Utilities     50,000        49,668        32,875   

The ServiceMaster Company, 10.75% Cash or 11.50% PIK, 7/15/15 ¨

  Diversified Service     15,731        15,967        16,596   

TL Acquisitions, Inc. (Thomson Learning), 10.50%, 1/15/15 ¨

  Education     120,500        101,356        94,291   

Travelport LLC, 9.875%, 9/1/14 † ‡

  Business Services     19,779        18,606        12,733   

Travelport LLC, L+462.5, 9/1/14 † ‡

  Business Services     13,000        10,970        7,150   

Univar Inc., 12.00%, 6/30/18

  Distribution     78,750        79,652        78,830   

U.S. Renal Care, Inc., 13.25% (11.25% Cash / 2.00% PIK), 6/2/17

  Healthcare     50,824        50,824        52,603   

U.S. Security Associates Holdings, Inc., 11.00%, 7/28/18

  Business Services     135,000        135,000        138,110   

Varietal Distribution, 10.75%, 6/30/17 ‡

  Distribution   1,127        1,408        1,497   

Varietal Distribution, 10.75%, 6/30/17

  Distribution   $ 22,204        21,773        22,160   
     

 

 

   

 

 

 

Total Subordinated Debt/Corporate Notes

      $ 1,646,129      $ 1,554,291   
     

 

 

   

 

 

 

TOTAL CORPORATE DEBT

      $ 2,473,043      $ 2,346,101   
     

 

 

   

 

 

 

COLLATERALIZED LOAN OBLIGATIONS—0.5%

       

Westbrook CLO Ltd., Series 2006-1A, L+370, 12/20/20 ¨

  Asset Management   $ 11,000      $ 7,109      $ 7,691   
     

 

 

   

 

 

 

TOTAL COLLATERALIZED LOAN OBLIGATIONS

      $ 7,109      $ 7,691   
     

 

 

   

 

 

 
        Shares              

PREFERRED EQUITY—2.1%

       

AHC Mezzanine LLC (Advanstar) **

  Media     —        $ 1,063      $ 279   

CA Holding, Inc. (Collect America, Ltd.) Series A ** ‡

  Consumer Finance     7,961        788        1,592   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), 13.50% PIK, 5/12/14

  Education     12,360        25,789        26,207   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), 12.50% PIK (Convertible)

  Education     332,500        6,863        3,708   

Varietal Distribution Holdings, LLC, 8.00% PIK

  Distribution     3,097        4,514        3,141   
     

 

 

   

 

 

 

TOTAL PREFERRED EQUITY

      $ 39,017      $ 34,927   
     

 

 

   

 

 

 

 

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2012

(in thousands, except shares and warrants)

 

INVESTMENTS IN NON-CONTROLLED/NON AFFILIATED
INVESTMENTS—147.8%

  Industry   Shares     Cost     Fair
Value (1)
 

EQUITY—6.0%

       

Common Equity/Interests—5.4%

       

AB Capital Holdings LLC (Allied Security)

  Business Services     2,000,000      $ 2,000      $ 3,040   

Accelerate Parent Corp. (American Tire) **

  Distribution     3,125,000        3,125        4,750   

Altegrity Holding Corp.**

  Diversified Service     353,399        13,797        9,063   

CA Holding, Inc. (Collect America, Ltd.) Series A ** ‡

  Consumer Finance     25,000        2,500        1,058   

CA Holding, Inc. (Collect America, Ltd.) Series AA ** ‡

  Consumer Finance     4,294        429        859   

Clothesline Holdings, Inc. **

  Healthcare     6,000        6,000        1,729   

Explorer Coinvest LLC (Booz Allen) ** ‡

  Consulting Services     430        4,300        6,810   

Garden Fresh Restaurant Holding, LLC **

  Retail     50,000        5,000        7,600   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.)**

  Education     17,500        175        —     

GS Prysmian Co-Invest L.P. (Prysmian Cables & Systems) (2,3) ** ‡

  Industrial     —          —          208   

JV Note Holdco LLC (DSI Renal Inc.)

  Healthcare     9,303        85        84   

New Omaha Holdings Co-Invest LP (First Data) ** ‡

  Financial Services     13,000,000        65,000        24,960   

Penton Business Media Holdings, LLC **

  Media     124        4,950        8,308   

RC Coinvestment, LLC (Ranpak Corp.) ** ‡

  Packaging     50,000        5,000        8,535   

Sorenson Communications Holdings, LLC Class A **

  Consumer Services     454,828        45        1,380   

Univar Inc. **

  Distribution     900,000        9,000        13,840   

Varietal Distribution Holdings, LLC Class A **

  Distribution     28,028        28        —     
     

 

 

   

 

 

 

Total Common Equity/Interests

      $ 121,434      $ 92,224   
     

 

 

   

 

 

 
        Warrants              

Warrants—0.6%

       

CA Holding, Inc. (Collect America, Ltd.), Common **

  Consumer Finance     7,961      $ 8      $ —     

Fidji Luxco (BC) S.C.A., Common (FCI) (2) ** ‡

  Electronics     48,769        491        7,619   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Common **

  Education     9,820        98        —     

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Class A-1 Preferred **

  Education     45,947        459        947   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Class B-1 Preferred **

  Education     104,314        1,043        1,163   
     

 

 

   

 

 

 

Total Warrants

      $ 2,099      $ 9,729   
     

 

 

   

 

 

 

TOTAL EQUITY

      $ 123,533      $ 101,953   
     

 

 

   

 

 

 

Total Investments in
Non-Controlled/ Non-Affiliated Investments

      $ 2,642,702      $ 2,490,672   
     

 

 

   

 

 

 

 

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2012

(in thousands, except shares)

 

 

INVESTMENTS IN CONTROLLED

INVESTMENTS—11.1%(4)

   Industry    Par
Amount*
     Cost      Fair
Value (1)
 

CORPORATE DEBT—2.3%

           

Subordinated Debt/Corporate Notes—2.3%

           

Playpower Holdings Inc., 14.00% PIK, 12/15/15

   Leisure Equipment    16,617       $ 22,129       $ 21,576   

Playpower, Inc., 12.50% PIK, 12/31/15

   Leisure Equipment    £ 10,887         16,367         16,960   
        

 

 

    

 

 

 

Total Subordinated Debt/Corporate Notes

         $ 38,496       $ 38,536   
        

 

 

    

 

 

 

TOTAL CORPORATE DEBT

         $ 38,496       $ 38,536   
        

 

 

    

 

 

 
          Shares                

EQUITY—8.8%

           

Common Equity/Interests—8.8%

           

AIC Credit Opportunity Fund LLC (5) ‡

   Asset Management      —         $ 63,029       $ 56,034   

Generation Brands Holdings, Inc. (Quality Home Brands) **

   Consumer

Products

     750         —           130   

Generation Brands Holdings, Inc. Series H (Quality Home Brands) **

   Consumer
Products
     7,500         2,297         1,300   

Generation Brands Holdings, Inc. Series 2L (Quality Home Brands) **

   Consumer
Products
     44,957         11,242         7,793   

LVI Parent Corp. (LVI Services, Inc.)

   Environmental &
Facilities Services
     14,981         16,096         21,504   

Playpower Holdings Inc.

   Leisure Equipment      1,000         77,722         61,111   
        

 

 

    

 

 

 

Total Common Equity/Interests

         $ 170,386       $ 147,872   
        

 

 

    

 

 

 

TOTAL EQUITY

         $ 170,386       $ 147,872   
        

 

 

    

 

 

 

Total Investments in Controlled Investments

         $ 208,882       $ 186,408   
        

 

 

    

 

 

 

Total Investments—158.9%(6,7)

         $ 2,851,584       $ 2,677,080   

Liabilities in Excess of Other Assets—(58.9%)

              (991,849
           

 

 

 

Net Assets—100.0%

            $ 1,685,231   
           

 

 

 

 

(1) Fair value is determined in good faith by or under the direction of the Board of Directors of the Company (see Note 2).
(2) Denominated in Euro (€).
(3) The Company is the sole Limited Partner in GS Prysmian Co-Invest L.P.
(4) Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the fiscal year ended March 31, 2012 in these Controlled investments are as follows:

 

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2012

(in thousands)

 

 

Name of Issuer

   Fair Value at
March 31, 2011
     Gross
Additions
     Gross
Reductions
     Interest/Dividend/
Other Income
     Fair Value at
March  31,
2012
 

Playpower Holdings, Inc., 14.00% PIK

   $ —         $ 22,129       $ —         $ 2,195       $ 21,576  

Playpower, Inc., 12.50% PIK

     —           16,366         —           1,551         16,960  

AIC Credit Opportunity Fund LLC Common Equity

     95,212         9,317        20,889        13,444         56,034   

Generation Brands Holdings, Inc. (Quality Home Brands) Common Equity

     8         —           —           —           130   

Generation Brands Holdings, Inc. (Quality Home Brands) Series H Common Equity

     77         —           —           —           1,300   

Generation Brands Holdings, Inc. (Quality Home Brands) Series 2L Common Equity

     379         —           —           —           7,793   

LVI Parent Corp. Common Equity

     15,892         —           —           —           21,504   

Playpower Holdings Inc. Common Equity

     —           77,722         —           —           61,111   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 111,568       $ 125,534       $ 20,889      $ 17,190       $ 186,408   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of March 31, 2012, the Company has a 100%, 32%, 34% and 100% equity ownership interest in AIC Credit Opportunity Fund LLC, Generation Brands Holdings, Inc., LVI Parent Corp. and Playpower Holdings Inc., respectively.

 

(5) See Note 6.
(6) Aggregate gross unrealized appreciation for federal income tax purposes is $85,025; aggregate gross unrealized depreciation for federal income tax purposes is $363,967. Net unrealized depreciation is $278,942 based on a tax cost of $2,956,022.
(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.
¨ These securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions that are exempt from registration, normally to qualified institutional buyers.
* Denominated in USD unless otherwise noted.
** Non-income producing security
*** Non-accrual status (see Note 2d)
Denotes debt securities where the Company owns multiple tranches of the same broad asset type but whose security characteristics differ. Such differences may include level of subordination, call protection and pricing, differing interest rate characteristics, among other factors. Such factors are usually considered in the determination of fair values.
Investments that the Company has determined are not “qualifying assets” under Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. The status of these assets under the 1940 Act are subject to change. The Company monitors the status of these assets on an ongoing basis.

 

See notes to financial statements.

 

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APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

 

Industry Classification

   Percentage of Total
Investments (at
fair value) as of
March 31, 2012

Diversified Service

         8.9%    

Business Services

         8.1%    

Education

         7.8%    

Market Research

         7.3%    

Distribution

         5.6%    

Insurance

         5.4%    

Packaging

         5.4%    

Broadcasting & Entertainment

         5.1%    

Healthcare

         4.9%    

Grocery

         4.8%    

Telecommunications

         4.0%    

Leisure Equipment

         3.7%    

Retail

         3.3%    

Environmental & Facilities Services

         3.2%    

Asset Management

         2.4%    

Software

         2.3%    

Shipping

         1.9%    

Transportation

         1.8%    

Electronics

         1.6%    

Consumer Finance

         1.6%    

Financial Services

         1.6%    

Industrial

         1.5%    

Media

         1.4%    

Consulting Services

         1.2%    

Utilities

         1.2%    

Logistics

         1.2%    

Consumer Products

         1.1%    

Chemicals

         0.7%    

Consumer Services

         0.6%    

Technology

         0.4%    
  

 

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 amounts)

Note 1. Organization

Apollo Investment Corporation (“Apollo Investment”, the “Company”, “AIC”, “we”, “us”, or “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 the form of subordinated debt, sometimes referred to as mezzanine debt, and senior secured loans of private middle-market companies, that, in the case of senior secured loans, generally are not broadly syndicated and whose aggregate tranche size is typically less than $300 million. From time to time, our portfolio also includes equity interests such as common stock, preferred stock, warrants or options.

Apollo Investment commenced operations on April 8, 2004 receiving net proceeds of $870,000 from its initial public offering selling 62 million shares of common stock at a price of $15.00 per share.

Note 2. Significant Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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.

Interim financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 6 or 10 of Regulation S-X, as appropriate. In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair presentation of financial statements for the interim period, have been included.

The significant accounting policies consistently followed by Apollo Investment are:

(a) Security transactions are accounted for on the trade date;

(b) Under procedures established by our board of directors, we value investments, including certain senior secured debt, subordinated debt and other debt securities with maturities greater than 60 days, for which market quotations are readily available, at such market quotations (unless they are deemed not to represent fair value). We attempt to obtain market quotations from at least two brokers or dealers (if available, otherwise from a principal market maker or a primary market dealer or other independent pricing service). We utilize mid-market pricing as a practical expedient for fair value unless a different point within the range is more representative. If and when market quotations are deemed not to represent fair value, we typically utilize independent third party valuation firms to assist us in determining fair value. Accordingly, such investments go through our multi-step valuation process as described below. In each case, our independent valuation firms consider observable market inputs together with significant unobservable inputs in arriving at their valuation recommendations for such Level 3 categorized assets. Debt investments with remaining maturities of 60 days or less shall each be valued at cost with interest accrued or discount amortized to the date of maturity, unless such valuation, in the judgment of our investment adviser, does not represent fair value, in which case such investments shall be valued at fair value as determined in good faith by or under the direction of our board of directors. Investments that are not publicly traded or whose market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of our board of directors. Such determination of fair values may involve subjective judgments and estimates.

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

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 the fair value of each investment in our portfolio in good faith based on the input of our investment adviser, the respective independent valuation firm and the audit committee.

Investments in all asset classes are valued utilizing a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio 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 quarter ended June 30, 2012, there has been no change to the Company’s valuation techniques and related inputs considered in the valuation process.

Accounting Standards Codification (“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

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

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.

(c) Gains or losses on investments are calculated by using the specific identification method.

(d) 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 again believes that PIK is expected to be realized. For the three months ended June 30, 2012, accrued PIK totaled $4,269, on total investment income of $80,333. Loan origination fees, original issue discount, and market discounts are capitalized and amortized into income using the interest method or straight-line, as applicable. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. We record prepayment premiums on loans and other investments as interest income when we receive such amounts. Structuring fees are recorded as other income when earned. Investments that are expected to pay regularly scheduled interest and/or dividends in cash are generally placed on non-accrual status when principal or interest/dividend cash payments are past due 30 days or more and/or when it is no longer probable that principal or interest/dividend cash payments will be collected. Such non-accrual investments are restored to accrual status if past due principal and interest or dividends are paid in cash, and in 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.

(e) The Company intends to comply with the applicable provisions of the Code pertaining to regulated investment companies to 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.

(f) 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.

(g) Dividends and distributions to common stockholders are recorded as of the record date. The amount to be paid out as a dividend is determined by the board of directors each quarter. Net realized capital gains, if any, are generally distributed or deemed distributed at least annually.

(h) 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

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

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 acquired and holds investments subject to financing with third parties. At June 30, 2012, the Company did not have any subsidiaries or controlled operating companies that were consolidated. See additional information within note 6.

(i) 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. Such fluctuations are included with the net realized and unrealized gain or loss from investments. 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.

(j) 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 appreciation or depreciation. Realized gains or losses are recognized when contracts are settled.

(k) The Company records origination and other expenses related to its debt obligations as prepaid assets. These expenses are deferred and amortized using the straight-line method over the stated life of the obligation which closely approximates the effective yield method.

(l) The Company records expenses related to shelf filings and applicable offering costs as prepaid assets. These expenses are charged as a reduction of capital upon utilization, in accordance with the ASC 946-20-25.

(m) 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.

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, will manage the day-to-day operations of, and provide 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 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

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

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). 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. For a one year period commencing April 2, 2012, AIM has agreed to voluntarily waive the management fee on the proceeds of the April 2, 2012 common equity issuance.

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 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%, 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 depreciation (unrealized depreciation 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 appreciation and depreciation on investments held at the end of each period.

The accrual of this theoretical capital gains incentive fee assumes all unrealized capital appreciation and depreciation 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 such accrual for the three months ended June 30, 2012 and 2011. 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 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 appreciation.

Effective April 1, 2012 and through March 31, 2014, AIM has agreed that any incentive fees attributable to deferred interest features shall be paid, together with interest thereon, from the date of deferral to the date of payment at the prime rate published from time to time by the Wall Street Journal, or in the absence thereof, a bank selected by our Board of Directors, only if, and to the extent, received in cash, and the accrual thereof shall be reversed if, and to the extent, such interest is reversed in connection with any write off or similar treatment of the investment giving rise to any deferred interest accrual, provided that any such deferred payment will not reduce the Incentive Fee payable in the quarter of deferred payment. For a one year period that commenced on April 2, 2012, AIM has agreed to voluntarily waive the incentive fee on the proceeds of the April 2, 2012 common equity issuance.

For the three months ended June 30, 2012 and 2011, the Company recognized $13,426 and $15,929, respectively, in base management fees and $9,245 and $8,381, respectively, in performance-based incentive fees. The fees for

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

the three months ended June 30, 2012 reflect a voluntary fee waiver. Absent the voluntary fee waiver, for the three months ended June 30, 2012, base management fees and performance-based incentive fees would have totaled $13,820 and $9,517, respectively. The fees for the three months ended June 30, 2011 reflect a reduction due to a prior payment of an unearned portion of the fees to the Investment Adviser of $2,783.

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 personnel, the Company reimburses the Administrator for our allocable portion of overhead and other expenses incurred by the Administrator and requested to be reimbursed in performing its obligations under the Administration Agreement, including rent and the Company’s allocable portion of its chief financial officer and chief compliance officer and their respective staffs that are requested to be reimbursed. 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 quarters ended June 30, 2012 and 2011, the Company recognized expenses under the Administration Agreement of $750 and $887, respectively.

Note 4. Net Asset Value Per Share

At June 30, 2012, the Company’s total net assets and net asset value per share were $1,683,011 and $8.30, respectively. This compares to total net assets and net asset value per share at March 31, 2012 of $1,685,231 and $8.55, respectively.

Note 5. 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 three months ended June 30, 2012 and June 30, 2011, respectively:

 

     Three months ended June 30,  
             2012                     2011          

Earnings per share—basic

    

Numerator for increase (decrease) in net assets per share:

   $ (11,642   $ 56   

Denominator for basic weighted average shares:

     202,827,088        195,900,461   

Basic earnings (loss) per share:

     (0.06     0.00   

Earnings per share—diluted

    

Numerator for increase (decrease) in net assets per share:

   $ (11,642   $ 56   

Adjustment for interest on convertible notes and for incentive fees, net

     2,594        2,575   
  

 

 

   

 

 

 

Numerator for increase (decrease) in net assets per share, as adjusted

   $ (9,048   $ 2,631   

Denominator for weighted average shares, as adjusted for dilutive effect of convertible notes:

     217,375,188        210,448,561   

Diluted earnings (loss) per share:

     (0.06 )*      0.00

 

* In applying the if-converted method, conversion shall not be assumed for purposes of computing diluted EPS if the effect would be anti-dilutive. For the three months ended June 30, 2012 and 2011, anti-dilution would total $0.02 and $0.01, respectively.

Note 6. Investments

AIC Credit Opportunity Fund LLC—We own all of the common member interests in AIC Credit Opportunity Fund LLC (“AIC Holdco”). AIC Holdco was formed for the purpose of holding various financed investments.

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

AIC Holdco wholly owns three special purpose entities, each of which in 2008 acquired directly or indirectly an investment in a particular security from an unaffiliated entity that provided leverage for the investment as part of the sale. Each of these transactions is described in more detail below together with summary financial information.

In the first of these investments, in June 2008 we invested through AIC Holdco $39,500 in AIC (FDC) Holdings LLC (“Apollo FDC”). Apollo FDC used the proceeds to purchase a Junior Profit-Participating Note due 2013 in principal amount of $39,500 (the “Junior Note”) issued by Apollo I Trust (the “Trust”). The Trust also issued a Senior Floating Rate Note due 2013 (the “Senior Note”) to an unaffiliated third party (“FDC Counterparty”) in principal amount of $39,500 paying interest at Libor plus 1.50%, increasing over time to Libor plus 2.0%. The Trust used the aggregate $79,000 proceeds to acquire $100,000 face value of a senior subordinated loan of First Data Corporation (the “FDC Loan”) due 2016. The FDC Loan pays interest at 11.25% per year. The Junior Note of the Trust owned by Apollo FDC pays to Apollo FDC all of the interest and other proceeds received by the Trust on 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. Consequently, the maximum exposure on this investment is the amount of our investment in the Junior Note and any additional collateral we determine to post. During the fiscal year ended March 31, 2012, we sold $47,145 face value of the FDC Loan. As a result of this transaction, as of June 30, 2012, the FDC Loan balance is $52,855, the Junior Note balance is $21,472 and the Senior Note balance is $20,283.

In the second of these investments, in June 2008 we invested through AIC Holdco $11,375 in AIC (TXU) Holdings LLC (“Apollo TXU”). Apollo TXU acquired exposure to $50,000 notional amount of a Libor plus 3.5% senior secured delayed draw term loan of Texas Competitive Electric Holdings (“TXU”) due 2014 through a non-recourse total return swap (the “TRS”) with an unaffiliated third party expiring on October 10, 2013. Pursuant to such delayed draw term loan, Apollo TXU pays an unaffiliated third-party interest at Libor plus 1.5% and generally receives all proceeds due under the delayed draw term loan of TXU (the “TXU Term Loan”). Like Apollo FDC, Apollo TXU is entitled to 100% of any realized appreciation in the TXU Term Loan and, since the TRS is a non-recourse arrangement, Apollo TXU is exposed only up to the amount of its investment in the TRS, plus any additional margin we decide to post, if any, during the term of the financing. The TRS does not constitute a senior security or a borrowing of Apollo TXU. In connection with the amendment and extension of the TXU Term Loan in April 2011, for which Apollo TXU received a consent fee along with an increase in the rate of the TXU Term Loan to Libor plus 4.5%, Apollo TXU extended its TRS to 2016 at a rate of Libor plus 2.0%. As of June 30, 2012, Apollo TXU’s notional exposure to the TXU term loan is $47,471.

In the third of these investments, in September 2008 we invested through AIC Holdco $10,022 in AIC (Boots) Holdings, LLC (“Apollo Boots”). Apollo Boots acquired €23,383 and £12,465 principal amount of senior term loans of AB Acquisitions Topco 2 Limited, a holding company for the Alliance Boots group of companies (the “Boots Term Loans”), out of the proceeds of our investment and a multicurrency $40,876 equivalent non-recourse loan to Apollo Boots (the “Acquisition Loan”) by an unaffiliated third party that matures in September 2013 and pays interest at LIBOR plus 1.25% or, in certain cases, the higher of the Federal Funds Rate plus 0.50% or the lender’s prime-rate. The Boots Term Loans pay interest at the rate of LIBOR plus 3% per year and mature in June 2015. During the quarter ended June 30, 2012, we sold €10,108 and £904 principal amount of the Boots Term Loans. At June 30, 2012, the outstanding principal balance of the Boots Term Loans was €13,275 and £11,561.

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

We do not consolidate AIC Holdco or its wholly owned subsidiaries and accordingly only the value of our investment in AIC Holdco is included on our statement of assets and liabilities. Our investment in AIC Holdco is valued in accordance with our normal valuation procedures and is based on the values of the underlying assets held by each of Apollo FDC, Apollo TXU and Apollo Boots net of associated liabilities.

The Senior Note, TRS and Acquisition Loan are non-recourse to AIC Holdco, its subsidiaries and us and have standard events of default including failure to pay contractual amounts when due and failure by each of the underlying Apollo special purpose entities to provide additional credit support, sell assets or prepay a portion of its obligations if the value of the FDC Term Loan, the TXU Term Loan or the Boots Term Loans, as applicable, declines below specified levels. We may unwind any of these transactions at any time without penalty. From time to time we may provide additional capital to AIC Holdco for purposes of reserving for or funding margin calls under one or more of the transactions described above among other reasons. During the fiscal year ended March 31, 2009, we provided $18,480 in additional net capital to AIC Holdco. During the fiscal year ended March 31, 2010, $9,336 of net capital was returned to us from AIC Holdco. During the fiscal year ended March 31, 2011, $1,700 of net capital was provided to AIC Holdco. During the fiscal year ended March 31, 2012, $8,712 of net capital was returned to us from AIC Holdco. During the three months ended June 30, 2012, $575 of net capital was provided to AIC Holdco. The Junior Note, TRS and Boots Term Loans were performing assets as of the date of these financial statements.

Below is summarized financial information for AIC Holdco as of and for the three months ended June 30, 2012 and the fiscal year ended March 31, 2012.

 

     June 30, 2012
(unaudited)
     March 31, 2012  

Assets

     

Cash

   $ 10       $ 15   

Apollo FDC1

     29,841         27,947   

Apollo TXU2

     26,641         26,066   

Apollo Boots3

     47,214         47,999   

Other Assets

     —           2,886   
  

 

 

    

 

 

 

Total Assets

   $ 103,706       $ 104,913   
  

 

 

    

 

 

 

Liabilities

     

Apollo FDC4

   $ —         $ —     

Apollo TXU5

     14,178         16,045   

Apollo Boots6

     28,876         29,948   

Other Liabilities

     —           2,886   
  

 

 

    

 

 

 

Total Liabilities

   $ 43,054       $ 48,879   
  

 

 

    

 

 

 

Net Assets

     

Apollo FDC

   $ 29,841       $ 27,947   

Apollo TXU

     12,463         10,021   

Apollo Boots

     18,338         18,051   

Other

     10         15   
  

 

 

    

 

 

 

Total Net Assets

   $ 60,652       $ 56,034   
  

 

 

    

 

 

 

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

     Three Months Ended
June 30, 2012
(unaudited)
    Fiscal Year Ended
March 31, 2012
 

Net Operating Income (Loss)

    

Apollo FDC7

   $ —        $ 9,412   

Apollo TXU7

     344        2,809   

Apollo Boots7

     274        1,243   

Other

     (5     (26
  

 

 

   

 

 

 

Total Operating Income

   $ 613      $ 13,438   
  

 

 

   

 

 

 

Net Realized Gain (Loss)

    

Apollo FDC

   $ —        $ 2,862   

Apollo Boots

     (439     —     
  

 

 

   

 

 

 

Total Net Realized Gain (Loss)

   $ (439   $ 2,862   
  

 

 

   

 

 

 

Net Change in Unrealized Gain (Loss)

    

Apollo FDC

   $ 1,894      $ (14,484

Apollo TXU

     1,867        (13,126

Apollo Boots

     727        (2,852
  

 

 

   

 

 

 

Total Net Change in Unrealized Gain (Loss)

   $ 4,488      $ (30,462
  

 

 

   

 

 

 

Net Income (Loss)8

    

Apollo FDC

   $ 1,894      $ (2,210

Apollo TXU

     2,211        (10,317

Apollo Boots

     562        (1,609

Other

     (5     (26
  

 

 

   

 

 

 

Total Net Income (Loss)

   $ 4,662      $ (14,162
  

 

 

   

 

 

 

 

(1) Represents fair value of the Junior Note held by Apollo FDC. Cost: $21,472 and $21,472, respectively.
(2) Represents fair value of collateral posted in relation to the TRS held by Apollo TXU. Cost: $26,641 and $26,066, respectively.
(3) Represents fair value of the Boots Term Loans held by Apollo Boots and fair value of receivable for Boots Term Loans sold during the quarter. Cost: $50,109 and $50,109, respectively.
(4) Apollo FDC’s interest is subject to a senior note of a separate entity of $20,283 and $20,283, respectively; However, Apollo FDC has no liability for such senior note.
(5) Represents liability on the TRS held by Apollo TXU.
(6) Represents liability of Apollo Boots on the Acquisition Loan.
(7) In the case of Apollo FDC, net operating income consists of interest income on the Junior Note less interest paid on the senior note together with immaterial administrative expenses. In the case of Apollo TXU, net operating income consists of net payments from (to) the swap counterparty of Apollo 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.
(8) Net income is the sum of operating income, realized gain (loss) and net change in unrealized gain (loss).

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

Investments and cash equivalents for the Company

Investments and cash equivalents for the Company consisted of the following as of June 30, 2012 and March 31, 2012.

 

     June 30, 2012      March 31, 2012  
     Cost      Fair Value      Cost      Fair Value  

Bank Debt/Senior Secured Loans

   $ 824,203       $ 783,893       $ 826,914       $ 791,810   

Subordinated Debt/Corporate Notes

     1,581,809         1,478,353         1,684,625         1,592,827   

Collateralized Loan Obligations

     54,925         55,471         7,109         7,691   

Preferred Equity

     40,034         31,921         39,017         34,927   

Common Equity/Interests

     290,395         218,352         291,820         240,096   

Warrants

     2,099         11,594         2,099         9,729   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

   $ 2,793,465       $ 2,579,584       $ 2,851,584       $ 2,677,080   

Cash Equivalents

     99,990        99,988        —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments and Cash Equivalents

   $ 2,893,455       $ 2,679,572       $ 2,851,584       $ 2,677,080   
  

 

 

    

 

 

    

 

 

    

 

 

 

At June 30, 2012, our investments and cash equivalents were categorized as follows in the fair value hierarchy for ASC 820 purposes:

 

            Fair Value Measurement at Reporting Date Using:  

Description

   June 30,
2012
     Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Bank Debt/Senior Secured Loans

   $ 783,893       $ —         $ —         $ 783,893   

Subordinated Debt/Corporate Notes

     1,478,353         —           —           1,478,353   

Collateralized Loan Obligations

     55,471         —           —           55,471   

Preferred Equity

     31,921         —           —           31,921   

Common Equity/Interests

     218,352         —           —           218,352   

Warrants

     11,594         —           —           11,594   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

   $ 2,579,584       $ —         $ —         $ 2,579,584   

Cash Equivalents

     99,988         99,988         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments and Cash Equivalents

   $ 2,679,572       $ 99,988      $ —         $ 2,579,584   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

At March 31, 2012, our investments and cash equivalents were categorized as follows in the fair value hierarchy for ASC 820 purposes:

 

            Fair Value Measurement at Reporting Date Using:  

Description

   March 31,
2012
     Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Bank Debt/Senior Secured Loans

   $ 791,810       $ —         $ —         $ 791,810   

Subordinated Debt/Corporate Notes

     1,592,827         —           —           1,592,827   

Collateralized Loan Obligations

     7,691         —           —           7,691   

Preferred Equity

     34,927         —           —           34,927   

Common Equity/Interests

     240,096         —           —           240,096   

Warrants

     9,729         —           —           9,729   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

   $ 2,677,080       $ —         $ —         $ 2,677,080   

Cash Equivalents

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments and Cash Equivalents

   $ 2,677,080       $ —         $ —         $ 2,677,080   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following chart shows the components of change in our investments categorized as Level 3, for the three months ended June 30, 2012.

 

    Fair Value Measurements Using Significant Unobservable Inputs (Level 3)*  
    Bank Debt /
Senior Secured
Loans
    Subordinated
Debt/Corporate
Notes
    Collateralized
Loan
Obligations
    Preferred
Equity
    Common
Equity/Interests
    Warrants     Total  

Beginning Balance, March 31, 2012

  $ 791,810      $ 1,592,827      $ 7,691      $ 34,927      $ 240,096      $ 9,729      $ 2,677,080   

Total realized gains (losses) included in earnings

    963        (19,303     —                50        —          (18,290

Total unrealized gains (losses) included in earnings

    (5,209     (11,658     (46     (4,024     (20,318     1,865        (39,390

Purchases, including capitalized PIK(1)

    51,548        114,153        47,826        1,018        575        —          215,120   

Sales

    (55,219     (197,666     —          —          (2,051     —          (254,936

Transfer in and/or out of Level 3(2)

    —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance, June 30, 2012

  $ 783,893      $ 1,478,353      $ 55,471      $ 31,921      $ 218,352      $ 11,594      $ 2,579,584   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains (losses) relating to our Level 3 assets still held at the reporting date and reported within the net change in unrealized gains or losses on investments in our Statement of Operations.

  $ 563      $ (25,165   $ (35   $ (4,024   $ (19,278   $ 1,865      $ (46,074
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

 

(1) Includes accretion of discount and amortization of premiums of approximately $1,114, $5,523, $71, $48, $0, $0, and $6,756, respectively.
(2) There were also no transfers into or out of Level 1 or Level 2 fair value measurements during the period shown.
* Pursuant to fair value measurement and disclosure guidance, the Company currently categorizes investments by class as shown above.

PIK income activity for the three months ended June 30, 2012:

 

     Three Months Ended
June 30, 2012
 

PIK balance at beginning of period

   $ 32,963   

Gross PIK income capitalized

     9,751   

Adjustments due to investment exits

     —     

PIK income received in cash

     (937
  

 

 

 

PIK balance at end of period

   $ 41,777   
  

 

 

 

The following chart shows the components of change in our investments categorized as Level 3, for the three months ended June 30, 2011.

 

    Fair Value Measurements Using Significant Unobservable Inputs (Level 3)*  
    Bank Debt /
Senior Secured
Loans
    Subordinated
Debt/Corporate
Notes
    Collateralized
Loan
Obligations
    Preferred
Equity
    Common
Equity/Interests
    Warrants     Total  

Beginning Balance, March 31, 2011

  $ 1,013,745      $ 1,730,656      $ 28,770      $ 33,132      $ 227,771      $ 16,084      $ 3,050,158   

Total realized gains or losses included in earnings

    6,556        (50,884     —          —          217        —          (44,111

Total unrealized gains or losses included in earnings

    (7,779     7,051        104        (195     (1,994     270        (2,543

Purchases, including capitalized PIK (1)

    316,089        450,109        120        1,092        77,722        —          845,132   

Sales

    (323,343     (401,816     —          —          (217     —          (725,376

Transfer out of Level 3 (2)

    —          —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance, June 30, 2011

  $ 1,005,268      $ 1,735,116      $ 28,994      $ 34,029      $ 303,499      $ 16,354      $ 3,123,260   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to our Level 3 assets still held at the reporting date and reported within the net change in unrealized gains or losses on investments in our Statement of Operations.

  $ (1,014   $ (34,065   $ 104      $ (195   $ (1,994   $ 270      $ (36,894
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Includes accretion of discount and amortization of premiums of approximately $1,161, $2,876, $120, $48, $0, $0, and $4,205, respectively.

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

(2) There were also no transfers into or out of Level 1 or Level 2 fair value measurements during the period shown.
* Pursuant to fair value measurement and disclosure guidance, the Company currently categorizes investments by class as shown above.

PIK income activity for the three months ended June 30, 2011:

 

     Three Months Ended
June 30, 2011
 

PIK balance at beginning of period

   $ 165,651   

Gross PIK income capitalized

     5,118   

Adjustments due to investment exits

     (60,109

PIK income received in cash

     (49,337
  

 

 

 

PIK balance at end of period

   $ 61,322   
  

 

 

 

The following table provides quantitative information about our Level 3 fair value measurements of our investments as of June 30, 2012. 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 Level 3 inputs as they relate to our fair value measurements.

 

    Quantitative Information about Level 3 Fair Value Measurements
    Fair Value as of
June 30, 2012
    Valuation
Techniques/

Methodologies
  Unobservable
Input
  Range (Weighted
Average)

Corporate Debt, Collateralized Loan Obligations & Cash Equivalents

  $ 1,511,691      Broker quoted   Bid-Ask
Spread
  NA

Corporate Debt & Collateralized Loan Obligations

  $ 863,187      Market Rate

Approach

  Market
Interest Rate
  8.2% - 18.0% (12.3%)

Equity (1,2)

  $ 196,026      Market Comparable

Companies

  EBITDA
Multiples
  2.3x – 11.4x (7.9x)

Equity

  $ 7,257      Market Comparable

Companies

  Illiquidity
Discount
  7% – 20% (9.1%)

Equity & Collateralized Loan Obligations

  $ 40,561      Discounted Cash Flows   Default Rate
Assumptions/
Discount
Rate
  0.0% - 4.0% (2.0%)

/ 8.0% - 13.5%(13.5%)

 

(1) Includes $2,350 of certain non-performing debt investments that are valued using equity valuation techniques.
(2) Excludes $60,850 of equity securities that are valued on the basis of the net asset value of their underlying holdings.

 

34


Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

The following table provides quantitative information about our Level 3 fair value measurements of our investments as of March 31, 2012. 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 Level 3 inputs as they relate to our fair value measurements.

 

    Quantitative Information about Level 3 Fair Value Measurements
    Fair Value as of
March 31,
2012
    Valuation
Techniques/

Methodologies
  Unobservable
Input
  Range (Weighted
Average)

Corporate Debt & Collateralized Loan Obligations

  $ 1,517,432      Broker quoted   Bid-Ask Spread   NA

Corporate Debt & Collateralized Loan Obligations

  $ 871,296      Market Rate

Approach

  Market Interest
Rate
  7.7% - 16.5% (11.6%)

Equity (1,2)

  $ 232,111      Market Comparable

Companies

  EBITDA
Multiples
  4.0x – 15.2x (8.5x)

 

(1) Includes $3,600 of certain non-performing debt investments that are valued using equity valuation techniques.
(2) Excludes $56,241 of equity securities that are valued on the basis of the net asset value of their underlying holdings.

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”) multiples and market interest rates. The Company uses EBITDA multiples on its equity securities to determine the fair value of investments. Significant increases or decreases in either of these inputs in isolation would result in a significantly lower or higher fair value measurement. The Company uses market interest 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.

Note 7. Foreign Currency Transactions and Translations

At June 30, 2012, the Company had outstanding non-US borrowings on its Facility denominated in Euros and British Pounds. Unrealized appreciation on these outstanding borrowings is indicated in the table below:

 

Foreign Currency

   Local
Currency
     Original
Borrowing
Cost
     Current
Value
     Reset Date      Unrealized
Appreciation
 

British Pound

   £ 14,000       $ 22,213       $ 21,958         07/11/2012       $ 255   

Euro

   21,500         28,976         27,285         07/25/2012         1,691   

British Pound

   £ 13,500         21,484         21,174         07/25/2012         310   

Euro

   63,218         86,951         80,226         07/30/2012         6,725   

British Pound

   £ 62,000         99,265         97,244         07/30/2012         2,021   
     

 

 

    

 

 

       

 

 

 
      $ 258,889       $ 247,887          $ 11,002   
     

 

 

    

 

 

       

 

 

 

 

35


Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

At March 31, 2012, the Company had outstanding non-US borrowings on its Facility denominated in Euros and British Pounds. Unrealized appreciation or depreciation on these outstanding borrowings is indicated in the table below:

 

Foreign Currency

   Local
Currency
     Original
Borrowing
Cost
     Current
Value
     Reset Date      Unrealized
Appreciation
(Depreciation)
 

British Pound

   £ 3,000       $ 4,791       $ 4,793         04/10/2012       $ (2

Euro

   5,500         7,976         7,324         04/23/2012         652   

British Pound

   £ 13,500         21,485         21,570         04/23/2012         (85

Euro

   63,218         86,951         84,187         04/30/2012         2,764   

British Pound

   £ 63,500         101,968         101,753         04/30/2012         215   
     

 

 

    

 

 

       

 

 

 
      $ 223,171       $ 219,627          $ 3,544   
     

 

 

    

 

 

       

 

 

 

Note 8. Cash Equivalents

There were $99,988 and $0 of cash equivalents held at June 30, 2012 and March 31, 2012, respectively.

Note 9. Financial Highlights

The following is a schedule of financial highlights for the three months ended June 30, 2012 and the year ended March 31, 2012:

 

     Three months
ended June 30,
2012
(unaudited)
   
Year ended
March 31, 2012
 

Per Share Data:

    

Net asset value, beginning of period

   $ 8.55      $ 10.03   
  

 

 

   

 

 

 

Net investment income

     0.19        0.88   

Net realized and unrealized loss

     (0.24     (1.32
  

 

 

   

 

 

 

Net decrease in net assets resulting from operations

     (0.05     (0.44

Dividends to stockholders from net investment income (1)

     (0.19     (0.88

Distributions to stockholders from other sources (1)

     (0.01     (0.16

Effect of anti-dilution (dilution)

     —       —  

Offering costs

     —          —  
  

 

 

   

 

 

 

Net asset value at end of period

   $ 8.30      $ 8.55   
  

 

 

   

 

 

 

Per share market price at end of period

   $ 7.67      $ 7.17   
  

 

 

   

 

 

 

Total return (2)

     9.7     (32.4 )% 
  

 

 

   

 

 

 

Shares outstanding at end of period

     202,891,351        197,043,398   
  

 

 

   

 

 

 

Ratio/Supplemental Data:

    

Net assets at end of period (in millions)

   $ 1,683.0      $ 1,685.2   
  

 

 

   

 

 

 

Ratio of net investment income to average net assets

     2.23     9.77
  

 

 

   

 

 

 

Ratio of operating expenses to average net assets

     1.50 %**      6.70

Ratio of interest and other debt expenses to average net assets

     0.90     3.76
  

 

 

   

 

 

 

Ratio of total expenses to average net assets

     2.40 %**      10.46
  

 

 

   

 

 

 

Average debt outstanding

   $ 1,017,000      $ 1,213,943   
  

 

 

   

 

 

 

Average debt per share

   $ 5.01      $ 6.18   
  

 

 

   

 

 

 

Portfolio turnover ratio

     7.4     50.6
  

 

 

   

 

 

 

 

36


Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

 

(1) 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.
* Represents less than one cent per average share.