Apollo Investment Corporation
Q3 2022 Earnings Call Transcript

Published: 3 Feb 2022

[Operator:]

Good afternoon and welcome to the Apollo Investment Corporation's Earnings Conference Call for period ended December 31, 2021. At this time, all participants have been placed in a listen-only mode. The call will be open for question-and-answer session following the speakers' prepared remarks. I will now turn the call over to Elizabeth Besen, Investor Relations Manager for the Apollo Investment Corporation. Please go ahead.

[Elizabeth Besen:]

Thank you, operator and thank you everyone for joining us today. Speaking on today's call are Howard Widra, Chief Executive Officer; Tanner Powell, President and Chief Investment Officer; and Greg Hunt, Chief Financial Officer. I'd like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of Apollo Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our customary earnings press release. I'd also like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements. You should refer to our most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit our website at www.apolloic.com. I'd also like to remind everyone that we posted a supplemental financial information package on our website, which contains information about the portfolio, as well as the company's financial performance. At this time, I'd like to turn the call over to our Chief Executive Officer, Howard Widra.

[Howard Widra:]

Thanks, Elizabeth. Good afternoon and thank you everybody for joining us today. I'll begin my remarks with an overview of the quarter and we'll then provide some additional business highlights. Following my remarks, Tanner will discuss the market environment, review our investment activity for the quarter and provide an update on credit quality, Greg will then review our financial results in greater detail. We'll then open the call for questions. Over the last several years, we have built a well diversified portfolio of true first-lien floating rate corporate loans invested in less cyclical industries with granular position sizes. Our ability to co-invest with other funds and entities managed by Apollo including MidCap allows AIB to participate in larger deals while maintaining relatively small hold sizes on our balance sheet. As you know MidCap is the hub of Apollo's middle market direct origination business, and it's on par with any lender in the marketplace. The overall MidCap direct origination platform was very active during the period closing approximately $7.7 billion in new commitments during the quarter and $19.6 billion in commitments in 2021. The MidCap platform provides AIB with access to a wide funnel of opportunities, which allows us to be selective and find attractive investments. After market close today, we reported net investment income for the December quarter of $0.35 per share. Results for the quarter benefited from strong theme prepayment income and reflect operating with average net leverage in the middle of our target leverage range. We ended the period with net asset value per share of $16.08 up $0.01 per share. Our corporate lending portfolio, Merx had net gains during the quarter, the corporate lending portfolio continues to improve, which Tanner will discuss later during the call. Results for December also reflected benefit from the monetization of non-earning and under earning assets and redeploying those proceeds into our core strategies. We have consistently generated cash from our non-core assets and we are focused on executing some more significant progress in the coming quarters. During the December quarter, we received repayments of approximately $10 million from three of our non-core positions, two of which were non-earning, which included $4 million from one position without any reduction in NAV and $2 million from one investment, which was $2 million above fair value. We also received approximately $29 million in the repayment of second-lien position. Post quarter-end, Dynamic Product Tankers one of our shipping investments closed on the sale of three ships, which will be generating an additional $18 million in cash proceeds at our December 31 NAV in the March quarter. We have visibility into additional monetization from our non-core portfolio in the coming quarters and we look forward to reporting our continued progress. Pro Forma for the Dynamic sale, non-core assets represented only 6% of AINV's total investment portfolio. Secondly, it has represented only 5% of the corporate lending portfolio at the end of December. Lastly, we repurchased stock during the period of meaningful discount to NAV which was accretive to NAV per share and moderately accretive to net income per share. Moving on to other business highlights, our board has increased our share repurchase authorization by $25 million having nearly completed our existing authorization, we obviously hope opportunities to repurchase our share at a meaningful discount to NAV do not occur, but when they do this authorization will allow us to create value for our shareholders. Turning to our distribution. For the quarter, the board has declared a base distribution of $0.31 per share and a supplemental distribution of $0.05 per share. Both distributions are payable on April 7 2022 to shareholders of record as of March 21 2022. As a reminder, the dividends being declared today are the last of the dividends that we previously indicated, would be maintained at $0.31 for the base distribution and $0.05 for the supplemental distribution. One of our objectives is to provide greater visibility for our shareholders with respect to the distribution. So for the next two quarters, we intend to declare a base dividend of $0.31 per share plus a supplemental dividend in an amount such that the base and supplemental combined will equal the prior-quarter's net investment income per share. This means that next quarter, we expect to declare a base dividend of $0.31, plus a supplemental dividend up $0.04 or $0.35 in total, which is equivalent to the NII per share for the December quarter. We expect to have greater clarity in the coming quarters regarding the timing of the embedded upside in our portfolio and the impact of interest rates on our earnings. With that I'll turn the call over to Tanner to discuss the market environment and our investment activity.

[Tanner Powell:]

Thank you, Howard. The broader market environment is mix of economic expansion, good corporate earnings growth and increased valuations are being balanced by inflationary pressures, the emergence of COVID-19 variants, ongoing supply chain issues, and a more hawkish posture by the Federal Reserve. Specific to our business during this pandemic, non-bank financial institutions have become an even more important source of financing, or corporate federal banks. Private equity firms were extremely active in 2021 and continue to raise more capital resulting in significant dry powder. As this dry powder is deployed, the demand for financing is expected to result in considerable investment opportunities for lenders like MidCap and AINV. Moving to the AINV's investment activity, new corporate lending commitments for the quarter totaled $271 million across 24 companies for an average new commitment of a $11.3 million. 71% of new commitments were leverage lending, 13% asset base, 10% life sciences and 6% franchise finance. Consistent with our strategy, all new commitments were first lien loans with a weighted average spread of 639 basis points, and a weighted average net leverage of 4.7x and 96% were made pursuant to our co-investment order. Elevator repayments offset strong gross fundings, resulting in net repayments for the quarter. Gross fundings for the quarter totaled $234 million excluding revolvers. Sales and repayments totaled $287 million, excluding revolvers. As Howard mentioned, repayments included $29 million of corporate second liens and $10 million of non-core assets. Net funding for revolvers were $30 million in aggregate and net repayments for the quarter totaled $23 million. Regarding our aircraft leasing portfolio company, we believe Merx has successfully navigated this challenging period. During the December quarter the fair value of AINV's investment in Merx increased by $3.4 million, or 1.1% as aircraft leasing fundamentals are showing minor improvements. Turning to the overall AINV portfolio, our investment portfolio had a fair value of $2.59 billion at the end of December across 139 companies in 26 different industries. We ended the quarter with core assets representing 93% of the portfolio, and non-core assets representing 7%. First lien assets represented 93% of the corporate lending portfolio. At the end of December, the weighted average spread on the corporate lending portfolio was 605 basis points. We are closely monitoring the impact of cost inflation within our portfolio and its impact on profitability. We believe our portfolio is generally weighted towards industries that are less likely to be impacted by inflation and supply chain issues. We continue to see improvement in our credit metrics. As we reduce our exposure to second lien positions. The weighted average, net leverage of our corporate lending portfolio declined to 5.03x down from 5.1x last quarter. The weighted average attachment point declined to 0.2x down from 0.3x last quarter. Our low attachment point is a clear indication of the seniority of our corporate lending portfolio compared to loans, which are classified as senior, but have much deeper attachment points. The weighted average interest coverage improved to 3.1x up from 3x last quarter. Investments made pursuant to our co-investment order represented 85% of the corporate lending portfolio at the end of the quarter. No investments were placed on non-accrual status during the quarter. At the end of December investments on non-accrual status totaled $14 million, or 0.5% of the total portfolio at fair value down from $28 million or 1.1% last quarter. The quarter-over-quarter decline was attributable to the restructuring of our investment in sequential brands during the quarter. With that, I'll now turn the call over to Greg who will discuss the financial performance for the quarter.

[Greg Hunt:]

Thanks, Tanner and good afternoon everyone. Beginning with AINV's statement of operations. Total investment income was $55 million for the quarter up 3.9% quarter-over-quarter, reflecting higher fee income and prepayment income, as well as higher interest income partially offset by lower dividends. Pre-payment income was $4 million, up $700,000 for the quarter. Fee income was $1.6 million, up $600,000 for the quarter. The increase in interest income was attributable to a larger average investment portfolio. Dividend income was $500,000 for the quarter a decrease of $2.3 million compared to the September quarter. We received a $2.7 million cash distribution from MC one of our shipping investments, which recorded as a return to capital during the period. The weighted average yield at cost on our corporate lending portfolio was 7.6% at the end of December, unchanged quarter-over-quarter. The weighted average spread of our corporate lending portfolio was 605 basis points compared to 602 basis points last quarter. Expenses for the quarter were $32.5 million up $800,000 for the quarter, and included an incentive fee of $5.4 million. The increase in interest expense reflects the growth in the portfolio. Net investment income per share for the December quarter was $0.35. Net leverage at the end of December was 1.52x up slightly from last quarter, as the average net leverage for the December quarter was 1.51x compared to 1.46x for the September quarter. On Page 16 in the earnings supplement we disclose the net gain and loss by strategy over the past five quarters. During the current quarter, our corporate lending portfolio had a net gain of $3.7 million or $0.06 per share. Merx had a net gain of $3.4 million or $0.05 per share. Non-core and legacy assets had a loss of $9.1 million or $0.14 per share, driven by losses on our shipping investments. The loss on shipping primarily relates to the sale of the three ships that closed in January. NAV per share at the end of December was $16.08 a $0.01 increase quarter-over-quarter. The $0.01 increase was attributable to a $0.05 per share accretive impact from stock buybacks partially offset by the $0.03 per share net loss on the portfolio, and a $0.01 from distribution relative to net investment income. Moving to stock buybacks. During the quarter, AINV purchased approximately 955,000 shares at an average price of $12.99 including commissions for total cost of $12.4 million. Since the end of the quarter, and through yesterday AINV had purchased an additional 61,000 shares at an average price of $12.70 for a total cost of approximately $800,000. Leaving us with $5.8 million available under the previous authorization. As Howard mentioned, our board has increased our share repurchase authorization by $25 million, which increases the amount available for future stock repurchases of just over $30 million. This concludes our prepared remarks, and please open the call to questions.

[Operator:]

And we'll take our first question from Kyle Joseph with Jefferies. Please go ahead. Your line is open.

[Kyle Joseph:]

Hey, good afternoon, guys. Thanks for taking my questions. Just to refresh us if you don't mind, given what's going on with the Fed. What percentage of your debt portfolio has floors and where those floors are versus rates at this time?

[Howard Widra:]

Yes, hey, Kyle. Thanks for the question. Elizabeth grabbing the specific number, but it's in the 90% range that has floors almost entirely 1% we see on the life sciences side or some of the specialty verticals, sometimes we see a little bit higher floors, almost everything we've done on the corporate side is at 1%. And then as will not be as much of a surprise in instances where you have a company that is bumping up against the syndicated market, we will see something slightly lower than 1% at kind of 75 bps. So, but that's very, very few. So about and she had the data for me now, 91% have 1% or higher, and only 3% have no floor at all.

[Kyle Joseph:]

Got it, it's very helpful.

[Howard Widra:]

Sorry, Kyle. Go ahead.

[Kyle Joseph:]

No problem. And then I was just going to ask one follow-up probably also for Tanner, obviously, your credit performance has been very sound. But can you just give us an update in terms of your portfolio companies in terms of what they're seeing in terms of inflation, whether it be on the wage side, or the raw materials side? And any sort of impacts you've seen in terms of EBITDA margins or growth?

[Tanner Powell:]

Yes, absolutely. It's everywhere. And it's just a question of to what extent the underlying issuer is seeing it, just how pronounced it is. Be it on the wage side, as you alluded to, and or from a supply chain standpoint. We do track underlying revenue and EBITDA growth, we do try to strip out for the companies that are highly acquisitive. And on a like-for-like basis, this is the first quarter that EBITDA did not grow, we're still positive, but not as strongly as revenue belaboring that underlying dynamic, which you're getting at. We continue to believe that where we're creating these companies, and the fact that we are top of the structure, that our ultimate credit performance will have less to do, I'd just say nothing about, whether these type of pressures ease over the coming months or not, but not withstanding, given where we're creating these companies and our underwriting believed that they can submit a certain amount of cost pressure before such time, as we would expect your loss experience to change materially.

[Kyle Joseph:]

Got it, very helpful. Thanks a lot for answering my questions.

[Operator:]

We'll take our next question from Kenneth Lee with RBC Capital Markets. Please go ahead. Your line is open.

[Kenneth Lee:]

Hi, thanks for taking my question. I'm wondering if you could elaborate on the visibility that you have into additional monetizations from the non-core portfolio over the near-term and perhaps just talk about what could be driving up potential activity there? Thanks.

[Howard Widra:]

Yes, sure. Basically, we're focusing on sale processes on a couple of those sort of the more meaningful positions. And so we hope to have at least one of those sort of something to say on one of those in the near future. So that's, and then separately, we are generating cash off of a few other positions. Now like, most notably, Glacier is producing quite a bit of cash. And we expect that to continue to produce cash. I mean, it may not like this quarter, the NAV may not go down, despite the cash coming in, because of the price of oil and the performance. So there could be more upside there. But there's clearly an ability for that company made more cash, and then strategically, I mean, we're now the DPT transaction is off the books, but the MC transaction has historically generated some cash and that can generate cash go towards basis or for earnings, but is a positive cash generator. So all of those combined have is where it comes from. So, but basically, the focus is on Spotted Hawk and MC to get some significant cash out of those in the near future.

[Kenneth Lee:]

Got you, very helpful. I'm wondering one follow-up, if I may. Wondering if you could share with us your thoughts around potential originations activity this year, especially in comparison to what you saw last year? Thanks.

[Howard Widra:]

Yes, I mean, obviously we had a record year of origination, as think did a lot of our peers. That was the result, I think of two things, a lot of private equity activity and dry powder, there's still a lot of dry powder, maybe the activity probably doesn't go up. And then, as importantly the continually increase market share of private credit versus both banks and the broadly syndicated market, that trend we expect to continue. So if you assume the pie is getting bigger, which I think is sort of the right assumption, we would expect origination volumes to be lower than the run rate of the fourth quarter, but at least as good as it was for the full-year. Next year, there continues to be a advantage for the people who have the ability to speak to larger commitments and have size and multiple pockets of capital of which Apollo falls into that category of one of them. So that's obviously important. And it's like, an arms race in some regards, you got to keep on working on that. But we continue to make progress there. So, and if you look at origination activity through this first five weeks of the year is good, it's strong, the run rate is good as that. But frankly, that's some carryover from the end of last year. So, you'd have to sort of look forward to the pipeline of next two or three months to corroborate what I just said. But I feel like our full-year origination should be close to what our full-year origination was, this year would be reasonably conservative estimate.

[Greg Hunt:]

And I might add to that quickly Ken, as you'll know all too well, the Lion's share of the originations for us and our peers will and always be likely from the sponsor part of our business, we continue as we called out in our prepared remarks and again, the market good flow that hits our target zip code from a yield perspective in our other verticals, such as life sciences, and ABL. And that's a nice add to the opportunity set for AINV in this year and others as well.

[Kenneth Lee:]

Great, very helpful. Thank you very much.

[Operator:]

We'll take our next question from Casey Alexander with Compass Point. Please go ahead. Your line is open.

[Casey Alexander:]

Yes, good afternoon. Well, first of all, like to applaud you for going to the essentially a variable dividend structure, I think that is going to be the soup dish you order for many BDCs going forward. I'm wondering, do the board consider setting the next quarter's dividend at somewhere around between 96% and 98% of the previous quarters NII, just said that you could retain some of that income for NAV growth and to put sort of a rainy day fund away for when there may or could be credit losses at some point of time in the future?

[Howard Widra:]

Yes, I mean 98% is less than a penny, right. So, I think it's a very good question, I think what we are trying to focus on is we believe we will have, be able to provide great visibility into our earnings capability, ex-these core assets, which we're very, very focused on lowering, and obviously now there's going to be some interest rate changes, given the floors that will impact something, too. So I think our thought process is, let's keep it variable based on the earnings as you said, and then provide real visibility going forward, which you think will be very predictable and expect to be like a growing dividend base, once we have that clear picture, we have a guess at where that's going to be. And at that point, it would be right to set the dividend below the sort of the core earnings - slightly below the core earning power for the reason you said, but it's just it's more that we still think we're in this transition. And that transition also includes what has been a process pre-COVID. And now it's become a process again, which is lowering the concentration in Merx as well.

[Casey Alexander:]

Okay, great. Thank you.

[Howard Widra:]

Does that make sense?

[Casey Alexander:]

Yes, definitely. I also want to ask about the share repurchase program. Again, I think shareholders welcome the aggressive nature of the share repurchase program, but you are at over 1.5 times levered and when you repurchase shares that automatically increases your leverage ratio. So how do you think about the share repurchase program? Are you thinking about it in terms of as you sell down non-core you're using proceeds from non-core to repurchase shares or I'm just curious how you think about it, because at some point in time, without raising new equity, the share repurchase program is going to push that leverage ratio up towards the top of your target range?

[Howard Widra:]

Well, I think the way we think about it is like this quarter, we did 200 plus million of new origination and we had net neutral growth. So this is just some of that origination, right. So it's like the return on this investment is at $0.80, the NAV is better than a new loan. On the other hand, it does shrink stuff, and it's permanent, right, it doesn't get paid off and roll. So it has to be pretty accretive. But I think if you asked us like, how do we think about it, we don't think about it like, we're using non-core money, I think we're thinking about it, it's like, it is an investment, that is really positive for the shareholders. It's basically a higher return than a loan with no credit risk and no fee against it. So you have to consider it in the full package of things, especially while you're repositioning everything, but you're definitely right that higher leverage, the higher your leverage is, the higher premium, you have to get to be able to make that the right choice.

[Casey Alexander:]

Right, okay, great. Thank you. I will step back in the queue, and perhaps come back later.

[Operator:]

We'll take our next question from Matt Tjaden with Raymond James. Please go ahead. Your line is open.

[Matt Tjaden:]

Hey, everyone, afternoon and appreciate you taking my questions. First one for me on the dividend income line. So no, there's a little noise there with the return of capital from MC. Howard, I think you said last quarter, we could expect about a $1 million run rate in that line item from MC going ahead. Does that still hold today?

[Howard Widra:]

Yes, I mean I think it generates those types of returns and cash. So we would expect to produce that type of cash, whether it's a return on capital really depends on sort of effectively the valuation, it is income, but you know if you are going to - it is either income or return on capital. But if you're going to like if the valuation of the assets going down, we don't think it's right to be taking income off something that you got basis. So the right way to think about it is yes to generate that income going, that is effectively its return on a run rate basis, on average over quarters. But we sold one ship last quarter. And so that caused some change in the valuation greater than it would be based on sort of shipping rates.

[Matt Tjaden:]

Got it, it makes sense. Maybe next one for me is pivoting in the noncore book to maybe more so oil and gas. But sounds like the shipping activities pretty healthy, does recent strength in the oil and gas markets, does that maybe speed up the timeline at which you think you can dispose a Glacier and Spotted Hawk?

[Howard Widra:]

Yes, well, yes Spotted Hawk. I mean, I think it definitely speeded up, there's more interested in it and we're focused on sort of having a process that we have a number of interested parties who have much more capabilities now. That that has always been sort of a, it is a - it's an exploration play, as opposed to the oil currently coming out of ground. So it's valuation has always been sort of have a broader range. But there's definitely more interest, because more people are putting up assets. Glacier is actually more interesting, which is we basically invested a little bit of money to reopen some wells, and we're benefiting from that from a cash basis. So I don't know if it was clear in the remarks. But like, in Glacier, we realize $4 million of cash out of there in the market and go down at all. Because effectively is a $4 million increase in value in Glacier. And oil has only gone up since then. And it's continuing to produce well. So one, we do think that there's more likely to be buyers out there, and we will look to that, but we're also pretty comfortable with the cash it's producing real time.

[Matt Tjaden:]

Got it. Fair enough.

[Howard Widra:]

.

[Matt Tjaden:]

Got it. Last one for me, maybe following-up on Casey's question. So understand, kind of from a no net growth perspective on the share repurchases, if you were to get into visibility, are maybe like repurchases slowing down or something like that. Given where you sit above the midpoint of your leverage range. If you've got more into a net growth position, would you expect the pace of share repurchases to slow down?

[Howard Widra:]

Yes, I mean, you're saying if we got in a net growth, if we were growing from here. Yes, I mean, I think you would expect if we're holding this - even this leverage level now, at the same stock price, you would expect it to slow down a little bit. We - so yes. I mean, I think is the answer. If there's significant monetization, such our leverage goes down meaningfully, then that's when more likely it's supposed to pick up, but this is a pretty active quarter this quarter.

[Matt Tjaden:]

Got it. That's it for me. I appreciate the time.

[Operator:]

We'll take our next question from Ryan Lynch with KBW. Please go ahead. Your line is open.

[Ryan Lynch:]

Hey, good afternoon. Can you guys go over your comments relating to dynamic product tanker? I didn't quite follow it all the way. It looks like you guys had about a $12 million loss or write down this quarter, and you're shipping both. But then you talked about the closing of the three ships, and I thought I heard maybe $18 million of unrealized gains in the March quarter. So can you just recap all that. I want to make sure I have all the details, correct?

[Howard Widra:]

Yes, I'm having to. Thanks for the question, Ryan. So the three of the four ships within our prime dynamic tanker investment were monetized in this quarter. And we were - we had negotiated those sales as of the end of last quarter. So the write down, reflected the monetization of those positions. And so the $18 million, which has largely been received today, subject to some normal closing conditions and closing process was the return of capital and not a gain in this particular quarter. And then we're very focused on looking to monetize the port ship as well.

[Ryan Lynch:]

Okay, so the $18 million that you mentioned, that's just cash coming back in from the monetization as just. Will it be record as return a capital? No impact on your income statement, correct?

[Howard Widra:]

Correct.

[Ryan Lynch:]

Thanks for the clarification on that. And then, you mentioned Merx a sort of you think got into the worst of it regarding kind of the COVID downturn. What specifically this quarter drove the increase in the valuation of Merx?

[Howard Widra:]

Yes, sure. As you can probably imagine, it's a portfolio across 75 planes. And there's normal puts and takes, but on the margin, more positive than negatives. As we continue to work through our COVID related challenges with respect to our underlying less fees. And then importantly, another driver in this particular quarter is the dynamic we've talked about at length, Ryan. With respect to the fact that we have other pools of capital at Apollo for which we serve as the exclusive servicer for that that those assets. And as we get those opportunities, we get the benefit of the servicing revenues without stretching the AINV balance sheet. And so some of that, some of that gain that we saw on the particular quarter was owing to the stabilization that powered and myself alluded to, augmented by this dynamic as we continue to invest capital away from AINV and benefiting our servicing revenue.

[Ryan Lynch:]

Okay, understood. I appreciate the time this afternoon.

[Operator:]

. We'll take our next question from Melissa Wedel with JPMorgan. Please go ahead. Your line is open.

[Melissa Wedel:]

Thank you for taking my questions. Good afternoon. I wanted to touch on the yield on debt investments. It's been quite stable, quite resilient over the last few quarters. Despite some spread compression in the market. I was hoping you could kind of go over the drivers of that stability and if that's something that you think can persist through this year? Thank you.

[Greg Hunt:]

Yes, it's been stable because of just like our and we've said this before, like, there was $7.7 billion of origination at MidCap this quarter. And so we are choosing the assets here that that fit our criteria, which is like the right credit components, but also that hit the yield profile. And so, if we had originate 6x as much, you would have seen more yield compression, because there's certainly that yield compression across all of the business. But just because of the breadth of the pipeline, we're able to sort of select. What fits, including, as Tanner said, assets that aren't necessarily all leverage loans, but in some of the more bespoke asset classes. So the stability is the result of sort of the seat, the selectivity of AINV versus the pool of everything that's available.

[Howard Widra:]

And at the risk of over emphasizing, but you do often see with the dynamics of people trying to get deals done before year-end. Now, I don't, I wouldn't read into it a spread widening, but sometimes just the sheer surfeit of deals that were in the market, gave a little bit of pricing power to lenders on the margins, that I wouldn't necessarily read too much into it. But that helped to augment or give some benefit and what we're able to do from a spread perspective in Q4.

[Melissa Wedel:]

So, as a follow-up to that, given the strength of the credit profiles of companies right now. Is that something that you're willing to sort of use, the benign credit environment to sort of subsidize the spread when it comes to new investments? Thank you.

[Greg Hunt:]

I don't know if I understand the question. Just make sure I - what do you mean?

[Melissa Wedel:]

Sure. To the extent that losses could be lower as terms to borrowers are quite friendly. It could speak to a supportive credit environment, especially with the macro tailwind for companies, despite recent sort of inflationary pressures. I guess I'm wondering if your outlook is for continued benign, solid credit performance from portfolio companies. Does that make you willing to dip down a little bit more on spreads than you otherwise might?

[Greg Hunt:]

No, I mean, I think, our - first of all, I mean, again, it's a different question where we are in our leverage point. But we have a certain - we - there's a certain level of sort of return. We want to deliver the shareholders that we feel like we can do at these yields, while keeping ourselves in our target leverage. So, unless one of those measures change, like not things don't change, unless the macro environment doesn't allow those assets to become available. Obviously, like, if there was something like, we thought the risk was way too high. We - we'd have to dip down, if we thought, but I don't think right now for us, it's actually an issue of us not doing as many of the deals we want to do at the yield we're at, or not as many of the deals having our whole size, as big as we might otherwise be, because of our leverage point. Because we - diversity is important for us, and that helps, but so from time-to-time, we're choosing multiple assets, as opposed to like bigger holds. So the macro environment, obviously is whether it's benign or not, I mean, frankly, like we always try to under - these are five, six year loans. We're underwriting like it ultimately won't be benign. It has to withstand pressures. And it has - there are some macro pressures on companies across the board. So, I don't know what the macro environment impact our choices, at least where we are today.

[Melissa Wedel:]

Appreciate that. Thank you so much.

[Operator:]

We'll take our next question from Finian O'Shea with Wells Fargo Securities. Please go ahead. Your line is open.

[FinianO'Shea:]

Hi, everyone, and good afternoon. Can you remind us or touch on the interplay with Apollo's broader platform with the newer non-traded BDC up and running now?

[Howard Widra:]

Sure, the non-traded BDC has a different focus. Its strategy is basically larger deals that are originated through, like a originated through sort of relationship with larger sponsors. So they expect to have a portfolio that 75% not like in the range of assets that AINV views this quarter with strategy. They do expect to do 20% of their portfolio in assets that sort of fit a part that's core to AINV strategy in the leverage loan. So not the other asset class we do in leverage loans. Those deals though, will be in the higher end of the middle market that we do. So say take companies in $60 million, $70 million of EBITDA where there is lots of effectively. There's plenty of loan to go around, if you will. Those are $300 million underwrites. And there's lots of vehicles at Apollo that are taking part of it, including this non-traded BDC. So we've used sort of the non-traded BDC as very complementary to our overall. And when I say we, it's Apollo, Apollo's overall approach to the market, because it just gives us a lot more capabilities to underwrite the deals at the higher end of the middle market. And then obviously, also in the larger market for them. So that's where it falls. And we've seen that, like in this first quarter now. In closing some bigger deals where both AINV and ADS are in.

[Finian O'Shea:]

Sure, that's very helpful. And just to recap, actually, so I have it, right, it's about 20% overlap with sort of a core MidCap asset $60 million, $70 million of EBITDA. And then but 75% of it, the bulk of their assets are our issuers that are much too large or a market for you, does that right?

[Howard Widra:]

Well, either broadly syndicated or large, right. And so and when I say, like, they have something that says 20% to 30% middle market lending. So I said, like a quarter, obviously, as they build their portfolio, and the market has more and more large origination, that their percentage will fluctuate, but that will be right directionally as it - as sort of as it grows. So they expect to have, 50% to 70% of their assets in larger corporate loans that are originated. And 20% to 30% in middle market and 20% and the rest is broadly syndicated. And obviously, we're not doing broadly syndicated anymore in the larger loans. We're not doing as well.

[Finian O'Shea:]

Very well. That's helpful all for me. Thank you.

[Operator:]

And there are no further questions in the line at this time. I'll turn the program back to our speakers for any continued or closing remarks.

[Howard Widra:]

Thanks and thank you everybody for watching today's call and for your questions on behalf of team. Thank you for all your time and feel free to reach out with us if you have any other questions. Have a good day.

[Operator:]

This does conclude today's program. Thank you for your participation. And you may now disconnect.