Apollo Investment Corporation
Q2 2015 Earnings Call Transcript

Published: 8 Nov 2014

[Operator:]

Operator Good morning, and welcome to Apollo Investment Corporation's Earnings Conference Call for the period ending September 30, 2014. At this time, all participants have been placed in listen-only mode. The call will be open for a question-and-answer session following the speakers' prepared marks. (Operator Instructions) I will now turn the call over to Elizabeth Besen, Investor Relations Manager for Apollo Investment Corporation.

[Elizabeth Besen:]

Thank you operator and thank you everyone for joining us today. With me today are Jim Zelter, Chief Executive Officer; Ted Goldthorpe, 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 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. Forward-looking statements involve risks and uncertainties, including, but not limited to, statements as to our future results, our business prospects and the prospects of our portfolio companies. You should refer to our registration statement and shareholder reports for risks that apply to our business and may adversely affect any forward-looking statements we make. We do 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 supplement 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 Jim Zelter.

[James C. Zelter:]

Thank you, Elizabeth. This morning, we released earnings for the September quarter and filed our 10-Q. I will begin my remarks with some highlights of the period before turning the call over to Ted, who will discuss the market environment and our investment activity for the quarter. Greg will then discuss our financial results in much greater detail, and then we will open the call to questions. For the September quarter, we are pleased to report a net investment income of $0.28 per share, which reflect a stable level of recurring investment income and an above-average level of prepayment income and fee income. We remain confident in our ability to continue to generate sufficient income to cover the dividend and grow NAV over the long term. Beginning in the first quarter of 2012, we initiated a portfolio rotation strategy, which included moving the portfolio into more proprietary secured-debt investments, which we believed would better position us during periods of market volatility. At the end of September, net asset value per share was $8.72, down $0.02 from $8.74 at the end of June. The stability of our NAV clearly demonstrates the benefits of our continued strategy. We had a strong deployment quarter offset by a continued rotation of our portfolio prepayment activity. We remain selective and disciplined, with a focus on secured-debt opportunities with strong risk-adjusted returns. And taking all of this into account, we were able to minimize yield compression over the quarter. At the end of September, the weighted average yield of our portfolio was 11%, down from 11.1% at the end of June. We remain optimistic about the long-term opportunities for providers of capital such as ourselves, as there continues to be a shortage of available homes for longer duration in liquid investment opportunities. The recent sell-off in the liquid leveraged credit markets has improved our ability to create better investment opportunities, and we believe that we have sufficient capacity to take advantage of these. It's certainly during periods like this when we benefit from the broader Apollo platform, which provides us with scale investment opportunities and market insights across a diverse set of asset classes and industries. After the quarter end, we did complete a debt offering to further improve our capital structure, which Greg will discuss in his remarks at the end. Turning our discussion to our dividend, the Board approved a $0.20 dividend for shareholders of record as of December 19, 2014. With those opening comments, I'll turn the call over to Ted to discuss the portfolio and market in greater detail.

[Edward J. Goldthorpe:]

Thank you, Jim. I'll begin my remarks with current market conditions, followed by a discussion of our investment activity. As you are all aware, the leveraged credit markets were softer by the end of September on technical factors as well as concerns about global growth. Ongoing retail fund outflows and a robust new calendar prompted higher clearing yields and wider credit spreads despite continued strong CLO issuance. Since quarter end, the leveraged credit markets have continued to weaken due to heightened worries about global growth and geo-political concerns. Broadly syndicated leveraged loan issuance has fallen as a result of market volatility, and outflows have continued. Following a record 95 weeks of loan fund inflows, there has now been 27 weeks of outflows over the past 29 weeks. This softer environment creates a more favorable climate for asset deployment, particularly as borrowers are increasingly focused on certainty of execution. We believe the investment opportunities that we are seeing today offer better risk-adjusted returns compared to a couple months ago. With this backdrop, we had a busy quarter for originations. During the period, we invested $581 million and 15 new portfolio companies and 18 existing companies. We continue to focus on secured-debt opportunities which accounted for 72% of the assets deployed during the period. During the period, we exited $559 million of investments which were driven by both repayments and sales. We continue to increase our exposure to floating rate assets, which represented 49% of the debt portfolio at the end of the quarter, up from 47% last quarter. Now moving to specific investment activity for the quarter, our energy team continued to deploy capital in oil and gas investments, which accounted for 24% of the assets deployed during the period. Taking into account exits, our net exposure to the sector was relatively unchanged from the prior quarter. At the end of September, oil and gas was 13.2% of the portfolio compared to 13.1% at the end of June. All of our investments made during the quarter with the exception of one, were in existing portfolio companies. We invested $47 million of secured debt of Spotted Hawk. We initially invested in the company in 2012, and since that time, the company has performed well and increased production. We've also increased our investment in extraction oil and gas by $17 million. Our unsecured debt investment in energy and exploration partners was repaid at a significant premium to par after the Company successfully completed a capital raise. Given the recent move in oil prices, we wanted to take a moment to discuss how we underwrite investments in this sector. Our oil and gas portfolio was well diversified including 14 borrowers across 9 regional geographies. Our investments are generally located in basins operating at the lower end of cost curves. Our oil and gas portfolio consists mostly of investments that our team directly originates. We focus on secured investments that have proved developed producing, or PDP reserve coverage. At the end of September, over 70% of our investments were first or second lien with a minimum PDP coverage of 1 times net debt. As part of our lending agreements we generally require these companies to hedge at least 80% of oil production for two to three years. We underwrote our debt investments using $80 oil for our base case, which is in line with the current price of oil. At the end of September, all of our investments had a risk rating of 2, indicating that they’re performing in line with their respective base cases. Moving to a few of the larger investments outside of oil and gas, we invested $42 million in the secured debt of SCM Insurance Services, a Canadian-based provider of outsourced services to the P&C insurance industry to support an acquisition. We also invested $51 million in the secured debt of Premier Leasing, a leading provider of trailer leasing rental services in the US. We invested $31 million in the secured debt of Alion Science& Technology, a leading provider of high-end engineering and technology solutions to the Department of Defense. And we also invested $20 million in the secured debt of Maxus Capital, or Skyonic, an existing portfolio company. To remind you, our investment is being used to fund the development and construction of a chemical plant, and this is the second tranche of our investment that was contingent on the company achieving certain milestones in the construction of the plant. Exits, which include sales, repayments and revolver pay downs, totaled $559 million for the quarter. We continue to sell lower-yielding assets, and the weighted average yield per investments sold was 8.6%. Sales totaled $229 million for the quarter, including lower yielding investments such as TransFirst, DSI Renal and BJ's Wholesale amongst others. We also sold our equity position in Aventine and reduced our debt as well. We also reduced exposure to some larger positions, including First Data and inVentiv. We continue to see some of our investments get refinanced with new deals. Repayments for the quarter totaled $330 million, including investments in Ceridian, TriMark, Tectum, as well as energy and exploration partners, which I previously mentioned. We've participated in several of these refinancings. Credit quality remains strong, as the portfolio's weighted average risk rating was unchanged and remained at 2.1 on both the cost and fair value basis. No investments were placed on non-accrual status during the quarter. In addition, the weighted average net leverage of our investments remained at 5.4 times, while the weighted average interest coverage improved to 2.5 times. The recent bout of market volatility has deterred issuance in more liquid markets, and our borrowers are turning to private providers of capital. Accordingly as of today, our pipeline is growing and consists mostly of proprietary opportunities. Of course, there will be no assurances that the deals in the pipeline will ultimately close. With that, I will now turn the call over to Greg, who will discuss the financial performance for the quarter.

[Gregory W. Hunt:]

Thank you, Ted. Total investment income for the quarter was a $118.9 million, up 16% from last year and 27% year-over-year. The increase quarter-over-quarter was due to higher fee and prepayment income. Interest income for the September quarter totaled $21.9, included $21.9 million of prepayment income, which included an acceleration of all original issue discount on repaid investments, compared to $6.1 million in the June quarter and $9 million in the year ago quarter. The repayment of our investment in energy and partners accounted for over half of the repayment income in the quarter. The increase in fee income results from higher structuring fees on several of our new investments. Expenses for the September quarter totaled $53.2 million, compared to $49 million last quarter and $44.1 million for the year ago quarter. The sequential increase was mainly due to higher incentive fees associated with the higher level of investment income generated during the period, as well as higher management fees associated with the increase in the average portfolio. Net investment income was $65.7 million or $0.28 per share for the quarter. This compares to $53.6 million or $0.23 per share for the June quarter and $49.6 million or $0.22 per share for the year ago quarter. For the quarter, the net loss on the portfolio totaled $23.7 million or $0.10 per share, compared to a gain of a $11.1 million or $0.04 per share of the June quarter and $28.8 million or $0.12 per share for the year ago quarter. The net loss in the quarter was attributable to our investment in Molycorp, Walter Energy and the LVI Group investments, among others. Partially offset by gain on our investments in Aventine, PlayPower, Generation Brands and Merx Aviation. In total, our quarterly operating results increased net asset by $42 million, or $0.18 per share, compared to an increase of $64.6 million or $0.27 per share of the June quarter and an increase of $76.4 million or $0.34 per share for the year ago quarter. On the liability side of our balance sheet, we had $1.58 billion of total outstanding debt at the end of the quarter, up from $1.57 billion at the end of the June quarter. Company’s debt-to-equity ratio was 0.76 times at the end of September unchanged from the prior quarter. The net leverage ratio, which includes the impact of cash and unsettled transactions, stood at 0.76 times at the end of September, up slightly from 0.75 at the end of June. Similar to last quarter heading into quarter end, we expected several repayments in October. Over $100 million of investments were repaid in October, including our investments in Grocery Outlet, Ranpak, (indiscernible) and VWR. Given the composition of our portfolio, we feel comfortable operating at the upper end of our targeted leverage range. Lastly on October 30, we issued a 10-year, $150 million unsecured note with a five and a quarter coupon to a financial institution in a private placement. This note improves our capital structure by replacing near-term maturities with long-term debt at a lower cost. For modeling purposes, you should assume that the maturing debt remains in place until matured. With that, operator, please open the call to question.

[Operator:]

(Operator Instructions) Your first question comes from the line of Doug Mewhirter of SunTrust.

[Doug Mewhirter:]

Good morning. I was actually going to ask about your energy investments, but that was a very comprehensive overview, so I'll just skip to my second question. The unrealized losses on the portfolio – you identified some specific securities, which had some fluctuations, but how much was attributable to specific devaluations of those securities or underlying companies versus fluctuations in general spreads in the market?

[James C. Zelter:]

Yes, I think it’s a combination of both. I mean, I think of the portion of our book that experienced unrealized losses, the vast majority of that was just mark-to-market in our liquid portfolio. Very little of it was attributable to valuation write-downs in our private valuations, but there was a combination of losses in both our liquid and illiquid book.

[Doug Mewhirter:]

Okay, great. Thanks for that. And my second question, the aircraft leasing, was there any sort of – I know that with the Ebola scare, all the airlines sold off and a lot of the publicly traded aircraft lessors sold off, but was there any kind of disruption at all in your prospects or your order book or anything like that during it, or was it just a complete sort of psychological effect where the market overreacted?

[James C. Zelter:]

I mean, we – I almost think of ourselves (indiscernible) as high up the capital structure as possible, because for to have an issue, the airline would have to go bankrupt, and not only would they have to go bankrupt, they'd also have to reject our plane. So when American Airlines went bankrupt, they were still flying their airplanes, and so the mark-to-market volatility that was experienced by American and a lot of other equities over the last two months really doesn’t have an impact on our day-to-day business because we're collecting lease payments on the underlying aircrafts.

[Doug Mewhirter:]

Yes, I wasn't sure if it may be affected any forward orders or forward business development efforts.

[James C. Zelter:]

Yes, I mean, I think if you listen, our aircraft business is very lumpy. It's not a steady business. The transactions take anywhere from three to seven months of negotiations to close, and so we weren’t active this past quarter, but that's not indicative of our pipeline. It's a more lumpy business than some of our other verticals.

[Doug Mewhirter:]

Okay, great. And my last question is a numbers question for Greg. It looks like you had about $4 million worth of fee waivers. Is that something we can assume for the rest of the fiscal year, until you reevaluate it at the end of the year?

[James C. Zelter:]

Yes, I would say yes.

[Doug Mewhirter:]

Okay, great. Thanks. That's all my questions.

[Operator:]

Your next question comes from the line of Robert Dodd of Raymond James.

[Robert Dodd:]

Hi, guys. Just on the overall kind of the liquid part of the portfolio that you've talked about before – and you may have mentioned this earlier on the call and excuse me if you did. How much of that do you have just speaking left to rotate towards more proprietary investments and use that to kind of obviously boost effective yield or the risk, depending on which strategy you're taking at the time?

[Edward J. Goldthorpe:]

Yes, I mean, listen, we feel really good about where our book is today, so everything we wanted to sell, we've sold. That being said, probably – it depends on how you define it, but probably a third of our book is still liquid. And so quoted securities make up a little bit more than a third of our portfolio. Now that being said, a lot of those I wouldn't describe as liquid, but we have at least 10% to 20% of our investments which are in instruments we feel really, really good about. But to the extent a large, chunky, interesting opportunity comes along at wider spreads, we can monetize. So you can see in this quarter, if you break down in the summary, you can see what the yields are on things that we sold versus where we got repaid, and things that we're selling are yielding pretty far south of 10%, and so that's, obviously, very accretive to our earnings.

[Robert Dodd:]

Right. Right. I mean, if I remember – last time -- I don't want to say last time, but in a previous iteration of a credit disruption, you were quite opportunistic in picking up some credits and that have been, in your view, unreasonably marked down and made a pretty decent chunk of money doing that. So I mean, is there – that has kind of the strategy to do more proprietary originations versus opportunistically pick off some mispricing in the market. I mean, where do you stand on that at this point given what we're going through at the moment?

[Edward J. Goldthorpe:]

I mean, so you’re right, we did do that during the taper issue when Bernanke made his comments last May. It's just not – we will only do an extremely selective situations where we truly see opportunities from our platform. I think today we really haven't taken advantage of it just because, again, our proprietary pipeline is so compelling vis-à-vis where liquid markets are that it would have to be really, really compelling for us to do that. So as of today, as we sit here, we really haven't taken advantage – we haven't done that. We haven't really been active in liquid markets. It's been the other way around. We've been selling stuff to create capacity for proprietary investments.

[James C. Zelter:]

I would emphasize that last point. I mean, because we now have the infrastructure and the success of doing these privately structured originating deals, we want to – when we see there's volatility in the liquid market, we know that that's just a question of time before we see a pipeline of those opportunities.

[Robert Dodd:]

Okay, thank you.

[Operator:]

Your next question comes from the line of Greg Mason of KBW.

[Greg Mason:]

Great, good morning everyone. Ted, on your comments that the pipeline is growing, obviously your balance sheet delivered 0.75 today. Kind of what are your thoughts on capital requirements to meet the needs of what could be an attractive and growing pipeline of opportunities?

[Edward J. Goldthorpe:]

Yes, I mean, again, we are at the high end of our leverage range. I think Jim, Greg and myself feel very comfortable with where we are. That being said, a third of our book has some liquid element to it, as we mentioned before, and 33% of our book yields less than 10%. So we talked last quarter about starting the ATM program – the management team here felt – we didn’t feel like we needed it this quarter. We didn't issue any stock. And so – and it's because we can monetize lower yielding opportunities. So I think you're going to continue to see this quarter where we have enough liquidity in our book where we don't really feel a huge need to issue capital today.

[Greg Mason:]

Okay, great. I appreciate it.

[Operator:]

Your next question comes from the line of Jon Brock of Wells Fargo Securities.

[Jon Brock:]

Good morning and thank you for taking my questions, and congratulations. You talked about that liquid book, Ted and Jim. I mean, I find it interesting. So to the extent that we have heightened volatility, it would seem that you would be less apt to rotate out of those liquid assets because they're, obviously, a bit more susceptible to the market downturns and flows, et cetera, that you mentioned before, so how do you compare and contrast the fact that you're looking at that as a bucket of investment capital, but to the extent the markets become stressed and the opportunities privately are – or illiquid opportunities are great, the liquid bucket obviously is trading down. I'm just curious how you juxtapose those two dipoles.

[James C. Zelter:]

Let me start if off and I'll pass it along to Ted, Jon. Basically, our liquid book is most of our higher-quality assets, and when you think about over four years ago, we had a lot larger tranches of subordinated paper, so we were liquid on the wrong end of the spectrum four years ago in retrospect. Now we're liquid on the better end of the spectrum. And I'll let – that's the philosophy, but I'll let Ted go into greater detail about that.

[Edward J. Goldthorpe:]

Yes, I was going to say the same thing. Like if you think about where volatility's been the last – since the beginning of September, it's been very, very focused on three sectors. It's mining, oil and gas, and consumer. We really don’t have any liquid exposure to retail. We have really, really limited energy liquid exposure, and mining liquid exposure is also pretty small as a percentage of the total portfolio. So when Jim – Jim is exactly right. I mean, the vast, vast, vast majority of our liquid book is senior secured credit, which really hasn't had the same kinds of dislocations we've seen in other sectors.

[Jon Brock:]

That's very helpful. And then maybe as a tie in to that, in light of the new leveraged lending guidance world, when we talk about in excess of six times, Jim, Ted, who's the likely buyer to the extent that you were going to make that asset trade and move into an even more – Greg. I'm just curious as to who the buyer of the security general is if you were to sell portions of your liquid book today.

[James C. Zelter:]

Yes, there is – I mean, obviously, there is various – there is still CLO formation, there is still active buyers of yields, and the other thing we haven't talked about, but there are also ways for us to entice repayment to the extent that we want repayment. And so in some of our illiquid book, there are some things we can do there to monetize assets. This past quarter, we had a big monetization of a big energy investment of ours, which we had a decision to make whether to stay in the asset or get refinance that. So we do have decisions both on our private book and our liquid book, but in our liquid book, yes, the general buyer is just the generic market.

[Jon Brock:]

Okay. All right. I mean, as we think about curtailment of that buyer, I guess, it seems to stand to reason that right now we're not hardly seeing curtailment at all, which is understood. And then, finally, as we remain in a prolonged period of potentially interest rates that are still keeping spreads low, refi, et cetera, and we've seen a number of BDCs utilized off balance sheet leverage through the form of senior secured loan programs, et cetera. Apollo has definite expertise in the category, and while you do have CLO exposure through (indiscernible) to kind of the lower end of the middle market, et cetera, that's an attractive program. I'm curious as to your view on whether a joint venture is something that is sensible in this environment given the fact that it's pretty much been tested with the SEC multiple times and you obviously have the capability and skill to operate one.

[James C. Zelter:]

So we've obviously explored that. The whole sector has obviously been pursuing this on the back off – in the last six months. I would say, listen, if you're going to do it, I think they make sense. The problem is it's a 30% asset and so then you have to ask yourself are you getting the requisite returns from those JVs to justify tying up a 30% basket.

[Jon Brock:]

Okay.

[James C. Zelter:]

And as we sit here today, we have a number of dialogues going on. We're definitely interested, but in many of the circumstances we've looked at, we don't think that the returns offered by these JVs give us what we are looking for, for our 30% capacity. Like our peers are doing it, I think it's a very smart thing to get them up and running. We obviously are having a lot of the same dialogues. It's just we haven't found the returns to be as compelling as some of our peers have been, and so we haven't pursued it as of today.

[Jon Brock:]

Got it. And then the last question, just given Apollo's credit platform via CLOs, BDC, et cetera, SMAs, Jim, Ted, the risk retention as it's been passed and ratified again stands to potentially curtail a certain level of CLO capital formation, and I – one, I'd be interested in your views on just the risk retention subject more broadly and then narrowing it down to see if there's any positive or negative impact on the BDC.

[Edward J. Goldthorpe:]

Well, let’s take a step back. I do think that as the regulations are becoming a bit more a bit clearer, there will be impact to the overall market. As you suggest, as you put forth, we are a major player, so having a robust, broad platform with permanent capital, there's very likely that the BDC may be a partial or a solid solution to risk retention. We certainly feel like we'll be one of the handful of players that will be able to navigate that. It is not for a couple of years in terms of its effect, and in the interim, how do secondary liabilities trade? How does secondary equity trade? We're comfortable with the additions we have, but certainly as we think creatively about being a broad-based player and solution provider, I suspect the BDC will have a role in that, and I'm comfortable that we'll be one of the folks who figure out the right way to work within the regulatory oversight of having a solution, because CLO formation we don't believe is going to go away. It may become more concentrated. It may change its construct, but we don't believe – we believe actually the end beneficiary is the banking system, so we'll be part of that solution and the BDC will be part of it as well.

[Jon Brock:]

Okay, got it. Thank you very much.

[Edward J. Goldthorpe:]

Thank you.

[Operator:]

Your next question comes from the line of Terry Ma of Barclays.

[Terry Ma:]

So I think most of my questions have been answered, but maybe can you just give a little more color on your pipeline and also where you're seeing the most attractive uses of capital right now in light of the recent volatility?

[James C. Zelter:]

Yes, so I think our pipeline actually is mostly corporate, so we have a couple of big aircraft deals in the portfolio, but that is no different than – we've had those in the pipeline for a little while. Our energy pipeline is not as robust as you'd think, but we think that that's going to pick up pretty dramatically next year. I think a lot of energy companies are going through their CapEx budgeting process right now. And so our energy pipeline is not as robust as you would think. You'd think in this environment, with what's happening, that it'd be very robust. Our regular weighted corporate pipeline is really big, and the reason for that is, again, certainty of execution. People are paying for that today, and so we’re getting really interesting spreads (indiscernible) what we were getting two months ago because people are worried about doing a regular way deal. And these OCC leveraged lending guidelines, which I know people talked about the last seven or eight months, we're really – we're finally, for the first time, beginning to see in it's very early days, but this – we're finally seeing the impacts of that by the banks. Banks are being more disciplined about underwriting standards and what they're doing, and that's beneficial to our business. So our pipeline is – I would say our pipeline is probably mostly concentrated in corporate debt versus our specialty verticals. And we’re seeing great companies, great sponsors at attractive pricing.

[Terry Ma:]

Okay. And in terms of the relative attractiveness, is there any one area you would rather be in right now over another?

[Edward J. Goldthorpe:]

No, I think our – listen, we have a long-term strategy, and I think the strategy we outlined before I think we’re going to stay on that path. So I don’t think the recent volatility over the six weeks – I mean, oftentimes we think of ourselves as being opportunistic, but I think as we sit here today, the (indiscernible) laid out for everybody is still kind of on course, so I don’t think we’re finding, I don’t think we’re changing anything we're really doing in terms of just like where we're seeing the best opportunities. I think it's kind of similar to what we've been talking about for the last couple of months.

[Terry Ma:]

Okay. And just a follow-up question on the 30% bucket. Where would your required returns be if you were to utilize that portion of your book?

[Edward J. Goldthorpe:]

Yes, I mean, listen, one thing that – if you look at the yield of our 30% basket and you look at the yield of our peers, ours is below, and so we have spent a lot of time thinking about this, and to be honest, we haven't found great risk-reward solutions that utilize our 30% basket to get yields up. For us to put something in the 30% basket that yields less than 30%, it has to be really, really compelling risk-reward or in somewhat – or it has to be strategic to our business in some way, and we're trying to be very disciplined about that. We view the 30% basket as a scarce resource, and so we really don't want to tie up capital. Most of the things you do in a 30% bucket are illiquid and for a long time, and so we use it up right now, we don't want to forego future opportunities.

[Terry Ma:]

Okay. Got it. That’s it from me. Thanks a lot.

[Operator:]

Your final question comes in the line Chris York of JMP Securities.

[Christopher York:]

Good morning guys. Thanks for taking my questions. So my question is about interest and pursuing in SSLP has been asked, so I'll switch to a question on the portfolio. Walter Energy was written down meaningfully in the quarter. Can you talk about your thesis on the credit and expectations for performance?

[James C. Zelter:]

I would say we don't typically have in-depth discussions about any name. It's an ongoing situation. Certainly, we feel there is tremendous value in this credit. As you point out, it's unrealized, and it will be an ongoing discussion. But as Ted said, we have a handful of these types of investments that we believe we have an institutional view on. This is one that got caught a little bit in a downdraft, but it's not so meaningful to our portfolio that it had a broad impact.

[Christopher York:]

Okay. You had been trying to invest a lot of resources in the non-sponsor business. How has the progress been to date, and what was just the breakdown of new origination in sponsor versus non-sponsor?

[Edward J. Goldthorpe:]

So in terms of resources, I'd say when we do an oil and gas investment, we typically do a secured investment and make the underlying borrower hedge. When we look at resources, we've had a really, really hard time getting comfortable with risk-reward, and we're very, very selective just given what's happening in the world. If you look at iron ore prices and coal prices and everything else, it just doesn't seem to be an attractive place to lend money, and so we really haven't done a lot. We haven't really got a lot – we have a very, very, very strong mining vertical at Apollo, and we really haven't done a lot over the last couple of months. And then in terms of this quarter, two-thirds of our originations – and this is something we’re really proud of. Two-thirds of our originations were non-sponsor and a third were sponsor, and so typically we get typically we get better – our sponsor clients are very loyal to us. We really respect them, but we typically get higher yields and better covenants in non-sponsor deals. So our originations last quarter were about 50-50. This quarter, it's two-thirds no direct deals.

[Christopher York:]

Great. Thanks, Ted. That's good color there. And then, lastly, correct me if I'm wrong. You guys had considered potentially pursuing lending against tax equity. Is that something that you're still kind of working with? Are there opportunities out there that you like?

[Edward J. Goldthorpe:]

Yes, one area we've got a lot of traction on – and this is kind of an outgrowth of our energy vertical, but it's very, very different, is renewable energy. So there's a lot of really exciting stuff going on in that vertical, lots and lots and lots of venture capital in the space, very little in the way of credit. A lot of assets are being created by ourselves and some of our peers, and it’s our capital very well. It's originated, a lot of its non-rated. It's not really that correlated to what happens in the day-to-day liquid markets. It's a really, really attractive area for us, and I think it's going to be one of our big growth areas next year.

[Christopher York:]

Great. That’s it from me, thanks.

[Operator:]

At this time, there are no further questions. I will now return the call to management for any additional or closing remarks.

[James C. Zelter:]

Well, once again, we’re very happy with the progress that’s been made. Since we strategically repositioned the portfolio and appreciate everyone's support, shareholders and analysts on the phone, and we look forward to talking to you next quarter. Thank you.

[Operator:]

Thank you for participating in today's conference call. You may now disconnect.