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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 December 31, 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 February 5, 2013 was 202,891,351.

 

 

 


Table of Contents

APOLLO INVESTMENT CORPORATION

FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2012

TABLE OF CONTENTS

 

        PAGE   
   PART I. FINANCIAL INFORMATION   

Item 1.

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

Statements of Operations for the three and nine months ended December 31, 2012 and December 31, 2011

     4   
  

Statements of Changes in Net Assets for the nine months ended December 31, 2012 and the year ended March 31, 2012

     5   
  

Statements of Cash Flows for the nine months ended December 31, 2012 and December 31, 2011

     6   
   Schedule of Investments as of December 31, 2012      7   
   Schedule of Investments as of March 31, 2012      15   
   Notes to Financial Statements      22   
   Report of Independent Registered Public Accounting Firm      42   

Item 2.

  

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

     43   

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      57   

Item 4.

   Controls and Procedures      57   
   PART II. OTHER INFORMATION   

Item 1.

   Legal Proceedings      58   

Item 1A.

   Risk Factors      58   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      58   

Item 3.

   Defaults Upon Senior Securities      58   

Item 4.

   Mine Safety Disclosures      58   

Item 5.

   Other Information      58   

Item 6.

   Exhibits      59   
   Signatures      60   

 

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)

 

     December 31,
2012
(unaudited)
    March 31, 2012  

Assets

    

Non-controlled/non-affiliated investments, at fair value (cost—$2,514,108 and $2,642,702, respectively)

   $ 2,355,739      $ 2,490,672   

Controlled investments, at fair value (cost—$301,791 and $208,882, respectively)

     271,284        186,408   

Cash

     41,521        1,665   

Foreign currency (cost—$2,168 and $1,013, respectively)

     2,169        1,013   

Receivable for investments sold

     36,128        19,606   

Interest receivable

     42,949        54,409   

Dividends receivable

     1        2,898   

Deferred financing costs

     28,621        17,309   

Prepaid expenses and other assets

     1,086        1,283   
  

 

 

   

 

 

 

Total assets

   $ 2,779,498      $ 2,775,263   
  

 

 

   

 

 

 

Liabilities

    

Debt (see note 7, 9 & 10)

   $ 1,040,944      $ 1,009,337   

Payable for investments

     4,000        —     

Dividends payable

     40,578        39,409   

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

     25,213        24,402   

Interest payable

     12,078        10,102   

Accrued administrative expenses

     1,385        3,420   

Other liabilities and accrued expenses

     3,153        3,362   
  

 

 

   

 

 

 

Total liabilities

   $ 1,127,351      $ 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)

     (31,337     (34,896

Accumulated net realized loss (see note 2f)

     (1,064,137     (995,426

Net unrealized depreciation

     (188,903     (170,971
  

 

 

   

 

 

 

Total net assets

   $ 1,652,147      $ 1,685,231   
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 2,779,498      $ 2,775,263   
  

 

 

   

 

 

 

Net asset value per share

   $ 8.14      $ 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     Nine months ended  
    December 31,
2012
    December 31,
2011
    December 31,
2012
    December 31,
2011
 

INVESTMENT INCOME:

       

From non-controlled/non-affiliated investments:

       

Interest

  $ 73,245      $ 77,220      $ 216,157      $ 238,264   

Dividends

    84        1,125        2,102        5,410   

Other income

    5,121        3,521        13,620        16,761   

From non-controlled/affiliated investments:

       

Interest

    —          —          —          899   

From controlled investments:

       

Interest

    2,431        1,297        5,025        2,565   

Dividends

    2,331        652        10,473        8,489   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

  $ 83,212      $ 83,815      $ 247,377      $ 272,388   
 

 

 

   

 

 

   

 

 

   

 

 

 

EXPENSES:

       

Management fees (see note 3)

  $ 13,456      $ 14,693      $ 40,346      $ 46,171   

Performance-based incentive fees (see note 3)

    10,047        9,634        29,919        29,398   

Interest and other debt expenses

    14,651        16,926        42,757        50,222   

Administrative services expense

    1,118        1,500        2,637        3,887   

Other general and administrative expenses

    1,860        2,524        6,424        10,978   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    41,132        45,277        122,083        140,656   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

  $ 42,080      $ 38,538      $ 125,294      $ 131,732   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

       

Net realized gain (loss):

       

Investments and cash equivalents

  $ (10,366   $ (276,031   $ (69,380   $ (340,621

Foreign currencies

    1,061        1,036        669        (507
 

 

 

   

 

 

   

 

 

   

 

 

 

Net realized loss

    (9,305     (274,995     (68,711     (341,128
 

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized depreciation/appreciation:

       

Investments and cash equivalents

    (51,309     298,005        (14,426     (7,464

Foreign currencies

    (4,210     2,149        (3,506     13,363   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized depreciation/appreciation

    (55,519     300,154        (17,932     5,899   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

    (64,824     25,159        (86,643     (335,229
 

 

 

   

 

 

   

 

 

   

 

 

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

  $ (22,744   $ 63,697      $ 38,651      $ (203,497
 

 

 

   

 

 

   

 

 

   

 

 

 

EARNINGS GAIN (LOSS) PER SHARE—BASIC (see note 5)

  $ (0.11   $ 0.32      $ 0.19      $ (1.04
 

 

 

   

 

 

   

 

 

   

 

 

 

EARNINGS GAIN (LOSS) PER SHARE—DILUTED (see note 5)

  $ (0.11   $ 0.31      $ 0.19      $ (1.04
 

 

 

   

 

 

   

 

 

   

 

 

 

See notes to financial statements.

 

4


Table of Contents

APOLLO INVESTMENT CORPORATION

STATEMENTS OF CHANGES IN NET ASSETS

(in thousands, except shares)

 

     Nine months ended
December 31,
2012
(unaudited)
    Year ended
March 31, 2012
 

Increase (decrease) in net assets from operations:

    

Net investment income

   $ 125,294      $ 172,742   

Net realized loss

     (68,711     (341,443

Net change in unrealized depreciation/appreciation

     (17,932     82,437   
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     38,651        (86,264
  

 

 

   

 

 

 

Dividends and distributions to stockholders:

    

From net investment income

     (121,735     (172,742

From other sources

     —          (31,685
  

 

 

   

 

 

 

Net dividends and distributions to stockholders:

     (121,735     (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:

     (33,084     (275,800

Net assets at beginning of period

     1,685,231        1,961,031   
  

 

 

   

 

 

 

Net assets at end of period

   $ 1,652,147      $ 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)

 

     Nine months ended December 31,  
              2012                        2011            

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net increase (decrease) in net assets resulting from operations

   $ 38,651      $ (203,497

Adjustments to reconcile net increase (decrease) :

    

PIK interest and dividends

     (15,012     (11,788

Net amortization on investments

     (18,051     (14,069

Amortization of deferred financing costs

     7,089        7,530   

Increase (decrease) from foreign currency transactions

     940        (888

Net change in unrealized depreciation/(appreciation) on investments, cash equivalents and foreign currencies

     17,932        (5,899

Net realized loss on investments, cash equivalents and foreign currencies

     68,711        341,128   

Changes in operating assets and liabilities:

    

Purchase of investments

     (1,109,290     (1,333,476

Proceeds from disposition of investments and cash equivalents

     1,108,555        1,282,605   

Decrease (increase) in interest and dividends receivable

     14,357        (9,701

Decrease in prepaid expenses and other assets

     197        66   

Increase (decrease) in management and performance-based incentive fees payable

     811        (3,226

Increase in interest payable

     1,976        911   

(Decrease) increase in accrued expenses and other liabilities

     (2,244     206   

Increase (decrease) in payable for investments

     4,000        (12,382

Increase in receivable for investments sold

     (16,522     (68,349
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

   $ 102,100      $ (30,829
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Net proceeds from the issuance of common stock

   $ 50,000      $ —     

Offering costs from the issuance of common stock

     —          (6

Dividends paid in cash

     (120,565     (149,689

Proceeds from debt

     852,939        1,891,011   

Payments on debt

     (825,063     (1,717,542

Due to custodian

     —          2,064   

Deferred financing costs paid

     (18,400     (728
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

   $ (61,089   $ 25,110   
  

 

 

   

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

   $ 41,011      $ (5,719

Effect of exchange rates on cash balances

     1        —     

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

   $ 2,678      $ 6,354   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 43,690      $ 635   
  

 

 

   

 

 

 

Non-cash financing activities consist of the reinvestment of dividends totaling $0 and $14,897 for the nine months ended December 31, 2012 and 2011, respectively.

See notes to financial statements.

 

6


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited)

December 31, 2012

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED
INVESTMENTS—142.6%

  Industry   Par
Amount*
    Cost     Fair
Value (1)
 

CORPORATE DEBT—136.4%

       

BANK DEBT/SENIOR SECURED LOANS—62.8%

       

1st Lien Bank Debt/Senior Secured Loans—18.3%

       

Amaya Gaming Group, Inc., L+775 11/05/15

  Consumer Products   $ 15,000      $ 14,785      $ 15,075   

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

  Education     4,631        3,895        800   

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

  Education     15,343        12,596        —     

Aventine Renewable Energy Holdings, Inc., 12.00%, 9/23/16 †

  Chemicals     3,966        3,850        3,827   

Aventine Renewable Energy Holdings, Inc., 10.50% Cash or 15.00% PIK, 9/22/17 †

  Chemicals     11,679        15,773        8,993   

Aveta, Inc., L+825, 10/09/17

  Healthcare     69,594        67,523        69,594   

Dark Castle Holdings, LLC, L+225, 3/25/13

  Media     36,920        13,163        11,814   

Delta Educational Systems, Inc., 16.00% (8.00% Cash/8.00% PIK), 12/10/2016

  Education     5,000        5,000        5,000   

Evergreen Tank Solutions, Inc., L+800, 10/26/18

  Manufacturing     32,000        31,377        32,000   

Garden Fresh Restaurant Corp., L+525 (L+475 Cash/0.5% PIK), 6/11/2013 †

  Retail     2,500        2,500        2,500   

Garden Fresh Restaurant Corp., L+625 (L+575 Cash/0.5% PIK), 6/11/2013 †

  Retail     2,500        2,450        2,500   

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

  Energy     40,000        40,000        40,000   

Osage Exploration & Development, Inc., L+1500, 4/27/2015 ‡

  Energy     3,000        2,943        3,000   

Panda Sherman Power, LLC, L+750, 9/14/18

  Power     15,000        14,783        15,300   

Panda Temple Power, LLC, L+1000, 7/17/18

  Power     25,500        25,016        25,946   

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

  Energy     5,647        5,647        5,704   

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

  Printing &
Publishing
    34,908        31,449        31,134   

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

  Business Services     15,720        15,600        5,816   

Spotted Hawk Development LLC, 14.00% (13.00% Cash/ 1.00% PIK), 6/30/16 ‡

  Energy     24,003        23,153        22,626   
     

 

 

   

 

 

 

Total 1st Lien Bank Debt/Senior Secured Loans

      $ 331,503      $ 301,629   
     

 

 

   

 

 

 

2nd Lien Bank Debt/Senior Secured Loans—44.5%

       

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

  Grocery   $ 38,000      $ 37,849      $ 38,190   

Allied Security Holdings, LLC, L+825, 2/2/18

  Business Services     31,000        30,754        31,155   

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

  Environmental &
Facilities Services
    39,000        38,369        39,341   

Cengage Learning Acquisitions Inc., 12.00%, 6/30/19

  Education     69,597        59,691        32,015   

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

  Environmental &
Facilities Services
    25,000        25,000        24,750   

Confie Seguros II, L+900 11/8/19

  Consumer Products     15,000        14,704        15,075   

 

See notes to financial statements.

 

7


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

December 31, 2012

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED
INVESTMENTS—142.6%

  Industry   Par
Amount*
    Cost     Fair
Value (1)
 

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

       

Garden Fresh Restaurant Corp., L+1175 (L+975 Cash/2.00% PIK), 12/11/13

  Retail   $ 46,836      $ 47,474      $ 44,494   

GCA Services Group, Inc., L+800, 10/11/20

  Environmental &
Facilities Services
    19,547        19,354        19,400   

Grocery Outlet Inc., L+925 06/17/19

  Grocery     10,500        10,291        10,382   

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

  Consumer Products     15,448        15,189        15,757   

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

  Telecommunications     44,250        42,601        35,179   

Kronos, Inc., L+850, 04/25/20

  Electronics     56,358        55,243        56,640   

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

  Transportation     25,333        25,308        23,307   

PH Holdings LLC, 9.75%, 12/31/17

  Homebuilding     20,000        19,616        20,600   

Ranpak Corp., L+750, 10/20/17 †

  Packaging     85,000        85,000        84,150   

Ranpak Corp., E+775, 10/20/17 †

  Packaging   40,000        58,042        52,736   

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

  Business Services   $ 15,225        15,064        15,453   

Smart & Final Stores LLC, L+925 11/08/20

  Grocery     17,260        16,745        17,174   

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

  Financial Services     61,250        59,415        60,638   

U.S. Renal Care, Inc., L+900, 01/03/20

  Healthcare     4,910        4,816        4,993   

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

  Manufacturing     40,000        40,000        41,200   

Venoco, Inc., L+700, 6/30/2017

  Energy     4,000        3,923        4,110   

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

  Business Services     49,260        48,886        49,506   
     

 

 

   

 

 

 

Total 2nd Lien Bank Debt/Senior Secured Loans

      $ 773,334      $ 736,245   
     

 

 

   

 

 

 

TOTAL BANK DEBT/SENIOR SECURED LOANS

      $ 1,104,837      $ 1,037,874   
     

 

 

   

 

 

 

Subordinated Debt/Corporate Notes—73.6%

       

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        2,287        1,524   

Altegrity Inc., 11.75%, 5/1/16 ¨

  Diversified Service     14,639        11,688        11,052   

Altegrity Inc., 12.00%, 11/1/15 ¨

  Diversified Service     100,000        100,000        89,000   

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

  Distribution     25,000        25,000        26,280   

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

  Healthcare     46,284        46,284        47,210   

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

  Education     46,690        37,867        —     

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

  Telecommunications     18,577        16,664        16,719   

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

  Transportation   £ 25,609        40,603        37,590   

 

See notes to financial statements.

 

8


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

December 31, 2012

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED
INVESTMENTS—142.6%

  Industry   Par
Amount*
    Cost     Fair
Value (1)
 

Subordinated Debt/Corporate Notes—(continued)

       

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

  Transportation   15,528      $ 21,487      $ 18,486   

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

  Diversified Service   $ 80,950        80,870        81,355   

Ceridian Corp., 11.25%, 11/15/15 †

  Diversified Service     35,800        35,816        36,068   

Delta Educational Systems, Inc., 16.00% (10.00% Cash/ 6% PIK), 05/12/17

  Education     20,171        19,748        18,860   

Denver Parent (Venoco), 18.00% 10/03/15

  Energy     20,000        20,000        21,200   

Exova Limited, 10.50%, 10/15/18 ¨‡ †

  Business Services   £ 18,000        28,823        31,124   

Exova Limited, 10.50%, 10/15/18 ‡ †

  Business Services     12,655        17,031        21,882   

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

  Broadcasting &
Entertainment
  $ 44,000        45,131        46,722   

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

  Broadcasting &
Entertainment
    20,000        19,895        21,212   

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

  Healthcare     160,000        160,000        138,800   

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

  Education     53,540        54,620        57,020   

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

  Insurance     41,922        41,773        44,542   

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

  Broadcasting &
Entertainment
    9,284        7,975        9,354   

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

  Transportation     50,000        50,000        51,500   

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

  Finance     51,079        49,342        48,525   

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

  Utilities     50,000        49,686        39,125   

Travelport LLC, 9.875%, 9/1/14 † ‡

  Business Services     19,779        18,934        17,406   

Travelport LLC, L+462.5, 9/1/14 † ‡

  Business Services     13,000        11,538        10,660   

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

  Distribution     78,750        80,251        80,246   

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

  Business Services     135,000        135,000        138,105   

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

  Distribution   5,187        6,379        6,975   

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

  Distribution   $ 22,204        21,820        22,648   
     

 

 

   

 

 

 

Total Subordinated Debt/Corporate Notes

      $ 1,281,512      $ 1,215,815   
     

 

 

   

 

 

 

TOTAL CORPORATE DEBT

      $ 2,386,349      $ 2,253,689   
     

 

 

   

 

 

 

COLLATERALIZED LOAN OBLIGATIONS—1.7%

       

Jamestown CLO I LTD, L+550, 11/05/24 † ‡

  Finance   $ 3,800      $ 3,367      $ 3,385   

Jamestown CLO I LTD, L+400, 11/05/24 † ‡

  Finance     1,120        1,022        1,034   

Jamestown CLO I LTD, Subordinated Notes 11/05/24 † ‡

  Finance     —          14,032        14,020   

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

  Finance     11,000        7,299        9,020   
     

 

 

   

 

 

 

TOTAL COLLATERALIZED LOAN OBLIGATIONS

      $ 25,720      $ 27,459   
     

 

 

   

 

 

 

 

See notes to financial statements.

 

9


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

December 31, 2012

 

(in thousands, except shares)

 

 

INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED
INVESTMENTS—142.6%

  Industry   Shares     Cost     Fair
Value (1)
 

PREFERRED EQUITY—0.7%

       

AHC Mezzanine LLC (Advanstar) **

  Media     —        $ 1,063      $ 215   

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

  Finance     7,961        788        1,592   

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

  Education     12,360        27,685        6,929   

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        4,790        2,668   
     

 

 

   

 

 

 

TOTAL PREFERRED EQUITY

      $ 41,189      $ 11,404   
     

 

 

   

 

 

 

EQUITY—3.8%

       

Common Equity/Interests—3.3%

       

Accelerate Parent Corp. (American Tire) **

  Distribution     3,125,000      $ 3,125      $ 3,720   

Altegrity Holding Corp. **

  Diversified Service     353,399        13,797        2,609   

Aventine Renewable Energy Holdings, Inc.**

  Chemicals     262,036        4,684        3,182   

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

  Finance     25,000        2,500        2,498   

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

  Finance     4,294        429        859   

Clothesline Holdings, Inc. (Angelica Corporation) **

  Healthcare     6,000        6,000        2,879   

Explorer Coinvest LLC (Booz Allen) ** ‡

  Consulting Services     430        3,322        5,567   

Garden Fresh Restaurant Holding, LLC **

  Retail     50,000        5,000        702   

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

  Education     17,500        175        —     

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

  Manufacturing     —          —          164   

JV Note Holdco LLC (DSI Renal Inc.) **

  Healthcare     9,303        85        89   

Penton Business Media Holdings, LLC ** ‡

  Printing &
Publishing
    124        4,950        11,521   

RC Coinvestment, LLC (Ranpak Corp.) **

  Packaging     50,000        5,000        8,151   

Sorenson Communications Holdings, LLC Class A **

  Consumer Products     454,828        45        1,530   

Univar Inc. **

  Distribution     900,000        9,000        11,310   

Varietal Distribution Holdings, LLC Class A **

  Distribution     28,028        28        —     
     

 

 

   

 

 

 

Total Common Equity/Interests

      $ 58,140      $ 54,781   
     

 

 

   

 

 

 

 

See notes to financial statements.

 

10


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

December 31, 2012

 

(in thousands, except shares and warrants)

 

 

INVESTMENTS IN NON-CONTROLLED/ NON-AFFILIATED
INVESTMENTS—142.6%

   Industry    Warrants      Cost      Fair
Value (1)
 

Warrants—0.5%

           

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

   Finance      7,961       $ 8       $ —     

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

   Electronics      24,862         250         5,942   

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         —     

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

   Education      104,314         1,043         —     

Osage Exploration & Development, Inc. **‡

   Energy      1,496,843         —           1,087   

Spotted Hawk Development LLC, Common **‡

   Energy      54,545         852         1,377   
        

 

 

    

 

 

 

Total Warrants

         $ 2,710       $ 8,406   
        

 

 

    

 

 

 

TOTAL EQUITY

         $ 60,850       $ 63,187   
        

 

 

    

 

 

 

Total Investments in Non-Controlled/ Non-Affiliated Investments

         $ 2,514,108       $ 2,355,739   
        

 

 

    

 

 

 

 

See notes to financial statements.

 

11


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

December 31, 2012

 

(in thousands, except shares)

 

 

INVESTMENTS IN CONTROLLED INVESTMENTS—16.4% (4)

  Industry   Par
Amount*
    Cost     Fair
Value (1)
 

CORPORATE DEBT—3.2%

       

2nd Lien Bank Debt/Senior Secured Loans—0.6%

       

LVI Services, Inc., 12.50%, 03/06/2018

  Environmental &
Facilities Services
  $ 10,000      $ 9,808      $ 9,900   
     

 

 

   

 

 

 

Total 2nd Lien Bank Debt/Senior Secured Loans

      $ 9,808      $ 9,900   
     

 

 

   

 

 

 

Subordinated Debt/Corporate Notes—2.6%

       

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

  Leisure Equipment   18,427      $ 24,468      $ 23,991   

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

  Leisure Equipment   £ 11,942        18,222        19,169   
     

 

 

   

 

 

 

Total Subordinated Debt/Corporate Notes

      $ 42,690      $ 43,160   
     

 

 

   

 

 

 

TOTAL CORPORATE DEBT

      $ 52,498      $ 53,060   
     

 

 

   

 

 

 
        Shares              

COLLATERALIZED LOAN OBLIGATIONS—5.6%

       

Kirkwood Fund I LLC, Common Interest ‡

  Finance     —        $ 40,385      $ 43,176   

Kirkwood Fund II LLC, Common Interest ‡

  Finance     —          41,067        42,545   

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

  Finance     8,375,000        7,370        7,538   
     

 

 

   

 

 

 

TOTAL COLLATERALIZED LOAN OBLIGATIONS

      $ 88,822      $ 93,259   
     

 

 

   

 

 

 
        Shares     Cost     Fair
Value (1)
 

EQUITY—7.6%

       

Common Equity/Interests—7.6%

       

AIC Credit Opportunity Fund LLC (5)

  Finance     —        $ 52,214      $ 51,342   

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

  Consumer Products     750        —          39   

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

  Consumer Products     7,500        2,297        390   

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

  Consumer Products     44,957        11,242        2,337   

LVI Parent Corp. (LVI Services, Inc.) **

  Environmental &
Facilities Services
    14,981        16,096        25,946   

Merx Aviation Finance Holdings, LLC **

  Financial Services     —          900        900   

Playpower Holdings Inc. **

  Leisure Equipment     1,000        77,722        44,011   
     

 

 

   

 

 

 

Total Common Equity/Interests

      $ 160,471      $ 124,965   
     

 

 

   

 

 

 

TOTAL EQUITY

      $ 160,471      $ 124,965   
     

 

 

   

 

 

 

Total Investments in Controlled Investments

      $ 301,791      $ 271,284   
     

 

 

   

 

 

 

Total Investments—159.0% (6,7)

      $ 2,815,899      $ 2,627,023   

Liabilities in Excess of Other Assets—(59.0%)

          (974,876
       

 

 

 

Net Assets—100.0%

        $ 1,652,147   
       

 

 

 

 

(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)

December 31, 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 nine months ended December 31, 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
December 31,
2012
 

LVI Services, Inc.,12.50%, 03/06/2018

    N/A      $ 9,800      $ —        $ 317      $ 9,900   

Playpower Holdings, Inc., 14.00% PIK

  $ 21,576        2,339        —          2,314        23,991   

Playpower, Inc., 12.50% PIK

    16,960        1,691        —          1,840        19,169   

Kirkwood Fund I LLC CLO Common Interest CLO

    N/A        40,385        —          3,488        43,176   

Kirkwood Fund II LLC CLO Common Interest CLO

    N/A        41,067            42,545   

Slater Mill Loan Fund LP 2012 -1X LP CLO Equity Interest

    N/A        7,370        —          659        7,538   

AIC Credit Opportunity Fund LLC Common Equity

    56,034        575        (13,729     4,407        51,342   

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

    130        —          —          —          39   

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

    1,300        —          —          —          390   

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

    7,793        —          —          —          2,337   

LVI Parent Corp. Common Equity

    21,504        —          —          —          25,946   

Merx Aviation Finance Holdings, LLC Equity Interest

    N/A        900        —          —          900   

Playpower Holdings Inc. Common Equity

    61,111        —          —          —          44,011   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 186,408      $ 104,127      $ (13,729   $ 13,025      $ 271,284   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As of December 31, 2012, the Company has a 100%, 32%, 98%, 98%, 32%, 100%, 100% and 26% equity ownership interest in AIC Credit Opportunity Fund LLC, Generation Brands Holdings, Inc., Kirkwood Fund I LLC, Kirkwood Fund II LLC, LVI Parent Corp., Playpower Holdings Inc., Merx Aviation Financing Holdings, LLC and Slater Mill Loan Fund LP, respectively.

 

(5) See Note 6.
(6) Aggregate gross unrealized appreciation for federal income tax purposes is $89,484; aggregate gross unrealized depreciation for federal income tax purposes is $382,123. Net unrealized depreciation is $292,639 based on a tax cost of $2,919,662.
(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, and 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
December 31,

2012

Business Services

         12.2%      

Healthcare

         10.0%      

Finance

           8.6%      

Diversified Service

           8.4%      

Distribution

           6.0%      

Packaging

           5.5%      

Transportation

           5.0%      

Education

           4.6%      

Environmental & Facilities Services

           4.5%      

Energy

           3.8%      

Grocery

           3.4%      

Leisure Equipment

           3.3%      

Broadcasting & Entertainment

           2.9%      

Manufacturing

           2.8%      

Electronics

           2.4%      

Financial Services

           2.3%      

Telecommunications

           2.0%      

Consumer Products

           1.9%      

Retail

           1.9%      

Insurance

           1.7%      

Printing & Publishing

           1.6%      

Power

           1.6%      

Utilities

           1.5%      

Homebuilding

           0.8%      

Chemicals

           0.6%      

Media

           0.5%      

Consulting Services

           0.2%      
  

 

Total Investments

       100.0%      
  

 

 

See notes to financial statements.

 

14


Table of Contents

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

  Printing & Publishing     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

  Transportation     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

  Manufacturing     40,000        40,000        40,680   

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

  Business Services     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 ¨

  Business Services   £ 18,000        28,823        25,524   

Exova Limited, 10.50%, 10/15/18 ‡

  Business Services     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

  Healthcare     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 ‡

  Transportation     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 ¨

  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 ¨

  Finance   $ 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 ** ‡

  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.

 

17


Table of Contents

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 ** ‡

  Finance     25,000        2,500        1,058   

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

  Finance     4,294        429        859   

Clothesline Holdings, Inc. (Angelica) **

  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) ** ‡

  Manufacturing     —          —          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 **

  Printing &
Publishing
    124        4,950        8,308   

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

  Packaging     50,000        5,000        8,535   

Sorenson Communications Holdings, LLC Class A **

  Consumer Products     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 **

  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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Table of Contents

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) ‡

   Finance      —         $ 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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Table of Contents

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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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

 

Industry Classification

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

Business Services

         11.9%       

Healthcare

         10.3%       

Diversified Service

           8.9%       

Education

           7.8%       

Distribution

           5.6%       

Insurance

           5.4%       

Packaging

           5.4%       

Broadcasting & Entertainment

           5.1%       

Transportation

           4.9%       

Grocery

           4.8%       

Telecommunications

           4.0%       

Finance

           4.0%       

Leisure Equipment

           3.7%       

Retail

           3.3%       

Environmental & Facilities Services

           3.2%       

Electronics

           1.6%       

Financial Services

           1.6%       

Manufacturing

           1.5%       

Printing & Publishing

           1.4%       

Consulting Services

           1.2%       

Utilities

           1.2%       

Consumer Products

           1.1%       

Chemicals

           0.7%       

Consumer Services

           0.5%       

Software

           0.5%       

Technology

           0.4%       

Media

           0.0%       
  

 

 

 

Total Investments

       100.0%       
  

 

 

 

 

See notes to financial statements.

 

21


Table of Contents

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 in various forms of debt investments, including senior secured loans, subordinated and mezzanine investments, and/or equity in private middle-market companies. From time to time, we may also invest in the securities of public companies. Our portfolio is comprised primarily of investments in 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 by selling 62 million shares of common stock at a price of $15.00 per share. Since then, and through December 31, 2012, we have raised approximately $1.9 billion in net proceeds from additional offerings of common stock.

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 statement of financial statements for the interim period, have been included. Certain industries were reclassified on the Schedule of Investments for March 31, 2012 to conform to the current period’s presentation.

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

 

22


Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

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.

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 December 31, 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.

 

23


Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

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 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 believes that PIK is expected to be realized. For the nine months ended December 31, 2012, accrued PIK totaled $13,878 on total investment income of $247,377. 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.

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

(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 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 December 31, 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 gains or losses and unrealized depreciation or appreciation 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 deferred financing costs in the Statement of Assets and Liabilities. 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 deferred financing costs in the Statement of Assets and Liabilities. 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.

Recent Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (“FASB”) issued guidance to enhance disclosures about financial instruments and derivative instruments that are either (1) offset or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset. Under the amended guidance, an entity is required to disclose quantitative information relating to recognized assets and liabilities that are offset or subject to an enforceable master netting arrangement or similar agreement, including the gross amounts of those recognized assets and liabilities, the amounts offset to determine the net amount presented in

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

the statement of financial position, and the net amount presented in the statement of financial position. With respect to amounts subject to an enforceable master netting arrangement or similar agreement which are not offset, disclosure is required of the amounts related to recognized financial instruments and other derivative instruments, the amount related to financial collateral (including cash collateral), and the overall net amount after considering amounts that have not been offset. The guidance is effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods and retrospective application is required. As the amendments are limited to disclosure only, the adoption of this guidance is not expected to have a material impact on the financial statements of the Company. The Company will adopt this guidance with the quarter beginning April 1, 2013.

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, manages the day-to-day operations of, and provides 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, net of payable for cash equivalents purchased 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 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 and incentive fee on the proceeds of the April 2, 2012 common equity issuance. For the three and nine months ended December 31, 2012, total management fees waived were $399 and $1,193 respectively. For the three and nine months ended December 31, 2012, total incentive fees waived were $298 and $885, respectively.

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 prorated 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

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

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 fee for the three and nine months ended December 31, 2012 and December 31, 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 the 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.

AIM is not paid the portion of the incentive fee that is attributable to deferred interest, such as PIK, until the Company receives such interest in cash. The accrual of incentive fees shall be reversed if such interest is reversed in connection with any write off or similar treatment of the investment. Upon payment of the deferred incentive fee, AIM will also receive interest on the deferred interest for the period between the date in which the incentive fee is earned and the date of payment.

For the three and nine months ended December 31, 2012, the Company recognized $13,456 and $40,346, respectively, in base management fees and $10,047 and $29,919, respectively, in performance-based incentive fees. For the three and nine months ended December 31, 2011, the Company recognized $14,693 and $46,171, respectively, in base management fees and $9,634 and $29,398, respectively, in performance-based incentive fees. The fees for the three and nine months ended December 31, 2011 reflect a reduction due to a prior payment of an unearned portion of the fees to the Investment Adviser of $0 and $2,783, respectively.

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 the allocable portion of overhead and other expenses incurred by the Administrator and requested to be reimbursed for 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. 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 three and nine months ended December 31, 2012, the Company recognized expenses under the Administration Agreement of $1,118 and $2,637, respectively. For the three and nine months ended December 31, 2011, the Company recognized expenses under the Administration Agreement of $1,500 and $3,887, respectively.

Note 4. Net Asset Value Per Share

At December 31, 2012, the Company’s net assets and net asset value per share were $1,652,147 and $8.14, respectively. This compares to net assets and net asset value per share at March 31, 2012 of $1,685,231 and $8.55, respectively.

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

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 and nine months ended December 31, 2012 and December 31, 2011, respectively:

 

    Three months ended
December 30,
    Nine months ended December 30,  
Amounts are in thousands, except per share data   2012     2011     2012     2011  

Earnings per share—basic

       

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

  $ (22,744   $ 63,697      $ 38,651      $ (203,497

Denominator for basic weighted average shares:

    202,891,351        197,022,181        202,870,086        196,431,720   

Basic earnings (loss) per share:

  $ (0.11   $ 0.32      $ 0.19      $ (1.04

Earnings per share—diluted

       

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

  $ (22,744   $ 63,697      $ 38,651      $ (203,497

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

    2,575       2,577        7,715        7,729   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ (20,169   $ 66,274      $ 46,366      $ (195,768

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

    217,439,451        211,570,281        217,418,186        210,979,820   

Diluted earnings (loss) per share*:

  $ (0.11 )*    $ 0.31      $ 0.19   $ (1.04 )* 

 

* 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 and nine months ended December 31, 2012, anti-dilution would total $0.02 and $0.02, respectively. For the nine months ended December 31, 2011, anti-dilution would total $0.11.

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. 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 the London Interbank Offered Rate (“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

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

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 December 31, 2012, the FDC Loan par balance outstanding 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 December 31, 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 matures in June 2015. During the three and nine months ended December 31, 2012, we sold €0 and £0 and €23,383 and £12,465 principal amount of the Boots Term Loans, respectively. At December 31, 2012, there was no outstanding principal balance of the Boots Term Loans with the assets representing the receivable due on the sale of the Boots Term Loans.

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

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

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 nine months ended December 31, 2012, $10,816 of net capital was returned to us from AIC Holdco. The Junior Note and TRS were performing assets as of the date of these financial statements.

Below is summarized financial information for AIC Holdco as of December 31, 2012 and March 31, 2012 and for the nine months ended December 31, 2012 and 2011.

 

     December 31, 2012
(unaudited)
     March 31, 2012  

Assets

     

Cash

   $ 10       $ 15   

Apollo FDC1

     31,779         27,947   

Apollo TXU2

     26,641         26,066   

Apollo Boots3

     12,128         47,999   

Other Assets

     —           2,886   
  

 

 

    

 

 

 

Total Assets

   $ 70,558       $ 104,913   
  

 

 

    

 

 

 

Liabilities

     

Apollo FDC4

   $ —         $ —    

Apollo TXU5

     11,125         16,045   

Apollo Boots6

     8,091         29,948   

Other Liabilities

     —           2,886   
  

 

 

    

 

 

 

Total Liabilities

   $ 19,216       $ 48,879   
  

 

 

    

 

 

 

Net Assets

     

Apollo FDC

   $ 31,779       $ 27,947   

Apollo TXU

     15,516         10,021   

Apollo Boots

     4,037         18,051   

Other

     10         15   
  

 

 

    

 

 

 

Total Net Assets

   $ 51,342       $ 56,034   
  

 

 

    

 

 

 

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

     Nine months ended
December 31,
2012
(unaudited)
    Nine months ended
December 31,
2011
(unaudited)
 

Net Operating Income (Loss)

    

Apollo FDC7

   $ 2,686     $ 5,126   

Apollo TXU7

     900        2,480   

Apollo Boots7

     721        933   

Other

     (5     (21
  

 

 

   

 

 

 

Total Operating Income

   $ 4,302      $ 8,518   
  

 

 

   

 

 

 

Net Realized Gain (Loss)

    

Apollo Boots

   $ 1,513      $ —     
  

 

 

   

 

 

 

Total Net Realized Gain (Loss)

   $ 1,513      $ —     
  

 

 

   

 

 

 

Net Change in Unrealized Appreciation / Depreciation

    

Apollo FDC

   $ 3,832      $ (17,458

Apollo TXU

     4,920        (9,464

Apollo Boots

     538        (4,333
  

 

 

   

 

 

 

Total Net Change in Unrealized Appreciation / Depreciation

   $ 9,290      $ (31,255
  

 

 

   

 

 

 

Net Income (Loss)8

    

Apollo FDC

   $ 6,518      $ (12,332

Apollo TXU

     5,820        (6,984

Apollo Boots

     2,772        (3,400

Other

     (5     (21
  

 

 

   

 

 

 

Total Net Income (Loss)

   $ 15,105      $ (22,737
  

 

 

   

 

 

 

 

(1) Includes fair value of the Junior Note held by Apollo FDC. Cost: $21,472 and $21,472, at December 31, 2012 and March 31, 2012, respectively.
(2) Represents fair value of collateral posted in relation to the TRS held by Apollo TXU. Cost: $26,641 and $26,066 at December 31, 2012 and March 31, 2012, 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 period. Cost of outstanding par was $50,109 at March 31, 2012. There was no outstanding principal balance of the Boots Term loans at December 31, 2012.
(4) Apollo FDC’s interest is subject to a senior note of a separate entity of $20,283 and $20,283 at December 31, 2012 and March 31, 2012, 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 appreciation / depreciation.

 

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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 December 31, 2012 and March 31, 2012.

 

     December 31, 2012      March 31, 2012  
     Cost      Fair Value      Cost      Fair Value  

Bank Debt/Senior Secured Loans

   $ 1,114,645       $ 1,047,774       $ 826,914       $ 791,810   

Subordinated Debt/Corporate Notes

     1,324,202         1,258,975         1,684,625         1,592,827   

Collateralized Loan Obligations

     114,542         120,718         7,109         7,691   

Preferred Equity

     41,189         11,404         39,017         34,927   

Common Equity/Interests

     218,611         179,746         291,820         240,096   

Warrants

     2,710         8,406         2,099         9,729   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

   $ 2,815,899       $ 2,627,023       $ 2,851,584       $ 2,677,080   

Cash Equivalents

     —           —           —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments and Cash Equivalents

   $ 2,815,899       $ 2,627,023       $ 2,851,584       $ 2,677,080   
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 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

   December 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

   $ 1,047,774       $ —        $ —        $ 1,047,774   

Subordinated Debt/Corporate Notes

     1,258,975         —          —          1,258,975   

Collateralized Loan Obligations

     120,718         —          —          120,718   

Preferred Equity

     11,404         —          —          11,404   

Common Equity/Interests

     179,746         —          —          179,746   

Warrants

     8,406         —          —          8,406   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

   $ 2,627,023       $ —        $ —        $ 2,627,023   

Cash Equivalents

     —           —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments and Cash Equivalents

   $ 2,627,023       $ —        $ —        $ 2,627,023   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

32


Table of Contents

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 nine months ended December 31, 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

    (20,099     (14,411     —         —          (40,302     5,383       (69,429

Total change in unrealized depreciation / appreciation included in earnings

    (31,763     26,526        5,582        (25,697     12,860        (1,934     (14,426

Net amortization on investments

    5,682        12,054        218        97        —          —          18,051   

Purchases, including capitalized PIK

    649,341        363,328        107,227        2,077        1,476        853        1,124,302   

Sales

    (342,514     (721,349     —         —         (39,067     (5,625     (1,108,555

Transfer between asset categories within Level 3 (1)

    (4,683 )     —         —         —         4,683       —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance, December 31, 2012

  $ 1,047,774      $ 1,258,975      $ 120,718      $ 11,404      $ 179,746      $ 8,406      $ 2,627,023   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ (31,607   $ 12,594      $ 5,592      $ (25,697   $ (32,264   $ 2,528      $ (68,854
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

33


Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

 

(1) There were also no transfers into or out of Level 1 or Level 2 fair value measurements during the period shown. There was a transfer between asset categories due to the restructuring of a portfolio company which altered the securities held by the Company.
* Pursuant to fair value measurement and disclosure guidance, the Company currently categorizes investments by class as shown above.

Accumulated PIK income activity for the nine months ended December 31, 2012:

 

     Nine Months  Ended
December 31, 2012
 

PIK balance at beginning of period

   $ 32,963   

Gross PIK income capitalize

     15,012   

Adjustments due to investment exits

     —    

PIK income received in cash

     (5,196
  

 

 

 

PIK balance at end of period

   $ 42,779   
  

 

 

 

The following chart shows the components of change in our investments categorized as Level 3, for the nine months ended December 31, 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 (losses) included in earnings

    4,096        (84,829     —         (102,012     (164,835     7,013        (340,567

Total change in unrealized depreciation/appreciation included in earnings

    (72,572     (168,105     (3,536     101,023        140,747        (5,021     (7,464

Net amortization on investments

    2,836        10,796        291        146        —          —          14,069   

Purchases, including capitalized PIK

    376,221        882,685        —          3,259        83,099        —          1,345,264   

Sales

    (507,202     (729,570     (7,770     —          (28,629     (9,434     (1,282,605

Transfer in and/or out of Level 3 (1)

    —         —         —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance, December 31, 2011

  $ 817,124      $ 1,641,633      $ 17,755      $ 35,548      $ 258,153      $ 8,642      $ 2,778,855   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ (63,343   $ (210,087   $ (2,914   $ (990   $ (29,436   $ 232      $ (306,538
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

34


Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

 

(1) 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.

Accumulated PIK interest activity for the nine months ended December 30, 2011:

 

     Nine Months  Ended
December 31, 2011
 

PIK balance at beginning of period

   $ 165,651   

Gross PIK income capitalized

     11,788   

Adjustments due to investment exits

     (87,687

PIK income received in cash

     (59,324
  

 

 

 

PIK balance at end of period

   $ 30,428   
  

 

 

 

The following table provides quantitative information about our Level 3 fair value measurements of our investments as of December 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
December 31,
2012
    Valuation
Techniques/
Methodologies
  Unobservable
Input
  Range (Weighted
Average)

Bank Debt / Senior
Secured Loans

  $ 733,964      Broker Quote   Mid of Bid/Ask

Spread

  n/a
    313,810      Yield Analysis   Discount Rate   7.9% – 23.7% (13.5%)

Subordinated Debt / Corporate Notes

    677,391      Broker Quote   Mid of Bid/Ask

Spread

  n/a
    581,584      Yield Analysis   Discount Rate   10.2% – 24.0% (13.9%)

Collateralized Loan Obligations

    34,996      Broker Quote   Mid of Bid/Ask

Spread

  n/a
    85,722      Discounted Cash Flow   Discount Rate   13.0% – 13.0% (13.0%)

Preferred Equity

    11,404      Market Comparable

Approach

  Comparable

Multiple

  4.0x – 11.8x (6.6x)

Common Equity /
Interests

    2,351      Discounted Cash Flow   Discount Rate   8.0% – 8.5% (8.5%)
    125,890      Market Comparable

Approach

  Comparable
Multiple
  4.0x – 11.8x (8.1x)
    51,505      Net Asset Value   Underlying
Assets / Liabilities
  n/a

Warrants

    7,319      Market Comparable

Approach

  Comparable
Multiple
  4.0x – 11.8x (6.0x)
    1,087      Other   Illiquidity /
Restrictive
Discount
  20.0% – 20.0% (20.0%)
 

 

 

       

Total Investments

  $ 2,627,023         
 

 

 

       

 

35


Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

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”) comparable multiples and market discount rates. The Company uses EBITDA comparable multiples on its equity securities to determine the fair value of investments. The Company uses market discount 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. Significant increases or decreases in either of these inputs in isolation would result in a significantly lower or higher fair value measurement. The significant unobservable inputs used in the fair value measurement of the collateralized loan obligations include the discount rate applied in the valuation models in addition to default and recovery rates applied to projected cash flows in the valuation models. Specifically, when a discounted cash flow model is used to determine fair value, the significant input used in the valuation model is the discount rate applied to present value the projected cash flows. Increases in the discount rate can significantly lower the fair value of an investment; conversely decreases in the discount rate can significantly increase the fair value of an investment. The discount rate is determined based on the market rates an investor would expect for a similar investment with similar risks.

Note 7. Foreign Currency Transactions and Translations

At December 31, 2012, the Company had outstanding non-US borrowings on its Senior Secured Facility (as defined herein) 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
(Depreciation)
 

British Pound

   £ 9,000       $ 14,280       $ 14,630         01/17/2013       $ (350

Euro

   78,100         105,023         102,967         01/31/2013         2,056   

British Pound

   £ 69,300         110,754         112,647         01/31/2013         (1,893
     

 

 

    

 

 

       

 

 

 
      $ 230,057       $