AINV - Earnings call transcript Q2 2020 | MidCap Financial Investment Corporation

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Operator

Good afternoon and welcome to Apollo Investment Corporation's Earnings Conference Call for the periods ended September 30, 2019. At this time, all participants have been placed in a listen-only mode. The call will open for question-and-answer session following the speakers' prepared remarks. [Operator Instructions]

I will now turn the call over to Elizabeth Besen, Investor Relations Manager for Apollo Investment Corporation.

Elizabeth Besen

thank everyone and today. joining operator, you, you for for us Thank

Hunt, on Widra, Chief President Gregory Howard call Investment Financial Executive and Speaking are Powell, Chief today's Officer; Tanner Officer Chief Officer. and

recorded. this Corporation everyone is advise strictly any the call are they to to Information like any Please release. Apollo call your unauthorized audio about of that is press that customary like replay Investment I'd our note of form regarding that forward-looking and the in prohibited. I'd in today's to information. also webcast disclosure our call release being available and property attention in are earnings Harbor broadcast the Safe press

may forward-looking and call webcast conference Today's include statements.

to and to business statements results, our prospects future the statements as companies. and involve not Forward-looking risks prospects our our uncertainties, of portfolio including, limited but

shareholder our update of unless statements risks and law. copies may our adversely and You at affect our To please our www.apolloic.com. required do SEC should undertake website apply statement We business forward-looking reports or visit refer obtain projections to forward-looking make. statements not that for any by registration filings, that our we to

a I'd as Company's website, everyone remind like we financial the that performance. our financial also package information well on which posted about to information the contains supplemental portfolio, as

I'd this Howard to time, like At to turn over the Widra. call

Howard Widra

the providing overview our of quarter. and by results brief today's a Elizabeth. call for begin Thanks, I'll investment activity financial

in discuss We'll the then credit we'll open will will greater environment, quality. Tanner and on results also for call for up then our remarks, my update quarter, financial detail. review questions. the investment an Following market our activity provide the Greg

our reduction floating sourced to We by our X% Origination grew increasing lien platform. successfully Apollo to quarter by exposure given our continued strong our rate by coverage requirement. had we quarter, corporate asset our first the portfolio implement and prudently Direct origination to plan portfolio in grow a the During the loans

leverage net at activity, the investment end net of strong ratio our quarter. the X.XXx increased our Given to

up from corporate to Our portfolio quarter. increased lending last XX% the total portfolio, XX% of

First XX% to weighted corporate to from of from attachment portfolio X.Xx, from up co-investment quarter. up the pursuant made increased order the The to quarter. point quarter. down increased at lien improved end XX% of XX% Investments average our assets X.Xx corporate of XX% portfolio, lending the lending last last last September,

successfully and is of current Our and shifting we're with our with exposure assets to Consistent healthy, leasing. volume. pace aircraft also pipeline new reduced the confident our plan, business our we

investment a During internal the the quarter, MSEA at we last quarter. the shipping to price exposure allocated from our value, above reducing portfolio, sold in our of two ships down X.X% X%

during quarter, quarter. which from In sold portfolio, Merx XX.X% to the of last to which reduced addition, repay our several Merx aircraft capital down investment allowed the to XX.X% AINV,

$X.XX was Net impact the investments, negatively The due extinguishment results. $X.XX asset gas partially to as decline baby at of our impacted the and decline which in well in net down per resulted impact the of financial the to value price as oil in income our loss oil, valuation of our as to total share, X.X% reduction the a from incentive the investment a bonds. by the fee part in of for investments in to and net offset for accretive XXXX incentive from excess $XX.XX distribution the buybacks. Moving our stock as due a reflecting due the value well $X.XX Net which loss of net was net of strong quarter The was $X.XX return NAV per the income in the end was investment quarter. structure, quarter-over-quarter. our the fee share portfolio feature the September, per in share partial growth

brief a provide also to like on I'd update Merx.

balance our Apollo exposure fee reducing Merx's our sheet which from source funds As for from to income aircraft generate income. includes leasing, to transactions continues earnings Merx. other Merx growing while previously servicing servicing discussed, strategy

During quarter, initial the Apollo Global leasing. on fund aircraft had a close a for focused

be by receive a new will exclusive adviser this servicer Merx deployed disclosed, fees will by with to previously also AINV purchased aircraft for fund. against due associated capital the fee As fund. its this offset

the value Moving a on, stock to We repurchase Company to an to repurchase authorization. the to NAV. believe under we shareholders. to our quarter, end our has a trade component stock to present the million we We should opportunity of for stock. continue to NAV of repurchase market The us consider continued equity stock did at meaningful with available continue repurchase Since intend to have current be below to the stock. plan attractive buybacks was currently what deliver approximately our our it $XX.X discount

on distribution. our the on rates share of Turning as cover impact our interest XX, record to Board lower to distribution. has our The focused December are a of ability $X.XX you We approved of per shareholders know that of distribution to many XXXX.

We grow nonyielding reducing from to as expect remain are continue interest grow also focused assets, now lower X% that the are our management which power our that above Xx, and will we to we or excess of portfolio. yielding. the was our generally of continue declining rates debt-to-equity on benefiting ratio impact fee noncore lower earnings assets given in Incremental

environment the quarter. call the discuss our turn and over for to With market Tanner activity to investment I'll the that,

Tanner Powell

Howard. declined U.S. capital and selective have Thank aggressive and market on the for been the by offset for raised quarter the loan Overall, lending. back decline highly yields significant lenders loan of given competitive, environment as middle-market that and in The amount fees. become terms. flattish LIBOR during has you, volumes deals more Middle remained OID market market middle lenders pushing remains was are spreads, middle as higher

focused Apollo during loans corporate the Origination first mentioned, investment by quarter, Howard As platform. floating on lien the activity sourced our Direct rate

loans. commitment of floating commitments million. across commitments investment for average lien million, and $XXX XX were fundings were were rate New These and commitments $XX.X new size companies All first million $XXX respectively. an

spread for weighted The LIBOR these average X.Xx, of range points, average new XXX our for of net X.Xx. basis was X leverage our commitments was assets. weighted range within target incremental within over The new target of basis commitments XXX to XXX to points

these Lastly, commitments XX% were our order. pursuant made co-investment to new of

Sales two of and a X% last $XXX for to from price total resulting exits in and repayments quarter. million activity $XXX revolver the the exposure allocated proceeds X.X% totaled totaled net of of value, $XX $XX.X portfolio, net investment and million above generating reducing million, down sold AINV million our investment during to MSEA million, shipping quarter total at Merx the internal excluding $XXX our activity. of We ships in funded

net million. $XX addition, totaled for funding revolvers In

We million, the also several activity. Net million aircraft Merx sale net in from totaled $XXX repayment received $XX.X a portfolio. revolver and fundings including of Merx its from of

portfolio from Holdings. The investments at Now was at write-downs the last few nonaccrual a September, end cost, to from decline primarily me last quarter. of represented removed the status. X.X% down overall nonaccrual Hawk the fair let X% discussing credit minutes value, quality. down spend or of quarter At from on status investments No on due X.X% placed X.X% KLO on and were Spotted and both

of was oil. due the primarily to in The decline the Hawk in price Spotted decline

position lower coming to Regarding the to from Company KLO, due the has nonaccrual to placed complete and in our a challenges last investment expects was The higher demand, continued quarter consolidation customer restructuring Company's comprehensive underperformance on costs. weaken. status months. liquidity The

lien commitments. to to points lower on portfolio on exposure the credit second average average The XXX and and our basis XXX first weighted new in Moving metrics. lending spread increase the XXX, down for decreased asset exposure. compared from The corporate the is XX to in quarter lien spread due to last decrease

to The average net attachment declined commitments. for X.Xx to from trade-off point positive from of yield the to The X.Xx. at We this cycle. in for slightly, from view weighted increasing interest credit leverage compared weighted for to coverage point of X.XXx the as this average X.Xx And credit the X.Xx X.Xx. increased investments improved a average new quality and portfolio X.Xx

With call will to quarter. I over will financial the performance the for Greg, turn the who that, discuss

Greg Hunt

of investment $XX.X million was to you, partially income for prepayment fee offset X.X%. was income income, income lower statement. by the $XX.X the million Beginning increase the September Thank The million the increase dividend with income. up quarter, attributable an and $X.X Tanner. interest Total higher from quarter, for June or income

from $XXX,XXX Merx prepayment income and excluding When $X.X investment in million quarter. line dividends portfolio. interest increased quarter MSEA. Prepayment interest $X.X we to our as $X.X we the Sprint, with quarter. rose income last to last compared in income Dividend X.X%, quarter-over-quarter in was last income received received $X.X in million both catch-up the was compared growth from as as million Fee million the

expense interest from up the in were the to the -- in quarter higher given and due XX million, the prior for management Expenses portfolio. $XX growth quarter million fees $XX.X

reduced in was for reminder, X.X% fee excess a As from to the X% of debt-to-equity. management Xx assets

X% to quarter, worth million fee of September assets. the management a applied For approximately was gross $XXX

addition, by incentive were Net Net million investment of compared income $X.XX was fee end to share for provision during X.XXx at compared total accrued leverage the to end for quarter of September was the per $X.X the June. impacted structure. quarter. $X.XX quarter, X.XXx the In fees of in per the our the return at share June

size. position During and desired million down NFA to sold the October, our approximately September Group $XX of funded in our $XXX subsequently, then quarter, whole we into million achieve

or X.XXx. approximately during one attributable oil in the net portfolio investments our The NFA, $X.XX was placed Hawk, loss net in up loss leverage for Adjusting the of and and million on leverage of our the quarter. Average the was net would per status primarily the quarter nonaccrual have was X.XXx was on X.XXx, been $XX.X which from investments impact KLO, the June quarter. during share. Spotted quarter for The to gas

due Howard we X.XX% redeemed million our notes unsecured of As XXXX. in $XXX mid-August, in mentioned,

quarter. or at asset result, of recognized in as notes of September the extinguishment our our noncore debt. on oil the share a by compared $X.XX of of loss to As realized per end loss share million the $XX.XX the during the KLO $XX end primarily was mentioned per $X.X June. was of we $X.XX value decrease Net a approximately extinguishment from The the Howard and investments, previously at a

average decreased our quarter-over-quarter. decrease second bps first due which to to The XXX points yield a was into the the a the liens. reduction XX due average points This XX of corporate reduction X.X%, portfolio, a for of from liens quarter decline weighted primarily lending deployment and to in and basis down was in LIBOR XXX to combination basis portfolio asset exposure spread a in

$X.XX the the side end liability worth debt of billion we have quarter. of the of balance On sheet, outstanding our at

rate given As continue environment, emphasis with a capital of quarter sources on we mentioned alternative funding and we the evaluate last sources. particular our current to diversifying

down X.X%, was interest rate X.X% average from average debt weighted for quarter Our our last on quarter. the

exclude the you repaid interest which If were the been would the weighted X.X% for quarter, annualized the approximately average costs during XXXX notes, have quarter.

shares stock of through quarter, for a an regarding per $XX.X since for we average price Lastly, XXX,XXX quarter-end million. the a have we price during repurchased additional $XX.XX total XXX,XXX cost at at of average million. an an repurchased and of And cost buybacks, shares of share yesterday, $XX.XX $X.X

This concludes call please Operator, the questions. remarks. open and prepared to our

Operator

Rick [Operator of from line Instructions] Our first question JPMorgan. is the from Shane

Rick Shane

four think function in Look, further explore at marks. last the we your that a which upon quarter, in deterioration remarks, I'm in curious Difficulty] is to the but saw seeing during we're we you general, [Technical value that little just nonaccruals market, bit I what a more. this touched prepared the is When of if fair love this look from

Howard Widra

Rick, think, you. lost we I

Elizabeth Besen

hear Operator, can us? you

Operator

problems we believe Rick, phone. I there? Shane We'll his you Indeed, question. move with Are the I is Rick may have you on actually your next line mute? believe some still can. having to put

the Our next O'Shea question Securities. is Fargo line from Wells Fin of Fin?

Finian O'Shea

else? would you question of any and then received? give on part small line the on of the level will And context or the be if I news Are Aviation able side. fee see rebates we the on -- this reimbursements or to great a sorry it's Just hear somewhere it, fee this Merx servicing to the first, missed

Greg Hunt

agreements regard is we capital when the With fee in work the fund way both level. with aviation the Merx, Merx at to receive a the Yes. our manager servicing will deployed,

any and Merx Also, that and of the fees XX% the incentive ultimately, of to manager management rebate fund the will valuation. fees. So will and cost income impact the structure the also

years at the current. will the which would of paid to The incentive term X probably be end management fund, fees fee the is the of X but be

is equity deployed, the once earn will we So that.

also from I So the in the fee and receive start we'll highlight statement as see Merx start we'll think you'll -- then rebates, reporting the it we -- income well, the obviously, impact. in

Finian O'Shea

of it. have There was purchase MidCap there. the P&Cs financing. expanding I a sounds on Got a you're It follow-up franchise side. like

you the for to example? wider platforms -- impact cash about you more. You still Will will strategies, core to talk Can that growing Apollo? see focus expect should the verticals guys on Or a the talked you flow, science we BDC -- about life funnel?

Howard Widra

performance. can have a historically has Yes. economically access. our sort long-term of granular lending, guardrails of Apollo, sort areas of commercial which we I think origination as a strategic so mean in of I matter them, around general looking Franchise section where some pretty or -- of has sort there's think historically been Apollo, been of has whether history a proprietary MidCap sort resilient sort finance steady to especially some relatively expand has we're reach, we of across and

overall board sense trying MidCap. and for we're Apollo made business across that of what to the do So

franchise that would the AINV work some. for expect you those To assets extent to acquisitions AINV, generate do that like

are XX, we cash like -- of there It effectively where are do of with have in that have them. and So what default be we some hit look do loans. lot would now -- franchise sort the -- platform loans to are that, XX loss the them the does the the expect relationships And that well. A work And mean? means if own deals equity-backed franchises that do that given of yield low there to but expertise some smaller, groups hurdle. and our have the franchisors and that flow XX,

Operator

next is the Jefferies. line our of Joseph Kyle Kyle? from And question

Kyle Joseph

Congratulations on a quarter. good

Tanner. I think for question first

of from us gave of the outside a give industries -- least could in at you through those, nonaccruals the us performance obviously and You walked credits? portfolio back you energy outside troubled those for sense incremental But some your weakness and have stepping quarter. the broader

Tanner Powell

environment, across said And Journal in this Street like. as see we've we look deceleration. There's that if quarters, the and a rhyme at frankly, as previous the will headlines I you Yes, some sure. just the with think what well of terms been definitely Wall And still and to difficult have our we're costs borrowers showing that become wages, certain grapple with more commodities pressuring performance, freight it margin our whether a the growth, positive -- and many had it has in but of something of margins. revenue be

rate. seen growth saw still less another than but in at of a clearly decelerating And growth, so but for row, quarters one clearly you've positive, you earnings revenue positive, a

cycle, We I element our -- side of been on an you're manufacturing would just to in more situations. where exposure, starting of argue of see light typical peers idiosyncratic-type do had some where like sensitive we than the many where clearly some that's very the cyclical to businesses more weakness that we have and in but are

Kyle Joseph

with and you about down environment Greg, think that here, then, you a Got margins of it. longer movement as But cost term cost talking see that spectrum. the do And about your had your the some both That's capital ongoing helpful. side, lower funds, debt yields obviously, of nice pay just you on near rate a funds and we're the in term? reduce to and with the where up offsets higher trending going forward balancing

Greg Hunt

I think quarter, quarter, Well, compared we're bps, quarter, were for our XXX. look you spreads the to this at about and if we last XXX quarter last

XXX think I a in we've is And be to which think new range The of our I think range. when target bit. so we'll I in modeling flattened at think looking bps. originations, our and I -- X, we're we've out XXX that

on that, that the think credit on continue think facility balance we'll good. And reductions. rate the I also So is use I to

recent impact the partially been of by LIBOR most and had it in most this adjustment. look would say that if of our in baked you end -- because already, much of at Fed pretty the somewhat I the looked of in where the June we when already drop kind the recent July, trading was LIBOR also loans, quarter at impacting and

I a where we're at kind power we see I our -- think of But grow So so place will we also in good earnings -- will that point. to assets. think add this you'll continue I consistently, think as

Howard Widra

I'll as pressure been executed. just in Keep -- that in modest time doing, offsetting some we in has prepared on widening that spread get we remarks. when indicating are that LIBOR, there Is the there's comment deals we're mentioned of many they in oftentimes, mind a is the actually quickly. our of a lead long deals between and those

with market sometimes the market. lag So in effects operates as often change it pricing that does of the in a middle

Operator

from line next our of from Point. Compass is Casey Alexander And question

Casey Alexander

Yes.

the $XXX this revolver. the of million on and But First all, draw nothing. maybe is

to it out of Was companies lot there just to idiosyncratic draws one have that a anything So quarter. about that nonaccrual? level sounds did those And go revolvers? revolvers on any that are to happened in like of went

Howard Widra

Right, course nothing on normal That's No, nonaccrual. for revolvers. for ABL those revolvers.

they're revolvers But draws, like flow of paydowns. So out vast ABL are majority ABL not little that. that cash -- of the which up that's is strung challenged netted and liquidity. There be that pieces might also for because by are effectively

we activity as So the which well, is the million net something report range. in $XX

your not tried actually, what to in clarify So course. make the sort and we clearer of normal on we'd that if to to a it's feedback clear, how love reporting,

Casey Alexander

Great. is helpful. Okay. That

being same Or those above $XX.X the value is the for? about your value. are calling balance that the different sale Is than number? the -- you of internal ships that on were million talked You from internal proceeds two ships what as allocated that allocated sheet

Howard Widra

It's use because company -- why terminology nine eight the in a same it's those that sat ships with two is reason The we ships. number. or

value value ships of each -- at of If Company the And Company. of those ships. The we is sold internal their Company those a so of the came we each the out. And the buildup two would we the we don't if makes exact But above above, each an that it sense. from by outside number firm's the valuation value value the recover or value whole perspective, of on putting is allocated thing. ship

Casey Alexander

does. it Yes,

Howard Widra

So effectively good valued catch above because it two we but it's these ships. shipset, we the a perfectly slightly what was that, use so

Operator

next question is line Dodd [Operator Our Raymond Robert Instructions] from of Robert? James.

Robert Dodd

clarification Just first. a

line On contra than a that rather fee the the a will be right? item top management expense Merx, rebate, item,

Greg Hunt

yes. Yes,

Robert Dodd

at guess, at kind from got for last everything. leverage. very terms market X.XXx. deployed weighted on probably color the actually then in presentation, EBITDA net on the page, quarters, second the it, to second -- growth growth, lien, I I haven't exited of broader any look kind I the of the helpful and a it. your Got of at And new look couple on of If average so revenue that's But six of that's time, I some. you gone X.XXx same you When mean, lien,

the Or a broader seeing you're that indicator deterioration lien -- EBITDA maybe that an is it the So of it consequence that deterioration the exits? trends in in the EBITDA broader outpaces or there's is second in in book portfolio?

Howard Widra

former. the much very So

refinancing With the delevered the also, those most. the surprisingly, caveat, not candidates have that are for best that

that are where seconds right, And so coming out. we're adverse wherein levered expect an occur, selection, you'd naturally to there's

We have not deployed, I the of into second think, say, for a million handful lien.

will second lien our performance nothing for second the of credit. terms else companies. book, deals I But first say lien bigger our about credits versus terms our debt lien -- the first operating I say, to however, lien with that, to environment any In in point material versus skew either difference performance of typically happen the you relative company. of couldn't

Robert Dodd

I than And environment bigger domestic, et customers, to point, a domestic more global probably gets gets versus companies. company I cetera, more now. can, better environment overseas it the if and obviously, that bit larger, on then one seems as just a mean right the

focused versus you're who's more seeing domestic between any exposure? performance delta got increasing exposure international So between

Howard Widra

towards portfolio the first whether of think Yes, across widespread lending -- and necessarily And idiosyncratic effect our lien, by given for second not expected less Again, the in we're certain down given be it internationally. I less there international the businesses, are large, be but alluded domestic relatively lien, portfolio, as and weighted don't we our for -- that domestic jurisdictions. are mandate to, mandate breaks said, to it or U.S. U.S. XX% U.S. our economic the instances tariffs, businesses. environment to poor you fortunately

Operator

of next our Johnson question KBW. Paul from is line And from

Paul Johnson

the today, around book X.X% as at believe, portfolio question presentation, yield think, I My debt -- a is about yield your your your I look or about is value, it's, on so X.X%. dividend I from

essentially you that think I can higher. get slightly

into back do to was incentive you to verticals portfolio, ideal fees enhance X.X% your especially it think like still portfolio. income also even in? maintain strategy kick rotate as But see I earnings yield a of assets the core and and enough your your on under specialty opportunity as you dividend, sort your the core

Howard Widra

Yes. Yes.

consistent X.X our yield. would terms of given the that just portfolio only think decreasing the LIBOR. it X.XX sort as about effectively sort say now. we or yield, which were sort fee, our covers which target we maybe X.X, especially somewhat of also decreasing we covers of but said -- I decreasing covers management have the is this something grows X% the is or the in to power, math, the of it leverage, And the That earnings to not

that leverage yields our at, at way we isn't expected or at be today XX little compressing -- lower make -- was but put to we me sort the of have and $X.XX. LIBOR, are able cover strategy Obviously, we X.XX, our X.XX, leverage, or is saying around which and Let's a at room that. don't yields within of could let I'm That's be to get now a had -- why -- X.X, $X.XX projected XX%, that we there. still another LIBOR because because higher we were X.XXx to at months ago, when at bit we that so sort the of

change couple amount our has years average are been each over could which steady impact is last pretty actually the the that quarter variables There which but income, a fee quarter-over-quarter. three

order in So the to we feel pretty of needs good to cover that be dividend. sort about where

clear. of So hopefully, that's sort

much this yield cost build leveled need we we LIBOR -- have of compression, leverage think If consistently cover said, well. in We going we to Greg down that have to today So if as of Obviously, sort goes dividend. I spread debt have -- as on sort order more the that off model. down. compression, we our up have do have I and than not we consider mean of we

Paul Johnson

increased color. That's there's X.Xx little bit funding? about to first been believe to know to strategy? it. on couple that's Got portfolio just more Okay. back a over the this the questions lien wanted in market Is I a of anything bit one and I that spend past companies, quarter. little few and commitments. function leverage, great X.Xx new that time the ask but Or from I on a is March leverage thing of specific quarters your investment about is a

Howard Widra

a bit a NFA, mathematical has sold at -- a deal down We which No, over of actually it said were it closing. I we leverage was quarter little think we X.Xx and anomaly. long the that

Greg Hunt

$XXX was it million. And

and we quarter, million and down the million were at for originations $XXX it $XXX liens first our was of the sold in So that NFA, XX%.

So it's it's really skewing skewing that number. --

Howard Widra

So have last which close that or noise previously you very corrected we But should it to if quarter. it would so when kept we that it launching, we the for created was -- out, it corrected we're haven't -- took what in numbers. be just

Paul Johnson

Okay.

those protect the -- against no Did I one. could question. those of strategy? a a in oil. had downside remind still oil portfolio last And to Or did me, for quarters the simple run hedges off? number part of It's some are and you they portfolio? ago you on longer of the that your Okay. that is Or -- gas remember

Howard Widra

level Glacier's Company strategy, No. last now. hedging's relatively Company at of the generated over sure, how of hedging's they're the for actually, done But I a, has the They they level think, part ran at done all the And been the off. terms and -- year, in cash. successful

Operator

question And of next line the from Rick is our JPMorgan. from Shane

Rick Shane

questions. two Anyway,

was what showed I was, bit getting in valuation. really okay, little terms First, of weakness of nonaccruals a at

though, at an more be your would the signal all and that's between One in Are generally see point, to of investments divergence you within of investments. idiosyncratic. your Some that portfolio? weaker better starting inflection

Howard Widra

No. No.

first One two commodity me prices. the restructuring one other the on idiosyncratic. sort significant just let and So write-downs on is of deals so the are -- credit nonaccrual just and

trends So for that. no, like, macro

seen We divergence. have not a

a probably But growth notable. little of said, quarters. in overwhelming Tanner any As slower are that don't we quarter trends the other this see sort than portfolio

been there's of curve than historically. that you And that the can like are point greater to this performed some a can noteworthy no AINV there's their and feel sort sub-industries, retail there that -- where economic has always that see indicator even portfolio, bell point. to but are and sector, perform that not there investment platform, inflection for has least we is portfolio in the case, of unrelated slow that say clear, our that trends in something long but always Obviously, better a across beyond an ones time, a certainly at companies been the But we worse. leading things in difference

Rick Shane

Got it.

end or they dividend the Paul see and Okay. I the heard your ways, higher high NAV like peers, order would framed Great. When second with And of be guys leverage cushion. it you basically in sustain how curious to ROE. targets are like to I'm headed order willing sounds dislocation things? dry of your do think you in using we've and NAV spoken And BDCs then question you during dislocation. advantage to way to deploy and your capital able opportunity of question, leverage to take powder market related that in of take market some ROE. leverage that in as Or into to be attractive been markets you're have periods sort and a they've because Basically, historically, a some have defensive to now? more they traded unable don't below

Howard Widra

sort believe senior best little deploying we debt Well, because the leverage at in least that bit. the the premise origination pretty are our few pivot that of we reason exemptive first, of. is have to country. with we Because to the the your our why ability I want made we And platform now order right quarters, advantage available our clear. up, take And now BDC last and that's we've for to believe investors over leverage a

of of a that's the don't those some obviously, come diversity of sort we of or of the that people, of create playing time. as company our more assets, much. the of value a access getting of from something through mix numbers market have, historical But granularity for as The that investments strategy relatively by unfortunately, let appropriate finance which of these our we colored think than consistency of option assets, as assets, the assets an sort at sort is platform that disconnects investment is unique the to we

our So we strategy. like

That leverage the at leveled say then thing. to would stop I'm -- X.Xx what would sort going it. think to? so I what are say, they comfortable go because people want our historically, to I getting let's we is, of Like next

market liquidity. think where and it's don't of so need I but X.X first we the if to I we the fully think at leveraged. portfolio, believe world a would new That's you cushion disconnects X.Xx sort on cushion, because that a translates we or X.Xx in result of quality we don't than If what And is know sort have X.X X.Xx say as X.Xx. of or getting

to advantage market, to as off, types take we're tight mean the things loans those those you tend -- enough situations. think rolls. even advertisings generate liquidity portfolio I comfortable will pretty internally enough loans take create of pay of a that advantage I in liquidity of we these to and

people's for of them. on change and all narratives sort So I time, the available what's -- guess depending

to a strongest larger the us, size we than available compared significantly pipeline is the have vehicle. of this attribute For as

Rick Shane

it. Got

Okay.

timing get dislocation. of I we may was the back fall to like is a And mean that, want the think, the it funnel so big would wrong, say enough. and counterpoint XXXX, if I you're feeling my there be, but I was I think to market

You guys available less levered. were was to relatively There highly relatively liquidity you.

Some of the more your X there next a peers was and in months. had divergence performance liquidity, to XX over

Howard Widra

like recover. that that so down in the not question the referring as money, they That's trade cycle invest no -- having an that that, sits just which should right opportunity market and of the available if in do question people opportunity syndicated of you're much have so timing there's people And would right quickly loans and I'm in at money, but is they gold they they investment invest them. especially advantage sure if right it did be. cycle capital this and -- disconnects There's that's that in front it to take no if can for broadly buying money an will time as

with. everybody portfolio miss don't have performance who believe capable that wait valuable to money the broad economic even that. made on a is of on the also the business why of defensive our taking don't because opportunity. the for they people and not compete building in of stable that's money we almost more diverged lot advantage believe with we should Because vis-à-vis, a those we if because positioning the that what a trades. things we weren't lost portfolio. really It's be we position We believe much can longer-term lot long we're that reason have that, a will -- into carried we a portfolio, And term, be so That's that that people so

Rick Shane

what People look, driving that's you good point. it. they pay fair decisions, it's No, make you a pay towards. the you're don't credit to and market, ultimately Got time to

Howard Widra

are low some environments sets but some portfolio given in loss in things, flow on there And about it through defaults, loans. no like asset-based historically coverage on whole XX-plus diversification, -- our everybody, I focusing a not history is even origination And team loans, year an challenged economic look, impacts are this. I there cash been asset is being as strategy cycles. question that cycle -- clear our -- there's mean thrive MidCap the economic these time-tested have product that -- -- being in

you. All being all things, equal, other of help those things

so And now, show is business. are very was That we most two years bigger we like focused. the feel $XX we're That's borrower average number the $XX million like ago, million exposure. and that much we and a everything almost in why important

Operator

Alexander Casey Point. And from last of our Casey? the is Compass question line

Casey Alexander

I have leveraged there some some But -- middle I'm rated market sorry, would and has Yes. single particularly be they're market, into in back this to particularly of spill MidCap that. any opportunity not upper incremental should seen above in discussion what spillage, and the an but seen. of on about ask that loan a B remembered been before. the Have have that unique you guys wouldn't necessarily over funnel in and Or participate you originate sort opportunity, might team does the market driving market a normally that? your group

Howard Widra

syndicated all category, all middle credits, have broadly as a they much We B all that range fall at looking are so and are been aggressively more mean -- one. I that alternative private -- an execution, now sponsored lower seen and every least that in or deals a isn't smaller is at definitely it. deal market have as -- falls looking market or to smaller at probably could that broadly the in syndicated favored single --

the down. platforms quarter, volume Apollo. though the to the saw stuff, do It's larger same including we why, middle about more even that metrics time, market these lots in platforms third and of At capacity assorted being have that

people because above targets market and driving have that's saw activity. You Ares like Owl definitely origination us Rock and their

Casey Alexander

think for there where Do and in U.S. in it to I times past quickly, the X:X upgrades technical XXXX, you was the that's the while? like fourth leverage but some quarter mean then and running higher where, is it Because where out, been past. very have of sustainable downgrades spilled was the a than ratio loans much itself it and in of corrected

phenomenon period for think that some sustainable a And is this so you time. perhaps of do

Howard Widra

this the the will secular -- markets driven even I challenges. capital that in Yes. the -- across in work market which a some the the size them. driven aren't of But is change think be by our I that thesis noise will even of they it market, that Apollo here that be board is available and will flexibility have don't in by of sort private also mean

our I think think peers' well. expectation and yes, our So as expectation, I mean I that's

Operator

to I There call are and further back remarks. no over closing the now will management for turn questions,

Howard Widra

thanks support. and continued your questions. your night. to today of out you. the have time team, On behalf Thank a us right. you if for All any good of reach Please feel Have to free

Operator

Ladies participating. this call. and concludes for Thank today's gentlemen, you conference

You may now disconnect.

MidCap Financial Investment (MFIC) 5 Nov 192020 Q2 Earnings call transcript