AINV - Earnings call transcript Q1 2022 | MidCap Financial Investment Corporation

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Operator

Good afternoon, and welcome to Apollo Investment Corporation’s Earnings Conference Call for the Period Ended June 30, 2021. At this time, all participants have been placed in a listen-only mode. The call will be opened for a question-and-answer session following the speakers’ prepared remarks. [Operator Instructions] I’ll now turn the call over to Elizabeth Besen, Investor Relations Manager for Apollo Investment Corporation.

Elizabeth Besen

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

are Chief Chief Hunt, Investment Officer. call Powell, Officer; Chief today’s and President Officer; on Howard Executive Widra, Tanner Financial Speaking and Greg like and today’s I’d everyone being are recorded. call advise to webcast that that that unauthorized prohibited. and note Investment is any any they of broadcast property Please Apollo the Corporation form in strictly are the about press this of release. available is Information call replay audio earnings in our call Harbor regarding like to your disclosure forward-looking our also the Safe attention I’d customary release in press information. to webcast forward-looking statements. and may call conference Today’s include

the You to that with statements at about Executive SEC website supplemental filings, a which information that affect our remind to obtain should or not most SEC Officer, I’d portfolio the to statements our unless this like visit turn filings please forward-looking the Howard we’ve call forward-looking do projections refer to as financial To our contains copies our www.apolloic.com. everyone required undertake over of for our Chief the risks our posted law. to we that as any to may our apply time, make. I’d package company’s website, We information performance. and like update on Widra. business adversely At financial also by well

Howard Widra

the portfolio, and the afternoon, followed by I'll begin by providing for review thank today's quarter. Good Elizabeth. repositioning joining a Thanks our call ongoing our an everyone you us for results progress, today. update of on

in will quarter then credit Tanner will greater market remarks, quality. investment the on results and our my Following update for review detail. financial review discuss an the environment, our provide activity Greg

to questions. the open then call will We

portfolio quarter. first active Origination and the to was rate update a very some with our presentation, our on senior were is today’s million to during reducing our exposure positions. continue We our commitments website. floating and loans, floating closing X.X our non-core we constructed this platform make standpoint, which to Apollo period, junior commitments Merx progress We an portfolio and rate of will June believe we AINV in slides increasing Direct corporate totaling new the capital challenging in revenue in be repositioning, corporate to quarters. $XXX while the loans. exposure From investor During to be call, will posted generate have Beginning successfully on we new navigated granular AINV’s lien the we good volume referring investment quality expect a believe has high of from billion diversified Merx all-in first loans. lien coming strong, higher able

exposure second to also make continue junior investments, shipping for reducing We included pay to down the quarter investments. outcome progress during our lien non-core exit our exposure reducing on the focused remain We capital our of a as while to remaining small investments. partial well to optimal Repayments from assets, one as an non-core shareholders. our and the ensuring

X.X quarter X.XX X.XX or lending modestly, income times of as $XX million. were solid with we Moving financial portfolio X.X%. to value times totaled the continues X.X per our XX% leverage The for $XX.XX, of net solid to investment $X.XX. fundings results, June, fundings range fundings, portfolio, share from was asset investment ended was for We The the by activity. of up offset times fundings the Net for excluding June and quarter. last which below quarter perform quarter up to our increase of mostly prepayment target end were driven at Gross to well. times. revolvers grew net the results by the corporate million, quarter leverage while delivered Net slightly $XXX increased

creative is and With discuss range, the we our to portfolio remain later, platform. and as cap environment our focus disciplined leverage process. operate capital need current and the the private grow given market credit and will target ability that in our flexible and lien within mid for and look of we ahead, selection As in we robust the are unique Tanner competitive, confident on nature our will very will first Apollo assets said, continue to tremendous

Turning to our distribution.

distributions quarter, call I'll has X, the distribution market the to of as on XX, environment of Tanner board over the XXXX. base per to $X.XX declared our per share. October and distribution of $X.XX shareholders record a to With XXXX turn that, For the a share, of supplemental decision. payable discuss investments and September Both are

Tanner Powell

recover policy, market high or with on bookings card to the corporate exceed the savings the and in and data sector in stock excess usage significant environment, economy Daily credit level. supportive more approach Howard. fiscal continues sector. pre spreads of vaccinations, the for tight restaurant prices Thanks, travel back continue the back to US household Beginning monetary and and pandemic credit

the the country, services as total $XXX.X we to will employment may in has spike issue cars, quarterly loan fly four second to The a there believe GDP, have years. backdrop June serve demand the of of reopening significant While likely some last billion, in retail the dining Amid prices the from strong strong as the investors. are earnings see associated to ongoing that in parts was our the that data highest reopening quarter the CLOs inflationary portfolio generally in from economy and an market be and inflation and LCD, continues in been of offset both companies. continue. pressures supply, volume a improvements recovered, the with on slower growth the Based other new

strong backdrop, as contributed strong Equity to activity borrower syndicated M&A in which pricing loan Secondary friendly terms. sponsors market, have deploy business, growing has a due return is Specific factors and a several all the returned to environment economic to of loan of to the to Private generally continue higher. number including, to pre-pandemic lending also our credit private robust a market conditions providers, move capital. middle of continued prices

more the seeking companies, a are of the As of upper end market middle solutions. the conditions, including syndicated result favorable

Moving to AINV’s activity. investment

X% corporate $XX.X XX% quarter million. leveraged of life XX average across XX% New strategy, XXX were spread new of and first all total average the our asset-based. were commitment points with for were and a X.X commitments loans, basis of these new new $XXX lending, commitments a By average were commitments leverage sciences weighted floating lien companies lending strategy, times. Consistent with of rate an weighted million for net

to include new strength to were our strength in enabled $XXX these LIBOR XX% million, and made the The fundings All the to investment totaling Merx. excluding overall of the the co were quarter Due exposure strong, market, market continue has also loan pursuant for and revolvers in liens. repayments at million, reduce Gross order. second revolvers floors commitments us our XXX to excluding Merx. totaled to

repayments have second million the million. the totaled two $XXX exit lien of the quarter included During four from quarters and repayments second lien $XX positions, past over

repayment million million. the Net $X for MC, one receive of million. of from also revolvers of investments the We totaled its fundings during repayments from $XX -- vessels. our shipping sale for In quarter $XX were net one the total,

to and market. Moving the overall beginning Merx with

restrictions. the with will demand for the optimistic of the that travel and rollout to improve continue vaccine travel the are ongoing of lifting air We

balance need we percentage their third be continue and world expect increasingly sheet important leasing market party to to to we operating an the to airlines will growing look the fleet, Additionally, assets. expect to see will finance of aircraft -- as

has generated continues Merx the seen investment, and we an our As pickup in source for have successfully to sector this period. aircraft has level sale the in from lease Specific market, to revenue believe to we leaseback challenging stabilized. notable recover, The fleet lessors. financing a of ABS transactions important our aircraft navigated

We our sales. long been term exposure aircraft leases or able that to have this remarket period during We've worked airlines have restructurings. through undergone with to

current schedule is well maturity Our lease staggered.

consisted balance aircraft, an Apollo years. aircraft stryder. platform Merx's focused sheet lease to on Merx's materially widebody age types, other value its growing continue one time. to has and fleet from geography, continues XX.X to the -- foreign business, servicing benefit primarily in the Merx Merx's markets. portfolio diversification. asset, June, average X.X to XX capital. of increased to portfolio aircraft, which includes age, XX and demand To portfolio and aircraft with Merx's air Additionally, maturity, aviation anticipated grow terms in of The Merx's seeking years, be of is At believe narrowbody lessee compares XX seek over an aircraft deploy Merx serving, means of towards own We lessors and a will skewed XX clear, of in portfolio. average aircraft both is portfolio not end own aircraft, opportunistically widely most its which fleet types for and maturity resilient. to countries two U.S. of of lessees favorably XX consists is Merx's fleet used be narrowbody existing

other benefit platform of in will Apollo exclusive for the overall owned growth Merx the the as by polyflon. servicer However, aviation nurture aircraft

the overall AINV to Turning portfolio.

had Our different billion a portfolio the in We XXX noncore value companies industries. June quarter XX $X.XX across investment portfolio XX% with of the representing the at assets end ended and of fair representing core assets X%. of

portfolio XX% represented on weighted corporate corporate end average of basis was the the lending assets last spread June, up lending XX% from of lien First the quarter. the portfolio, At XXX points.

remained represented the No weighted that, end to nonaccrual times corporate material times quarter. LIBOR status of or -- LIBOR. approximately lending reminder, is average were from lending were to quarter. declined the the on net X.XX XX% our played modest The removed in investments Investments attachment down well current on floor the no quarter at a average of made above weighted from this during order metrics, floating our -- quarter. of June, financial discuss to last the represented amendments. X.XX Amendment quarter portfolio corporate for X.X% years of the our assets call times, placed today's At the activity quarter. average of co-investment on As with down who the weighted the fair these the I $XX will from X% to nonaccrual the rate or past end at the the portfolio With The in quarter. leverage portfolio improvement both status now decline million over few point Greg, X.X investments from last the value. the X.X turn performance over continued declined portfolio. on credit for will The times of quality and reflects

Greg Hunt

quarter, lending no investment end March. On up corporate of quarter times was strategy on $X.X by the Tanner. attributable was net the paid Expenses at last the leverage during from quarter. reflecting million partially the in Beginning cost $XX.X investment interest income our flat was end the quarter. the $X page $X.XX. we $XX.X flat earnings fee activity up quarter. or The investment income on the quarter Dividend over lower yield XX Prepayment interest of Net prepayment income, from million, decline was of X.XX X.X% you, June, incentive with higher over income. The That to income essentially versus past offset the at quarter-over-quarter the Thank for was at down for supplement, loss there portfolio from Total was quarter. relatively essentially income six quarter. a fundings. quarter last yield from $XXX,XXX X.X% and disclose average $X.X quarter X.XX at the million end last was were Fee repayments weighted and income gain million, the higher of for for statement pace the million, by share fee operations. times of income the was June in per was AINV's and quarters. up

our mentioned, portfolio lending well. Howard to As corporate continues perform

million or our share, $X.XX and our share. loss oil quarter a lending the slight and per gas partially Merx had or gain The $X.X a a legacy losses of non assets $X of $X shipping. on non-core million million by on $X.XX had million or carbon portfolio core a During gain on offset a $X.XX legacy gain net gain $X.X had per free, corporate and legacy net per share. and included of investment and

the strong increase valuation As our investment plant. proprietary company's The is of $XX.XX of party recent or per portfolio was share in in a capture free an free. investment capture per chemical of $X.XX is attributable investment a $X.XX. the reminder, carbon a interest company's the raise at quarter storage. and increase to the the benefiting capital in technologies and of in $X.XX utilization carbon third was and in Carbon share the consists carbon carbon income result from NAV $X.XX cents June increase share over of net gain investment at X.X% or on net end free quarter,

up million to end maturity XX. dilutive sources. Regarding issued both notes, in quarter Despite we of the liquidity, improvement our in the it funding unsecured position $XXX believe extend to diversify strengthen our continues and of given on was investment continued prudent July X.X% quality these we impact July, our of the due portfolio, liquidity notes the

our revise addition, and we're grade stable affirmed July. rating in to investment In to negative pleased call the from outlook

during cost X $XX.XX of of the we at -- shares buybacks AINV an X, an purchased leaving at to total before of price $X future wanted first remind cost everyone. XX total purchases questions, for XXX,XXX price stock current to call million a average purchased a quarter additional briefly for under From of Regarding the is to July this And shares $XX.XX Board's the we quarter XXXX, average an approximately authorization. authorization $XXX,XXX, opening XX,XXX for million. August

amount over begin last fee portfolio total feature the to in the Given fee to return incentive partial we our in pay quarter and hurdle our in quarters, several expect the a structure the recovery The future net for September, and the as upon any, investment -- gains on income exact ending vary XXXX. quarter. losses timing as based level will if based the well and of

which in we we we to fees. begin quarters As offset on investments, the said higher incentive generate pay long-term from That confident to said incentive of over including help expect we impact our investment call, remain and earnings, trajectory Merx, income, fluctuate may revenue AINV quarters plan. the net the few next We certain our believe as from fees. last will

at As questions. This addition next distribution per and least prepared today. intend declare distribution supplemental mentioned to two for be operator, a call of last dividend the to the quarterly the $X.XX declared this an our quarterly quarters. $X.XX per to quarter, be please share, based share clear, To open distribution of a would remarks, we concludes and

Operator

And take go will Please our ahead. from Instructions] [Operator first Wells Finian question with Fargo. we O’Shea

is Your open. line

Finian O’Shea

Hi, everyone. Good afternoon.

A you on Howard demand you of us pent-up course, and Can question, demand sustainable private Just and of versus, level the for guess, origination credit? on much? your lot I guess rebound I this so thoughts is, outlook give a the forth. high how in shift know, for

Howard Widra

if activity standard. mean, versus historical Sure. been I the I -- don't know very I so robust has think,

there are So, say it said permanent period of seem higher for level. that at time. That it's it's are a a that some that will secular that -- can shift to to hard happening some elevated it like suggest things stay

do a to for just lot powder So, dry out one is there firms of equity deals.

elevated for So, that's likely to keep things one.

that some syndicated banks also and -- the the you there more credit from that combine there up that from be there's will higher like end this so shift different if for this also the That those is to continues continuing fact companies, said, both of And suggests secular what activity. pent with demand. also be the secular private to market, from provide market, both deals things,

quarter, I near expect lot it the term. through to that this the and So, I is a continue the certainly BDCs we and across and will mean, expectation be in from medium our it industry, in you've -- activity of the other seen some robust, think would

Finian O’Shea

Can also -- we're this that and generally, Very fun so can at that Apollo or at BDC stage. of, applicable is sort side, with you question sort give direct the high complex us at level capital lending, you. MidCap sort of, update you the level, well, give invest platform with market co-investing second the middle just forth the with on of an Thank

Howard Widra

and products. and of a origination been a whole transaction full actually array across large has -- direct of -- sort the It lot whole Sure. sort Apollo of the a of a the across pipelines we of volume, lot volume, mentioned business

I the has lender we be don't a real a lot at -- which capital that's creation asset clients. of There's amount the as those there -- And way lending. time, serve to estate business activity. of that's same based at to able our finance, So, good Apollo been

speak transactions before thing able be to for is of one about to of talked size all kinds. So, basically keys one execute we've to able different is the be at

of, from some our assets. allocations and continued significant MidCap continued side debt of SMAs, we've through of equity sort through some capital raises to the balance so sheets create insurance of through these and And capital on

is So, about, different is growth market these we capital sort which credit, the sum of at bit more the time generally cyclical lot a little sort could total be strategies. that a both. talked probably of fund of At the like to again, demanding, same secular, be, could Apollo of, of

And credit so, we benign environment. are in a

a it's because amount capital growth lot environment. And we in sort and without that's economy a very good that's, So, a of, favorable growth sectors, where of without are. many when of, of a the problems a just liquidity. of of you have pretty Obviously, headwind credit sort lot across a with

Finian O’Shea

for Very the well. Appreciate me. Thank color. That's you. all

Operator

our question from take Joseph next We'll ahead. Jefferies. go Please Kyle with

Your line open. is

Kyle Joseph

taking Hi. for kind my Thanks the of one for questions. really first Merx, Good Tanner guys. is I afternoon, guess, woods. of like sounds out of kind

growing Big uncertainty a of and form, be or whether talked a AI for You've give dividend remaining, sort recognizing going any give sense about us of revenues potential the but forward. Can lot there's income? you it interest also and magnitude us the

Howard Widra

is put So of those momentum in, about, of the mean, across through -- to really of early quarter, the been -- the let the sort quarters, a of And I have back right low of or of work cash Merx. the know, but we to get that the at the of, low all, I facilities over the, used few that of it's me line. not up you flow or, sort ballpark last sort debt debt down just earnings sort it. or sort first know, in pay as now, leases, capability the has, the earnings built aside income we also or crack And interest whole the earnings dividends. let's you that that the or of like, last that the talked or sort XX investment, second millions take for a think,

the be So so that available going for And most expectation of cash. building again, available be will is right? not for distribution, that, because, up

we million, per know, of the debt. is low and right have $XXX now been in You in has our investment quarter. pays the fours paying in that And

expected is it come through would and there. dividend know, You rest income the

debt we be we've and you vastly make And made so as reason. But equity? where view always an know, right that's to of for that's, a more like, you sense sort something now. make as of less Could other of some that's if Possibly, restructured to that it shouldn't are it, different. said,

You know, Merx. the income coming off

the you component terms In pretty know Historically, -- steady it, that into per from was million to producing I income predictable. go debt quarter, to expect part, contractual. we net was But in where is closet of use it levels near-term which exactly. over on, medium-term. was can't want the most it predict it would this just X.X capital. of moving we glitch depends for It and towards

Kyle Joseph

sense we evaluating see on it. portfolio company how you know, look as kind of us you is in you over XXXX COVID really But portfolio were sure performance terms and of comps? came board, EBITDA That's portfolio then, or just a non-accruals I'm performance, laps company. And you're the unique growth No. It helpful. of it's evolving, factoring the some in a and XXXX of all can And like, revenue the in the that the stable. recognize depending I performance I for, terms of appreciate levels how give comps, growth. in of terms bit down leverage in credit year

Greg Hunt

economic in Keep quarter are at these assume, large really Yeah. Kyle, that March fundamentals. and And I XXXX. mind valuations getting in by Sure. underlying the you're the

portion you're that against COVID competing was so And affected. a clearly only

there certain of large how obviously first for quarter where that this the rubber in And probably is terms you're will whether or risk actually not indeed, strength. the respect, of is the hope quarter, And part we the level are we've roughly transitory a pressures. inflationary done very had meets just by businesses. concerning, is the creating LTV. And of just -- it so you is market, We've feel ability stabilization, is infringed pressures the sort The in because seen the of debate getting repay at right. about what going to XX% certainly think we've road, right. We in copying risk, lien we what not? drives a ultimately in against if be really to economic some of our way first The that, think be equation seen -- non-COVID our inflationary in that time you a I job

question, over as about economy. hear within seeing that, of corporate lot on strength your side. leverage fundamental some book of But so, consistent what that that we're down, go economic strong to with not $X underlying broader to to due to And our just definitely strength, overall the larger fundamental you And the a concerned $X.X performance. sort roughly and portfolio across speaks billion to deleveraging strength,

Kyle Joseph

Got Thanks it. answer. a That's helpful really lot.

Operator

Instructions] [Operator from James. with Matt Tjaden question ahead. our take we'll Please Raymond And go next

Matt Tjaden

Hey, afternoon. questions. you taking appreciate I my all,

Merx. Has me, in cases it sat US Delta the months COVID recovery kind variant, one on we and has the up slowed of where First three ago? of versus Merx maybe following the rise the for in

Howard Widra

on markets the to say to people mention this things question to the into Matt. the of that's provide and heavily. activity, back alongside change. did I looking to too market. of leaseback very in mention at sale in is still has was are the contributed increase of your -- made Yeah. it, the Yeah. that exactly very, the very something helped some But is I reemergence one the helped that prepared that the in our is an strength everyone been Certainly, financing the to wouldn't judge we scrutinizing remarks, there, changed and has things has the would one that's the be of say, market something meaningful not that's We It it's Obviously, early and going never margin, cognizant of it that is but whether a Delta recovery variant linear. outlook. is

were think, case. the that your to what it's in too that's say, And specific cognizant manage linear we’d never or going Delta to I we question, to any how was certainly still business we early be this anticipated. variant, So not

We the are financial for sign of ABS as reemergence the and of and market by industry. the sale the activity the a markets good repairing level encouraged leaseback or notably very

Matt Tjaden

for helpful. a Got of of the higher it. one. kind debt of peers your Last balance cost versus more high-level shareholder me, does one, That's From AINV currently? perspective leverage how target to returns, unsecured

Howard Widra

How just do saying, of one the balance I'm questions. transfer we --

You're asking, how do we take on this debt generate? at to this cost, given the returns we want

Matt Tjaden

sir. Yes,

Howard Widra

this, announced Well, certainly a risk priced I the well of will this But there constituencies, offering felt interest and say was for we very investors, that felt the constituencies. of was equity our our like overpriced we relative peers. lot from versus like all our also

equity to or cost back holders the to have you we going to sort get holders, a senior want investors get, agencies and you sort lot train of when rating your of – issue on like down. Our like bring of a debt able be asked, debt again, it's are – to of

drive, order we the to performing sort consistent down how level in ROEs So of driving what of get know, we to long-term reestablish with appetite the who space, familiar did focused much the quality We name. our was holders, so a issuance in the to the want to investors, a they ROE. have X% sort the portfolio can on that that those big very bring of is is small cost you with

the great it's probably So this quarter. most question question, apt a

down It's that And was or thing the do. it's the an. it pay and X.X%. in of it we twos. bite the know, is you gives was size $XXX we way, by know, right which the like million strategic like, you to And also, felt obviously, us know, a strategic benefit it enough flexibility revolver You

So those extend redeemed that's we think ways thought which does that's Greg, road. did when our months more existing But expensive. – of debt, down cost necessary bonds, XX, it beyond Obviously, just are a at capital focused the But bringing of get the a a look little like financial overall on it when this XX loss. you out and step structure, step. our long-term we're down sort was I

Matt Tjaden

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

Operator

will be management That remarks. questions. back any now I call for further no closing the appears to to turn

Howard Widra

Thank your to calling of feel you, and on a have in thanks, us, any time questions. us. Have to day. of today everybody any if and behalf of thanks for We good free reach today all for you out

Operator

And you. your this concludes Thank participation. today's program. for you Thank

may disconnect time. any at You

MidCap Financial Investment (MFIC) 6 Aug 212022 Q1 Earnings call transcript