Apollo BDC battles energy losses with share buybacks

Management of the Apollo Investment Corporation has so far bought back $21.2 million of shares through its $50 million stock repurchase programme, at a time when the BDC has been posting losses on the back of struggling oil & gas investments.

Apollo Investment Corporation (AINV), a BDC, has deployed about half of its share repurchase programme to help mitigate the impact on shareholders of losses relating to the lender’s oil and gas exposure. 

Speaking on the BDC’s earnings call, management said they’ve bought back about 3.3 million shares for a total of $21.2 million as part of a $50 million buyback programme.

“Assuming the price of our stocks stays at current levels relative to net asset value (NAV), we intend to continue repurchasing in the current quarter as part of our announced plan,” said chief executive Jim Zelter speaking on the BDC’s earnings call. 

The BDC’s price to NAV was 0.7x as of Friday (6 November). Zelter said NAV declined by 2.2 percent per share to $7.83 in the quarter. The drop was primarily driven by mark-downs on Apollo’s oil & gas investments. AINV’s net investment income came in at $49.6 million for the quarter, down from $65.7 million in the third quarter last year. Assets also declined, hitting $3.3 billion at the end of the third quarter compared to $3.6 billion at the same time 12 months earlier.

The BDC’s management said that aside from energy concerns, generally challenging market conditions have made the firm more cautious on new investments. The BDC made loans worth $204 million to four new companies and nine existing borrowers in the quarter. Exits amounted to $280 million, of which $80 million were sales with repayments making up the rest.

“The September quarter was marked by heightened volatility due to concerns with global growth and uncertainty about Federal Reserve policy. Leverage loan issuance declined quarter-over quarter and year-over-year,” said chief investment officer Ted Goldthorpe. “Slower CLO issuance and retail fund outflows contributed to higher clearing yields and lower loan prices.” 

Goldthorpe noted that high-yield bond spreads increased 156 basis points based on JPMorgan’s high-yield index and leveraged loan spreads increased 72 basis points based on the bank’s leveraged loan index. And the middle-market wasn’t insulated from these headwinds. “With this backdrop, sponsors have become more cautious and our origination activity was somewhat muted,” Goldthorpe said.

The BDC’s oil and gas exposure amounted to 15 percent or about $480 million, as of 30 September. The Apollo vehicle made no new oil & gas investments in the quarter and Goldthorpe noted 82 percent of the oil and gas investments were in secured debt. Although the sector has been challenged lately, Apollo management believes in the long-term prospects of the industry, the executives said.

The Apollo BDC is housed within Apollo Global Management, one of the largest global alternative investment firms. The New York-headquartered firm has $113 billion of its $162 billion in assets in credit investments. The whole firm posted positive results in the third quarter driven primarily by an increase in the value of Athene, an insurance holding company controlled by Apollo.