Apollo BDC execs tout increased first lien loan exposure

The mid-market investment vehicle began its shift away from more arcane investments to traditional corporate term loans.

Apollo Investment Corporation (AINV) is on track with a strategic shift it announced two years ago, according to third-quarter earnings results.

The Apollo Global Management-affiliated business development company announced in its 2016 second-quarter earnings call that the vehicle wanted to shift its strategy to “traditional corporate loans”. The vehicle was to focus more on senior secured loans with a lower risk profile while diminishing its stake in real assets such as aviation and shipping.

The BDC made a strong push in that direction for the three months ending on 30 September. The vehicle invested $153 million during the quarter – 97 percent of which was in first lien loans. All were floating-rate loans.

AINV also reported that the yield on these loans is 9.5 percent. Since 2016, 81 percent of the loans the vehicle has invested in have been corporate loans aligned with the current strategy.

These investments shift the BDC’s total investment portfolio makeup to 57 percent first lien loans, with less than 5 percent unsecured debt. The overall yield was reported at 10.7 percent.

“Although the reduction in our minimum asset coverage ratio is not yet effective, nearly all of our deployment during the quarter was consistent with a reduced risk profile,” AINV president and chief investment officer Tanner Powell said during the earnings call.

The vehicle’s net asset value per share is $6.47, consistent with Q2. ANIV currently oversees $2.39 billion in total assets.

Apollo Global Management mentioned in a separate earnings call that it had 1.7 percent gross returns for its credit arm – of which AINV is a part – that oversees $183 billion in assets under management.

The firm’s Apollo Structured Credit Recovery Fund IV has raised $2.2 billion so far and is expected to close by the end of year, meet its $2.5 billion target and be twice as large as Fund III. The Apollo Hybrid Value Fund, which will invest in both debt and equity, has a target size of $3 billion and completed its first two deals this quarter.

It was also mentioned on the call that Apollo is interested in acquiring a larger stake in infrastructure equity and debt. “Apollo brings a very attractive skill set to that space,” said co-president of the firm Scott Kleinman.

Apollo is a New York-based investment firm that currently has $270.2 billion in assets under management.