Q4 2021 Apollo Investment Corp Earnings Call
Good afternoon and welcome to.
The Apollo investment Corporation's earnings Conference call for the period ended March 31 of 2021 at this time all participants have been placed in a listen only mode. The call will be open for question and answer session. Following the speakers prepared remarks.
To ask the question during that time simply press star 1 on your telephone keypad. If you would like to withdraw your question press the pound key.
Now I'll turn the call over to Elizabeth Besen Investor Relations manager for Apollo Investment Corp.
Thank you operator, and thank you everyone for joining us today speaking on today's call are Howard <unk>, Chief Executive Officer, Tanner Powell, President and Chief Investment Officer, and Greg Hunt Chief Financial Officer.
I'd like to advise everyone that today's call and webcast are being recorded for Dan.
For the property of Apollo investment Corporation, and that any unauthorized broadcast in any form is strictly prohibited information about the audio replay of this call is available in our earnings press release.
I'd also like to call your attention to the customary safe Harbor disclosure on our press release regarding forward looking information today's conference call and webcast may include forward looking statements forward looking statements involve risks and uncertainties, including but not limited to EBITDA as to our future results of our business prospects and the prospects of our portfolio of companies you should refer to our most recent filings with the SEC.
T C for risks that are part of our business and that may adversely affect any forward looking statements. We make we do not undertake to update our forward looking statements or projections for unless required by law to obtain copies of our SEC filings. Please visit the website at www Dot Apollo IC Dot com and.
I also like to remind everyone that was supposed to the supplemental financial information package on our website, which contains information about the portfolio as well as the Companys financial performance at this time I'd like to turn the call over to our Chief Executive Officer Howard Winter.
Thanks, Elizabeth Good afternoon, and thank you everybody for joining today I'll begin today's call with a few thoughts about how the ANZ has performed throughout the pandemic followed by an overview of our results for the quarter. Following my remarks, Ken will discuss the market environment for a review of our investment activity for the quarter and provide an update on the credit credit quality.
He will then review our financial results in greater detail on and provide an update on our liquidity position. We will then open the call for questions. During today's call, we will be referring to some of the slides on our investor presentation, which is posted on our website.
Given that it's been a little over a year of since the initial volatility from the pandemic I'd like to begin today's call with a few thoughts about how AI envy has successfully navigated this challenging period first our corporate lending portfolio continues to perform well and has recovered the vast majority of all of the unrealized losses recording during the March 2020 quarter, given the stable credit metrics of our port.
Folio of companies. We believe there is potential for some additional recovery in our corporate lending portfolio. We believe the strong performance validates our investment strategy and our ability to underwrite as well as improved market conditions.
We significantly reduced net leverage from its high a year ago without being forced to sell assets or issue of dilutive equity by being patient and with normal course repayments and ease of net leverage is now slightly below its target range. As we look ahead, we are confident in our ability to grow our portfolio and operating within our target leverage range given the tremendous need for <unk>.
8 of it and flexible private capital and the unique and robust nature of the Apollo Midcap platform with that said as Panna will discuss later the current market environment is competitive and we will remain disciplined in our credit selection process.
Moving to our financial results, we delivered solid results for the quarter net investment income for the March quarter was 39 cents, which reflects no incentive fee being crude during the quarter given the total return hurdle and our fee structure.
Net investment income exceeded the base in supplemental distribution recorded during the period.
We ended the quarter with net asset value per share of $15.88 of 29 cents per 1.9% quarter over quarter. The increase was driven by net gains across the portfolio, including the continued recovery of our corporate lending portfolio due to a combination of an improved portfolio of company performance as well on spread tightening.
We also saw continued stabilization of our investment in Merck's, our aircraft leasing portfolio of company, which had a slight net unrealized gain and we also had a net unrealized gain on our non core portfolio during the period.
Moving to investment activity originations returned to more normal level for a seasonally low quarter as expected we saw strong repayment activity, which resulted in negative portfolio growth during the period.
Net leverage declined to 1.36 times at the end of March below our target range of 1 point for the 1.6 times, we remain committed to our disciplined approach to investing and expect to steadily return to our target leverage range, but may operate below the target range of in the near term.
Looking ahead to fiscal year 2022, we will continue to seek to optimize and derisk, our portfolio and rotate out of our remaining non core on second lien assets and into core assets.
Turning to our distribution for the quarter of the board has declared of base distribution of 31 cents per share in the supplemental distribution of 5 cents per share. Both distributions are payable on July 7.2021 to shareholders of record as of June 17th of 'twenty 'twenty 1.
With that I'll turn the call over to Tanner to discuss the market environment and our investment activity.
Thanks, Howard beginning with the market environment. The U S economy continues to strengthen due to the significant fiscal and monetary relief and the continued rollout of the vaccine specific to the direct lending market given the improved economic backdrop, we are seeing a pickup in sponsor activity, but that said competition for attractive new investments remains elevated due to the <unk>.
The repayment activity and a strong syndicated loan market, which is offering bar borrowers, including the upper end of the middle market attractive financing.
As a result pricing leverage in terms of generally returned to pre pandemic levels, particularly for companies with little to no impact from the COVID-19 pandemic.
Moving to AI and these investment activity, new corporate lending commitments for the quarter were $106 million across 11 companies for an average new commitment of $9.6 million consistent with our strategy. All of these new commitments were first lien floating rate loans with a weighted average spread of 690 basis points and a weighted average net loss.
Average of $4.2 types of all of these new commitments include LIBOR floors in 91% were made pursuant to our co investment order.
Gross fundings for the quarter totaled $116 million, excluding revolvers and merck's.
Repayments totaled $172 million, excluding revolvers and merck's net fundings for revolvers totaled 13 million in merck's repaid $9.5 million to a I N V on the net basis repaint.
Repayments included our 22 million second lien position in Hayward net repayments for $53 million in total.
I will now provide an update of our post quarter end investment activity from April 1st to May 18th we made new commitments of approximately $193 million all of which were.
Oh, all of which were first lien corporate loans gross fundings have totaled 157 million sales and repayments of totaled $149 million, including 57 million of second lien corporate lending position.
Moving to merck's, while there are still many challenges facing the aviation industry, we continue to see of slow, but steady recovery in air traffic and many reasons regions. We're optimistic the demand for air travel will continue to grow with the ongoing rollout of the vaccine and lifting of travel restrictions notwithstanding the current challenges we believe the.
Aircraft leasing market will continue to be an important and growing percentage of the world fleet as airlines increasingly look at third party balance sheets to finance their operating assets.
<unk> says remarketed most of its aircraft that are due to come off lease in 2021, either via extensions with existing lessees or re leasing to other airlines on the long term leases of the 7 aircraft leases that are maturing in 2021 extensions for for have already been executed 1 is in the process of.
Being finalized and 1 is currently under negotiation for extension of our sale.
<unk> is actively remarketing the remaining 1 aircraft.
In addition, during the during the quarter 1 aircrafts in Merck's is owned fleet was sold above its carrying value during the period Merck's paid $14.3 million to AI in the consisting of $4.8 million in interest payment and of $9.5 million return of capital. Additionally, we had a net game of gain.
Of approximately 500000 on our investment in <unk>, which reflects the stabilization of the business. We believe Mercury is fleet compares favorably with other major lessors in terms of asset geography age maturity and lessee diversification Marxist fleet of skewed towards the most widely used here types of aircraft, which means demand.
For merchants fleet is anticipated to be resilient.
<unk> primarily consists of narrow body aircraft, serving both U S and foreign markets turning to the overall AI in the portfolio our investment portfolio had a fair value of 2.4 of 5 billion at the end of March across 135 companies in 25 industries, we ended the quarter with core ASP.
<unk>, representing 92 per cent of the portfolio of non core assets representing 8%.
First lien assets represented 87% of the corporate lending portfolio the weighted average spread on the corporate lending portfolio was 628 basis points. As a reminder of the weighted average LIBOR floor on our floating rate investments is approximately 1% well above today's current LIBOR.
The weighted average net leverage was 5.3 times and the weighted average attachment point was <unk> 6 times and investments made pursuant to our co investment order represented 80% of corporate lending portfolio at the end of the quarter.
In may the activity remained modest this quarter with no material amendments.
No investments were placed on or removed from non accrual status during the quarter at the end of March investments on non accrual status represented 34 million of 1.4% of the portfolio at fair value with that I will now turn the call over to Greg who will discuss the financial performance for the quarter.
Thank you Tanner and good afternoon, everyone before I begin I'd like to remind everyone that merck's financial statements are included as an exhibit to our 10-K that we filed today.
Beginning with on AI and the statement of operations total investment income.
The $58 million for the quarter, reflecting lower interest income lower dividend income and lower fee income partially offset.
By greater prepayment income.
The client and the interest income was attributable on somewhat to certain nonrecurring items on in the December quarter as well of the smaller average portfolio due to deleveraging.
The income declined to approximately 700000 for the quarter down from $1.2 million prepayment income was $3.3 million compared to $2.4 million last quarter dividend income was $300000 compared to $1.1 billion last quarter the.
The weighted average yield at cost on the corporate lending portfolio was 7.8% unchanged quarter over quarter expenses for the quarter were $25.2 million.
Down.
900000 quarter over quarter, 2 of the lower G&A lower management fees and interest expense. This was there was no incentive paid during the quarter net investment income per share.
For the quarter was 39 net leverage at the end of March was 136 times down from 143 times at the end of December during the $53 million of net sales of repayments.
During the quarter.
The increase of net assets was driven by <unk>.
$16.8 million of 26 of net gain on the portfolio and $2.1 million or 3.
The share of retained earnings as net investment income was in excess of the distribution.
Recorded during the period.
On page 16 in the earnings supplement we have broken out the net gain or loss by strategy over the past 5 quarters as Howard mentioned, our corporate lending portfolio has covered the vast majority of the unrealized losses recorded during the year ago quarter.
During the quarter ended March 31, 2021 of our corporate lending book had a gain of $12.4 million or <unk> 19 per share and Merck had a gain of 500000 of 1 cents per share non core and legacy assets had a gain of $3.9 million of <unk> per share.
From our oil and gas and renewable investments NAV per share at the end of March was 15.
<unk> 88, a 1.9% on increased quarter over quarter.
Moving to liquidity given the reduction of day I N B's net leverage and improved quality of our investment portfolio. Our liquidity position continues to strengthen at the end of the quarter. We had 1 for $7 billion of debt outstanding a decrease of $47 million quarter over quarter at the end of March we had 360.
Oh of immediately available liquidity of $330 million of additional capacity under the facility our liquidity position provides us with strong coverage of our unfunded commitments as you can see on page 18 in the earnings supplement of the $264 million of unfunded revolver and.
Bridge loan commitments outstanding at the end of the quarter.
Hmm.
$151 billion were available to borrowers and $113 million were not available as far as availability is based upon borrowing base limitations and the other covenants.
There were no stock repurchases during the quarter, but we continue to evaluate repurchasing securities over time.
Earnings on.
Outlook.
Before opening the call to questions. We wanted to briefly discuss the outlook for our earnings and distribution given the total hurdle feature in our fee structure and the net losses recorded during the look back period, we have not paid an incentive fee since the quarter ended December 2019.
Given the significant recovery in the portfolio over the.
Past several quarters.
Wanted to make sure everyone is aware that we may begin paying a partial incentive fee in the quarter ending September 2021.
The exact timing and amount may vary based upon future gains and losses on as.
As well as the level of net investment income.
As you May recall on the conference call last August we said that we believe a 31 base distribution reflects a conservative estimate of the long term earnings power of the our core portfolio and that the supplemental distributions.
It would be a function of the redeployment of non earning and lower yielding assets from non core and legacy assets as well as an increase in yield.
<unk> from our Merck's investment we remain.
Constructive on each of these drivers, although we expect some of the benefits of these drivers will occur. After we started accruing incentive fees as a result net investment income may fluctuate over the next few quarters as we continue to reposition out of non core and legacy assets and grow the portfolio.
Within our target leverage range.
Range that said, we currently intend to declare a quarterly distribution of 31 cents and of quarterly supplemental distribution of <unk> <unk> for the next 4 quarters. This.
This concludes our remarks today.
And operator, please open the call to questions.
As a reminder to ask a question you will need the press star 1 on your telephone.
Your question press the pound key.
Standby, while we compile the Q&A roster.
Your first question is from Kyle Joseph with Jefferies.
Hey, good afternoon, and thanks for having me on.
First question I think Greg you talked about dividend income in line.
A little light any any onetime issues, there or is that a fair run rate going forward.
On that I think the run rate is is between there and of million, it's a function of on.
On.
Our shipping investments at this point on.
And on just the cash flow that's coming out of those so I would say.
The run rate will be closer to a million going forward.
Got it helpful. Thanks.
And then for Tanner.
On the portfolio performance, obviously, the non accruals are stable in the quarter could you just give us a sense for revenue and EBITDA growth and how does how that's been trending, particularly as we start to comp against Covid impacted months.
Yeah.
Absolutely Kyle so.
So first of all.
So going forward you know what.
What's in the the LTM so to speak does not have those does easy comps yet and then you're 1 of the 1 caveat is not surprisingly given the focus on acquisitions and roll ups within the sponsor community.
Parison are somewhat difficult, but whether looking at what we're seeing real time as well as also what we experienced in kind of fourth quarter numbers, which are formed the basis for the valuations as of $3.31 did the outlook has been very encouraging.
On an organic basis.
In the mid mid single digit very very easily haven't started seeing much effect on the margin side.
Which has gotten has certainly gotten a lot of press and even more impactful. If you. If you look at and I think this is also been.
Broadcast more broadly is confidence.
Oh confidence management team confidence in <unk>.
Willingness to spend has seen a noticeable uptick in recent months and I think that will.
Bear out and continued outperformance from an operating standpoint.
Got it very helpful. Thanks for answering my questions.
Your next question is from the Casey Alexander with Compass point.
Yeah.
Hi, good afternoon.
I have a couple of questions 1.
Is.
In relation to this is a couple of questions in relation to merck's, how many of the planes. If any are currently off lease and how many lease expirations do you have in 2021, and how does the market look for releasing.
Of those assets.
And then secondly, the acquisition of fly leasing during this last quarter.
How does that.
Improve in any way the price discovery of the market for commercial aircraft or inform you as to the demand for commercial aircraft.
Yes sure.
I'll take the first stab at that and apologies if I went.
On a pretty quickly in my prepared remarks, we tried to give some of that debt detail. Let me try to try to go back to it.
And then Casey of course, please correct me if I Havent Havent hit everything that you asked there.
In terms of of 2021 and the lease explorations.
That that that that news is is good and we.
We have of the 7 that were maturing in 2021, we've already executed for extensions ones in the process ones in.
In negotiation and then we're actively remarketing the the 1 other in terms of <unk>.
Strictly off lease we have we have 2 planes that are off lease and then we have a handful of.
That are in a bankruptcy proceeding.
Or or or or.
Are currently affected by broader broader restructuring, but what I would say on on the on that account is the.
And then again going back to the prepared remarks, 2 of certain extent we've.
We've definitely seen stabilization in our ability to deal with those those lease maturities is reflective of kind of growing confidence and improving conditions.
And the market environment and then the second part of your question.
Casey is.
Fly leasing.
Which are you broadly speaking when you see things transact that usually is a good thing.
In terms of peoples outlook on the on the future and liquidity in the market you fly leasing.
And our portfolio.
There is limited.
Comparisons available.
Obviously, the leasing was was it was a public company.
And.
The multiple is tough to get at from the outside.
Without the benefit of of what what was exactly in book value.
The leasing also skewed even though it's a similar size to merck's in terms of total planes. It skews a little bit more heavily to took the wide body, which we've talked a lot about we think that merck's is.
You outperformed peers in as much as much lower wide body.
The concentration so I think its I think its good that youre starting to see things transact even more so than.
The the fly leasing.
On transaction the ability for the sale leaseback market to get to get up and running and then and then the hard data with.
TSA hitting hitting highs in terms of passenger volumes as.
As well as.
The vaccine rollout.
Corroborating the improving marketplace.
And so sorry for that make sure I hit Oh go ahead, sorry, you got on a hey, you got a mall and B. We would agree with you that it's extremely difficult to evaluate commercial aircraft looking at it from the outside because that's what we're trying to do with the snow.
No.
My next question is Greg. Thank you for the update on the partial resumption of the incentive fee because it looks like that's moved up a quarter with the this quarter's gains.
And I'm, just kind of and the.
Some of your statement that youre going to maintain the 31 cents per share and the <unk> per share for the next 4 quarters.
It's interesting in the the math of it suggests that when you fully resume the incentive fee. Your net investment income based upon the weighted average yield of the portfolio would be somewhat below 36 tenths of share and so.
But is is your statement about the distribution plus the supplemental.
How do you come about covering that is it by getting back up into the target leverage ratio is at some asset mix shift.
Just curious because.
Currently looking at the math, it's not quite there so.
Yeah, Casey we're all on.
I'll take a shot at that so basically you know the the R. R. R.
Our mark or our modeling goal for the business.
Is to be in our target leverage range, which for portfolio that debt is you know Vasily in the assets that we targeted you know with maybe just the occasional exceptions little sort of equity tag Alongs, we do or some other opportunistic you know things. We think are are are accretive.
But you know having a portfolio of our target leverage range produces enough money to cover both of the dividend in the supplemental if we are you know if over time, we deploy you know we are able to sort of recover.
The cash from our non core assets are and frankly, not even you know because right now of the non core assets are generating about a 4 of 5% return.
So as we generate cash off those assets and redeploy them into our current yield and we get merck's back to a level of of producing income not to where it was before but to sort of a new moderated level. We can generate enough income after the incentive fee to cover that dividend.
And so the reason why we wanted to clarify this 31 and probably for the next 4 quarters is that the timing of that redeployment, whether it's getting to our target leverage which we have more control over or it's getting some of the continuing to get some of that redeployment on work or you know starting to generate the equity returns off of work that we did historic.
We may not match to the timing of the incentive fee.
I think youre right. It doesn't show that it works, but it isn't product mix. It isn't all of the sudden go into a barbell of blood approach and you know doing higher yielding stuff. It's just the the you know continuing all of these drivers.
On that are incrementally get us to the level that we can the weekend.
The model works does that make sense.
Yes, it does and just to clarify when I was talking about changing the asset mix I was thinking more of out of equity into interest, earning assets and thinking about moving.
To greater risk investment for all of that that is right. So then you are right because you know the equity we have all of these noncore assets right on the like other than the little cats and dogs for the big equity positions are the non core assets that arent producing something.
So that's correct alright, great. Thank you.
Thank you Howard Thank you very much for taking my questions I appreciate it.
Your next question is for Emerson and O'shea with Wells Fargo Securities.
Yeah.
Hi, everyone. Good afternoon.
For I guess, a couple of follow on there.
10 of our first with the the lease renegotiations that youre going through I think you've said theres, 7 or so and theyre going well.
How did the rates.
On that you are negotiating compare to the the portfolio and your.
The newly constructed.
Return for.
Merck's.
Yes.
So a couple of things there so the.
When you're undertaking of lease negotiation there is theres a number of different factors other than just just headline rate and then Furthermore, when we are releasing their day there is.
And in all cases, a reduction from what that initial rate rate would otherwise be think of it in terms of.
When the when our leases first sign of plants brand new its not the lease rate that it will command at first lease maturity 10 years, hence and so if I understood. Your question the what were able to realize now.
Is in line with our modified expectations within our valuation, but clearly at a level lower than what we would have otherwise seen.
If we had all been so fortunate as to never have seen a COVID-19.
Well, let me let me just try to jump in for a second of so first of all of it like all of the 7 that we talked about for already released and 2 were sort of in advance negotiations. So it's not the 7 so so they had been released so we have a sense of it and so what tender was saying like when we when you know the value of each of the assets is based on both the lease they haven't.
And the value of the plane when the leases over and so when you know when you release that plane, obviously as tenders that it's not it doesn't get at least for as much as it did 5 years before when the when the other lease was signed but when you sign a new lease you know that has value of that cash flow stream has value of your push.
All of the residual off to the.
And so what Tanner is saying is that these re leasing that we have done have a half.
Have basically supported the value that we've had on those planes post sort of like you know the correction we had in March when the when there was like you know on overall write down of Merck's in other words like it's supporting that value, which is why you know and then so.
So that's the answer on the evaluation and then the other part of it is the cash flow the cash flow off of Merck's and in.
Historical years over the 3 or 4 of 5 years prior to the Covid was you know was in something like the $10 million to $12 million of quarter range right. Now from an income perspective, we had a return of capital. It's in about the $5 million quarter range in order for us to sort of have our earnings model work, we need it.
To be in between those 2 numbers in terms of earning going forward. So we don't need it to get back to the levels. It was previously we needed to get back to the levels that we expect to get to when these leases are effectively.
Producing cash for the paying now, but they're paying down debt and our securitization. So I. So the answer is that the valuation as of now the leases that we have resigned a support the valuations that we had you know when we sort of like took into account that the you know the correction.
Occurred that could always change obviously, but so far it does that the tenant did I say anything incorrect there no dilutive.
Yep.
Thank you for that and that was the that was the the question. So I appreciate that and then just a follow on the the legacy I think in your prepared remarks, Howard did you say.
On the expected rotation or hopeful of rotation was was by 2022 or sometime in 2022, and then can you just expand on on that that time frame, where you are in the process and any of it.
Helpful Information you could provide the surround around that legacy rotation. Thank you.
I don't think I I put in I think I referenced the 2022.
Fiscal year, because that can current you know for us.
Okay.
I don't think I'd put a date on that.
Because we've always had as soon as possible that said you know.
There's really you know.
Effectively 3 significant sort of buckets 1 is the the.
The 2 shipping investments, we have and we are actively looking you know appropriately to divest parts of the parts of those investment so individuals' shifts as we can and you know we expect to have progress even.
You know odd this quarter next quarter for for some amount of that so we're making progress on the oil and gas investment really spotted hawk is the 1 of size.
And and you know we are sort of now that's you know oil prices have picked up and there is some sense of the theres some there.
The ability is too strong a word there's some possibility of sort of a constructive transactions, we're going to be as aggressive as we can there to sort of ex of that but we don't have anything and then the last is carbon free which is you know, we which has some really good developments there and you know that that is that's an all equity you know debt investment that had been converted on equity.
But that's all equity and as you know.
A carbon.
Fishing.
Business that has a lot of demand you know, obviously, where the world's going right now and so we hope that 1 over the next year can have some real significant positive things happen to it it's too early to.
Certainly put that money in the bank, but so it's those 3 so it's gonna it's lumpy. So unfortunately, we kept the timing on it we've continued to want to be you know.
You know not not do anything on the fire sale basis.
But we would hope at least 1 of those buckets would have a significant movement.
In the in the next.
During this time period, we're talking about it.
Shoot for all of them, but certainly at least 1 of them.
That really moves the needle from an earnings perspective any of that market.
Okay, great. Thank you.
Your next question is from Melissa Wedel with JP.
J P Morgan.
Good afternoon, everyone. I appreciate you taking my questions.
I'm curious about some of the confidence.
If any of that you saw on revolvers during the March quarter.
Wondering if there's anything you can share with us about.
Sort of problem.
Well in terms of the use of funds maybe across the portfolio of companies that are drawing down.
So just let me I'm going to give that the tenor on the stuff, but you know our revolver draw of numbers look higher than you know.
Then they might be on the leverage line only portfolio because we have a bunch of asset base of revolvers. So those fund up and fund down.
In the in the normal course, because there you know the effectively money sweeps to us. So I don't you know I think on the leveraged loan basis. There were not significant revolver draws I don't know 10, or if you have those numbers on the on the cash flow side.
Yeah, Yeah, sorry, I don't I don't have the specific number but conceptually youre spot on Howard there are number is all of the different knowing to those those those revolvers that debt debt that.
Howard alluded to but but.
Conceptually you definitely have of Dun.
Dynamic wherein understandably companies kind.
Kind of manage down inventory in in the last year.
And that on the margin now too.
Business picks up we are seeing a need for liquidity.
And in the near term, which is the good kind of neat it's less cash flow problems and more investment in working capital and I think that would that.
That would rhyme with or corroborate the statements we made about the.
The broader broader confidence and and the kind of fundamentals.
Picking up.
Okay, great. Thank you.
Yeah.
And as a reminder, if you would like to ask a question at this time of simply press Star then the number 1 on your telephone keypad. Your next question is from Robert Dodd with Raymond James.
Hi, guys..1 1 quick housekeeping, 1 if I can make on on the the.
Maintaining the 5 cents per quarter for the next 4 quarters does that include the 1 that you announced today. So it's 3 after the issuance for it.
For the future.
Yeah.
No.
It's for it's for including the 1 that we announced today.
Okay fair enough.
Got it and then just on <unk> again, but not least the deals if I can.
Looking looking at the financials for so many of it seems like.
Revenue was barely down.
On the expenses.
The pulp many of those of mainly noncash asset.
The impairment.
Allowance for credit losses, so would it have on the asset value side everything you said.
The next week.
So you're pretty comfortable with the asset values.
Within that portfolio now and presumably.
On the credit impairment has been taken so would it be fair to say that you don't expect those items that certainly at the level. They did to the curve of any kind of that scale and if that doesn't happen.
It looks like they're going to be profitable very soon.
Cash flow doesn't seem to be the problem. So could we expect dividend sooner rather than later on.
Yes, I'm happy to take it to take a stab at part of that and then and then open up to Greg's comment as well.
So the.
First the first in terms of thinking about your evaluations.
And at the risk of stating the obvious.
These are not bonds and our return and principal is not written on a piece of paper.
And so where we've written the metal down too is as to a level that we're comfortable with in terms of our.
Just kind of cash flow analysis, wherein we do assume a residual in the future.
But it is not you can't think about it the same way that you would.
Where you marked down the security, but you still have a have a have a par claimed.
We do feel better about though as I mentioned with some of the stabilization that we're seeing in the market, that's giving us more more confidence, but we are owners of that asset and the volatility and ultimate asset prices are going to be borne by us as the as the the the equity holders of those particular assets.
And I don't know if Greg you wanted to make.
1 other comment more broadly about the the asset impairment yes.
Yes, I think that you know I think youre right to ask the question right because.
You can only provide dividends to the extent that you have earnings and right on when you do look at the results for this year, you had $80 million worth of asset impairment and $32 million worth of allowance for credit losses.
We don't expect that type of.
Impairments and credit losses going forward.
The aviation sector of stabilize our portfolio of stabilized.
I think you're absolutely right, but I think just a couple of other.
The notes when you do go through on Merck's financial statements Merck's for the year on.
Paid down.
Inclusive of our joint ventures over $140 million worth of debt year over year. So I think that's a really important factor.
Per the assets by 79, if you look at our external value.
We were.
We were on.
Externally, we wrote down the metal by over 25%, which is another.
It's very close to the GAAP write down even though they're not they're apples and oranges. So on.
There's some real good.
That has kind of settled down at marks and I and I think we're in a good position today going forward.
Yes.
So if I can button for 1 side I mean, that's kind of my point I think the numbers.
And obviously I've just seen the final interest you see you sound more hesitant in the comment in the prepared remarks et cetera. The the numbers look to me it looks like it's in better shape maybe.
The cash flow was up.
So Robert I was glad of Cui I can't I think I can bridge that gap. So the reason the.
Reason why there's more hesitancy is because you know the the cash flows you know the revenue that youre seeing that are coming through are currently being used to continue to pay down debt until the securitization are caught up and so from a from a GAAP basis, you know the or you know there is a there is real.
Income there and it's making the equity more valuable if you will by paying down the debt, but it's not cash that's available to be paid and so we you know the equity dividends that merck's may decided to declare a may lag its earnings power.
But you're right in that it had it at it is if if we if we are right about sort of our valuation of it is stable. It is producing enough income to begin paying dividends in the near future, whether it's producing that cash of that drags it a little bit or it's paying down excess of debt remains to be seen.
Our interest in terms of timing, depending on you know when people catch up payments when leases happen and so that's why there's a little hesitancy with regard to the exact timing of when the dividends pick up but again it goes back to what we target. The KC about it is that we feel like Theres more earnings power than Youre seeing at the moment.
I think that will run through the dividend line the timing of that will depend somewhat on the cash flow as opposed to the earnings because we may be paying down more debt than than you would've other life wise thought we would which again is why we wanted to give sort of people. Some some of the timing of that is sort of irrelevant to the long term value of the of merck's.
It's just but it is relevant to the you know the quarterly predictability for investors.
On understood I appreciate that thank you guys.
And.
And there are no further questions in queue at this time I'll turn the call back over to management for closing remarks.
Alright. Thank you. Thank you operator, and thank you everybody for listening and your questions on behalf of of the whole team. We thank you for the time of day and obviously, please feel free to reach out with any questions. You have have a good day.
Okay.
This concludes today's conference call. Thank you for participating you may now disconnect.
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