Q3 2022 Apollo Investment Corp Earnings Call
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Good afternoon, and welcome to the Apollo Investment Corporation's earnings Conference call for the period ended December 31, 2021 at this time all participants have been placed in a listen only mode. The call will be open for a question and answer session. Following the Speakers' prepared remarks, if you would like to ask a question.
At that time simply press star and one on your telephone keypad.
I would like to withdraw your question from the queue press the pound cake I'll now turn the call over to Melissa <unk> Investor Relations manager for the Apollo Investment Corporation. Please go ahead. Thank.
Thank you operator, and thank you everyone for joining us today speaking on today's call are Howard, which actually things open the box.
Sir Tanner Powell, President and Chief Investment Officer, Greg Hart, Chief Financial Officer, I'd like to advise everyone that todays call and webcast are being recorded.
Note that they are the property of Apollo investment Corporation.
Any unauthorized broadcast warm strictly.
Got it.
Information about the audio replay of this call is available in our customary earnings press release I'd also like to call your attention to the customary safe Harbor disclosure in our press release regarding forward looking information today's conference call and webcast may include forward looking statements you should refer to our most recent filings with the SEC for risks that are part of our business and that may adversely affect any forward looking statements.
We do not undertake to update our forward looking statements or projections electric powered by law to obtain copies of our SEC filings. Please visit our website at www Dot Apollo IC Dot com.
I'd also like to remind everyone that we've posted a supplemental financial information package on our website, which contains information about the <unk>.
<unk> as well as the Companys financial performance at this time I would like to turn the call over to our Chief Executive Officer Howard <unk>.
Thanks, Beth good afternoon, and thank you for joining us today I'll begin my remarks, with an overview of the quarter and will then provide some additional business highlights. Following my remarks Tanner will discuss the market environment review, our investment activity for the quarter and provide an update on credit quality. Greg will then review our financial results in greater detail. We will then open the call for questions.
Over the last several years, we have built a well diversified portfolio of true first lien floating rate corporate loans invested in less cyclical industries with granular position sizes are.
<unk> co invest with other funds and entities managed by Apollo, including Midcap allows AIB to participate in larger deals while maintaining relatively small hold sizes on our balance sheet.
As you know mid cap as the hub of Apollo's middle market direct origination business and that's on par with any lender in the marketplace. The overall midcap direct origination platform was very active during the period closing approximately $7 $7 billion in new commitments during the quarter and $19 6 billion in commitments in 2021, the midcap platform provides.
AIB with access to a wide funnel of opportunities, which allows us to be selective in finding attractive investments at.
After market closed today, we reported net investment income for the December quarter of <unk> 35 per share results for the quarter benefited from strong fee and prepayment income and reflect the operating with average net leverage in the middle of our target leverage range. We ended the period with net asset value per share of $16 <unk> per share our corporate lending.
Portfolio marks had net gains during the quarter the corporate lending portfolio continues to improve which Tanner will discuss later during the call.
Results for December also reflect the benefit from the monetization of non Ernie and under earning assets and redeploying those proceeds into our core strategies. We have consistently generated cash from our noncore assets and we are focused on executing some more significant process progress in the coming quarters.
In the December quarter, we received repayments of approximately $10 million from three of our noncore positions two of which were non earnings which included $4 million from one position without any reduction in that and $2 million from one investment which was $2 million about fair value. We also received approximately $29 million from the repayment of circa.
Lean position.
<unk> quarter end dynamic dynamic product tankers, one of our shipping investments closed on the sale of three ships, which will be generating an additional $18 million in cash proceeds at our December 31, NAV in the March quarter, we have visibility into additional monetization from our noncore portfolio in the coming quarters, and we look forward to reporting our <unk>.
<unk> progress.
<unk> for the dynamic sale noncore assets represented only 6% of <unk> total investment portfolio second leaves represented only 5% of the corporate lending portfolio at the end of December Lastly, we repurchased stock during the period at a meaningful discount to NAV, which was accretive to NAV per share and modestly moderately accretive.
Net income per share.
Moving on to other business highlights our board has increased our share repurchase authorization by $25 million, having nearly completed our existing authorization, we obviously hope opportunities to repurchase our share at a meaningful discount to NAV do not occur, but when they do this authorization will allow us to create value for our shareholders.
Turning to our distribution for the quarter. The board has declared a base distribution of <unk> 31 per share kind of supplemental distribution of <unk> <unk> per share.
Both distributions are payable on April 7th 2022 to shareholders of record as of March 21, 2022, as a reminder, the dividends being clear today are the last of the dividends that we previously indicated would be maintained at <unk> 31 for the base distribution and five cents for the supplemental distribution one of our objectives is to.
Provide greater visibility for our shareholders with respect to the distribution. So for the next two quarters, we intend to declare a base dividend up <unk> 31 per share plus a supplemental dividend and an amount such that the basin supplemental combined will equal to prior quarter's net investment income per share. This means that next quarter, we expect to declare base.
<unk> dividend of <unk> 31, plus the software supplemental dividend up <unk> <unk> or <unk> 35 in total which is equivalent to the NII per share for the December quarter, we expect to have greater clarity in the coming quarters regarding the timing of the embedded upside in our portfolio and the impact of interest rates on our earnings with that I'll turn the call over to Tanner to discuss the market environment.
And our investment activity.
Our.
The broader market environment is mixed economic expansion good corporate earnings growth and increased valuations are being balanced by inflationary pressures. The emergence of COVID-19 variant ongoing supply chain issues and a more hawkish posture by the federal reserve.
Turning to our business during this pandemic nonbank financial institutions have become an even more important source of financing.
But then banks.
But equity firms, we're extremely active in 2021 and continue to raise more capital, resulting in significant dry powder as this dry powder is deployed the demand for financing is expected to result in considerable investment opportunities for lenders like midcap and <unk> moving.
Moving to <unk> investment activity, new corporate lending commitments for the quarter totaled $271 million across 24 companies for an average new commitment of $11 3 million.
71% of new commitments were leveraged lending, 13% asset base, 10% life Sciences, and 6% franchise finance.
Consistent with our strategy all new commitments were first lien loans with a weighted average spread of 639 basis points and a weighted average net leverage of four seven times, a 96% were made pursuant to our co investment order.
Elevated repayments offset strong gross fundings, resulting in net repayments for the quarter gross fundings for the quarter totaled $234 million, excluding revolvers sales and repayments totaled $287 million excluding revolvers.
As Howard mentioned repayments included $29 million of corporate second liens and $10 million of non core assets.
Net fundings for revolvers were $30 million in aggregate net repayments for the quarter totaled $23 million.
Regarding our aircraft leasing portfolio company, we believe <unk> has successfully navigated.
This challenging period during the December quarter is that fair value of <unk> investment in <unk> increased by $3 4 million or one 1% as aircraft leasing fundamentals are showing minor improvements.
Turning to the overall ANV portfolio, our investment portfolio had a fair value of $2 $5 9 billion at the end of December across 139 companies in 26 different industries.
We ended the quarter with core assets, representing 93% of the portfolio and noncore assets, representing 7% first lien assets represented 90, 93% of the corporate lending portfolio at.
At the end of December the weighted average spread on the corporate lending portfolio was 605 basis points we.
We are closely monitoring the impact of cost inflation within our portfolio and its impact on profitability. We believe our portfolio is generally weighted towards industries that are less likely to be impacted by inflation and supply chain issues. We continue to see improvement in our credit metrics as we reduce our exposure to second lien positions. The weighted average net leverage of our corporate lending portfolio declined to five.
0.3 times down from five one times last quarter, the weighted average attachment point decline to 0.2 times down from 0.3 times last quarter, our low attachment point is a clear indication of the seniority of our corporate lending portfolio compared to loans, which are classified as senior but have much deeper.
Attachment points.
The weighted average interest coverage improved to three one times up from three times last quarter investments made pursuant to our co investment order represented 85% of the corporate lending portfolio at the end of the quarter.
No investments were placed on non accrual status during the quarter at the end of December investments on non accrual status totaled $14 million or 0.5% of the total portfolio at fair value down from $28 million or one 1% last quarter to quarter.
<unk> over quarter decline was attributable to the restructuring of our investment in sequential brands during the quarter with that I will now turn the call over to Greg who will discuss the financial performance for the quarter.
Thanks, Dana and good afternoon, everyone I'll beginning with the statement of operations total investment income was $55 million for the quarter up three 9% quarter over quarter, reflecting higher fee income and prepayment income as well as higher interest income.
Partially offset by lower dividends.
Net income was $4 million up $700000 for the quarter fee income was $1 6 million up $600000 for the quarter.
Interest income was attributable to a larger average investment portfolio dividend income was $500000 for the quarter, a decrease of $2 3 million compared to theirs.
September quarter, we received a $2 $7 million cash distribution from MSC, one of our shipping investments recorded as a return of capital during the period.
The weighted average yield at cost on.
Our corporate lending portfolio was seven 6% at the end of December unchanged quarter over quarter, the weighted average spread of our corporate lending portfolio was 605 basis points compared to 602 basis points last quarter.
As for the quarter were $32 5 million up $800000 for the quarter and.
And included an incentive fee of $5 4 million increase in interest expense reflects the growth in the portfolio.
Net.
Net income per share for the December quarter was 35.
Net leverage at the end of December was five point.
152 times up slightly from last quarter as.
As the average net leverage for the December quarter was 151 times compared to 146 times.
Timber quarter.
On page 16 in the earnings supplement we disclosed the net gain and loss by strategy over the past five quarters.
During the current quarter, our corporate lending portfolio had a net gain of $3 7 million or <unk> <unk> per share merger at a net gain of $3 4 million or <unk> <unk> per share.
Noncore and legacy assets had a loss of $9 1 million or <unk> 14 per share driven by losses on our shipping investments the loss on shipping primarily relates to the sale of the three ships that closed in January .
NAV per share at the end of December was 16.
Okay.
<unk> increased quarter over quarter with one cent increase was attributable to.
<unk> per share accretive impact from stock buybacks buybacks, partially offset.
<unk> per share net loss in the portfolio and the <unk> from distribution relative to net investment income.
Moving to stock buybacks during the quarter AI envy purchased approximately 955000 shares at an average price of $12 99.
Including commissions for a total cost of $12 4 million since the end of the quarter and through yesterday.
<unk> had purchased an additional 61000 shares at an average price of $12 70.
For a total cost of approximately.
$800000, leaving us with $5 8 million available under the previous authorization as Howard mentioned, our board has increased our share repurchase authorization by $25 million, which increases the amount available for future stock repurchases of just over 30.
This concludes our prepared remarks and please open the call to questions.
At this time, if you'd like to ask a question. Please press the star and <unk> on your telephone keypad keep in mind, you may remove yourself from the question queue at any time by pressing the pound key.
Again to ask a question. Please press the star and <unk> on your Touchtone telephone keypad.
And we will take our first question from Kyle Joseph with Jefferies. Please go ahead. Your line is open.
Hey, good afternoon, guys. Thanks for taking my questions.
Just to refresh us if you don't mind, given what's going on with the fed what percentage of your debt portfolio has floors and and where those floors are versus rates at this time.
Yes, let's describe it hey, Kyle Thanks for the question Elizabeth grabbing the specific number but it's in it's in the 90% range that has floors almost entirely.
1%, we see on the life sciences side or some of the specialty verticals, sometimes we see a little bit higher floors, almost everything we've done on the corporate side is at 1% and then.
Will not be as much of a surprise in instances, where you have a company that is bumping up against the syndicated market, we will see something slightly lower than 1% at kind of 75 deaths. So.
But that's very few so about.
And net and then get the data for me now.
91% have one 1% or higher.
Only 3% have no Florida.
Got it very helpful Alright.
Alright got it.
Got it.
And then I was just going to ask one follow up probably for Tanner.
Your credit performance has been very down but can you just give us an update.
In terms of your portfolio companies in terms of what they're seeing in terms of inflation, whether it be on the wage side or the raw material side.
And any sort of impact you're seeing in terms of the EBITDA margins regress.
Yes, absolutely.
It's everywhere and it's just it's just a question of to what extent.
The underlying issuer is seen it just just how pronounced it.
It is it be it on the waste side as you alluded to <unk> from a supply chain standpoint.
We do track on.
Underlying revenue and EBITDA growth.
We do try to strip out the companies that are highly acquisitive and on a like for like basis. This is the first quarter that EBITDA did not grow as we are still positive, but not as strongly as revenue belaboring that underlying dynamic, which what youre getting at.
We continue.
To believe that where we're creating these companies and the fact that we are top of the structure.
That.
Our ultimate credit performance will have less to do I would just say nothing about whether these type pressures ease over the coming months or not but notwithstanding given where we're creating these companies and our underwriting I believe that they can stomach.
A certain amount of.
Cost pressure before such time.
As we would expect our loss experienced changed materially.
Got it very helpful. Thanks, a lot for answering my questions.
We will take our next question from Kenneth Lee with RBC Capital markets. Please go ahead. Your line is open.
Hi, Thanks for taking my question.
Wondering if you could elaborate on the visibility that you have into additional monetization from the noncore portfolio over the near term.
Perhaps just talk about what could be driving that potential activity there. Thanks.
Yes sure.
Basically.
We're we're focusing on on.
You know.
Sale processes on a couple of the sort of the more meaningful positions.
And so we hope to have at least one of those sort of.
So something to say on one of those in the near future.
And then separately, we are generating cash off of a few of those positions.
Now like most notably glacier is producing quite a bit of cash.
We expect that to continue to produce cash I mean, it may not.
Like this quarter, then that may or may not go down despite the cash coming in because of the price of oil on our performance. So there could be more upside there, but theres clearly an ability for that company made more cash and then.
And then strategically I mean, we're now the <unk> transaction is off the books, but the.
The EMC transaction has historically generated some cash and that can generate cash will go towards basis or for earnings but.
As a positive cash generator, so all of those combined.
Half half.
It was where it comes from so but basically.
Focus is on spotted hawk and Nancy to get some significant cash out of those in the near future.
Got you very helpful. I'm wondering one fall off.
Im wondering if you could share with us your thoughts around potential originations activity.
Especially in comparison to what you saw last year. Thanks.
Yes, I mean.
The.
Obviously, we had a record year.
The origination I think I did a lot of our a lot of our peers.
That was the result, I think of two things or a lot of private equity activity in dry powder.
There's still a lot of dry powder or maybe the activity probably doesn't go up and then add.
As importantly, the continually increased market share of private credit versus both banks and.
In the broadly syndicated market that trend, we expect to continue so if you assume.
Pi is is getting bigger.
Which I think is sort of the right assumption.
We would expect origination volumes to be lower than the run rate of the fourth quarter, but at least as good as it was for the full year.
Uh huh.
Next year.
Continues to be a advantage for the people who have the ability to speak for larger commitments and half size and multiple pockets of capital of which you know Apollo falls into that category of one of them. So that's that's that's obviously important and it's like no.
Arms race in some regards so you got to just keep on working on that but we continue we continue to make progress there. So.
And if you looked at it.
Origination activity through this first five weeks of the year is as good as strong is on a run rate is as good as that but frankly thats. Some carryover from the end of last year. So you'd have to sort of look forward to the pipeline over next two or three months to corroborate what I just said, but that's that.
I feel like our full year origination should be close to what our full year origination was this year would be.
Reasonably conservative estimate and I might add to that quickly can.
As Youll know all too well.
The lion's share of the originations for us and our peers will drill and always be likely from the sponsor part of our business. We continue as we called out in our prepared remarks and to see in the market good flow that hits our target.
So from a yield perspective, and our other verticals such as life Sciences, and ABL and Thats a nice.
A nice adder to the opportunity set for <unk> in this year.
And others as well.
Great very helpful. Thank you very much.
We will take our next question from Casey Alexander with Compass point. Please go ahead. Your line is open.
Yes, good afternoon, well first of all I'd like to applaud you for going to the.
Essentially variable dividend structure, I think that is going to be the Sip does your for many bdcs going forward I'm wondering did the board consider.
Setting the next quarter's dividend at somewhere around between 96% to 98% in the previous quarters NII, just said that you could retain.
Some of that income for NAV growth and to put sort of a rainy day fund away for.
When there may or could be credit losses at some point in time in the future.
Yes, I mean, 98% is less than a penny right. So.
I think I think it is a very good question I think what we what we're trying to focus on is we believe we will have be able to provide great visibility into our earnings capability.
Ex these core assets, which we're very very focused on lowering and.
Obviously now there's going to be some interest rate changes given the forces that will impact some things too. So I think our thought process is let's keep it variable based on the earnings as you said and then and then provide real visibility going forward, which you think will be very predictable and expect to be.
Like a growing dividend base once we have that clear picture, we have a guess of where that's going to be and at that point.
It would be right to set the dividend.
The sort of the core are slightly below the core earnings power for the reasons you said.
It's just it's more that we still think we are.
In this transition and that transition also includes what has been a process pre COVID-19 and now it's becoming a process again, which is lowering the concentration of <unk> as well.
Okay.
Great. Thank you that makes sense.
Yes.
Indefinitely.
Also wanted to ask about the share repurchase program again, I think shareholders welcome to the aggressive nature of the share repurchase program, but you are at.
Over one five times Levered and when you repurchase shares that that automatically increases your leverage ratio. So how do you think about the share repurchase program are you thinking about it in terms of as you sell down noncore youre using proceeds from non core to repurchase shares or.
I'm just curious how you think about it because it's.
At some point in time.
Without raising new equity this share repurchase program is going to push that leverage ratio up towards the top of your target range.
Well I think I think the way we think about it is.
This quarter, we did 200.
Plus million of new origination and we had net neutral growth. So this is just some of that origination right. So it's like the return on this on this investment is at 80 cents of NAV is better than that of new loan on the other hand. It does it does shrink stuff and it's permanent right it doesn't get paid off and role.
So it has to be.
Pretty accretive, but I think if you asked us like how do we think about it we don't think about it like Oh, we're using non core money I think we're thinking about it is like it is an investment that is.
Really positive for the shareholders, it's basically a higher return than alone with no credit risk and no fee against it. So you have to consider it in the full package of things, especially while you are repositioning everything, but youre definitely right that higher leverage the higher year Leverages. The higher premium you have to get to be able to make that the right choice.
Alright, Okay, great. Thank you I'll step back in the queue and perhaps come back later.
We will take our next question from Matt Tjaden with Raymond James. Please go ahead. Your line is open.
Hey, everyone afternoon, and appreciate you taking my questions first one for me on the dividend income line.
So no there's a little noise there with the return of capital from MSC Howard I think I think you said last quarter, we can expect about a $1 million run rate in that line item from M C.
Does that still hold today.
Yes, I mean I think.
It generates it generates those types of returns and cash.
So we would expect to reduce that type of cash.
Whether it's a return on capital really depends on sort of.
Effectively the evaluation.
His income, but you know if youre going to it is either income or return of capital, but if youre going to.
Like if the valuation of the assets going down we don't think it's right to be taking income off something that you go to pesos.
So.
So the right way to think about it is yes. It generates that income going that is effectively its return on a run rate basis on average over quarters, but we we sold one ship Lamb.
Last quarter, and so that caused some change in evaluation greater than it would be based on sort of.
Shipping rates.
Got it makes sense, maybe next one for me pivoting in the noncore book to maybe more so ill and gas it sounds like the shipping activity is pretty healthy does this recent strength in the oil and gas markets does that maybe speed up the timeline at which you think you can dispose of glacier and spotted hawk.
Yes, well spotted hawk I mean, I think it definitely speeded up there is more interested in and we're focused on sort of you know.
Having a process that we have.
A number of interested parties, who have you know.
Much more capabilities now.
That has always been sort of.
<unk>.
It is a exploration play as opposed to the oil currently coming out of ground. So its valuation has always been sort of have a broader range, but there is definitely more interest because more people are putting up assets Glacier is actually more interesting, which is we basically invested a little bit of money to to.
Open some wells and we're benefiting from that from a cash basis. So I don't know if it was clear in our remarks, but like in glacier, we realized $4 million of cash out of there in the market and go down at all because effectively as a $4 million increase in value and glacier and oil has only gone up since then and it's continuing to produce well so.
One we do think that there is more likely to be buyers out there and we will look to that but we're also pretty comfortable with the cash is producing real time.
Got it fair enough.
These all the oil price related.
Got it got it.
Last one for me maybe following up on Casey's question, So understand kind of from a no net growth perspective on the share repurchases. If you were to get into visibility on.
Maybe like repurchases slowing down or something like that given given where you sit above the midpoint of your leverage range.
If you've got more into a net growth position would you expect the pace of share repurchases to slowdown.
Yes, I mean, youre, saying, if we got into net growth. If we were growing from here, yes, I mean, I think you would you would expect if we're holding this even this leverage level now.
At the same stock price you would expect it to slow down a little bit.
No.
So yes.
I think as we answer if theres significant monetization such our leverage goes down meaningfully then that's when more likely it's supposed to pick up but it was a pretty active quarter this quarter.
Got it Thats it for me I appreciate the time.
We will take our next question from Ryan Lynch with <unk>. Please go ahead. Your line is open.
Hey, good afternoon.
Can you guys go over your comments related dynamic product.
Product tanker.
I didn't quite follow it all the way it looks like you guys had about a $12 million.
Loss or write down this quarter and Youre shipping book, but then you talked about the closed units three shifts and I thought I heard nearly $18 million of unrealized gains in the March quarter. So can you just just recap all of that I want to make sure I have all the details correct.
Yes, Im having two thanks for the question Ryan.
So.
Three of the four shifts within our.
Crime dynamic tanker investment were monetized in this quarter.
And we were.
We had negotiated.
Those sales.
As of the end of last quarter, so the write down.
Did the monetization of those positions as the $18 million.
Which has largely been a risky today subject to some normal closing conditions and closing process.
Was the.
The return of capital.
And not and not a gain in this particular quarter and then we're very focused on looking to monetize.
The fourth ship as well.
Okay. So the $18 million that you mentioned Thats just cash coming back in from the monetization as this will be recorded as return of capital No no no impact on your income statement correct.
Correct.
Matt.
Thanks for the clarification on that and then.
You mentioned sort of you're saying down through the worst regarding kind of the COVID-19 downturn, what specifically this quarter.
The increase in the valuation of marks.
Yeah sure as you can probably imagine its a portfolio across 75 planes and there's normal puts and takes but on them on the margin more more positives than negatives as we continue to work through.
Our.
Our COVID-19 related challenges with respect to our underlying less you need and then importantly, another driver in this particular quarter is the dynamic we've talked about at length, Ryan with respect to the fact that.
We have other pools of capital.
At Apollo for which we serve as the exclusive servicer.
For that that those assets and as we.
We get those opportunities we get the benefit of the servicing revenues without stretching the balance sheet and so some of that.
Some of that gain that we saw in the particular quarter was owing to the stabilization that Howard and myself alluded to.
<unk> mentioned by this dynamic as we continue to invest capital away from <unk>.
And benefiting our servicing revenue.
Okay understood I appreciate the time this afternoon.
Yes.
And as a reminder, if you'd like to ask a question today. Please press the star and one key on your telephone keypad.
Our next question from Melissa window with J P. Morgan. Please go ahead your line is open.
Thank you for taking my question good afternoon.
Wanted to touch on the yield on that is that right.
It's been quite stable quite resilient over the last few quarters, despite some spread compression in the market.
Hoping you could go over the drivers of that stability.
Ken.
Hi, sorry this year. Thank you.
Yeah.
It's been stable because of just like we've said this before like there was $7 $7 billion of origination at mid cap this quarter and so we are choosing the assets here that.
That fit our criteria, which is like the right credit.
The right credit components, but also that hit the yield.
Profile. So if we had originated six times as much you would've seen more yield compression because theres certainly that yield compression across all of the business, but just because of the breadth of the pipeline.
We're able to go to <unk>.
<unk>, what fits including as Tanner said.
That arent necessarily all leverage loans, but in some of the more bespoke asset classes. So.
This stability is the result of sort of the.
The selectivity of <unk> versus the pool of everything that's available.
And at the risk of Overemphasizing, but you do often see.
The dynamics.
People trying to get deals done before year end, no I don't I wouldn't read into it a spread widening but sometimes just the sheer surfeit of deals that were in.
In the market.
Gave a little bit of pricing power to lenders on the margin that I wouldn't necessarily read too much into it but that helps.
Augment or.
Some.
Some benefit and what we're able to do from a spread perspective in Q4.
So as a follow up to that given the strength.
Hey, Craig.
Profile of the company right now is that something that you're willing to sort of yes.
The benign credit environment to sort of subsidize the spread when it comes to new investments.
Thank you.
I don't know if I understand the question just to make sure.
What do you mean.
Sure.
Pat.
Losses.
Lower.
The terms to borrowers are quite friendly.
It could be Q I.
Supportive credit environment.
Especially with macro tailwind for companies despite recent.
Sort of inflationary pressures I guess I'm wondering if your outlook is for continued benign.
Solid credit performance.
Portfolio company does that make you willing to dip down a little bit more on spread than you otherwise might.
No I mean I think.
Our.
Our first of all I mean again, it's a different question, where we arent our leverage point Brian .
We have a certain.
Hi.
<unk>.
There is a certain level of sort of return we want to deliver to shareholders that we feel like we can do at these yields while keeping ourselves at our target leverage so unless one of those measures change like.
Now if things don't change unless the macro environment doesn't allow those assets to become available obviously like if there was something like we thought the risk was way too high.
We'd have to dip down if we thought.
But I don't think.
Right now for us it's.
It's actually an issue of us not doing as many of the deals we want to do at the yield were at or not as many of the deals having our hold size.
As big as we might otherwise be because of our leverage point because diversity.
Diversity is important for us and that helps but so from time to time.
We're choosing multiple assets as opposed to like bigger holds so.
The macro environment.
Obviously is whether it's benign or not I mean, frankly like we always try to under these are five six year loans, where underwriting like it ultimately won't be benign.
Has to withstand pressures.
There are some macro pressures on companies across the board.
So I don't know if the macro environment impacts our choices at least where we are today.
Appreciate that thank you so much.
We will take our next question from Finian O'shea with Wells Fargo Securities. Please go ahead. Your line is open.
Hi, everyone. Good afternoon can you remind us or touch on the interplay with.
Apollo's broader.
Broader platform with the newer non traded BDC up and running now.
Sure the non the non traded BDC has a you know.
A different focus strategy is basically larger deals that are originated through you know.
Like basically.
Originated through sort of relationship with larger sponsors so you know.
They expect to have a portfolio that 75% not like in the range of of assets that AI and gave us this quarter what strategy. They do expect to do 20% of their portfolio and assets that sort of fit.
A part that's core to.
<unk> strategy in it.
In the leveraged loan so not the other the other asset classes, we do in leverage loans those deals, though will be in the higher end of the middle market that we do so say companies in.
60, 70 million of EBITDA, where there is lots.
Effectively there is there is plenty of loan to go around if you will those are $300 million underwrites and there is lots of vehicles that Apollo that are taking part of it including this non traded BDC. So we view sort of the non traded BDC as very complementary to our overall.
And when I say, we it's Apollo Apollo's overall.
Approach to the market because it just gives us a lot more capabilities to underwrite the deals at the higher end of the middle market and then obviously also in the larger market for that so so that's where it falls and we've and we've seen that like in this first quarter now in closing some of bigger deals where you know.
Both <unk> and <unk> are ahead.
Sure very helpful.
So just to recap actually Havent rights.
About 20% overlap with <unk>.
One of our core mid cap asset 60 70 of EBITDA.
But 75% of it the bulk of their assets are.
Our issuers that are.
Much to larger market for you is that right well, either broadly syndicated or large right and so and when I say.
They have something that says 20% to 30% middle market lending. So I said like a quarter, obviously as they build their portfolio and the market.
It has more and more large origination.
Their percentage will fluctuate, but that will be right directionally as it as sort of as it grows so they expect to have.
50% to 70% of their assets and larger and larger corporate loans that are originated.
And and.
20% to 30% in middle market and 20 and the rest is it broadly syndicated.
And obviously, we're not doing broadly syndicated anymore in the larger loans, we are not doing as well.
Very well.
All for me thank you.
And there are no further questions in the line at this time I will turn the program back to our speakers for any continuing for closing remarks.
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Yeah.