Q1 2023 Apollo Investment Corp Earnings Call

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Good morning and welcome to the earnings conference call for the period in June 30th, 2022 for Apollo Investment Corporation. At this time, all participants haven't placed in a listen-only mode. The call will be open for a question and answer session following the speaker's prepared remarks. If you would like to ask a question at that time, simply press star one on your telephone keypad. If you would like to withdraw your question, please press the bank key.

I will now turn the call over to Elizabeth Bethan and Vester Relations Manager for Apollo and the Apollo Investment Corporation.

Thank you, operator, and thank you everyone for joining us today. Speaking on today's call are Howard Widrat, Executive Chairman, Tanner Powell, Chief Executive Officer, and Greg Hunt, Chief Financial Officer. Additional members of the management team are on the call and available for the Q&A portion of today's call. I'd like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of a Paul 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 press releases.

I'd also like to call your attention to the customary safe harbor disclosure in our press releases 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 apply to 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 unless required by law. To obtain copies of our SEC filings, please visit our website at www.apolloic.com.

In connection with today's announcements, we will be launching a new website next week, which you will be able to find at www.mitcapfinancialic.com. We have posted two presentations on our website, our standard quarterly supplemental financial information package and a second presentation, which details today's announcements.

At this time, I'd like to turn the call over to our Executive Chairman, Howard Woodruff.

Thanks all of you for that.

Good morning, everyone. Earlier today, we issued two press releases, a quarterly earnings press release and a second press release which detailed several important strategic announcements which we believe greatly enhance value for our shareholders. Following my review of each of these announcements, I'll provide an overview of our results and discuss today's distribution announcement. Tanner will then discuss the market environment, review our investment activity, and provide an update on the portfolio. Lastly, Greg will review our financial results in detail. We'll then open the call to questions.

Let me begin with today's announcement with which underscore Paula Global Management's Commitment to Investor Alignment, Product Innovation, and being at the forefront of the democratization of finance. These announcements reinforce the BDC's position as a pure play, senior secured middle market BDC, providing public shareholder access to institutional quality private credit at a best-in-class fee structure, among listed BDCs. The BDCs will continue to invest almost exclusively in senior secured loans sourced by mid-cap financial. One of the worst leading middle market.

Mid-Cat Financial is privately held by institutional investors and managed by Apollo Global. Over the last 12 months through the end of June , Mid-Cat Financial originated over $21 billion in new commitments, including $4.7 billion in the June quarter. Mid-Cat was headed headquartered in Bethesda, Maryland, has 12 offices globally with approximately 250 employees. The company is led by an experienced senior management team that has worked together over 20 years and with 27 years of average industry experience.

considered to be the industry leading fee structure among listed BDCs. The new fee structure reduces management fees by approximately 50% to the lowest rate among listed BDCs. In addition, the base management fee will now be calculated on equity instead of assets, which provides a greater alignment and focus on that asset value. The new fee structure reduces the BDC's cost of capital, thereby expanding the universe of mid-cap originated loans that will meet the BDC's lowered required asset yield.

Mid-cap financial originates a significant amount of senior first lien loans that were previously below the BDC's target yield but which will now make sense for the BDC given its lower cost of capital. Specifically the BDC's base management fee has been permanently reduced to 1.75% on equity down from the equivalent of approximately 3.4% on equity. In other words the base management fee expressed in terms of grossed assets has been reduced from approximately 1.4% on assets.

to the equivalent of approximately 75 basis points on assets. The incentive fee on income has also been permanently reduced from 20% to 17.5%. The performance threshold remains 7%, and there is no change to the total return requirement or catch-up provision. The incentive fee on capital gains has also been permanently reduced from 20% to 17.5%. The changes to the fee structure will be effective for the period beginning January 1, 2023.

Moving on, we're pleased to announce that MidCap Financial has made a $30 million primary aligning equity investment in the BDC at net asset value, representing a significant premium to the current trading price. The BDC will issue approximately 1.93 million shares in connection with this transaction, which will be subject to a minimum two-year hold period. This investment serves to first, validate the value of the BDC senior investment strategy. Second, provide the BDC with dry powder to invest in loans sourced by MidCap Financial.

Global will continue to manage both MidCap Financial and the BDC. Throughout today's call, in order to avoid confusion, we will refer to the BDC as either the BDC or as MFIC, and we will use MidCap Financial to refer the lender headquartered in Bethesda.

The BDC's ticker will be changing to MFIC. The name and ticker changes will be effective on around August 12th. The BDC's ticker will be changing to MFIC. On or around August 12th. The BDC's ticker will be changing to MFIC. On August 12th. The BDC's ticker will be changing to MFIC. On August 12th. The BDC's ticker will be changing to MFIC.

Moving on to senior leadership promotions. I'm pleased to announce that Tanner Powell, who has served as president of the BDC since 2018, has been promoted to chief executive officer, taking my place in that role. I have been named executive chairman of the board. John Hannon, who has served as chairman since 2006, will now serve as vice chairman. I will continue to serve as Apollo's global head of the direct origination and will remain involved in the day-to-day management of MFIC. Ted McNulty, who is a managing director in Apollo's direct origination business.

has been promoted to President of the BDC and Chief Investment Officer for our Investment Advisor. Ted brings a wealth of experience and expertise to the role. He joined Apollo in 2014, and over the last several years has been instrumental in the successful monetization of the BDC's legacy assets. The BDC's legacy assets.

Last but not least, Kristin Hester, who has been a senior member of our legal team since 2015, has been promoted to chief legal officer. Joe Gladd, who served as the BDC's legal officer, chief legal officer since 2011, was promoted to a new role as partner in Apollo's United States Financial Institutions Group. These promotions recognize the valuable contributions made by Tanner, Ted, and Kristin over the years. We are very excited about today's announcements, which will allow us to capitalize on the benefit of MidCap Financial's leading middle market direct lending platform.

share of $15.52 down 27% or 1.7% quarter over quarter. We would purchase some stock during the period below NAV which had a 1 cent per share accretive impact.

Let me now switch our focus to our distribution. Given the progress we have made repositioned the portfolio, combined with the forthcoming reduction in our fee structure, we are raising our quarterly-based dividend from 31 cents to 32 cents. Page per-

per share payable to shareholders of record as of September 20th, 2022. We believe this dividend level is appropriate at this time. Future supplemental distributions will be declared as appropriate. With that, I'll turn the call over to Tanner to discuss the market environment and our investment activity. sideshow.

Thanks, Howard. Beginning with the market environment, the public credit markets continue to experience volatility during the quarter as elevated inflation, rising interest rates, concerns about possible recession, supply chain issues, and geopolitical uncertainty way heavily on market sentiment. Negative fund flows contributed to the volatility in the liquid loan market. Credit fundamentals, however, have remained relatively stable as leverage loan default rates continue to hover near historical lows. Against this uncertain macro backdrop, we saw a reduced level of M&A activity. This type of broader market environment.

18 companies for an average new commitment of 10.8 million. New commitments made during the quarter by product were 100 million in leverage lending, approximately 80 million in life science lending and the remaining 15 million in lender finance. All new commitments were first-leaning floating rate loans with a weighted average spread of 622 basis points and a weighted average net leverage of 4.9 times. 97% of new commitments were made pursuant to our Co-investment Order.

Excluding revolver's gross fundings for the quarter totaled $165 million and sales and repayments totaled $121 million. Net revolver repayments were $1 million. In aggregate, net fundings for the quarter totaled $43 million. We ended the quarter with net leverage at a high end of our target range given our visibility into pay down's post quarter end. Net leverage at the end of June was 1.58 times. Adjusting for net pay down's post quarter end including a $15 million cash pay down from Merck's. And including the impact of the $30 million.

During the June , AINV's investment in Merckx had a fair value of $284 million, representing 11% of the total portfolio. During the June quarter, Merckx sold three aircraft, reducing the number of planes in the fleet from 65 to 62.

We expect our investment in MERCS as well as the income we receive from MERCS to decline each quarter going forward. At the end of June , two additional aircraft were under purchase agreement, including the freighter and the fleet, which was sold in early July . Despite the uncertain macroeconomic environment, there are no signs of a slowdown in daily global flight activity, and we feel constructive about our plans to sell the planes owned by MERCS. Turning to the overall portfolio, our investment portfolio had a fair value of $2.55 billion at the end of June across 140 companies.

able to pass through most, although not all, of higher input costs they are seeing. We believe our portfolio is generally weighted towards industry that are less impacted by inflation and supply chain issues. Moving to credit quality, our credit metrics remain very favorable. At the end of June , the weighted average net leverage of our corporate lending portfolio was 5.45 times, a slight increase quarter over quarter due to the repayment of lower leveraged assets and the impact of-

funding delayed draw term loans. The weighted average attachment point was 0.2 times and the weighted average net leverage, weighted average interest coverage ratio was 2.8 times. No investments were placed on non-acrual status during the quarter in our investment in glacier oil and gas was restored to a cruel status and also repaid 4.5 million to the BDC during the quarter. Glacier continues to generate strong cash flow to support the small loan balance, which is now less than 4 million.

At the end of June , investments on non-acroll status total 9 million or 0.3% of total portfolio fair value. With that, I will turn the call over to Greg to discuss our financial results in the future. Thank you.

Thank you, Tanner, and good morning, everyone.

Beginning with AINB's statement of operations, total investment income was $53.4 million for the quarter, down 2.4% quarter over quarter. Recurring interest income rose due to the impact of higher base rates, along with returning glacier oil to a cruel status.

Prepayment income was 1.9 million. Down from 3.8 million, last quarter, to the lower quarterly prepayments. Of course, finally. cuenta sam.

The income was approximately 500,000 down from 1.3 million last quarter. Dividend income was flat for the quarter. The weighted average yield at cost on our corporate lending portfolio was 8% at the end of June , up from 7.7% at the end of March. The increase in the yields was primarily due to higher base rates as the weighted average rate on the portfolio remained at 611 basis points.

That expenses for the quarter total 29.9 million, of 2.1 million quarter over quarter, primarily due to higher interest expense related to our credit facility, which bears a floating rate interest.

Floating interest rate. As a reminder, AI and V's incentive say, unincome includes a total return hurdle with a rolling 12 month lookback. With a rolling 12 month lookback.

Given the net loss of 17.8 million for the quarter, incentive fees on totaled 1.4 million up slightly from last quarter. Net investment income per share was 37 cents. Net investment income per share was 37 cents.

During the quarter, we recorded a net loss of $17.8 million, or 28 cents per share, on our portfolio. The vast majority of our corporate lending portfolio is valued using a yield approach. Cages and market spreads are incorporated into the quarterly valuation of our investments.

In addition to other factors. On page 16 in the earnings supplement, we disclose the net gain or loss by strategy over the past five quarters. In addition to other factors, we disclose the net gain or loss by strategy over the past five quarters.

Now for share at the end of June was $15,52. At 1.7% decrease quarter over quarter. The decrease is primarily attributed to the net loss on the portfolio, partially offset by one sense from investment income relative on to the district. So, this fund's actual gambling that amizer comes from investment income relative you

Moving on, we were pleased that CRO affirmed our investment grade rating and stable outlook in July . Our liquidity position remains strong with undrawn revolver capacity, well in excess of unfunded commitments to borrowers. Consistent with our historical cadence, we expect to amend our revolving credit facility in the fall.

We are well positioned to benefit from rising interest rates. Based on quarter-end rates, we estimate that 100 basis points and a 200 basis point increase in reference rate will result in annual incremental earnings of approximately 12 cents and 25 cents, respectfully.

Regarding stock buybacks during the quarter, we repurchased approximately $1.6 million worth of stock, which leaves 29.2 million of available. Authorization under for future stock repurchases.

This concludes our prepared remarks, operator. Please open the call. Certainly, and at this time, if you would like to ask a question, please press star one on your touchtone column. You may withdraw your question at any time by pressing the pound key. Once again, to ask a question that is star and one, and we will take our first question from Kenneth Lee with RBC Capital. Please go ahead. The line is open.

Hi, good morning and thanks for taking my question. In terms of the announcement on the strategic investment as well as potentially shifting investment strategy, what are your expectations for future ROE or expected targeted returns based on the new...

through loan investors. Thanks. Thanks. Thanks.

Yeah, so first I'd say it's not really a shifted investment strategy. It's really sort of a demarcation point where we think the investment strategy is sort of the...

you know, really the story going forward as we exit out of non-core and sort of removing away from MERC. So the investment strategy is the same. It's just there's a broader set of loans that may meet our criteria. You know, the ROE, I would say, you know, if you just took an apples-to-apples approach and said, you know, the lowering of the fees and everything else stays neutral, you'd have an increase of the ROE of a cup of like 2%. So if you assume some, you know, reduction in yield and some...

one one follow up if I may you talked about having some visibility in

your term paydown. Just wonder if you can just give a little bit more details behind that. Thanks.

Yeah, I think, you know, Kenneth, thanks for the question. I would point you to the guidance we gave in terms of the, you know, approximately 1.45 leverage. We had a number of things slip. And then also as we alluded to, knowledge of the mid-cap strategic investment, aligning equity investment being made, you know, we're a little bit higher at the end of the quarter. But you said, you know,

I'm focusing on repayment activity. Obviously that came down in fact, the fee income, he gives us a sense, and I know you talked about your term repayment there, but just for the...

Kind of the remainder of the year, is that really a function of rates or volatility, recognizing those go hand in hand? And would you expect repayment activity to be kind of muted given the macro backdrop going forward?

Yes, I think you said at the end there, Kyle, is objectively M&A volume is, activity is down and that certainly affects us in terms of level repayments and so all things being equal would expect more muted activity in the back half of the year absence, some of the prepayments that we alluded to in our prepared remarks.

Obviously, credit remains sound right now. What's the outlook here in terms of with inflation? How are companies adapting to rising rates? What are your expectations for credit for the remainder of the year and then for the market more broadly into 2023?

Yeah, sure. And as we endeavor to do each and every quarter, we look across all our portfolio companies, both at AINB, both at MFIC and MidCAP more broadly. And in the most recent quarter, when we take a composite of the roughly 90 companies that we have in our leverage loan book, it was showing us, high, sorry, loan double digit.

Revenue growth and kind of mid-single digit EBDA growth, indicating what we saw in the last quarter as well, supply chain challenges and labor costs and resin costs going up have affected our companies. We would note obviously in a lot of cases there's a lag to recover and then also the data Kyle, as you know, relates more to the March quarter. And so would expect, you know, those challenges to continue.

Thanks very much for answering my questions.

And we'll take our next question from Melissa Weddle with J.B. Morgan. Please go ahead, your line is open.

Thank you. Appreciate you taking my questions today. A few of them have already been asked, but I was hoping that we could walk through elaborate more perhaps on how you're thinking about leverage in the context of an increasing shift to the first-wing strategy that might have a bit of a lower yield. It sounds like you're not changing your target range on leverage.

But I'm wondering if, I guess, one, is that the case? And then two, is that the case?

Do you have, is there any shift in your thinking around where you'd like to run within that range in the context of the current environment and more alignment with the mid cap strategy?

Yeah, look, I mean, so a couple things. Like the, you know, our leverage as we talked about sort of I think on, you know, repeatedly over the last few years, we felt like was, you know, not particularly, you know, as aggressive as perceived because of sort of like the first lean focus of our book and the attachment point and obviously we're, you know, we.

five to one five range as opposed to what we articulated before is one four to one six. And so our expectation is to operate around that one four, one four five range, which is what Tanner said before. So I would say that we are leaning towards lower even though the profile of our book will get more conservative. And you know, we've made a lot of changes here with a goal towards this being.

their new cost structure, which is on our management piece on equity. We think that also enhances the alignment. But Howard's point is about taking the feedback from all constituencies are well understood and then also go to our thinking as we approach leverage going forward. And then also go to our thinking as we approach leverage going forward.

Okay, I appreciate that. Thank you. And I guess as a follow-up, it would be helpful to understand if there's any real change in the way that your team will interact or engage with the Mid Cap folks. Could we dig a little bit deeper there? Is this just...

additional, additionally leveraging more opportunities from that platform. Are there some sort of inside baseball changes in terms of?

the team vetting selection, things like that.

No, no inside baseball changes to the way things will operate. And just to sort of understand how it operates, Apollo is the manager of MidCap and is the manager of MFIC. And I am the primary portfolio manager for MidCap and have been since really sort of since inception and Tanner is effectively the primary.

day-to-day connection to everything we do at Midcap has been more since then, but that has nothing to do with these changes.

Thanks, Howard.

We'll go next to Ryan Lynch with KVW. Please go ahead, your line is open.

Hey, good morning. First question I had was, you know, I would just love to hear, because I know you work closely with MidCap in the past, I would just love to hear kind of a ballpark of what percentage of deals historically AINV could participate in kind of a MidCap deal flow, because I knew there were some lower yielding loans that wouldn't necessarily fit into AINV.

So what sort of deal flow percentage rough ballpark? Could you guys participate in historically with mid cap and then with the new fee structure, what sort of change would you expect from more access from deals from mid cap?

Well, so generally overall, mid-cap originates through a variety of assets, some which don't fit BDC mandate anyway, like real estate. So a percentage of the overall mid-cap deals. So let me just sort of narrow this field a little bit and say the percentage of deals related to the products, which is a lot of them, but the products that mid-cap originates that fit. Let's say leverage loan, life-

And so really almost everything made capdowns in those categories is available, the ones that don't end up being sort of relevant or the smaller ones. Because there's some asset-based loans that are too cheap, but for the most part, it's just smaller deals once they're divided out. The allocation is based on sort of the size of the relative balance sheet to small, that it doesn't make sense from like a cost, valuation, all that perspective. But it's to vast majority of what made capdowns in those categories.

Okay, that's helpful. And then what are you thinking in terms of, I don't know if the best way to think about it is yield or spread, because obviously, the industry rate is, it's been accelerating higher, but is there a meaningful change of what you guys are expecting or willing to put on the books?

you know going forward or when this new fee structure goes into effect from a from a yield or spread standpoint versus What you've done historically just because obviously this gives you more flexibility From a spread or yield on new loans Than we have done historically, so I just love to hear if there's what sort of changes we should expect from that standpoint

So as we started first, penciling this out, I guess what I would say is, and I'll caveat this afterwards is that, you know, having the overall spread to our book, go down about 35 basis points, would have meaning like from six, 10 to 8 to 5, 75 or something like that, would have basically split the difference between the shareholders and the lower spread, and that seemed to make sense, and so that's average spread on the portfolio. That said, we don't expect that to happen right now, because spread's are wiping a lot, you know.

And so forget it, forget the base rate going up. That's a separate issue, but spreads are widening. And if we go into a recession or even like a contraction, we would expect rates to continue, or spreads to continue to be higher, especially because there'll be more asset-based loans with higher yields, and we'll have an opportunity to grow that category. So, I think right now, what we would say as we expect spreads to stay pretty stable, meaning the increase in spreads in the market.

And then just lastly, and it doesn't sound like this changes much, but I'd love to just hear maybe Mid Cap's positioning. Obviously, you know, the upper middle market has been.

Because then, you know, a really growing space with, you know, BDCs participating in that marketplace. You know, obviously, you know, broader Apollo has Apollo debt solutions, which, which, you know, participates in that area a lot. Does this change, you know, the, the BDCs ability or willingness to kind of participate in that, that upper middle market space and then co-invest with like, you know, Apollo debt solutions or is that something that.

We don't expect to change that's only that mid cap, you know, is not really interested in.

no i i don't think you'll see a change i mean i think there is uh...

overlap, synergy, something, whatever you want to call in deals between $15, $125 million a cashflow. The origination into the sponsor channel is combined between a polys focus on the very largest sponsors and the big cat team on almost all the rest of the sponsors. And so when there's execution in the middle of those ranges, depending on the sponsors, we know there can be shared underwriting, there's certainly the option for...

each BDC to participate in the deals that the others might do. So for example, at ADS, if there is a company with 70 million of EBITDA on the deals five times, so it's a $350 million deal, and that's being done by mid-cap and AINV and a bunch of our managed accounts, there's a very good chance ADS will be part of that.

by the same token, if there's a sponsor, we have a strong relationship with, especially if it came through our channel, and it's got a hundred million dollars done at six times, or I don't know, say 125 is 750 million dollar deal, that is more courted ADS strategy, we could potentially do a portion of that at AI and V as well. But we will tend not to, not for any reason, other than it's not sort of core strategy. And we'll,

they'll be separate and I think you'll see I'm totally making this up right now out of school but maybe 10% overlap of assets.

All right, I appreciate you taking my questions and also very much appreciate the reduction in the fees and the overall just better alignment, you know, with shareholders to execute the 7- BiItem strategy.

Thanks.

And we'll take our next question from Robert Dodd with Framian James. Please go ahead. Mr. Alan is open.

Hi, thanks and good morning and Ryan, just asked the best bulk of my question. So I do have another one. On the supplemental dividend program that you did have in place, obviously you've increased the base dividend this quarter, looking at expanding our low E, which if you're already covering the base dividend, I think you're going to have excess earnings. I mean, can you give us any color? Obviously, no supplemental declared this quarter, I think it's at the 32nd.

is appropriate at this point. Many free structures, I think it can be told to you anyway, but any color on what the plan would be with any excess earnings above the base dividend under the new free structure versus you had previously the supplemental program, is that likely to be reinstituted or any color that? Yeah, so you know previously we had said.

and to raise the base dividend over time, and that's our goal, to continually do that. And we also think there will be substantial supplemental dividends, whether they're declared, you know, once a year and paid over four quarters or declared over each quarter will sort of, you know, really depend on both our, you know, where our spillover is, of which we have a substantial amount right now, and, you know, where the earnings were. So the answer really is yes, we expect there to be meaningful supplemental dividends paid.

substantially more than that once the feet changes kick in.

Got it. Thank you. Thank you.

And once again, as a reminder to ask a question today, that is star and one. And we'll go next to their cute with Bank of America. Please go ahead. Your line is open.

Thank you. Congratulations on the promotions and the enhanced shareholder alignment. My question revolves around credit. So based on the forward curve and kind of given the comments on the overall, I think you had mentioned the mid cap portfolio at EBITDA growth. Could you comment on interest coverage and how high benchmark rates would need to rise before debt service coverage, or I guess, or interest coverage would trend closer to one times versus...

especially in a rising rate environment like we've seen, they're set in advance of the particular period. And so right now we're at 2.8 times and that reflects kind of probably on average three months ago LIBOR, which was as opposed to the 2.8 that we see today, something more like sub-two or kind of in the mid-one.

better equipped to deal with the increase in interest rates.

Okay, thank you for that. And then just in terms of, I might have missed this earlier, but in terms of portfolio, the BDC portfolio overlap, excluding Merck's, what portion of the BDC portfolio was also concreund vested with with MidCap.

Yeah, 97%, 98%. Okay. Um, yeah. Um, darn near 100. Yep.

Okay, great. Thank you.

And we'll take our next question from Finnean O'Shea with Wells Fargo. Please go ahead.

Hi, everyone. First, a follow on Melissa's earlier question. I think you said there's no changes on the inside.

But can you bridge us to the sort of material concession that MidCap has made by investing at NAV? I think there are third party investors there, right? So how do they look at it? Any color you could provide there?

Sure, I mean, MidCap has, you know, a economic relationship with Apollo as its manager. And so as part of that, you know, it's part of that aligning investment, you know, we take into account the overall economic relationship with Apollo, which is sort of adjusted all the time. As an example, you know, we have taken great pains to ensure that all origination that's done anywhere to Apollo, including MidCap, didn't.

A.I. and D or you know MF I see now gets full economics on those deals despite the fact that there have been you know other B.D.C. That have kept profits at the manager the way that has been true up before is that Apollo has paid for some of that origination you know paid mid cap as the manager right it's like something that would be a Rel of an effectively the A.I. and B. Shareholder's other than they're getting full economics and so you know we we are you know this sort of the strategic An economics relationship with the cabinet Apollo were sort of broad and complicated and what this this is an important

and then just...

expanding on some what you said there I was going to ask about future growth potential and you know in the event this and and future better performance might drive you above net asset value can you talk about what your

you know capital formation or raising plans would look like. There are a lot of models out there on periodic secondaries, on private to public or sorry yeah private to publics and some keep their shareholder bases very tight just sort of where you would fall on the spectrum any sort of initial thoughts.

Yeah, I mean, I think, you know, we think the opportunity to invest in assets of this quality is much larger than AI&V's capital base right now. So we think that there is an opportunity for people to, you know, drive good returns for the capital that would invest at NAV or well above NAV, meaning we're confident in our dividend and, you know, and our ability to sort of...

you know cover that well and grow it and pay supplemental as we talked about before uh... you know obviously we're also conscious though of our car and shareholder and being able to sort of you know drive upside for them as well the interesting thing is for us those things uh... don't conflict right now and that's because you know we still have a a little bit of a drag on our earnings you know of sort of some of the old assets in our art still not generating income

And so raising money at NAV or above NAV spreads that out over a broader base and is accretive in and of itself even to the existing shareholders. So the answer is we would expect to grow our capital if we traded enough above NAV to sort of support that because we just think that the opportunity is there. As you can see from the amount of origination coming through mid cap and now the amount that the pie has increased..

Sure, very helpful. Thanks for taking the questions and appreciate all the progressive moves you all made. Thank you very much.

In our last question, we'll come from Sid Dev with Red Deer Investments. Please go ahead.

Thanks for the questions and congrats on the overall positioning reset. Two questions, first on leverage and second, following up on that broader fit within the Apollo ecosystem and growth goals.

Is 1.35 to 1.5 versus 1.4 to 1.6 really just splitting hairs given, you know, how mid cap levers its own loan portfolio at a very different sort of level. And one could argue maybe something at 1.75 to closer to two would be even comfortable given where the loan book is heading. And then second.

Given the dependency you mentioned on trading at or above NAV to raise equity capital, is this the best vehicle to give access to middle market loans to third party investors, given for example ADS has raised, I think, some are around $2 billion within six months in the non-traded reach channel and is this?

How is your thinking around that limitation of always having to trade at or above NAV to grow and align with doubling yield over time for Apollo?

Yeah, well, so the first question with regard to leverage is that...

You know, our discussion with regard to risk related to leverage is that 1.5 times, 1.6 times, 1.4 times, it is also putting hairs. It's all based on leverage, you know, within the AAA or AA of the CLOs of this pool of loans, if we see a loaded. And right, a mid cap is leveraged higher. And so from a risk perspective, we always felt like, you know, that's very safe. The issue is we can't lever, you know, more than two times under the BDC rules, and in fact,

You have to have enough headroom because you can't control how sort of markets move and things get marked. And so that's why we're talking about outside constituencies like the rating agencies and, you know, and the analyst investors are comfortable with, you know, with more room. So from that perspective it isn't splitting hairs because our, you know, our discussion is fine. You know, we get that we agree there has to be headroom. We believe we have less volatile assets and we've also taken great pains to have a very diversified portfolio so we don't have

the BDCs are have liquidity, but less liquidity, they raise money at the nav as it's marked at each quarter with fees. They have different fee structures, which are better in some ways and not better in others. So, this is, I would say, it's a real focus of Apollo overall, this theme of democratization of finance and making the assets available as broadly as possible. And these changes.

make this a investment i think for it individual investors who want access to these type of assets it it given the pros and cons you know the daily liquidity uh... you know the uh... it gives people uh... another option which is actually fairly good you know because you're you compare to private bdc's but if you compare it to like investing in mid cap individuals can invest in mid cap period you know uh... uh... individuals actually can invest in sort of

you know, either commingled or SMAs that take those assets. You know, you need large checks and need to be institutional. So the ability to get these assets at these fees is not terribly dissimilar to the fees that institutions are paying in those different structures. And so, you know, I think it actually is pretty meaningful, and I think if you looked at Apollo overall and said, what's Apollo's focus over the next five to ten years, it's to grow assets and grow assets.

obviously all these asset managers want to grow assets, but grow assets in a way that you know allows the broadest set of people to access them. And this is a really sort of you know good way we think. So hopefully that answers the question.

Yep, perfect. Thank you so much. And thanks for the good work as the CEO of the past five years.

And there are no further questions at this time. I'll turn the call back over to the management for any closing remarks.

Thanks, and thank you everybody for listening to today's call. On behalf of the team, thank you for your time today. Feel free to reach out if you have any questions. Have a good day. Thank you, and this does conclude today's program. Thank you for your participation. You may disconnect us anytime.

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