Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED SEPTEMBER 30, 2010

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 814-00646

 

 

APOLLO INVESTMENT CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Maryland   52-2439556
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

9 West 57th Street

37th Floor

New York, N.Y.

  10019
(Address of principal executive office)   (Zip Code)

(212) 515-3450

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  x

      Accelerated filer  ¨   Non-accelerated filer  ¨    Smaller Reporting Company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No  x

The number of shares of the registrant’s Common Stock, $.001 par value, outstanding as of November 4, 2010 was 195,044,683.

 

 

 


Table of Contents

 

APOLLO INVESTMENT CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2010

TABLE OF CONTENTS

 

         Page  
  PART I. FINANCIAL INFORMATION   

Item 1.

 

Financial Statements

     3   
 

Statements of Assets and Liabilities as of September 30, 2010 and March 31, 2010

     3   
 

Statements of Operations for the three and six months ended September 30, 2010 and September  30, 2009

     4   
 

Statements of Changes in Net Assets for the six months ended September 30, 2010 and the year ended March 31, 2010

     5   
 

Statements of Cash Flows for the six months ended September 30, 2010 and September 30, 2009

     6   
 

Schedule of Investments as of September 30, 2010

     7   
 

Schedule of Investments as of March 31, 2010

     17   
 

Notes to Financial Statements

     27   
 

Report of Independent Registered Public Accounting Firm

     43   

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     44   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     54   

Item 4.

 

Controls and Procedures

     55   
 

 

PART  II. OTHER INFORMATION

  

Item 1.

 

Legal Proceedings

     56   

Item 1A.

 

Risk Factors

     56   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     56   

Item 3.

 

Defaults upon Senior Securities

     56   

Item 5.

 

Other Information

     56   

Item 6.

 

Exhibits

     57   
 

Signatures

     58   

 

2


Table of Contents

 

PART I. FINANCIAL INFORMATION

In this Quarterly Report, “Apollo Investment”, “Company”, “AIC”, “Fund”, “we”, “us” and “our” refer to Apollo Investment Corporation unless the context otherwise states.

Item 1. Financial Statements

APOLLO INVESTMENT CORPORATION

STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except per share amounts)

 

     September 30, 2010
(unaudited)
    March 31, 2010  

Assets

    

Non-controlled/non-affiliated investments, at value (cost—$2,896,423 and $2,782,880, respectively)

   $ 2,774,955      $ 2,677,893   

Non-controlled/affiliated investments, at value (cost—$103,178 and $102,135, respectively)

     102,771        83,136   

Controlled investments, at value (cost—$359,290 and $357,590, respectively)

     74,244        92,551   

Cash equivalents, at value (cost—$0 and $449,852, respectively)

     —          449,828   

Cash

     26,005        7,040   

Foreign currency (cost—$1,695 and $30,705, respectively)

     1,699        30,717   

Receivable for investments sold

     —          49,643   

Interest receivable

     48,366        43,139   

Dividends receivable

     6,044        5,700   

Miscellaneous income receivable

     939        788   

Receivable from investment adviser

     —          611   

Prepaid expenses and other assets

     19,611        24,070   
                

Total assets

   $ 3,054,634      $ 3,465,116   
                

Liabilities

    

Credit facility payable (see note 7 & 12)

   $ 1,093,419      $ 1,060,616   

Payable for investments and cash equivalents purchased

     13,012        549,009   

Dividends payable

     54,449        49,340   

Management and performance-based incentive fees payable (see note 3)

     27,575        26,363   

Interest payable

     1,972        2,132   

Accrued administrative expenses

     616        1,722   

Other liabilities and accrued expenses

     1,277        3,128   
                

Total liabilities

   $ 1,192,320      $ 1,692,310   
                

Net Assets

    

Common stock, par value $.001 per share, 400,000 and 400,000 common shares authorized, respectively, and 194,460 and 176,214 issued and outstanding, respectively

   $ 194      $ 176   

Paid-in capital in excess of par (see note 2f)

     2,860,047        2,645,687   

Undistributed net investment income (see note 2f)

     87,161        104,878   

Accumulated net realized loss (see note 2f)

     (668,781     (583,270

Net unrealized depreciation

     (416,307     (394,665
                

Total net assets

   $ 1,862,314      $ 1,772,806   
                

Total liabilities and net assets

   $ 3,054,634      $ 3,465,116   
                

Net Asset Value Per Share

   $ 9.58      $ 10.06   
                

See notes to financial statements.

 

3


Table of Contents

 

APOLLO INVESTMENT CORPORATION

STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except per share amounts)

 

     Three months ended
September 30,
    Six months ended
September 30,
 
     2010     2009     2010     2009  

INVESTMENT INCOME:

        

From non-controlled/non-affiliated investments:

        

Interest

   $ 76,841      $ 71,875      $ 149,346      $ 147,172   

Dividends

     1,800        3,584        2,720        6,820   

Other income

     3,639        482        5,308        1,751   

From non-controlled/affiliated investments:

        

Interest

     3,188        —          6,342        —     

From controlled investments:

        

Dividends

     6,031        8,462        6,031        11,221   
                                

Total Investment Income

     91,499        84,403        169,747        166,964   
                                

EXPENSES:

        

Management fees (see note 3)

   $ 15,030      $ 13,214      $ 29,584      $ 25,936   

Performance-based incentive fees (see note 3)

     12,545        12,848        22,752        25,180   

Interest and other credit facility expenses

     10,752        4,409        20,646        9,477   

Administrative services expense

     1,412        1,198        2,808        2,507   

Other general and administrative expenses

     1,578        1,344        2,948        3,144   
                                

Total expenses

     41,317        33,013        78,738        66,244   
                                

Net investment income

   $ 50,182      $ 51,390      $ 91,009      $ 100,720   
                                

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, CASH EQUIVALENTS AND FOREIGN CURRENCIES:

        

Net realized gain (loss):

        

Investments and cash equivalents

   $ (87,907   $ (3,321   $ (87,127   $ (101,399

Foreign currencies

     (1,471     224        1,616        67   
                                

Net realized loss

     (89,378     (3,097     (85,511     (101,332
                                

Net change in unrealized gain (loss):

        

Investments and cash equivalents

     120,011        69,386        (17,948     221,221   

Foreign currencies

     (12,649     (8,523     (3,694     (26,978
                                

Net change in unrealized gain (loss)

     107,362        60,863        (21,642     194,243   
                                

Net realized and unrealized gain (loss) from investments, cash equivalents and foreign currencies

     17,984        57,766        (107,153     92,911   
                                

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

   $ 68,166      $ 109,156      $ (16,144   $ 193,631   
                                

EARNINGS (LOSS) PER SHARE (see note 5)

   $ 0.35      $ 0.71      $ (0.08   $ 1.31   
                                

See notes to financial statements.

 

4


Table of Contents

 

APOLLO INVESTMENT CORPORATION

STATEMENTS OF CHANGES IN NET ASSETS

(in thousands, except shares)

 

     Six months ended
September 30, 2010
(unaudited)
    Year ended
March 31, 2010
 

Increase (Decrease) in net assets from operations:

    

Net investment income

   $ 91,009      $ 199,410   

Net realized loss

     (85,511     (473,027

Net change in unrealized gain (loss)

     (21,642     536,907   
                

Net increase (decrease) in net assets resulting from operations

     (16,144     263,290   
                

Dividends and distributions to stockholders:

     (108,726     (181,356
                

Capital share transactions:

    

Net proceeds from shares sold

     204,275        280,823   

Less offering costs

     (427     (618

Reinvestment of dividends

     10,530        14,529   
                

Net increase in net assets from capital share transactions

     214,378        294,734   
                

Total increase in net assets:

     89,508        376,668   

Net assets at beginning of period

     1,772,806        1,396,138   
                

Net assets at end of period

   $ 1,862,314      $ 1,772,806   
                

Capital share activity:

    

Shares sold

     17,250,000        32,200,000   

Shares issued from reinvestment of dividends

     996,410        1,792,583   
                

Net increase in capital share activity

     18,246,410        33,992,583   
                

See notes to financial statements.

 

5


Table of Contents

 

APOLLO INVESTMENT CORPORATION

STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

 

     Six months ended
September 30,
 
     2010     2009  

Cash Flows from Operating Activities:

    

Net Increase (Decrease) in Net Assets Resulting from Operations

   $ (16,144   $ 193,631   

Adjustments to reconcile net increase (decrease):

    

Purchase of investments (including net amortization and capitalized PIK)

     (443,085     (159,641

Proceeds from disposition of investment securities and cash equivalents

     239,620        120,085   

Increase from foreign currency transactions

     1,690        222   

Increase in interest and dividends receivable

     (5,571     (2,235

Decrease in prepaid expenses and other assets

     4,919        2,000   

Increase in management and performance-based incentive fees payable

     1,212        748   

Decrease in interest payable

     (160     (354

Decrease in accrued expenses

     (2,957     (2,300

Increase (decrease) in payable for investments and cash equivalents purchased

     (535,997     18,012   

Decrease (increase) in receivables for investments sold

     49,643        (800

Net change in unrealized depreciation (appreciation) on investments, cash equivalents, foreign currencies and other assets and liabilities

     21,642        (194,243

Net realized loss on investments and cash equivalents

     85,511        101,332   
                

Net Cash Provided (Used) by Operating Activities

   $ (599,677   $ 76,457   
                

Cash Flows from Financing Activities:

    

Net proceeds from the issuance of common stock

   $ 204,275      $ 172,974   

Offering costs from the issuance of common stock

     (427     (385

Dividends paid in cash

     (93,086     (69,318

Borrowings under credit facility

     920,799        261,090   

Payments under credit facility

     (891,757     (443,500
                

Net Cash Provided (Used) by Financing Activities

   $ 139,804      $ (79,139
                

NET DECREASE IN CASH AND CASH EQUIVALENTS

   $ (459,873   $ (2,682

Effect of exchange rates on cash balances

     (8     (12

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

   $ 487,585      $ 6,607   
                

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 27,704      $ 3,913   
                

Non-cash financing activities consist of the reinvestment of dividends totaling $10,530 and $4,637, respectively (in thousands).

See notes to financial statements.

 

6


Table of Contents

 

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited)

September 30, 2010

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON AFFILIATED
PORTFOLIO COMPANIES — 149.0%

  Industry     Par
Amount*
    Cost     Fair
Value(1)
 

CORPORATE DEBT — 136.7%

       

BANK DEBT/SENIOR SECURED LOANS —45.0%(2)

       

1st Lien Bank Debt/Senior Secured Loans — 3.7%

       

Allied Security Holdings LLC, 2/20/15

    Business Services      $ 9,940      $ 9,892      $ 10,002   

Altegrity, Inc., 2/21/15

    Diversified Service        12,469        12,225        12,539   

ATI Acquisition Company, 12/30/14

    Education        13,374        12,903        12,103   

Educate, Inc., 6/14/14

    Education        9,950        9,950        9,702   

Fox Acquisition Sub LLC, 7/14/15

   
 
Broadcasting &
Entertainment
  
  
    1,874        1,695        1,853   

Multiplan, Inc., 8/26/17

    Business Services        4,981        4,882        5,001   

NBTY, Inc., 10/1/17

    Consumer Products        8,000        7,920        8,110   

Playpower, Inc., 6/30/12

    Leisure Equipment        10,890        9,994        9,855   
                   

Total 1st Lien Bank Debt/Senior Secured Loans

      $ 69,461      $ 69,165   
                   

2nd Lien Bank Debt/Senior Secured Loans — 41.3%

       

AB Acquisitions UK Topco 2 Limited (Alliance Boots), 7/9/16 †

    Retail      £ 11,400      $ 20,084      $ 16,168   

AB Acquisitions UK Topco 2 Limited (Alliance Boots), 7/9/16 †

    Retail      3,961        5,530        4,867   

Advantage Sales & Marketing, Inc., 5/5/17

    Grocery      $ 50,000        50,713        50,250   

Asurion Corporation, 7/3/15

    Insurance        121,300        120,320        115,614   

BNY ConvergEx Group, LLC, 4/2/14

    Business Services        83,229        80,987        81,398   

Clean Earth, Inc., 13.00%, 8/1/14

    Environmental        25,000        25,000        25,125   

Datatel, Inc., 12/9/16

    Education        20,000        19,927        20,450   

Dresser, Inc., 5/4/15

    Industrial        42,938        42,680        41,891   

Garden Fresh Restaurant Corp., 12/11/13

    Retail        46,600        46,600        48,883   

Generics International, Inc., 4/30/15

    Healthcare        20,000        19,937        20,000   

Infor Enterprise Solutions Holdings, Inc., Tranche B-1, 3/2/14 †

    Business Services        5,000        5,000        3,275   

Infor Enterprise Solutions Holdings, Inc., 3/2/14 †

    Business Services        15,000        14,897        9,891   

Infor Global Solutions European Finance S.á.R.L., 3/2/14

    Business Services      6,210        8,263        5,413   

IPC Systems, Inc., 6/1/15

    Telecommunications      $ 44,250        41,394        37,253   

Kronos, Inc., 6/11/15

    Electronics        60,000        60,000        56,700   

Ozburn-Hessey Holding Company LLC, 10/8/16

    Logistics        38,000        37,964        37,620   

Ranpak Corp., 12/27/14(3) †

    Packaging        43,550        38,031        41,808   

Ranpak Corp., 12/27/14(4) †

    Packaging      21,970        27,398        28,794   

Sedgwick Holdings, Inc., 5/26/17

    Business Services      $ 25,000        24,637        25,000   

 

See notes to financial statements.

 

7


Table of Contents

 

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2010

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON AFFILIATED
PORTFOLIO COMPANIES — 149.0%

  Industry     Par
Amount*
    Cost     Fair
Value(1)
 

2nd Lien Bank Debt/Senior Secured Loans — (continued)

       

Sheridan Holdings, Inc., 6/15/15

    Healthcare      $ 67,847      $ 67,017      $ 64,183   

TransFirst Holdings, Inc., 6/15/15

    Financial Services        37,512        36,641        34,286   
                   

Total 2nd Lien Bank Debt/Senior Secured Loans

      $ 793,020      $ 768,869   
                   

TOTAL BANK DEBT/SENIOR SECURED LOANS

      $ 862,481      $ 838,034   
                   

Subordinated Debt/Corporate Notes — 91.7%

       

AB Acquisitions UK Topco 2 Limited (Alliance Boots), GBP L+650, 7/9/17

    Retail      £ 41,657      $ 80,549      $ 58,422   

Allied Security Holdings LLC, 13.75%, 8/21/15

    Business Services      $ 20,000        19,683        20,513   

Altegrity Inc., 0.00%, 8/2/16 ¨

    Diversified Service        3,545        1,737        1,703   

Altegrity Inc., 11.75%, 5/1/16 ¨

    Diversified Service        14,639        10,046        14,346   

Altegrity Inc., 12.00%, 11/1/15 ¨

    Diversified Service        100,000        100,000        105,100   

Altegrity Inc., 10.50%, 11/1/15 ¨

    Diversified Service        13,475        11,981        13,441   

American Tire Distributors, Inc., 11.50%,
6/1/18 ¨

    Distribution        25,000        25,000        26,375   

American Tire Distributors, Inc., 9.75%,
6/1/17 ¨

    Distribution        10,000        9,880        10,625   

Angelica Corporation, 15.00%, 2/4/14

    Healthcare        60,000        60,000        64,500   

ATI Acquisition Company, L+1100, 12/30/15

    Education        38,500        37,795        36,960   

BNY ConvergEx Group, LLC, 14.00%, 10/2/14

    Business Services        43,160        36,801        45,145   

Booz Allen Hamilton Inc., 13.00%, 7/31/16

    Consulting Services        19,813        19,901        20,259   

Catalina Marketing Corporation, 11.625%,
10/1/17 ¨

    Grocery        42,175        41,694        46,815   

Catalina Marketing Corporation, 10.50%,
10/1/15 ¨

    Grocery        5,000        5,101        5,350   

Ceridian Corp., 12.25%, 11/15/15 †

    Diversified Service        55,950        55,768        52,593   

Ceridian Corp., 11.25%, 11/15/15 †

    Diversified Service        33,300        32,748        30,636   

Delta Educational Systems, Inc., 14.20%, 5/12/13

    Education        19,634        19,289        20,223   

Dura-Line Merger Sub, Inc., 14.00%, 9/22/14

    Telecommunications        42,654        42,130        43,081   

First Data Corporation, 11.25%, 3/31/16 †

    Financial Services        35,040        29,902        27,506   

First Data Corporation, 9.875%, 9/24/15 †

    Financial Services        20,500        18,155        16,769   

FleetPride Corporation, 11.50%, 10/1/14 ¨

    Transportation        47,500        47,500        45,600   

Fox Acquisition Sub LLC, 13.375%,
7/15/16 ¨

   
 
Broadcasting &
Entertainment
  
  
    26,125        25,915        27,170   

FPC Holdings, Inc. (FleetPride Corporation), 14.00%, 6/30/15 ¨

    Transportation        37,846        38,047        38,413   

General Nutrition Centers, Inc., 10.75%, 3/15/15 †

    Retail        24,500        24,771        25,327   

General Nutrition Centers, Inc., L+450, 3/15/14 †

    Retail        12,275        12,242        12,122   

 

See notes to financial statements.

 

8


Table of Contents

 

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2010

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON AFFILIATED
PORTFOLIO COMPANIES — 149.0%

  Industry     Par
Amount*
    Cost     Fair
Value(1)
 

Subordinated Debt/Corporate Notes — (continued)

       

Goodman Global Inc., 13.50%, 2/15/16

    Manufacturing      $ 25,000      $ 25,665      $ 27,500   

Hub International Holdings, 10.25%,
6/15/15 ¨

    Insurance        36,232        34,882        34,964   

Intelsat Bermuda Ltd., 11.25%, 2/4/17

   
 
Broadcasting &
Entertainment
  
  
    90,000        91,996        97,013   

Laureate Education, Inc., 11.75%, 8/15/17 ¨

    Education        53,540        51,677        56,351   

LVI Services, Inc., 17.25%, 11/16/12 ***

    Environmental        55,560        53,263        5,419   

MW Industries, Inc., 14.50%, 5/1/14

    Manufacturing        61,876        61,141        65,650   

NCO Group Inc., 11.875%, 11/15/14

    Consumer Finance        16,630        14,264        15,133   

N.E.W. Holdings I, LLC, L+750, 3/23/17

    Consumer Services        40,000        40,000        39,700   

Nielsen Finance LLC, 0% / 12.50%, 8/1/16

    Market Research        61,000        58,029        61,114   

Pacific Crane Maintenance Company, L.P., 15.00%, 2/15/14 ***

    Machinery        54,070        36,825        703   

Playpower Holdings Inc., 15.50%,
12/31/12 ¨

    Leisure Equipment        104,716        104,716        78,013   

Ranpak Holdings, Inc., 15.00%, 12/27/15

    Packaging        72,753        72,753        72,935   

Sorenson Communications, Inc., 10.50%,
2/1/15 ¨

    Consumer Services        32,500        31,949        19,094   

SquareTwo Financial Corp. (Collect America, Ltd.), 11.625%, 4/1/17 ¨

    Consumer Finance        53,000        52,123        47,700   

The Servicemaster Company, 10.75%,
7/15/15 ¨

    Diversified Service        52,173        50,111        55,673   

TL Acquisitions, Inc. (Thomson Learning), 13.25%, 7/15/15 ¨

    Education        72,500        72,270        72,681   

TL Acquisitions, Inc. (Thomson Learning), 10.50%, 1/15/15 ¨

    Education        22,000        20,812        21,973   

US Foodservice, 10.75%, 6/30/15 ¨

   
 
Beverage, Food &
Tobacco
  
  
    81,543        64,555        83,173   

U.S. Renal Care, Inc., 13.25%, 5/24/17

    Healthcare        20,132        20,132        20,132   

Varietal Distribution, 10.75%, 6/30/17

    Distribution      1,127        1,384        1,497   

Varietal Distribution, 10.75%, 6/30/17

    Distribution      $ 22,204        21,689        21,605   
                   

Total Subordinated Debt/Corporate Notes

      $ 1,786,871      $ 1,707,017   
                   

TOTAL CORPORATE DEBT

      $ 2,649,352      $ 2,545,051   
                   

 

See notes to financial statements.

 

9


Table of Contents

 

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2010

(in thousands, except shares)

 

INVESTMENTS IN NON-CONTROLLED/NON AFFILIATED
PORTFOLIO COMPANIES — 149.0%

  Industry     Par
Amount*
    Cost     Fair
Value(1)
 

COLLATERALIZED LOAN OBLIGATIONS — 1.3%

       

Babson CLO Ltd., Series 2008-2A Class E, L+975, 7/15/18 ¨

    Asset Management      $ 11,000      $ 10,126      $ 10,472   

Babson CLO Ltd., Series 2008-1A Class E, L+550, 7/20/18 ¨

    Asset Management        10,150        7,604        7,880   

Westbrook CLO Ltd., Series 2006-1A, L+370, 12/20/20 ¨

    Asset Management        11,000        6,779        7,014   
                   

TOTAL COLLATERALIZED LOAN OBLIGATIONS

      $ 24,509      $ 25,366   
                   
          Shares              

PREFERRED EQUITY — 1.7%

       

AHC Mezzanine LLC (Advanstar) **

    Media        —        $ 1,063      $ 304   

CA Holding, Inc. (Collect America, Ltd.) Series A **

    Consumer Finance        7,961        788        1,592   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), 13.50%, 5/12/14

    Education        12,360        20,765        21,473   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), 12.50% (Convertible)

    Education        332,500        5,706        5,706   

Varietal Distribution Holdings, LLC, 8.00%

    Distribution        3,097        4,008        2,083   
                   

TOTAL PREFERRED EQUITY

      $ 32,330      $ 31,158   
                   

EQUITY — 9.3%

       

Common Equity/Interests — 8.9%

       

AB Capital Holdings LLC (Allied Security)

    Business Services        2,000,000      $ 2,000      $ 2,130   

Accelerate Parent Corp. (American Tire)

    Distribution        312,500        3,125        3,800   

A-D Conduit Holdings, LLC (Duraline) **

    Telecommunications        2,778        2,778        3,848   

Altegrity Holding Corp.

    Diversified Service        353,399        13,797        13,797   

CA Holding, Inc. (Collect America, Ltd.)
Series A **

    Consumer Finance        25,000        2,500        396   

CA Holding, Inc. (Collect America, Ltd.)
Series AA **

    Consumer Finance        4,294        429        859   

Clothesline Holdings, Inc. (Angelica) **

    Healthcare        6,000        6,000        7,515   

Explorer Coinvest LLC (Booz Allen)

    Consulting Services        430        4,300        9,963   

FSC Holdings Inc. (Hanley Wood LLC) **

    Media        10,000        10,000        —     

Garden Fresh Restaurant Holding, LLC **

    Retail        50,000        5,000        9,588   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.) **

    Education        17,500        175        1,705   

GS Prysmian Co-Invest L.P. (Prysmian Cables & Systems)(5,6)

    Industrial        —          —          256   

LVI Acquisition Corp. (LVI Services, Inc.) **

    Environmental        6,250        2,500        —     

MEG Energy Corp.(7)

    Oil & Gas        2,176,722        55,006        76,069   

 

See notes to financial statements.

 

10


Table of Contents

 

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2010

(in thousands, except shares and warrants)

 

INVESTMENTS IN NON-CONTROLLED/NON AFFILIATED
PORTFOLIO COMPANIES — 149.0%

  Industry     Shares     Cost     Fair
Value(1)
 

Common Equity/Interests — (continued)

       

New Omaha Holdings Co-Invest LP
(First Data) **

    Financial Services        13,000,000      $ 65,000      $ 18,555   

PCMC Holdings, LLC (Pacific Crane) **

    Machinery        50,000        4,000        —     

Penton Business Media Holdings, LLC

    Media        124        4,950        4,950   

Pro Mach Co-Investment, LLC **

    Machinery        150,000        1,500        3,570   

RC Coinvestment, LLC (Ranpak Corp.) **

    Packaging        50,000        5,000        6,470   

Sorenson Communications Holdings, LLC Class A

    Consumer Services        454,828        45        2,010   

Varietal Distribution Holdings, LLC Class A **

    Distribution        28,028        28        —     
                   

Total Common Equity/Interests

      $ 188,133      $ 165,481   
                   
          Warrants              

Warrants — 0.4%

       

CA Holding, Inc. (Collect America, Ltd.),
Common **

    Consumer Finance        7,961      $ 8        —     

Fidji Luxco (BC) S.C.A., Common (FCI) (5) **

    Electronics        48,769        491      $ 4,366   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Common **

    Education        9,820        98        957   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Class A-1 Preferred **

    Education        45,947        459        788   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Class B-1 Preferred **

    Education        104,314        1,043        1,788   
                   

Total Warrants

      $ 2,099      $ 7,899   
                   

TOTAL EQUITY

      $ 190,232      $ 173,380   
                   

Total Investments in Non-Controlled/ Non-Affiliated Portfolio Companies

      $ 2,896,423      $ 2,774,955   
                   

 

See notes to financial statements.

 

11


Table of Contents

 

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2010

(in thousands, except shares and warrants)

 

INVESTMENTS IN NON-CONTROLLED/AFFILIATED

PORTFOLIO COMPANIES — 5.5%(8)

  Industry     Par
Amount*
    Cost     Fair
Value(1)
 

CORPORATE DEBT — 4.4%

       

BANK DEBT/SENIOR SECURED LOANS — 3.8%(2)

       

1st Lien Bank Debt/Senior Secured Loans — 0.1%

       

Gray Wireline Service, Inc., 10/22/12

    Oil & Gas      $ 1,000      $ 1,000      $ 1,000   
                   

2nd Lien Bank Debt/Senior Secured Loans — 3.7%

       

Gray Wireline Service, Inc., 14.00%, 10/22/12

    Oil & Gas      $ 78,039      $ 78,039      $ 69,455   
                   

TOTAL BANK DEBT/SENIOR SECURED LOANS

      $ 79,039      $ 70,455   
                   

Subordinated Debt/Corporate Notes — 0.6%

       

DSI Renal Inc., 17.00%, 4/7/14

    Healthcare      $ 10,419      $ 10,419      $ 10,862   
                   

TOTAL CORPORATE DEBT

      $ 89,458      $ 81,317   
                   
          Shares              

EQUITY — 1.1%

       

Common Equity/Interests — 0.8%

       

CDSI I Holding Company, Inc. (DSI Renal Inc.)

    Healthcare        9,303      $ 9,300      $ 16,286   

Gray Energy Services, LLC Class H
(Gray Wireline) **

    Oil & Gas        1,081        2,000        —     
                   

Total Common Equity/Interests

      $ 11,300      $ 16,286   
                   
          Warrants              

Warrants — 0.3%

       

CDSI I Holding Company, Inc. Series A (DSI Renal Inc.)

    Healthcare        2,031      $ 773      $ 1,635   

CDSI I Holding Company, Inc. Series B (DSI Renal Inc.)

    Healthcare        2,031        645        1,421   

CDSI I Holding Company, Inc. (DSI Renal Inc.) §

    Healthcare        6,093,750        1,002        2,112   

Gray Holdco, Inc. (Gray Wireline)

    Oil & Gas        3,559        —          —     
                   

Total Warrants

      $ 2,420      $ 5,168   
                   

TOTAL EQUITY

      $ 13,720      $ 21,454   
                   

Total Investments in Non-Controlled/Affiliated Portfolio Companies

      $ 103,178      $ 102,771   
                   

 

See notes to financial statements.

 

12


Table of Contents

 

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2010

(in thousands, except shares)

 

INVESTMENTS IN CONTROLLED

PORTFOLIO COMPANIES — 4.0%(9)

   Industry      Shares      Cost      Fair
Value(1)
 

Preferred Equity — 0.0%

           

Grand Prix Holdings, LLC Series A, 12.00% (Innkeepers USA)(10) ***

    
 
Hotels, Motels, Inns
& Gaming
  
  
     2,989,431       $ 101,346       $ —     
                       

EQUITY

           

Common Equity/Interests — 4.0%

           

AIC Credit Opportunity Fund LLC(11)

     Asset Management         —         $ 71,741       $ 67,587   

Generation Brands Holdings, Inc. (Quality Home Brands)

     Consumer Products         750         —           111   

Generation Brands Holdings, Inc. Series H (Quality Home Brands)

     Consumer Products         7,500         2,297         1,111   

Generation Brands Holdings, Inc. Series 2L (Quality Home Brands)

     Consumer Products         36,700         11,242         5,435   

Grand Prix Holdings, LLC (Innkeepers USA)(10) **

    
 
Hotels, Motels, Inns
& Gaming
  
  
     17,335,834         172,664         —     
                       

Total Common Equity/Interests

         $ 257,944       $ 74,244   
                       

TOTAL EQUITY

         $ 257,944       $ 74,244   
                       

Total Investments in Controlled Portfolio Companies

         $ 359,290       $ 74,244   
                       

Total Investments — 158.5%(12)

         $ 3,358,891       $ 2,951,970   
                       

Liabilities in Excess of Other Assets — (58.5%)

              (1,089,656
                 

Net Assets — 100.0%

            $ 1,862,314   
                 

 

See notes to financial statements.

 

13


Table of Contents

 

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2010

(in thousands)

 

 

(1) Fair value is determined in good faith by or under the direction of the Board of Directors of the Company (see note 2).
(2) Includes floating rate instruments that accrue interest at a predetermined spread relative to an index, typically the LIBOR (London Inter-bank Offered Rate), EURIBOR (Euro Inter-bank Offered Rate), GBP LIBOR (London Inter-bank Offered Rate for British Pounds), or the prime rate. At September 30, 2010, the range of interest rates on floating rate bank debt was 4.77% to 11.75%.
(3) Position is held across five US Dollar-denominated tranches with varying yields.
(4) Position is held across three Euro-denominated tranches with varying yields.
(5) Denominated in Euro (€).
(6) The Company is the sole Limited Partner in GS Prysmian Co-Invest L.P.
(7) Denominated in Canadian dollars.
(8) Denotes investments in which we are an “Affiliated Person”, as defined in the 1940 Act, due to owning, controlling, or holding the power to vote, 5% or more of the outstanding voting securities of the investment. Transactions during the six months ended September 30, 2010 in these Affiliated investments are as follows:

 

Name of Issuer

  Fair Value at
March 31, 2010
    Gross
Additions
    Gross
Reductions
    Interest/Dividend
Income
    Fair Value at
September 30, 2010
 

Gray Wireline Service, Inc. 1st Out

  $ 1,000      $ —        $ —        $ 41      $ 1,000   

Gray Wireline Service, Inc. 2nd Out

    59,251        485        —          5,437        69,455   

DSI Renal, Inc., 17.00%

    10,057        559        —          864        10,862   

CDSI I Holding Company, Inc. Common Equity

    10,206        —          —          —          16,286   

Gray Energy Services, LLC Class H Common Equity

    —          —          —          —          —     

CDSI I Holding Company, Inc. Series A Warrant

    854        —          —          —          1,635   

CDSI I Holding Company, Inc. Series B Warrant

    693        —          —          —          1,421   

CDSI I Holding Company, Inc. Contingent Payment Agreement

    1,075        —          —          —          2,112   

Gray Holdco, Inc. Warrant

    —          —          —          —          —     
                                       
  $ 83,136      $ 1,044      $ —        $ 6,342      $ 102,771   
                                       
(9) Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the six months ended September 30, 2010 in these Controlled investments are as follows:

 

Name of Issuer

  Fair Value at
March 31, 2010
    Gross
Additions
    Gross
Reductions
    Interest/Dividend
Income
    Fair Value at
September 30, 2010
 

Grand Prix Holdings, LLC Series A Preferred

  $ 5,268      $ —        $ —        $ —        $ —     

AIC Credit Opportunity Fund LLC Common Equity (10)

    73,514        1,700        —          6,031        67,587   

Generation Brands Holdings, Inc. Common Equity

    230        —          —          —          111   

Generation Brands Holdings, Inc. Series H Common Equity

    2,297       —          —          —          1,111   

Generation Brands Holdings, Inc. Series 2L Common Equity

    11,242        —          —          —          5,435   

Grand Prix Holdings, LLC Common Equity

    —          —          —          —          —     
                                       
  $ 92,551      $ 1,700      $ —        $ 6,031      $ 74,244   
                                       

 

See notes to financial statements.

 

14


Table of Contents

 

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2010

(in thousands)

 

The Company has a 99%, 100%, and 27% equity ownership interest in Grand Prix Holdings LLC, AIC Credit Opportunity Fund LLC, and Generation Brands Holdings, Inc., respectively.

 

(10) See note 14.
(11) See note 6.
(12) Aggregate gross unrealized appreciation for federal income tax purposes is $154,231; aggregate gross unrealized depreciation for federal income tax purposes is $531,489. Net unrealized depreciation is $377,258 based on a tax cost of $3,329,228.
¨ These securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions that are exempt from registration, normally to qualified institutional buyers.
* Denominated in USD unless otherwise noted.
** Non-income producing security
*** Non-accrual status (see note 2m)
Denote securities where the Company owns multiple tranches of the same broad asset type but whose security characteristics differ. Such differences may include level of subordination, call protection and pricing, differing interest rate characteristics, among other factors. Such factors are usually considered in the determination of fair values.
§ Position reflects a contingent payment agreement.

 

See notes to financial statements.

 

15


Table of Contents

 

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

 

Industry Classification

   Percentage of Total
Investments (at
fair value) as of
September 30, 2010
 

Diversified Service

         10.2 %     

Education

           9.6 %     

Healthcare

           7.1 %     

Business Services

           7.0 %     

Retail

           5.9 %     

Insurance

           5.1 %     

Packaging

           5.1 %     

Oil & Gas

           5.0 %     

Broadcasting & Entertainment

           4.3 %     

Grocery

           3.5 %     

Financial Services

           3.3 %     

Manufacturing

           3.2 %     

Asset Management

           3.1 %     

Leisure Equipment

           3.0 %     

Telecommunications

           2.8 %     

Transportation

           2.8 %     

Beverage, Food & Tobacco

           2.8 %     

Distribution

           2.2 %     

Consumer Finance

           2.2 %     

Market Research

           2.1 %     

Electronics

           2.1 %     

Consumer Services

           2.1 %     

Industrial

           1.4 %     

Logistics

           1.3 %     

Environmental

           1.0 %     

Consulting Services

           1.0 %     

Consumer Products

           0.5 %     

Media

           0.2 %     

Machinery

           0.1 %     

Hotels, Motels, Inns & Gaming

           0.0 %     

Publishing

           0.0 %     
        

Total Investments

     100.0 %  
        

 

See notes to financial statements.

 

16


Table of Contents

 

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS

March 31, 2010

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON-
AFFILIATED PORTFOLIO COMPANIES — 151.1%

   Industry      Par
Amount*
     Cost      Fair
Value(1)
 

CORPORATE DEBT — 137.2%

           

Bank Debt/Senior Secured Loans — 44.2%(2)

           

1st Lien Bank Debt/Senior Secured Loans — 1.2%

           

ATI Acquisition Company, 12/30/14

     Education       $ 18,454       $ 17,743       $ 18,038   

FoxCo Acquisition Sub LLC, 7/14/15

    
 
Broadcasting &
Entertainment
  
  
     3,905         3,493         3,788   
                       

Total 1st Lien Bank Debt/Senior Secured Loans

         $ 21,236       $ 21,826   
                       

2nd Lien Bank Debt/Senior Secured Loans — 43.0%

           

AB Acquisitions UK Topco 2 Limited (Alliance Boots), 7/9/16 †

     Retail       £ 11,400       $ 19,983       $ 15,321   

AB Acquisitions UK Topco 2 Limited (Alliance Boots), 7/9/16 †

     Retail       3,961         5,499         4,749   

American Safety Razor Company, LLC, 1/30/14

     Consumer Products       $ 1,000         774         625   

Asurion Corporation, 7/3/15

     Insurance         148,300         147,019         147,605   

BNY ConvergEx Group, LLC, 4/2/14

     Business Services         83,229         80,722         83,229   

C.H.I. Overhead Doors, Inc., 13.00%, 10/22/11

     Building Products         15,000         15,012         15,000   

Clean Earth, Inc., 13.00%, 8/1/14

     Environmental         25,000         25,000         24,875   

Datatel, Inc., 12/9/16

     Education         20,000         19,923         20,350   

Dresser, Inc., 5/4/15

     Industrial         62,938         62,656         60,289   

Educate, Inc., 6/14/14

     Education         10,000         10,000         9,400   

Garden Fresh Restaurant Corp., 12/22/11

     Retail         33,600         32,880         33,600   

Generics International, Inc., 4/30/15

     Healthcare         20,000         19,931         20,000   

Infor Enterprise Solutions Holdings, Inc.,
Tranche B-1, 3/2/14 †

     Business Services         5,000         5,000         3,925   

Infor Enterprise Solutions Holdings, Inc., 3/2/14 †

     Business Services         15,000         14,883         12,581   

Infor Global Solutions European Finance S.á.R.L., 3/2/14

     Business Services       6,210         8,263         6,722   

IPC Systems, Inc., 6/1/15

     Telecommunications       $ 44,250         41,165         37,613   

Kronos, Inc., 6/11/15

     Electronics         60,000         60,000         56,820   

Ozburn-Hessey Holding Company LLC, 10/8/16

     Logistics         35,000         35,000         35,000   

Ranpak Corp., 12/27/14(3) †

     Packaging         43,550         37,564         43,165   

Ranpak Corp., 12/27/14(4) †

     Packaging       21,970         27,074         29,464   

 

See notes to financial statements.

 

17


Table of Contents

 

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2010

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON-

AFFILIATED PORTFOLIO COMPANIES — 151.1%

   Industry      Par
Amount*
     Cost      Fair
Value(1)
 

2nd Lien Bank Debt/Senior Secured Loans — (continued)

           

Sheridan Holdings, Inc., 6/15/15

     Healthcare       $ 67,847       $ 66,948       $ 67,169   

TransFirst Holdings, Inc., 6/15/15

     Financial Services         36,632         35,687         33,519   
                       

Total 2nd Lien Bank Debt/Senior Secured Loans

         $ 770,983       $ 761,021   
                       

TOTAL BANK DEBT/SENIOR SECURED LOANS

         $ 792,219       $ 782,847   
                       

Subordinated Debt/Corporate Notes — 93.0%

           

AB Acquisitions UK Topco 2 Limited (Alliance Boots), GBP L+650, 7/9/17

     Retail       £ 40,847       $ 79,172       $ 56,817   

Advantage Sales & Marketing, Inc., 12.00%, 3/29/14

     Grocery       $ 32,535         32,164         32,860   

Allied Security Holdings LLC, 13.75%, 8/21/15

     Business Services         20,000         19,661         20,500   

Altegrity Inc., 11.75%, 5/1/16 ¨

     Diversified Service         14,639         9,716         13,644   

Altegrity Inc., 10.50%, 11/1/15 ¨

     Diversified Service         13,475         11,852         12,693   

Angelica Corporation, 15.00%, 2/4/14

     Healthcare         60,000         60,000         64,260   

ATI Acquisition Company, L+1100, 12/30/15

     Education         38,500         37,750         38,115   

BNY ConvergEx Group, LLC, 14.00%, 10/2/14

     Business Services         42,730         35,913         44,140   

Booz Allen Hamilton Inc., 13.00%, 7/31/16

     Consulting Services         23,435         23,109         24,197   

Catalina Marketing Corporation, 11.625%,
10/1/17 ¨

     Grocery         42,175         40,997         45,549   

Catalina Marketing Corporation, 10.50%,
10/1/15 ¨

     Grocery         5,000         5,094         5,300   

Ceridian Corp., 13.00%, 11/15/15 †

     Diversified Service         53,250         53,250         52,185   

Ceridian Corp., 11.25%, 11/15/15 †

     Diversified Service         36,000         35,246         34,740   

Cidron Healthcare C S.á.R.L. (Convatec) E+950, 8/1/17

     Healthcare       8,033         12,547         10,923   

Delta Educational Systems, Inc., 14.20%, 5/12/13

     Education       $ 19,517         19,120         19,713   

Dura-Line Merger Sub, Inc., 14.00%, 9/22/14

     Telecommunications         42,363         41,792         42,787   

European Directories (DH5) B.V., 15.735%,
7/1/16 † ***

     Publishing       3,452         4,475         —     

European Directories (DH7) B.V., E+950,
7/1/15 † ***

     Publishing         17,454         21,846         5,810   

First Data Corporation, 11.25%, 3/31/16 †

     Financial Services       $ 40,000         33,801         33,500   

First Data Corporation, 9.875%, 9/24/15 †

     Financial Services         45,500         40,129         39,244   

FleetPride Corporation, 11.50%,
10/1/14 ¨

     Transportation         47,500         47,500         46,075   

FoxCo Acquisition Sub LLC, 13.375%, 7/15/16 ¨

    
 
Broadcasting &
Entertainment
  
  
     25,250         25,034         25,250   

FPC Holdings, Inc. (FleetPride Corporation), 14.00%, 6/30/15 ¨

     Transportation         37,846         37,429         35,575   

 

See notes to financial statements.

 

18


Table of Contents

 

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2010

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON-
AFFILIATED PORTFOLIO COMPANIES — 151.1%

   Industry      Par
Amount*
     Cost      Fair
Value(1)
 

Subordinated Debt/Corporate Notes — (continued)

           

General Nutrition Centers, Inc., L+450, 3/15/14 †

     Retail       $ 12,275       $ 12,149       $ 11,630   

General Nutrition Centers, Inc., 10.75%,
3/15/15 †

     Retail         24,500         24,906         25,113   

Goodman Global Inc., 13.50%, 2/15/16

     Manufacturing         25,000         25,518         28,000   

Hub International Holdings, 10.25%,
6/15/15 ¨

     Insurance         33,732         32,498         32,214   

Intelsat Bermuda Ltd., 11.25%, 2/4/17

    
 
Broadcasting &
Entertainment
  
  
     75,000         77,335         79,469   

Laureate Education, Inc., 11.75%,
8/15/17 ¨

     Education         53,540         51,133         56,217   

LVI Services, Inc., 17.25%, 11/16/12

     Environmental         51,061         51,061         15,000   

MW Industries, Inc., 14.50%, 5/1/14

     Manufacturing         61,186         60,375         62,471   

NCO Group Inc., 11.875%, 11/15/14

     Consumer Finance         22,630         18,974         21,758   

N.E.W. Holdings I, LLC, L+750, 3/23/17

     Consumer Services         40,000         40,000         39,600   

Nielsen Finance LLC, 0% / 12.50%, 8/1/16

     Market Research         61,000         54,275         58,255   

Pacific Crane Maintenance Company, L.P., 15.00%, 2/15/14 ***

     Machinery         50,172         36,825         1,505   

PBM Holdings, Inc., 13.50%, 9/29/13

    
 
Beverage, Food &
Tobacco
  
  
     17,723         17,723         18,210   

Playpower Holdings Inc., 15.50%,
12/31/12 ¨

     Leisure Equipment         97,184         97,184         82,325   

Ranpak Holdings, Inc., 15.00%, 12/27/15

     Packaging         67,643         67,643         68,557   

RSA Holdings Corp. of Delaware (American Safety Razor), 13.50%, 1/30/15 ***

     Consumer Products         57,351         55,479         6,882   

Sorenson Communications, Inc., 10.50%,
2/1/15 ¨

     Consumer Services         32,500         31,901         31,444   

SquareTwo Financial Corp. (Collect America, Ltd.), 11.625%, 4/1/17 ¨

     Consumer Finance         55,000         54,046         54,046   

The Servicemaster Company, 10.75%,
7/15/15 ¨

     Diversified Service         52,173         49,286         55,580   

TL Acquisitions, Inc. (Cengage Learning), 13.25%, 7/15/15 ¨

     Education         72,500         72,253         70,748   

TL Acquisitions, Inc. (Cengage Learning), 10.50%, 1/15/15 ¨

     Education         22,000         20,681         21,065   

US Foodservice, 10.25%, 6/30/15 ¨

    
 
Beverage, Food &
Tobacco
  
  
     81,543         62,034         84,498   

Varietal Distribution, 10.75%, 6/30/17

     Distribution         22,204         21,664         20,983   
                       

Total Subordinated Debt/Corporate Notes

         $ 1,762,540       $ 1,649,447   
                       

TOTAL CORPORATE DEBT

         $ 2,554,759       $ 2,432,294   
                       

 

See notes to financial statements.

 

19


Table of Contents

 

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2010

(in thousands, except shares)

 

INVESTMENTS IN NON-CONTROLLED/NON-
AFFILIATED PORTFOLIO COMPANIES — 151.1%

   Industry      Par
Amount*
     Cost      Fair
Value(1)
 

COLLATERALIZED LOAN OBLIGATIONS — 1.5%

           

Babson CLO Ltd., Series 2008-2A Class E, L+975, 7/15/18 ¨

     Asset Management       $ 11,000       $ 10,097       $ 10,690   

Babson CLO Ltd., Series 2008-1A Class E, L+550, 7/20/18 ¨

     Asset Management         10,366         7,676         8,420   

Westbrook CLO Ltd., Series 2006-1A, L+370, 12/20/20 ¨

     Asset Management         11,000         6,684         6,756   
                       

TOTAL COLLATERALIZED LOAN OBLIGATIONS

         $ 24,457       $ 25,866   
                       
            Shares                

PREFERRED EQUITY — 1.6%

           

AHC Mezzanine LLC (Advanstar) **

     Media         1       $ 1,063       $ 298   

CA Holding, Inc. (Collect America, Ltd.) Series A

     Consumer Finance         7,961         788         1,592   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), 13.50%, 5/12/14

     Education         12,360         19,286         19,443   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), 12.50% (Convertible)

     Education         332,500         5,364         5,360   

Varietal Distribution Holdings, LLC, 8.00%

     Distribution         3,097         3,852         1,907   
                       

TOTAL PREFERRED EQUITY

         $ 30,353       $ 28,600   
                       

EQUITY — 10.8%

           

Common Equity/Interests — 10.4%

           

AB Capital Holdings LLC (Allied Security) **

     Business Services         2,000,000       $ 2,000       $ 2,628   

A-D Conduit Holdings, LLC (Duraline) **

     Telecommunications         2,778         2,778         4,381   

CA Holding, Inc. (Collect America, Ltd.)
Series A **

     Consumer Finance         25,000         2,500         1,771   

CA Holding, Inc. (Collect America, Ltd.)
Series AA **

     Consumer Finance         4,294         429         859   

Clothesline Holdings, Inc. (Angelica) **

     Healthcare         6,000         6,000         8,901   

Explorer Coinvest LLC (Booz Allen)

     Consulting Services         430         4,300         8,849   

FSC Holdings Inc. (Hanley Wood LLC) **

     Media         10,000         10,000         167   

Garden Fresh Restaurant Holding, LLC **

     Retail         50,000         5,000         11,455   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.) **

     Education         17,500         175         4,014   

GS Prysmian Co-Invest L.P. (Prysmian Cables & Systems)(5,6)

     Industrial         1         —           385   

LVI Acquisition Corp. (LVI Services, Inc.) **

     Environmental         6,250         2,500         —     

MEG Energy Corp.(7)

     Oil & Gas         2,176,722         55,006         88,202   

New Omaha Holdings Co-Invest LP (First Data) **

     Financial Services         13,000,000         65,000         31,590   

 

See notes to financial statements.

 

20


Table of Contents

 

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2010

(in thousands, except shares and warrants)

 

INVESTMENTS IN NON-CONTROLLED/NON-
AFFILIATED PORTFOLIO COMPANIES — 151.1%

   Industry      Shares      Cost      Fair
Value(1)
 

Common Equity/Interests — (continued)

           

PCMC Holdings, LLC (Pacific Crane) **

     Machinery         50,000       $ 4,000       $ —     

Penton Business Media Holdings, LLC

     Media         124         4,950         4,950   

Pro Mach Co-Investment, LLC **

     Machinery         150,000         1,500         4,200   

RC Coinvestment, LLC (Ranpak Corp.) **

     Packaging         50,000         5,000         5,088   

Sorenson Communications Holdings, LLC Class A

    
 
Consumer
Services
  
  
     454,828         45         6,080   

Varietal Distribution Holdings, LLC
Class A **

     Distribution         28,028         28         —     
                       

Total Common Equity/Interests

         $ 171,211       $ 183,520   
                       
            Warrants                

Warrants — 0.4%

           

CA Holding, Inc. (Collect America, Ltd.), Common

     Consumer Finance         7,961       $ 8         —     

Fidji Luxco (BC) S.C.A., Common (FCI)(5) **

     Electronics         48,769         491       $ 2,939   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Common **

     Education         9,820         98         2,252   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Class A-1 Preferred **

     Education         45,947         460         741   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), Class B-1 Preferred **

     Education         104,314         1,043         1,681   
                       

Total Warrants

         $ 2,100       $ 7,613   
                       

TOTAL EQUITY

         $ 173,311       $ 191,133   
                       

Total Investments in Non-Controlled/ Non-Affiliated Portfolio Companies

         $ 2,782,880       $ 2,677,893   
                       

 

See notes to financial statements.

 

21


Table of Contents

 

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2010

(in thousands, except shares and warrants)

 

INVESTMENTS IN NON-CONTROLLED/AFFILIATED
PORTFOLIO COMPANIES — 4.7%(8)

   Industry      Par
Amount*
     Cost      Fair
Value(1)
 

CORPORATE DEBT — 4.0%

           

BANK DEBT/SENIOR SECURED LOANS — 3.4%(2)

           

1st Lien Bank Debt/Senior Secured Loans — 0.1%

           

Gray Wireline Service, Inc., 10/22/12

     Oil & Gas       $ 1,000       $ 1,000       $ 1,000   
                       

2nd Lien Bank Debt/Senior Secured Loans — 3.3%

           

Gray Wireline Service, Inc., 14.00%, 10/22/12

     Oil & Gas       $ 77,554       $ 77,554       $ 59,251   
                       

TOTAL BANK DEBT/SENIOR SECURED LOANS

         $ 78,554       $ 60,251   
                       

Subordinated Debt/Corporate Notes — 0.6%

           

DSI Renal Inc., 17.00%, 4/7/14

     Healthcare       $ 9,860       $ 9,860       $ 10,057   
                       

TOTAL CORPORATE DEBT

         $ 88,414       $ 70,308   
                       
            Shares                

EQUITY — 0.7%

           

Common Equity/Interests — 0.6%

           

CDSI I Holding Company, Inc. (DSI Renal Inc.)

     Healthcare         9,303       $ 9,300       $ 10,206   

Gray Energy Services, LLC Class H (Gray Wireline) **

     Oil & Gas         1,081         2,000         —     
                       

Total Common Equity/Interests

         $ 11,300       $ 10,206   
                       
            Warrants                

Warrants — 0.1%

           

CDSI I Holding Company, Inc. Series A (DSI Renal Inc.)

     Healthcare         2,031       $ 773       $ 854   

CDSI I Holding Company, Inc. Series B (DSI Renal Inc.)

     Healthcare         2,031         645         693   

CDSI I Holding Company, Inc. (DSI Renal Inc.) §

     Healthcare         6,093,750         1,003         1,075   

Gray Holdco, Inc. (Gray Wireline)

     Oil & Gas         3,559         —           —     
                       

Total Warrants

         $ 2,421       $ 2,622   
                       

TOTAL EQUITY

         $ 13,721       $ 12,828   
                       

Total Investments in Non-Controlled/Affiliated Portfolio Companies

         $ 102,135       $ 83,136   
                       

 

See notes to financial statements.

 

22


Table of Contents

 

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2010

(in thousands, except shares)

 

INVESTMENTS IN CONTROLLED

PORTFOLIO COMPANIES — 5.2%(9)

   Industry      Shares      Cost      Fair
Value(1)
 

Preferred Equity — 0.3%

           

Grand Prix Holdings, LLC Series A, 12.00% (Innkeepers USA) ***

    
 
Hotels, Motels, Inns
& Gaming
  
  
     2,989,431       $ 101,346       $ 5,268   
                       

EQUITY

           

Common Equity/Interests — 4.9%

           

AIC Credit Opportunity Fund LLC(10)

     Asset Management          $ 70,041       $ 73,514   

Generation Brands Holdings, Inc. (Quality Home Brands)

     Consumer Products         750         —           230   

Generation Brands Holdings, Inc. Series H (Quality Home Brands)

     Consumer Products         7,500         2,297         2,297   

Generation Brands Holdings, Inc. Series 2L (Quality Home Brands)

     Consumer Products         36,700         11,242         11,242   

Grand Prix Holdings, LLC (Innkeepers USA) **

    
 
Hotels, Motels, Inns
& Gaming
  
  
     17,335,834         172,664         —     
                       

Total Common Equity/Interests

         $ 256,244       $ 87,283   
                       

TOTAL EQUITY

         $ 256,244       $ 87,283   
                       

Total Investments in Controlled Portfolio Companies

         $ 357,590       $ 92,551   
                       

Total Investments — 161.0%(11)

         $ 3,242,605       $ 2,853,580   
                       
            Par
Amount*
               

CASH EQUIVALENTS — 25.3%

           

U.S. Treasury Bill, 0.13%, 7/1/10

     Government       $ 450,000       $ 449,852       $ 449,828   
                       

Total Investments and Cash Equivalents — 186.3%

         $ 3,692,457       $ 3,303,408   

Liabilities in Excess of Other Assets — (86.3%)

              (1,530,602
                 

Net Assets — 100.0%

            $ 1,772,806   
                 

 

See notes to financial statements.

 

23


Table of Contents

 

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2010

(in thousands)

 

 

(1) Fair value is determined in good faith by or under the direction of the Board of Directors of the Company (see note 2).
(2) Includes floating rate instruments that accrue interest at a predetermined spread relative to an index, typically the LIBOR (London Inter-bank Offered Rate), EURIBOR (Euro Inter-bank Offered Rate), GBP LIBOR (London Inter-bank Offered Rate for British Pounds), or the prime rate. At March 31, 2010, the range of interest rates on floating rate bank debt was 4.59% to 10.50%.
(3) Position is held across five US Dollar-denominated tranches with varying yields.
(4) Position is held across three Euro-denominated tranches with varying yields.
(5) Denominated in Euro (€).
(6) The Company is the sole Limited Partner in GS Prysmian Co-Invest L.P.
(7) Denominated in Canadian dollars.
(8) Denotes investments in which we are an “Affiliated Person”, as defined in the 1940 Act, due to owning, controlling, or holding the power to vote, 5% or more of the outstanding voting securities of the investment. Transactions during the fiscal year ended March 31, 2010 in these Affiliated investments are as follows:

 

Name of Issuer

  Fair Value at
March 31, 2009
    Gross
Additions
    Gross
Reductions
    Interest/Dividend
Income
    Fair Value at
March 31, 2010
 

Gray Wireline Service, Inc. 1st Out

  $ —        $ 1,000      $ —        $ 5      $ 1,000   

Gray Wireline Service, Inc. 2nd Out

    —          77,554        —          633        59,251   

DSI Renal, Inc., 17.00%

    —          9,860        —          364        10,057   

CDSI I Holding Company, Inc. Common Equity

    —          9,300        —          —          10,206   

Gray Energy Services, LLC Class H Common Equity

    3,590        —          —          —          —     

CDSI I Holding Company, Inc. Series A Warrant

    —          773        —          —          854   

CDSI I Holding Company, Inc. Series B Warrant

    —          645        —          —          693   

CDSI I Holding Company, Inc. Contingent Payment Agreement

    —          1,003        —          —          1,075   

Gray Holdco, Inc. Warrant

    —          —          —          —          —     
                                       
  $ 3,590      $ 100,135      $ —        $ 1,002      $ 83,136   
                                       
(9) Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the 1940 Act, due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the fiscal year ended March 31, 2010 in these Controlled investments are as follows:

 

Name of Issuer

  Fair Value at
March 31, 2009
    Gross
Additions
    Gross
Reductions
    Interest/Dividend
Income
    Fair Value at
March 31, 2010
 

Grand Prix Holdings, LLC Series A Preferred

  $ 76,557      $ 11,272      $ —        $ 9,351      $ 5,268   

AIC Credit Opportunity Fund LLC Common Equity (10)

    57,294        11,854        21,190        11,309        73,514   

Generation Brands Holdings, Inc. Common Equity

    —          —          —          —          230   

Generation Brands Holdings, Inc. Series H Common Equity

    —          2,297        —          —          2,297   

Generation Brands Holdings, Inc. Series 2L Common Equity

    —          11,242        —          —          11,242   

Grand Prix Holdings, LLC Common Equity

    7,570        —          —          —          —     
                                       
  $ 141,421      $ 36,665      $ 21,190      $ 20,660      $ 92,551   
                                       

 

See notes to financial statements.

 

24


Table of Contents

 

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2010

(in thousands)

 

The Company has a 99%, 100%, and 27% equity ownership interest in Grand Prix Holdings LLC, AIC Credit Opportunity Fund LLC, and Generation Brands Holdings, Inc., respectively.

 

(10) See note 6.
(11) Aggregate gross unrealized appreciation for federal income tax purposes is $164,234; aggregate gross unrealized depreciation for federal income tax purposes is $524,226. Net unrealized depreciation is $359,992 based on a tax cost of $3,663,400.
¨ These securities are exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions that are exempt from registration, normally to qualified institutional buyers.
* Denominated in USD unless otherwise noted.
** Non-income producing security
*** Non-accrual status (see note 2m)
Denote securities where the Company owns multiple tranches of the same broad asset type but whose security characteristics differ. Such differences may include level of subordination, call protection and pricing, differing interest rate characteristics, among other factors. Such factors are usually considered in the determination of fair values.
§ Position reflects a contingent payment agreement.

 

See notes to financial statements.

 

25


Table of Contents

 

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

 

Industry Classification

   Percentage of Total
Investments (at
fair value) as of
March 31, 2010
 

Education

         10.1 %    

Healthcare

           6.8 %    

Insurance

           6.3 %    

Business Services

           6.1 %    

Diversified Service

           5.9 %    

Retail

           5.6 %    

Oil & Gas

           5.2 %    

Packaging

           5.1 %    

Financial Services

           4.8 %    

Broadcasting & Entertainment

           3.8 %    

Beverage, Food & Tobacco

           3.6 %    

Asset Management

           3.5 %    

Manufacturing

           3.2 %    

Telecommunications

           3.0 %    

Grocery

           2.9 %    

Leisure Equipment

           2.9 %    

Transportation

           2.9 %    

Consumer Finance

           2.8 %    

Consumer Services

           2.7 %    

Industrial

           2.1 %    

Electronics

           2.1 %    

Market Research

           2.0 %    

Environmental

           1.4 %    

Logistics

           1.2 %    

Consulting Services

           1.2 %    

Distribution

           0.8 %    

Consumer Products

           0.7 %    

Building Products

           0.5 %    

Publishing

           0.2 %    

Machinery

           0.2 %    

Media

           0.2 %    

Hotels, Motels, Inns & Gaming

           0.2 %    
        

Total Investments

     100.0 %  
        

 

See notes to financial statements.

 

26


Table of Contents

 

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited)

(in thousands except share and per share amounts)

Note 1. Organization

Apollo Investment Corporation, a Maryland corporation organized on February 2, 2004, is a closed-end, non-diversified management investment company that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). In addition, for tax purposes we have elected to be treated as a regulated investment company (“RIC”), under the Internal Revenue Code of 1986, as amended. Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in middle-market companies in the form of mezzanine and senior secured loans, each of which may include an equity component, and, to a lesser extent, by making equity investments in such companies.

Apollo Investment commenced operations on April 8, 2004 receiving net proceeds of $870,000 from its initial public offering selling 62 million shares of common stock at a price of $15.00 per share.

Note 2. Significant Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reported periods. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially.

Interim financial statements are prepared in accordance with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 6 or 10 of Regulation S-X, as appropriate. In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair presentation of financial statements for the interim period, have been included.

The significant accounting policies consistently followed by Apollo Investment are:

(a) Security transactions are accounted for on the trade date;

(b) Under procedures established by our board of directors, we value investments, including certain senior secured debt, subordinated debt and other debt securities with maturities greater than 60 days, for which market quotations are readily available, at such market quotations (unless they are deemed not to represent fair value). We attempt to obtain market quotations from at least two brokers or dealers (if available, otherwise from a principal market maker or a primary market dealer or other independent pricing service). We utilize mid-market pricing as a practical expedient for fair value unless a different point within the range is more representative. If and when market quotations are deemed not to represent fair value, we typically utilize independent third party valuation firms to assist us in determining fair value. Investments maturing in 60 days or less are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value. Investments that are not publicly traded or whose market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of our board of directors. Such determination of fair values may involve subjective judgments and estimates.

With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our board of directors has approved a multi-step valuation process each quarter, as described below:

(1) our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of our investment adviser responsible for the portfolio investment;

 

27


Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

 

(2) preliminary valuation conclusions are then documented and discussed with senior management of our investment adviser;

(3) independent valuation firms engaged by our board of directors conduct independent appraisals and review our investment adviser’s preliminary valuations and make their own independent assessment;

(4) the audit committee of the board of directors reviews the preliminary valuation of our investment adviser and that of the independent valuation firm and responds to the valuation recommendation of the independent valuation firm to reflect any comments; and

(5) the board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of our investment adviser, the respective independent valuation firm and the audit committee.

Investments in all asset classes are valued utilizing a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, our principal market (as the reporting entity) and enterprise values, among other factors. When readily available, broker quotations and/or quotations provided by pricing services are considered in the valuation process of independent valuation firms. For the quarter ended September 30, 2010, there has been no change to the Company’s valuation techniques and related inputs considered in the valuation process.

Accounting Standards Codification (“ASC”) 820 classifies the inputs used to measure these fair values into the following hierarchy:

Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by the Company at the measurement date.

Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.

Level 3: Unobservable inputs for the asset or liability.

In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment.

 

28


Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

 

On October 10, 2008, revised guidance was issued which provides examples of how to determine fair value in a market that is not active. It did not change the fair value measurement principles set forth in ASC 820. Furthermore, on April 9, 2009, the FASB issued additional revised guidance which provides information on estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. It also includes guidance on identifying circumstances that indicate a transaction is not orderly. According to this guidance in the above circumstances, more analysis and significant adjustments to transaction or quoted prices may be necessary to estimate fair value. In addition, it requires disclosure of any changes in valuation techniques and related inputs resulting from the application. The total effect of the change in valuation techniques and related inputs must also be disclosed by major asset category. This revised guidance was effective for periods ending after June 15, 2009. The adoption did not have a material effect on the Company’s financial position or results of operations. Accounting Standards Update No. 2010-06, Improving Disclosure about Fair Value Measurements was released in January 2010 and is effective for periods beginning after December 15, 2009. This update improves financial statement disclosure around transfers in and out of level 1 and 2 fair value measurements, around valuation techniques and inputs and around other related disclosures. Transfers between levels, if any, are recognized at the end of the reporting period. See certain additional disclosures in note 6.

(c) Gains or losses on investments are calculated by using the specific identification method.

(d) The Company records interest and dividend income, adjusted for amortization of premium and accretion of discount, on an accrual basis. Some of our loans and other investments, including certain preferred equity investments may have contractual payment-in-kind (“PIK”) interest or dividends. PIK represents contractual interest or dividends accrued and is added to the cost of the investment on the respective capitalization dates and generally becomes due at maturity. Loan origination fees, original issue discount, and market discounts are capitalized and we amortize such amounts into income. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. We record prepayment premiums on loans and other investments as interest income when we receive such amounts. Structuring fees are recorded as other income when earned.

(e) The Company intends to comply with the applicable provisions of the Internal Revenue Code of 1986, as amended, pertaining to regulated investment companies to make distributions of taxable income sufficient to relieve it of substantially all Federal income taxes. The Company, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income. The Company will accrue excise tax on estimated excess taxable income as required.

(f) Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are reclassified among the Company’s capital accounts. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from accounting principles generally accepted in the United States of America.

(g) Dividends and distributions to common stockholders are recorded as of the record date. The amount to be paid out as a dividend is determined by the board of directors each quarter. Net realized capital gains, if any, are generally distributed or deemed distributed at least annually.

(h) In accordance with Regulation S-X and the AICPA Audit and Accounting Guide for Investment Companies and ASC 810—Consolidation, the Company generally will not consolidate its interest in any company other than in investment company subsidiaries and controlled operating companies substantially all of whose business consists of providing services to the Company. Consequently, the Company generally will not consolidate special purpose entities through which the special purpose entity acquires and holds investments subject to financing with third parties. At September 30, 2010, the Company did not have any such subsidiaries or controlled operating companies that were consolidated. See note 6. In addition and

 

29


Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

pursuant to ASC 860—Transfers and Servicing, the Company may in the future need to consolidate certain special purpose entities involving transfers of our portfolio investments.

(i) The accounting records of the Company are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. The Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. The Company’s investments in foreign securities may involve certain risks, including without limitation: foreign exchange restrictions, expropriation, taxation or other political, social or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments and therefore the earnings of the Company.

(j) The Company may enter into forward exchange contracts in order to hedge against foreign currency risk. These contracts are marked-to-market by recognizing the difference between the contract exchange rate and the current market rate as unrealized appreciation or depreciation. Realized gains or losses are recognized when contracts are settled.

(k) The Company records origination expenses related to its debt obligations as prepaid assets. These expenses are deferred and amortized using the straight-line method over the stated life of the facility.

(l) The Company records expenses related to shelf filings and other applicable offering costs as prepaid assets. These expenses are charged as a reduction of capital upon utilization, in accordance with the AICPA Audit and Accounting Guide for Investment Companies.

(m) Loans and other investments, including certain preferred equity investments are generally placed on non-accrual status when principal or interest/dividend payments are past due 30 days or more and/or when there is reasonable doubt that principal or interest will be collected. Accrued, uncapitalized interest or dividends is generally reversed when an investment is placed on non-accrual status. Interest or dividend payments received on non-accrual designated investments may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual investments are restored to accrual status when past due principal and interest or dividends are paid and/or in management’s judgment, are likely to remain current. To the extent PIK interest or dividends are not expected to be realized, a reserve will be established as required by the AICPA Audit and Accounting Guide for Investment Companies.

(n) The Company defines cash equivalents as securities that are readily convertible into known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only securities with a maturity of three months or less from the date of purchase would qualify, with limited exceptions. The Company deems that certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities would qualify as cash equivalents.

Note 3. Agreements

Apollo Investment has an Investment Advisory and Management Agreement with Apollo Investment Management, L.P. (the “Investment Adviser” or “AIM”), under which the Investment Adviser, subject to the overall supervision of Apollo Investment’s board of directors, will manage the day-to-day operations of, and provide investment advisory services to, Apollo Investment. For providing these services, the Investment Adviser receives a fee from Apollo Investment, consisting of two components—a base management fee and a performance-based incentive fee. The base management fee is determined by taking the average value of Apollo Investment’s gross assets at the end of the two most recently completed calendar quarters calculated at an annual

 

30


Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

rate of 2.00%. The incentive fee has two parts, as follows: one part is calculated and payable quarterly in arrears based on Apollo Investment’s pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies accrued during the calendar quarter, minus Apollo Investment’s operating expenses for the quarter (including the base management fee, any expenses payable under the Administration Agreement, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income does not include any realized capital gains computed net of all realized capital losses and unrealized capital depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of Apollo Investment’s net assets at the end of the immediately preceding calendar quarter, is compared to the rate of 1.75% per quarter (7% annualized). Our net investment income used to calculate this part of the incentive fee is also included in the amount of our gross assets used to calculate the 2% base management fee. Apollo Investment pays the Investment Adviser an incentive fee with respect to Apollo Investment’s pre-incentive fee net investment income in each calendar quarter as follows: (1) no incentive fee in any calendar quarter in which Apollo Investment’s pre-incentive fee net investment income does not exceed 1.75%, which we commonly refer to as the performance threshold; (2) 100% of Apollo Investment’s pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds 1.75% but does not exceed 2.1875% in any calendar quarter; and (3) 20% of the amount of Apollo Investment’s pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter. These calculations are appropriately pro rated for any period of less than three months. The effect of the fee calculation described above is that if pre-incentive fee net investment income is equal to or exceeds 2.1875%, the Investment Adviser will receive a fee of 20% of Apollo Investment’s pre-incentive fee net investment income for the quarter. The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory and Management Agreement, as of the termination date) and will equal 20% of Apollo Investment’s cumulative realized capital gains less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment basis at the end of each calendar year) and all capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the Investment Adviser.

For the three and six months ended September 30, 2010, the Company accrued $15,030 and $29,584, respectively, in base management fees and $12,545 and $22,752, respectively, in performance-based incentive fees. For the three and six months ended September 30, 2009, the Company accrued $13,214 and $25,936, respectively, in base management fees and $12,848 and $25,180, respectively, in performance-based incentive fees.

Apollo Investment has also entered into an Administration Agreement with Apollo Investment Administration, LLC (the “Administrator”) under which the Administrator provides administrative services for Apollo Investment. For providing these services, facilities and personnel, Apollo Investment reimburses the Administrator for Apollo Investment’s allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration Agreement, including rent and Apollo Investment’s allocable portion of its chief financial officer and chief compliance officer and their respective staffs. The Administrator will also provide, on Apollo Investment’s behalf, managerial assistance to those portfolio companies to which Apollo Investment is required to provide such assistance.

For the three and six months ended September 30, 2010, the Company accrued expenses under the Administration Agreement of $1,412 and $2,808, respectively. For the three and six months ended September 30, 2009, the Company accrued expenses under the Administration Agreement of $1,198 and $2,507, respectively.

 

31


Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

 

On December 21, 2009, Apollo Investment amended its Amended and Restated Senior Secured Revolving Credit Agreement dated March 31, 2006 (the “Facility”), among Apollo Investment, the lenders party thereto and JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent for the lenders. The amendment extended the maturity date of certain lenders’ commitments totaling $1,178,750 until April 12, 2013, with the pricing reset to 300 basis points over LIBOR. Non-extended lenders whose commitments will expire on April 13, 2011 totaled $380,000. Pricing with respect to the non-extended commitments remains at 100 basis points over LIBOR. The Facility permits Apollo Investment to seek additional commitments from new and existing lenders in the future, up to an aggregate Facility size not to exceed $2,000,000. As of September 2010, Apollo Investment received an additional lender commitment with a maturity date of April 12, 2013 of $50,000 under the Facility. The Facility is used to supplement Apollo’s equity capital to make additional portfolio investments and for general corporate purposes. From time to time, certain of the lenders provide customary commercial and investment banking services to Apollo Investment and its affiliates. JPMorgan also serves as custodian and fund accounting agent for Apollo Investment.

Note 4. Net Asset Value Per Share

At September 30, 2010, the Company’s total net assets and net asset value per share were $1,862,314 and $9.58, respectively. This compares to total net assets and net asset value per share at March 31, 2010 of $1,772,806 and $10.06, respectively.

Note 5. Earnings (Loss) Per Share

The following information sets forth the computation of basic and diluted earnings (loss) per share for the three and six months ended September 30, 2010 and September 30, 2009, respectively:

 

     Three months ended
September 30,
     Six months ended
September 30,
 
     2010      2009      2010     2009  

Numerator for increase (decrease) in net assets per share:

   $ 68,166       $ 109,156       $ (16,144   $ 193,631   

Denominator for basic and diluted weighted average shares:

     194,460,328         152,897,366         191,135,686        147,588,520   

Basic and diluted earnings (loss) per share:

   $ 0.35       $ 0.71       $ (0.08   $ 1.31   

Note 6. Investments

AIC Credit Opportunity Fund LLC—We own all of the common member interests in AIC Credit Opportunity Fund LLC (“AIC Holdco”), which was formed for the purpose of holding various financed investments. Effective in June 2008, we invested $39,500 in a special purpose entity wholly owned by AIC Holdco, AIC (FDC) Holdings LLC (“Apollo FDC”), which was used to purchase a Junior Profit-Participating Note due 2013 in principal amount of $39,500 (the “Junior Note”) from Apollo I Trust (the “Trust”). The Trust also issued a Senior Floating Rate Note due 2013 (the “Senior Note”) to an unaffiliated third party (“FDC Counterparty”) in principal amount of $39,500 paying interest at Libor plus 1.50%, increasing over time to Libor plus 2.0%. The Trust used the aggregate $79,000 proceeds to acquire $100,000 face value of a senior subordinated loan of First Data Corporation (the “FDC Reference Obligation”) due 2016 and paying interest at 11.25% per year. The Junior Note generally entitles Apollo FDC to the net interest and other proceeds due under the FDC Reference Obligation after payment of interest due under the Senior Notes, as described above. In addition, Apollo FDC is entitled to 100% of any realized appreciation in the FDC Reference Obligation and, since the Senior Note is a

 

32


Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

non-recourse obligation, Apollo FDC is exposed up to the amount of equity used by AIC Holdco to fund the purchase of the Junior Note plus any additional margin Apollo decides to post, if any, during the term of the financing.

Through AIC Holdco, effective in June 2008, we invested $11,375 in a special purpose entity wholly owned by AIC Holdco, AIC (TXU) Holdings LLC (“Apollo TXU”), which acquired exposure to $50,000 notional amount of a Libor plus 3.5% senior secured delayed draw term loan of Texas Competitive Electric Holdings (“TXU”) due 2014 through a non-recourse total return swap with an unaffiliated third party expiring on October 10, 2013 and pursuant to which Apollo TXU pays interest at Libor plus 1.5% and generally receives all proceeds due under the delayed draw term loan of TXU (the “TXU Reference Obligation”). Like Apollo FDC, Apollo TXU is entitled to 100% of any realized appreciation in the TXU Reference Obligation and, since the total return swap is a non-recourse obligation, Apollo TXU is exposed up to the amount of equity used by AIC Holdco to fund the investment in the total return swap, plus any additional margin we decide to post, if any, during the term of the financing.

Through AIC Holdco, effective in September 2008, we invested $10,022 equivalent, in a special purpose entity wholly owned by AIC Holdco, AIC (Boots) Holdings, LLC (“Apollo Boots”), which acquired €23,383 and £12,465 principal amount of senior term loans of AB Acquisitions Topco 2 Limited, a holding company for the Alliance Boots group of companies (the “Boots Reference Obligations”), out of the proceeds of our investment and a multicurrency $40,876 equivalent non-recourse loan to Apollo Boots (the “Acquisition Loan”) by an unaffiliated third party that matures in September 2013 and pays interest at LIBOR plus 1.25% or, in certain cases, the higher of the Federal Funds Rate plus 0.50% or the lender’s prime-rate. The Boots Reference Obligations pay interest at the rate of LIBOR plus 3% per year and mature in June 2015.

We do not consolidate AIC Holdco or its wholly owned subsidiaries and accordingly only the value of our investment in AIC Holdco is included on our statement of assets and liabilities. The Senior Note, total return swap and Acquisition Loan are non-recourse to AIC Holdco, its subsidiaries and us and have standard events of default including failure to pay contractual amounts when due and failure by each of the underlying Apollo special purpose entities to provide additional credit support, sell assets or prepay a portion of its obligations if the value of the FDC Reference Obligation, the TXU Reference Obligation or the Boots Reference Obligation, as applicable, declines below specified levels. We may unwind any of these transactions at any time without penalty. From time to time Apollo Investment may provide additional capital to AIC Holdco for purposes of funding margin calls under one or more of the transactions described above among other reasons. During the fiscal year ended March 31, 2009, we provided $18,480 in additional capital to AIC Holdco. During the fiscal year ended March 31, 2010, $9,336 of net capital was returned to us from AIC Holdco. During the six months ended September 30, 2010, $1,700 of net capital was provided to AIC Holdco.

 

33


Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

 

Investments consisted of the following as of September 30, 2010 and March 31, 2010.

 

     September 30, 2010      March 31, 2010  
     Cost      Fair Value      Cost      Fair Value  

Bank Debt/Senior Secured Loans

   $ 941,520       $ 908,489       $ 870,773       $ 843,098   

Subordinated Debt/Corporate Notes

     1,797,290         1,717,879         1,772,400         1,659,504   

Collateralized Loan Obligations

     24,509         25,366         24,457         25,866   

Preferred Equity

     133,676         31,158         131,699         33,868   

Common Equity/Interests

     457,377         256,011         438,755         281,009   

Warrants

     4,519         13,067         4,521         10,235   

Cash Equivalents

     —           —           449,852         449,828   
                                   

Totals

   $ 3,358,891       $ 2,951,970       $ 3,692,457       $ 3,303,408   
                                   

At September 30, 2010, our investments were categorized as follows in the fair value hierarchy for ASC 820 purposes:

 

            Fair Value Measurement at Reporting Date Using:  

Description

   September 30,
2010
     Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Bank Debt/Senior Secured Loans

   $ 908,489       $ —         $ —         $ 908,489   

Subordinated Debt/Corporate Notes

     1,717,879         —           —           1,717,879   

Collateralized Loan Obligations

     25,366         —           —           25,366   

Preferred Equity

     31,158         —           —           31,158   

Common Equity/Interests(1)

     256,011         76,069        —           179,942   

Warrants

     13,067         —           —           13,067   
                                   

Total Investments

   $ 2,951,970       $ 76,069      $ —         $ 2,875,901   

Cash Equivalents

     —           —           —           —     
                                   

Total Investments and Cash Equivalents

   $ 2,951,970       $ 76,069      $ —         $ 2,875,901   
                                   

 

(1) MEG Energy Corp. common stock was transferred from Level 3 to Level 1 due to its initial public offering. There were no other transfers into or out of Level 1, Level 2 or Level 3 during the period shown.

 

34


Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

 

At March 31, 2010, our investments and cash equivalents were categorized as follows in the fair value hierarchy for ASC 820 purposes:

 

            Fair Value Measurement at Reporting Date Using:  

Description

   March 31,
2010
     Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Bank Debt/Senior Secured Loans

   $ 843,098       $ —         $ —         $ 843,098   

Subordinated Debt/Corporate Notes

     1,659,504         —           —           1,659,504   

Collateralized Loan Obligations

     25,866         —           —           25,866   

Preferred Equity

     33,868         —           —           33,868   

Common Equity/Interests

     281,009         —           —           281,009   

Warrants

     10,235         —           —           10,235   
                                   

Total Investments

   $ 2,853,580       $ —         $ —         $ 2,853,580   

Cash Equivalents

     449,828         449,828         —           —     
                                   

Total Investments and Cash Equivalents

   $ 3,308,408       $ 449,828       $ —         $ 2,853,580   
                                   

 

35


Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

 

The following chart shows the components of change in our investments categorized as Level 3, for the six months ended September 30, 2010.

 

    Fair Value Measurements Using Significant Unobservable Inputs (Level 3)*  
    Bank Debt /
Senior Secured
Loans
    Subordinated
Debt/Corporate
Notes
    Collateralized
Loan
Obligations
    Preferred
Equity
    Common
Equity/Interests
    Warrants     Total  

Beginning Balance, March 31, 2010

  $ 843,098      $ 1,659,504      $ 25,866      $ 33,868      $ 281,009      $ 10,235      $ 2,853,580   

Total realized gains or losses included in earnings

    (821     (86,299     56        —          —          —          (87,064

Total unrealized gains or losses included in earnings

    (5,355     33,411        (553     (4,686     (64,684     2,832        (39,035

Purchases, including capitalized PIK(1)

    183,146        239,151        213        1,976        18,623        —          443,109   

Sales

    (111,579     (127,888     (216     —          —          —          (239,683

Transfer in and/or out of Level 3(2)

    —          —          —          —          (55,006 )     —          (55,006
                                                       

Ending Balance, September 30, 2010

  $ 908,489      $ 1,717,879      $ 25,366      $ 31,158      $ 179,942      $ 13,067      $ 2,875,901   
                                                       

The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to our Level 3 assets still held at the reporting date and reported within the net change in unrealized gains or losses on investments in our Statement of Operations.

  $ (5,806   $ (35,717   $ (538   $ (4,686   $ (31,488   $ 2,831      $ (75,404
                                                       

 

(1) Includes amortization of premium and/or discount of approximately $3,192, $12,358, $213, $96, $0, $0, and $15,859, respectively.
(2) MEG Energy Corp. common stock was transferred from Level 3 to Level 1 due to its initial public offering. There were no other transfers into or out of Level 1, Level 2 or Level 3 during the period shown.
* Pursuant to fair value measurement and disclosure guidance, the Company currently categories investments by class as shown above.

 

36


Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)