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, 2013

 

¨ 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 8, 2013 was 224,741,351.

 

 

 

 


Table of Contents

APOLLO INVESTMENT CORPORATION

FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2013

TABLE OF CONTENTS

 

        PAGE   
   PART I. FINANCIAL INFORMATION   

Item 1.

   FINANCIAL STATEMENTS      3   
   Statements of Assets and Liabilities as of September 30, 2013 and March 31, 2013      3   
  

Statements of Operations for the three and six months ended September 30, 2013 and September 30, 2012

     4   
  

Statements of Changes in Net Assets for the six months ended September 30, 2013 and the year ended March 31, 2013

     5   
  

Statements of Cash Flows for the six months ended September 30, 2013 and
September 30, 2012

     6   
   Schedule of Investments as of September 30, 2013      7   
   Schedule of Investments as of March 31, 2013      20   
   Notes to Financial Statements      30   
   Report of Independent Registered Public Accounting Firm      57   

Item 2.

  

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

     58   

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      72   

Item 4.

   Controls and Procedures      73   
   PART II. OTHER INFORMATION   

Item 1.

   Legal Proceedings      74   

Item 1A.

   Risk Factors      74   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      74   

Item 3.

   Defaults Upon Senior Securities      74   

Item 4.

   Mine Safety Disclosures      74   

Item 5.

   Other Information      74   

Item 6.

   Exhibits      76   
   Signatures      77   

 

2


Table of Contents

PART I. FINANCIAL INFORMATION

In this Quarterly Report, “Apollo Investment”, the “Company”, “AIC”, “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,
2013
(unaudited)
    March 31, 2013  

Assets

    

Non-controlled/non-affiliated investments, at fair value (cost—$2,564,848 and $2,550,091, respectively)

   $ 2,537,934      $ 2,414,307   

Non-controlled /affiliated investments, at fair value (cost—$154,323 and $124,006, respectively)

     142,024        125,674   

Controlled investments, at fair value (cost—$361,731 and $345,204, respectively)

     349,748        310,418   

Cash

     4,510        3,902   

Foreign currency (cost—$1,566 and $2,293, respectively)

     1,574        2,295   

Receivable for investments sold

     22,324        5,713   

Interest receivable

     42,598        51,990   

Dividends receivable

     3,943        2,703   

Deferred financing costs

     34,302        26,990   

Prepaid expenses and other assets

     859        320   
  

 

 

   

 

 

 

Total assets

   $ 3,139,816      $ 2,944,312   
  

 

 

   

 

 

 

Liabilities

    

Debt (see notes 8 & 11)

   $ 1,082,270      $ 1,156,067   

Payable for investments purchased

     99,655        26,021   

Dividends payable

     44,948        40,578   

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

     28,637        26,509   

Interest payable

     14,955        12,012   

Accrued administrative expenses

     1,104        2,219   

Other liabilities and accrued expenses

     3,603        3,517   
  

 

 

   

 

 

 

Total liabilities

   $ 1,275,172      $ 1,266,923   
  

 

 

   

 

 

 

Net Assets

    

Common stock, par value $.001 per share, 400,000,000 and 400,000,000 common shares authorized, respectively, and 224,741,351 and 202,891,351 issued and outstanding, respectively

   $ 225      $ 203   

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

     3,115,537        2,933,636   

Over-distributed net investment income (see note 2f)

     (32,127     (44,183

Accumulated net realized loss (see note 2f)

     (1,166,288     (1,053,080

Net unrealized depreciation

     (52,703     (159,187
  

 

 

   

 

 

 

Total net assets

   $ 1,864,644      $ 1,677,389   
  

 

 

   

 

 

 

Total liabilities and net assets

   $ 3,139,816      $ 2,944,312   
  

 

 

   

 

 

 

Net asset value per share

   $ 8.30      $ 8.27   
  

 

 

   

 

 

 

See notes to financial statements.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except per share amounts)

 

    Three months ended     Six months ended  
    September 30,
2013
    September 30,
2012
    September 30,
2013
    September 30,
2012
 

INVESTMENT INCOME:

       

From non-controlled/non-affiliated investments:

       

Interest

  $ 79,228      $ 70,275      $ 154,789      $ 142,912   

Dividends

    430        1,012        4,694        2,018   

Other income

    2,217        4,455        6,693        8,498   

From non-controlled/affiliated investments:

       

Interest

    1,025        —          1,728        —     

Dividends

    4,738        750        9,564        1,500   

From controlled investments:

       

Interest

    5,668        1,316        10,577        2,594   

Dividends

    364        6,024        2,260        6,642   

Other income

    38        —          75        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

  $ 93,708      $ 83,832      $ 190,380      $ 164,164   
 

 

 

   

 

 

   

 

 

   

 

 

 

EXPENSES:

       

Management fees (see note 3)

  $ 15,356      $ 13,864      $ 30,113      $ 27,684   

Performance-based incentive fees (see note 3)

    11,545        10,942        23,994        20,458   

Interest and other debt expenses

    17,472        12,529        33,316        28,106   

Administrative services expense

    1,109        769        2,206        1,519   

Other general and administrative expenses

    1,974        1,961        4,105        4,564   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

    47,456        40,065        93,734        82,331   

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

    (3,326     (715     (5,299     (1,380

Expense reimbursements (see note 3)

    (8     —          (8     —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net expenses

    44,122        39,350        88,427        80,951   
 

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

  $ 49,586      $ 44,482      $ 101,953      $ 83,213   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

       

Net realized loss:

       

Investments and cash equivalents

  $ (26,845   $ (40,773   $ (124,756   $ (59,014

Foreign currencies

    1,031        211        3,007        (392

Derivatives

    8,541        —          8,541        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net realized loss

    (17,273     (40,562     (113,208     (59,406
 

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized depreciation/appreciation:

       

Investments and cash equivalents

    60,410        76,274        117,604        36,882   

Foreign currencies

    (9,443     (7,158     (11,120     705   

Derivatives

    (6,855     —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Net change in unrealized depreciation/appreciation

    44,112        69,116        106,484        37,587   
 

 

 

   

 

 

   

 

 

   

 

 

 

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

    26,839        28,554        (6,724     (21,819
 

 

 

   

 

 

   

 

 

   

 

 

 

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

  $ 76,425      $ 73,036      $ 95,229      $ 61,394   
 

 

 

   

 

 

   

 

 

   

 

 

 

EARNINGS PER SHARE—BASIC (see note 5)

  $ 0.34      $ 0.36      $ 0.43      $ 0.30   
 

 

 

   

 

 

   

 

 

   

 

 

 

EARNINGS PER SHARE—DILUTED (see note 5)

  $ 0.33      $ 0.35      $ 0.43      $ 0.30   
 

 

 

   

 

 

   

 

 

   

 

 

 

See notes to financial statements.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

STATEMENTS OF CHANGES IN NET ASSETS

(in thousands, except shares)

 

     Six months ended
September 30,
2013
(unaudited)
    Year ended
March 31, 2013
 

Increase in net assets from operations:

    

Net investment income

   $ 101,953      $ 167,360   

Net realized loss

     (113,208     (74,673

Net change in unrealized depreciation/appreciation

     106,484        11,784   
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

     95,229        104,471   
  

 

 

   

 

 

 

Dividends and distributions to stockholders:

    

From net investment income

     (89,897     (159,629

Return of capital

     —         (2,684
  

 

 

   

 

 

 

Total dividends and distributions to stockholders

     (89,897     (162,313
  

 

 

   

 

 

 

Capital share transactions:

    

Proceeds from shares sold

     182,273        50,000   

Less offering costs

     (350     —    
  

 

 

   

 

 

 

Net increase in net assets from capital share transactions

     181,923        50,000   
  

 

 

   

 

 

 

Total increase (decrease) in net assets:

     187,255        (7,842

Net assets at beginning of period

     1,677,389        1,685,231   
  

 

 

   

 

 

 

Net assets at end of period

   $ 1,864,644      $ 1,677,389   
  

 

 

   

 

 

 

Capital share activity:

    

Shares sold

     21,850,000        5,847,953   
  

 

 

   

 

 

 

Net increase in capital share activity

     21,850,000        5,847,953   
  

 

 

   

 

 

 

 

See notes to financial statements.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

 

     Six months ended September 30,  
             2013                     2012          

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net increase in net assets resulting from operations

   $ 95,229      $ 61,394   

Adjustments to reconcile net increase:

    

PIK interest and dividends

     (16,889     (12,409

Net amortization on investments

     (20,421     (12,673

Amortization of deferred financing costs

     3,827        5,261   

Increase (decrease) from foreign currency transactions

     3,489        (154

Net change in unrealized appreciation/depreciation on investments, cash equivalents, derivatives and foreign currencies

     (106,484     (37,587

Net realized loss on investments, cash equivalents, derivatives and foreign currencies

     113,208        59,406   

Changes in operating assets and liabilities:

    

Purchase of investments

     (1,199,864     (593,797

Proceeds from purchase of derivatives

     4,156        —    

Proceeds from disposition of derivatives

     4,384        —    

Proceeds from disposition of investments and cash equivalents

     1,050,803        597,691   

Decrease in interest and dividends receivable

     8,152        3,398   

Increase (decrease) in prepaid expenses and other assets

     (539     316   

Increase in management and performance-based incentive fees payable

     2,128        520   

Increase in interest payable

     2,943        832   

Decrease in accrued expenses and other liabilities

     (1,029     (1,018

Increase in payable for investments purchased

     73,634        52,718   

Increase (decrease) in receivable for investments sold

     (16,611     479   
  

 

 

   

 

 

 

Net cash provided by operating activities

   $ 116      $ 124,377   
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Proceeds from the issuance of common stock

   $ 182,273      $ 50,000   

Offering costs from the issuance of common stock

     (350     —    

Dividends paid in cash

     (85,527     (79,987

Proceeds from debt

     991,060        335,739   

Payments on debt

     (1,076,552     (409,847

Deferred financing costs paid

     (11,139     (12,556
  

 

 

   

 

 

 

Net cash used in financing activities

   $ (235   $ (116,651
  

 

 

   

 

 

 

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

   $ (119   $ 7,726   

Effect of exchange rates on cash balances

     6        5   

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

   $ 6,197      $ 2,678   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 6,084      $ 10,409   
  

 

 

   

 

 

 

 

 

 

See notes to financial statements.

 

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Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited)

September 30, 2013

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED INVESTMENTS —136.1%

  Industry    
 
Par
Amount*
 
  
    Cost       
 
Fair
Value (1)
 
  

CORPORATE DEBT—128.9%

       

SECURED DEBT—76.1%

       

1st Lien Secured Debt—36.2%

       

Amaya Gaming Group, Inc., L+775, 11/5/15

  Hotels, Motels, Inns
and Gaming
  $ 14,438      $ 14,280      $ 14,437   

Archroma, L+825, 9/30/18 ‡

  Chemicals     35,600        34,888        35,244   

Avanti Communications Group PLC, 10.00%, 10/1/19 ¨

  Telecommunications     25,000        25,000        25,398   

Avaya, Inc., 9.00%, 4/1/19 ¨

  Telecommunications     20,500        21,103        19,923   

Aveta, Inc., L+825, 12/12/17

  Healthcare     64,039        62,362        64,399   

Caza Petroleum Inc., L+1000, 5/23/17

  Oil & Gas     25,000        24,192        23,900   

Delta Educational Systems, Inc., 16.00% (8.00% Cash/8.00% PIK), 12/11/16

  Education     5,220        5,220        5,220   

Endeavour International Corp., 12.00%, 3/1/18† ‡

  Oil & Gas     14,621        14,125        15,279   

Endeavour International Corp., 13.00%, 6/30/14† ‡

  Oil & Gas     30,000        30,485        30,375   

Evergreen Tank Solutions, Inc., L+800, 9/28/18

  Containers,
Packaging, and
Glass
    30,800        30,260        30,761   

Evergreen Tank Solutions, Inc., L+800, 9/28/18

  Containers,
Packaging, and
Glass
    5,479        5,479        5,472   

Garden Fresh Restaurant Corp., P+675 (P+625 Cash/0.50% PIK), 10/2/13 †

  Restaurants     2,511        2,511        1,783   

Garden Fresh Restaurant Corp., P+775 (P+725 Cash/0.50% PIK), 10/2/13 †

  Restaurants     2,511        2,511        1,783   

Magnetation, LLC, 11.00%, 5/15/18 ¨

  Mining     37,750        37,911        36,712   

Maxus Capital Carbon SPE I, LLC (Skyonic Corp.), 13.00%, 9/18/19

  Chemicals     60,000        60,000        60,000   

Miller Energy Resources, Inc., 18.00% (15.00% Cash/3.00% PIK Option), 6/29/17 † ‡

  Oil & Gas     55,307        55,307        57,519   

Miller Energy Resources, Inc., 9.00%, 6/29/17† ‡

  Oil & Gas     20,000        20,000        20,000   

Molycorp, Inc., 10.00%, 6/1/20 ‡

  Diversified Natural
Resources,
Precious Metals
and Minerals
    34,268        33,847        34,161   

New Publishing Holdings (F&W Media), L+650, 6/30/18

  Printing &
Publishing
    15,960        14,724        15,641   

Osage Exploration & Development, Inc., L+1500, 4/27/15 ‡

  Oil & Gas     15,000        14,765        15,056   

Panda Sherman Power, LLC, L+750, 9/14/18

  Energy     15,000        14,806        15,262   

Panda Temple Power, LLC, L+1000, 7/18/18

  Energy     25,500        25,064        26,241   

Pelican Energy, LLC, 10.00% (7.00% Cash / 3.00% PIK), 12/31/18 ‡

  Oil & Gas     13,021        12,607        13,281   

Spotted Hawk Development LLC, 14.00% (13.00% Cash/ 1.00% PIK), 6/30/16 ‡

  Oil & Gas     24,185        23,482        23,290   

Sunrun Solar Owner IX, LLC, 9.079%, 12/31/24

  Energy     3,307        3,161        3,156   

UniTek Global Services Inc., (Revolver) L+925, 4/15/16

  Telecommunications     65,500        65,500        65,500   

Walter Energy Inc., 9.50%, 10/15/19 ¨

  Mining     15,000        14,914        15,550   
     

 

 

   

 

 

 

Total 1st Lien Secured Debt

      $ 668,504      $ 675,343   
     

 

 

   

 

 

 

See notes to financial statements.

 

7


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2013

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED
INVESTMENTS —136.1%

   Industry    Par
Amount*
     Cost      Fair
Value (1)
 

2nd Lien Secured Debt—40.3%

           

Allied Security Holdings, LLC, L+825, 2/2/18

   Business Services    $ 31,000       $ 30,784       $ 31,368   

Armor Holdings, Inc. (American Stock Transfer and Trust Company), L+900, 12/22/20

   Financial Services      8,000         7,843         7,950   

Ardent Medical Services, Inc., L+950, 1/2/19

   Healthcare      15,000         14,655         15,281   

Arysta Lifescience Corporation, L+700, 11/22/20 ‡

   Chemicals      17,874         17,704         17,863   

Avaya, Inc., 10.50%, 3/1/21 ¨

   Telecommunications      16,577         15,866         13,386   

Brock Holdings III, Inc., L+825, 3/16/18

   Environmental
Services
     25,000         24,641         25,250   

Confie Seguros II, L+900, 5/8/19

   Insurance      27,344         27,077         27,566   

Deltek, Inc., L+875, 6/30/20

   Business Services      27,273         27,006         27,546   

Garden Fresh Restaurant Corp., L+1175
PIK, 12/11/13

   Restaurants      48,955         49,853         45,528   

GCA Services Group, Inc., L+800, 10/31/20

   Diversified Service      28,547         28,602         29,047   

GETCO Financing Escrow LLC (Knight Capital Group), 8.25%, 6/15/18 ¨

   Financial Services      41,033         40,220         40,828   

Grocery Outlet Inc., L+925 6/17/19

   Grocery      8,674         8,515         8,815   

HD Vest Inc., L+800, 6/18/19 ‡

   Financial Services      9,396         9,285         9,302   

Healogics, Inc., L+800, 2/5/20

   Healthcare      10,000         10,117         10,225   

Insight Pharmaceuticals, LLC, L+1175, 8/25/17

   Consumer Products      15,448         15,220         15,680   

IPC Systems, Inc., L+525, 5/31/15

   Telecommunications      39,250         38,067         33,461   

Kronos, Inc., L+850, 4/26/20

   Business Services      61,358         60,556         63,698   

Ranpak Corp., L+725, 4/23/20

   Packaging      22,000         21,789         22,440   

Sedgwick Holdings, Inc., L+700, 12/12/18

   Business Services      15,225         15,151         15,501   

SESAC Holdco II LLC, L+875, 8/8/19

   Broadcasting &
Entertainment
     10,750         10,887         11,019   

Smart & Final Stores LLC, L+925, 11/8/20

   Grocery      12,392         12,046         12,640   

Sprint Industrial Holdings, LLC, L+1000, 11/14/19

   Containers,
Packaging, and
Glass
     13,500         13,239         13,613   

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

   Financial Services      51,079         49,617         53,888   

Transfirst Holdings Inc., L+975, 6/20/18

   Financial Services      64,750         63,195         66,045   

TriNet HR Corporation, L+775, 2/12/21

   Business Services      7,130         6,988         6,961   

U.S. Renal Care, Inc., L+900, 1/3/20†

   Healthcare      11,927         11,984         12,158   

U.S. Renal Care, Inc., L+750, 7/3/20†

   Healthcare      10,100         9,899         10,151   

Valerus Compression Services, LP, 11.50%, 3/26/18

   Manufacturing      40,000         40,000         40,800   

Venoco, Inc., 8.875%, 2/15/19

   Oil & Gas      13,050         13,294         13,104   

Vertafore, Inc., L+825, 10/29/17

   Business Services      49,260         48,933         50,153   
        

 

 

    

 

 

 

Total 2nd Lien Secured Debt

         $ 743,033       $ 751,267   
        

 

 

    

 

 

 

 

See notes to financial statements.

 

8


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2013

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/
NON-AFFILIATED INVESTMENTS —136.1%

   Industry    Par
Amount*
     Cost     Fair
Value (1)
 

Unfunded Revolver Obligations— (0.4)%

          

Advantage Sales & Marketing, Inc., (Revolver) L+400, 12/17/15 (9)

   Grocery    $ 5,500       $ —       $ (413

Avaya, Inc., (Revolver) L+275, 10/26/16 (9)

   Telecommunications      26,185         (4,398     (4,255

BMC Software Inc., (Revolver), L+400, 8/9/18 (9)

   Business Services      24,000         (2,861     (1,800

Confie Seguros II, (Revolver), L+525, 11/9/17 (9)

   Insurance      4,500         (450     (405

UniTek Global Services Inc., (Revolver) L+925, 4/15/16

   Telecommunications      9,500         —         —    
        

 

 

   

 

 

 

Total Unfunded Revolver Obligations

         $ (7,709   $ (6,873
        

 

 

   

 

 

 

TOTAL SECURED DEBT

         $ 1,403,828      $ 1,419,737   
        

 

 

   

 

 

 

UNSECURED DEBT—52.8%

          

Allied Nevada Gold Corp., 8.75%, 6/2/19 ¨

   Diversified Natural
Resources, Precious
Metals and Minerals
     CAD 25,357       $ 22,924      $ 17,638   

Altegrity, Inc., 0.00%, 8/2/16 ¨

   Diversified Service    $ 3,545         2,506        1,489   

Altegrity, Inc., 11.75%, 5/1/16 ¨

   Diversified Service      14,639         12,291        11,034   

Altegrity, Inc., 12.00%, 11/1/15 ¨

   Diversified Service      44,000         44,000        39,160   

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

   Distribution      25,000         25,000        25,450   

BCA Osprey II Limited (British Car Auctions), 12.50% PIK, 8/17/17 ‡ †

   Transportation    £ 20,948         33,112        33,329   

BCA Osprey II Limited (British Car Auctions), 12.50% PIK, 8/17/17 ‡ †

   Transportation    12,721         17,458        16,918   

Ceridian Corp., 12.25% Cash or 13.00% PIK, 11/15/15 †

   Diversified Service      14,420         14,417        14,612   

Ceridian Corp., 11.25%, 11/15/15 †

   Diversified Service      35,800         35,803        36,248   

Ceridian Corp., 11.00%, 3/15/21 † ¨

   Diversified Service      34,000         34,000        39,468   

CRC Health Corp., 10.75%, 2/1/16

   Healthcare      13,000         13,099        13,138   

Delta Educational Systems, Inc., 16.00% (10.00% Cash/ 6.00% PIK), 5/12/17

   Education      21,043         20,672        19,833   

Denver Parent Corp.(Venoco), 12.25%, 8/15/18 ¨

   Oil & Gas      25,000         24,338        24,813   

Energy & Exploration Partners, Inc., 15.00%, 04/08/18

   Oil & Gas      25,000         22,200        22,250   

Exova Limited, 10.50%, 10/15/18 ¨ ‡ †

   Business Services    £ 18,000         27,142        31,408   

Exova Limited, 10.50%, 10/15/18 ‡ †

   Business Services      4,655         6,153        8,123   

First Data Corp., 11.25%, 1/15/21 † ¨

   Financial Services    $ 67,000         66,976        69,736   

First Data Corp., 10.625%, 6/15/21 † ¨

   Financial Services      10,000         10,000        10,163   

 

See notes to financial statements.

 

9


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2013

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/
NON-AFFILIATED INVESTMENTS —136.1%

   Industry    Par
Amount*
     Cost      Fair
Value (1)
 

First Data Corp., 11.75% 8/15/21 † ¨

   Financial Services    $ 27,000       $ 27,030       $ 25,920   

First Data Corp., 11.25%, 3/31/16 †

   Financial Services      41,862         38,983         41,914   

First Data Corp., 12.625%, 1/15/21 †

   Financial Services      5,000         5,644         5,507   

inVentiv Health, Inc., 11.00%, 8/15/18 ¨

   Healthcare      150,000         150,000         119,625   

Lonestar Intermediate Super Holdings, LLC (Asurion), L+950, 9/2/19

   Insurance      55,125         55,645         57,881   

Niacet Corporation, 13.00%, 8/28/18

   Chemicals      12,500         12,500         12,500   

PetroBakken Energy Ltd. (Lightstream Resources Ltd), 8.625%, 2/1/20 ‡ ¨

   Oil & Gas      66,082         66,960         64,485   

Symbion Inc., 11.00%, 8/23/15

   Healthcare      5,483         5,483         5,490   

U.S. Security Associates Holdings, Inc., 11.00%, 7/28/18

   Business Services      135,000         135,000         137,565   

Univar Inc., 10.50%, 6/30/18

   Distribution      20,000         20,000         19,940   

Varietal Distribution, 10.75%, 6/30/17 † ¨

   Distribution    11,574         15,104         16,090   

Varietal Distribution, 10.75%, 6/30/17 † ¨

   Distribution    $ 22,204         21,871         22,804   

Wind Acquisition Holdings, 12.25%, 7/15/17 ¨

   Telecommunications      20,000         20,918         19,875   
        

 

 

    

 

 

 

TOTAL UNSECURED DEBT

         $ 1,007,229       $ 984,406   
        

 

 

    

 

 

 

TOTAL CORPORATE DEBT

         $ 2,411,057       $ 2,404,143   
        

 

 

    

 

 

 

STRUCTURED PRODUCTS AND OTHER—3.0%

           

Craft CLO Ltd., L+925, 4/17/20 ‡

   Diversified
Investment Vehicle
   $ 20,000       $ 20,000       $ 20,000   

Dark Castle Holdings, LLC

   Media      33,450         10,343         10,492   

Renaissance Umiat, LLC, ACES, Tax Receivable ** **** ‡

   Oil & Gas      —          14,844         15,073   

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

   Diversified
Investment Vehicle
     11,000         7,508         10,203   
        

 

 

    

 

 

 

TOTAL STRUCTURED PRODUCTS AND OTHER

         $ 52,695       $ 55,768   
        

 

 

    

 

 

 

 

See notes to financial statements.

 

10


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2013

(in thousands, except shares)

 

INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED
INVESTMENTS—136.1%

  Industry   Shares     Cost     Fair
Value (1)
 

PREFERRED EQUITY—0.7%

       

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

  Financial Services     7,961      $ 788      $ 1,592   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), 13.50% PIK, ***

  Education     12,360        27,686        8,707   

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

  Education     332,500        6,863        —    

Varietal Distribution Holdings, LLC, Class A, 8.00% PIK

  Distribution     3,097        5,083        2,852   
     

 

 

   

 

 

 

TOTAL PREFERRED EQUITY

      $ 40,420      $ 13,151   
     

 

 

   

 

 

 

EQUITY—3.5%

       

Common Equity/Interests—2.8%

       

Accelerate Parent Corp. (American Tire Distributors) **

  Distribution     3,125,000      $ 3,125      $ 3,910   

AHC Mezzanine, LLC (Advanstar) **

  Media     —          1,063        820   

Altegrity Holding Corp. **

  Diversified Service     353,399        13,797        731   

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

  Financial Services     25,000        2,500        2,245   

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

  Financial Services     4,294        429        859   

Caza Petroleum, Inc., Net Profits Interest **

  Oil & Gas     —         679        607   

Caza Petroleum, Inc., Overriding Royalty Interest **

  Oil & Gas     —         191        223   

Clothesline Holdings, Inc. (Angelica Corporation) **

  Healthcare     6,000        6,000        3,628   

Explorer Coinvest, LLC (Booz Allen) ** ‡

  Business Services     430        3,292        7,726   

Garden Fresh Restaurant Holding, LLC **

  Restaurants     50,000        5,000        —    

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

  Education     17,500        175        —    

GS Prysmian Co-Invest L.P. (Prysmian Cables & Systems) (2,3) ** ‡

  Manufacturing     —         —         135   

JV Note Holdco, LLC (DSI Renal Inc.) **

  Healthcare     9,303        85        —    

Pelican Energy, LLC, Net Profits Interest ** ‡

  Oil & Gas     —         375        293   

Penton Business Media Holdings, LLC **

  Printing
&Publishing
    124        4,950        15,000   

RC Coinvestment, LLC (Ranpak Corp.) **

  Packaging     50,000        5,000        6,311   

Sorenson Communications Holdings, LLC, Class A **

  Consumer Products     454,828        45        290   

Univar, Inc. **

  Distribution     900,000        9,000        9,570   

Varietal Distribution Holdings, LLC, Class A **

  Distribution     28,028        28        —    
     

 

 

   

 

 

 

Total Common Equity/Interests

      $ 55,734      $ 52,348   
     

 

 

   

 

 

 

 

See notes to financial statements.

 

11


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2013

(in thousands, except warrants)

 

INVESTMENTS IN NON-CONTROLLED/ NON-AFFILIATED
INVESTMENTS—136.1%

  Industry   Warrants     Cost     Fair
Value (1)
 

Warrants—0.7%

       

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

  Financial Services     7,961      $ 8      $ —    

Energy & Exploration Partners, Inc., Common **

  Oil & Gas     48,077        2,232        2,232   

Fidji Luxco (BC) S.C.A., Common (FCI) (2) ** ‡

  Electronics     24,862        250        6,101   

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

  Education     9,820        98        —    

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

  Education     45,947        459        —    

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

  Education     104,314        1,043        —    

Osage Exploration & Development, Inc., Common ** ‡

  Oil & Gas     1,496,843        —         1,458   

Spotted Hawk Development LLC, Common ** ‡

  Oil & Gas     54,545        852        2,733   
     

 

 

   

 

 

 

Total Warrants

      $ 4,942      $ 12,524   
     

 

 

   

 

 

 

TOTAL EQUITY

      $ 60,676      $ 64,872   
     

 

 

   

 

 

 

Total Investments in Non-Controlled/ Non-Affiliated Investments

      $ 2,564,848      $ 2,537,934   
     

 

 

   

 

 

 

 

 

See notes to financial statements.

 

12


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2013

(in thousands, except shares and warrants)

 

INVESTMENTS IN NON-CONTROLLED/ AFFILIATED
INVESTMENTS—7.6% (4)

  Industry   Par
Amount*
    Cost     Fair
Value (1)
 

CORPORATE DEBT—0.8%

       

SECURED DEBT—0.8%

       

1st Lien Secured Debt—0.8%

       

Aventine Renewable Energy Holdings, Inc., 15.00% (12.00% Cash/3.00% PIK), 9/24/16 †

  Chemicals   $ 4,000      $ 3,884      $ 3,404   

Aventine Renewable Energy Holdings, Inc., 10.50% Cash or 15.00% PIK, 9/24/17 †

  Chemicals     13,059        16,577        7,724   

Aventine Renewable Energy Holdings, Inc., 25.00% PIK, 9/24/16 †

  Chemicals     4,818        4,818        4,818   
     

 

 

   

 

 

 

Total 1st Lien Secured Debt

      $ 25,279      $ 15,946   
     

 

 

   

 

 

 

TOTAL CORPORATE DEBT

      $ 25,279      $ 15,946   
     

 

 

   

 

 

 

STRUCTURED PRODUCTS AND OTHER—6.7%

       

Highbridge Loan Ltd. Preference Shares ‡ ** ¢

  Diversified
Investment Vehicle
  $ 11,226      $ 11,226      $ 11,177   

Jamestown CLO I LTD, Class D, L+550, 11/5/24 † ‡ ¢

  Diversified
Investment Vehicle
    3,800        3,385        3,613   

Jamestown CLO I LTD, Class C, L+400, 11/5/24 † ‡ ¢

  Diversified
Investment Vehicle
    1,120        1,027        1,108   

Jamestown CLO I LTD, Subordinated
Notes, 11/5/24 † ‡ ¢

  Diversified
Investment Vehicle
    15,075        12,784        13,010   

Kirkwood Fund II LLC, Common Interests ‡ ¢

  Diversified
Investment Vehicle
          38,188        37,149   

MCF CLO I LLC, Class E, L+575, 4/20/23 † ‡ ¢

  Diversified
Investment Vehicle
    13,000        12,304        12,194   

MCF CLO I LLC, Membership Interests † ‡ ¢

  Diversified
Investment Vehicle
    38,918        38,918        39,457   

Slater Mill Loan Fund LTD, Preference Shares ‡ ¢

  Diversified
Investment Vehicle
    8,375        6,529        6,964   
     

 

 

   

 

 

 

TOTAL STRUCTURED PRODUCTS AND OTHER

      $ 124,361      $ 124,672   
     

 

 

   

 

 

 
        Shares              

EQUITY—0.1%

       

Common Equity/Interests—0.0%

       

Aventine Renewable Energy Holdings, Inc. **

  Chemicals     262,036      $ 688      $ 207   
     

 

 

   

 

 

 

Total Common Equity/Interests

      $ 688      $ 207   
     

 

 

   

 

 

 
        Warrants              

Warrants—0.1%

       

Aventine Renewable Energy Holdings, Inc., Common **

  Chemicals     1,521,193      $ 3,995      $ 1,199   
     

 

 

   

 

 

 

Total Warrants

      $ 3,995      $ 1,199   
     

 

 

   

 

 

 

TOTAL EQUITY

      $ 4,683      $ 1,406   
     

 

 

   

 

 

 

Total Investments in Non-Controlled/Affiliated Investments

      $ 154,323      $ 142,024   
     

 

 

   

 

 

 

 

See notes to financial statements.

 

13


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2013

(in thousands, except shares)

 

INVESTMENTS IN CONTROLLED INVESTMENTS—18.8% (5)

  Industry   Par
Amount*
    Cost     Fair
Value (1)
 

CORPORATE DEBT—10.2%

       

SECURED DEBT—7.6%

       

1st Lien Secured Debt —7.0%

       

Merx Aviation Finance Holdings, LLC, 12.00%, 1/9/21

  Aviation   $ 91,072      $ 91,072      $ 91,072   

Merx Aviation Finance Holdings, LLC, 12.00%, 2/1/21

  Aviation     5,303        5,303        5,303   

Merx Aviation Finance Holdings, LLC, 12.00%, 3/28/21

  Aviation     4,684        4,684        4,684   

Merx Aviation Finance Holdings, LLC, 12.00%, 6/25/21

  Aviation     13,500        13,500        13,500   

Merx Aviation Finance Holdings, LLC, 12.00%, 7/25/21

  Aviation     7,525        7,525        7,525   

Merx Aviation Finance Holdings, LLC, 12.00%, 8/19/21

  Aviation     4,000        4,000        4,000   

Merx Aviation Finance Holdings, LLC, 12.00%, 9/12/21

  Aviation     4,600        4,600        4,600   
     

 

 

   

 

 

 

Total 1st Lien Secured Debt

      $ 130,684      $ 130,684   
     

 

 

   

 

 

 

2nd Lien Secured Debt—0.6%

       

LVI Services, Inc., 12.50%, 3/6/18

  Environmental

Services

  $ 10,000      $ 9,828      $ 10,000   
     

 

 

   

 

 

 

Total 2nd Lien Secured Debt

      $ 9,828      $ 10,000   
     

 

 

   

 

 

 

TOTAL SECURED DEBT

      $ 140,512      $ 140,684   
     

 

 

   

 

 

 

UNSECURED DEBT—2.6%

       

Playpower Holdings, Inc., 14.00% PIK, 12/15/15 †

  Leisure   20,425      $ 27,092      $ 27,648   

Playpower, Inc., 12.50% PIK, 12/31/15 †

  Leisure   £ 13,093        20,187        21,203   
     

 

 

   

 

 

 

TOTAL UNSECURED DEBT

      $ 47,279      $ 48,851   
     

 

 

   

 

 

 

TOTAL CORPORATE DEBT

      $ 187,791      $ 189,535   
     

 

 

   

 

 

 

STRUCTURED PRODUCTS AND OTHER—0.0%

       

AIC Credit Opportunity Fund, LLC (8)

  Diversified
Investment Vehicle
  $ —       $ —       $ 13   
     

 

 

   

 

 

 

TOTAL STRUCTURED PRODUCTS AND OTHER

      $ —       $ 13   
     

 

 

   

 

 

 
        Shares              

EQUITY—8.6%

       

Common Equity/Interests—8.6%

       

Generation Brands Holdings, Inc. (Quality Home Brands) **

  Home and Office
Furnishings and
Durable Consumer
Products
    9,007      $ —        $ 1,426   

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

  Home and Office
Furnishings and
Durable Consumer
Products
    7,500        2,297        1,188   

 

See notes to financial statements.

 

14


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2013

(in thousands, except shares)

 

INVESTMENTS IN CONTROLLED INVESTMENTS—18.8% (5)

  Industry   Shares     Cost     Fair
Value (1)
 

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

  Home and
Office
Furnishings
and Durable
Consumer
Products
    36,700      $ 11,243      $ 5,812   

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

  Environmental
Services
    14,981        16,096        34,504   

Merx Aviation Finance Holdings, LLC **

  Aviation     689        66,582        71,443   

Playpower Holdings, Inc. **

  Leisure     1,000        77,722        45,827   
     

 

 

   

 

 

 

Total Common Equity/Interests

      $ 173,940      $ 160,200   
     

 

 

   

 

 

 

TOTAL EQUITY

      $ 173,940      $ 160,200   
     

 

 

   

 

 

 

Total Investments in Controlled Investments

      $ 361,731      $ 349,748   
     

 

 

   

 

 

 

Total Investments—162.5% (6,7)

      $ 3,080,902      $ 3,029,706   
     

 

 

   

 

 

 

Liabilities in Excess of Other Assets—(62.5%)

          (1,165,062
       

 

 

 

Net Assets—100.0%

        $ 1,864,644   
       

 

 

 

 

See notes to financial statements.

 

15


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2013

(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) Denominated in foreign currency. GS Prysmian Co-Invest L.P. and Fidji Luxco (BC) S.C.A. are EUR denominated investments.
(3) The Company is the sole Limited Partner in GS Prysmian Co-Invest L.P.
(4) Denotes investments in which we are an “Affiliated Person”, as defined in the 1940 Act, due to owning or holding the power to vote 5% or more of the outstanding voting securities of the investment but do not control the company. Fair value as of March 31, 2013 and September 30, 2013 along with transactions during the six months ended September 30, 2013 in these Affiliated investments are as follows:

 

Name of Issue

  Fair Value at
March 31, 2013
    Gross
Additions
    Gross
Reductions
    Interest/Dividend/
Other Income
    Fair Value at
September 30,
2013
 

Aventine Renewable Energy Holdings, Inc., 15.00% (12% Cash/3% PIK), 9/24/16 †

  $ 3,866      $ 34      $ —       $ 277      $ 3,404   

Aventine Renewable Energy Holdings, Inc., 10.50% Cash or 15.00% PIK, 9/24/17 †

    9,682        956        —         570        7,724   

Aventine Renewable Energy Holdings, Inc., 25.00% PIK, 9/24/16 †

    N/A        4,818        —         330        4,818   

Aventine Renewable Energy Holdings, Inc Common Equity **

    2,347        —         (3,995     —         207   

Aventine Renewable Energy Holdings, Inc., Warrants for Common Equity **

    N/A        3,995        —         —         1,199   

Highbridge Loan, Ltd., Preference Shares ** ‡ ¢

    6,174        5,052        —         588        11,177   

Jamestown CLO I LTD, Subordinated Notes, 11/5/24 ‡ † ¢

    13,568        14,020       (1,235     851        13,010   

Jamestown CLO I LTD, Class D L+550, 11/5/24 ‡ † ¢

    3,537        —         —         124        3,613   

Jamestown CLO I LTD, Class C L+400, 11/5/24 ‡ † ¢

    1,109        —         —         28        1,108   

Kirkwood Fund II LLC, Common Interest ‡ ¢

    43,144        —         (2,879     3,282        37,149   

MCF CLO I LLC, Membership Interests ‡ † ¢

    38,918        —         —         4,318        39,457   

MCF CLO I LLC, Class E, L+575, 4/20/23 ‡ † ¢

    12,273        —         —         434        12,194   

Slater Mill Loan Fund LTD, Preference Shares ‡ ¢

    6,951        —         (590     490        6,964   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 141,569      $ 28,875      $ (8,699   $ 11,292      $ 142,024   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As of September 30, 2013, the Company has a 12.6%, 32%, 31%, 98%, 97%, and 26% equity ownership interest in Aventine Renewable Energy Holdings, Inc., Highbridge Loan, Ltd, Jamestown CLO I Ltd, Kirkwood Fund II LLC, MCF CLO I LLC, and Slater Mill Loan Fund LP, respectively. Investments that the Company owns greater than 25% of the equity and are shown in “Non-Control/Affiliate” have governing documents that preclude the Company from controlling management of the entity and therefore the Company disclaims that the entity is a controlled affiliate.

 

See notes to financial statements.

 

16


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2013

(in thousands)

 

(5) 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. Fair value as of March 31, 2013 and September 30, 2013 along with transactions during the six months ended September 30, 2013 in these Controlled investments are as follows:

 

Name of Issue

  Fair Value at
March 31, 2013
    Gross
Additions
    Gross
Reductions
    Interest/Dividend/
Other Income
    Fair Value at
September 30,
2013
 

Merx Aviation Finance Holdings, LLC,
12.00%, 1/9/21

  $ 92,000      $ —       $ (928   $ 5,512      $ 91,072   

Merx Aviation Finance Holdings, LLC,
12.00%, 2/1/21

    5,303        —         —         319        5,303   

Merx Aviation Finance Holdings, LLC,
12.00%, 3/28/21

    4,684        —         —         282        4,684   

Merx Aviation Finance Holdings, LLC,
12.00%, 6/25/21

    N/A        13,500        —         435        13,500   

Merx Aviation Finance Holdings, LLC,
12.00%, 7/25/21

    N/A        14,600        (7,075     182        7,525   

Merx Aviation Finance Holdings, LLC,
12.00%, 8/19/21

    N/A        4,000        —         69        4,000   

Merx Aviation Finance Holdings, LLC,
12.00%, 9/12/21

    N/A        4,600        —         17        4,600   

LVI Services, Inc.,12.50%, 3/6/18

    10,000        —         —         640        10,000   

Playpower Holdings, Inc., 14.00% PIK, 12/15/15 †

    24,173        1,807        —         1,792        27,648   

Playpower, Inc., 12.50% PIK, 12/31/15 †

    18,458        1,229        —         1,329        21,203   

AIC Credit Opportunity Fund, LLC Common Equity

    50,696        20,386        (66,151     2,260        13   

Generation Brands Holdings, Inc. (Quality Home Brands) Common Equity **

    432        —         —         —         1,426   

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

    360        —         —         —         1,188   

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

    1,760        —         —         —         5,812   

LVI Parent Corp. Common Equity **

    30,575        —         —         75        34,504   

Merx Aviation Finance Holdings, LLC Equity Interest **

    33,820        35,120        (2,358     —         71,443   

Playpower Holdings, Inc. Common Equity **

    38,157        —         —         —         45,827   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 310,418      $ 95,242      $ (76,512   $ 12,912      $ 349,748   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As of September 30, 2013, the Company has a 100%, 28%, 32%, 100%, and 100% equity ownership interest in AIC Credit Opportunity Fund, LLC, Generation Brands Holdings, Inc., LVI Parent Corp., Playpower Holdings, Inc., and Merx Aviation Financing Holdings, LLC, respectively.

 

See notes to financial statements.

 

17


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2013

(in thousands)

 

(6) Aggregate gross unrealized appreciation for federal income tax purposes is $119,163; aggregate gross unrealized depreciation for federal income tax purposes is $267,156. Net unrealized depreciation is $147,993 based on a tax cost of $3,177,698.
(7) Substantially all securities are pledged as collateral to our multicurrency revolving credit facility (the “Facility”). As such these securities are not available as collateral to our general creditors.
(8) See Note 6.
(9) The negative fair value is the result of the unfunded commitment being valued below par.
¨ 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, Euro (“€”), British Pound (“£”), and Canadian Dollar (“CAD”).
** Non-income producing security
*** Non-accrual status (see Note 2d)
**** The investment has a put option attached to it and the combined instrument has been recorded in its entirety at fair value as a hybrid instrument in accordance with FASB ASC 815-15-25-4 with subsequent changes in fair value charged or credited to investment gains/losses for each period.
Denotes debt 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, and differing interest rate characteristics, among other factors. Such factors are usually considered in the determination of fair values.
Investments that the Company has determined are not “qualifying assets” under Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. The status of these assets under the 1940 Act are subject to change. The Company monitors the status of these assets on an ongoing basis.
¢ Denotes investments where the governing documents of the entity preclude the Company from controlling management of the entity and accordingly the Company disclaims that the entity is a controlled affiliate.

 

See notes to financial statements.

 

18


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (unaudited) (continued)

September 30, 2013

 

Industry Classification

   Percentage of Total
Investments (at
fair value) as of
September 30,
2013

Business Services

         12.5%      

Oil & Gas

   11.4%

Financial Services

   11.1%

Healthcare

   8.4%

Aviation

   6.7%

Telecommunications

   5.7%

Diversified Service

   5.7%

Diversified Investment Vehicle

   5.1%

Chemicals

   4.7%

Distribution

   3.3%

Leisure

   3.1%

Insurance

   2.8%

Environmental Services

   2.3%

Mining

   1.7%

Diversified Natural Resources, Precious Metals and Minerals

   1.7%

Transportation

   1.7%

Containers, Packaging, and Glass

   1.6%

Restaurants

   1.6%

Energy

   1.5%

Manufacturing

   1.4%

Education

   1.1%

Printing & Publishing

   1.0%

Packaging

   0.9%

Grocery

   0.7%

Consumer Products

   0.5%

Hotels, Motels, Inns, and Gaming

   0.5%

Media

   0.4%

Broadcasting & Entertainment

   0.4%

Home and Office Furnishings and Durable Consumer Products

   0.3%

Electronics

   0.2%
  

 

Total Investments

         100.0%      
  

 

 

See notes to financial statements.

 

19


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS

March 31, 2013

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON- AFFILIATED
INVESTMENTS — 143.9%

  Industry   Par
Amount*
    Cost     Fair
Value (1)
 

CORPORATE DEBT—138.7%

       

SECURED DEBT—68.8%

       

1st Lien Secured Debt—22.2%

       

Amaya Gaming Group, Inc., L+775, 11/5/15

  Hotels, Motels,
Inns and Gaming
  $ 14,813      $ 14,617      $ 14,813   

ATI Acquisition Company, P+1400 (P+10.00% Cash/4.00% PIK),
6/30/12 *** †

  Education     4,676        3,895        500   

ATI Acquisition Company, P+900 (P+5.00% Cash/4.00% PIK),
12/30/14 *** †

  Education     15,491        12,596        —    

Aventine Renewable Energy Holdings, Inc., 12.00%, 9/24/16 †

  Chemicals     3,966        3,850        3,866   

Aventine Renewable Energy Holdings, Inc., 10.50% Cash or 15.00% PIK, 9/24/17 †

  Chemicals     12,102        16,007        9,682   

Aveta, Inc., L+825, 12/12/17

  Healthcare     69,594        67,607        69,985   

Dark Castle Holdings, LLC, L+225, 3/25/13

  Media     34,777        11,061        13,260   

Delta Educational Systems, Inc., 16.00% (8.00% Cash/8.00% PIK), 12/11/16

  Education     5,018        5,018        5,018   

Endeavour International, 12.00%, 3/1/18 ‡

  Oil and Gas     14,993        14,471        14,421   

Evergreen Tank Solutions, Inc., L+800, 9/28/18

  Containers,
Packaging, and
Glass
    31,600        31,004        31,580   

Garden Fresh Restaurant Corp., L+525 (L+475 Cash/0.50% PIK),
6/11/13 †

  Restaurants     2,503        2,503        2,503   

Garden Fresh Restaurant Corp., L+625 (L+575 Cash/0.50% PIK),
6/11/13 †

  Restaurants     2,503        2,481        2,503   

Miller Energy Resources, Inc., 18.00% (15.00% Cash/3.00% PIK Option), 6/29/17

  Oil and Gas     45,307        45,307        45,307   

Molycorp Inc., 10.00%, 6/1/20 ‡

  Diversified
Natural Resources,
Precious Metals
&Minerals
    5,158        4,990        5,123   

Nara Cable Funding Limited, 8.875%, 12/1/18 ¨

  Broadcasting &
Entertainment
    6,284        5,424        6,497   

Osage Exploration & Development, Inc., L+1500, 4/27/15 ‡

  Oil and Gas     7,000        6,872        7,000   

Panda Sherman Power, LLC, L+750, 9/14/18

  Energy     15,000        14,790        15,338   

Panda Temple Power, LLC, L+1000, 7/18/18

  Energy     25,500        25,031        26,233   

Pelican Energy, LLC, 10.00% (7.00% Cash/3.00% PIK), 12/31/18 ‡

  Oil and Gas     8,371        8,176        8,539   

Penton Media, Inc., L+400 (L+300 Cash/2.00% PIK), 8/1/14

  Printing
&Publishing
    29,923        27,404        28,876   

Spotted Hawk Development LLC, 14.00% (13.00% Cash/1.00% PIK), 6/30/16 ‡

  Oil and Gas     24,003        23,200        22,983   

Sunrun Solar Owner IX, LLC, 9.079%, 12/31/24

  Energy     1,103        1,053        1,103   

Texas Competitive Electric Holdings, 11.50%, 10/1/20 ¨

  Utilities     50,000        49,693        37,656   
     

 

 

   

 

 

 

Total 1st Lien Secured Debt

      $ 397,050      $ 372,786   
     

 

 

   

 

 

 

 

See notes to financial statements.

 

20


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2013

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED
INVESTMENTS—143.9%

  Industry   Par
Amount*
    Cost     Fair
Value (1)
 

2nd Lien Secured Debt—46.6%

       

AI Chem & Cy US AcquiCo, Inc. (Monarch) L+700, 3/20/20 ‡×

  Chemicals   $ 10,000      $ 9,950      $ 10,263   

Allied Security Holdings, LLC, L+825, 2/2/18

  Business Services     31,000        30,764        31,194   

Ardent Medical Services, Inc, L+950, 7/2/19

  Healthcare     20,000        19,515        20,500   

Avaya Inc., 10.5%, 3/1/21 ¨

  Telecommunications     16,577        15,835        15,824   

Brock Holdings III, Inc., L+825, 3/16/18

  Environmental &
Facilities Services
    27,000        26,579        27,439   

Cengage Learning Acquisitions Inc., 12.00%, 6/30/19 ***

  Education     69,597        59,918        15,659   

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

  Environmental
Services
    25,000        25,000        25,000   

Confie Seguros II, L+900, 5/8/19

  Insurance     15,000        14,711        15,375   

EZE Software Group LLC, L+750 3/14/21 ×

  Business Services     6,132        6,071        6,270   

Garden Fresh Restaurant Corp., L+1175 (L+975 Cash/2.00% PIK), 12/11/13

  Restaurants     47,075        47,790        32,952   

GCA Services Group, Inc., L+800, 10/31/20

  Diversified Service     19,547        19,358        19,596   

Grocery Outlet Inc., L+925, 6/17/19

  Grocery     10,500        10,296        10,539   

Healogics Inc., L+800, 2/5/20

  Healthcare     5,000        4,951        5,181   

Insight Pharmaceuticals, LLC., L+1175, 8/25/17

  Consumer Products     15,448        15,199        15,603   

IPC Systems, Inc., L+525, 5/31/15

  Telecommunications     44,250        42,752        39,604   

Kronos, Inc., L+850, 4/26/20

  Business Services     56,358        55,269        59,035   

Ozburn-Hessey Holding Company LLC, L+950, 10/11/16

  Transportation     25,333        25,309        24,320   

PH Holdings LLC, 9.75%, 12/31/17

  Homebuilding     20,000        19,631        20,800   

Ranpak Corp., L+750, 10/20/17 †

  Packaging     85,000        85,000        85,000   

Ranpak Corp., E+775, 10/20/17 †

  Packaging   40,000        58,042        51,364   

Sedgwick Holdings, Inc., L+750, 5/28/17

  Business Services   $ 15,225        15,072        15,453   

SESAC International LLC, L+875, 8/8/19

  Broadcasting &
Entertainment
    4,500        4,433        4,613   

Smart & Final Stores LLC, L+925, 11/8/20

  Grocery     17,260        16,756        17,929   

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

  Financial Services     51,079        49,432        52,037   

TransFirst Holdings Inc., L+9.75%, 6/27/18

  Financial Services     61,250        59,476        62,858   

U.S. Renal Care, Inc., L+900, 1/3/20

  Healthcare     4,910        4,818        5,008   

Valerus Compression Services, LP, 11.50%, 3/26/18

  Manufacturing     40,000        40,000        41,200   

Vertafore, Inc., L+825, 10/29/17

  Oil and Gas     49,260        48,901        50,615   
     

 

 

   

 

 

 

Total 2nd Lien Secured Debt

      $ 830,828      $ 781,231   
     

 

 

   

 

 

 

TOTAL SECURED DEBT

      $ 1,227,878      $ 1,154,017   
     

 

 

   

 

 

 

 

See notes to financial statements.

 

21


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2013

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/NON- AFFILIATED
INVESTMENTS—143.9%

   Industry    Par
Amount*
     Cost      Fair
Value (1)
 

UNSECURED DEBT—69.9%

           

Advantage Sales & Marketing, Inc., 13.00%, 12/31/18

   Grocery    $ 25,000       $ 25,000       $ 25,000   

Altegrity, Inc., 0.00%, 8/2/16 ¨

   Diversified
Service
     3,545         2,358         1,524   

Altegrity, Inc., 11.75%, 5/1/16 ¨

   Diversified
Service
     14,639         11,885         10,394   

Altegrity, Inc., 12.00%, 11/1/15 ¨

   Diversified
Service
     100,000         100,000         89,000   

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

   Distribution      25,000         25,000         26,300   

Angelica Corporation, 15.00% (12.00% Cash/3.00% PIK), 10/15/16

   Healthcare      46,284         46,284         47,210   

ATI Acquisition Company, P+1400 (P+10.00% Cash/4.00% PIK), 12/30/15 ***

   Education      45,153         37,867         —    

BCA Osprey II Limited (British Car Auctions), 12.50% PIK, 8/17/17 ‡

   Transportation    £ 25,609         40,643         36,359   

BCA Osprey II Limited (British Car Auctions), 12.50% PIK, 8/17/17 ‡

   Transportation    15,528         21,507         18,643   

Ceridian Corp., 12.25% Cash or 13.00% PIK, 11/15/15 †

   Diversified
Service
   $ 80,950         80,892         83,803   

Ceridian Corp., 11.25%, 11/15/15 †

   Diversified
Service
     35,800         35,812         37,023   

Ceridian Corp., 11.00%, 3/15/21 ¨

   Diversified
Service
     67,500         67,500         72,731   

Delta Educational Systems, Inc., 16.00% (10.00% Cash/6.00% PIK), 5/12/17

   Education      20,430         20,024         19,143   

Denver Parent (Venoco, Inc.), 18.00%, 10/3/15 ¨

   Oil and Gas      20,000         20,000         23,400   

Exova Limited, 10.50%, 10/15/18 ¨ ‡ †

   Business
Services
   £ 10,000         16,013         16,627   

Exova Limited, 10.50%, 10/15/18 ‡ †

   Business
Services
   £ 12,655         17,116         21,041   

First Data Corporation, 11.25%, 1/15/21 ¨

   Financial
Services
   $ 67,000         66,975         69,868   

First Data Corporation, 10.625% 6/15/21 †×

   Financial
Services
     10,000         10,000         10,150   

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

   Broadcasting &
Entertainment
     44,000         45,153         46,877   

Intelsat Bermuda Ltd., 11.50% Cash or 12.50% PIK, 2/4/17 ¨

   Broadcasting &
Entertainment
     20,000         20,035         21,250   

Inventive Health, Inc., 11.00%, 8/15/18 ¨

   Healthcare      160,000         160,000         139,200   

Laureate Education, Inc., 12.75%, 8/15/17 ¨

   Education      53,540         55,012         57,823   

Lonestar Intermediate Super Holdings (Asurion), LLC, L+950, 9/2/19

   Insurance      41,922         41,776         45,223   

 

See notes to financial statements.

 

22


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2013

(in thousands, except shares)

 

INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED
INVESTMENTS—143.9%

  Industry   Par
Amount*
    Cost     Fair
Value (1)
 

UNSECURED DEBT—(continued)

       

Niacet Corp., 13.00%, 8/28/18

  Chemicals   $ 12,500      $ 12,500      $ 12,500   

SeaCube Container Leasing Ltd., 11.00%, 4/28/16 ‡

  Transportation     50,000        50,000        51,500   

Univar Inc., 10.50%, 6/30/18

  Distribution     20,000        20,000        20,000   

U.S. Security Associates Holdings, Inc., 11.00%, 7/28/18

  Business Services     135,000        135,000        139,455   

Varietal Distribution, 10.75%, 6/30/17 ¨

  Distribution   5,187        6,385        6,994   

Varietal Distribution, 10.75%, 6/30/17 ¨

  Distribution   $ 22,204        21,837        23,328   
     

 

 

   

 

 

 

TOTAL UNSECURED DEBT

      $ 1,212,574      $ 1,172,366   
     

 

 

   

 

 

 

TOTAL CORPORATE DEBT

      $ 2,440,452      $ 2,326,383   
     

 

 

   

 

 

 

STRUCTURED PRODUCTS AND OTHER—0.6%

       

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

  Diversified
Investment
Vehicle
    11,000      $ 7,367      $ 9,625   
     

 

 

   

 

 

 

TOTAL STRUCTURED PRODUCTS AND OTHER

      $ 7,367      $ 9,625   
     

 

 

   

 

 

 
        Shares              

PREFERRED EQUITY—0.7%

       

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

  Financial Services     7,961      $ 788      $ 1,592   

Gryphon Colleges Corporation (Delta Educational Systems, Inc.), 13.50% PIK, ***

  Education     12,360        27,685        7,208   

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

  Education     332,500        6,863        —    

Varietal Distribution Holdings, LLC, Class A, 8.00% PIK

  Distribution     3,097        4,885        2,750   
     

 

 

   

 

 

 

TOTAL PREFERRED EQUITY

      $ 40,221      $ 11,550   
     

 

 

   

 

 

 

EQUITY—3.9%

       

Common Equity/Interests—3.4%

       

Accelerate Parent Corp. (American Tire Distributors) **

  Distribution     3,125,000      $ 3,125      $ 4,160   

AHC Mezzanine LLC (Advanstar) **

  Media     —         1,063        242   

Altegrity Holding Corp. **

  Diversified Service     353,399        13,797        1,111   

Aventine Renewable Energy Holdings, Inc. **

  Chemicals     262,036        4,684        2,347   

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

  Financial Services     25,000        2,500        2,498   

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

  Financial Services     4,294        429        859   

Clothesline Holdings, Inc. (Angelica Corporation) **

  Healthcare     6,000        6,000        3,059   

 

See notes to financial statements.

 

23


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2013

(in thousands, except shares and warrants)

 

INVESTMENTS IN NON-CONTROLLED/NON-AFFILIATED
INVESTMENTS—143.9%

  Industry   Share     Cost     Fair
Value (1)
 

Common Equity/Interests—(continued)

       

Explorer Coinvest LLC (Booz Allen) ** ‡

  Business Services     430      $ 3,322      $ 5,319   

Garden Fresh Restaurant Holding, LLC **

  Restaurants     50,000        5,000        —    

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

  Education     17,500        175        —    

GS Prysmian Co-Invest L.P. (Prysmian Cables & Systems) (2,3) ** ‡

  Manufacturing     —         —         123   

JV Note Holdco LLC (DSI Renal Inc.) **

  Healthcare     9,303        85        91   

Pelican Energy, LLC ** ‡

  Oil and Gas     —         138        146   

Penton Business Media Holdings, LLC **

  Printing & Publishing     124        4,950        15,778   

RC Coinvestment, LLC (Ranpak Corp.) **

  Packaging     50,000        5,000        8,233   

Sorenson Communications Holdings, LLC Class A **

  Consumer Products     454,828        45        1,990   

Univar Inc.**

  Distribution     900,000        9,000        11,520   

Varietal Distribution Holdings, LLC Class A **

  Distribution     28,028        28        —    
     

 

 

   

 

 

 

Total Common Equity/Interests

      $ 59,341      $ 57,476   
     

 

 

   

 

 

 
        Warrants              

Warrants—0.5%

       

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

  Financial Services     7,961      $ 8        —    

Fidji Luxco (BC) S.C.A., Common (FCI)(2) ** ‡

  Electronics     24,862        250      $ 5,788   

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

  Education     9,820        98        —    

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

  Education     45,947        459        —    

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

  Education     104,314        1,043        —    

Osage Exploration & Development, Inc. ** ‡

  Oil and Gas     1,496,843        —         1,841   

Spotted Hawk Development LLC, Common ** ‡

  Oil and Gas     54,545        852        1,644   
     

 

 

   

 

 

 

Total Warrants

      $ 2,710      $ 9,273   
     

 

 

   

 

 

 

TOTAL EQUITY

      $ 62,051      $ 66,749   
     

 

 

   

 

 

 

Total Investments in  Non-Controlled/
Non-Affiliated Investments

      $ 2,550,091      $ 2,414,307   
     

 

 

   

 

 

 

 

See notes to financial statements.

 

24


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2013

(in thousands)

 

INVESTMENTS IN NON-CONTROLLED/AFFILIATED

INVESTMENTS—7.5% (4)

  Industry   Par
Amount*
    Cost     Fair
Value (1)
 

STRUCTURED PRODUCTS AND OTHER—7.5%

       

Highbridge Loan, Ltd., Preference Shares ** ‡ ¢

  Diversified
Investment Vehicle
  $ 6,174      $ 6,174      $ 6,174   

Jamestown CLO I LTD, Subordinated Notes, 11/5/24 ‡ † ¢

  Diversified
Investment Vehicle
    15,075        14,053        13,568   

Jamestown CLO I LTD, Class D L+550, 11/5/24 ‡ † ¢

  Diversified
Investment Vehicle
    3,800        3,373        3,537   

Jamestown CLO I LTD, Class C L+400, 11/5/24 ‡ † ¢

  Diversified
Investment Vehicle
    1,120        1,024        1,109   

Kirkwood Fund II LLC, Common Interest ‡ ¢

  Diversified
Investment Vehicle
    —         41,067        43,144   

MCF CLO I LLC, Membership Interests ‡ ¢

  Diversified
Investment Vehicle
    38,918        38,918        38,918   

MCF CLO I LLC, Class E Notes L+575, 4/20/23 ‡ † ¢

  Diversified
Investment Vehicle
    13,000        12,278        12,273   

Slater Mill Loan Fund LTD, Preference Shares ‡ ¢

  Diversified
Investment Vehicle
    8,375        7,119        6,951   
     

 

 

   

 

 

 

TOTAL STRUCTURED PRODUCTS AND OTHER

      $ 124,006      $ 125,674   
     

 

 

   

 

 

 

Total Investments in Non-Controlled/ Affiliated Investments

      $ 124,006      $ 125,674   
     

 

 

   

 

 

 

INVESTMENTS IN CONTROLLED INVESTMENTS—18.5% (5)

  Industry   Par
Amount*
    Cost     Fair
Value (1)
 

CORPORATE DEBT—9.2%

       

SECURED DEBT—6.7%

       

1st Lien Secured Debt—6.1%

       

Merx Aviation Finance Holdings, LLC, 12.00%, 1/9/21

  Aviation   $ 92,000      $ 92,000      $ 92,000   

Merx Aviation Finance Holdings, LLC, 12.00%, 2/1/21

  Aviation     5,303        5,303        5,303   

Merx Aviation Finance Holdings, LLC, 12.00% 3/28/21

  Aviation     4,684        4,684        4,684   
     

 

 

   

 

 

 

Total 1st Lien Secured Debt

      $ 101,987      $ 101,987   
     

 

 

   

 

 

 

2nd Lien Secured Debt—0.6%

       

LVI Services, Inc., 12.50%, 3/6/2018

  Environmental
Services
  $ 10,000      $ 9,815      $ 10,000   
     

 

 

   

 

 

 

Total 2nd Lien Secured Debt

      $ 9,815      $ 10,000   
     

 

 

   

 

 

 

TOTAL SECURED DEBT

      $ 111,802      $ 111,987   
     

 

 

   

 

 

 

UNSECURED DEBT—2.5%

       

Playpower Holdings Inc., 14.00% PIK, 12/15/15

  Leisure   19,064      $ 25,285      $ 24,173   

Playpower, Inc., 12.50% PIK, 12/31/15

  Leisure   £ 12,310        18,838        18,458   
     

 

 

   

 

 

 

TOTAL UNSECURED DEBT

      $ 44,123      $ 42,631   
     

 

 

   

 

 

 

TOTAL CORPORATE DEBT

      $ 155,925      $ 154,618   
     

 

 

   

 

 

 

STRUCTURED PRODUCTS AND OTHER—3.0%

       

AIC Credit Opportunity Fund LLC (6)

  Diversified
Investment Vehicle
    —       $ 48,102      $ 50,696   
     

 

 

   

 

 

 

TOTAL STRUCTURED PRODUCTS AND OTHER

      $ 48,102      $ 50,696   
     

 

 

   

 

 

 

 

See notes to financial statements.

 

25


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2013

(in thousands)

 

INVESTMENTS IN CONTROLLED INVESTMENTS—18.5%(5)

   Industry    Shares      Cost      Fair
Value (1)
 

EQUITY—6.3%

           

Common Equity/Interests—6.3%

           

Generation Brands Holdings, Inc. (Quality Home Brands) **

       
Home and Office
Furnishings and
Durable Consumer
Products
     9,007         —         $ 432   

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

       
Home and Office
Furnishings and
Durable Consumer
Products
     7,500       $ 2,297         360   

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

       
Home and Office
Furnishings and
Durable Consumer
Products
     36,700         11,242         1,760   

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

   Environmental &
Facilities Services
     14,981         16,096         30,575   

Merx Aviation Finance Holdings, LLC **

   Aviation      —           33,820         33,820   

Playpower Holdings Inc. **

   Leisure      1,000         77,722         38,157   
        

 

 

    

 

 

 

Total Common Equity/Interests

         $ 141,177       $ 105,104   
        

 

 

    

 

 

 

TOTAL EQUITY

         $ 141,177       $ 105,104   
        

 

 

    

 

 

 

Total Investments in Controlled Investments

         $ 345,204       $ 310,418   
        

 

 

    

 

 

 

Total Investments—169.9%(7,8)

         $ 3,019,301       $ 2,850,399   

Liabilities in Excess of Other Assets—(69.9%)

              (1,173,010
           

 

 

 

Net Assets—100.0%

            $ 1,677,389   
           

 

 

 

 

See notes to financial statements.

 

26


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2013

(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) Denominated in foreign currency as indicated.
(3) The Company is the sole Limited Partner in GS Prysmian Co-Invest L.P.
(4) Denotes investments in which we are an “Affiliated Person”, as defined in the 1940 Act, due to owning or holding the power to vote 5% or more of the outstanding voting securities of the investment but do not control the company. Fair value as of March 31, 2012 and March 31, 2013 along with transactions during the six months ended September 30, 2013 in these Affiliated investments are as follows:

 

Name of Issuer

   Fair Value at
March 31, 2012
     Gross
Additions
     Gross
Reductions
    Interest/Dividend/
Other Income
     Fair Value at
March 31,
2013
 

Highbridge Loan, Ltd., Preference Shares ** ‡

     N/A       $ 4,410       $ —        $ —         $ 6,174   

Jamestown CLO I LTD, Subordinated Notes, 11/5/24 ‡†

     N/A         14,020         —          34         13,568   

Jamestown CLO I LTD, Class D L+550, 11/5/24 ‡†

     N/A         3,364         —          101         3,537   

Jamestown CLO I LTD, Class C L+400, 11/5/24 ‡†

     N/A         1,021         —          23         1,109   

Kirkwood Fund II LLC, Common Interest ‡

     N/A         41,067         —          —           43,144   

MCF CLO I LLC, Membership Interests ‡

     N/A         40,385         (1,467     5,896         38,918   

MCF CLO I LLC, Class E Notes L+575, 4/20/23 ‡†

     N/A         12,273         —          84         12,273   

Slater Mill Loan Fund LTD, Preference Shares ‡

         N/A         7,370         (251     929         6,951   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
         N/A       $ 123,910       $ (1,718   $ 7,067       $ 125,674   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

As of March 31, 2013, the Company has a 32%, 31%, 98%, 97%, and 26% equity ownership interest in Highbridge Loan, Ltd, Jamestown CLO I Ltd, Kirkwood Fund II LLC, MCF CLO I LLC, and Slater Mill Loan Fund LP, respectively. Investments that the Company owns greater than 25% of the equity and are shown in “Non-Control/Affiliate” have governing documents that preclude the Company from controlling management of the entity and therefore the Company disclaims that the entity is a controlled affiliate.

 

See notes to financial statements.

 

27


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2013

(in thousands)

 

(5) 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. Fair value as of March 31, 2012 and March 31, 2013 along with transactions during the fiscal year ended March 31, 2013 in these Controlled investments are as follows:

 

Name of Issuer

  Fair Value at
March 31, 2012
    Gross
Additions
    Gross
Reductions
    Interest/Dividend/
Other Income
    Fair Value at
March 31,
2013
 

Merx Aviation Finance Holdings, LLC, 12.00%, 1/9/21

    N/A      $ 92,000      $ —        $ 2,480      $ 92,000   

Merx Aviation Finance Holdings, LLC, 12.00%, 2/1/21

    N/A        5,303        —          103        5,303   

Merx Aviation Finance Holdings, LLC, 12.00% 3/28/21

    N/A        4,684        —          6        4,684   

LVI Services, Inc.,12.50%, 3/6/18

    N/A        9,800        —          916        10,000   

Playpower Holdings, Inc., 14.00% PIK

  $ 21,576        3,155        —          3,154        24,173   

Playpower, Inc., 12.50% PIK

    16,960        2,250        —          2,469        18,458   

AIC Credit Opportunity Fund LLC Common Equity

    56,034        575        (18,466     7,422        50,696   

Generation Brands Holdings, Inc. (Quality Home Brands) Common Equity

    130        —          —          —          432   

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

    1,300        —          —          —          360   

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

    7,793        —          —          —          1,760   

LVI Parent Corp. Common Equity

    21,504        —          —          —          30,575   

Merx Aviation Finance Holdings, LLC Equity Interest

    N/A        33,820        —          —          33,820   

Playpower Holdings Inc. Common Equity

    61,111        —          —          —          38,157   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 186,408      $ 151,587      $ (18,466   $ 16,550      $ 310,418   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As of March 31, 2013, the Company has a 100%, 32%, 32%, 100%, and 100%, equity ownership interest in AIC Credit Opportunity Fund LLC, Generation Brands Holdings, Inc., LVI Parent Corp., Playpower Holdings Inc., and Merx Aviation Financing Holdings LLC, respectively.

 

(6) See Note 6.
(7) Aggregate gross unrealized appreciation for federal income tax purposes is $127,303; aggregate gross unrealized depreciation for federal income tax purposes is $396,790. Net unrealized depreciation is $269,487 based on a tax cost of $3,119,886.
(8) Substantially all securities are pledged as collateral to our multicurrency revolving credit facility (the “Facility”). As such these securities are not available as collateral to our general creditors.
¨ 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, Euro (“€”), British Pound (“£”), and Canadian Dollar (“CAD”).
** Non-income producing security
*** Non-accrual status (see Note 2d)
Denotes debt 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, and differing interest rate characteristics, among other factors. Such factors are usually considered in the determination of fair values.
Investments that the Company has determined are not “qualifying assets” under Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. The status of these assets under the 1940 Act are subject to change. The Company monitors the status of these assets on an ongoing basis.
× Denotes a “when issued” security that settled after March 31, 2013.
¢ Denotes investments where the governing documents of the entity preclude the Company from controlling management of the entity and that accordingly the Company disclaims that the entity is a controlled affiliate.

 

See notes to financial statements.

 

28


Table of Contents

APOLLO INVESTMENT CORPORATION

SCHEDULE OF INVESTMENTS (continued)

March 31, 2013

 

Industry Classification

   Percentage of Total
Investments (at
fair value) as of
March 31, 2013

Diversified Service

       11.1%    

Business Services

       10.3%    

Healthcare

       10.2%    

Financial Services

         7.0%    

Diversified Investment Vehicle

         6.5%    

Oil & Gas

         6.2%    

Packaging

         5.1%    

Aviation

         4.8%    

Transportation

         4.6%    

Education

         3.7%    

Distribution

         3.3%    

Environmental Services

         3.3%    

Leisure

         2.8%    

Broadcasting & Entertainment

         2.8%    

Insurance

         2.1%    

Telecommunications

         1.9%    

Grocery

         1.9%    

Printing & Publishing

         1.6%    

Energy

         1.5%    

Manufacturing

         1.4%    

Chemicals

         1.4%    

Restaurants

         1.3%    

Utilities

         1.3%    

Containers, Packaging and Glass

         1.1%    

Homebuilding

         0.7%    

Consumer Products

         0.6%    

Hotels, Motels, Inns, ad Gaming

         0.5%    

Media

         0.5%    

Electronics

         0.2%    

Diversified Natural Resources, Precious Metals and Minerals

         0.2%    

Home and Office Furnishings and Durable Consumer Products

         0.1%    
  

 

Total Investments

     100.0%    
  

 

 

See notes to financial statements.

 

29


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 (“Apollo Investment”, the “Company”, “AIC”, “we”, “us”, or “our”), a Maryland corporation organized on February 2, 2004, is a closed-end, externally managed, 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 (the “Code”). Our investment objective is to generate current income and capital appreciation. We invest primarily in various forms of debt investments, including secured and unsecured loan investments and/or equity in private middle-market companies. We may also invest in the securities of public companies and structured products and other investments such as collateralized loan obligations. Our portfolio is comprised primarily of investments in debt, including secured and unsecured debt of private-middle market companies that, in the case of senior secured loans, generally are not broadly syndicated and whose aggregate tranche size is typically less than $250 million. Our portfolio also includes equity interests such as common stock, preferred stock, warrants or options.

Apollo Investment commenced operations on April 8, 2004 receiving net proceeds of $870,000 from its initial public offering by selling 62 million shares of common stock at a price of $15.00 per share. Since then, and through September 30, 2013, we have raised approximately $2.1 billion in net proceeds from additional offerings of common stock.

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 statement of financial statements for the interim period, have been included. These financial statements should be read in conjunction with the audited financial statements and accompanying notes included in the Annual Report on Form 10-K for the year ended March 31, 2013. Certain industries were reclassified on the Schedule of Investments for March 31, 2013 to conform to the current period presentation. Certain amounts have been reclassified on the Statement of Operations and the Statement of Assets and Liabilities to conform to the current period presentation. Included in $11,292 of investment income from non-controlled/affiliated investments for the six months ended September 30, 2013 is $5,088 of investment income previously classified as investment income from controlled investments for the three months ended June 30, 2013. For the three and six months ended September 30, 2012, approximately $750 and $1,500, respectively, of investment income previously classified as investment income from controlled investments was reclassified to investment income from non-controlled/affiliated investments.

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 secured debt, unsecured 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,

 

30


Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

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. Accordingly, such investments go through our multi-step valuation process as described below. In each case, our independent third party valuation firms consider observable market inputs together with significant unobservable inputs in arriving at their valuation recommendations for such Level 3 categorized assets. Debt investments with remaining maturities of 60 days or less shall each be valued at cost with interest accrued or discount amortized to the date of maturity, unless such valuation, in the judgment of our investment adviser, does not represent fair value, in which case such investments shall be valued at fair value as determined in good faith by or under the direction of our board of directors. 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;

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

(3) independent valuation firms are engaged by our board of directors to conduct independent appraisals by reviewing our investment adviser’s preliminary valuations and then making their own independent assessment;

(4) the audit committee of the board of directors reviews the preliminary valuation of our investment adviser and the valuation prepared by 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 in good faith the fair value of each investment in our portfolio based on the input of our investment adviser, the applicable independent valuation firm, third party pricing services 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 as an input in the valuation process. For the quarter ended September 30, 2013, there has been no change to the Company’s valuation techniques and related inputs considered in the valuation process.

 

31


Table of Contents

APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

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.

(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 interest and dividends computed at the contractual rate are accrued into income and reflected as receivable up to the capitalization date. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, the Company capitalizes the accrued interest or dividends receivable (reflecting such amounts as the basis in the additional securities received). PIK generally becomes due at maturity of the investment or upon the investment being called by the issuer. At the point the Company believes PIK is not expected to be realized, the PIK investment will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are reversed from the related receivable through interest or dividend income, respectively. The Company does not reverse previously capitalized PIK interest or dividends. Upon capitalization, PIK is subject to the fair value estimates associated with their related investments. PIK investments on non-accrual status are restored to accrual status if the Company believes that PIK is expected to be realized. For the six months ended September 30, 2013, accrued PIK totaled $13,029 on total investment income of $190,380. Loan origination fees, original issue discount, and market discounts are capitalized and amortized into income using the interest method or straight-line, as applicable. 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 and other lending related fees are recorded as other income when earned. Investments that are expected to pay regularly scheduled interest and/or dividends in cash are generally placed on non-accrual status when principal or interest/dividend cash payments are past due 30 days or more and/or when it is no longer probable that principal or interest/dividend cash payments will be collected. Such non-accrual investments are restored to accrual status if past due principal and interest or dividends are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining interest or dividend obligations. Interest or dividend cash payments received on non-accrual designated investments may be recognized as income or applied to principal depending upon management’s judgment.

(e) The Company intends to comply with the applicable provisions of the Code 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, if any, as required.

 

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NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

(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) Securities that have been called by the issuer are recorded at the call price on the call effective date.

(i) In accordance with Regulation S-X, 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 has not consolidated special purpose entities through which the special purpose entity acquired and holds investments subject to financing with third parties. At September 30, 2013, the Company did not have any subsidiaries or controlled operating companies that were consolidated. See additional information within note 6.

(j) 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 gains or losses and unrealized depreciation or appreciation 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.

(k) 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.

(l) The Company records origination and other expenses related to its debt obligations as deferred financing costs in the Statement of Assets and Liabilities. These expenses are deferred and amortized using the straight-line method over the stated life of the obligation which closely approximates the effective yield method.

(m) The Company records expenses related to shelf filings and applicable offering costs as deferred financing costs in the Statement of Assets and Liabilities. These expenses are charged as a reduction of capital upon utilization, in accordance with ASC 946-20-25.

(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.

(o) The Company records as dividend income the accretable yield from its beneficial interests in structured products such as CLOs based upon a number of cash flow assumptions that are subject

 

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NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

to uncertainties and contingencies. Such assumptions include the rate and timing of principal and interest receipts (which may be subject to prepayments and defaults). These assumptions are updated on at least a quarterly basis to reflect changes related to a particular security, actual historical data, and market changes.

(p) The Company may make investments in derivative instruments. The derivative instruments are fair valued with changes to the fair value reflected in net unrealized appreciation/depreciation during the reporting period and recorded within realized gain/loss upon exit and settlement of the contract. The accrual of periodic interest settlements is recorded in net unrealized appreciation/depreciation and subsequently recorded as net realized gain or loss on the interest settlement date.

Recent Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (“FASB”) issued guidance to enhance disclosures about financial instruments and derivative instruments that are either (1) offset or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset. Under the guidance, an entity is required to disclose quantitative information relating to recognized assets and liabilities that are offset or subject to an enforceable master netting arrangement or similar agreement, including the gross amounts of those recognized assets and liabilities, the amounts offset to determine the net amount presented in the statement of financial position, and the net amount presented in the statement of financial position. With respect to amounts subject to an enforceable master netting arrangement or similar agreement which are not offset, disclosure is required of the amounts related to recognized financial instruments and other derivative instruments, the amount related to financial collateral (including cash collateral), and the overall net amount after considering amounts that have not been offset. The guidance is effective for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods and retrospective application is required. As the amendments are limited to disclosure only, the adoption of this guidance did not have a material impact on the financial statements of the Company.

In January 2013, the FASB issued guidance to clarify the scope of disclosures about offsetting assets and liabilities. The amendments clarify that the scope of guidance issued in December 2011 to enhance disclosures around financial instruments and derivative instruments that are either (1) offset, or (2) subject to a master netting arrangement or similar agreement, irrespective of whether they are offset, applies to derivatives, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset or subject to an enforceable master netting arrangement or similar agreement. The amendments are effective for interim and annual periods beginning on or after January 1, 2013. As the amendments are limited to disclosure only, the adoption of this guidance did not have a material impact on the financial statements of the Company.

In June 2013, the FASB issued guidance to change the assessment of whether an entity is an investment company by developing a new two-tiered approach that requires an entity to possess certain fundamental characteristics while allowing judgment in assessing certain typical characteristics. The fundamental characteristics that an investment company is required to have include the following: (1) it obtains funds from one or more investors and provides the investor(s) with investment management services; (2) it commits to its investor(s) that its business purpose and only substantive activities are investing the funds solely for returns from capital appreciation, investment income or both; and (3) it does not obtain returns or benefits from an investee or its affiliates that are not normally attributable to ownership interests. The typical characteristics of an investment company that an entity should consider before concluding whether it is an investment company include the following: (1) it has more than one investment; (2) it has more than one investor; (3) it has investors that are not related parties of the parent or the investment manager; (4) it has ownership interests in the form of equity or

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

partnership interests; and (5) it manages substantially all of its investments on a fair value basis. The new approach requires an entity to assess all of the characteristics of an investment company and consider its purpose and design to determine whether it is an investment company. The guidance includes disclosure requirements about an entity’s status as an investment company and financial support provided or contractually required to be provided by an investment company to its investees. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2013. Earlier application is prohibited. The Company is in the process of evaluating the impact that this guidance will have but does not believe that this guidance will have a material impact on its financial statements.

Note 3. Agreements

The Company has an Investment Advisory and Management Agreement (the “Investment Advisory Agreement”) with Apollo Investment Management, L.P. (the “Investment Adviser” or “AIM”), under which the Investment Adviser, subject to the overall supervision of our board of directors, manages the day-to-day operations of, and provides investment advisory services to the Company. For providing these services, the Investment Adviser receives a fee from the Company, 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 our gross assets, net of payable for cash equivalents purchased at the end of the two most recently completed calendar quarters calculated at an annual rate of 2.00%. The incentive fee has two parts, as follows: one part is calculated and payable quarterly in arrears based on our 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 our operating expenses for the quarter (including the base management fee, any expenses payable under an administration agreement (the “Administration Agreement”) between the Company and Apollo Investment Administration, LLC (the “Administrator”), 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 our 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. For the time period between April 2, 2012 and March 31, 2014, AIM has agreed to voluntarily waive the management and incentive fees associated with the incremental common shares issued on April 2, 2012 and May 20, 2013.

The Company pays the Investment Adviser an incentive fee with respect to our pre-incentive fee net investment income in each calendar quarter as follows: (1) no incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed 1.75%, which we commonly refer to as the performance threshold; (2) 100% of our 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 our pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter. These calculations are appropriately prorated 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 our 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 Agreement, as of the termination date) and will equal 20% of our cumulative realized capital gains less cumulative realized capital losses, unrealized capital

 

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APOLLO INVESTMENT CORPORATION

NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

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 accounting purposes only, we are required under GAAP to accrue a theoretical capital gains incentive fee based upon net realized capital gains and unrealized capital appreciation and depreciation on investments held at the end of each period.

The accrual of this theoretical capital gains incentive fee assumes all unrealized capital appreciation and depreciation is realized in order to reflect a theoretical capital gains incentive fee that would be payable to the Investment Adviser at each measurement date. There was no such accrual for the six months ended September 30, 2013 and 2012. It should be noted that a fee so calculated and accrued would not be payable under the Investment Advisers Act of 1940 (“Advisers Act”) or the Investment Advisory Agreement, and would not be paid based upon such computation of capital gains incentive fees in subsequent periods. Amounts actually paid to the Investment Adviser will be consistent with the Advisers Act and formula reflected in the Investment Advisory Agreement which specifically excludes consideration of unrealized capital appreciation.

For the time period between April 1, 2012 and March 31, 2014, AIM will not be paid the portion of the performance-based incentive fee that is attributable to deferred interest, such as PIK, until the Company receives such interest in cash. The accrual of incentive fees shall be reversed if such interest is reversed in connection with any write off or similar treatment of the investment. Upon payment of the deferred incentive fee, AIM will also receive interest on the deferred interest at an annual rate of 3.25% for the period between the date in which the incentive fee is earned and the date of payment.

For the three and six months ended September 30, 2013, the Company expensed $15,356 and $30,113 in base management fees and $11,545 and $23,994 in performance-based incentive fees. For the three and six months ended September 30, 2012, the Company expensed $13,864 and $27,684 in base management fees and $10,942 and $20,458 in performance-based incentive fees. For the three and six months ended September 30, 2013, total management fees waived were $1,893 and $2,966, respectively. For the three and six months ended September 30, 2012, total management fees waived were $400 and $793, respectively. For the three and six months ended September 30, 2013, total incentive fees waived were $1,433 and $2,333, respectively. For the three and six months ended September 30, 2012, total incentive fees waived were $315 and $587, respectively. The amount of the deferred incentive fees for the three and six months ended September 30, 2013 is $1,158 and $2,238, respectively. The amount of the deferred incentive fees for the three and six months ended September 30, 2012 is $879 and $1,710, respectively. The unpaid deferred fee balance included in the management and performance-based incentive fees payable line of the Statement of Assets and Liabilities at September 30, 2013 and March 31, 2013 is $5,337 and $3,935, respectively.

The Company has also entered into an Administration Agreement with the Administrator under which the Administrator provides administrative services for the Company. For providing these services, facilities and personnel, the Company reimburses the Administrator for the allocable portion of overhead and other expenses incurred by the Administrator and requested to be reimbursed for performing its obligations under the Administration Agreement, including rent and the Company’s allocable portion of its chief financial officer and chief compliance officer and their respective staffs. The Administrator will also provide, on our behalf, managerial assistance to those portfolio companies to which the Company is required to provide such assistance. For the three and six months ended September 30, 2013, the Company recognized expenses under the Administration Agreement of $1,109 and $2,206, respectively. For the three and six months ended September 30, 2012, the Company recognized expenses under the Administration Agreement of $769, and $1,519, respectively.

 

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NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)

(in thousands except share and per share amounts)

 

The Company has also entered into an expense reimbursement agreement with a subsidiary of a portfolio company that will reimburse the Company for reasonable out-of-pocket expenses incurred, including any interest, fees or other amounts incurred by the Company in connection with letters of credit issued on its behalf. For the three and six months ended September 30, 2013, the Company recognized expenses that were reimbursed under the expense reimbursement agreement of $8 and $8, respectively.

Note 4. Net Asset Value Per Share

At September 30, 2013, the Company’s net assets and net asset value per share were $1,864,644 and $8.30, respectively. This compares to net assets and net asset value per share at March 31, 2013 of $1,677,389 and $8.27, respectively.

Note 5. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings (loss) per share, pursuant to ASC 260-10, for the three and six months ended September 30, 2013 and September 30, 2012, respectively:

 

     Three months ended
September 30,
     Six months ended
September 30,
 
Amounts are in thousands, except shares and per share data    2013      2012      2013      2012  

Earnings per share—basic

           

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

   $ 76,425       $ 73,036       $ 95,229       $ 61,394   

Denominator for basic weighted average shares:

     224,741,351         202,891,351         218,890,805         202,859,395   

Basic earnings per share:

   $ 0.34       $ 0.36       $ 0.43       $ 0.30   

Earnings per share—diluted

           

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

   $ 76,425       $ 73,036       $ 95,229       $ 61,394   

Adjustment for interest on convertible notes and for incentive fees, net

     2,548         2,574        5,103         5,143   
  

 

 

    

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