Exclusive Interview With The CEO: Apollo Investment Corporation (AINV) - James C. Zelter

Wall Street Transcript

67 WALL STREET, New York - June 26, 2012 - The Wall Street Transcript has just published its Business Development Companies Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Decreased Bank Loan Competition - Low Corporate Credit Default Rate - Consistent BDC Dividend Yield - Middle-Market Consolidation Activity

Companies include: New Mountain Finance (NMFC); American Capital (ACAS); Apollo Investment Corporation (AINV); and many more.

In the following brief excerpt from the Business Development Companies Report, expert analysts discuss the outlook for the sector and for investors.

James C. Zelter, Chief Executive Officer of Apollo Investment Corporation, joined the company in 2006. He is the Managing Director of Apollo Capital Management and Director of AP Investment Europe Limited. Before joining Apollo, he was with Citigroup Inc. and its predecessor companies from 1994 to 2006. From 2003 to 2005, Mr. Zelter was Chief Investment Officer of Citigroup Alternative Investments, and before that he was responsible for the firm's global high-yield franchise. Before joining Citigroup in 1994, Mr. Zelter was a high-yield Trader at Goldman Sachs. He is a board member of DUMAC, the investment management company that oversees the Duke Endowment and Duke Foundation. Mr. Zelter has a degree in economics from Duke University.

TWST: Please begin with a brief overview of Apollo Investment Corporation.

Mr. Zelter: Apollo Investment Corporation (AINV) is a BDC-RIC, which is a business development company, regulated investment company. We have elected to be treated as a BDC under the investment company of 1940. In addition, for tax purposes, we have elected to be treated as a RIC, and therefore, we are required to distribute at least 90% of our net investment income and net realized capital gains each year.We went public in 2004, so we have been around for quite some time. At the time when we went public, there were a couple of BDCs that had been around for a decade or so.

But once we went public, a handful of others followed suit. As a business development company, our charge is to provide private debt market solutions to a variety of middle-market companies in the form of senior-secured, mezzanine and asset-based loans, and we also may do some equity coinvestments. But really, our primary focus as a company is to provide debt solutions to private enterprises, mostly in the U.S.Since our inception, we have invested almost $9 billion in 166 portfolio companies. We are based in New York and we are a Nasdaq-listed company. And from our perspective, our goal is to provide high, current income and capital appreciation to our investors.

TWST: What verticals fit into the company's criteria of investing and what is its main criteria?

Mr. Zelter: We are affiliated with Apollo Global Management, a leading global alternative investment manager listed on the NYSE, which invests in credit-oriented capital markets as well as private equity and real estate. Consistent with Apollo Global Management's investment style, our main criterion at Apollo Investment Corporation is to be a value-oriented investor in debt and debt securities, focusing on downside protection.Generally speaking, we seek to invest in a debt instrument that pays a coupon that we believe will have a low degree of default and a high degree of recovery, and in doing so, pay out yields that are in excess of what you can make in the high-yield market.For example, recently our stock has traded around a 10% to 11% yield, which we think is an attractive proposition for investors. So we are looking to invest in debt securities of private companies primarily in the U.S.

TWST: How has the investing landscape changed for Apollo Investment Corporation since the credit crisis?

Mr. Zelter: Since the onset of the credit crisis, we believe there has been a wholesale change that really is not a cyclical change, but more of a secular change. Many participants that were in the lending landscape - whether it was Fannie and Freddie, whether it was some of the investment banks, or other participants who were traditionally large providers of capital - have either changed their business models or exited the business altogether. The assets of the banks have come down dramatically and their footprint has changed. There has been a wholesale change in the amount of securitizations. So there have been some big changes, and it all comes together in a changing regulatory environment with Dodd-Frank, the Volcker Rule, Basel III.So all those things make it harder for a variety of institutions that had normally provided capital to companies.

It's made it more restrictive for them. So from our perspective, for the BDC industry in general, the landscape has changed dramatically, and we believe that BDCs, broadly speaking and Apollo Investment Corporation in particular, benefit from that changing landscape.Our charge is to provide capital to these companies. We are focused on longer liquidity cycles because our permanent capital allows us to take a much longer-term view of getting our capital back. We are focused on making what we believe are good loans, regardless of the length and duration, which is a fairly unique attribute in the market today. And many companies don't have the breadth to get a rating from one of the rating agencies, and their opportunities to raise capital in the public market are a bit limited.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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