Apollo Investment Corp. - To the Moon!

Damon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Apollo Investment Corporation (NASDAQ: AINV) is a leading provider of subordinated debt and equity capital to middle-market companies. The company is registered with the SEC as a business development company (BDC) under the Investment Company Act of 1940. BDCs are required by the Investment Act of 1940 (see the BDC Primer for more details) to distribute a minimum of 90% of their taxable earnings quarterly to maintain their one-level tax paying status.

As the end of 2011 draws near, AINV is trading at a discount to its book value (Yahoo Finance shows book value of $8.12/share and the share price as I write this is $6.50).  As a BDC, the dividend yield is higher than you would expect other publicly traded firms to pay out.  The current yield at today's share price is about 17%.

Recessions tend to be good for BDCs as they are able to offer financing to many small and medium-sized companies that would otherwise be difficult for them to obtain.  They have also been able to maintain their dividend through the recession. Some other reasons to consider BDCs, and AINV specifially, include:

A Diversified Asset Base - The typical BDC has over 50 different loans or investments in portfolio in over 20 different industries.  As of Sept. 30, 2011 Apollo Investment had a net portfolio of 69 companies in 10 different industries.

Low Leverage - By law, BDCs are required to maintain low leverage, with total debt outstanding not allowed to exceed equity. (AINV shows approx $2.8B in assets and $1.3B in liabilities on their balance sheet as of Sept. 30, 2011.)

BDCs Have Capital Available For Growth - During the fiscal year ended March 31, 2011, Apollo invested $1.1 billion across 21 new and 18 existing portfolio companies through a combination of primary and secondary market purchases.

Many BDCs Are Developing New Sources Of Income - in a press release dated Oct. 5, 2011, Apollo announced that it raised $45M in the placement of senior secured notes with both new and existing lenders.  The proceeds will be used to fund new portfolio investments and to reduce the debt basis on their current revolving credit facility.

The BDC Industry Is Growing And Attracting More Investor Interest - Since the initial public offering of Apollo Investment in April 2004 and through March 31, 2011, invested capital totaled over $7.3 billion in 147 portfolio companies.

BDC financial reporting is detailed and transparent - unlike prviate equity firms, BDCs file quarterly reports with the SEC and re-value their portfolios every quarter. 

Some highlights from the latest quartely report (as of Sept. 30, 2011) from AINV include:

  • Investments made during the quarter: $403 million
  • Number of new portfolio companies invested: 6
  • Investments sold or prepaid during the quarter: $387 million
  • Number of portfolio company exits: 9

Operating Results for the Quarter Ended September 30, 2011 (in thousands, except per share amounts):

  • Net investment income: $45,532
  • Net realized and unrealized gain (loss): ($312,782)
  • Net increase (decrease) in net assets from operations: ($267,250)
  • Net investment income per share: $0.23
  • Net realized and unrealized gain (loss) per share: ($1.59)
  • Earnings (loss) per share -- basic and diluted: ($1.36)

In summary, Apollo Investment Corp looks promising as a long-term investment for your growth and income portfolio.

I hold shares of AINV in my personal IRA account and hope to add to my position in the future as I find more cash to invest.

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