ABOUT
THIS PROSPECTUS
This
prospectus is part of a registration statement that we have filed with the
Securities and Exchange Commission, or the SEC, using the "shelf" registration
process. Under the shelf registration process, we may offer, from
time to time, up to $ 1,000,000,000 of our
common stock, preferred stock, debt securities or warrants representing rights
to purchase shares of our common stock, preferred stock or debt securities on
the terms to be determined at the time of the offering. The
securities may be offered at prices and on terms described in one or more
supplements to this prospectus. This prospectus provides you with a
general description of the securities that we may offer. Each time we
use this prospectus to offer securities, we will provide a prospectus supplement
that will contain specific information about the terms of that
offering. The prospectus supplement may also add, update or change
information contained in this prospectus. Please carefully read this
prospectus and any prospectus supplement together with any exhibits and the
additional information described under the headings "Available Information" and
"Risk Factors" before you make an investment decision.
PROSPECTUS
SUMMARY
This
summary highlights some of the information in this prospectus. It is
not complete and may not contain all of the information that you may want to
consider. You should read carefully the more detailed information set
forth under "Risk Factors" and the other information included in this
prospectus. In this prospectus and any accompanying prospectus
supplement, except where the context suggests otherwise, the terms "we", "us",
"our" and "Apollo Investment" refer to Apollo Investment Corporation; "Apollo
Investment Management", "AIM" or "investment adviser" refers to Apollo
Investment Management, L.P.; "Apollo Administration" or "AIA" refers to Apollo
Investment Administration, LLC; and "Apollo" refers to the affiliated companies
of Apollo Investment Management, L.P.
Apollo
Investment
Apollo
Investment Corporation, 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, or RIC, under the Internal Revenue
Code of 1986, as amended (the “Code”).
Our
investment objective is to generate both current income and capital appreciation
through debt and equity investments. We invest primarily in
middle-market companies in the form of mezzanine and senior secured loans, as
well as by making equity investments. From time to time, we may also
invest in the securities of public companies as well as public companies whose
securities are thinly traded.
Our
portfolio is comprised primarily of investments in long-term subordinated debt,
referred to as mezzanine debt, and senior secured loans of private middle-market
companies, and from time to time includes equity interests such as common stock,
preferred stock, warrants or options. In this prospectus, we use the
term "middle-market" to refer to companies with annual revenues between $50
million and $2 billion. While our primary focus is to generate both
current income and capital appreciation through investments in U.S. senior
and subordinated loans, other debt securities and private equity, we
may also invest a portion of the portfolio in opportunistic investments,
including foreign securities. See "Risk Factors – Risks
Related to Our Investments."
AIM
and its affiliates manage other funds that may have investment mandates that are
similar, in whole or in part, with ours. AIM and its affiliates may
determine that an investment is appropriate both for us and for one or more of
those other funds. In such event, depending on the availability of
such investment and other appropriate factors, AIM may determine that we should
invest on a side-by-side basis with one or more other funds. We may
make all such investments subject to compliance with applicable regulations and
interpretations, and our allocation procedures. In certain
circumstances negotiated co-investments may be made only if we receive an order
from the SEC permitting us to do so. There can be no assurance that
any such order will be obtained.
During our fiscal year ended March 31,
2009 , we invested $ 435 million across 12 new and 13
existing portfolio companies. This compares to investing $ 1.8 billion in
27 new and 15 existing portfolio companies for the previous fiscal
year ended March 31, 2008 . Investments sold or prepaid during the fiscal
year ended March 31, 2009 totaled $ 340 million versus $714
million for the fiscal year ended March 31, 2008 . Total
invested capital since our initial public offering in April 2004 through March
31, 2009 is $5.6 billion .
The weighted average yields on our
senior secured loan portfolio, subordinated debt portfolio and total debt
portfolio at our current cost basis were 8.2%, 13.2% and 11.7%, respectively, at
March 31, 2009. At March 31, 2008, the yields were 10.0%, 12.8%, and 12.0%,
respectively.
Our targeted investment size
typically ranges between $20 million and $250 million, although this investment
size may vary proportionately as the size of our available capital base changes.
At March 31, 2009, our net portfolio consisted of 72 portfolio companies and was
invested 27% in senior secured loans, 59% in subordinated debt, 4% in preferred
equity and 10% in common equity and warrants measured at fair value versus 71
portfolio companies invested 22% in senior secured loans, 57% in subordinated
debt, 6% in preferred equity and 15% in common equity and warrants at March 31,
2008.
Since the initial public offering of
Apollo Investment in April 2004 and through March 31, 2009, invested capital
totals $5.6 billion in 124 portfolio companies. Over the same period,
we also completed transactions with more than 85 different financial
sponsors.
Senior secured loans and European
mezzanine loans typically accrue interest at variable rates determined on the
basis of a benchmark: LIBOR, EURIBOR, GBP LIBOR, or the prime rate, with stated
maturities at origination that typically range from 5 to 10 years. While
subordinated debt issued within the United States will typically accrue interest
at fixed rates, some of these investments may include zero-coupon, PIK and/or
step bonds that accrue income on a constant yield to call or maturity basis. At
March 31, 2009, 69% or $1.5 billion of our interest-bearing investment portfolio
is fixed rate debt and 31% or $0.7 billion is floating rate debt, measured at
fair value. At March 31, 2008, 62% or $1.6 billion of our interest-bearing
investment portfolio was fixed rate debt and 38% or $1.0 billion was floating
rate debt, measured at fair value.
About
Apollo Investment Management
AIM,
our investment adviser, is led by a dedicated team of
investment professionals. AIM's investment committee currently
consists of John J. Hannan, the Chairman of our board of directors
and Chairman of AIM's Investment Committee; James C. Zelter,
our Chief Executive Officer , a partner of AIM and a Vice
President of the general partner of AIM; Patrick J. Dalton, our
President and Chief Operating Officer, a partner of AIM and a Vice President
and the Chief Investment Officer of the general partner of AIM;
Rajay Bagaria, a partner of AIM and a Vice President of the general partner
of AIM; and Justin Sendak, a partner of AIM and a Vice President of the
general partner of AIM. The composition of the Investment Committee
of AIM may change from time to time. AIM draws upon Apollo's
19 -year history and benefits from the Apollo investment professionals'
significant capital markets, trading and research expertise.
About
Apollo Investment Administration
In
addition to furnishing us with office facilities, equipment, and clerical,
bookkeeping and record keeping services, AIA also oversees our financial records
as well as the preparation of our reports to stockholders and reports filed with
the SEC. AIA oversees the determination and publication of our net
asset value, oversees the preparation and filing of our tax returns, and
generally monitors the payment of our expenses and the performance of
administrative and professional services rendered to us by
others. Furthermore, AIA provides on our behalf managerial assistance
to those portfolio companies to which we are required to provide such
assistance.
Operating
and Regulatory Structure
Our
investment activities are managed by AIM and supervised by our board of
directors, a majority of whom are independent of Apollo and its
affiliates. AIM is an investment adviser that is registered under the
Investment Advisers Act of 1940, or the Advisers Act. Under our
investment advisory and management agreement, we pay AIM an annual base
management fee based on our gross assets as well as an incentive
fee. See "Management—Investment Advisory and Management
Agreement."
As
a BDC, we are required to comply with certain regulatory
requirements. Also, while we are permitted to finance investments
using debt, our ability to use debt is limited in certain significant
respects. See "Regulation."
We
have elected to be treated for federal income tax purposes as a RIC under
Subchapter M of the Code. For more information, see "Material
U.S. Federal Income Tax Considerations."
Determination
of Net Asset Value
The
net asset value per share of our outstanding shares of common stock is
determined quarterly by dividing the value of our total assets minus our
liabilities by the total number of our shares outstanding.
In
calculating the value of our total assets, we value investments for which market
quotations are readily available at such market quotations if they are deemed to
represent fair value. Market quotations may be deemed not to
represent fair value in certain circumstances where AIM believes that facts and
circumstances applicable to an issuer, a seller or purchaser or the market for a
particular security causes current market quotes to not reflect the fair value
of the security. Examples of these events could include cases in
which material events are announced after the close of the market on which a
security is primarily traded, when a security trades infrequently causing a
quoted purchase or sale price to become stale or in the event of a "fire sale"
by a distressed seller. Debt and equity securities that are not
publicly traded or whose market price is not readily available or whose market
quotations are not deemed to represent fair value are valued at fair value as
determined in good faith by, or under the direction of, our board of directors
pursuant to a written valuation policy and a consistently applied
valuation process utilizing the input of our investment adviser, independent
valuation firms, and the audit committee. Because there is no readily
available market value for a significant portion of the investments in our
portfolio, we value these portfolio investments at fair value as determined
in good faith by the board of directors .
Due
to the inherent uncertainty of determining the fair value of our investments,
the value of our investments may differ significantly from the values that would
have been used had a readily available market existed for such investments, and
the differences could be material. Determination of fair values
involves subjective judgments and estimates not susceptible to substantiation by
auditing procedures. Accordingly, under current accounting standards,
the notes to our financial statements refer to the uncertainty with respect to
the possible effect of such valuations, and any change in such valuations, on
our financial statements. For more information, see "Determination of
Net Asset Value."
Use
of Proceeds
We
intend to use the net proceeds from the sale of our securities pursuant to this
prospectus for general corporate purposes, which includes investing in portfolio
companies in accordance with our investment objective and strategies and
repaying indebtedness incurred under our senior credit facility.
We
anticipate that substantially all of the net proceeds of an offering of
securities pursuant to this prospectus will be used for the above purposes
within two years, depending on the availability of appropriate investment
opportunities consistent with our investment objective and market
conditions. Our portfolio currently consists primarily of
investments in long-term subordinated debt, referred to as mezzanine debt, and
senior secured loans of private middle-market companies, and from time to time
includes equity interests such as common stock, preferred stock, warrants or
options. Pending such investments, we will use the net proceeds of an
offering to invest in cash equivalents, U.S. government securities and other
high-quality debt investments that mature in one year or less from the date of
investment, to reduce then-outstanding obligations under our credit facility or
for other general corporate purposes. The supplement to this
prospectus relating to an offering will more fully identify the use of the
proceeds from such offering. For more information, see "Use of
Proceeds."
Dividends
on Common Stock
We
intend to continue to distribute quarterly dividends to our common
stockholders , however, we may not be able to maintain the current level of
dividend payments, including due to regulatory requirements . Our
quarterly dividends, if any, will be determined by our board of
directors. For more information, see "Dividends."
Dividends
on Preferred Stock
We
may issue preferred stock from time to time, although we have no immediate
intention to do so. If we issue shares of preferred stock, holders of
such preferred stock will be entitled to receive cash dividends at an annual
rate that will be fixed or will vary for the successive dividend periods for
each series. In general, the dividend periods for fixed rate
preferred stock will be quarterly.
Dividend
Reinvestment Plan
We
have adopted an "opt-out" dividend reinvestment plan that provides for
reinvestment of our dividend distributions on behalf of our stockholders, unless
a stockholder elects to receive cash. As a result, if our board of
directors authorizes, and we declare, a cash dividend, then our stockholders who
have not "opted out" of our dividend reinvestment plan will have their cash
dividends automatically reinvested in additional shares of our common stock,
rather than receiving the cash dividends. A registered stockholder
must notify our transfer agent in writing in order to "opt-out" of the dividend
reinvestment plan. For more information, see "Dividend Reinvestment
Plan."
Plan
of Distribution
We
may offer, from time to time, up to $ 1,000,000,000 of our
common stock, preferred stock, debt securities or warrants representing rights
to purchase shares of our common stock, preferred stock or debt securities, on
terms to be determined at the time of the offering.
Securities
may be offered at prices and on terms described in one or more supplements to
this prospectus directly to one or more purchasers, through agents designated
from time to time by us, or to or through underwriters or
dealers. The supplement to this prospectus relating to the offering
will identify any agents or underwriters involved in the sale of our securities,
and will set forth any applicable purchase price, fee and commission or discount
arrangement or the basis upon which such amount may be calculated. In
compliance with the guidelines of the Financial Industry Regulatory Authority,
Inc. ("FINRA"), the maximum compensation to the underwriters or
dealers in connection with the sale of our securities pursuant to this
prospectus and the accompanying supplement to this prospectus may not
exceed 8% of the aggregate offering price of the securities as set forth on the
cover page of the supplement to this prospectus.
We
may not sell securities pursuant to this prospectus without delivering a
prospectus supplement describing the method and terms of the offering of such
securities. For more information, see "Plan of
Distribution."
Continued
Use of Leverage
The
availability of leverage depends upon the economic environment. Given
current market conditions, there can be no assurance that we will be able to
utilize leverage as anticipated, if at all, and we may determine or be required
to reduce or eliminate our leverage over time. In recent months, the
U.S. and international financial institutions and the global financial markets
have been affected by a credit crisis. Beginning in October
2008, the
United
States federal government has enacted legislation authorizing expenditures in
excess of $1.4 trillion to address the needs of troubled financial institutions
and markets and to assist the U.S. economy. Whether these
undertakings, or any future undertakings, will help stabilize the financial
markets or improve the economy is unknown. The current global
economic environment, and the potential systemic risk arising from illiquidity
and rapid de-leveraging in the financial system at large, may continue to
contribute to market volatility and may have long-term effects on the U.S. and
international financial markets. We cannot predict how long the
financial markets and economic environment will continue to be affected by these
events and cannot predict the effects of these or similar
events.
Our
Corporate Information
Our
administrative and principal executive offices are located at 9 West 57th
Street, New York, NY 10019. Our common stock is quoted on The Nasdaq
Global Select Market under the symbol "AINV." Our Internet website address is
www.apolloic.com. Information contained on our website is not
incorporated by reference into this prospectus and you should not consider
information contained on our website to be part of this prospectus.
FEES
AND EXPENSES
The
following table is intended to assist you in understanding the costs and
expenses that an investor in shares of our common stock will bear directly or
indirectly. We caution you that some of the percentages indicated in
the table below are estimates and may vary. Except where the context
suggests otherwise, whenever this prospectus contains a reference to fees or
expenses paid by "you," "us" or "Apollo Investment," or that "we" will pay fees
or expenses, common stockholders will indirectly bear such fees or expenses as
investors in Apollo Investment.
Stockholder
transaction expenses:
|
|
Sales
load (as a percentage of offering price)
|
—
(1)
|
Offering
expenses (as a percentage of offering price)
|
—
(2)
|
Total
common stockholder transaction expenses (as a percentage of offering
price)
|
—
(3)
|
Annual
expenses (as percentage of net assets attributable to common stock)(4):
|
|
Management
fees
|
4.28 %(5)
|
Incentive
fees payable under investment advisory and management
agreement
|
3.70 %(6)
|
Other
expenses
|
0.77 %(7)
|
Interest
and other credit facility related expenses on borrowed
funds
|
|
Total
annual expenses (9)
|
12.25%(5,6,7,8)
|
Example
The following example demonstrates the
projected dollar amount of total cumulative expenses that would be incurred over
various periods with respect to a hypothetical investment in our common
stock. These dollar amounts are based upon the assumption that our
annual operating expenses (other than performance-based incentive fees) and
leverage would remain at the levels set forth in the table above.
|
|
|
|
|
|
|
|
You
would pay the following expenses on a $1,000 investment, assuming a 5%
annual return
|
$ 84
|
|
$ 243
|
|
$ 391
|
|
$ 718
|
While
the example assumes, as required by the SEC, a 5% annual return, our performance
will vary and may result in a return greater or less than
5%. Assuming a 5% annual return, the incentive fee under the
investment advisory and management agreement may not be earned or payable
and is not included in the example. This illustration assumes that we
will not realize any capital gains computed net of all realized capital losses
and gross unrealized capital depreciation in any of the indicated time
periods. If we achieve sufficient returns on our investments,
including through the realization of capital gains, to trigger an incentive fee
of a material amount, our expenses, and returns to our investors, would be
higher. In addition, while the example assumes reinvestment of all
dividends and distributions at net asset value, participants in our dividend
reinvestment plan will receive a number of shares of our common stock,
determined by dividing the total dollar amount of the dividend payable to a
participant by the market price per share of our common stock at the close of
trading on the valuation date for the dividend. See "Dividend
Reinvestment Plan" for additional information regarding our dividend
reinvestment plan.
This
example and the expenses in the table above should not be considered a
representation of our future expenses, and actual expenses may be greater or
less than those shown.
_________________________
(1)
|
In
the event that the securities to which this prospectus relates are sold to
or through underwriters, a corresponding prospectus supplement will
disclose the applicable sales load.
|
(2)
|
The
related prospectus supplement will disclose the estimated amount of
offering expenses, the offering price and the offering expenses borne by
us as a percentage of the offering
price.
|
(3)
|
The
expenses of the dividend reinvestment plan are included in "Other
expenses."
|
(4)
|
"Net
assets attributable to common stock" equals net assets as of March 31,
2009 .
|
(5)
|
The
contractual management fee is calculated at an annual rate of 2.00% of our
average gross total assets. Annual expenses are based on
current fiscal year amounts . For more detailed
information about our computation of average total assets, please see Notes 3 and 9 of
our financial statements dated March 31, 2009 included in this
prospectus.
|
(6)
|
Assumes
that annual incentive fees earned by our investment adviser, AIM, remain
consistent with the incentive fees earned by AIM for the fiscal year ended
March 31, 2009 . AIM earns incentive fees consisting of
two parts. The first part, which is payable quarterly in
arrears, is based on our pre-incentive fee net investment income for the
immediately preceding calendar quarter. 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% quarterly (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 (see footnote 5 above). Accordingly, we pay
AIM an incentive fee 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 the performance threshold 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 pro rated for any period of less than three
months . The effect of the fee calculation described above is
that if pre-incentive fee net investment income is equal to or exceeds
2.1875%, AIM will receive a fee of 20% of our pre-incentive fee net
investment income for the quarter. You should be aware that
a rise in the general level of interest rates can be expected to lead to
higher interest rates applicable to our debt
investments. Accordingly, an increase in interest rates would
make it easier for us to meet or exceed the incentive fee performance
threshold and may result in a substantial increase of the amount of
incentive fees payable to our investment adviser with respect to
pre-incentive fee net investment income. Furthermore, since
the performance threshold is based on a percentage of our net asset value,
decreases in our net asset value make it easier to achieve the performance
threshold. The second part of the incentive fee will equal
20% of our realized capital gains for the calendar year, if any, computed
net of all realized capital losses and unrealized capital depreciation
(and incorporating unrealized depreciation on a gross
investment-by-investment basis) and is payable in arrears at the end of
each calendar year. For a more detailed discussion of the
calculation of this fee, see "Management—Investment Advisory and
Management Agreement."
|
(7)
|
"Other
expenses" are based on amounts for the current fiscal year and
include our overhead expenses, including payments under the
administration agreement based on our allocable portion of overhead
and other expenses incurred by AIA in performing its obligations under the
administration agreement. See "Management—Administration
Agreement" in this base prospectus.
|
(8)
|
Our
interest and other credit facility expenses are based on current fiscal
year amounts . As of March 31, 2009 , we had
$ 0.642 billion available and $ 1.058
billion in borrowings outstanding under our $1.7 billion credit
facility. For more information, see "Risk Factors—Risks
relating to our business and structure—We fund a portion of our
investments with borrowed money, which magnifies the potential for gain or
loss on amounts invested and may increase the risk of investing in us" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations—Liquidity and Capital Resources" in this base
prospectus.
|
(9)
|
"Total
annual expenses" as a percentage of net assets attributable to common
stock are higher than the total annual expenses percentage would be for a
company that is not leveraged. We borrow money to leverage our
net assets and increase our total assets. The SEC requires that
the "Total annual expenses" percentage be calculated as a percentage of
net assets (defined as total assets less indebtedness), rather than the
total assets, including assets that have been funded with borrowed
monies. If the "Total annual expenses" percentage were
calculated instead as a percentage of total assets, our "Total annual
expenses" would be 6.37% of total assets. For a presentation
and calculation of total annual expenses based on total assets, see page
27 of this base prospectus.
|
RISK
FACTORS
Before
you invest in our shares, you should be aware of various risks, including those
described below and those set forth under the caption “Recent Developments”
in the accompanying prospectus supplement . You should carefully
consider these risk factors, together with all of the other information included
in this base prospectus and accompanying prospectus supplement ,
before you decide whether to make an investment in our
securities. The risks set out below and in the accompanying
prospectus supplement are not the only risks we face. If any of
the following events occur, our business, financial condition and results of
operations could be materially adversely affected. In such case, our
net asset value and the trading price of our common stock could decline or the
value of our preferred stock, debt securities or warrants may decline, and you
may lose all or part of your investment.
CERTAIN
RISKS IN THE CURRENT ENVIRONMENT
To
the extent applicable, the prospectus supplement used in connection with any
offering of securities under this prospectus will highlight or discuss certain
risk factors that may be more significant in the business environment at the
time of such offering.
Capital
markets are currently in a period of disruption and instability. These market
conditions have materially and adversely affected debt and equity capital
markets in the United States and abroad, which has had and could continue to
result in a negative impact on our business and operations.
We
believe that beginning in 2007 and through 2008, the global capital markets were
in a period of disruption as evidenced by a lack of liquidity in the debt
capital markets, significant write-offs in the financial services sector, the
re-pricing of credit risk in the broadly syndicated credit market and the
failure of certain major financial institutions and have remained as such
through the date of this prospectus. Despite actions of the United States
federal government and foreign governments, these events have contributed to
worsening general economic conditions that are materially and adversely
impacting the broader financial and credit markets and reducing the availability
of debt and equity capital for the market as a whole and financial services
firms in particular. These conditions could continue for a prolonged period of
time or worsen in the future. While these conditions persist, we and other
companies in the financial services sector may be required to, or may choose to,
seek access to alternative markets for debt and equity capital. Equity capital
may be difficult to raise because, subject to some limited exceptions, we are
not generally able to issue and sell our common stock at a price below net asset
value per share. In addition, the debt capital that will be available, if at
all, may be at a higher cost, and on less favorable terms and conditions in the
future. Conversely, our portfolio companies may not be able to service or
refinance their debt which could materially and adversely affect our financial
condition as we would experience reduced income or even losses. The inability to
raise capital and the risk of portfolio company defaults may have a negative
effect on our business, financial condition and results of
operations.
RISKS
RELATING TO OUR BUSINESS AND STRUCTURE
We
may suffer credit losses.
Investment
in small and middle-market companies is highly speculative and involves a high
degree of risk of credit loss. These risks are likely to increase
during economic recession, such as the US and many other economies have been
experiencing. See "Risks Related to Our
Investments."
We
are dependent upon Apollo Investment Management's key personnel for our future
success and upon their access to Apollo's investment professionals and
partners.
We
depend on the diligence, skill and network of business contacts of the senior
management of AIM. Members of our senior management may depart at any
time. For a description of the senior management team, see
"Management." We also depend, to a significant extent, on AIM's access to the
investment professionals and partners of Apollo and the information and deal
flow generated by the Apollo investment professionals in the course of their
investment and portfolio management activities. The senior management
of AIM evaluates, negotiates, structures, closes and monitors our
investments. Our future success depends on the continued service of
the senior management team of AIM. The departure of any senior
managers of AIM, or of a significant number of the investment professionals or
partners of Apollo, could have a material adverse effect on our ability to
achieve our investment objective. In addition, we can offer no
assurance that AIM will remain our investment adviser or that we will continue
to have access to Apollo's partners and investment professionals or its
information and deal flow.
Our
financial condition and results of operation depend on our ability to manage
future growth effectively.
Our
ability to achieve our investment objective depends, in part, on our ability to
grow, which depends, in turn, on AIM's ability to identify, invest in and
monitor companies that meet our investment criteria. Accomplishing
this result on a cost-effective basis is largely a function of AIM's structuring
of the investment process, its ability to provide competent, attentive and
efficient services to us and our access to financing on acceptable
terms. The senior management team of AIM has substantial
responsibilities under the investment advisory and management agreement, and
with respect to certain members, in connection with their roles as officers
of other Apollo funds.
They
may also be called upon to provide managerial assistance to our portfolio
companies. These demands on their time may distract them or slow the
rate of investment. In order to grow, we and AIM need to hire, train,
supervise and manage new employees. Any failure to manage our future
growth effectively could have a material adverse effect on our business,
financial condition and results of operations.
We
operate in a highly competitive market for investment
opportunities.
A
number of entities compete with us to make the types of investments that we
make. We compete with public and private funds, commercial and
investment banks, commercial financing companies, and, to the extent they
provide an alternative form of financing, private equity
funds. Additionally, because competition for investment opportunities
generally has increased in recent years among alternative investment
vehicles, such as hedge funds, those entities have begun to invest in areas they
have not traditionally invested in. As a result of these entrants,
competition for investment opportunities intensified in recent years
and may intensify further in the future . Some of our existing and
potential competitors are substantially larger and have considerably greater
financial, technical and marketing resources than we do. For example,
some competitors may have a lower cost of funds and access to funding sources
that are not available to us. In addition, some of our competitors
may have higher risk tolerances or different risk assessments, which could allow
them to consider a wider variety of investments and establish more relationships
than us. Furthermore, many of our competitors are not subject to the
regulatory restrictions and valuation requirements that the 1940 Act
imposes on us as a BDC. We cannot assure you that the competitive
pressures we face will not have a material adverse effect on our business,
financial condition and results of operations. Also, as a result of
this existing and potentially increasing competition, we may not be able
to take advantage of attractive investment opportunities from time to time, and
we can offer no assurance that we will be able to identify and make investments
that are consistent with our investment objective.
We
do not seek to compete primarily based on the interest rates we offer, and we
believe that some of our competitors make loans with interest rates that are
comparable to or lower than the rates we offer.
We
may lose investment opportunities if we do not match our competitors' pricing,
terms and structure. If we match our competitors' pricing, terms and
structure, we may experience decreased net interest income and increased risk of
credit loss.
Any
failure on our part to maintain our status as a BDC would reduce our operating
flexibility.
If
we do not remain a BDC, we might be regulated as a closed-end investment company
under the 1940 Act, which would subject us to substantially more regulatory
restrictions under the 1940 Act and correspondingly decrease our operating
flexibility.
We
will be subject to corporate-level income tax if we are unable to qualify as a
RIC.
To
qualify as a RIC under the Code, we must meet certain source-of-income, asset
diversification and annual distribution requirements. The annual
distribution requirement for a RIC is satisfied if we distribute at least 90% of
our ordinary income and realized net short-term capital gains in excess of
realized net long-term capital losses, if any, to our stockholders on an annual
basis. To the extent we use debt financing, we are subject to certain
asset coverage ratio requirements and other financial covenants
under loan and credit agreements , and could in some circumstances also become
subject to such requirements under the 1940 Act, that could, under certain
circumstances, restrict us from making distributions necessary to qualify as a
RIC. If we are unable to obtain cash from other sources, we may fail
to qualify as a RIC and, thus, may be subject to corporate-level income
tax. To qualify as a RIC, we must also meet certain asset
diversification requirements at the end of each calendar
quarter. Failure to meet these tests may result in our having to
dispose of certain investments quickly in order to prevent the loss of RIC
status. Because most of our investments are in private companies, any
such dispositions could be made at disadvantageous prices and may result in
substantial losses. If we fail to qualify as a RIC for any reason and
become subject to corporate-level income tax, the resulting corporate-level
taxes could substantially reduce our net assets, the amount of income available
for distribution and the amount of our distributions. Such a failure
would have a material adverse effect on us and our stockholders.
To
qualify again to be taxed as a RIC in a subsequent year, we would be required to
distribute to our stockholders our earnings and profits attributable to non-RIC
years reduced by an interest charge on 50% of such earnings and profits payable
by us to the IRS. In addition, if we failed to qualify as a RIC for a
period greater than two taxable years, then we would be required to elect to
recognize and pay tax on any net built-in gain (the excess of aggregate gain,
including items of income, over aggregate loss that would have been realized if
we had been liquidated) or, alternatively, be subject to taxation on such
built-in gain recognized for a period of ten years, in order to qualify as a RIC
in a subsequent year.
We
may have difficulty paying our required distributions if we recognize income
before or without receiving cash representing such income.
For
federal income tax purposes, we include in income certain amounts that we have
not yet received in cash, such as original issue discount, which may arise if we
receive warrants in connection with the making of a loan or possibly in other
circumstances, or payment-in-kind interest, which represents contractual
interest added to the loan balance and due at the end of the loan
term. Such original issue discount, which could be significant
relative to our overall investment activities, or increases in loan balances as
a result of payment-in-kind arrangements are included in income before we
receive any corresponding cash payments. We also may be required to
include in income certain other amounts that we do not receive in
cash.
That
part of the incentive fee payable by us that relates to our net investment
income is computed and paid on income that may include interest that has been
accrued but not yet received in cash. If a portfolio company defaults
on a loan, it is possible that accrued interest previously used in the
calculation of the incentive fee will
become
uncollectible. Consequently, while we may make incentive fee
payments on income accruals that we may not collect in the future and with
respect to which we do not have a formal clawback right against our investment
adviser per se, the amount of accrued income written off in any period will
reduce the income in the period in which such write-off was taken and thereby
reduce such period’s incentive fee payment.
Since
in certain cases we may recognize income before or without receiving cash
representing such income, we may have difficulty meeting the tax requirement to
distribute at least 90% of our ordinary income and realized net short-term
capital gains in excess of realized net long-term capital losses, if any, to
maintain our status as a RIC. Accordingly, we may have to sell some
of our investments at times we would not consider advantageous, raise additional
debt or equity capital or reduce new investment originations in order to
meet distribution and/or leverage requirements. See
"Material U.S. Federal Income Tax Considerations—Taxation as a
RIC."
Regulations
governing our operation as a BDC affect our ability to, and the way in which we
raise, additional capital.
We
may issue debt securities or preferred stock and/or borrow money from banks or
other financial institutions, which we refer to collectively as "senior
securities," up to the maximum amount permitted by the 1940
Act. Under the provisions of the 1940 Act, we are permitted, as a
BDC, to issue senior securities only in amounts such that our asset coverage, as
defined in the 1940 Act, equals at least 200% after each issuance of senior
securities. If the value of our assets declines, we may be unable to
satisfy this test. If that happens, the contractual arrangements
governing these securities may require us to sell a portion of our investments
and, depending on the nature of our leverage, repay a portion of our
indebtedness at a time when such sales may be disadvantageous.
BDCs
may issue and sell common stock at a price below net asset value per share only
in limited circumstances, one of which is during the one-year period after
stockholder approval. In August 2008, o ur stockholders
approved a plan so that we may, in one or more public or private offerings of
our common stock, sell or otherwise issue shares of our common stock at a price
below the then current net asset value per share, subject to certain
conditions including parameters on the level of permissible dilution,
approval of the sale by a majority of our independent directors and a
requirement that the sale price be not less than approximately the market price
of the shares of our common stock at specified times, less the expenses of the
sale. We are requesting renewal of that authority for up to 25% of
our shares and for approval to issue long-term warrants and other rights at our
upcoming annual meeting of stockholders scheduled for August 5,
2009. There is no assurance such approvals will be
obtained.
In
the event we sell, or otherwise issue, shares of our common stock at a price
below net asset value per share, existing stockholders will experience net asset
value dilution and the investors who acquire shares in such offering may
thereafter experience the same type of dilution from subsequent offerings at a
discount. For example, if we sell an additional 10% of our common
shares at a 5% discount from net asset value, a stockholder who does not
participate in that offering for its proportionate interest will suffer net
asset value dilution of up to 0.5% or $5 per $1000 of net asset
value.
We
currently use borrowed funds to make investments and are exposed to the typical
risks associated with leverage.
We
are exposed to increased risk of loss due to our use of debt to make
investments. A decrease in the value of our investments will have a
greater negative impact on the value of our common stock than if we did not use
debt. Our ability to pay dividends will be restricted if we fail
to satisfy certain of our asset coverage ratios and other financial
covenants and any amounts that we use to service our indebtedness are not
available for dividends to our common stockholders.
The
agreements governing our revolving credit facility require us to comply with
certain financial and operational covenants. These covenants require us to,
among other things, maintain certain financial ratios, including asset coverage,
minimum shareholder equity and liquidity. As of March 31, 2009, we were in
compliance with these covenants. However, our continued compliance with these
covenants depends on many factors, some of which are beyond our control. For
example, during the year ended March 31, 2009, net unrealized depreciation in
our portfolio increased and, in the event of further deterioration in the
capital markets and pricing levels subsequent to this period, net unrealized
depreciation in our portfolio may continue to increase in the future. Absent an
amendment to our revolving credit facility, continued unrealized depreciation in
our investment portfolio could result in non-compliance with certain
covenants.
Accordingly,
there are no assurances that we will continue to comply with these covenants.
Failure to comply with these covenants would result in a default which, if we
were unable to obtain a waiver from the lenders, could accelerate repayment
under the facilities and thereby have a material adverse impact on our
liquidity, financial condition, results of operations and ability to pay
dividends.
Our
current and future debt securities are and may be governed by an indenture or
other instrument containing covenants restricting our operating
flexibility. We, and indirectly our stockholders, bear the cost of
issuing and servicing such securities. Any convertible or
exchangeable securities that we issue in the future may have rights, preferences
and privileges more favorable than those of our common stock.
We
fund a portion of our investments with borrowed money, which magnifies the
potential for gain or loss on amounts invested and may increase the risk of
investing in us.
Borrowings
and other types of financing , also known as leverage, magnify the
potential for gain or loss on amounts invested and, therefore, increase the
risks associated with investing in our securities. Our lenders have
fixed dollar claims on our assets that are superior to the claims of our common
stockholders or any preferred stockholders. If the value of our
assets increases, then leveraging would cause the net asset value to increase
more sharply than it would have had we not leveraged. Conversely, if
the value of our assets decreases, leveraging would cause net asset value to
decline more sharply than it otherwise would have had we not
leveraged. Similarly, any increase in our income in excess of
consolidated interest payable on the borrowed funds would cause our net income
to increase more than it would without the leverage, while any decrease in our
income would cause net income to decline more sharply than it would have had we
not borrowed. Such a decline could negatively affect our ability to
make common stock dividend payments. Leverage is generally considered
a speculative investment technique.
We
may in the future determine to fund a portion of our investments with preferred
stock, which would magnify the potential for gain or loss and the risks of
investing in us in the same way as our borrowings.
Preferred
stock, which is another form of leverage, has the same risks to our common
stockholders as borrowings because the dividends on any preferred stock we issue
must be cumulative. Payment of such dividends and repayment of the
liquidation preference of such preferred stock must take preference over any
dividends or other payments to our common stockholders, and preferred
stockholders are not subject to any of our expenses or losses and are not
entitled to participate in any income or appreciation in excess of their stated
preference.
Changes
in interest rates may affect our cost of capital and net investment
income.
Because
we borrow money, and may issue preferred stock to finance investments, our net
investment income will depend, in part, upon the difference between the rate at
which we borrow funds or pay dividends on preferred stock and the rate at which
we invest these funds. As a result, we can offer no assurance that a
significant change in market interest rates will not have a material adverse
effect on our net investment income. In periods of rising interest
rates, our cost of funds would increase except to the extent we issue fixed rate
debt or preferred stock,
which
could reduce our net investment income. Our long-term fixed-rate
investments are financed primarily with equity and long-term debt. We
may use interest rate risk management techniques in an effort to limit our
exposure to interest rate fluctuations. Such techniques may include
various interest rate hedging activities to the extent permitted by the 1940
Act. Interest rate hedging activities do not protect against
credit risk. We have analyzed the potential impact of changes in
interest rates on interest income net of interest expense. Assuming
that the balance sheet were to remain constant and no actions were taken to
alter the existing interest rate sensitivity, a hypothetical immediate 1% change
in interest rates would not materially affect our investment income over
a one-year horizon. In addition, we believe that our interest rate matching
structure and our ability to hedge mitigates the effects any changes in interest
rates may have on our investment income. Although management
believes that this is indicative of our sensitivity to interest rate changes, it
does not adjust for potential changes in credit quality, size and composition of
the assets on the balance sheet and other business developments that could
affect net increase in net assets resulting from operations, or net income.
Accordingly, no assurances can be given that actual results would not differ
materially from the potential outcome simulated by this estimate.
You
should also be aware that a rise in the general level of interest rates can be
expected to lead to higher interest rates we receive on many of our debt
investments. Accordingly, an increase in interest rates would make it
easier for us to meet or exceed the performance threshold and may result
in a substantial increase in the amount of incentive fees payable to our
investment adviser with respect to pre-incentive fee net investment
income.
We
may need to raise additional capital to grow because we must distribute most of
our income.
We
may need additional capital to fund growth in our investments. We
have issued equity securities and have borrowed from financial
institutions. A reduction in the availability of new capital could
limit our ability to grow. We must distribute at least 90% of our
ordinary income and realized net short-term capital gains in excess of realized
net long-term capital losses, if any, to our stockholders to maintain our
regulated investment company status. As a result, any such
cash earnings may not be available to fund investment
originations. We expect to continue to borrow from financial
institutions and issue additional debt and equity securities. If we
fail to obtain funds from such sources or from other sources to fund our
investments, it could limit our ability to grow, which may have an adverse
effect on the value of our securities. In addition, as a BDC,
our ability to borrow or issue additional preferred stock may be
restricted if our total assets are less than 200% of our total borrowings and
preferred stock .
Many
of our portfolio investments are recorded at fair value as determined in good
faith by our board of directors and, as a result, there is uncertainty as
to the value of our portfolio investments.
A
large percentage of our portfolio investments are not publicly
traded. The fair value of these investments may not be readily
determinable. We value these investments quarterly at fair value
(based on FAS 157, its corresponding guidance and the principal markets in
which these investments trade) as determined in good faith by our
board of directors pursuant to a written valuation policy and a
consistently applied valuation process utilizing the input of our investment
adviser, independent valuation firms and the audit committee. Our
board of directors utilizes the services of independent valuation firms
to aid it in determining the fair value of these investments. The
types of factors that may be considered in fair value pricing of these
investments include the nature and realizable value of any collateral, the
portfolio company's ability to make payments and its earnings, the markets in
which the portfolio company does business, comparison to more liquid
securities, indices and other market-related inputs , discounted cash
flow , our principal market and other relevant factors. Because
such valuations, and particularly valuations of private securities and private
companies, are inherently uncertain, may fluctuate over short periods of time
and may be based on estimates, our determinations of fair value may differ
materially from the values that would have been used if a readily available
market for these investments existed and may differ materially from the amounts
we realize on any disposition of such investments. Our net asset
value could be adversely affected if our determinations regarding the fair value
of these investments were materially higher than the values that we ultimately
realize upon the disposal of such investments.
In
addition, decreases in the market values or fair values of our investments are
recorded as unrealized depreciation. The unprecedented declines in prices and
liquidity in the debt markets have resulted in significant net unrealized
depreciation in our portfolio. The effect of all of these factors on our
portfolio has reduced our NAV by increasing net unrealized depreciation in our
portfolio. Depending on future market conditions, we could incur
substantial realized losses and may continue to suffer additional unrealized
losses in future periods, which could have a material adverse impact on our
business, financial condition and results of operations.
The
lack of liquidity in our investments may adversely affect our
business.
We
generally make investments in private companies. Substantially all of
these securities are subject to legal and other restrictions on resale or are
otherwise less liquid than publicly traded securities. The
illiquidity of our investments may make it difficult for us to sell such
investments if the need arises. In addition, if we are required to
liquidate all or a portion of our portfolio quickly, we may realize
significantly less than the value at which we have previously recorded our
investments. In addition, we may face other restrictions on our
ability to liquidate an investment in a portfolio company to the extent that we
or an affiliated manager of Apollo has material non-public information regarding
such portfolio company.
We
may experience fluctuations in our periodic results.
We
could experience fluctuations in our periodic operating results due to a number
of factors, including the interest rates payable on the debt securities we
acquire, the default rate on such securities, the level of our expenses
(including the interest rates payable on our borrowings, the dividend rates on
preferred stock we issue, variations in and the timing of the recognition of
realized and unrealized gains or losses, the degree to which we encounter
competition in our markets and general economic conditions. As a
result of these factors, results for any period should not be relied upon as
being indicative of performance in future periods.
There
are significant potential conflicts of interest which could adversely affect our
investment returns.
Our
executive officers and directors, and the partners of our investment adviser,
AIM, serve or may serve as officers, directors or principals of entities that
operate in the same or a related line of business as we do or of investment
funds managed by our affiliates. Accordingly, they may have obligations to
investors in those entities, the fulfillment of which might not be in the best
interests of us or our stockholders. Moreover, we note that, notwithstanding the
difference in principal investment objectives between us and other Apollo funds,
such other Apollo sponsored funds, including new affiliated potential pooled
investment vehicles or managed accounts not yet established (whether managed
or sponsored by those Apollo affiliates or AIM itself) , have and may from
time to time have overlapping investment objectives with us and, accordingly,
invest in, whether principally or secondarily, asset classes similar to those
targeted by us. To the extent such other investment vehicles have overlapping
investment objectives, the scope of opportunities otherwise available to us may
be adversely affected and/or reduced. As a result, the partners of AIM may face
conflicts in their time management and commitments as well as in the allocation
of investment opportunities to other Apollo funds. In addition, in the event
such investment opportunities are allocated among us and other investment
vehicles managed or sponsored by, or affiliated with , AIM our
desired investment portfolio may be adversely affected. Although AIM endeavors
to allocate investment opportunities in a fair and equitable manner, it is
possible that we may not be given the opportunity to participate in certain
investments made by investment funds managed by AIM or investment
managers affiliated with AIM.
There
are no information barriers amongst Apollo and certain of its
affiliates. If AIM were to receive material non-public information
about a particular company, or have an interest in investing in a particular
company, Apollo or certain of its affiliates may be prevented from investing in
such company. Conversely, if Apollo or certain of its affiliates were
to receive material non-public information about a particular company, or have
an interest in investing in a particular company, we may be prevented
from investing in such company.
AIM
and /or its affiliates and investment managers may determine that an
investment is appropriate both for us and for one or more other
funds. In such event, depending on the availability of such
investment and other appropriate factors, AIM may determine that we should
invest on a side-by-side basis with one or more other funds. We may
make all such investments subject to compliance with applicable regulations and
interpretations, and our allocation procedures. In certain
circumstances negotiated co-investments may be made only if we receive an order
from the SEC permitting us to do so. There can be no assurance that
any such order will be obtained.
In
the course of our investing activities, we pay management and incentive fees to
AIM, and reimburse AIM for certain expenses it incurs. As a result,
investors in our common stock invest on a "gross" basis and receive
distributions on a "net" basis after expenses, resulting in, among other things,
a lower rate of return than one might achieve through direct
investments. As a result of this arrangement, there may be times when
the management team of AIM has interests that differ from those of our common
stockholders, giving rise to a conflict.
AIM
receives a quarterly incentive fee based, in part, on our pre-incentive fee
income, if any, for the immediately preceding calendar quarter. This incentive
fee will not be payable to AIM unless the pre-incentive net investment
income exceeds the performance threshold . To the extent we or AIM are
able to exert influence over our portfolio companies, the quarterly
pre-incentive fee may provide AIM with an incentive to induce our portfolio
companies to prepay interest or other obligations in certain
circumstances .
We
have entered into a royalty-free license agreement with Apollo, pursuant to
which Apollo has agreed to grant us a non-exclusive license to use the name
"Apollo." Under the license agreement, we have the right to use the "Apollo"
name for so long as AIM or one of its affiliates remains our investment
adviser. In addition, we rent office space from AIA, an affiliate of
AIM, and pay Apollo Administration our allocable portion of overhead and other
expenses incurred by AIA in performing its obligations under the administration
agreement, including our allocable portion of the cost of our Chief Financial
Officer and Chief Compliance Officer and their respective staffs, which can
create conflicts of interest that our board of directors must
monitor.
In
the past following periods of volatility in the market price of a company's
securities, securities class action litigation has , from time to
time, been brought against that company.
If
our stock price fluctuates significantly, we may be the target of securities
litigation in the future. Securities litigation could result in substantial
costs and divert management's attention and resources from our
business.
Changes
in laws or regulations governing our operations may adversely affect our
business.
We
and our portfolio companies are subject to regulation by laws at the local,
state and federal levels. These laws and regulations, as well as
their interpretation, may be changed from time to time. Accordingly,
any change in these laws or regulations could have a material adverse affect on
our business.
Provisions
of the Maryland General Corporation Law and of our charter and bylaws could
deter takeover attempts and have an adverse impact on the price of our common
stock.
The
Maryland General Corporation Law, our charter and our bylaws contain provisions
that may discourage, delay or make more difficult a change in control of Apollo
Investment or the removal of our directors. We are subject to the
Maryland Business Combination Act, subject to any applicable requirements of the
1940 Act. Our board of directors has adopted a resolution exempting
from the Business Combination Act any business combination between us and any
other person, subject to prior approval of such business combination by our
board of directors, including approval by a majority of our disinterested
directors. If the resolution exempting business
combinations
is repealed or our board of directors does not approve a business combination,
the Business Combination Act may discourage third parties from trying to acquire
control of us and increase the difficulty of consummating such an
offer. Our bylaws exempt from the Maryland Control Share Acquisition
Act acquisitions of our common stock by any person. If we amend our
bylaws to repeal the exemption from the Control Share Acquisition Act, the
Control Share Acquisition Act also may make it more difficult for a third party
to obtain control of us and increase the difficulty of consummating such an
offer.
We
have also adopted other measures that may make it difficult for a third party to
obtain control of us, including provisions of our charter classifying our board
of directors in three classes serving staggered three-year terms, and provisions
of our charter authorizing our board of directors to classify or reclassify
shares of our stock in one or more classes or series, to cause the issuance of
additional shares of our stock, and to amend our charter, without stockholder
approval, to increase or decrease the number of shares of stock that we have
authority to issue. These provisions, as well as other provisions of
our charter and bylaws, may delay, defer or prevent a transaction or a change in
control that might otherwise be in the best interests of our
stockholders.
We
may choose to pay dividends in our own common stock, in which case you may be
required to pay federal income taxes in excess of the cash dividends you
receive.
We
may distribute taxable dividends that are payable in cash and shares of our
common stock at the election of each stockholder. Under IRS Revenue Procedure
2009-15, up to 90% of any such taxable dividend for a RIC’s taxable years ending
on or before December 31, 2009 could be payable in our common stock with the 10%
or greater balance paid in cash. The Internal Revenue Service has
also issued (and where Revenue Procedure 2009-15 is not currently applicable,
the Internal Revenue Service continues to issue) private letter rulings on
cash/stock dividends paid by regulated investment companies and real estate
investment trusts using a 20% cash standard (instead of the 10% cash standard of
Revenue Procedure 2009-15) if certain requirements are satisfied. Stockholders
receiving such dividends will be required to include the full amount of the
dividend as ordinary income to the extent of our current and accumulated
earnings and profits for federal income tax purposes. As a result, stockholders
may be required to pay income taxes with respect to such dividends in excess of
the cash dividends received. If a U.S. stockholder sells the common
stock that it receives as a dividend in order to pay this tax, the sales
proceeds may be less than the amount included in income with respect to the
dividend, depending on the market price of our common stock at the time of the
sale. Furthermore, with respect to non-U.S. stockholders, we may be required to
withhold U.S. tax with respect to such dividends, including in respect of all or
a portion of such dividend that is payable in common stock. In
addition, if a significant number of our stockholders determine to sell shares
of our common stock in order to pay taxes owed on dividends, it may put downward
pressure on the trading price of our common stock. It is unclear
whether and to what extent we will be able to pay taxable dividends in cash and
common stock (whether pursuant to Revenue Procedure 2009-15, a private letter
ruling or otherwise). For a more detailed discussion, see
"Dividends."
RISKS
RELATED TO OUR INVESTMENTS
Our
investments in prospective portfolio companies may be risky, and you could lose
all or part of your investment.
Investment
in middle-market companies involves a number of significant
risks. Middle-market companies may have limited financial resources
and may be unable to meet their obligations under their debt securities that we
hold, which may be accompanied by a deterioration in the value of any collateral
and a reduction in the likelihood of us realizing any guarantees we may have
obtained in connection with our investment. In addition, they
typically have shorter operating histories, narrower product lines and smaller
market shares than larger businesses, which tend to render them more vulnerable
to competitors' actions and market conditions, as well as general economic
downturns. Middle-market companies are more likely to depend on the
management talents and efforts of a small group of persons; therefore, the
death, disability, resignation or termination of one or more of these persons
could
have
a material adverse impact on our portfolio company and, in turn, on
us. Middle-market companies also generally have less predictable
operating results, may from time to time be parties to litigation, may be
engaged in rapidly changing businesses with products subject to a substantial
risk of obsolescence, and may require substantial additional capital to support
their operations, finance expansion or maintain their competitive
position. In addition, our executive officers, directors and our
investment adviser may, in the ordinary course of business, be named as
defendants in litigation arising from our investments in the portfolio
companies.
We
invest primarily in mezzanine debt and senior secured loans and we may not
realize gains from our equity investments.
When
we invest in mezzanine and senior secured loans, we have and may continue to
acquire warrants or other equity securities as well. In addition, we
may invest directly in the equity securities of portfolio
companies. Our goal is ultimately to dispose of such equity interests
and realize gains upon our disposition of such interests. However,
the equity interests we receive may not appreciate in value and, in fact, may
decline in value. Accordingly, we may not be able to realize gains
from our equity interests, and any gains that we do realize on the disposition
of any equity interests may not be sufficient to offset any other losses we
experience.
Economic
recessions or downturns could impair our portfolio companies and harm our
operating results.
The
US and most other economies have entered a recessionary period, which may be
prolonged and severe. Many of our portfolio companies may be
susceptible to economic slowdowns or recessions and may be unable to repay our
loans during these periods. Therefore, our non-performing assets are
likely to increase and the value of our portfolio is likely to decrease during
these periods. Adverse economic conditions also may decrease the
value of collateral securing some of our loans and the value of our equity
investments. Economic slowdowns or recessions could lead to financial
losses in our portfolio and a decrease in revenues, net income and
assets. Unfavorable economic conditions also could increase our
funding costs, limit our access to the capital markets or result in a decision
by lenders not to extend credit to us. These events could prevent us
from increasing investments and harm our operating results.
A
portfolio company's failure to satisfy financial or operating covenants imposed
by us or other lenders could lead to defaults and, potentially, termination of
its loans and foreclosure on its secured assets, which could trigger
cross-defaults under other agreements and jeopardize our portfolio company's
ability to meet its obligations under the debt securities that we
hold. We may incur expenses to the extent necessary to seek recovery
upon default or to negotiate new terms with a defaulting portfolio
company. In addition, if one of our portfolio companies were to go
bankrupt, even though we or one of our affiliates may have structured our
interest as senior debt, depending on the facts and circumstances, including the
extent to which we actually provided managerial assistance to that portfolio
company, a bankruptcy court might re-characterize our debt holding and
subordinate all or a portion of our claim to that of other
creditors.
Our
ability to invest in public companies may be limited in certain
circumstances.
As
a BDC, we must not acquire any assets other than "qualifying assets" specified
in the 1940 Act unless, at the time the acquisition is made, at least 70% of our
total assets are qualifying assets (with certain limited
exceptions) Subject to certain exceptions for follow-on investments
and distressed companies, an investment in an issuer that has outstanding
securities listed on a national securities exchange may be treated as qualifying
assets only if such issuer has a market capitalization that is less than $250
million at the time of such investment.
Our
portfolio contains a limited number of portfolio companies, which subjects us to
a greater risk of significant loss if any of these companies defaults on its
obligations under any of its debt securities.
A
consequence of the limited number of investments in our portfolio is that the
aggregate returns we realize may be significantly adversely affected if one or
more of our significant portfolio company investments perform poorly or if we
need to write down the value of any one significant investment. Beyond our
income tax diversification requirements, we do not have fixed guidelines for
diversification, and our portfolio could contain relatively few portfolio
companies.
Our
failure to make follow-on investments in our portfolio companies could impair
the value of our portfolio.
Following
an initial investment in a portfolio company, we may make additional investments
in that portfolio company as "follow-on" investments, in order to: (1) increase
or maintain in whole or in part our equity ownership percentage; (2) exercise
warrants, options or convertible securities that were acquired in the original
or subsequent financing or (3) attempt to preserve or enhance the value of our
investment.
We
may elect not to make follow-on investments , may be constrained in our
ability to employ available funds, or otherwise may lack sufficient
funds to make those investments. We have the discretion to make any
follow-on investments, subject to the availability of capital
resources. The failure to make follow-on investments may, in some
circumstances, jeopardize the continued viability of a portfolio company and our
initial investment, or may result in a missed opportunity for us to increase our
participation in a successful operation. Even if we have sufficient
capital to make a desired follow-on investment, we may elect not to make a
follow-on investment because we may not want to increase our concentration of
risk, because we prefer other opportunities, or because we are inhibited by
compliance with BDC requirements or the desire to maintain our tax
status.
When
we do not hold controlling equity interests in our portfolio companies, we may
not be in a position to exercise control over our portfolio companies or to
prevent decisions by management of our portfolio companies that could decrease
the value of our investments.
We
do not generally take controlling equity positions in our portfolio
companies. To the extent that we do not hold a controlling equity
interest in a portfolio company, we are subject to the risk that a portfolio
company may make business decisions with which we disagree, and the stockholders
and management of a portfolio company may take risks or otherwise act in ways
that are adverse to our interests. Due to the lack of liquidity for
the debt and equity investments that we typically hold in our portfolio
companies, we may not be able to dispose of our investments in the event we
disagree with the actions of a portfolio company, and may therefore suffer a
decrease in the value of our investments.
An
investment strategy focused primarily on privately-held companies presents
certain challenges, including the lack of available information about these
companies, a dependence on the talents and efforts of only a few key portfolio
company personnel and a greater vulnerability to economic
downturns.
We
have invested and will continue to invest primarily in privately-held
companies. Generally, little public information exists about these
companies, and we are required to rely on the ability of AIM's investment
professionals to obtain adequate information to evaluate the potential returns
from investing in these companies.
If
we are unable to uncover all material information about these companies, we may
not make a fully informed investment decision, and we may lose money on our
investments. Also, privately-held companies frequently have less
diverse product lines and smaller market presence than public company
competitors, which often are larger. These factors could affect our
investment returns.
Our
portfolio companies may incur debt that ranks equally with, or senior to, our
investments in such companies.
We
have invested and intend to invest primarily in mezzanine and senior debt
securities issued by our portfolio companies. The portfolio companies
usually have, or may be permitted to incur, other debt that ranks equally with,
or senior to, the debt securities in which we invest. By their terms,
such debt instruments may provide that the holders are entitled to receive
payment of interest or principal on or before the dates on which we are entitled
to receive payments in respect of the debt securities in which we
invest. Also, in the event of insolvency, liquidation, dissolution,
reorganization or bankruptcy of a portfolio company, holders of debt instruments
ranking senior to our investment in that portfolio company would typically be
entitled to receive payment in full before we receive any distribution in
respect of our investment. After repaying such senior creditors, such
portfolio company may not have any remaining assets to use for repaying its
obligation to us. In the case of debt ranking equally with debt
securities in which we invest, we would have to share on an equal basis any
distributions with other creditors holding such debt in the event of an
insolvency, liquidation, dissolution, reorganization or bankruptcy of the
relevant portfolio company. In addition, we may not be in a position
to control any portfolio company by investing in its debt
securities. As a result, we are subject to the risk that a portfolio
company in which we invest may make business decisions with which we disagree
and the management of such company, as representatives of the holders of their
common equity, may take risks or otherwise act in ways that do not serve our
interests as debt investors.
Our
incentive fee may induce AIM to make certain investments, including speculative
investments.
The
incentive fee payable by us to AIM may create an incentive for AIM to make
investments on our behalf that are risky or more speculative than would be the
case in the absence of such compensation arrangement. The way in
which the incentive fee payable to AIM is determined, which is calculated
separately in two components as a percentage of the income (subject to
a performance threshold) and as a percentage of the realized gain on
invested capital, may encourage our investment adviser to use leverage to
increase the return on our investments. Under certain circumstances,
the use of leverage may increase the likelihood of default, which would disfavor
the holders of our common stock, including investors in offerings of common
stock, securities convertible into our common stock or warrants representing
rights to purchase our common stock or securities convertible into our common
stock pursuant to this prospectus. In addition, AIM receives the
incentive fee based, in part, upon net capital gains realized on our
investments. Unlike the portion of the incentive fee based on income,
there is no performance threshold applicable to the portion of the
incentive fee based on net capital gains. As a result, AIM may have a
tendency to invest more in investments that are likely to result in capital
gains as compared to income producing securities. Such a practice
could result in our investing in more speculative securities than would
otherwise be the case, which could result in higher investment losses,
particularly during economic downturns.
The
incentive fee payable by us to AIM also may create an incentive for AIM to
invest on our behalf in instruments that have a deferred interest
feature. Under these investments, we would accrue the interest over
the life of the investment but would not receive the cash income from the
investment until the end of the term. Our net investment income used
to calculate the income portion of our investment fee, however, includes accrued
interest. Thus, while a portion of this incentive fee would be
based on income that we have not yet received in cash and with respect to
which we do not have a formal claw-back right against our investment adviser per
se, the amount of accrued income to the extent written off in any period will
reduce the income in the period in which such write-off was taken and thereby
reduce such period’s incentive fee payment .
We
may invest, to the extent permitted by law, in the securities and instruments of
other investment companies, including private funds, and, to the extent we so
invest, will bear our ratable share of any such investment company's expenses,
including management and performance fees. We will also remain
obligated to pay management and incentive fees to AIM with respect to the assets
invested in the securities and instruments of other investment
companies. With respect to each of these investments, each of our
common stockholders will bear his or her share of the management and incentive
fee of AIM as well as indirectly bearing the management and performance fees and
other expenses of any investment companies in which we invest.
We
may be obligated to pay our investment adviser incentive compensation even if we
incur a loss.
Our
investment adviser is entitled to incentive compensation for each fiscal quarter
in an amount equal to a percentage of the excess of our pre-incentive fee net
investment income for that quarter (before deducting incentive compensation, net
operating losses and certain other items) above a performance threshold for that
quarter. Accordingly, since the performance threshold is based on a percentage
of our net asset value, decreases in our net asset value make it easier to
achieve the performance threshold. Our pre-incentive fee net investment income
for incentive compensation purposes excludes realized and unrealized capital
losses or depreciation that we may incur in the fiscal quarter, even if such
capital losses or depreciation result in a net loss on our statement of
operations for that quarter. Thus, we may be required to pay AIM incentive
compensation for a fiscal quarter even if there is a decline in the value of our
portfolio or we incur a net loss for that quarter.
Our
investments in foreign securities may involve significant risks in addition to
the risks inherent in U.S. investments.
Our
investment strategy contemplates that a portion of our investments may be in
securities of foreign companies. Investing in foreign companies may
expose us to additional risks not typically associated with investing in
U.S. companies. These risks include changes in exchange
control regulations, political and social instability, expropriation, imposition
of foreign taxes, less liquid markets and less available information than is
generally the case in the United States, higher transaction costs, less
government supervision of exchanges, brokers and issuers, less developed
bankruptcy laws, difficulty in enforcing contractual obligations, lack of
uniform accounting and auditing standards and greater price
volatility.
Although
most of our investments are denominated in U.S. dollars, our
investments that are denominated in a foreign currency are subject to the risk
that the value of a particular currency may change in relation to one or more
other currencies. Among the factors that may affect currency values
are trade balances, the level of short-term interest rates, differences in
relative values of similar assets in different currencies, long-term
opportunities for investment and capital appreciation, and political
developments. We may employ hedging techniques to minimize these
risks, but we can offer no assurance that we will, in fact, hedge currency risk
or, that if we do, such strategies will be effective.
Hedging
transactions may expose us to additional risks.
If
we engage in hedging transactions, we may expose ourselves to risks associated
with such transactions. We may utilize instruments such as forward
contracts, currency options and interest rate swaps, caps, collars and floors to
seek to hedge against fluctuations in the relative values of our portfolio
positions from changes in currency exchange rates and market interest
rates. Hedging against a decline in the values of our portfolio
positions does not eliminate the possibility of fluctuations in the values of
such positions or prevent losses if the values of such positions
decline. However, such hedging can establish other positions designed
to gain from those same developments, thereby offsetting the decline in the
value of such portfolio positions. Such hedging transactions may also
limit the opportunity for gain if the values of the underlying portfolio
positions should increase. Moreover, it may not be possible to hedge
against an exchange rate or interest rate fluctuation that is so generally
anticipated that we are not able to enter into a hedging transaction at an
acceptable price.
While
we may enter into transactions to seek to reduce currency exchange rate and
interest rate risks, unanticipated changes in currency exchange rates or
interest rates may result in poorer overall investment performance than if we
had not engaged in any such hedging transactions. In addition, the
degree of correlation between price movements of the instruments used in a
hedging strategy and price movements in the portfolio positions being hedged may
vary. Moreover, for a variety of reasons, we may not seek to
establish a perfect correlation between such hedging instruments and the
portfolio holdings being hedged. Any such imperfect correlation may
prevent us from achieving the intended hedge and expose us to risk of
loss. In addition, it may not
be
possible to hedge fully or perfectly against currency fluctuations affecting the
value of securities denominated in non-U.S. currencies because the
value of those securities is likely to fluctuate as a result of factors not
related to currency fluctuations.
RISKS
RELATED TO ISSUANCE OF OUR PREFERRED STOCK
An
investment in our preferred stock should not constitute a complete investment
program.
If
we issue preferred stock, the net asset value and market value of our common
stock may become more volatile.
We
cannot assure that the issuance of preferred stock would result in a higher
yield or return to the holders of the common stock. The issuance of
preferred stock would likely cause the net asset value and market value of the
common stock to become more volatile. If the dividend rate on the
preferred stock were to approach the net rate of return on our investment
portfolio, the benefit of leverage to the holders of the common stock would be
reduced. If the dividend rate on the preferred stock were to exceed
the net rate of return on our portfolio, the leverage would result in a lower
rate of return to the holders of common stock than if we had not issued
preferred stock. Any decline in the net asset value of our
investments would be borne entirely by the holders of common
stock. Therefore, if the market value of our portfolio were to
decline, the leverage would result in a greater decrease in net asset value to
the holders of common stock than if we were not leveraged through the issuance
of preferred stock. This greater net asset value decrease would also
tend to cause a greater decline in the market price for the common
stock. We might be in danger of failing to maintain the required
asset coverage of the preferred stock or of losing our ratings on the preferred
stock or, in an extreme case, our current investment income might not be
sufficient to meet the dividend requirements on the preferred
stock. In order to counteract such an event, we might need to
liquidate investments in order to fund a redemption of some or all of the
preferred stock. In addition, we would pay (and the holders of common
stock would bear) all costs and expenses relating to the issuance and ongoing
maintenance of the preferred stock, including higher advisory fees if our total
return exceeds the dividend rate on the preferred stock. Holders of
preferred stock may have different interests than holders of common stock and
may at times have disproportionate influence over our affairs.
Holders
of any preferred stock we might issue would have the right to elect members of
the board of directors and class voting rights on certain matters.
Holders
of any preferred stock we might issue, voting separately as a single class,
would have the right to elect two members of the board of directors at all times
and in the event dividends become two full years in arrears would have the right
to elect a majority of the directors until such arrearage is completely
eliminated. In addition, preferred stockholders have class voting
rights on certain matters, including changes in fundamental investment
restrictions and conversion to open-end status, and accordingly can veto any
such changes. Restrictions imposed on the declarations and payment of
dividends or other distributions to the holders of our common stock and
preferred stock, both by the 1940 Act and by requirements imposed by rating
agencies or the terms of our credit facilities, might impair our ability to
maintain our qualification as a RIC for federal income tax
purposes. While we would intend to redeem our preferred stock to the
extent necessary to enable us to distribute our income as required to maintain
our qualification as a RIC, there can be no assurance that such actions could be
effected in time to meet the tax requirements.
RISKS
RELATING TO AN INVESTMENT IN OUR COMMON STOCK
Investing
in our securities involves a high degree of risk and is highly
speculative .
The
investments we make in accordance with our investment objective may result in a
higher amount of risk than alternative investment options and volatility or loss
of principal. Our investments in portfolio companies may be highly
speculative and aggressive, therefore, an investment in our securities may not
be suitable for someone with a low risk tolerance.
There
is a risk that investors in our equity securities may not receive dividends or
that our dividends may not grow over time and that investors in our debt
securities may not receive all of the interest income to which they are
entitled.
We
intend to make distributions on a quarterly basis to our stockholders out of
assets legally available for distribution. We cannot assure you that
we will achieve investment results that will allow us to make a specified level
of cash distributions or year-to-year increases in cash
distributions. In addition, due to the asset coverage test
applicable to us as a business development company, we may in the future be
limited in our ability to make distributions. Also, our revolving credit
facility may limit our ability to declare dividends if we default under certain
provisions. If we do not distribute a certain percentage of our income annually,
we will suffer adverse tax consequences, including possible loss of the tax
benefits available to us as a RIC. In addition, in accordance with U.S.
generally accepted accounting principles and tax regulations, we include in
income certain amounts that we have not yet received in cash, such as
contractual payment-in-kind interest, which represents contractual interest
added to the loan balance that becomes due at the end of the loan term, or the
accrual of original issue or market discount. Since we may recognize income
before or without receiving cash representing such income, we may have
difficulty meeting the requirement to distribute at least 90% of our investment
company taxable income in cash to obtain tax benefits as a RIC.
If
we do not distribute at least 98% of our annual taxable income (excluding net
long-term capital gains retained or deemed to be distributed) in the year
earned, we generally will be required to pay a non-deductible excise tax on
amounts carried over and distributed to stockholders in the next year equal to
4% of the amount by which 98% of our annual taxable income available for
distribution exceeds the distributions from such income for the current
year.
Finally,
if more stockholders opt to receive cash dividends rather than participate in
our dividend reinvestment plan, we may be forced to liquidate some of our
investments and raise cash in order to make cash dividend payments.
Our
shares may trade at discounts from net asset value or at premiums that are
unsustainable over the long term.
Shares
of business development companies may trade at a market price that is less than
the net asset value that is attributable to those shares. The
possibility that our shares of common stock will trade at a discount from net
asset value or at a premium that is unsustainable over the long term are
separate and distinct from the risk that our net asset value will
decrease. It is not possible to predict whether the shares offered
hereby will trade at, above, or below net asset value.
The
market price of our securities may fluctuate significantly.
The
market price and liquidity of the market for our securities may be significantly
affected by numerous factors, some of which are beyond our control and may not
be directly related to our operating performance. These factors
include:
·
|
volatility
in the market price and trading volume of securities of business
development companies or other companies in our sector, which are not
necessarily related to the operating performance of these
companies;
|
·
|
changes
in regulatory policies or tax guidelines, particularly with respect to
RICs or business development
companies;
|
·
|
changes
in earnings or variations in operating
results;
|
·
|
changes
in the value of our portfolio of
investments;
|
·
|
any
shortfall in revenue or net income or any increase in losses from levels
expected by investors or securities
analysts;
|
·
|
departure
of AIM's key personnel;
|
·
|
operating
performance of companies comparable to
us;
|
·
|
general
economic trends and other external factors;
and
|
·
|
loss
of a major funding source.
|
We
may be unable to invest the net proceeds raised from offerings on acceptable
terms, which would harm our financial condition and operating
results.
Until
we identify new investment opportunities, we intend to either invest the net
proceeds of future offerings in interest-bearing deposits or other short-term
instruments or use the net proceeds from such offerings to reduce
then-outstanding obligations under our credit facility. We cannot
assure you that we will be able to find enough appropriate investments that meet
our investment criteria or that any investment we complete using the proceeds
from an offering will produce a sufficient return.
Sales
of substantial amounts of our securities may have an adverse effect on the
market price of our securities.
Sales
of substantial amounts of our securities, or the availability of such securities
for sale, could adversely affect the prevailing market prices for our
securities. If this occurs and continues, it could impair our ability
to raise additional capital through the sale of securities should we desire to
do so.
Stockholders
may experience dilution in their ownership percentage if they do not participate
in our dividend reinvestment plan.
All
dividends declared in cash payable to stockholders that are participants in our
dividend reinvestment plan are generally automatically reinvested in shares of
our common stock. As a result, stockholders that do not participate in the
dividend reinvestment plan may experience dilution over
time. Stockholders who do not elect to receive dividends in
shares of common stock may experience accretion to the net asset value of their
shares if our shares are trading at a premium and dilution if our shares are
trading at a discount. The level of accretion or discount would
depend on various factors, including the proportion of our stockholders who
participate in the plan, the level of premium or discount at which our shares
are trading and the amount of the dividend payable to a
stockholder.
USE
OF PROCEEDS
We
intend to use the net proceeds from selling securities pursuant to this
prospectus for general corporate purposes, which include investing in portfolio
companies in accordance with our investment objective and
strategies. We anticipate that substantially all of the net proceeds
of an offering of securities pursuant to this prospectus will be used within two
years, depending on the availability of appropriate investment opportunities
consistent with our investment objective and market conditions. Our
portfolio currently consists primarily of senior loans, mezzanine loans and
equity securities. Pending our investments in new debt investments,
we plan to invest a portion of the net proceeds from an offering in cash
equivalents, U.S. government securities and other high-quality debt
investments that mature in one year or less from the date of investment, to
reduce then-outstanding obligations under our credit facility, or for other
general corporate purposes. The management fee payable by us will not
be reduced while our assets are invested in such securities. See
"Regulation—Temporary investments" for additional information about temporary
investments we may make while waiting to make longer-term investments in pursuit
of our investment objective. The supplement to this prospectus
relating to an offering will more fully identify the use of the proceeds from
such offering.
DIVIDENDS
We
intend to continue to distribute quarterly dividends to our common
stockholders, however, we may not be able to maintain the current level of
dividend payments, including due to regulatory
requirements. Our quarterly dividends, if any, will be
determined by our board of directors.
We
have elected to be taxed as a RIC under Subchapter M of the Code. To
maintain our RIC status, we must distribute at least 90% of our ordinary income
and realized net short-term capital gains in excess of realized net long-term
capital losses, if any, out of the assets legally available for
distribution. In order to avoid certain excise taxes we must
distribute during each calendar year an amount at least equal to the sum of (1)
98% of our ordinary income for the calendar year, (2) 98% of our capital gains
in excess of capital losses for the one-year period ending on October 31st and
(3) any ordinary income and net capital gains for preceding years that were not
distributed during such years. In addition, although we currently
intend to distribute realized net capital gains (i.e., realized net long-term
capital gains in excess of realized net short-term capital losses), if any, at
least annually, out of the assets legally available for such distributions, we
may in the future decide to retain such capital gains for
investment. In such event, the consequences of our retention of net
capital gains are as described under "Material U.S. Federal Income Tax
Considerations."
We
maintain an "opt out" dividend reinvestment plan for our common
stockholders. As a result, if we declare a dividend, then
stockholders' cash dividends will be automatically reinvested in additional
shares of our common stock, unless they specifically "opt out" of the dividend
reinvestment plan so as to receive cash dividends. See "Dividend
Reinvestment Plan."
We
may distribute taxable dividends that are payable in cash and shares of our
common stock at the election of each stockholder. On January 7, 2009,
the Internal Revenue Service issued IRS Revenue Procedure 2009-15 that
temporarily allows a RIC that is traded on an established securities market to
distribute its own stock as a dividend for the purpose of fulfilling its
distribution requirements. Pursuant to this revenue procedure, a RIC may treat a
distribution of its own stock as fulfilling its distribution requirements if (i)
the distribution is declared with respect to a taxable year ending on or before
December 31, 2009 and (ii) each shareholder may elect to receive his or her
entire distribution in either cash or stock of the RIC subject to a limitation
on the aggregate amount of cash to be distributed to all shareholders, which
must be at least 10% of the aggregate declared distribution. If too many
shareholders elect to receive cash, each shareholder electing to receive cash
will receive a pro rata amount of cash (with the balance of the distribution
paid in stock). In no event will any shareholder, electing to receive cash,
receive less than 10% of his or her entire distribution in cash. In
such case, for federal income tax purposes, the amount of
the
dividend paid in stock will be equal to the amount of cash that could have been
received instead of stock. See “Material Federal Income Tax
Considerations” for tax consequences to stockholders upon receipt of such
dividends.
Revenue
Procedure 2009-15 is temporary in that it does not apply to dividends declared
with respect to taxable years ending after December 31, 2009. It is
uncertain whether, and no assurances can be given that, the Internal Revenue
Service will extend such guidance for taxable years ending after December 31,
2009. The Internal Revenue Service has also issued (and where Revenue
Procedure 2009-15 is not currently applicable, the Internal Revenue Service
continues to issue) private letter rulings on cash/stock dividends paid by
regulated investment companies and real estate investment trusts using a 20%
cash standard (instead of the 10% cash standard of Revenue Procedure 2009-15) if
certain requirements are satisfied. While it is generally expected
that the Internal Revenue Service may continue such ruling policy, no assurances
can be given that the Internal Revenue Service will not discontinue or adversely
alter such ruling policy. Whether pursuant to Revenue Procedure
2009-15, a private letter ruling or otherwise, we reserve the option to pay any
future dividend in cash and stock. Moreover, no assurances can be
given that we will be able to pay any dividend in cash and
stock.
We
may not be able to achieve operating results that will allow us to make
dividends and distributions at a specific level or to increase the amount of
these dividends and distributions from time to time. In addition, we
may be limited in our ability to make dividends and distributions due to the
asset coverage test for borrowings when applicable to us as a BDC under the 1940
Act and due to provisions in future credit facilities. If we do not
distribute a certain percentage of our income annually, we will suffer adverse
tax consequences, including possible loss of our RIC status. We
cannot assure stockholders that they will receive any dividends and
distributions or dividends and distributions at a particular level.
With
respect to the dividends paid to stockholders, income from origination,
structuring, closing, commitment and other upfront fees associated with
investments in portfolio companies is treated as taxable income and accordingly,
distributed to shareholders.
The
following table lists the quarterly dividends per share since shares of our
common stock began being regularly quoted on The Nasdaq Global Select
Market.
|
|
Fiscal
Year Ending March 31, 2010
|
|
First
Fiscal Quarter
|
$ 0.260
|
Fiscal
Year Ended March 31, 2009
|
|
Fourth
Fiscal Quarter
|
$ 0.260
|
Third
Fiscal Quarter
|
$ 0.520
|
Second
Fiscal Quarter
|
$ 0.520
|
First
Fiscal Quarter
|
$ 0.520
|
Fiscal
Year Ended March 31, 2008
|
|
Fourth
Fiscal Quarter
|
$ 0.520
|
Third
Fiscal Quarter
|
$ 0.520
|
Second
Fiscal Quarter
|
$ 0.520
|
First
Fiscal Quarter
|
$ 0.510
|
Fiscal
Year Ended March 31, 2007
|
|
Fourth
Fiscal Quarter
|
$ 0.510
|
Third
Fiscal Quarter
|
$ 0.500
|
Second
Fiscal Quarter
|
$ 0.470
|
First
Fiscal Quarter
|
$ 0.450
|
Fiscal
Year Ended March 31, 2006
|
|
Fourth
Fiscal Quarter
|
$ 0.450
|
Third
Fiscal Quarter
|
$ 0.440
|
Second
Fiscal Quarter
|
$ 0.430
|
First
Fiscal Quarter
|
$ 0.310
|
Fiscal
Year Ended March 31, 2005
|
|
Fourth
Fiscal Quarter
|
$ 0.260
|
Third
Fiscal Quarter
|
$ 0.180
|
Second
Fiscal Quarter
|
$ 0.045
|
First
Fiscal Quarter (period from April 8, 2004* to June 30,
2004)
|
—
|
|
* Commencement
of operations
|
SELECTED
FINANCIAL DATA
The
Statement of Operations, Per Share and Balance Sheet data for the fiscal years
ended March 31, 2009 , 2008, 2007, 2006 and the period ended March 31,
2005 are derived from our financial statements, which have been audited by
PricewaterhouseCoopers LLP , our independent registered public accounting
firm.
This
selected financial data should be read in conjunction with our financial
statements and related notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
prospectus.
|
|
For the Year Ended
March 31,
(dollar
amounts in thousands, except per share data)
|
|
|
For the Period
|
|
Statement
of Operations Data:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
April 8, 2004* through
March 31,
2005
|
|
Total
Investment Income
|
|
$
|
377,304 |
|
|
$ |
357,878 |
|
|
$ |
266,101 |
|
|
$ |
152,827 |
|
|
$ |
47,833 |
|
Net
Expenses (including taxes)
|
|
$ |
170,973 |
|
|
$ |
156,272 |
|
|
$ |
140,783 |
|
|
$ |
63,684 |
|
|
$ |
22,380 |
|
Net
Investment Income
|
|
$ |
206,331 |
|
|
$ |
201,606 |
|
|
$ |
125,318 |
|
|
$ |
89,143 |
|
|
$ |
25,453 |
|
Net
Realized and Unrealized Gains (Losses)
|
|
$ |
(818,210 |
) |
|
$ |
(235,044 |
) |
|
$ |
186,848 |
|
|
$ |
31,244 |
|
|
$ |
18,692 |
|
Net
Increase (Decrease) in Net Assets Resulting from
Operations
|
|
$ |
(611,879 |
) |
|
$ |
(33,438 |
) |
|
$ |
312,166 |
|
|
$ |
120,387 |
|
|
$ |
44,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Asset Value
|
|
$ |
9.82 |
|
|
$ |
15.83 |
|
|
$ |
17.87 |
|
|
$ |
15.15 |
|
|
$ |
14.27 |
|
Net
Increase (Decrease) in Net Assets Resulting from
Operations
|
|
$ |
(4.39 |
) |
|
$ |
(0.30 |
) |
|
$ |
3.64 |
|
|
$ |
1.90 |
|
|
$ |
0.71 |
|
Distributions
Declared
|
|
$ |
1.820 |
|
|
$ |
2.070 |
|
|
$ |
1.930 |
|
|
$ |
1.630 |
|
|
$ |
0.485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
2,548,639 |
|
|
$ |
3,724,324 |
|
|
$ |
3,523,218 |
|
|
$ |
2,511,074 |
|
|
$ |
1,733,384 |
|
Borrowings
Outstanding
|
|
$ |
1,057,601 |
|
|
$ |
1,639,122 |
|
|
$ |
492,312 |
|
|
$ |
323,852 |
|
|
$ |
0 |
|
Total
Net Assets
|
|
$ |
1,396,138 |
|
|
$ |
1,897,908 |
|
|
$ |
1,849,748 |
|
|
$ |
1,229,855 |
|
|
$ |
892,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Return (1)
|
|
|
(73.9 |
%) |
|
|
(17.5 |
%) |
|
|
31.7 |
% |
|
|
12.9 |
% |
|
|
15.3 |
% |
Number
of Portfolio Companies at Period End
|
|
|
72 |
|
|
|
71 |
|
|
|
57 |
|
|
|
46 |
|
|
|
35 |
|
Total
Portfolio Investments for the Period
|
|
$ |
434,995 |
|
|
$ |
1,755,913 |
|
|
$ |
1,446,730 |
|
|
$ |
1,110,371 |
|
|
$ |
894,335 |
|
Investment
Sales and Prepayments for the Period
|
|
$ |
339,724 |
|
|
$ |
714,225 |
|
|
$ |
845,485 |
|
|
$ |
452,325 |
|
|
$ |
71,730 |
|
Weighted
Average Yield on Debt Portfolio at Period
End
|
|
|
11.7 |
% |
|
|
12.0 |
% |
|
|
13.1 |
% |
|
|
13.1 |
% |
|
|
10.5 |
% |
*
|
Commencement
of operations
|
(1)
|
Total
return is based on the change in market price per share and takes into
account dividends and distributions, if any, reinvested in accordance with
Apollo Investment’s dividend reinvestment plan. Total return is not
annualized.
|
FORWARD-LOOKING
STATEMENTS
Some
of the statements in this prospectus constitute forward-looking statements,
which relate to future events or our future performance or financial
condition. The forward-looking statements contained in this
prospectus involve risks and uncertainties, including statements as
to:
·
|
our
future operating results;
|
·
|
our
business prospects and the prospects of our portfolio
companies;
|
·
|
the
impact of investments that we expect to
make;
|
·
|
our
contractual arrangements and relationships with third
parties;
|
·
|
the
dependence of our future success on the general economy and its impact on
the industries in which we invest;
|
·
|
the
ability of our portfolio companies to achieve their
objectives;
|
·
|
our
expected financings and
investments;
|
·
|
the
adequacy of our cash resources and working capital;
and
|
·
|
the
timing of cash flows, if any, from the operations of our portfolio
companies.
|
We
generally use words such as "anticipates," "believes," "expects," "intends" and
similar expressions to identify forward-looking statements. Our
actual results could differ materially from those projected in the
forward-looking statements for any reason, including the factors set forth in
"Risk Factors" and elsewhere in this prospectus.
We
have based the forward-looking statements included in this prospectus on
information available to us on the date of this prospectus. Although
we undertake no obligation to revise or update any forward-looking statements,
whether as a result of new information, future events or otherwise, we have a
general obligation to update to reflect material changes in our disclosures
and you are advised to consult any additional disclosures that we may make
directly to you or through reports that we in the future may file with the SEC,
including annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K.
MANAGEMENT'S
DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion should be read in conjunction with our financial statements
and related notes and other financial information appearing elsewhere in this
prospectus. In addition to historical information, the
following discussion and other parts of this prospectus contain forward-looking
information that involves risks and uncertainties. Our actual
results could differ materially from those anticipated by such forward-looking
information due to the factors discussed under "Risk Factors" and
"Forward-Looking Statements" appearing elsewhere in this
prospectus.
OVERVIEW
We
were incorporated under the Maryland General Corporation Law in February
2004. We have elected to be treated as a BDC under the 1940
Act. As such, we are required to comply with certain regulatory
requirements. For instance, we generally have to invest at least 70%
of our total assets in "qualifying assets," including securities of private or
thinly traded public U.S. companies, cash equivalents, U.S. government
securities and high-quality debt investments that mature in one year or
less. In addition, for federal income tax purposes we have elected to
be treated as a RIC under Subchapter M of the Code. Pursuant to this
election and assuming we qualify as a RIC, we generally do not have to pay
corporate-level federal income taxes on any income we distribute to our
stockholders. We commenced operations on April 8, 2004 upon
completion of our initial public offering that raised $870 million in net
proceeds selling 62 million shares of our common stock at a price of $15.00 per
share. Since then, and through March 31, 2009 , we have raised
approximately $1.4 billion in net proceeds from additional offerings of
common stock.
Investments
Our
level of investment activity can and does vary substantially from period to
period depending on many factors, including the amount of debt and equity
capital available to middle market companies, the level of merger and
acquisition activity for such companies, the general economic environment and
the competitive environment for the types of investments we make.
As
a BDC, we must not acquire any assets other than “qualifying assets” specified
in the 1940 Act unless, at the time the acquisition is made, at least 70% of our
total assets are qualifying assets (with certain limited exceptions). Qualifying
assets include investments in “eligible portfolio
companies.” Pursuant to rules adopted in 2006 , the SEC
expanded the definition of “eligible portfolio company” to include certain
public companies that do not have any securities listed on a national securities
exchange . The SEC recently adopted an additional new rule under
the 1940 Act to expand the definition of “eligible portfolio company” to include
companies whose securities are listed on a national securities
exchange but whose market capitalization is less than $250
million. This new rule became effective July 21,
2008.
Revenue
We
generate revenue primarily in the form of interest and dividend income from the
debt and preferred securities we hold and capital gains, if any, on investment
securities that we may acquire in portfolio companies. Our debt investments,
whether in the form of mezzanine or senior secured loans, generally have a
stated term of five to ten years and bear interest at a fixed rate or a floating
rate usually determined on the basis of a benchmark: LIBOR, EURIBOR, GBP LIBOR,
or the prime rate. While U.S. subordinated debt and corporate notes typically
accrue interest at fixed rates, some of these investments may include zero
coupon, payment-in-kind (“PIK”) and/or step-up bonds that accrue income on a
constant yield to call or maturity basis. Interest on debt securities is
generally payable quarterly or semiannually. In some cases, some of our
investments provide for deferred interest payments or
PIK.
The principal amount of the debt securities and any accrued but unpaid interest
generally becomes due at the maturity date. In addition, we may generate revenue
in the form of dividends paid to us on common equity investments as well as
revenue in the form of commitment, origination, structuring fees, fees for
providing managerial assistance and, if applicable, consulting fees,
etc.
Expenses
All
investment professionals of the investment adviser and their staff, when and to
the extent engaged in providing investment advisory and management services to
us, and the compensation and routine overhead expenses of that personnel which
is allocable to those services are provided and paid for by AIM. We
bear all other costs and expenses of our operations and transactions, including
those relating to:
·
|
investment
advisory and management fees;
|
·
|
expenses
incurred by AIM payable to third parties, including agents, consultants or
other advisors, in monitoring our financial and legal affairs and in
monitoring our investments and performing due diligence on our prospective
portfolio companies;
|
·
|
calculation
of our net asset value (including the cost and expenses of any independent
valuation firm);
|
·
|
direct
costs and expenses of administration, including auditor and legal
costs;
|
·
|
costs
of preparing and filing reports or other documents with the
SEC;
|
·
|
interest
payable on debt, if any, incurred to finance our
investments;
|
·
|
offerings
of our common stock and other
securities;
|
·
|
registration
and listing fees;
|
·
|
fees
payable to third parties, including agents, consultants or other advisors,
relating to, or associated with, evaluating and making
investments;
|
·
|
transfer
agent and custodial fees;
|
·
|
independent
directors' fees and expenses;
|
·
|
marketing
and distribution-related expenses;
|
·
|
the
costs of any reports, proxy statements or other notices to stockholders,
including printing and postage
costs;
|
·
|
our
allocable portion of the fidelity bond, directors and officers/errors and
omissions liability insurance, and any other insurance
premiums;
|
·
|
organization
and offering; and
|
·
|
all
other expenses incurred by us or AIA in connection with administering our
business, such as our allocable portion of overhead under the
administration agreement, including rent and our allocable portion of the
cost of our chief financial officer and chief compliance officer and their
respective staffs.
|
We
expect our general and administrative operating expenses related to our ongoing
operations to increase moderately in dollar terms . During periods
of asset growth, we expect our general and administrative operating expenses
to decline as a percentage of our total assets and increase
during periods of asset declines . Incentive fees, interest
expense and costs relating to future offerings of securities, among others,
may also increase or reduce overall operating expenses based on portfolio
performance, benchmarks LIBOR and EURIBOR, and offerings of our securities
relative to comparative periods, among other factors .
The
SEC requires that "Total annual expenses" be calculated as a percentage of net
assets in the chart on page 5 rather than as a percentage of total assets. Total
assets includes net assets as of March 31, 2009 and assets that have been
funded with borrowed monies (leverage). For reference, the below chart
illustrates our "Total annual expenses" as a percentage of total
assets:
A nnual
expenses (as percentage of total assets):
|
|
|
Management
fees
|
2.00
%(1)
|
|
Incentive
fees payable under investment advisory and management
agreement
|
2.03
%(2)
|
|
Other
expenses
|
0.42
%(3)
|
|
Interest
and other credit facility related expenses on borrowed
funds
|
1.92 %(4)
|
|
Total
annual expenses as a percentage of total assets
|
6.37 %(1,2,3,4)
|
|
_______________________
(1)
|
The
contractual management fee is calculated at an annual rate of 2.00% of our
average gross total assets. Annual expenses are based on
current fiscal year amounts . For more detailed
information about our computation of average total assets, please see
Notes 3 and 9 of our financial statements dated March 31, 2009
included in this base prospectus.
|
(2)
|
Assumes
that annual incentive fees earned by our investment adviser, AIM, remain
consistent with the incentive fees earned by AIM for the fiscal year ended
March 31, 2009 . AIM earns incentive fees consisting of
two parts. The first part, which is payable quarterly in
arrears, is based on our pre-incentive fee net investment income for the
immediately preceding calendar quarter. 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% quarterly (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 (see footnote 1 above). Accordingly, we pay
AIM an incentive fee 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 the performance threshold 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 pro rated for any period of less than three
months . The effect of the fee calculation described above is
that if pre-incentive fee net investment income is equal to or exceeds
2.1875%, AIM will receive a fee of 20% of our pre-incentive fee net
investment income for the quarter. You should be aware that
a rise in the general level of interest rates can be expected to lead to
higher interest rates applicable to our debt
investments. Accordingly, an increase in interest rates would
make it easier for us to meet or exceed the incentive fee performance
threshold and may result in a substantial increase of the amount of
incentive fees payable to our investment adviser with respect to
|
|
pre-incentive
fee net investment income. Furthermore, since the
performance threshold is based on a percentage of our net asset value,
decreases in our net asset value make it easier to achieve the performance
threshold. The second part of the incentive fee will equal
20% of our realized capital gains for the calendar year, if any, computed
net of all realized capital losses and unrealized capital depreciation
(and incorporating unrealized depreciation on a gross
investment-by-investment basis) and is payable in arrears at the end of
each calendar year. For a more detailed discussion of the
calculation of this fee, see "Management—Investment Advisory and
Management Agreement" in this base
prospectus.
|
(3)
|
"Other
expenses" are based on amounts for the current fiscal year and include
our overhead expenses, including payments under the administration
agreement based on our allocable portion of overhead and other
expenses incurred by AIA in performing its obligations under the
administration agreement. See "Management—Administration
Agreement" in this base prospectus.
|
(4)
|
Our
interest and other credit facility expenses are based on current fiscal
year amounts . As of March 31, 2009, we had
$ 0.642 billion available and $ 1.058 billion in borrowings
outstanding under our $1.7 billion credit facility. For more
information, see "Risk Factors—Risks relating to our business and
structure—We fund a portion of our investments with borrowed money, which
magnifies the potential for gain or loss on amounts invested and may
increase the risk of investing in us" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations—Liquidity and
Capital Resources" in this base
prospectus.
|
Portfolio
and Investment Activity
During
our fiscal year ended March 31, 2009, we invested $ 435 million
across 12 new and 13 existing portfolio companies. This compares
to investing $ 1.8 billion in 27 new and 15 existing
portfolio companies for the previous fiscal year ended March 31, 2008 .
Investments sold or prepaid during the fiscal year ended March 31, 2009
totaled $ 340 million versus $714 million for the fiscal year ended March
31, 2008 .
At
March 31, 2009, our net portfolio consisted of 72 portfolio companies and was
invested 27% in senior secured loans, 59% in subordinated debt, 4% in preferred
equity and 10% in common equity and warrants measured at fair value versus 71
portfolio companies invested 22% in senior secured loans, 57% in subordinated
debt, 6% in preferred equity and 15% in common equity and warrants at March 31,
2008.
The
weighted average yields on our senior secured loan portfolio, subordinated debt
portfolio and total debt portfolio at our current cost basis were 8.2%, 13.2%
and 11.7%, respectively, at March 31, 2009. At March 31, 2008, the yields were
10.0%, 12.8%, and 12.0%, respectively.
Since
the initial public offering of Apollo Investment Corporation in April 2004 and
through March 31, 2009, invested capital totals $5.6 billion in 124 portfolio
companies. Over the same period, we also completed transactions with
more than 85 different financial sponsors.
Senior
secured loans and European mezzanine loans typically accrue interest at variable
rates determined on the basis of a benchmark: LIBOR, EURIBOR, GBP LIBOR, or the
prime rate, with stated maturities at origination that typically range from 5 to
10 years. While subordinated debt issued within the United States will typically
accrue interest at fixed rates, some of these investments may include
zero-coupon, PIK and/or step bonds that accrue income on a constant yield to
call or maturity basis. At March 31, 2009, 69% or $1.5 billion of our
interest-bearing investment portfolio is fixed rate debt and 31% or $0.7 billion
is floating rate debt, measured at fair value. At March 31, 2008, 62% or
$1.6 billion of our interest-bearing investment portfolio was fixed rate debt
and 38% or $1.0 billion was floating rate debt.
CRITICAL
ACCOUNTING POLICIES
Our
discussion and analysis of our financial condition and results of operations are
based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America, or
GAAP. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses. Changes in the economic
environment, financial markets and any other parameters used in determining such
estimates could cause actual results to differ materially. In
addition to the discussion below, our critical accounting policies are further
described in the notes to the financial statements.
Valuation
of Portfolio Investments
As
a BDC, we generally invest in illiquid or thinly traded securities including
debt and equity securities of middle market companies. Under
procedures established by our board of directors, we value investments,
including certain subordinated debt, senior secured 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 typically seek to obtain market quotations
from at least two brokers or dealers (if available, otherwise from
a principal market maker or a primary market dealer or other independent
pricing service). We utilize mid-market pricing as a practical
expedient for fair value unless a different point within the range is more
representative. If and when market quotations are deemed not to represent
fair value , we typically utilize independent third party valuation firms to
assist us in determining fair value. Given the general market dislocation, the
lack of trading activity and the forced sellers we noted in the market during
the fiscal year ended March 31, 2009, our research and diligence concluded that
the limited but available market quotations on a number of performing or
outperforming credits may not be representative of fair value under generally
accepted accounting principles in the U.S. Accordingly, such
investments went through our multi-step valuation process as described
below. In each case, our independent valuation firms considered
observable market inputs together with significant unobservable inputs in
arriving at their valuation recommendations for such Level 3 categorized
assets. Investments maturing in 60 days or less are valued at
cost plus accreted discount, or minus amortized premium, which approximates
fair value. Debt and equity securities 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 engaged by our board of directors conduct independent appraisals
and review our investment adviser’s preliminary valuations and make their own
independent assessment;
(4) the
audit committee of the board of directors reviews the preliminary valuation of
our investment adviser and that of the independent valuation firm and responds
to the valuation recommendation of the independent valuation firm to reflect any
comments; and
(5) the
board of directors discusses valuations and determines the fair value of each
investment in our portfolio in good faith based on the input of our investment
adviser, the respective independent valuation firm and the audit
committee.
Investments
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.
In
September, 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 157, Fair Value Measurements. This
statement defines fair value, establishes a framework for measuring fair value
in GAAP, and expands disclosures about fair value measurements. This statement
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those years. We
adopted this statement for our first fiscal quarter ended June 30,
2008.
SFAS
No. 157 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 us
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.
On
October 10, 2008, FASB Staff Position 157-3 – Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not Active (“FAS
157-3”) was issued. FAS 157-3 provides examples of how to determine
fair value in a market that is not active. FAS 157-3 did not change
the fair value measurement principles set forth in FAS 157. Furthermore, on
April 9, 2009, FASB Staff Position 157-4 – Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly (“FAS 157-4”)
was issued. FAS 157-4 provides additional guidance for estimating
fair value in accordance with SFAS 157 when the volume and level of activity for
the asset or liability have significantly decreased. FAS 157-4 also
includes guidance on identifying circumstances that indicate a transaction is
not orderly. According to FAS 157-4, in the above circumstances, more
analysis and significant adjustments to transactions or quoted prices may be
necessary to estimate fair value. FAS 157-4 is effective for periods
ending after June 15, 2009. We are currently reviewing FAS 157-4 and
the future impact, if any, it will have on our financial position or results of
operations.
Revenue
Recognition
We
record interest and dividend income on an accrual basis to the extent that we
expect to collect such amounts. Some of our loans and
securities may have contractual PIK interest or dividends, which
represents contractual interest or dividends accrued and added to the
balance that generally becomes due at maturity. On such loans
and securities , we may not accrue PIK income if the portfolio company 's
performance indicates that the PIK income is not collectible , among other
factors . We do not accrue as a receivable interest or dividends
on loans and securities if we have reason to doubt our ability to collect such
income. Loan origination fees, original issue discount, and market discount are
capitalized and we amortize such amounts as interest income. Upon the prepayment
of a loan or security, any unamortized loan origination fees are recorded as
interest income. We record prepayment premiums on loans and securities as
interest income when we receive such amounts.
Net
Realized Gains or Losses and Net Change in Unrealized Appreciation or
Depreciation
We
measure realized gains or losses by the difference between the net proceeds from
the repayment or sale and the amortized cost basis of the investment, without
regard to unrealized appreciation or depreciation previously recognized, but
considering unamortized upfront fees and prepayment penalties. Net
change in unrealized appreciation or depreciation reflects the change in
portfolio investment values during the reporting period, including the reversal
of previously recorded unrealized appreciation or depreciation, when gains or
losses are realized.
Within
the context of these critical accounting policies, we are not currently aware of
any reasonably likely events or circumstances that would result in materially
different amounts being reported.
RESULTS
OF OPERATIONS
Results comparisons are for the fiscal
years ended March 31, 2009, March 31, 2008 and March 31,
2007 .
Investment
Income
For
the fiscal years ended March 31, 2009, March 31, 2008 and March
31, 2007, gross investment income totaled $377.3 million, $357.9
million and $266.1 million, respectively. The increase in
gross investment income from fiscal year 2008 to fiscal year 2009 was
primarily due to changes in the composition of the portfolio as compared to the
previous fiscal year. The increase in gross investment income from
fiscal year 2007 to fiscal year 2008 was primarily due to the growth of our
investment portfolio as compared to the previous fiscal
year . Origination, closing and/or commitment fees associated
with investments in portfolio companies are accreted into interest income over
the respective terms of the applicable loans.
Expenses
Net
operating expenses totaled $170.5 million, $154.4 million and
$139.7 million, respectively, for the fiscal years ended March 31, 2009,
March 31, 2008 and March 31, 2007, of which $111.3 million,
$ 90.3 million and $ 98.5 million, respectively, were base
management fees and performance-based incentive fees and $48.9
million, $55.8 million and $34.4 million, respectively, were interest and
other credit facility expenses. Of these net operating expenses, general
and administrative expenses totaled $10.3 million, $8.3 million and $6.8
million, respectively, for the fiscal years ended March 31, 2009, 2008 and
2007. Net expenses consist of base investment advisory and management fees,
insurance expenses, administrative services fees, legal fees, directors’
fees, audit and tax services expenses, and other general and administrative
expenses. The increase in net expenses from fiscal 2008 to 2009 was primarily
related to the increase in performance-based incentive expenses accrued during
fiscal 2009 as compared to
those
accrued during fiscal 2008. Accrued performance-based incentive expenses for the
fiscal year ended March 31, 2008 reflect an accrual reduction of $16.0 million
attributable to the difference between the amount of net realized capital gains
based incentive fees accrued at March 31, 2007 and what was ultimately earned
and paid in December 31, 2007. The increase in net expenses from fiscal 2007
to 2008 were primarily related to increases in base management fees,
performance-based incentive fees and other general and administrative
expenses related to the growth of our investment portfolio as compared to the
previous period. In addition, excise tax expense totaled $0.5 million, $1.9
million, and $1.1 million for the fiscal years ended March 31, 2009, 2008 and
2007.
Net
Investment Income
Our
net investment income totaled $206.3 million, $201.6 million and $125.3 million,
or $1.48, $1.82, and $1.49, on a per share basis, respectively, for the fiscal
years ended March 31, 2009, 2008 and 2007.
Net
Realized Gains
We
had investment sales and prepayments totaling $340 million, $714 million and
$845 million, respectively, for the fiscal years ended March 31, 2009, 2008 and
2007. Net realized losses for the fiscal year ended March 31, 2009 were $83.7
million. Net realized gains for the fiscal years ended March 31, 2008
and 2007 were $54.3 million and $132.9 million, respectively.
Net
Unrealized Appreciation (Depreciation) on Investments, Cash Equivalents and
Foreign Currencies
For the fiscal years ended March 31,
2009 and 2008, net change in unrealized depreciation on our investments, cash
equivalents, foreign currencies and other assets and liabilities totaled $734.5
million and $289.3 million, respectively. For the fiscal year ended
March 31, 2007, net change in unrealized appreciation on our investments, cash
equivalents, foreign currencies and other assets and liabilities totaled $54.0
million. A material increase in unrealized depreciation was
recognized for the most recent fiscal year from significantly lower fair value
determinations on many of our investments. Lower fair values were
driven primarily from the general market dislocation, the illiquid capital
markets, and the current market expectations for pricing increased credit risk
and default assumptions.
Net
Increase (Decrease) in Net Assets From Operations
For
the fiscal years ended March 31, 2009 and 2008, we had a net decrease in net
assets resulting from operations of $611.9 million and $33.4 million,
respectively. For the fiscal year ended March 31, 2007, we had a net
increase in net assets resulting from operations of $312.2 million. The loss per
share was $4.39 and $0.30 for the years ended March 31, 2009 and 2008,
respectively. For the year ended March 31, 2007, earnings per share
were $3.64.
LIQUIDITY
AND CAPITAL RESOURCES
Our liquidity and capital resources
are generated and generally available through periodic follow-on equity
offerings, through our senior secured, multi-currency $1.7 billion, five-year,
revolving credit facility maturing in April 2011, through investments in special
purpose entities in which we hold and finance particular investments on a
non-recourse basis, as well as from cash flows from operations, investment sales
of liquid assets and prepayments of senior and subordinated loans and income
earned from investments and cash equivalents. At March 31, 2009,
we had $1.06 billion in borrowings outstanding and $0.64 billion of
unused capacity. Given our asset coverage requirements, use of the capital
resources available to us has been significantly curtailed due to the effect of
unrealized depreciation on our leverage ratio. In addition, we currently expect
any present liquidity needs to be met
from
continued cash flows from operations and investment sales and prepayments, among
other actions. In the future, we may raise additional equity or debt capital
from offerings hereunder, among other considerations. The primary use of funds
will be investments in portfolio companies, cash distributions to our
stockholders, reductions in debt outstanding and other general corporate
purposes. On May 16, 2008, we closed on our most recent follow-on public equity
offering of 22.3 million shares of common stock at $17.11 per share raising
approximately $369.6 million in net proceeds.
|
Payments due by Period (dollars in millions)
|
|
|
Total
|
|
|
Less than 1
year
|
|
1-3 years
|
|
|
|
|
|
Senior
Secured Revolving Credit Facility (1)
|
$ |
1,058 |
|
|
$ |
— |
|
|
$ |
1,058 |
|
|
$ |
— |
|
|
$ |
— |
|
(1)
|
At
March 31, 2009, $642 million remained unused under our senior secured
revolving credit facility. Pricing of our credit facility is
100 basis points over LIBOR.
|
Information
about our senior securities is shown in the following table as of each year
ended March 31 since we commenced operations, unless otherwise noted. The
“—” indicates information which the SEC expressly does not require to be
disclosed for certain types of senior securities.
Class
and Year
|
|
Total
Amount
Outstanding
(dollars in thousands) (1)
|
|
|
Asset
Coverage
Per Unit
(2)
|
|
|
Involuntary
Liquidating
Preference
Per Unit
(3)
|
|
|
Average
Market Value
Per Unit
(4)
|
|
Revolving
Credit Facility
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2009
|
|
$ |
1,057,601
|
|
|
$ |
2,320
|
|
|
$ |
—
|
|
|
|
N/A
|
|
Fiscal
2008
|
|
|
1,639,122
|
|
|
|
2,158
|
|
|
|
—
|
|
|
|
N/A
|
|
Fiscal
2007
|
|
|
492,312
|
|
|
|
4,757
|
|
|
|
—
|
|
|
|
N/A
|
|
Fiscal
2006
|
|
|
323,852
|
|
|
|
4,798
|
|
|
|
—
|
|
|
|
N/A
|
|
Fiscal
2005
|
|
|
0
|
|
|
|
0
|
|
|
|
—
|
|
|
|
N/A
|
|
(1) |
Total
amount of each class of senior securities outstanding at the end of the
period presented.
|
(2)
|
The
asset coverage ratio for a class of senior securities representing
indebtedness is calculated as our consolidated total assets, less all
liabilities and indebtedness not represented by senior securities, divided
by senior securities representing indebtedness. This asset coverage ratio
is multiplied by $1 to determine the Asset Coverage Per
Unit.
|
(3)
|
The
amount to which such class of senior security would be entitled upon the
involuntary liquidation of the issuer in preference to any security junior
to it.
|
(4)
|
Not
applicable, as senior securities are not registered for public
trading.
|
Contractual
Obligations
We
have entered into two contracts under which we have future commitments: the
investment advisory and management agreement, pursuant to which Apollo
Investment Management has agreed to serve as our investment adviser, and the
administration agreement, pursuant to which Apollo Administration has agreed to
furnish us with the facilities and administrative services necessary to conduct
our day-to-day operations and provide on our behalf managerial assistance to
those portfolio companies to which we are required to provide such
assistance. Payments under the investment advisory and management
agreement are equal to (1) a percentage of the value of our gross assets and (2)
a two-part incentive fee. Payments under the administration agreement
are equal to an amount based upon our allocable portion of Apollo
Administration's overhead in performing its obligations under the administration
agreement, including rent, technology systems, insurance and our allocable
portion of the costs of our chief financial officer and chief compliance officer
and their respective staffs. Either party may terminate each of the
investment advisory and management agreement and administration agreement
without penalty upon not more than 60 days' written notice to the
other. Please see Note 3 within our financial statements for more
information.
Off-Balance
Sheet Arrangements
We
have the ability to issue standby letters of credit through its revolving credit
facility. As of March 31, 2009 and March 31, 2008, we had issued
through JPMorgan Chase Bank, N.A. standby letters of credit totaling $3.508
million and $14.435 million, respectively.
AIC
Credit Opportunities Fund LLC
We own all of the common member
interests in AIC Credit Opportunity Fund LLC ("AIC Holdco"), which was formed
for the purpose of holding various financed investments. Effective in
June 2008, we invested $39.50 million in a special purpose entity wholly owned
by AIC Holdco, AIC (FDC) Holdings LLC (“Apollo FDC”), which was used to purchase
a Junior Profit-Participating Note due 2013 in principal amount of $39.50
million (the “Junior Note”) from Apollo I Trust (the
“Trust”). The Trust also issued a Senior Floating Rate Note due
2013 (the “Senior Note”) to an unaffiliated third party (“FDC Counterparty”) in
principal amount of $39.50 million paying interest at Libor plus 1.50%,
increasing over time to Libor plus 2.0%. The Trust used the aggregate
$79.00 million proceeds to acquire $100 million face value of a
senior subordinated loan of First Data Corporation (the “FDC Reference
Obligation”) due 2016 and paying interest at 11.25% per year. The
Junior Note generally entitles Apollo FDC to the net interest and other proceeds
due under the FDC Reference Obligation after payment of interest due under the
Senior Notes, as described above. In addition, Apollo FDC is entitled
to 100% of any realized appreciation in the FDC Reference Obligation and, since
the Senior Note is a non-recourse obligation, Apollo FDC is exposed up to the
amount of equity used by AIC Holdco to fund the purchase of the Junior Note plus
any additional margin Apollo decides to post, if any, during the term of the
financing.
Through AIC Holdco, effective in
June 2008, we invested $11.37 million in a special purpose entity wholly owned
by AIC Holdco, AIC (TXU) Holdings LLC (“Apollo TXU”), which acquired exposure to
$50 million notional amount of a Libor plus 3.5% senior secured delayed draw
term loan of Texas Competitive Electric Holdings (“TXU”) due 2014 through a
non-recourse total return swap with an unaffiliated third party expiring on
October 10, 2013 and pursuant to which Apollo TXU pays interest at Libor plus
1.5% and generally receives all proceeds due under the delayed draw term loan of
TXU (the “TXU Reference Obligation”). Like Apollo FDC, Apollo TXU is
entitled to 100% of any realized appreciation in the TXU Reference Obligation
and, since the total return swap is a non-recourse obligation, Apollo TXU is
exposed up to the amount of equity used by AIC Holdco to fund the investment in
the total return swap, plus any additional margin we decide to post, if any,
during the term of the financing.
Through AIC Holdco, effective in
September 2008, we invested $10.02 million equivalent, in a special purpose
entity wholly owned by AIC Holdco, AIC (Boots) Holdings, LLC (“Apollo Boots”),
which acquired €23.38 million and £12.46 million principal amount of senior term
loans of AB Acquisitions Topco 2 Limited, a holding company for the Alliance
Boots group of companies (the “Boots Reference Obligations”), out of the
proceeds of our investment and a multicurrency $40.87 million equivalent
non-recourse loan to Apollo Boots (the “Acquisition Loan”) by an unaffiliated
third party that matures in September 2013 and pays interest at LIBOR plus 1.25%
or, in certain cases, the higher of the Federal Funds Rate plus 0.50% or the
lender’s prime-rate. The Boots Reference Obligations pay interest at
the rate of LIBOR plus 3% per year and mature in June 2015.
Pursuant to applicable investment
company accounting, we do not consolidate AIC Holdco or its wholly owned
subsidiaries and accordingly only the value of our investment in AIC Holdco is
included on our balance sheet. The Senior Note, total return swap and
Acquisition Loan are non-recourse to AIC Holdco, its subsidiaries and us and
have standard events of default including failure to pay contractual amounts
when due and failure by each of the underlying special purpose entities to
provide additional credit support, sell assets or prepay a portion of its
obligations if the value of the FDC Reference Obligation, the TXU Reference
Obligation or the Boots Reference Obligation, as applicable, declines below
specified levels. We may unwind any of these transactions at any time
without penalty. From time to time we may provide additional capital
to AIC Holdco for purposes of funding margin calls under one or more of the
transactions described above. During the fiscal year ended March 31,
2009, we provided $18.48 million in additional capital to AIC
Holdco.
Dividends
Dividends paid to stockholders for
the fiscal years ended March 31, 2009, 2008 and 2007 totaled $258.8 million or
$1.82 per share, $230.9 million or $2.07 per share, and $168.4 million or $1.93
per share, respectively. Tax characteristics of all dividends will be
reported to shareholders on Form 1099 after the end of the calendar year. Our
quarterly dividends, if any, will be determined by our Board of
Directors.
We intend to continue to distribute
quarterly dividends to our stockholders , however, we may not be able to
maintain the current level of dividend payments, including due to regulatory
requirements . Our quarterly dividends, if any, will be determined
by our board of directors.
We have elected to be taxed as a RIC
under Subchapter M of the Internal Revenue Code of 1986. To maintain
our RIC status, we must distribute at least 90% of our ordinary income and
realized net short-term capital gains in excess of realized net long-term
capital losses, if any, out of the assets legally available for
distribution. In addition, although we currently intend to distribute
realized net capital gains (i.e., net long-term capital gains in excess of
short-term capital losses), if any, at least annually, out of the assets legally
available for such distributions, we may in the future decide to retain such
capital gains for investment.
We maintain an “opt out” dividend
reinvestment plan for our common stockholders. As a result, if we
declare a dividend, then stockholders’ cash dividends will be automatically
reinvested in additional shares of our common stock, unless they specifically
“opt out” of the dividend reinvestment plan so as to receive cash
dividends.
We may distribute taxable dividends
that are payable in cash and shares of our common stock at the election of each
stockholder. On January 7, 2009, the Internal Revenue Service issued
IRS Revenue Procedure 2009-15 that temporarily allows a RIC that is traded on an
established securities market to distribute its own stock as a dividend for the
purpose of fulfilling its distribution requirements. Pursuant to this revenue
procedure, a RIC may treat a distribution of its own stock as fulfilling its
distribution requirements if (i) the distribution is declared with respect to a
taxable year ending on or before December 31, 2009 and (ii) each shareholder may
elect to receive his or her entire distribution in either cash or stock of the
RIC subject to a limitation on the aggregate amount of cash to be distributed to
all shareholders, which must be at least 10% of the aggregate declared
distribution. If too many shareholders elect to receive cash, each shareholder
electing to receive cash will receive a pro rata amount of cash (with the
balance of the distribution paid in stock). In no event will any shareholder,
electing to receive cash, receive less than 10% of his or her entire
distribution in cash. In such case, for federal income tax purposes,
the amount of the dividend paid in stock will be equal to the amount of cash
that could have been received instead of stock. See “Material Federal
Income Tax Considerations” for tax consequences to stockholders upon receipt of
such dividends.
Revenue Procedure 2009-15 is
temporary in that it does not apply to dividends declared with respect to
taxable years ending after December 31, 2009. It is uncertain
whether, and no assurances can be given that, the Internal Revenue Service will
extend such guidance for taxable years ending after December 31,
2009. The Internal Revenue Service has also issued (and where Revenue
Procedure 2009-15 is not currently applicable, the Internal Revenue Service
continues to issue) private letter rulings on cash/stock dividends paid by
regulated investment companies and real estate investment trusts using a 20%
cash standard (instead of the 10% cash standard of Revenue Procedure 2009-15) if
certain requirements are satisfied. While it is generally expected
that the Internal Revenue Service may continue such ruling policy, no assurances
can be given that the Internal Revenue Service will not discontinue or adversely
alter such ruling policy. Whether pursuant to Revenue Procedure
2009-15, a private letter ruling or otherwise, we reserve the option to pay any
future dividend in cash and stock. Moreover, no assurances can be
given that we will be able to pay any dividend in cash and
stock.
We may not be able to achieve
operating results that will allow us to make distributions at a specific level
or to increase the amount of these distributions from time to
time. In addition, due to the asset coverage test applicable to us as
a business development company, we may in the future be limited in our ability
to make distributions. Also, our revolving credit facility may limit
our ability to declare dividends if we default under certain provisions. If we
do not distribute a certain percentage of our income annually, we will suffer
adverse tax consequences, including possible loss of the tax benefits available
to us as a regulated investment company. In addition, in accordance
with U.S. generally accepted accounting principles and tax regulations, we
include in income certain amounts that we have not yet received in cash, such as
contractual payment-in-kind interest, which
represents
contractual interest added to the loan balance that becomes due at the end of
the loan term, or the accrual of original issue or market
discount. Since we may recognize income before or without receiving
cash representing such income, we may have difficulty meeting the requirement to
distribute at least 90% of our investment company taxable income to obtain tax
benefits as a regulated investment company .
With respect to the dividends paid to
stockholders, income from origination, structuring, closing, commitment and
other upfront fees associated with investments in portfolio companies is treated
as taxable income and accordingly, distributed to stockholders. For the fiscal
years ended March 31, 2009, 2008 and 2007 upfront fees totaling $0.4
million , $0.1 million and $8.3 million, respectively, are being amortized
into income over the lives of their respective loans to the extent such loans
remain outstanding.
Quantitative
and Qualitative Disclosure about Market Risk
We are subject to financial market
risks, including changes in interest rates. During the fiscal year
ended March 31, 2009 , many of the loans in our portfolio had floating
interest rates. These loans are usually based on floating
LIBOR and typically have durations of one to six months after which they
reset to current market interest rates. As the percentage of our
U.S. mezzanine and other subordinated loans increase as a percentage of
our total investments, we expect that more of the loans in our portfolio will
have fixed rates. Accordingly, we may hedge against interest rate
fluctuations by using standard hedging instruments such as futures, options and
forward contracts subject to the requirements of the 1940 Act. While hedging
activities may insulate us against adverse changes in interest rates, they may
also limit our ability to participate in the benefits of lower interest rates
with respect to our portfolio of investments. During the fiscal year
ended March 31, 2009 , we did not engage in interest rate hedging
activities.
SALES
OF COMMON STOCK BELOW NET ASSET VALUE
We have submitted to our
stockholders, for their approval, a proposal seeking authorization for our
ability to sell shares of our common stock below net asset value ("NAV") per
share. The stockholders will vote on the proposal at our annual
meeting of stockholders scheduled to be held on August 5, 2009. If
our stockholders approve the proposal, we will have the ability, in one or more
public or private offerings of our common stock, to sell or otherwise issue up
to 25% of our shares of our common stock at any level of discount from NAV per
share during the period beginning on the date of such stockholder approval and
expiring on the earlier of the anniversary of the date of the August 5, 2009
annual meeting and the date of our 2010 annual meeting of stockholders, which is
expected to be held in August 2010.
In making a determination that an
offering below NAV per share is in our and our stockholders’ best interests, our
board of directors would consider a variety of factors
including:
·
|
The
effect that an offering below NAV per share would have on our
stockholders, including the potential dilution they would experience as a
result of the offering;
|
·
|
The
amount per share by which the offering price per share and the net
proceeds per share are less than the most recently determined NAV per
share;
|
·
|
The
relationship of recent market prices of par common stock to NAV per share
and the potential impact of the offering on the market price per share of
our common stock;
|
·
|
Whether
the estimated offering price would closely approximate the market value of
our shares and would not be below current market
price;
|
·
|
The
potential market impact of being able to raise capital during the current
financial market difficulties;
|
·
|
The
nature of any new investors anticipated to acquire shares in the
offering;
|
·
|
The
anticipated rate of return on and quality, type and availability of
investments; and
|
·
|
The
leverage available to us.
|
Sales by us of our common stock at a
discount from NAV pose potential risks for our existing stockholders whether or
not they participate in the offering, as well as for new investors who
participate in the offering.
The following three headings and
accompanying tables will explain and provide hypothetical examples on the impact
of an offering at a price less than NAV per share on three different set of
investors:
·
|
existing
shareholders who do not purchase any shares in the
offering
|
·
|
existing
shareholders who purchase a relatively small amount of shares in the
offering or a relatively large amount of shares in the
offering
|
·
|
new
investors who become shareholders by purchasing shares in the
offering.
|
Impact
on Existing Stockholders who do not Participate in the Offering
Our existing stockholders who do not
participate in an offering below NAV per share or who do not buy additional
shares in the secondary market at the same or lower price we obtain in the
offering (after expenses and commissions) face the greatest potential risks.
These stockholders will experience an immediate decrease (often called dilution)
in the NAV of the shares they hold and their NAV per share. These stockholders
will also experience a disproportionately greater decrease in their
participation in our earnings and assets and their voting power than the
increase we will experience in our assets, potential earning power and voting
interests due to the offering. These stockholders may also experience a decline
in the market price of their shares, which often reflects to some degree
announced or potential increases and decreases in NAV per share. This decrease
could be more pronounced as the size of the offering and level of discounts
increase.
The following table illustrates the
level of net asset value dilution that would be experienced by a
nonparticipating stockholder in three different hypothetical offerings of
different sizes and levels of discount from net asset value per share, although
it is not possible to predict the level of market price decline that may occur.
Actual sales prices and discounts may differ from the presentation
below.
The examples assume that we have
1,000,000 common shares outstanding, $15,000,000 in total assets and $5,000,000
in total liabilities. The current net asset value and net asset value per share
are thus $10,000,000 and $10.00. The table illustrates the dilutive effect on a
nonparticipating stockholder of (1) an offering of 50,000 shares (5% of the
outstanding shares) at $9.50 per share after offering expenses and commission (a
5% discount from net asset value), (2) an offering of 100,000 shares (10% of the
outstanding shares) at $9.00 per share after offering expenses and commissions
(a 10% discount from net asset value) and (3) an offering of 200,000 shares (20%
of the outstanding shares) at $8.00 per share after offering expenses and
commissions (a 20% discount from net asset value).
|
|
|
|
|
Example
1
5%
Offering
at
5% Discount
|
|
|
Example
2
10%
Offering
at
10% Discount
|
|
|
Example
3
20%
Offering
at
20% Discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price
per Share to Public
|
|
|
— |
|
|
$ |
10.00 |
|
|
|
— |
|
|
$ |
9.47 |
|
|
|
— |
|
|
$ |
8.42 |
|
|
|
— |
|
Net
Proceeds per Share to Issuer
|
|
|
— |
|
|
$ |
9.50 |
|
|
|
— |
|
|
$ |
9.00 |
|
|
|
— |
|
|
$ |
8.00 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
to NAV
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Shares Outstanding
|
|
|
1,000,000 |
|
|
|
1,050,000 |
|
|
|
5.00 |
% |
|
|
1,100,000 |
|
|
|
10.00 |
% |
|
|
1,200,000 |
|
|
|
20.00 |
% |
NAV
per Share
|
|
$ |
10.00 |
|
|
$ |
9.98 |
|
|
|
(0.20 |
)% |
|
$ |
9.91 |
|
|
|
(0.90 |
)% |
|
$ |
9.67 |
|
|
|
(3.33 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilution
to Stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Held by Stockholder
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
— |
|
|
|
10,000 |
|
|
|
— |
|
|
|
10,000 |
|
|
|
— |
|
Percentage
Held by Stockholder
|
|
|
1.0 |
% |
|
|
0.95 |
% |
|
|
(4.76 |
)% |
|
|
0.91 |
% |
|
|
(9.09 |
)% |
|
|
0.83 |
% |
|
|
(16.67 |
)% |
Total Asset
Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NAV Held by
Stockholder
|
|
$ |
100,000 |
|
|
$ |
99,800 |
|
|
|
(0.20 |
)% |
|
$ |
99,100 |
|
|
|
(0.90 |
)% |
|
$ |
96,700 |
|
|
|
(3.33 |
)% |
Total Investment by
Stockholder
(Assumed
to be $10.00 per Share)
|
|
$ |
100,000 |
|
|
$ |
100,000 |
|
|
|
— |
|
|
$ |
100,000 |
|
|
|
— |
|
|
$ |
100,000 |
|
|
|
— |
|
Total Dilution to
Stockholder (Total NAV Less Total
Investment)
|
|
|
— |
|
|
$ |
(200 |
) |
|
|
— |
|
|
$ |
(900 |
) |
|
|
— |
|
|
$ |
(3,300 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
Amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAV Per Share Held by
Stockholder
|
|
|
— |
|
|
$ |
9.98 |
|
|
|
— |
|
|
$ |
9.91 |
|
|
|
— |
|
|
$ |
9.67 |
|
|
|
— |
|
Investment per Share Held by
Stockholder (Assumed to be $10.00 per Share on Shares Held
prior to Sale)
|
|
$ |
10.00 |
|
|
$ |
10.00 |
|
|
|
— |
|
|
$ |
10.00 |
|
|
|
— |
|
|
$ |
10.00 |
|
|
|
— |
|
Dilution
per Share Held by Stockholder (NAV per Share Less Investment per
Share)
|
|
|
— |
|
|
$ |
(0.02 |
) |
|
|
— |
|
|
$ |
(0.09 |
) |
|
|
— |
|
|
$ |
(0.33 |
) |
|
|
— |
|
Percentage
Dilution to Stockholder (Dilution per Share Divided by
Investment per Share)
|
|
|
— |
|
|
|
— |
|
|
|
(0.20 |
)% |
|
|
— |
|
|
|
(0.90 |
)% |
|
|
— |
|
|
|
(3.33 |
)% |
Impact
on Existing Stockholders who do Participate in the Offering
Our existing stockholders who
participate in an offering below NAV per share or who buy additional shares in
the secondary market at the same or lower price as we obtain in the offering
(after expenses and commissions) will experience the same types of NAV dilution
as the nonparticipating stockholders, albeit at a lower level, to the extent
they purchase less than the same percentage of the discounted offering as their
interest in our shares immediately prior to the offering. The level of NAV
dilution will decrease as the number of shares such stockholders purchase
increases. Existing stockholders who buy more than such percentage will
experience NAV dilution but will, in contrast to existing stockholders who
purchase less than their proportionate share of the offering, experience an
increase (often called accretion) in NAV per share over their investment per
share and will also experience a disproportionately greater increase in their
participation in our earnings and assets and their voting power than our
increase in assets, potential earning power and voting interests due to the
offering. The level of accretion will increase as the excess number of shares
such stockholder purchases increases. Even a stockholder who over-participates
will, however, be subject to the risk that we may make additional discounted
offerings in which such stockholder does not participate, in which case such a
stockholder will experience NAV dilution as described above in such subsequent
offerings. These stockholders may also experience a decline in the market price
of their shares, which often reflects to some degree announced or potential
increases and decreases in NAV per share. This decrease could be more pronounced
as the size of the offering and level of discount to NAV
increases.
The
following chart illustrates the level of dilution and accretion in the
hypothetical 20% discount offering from the prior chart for a stockholder that
acquires shares equal to (1) 50% of its proportionate share of the offering
(i.e., 1,000 shares, which is 0.50% of the offering 200,000 shares rather than
its 1.00% proportionate share) and (2) 150% of such percentage (i.e., 3,000
shares, which is 1.50% of an offering of 200,000 shares rather than its 1.00%
proportionate share). The prospectus supplement pursuant to
which any discounted offering is made will include a chart for this example
based on the actual number of shares in such offering and the actual discount
from the most recently determined NAV per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price
per Share to Public
|
|
|
— |
|
|
$ |
8.42 |
|
|
|
— |
|
|
$ |
8.42 |
|
|
|
— |
|
Net
Proceeds per Share to Issuer
|
|
|
— |
|
|
$ |
8.00 |
|
|
|
— |
|
|
$ |
8.00 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increases
in Shares and Decrease to NAV
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Shares Outstanding
|
|
|
1,000,000 |
|
|
|
1,200,000 |
|
|
|
20.00 |
% |
|
|
1,200,000 |
|
|
|
20.00 |
% |
NAV
per Share
|
|
$ |
10.00 |
|
|
$ |
9.67 |
|
|
|
(3.33 |
)% |
|
$ |
9.67 |
|
|
|
(3.33 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilution/Accretion
to Stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Held by Stockholder
|
|
|
10,000 |
|
|
|
11,000 |
|
|
|
10.00 |
% |
|
|
13,000 |
|
|
|
30.00 |
% |
Percentage
Held by Stockholder
|
|
|
1.0 |
% |
|
|
0.92 |
% |
|
|
(8.33 |
)% |
|
|
1.08 |
% |
|
|
8.33 |
% |
Total Asset
Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NAV Held by
Stockholder
|
|
$ |
100,000 |
|
|
$ |
106,333 |
|
|
|
6.33 |
% |
|
$ |
125,667 |
|
|
|
25.67 |
% |
Total Investment by
Stockholder
(Assumed
to be $10.00 per Share on
Shares
Held prior to Sale)
|
|
$ |
100,000 |
|
|
$ |
108,420 |
|
|
|
— |
|
|
$ |
125,260 |
|
|
|
— |
|
Total Dilution/Accretion to
Stockholder (Total NAV Less Total Investment)
|
|
|
— |
|
|
|
(2,087 |
) |
|
|
— |
|
|
$ |
407 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
Amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAV Per Share Held by
Stockholder
|
|
|
— |
|
|
$ |
9.67 |
|
|
|
— |
|
|
$ |
9.67 |
|
|
|
— |
|
Investment per Share Held by
Stockholder (Assumed to be $10.00 per Share on Shares Held
prior to Sale)
|
|
$ |
10.00 |
|
|
$ |
9.86 |
|
|
|
(1.44 |
)% |
|
$ |
9.64 |
|
|
|
(3.65 |
)% |
Dilution/Accretion
per Share Held by Stockholder (NAV per Share Less Investment per
Share)
|
|
|
— |
|
|
$ |
(0.19 |
) |
|
|
— |
|
|
$ |
0.03 |
|
|
|
— |
|
Percentage
Dilution/Accretion to Stockholder (Dilution/Accretion per Share Divided by
Investment per Share)
|
|
|
— |
|
|
|
— |
|
|
|
(1.92 |
)% |
|
|
— |
|
|
|
0.32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact
on New Investors
Investors who are not currently
stockholders, but who participate in an offering below NAV and whose investment
per share is greater than the resulting NAV per share (due to selling
compensation and expenses paid by us) will experience an immediate decrease,
albeit small, in the NAV of their shares and their NAV per share compared to the
price they pay for their shares. Investors who are not currently stockholders
and who participate in an offering below NAV per share and whose investment per
share is also less than the resulting NAV per share due to selling compensation
and expenses paid by the issuer being significantly less than the discount per
share will experience an immediate increase in the NAV of their shares and their
NAV per share compared to the price they pay for their shares. These investors
will experience a disproportionately greater participation in our earnings and
assets and their voting power than our increase in assets, potential earning
power and voting interests. These investors will, however, be subject to the
risk that we may make additional discounted offerings in which such new
stockholder does not participate, in which case such new stockholder will
experience dilution as described above in such subsequent offerings. These
investors may also experience a decline in the market price of their shares,
which often reflects to some degree announced or potential increases and
decreases in NAV per share. This decrease could be more pronounced as the size
of the offering and level of discounts increases.
The following chart illustrates the
level of dilution or accretion for new investors that would be experienced by a
new investor in the same 5%, 10% and 20% discounted offerings as described in
the first chart above. The illustration is for a new investor who
purchases the same percentage (1.00%) of the shares in the offering as the
stockholder in the prior examples held immediately prior to the
offering, The prospectus supplement pursuant to which any discounted
offering is made will include a chart for this example based on the actual
number of shares in such offering and the actual discount from the most recently
determined NAV per share.
|
|
|
|
|
Example
1
5%
Offering
at
5% Discount
|
|
|
Example
2
10%
Offering
at
10% Discount
|
|
|
Example
3
20%
Offering
at
20% Discount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price
per Share to Public
|
|
|
— |
|
|
$ |
10.00 |
|
|
|
— |
|
|
$ |
9.47 |
|
|
|
— |
|
|
$ |
8.42 |
|
|
|
— |
|
Net
Proceeds per Share to Issuer
|
|
|
— |
|
|
$ |
9.50 |
|
|
|
— |
|
|
$ |
9.00 |
|
|
|
— |
|
|
$ |
8.00 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
to NAV
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Shares Outstanding
|
|
|
1,000,000 |
|
|
|
1,050,000 |
|
|
|
5.00 |
% |
|
|
1,100,000 |
|
|
|
10.00 |
% |
|
|
1,200,000 |
|
|
|
20.00 |
% |
NAV
per Share
|
|
$ |
10.00 |
|
|
$ |
9.98 |
|
|
|
(0.20 |
)% |
|
$ |
9.91 |
|
|
|
(0.90 |
)% |
|
$ |
9.67 |
|
|
|
(3.33 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilution/Accretion
to Stockholder
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Held by Stockholder
|
|
|
— |
|
|
|
500 |
|
|
|
— |
|
|
|
1,000 |
|
|
|
— |
|
|
|
2,000 |
|
|
|
— |
|
Percentage
Held by Stockholder
|
|
|
0.0 |
% |
|
|
0.05 |
% |
|
|
— |
|
|
|
0.09 |
% |
|
|
— |
|
|
|
0.17 |
% |
|
|
— |
|
Total Asset
Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total NAV Held by
Stockholder
|
|
|
— |
|
|
$ |
4,990 |
|
|
|
— |
|
|
$ |
9,910 |
|
|
|
— |
|
|
$ |
19,340 |
|
|
|
— |
|
Total Investment by
Stockholder
|
|
|
— |
|
|
$ |
5,000 |
|
|
|
— |
|
|
$ |
9,470 |
|
|
|
— |
|
|
$ |
16,840 |
|
|
|
— |
|
Total Dilution/Accretion to
Stockholder (Total NAV Less Total
Investment)
|
|
|
— |
|
|
$ |
(10 |
) |
|
|
— |
|
|
$ |
440 |
|
|
|
— |
|
|
$ |
2,500 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
Amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAV Per Share Held by
Stockholder
|
|
|
— |
|
|
$ |
9.98 |
|
|
|
— |
|
|
$ |
9.91 |
|
|
|
— |
|
|
$ |
9.67 |
|
|
|
— |
|
Investment per Share Held by
Stockholder
|
|
|
— |
|
|
$ |
10.00 |
|
|
|
— |
|
|
$ |
9.47 |
|
|
|
— |
|
|
$ |
8.42 |
|
|
|
— |
|
Dilution/Accretion
per Share Held by Stockholder (NAV per Share Less Investment per
Share)
|
|
|
— |
|
|
$ |
(0.02 |
) |
|
|
— |
|
|
$ |
0.44 |
|
|
|
— |
|
|
$ |
1.25 |
|
|
|
— |
|
Percentage
Dilution/Accretion to Stockholder (Dilution/Accretion per Share Divided by
Investment per Share)
|
|
|
— |
|
|
|
— |
|
|
|
(0.20 |
)% |
|
|
— |
|
|
|
4.65 |
% |
|
|
— |
|
|
|
14.85 |
% |
PRICE
RANGE OF COMMON STOCK
Our
common stock is traded on the NASDAQ Global Select Market under the symbol
"AINV." The following table lists the high and low closing sale price for our
common stock, the closing sale price as a percentage of net asset value, or NAV,
and quarterly dividends per share since shares of our common stock began being
regularly quoted on NASDAQ.
|
|
NAV(1)
|
|
|
Closing Sales
Price
High
|
|
|
Low
|
|
|
High
Sales Price as a Percentage of
|
|
|
Low
Sales Price as a Percentage of
|
|
|
Declared
Dividends
|
|
Fiscal
Year Ending March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Fiscal Quarter (through ___, 2009)
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
$ |
|
% |
|
|
% |
|
$ |
0.260 |
|
Fiscal
Year Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
Fiscal Quarter
|
|
$ |
9.82 |
|
|
$ |
9.76 |
|
|
$ |
2.05 |
|
|
|
99 |
% |
|
|
21 |
% |
|
$ |
0.260 |
|
Third
Fiscal Quarter
|
|
$ |
9.87 |
|
|
$ |
15.85 |
|
|
$ |
6.08 |
|
|
|
161 |
% |
|
|
62 |
% |
|
$ |
0.520 |
|
Second
Fiscal Quarter
|
|
$ |
13.73 |
|
|
$ |
17.99 |
|
|
$ |
13.11 |
|
|
|
131 |
% |
|
|
95 |
% |
|
$ |
0.520 |
|
First
Fiscal Quarter
|
|
$ |
15.93 |
|
|
$ |
18.59 |
|
|
$ |
14.33 |
|
|
|
117 |
% |
|
|
90 |
% |
|
$ |
0.520 |
|
Fiscal
Year Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
Fiscal Quarter
|
|
$ |
15.83 |
|
|
$ |
16.70 |
|
|
$ |
14.21 |
|
|
|
105 |
% |
|
|
90 |
% |
|
$ |
0.520 |
|
Third
Fiscal Quarter
|
|
$ |
17.71 |
|
|
$ |
21.81 |
|
|
$ |
16.32 |
|
|
|
123 |
% |
|
|
92 |
% |
|
$ |
0.520 |
|
Second
Fiscal Quarter
|
|
$ |
18.44 |
|
|
$ |
22.90 |
|
|
$ |
19.50 |
|
|
|
124 |
% |
|
|
106 |
% |
|
$ |
0.520 |
|
First
Fiscal Quarter
|
|
$ |
19.09 |
|
|
$ |
24.13 |
|
|
$ |
21.37 |
|
|
|
126 |
% |
|
|
112 |
% |
|
$ |
0.510 |
|
Fiscal
Year Ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
Fiscal Quarter
|
|
$ |
17.87 |
|
|
$ |
24.12 |
|
|
$ |
20.30 |
|
|
|
135 |
% |
|
|
114 |
% |
|
$ |
0.510 |
|
Third
Fiscal Quarter
|
|
$ |
16.36 |
|
|
$ |
23.27 |
|
|
$ |
20.56 |
|
|
|
142 |
% |
|
|
126 |
% |
|
$ |
0.500 |
|
Second
Fiscal Quarter
|
|
$ |
16.14 |
|
|
$ |
20.81 |
|
|
$ |
17.96 |
|
|
|
129 |
% |
|
|
111 |
% |
|
$ |
0.470 |
|
First
Fiscal Quarter
|
|
$ |
15.59 |
|
|
$ |
19.39 |
|
|
$ |
17.74 |
|
|
|
124 |
% |
|
|
114 |
% |
|
$ |
0.450 |
|
Fiscal
Year Ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
Fiscal Quarter
|
|
$ |
15.15 |
|
|
$ |
19.51 |
|
|
$ |
17.81 |
|
|
|
129 |
% |
|
|
118 |
% |
|
$ |
0.450 |
|
Third
Fiscal Quarter
|
|
$ |
14.41 |
|
|
$ |
19.97 |
|
|
$ |
17.92 |
|
|
|
139 |
% |
|
|
124 |
% |
|
$ |
0.440 |
|
Second
Fiscal Quarter
|
|
$ |
14.29 |
|
|
$ |
20.40 |
|
|
$ |
17.63 |
|
|
|
143 |
% |
|
|
123 |
% |
|
$ |
0.430 |
|
First
Fiscal Quarter
|
|
$ |
14.19 |
|
|
$ |
18.75 |
|
|
$ |
15.66 |
|
|
|
132 |
% |
|
|
110 |
% |
|
$ |
0.310 |
|
Fiscal
Year Ended March 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
Fiscal Quarter
|
|
$ |
14.27 |
|
|
$ |
17.62 |
|
|
$ |
14.93 |
|
|
|
123 |
% |
|
|
105 |
% |
|
$ |
0.260 |
|
Third
Fiscal Quarter
|
|
$ |
14.32 |
|
|
$ |
15.13 |
|
|
$ |
13.43 |
|
|
|
106 |
% |
|
|
94 |
% |
|
$ |
0.180 |
|
Second
Fiscal Quarter
|
|
$ |
14.10 |
|
|
$ |
14.57 |
|
|
$ |
13.06 |
|
|
|
103 |
% |
|
|
93 |
% |
|
$ |
0.045 |
|
First
Fiscal Quarter (period from April 8, 2004* to June 30,
2004)
|
|
$ |
14.05 |
|
|
$ |
15.25 |
|
|
$ |
12.83 |
|
|
|
109 |
% |
|
|
91 |
% |
|
|
— |
|
_____________
(1)
|
NAV
per share is determined as of the last day in the relevant quarter and
therefore may not reflect the NAV per share on the date of the high and
low sales prices. The NAVs shown are based on outstanding
shares at the end of each period.
|
(2)
|
Calculated
as of the respective high or low closing sales price divided by the
quarter end NAV.
|
*
|
Commencement
of operations
|
Our
common stock recently has traded at prices both above and below our most
recently calculated net asset value. There can be no assurance, however, that
our shares will trade above, below or at our net asset value. The
last reported closing market price of our common stock on June 19, 2009 was
$6.43 per share. As of June 12, 2009, we had 108 shareholders of
record.
BUSINESS
Apollo
Investment
Apollo
Investment Corporation, a Maryland corporation organized on February 2, 2004, is
a closed-end, externally managed non-diversified management investment
company that has filed an election to be treated as a BDC under the 1940
Act. In addition, for tax purposes we have elected to be treated as a
RIC.
Our
investment objective is to generate both current income and capital appreciation
through debt and equity investments. We invest primarily in
middle-market companies in the form of mezzanine and senior secured loans, as
well as by making equity investments in companies. From time to time,
we may also invest in the securities of public companies as well as public
companies whose securities are thinly traded.
We
believe that our investment adviser is able to leverage the overall Apollo
Global Management investment platform, resources and existing relationships with
financial sponsors, financial institutions and other investment firms to provide
us with attractive investments. In addition to deal flow, the
Apollo investment platform assists our investment adviser in analyzing,
structuring and monitoring investments. Apollo's senior
partners have worked together for over 18 years and have substantial experience
investing in senior loans, high yield bonds, mezzanine debt and private
equity. We have access to the Apollo staff of approximately 175
professionals employed by Apollo who provide assistance in accounting, legal,
compliance, technology and investor relations.
During
our fiscal year ended March 31, 2009, we invested $435 million across 12 new and
13 existing portfolio companies. This compares to investing $1.8 billion in 27
new and 15 existing portfolio companies for the previous fiscal year ended March
31, 2008. Investments sold or prepaid during the fiscal year ended March 31,
2009 totaled $340 million versus $714 million for the fiscal year ended March
31, 2008. Total invested capital since our initial public offering in
April 2004 through March 31, 2009 is $5.6 billion. The weighted
average yields on our senior secured loan portfolio, subordinated debt portfolio
and total debt portfolio at our current cost basis were 8.2%, 13.2% and 11.7%,
respectively, at March 31, 2009. At March 31, 2008, the yields were 10.0%,
12.8%, and 12.0%, respectively.
Our
targeted investment size typically ranges between $20 million and $250 million,
although this investment size may vary proportionately as the size of our
capital base changes. At March 31, 2009, our net portfolio consisted of 72
portfolio companies and was invested 27% in senior secured loans, 59% in
subordinated debt, 4% in preferred equity and 10% in common equity and warrants
measured at fair value versus 71 portfolio companies invested 22% in senior
secured loans, 57% in subordinated debt, 6% in preferred equity and 15% in
common equity and warrants at March 31, 2008.
Since
our initial public offering in April 2004 and through March 31, 2009, invested
capital totals $5.6 billion in 124 portfolio companies. Over the same
period, we also completed transactions with more than 85 different financial
sponsors.
Senior
secured loans and European mezzanine loans typically accrue interest at variable
rates determined on the basis of a benchmark: LIBOR, EURIBOR, GBP LIBOR, or the
prime rate, with stated maturities at origination that typically range from 5 to
10 years. While subordinated debt issued within the United States will
typically
accrue interest at fixed rates, some of these investments may include
zero-coupon, PIK and/or step bonds that accrue income on a constant yield to
call or maturity basis. At March 31, 2009, 69% or $1.5 billion of our
interest-bearing investment portfolio is fixed rate debt and 31% or $0.7 billion
is floating rate debt, measured at fair value. At March 31, 2008, 62% or $1.6
billion of our interest-bearing investment portfolio was fixed rate debt and 38%
or $1.0 billion was floating rate debt, measured at fair value.
About
Apollo Investment Management
AIM,
our investment adviser, is led by a dedicated team of investment
professionals. AIM's investment committee currently consists of John
J. Hannan, the Chairman of our board of directors and Chairman of
AIM's Investment Committee; James C. Zelter, our Chief Executive
Officer, a partner of AIM and a Vice President of the general partner of AIM;
Patrick J. Dalton, our President and Chief Operating Officer, a
partner of AIM and a Vice President and the Chief Investment Officer of the
general partner of AIM; Rajay Bagaria, a partner of AIM and a Vice President of
the general partner of AIM; and Justin Sendak, a partner of AIM and a Vice
President of the general partner of AIM. The composition of the
Investment Committee of AIM may change from time to time. AIM draws
upon Apollo's 19-year history and benefits from the Apollo investment
professionals' significant capital markets, trading and research
expertise.
About
Apollo Investment Administration
In
addition to furnishing us with office facilities, equipment, and clerical,
bookkeeping and record keeping services, AIA also oversees our financial records
as well as the preparation of our reports to stockholders and reports filed with
the SEC. AIA oversees the determination and publication of our net asset value,
oversees the preparation and filing of our tax returns, and generally monitors
the payment of our expenses and the performance of administrative and
professional services rendered to us by others. Furthermore, AIA provides
on our behalf managerial assistance to those portfolio companies to which we are
required to provide such assistance.
Operating
and Regulatory Structure
Our
investment activities are managed by AIM and supervised by our board of
directors, a majority of whom are independent of Apollo and its
affiliates. AIM is an investment adviser that is registered under the
Advisers Act. Under our investment advisory and management agreement,
we pay AIM an annual base management fee based on our gross assets as well as an
incentive fee.
As
a BDC, we are required to comply with certain regulatory
requirements. Also, while we are permitted to finance investments
using debt, our ability to use debt is limited in certain significant
respects. We have elected to be treated for federal income tax
purposes as a RIC under Subchapter M of the Code.
Investments
We
seek to create a portfolio that includes primarily debt investments in
mezzanine, senior secured loans and, to a lesser extent, private equity by
generally investing approximately $20 million to $250 million of capital, on
average, in the securities of middle-market companies. The average
investment size will vary as the size of our capital base varies. Our
target portfolio will generally be more heavily weighted toward mezzanine
loans. Structurally, mezzanine loans usually rank subordinate in
priority of payment to senior debt, such as senior bank debt, and are often
unsecured. As such, other creditors may rank senior to us in the
event of an insolvency. However, mezzanine loans rank senior to
common and preferred equity in a borrowers' capital
structure. Mezzanine loans may have a fixed or floating
interest rate. Additional upside can be generated from upfront fees,
call protection including call premiums, equity co-investments or
warrants. We believe that mezzanine loans offer
an
attractive investment opportunity based upon their historic returns and
resilience during economic downturns. Additionally, we may acquire
investments in the secondary market if we believe the risk-adjusted returns are
attractive.
Our
principal focus is to provide capital to middle-market companies in a variety of
industries. We generally seek to target companies that generate
positive free cash flows. We also generally seek to invest in
companies from the broad variety of industries in which Apollo's investment
professionals have direct expertise.
The
following is a representative list of the industries in which Apollo has
invested:
·
|
Lodging/Leisure/Resorts
|
·
|
Manufacturing/Basic
industry
|
·
|
Printing
and publishing
|
We
may also invest in other industries if we are presented with attractive
opportunities.
We
may also invest through special purpose entities or other arrangements,
including total return swaps and repurchase agreements, in order to obtain
non-recourse financing or for other purposes.
We
may invest, to the extent permitted by law, in the securities and instruments of
other investment companies, including private funds. We may also
co-invest on a concurrent basis with affiliates of ours, subject to compliance
with applicable regulations and our allocation procedures. Certain
types of negotiated co-investments may be made only if we receive an order from
the SEC permitting us to do so. There can be no assurance that any
such order will be obtained.
At
March 31, 2009, our net portfolio consisted of 72 portfolio companies and was
invested 27% in senior secured loans, 59% in subordinated debt, 4% in preferred
equity and 10% in common equity and warrants measured at fair
value. We expect that our portfolio will continue to include
primarily mezzanine loans, and to a lesser extent, senior secured loans, and
equity-related securities. In addition, we also expect to invest a
portion of our portfolio in opportunistic investments, which are not our primary
focus, but are intended to enhance our risk-adjusted returns to
stockholders. These investments may include, but are not limited to,
securities of public companies and debt and equity securities of companies
located outside of the United States.
While
our primary focus is to generate both current income and capital appreciation
through investments in U.S. senior and subordinated loans, other debt securities
and private equity, we may also invest a portion of the portfolio in
opportunistic investments, including foreign securities.
Listed
below are our top ten portfolio companies and industries represented as a
percentage of total assets for the years ended March 31, 2009 and 2008:
TOP
TEN PORTFOLIO COMPANIES AND INDUSTRIES AS OF MARCH 31, 2009
|
|
|
|
|
|
|
|
PORTFOLIO
COMPANY
|
|
% of Total Assets
|
|
INDUSTRY
|
|
% of Total Assets
|
|
Asurion
Corporation
|
|
4.8%
|
|
Education
|
|
7.4%
|
|
First
Data Corporation
|
|
4.5%
|
|
Healthcare
|
|
6.5%
|
|
TL
Acquisitions, Inc. (Thomson Learning)
|
|
3.8%
|
|
Financial
Services
|
|
6.2%
|
|
Gray
Wireline Service, Inc.
|
|
3.2%
|
|
Diversified
Service
|
|
5.8%
|
|
Ceridian
Corp.
|
|
2.9%
|
|
Insurance
|
|
5.6%
|
|
Ranpak
Corporation
|
|
2.9%
|
|
Oil
& Gas
|
|
4.9%
|
|
|
|
|
|
|
|
|
|
PORTFOLIO
COMPANY
|
|
% of Total Assets
|
|
INDUSTRY
|
|
% of Total Assets
|
Playpower
Holdings Inc.
|
|
2.8%
|
|
Consumer
Products
|
|
4.1%
|
|
Fleetpride
Corporation
|
|
2.8%
|
|
Transportation
|
|
3.9%
|
|
Grand
Prix Holdings, LLC (Innkeepers USA)
|
|
2.7%
|
|
Retail
|
|
3.8%
|
|
Quality
Home Brands Holdings
|
|
2.6%
|
|
Industrial
|
|
3.6%
|
TOP
TEN PORTFOLIO COMPANIES AND INDUSTRIES AS OF MARCH 31, 2008
|
|
|
|
|
|
|
|
PORTFOLIO
COMPANY
|
|
% of Total Assets
|
|
INDUSTRY
|
|
% of Total Assets
|
|
Grand
Prix H oldings, LLC (Innkeepers USA)
|
|
6.6%
|
|
Hotels,
Motels, Inns and Gaming
|
|
6.6%
|
|
First
Data Corporation
|
|
4.9%
|
|
Financial
Services
|
|
6.1%
|
|
Asurion
Corporation
|
|
3.1%
|
|
Oil
& Gas
|
|
5.5%
|
|
TL
Acquisitions, Inc. (Thomson Learning)
|
|
2.5%
|
|
Education
|
|
4.9%
|
|
GS
Prysmian Co-Invest L.P. (Prysmian Cables)
|
|
2.5%
|
|
Business
Services
|
|
4.3%
|
|
Gray
Wireline Service, Inc.
|
|
2.2%
|
|
Industrial
|
|
4.0%
|
|
Associated
Materials, Inc.
|
|
2.1%
|
|
Retail
|
|
3.8%
|
|
Fleetpride
Corporation
|
|
2.1%
|
|
Insurance
|
|
3.5%
|
|
Quality
Home Brands Holdings
|
|
2.0%
|
|
Diversified
Service
|
|
3.4%
|
|
Ranpak
Corporation
|
|
2.0%
|
|
Environmental
|
|
3.3%
|
|
Listed
below is the geographic breakdown of the portfolio as of March 31, 2009 and
2008:
|
|
|
|
|
|
|
|
|
% of Portfolio
at
March 31, 2009
|
|
Geographic Region
|
|
% of Portfolio
at
March 31, 2008
|
United
States
|
|
90.9%
|
|
United States
|
|
86.8%
|
Canada
|
|
1.8%
|
|
Canada
|
|
2.1%
|
Western
Europe
|
|
7.3%
|
|
Western Europe
|
|
11.1%
|
|
|
100.0%
|
|
|
|
100.0%
|
|
|
|
|
|
|
|
Investment
Selection
We
are committed to a value oriented philosophy and will commit resources to
managing downside exposure.
Prospective
portfolio company characteristics
We
have identified several criteria that we believe are important in identifying
and investing in prospective portfolio companies. These criteria
provide general guidelines for our investment decisions; however, we caution you
that not all of these criteria will be met by each prospective portfolio company
in which we choose to invest. Generally, we seek to utilize our
access to information generated by our investment professionals to identify
investment candidates and to structure investments quickly and
effectively.
Value
orientation/positive cash flow
Our
investment philosophy places a premium on fundamental analysis from an
investor's perspective and has a distinct value orientation. We focus
on companies in which we can invest at relatively low multiples of operating
cash flow and that are profitable at the time of investment on an operating cash
flow basis. Typically, we do not expect to invest in start-up
companies or companies having speculative business plans.
Experienced
management
We
generally seek to invest in portfolio companies
that have experienced management teams. We also
require the portfolio companies to have in place proper incentives to induce
management to succeed and to act in concert with our interests as investors,
including having significant equity interests.
Strong
competitive position in industry
We
seek to invest in target companies that have developed leading market positions
within their respective markets , have established businesses and are well
positioned to capitalize on growth opportunities. We seek companies
that demonstrate significant competitive advantages versus their competitors,
which should help to protect their market position and
profitability.
Exit
strategy
We
seek to invest in companies that we believe will provide a steady stream of cash
flow to repay our loans. We expect that such internally generated
cash flow, leading to the payment of interest on, and the repayment of the
principal of, our investments in portfolio companies to be a key means by which
we exit from our investments over time. In addition, we seek to
invest in companies whose business models and expected future cash flows offer
attractive exit possibilities. These companies include candidates for
strategic acquisition by other industry participants and companies that may
repay our investments through an initial public offering of common stock or
another capital market transaction.
Liquidation
value of assets
The
prospective liquidation value of the assets, if any, collateralizing loans in
which we invest is an important factor in our credit analysis. We
emphasize both tangible assets, such as accounts receivable, inventory,
equipment and real estate, and intangible assets, such as intellectual property,
customer lists, networks and databases.
Due
diligence
Our
investment adviser conducts diligence on prospective portfolio companies
consistent with the approach adopted by the investment professionals of
Apollo. We believe that Apollo's investment professionals have a
reputation for , and many years of experience, conducting extensive due
diligence investigations in their investment activities. In
conducting their due diligence, Apollo's investment professionals use publicly
available information as well as information from their extensive relationships
with former and current management teams, consultants, competitors and
investment bankers and the direct experience of the senior partners of
Apollo.
Our
due diligence will typically include:
·
|
review
of historical and prospective financial
information;
|
·
|
interviews
with management, employees, customers and vendors of the potential
portfolio company;
|
·
|
review
of loan documents;
|
·
|
research
relating to the company's management, industry, markets, products and
services, and competitors.
|
Upon
the completion of due diligence and a decision to proceed with an investment in
a company, the professionals leading the investment present the investment
opportunity to our investment adviser’s investment committee, which determines
whether to pursue the potential investment. Additional due diligence with
respect to any investment may be conducted on our behalf by attorneys and
independent accountants prior to the closing of the investment, as well as other
outside advisers, as appropriate.
The
investment committee
All
new investments by us must be approved by the investment committee of
AIM. The members of the investment committee receive no compensation
from us. Such members are employees or partners of AIM and receive
compensation or profit distributions from AIM, and in certain instances, from
other Apollo affiliates. The members of the investment committee are
listed below.
Rajay Bagaria: Partner of AIM and Member of AIM’s Investment Committee. Mr. Bagaria joined
AIM in June 2004 as a Partner and became a member of the investment committee in
2009. Before joining AIM, Mr. Bagaria worked with Goldman, Sachs
& Co.’s Principal Investment Area with a focus on mezzanine
investing.
Patrick J. Dalton: President and Chief Operating
Officer of Apollo Investment. Mr. Dalton joined AIM
in June 2004 as a partner and a member of AIM’s investment committee. He
became an executive officer of Apollo Investment in November 2006. Mr.
Dalton is also the Chief Investment Officer of AIM. Before joining Apollo
Investment, Mr. Dalton was a Vice President with Goldman, Sachs & Co.’s
Principal Investment Area with a focus on mezzanine investing from 2000 through
2004.
John J. Hannan: Chairman of the Board of Directors of Apollo Investment.
Mr. Hannan became a director of Apollo Investment in March 2004 and
was elected as Chairman of the board of directors in August
2006. Mr. Hannan has served on AIM’s investment committee since
February 2006. Mr. Hannan, a senior partner of Apollo Management,
L.P., co-founded Apollo Management, L.P. in 1990 and Apollo Real Estate
Advisors, L.P. (an investment manager affiliated with Apollo’s real estate
investment funds) in 1993.
Justin Sendak: Partner of AIM and Member of AIM’s Investment Committee. Mr. Sendak joined
Apollo in 2007 to concentrate on leveraged bank debt, high yield securities and
alternative investment opportunities. Prior to joining Apollo Mr.
Sendak was a Managing Director at Merrill Lynch & Co., specializing in
underwriting and placing 144A high yield securities and leveraged loans
involving transactions ranging between US$250 million to US$10
billion. Prior to joining Merrill Lynch & Co., Mr. Sendak was a
Managing Director in Capital Markets at
CIBC
World Markets Corp. from 2002 to 2005. Prior to 2002, Mr. Sendak was
a Managing Director in CIBC World Markets Corp’s Leveraged Finance Group,
specializing in the structuring and placing of institutional bank
debt.
James C. Zelter: Chief Executive Officer and Director
of Apollo Investment. Mr. Zelter joined Apollo in
2006. Mr. Zelter became an executive officer of Apollo Investment in
November 2006 and a director of Apollo Investment in 2008. He is the Managing
Partner of Apollo Capital Management (“ACM”). The funds in the ACM
platform include: Apollo Strategic Value Fund, AP Investment Europe, Apollo Asia
Opportunity Fund and Apollo European Principal Finance Fund. ACM also
includes Apollo Investment Management, L.P. the investment manager to Apollo
Investment. Prior to joining Apollo, Mr. Zelter was with Citigroup
and its predecessor companies from 1994 to 2006. From 2003 to 2005,
Mr. Zelter was Chief Investment Officer of Citigroup Alternative Investments,
and prior to that he was responsible for the firm’s Global High Yield
franchise.
Investment
structure
Once
we have determined that a prospective portfolio company is suitable for
investment, we work with the management of that company and its other capital
providers, including senior, junior and equity capital providers, to structure
an investment.
We
seek to structure our mezzanine investments primarily as unsecured, subordinated
loans that provide for relatively high interest rates that provide us with
significant current interest income. These loans typically have
interest-only payments in the early years, with amortization of principal
deferred to the later years of the mezzanine loans. In some cases, we
may enter into loans that, by their terms, convert into equity or additional
debt securities or defer payments of interest after our
investment. Also, in some cases our mezzanine loans may be
collateralized by a subordinated lien on some or all of the assets of the
borrower. Typically, our mezzanine loans have maturities of five to
ten years.
We
also seek to invest in portfolio companies in the form of senior secured
loans. We expect these senior secured loans to have terms of three to
ten years and may provide for deferred interest payments over the term of the
loan. We generally seek to obtain security interests in the assets of
our portfolio companies that serve as collateral in support of the repayment of
these loans. This collateral may take the form of first or second
priority liens on the assets of a portfolio company. We expect that
the interest rate on our senior secured loans generally will range between 2%
and 10% over the London Interbank Offer Rate, or LIBOR.
In
the case of our mezzanine and senior secured loan investments, we seek to tailor
the terms of the investment to the facts and circumstances of the transaction
and the prospective portfolio company, negotiating a structure that protects our
rights and manages our risk while creating incentives for the portfolio company
to achieve its business plan and improve its profitability. For
example, in addition to seeking a senior position in the capital structure of
our portfolio companies, we seek to limit the downside potential of our
investments by:
·
|
requiring
an expected total return on our investments (including both interest and
potential equity appreciation) that compensates us for credit
risk;
|
·
|
generally
incorporating call protection into the investment structure;
and
|
·
|
negotiating
covenants and information rights in connection with our investments that
afford our portfolio companies as much flexibility in managing their
businesses as possible, consistent with our goal of preserving our
capital. Such restrictions may include affirmative and negative
covenants,
|
|
default
penalties, lien protection, change of control provisions and board rights,
including either observation or participation
rights.
|
Our
investments may include equity features, such as warrants or options to buy a
minority interest in the portfolio company. Any warrants we receive
with our debt securities generally require only a nominal cost to exercise, and
thus, as a portfolio company appreciates in value, we may achieve additional
investment return from this equity interest. We may structure the
warrants to provide provisions protecting our rights as a minority- interest
holder, as well as puts, or rights to sell such securities back to the company,
upon the occurrence of specified events. In many cases, we may also
seek to obtain registration rights in connection with these equity interests,
which may include demand and "piggyback" registration rights.
We
expect to hold most of our investments to maturity or repayment, but we may sell
certain of our investments earlier, including, if a liquidity event takes place,
such as the sale or recapitalization of a portfolio company, or in the event
of the worsening of credit quality of a portfolio company.
Managerial
assistance
As
a BDC, we offer, and must provide upon request, managerial assistance to our
portfolio companies. This assistance could involve, among other
things, monitoring the operations of our portfolio companies, participating in
board and management meetings, consulting with and advising officers of
portfolio companies and providing other organizational and financial
guidance. We may receive fees for these services. AIA provides such managerial
assistance on our behalf to portfolio companies that request this
assistance.
Ongoing
relationships with portfolio companies
Monitoring
AIM
monitors our portfolio companies on an ongoing basis. AIM monitors
the financial trends of each portfolio company to determine if each is meeting
its respective business plans and to assess the appropriate course of action for
each company.
AIM
has several methods of evaluating and monitoring the performance and fair value
of our investments, which can include, but are not limited to, the
following:
·
|
Assessment
of success in adhering to portfolio company's business plan and compliance
with covenants;
|
·
|
Periodic
and regular contact with portfolio company management and, if appropriate,
the financial or strategic sponsor, to discuss financial position,
requirements and accomplishments;
|
·
|
Comparisons
to other portfolio companies in the
industry;
|
·
|
Attendance
at and participation in board meetings;
and
|
·
|
Review
of monthly and quarterly financial statements and financial projections
for portfolio companies.
|
In
addition to various risk management and monitoring tools, AIM also uses an
investment rating system to characterize and monitor our expected level of
returns on each investment in our portfolio.
We
use an investment rating scale of 1 to 5. The following is a
description of the conditions associated with each investment
rating:
|
|
|
1
|
|
Capital
gain expected
|
2
|
|
Full
return of principal and interest or dividend expected, with the portfolio
company performing in accordance with our analysis of its
business
|
3
|
|
Full
return of principal and interest or dividend expected, but the portfolio
company requires closer monitoring
|
4
|
|
Some
loss of interest, dividend or capital appreciation expected, but still
expecting an overall positive internal rate of return on the
investment
|
5
|
|
Loss
of interest or dividend and some loss of principal investment expected,
which would result in an overall negative internal rate of return on the
investment
|
AIM
monitors and, when appropriate, changes the investment ratings assigned to each
investment in our portfolio. In connection with our valuation
process, AIM reviews these investment ratings on a quarterly basis, and our
board of directors affirms such ratings.
Valuation
Process
The
following is a description of the steps we take each quarter to determine the
value of our portfolio. Many of our portfolio investments are
recorded at fair value as determined in good faith by or under the direction of
our board of directors pursuant to a written valuation policy and a
consistently applied valuation process utilizing the input of our investment
adviser, independent valuation firms and the audit
committee. Since this process necessarily involves the use of
judgment and the engagement of independent valuation firms, there is no absolute
certainty as to the value of our portfolio
investments. Investments for which market quotations are readily
available are recorded in our financial statements at such market quotations if
they are deemed to represent fair value. Market quotations may be
deemed not to represent fair value in certain circumstances where AIM believes
that facts and circumstances applicable to an issuer, a seller or purchaser or
the market for a particular security causes current market quotes not to
reflect the fair value of the security. Examples of these events
could include cases in which material events are announced after the close of
the market on which a security is primarily traded, when a security trades
infrequently causing a quoted purchase or sale price to become stale or in the
event of a "fire sale" by a distressed seller.
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 engaged by our board of directors conduct independent appraisals
and review our investment adviser’s preliminary valuations and make their own
independent assessment;
(4) the
audit committee of the board of directors reviews the preliminary valuation of
our investment adviser and that of the independent valuation firm and responds
to the valuation recommendation of the independent valuation firm to reflect any
comments; and
(5) the
board of directors discusses valuations and determines the fair value of each
investment in our portfolio in good faith based on the input of our investment
adviser, the respective independent valuation firm and the audit
committee.
When
we make investments that involve deferrals of interest payable to us, any
increase in the value of the investment due to the accrual or receipt of payment
of interest is allocated to the increase in the cost basis of the investment,
rather than to capital appreciation or gain.
Competition
Our
primary competitors in providing financing to middle-market companies include
public and private funds, commercial and investment banks, commercial financing
companies, and, to the extent they provide an alternative form of financing,
private equity funds. Additionally, because competition for
investment opportunities generally has increased among alternative investment
vehicles, such as hedge funds, those entities have begun to invest in areas they
have not traditionally invested in, including investments in middle-market
companies. As a result of these new entrants, competition for
investment opportunities at middle-market companies has
intensified. Some of our existing and potential competitors are
substantially larger and have considerably greater financial, technical and
marketing resources than we do. For example, some competitors may
have a lower cost of funds and access to funding sources that are not available
to us. In addition, some of our competitors may have higher risk
tolerances or different risk assessments, which could allow them to consider a
wider variety of investments and establish more relationships than
we. Furthermore, many of our competitors are not subject to the
regulatory restrictions that the 1940 Act imposes on us as a BDC. We
expect to use the industry information of Apollo's investment professionals to
which we have access to assess investment risks and determine appropriate
pricing for our investments in portfolio companies. In addition, we
believe that the relationships of the senior managers of AIM and of the senior
partners of Apollo, enable us to learn about, and compete effectively for,
financing opportunities with attractive middle-market companies in the
industries in which we seek to invest.
Staffing
We
have a chief financial officer and a chief compliance officer with staffs and,
to the extent necessary, they will hire additional personnel. These
individuals are employees of Apollo Administration and perform their respective
functions under the terms of the administration agreement. Certain of
our other executive officers are managing partners of our investment
adviser. Our day-to-day investment operations are managed by our
investment adviser. AIM will hire additional investment professionals
in the future. In addition, we reimburse AIA for our allocable
portion of expenses incurred by it in performing its obligations under the
administration agreement, including rent and our allocable portion of the cost
of our chief financial officer and chief compliance officer with
staffs.
Properties
We
do not own any real estate or other physical properties materially important to
our operations. Our administrative and principal executive offices
are located at 9 West 57th Street, New York, NY 10019. We believe
that our office facilities are suitable and adequate for our business as it is
contemplated to be conducted.
Legal
Proceedings
We
and AIM are not currently subject to any material legal
proceedings.
Sarbanes-Oxley
Act of 2002
The
Sarbanes-Oxley Act of 2002 imposes a wide variety of regulatory requirements on
publicly-held companies and their insiders. Many of these
requirements affect us. For example:
·
|
Pursuant
to Rule 13a-14 under the Securities Exchange Act of 1934 (the "Exchange
Act"), our Chief Executive Officer and Chief Financial Officer must
certify the accuracy of the financial statements contained in our periodic
reports;
|
·
|
Pursuant
to Item 307 of Regulation S-K, our periodic reports must disclose our
conclusions about the effectiveness of our disclosure controls and
procedures;
|
·
|
Pursuant
to Rule 13a-15 under the Exchange Act, our management must prepare a
report regarding its assessment of our internal control over financial
reporting; and
|
·
|
Pursuant
to Item 308 of Regulation S-K and Rule 13a-15 under the Exchange Act, our
periodic reports must disclose whether there were significant changes in
our internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|
The
Sarbanes-Oxley Act requires us to review our current policies and procedures to
determine whether we comply with the Sarbanes-Oxley Act and the regulations
promulgated thereunder. We will continue to monitor our compliance
with all regulations that are adopted under the Sarbanes-Oxley Act and will take
actions necessary to ensure that we are in compliance therewith.
MANAGEMENT
Our
business and affairs are managed under the direction of our board of
directors. The board of directors currently consists of eight
members, six of whom are not "interested persons" of Apollo Investment as
defined in Section 2(a)(19) of the 1940 Act. We refer to these
individuals as our independent directors. Our board of directors
elects our officers, who serve at the discretion of the board of
directors.
BOARD
OF DIRECTORS
Under
our charter, our directors are divided into three classes. Each class
of directors holds office for a three year term. At each annual
meeting of our stockholders, the successors to the class of directors whose
terms expire at such meeting will be elected to hold office for a term expiring
at the annual meeting of stockholders held in the third year following the year
of their election. Each director holds office for the term to which
he or she is elected and until his or her successor is duly elected and
qualifies.
Directors
Information
regarding the board of directors is as follows:
Interested Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
J. Hannan
|
|
|
56
|
|
Chairman
of the Board since 2006
|
|
2004
|
|
2009
|
James
C. Zelter
|
|
|
46
|
|
Director
and Chief Executive Officer
|
|
2008
|
|
2009
|
Independent
Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ashok
N. Bakhru
|
|
|
67
|
|
Director
|
|
2008
|
|
2009
|
Claudine
B. Malone
|
|
|
73
|
|
Director
|
|
2007
|
|
2011
|
Frank
C. Puleo
|
|
|
63
|
|
Director
|
|
2008
|
|
2011
|
Carl
Spielvogel
|
|
|
80
|
|
Director
|
|
2004
|
|
2011
|
Elliot
Stein, Jr
|
|
|
60
|
|
Director
|
|
2004
|
|
2010
|
Bradley
J. Wechsler
|
|
|
57
|
|
Director
|
|
2004
|
|
2010
|
The
address for each director is c/o Apollo Investment Corporation, 9 West
57th Street, New York, NY
10019.
|
Executive
officers who are not directors
Information
regarding our executive officers who are not directors is as
follows:
|
|
|
|
|
Patrick
J. Dalton
|
|
|
40
|
|
President
and Chief Operating Officer
|
Richard
L. Peteka
|
|
|
48
|
|
Chief
Financial Officer and Treasurer
|
John
J. Suydam
|
|
|
49
|
|
Vice
President and Chief Legal Officer
|
Gordon
E. Swartz
|
|
|
62
|
|
Chief
Compliance Officer and
Secretary
|
The
address for each executive officer is c/o Apollo Investment Corporation, 9 West
57th Street, New York, NY 10019.
Biographical
information
Directors
Our
directors have been divided into two groups—interested directors and independent
directors. Interested directors are interested persons as defined in
the 1940 Act.
Independent
directors
Ashok N. Bakhru (67)
Director. Mr. Bakhru became a director of Apollo Investment on
October 16, 2008. Mr. Bakhru currently serves as the Chairman of the
Board of the Goldman Sachs Group of Mutual Funds. Previously, Mr. Bakhru was the
Chief Financial Officer and Chief Administrative Officer of Coty Inc. in New
York City. Prior to that he served at Scott Paper Company in Philadelphia, where
he held several senior management positions including Senior Vice President and
Financial Officer roles. Mr. Bakhru also serves on the Governing
Council of the Independent Directors Council and the Advisory Board of BoardIQ
an investment publication. Mr. Bakhru has been actively involved with
Cornell University, having served on its Council and Administrative Board over
the past several years.
Claudine B. Malone
( 73 )
Director. Ms. Malone became a director of Apollo Investment on April
17, 2007. Ms. Malone is the President and Chief Executive Officer of Financial
& Management Consulting Inc. of McLean, Virginia. She also currently serves
as a director of Novell, Inc. and Aviva Life Insurance Company (USA).
Previously, Ms. Malone was Chairman of the Board of the Federal Reserve Bank of
Richmond from 1996 to 1999. She served as a visiting professor at the
Colgate-Darden Business School of the University of Virginia from 1984 to 1987,
an adjunct professor of the School of Business Administration at Georgetown
University from 1982 to 1984 and an assistant and associate professor at the
Harvard Graduate School of Business Administration from 1972 to
1981.
Frank C. Puleo ( 63 )
Director. Mr. Puleo became a director of Apollo Investment on
February 4, 2008. Mr. Puleo currently serves as a Director of
Commercial Industrial Finance Corp. , Capital Markets Engineering &
Trading Holdings, LLC, and SLM Corp. Previously Mr. Puleo was a
partner at Milbank, Tweed, Hadley & McCloy LLP where he advised clients on
structured finance transactions, bank and bank holding company regulatory and
securities law matters. Mr. Puleo became a partner of Milbank, Tweed,
Hadley & McCloy LLP in 1978 and Co-Chair of the firm’s Global Finance Group
in 1995 until retiring at the end of 2006. He was a member of the
firm’s Executive Committee from 1982 to 1991 and from 1996 to
2002. Mr. Puleo served as a Lecturer at Columbia University School of
Law from 1997 to 2001.
Carl Spielvogel ( 80 )
Director. Ambassador Spielvogel became a director of Apollo
Investment in March 2004. Amb. Spielvogel has been Chairman and Chief
Executive Officer of Carl Spielvogel Associates, Inc., an international
management and counseling company, from 1997 to 2000, and from 2001 to
present. In 2000-2001, Amb. Spielvogel served as U.S. Ambassador to
the Slovak Republic, based in Bratislava, Slovakia. From 1994 to
1997, Amb. Spielvogel was Chairman and Chief Executive Officer of the United
Auto Group, Inc., one of the first publicly-owned auto dealership
groups. Earlier, Amb. Spielvogel was Chairman and Chief Executive
Officer of Backer Spielvogel Bates Worldwide, a global marketing communications
company from 1985 to 1994. Amb. Spielvogel currently is a director of
the Interactive Data Corporation, Inc. He is also a trustee to the
Metropolitan Museum of Art; a member of the board of Trustees and Chairman of
the Business Council of the Asia Society; a member of the board of trustees of
Lincoln Center for the Performing Arts; a member of the Council on Foreign
Relations,
and a member of the board of trustees of the Institute for the Study of Europe,
at Columbia University, and a member of the Executive Committee of the Council
of American Ambassadors.
Elliot Stein,
Jr. ( 60 )
Director. Mr. Stein became a director of Apollo Investment in March
2004. Mr. Stein has served as chairman of Caribbean International
News Corporation since 1985. He is also a managing director of
Commonwealth Capital Partners as well as various private companies including
Cloud Solutions LLC and Cohere Communications. Mr. Stein is a trustee
of Claremont Graduate University and the New School University. He is
a member of the Council on Foreign Relations.
Bradley J. Wechsler (57) Director. Mr.
Wechsler became a director of Apollo Investment in April 2004. Mr. Wechsler has
been the Co-Chairman and Co-Chief Executive Officer of IMAX Corporation since
May , 1996. Previously Mr. Wechsler has had several executive positions in
the entertainment industry and was a partner in the entertainment and media
practice for a New York-based investment bank. Mr. Wechsler is a Vice-Chairman
of the board of the NYU Hospital and Medical Center, a member of the Executive
Committee and chairs its Finance Committee. In addition, he sits on the boards
of The American Museum of the Moving Image, the Ethical Culture Fieldston
Schools and Math for America.
Interested
directors
John J. Hannan ( 56 ) Chairman of the
Board of Directors of Apollo Investment. Mr. Hannan became a
director of Apollo Investment in March 2004 and was elected as
Chairman of the board of directors in August 2006. Mr. Hannan has
served on AIM’s investment committee since February 2006. Mr. Hannan,
a senior partner of Apollo, co-founded Apollo Management, L.P.in 1990 and Apollo
Real Estate Advisors, L.P. (an investment manager affiliated with Apollo’s real
estate investment funds) in 1993.
James C. Zelter (46): Director and Chief
Executive Officer of Apollo Investment. Mr. Zelter joined
Apollo in 2006. Mr. Zelter became an executive officer of Apollo
Investment in November 2006 and a director of Apollo Investment in 2008. He is
the Managing Partner of Apollo Capital Management (“ACM”). The funds
in the ACM platform include: Apollo Strategic Value Fund, AP Investment Europe,
Apollo Asia Opportunity Fund and Apollo European Principal Finance
Fund. ACM also includes Apollo Investment Management, L.P. the
investment manager to Apollo Investment. Prior to joining Apollo, Mr.
Zelter was with Citigroup and its predecessor companies from 1994 to
2006. From 2003 to 2005, Mr. Zelter was Chief Investment Officer of
Citigroup Alternative Investments, and prior to that he was responsible for the
firm’s Global High Yield franchise.
Executive
officers who are not directors
Patrick J. Dalton (40):
President and Chief Operating Officer of
Apollo Investment. Mr. Dalton joined AIM
in June 2004 as a partner and a member of AIM’s investment committee. He
became an executive officer of Apollo Investment in November 2006. Mr.
Dalton is also the Chief Investment Officer of AIM. Before joining Apollo
Investment, Mr. Dalton was a Vice President with Goldman, Sachs & Co.’s
Principal Investment Area with a focus on mezzanine investing from 2000 through
2004.
Richard L. Peteka ( 48 )
Chief Financial Officer and
Treasurer of Apollo Investment. Mr. Peteka joined Apollo
Investment in June 2004 as its Chief Financial Officer and Treasurer. Prior to
joining the firm, he was Chief Financial Officer and Treasurer of various
closed-end and open-end registered investment companies for Citigroup Asset
Management. He joined Citigroup Asset Management as a Director in July
1999.
John J. Suydam (49) Vice President and Chief Legal
Officer of Apollo Investment. Mr. Suydam joined Apollo in 2006. From 2002
to 2006, Mr. Suydam was a partner at O’Melveny & Myers LLP, where he served
as
head
of Mergers & Acquisitions and co-head of the Corporate Department. Prior to
that time, Mr. Suydam served as chairman of the law firm O’Sullivan, LLP which
specialized in representing private equity investors. Mr. Suydam serves on the
board of directors of the Big Apple Circus. Mr. Suydam received his JD
from New York University and graduated magna cum laude with a BA in History from
the State University of New York at Albany.
Gordon E. Swartz ( 62 )
Chief Compliance Officer and
Secretary of Apollo Investment. Mr. Swartz became the Chief Compliance
Officer of Apollo Investment in October 2004 . Prior to joining Apollo
Investment, Mr. Swartz was an Associate General Counsel of Citigroup Asset
Management.
COMMITTEES
OF THE BOARD OF DIRECTORS
Audit
committee
The
Audit Committee operates pursuant to an Audit Committee Charter approved by the
board of directors. The charter sets forth the responsibilities of the Audit
Committee, which include selecting or retaining each year an independent
registered public accounting firm (the "auditors") to audit our annual financial
statements; reviewing and discussing with management and the auditors our annual
audited financial statements, including disclosures made in management's
discussion and analysis, and recommending to the board of directors whether the
audited financial statements should be included in our annual report on Form
10-K; reviewing and discussing with management and the auditors our quarterly
financial statements prior to the filings of our quarterly reports on Form 10-Q;
pre-approving the auditors' engagement to render audit and permissible non-audit
services; and evaluating the qualifications, performance and independence of the
independent registered public accounting firm. The Audit Committee is presently
composed of six persons: Ms. Malone (Chair) and Messrs.
Bakhru, Puleo, Spielvogel, Stein and Wechsler, all of whom are
independent directors and are otherwise considered independent under the listing
standards of NASDAQ Marketplace Rule 5605 (a)(2) (the "NASDAQ Listing
Standards"). Our board of directors has determined that Ms. Malone
and Mr. Bakhru are "audit committee financial experts" as that term is defined
under Item 401 of Regulation S-K under the Exchange Act. The Audit
Committee Charter is available on our website (http://www.apolloic.com).
During the fiscal year ended March 31, 2009, the audit committee met four
times.
Nominating
and corporate governance committee
The
members of the nominating and corporate governance committee are Ms. Malone and
Messrs. Bakhru , Puleo, Spielvogel, Stein (Chairman), and Wechsler, each
of whom is independent for purposes of the 1940 Act and the NASDAQ Listing
Standards. The nominating and corporate governance committee is
responsible for selecting, researching and nominating directors for election by
our stockholders, selecting nominees to fill vacancies on the board of directors
or a committee of the board of directors, developing and recommending to the
board of directors a set of corporate governance principles and overseeing the
evaluation of the board of directors and our management. The nominating and
corporate governance committee considers nominees recommended by our
stockholders when such recommendations are submitted in accordance with our
bylaws, our nominating and corporate governance committee charter and any
applicable law, rule or regulation regarding director
nominations. During the fiscal year ended March 31, 2009 , the
nominating and corporate governance committee met six times.
Compensation
committee
We
do not have a compensation committee. Decisions regarding executive compensation
are made by our entire board of directors.
COMPENSATION
OF DIRECTORS AND OFFICERS
The
following table shows information regarding the compensation received by the
independent directors and executive officers for the fiscal year ended March 31,
2009 . No compensation is paid to directors who are "interested
persons."
|
|
|
|
|
|
|
|
Name
|
|
Aggregate
compensation from
Apollo Investment
|
|
Pension
or
retirement benefits
accrued
as part of
our
expenses (1)
|
|
Total
compensation from
Apollo Investment
paid to director/officer
|
|
Independent
directors
|
|
|
|
|
|
|
|
Ashok
Bakhru(2)
|
|
$ |
65,038
|
|
None
|
|
$ |
65,038
|
|
Claudine
B. Malone
|
|
|
139,500
|
|
None
|
|
|
139,500
|
|
Frank
C. Puleo(3)
|
|
|
131,500
|
|
None
|
|
|
131,500
|
|
Carl
Spielvogel
|
|
|
134,500
|
|
None
|
|
|
134,500
|
|
Elliot
Stein, Jr.
|
|
|
137,000
|
|
None
|
|
|
137,000
|
|
Gerald
Tsai, Jr(4).
|
|
|
37,186
|
|
None
|
|
|
37,186
|
|
Bradley
J. Wechsler
|
|
|
124,500
|
|
None
|
|
|
124,500
|
|
|
|
|
|
|
|
|
|
|
|
Interested
directors
|
|
|
|
|
|
|
|
|
|
John
J. Hannan
|
|
None
|
|
None
|
|
None
|
|
James
C. Zelter(5)
|
|
|
None
|
|
None
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
Executive
Officers
|
|
|
|
|
|
|
|
|
|
Patrick
J. Dalton
|
|
None
|
|
None
|
|
None
|
|
Richard
L. Peteka(6)
|
|
None
|
|
None
|
|
None
|
|
John
J. Suydam
|
|
None
|
|
None
|
|
None
|
|
Gordon
E. Swartz(6)
|
|
None
|
|
None
|
|
None
|
|
(1)
|
We
do not have a profit sharing or retirement plan, and directors do not
receive any pension or retirement
benefits.
|
(2)
|
Ashok
Bakhru became a director on October 16,
2008.
|
(3)
|
Effective
as of February 4, 2008, Mr. Puleo became a
director.
|
(4)
|
Gerald
Tsai, Jr. died on July 9,
2008.
|
(5)
|
James
C. Zelter is also an executive officer of Apollo Investment
Corporation.
|
(6)
|
Richard
L. Peteka and Gordon E. Swartz are employees of Apollo Investment
Administration.
|
The
annual fee for each independent director is $100,000. Each
independent director also receives $2,500 plus reimbursement of reasonable
out-of-pocket expenses incurred in connection with attending each board meeting
and receives $1,000 plus reimbursement of reasonable out-of-pocket expenses
incurred in connection with attending each committee meeting. In addition, the
Chair of the Audit Committee receives an annual fee of $7,500 and each chairman
of any other committee receives an annual fee of $2,500 for their additional
services in these capacities. In addition, we purchase directors' and officers'
liability insurance on behalf of our directors and officers. Independent
directors have the option to receive their directors' fees paid in shares of our
common stock issued at a price per share equal to the greater of net asset value
or the market price at the time of payment.
INVESTMENT
ADVISORY AND MANAGEMENT AGREEMENT
Management
services
AIM
serves as our investment adviser and is controlled by Apollo. AIM is registered
as an investment adviser under the Advisers Act. Subject to the overall
supervision of our board of directors, the investment adviser
manages
the day-to-day operations of, and provides investment advisory and management
services to, Apollo Investment. Under the terms of an investment advisory and
management agreement, AIM:
·
|
determines
the composition of our portfolio, the nature and timing of the changes to
our portfolio and the manner of implementing such
changes;
|
·
|
identifies,
evaluates and negotiates the structure of the investments we make
(including performing due diligence on our prospective portfolio
companies); and
|
·
|
closes
and monitors the investments we
make.
|
AIM's
services under the investment advisory and management agreement are not
exclusive, and it is free to furnish similar services to other entities so long
as its services to us are not impaired.
Management
fee
Pursuant
to the investment advisory and management agreement, we pay AIM a fee for
investment advisory and management services consisting of two components—a base
management fee and an incentive fee. For the fiscal years ended March 31, 2009,
2008 and 2007, AIM accrued $59,686, $59,871 and $40,569, respectively, in base
investment advisory and management fees and $51,583, $30,449 and $57,912,
respectively, in incentive fees.
The
base management fee is calculated at an annual rate of 2.00% of our average
gross assets. The base management fee is payable quarterly in
arrears. The base management fee is calculated based on the average value of our
gross assets at the end of the two most recently completed calendar quarters.
Base management fees for any partial month or quarter are appropriately pro
rated.
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 the
Administration Agreement, and any interest expense and dividends paid on any
issued and outstanding preferred stock, but excluding the incentive fee).
Pre-incentive fee net investment income does not include any realized capital
gains computed net of all realized capital losses and unrealized capital
depreciation. Pre-incentive fee net investment income, expressed as a rate of
return on the value of 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.
We
pay AIM an incentive fee with respect to our pre-incentive fee net investment
income in each calendar quarter as follows:
·
|
no
incentive fee in any calendar quarter in which our pre-incentive fee net
investment income does not exceed the performance threshold of
1.75% ;
|
·
|
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 the performance threshold but does not exceed 2.1875% in any
calendar quarter (8.75% annualized);
and
|
·
|
20%
of the amount of our pre-incentive fee net investment income, if any, that
exceeds 2.1875% in any calendar quarter (8.75%
annualized).
|
The
following is a graphical representation of the calculation of the income-related
portion of the incentive fee:
Quarterly
Incentive Fee Based on Net Investment Income
Pre-incentive
fee net investment income
(expressed
as a percentage of the value of net assets)
Percentage
of pre-incentive fee net investment income
allocated
to income-related portion of incentive fee
These
calculations are appropriately pro rated for any period of less than three
months. The effect of the fee calculation described above is that if
pre-incentive fee net investment income is equal to or exceeds 2.1875%, AIM will
receive a fee of 20% of our pre-incentive fee net investment income for the
quarter. You should be aware that a rise in the general level of interest rates
can be expected to lead to higher interest rates applicable to our debt
investments. Accordingly, an increase in interest rates would make it easier for
us to meet or exceed the incentive fee performance threshold and may result in a
substantial increase of the amount of incentive fees payable to our investment
adviser with respect to pre-incentive fee net investment
income. Furthermore, since the performance threshold is based on a
percentage of our net asset value, decreases in our net asset value make it
easier to achieve the performance threshold.
The
second part of the incentive fee is determined and payable in arrears as of the
end of each calendar year (or upon termination of the Investment Advisory and
Management Agreement, as of the termination date) and will equal 20 % of
our realized capital gains for each calendar year computed net of all realized
capital losses and unrealized capital depreciation and incorporating unrealized
depreciation on a gross investment-by-investment basis at the end of such year.
Capital gains with respect to any investment will equal the difference between
the proceeds from the sale of such investment and the accreted or amortized cost
basis of such investment.
Examples
of Quarterly Incentive Fee Calculation
Example
1: Income Related Portion of Incentive Fee (*):
Alternative
1
Assumptions
Investment
income (including interest, dividends, fees, etc.) = 1.25%
Performance
threshold (1) = 1.75%
Management
fee(2) = 0.50%
Other
expenses (legal, accounting, custodian, transfer agent, etc.)(3) =
0.20%
Pre-incentive
fee net investment income
(investment
income—(management fee + other expenses)) = 0.55%
Pre-incentive
net investment income does not exceed performance threshold , therefore
there is no incentive fee.
Alternative
2
Assumptions
Investment
income (including interest, dividends, fees, etc.) = 2.70%
Performance
threshold (1) = 1.75%
Management
fee(2) = 0.50%
Other
expenses (legal, accounting, custodian, transfer agent, etc.)(3) =
0.20%
Pre-incentive
fee net investment income
(investment
income—(management fee + other expenses)) = 2.00%
Incentive
fee = 100% × pre-incentive fee net investment income, in excess of the
performance threshold (4)
=
100% × (2.00% – 1.75%)
=
0.25%
Alternative
3
Assumptions
Investment
income (including interest, dividends, fees, etc.) = 3.00%
Performance
threshold (1) = 1.75%
Management
fee(2) = 0.50%
Other
expenses (legal, accounting, custodian, transfer agent, etc.)(3) =
0.20%
Pre-incentive
fee net investment income
(investment
income—(management fee + other expenses)) = 2.30%
Incentive
fee = 100% × (2.1875% – 1.75%) + (20% ×
(pre-incentive fee net investment income –2.1875%))
=
0.4375%
Incentive
fee = (100% × 0.4375%) + (20% × ( 2.30 % – 2.1875%))
=
0.4375% + (20% × 0.1125%)
=
0.4375% + 0.0225%
=
0.46%
__________
(*) The
hypothetical amount of pre-incentive fee net investment income shown is based on
a percentage of total net assets.
(1) Represents
7.0% annualized performance threshold .
(2) Represents
2.0% annualized management fee.
(3) Excludes
organizational and offering expenses.
(4) This
provides our investment adviser with an incentive fee of 20% on all of our
pre-incentive fee net investment income when our net investment income equals
or exceeds 2.1875% in any calendar quarter.
Example
2: Capital Gains Portion of Incentive Fee:
Alternative
1:
Assumptions
·
|
Year
1: $20 million investment made in Company A ("Investment A"), and $30
million investment made in Company B ("Investment
B")
|
·
|
Year
2: Investment A sold for $50 million and fair market value ("FMV") of
Investment B determined to be $32
million
|
·
|
Year
3: FMV of Investment B determined to be $25
million
|
·
|
Year
4: Investment B sold for $31
million
|
The
capital gains portion of the incentive fee would be:
·
|
Year
2: Capital gains incentive fee of $6 million ($30 million realized capital
gains on sale of Investment A multiplied by
20%)
|
$5
million (20% multiplied by ($30 million cumulative capital gains less $5 million
cumulative capital depreciation)) less $6 million (previous capital gains fee
paid in Year 2)
·
|
Year
4: Capital gains incentive fee of
$200,000
|
$6.2
million ($31 million cumulative realized capital gains multiplied by 20%) less
$6 million (capital gains fee taken in Year 2)
Alternative
2
Assumptions
·
|
Year
1: $20 million investment made in Company A ("Investment A"), $30 million
investment made in Company B ("Investment B") and $25 million investment
made in Company C ("Investment C")
|
·
|
Year
2: Investment A sold for $50 million, FMV of Investment B determined to be
$25 million and FMV of Investment C determined to be $25
million
|
·
|
Year
3: FMV of Investment B determined to be $27 million and Investment C sold
for $30 million
|
·
|
Year
4: FMV of Investment B determined to be $35
million
|
·
|
Year
5: Investment B sold for $20
million
|
The
capital gains incentive fee, if any, would be:
·
|
Year
2: $5 million capital gains incentive
fee
|
·
|
20%
multiplied by $25 million ($30 million realized capital gains on
Investment A less unrealized capital depreciation on Investment
B)
|
·
|
Year
3: $1.4 million capital gains incentive
fee(1)
|
·
|
$6.4
million (20% multiplied by $32 million ($35 million cumulative realized
capital gains less $3 million unrealized capital depreciation)) less $5
million capital gains fee received in Year
2
|
$5
million (20% multiplied by $25 million (cumulative realized capital gains of $35
million less realized capital losses of $10 million)) less $6.4 million
cumulative capital gains fee paid in Year 2 and Year 3"
____________
(1)
|
As
illustrated in Year 3 of Alternative 1 above, if Apollo Investment were to
be wound up on a date other than December 31st of any year, Apollo
Investment may have paid aggregate capital gain incentive fees that are
more than the amount of such fees that would be payable if Apollo
Investment had been wound up on December 31st of such
year.
|
Payment
of our expenses
All
investment professionals of the investment adviser and their respective staffs
when and to the extent engaged in providing investment advisory and management
services, and the compensation and routine overhead expenses of such personnel
allocable to such services, are provided and paid for by AIM. We bear all other
costs and expenses of our operations and transactions, including those relating
to: calculation of our net asset value (including the cost and
expenses of any independent valuation firm); expenses incurred by AIM payable to
third parties, including agents, consultants or other advisors, in monitoring
our financial and legal affairs and in monitoring our investments and performing
due diligence on our prospective portfolio companies; interest payable on debt,
if any, incurred to finance our investments; offerings of our common stock and
other securities; investment advisory and management fees; fees payable to third
parties, including agents, consultants or other advisors, relating to, or
associated with, evaluating and making investments; transfer agent and custodial
fees; registration fees; listing fees; taxes; independent directors' fees and
expenses; costs of preparing and filing reports or other documents of the SEC;
the costs of any reports, proxy statements or other notices to stockholders,
including printing costs; our allocable portion of the fidelity bond, directors'
and officers'/errors and omissions liability insurance, and any other insurance
premiums; direct costs and expenses of administration, including auditor and
legal costs; and all other expenses incurred by us or Apollo Administration in
connection with administering our business, such as our allocable portion of
overhead under the administration agreement, including rent and our allocable
portion of the cost of our chief compliance officer and chief financial officer
and their respective staffs.
Duration
and termination
The
continuation of our investment advisory and management agreement was approved by
our board of directors on March 13, 2009 . Unless terminated earlier as
described below, it will remain in effect from year to year if approved annually
by our board of directors or by the affirmative vote of the holders of a
majority of our outstanding voting securities, including, in either case,
approval by a majority of our directors who are not " interested
persons " as defined in the 1940 Act . The investment advisory
and management agreement will automatically terminate in the event of its
assignment. Either party may terminate the investment advisory and management
agreement without penalty upon not more than 60 days' written notice to the
other party. See "Risk Factors—Risks relating to our business and structure—We
are dependent upon AIM's key personnel for our future success and upon their
access to Apollo's investment professionals and partners."
Indemnification
The
investment advisory and management agreement provides that, absent willful
misfeasance, bad faith or gross negligence in the performance of its duties or
reckless disregard of its duties and obligations, AIM and its officers,
managers, partners, agents, employees, controlling persons, members and any
other person or entity affiliated with it are entitled to indemnification from
Apollo Investment for any damages, liabilities, costs and expenses (including
reasonable attorneys' fees and amounts reasonably paid in settlement) arising
from the rendering of AIM's services under the investment advisory and
management agreement or otherwise as an investment adviser of Apollo
Investment.
Organization
of the investment adviser
AIM
is a Delaware limited partnership that is registered as an investment adviser
under the Advisers Act. The principal executive offices of AIM are at 9 West
57th Street, New York, NY 10019.
Portfolio
Manager
Patrick
J. Dalton , as Chief Investment Officer of AIM , is primarily responsible
for the day-to-day management of our investment portfolio. He is a
partner of our investment adviser and receives a compensation package from
it that includes a base salary and variable incentive compensation based
primarily on our performance. The dollar range of equity securities
purchased and beneficially owned by Mr. Dalton in Apollo Investment is $50,001 -
$100,000 as of December 31, 2008 .
Board
Approval of the Investment Advisory and Management Agreement
At
a meeting of our board of directors held on March 13, 2009 , the board,
including our directors who are not "interested persons" as defined in the 1940
Act, voted to approve the continuation of the investment advisory and management
agreement between us and AIM for another annual period in accordance with the
requirements of the 1940 Act. Our independent directors had the opportunity to
consult in executive session with their counsel regarding the approval of such
agreement. In reaching a decision to approve the continuation of the investment
advisory and management agreement, our board of directors reviewed a significant
amount of information and considered, among other things:
·
|
the
nature, extent and quality of the advisory and other services provided and
to be provided to us by the investment
adviser;
|
·
|
the
investment performance of us and our investment
adviser;
|
·
|
the
reasonableness of the fee payable by us to the investment adviser in light
of comparative performance, expense and advisory fee information, costs of
the services provided, and profits realized and benefits derived or to be
derived by the investment adviser from its relationship with
us;
|
·
|
the
potential for economies of scale to be realized by the investment adviser
in managing our assets and the extent to which material economies of scale
may be shared with us; and
|
In
approving the continuation of the investment advisory and management agreement,
our board of directors, including the directors who are not "interested
persons," made the following determinations:
·
|
Nature, Extent and Quality of
Services. Our board of directors received and considered
information regarding the nature, extent and quality of the investment
selection process employed by the investment adviser. In addition, our
board of directors received and considered other information regarding the
administrative and other services rendered to us by affiliates of the
investment adviser and noted information received at regular meetings
throughout the year related to the services rendered by the investment
adviser in its management of our affairs. Our board of directors also
considered the backgrounds and responsibilities of the investment
adviser's senior personnel and their qualifications and experience in
connection with the types of investments made by us. The board noted
recent additions to the investment adviser's personnel and the investment
adviser's commitment to providing us with qualified investment and
compliance personnel. Our board also considered the financial resources
available to the investment adviser. Our board of directors determined
that the nature, extent and quality of the services provided by the
investment adviser are adequate and
appropriate.
|
·
|
Investment
Performance. Our board of directors
reviewed the long-term and short-term investment performance of Apollo
Investment and the investment adviser, as well as comparative data with
respect to the long-term and short-term investment performance of other
externally-managed business development companies. Our board of directors
concluded that the investment adviser was delivering results consistent
with our investment objective and that our relative investment performance
was competitive with comparable business development companies in a
difficult market environment .
|
·
|
The reasonableness of the fee
payable by us to the investment adviser. Our board
of directors considered comparative data based on publicly available
information and information provided by a third party retained to provide
comparative data on other business development companies with respect to
services rendered and the advisory fees (including the management fees and
incentive fees) of other business development companies as well as our
operating expenses and expense ratio compared to other business
development companies, including business development companies with
similar investment objectives. Based upon its review, the board of
directors concluded that the fees payable under the investment advisory
and management agreement are reasonable compared to
other business development companies and in light of the
services provided by the investment adviser and the costs to the
investment adviser of providing such services. In addition, our board of
directors concluded that our expenses as a percentage of net assets
attributable to common stock are reasonable as compared to other business
development companies.
|
·
|
Economies of
Scale. Our board of directors considered
information about the potential of the investment adviser to realize
economies of scale in managing our assets, and determined that at this
time there were no economies of scale to be realized by the investment
adviser and that, to the extent any such material economies of scale were
to be realized by the investment adviser, our board of directors would
seek to have such economies of scale shared with
us.
|
Based
on the information reviewed and the discussions above, our directors (including
those directors who are not "interested persons") concluded that the terms of
the investment advisory and management agreement, including the fee rates
thereunder, are fair and reasonable in relation to the services provided and
approved the continuation of the investment advisory and management agreement
with the investment adviser as being in the best interests of Apollo Investment
and its stockholders.
In
view of the wide variety of factors that our board of directors considered in
connection with its evaluation of the investment advisory and management
agreement, it is not practical to quantify, rank or otherwise assign relative
weights to the specific factors our board considered in reaching its decision.
Our board of directors did not undertake to make any specific determination as
to whether any particular factor, or any aspect of any particular factor, was
favorable or unfavorable to the ultimate determination of our board of
directors. Rather, our board of directors based its approval on the
totality of information presented to, and reviewed by, it. In
considering the factors discussed above, individual directors may have given
different weights to different factors.
ADMINISTRATION
AGREEMENT
Pursuant
to a separate administration agreement, AIA furnishes us with office facilities,
equipment and clerical, bookkeeping and record keeping services at such
facilities. Under the administration agreement, AIA also performs, or oversees
the performance of, our required administrative services, which include, among
other things, being responsible for the financial records that we are required
to maintain and preparing reports to our stockholders and reports filed with the
SEC. In addition, AIA assists us in determining and publishing our net asset
value, oversees the preparation and filing of our tax returns and the printing
and dissemination of reports to our stockholders, and generally oversees the
payment of our expenses and the performance of administrative and professional
services rendered to us by others. Payments under the administration agreement
are equal to an amount based upon our allocable portion of AIA's overhead in
performing its obligations under the administration
agreement,
including rent and our allocable portion of the cost of our chief compliance
officer and chief financial officer and their respective staffs. Under the
administration agreement, AIA also provides on our behalf managerial assistance
to those portfolio companies to which we are required to provide such
assistance. Either party may terminate the administration agreement without
penalty upon 60 days' written notice to the other party.
At
the fiscal years ended March 31, 2009, 2008 and 2007, AIA was reimbursed $3,247,
$3,162 and $2,237, respectively, from us on the $4,794, $3,450 and $2,437,
respectively, of expenses accrued under the administration
agreement. For administrative expenses accrued during the most
recently completed fiscal quarter, please see "Management's Discussion and
Analysis of Financial Condition and Result of Operations – Results of Operations
– Expenses."
Indemnification
The
administration agreement provides that, absent willful misfeasance, bad faith or
gross negligence in the performance of its duties or reckless disregard of its
duties and obligations, AIA and its officers, managers, partners, agents,
employees, controlling persons, members and any other person or entity
affiliated with it are entitled to indemnification from us for any damages,
liabilities, costs and expenses (including reasonable attorneys' fees and
amounts reasonably paid in settlement) arising from the rendering of AIA's
services under the administration agreement or otherwise as administrator for
us.
LICENSE
AGREEMENT
We
have entered into a license agreement with Apollo pursuant to which Apollo has
agreed to grant us a non-exclusive, royalty-free license to use the name
"Apollo." Under this agreement, we will have a right to use the Apollo name, for
so long as AIM or one of its affiliates remains our investment adviser. Other
than with respect to this limited license, we will have no legal right to the
"Apollo" name. This license agreement will remain in effect for so long as the
investment advisory and management agreement with our investment adviser is in
effect.
CERTAIN
RELATIONSHIPS
We
have entered into the investment advisory and management agreement with AIM. Our
senior management and our chairman of the board of directors have ownership and
financial interests in AIM. Our senior management also serve as principals of
other investment managers affiliated with AIM that may in the future manage
investment funds with investment objectives similar to ours. In addition, our
executive officers and directors and the partners of our investment adviser,
AIM, serve or may serve as officers, directors or principals of entities that
operate in the same or related line of business as we do or of investment funds
managed by our affiliates. Accordingly, we may not be given the opportunity to
participate in certain investments made by investment funds managed by advisers
affiliated with AIM. However, our investment adviser and other members of Apollo
intend to allocate investment opportunities in a fair and equitable manner
consistent with our investment objective and strategies so that we are not
disadvantaged in relation to any other client. See "Risk Factors—Risks relating
to our business and structure—There are significant potential conflicts of
interest which could impact our investment returns."
We
have entered into a license agreement with Apollo, pursuant to which Apollo has
agreed to grant us a non-exclusive, royalty-free license to use the name
"Apollo." In addition, pursuant to the terms of the administration agreement,
AIA provides us with the office facilities and administrative services necessary
to conduct our day-to-day operations. AIM is the sole member of and controls
AIA.
We
have in the past and expect in the future to co-invest on a concurrent basis
with other affiliates, subject to compliance with existing regulatory guidance,
applicable regulations and our allocation procedures. Certain types of
negotiated co-investments may be made only if we receive an order from the SEC
permitting us to do so. There can be no assurance that any such order will be
obtained.
CONTROL
PERSONS AND PRINCIPAL STOCKHOLDERS
As
of March 31, 2009 , there were no persons that owned 25% or more of
our outstanding voting securities, and no person would be deemed to control us,
as such term is defined in the 1940 Act.
The following table sets forth, as of
March 31, 2009 , certain ownership information with respect to our
common stock for those persons who directly or indirectly owned, controlled or
held with the power to vote, 5% or more of our outstanding common stock as of
that date and all officers and directors, as a group. Unless otherwise
indicated, we believe that each beneficial owner set forth in the table had sole
voting and investment power over such securities.
|
|
|
|
|
|
|
|
|
Name
and address
|
|
Type of ownership
(1)
|
|
Shares owned
|
|
|
Percentage of
common
stock
outstanding
|
|
|
|
|
|
|
|
|
|
AIC
Co-Investors LLC(2)
|
|
Beneficial
|
|
|
1,009,216
|
|
|
|
* |
% |
Bay
Pond Partners, L.P. and Wellington Hedge Management, LLC (3)
|
|
Beneficial
|
|
|
7,420,900
|
|
|
|
5.22 |
% |
All
officers and directors as a group ( 12 persons)(4)
|
|
Beneficial
|
|
|
189,285
|
|
|
|
* |
% |
*
|
Represents less than
1%.
|
(1)
|
All
of our common stock is owned of record by Cede & Co., as nominee
of the Depository Trust Company.
|
(2)
|
AIC
Co-Investors LLC is a special purpose entity related to Apollo
Investment Management . The address for AIC Co-Investors LLC is 9 West
57th
Street, New York, NY 10019.
|
(3)
|
Based
on regulatory filings, Bay Pond Partners, L.P. and Wellington Hedge
Management, LLC, each with address c/o Wellington Management Comapny, LLP,
75 State Street, Boston, Massachusetts 02109, each retains (a) shared
power to vote or to direct the vote as to 7,420,900 shares and (b) shared
power to dispose or to direct the disposition of 7,420,900
shares.
|
(4)
|
The
address for all officers and directors is c/o Apollo Investment
Corporation, 9 West 57th
Street, New York, NY 10019.
|
The following table sets forth the
dollar range of our equity securities beneficially owned by each of our
directors as of March 31, 2009 . (We are not part of a "family of
investment companies," as that term is defined in the proxy rules under
the federal securities laws). Our directors have been divided into
two groups—interested directors and independent directors. Interested directors
are "interested persons" as defined in the 1940 Act.
|
|
|
|
|
|
Name
of Director
|
|
Dollar Range of Equity
Securities
in Apollo
Investment
(1)
|
|
|
Independent
Directors
|
|
|
|
|
Ashok
N. Bakhru
|
|
$
50,001 – $100,000
|
|
|
Claudine
B. Malone
|
|
$
10,001 – $50,000
|
|
|
Frank
C. Puleo
|
|
$
10,001 – $50,000
|
|
|
Carl
Spielvogel
|
|
$
10,001 – $50,000
|
|
|
Elliot
Stein, Jr.
|
|
$
50,001 – $100,000
|
|
|
Bradley
J. Wechsler
|
|
$
100,001 – $500,000
|
|
|
|
|
|
|
|
Interested
Directors and Executive Officers
|
|
|
|
|
John
J. Hannan
|
|
$
100,001 – $500,000 (2)
|
|
|
James
C. Zelter
|
|
$
100,001 – $500,000
|
|
(1)
|
Dollar ranges are as
follows: None, $1—$10,000, $10,001—$50,000,
$50,001—$100,000, $100,001—$500,000, $500,001—$1,000,000 or over
$1,000,000.
|
(2)
|
Reflects pecuniary interests
in AIC Co-Investors LLC. Mr. Hannan disclaims beneficial ownership of
shares held by AIC Co-Investors
LLC.
|
PORTFOLIO
COMPANIES
The
following is a listing of each portfolio company or its affiliate, together
referred to as portfolio companies, in which we had an investment at March
31, 2009 . A percentage shown for a class of investment securities
held by us represents the percentage of the class owned and does not necessarily
represent voting ownership. A percentage shown for equity securities, other than
warrants or options, represents the actual percentage of the class of security
held on a fully diluted basis. A percentage shown for warrants and options held
represents the percentage of a class of security we may own assuming we exercise
our warrants or options after dilution. See the financial statements
to this base prospectus and any accompanying prospectus supplement for
information regarding the fair value of these securities and for the general
terms of any loans to the portfolio companies.
The
portfolio companies are presented in three categories: "companies more than 25%
owned," which represent portfolio companies with respect to which we directly or
indirectly own more than 25% of the outstanding voting securities of such
portfolio company and, therefore, are presumed to be controlled by us under the
1940 Act; "companies owned 5% to 25%," which represent portfolio companies with
respect to which we directly or indirectly own 5% to 25% of the outstanding
voting securities of such portfolio company or with respect to which we hold one
or more seats on the portfolio company's board of directors and, therefore, are
deemed to be an affiliated person under the 1940 Act; and "companies less than
5% owned," which represent portfolio companies with respect to which we directly
or indirectly own less than 5% of the outstanding voting securities of such
portfolio company and with respect to which we have no other
affiliations. We make available significant managerial assistance to
our portfolio companies. We generally request and may receive rights to observe
the meetings of our portfolio companies' board of directors.
Name
and Address of Portfolio Company
|
|
Nature
of its Principal Business
|
|
Title
of Securities Held by Apollo Investment
|
|
Percentage
of Class Held(1)
|
|
Companies
More Than 25% Owned
|
|
|
|
|
|
|
|
|
AIC
Credit Opportunity Fund
c/o
Apollo Investment Corporation
9
West 57th Street
New
York, NY 10019
|
|
Asset
Management
|
|
Common
Equity/
Equity
Interests
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
Grand
Prix Holdings, LLC
(Innkeepers
USA)
340
Royal Poinciana Way
Suite
306
Palm
Beach, FL 33480
|
|
Hotels,
Motels, Inns &
Gaming
|
|
Preferred
Equity,
Common
Equity/
Equity
Interests
|
|
99.60
96.1
|
%
%
|
|
|
|
|
|
|
|
|
|
|
Companies
5% to 25% Owned
|
|
|
|
|
|
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Companies
Less Than 5% Owned
|
|
|
|
|
|
|
|
|
AB
Acquisitions UK Topco 2 Limited (Alliance Boots)
4th
Floor, 361 Oxford Street
Sedley
Place
London,
W1C 2JL
United
Kingdom
|
|
Retail
|
|
Subordinated
Debt/
Corporate
Notes,
Bank
Debt/
Senior
Secured Loans
|
|
— |
|
|
Name
and Address of Portfolio Company
|
|
Nature
of its Principal Business
|
|
Title
of Securities Held by Apollo Investment
|
|
Percentage
of Class Held(1)
|
|
|
|
|
|
|
|
|
|
|
AB
Capital Holdings LLC
(Allied
Security)
Eight
Tower Bridge
161
Washington Street, Suite 600
Conshohocken,
PA 19428
|
|
Business
Services
|
|
Common
Equity/
Equity
Interests
|
|
0.66 |
% |
|
|
|
|
|
|
|
|
|
|
A-D
Conduit Holdings, LLC (Duraline)
835
Innovation Drive
Knoxville,
TN 37932
|
|
Telecommunications
|
|
Common
Equity/
Equity
Interests
|
|
4.46 |
% |
|
|
|
|
|
|
|
|
|
|
Advanstar
Communications, Inc.
641
Lexington Avenue
8th
Floor
New
York, NY 10022
|
|
Media
|
|
Bank
Debt/
Senior
Secured Loans
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Advanstar,
Inc.
641
Lexington Avenue
8th
Floor
New
York, NY 10022
|
|
Media
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Advantage
Sales & Marketing Inc.
19100
Von Karman Avenue
Suite
300
Irvine,
CA 92612
|
|
Grocery
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
AHC
Mezzanine LLC (Advanstar)
641
Lexington Avenue
8th
Floor
New
York, NY 10022
|
|
Media
|
|
Common
Equity/
Equity
Interests
|
|
3.04 |
% |
|
|
|
|
|
|
|
|
|
|
Allied
Security
Eight
Tower Bridge
161
Washington Street, Suite 600
Conshohocken,
PA 19428
|
|
Business
Services
|
|
Subordinated
Debt./ Corporate Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
AMH
Holdings II, Inc., (Associated Materials)
3773
State Road
Cuyahoga
Falls, OH 44233
|
|
Building
Products
|
|
Subordinated
Debt /
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Angelica
Corporation
1105
Lakewood Parkway
Suite
210
Alpharetta,
GA 30004
|
|
Healthcare
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Arbonne
Intermediate Holdco Inc.
(Natural
Products Group LLC)
9400
Jeronimo
Irvine,
CA 92618
|
|
Direct
Marketing
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Asurion
Corporation
648
Grassmere Park
Suite
300
Nashville,
TN 37211
|
|
Insurance
|
|
Bank
Debt/
Senior
Secured Loans
|
|
— |
|
|
Name
and Address of Portfolio Company
|
|
Nature
of its Principal Business
|
|
Title
of Securities Held by Apollo Investment
|
|
Percentage
of Class Held(1)
|
|
|
|
|
|
|
|
|
|
|
Babson
CLO Ltd
c/o
Apollo Investment Corporation
9
West 57th Street
New
York, NY 10019
|
|
Asset
Management
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Booz
Allen Hamilton
8283
Greensboro Drive
McLean,
VA 22102
|
|
Consulting
Services
|
|
Subordinated
Debt/ Corporate Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
BNY
Convergex Group, LLC
The
Bank of New York
One
Wall Street
New
York, NY 10286
|
|
Business
Services
|
|
Subordinated
Debt/
Corporate
Notes
Bank
Debt/
Senior
Secured Loans
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Brenntag
Holding GmbH & Co.
Stinnes-Platz
1
45472
Mülheim an der Ruhr
Germany
|
|
Chemicals
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
CA
Holding, Inc.
(Collect
America, Ltd.)
370
17th Street
Denver,
CO 80202
|
|
Consumer
Finance
|
|
Common
Equity/
Equity
Interests
|
|
1.30 |
% |
|
|
|
|
|
|
|
|
|
|
Catalina
Marketing Corporation
200
Carillon Parkway
St.
Petersburg, FL 33716
|
|
Grocery
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Ceridian
Corp.
3311
E. Old Shakopee Road
Minneapolis,
MN 55425
|
|
Diversified
Service
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C.H.I.
Overhead Doors, Inc.
1485
Sunset Drive
Arthur,
IL 61911
|
|
Building
Products
|
|
Bank
Debt/
Senior
Secured Loans
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Cidron
Healthcare C.S.à.R.L.
(Convatec)
100
Headquarters Park Drive
Skillman,
NJ 08558
|
|
Healthcare
|
|
Subordinated
Debt/
Corporate
Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clean
Earth, Inc.
334
South Warminster Road
Hatboro,
PA 19040
|
|
Environmental
|
|
Bank
Debt/
Senior
Secured Loans
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Clothesline
Holdings, Inc.
(Angelica)
1105
Lakewood Parkway
Suite
210
Alpharetta,
GA 30004
|
|
Healthcare
|
|
Common
Equity/
Equity
Interests
|
|
3.77 |
% |
|
Name
and Address of Portfolio Company
|
|
Nature
of its Principal Business
|
|
Title
of Securities Held by Apollo Investment
|
|
Percentage
of Class Held(1)
|
|
|
|
|
|
|
|
|
|
|
Collect
America, Ltd.
370
17th Street
Denver,
CO 80202
|
|
Financial
Services
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Delta
Educational Systems, Inc.
144
Business Park Drive
Suite
201
Virginia
Beach, VA 23462
|
|
Education
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
DSI
Renal Inc.
511
Union Street
Suite
1800
Nashville,
TN 37219
|
|
Healthcare
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
DSI
Holding Company, Inc.
(DSI
Renal Inc.)
511
Union Street
Suite
1800
Nashville,
TN 37219
|
|
Healthcare
|
|
Common
Stock Warrants
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Dresser,
Inc.
15455
Dallas Parkway
Addison,
TX 75001
|
|
Industrial
|
|
Bank
Debt/
Senior
Secured Loans
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Dura-Line
Merger Sub, Inc.
835
Innovation Drive
Knoxville,
TN 37932
|
|
Telecommunications
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Educate,
Inc.
1001
Fleet Street
Baltimore,
MD 21202
|
|
Education
|
|
Bank
Debt/
Senior
Secured Loans
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Eurofresh
Inc.
26050
S. Eurofresh Ave
Willcox,
AZ 85643
|
|
Agriculture
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
European
Directories (DH5) B.V.
Gustav
Mahlerplein 68
1082
MA Amsterdam
The
Netherlands
|
|
Publishing
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
European
Directories (DH7) B.V.
Gustav
Mahlerplein 68
1082
MA Amsterdam
The
Netherlands
|
|
Publishing
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Explorer
Coinvest LLC
(Booz
Allen)
8283
Greensboro Drive
McLean,
VA 22102
|
|
Consulting
Services
|
|
Common
Equity/
Equity
Interests
|
|
— |
|
|
Name
and Address of Portfolio Company
|
|
Nature
of its Principal Business
|
|
Title
of Securities Held by Apollo Investment
|
|
Percentage
of Class Held(1)
|
|
|
|
|
|
|
|
|
|
|
First
Data Corporation
6200
South Quebec Street
Greenwood
Village, CO 80111
|
|
Financial
Services
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Fidji
Luxco (BC) S.C.A. (FCI)
145
rue Yves le Coz
78035
Versailles Cedex
France
|
|
Electronics
|
|
Common
Stock
Warrants
|
|
0.86
—
|
%
|
|
|
|
|
|
|
|
|
|
|
FleetPride
Corporation
8708
Technology Forest Place
Suite
125
The
Woodlands, TX 77381
|
|
Transportation
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Fox
Acquisition Sub LLC
1717
Dixie Highway
Suite
650
Fort
Wright, KY 41011
|
|
Broadcasting
& Entertainment
|
|
Subordinate
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
FPC
Holdings, Inc.
(FleetPride
Corporation)
8708
Technology Forest Place
Suite
125
The
Woodlands, TX 77381
|
|
Transportation
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
FSC
Holdings Inc.
(Hanley
Wood LLC)
One
Thomas Circle NW
Suite
600
Washington,
DC 20005
|
|
Media
|
|
Common
Equity/
Equity
Interests
|
|
3.487 |
% |
|
|
|
|
|
|
|
|
|
|
Garden
Fresh Restaurant Corp.
15822
Bernardo Center Drive
Suite
A
San
Diego, CA 92127-2320
|
|
Retail
|
|
Bank
Debt/
Senior
Secured Loans
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Garden
Fresh Restaurant Holding, LLC
15822
Bernardo Center Drive
Suite
A
San
Diego, CA 92127-2320
|
|
Retail
|
|
Common
Equity/
Equity
Interests
|
|
8.22 |
% |
|
|
|
|
|
|
|
|
|
|
Generics
International, Inc.
130
Vingtage Dr. Ne
Huntsville,
AL 35811
|
|
Healthcare
|
|
Bank
Debt/
Senior
Secured Loans
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
General
Nutrition Centers, Inc.
300
Sixth Avenue
Pittsburgh,
PA 152222
|
|
Retail
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Goodman
Global Inc.
5151
San Felipe
Suite
500
Houston,
TX 77056
|
|
Manufacturing
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
Name
and Address of Portfolio Company
|
|
Nature
of its Principal Business
|
|
Title
of Securities Held by Apollo Investment
|
|
Percentage
of Class Held(1)
|
|
|
|
|
|
|
|
|
|
|
Gray
Energy Services LLC Class H
(Gray
Wireline)
1400
Everman Parkway
Suite
149
Fort
Worth, TX 76140
|
|
Oil
& Gas
|
|
Common
Equity/
Equity
Interests
|
|
2.30 |
% |
|
|
|
|
|
|
|
|
|
|
Gray
Wireline Service, Inc.
1400
Everman Parkway
Suite
149
Fort
Worth, TX 76140
|
|
Oil
& Gas
|
|
Bank
Debt/
Senior
Secured Loans
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Gryphon
Colleges Corporation
(Delta
Educational Systems, Inc.)
144
Business Park Drive
Suite
201
Virginia
Beach, VA 23462
|
|
Education
|
|
Series
B Preferred
Equity
Interests
Common
Equity/
Equity
Interests
Series
A Preferred Warrants,
Series
B Preferred Warrants,
Common
Stock Warrants
|
|
—
2.60
—
—
—
|
%
|
|
|
|
|
|
|
|
|
|
|
GS
Prysimian Co-Invest L.P.
(Prysimian
Cables & Systems)
700
Industrial Drive
Lexington,
SC 29072
|
|
Industrial
|
|
Common
Equity/
Equity
Interests
|
|
2.49 |
% |
|
|
|
|
|
|
|
|
|
|
Hub
International Holdings
55
East Jackson Boulevard
Chicago,
IL 60604
|
|
Insurance
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Infor
Lux Bond Company
(Infor
Global)
13560
Morris Road
Suite
4100
Alpharetta,
GA 30004
|
|
Business
Services
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Infor
Enterprise Solutions Holdings, Inc.
(Infor
Global)
13560
Morris Road
Suite
4100
Alpharetta,
GA 30004
|
|
Business
Services
|
|
Bank
Debt/
Senior
secured Loans
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Infor
Global Solutions European Finance S.a.r.l.
(Infor
Global)
13560
Morris Road
Suite
4100
Alpharetta,
GA 30004
|
|
Business
Services
|
|
Bank
Debt/
Senior
secured Loans
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
IPC
Systems, Inc.
88
Pine Street
Wall
Street Plaza
New
York, NY 10005
|
|
Telecommunications
|
|
Bank
Debt/
Senior
secured Loans
|
|
— |
|
|
Name
and Address of Portfolio Company
|
|
Nature
of its Principal Business
|
|
Title
of Securities Held by Apollo Investment
|
|
Percentage
of Class Held(1)
|
|
|
|
|
|
|
|
|
|
|
KAR
Holdings, Inc.
13085
Hamilton Crossing Blvd.
Carmel,
IN 46032
|
|
Transportation
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Kronos,
Inc.
297
Billerica Road
Chelmsford,
MA 01824
|
|
Electronics
|
|
Bank
Debt/
Senior
Secured Loans
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Language
Line Holdings, Inc.
1
Lower Ragsdale Drive,
Bldg.
2
Monterey,
CA 93940
|
|
Business
Services
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Language
Line Inc.
1
Lower Ragsdale Drive,
Bldg.
2
Monterey,
CA 93940
|
|
Business
Services
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Latham
International, Inc.
(f/k/a
Latham Acquisition Corp.)
787
Watervliet-Shaker Road
Latham,
NY 12110
|
|
Leisure
Equipment
|
|
Warrants
Common
Equity/
Equity
Interests
|
|
4.70 |
% |
|
|
|
|
|
|
|
|
|
|
Latham
Manufacturing Corp.
787
Watervliet-Shaker Road
Latham,
NY 12110
|
|
Leisure
Equipment
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Laureate
Education, Inc.
1001
Fleet Street
Baltimore,
MD 21202
|
|
Education
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
LVI
Acquisition Corp.
(LVI
Services, Inc.)
80
Broad Street
3rd
Floor
New
York, NY 10004
|
|
Environmental
|
|
Preferred
Equity
Common
Equity/
Equity
Interests
|
|
2.62 |
% |
|
|
|
|
|
|
|
|
|
|
LVI
Services, Inc
80
Broad Street
3rd
Floor
New
York, NY 10004
|
|
Environmental
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
MEG
Energy Corp.
910,
734-7 Avenue SW
Calgary,
Alberta T2P 3P8
|
|
Oil
& Gas
|
|
Common
Equity/
Equity
Interests
|
|
1.24 |
% |
|
|
|
|
|
|
|
|
|
|
MW
Industries, Inc.
500E
Ottawa Street
P.O.
Box 7008
Logansport,
IN 46947
|
|
Manufacturing
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
NCO
Group Inc.
507
Prudential Road
Horsham,
PA 19044
|
|
Consumer
Finance
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
Name
and Address of Portfolio Company
|
|
Nature
of its Principal Business
|
|
Title
of Securities Held by Apollo Investment
|
|
Percentage
of Class Held(1)
|
|
|
|
|
|
|
|
|
|
|
Neff
Corp.
3750
NW 87th Avenue
Suite
400
Doral
(Miami), FL 33178
|
|
Rental
Equipment
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
New
Omaha Holdings Co-Invest LP
(First
Data)
6200
South Quebec Street
Greenwood
Village, CO 80111
|
|
Financial
Services
|
|
Common
Equity/
Equity
Interest
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Nielsen
Finance LLC
770
Broadway
New
York, NY 10003
|
|
Market
Research
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
OTC
Investors Corporation
(Oriental
Trading Company, Inc.)
4206
So. 108th Street
Omaha,
NE 68137
|
|
Direct
Marketing
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Pacific
Crane Maintenance Company, L.P.
250
W. Wardlow Road
Long
Beach, CA 90807-4429
|
|
Machinery
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
PBM
Holdings, Inc.
(PBM
Products, LLC)
204
North Main Street
Gordonsville,
VA 22942
|
|
Beverage,
Food, & Tobacco
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
PCMC
Holdings, LLC
(Pacific
Crane)
250
W. Wardlow Road
Long
Beach, CA 90807-4429
|
|
Machinery
|
|
Common
Equity/
Equity
Interests
|
|
4.40 |
% |
|
|
|
|
|
|
|
|
|
|
Penton
Media, Inc.
249
West 17th Street
New
York, NY 10011
|
|
Media
|
|
Bank
Debt/
Senior
Secured Loans
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Playpower
Holdings Inc.
13523
Barrett Parkway Drive
Suite
104
Ballwin,
MO 63021
|
|
Leisure
Equipment
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Prism
Business Media Holdings, LLC
(Penton
Media, Inc.)
249
West 17th Street
New
York, NY 10011
|
|
Media
|
|
Common
Equity/
Equity
Interests
|
|
5.32 |
% |
|
|
|
|
|
|
|
|
|
|
Pro
Mach Co-Investment, LLC
1000
Abernathy Road
Suite
1110
Atlanta,
GA 30328-5606
|
|
Machinery
|
|
Common
Equity/
Equity
Interests
|
|
2.30 |
% |
|
Name
and Address of Portfolio Company
|
|
Nature
of its Principal Business
|
|
Title
of Securities Held by Apollo Investment
|
|
Percentage
of Class Held(1)
|
|
|
|
|
|
|
|
|
|
|
Pro
Mach Merger Sub, Inc.
1000
Abernathy Road
Suite
1110
Atlanta,
GA 30328-5606
|
|
Machinery
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
QHB
Holdings LLC
(Quality
Home Brands)
125
Rose Feiss Boulevard
Bronx,
NY 10454
|
|
Consumer
Products
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Quality
Home Brands Holdings LLC
125
Rose Feiss Boulevard
Bronx,
NY 10454
|
|
Consumer
Products
|
|
Bank
Debt/
Senior
Secured Loans
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Ranpak
Corp.
7990
Auburn Road
Concord
Township, OH 44077-9702
|
|
Packaging
|
|
Common
Equity/
Equity
Interests
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
RC
Coinvestment, LLC
(Ranpak
Corp.)
7990
Auburn Road
Concord
Township, OH 44077-9702
|
|
Packaging
|
|
Common
Equity/
Equity
Interests
|
|
2.54 |
% |
|
|
|
|
|
|
|
|
|
|
Ranpak
Holdings, Inc.
7990
Auburn Road
Concord
Township, OH 44077-9702
|
|
Packaging
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
RSA
Holdings Corp. of Delaware
(American
Safety Razor)
240
Cedar Knolls Road
Cedar
Knolls, NJ 07927
|
|
Consumer
Products
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Sheridan
Healthcare, Inc.
1613
N. Harrison Parkway
Building
C
Suite
200
Sunrise,
FL 33323
|
|
Healthcare
|
|
Bank
Debt/
Senior
secured Loans
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Sorenson
Communications Holdings, LLC Class A
4393
South Riverboat Road
Suite
300
Salt
Lake City, UT 84123
|
|
Consumer
Services
|
|
Common
Equity/
Equity
Interests
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Sorenson
Communications, Inc.
4393
South Riverboat Road
Suite
300
Salt
Lake City, UT 84123
|
|
Consumer
Services
|
|
Bank
Debt/
Senior
Secured Loans
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
The
Servicemaster Company
860
Ridge Lake Boulevard
Memphis,
TN 38120
|
|
Diversified
Service
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
Name
and Address of Portfolio Company
|
|
Nature
of its Principal Business
|
|
Title
of Securities Held by Apollo Investment
|
|
Percentage
of Class Held(1)
|
|
|
|
|
|
|
|
|
|
|
TL
Acquisitions, Inc.
(Thomson
Learning)
One
State Street Plaza
27th
Floor
New
York, NY 10004
|
|
Education
|
|
Subordinated
Debt/ Corporate Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
TP
Financing 2, Ltd.
(Travelex)
65
Kingsway
London
WC2b 6TD
|
|
Financial
Services
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Trans
First Holdings, Inc.
5950
Berkshire Lane
Suite
1100
Dallas,
TX 75225
|
|
Financial
Services
|
|
Bank
Debt/
Senior
Secured Loans
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
US
Foodservice
9755
Pantuxent Woods Dr.
Columbia,
MD 21046
|
|
Beverage,
Food & Tobacco
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
US
Investigations Services, Inc.
7799
Leesburg Pike
Suite
1100 North
Falls
Church, VA 22043-2413
|
|
Diversified
Service
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Varietal
Distribution
1310
Goshen Parkway
P.O.
Box 2656
West
Chester, PA 19380-0906
|
|
Distribution
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Varietal
Distribution Holdings, LLC Class A
1310
Goshen Parkway
P.O.
Box 2656
West
Chester, PA 19380-0906
|
|
Distribution
|
|
Common
Equity/
Equity
Interests
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Varietal
Distribution Holdings, LLC
1310
Goshen Parkway
P.O.
Box 2656
West
Chester, PA 19380-0906
|
|
Distribution
|
|
Preferred
Equity
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
WDAC
Intermediate Corp.
Gouden
Gids
Hoekenrode
1
1102
BR Amsterdam
Netherlands
|
|
Publishing
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Westbrook
CLO Ltd.
c/o
Apollo Investment Corporation
9
West 57th Street
New
York, NY 10019
|
|
Asset
Management
|
|
Subordinated
Debt/
Corporate
Notes
|
|
— |
|
|
_____________
(1) This
information is based on data made available to us as of March 31,
2009. We have no independentability to verify this
information. Some, if not all, portfolio companies are subject to
voting agreementswith varied voting rights .
DETERMINATION
OF NET ASSET VALUE
The
net asset value per share of our outstanding shares of common stock is
determined quarterly by dividing the value of our total assets minus our
liabilities by the total number of our shares outstanding.
In
calculating the value of our total assets, we value investments for which market
quotations are readily available at such market quotations if they are deemed to
represent fair value. Debt and equity securities that are not publicly traded or
whose market price is not readily available or whose market quotations are not
deemed to represent fair value are valued at fair value as determined in good
faith by or under the direction of our board of directors. Market quotations may
be deemed not to represent fair value in certain circumstances where AIM
reasonably believes that facts and circumstances applicable to an issuer, a
seller or purchaser or the market for a particular security causes current
market quotes not to reflect the fair value of the security. Examples of these
events could include cases in which material events are announced after the
close of the market on which a security is primarily traded, when a security
trades infrequently causing a quoted purchase or sale price to become stale or
in the event of a "fire sale" by a distressed seller.
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. Given the general market dislocation, the lack of trading activity and
the forced sellers we noted in the market during the fiscal year ended March 31,
2009, our research and diligence concluded that the limited but available market
quotations on a number of performing or outperforming credits may not be
representative of fair value under generally accepted accounting principles in
the U.S. In each case, our independent valuation firms considered
observable market inputs together with significant unobservable inputs in
arriving at their valuation recommendations for such Level 3 categorized
assets.
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 engaged by our board of directors conduct independent appraisals
and review our investment adviser’s preliminary valuations and make their own
independent assessment;
(4) the
audit committee of the board of directors reviews the preliminary valuation of
our investment adviser and that of the independent valuation firm and responds
to the valuation recommendation of the independent valuation firm to reflect any
comments; and
(5) the
board of directors discusses valuations and determines the fair value of each
investment in our portfolio in good faith based on the input of our investment
adviser, the respective independent valuation firm and the audit
committee.
Investments
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.
Determination
of fair values involves subjective judgments and estimates not susceptible to
substantiation by auditing procedures. Accordingly, under current auditing
standards, the notes to our financial statements refer to the uncertainty with
respect to the possible effect of such valuations, and any change in such
valuations, on our financial statements.
DIVIDEND
REINVESTMENT PLAN
We
have adopted a dividend reinvestment plan that provides for reinvestment of our
dividend distributions on behalf of our stockholders, unless a stockholder
elects to receive cash as provided below. As a result, if our board of directors
authorizes, and we declare, a cash dividend, then our stockholders who have not
"opted out" of our dividend reinvestment plan will have their cash dividends
automatically reinvested in additional shares of our common stock, rather than
receiving the cash dividends.
No
action is required on the part of a registered stockholder to have such
stockholder's cash dividend reinvested in shares of our common stock. A
registered stockholder may elect to receive a dividend in cash by
notifying American Stock Transfer and Trust Company, the plan administrator and
our transfer agent and registrar, in writing so that such notice is received by
the plan administrator not less than 10 days prior to the record date for
dividends to stockholders. The plan administrator will set up an account for
shares acquired through the plan for each stockholder who has not elected to
receive dividends in cash and hold such shares in non-certificated form. Upon
request by a stockholder participating in the plan, received in writing not less
than 10 days prior to the record date, the plan administrator will, instead of
crediting shares to the participant's account, issue a certificate registered in
the participant's name for the number of whole shares of our common stock and a
check for any fractional share.
Those
stockholders whose shares are held by a broker or other financial intermediary
may receive dividends in cash by notifying their broker or other financial
intermediary of their election.
We
intend to use primarily newly-issued shares to implement the plan, whether our
shares are trading at a premium or at a discount to net asset value. However, we reserve the
right to purchase shares in the open market in connection with our
implementation of the plan. The number of shares to be issued to a stockholder
is determined by dividing the total dollar amount of the dividend payable to
such stockholder by the market price per share of our common stock at the close
of regular trading on The Nasdaq Global Select Market on the valuation date for
such dividend. Market price per share on that date will be the closing price for
such shares on The Nasdaq Global Select Market or, if no sale is reported for
such day, at the average of the reported bid and asked prices. The number of
shares of our common stock to be outstanding after giving effect to payment of
the dividend cannot be established until the value per share at which additional
shares will be issued has been determined and elections of our stockholders have
been tabulated. Stockholders who do not elect to receive dividends
in shares of common stock may experience accretion to the net asset value of
their shares if our shares are trading at a premium and dilution if our shares
are trading at a discount. The level of accretion or discount would
depend on various factors, including
the
proportion of our stockholders who participate in the plan, the level of premium
or discount at which our shares are trading and the amount of the dividend
payable to a stockholder.
The
plan administrator's fees under the plan will be paid by us. If a participant
elects by written notice to the plan administrator to have the plan
administrator sell part or all of the shares held by the plan administrator in
the participant's account and remit the proceeds to the participant, the plan
administrator is authorized to deduct a $15 transaction fee plus a 10¢ per share
brokerage commission from the proceeds.
Stockholders
who receive dividends in the form of stock are subject to the same federal,
state and local tax consequences as are stockholders who elect to receive their
dividends in cash. A stockholder's basis for determining gain or loss upon the
sale of stock received in a dividend from us will be equal to the total dollar
amount of the dividend payable to the stockholder. Any stock received in a
dividend will have a new holding period for tax purposes commencing on the day
following the day on which the shares are credited to the U.S. stockholder's
account.
Participants
may terminate their accounts under the plan by notifying the plan administrator
via its website at www.amstock.com, by filling out the transaction request form
located at the bottom of their statement and sending it to the plan
administrator at P.O. Box 922, Wall Street Station, NY, NY 10269-0560 or by
calling the plan administrator's Interactive Voice Response System at
1-888-777-0324.
The
plan may be terminated by us upon notice in writing mailed to each participant
at least 30 days prior to any record date for the payment of any dividend by us.
All correspondence, including requests for additional information, concerning
the plan should be directed to the plan administrator by mail at American Stock
Transfer and Trust Company, 59 Maiden Lane, New York, NY 10007 or by telephone
at (718) 921-8200.
MATERIAL
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The
following discussion is a general summary of the material U.S. federal income
tax considerations applicable to us and to an investment in shares of our common
stock. This summary does not purport to be a complete description of the income
tax considerations applicable to such an investment. For example, we have not
described tax consequences that we assume to be generally known by investors or
certain considerations that may be relevant to certain types of holders subject
to special treatment under U.S. federal income tax laws, including stockholders
subject to the alternative minimum tax, tax-exempt organizations, insurance
companies, dealers in securities, pension plans and trusts, and financial
institutions. This summary assumes that investors hold our common stock as
capital assets (generally property held for investment). The discussion is based
upon the Code, Treasury regulations, administrative and judicial
interpretations, and other applicable authorities all as in effect as of
the date of this prospectus and all of which are subject to differing
interpretations or change, possibly retroactively, which could affect the
continuing validity of this discussion. We have not sought and will not seek any
ruling from the Internal Revenue Service (the "IRS") regarding any matters
discussed herein . This summary does not discuss any aspects of U.S. estate
or gift tax or foreign, state or local tax. It does not discuss the special
treatment under U.S. federal income tax laws that could result if we invested in
tax-exempt securities or certain other investment assets.
This
summary does not discuss the consequences of an investment in shares of our
preferred stock, debt securities or warrants representing rights to purchase
shares of our common stock, preferred stock or debt securities. The tax
consequences of such an investment will be discussed in a relevant prospectus
supplement.
A
"U.S. stockholder" is a beneficial owner of shares of our common stock that is
for U.S. federal income tax purposes:
·
|
a
citizen or individual resident of the United
States;
|
·
|
a
corporation, or other entity treated as a corporation for U.S. federal
income tax purposes, created or organized in or under the laws of the
United States or any state thereof or the District of Columbia;
or
|
·
|
a
trust or an estate, the income of which is subject to U.S. federal income
taxation regardless of its source.
|
A
"Non-U.S. stockholder" is a beneficial owner of shares of our common stock that
is neither a U.S. stockholder nor a partnership for U.S. federal income tax
purposes.
If
a partnership (including an entity treated as a partnership for U.S. federal
income tax purposes) holds shares of our common stock, the tax treatment of a
partner in the partnership will generally depend upon the status of the partner
and the activities of the partnership. A prospective stockholder that is a
partner of a partnership holding shares of our common stock should consult its
tax advisors with respect to the purchase, ownership and disposition of shares
of our common stock.
Tax
matters are very complicated, and the tax consequences to an investor of an
investment in our shares will depend on the facts of his, her or its particular
situation. We encourage investors to consult their own tax advisors regarding
the specific consequences of such an investment, including tax reporting
requirements, the applicability of federal, state, local and foreign tax laws,
eligibility for the benefits of any applicable tax treaty and the effect of any
possible changes in the tax laws.
Election
to be Taxed as a RIC
As
a BDC, we have elected to be treated as a RIC under Subchapter M of the Code. As
a RIC, we generally will not have to pay corporate-level federal income taxes on
any ordinary income or capital gains that we distribute to our stockholders as
dividends. To qualify as a RIC, we must, among other things, meet certain
source-of-income and asset diversification requirements (as described below). In
addition, to obtain RIC tax treatment we must distribute to our stockholders,
for each taxable year, at least 90% of our "investment company taxable income
(determined without regard to the dividends paid deduction)," which is generally
our ordinary income plus the excess of realized net short-term capital gains
over realized net long-term capital losses (the "Annual Distribution
Requirement").
Taxation
as a RIC
If
we qualify as a RIC and satisfy the Annual Distribution Requirement, then we
will not be subject to federal income tax on the portion of our investment
company taxable income and net capital gain (i.e., realized net long-term
capital gains in excess of realized net short-term capital losses) we distribute
to stockholders with respect to that year. We will be subject to U.S. federal
income tax at the regular corporate rates on any income or capital gain not
distributed (or deemed distributed) to our stockholders.
We
will be subject to a 4% nondeductible federal excise tax on certain
undistributed income of RICs unless we distribute in a timely manner an amount
at least equal to the sum of (1) 98% of our ordinary income for each calendar
year, (2) 98% of our capital gain net income for the one-year period ending
October 31 in that calendar year and (3) any income realized, but not
distributed, in preceding years (the "Excise Tax Avoidance Requirement"). We
will not be subject to excise taxes on amounts on which we are required to pay
corporate income taxes (such as retained net capital gains).
In
order to qualify as a RIC for federal income tax purposes, we must, among other
things:
·
|
qualify
and have in effect an election to be treated as a BDC under the 1940 Act
at all times during each taxable
year;
|
·
|
derive
in each taxable year at least 90% of our gross income from dividends,
interest, payments with respect to certain securities loans, gains from
the sale of stock or other securities, or other income derived with
respect to our business of investing in such stock or securities (the "90%
Income Test"), and net income derived from an interest in a "qualified
publicly traded partnership" (as defined in the Code) (the "90% Income
Test"); and
|
·
|
diversify
our holdings so that at the end of each quarter of the taxable
year:
|
·
|
at
least 50% of the value of our assets consists of cash, cash equivalents,
U.S. Government securities, securities of other RICs, and other securities
if such other securities of any one issuer do not represent more than 5%
of the value of our assets or more than 10% of the outstanding voting
securities of the issuer; and
|
·
|
no
more than 25% of the value of our assets is invested in the securities,
other than U.S. Government securities or securities of other RICs, of one
issuer or of two or more issuers that are controlled, as determined under
applicable tax rules, by us and that are engaged in the same or similar or
related trades or businesses or in securities of one or more qualified
publicly traded partnerships (the "Diversification
Tests").
|
We
may be required to recognize taxable income in circumstances in which we do not
receive cash. For example, if we hold debt obligations that are treated under
applicable tax rules as having original issue discount (such as debt instruments
with payment-in-kind interest or, in certain cases, increasing interest rates or
issued with warrants), we must include in income each year a portion of the
original issue discount that accrues over the life of the obligation, regardless
of whether cash representing such income is received by us in the same taxable
year. Because any original issue discount accrued will be included in our
investment company taxable income for the year of accrual, we may be required to
make a distribution to our stockholders in order to satisfy the Annual
Distribution Requirement, even though we will not have received any
corresponding cash amount.
Gain
or loss realized by us from the sale or exchange of warrants acquired by us as
well as any loss attributable to the lapse of such warrants generally will be
treated as capital gain or loss. Such gain or loss generally will be long-term
or short-term, depending on how long we held a particular warrant.
Although
we do not presently expect to do so, we are authorized to borrow funds and to
sell assets in order to satisfy the Annual Distribution Requirement. However,
under the 1940 Act, we are not permitted to make distributions to our
stockholders while our debt obligations and other senior securities are
outstanding unless certain "asset coverage" tests are met. See
"Regulation—Senior Securities." Moreover, our ability to dispose of assets to
meet the Annual Distribution Requirements may be limited by (1) the illiquid
nature of our portfolio and/or (2) other requirements relating to our status as
a RIC, including the Diversification Tests. If we dispose of assets in order to
meet the Annual Distribution Requirement or the Excise Tax Avoidance
Requirement, we may make such dispositions at times that, from an investment
standpoint, are not advantageous. Alternatively, to satisfy our
Annual Distribution Requirement, we may declare a taxable dividend payable in
cash or stock at the election of each stockholder. See the section
"Dividends." In such case, for federal income tax purposes, the
amount of the dividend paid in stock will be equal to the amount of cash that
could have been received instead of stock. See “Taxation of
Stockholders” below for tax consequences to stockholders upon receipt of such
dividends .
If
we fail to satisfy the Annual Distribution Requirement or otherwise fail to
qualify as a RIC in any taxable year (for example, because we fail the 90%
Income Test described above ), we will be subject to tax in that year on all
of our taxable income, regardless of whether we make any distributions to our
stockholders. In that case, all of our income would be subject to
corporate-level federal income tax, reducing the amount available to be
distributed to our stockholders. In contrast, assuming we qualify as a RIC, our
corporate-level federal income tax should be substantially reduced or
eliminated. See "Election to be Taxed as a RIC" above.
Certain
of our investment practices may be subject to special and complex federal income
tax provisions that may, among other things, (i) treat dividends that would
otherwise constitute qualified dividend income as non-qualified dividend income,
(ii) treat dividends that would otherwise be eligible for the corporate
dividends-received deduction as ineligible for such treatment, (iii) disallow,
suspend or otherwise limit the allowance of certain losses or deductions, (iv)
convert lower-taxed long-term capital gain into higher-taxed short-term capital
gain or ordinary income, (v) convert an ordinary loss or a deduction into a
capital loss (the deductibility of which is more limited), (vi) cause us to
recognize income or gain without a corresponding receipt of cash, (vii)
adversely affect the time as to when a purchase or sale of stock or securities
is deemed to occur, (viii) adversely alter the characterization of certain
complex financial transactions and (ix) produce income that will not be
qualifying income for purposes of the 90% Income Test. We intend to monitor our
transactions and may make certain tax elections to mitigate the effect of these
provisions and prevent our disqualification as a RIC.
The
remainder of this discussion assumes that we qualify as a RIC and have satisfied
the Annual Distribution Requirement.
Taxation
of U.S. Stockholders
Distributions
(including distributions pursuant to a dividend reinvestment plan or where
stockholders can elect to receive cash or stock) by us generally are taxable
to U.S. stockholders as ordinary income or capital gains. Distributions of our
"investment company taxable income" (which is, generally, our ordinary income
plus realized net short-term capital gains in excess of realized net long-term
capital losses) will be taxable as ordinary income to U.S. stockholders to the
extent of our current or accumulated earnings and profits, whether paid in cash
or reinvested in additional common stock through our dividend reinvestment plan.
To the extent such distributions paid by us to non-corporate stockholders
(including individuals) are attributable to dividends from U.S. corporations and
certain qualified foreign corporations, such distributions generally will be
eligible for a maximum federal income tax rate of 15% for taxable years
beginning before 2011. In this regard, it is anticipated that distributions paid
by us will generally not be attributable to dividends and, therefore, generally
will not qualify for the 15% maximum rate. Distributions of our net capital
gains (which is generally our realized net long-term capital gains in excess of
realized net short-term capital losses) properly designated by us as "capital
gain dividends" will be taxable to a U.S. stockholder as long-term capital gains
(currently at a maximum rate of 15% in the case of individuals, trusts or
estates), regardless of the U.S. stockholder's holding period for his, her or
its common stock and regardless of whether paid in cash or reinvested in
additional common stock. Distributions in excess of our earnings and profits
first will reduce a U.S. stockholder's adjusted tax basis in such stockholder's
common stock and, after the adjusted tax basis is reduced to zero, will
constitute capital gains to such U.S. stockholder.
Although
we currently intend to distribute any net capital gain at least annually, we may
in the future decide to retain some or all of our net capital gain, but
designate the retained amount as a "deemed distribution." In that case, among
other consequences, we will pay tax on the retained amount, each U.S.
stockholder will be required to include his, her or its share of the deemed
distribution in income as if it had been actually distributed to the U.S.
stockholder, and the U.S. stockholder will be entitled to claim a credit equal
to his, her or its allocable share of the tax paid thereon by us. The amount of
the deemed distribution net of such tax will be added to the U.S. stockholder's
tax basis for his, her or its common stock. Since we expect to pay tax on any
retained capital gains at our regular corporate tax rate and since that rate is
in excess of the maximum rate currently payable by individuals on long-term
capital gains, the amount of tax that individual stockholders will be treated as
having paid and for which they will receive a credit will exceed the tax they
owe on the retained net capital gain. Such excess generally may be claimed
as
a credit against the U.S. stockholder's other federal income tax obligations or
may be refunded to the extent it exceeds a stockholder's liability for federal
income tax. A stockholder that is not subject to federal income tax or otherwise
required to file a federal income tax return would be required to file a federal
income tax return on the appropriate form in order to claim a refund for the
taxes we paid. In order to utilize the deemed distribution approach, we must
provide written notice to our stockholders prior to the expiration of 60 days
after the close of the relevant taxable year. We cannot treat any of our
investment company taxable income as a "deemed distribution."
For
purposes of determining (1) whether the Annual Distribution Requirement is
satisfied for any year and (2) the amount of capital gain dividends paid for
that year, we may, under certain circumstances, elect to treat a dividend that
is paid during the following taxable year as if it had been paid during the
taxable year in question. If we make such an election, the U.S. stockholders
will still be treated as receiving the dividend in the taxable year in which the
distribution is made. However, any dividend declared by us in October, November
or December of any calendar year, payable to stockholders of record on a
specified date in such a month and actually paid during January of the following
year, will be treated as if it had been received by our U.S. stockholders on
December 31 of the year in which the dividend was declared.
If
an investor purchases shares of our common stock shortly before the record date
of a distribution, the price of the shares will include the value of the
distribution and the investor will be subject to tax on the distribution even
though it represents a return of his, her or its investment.
A
U.S. stockholder generally will recognize taxable gain or loss if the
stockholder sells or otherwise disposes of his, her or its shares of our common
stock. Any gain arising from such sale or disposition generally will be treated
as long-term capital gain or loss if the stockholder has held his, her or its
shares for more than one year. Otherwise, it would be classified as short-term
capital gain or loss. However, any capital loss arising from the sale or
disposition of shares of our common stock held for six months or less will be
treated as long-term capital loss to the extent of the amount of capital gain
dividends received, or undistributed capital gain deemed received, with respect
to such shares. In addition, all or a portion of any loss recognized upon a
disposition of shares of our common stock may be disallowed if other shares of
our common stock are purchased (whether through reinvestment of distributions or
otherwise) within 30 days before or after the disposition.
In
general, individual and other non-corporate U.S. taxable stockholders currently
are subject to a maximum federal income tax rate of 15% on their net capital
gain, i.e., the excess of realized net long-term capital gain over realized net
short-term capital loss for a taxable year, including any long-term capital gain
derived from an investment in our shares. Such rate is lower than the maximum
rate on ordinary income currently applicable to individuals. Corporate U.S.
stockholders currently are subject to federal income tax on net capital gain at
the maximum 35% rate also applied to ordinary income. Non-corporate stockholders
with net capital losses for a year (i.e., capital losses in excess of capital
gains) generally may deduct up to $3,000 of such losses against their ordinary
income each year; any net capital losses of a non-corporate stockholder in
excess of $3,000 generally may be carried forward and used in subsequent years
as provided in the Code. Corporate stockholders generally may not deduct any net
capital losses against ordinary income for a year, but may carry back such
losses for three years or carry forward such losses for five years.
We
will send to each of our U.S. stockholders, as promptly as possible after the
end of each calendar year, a notice detailing, on a per share and per
distribution basis, the amounts includible in such U.S. stockholder's taxable
income for such year as ordinary income and as long-term capital gain. In
addition, the federal tax status of each year's distributions generally will be
reported to the IRS (including the amount of dividends, if any, eligible for the
15% maximum rate). Distributions may also be subject to additional state, local
and foreign taxes depending on a U.S. stockholder's particular situation.
Dividends distributed by us generally will not be eligible for the
dividends-received deduction or the 15% maximum rate applicable to qualifying
dividends.
We
may be required to withhold federal income tax ("backup withholding") currently
at a rate of 28% (until 2010 when a higher rate will apply) from all
taxable distributions to any non-corporate U.S. stockholder (1) who fails to
furnish us with a correct taxpayer identification number or a certificate that
such stockholder is exempt from backup withholding or (2) with respect to whom
the IRS notifies us that such stockholder has failed to report properly certain
interest and dividend income to the IRS and to respond to notices to that
effect. An individual's taxpayer identification number is his or her social
security number. Any amount withheld under backup withholding is allowed as a
credit against the U.S. stockholder's federal income tax liability and may
entitle such stockholder to a refund, provided that proper information is timely
provided to the IRS.
Taxation
of Non-U.S. Stockholders
Whether
an investment in the shares is appropriate for a Non-U.S. stockholder will
depend upon that person's particular circumstances. An investment in the shares
by a Non-U.S. stockholder may have adverse tax consequences. Non-U.S.
stockholders should consult their tax advisors before investing in our common
stock.
Distributions
of our "investment company taxable income" to Non-U.S. stockholders, subject to
the discussion below, will be subject to withholding of federal tax at a 30%
rate (or lower rate provided by an applicable treaty) to the extent of our
current and accumulated earnings and profits unless the distributions are
effectively connected with a U.S. trade or business of the Non-U.S. stockholder,
and, if an income tax treaty applies, attributable to a permanent establishment
in the United States, in which case the distributions will be subject to federal
income tax at the rates applicable to U.S. stockholders, and we will not be
required to withhold federal tax if the Non-U.S. stockholder complies with
applicable certification and disclosure requirements. Special
certification requirements apply to a Non-U.S. stockholder that is a foreign
partnership or a foreign trust, and such entities are urged to consult their own
tax advisors.
Actual
or deemed distributions of our net capital gains to a Non-U.S. stockholder and
gains realized by a Non-U.S. stockholder upon the sale of our common stock, will
not be subject to federal withholding tax and generally will not be subject to
federal income tax unless the distributions or gains, as the case may be, are
effectively connected with a U.S. trade or business of the Non-U.S. stockholder
and, if an income tax treaty applies, are attributable to a permanent
establishment maintained by the Non-U.S. stockholder in the United
States.
If
we distribute our net capital gains in the form of deemed rather than actual
distributions (which we may do in the future), a Non-U.S. stockholder will be
entitled to a federal income tax credit or tax refund equal to the stockholder's
allocable share of the tax we pay on the capital gains deemed to have been
distributed. In order to obtain the refund, the Non-U.S. stockholder must obtain
a U.S. taxpayer identification number and file a federal income tax return even
if the Non-U.S. stockholder would not otherwise be required to obtain a U.S.
taxpayer identification number or file a federal income tax return. For a
corporate Non-U.S. stockholder, distributions (both actual and deemed), and
gains realized upon the sale of our common stock that are effectively connected
with a U.S. trade or business may, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate (or at a lower rate if provided
for by an applicable tax treaty). Accordingly, investment in the shares may not
be appropriate for certain Non-U.S. stockholders.
Under
current law, we may pay “interest-related dividends” and “short-term capital
gain dividends” to our non-U.S. shareholders without having to withhold on such
dividends at the 30% rate. The amount of “interest-related dividends”
that we may pay each year is limited to the amount of qualified interest income
received by the Fund during that year, less the amount of the Fund’s expenses
properly allocable to such interest income. The amount of “short-term
capital gain dividends” that we may pay each year generally is limited to the
excess of our net short-term capital gains over our net long-term capital
losses, without any reduction for the Fund’s expenses allocable to such gains
(with exceptions for certain gains). The exemption from 30%
withholding tax for "short-term capital gain dividends" does not apply with
respect to non-U.S. shareholders that are present in the United States for more
than 182 days during the taxable year. If our income for a taxable
year includes "qualified interest
income"
or net short-term capital gains, we may designate dividends as "interest-related
dividends" or "short-term capital gain dividends" by written notice mailed to
our non-U.S. shareholders not later than 60 days after the close of our taxable
year. These provisions apply to dividends paid by us with respect to
our taxable years beginning on or after January 1, 2005 and will cease to apply
to dividends paid by us with respect to our taxable years beginning after
December 31, 2009.
A
Non-U.S. stockholder who is a non-resident alien individual, and who is
otherwise subject to withholding of federal income tax, may be subject to
information reporting and backup withholding of federal income tax on dividends
unless the Non-U.S. stockholder provides us or the dividend paying agent with an
IRS Form W-8BEN (or an acceptable substitute form) or otherwise meets
documentary evidence requirements for establishing that it is a Non-U.S.
stockholder or otherwise establishes an exemption from backup
withholding.
Non-U.S.
persons should consult their own tax advisors with respect to the U.S. federal
income tax and withholding tax, and state, local and foreign tax consequences of
an investment in the shares.
Failure
to Qualify as a RIC
If
we were unable to qualify for treatment as a RIC (for example, because we
fail the 90% Income Test described above ), we would be subject to federal
income tax on all of our taxable income at regular corporate rates. We would not
be able to deduct distributions to stockholders, nor would they be required to
be made. Distributions would generally be taxable to our individual and other,
non-corporate taxable stockholders as ordinary dividend income eligible for the
15% maximum rate for taxable years beginning before 2011 to the extent of our
current and accumulated earnings and profits. Subject to certain limitations
under the Code, corporate distributees would be eligible for the
dividends-received deduction. Distributions in excess of our current and
accumulated earnings and profits would be treated first as a return of capital
to the extent of the stockholder's adjusted tax basis, and any remaining
distributions would be treated as a capital gain. Moreover, if the BDC fails to
qualify as a RIC in any year, it must pay out its earnings and profits
accumulated in that year in order to qualify again as a RIC. If the BDC fails to
qualify as a RIC for a period of greater than two taxable years, the BDC may be
required to recognize any net built-in gains with respect to certain of its
assets (i.e., the
excess of the aggregate gains, including items of income, over aggregate losses
that would have been realized with respect to such assets if the BDC had been
liquidated) if it qualifies as a RIC in a subsequent year.
DESCRIPTION
OF OUR CAPITAL STOCK
The
following description is based on relevant portions of the Maryland General
Corporation Law and on our charter and bylaws. This summary is not necessarily
complete, and we refer you to the Maryland General Corporation Law and our
charter and bylaws for a more detailed description of the provisions summarized
below.
Capital
Stock
At
June 1, 2009 our authorized capital stock consists of 400,000,000 shares of
stock, par value $0.001 per share, all of which is initially designated as
common stock. Our common stock is quoted on The Nasdaq Global Select Market
under the ticker symbol "AINV." There are no outstanding options or warrants to
purchase our stock, and no stock has been authorized for issuance under any
equity compensation plans. Under Maryland law, our stockholders generally are
not personally liable for our debts or obligations. The last reported closing
market price of our common stock on June 19, 2009 was $6.43 per share. As of
June 12, 2009, we had 108 stockholders of record.
Under
our charter, our board of directors is authorized to classify and reclassify any
unissued shares of stock into other classes or series of stock and authorize the
issuance of shares of stock without obtaining stockholder approval. As permitted
by the Maryland General Corporation Law, our charter provides that the board of
directors, without any action by our stockholders, may amend the charter from
time to time to increase or decrease the aggregate number of shares of stock or
the number of shares of stock of any class or series that we have authority to
issue.
The
following table sets forth information of our capital stock as
of May 15, 2009 :
Title
of Class of Securities
|
|
|
|
|
Amount
Held by Registrant or for its Account
|
|
Amount
Outstanding Exclusive of Amount held by Registrant or for its
Account
|
Common
stock, par value $0.001 per share
|
|
|
|
400,000,000 |
|
None
|
|
142,221,335
shares
|
Common
stock
All
shares of our common stock have equal rights as to earnings, assets, dividends
and voting and, when they are issued, will be duly authorized, validly issued,
fully paid and nonassessable. Distributions may be paid to the holders of our
common stock if, as and when authorized by our board of directors and declared
by us out of funds legally available therefor. Shares of our common stock have
no preemptive, exchange, conversion or redemption rights and are freely
transferable, except where their transfer is restricted by federal and state
securities laws or by contract. In the event of a liquidation, dissolution or
winding up of Apollo Investment, each share of our common stock would be
entitled to share ratably in all of our assets that are legally available for
distribution after we pay all debts and other liabilities and subject to any
preferential rights of holders of our preferred stock, if any preferred stock is
outstanding at such time. Each share of our common stock is entitled to one vote
on all matters submitted to a vote of stockholders, including the election of
directors. Except as provided with respect to any other class or series of
stock, the holders of our common stock will possess exclusive voting power.
There is no cumulative voting in the election of directors, which means that
holders of a majority of the outstanding shares of common stock can elect all of
our directors, and holders of less than a majority of such shares will be unable
to elect any director.
Preferred
stock
Our
charter authorizes our board of directors to classify and reclassify any
unissued shares of stock into other classes or series of stock, including
preferred stock. Prior to issuance of shares of each class or series, the board
of directors is required by Maryland law and by our charter to set the terms,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption for each class or series. Thus, the board of directors
could authorize the issuance of shares of preferred stock with terms and
conditions which could have the effect of delaying, deferring or preventing a
transaction or a change in control that might involve a premium price for
holders of our common stock or otherwise be in their best interest. You should
note, however, that any issuance of preferred stock must comply with the
requirements of the 1940 Act. The 1940 Act requires, among other things, that
(1) immediately after issuance and before any dividend or other distribution is
made with respect to our common stock and before any purchase of common stock is
made, such preferred stock together with all other senior securities must not
exceed an amount equal to 50% of our total assets after such issuance and after
deducting the amount of such dividend, distribution or purchase price, as the
case may be, and (2) the holders of shares of preferred stock, if any are
issued, must be entitled as a class to elect two directors at all times and to
elect a majority of the directors if dividends on such preferred stock become in
arrears by two years or more until the arrears are eliminated. Certain matters
under the 1940 Act require the separate vote of the holders of any issued and
outstanding preferred stock. For example, holders of preferred stock would vote
separately from the holders of common stock on a proposal to cease operations as
a BDC. We believe that the availability for issuance of preferred stock will
provide us with increased flexibility in structuring future financings and
acquisitions.
Limitation
on Liability of Directors and Officers; Indemnification and Advance of
Expenses
Maryland
law permits a Maryland corporation to include in its charter a provision
limiting the liability of its directors and officers to the corporation and its
stockholders for money damages except for liability resulting from (a) actual
receipt of an improper benefit or profit in money, property or services or (b)
active and deliberate dishonesty established by a final judgment as being
material to the cause of action. Our charter contains such a provision which
eliminates directors' and officers' liability to the maximum extent permitted by
Maryland law, subject to the requirements of the 1940 Act.
Our
charter authorizes us and our bylaws obligate us, to the maximum extent
permitted by Maryland law and subject to the requirements of the 1940 Act, to
indemnify any present or former director or officer or any individual who, while
a director or officer and at our request, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or other enterprise as a director, officer, partner or
trustee, from and against any claim or liability to which that person may become
subject or which that person may incur by reason of his or her status as a
present or former director or officer and to pay or reimburse that person's
reasonable expenses in advance of final disposition of a proceeding. The
rights to indemnification and advance of expenses provided by the charter and
bylaws vest immediately upon election of a director or officer. The charter
and bylaws also permit us to indemnify and advance expenses to any person who
served a predecessor of us in any of the capacities described above and any of
our employees or agents or any employees or agents of our predecessor. In
accordance with the 1940 Act, we will not indemnify any person for any liability
to which such person would be subject by reason of such person's willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
Maryland
law requires a corporation (unless its charter provides otherwise, which our
charter does not) to indemnify a director or officer who has been successful, on
the merits or otherwise, in the defense of any proceeding to which he or she is
made, or threatened to be made, a party by reason of his or her service in that
capacity. Maryland law permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made, or threatened to be made, a party by
reason of their service in those or other capacities unless it is established
that (a) the act or omission of the director or officer was material to the
matter giving rise to the proceeding and (1) was committed in bad faith or (2)
was the result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services or
(c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However,
under Maryland law, a Maryland corporation may not indemnify for an adverse
judgment in a suit by or in the right of the corporation or for a judgment of
liability on the basis that a personal benefit was improperly received, unless
in either case a court orders indemnification, and then only for expenses. In
addition, Maryland law permits a corporation to advance reasonable expenses to a
director or officer upon the corporation's receipt of (a) a written affirmation
by the director or officer of his or her good faith belief that he or she has
met the standard of conduct necessary for indemnification by the corporation and
(b) a written undertaking by him or her or on his or her behalf to repay the
amount paid or reimbursed by the corporation if it is ultimately determined that
the standard of conduct was not met.
Provisions
of the Maryland General Corporation Law and Our Charter and Bylaws
Provisions
of the Maryland General Corporation Law and of our charter and bylaws could
deter takeover attempts and have an adverse impact on the price of our common
stock. The Maryland General Corporation Law, our charter and our bylaws contain
provisions that may discourage, delay or make more difficult a change in control
of Apollo Investment or the removal of our directors. We are subject to the
Maryland Business Combination Act, subject to any applicable requirements of the
1940 Act. Our board of directors has adopted a resolution exempting from the
Business Combination Act any business combination between us and any other
person, subject to prior approval of such business combination by our board of
directors, including approval by a majority of our disinterested directors. If
the resolution exempting business combinations is repealed or our board of
directors does
not
approve a business combination, the Business Combination Act may discourage
third parties from trying to acquire control of us and increase the difficulty
of consummating such an offer. Our bylaws exempt from the Maryland Control Share
Acquisition Act acquisitions of our common stock by any person. If we amend our
bylaws to repeal the exemption from the Control Share Acquisition Act, the
Control Share Acquisition Act also may make it more difficult for a third party
to obtain control of us and increase the difficulty of consummating such an
offer.
We
have also adopted other measures that may make it difficult for a third party to
obtain control of us, including provisions of our charter classifying our board
of directors in three classes serving staggered three-year terms, and provisions
of our charter authorizing our board of directors to classify or reclassify
shares of our stock in one or more classes or series, to cause the issuance of
additional shares of our stock, and to amend our charter, without stockholder
approval, to increase or decrease the number of shares of stock that we have
authority to issue. These provisions, as well as other provisions of our charter
and bylaws, may delay, defer or prevent a transaction or a change in control
that might otherwise be in the best interests of our stockholders.
Classified
board of directors
Our
board of directors is divided into three classes of directors serving staggered
three-year terms. At each annual meeting of our stockholders, the successors to
the class of directors whose terms expire at such meeting will be elected to
hold office for a term expiring at the annual meeting of stockholders held in
the third year following the year of their election. Each director holds office
for the term to which he or she is elected and until his or her successor is
duly elected and qualifies. A classified board of directors may render a change
in control of us or removal of our incumbent management more difficult. We
believe, however, that the longer time required to elect a majority of a
classified board of directors will help to ensure the continuity and stability
of our management and policies.
Election
of directors
Our
charter and bylaws provide that the affirmative vote of the holders of a
majority of the outstanding shares of stock entitled to vote in the election of
directors will be required to elect a director. Pursuant to the charter, our
board of directors may amend the bylaws to alter the vote required to elect
directors.
Number
of directors; vacancies; removal
Our
charter provides that the number of directors will be set only by the board of
directors in accordance with our bylaws. Our bylaws provide that a majority of
our entire board of directors may at any time increase or decrease the number of
directors. However, unless our bylaws are amended, the number of directors may
never be less than four nor more than eight. Our charter provides that, at such
time as we have three independent directors and our common stock is registered
under the Exchange Act, we elect to be subject to the provision of Subtitle 8 of
Title 3 of the Maryland General Corporation Law regarding the filling of
vacancies on the board of directors. Accordingly, at such time, except as may be
provided by the board of directors in setting the terms of any class or series
of preferred stock, any and all vacancies on the board of directors may be
filled only by the affirmative vote of a majority of the remaining directors in
office, even if the remaining directors do not constitute a quorum, and any
director elected to fill a vacancy will serve for the remainder of the full term
of the directorship in which the vacancy occurred and until a successor is
elected and qualifies, subject to any applicable requirements of the 1940
Act.
Our
charter provides that a director may be removed only for cause, as defined in
our charter, and then only by the affirmative vote of at least two-thirds of the
votes entitled to be cast in the election of directors.
Action
by stockholders
Under
the Maryland General Corporation Law, stockholder action can be taken only at an
annual or special meeting of stockholders or by unanimous written consent in
lieu of a meeting, unless the charter provides for stockholder action by less
than unanimous written consent (which our charter does not). These provisions,
combined with the requirements of our bylaws regarding the calling of a
stockholder-requested special meeting of stockholders discussed below, may have
the effect of delaying consideration of a stockholder proposal until the next
annual meeting.
Advance
notice provisions for stockholder nominations and stockholder
proposals
Our
bylaws provide that with respect to an annual meeting of stockholders,
nominations of persons for election to the board of directors and the proposal
of business to be considered by stockholders may be made only (1) pursuant to
our notice of the meeting, (2) by the board of directors or (3) by a stockholder
who is entitled to vote at the meeting and who has complied with the advance
notice procedures of the bylaws. With respect to special meetings of
stockholders, only the business specified in our notice of the meeting may be
brought before the meeting. Nominations of persons for election to the board of
directors at a special meeting may be made only (1) pursuant to our notice of
the meeting, (2) by the board of directors or (3) provided that the board of
directors has determined that directors will be elected at the meeting, by a
stockholder who is entitled to vote at the meeting and who has complied with the
advance notice provisions of the bylaws.
The
purpose of requiring stockholders to give us advance notice of nominations and
other business is to afford our board of directors a meaningful opportunity to
consider the qualifications of the proposed nominees and the advisability of any
other proposed business and, to the extent deemed necessary or desirable by our
board of directors, to inform stockholders and make recommendations about such
qualifications or business, as well as to provide a more orderly procedure for
conducting meetings of stockholders. Although our bylaws do not give our board
of directors any power to disapprove stockholder nominations for the election of
directors or proposals recommending certain action, they may have the effect of
precluding a contest for the election of directors or the consideration of
stockholder proposals if proper procedures are not followed and of discouraging
or deterring a third party from conducting a solicitation of proxies to elect
its own slate of directors or to approve its own proposal without regard to
whether consideration of such nominees or proposals might be harmful or
beneficial to us and our stockholders.
Calling
of special meetings of stockholders
Our
bylaws provide that special meetings of stockholders may be called by our board
of directors and certain of our officers. Additionally, our bylaws provide that,
subject to the satisfaction of certain procedural and informational requirements
by the stockholders requesting the meeting, a special meeting of stockholders
will be called by the secretary of the corporation upon the written request of
stockholders entitled to cast not less than a majority of all the votes entitled
to be cast at such meeting.
Approval
of extraordinary corporate action; amendment of charter and bylaws
Under
Maryland law, a Maryland corporation generally cannot dissolve, amend its
charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business, unless approved by the affirmative vote of stockholders entitled to
cast at least two-thirds of the votes entitled to be cast on the matter.
However, a Maryland corporation may provide in its charter for approval of these
matters by a lesser percentage, but not less than a majority of all of the votes
entitled to be cast on the matter. Our charter generally provides for approval
of charter amendments and extraordinary transactions by the stockholders
entitled to cast at least a majority of the votes entitled to be cast on the
matter. Our charter also
provides
that certain charter amendments and any proposal for our conversion, whether by
merger or otherwise, from a closed-end company to an open-end company or any
proposal for our liquidation or dissolution requires the approval of the
stockholders entitled to cast at least 80 percent of the votes entitled to be
cast on such matter. However, if such amendment or proposal is approved by at
least two-thirds of our continuing directors (in addition to approval by our
board of directors), such amendment or proposal may be approved by a majority of
the votes entitled to be cast on such a matter. The "continuing directors" are
defined in our charter as our current directors as well as those directors whose
nomination for election by the stockholders or whose election by the directors
to fill vacancies is approved by a majority of the continuing directors then on
the board of directors. The holders of any preferred stock outstanding would
have a separate class vote on any conversion to an open-end
company.
Our
charter and bylaws provide that the board of directors will have the exclusive
power to adopt, alter or repeal any provision of our bylaws and to make new
bylaws.
No
appraisal rights
Except
with respect to appraisal rights arising in connection with the Maryland Control
Share Acquisition Act discussed below, as permitted by the Maryland General
Corporation Law, our charter provides that stockholders will not be entitled to
exercise appraisal rights.
Control
share acquisitions
The
Control Share Acquisition Act provides that control shares of a Maryland
corporation acquired in a control share acquisition have no voting rights except
to the extent approved by a vote of two-thirds of the votes entitled to be cast
on the matter. Shares owned by the acquiror, by officers or by directors who are
employees of the corporation are excluded from shares entitled to vote on the
matter. Control shares are voting shares of stock which, if aggregated with all
other shares of stock owned by the acquiror or in respect of which the acquiror
is able to exercise or direct the exercise of voting power (except solely by
virtue of a revocable proxy), would entitle the acquiror to exercise voting
power in electing directors within one of the following ranges of voting
power:
·
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one-tenth
or more but less than one-third;
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·
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one-third
or more but less than a majority;
or
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·
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a
majority or more of all voting
power.
|
The
requisite stockholder approval must be obtained each time an acquiror crosses
one of the thresholds of voting power set forth above. Control shares do not
include shares the acquiring person is then entitled to vote as a result of
having previously obtained stockholder approval. A control share acquisition
means the acquisition of control shares, subject to certain
exceptions.
A
person who has made or proposes to make a control share acquisition may compel
the board of directors of the corporation to call a special meeting of
stockholders to be held within 50 days of demand to consider the voting rights
of the shares. The right to compel the calling of a special meeting is subject
to the satisfaction of certain conditions, including an undertaking to pay the
expenses of the meeting. If no request for a meeting is made, the corporation
may itself present the question at any stockholders' meeting.
If
voting rights are not approved at the meeting or if the acquiring person does
not deliver an acquiring person statement as required by the statute, then the
corporation may repurchase for fair value any or all of the
control
shares, except those for which voting rights have previously been approved. The
right of the corporation to repurchase control shares is subject to certain
conditions and limitations, including, as provided in our bylaws, compliance
with the 1940 Act. Fair value is determined, without regard to the absence of
voting rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of stockholders at which the
voting rights of the shares are considered and not approved. If voting rights
for control shares are approved at a stockholders' meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of appraisal rights may not be less than the highest
price per share paid by the acquiror in the control share
acquisition.
The
Control Share Acquisition Act does not apply (a) to shares acquired in a merger,
consolidation or share exchange if the corporation is a party to the transaction
or (b) to acquisitions approved or exempted by the charter or bylaws of the
corporation.
Our
bylaws contain a provision exempting from the Control Share Acquisition Act any
and all acquisitions by any person of our shares of stock. There can be no
assurance that such provision will not be amended or eliminated at any time in
the future. However, we will amend our bylaws to be subject to the Control Share
Acquisition Act only if the board of directors determines that it would be in
our best interests based on our determination that our being subject to the
Control Share Acquisition Act does not conflict with the 1940 Act.
Business
combinations
Under
Maryland law, "business combinations" between a Maryland corporation and an
interested stockholder or an affiliate of an interested stockholder are
prohibited for five years after the most recent date on which the interested
stockholder becomes an interested stockholder. "Business combinations" include a
merger, consolidation, share exchange or, in circumstances specified in the
statute, an asset transfer or issuance or reclassification of equity securities.
An interested stockholder is defined as:
·
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any
person who beneficially owns 10% or more of the voting power of the
corporation's shares; or
|
·
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an
affiliate or associate of the corporation who, at any time within the
two-year period prior to the date in question, was the beneficial owner of
10% or more of the voting power of the then outstanding voting stock of
the corporation.
|
A
person is not an interested stockholder under this statute if the board of
directors approved in advance the transaction by which he otherwise would have
become an interested stockholder. However, in approving a transaction, the board
of directors may provide that its approval is subject to compliance, at or after
the time of approval, with any terms and conditions determined by the board of
directors.
After
the five-year prohibition, any business combination between the corporation and
an interested stockholder generally must be recommended by the board of
directors of the corporation and approved by the affirmative vote of at
least:
·
|
80%
of the votes entitled to be cast by holders of outstanding shares of
voting stock of the corporation;
and
|
·
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two-thirds
of the votes entitled to be cast by holders of voting stock of the
corporation other than shares held by the interested stockholder with whom
or with whose affiliate the business combination is to be effected or held
by an affiliate or associate of the interested
stockholder.
|
These
super-majority vote requirements do not apply if the corporation's common
stockholders receive a minimum price, as defined under Maryland law, for their
shares in the form of cash or other consideration in the same form as previously
paid by the interested stockholder for its shares.
The
statute permits various exemptions from its provisions, including business
combinations that are exempted by the board of directors before the time that
the interested stockholder becomes an interested stockholder. Our board of
directors has adopted a resolution that any business combination between us and
any other person is exempted from the provisions of the Business Combination
Act, provided that the business combination is first approved by the board of
directors, including a majority of the directors who are not interested persons
as defined in the 1940 Act. This resolution, however, may be altered or repealed
in whole or in part at any time. If this resolution is repealed, or the board of
directors does not otherwise approve a business combination, the statute may
discourage others from trying to acquire control of us and increase the
difficulty of consummating any offer.
Conflict
with 1940 Act
Our
bylaws provide that, if and to the extent that any provision of the Maryland
General Corporation Law, including the Control Share Acquisition Act (if we
amend our bylaws to be subject to such Act) and the Business Combination Act, or
any provision of our charter or bylaws conflicts with any provision of the 1940
Act, the applicable provision of the 1940 Act will control.
DESCRIPTION
OF OUR PREFERRED STOCK
In
addition to shares of common stock, our charter authorizes the issuance of
preferred stock. We may issue preferred stock from time to time, although we
have no immediate intention to do so. If we offer preferred stock under this
prospectus, we will issue an appropriate prospectus supplement. We may issue
preferred stock from time to time in one or more classes or series, without
stockholder approval. Prior to issuance of shares of each class or series, our
board of directors is required by Maryland law and by our charter to set the
terms, preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption for each class or series. Any such an issuance must
adhere to the requirements of the 1940 Act, Maryland law and any other
limitations imposed by law.
The
following is a general description of the terms of the preferred stock we may
issue from time to time. Particular terms of any preferred stock we offer will
be described in the prospectus supplement relating to such preferred
stock.
If
we issue preferred stock, it will pay dividends to the holders of the preferred
stock at either a fixed rate or a rate that will be reset frequently based on
short-term interest rates, as described in a prospectus supplement accompanying
each preferred share offering.
The
1940 Act requires, among other things, that (1) immediately after issuance and
before any distribution is made with respect to common stock, the liquidation
preference of the preferred stock, together with all other senior securities,
must not exceed an amount equal to 50% of our total assets (taking into account
such distribution), (2) the holders of shares of preferred stock, if any are
issued, must be entitled as a class to elect two directors at all times and to
elect a majority of the directors if dividends on the preferred stock are in
arrears by two years or more and (3) such shares be cumulative as to dividends
and have a complete preference over our common stock to payment of their
liquidation preference in the event of a dissolution.
For
any series of preferred stock that we may issue, our board of directors or a
committee thereof will determine and the Articles Supplementary and prospectus
supplement relating to such series will describe:
·
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the
designation and number of shares of such
series;
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·
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the
rate, whether fixed or variable, and time at which any dividends will be
paid on shares of such series, as well as whether such dividends are
participating or non-participating;
|
·
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any
provisions relating to convertibility or exchangeability of the shares of
such series;
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·
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the
rights and preferences, if any, of holders of shares of such series upon
our liquidation, dissolution or winding up of our
affairs;
|
·
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the
voting powers, if any, of the holders of shares of such
series;
|
·
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any
provisions relating to the redemption of the shares of such
series;
|
·
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any
limitations on our ability to pay dividends or make distributions on, or
acquire or redeem, other securities while shares of such series are
outstanding;
|
·
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any
conditions or restrictions on our ability to issue additional shares of
such series or other securities;
|
·
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if
applicable, a discussion of certain U.S. federal income tax
considerations; and
|
·
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any
other relative powers, preferences and participating, optional or special
rights of shares of such series, and the qualifications, limitations or
restrictions thereof.
|
All
shares of preferred stock that we may issue will be identical and of equal rank
except as to the particular terms thereof that may be fixed by our board of
directors, and all shares of each series of preferred stock will be identical
and of equal rank except as to the dates from which dividends thereon will be
cumulative.
DESCRIPTION
OF OUR WARRANTS
The
following is a general description of the terms of the warrants we may issue
from time to time. Particular terms of any warrants we offer will be described
in the prospectus supplement relating to such warrants.
We
may issue warrants to purchase shares of our common stock. Such warrants may be
issued independently or together with shares of common stock and may be attached
or separate from such shares of common stock. We will issue each series of
warrants under a separate warrant agreement to be entered into between us and a
warrant agent. The warrant agent will act solely as our agent and will not
assume any obligation or relationship of agency for or with holders or
beneficial owners of warrants.
A
prospectus supplement will describe the particular terms of any series of
warrants we may issue, including the following:
·
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the
title of such warrants;
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·
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the
aggregate number of such warrants;
|
·
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the
price or prices at which such warrants will be
issued;
|
·
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the
currency or currencies, including composite currencies, in which the price
of such warrants may be payable;
|
·
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the
number of shares of common stock issuable upon exercise of such
warrants;
|
·
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the
price at which and the currency or currencies, including composite
currencies, in which the shares of common stock purchasable upon exercise
of such warrants may be purchased;
|
·
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the
date on which the right to exercise such warrants shall commence and the
date on which such right will
expire;
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·
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whether
such warrants will be issued in registered form or bearer
form;
|
·
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if
applicable, the minimum or maximum amount of such warrants which may be
exercised at any one time;
|
·
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if
applicable, the number of such warrants issued with each share of common
stock;
|
·
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if
applicable, the date on and after which such warrants and the related
shares of common stock will be separately
transferable;
|
·
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information
with respect to book-entry procedures, if
any;
|
·
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if
applicable, a discussion of certain U.S. federal income tax
considerations; and
|
·
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any
other terms of such warrants, including terms, procedures and limitations
relating to the exchange and exercise of such
warrants.
|
We
and the warrant agent may amend or supplement the warrant agreement for a series
of warrants without the consent of the holders of the warrants issued thereunder
to effect changes that are not inconsistent with the provisions of the warrants
and that do not materially and adversely affect the interests of the holders of
the warrants.
Under
the 1940 Act, we may generally only offer warrants provided that (1) the
warrants expire by their terms within ten years; (2) the exercise or conversion
price is not less than the current market value at the date of issuance; (3) our
stockholders authorize the proposal to issue such warrants, and our board of
directors approves such issuance on the basis that the issuance is in the best
interests of Apollo Investment and its stockholders; and (4) if the warrants are
accompanied by other securities, the warrants are not separately transferable
unless no class of such warrants and the securities accompanying them has been
publicly distributed. The 1940 Act also provides that the amount of our voting
securities that would result from the exercise of all outstanding warrants at
the time of issuance may not exceed 25% of our outstanding voting
securities.
DESCRIPTION
OF OUR DEBT SECURITIES
We
may issue debt securities in one or more series. The specific terms of each
series of debt securities will be described in the particular prospectus
supplement relating to that series. The prospectus supplement may or may not
modify the general terms found in this prospectus and will be filed with the
SEC. For a complete description of the terms of a particular series of debt
securities, you should read both this prospectus and the prospectus supplement
relating to that particular series.
As
required by federal law for all bonds and notes of companies that are publicly
offered, the debt securities are governed by a document called an
"indenture." An indenture is a contract between us and JPMorgan Chase
Bank, a financial institution acting as trustee on your behalf, and is subject
to and governed by the Trust Indenture Act of 1939, as amended. The trustee has
two main roles. First, the trustee can enforce your rights against us if we
default. There are some limitations on the extent to which the trustee acts on
your behalf, described in the second paragraph under "Events of Default—Remedies
if an Event of Default Occurs." Second, the trustee performs certain
administrative duties for us.
Because
this section is a summary, it does not describe every aspect of the debt
securities and the indenture. We urge you to read the indenture because it, and
not this description, defines your rights as a holder of debt securities. For
example, in this section, we use capitalized words to signify terms that are
specifically defined in the indenture. Some of the definitions are repeated in
this prospectus, but for the rest you will need to read the indenture. We will
file the form of the indenture with the SEC prior to the commencement of any
debt offering, at which time the form of indenture would be publicly
available See "Available Information" for information on how to
obtain a copy of the indenture.
The
prospectus supplement, which will accompany this prospectus, will describe the
particular series of debt securities being offered by including:
·
|
the
designation or title of the series of debt
securities;
|
·
|
the
total principal amount of the series of debt
securities;
|
·
|
the
percentage of the principal amount at which the series of debt securities
will be offered;
|
·
|
the
date or dates on which principal will be
payable;
|
·
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the
rate or rates (which may be either fixed or variable) and/or the method of
determining such rate or rates of interest, if
any;
|
·
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the
date or dates from which any interest will accrue, or the method of
determining such date or dates, and the date or dates on which any
interest will be payable;
|
·
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the
terms for redemption, extension or early repayment, if
any;
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·
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the
currencies in which the series of debt securities are issued and
payable;
|
·
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whether
the amount of payments of principal, premium or interest, if any, on a
series of debt securities will be determined with reference to an index,
formula or other method (which could be based on one or more currencies,
commodities, equity indices or other indices) and how these amounts will
be determined;
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·
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the
place or places, if any, other than or in addition to The City of New
York, of payment, transfer, conversion and/or exchange of the debt
securities;
|
·
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the
denominations in which the offered debt securities will be
issued;
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·
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the
provision for any sinking fund;
|
·
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any
restrictive covenants;
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·
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whether
the series of debt securities are issuable in certificated
form;
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·
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any
provisions for defeasance or covenant
defeasance;
|
·
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any
special federal income tax implications, including, if applicable, federal
income tax considerations relating to original issue
discount;
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·
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whether
and under what circumstances we will pay additional amounts in respect of
any tax, assessment or governmental charge and, if so, whether we will
have the option to redeem the debt securities rather than pay the
additional amounts (and the terms of this
option);
|
·
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any
provisions for convertibility or exchangeability of the debt securities
into or for any other securities;
|
·
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whether
the debt securities are subject to subordination and the terms of such
subordination;
|
·
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the
listing, if any, on a securities exchange;
and
|
The
debt securities may be secured or unsecured obligations. Under the provisions of
the 1940 Act, we are permitted, as a BDC, to issue debt only in amounts such
that our asset coverage, as defined in the 1940 Act, equals at least 200% after
each issuance of debt. Unless the prospectus supplement states otherwise,
principal (and premium, if any) and interest, if any, will be paid by us in
immediately available funds.
General
The
indenture provides that any debt securities proposed to be sold under this
prospectus and the attached prospectus supplement ("offered debt securities")
and any debt securities issuable upon the exercise of warrants or upon
conversion or exchange of other offered securities ("underlying debt
securities"), may be issued under the indenture in one or more
series.
For
purposes of this prospectus, any reference to the payment of principal of or
premium or interest, if any, on debt securities will include additional amounts
if required by the terms of the debt securities.
The
indenture limits the amount of debt securities that may be issued thereunder
from time to time. Debt securities issued under the indenture, when a single
trustee is acting for all debt securities issued under the indenture, are called
the "indenture securities". The indenture also provides that there may be more
than one trustee thereunder, each with respect to one or more different series
of indenture securities. See "Resignation of Trustee" below. At a time when two
or more trustees are acting under the indenture, each with respect to only
certain series, the term "indenture securities" means the one or more series of
debt securities with respect to which each respective trustee is acting. In the
event that there is more than one trustee under the indenture, the powers and
trust obligations of each trustee described in this prospectus will extend only
to the one or more series of indenture securities for which it is trustee. If
two or more trustees are acting under the indenture, then the indenture
securities for which each trustee is acting would be treated as if issued under
separate indentures.
The
indenture does not contain any provisions that give you protection in the event
we issue a large amount of debt or we are acquired by another
entity.
We
refer you to the prospectus supplement for information with respect to any
deletions from, modifications of or additions to the Events of Default or our
covenants that are described below, including any addition of a covenant or
other provision providing event risk or similar protection.
We
have the ability to issue indenture securities with terms different from those
of indenture securities previously issued and, without the consent of the
holders thereof, to reopen a previous issue of a series of indenture securities
and issue additional indenture securities of that series unless the reopening
was restricted when that series was created.
Conversion
and Exchange
If
any debt securities are convertible into or exchangeable for other securities,
the prospectus supplement will explain the terms and conditions of the
conversion or exchange, including the conversion price or exchange ratio (or the
calculation method), the conversion or exchange period (or how the period will
be determined), if conversion or exchange will be mandatory or at the option of
the holder or us, provisions for adjusting the conversion price or the exchange
ratio and provisions affecting conversion or exchange in the event of the
redemption of the underlying debt securities. These terms may also include
provisions under which the number or amount of other securities to be received
by the holders of the debt securities upon conversion or exchange would be
calculated according to the market price of the other securities as of a time
stated in the prospectus supplement.
Issuance
of Securities in Registered Form
We
may issue the debt securities in registered form, in which case we may issue
them either in book-entry form only or in "certificated" form. Debt securities
issued in book-entry form will be represented by global
securities.
We expect that we will usually issue debt securities in book-entry only form
represented by global securities.
We
also will have the option of issuing debt securities in non-registered form as
bearer securities if we issue the securities outside the United States to
non-U.S. persons. In that case, the prospectus supplement will set forth the
mechanics for holding the bearer securities, including the procedures for
receiving payments, for exchanging the bearer securities, including the
procedures for receiving payments, for exchanging the bearer securities for
registered securities of the same series, and for receiving notices. The
prospectus supplement will also describe the requirements with respect to our
maintenance of offices or agencies outside the United States and the applicable
U.S. federal tax law requirements.
Book-Entry
Holders
We
will issue registered debt securities in book-entry form only, unless we specify
otherwise in the applicable prospectus supplement. This means debt securities
will be represented by one or more global securities registered in the name of a
depositary that will hold them on behalf of financial institutions that
participate in the depositary's book-entry system. These participating
institutions, in turn, hold beneficial interests in the debt securities held by
the depositary or its nominee. These institutions may hold these interests on
behalf of themselves or customers.
Under
the indenture, only the person in whose name a debt security is registered is
recognized as the holder of that debt security. Consequently, for debt
securities issued in book-entry form, we will recognize only the depositary as
the holder of the debt securities and we will make all payments on the debt
securities to the depositary. The depositary will then pass along the payments
it receives to its participants, which in turn will pass the payments along to
their customers who are the beneficial owners. The depositary and its
participants do so under agreements they have made with one another or with
their customers; they are not obligated to do so under the terms of the debt
securities.
As
a result, investors will not own debt securities directly. Instead, they will
own beneficial interests in a global security, through a bank, broker or other
financial institution that participates in the depositary's book-entry system or
holds an interest through a participant. As long as the debt securities are
represented by one or more global securities, investors will be indirect
holders, and not holders, of the debt securities.
Street
Name Holders
In
the future, we may issue debt securities in certificated form or terminate a
global security. In these cases, investors may choose to hold their debt
securities in their own names or in "street name." Debt securities
held in street name are registered in the name of a bank, broker or other
financial institution chosen by the investor, and the investor would hold a
beneficial interest in those debt securities through the account he or she
maintains at that institution.
For
debt securities held in street name, we will recognize only the intermediary
banks, brokers and other financial institutions in whose names the debt
securities are registered as the holders of those debt securities and we will
make all payments on those debt securities to them. These institutions will pass
along the payments they receive to their customers who are the beneficial
owners, but only because they agree to do so in their customer agreements or
because they are legally required to do so. Investors who hold debt securities
in street name will be indirect holders, and not holders, of the debt
securities.
Legal
Holders
Our
obligations, as well as the obligations of the applicable trustee and those of
any third parties employed by us or the applicable trustee, run only to the
legal holders of the debt securities. We do not have obligations to investors
who hold beneficial interests in global securities, in street name or by any
other indirect means. This will be the case whether an investor chooses to be an
indirect holder of a debt security or has no choice because we are issuing the
debt securities only in book-entry form.
For
example, once we make a payment or give a notice to the holder, we have no
further responsibility for the payment or notice even if that holder is
required, under agreements with depositary participants or customers or by law,
to pass it along to the indirect holders but does not do so. Similarly, if we
want to obtain the approval of the holders for any purpose (for example, to
amend an indenture or to relieve us of the consequences of a default or of our
obligation to comply with a particular provision of an indenture), we would seek
the approval only from the holders, and not the indirect holders, of the debt
securities. Whether and how the holders contact the indirect holders is up to
the holders.
When
we refer to you, we mean those who invest in the debt securities being offered
by this prospectus, whether they are the holders or only indirect holders of
those debt securities. When we refer to your debt securities, we mean the debt
securities in which you hold a direct or indirect interest.
Special
Considerations for Indirect Holders
If
you hold debt securities through a bank, broker or other financial institution,
either in book-entry form or in street name, we urge you to check with that
institution to find out:
·
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how
it handles securities payments and
notices,
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·
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whether
it imposes fees or charges,
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·
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how
it would handle a request for the holders' consent, if ever
required,
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·
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whether
and how you can instruct it to send you debt securities registered in your
own name so you can be a holder, if that is permitted in the future for a
particular series of debt
securities,
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·
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how
it would exercise rights under the debt securities if there were a default
or other event triggering the need for holders to act to protect their
interests, and
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·
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if
the debt securities are in book-entry form, how the depositary's rules and
procedures will affect these
matters.
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Global
Securities
As
noted above, we usually will issue debt securities as registered securities in
book-entry form only. A global security represents one or any other number of
individual debt securities. Generally, all debt securities represented by the
same global securities will have the same terms.
Each
debt security issued in book-entry form will be represented by a global security
that we deposit with and register in the name of a financial institution or its
nominee that we select. The financial institution that we
select
for this purpose is called the depositary. Unless we specify otherwise in the
applicable prospectus supplement, The Depository Trust Company, New York, New
York, known as DTC, will be the depositary for all debt securities issued in
book-entry form.
A
global security may not be transferred to or registered in the name of anyone
other than the depositary or its nominee, unless special termination situations
arise. We describe those situations below under "Special Situations when a
Global Security Will Be Terminated". As a result of these arrangements, the
depositary, or its nominee, will be the sole registered owner and holder of all
debt securities represented by a global security, and investors will be
permitted to own only beneficial interests in a global security. Beneficial
interests must be held by means of an account with a broker, bank or other
financial institution that in turn has an account with the depositary or with
another institution that has an account with the depositary. Thus, an investor
whose security is represented by a global security will not be a holder of the
debt security, but only an indirect holder of a beneficial interest in the
global security.
Special
Considerations for Global Securities
As
an indirect holder, an investor's rights relating to a global security will be
governed by the account rules of the investor's financial institution and of the
depositary, as well as general laws relating to securities transfers. The
depositary that holds the global security will be considered the holder of the
debt securities represented by the global security.
If
debt securities are issued only in the form of a global security, an investor
should be aware of the following:
·
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An
investor cannot cause the debt securities to be registered in his or her
name, and cannot obtain certificates for his or her interest in the debt
securities, except in the special situations we describe
below.
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·
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An
investor will be an indirect holder and must look to his or her own bank
or broker for payments on the debt securities and protection of his or her
legal rights relating to the debt securities, as we describe under
"Issuance of Securities in Registered Form"
above.
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·
|
An
investor may not be able to sell interests in the debt securities to some
insurance companies and other institutions that are required by law to own
their securities in non-book-entry
form.
|
·
|
An
investor may not be able to pledge his or her interest in a global
security in circumstances where certificates representing the debt
securities must be delivered to the lender or other beneficiary of the
pledge in order for the pledge to be
effective.
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·
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The
depositary's policies, which may change from time to time, will govern
payments, transfers, exchanges and other matters relating to an investor's
interest in a global security. We and the trustee have no responsibility
for any aspect of the depositary's actions or for its records of ownership
interests in a global security. We and the trustee also do not supervise
the depositary in any way.
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·
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If
we redeem less than all the debt securities of a particular series being
redeemed, DTC's practice is to determine by lot the amount to be redeemed
from each of its participants holding that
series.
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·
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An
investor is required to give notice of exercise of any option to elect
repayment of its debt securities, through its participant, to the
applicable trustee and to deliver the related debt securities by causing
its participant to transfer its interest in those debt securities, on
DTC's records, to the applicable
trustee.
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·
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DTC
requires that those who purchase and sell interests in a global security
deposited in its book-entry system use immediately available funds. Your
broker or bank may also require you to use immediately available funds
when purchasing or selling interests in a global
security.
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·
|
Financial
institutions that participate in the depositary's book-entry system, and
through which an investor holds its interest in a global security, may
also have their own policies affecting payments, notices and other matters
relating to the debt securities. There may be more than one financial
intermediary in the chain of ownership for an investor. We do not monitor
and are not responsible for the actions of any of those
intermediaries.
|
Special
Situations when a Global Security will be Terminated
In
a few special situations described below, a global security will be terminated
and interests in it will be exchanged for certificates in non-book-entry form
(certificated securities). After that exchange, the choice of whether to hold
the certificated debt securities directly or in street name will be up to the
investor. Investors must consult their own banks or brokers to find out how to
have their interests in a global security transferred on termination to their
own names, so that they will be holders. We have described the rights of legal
holders and street name investors under "Issuance of Securities in Registered
Form" above.
The
special situations for termination of a global security are as
follows:
·
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if
the depositary notifies us that it is unwilling, unable or no longer
qualified to continue as depositary for that global security, and we do
not appoint another institution to act as depositary within 60
days,
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·
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if
we notify the trustee that we wish to terminate that global security,
or
|
·
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if
an event of default has occurred with regard to the debt securities
represented by that global security and has not been cured or waived; we
discuss defaults later under "Events of
Default."
|
The
prospectus supplement may list situations for terminating a global security that
would apply only to the particular series of debt securities covered by the
prospectus supplement. If a global security is terminated, only the depositary,
and not we or the applicable trustee, is responsible for deciding the names of
the institutions in whose names the debt securities represented by the global
security will be registered and, therefore, who will be the holders of those
debt securities.
Payment
and Paying Agents
We
will pay interest to the person listed in the applicable trustee's records as
the owner of the debt security at the close of business on a particular day in
advance of each due date for interest, even if that person no longer owns the
debt security on the interest due date. That day, usually about two weeks in
advance of the interest due date, is called the "record
date." Because we will pay all the interest for an interest period to
the holders on the record date, holders buying and selling debt securities must
work out between themselves the appropriate purchase price. The most common
manner is to adjust the sales price of the debt securities to prorate interest
fairly between buyer
and
seller based on their respective ownership periods within the particular
interest period. This prorated interest amount is called "accrued
interest."
Payments
on Global Securities
We
will make payments on a global security in accordance with the applicable
policies of the depositary as in effect from time to time. Under those policies,
we will make payments directly to the depositary, or its nominee, and not to any
indirect holders who own beneficial interests in the global security. An
indirect holder's right to those payments will be governed by the rules and
practices of the depositary and its participants, as described under "—Special
Considerations for Global Securities."
Payments
on Certificated Securities
We
will make payments on a certificated debt security as follows. We will pay
interest that is due on an interest payment date by check mailed on the interest
payment date to the holder at his or her address shown on the trustee's records
as of the close of business on the regular record date. We will make all
payments of principal and premium, if any, by check at the office of the
applicable trustee in New York, NY and/or at other offices that may be specified
in the prospectus supplement or in a notice to holders against surrender of the
debt security.
Alternatively,
if the holder asks us to do so, we will pay any amount that becomes due on the
debt security by wire transfer of immediately available funds to an account at a
bank in New York City, on the due date. To request payment by wire, the holder
must give the applicable trustee or other paying agent appropriate transfer
instructions at least 15 business days before the requested wire payment is due.
In the case of any interest payment due on an interest payment date, the
instructions must be given by the person who is the holder on the relevant
regular record date. Any wire instructions, once properly given, will remain in
effect unless and until new instructions are given in the manner described
above.
Payment
When Offices Are Closed
If
any payment is due on a debt security on a day that is not a business day, we
will make the payment on the next day that is a business day. Payments made on
the next business day in this situation will be treated under the indenture as
if they were made on the original due date, except as otherwise indicated in the
attached prospectus supplement. Such payment will not result in a default under
any debt security or the indenture, and no interest will accrue on the payment
amount from the original due date to the next day that is a business
day.
Book-entry
and other indirect holders should consult their banks or brokers for information
on how they will receive payments on their debt securities.
Events
of Default
You
will have rights if an Event of Default occurs in respect of the debt securities
of your series and is not cured, as described later in this
subsection.
The
term "Event of Default" in respect of the debt securities of your series means
any of the following:
·
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We
do not pay the principal of, or any premium on, a debt security of the
series on its due date.
|
·
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We
do not pay interest on a debt security of the series within 30 days of its
due date.
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·
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We
do not deposit any sinking fund payment in respect of debt securities of
the series on its due date.
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·
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We
remain in breach of a covenant in respect of debt securities of the series
for 60 days after we receive a written notice of default stating we are in
breach. The notice must be sent by either the trustee or holders of at
least 25% of the principal amount of debt securities of the
series.
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·
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We
file for bankruptcy or certain other events of bankruptcy, insolvency or
reorganization occur.
|
·
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Any
other Event of Default in respect of debt securities of the series
described in the prospectus supplement
occurs.
|
An
Event of Default for a particular series of debt securities does not necessarily
constitute an Event of Default for any other series of debt securities issued
under the same or any other indenture. The trustee may withhold notice to the
holders of debt securities of any default, except in the payment of principal,
premium or interest, if it considers the withholding of notice to be in the best
interests of the holders.
Remedies
if an Event of Default Occurs
If
an Event of Default has occurred and has not been cured, the trustee or the
holders of at least 25% in principal amount of the debt securities of the
affected series may declare the entire principal amount of all the debt
securities of that series to be due and immediately payable. This is called a
declaration of acceleration of maturity. A declaration of acceleration of
maturity may be canceled by the holders of a majority in principal amount of the
debt securities of the affected series.
Except
in cases of default, where the trustee has some special duties, the trustee is
not required to take any action under the indenture at the request of any
holders unless the holders offer the trustee reasonable protection from expenses
and liability (called an "indemnity"). (Section 315 of the Trust Indenture Act
of 1939) If reasonable indemnity is provided, the holders of a majority in
principal amount of the outstanding debt securities of the relevant series may
direct the time, method and place of conducting any lawsuit or other formal
legal action seeking any remedy available to the trustee. The trustee may refuse
to follow those directions in certain circumstances. No delay or omission in
exercising any right or remedy will be treated as a waiver of that right, remedy
or Event of Default.
Before
you are allowed to bypass your trustee and bring your own lawsuit or other
formal legal action or take other steps to enforce your rights or protect your
interests relating to the debt securities, the following must
occur:
·
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You
must give your trustee written notice that an Event of Default has
occurred and remains uncured.
|
·
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The
holders of at least 25% in principal amount of all outstanding debt
securities of the relevant series must make a written request that the
trustee take action because of the default and must offer reasonable
indemnity to the trustee against the cost and other liabilities of taking
that action.
|
·
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The
trustee must not have taken action for 60 days after receipt of the above
notice and offer of indemnity.
|
·
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The
holders of a majority in principal amount of the debt securities must not
have given the trustee a direction inconsistent with the above notice
during that 60-day period.
|
However,
you are entitled at any time to bring a lawsuit for the payment of money due on
your debt securities on or after the due date.
Holders
of a majority in principal amount of the debt securities of the affected series
may waive any past defaults other than
·
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the
payment of principal, any premium or interest
or
|
·
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in
respect of a covenant that cannot be modified or amended without the
consent of each holder.
|
Book-entry
and other indirect holders should consult their banks or brokers for information
on how to give notice or direction to or make a request of the trustee and how
to declare or cancel an acceleration of maturity.
Each
year, we will furnish to each trustee a written statement of certain of our
officers certifying that to their knowledge we are in compliance with the
indenture and the debt securities or else specifying any default.
Merger
or Consolidation
Under
the terms of the indenture, we are generally permitted to consolidate or merge
with another entity. We are also permitted to sell all or substantially all of
our assets to another entity. However, we may not take any of these actions
unless all the following conditions are met:
·
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Where
we merge out of existence or sell our assets, the resulting entity must
agree to be legally responsible for our obligations under the debt
securities.
|
·
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The
merger or sale of assets must not cause a default on the debt securities
and we must not already be in default (unless the merger or sale would
cure the default). For purposes of this no-default test, a default would
include an Event of Default that has occurred and has not been cured, as
described under "Events of Default" above. A default for this purpose
would also include any event that would be an Event of Default if the
requirements for giving us a notice of default or our default having to
exist for a specific period of time were
disregarded.
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·
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Under
the indenture, no merger or sale of assets may be made if as a result any
of our property or assets or any property or assets of one of our
subsidiaries, if any, would become subject to any mortgage, lien or other
encumbrance unless either (i) the mortgage, lien or other encumbrance
could be created pursuant to the limitation on liens covenant in the
indenture (see "Indenture Provisions—Limitation on Liens" below) without
equally and ratably securing the indenture securities or (ii) the
indenture securities are secured equally and ratably with or prior to the
debt secured by the mortgage, lien or other
encumbrance.
|
·
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We
must deliver certain certificates and documents to the
trustee.
|
·
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We
must satisfy any other requirements specified in the prospectus supplement
relating to a particular series of debt
securities.
|
Modification
or Waiver
There
are three types of changes we can make to the indenture and the debt securities
issued thereunder.
Changes
Requiring Your Approval
First,
there are changes that we cannot make to your debt securities without your
specific approval. The following is a list of those types of
changes:
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change
the stated maturity of the principal of, or interest on, a debt
security;
|
·
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reduce
any amounts due on a debt security;
|
·
|
reduce
the amount of principal payable upon acceleration of the maturity of a
security following a default;
|
·
|
adversely
affect any right of repayment at the holder's
option;
|
·
|
change
the place (except as otherwise described in the prospectus or prospectus
supplement) or currency of payment on a debt
security;
|
·
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impair
your right to sue for payment;
|
·
|
adversely
affect any right to convert or exchange a debt security in accordance with
its terms;
|
·
|
modify
the subordination provisions in the indenture in a manner that is adverse
to holders of the debt securities;
|
·
|
reduce
the percentage of holders of debt securities whose consent is needed to
modify or amend the indenture;
|
·
|
reduce
the percentage of holders of debt securities whose consent is needed to
waive compliance with certain provisions of the indenture or to waive
certain defaults;
|
·
|
modify
any other aspect of the provisions of the indenture dealing with
supplemental indentures, modification and waiver of past defaults, changes
to the quorum or voting requirements or the waiver of certain covenants;
and
|
·
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change
any obligation we have to pay additional
amounts.
|
Changes
Not Requiring Approval
The
second type of change does not require any vote by the holders of the debt
securities. This type is limited to clarifications and certain other changes
that would not adversely affect holders of the outstanding debt securities in
any material respect. We also do not need any approval to make any change that
affects only debt securities to be issued under the indenture after the change
takes effect.
Changes
Requiring Majority Approval
Any
other change to the indenture and the debt securities would require the
following approval:
·
|
If
the change affects only one series of debt securities, it must be approved
by the holders of a majority in principal amount of that
series.
|
·
|
If
the change affects more than one series of debt securities issued under
the same indenture, it must be approved by the holders of a majority in
principal amount of all of the series affected by the change, with all
affected series voting together as one class for this
purpose.
|
In
each case, the required approval must be given by written consent.
The
holders of a majority in principal amount of all of the series of debt
securities issued under an indenture, voting together as one class for this
purpose, may waive our compliance with some of our covenants in that indenture.
However, we cannot obtain a waiver of a payment default or of any of the matters
covered by the bullet points included above under "—Changes Requiring Your
Approval."
Further
Details Concerning Voting
When
taking a vote, we will use the following rules to decide how much principal to
attribute to a debt security:
·
|
For
original issue discount securities, we will use the principal amount that
would be due and payable on the voting date if the maturity of these debt
securities were accelerated to that date because of a
default.
|
·
|
For
debt securities whose principal amount is not known (for example, because
it is based on an index), we will use a special rule for that debt
security described in the prospectus
supplement.
|
·
|
For
debt securities denominated in one or more foreign currencies, we will use
the U.S. dollar equivalent.
|
Debt
securities will not be considered outstanding, and therefore not eligible to
vote, if we have deposited or set aside in trust money for their payment or
redemption. Debt securities will also not be eligible to vote if they have been
fully defeased as described later under "Defeasance—Full
Defeasance."
We
will generally be entitled to set any day as a record date for the purpose of
determining the holders of outstanding indenture securities that are entitled to
vote or take other action under the indenture. If we set a record date for a
vote or other action to be taken by holders of one or more series, that vote or
action may be taken only by persons who are holders of outstanding indenture
securities of those series on the record date and must be taken within eleven
months following the record date.
Book-entry
and other indirect holders should consult their banks or brokers for information
on how approval may be granted or denied if we seek to change the indenture or
the debt securities or request a waiver.
Defeasance
The
following provisions will be applicable to each series of debt securities unless
we state in the applicable prospectus supplement that the provisions of covenant
defeasance and full defeasance will not be applicable to that
series.
Covenant
Defeasance
Under
current United States federal tax law, we can make the deposit described below
and be released from some of the restrictive covenants in the indenture under
which the particular series was issued. This is called "covenant defeasance". In
that event, you would lose the protection of those restrictive covenants but
would gain the protection of having money and government securities set aside in
trust to repay your debt securities. If applicable, you also would be released
from the subordination provisions described under "Indenture
Provisions—Subordination" below. In order to achieve covenant defeasance, we
must do the following:
·
|
If
the debt securities of the particular series are denominated in U.S.
dollars, we must deposit in trust for the benefit of all holders of such
debt securities a combination of money and United States government or
United States government agency notes or bonds that will generate enough
cash to make interest, principal and any other payments on the debt
securities on their various due
dates.
|
·
|
We
must deliver to the trustee a legal opinion of our counsel confirming
that, under current United States federal income tax law, we may make the
above deposit without causing you to be taxed on the debt securities any
differently than if we did not make the deposit and just repaid the debt
securities ourselves at maturity.
|
We
must deliver to the trustee a legal opinion of our counsel stating that the
above deposit does not require registration by us under the 1940 Act, as
amended, and a legal opinion and officers' certificate stating that all
conditions precedent to covenant defeasance have been complied
with.
If
we accomplish covenant defeasance, you can still look to us for repayment of the
debt securities if there were a shortfall in the trust deposit or the trustee is
prevented from making payment. In fact, if one of the remaining Events of
Default occurred (such as our bankruptcy) and the debt securities became
immediately due and payable, there might be a shortfall. Depending on the event
causing the default, you may not be able to obtain payment of the
shortfall.
Full
Defeasance
If
there is a change in United States federal tax law, as described below, we can
legally release ourselves from all payment and other obligations on the debt
securities of a particular series (called "full defeasance") if we put in place
the following other arrangements for you to be repaid:
·
|
If
the debt securities of the particular series are denominated in U.S.
dollars, we must deposit in trust for the benefit of all holders of such
debt securities a combination of money and United States government or
United States government agency notes or bonds that will generate enough
cash to make interest, principal and any other payments on the debt
securities on their various due
dates.
|
·
|
We
must deliver to the trustee a legal opinion confirming that there has been
a change in current United States federal tax law or an IRS ruling that
allows us to make the above deposit without causing you to be taxed on the
debt securities any differently than if we did not make the deposit and
just repaid the debt securities ourselves at maturity. Under current
United States federal tax law, the deposit and our legal release from the
debt securities would be treated as though we paid you your share of the
cash and notes or bonds at the time the cash and notes or bonds were
deposited in trust in exchange for your debt securities and you would
recognize gain or loss on the debt securities at the time of the
deposit.
|
·
|
We
must deliver to the trustee a legal opinion of our counsel stating that
the above deposit does not require registration by us under the 1940 Act,
as amended, and a legal opinion and officers' certificate stating that all
conditions precedent to defeasance have been complied
with.
|
If
we ever did accomplish full defeasance, as described above, you would have to
rely solely on the trust deposit for repayment of the debt securities. You could
not look to us for repayment in the unlikely event of any shortfall. Conversely,
the trust deposit would most likely be protected from claims of our lenders and
other creditors if we ever became bankrupt or insolvent. If applicable, you
would also be released from the subordination provisions described later under
"Indenture Provisions—Subordination".
Form,
Exchange and Transfer of Certificated Registered Securities
If
registered debt securities cease to be issued in book-entry form, they will be
issued:
·
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only
in fully registered certificated
form,
|
·
|
without
interest coupons, and
|
·
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unless
we indicate otherwise in the prospectus supplement, in denominations of
$1,000 and amounts that are multiples of
$1,000.
|
Holders
may exchange their certificated securities for debt securities of smaller
denominations or combined into fewer debt securities of larger denominations, as
long as the total principal amount is not changed.
Holders
may exchange or transfer their certificated securities at the office of their
trustee. We have appointed the trustee to act as our agent for registering debt
securities in the names of holders transferring debt securities. We may appoint
another entity to perform these functions or perform them
ourselves.
Holders
will not be required to pay a service charge to transfer or exchange their
certificated securities, but they may be required to pay any tax or other
governmental charge associated with the transfer or exchange. The transfer or
exchange will be made only if our transfer agent is satisfied with the holder's
proof of legal ownership.
If
we have designated additional transfer agents for your debt security, they will
be named in your prospectus supplement. We may appoint additional transfer
agents or cancel the appointment of any particular transfer agent. We may also
approve a change in the office through which any transfer agent
acts.
If
any certificated securities of a particular series are redeemable and we redeem
less than all the debt securities of that series, we may block the transfer or
exchange of those debt securities during the period beginning 15 days before the
day we mail the notice of redemption and ending on the day of that mailing, in
order to freeze the list of holders to prepare the mailing. We may also refuse
to register transfers or exchanges of any certificated securities selected for
redemption, except that we will continue to permit transfers and exchanges of
the unredeemed portion of any debt security that will be partially
redeemed.
If
a registered debt security is issued in book-entry form, only the depositary
will be entitled to transfer and exchange the debt security as described in this
subsection, since it will be the sole holder of the debt security.
Resignation
of Trustee
Each
trustee may resign or be removed with respect to one or more series of indenture
securities provided that a successor trustee is appointed to act with respect to
these series. In the event that two or more persons are acting as trustee with
respect to different series of indenture securities under the indenture, each of
the trustees will be a trustee of a trust separate and apart from the trust
administered by any other trustee.
Indenture
Provisions—Limitation on Liens
If
we issue indenture securities that are denominated as senior debt securities, we
covenant in the indenture that neither we nor any of our subsidiaries, if any,
will pledge or subject to any lien any of our or their property or assets unless
those senior debt securities issued under the indenture are secured by this
pledge or lien equally and ratably with other indebtedness thereby secured.
There are excluded from this covenant liens created to secure obligations for
the purchase price of physical property, liens of a subsidiary securing
indebtedness owed to us, liens existing on property acquired upon exercise of
rights arising out of defaults on receivables acquired in the ordinary course of
business, sales of receivables accounted for as secured indebtedness in
accordance with generally accepted accounting principles, certain liens not
related to the borrowing of money and other liens not securing borrowed money
aggregating less than $500,000.
Indenture
Provisions—Subordination
Upon
any distribution of our assets upon our dissolution, winding up, liquidation or
reorganization, the payment of the principal of (and premium, if any) and
interest, if any, on any indenture securities denominated as subordinated debt
securities is to be subordinated to the extent provided in the indenture in
right of payment to the prior payment in full of all Senior Indebtedness (as
defined below), but our obligation to you to make payment of the principal of
(and premium, if any) and interest, if any, on such subordinated debt securities
will not otherwise be affected. In addition, no payment on account of principal
(or premium, if any), sinking fund or interest, if any, may be made on such
subordinated debt securities at any time unless full payment of all amounts due
in respect of the principal (and premium, if any), sinking fund and interest on
Senior Indebtedness has been made or duly provided for in money or money's
worth.
In
the event that, notwithstanding the foregoing, any payment by us is received by
the trustee in respect of subordinated debt securities or by the holders of any
of such subordinated debt securities before all Senior Indebtedness is paid in
full, the payment or distribution must be paid over to the holders of the Senior
Indebtedness or on their behalf for application to the payment of all the Senior
Indebtedness remaining unpaid until all the Senior Indebtedness has been paid in
full, after giving effect to any concurrent payment or distribution to the
holders of the Senior Indebtedness. Subject to the payment in full of all Senior
Indebtedness upon this distribution by us, the holders of such subordinated debt
securities will be subrogated to the rights of the holders of the Senior
Indebtedness to the extent of payments made to the holders of the Senior
Indebtedness out of the distributive share of such subordinated debt
securities.
By
reason of this subordination, in the event of a distribution of our assets upon
our insolvency, certain of our senior creditors may recover more, ratably, than
holders of any subordinated debt securities. The indenture provides that these
subordination provisions will not apply to money and securities held in trust
under the defeasance provisions of the indenture.
Senior
Indebtedness is defined in the indenture as the principal of (and premium, if
any) and unpaid interest on:
·
|
our
indebtedness (including indebtedness of others guaranteed by us), whenever
created, incurred, assumed or guaranteed, for money borrowed (other than
indenture securities issued under the indenture and denominated as
subordinated debt securities), unless in the instrument creating or
evidencing the same or under which the same is outstanding it is provided
that this indebtedness is not senior or prior in right of payment to the
subordinated debt securities, and
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·
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renewals,
extensions, modifications and refinancings of any of this
indebtedness.
|
If
this prospectus is being delivered in connection with the offering of a series
of indenture securities denominated as subordinated debt securities, the
accompanying prospectus supplement will set forth the approximate amount of our
Senior Indebtedness outstanding as of a recent date.
The
Trustee under the Indenture
JPMorgan
Chase Bank will serve as the trustee under the indenture. JPMorgan Chase Bank is
one of a number of banks with which we maintain ordinary banking relationships
and from which we have obtained a senior secured credit facility and lines of
credit.
Certain
Considerations Relating to Foreign Currencies
Debt
securities denominated or payable in foreign currencies may entail significant
risks. These risks include the possibility of significant fluctuations in the
foreign currency markets, the imposition or modification of foreign exchange
controls and potential illiquidity in the secondary market. These risks will
vary depending upon the currency or currencies involved and will be more fully
described in the applicable prospectus supplement.
REGULATION
We
have elected to be treated as a BDC under the 1940 Act and have elected to be
treated as a RIC under Subchapter M of the Code. The 1940 Act contains
prohibitions and restrictions relating to transactions between business
development companies and their affiliates (including any investment advisers or
sub-advisers), principal
underwriters
and affiliates of those affiliates or underwriters and requires that a majority
of the directors be persons other than "interested persons," as that term is
defined in the 1940 Act. In addition, the 1940 Act provides that we may not
change the nature of our business so as to cease to be, or to withdraw our
election as, a BDC unless approved by a majority of our outstanding voting
securities voting as a class. A majority of our outstanding
voting securities is defined under the 1940 Act as the lesser of (i) 67% or more
of our shares present at a meeting or represented by proxy if more than 50% of
our outstanding shares are present or represented by proxy or (ii) more than 50%
of our outstanding shares.
We
may invest up to 100% of our assets in securities acquired directly from issuers
in privately negotiated transactions. With respect to such securities, we may,
for the purpose of public resale, be deemed an "underwriter" as that term is
defined in the Securities Act. However, we may purchase or otherwise receive
warrants to purchase the common stock of our portfolio companies in connection
with acquisition financing or other investment. Similarly, in connection with an
acquisition, we may acquire rights to require the issuers of acquired securities
or their affiliates to repurchase them under certain circumstances. We also do
not intend to acquire securities issued by any investment company that exceed
the limits imposed by the 1940 Act. Under these limits, we generally cannot
acquire more than 3% of the voting stock of any registered investment company,
invest more than 5% of the value of our total assets in the securities of one
investment company or invest more than 10% of the value of our total assets in
the securities of more than one investment company. With regard to that portion
of our portfolio invested in securities issued by investment companies, it
should be noted that such investments might subject our stockholders to
additional expenses. None of our policies is fundamental, and each may be
changed without stockholder approval.
Qualifying
Assets
Under
the 1940 Act, a BDC may not acquire any asset other than assets of the type
listed in Section 55(a) of the 1940 Act, which are referred to as "qualifying
assets, " unless, at the time the acquisition is made, qualifying assets
represent at least 70% of the company's total assets. The principal categories
of qualifying assets relevant to our business are the following:
(1) Securities
of an "eligible portfolio company," purchased in transactions not involving any
public offering. An eligible portfolio company is defined in
the 1940 Act as any issuer which:
(a)
is organized under the laws of, and has its principal place of business in, the
United States;
(b)
is not an investment company (other than a small business investment company
wholly owned by the BDC) or a company that would be an investment company but
for certain exclusions under the 1940 Act; and
(c)
satisfies any of the following:
·
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does
not have any class of securities listed on a national securities exchange
or has a class of securities listed on a national securities exchange but
has an aggregate market value of outstanding equity of less than $250
million;
|
·
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is
controlled by a BDC or a group of companies including a BDC, and the BDC
has an affiliated person who is a director of the eligible portfolio
company; or
|
·
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is
a small and solvent company having total assets of not more than $4
million and capital and surplus of not less than $2
million.
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(2) Securities
of any eligible portfolio company that we control.
(3) Securities
purchased in a private transaction from a U.S. issuer that is not an investment
company or from an affiliated person of the issuer, or in transactions incident
thereto, if the issuer is in bankruptcy and subject to reorganization or if the
issuer, immediately prior to the purchase of its securities were unable to meet
its obligations as they came due without material assistance other than
conventional lending or financing arrangements.
(4) Securities
of an eligible portfolio company purchased from any person in a private
transaction if there is no ready market for such securities and we already own
60% of the outstanding equity of the eligible portfolio company.
(5) Securities
received in exchange for or distributed on or with respect to securities
described in (1) through (4) above, or pursuant to the exercise of options,
warrants or rights relating to such securities.
(6) Cash,
cash equivalents, U.S. Government securities or high-quality debt securities
maturing in one year or less from the time of investment.
Managerial
Assistance to Portfolio Companies
In
addition, a BDC must have been organized and have its principal place of
business in the United States and must be operated for the purpose of making
investments in the types of securities described in (1), (2) or (3) above.
However, in order to count portfolio securities as qualifying assets for the
purpose of the 70% test, the BDC must either control the issuer of the
securities or must offer to make available to the issuer of the securities
(other than small and solvent companies described above) significant managerial
assistance; except that, where the BDC purchases such securities in conjunction
with one or more other persons acting together, one of the other persons in the
group may make available such managerial assistance. Making available managerial
assistance means, among other things, any arrangement whereby the BDC, through
its directors, officers or employees, offers to provide, and, if accepted, does
so provide, significant guidance and counsel concerning the management,
operations or business objectives and policies of a portfolio
company.
Temporary
Investments
Pending
investment in other types of "qualifying assets," as described above, our
investments may consist of cash, cash equivalents, U.S. Government securities or
high-quality debt securities maturing in one year or less from the time of
investment, which we refer to, collectively, as temporary investments, so that
70% of our assets are qualifying assets. Typically, we will invest in U.S.
Treasury bills or in repurchase agreements, provided that such agreements are
fully collateralized by cash or securities issued by the U.S. Government or its
agencies. A repurchase agreement involves the purchase by an investor, such as
us, of a specified security and the simultaneous agreement by the seller to
repurchase it at an agreed-upon future date and at a price that is greater than
the purchase price by an amount that reflects an agreed-upon interest rate.
There is no percentage restriction on the proportion of our assets that may be
invested in such repurchase agreements.
Senior
Securities
We
are permitted, under specified conditions, to issue multiple classes of
indebtedness and one class of stock senior to our common stock if our asset
coverage, as defined in the 1940 Act, is at least equal to 200% immediately
after each such issuance. In addition, while any of these types of senior
securities remain outstanding, we must make provisions to prohibit any
distribution to our stockholders or the repurchase of such securities or
shares
unless we meet the applicable asset coverage ratios at the time of the
distribution or repurchase. We may also borrow amounts up to 5% of the value of
our total assets for temporary or emergency purposes without regard to asset
coverage. For a discussion of the risks associated with leverage, see "Risk
Factors—Risks relating to our business and structure—Regulations governing our
operation as a BDC will affect our ability to, and the way in which we, raise
additional capital."
Code
of Ethics
We
have adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act and we
have also approved AIM's code of ethics that was adopted by it in accordance
with Rule 17j-1 and Rule 204A-1 under the Advisers Act. These codes
of ethics establish procedures for personal investments and restrict certain
personal securities transactions. Personnel subject to a code may
invest in securities for their personal investment accounts, including
securities that may be purchased or held by us, so long as such investments are
made in accordance with the code's requirements. For information on
how to obtain a copy of each code of ethics, see "Available
Information."
Proxy
Voting Policies and Procedures
SEC-registered
investment advisers that have the authority to vote (client) proxies (which
authority may be implied from a general grant of investment discretion) are
required to adopt policies and procedures reasonably designed to ensure that the
investment adviser votes proxies in the best interests of its clients.
Registered investment advisers also must maintain certain records on proxy
voting. When Apollo Investment does have voting rights, it will delegate the
exercise of such rights to AIM. AIM's proxy voting policies and procedures are
summarized below:
In
determining how to vote, officers of our investment adviser will consult with
each other and other investment professionals of Apollo, taking into account the
interests of Apollo Investment and its investors as well as any potential
conflicts of interest. Our investment adviser will consult with legal counsel to
identify potential conflicts of interest. Where a potential conflict of interest
exists, our investment adviser may, if it so elects, resolve it by following the
recommendation of a disinterested third party, by seeking the direction of the
independent directors of Apollo Investment or, in extreme cases, by abstaining
from voting. While our investment adviser may retain an outside service to
provide voting recommendations and to assist in analyzing votes, our investment
adviser will not delegate its voting authority to any third party.
An
officer of AIM will keep a written record of how all such proxies are voted. Our
investment adviser will retain records of (1) proxy voting policies and
procedures, (2) all proxy statements received (or it may rely on proxy
statements filed on the SEC's EDGAR system in lieu thereof), (3) all votes cast,
(4) investor requests for voting information, and (5) any specific documents
prepared or received in connection with a decision on a proxy vote. If it uses
an outside service, our investment adviser may rely on such service to maintain
copies of proxy statements and records, so long as such service will provide a
copy of such documents promptly upon request.
Our
investment adviser's proxy voting policies are not exhaustive and are designed
to be responsive to the wide range of issues that may be subject to a proxy
vote. In general, our investment adviser will vote our proxies in accordance
with these guidelines unless: (1) it has determined otherwise due to the
specific and unusual facts and circumstances with respect to a particular vote,
(2) the subject matter of the vote is not covered by these guidelines, (3) a
material conflict of interest is present, or (4) we find it necessary to vote
contrary to our general guidelines to maximize shareholder value or the best
interests of Apollo Investment. In reviewing proxy issues, our investment
adviser generally will use the following guidelines:
Elections of
Directors: In general, our investment adviser will
vote in favor of the management-proposed slate of directors. If there is a proxy
fight for seats on a portfolio company's board of directors or our investment
adviser determines that there are other compelling reasons for withholding our
vote, it will determine the appropriate
vote
on the matter. We may withhold votes for directors that fail to act on key
issues, such as failure to: (1) implement proposals to declassify a board of
directors, (2) implement a majority vote requirement, (3) submit a rights plan
to a shareholder vote or (4) act on tender offers where a majority of
shareholders have tendered their shares. Finally, our investment adviser may
withhold votes for directors of non-U.S. issuers where there is insufficient
information about the nominees disclosed in the proxy statement.
Appointment of
Independent Registered Public Accounting
Firm : We believe that a portfolio company
remains in the best position to choose its independent registered public
accounting firm , and our investment adviser will generally support
management's recommendation in this regard.
Changes in
Capital Structure: Changes in a portfolio
company's charter or bylaws may be required by state or federal regulation. In
general, our investment adviser will cast our votes in accordance with the
management on such proposals. However, our investment adviser will consider
carefully any proposal regarding a change in corporate structure that is not
required by state or federal regulation.
Corporate
Restructurings, Mergers and Acquisitions: We
believe proxy votes dealing with corporate reorganizations are an extension of
the investment decision. Accordingly, our investment adviser will analyze such
proposals on a case-by-case basis and vote in accordance with its perception of
our interests.
Proposals
Affecting Shareholder Rights: We will generally
vote in favor of proposals that give shareholders a greater voice in the affairs
of a portfolio company and oppose any measure that seeks to limit such rights.
However, when analyzing such proposals, our investment adviser will balance the
financial impact of the proposal against any impairment of shareholder rights as
well as of our investment in the portfolio company.
Corporate
Governance: We recognize the importance of good
corporate governance. Accordingly, our investment adviser will generally favor
proposals that promote transparency and accountability within a portfolio
company.
Anti-Takeover
Measures: Our investment adviser will evaluate, on
a case-by-case basis, any proposals regarding anti-takeover measures to
determine the measure's likely effect on shareholder value
dilution.
Stock
Splits: Our investment adviser will generally vote
with management on stock split matters.
Limited Liability
of Directors: Our investment adviser will
generally vote with management on matters that could adversely affect the
limited liability of directors.
Social and
Corporate Responsibility: Our investment adviser
will review proposals related to social, political and environmental issues to
determine whether they may adversely affect shareholder value. Our investment
adviser may abstain from voting on such proposals where they do not have a
readily determinable financial impact on shareholder value.
Other
We
may also be prohibited under the 1940 Act from knowingly participating in
certain transactions with our affiliates without the prior approval of our board
of directors who are not interested persons and, in some cases, prior approval
by the SEC.
We
will be periodically examined by the SEC for compliance with the 1940
Act.
We
are required to provide and maintain a bond issued by a reputable fidelity
insurance company to protect us against larceny and embezzlement. Furthermore,
as a BDC, we are prohibited from protecting any director or officer against any
liability to Apollo Investment or our stockholders arising from willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such person's office.
We
and AIM have adopted and implemented written policies and procedures reasonably
designed to prevent violation of the federal securities laws and intend to
review these policies and procedures annually for their adequacy and the
effectiveness of their implementation. We have designated a chief compliance
officer to be responsible for administering our compliance policies and
procedures.
Compliance
with the Sarbanes-Oxley Act of 2002 and The Nasdaq Global Select Market
Corporate Governance Regulations
The
Sarbanes-Oxley Act of 2002 imposes a wide variety of regulatory requirements on
publicly-held companies and their insiders. Many of these requirements affect
us. The Sarbanes-Oxley Act has required us to review our policies and procedures
to determine whether we comply with the Sarbanes-Oxley Act and the regulations
promulgated thereunder. We will continue to monitor our compliance with all
future regulations that are adopted under the Sarbanes-Oxley Act and will take
actions necessary to ensure that we are in compliance therewith.
In
addition, The Nasdaq Global Select Market also adopted corporate governance
changes to its listing standards. We believe we are in compliance with such
corporate governance listing standards. We will continue to monitor our
compliance with all future listing standards and will take actions necessary to
ensure that we are in compliance therewith.
CUSTODIAN,
TRANSFER AND DIVIDEND PAYING AGENT, REGISTRAR AND TRUSTEE
Our
securities are held under a custody agreement by JPMorgan Chase Bank, a global
financial services firm. The address of the custodian is: 270 Park Avenue, New
York, NY 10017. American Stock Transfer and Trust Company will act as our
transfer agent, dividend paying agent and registrar. The principal business
address of American Stock Transfer & Trust Company is: 59 Maiden Lane, New
York, NY 10007, telephone number: (718) 921-8200. JPMorgan Chase Bank will also
act as the trustee. The principal business address of JPMorgan Chase Bank is:
270 Park Avenue, New York, NY 10017.
BROKERAGE
ALLOCATION AND OTHER PRACTICES
Since
we generally acquire and dispose of our investments in privately negotiated
transactions, we infrequently use brokers in the normal course of our
business. From the commencement of our operations through March 31,
2009, we have not paid any brokerage commissions. Subject to policies
established by our board of directors, our investment adviser is primarily
responsible for the execution of the publicly traded securities portion of our
portfolio transactions and the allocation of brokerage commissions. Our
investment adviser does not execute transactions through any particular broker
or dealer, but seeks to obtain the best net results for us, taking into account
such factors as price (including the applicable brokerage commission or dealer
spread), size of order, difficulty of execution, and operational facilities of
the firm and the firm's risk and skill in positioning blocks of securities.
While our investment adviser generally seeks reasonably competitive trade
execution costs, we will not necessarily pay the lowest spread or commission
available. Subject to applicable legal requirements, our investment adviser may
select a broker based partly upon brokerage or research services provided to the
investment adviser and us and any other clients. In return for such services, we
may pay a higher commission than other brokers would
charge
if our investment adviser determines in good faith that such commission is
reasonable in relation to the services provided.
PLAN
OF DISTRIBUTION
We
may sell the securities in any of three ways (or in any combination): (a)
through underwriters or dealers; (b) directly to a limited number of purchasers
or to a single purchaser; or (c) through agents. The securities may be sold
"at-the-market" to or through a market maker or into an existing trading market
for the securities, on an exchange or otherwise. The prospectus supplement will
set forth the terms of the offering of such securities, including:
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the
name or names of any underwriters, dealers or agents and the amounts of
securities underwritten or purchased by each of
them;
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·
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the
offering price of the securities and the proceeds to us and any discounts,
commissions or concessions allowed or reallowed or paid to dealers;
and
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·
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any
securities exchanges on which the securities may be
listed.
|
Any
offering price and any discounts or concessions allowed or reallowed or paid to
dealers may be changed from time to time.
If
underwriters are used in the sale of any securities, the securities will be
acquired by the underwriters for their own accounts and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
The securities may be either offered to the public through underwriting
syndicates represented by managing underwriters, or directly by underwriters.
Generally, the underwriters' obligations to purchase the securities will be
subject to certain conditions precedent. The underwriters will be obligated to
purchase all of the securities if they purchase any of the
securities.
In
compliance with the guidelines of FINRA, the maximum compensation to the
underwriters or dealers in connection with the sale of our securities pursuant
to this prospectus and the accompanying supplement to this prospectus may not
exceed 8% of the aggregate offering price of the securities as set forth on the
cover page of the supplement to this prospectus.
We
may sell the securities through agents from time to time. The prospectus
supplement will name any agent involved in the offer or sale of the securities
and any commissions we pay to them. Generally, any agent will be acting on a
best efforts basis for the period of its appointment.
We
may authorize underwriters, dealers or agents to solicit offers by certain
purchasers to purchase the securities from us at the public offering price set
forth in the prospectus supplement pursuant to delayed delivery contracts
providing for payment and delivery on a specified date in the future. The
contracts will be subject only to those conditions set forth in the prospectus
supplement, and the prospectus supplement will set forth any commissions we pay
for soliciting these contracts.
Agents
and underwriters may be entitled to indemnification by us against certain civil
liabilities, including liabilities under the Securities Act of 1933 or to
contribution with respect to payments which the agents or underwriters may be
required to make in respect thereof. Agents and underwriters may be customers
of, engage in transactions with, or perform services for us in the ordinary
course of business.
We
may enter into derivative transactions with third parties or sell securities not
covered by this prospectus to third parties in privately negotiated
transactions. If the prospectus supplement applicable to those derivatives so
indicates, the third parties may sell securities covered by this prospectus and
the applicable prospectus supplement, including in short sale transactions. If
so, the third party may use securities pledged by us or borrowed from us or
others to settle those sales or to close out any related open borrowings of
stock, and may use securities received from us in settlement of those
derivatives to close out any related open borrowings of stock. The third party
in such sale transactions will be an underwriter and, if not identified in this
prospectus, will be identified in the applicable prospectus supplement (or a
post-effective amendment). We or one of our affiliates may loan or pledge
securities to a financial institution or other third party that in turn may sell
the securities using this prospectus. Such financial institution or third party
may transfer its short position to investors in our securities or in connection
with a simultaneous offering of other securities offered by this prospectus or
otherwise.
LEGAL
MATTERS
Certain
legal matters regarding the securities offered by this prospectus will be passed
upon for Apollo Investment by Skadden, Arps, Slate, Meagher & Flom LLP, New
York, NY and Venable LLP, Baltimore, MD. Certain legal matters
in connection with the offering will be passed upon for the underwriters, if
any, by the counsel named in the applicable prospectus supplement.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers
LLP, located at 300 Madison Avenue, New York, NY 10017, is our independent
registered public accounting firm.
AVAILABLE
INFORMATION
We
have filed with the SEC a registration statement on Form N-2, together with all
amendments and related exhibits, under the Securities Act of 1933, with respect
to our securities offered by this prospectus. The registration statement
contains additional information about us and the securities being offered by
this prospectus.
We
file with or submit to the SEC annual, quarterly and current periodic reports,
proxy statements, codes of ethics and other information meeting the
informational requirements of the Exchange Act. You may inspect and copy these
reports, proxy statements and other information, as well as the registration
statement and related exhibits and schedules, at the Public Reference Room of
the SEC at 100 F Street, NE, Washington, D.C. 20549. You may obtain information
on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy
and information statements and other information filed electronically by us with
the SEC which are available on the SEC's Internet site at http://www.sec.gov.
In addition, information specifically regarding how we voted proxies relating to
portfolio securities for the year ended March 31, 2008 is available without
charge, upon request, by calling 212-515-3450. Copies of these reports, proxy
and information statements and other information may be obtained, after paying a
duplicating fee, by electronic request at the following e-mail address:
[email protected], or by writing the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
INDEX
TO FINANCIAL STATEMENTS
Index
to Financial Statements
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Management's
Report on Internal Control over Financial Reporting
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F- 2
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Report
of Independent Registered Public Accounting Firm
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F- 3
|
|
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Statement
of Assets and Liabilities as of March 31, 2009 and March 31,
2008
|
F- 4
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Statement
of Operations for the years ended March 31, 2009, March 31, 2008
and March 31, 2007
|
F- 5
|
|
|
Statement
of Changes in Net Assets for the years ended March 31, 2009, March 31,
2008 and March 31, 2007
|
F- 6
|
|
|
Statement
of Cash Flows for the years ended March 31, 2009, March 31, 2008
and March 31, 2007
|
F- 7
|
|
|
Schedule
of Investments as of March 31, 2009 and March 31,
2008
|
F- 8
|
|
|
Notes
to Financial Statements
|
F-20
|
MANAGEMENT'S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, and for performing an assessment of the effectiveness of
internal control over financial reporting as of March 31, 2009 . Internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. The Company’s internal control over financial
reporting includes those policies and procedures that (i) pertain to assets of
the company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the company’s assets that could have a material effect on the financial
statements.
Management
performed an assessment of the effectiveness of the Company’s internal control
over financial reporting as of March 31, 2009 based upon criteria in
Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). Based on our assessment,
management determined that the Company’s internal control over financial
reporting was effective as of March 31, 2009 based on the criteria on
Internal Control — Integrated Framework issued by COSO.
The
effectiveness of the Company's internal control over financial reporting as of
March 31, 2009 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report which appears
herein.
Report
of Independent Registered Public Accounting Firm
To
the Board of Directors and Share holders of
Apollo
Investment Corporation:
In
our opinion, the accompanying statements of assets and liabilities including the
schedules of investments, and the related statements of operations, changes in
net assets, cash flows, and financial highlights present fairly, in all material
respects, the financial position of Apollo Investment Corporation (“the
Company”) at March 31, 2009 and March 31, 2008 , and the results of
its operations, the changes in net assets, and its cash flows for each of the
three years in the period ended March 31, 2009 , and the financial
highlights for each of the periods presented in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of March 31, 2009 , based on criteria
established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company’s management is
responsible for these financial statements, for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in Management’s Report on
Internal Control over Financial Reporting appearing on page 37 of the annual
report to shareholders. Our responsibility is to express opinions on these
financial statements and on the Company’s internal control over financial
reporting based on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements
included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
New
York, New York
May
29, 2009
APOLLO
INVESTMENT CORPORATION
STATEMENTS
OF ASSETS AND LIABILITIES
(in
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
|
March 31, 2008
|
|
Assets
|
|
|
|
|
|
|
Non-controlled/non-affiliated
investments, at value (cost—$3,056,709 and $3,139,047,
respectively)
|
|
$ |
2,319,815 |
|
|
$ |
2,986,556 |
|
Controlled
investments, at value (cost—$326,777 and $247,400,
respectively)
|
|
|
126,083 |
|
|
|
246,992 |
|
Cash
equivalents, at value (cost—$0 and $404,063,
respectively)
|
|
|
— |
|
|
|
403,898 |
|
Cash
|
|
|
5,914 |
|
|
|
8,954 |
|
Foreign
currency (cost—$694 and $2,140, respectively)
|
|
|
693 |
|
|
|
2,130 |
|
Interest
receivable
|
|
|
42,461 |
|
|
|
46,643 |
|
Dividends
receivable
|
|
|
48,295 |
|
|
|
23,024 |
|
Miscellaneous
income receivable
|
|
|
51 |
|
|
|
— |
|
Receivable
from investment adviser
|
|
|
393 |
|
|
|
231 |
|
Prepaid
expenses and other assets
|
|
|
4,934 |
|
|
|
5,896 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
2,548,639 |
|
|
$ |
3,724,324 |
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Credit
facility payable (see note 7 & 12)
|
|
$ |
1,057,601 |
|
|
$ |
1,639,122 |
|
Dividends
payable
|
|
|
36,978 |
|
|
|
9,368 |
|
Payable
for investments purchased
|
|
|
27,555 |
|
|
|
142,339 |
|
Management
and performance-based incentive fees payable (see note
3)
|
|
|
25,314 |
|
|
|
26,969 |
|
Interest
payable
|
|
|
711 |
|
|
|
6,178 |
|
Accrued
administrative expenses
|
|
|
1,547 |
|
|
|
288 |
|
Other
liabilities and accrued expenses
|
|
|
2,795 |
|
|
|
2,152 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
$ |
1,152,501 |
|
|
$ |
1,826,416 |
|
|
|
|
|
|
|
|
|
|
Net
Assets
|
|
|
|
|
|
|
|
|
Common
stock, par value $.001 per share, 400,000 and 400,000 common shares
authorized, respectively, and 142,221 and 119,894 issued and outstanding,
respectively
|
|
$ |
142 |
|
|
$ |
120 |
|
Paid-in
capital in excess of par (see note 2f)
|
|
|
2,352,205 |
|
|
|
1,983,795 |
|
Undistributed
net investment income (see note 2f)
|
|
|
96,174 |
|
|
|
24,959 |
|
Accumulated
net realized gain (loss) (see note 2f)
|
|
|
(120,811 |
) |
|
|
86,136 |
|
Net
unrealized depreciation
|
|
|
(931,572 |
) |
|
|
(197,102 |
) |
|
|
|
|
|
|
|
|
|
Total
Net Assets
|
|
$ |
1,396,138 |
|
|
$ |
1,897,908 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and net assets
|
|
$ |
2,548,639 |
|
|
$ |
3,724,324 |
|
|
|
|
|
|
|
|
|
|
Net
Asset Value Per Share
|
|
$ |
9.82 |
|
|
$ |
15.83 |
|
See
notes to financial statements.
APOLLO
INVESTMENT CORPORATION
STATEMENTS
OF OPERATIONS
(in
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
INVESTMENT
INCOME:
|
|
|
|
|
|
|
|
|
|
From
non-controlled/non-affiliated investments:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
340,664 |
|
|
$ |
321,684 |
|
|
$ |
245,348 |
|
Dividends
|
|
|
11,940 |
|
|
|
14,551 |
|
|
|
18,021 |
|
Other
Income
|
|
|
5,326 |
|
|
|
4,643 |
|
|
|
2,732 |
|
From
controlled investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
19,374 |
|
|
|
7,000 |
|
|
|
— |
|
Other
Income
|
|
|
— |
|
|
|
10,000 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Investment Income
|
|
|
377,304 |
|
|
|
357,878 |
|
|
|
266,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
fees (see note 3)
|
|
$ |
59,686 |
|
|
$ |
59,871 |
|
|
$ |
40,569 |
|
Performance-based
incentive fees (see note 3)
|
|
|
51,583 |
|
|
|
30,449 |
|
|
|
57,912 |
|
Interest
and other credit facility expenses
|
|
|
48,919 |
|
|
|
55,772 |
|
|
|
34,375 |
|
Administrative
services expense
|
|
|
4,794 |
|
|
|
3,450 |
|
|
|
2,437 |
|
Insurance
expense
|
|
|
948 |
|
|
|
776 |
|
|
|
819 |
|
Other
general and administrative expenses
|
|
|
4,740 |
|
|
|
4,360 |
|
|
|
3,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
170,670 |
|
|
|
154,678 |
|
|
|
139,812 |
|
Expense
offset arrangement (see note 8)
|
|
|
(217 |
) |
|
|
(273 |
) |
|
|
(128 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
expenses
|
|
|
170,453 |
|
|
|
154,405 |
|
|
|
139,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income before excise taxes
|
|
|
206,851 |
|
|
|
203,473 |
|
|
|
126,417 |
|
Excise
tax expense
|
|
|
(520 |
) |
|
|
(1,867 |
) |
|
|
(1,099 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
$ |
206,331 |
|
|
$ |
201,606 |
|
|
$ |
125,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REALIZED
AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, CASH EQUIVALENTS AND FOREIGN
CURRENCIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
realized gain (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
and cash equivalents
|
|
|
(125,005 |
) |
|
|
93,261 |
|
|
|
149,653 |
|
Foreign
currencies
|
|
|
41,265 |
|
|
|
(38,961 |
) |
|
|
(16,771 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
realized gain (loss)
|
|
|
(83,740 |
) |
|
|
54,300 |
|
|
|
132,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in unrealized gain (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
and cash equivalents
|
|
|
(784,388 |
) |
|
|
(257,645 |
) |
|
|
67,908 |
|
Foreign
currencies
|
|
|
49,918 |
|
|
|
(31,699 |
) |
|
|
(13,942 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in unrealized gain (loss)
|
|
|
(734,470 |
) |
|
|
(289,344 |
) |
|
|
53,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
realized and unrealized gain (loss) from investments, cash equivalents and
foreign currencies
|
|
|
(818,210 |
) |
|
|
(235,044 |
) |
|
|
186,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS
|
|
$ |
(611,879 |
) |
|
$ |
(33,438 |
) |
|
$ |
312,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS
(LOSS) PER SHARE (see note 5)
|
|
$ |
(4.39 |
) |
|
$ |
(0.30 |
) |
|
$ |
3.64 |
|
See
notes to financial statements.
APOLLO
INVESTMENT CORPORATION
STATEMENTS
OF CHANGES IN NET ASSETS
(in
thousands, except shares)
|
|
Year
Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Increase
(Decrease) in net assets from operations:
|
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
$ |
206,331
|
|
|
$ |
201,606
|
|
|
$ |
125,318
|
|
Net
realized gains (loss)
|
|
|
(83,740 |
) |
|
|
54,300
|
|
|
|
132,882
|
|
Net
change in unrealized gain (loss)
|
|
|
(734,470 |
) |
|
|
(289,344 |
) |
|
|
53,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in net assets resulting
from operations
|
|
|
(611,879 |
) |
|
|
(33,438 |
) |
|
|
312,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
and distributions to stockholders (see note 13):
|
|
|
(258,843 |
) |
|
|
(230,889 |
) |
|
|
(168,449 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
share transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
proceeds from shares sold
|
|
|
369,589
|
|
|
|
285,545
|
|
|
|
443,605
|
|
Less
offering costs
|
|
|
(637 |
) |
|
|
(461 |
) |
|
|
(986 |
) |
Reinvestment
of dividends
|
|
|
—
|
|
|
|
27,403
|
|
|
|
33,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in net assets from capital share transactions
|
|
|
368,952
|
|
|
|
312,487
|
|
|
|
476,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
increase (decrease) in net assets:
|
|
|
(501,770 |
) |
|
|
48,160
|
|
|
|
619,893
|
|
Net
assets at beginning of period
|
|
|
1,897,908
|
|
|
|
1,849,748
|
|
|
|
1,229,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets at end of period
|
|
$ |
1,396,138
|
|
|
$ |
1,897,908
|
|
|
$ |
1,849,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
share activity
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
sold
|
|
|
22,327,500
|
|
|
|
14,950,000
|
|
|
|
20,700,000
|
|
Shares
issued from reinvestment of dividends
|
|
|
—
|
|
|
|
1,436,069
|
|
|
|
1,615,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in capital share activity
|
|
|
22,327,500
|
|
|
|
16,386,069
|
|
|
|
22,315,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to financial statements.
APOLLO
INVESTMENT CORPORATION
STATEMENTS
OF CASH FLOWS
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Net Assets Resulting from
Operations
|
|
$ |
(611,879 |
) |
|
$ |
(33,438 |
) |
|
$ |
312,166 |
|
Adjustments
to reconcile net increase (decrease):
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of investment securities
|
|
|
(462,274 |
) |
|
|
(1,857,850 |
) |
|
|
(1,578,614 |
) |
Proceeds
from disposition of investment securities and cash
equivalents
|
|
|
340,168 |
|
|
|
809,223 |
|
|
|
1,004,012 |
|
Increase
(decrease) from foreign currency transactions
|
|
|
41,265
|
|
|
|
(38,961 |
) |
|
|
(16,771 |
) |
Increase
in interest and dividends receivable
|
|
|
(21,089 |
) |
|
|
(27,463 |
) |
|
|
(17,141 |
) |
Decrease
(increase) in prepaid expenses and other assets
|
|
|
749
|
|
|
|
(294 |
) |
|
|
1,323
|
|
Increase
(decrease) in management and performance-based incentive fees
payable
|
|
|
(1,655 |
) |
|
|
(16,610 |
) |
|
|
30,730
|
|
Increase
(decrease) in interest payable
|
|
|
(5,467 |
) |
|
|
4,329
|
|
|
|
548
|
|
Increase
(decrease) in accrued expenses
|
|
|
1,902
|
|
|
|
1,224
|
|
|
|
(810 |
) |
Increase
(decrease) in payable for investments and cash equivalents
purchased
|
|
|
(114,784 |
) |
|
|
(992,292 |
) |
|
|
193,498
|
|
Increase
(decrease) in receivables for securities sold
|
|
|
—
|
|
|
|
28,248
|
|
|
|
(10,987 |
) |
Net
change in unrealized depreciation (appreciation) on investments, cash
equivalents, foreign currencies and other assets and
liabilities
|
|
|
734,470
|
|
|
|
289,344
|
|
|
|
(53,966 |
) |
Net
realized loss (gain) on investments and cash
equivalents
|
|
|
83,740
|
|
|
|
(54,300 |
) |
|
|
(132,882 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Used by Operating Activities
|
|
$ |
(14,854 |
) |
|
$ |
(1,888,840 |
) |
|
$ |
(268,894 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
proceeds from the issuance of common stock
|
|
$ |
369,589
|
|
|
$ |
285,545
|
|
|
$ |
443,605
|
|
Offering
costs from the issuance of common stock
|
|
|
(637 |
) |
|
|
(461 |
) |
|
|
(986 |
) |
Dividends
paid in cash
|
|
|
(231,233 |
) |
|
|
(194,118 |
) |
|
|
(134,892 |
) |
Borrowings
under credit facility
|
|
|
1,739,502
|
|
|
|
2,990,313
|
|
|
|
2,179,863
|
|
Repayments
under credit facility
|
|
|
(2,270,751 |
) |
|
|
(1,875,396 |
) |
|
|
(2,025,705 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided (Used) by Financing Activities
|
|
$ |
(393,530 |
) |
|
$ |
1,205,883
|
|
|
$ |
461,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
$ |
(408,384 |
) |
|
$ |
(682,957 |
) |
|
$ |
192,991
|
|
Effect
of exchange rates on cash balances
|
|
|
8
|
|
|
|
(12 |
) |
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
$ |
414,983
|
|
|
$ |
1,097,952
|
|
|
$ |
904,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$ |
6,607
|
|
|
$ |
414,983
|
|
|
$ |
1,097,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
interest paid during the period
|
|
$ |
51,859
|
|
|
$ |
48,265
|
|
|
$ |
31,252
|
|
Non-cash
financing activities consist of the reinvestment of dividends totaling $0,
$27,403 and $33,557, respectively.
See
notes to financial statements.
APOLLO
INVESTMENT CORPORATION
SCHEDULE
OF INVESTMENTS
March
31, 2009
(in
thousands)
Investments
in Non-Controlled/Non-Affiliated
Portfolio
Companies
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated
Debt/Corporate Notes — 102.9%
|
|
|
|
|
|
|
|
|
|
|
|
AB
Acquisitions UK Topco 2 Limited (Alliance Boots), GBP L+650,
7/9/17
|
|
Retail
|
|
£ |
39,526 |
|
|
$ |
76,758 |
|
|
$ |
39,942 |
|
Advanstar,
Inc., L+700, 11/30/15
|
|
Media
|
|
$ |
24,385 |
|
|
|
24,385 |
|
|
|
1,341 |
|
Advantage
Sales & Marketing, Inc., 12.00%, 3/29/14
|
|
Grocery
|
|
|
31,884 |
|
|
|
31,445 |
|
|
|
29,536 |
|
Allied
Security Holdings LLC, 13.75%, 8/21/15
|
|
Business
Services
|
|
|
20,000 |
|
|
|
19,621 |
|
|
|
17,500 |
|
AMH
Holdings II, Inc. (Associated Materials), 13.625%, 12/1/14 ¨
|
|
Building
Products
|
|
|
52,155 |
|
|
|
51,422 |
|
|
|
14,655 |
|
Angelica
Corporation, 15.00%, 2/4/14
|
|
Healthcare
|
|
|
60,000 |
|
|
|
60,000 |
|
|
|
60,000 |
|
Arbonne
Intermediate Holdco Inc. (Natural Products Group LLC), 13.50%,
6/19/14 ***
|
|
Direct
Marketing
|
|
|
76,962 |
|
|
|
76,803 |
|
|
|
4,233 |
|
Babson
CLO Ltd., Series 2008-2A Class E, L+975, 7/15/18 ¨
|
|
Asset
Management
|
|
|
11,000 |
|
|
|
9,993 |
|
|
|
8,104 |
|
Babson
CLO Ltd., Series 2008-1A Class E, L+550, 7/20/18 ¨
|
|
Asset
Management
|
|
|
10,150 |
|
|
|
7,220 |
|
|
|
5,485 |
|
BNY
ConvergEx Group, LLC, 14.00%, 10/2/14
|
|
Business
Services
|
|
|
15,611 |
|
|
|
15,611 |
|
|
|
13,879 |
|
Booz
Allen Hamilton Inc., 13.00%, 7/31/16
|
|
Consulting
Services
|
|
|
23,435 |
|
|
|
23,073 |
|
|
|
20,857 |
|
Brenntag
Holding GmbH & Co. KG, E+700, 12/23/15
|
|
Chemicals
|
|
€ |
19,725 |
|
|
|
24,412 |
|
|
|
21,396 |
|
Catalina
Marketing Corporation, 11.625%, 10/1/17 ¨
|
|
Grocery
|
|
$ |
31,959 |
|
|
|
30,327 |
|
|
|
27,165 |
|
Ceridian
Corp., 12.25%, 11/15/15 †
|
|
Diversified
Service
|
|
|
50,000 |
|
|
|
50,000 |
|
|
|
42,750 |
|
Ceridian
Corp., 11.25%, 11/15/15 †
|
|
Diversified
Service
|
|
|
36,000 |
|
|
|
35,140 |
|
|
|
31,788 |
|
Cidron
Healthcare C S.á.R.L. (Convatec) E+950, 8/1/17
|
|
Healthcare
|
|
€ |
7,668 |
|
|
|
12,028 |
|
|
|
8,603 |
|
Collect
America, Ltd., 16.00%, 8/5/12 ¨
|
|
Consumer
Finance
|
|
$ |
38,136 |
|
|
|
37,658 |
|
|
|
36,647 |
|
Delta
Educational Systems, Inc., 14.20%, 5/12/13
|
|
Education
|
|
|
19,271 |
|
|
|
18,777 |
|
|
|
19,126 |
|
DSI
Renal Inc., 16.00%, 4/7/14
|
|
Healthcare
|
|
|
11,357 |
|
|
|
11,357 |
|
|
|
9,647 |
|
Dura-Line
Merger Sub, Inc., 14.00%, 9/22/14
|
|
Telecommunications
|
|
|
41,218 |
|
|
|
40,561 |
|
|
|
39,033 |
|
Eurofresh,
Inc., 0% / 14.50%, 1/15/14 ¨
***†
|
|
Agriculture
|
|
|
26,504 |
|
|
|
24,303 |
|
|
|
199 |
|
Eurofresh,
Inc., 11.50%, 1/15/13 ¨
***†
|
|
Agriculture
|
|
|
50,000 |
|
|
|
50,000 |
|
|
|
11,250 |
|
European
Directories (DH5) B.V., 15.735%, 7/1/16 †
|
|
Publishing
|
|
€ |
2,961 |
|
|
|
3,777 |
|
|
|
3,356 |
|
European
Directories (DH7) B.V., E+950, 7/1/15 †
|
|
Publishing
|
|
|
16,643 |
|
|
|
20,695 |
|
|
|
19,114 |
|
First
Data Corporation, 11.25%, 3/31/16 ¨†
|
|
Financial
Services
|
|
$ |
40,000 |
|
|
|
33,203 |
|
|
|
32,080 |
|
First
Data Corporation, 9.875%, 9/24/15 †
|
|
Financial
Services
|
|
|
45,500 |
|
|
|
39,489 |
|
|
|
35,945 |
|
FleetPride
Corporation, 11.50%, 10/1/14 ¨†
|
|
Transportation
|
|
|
47,500 |
|
|
|
47,500 |
|
|
|
40,375 |
|
Fox
Acquisition Sub LLC, 13.375%, 7/15/16 ¨
|
|
Broadcasting
& Entertainment
|
|
|
25,000 |
|
|
|
24,785 |
|
|
|
20,825 |
|
See
notes to financial statements
APOLLO
INVESTMENT CORPORATION
SCHEDULE
OF INVESTMENTS (continued)
March
31, 2009
(in
thousands)
Investments
in Non-Controlled/Non-Affiliated
Portfolio
Companies
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated
Debt/Corporate Notes — (continued)
|
|
|
|
|
|
|
|
|
|
|
|
FPC
Holdings, Inc. (FleetPride Corporation),
0%
/ 14.00%, 6/30/15 ¨†
|
|
Transportation
|
|
$ |
37,846 |
|
|
$ |
36,826 |
|
|
$ |
30,276 |
|
General
Nutrition Centers, Inc., L+450, 3/15/14
|
|
Retail
|
|
|
15,275 |
|
|
|
15,070 |
|
|
|
9,375 |
|
Goodman
Global Inc., 13.50%, 2/15/16
|
|
Manufacturing
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
24,025 |
|
Hub
International Holdings, 10.25%, 6/15/15 ¨
|
|
Insurance
|
|
|
25,000 |
|
|
|
24,160 |
|
|
|
19,666 |
|
Infor
Lux Bond Company (Infor Global), L+800, 9/2/14
|
|
Business
Services
|
|
|
9,582 |
|
|
|
9,582 |
|
|
|
719 |
|
KAR
Holdings, Inc., 10.00%, 5/1/15
|
|
Transportation
|
|
|
48,225 |
|
|
|
44,404 |
|
|
|
27,488 |
|
Latham
Manufacturing Corp., 20.00%, 12/30/12 ***
|
|
Leisure
Equipment
|
|
|
37,920 |
|
|
|
34,190 |
|
|
|
15,168 |
|
Laureate
Education, Inc., 11.75%, 8/15/17 ¨
|
|
Education
|
|
|
53,540 |
|
|
|
49,621 |
|
|
|
46,794 |
|
LVI
Services, Inc., 14.25%, 11/16/12
|
|
Environmental
|
|
|
47,523 |
|
|
|
47,523 |
|
|
|
44,790 |
|
MW
Industries, Inc., 13.00%, 5/1/14
|
|
Manufacturing
|
|
|
60,000 |
|
|
|
59,067 |
|
|
|
56,220 |
|
NCO
Group Inc., 11.875%, 11/15/14
|
|
Consumer
Finance
|
|
|
22,630 |
|
|
|
18,487 |
|
|
|
19,427 |
|
Neff
Corp., 10.00%, 6/1/15
|
|
Rental
Equipment
|
|
|
5,000 |
|
|
|
5,000 |
|
|
|
725 |
|
Nielsen
Finance LLC, 0% / 12.50%, 8/1/16
|
|
Market
Research
|
|
|
61,000 |
|
|
|
47,500 |
|
|
|
37,430 |
|
OTC
Investors Corporation (Oriental Trading Company), 13.50%,
1/31/15
|
|
Direct
Marketing
|
|
|
27,861 |
|
|
|
27,862 |
|
|
|
9,752 |
|
Pacific
Crane Maintenance Company, L.P., 13.00%, 2/15/14
|
|
Machinery
|
|
|
34,170 |
|
|
|
34,170 |
|
|
|
22,210 |
|
PBM
Holdings, Inc., 13.50%, 9/29/13
|
|
Beverage,
Food & Tobacco
|
|
|
17,723 |
|
|
|
17,723 |
|
|
|
16,128 |
|
Playpower
Holdings Inc., 15.50%, 12/31/12 ¨
|
|
Leisure
Equipment
|
|
|
83,707 |
|
|
|
83,707 |
|
|
|
70,732 |
|
Pro
Mach Merger Sub, Inc., 12.50%, 6/15/12
|
|
Machinery
|
|
|
14,616 |
|
|
|
14,464 |
|
|
|
13,626 |
|
QHB
Holdings LLC (Quality Home Brands), 14.50%, 12/20/13
|
|
Consumer
Products
|
|
|
50,938 |
|
|
|
50,273 |
|
|
|
36,293 |
|
Ranpak
Holdings, Inc., 15.00%, 12/27/15
|
|
Packaging
|
|
|
58,217 |
|
|
|
58,217 |
|
|
|
50,300 |
|
RSA
Holdings Corp. of Delaware (American Safety Razor), 13.50%,
7/31/15
|
|
Consumer
Products
|
|
|
50,129 |
|
|
|
50,130 |
|
|
|
38,976 |
|
The
Servicemaster Company, 10.75%, 7/15/15 ¨
|
|
Diversified
Service
|
|
|
67,173 |
|
|
|
60,832 |
|
|
|
54,343 |
|
TL
Acquisitions, Inc. (Thomson Learning), 0% / 13.25%, 7/15/15 ¨†
|
|
Education
|
|
|
72,500 |
|
|
|
69,587 |
|
|
|
57,347 |
|
TL
Acquisitions, Inc. (Thomson Learning), 10.50%, 1/15/15 ¨†
|
|
Education
|
|
|
47,500 |
|
|
|
46,777 |
|
|
|
40,185 |
|
US
Foodservice, 10.25%, 6/30/15
|
|
Beverage,
Food &
Tobacco
|
|
$ |
30,000 |
|
|
|
23,812 |
|
|
|
25,710 |
|
TP
Financing 2, Ltd. (Travelex), GBP L+725, 4/1/15
|
|
Financial
Services
|
|
£ |
13,505 |
|
|
|
26,128 |
|
|
|
12,499 |
|
US
Investigations Services, Inc., 11.75%, 5/1/16¨†
|
|
Diversified
Service
|
|
$ |
14,639 |
|
|
$ |
9,085 |
|
|
$ |
11,901 |
|
US
Investigations Services, Inc., 10.50%, 11/1/15¨†
|
|
Diversified
Service
|
|
|
9,500 |
|
|
|
7,991 |
|
|
|
8,075 |
|
Varietal
Distribution, 10.75%, 6/30/17
|
|
Distribution
|
|
|
21,875 |
|
|
|
21,288 |
|
|
|
15,269 |
|
WDAC
Intermediate Corp., E+600, 11/29/15
|
|
Publishing
|
|
€ |
46,320 |
|
|
|
62,591 |
|
|
|
379 |
|
Westbrook
CLO Ltd., Series 2006-1A, L+370, 12/20/20 ¨
|
|
Asset
Management
|
|
$ |
11,000 |
|
|
|
6,509 |
|
|
|
5,389 |
|
|
|
|
|
|
|
|
|
|
--------------- |
|
|
|
--------------- |
|
Total
Subordinated Debt/Corporate Notes
|
|
|
|
|
|
|
|
$ |
1,987,919 |
|
|
$ |
1,436,048 |
|
|
|
|
|
|
|
|
|
|
--------------- |
|
|
|
--------------- |
|
See
notes to financial statements.
APOLLO
INVESTMENT CORPORATION
SCHEDULE
OF INVESTMENTS (continued)
March
31, 2009
(in
thousands, except shares)
Investments
in Non-Controlled/Non-Affiliated
Portfolio
Companies
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Equity — 2.2%
|
|
|
|
|
|
|
|
|
|
|
|
AHC
Mezzanine LLC (Advanstar) **
|
|
Media
|
|
|
1 |
|
|
$ |
1,063 |
|
|
|
— |
|
DSI
Holding Company, Inc. (DSI Renal Inc.), 19.00%,
10/7/14
|
|
Healthcare
|
|
|
32,500 |
|
|
|
31,970 |
|
|
$ |
14,507 |
|
Gryphon
Colleges Corporation (Delta Educational Systems, Inc.), 13.50%,
5/12/14
|
|
Education
|
|
|
12,360 |
|
|
|
11,367 |
|
|
|
12,360 |
|
Gryphon
Colleges Corporation (Delta Educational Systems, Inc.), 12.50%
(Convertible)
|
|
Education
|
|
|
332,500 |
|
|
|
3,325 |
|
|
|
3,325 |
|
Varietal
Distribution Holdings, LLC, 8.00%
|
|
Distribution
|
|
|
3,097 |
|
|
|
3,097 |
|
|
|
122 |
|
Total
Preferred Equity
|
|
|
|
|
|
|
|
$ |
50,822 |
|
|
$ |
30,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Equity/Partnership Interests — 13.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AB
Capital Holdings LLC (Allied Security)
|
|
Business
Services
|
|
|
2,000,000 |
|
|
$ |
2,000 |
|
|
$ |
2,000 |
|
A-D
Conduit Holdings, LLC (Duraline) **
|
|
Telecommunications
|
|
|
2,778 |
|
|
|
2,778 |
|
|
|
3,760 |
|
AHC
Mezzanine LLC (Advanstar) **
|
|
Media
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
— |
|
CA
Holding, Inc. (Collect America, Ltd.) Series A
|
|
Consumer
Finance
|
|
|
25,000 |
|
|
|
2,500 |
|
|
|
4,162 |
|
CA
Holding, Inc. (Collect America, Ltd.) Series AA
|
|
Consumer
Finance
|
|
|
4,294 |
|
|
|
429 |
|
|
|
859 |
|
Clothesline
Holdings, Inc. (Angelica)
|
|
Healthcare
|
|
|
6,000 |
|
|
|
6,000 |
|
|
|
5,770 |
|
Explorer
Coinvest LLC (Booz Allen)
|
|
Consulting
Services
|
|
|
430 |
|
|
|
4,300 |
|
|
|
7,376 |
|
FSC
Holdings Inc. (Hanley Wood LLC) **
|
|
Media
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
3,520 |
|
Garden
Fresh Restaurant Holding, LLC **
|
|
Retail
|
|
|
50,000 |
|
|
|
5,000 |
|
|
|
8,463 |
|
Gray
Energy Services, LLC Class H (Gray Wireline) **
|
|
Oil
& Gas
|
|
|
1,081 |
|
|
|
2,000 |
|
|
|
3,590 |
|
Gryphon
Colleges Corporation (Delta Educational Systems, Inc.)
**
|
|
Education
|
|
|
17,500 |
|
|
|
175 |
|
|
|
— |
|
GS
Prysmian Co-Invest L.P. (Prysmian Cables & Systems)
(2,3)
|
|
Industrial
|
|
|
1 |
|
|
|
— |
|
|
|
43,264 |
|
Latham
International, Inc. (fka Latham Acquisition Corp.) **
|
|
Leisure
Equipment
|
|
|
33,091 |
|
|
$ |
3,309 |
|
|
|
— |
|
LVI
Acquisition Corp. (LVI Services, Inc.) **
|
|
Environmental
|
|
|
6,250 |
|
|
|
2,500 |
|
|
|
— |
|
MEG
Energy Corp. (4) **
|
|
Oil
& Gas
|
|
|
1,718,388 |
|
|
|
44,718 |
|
|
$ |
43,706 |
|
New
Omaha Holdings Co-Invest LP (First Data) **
|
|
Financial
Services
|
|
|
13,000,000 |
|
|
|
65,000 |
|
|
|
47,893 |
|
PCMC
Holdings, LLC (Pacific Crane) **
|
|
Machinery
|
|
|
40,000 |
|
|
|
4,000 |
|
|
|
847 |
|
Prism
Business Media Holdings, LLC (Penton Media, Inc.) **
|
|
Media
|
|
|
68 |
|
|
|
14,947 |
|
|
|
3,443 |
|
Pro
Mach Co-Investment, LLC **
|
|
Machinery
|
|
|
150,000 |
|
|
|
1,500 |
|
|
|
3,158 |
|
RC
Coinvestment, LLC (Ranpak Corp.) **
|
|
Packaging
|
|
|
50,000 |
|
|
|
5,000 |
|
|
|
5,535 |
|
Sorenson
Communications Holdings, LLC Class A
|
|
Consumer
Services
|
|
|
454,828 |
|
|
|
45 |
|
|
|
5,943 |
|
Varietal
Distribution Holdings, LLC Class A **
|
|
Distribution
|
|
|
28,028 |
|
|
|
28 |
|
|
|
— |
|
Total
Common Equity and Equity Interests
|
|
|
|
|
|
|
|
$ |
186,229 |
|
|
$ |
193,289 |
|
See
notes to financial statements.
APOLLO
INVESTMENT CORPORATION
SCHEDULE
OF INVESTMENTS (continued)
March
31, 2009
(in
thousands, except warrants)
Investments
in Non-Controlled/Non-Affiliated
Portfolio
Companies
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
— 0.3%
|
|
|
|
|
|
|
|
|
|
|
|
DSI
Holding Company, Inc. (DSI Renal Inc.), Common **
|
|
Healthcare
|
|
|
5,011,327 |
|
|
|
- |
|
|
|
- |
|
Fidji
Luxco (BC) S.C.A., Common (FCI)(2) **
|
|
Electronics
|
|
|
48,769 |
|
|
$ |
491 |
|
|
$ |
2,591 |
|
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 |
|
|
|
460 |
|
|
|
655 |
|
Gryphon
Colleges Corporation (Delta Educational Systems, Inc.), Class B-1
Preferred **
|
|
Education
|
|
|
104,314 |
|
|
|
1,043 |
|
|
|
1,308 |
|
Latham
International, Inc., Common
|
|
Leisure
Equipment
|
|
|
347,698 |
|
|
|
174 |
|
|
|
- |
|
Total
Warrants
|
|
|
|
|
|
|
|
$ |
2,266 |
|
|
$ |
4,554 |
|
|
|
|
|
|
|
|
|
|
|
|
Bank
Debt/Senior Secured Loans(5)
—47.0%
|
|
|
|
|
|
|
|
|
|
|
1st Lien Bank Debt/Senior Secured
Loans —
0.1%
|
|
|
|
|
|
|
|
|
|
|
OTC
Investors Corporation (Oriental Trading Company),
7/31/13
|
Direct
Marketing
|
|
$ |
2,226 |
|
|
$ |
1,155 |
|
|
$ |
1,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2nd
Lien Bank Debt/Senior Secured Loans — 46.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AB
Acquisitions UK Topco 2 Limited (Alliance Boots), 7/9/16 †
|
Retail
|
|
£ |
11,400 |
|
|
$ |
19,792 |
|
|
$ |
11,961 |
|
AB
Acquisitions UK Topco 2 Limited (Alliance Boots), 7/9/16 †
|
Retail
|
|
€ |
3,961 |
|
|
|
5,439 |
|
|
|
3,850 |
|
Advanstar
Communications, Inc., 11/30/14
|
Media
|
|
$ |
20,000 |
|
|
|
20,000 |
|
|
|
6,680 |
|
Asurion
Corporation, 7/3/15
|
Insurance
|
|
|
150,300 |
|
|
|
148,798 |
|
|
|
122,795 |
|
BNY
ConvergEx Group, LLC, 4/2/14
|
Business
Services
|
|
|
50,000 |
|
|
|
49,818 |
|
|
|
43,850 |
|
C.H.I.
Overhead Doors, Inc., 13.00%, 10/22/11
|
Building
Products
|
|
|
15,000 |
|
|
|
15,018 |
|
|
|
11,250 |
|
Clean
Earth, Inc., 13.00%, 8/1/14
|
Environmental
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
22,750 |
|
Dresser,
Inc., 5/4/15
|
Industrial
|
|
|
61,000 |
|
|
|
60,924 |
|
|
|
47,266 |
|
Educate,
Inc., 6/14/14
|
Education
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
7,728 |
|
Garden
Fresh Restaurant Corp., 12/22/11
|
Retail
|
|
|
26,000 |
|
|
|
25,861 |
|
|
|
22,386 |
|
Generics
International, Inc., 4/30/15
|
Healthcare
|
|
|
20,000 |
|
|
|
19,917 |
|
|
|
16,343 |
|
Gray
Wireline Service, Inc., 12.25%, 2/28/13
|
Oil
& Gas
|
|
|
77,500 |
|
|
|
76,966 |
|
|
|
77,500 |
|
Infor
Enterprise Solutions Holdings, Inc., Tranche B-1, 3/2/14 †
|
Business
Services
|
|
|
5,000 |
|
|
|
5,000 |
|
|
|
950 |
|
Infor
Enterprise Solutions Holdings, Inc., 3/2/14 †
|
Business
Services
|
|
|
15,000 |
|
|
|
14,859 |
|
|
|
3,375 |
|
Infor
Global Solutions European Finance S.á.R.L., 3/2/14
|
Business
Services
|
|
€ |
6,210 |
|
|
|
8,263 |
|
|
|
1,484 |
|
IPC
Systems, Inc., 6/1/15
|
Telecommunications
|
|
$ |
37,250 |
|
|
|
36,312 |
|
|
|
19,544 |
|
Kronos,
Inc., 6/11/15
|
Electronics
|
|
|
60,000 |
|
|
|
60,000 |
|
|
|
44,460 |
|
Penton
Media, Inc., 2/1/14
|
Media
|
|
|
14,000 |
|
|
|
10,650 |
|
|
|
9,884 |
|
Quality
Home Brands Holdings LLC, 6/20/13
|
Consumer
Products
|
|
|
40,256 |
|
|
|
39,830 |
|
|
|
30,252 |
|
Ranpak
Corp.(6), 12/27/14
|
Packaging
|
|
|
12,500 |
|
|
|
12,500 |
|
|
|
11,108 |
|
Ranpak
Corp.(7), 12/27/14
|
Packaging
|
|
€ |
5,206 |
|
|
|
7,585 |
|
|
|
6,098 |
|
Sheridan
Holdings, Inc., 6/15/15
|
Healthcare
|
|
$ |
60,000 |
|
|
|
60,000 |
|
|
|
49,860 |
|
Sorenson
Communications, Inc., 2/18/14
|
Consumer
Services
|
|
|
62,103 |
|
|
|
62,103 |
|
|
|
54,443 |
|
TransFirst
Holdings, Inc., 6/15/15
|
Financial
Services
|
|
|
34,750 |
|
|
|
33,683 |
|
|
|
28,669 |
|
Total
2nd Lien Bank Debt/Senior Secured Loans
|
|
|
|
|
|
|
$ |
828,318 |
|
|
$ |
654,486 |
|
Total
Bank Debt/Senior Secured Loans
|
|
|
|
|
|
|
$ |
829,473 |
|
|
$ |
655,610 |
|
Total
Investments in Non-Controlled/Non-Affiliated Portfolio Companies —
166.2%
|
|
|
|
|
|
|
$ |
3,056,709 |
|
|
$ |
2,319,815 |
|
See
notes to financial statements.
APOLLO
INVESTMENT CORPORATION
SCHEDULE
OF INVESTMENTS (continued)
March
31, 2009
(in
thousands, except shares)
Investments
in Controlled Portfolio Companies
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Equity — 4.4%
|
|
|
|
|
|
|
|
|
|
|
|
Grand
Prix Holdings, LLC Series A, 12.00% (Innkeepers USA)
|
|
Hotels,
Motels, Inns & Gaming
|
|
|
2,989,431 |
|
|
$ |
74,736 |
|
|
$ |
61,219 |
|
Common
Equity/Equity Interests — 4.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AIC
Credit Opportunity Fund LLC(8)
|
|
Asset
Management
|
|
|
|
|
|
$ |
79,377 |
|
|
$ |
57,294 |
|
Grand
Prix Holdings, LLC (Innkeepers USA) **
|
|
Hotels,
Motels, Inns & Gaming
|
|
|
17,335,834 |
|
|
|
172,664 |
|
|
|
7,570 |
|
Total
Common Equity/Equity Interests
|
|
|
|
|
|
|
|
$ |
252,041 |
|
|
$ |
64,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Investments in Controlled Portfolio Companies — 9.0%
|
|
|
|
|
|
|
|
$ |
326,777 |
|
|
$ |
126,083 |
|
Total
Investments – 175.2% (9)
|
|
|
|
|
|
|
|
$ |
3,383,486 |
|
|
$ |
2,445,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
in Excess of Other Assets – (75.2%)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,049,760 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Assets – 100.0%
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,396,138 |
|
(1)
|
Fair
value is determined by or under the direction of the Board of Directors of
the Company (see Note 2).
|
(2)
|
Denominated
in Euro (€).
|
(3)
|
The
Company is the sole Limited Partner in GS Prysmian Co-Invest
L.P.
|
(4)
|
Denominated
in Canadian dollars.
|
(5)
|
Includes
floating rate instruments that accrue interest at a predetermined spread
relative to an index, typically the LIBOR (London Inter-bank Offered
Rate), EURIBOR (Euro Inter-bank Offered
Rate), GBPLIBOR (London Inter-bank Offered Rate for
British Pounds), or the prime rate. At March 31, 2009, the
range of interest rates on floating rate bank debt was 4.92% to
9.16%.
|
(6)
|
Position
is held across five US Dollar-denominated tranches with varying
yields.
|
(7)
|
Position
is held across three Euro-denominated tranches with varying
yields.
|
(8)
|
See
Note 6.
|
(9)
|
Aggregate
gross unrealized appreciation for federal income tax purposes is $72,338;
aggregate gross unrealized depreciation for federal income tax purposes is
$1,016,662. Net unrealized depreciation is $944,387 based on a
tax cost of
$3,390,222.
|
♦ |
These securities are exempt from registration under Rule 144A of
the Securities Act of 1933. Thesesecurities may be resold in transactions
that are exempt from registration, normally to qualified
institutionalbuyers. |
* |
Denominated in USD unless otherwise noted. |
** |
Non-income producing security |
*** |
Non-accrual status (see note 2m) |
†
|
Denotes
securities where the Company owns multiple tranches of the same broad
asset type but whose security characteristics differ. Such
differences may include level of subordination, call protection and
pricing, differing interest rate characteristics, among other
factors. Such factors are usually considered in the
determination of fair
values.
|
See
notes to financial statements.
APOLLO
INVESTMENT CORPORATION
SCHEDULE
OF INVESTMENTS (continued)
|
|
Percentage
of Total Investments (at fair value) as of March 31,
2009
|
|
Education
|
|
|
7.7%
|
Healthcare
|
|
|
6.8%
|
Financial
Services
|
|
|
6.4% |
Diversified
Service
|
|
|
6.1% |
Insurance
|
|
|
5.8% |
Oil
& Gas
|
|
|
5.1% |
Consumer
Products
|
|
|
4.3% |
Transportation
|
|
|
4.0% |
Retail
|
|
|
3.9% |
Industrial
|
|
|
3.7% |
Leisure
Equipment
|
|
|
3.5% |
Business
Services
|
|
|
3.4% |
Manufacturing
|
|
|
3.3% |
Asset
Management
|
|
|
3.1% |
Packaging
|
|
|
3.0% |
Hotels,
Motels, Inns and Gaming
|
|
|
2.8% |
Environmental
|
|
|
2.8% |
Telecommunications
|
|
|
2.6% |
Consumer
Finance
|
|
|
2.5% |
Consumer
Services
|
|
|
2.5% |
Grocery
|
|
|
2.3% |
Electronics
|
|
|
1.9% |
Beverage,
Food, & Tobacco
|
|
|
1.7% |
Machinery
|
|
|
1.6% |
Market
Research
|
|
|
1.5% |
Consulting
Services
|
|
|
1.2% |
Building
Products
|
|
|
1.1% |
Media
|
|
|
1.0% |
Publishing
|
|
|
0.9% |
Chemicals
|
|
|
0.9% |
Broadcasting
& Entertainment
|
|
|
0.9% |
Distribution
|
|
|
0.6% |
Direct
Marketing
|
|
|
0.6% |
Agriculture
|
|
|
0.5% |
Rental
Equipment
|
|
|
0.0% |
Total
Investments
|
|
|
100.0% |
See
notes to financial statements.
APOLLO
INVESTMENT CORPORATION
SCHEDULE
OF INVESTMENTS
March
31, 2008
(in
thousands)
Investments
in Non-Controlled/Non-Affiliated Portfolio
Companies
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated
Debt/Corporate Notes — 97.6%
|
|
|
|
|
|
|
|
|
|
|
|
AB
Acquisitions UK Topco 2 Limited (Alliance Boots), GBP L+650,
7/9/17
|
|
Retail
|
|
£ |
38,156 |
|
|
$ |
74,087 |
|
|
$ |
72,612 |
|
Advanstar,
Inc., L+700, 11/30/15
|
|
Media
|
|
$ |
22,115 |
|
|
|
22,115 |
|
|
|
22,225 |
|
Advantage
Sales & Marketing, Inc., 12.00%, 3/29/14
|
|
Grocery
|
|
|
31,245 |
|
|
|
30,746 |
|
|
|
31,245 |
|
AMH
Holdings II, Inc. (Associated Materials), 13.625%, 12/1/14
♦
|
|
Building
Products
|
|
|
50,314 |
|
|
|
49,501 |
|
|
|
50,314 |
|
Applied
Systems, Inc., 12.50%, 9/26/14
|
|
Business
Services
|
|
|
22,000 |
|
|
|
21,903 |
|
|
|
21,120 |
|
Arbonne
Intermediate Holdco Inc. (Natural Products Group LLC), 13.50%,
6/19/14
|
|
Direct
Marketing
|
|
|
67,395 |
|
|
|
67,221 |
|
|
|
37,067 |
|
Associated
Materials, Inc., 0% / 11.25%, 3/1/14
|
|
Building
Products
|
|
|
43,415 |
|
|
|
31,846 |
|
|
|
29,522 |
|
BNY
ConvergEx Group, LLC, 14.00%, 10/2/14
|
|
Business
Services
|
|
|
15,304 |
|
|
|
15,304 |
|
|
|
15,304 |
|
Brenntag
Holding GmbH & Co. KG, E+700, 12/23/15
|
|
Chemicals
|
|
€ |
19,135 |
|
|
|
23,548 |
|
|
|
24,221 |
|
Catalina
Marketing Corporation, L+500, 10/1/17
|
|
Grocery
|
|
$ |
31,959 |
|
|
|
30,218 |
|
|
|
28,124 |
|
Ceridian
Corp., 12.25%, 11/15/15
|
|
Diversified
Service
|
|
|
50,000 |
|
|
|
50,000 |
|
|
|
41,750 |
|
Ceridian
Corp., 11.25%, 11/15/15
|
|
Diversified
Service
|
|
|
31,000 |
|
|
|
30,539 |
|
|
|
26,376 |
|
Collect
America, Ltd., 13.50%, 8/5/12 ♦
|
|
Consumer
Finance
|
|
|
36,320 |
|
|
|
35,792 |
|
|
|
36,320 |
|
Delta
Educational Systems, Inc., 16.00%, 5/12/13
|
|
Education
|
|
|
18,789 |
|
|
|
18,210 |
|
|
|
18,789 |
|
DSI
Renal Inc., 14.00%, 4/7/14
|
|
Healthcare
|
|
|
10,404 |
|
|
|
10,404 |
|
|
|
10,404 |
|
Dura-Line
Merger Sub, Inc., 13.25%, 9/22/14
|
|
Telecommunications
|
|
|
40,461 |
|
|
|
39,732 |
|
|
|
40,461 |
|
Energy
Future Holdings, 11.25%, 11/1/17
|
|
Utilities
|
|
|
25,000 |
|
|
|
24,466 |
|
|
|
24,750 |
|
Eurofresh,
Inc., 0% / 14.50%, 1/15/14 ♦
|
|
Agriculture
|
|
|
26,504 |
|
|
|
21,467 |
|
|
|
10,602 |
|
Eurofresh,
Inc., 11.50%, 1/15/13 ♦
|
|
Agriculture
|
|
|
50,000 |
|
|
|
50,000 |
|
|
|
31,750 |
|
European
Directories (DH5) B.V., 15.735%, 7/1/16
|
|
Publishing
|
|
€ |
2,539 |
|
|
|
3,153 |
|
|
|
3,439 |
|
European
Directories (DH7) B.V., E+950, 7/1/15
|
|
Publishing
|
|
€ |
15,867 |
|
|
|
19,546 |
|
|
|
22,628 |
|
First
Data Corporation, L+525, 3/31/16
|
|
Financial
Services
|
|
$ |
100,000 |
|
|
|
79,000 |
|
|
|
79,000 |
|
First
Data Corporation, 9.875%, 9/24/15 ♦
|
|
Financial
Services
|
|
|
45,500 |
|
|
|
38,946 |
|
|
|
37,860 |
|
FleetPride
Corporation, 11.50%, 10/1/14 ♦
|
|
Transportation
|
|
|
47,500 |
|
|
|
47,500 |
|
|
|
45,837 |
|
FPC
Holdings, Inc. (FleetPride Corporation), 0% / 14.00%, 6/30/15
♦
|
|
Transportation
|
|
|
37,846 |
|
|
|
33,179 |
|
|
|
33,304 |
|
General
Nutrition Centers, Inc., L+450, 3/15/14 ♦
|
|
Retail
|
|
|
29,775 |
|
|
|
29,296 |
|
|
|
24,862 |
|
Goodman
Global Inc., 13.50%, 2/15/16 ♦
|
|
Manufacturing
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
24,625 |
|
Hub
International Holdings, 10.25%, 6/15/15 ♦
|
|
Insurance
|
|
|
20,000 |
|
|
|
20,000 |
|
|
|
13,900 |
|
HydroChem
Holding, Inc., 13.50%, 12/8/14
|
|
Environmental
|
|
|
20,226 |
|
|
|
20,226 |
|
|
|
19,720 |
|
Infor
Lux Bond Company (Infor Global), L+800, 9/2/14
|
|
Business
Services
|
|
|
8,611 |
|
|
|
8,611 |
|
|
|
6,361 |
|
KAR
Holdings, Inc., 10.00%, 5/1/15
|
|
Transportation
|
|
|
43,225 |
|
|
|
39,816 |
|
|
|
38,092 |
|
Language
Line Holdings, Inc., 0% / 14.125%, 6/15/13
|
|
Business
Services
|
|
|
27,678 |
|
|
|
24,468 |
|
|
|
22,641 |
|
Language
Line Inc., 11.125%, 6/15/12
|
|
Business
Services
|
|
|
27,081 |
|
|
|
26,863 |
|
|
|
27,623 |
|
Latham
Manufacturing Corp., 14.00%, 12/30/12
|
|
Leisure
Equipment
|
|
|
34,467 |
|
|
|
33,980 |
|
|
|
34,467 |
|
Laureate
Education, Inc., L+550, 8/15/17
|
|
Education
|
|
|
53,540 |
|
|
|
49,385 |
|
|
|
47,115 |
|
Lexicon
Marketing (USA), Inc., 13.25%, 5/11/13***
|
|
Direct
Marketing
|
|
|
28,482 |
|
|
|
28,482 |
|
|
|
— |
|
LVI
Services, Inc., 14.50%, 11/16/12
|
|
Environmental
|
|
|
45,302 |
|
|
|
45,302 |
|
|
|
45,302 |
|
See
notes to financial statements
APOLLO
INVESTMENT CORPORATION
SCHEDULE
OF INVESTMENTS (continued)
March
31, 2008
(in
thousands)
Investments
in Non-Controlled/Non-Affiliated Portfolio
Companies
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated
Debt/Corporate Notes — (continued)
|
|
|
|
|
|
|
|
|
|
|
|
MW
Industries, Inc., 13.00%, 5/1/14
|
|
Manufacturing
|
|
$ |
60,000 |
|
|
$ |
58,946 |
|
|
$ |
60,000 |
|
Neff
Corp., 10.00%, 6/1/15
|
|
Rental
Equipment
|
|
|
5,000 |
|
|
|
5,000 |
|
|
|
2,395 |
|
Nielsen
Finance LLC, 0% / 12.50%, 8/1/16
|
|
Market
Research
|
|
|
61,000 |
|
|
|
41,572 |
|
|
|
38,926 |
|
OTC
Investors Corporation (Oriental Trading Company), 13.50%,
1/31/15
|
|
Direct
Marketing
|
|
|
24,407 |
|
|
|
24,407 |
|
|
|
24,407 |
|
Pacific
Crane Maintenance Company, L.P., 13.00%, 2/15/14
|
|
Machinery
|
|
|
34,000 |
|
|
|
34,000 |
|
|
|
34,000 |
|
PBM
Holdings, Inc., 13.50%, 9/29/13
|
|
Beverage,
Food & Tobacco
|
|
|
17,723 |
|
|
|
17,723 |
|
|
|
17,014 |
|
Playpower
Holdings Inc., 15.50%, 12/31/12 ♦
|
|
Leisure
Equipment
|
|
|
72,098 |
|
|
|
72,098 |
|
|
|
72,098 |
|
Plinius
Investments II B.V. (Casema), E+925, 9/13/16
|
|
Cable
TV
|
|
€ |
17,701 |
|
|
|
23,060 |
|
|
|
26,841 |
|
Pro
Mach Merger Sub, Inc., 12.50%, 6/15/12
|
|
Machinery
|
|
$ |
14,598 |
|
|
|
14,411 |
|
|
|
14,598 |
|
QHB
Holdings LLC (Quality Home Brands), 13.50%, 12/20/13
|
|
Consumer
Products
|
|
|
44,331 |
|
|
|
43,442 |
|
|
|
44,331 |
|
Ranpak
Holdings, Inc., 15.00%, 12/27/15
|
|
Packaging
|
|
|
50,125 |
|
|
|
50,125 |
|
|
|
50,125 |
|
RSA
Holdings Corp. of Delaware (American Safety Razor), 13.50%,
7/31/15
|
|
Consumer
Products
|
|
|
43,817 |
|
|
|
43,817 |
|
|
|
43,817 |
|
Safety
Products Holdings LLC, 11.75%, 1/1/12
|
|
Manufacturing
|
|
|
34,043 |
|
|
|
33,662 |
|
|
|
34,405 |
|
Serpering
Investments B.V. (Casema), E+925, 9/13/16
|
|
Cable
TV
|
|
€ |
16,403 |
|
|
|
20,752 |
|
|
|
25,014 |
|
The
Servicemaster Company, L+500, 7/15/15
|
|
Diversified
Service
|
|
$ |
67,173 |
|
|
|
60,177 |
|
|
|
51,051 |
|
TL
Acquisitions, Inc. (Thomson Learning), 0% / 13.25%,
7/15/15♦
|
|
Education
|
|
|
72,500 |
|
|
|
61,153 |
|
|
|
52,109 |
|
TL
Acquisitions, Inc. (Thomson Learning), 10.50%, 1/15/15 ♦
|
|
Education
|
|
|
47,500 |
|
|
|
46,680 |
|
|
|
41,681 |
|
TP
Financing 2, Ltd. (Travelex), GBP L+725, 4/1/15
|
|
Financial
Services
|
|
£ |
11,862 |
|
|
|
23,047 |
|
|
|
19,748 |
|
US
Investigations Services, Inc., 10.50%, 11/1/15 ♦
|
|
Diversified
Service
|
|
$ |
7,500 |
|
|
|
6,131 |
|
|
|
6,188 |
|
Varietal
Distribution, 10.25%, 7/15/15
|
|
Distribution
|
|
|
15,000 |
|
|
|
15,000 |
|
|
|
14,112 |
|
Varietal
Distribution, 10.75%, 6/30/17
|
|
Distribution
|
|
|
21,875 |
|
|
|
21,247 |
|
|
|
19,359 |
|
WDAC
Intermediate Corp., E+600, 11/29/15
|
|
Publishing
|
|
€ |
41,611 |
|
|
|
55,902 |
|
|
|
45,607 |
|
Yankee
Acquisition Corp., 9.75%, 2/15/17
|
|
Retail
|
|
$ |
17,000 |
|
|
|
16,971 |
|
|
|
13,579 |
|
Yankee
Acquisition Corp., 8.50%, 2/15/15
|
|
Retail
|
|
|
1,915 |
|
|
|
1,546 |
|
|
|
1,558 |
|
Total
Subordinated Debt/Corporate Notes
|
|
|
|
|
|
|
|
$ |
2,010,721 |
|
|
$ |
1,852,695 |
|
See
notes to financial statements.
APOLLO
INVESTMENT CORPORATION
SCHEDULE
OF INVESTMENTS (continued)
March
31, 2008
(in
thousands, except shares)
Investments
in Non-Controlled/Non-Affiliated Portfolio
Companies
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Equity — 5.6%
|
|
|
|
|
|
|
|
|
|
|
|
DSI
Holding Company, Inc. (DSI Renal Inc.), 15.00%, 10/7/14
|
|
Healthcare
|
|
|
32,500 |
|
|
$ |
31,875 |
|
|
$ |
32,500 |
|
Exco
Resources, Inc., 7.00%/9.00% (Convertible)
|
|
Oil
& Gas
|
|
|
975 |
|
|
|
9,750 |
|
|
|
10,871 |
|
Exco
Resources, Inc., 7.00%/9.00% Hybrid (Convertible)
|
|
Oil
& Gas
|
|
|
4,025 |
|
|
|
40,250 |
|
|
|
44,879 |
|
Gryphon
Colleges Corporation (Delta Educational Systems, Inc.), 13.50%,
5/12/14
|
|
Education
|
|
|
12,360 |
|
|
$ |
11,180 |
|
|
$ |
12,360 |
|
Gryphon
Colleges Corporation (Delta Educational Systems, Inc.), 12.50%
(Convertible)
|
|
Education
|
|
|
3,325 |
|
|
|
3,325 |
|
|
|
1,369 |
|
LVI
Acquisition Corp. (LVI Services, Inc.), 14.00%
|
|
Environmental
|
|
|
1,875 |
|
|
|
1,875 |
|
|
|
529 |
|
Varietal
Distribution Holdings, LLC, 8.00%
|
|
Distribution
|
|
|
3,097 |
|
|
|
3,097 |
|
|
|
3,097 |
|
Total
Preferred Equity
|
|
|
|
|
|
|
|
$ |
101,352 |
|
|
$ |
105,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Equity/Partnership Interests — 15.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A-D
Conduit Holdings, LLC (Duraline) **
|
|
Telecommunications
|
|
|
2,778 |
|
|
$ |
2,778 |
|
|
$ |
3,730 |
|
AHC
Mezzanine LLC (Advanstar)
|
|
Media
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
9,000 |
|
CA
Holding, Inc. (Collect America, Ltd.)
|
|
Consumer
Finance
|
|
|
25,000 |
|
|
|
2,500 |
|
|
|
3,720 |
|
DTPI
Holdings, Inc. (American Asphalt & Grading) **
|
|
Infrastructure
|
|
|
200,000 |
|
|
|
2,000 |
|
|
|
— |
|
FSC
Holdings Inc. (Hanley Wood LLC) **
|
|
Media
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
10,000 |
|
Garden
Fresh Restaurant Holding, LLC **
|
|
Retail
|
|
|
50,000 |
|
|
|
5,000 |
|
|
|
4,832 |
|
Gray
Energy Services, LLC Class H (Gray Wireline) **
|
|
Oil
& Gas
|
|
|
1,081 |
|
|
|
2,000 |
|
|
|
3,540 |
|
Gryphon
Colleges Corporation (Delta Educational Systems, Inc.) **
|
|
Education
|
|
|
175 |
|
|
|
175 |
|
|
|
— |
|
GS
Prysmian Co-Invest L.P. (Prysmian Cables & Systems)
(2,3)
|
|
Industrial
|
|
|
|
|
|
|
— |
|
|
|
93,073 |
|
Latham
International, Inc. (fka Latham Acquisition Corp.) **
|
|
Leisure
Equipment
|
|
|
33,091 |
|
|
|
3,309 |
|
|
|
1,127 |
|
LM
Acquisition Ltd. (Lexicon Marketing Inc.) **
|
|
Direct
Marketing
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
— |
|
LVI
Acquisition Corp. (LVI Services, Inc.) **
|
|
Environmental
|
|
|
6,250 |
|
|
|
625 |
|
|
|
— |
|
MEG
Energy Corp. (4) **
|
|
Oil
& Gas
|
|
|
1,718,388 |
|
|
|
44,718 |
|
|
|
68,665 |
|
New
Omaha Holdings Co-Invest LP (First Data)
|
|
Financial
Services
|
|
|
13,000,000 |
|
|
|
65,000 |
|
|
|
65,000 |
|
PCMC
Holdings, LLC (Pacific Crane)
|
|
Machinery
|
|
|
40,000 |
|
|
|
4,000 |
|
|
|
3,607 |
|
Prism
Business Media Holdings, LLC
|
|
Media
|
|
|
68 |
|
|
|
14,947 |
|
|
|
14,810 |
|
Pro
Mach Co-Investment, LLC **
|
|
Machinery
|
|
|
150,000 |
|
|
|
1,500 |
|
|
|
3,103 |
|
RC
Coinvestment, LLC (Ranpak Corp.)
|
|
Packaging
|
|
|
50,000 |
|
|
|
5,000 |
|
|
|
5,047 |
|
Sorenson
Communications Holdings, LLC Class A**
|
|
Consumer
Services
|
|
|
454,828 |
|
|
|
45 |
|
|
|
5,436 |
|
Varietal
Distribution Holdings, LLC Class A
|
|
Distribution
|
|
|
28,028 |
|
|
|
28 |
|
|
|
88 |
|
Total
Common Equity and Partnership Interests
|
|
|
|
|
|
|
|
$ |
183,625 |
|
|
$ |
294,778 |
|
See
notes to financial statements.
APOLLO
INVESTMENT CORPORATION
SCHEDULE
OF INVESTMENTS (continued)
March
31, 2008
(in
thousands, except warrants)
Investments
in Non-Controlled/Non-Affiliated Portfolio
Companies
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
— 0.6%
|
|
|
|
|
|
|
|
|
|
|
|
DSI
Holdings Company, Inc. (DSI Renal Inc.), Common **
|
|
Healthcare
|
|
|
5,011,327 |
|
|
|
— |
|
|
$ |
2,920 |
|
Fidji
Luxco (BC) S.C.A., Common (FCI)(2) **
|
|
Electronics
|
|
|
48,769 |
|
|
$ |
491 |
|
|
|
7,604 |
|
Gryphon
Colleges Corporation (Delta Educational Systems, Inc.), Common
**
|
|
Education
|
|
|
98 |
|
|
$ |
98 |
|
|
|
— |
|
Gryphon
Colleges Corporation (Delta Educational Systems, Inc.), Class A-1
Preferred **
|
|
Education
|
|
|
459 |
|
|
|
460 |
|
|
|
579 |
|
Gryphon
Colleges Corporation (Delta Educational Systems, Inc.), Class B-1
Preferred **
|
|
Education
|
|
|
1,043 |
|
|
|
1,043 |
|
|
|
430 |
|
Total Warrants
|
|
|
|
|
|
|
|
$ |
2,092 |
|
|
$ |
11,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2nd
Lien Bank Debt/Senior Secured Loans (5) — 38.1%
|
|
|
|
|
|
|
|
|
|
|
|
Advanstar
Communications, Inc., 11/30/14
|
|
Media
|
|
$ |
20,000 |
|
|
$ |
20,000 |
|
|
$ |
14,600 |
|
American
Asphalt & Grading Co., 7/10/09
|
|
Infrastructure
|
|
|
31,596 |
|
|
|
31,596 |
|
|
|
8,200 |
|
Asurion
Corporation, 7/3/15
|
|
Insurance
|
|
|
135,300 |
|
|
|
134,876 |
|
|
|
116,020 |
|
BNY
Convergex Group, LLC, 4/2/14
|
|
Business
Services
|
|
|
50,000 |
|
|
|
49,787 |
|
|
|
43,000 |
|
C.H.I.
Overhead Doors, Inc., 10/22/11
|
|
Building
Products
|
|
|
15,000 |
|
|
|
15,023 |
|
|
|
14,175 |
|
Clean
Earth, Inc., 8/1/14
|
|
Environmental
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
24,875 |
|
Dresser,
Inc., 5/4/15
|
|
Industrial
|
|
|
61,000 |
|
|
|
60,915 |
|
|
|
55,663 |
|
Educate,
Inc., 6/14/14
|
|
Education
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
8,500 |
|
Garden
Fresh Restaurant Corp., 12/22/11
|
|
Retail
|
|
|
26,000 |
|
|
|
25,821 |
|
|
|
25,480 |
|
Generics
International, Inc., 4/30/15
|
|
Healthcare
|
|
|
20,000 |
|
|
|
19,903 |
|
|
|
19,875 |
|
Gray
Wireline Service, Inc., 12.25%, 2/28/13
|
|
Oil
& Gas
|
|
|
77,500 |
|
|
|
76,866 |
|
|
|
77,500 |
|
HydroChem
Industrial Services, Inc., 12/8/14
|
|
Environmental
|
|
|
35,100 |
|
|
|
35,100 |
|
|
|
34,223 |
|
Infor
Enterprise Solutions Holdings, Inc., Tranche B-1, 3/2/14
|
|
Business
Services
|
|
|
5,000 |
|
|
|
5,000 |
|
|
|
4,125 |
|
Infor
Enterprise Solutions Holdings, Inc., 3/2/14
|
|
Business
Services
|
|
|
15,000 |
|
|
|
14,836 |
|
|
|
12,375 |
|
Infor
Global Solutions European Finance S.á.R.L., 3/2/14
|
|
Business
Services
|
|
€ |
6,210 |
|
|
|
8,263 |
|
|
|
8,856 |
|
IPC
Systems, Inc., 6/1/15
|
|
Telecommunications
|
|
$ |
37,250 |
|
|
|
36,167 |
|
|
|
26,634 |
|
Kronos,
Inc., 6/11/15
|
|
Electronics
|
|
|
60,000 |
|
|
|
60,000 |
|
|
|
44,100 |
|
Quality
Home Brands Holdings LLC, 6/20/13
|
|
Consumer
Products
|
|
|
40,000 |
|
|
|
39,504 |
|
|
|
32,000 |
|
Ranpak
Corp.(6), 12/27/14
|
|
Packaging
|
|
|
12,500 |
|
|
|
12,500 |
|
|
|
12,500 |
|
Ranpak
Corp.(7), 12/27/14
|
|
Packaging
|
|
€ |
5,206 |
|
|
|
7,584 |
|
|
|
8,249 |
|
Sheridan
Holdings, Inc., 6/15/15
|
|
Healthcare
|
|
$ |
60,000 |
|
|
|
60,000 |
|
|
|
46,500 |
|
Sorenson
Communications, Inc., 2/18/14
|
|
Consumer
Services
|
|
|
62,103 |
|
|
|
62,103 |
|
|
|
60,705 |
|
TransFirst
Holdings, Inc., 6/15/15
|
|
Financial
Services
|
|
|
30,500 |
|
|
|
30,413 |
|
|
|
23,790 |
|
Total
2nd Lien Bank Debt/Senior Secured Loans
|
|
|
|
|
|
|
|
$ |
841,257 |
|
|
$ |
721,945 |
|
Total
Investments in Non-Controlled/Non-Affiliated Portfolio Companies —
157.4%
|
|
|
|
|
|
|
|
$ |
3,139,047 |
|
|
$ |
2,986,556 |
|
See
notes to financial statements.
APOLLO
INVESTMENT CORPORATION
SCHEDULE
OF INVESTMENTS (continued)
March
31, 2008
(in
thousands, except shares)
Investments
in Controlled Portfolio Companies
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Equity — 3.9%
|
|
|
|
|
|
|
|
|
|
|
|
Grand
Prix Holdings, LLC Series A, 12.00% (Innkeepers USA)
|
|
Hotels,
Motels, Inns & Gaming
|
|
|
2,989,431 |
|
|
$ |
74,736 |
|
|
$ |
74,736 |
|
Common
Equity — 9.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand
Prix Holdings, LLC (Innkeepers USA)
|
|
Hotels,
Motels, Inns & Gaming
|
|
|
17,335,834 |
|
|
|
172,664 |
|
|
|
172,256 |
|
Total
Investments in Controlled Portfolio Companies — 13.0%
|
|
|
|
|
|
|
|
$ |
247,400 |
|
|
$ |
246,992 |
|
Total
Investments
|
|
|
|
|
|
|
|
$ |
3,386,447 |
|
|
$ |
3,233,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Equivalents — 21.3%
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury Bill, 1.075%, 6/19/08
|
Government
|
|
$ |
405,000 |
|
|
$ |
404,063 |
|
|
$ |
403,898 |
|
Total
Investments & Cash Equivalents —191.7% (8)
|
|
|
|
|
|
|
$ |
3,790,510 |
|
|
$ |
3,637,446 |
|
Liabilities
in Excess of Other Assets — (91.7%)
|
|
|
|
|
|
|
|
|
|
|
|
(1,739,538 |
) |
Net
Assets — 100.0%
|
|
|
|
|
|
|
|
|
|
|
$ |
1,897,908 |
|
(1)
|
Fair
value is determined by or under the direction of the Board of Directors of
the Company (see Note 2).
|
(2)
|
Denominated
in Euro (€).
|
(3)
|
The
Company is the sole Limited Partner in GS Prysmian Co-Invest
L.P.
|
(4)
|
Denominated
in Canadian dollars.
|
(5)
|
Includes
floating rate instruments that accrue interest at a predetermined spread
relative to an index, typically the LIBOR (London Inter-bank Offered
Rate), EURIBOR (Euro Inter-bank Offered Rate), GBP LIBOR (London
Inter-bank Offered Rate for British Pounds), or the prime rate. At March
31, 2008, the range of interest rates on floating rate bank debt was 7.67%
- 12.38%.
|
(6)
|
Position
is held across five US Dollar-denominated tranches with varying
yields.
|
(7)
|
Position
is held across three Euro-denominated tranches with varying
yields.
|
(8)
|
Aggregate
gross unrealized appreciation for federal income tax purposes is $160,652;
aggregate gross unrealized depreciation for federal income tax purposes is
$321,299. Net unrealized depreciation is $160,647 based on a tax cost of
$3,798,093.
|
¨
|
These
securities are exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions that are
exempt from registration, normally to qualified institutional
buyers.
|
*
|
Denominated
in USD unless otherwise noted.
|
**
|
Non-income
producing security
|
See
notes to financial statements.
APOLLO
INVESTMENT CORPORATION
SCHEDULE
OF INVESTMENTS (continued)
|
|
Percentage
of Total Investments (at fair value) as of March
31, 2008
|
Hotels,
Motels, Inns and Gaming
|
|
|
7.6 |
% |
Financial
Services
|
|
|
7.0 |
% |
Oil
& Gas
|
|
|
6.4 |
% |
Education
|
|
|
5.7 |
% |
Business
Services
|
|
|
5.0 |
% |
Industrial
|
|
|
4.6 |
% |
Retail
|
|
|
4.4 |
% |
Insurance
|
|
|
4.0 |
% |
Diversified
Service
|
|
|
3.9 |
% |
Environmental
|
|
|
3.9 |
% |
Consumer
Products
|
|
|
3.7 |
% |
Manufacturing
|
|
|
3.7 |
% |
Transportation
|
|
|
3.6 |
% |
Healthcare
|
|
|
3.5 |
% |
Leisure
Equipment
|
|
|
3.3 |
% |
Building
Products
|
|
|
2.9 |
% |
Packaging
|
|
|
2.3 |
% |
Publishing
|
|
|
2.2 |
% |
Telecommunications
|
|
|
2.2 |
% |
Media
|
|
|
2.2 |
% |
Consumer
Services
|
|
|
2.0 |
% |
Direct
Marketing
|
|
|
1.9 |
% |
Grocery
|
|
|
1.8 |
% |
Machinery
|
|
|
1.7 |
% |
Cable
TV
|
|
|
1.6 |
% |
Electronics
|
|
|
1.6 |
% |
Agriculture
|
|
|
1.3 |
% |
Consumer
Finance
|
|
|
1.2 |
% |
Market
Research
|
|
|
1.2 |
% |
Distribution
|
|
|
1.1 |
% |
Utilities
|
|
|
0.8 |
% |
Chemicals
|
|
|
0.8 |
% |
Beverage,
Food, & Tobacco
|
|
|
0.5 |
% |
Infrastructure
|
|
|
0.3 |
% |
Rental
Equipment
|
|
|
0.1 |
% |
Total
Investments
|
|
|
100.0 |
% |
See
notes to financial statements.
APOLLO
INVESTMENT CORPORATION
NOTES
TO FINANCIAL STATEMENTS
(in
thousands except share and per share amounts)
Note
1. Organization
Apollo
Investment Corporation, a Maryland corporation organized on February 2, 2004, is
a closed-end, non-diversified management investment company that has
elected to be treated as a business development company (“BDC”) under the
Investment Company Act of 1940. In addition, for tax purposes we have elected to
be treated as a regulated investment company (“RIC”), under the Internal Revenue
Code of 1986, as amended. Our investment objective is to generate both current
income and capital appreciation through debt and equity investments. We invest
primarily in middle-market companies in the form of mezzanine and senior secured
loans, each of which may include an equity component, and, to a lesser extent,
by making equity investments in such companies.
Apollo
Investment commenced operations on April 8, 2004 receiving net proceeds of
$870,000 from its initial public offering selling 62 million shares of common
stock at a price of $15.00 per share.
Note
2. Significant Accounting Policies
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”) requires management
to make estimates and assumptions that affect the reported amount of assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reported period. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ materially.
Our
financial statements are prepared in accordance with GAAP and pursuant to the
requirements for reporting on Form 10-K and Regulation S-X, as appropriate. In
the opinion of management, all adjustments, consisting solely of normal
recurring accruals, considered necessary for the fair presentation of financial
statements have been included.
The
significant accounting policies consistently followed by Apollo Investment
are:
(a) Security
transactions are accounted for on the trade date;
(b) Under
procedures established by our Board of Directors, we value investments,
including certain subordinated debt, senior secured 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 typically obtain market quotations from at least two
brokers or dealers (if available, otherwise from a principal market maker or a
primary market dealer or other independent pricing service). We
utilize mid-market pricing as a practical expedient for fair value unless a
different point within the range is more representative. If and when
market quotations are deemed not to represent fair value, we typically utilize
independent third party valuation firms to assist us in determining fair
value. Investments maturing in 60 days or less are valued at cost
plus accreted discount, or minus amortized premium, which approximates fair
value. Debt and equity securities 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:
APOLLO
INVESTMENT CORPORATION
NOTES
TO FINANCIAL STATEMENTS
(in
thousands except share and per share amounts)
(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 engaged by our board of directors conduct independent appraisals
and review our investment adviser 's preliminary valuations and
make their own independent assessment;
(4) the
audit committee of the board of directors reviews the preliminary
valuation of our investment adviser and that of the independent valuation firms
and responds to the valuation recommendation of the independent valuation
firm to reflect any comments; and
(5) the
board of directors discusses valuations and determines the fair value of each
investment in our portfolio in good faith based on the input of our investment
adviser, the respective independent valuation firm and the audit
committee.
Investments
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.
In
September, 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (“SFAS”) 157, Fair Value
Measurements. This statement defines fair value, establishes a
framework for measuring fair value in GAAP, and expands disclosures about fair
value measurements. This statement was effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those years. We adopted this statement for our
first fiscal quarter ended June 30, 2008.
SFAS
No. 157 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
APOLLO
INVESTMENT CORPORATION
NOTES
TO FINANCIAL STATEMENTS
(in
thousands except share and per share amounts)
the
significance of a particular input to the fair value measurement in its entirety
requires judgment and considers factors specific to each
investment.
On
October 10, 2008, FASB Staff Position 157-3 – Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not Active (“FAS
157-3”) was issued. FAS 157-3 provides examples of how to determine
fair value in a market that is not active. FAS 157-3 did not change
the fair value measurement principles set forth in FAS
157. Furthermore, on April 9, 2009, FASB Staff Position 157-4 – Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly (“FAS 157-4”)
was issued. FAS 157-4 provides additional guidance for estimating
fair value in accordance with SFAS 157 when the volume and level of activity for
the asset or liability have significantly decreased. FAS 157-4 also
includes guidance on identifying circumstances that indicate a transaction is
not orderly. According to FAS 157-4, in the above circumstances, more
analysis and significant adjustments to transaction or quoted prices may be
necessary to estimate fair value. FAS 157-4 is effective for periods
ending after June 15, 2009. We are currently reviewing FAS 157-4 and
the future impact, if any, it will have on our financial position or results of
operations.
(c)
|
Gains
or losses on the sale of investments are calculated by using the specific
identification method.
|
(d)
|
Interest
income, adjusted for amortization of premium and accretion of discount, is
recorded on an accrual basis. Origination and/or commitment fees
associated with debt investments in portfolio companies are accreted into
interest income over the respective terms of the applicable
loans. Upon the prepayment of a loan or debt security, any
prepayment penalties and unamortized loan origination and/or commitment
fees are recorded as interest income. Structuring fees are
recorded as other income when
earned.
|
(e)
|
The
Company intends to comply with the applicable provisions of the
Internal Revenue Code of 1986, as amended, pertaining to regulated
investment companies to make distributions of taxable income sufficient to
relieve it of substantially all Federal income
taxes. The Company, at its discretion, may carry forward
taxable income in excess of calendar year distributions and pay a 4%
excise tax on this income. The Company will accrue
excise tax on estimated excess taxable income as
required.
|
(f)
|
Book
and tax basis differences relating to stockholder dividends and
distributions and other permanent book and tax differences are
reclassified among the Company’s capital accounts. In addition, the
character of income and gains to be distributed is determined in
accordance with income tax regulations that may differ from accounting
principles generally accepted in the United States of America;
accordingly, at March 31, 2009, $123,207 was reclassified on
our balance sheet between accumulated net realized gain (loss) and
undistributed net investment income and $520 was reclassified on
our balance sheet between undistributed net investment income and paid-in
capital in excess of par. Total earnings and net asset value are
not affected;
|
(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 distributed or deemed distributed at least
annually.
|
(h)
|
In
accordance with Regulation S-X and the AICPA Audit and Accounting Guide
for Investment Companies, the Company does 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
does not consolidate special purpose entities through which it holds
investments subject to financing with third parties. See note
6.
|
(i)
|
The
accounting records of the Company are maintained in U.S. dollars. All
assets and liabilities denominated in foreign currencies are translated
into U.S. dollars based on the rate of exchange of such currencies against
U.S. dollars on the date of valuation. The Company does not
isolate that portion of the results of operations resulting from changes
in foreign exchange rates on investments from
the
|
APOLLO
INVESTMENT CORPORATION
NOTES
TO FINANCIAL STATEMENTS
(in
thousands except share and per share amounts)
|
fluctuations
arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or
loss from investments. The Company’s investments in foreign
securities may involve certain risks such as foreign exchange
restrictions, expropriation, taxation or other political, social or
economic risks, all of which could affect the market and/or credit risk of
the investment. In addition, changes in the relationship of
foreign currencies to the U.S. dollar can significantly affect the value
of these investments and therefore the earnings of the
Company.
|
(j)
|
The
Company may enter into forward exchange contracts in order to hedge
against foreign currency risk. These contracts are marked-to-market by
recognizing the difference between the contract exchange rate and the
current market rate as unrealized appreciation or depreciation. Realized
gains or losses are recognized when contracts are
settled.
|
(k)
|
The
Company records origination expenses related to its multi-currency
revolving credit facility as prepaid assets. These expenses are deferred
and amortized using the straight-line method over the stated life of the
facility.
|
(l)
|
The
Company records registration expenses related to Shelf filings as prepaid
assets. These expenses are charged as a reduction of capital
upon utilization, in accordance with the AICPA Audit and Accounting Guide
for Investment Companies.
|
(m)
|
Loans
are generally placed on non-accrual status when principal or
interest payments are past due 30 days or more and/or when there is
reasonable doubt that principal or interest will be
collected. Accrued, uncapitalized interest is generally
reversed when a loan is placed on non-accrual status. Interest payments
received on non-accrual loans may be recognized as income or applied to
principal depending upon management’s judgment. Non-accrual loans are
restored to accrual status when past due principal and interest is paid
and in management’s judgment, are likely to remain
current.
|
(n)
|
In
June 2006, the Financial Accounting Standards Board issued FASB
Interpretation No. (“FIN”) 48, Accounting for Uncertainty in Income
Taxes. FIN 48 was effective for financial statements
issued for fiscal years beginning after December 15, 2006. FIN
48 clarifies the accounting for uncertainty in income taxes recognized in
an enterprise’s financial statements in accordance with FASB Statement No.
109, Accounting for Income Taxes. FIN 48 prescribes a
recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected
to be taken in a tax return. This interpretation requires recognition of
the impact of a tax position if that position is more likely than not to
be sustained upon examination, including resolution of any related
appeals or litigation processes, based on the technical merits of the
position. In addition, FIN 48 provides measurement guidance whereby a
tax position that meets the more-likely-than-not recognition threshold is
calculated to determine the amount of benefit to recognize in the
financial statements. FIN 48 was adopted on April 11,
2007 and did not have a material impact on the Company’s
financial condition or results of operations. If the tax law
requires interest and/or penalties to be paid on an underpayment of income
taxes, interest and penalties will be classified as income taxes on our
financial statements, if
applicable.
|
Note
3. Agreements
Apollo
Investment has an Investment Advisory and Management Agreement with the
Investment Adviser, AIM , under which the Investment Adviser, subject to
the overall supervision of Apollo Investment’s Board of Directors, will manage
the day-to-day operations of, and provide investment advisory services to,
Apollo Investment. For providing these services, the Investment Adviser receives
a fee from Apollo Investment, consisting of two components—a base management fee
and an incentive fee. The base management fee is determined by taking the
average value of Apollo Investment’s gross assets at the end of the two most
recently completed calendar quarters calculated at an annual rate of 2.00%. The
incentive fee has two parts, as follows: one part is calculated and payable
quarterly in arrears based on Apollo Investment’s pre-incentive fee net
investment income for the immediately preceding calendar quarter. For this
purpose, pre-incentive fee net investment income means interest income, dividend
income and any other income including any other fees (other than fees for
providing managerial assistance),
APOLLO
INVESTMENT CORPORATION
NOTES
TO FINANCIAL STATEMENTS
(in
thousands except share and per share amounts)
such
as commitment, origination, structuring, diligence and consulting fees or other
fees that we receive from portfolio companies) accrued during the calendar
quarter, minus Apollo Investment’s operating expenses for the quarter (including
the base management fee, any expenses payable under the Administration
Agreement, and any interest expense and dividends paid on any issued and
outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee
net investment income does not include any realized capital gains computed net
of all realized capital losses and unrealized capital depreciation.
Pre-incentive fee net investment income, expressed as a rate of return on the
value of Apollo Investment’s net assets at the end of the immediately preceding
calendar quarter, is compared to the rate of 1.75% per quarter (7% annualized).
Our net investment income used to calculate this part of the incentive fee is
also included in the amount of our gross assets used to calculate the 2% base
management fee. Apollo Investment pays the Investment Adviser an incentive fee
with respect to Apollo Investment’s pre-incentive fee net investment income in
each calendar quarter as follows: (1) no incentive fee in any calendar quarter
in which Apollo Investment’s pre-incentive fee net investment income does not
exceed 1.75%, which we commonly refer to as the performance threshold ;
(2) 100% of Apollo Investment’s pre-incentive fee net investment income with
respect to that portion of such pre-incentive fee net investment income, if any,
that exceeds 1.75% but does not exceed 2.1875% in any calendar
quarter; and (3) 20% of the amount of Apollo Investment’s pre-incentive fee net
investment income, if any, that exceeds 2.1875% in any calendar quarter. These
calculations are appropriately pro rated for any period of less than three
months. The effect of the fee calculation described above is that
if pre-incentive fee net investment income is equal to or exceeds 2.1875%, the
Investment Adviser will receive a fee of 20% of Apollo Investment’s
pre-incentive fee net investment income for the quarter. The
second part of the incentive fee is determined and payable in arrears as of the
end of each calendar year (or upon termination of the Investment Advisory and
Management Agreement, as-of the termination date) and will equal 20% of Apollo
Investment’s cumulative realized capital gains less cumulative realized capital
losses, unrealized capital depreciation (unrealized depreciation on a gross
investment-by-investment basis at the end of each calendar year) and all capital
gains upon which prior performance-based capital gains incentive fee payments
were previously made to the Investment Adviser .
For
the fiscal years ended March 31, 2009, 2008 and 2007, the Investment Adviser
accrued $59,686, $59,871 and $40,569, respectively, in base investment advisory
and management fees and $51,583, $30,449 and $57,912, respectively, in
performance-based incentive fees from Apollo Investment.
Apollo
Investment has also entered into an Administration Agreement with Apollo
Investment Administration, LLC (the “Administrator”) under which the
Administrator provides administrative services for Apollo Investment. For
providing these services, facilities and personnel, Apollo Investment reimburses
the Administrator for Apollo Investment’s allocable portion of overhead and
other expenses incurred by the Administrator in performing its
obligations under the Administration Agreement, including rent and Apollo
Investment’s allocable portion of its chief financial officer and chief
compliance officer and their respective staffs. The Administrator will also
provide, on Apollo Investment’s behalf, managerial assistance to those portfolio
companies to which Apollo Investment is required to provide such
assistance.
At
the fiscal years ended March 31, 2009, 2008 and 2007, the Administrator was
reimbursed $3,247, $3,162 and $2,237, respectively, from Apollo Investment on
the $4,794, $3,450 and $2,437, respectively, of expenses accrued under the
Administration Agreement.
On
April 14, 2005, Apollo Investment entered into an $800,000 Senior Secured
Revolving Credit Agreement (the “Facility”), among Apollo Investment, the
lenders party thereto and JPMorgan Chase Bank, N.A. (“JPMorgan”), as
administrative agent for the lenders. Effective December 29, 2005,
lenders provided additional commitments in the amount of $100,000, increasing
the total facility size to $900,000 on the same terms and conditions as the
existing commitments. On March 31, 2006, Apollo Investment
Corporation amended and restated its $900,000 senior secured, multi-currency,
revolving credit facility due April 14, 2010. The amended Facility increased
total commitments outstanding to $1,250,000 and extended the maturity date to
April 13, 2011. The amended Facility also permits Apollo Investment to
seek additional commitments from new and existing lenders in the future, up to
an
APOLLO
INVESTMENT CORPORATION
NOTES
TO FINANCIAL STATEMENTS
(in
thousands except share and per share amounts)
aggregate
amount not to exceed $2,000,000. In February 2007, Apollo Investment
increased total commitments to $1,700,000 under the Facility with the same
terms. Pricing remains at 100 basis points over
LIBOR. The F acility is used to supplement Apollo’s
equity capital to make additional portfolio investments and for general
corporate purposes. From time to time, certain of the lenders provide customary
commercial and investment banking services to affiliates of Apollo
Investment. JPMorgan also serves as custodian and fund accounting
agent for Apollo Investment.
Note
4. Net Asset Value Per Share
At
March 31, 2009, the Company’s total net assets and net asset value per share
were $1,396,138 and $9.82, respectively. This compares to total net assets and
net asset value per share at March 31, 2008 of $1,897,908 and $15.83,
respectively.
Note
5. Earnings (Loss) Per Share
The
following information sets forth the computation of basic and diluted earnings
(loss) per share for the years ended March 31, 2009, 2008 and 2007,
respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
for increase (decrease) in net assets per share:
|
|
$ |
(611,879 |
) |
|
$ |
(33,438 |
) |
|
$ |
312,166 |
|
Denominator
for basic and diluted weighted average shares:
|
|
|
139,468,630 |
|
|
|
112,049,771 |
|
|
|
85,791,821 |
|
Basic
and diluted earnings (loss) per share:
|
|
$ |
(4.39 |
) |
|
$ |
(0.30 |
) |
|
$ |
3.64 |
|
APOLLO
INVESTMENT CORPORATION
NOTES
TO FINANCIAL STATEMENTS
(in
thousands except share and per share amounts)
Note
6. Investments
AIC Credit
Opportunities Fund LLC - We own all of the common member interests in AIC
Credit Opportunity Fund LLC (“AIC Holdco”), which was formed for the purpose of
holding various financed investments. Effective in June 2008 and
through AIC Holdco, we invested $39,500 in a special purpose entity wholly owned
by AIC Holdco, AIC (FDC) Holdings LLC (“Apollo FDC”), which was used to purchase
a Junior Profit-Participating Note due 2013 in principal amount of $39,500 (the
“Junior Note”) from Apollo I Trust (the “Trust”). The Trust
also issued a Senior Floating Rate Note due 2013 (the “Senior Note”) to an
unaffiliated third party (“FDC Counterparty”) in principal amount of $39,500
paying interest at Libor plus 1.50%, increasing over time to Libor plus
2.0%. The Trust used the aggregate $79,000 proceeds to acquire
$100,000 face value of a senior subordinated loan of First Data Corporation (the
“FDC Reference Obligation”) due 2016 and paying interest at 11.25% per
year. The Junior Note generally entitles Apollo FDC to the net
interest and other proceeds due under the FDC Reference Obligation after payment
of interest due under the Senior Notes, as described above. In
addition, Apollo FDC is subject to 100% of any realized appreciation or
depreciation in the FDC Reference Obligation. However, since the
Senior Note is a non-recourse obligation, Apollo FDC is only exposed up to the
amount of equity used by AIC Holdco to fund the purchase of the Junior Note plus
any additional margin Apollo decides to post, if any, during the term of the
financing.
Through
AIC Holdco, effective in June 2008, we invested $11,375 in a special purpose
entity wholly owned by AIC Holdco, AIC (TXU) Holdings LLC (“Apollo TXU”), which
acquired exposure to $50,000 notional amount of a Libor plus 3.5% senior secured
delayed draw term loan of Texas Competitive Electric Holdings (“TXU”) due 2014
through a non-recourse total return swap with an unaffiliated third party
expiring on October 10, 2013 and pursuant to which Apollo TXU pays interest at
Libor plus 1.5% and generally receives all proceeds due under the delayed draw
term loan of TXU (the “TXU Reference Obligation”). Like Apollo FDC,
Apollo TXU is entitled to 100% of any realized appreciation in the TXU Reference
Obligation and, since the total return swap is a non-recourse obligation, Apollo
TXU is exposed up to the amount of equity used by AIC Holdco to fund the
investment in the total return swap, plus any additional margin we decide to
post, if any, during the term of the financing.
Through
AIC Holdco, effective in September 2008, we invested $10,022 equivalent, in a
special purpose entity wholly owned by AIC Holdco, AIC (Boots) Holdings, LLC
(“Apollo Boots”), which acquired €23,383 and £12,465 principal amount of senior
term loans of AB Acquisitions Topco 2 Limited, a holding company for the
Alliance Boots group of companies (the “Boots Reference Obligations”), out of
the proceeds of our investment and a multicurrency $40,876 equivalent
non-recourse loan to Apollo Boots (the “Acquisition Loan”) by an unaffiliated
third party that matures in September 2013 and pays interest at LIBOR plus 1.25%
or, in certain cases, the higher of the Federal Funds Rate plus 0.50% or the
lender’s prime-rate. The Boots Reference Obligations pay interest at
the rate of LIBOR plus 3% per year and mature in June 2015.
Pursuant
to applicable investment company accounting, we do not consolidate AIC Holdco or
its wholly owned subsidiaries and accordingly only the value of our investment
in AIC Holdco is included on our balance sheet. The Senior Note,
total return swap and Acquisition Loan are non-recourse to AIC Holdco, its
subsidiaries and us and have standard events of default including failure to pay
contractual amounts when due and failure by each of the underlying Apollo
Investment special purpose entities to provide additional credit support, sell
assets or prepay a portion of its obligations if the value of the FDC Reference
Obligation, the TXU Reference Obligation or the Boots Reference Obligation, as
applicable, declines below specified levels. We may unwind any of
these transactions at any time without penalty. From time to time
Apollo Investment may provide additional capital to AIC Holdco for purposes of
funding margin calls under one or more of the transactions described
above. During the fiscal year ended March 31, 2009, we provided
$18,480 in additional capital to AIC Holdco.
Investments
and cash equivalents consisted of the following as of March 31, 2009 and March
31, 2008.
APOLLO
INVESTMENT CORPORATION
NOTES
TO FINANCIAL STATEMENTS
(in
thousands except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated
Debt/Corporate Notes
|
|
$ |
1,987,919 |
|
|
$ |
1,436,048
|
|
|
$ |
2,010,721 |
|
|
$ |
1,852,695 |
|
Preferred
Equity
|
|
|
125,558 |
|
|
|
91,533
|
|
|
|
176,088 |
|
|
|
180,341 |
|
Common
Equity/Partnership Interests
|
|
|
438,270 |
|
|
|
258,153
|
|
|
|
356,289 |
|
|
|
467,034 |
|
Warrants
|
|
|
2,266 |
|
|
|
4,554
|
|
|
|
2,092 |
|
|
|
11,533 |
|
Bank
Debt/Senior Secured Loans
|
|
|
829,473 |
|
|
|
655,610
|
|
|
|
841,257 |
|
|
|
721,945 |
|
Cash
Equivalents
|
|
|
— |
|
|
|
— |
|
|
|
404,063 |
|
|
|
403,898 |
|
Totals
|
|
$ |
3,383,486 |
|
|
$ |
2,445,898 |
|
|
$ |
3,790,510 |
|
|
$ |
3,637,446 |
|
At
March 31, 2009, our investments and cash equivalents were categorized as follows
in the fair value hierarchy for SFAS No. 157 purposes:
|
|
|
|
|
Fair
Value Measurement at Reporting Date Using:
|
Description
|
|
March
31, 2009
|
|
|
Quoted
Prices in Active Markets for Identical Assets
(Level
1)
|
|
|
Significant
Other Observable Inputs
(Level
2)
|
|
|
Significant
Unobservable Inputs
(Level
3)
|
Cash
Equivalents
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
Total
Investments
|
|
$ |
2,445,898 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,445,898 |
Total
Investments and Cash Equivalents
|
|
$ |
2,445,898 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,445,898 |
The
following chart shows the components of change in our investments categorized as
Level 3, for the fiscal year ended March 31, 2009.
|
Fair
Value Measurements Using Significant Unobservable
Inputs
|
|
|
(Level
3)
|
|
Beginning
Balance, March 31, 2008
|
|
$ |
3,233,548 |
|
Total
realized gains or losses included in earnings
|
|
|
(124,971 |
) |
Total
unrealized gains or losses included in earnings
|
|
|
(784,689 |
) |
Purchases,
including capitalized PIK interest (1)
|
|
|
462,144 |
|
Sales
|
|
|
(340,134 |
) |
Transfer
in and/or out of Level 3
|
|
|
— |
|
Ending
Balance, March 31, 2009
|
|
$ |
2,445,898 |
|
The
amount of total gains or losses for the period
included
|
|
|
|
|
in
earnings attributable to the change in unrealized
|
|
|
|
|
gains
or losses relating to our Level 3 assets still held at
|
|
|
|
|
the
reporting date and reported within the net change in unrealized gains or
losses on investments in our Statement of Operations.
|
|
$ |
(847,080 |
) |
(1)
Includes amortization of approximately $31,359
APOLLO
INVESTMENT CORPORATION
NOTES
TO FINANCIAL STATEMENTS
(in
thousands except share and per share amounts)
Note
7. Foreign Currency Transactions and Translations
At
March 31, 2009 , the Company had outstanding non-US borrowings on its
$1,700,000 multicurrency revolving credit facility denominated in euros, pounds
sterling, and Canadian dollars. Unrealized appreciation or depreciation on these
outstanding borrowings is indicated in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Appreciation (Depreciation)
|
|
British
Pound
|
|
£ |
2,000
|
|
|
$ |
3,565
|
|
|
$ |
2,867
|
|
4/06/2009
|
|
$ |
698
|
|
Euro
|
|
€ |
7,500
|
|
|
|
11,131
|
|
|
|
9,958
|
|
4/06/2009
|
|
|
1,173
|
|
British
Pound
|
|
£ |
2,500
|
|
|
|
4,957
|
|
|
|
3,583
|
|
4/17/2009
|
|
|
1,374
|
|
Euro
|
|
€ |
76,500
|
|
|
|
95,910
|
|
|
|
101,569
|
|
4/27/2009
|
|
|
(5,659 |
) |
British
Pound
|
|
£ |
37,500
|
|
|
|
59,395
|
|
|
|
53,751
|
|
4/27/2009
|
|
|
5,644
|
|
Canadian
Dollar
|
|
C$ |
29,700
|
|
|
|
25,161
|
|
|
|
23,606
|
|
5/20/2009
|
|
|
1,555
|
|
Canadian
Dollar
|
|
C$ |
22,500
|
|
|
|
19,189
|
|
|
|
17,883
|
|
6/05/2009
|
|
|
1,306
|
|
Canadian
Dollar
|
|
C$ |
3,000
|
|
|
|
2,318
|
|
|
|
2,385
|
|
6/30/2009
|
|
|
(67 |
) |
|
|
|
|
|
|
$ |
221,626
|
|
|
$ |
215,602
|
|
|
|
$ |
6,024
|
|
At
March 31, 2008, the Company had outstanding non-US borrowings on its $1,700,000
multicurrency revolving credit facility denominated in euros, pounds sterling,
and Canadian dollars. Unrealized appreciation or depreciation on these
outstanding borrowings is indicated in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Appreciation (Depreciation)
|
|
British
Pound
|
|
£ |
35,700
|
|
|
$ |
72,891
|
|
|
$ |
70,954
|
|
4/07/2008
|
|
$ |
1,937
|
|
British
Pound
|
|
£ |
2,000
|
|
|
|
3,928
|
|
|
|
3,975
|
|
4/16/2008
|
|
|
(47 |
) |
Euro
|
|
€ |
1,000
|
|
|
|
1,463
|
|
|
|
1,584
|
|
4/18/2008
|
|
|
(121 |
) |
Euro
|
|
€ |
112,000
|
|
|
|
150,802
|
|
|
|
177,469
|
|
4/28/2008
|
|
|
(26,667 |
) |
Canadian
Dollar
|
|
C$ |
17,000
|
|
|
|
16,096
|
|
|
|
16,568
|
|
5/13/2008
|
|
|
(472 |
) |
British
Pound
|
|
£ |
2,500
|
|
|
|
4,957
|
|
|
|
4,969
|
|
5/13/2008
|
|
|
(12 |
) |
Canadian
Dollar
|
|
C$ |
29,700
|
|
|
|
25,161
|
|
|
|
28,946
|
|
5/20/2008
|
|
|
(3,785 |
) |
Euro
|
|
€ |
42,500
|
|
|
|
56,599
|
|
|
|
67,343
|
|
5/21/2008
|
|
|
(10,744 |
) |
Euro
|
|
€ |
2,000
|
|
|
|
2,961
|
|
|
|
3,169
|
|
5/28/2008
|
|
|
(208 |
) |
Canadian
Dollar
|
|
C$ |
22,500
|
|
|
|
19,189
|
|
|
|
21,929
|
|
6/05/2008
|
|
|
(2,740 |
) |
Euro
|
|
€ |
3,000
|
|
|
|
4,037
|
|
|
|
4,754
|
|
6/10/2008
|
|
|
(717 |
) |
Euro
|
|
€ |
3,500
|
|
|
|
5,025
|
|
|
|
5,546
|
|
6/18/2008
|
|
|
(521 |
) |
British
Pound
|
|
£ |
6,750
|
|
|
|
13,266
|
|
|
|
13,416
|
|
6/30/2008
|
|
|
(150 |
) |
|
|
|
|
|
|
$ |
376,375 |
|
|
$ |
420,622 |
|
|
|
$ |
(44,247 |
) |
Note
8. Expense Offset Arrangement
The
Company benefits from an expense offset arrangement with JPMorgan Chase Bank,
N.A. (“custodian bank”) whereby the Company earns credits on any uninvested US
dollar cash balances held by the custodian bank. These credits are applied by
the custodian bank as a reduction of the monthly custody fees charged to the
Company. The total amount of credits earned during the years ended March 31,
2009, 2008, and 2007 are $217, $273, and $128, respectively .
APOLLO
INVESTMENT CORPORATION
NOTES
TO FINANCIAL STATEMENTS
(in
thousands except share and per share amounts)
Note
9. Temporary Investments
Note
10. Repurchase Agreements
The
Company may enter into repurchase agreements as part of its investment
program. The Company's custodian takes possession of collateral pledged by the
counterparty. The collateral is marked-to-market daily to ensure that the value,
plus accrued interest, is at least equal to the repurchase price. In the event
of default of the obligor to repurchase, the Company has the right to liquidate
the collateral and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default or bankruptcy by the counterparty
to the agreement, realization and/or retention of the collateral or proceeds may
be subject to legal proceedings. There were no repurchase
agreements outstanding at March 31, 2009 or March 31,
2008 .
APOLLO
INVESTMENT CORPORATION
NOTES
TO FINANCIAL STATEMENTS
(in
thousands except share and per share amounts)
Note
11. Financial Highlights
The
following is a schedule of financial highlights for the years ended March 31,
2009 , 2008, 2007, 2006 and the period April 8, 2004 (commencement of
operations) through March 31, 2005:
|
|
Fiscal
Year Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 8,
2004*
through
March 31, 2005
|
|
Per
Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value, beginning of period
|
|
$ |
15.83
|
|
|
$ |
17.87
|
|
|
$ |
15.15
|
|
|
$ |
14.27
|
|
|
$ |
14.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
investment income
|
|
|
1.48
|
|
|
|
1.82
|
|
|
|
1.49
|
|
|
|
1.41
|
|
|
|
0.41
|
|
Net
realized and unrealized gain (loss)
|
|
|
(5.74 |
) |
|
|
(1.90 |
) |
|
|
2.11
|
|
|
|
0.49
|
|
|
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in net assets resulting from
operations
|
|
|
(4.26 |
) |
|
|
(0.08 |
) |
|
|
3.60
|
|
|
|
1.90
|
|
|
|
0.72
|
|
Dividends
to stockholders (1)
|
|
|
(1.86 |
) |
|
|
(2.06 |
) |
|
|
(1.96 |
) |
|
|
(1.62 |
) |
|
|
(0.48 |
) |
Effect
of anti-dilution
|
|
|
0.11
|
|
|
|
0.10
|
|
|
|
1.09
|
|
|
|
0.61
|
|
|
|
—
|
|
Offering
costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value at end of period
|
|
$ |
9.82
|
|
|
$ |
15.83
|
|
|
$ |
17.87
|
|
|
$ |
15.15
|
|
|
$ |
14.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share market value at end of period
|
|
$ |
3.48
|
|
|
$ |
15.83
|
|
|
$ |
21.40
|
|
|
$ |
17.81
|
|
|
$ |
16.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
return (2)
|
|
|
(73.90 |
%) |
|
|
(17.50 |
%) |
|
|
31.70 |
% |
|
|
12.94 |
% |
|
|
15.32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
outstanding at end of period
|
|
|
142,221,335
|
|
|
|
119,893,835
|
|
|
|
103,507,766
|
|
|
|
81,191,954
|
|
|
|
62,554,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio/Supplemental
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
assets at end of period (in millions)
|
|
$ |
1,396.1
|
|
|
$ |
1,897.9
|
|
|
$ |
1,849.7
|
|
|
$ |
1,229.9
|
|
|
$ |
892.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of net investment income to average net assets
|
|
|
10.71 |
% |
|
|
9.85 |
% |
|
|
9.09 |
% |
|
|
9.89 |
% |
|
|
2.96 |
%(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of operating expenses to average net assets**
|
|
|
6.35 |
% |
|
|
4.92 |
% |
|
|
7.73 |
% |
|
|
5.64 |
% |
|
|
2.60 |
%(3) |
Ratio
of credit facility related expenses to average net assets
|
|
|
2.54 |
% |
|
|
2.73 |
% |
|
|
2.49 |
% |
|
|
1.44 |
% |
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of total expenses to average net assets**
|
|
|
8.89 |
% |
|
|
7.65 |
% |
|
|
10.22 |
% |
|
|
7.08 |
% |
|
|
2.60 |
%(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
debt outstanding
|
|
$ |
1,193,809
|
|
|
$ |
882,775
|
|
|
$ |
580,209
|
|
|
$ |
325,639 |
*** |
|
$ |
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
debt per share
|
|
$ |
8.56
|
|
|
$ |
7.88
|
|
|
$ |
6.76
|
|
|
$ |
5.10 |
*** |
|
$ |
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio
turnover ratio
|
|
|
11.2 |
% |
|
|
24.2 |
% |
|
|
43.8 |
% |
|
|
39.2 |
% |
|
|
14.7 |
% |