MidCap Financial Investment Corp (MFIC) 2022 Q3 法說會逐字稿

Good afternoon, and welcome to the Apollo Investment Corporation's earnings conference call for the period ended December 31, 2021. (Operator Instructions)

I'll now turn the call over to Elizabeth Besen, Investor Relations Manager for the Apollo Investment Corporation. Please go ahead.

Thank you, operator, and thank you, everyone, for joining us today. Speaking on today's call are Howard Widra, Chief Executive Officer; Tanner Powell, President and Chief Investment Officer; and Greg Hunt, Chief Financial Officer.

I'd like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of Apollo Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our customary earnings press release. I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information.

Today's conference call and webcast may include forward-looking statements. You should refer to our most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit our website at www.apolloic.com.

I'd also like to remind everyone that we posted a supplemental financial information package on our website, which contains information about the portfolio as well as the company's financial performance.

At this time, I'd like to turn the call over to our Chief Executive Officer, Howard Widra.

Thanks, Elizabeth. Good afternoon, and thank you for joining us today. I'll begin my remarks with an overview of the quarter, and we'll then provide some additional business highlights. Following my remarks, Tanner will discuss the market environment, review our investment activity for the quarter and provide an update on credit quality. Greg will then review our financial results in greater detail. We'll then open the call for questions.

Over the last several years, we have built a well-diversified portfolio of true first lien floating rate corporate loan invested in less cyclical industries with granular position sizes. Our ability to coinvest with other funds and entities managed by Apollo, including MidCap, allows AINV to participate in larger deals while maintaining relatively small hold sizes on our balance sheet. As you know, MidCap is the hub of Apollo's middle market direct origination business and is on par with any lender in the marketplace.

The overall MidCap direct origination platform was very active during the period, closing approximately $7.7 billion in new commitments during the quarter and $19.6 billion in commitments in 2021. The MidCap platform provides AINV with access to a wide funnel of opportunities, which allows us to be selective and find attractive investments.

After market close today, we reported net investment income for the December quarter of $0.35 per share. Results for the quarter benefited from strong fee and prepayment income and reflect operating with average net leverage in the middle of our target leverage range. We ended the period with net asset value per share of $16.08, up $0.01 per share.

Our corporate lending portfolio, Merx, had net gains during the quarter. The corporate lending portfolio continues to improve, which Tanner will discuss later during the call. Results for December also reflect the benefit from the monetization of non-earning and under-earning assets and redeploying those proceeds into our core strategies. We have consistently generated cash from our noncore assets, and we are focused on executing some more significant progress in the coming quarters.

During the December quarter, we received repayments of approximately $10 million from 3 of our noncore positions, 2 of which were nonearning, which included $4 million from 1 position without any reduction in NAV and $2 million from 1 investment which was $2 million above fair value. We also received approximately $29 million from the repayment of second lien position. Post quarter end, Dynamic Product Tankers, one of our shipping investments, closed on the sale of 3 ships, which will be generating an additional $18 million in cash proceeds at our December 31st NAV in the March quarter.

We have visibility into additional monetizations from our noncore portfolio in the coming quarters, and we look forward to reporting our continued progress. Pro forma for the Dynamic sale, noncore assets represent only 6% of AINV's total investment portfolio. Second liens represented only 5% of the corporate lending portfolio at the end of December. Lastly, we repurchased stock during the period, a meaningful discount to NAV, which was accretive to NAV per share and moderately accretive to net income per share.

Moving on to other business highlights. Our Board has increased our share repurchase authorization by $25 million, having nearly completed our existing authorization. We obviously hope opportunities to repurchase our share at a meaningful discount to NAV do not occur. But when they do, this authorization will allow us to create value for our shareholders.

Turning to our distribution. For the quarter, the Board has declared a base distribution of $0.31 per share and a supplemental distribution of $0.05 per share. Both distributions are payable on April 7, 2022, to shareholders of record as of March 21, 2022. As a reminder, the dividends being declared today are the last of the dividends that we previously indicated would be maintained at $0.31 for the base distribution and $0.05 for the supplemental distribution.

One of our objectives is to provide greater visibility for our shareholders with respect to the distribution. So for the next 2 quarters, we intend to declare a base dividend of $0.31 per share plus a supplemental dividend in an amount such that the base and supplemental combined will equal the prior quarter's net investment income per share. This means that next quarter, we expect to declare a base dividend of $0.31 plus a supplemental dividend of $0.04 or $0.35 in total, which is equivalent to the NII per share for the December quarter.

We expect to have greater clarity in the coming quarters regarding the timing of the embedded upside in our portfolio and the impact of interest rates on our earnings.

With that, I'll turn the call over to Tanner to discuss the market environment and our investment activity.

Thank you, Howard. The broader market environment is mixed as economic expansion, good corporate earnings growth and increased valuation are being balanced by inflationary pressures, the emergence of COVID-19 variant, ongoing supply chain issues and a more hawkish posture by the Federal Reserve.

Specific to our business during this pandemic, nonbank financial institutions have become an even more important source of financing for corporates than banks. Private equity firms were extremely active in 2021 and continue to raise more capital resulting in significant dry powder. As this dry powder is deployed, the demand for financing is expected to result in considerable investment opportunities for lenders like MidCap and AINV.

Moving to AINV's investment activity. New corporate lending commitments for the quarter totaled $271 million across 24 companies for an average new commitment of $11.3 million. 71% of new commitments were leveraged lending, 13% asset based, 10% life sciences and 6% franchise finance. Consistent with our strategy, all new commitments were first lien loans with weighted average spread of 639 basis points and a weighted average net leverage of 4.7x, and 96% were made pursuant to our co-investment order.

Elevated repayments offset strong gross fundings resulting in net repayments for the quarter. Gross fundings for the quarter totaled $234 million, excluding revolvers. Sales and repayments totaled $287 million, excluding revolvers. As Howard mentioned, repayments included $29 million of corporate second liens and $10 million of noncore assets. Net funding for revolvers were $30 million. In aggregate, net repayments for the quarter totaled $23 million.

Regarding our aircraft leasing portfolio company, we believe Merx has successfully navigated this challenging period. During the December quarter, the fair value of AINV's investment in Merx increased by $3.4 million, or 1.1%, as aircraft leasing fundamentals are showing minor improvements.

Turning to the overall AINV portfolio. Our investment portfolio had a fair value of $2.59 billion at the end of December across 139 companies in 26 different industries. We ended the quarter with core assets representing 93% of the portfolio and noncore assets representing 7%. First lien assets represented 93% of the corporate lending portfolio. At the end of December, the weighted average spread on the corporate lending portfolio was 605 basis points.

We are closely monitoring the impact of cost inflation within our portfolio and its impact on profitability. We believe our portfolio is generally weighted towards industries that are less likely to be impacted by inflation and supply chain issues. We continue to see improvement in our credit metrics as we reduce our exposure to second lien positions. The weighted average net leverage of our corporate lending portfolio declined to 5.03x, down from 5.1x last quarter. The weighted average attachment point declined to 0.2x, down from 0.3x last quarter.

Our low attachment point is a clear indication of the seniority of our corporate lending portfolio compared to loans which are classified as senior but have much deeper attachment points. The weighted average interest coverage improved to 3.1x, up from 3x last quarter. Investments made pursuant to our co-investment order represented 85% of the corporate lending portfolio at the end of the quarter. No investments were placed on nonaccrual status during the quarter.

At the end of December, investments on nonaccrual status totaled $14 million or 0.5% of the total portfolio at fair value, down from $28 million or 1.1% last quarter. The quarter-over-quarter decline was attributable to the restructuring of our investment in sequential brands during the quarter.

With that, I will now turn the call over to Greg, who will discuss the financial performance for the quarter.

Thanks, Tanner, and good afternoon, everyone.

Beginning with AINV's statement of operations. Total investment income was $55 million for the quarter, up 3.9% quarter-over-quarter, reflecting higher fee income and prepayment income as well as higher interest income, partially offset by lower dividends. Prepayment income was $4 million, up $700,000 for the quarter. Fee income was $1.6 million, up $600,000 for the quarter. The increase in interest income was attributable to a larger average investment portfolio. Dividend income was $500,000 for the quarter, a decrease of $2.3 million compared to the September quarter.

We received a $2.7 million cash distribution from MC, one of our shipping investments, which was recorded as a return of capital during the period. The weighted average yield at cost on our corporate lending portfolio was 7.6% at the end of December, unchanged quarter-over-quarter. The weighted average spread of our corporate lending portfolio was 605 basis points compared to 602 basis points last quarter.

Expenses for the quarter were $32.5 million, up $800,000 for the quarter and included an incentive fee of $5.4 million. The increase in interest expense reflects the growth in the portfolio.

Net investment income per share for the December quarter was $0.35. Net leverage at the end of December was 1.52x, up slightly from last quarter, as the average net leverage for the December quarter was 1.51x compared to 1.46x for the September quarter.

On Page 16 in the earnings supplement, we disclosed the net gain and loss by strategy over the past 5 quarters. During the current quarter, our corporate lending portfolio had a net gain of $3.7 million or $0.06 per share. Merx had a net gain of $3.4 million or $0.05 per share. Noncore and legacy assets had a loss of $9.1 million or $0.14 per share, driven by losses on our shipping investments. The loss on shipping primarily relates to the sale of the 3 ships that closed in January.

NAV per share at the end of December was $16.08, a $0.01 increase quarter-over-quarter. The $0.01 increase was attributable to a $0.05 per share accretive impact from stock buybacks, partially offset by the $0.03 per share net loss on the portfolio and the $0.01 from distribution relative to net investment income.

Moving to stock buybacks. During the quarter, AINV purchased approximately 955,000 shares at an average price of $12.99, including commissions, for a total cost of $12.4 million. Since the end of the quarter and through yesterday, AINV had purchased an additional 61,000 shares at an average price of $12.70 for a total cost of approximately $800,000, leaving us with $5.8 million available under the previous authorization. As Howard mentioned, our Board has increased our share repurchase authorization by $25 million, which increases the amount available for future stock repurchases of just over $30 million.

This concludes our prepared remarks, and please open the call to questions.

(Operator Instructions) And we'll take our first question from Kyle Joseph with Jefferies.

Just refresh us, if you don't mind, given what's going on with the Fed, what percentage of your debt portfolio has floors and where those floors are versus rates at this time?

Yes. Kyle, thanks for the question. Elizabeth's grabbing the specific number. But it's in the 90% range that has floors, almost entirely 1%. We see on the life sciences side or some of the specialty verticals, sometimes we see a little bit higher floors. Almost everything we've done on the corporate side is at 1% and then, as will not be as much of a surprise, in instances where you have a company that is bumping up against the syndicated market, we'll see something slightly lower than 1% at kind of 75 bps. But that's very, very few. So about -- and she has the data for me now, 91% have 1% or higher and only 3% have no floor at all.

Got it. Very helpful. And then I was just going to ask 1 follow-up, probably also for Tanner. Obviously, your credit performance has been very sound. But can you just give us an update in terms of your portfolio of companies in terms of what they're seeing in terms of inflation, whether it be on the wage side or the raw material side? And any sort of impacts you've seen in terms of EBITDA margins or growth?

Yes, absolutely. It's everywhere. And it's just a question of to what extent the underlying issuer is seeing it, just how pronounced it is, be it on the wage side, as you alluded to, and/or from a supply chain standpoint. We do track underlying revenue and EBITDA growth. We do try to strip out for the companies that are highly acquisitive. And on a like-for-like basis, this is the first quarter that EBITDA did not grow as -- it was still positive, but not as strongly as revenue belaboring that underlying dynamic, which you're getting at.

We continue to believe that where we're creating these companies and the fact that we are top of the structure, that our ultimate credit performance will have less to do -- I can say nothing about whether these type of pressures ease over the coming months or not. But notwithstanding, given where we're creating these companies and our underwriting, I believe that they can stomach a certain amount of cost pressure before such time as we would expect our loss expense to change materially.

We'll take our next question from Kenneth Lee with RBC Capital Markets.

Wondering if you could elaborate on the visibility that you have into additional monetizations from the noncore portfolio over the near term. And perhaps just talk about what could be driving that potential activity there.

Yes, sure. Basically, we're focusing on sale processes on a couple of the sort of the more meaningful positions. And so we hope to have at least one of those sort of -- something to stay on one of those in the near future. So that's -- and then separately, we are generating cash off of a few of the positions. Now like most notably, Glacier is producing quite a bit of cash, and we expect that to continue to produce cash. I mean, it may not -- like this quarter, the NAV may not go down despite the cash coming in because of the price of oil and the performance. So there could be more upside there. But there's clearly an ability for that company to make more cash.

And then strategically, I mean, we're now -- the DPT transaction is off the books. But the MC transaction has historically generated some cash, and that can generate cash, it would go towards basis or for earnings, but is a positive cash generator. So all of those combined have -- is where it comes from. But basically, the focus is on Spotted Hawk and MC to get some significant cash out of those in the near future.

Got you. Very helpful. And wondering -- 1 follow-up, if I may. Wondering if you could share with us your thoughts around potential originations activity this year, especially in comparison to what you saw last year?

Yes. I mean, the -- obviously, we had a record year of origination, I think, as did a lot of our peers. That was the result, I think, of 2 things, of a lot of private equity activity and dry powder. There's still a lot of dry powder, maybe the activity probably doesn't go up. And then as importantly, the continually increased market share of private credit versus both banks and the broadly syndicated market. That trend, we expect to continue.

So if you assume the pie is getting bigger, to which I think is sort of the right assumption, we would expect origination volumes to be lower than the run rate of the fourth quarter, but at least as good as it was for the full year next year. There continues to be an advantage for the people who have the ability to speak for larger commitments and have size and multiple pockets of capital of which Apollo falls into that category of one of them. So that's obviously important. And it's like an arm's race in some regards, so you got to just keep on working on that. But we continue to make progress there.

So -- and if you look at -- origination activity through this first 5 weeks of the year is good, is strong, is on a run rate, as good as that. But frankly, that's some carryover from the end of last year. So you'd have to sort of look forward to the pipeline over the next 2 or 3 months to corroborate what I just said. But I feel like our full year origination should be close to what our full year origination was this year, would be a reasonably conservative estimate.

And I might add to that quickly, Ken. As you'll know all too well, the lion's share of the originations for us and our peers will and always be likely from the sponsor part of our business. We continue, as we called out in our prepared remarks and to see in the market, good flow that hits our target ZIP code from a yield perspective and our other verticals such as life sciences and ABL, and that's a nice adder to the opportunities set for AINV in this year and others as well.

We'll take our next question from Casey Alexander with Compass Point.

Yes. First of all, I'd like to applaud you for going to the -- essentially a variable dividend structure. I think that is going to be the soup du jour for many BDCs going forward. I'm wondering, did the Board consider setting the next quarter's dividend at somewhere around between 96% and 98% of the previous quarter's NII, just so that you could retain some of that income for NAV growth and to put sort of a rainy day fund away for when there may or could be credit losses at some point in time in the future?

Yes. I mean, 98% is less than a penny, right? So I think it's a very good question. I think what we are trying to focus on is we believe we will have -- be able to provide great visibility into our earnings capability ex these core assets, which we're very, very focused on lowering. And obviously, now there's going to be some interest rate changes given the floors that will impact some things, too. So I think our thought process is, let's keep it variable based on the earnings, as you said, and then provide real visibility going forward, which we think will be very predictable and expect to be like a growing dividend base.

Once we have that clear picture, we have a guess of where that's going to be. And at that point, it would be right to set the dividend below the sort of the core -- slightly below the core earnings power for the reason you said. But it's just -- it's more that we still think we're in this transition, and that transition also includes what has been a process pre-COVID and now it's becoming process again, which is lowering the concentration in Merx as well. Does that make sense?

Yes. No, definitely. I also want to ask about the share repurchase program. Again, I think shareholders welcome the aggressive nature of the share repurchase program. But you are at over 1.5x levered, and when you repurchase shares, that automatically increases your leverage ratio. So how do you think about the share repurchase program? Are you thinking about it in terms of as you sell down noncore, you're using proceeds from noncore to repurchase shares? Or -- I'm just curious how you think about it because at some point in time, without raising new equity, the share repurchase program is going to push that leverage ratio up towards the top of your target range.

Well, I think the way we think about it is like this quarter, we did $200-plus million of new origination and we had net neutral growth. So this is just some of that origination, right? So it's like the return on this investment is at $0.80 of NAV is better than a new loan. On the other hand, it does shrink stuff and it's permanent, right? It's something got paid off and roll. So it has to be pretty accretive.

But I think if you asked us, like, how do we think about it, we don't think about it like, "Oh, we're using noncore money." I think we're thinking about it as like it is an investment that is really positive for the shareholders. It's basically a higher return than a loan with no credit risk and no fee against it. So you have to consider it in the full package of things, especially while you're repositioning everything. But you're definitely right that higher leverage -- the higher your leverage is, the higher premium you have to get to be able to make that the right choice.

We'll take our next question from Matt Tjaden with Raymond James.

First one for me on the dividend income line. So know there's a little noise there with the return of capital from MC. Howard, I think you said last quarter we could expect about a $1 million run rate in that line item from MC going ahead. Does that still hold today?

Yes. I mean I think it generates those types of returns and cash. So we would expect to produce that type of cash. Whether it's a return on capital really depends on sort of effectively the valuation. It is income, but you don't -- if you're going to -- it is either income or return on capital. But if you're going to -- like if the valuation of the asset is going down, we don't think it's right to be taking income off something that should go to basis.

So the right way to think about it is, yes, it generates that income going -- but that is effectively its return on a run rate basis on average over quarters. But we sold 1 ship last quarter. And so that caused some change in the valuation greater than it would be based on sort of shipping rates.

Got it. Makes sense. Maybe next one for me is pivoting in the noncore book to maybe more so oil and gas. It sounds like the shipping activity is pretty healthy. Does recent strength in the oil and gas market, does that maybe speed up the time line at which you think you can dispose of Glacier and Spotted Hawk?

Yes. Well, yes, Spotted Hawk, I mean, I think it definitely speeds it up. There's more interest in it, and we're focused on sort of having a process and we have a number of interested parties who have much more capabilities now. That has always been sort of a -- it's an exploration play as opposed to oil coming out of ground, so its valuation has always been sort of have a broader range, but there's definitely more interest because more people are building up assets.

Glacier is actually more interesting, which is we basically invested a little bit of money to reopen some wells, and we're benefiting from that from a cash basis. So I don't know if it was clear in the remarks, but like in Glacier, we realized $4 million of cash out of there, and the mark didn't go down at all. Because effectively there's a $4 million increase in value in Glacier and oil has only gone up since then, and it's continuing to produce well. So, one, we do think that there's more likely to be buyers out there, and we will look to that, but we're also pretty comfortable with the cash it's producing real time.

Got it. Fair enough. And last one for me...

And that's only oil price related.

Got it. Got it. Last one for me, maybe following up on Casey's question. So I understand kind of from a no net growth perspective on the share repurchases, if you were to get into visibility on maybe like repurchases slowing down or something like that, given where you sit above the midpoint of your leverage range, if you got more into a net growth position, would you expect the pace of share repurchases to slow down?

Yes. I mean you're saying if we got in a net growth, if we were growing from here? Yes. I mean, I think you would expect -- if we're holding this -- even this leverage level now, at the same stock price, you would expect it to slow down a little bit. We -- so yes, I mean, I think, is the answer. If there's significant monetization such our leverage goes down meaningfully, then that's when more likely it's supposed to pick up. But it's a pretty active quarter this quarter.

We'll take our next question from Ryan Lynch with KBW.

Can you guys go over your comments relating to Dynamic Product Tankers? I didn't quite follow it all the way. It looks like you guys had about a $12 million loss or write-down this quarter in your shipping book, but then you talked about the closing of the 3 ships, and I thought I heard maybe $18 million of unrealized gains in the March quarter. So can you just recap all that? I want to make sure I have all the details correct.

Yes, I'm happy to. Thanks for the question, Ryan. So the 3 of the 4 ships within our Prime dynamic tanker investment were monetized in this quarter. And we were -- we had negotiated those sales as of the end of last quarter. So the write-down reflected the monetization of those positions. So the $18 million, which has largely been received to date subject to some normal closing conditions and closing process was the return of capital and not a gain in this particular quarter. And then we're very focused on looking to monetize the fourth ship as well.

Okay. So the $18 million that you mentioned, that's just cash coming back in from the monetization as just -- will be recorded as return of capital, no impact on your income statement, correct?

Correct.

Thanks for the clarification on that. And then you mentioned Merx is sort of, you think, down to the worst of it regarding kind of the COVID downturn. What specifically this quarter drove the increase in the valuation of Merx?

Yes, sure. As you can probably imagine, it's a portfolio across 75 planes, and there's normal puts and takes. But on the margin, more positives than negatives as we continue to work through our COVID-related challenges with respect to our underlying lessees. And then importantly, another driver in this particular quarter is the dynamic we've talked about at length, Ryan, with respect to the fact that we have other pools of capital at Apollo for which we serve as the exclusive servicer for that -- those assets.

And as we get those opportunities, we get the benefit of the servicing revenues without stretching the AINV balance sheet. And so some of that -- some of that gain that we saw in the particular quarter was owing to the stabilization that Howard and myself alluded to augmented by this dynamic as we continue to invest capital away from AINV and benefiting our servicing revenue.

(Operator Instructions) We'll take our next question from Melissa Wedel with JPMorgan.

I wanted to touch on the yield on debt investments. It's been quite stable, quite resilient over the last few quarters, despite some spread compression in the market. I was hoping you could kind of go over the drivers of that stability? And is that something that you think can persist through this year?

Yes. It's been stable because of just like our -- and we've said this before, like, there was $7.7 billion of origination at MidCap this quarter. And so we are choosing the assets here that fit our criteria, which is like the right credit -- the right credit components, but also that hit the yield profile. And so if we had to originate 6x as much, you would have seen more yield compression because there's certainly that yield compression across all of the business. But just because of the breadth of the pipeline, we're able to sort of select what fits, including, as Tanner said, assets that aren't necessarily all leveraged loans, but in some of the more bespoke asset classes. So the stability is the result of sort of the selectivity of AINV versus the pool of everything that's available.

And at the risk of overemphasizing, but you do often see with the dynamics of people trying to get deals done before year-end. Now I don't -- I wouldn't read into it a spread widening, but sometimes just the sheer surfeit of deals that were in the market gave a little bit of pricing power to lenders on the margin that I wouldn't necessarily read too much into it, but that helped augment or give some benefit in what we're able to do from a spread perspective in Q4.

So as a follow-up to that, given the strength of the credit profile of companies right now, is that something that you're willing to sort of use, the benign credit environment, to sort of subsidize the spread when it comes to new investments?

I don't know if I understand the question. Just to make sure, what do you mean?

Sure. To the extent that losses could be lower, the terms to borrowers are quite friendly, it could speak to a supportive credit environment, especially with the macro tailwinds for companies, despite recent sort of inflationary pressures. I guess I'm wondering if your outlook is for continued benign solid credit performance from portfolio companies, does that make you willing to dip down a little bit more on spread than you otherwise might?

No. I mean, I think our -- first of all, I mean, again, it's a different question where we are on our leverage point. But we have a certain -- there's a certain level of sort of return we want to deliver to shareholders that we feel like we can do at these yields while keeping ourselves at our target leverage. So unless one of those measures change, like -- things don't change, unless the macro environment doesn't allow those assets to become available.

Obviously, like if there was something like we thought the risk was way too high, we'd have to dip down if we thought -- but I don't think right now, for us, it's actually an issue of us not doing as many of the deals we want to do at the yield we're at or not as many of the deals -- having our hold size as big as we might otherwise be because of our leverage point. Because diversity is important for us, and that helps. But so from time to time, we're choosing multiple assets as opposed to like bigger holds.

So the macro environment, obviously, is whether it's benign or not, I mean, frankly, like we always try to under -- these are 5-, 6-year loans. We're underwriting like it ultimately won't be benign. It has to withstand pressures. And it had -- there are some macro pressures on companies across the board. So I don't know if the macro environment impacts our choices, at least where we are today.

And we'll take our next question from Finian O'Shea with Wells Fargo Securities.

Can you remind us or touch on the interplay with Apollo's broader platform with the newer nontraded BDC up and running now?

Sure. The nontraded BDC has a different focus. Its strategy is basically larger deals that are originated through -- basically originated through sort of relationship with larger sponsors. So they expect to have a portfolio that's 75% not like in the range of assets that AINV views as core to its strategy. They do expect to do 20% of their portfolio in assets that sort of fit a part that's core to AINV strategy in the leveraged loans, so not the other asset class we do in leveraged loans.

Those deals, though, will be in the higher end of the middle market that we do so, say, take companies in $60 million, $70 million of EBITDA, where there is lots of -- effectively, there's plenty of loan to go around, if you will. Those are $300 million underwrites and there's lots of vehicles at Apollo that are taking part of it, including this nontraded BDC.

So we view sort of the nontraded BDC as very complementary to our overall -- and when I say we, it's Apollo. Apollo's overall approach to the market, because it just gives us a lot more capabilities to underwrite the deals at the higher end of the middle market, and then obviously, also in the larger market for them. So that's where it falls. And we've seen that like in this first quarter now in closing some of bigger deals where both AINV and ABS are in.

Sure. That's very helpful. Just to recap, actually, so I have it right. About 20% overlap with sort of a core mid-cap asset, 60%, 70% of EBITDA. And then -- but 75% of it, the bulk of their assets are issuers that are much too large or upmarket for you. Is that right?

Well, either broadly syndicated or large, right? And so -- and when I say, like -- they have something that says 20% to 30% middle market lending. So I said like a quarter. Obviously, as they build their portfolio and the market has more and more large origination, their percentage will fluctuate, but that will be right directionally sort of as it grows. So they expect to have 50% to 70% of their assets in larger corporate loans that are originated and 20% to 30% -- and middle market in 20% and the rest in broadly syndicated. And obviously, we're not doing broadly syndicated anymore and the larger loans we're not doing as well.

And there are no further questions on the line at this time. I'll turn the program back to our speakers for any continued or closing remarks.

Thanks. And thank you, everybody, for listening to today's call and for your questions on behalf of the team. Thank you for all your time, and feel free to reach out with us if you have any other questions. Have a good day.

This does conclude today's program. Thank you for your participation, and you may now disconnect.