MidCap Financial Investment Corp (MFIC) 2008 Q1 法說會逐字稿

Good morning, and welcome to the Apollo Investment Corporation's First Fiscal Quarter 2008 Earnings Conference Call. At this time, all participants have been placed on listen-only mode. The call will be open for a question-and-answer session following the speakers' remarks. (OPERATOR INSTRUCTIONS).

It is now my pleasure to turn the call over to Mr. John Hannan, Chairman and Chief Executive Officer of Apollo Investment Corporation. Mr. Hannan, you may begin your conference.

Thank you. Good morning, everybody. I'd like to welcome you to our June 2008 quarterly earnings conference call. I'm joined today by Jim Zelter, Apollo Investment Corporation's President and COO, and Rich Peteka, our CFO.

Before we begin, Rich would you start off by disclosing some general conference call information and include our comments about forward-looking investment statement.

Thank you, John. I'd like to remind everyone that today's call is being recorded. Please note that this call is the property of Apollo Investment Corporation, and that any unauthorized broadcast of this call is strictly prohibited. Audio replay of the call is available in our 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 may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these projections. We do not undertake to update our forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.apolloIC.com, or call us at 212-515-3450.

At this time, I'd like to turn the call back to our Chairman and Chief Executive Officer, John Hannan.

Thanks, Rich. I'd like to start off this morning by actually taking a step back for a moment. Given some of the general concerns in the overall credit market, whether it be sub-prime or highly-leveraged CLOs or hedge funds, we think it would be helpful to remind people about the business of Apollo Investment Corporation and the objectives we set out to achieve.

AIC is business development company and is required to maintain 200% asset coverage at all times. Nonetheless, we typically run our business with average leverage levels well below the statutory maximum. Strategically we like to maintain significant liquidity to take advantage of windows when they become available.

In addition, Apollo Investment Corporation seeks to generate current income and capital appreciation primarily through debt and equity investment in middle-market companies. We focus on principle protection and invest for long-term profits that support a steady, stable and growing dividend stream for our shareholders. In order to achieve these objective, our business seeks to identify and invest in financially-strong companies that generate high returns in invested capital; companies that have significant and sustainable free cash flow after working capital and after capital expenditures.

Companies that use their free cash flow for de-leveraging and our investment thesis always considers the down side. Quite frankly, it's a significant focus of every investment decision we make at AIC. Apollo has over 17 years' experience of investing throughout all different market cycles and has controlled and run companies across many industries. Apollo Investment Corporation has the full benefit of that experience and insight. We are a fully-integrated firm that brings all its resources to bear on each investment decision. Accordingly, we are pleased to say that our diversified portfolio of investment is performing very well. And let us say as for the record, we do not have any direct exposure to sub-prime or any other residential lending.

Now, let me turn to our strong quarterly results review. For the most part, the investing environment continued to be extremely competitive during the months of April and May. Opportunities to invest in high-quality companies with good security were limited. In June, the credit markets changed. The impetus seemed to be additional news of increased losses realized by sub-prime and other residential lending businesses.

There were also rumors and then more news of financial trouble in certain hedge funds and highly-leveraged CLO. As a result, the excess liquidity in the market over the last 12 to 18 months seemed to exit almost over night. Ultimately, this led to significant attractive investment opportunities for Apollo Investment Corporation. Spreads had widened and our ability to restructure aggressively-drafted documents returned. Middle-market sponsors were again orphaned by the big banks leaving our core-sponsored business as robust as ever.

As the quarter closed on June 30, we had invested $739 million across 13 new and 5 existing portfolio companies. This included our $208 million REIT investment at Innkeeper's USA Trust through our affiliate, Grand Prix Holdings, LLC. Total invested capital since our IPO through June 30, 2007 now exceeds $4.1 billion across 99 portfolio companies and has yielded a gross (inaudible) exceeding 24%.

The quarter also sought significant prepayments totaling approximately $347 million. These occurred primarily during the months of April and May, as expected, modestly lowered our weighted average yields at June 30, 2007. These prepayments also generated prepayment premiums contributing to our strong top line results and ultimately increased our already substantial harvested, taxable income.

At June 30, 2007, our portfolio consisted of investments in 64 different companies and was invested 56% in subordinated debt, 6% in preferred equity, 16% in common equity and (inaudible) and 22% in senior secured loans.

At this time, I'd like to turn the call over to our President and COO, Jim Zelter, to provide a brief overview of the market and highlight some of the more significant investments made during the quarter. After that, Richard Peteka will take us through our quarterly financial results in more detail. Jim?

Thanks, John. As already mentioned, we were active investors late in the quarter. Opportunities came from both new and existing middle-market sponsors as well as from commercial and investment banks. As part of the overall Apollo enterprise, we are always afforded the benefit of Apollo's overall relationship with banks, including their capital market debts, to source both and primary and secondary market opportunities.

Furthermore, we continued to focus on opportunities where Apollo's experience offered us a proprietary information edge, and we frequently offer that information edge to our core financial sponsor clients to assist them in their diligence. Across 99 portfolio companies invested through June '07 we have partnered with more than 65 different national sponsors.

As John mentioned, during the quarter we invested $739 million across 13 new and 5 existing portfolio companies. In general, our investments during the quarter focused opportunistically on larger scale companies. Accordingly, our average investment in the new portfolio companies exceeded $47 million for the quarter and our overall average portfolio company investment now exceeds $45 million at June 30.

Now, let me take you through a few of our larger investments made during the quarter. We invested in the preferred and common equity of Grand Prix Holdings LLC, our holding company affiliate that purchased Innkeeper's USA Trust; a real estate investment trust whose primary focus is the acquisition and development of premium-granded, upscale extended stay, mid-priced limited service and select-service hotels. We invested $208 million in Grand Prix Holdings.

Thomson Learning, a leading global print and electronic publisher of textbooks, reference materials and other educational resources for the higher education, professional training and library reference markets. We invested approximately $80 million in Thomson Learning where Apax Partners is the lead sponsor.

Advanstar Communications, which is the second largest independent B2B media company the U.S. and caters to the fashion, life sciences and power sports industries through its leading tradeshows and magazine publication business. We invested $50 million in Advanstar Communications and the sponsors of this deal were Veronis Suhler Stevenson/Citigroup Private Equity and New York Life Capital Partners.

Dresser, Inc. is a company that's a worldwide leader and the manufacturer of highly-engineered products, including gas pumps, valves and engines. We invested $60 million in Dresser and the sponsor of this deal were Riverstone Holdings and First Reserve.

Educate, another investment which operates under the Sylvan brand name, is one of the most highly recognized names in the supplemental education services industry. We invested $10 million in Educate and the sponsors were Sterling Capital and Citigroup Private Equity.

Hub International, an insurance broker that provided property and casualty life and health and a variety of employment benefit and risk management products and services in North America. We invested $20 million in Hub International and the sponsors were Apax and Morgan Stanley Principal Investments.

IPC Systems is a leading provider of specialized telephony systems known as "turrets" used primarily in trading floors around the globe. In addition, IPC provides support back-office infrastructure and maintenance service and a variety of dedicated network services. We invested $25 million in IPC and Silver Lake Partners is the lead sponsor.

Kronos, which is the number one vendor in the $1 billion workforce management solution market with approximately 60% market share and more than six times its closest competitor, is another investment for the quarter. We invested $60 million in Kronos Securities where Hellman & Friedman is the lead sponsor.

And finally, our final and last investment I'll mention is Varietal Distribution Holding, LLC. The company is a global leader and a global lab supply industry with a #1 market share in Europe and a #2 market share in the U.S. We invested approximately $39 million in the company and Madison Dearborn is the sponsor.

As of June 30, our investment portfolio consisted of 64 companies with a market value of $2.9 billion and was comprised of 56% of subordinated debt, 22% senior secured debt, 6% preferred stock and 16% in common equity and warrants.

The weighted average yield on our debt portfolio was 12.8%, as compared to 13.1% at the end of the previous quarter. The weighted average yield on our subordinated debt portfolio was 13.1 compared to 13.5 at the end of the previous quarter. And while the weighted average yield on our senior loans was 11.9 versus 12.3 as over March 31, 2007.

Before I turn the call over to Rich, let me say that the entire Apollo Investment team is excited by our prospects in the current market correction, which we believe has been driven by large, technical liquidity issues, not fundamental credit concerns. We believe Apollo's integrated global sourcing and investment platform truly offers unique access to an abundance of primary and secondary market opportunities not available broadly to others. Bound with our strict, credit-focused underwriting, very (inaudible)-up oriented, we hope to continue generating operating results that meet or exceed your expectations.

With that, I'll turn it over to Rich Peteka.

Thanks, Jim. We closed our books on June 30, 2007 with a net asset value of $19.09 per share. This compares to $17.87 per share at March 31 and $15.69 per share at June 30, 2006.

Considering dividends, our NEV growth was 9.7% for the quarter and more than 35% for the total months since June 30, 2006. This net increases for the quarter and last 12 months were driven by the continued strong performance and the health of our overall investment portfolio.

Gross investment income for the quarter totaled $89 million, and included a $10 million structuring fee on our investment in Grand Prix Holdings LLC. This compared to $75.3 million for the quarter ended March 31, 2007 and $55.9 million for the comparable quarter a year earlier. Accordingly, our gross investment income increased 18% for the quarter and was 59% higher than the comparable quarter a year earlier.

Net operating expenses for the quarter were $34.2 million, of which $10.8 million was our net performance-based net investment income incentive fee. Interest and other credit facility-related expenses totaled $7.6 million for the quarter.

Operating expense net of incentive fees and credit facility-related expenses were $15.7 million, versus the $13.4 million for the quarter ended March 31, 2007, and $10.6 million for the quarter ended June 30, 2006. These increases were primarily due to the increase in asset-based management fees related to the growth of our investment portfolio, as compared to both March 2007 and June 2006 comparable quarters.

General and Administrative expenses totaled $2.8 million for three months ended June, versus $2.1 million for the three months June a year ago.

Accordingly, net investment income was $54.8 million or $0.53 per share for the quarter, as compared to $43 million or $0.44 per share for the quarter ended March, and $31.7 million or $0.39 per share for the comparable June quarter a year earlier.

Apollo Investment Corporation's GAAP net investment income continues to represent only a portion of the taxable income included in quarterly dividends. Taxable income also includes net realized gains and commitment and other up-front fees received from investments that we are amortizing over the respective terms of our loans, among others.

As mentioned earlier in the call, our investment sales and prepayments totaled $347 million during the quarter. Net realized losses totaled $20.7 million for the three months ended June, of which $20.1 million was previously recognized as unrealized losses on our investment [Deem] International which we exited during the quarter. This compares to net realized gains of $106.6 million for the quarter ended March and the net realized loss for $3 million for the comparable quarter a year earlier.

As a reminder, every portfolio company investment is valued each quarter by an independent third party. At June 30 2007, our overall investment portfolio had net unrealized appreciation of approximately $236 million, of which $163 million is attributable to our investment in GS Prysmian Co-Invest, LP. This total net unrealized depreciation compares to just $92 million at March 31, and approximately $80 million at June 30, 2006. For the quarter alone, net unrealized appreciation increased by approximately $144 million.

In total, our quarterly operating results increased net assets by $178 million approximately or $1.72 per share, versus an increase of $102.8 million or $1.04 per share for the quarter ended March, and $71.2 million or $0.88 per share for the quarter ended June 2006.

Now, let me turn the call back to John.

Thanks, Rich. Apollo has a long history and proven track record of investing during times of market correction, dislocation, stress, de-stress, or any other market cycle and you expect that Apollo Investment Corporation with its thoughtful long-term business plan to benefit from that experience.

This current market correction offers disciplined investors with capital significant investment opportunities and we are, therefore, extremely excited about our prospects. Our talented and dedicated team of investment professionals has now grown to 16 and continues to grow, and we will also continue to utilize the over 70 investment professionals at Apollo to complement our strong sourcing and due-diligence capabilities.

Before wrapping up and taking questions, I'd like to reiterate that the overall credit quality and performance of our investment portfolio is strong, and when combined with what we believe to be our unique access to investment opportunities, we continue our focus on increasing the dividend as we have historically.

At this point, I'd like to close the formal comments and open it up for questions.

Thank you. (OPERATOR INSTRUCTIONS) Your first question is from Sanjay Sakhrani with KBW. Your line is live. Please proceed with your question.

Sanjay?

Oh, sorry about that. Can you hear me now?

Yes.

Okay, sorry about that. How should we think about growth for the remainder of the year? I know it's a long view, but should we expect sort of an acceleration for the remainder of the year?

Well, Sanjay, this is Jim. I mean I think that as I mentioned and John mentioned, we think that certainly since the IPO three years ago within a continually more challenging credit environment which we have navigated; obviously, the last six or eight weeks plays into the strategy of this platform. And while we have no crystal ball in terms of how long it's going to last, we certainly are impressed with the opportunities that we're seeing as we sit here today. Obviously, you have to measure that in terms of our overall capital structure, but the classic mezz opportunities that we focus on are back in full force so that value -- being able to understand the future growth needs to be understood with our investment opportunities as well as our overall balance sheet and capital needs.

Okay. I mean I guess if we have some prepayments, like did you have prepayments like in the beginning of the quarter? I mean I wouldn't assume that that's slowed down?

Yes. I mean certainly in the market we're in right now we would expect a longer duration in the portfolio and less prepayments, as certainly access to the markets is limited to not every company now. So yes, the prepayments depending on how long this current environment lasts we would expect it to slow down.

Okay, great. And I guess, I was looking through the investment schedule and American Asphalt was a modest write-down. Could you, Jim, maybe talk about what's happening there?

Sure. American Asphalt is a company that we invested in, and certainly with what's going on at (inaudible) located in Las Vegas and very focused on the construction and infrastructure and what's going in the home building in that part of the country, there was a restructuring of the liabilities earlier this year. And when that was done, we really expected and the Company expected that the housing cycle would really (inaudible) out mid to late '08. And we put a capital structure that would really allow the Company to gain accelerated momentum through that period of time.

As we see the cycle now extending most likely into '09, it's our view that that capital structure may be more challenged and, therefore, we thought it was prudent to take the mark like we did in the quarter.

Okay, great. I guess one final question. It's something that's everyone's minds, but (inaudible) are monitoring the marks on the portfolio. I mean how can we think about the exposure that's sort of broadly syndicated debt and the impact that it would have on the market and portfolio.

We would close the quarter at this point in time.

You know, Sanjay, we definitely the question's de jour. First, just let me remind everybody, we don't value our investments. We do look at them. We have our own perspectives. We turn over our files to independent third parties and ultimately they'll work with our Board to determine fair value. I think it is a little tricky given where some of the marks are when some of these companies are absolutely fundamentally sound. So, we're not really concerned about any material markdowns in our debt portfolio, that's for sure, and we have very little equity which as you can see is performing well.

That said, if we wanted to look at some currents marks that are out there to just kind of be a perspective to answer your question, again, not really part of our credit focus or concern. But to answer your question, there's really -- the math kind of worked out last night. We're almost break even if you want to consider some of the upside on Prysmian, where Prysmian trades today pro forma and some of the markdowns. Pretty much it's a wash. Because our third-party evaluation firm, as everyone can see in our financials, is discounted from the current market price. That's just math. So we do have an 180-day lockup that's clearly been discounted by a third-party independent valuation firm.

And as we move closer to the end of that lockup period, you're going to see that given where that security, that investment trades today and some of the marks, we're dealing with $0.25 here or there. It's not material at all to our book value, so right now it's looking like a wash. If today was the end of the quarter, again, not significant by any means and that's just a mark. That's not really representative of the underlying fundamentals of the Company, which we intend to hold through maturity. We have permanent capital. We don't need any buyer sales or have to lose any of those investments that we've felt strongly about from day one.

Okay, great. Good quarter, guys.

Thank you.

Your next question is from Carl Drake with SunTrust Robinson Humphrey.

Morning. Question on the yields. There's a little bit of compression in the quarter, but obviously that's likely to reverse I would expect, or one might expect in this environment. Is that something that given -- how, what type of spread widening are you seeing on new investment opportunities and how quickly do you think you could reverse that yield compression from the start of this quarter?

Sure, Carl. I think that we're using this environment to obviously increase the overall yields in our portfolio is what the opportunity has presented us. We see spreads widening anywhere from 50 to almost 200 basis points depending on where you are in the capital structure. I hope because of the longer duration of things, of that investment staying in our portfolio, we're not going to obviously be able to reinvest in the whole portfolio that new rate environment. And certainly the incremental investments we make in this quarter should add, again, we're seeing whether it's second liens, widening, you know 50 to 150 basis points and classic mezz widening out 100 to 200; that should start impacting our portfolio as we are active in this quarter and going forward.

Okay, that's helpful. On the equity gains, absent Prysmian, it looked there was some pretty interesting portfolio appreciation, the three equity credits. Are you still seeing some pretty good visibility on exit opportunities or are sponsors kind of pulling back a little bit on sales or recaps?

Well, without giving you any particulars, I can have Rich talk to you. I guess it's our view that it's still too early, but certainly what we're seeing in the overall market is middle-market sponsors are having -- certainly their need for capital is what's driving our business and we expect to have a longer duration in our portfolio. So quite frankly, we're very, very comfortable with these businesses, which we are in all cases, we don't mind holding them a little bit longer at this point in the cycle.

Sure-sure. In terms of the Grand Prix resources, I saw the 12% coupon on the Preferred. I imagine at Common as a pass-through there's a dividend expectation there. What is kind of the all-end yield expectation on the Innkeepers' Grand Prix deal?

I think that's to be determined. Obviously, you could see from their public filing that it was a highly profitable enterprise. It's got a different capital structure in place. There'll be some initial capital expenditures as we kind of manage those properties. I think the opening cash flow that comes off of this we expect to be complementary to our business and support our dividend and not be dilutive at all. But I would think that maybe over the first 12 months we are getting that 12% coupon. Management's got to work really hard for that Common and I think that they're properly incentivized to make this a very successfully complementary asset for our portfolio.

Okay, guys. Thank you and good quarter.

Thank you. Your next question is from Jim Ballan with Bear, Stearns.

Thanks a lot. I wanted to follow up just on the environment and whether or not you're going to get more effective here. Jim, given what you said that this is more of a technical correction rather than a real fundamental correction, I mean is this -- there's sort of a downdraft in the credit market that we've seen over the last few weeks, I mean is this really the break you're looking for, or do you think mostly you'll see some more credit deterioration before you think you'll be more aggressive? What does that mean in terms of the leverage that you'd be willing to put on the balance sheet before you go back-to-back to the market?

Well, there's a few questions there, Jim, but let me just -- we've historically always said that we know what our limits are in terms of leverage, but we would always really up-rate enough. You know, we would never want to really get north of a .8-.85 to 1 leverage at the outer bound even though we have limits past there.

Certainly, our crystal ball is no better than anybody else's in terms of what we are seeing long term. But as we sit here today, we have a collective view at Apollo; is we still see some solid strength in our portfolio companies on the private equity side and on the AIC side here. And again, it's our view that you've got a variety of lenders/institutions that have got a lot of projects backed up in the system. We think that's a four to six-month period while that's got to clean itself out.

But certainly as we have -- we've not tried to time the market historically and we're not trying to time it now. We are every quarter looking for a handful of great investments that bottoms up, make sense for us and regenerates free cash flow. We've never invested because of the terms or because of rate. We'd always invest because of the underlying companies and we're seeing some very good companies that we're getting better terms on day.

But I think the few that we have here from the investment scene is, we are seeing a return to what we think is better quality structure and better quality pricing on the same risk that was there four to six weeks ago. And as you saw later in the quarter we accelerated some of our activity and we're seeing a time right now that, again, we're going to be cautious about our capital and not use it all in one quarter. But certainly if we see from what's going on we think this is the opportunity that we're going to look back on being able to put some very good investments to work.

Okay. All right, great. I understand. One other if I may? I mean obviously you've done, you know the Innkeepers' deal is a very large deal and your average deal size seems to have increased. I mean are you looking, just given your size and given the market today, should we look for you to continue to increase your average investment size, or what are your thoughts around that?

I think it'll increase. I think the increase will slow down in terms of the size. Over the last three years you've seen us go from $10 million, $20 million out to the mid-$40s. We're not going to be at $90 million a year from now, but we're going to steadily increase our investment size but it's going to increase at a slower rate.

Okay, terrific. Thanks a lot, John.

Thank you. Your next question is from Richard McCaffrey with Stifel Nicolaus.

Good morning. With the tad credit disruptions we've seen over the last six weeks, can you give us any sense for -- are you seeing opportunities outside of kind of second lien mezzanine? Are you seeing anything in terms of alternative opportunities to stress that bond? Anything in that area?

Well, listen, there are a variety of opportunities, but certainly again with the goal of the mandate of this business and our focus on the dividend, our core business, the mezzanine providers to middle-market sponsors, that's our core strategy that is very, very plentiful right now, quite frankly. So, I'm maintaining our focus on that first and foremost. That's where you're going to see the predominant focus of our activity going forward in this environment. We don't see a need to expand and explore. Our core business is giving us abundant opportunities.

Okay and one more, if I could? You have a five-year committed credit facility. I'm just curious at all in terms of if you've explored other sources of funding and where you might be in terms of looking at that.

Good question, Rich. This is Rich Peteka. We're constantly looking at that, and yes we're -- first of all, we've always been anxious the last three years to more complicate our balance sheet, but I think at this point their flexible revolver has been wonderful for us, but you shouldn't be surprised over the next 12 months to see other sources of financing.

Okay, thank you.

Thank you. Your next question is from Scott Valentin with FBR Capital Market.

Good morning, thanks for taking my question. The question surrounds credit quality. I guess it looks like you guys are all performing as agreed currently?

Yes.

Okay, and then wasn't incurring your internal grading structure, is there any material changes in the grades at all?

I think there's a couple going up, a couple are going down; it's just a few. It's on the edges and our average portfolio rating, I believe, is still a 2.

Okay, thank you.

Thank you. Your next question is from James Shanahan with Wachovia.

Good morning, gentlemen. Just a couple of loose ends here. Most of my questions have been answered. But as a follow up on the credit agreement, I'm wondering if there has been any -- are there any issues or have there been any issues raised by your credit facility provider regarding advanced rates on any of the standalone investments in your portfolio? Has that moved around at all in recent weeks?

I think the good thing from our lender's perspective, Jim, is that the advance rate is against the market value. So if there is anything that's been impaired, it's been an advance rate, the seen advance rate against the lower value. Add the maturity concerns that there are multi-(inaudible) basis that they received with, number one, we generally are not very leveraged so there's always plenty of room there. But the advance rates are generous enough so that we'd probably bump into our statutory maximum before the lenders need to be concerned about their collateral. I don't if that -- does that answer your question?

It does help. It does help. The other question, I guess, that I had and sort of make sure that I understand it for modeling purposes. But the portfolio now is about 16% Common and then we can look through the schedule of investments here and we can probably do the math and figure out what the weighted-average return is on preferred equity. But for modeling purposes, what would you recommend that we do for estimating a return, not just on the Preferred but also on the large and growing Common equity, as kind of a follow-on from the other questions about Innkeepers.

I think the Preferred is probably somewhere around the 13s, low 13s, but as far as the Common, historically, we haven't given any credit in the yield with regard to our Common. Also, keep in mind that Innkeepers is the bulk of that which we just closed. And then secondly, a larger piece of it outside of Innkeepers is really appreciation. If you look at Innkeepers today is roughly $165 million, which is all unrealized gain. There's very little cost there. It's essentially we have no basis in that security. We've been paid so much cash --- I'm sorry in Prysmian. So that Prysmian investment is not at cost, but so on the yield-on-cost there's nothing there. We've been paid more than our basis over and above many times.

So again, if you look at that and you try to factor in, I would think that given the current market conditions we've had over the last few weeks, you shouldn't be modeling any dividends on the Common. Those will probably slow up. We do have some good performing ones that have paid dividends, but you shouldn't count on that in your modeling. But you should model for the Preferred.

Okay, thanks, and one more housekeeping item please, Richard. The big increase in Administrative and Services expenses, and I apologize if you addressed this earlier. I did jump on a few minutes late. It spiked up a lot. What caused that and what would you view or what would you estimate is a better run-rate for that line item on the income statement on a go-forward basis?

It is a little lumpy. Our year-end is March 31. It's up a couple hundred thousand dollars over the comparable quarter a year ago. It's generally due to some increased staffing in the Chief Compliance Officer's office and the CFO's office. So there's some additional people that were added. Rents going up. Legal costs. Our portfolio's getting bigger, so there's more evaluation, third-party evaluation cost. It's a little bit of everything. There's nothing really that would stick out, but just a sum of an overall growing business.

All right, as far as modeling going forward, I'd want to take a look at that. I do think it's probably a little bit high from a recurring basis due to some of the fiscal year-end costs that were accrued, but I would think that it's probably more of $1.8 to $2 million run-rate, but I would want to double check that. Feel free to give me a call off line to go over that modeling under G&A.

Thank you. Your next question is from [Adrian Day] with Adrian Day Asset Management

Yes, good morning. I just had quick question on the senior debt in your portfolio. And I'm wondering if this is an ongoing integral part of your portfolio, or is it more a sense it's a place to park money and wait for better opportunities and better growth opportunities?

I'm sorry, could you repeat the question?

I'm sorry, you've got money in senior debt and I'm wondering if that's a sort of integral part of your portfolio, or if it's more a sense that when better opportunities and higher growth opportunities come up in subordinated debt and mezzanine financing and so on, whether it's just a parking place waiting for better opportunities?

The senior debt in our portfolio is actually, it's primarily -- I means it's not exclusively second lien which deem to be subordinated debt. There are typically, there are definitely double-digit yields. They're probably (inaudible) or an average (inaudible). I think we disclosed an average yield of about 1.8%, I believe.

Right.

So that's a subordinated debt. In your loan portfolio, that's not a first lien bank in that portfolio. I don't know if that makes to you.

Right. So, okay, it does. It does. I understand. Thank you.

Thank you. (OPERATOR INSTRUCTIONS) Your next question is from Steve Ballentine with Ballentine Capital.

Hi. The comments on the marks to date were very helpful, and I guess that's been spooking the markets is potential pulling of non-permanent capital and forcing people to sell assets into the market; obviously as a BDC. You're not leveraged like some of these other guys are, but can you just comment on any borrowings that are non-permanent capital and any risk of capital calls or of lines being pulled or anything like that?

Hi, Steve, this is Rich.

Hi.

You know, we only had one line of credit and that's a revolver with a syndicate of banks and it's probably got four more years left on the five-year term approximately. So, there's no way that our bank can pull that line, and the fact that the rest of our capital is permanent debt-free capital, we're a public company, so that's secure and our line of credit is secure.

And just let me add that Apollo, all of Apollo, the breadth of Apollo offers us significant advantages and access to capital even at times where banks are pulling back the reins a little bit. So, we have no, today, no capital concerns with regard to our current equity capital or our current revolver which is a $1.7 billion revolver.

That's great. And so in reality, the market's got to understand here that the risk is that the credit deteriorates on the underlying portfolio, not some technical "mark-to-market" spread widening in the short term, right?

I'm glad you have it.

Thanks.

Thank you. There are no further questions. I would like to hand the floor back to management for any further or closing remarks.

I just want to thank all of you for your time today and we look forward to talking to you in the future. Thank you.

Thank you. This does concludes today's Apollo Investment Corporation's conference call. You may now disconnect.