MidCap Financial Investment Corp (MFIC) 2017 Q4 法說會逐字稿

Good morning, and welcome to Apollo Investment Corporation's Earnings Conference Call for the period ended March 31, 2017. (Operator Instructions)

I will now turn the call over to Elizabeth Besen, Investor Relations Manager for Apollo Investment Corporation.

Thank you, operator, and thank you, everyone, for joining us today. Speaking on today's call are Jim Zelter, Chief Executive Officer; Howard Widra, President; Tanner Powell, 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 on 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 and webcast may include forward-looking statements. Forward-looking statements involve risks and uncertainties, including, but not limited to, statements as to our future results, our business prospects and the prospects of our portfolio of companies. You should refer to our registration statement and shareholder reports 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 Jim Zelter.

Thank you, Elizabeth. Good morning, everyone, and thank you for joining us for our fourth quarter and fiscal year ending earnings conference call. I'll begin today's call by briefly discussing the market environment. I will then provide an overview of our results, including the progress we have made executing on our strategy, followed by some additional business highlights. I will then turn the call over to Howard, who will discuss the progress we had made repositioning the portfolio in greater detail. Tanner will then cover our investment activity for the period and provide an update on credit quality of the portfolio. And finally, Greg will review our financial results in great detail. We will then open the call to questions.

Beginning with the market backdrop. Underwriting conditions remain challenging as an abundance of liquidity has continued to result in spread compression and a more challenging investing environment. In this type of environment, it is essential to see the broadest set of investment opportunities and remain selective with the process. The scale and breadth of the Apollo / MidCap direct origination platform provides us with attractive opportunities and allows us to be selective, adhere to our underwriting standards and support the needs of our borrowers. Given these market conditions, we invested approximately $150 million during the March quarter, somewhat below our quarterly average, but with most of the investments sourced from the Apollo direct origination platform. Since the beginning of April and through May 15, we had funded more than $200 million, bringing our leverage ratio within our target range. Net investment income for the quarter was $0.17 per share compared to 17% -- $0.17 per share last quarter, and $0.20 per share for the year-ago quarter. Net asset value declined $0.11 or 1.7% to $6.74 per share during the quarter, primarily from a net loss on our oil and gas investments, our U.K. renewable investment and some legacy additions. There was a slight net gain in our core strategies, specific -- partially offsetting the NAV decline.

Regarding the execution of our strategy, we believe that we have made considerable progress implementing the initiatives that we set forth in July 2016, including: one, the deployment of capital into assets sourced by the Apollo / MidCap direct origination platform, including investments made pursuant to our co-investment exemptive order; two, the reduction of our exposure to certain positons in industries, which are on the higher risk spectrum and have more volatile returns; and three, the resolution of several legacy positions.

Moving to our fee structure. Our investment adviser in consultation with our board has agreed to maintain its existing fee structure for fiscal year 2018, with the same management and incentive fee waivers as last year. Regarding the distribution, the board approved a $0.15 distribution to shareholders as of record June 21, 2017.

Looking ahead to fiscal 2018, we believe that we are well positioned given our investment capacity and our asset-sensitive balance sheet. We believe that our current level of leverage is of particular strength, and we are well positioned for when opportunities become more attractive. We will continue to focus on deploying capital into opportunities sourced from our Apollo direct origination platform.

And now I'd like to turn the call over to Howard.

Thanks, Jim. As mentioned, we believe that we continue to make considerable progress executing on the strategy that we outlined last year. As a reminder, our strategy emphasizes senior secured traditional corporate loans sourced by Apollo's direct origination platform, with a focus on first lien and floating rate, with additional exposure in first lien loans and life sciences asset-based lending and lender finance. We refer to these assets as our core strategies. Our strategy also includes reducing exposure to noncore strategies, which include oil and gas, renewable energy, structured credit and shipping. Our target portfolio is approximately 50% to 60% in traditional corporate loans, approximately 20% to 25% across life sciences, asset-based lending and lender finance, approximately 15% in aircraft and leasing, with the balance in any remaining noncore strategies and other legacy positions. Since commencing our repositioning strategy last July, we have invested over $620 million into our core strategies, including more than $200 million since the beginning of April until May 15, bringing our net leverage ratio into our target range. As of the end of March, first lien debt had increased to 45% of the total portfolio at fair value. The floating rate portion of our corporate debt portfolio had increased to 84% at fair value and our average borrower exposure had decreased to less than $30 million. Over the same period, we have significantly reduced our exposure to assets, which are not core to our strategy. Oil and gas exposure has declined to 6.6% of the portfolio at fair value, structured credit exposure has declined to 3.8% and renewables exposure has declined to 7.7%. In aggregate, noncore assets have decreased by $372 million and now total $535 million at fair value or 23% of the portfolio compared to $907 million or 35% of the portfolio 9 months ago. Recall, these noncore assets are higher on the risk spectrum with more volatile returns. During this time, NAV per share has declined $0.16 or 2.3%, primarily driven by the subset of the portfolio. In fact, excluding the loss on Venoco, which was primarily attributable to the negative regulatory environment in California, NAV today would be $6.95 per share, which would be up slightly over the period. While cognizant of the costs associated with exiting these investments, we believe the ultimate downside risk in these positions was more uncertain and as such, the progress made to date in reducing these exposures had meaningfully limited the magnitude of potential NAV volatility. We will continue to work toward additional reductions in the coming quarters.

Looking ahead, we will continue to focus on opportunities sourced from the Apollo / MidCap Direct origination platform and as we seek to create a high-quality, diversified floating rate senior loan portfolio. And we will also seek to further reduce legacy exposures and exit nonearning assets. Finally, we continue to actively pursue co-investment opportunities. In today's highly competitive environment, the ability to make larger commitments has become a key differentiating factor. Our ability to co-invest alongside other Apollo affiliated funds and entities has greatly enhanced our ability to participate in larger commitments and be a one-stop solution provider to our clients. We look forward to reporting our continued progress, executing on our strategy over the coming quarters.

With that, I will now turn the call over to Tanner who will discuss our investment activity and credit quality.

Thank you, Howard. As Jim mentioned, the loan market continues to be competitive, which makes it more challenging to find attractive deals. Although we are genuinely seeing pressure on investment yield in terms, we are finding select opportunities that meet our criteria as we benefit from being part of a large direct origination platform with access to proprietary deal flow with differentiated risk of return opportunities.

During the quarter, we invested $149 million in 13 new portfolio companies and 10 existing companies, with a focus on floating rate debt and our core strategies. Given the continued strength in the credit markets, repayment activity was elevated during the period. Exits totaled $345 million, which consisted of $306 million of repayments and $38 million of sales. Net investment activity before repayments was $111 million and net investment activity after repayments was negative $195 million for the quarter. Importantly, net investment activity within our core strategies was positive. The weighted average yield on investment made during the quarter was 9.8%, the yield on sales and repayments was 9.9%.

During the quarter, we deployed approximately $84 million, representing over half of total deployment across 5 transactions made pursuant to the co-investment order. We invested $10 million in 2 life sciences transactions and $74 million across 3 corporate lending transactions, including an investment in Westinghouse During the period, the Apollo platform provided an $800 million debt financing to Westinghouse Electric Company during the company's Chapter 11 filing, of which $40 million was provided by AINV. This is the largest single direct lending commitment that Apollo credit has ever made. This was a unique direct origination situation where AINV was able to capture meaningful value through an opportunity that would not have otherwise been available without the benefit of the co-investment exemptive order. Since receiving the co-investment order, we invested $150 million across 10 companies, and we've already committed to 4 additional transactions in the current quarter.

Turning to aviation, which continues to be one of our larger industry concentrations. We continue to be pleased with our investment in Merx Aviation, as the underlying portfolio continues to perform well. During the period, Merx returned $65 million of capital to AINV, including a dividend. We believe our aircraft portfolio is well diversified by aircraft type, lessee and country. In managing our aircraft fleet, we are always looking out 24 to 36 months to determine which aircraft to extend, release or sell. We continue to see attractive opportunities to deploy capital in aviation.

Moving to our energy portfolio. At the end of March, oil and gas represented 6.6% percent of our portfolio at fair value or $152 million across core companies. During the quarter, Canacol repaid their $75 million loan at par, generating a realized IRR of 12.3%. We took advantage of the increase in the value of our oil hedge and exited our derivative position, generating a gain of $4 million or $0.02 per share during the quarter. Regarding Venoco, the value of our investment was impacted during the period due to negative outlook for certain regulatory approvals. In April, the company filed for bankruptcy and we expect minimal, if any, recovery on our investment.

Now let me spend a few minutes discussing credit quality in our overall portfolio. At the end of March, investments on nonaccrual status represented 3% of fair value of the portfolio and 7% on a cost basis compared to 2.6% and 8.2%, respectively, at the end of December. The current weighted average net leverage of our investments decreased to 5.5x, down from 5.7x due in part to the deleveraging of the existing portfolio of companies. The current average weighted interest coverage remained at approximately 2.5x.

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

Thanks, Tanner. The total investment income for the quarter was $66.3 million, down 2.6% quarter-over-quarter. The decrease was primarily attributable to a reduction in size of the portfolio, partially offset by higher prepayment and fee income. Fee income was $1.6 million in the quarter compared to $900,000 in the December quarter. Prepayment income was $4.5 million in the quarter compared to $600,000 in the December quarter. Dividend income, which is primarily generated from our investments in aviation, shipping and structured credit, was $6.1 million for the quarter, down from $11.4 million last quarter. The decrease was expected, as we've reduced our exposure to structured credit investments.

Expenses for the quarter totaled $29 million compared to $31.7 million in December quarter. Management fees were lower given the reduction in the average portfolio. Incentive fees were lower quarter-over-quarter due to a lower level of income and reversal of previously accrued incentive fees related to PIK income. During the quarter, we determined that approximately $4.9 million of previously accrued incentive fees from PIK income should be reversed compared to $2.3 million in the prior quarter. During fiscal 2017, approximately $13.2 million of incentive fees related to PIK income have been reversed. Net investment income was $37.3 million or $0.17 per share for the quarter. This compares to $36.4 million or $0.17 per share for the December quarter. For the quarter, the net loss on the portfolio totaled $29.2 million compared to a net loss of $25.1 million in December quarter. Negative contributors to the performance for the quarter included Solarplicity, Venoco, LVI and Glacier Oil and Gas. Positive contributors to the performance for the quarter included investments in Spotted Hawk, Merx Aviation and Renew Financial.

Regarding Solarplicity, since making our investment in 2015, several factors have negatively impacted our position, including: U.K. government regulation; lower power prices; higher material costs; portfolio composition; and asset level leverage. As a result, our investment was restructured in the quarter into a new loan having an 8% coupon. Additionally, our position in Solarplicity was [driven] down by approximately $15 million. The net impact to NAV for Solarplicity during the quarter was approximately $10 million or a negative $0.05 per share when you factor in the reversal of the incentive fee.

Turning to our portfolio of composition. At the end of March, our portfolio had a fair value of $2.3 billion, and consisted of 86 companies across 25 industries. First lien debt represented 45% of the portfolio, second lien represented 30%, unsecured debt, 7%, structured credits, 7%, and preferred and common equity represented 11%. The weighted average yield on our portfolio at cost was 10.3%, down 60 basis points quarter-over-quarter, as a result of the restructuring of the Solarplicity note -- principally as a result of that.

On the liability side of the balance sheet, we had $848 million of debt outstanding at the end of the quarter. Our net leverage ratio, which includes the impact of cash and unsettled transactions, stood at 0.55x at the end of the quarter, down from 0.66x at the end of December. In addition, we are pleased that both Fitch and S&P have maintained their investment grade rating. Given where our stock has been trading, we did not repurchase any shares during the quarter. Lastly, NAV continues to be well positioned for future interest rate increases as 84% of our corporate portfolio is floating rate. Given our investment portfolio and liability mix, we expect to meaningfully benefit from any increase in short-term rates going forward.

This concludes our remarks today. And operator, please open up the call for questions.

(Operator Instructions) Our first question comes from the line of Doug Mewhirter of SunTrust.

This is Matya Rothenberg on for Doug Mewhirter. So would you say that your exits this quarter were driven by your portfolio rotation strategy or by current pricing trends? Or all of those?

Yes. I think you rightly alluded to it. It's a little bit of both. In the case of Canacol, that we had a very strong focus on trying to reduce the oil and gas exposure. But more broadly, as we talked about extensively, with spreads coming in and elevated refinancing activity, some of our borrowers across our corporate portfolio were called out and refinanced as well.

And then -- so your portfolio exits caused some de-leveraging and you mentioned that post quarter, you've been able to re-lever. But do you have any visibility into exit activity this quarter? And how that might affect your portfolio going forward?

Yes. I mean, I think we -- as we sort of said in the -- in our remarks, our -- with our performance in the quarter-to-date, we're back in our leverage target range, which we sort of articulated 0.6 to 0.7. And so that's where we are today. Obviously, it's hard to sort of predict exactly what's going to happen. But our -- we're relatively confident of our ability to operate in that range.

Our next question comes from the line of Chris York of JMP Securities.

So Greg, in your prepared remarks, you referenced the restructured Solarplicity and the loss of $38 million. So the company still is a sizable component of your investment portfolio. It seems like maybe some headwinds. So I was hoping, could you provide us some data, maybe like revenue, EBITDA, maybe over the last 4 quarters? And then, why the restructured capital structure in debt service, which is a PIK coupon, is appropriate to be serviced in the future?

Yes. So basically, this is -- rather than buying a company, this is a portfolio of assets -- of solar assets that are earning money in the ground and they have a 20- to 25-year life. And so the value of those assets and the cash flows that come off of them are related to -- the value of that cash upstream which is related to power prices and inflation. It is -- to call it a PIK instrument, it's probably correct, accounting wise, but not correct in what's happening and that cash that is coming in off of those assets. And some of it gets allocated to basics and some of it gets allocated to return. And so the 8% note is, first of all, off of cost as opposed to off of our fair market value. So it's actually not incredibly relevant to our current P&L. It's just made it so that it was easy long-term for it conceivably to be serviced over the long-term. We're actually going to accrue it at 6%, which is more consistent with stabilizing the valuation under the current assumptions we're at. We can try to, as quarters go by, to the extent we don't exit the transaction because we agree it's big regardless and our goal is to have exited, to the extent we have to exit it to give you a sense what cash is even if it's being reported as PIK, so you can get a sense of that. But it's not like -- it's not like a PIK note [we're settling with words], we're just adding to the balance. It's really adjusted discounted cash flow analysis over 20, 25 years, with cash that comes in that doesn't exactly match that over quarter-over-quarter.

Okay. Is your plan to -- you do plan to exit this or do you plan to sell the assets then?

Yes.

Okay. And do you have an expected timeframe for that?

Look, this goes to sort of all of our exits. Our goal is to exit the largest parts of these noncore assets as quickly as we can. This asset needed to wait until everything stopped moving. Meaning, all the assets were gone and the debt was gone and we end up still 4 walls around it, which there is now. So we're actively sort of pursuing the process to do it. That said, if the price is not what we think is the right price, given what we think it's worth, I wouldn't want to sort of say, it's getting done in x amount of time. But we are in -- we're actively in a process. We're not passively looking to sell here.

Okay. And so that price then is probably within that fair value range, is that reasonable?

Yes.

Okay. And then, Tanner, you said Apollo has committed to 4 transactions in the current quarter. So what was the amount of that total commitment? And then maybe specifically with the type of investment, maybe cash flow, ABL or life sciences.

Yes, sure. The 4 pertains to the number of co-investment transactions. And they touched corporate names as well as life sciences. And the quantum was also disclosed in the prepared remarks.

And asset-based.

There was an asset based, a life sciences and a corporate.

Yes. But that -- the 4 was related to that, which was all done under the co-investment order.

Got it. Okay, that clarification is helpful. And then last one. Go ahead sorry?

I was just going to say, it's in the range of about half of that $200 million under those [for those investments].

Okay, that's helpful. And then, last one here. Jim, so you referenced legacy positions in your prepared remarks. So I think I know the answer but I'm curious where you're defining as legacy investments, just given your tenure at Apollo?

Given your tenure. My legacy position. There aren't collective legacies, Greg, what are the -- we have a handful on that legacy bucket right now.

Yes, it's about $100 million or it's 5% of the portfolio.

Yes, and these are ones that whether it's have, actually, in a couple of cases predated mine, but we're done all in excess of 6-plus years ago and do not fit into the noncore assets. So in terms of trying to give a roadmap of our broad repositioning with the broader front end and working our noncore down from 900-plus to 500-plus today, this is the remaining legacy names. And again, I think it's important that we differentiate the strategies, like oil and gas, structured credit, renewables, from some that were done, again, 7 to 10 years ago in a variety of desire for subordinated holdings with incremental yield that really is a legacy strategy that we're not pursuing today. So as an example of one of those credits SquareTwo, which has been, I think, loaded over a number of years here, which is about a quarter of that balance, which will have an exit in 99%, like we have this quarter. And so maybe expecting that in July, I guess, but certainly in the next call. And so our goal is obviously to exit those. But again -- and we've exited a bunch since we started. But again, we only want to exit when we feel like we're getting the right value versus our investment.

And as you'll see in the supplements, if our noncore assets today totaled $500-plus million, the legacy assets are a little bit north of $100 million.

Right, and we don't include those in our noncore. We separate those.

Yes, that's helpful. I mean clearly, a couple of different strategies within the book and there were some investments, like you referenced with SquareTwo, and even like in previously, Garden Fresh has been in there for many years. So that...

Our next question comes from the line of Kyle Joseph of Jefferies.

Greg, I just wanted to touch on the dividend income. I know you mentioned it was down and that was expected. Is there any seasonality there? Is this a good sort of run rate going forward?

No. Our run rate will be between $6 million and $7 million, depending upon our holding. If you take shipping, if you take aviation, and then depending upon where our investments are in our structured credit. But currently, it's $6 million to $7 million run rate...

Okay. And then, on the non-accruals, just at-cost, they were down a little bit, and they were up a little bit on a fair value basis. Can you explain what's going on there with one of the -- did one of the investments improve?

Yes. Actually, on a fair value basis, they did. But you also had a reduction in the overall portfolio, so that's why you had on a percentage basis, right, you had the -- you have denominator going down, the numerator going up.

Yes. Got it, that makes a sense. And then you guys are seeing yield compression as you shift your strategy. How far along are you guys in the strategy shift? And what's your sort of outlook for the overall portfolio yield?

Yes. So when we sort of articulated our strategy, we have sort of said that once it's completely done, we expect sort of portfolio yield to go from around 11 to 10. There was a big shift this quarter, but a lot of that was attributable to Solarplicity. Without Solarplicity, we're [sort of] from 11 to about 10.6 today. And you could see our new origination was around 9, 8 to 10. And so I think -- we think of it as we go from what is our new origination, even though that's not a perfect proxy because there's a lot of good legacy stuff, if you will, but that will stay in that our core book. But if you look at our new origination around that level of 10, it's somewhat -- it will be somewhat linear as that what is now $600 million of assets starts to become $2 billion of assets and the other stuff is replaced. So I think it's a fair -- I think in terms of that compression of yield putting aside interest rate increases, we are about 30% into that portfolio repositioning, x Merx. And we are above 30% into that yield compression, as well.

And then, just one last question in terms of the share repurchases. Is your appetite for that really dependent on valuation and sort of the discount of the stock to NAV versus yield on new investments?

Very much so. I mean, I think that as we have -- as we've done before, when our stock's trading in a meaningful discount to NAV and we find it accretive, our board is supportive of us buying back stock and we have done so as much as anybody in the industry. When that discount narrows dramatically like it has this quarter, it's not as attractive for us. So we watch it on a constant basis.

Our next question comes from the line of Robert Dodd of Raymond James.

Two, if I can. First, on SquareTwo. Obviously, they sold their assets so far as I can see to Shearman at the end of the March quarter. So can you give us an idea, and obviously, there's a wind down period. Can you give us an idea on what you expect from timing before that's finally resolved and off your books?

Yes, sure. And you rightly pointed out, the company filed in March a pre-packed bankruptcy, whereby the bankruptcy was to facilitate the sale to Shearman Financial. As Howard alluded to, it is our expectation that the company would exit bankruptcy and consummate that merger or that sale in the very -- in a relatively near term, unclear whether it would be in June or slip to July or somewhere thereafter. But in the relatively near term, it's in the bankruptcy process right now. And we're awaiting resolution there to consummate the sale.

And then, if I can one more. One -- given the expertise you guys have in ABLs and everything I've heard recently is the retail ABL market is warm, to say the least, in terms of activity. Can you give us any color on expectations if you'll be doing anything there? If you think the pricing's out of whack and it's worth avoiding? Or any opportunities given your expertise there?

Yes. I mean, I think, we've actually recently added some expertise in retail ABL across the platform. I mean, I think, you need to bucket it in to two things: [like there is] first lien conforming ABL, which you see banks serve as the core business of Midcap and to the extent that credits get a little bit more challenged, but the capital is -- but it's still a performing company. There are first lien opportunities that can meet the yield range and in some time for AINV. Although those deals still remain somewhat competitive. Then there's the opportunities for companies that are more in distressed stage, which [need capital on their] capital balance sheet, which is effectively there's an opportunity to subordinate lending within the assets, which is sort of like a strategy that we're pursuing. There has been some of that done in the market recently. For all you guys follow, you see Crystal Financial being a good example, somebody who does a good job with that. And we would expect to take a bigger share of that across the platform to have AINV be part of those opportunities with our expertise and some asset liquidators. But as you know, the headlines are more than the opportunities right now. But we expect them to keep on coming.

Our next question comes from the line of Christopher Testa of National Securities.

Just curious, just with the commentary, obviously, you guys are doing more co-investments and you're having the ability to move more market and obviously take larger deal sizes. Just want to get your thoughts on how sponsors are valuing certainty of close versus the bifurcated structure, now that the loan market has rallied so much?

Yes, sure. I mean, you alluded -- you touched upon a couple of the factors that are influencing that dynamic. Unequivocally, the ability to -- what we value very highly flowing from this co-investment order is to be able to deliver that full solution, but maintain the proper granularity within the AINV fund and balance sheet. Certainly, at this moment in time, syndicated markets are very robust. And a sponsor or a counterparty valuing uncertainty, given how robust the syndicated market is probably a little bit less than it otherwise would be. But as we all know, markets ebb and flow and we think the ability to commit to the big transactions and should we see a less [dangling] syndicated market would catalyze even more opportunity for origination platform and by extension, AINV.

Right. And would you say that a pickup in LBOs relative to obviously refinance, given the recap, et cetera, is also going to drive more value from sponsors for that?

Traditionally, yes, because refinancing and dividends and the like is usually positively correlated with very strong markets, which is indicative of spread compression. And so those tend to be a little bit more highly correlated. LBO activity, traditionally, has been where we see more opportunity as more regular weigh at attractive pricing.

Got it. Great. And traditionally, you guys have had a good chunk of the portfolio of non-sponsor. That's gotten a lot of BDCs and some issues with non-accruals, obviously. Just curious what your thoughts are on non-sponsor and the portfolio going forward, whether it's something you're avoiding completely or just kind of picking and choosing very selectively?

Yes. I'd answer the question this way. It's certainly, with respect to the verticals that we've chosen to deemphasize, a lot of those were the nonsponsored. And as we've laid out, those are the type of investments that we would seek and invest on in the future. Within the corporate book, from time to time, there are nonsponsored transactions, that themselves, still have the characteristics of solid sponsor lead transactions. And we may endeavor to close on those transactions. But really, that bifurcation of a lot of what we had done historically on the non-sponsor side had been in those verticals that we are deemphasizing.

But let me just sort of add Chris that if you look at our origination strategy. Our origination in the leverage loan space is sponsored. That's how we're originating. So there are opportunities that Tanner talked about that are either larger, right? So they come through sort of the overall Apollo platform, where they sort of -- or they can be, every once in a while, something that has gone through the channel comes through that [impasse]. For example, like a -- we got a deal recently where a large Australian public company bought a U.S. company. And so that was sort of the sponsor, but you would call that non-sponsored. So I think you would view our focus on leveraged finance as sponsored, with only a few exceptions. Our ABL business, clearly not, right? That's (inaudible) capital, but -- so life sciences, again, they don't have private equity sponsors, they have venture capital, different category. But I think your -- what you're driving at some of it -- like in some of the other BDCs say they do sponsor transactions and I would put us mostly in that category.

And just wondering if there's any inclination to potentially lower the commitment size on the 2021 facility?

Not at this point.

Our next question comes from the line of Ryan Lynch, KBW.

You guys mentioned the $800 million debt financing to Westinghouse, in which AINV took down about $40 million of that commitment. So that's all 5% of the total commitments. So I just wanted to know, with the co-investment that you guys have across the platform, was there a reason that you guys only chose to participate in 5% of that loan? Is there something about the $40 million was the right bite size just because 5% of the commitment seemed pretty small size for the co-investment?

Yes. And I'll hit that. I think it really relates to what we're trying to do with respect to the position and size within AINV. That determination was not made relative to what percentage of the commitment we were taking. But what that quantum translated to in terms of exposure within the BDC and hence, $40 million felt like the appropriate exposure against our broader portfolio and reflects a very concerted effort on the management team's part to induce greater granularity in our position size, as Howard alluded to in his prepared remarks, average position size has declined to less than $30 million. And the endeavor to try, to the best of our ability, to stay and more diversified and maintain a position size relatively lower than that which we've experienced historically.

Okay, it makes sense. And then, you guys had several quarters, including this most recent quarter, where you guys reversed incentive fees related to PIK. Were those reversals in this quarter, prior quarters, were those mostly related to Solarplicity? And should we expect any more of these reversals going forward?

So one, it wasn't all related to Solarplicity. We had other PIK investments that PIK was not realized on -- 13.2 over the last year. When you look going forward, we currently have $2.3 million accrued on our balance sheet for incentive on PIK securities. We do not, at this point, anticipate not paying that. But we evaluate it every quarter and we'll let you know going forward.

Okay. And then, one on Glacier Oil and Gas comment, that used to be the old Miller Energy. While the investment is still market par, that investment -- the equity investment in there was written down pretty meaningfully. So I mean, I know that's an old legacy investment. That investment was restructured a while ago to get the capital structure correct. But we still see some struggles, at least from the -- you guys' equity position shows. So can you just provide us an update on what's going on with that business?

So as you alluded to, this is the former Miller Energy in March and it is in our investment in an Alaskan E&P company. We did restructure the company and in March of '16, the company went through a bankruptcy process. Since restructuring the company, we've been very focused on cost reduction efforts and consolidation of certain of the company's facilities. As you also alluded to, rightly, there was a markdown in the particular quarter, which reflected performance of a specific project. We continue to be optimistic relative to various other projects within the company and continue to support the investments accordingly, Ryan. But the specific write-down had to do with a specific performance of a project.

Our final question will come from the line of Jonathan Bock of Wells Fargo Securities.

Tanner, a question on the Westinghouse purchase. I understand that DIP facility -- to provide -- provided that it's getting worked out with the possible sale, et cetera. Can you talk to investors how you became comfortable owning the DIP, in light of the fact that there are the potential for governments, particularly state governments, that perhaps have either tax liens or, shall we say, tax preferences for the breaks, particularly in South Carolina and Georgia, that they provided Westinghouse that could, in fact, supersede the DIP and become a form of liability that needs to be paid. Can you just at least talk about how you manage that risk? Because I understand that was one, as part of that transaction.

Well, so without going into sort of all the way down the rabbit hole with all the detail, you know in the bankruptcy, there is a super priority lien on a whole set of assets which don't include the South Carolina plan, which includes our receivables inventory and -- much of which is outside the United States. And so that pool of collateral, putting aside what is significant going concern value of that business, it's sufficient to cover DIP without regard to the value of the things that the tax liens could potentially trump, even though there is some question of whether they would trump. So that's sort of the answer, right? So on a going concern -- first of all, the going-concern value of the business is quite significant, and even without that, the collateral value outside of what the tax liens lie is enough to cover the loan, which is why the loan was in such demand by more than us.

Of course. I'm very familiar with that and I appreciate the color. Then the next question is, would you be able to give us a sense some in this quarter of perhaps the amount of earnings benefit that came from prepayment, call premium, back-end fee, something more one-time in nature as it relates to the repayment activity that you experienced. Would you happen to have a guesstimate?

Yes, I mean, Jonathan, in my remarks, when we did speak to the prepayment and fee income and prepayment income was about $4.5 million of that.

So the $4.5 million in call premium -- thank you for that. So the $4.5 million in premium related to prepayments and its benefit, can you speak to future dividend coverage? Because as we start to model this in light of additional spread compression, we're getting a little closer to the pin, particularly if we start to assume that as NAV decline subside, the incentive fee obviously steps up a bit and allows for more cash to be drawn to the external manager. So I understand that we're getting the benefit of these onetime items coming in today, but it still feels like we're kind of close to the line. So Jim, would you give us a sense of coverage in the future in the face of what we all know to be an extremely difficult environment, particularly one for junior debt, which is providing yields that are needed to maintain coverage?

So Jonathan, to catch all your questions, I think what we're trying to do here is, we know what's important to our investors in terms of the strategy repositioning and making our $0.15. And feel like -- as Howard mentioned, we were below our stated leverage, what we set forth in the marketplace, we were at [5.5] at the end of the quarter. Subsequent to that, we've been operating in a range of 0.6 to 0.7, which we're comfortably operating in right now. Tanner talked about the backlog. So I don't think there's anything. Certainly, there sometimes is some seasonality with Merx and other things in terms of dividends or structured credit, which we're relying on less. But I think that we, as a management team, are still comfortable realizing, recognizing the compression yield that's out there right now, our ability to make our dividends.

And just let me add my comments on sort of on that fee line, obviously, what you asked, is there some level of [non] -- of recurring income from repayment. Obviously, over the course of the year, there is a expected amount. But what we didn't have a whole bunch of in the first quarter, which we will expect to have over a bunch of different quarters, is you know, syndication and underwriting fees. So to -- in our mind, to look at what in this quarter was about $4.5 million or $5 million of total fees, to look at that and say, that's all nonrecurring, I think, would be wrong. The question really is, over a year, what level of prepayment and syndication fees do you expect to earn? And how is that spread over the quarters? And so that puts to what Jim said. If you take us in our target leverage at our target yield with some, not all, but some resolution of our assets that are non -- that are not accruing and a steady level of fee income, but not heroic, we have room in our dividend. And we're happy to spend more time on the model also obviously to go through that.

No. I understand. And again, look there are recurring, nonrecurring, trying to understand the long time frame, it's always helpful to give the baseline and definitely appreciate your response. And then, most of the other questions, other than -- I'll tack on to either Mr. York or Mr. Joseph's question. It would seem that with the increased level of share repurchase that you've approved, that it could've been used as a tool to improve leverage slightly. I want to ensure, Jim, you and Apollo have sufficient opportunity to quit to the great pipeline. The Westinghouse DIP is a great loan. But I think the delineation of using it to grow NAV versus also now using it to provide and bring you into leverage a bit more so that you don't feel under levered relative to others, is that a suitable alternative at today's prices? Or do you think that, that's a consideration that you and the board are making today?

Well, it's nice to be considered lower levers in our peers, which maybe not was the case 2 years ago. So I'll enjoy that for a few weeks here. I think it's a tool. I mean, we -- what I hope you feel that we are communicating is we feel there's real traction with our front-end origination. And we think the pace of activity and the breadth of activity, they're not one-offs, they're not anecdotal. It's a stream. So I think when you think about where we are in the world in 2017 and the macro wins, having a little bit less leverage right now is probably not a bad idea. If we really saw our pipeline dry up, we would probably be more focused on doing some share repurchases with our capital to use that leverage. But I don't feel we think that's the case right now. And again, what I'm definitely seeing here, I think our strategy is pretty clear in terms of the noncore, getting that down in due course, but not fire sale-ing, dealing with some of the legacy issues and the attributes that Howard and Tanner put forth in our portfolio. We're really comfortable right now. We'd like to see -- we always like to see things happen sooner, but we're not going to do things that are noneconomic just to get to a finish line. I agree with what you say, but I don't feel I need to right now.

I think that's absolutely on par to understand that oftentimes, originations are significantly episodic. So thank you for that.

Excellent. Well, first of all, as usual, we really appreciate the [this day]. Thank you, operator. On behalf of the team, we thank you for your time and your continued support. Please feel free to reach out to anyone of us. Elizabeth, Howard, Tanner, Greg or myself. And we look forward to next quarter's conversation. Thank you, and have a great day.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.