MidCap Financial Investment Corp (MFIC) 2018 Q1 法說會逐字稿

Good morning, and welcome to Apollo Investment Corporation's Earnings Conference Call for the period ended June 30, 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 also -- 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 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've 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 quarterly earnings call this morning. I'll begin today's call by briefly discussing the market environment, followed by an overview of our results, including a quick update on the progress we have made, executing on our strategy, as well as some additional business highlights. I will then turn the call over to Howard, who will discuss our progress 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 greater detail. We will then as usual open the call to questions.

Beginning with a market backdrop. Market conditions remain competitive due to strong demand for loans driven by CLO issuance, long mutual fund inflows and middle market loan fundraising. As a result of these elevated conditions, new issue yields have declined. The scale and breadth of Apollo's direct origination platform continues to provide us with attractive opportunities, and allows us to be selective, adhere to our underwriting standards, and support the needs of our borrowers even in today's environments. Moving to our strategy, we are pleased to report that we continue to successfully execute the repositioning strategy that we outlined last year, as we continue to reduced our exposure to noncore and legacy assets, and deploy capital into our key core strategies. At the same time, we have continued to improve the risk profile of our current portfolio by increasing our exposure to first lien and floating rate loans, and decreasing our average borrower exposure.

Moving on, we had an active origination quarter where we invested $342 million during the quarter. Repayment activity was elevated and net investment activity was a positive $90 million. Net leverage as of the end of the quarter was 0.6x, and given current market conditions, we believe that it is important to maintain dry powder to deploy when conditions -- as investors improve. Net investment income for the quarter was $0.15 per share and net asset value declined slightly to $6.73 per share as a net unrealized loss on our oil and gas investments, due to commodity prices, was mostly offset by gains in other parts of our broad portfolio. Regarding the distribution, the Board approved a $0.15 distribution to shareholders of record as of September 21, 2017. In addition, the company held its annual meeting of stockholders yesterday. At that meeting the company stockholders approved both proposals, and we greatly appreciate the support of our shareholders. Looking ahead, we will continue to focus on executing our strategy, which we believe will yield stable and predictable returns for our shareholders. I will now turn the call over to Howard.

Thanks, Jim. As mentioned, we continue to successfully execute the portfolio repositioning 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 in life sciences, asset-based lending and lender finance. We refer to these assets as our core assets or strategies. Our strategy also includes reducing exposure to noncore assets or strategies, which include oil and gas, renewable, 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 leasing, with the balance in any remaining noncore strategies.

I will now discuss our progress in greater detail. First, we continue to both deploy capital into our core strategies, including investments made pursuant to the co-investment order. Since commencing our repositioning strategy a year ago, we have invested approximately $747 million into our core strategies, including $294 million into co-investment transactions. Core strategies now account for 74% of the portfolio, compared to 59% a year ago. Second, we continue to reduce our exposure to noncore and legacy assets, which now account for 26% of the portfolio at fair value compared to 41% a year ago. In aggregate, noncore and legacy assets have decreased by $434 million over this period, and now total $631 million of fair value. Oil and gas exposure has declined to 6.6% of the portfolio at fair value, structured credit to 3.6% renewables to 7.6%, and legacy and other exposure has declined to 3.5%. These are all down significantly from when we commenced our repositioning strategy. Recall these noncore assets are higher on the risk spectrum and have more volatile returns. In addition, we also made progress with repositioning nonearning assets. During the period SquareTwo, one of our nonearning legacy investments, was repaid above our mark, which allowed us to deploy more capital into our core strategies, and grow our earning assets. As mentioned on last quarter's call, it is our desire to exit Solarplicity, given its size and inherent volatility. Solarplicity is currently generating positive net cash flow. While reducing our exposure to noncore assets is a top priority, we continuously evaluate the cost of exiting such investments against our downside risk. Third, we have continued to make steady progress to improve the overall risk profile of our portfolio by increasing our exposure to first lien and floating rate loans, and decreasing our average borrower exposure.

As of the end of June, first lien debt had increased to 47% of the total portfolio at fair value. The floating rate portion of our corporate debt portfolio had increased to 86% at fair value, and our average borrower exposure is under $130 million. Looking ahead, we will continue to focus on investment opportunities, which are directly originated from the Apollo platform, as we seek to build a high qualified, diversified floating rate senior loan portfolio. We also continue to actively pursue co-investment opportunities. Our ability to coinvest 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, which is a key differentiating factor in today's competitive environment. This is evidenced by the fact that over 36% of our deployment over the past 4 quarters has been in transactions made pursuant to our co-investment order. We look forward to reporting our continued progress executing on our strategy over the coming quarters. With that, I'll now turn the call over to Tanner, who will discuss investment activity and credit quality.

Thank you, Howard. As Jim mentioned, the loan market continues to be competitive, in general we are seeing pressure on investment yield in terms and we have passed on many deals that do not provide adequate risk adjusted returns. However, we are finding a select opportunities to meet our criteria, as we benefit from being part of a large direct origination platform with access to proprietary opportunities. During the quarter, we invested $342 million -- we invested $342 million in 11 new portfolio companies and 11 existing companies, with a focus on floating rate debt in our core strategies. Given the continued strength in credit markets, repayment activity was elevated during the period. Exits totaled $252 million, which consisted of $242 million of repayments and $10 million of sales. Net investment activity before repayments was $332 million and net investment activity after repayments was $90 million for the quarter. The weighted average yield on investments made during the quarter was 10.3%, and the weighted average yield on sales and repayments was 11.3%.

I will now discuss our deployment for the period in greater detail. During the quarter, we deployed $143 million or over 40% of our deployment across 7 companies made pursuant to the co-investment order. We invested $37 million in one asset based transaction, $24 million in 3 life sciences investments, and $82 million across 3 corporate lending transactions. Turning to aircraft leasing, 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. As of the end of June, our investment in Merx was $463 million, representing 19.2% of the total portfolio at fair value. Merx continued to see attractive opportunities to add to its portfolio of high-quality aircraft and lessees, as well as opportunities to monetize select aircraft in its portfolio. During the period, we deployed approximately $105 million into Merx, and were repaid $66 million, resulting in net investment of $40 million. Merx also paid a $3.6 million dividend for the quarter. The balance of our investment activity was mostly spread across several secured debt floating rate corporate loans within our core strategies. In addition to the repayment from Merx, repayments included in our investment in Kraft CLO 2013, ECM Holding company, Sterling Holdings, and our investment in SquareTwo.

I will now give a brief update on our energy portfolio. At the end of June, oil and gas represented 6.6% of our portfolio at fair value or $159 million across 3 companies. During the quarter, we funded $2.5 million into Glacier Oil & Gas and $9 million into Spotted Hawk. We continue to work closely with both management teams, and we may deploy some additional capital into these names during the coming quarters to support accretive development projects. The values of these investments were negatively impacted, consistent with the decrease in commodity price environment. Lastly, our debt investment in Pelican Energy was converted into equity at approximately the same value. Now let me spend a few seconds discussing credit quality in our overall portfolio. At the end of June, investments on nonaccrual status represented 1.1% of the portfolio at fair value and 1.9% at cost, down from 3% and 7% respectively at the end of March. Nonaccruals decreased due to the exit of SquareTwo and a write-off of a few other legacy investments. The current weighted average net leverage of our investments remained 5.5x, the current weighted average interest coverage improved to 2.7x. With that, I will now turn the call over to Greg, who will discuss the financial performance for the quarter.

Thanks, Tanner. Total investment income for the quarter was $66.7 million, up slightly quarter-over-quarter. Recurring interest income increased quarter-over-quarter due to an increase in our income generating assets, offset by lower fee and prepayment income. Dividend income, which is primarily derived from our aviation and shipping investments, as well as our remaining CLO positions was $5.9 million for the quarter, down from $6.1 million last quarter. Merx increased its dividend to $3.6 million from $2.7 million last quarter, as aircraft sales have accreted to higher earnings. Fee and prepayment income combined were $3.8 million in the June quarter, compared to $6 million in the March quarter. The March quarter included higher fee income relating to amendments as well as higher prepayment income as a result of the elevated level of prepayment, during that quarter. Expenses for the June quarter totaled $33.4 million compared to $29 million in the March quarter, excluding the prior quarters' incentive fee reversal, expenses were slightly down quarter-over-quarter as a result of lower management and administrative expenses. The incentive fee rate for the quarter was 15%. Net investment income was $33.3 million or $0.15 per share for the quarter. This compares to $37.3 million or $0.17 per share for the March quarter. For the quarter, the net loss on the portfolio totaled $4.5 million, compared to a net loss of $29.2 million for the March quarter. Negative contributors to the performance for the quarter were primarily isolated to our energy investments in Spotted Hawk and Glacier as commodity prices declined quarter-over-quarter. On the positive side, our investments in Asset Repackaging Trust and Renewable Financial saw improved valuations quarter-over-quarter.

Lastly, during the quarter, we exited and wrote off several legacy positions, which resulted in the realization of previously recorded security write-downs. And therefore, there was not any impact on our NAV. In total, our quarterly operating results increased net assets by $28.8 million or $0.13 per share, compared to an increase of $8.1 million or $0.04 per share for the March quarter. Net asset value per share was $6.73 per share at the end of the quarter.

Turning to portfolio composition. Our portfolio had a fair value of $2.4 million and consisted of 84 companies across 23 industries. First lien debt represented 47% of the portfolio, second lien debt represented 30%, unsecured debt represented 7%, structured products represented 6%, and preferred and common equity positions represented 10%. Weighted average yield on our debt portfolio at cost was 10.3%, unchanged quarter-over-quarter.

On the liability side of the balance sheet, we had $921 million of debt outstanding at the end of the quarter. Included within our debt, are $150 million of baby bonds with a coupon of 6 5/8, which become callable in mid-October. It is our intention to redeem these bonds using our credit facility, which has a lower funding cost. Our leverage ratio, which includes the impact of cash and unsettled transactions stood at 0.6x at the end of June, up from 0.5x at the end of March. Given where our stock has been trading, we did not repurchase any shares during the quarter. Lastly, we continue to be well positioned for future interest rate increases. As 86% of our corporate debt portfolio is floating rate. Given our investment portfolio and mix of liabilities, we expect meaningful, a benefit from an increasing short-term rates going forward. This concludes our remarks. Operator, please open up the call for questions.

(Operator Instructions) Your first question comes from the line of Jonathan Bock of Wells Fargo.

Tanner and Howard, I wanted to start with a, more of a global kind of view, as it relates to your sharing investments across the Apollo platform, which is a very unique, and obviously good thing given your performance on behalf of your institutional investors. Can you walk us through, we look at some of the names like CP, Merx we'll leave aside for a moment, or Ericsson, or certainly Westinghouse, which ones -- which of those loans have significant amount of ownership by other Apollo funds that are not attributed to the BDC? Just to get a sense of, who you're sharing with on platform and how?

Yes, sure. And Jonathan, thanks for the question, and I sure appreciate. Depending on the type of transaction and the yield, it will find overlap with different types of funds. Each of those names that you enumerated, we're actually shared with the broader platform, and then in certain of the cases, the investors were not necessarily the same. Again, owing to the character of the loan, and the yield of each of those names that you mentioned.

Okay.

Just Mike, I mean, you can draw some conclusions on size. Westinghouse was, a really big (inaudible). It speaks to the power we had, so you could say, a wide variety in almost every eligible, you know institutional account or strategy that could -- that would participate in something like that did. Ericsson was -- is an asset-based loans revolver. That's a core mid-cap loan. So that's a deal with mid-cap, like that's right down the middle of the asset-based loans we're trying to do. There are a few other accounts that also play along. And that, given the size of it, but that's more, just right in the middle of the mid-cap strategy.

Okay. And then, taking a moment, I know you're continuing the portfolio repositioning process. And selling out small loans and realizing those losses, et cetera. Even in this current environment, what we're finding is, some loans that can prepay, will and have, in some cases, because they're able to get spread protection elsewhere, there is -- lower spreads elsewhere. Can you walk us through the amount of call or embedded earnings potential that you see on loans that are potentially on deck for refinancings. And so, it's not much of a -- as much of a forecast of what is the dollars and cents impact, as it is of the repayments that you would see coming through the pipe, given this tighter spread environment, how many of those loans are older legacy investments with little call or embedded OID? And how many those loans have perhaps been originated nearer-term that might provide a boost to 12 month estimates?

Sure, so the legacy investments, the stuff that we sort of classified as lazy investments, first of all, a lot of those sort of are in the equity bucket, right, because they're sort of, that's how they were structured, which is why they're more volatile. So they inherently don't have call protection, they may have NAV upside or downside, that's hence the volatility. And you know, our exits thus far had been pretty good versus where they've been marked, which is why there actually hasn't been that much NAV movement at -- with this significant repositioning over the last 4 quarters. So instead of (inaudible) Merx more. So let's put that stuff aside. So our refinancings, as a result are sort of generally in stuff that is more recent vintage. And so our call protection on those loans are sort of commensurate with what you're seeing with some of our competitors, in terms of percentage. And so we do see some uplift from that, which in our mind, you know, put aside how your view or your peers are modeling. From our perspective, is a good mitigant to staying slightly under levered, given where the market is, right? But yes, it provides a tailwind to earnings. So we do see that, and see it real-time.

So and then, I understand one deal is not indicative of the entire investment pool it made, but -- so let's take for example, second lien loans for a second. The loans that are -- this is a surely competitive point in the credit markets and there are a number of folks that are competing for a lot of second lien transactions that are either trying to grow into scale, get bigger, get fast, do that fast for a number of reasons. And this category's seen significant spread compression. And so if you look at a name like Securus, here was Deutsche Bank, lead loan, no covenant, Triple C kind of a thing. Walk us through that investment, and why you made it? And whether or not it is effectively a tell of some of the other second lien deals that you decided to put in the portfolio. Because it's the only one that we could probably easily see, but also, just every deal's different, and we understand, we'd probably just appreciate more color on that, so that we don't paint the entire second lien basket as, arguably higher risk with substantial downside, given the competition for that type of yielding asset.

Yes, sure, and Jonathan, this is still like a question that you've asked in previous quarters, and if we look across the $342 million that we originated, certainly there were those names that were definitively within ABL and life sciences, but there was a healthy number of originated transactions, and I'd point you to think like CT, (inaudible) as well as Smart Bear and Alpha Sciences in that regard and then also, similarly to comments we've made in the past, from time to time, particularly in markets such as this, knowledge of issuers such as Securus, among others, across the broader platform gives us opportunities to create that risk at what we think is attractive levels. We typically keep these types of investments at very low exposure. And so in the case of Securus, only $12 million and there's various others. Sometimes just to kind of give you a little bit more color, and not to hog the mic here, there are also instances, as you would imagine in this market, whereby we are doing private-type -- deep type diligence, or have historical knowledge of the particular credit. That might have been a private debt-type opportunity historically, but then owing to just how healthy the syndicated markets are, that particular yield goes syndicated, and given our comfort with that issuer, we may choose, particularly in markets such as this, to participate in those syndicated transactions on a limited basis. And we think of that as a nice offset and in a small part of our origination activities particularly in markets such as this.

So let me just put little numbers on it, right? Like Securus, as Tanner said, we tend to sort of originate this stuff at a little better levels than sort of a retail because of certain power, the buying power and so we can cherry pick what makes sense. And we also feel a need of our own sake and for guidance from a bank, and rating agencies to have a certain amount of our portfolio be in liquid names. I sort of doubt accounts of that. So I would not -- I would describe that not as a tell at all, I would describe it as a sort of a 10% to 15% part of our corporate portfolio. That is a -- that we can take advantage of some buying power we have and keep some liquidity. And it's sort of unrelated to our other stuff.

I appreciate it. I wasn't really going down the path of direct versus indirect origination. Just the competition in the second lien category, just as of late has been pretty serious against -- based on couple of competitors really wanting those assets so was a good description on how you're looking at this space.

Your next question comes from the line of Terry Ma of Barclays.

Can you help us think about, or how should we think about the Merx dividend going forward? I think, you guys mentioned, there was elevated Q over Q, just from higher sales?

Yes, I think, when -- as we've said before, our dividend capacity in Merx is probably between $2.5 million and $3.5 million, but it does fluctuate. Depending upon if we're selling aircraft, and there are gains on those aircraft. So it can fluctuate, but I would, from a modeling point of view, that's where I would estimate it.

Okay, got it. I think, most other aircraft lessors that have actually reported so far have reported pretty large gains this quarter. And I think, most instances it's actually a pretty strong market to sell into, from which, at the same time means that the competitive market to buy. So can you maybe just give some color on where you're seeing opportunities to grow Merx? And you guys deployed over $100 million into Merx this quarter?

Yes, sure. So when we think of our strategy as, in some ways, complementary to the broader -- the bigger lessors that you might be more familiar with, and owing to our platform, owing to our origination capabilities there, have a number of idiosyncratic opportunities that present themselves. I think in this particular quarter we happen to have 1 transaction that we thought was very interesting, and as we mentioned in the prepared remarks, actually was something that, on average was a higher quality portfolio versus the rest of Merx, and importantly due to sanguine financing markets, enabled us to create that transaction at an attractive level. And then, counterbalanced as evidenced by the number of repayments, and we see more repayments on the future, enable us to credit risk manage certain other, neither carriers and or aircraft types that they're less interested in. So we look at this as an opportunity that speaks to our origination platform, and the ability to credit risk manage around the edges, to create a better, higher quality portfolio.

Got it. Are you -- is Merx mainly buying from other lessors or airlines? And also, can you remind me what the average age of that portfolio is? Just Merx overall, actually.

Yes, sure, it's a very good question, and we benefit from deal flow from a number of different places. One of the biggest generators of flow historically, has been from other lessors, certain of the bigger guys are almost exclusively focused on the new issue market. We have done some original sale restacks, but predominantly, we are playing in mid-life aircraft and selectively later-life aircraft. Our -- average age of our portfolio is roughly 7 years, which kind of speaks to that focused on mid-life and sometimes, to my comment on the complimentary point is, we have -- we're a better buyer of that mid-life aircraft and it enables those bigger lessors to redeploy capital into their base business of taking new deliveries and placing those of carriers.

Your next question comes from the line of Doug Mewhirter of SunTrust .

First question, it's actually a, kind of a trivial numbers question, but it seemed odd as, in your other income line for noncontrol and nonaffiliated, it was actually a negative number. I -- just wondering -- how does that -- what was the nature of that line item?

We check that prior adjustment for an investment we have. That's all.

Okay, thanks. And actually staying on the Merx subject, so obviously Merx has done very well for you. It's a very high effective yield, and it appears to be very well managed. And based on the commentary from some of the, these larger company executives, it's a -- that the market seems to have picked up, particularly in Europe. But I know that you're trying to concentrate on your core portfolio, your Life Sciences portfolio and you have some pretty big guardrails around Merx. So how much are you willing to stretch that? Or is the market going to cooperate and actually, you have as much sale opportunities as you do deployments. So you don't really have to worry about asset allocation and get, let have, having Merx get too big, even if it's a favorable market. Just how are you sort of thinking about how Merx is, in relation to the current market?

Yes, I think as Howard said earlier, we think about broad portfolio allocation. You know, Merx is probably 20% at sort of the top end. And, I think, that over a cycle, we had found a couple of very interesting opportunities right now. But I think, you'd see that portfolio probably, trend down a little bit over time as a percentage of the overall, portfolio. We feel very comfortable with it. As you said, we've got a great track record, a very nice, diverse portfolio in secondary leases. So you know, we've talked some of the, plus or minus 15%, but again we feel very comfortable with it right now. And again, I think some of the bigger companies, public companies are more in the newer aircraft, which yes, I mean, it's certainly connected in terms of valuations and things of that nature. But we believe we're in a little bit different value proposition than some of the public companies, and we still feel that we're finding interesting opportunities today. But you're not going to turn around and see us. We're really thinking about that 20% being a cap that we don't, we do not want to exceed. Now I'll tell you it's gone up as a percentage over the last 12 months. And it's the rest of our portfolio, through the repositioning, has wound down. It's not as if it's actually gone up in absolute dollars, but in percentage, it's gone from 16%, 17% to today, because of the overall optimization of the portfolio.

I appreciate that detail, it's very helpful. My last question, on Oil and Gas. Oil looks like it's sort of flirting with $50. Although it's has bounced around quite a bit. Is that -- and I know there's only so much you can say about this, but you do have a lot, a few legacy Oil and Gas E&P companies. It looks like you've been putting some more capital into there. But does that -- and I'm sure you get unsolicited calls about maybe buying those assets every once in a while. Has the bid, come up on the type of land that sits under those oil assets to where there could be the possibility of a, an exit that you're happy with, in 1 or all of them over the balance of this year? If oil stays where it's at?

Yes, hey Doug. There are a couple of things there. First, I think you're alluding to how oil has moved around, valuation as we talked in the past is due to a myriad of factors, including as it relates to the oil price, kind of longer-term oil prices as well, that are actually more impactful from a valuation standpoint. And so numbers can move around. With respect to our 2 platforms that constitute the majority of our exposure today, as we alluded to, and you alluded to as well, we're very focused on value maximizing activities within those companies, and we'll evaluate opportunities to monetize kind of consistent with our strategy to reduce our exposure to commodity related investment. So we will -- we evaluate those as we come -- as they present themselves.

Your final question comes from the line of Ryan Lynch of KBW.

Couple of questions, I have. Just, as I kind of think about your guys' portfolio transition you guys are making over the past year. It looks like, you guys have done a good job. Rotating from core strategies to 59% of your portfolio, to 74%. And then, as well as rotating out of noncore strategies just from 35% to 23% of your portfolio. So as I think about where we are in this portfolio transition process, those noncore strategies have significantly been reduced, but is your plan to get that number down to 0, or do you plan on still holding a percentage of your portfolio in those noncore strategies? And if you plan on holding a percentage of your portfolio on these noncore strategies, where does that look to be?

Yes, so the answer is, we are looking to proactively exit the full list of those investments. But we don't expect that to occur. We feel comfortable, you know, with our marks on those investments. So we want to exit them when they make sense. And so they're -- so I think ultimately, some of them won't get exited, because we like the way they're yielding more than somebody may pay us for. And some of them are inherently more, less volatile than others, like the shipping, for example is just less volatile than some of the other ones, so. The way I think we look at it is, there a, about a quarter of what's remaining, roughly a little bit less in the quarter was remaining is in Solarplicity, and we're very focused on exiting that. And exiting that, and then being able to sort of mitigate some of the Oil and Gas, maybe exiting one of those 2 platforms and we would say, we'll still track it, but we would say at that point, it's behind us, in terms of the strategy, even though we'll continue to not add to those verticals, and we will continue to let them either run off or sell. So I think we're pretty close to done in terms of the amount of transactions to get done. It won't go to 0, but hopefully, it will become a rounding error in the model, going forward.

That make sense. Speaking with Solarplicity, that investment was written up, a little bit, about $5 million in the quarter, was that due -- does that have anything to do with any sort of currency fluctuations? Or is any sort of, a slight improvement in kind of the outlook for that business?

The direct offset to FX. It was flat to quarter. Yes.

We'll have time for one additional question. That will come from Melissa Wedel of JPMorgan.

Melissa Wedel for Rick Shane. I just wanted to get a sense for your comfort level with dividend coverage. As you weigh the lower yield of new investments against, a shift to more earning assets and strategy, and the potential for retellings on Libor. Do you think that's enough to offset that yield compression at this point?

So in thinking through, sort of our dividend coverage, we have sort-- what we have said, really for the past year is that, once the portfolio is repositioned with sort of meaningful yield compression at 0.65 to 0.7 leverage, we have-- and reasonable fee income, we will cover the dividends well. We have some tailwinds, the Libor change you mentioned, the pending refinance of some of ours that we talked about. So we have some tailwinds to help support that. Offset by the headwind of being underlevered right now, which should have of the market is, may cause us to stay there. So the answer is, we are comfortable -- we continue to be comfortable with our core pieces, which is in the medium-term and long-term, at sort of less than market average leverage levels, we will cover the dividend solidly. There could be crosswinds, if we continue to decide to stay under-levered in one particular quarter, but there has been nothing that has sort of changed that analysis, and in fact I'd say we're more confident of it. And you can see it in where, sort of our yield has compressed from a year ago. And actually, what happened over the last couple of quarters, which is the last couple of quarters have been pretty steady, a lot of our yield compression has been remade into the change in the accrual rate on Solarplicity. And so we feel pretty good about our ability to generate the assets in the range we talked about at that 0.65 to 0.7 leverage to cover the dividend.

At this time, I'd like to return the call to Jim Zelter for any additional or closing remarks.

Thank you, operator, and on behalf of the team, we thank you for your time today, your continued support. Please feel free to reach out to us if you have any questions, and have a great day. We look forward to talking to you next quarter. Thank you.

Thank you for participating in the Apollo Investment Corporation's Earnings Conference Call. You may now disconnect.