Thursday, February 5, 2009

Apollo Investment Corp. Cuts Dividend, May Raise Capital

We wouldn't expect anything else from Leon Black's mezzanine investment vehicle. The Drexelite knows how to raise capital when an efficient market (monkeys) is going against him in all his investments (throwing feces). And the market sure is not helping his book of "assets" in Apollo's Mezzanine Fund. While the fund's common stock (AINV) hit an all time low today, the earnings release expects investors to presume that its investments have only gone down by 20% in value (from $3 billion at March 31, 2008 to $2.4 billion). As the portfolio consists of every imaginable illiquid second lien loan and junior-most bond tranche (including large positions in such recent bankruptcies as Eurofresh) color us skeptical when we look at these numbers.

Somehow AINV managed to score management and incentive fees of $28 million in the quarter and $86 million for the 9 months running, compared to $32 million and $63 million for the prior year period... We are not quite sure what these were an incentive to, but we'll let that slide. At least Apollo assures its investors that the company "was in compliance with all financial covenants on its credit facility", and with a debt-to-equity ratio of 0.83x, was in compliance with its regulatory asset coverage. The company has $1.16 billion borrowed on its credit facility and has a comfortable $540 million available to be used for further Fortunoff-type investments. The company warns it may need to raise equity off its curent shelf. Whether or not selling equity at the current all time low stock price makes sense is irrelevant: hungry Apolloers need to eat too.

The investor call tomorrow at 11am should be entertaining.
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