Midcap Financial Investment Corporation · NASDAQ:MFIC
Midcap Financial Investment — Apollo Investment — Wells Fargo 2014 Specialty Finance Conference
29 slides from Midcap Financial Investment's conference presentation, May 21, 2014
Slide 1: Wells Fargo 2014 Specialty Finance Conference
Exhibit 99.1 Wells Fargo 2014 Specialty Finance Conference May 21, 2014 Information is as of March 31, 2014 except as otherwise noted. It should not be assumed that investments made in the future will be profitable or will equal the performance of investments in this document.
Slide 2: Disclaimers, Definitions, and Important Notes
Disclaimers, Definitions, and Important Notes Past Performance Past performance is not indicative nor a guarantee of future returns, the realization of which is dependent on many factors, many of which are beyond Apollo’s control. Net returns give effect to all fees and expenses. Unless otherwise no
Slide 3: Disclaimers, Definitions, and Important Notes
Disclaimers, Definitions, and Important Notes AUM Definition Assets Under Management (“AUM”) – refers to the investments we manage or with respect to which we have control, including capital we have the right to call from our investors pursuant to their capital commitments to various funds. Our AUM
Slide 4: Agenda
Agenda Introduction to Apollo Investment Corporation BDC Industry Opportunity Investment Portfolio & Strategy Conclusion 3
Slide 5: Introduction to Apollo Investment Corporation
Introduction to Apollo Investment Corporation Primarily provides debt solutions to U.S. middle market companies with a focus on directly originated proprietary investments Target investment characteristics: (i) commitment & hold size ranges from between $20 million and $250 million and (ii) Middle M
Slide 6: Company Snapshot
Company Snapshot Select Financial Data (1) Investment Portfolio $3.5 bn LTM $494 # of Portfolio Companies 111 Debt Outstanding $1.37 bn Net Assets $2.05 bn Net leverage Ratio (2) 0.68x Net Asset Value Per Share $8.67 Most Recent Quarterly $0.20 Dividend (3) Market Information (4) Market Capitalizati
Slide 7: Agenda
Agenda Introduction to Apollo Investment Corporation BDC Industry Opportunity Investment Portfolio & Strategy Conclusion 6
Slide 8: The Evolution of BDCs
The Evolution of BDCs While still focused on U.S. middle market lending, many BDCs have evolved into a more institutionalized business model with a focus on sound risk management and increasing differentiation amongst strategies. Asset Mix 9% 10% 1% Secured debt Secured debt 9% Unsecured debt Unsecu
Slide 9: Lending Environment & BDCs Filling the Void
Lending Environment & BDCs Filling the Void A variety of recent bank regulations have driven large financial firms to reduce assets. While BDCs have grown significantly, they remain small relative to the contraction in bank credit, leaving them with more room to run. Total Assets for Financial Firms
Slide 10: Regulatory Reform Is Changing the Lending Landscape
Regulatory Reform Is Changing the Lending Landscape Key Dates Description Impact Higher risk weightings on non-investment grade Common equity, Tier 1 and Total Capital ratios are Basel III 7.0%, 8.5% and 10.5%, respectively Risk-based securities Phase-in Capital Ratios 2015-2019 Capital surcharge fo
Slide 11: Comparison & Composition of Returns across Financial Institutions
Comparison & Composition of Returns across Financial Institutions BDCs generally generate superior yields from their balance sheet, with comparable (or better) credit losses BDC expenses are generally lower than those of other financial institutions leading to significantly higher ROAs BDC generally
Slide 12: Agenda
Agenda Introduction to Apollo Investment Corporation BDC Industry Opportunity Investment Portfolio & Strategy Conclusion 11
Slide 13: Investment Process
Investment Process Underwriting & Due Structuring, Pricing & Deal Sourcing Portfolio Monitoring Diligence Approval Multi-Channel Focus on Risk-Adjusted Protect Downside Risk Comprehensive and Regular Sourcing Engine Returns Review and Dialog Experienced investment team Risk-adjusted investment Negot
Slide 14: Portfolio Positioning
Portfolio Positioning Emphasis on Secured Lending (1) Secured Debt as % of Portfolio Focus on Floating Rate (1) Floating Rate as % of Debt Portfolio Developed Specialty Verticals (1) Specialty Verticals as % of Portfolio Improved Credit Quality (2) Reduced Borrower Concentration (1) Yield on Debt Po
Slide 15: Specialty Verticals
Specialty Verticals We have been expanding our capabilities in select industries 1) with a strong demand for capital, 2) where traditional capital has fled, 3) with significant barriers to entry, and 4) in which the Apollo platform has expertise. % Target Industry Fundamentals Strategy Portfolio Yie
Slide 16: How We Are Investing in the Current Environment
How We Are Investing in the Current Environment 1 Loan volume increasing, but still well 1 2 below pre-crisis levels 2 Meaningful recent pick up in sponsor activity while refinancing remains elevated 3 Loan pricing trending down, but spread between middle market and large corporate issuers widened 3
Slide 17: Agenda
Agenda Introduction to Apollo Investment Corporation BDC Industry Opportunity Investment Portfolio & Strategy Conclusion 16
Slide 18: Strategic Priorities
Strategic Priorities Dividend Yield for Alternative Investments (2) (3) Remain prudent, selective and opportunistic AINV (1) 9.9% Continue to identify mispriced risk MSCI US REIT Index 3.7% (RMZ Index) Pursue opportunities emerging from bank regulation S&P 500 2.0% Continue to optimize portfolio Red
Slide 19: Appendices
APOLLO INVESTMENT CORPORATION Appendices 18
Slide 20: Financial Highlights
Financial Highlights $ in thousands, except per share amount Three months ended Three months ended Three months ended Three months ended Three months ended OPERATING RESULTS March 31, 2014 December 31, 2013 September 30, 2013 June 30, 2013 March 31, 2013 Net investment income $49,612 $49,683 $49,586
Slide 21: Financial Highlights (continued)
Financial Highlights (continued) Three months ended Three months ended Three months ended Three months ended Three months ended PORTFOLIO ACTIVITY (1) March 31, 2014 December 31, 2013 September 30, 2013 June 30, 2013 March 31, 2013 Investments made during period $986 million $630 million $412 millio
Slide 22: Investment Activity and Yields
Investment Activity and Yields Despite the high level of purchases, sales, and repayments over the past year and a half, we have generally been able to maintain the portfolio yield by shifting into more senior less liquid assets. Quarterly Investment Activity (in $ millions) Yield on Investment Acti
Slide 23: Leverage Ratio
Leverage Ratio We have consistently operated within our target leverage range of 0.50x to 0.75x over the past five quarters. The target leverage range considers the impact of a potential market shock to the fair value of the portfolio, and the potential funding of off balance sheet arrangements, whi
Slide 24: Diversification of Funding Sources
Diversification of Funding Sources Funding Sources The weighted average annual interest cost for the year ended March 31, 2014 was 4.95%.(1) Funding Sources Facility Size Interest Rate Final (2) $3,500 $3,424 Maturity Date $3,186 $270 $602 million $2,958 $2,947 $270 SENIOR SECURED outstanding LIBOR
Slide 25: Access to Apollo Global Management, LLC Platform
Access to Apollo Global Management, LLC Platform Firm Profile (1) Principal Investment Businesses (1) Founded: 1990 AUM: Private Equity Credit (2) Real Estate $159 bn Employees: 761 $48bn $101bn $9bn Inv. Prof.: 302 AUM AUM AUM Investment Approach Global Footprint Luxembourg Value-oriented New York
Slide 26: Interest Rate Exposure
Interest Rate Exposure AIC has taken several steps to prepare its balance sheet for higher interest Interest Rate Sensitivity rates by having a significant portion of its portfolio in floating rate assets Annual Net Annual Net and issuing fixed rate debt. Basis Point Change Income Income per Share (
Slide 27: Investments on Non-Accrual Status
Investments on Non-Accrual Status Percentage of Portfolio on Non-Accrual Status Percentage of Portfolio on Non-Accrual Status (based on fair value) (based on cost) 2.0% 10.0% 9.0% 8.0% 1.5% 7.0% 6.0% 1.0% 5.0% 4.9% 0.8% 4.0% 0.4% 0.4% 3.0% 0.5% 0.3% 2.0% 1.1% 1.1% 1.0% 0.3% 1.0% 1.1% 0.0% 0.0% Inves
Slide 28: Building Specialist Origination: Oil & Gas
Building Specialist Origination: Oil & Gas Compelling Industry Fundamentals Investment Thesis / Strategy 5x increase (from $50 billion to $250 billion in 10 years) in Focus on secured lending against North American annual capital spending to develop shale resources producing upstream oil and gas res
Slide 29: Building Specialist Origination: Aircraft Leasing
Building Specialist Origination: Aircraft Leasing We established an operating subsidiary – Merx Aviation Finance, LLC – to participate in aircraft leasing transactions which is led by an experienced aircraft investment team. Favorable Industry Dynamics Investment Thesis / Strategy Global air traffic
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