Good morning and welcome to Apollo Investment Corporation's Earnings Conference Call for the period ending March 31, 2014. At this time all participants have been placed in a listen-only mode. The call will be opened for a question-and-answer session following the speakers' prepared remarks. (Operator Instructions) I'd 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. With me today are Jim Zelter, Chief Executive Officer; Ted Goldthorpe, President and 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 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 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 Web site at www.apolloic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our Web site, 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. This morning, we issued our earnings release and filed our Annual 10-K. I will begin my remarks with some highlights for the quarter and for the fiscal year. Following my brief remarks, Ted will provide an overview of the market environment and review our portfolio and investment activity. And finally, Greg will discuss our financial results in greater detail. We will then open the call to questions. We are pleased to report strong results for the March quarter including solid earnings and increase in net asset value and a record level of asset deployment. Net investment income was $0.22 per share, which we believe reflects both the strength and diversity of our earnings model. Our net asset value was $8.67, an increase of 1.2% for the quarter and 4.8% for the year exhibiting the stability we seek to achieve. Let me now take a step back and spend a few minutes reviewing the past year. While the broadly syndicated markets became increasingly competitive risk-adjusted returns in the middle market while not immune have generally remained attractive. Therefore, given the current landscape we pursued opportunities provided to us from our differentiated sourcing model maximizing the flexibility associated with our permanent capital. For the year, we increased the size of our portfolio by 22% to $3.5 billion earned $0.91 of net investment income per share outpacing our dividend by 14%. Increase the portfolio's allocation to secure debt to 56% up from 44% a year ago and we continue to expand our specialty verticals by investing a total of 1.2 in oil and gas, aviation and structured products. I'm very pleased that our investment team remained disciplined and continued to prudently underwrite capital structures despite the frothy market. We also continued to benefit significantly from the broader Apollo platform. The…

Thank you, Jim. Beginning with the market environment, the non-investment grade credit markets strengthened during the quarter on proven economic data and reduced interest rate volatility. Strong fund inflows supported new issue activity and drove spreads tighter. This quarter end, the market has begun to differentiate between issuers with an increased focus on results. However, the primary CLO market has remained active loan fund flow has dwindled and have snapped to 95-week inflow streak. Moving to investment activity, we invested $986 million during the quarter with $398 million in 26 new and $588 million in 18 existing companies. This represented a record quarterly level of gross deployment. Our activity was driven by our specialty verticals which represented 35% of the total and sponsored driven refinancing which represented 27% of the total as well as spill over activity from the December quarter. Secured debt investments continued to represent the most attractive risk-adjusted return in today's market and represent 79% of assets deployed during the quarter. In addition, 89% of our investments made during the quarter were sourced from primary transactions. We also sold $323 million of investments and received and $404 million from repayments and revolver pay downs. Net investment activity was $259 million for the quarter. From a yield standpoint, the weighted average yield on our debt portfolio at cost decreased by approximately 30 basis points to 11.1% at the end of March down from 11.4% at the end of December. Our participation of the refinancing of our existing investment in Miller Energy accounted for 10 basis points of the decline as our yield on this investment declined from 15.6% to 12.4%. The decline in the yield also reflects our continued rotation into secured debt. Looking forward, we do not anticipate additional yields compression. And we continue to increase our…

Thank you, Ted. Beginning with operating results total investment income for the March quarter was $96.4 million up 2% from last quarter and up 14% from the year ago. The increase quarter-over-quarter was due to strong core earnings coupled with higher prepayment income partially offset by a slight decline in dividend and fee income. The year-over-year increase was a result of an increase in the portfolio which drove both core and dividend income. Income for the March quarter included $4.1 million of prepayment income compared to $1.8 million in the December quarter and $3 million for the year ago quarter. In addition, interest income for the March quarter included approximately $1.4 million of accelerated OIT versus 700,000 in the December quarter and 600,000 in the year ago quarter. Expenses for the March quarter totaled $46.8 million compared to $44.9 million last quarter and $42.6 million for the year ago quarter. The sequential increase was due to an increase in the portfolio which was supported by a higher leverage resulting in higher interest expense. Management fees and administrative expenses also increased as a result of not only the greater asset and earning base but the volume of activity over the period. Net investment income was $49.6 million or $0.22 per share for the quarter, this compares to $49.7 million or $0.22 per share for the December quarter and $42.1 million or $0.21 per share for the year ago quarter. For the quarter, the net gain in the portfolio totaled $20.3 million or $0.09 per share compared to a net gain of $56.1 million or $0.25 per share for the December quarter and a net gain of $23.8 million or $0.12 per share for the year ago quarter. The net gain in the March quarter was a result of the strength in the credit markets and a broad-based appreciation across the portfolio. In total, our quarterly operating results increased net assets by $69.9 million or $0.31 per share compared to an increase of $105.7 million or $0.47 per share for the December quarter and an increase of $65.8 million or $0.32 per share for the year ago quarter. On the liability side of the balance sheet, we had $1.37 billion of total debt outstanding at the end of the quarter up from $1.26 billion at the end of December and $1.16 billion a year ago. The company's debt to equity ratio was 0.67 at the end of March up from 0.66 at the end of December. The net leverage ratio which includes the impact of cash and unsettled transactions 0.68 at the end of March up from 0.65 at the end of December. With that operator, please open the call to questions.

(Operator Instructions) Your first question comes from the line of Troy Ward of KBW.

Great. Thank you. Ted, on Slide 8 of the presentation, you provide the yields on both the first lien, second lien and the unsecured debt. Just seems a bit odd that over the past 12 months and even on Slide 7 on the current quarter, the yields on the first lien are higher than the second lien or the unsecured debt? Can you just provide us a little bit of color that may explain this anomaly?

Yes. Sure. I know that looks strange in the aggregate, but when you disaggregate it, looks better. So I would say its two big things. One is, Merx which is the big acquisition this quarter has a 12% yield on it. That's first lien senior secured debt. If you strip that out, the yield on second liens are actually a little bit higher. So it's really driven by this large Merx loan that we did for 12%.

Yes. That makes sense. Okay. And then Ted, I believe you just crossed your two year anniversary as President at Apollo. As you look back now what do you view as the most significant positive that you and your team have achieved since your arrival and what are the areas that you think you still need to improve?

Yes. Listen, I mean obviously, it's a team effort. I mean I think if you look back at where we kind of set out for investors and where we want to be. We feel like we kind of achieved all of our goals. Here we have really expanded the funnel in terms of sourcing. We have invested a lot of money in headcount and to building out sourcing and origination, which we think is the key of the business. I think number two is, we have been able to maintain yields while moving up the capital structure. So if you look at the amount of secured debt in our portfolio today versus where it was two years ago. Obviously, it's much higher. So I think probably the most significant accomplishments are moving up the capital structure, while maintaining yields, while covering the dividends, while investing in new businesses. We are continuing to improve. I mean we are always on the hunt for new businesses and new origination channels. And then number two, we've not found a great solution for this. If you compare the yield of our 30% bucket to our 70% assets, its not – there is not as wide of a spread as some of our peers have. And we have looked into all kinds of ways to increase yields on the 30% bucket. And I would say as of today that we just haven't found a way that we think is good for shareholders to optimize that basket. But that's always an area where we spend a lot of time talking about with our Board and management team about all these ways to increase yields on that portion of that book.

Okay. And then one final one, I believe in the journal today, there was a pretty good article about, the fund flows into retail bond funds and the ETFs that track those and the potential for fund outflows and the potential negative impact that could have on pricing in syndicated loan market. Could you just speak to kind of two-fold kind of what that would potentially mean to your current book of business, the volatility we could see there? And then secondarily, as you look out longer term, how do you think the potential outflow into those funds would impact your business?

Troy, this is Jim. Let me take it first and Ted, can have a few points. But, we certainly – we saw the article and we certainly are concerned about the liquidity driven vehicles, like some of the ETFs in the closed end funds. And I think we certainly look at that we probably have more concerns about liquidity in those vehicles than we have on these fundamental credit concerns. You take that in consideration in addition to what's going on with the bank balance sheet and secondary trading. There is going to be some more volatility. But to your question, I think how we have – what the Ted and the team have done is, they have really navigated this portfolio to a lot more self-originated better attachment points and we think to a great degree impacted by the fundamentals of those companies not market liquidity. So we would certainly at some point in time, this liquidity issue is going to be a challenge. And how Ted has navigated the book, I think will be opportunistic at that point in time. But, I want to spec, what's great about our book today is, a lot of very idiosyncratic originally originated ideas. And I think that's going to benefit to a great degree in the next cycle.

I mean the other thing I would add is there are two types of volatility in the credit markets. One is credit volatility and one is slow volatility that is not really a good term. And so if default activity is picking up, clearly that would be a bigger concern. I think as flows on bank loans, the snap of the 95-week inflow into bank debt funds. What that means for us is, any time that it's harder for people to get new deals done in the market that's good for us because we sell certainty of close. So we are – we lose deals everyday to the syndicated markets, it's actually our biggest competitor. And so we offer somebody a unit tranche solution with locked in pricing, it's typically wider of where the investment banks are doing the best efforts deal. And so when there is any volatility in the market, which usually happens in the credit markets for some reason around this time of the year, we win a lot of deals just uncertainty of execution. So we are more expensive but we'll close. I think sponsors valid that a lot more in a choppy environment.

Great. Thanks for the color guys. And very nice quarter.

Thank you.

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

Hi. Can you just comment on the competitive environment you are seeing in some of your specialty verticals like aircraft, several BDCs have made their way into the space and it also looks like there is a fair amount of pressure on lease rates at least with some of the larger players in the space?

Yes. So it's a great question. Obviously, you have seen four or five other BDCs enter the space, less apparent is, there is other hedge funds and other non-traditional sources entering the space as well. We have not seen the impacts today, but clearly just given the risk reward how favorable we think it is. Obviously, it's going to track new entrants and new capital. So it's a big pond with a lot of opportunities for lot of different people. Yes, we have definitely seen new entrants in the space and a lot of announcements around the space. So that's very perceptible view. In terms of lease rates and everything else, we haven't really seen a lot of pressure today where we are playing. But again, with new capital coming into the space everything else, it just a risk reward, it seems inevitable that there will be pressure on lease rates.

Okay. Got it. And can you maybe just give some color on what you are seeing so far this quarter in terms of activity in the payment?

Yes. Repayments have been surprisingly subdued, which is obviously good for our business. And let's say on the activity side, its continued, its not like what happens to us in the first calendar quarter was, we get a lot of spill over activity from the December quarter. So typically it's a seasonally slow quarter, you heard our peers talk about it. Last year you had the big tax events, the tax changes, so you get a lot of sponsors trying to get stuff done from your end before the new rules into place. This year you didn't have that. So a number of our deals, we are working on in the fourth calendar quarter spilled over in the first quarter. So I think our activity is not tracking as it was for the March quarter, but our pipeline is pretty robust and our activity levels have been pretty high this quarter and we are pretty excited about our pipeline.

Okay. Got it. And I may have missed this in your comments. But how much of the gains this quarter was driven more by mark-to-market rather income from specific factors?

I think it's a combination of both. We can give you the break down between quoted and non-quoted.

But from a realized side about just under $0.02, realized and the rest was unrealized from the quarter.

Okay. Got it. That's it from me.

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

Good morning, guys. Thanks for taking my questions. Two of my questions have already been asked. So I will switch gears. As a response to leveraged lending guidelines, it appears banks have been focusing more on cyclical businesses which tend to carry more moderate leverage. Do you think competition losing in businesses with less cyclicality?

I don't think so. I mean Ted can comment. I think that we are certainly seeing banks choose where they want to lend based on a whole host of issues, the issues with the sponsor, the size of the company their ability to impact and economically benefit from the overall relationship. But, I'm not particularly seeing anything industry-wide where you are seeing people participate in greater propensity and other one on an industry basis to-date. Ted?

I will say we think that this will be a big opportunity for us over the next couple of years. But to be honest, we just haven't seen a lot of benefits from it yet. But we do think it will be an opportunity for us in the future. Typically the guys are really feeling the pressure of the large investment banks and again, like given what we play in the market competitions usually not one of those investment banks on the syndicated side. It's usually more in a smaller middle market company. But, yes, I mean all these regulations, the levers the lending business is going to become challenged to a lot of these investment banks. And so we are looking to partner with them in a whole bunch of different ways.

Got it. That's helpful. And then lastly, just a housekeeping item. How much or how much undistributed income was there at year end?

I think – I will get back to you on that, if you don't mind. It really wasn't a material amount.

So Greg will follow up on that when we finish this. Our view is, its not a material amount.

Got it. All right. Thanks.

Our next question comes from the line of Matthew Howlett of UBS.

Hi, guys. Thanks for taking my question. Ted, in Apollo it's been two years, you have done a great job here repositioning the company. I think the BDC space as a whole has sort of been under a little bit of pressure here what's going on with the indices and of course, the CBOs comments on shipping leverage. I just want to hear your comments on the BDC structure, how you feel about it. You have been in two years and what do you think the growth prospects are, is there anything changed with sort of the developments over the last several months.

No. I don't think. If you think about where is the biggest opportunity in the market, there is a shortage of liquid capital. And when people talk about the high yield and the loan index, there is just a real big divergence between where liquid instruments trade and --where liquid instrument trade. So I think the sector and the space is extremely well-positioned and it only gets better because the new regulations are coming out everyday. So with the increasing regulatory environment clearly it's a – we think that's positive for our business. In terms of stock trading levels and everything else, obviously, there is Russell index issue we think is a short-term issue. And as we have always said all things in the Washington everything else obviously we view them very positively and we think would be good for our portfolio. That being said, we don't run our business based on the bill passing. So I'm really excited about, I think our whole management team is really excited about how we are positioned. I think we are really excited about the type of capital we have. And I think the BDC space, I think is poised for really good next couple of years.

In just more in that front, I mean in terms of the cost of capital, maybe you think it's sort of technical that the impression of your stocks you guys are below book, well below book and you think that's going to ease and I guess more in that front. With your leverage ratios where they are to-date, if you want to continue to grow at the rate you have been growing, you would obviously like to see the stock price up or some other maneuvering. I mean can you just comment on that, how you are positioned currently where your leverage is and do you feel over time that cost of capital come down for the BDCs, does this space continues to grow and becomes more main stream?

Yes. So let's say a couple of things. One is, I do believe that the cost of capital will come down for the space. And I do think BDC is offered good relative value versus a lot of other yields instruments out there. I have been very public about my views on that.

All right.

I think where our stock price trades, we can't control that and – I don't like to comment on where our stock price is trading. Every management team obviously thinks their stock price is cheap, but we don't like to comment on stuff like that. The benefit that we had is, 30% of our assets yield sub-10%.

Okay.

And we still have a number of liquids from this portfolio. The great benefit that we have is, we don't feel any pressure to grow, to extend that, you asked question about growth as we originate proprietary illiquid assets at the kind of yields we are doing it at. We have opportunities to kind of exit lower yielding positions. And create organic NII growth without having to issue equity or without having to do anything else. So we feel really, really good about being able to grow our business organically without having to issue equity. So where our stock price is trading today is, we don't really lose a lot of sleep about it.

Got you.

Matt, I have obviously been here quite some time and Ted and Greg are sort of the new group came in a couple of years ago. And from a senior management in Apollo and Board perspective we are extremely happy with the job this team has done. And we don't feel in a rush right now, I don't want – we don't want people to feel like this was a great quarter volume wise, so we have this deal, we have a pacing that's going to continue. A lot of it was, as Ted said, calendar spill over. But I think in terms of the things, the 5 or 6 items that we identified for Ted and the team to achieve, they have checked awful a lot of them. And we feel really comfortable with our leverage right now. We feel comfortable with how our portfolio is positioned. And as Ted said, what's going on with the Russell, what's going on with DC, we can't control that. But, we are just going to keep on methodically going and we are really committed to the BDC structure. And we hope the industry which we're a big player really benefits over time with what's going on between the financial services impact to Dodd-Frank and other things.

I would agree with all those points. I just – obviously, I was keeping some of stock for a while, bit of a surprised that the discount the stock has been below at any given income stream, the diversification, leadership, I didn't know if there was plans to buyback stock here at these levels, or something else just sort of show the market that this valuation speaks for itself. But, it's just I mean just surprising with the volatility of the stock with all the returns that you guys have delivered the last year, it just seems like the stock doesn't stay above book for that long and it goes back down, and then obviously long-term could impact the growth rate.

We certainly concur we can – we believe we have executed what we can, its unfortunate what's going on with the whole Russell impact. And what that maybe doing with flows of buying and selling and as such certainly over time we look in a world where there is not a lot of absolute value in a world where yield is a primary importance. We share your conclusion that the BDC stocks in general and we in particular are attractive. But we have learned is, what we focused on our portfolio and we are really transparent about what we have done which is another highlight we have really not mentioned but I think the transparency on our book is really industry leading with our team. All good things will happen in the future course.

I will add one more thing. Listen, the strongest signal you can get is insider buying and a number of – there has been insider buying. So it has been very public. We really believe in our business.

I think that's the message, I think you guys are focused on returns and not just capital under management, which I think unfortunately there has been a stigma attached to most of the space. It seems like you guys are really there to really turnaround. So I congratulate on that. And great job over the last few years Ted and the team, I want to congratulate you guys. Just one last question on, I think we are also surprised with the 10-year yield is today. You guys have always been proponents of terming your debt, going longer up the curve. I mean is there anything that you think you could do why the yield stay this lower, is this sort of just, you are going to wait until sort of 15 and 16.

No. We always are watching the equity and debt markets for periods of time that we think makes sense for our shareholders and we are certainly focused on that right now. So we are not putting things in the drawer until 2015 or 2016. We are constantly monitoring it.

Great. Great. Thanks guys.

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

Hi. Good morning. Most of my questions have been answered. I just have two follow ups. First, you talked about not being entirely happy with the yield on that 30% bucket. Could you remind me how big that bucket is, as to the percentage of your assets? Are you closed or at that 30%?

We will give you the exact number. I think the answer is – we actually unlike most of our peers actually have a decent amount of liquidity in our 30% basket. And we have done that strategically just so we can reposition around great opportunities. But, I think at the end of the quarter Greg, you should give the number.

We were about 25% invested in 30% assets at that point. We had about 5% cushion.

And is Merx part of that 30% bucket?

No. It is not.

Okay. And second, more of a qualitative question on your oil and gas vertical. What are the kind – the companies are they mostly small independent E&P companies or do you also do like the service companies and the construction companies, energy construction companies and what are the relative merits of the different sub-segments within that vertical?

I mean we broadly have been very selective about where we are focused, really upstream oil. So construction services are very cyclical businesses and so we have tended not to focus there. We have tended most of the focus on oil and upstream oil. And most of the companies we deal with are pretty small. But we are lending against their production and we are making them hedge their oil price risk. So we don't feel like we are taking a lot of commodity risk. And typically they are using the money that we give them to go exploit additional acreage. But I think there is a bias on the management team against services and construction businesses. We just think they are too cyclical for the type of risk we are looking for.

Okay, great. Thanks for your answers. That's all my questions.

Your next question comes from the line of Vernon Plack of BB&T Capital. Vernon Plack - BB&T Capital: Thanks. Heavy quarter in terms of equity investments a little over $70 million, is that essentially all Merx?

Yes. Vernon Plack - BB&T Capital: Okay. And you made one comment, and I want to make sure that I understand as it relates to, I think you said that you did not expect any additional yield compression is, is that a result of expected yield for new deals portfolio rotation out of the sub-10% bucket combination of the two, some color there would be helpful? Thanks.

I think what we saw in the March quarter was a bunch of idiosyncratic events that affected the numbers. I wouldn't say it was a theme. So we had a high yielding investment get taken out. We reupped in two large investments that were much lower yielding. And so three investments could explain the vast majority of the yield compression. This quarter is not over. So but as we sit here today we haven't seen additional yield compression in our book. And as I said earlier, we haven't started harvesting some of our lower yield assets. But we still have some leverage to do that as well. So as we sit here today, we haven't seen continued decline in yields. I think that the yield compression in the first quarter really was explained around three big investments. Vernon Plack - BB&T Capital: Okay. And as far as expected yields on new investments, you think the markets leveled out here?

Yes. I mean listen, again, every BDC is, I always say is kind of like plays in a little bit of a sandbox. Vernon Plack - BB&T Capital: Sure.

What we said, we are not seeing as much pressure this quarter on sponsor yields, we think they have stabilized. And away from that especially verticals we also – haven't seen continued pressure on yields. So it feels pretty good. And given what I said earlier about like the loan market is becoming a little bit more discerning around credit that's obviously help for us. That's helped stabilize yields. Vernon Plack - BB&T Capital: Okay. Thank you.

Your last question comes from the line of Robert Dodd of Raymond James.

Hi, guys. Thank you for taking the question. Just follow up or you can expand a bit on the low yield liquid asset. I mean obviously, there is a potentially pool of liquidity for you to rotate. Given the color you gave that maybe CLO activity start and move the other way, retail fund flows into bank funds upon that could start to ship the other way. That could obviously put pressure on valuation. I mean is there an incentive for you guys right now to liquidate some of those liquid assets that you have that maybe at near peak valuations given where we are at the cycle to accelerate the liquidation of those while valuations so attractive? Or can you give us anymore color on that?

Yes. I mean it's a great question. I mean the answer is, if you look at our activity in the March quarter and previous quarters, we have been doing that. So anything – the only thing – we underwrite our book, I always have this expression, our liquid books gets underwritten everyday. And listen every day we look at our portfolio and if things have gotten to a point where we think are not good value for our shareholders. We exit them. So we are not focused not holding everything to the last dollar, if we think things are going to reach where we think are the appropriate level we will sell them. And so if we look at our – we break out sales versus repayments. We had a pretty heavy sale activity in the March quarter and that is just driven by the fact that our management team just feels like there just continues to be a lot of asymmetric risk in the liquid credit markets. And we mean, pretty active about monetizing positions. So I think to the extent that we see opportunities to monetize – continue to monetize positions that we don't think are good relative value, we will definitely sell them.

Okay. I appreciate the color. Thanks guys.

Thank you. I will now turn the call over to Jim Zelter for any additional or closing remarks.

Greg Hunt as one follow-up answer I think he wants to send out then I will close the call up.

Yes. Just based on our current tax estimates and it's noted in our 10-K, on the note 13, the undistributed earnings are about $11 million. Okay, following up on Terry's question.

Okay. In conclusion, thank you all for joining our call today. We are excited to be the stewards of your capital. And look forward to an ongoing dialog in subsequent quarters. Thank you very much.

Thank you. That does conclude today's conference call. You may now disconnect.