Good morning and welcome to Apollo Investment Corporation earnings conference call for second quarter fiscal quarter ended September 30, 2010. At this time, all participants have been placed on listen only mode. The call will be opened for a question and answer session following the speakers’ remarks. (Operator Instructions) It is now my pleasure to turn the call over to Mr. Jim Zelter, Chief Executive Officer of Apollo Investment Corporation. Mr. Zelter, you may begin your conference.

Thank you and good morning everyone. I’m joined today by Patrick Dalton, Apollo Investment Corporation’s President and Chief Operating Officer and Richard Peteka, our Chief Financial Officer. Rich, before we begin, would you start off by disclosing some general conference call information and include the comments about forward-looking statements.

Thanks Jim. 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 and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these statements and projections. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.apolloic.com or call us at 212-515-3450. At this time, I’d like to turn the call back to our Chief Executive Officer, Jim Zelter.

Thank you Rich. The broad capital markets posted strong returns as well as record activity for the quarter ending September 30, 2010. Improved demand allowed the high yield market to surpass previous issuance records with third quarter volume exceeding $70 billion in the U.S. The ongoing trend of refinancing senior debt with new facilities as well as various subordinated issuances drove two-way trading and enhanced liquidity. Benchmark yields ultimately tightened by more than 70 basis points of reports of improved economic conditions out weighted doubled dipped and softened debt concerns. Now let me briefly go over some portfolio highlights. During the quarter, we continued to make selective investment decisions. In total, we invested $184 million in two new and four existing portfolio companies during the quarter ended September 30. We also received pre-payments and sold select assets, which in the aggregate, totaled $127 million. At September 30, our portfolio of investments totaled $2.95 billion, measured at fair market value, and was represented by 67 distinct portfolio companies diversified amongst 31 different industries. During the quarter, we strategically timed two significant debt capital raises at what we believe to be attractive and disciplined prices in order to further and efficiently grow the company’s capital base in these early yet volatile stages of an economic recovery, again understanding that volatility creates further investment opportunity. We were certainly pleased to add another new lender, a large well capitalized bank to our existing multi-currency revolving lending syndicate during the quarter, contributing $50 million as we work with a number of new relationship lenders in structuring our private note. Ultimately, we issued a five-year $225 million private note on October 4, 2010 at a fixed rate of 6.25%. These capital raises bring our current total debt capacity under our revolver and private notes to $1.8 billion. Accordingly, on a pro forma basis considering the October 4 private note issuance, the company has approximately $715 million currently available for new investment and operations. At September 30, our outstanding leverage measured as a ratio of stockholders equity, stood at .59 to one, and we continue to believe our capital and relatively modest leverage remains a competitive advantage in our industry as we continue to operate with what we believe to be the lowest cost of capital in the sector and with significantly greater flexibility than with other more restrictive facilities. Now with that, I’ll ask Rich to take you through some financial details for the quarter.

Thanks Jim. I’ll start off with some September 30 balance sheet highlights. As Jim noted earlier, our total investment portfolio had a fair market value of $1.96 billion, which is an increase of approximately 3.5% since June 30. Our September 30 net assets totaled $1.86 billion with a net asset value per share of $9.58. This compares to net asset totaling $1.84 billion at June 30 and a net asset value per share of $9.51. The increase in NAV for the quarter was driven primarily from net unrealized appreciation on our investment portfolio. Positive contributors to performance for the quarter included investment in Alliance Boots, Altegrity, Sun Gauge and Tel-Sat. The positive impact was primarily due to improving valuations. Partially offsetting the unrealized depreciation during the quarter was unrealized depreciation from MEG Energy Generation Brands, Square Two Financial and Assuring Corporation. MEG Energy successfully completed its IPO during the quarter and the stock has traded higher since September 30, 2010. However, and as with any public stock, we should not be surprised to see some volatility. On the liability side, we had total debt outstanding of $1.09 billion at September 30 as compared to $993 million at June 30. This left our debt to equity leverage ratio at a relatively modest .59 to one at September 30 as compared to .54 to one at June 30. No investments were placed on non-accrual status during the quarter. However, we did exit from our investments in American Safety Razor and European Directories, which were both previously on non-accrual status. Our portfolio of 67 companies now has three companies with investments on non-accrual status at September 30 versus five companies at June 30. These investments represent only.2% of the fair value of our investment portfolio at September 30 versus .2% at June 30.…

Thank you Rich. Back in 2004 at the time of our IPO, we set out to accomplish many things including building a long-term disciplined business based on the philosophy of transparency and responsibility. We believe that this philosophy, together with our management through the credit cycle, has rewarded us with the opportunity to issue our recent long term fixed rate debt at a time when most benchmark rates are at record lows. Certainly, we believe it will prove to be an important and prudent corporate finance transaction for our company. Our consistent transparent strategy of investing in substantially larger, more well know companies that offer portfolio liquidity was indeed embraced by the sophisticated syndicate of debt investors and our note offering, from a marketplace that has been closed to BEC’s for nearly two and a half years. We are delighted to have led the sector and we hope to be the reopening of the private debt market. We are also delighted to have added another $50 million commitment from a new well capitalized relationship bank to our syndicate of banks supporting our flexible multi-currency revolving credit facility. Now, let me take you through some specific portfolio changes during the quarter. As Jim noted earlier, we invested in two new and four existing portfolio companies. New portfolio company additions totaled $13 million, invested in senior loans of Multi Plan Inc., a leading provider of business process outsourcing services and NDTY Inc., a multi-national manufacturer of vitamins, minerals and supplements. Multi Plan was acquired by BT partners (inaudible) during the quarter and NDTY is a Carlisle group portfolio company. Our most significant investment during the quarter was in an existing portfolio company named Altegrity Inc., which is owned by Providence Equity Partners as a leading provider of security clearance back ground investigations…

(Operator Instructions) Your first question comes from Sanjay Sakhrani of KBW.

Thank you. Good morning. I had a couple of questions. Obviously good quarter that you closed the gap between current income and the dividend. I was wondering kind of the strategy near term. Patrick, you mentioned the investment opportunities should be good from here on out, so I’m assuming the pipeline is pretty good, but how about repayments? I mean you have a fair amount that you expect to in repayment as well? And then secondly, on the debt deal, could you discuss kind of the decision to go secured versus unsecured if you even consider that option, and then just perhaps help us think about the funding strategy from here on out in terms of debt and equity. Thank you.

Sure, Sanjay. It’s Patrick. Thank you for the questions. We are always looking at what we expect to see on the repayment side. Fortunately for us, we have some really companies in our portfolio. Unfortunately they have opportunities to exit, so we have a few companies that have filed registration to go public. That’s taken more time I think than some of the owners of those companies would like given the backlog in the IPO market, but we have a plan and we watch those and expect when those come out to replace those with new opportunities. Sometimes those are some of the lower yielding assets in the second liens that did not have LIBOR floors that were done when LIBOR was a 5%, so we have opportunity to replace those good investments when they get taken out at par or above, and with new opportunities that are higher yield. Some of our fixed rate deals will come out. These are businesses that have performed. If they get sold perhaps we’ll roll into a new transaction with the new owner. If they pay off all the debt and go public, then we have places we look to replace that, and we look at our pipeline of opportunities to replace those. So we can’t be perfectly timed. It does create some volatility in earnings quarter by quarter basis when it may get taken out early in the quarter. We find new opportunities later in the quarter that have some impact on earnings, but we look at that at least weekly, sometimes even daily when we have new news reports of investments coming out. So we are prepared. That’s modeled into our growth. We have a plan. You’ve seen we executed on the plan this quarter to close the gap and we…

Maybe just a quick follow up, just so I’m clear on it, but do you guys expect a decent net growth next quarter and then just on a second question, what debt to equity ratio do you guys consider raising capital?

Historically, on the last question, historically you’ve seen us raise equity cap as we approach the .775, .8 times level. I don’t expect that to change dramatically. There may be windows of opportunity to take leverage up a little bit perhaps. We don’t want to get there and then have to raise equity when maybe equity markets aren’t available, so we’ve been very timely and prudent with access to both debt capital and equity capital. We’ve been under capitalized on the debt side, so it was nice to be able to find the debt markets opening up for us at rates that make a lot of sense, and we’re finding new markets even on the debt side that can be open to us where we can make money on. But don’t expect a fundamental change that we’re going to go run .9 times leverage on a consistent basis. We want to make sure we’re well matched there.

Sanjay, this is Jim. I’ll say one thing. Patrick laid it out very well for us, but we think the ability to expand one’s access to debt capital providers is an underappreciated asset and we really believe that those who can show an ability to access a variety of financing sources will be something that’s very important over time. And as Patrick said, we don’t have a view on rates, but we do think that having fixed rate debt at this coupon allows us to make investments that makes sense in our business model and as we said, we’re pretty capital market savvy whether it’s secured, unsecured or other products, but I think as Patrick mentioned, we all concur that the equity makes sense for us when we get to that .7, .8 times leverage and in the interim, we’re going to try to do things that we think are competitively to our capital structure.

And Sanjay, on your question about net growth going forward, one of the things that Jim and I and the team spend a lot of time looking at is taking advantage of where the markets are. Clearly raising debt capital at a record low rate environment is a good thing. We’re also looking to optimize. We can grow the portfolio, but if we can utilize the credit markets to diversity further our portfolio, maybe improve credit, improve diversification or improve earnings, the tri feta, is we could do all that in this environment, we’re going to do that. Do don’t be surprised to see us optimize the portfolio. We’ve gotten some interesting opportunities to sell some second liens, by first liens and improve earnings and we’re going to look for those opportunities. So we’re not trying to grow for growth’s sake. If there is the opportunity to grow and it improves credit and earnings, diversification, that’s when you expect to see us grow.

Thank you very much.

Your next question comes from Faye Elliott of Bank of America.

Hi. Good morning. This is Jason filling in for Faye. Just two questions. One, what are you guys seeing in your pipeline just in terms of what kind of investments are you guys looking at? Are you guys looking more at the senior level or the sub level and just comment on the yields at this point and the spreads? And second question, if it terms of the equity funding, what do you guys see as a – I know before the question was asked about what level of debt you guys are willing to raise equity, but I’m just wondering if you guys ever have like a target of debt to equity.

OK, Jason, it’s Patrick. Let me jump on the first part and I’ll let Jim talk about the targets. On the pipeline of opportunities, clearly robust credit markets stimulate M&A volume and demand. We are approaching year end. There are companies in the market right now to be sold and purchased. Most new names will probably wait until January. You don’t want to start an M&A process as you get into banks getting into Christmas, so you’ll start to see that sort of wane. But you are seeing people take advantage of the robust markets on either drive by transactions or refinancing. There’s been a lot of folks out there that are looking to clean up their portfolios with giving a recapitalizations. You’ve got to be very prudent with what you’re going to do there. For good credits, there’s opportunity, but there’s also win/win for a sponsor to the extent that they can take money at the table and maybe it’s the economy. We’re not so sure of that company’s performance through a more volatile economy. So we’re going to be disciplined. What we are finding is some of these arbitrage opportunities to move up the capital structure get reasonable rates because the marketplace has less supply of buyers and we can take advantage of that. We’re looking at a bunch of opportunities up and down the capital structure. We don’t need to grow, which is great. I think like I said, we’d like to grow to make sense for us, but we are seeing our commit advantage is our size and scale and scope of what we can do for a sponsor and be providing a full pocket of solutions. We have portfolio company additions that will be taking place over the next quarter or two that will take advantage of that. And when we do it, they can be sizeable. The (inaudible) to every transaction was a sizeable transaction for us. We get to spend a lot of time doing the due diligence around one or two names and we can grow the portfolio that way. So we’re going to be disciplined. It’s a fluid market place. We’re fortunate that we don’t have to do too much to try to change our business, but we are seeing a lot more opportunities come our way to take of advantage of, but we’ve got to be disciplined about it.

There is no formal guidance, but as our management team has been consistent. When we – our leverage gets north of .7 we are looking for opportunities to get it back to around .5 to one. So there’s been – the evidence and the history shows us we’ve been pretty disciplined in that regard, so not a hard and fast rule, but certainly is a guide post and our past experience should be a very good guide of that.

Your next question comes from Chris Harris of Wells Fargo.

Thank you. Good morning guys.

Morning Chris.

We all know that private equity still has some unspent capital to deploy from the last cycle which clearly should be favorable for you guys. I was just wondering what are you guys seeing in terms of new private equity funds. Have capital raising gotten any easier for new funds or is it still somewhat challenging?

My sense is – this is Jim. My sense is there’s been a bit of a breakthrough in the last three to six months in a variety of vehicles in the alternative asset space that are raising capital. Investors, endowments, pension funds and others are realizing that the liabilities going at such low levels, the actual gap has actually gotten greater. And while everybody’s rushing towards liquid assets, the ability to get a little bit or illiquid assets really makes some sense, so yeah, there is a flaw in the ice if you would. I think you’ll see a bit more fund raising take place in ‘11 and ‘12. It’s interesting from a capital markets perspective, but our business, there’s enough dialogue that we’re having right now with sponsors that do have capital that we don’t need that ice to thaw for us to have future success. A lot of our relationships have plenty of capital right now.

Our sponsor coverage team is really focusing on a key number of sponsors that have proved to be the best in class, and they have a lot of access. We hope to see more discipline around the fund raising from the LP’s to focus on the funds that have proven track records of performance and operating excellence and timing of exits and purchases versus just a bunch of guys piling on with the market opportunities there to raise money. So we don’t see that – we think that our base of clients will grow their capital over time.

OK. Great. Thank you for the detail on that. I know you guys are always very disciplined with your capital and deploying it when it makes sense, but trying to read through the lines here, and correct me if I’m wrong. It sounds to me like you guys are a little bit cautious on credit market valuations right now. Is that a fair assessment or no? Are you guys still thinking that there’s some pretty good value opportunities on the market right now?

I don’t think there’s a black and white answer to that. I think that certainly we’ve seen a great robust marketplace take place. A lot of high yield issuance. There are seeing things when you see a whole co-dividend take place through 10%. Those are obviously caution signs. But we’ve never been in the market share game and if we can find the handful, less than a handful of deals a quarter – I will tell you, I do think – what you’re really asking is, is there institutional memory. And we’re seeing some evidence where there isn’t, and we’re seeing some evidence where there is. And I think banks are being pretty cautious by not lending inappropriate levels on senior debt. Patrick can comment on some of the things that we’ve seen in the mez space, but you’re seeing pockets of bubbles, but I don’t think – we’re nowhere near where we were three years ago.

Year-end does provide some interesting sort of changes in markets. Folks are sitting on a lot of cash, deploying it. Some folks are conservative and not deploying it. Retail influence continues to hit the high yield funds and investment grade funds, the there’s still a lot of money in fixed income. So we’ve got to be careful with what that’s saying. What we have seen develop the last couple of weeks, is a couple of transactions that were really – we viewed down the road on the risk premium – on the risk factor, excuse me – try to get done and the markets say no. It was yes, yes, yes for the last couple of months and now you’re seeing a couple of transactions saying no, and that’s a good thing because that means the markets will be a little more discerning around credit. And for us, we have been fortunate to find some really good credit opportunities that are probably a little more unique, a little hard to diligence and we feel really good about using our expertise to still get paid well and use our capital as a solution provider and the amount of capital we can provide around that to get paid. That’s partnering with Wall Street. That’s going directly to sponsors, and we’re indifferent as long as we get a good risk adjust to return.

Thank you guys.

Thanks Chris.

Your next question comes from Vernon Plack of BB&T Capital.

Thanks. I know that you all have addressed this issue from an opportunistic standpoint, but just looking at the balance sheet, what are your thoughts on tapping the securitization market for long-term financing?

Vernon, it’s Patrick. We, for the six plus years we’ve been around, six and a half plus, have always been shown opportunities in the securitization market. We’re very disciplined about it. I think it’s nice that we have not had to access that market. I think that a lot of folks who were challenged as Jim mentioned, the competitive advantage of being with access debt capital across of variety of different capital providers, the flexibility and the structuring and what you can do with that capital is very important. It’s not just a headline coupon that you may read about. We continue to have dialog across the board with many institutions providing those opportunities. Apollo has a global footprint, a franchise that has a lot of these securitization vehicles elsewhere. If and when they make sense for us, and they’re a complement to our business, then we’ll execute on that. Those markets are improving. The opportunity set for us is there on the asset side, we think in some of those markets. To the extent that something comes around, we’ll be discussing that with our analysts and our investors at that point in time. But you can assure yourself that we are look at all that.

OK. Thank you very much.

Thanks Vernon.

Your next question comes from Jason Arnold of RBC Capital.

Good morning guys. Congratulations on the private note deal. I think that was a very attractive rate for long-term capital. Just curious, it sounds like you’re going to look at a variety of diverse sources for funding going forward, but this type of private offering in particular, is it something that you would expect to perhaps do down the road here again as another source of financing?

That’s a good question. We’re very pleased with the group of folks that we did our inaugural transaction with, have all come in to us offering potentially more capital down the road. We want to build those relationships. We want to prove to them what they expect that they’re going to get out of being invested with Apollo. We’ve had significant reverse post transactions from new investors in that marketplace that we can potentially add on to and move more capital into that. And then we have the secured capacity to do that. I think you know some folks have tapped out security so you must look at the other secured market. That market is not quite as attractive as we’d like it to be so, if we get something there that makes sense, maybe another group of strategic investors, or we add to the existing investors, we’d like to think t hat’s a long term growing marketplace for us in addition to the other markets that we also hope are long-term and growing.

Terrific. Thank you for the color there. And I was just curious as well on the lending side of the equation. Are there any industries that you’re – at this point the economic cycle is saying you want to have a little bit more exposure to, or perhaps still avoiding? Just a little bit of color there would be great.

We are invested in 31 different industry groups. We tend to really look at it more on free cash flow. If an industry provides us with free cash flow, you may have a company in industrial that is heavy CapEx or one has light CapEx. We’ll do an industrial company with light CapEx more often than heavy CapEx because a middle of the capital structure lender doesn’t really prove to our benefit as much. If there’s the equity, if it returns on the investment and accrues to the senior loans, collateral if it doesn’t. So really it’s the asset heavy industries we’re staying away from. We have avoided historically thinks like airlines and automotives and whatnot. There’s a lot of change in those industries. We’re going to be looking at everything. You never say never, but right now we like companies that historically, especially now with the tough economy, have proven themselves even through a tough economy, because that’s the free cash that’s going to de-lever the capital structure and improve our risk adjust to returns going forward. So we’re looking at many industries and we’re going to avoid the ones where we think that there’s pitfalls.

Excellent. Thank you so much for the color. I appreciate it.

Thank you.

Your next question comes from John Stilmar of SunTrust.

Good morning gentlemen. Thank you for letting me ask my question. Patrick, this is a question, this quarter frankly you guys did so something that caught my eye and I think you mentioned it earlier that you were accretive in your senior structure in your senior loan portfolio, you rotated from second lien investments up to first lien investments and one would think that the coupon or yield would go down but the yield actually went up and it seemed to sort of touch on the idea of improved earnings and improved structure in the product. It seems sort of counter intuitive in a liquid market where pricing is getting tighter that you would be able to move up the capital structure and improve coupon. Can you help identify for me what the key driver is of that especially since I would have thought that senior first lien loans would have been getting more competitive not less and just some help there would be really appreciated.

John, thank you for noticing. We work very hard and we mentioned the words optimization, we truly mean it. What we have – I’ll give you an example, and I’m not going to put names around it, but we have some investments in second lien that we did three or four years ago that were done at LIBOR plus 600 and when LIBOR was at 4% or 5% and they were accretive to us at that point in time. We locked in our spread because we bought large floating rate revolver to invest in those names. And so even though the actual yield came down, we were still making the earnings for our portfolio. Within the last, end of summer and into the fall, the primary market for bank loans for new large LVO’s was emerging. CLO’s are getting towards a reinvestment periods ending. We were able to capture some LIBOR floors, similar ID by being a significant player and a new buyer transaction on a new primary issuance. We quite frankly saw that as an arbitrage. So we were able to exit some of our second liens at good prices because they performed really well, but to move up the capital structure and made even more earnings. Those opportunities aren’t available all the time. We see some secondary market opportunities to either sell or buy as well where there’s an arbitrage, because one of the things that happens in some of the markets we operate like the second lien, there may be five owners of that second lien paper. They’re liquid securities, but there’s five owners. One guy may have a reason he needs to sell. We may find a reason we want to buy or vice versa. We can take advantage if it’s trading at a level that we can get out at par or close to par and redeploy into a senior bank loan of a new primary market when the Wall Street firm we’re partnering with want our capital early to give them the comfort that that is going to be executable for a new sponsor and a buyout. So these are windows of opportunity. Do they last forever? Probably not, but given the relationships we have with the Wall Street firms and the sponsor community, the size of capital we have, our knowledge of the secondary markets given our trading platform that we have with the firm, we are finding those pockets, and we love finding those pockets. Again, they improve our diversity. They improve our credit and they improve our earnings, so we look forward to doing that. But thank you John for noticing.

And then just kind of touching, and I know we love to talk about pipelines when asking you questions, but if you were to characterize the flow, at least in conversations that you’re having or at least considering opportunities, as you start planning not just for the next couple of weeks, but months, do you really have three markets as I look at it; the secondary market. Are you also taking advantage of levering distressed sellers? You talked about some secondary buyers. And then obviously you’re sponsor community. Have you started thinking about the mix of where your originations potentially could be coming from? How would you think about that mix evolving? Is there one particular pocket that you would probably favor that’s either growing or one that might be shrinking? How would you sort of characterize that over the coming months and quarters?

There’s no surprise the secondary markets dropped. It’s probably going to pass us by at the moment because the markets are trading so tight. If there’s one off situations, we’ll do that, and those do come across surprisingly. But given our platform and the guys we have trading for us in the market every day seeing those opportunities, to be part of Apollo makes sense for us. We do think that going forward into next year it’ll probably be more primary new LBO transactions purchased and sales of company. However, we’ve had a couple of interesting large situations Crowel [ph] being one of them, of an existing portfolio company owned by a sponsor making a very strategic acquisition. And the certainty of that capital and that capital may not be required for two or three or four or five months. Wall Street’s not going to want to make that kind of a long term commitment. We can come in knowing that we want to own that paper. We may already own some of that paper, and we really like the transaction and the acquisition and post synergies. It’s very accretive to the sponsor. And the sponsor’s we’re doing business with, they’re not worried about the eighth of a quarter point here or there. It’s I know that you will provide the capital to me when I need it to buy this company and we love that, because we can do 100, 130 or $230 million commitment on Altegrity, and there have been more of those opportunities. Those should be around as well, but we think that next year, if the economy continues to get a footing and shows that it’s sustainable even in a slow recovery, and the amount of that private equity capital that Chris Harris mentioned earlier in the system, that primary market leverage buyer transactions where new buyers are coming, are probably where we’ll see more of our flow in ‘11 and ‘12.

Perfect. Great and also nice job this quarter.

Thank you very much.

Your next question comes from Troy Ward from Stifel Nicolaus.

Great, thank you guys. Could you just provide a little bit of color from the credit quality perspective. You made comments in late 2009; even here in 2010 where we should expect to see the portfolio, because you’re a true subordinated lender, the credit quality is going to lag maybe some of the other portfolios. Looking at credit quality in this quarter, you had the realized losses, but we knew those companies were under stress, but you have $107 million of unrealized depreciation, which is $20 plus million above the reversal of the realized. Can you just talk about what you’re seeing in the credit quality in the underlying portfolio and does this signal a point where you think that the underlying investments are actually starting to improve?

Yes, Troy, thank you for that question. There are, and hopefully we’ve been very transparent with our investors about where some of the challenges have been, and almost all of those have been cleaned up. We’re working on a couple of one off restructurings and maybe we’ll convert, take equity ownership and hopefully get a nice recovery going forward because we like the companies and the capital structures just need to be changed a little bit. But there are far fewer of those in that category. In general, we definitely are seeing companies that have been victims of the economy now sort of being the recipients of an improved economy. They grew a – companies grew EBITDA because of productivity gains and not from operating margins being improved through restructuring and cost cutting in their operations. That’s kind of played out and what we’re starting to see now is the revenue side is picking up. So we’re getting still EBITDA growth and we’re getting revenue growth to go forward, but we don’t have a crystal ball as to what next year’s going to look like. You see raw material prices still linger on companies going forward. We’ve got 10% unemployment. (Inaudible). The equity markets are responding favorably. Perhaps unemployment will come down. As productivity gains generally slow, you start to see unemployment rise to satisfy the demand. We would like to see that. That’s what happened the last two cycles. If it happens again that’s a good thing for us, but in general, we’ve been pleased with the last – since March of ‘09, our portfolio in aggregate has improved both top line and EBITDA year over year. The year over year costs get harder as we go forward and we’re not expecting a V-shaped recovery going forward, but we’re pleased. There will always be the idiosyncratic mismanagement of a company that we didn’t foresee and hoped wouldn’t happen, but does happen. That’s just what life is like in fixed income with 67 portfolio companies. But we’re feeling as I mentioned in my comments, the performance and the progression. Progression is an important part of the overall portfolio management.

Troy, I have one other point. I think we’re really seeing the fruits now of the repositioning of the portfolio to larger credits, and those companies are – if they have any broader exposure than just the U.S., they’re doing really well. Some of these we’re seeing, we see what’s going on with some companies that are really in some chemical space and we see that companies that are really getting sometimes hurt by raw material costs, we’re very focused on that. But we’re seeing the benefits of the portfolio reposition, no doubt about it.

Great. Thanks. That’s very good color. And then just a follow up from Sanjay’s question about the repayment activity. You’d mentioned that a couple or several of your companies had filed recent public registrations. Could you provide us with the names of those just so we can kind of keep an eye and start to look at maybe if those are going to look to repay. And then secondarily, you have a couple of equity pieces, one in particular in the Canadian minor that obviously has done very well. Is there any thought to reposition that equity into yielding assets?

Great, Troy. Right now, we have three companies that we are very much aware of have filed for (inaudible) Booz Allen Hamilton has filed as a public. VNU Nielson and Goodman Global have filed to go public. Megan Energy, which is the one I think you’re addressing here, filed to go public and actually did go public on the Canadian stock exchange. It was a – I think the markets would agree – it was a bit of a challenge execution on that transaction given some precedent that was in the marketplace. That stock has traded up nicely. We understand what an equity investment means for our cost to carry in our business. We look for fundamental value and return. Jim and I are very focused on and that you could expect to the extent that there is an opportunity to redeploy that capital elsewhere, we think that it’s going to run its course, we’ll do that. We have the full flexibility to that. We’re not part of a group that was locked up, but we’re not going to throw it out at a value that we don’t think is the right thing to do and we can’t redeploy that capital in something not accretive for us going forward.

One point I’d add to Patrick, I want to make sure the subtlety he’s mentioning came through. Not every time – when a prepayment occurs, sometimes that’s at a lower level than our overall portfolio, so that’s actually a benefit to us. It’s coming out of par, but we can actually reinvest that and it is actually accretive.

What happens is, it’s interesting. If it’s trading at LIBOR plus 500 instrument, it’s probably not trading at par. But when you can take it out at par, and we get to redeploy those par proceeds into something else.

Great. Thanks guys.

Thanks Troy.

Your next question comes from Jeremy Banker with Citi.

I was hoping to follow up on that last credit question. I just wanted to hear your thoughts on Infor Enterprise Solutions. I believe the mark has been coming down over the last couple of quarters.

It’s a business that we’ve been in for a while. We don’t particularly get into great (inaudible) any one credit, but certainly we’re watching it. We think there’s some inherent value. We think it still makes sense in the portfolio, but like all these things, we monitor it closely, been in contact with the company and the sponsor, and at any time in time we think that it makes sense for us to sell and monetize, we will.

Thanks.

Thank you.

Your next question comes from Jasper Burch at Macquarie.

Good morning gentlemen. I guess starting off with, I just wanted to clarify something. Is your appétit for new equity capital predicated on your ability to leverage it?

No, not necessarily. I think that right now we feel that we’ve got a very nice amount of equity capital. We’ve got 190 plus shares outstanding. Obviously we’re focused on NAI on those shares. Cost of debt capital in the industry has gone up a little bit over the last couple of years. We have excess debt capacity, want to make sure – the key for us is to make sure we have the capacity. We may not utilize all the debt capacity. We’d like to have even amount of debt capacity with our equity capacity. And the debt markets have improved dramatically. The equity markets haven’t improved as dramatically, and so in record low rates, we’ve been accessing the debt part of our capital structure and when it makes sense, and if we – we don’t have any immediate desires to go raise equity at the moment. If the opportunities for investments are there and the cost of capital to debt or equity makes sense for us, well access either debt or equity.

OK. And then first of all, I think it’s really telling about how far the space has come that the main focus of most of these conference calls have been on growth capital. Just sticking with the topic a little bit, I mean you guys have been one of the most diligent BDC’s in keeping your overall cost to capital down, and I was wondering just through over the long term, first of all, what do you think is sort of a sustainable ROE on unlevered capital in terms of if you’re seeking a longer term capital, sort of what sort of spread would be necessary there? And then also, how do you weight giving up some guide on the cost of capital right now to pick up a little additional yield in the near term.

Well, we’re both going to answer that. I guess I’d say a couple of things. As you know, bonds don’t go to 200. They can go down and you never want to reach for that incremental on yield unless you bought the credit. So we’re just never going to go down that. I know the question earlier today was about the primary calendar. The primary calendar today may not be the opportunity, but those are secondary opportunities of tomorrow. So we’re just never going to really reach for yield to get a little bit more NII for a quarter if we don’t love our credit. The second question, it’s not – I’m not evading the question, but it’s not easy to say because yes, ROE is very important to us. But because we distribute a lot of it, we don’t retain a lot of that equity, so really for us, is at any one point in time, making sure that every incremental dollar of debt or equity, you can over time make a spread that allows you to make your dividend. And we look at the business in very simple terms like that, in that manner. We try not to get too complicated. And again, you’re hearing from Patrick and Rich and all of us, we think it’s under appreciated. Everybody focuses on the equity side of the balance sheet. The debt side of the balance sheet is very important in this industry, and the cost of it. And we do think that those who can access and get a variety of funding sources, those will be folks who will be able to be long term, have a mandate that allows them to fill their shareholder’s duty by having a stable and growing dividend. And that’s just the theme with us. We don’t – we are focused on our ROE, but we’re really focused on the capital structure and what it allows you to invest over time.

If we keep our cost capital going lower and low, the opportunity set that’s accretive is larger. The lower your cost of capital, as plenty of things do above a low cost of capital that were accretive for us, and across cycles. And that’s why Jim mentioned, primary markup opportunity, we may pass because the rates are too low, but down the road, the higher market may dislocate and those opportunities – we spend a ton of time diligent’ing things that we don’t do, and keep in mind that we keep them in our library and then if the trade down, our traders come into us and say the market’s trading off, here’s an opportunity for 12, 13, 14% yield that got down to 8% two months ago, we like that opportunity, and we took advantage of it, and it’s proven so.

That will occur again. As long as we’re sitting here, there’s a couple of names of stuff, you know we’ve looked at many, many names the last three to six months. They’ve come tight, a lot of money coming in Ohio market. That’s great. When they trade, and eventually they will for technical, maybe not fundamental reasons, we’ll be there.

OK. That’s helpful. And I guess kind of related, but not directly, just thinking about the term of funding, also the term of investments, we’ve definitely been hearing some talk that new investments are generally going on a longer days of maturities maybe in the five to seven year range. Are you guys experiencing that and how do you look at match funding in that case?

There is a maturity on a security and there’s very few marks that go to maturity. The mez business has always been a seven to ten year security business, and there’s rarely – if it goes seven to ten years, something’s probably not gone well because there’s always – we really coincide with the buyers of the companies that use our financing and their hold periods have been three to five years. Private equity owners hold a company three to five years, that’s coincident with our average hold period. In robust markets that maybe the average maturities goes down towards two years because a lot of refinancing and sales because businesses have improved so quickly and the markets have improved so quickly. And then when markets get a little bit sluggish, then the hold period goes towards five years, and that’s why we like the duration we have in our revolver and our new debt offering and why we look to extend our revolver 18 months before it came due, to get us that pushed out again. Plus we have a ton of liquidity within the portfolio. We’ve got almost a third to half our portfolio that’s very liquid that provides us with another liquidity avenue should we need it.

On that liquidity in the portfolio, I know you guys obviously have $380 million of debt coming due. I think most people’s expectation is that over time you’re going to get more debt funding, but just in the absence of that, how much yield do you think you can pick up and over what time period just recycling your portfolio and what avenue do you have for earnings growth in the absence of added capital.

I’m glad you asked that question because there’s maybe some market misperception about the $380 million. That $380 million is not funded. That’s a $1.6 billion revolver, going to about $1.3 billion. We’ve now replaced $225 million of new proceeds in our debt offering to replace some of that capacity. So we don’t have any funded maturities. Our borrowings last quarter Rich were..

At September 20, we’re $1.09 billion.

So we have plenty of excess cash with the 1.5 roughly that we have of capital. We should have plenty of dry powder there. And, we constantly being shown new opportunities for financing and that’s we’ve proven to do, so there’s not a maturity issue at Apollo Investment Corporation.

I’m just talking about excess capital in order to deploy, maybe like enough capital after the $380 million, is that enough capital for maybe like 14% portfolio growth?

Yeah, that’s why we have about a $500 million post that maturity of available capital to us today.

It still only gets us to Jeff, .7 to .75 anyway. That’s if we use all of that capacity.

And we are definitely executing on plan to increase our earnings in this environment. Now it’s going to be lumpy because we exit out of something. The GE decides he’s going buy a dresser and we get taken out of the investment and we didn’t know about that. That happens. Good companies are attractive to people. But our focus on raising debt capital at record low rate environment is going to prove to be I think, a smart strategy. Optimizing our portfolio out of some of the lower yielding assets into some higher yielding assets without taking too much credit risk is an important strategy. Us working very, very closely with the Wall Street firms who are risk adverse, and they’re going to continue to be risk adverse and they have more capital requirements going forward, thus to partner with them to be buyers of that risk and get paid for that risk and partnering with them as they’re looking to grow into next year and beyond as a strategy. Arbitrage in the capital structure, what we talked about with for example, John Stilmar, us exiting some of these equity positions, returns that make sense and redeploying that capital, sponsors coming directly to us, given our strong sponsor coverage effort, we end up structuring those deals and get structuring fees. That’s an opportunity for us. And in positioning our business right now, like doing a 6.25% fixed rate deal, when rates rise, will prove to be very accretive. Even though it’s accretive today, it will prove to be only more accretive as rates rise. So we try to position our business. We don’t think rates go lower. We’re not expecting rates to go up tomorrow, but when rates go up, we’re trying to make sure we’re in a fortuitous position to benefit from that. So these are amongst all the plans that we work on every day. We challenge ourselves every day to find more plans that make sense, but we’re not going to jump on a treadmill to find ourselves having a nice one quarter and have a problem a couple quarters down the road.

That’s definitely some nice color. And then just one sort of follow up on that topic, other than exiting the equity investments, how much control do you have over repayments and sort of when we’re modeling it out, should we just look at most of the involuntary’s as sort of take off your average yield and redeploy that higher, or how should we look at that?

We don’t have any control investments in that regard, so yes, we are a passive investor. I think if I was building a model I would think about over a cycle. As Patrick said, there may be a five or seven stated maturity. Because we’re with sponsors, and appropriately so, they’re trying to create activity, so we have probably a three to four year average length of our portfolio. In more buoyant times, it’s probably closer to three. In more slower times it’s probably four. That’s probably the zip code I would use.

We’re also utilizing these credit markets to optimize. You may see us sell down a security that we own a lot of and redeploy it somewhere else because it’s trading at a very good level. It’s making sense for us to improve the credit and its diversification; so again, we don’t have a target for portfolio growth quarter over quarter. We have a strategy. We think it makes sense in a good market to grow your business. But right now, we want to get our portfolio in the best shape we possibly can, and our capital structure in the best shape we possibly can to take advantage of what will be a longer term opportunity.

OK. Well thank you for all the color and nice job this past quarter.

Thank you.

Your next question comes from Ram Shankar of FBR Capital Markets.

Good morning. Thanks for taking my question. Most of them are asked and answered, but since I have you, can you just talk about what your close rates are today versus what they’ve been historically?

In terms of how many transactions we actually invest in versus how many we look at?

Exactly. What goes through due diligence and what you actually close.

It’s a very fluid – that’s why we never give – we never tell what our pipeline is or the commitments we’ve made because a deal doesn’t close until the money funds, and that’s always been our experience. It’s our strategy. It means that when we like something – we’ve looked at many opportunities we’ve loved, but unfortunately the Ohio market is getting it at 80%. But that’s an opportunity six months from now. The (inaudible) transaction in the early part of the summer that may not have been an opportunity. When the Ohio market backed up very quickly in a short period of time, it became an opportunity. But we do all the work around it. So it’s a tough question to answer and how we manage this business.

If there were a number, it would be very small. What is officially a look, what’s officially a view. But we – there’s a lot (inaudible) and you can see by our steady pace, not many get executed. It’s a pretty tough filter.

We’ve looked at over 3,000 plus deals in the six years and we’ve done 130.

OK. Thanks for the color. If I may, one more question. Within the 10% (inaudible) expose to the education group, does the DOE’s gainful employment rules come into play in any way directly or indirectly

I think indirectly is probably the real answer. For the portfolio of companies we have, they’re really focused on more certificate programs, short term programs, one year diploma programs, not the four year colleges that you’re sort of seeing every day. A different company that’s called Apollo, the public company and we’re not going to comment on a public company, but what we’re looking at the companies we own, ATI, Delta Education, Loriette, we think our business volumes are different enough that it does not have as direct of an impact. Gainful employment may cost the company more money to continue to comply. We’re in constant dialogue with our sponsors and management teams and feel comfortable with the companies today. News changes every day in the industry and in the space. It probably has an impact on overall equity valuations, but we’re generally a debt investor so that should not have an impact. We’re very reasonably and moderately levered in each of these investments. Our education bucket also includes Send Gauge which is a textbook publisher or Data Tel which is a software company to community colleges, so not all that 10% roughly of our portfolio is in for profit education. In fact, it’s a small number.

OK. Thanks for the call. Patrick Dalton:

Your next question comes from Arren Cyganovich of Evercore.

Thanks. Thinking a little bit longer term, we’ve seen folks talk about the high yield refi coming over the next few years including some refi’s leveraged loans. Does that still seem like an opportunity for you or are a lot of those getting pulled forward in the recent refi’s, and also in terms of the lower yields on the high yield right now, the credit spreads are still pretty wide, but the yields are low. If benchmark rates rise a bit, would that actually create a better opportunity for you going forward?

Well, let’s answer both of them. On the first part, we do have a view that the backdrop of the refinancing of bank facilities with high yield will continue. It makes sense for issuers, sponsors, the banks that hold the loans and the Ohio market that has capital. So that trend is going to continue. Certainly the wall of maturities that commenced in 13, to 16, 17, a lot has been shipped away and the wall of maturities is lower than it was 12, 18 months ago, so a lot has been done. Very few of us are around table or on the phone would have predicted 24 months ago that 2010 would be the largest high yield bond issuance on record, but that’s how fluid the capital markets are right now. Certainly it’s a good point. If you look at the high yield indexes that are at 8% right now, at a ten year around 250, that spread somewhat standard over time, but when rates back up what happens to the high yield market. We suspect that will be interesting to us. And that’s why because that dynamic, we don’t mind having some fixed rate debt right now, having a view of that may happen. So I think we suspect that that trend will continue and there will be some folks that don’t refinance and I would also say that the average high yield to date is north of $500 million. There’s lots and lots of companies who are under $500 million in subordinated debt. They can’t go to the high yield market. You’re typical – you know many years ago, $100 to $200 million deals was a typical high yield transaction. Those deals are just not getting done now, and so that’s an opportunity for our industry and our company.

Thank you.

So with that, great questions. We really appreciate the follow through by many of the folks on the call today. Your support and knowledge of our business is very important. We appreciate all the shareholders that are on the call and look forward to talking with you next quarter. Take care.

Thank you. This concludes your conference. You may now disconnect.