Good morning and welcome to Apollo Investment Corporation's Earnings Conference Call for the period ended March 31st, 2020. At this time, all participants are in a listen-only mode. The call will be open for question-and-answer session following the speakers' prepared remarks. [Operator Instructions]I will now turn the call over to Elizabeth Besen, Investor Relations Manager for Apollo Investment Corporation.

Thank you, operator and thank you for everyone for joining us today. Speaking on today's call are Howard Widra, Chief Executive Officer; Tanner Powell, 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 companies.You should refer to our most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit our website at www.apolloic.com.I'd also like to remind everyone that we posted a supplemental financial information package on our website, which contains information about the portfolio, as well as the company's financial performance.At this time, I'd like to turn the call over to Chief Executive Officer, Howard Widra.

Thanks Elizabeth. Good morning and thank you everyone for joining us today.First and foremost, we'd like to express our deep gratitude to all the healthcare and EMS professionals and essential business workers who continue to work tirelessly to save and to serve our communities. We extend our deepest sympathies to all those directly affected by the pandemic. So, our view on the call today, we hope that each of you and your families and safe during these difficult times.I'll begin today's call with a discussion about how AINV is positioned during these unprecedented times and we'll also provide an overview of our results for the quarter. Following my remarks, Tanner will review our investment activity for the quarter and will discuss the impact of the COVID-19 pandemic and economic shutdown on our portfolio. Greg will then review our financial results in greater detail and discuss our liquidity position. We will then open the call to questions.During today's call, we will be referring to some of the slides in our investor presentation which is posted on our website.Since the onset of the COVID-19 pandemic, Apollo is seamlessly transition to a remote work environment, while ensuring full business continuity. Our priority has been the health and safety of our employees, while maintaining normal business operations.As a firm, we're well-equipped to work remotely from the most senior levels on down. We've been in regular dialogue with our portfolio of companies and their respective owners to evaluate the impact of the pandemic on their businesses and liquidity in order to identify and address issues as early as possible.We have long standing relationships with most of the sponsors that own the companies in our portfolio and we are working closely with them to support these companies.We have found these conversations to be thoughtful and constructive…

Thanks Howard. First, I want to echo Howard's comments and I hope everyone is healthy and doing well. My remarks today will focus on four topics; the current market environment, our investment activity, a review of our portfolio, and our outlook for future activity.Starting with the market environment, the volatility triggered by COVID-19 sent massive shockwaves through the broadly syndicated leveraged loan segment. The pandemic has led to an unprecedented disruption in business activity across a broad swath of industries. Uncertainty over the duration of the crisis has led many companies to enact measures that will ensure that they have ample financial resources to ride out the storm.To that end, companies have been drawing on available capacity on their credit facilities or securing other financing to enhance liquidity. Activity in the middle market remains slow as sponsors and lenders continue to struggle to evaluate how to price risk due to the low visibility surrounding the duration of the pandemic and resulting economic shutdown.Against this backdrop, new corporate lending commitments for the quarter totaled $153 million across 14 companies 100% of the new debt commitments were first lien floating rate loans. All of these new commitments were made prior to the market dislocation.Net fundings for the quarter were $8 million, including $47 million of net revolver funding. As Howard mentioned, we did see an increase in revolver draw request during the period, but that is since leveled off.I wanted to take a few minutes to review our oil and gas and aviation investments which were significant contributors to the net loss during the period. Our oil and gas exposure decreased from $117 million or 4% of the portfolio at fair value at the end of December to $64 million or 2.3% at the end of March. The decline was due to…

Thank you, Tanner and good morning everyone. Beginning with the income statement, total investment income was $71.6 million for the quarter, up $3.1 million or 4.6% from the prior quarter. The increase was attributable to higher interest income and fee income, partially offset by lower dividend income. Interest income rose due to a higher average portfolio, partially offset by a decline in the yield of the portfolio due to the decline in LIBOR and a lower yield on new investments compared to sales and repayments.The weighted average yield on our corporate lending portfolio declined to 8.5%, down from 9% last quarter. Quarter-over-quarter, one month LIBOR declined 77 basis points from 1.76% to 1% and three-month LIBOR declined 46 basis points from 1.91$ to 1.45$.Fee income was $3.3 million for the quarter, up from $1.2 million last quarter. Prepayment income was $2.5 million, down slightly from the prior quarter. Dividend income was $2.4 million, down from $3.2 million last quarter. Approximately 97% of contractual interest payments for the quarter were collected and we received a similar percentage for the payments that were due on May 1st.Expenses for the quarter were slightly up due to higher interest expense given the increase in the average portfolio. Due to the net loss, no incentive fee was accrued or paid during the quarter.Interest expenses rose $800,000 quarter-over-quarter due to higher average debt balance, partially offset by a decline in the weighted average funding cost due to the decline in LIBOR.Quarterly weighted average interest cost on our portfolio declined approximately 26 basis points from 4.2% to 3.93%. Net investment income per share for the quarter was $0.59 compared to $0.54 for the December quarter.As Tanner mentioned, new investments placed on non-accrual status impacted net investment income by $0.03. Net leverage at the end of March was…

Thank you. [Operator Instructions]Our first question comes from line of Finian O'Shea with Wells Fargo Securities.

Hi, good morning. Hope everyone's doing well. First question for Howard, you guys filed a new shelf yesterday, updated from just a few months ago. Can you tell us what, what's changed, what you're applying for? And how we should think about it?

Greg, do you want to answer that?

Sorry. What was that again Fin?

I was asking about the change in your new shelf application filed yesterday?

Yes. Yes, we filed it just to be up-to-date on relative to current standards and all that. We had filed it -- updated it in January, and we needed to do several other, kind of, tweaks to it. So, it's just to have it current.

Okay. I'll move on to Merx. Tanner, you provided some very good color there appreciate it. Can you -- as you go through these potential rent deferrals or contracts, renegotiations as outlined, you touched on being in those discussions, can you give us some color on what kind of impact those would have on the triggers or Merx's securitization debt or other term debts, what level of asset coverage is ample there for that to remain performing?

Yes, sir and hey Fin, hope you're doing well. First, as a generic comment or perhaps getting a little bit more granular on the lease deferrals themselves. This is obviously a pretty unique situation in which airlines across the globe and lessors soars buy extension or all grappling with the same situation at the same time.And generally speaking, the deferrals, while every negotiation is somewhat situation independent, have generally speak -- generally speaking, then like a three-month deferral in some cases longer, but then paid back six to nine months thereafter.As it relates to the meat of your question there Fin. I think you highlighted in some ways, one of the attributes, that is a, I think a good fact, in terms of our funding in that just over two-thirds of our exposure Fin is actually in securitizations and relatively speaking, securitizations provide For more flexibility for the management and really relate to your payment of senior interest as the trigger.And we feel while it is -- as you could probably imagine, difficult to speculate, given how dire the situation is at the very moment in time and will have a lot to do with the duration of the pandemic feel good about where we where we stand with respect to the securitization structures. I would also add, we do have, in addition to the liquidity that, Greg outlined at the AINV level, there is cash at t Merx and then there is cash within the securitization structures as well to help defray any of those potential needs.

Sure, very helpful. And then one final one for me, I'll jump back in. I think Greg and Howard mentioned a bit of deleveraging through repayments. Can you give us any color on sort of what level of leverage or portfolio that you're thinking given the current environment?

Yeah, I mean, our goal is to sort of operate at a steady state at the range we talked about before, so say, 14 to 16, right and so we're at 17 now. Obviously, there's another part of that to see if there's further pressure on NAV in the coming quarters depending on sort of how sort of the global economy works? We're putting that aside, the net pay downs we would need to get down to the ballpark level we would want is a couple of $100 million. And so, we're sort of focused on that with regard to which borrowers have liquidity options. There are -- although, in the normal market people are repaying all the time, this is not a normal market, but that said there are almost every borrower is looking at sort of their capital structure going forward.And there are many who have opportunities to refinance or have other alternatives which we encourage you to take. So, our hope would be to over the next few months or quarters to sort of be able to sort of hit that deleverage, but it should be a straight line down, it just depends on the slope of that line depending on how successful we are.But we have a list of transactions that we expect to have some liquidity. For example, there's a few that have sale processes or really sales contracts signed up, we know they're getting taken out. There are other ones that are asset based they clearly have other financing options. So we're pretty focused on that. And so that's the size we're talking about a couple of $100 million over the next three, four months or so.

Okay. Thanks so much everyone.

Your next question comes from the line of Kenneth Lee with RBC Capital Markets.

Hi, good morning and thanks for taking my question. I think you've touched upon this in the prepared remarks, but wondering if you could just further elaborate on the potential benefit from the SEC recent relief on co-investment restrictions. Thanks.

Sure. One of the constraints prior to that relief was any affiliate of AINV, which was not a lender in the transaction when AINV entered couldn't step into the transaction and lend as well. And so that that meant that if there was an add-on to a company or sort of another lending opportunity, that pool of capital was not available, it needed to come from a third party or one of the other Apollo entities that were already in the deal. In AINV's case, as you know, a lot of the deals already had mid-cap in them and so there's an opportunity.But now, there's also this relief now changes that rule, as I described and said, affiliates can invest subject to certain conditions, even if they were not in it at the outset. So what that just means it just gives you another sort of tool to use, if there's capital needs or liquidity needs of companies beyond AINV's balance sheet and we're just underlining that because it's important to be able to support our companies both, defensively and offensively. At the same time, it's really important that we hit that delivering mark we want to hit and so that SEC relief just provides sort of the full array of Apollo capital available for opportunities that make sense.

Right, very helpful. And just one follow-up if I may, you mentioned in the prepared remarks seeing a drop-off in revolver requests from portfolio companies in the April to May timeframe. I wonder if you could just share with us any particular details on what potentially causing that drop-off and whether you expect requests to pick-up in the near-term? Thanks.

Sure. They were -- they're sort of twofold. One, let's talk about the one that that is sort of most, it's across our whole BDC industry which is the non-ABL one's, the leveraged loan revolvers. Really what happened is everybody –everybody so we're not everybody. The vast majority of borrowers at the end of March sort of knee jerked through on their revolvers, if they thought they may have a liquidity deed, so not everyone but a lot. And so the peak revolver draws came really right at the end of the quarter.As the first few weeks of April came on, that's sort of debated, but everyone sort of sat on their capital to figure out what's going on. Since that time, probably over the last three weeks, there has been pay downs on -- net pay downs because effectively people now realize they won't need that capital. They projected out what they need and they don't want to sit on cash and pay interest on it. And so, we are seeing each week a modest amount of repayments as people pay down and very little draws, if any. And I don't think that experience on the revolver level is any different than the vast majority of our competitors who do leverage lending.So, in other words, revolver utilization is down, in sort of I would say the single-digits as a percentage basis on the leverage loans just because of the dynamic of the way the market works. That's, that's one. Obviously, as we work through amendments with people we also try to address some of that and get repayments. So if people want covenant relief, we want cashback, we shrink revolvers and things like that. And so you would expect that will also provide some sort of downward pressure on utilization as well.Separately, we have ABL commitments and so ABL commitments, their utilization could go up or down depending on their collateral, but because we have a few health care deals and there's been a lot of stimulus money for these health care companies there. They have been relatively flush since the end of the quarter and that has also provided some downward pressure on ABL utilization.

Great, very helpful. Thanks again and hope everyone stays safe.

Your next question comes from the line of Casey Alexander with Compass Point.

Hi, good morning. A lot of good questions already. Let me ask a couple here. First of all, in relying on the executive order for co-invest; does that preclude AINV from making new investments or participating in structuring in origination fees? Does that -- does those restrictions only apply to the BDC if you sell additional senior securities?

It can be more -- it could be even more technical than that. But first of all, the example of orders generally are sort of skewed to protect the BDC. So generally, I'll give sort of two answers to that or where the BDC is projected. One is, if there is an opportunity to lend going forward, the BDC has its option to take as much as it wants to take or as much to take its portion of that origination. So it has the option to come in or come out, one.Two, generally, when there's new lending coming in, it requires an amendment to the existing facility. And so as sort of, one is sort of the required lenders, they also AINV also needs to approve those new -- the new funds coming in. So generally what would happen is that they there wouldn't necessarily get the origination fees if they put in the new capital, but generally there would be fees to the existing capital for allowing the capital structure to expand.So, put another way AINV should benefit from the perspective, one it can always invest the money if it's particularly appealing. And it certainly won't get disadvantaged in that it'll be higher priority or be disproportionately higher yield, because it can -- it will also -- it can also sort of make sure that the economics go to the whole -- to where the risk is being taken across the board. Does that answer the question?

I think so. Maybe I'll try to follow-up with Greg on that one afterwards.

Okay.

Because it is pretty technical. Let me ask a different question here. Your leverage ratio, kind of presupposes that you need to do some deleveraging, which you discussed about a couple hundred million dollars. And as you say, that's likely to come from repayments and repayments of healthy in interest-earning investments.At the same point in time, you mentioned that there's an increase in discussions with borrowers that kind of suggests that there -- that it is likely that there are more nonaccruals on the way, which would hamper your interest earning investments. How does the board think about maintaining the dividend at $0.45? And not -- again, reset that dividend at a level that's more sustainable for the long-term against this interest rate environment and allow for some NAV accretion as you over earn that dividend?

Yeah. So without obviously, I don't speak for the Board, I'm on the Board, but then speak for the Board. I think the intent of the Board is to set a dividend policy. That is long-term sort of achieves the goals you just talked about. Putting aside the specifics, all the pressures you're talking about, like I don't know, it's sort of the court for example of the corporate discussions will necessarily give rise to significantly more nonaccruals.But that said, is shrinking book obviously loses interest income, as well as sort of less velocity of transactions means less transaction fees. So that's another source of pressure and potentially less dividend income at Merx. All things put pressure on our earnings. And I think, the intent of the board will be to set a dividend policy that sustainable in the long-term.And so, the dividend paid this quarter, obviously was well covered by the earnings this past quarter. And if you look forward to where our portfolio is, right now, also assuming no incentive fee is in the ballpark of our earnings power for next quarter. But that said, we would expect that the board will look at setting a dividend that is in the ballpark of what most BDCs pay against their NAV in order to, achieve the goals you're talking about.So, I think the shorter answer is, we want to have a clearer picture as we work through this next quarter, in terms of how some things will play out both with Merx cash flow and portfolio cash flows, and give the board a clearer picture with regard to how to think about that for the longer term.

Okay. That's very fair answer. Thank you. And lastly, on lease deferrals on the aircraft, since they're deferrals, do you still accrue that income from a book standpoint? And then if the less or filed for bankruptcy down the road that has to be reversed? Or does that sort of go on like an internal nonaccrual versus that lease? And hopefully recaptured down the road?

Any one of us can answer that. I guess, Greg, do you want to take a shot.

Yes. I'll answer it. Yes. I mean, our Merx financials which were filed today along with our 10-K, we apply GAAP standards. And as I'm sure you're very familiar with, you do accrue income within Merx, okay, not at the AINV level. And then we also provide reserves against those receivables to the extent that there's short term impairment, so we evaluate that every month. And so hopefully that answers your question.

Okay. I think it definitely gives me an idea. I'll step back in the queue and open it up for other questions now. Thank you very much.

Your next question comes from the line of Kyle Joseph with Jefferies.

Hey, good morning, guys. Thanks for taking my questions and hope everyone is doing well. I just wanted to step back and go more high level question given the current environment where your leverage is. Just talk about how you envision capital allocation priorities over the coming months in terms of debt pay downs, investing in new companies, investing in existing companies, or even share repurchases?

Sure, I guess in terms -- first for the first priority, is our portfolio companies, both because those are the companies we know that that so we can get a sense of those opportunities the best and they're in front of us and also because they support both who our existing clients are and our existing investments.To the extent that there's capital needs there, we expect to be able to support them. Again, almost all of them have mid cap involved in them. So the amount that AINV will choose to do will just depend on sort of how appealing we think it is, how much pay down activity we've had in that quarter, et cetera. But we will lean towards letting other balance sheets put in the extra capital, especially it's sort of the whole facility gets stronger, if you will, the economically and from a credit perspective.In terms of new opportunities, I think the whole market for new opportunities is an interesting one, because a lot of people are talking about, they have dry powder and they're ready to invest. But there has not been a whole lot actually executed in the market and the market still finding its footing. We wouldn't expect obviously, as we're shrinking the portfolio to doing a significant amount of new business.That said, under our exemptive order, in order to basically invest in companies down the road, we need to be part of facilities day one. And so there's a reasonable chance we'll take nominal amounts of new origination in order to basically have a foothold in those facilities.So, in other words, you may see a bunch of names being added at some very small numbers, in order to enable us to sort of continue to be involved in those names going forward as there's opportunities.Lastly, with regard to share buybacks, our position has always been that if it is an appealing an investment and accretive and value creative for our shareholders, it's going to be part of what we will consider doing when we're trading at a significant discount to NAV, the math of those buybacks are almost in all cases better than new origination.So, we would expect it to be, depending on how the world goes part of what we do, but our first priority right now is delevering. So that's going to go further down on the list until there's more liquidity in the company, or there is sort of such overwhelming value that it sort of has to be done. Does that covered off?

Yes. Yes. That's very helpful. Thank you. And then just one follow-up from me in your discussions with sponsors and tracking your portfolio companies, I know it's early, but anything any sort of positive signs, since the economy kind of started to reopen slowly?

Yes. Positive signs, I guess I would say, less negative signs. The first pro forma's you've gotten from people and from sponsors, especially as they start to think about how they want to plan out the next three quarters were relatively negative projections. And now we're starting to see sort of real time results that are better than those negative projections, because things are opening up sooner, like a lot of people had cases where revenue doesn't start till June 1.And now revenue has started sooner and so that's pretty meaningful, because that means people are sitting more cash than they expected, which means they may need less capital and they will pay down the revolvers, all of those things.So I wouldn't necessarily call that positive as opposed to less negative, but you are seeing that. You're seeing effectively numbers come in real-time, that are above sort of people's sort of base cases they set at the end of March, which is positive, because obviously, when you're a first lien lender, you have a bunch of cushion. And these companies because of their revolvers, or because of just the position they were in, had reasonable liquidity.So like that type of improvement in sort of revenue and cash coming in, not really cash flow, but cash coming in really actually extends the runway, but also just sort of changes the band of outcomes for companies in terms of capital they need and so we are seeing that. But I wouldn't -- it's not enough to sort of write home about.

Got it. Well, thanks very much for answering my question. Less negative is definitely a positive in this environment. Thanks, guys.

Thank you. And your last caller -- question is from Arren Cyganovich with Citi.

Thanks. Just one, I was wondering, you mentioned kind of wanting to get it back down to a leverage level of 1.4% to 1.6%. Is this really the right level of leverage you should be targeting? Should it be lower? I think that seeing that companies that have started in 1.5%-ish type of leverage heading into this are forced to raise capital or forced to delever. You don't have much free dry powder to work as we get out of this. Is that something that you might want to reconsider as to the appropriate amount of leverage you need for the vehicle?

Well, obviously, environment like this should make you consider everything in terms of what your strategy is. But I would say our strategy has always been that we can operate at the higher range of leverage versus other BDCs, because we are putting together the most granular and highest up the balance sheet of portfolios.And so one thing I would say is, as we do our forensics on what happened here over the next few quarters, the appropriate answer to that question will be, let's see how that corporate book performed, and how volatile it was and how much it moved, leverage, versus what happened to some other people, and see if then that's appropriate conclusion. I'm not sure it will be. We feel pretty good about the volatility on that corporate book.And to be fair, I'm not sure it won't be either. But I do think in looking at our relative -- the relative performance of that book versus other assets, we have that you wouldn't necessarily reach the conclusion you just said, if it was only that book, which was sort of our -- sort of most of our goal to get to.So certainly, for sure, I think there needs to be a sort of, as everybody works through this, a re-articulation of where your strategy falls. We haven't yet seen anything that suggests what our strategy was, wasn't sort of the safest of all the strategies. We could have chosen. Unfortunately, we weren't all the way through getting to where that portfolio should have been. And so we were absorbing that hit, and that may be pretty -- that may have substantial impact on it.So hopefully that sort of addresses it. So I don't I think operating with a pure first lien granular book at the 1.4%, 1.5% leverage range. Would be, especially without an SBIC where you have hidden leverage or a JV down below where you have hidden leverage is not is probably less volatile than a 1.1%, 1.2% book with a lot of second lien exposure and sort of hidden subordinate certificate exposure, those type of things.

Okay. And then, I guess, looking at the SOI there, the chemicals company, they got marked down pretty dramatically, but not on non-accrual. Is there anything you could comment about that particular investment?

Yes. That's a legacy. That's one of those legacy investments, carbon-free. Tanner, do you want to spend time on it?

Yes, sure. So this is a petrochemical plant in Texas, referred to as carbon-free with a technology, think of it as a greener alternative to carbon capture and has experiencedhistorical issues. In terms of ramp of -- the facility has attracted significant equity capital over its life -- it creates -- it produces three separate outputs, one of which is hydrochloric acid, which itself is used heavily in fracking of wells and the prices for that have also -- have obviously gone down significantly in the current market environment, offset to a certain extent by the other output or the other two outputs, and in particular, bleach and caustic soda, bleach being something that has seen demand relatively resilient and pricing relatively resilient.And so the -- and then this is also an investment in which we undertook a restructuring whereby we would have a greater deal of our value with the value of the IP, which we do believe to be valuable and the company's go-forward strategy is to find a partner for use of that that IP. And if you kind of think about in the context of the broader concerns and motivations and mandates to make more green such processes. We're hopeful that, that will drive some value. So that's that investment.

Thank you.

You do have several more questions. The next question is from Rick Shane with JPMorgan.

Hey, guys. Thanks for taking my questions. And I hope everybody is doing well. I wanted to talk a little bit about the aircraft portfolio. I'm curious within the fleet, what the mix between classics and next-gen plans are? And I’m curious particularly how that impacts your ability to re-lease the planes and what the collateral value is? And the reason I ask is we've seen jet fuel prices basically back to 20-year lows.And historically, when that happens, the price between -- the price discrepancy between classics and next-gen planes converges because fuel efficiency is much less of an issue. So I'm curious how you guys look at your portfolio and what the actual impacts are?

Yes, sure. Thanks, Rick. I'll take a stab at this. So if you think about -- I'll kind of put it in three different categories, and sometimes the nomenclature can be a little bit confusing. The classics would be the 700 and previous on 737. And then what's called next-gen is what has been produced over the kind of last 10 to 15 years. And then the next-gen, next-gen would be the NEO and the MAX.And right now, and your comment was very astute and correct. And you may recall, we had actually previously been invested in some classics and some other assets such as the MD-80, which itself were older equipment. And with the downdraft in oil prices, the last time in the 2015, 2016 period saw a significant excess value to end-of-life assets that would have otherwise been retired. But owing to the fact that fuel prices were less, they continue to operate.Our current fleet has very little classics by this point in time. There's not as many classics out there and most of those have approached their 20 to 25-year lifecycle and they're very few in operation.Our fleet would be very much in that middle category. We have very little exposure to the most recent technology, be it the NEO and the MAX, obviously, good as it relates to the MAX given some of the issues there, but also less opportunity.And so while not as pronounced, and I'll draw a distinction here, Rick, while not as pronounced as they benefit relative to the classics, for instance, in terms of oil price and fuel efficiency that the 737, 800, the 320, 200 versus the NEO and the MAX, you have some of that fuel benefit. And that's one thing that we think could help some of the resiliency in the period.I would also note that our -- as I mentioned in my prepared remarks we’re disproportionately narrow body, which itself as an asset class or a broader asset class would expect to be more resilient, not just because of the likelihood that domestic flying in various countries probably picks up sooner and it’s more robust relative to transatlantic, but so to also the MAX, I referenced and that we were entering this period of time with less of an imbalance.So a lot there. Very good question, Rick. I would say there is some benefit, not as pronounced as we saw in 2016 with the classics that we had in the MD-80s, but some modest benefit. And we do take some modicum of comfort in that our portfolio is almost exclusively narrow-body at this point.

Got it. That's a very helpful answer. And I do appreciate the clarification or the strong point on the narrow bodies in terms of how we could imagine air travel starting to pick back up domestically first. Thank you, guys.

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

Hi, guys. I hope that everybody is okay. I've got a few questions. I'll try to be quick, quick, on the oil and gas, Spotted Hawk and Glacier with the throughout the hedges coming up essentially over the course of this year. Obviously, they can generate some cash flow in the near-term by monetizing those hedges.But for a longer term -- again, it depending on how long oil prices stay low with oil and gas is a sector we’ve been trying to reduce exposure, but what's your appetite putting -- potentially putting in all capital into those businesses is hedging it's no longer protect potential eventual recovery? I mean, is that a segment that we could see grow again in the near term?

No. Yes. I mean, you know, glacier is mostly near term. It's most of its value is being, either sort of will be monetized with the hedges or pumping, Spotted Hawk a lot of evaluation is staying in the ground and so its valuation will sort of stay there.So it's just like, if prices stay down, it's just its value stays down for longer, but it's more you know, it's a lot of options value to its valuation anyway, because it's not current. So -- but we were -- we don't want to invest more capital there. Obviously, if there's something defensive we have to do in to ensure, downside value, we'll do that but other than that no.

Got it, got it. On Merx, on the liquidity in the prepared remarks, and then in the form -- you mentioned, obviously, they've got cash there, there's capitalization securitization, but what level of open lease deferrals could Merx handle from a near term cash flow, impacted, effective and still service the deck to you. Is there a risk that we could see Merx maybe pick the interest in the second or third quarter or even go through? Or is that the cash levels sufficient to maintain cash pay on the debt to AI?

I don't think -- Tanner or Greg you want to answer that? Greg?

Yes, I think you know it at this point, Robert, I mean, we're assessing it and we continue to says, considering if you think of the debt as -- in the entire investment there as our equity sitting in the structure, we'll look to combined our debt and our dividend and look at the appropriate level on, one to support leaving capital in like we did this quarter.And, but it, it really will be, a function of, what happens as we look into July, when most of the deferrals are completed? You know, then, let's, let's see how the industry opens up. And -- so as, I think as Howard mentioned, as we look at the distribution, we're going to look at all the components of income to determine on, what level, that they can, pay going forward.

I appreciate that. Yes. Things are really hard to project right now. One last one, if I can, okay. In the prepared remarks Howard you said, 1.4% to 1.6% leveraging as supposed to one of the questions you talked about 1.4% to 1.55%. I mean, is it fair to say that the target on the immediate term would be to get down towards the lower end of your target leverage range?

Yes. I mean, it's hard to be that precise, because you have revolvers that fluctuate a little bit, I think the answer is, we don't want to be at 1.59%. Because we want to have some room to sort of to take on new opportunities as things pay off and things like that.So, we'll assess that, when we get, you know, when we get there, but we're not, I would say, it's probably the right target is the middle of that. It is probably 1.5% if I just had to choose one, because, we feel like from a risk perspective, if it's a corporate portfolio, we can operate well there.From the perspective of sort of new investments and liquidity and choices and things like that, obviously, the less leverage you have, the more new things you can do. So, you know, that comes into the mix. But I would say, we're targeting to get into that range and probably sort of hover around on the middle of that range.

Okay. Got it. Thanks.

Your last question comes from the line of Ryan Lynch with KBW.

Hey, good -- good afternoon, guys and I hope is well. I wanted to follow back up with the leverage and liquidity discussion. So obviously leverage increased a decent amount as was expected for you in most BDCs and, as I look at your, limited amount of capacity on your credit facility, which is obviously subject to change via, how your borrowing base moves. I know, a lot of investors coming into this quarter was looking at Apollo potentially needing to do some sort of equity raise to be able to manage through this downturn.You kind of mentioned that that your plan is just to use repayments, you know, from your current portfolio, de-leverage and manage through this. So as you sit here today, and as you try to look through, forecast out the outlook, going forward, which I know is very hard to do. Do you anticipate and do you think that there will potentially be the need to raise additional equity capital to manage through this, this downturn?

So, a couple things, obviously, it's a Board decision and obviously, like any -- any -- anything's possible, right? Because, you know, there's all sorts of disclaimers, I need to put on anything, I say with regard to sort of predicting what's going to happen.So, but, you know, we, -- we our goal is to, as it has been, since, we all started working together is to sort of navigate through what we're doing to do the things that are most you know, you know, value creative, given, the handwork we've been dealt, for existing shareholders and doing sort of an equity raise that dilutive is, not usually the highest thing on that list.So, as we laid out what we did here, we have a plan that isn't, you know, so a plan that has room in it, to execute without doing that. So, hopefully that sort of answers the question like, I don't want to take any -- any choices away from our -- our board in terms of what they may, choose to do or think that's appropriate. But we think we have a workable plan with a good amount of flexibility to, -- to work through this and have our metrics start getting better without doing dilutive equity.

Okay. Fair enough. I know it's a difficult, difficult murky time there to try to evaluate what the outlook looks like. But I appreciate the comments. And then just -- just one other one, just on your Merx valuation of the equity interest, how exactly is the valuation for the equity interest done? Is that based on some sort of yield and discount rate that you guys use on the income that it generates or expected to generate in the future?Or is it a burn down type of analysis, liquidation analysis of what those underlying assets are worth? I just know, because reason I asked is, you know, when you look at the financials that Merx filed, today for 2020 fiscal year, and had a pretty, substantial net loss for that year. So just wanted to get a little more color on how the equity portion of your Merx investment is valued?

Greg, do you want to?

Yes.

Is that, Tanner?

Yes. I am happy to take the --

Go ahead, Tanner.

Yes. Sure. So first off the -- as with all our illiquid positions, we get, third-party to value give us -- give us actual valuations. But the, in what you described, it touches a number of those aspects, but it's really a discounted cash flow into the future. And at a discount rate, which is determined based on -- based on market comps, and then the cash flow forecasts, of course, representing our best estimate of future, which itself would also naturally involve an assumption around ultimate residual value.And so it's built up there. It's not a yield analysis. And it's not a straight collateral point in time what's the value of the assets. It's a discounted cash flow, which, against -- sorry, the risk of being redundant, has a residual assumption embedded in at the end of the lease or projected whole period.

Okay. Got it. Those are all my questions. I appreciate the time today.

Okay. Thanks. Thank you everybody for listening today's call on behalf of all of us. We thank you for plenty of support as we navigate this time period. Obviously, reach out to any of us, if you have any questions and we hope everybody stays healthy and safe.

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