October 5, 2011: One of the biggest Business Development Companies, Apollo Investment Corporation (ticker: AINV) announced the raising of additional 5 year and 7 year debt raising, for a total of $45mn. The press release details the amounts by maturity and the respective interest rates. CEO James Zelter said: “We are pleased to raise additional long-term, fixed-rate debt capital among new and existing lenders to Apollo Investment Corporation. The additional placement continues to diversify our lender base and further extends the duration of our liabilities.”
BDC Reporter’s Two Cents: This a follow-up offering by Apollo, which we commented on a year ago. Then as now, we’re encouraged that the Company, in the current market conditions, can raise medium term money, and at rates at or below what they paid in happier times. The “good news/”bad news” is that the new debt is probably going to pay off the company’s Revolving debt, thereby strengthening the balance sheet and decreasing reliance on notoriously jumpy Revolving line of credit lenders. On the other hand, the debt is still 300 basis points more expensive than the Revolver, so interest expense will be going up. That’s more pressure on earnings, already running behind the Company’s generous dividend. Apollo may argue at its next Conference Call that the current market conditions may allow for higher loan spreads, and ultimately higher earnings, but that will take several quarters to play out. The market has already decided the dividend is going to be cut (please see our stock chart for an easy illustration of this thesis) and the stock price has dropped an astounding 40% from its 52 week high. Maybe Apollo has decided that it’s best goal is to bullet proof its balance sheet further rather than try to defend the indefensible.
