MidCap Financial Investment Corp Q1 FY2023 Earnings Call

Good morning, and welcome to the Earnings Conference Call for the period ended June 30, 2022, for Apollo Investment Corporation. I will now turn the call over to Elizabeth Besen, Investor Relations Manager for Apollo Investment Corporation.

Thank you, operator, and thank you, everyone, for joining us today. Speaking on today's call are Howard Widra, Executive Chairman, Tanner Powell, Chief Executive Officer, and Greg Hunt, Chief Financial Officer. Few members of the management team are on the call and available for the Q&A portion of today's call. 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. 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. In connection with today's announcement, we will be launching a new website next week, which you will be able to find at www.midcapfinancialic.com. The two presentations on our website, our standard quarterly supplemental financial information package and a second presentation, which details today's announcement. At this time, I'd like to turn the call over to our Executive Chairman, Howard Widra.

Thanks, Elizabeth. Good morning, everyone. Earlier today, we issued press releases, our quarterly earnings press release and a second press release, which details several important strategic announcements, which we believe greatly enhance value for our shareholders. Following my review of each of these announcements, I'll provide an overview of our results and discuss today's distribution announcement, the market environment, review our investment activity, and provide an update on the portfolio. Lastly, Greg will review our financial results in detail. We'll then open the call to questions. Let me begin with today's announcement, which underscores Apollo Global Management's commitment to investor alignment, product innovation, and being at the forefront of the democratization of finance. These announcements reinforce the BDC's position as a secure play, senior secured middle-market BDC providing public shareholder access to institutional quality private credit at a best-in-class fee structure among the BDCs. The BDCs will continue to invest almost exclusively in senior secured loans sourced by MidCap Financial, one of the world's leading middle-market lenders. As you know, over the last several years, we have shifted the BDCs to focus on first lien corporate loans primarily sourced by MidCap Financial and away from junior capital and non-core positions. At the end of June, investments made pursuant to our co-investment order, which are primarily loans originated by MidCap Financial, represented approximately 85% of our corporate lending portfolio at fair value. Let me take a minute to remind everyone about MidCap Financial, which I co-founded in 2008. MidCap Financial was privately held by institutional investors and is managed by Apollo Global. Over the last 12 months through the end of June, MidCap Financial originated over $21 billion in new commitments, including $4.7 billion in the June quarter. MidCap is headquartered in Bethesda, Maryland, has 12 offices globally with approximately 250 employees. MidCap is led by an experienced senior management team that has worked together for over 20 years and has an average of 27 years of industry experience. The BDC is fortunate to be in a unique position to have access to loans sourced by MidCap Financial, given the strategic relationship between MidCap Financial and Apollo Global. Historically, MidCap Financial and Apollo, as its manager, have predominantly originated assets on behalf of U.S. and other global institutional investors. To support our new security strategy, our Board and advisers have established what we believe to be the industry-leading structure among listed BDCs. The new fee structure reduces fees by approximately 50% to the lowest rate among listed BDCs. In addition, the rising fee will now be calculated on net asset value instead of assets, which provides greater alignment and focus on net asset value. The new fee structure reduces the BDC's cost of capital, thereby expanding the universe of MidCap originated loans that will meet the BDC's well-required asset yield. MidCap Financial originates a significant amount of senior first lien loans that were previously below the BDC's target yield, which will now make sense for the BDC, given its lower cost of capital. Specifically, the BDC's base management fee has been permanently reduced to 1.5% on equity, down from the equivalent of approximately 3.4% on equity. In other words, the base management fee expressed in terms of gross assets has been reduced to approximately 1.4% on assets, which is equivalent to approximately 75 basis points on assets. The incentive fee on income has also been permanently reduced from 20% to 17.5%. The performance threshold remains at 7%, and there is no change to the total return requirement or catch-up provision. The incentive fee on capital gains has also been permanently reduced from 20% to 17.5%. The changes to the fee structure will be effective for the period beginning January 1, 2023. Moving on, we're pleased to announce that MidCap Financial has made a $30 million primary aligning equity investment in the BDC at net asset value, representing a significant premium to the current trading price. The BDC will issue approximately 1.93 million shares in connection with this transaction, which will be subject to a minimum two-year hold period. This investment serves to validate the value of the BDC's senior investment strategy; provide the BDC with additional loans sourced by MidCap Financial; and create a strong alignment of interest at MidCap Financial and the BDC's performance. Pro forma for this investment, MidCap Financial will own approximately 3% of the BDC's common stock. In connection with today's changes, the BDC has elected to change its name from Apollo Investment Corporation to MidCap Financial Investment Corporation, which reflects its investment strategy of primarily investing in loans originated by MidCap Financial. For clarity, Apollo Global will continue to manage both MidCap Financial and the BDC. Throughout today's call, in order to avoid confusion, we will refer to the BDC as either the BDC or MFIC and we will use MidCap Financial to refer to the lender headquartered in Bethesda. The BDC's ticker will be changing to MFIC and these changes will be effective on or around August 12. Moving on to new leadership promotions. I'm pleased to announce that Tanner Powell, who has served as President of the BDC since 2018, has been promoted to Chief Executive Officer, in my place in that role. I have been named Executive Chairman of the Board, John Hannan, who has served as Chairman since 2006, will now serve as Vice Chairman. I will continue to serve as Apollo's Global Head of Direct Origination and remain involved in the day-to-day management of MFIC. Ted McNulty, who was a Managing Director in Apollo's Direct Origination business, has been promoted to President of the BDC and Chief Investment Officer for our investment adviser. Ted brings extensive experience and expertise to the role. He joined Apollo in 2014 and over the last several years has been instrumental in the successful monetization of the BDC's legacy assets. Last but not least, Kristin Hester, who has been a senior member of our legal team since 2015, has been promoted to Chief Legal Officer. Joe Glatt, who served as the BDC's Chief Legal Officer since 2007, was promoted to a new role as a partner in Apollo's United States Financial Institution. These promotions recognize the valuable contributions made by Tanner, Ted, and Kristin over the years. We are very excited about today's announcements, which will allow us to capitalize on the benefits of MidCap Financial's leading middle-market platform and which we expect will generate attractive risk-adjusted returns for shareholders. Next, moving to a summary of our results, net investment for the June quarter was $37,000, which reflects lower fee and prepayment income, partially offset by recurring interest income. Results also reflect a higher incentive fee compared to the prior quarter. We recorded a net loss of $17.8 million or $0.28 per share on the portfolio during the quarter. We ended the quarter with a net asset share of $15.52, down 27% or 1.7% quarter-over-quarter. We repurchased some stock during the period below the net asset value, resulting in a $0.01 accretive impact. Now, we shift our focus to our distribution. Given the progress we have made to rebuild the portfolio, combined with the forthcoming reduction in our fee structure, we are raising our quarterly base dividend from $0.31 to $0.32 per share payable to shareholders of record as of September 20, 2022. We believe this dividend level is appropriate at this time. Future supplemental distributions will be declared as appropriate. With that, I'll turn the call over to Tanner Powell to discuss the market environment and our investment activity.

Thanks, Howard. Beginning with the market environment, the public credit markets continue to experience volatility during the quarter, as elevated inflation, rising interest rates, concerns about a possible recession, supply chain issues, and geopolitical uncertainty weigh heavily on market sentiment. Negative fund flows contributed to the volatility in the liquid loan market. Credit fundamentals, however, have remained relatively stable as leveraged loan default rates continue to hover near historical lows. Against this uncertain macro backdrop, we saw a reduced level of M&A activity. This type of broader market environment can benefit providers of private credit who offer borrowers fully underwritten solutions at agreed-upon pricing and terms with certain execution irrespective of broader market conditions. Moving to investment activity, MidCap Financial, which, as Howard mentioned, sources investments for the BDC, was very active during the June quarter with $4.7 billion of new originations. For the BDC, new corporate lending commitments totaled $195 million across 18 companies for an average new commitment of $10.8 million. New commitments made during the quarter by product were $100 million in leveraged lending, approximately $80 million in life science lending, and the remaining $15 million in lender finance. All new commitments were first lien floating rate loans with a weighted average spread of 622 basis points and a weighted average net leverage of 4.9 times. 97% of new commitments were made pursuant to our co-investment order. Excluding revolvers, gross fundings for the quarter totaled $165 million, and sales and repayments totaled $121 million. Net revolver repayments were $1 million. In aggregate, net fundings for the quarter totaled $43 million. We ended the quarter with net leverage at the high end of our target range given our visibility in the paydowns post-quarter-end. Net leverage at the end of June was 1.58 times. Adjusting for net paydowns post-quarter-end, including a $15 million cash paydown from Merck's and the impact of the $30 million investment from MidCap Financial, which is expected to close in the next week, net leverage is currently approximately 1.45 times. As discussed on our last conference call, we intend to accelerate the reduction of our investment in Merck's by selling aircraft and deemphasizing its servicing business. As you know, Merck is a successful global aircraft leasing management and finance company established in 2012 and led by Gary Rothschild, Head of Aviation Finance for Apollo. At the end of June, AINV's investment in Merck's had a fair value of $284 million, representing 11% of the total portfolio. During the June quarter, Merck's sold three aircraft, reducing the number of planes in the fleet from 65 to 62. We expect our investment in Merck's, as well as the income we receive from Merck's, to decline each quarter going forward. At the end of June, two additional aircraft were under a purchase agreement, including the freighter in the fleet, which was sold in early July. Despite the uncertain macroeconomic environment, there are no signs of a slowdown in daily global flight activity, and we feel constructive about our plans to sell the planes owned by Merck's. Turning to the overall portfolio, our investment portfolio had a fair value of $2.55 billion at the end of June across 140 companies in 27 industries. Corporate lending and other represent 80% of the portfolio, while Merck's represented 11% of the portfolio. 94% of the corporate lending portfolio was first lien. The weighted average spread on corporate loans was 611 basis points as of the end of June. Our portfolio companies generally continued to experience strong fundamental performance. While from the impact of inflation, we believe our companies are generally able to pass through most, although not all, of the higher input costs they are seeing. Our portfolio is generally weighted towards industries that are less impacted by inflation and supply chain issues. Moving to credit quality, our credit metrics remain very favorable. At the end of June, the weighted average net leverage of our corporate lending portfolio was 5.45 times, a slight increase quarter-over-quarter, due to repayment of lower assets and the impact of funding delayed draw term loans. The weighted average attachment point was 0.2 times, and the weighted average interest coverage ratio was 2.8 times. No investments were placed on non-accrual status during the quarter, and our investment in oil and gas was restored to accrual status and also repaid $4.5 million to the BDC during the quarter. Glacier continues to generate strong cash flow to support the small loan balance, which is now at $4 million. At the end of June, investments on non-accrual status totaled $9 million or 0.3% of total portfolio at fair value. With that, I will turn the call over to Greg to discuss our financial results in detail.

Thank you, Tanner, and good morning, everyone. Starting with the AINV statement of operations, total investment income was $53.4 million for the quarter, which is a decrease of 2.4% compared to the previous quarter. Recurring interest income increased due to the effect of higher base rates and the return of Glacier oil to accrual status. Prepayment income was $1.9 million, down from $3.8 million last quarter because of lower prepayments. Similarly, fee income was around $500,000, down from $1.3 million last quarter. Dividend income remained unchanged for the quarter. The weighted average yield at cost on our corporate lending portfolio was 8% at the end of June, up from 7.7% at the end of March. This yield increase was mainly due to higher base rates, while the weighted average spread on the portfolio stayed at 611 basis points. Net expenses for the quarter amounted to $29.9 million, an increase of $2.1 million from the previous quarter, primarily due to higher interest expense linked to our credit facility, which has a floating interest rate. As a reminder, AINV's incentive fee on income includes a total return hurdle based on a rolling 12-month look back. Given the net loss of $17.8 million for the quarter, incentive fees came to $1.4 million, a slight increase from last quarter. Net investment income stood at $0.37. During the quarter, we recorded a net loss of $17.8 million or $0.28 per share for the portfolio. The majority of our corporate lending portfolio is valued using a yield approach. Changes in market spreads are factored into the quarterly valuation of our investments alongside other elements. On Page 16 of the earnings supplement, we provided a net gain or loss over the past five quarters. The NAV per share at the end of June saw a decrease quarter-over-quarter. This was mainly due to the net loss on the portfolio, though it was partially offset by $0.01 from fee income. We were pleased with the outlook in July. Our liquidity position remains strong with ample undrawn revolver capacity well beyond the unfunded commitments to borrowers. Consistent with our historical pattern, we anticipate amending our revolving credit facility in the third quarter. We are well positioned to benefit from rising interest rates. Based on quarter-end rates, we estimate that a 100 basis point and a 200 basis point increase in reference rates could lead to annual incremental earnings of about $0.02 and $0.25, respectively. Regarding stock buybacks, during the quarter, AINV repurchased approximately $1.6 million of stock, leaving $29.2 million available under our authorization for future stock repurchases. This concludes our remarks, operator. Please open up the call for questions.

Hi, good morning. Thank you for taking my question. In terms of the announcement on the strategic initiatives as well as potentially shifting investment strategy, what are your expectations for future ROE or expected targeted returns based on what you seek for secured loan investments? Thanks.

Yeah. So first, I'd say it's not really a shifted investment, it's more of a demarcation point where we think the investment strategy is really the story going forward as we exit out of non-core and shift away from Merck's. So, I mean that's just the same. It's just that there's a broader set of loans that may meet our criteria. The ROE, I would say, if you just took an apples-to-apples approach and said, if the fees and everything else stays neutral, you'd have an increase in ROE of around 2%. As you assume some reduction in yield and some reduction in leverage from where we were now, you're talking about an increase of the ROE from the low 8s to the low 9s, which is a 10% increase in ROE sort of as a base case. Obviously, there are moving parts right now, including rising interest rates, which should affect everything. But just on a post-apple-to-apple basis, it should be around a 10% increase in ROE.

Got you. Got you. Very helpful there. And one follow-up, if I may. You talked about having some visibility in terms of your paydowns. Just wondering if you could just give a little detail behind that? Thanks.

Yeah, I think, Kenneth, thanks for the question. I would point to the guidance we give in terms of the approximately 145 leverage. We have a number of things slipping into the next quarter. And then also, as we alluded to, knowledge of the strategic investment, aligning equity investment being made was a little bit higher at the end of the quarter. But use that 145 million as guidance there.

Hey, good morning. Thanks for taking my questions. A lot going on, so apologies if I ask anything you've already covered. Just that I'm focusing on repayment activity. Obviously, that came down, impacting fee income. Can you give us a sense, and I know you talked about near-term repayments there, but just for the remainder of the year, is that really a function of volatility, recognizing those go hand in hand? And would you expect repayment activity to be kind of muted given the macro backdrop going forward?

Yes. I think you said it at the end there, Kyle, that objectively M&A activity is down, and that certainly affects us in terms of the level of repayments. So all things being equal, I would expect more muted activity in the back half of the year, absent some of the prepayments that we alluded to in our prepared remarks.

Got it. And obviously, credit remains down right now. What's the outlook here in terms of inflation? How are some of these adapting to rising rates? What are your expectations for credit remaining and then more broadly into '23?

Sure. As we mentioned in every quarter, we look at all our portfolio – sorry, both at MFIC and MidCap more broadly. In the most recent quarter, when we take a look at roughly 90 companies that we have in our leveraged loan book, it was showing us high single-digit revenue growth and kind of mid-single-digit EBITDA growth, indicating what we saw in the last quarter as well. Supply chain challenges and labor cost increases have affected our companies. We do know in a lot of cases, there’s a lag to recover. And the data, Kyle, as you know, relates more to the March quarter. We expect those challenges to continue. That said, in aggregate, we feel based on our underwriting and the detachment of where we're financing these companies, and the equity cushion that we have from the sponsors behind us, that credit will hold up, and we rate the credit risk at a good place to weather any continued or more pronounced volatility going forward.

Thank you. Appreciate you taking my questions today. A few of them have already been asked, but I was hoping that we walk through more perhaps on how you're thinking about leverage in the current environment. An increasing shift, you know, the first lien strategy might have a bit of a lower yield. It sounds like you're not in the target range on leverage, but I'm wondering if that's the case. And then two, do you have any shift in your thinking around where you'd like to run within that range in the current environment and more alignment with the MidCap strategy?

Yeah. Look, a couple of things. Our leverage, as we've talked about, sort of I think, on the repeatedly over the last few years, we felt like it was not particularly aggressive given the proceeds of the first lien focus of our book and then the attachment point and obviously, we expect to even lean further in that direction, given our cost of capital. That said, the feedback we've received from all constituencies is that that is not entirely in agreement with that. Whether we’re moving our range down some or expecting to operate in the 1.35 to 1.45 range, as opposed to what we articulated before as 1.4 to 1.6, our expectation is to operate around that 1.4, 1.45 range, which Tanner stated before. I would say that we are leaning towards lower, even though the profile of our book will get more conservative. Look, we've made a lot of changes here with a goal of this being a relatively unique investment for individual investors available among the BDCs. One of the keys to that, obviously, is to have a structure that all constituencies feel really strongly about, and we’re focused on all parts of that. The reduction in the fees gives us a lot of room to be able to do that.

Yeah. And the other point in emphasis there would be that with our new cost structure, which is based on management fees on equity, we believe that also enhances alignment. But Howard's point about taking feedback from all constituencies is well understood and informs our thinking as we approach leverage going forward.

Okay. I appreciate that. Thank you. And as a follow-up, it would be helpful to understand if there's any real change in the way that your team will interact or engage with MidCap. Could we dig a little bit deeper there? Is this just leveraging opportunities from that platform? Or are there some sort of inside baseball changes in terms of the team vetting, selection, and things like that?

No, there are no changes to how we operate. To clarify, Apollo manages both MidCap and MFIC, and I have been the primary portfolio manager for MidCap since it started; Tanner is essentially the primary portfolio manager for AINV and will continue in that role. Ted will take on a broader role, but he has already been involved significantly. The only change in dynamics is that when Tanner moved to Bethesda about 12 to 18 months ago, his daily involvement with MidCap increased, but that is unrelated to these changes.

Hey, good morning. The first question I had was, I just want to hear because I know you work closely with MidCap in the past. I would want to hear kind of the ballpark of what percentage of deals historically at AINV could participate in the MidCap deal flow because I know there were some lower loans that wouldn't necessarily fit into AINV. What sort of deal flow percentage, rough ballpark, could you guys participate in historically with MidCap? And then with the new structure, what sort of change to expect from more access to deals from MidCap?

Well, so generally, overall, MidCap originates a variety of assets, some of which still fit the BDC mandate anyhow like real estate. So, let's narrow this down a bit to say the percentage of deals related to the product, which accounts for a lot of the products that have been originated. That said, there are a lot of asset-based lending deals that come through. Generally, if you look at the ballpark, there are about 100 to 120 deals a year that close in those categories. So we can see that now we have double the amount of deals available from those categories. The majority of what kept out in those categories are ones that don't end up being relevant for BDC, or they're smaller deals that once divided down based on the size of the relative balance sheet are too small to pay what could be viable in terms of valuation.

Okay. That's helpful. And then what are you thinking in terms of, I don't know if the best way to think about it is yield or spread because obviously, your rate has been accelerating higher. Is there a meaningful change of what you guys are expecting or willing to put on the books going forward or when this new fee structure goes into effect in terms of spread versus what you've done historically?

So as we started first penciling this out, I guess what I would say is – and I'll caveat this afterwards is that you know, having the overall spread go down by about 35 basis points seems reasonable, where the shareholders and lower spread mean that it would kind of make sense for us. And the average spread on the portfolio, that said, we don't expect that to happen right now given that spreads are widening. Forget the base rate going up, that’s a separate issue. We expect spreds to continue to widen further, and if we go into a recession or even contraction, we would expect rates to worsen, especially because there will be more asset-based loans with higher yields. So right now, we would say we expect spreads to stay stable, meaning that the increase in spreads in the market will be offset by our reduction in spreads, but we have been comfortable with the idea that our book would average down around 25, 35 basis points.

So it could go down 25, 35 basis points, which is where spreads are going, that probably won't happen in the year?

Right.

Lastly, it seems that this change may not significantly affect MidCap's role in the metal market or its growth potential in that space. While broader solutions have been actively involved in this area, will this change reduce your willingness to engage in the upper middle market and co-invest with similar power debt solutions? Or do you not anticipate any changes in that aspect?

No, I don't think you'll see a change. There is overlap and synergy, something, whatever you want to call it, in deals between $50 million and $125 million of cash flow. The origination with sponsored track channel is combined between Apollo's focus on the very largest sponsors and sort of the big team on almost all the rest of the sponsors. The execution in the middle of those ranges depends on sponsors. There can be shared underwriting. There's certainly the option for each BDC to participate in the deal that the others might do. So for example, at ADS, if there is a company with $70 million of EBITDA on the deal is five times, that's a $350 million deal, which is being done by MidCap, AINV, and a bunch of our managed accounts. There's a very good chance ADS will be part of that. By the same token, if there's so we have a strong relationship with, especially if it came to our channel, and it's got $100 million, six times, I don't know, say, $750 million deal that is more core to ADS strategy, we could potentially act on that in AINV as well. But we will tend to not do so for any reason other than it's not a core strategy. So nothing has changed, our communication and overlap remain the same.

Okay. All right. I appreciate you taking my questions and also very much appreciate the reduction in fees and the overall alignment with shareholders to execute this track.

Hi. Thanks and good morning. Ryan just asked most of my questions. So I do have another one. The dividend program, you obviously raised the base dividend this quarter. Looking at expanding ROE, I hope you are already covering the base dividend. Can you give us any color? Obviously, no supplemental this quarter, you said the $0.32 range is appropriate at this new fee structure back until January. But any color on what the plan would be with any excess earnings above the dividend under fee stock you had kind of previously the supplemental program? Is that likely to be reinstated or any color there?

Yes. So previously, we had said we would declare a supplemental pretty much equal to the amount of our base dividend each quarter. With these changes, as well as the interest rate changes, we expect to continually evaluate our overall dividend and real growth over time. As Merck’s plays through, these changes provide room for a potential increase in the dividend over time. That’s our goal. We expect there to be meaningful supplemental dividends paid because we’re in a position to cover much of these costs and will continue to have the capacity to distribute to stay in compliance.

Thank you. Congratulations on the promotions and the enhanced shareholder alignment. My question revolves around credit. Based on the forward curve and given the comments on the overall - I think you mentioned the MidCap portfolio EBITDA growth. Could you comment on interest coverage and how high benchmark rates would need to rise before debt service coverage trends closer to one time versus 2.8 times today?

Yes, sure. I might need to follow up with the specifics. But as we said in our prepared remarks, we're at 2.8 times, and that cash when we run through our portfolio companies, we're actually using actual interest expense historically. As you probably know, the LIBOR contracts, especially in a rising rate environment, are marked in advance of the particular period. And so right now, we're at 2.8 times, and that reflects, on average, roughly three months ago LIBOR. It has to be in excess of 100, 100 basis points, but we can do that math and revert. But a lot of cushion there, which is the good news. One of the aspects of our more stretched senior strategy on the MidCap side is that on average, we are deploying into lower-levered enterprises and thus are better equipped to deal with increases in interest rates. Our investment portfolio was approximately 98% overlap with MidCap investments.

Hi, everyone. First, a follow-on to the earlier question; I think you said there's no changes on the inside. But can you bridge us to the sort of material concession that MidCap has made by investing at NAV? I think there are third-party investors there, right? So how do they look at it? Any color you could provide there?

Sure. MidCap has an economic relationship with Apollo as its manager. As part of that aligning investment, we consider the economic relationship with Apollo, which is adjusted all the time. As an example, we've made great efforts to ensure that all origination done anywhere Apollo, including MidCap, AINV and MFIC now gets full economics on those deals. Despite the fact that there have been other BDCs that have kept profits as a manager. The way that has been trued up before is that Apollo has paid for some of that origination, effectively meaning those figures are irrelevant to AINV shareholders other than they're getting full economics. This is an important strategic investment for MidCap because the growth of AINV is really important to grow MidCap and Apollo’s footprint across the whole middle market.

Great. That's really helpful. And then just expanding on some there I was going to ask about future growth potential and in the event this - and future better performance might drive you above NAV. Can you talk about what your capital formation or raising plans would look like? There are a lot of models out there on periodic secondaries, private to public, or sorry, yes, private to public. And some keep their shareholder base very - just sort of where you would fall on the spectrum; any sort of initial thoughts?

Yes. We think the opportunity to invest in assets of this quality is much larger than AINV's current capital base. There is an opportunity for growing the returns for capital that invests at NAV or well above NAV. We are confident in our dividend and ability to cover that well and to grow it in a supplemental manner as we've discussed before. While also, we must be conscious of our current shareholders, ensuring that we drive upward potential for them as well. But those considerations do not conflict in our current outlook because we still have some drag on earnings from older assets that aren't generating interest income, so raising money at NAV or above NAV, spreads that out over a broader base, positively affecting existing shareholders as well.

Hi, thanks for the question. And congrats on the overall positioning resets. So two questions. First on leverage and second, kind of following up on the broader Apollo ecosystem and growth goals. Is 1.35 to 1.5 versus 1.4 to 1.6 really just plotting errors given how MidCap leverages its own loan portfolio at a very - as of sort of level, and one could argue maybe something at 1.75 to closer to 2 would be even comfortable given where the loan book is heading? And then second, given the dependency you mentioned on trading at NAV to raise equity capital, what's the best vehicle to raise third party investments given ADS, I think around $2 billion within six months in the non-traded REIT channel? How is that around that limitation to always trade at NAV to grow and align with AA yield through Apollo?

The first question regarding the bridge is that our discussion with regard to risk related to leverage from 1.5 to 1.6 is arbitrary. Our discussions hinge upon the AAA or AA levels of CLO assets contained within our loan pools, which, if we see a loaded market, MidCap leverages higher. The point of contention is that our BDC rules prevent us from leveraging more than two times and we need to allow enough room because we cannot control how the markets move. We are discussing maintaining high leverage but within risk tolerances that resonate well with our constituencies. Ultimately, this nuance isn't about conflict but rather ensuring safety and growth. Regarding being the best vehicle, there are pros and cons to every vehicle. Private BDCs have less liquidity but tend to raise money at NAV as marked at each quarter with their fees. They possess different structures that could be beneficial in certain situations. I would say the overall theme of democratization of finance focuses on making these assets broadly accessible, and these changes allow this investment to individuals looking for such opportunities. The capacity to acquire these assets at such fees is not terribly different from the fees that institutions are paying in these various structures. So, I think it is meaningful. And looking at Apollo's focus over the next 5 to 10 years, our goal is to grow assets and allow various people access to them. Thanks, and thank you, everybody, for listening to today's call. On behalf of the team, thank you for your time today. Feel free to reach out if you have any questions. Have a good day.

Thank you. And this does conclude today's call. Thank you for your participation. You may disconnect at any time.