MidCap Financial Investment Corporation (MFIC) Q4 2017 Earnings Report, Transcript and Summary

Good morning and welcome to Apollo Investment Corporation's Earnings Conference Call for the period ended March 31, 2017. At this time, all participants have been placed in a listen-only mode. The call will be opened for a question-and-answer session following the speaker's 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 everyone for joining us today. Speaking on today's call are Jim Zelter, Chief Executive Officer; Howard Widra, President; Tanner Powell, Chief Investment Officer; and Greg Hunt, Chief Financial Officer. I'd like to advise everyone that today’s call is webcast and 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 registration statement and shareholder reports 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 webpage which contains information about the portfolio as well as the company's financial performance. At this time, I'd like to turn the call over to Jim Zelter.

Thank you, Elizabeth. Good morning, everyone and thank you for joining us for our fourth quarter and fiscal year ending earnings conference call. I'll begin today's call be briefly discussing the market environment. I will then provide an overview of our result including the progress we've made executing our strategy, followed by some additional business highlights. I will then turn the call of the Howard will discuss the progress we've made, repositioning the portfolio in greater detail, Tanner will then cover our investment activity for the period and provide an update on credit quality of the portfolio and finally Greg will review our financial results in great detail. We will then open the call to questions. Beginning with the market backdrop, underwriting conditions remain challenging as an abundance of liquidity has continued to result in spread compression and a more challenging investing environment. In this type of environment, it is essential to see the broadest set of investment opportunities and remain selective with the process. The scale and breadth of the Apollo MidCap direct origination platform provides us with attractive opportunities and allows us to be selective, adhere to our underwriting standards and support the needs of our borrowers. Given these market conditions, we invested approximately $150 million during the March quarter, somewhat below our quarterly average, but with most of the investment sourced from the Apollo's direct origination platform. Since the beginning of April and through May '15 we have funded more than $200 million, bringing our leverage ratio within our target range. Net investment income for the quarter was $0.17 per share compared to $0.17 per share last quarter and $0.20 per share for the year ago quarter. Net asset value declined $0.11 or 1.7% to $6.74 per share during the quarter, primarily from a net loss on our oil and gas investments, our U.K. renewable investment and some legacy positions. There was a slight net gain in our core strategies, partially offsetting the NAV decline. Regarding the execution of our strategy, we believe that we have made considerable progress implementing the initiatives that we set forth in July 2016 including one; the deployment of capital into assets sourced by the Apollo MidCap direct origination platform, including investments made pursuant to our co-investment exceptive order, two, the reduction of our exposure to certain positions and industries which are on the not higher risk spectrum and have more volatile returns and three, the resolution of several legacy positions. Moving to our fee structure, our investment advisor in consultation with our Board has agreed to maintain its existing fee structure for fiscal year 2018 with the same management incentive fee waivers at last year. Regarding the distribution, the Board approved a $0.15 distribution to shareholders as of record June 21, 2017. Looking ahead to fiscal 2018, we believe that we are well-positioned given our investment capacity and our asset-sensitive balance sheet. We believe that our current level of leverage is of particular strength and we are well-positioned for when opportunities become more attractive. We will continue to focus on deploying capital and opportunities sourced from our Apollo direct origination platform And now I'll turn the call the call over to Howard.

Thanks Jim. As mentioned, we believe that we continue to make considerable progress executing on the strategy that we outlined last year. As a reminder, our strategy emphasizes senior secured traditional corporate loans, sourced by Apollo's direct origination platform with a focus on first lien and floating rate, with additional exposure in first lien loans in life science's asset-based lending and lender finance. We refer to these assets as our core strategies. Our strategy also includes reducing exposure to non-core strategies, which include oil and gas, renewable energy, structured credit and shipping. Our target portfolio is approximately 50% to 60% in traditional corporate loans, approximately 20% to 25% across life sciences, asset-based lending and lender finance, approximately 15% in aircrafts and leasing with the balance in any remaining non-core strategies and other legacy positions. Since connecting our repositioning strategy last July, we have invested over $620 million in our core strategies, including more than #200 million since the beginning of April and through May 15, bringing our net leverage ratio into target range. As of the end of March, first lien debt has increased to 45% of the total portfolio at fair value, the floating-rate portion of our corporate debt portfolio had increased to 84% at fair value and our average borrower exposure had decreased to less than $30 million. Over the same period, we've significantly reduced our exposure to assets, which are not core to our strategy. Oil and gas exposure has declined to 6.6% of the portfolio at fair value, structured credit exposure has declined to 3.8% and renewables exposure has declined to 7.7%. In aggregate, non-core assets have decreased by $372 million and now total $535 million at fair value or 23% of the portfolio, compared to $907 million or 35% of the portfolio nine months ago. We call these non-core assets are higher on the risk spectrum with more volatile returns. During this time, NAV per share has declined $0.16 or 2.3%, primarily driven by the subset of the portfolio. In fact, excluding a loss on Venoco, which was primarily attributable to the negative regulatory environment in California NAV today would be $6.95 per share, which would be up slightly over the period. While cognizant of the cost associated with exiting these investments, we believe the ultimate downside risk in these positions was more uncertain and as such, the progress made to date in reducing these exposures has meaningfully limited the magnitude of potential NAV volatility. We will continue to work toward additional reductions in the coming quarters. Looking ahead, we will continue to focus on opportunities sourced from the Apollo MidCap direct origination platform as we seek to create a high quality, diversified floating-rate senior loan portfolio and we will also seek to further reduce latency exposures and exit non-earning assets. Finally, we continue to actively pursue co-investment opportunities. In today's highly competitive environment, the ability to make larger commitments has become a key differentiating factor. Our ability to co-invest alongside other Apollo affiliated funds and entities has greatly enhanced our ability to participate in larger commitments and be a one-stop solution provider to our clients. We look forward to reporting our continued progress executing on our strategy over the coming quarters. With that, I will now turn the call over to Tanner who will discuss our investment activity and credit quality.

Thank you, Howard. As Jim mentioned, the loan market continues to be competitive which makes it more challenging on track [with deals]. Although we're generating seeing pressure on investment yields in terms, we're finding select opportunities to meet our criteria as we benefit from being part of a large direct origination platform with access to proprietary deal flow with differentiated risk return opportunities. During the quarter, we invested $149 million in 13 new portfolio companies and 10 existing companies with a focus on floating rate debt and our core strategies. Given the continued strength in the credit markets, repayment activity was elevated during the period. Exits totaled $345 million, which consisted of $306 million of repayments and $38 million of sales. Net investment activity before repayments was $111 million and net investment activity after repayments was negative $195 million for the quarter. Importantly, net investment activity within our core strategies was positive. The weighted average yield on investments made during the quarter was 9.8%. The yield on sales and repayments was 9.9%. During the quarter, we deployed approximately $84 million, representing over half of total deployment across five transactions made pursuant to the co-investment order. We invested $10 million in two life sciences transactions and $74 million across three corporate lending transactions including an investment in Westinghouse. During the period, the Apollo platform provided an $800 million gift financing to Westinghouse Electric Company during the company's Chapter 11 filing of which $40 million was provided by AINV. This is the largest single direct lending commitment that Apollo Credit had ever made. This was a unique direct origination situation where AINV was able to capture meaningful value through an opportunity that would not have otherwise been available without the benefit of the co-investment exemptive order. Since receiving the co-investment order, we've invested $150 million across 10 companies and we've already committed to four additional transactions in the current quarter. Turning to aviation, which continues to be one of our larger industry constitutions, we continue to be pleased with our investment in Merx Aviation as the underlying portfolio continues to perform well. During the period, Merx returned $65 million of capital to AINV including a dividend. We believe our aircraft portfolio is well diversified by aircraft lessee and country and managing our aircraft fleet, we are always looking out 24 to 36 months to determine which aircraft to extend, release or sell. We continue to see attractive opportunities to deploy capital in aviation. Moving to our energy portfolio, at the end of March, oil and gas represented 6.6% of our portfolio at fair value or $152 million across four companies. During the quarter, Canacol repaid there $75 million loan at par, generating a realized IRR of 12.3%. We took advantage of the increase in the value of oil hedge and exited our derivative position, generating a gain of $4 million or $0.02 per share during the quarter. Regarding Venoco, the value of our investment was impacted during the period due to negative outlook for certain regulatory approvals. In April, the company filed for bankruptcy and we expect minimal if any recovery on our investment. Now I'll spend a few minutes discussing credit quality and our overall portfolio. At the end of March, investments on nonaccrual status represented 3% of fair value of the portfolio and 7% on a cost basis compared to 2.6% and 8.2% respectively at the end of December. The current weighted average net leverage of our investments decreased to 5.5 times down from 5.7 times due in part to the deleveraging of the existing portfolio of companies. The current weighted average interest coverage remained at approximately 2.5 times. With that, I'll now turn the call over to Greg who will discuss financial performance for the quarter.

Thanks Tanner. The total investment income for the quarter was $66.3 million, down 2.6% quarter-over-quarter. The decrease was primarily attributable to a reduction in the size of the portfolio, partially offset by higher prepayment and fee income. Fee income was $1.6 million in the quarter compared to $900,000 in the December quarter. Prepayment income was $4.5 million in the quarter, compared to $600,000 in the December quarter. Dividend income, which is primarily generated from our investments in aviation, shipping and structured credit was $6.1 million for the quarter down from $11.4 million last quarter. The decrease was expected as we reduced our exposure to structured credit investments. Expenses for the quarter totaled $29 million compared to $31.7 million in December quarter. Management fees were lower given the reduction in the average portfolio. Incentive fees were lower quarter-over-quarter due to a lower level of income and the reversal of previously accrued incentive fees related to PIK income. During the quarter, we determined that approximately $4.9 million previously as accrued incentive fees from PIK income should be reversed compared to $2.3 million in the prior quarter. During fiscal 2017, approximately $13.2 million of incentive fees related to the PIK income have been reversed. Net investment income was $37.3 million or $0.17 per share for the quarter. This compares to $36.4 million or $0.17 per share for the December quarter. For the quarter, the net loss on the portfolio totaled $29.2 million compared to a net loss of $25.1 million in the December quarter. Negative contributors to the performance for the quarter include Solarplicity, Venoco, LVI and Glacier Oil and Gas. Positive contributors to the performance for the quarter included in our Spotted Hawk, Merx Aviation and renewed financial. Regarding Solarplicity, since making our investments in 2015, several factors have negatively impacted our position, including U.K. government regulation, lower power prices, higher material costs, portfolio composition and asset level leverage. As a result, our investment was restructured in the quarter into a new loan having an 8% coupon. Additionally, our position in Solarplicity was written down by approximately $15 million. The net impact to NAV for Solarplicity was during the quarter was approximately $10 million or a negative $0.05 per share when you factor in the reversal of the incentive fee. Turning to our portfolio composition, at the end of March, our portfolio had a fair value of $2.3 billion and consisted of 86 companies across 25 industries. First lien debt represented 45% of the portfolio, second lien represented 30%, unsecured debt 7% and structured products 7% and preferred and common equity represented 11%. The weighted average yields on our portfolio across was 10.3 down 60 basis points quarter-over-quarter as a result of the restructuring of the Solarplicity note, principally as a result of that. On the liability side of the balance sheet, we had $848 million of debt outstanding at the end of the quarter net leverage ratio, which includes the impact of cash and unsettled transactions stood at 0.55 times at the end of the -- at the end of the quarter, down from 0.66 and the end of December. In addition, we are pleased that both Fitch and S&P have maintained their investment grade rating. Given where stock has been trading we not repurchase any shares during the quarter. Lastly AINV continues to be well-positioned for future interest rate increases as 84% of our corporate portfolio is floating rate. Given our investment portfolio and liability mix, we expect to meaningfully benefit from any increase in short-term rates going forward. This concludes our remarks today, and operator please open the call up for questions.

[Operator instructions] Our first question comes from Doug Mewhirter of Suntrust.

Good morning. This is actually Nancy Rosenberg on for Doug Mewhirter. Thank you for taking my questions. So, would you say that your exits this quarter were driven by your portfolio rotation strategy or by current pricing trends or all of the…

Yes, I think you rightly alluded you it. It's a little bit of both. In the case of Canacol that we had a very strong focus, I am trying to reduce to oil and gas exposure, but more broadly as we talked about extensively which spreads coming in and elevated refinancing activity. Some of our borrowers across our core corporate portfolio were called out and refinanced as well.

Okay. Thank you. And then -- so your profile exit cost on deleveraging and you mentioned that post quarter, you've been able to re-lever. Do you have any visibility in and able to exit activity this quarter and how that might affect your portfolio going forward?

Yes, I think as we said in our remarks, with our performance quarter to date, we're back in our leverage target range, which we articulated at 0.6 to 0.7 and so that's where we're today. Obviously, it's hard to predict exactly what's going to happen, but we're relatively confident of our ability to operate in that range.

Got it. Thank you. That's all I have for now.

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

Good morning, guys and thanks for taking my questions. So, Greg in your prepared remarks you referenced the restructure of Solarplicity and the loss of $38 million. So, the company still has a sizable component of your investment portfolio. It seems like maybe some headwinds. So, I was hoping could you provide us some data maybe like revenue, EBITDA maybe over the last four quarters and then why the restructured capital structure and debt service, which is a PIK coupon is appropriate to be serviced in the future?

Yes, so basically, this is a rather than a company, this is a portfolio of Solar assets that are earning money in the ground and they have a 20 to 25-year life and so the value of those assets and the cash flows that come off of them are related to the value of that cash stream, which is related to power prices and inflation. To call it a PIK instrument, it's probably correct accounting wise, but not correct in what's happening and that cash is coming in off of those assets and some of it gets allocated to basis and some of it gets allocated to return. And so, the 8% note is first of all off of cost as opposed off of our fair market value. So, it's actually not yet incredibly relevant to our current P&L. It's just made it so that it was easy long-term for it conceivably to be serviced over the long term. We're actually going to accrue it at 6% which is more consistently stabilizing the valuation under the current assumptions were at. We can try to as quarters go by the extent we don't exit the transaction because we agree it's regardless and our goal is to exit it, to exit to give a sense of what cash is even if it's being recorded is picked, so you get a sense of that, but it's not like -- it's not like a picking of some of the words we're just adding to the balance. It's really just a discounted cash flow analysis over 20 to 25 years with cash that comes in that doesn’t exactly match that over quarter-over-quarter.

Okay. Is your plan -- you do plan exit this? So, was your plan to sell the assets then?

Yes.

Okay. And do you have an expected timeframe for that?

This goes to all our exits. Our goal is to exit the largest parts of these non-core assets as quickly as we can. This asset needed to wait until everything start moving, meaning all the assets were done and the debt was gone and there were four walls around it which there is now. So were actively pursuing a process to do it. That said, if the price is not what we think is the right price giving what we think is worth, I wouldn't want to say it's getting done ex amount of time, but we are actively in a process. We're not passively looking to sell it here.

Okay. And so that price then is probably within that fair value range, is that reasonable?

Yes.

Okay. And then Tanner, you said Apollo had committed to four transactions in the current quarter. So, what was the amount of that total commitment and then maybe specifically with the type of the investment, maybe cash flow, ABL or Life Sciences?

Yes Sure. The four pertains to the number of co-investment transaction and they touched corporate names as well as Life Sciences and the quantum was also disclosed in the prepared remarks.

And asset based, asset based to Life Sciences and corporate.

But the four was related to that which was done under the co-investment order.

Got it. Okay. That clarification is helpful and then -- go ahead.

I was just going to say, it's in the range of about half of that $200 million under those cost of those investment.

Okay. That's helpful. And then last one here, Jim, so you referenced legacy positions in your prepared remarks. So, I think I know the answer, but I am curious what are you defining as legacy investments just given your tenure at Apollo?

My legacy position, we have an handful in that legacy bucket right now.

Yes, it's about $100 million of 5% of the portfolio.

And these are ones that whether it's -- have actually in a couple of cases predated mine but we've done all in excess six plus years ago and do not fit into the non-core assets. So, in terms of trying to give a roadmap of our broad repositioning with the broader front end and working on non-core down from 900 plus to 500 plus today, this is the remaining legacy names. And again, I think it's important that we differentiate the strategies like oil and gas, structured credit renewables from some that were done again 7 to 10 years ago in a variety of desire for subordinated holdings with incremental yield that really is a legacy strategy that we're not pursuing today. So as an example of one of those credits this quarter to which has been I think noted over a number of years here, which is about a quarter of that balance, which we'll have in excess in 99% likely this quarter and so may be in July I guess, but certainly by the next call. And so, our goal is obviously to exit those, but again -- and we've exited a bunch since we started, but again, we only want to exit when we feel like we're getting the right value versus our investment and as you'll see in the supplement if our non-core assets today total $500 plus million, the legacy assets are a little bit north of a $100 million.

Right. And we don't include those in our non-core. We separate those.

That's helpful and clearly there is a couple different strategies within the book and there were some investments like you referenced was SquareTwo and even like previously with Garden Fresh had been in there for many years, so that's it, thank you.

Thank you.

Our next question comes from the line of Kyle Joseph of Jefferies.

Hey. Good morning, guys and thanks for taking my questions. Greg, I just wanted to touch on the dividend income. I know you mentioned it was down and that was expected. Is there any seasonality there? Is this a good run rate going forward?

No. Our run rate will be between $6 million and $7 million depending upon if you take shipping, you take aviation and then depending upon where our investments are in our structured credit, but currently we'll stick to $7 million.

Okay. And then on the non-accruals just that cost, they were down a little bit and they were up a little bit on a fair value basis, can you just explain what's going on there, did one of the investments improve?

Yeah actually on a fair value basis, they did but you also had a reduction in the overall portfolio, so that's why you had a percentage basis, right you had the nominator going down, the numerator going up.

Yes. Got it. That makes sense. And then you guys are seeing yield compression as you ship your strategy. How far along are you guys in the strategy shift and what's your outlook for the overall portfolio yield?

Yes. So, when we articulate a strategy, we had said that once it's completely done, we expect portfolio yield to go from around 11 to 10. There was a big shift this quarter, but a lot of that was attributable to Solarplicity. Without Solarplicity we're certainly from 11 to about 10.6 today and you can see our new origination was around 9 to 10 and so I think -- we think of it as we go from what is our new originations even though that's not a perfect proxy because there is a lot of good legacy stuff if you that will stay in that core book. But if you look at our new origination around that level of 10, it's somewhat, there were will be somewhat linear as that what is now $600 million of assets starts to become $2 billion of assets and the other stuff is replaced. So, I think it's a fair -- I think in terms of that compression of yield putting aside interest rate increases, we're about 30% into that portfolio repositioning ex Merx and we are about 30% into that yield compression as well.

Got it. That's helpful, thanks. And then just one last question, in terms of share repurchases, is you appetite for that really dependent on valuation and the discount on the stock to NAV yields on new investment?

Very much so. I think that as we have always as we've done before and when our stock is trading in a meaningful discount to NAV and we find it accretive, our Board is supportive of us buying back stock and we have done so as much as anybody in the industry. When that discount narrows like it had this quarter, it's not as attractive for us. So, we watch it on a constant basis.

Got it. That's helpful. Thanks a lot for answering my questions.

Our next question comes from line of Robert Dodd of Raymond James

Our next question comes from line of Robert Dodd of Raymond James.

Hi everyone. Two if I can. First SquareTwo obviously, they sold their asset so far as I see to Sherman at the end of the March quarter. So, can you give us an idea and obviously there is a wind down period. Can you give us an idea on what you expect from timing before that's finally resolved and off your books?

Yes sure. And you rightly pointed out, the company filed in March a prepackaged bankruptcy whereby the bankruptcy was to facilitate the sale of Sherman Financial. As Howard alluded to, it is our expectation that the company would exit bankruptcy and consummate that merger or that sale in the very -- in a relatively near term, unclear whether it would be in June or slip to July or somewhere thereafter. But in the relatively near term it's in the bankruptcy process right now and we're awaiting resolution there to consummate the sale.

Got it. Thank you. And then if I can one more, give the expertise you guys have in ABL and everything I could recently as the retail ABL market is warm to say the least in terms of activity, can you give us any color on expectations if you'll be doing anything there? If you think the pricing is at a whack and it was avoiding or any opportunities given your expertise there?

Yeah, I think we've actually recently added some expertise in retail ABL across the platform. I think you need to bucket in two things like there is first lien conforming ABL which you see banks doing the core business of MidCap and to the extent that credits get a little bit more challenged, but it's still performing company. There are first lien opportunities that can meet the yield range and sometime for AINV although those deals still remain somewhat competitive. Then there is the opportunities for companies that are more in distressed stage which either recap with balance sheet which is effectively there is an opportunity to subordinate lending that's within the assets, which is like a strategy that we're pursuing. There has been some of that done in a market recently and I know for all you guys who follow, you see Crystal Financial being a good example of somebody who does a good job with that and we would expect to take a bigger share of that across the platform and have a be part of those opportunities with our expertise and some asset liquidators, but the headlines are more than the opportunities right now, but we expect them to keep on coming.

Thank you.

Our next question comes from the line of Christopher Testa of National Securities.

Good morning. Thanks for taking my questions. Just curious just with the commentary obviously you guys doing more co-investments and having the ability to move more market and obviously take larger deal sizes, just wanted to get your thoughts on how sponsors are valuing certainty of close versus the bifurcated structure now that the loan market is rallied so much?

Yes, sure and I think you eluded, you touched upon a couple of the factors that are influencing that dynamic. Unequivocally the ability to what we value very highly flowing from this co-investment order is to be able to deliver that full solution, but maintain the proper granularity within the AINV fund and balance sheet. Certainly, at this moment in time, syndicated markets are very robust and a sponsor or a counterparty valuing uncertainty given how robust the syndicated markets is probably a little bit less then it otherwise would be, but as we all know, market ebb and flow and we think the ability to commit to the big transactions and should we see a lot sanguine syndicated market would catalyze even more opportunity for our origination platform and by extension AINV.

Right and would you say that a pickup in LBOs relative to obviously refinance given the recap etcetera is also going to drive more value from sponsors for that?

Traditionally yes because refinancing and dividends and the like is usually positively correlated with very strong markets, which is indicative of spread compression and to those tend to be a little bit more highly correlated. LBO activity traditionally has been where we see more opportunities more regular way and at attractive pricing.

Got it, great. And traditionally you guys have had a good chunk of the portfolio on non-sponsor that's gotten a lot of BDCs and some issues with non-accruals obviously. Just curious what your thoughts are on non-sponsor and the portfolio going forward, whether it's something you're avoiding completely or just kind of picking and choosing very selectively?

Yes, I would question this way, it's certainly with respect to the verticals that we've chosen to deemphasize. A lot of those were the non-sponsor and as we've laid out, those are the type of investments that we would seek to be less off in the future. Within the corporate book from time to time, there are non-sponsor transactions that themselves still have the characteristics of solid sponsor-led transactions and we may endeavor to close on those transaction, but really that's bifurcation of a lot of what we had done historically on the non-sponsor side had been in those verticals that we are deemphasizing.

But let me just add, if you look at our origination strategy, our origination in the leverage loan space is sponsors, that's how we're originating. So those are opportunities that Tanner talked about that are either larger right. So, they come through the overall platform where they're -- or they can be every once in a while something to the sponsor channel comes through that for example like a we got a deal recently where is a larger public company bought a U.S. company. And so that was the sponsor, but you would call that non-sponsor. So, I think you would view our focus on leverage finance that sponsored with only few exceptions. Our ABL business, clearly not, right. A lot of them no capital, but that's -- so Life Scientific again, they're not a private equity sponsor. They have Venture Capital, different category, but I think you're -- what you're driving at something like some of the other BDCs say they do sponsor transactions then I would put us mostly in that category.

Okay. That's great color. Thank you. And just wondering if there's any inclination of potentially lower the commitment size on the 2021 facility?

Not at this point.

Okay. That's all for me. Thank you for taking my questions.

You're welcome.

Our next question comes from the line of Ryan Lynch with KBW.

Good morning. You guys mentioned the $800 million debt financing to Westinghouse in which AINV took down about $40 million of that commitment. So that's about 5% of the total commitment. So, I just wanted to know, with the co-investment that you guys have across the platform, was there a reason that you guys only chose to participate in 5% of that loan? Is there something about that $40 million was the right size just because the 5% of the committed seem pretty small size for the co-investment.

Yes, and I think it really relates to what we're trying to do with respect to the positioning side within AINV. That determination was not made relative to what percentage of the commitment we were taking, but what that quantum translated to in terms of exposure within the BDC and hence $40 million felt like an appropriate exposure against our broader portfolio and reflects a very concerted effort on the management team's part to induce greater granularity in our position size that Howard eluded to in his prepared remarks. Average position size has declined to less than $30 million and we endeavor to try to the best of our ability to stay in more diversified and maintain a position size relatively lower than that which we had experienced shortly.

Okay. That makes sense. And then you guys had several quarters including this most recent quarter where you guys reversed incentive fees related to PIK, were those reversals in this quarter and prior quarters, were those mostly related to Solarplicity and should we expect any more of these reversals going forward.

So, it wasn’t all related to Solarplicity we had other PIK investments that PIK was not realized in the 13.2 over the last year. When you look going forward, we currently have $2.3 million accrued on our balance sheet for incentive on PIK securities. We do not at this anticipate not paying that, but we evaluated every quarter and we'll let you know going forward.

Okay. And then one on Glacier Oil and Gas company that used to be old Miller Energy, while is that investment still market part -- that investment the equity investment in their was down pretty meaningfully. So, I know that's a old legacy investment and that investment was restructured a while ago to get the capital structure correct but we still see some struggles at least from your guys equity position. So, can you just provide any update on what's going on with that business?

Sure thing. So, as you alluded to this is the former Miller Energy and it is our investment in Alaskan E&P company. We did restructure the company and in March of '16, the company went through a bankruptcy process. Since restructuring the company, we've been very focused on cost reduction efforts and consolidation of certain of the company's facilities. As you also alluded to rightly, there was that markdown in the particular quarter which reflected performance of a specific project. We continue to be optimistic relative to various other projects within the company and continue to support the investments accordingly but the specific write-down had to do with a specific performance of a project.

Okay. Thank you for taking my questions today.

Our final question will come from the line of Jonathan Bock of Wells Fargo Securities.

Good afternoon and thank you or good morning and thank you for taking my questions. Tanner a question on the Westinghouse purchase, I understand that the facility, to provide as it is getting worked out with the possible sale etcetera. Can talk to investors how you became comfortable owning the dip in light of the fact that there are the potential for governments, particularly state governments to perhaps have either tax liens or shall we say tax preferences for the brakes particular in South Carolina and Georgia that they provided Westinghouse that could in fact supersede the dip and become a form of liability that needs to be paid. Can you at least talk about how you manage that risk because I understand that was part of that transaction.

So, without going into all the way down the rabbit hole of all the detail, in the bankruptcy there is a super priority lien on a whole set of assets, which don't include the South Carolina plan, which include our receivables inventory and much of which is outside the United States. And so that pool of collateral putting aside what is significant going concern value of that business, it's situation to cover it. Without regard to the value of the things that the tax liens could potentially trump, even though there are some question of whether they would trump. So that's sort of the answer. Right, so on a going concern, first of all, the going concern value of the business is quite significant and even without that, the collateral value outside with the tax liens lie is enough to cover the loan.

Got it. Understand.

We're just wider loans in such demand, more than us.

Of course, that's very familiar with that and I appreciate the color. Then the next question is would you be able to give us a sense, this quarter of perhaps the amount of earnings benefits that came from prepayment call premium back end fee, something more onetime in nature as it relates to the repayment activity that you experienced, which happen to have a guesstimate?

Jonathan in my remarks we did speak to the prepayment and fee income and prepayment income was about $4.5 million of that.

Okay. So, the $4.5 million in call premium, thank you for that. So, the $4.5 million in premium related to prepayment and it's benefit, can you speak to future dividend coverage because as we start to model this in light of additional spread compression, we're getting a little closer to the to the pin, particularly if we start to assume that as NAV decline subside, the incentive fee obviously steps up a bit and allows for more cash to be drawn to the external manager. So, I understand that we're getting the benefit of these one-time items coming in today, but it still feels like we're kind of close to the line. So, Jim would you give us a sense of coverage in the future in the face of what we all know to be an extremely difficult environment, particularly one for purging your debt, which is providing yields that are needed to maintain coverage?

Well Jonathan, to catch your question, I think what we're trying to do here is we know what's important to our investors in terms of the strategy repositioning and making our $0.15 and we feel like as Howard mentioned, we were below our stated leverage what we set for in the marketplace. We were at 5.5 at the end of the quarter. Subsequent to that, we've been operating in a range of 0.6 to 0.7, which we're comfortably operating in right now. Tanner talked about the backlog. So, I don't think there is anything -- certainly there are sometimes, there is some seasonality with Merxs and other things in terms of dividends, or structured credit which we're relying on less, but I think that we as a management team are still comfortable realizing recognizing the compression yields that's out there right now our ability to make our dividend.

And so just let me add on fee -- on that fee line, obviously what you added is some level of non-recurring income from prepayment obviously over the course of the year there is, expected now, but what we didn't have a whole bunch of in the first quarter, which we will expect to have over a bunch of different quarters is syndication and underwriting fees. So, in our mind to look at what in this quarter was about $4.5 million to $5 million of total fees, to look at that and say that all nonrecurring I think would be wrong. The question really is over a year, what level of prepayment and syndication fees do you expect to earn and how does that spread over the quarter and so that puts to what Jim said. If you take us in our target leverage at our target yield with some not all, but some resolution of our assets that are not accruing and a steady level of fee income, but not heroic, we have room in our dividend and we're happy to spend more time in the model also obviously to go through that.

No. No, understand and again looked at recurring, nonrecurring etcetera to understand the long timeframe, it's always helpful to give the baseline and I definitely appreciate your response. And then most other questions other than a small tac on to either Mr. York or Mr. Joseph's question just it would seem that with the increased level of share repurchase that you've approved, that it could have been used as a tool to improve leverage slightly. I wouldn't have ensured Jim you and Apollo have opportunities equipped with great pipeline, of Westinghouse dip is a great loan, but I think that the delineation of using it to grow NAV versus also now using it to provide and bring you into leverage a bit more so that you don't feel under-levered relative to others. Is that a suitable alternative at today's prices or do you think that that's a consideration that you and the Board are making today?

Well it's nice to be considered lower levers than our peers, which maybe that wasn’t the case two years ago. So, I would throw that for a few weeks here. I think it's a tool. What I hope you feel that we're communicating is we feel there is real traction with our front-end origination and we think the pace of activity and the breadth of activity, they're not one-offs, they're not anecdotal. It's a stream. So, I think when you think about where we are in the world in 2017 and the macro wins, having a little bit less leverage right now is probably not a bad idea. If we really saw our pipeline dry up, we would probably be more focused on doing some share purchases with our capital to use that leverage, but I don't feel we think that's the case right now. And again, what would I am definitely seeing here and I think our strategy is pretty clear in terms of the non-core, getting that down in due course, but not fire selling, dealing with some of the legacy issues and the attributes of how -- what's on our portfolio like we're really comfortable right now. We would like to see -- we always like to see things happen sooner, but we're not going to do things that are non-economic just to get to a finish line. So, I don't feel the need to right now.

I think that's actually on par and I understand that oftentimes originations are significant episodic. So, thank you for that and thank you for taking my questions.

Excellent. Well first of all, as usual we really the state -- thank you operator. On behalf of the team, we thank you for your time and your continued support. Please feel free to reach out to anyone of us, Elizabeth, Howard, Tanner, Greg or myself and we look forward to next quarter's conversation. Thank you and have a great day.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.