MidCap Financial Investment Corporation 8.00% Notes due 2028 (MFICL) Q1 2012 Earnings Report, Transcript and Summary

Good morning, and welcome to Apollo Investment Corporation's First Quarter 2012 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Mr. Jim Zelter, Chief Executive Officer of Apollo Investment Corporation. Mr. Zelter, you may begin your conference.

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

Yes. Thank you, Jim. I'd like to advise everyone that today's call and webcast is being recorded. Please note that they are the property of Apollo Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our earnings press release. I'd also like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these statements and projections. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.apolloic.com or call us at (212) 515-3450. At this time, I'd like to turn the call back to our Chief Executive Officer, Jim Zelter.

Thanks, Rich. I'm going to go ahead and give some overall comments and then I'll pass it over to Rich and Patrick in accordance, and then we will go through questions and answer. But the quarter ended June 30, 2011, saw capital markets activity remain robust, overall. A variety of strong technical factors continued to drive near-record issuances in both the high-yield and leverage loan markets as investors continued their search for yield. The quarter also saw strong retail demand with inflows remaining steady into a variety of credit products. That said, by June, we saw overall investor -- investment demand stall as the capital markets grew more volatile with increased concern regarding the U.S. economic growth and the European sovereign crisis. At that time, even the brewing debate over the U.S. debt ceiling caused some initial angst. By the time the quarter closed on June 30, 2011, we saw yields on -- in our principal markup -- market back up by approximately 25 basis points from March 31. Accordingly, these technical macroeconomic factors generated a nominal mark-to-market decline in the NAV of Apollo Investment Corp. for the quarter. As a reminder, the benefits of investing in larger companies is offset by shorter-dated market volatility. We always seek to reward our long-term value investors, and those benefits also come with a need to understand the differences between a NAV impact from market volatility and interest rate changes and those from fundamental credit impairments. As we have since our IPO and in accordance with our Investment Company Act of 1940 obligations, when market quotes are readily available and are deemed to represent fair value, we use them. Again, it is important for AINV investors to understand the difference between quarter-to-quarter NAV movements affected by the volatility and changes in the yields on the capital markets and longer-term NAV movements from markdowns, reflecting expected or actual credit impairment. Now let me go over the quarter and some of the highlights for a moment. We were very active in the quarter. In total, we invested $836 million in 9 new and 10 existing portfolio companies. We also received prepayments totaling $570 million and sold select assets totaling $163 million during the quarter. Some of the more substantial portfolio highlights include the restructuring of our nonperforming investment in PlayPower, which we now control. Patrick will take you through some additional details later in the call, but we believe PlayPower's management team and its prospects to provide shareholder value over the long term. Other notable changes were the successful harvest and reinvestments in Asurion and Ranpak, 2 of our larger portfolio company investments during the quarter. Each company had generated consistently strong free cash flow, grew its earnings and had successfully delevered over the last few years. We were delighted to use our legacy positions to reinvest in those successful companies, companies that we have monitored closely for years and grew to know well. For Asurion, we were pleased to reinvest at a higher spread to LIBOR, as well as at a LIBOR floor, all while improving our attachment point and moving up the capital structure on average. For Ranpak, we chose to reinvest in the company at a lower blended yield but did so significantly higher up in the capital structure on average than our original investment. Ultimately in the June 30, our portfolio investments closed the quarter totaling $3.12 billion, measured at fair value and was represented by 72 distinct portfolio companies, diversified amongst 31 different industries. At June 30, 2011, the weighted average yield on our overall debt portfolio declined to 11.1% as compared to 11.6% at March, as the quarter saw our continued focus on principal preservation and risk-adjusted returns. Since the initial public offering of Apollo Investment Corporation in April of '04 and through June 30, our invested capital has now totaled over $8.1 billion in 155 different portfolio companies and transactions with more than 100 different financial sponsors. With that, Rich, why don't you take them through some of the financial highlights for the quarter?

Certainly. Thanks, Jim. I'll start off again with some June 30 balance sheet highlights. As we noted earlier, our total investment portfolio had a fair market value of $3.12 billion. This is up slightly from $3.05 billion at March 31, 2011. Our June 30 net assets totaled $1.91 billion with a net asset value per share of $9.76. This compares to net assets totaling $1.96 billion and a net asset value per share of $10.03 at March 31. The decrease in NAV for the quarter was driven primarily by net realized and unrealized depreciation on our investment portfolio. During the quarter, we restructured our nonperforming loan in PlayPower and realized a loss of approximately $60 million. This realization reversed out a previously recognized unrealized loss of $58.7 million, as reported from March 31, 2011. As such, the net impact from this restructuring was minimal for the quarter. Positive contributors to performance for the quarter included our investments in Pro Mach, Penton Media, U.S. Renal Care, Asurion and Delta, among others, while unrealized depreciation was primarily generated from our investments in TL Acquisitions, Cengage, PlayPower, AIC Credit Opportunity Fund, Ceridian and inVentiv Health, among others. On the liability side of our balance sheet, we had total debt outstanding of $1.25 billion at June 30 compared to $1.05 billion at March 31. Therefore, the company's leverage ratio at June 30 ticked up to 0.65:1 debt-to-equity compared to 0.54:1 at March 31. No new investments were placed on nonaccrual status during the June quarter, and with the restructuring of our investment in PlayPower, our portfolio of 72 companies now has one investment on nonaccrual status. That's Grand Prix Holdings, and that's down from 2 last quarter. This one investment represents 0% of the fair value of our investment portfolio at June 30 versus the 2 investments representing 1.8% at March 31. On a cost basis, the one investment represents 3.0% of our investment portfolio at June 30 versus the 2 investments representing 6.5% at March 31. As for operating results, gross investment income for the June 2011 quarter totaled $94.6 million, a marginal decrease from $94.7 million for the quarter ended March 31, and up from $78.2 million for the comparable June 2010 quarter. Expenses for the June 2011 quarter totaled $46.9 million. This compares to $44.7 million for the quarter ended March 31 and $37.4 million for the comparable June 2010 quarter. Ultimately, net investment income totaled $47.7 million or $0.24 per average share. This compares to $50 million or $0.26 per average share for the March 2011 quarter and $40.8 million or $0.22 per average share for the comparable June 2010 quarter. Also during the quarter in June, we received proceeds from the sales of investments and prepayments mentioned earlier, totaling $733 million. Net realized losses totaled $45.9 million. Again, as mentioned earlier, these were primarily related to the realization of previously recognized unrealized losses on our investment in PlayPower and partially offset by net realized gains received from a combination of several sales of other select investments. These quarterly results compare to a net realized loss of $1.6 million for the March 2011 quarter and net realized gains of $3.9 million for the June 2010 quarter. The company had a change in net unrealized depreciation of $1.7 million for the quarter ended June 30, 2011. This compares to net unrealized appreciation of $63.6 million for the March 2011 quarter and net unrealized depreciation of $129 million for the comparable June 2010 quarter. In total, our quarterly operating results increased net assets by $0.1 million or $0.00 per average share versus an increase of $112.1 million or $0.57 per average basic share for the March 2011 quarter and a decrease of $84.3 million or $0.45 per average share for the comparable June 2010 quarter. Now let me turn the call over to our President and Chief Operating Officer, Patrick Dalton. Patrick?

Thanks, Rich. The June 2011 quarter was one of our most active quarters in our over 7-plus year history. As Jim noted earlier, we invested in 9 new portfolio companies, as well as in 10 existing ones. On a gross basis, these investments totaled $836 million. We also received proceeds from select sales, prepayments and other exits, totaling $733 million or a positive net investment of $103 million for the quarter. This unusually high volume of activity reflects what we believe is a combination of improved market opportunities for us, as well as a healthy and growing pipeline. It also includes the successful prepayments for and reinvestments in Asurion Corporation and Ranpak Corporation, 2 of our larger portfolio company investments, as well as the restructuring and reinvestment of PlayPower that Jim noted earlier. Our other activity reflected significant new deal closings and our ongoing portfolio optimization and rotation strategy, which we expect will ultimately garner incremental yields while continuing our focus on risk-adjusted returns. Let me take you through more specifics of the portfolio activity. Investments were made in the following new [ph] portfolio companies: Sensus USA, Wall Street Systems, British Car Auction, Burlington Coat Factory, Clearwire Communications, inVentiv Health, Kindred Healthcare, SeaCube Container Leasing and Texas Competitive Electric Holdings. Of these investments, some of the larger investments included $160 million in the senior notes of inVentiv Health. inVentiv Health, a TH Lee portfolio company, is a global provider of outsourced services to the pharmaceutical, life sciences and healthcare industries. We also invested $50 million in the senior unsecured notes of SeaCube Container Leasing. SeaCube is one of the world's largest container leasing companies. Another $50 million was invested in Texas Competitive Electric senior secured notes. We also invested $55 million U.S. dollar equivalent in British Car Auctions’ holding company notes. British Car Auction, a CD&R portfolio company, is a leading provider of used vehicle remarketing services in Europe. Other larger investments included $25 million in both the second lien bank debt of Sensus USA and Wall Street Systems. Sensus USA is a provider of advanced utility infrastructure systems, while Wall Street Systems is a market leader for treasury management, central banking and FX trade processing solutions. Investments in existing portfolio companies were made in the following names: Advantage Sales & Marketing, Asurion, Ranpak, Avaya, Exova, Intelstat, PlayPower, TL Acquisitions, U.S. Food and U.S. Renal. Of these names, some of the larger investments include $151 million U.S. equivalent in the first and second lien bank debt of Ranpak. Ranpak, an Odyssey Investment Partners portfolio company, is a provider of paper-based protective packaging systems. Coinciding with this investment, our $81 million position in the holding company PIK notes was repaid at a premium to par. Our existing positions in second lien bank debt were also redeemed at par. As noted earlier, PlayPower Holdings underwent a comprehensive restructuring this quarter, in which the existing holding company notes and bank debt were converted into common equity and operating company notes. We made an additional $45 million investment in PlayPower to a mix of new holding company notes and additional common equity. Through this restructuring, we now control PlayPower and hold $35 million of notes in connection with the restructured investment. PlayPower is a provider of traditional playground and container play systems. A $114 million investment was made in Asurion second lien bank debt, replacing the $115 million harvest from this refinancing transaction. Asurion is the world's largest provider of wireless phone handset protection insurance. Lastly, we invested $30 million in additional senior subordinated notes of U.S. Renal as part of a recapitalization of this dialysis service provider. Now let me go through some general portfolio statistics at June 30. We continue to be well diversified by issuer and industry with 72 portfolio companies invested in 31 different industries. The company's total investment portfolio had a fair market value of $3.12 billion, which was comprised 32% in senior secured loans, 57% in subordinated debt, 1% in preferred equity and 10% in common equity and warrants measured at fair value. The weighted average yield on an overall debt portfolio at our cost at June 30, 2011, declined to 11.1% as compared to 11.6% at March 31. The weighted average yields on our subordinated debt and senior loan portfolios were mixed at 12.3% and 9.2%, respectively, at June 30, 2011, versus 13.1% and 9%, respectively, at March 31, 2011. At June 30, the weighted average EBITDA of our portfolio companies continues to exceed $250 million, and the weighted average cash interest coverage of the portfolio remains over 2x. The weighted average risk rating of our total portfolio was 2.3 at June 30. That's unchanged from March 31 measured at cost and is rated 2.0 measured at fair market value at June 30, up from 1.9 at March 30, 2011. While our June 2011 quarter was an extremely active one for us, we believe our investment pace will likely remain highly variable. And with the perceived global sovereign debt crisis unresolved, we believe volatility and uncertainty will continue to affect the global capital markets. These market conditions could create substantial investment opportunities for Apollo Investment Corporation. Therefore, our pipeline is active, and it continues to grow. We also continue to be pleased with the performance of our existing overall portfolio. Together, we believe our emphasis on principal preservation in risk-adjusted returns will serve investors well. Lastly, we expect to continue with our portfolio optimization strategy, at least in the near term. We also expect such strategy will initially generate modestly lower earnings before then yielding higher earnings over time, as such sales proceeds are redeployed in higher-yielding assets as we seek to grow our balance sheet. In closing, we'd again like to thank all of our investors in Apollo Investment Corporation for your continued and long-term support and confidence in us. With that, operator, please open up the call to questions.

[Operator Instructions] Your first question comes from the line of Sanjay Sakhrani with KBW. Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc.: I was wondering, Patrick, if you could just talk about how much of that portfolio is out there to optimize. And just in terms of that timing comment you just had, could you just elaborate that on -- elaborate about that a little bit? And then secondly, just the pipeline of investments that you have currently, I mean, how robust is it and kind of what the pricing is?

Sure. On the portfolio optimization strategy, we're constantly looking at what we believe are, first, it's really about credit, number one; about yield, number two; and about duration, number three. So obviously, if we think there's a credit either opportunity for us to rotate out of something that’s performing fine but something could perform better, we'll do that. If we think that we can maybe mix from either fixed to floating or floating to fixed depending upon our view on rates, we will do that. Looking at the curve and looking at when we expect rates to rise, and we don't think it's a near-term opportunity when rates will rise, but we're going to make sure we’re positioned defensively, if they do rise over time. We think that there is -- because of some investments we made a couple of years ago, where there were no LIBOR floors and -- but the credits are performing very well, we can maybe get out of those investments at or above our costs, at or above our mark and redeploy that capital in either the primary market or some more complex credits like a day like today might provide. Obviously, we want to stand ready with additional capital, and we look at the portfolio having liquidity, existing investments that we could recycle. We've got a target list. We update that list daily for both buys, sells and holes. We got traders who are very active in the markets across our fund and many other funds, giving us color and context to what opportunities are out there. So it’s a dynamic process, one that we, as a management team, sit around and talk about every day. We get the portfolio liquidity announcements everyday and that's really something we're going to continue to look at. But again, credit, yield and duration. From a timing perspective, right now, we're in August. Our pipeline is active. We certainly think that in a market like today, the seasonal cyclicality of investments -- usually August is a slower period so we're really looking at investments in our pipeline for new issue, they’ll probably come in the fourth quarter or at the end of last quarter post-Labor Day. We don't know which ones will close. We don't know which ones will be pushed back. We don't know if the current state of the equity markets will delay some closings. But that generally provides more opportunity from us -- for us. Where Wall Street turns [ph] we're prepared to backstop and price deals in the public high-yield markets or second lien markets. We're seeing many, many more sponsors coming to folks like us looking for a certain permanent solution to an acquisition that they'd really like to make. Having said that, the markets are more dynamic than they've been in a long time. You’ve seen what's happened in the equity markets down 9 out of the last 10 days. Today, it's a pretty dramatic movement in the marketplace. We look at that as opportunity. That's why want to make sure we have access -- access to excess capital both from the revolver that's unfunded plus liquidity in our portfolio. We're not a panicked buyer, we're not a panicked seller, but really -- we think our primary market opportunity for new issue will be strong as we get into the fourth quarter, albeit the economic backdrop will determine when deals actually close, and we can't determine that. Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc.: How about repay rates? I mean, do you feel like you're going to have a strong quarter of repayments again this quarter? Or are those lonely [ph]?

We definitely have seen a significant slowdown in that. I think the issuers that were performing well enough and took advantage of the credit markets that have been opened for the last year before we get into the summer. The markets were very robust and most people had the opportunity to have done so opportunistically refinancing in their capital structures like in Ranpak or Asurion because they've done well through the cycle. We think that the repayments will probably come more from M&A transactions where, a, there's a change of control, and then they'll pay us back. We don't know which ones that will affect. We definitely have companies in our portfolio that could sell themselves. That's really not up to us but we've definitely seen a dramatic slowdown. We wouldn't expect the last quarter kind of activity to occur. We think we've gotten most of that behind us.

And Patrick, Sanjay, I just had one thing. Patrick, if you think about last quarter, can you just sort of distinguish between the headline numbers and what we think about -- really, when we think about what we really invest because I think, Sanjay, this may be hopeful because, obviously, there's the headline numbers of all the activity, but some of it was just in and out refinancing and I would really differentiate debt from what we think is the core activity.

Yes, that's a very good point, Jim. And we see a number like $836 million of gross investments, really comprised of 3 buckets: One is we're new investment opportunities, ones that we looked at, we wanted to buy, we were looking at our excess capital to invest in, and that was about $450 million. That's really kind of on a like-for-like basis, $450 million. We did between Asurion and Ranpak. That makes up another $260-ish million of kind of in ins and outs, which are just going into the same company, a different refinancing event. And then the restructuring of PlayPower made up the balance and then a couple of other ins and outs. Really on a core basis, it's about a $450 million kind of net new investment pace for the quarter. Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc.: Great. One other final follow-up question, just on the economy. I mean, is there anything that you're seeing in the portfolio that leads you to be concerned about the same things the broader equity markets are concerned about?

Yes. From our portfolio perspective, we do have a slight lag between the financial statements that we receive as investors than what we put into our financials because companies have time as well post-quarter, but we're in constant dialogue. I think what we've commented on, at least the last couple of quarters, we definitely have seen -- pleased that revenues have grown consistently since March of '09, EBITDA has grown consistently since March of '09 in general for the portfolio. The rate of increase between revenue and EBITDA. Revenues are growing a little bit faster than EBITDA. We think that comes mostly from inflation on the cost of goods sold lines for our portfolio companies, but we're pleased, based on the information we have to date, that in general, the portfolio continues to grow. We think it’s hopefully the companies we've chosen. We're not sitting here expecting that we need growth to pay us back. If it goes sideways for a time, that's fine, but we haven't seen any profound trends reversing that, albeit we are looking at the markets every day. We see what's going on with the ISM manufacturing and services data suggesting that the economy is growing but at a slower pace.

Your next question comes from the line of Rick Shane with JPMorgan. Richard Shane - JP Morgan Chase & Co: Following the most recent quarter, leverage is up sort of back to the normal range. You have a reasonable pipeline. Stock is actually now trading below NAV, so equity issuance becomes more problematic. Where do you feel comfortable in this environment taking leverage? And does that start to enter into your capital deployment plans at this point?

It does. It's a good question. I think that we are going back with the 7 years, we've gone anywhere from like 0.45 to 0.85. We're sort of in the middle right now. I think what we're seeing is we don't have the intention of raising equity right now. I think there's things in our book that in a new capital deployment area, which we believe we're right in the middle of right now, there's better ways for us to optimize our portfolio, add a new name and optimize it with something else. So with the goal of really making sure we're thoughtful and pragmatic with capital, it's probably better for us to increase the overall yield on our existing portfolio and then grow in a steady pace. But we're not anxious to do things that would cause us to have to go out and raise equity tomorrow. Richard Shane - JP Morgan Chase & Co: Got it. Okay, that's helpful. And given your unique approach to the market, which is really partnering almost as an alternative to 144A type deals, I suspect given the depth of your relationship with the sponsors, you have less -- you have almost more uncertainty about what the pipeline will look like. You don't know if your sponsors are going to win, but given the relationships, if they do, you have a strong level of commitment to funding those investments. Does that create a greater degree of risk? Or how do you manage that?

Yes, for us, Rick, we have -- we go to market with a dual coverage model, which is we cover both the Wall Street firms, who are across all sponsors and all auction opportunities, given what products they can provide, high yield. They can provide mezzanine on a placed basis. They can provide second lien, so we're constantly in the market every day seeing deals originated by Wall Street firms. We're also covering sponsors directly. Many sponsors come to us directly, and even if the deal is either finally funded through a Wall Street firm or sponsored direct, there's a sponsor on the back end of it, so we must be in a good dialogue and have a relationship. That's why we get preferred allocations. We get larger bite sizes. We want to make sure we're tracking everything, and if a deal does get done in a hot market at a rate below where we think is required, those opportunities can come back to us in a market like today. When the markets trade off and all of a sudden, that 9% yield becomes 10% or 11% or 12% and it becomes accretive, we can buy it later. So we want to make sure we're looking at all things. It does make maybe the lumpiness there. We've always talked about that. inVentiv Health is a great example where here's a company with existing 144A notes looking to make an acquisition. We worked with TH Lee for over 6 months. They liked our private solutions, which we could provide them across a longer period to get their acquisition done. That has a lot of benefits in various [ph] sponsors. We're seeing that continue with the dialogue on other opportunities. But that's why our pace is going to be variable. But if we spend that much time and find those kind of attractive opportunities, $160 million investment in one name is really well, well documented and well structured and well diligent, that's going to be part of our business model. But if it gets done by Wall Street, we can either, if it's at a place we like it, perhaps buy it from them and have liquidity, which is a nice risk enhancement or credit enhancement, or if we choose not to buy it on the break, perhaps in a market like today it becomes an opportunity and we've done that too. So we want to see as much as we can. And really, the opportunities in different markets come from different sources, Rick. But that's why we never can give you perfect guidance as to what the pace is going to be.

Your next question comes from the line of Troy Ward with Stifel, Nicolaus. Troy Ward - Stifel, Nicolaus & Co., Inc.: Real quick, a couple of questions on the income statement. I know in the 10-Q, you outlined some higher expense related to professional fees. Legal fees and professional expenses netted out to about $3.5 million. Can you kind of give us a little bit of clarity for modeling, what was that related to? And is that something that may pop up again in the future?

Troy, this is Rich. What we tried to do is really point you guys to the MD&A and that expense section and what those are, and those were indeed legal and professional fees. And we did -- we're very deliberate in noting that they're nonrecurring to help you with your modeling going forward. But we really can't go into each of the line items on the P&L and break that out. Those are moving around as well as we look at various things or do certain things with our business. Troy Ward - Stifel, Nicolaus & Co., Inc.: Okay, fair enough. And then one last one, similarly though in the income statement. Obviously, there was a reduction in the investment adviser due to a prior payment of unearned portions, what it says in the MD&A. Is there something we need to adjust in our models with how we're calculating the investment fee going forward for this adjustment?

No, Troy. Everything is as is, and you don't need to adjust your model.

Your next question comes from the line of John Stilmar with SunTrust.

Just really quickly, I think we've touched on this earlier, and this kind of goes back to Rick's point earlier. You've identified Wall Street and sponsors as really kind of the 2 core parts of your business. And with all due respect, this could be a layup answer, right, but the surety of capital, how does that actually flow through, at least, in terms of the types of the conversations or the changes in types of products that you're actually able to provide today? For instance, bridge financing, are you able to now backstop larger deals that banks are probably a little more skittish with because they don't have the exit of capital markets? And how does that shape the types of opportunities that we should start to look for coming out of your portfolio? Because, as you talked about, having capital and volatility is really a good thing for your business. I'm trying to put a little bit more of a ring fence around what might some of those opportunities start to look like other than clearly doing things like secondary market activity. Just curious, if you could maybe describe for me the types of opportunities you're seeing today and how that might fit with the current market conditions.

Sure. Being careful -- and I'll talk about this quarter but I think there are names in our portfolio, whether it was the Altegrity, inVentiv, SeaCube. Those are all names that, that business model that you espoused and we certainly argue is the key to our business model. We think that it's going to be, as we sit right here right now, a large if not predominant portion of our activity going forward in this environment. The reality is there was a very fluid bridge loan commitment marketplace by banks over the last 6 to 12 months. I would say that in the last 6 to 7 weeks, you've seen a dramatic tail off in the desire to make those commitments. And when there's a tail off and a desire to make those commitments, that vacuum is filled by us and, candidly, some of our very large peers. So we look at the high-yield market as hundreds and hundreds of buyers. We look at the private high-yield market and the mezz market as a handful of buyers. And it's that supply-demand dynamics that we think is good for our business, and over time, with a thoughtful approach, will allow us to get our average yield on our portfolio in the right direction in a positive manner.

And John, one of the things that as we look at the bridge loan, that's really a new market opportunity that didn't exist a couple of years ago. I mean, really, it was post the cycle, banks seeing the downside of underwriting too much risk and not looking to offload some of that risk, so that created a bit of a market opportunity for us to get involved early with good companies, do a lot of work, choose to get -- backstop the transaction only required to fund that if it gets funded at the caps or the high yields that we want. If it gets done at a lower yield in the market, we have the option to buy it or not, and so that's a nice place for us to be. But it really starts with -- these are companies that we want to own at a certain price. If the high-yield market's hot and second lien market's hot, they get done cheaper, that's fine. We’ll have already done the work. We’ll put it into our library of information so that if it does trade off at some point in the future, we have a credit view. But that's really a new phenomenon. We expect that's something that's going to continue.

Okay. And then in terms of the velocity, that velocity is increasing pretty dramatically. Is there some sort of parameter that you can kind of put towards the level of those conversations other than saying it's an opportunity?

When you see the high-yield market -- last -- 2 weeks ago, it was a $10 billion week, but really, it was $5 billion -- or $3 billion to $5 billion from HCA and a couple of others. I think you'll see that activity trail off dramatically. When that trails off dramatically, those acquisitions really only have one place to go.

We’d rather have them come direct to us and we capture the fees and the yields and we can underwrite the transactions or we can structure the document. That's great for business. If the higher market's hot, we can then participate at a different level and have that in our library for when the markets dislocate like they could do on any given day.

And inVentiv is probably one of the examples of that, I would say, this past quarter, correct?

That's exactly right, but this is a deal that we've been working on for over 6 months. It's not like it just came up. It's -- we were involved, we've covered TH Lee very closely. They were making a strategic acquisition, and it took some time for that transaction to close. Wall Street maybe wasn't prepared to provide that level of commitment in partnership that we were, and that's why we won that transaction, and we look forward to the investment horizon.

Your next question comes from the line of Jim Ballan with Lazard Capital Markets.

I'm all set for now.

[Operator Instructions] Your next question comes from the line of Joel Houck with Wells Fargo.

You have disclosed what your weighted average yield was on new investments in the quarter?

We generally don't disclose the weighted average yields on the quarter but you can see the quarter's impact. We were -- we made some really nice investments back in 2007, '08 and '09 that were at discounts in secondary markets that were dislocated. U.S. Food's a good example. We approached that at a significant discount. Yields on that, given the price we paid, were in the mid-teens level and when that pays us back, even though it paid us back at a significant premium, that has seen some downward pressure. The redeployment of capital definitely was closer to the weighted average yields you see in the portfolio now versus some of the deals that were taken out.

Yes. I mean, we don't have the perfect information, Patrick, but we put the largest investments in here. It looks like we're coming out to a mid-9% yield, but we don't see all the floors from some of your floaters. But I guess I'm wondering how we should think about second lien sub-data at a mid-9% perhaps low double-digit yield relative to where we were. I mean, watching you guys -- the capital you put to work this quarter and in kind of last quarter, I mean, how does that kind of support the dividend yield that you have right now when you consider fees and everything else, the operating expenses that kind of dilute that gross yield?

Look, I think your number is a little bit light from your -- just given some of the floor and some of the other OID that we were -- we've gotten in the transactions. We're looking for the best risk-adjusted returns. We want to make sure that our portfolio's positioned should rates rise. Our view is not going to be immediate, so we like to balance our portfolio to the extent that we can have the right risk-adjusted return. We're not going to stretch the yield, though. We think that, fundamentally, that is a big mistake. If in a market that's very, very robust, you're getting deals in the mid-teens level, you're probably taking more equity risk and there's real principle preservation at risk there. And on balance, if we can get something that has an opportunity to increase its yield over time as rates rise with the LIBOR curve going up in just a couple of years from now, that may be a better place to be. These can be liquid securities, so we can use them from an optimization perspective if yields do rise elsewhere. But we're looking at best opportunities in the marketplace. And each deal we do on a weighted average cost and a marginal cost to us, we want to make sure it is, in fact, accretive. But we think that looking at short term, trying to stretch for yield in a very robust market was not the right thing to do at the June quarter.

Okay, good. And then last question, were there any properties that you traded in and out during the quarter like Del Monte last quarter?

There were a couple of transactions that we were -- very, very small, that we were perhaps backstopping a bridge commitment, the deal's done, the bonds traded up well. We got a little more incremental fee, but that's not the really fundamental part of our business. If the market gives us that opportunity, we'll certainly take that, but it's really de minimis.

Okay. Then maybe comment on what you've kind of seen in the secondary market here, kind of in real time this week and last week, as we've seen kind of -- obviously, we can see what the equity market's done but maybe some insights into the secondary market that you guys look at every day?

Look. We'll let you know next quarter and what we did but it’s something we’re going to deal with each day.

I think there's a growing market cynicism right now, and real time certainly, a lot of eyes were on Europe with what's going on. So I mean, certainly, credit is a bit wider in the last week, in the 10 days. It is pretty thin right now. It's gotten to be a quiet time of the year, so you are seeing some air pockets. Certainly, there's not a lot of leadership and you're seeing it, something in the equity market where some companies are doing well and beating earnings and the equities or other securities are traded down. So if there's no -- we are in the middle of a dislocation. There's no doubt about it, and certainly, our portfolio, we feel it's held up very -- in a robust manner. But certainly, there were discussions a few weeks ago that if we had to reprice those today, it would be a bit higher.

Yes, I think, and my comments in our script, the optimization strategy over the near term, we think that potentially the secondary market opportunities may be there for us. A week from now, it could be different. These are very dynamic markets, Joel, so there really isn't a trend yet emerging. But we are opportunistic. We've got folks who are in these markets everyday giving us good information, really focusing on the fundamentals first. If we can get something at a reasonable rate that's good for us, we'll take advantage of it.

That was our final question. And I'd like to turn the floor back over to Mr. Zelter for any closing remarks.

Well, once again, we appreciate everybody's attention and questions today. Always important to have a dialogue with our broad shareholders. We appreciate it, and we look forward to talking to you next quarter. Thank you.

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