Apollo Investment (AINV) Q2 2019 Earnings Conference Call Transcript

Apollo Investment (AINV -0.07%)
Q2 2019 Earnings Conference Call
Oct. 30, 2018 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to the Apollo Investment Corporation's earnings conference call for the period ended September 30, 2018. [Operator instructions] I will now turn the call over to Elizabeth Besen, investor relations manager for Apollo Investment Corporation.

Elizabeth Besen -- Investor Relations Manager

Thank you, operator and thank you, everyone for joining us today. Speaking on today's call are Howard Widra, chief executive officer; Tanner Powell, president and chief investment officer; and Greg Hunt, chief financial officer. I'd like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of Apollo Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited.

Information about the audio replay of this call is available in our earnings press release. I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements. Forward-looking statements involve risks and uncertainties, including, but not limited to, statements as to our future results, our business prospects and the prospects of our portfolio companies.

You should refer to our 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've posted a supplemental financial information package on our website, which contains information about the portfolio, as well as the company's financial performance.

As requested by a number of our shareholders, we have added a new slide to the package, Page 11, which provides more information on the assets originated since mid-2016. At this time, I'd like to turn the call over to Howard Widra.

Howard Widra -- Chief Executive Officer

Thanks, Elizabeth. I will begin today's call by providing a brief overview of our financial results for the quarter followed by a review of the execution of our portfolio repositioning strategy. I will then discuss a couple of other important announcements from today's press release. Following my remarks, Tanner will discuss the market environment, our second-quarter investment activity.

I will then provide an update on credit quality. Greg will then review our financial results in greater detail and will also provide an important update about the amendment to our credit facility associated with our plan to prudently increase leverage. We will then open the call to questions. Beginning with our financial results, net investment income for the quarter was $0.15 per share.

Net asset value per share was $6.47 at the end of the period unchanged quarter over quarter. During the period, our investment activity focused on senior first-lien secured floating rate loans sourced by Apollo's direct origination, utilizing our ability to co-invest with other capital managed by Apollo. Importantly, nearly all of our deployment during the period had a lower risk profile that we were targeting as we prepared to prudently increase our leverage. For example, the weighted average net leverage of originated corporate loans made during the quarter was 4.8 times, within our target leverage ratio of four to five-and-a-half times for incremental assets.

Repayment activity was robust and accordingly, net investment activity was negative $172 million and net leverage at the end of the quarter was 0.68 times. Moving to an update on our portfolio repositioning strategy, when I joined AINV a little over two years ago, we began a process of reducing assets that we designated as noncore, with the goal of gradually shifting the portfolio into senior secured loans sourced by Apollo's direct origination platform. Our objective was to design a portfolio that would have a lower risk profile. At that time, we had recently received exemptive relief to co-invest with other funds managed by Apollo, which we said would allow us to build a portfolio of granular position, while participating in larger deals, which are generally less competitive.

In the coming years, we expect to continue to execute against this strategy. Page 11 in the earnings supplement include some detail on the corporate lending portfolio that has been originated since I joined AINV in mid-2016. At the end of September, approximately $1.1 billion or 81% of the corporate lending portfolio is in corporate loans originated since I joined AINV. Drilling into those loans a bit, 53% of first-lien loans, more importantly deployment activity is skewed more toward first lien loans in the past 12 months as we seek to invest in more senior assets ahead of our reduction in our asset coverage requirement.

If you look at just the past 12 months, 81% of our deployment has been in first lien. Of this $1.1 billion, 100% are floating-rate loans excluding a few small equity co-investments. 62% of the $1.1 billion are investments made pursuant to our co-investment order. The average borrower exposure is $15.7 million, well below the average of the rest of the portfolio, which demonstrates our focus on building a more granular portfolio.

The weighted net leverage of the $1.1 billion of corporate lending average is 5.3 times, with first-lien loans at 4.5 times and second lien at 5.8 times. The weighted average credit of these assets is approximately 755 basis points, with first lien at 670 basis points and second lien at 855 basis points. Moving to the other announcement in today's press release, our board has approved a one for three reverse stocks split, which will become effective as of close of business on November 30th. AINV is expected to begin trading on a split adjusted basis at the market open on December 3rd.

We believe that a higher nominal stock price from the reverse stock split will attract a much broader universe of investors and reduce the volatility of our stock. We are also pleased to announce that our board has increased our share repurchase authorization by $50 million, having nearly completed $150 million prior authorization. We consider stock buybacks below NAV to be a key component of our plan to deliver value to shareholders. Since the inception of our share repurchase program and through the end of September, stock buybacks have added approximately $0.15 to NAV per share.

Turning to our distribution, the board has approved a $0.15 distribution or a $0.45 distribution adjusted for the one for three reverse stock split to shareholders as of record as of December 20th, 2018. With that, I'll turn the call over to Tanner to discuss our investment activity.

Tanner Powell -- President and Chief Investment Officer

Thank you, Howard. Beginning with the current market environment, the private debt market remains highly competitive, primarily due to the tremendous amount of capital being raised for direct lending. This capital formation has led to the continuation of a highly competitive, borrower-friendly market, where most deals continue to have aggressive structures and pricing. Against this market backdrop, we believe larger credits remain the best risk-adjusted return opportunities because there are significantly fewer layers who can commit to larger deals.

We're focused on opportunities that capitalize on Apollo's scale and areas of expertise that can also take advantage of our ability to co-invest with other capital managed by Apollo. Turning to our investment activity, excluding revolver deployment for prior commitments and also excluding the sale of a new loan, which I will discuss shortly, we funded approximately $153 million during the quarter. The weighted average yield on debt investments was 9.5%, 100% of investments made within our core strategy, 100% were floating rate, 97% were first lien and 96% were investments made pursuant to our co-investment order. As Howard mentioned, although the reduction in our minimum asset coverage ratio is not yet effective, nearly all of our deployment during the quarter was consistent with a reduced risk profile.

Regarding the previously mentioned sale, deployment for the quarter included a commitment to, which is above our target hold size. Post-close, we sold down $132 million of our exposure to an already identified third-party generating syndication fees and achieving our desired final hold size. As we said before, we believe that our ability to co-invest with the broader Apollo platform improves our competitive positioning by allowing us to compete more based on size and certainty of execution rather than just on price. Co-investment activity during the quarter included Reddy Ice, FiscalNote and Florida Food Products, among other investments.

Sales totaled $163 million, primarily driven by Reddy Ice -- the Reddy Ice syndication. In addition to -- in addition, repayments excluding revolver paydowns totaled $295 million, consisting of a $47 million repayment from Merx Aviation and $248 million of other repayments. Notable other repayments included Skyline Data, Unitech Global and Westinghouse among others. The weighted average yield on debt sales was 10.1% and the weighted average yield on debt repayment was also 10.1%.

Post-quarter end, our $80 million investment in U.S. Security was repaid, eliminating our remaining exposure to unsecured debt. Now let me spend a few minutes discussing overall credit quality. No investments were placed on or removed from nonaccrual status.

At the end of September, investments on nonaccrual status represented 2.6% of the portfolio at fair value and 3.2% at cost. Our investment in Crowne Automotive had a writedown during the quarter due to the company's underperformance and is currently actively being reworked. AINV's participation was part of a larger commitment made by the Apollo platform. Moving on, the risk profile of our portfolio as measured by weighted average leverage and interest coverage for our portfolio of companies was relatively unchanged compared to the prior quarter.

The current weighted average net leverage of our investments decreased to 5.5 times, down from 5.6 times. The current weighted average interest coverage remained at 2.3 times. With that, I will now turn the call over to Greg, who will discuss financial performance for the quarter.

Greg Hunt -- Chief Financial Officer

Thank you, Tanner. Our revenue for the quarter was $66 million, up 3.8% quarter over quarter primarily due to a higher average portfolio, as well as higher prepayment income, partially offset by lower dividend income. Recurring interest income rose primarily due to a higher average portfolio and rising LIBOR. Dividend income decreased quarter over quarter due to a lower dividend from Merx and MC.

Prepayment income was approximately $3.6 million in the quarter compared to $900,000 in the June quarter. Fee income was up slightly quarter over quarter, and expenses for the quarter were $33.9 million, up 5.7% quarter over quarter, primarily due to higher interest expense, slightly higher G&A, partially offset by lower incentive fees. Interest expense increased due to an increase in the average debt balance and a movement in LIBOR. The incentive fee rate for the quarter was 15%.

As a reminder, the incentive fee rate will be 15% through December 31, 2018. Incentive fees decreased quarter over quarter due to a reversal of approximately $1 million of incentive fees associated with PIK income from an investment in carbon-free chemicals. Net investment income was $32.2 million or $0.15 per share for the quarter. This compares to $31.5 million or $0.15 per share for the June quarter.

The net loss in the portfolio for the quarter was $4 million or $0.02 per share compared to a net loss of $18 million or $0.08 per share for the June quarter. Negative contributors for the quarter included our investment in Crowne and Glacier Oil and Gas, among others. Positive contributors for the performance for the quarter included our investments in Spotted Hawk and Merx Aviation. Net assets per share was $6.47 at the end of the quarter, unchanged quarter over quarter.

Turning to portfolio composition, at the end of September, our portfolio had a fair value of $2.3 billion and consisted of 98 companies across 25 industries. First-lien debt represented 57% of the portfolio, second-lien positions represented 27% of the debt portfolio, unsecured debt and structured products were 3% each, and preferred and common stocks represented 10%. Weighted average yield on our portfolio at cost remained at 10.7% as the impact from rising LIBOR partially offset -- was partially offset by lower yields on new investments. On the liability side of our balance sheet, we had $946 million of debt outstanding at the end of the quarter, including the $16 million of Series B senior secured notes, which matured and were repaid on October 1st.

Our net leverage ratio sit at 0.68 times at the end of September compared to 0.78 times at the end of June. Regarding our funding plans for the reduction in our asset coverage requirement, we are pleased to announce that under our credit facility, which is being amended and extended, we have received $1,590,000,000 of total commitments, an increase of $400 million for both new and -- from both new and existing lenders. The amended facility lowers the asset coverage ratio requirement from 200% to 150%. This amendment follow the passage of The Small Business Credit Availability Act in March and our board's adoption of the lowered asset coverage requirement, and will provide a significant capital base to deploy in the senior secured assets.

There will be no change to the borrowing cost in connection with the amendment. We greatly appreciate the support from our lending syndicate in this important amendment to our facility, which allows us to continue to deploy assets in the first-lien securities de-risking our overall, portfolio. We expect the amended facility to close in early November. Lastly, regarding stock buybacks, during the period, we purchased approximately 2.9 million shares at an average price of $5.61 for a total cost of $16 million during the quarter.

Subsequent to quarter end, we repurchased another half a million shares at an average price of $5.49 for a total cost of $2.6 million. Since the inception of our share repurchase program in 2015, we have repurchased 25.2 million shares or 10.6% of our initial shares outstanding for a total cost of $146.7 million. The company now has approximately $53.3 million available for stock repurchases, inclusive of the $50 million increase authorized today. This concludes our prepared remarks and please open the call to questions. 

Questions and Answers:

Operator

[Operator instructions] Your first question comes from the line of Rick Shane with JPMorgan.

Rick Shane -- J.P. Morgan -- Analyst

Hey, guys, thanks for taking my question this afternoon. Just -- and I suspect you're going to get a number of questions on the pie charts on Page 11. When we look at Merx, you assume that that is a core business at this point. So the way to think of this is, that there is about just under $800 million of sort of non-core -- there's the non-core legacy and then the pre-July '16 business.

Is that the way we should be thinking about this in terms of mix?

Howard Widra -- Chief Executive Officer

No. I think the pre-July '16 business should be looked at with the post-July '16 business. I mean, it's core assets that are in our core strategy. We just try to point out what we've done since effectively the management team changed and so we were being more granular and the -- as well as the exemptive release came in.

But those loans are in the same category, meaning they would fit what we would do today. Some of them may be a little bigger than we would want to have, but there's not that many left anyway. So I would view that as core, which is why we write – and so I would really focus on the $506 million on that page.

Rick Shane -- J.P. Morgan -- Analyst

Got it. OK. And just to shorthand it, what would be two key differentiating factors between the $265 million and the $506 million, just so we understand what makes core versus noncore?

Howard Widra -- Chief Executive Officer

Yes. The $265 million are just sort of primarily, loans to financial sponsors and recaps and equity buyouts, sort of normal on-the-run corporate, sponsor-backed loans. The noncore stock is actually almost all to oil and gas to shipping investments. So they are sort of like the esoteric, bulky assets that were effectively equity positions.

Even the oil and gas names, which started this first lien were sort of the full capital stack, if you will. So they were just vastly different types of investments. So put another way, if those shipping deals or those oil deals came to us today, we would say we don't do that. Whereas if the $265 million came to us today, we would say, sure.

We may split it with more parts of Apollo, where we may do a slightly different part of the balance sheet, more likely first lien and second lien, but we would do that loan.

Rick Shane -- J.P. Morgan -- Analyst

OK. And that brings me to my last question, which is does that $506 million represent industry or does it represent structure? So if those deals came to you today, would you say no because we're not investing in that sector or no we just do not do that structure? I just want to make sure that there's nothing fundamentally different in the structures there.

Howard Widra -- Chief Executive Officer

It's both. It's both, but it's mostly structure, I would say, and really, scale. These are big positions, right? So there isn't inherently anything wrong with having a used first-lien senior debt investment in oil and gas. There is for us, right now, because we want to get rid of all exposure before we do that, but in a broad portfolio.

But these are -- sort of these were very big positions to companies that were much more exposed to the commodity and much more exposed to development as opposed to sort of already yielding assets. Shipping, we're not going to ever -- we're not going to own assets and we're not going to own ships. So I don't know. So it's structure, meaning we don't want to own assets as opposed to lend against assets.

And then shipping is not something that we're going to do. So it's sort of both. But the problem with answering your question is that the difficulty in answering the question is the problem with the assets. They don't neatly fit in any category.

They are sort of like they were brought opportunistic opportunities that were outside of core strategy.

Rick Shane -- J.P. Morgan -- Analyst

OK. Perfect. That actually really helps. Thank you very much.

Operator

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

Kyle Joseph -- Jefferies

Afternoon. Thanks for taking my question. So doing the math, even when we exclude the Reddy Ice syndication, it does look like sales and repayments were a little bit elevated versus recent quarters. Is that you guys being proactive in ongoing portfolio rotation? Or is that more just a function of the market?

Greg Hunt -- Chief Financial Officer

Yes. I'll hit that. I think it's certainly both, but has a greater weighting toward the market. I mean, I think if you can look at identifiable stats, supply has been down.

And obviously, demand for capital is up and as we alluded to in our prepared remarks such that you've seen more difficult environment in terms of new deployment. That said, there's also been a concerted effort on our behalf of trying to de-risk many of the second-lien positions that are more liquid and have a bid. But in terms of on order magnitude, it's more the former than the latter.

Kyle Joseph -- Jefferies

Got it. And then, obviously, public market has been pretty choppy recently. Can you just give us an update on sort of the revenue and growth trends you're seeing in your individual portfolio of companies? I know you talked about NPAs being flat, but just actual -- if you can aggregate the performance to your portfolio of companies and tell us if there has been any changes.

Tanner Powell -- President and Chief Investment Officer

Yes, sure. Yes. You alluded to the chop in the market. Obviously, the data that we have in the company is a little bit backward-looking so that might not necessarily be reflected.

A couple of points there, when we think about our credit book, certainly there is a dynamic as exists in any credit book, wherein those companies that are doing best and/or deleveraging the most are the candidates for dividends and take-outs and that sort of thing. But a couple of points there, in terms of underlying performance, things have held up well. I think if we looked at those stats, historically, there was more earnings growth than what you saw in the most recent quarter. Revenue top line continues to be strong, but the rate of earnings growth has not matched that which we've seen in previous quarters.

And I think that speaks to trends that many -- frankly the Wall Street Journal and others have captured with respect to input costs increasing, freight costs and that sort of thing, which I think is reflected. But all told, still positive, but a little bit more margin compression and/or less earnings growth, in that which we saw in previous quarters.

Kyle Joseph -- Jefferies

That's helpful. Thanks. And then just one last one for Greg, and apologies if I missed it. But on the new -- or the amended credit facility, did you discuss pricing just for a modeling question?

Greg Hunt -- Chief Financial Officer

Yes. Pricing is still the same.

Kyle Joseph -- Jefferies

OK. All right. That's all my questions. Thanks for answering them.

Operator

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

Chris York -- JMP Securities.

Good afternoon, guys. And thanks for taking my question. So I wanted to spend some time on Merx, where the Carlisle recently acquired Apollo Aviation earlier this month and it's not entirely clear to us the extent of AINV's manager or ultimate parent's economic interest in Apollo Aviation. So could you clear that up for us? As we were curious if the sale had any impacts on Merx.

Howard Widra -- Chief Executive Officer

Yes, it actually is zero. It just happened that that platform happens to have the – a similar name to our parent. But there is no Apollo involvement in Apollo Aviation.

Chris York -- JMP Securities.

Great. That's helpful to clear up. And then alternatively, it does look like Merx is in the market for another securitization. So a, is that correct? I think it's like maybe about $600 million.

And then b, if it is, how should we think about the impact to Merx from marginal securitizations to the business either in the form of a dividend or maybe in the fair value of Merx?

Greg Hunt -- Chief Financial Officer

Yes. Sure. And maybe I'll give you a little bit longer answer. As we alluded to on the last conference call, we hit an inflection point with our Merx business, where we're able to stand up our own capabilities as it relates to servicing and become a full-service platform.

And in connection with building up that -- those capabilities, we're able to refi an existing securitization, which was previously known as ABS and is now known as MAPS in the securitization market. And on a go-forward basis, we would expect from time to time to make use of the securitization market as a financing source for Merx planes and assets. So it's an important piece of financing among others. That has been one aspect of the market that has benefited us not only in terms of rates that we can command and leverage profiles, but so to also increasing flexibility within those securitization structures has been a benefit to our investment and hence, something that we will continue to look to as an option for financing.

Chris York -- JMP Securities.

Got it. Makes sense. And then maybe switching gears, maybe for Howard, it's on strategy. So in terms of your target leverage and the ability to access that additional leverage in April, is there a situation where asset may be at Zion or Zion itself could find a home on Apollo's balance sheet?

Howard Widra -- Chief Executive Officer

No. Zion -- first of all, Zion has its own capital base and has its own assets and is divesting assets. But it's also – it's an affiliate and so post-closing transactions from affiliate. Even -- under the 40 Act, it's sort of not doable.

But there are transactions that are -- that we both participate with Zion out in the market, consistent with what we're allowed to do under our exemptive order. But no, there's not going to be flow coming from Zion.

Chris York -- JMP Securities.

OK. Helpful. And then, lastly, maybe Tanner, you talked a little bit about some pockets of stress from rising input costs. Is there any notable industry, where maybe labor as that input or anything supply chain related that is notable to you?

Tanner Powell -- President and Chief Investment Officer

Yes, labor, less so. I mean, I think it's pockets and no definitive example. I think that if you look across the spectrum, certainly -- and this is -- reflects what you see a lot of -- in recent earnings releases for kind of S&P 500 companies, but freight has been an increased cost and you have kind of two factors contributing there, obviously fuel costs going up. But so, too -- also, the secular trends around e-commerce and the like has actually increased freight -- the cost of freight.

And so you think about businesses that rely on their distribution businesses or rely on those sorts of business models would be expected to be more impacted by the rise in freight cost.

Chris York -- JMP Securities.

Got it. That's helpful. If I could squeeze in one last one. Howard, where are you seeing maybe the best investment opportunities today across the mid-cap platform? And if I'm looking at corporate lending, life sciences lending or asset-based lending because some banks had said that life science lending and then, alternatively, asset-based lending presents some pretty attractive risk-adjusted returns.

Howard Widra -- Chief Executive Officer

Yes. I mean, I agree with that. I mean, I think that the areas which are the most proprietary, which means you have less competition and have more barriers to entry, tend to be better, obviously, always in this market in particular, where the more commoditized areas are completely sort of overbanked. So both ABL and life sciences, which have very low loss given the support.

And so if you can access, those are stronger. And so those are the places where there is the least competition, not to say by any means there's no competition. The problem with the ABL market really versus the life sciences market is that the better borrowers in the ABL market get pushed up to the leveraged loan market in put -- in times when there's lots of liquidity. So it's not as robust a time to be an asset-based lender as it is when there's a distressed cycle.

So when you get those opportunities, they're good. So I would say like of all within the life sciences is the one that has -- continues to have very good opportunity and very good risk-reward.

Chris York -- JMP Securities.

Perfect. That makes sense. Thanks for the time, guys.

Operator

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

Ryan Lynch -- KBW -- Analyst

Hey, guys. Thanks for taking my questions. The first one was on Slide 11. You guys have your $1.1 billion corporate lending portfolio originated after July of 2016.

My question was, 96% of those investments were made pursuant to your co-investment order -- or, excuse me, 62% were made pursuant to your co-investment order. But if I look at the Q3 -- calendar Q3 co-investment, that was about 96% of your investments were made pursuant to that order across the platform. So those numbers, I thought, were interesting because they seem to indicate that you guys are getting more traction with the co-investment and use of the broader Apollo platform recently. I guess, one, is that true? Or is there something else driving the almost 100% of new investments this quarter being co-investments across the platform?

Howard Widra -- Chief Executive Officer

Yes. I mean, I think the largest driver and the difference is that once the new leverage rules -- we were originating based on sort of the higher leverage. Our yield profile went down. And so more of the loans that were out in the mid-cap platform were -- made sense for AINV.

So therefore, a larger percentage went there. So we would expect a percentage more consistent with this quarter than the average of 11 years going forward because of the yield.

Ryan Lynch -- KBW -- Analyst

Sure. That makes sense. And then with Merx, you guys had about a $45 million repayment. Can you just talk about what drove that paydown this quarter? And should we expect you guys to continue to shrink that business anymore in the future? And then kind of along with that question, Greg, you mentioned dividend income decreased this quarter due to lower dividend income for Merx.

Is the $2.3 million dividend income this quarter a good run rate to kind of expect for AINV going forward?

Greg Hunt -- Chief Financial Officer

Yes. So just to kind of roll back what you asked, I mean, I think I'll start with the last one. We have $1.2 million out of Merx this quarter, OK. I think depending upon the asset movements inside of Merx, you can fluctuate your dividend and/or are we reinvesting the capital within Merx? So I think a run rate in the one and a half to $2 million is fine.

I think with regard to the $47 million repayment, that was a function of the securitization with MAPS. We have put capital in, in order to take out some debt. And then it was just repaying that back to us to complete that transaction.

Ryan Lynch -- KBW -- Analyst

OK. Just to be clear, on the $1.5 million to $2 million dividend going forward, is that just from Merx or is that what you guys expect for AINV as a whole? Because you guys had about -- if Merx has $1.2 million this quarter that you guys had about $1.1 million outside of that.

Greg Hunt -- Chief Financial Officer

Yes, in the other. So that specifically is Merx. We do have dividend capacity. It builds up typically on a quarterly basis in MSEA, which is our -- one of our tanker ventures.

And depending -- again, in those businesses, you sometimes leave capital down there to do some refurbishment and all of that. And that has been running just a little bit over a million this quarter. It's about $700 million. So I think about a million, but it could fluctuate depending upon when we dry dock some of the ships on -- in that cycle when they come off lease.

Ryan Lynch -- KBW -- Analyst

OK, makes sense. And then with Reddy Ice, you guys mentioned about -- I believe you said $132 million was sold down this quarter. Can you just kind of walk me through the thought process of -- I believe you guys only have about -- held about $29 million on your balance sheet. Why not, I guess, hold more of that investment on your balance sheet? I mean, that's only 1.2% of your portfolio today, given that portfolio growth is one of the things that I know investors are looking for.

Can you talk about the thought process of selling off $132 million and not potentially holding more of that on your balance sheet?

Tanner Powell -- President and Chief Investment Officer

Yes. Sure. And I would say first that these types of opportunities do take more than your hold and create some syndication income or typically idiosyncratic and have a lot to do with the particulars of a transaction. To your question, which is a very good one, I think it speaks to the core tenets of our repositioning strategy and the average position size that we want to build in and the granularity that we want to build into the portfolio.

We share the desire to increase assets. And frankly, one of the things that we would talk about is some of the assets that are rolling off our much bigger positions, and that creates more -- that many more deals that we have to do to replace the equivalent deals coming off. But notwithstanding, it has been kind of a core piece of how we've tried to reposition the book to try to perform to that 1% to one-and-a-half percent position with only selective -- where we have higher degrees of conviction and/or the risk return is particularly attractive to go above that one-and-a-half percent.

Ryan Lynch -- KBW -- Analyst

OK, understood. And then just one final one. Greg, I know you mentioned in the past, you guys were at least thinking about redeeming your 2042 notes, but I know you wanted to wait until you guys had an amended and potentially larger credit facility in place. That looks like that's going to be in place in November.

Do you guys anticipate using borrowings from that credit facility to now repay those bonds? Or what are the kind of the updated thoughts on that going forward?

Greg Hunt -- Chief Financial Officer

It's not our plan at this point to use the credit facility in that vein. I mean, I think one of the things, as we've modeled things out, we'd like to keep a level of unsecured debt outstanding. Now we may do it in a different form to avail ourselves with some better rates given the six and seven-eights coupon on it. But it's not our plan to use the credit facility to take that at this point.

Ryan Lynch -- KBW -- Analyst

OK. Those were all my questions. Appreciate the time today.

Operator

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

Ryan Dodd -- Raymond James -- Analyst

Hi, guys. Going back to Page 11, if I can. On the $506 million and all the way back to Rick's question at the beginning. What's left of that $506 million if we look at something like a Spotted Hawk or something like that? It just seems to me that you've cleaned up a lot of the portfolio over the last couple of years.

Are we into the phase where the remaining noncore and legacy assets are kind of the more troubled assets, the ones with the longer tail, and we might be, so to speak, stuck with that $506 million for a relatively long period of time as you work through those assets rather than they just redeem and go away?

Howard Widra -- Chief Executive Officer

I don't know. They are the ones that are -- obviously have taken longer to exit. Really, two of them are oil and gas, and two of them are shipping and that's the largest amount of them. And so obviously, they're part of the underlying market.

The underlying market for oil and gas have gotten much stronger and so the possibility to sort of exit or reduce are better than they were, six months ago or a year ago. And shipping's recovery has just sort of started more recently. So I don't know. I certainly wouldn't call them any more sort of challenged than the other ones.

I mean, when we -- when we sort of started this, we went through -- we were trying to be very careful about where we mark everything. We felt right about marking it, where our marks were. For the most part, our liquidation of our marks have been pretty good on this first $450 million that we exited. The challenge with marking equity positions is that they're not like loans.

They don't get hundred cents or not. They can be volatile and they can be volatile within the quarter, and that's our challenge with them. But -- so it's a long-winded way of saying I don't think they're necessarily worse and -- but obviously, by definition, they take longer than the other ones. I don't know how much longer.

They're not going to be gone -- all four of them are gone next quarter, that's for sure, but we're still hopeful for sooner rather than later.

Ryan Dodd -- Raymond James -- Analyst

OK. Got it. Really helpful. A couple of questions about comments that you kind of made.

On the larger credits where the opportunities are, that's also to the point where there can be opportunities where a check size could exceed the whole size of either AINV or Apollo as an entire platform if you want to keep granular positions across everything. So is that a point that syndication opportunity is also idiosyncratic? But is this a time in the market where if large creditor -- where the opportunities are and maybe want to hold the same -- the full amount, is it -- or is it realistic and then not should we expect? But is it realistic that, that point of the cycle when larger credits, the attractive one, is the point where syndication and then sell-downs may generate some incremental fee revenue?

Tanner Powell -- President and Chief Investment Officer

I think generally speaking, your config is correct. I would still caution that those opportunities for syndication, typically, are the more -- are still idiosyncratic. I think when we try to emphasize the benefit of being part of a scaled platform, you kind of think about it more in terms of semantics and the ability to provide that much more certainty to the counterparty, be them sponsor or company or whomever, is a real advantage. And not to say that there isn't competition still there, but it tends to be a less competitive piece of the market.

And if we look at kind of the five bigger deals that we did in the particular quarter that ranged from $20 million to $30 million of commitment for AINV, in each of those situations, the platform was committing to an excess of $75 million to a particular deal kind of speaking to the dynamic that you described and a place where providing that certainty, being able to speak for that size advantages us and positioning us to win that business or be selected as the lender of choice in those situations. And so that's the comment with respect to the market and where we've been trying to focus our time and energy in what again continues to be a competitive market.

Ryan Dodd -- Raymond James -- Analyst

OK. I appreciate that. And one more. On Crowne Automotive, obviously, the marker, you mentioned it in the comments.

It just -- I can see that the mark came down pretty substantially. Can you -- any color you can give on that? Or is that a raw material, a component cost issue for them? Or is it something idiosyncratic to that business?

Tanner Powell -- President and Chief Investment Officer

Yes. So the raw material did not help. I think even -- in fact, even before the tariffs with respect to aluminum and steel, those commodity prices were spiking earlier this year and late last year. So that certainly didn't help.

This particular situation, I would frame as more of the idiosyncratic and profitability issues associated with ramp of two platforms. And so to sort of answer your question specifically and at the risk of being redundant, the raw materials didn't help but were certainly compounded by idiosyncratic issues in terms of profitability of that company.

Ryan Dodd -- Raymond James -- Analyst

Got it. I appreciate it. Thank you.

Operator

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

Christopher Testa -- National Securities Corporation -- Analyst

Hi. Good evening, guys. Thank you for taking my questions today. Just curious.

So you had mentioned that 62% has been co-invested. I was just wondering if you could break that out in a little more detail. How much of that co-investment came through mid-cap and how much excluding mid-cap? If you have those numbers available.

Howard Widra -- Chief Executive Officer

We can get that for you, but the vast majority is mid-cap, almost all. I don't -- I can't give you exact percentage, but it's anecdotal if it's not.

Christopher Testa -- National Securities Corporation -- Analyst

OK. All right. That's fair. And I know you guys had mentioned before that you're more bullish on life sciences relative to ABL given the larger ABL borrowers.

Obviously, that's going to be more competitive. Are there any sort of, I guess, industries or subsectors where you're not seeing as much competition in ABL, where Apollo might have a distinct advantage now that you have co-invest?

Howard Widra -- Chief Executive Officer

Well -- so first of all, we are sort of the dominant player in healthcare ABL lending regardless of market cycles. So we always see the best and biggest opportunities there, and that's why you saw Genesis earlier in the year, which is a significant deal, and you saw Wright Medical. And so you've seen some flow of that with the BDC. And so that continues to be the case, to be large opportunities there.

In terms of sort of other -- the industries that are more likely to want to borrow ABL right now are retail and oil and gas sort of providers into those industries because those are the ones that are sort of less favored. The truth is there is still some competition there. On those deals, if you have a retail deal in the assets, there is going to be competition. It doesn't mean there isn't transactions to do, but there is still some competition but it would be -- the out-of-favor industries for leveraged lending have interest in them, and there are not more than three or four lenders that can do frankly more than $50 million of an ABL outside of bankruptcy that requires cash dominion.

So there -- those deals that are out there that are available, it's just offsetting a few others you can do. I mean, there's just not that many of them.

Christopher Testa -- National Securities Corporation -- Analyst

Got it. OK. Now that's great color. And you guys had hinted at -- with Ryan's question, upon potentially redeeming one of the more costly notes, not doing it with the facility, potentially doing it with, I guess, another unsecured note.

Just -- are you looking at that in terms of kind of getting your footing with the new leverage facility first and putting more, I guess, lower-yielding assets on the books before that even becomes a thought? Or is this something where you're looking to do the sooner rather than later, seeing as rates continue to trend up and we've even seen some widening in spreads, which can potentially increase borrowing cost for the entire sector?

Greg Hunt -- Chief Financial Officer

Chris, we're constantly looking. I mean -- but I think you're right in that the priority was to update and amend our credit facility, which we've done. And then we will take a look at -- we've -- given the number of banks within our credit facility, we have a number of proposals with regard to any of our sub-debt, particularly the baby bonds, and we're looking at alternatives there but -- so we'll see what happens.

Christopher Testa -- National Securities Corporation -- Analyst

Got it. And sticking with the financing side of things, obviously, Apollo is a household name and Golub have received no-action relief from the FCC to -- excuse me, they received -- no-action relief from the FCC in order to do a securitization. Is there potential that, that could be within your wheelhouse going forward in terms of potential financing sources given that you have more flexibility there?

Greg Hunt -- Chief Financial Officer

Yes. I mean, I think, it's always something that we look at, right, because if you think about us going up in the first lien, it becomes a very tight spread business. So if the cost is that, we'll potentially take advantage of it.

Christopher Testa -- National Securities Corporation -- Analyst

Got it. And will there be any one-time cost for amending the facility next quarter?

Greg Hunt -- Chief Financial Officer

No. I mean, there are onetime costs to amend the facility. Our policy has been to capitalize those and amortize them over the life of the facility.

Christopher Testa -- National Securities Corporation -- Analyst

Got it. OK. And just last one from me. As you guys have obviously successfully transitioned a lot of the portfolio and especially away from the noncore assets, one thing that's remained relatively stable has been the non-sponsored portion of the business, around 18% of where investments are being sourced, just curious, does that encompass a lot of the noncore stuff? So should we expect that to sort of go away as energy and shipping kind of roll off? Or is that something else entirely? Just curious how we should be looking at that portion of the book.

Howard Widra -- Chief Executive Officer

Yes. I mean, I think that's right. I mean, we're not sort of -- we haven't classified it that way. The large amount of what we're calling the corporate book has been sponsored.

We also -- our ABL in life sciences and lender finance could be classified as non-sponsored but we classify them by their product category. So when you're talking about cash flow non-sponsored deals, if you exclude that noncore -- the noncore stuff that is pretty negligible. Whether ultimately the market opportunity there, over time, changes or our focus on that market changes, it's possible but that isn't our focus right now.

Christopher Testa -- National Securities Corporation -- Analyst

OK. Great. Those were all my questions. Thank you for them tonight.

Operator

Your next question comes from the line of Terry Ma with Barclays.

Terry Ma -- Barclays Equity Research -- Analyst

Hey, good afternoon. As you go forward and execute on your strategy to deploy higher leverage, how should we think about the mix of assets over time between the new assets under higher leverage versus the ones you're doing right now with an average spread of about 750?

Howard Widra -- Chief Executive Officer

So the way you should think about it is that when we get to the -- when we get to whatever the end state is, we would have 80% to -- we would have Merx. We would have all the noncore assets gone, and we would have 80% to 85% first lien.

Terry Ma -- Barclays Equity Research -- Analyst

Got it. Is there a kind of like a general mix between, I guess -- because you're going to originate lower first lien assets, right. Or are you just not going to do the 750 spread assets that you're doing right now? You're just going to migrate all toward lower spread.

Howard Widra -- Chief Executive Officer

Yes. I mean, I think we're going to migrate all toward lower spread. I mean, I think the way we think about it is the blended average of our spread across that 80% first lien and, say, 10% second lien and 10% Merx -- so take Merx out, that 90% is around 10%. That's yield.

It's around 10% yield, not LIBOR putting around 10% yield. So -- we talked about this in other calls. Embedded in that is some natural conservatism because LIBOR is going up, right. But we're talking about 10%.

If you -- what that would translate to is the first liens around about the spreads we're doing right now and the second liens around the spreads that we're doing right now, and that went up to about 10%. We have a bunch -- and we think that's inherently fairly conservative. Because we're a little over that 10% number even combined with what we originated, and LIBOR is on -- moving up as opposed to down, and we have -- we saw from legacy assets, obviously, as that's happening, that are in that core older assets that have higher yield.

Terry Ma -- Barclays Equity Research -- Analyst

OK. Got it. That makes sense. And then on Merx, can you give some color on how renewal rates are trending as leases expire? Are they generally repricing up or down in its environment?

Tanner Powell -- President and Chief Investment Officer

Yes, difficult to make a broad comment, and I would put in context -- I think this is one of things that the team has done a really good job with. It's laddering the maturity. So we talked a lot about diversification by plane type, carrier. But also, a core part of our management of that business in that book has been in how we've laddered the maturities.

And so at any given year, it's kind of only six to eight planes that are coming up for renewal. And because -- when there's -- because one of the attributes of the business that creates some of the barriers, a lot of the de facting circumstances are idiosyncratic to that particular plane type or that particular situation. It's tough to paint with a broad brush. I would say, however, generally speaking, aircraft values have been going up.

And if you were to look at kind of depreciation adjusted, lease rates or lease rate factors, they've generally held up pretty well on what has been a pretty good environment for aircraft values and demand for equipment.

Terry Ma -- Barclays Equity Research -- Analyst

Got it. OK. That's helpful. Thank you.

Operator

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

Casey Alexander -- Compass Point Research -- Analyst

Hi, good afternoon. The amended credit facility is expected to have the same interest rate terms as the last one or are the interest term rates changing at all on that?

Greg Hunt -- Chief Financial Officer

No, it's the same.

Casey Alexander -- Compass Point Research -- Analyst

OK. Great. Secondly, Crowne Automotive, that went by very, very quickly. Can I get some color on what's happening with Crowne Automotive?

Tanner Powell -- President and Chief Investment Officer

Yes, sure. So as I alluded to before, it has been an issue with respect to profitability associated with ramp. This is a deal -- the company is an auto supplier, a tier 1 and tier 2 auto supplier, and we fund it alone -- alongside the broader Apollo platform. We actually have a first lien loan behind the small ABL.

The company has benefited from attractive platforms, but as is sometimes the case, the management and the profitability, how profitable you can manage to that ramp, has been impacted by a number of factors and if the company is in covenant breaches and is working through liquidity issues, which we are working to actively address with the other stakeholders.

Casey Alexander -- Compass Point Research -- Analyst

OK. So you like -- I see in your presentation that in your investments on nonaccrual status is Spotted Hawk, which you mentioned during the presentation, had a markup this quarter and is currently carried at a fair value above its cost. But is there any opportunity -- obviously, it must be performing better or its fair value wouldn't be above its cost. Is there any opportunity for that to return it to fully -- to accrual status?

Howard Widra -- Chief Executive Officer

Well, that is -- it's picking its interest. So it's carried above its cost because that includes the interest that's been picked but hasn't been recognized. And so it's building back into sort of the NAV. Obviously, if the value is there, you could argue you should be picking it and taking it in.

There's another couple million dollars above cost of unrecognized picking interest before you would then be done marking that up and marking up the common equity after that. But I think our thought would be it's a more conservative approach, obviously, to keep it non-earning and effectively treated like that's like the equity position in the capital stack. So I would think of it that -- I would think the -- I would think of the markup on that as if it's a markup on the equity.

Casey Alexander -- Compass Point Research -- Analyst

OK. All right, great. Now in relation to the share repurchase program, if I read it correctly, you have a sort of a portion of the share repurchase program that's operating under 10b-1 so it can operate during blackout periods. But is there also a discretionary purchase -- portion of the share repurchase program that is subject to blackout but can be more price sensitive to the price of the stock?

Howard Widra -- Chief Executive Officer

Yes. And the 10b-1 program can be set each quarter.

Greg Hunt -- Chief Financial Officer

Yes. So the 10b5 expires. So we have -- we put a 10b5 in during blackout periods, right. And then that has an expiration date on it.

And then we have open market period basically on -- obviously, after release today through a blackout date on -- close to quarter end, where we will not be in the marketplace. And then the 10b5 would go into place if we decided to put one in.

Casey Alexander -- Compass Point Research -- Analyst

OK. But you're going to come out of the blackout shortly after this release?

Greg Hunt -- Chief Financial Officer

Yes, yes. We've come out within 24 hours of our release.

Casey Alexander -- Compass Point Research -- Analyst

Right. So for the last month or most of the last month, while, unfortunately, the market for equities has been extremely weak, your discretionary purchase of the share repurchase program has not been able to operate.

Greg Hunt -- Chief Financial Officer

The discretionary has not been operating, yes.

Casey Alexander -- Compass Point Research -- Analyst

OK. Terrific. Thank you very much. I appreciate you taking my questions.

Greg Hunt -- Chief Financial Officer

Sure.

Operator

Your next question comes from the line of Fin O'Shea with Wells Fargo Securities.

Fin O'Shea -- Wells Fargo Securities -- Analyst

Hi, guys, good afternoon. Thanks for taking my question. A lot have been asked -- answered, of course. Just to extend on some of the questions for sales and syndication, can you remind us of the mechanics far a mid-cap-led deal, taking Reddy Ice, for example, that you sold down post quarter? Is there an affiliate that joint leader ranges this and it gets split up from there? Or does mid-cap sell to Apollo would then sell again?

Howard Widra -- Chief Executive Officer

OK. So I'm going to try not to get overly technical, but effectively, the joint leader ranger on the deal tends be mid-cap because it's the administrative agent. And that's more of a title that has to do with the lender as opposed to somewhat -- the middle market as opposed to someone who's like arranging a deal and selling all down. What happens is when a deal is originated, it's originated by Apollo, whether it's that mid-cap or anywhere else.

It's then allocated -- also allocation -- based on allocation policy. If a deal is only going to mid-cap and AINV, it's allocated to the two based on sort of their interest and the allocation policy. If we are -- if it's being syndicated to internal Apollo parties, the story ends there. It's just other people are added to that list as well.

If there is a syndication opportunity beyond that, all the entities that want to take place in that -- take part in that syndication opportunity and are able to -- I'll touch on that in a second, can sign up to go long and then sell to a third party. So a lot of funds can't because they can't originate a loan and sell, but AINV can and mid-cap can. So when a syndication opportunity comes up, they may split up that syndication opportunity to third parties. A lot of our loans are absorbed by -- fully by Apollo entities.

In this particular case in Reddy Ice, AINV was able to take a disproportionate share of the syndication opportunity because mid-cap had its capital tied up in other transactions at the same exact time. So it got a disproportionate opportunity. So it wasn't like there was another $400 million of syndication on that deal. In another deal, it might have been.

But AINV has the option on any deal it's part of to be part -- to be one of the entities that syndicate loans to third parties.

Fin O'Shea -- Wells Fargo Securities -- Analyst

Very helpful. So the $100 million sold post quarter of the whole trash, is that going to be -- how much of that would be AINV roughly out of the $400 million?

Howard Widra -- Chief Executive Officer

Well, that was all AINV. That was all -- that whole amount is sold. But you're only seeing numbers for AINV. So the overall deal was, I think, something like a $400 million deal, but the overall deal is $400 million.

Effectively, all of it was done by Apollo-related entities except for the amount that was sold down by AINV post quarter.

Fin O'Shea -- Wells Fargo Securities -- Analyst

OK. Very helpful. And then just a question on G&A that ticked up this quarter, I think, to legal fees, as said in the Q, generally, your $4 million to $5 million, it seems last few years, as you go upmarket, more senior first lien, lower spread, should we anticipate a decline there, assuming lower deal-related expenses and so forth?

Greg Hunt -- Chief Financial Officer

Yes, they're -- the reason for the tick up is more on -- from some past securities that I -- that are in a trustee situation where there's litigation. But you would expect, one, for us, when we do our loans, to recover some of the cost from our borrowers. And as we are taking these pieces going forward, you would assume that. Our objective is not related to the assets that we're putting on the books today.

It's related to historical situations that we're funding to ultimately settle them.

Fin O'Shea -- Wells Fargo Securities -- Analyst

Recognizing this quarter was a touch high to the more senior asset strategy, what would be your target or expected G&A rate, like 50 bps, for example?

Greg Hunt -- Chief Financial Officer

Yes. I mean, I think you could say that. I don't think we kind of factored it...

Howard Widra -- Chief Executive Officer

Yes. I mean, I don't think our deal-related costs are expected to change all that much. I mean, you're right in that the senior loan -- we don't obviously pay legal fees on deals that closed. It's part of what the borrower pays, but when you have enforcement activity or things like that, we would expect to have less enforcement activity but ramp more loans.

So -- and in the grand scheme of things, that expense line catches lots of things, our exemptive relief effort, for example. Greg said some litigation from sort of a well-long-gone deal. And so we always try to squeeze it down, but I think it's reasonable to sort of project it the same.

Fin O'Shea -- Wells Fargo Securities -- Analyst

Sure. I'll do one more if I may, perhaps a fun one. Do you have any update on AFFE, the progress for that ongoing effort?

Howard Widra -- Chief Executive Officer

I mean, there was the exemptive relief filing for the industry, and it will run its process. There's a waiting period of comments, etc. And so it's, in a best case scenario, a first half of next year issue.

Fin O'Shea -- Wells Fargo Securities -- Analyst

Very well. Thanks for taking my questions.

Operator

And our final question is a follow-up question from Chris York with JMP Securities.

Chris York -- JMP Securities.

Hey, guys. Just a quick follow-up here. What percentage of the $1.1 billion of loans originated after July 1, '16 has effective voting control?

Howard Widra -- Chief Executive Officer

Voting control of the company or of the whole -- you mean of the debt tranche?

Chris York -- JMP Securities.

Yes, of the debt tranche.

Howard Widra -- Chief Executive Officer

Well, of the 62% that are pursuant to the co-investment order, it would be all -- meaning Apollo and its affiliates have effective control because that's -- by definition, we're going to be the only lender in a vast majority of lender. The other 38%, we'd have to look at. If history is any guide prior to that, it would be probably about half and half, where half have sort of really bought on the secondary market and that some of the stuff that Tanner was talking about actually on the more liquid liens on the second lien and the other half are done on second lien loans as part of a club that we have voting control, I wouldn't say, but blocking rights. So I don't know if that's the equivalent control but...

Chris York -- JMP Securities.

Yes, that's very helpful. So yes, obviously, with the 62%, yes, you guys will have 100% across the platform, but the 50-50 is helpful in regards to the other 38%. So that was the number I was kind of looking for. So thank you for that.

Operator

And at this time, there are no further questions. I would like to turn the floor back over to management.

Howard Widra -- Chief Executive Officer

Thank you. On behalf of our team, we'd like to thank you for your time today and your continued support. Please feel free to reach out to any of us if you have any questions. Have a good night.

Operator

[Operator signoff]

Duration: 65 minutes

Call Participants:

Elizabeth Besen -- Investor Relations Manager

Howard Widra -- Chief Executive Officer

Tanner Powell -- President and Chief Investment Officer

Greg Hunt -- Chief Financial Officer

Rick Shane -- J.P. Morgan -- Analyst

Kyle Joseph -- Jefferies

Chris York -- JMP Securities.

Ryan Lynch -- KBW -- Analyst

Ryan Dodd -- Raymond James -- Analyst

Christopher Testa -- National Securities Corporation -- Analyst

Terry Ma -- Barclays Equity Research -- Analyst

Casey Alexander -- Compass Point Research -- Analyst

Fin O'Shea -- Wells Fargo Securities -- Analyst

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