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Apollo Investment Corp (NASDAQ:AINV)
Q4 2020 Earnings Call
May 21, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Apollo Investment Corporation's Earnings Conference Call for the period ending March 31st, 2020. At this time, all participants are in a listen-only mode. The call will be opened for questions-and-answers session following the speakers' prepared remarks. [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 most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings please visit our website at www.apolloic.com.

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. At this time, I'd like to turn the call over to our Chief Executive Officer, Howard Widra.

Howard T Widra -- Chief Executive Officer

Thanks, Elizabeth.

Good morning and thank you everyone for joining us today. First and foremost, we'd like to express our deep gratitude to all the healthcare and EMS professionals and essential business workers, who continue to work tirelessly to save and to serve our communities. We extend our deepest sympathies to all those directly affected by the pandemic. So all of you on the call today, we hope that each of you and your families are healthy and safe during these difficult times.

I'll begin today's call with the discussion about how AINV's positioned during these unprecedented times and we'll also provide an overview of our results for the quarter. Following my remarks Tanner will review our investment activity for the quarter and will discuss the impact of the COVID-19 pandemic and economic shutdown in our portfolio. Greg will then review our financial results in greater detail and discuss our liquidity position. We will then open the call to questions.

During today's call we will be referring to some of the slides in our investor presentation, which is posted on our website. Since the onset of the COVID-19 pandemic, Apollo has seamlessly transitioned to a remote work environment, while ensuring full business continuity. Our priority has been the health and safety of our employees, while maintaining normal business operations. As a firm we're well equipped to work remotely from the most senior levels on down. We've been in regular dialog with our portfolio companies and their respective owners to evaluate the impact of the pandemic on their businesses and liquidity in order to identify and address issues as early as possible.

We have long-standing relationships with most of the sponsors that own the companies in our portfolio and we are working closely with them to support these companies. We have found these conversations to be thoughtful and constructive as we collectively manage the economic impacts of the pandemic, today we have generally been pleased with how management teams and sponsors have handled these conditions. In the coming months we expect to see an increase in discussions with borrowers and their sponsors regarding the need for covenant amendments and request for additional support and our investment committee is meeting frequently discussed portfolio company developments and how to address each situation.

Clearly, there are many unknowns regarding the full impact of a pandemic and economic shutdown in each of our companies. But we'd like to provide you with some general observations. As we all know the COVID-19 pandemic has been an unprecedented shock to the global economy. AINV entered this volatile period with a well diversified senior corporate lending portfolio in less cyclical industries with granular positions. A portfolio, which we believe is generally well-positioned to withstand economic volatility. 88% of our corporate lending portfolio had sponsor backed and as I mentioned earlier, we're having constructive dialogs with these sponsors, to find solutions for our companies as needed.

We believe our portfolio repositioning over the past several years has allowed us to enter this period in a stronger position. That said, outside of our corporate lending portfolio, we do have exposures to industries that are experiencing a direct impact on the economic shutdown, including aircraft leasing and oil and gas, which Tanner will discuss in his remarks. We have already been reducing our exposure to some of these more impacted areas prior to the pandemic, precisely because of their concentrations and inherent susceptibility to volatility. It is during this type of challenging environment, where AINV can most benefit from its affiliation with the broader Apollo Global platform.

Apollo has successfully navigated many market cycles disruptions and periods of heightened volatility. We are able to eval ourselves with the expertise of more than 450 investment professionals globally, they gave insight into the broader economy and on specific industries. Regarding our liquidity, we believe we have adequate liquidity to meet our commitments. Many of our borrowers did draw on the revolvers during the period. Mid-cap is the agent for nearly all our revolver and delayed-draw term loan commitments and is actively monitoring every commitments. A significant portion of our unfunded commitments are not available to borrowers. Most of our revolver commitments are subject to a borrowing base, and many of the companies do not have the requisite collateral. Delayed-draw term loans are typically used to support portfolio company acquisitions and have incurrence covenants and therefore we do not expect these facilities to have any material utilization in the current environment.

Further, we and our affiliates are extremely well situated to support our existing borrowers with new commitments as needed by virtue of mid-cap being a well-capitalized co-lender on much of the portfolio and given the SC -- SEC's recent co-investment relief, which allows certain of our other affiliated funds to also provide capital to our existing borrowers, subject to the satisfaction of certain condition contained in the exemptive order. Greg will discuss our liquidity and unfunded commitment exposure in greater detail during the call.

Moving to our financial results. Net investment income for the quarter was $0.59 per share driven by portfolio growth in the December quarter and good fee income including the syndication of a number of loans and the total return feature in our incentive fee structure, which resulted in no incentive fee. Results were negatively impacted by the COVID-19 pandemic, which has caused severe disruptions in the global economy and negatively impacted the fair value of our investment portfolio.

Net asset value per share at the end of March was $15.70 a 14.1% decline quarter-over-quarter. The $2.58 decrease is attributable to a $2.81 net loss per share in the portfolio, partially offset by net investment income in excess of the distribution by $0.14 and $0.10 accretive impact from the stock buybacks below NAV.

Slide 16 in our investor presentation shows the net loss for the quarter broken out by strategy. As you can see our corporate lending portfolio accounted for $0.97 or 35% of the total net loss. Our investment in Merx our aircraft leasing portfolio company accounted for $0.44 or 16% of the net loss and non-core and legacy assets accounted for $1.39 or 50% of the net loss, while only representing 10% of the total portfolio. Greg will discuss the drivers of the net loss in greater detail.

Due to the net loss on the portfolio and a small amount of net fundings, the company's net leverage rose to 1.71 times at the end of March. It is our intention to reduce the fund's net leverage as new commitment activity has slowed and we expect some amount of repayment activity, although -- although below normal levels.

Turning to our distribution. The Board has approved a $0.45 per share distribution to shareholders of record as of June 18th, 2020. We in consultation with our Board will continue to evaluate and monitor the appropriate distribution level in light of the impact of the COVID-19 pandemic and economic shutdown in our portfolio countries, taking in consideration the yield on the portfolio, its credit performance and resilience and incentive fees.

With that, I will turn the call over to Tanner, to discuss our investment activity and our portfolio.

Tanner Powell -- President and Chief Investment Officer

Thanks, Howard.

First I want to echo Howard comments and I hope everyone is healthy and doing well. My remarks today will focus on four topics. The current market environment, our investment activity, a review of our portfolio and our outlook for future activity. Starting with the market environment, the volatility triggered by COVID-19 sent massive shockwaves through the broadly syndicated leveraged loan segment. The pandemic has led to an unprecedented disruption in business activity across a broad swath of industries. Uncertainty over the duration of the crisis has led many companies to enact measures that will ensure that they have ample financial resources to write off the storm. To that end, companies have been drawing on available capacity on their credit facilities are securing other financing to enhance liquidity.

Activity in the middle market remains slow, as sponsors and lenders continue to struggle to evaluate how to price risk due to the low visibility surrounding the duration of the pandemic and resulting economics shutdown. Against this backdrop, new corporate lending commitments for the quarter totaled a $153 million across 14 companies, a 100% of the new debt commitments were first lien floating-rate loans. All of these new commitments were made prior to the market dislocation. Net funding for the quarter were $8 million including $47 million of net revolver funding. As Howard mentioned, we did see an increase in revolver draw request during the period, but that has since leveled off. I wanted to take a few minutes to review our oil and gas and aviation investments, which were significant contributors to the net loss during the period.

Our oil and gas exposure decreased from $117 million or 4% of the portfolio at fair value at the end of December to $64 million or 2.3% at the end of March. The decline was due to a $52 million net loss, recorded during the quarter primarily due to the decline in the price of oil and a $1 million repayment. The oil market is experiencing a significant oversupply, due to a combination of a demand shock from the pandemic an excess supply as producers were slow to adjust production. Our largest oil and gas exposure Spotted Hawk, which had a total fair value of $47.2 million at the end of March, representing 1.7% of the total portfolio or 73% of our oil and gas exposure.

Spotted Hawk is an exploration and production company operating in the Bakken Basin with significantly hedged production through the middle of this year. The Company has reduced expenses and capital expenditures to necessary maintenance items and temporarily curtailed production to adjust to the lower commodity price environment, one of our positions in Spotted Hawk was placed on non-accrual status during the quarter. Our second largest oil and gas position is Glacier Oil and Gas, which had a total fair value of $14.7 million at the end of March, representing 0.5% of the total portfolio or 23% of our total oil and gas exposure.

Glacier is an exploration and production company with Alaska-based reserves. Glacier production is hedged through the end of 2020 during the quarter, the company repaid its remaining $1 million first lien debt to AINV and we placed our second lien debt position on non-accrual status. Before discussing aviation, let me briefly make comment about our shipping exposure, which had total fair value of $138.2 million and represented 5% of the total portfolio at the end of March. As I mentioned, the oil market is experiencing significant oversupply -- the oversupply is being put into various types of storage, which is driving up prices for that storage. As a result, there is significant increase in demand for tankers to simply store oil, which is driving up tanker rates and we have seen a modest increase in charter rates for our product tankers consequently.

Moving to aviation as you are aware the Corona viruses had a significant adverse impact on the global economy with direct implications for the aviation sector. Aviation is considered to be part of the critical infrastructure of the global economy, our aircraft leasing portfolio company Merx Aviation continues to closely monitor the situation and proactively maintain dialog with its airline clients globally. Across Merx and PK AirFinance, which was the recently acquired -- which was recently acquired by Apollo Global, Apollo's Aviation platform has 45 professional dedicated solely to aviation located throughout North America, Europe and Asia, providing expert in-house support to the platforms various aviation strategies.

The aviation team has the experience to skilfully navigate this period of market stress and the requisite capabilities to mitigate potential adversed outcome. In addition, the Apollo Aviation platform will seek to opportunistically deploy capital in the face of the widespread uncertainty and market disruption. To be clear Merx is focused on its existing portfolio and is not seeking new investment opportunities. However, growth in the overall Apollo Aviation platform will emerge the benefit of Merx at the exclusive service there for aircraft owned by other Apollo firm.

Increased pressure on airlines finances has resulted in airline specific outcomes ranging from rent deferral request to insolvency as certain airlines resolve in aircraft are returned updated lease rates and residual values will gradually make their way into the market. We continue to witness regional governments providing assistance, where possible to avoid insolvencies, given the nature of the situation. In addition, lower fuel prices, provide a slight offset to the Corona viruses impact on airline costs that have not -- that have not otherwise been hedged. We believe that Merx portfolio compares favorably with other major lessors in terms of asset, geography, age, maturity and lessees diversification. At the end of March, the portfolio consisted of 81 aircraft, 10 aircraft types, 40 lessees in 27 countries. 78 of its aircraft are narrow body, like most lessors Merx has received rent deferral request from most of its lessees.

To date Merx has received requests for rent deferral from 36 out of its 40 lessees for 70 of its 81 aircraft. We are evaluating, each request on a case-by-case basis. First, in all cases, Merx is working with its aircraft customers to provide the necessary flexibility during these unprecedented times. Second, our investment in Merx reflects the underlying aircraft collateral. Merx's portfolio is skewed toward the most widely used types of aircraft, which means demand from Merx's fleet should be somewhat more resilient. And lastly, as we've mentioned on prior calls over the last few years, Merx has it -- has diversified its revenue beyond aircraft leasing, Merx has built a best-in-class servicing platform, which generate income from aircraft managed on behalf of other Apollo affiliated Capital.

Shifting back to the -- to our overall portfolio as Howard mentioned, we are having ongoing discussions with our portfolio companies and their financial sponsors regarding how to address the impact from the Corona virus-related shutdowns. I'd like to make some high level observations about our portfolio. Prior to the onset of the pandemic, our corporate lending portfolio companies were generally performing well, meaning they enter this period in relatively good position. Although we have received some data from our companies we expect to get a much better idea of the financial impact in the coming months. We believe most of the corporate lending portfolio has been relatively resilient during the economic shut down. Our corporate lending portfolio is generally invested in less cyclical industries such as healthcare and pharmaceuticals, business services and high-tech industries and is under way to the more impacted industries such as travel, restaurants, hospitality, dental and retail. Investments on non-accrual status rose at six new positions across five companies were placed on non-accrual status during the quarter, including our second lien investment in Glacier Oil and Gas, our first lien tranche in Spotted Hawk, our first lien investment in Solarplicity, our first lien investment in ZPower and a small first lien position in Garden Fresh. At the end of March 12 positions and 8 different companies were on non-accrual status. In total investments on non-accrual status, represented $159 million or 5.1% of the portfolio at cost at the end of March, up from 2% at the end of December and $49 million or 1.7% at fair value at the end of March, up from 0.7% at the end of December.

For reference, the new investments placed on non-accrual status during the March quarter contribute approximately $0.03 per share on a quarterly basis. Looking ahead, we expect to see significant increase in the number of amendments and restructurings in our portfolio. We believe these amendments will provide our portfolio companies with the flexibility needed to operate in this economic downturn and may include things like waving covenants, converting the cash interest to pick and delaying amortization payments. So we can use such amendments to reprice our risk heightened loan documentation add covenants and secure additional equity capital.

With that, I will now turn the call over to Greg, who will discuss the financial performance for the quarter.

Gregory W. Hunt -- Chief Financial Officer and Treasurer

Thank you, Tanner and good morning everyone. Beginning with the income statement, total investment income was $71.6 million for the quarter up $3.1 million or 4.6% from the prior quarter. The increase was attributable to higher interest income and fee income, partially offset by lower dividend income, interest income rose due to a higher average portfolio partially offset by a decline in the yield of the portfolio, due to the decline in LIBOR and a lower yield on new investments compared to sales and repayments. The weighted average yield on our corporate lending portfolio declined to 8.5% down from 9% last quarter. Quarter-over-quarter one month LIBOR declined 77 basis points, or 1.76% to 1% and three-month LIBOR declined 46 basis points from 1.91% to 1.45%.

Fee income was $3.3 million for the quarter, up from $1.2 million last quarter. Prepayment income was $2.5 million down slightly from the prior quarter. Dividend income was $2.4 million, down from $3.2 million last quarter. Approximately 97% of contractual interest payments for the quarter were collected and we received a similar percentage for the payments that were due on May 1st. Expenses for the quarter were slightly up due to higher interest expense given the increase in the average portfolio, due to the net loss no incentive fee with the crude or paid during the quarter. Interest expenses rose $800,000 quarter-over-quarter, due to higher average debt balance, partially offset by a decline in the weighted-average funding cost, due to the decline in LIBOR. The quarterly weighted average interest cost on our portfolio declined approximately 26 basis points from 4.2% to 3.93%.

Net investment income per share for the quarter was $0.59 compared to $0.54 for the December quarter. As Tanner mentioned new investments placed on non-accrual status impacted net investment income by $0.03. Net leverage at the end of March was 1.71 times, compared to 1.43 times at the end of December. The net loss on the portfolio for the quarter totaled $186 million or $2.81 per share. On page 16 of the earnings supplement we've broken out the net loss by strategy, our corporate lending portfolio accounted for $0.97 or 35% of the net loss. Merx accounted for $0.44 or 16% of the net loss and non-core and Legacy assets accounted for $1.39, or 50% of the net loss. The net loss on non-core portfolio was primarily driven by oil and gas investments due to the significant decline in the price of oil.

The net loss on our investment in Merx was attributable to the impact of rent deferral that Tanner mentioned earlier and higher discount rates due to weaker conditions in the industry. Approximately $0.77 per share or 79% of the net loss on the corporate lending portfolio was driven by the impact of credit spreads widening on the valuation of the company's investments. The vast majority of our corporate lending portfolio is valued using a yield approach, changes in market spreads are incorporated into the quarterly valuation of our investment. In addition to looking at the weighted average life or duration of a loan. LIBOR floors, industry characteristic and specific issue or factors.

NAV per share at the end of March was $15.70 a 14% decline quarter-over-quarter. Moving to liquidity our capital and liquidity at the end of March we had $1.79 billion of debt outstanding up slightly $9 million from the prior quarter. As a reminder, we have no term debt maturities until 2025, during the quarter and prior to the volatility caused by the pandemic, we worked with our lenders to improve our revolving credit facility and liquidity. We greatly appreciate the support from our banks, we amended our credit facility to remove the 200% borrow asset coverage covenant.

In addition we increased commitments to our facility by $100 million, increasing the total size of the facility to -- from $1.7 billion to $1.8 billion. At the end of March we had $224 million of immediate availability in liquidity and $131 million of additional capacity under the credit facility. Moving to unfunded commitments page 18 in our earnings supplement shows our outstanding commitments at the end of March. During the month of March, we experienced increased draws requests on revolving credit facilities that we provide to our portfolio companies. As many of them sought to solidify their liquidity. We have seen draw request drop off significantly in April and May. Of the $270 million of unfunded revolver and bridge loan commitments, outstanding at the end of March $132 million are not available to borrowers and $138 million are available.

Availability is based on borrowing-based limitations and other covenants, since the end of March we've had modest net repayments from revolvers. There is no significant draw and delayed-draw term loan commitments during the quarter, which are generally used to support portfolio company acquisitions and have incurrence covenants. Turning to the portfolio composition our investment portfolio had a fair value of $2.79 billion at the end of March and was distributed across the 152 companies in 28 industries. We ended the quarter with core assets representing 90% of the portfolio, up from 88% at the end of December. Non-core assets decreased 10% -- to 10% of the portfolio, down from 12%. First lien assets increased to 85% of the corporate lending portfolio, up from 82% last quarter. The weighted average attachment point remained at 0.9 times. Investment made to -- investments made pursuant to our co-investment order were 76% at the end of the quarter.

Lastly, during the quarter, we repurchased approximately 1.3 million shares of our stock at an average price of $11.62 for a total cost of $15 million. Leaving $27 million available for future stock purchases. This concludes our prepared remarks. Operator, please open the call to questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question comes from the line of Finian O'Shea with Wells Fargo Securities.

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

Hi, good morning. I hope everyone is doing well. First question for Howard. Do you guys filed a new shelf yesterday updated from just a few months ago. Can you tell us what, what's changed, what you're applying for and how we should think about it?

Howard T Widra -- Chief Executive Officer

Greg. Do you want to answer that?

Gregory W. Hunt -- Chief Financial Officer and Treasurer

[Indecipherable], sorry. Well and what was that again, Fin?

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

I was asking about the change in your new shelf application filed yesterday?

Gregory W. Hunt -- Chief Financial Officer and Treasurer

Yeah. Yes. We filed it just to be up to date relative to current standards and all of that on. We have filed it and updated it in January and we needed to do several other kind of tweaks to it. So it's just to have it current.

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

Okay, I'll move on to Merx. Terry you provided some very good color there. I appreciate it. Can you, as you go through these potential rent deferrals or contracts renegotiations as outlined. You touched on being in those discussions. Can you give us some color on what kind of impact to those would have on the triggers or the Merx's securitization debt or other term debt. What level of -- what level of -- of asset coverage is -- is ample there for that to remain performing?

Tanner Powell -- President and Chief Investment Officer

Yes, sure. And hey Fin, hope you're doing well. Your first hit is the generic comment or perhaps getting a little bit more granular on the lease deferrals themselves. This is obviously a pretty unique situation in which airlines across the globe and lessors by extension are all grappling with the same situation at the same time. And generally speaking the deferrals while every negotiation is somewhat situation dependent have generally speaking -- generally speaking, been like a three-month deferral in some cases longer, but then paid back six to nine months thereafter.

As it relates to the meat of your question there Fin. I think you highlighted in some ways, one of the attributes that is a, I think a good fact in terms of our funding in that just over two-thirds of our exposure Fin, is actually in securitizations and relatively speaking securitizations provide for more flexibility for the management and really, really relate to payment of senior interest as the trigger and we feel, while it is as you could probably imagine difficult to speculate given how dire the situation is at the very moment in time and we'll have a lot to do with the duration of the pandemic, feel good about where we -- where we stand with respect to the, to the securitization structures. I would also add, we do have in addition to the liquidity that Greg outlined at the AINV level there is cash at Merx and then there is cash within the securitization structures as well to help defray any of those potential needs.

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

Sure. Very helpful. And then one final one for me, I'll jump back in, I think Greg -- Greg or Howard mentioned a bit of deleveraging through repayments. Can you give us any color on sort of what level or what level of leverage or portfolio that you're thinking given the current environment?

Howard T Widra -- Chief Executive Officer

Yeah, I mean, our goal is to sort of operate at a steady state at the range we talked about before. So say 1.4 to 1.6, right? And so we're at 1.7 now. Obviously there is another part of that to see if there is further pressure on NAV in the coming quarters depending on sort of how sort of the global economy works, we're putting that aside there -- the net pay downs we would need to get down to the ballpark of the level we would want is a couple of hundred million dollars. And so we're sort of focused on that with regard to which, which borrowers have liquidity options there are, although in the normal market, people are repaying all the time. This is not a normal market, but that said, there are almost every borrower is looking at sort of their capital structure going forward. And there are, there are many, who have opportunities to refinance or have other alternatives, which would encourage you to take. So our hope would be to over the next few months or quarters to sort of be able to sort of hit that deleveraging, but it should be -- it should be a straight line down, it just depends on the slope of that line depending on how successful we are, but we have a -- we have a list of transactions that we expect to have some liquidity, for example, there's a few that have sale processes or really sales contract signed up. We know they're getting taken out, there are other ones that are asset based it clearly have other financing options. So we're pretty, we're pretty focused on that. And so that's the size, we're talking about a couple of hundred million dollars over the next three, four months or so.

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

Okay. Thank you so much everyone.

Operator

Your next question comes from the line of Kenneth Lee with RBC Capital.

Kenneth Lee -- RBC Capital -- Analyst

Hi, good morning and thanks for taking my question. I think you touched upon this in the prepared remarks, but wondering if you could just further elaborate on the potential benefit from the SEC's recent relief on core investment restrictions? Thanks.

Howard T Widra -- Chief Executive Officer

Sure. The one of the constraints prior to that relief, was any affiliate of AINV, which was not a lender in the transaction, when AINV entered couldn't -- couldn't step into the transaction and lend as well. And so that -- that meant that if there was an add-on to a company or sort of another lending opportunity that pool of capital was not available. And it didn't come from a third-party, or one of the other Apollo entities that were already in the deal. In AINV's, as you know, a lot of the deals already have mid cap in them, and so there is an opportunity. But now there is also this release now changes that rule as I described and said affiliates -- affiliates can invest subject to certain conditions, even if they were not in it at the outset. So what that just means it just gives you another sort of a tool to use if there is capital needs or liquidity needs that companies beyond AINV's balance sheet and we're just underlining that because it's important to be able to support our companies both defensively and offensively. At the same time it's really important that we hit that de-levering mark we want to hit. And so that SEC relief just provide sort of the full array of Apollo capital available for opportunities that make sense?

Kenneth Lee -- RBC Capital -- Analyst

Great. Very helpful. And just one follow-up if I may? You mentioned in the prepared remarks, seeing a drop off in revolver requests from portfolio companies in the April to May time-frame. I wonder if you could just share with us any particular details on what particularly causing a drop off and whether you expect request to pick up in the near term? Thanks.

Howard T Widra -- Chief Executive Officer

Sure. I -- they were, they are sort of two-fold, one, let's talk about the one that is sort of most, it's across our whole, the whole BDC industry, which has been non -- the non-ABL ones, the leveraged loan revolvers, really what happened is everybody -- everybody or not everybody, the vast majority of borrowers at the end of March, sort of knee jerk drew on the revolvers, if they thought they may have a liquidity need, so not everyone. But a lot. And so the peak revolver draws came really right at the end of the quarter, as the first few weeks of April came on that sort of abated, but everyone sort of sat on their capital to figure out, what's going on? Since that time, probably over the last three weeks, there has been pay downs on net pay downs because effectively people now realize they won't need that capital, they projected out what they need and they don't want to sit on cash and pay interest on it, and so we are seeing each week a modest amount of repayments as people pay down and very little draws, if any, and I don't think that experience on the revolver level is any different than the vast majority of our -- of our competitors, who do leverage lending. So another words revolver utilization is down in sort of I would say the single digits as a percentage basis on the leverage loans, just because of the dynamic of the way the market work. That's one obviously as we work through amendments with people. We also try to address some of that and get repayment. So people on covenant relief, if we want cash back, we shrink revolvers and things like that and so you would expect that will also provide some sort of downward pressure on utilization as well.

Separately, we have ABL commitments and so ABL commitments their utilization could go up or down depending on their collateral. But because we have a few healthcare deals and there has been a lot of stimulus money for these healthcare companies, they have been relatively flush, since -- since the end of the quarter and that has also provided some downward pressure on ABL utilization.

Kenneth Lee -- RBC Capital -- Analyst

Great, very helpful. Thanks again and hope everyone stays safe.

Operator

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

Casey Alexander -- Compass Point -- Analyst

Hi, good morning. A lot of good questions already. Let me ask a couple here. First of all in relying on the executive order for co-invest, does that preclude AINV from making new investments or participating and structuring in origination fees. Or does that -- are does those restrictions only apply to the BDC, if you sell additional senior securities?

Howard T Widra -- Chief Executive Officer

It can be more -- it could be even more technical than that, but first of all the exemptive orders generally are sort of skewed to protect the BDC, so -- so generally, I'll get sort of two answers to that, the way the BDC's projected. One is, if there is an opportunity to lend going forward, the BDC has its option to take as much as it wants to take, it were as much to take its portion of that origination. So it has the option to come in or come out, one. Two, generally when there is new lending coming in, it requires an amendment to the existing facility. And so, as sort of, one to sort of the required lenders. They also AINV also needs to approve those new, the new funds coming in. So generally what would happened is that they -- there wouldn't necessarily -- they wouldn't necessarily get the origination fees, if they put in the new capital, but generally there would be fees to the existing capital for allowing the capital structure to expand. So put another way AINV should benefit from the perspective of one, it can always invest the money if it's particularly appealing and it's certainly won't get disadvantaged in that it will be, it will be higher priority or be disproportionately higher yield, because it can -- it will also, it can also sort of make sure that, the economics go to the whole, to where the risk is being taken across the board. Does that answer the question?

Casey Alexander -- Compass Point -- Analyst

I think so. Maybe I'm trying to follow-up with Greg on that one afterwards.

Howard T Widra -- Chief Executive Officer

Okay.

Casey Alexander -- Compass Point -- Analyst

Because it is, it is pretty technical. Let me ask a different question here. Your leverage ratio kind of presupposes that you need to do some de-leveraging, which you discussed about a couple of hundred million dollars and as you say that's likely to come from repayments and repayments of healthy in interest earning investments at the same point in time you mentioned that there is an increase in discussions with borrowers, they kind of suggests that it is likely that there are more non-accruals on the way, which would hamper your interest earning investments. How does the Board think about maintaining the dividend at $0.45 and -- and not again reset that dividend at a level that's more sustainable for the long-term against this interest rate environment and allow for some NAV accretion as you over earn that dividend?

Howard T Widra -- Chief Executive Officer

Yeah. So without obviously, I don't speak for the Board, I'm on the Board, but I don't speak for the Board, I think the intent of the Board is to set a dividend policy that is, long-term sort of achieves the goals you just talk about. Putting aside the specifics on all the pressures you're talking about like, I don't know if sort of the, for example if the corporate discussions will necessarily give rise to significantly more non-accruals. But that said is shrinking book, obviously loses interest income, as well as sort of less velocity of transactions means less transaction fees. So that's another source of pressure and potentially less dividend income at Merx all things put pressure on our earnings. And I think the intent of the Board will be to set a dividend policy that's sustainable in the long term. And so the dividend paid this quarter obviously was well covered by the earnings this past quarter, and if you look forward to where our portfolio is right now also assuming no incentive fee is in the ballpark of our earnings power for next quarter, but that said, we would expect that the Board will look at setting a dividend that is in the ballpark of what most BDCs pay against their NAV in order to achieve the goals we are talking about. So I think the shorter answer is we want to have a clearer picture as we work through this next quarter. In terms of how some things will play out both with Merx cash flow and portfolio, cash flows and give the Board a clearer picture with regard to how to think about that for the longer term.

Casey Alexander -- Compass Point -- Analyst

Okay, that's very fair answer. Thank you. And lastly on lease deferrals on the aircraft, since there are deferrals, do you still accrue that income from a book standpoint. And then if the -- if the lessor files for bankruptcy down the road that has to be reversed or does that sort of go on like an internal non-accrual versus that lease and hopefully recaptured down the road?

Howard T Widra -- Chief Executive Officer

Any of us could answer that. I think, Greg you want to take a shot?

Gregory W. Hunt -- Chief Financial Officer and Treasurer

Yeah, I'll answer it. Yeah, I mean our Merx financials, which were filed today, along with our 10-K, we apply GAAP standards and as I'm sure you're very familiar with. You do accrue income within Merx. Okay. Not at the AINV level and then we also provide reserves against those receivables to the extent that there is short-term impairment. So we evaluate that every month. And so hopefully that answers your question.

Casey Alexander -- Compass Point -- Analyst

Okay. I think it definitely gives me an idea. I'll step back in the queue and open it up for other questions now. Thank you very much.

Operator

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

Kyle Joseph -- Jefferies -- Analyst

Hey, good morning guys. Thanks for taking the questions and hope everyone is doing well. I just wanted to step back and go more high-level question, given the current environment, where your leverage is, just talk about how you envision capital allocation priorities over the coming months or in terms of debt pay-downs, investing in new companies, investing in existing companies or even share repurchases?

Howard T Widra -- Chief Executive Officer

Sure. I guess, in terms first -- for the first priority is our portfolio companies, both because those are the companies we know the best, so we can, we can get a sense of those opportunities the best and there in front of us. And also because they support both who our existing clients are and our existing investments. To the extent that there is capital needs there, we expect to be able to support them again, almost all of them have mid cap involved in them. So the amount that AINV will choose to do will just depend on sort of how appealing we think it is, how much pay down activity we've had in that quarter, etc, but we will -- we will lean toward wedding out other balance sheets put in the extra capital especially if sort of the whole facility get stronger, if you will, economically and from a credit perspective.

In terms of new opportunities, I think, the whole market for new opportunities is an interesting one because a lot of people are talking about, they have dry powder and they're ready to invest, but there has not been a whole lot actually executed in the market and the market still finding its footing. We wouldn't expect to, obviously, as we're shrinking the portfolio to be -- to doing a significant amount of new business. That said, under our exemptive order, in order to basically invest in companies, down the road, we need to be part of facilities, day one, and so there is a reasonable chance we'll take nominal amounts of new origination in order to basically have a foothold in those facilities. So in other words, you may see a bunch of names being out it's very small numbers, in order to enable us to sort of continue to be involved in those names going forward as there is opportunities. Lastly, with regard to share buybacks our -- our position has always been that, if it is an appealing in investments, an accretive and value created for our shareholders, it's going to be part of what we will consider doing, when we're trading at a significant discount to NAV and [Indecipherable] of those buybacks are almost in all cases better than new origination. So we would expect it to be depending on how the world goes part of what we do, but our first priority right now is de-lever, so that's going to go further down on the list until there is, until there is more liquidity in the company or there is sort of such overwhelming value that -- that it -- that it sort of has to be done. Does that covered off?

Kyle Joseph -- Jefferies -- Analyst

Yeah, yeah. That's very helpful. Thank you. And then just one follow-up from me in your discussions with sponsors and tracking your portfolio companies. I know it's early, but have you seen any -- any sort of positive signs, since the economies kind of started to reopen slowly?

Howard T Widra -- Chief Executive Officer

Yeah, positive signs. I guess, I would say less negative signs. The first pro forma as you've gotten from people in there and from sponsors, especially as they start to think about how they want to plan out the next three quarters were relatively negative projections and now we're starting to see sort of real-time results that are better than those negative projections, because things are opening up soon, like a lot of people had cases where revenue doesn't start till June 1st and our revenue was started sooner. And so that's pretty meaningful because that means people are setting more cash to meet expected, which means they -- they may need less capital and they will pay down the revolvers all of those things.

So I wouldn't necessarily call that positive as opposed to less negative. But you are seeing that you're seeing effectively numbers come in real time that are above sort of people sort of base cases they set at the end of March, which is -- which is positive because obviously, when you're a first lien lender, you have a bunch of cushion and these companies, because of their revolvers or because of just the position they were in had reasonable liquidity. So like that type of improvement in sort of revenue and cash coming, and not really cash flow, the cash coming in, really actually extends the -- the runway, but also just sort of changes the band of outcomes for companies in terms of capital they need. And so, so we are seeing that, but I wouldn't -- it's not enough to sort of ride home with that.

Kyle Joseph -- Jefferies -- Analyst

Got it. Well, thanks very much for answering my questions. Less negative is definitely a positive in this environment. Thanks, guys.

Operator

Thank you. And your last caller, question is from Arren Cyganovich with Citi.

Arren Cyganovich -- Citi -- Analyst

Thanks. I just one is wondering, you've mentioned the timeline to get back down to a leverage level of 1.4 to 1.6, is this, is this really the right level of leverage, we should be targeting, it should be -- should it be lower I think that seeing that companies that has started in 1.5, this type leverage heading into this or forced to raise capital or forced to de-lever you don't have much free dry powdering to work as we get out of this? Is that something that you might want to reconsider as to the appropriate amount of leverage you need for the vehicle?

Howard T Widra -- Chief Executive Officer

Well, obviously environment like this should make you consider everything in terms of what your strategy is, but I would say, our strategy has always been that we can operate at the higher range of leverage versus other BDCs, because we are putting together the most granular and are the most granular and highest up the balance sheet of portfolios. And so, one thing I would say is as we do our -- our forensics on what happened here over the next few quarters, the appropriate answer to that question will be, let's see how that corporate book performed and how volatile it was and how much it moved, leverage versus what happened to some other people and see if then that's appropriate conclusion. I'm not sure it will be, we feel pretty good about the volatility on that corporate book and to be fair, I'm not sure it won't be either, but I do think in looking at our relatives -- the relative performance of that book versus other assets we have, that -- that you would necessarily reach the conclusion you just said, if it was only that book, which was sort of our -- sort of most of our goal to get to. So certainly, for sure I think, there needs to be a sort of as everybody works through this a rearticulation of where your strategy falls, we haven't yet seen anything that suggests what our strategy was, wasn't sort of the safest of all the strategy one could have chosen, unfortunately we weren't all the way through getting to where that portfolio should have been. And so we're absorbing that hit and that may be a pretty, that may have substantial impact on it.

So hope -- hopefully that sort of addresses it. So I don't, I -- I think operating with a pure first lien granular book at the 1.4, 1.5 leverage range would be especially without an SBIC, where you have hidden leverage or a JV down below where you have hidden leverage is not, is if probably less volatile than a 1.1, 1.2 book with a lot of second lien exposure and sort of hidden subordinate certificate exposure and those type of things.

Arren Cyganovich -- Citi -- Analyst

Yeah. And then I guess looking in DSO, either they are the chemicals company they got marked down pretty dramatically not on non-accrual. Is there anything you can comment about that, particularly investments?

Howard T Widra -- Chief Executive Officer

Yeah, that's a -- that's a legacy, that's one of those legacy investments are Carbon Free. Tanner do you want to spend time on it?

Tanner Powell -- President and Chief Investment Officer

Yes, sure. So this is a -- a petrochemical plant in Texas referred to as Carbon Free with the technology. I think of it as a greener alternative to carbon capture and has experienced historical issues in terms of ramp of the facility has attracted significant equity capital over, it's -- it's like, it -- it produces three separate outputs. One of which is hydrochloric acid, which itself is used heavily in fracking of wells in the prices for that have also have obviously gone down significantly in the current market environment, offset to a certain extent by the other output or the other two outputs and in particular bleach in caustic soda, bleach being something that has seen demand relatively, resilient and pricing relatively, resilient and so the, and then this is also an investment in which we undertook a restructuring whereby we would have a greater deal of our value with the value of the IP, which we do believe to be a valuable and the company's go-forward strategy is to find a partner for use of that IP and if you kind of think about in the context of the broader concerns and motivations and mandates to make more green such processes. We're hopeful that -- that will drive some value. So that's that investment.

Arren Cyganovich -- Citi -- Analyst

Thank you.

Operator

You do have several more questions. The next question is from Rick Shane with JP Morgan.

Richard Shane -- JP Morgan -- Analyst

Hey guys, thanks for taking my questions and I hope everybody is doing well. Wanted to talk a little bit about the aircraft portfolio. I'm curious within the fleet what the mix between classics and NextGen planes are, and I'm curious particularly how that impacts your ability to release the planes and what the collateral value is and the reason I ask is, we've seen jet fuel prices basically back to 20-year lows and historically when that happens, the price between -- the price discrepancy between classics in NextGen planes convergence because fuel efficiency is much less of an issue, so I'm curious how you guys look at your portfolio and what the actual impacts are?

Tanner Powell -- President and Chief Investment Officer

Yeah, sure. Thanks, Rick. I'll take a stab at this. So if you think about, I'll kind of put it in three different categories and sometimes the nomenclature can be a little bit confusing the classics would be the 700 and previous on the 737 and then what's called NextGen is what has been produced over that kind of last 10 to 15 years. And then the next-gen -- next-gen would be the Neo and the MAX and right now in your comment was very astute and correct and you may recall, we had actually previously been invested in some classics and some other assets such as the MD-80, which itself were older equipment and with the down-draft in oil prices.

The last time in the 2015-2016 period saw significant excess value to end of life asset that would have otherwise been retired, but owing to the fact that fuel prices were less, they continue to operate. Our current fleet has very little classic by this point in time there is not as many classic out there and most of those have approached their 20 to 25-year life cycle and they are very few in operation. Our fleet would be very much in that middle category, we have very little exposure to the most recent technology, be it the Neo and the MAX obviously good as it relates to the MAX given -- given some of the issues there, but also less -- less, less opportunity and so while not as pronounced and I'll draw the things in here Rick, while not as pronounced as they benefit relative to the classics, for instance, in terms of oil price and fuel efficiency, that the 737 800, 320 200, versus the Neo and the MAX do have some of that fuel benefit and that's one thing that we think could help some of the resiliency in the period. I would also note that our, as I mentioned in my prepared remarks, we're disproportionately narrow-body, which itself as an asset class or a broader asset class, I would expect to be more resilient not just because of the likelihood that domestic flying in various countries probably picks up sooner and is more robust relative to Trans-Atlantic, but so to also the MAX I referenced in that, we are entering this period of time with less of a -- of an imbalance. So a lot there, very good question, Rick, I would say there is some benefit not as pronounced as we saw in 2016 with the classic that we had in the MD80s but some modest benefit, and we do take some modicum of comfort in that, our portfolio is almost exclusively narrow-body at this point.

Richard Shane -- JP Morgan -- Analyst

Got it. That's a very helpful answer. And I do appreciate the -- the clarification of the strong point on the narrow bodies in terms of how we could imagine air travel starting to pick back up domestically first. Thank you, guys.

Operator

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

Robert Dodd -- Raymond James -- Analyst

Hi guys. I'm Robert. [Indecipherable]. Hey, I've got a few questions, I'll try be quick, quick on the oil and gas, it's part the focus [Indecipherable] the hedges coming off essentially over the course of this year. Obviously, they can generate some cash flow in the near term by monetizing those hedges, but longer -- again if depending on how long oil prices stay low with this oil and gases business activity, you've been trying to so reduce exposure. But once you appetite, but putting -- potentially putting in more capital into those businesses hedge is no longer to protect a potential eventual recovery. I mean is that a segment that we can see grow again in the near term?

Howard T Widra -- Chief Executive Officer

No. Of that.

Robert Dodd -- Raymond James -- Analyst

That's fair enough.

Howard T Widra -- Chief Executive Officer

I mean, Glacier is mostly near term, it's most of its value is being either sort of will be monetized, where the hedges are pumping. Spotted Hawk, a lot of the valuation is staying in the ground. And so it's valuation will sort of stay there. So it's just like, if prices stay down. It's just, it's value stays down for longer, but it's more, it's a lot of option value to its valuation anyway, because it's not currency. So, but we don't want to invest more capital there, obviously if there's something defensive we have to do and to ensure downside value, we'll do that. But other than that, no.

Robert Dodd -- Raymond James -- Analyst

Got it. Got it. On Merx on the liquidity -- in the prepared remarks and then in the report you mentioned obviously they've got cash in this categories realizations, what level have of the least deferrals, could Merx handle from a attacking near-term cash flow impact perspective and there is still service the debt to you. I mean, is there a risk that we could see Merx maybe particularly interested in the second or third quarter only a non-accrual is that the cash levels efficient to maintain cash pay on the debt-to-AINV?

Howard T Widra -- Chief Executive Officer

I don't, I -- Tanner, Greg, you want to answer that. Greg?

Gregory W. Hunt -- Chief Financial Officer and Treasurer

Yeah, I think at this time point, Robert. I mean we're -- we're assessing it and we continue to assess considering if you think of the, the debt as in the entire investment there as our equity sitting in the structure, we'll look to combined our debt in our dividend and look at the appropriate level on one to support leaving capital in like we did this quarter. And -- but it really will be a function of what happens as we look into July, when most of the deferrals are completed. Then, let's see how the industry opens up and so is, I think as Howard mentioned as we look at the distribution. We're going to look at all the components of income to determine what level that they can pay going forward.

Robert Dodd -- Raymond James -- Analyst

I appreciate that. Yeah. Things are really hard project right now. One last one if I can real quick. Howard in the prepared remarks, Howard you said 1.4 to 1.6 leverage in response to one of the questions you told that 1.4 to 1.5. I mean is it fair to say that the target for near, medium term will be to get down toward the lower end of your target leverage range?

Howard T Widra -- Chief Executive Officer

Yeah, I mean it's hard to be that precise, because you have a revolver that fluctuate a little bit. I think the answer is we don't want to be at 1.59 because we want to have some room to sort of to take on new opportunities, as things pay off and things like that. So, we'll assess that when we get when we get there, but we're not. I would say, you know, it's probably the right target is the middle of that is probably 1.5 if I just had to choose one, because we feel like from a risk perspective, if it's in corporate portfolio we can operate well there, from the perspective on sort of new investments and liquidity and choices and things like that. Obviously, the less leverage, you have the more new things you can do so. So you know that, that comes into the mix, but I would say, you know, we're targeting to get into that range and probably sort of hover around the middle of the range.

Robert Dodd -- Raymond James -- Analyst

Got it. Thank you.

Operator

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

Ryan Lynch -- KBW -- Analyst

Hey, good -- good afternoon, guys and hope all is well. I wanted to follow back up with the leverage and the liquidity discussion. So obviously leverage increased a decent amount as was expected for you and in most BDCs and as I look at your limited amount of capacity on your credit facility, which is obviously subject to change. We are how your borrowing base moves, I know a lot of investors coming into this quarter was looking at a power potentially meeting to do some sort of equity raise, to be able to manage through this downturn, you kind of mentioned that your guys plan is just to use repayments from your current portfolio to de-lever and manage through this. So as you sit here today and as you try to look through forecast out the outlook going forward, which I know is very hard to do, do you anticipate. And do you think that there will potentially be the need to raise additional equity capital, to manage through this downturn?

Howard T Widra -- Chief Executive Officer

So a couple of things. Obviously, it's a Board decision. And obviously like any -- anything is possible. Right. It is there is all sorts of a disclaimers. I need to put on anything I say with regard to sort of predicting what's going to happen. So, but we, we our goal is to, as it has been since we all started working together is to sort of navigate through, what we're doing to do the things that are most value creative given the hand we've been dealt for our existing shareholders in doing sort of an equity raise that dilutive is not of usually the highest thing on that list. So as we laid out what we did here, we have a plan that isn't so a plan that has room in it to execute without doing that. So hopefully that sort of answers the question, Mike. I don't want to take any any choices away from our -- our Board in terms of what they may choose to do or think that's appropriate, but we think we have a workable plan with our -- with a good amount of flexibility to work through this and have our metrics start getting better without doing dilutive equity.

Ryan Lynch -- KBW -- Analyst

Okay, fair enough. I know it's a difficult -- difficult Mercury time that you're trying to evaluate what the outlook looks like, but I appreciate the comments. And then just one other one. Just on your Merx valuation of the equity interest. How exactly is the valuation for the equity interest done is that based on some shortage yield and discount rate that you guys use on the income that it generates or expected to generate in the future or is it a burn down type of analysis, liquidation analysis of what those underlying assets are worth. I just know because the reason I ask is, you know, when you look at the financials that Merx are filed today for 2020 fiscal year, we had a pretty, pretty substantial net loss for that year. So just wanted to get a little more color on how the equity portion of your Merx investment is valued?

Howard T Widra -- Chief Executive Officer

Greg, do you want to?

Tanner Powell -- President and Chief Investment Officer

Yeah.

Howard T Widra -- Chief Executive Officer

Who is that? Tanner?

Gregory W. Hunt -- Chief Financial Officer and Treasurer

Yeah.

Tanner Powell -- President and Chief Investment Officer

Yeah. I have [Speech Overlap]

Gregory W. Hunt -- Chief Financial Officer and Treasurer

Or go ahead Tanner.

Tanner Powell -- President and Chief Investment Officer

Yeah. Sure. So first off the as with all our liquid positions we get third-party to value give us -- give us actual valuations. But the, in what you described it touches a number of those aspects. But it's really a discounted cash flow into the future. And at a discount rate, which is determined based on -- based on market comps. And then the cash flow forecast, of course, representing our best estimate of future, which itself would also and naturally involve an assumption around ultimate residual value. And so it's built up there. It's not a yield analysis and it's not a straight collateral point in time. What's the value of the assets. It's a discounted cash flow, which again, sorry, the risk of being redundant, has a residual assumption embedded at the end of the lease or projected whole period.

Ryan Lynch -- KBW -- Analyst

Okay, got it. Those are all my questions. I appreciate the time today.

Howard T Widra -- Chief Executive Officer

Okay. Thank you everybody for listening today's call on behalf of all of us. We thank you for continued support as we navigate this time period, obviously reach out to any of us if you have any questions and we hope everybody stays healthy and safe.

Operator

[Operator Closing Remarks]

Duration: 71 minutes

Call participants:

Elizabeth Besen -- Investor Relations Manager

Howard T Widra -- Chief Executive Officer

Tanner Powell -- President and Chief Investment Officer

Gregory W. Hunt -- Chief Financial Officer and Treasurer

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

Kenneth Lee -- RBC Capital -- Analyst

Casey Alexander -- Compass Point -- Analyst

Kyle Joseph -- Jefferies -- Analyst

Arren Cyganovich -- Citi -- Analyst

Richard Shane -- JP Morgan -- Analyst

Robert Dodd -- Raymond James -- Analyst

Ryan Lynch -- KBW -- Analyst

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