UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
| Investment Company Act file number | 811-22591 |
| Apollo Tactical Income Fund Inc. |
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| (Exact name of registrant as specified in charter) | ||||||
| 9 West 57th Street New York, New York 10019 |
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| (Address of principal executive offices) (Zip code) | ||||||
| Joseph Moroney, President 9 West 57th Street New York, New York 10019 |
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| (Name and address of agent for service) | ||||||
Registrant’s telephone number, including area code: (212) 515-3200
Date of fiscal year end: December 31
Date of reporting period: June 30, 2018
Item 1. Reports to Stockholders.
The Report to Shareholders is attached herewith.
|
Apollo Senior Floating Rate Fund Inc. (NYSE: AFT) |
| Apollo Tactical Income Fund Inc. (NYSE: AIF) |
| Semi-Annual Report |
| June 30, 2018 |
| (unaudited)
|
| 4 | ||||
| Financial Data |
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| 5 | ||||
| 6 | ||||
| Schedules of Investments |
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| 7 | ||||
| 16 | ||||
| 25 | ||||
| 26 | ||||
| Statements of Changes in Net Assets |
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| 27 | ||||
| 28 | ||||
| Statements of Cash Flows |
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| 29 | ||||
| 30 | ||||
| Financial Highlights |
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| 31 | ||||
| 32 | ||||
| 33 | ||||
| 48 | ||||
| 52 |
Economic and market conditions change frequently.
There is no assurance that the trends described in this report will continue or commence.
This report, including the financial information herein, is transmitted to shareholders of the Funds for their information. It is not a prospectus. Past performance results shown in this report should not be considered a representation of future performance. Statements and other information herein are as dated and are subject to change.
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Manager Commentary
As of June 30, 2018 (unaudited)
Dear Shareholders,
We would like to start by saying thank you for your interest in the Apollo Senior Floating Rate Fund Inc. and the Apollo Tactical Income Fund Inc. (the “Funds”). We appreciate the trust and confidence you have placed with us through your investment in the Funds.
The first half of 2018 has represented a more volatile, yet more advantageous, environment for investing in the leveraged loan and high-yield markets than was experienced in 2017. While the latter represented a generally benign experience without substantial volatility or any real periodic weakness, the first half of 2018 has seen elevated levels of volatility due to two primary factors. First, as rates began to move higher in the beginning of the year, high-yield funds started to experience substantial outflows that were magnified by a concurrent spike in volatility in the equity markets. While the effect of this was concentrated, or felt most acutely, in February and March which saw the worst monthly return figures for the high-yield market so far this year, the effects have lingered in the form of extended outflows from high-yield mutual funds (through June 27th, the year-to-date outflow from high-yield mutual funds stood at roughly $18.6Bn) and, in practice, higher coupons and yields in the primary market as any new deals are generally pricing wider than similarly rated deals would have last year, all else equal. Secondly, while technicals in the loan market have been robust all year, as expressed by both inflows into floating-rate loan mutual funds and new CLO creation, the supply of new loans to the market has been similarly high and has run, at times, in greater volumes than the market can easily absorb. This supply is a function of both the aforementioned rate-related weakness in high-yield, which has pressed borrowers into different markets, and a buildup of capital at private equity firms that is increasingly being put to work, accompanied by the raising of new debt. Regardless of the reasons for it, during periods of relative oversupply such as we’ve experienced in the loan market during portions of 2018, particularly in June, we’ve seen higher yields and a move lower in secondary prices that’s benefitted the overall returns for the Funds.
Fundamentally, underlying credit performance across the Funds, and the broader market, has been generally benign. While we continue to see pressure on certain industries as different business models are challenged by technology (with Retail the obvious and continued outlier), this trend is also continuing to develop in a manner more nuanced than sometimes represented. The default rate of the broadest leveraged loan index (S&P/LSTA Leveraged Loan Index) fell for a third straight month in June to 1.95%, down from a three-year high of 2.42% at the end of the first quarter of 2018 and remains well inside the 3% historical average. While we are seeing instances of margin pressure at certain borrowers in our portfolios on labor or transportation costs, top-line performance is generally strong as would be expected given the broader economic backdrop and consumer-specific data. As such, in this situation where the supply of loans even into relatively strong demand conditions is driving yields higher for performing credits, our investment opportunity set is generally robust and we have in many cases taken advantage of these higher yields.
Over the second half of the year, particularly for the period after this summer, we expect similar supply conditions in the leveraged loan market to weigh on the potential for spread tightening and continue to create the kind of attractive investment opportunities we’ve increasingly been seeing of late. In periods of good fundamental performance and which lack any real obvious catalyst for financial degradation, the Funds will seek to use imbalances in supply and demand to maximize returns while remaining focused on limiting credit risk. We continue to remain very focused on the impact of inflationary pressures in a number of areas on the performance of borrowers across various industries, primarily with regards to the cost of labor and transit, and will remain vigilant in doing what we can to limit the creep higher in leverage to negatively impact positions in the Funds, but reiterate that we see market conditions such as these where competition for loans is limited by a surplus of supply as one of the more relatively attractive opportunity investments in these markets.
We appreciate your interest and support in the Funds. If you have any questions about the Funds, please call 1-888-301-3838, or visit our website at www.agmfunds.com.
Sincerely,
Apollo Credit Management, LLC
4 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Financial Data
As of June 30, 2018 (unaudited)
| (a) | Averages based on par value of investment securities, except for the weighted average modified duration, which is based on market value. |
| (b) | Credit quality is calculated as a percentage of fair value of investment securities at June 30, 2018. The quality ratings reflected were issued by S&P Global Ratings (“S&P”), an internationally recognized statistical rating organization. Credit quality ratings reflect the rating agency’s opinion of the credit quality of the underlying positions in the Fund’s portfolio and not that of the Fund itself. Credit quality ratings are subject to change. |
| (c) | The industry classifications reported are from widely recognized market indexes or rating group indexes, and/or as defined by Fund management, with the primary source being Moody’s Investors Service (“Moody’s”), an internationally recognized statistical rating organization. |
| (d) | Holdings are subject to change and are provided for informational purposes only. |
| (e) | Performance reflects total return assuming all distributions were reinvested at the dividend reinvestment rate. Past performance does not necessarily indicate how the Fund will perform in the future. The performance information provided does not reflect the deduction of taxes that a shareholder would pay on distributions received from the Fund. |
| (f) | Annualized. |
| (g) | The S&P/LSTA Leveraged Loan Index is a broad index designed to reflect the performance of the U.S. dollar facilities in the leveraged loan market. |
| (h) | Excludes securities with no rating or in default as of June 30, 2018. |
| (i) | Inception date February 23, 2011. |
Semi-Annual Report | 5
Apollo Tactical Income Fund Inc.
Financial Data
As of June 30, 2018 (unaudited)
| (a) | Averages based on par value of investment securities, except for the weighted average modified duration, which is based on market value. |
| (b) | Credit quality is calculated as a percentage of fair value of investment securities at June 30, 2018. The quality ratings reflected were issued by S&P, an internationally recognized statistical rating organization. Credit quality ratings reflect the rating agency’s opinion of the credit quality of the underlying positions in the Fund’s portfolio and not that of the Fund itself. Credit quality ratings are subject to change. |
| (c) | The industry classifications reported are from widely recognized market indexes or rating group indexes, and/or as defined by Fund management, with the primary source being Moody’s, an internationally recognized statistical rating organization. The Top 5 Industries table above excludes Structured Products which represent 8.6% of the portfolio as of June 30, 2018. |
| (d) | Holdings are subject to change and are provided for informational purposes only. |
| (e) | Performance reflects total return assuming all distributions were reinvested at the dividend reinvestment rate. Past performance does not necessarily indicate how the Fund will perform in the future. The performance information provided does not reflect the deduction of taxes that a shareholder would pay on distributions received from the Fund. |
| (f) | Annualized. |
| (g) | The S&P/LSTA Leveraged Loan Index is a broad index designed to reflect the performance of the U.S. dollar facilities in the leveraged loan market. |
| (h) | Excludes securities with no rating or in default as of June 30, 2018. |
| (i) | Inception date February 25, 2013. |
6 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments
June 30, 2018 (unaudited)
See accompanying Notes to Financial Statements. | 7
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
June 30, 2018 (unaudited)
8 | See accompanying Notes to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
June 30, 2018 (unaudited)
See accompanying Notes to Financial Statements. | 9
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
June 30, 2018 (unaudited)
10 | See accompanying Notes to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
June 30, 2018 (unaudited)
See accompanying Notes to Financial Statements. | 11
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
June 30, 2018 (unaudited)
12 | See accompanying Notes to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
June 30, 2018 (unaudited)
See accompanying Notes to Financial Statements. | 13
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
June 30, 2018 (unaudited)
14 | See accompanying Notes to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
June 30, 2018 (unaudited)
| (a) | “Senior Loans” are senior, secured loans made to companies whose debt is below investment grade as well as investments with similar economic characteristics. Senior Loans typically hold a first lien priority and, unless otherwise indicated, are required to pay interest at floating rates that are periodically reset by reference to a base lending rate plus a spread. In some instances, the rates shown represent the weighted average rate as of June 30, 2018. Senior Loans are generally not registered under the Securities Act of 1933 (the “1933 Act”) and often incorporate certain restrictions on resale and cannot be sold publicly. Senior Loans often require prepayments from excess cash flow or permit the borrower to repay at its election. The degree to which borrowers repay, whether as a contractual requirement or at their election, cannot be predicted with accuracy. As a result, the actual maturity may be substantially less than the stated maturity. |
| (b) | The interest rate on this Senior Loan is subject to a base lending rate plus a spread. These base lending rates are primarily the London Interbank Offered Rate (“LIBOR”) and secondarily the prime rate offered by one or more major U.S. banks (“Prime”). The interest rate is subject to a minimum floor, which may be less than or greater than the prevailing period end LIBOR/Prime rate. As of June 30, 2018, the 1, 2, 3 and 6 month LIBOR rates were 2.09%, 2.17%, 2.34% and 2.50%, respectively, and the Prime lending rate was 5.00%. Senior Loans may contain multiple contracts of the same issuer which may be subject to base lending rates of both LIBOR and Prime (“Variable”) in addition to the stated spread. |
| (c) | Foreign issuer traded in U.S. dollars. |
| (d) | All or a portion of this Senior Loan position has not settled. Full contract rates do not take effect until settlement date and therefore are subject to change. |
| (e) | Fair Value Level 3 security. |
| (f) | Non-income producing asset. |
| (g) | The issuer is in default of its payment obligations as of March 7, 2018, as such, income is no longer being accrued. This position subsequently restructured effective July 2, 2018. |
| (h) | Fixed rate asset. |
| (i) | Represents a payment-in-kind (“PIK”) security, which may pay interest in additional principal amount. |
| (j) | Securities exempt from registration pursuant to Rule 144A under the 1933 Act. These securities may only be resold in transactions exempt from registration to qualified institutional buyers. At June 30, 2018, these securities amounted to $44,225,062, or 16.13% of net assets. |
| (k) | The issuer is in default of its payment obligations as of May 5, 2015, as such, income is no longer being accrued. |
| (l) | The Fund has granted a security interest in substantially all of its assets in the event of default under the credit facility. |
| (m) | Principal $141,000,000 less unamortized deferred financing costs of $189,034. |
See accompanying Notes to Financial Statements. | 15
Apollo Tactical Income Fund Inc.
Schedule of Investments
June 30, 2018 (unaudited)
16 | See accompanying Notes to Financial Statements.
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
June 30, 2018 (unaudited)
See accompanying Notes to Financial Statements. | 17
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
June 30, 2018 (unaudited)
18 | See accompanying Notes to Financial Statements.
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
June 30, 2018 (unaudited)
See accompanying Notes to Financial Statements. | 19
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
June 30, 2018 (unaudited)
20 | See accompanying Notes to Financial Statements.
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
June 30, 2018 (unaudited)
See accompanying Notes to Financial Statements. | 21
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
June 30, 2018 (unaudited)
22 | See accompanying Notes to Financial Statements.
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
June 30, 2018 (unaudited)
See accompanying Notes to Financial Statements. | 23
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
June 30, 2018 (unaudited)
| (a) | “Senior Loans” are senior, secured loans made to companies whose debt is below investment grade as well as investments with similar economic characteristics. Senior Loans typically hold a first lien priority and, unless otherwise indicated, are required to pay interest at floating rates that are periodically reset by reference to a base lending rate plus a spread. In some instances, the rates shown represent the weighted average rate as of June 30, 2018. Senior Loans are generally not registered under the Securities Act of 1933 (the “1933 Act”) and often incorporate certain restrictions on resale and cannot be sold publicly. Senior Loans often require prepayments from excess cash flow or permit the borrower to repay at its election. The degree to which borrowers repay, whether as a contractual requirement or at their election, cannot be predicted with accuracy. As a result, the actual maturity may be substantially less than the stated maturity. |
| (b) | The interest rate on this Senior Loan is subject to a base lending rate plus a spread. These base lending rates are primarily the London Interbank Offered Rate (“LIBOR”) and secondarily the prime rate offered by one or more major U.S. banks (“Prime”). The interest rate is subject to a minimum floor, which may be less than or greater than the prevailing period end LIBOR/Prime rate. As of June 30, 2018, the 1, 2, 3 and 6 month LIBOR rates were 2.09%, 2.17%, 2.34% and 2.50%, respectively, and the Prime lending rate was 5.00%. Senior Loans may contain multiple contracts of the same issuer which may be subject to base lending rates of both LIBOR and Prime (“Variable”) in addition to the stated spread. |
| (c) | Foreign issuer traded in U.S. dollars. |
| (d) | All or a portion of this Senior Loan position has not settled. Full contract rates do not take effect until settlement date and therefore are subject to change. |
| (e) | Fair Value Level 3 security. |
| (f) | The issuer is in default of its payment obligations as of March 19, 2017, as such, income is no longer being accrued. |
| (g) | Non-income producing asset. |
| (h) | The issuer is in default of its payment obligations as of March 7, 2018, as such, income is no longer being accrued. This position subsequently restructured effective July 2, 2018. |
| (i) | Fixed rate asset. |
| (j) | Represents a payment-in-kind (“PIK”) security, which may pay interest in additional principal amount. |
| (k) | Securities exempt from registration pursuant to Rule 144A under the 1933 Act. These securities may only be resold in transactions exempt from registration to qualified institutional buyers. At June 30, 2018, these securities amounted to $83,511,955, or 33.31% of net assets. |
| (l) | The issuer is in default of its payment obligations as of May 5, 2015, as such, income is no longer being accrued. |
| (m) | Structured Products include collateralized loan obligations (“CLOs”). A CLO typically takes the form of a financing company (generally called a special purpose vehicle or “SPV”), created to reapportion the risk and return characteristics of a pool of assets. While the assets underlying CLOs are often Senior Loans or corporate notes and bonds, the assets may also include (i) subordinated loans; (ii) debt tranches of other CLOs; and (iii) equity securities incidental to investments in Senior Loans. The Fund may invest in lower tranches of CLOs, which typically experience a lower recovery, greater risk of loss or deferral or non-payment of interest than more senior tranches of the CLO. A key feature of the CLO structure is the prioritization of the cash flows from a pool of debt securities among the several classes of the CLO. The SPV is a company founded for the purpose of securitizing payment claims arising out of this asset pool. On this basis, marketable securities are issued by the SPV and the redemption of these securities typically takes place at maturity out of the cash flow generated by the collected claims. |
| (n) | Floating rate asset. The interest rate shown reflects the rate in effect at June 30, 2018. |
| (o) | The Fund has granted a security interest in substantially all of its assets in the event of default under the credit facility. |
| (p) | Principal $126,500,000 less unamortized deferred financing costs of $305,697. |
24 | See accompanying Notes to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Statements of Assets and Liabilities
June 30, 2018 (unaudited)
| Apollo Senior Floating Rate Fund Inc. |
Apollo Tactical Income Fund Inc. |
|||||||
|
Assets: |
||||||||
| Investment securities at fair value (cost $410,144,569 and $375,871,889, respectively) |
$ | 404,405,301 | $ | 372,171,656 | ||||
| Cash and cash equivalents |
19,411,362 | 20,019,123 | ||||||
| Interest receivable |
1,777,497 | 2,403,744 | ||||||
| Receivable for investment securities sold |
45,076,018 | 41,400,381 | ||||||
| Unrealized appreciation on unfunded transactions (Note 9) |
12,479 | 6,087 | ||||||
| Prepaid expenses |
248,404 | 248,532 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 470,931,061 | $ | 436,249,523 | ||||
|
|
|
|
|
|||||
| Liabilities: |
||||||||
| Borrowings under credit facility (principal $141,000,000 and $126,500,000, respectively, less unamortized deferred financing costs of $189,034 and $305,697, respectively) (Note 8) |
$ | 140,810,966 | $ | 126,194,303 | ||||
| Payable for investment securities purchased |
55,004,965 | 58,595,137 | ||||||
| Interest payable |
277,346 | 136,070 | ||||||
| Distributions payable to common shareholders |
37,862 | 33,667 | ||||||
| Investment advisory fee payable |
343,036 | 311,014 | ||||||
| Other payables and accrued expenses due to affiliates |
84,255 | 80,875 | ||||||
| Other payables and accrued expenses |
182,550 | 191,898 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
196,740,980 | 185,542,964 | ||||||
|
|
|
|
|
|||||
| Commitments and Contingencies (Note 9) |
||||||||
| Net Assets (Applicable to Common Shareholders) |
$ | 274,190,081 | $ | 250,706,559 | ||||
|
|
|
|
|
|||||
| Net Assets Consist of: |
||||||||
| Paid-in capital ($0.001 par value, 999,998,466 and 1,000,000,000 common shares authorized, respectively, and 15,573,061 and 14,464,026 issued and outstanding, respectively) (Note 6) |
$ | 296,699,291 | $ | 275,624,904 | ||||
| Undistributed net investment income (loss) |
1,243,850 | 1,330,778 | ||||||
| Accumulated net realized loss from investments |
(18,026,271 | ) | (22,554,977 | ) | ||||
| Net unrealized depreciation on investments and unfunded loan commitments |
(5,726,789 | ) | (3,694,146 | ) | ||||
|
|
|
|
|
|||||
| Net Assets (Applicable to Common Shareholders) |
$ | 274,190,081 | $ | 250,706,559 | ||||
|
|
|
|
|
|||||
| Number of Common Shares Outstanding |
15,573,061 | 14,464,026 | ||||||
| Net Asset Value, per Common Share |
$ | 17.61 | $ | 17.33 | ||||
See accompanying Notes to Financial Statements. | 25
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Statements of Operations
For the Six Months Ended June 30, 2018 (unaudited)
| Apollo Senior Floating Rate Fund Inc. |
Apollo Tactical Income Fund Inc. |
|||||||||||
| Investment Income: | ||||||||||||
| Interest |
$ | 14,772,136 | $ | 14,233,517 | ||||||||
| Dividends |
170,000 | 170,000 | ||||||||||
|
|
|
|
|
|||||||||
| Total investment income |
14,942,136 | 14,403,517 | ||||||||||
|
|
|
|
|
|||||||||
| Expenses: |
||||||||||||
| Investment advisory fee (Note 3) |
2,078,598 | 1,915,599 | ||||||||||
| Interest and commitment fee expense (Note 8) |
1,997,812 | 1,890,610 | ||||||||||
| Professional fees |
141,326 | 141,326 | ||||||||||
| Administrative services of the Adviser (Note 3) |
342,731 | 337,845 | ||||||||||
| Fund administration and accounting services (Note 3) |
131,597 | 126,662 | ||||||||||
| Insurance expense |
154,456 | 154,456 | ||||||||||
| Amortization of deferred financing costs (Note 8) |
109,063 | 44,590 | ||||||||||
| Board of Directors fees (Note 3) |
63,264 | 63,264 | ||||||||||
| Other operating expenses |
65,049 | 66,793 | ||||||||||
|
|
|
|
|
|||||||||
| Total expenses |
5,083,896 | 4,741,145 | ||||||||||
| Expense reimbursement waived by the Adviser (Note 3) |
— | — | ||||||||||
|
|
|
|
|
|||||||||
| Net expenses |
5,083,896 | 4,741,145 | ||||||||||
|
|
|
|
|
|||||||||
| Net Investment Income |
9,858,240 | 9,662,372 | ||||||||||
|
|
|
|
|
|||||||||
| Net Realized and Unrealized Gain/(Loss) on Investments |
||||||||||||
| Net realized loss on investments |
(6,613,701 | ) | (1,729,091 | ) | ||||||||
| Net change in unrealized appreciation/(depreciation) on investments and unfunded loan commitments (Note 9) |
1,658,870 | (755,113 | ) | |||||||||
|
|
|
|
|
|||||||||
| Net realized and unrealized gain/(loss) on investments |
(4,954,831 | ) | (2,484,204 | ) | ||||||||
|
|
|
|
|
|||||||||
| Net Increase in Net Assets, Applicable to Common Shareholders, Resulting From Operations |
$ | 4,903,409 | $ | 7,178,168 | ||||||||
|
|
|
|
|
|||||||||
26 | See accompanying Notes to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Statements of Changes in Net Assets
| For the Six Months Ended June 30, 2018 (unaudited) |
For the Year Ended December 31, 2017 |
|||||||||
| Increase/(Decrease) in Net Assets from: |
||||||||||
| Operations |
||||||||||
| Net investment income |
$ | 9,858,240 | $ | 17,572,262 | ||||||
| Net realized gain/(loss) on investments |
(6,613,701 | ) | 806,614 | |||||||
| Net change in unrealized appreciation/(depreciation) on investments and unfunded loan commitments |
1,658,870 | (3,572,162 | ) | |||||||
|
|
|
|
|
|||||||
| Net increase in net assets from operations |
4,903,409 | 14,806,714 | ||||||||
|
|
|
|
|
|||||||
| Distributions to Common Shareholders |
||||||||||
| From net investment income |
(8,783,206 | ) | (18,064,751 | ) | ||||||
|
|
|
|
|
|||||||
| Total distributions to common shareholders |
(8,783,206 | ) | (18,064,751 | ) | ||||||
|
|
|
|
|
|||||||
| Total decrease in net assets |
$ | (3,879,797 | ) | $ | (3,258,037 | ) | ||||
| Net Assets Applicable to Common Shares |
||||||||||
| Beginning of period |
278,069,878 | 281,327,915 | ||||||||
|
|
|
|
|
|||||||
| End of period |
$ | 274,190,081 | $ | 278,069,878 | ||||||
|
|
|
|
|
|||||||
| Undistributed net investment income |
$ | 1,243,850 | $ | 168,816 | ||||||
|
|
|
|
|
|||||||
See accompanying Notes to Financial Statements. | 27
Apollo Tactical Income Fund Inc.
Statements of Changes in Net Assets
| For the Six Months Ended June 30, 2018 (unaudited) |
For the Year Ended December 31, 2017 |
|||||||||
| Increase/(Decrease) in Net Assets from: |
||||||||||
| Operations |
||||||||||
| Net investment income |
$ | 9,662,372 | $ | 18,367,839 | ||||||
| Net realized loss on investments |
(1,729,091 | ) | (9,078,404 | ) | ||||||
| Net change in unrealized appreciation/(depreciation) on investments and unfunded loan commitments |
(755,113 | ) | 13,137,720 | |||||||
|
|
|
|
|
|||||||
| Net increase in net assets from operations |
7,178,168 | 22,427,155 | ||||||||
|
|
|
|
|
|||||||
| Distributions to Common Shareholders |
||||||||||
| From net investment income |
(8,736,272 | ) | (18,586,273 | ) | ||||||
|
|
|
|
|
|||||||
| Total distributions to common shareholders |
(8,736,272 | ) | (18,586,273 | ) | ||||||
|
|
|
|
|
|||||||
| Total increase/(decrease) in net assets |
$ | (1,558,104 | ) | $ | 3,840,882 | |||||
| Net Assets Applicable to Common Shares |
||||||||||
| Beginning of period |
252,264,663 | 248,423,781 | ||||||||
|
|
|
|
|
|||||||
| End of period |
$ | 250,706,559 | $ | 252,264,663 | ||||||
|
|
|
|
|
|||||||
| Undistributed net investment income |
$ | 1,330,778 | $ | 404,678 | ||||||
|
|
|
|
|
|||||||
28 | See accompanying Notes to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Statement of Cash Flows
For the Six Months Ended June 30, 2018 (unaudited)
| Cash Flows from Operating Activities: |
||||
| Net increase in net assets from operations |
$ | 4,903,409 | ||
| Adjustments to Reconcile Net Increase in Net Assets from Operations to Net Cash Flows Provided by Operating Activities: |
||||
| Net realized loss on investments |
6,613,701 | |||
| Net change in unrealized appreciation on investments and unfunded loan commitments |
(1,658,870 | ) | ||
| Net amortization/(accretion) of premium/(discount) |
(1,753,326 | ) | ||
| Purchase of investment securities |
(260,492,862 | ) | ||
| Proceeds from disposition of investment securities and principal paydowns |
266,807,959 | |||
| Payment-in-kind interest |
(68,618 | ) | ||
| Amortization of deferred financing costs |
109,063 | |||
| Changes in Operating Assets and Liabilities: |
||||
| Decrease in interest receivable |
709,380 | |||
| Increase in prepaid expenses |
(169,619 | ) | ||
| Increase in interest payable |
73,101 | |||
| Decrease in investment advisory fee payable |
(13,911 | ) | ||
| Increase in other payables and accrued expenses due to affiliates |
84,255 | |||
| Increase in other payables and accrued expenses |
5,298 | |||
|
|
|
|||
| Net cash flows provided by operating activities |
15,148,960 | |||
|
|
|
|||
| Cash Flows from Financing Activities: |
||||
| Distributions paid to common shareholders (net of change in distributions payable to common shareholders) |
(8,824,253 | ) | ||
|
|
|
|||
| Net cash flows used in financing activities |
(8,824,253 | ) | ||
|
|
|
|||
| Net Increase in Cash and Cash Equivalents |
6,324,707 | |||
| Cash and cash equivalents, beginning of period |
13,086,655 | |||
|
|
|
|||
| Cash and cash equivalents, end of period |
$ | 19,411,362 | ||
|
|
|
|||
| Supplemental Disclosure of Cash Flow Information |
||||
| Cash paid during the period for interest and commitment fee |
$ | 1,924,711 | ||
|
|
|
|||
See accompanying Notes to Financial Statements. | 29
Apollo Tactical Income Fund Inc.
Statement of Cash Flows
For the Six Months Ended June 30, 2018 (unaudited)
| Cash Flows from Operating Activities: |
||||
| Net increase in net assets from operations |
$ | 7,178,168 | ||
| Adjustments to Reconcile Net Increase in Net Assets from Operations to Net Cash Flows Provided by Operating Activities: |
||||
| Net realized loss on investments |
1,729,091 | |||
| Net change in unrealized depreciation on investments and unfunded loan commitments |
755,113 | |||
| Net amortization/(accretion) of premium/(discount) |
(1,257,085 | ) | ||
| Purchase of investment securities |
(261,746,291 | ) | ||
| Proceeds from disposition of investment securities and principal paydowns |
288,432,833 | |||
| Payment-in-kind interest |
(67,989 | ) | ||
| Amortization of deferred financing costs |
44,590 | |||
| Changes in Operating Assets and Liabilities: |
||||
| Decrease in interest receivable |
163,770 | |||
| Increase in prepaid expenses |
(169,619 | ) | ||
| Increase in interest payable |
32,953 | |||
| Decrease in investment advisory fee payable |
(20,865 | ) | ||
| Increase in other payables and accrued expenses due to affiliates |
80,875 | |||
| Increase in other payables and accrued expenses |
12,598 | |||
|
|
|
|||
| Net cash flows provided by operating activities |
35,168,142 | |||
|
|
|
|||
| Cash Flows from Financing Activities: |
||||
| Proceeds from borrowing |
126,500,000 | |||
| Repayment of credit facility |
(138,000,000 | ) | ||
| Deferred financing cost |
(339,146 | ) | ||
| Distributions paid to common shareholders (net of change in distributions payable to common shareholders) |
(8,745,158 | ) | ||
|
|
|
|||
| Net cash flows used in financing activities |
(20,584,304 | ) | ||
|
|
|
|||
| Net Increase in Cash and Cash Equivalents |
14,583,838 | |||
| Cash and cash equivalents, beginning of period |
5,435,285 | |||
|
|
|
|||
| Cash and cash equivalents, end of period |
$ | 20,019,123 | ||
|
|
|
|||
| Supplemental Disclosure of Cash Flow Information |
||||
| Cash paid during the period for interest and commitment fee |
$ | 1,857,657 | ||
|
|
|
|||
30 | See accompanying Notes to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Financial Highlights
For a Common Share Outstanding
| Per Common Share Operating Performance: |
For the Six Months Ended June 30 2018 (unaudited) |
For the Year Ended |
For the Year Ended |
For the Year Ended |
For the Year Ended |
For the Year Ended |
||||||||||||||||||||||||||
|
Net Asset Value, Beginning of Period |
$ | 17.86 | $ | 18.07 | $ | 16.92 | $ | 18.30 | $ | 19.12 | $ | 18.73 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Income from Investment Operations: |
||||||||||||||||||||||||||||||||
| Net investment income(a) |
0.63 | 1.13 | 1.24 | 1.22 | 1.18 | 1.34 | ||||||||||||||||||||||||||
| Net realized and unrealized gain/(loss) on investments and unfunded loan commitments |
(0.32 | ) | (0.18 | ) | 1.15 | (1.37 | ) | (0.75 | ) | 0.35 | ||||||||||||||||||||||
| Distributions from net investment income to Series A Preferred Shareholders |
— | — | — | — | (0.02 | ) | (0.04 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total from investment operations |
0.31 | 0.95 | 2.39 | (0.15 | ) | 0.41 | 1.65 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Less Distributions Paid to Common Shareholders from: |
||||||||||||||||||||||||||||||||
| Net investment income |
(0.56 | ) | (1.16 | ) | (1.24 | ) | (1.23 | ) | (1.23 | ) | (1.26 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Total distributions paid to Common Shareholders |
(0.56 | ) | (1.16 | ) | (1.24 | ) | (1.23 | ) | (1.23 | ) | (1.26 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Net Asset Value, End of Period |
$ | 17.61 | $ | 17.86 | $ | 18.07 | $ | 16.92 | $ | 18.30 | $ | 19.12 | ||||||||||||||||||||
| Market Value, End of Period |
$ | 16.33 | $ | 16.22 | $ | 17.40 | $ | 15.15 | $ | 16.63 | $ | 18.10 | ||||||||||||||||||||
| Total return based on net |
2.01 | %(c) | 5.80 | % | 15.33 | % | (0.52 | )% | 2.63 | % | 9.19 | % | ||||||||||||||||||||
| Total return based on market value(b) |
4.16 | %(c) | (0.22 | )% | 24.03 | % | (1.98 | )% | (1.48 | )% | 3.14 | % | ||||||||||||||||||||
| Ratios to Average Net Assets Applicable to Common Shareholders: |
||||||||||||||||||||||||||||||||
| Ratio of total expenses to average net assets |
3.69 | %(d) | 3.33 | % | 3.21 | % | 3.01 | % | 3.07 | % | 3.00 | % | ||||||||||||||||||||
| Ratio of net expenses to average net assets |
3.69 | %(d) | 3.33 | % | 3.21 | % | 3.01 | % | 3.07 | % | 3.00 | % | ||||||||||||||||||||
| Ratio of net investment income to average net assets |
7.16 | %(d) | 6.24 | % | 7.11 | % | 6.71 | % | 6.22 | %(e) | 7.03 | %(e) | ||||||||||||||||||||
| Ratio of net investment income to average net assets net of distributions to Series A Preferred Shareholders |
— | — | — | — | 6.13 | % | 6.80 | % | ||||||||||||||||||||||||
| Supplemental Data: |
||||||||||||||||||||||||||||||||
| Portfolio turnover rate |
61.5 | %(c) | 102.2 | % | 109.5 | % | 66.1 | % | 80.0 | % | 72.0 | % | ||||||||||||||||||||
| Net assets at end of period (000’s) |
$ | 274,190 | $ | 278,070 | $ | 281,328 | $ | 263,438 | $ | 284,992 | $ | 297,731 | ||||||||||||||||||||
| Senior Securities: |
||||||||||||||||||||||||||||||||
| Total Series A Preferred Shares outstanding |
— | — | — | — | — | 1,534 | ||||||||||||||||||||||||||
| Liquidation and market value per Series A Preferred Shares |
— | — | — | — | — | $ | 20,000 | |||||||||||||||||||||||||
| Asset coverage per share(f) |
— | — | — | — | — | $ | 294,078 | |||||||||||||||||||||||||
| Principal loan outstanding (in 000’s) |
$ | 141,000 | $ | 141,000 | $ | 141,000 | $ | 149,269 | $ | 149,269 | $ | 122,705 | ||||||||||||||||||||
| Asset coverage per $1,000 of loan outstanding |
$ | 2,945 | (g) | $ | 2,972 | (g) | $ | 2,995 | (g) | $ | 2,765 | (g) | $ | 2,909 | (g) | $ | 3,676 | (h) | ||||||||||||||
| (a) | Based on weighted average outstanding shares. |
| (b) | Total return based on net asset value and total return based on market value assuming all distributions reinvested at reinvestment rate. |
| (c) | Not annualized. |
| (d) | Annualized. |
| (e) | Net investment income ratio does not reflect payment to preferred shareholders. |
| (f) | Calculated by subtracting the Fund’s total liabilities (not including the Series A Preferred Shares and borrowings outstanding) from the Fund’s total assets, and dividing this by the number of Series A Preferred Shares outstanding. |
| (g) | Calculated by subtracting the Fund’s total liabilities (not including the borrowings outstanding) from the Fund’s total assets, and dividing this by the amount of borrowings outstanding. |
| (h) | Calculated by subtracting the Fund’s total liabilities (not including the Series A Preferred Shares and borrowings outstanding) from the Fund’s total assets, and dividing this by the amount of borrowings outstanding. |
See accompanying Notes to Financial Statements. | 31
Apollo Tactical Income Fund Inc.
Financial Highlights
For a Common Share Outstanding
| Per Common Share Operating Performance: |
For the Six Months |
For the Year Ended |
For the Year Ended |
For the Year Ended |
For the Year Ended |
For the Ended |
||||||||||||||||||||||||||
|
Net Asset Value, Beginning of Period |
$ | 17.44 | $ | 17.18 | $ | 15.97 | $ | 18.21 | $ | 19.51 | $ | 19.10 | (b) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Income from Investment Operations: |
||||||||||||||||||||||||||||||||
| Net investment income(c) |
0.67 | 1.27 | 1.50 | 1.48 | 1.50 | 1.03 | ||||||||||||||||||||||||||
| Net realized and unrealized gain/(loss) on investments and unfunded loan commitments |
(0.18 | ) | 0.28 | 1.23 | (2.16 | ) | (1.14 | ) | 0.39 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total from investment operations |
0.49 | 1.55 | 2.73 | (0.68 | ) | 0.36 | 1.42 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Less Distributions Paid to Common Shareholders from: |
||||||||||||||||||||||||||||||||
| Net investment income |
(0.60 | ) | (1.29 | ) | (1.52 | ) | (1.55 | ) | (1.50 | ) | (0.96 | ) | ||||||||||||||||||||
| Net realized gain on investments |
— | — | — | (0.01 | ) | (0.16 | ) | (0.01 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total distributions paid to Common Shareholders |
(0.60 | ) | (1.29 | ) | (1.52 | ) | (1.56 | ) | (1.66 | ) | (0.97 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Common share offering charges to paid-in capital |
— | — | — | — | — | (0.04 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Net Asset Value, End of Period |
$ | 17.33 | $ | 17.44 | $ | 17.18 | $ | 15.97 | $ | 18.21 | $ | 19.51 | ||||||||||||||||||||
| Market Value, End of Period |
$ | 15.60 | $ | 15.75 | $ | 15.43 | $ | 13.89 | $ | 15.96 | $ | 18.00 | ||||||||||||||||||||
| Total return based on net |
3.26 | %(e) | 9.87 | % | 19.34 | % | (2.91 | )% | 2.63 | % | 7.94 | %(e) | ||||||||||||||||||||
| Total return based on market value(d) |
2.92 | %(e) | 10.47 | % | 23.24 | % | (3.65 | )% | (2.51 | )% | (4.90 | )%(e) | ||||||||||||||||||||
| Ratios to Average Net Assets Applicable to Common Shareholders: |
||||||||||||||||||||||||||||||||
| Ratio of total expenses to average net assets |
3.79 | %(f) | 3.53 | % | 3.36 | % | 2.97 | % | 2.90 | % | 2.58 | %(f) | ||||||||||||||||||||
| Ratio of net expenses to average net assets |
3.79 | %(f) | 3.53 | % | 3.36 | % | 2.97 | % | 2.90 | % | 2.55 | %(f) | ||||||||||||||||||||
| Ratio of net investment income to average net assets |
7.70 | %(f) | 7.27 | % | 9.20 | % | 8.22 | % | 7.63 | % | 6.38 | %(f) | ||||||||||||||||||||
| Supplemental Data: |
||||||||||||||||||||||||||||||||
| Portfolio turnover rate |
67.9 | %(e) | 111.8 | % | 111.6 | % | 67.6 | % | 78.7 | % | 72.4 | %(e) | ||||||||||||||||||||
| Net assets at end of period (000’s) |
$ | 250,707 | $ | 252,265 | $ | 248,424 | $ | 230,995 | $ | 263,428 | $ | 282,177 | ||||||||||||||||||||
| Senior Securities: |
||||||||||||||||||||||||||||||||
| Principal loan outstanding (in 000’s) |
$ | 126,500 | $ | 138,000 | $ | 138,000 | $ | 138,000 | $ | 138,000 | $ | 138,000 | ||||||||||||||||||||
| Asset coverage per $1,000 of loan outstanding(g) |
$ | 2,982 | $ | 2,828 | $ | 2,800 | $ | 2,674 | $ | 2,909 | $ | 3,045 | ||||||||||||||||||||
| (a) | From February 25, 2013 (commencement of operations) to December 31, 2013. |
| (b) | Net of sales load of $0.90 per share of initial offering. |
| (c) | Based on weighted average outstanding shares. |
| (d) | Total return based on net asset value and total return based on market value assuming all distributions reinvested at reinvestment rate. |
| (e) | Not annualized. |
| (f) | Annualized. |
| (g) | Calculated by subtracting the Fund’s total liabilities (not including the borrowings outstanding) from the Fund’s total assets, and dividing this by the amount of borrowings outstanding. |
32 | See accompanying Notes to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements
June 30, 2018 (unaudited)
Note 1. Organization and Operations
Apollo Senior Floating Rate Fund Inc. (“AFT”) and Apollo Tactical Income Fund Inc. (“AIF”) (individually, a “Fund” or, together, the “Funds”) are corporations organized under the laws of the State of Maryland and registered with the U.S. Securities and Exchange Commission (the “SEC”) under the Investment Company Act of 1940 (the “Investment Company Act”) as diversified, closed-end management investment companies. Each Fund was previously registered as a non-diversified investment company. AFT and AIF commenced operations on February 23, 2011 and February 25, 2013, respectively. Prior to that, the Funds had no operations other than matters relating to their organization and the sale and issuance of 5,236 shares of common stock in each Fund to Apollo Credit Management, LLC (the “Adviser”) at a price of $19.10 per share. The Adviser serves as the Funds’ investment adviser and is an affiliate of Apollo Global Management, LLC (“AGM”). The Funds’ common shares are listed on the New York Stock Exchange (“NYSE”) and trade under the symbols “AFT” and “AIF”, respectively.
Investment Objective
AFT’s investment objective is to seek current income and preservation of capital. AFT seeks to achieve its investment objective by investing primarily in senior, secured loans made to companies whose debt is rated below investment grade (“Senior Loans”) and investments with similar characteristics. Senior Loans typically hold a first lien priority and pay interest at rates that are determined periodically on the basis of a floating base lending rate plus a spread. These base lending rates are primarily the London Interbank Offered Rate (“LIBOR”), and secondarily the prime rate offered by one or more major U.S. banks and the certificate of deposit rate used by commercial lenders. Senior Loans are typically made to U.S. and, to a limited extent, non-U.S. corporations, partnerships and other business entities (“Borrower(s)”) that operate in various industries and geographical regions. AFT seeks to generate current income and preservation of capital through a disciplined approach to credit selection and under normal market conditions will invest at least 80% of its managed assets in floating rate Senior Loans and investments with similar economic characteristics. This policy and AFT’s investment objective are not fundamental and may be changed by the board of directors of AFT with at least 60 days’ prior written notice provided to shareholders. Part of AFT’s investment objective is to seek preservation of capital. AFT’s ability to achieve capital preservation may be limited by its investment in credit instruments that have speculative characteristics. There can be no assurance that AFT will achieve its investment objective.
AIF’s primary investment objective is to seek current income with a secondary objective of preservation of capital. AIF seeks to achieve its investment objectives primarily by allocating its assets among different types of credit instruments based on absolute and relative value considerations and its analysis of the credit markets. This ability to dynamically allocate AIF’s assets may result in AIF’s portfolio becoming concentrated in a particular type of credit instrument (such as Senior Loans or high yield corporate bonds) and substantially less invested in other types of credit instruments. Under normal market conditions, at least 80% of AIF’s managed assets will be invested in credit instruments and investments with similar economic characteristics. For purposes of this policy, “credit instruments” will include Senior Loans, subordinated loans, high yield corporate bonds, notes, bills, debentures, distressed securities, mezzanine securities, structured products (including, without limitation, collateralized debt obligations (“CDOs”), collateralized loan obligations (“CLOs”) and asset-backed securities), bank loans, corporate loans, convertible and preferred securities, government and municipal obligations, mortgage-backed securities, repurchase agreements, and other fixed-income instruments of a similar nature that may be represented by derivatives such as options, forwards, futures contracts or swap agreements. This policy and AIF’s investment objectives are not fundamental and may be changed by the board of directors of AIF (together with the board of directors of AFT, the “Board of Directors” or “Board”) with at least 60 days’ prior written notice provided to shareholders. AIF will seek to preserve capital to the extent consistent with its primary investment objective. AIF’s ability to achieve capital preservation may be limited by its investment in credit instruments that have speculative characteristics. There can be no assurance that AIF will achieve its investment objectives.
Note 2. Significant Accounting Policies
The Funds are investment companies that follow the accounting and reporting guidance of Accounting Standards Codification Topic 946 applicable to investment companies. The Funds’ financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.
Fund Valuation
Each Fund’s net asset value (“NAV”) per share will be determined daily generally as of 4:00 pm on each day that the NYSE is open for trading, or at other times as determined by the Board. The NAV of each Fund’s common shares is the
Semi-Annual Report | 33
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2018 (unaudited)
total assets of the Fund (including all securities, cash and other assets) minus the sum of the Fund’s total liabilities (including accrued expenses, dividends payable, borrowings and the liquidation value of any preferred stock) divided by the total number of common shares of the Fund outstanding.
Security Valuation
The Funds value their investments primarily using the mean of the bid and ask prices provided by a nationally recognized security pricing service or broker. Senior Loans, corporate notes and bonds, common stock, structured products and preferred stock are priced based on valuations provided by an approved independent pricing service or broker, if available. If market or broker quotations are not available, or a price is not available from an independent pricing service or broker, or if the price provided by the independent pricing service or broker is believed to be unreliable, the security will be fair valued pursuant to procedures adopted by the Board. In general, the fair value of a security is the amount that the Funds might reasonably expect to receive upon the sale of an asset or pay to transfer a liability in an orderly transaction between willing market participants at the reporting date. Fair value procedures generally take into account any factors deemed relevant, which may include, among others, (i) the nature and pricing history of the security, (ii) the liquidity or illiquidity of the market for the particular security, (iii) recent purchases or sales transactions for the particular security or similar securities and (iv) press releases and other information published about the issuer. In these cases, a Fund’s NAV will reflect the affected portfolio securities’ fair value as determined in the judgment of the Board or its designee instead of being determined by the market. Using a fair value pricing methodology to value securities may result in a value that is different from a security’s most recent sale price and from the prices used by other investment companies to calculate their NAV. Determination of fair value is uncertain because it involves subjective judgments and estimates. There can be no assurance that a Fund’s valuation of a security will not differ from the amount that it realizes upon the sale of such security.
Fair Value Measurements
Each Fund has performed an analysis of all existing investments to determine the significance and character of all inputs to their fair value determination. The levels of fair value inputs used to measure the Funds’ investments are characterized into a fair value hierarchy. The three levels of the fair value hierarchy are described below:
Level 1 — Quoted unadjusted prices for identical assets and liabilities in active markets to which the Funds have access at the date of measurement;
Level 2 — Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, but are valued based on executed trades, broker quotations that constitute an executable price, and alternative pricing sources supported by observable inputs which, in each case, are either directly or indirectly observable for the asset in connection with market data at the measurement date; and
Level 3 — Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. In certain cases, investments classified within Level 3 may include securities for which the Funds have obtained indicative quotes from broker-dealers that do not necessarily represent prices the broker may be willing to trade on, as such quotes can be subject to material management judgment. Unobservable inputs are those inputs that reflect the Funds’ own assumptions that market participants would use to price the asset or liability based on the best available information.
At the end of each reporting period, management evaluates the Level 2 and Level 3 assets, if any, for changes in liquidity, including but not limited to: whether a broker is willing to execute at the quoted price, the depth and consistency of prices from independent pricing services, and the existence of contemporaneous, observable trades in the market.
34 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2018 (unaudited)
The valuation techniques used by the Funds to measure fair value at June 30, 2018 maximized the use of observable inputs and minimized the use of unobservable inputs. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Transfers into and out of the levels are recognized at the value at the end of the period. Summaries of the Funds’ investments categorized in the fair value hierarchy as of June 30, 2018 are as follows:
|
Apollo Senior Floating Rate Fund Inc.
|
||||||||||||||||||||
| Total Fair Value at June 30, 2018 |
Level 1 Quoted Price |
Level 2 Significant Observable Inputs |
Level 3 Significant Unobservable Inputs | |||||||||||||||||
|
Assets: |
||||||||||||||||||||
| Cash and Cash Equivalents |
$ | 19,411,362 | $ | 19,411,362 | $ | — | $ | — | ||||||||||||
| Senior Loans |
357,920,331 | — | 344,131,010 | 13,789,321 | ||||||||||||||||
| Corporate Notes and Bonds |
41,374,488 | — | 41,366,552 | 7,936 | ||||||||||||||||
| Common Stock |
1,165,683 | — | 1,066,281 | 99,402 | ||||||||||||||||
| Preferred Stock |
3,942,277 | — | — | 3,942,277 | ||||||||||||||||
| Warrants |
2,522 | — | — | 2,522 | ||||||||||||||||
| Net unrealized appreciation on Unfunded Loan Commitments |
12,479 | — | 12,479 | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total Assets |
$ | 423,829,142 | $ | 19,411,362 | $ | 386,576,322 | $ | 17,841,458 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
The following is a reconciliation of Level 3 holdings for which significant unobservable inputs were used in determining fair value as of June 30, 2018:
|
Apollo Senior Floating Rate Fund Inc.
|
||||||||||||||||||||||||||||||||||||
| Total | Senior Loans | Corporate Notes and Bonds |
Common Stock |
Preferred Stock |
Warrants | Unfunded Loan | ||||||||||||||||||||||||||||||
|
Total Fair Value, beginning of period |
$ |
25,664,960 |
|
$ |
21,655,599 |
|
$ |
8,775 |
|
$ |
68,975 |
|
$ |
3,915,225 |
|
$ |
— |
|
|
$16,386 |
| |||||||||||||||
| Purchases, including capitalized PIK |
4,131,168 | 4,122,761 | — | — | — | 8,407 | — | |||||||||||||||||||||||||||||
| Sales/Paydowns |
(10,481,603 | ) | (10,474,468 | ) | (7,135 | ) | — | — | — | — | ||||||||||||||||||||||||||
| Accretion/(amortization) of discounts/ (premiums) |
256,745 | 256,745 | — | — | — | — | — | |||||||||||||||||||||||||||||
| Net realized gain/(loss) |
(8,833 | ) | (13,584 | ) | 4,751 | — | — | — | — | |||||||||||||||||||||||||||
| Change in net unrealized appreciation/ (depreciation) |
(95,050 | ) | (138,357 | ) | 1,545 | 30,427 | 27,052 | (5,885 | ) | (9,832 | ) | |||||||||||||||||||||||||
| Transfers into Level 3 |
1,021,243 | 1,021,243 | — | — | — | — | — | |||||||||||||||||||||||||||||
| Transfers out of Level 3 |
(2,647,172 | ) | (2,640,618 | ) | — | — | — | — | (6,554 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
| Total Fair Value, end of period |
$ | 17,841,458 | $ | 13,789,321 | $ | 7,936 | $ | 99,402 | $ | 3,942,277 | $ | 2,522 | $ | — | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Assets were transferred from Level 2 to Level 3 or from Level 3 to Level 2 as a result of changes in levels of liquid market observability when subject to various criteria as discussed above. There were no transfers between Level 1 and Level 2 fair value measurement during the period shown. The net change in unrealized appreciation/(depreciation) attributable to Level 3 investments still held at June 30, 2018 was $144,155.
Semi-Annual Report | 35
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2018 (unaudited)
The following table provides quantitative measures used to determine the fair values of the Level 3 investments as of June 30, 2018:
| Apollo Senior Floating Rate Fund Inc. | |||||||||||||||||||
|
| |||||||||||||||||||
| Assets | Fair Value at June 30, 2018 |
Valuation Technique(s)(a) | Unobservable Input(s) | Range of Unobservable Input(s) Utilized | |||||||||||||||
|
Senior Loans |
$ |
8,107,760 |
|
Independent pricing service and/or broker quotes |
Vendor and/or broker quotes |
N/A | |||||||||||||
| 4,465,411 | Discounted Cash Flow(b) |
Discount Rate(b) | 17.7% | ||||||||||||||||
| 559,383 | Recoverability(c) |
EBITDA / EV Multiple(c) | $7m / 3.9x | ||||||||||||||||
| 656,767 | Recoverability(d) |
Liquidation Proceeds(d) | $28.1m | ||||||||||||||||
| — | Recoverability(d) |
Liquidation Proceeds(d) | $0 | ||||||||||||||||
| Corporate Notes and Bonds |
7,936 | Discounted Cash Flow(b) |
Discount Rate(b) | 25.0% | |||||||||||||||
| Recoverability(d) |
Liquidation Proceeds(d) | $7m | |||||||||||||||||
| — | Recoverability(d) |
Liquidation Proceeds(d) | $0 | ||||||||||||||||
| — | Recoverability(c) |
EBITDA / EV Multiple(c) | $7m / 3.9x | ||||||||||||||||
| — | Recoverability(d) |
Liquidation Proceeds(d) | $28.1m | ||||||||||||||||
| Common Stock |
62,959 | Option Model(e) |
Volatility(e) | 21.4% | |||||||||||||||
| 36,443 | Independent pricing service and/or broker quotes |
Vendor and/or broker quotes |
N/A | ||||||||||||||||
| Preferred Stock |
3,942,277 | Discounted Cash Flow(b) |
Discount Rate(b) | 8.62% | |||||||||||||||
| Warrants |
2,522 | Independent pricing service and/or broker quotes |
Vendor and/or broker quotes |
N/A | |||||||||||||||
|
|
|
||||||||||||||||||
| Total Fair Value |
$ | 17,841,458 | |||||||||||||||||
|
|
|
||||||||||||||||||
| (a) | For the assets which have multiple valuation techniques, the Fund may rely on the techniques individually or in aggregate based on a weight ranging from 0-100%. |
| (b) | The Fund utilized a discounted cash flow model to fair value this security. The significant unobservable input used in the valuation model was the discount rate, which was determined based on the market rates an investor would expect for a similar investment with similar risks. The discount rate was applied to present value the projected cash flows in the valuation model. Significant increases in the discount rate may significantly lower the fair value of an investment; conversely, significant decreases in the discount rate may significantly increase the fair value of an investment. |
| (c) | The Fund utilized a recoverability approach to fair value these securities. The significant unobservable inputs used in the valuation model were EBITDA and enterprise value multiple. Significant increases or decreases in the input in isolation may result in a significantly higher or lower fair value measurement. |
| (d) | The Fund utilized a recoverability approach to fair value this security, specifically a liquidation analysis. There are various, company specific inputs used in the valuation analysis that relate to the liquidation value of a company’s assets. The significant unobservable inputs used in the valuation model were liquidation proceeds. Significant increases or decreases in the input in isolation may result in a significantly higher or lower fair value measurement. |
| (e) | The Fund utilized a Black-Scholes options pricing model to fair value this security. The significant unobservable input used in the valuation model was volatility. Significant increases or decreases in the input in isolation may result in a significantly higher or lower fair value measurement. |
36 | Semi-Annual Report
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2018 (unaudited)
|
Apollo Tactical Income Fund Inc.
|
||||||||||||||||||||
| Total Fair Value at June 30, 2018 |
Level 1 Quoted Price |
Level
2 |
Level 3 Significant Unobservable Inputs | |||||||||||||||||
|
Assets: |
||||||||||||||||||||
| Cash and Cash Equivalents |
$ | 20,019,123 | $ | 20,019,123 | $ | — | $ | — | ||||||||||||
| Senior Loans |
285,615,183 | — | 273,202,004 | 12,413,179 | ||||||||||||||||
| Corporate Notes and Bonds |
49,671,009 | — | 49,634,532 | 36,477 | ||||||||||||||||
| Structured Products |
32,145,390 | — | 32,145,390 | — | ||||||||||||||||
| Common Stock |
796,510 | 158,026 | 543,925 | 94,559 | ||||||||||||||||
| Preferred Stock |
3,942,277 | — | — | 3,942,277 | ||||||||||||||||
| Warrants |
1,287 | — | — | 1,287 | ||||||||||||||||
| Net unrealized appreciation on Unfunded Loan Commitments |
6,087 | — | 6,087 | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total Assets |
$ | 392,196,866 | $ | 20,177,149 | $ | 355,531,938 | $ | 16,487,779 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
The following is a reconciliation of Level 3 holdings for which significant unobservable inputs were used in determining fair value as of June 30, 2018:
|
Apollo Tactical Income Fund Inc.
|
||||||||||||||||||||||||||||||
| Total | Senior Loans |
Corporate |
Common Stock |
Preferred Stock |
Warrants | |||||||||||||||||||||||||
|
Total Fair Value, beginning of the period |
$ | 23,768,803 | $ | 19,745,730 | $ | 40,335 | $ | 67,513 | $ | 3,915,225 | $ | — | ||||||||||||||||||
| Purchases, including capitalized PIK |
3,663,676 | 3,659,387 | — | — | — | 4,289 | ||||||||||||||||||||||||
| Sales/Paydowns |
(9,509,935 | ) | (9,477,140 | ) | (32,795 | ) | — | — | — | |||||||||||||||||||||
| Accretion/(amortization) of discounts/(premiums) |
208,100 | 208,100 | — | — | — | — | ||||||||||||||||||||||||
| Net realized gain/(loss) |
252,191 | 230,353 | 21,838 | — | — | — | ||||||||||||||||||||||||
| Change in net unrealized appreciation/(depreciation) |
(52,825 | ) | (111,020 | ) | 7,099 | 27,046 | 27,052 | (3,002 | ) | |||||||||||||||||||||
| Transfer into Level 3 |
1,021,243 | 1,021,243 | — | — | — | — | ||||||||||||||||||||||||
| Transfers out of Level 3 |
(2,863,474 | ) | (2,863,474 | ) | — | — | — | — | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
| Total Fair Value, end of period |
$ | 16,487,779 | $ | 12,413,179 | $ | 36,477 | $ | 94,559 | $ | 3,942,277 | $ | 1,287 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Assets were transferred from Level 2 to Level 3 or from Level 3 to Level 2 as a result of changes in levels of liquid market observability when subject to various criteria as discussed above. There were no transfers between Level 1 and Level 2 fair value measurement during the period shown. The net change in unrealized appreciation/(depreciation) attributable to Level 3 investments still held at June 30, 2018 was $182,474.
Semi-Annual Report | 37
Apollo Senior Floating Rate Fund Inc.
Apollo Tactical Income Fund Inc.
Notes to Financial Statements (continued)
June 30, 2018 (unaudited)
The following table provides quantitative measures used to determine the fair values of the Level 3 investments as of June 30, 2018:
| Apollo Tactical Income Fund Inc. | ||||||||||||||||
| Assets
|
Fair Value at
|
Valuation Technique(s)(a)
|
Unobservable Input(s)
|
Range of Unobservable
| ||||||||||||
|
Senior Loans |
$ |
7,430,103 |
|
Independent pricing service and/or broker quotes |
Vendor and/or broker quotes |
N/A | ||||||||||
| 4,121,918 | Discounted Cash Flow(b) |
Discount Rate(b) | 17.7% | |||||||||||||
| 168,572 | Recoverability(c) |
EBITDA / EV Multiple(c) | $7m / 3.9x | |||||||||||||
| 656,767 | Recoverability(d) |
Liquidation Proceeds(d) | $28.1m | |||||||||||||
| — | Recoverability(d) |
Liquidation Proceeds(d) | $0 | |||||||||||||
| 35,819 | Discounted Cash Flow(b) |
Discount Rate(b) | 2.84% | |||||||||||||
| Recoverability(e) |
Estimated Transaction Value(e) | N/A | ||||||||||||||
| Corporate Notes and Bonds |
36,477 | Discounted Cash Flow(b) |
Discount Rate(b) | 25.0% | ||||||||||||
| Recoverability(d) |
Liquidation Proceeds(d) | $7m | ||||||||||||||
| — | Recoverability(d) |
Liquidation Proceeds(d) | $0 | |||||||||||||
| Common Stock |
— | Recoverability(c) |
EBITDA / EV Multiple(c) | $7m / 3.9x | ||||||||||||
| — | Recoverability(d) |
Liquidation Proceeds(d) | $28.1m | |||||||||||||
| 58,116 | Option Model(f) |
Volatility(f) | 21.4% | |||||||||||||
| 36,443 | Independent pricing service and/or broker quotes |
Vendor and/or broker quotes |
N/A | |||||||||||||
| Preferred Stock |
3,942,277 | Discounted Cash Flow(b) |
Discount Rate(b) | 8.62% | ||||||||||||
| Warrants |
1,287 | Independent pricing service and/or broker quotes |
Vendor and/or broker quotes |
N/A | ||||||||||||
|
|
|
|||||||||||||||
| Total Fair Value |
$ | 16,487,779 | ||||||||||||||
|
|
|
|||||||||||||||
| (a) | For the assets which have multiple valuation techniques, the Fund may rely on the techniques individually or in aggregate based on a weight ranging from 0-100%. |
| (b) | The Fund utilized a discounted cash flow model to fair value this security. The significant unobservable input used in the valuation model was the discount rate, which was determined based on the market rates an investor would expect for a similar investment with similar risks. The discount rate was applied to present value the projected cash flows in the valuation model. Significant increases in the discount rate may significantly lower the fair value of an investment; conversely, significant decreases in the discount rate may significantly increase the fair value of an investment. |
| (c) | The Fund utilized a recoverability approach to fair value these securities. The significant unobservable inputs used in the valuation model were EBITDA and enterprise value multiple. Significant increases or decreases in the input in isolation may result in a significantly higher or lower fair value measurement. |
| (d) | The Fund utilized a recoverability approach to fair value this security, specifically a liquidation analysis. There are various, company specific inputs used in the valuation analysis that relate to the liquidation value of a company’s assets. The significant unobservable inputs used in the valuation model were liquidation proceeds. Significant increases or decreases in the input in isolation may result in a significantly higher or lower fair value measurement. |