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 811-22481
Apollo Senior Floating Rate Fund Inc.
(Exact name of registrant as specified in charter)
9 West 57th Street
New York, New York 10019
(Address of principal executive offices) (Zip code)
Joseph Moroney, President
9 West 57th Street
New York, New York 10019
(Name and address of agent for service)
Registrants telephone number, including area code: (212) 515-3200
Date of fiscal year end: December 31
Date of reporting period: December 31, 2016
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)
Annual Report
December 31, 2016
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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 (unaudited)
As of December 31, 2016
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.
Despite a difficult beginning, 2016 ended up being a very positive year for the corporate credit markets with performance for both leveraged loans and high yield bonds exceeding the expectations of most as a number of catalysts played out in their favor. After concerns over commodity prices weighed heavily on high-yield in particular in late 2015, and leading into 2016, a move higher in these prices at a period of low interest rates in mid-February led to heavy inflows of capital into both high yield and leveraged loan mutual funds. This spurred a rally in both loans and bonds that continued, almost without interruption, over the balance of the year; using widely-reference indices, from its low point on February 11th the high yield market rallied +24.5% while from its low point on February 17th the leveraged loan market rallied +11.8%, both through year end. Where certain capital markets had broken down to an extent heading into the year that in many cases new syndications of leveraged loans could not be completed by banks due to a lack of demand, this early-2016 moderation created the type of conditions that allowed these markets to function again, at relatively attractive return profiles, in a manner that begat further, incremental improvement. With price points established and supply at the banks starting to clear, and the commodity environment diffused of much of the volatility that had marked it over the preceding two years, more normalized high yield and loan markets allowed for the kind of investment opportunities that the Funds can most directly benefit from.
There were many elements of both of these markets in 2016 that spoke to both the causes for the extended rally that we experienced and the reasons why this was occurring at all. Leveraged loan funds recorded inflows of $6.3Bn in 2016, including $5.0Bn into exchange-traded funds (ETFs), but the annual number does not reflect the timing of inflows which was weighted very heavily towards the back half of the year inflows were recorded in 23 of the last 26 weeks for a total inflow of $11.8Bn over that period versus an outflow of -$5.6Bn over the first 26 weeks of the year. Concurrently, after reaching a low of 1.36% on July 8th, the yield on the 10Yr US Treasury moved steadily higher over the back half of the year, hitting a high yield for 2016 of 2.60% on December 15th. Regardless of why rates were rising, either ahead of or after the election, the probability we are entering an environment of higher rates is being taken by the market to be rising and as such, floating-rate debt has been in growing demand. This move in interest rates did not, however, present an obstacle to continued outperformance for the high yield market; since the low point for the 10Yr US Treasury, through the end of the year, the high yield market returned +6.6%.
Against this rates backdrop and a broader environment that saw greatly reduced levels of volatility across nearly all of the capital markets towards year-end, fundamentals in the corporate credit market remain resilient. The lagging twelve-month leveraged loan default rate hit a ten-month low of 1.58% by principal amount at month-end December, this after falling for five consecutive months. Of the twenty issuers that defaulted in 2016, more than half were by companies in the oil & gas and metals & mining sectors. If you look at fundamental performance, we see similarly positive performance. Excluding commodity-oriented companies, revenue growth within high yield in Q3 16 year over year was +5.8%, while earnings before interest, tax, depreciation and amortization (EBITDA) growth was +6.1% year over year; the same analysis put Q3 leverage for non-commodity companies at 4.03x, lower quarter over quarter with higher levels of EBITDA. While this generalizes what is clearly a complicated picture across the various industries represented in the leveraged loan and high yield markets, the default rate remains low in an environment where the capital markets are open to companies looking to refinance debt and optimize capital structures, and fundamentals are generally benign.
Despite what was a broadly positive 2016 for the credit markets, or perhaps because of how well these markets have performed of late, we are expecting to deal with greater volatility than that which presented itself over the preceding three quarters in 2017. With a new administration potentially pursuing divergent policies around tax, trade, etc. against a changing rate environment, in which business models in various industries are regularly changing and coming under pressure from new competitors, the Funds should see the kind of opportunities to invest in the coming year that have historically been fruitful, periods of limited demand from other sources of capital. As such, we regularly work to identify opportunities within businesses where we see value when for market related reasons they become available at attractive prices, while positioning ourselves defensively when valuations may be more stretched.
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 | Annual Report
Apollo Senior Floating Rate Fund Inc.
As of December 31, 2016 (unaudited)
Portfolio Composition (as % of Current Market | ||||
Value of Investment Securities) | ||||
Loans |
92.1% | |||
High Yield Bonds |
7.0% | |||
Equity/Other |
0.9% | |||
Portfolio Characteristics (a) | ||||
Weighted Average Floating-Rate Spread |
4.70% | |||
Weighted Average Fixed-Rate Coupon |
7.93% | |||
Weighted Average Maturity (in years) (floating assets) |
4.81 | |||
Weighted Average Maturity (in years) (fixed assets) |
5.42 | |||
Weighted Average Modified Duration (in years)
|
3.13 | |||
Average Position Size |
$ | 1,832,899 | ||
Number of Positions |
231 | |||
Weighted Average S&P Rating |
B | |||
Weighted Average Rating Factor (Moodys) (h) |
2,885 | |||
Credit Quality (b) | ||||
BBB |
0.8% | |||
BB |
14.6% | |||
B |
69.5% | |||
CCC+ or Lower |
11.4% | |||
Not Rated |
3.7% | |||
Top 5 Industries (as % of Current Market Value of | ||||
Investment Securities) (c) | ||||
High Tech Industries |
11.6% | |||
Services: Business |
11.3% | |||
Banking, Finance, Insurance & Real Estate |
10.6% | |||
Healthcare & Pharmaceuticals |
9.9% | |||
Media: Broadcasting & Subscription |
9.2% | |||
Total |
52.6% |
Performance Comparison | ||||||||
Year Ended December 31, 2016 |
December 31, 2012, to
December 31,
|
|||||||
AFT - Market Price |
24.03% (e) | 9.32% (e)(f) | ||||||
AFT - NAV |
15.33% (e) | 7.99% (e)(f) | ||||||
S&P/LSTA Leveraged
|
10.16% | 5.11% (f) |
(a) | Averages based on par value of investment securities, except for the weighted average modified duration, which is based on market value. The weighted average rating factor per Moodys Investors Service (Moodys) excludes securities with no rating or in default as of December 31, 2016. |
(b) | Credit quality is calculated as a percentage of fair value of investment securities at December 31, 2016. The quality ratings reflected were issued by Standard & Poors Ratings Group (S&P), a nationally recognized statistical rating organization. Credit quality ratings reflect the rating agencys opinion of the credit quality of the underlying positions in the Funds 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 Moodys, a nationally 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 December 31, 2016. |
Annual Report | 5
Apollo Tactical Income Fund Inc.
Financial Data
As of December 31, 2016 (unaudited)
Portfolio Composition (as % of Current Market | ||||
Value of Investment Securities) | ||||
Loans |
74.5% | |||
High Yield Bonds |
13.6% | |||
Structured Products |
10.9% | |||
Equity/Other |
1.0% | |||
Portfolio Characteristics (a) | ||||
Weighted Average Floating-Rate Spread |
5.27% | |||
Weighted Average Fixed-Rate Coupon |
6.93% | |||
Weighted Average Maturity (in years) (floating assets) |
5.48 | |||
Weighted Average Maturity (in years) (fixed assets) |
5.03 | |||
Weighted Average Modified Duration (in years) (fixed assets) |
3.23 | |||
Average Position Size |
$ | 1,810,889 | ||
Number of Positions |
223 | |||
Weighted Average S&P Rating |
B | |||
Weighted Average Rating Factor (Moodys) (h) |
2,937 | |||
Credit Quality (b) | ||||
BBB |
0.7% | |||
BB |
16.3% | |||
B |
58.3% | |||
CCC+ or Lower |
14.2% | |||
Not Rated |
10.5% | |||
Top 5 Industries (as % of Current Market Value of | ||||
Investment Securities) (c) | ||||
High Tech Industries |
11.0% | |||
Service: Business |
9.9% | |||
Media: Broadcasting & Subscription |
8.6% | |||
Healthcare & Pharmaceuticals |
8.5% | |||
Banking, Finance, Insurance & Real Estate |
8.4% | |||
Total |
46.4% |
Performance Comparison | ||||||||
Year
Ended
|
Since
Inception
|
|||||||
AIF - Market Price |
23.24% (e) | 2.53% (e)(f) | ||||||
AIF - NAV |
19.34% (e) | 6.71% (e)(f) | ||||||
S&P/LSTA Leveraged
|
10.16% | 3.83% (f) |
(a) | Averages based on par value of investment securities, except for the weighted average modified duration, which is based on market value. The weighted average rating factor per Moodys excludes securities with no rating or in default as of December 31, 2016. |
(b) | Credit quality is calculated as a percentage of fair value of investment securities at December 31, 2016. The quality ratings reflected were issued by S&P, a nationally recognized statistical rating organization. Credit quality ratings reflect the rating agencys opinion of the credit quality of the underlying positions in the Funds 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 Moodys, a nationally recognized statistical rating organization. The Top 5 Industries table above excludes Structured Products which represent 10.9% of the portfolio as of December 31, 2016. |
(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 December 31, 2016. |
6 | Annual Report
Apollo Senior Floating Rate Fund Inc.
December 31, 2016
See accompanying Notes to Financial Statements. | 7
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
December 31, 2016
8 | See accompanying Notes to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
December 31, 2016
See accompanying Notes to Financial Statements. | 9
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
December 31, 2016
10 | See accompanying Notes to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
December 31, 2016
See accompanying Notes to Financial Statements. | 11
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
December 31, 2016
12 | See accompanying Notes to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
December 31, 2016
See accompanying Notes to Financial Statements. | 13
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
December 31, 2016
14 | See accompanying Notes to Financial Statements.
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
December 31, 2016
Share Quantity
|
Value ($)
|
|||||||||||
Preferred Stock - 1.4%
|
|
|||||||||||
BANKING, FINANCE, INSURANCE & REAL ESTATE - 1.4%
|
|
|||||||||||
Watford Holdings, Ltd. (Bermuda)
|
160,000 | 3,854,496 | ||||||||||
|
|
|||||||||||
Total Preferred Stock
|
3,854,496 | |||||||||||
|
|
|||||||||||
Total Investments-146.1% |
410,947,060 | |||||||||||
(Cost of $414,769,302) (k) |
||||||||||||
Other Assets & Liabilities, Net-3.8% |
10,862,823 | |||||||||||
Loan Outstanding-(49.9)% (l)(m) |
(140,481,968 | ) | ||||||||||
|
|
|||||||||||
Net Assets (Applicable to Common Shares)-100.0% |
281,327,915 | |||||||||||
|
|
See accompanying Notes to Financial Statements. | 15
Apollo Senior Floating Rate Fund Inc.
Schedule of Investments (continued)
December 31, 2016
(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 December 31, 2016. 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. |
Senior Loan assets may have additional unfunded loan commitments. As of December 31, 2016, the Fund had unfunded loan commitments, which could be extended at the option of the borrower, pursuant to the following loan agreements: |
Borrower |
Unfunded Loan
Commitments |
|||||
|
||||||
Mister Car Wash Holdings, Inc. | $ | 142,857 | ||||
TCB Holdings III Corp. | 116,601 | |||||
Team Health Holdings, Inc. | 2,050,861 | |||||
USS Parent Holding Corp. | 357,219 | |||||
|
|
|||||
Total unfunded loan commitments | $ | 2,667,538 | ||||
|
|
(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 December 31, 2016, the 1, 3 and 6 month LIBOR rates were 0.77%, 1.00% and 1.32%, respectively, and the Prime lending rate was 3.75%. 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) | Fair Value Level 3 security. All remaining securities are categorized as Level 2. |
(e) | 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. |
(f) | Non-income producing asset. |
(g) | Fixed rate asset. |
(h) | Represents a payment-in-kind (PIK) security, which may pay interest in additional principal amount. |
(i) | 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 December 31, 2016, these securities amounted to $29,390,013, or 10.45% of net assets. |
(j) | The issuer is in default of its payment obligations as of May 5, 2015, as such, income is no longer being accrued. The issuer paid a cash dividend to all shareholders of record as of January 6, 2016, which was recorded as a cost basis adjustment. |
(k) | The aggregate cost of securities for federal income tax purposes was $415,081,880. Cost for U.S. federal income tax purposes differs from book basis primarily due to the deferral of losses from wash sales. Unrealized appreciation and depreciation on investments were as follows: |
Gross unrealized appreciation |
$ | 6,368,754 | ||||
Gross unrealized depreciation |
(10,503,574) | |||||
|
|
|||||
Net unrealized depreciation |
$ | (4,134,820) | ||||
|
|
(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 $518,032. |
16 | See accompanying Notes to Financial Statements.
Apollo Tactical Income Fund Inc.
Schedule of Investments
December 31, 2016
See accompanying Notes to Financial Statements. | 17
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
December 31, 2016
18 | See accompanying Notes to Financial Statements.
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
December 31, 2016
See accompanying Notes to Financial Statements. | 19
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
December 31, 2016
20 | See accompanying Notes to Financial Statements.
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
December 31, 2016
See accompanying Notes to Financial Statements. | 21
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
December 31, 2016
22 | See accompanying Notes to Financial Statements.
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
December 31, 2016
See accompanying Notes to Financial Statements. | 23
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
December 31, 2016
Principal Amount ($)
|
Value ($)
|
|||||||||||
Structured Products - 16.6% (l)
|
||||||||||||
Anchorage Capital CLO, Ltd. (Cayman Islands) |
||||||||||||
Series 2015-6A, Class E2, |
||||||||||||
7.72%, 04/15/27 (c)(i)(m) |
4,400,000 | 4,362,389 | ||||||||||
Series 2015-7A, Class E2, |
||||||||||||
7.98%, 10/15/27 (c)(i)(m) |
3,000,000 | 3,008,988 | ||||||||||
Atlas Senior Loan Fund, Ltd. (Cayman Islands) |
||||||||||||
Series 2012-1A, Class B3L, |
||||||||||||
8.41%, 08/15/24 (c)(i)(m) |
5,000,000 | 4,680,705 | ||||||||||
Carlyle Global Market Strategies CLO, Ltd. (Cayman Islands) |
||||||||||||
Series 2014-5A, Class E, 6.79%, |
||||||||||||
10/16/25 (c)(i)(m) |
1,000,000 | 862,708 | ||||||||||
ECP CLO, Ltd. (Cayman Islands) |
||||||||||||
Series 2014-6A, Class D2, |
||||||||||||
7.43%, 07/15/26 (c)(i)(m) |
4,000,000 | 3,620,000 | ||||||||||
Ivy Hill Middle Market Credit Fund, Ltd. (Cayman Islands) |
||||||||||||
Series 10A, Class D2, 8.18%, |
||||||||||||
07/18/27 (c)(i)(m) |
2,350,000 | 2,135,224 | ||||||||||
JFIN CLO, Ltd. (Cayman Islands) |
||||||||||||
Series 2013-1I, Class E, 6.88%, |
||||||||||||
01/20/25 (c)(d)(m) |
2,000,000 | 1,490,200 | ||||||||||
Series 2015-1A, Class E, 5.96%, |
||||||||||||
03/15/26 (c)(i)(m) |
4,500,000 | 3,748,950 | ||||||||||
NXT Capital CLO, LLC |
||||||||||||
Series 2014-1A, Class E, 6.02%, |
||||||||||||
04/23/26 (i)(m) |
5,000,000 | 4,262,350 | ||||||||||
NZCG Funding, Ltd. (Cayman Islands) |
||||||||||||
Series 2015-2A, Class D, 7.19%, |
||||||||||||
04/27/27 (c)(i)(m) |
1,500,000 | 1,431,971 | ||||||||||
OCP CLO, Ltd. (Cayman Islands) |
||||||||||||
Series 2014-5A, Class E, 6.13%, |
||||||||||||
04/26/26 (c)(i)(m) |
3,000,000 | 2,262,015 | ||||||||||
Series 2016-11A, Class D2, |
||||||||||||
9.88%, 04/26/28 (c)(i)(m) |
5,000,000 | 5,027,710 | ||||||||||
Teachers Insurance and Annuity Association of America CLO, Ltd. (Cayman Islands) |
||||||||||||
Series 2016-1A, Class E2, |
||||||||||||
10.88%, 07/20/28 (c)(i)(m) |
2,500,000 | 2,525,000 | ||||||||||
TIAA Churchill Middle Market CLO I (Cayman Islands) |
||||||||||||
Series 2016-1A, Class E2, |
||||||||||||
8.80%, 10/20/28 (c)(i)(m) |
2,000,000 | 1,911,724 | ||||||||||
|
|
|||||||||||
Total Structured Products
|
41,329,934 | |||||||||||
|
|
24 | See accompanying Notes to Financial Statements.
Apollo Tactical Income Fund Inc.
Schedule of Investments (continued)
December 31, 2016
Share Quantity
|
Value ($)
|
|||||||||||
Common Stocks - 0.0%
|
||||||||||||
BANKING, FINANCE, INSURANCE & REAL ESTATE - 0.0%
|
|
|||||||||||
Medical Card System, Inc. (d)(g) |
914,981 | | ||||||||||
ENERGY: OIL & GAS - 0.0%
|
||||||||||||
Southcross Holdings Borrower, GP LLC (d)(g) |
129 | | ||||||||||
Southcross Holdings Borrower, LP, Class A-II (d)(g) |
129 | 48,375 | ||||||||||
|