AIF Apollo Tactical Income Fund Inc

Security Valuation

Apollo Tactical Income Fund Inc. (the “Fund”) values its 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, preferred stock and warrants 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 by the Adviser as the valuation designee approved by the Fund’s board of directors (the “Board”). In general, the fair value of a security is the amount that the Fund 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, the Fund’s net asset value (“NAV”) will reflect the affected portfolio securities’ fair value as determined by the valuation 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 the Fund’s valuation of a security will not differ from the amount that it realizes upon the sale of such security.

 

Fair Value Measurements

The Fund’s valuation designee 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 Fund’s 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 Fund has 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 Fund has 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 valuation designee’s 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.

The valuation techniques used by the valuation designee to measure fair value at September 30, 2023 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.

A summary of the Fund’s investments categorized in the fair value hierarchy as of September 30, 2023 is as follows:

Apollo Tactical Income Fund Inc.
		Total Fair Value at September 30, 2023				Level 1 Quoted Price				Level 2 Significant Observable Inputs				Level 3 Significant Unobservable Inputs
Assets:
Cash and Cash Equivalents		$	14,853,240			$	14,853,240			$	-			$	-
Senior Loans			238,235,338				-				145,332,744				92,902,594
Corporate Notes and Bonds			46,321,020				-				39,747,193				6,573,827
Convertible Bonds			2,276,250				-				2,276,250				-
Structured Products			22,892,840				-				22,892,840				-
Common Stocks			692,078				-				-				692,078
Preferred Stock			202,914				-				-				202,914
Unrealized appreciation on Unfunded Commitments			58,562				-				4,295				54,267
Total Assets		$	325,532,242			$	14,853,240			$	210,253,322			$	100,425,680
Liabilities:
Unrealized depreciation on Unfunded Commitments			(26,996	)			-				-				(26,996	)
Total Liabilities			(26,996	)			-				-				(26,996	)
		$	325,505,246			$	14,853,240			$	210,253,322			$	100,398,684

 

The following is a reconciliation of Level 3 holdings for which significant unobservable inputs were used in determining fair value for the period January 1, 2023 through September 30, 2023:

Apollo Tactical Income Fund Inc.
		Total				Senior Loans				Corporate Notes and Bonds				Common Stocks				Preferred Stocks				Unfunded Commitments
Total Fair Value, beginning of period		$	75,631,009			$	73,159,804			$	551,046			$	1,753,260			$	188,448			$	(21,549	)
Purchases, including capitalized PIK			38,541,272				32,599,802				5,941,470				-				-				-
Sales/Paydowns			(11,756,295	)			(11,742,202	)			-				(14,093	)			-				-
Accretion/(amortization) of discounts/ (premiums)			130,503				129,061				1,442				-				-				-
Net realized gain/(loss)			(2,592,080	)			(2,117,932	)			-				14,093				(488,241	)			-
Change in net unrealized appreciation/ (depreciation)			3,745,931				4,175,717				79,869				(1,061,182	)			502,707				48,820
Transfers into Level 3			-				-				-				-				-				-
Transfers out of Level 3			(3,301,656	)			(3,301,656	)			-				-				-				-
Total Fair Value, end of period		$	100,398,684			$	92,902,594			$	6,573,827			$	692,078			$	202,914			$	27,271

 

 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. The net change in unrealized appreciation/(depreciation) attributable to Level 3 investments still held at September 30, 2023 was $(655,057).

 

The following table provides quantitative measures used to determine the fair values of the Level 3 investments as of September 30, 2023:

Assets/Liabilities		Fair Value at September 30, 2023			Valuation Technique(s)(a)	Unobservable Input(s)		Range of Unobservable Input(s) Utilized		Weighted Average Unobservable Input(s)
Senior Loans		$	78,441,875		Discounted Cash Flow (b)	Discount Rate (b)		8.59% - 31.45%		11.64%
			-		Recoverability (c)	Estimated Proceeds (c)		$-		$-
			14,460,719		Transaction Appraoch (d)	Cost (d)		N/A		N/A
Corporate Notes and Bonds			6,014,543		Discounted Cash Flow (b)	Discount Rate (b)		8.31% - 12.53%		11.42%
			559,284		Discounted Cash Flow (b)	Discount Rate (b)		5.40%		5.40%
					Recoverability (c)	Estimated Proceeds (c)		$55.5m		$55.5m
			-		Recoverability (c)	Estimated Proceeds (c)		$-		$-
Common Stocks			-		Recoverability (c)	Estimated Proceeds (c)		$-		$-
			5,923		Discounted Cash Flow (b)	Discount Rate (b)		5.45%		5.45%
					Recoverability (c)	Estimated Proceeds (c)		$9.1m		$9.1m
			492,226		Guideline Public Company (e)	TEV / EBITDA Multiple (e)		2.75x - 7.00x		3.50x
			193,929		Guideline Public Company (e)	TEV / EBITDA Multiple (e)		2.50x - 3.50x		3.00x
					Guideline Public Company (f)	TEV / Revenue (f)		1.35x - 1.55x		1.45x
Preferred Stock			202,914		Guideline Public Company (e)	TEV / EBITDA Multiple (e)		7.00x		7.00x
Unfunded Commitments			27,442		Discounted Cash Flow (b)	Discount Rate (b)		9.48% - 25.49%		14.91%
			(171	)	Transaction Appraoch (d)	Cost (d)		N/A		N/A
Total Fair Value		$	100,398,684

General Commitments and Contingencies

As of September 30, 2023, the Fund had unfunded commitments outstanding, which could be extended at the option of the borrower, as detailed below:

Borrower		Unfunded Commitments
ABG Intermediate Holdings 2, LLC Delayed Draw Term Loan*		$	288,889
Accelerate 360 Holdings, LLC Revolving Term Loan			508,873
Advarra Holdings, Inc. Delayed Draw Term Loan			580,151
Anaplan, Inc. Revolving Term Loan			349,471
Anuvu Holdings 2, LLC Delayed Draw Term Loan			33,195
Anuvu Holdings 2, LLC Delayed Draw Term Loan B			550,829
Avalara, Inc. Revolving Term Loan			454,545
Channelside AcquisitionCo, Inc. Delayed Draw Term Loan**			65,000
Channelside AcquisitionCo, Inc. Revolving Term Loan			166,667
Coretrust Purchasing Group, LLC Delayed Draw Term Loan			338,346
Coretrust Purchasing Group, LLC  Revolving Term Loan			338,346
Coupa Software, Inc. Delayed Draw Term Loan			154,253
Coupa Software, Inc. Revolving Term Loan			118,110
Evergreen IX Borrower 2023, LLC Revolving Term Loan			397,516
Gateway US Holdings, Inc. Delayed Draw Term Loan**			23,728
Gateway US Holdings, Inc. Revolving Term Loan			112,686
Higginbotham Insurance Agency, Inc. 3rd Amd. Delayed Draw Term Loan**			888,889
Inovalon Holdings, Inc. Delayed Draw Term Loan			660,211
IQN Holding Corp. Delayed Draw Term Loan			420,856
IQN Holding Corp. Revolving Term Loan			320,856
NCL Corporation Ltd. Backstop Notes			694,000
NCL Corporation Ltd. Class B Bridge Notes			1,153,000
Planet US Buyer LLC Revolving Term Loan			222,222
Riverbed Technology, Inc. Revolving Term Loan			75,542
Ultimate Baked Goods Midco, LLC Revolving Term Loan			248,649
Zendesk, Inc. Delayed Draw Term Loan			739,130
Zendesk, Inc. Revolving Term Loan			304,348
		$	10,208,308

 

*Subsequent to September 30, 2023, the outstanding loan commitment was terminated.

**Subsequent to September 30, 2023, all or a portion of the outstanding unfunded commitment was funded.

 

Additionally, from time to time, the Adviser and its affiliates may commit to an investment on behalf of the funds it manages, including the Fund. Certain terms of these investments are not finalized at the time of the commitment and each respective fund’s allocation may change prior to the date of the funding. In this regard, the Fund may have to fund additional commitments in the future that it is currently not obligated to but may at a future point in time.

 

For more information with regard to significant accounting policies, see the Fund’s most recent semi-annual report filed with the Securities and Exchange Commission.