Investors looking for a unique approach to participating in private equity deals of mid-sized companies may find themselves right at home with Apollo Investments Corporation (Nasdaq: AINV).

Apollo Investments is the publicly traded extension of private equity powerhouse Apollo Advisors. Leon Black, Apollo Advisors founder and chairman, is a self made billionaire who rose to fame and fortune during the high yield junk bond era of the 1980s.

Apollo Advisors acquired Realogy, the owner of Century 21 and Coldwell Banker for $9 billion and Harrah's Entertainment in a club deal with Texas Pacific group for $27 billion, all in the same week this past December.

Business Development Corporation
Apollo Investment Corporation investments range between $20 million and $150 million in the form of common stock and equity. Apollo Investment Corporation has filed to be treated as a business development company (BDC). BDCs provide debt and equity to small privately owned companies.

In exchange for being exempt from corporate taxes, BDCs are required by law to payout 90% of their ordinary taxable income to investors.

Since the IPO
Apollo Investment had its IPO in April 2004 at $15 a share and has since given shareholders a return of 40% based on stock appreciation. Apollo is currently trading below $22 and pays a healthy dividend of 9.4%. For the nine months ending December 31, 2006 Apollo Investments net investment income totaled $103.6 million, up 56% from a year ago due to growth and diversification of its investment portfolio.

Apollo Investment Loan Borrowers
The top 5 industries that are benefiting from Apollo Investment loans include Direct Marketing (7.7%), Consumer Services (7.4%), Business Services (6.2%), Manufacturing (6.2%) and Consumer Products (5.9%). Apollo Investments has managed to construct a portfolio that stretches across 29 industries in less than three years.

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As of December 2006 Apollo had 65% of its $2.25 billion portfolio farmed out as subordinated debt with another 25% at work as second lien loans. Apollo's stance as a lender suggests that income from payments made on those loans will continue to produce a consistent revenue stream that will allow earnings to grow despite unforeseen fluctuations in the U.S. economy. As a note of caution to investors subordinated debt carries more risk since senior debt holders will be paid first in the event of defaults or borrower liquidations.

Apollo Investment Corporation Valuation
Apollo Investments is an attractive investment based on a low forward price to earnings growth (PEG) valuation of 0.99 supported by an equally low forward price/earnings (P/E) ratio of 12.9. Growth investors looking for undervalued picks often seek out stocks with PEG ratios below 1.0. Low forward PEG ratios suggest strong projections of long-term earnings growth.

Competitors with similar valuations worth mentioning are Allied Capital Corporation (NYSE: ALD) and American Capital Strategies (Nasdaq: ACAS) which boast Forward PEG valuations of 2.60 and 1.68 and Forward PE ratios of 18.6 and 12.8 respectively.

An investment in Apollo Investments Corporation also places investors in the company of New York-based Derman Value Management, one of the pioneers of Contrarian value investing, who happens to be the second largest institutional shareholder with 2.5% of outstanding shares. Set to pay a dividend of $0.51 per share on March 29th 2007, Apollo may be worth a good look.

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