Good afternoon, and welcome to Apollo Investment Corporation's Earnings Conference Call for the period ended June 30, 2020. At this time, all participants have been placed in a listen-only mode. The call will be open for a question-and-answer session following the speakers' prepared remarks. If you would like to ask a question at that time, press star one on your telephone keypad. If you would like to withdraw your question, press the pound key. I will now turn the call over to Elizabeth Besen, Investor Relations Manager for Apollo Investment Corporation.
Thank you, operator, and thank you , everyone, for joining us today. Speaking on today's call are Howard Widra, Chief Executive Officer, Tanner Powell, President and Chief Investment Officer, and Greg Hunt, Chief Financial Officer. I'd like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of Apollo Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our earnings press release. I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements. Forward-looking statements involve risks and uncertainties, including, but not limited to, statements as to our future results, our business prospects, and the prospects of our portfolio companies.
You should refer to our most recent SEC [inaudible] filings for risks that apply to our businesses that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit our website at www.apolloic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our website, which contains information about the portfolio as well as the company's financial performance. At this time, I'd like to turn the call over to our Chief Executive Officer, Howard Widra.
Thanks, Elizabeth. Good afternoon, and thank you for joining us today. Before we begin, I'd like to say we hope everyone's healthy and doing well. I'll begin today's call with an overview of our portfolio and a review of our financial results for the June quarter. I will also discuss today's distribution announcement. Following my remarks, Tanner will review our investment activity for the quarter and will discuss the impact of the COVID-19 pandemic and economic shutdown on our portfolio in greater detail. Greg will then review our financial results and provide an update on liquidity. We will then open the call to questions. During today's call, we will be referring to some of the slides in our investor presentation, which is posted on our website. As we all know, the COVID-19 pandemic has been an unprecedented shock to the global economy.
We believe our portfolio repositioning over the last several years has allowed us to enter this challenging period with a well-diversified senior corporate lending portfolio invested in less cyclical industries, with granular position sizes. Despite the significant economic headwinds through the pandemic, our corporate lending portfolio continues to perform well, as evidenced by a net gain during the quarter. We believe the performance of our corporate lending portfolio during this challenging period demonstrates its resiliency and quality. No investments within our corporate lending portfolio were placed on non-accrual status during the quarter. The corporate lending portfolio, which represents 79% of the total portfolio, is 85% first lien, 100% floating rate, and 86% sponsor -backed. We continue to work closely with our sponsor clients and portfolio companies, and we have generally been pleased with how sponsors and borrowers have been managing through the current environment.
Away from corporate lending, results for the quarter were negatively impacted by non-core and legacy investments. On our last call, we said that it was our intention to reduce the fund's leverage over the coming quarters. During the June quarter, we made considerable progress deleveraging the balance sheet by exiting approximately $233 million of assets on a gross basis, or $95 million on a net basis, which reduced our leverage to 1.66 x, down from 1.71 x. Since the end of the quarter, we have received net paydowns of approximately $50 million, including one loan with documents in escrow. Pro forma for these additional paydowns and assuming no changes to fair value up or down, net leverage is currently approximately 1.61 x. We have visibility into meaningful additional repayments in the remainder of the September quarter and for the December quarter.
We remain focused on further deleveraging to within our target range of 1.4x-1.6x over the coming quarters. As the pandemic began, many of our portfolio companies drew on their revolvers during the March quarter to shore up liquidity. Many of the drawdowns were repaid in the June quarter. MidCap is the agent for nearly all of our revolver and delayed draw term commitments and is actively monitoring every commitment. For context, at MidCap, leverage loan revolvers were 23% utilized before the pandemic. Revolver utilization peaked at 70% in mid-April and has since declined to 48% today. Greg will discuss our liquidity and unfunded commitment exposure in greater detail later in the call. Moving to our financial results.
Net investment income for the quarter was $0.43 per share, reflecting a smaller portfolio given the reduction in our leverage and a lower contribution from Merx, which Tanner will discuss later. Given the total return feature in our incentive fee structure, no incentive fees were accrued during the quarter. The portfolio had a net loss of $25.2 million, or $0.39 per share, driven by a net loss on non-core and legacy assets, partially offset by a net gain on corporate lending. Slide 16 in our investor presentation shows the net loss for the quarter broken out by strategy. Net asset value per share at the end of June was $15.29, a 2.6% decline quarter-over-quarter. Turning to our distribution.
In light of the challenges and uncertainty created by the COVID-19 pandemic and our plans to further reduce the fund's leverage, we have reassessed the long-term earning power of the portfolio and concluded that it's prudent to adjust the distribution at this time. We believe the distribution level should reflect the prevailing market environment and be aligned with the long-term earnings power of the portfolio. Going forward, in addition to a quarterly- based distribution, the company's board expects also to declare a supplemental distribution in an amount to be determined each quarter. We believe a $0.31 based distribution reflects the long-term earning power of the core portfolio, including Merx.
We believe there are several sources of earnings that will allow us to pay an ongoing supplemental distribution, including the redeployment of non-earning or lower -yielding assets from our non-core and legacy portfolio, the recovery of earnings from Merx, and the rebound of fee income to historic levels. The base supplemental distribution construct is intended to provide shareholders with a minimum annualized yield on NAV of 8%, a level that is consistent with some of our peers and allows for some upside via a supplemental distribution. To that end, the board has declared a base distribution of $0.31 per share payable on October 7, 2020, to shareholders as of record on September 2, 2020. The board has also declared a supplemental distribution of $0.05 per share payable on October 7, 2020, to shareholders of record as of September 21, 2020.
Again, the board expects to declare a quarterly supplemental distribution in an amount to be determined each quarter. With that, I will turn the call over to Tanner to discuss our investment activity and our portfolio.
Thanks, Howard. Starting with the market environment. Since the March lows, leverage loan prices have recovered, and loan spreads have tightened significantly, which had a positive impact on the fair value of our corporate lending portfolio. Given the economic backdrop, middle market loan volumes during the period were light in both the syndicated market and the private credit market. Activity in the middle market remains slow as sponsors and lenders continue to struggle to evaluate how to price risk. While deal activity has been light, we do see that pricing and terms have shifted in favor of lenders. In addition, borrowers are increasingly seeking asset-backed lending solutions, an area where we, via MidCap, have expertise and significant market share.
Given the composition of our corporate lending portfolio, which is primarily first lien loans to less cyclical businesses, we believe that the credit quality of our corporate lending portfolio has held up relatively well during this period. However, we have seen an increase in requests for loan amendments. To date, AINV has completed or is in the process of completing 23 amendments across the portfolio, representing 15% of portfolio companies. Most of these amendments have been for covenant waivers or resets, generally in exchange for a new covenant. To date, only four amendments have impacted interest rates or principal payments. Given the lack of investment activity in the overall market and our focus on reducing leverage, new investment activity was limited during the quarter. New corporate lending commitments for the quarter were only $17 million across two companies.
Sales were $68 million, repayments were $49 million, and revolver paydowns were $116 million for total exits of $233 million. These sales were executed at prices around our marks at the end of March. Net repayments for the quarter were $95 million, including $31 million of net revolver paydowns. Going forward, given our visibility into upcoming repayments, we expect to be in a position to make new commitments as market activity resumes. Moving to Merx, our aircraft leasing portfolio company. As discussed on our last call, the pandemic has caused an unprecedented decline in global air traffic, which has led to a widespread lease deferral throughout the industry. Although air traffic trends have improved slightly more recently, it remains significantly below pre-pandemic levels. Merx has been working with its lessees to provide the necessary flexibility during these unprecedented times.
During the June quarter, AINV converted $105 million of Merx revolver into equity and reduced the interest rate on the revolver from 12% - 10%. Accordingly, at the end of June, our investment in Merx totaled $329 million at fair value, consisting of a $200 million revolver at 10% and $125 million of equity, which also reflects a $4.3 million write-down during the period. This partial equitization will reduce the interest Merx pays to AINV from $36 million per year, or $9 million per quarter, to $20 million per year, or $5 million per quarter. We believe this reduced debt burden will provide Merx with the cash flow relief needed to navigate this challenging period. We expect Merx will be able to make dividend payments on our equity investment, improving AINV's return on its overall investment when the industry recovers.
We believe Merx's portfolio compares favorably with other lessors in terms of asset, geography, age, maturity, and lessee diversification. Merx's portfolio is skewed towards the most widely used types of aircraft, which means demand for Merx's fleet should be somewhat more resilient. Merx's fleet predominantly consists of narrow -body aircraft serving both the U.S. and international markets. At the end of June, Merx's own portfolio consisted of 81 aircraft, 10 aircraft types, and 40 lessees in 26 countries with an average age of 9.5 years. Merx's fleet includes 75 narrow -body aircraft, two wide -body aircraft, and one freighter. As mentioned last quarter, the majority of rent deferrals impacted cash flow in the June quarter. We expect a recovery in lease payments going forward, given the significant amount of capital that has been raised by airlines in the public markets and the level of government support around the world.
For the month of July, cash flows are at or above expected levels. Merx continues to diversify its revenue sources beyond aircraft leasing. Merx has built a best-in-class servicing platform that generates income from aircraft managed on behalf of other Apollo-affiliated capital. You may have seen during the quarter, Apollo Global's dedicated aircraft leasing fund Navigator entered into a sale-leaseback transaction with Delta Air Lines for 10 aircraft. Navigator acquires additional aircraft, and Merx will generate incremental income from servicing fees. Across Merx and PK Air Finance, the aircraft lending platform, which was acquired by Apollo Global, Apollo's aviation platform has 45 professionals dedicated solely to aviation located across North America, Europe, and Asia, providing expert in-house support to the platform's various aviation strategies. The aviation team has the experience to skillfully navigate this period of market stress and the requisite capabilities to mitigate potential adverse outcomes.
In addition, the Apollo aviation platform will seek to opportunistically deploy capital in the face of widespread uncertainty and market disruption. To be clear, Merx is focused on the existing portfolio and is not seeking new investment opportunities. However, growth in the overall Apollo aviation platform will inure to the benefit of Merx as the exclusive servicer for aircraft owned by other Apollo funds. Moving to overall credit quality during the quarter, our two first lien debt positions in Carbonfree Chemicals were placed on non-accrual status. The company has been facing earnings headwinds due to an unprecedented slowdown in the demand for one of its products, hydrochloric acid, or HCL, which is used in the fracking process. Due to the decline in oil prices and production, the company's profitability has been negatively impacted by the lack of HCL offtake.
At the end of June, investments in non-accrual status represented $182 million, or 6.1%, of portfolio cost, and $47 million, or 1.7%, at fair value. Looking ahead, we anticipate the continued need for covenant relief in our portfolio over the next few quarters. We believe these amendments will provide our portfolio companies with the flexibility needed to operate in the economic downturn. We can use such amendments to reprice our risk, tighten loan documentation, add covenants, and secure additional equity capital. With that, I will turn the call over to Greg, who will discuss financial performance for the quarter.
Thank you, Tanner. Beginning with the statement of operations. Total investment income was $56.7 million for the quarter as interest income declined due to the reduction in income from Merx non-accrual investments and the decline in LIBOR. The decline in LIBOR was primarily offset by a corresponding decline in AINV's interest expense for the quarter. The remainder of the decline was primarily as a result of muted origination and prepayment activity during the quarter. Approximately 97% of contractual interest payments for the quarter were collected, and the weighted average yield at cost on our corporate lending portfolio was 8.1% versus 8.5% last quarter, reflecting somewhat the decline in LIBOR to floor levels. Expenses for the quarter were $28.4 million, down $4.4 million quarter-over-quarter, primarily due to lower interest expense and lower management fees.
Interest expense declined due to the decline in the average portfolio and the decline in LIBOR. The average weighted average cost declined 81 basis points from 3.93% - 3.12%. Management fees declined due to the decline in the average portfolio, and there were not any incentive fees paid during the quarter. Net investment income per share for the quarter was $0.43. As Howard mentioned, net leverage at the end of the quarter was 1.66 x, down from 1.71 x at the end of March, due to $95 million in net paydowns, partially offset by the net write-down on the portfolio. The net loss on the portfolio for the quarter totaled $25.2 million, or $0.39 per share. On page 16 in the earnings supplement, we've broken out the net loss by strategy.
Spreads in the syndicated market tightened meaningfully since the peak decline in March. As a result, we saw several reversals of unrealized losses from last quarter. Our corporate lending portfolio had a net gain of $4.7 million or $0.07 a share during the quarter. Merx had a loss of $4.3 million or $0.07 a share, reflecting the continued stress in the aviation industry. Non-core and legacy assets had a net loss of $25.6 million, or $0.39 per share, due to Carbonfree, a legacy position in our shipping and oil investments. The loss in shipping primarily reflected the decrease in the residual value of the underlying assets in our Dynamic shipping investment. The loss in our oil investments was primarily due to the weakness in the forward oil curve. NAV per share at the end of June was $15.29, a 2.6% decline quarter-over-quarter.
Moving to liquidity and capital. At the end of June, we had $1.76 billion of debt outstanding, down $40 million from the prior quarter. Adjusting for settlements at quarter end, we had $243 million of immediately available liquidity, up from $224 million at the end of March. We had $205 million of additional capacity under the credit facility, up from $131 million at the end of March. The net effect of the quarterly activity improved our available borrowing capacity by $350 million-$450 million. As Howard mentioned, the activity post -quarter end has added to our overall borrowing capacity for this quarter. Lastly, we were pleased that Kroll affirmed our investment grade rating in July. Moving to our unfunded commitments. On page 18 in our earnings supplement, we have laid out the outstanding commitments at the end of June.
During the quarter, we experienced meaningful revolver paydowns from our portfolio companies, as many of them chose to pay down their revolvers as they had better visibility regarding the impact of the pandemic on their respective businesses. Of the $275 million of unfunded revolver commitments outstanding at the end of June, $180 million are available to borrowers and $95 million are not available to borrowers. Availability is based on borrowing base limitations and other covenants. There were no significant drawdowns on delayed -draw term loan commitments during the quarter, which are generally used to support portfolio company acquisitions and have incurrence covenants. As noted, a significant portion of our unfunded commitments are not available to borrowers. Most of our revolver commitments are subject to the borrowing base, and many of the companies do not have the requisite collateral.
Delayed draw term loans are typically used to support portfolio company acquisitions and have incurrence covenants, and therefore, we do not expect these facilities to have any material utilization in the current environment. Turning to the portfolio composition. Our investment portfolio had a fair value of $2.67 billion at the end of June across 149 companies in 29 different industries. We ended the quarter with core assets representing 91% of the portfolio. Non-core assets decreased to 9% of the portfolio at the end of June, down from 10% at the end of March. First lien assets account for 85% of the corporate lien lending portfolio. The weighted average attachment point decreased to 0.8 times. Investments made pursuant to our co-investment order were 77% at the end of the quarter. We continue to remain focused on preserving liquidity, and accordingly, no stock repurchases were made during the quarter.
As our leverage and liquidity continue to improve, we will continue to evaluate repurchasing our securities as appropriate. This concludes our prepared remarks, and we would like to open the call up to questions.
Thank you. The floor is now open for questions. If you wish to ask a question at this time, simply press star, then number one on your telephone keypad. If at any point your question has been answered and you wish to remove yourself from the queue, press the pound key. Our first question comes from the line of Kenneth Lee of RBC Capital.
Hi, thanks for taking my question. Just one following up on what was mentioned during the prepared remarks. You said that you have some visibility into investment repayments over the next few quarters. Just wondering if you could just expand upon that and what gives you some comfort around that visibility? Thanks.
Yeah. Well, it's Howard. We go through the portfolio, there's a number of companies that are basically in strategic transactions for sale that are either pending or committed. They're pending closing. We're talking about things that are, in a number of cases, already under contract, so they can't be broken up. We're just waiting for some regulatory approval. In other cases, are being auctioned and are valuable sort of platforms and will get executed. It's sort of a granular list. We would expect that to happen continually over the next quarters.
Got you. Very helpful. Just one follow-up, if I may, in regard to the new distribution policy. You mentioned that the supplemental dividend, a couple of drivers that could help that, including non-core migration as well as recovery in Merx. Wondering for outside observers, wondering about the best way to think about how the supplemental dividend works, is there a better way for us to know when a supplemental dividend could be intended? Just any kind of guidance around that. Thanks.
I'll take a crack at it first. We try to set the base dividend based on what sort of corporate portfolio is earning or will earn at the size it's expected to be at, plus what we expect Merx to produce currently with relatively sort of moderated assumptions in terms of sort of fee income. That will enable us to sort of pay that base dividend. In addition to that, we would expect to generate income from a number of different items. One is returns from our non-core portfolio, which we get some of today. What we said in the prepared remarks was repositioning that non-core portfolio and earning even more off of those. Even off the sort , the moderated amount of cash that's produced off that is incremental.
Merx's basically picking back up to a level of distributions above where we modeled it, which could still be below where it was historically. There's room for upside there. In the interim, there's also sort of an upside, or it's not really an upside. There's also further earnings coming over the next few quarters because we won't be paying an incentive fee for a little while because of the total return feature. Lastly, that base dividend was set on a fee level that is relatively conservative based on historical levels over the past four or five years. That was with a smaller portfolio. Our view is that we can support that base dividend with just the very basics of the business.
There should be meaningful opportunities to produce each quarter income above that, which will then be distributed based on sort of what the board decides each quarter. The expectation is we would declare some each quarter and potentially retain some to drive NAV up and leverage down each quarter as well.
Great. Very helpful. Thank you.
Our next question comes from the line of Kyle Joseph of Jefferies.
Hey, good afternoon, guys. Thanks a lot for taking my questions. In terms of capital allocation going forward, I know the key focus here is de-levering, but in terms of new investment opportunities, would we expect those to be primarily focused on the existing portfolio or subject to market conditions? Would you look to kind of rotate some of your portfolio into new investments?
Yeah. As Tanner had said , we get our leverage into sort of the range. Right now we're at the sort of very top end of the range. As we get payments, we would expect to sort of deploy back into opportunities we think that are sort of effectively cherry-picked for risk return off the top of what's coming through the platform. Those may be in existing portfolio companies. If those opportunities are good, and we understand they may be , there are other opportunities. We have a couple sort of in the pipeline we expect to fund right now in the quarter; that's one of each of those. Disproportionately high return for the risk that is given sort of our visibility into pay downs, we believe we can fund and then continue to sort of our path to de-levering. The answer is it's going to be both.
It will for sure, though, be in the strategy that we have sort of articulated now for a period of time, a first lien floating rate. It'll all be in those categories. Our ability to deploy obviously will be dictated some by the cash that we're able to sort of bring in. We do expect a sort of normal course of churning up the portfolio to enable us to invest and sort of cherry -pick the best of what's coming through the platform.
Got it. One follow-up from me. Given those sorts of investment considerations in light of the rate environment and the LIBOR floors you have on your portfolio, do you think the first quarter could reflect kind of the nadir for yields or any sort of outlook in terms of the yield on the portfolio?
It should, right? LIBOR can't go much lower, but it doesn't matter. We have the floor so that our yield won't go lower. We would expect to be deploying at higher rates just because, like I said, we're just going to be very selective of what we pick off. The issue is, though, obviously we're not going to be turning 20% of the portfolio every quarter. It's not going to move 50 basis points per quarter up. I do think that that's the right assumption that we—
Understood.
...It's just a question of its speed.
Yeah, that makes a ton of sense. Thank you very much for answering my questions.
Our next question comes from the line of Finian O'Shea of Wells Fargo Securities.
Hi, good afternoon. Hope everyone's doing well. First question on Merx. You gave a lot of input there. Apologize if I missed this. Was the reorg on your provided capital structure just a more conservative play according to what cash comes in, or was there any form of test trips underneath on the securitization there?
Yeah.
Yes. Sorry.
No, it's all you. Go ahead.
Yeah. Hey, Finian. The change was as Howard alluded to more appropriately reflect the earnings power that we anticipate from Merx. No, was not driven by as you referred to issues in the underlying financings. We remain in good covenant compliance in those facilities. There is some cash —not only unrestricted cash that's trapped in those facilities but also restricted cash that's in those facilities and then unrestricted cash that sits at Merx to help defer cash needs going forward.
Okay. Thank you. That's helpful. Just a follow-on, perhaps for Howard. Reading and listening a bit to the Apollo parent call, it looks like Apollo is starting a new private credit platform, Strategic Opportunities. How would you describe this as it compares to MidCap and the Apollo Private Credit Group? Is it a different part of the house, or to what extent are you integrated, and how should we think about this as it impacts your current group today?
Okay. Well, first let me answer it for the BDC. From the BDC's perspective, it's just another product offering that is available for the BDC if it decides to opt to do those financings. It's under the exemptive order it has a right to. From the perspective of where it sits, it's effectively an adjacent product. If you're thinking, it's basically large market originations that take deals in the $1 billion range, which historically have not really been done in the private market. Effectively what it does is allow us to offer at scale to underwrite deals privately and take them down in lieu of capital market solutions for providers. If you looked at the universe of borrowers that would mostly be availing themselves of that, they would be ones that would have been BSL borrowers previously. Not MidCap borrowers.
The origination of those companies tends to be large corporates or sponsors that are more diversified than middle -market sponsors. More like Apollo than they would be the core sponsors we cover at MidCap in the basic way. In that way, it's an adjacent product offering. It's basically, how do we make sure that we are able to offer scaled solutions in the lower BSL market and upper-middle market? Stop there. Separately, though, the coverage, the origination of that product, is an Apollo effort across the board. It includes the origination resources that we have at MidCap and at Apollo in our direct origination team, as well as the origination we do and the relationships we have in the BSL market with issuers that are there now, because we're one of the bigger holders of those markets.
The sponsor origination of those transactions will be led by our team at MidCap and Apollo combined. When they reach the size that they would have gone to the BSL market, they'll instead use this solution as opposed to being funded primarily on MidCap's balance sheet. If that makes sense. From the BDC's perspective and the people on this call who aren't as plugged into Apollo, generally, the BDC has a right to take its portion of whatever transactions it likes. It is less likely to do those transactions, both because of yield and structure , especially when it's only picking off the highest -yielding stories. That are asset -secured, if you will, or first lien. That's not definitive. They could do so. Does that make sense?
Yes. That's a lot of color. Thank you. Third, if I can do that. On the amendments, I think you said 23 have been done or are in the works. I assume these are mostly within the core MidCap -originated book, nothing legacy. Just a question on any color you can provide. Are these companies violating covenants? If so, are they maintenance covenants on EBITDA, or are they getting ahead of a covenant that they might trip later this year? Is it proactive or reactive? Any context you could provide there.
Both. It depends on the company. There is almost never a time when they trip a covenant and we get their numbers and it's tripped. They're going to call in advance, and we're going to solve it. In many cases, that tripping of the covenant or expectation is coming multiple quarters down the line, which is really what you're asking. They're saying, Okay, we're working through this over the next two or three quarters or whatever. We want to come up with a solution that we know enables us to work our way through it. It has been both. As Tanner said , there are 23, and only four of them were really major. I don't know what we would call them, but they would be sacred rights -type amendments. They tend to be like, yes, covenant relief of , like, that's anticipatory or even something more innocuous than that.
Tanner, I don't know, would you add to that?
Yeah. No, that's spot on. Finian, we're very sensitive not to be subjective in the aggregation of data. A much smaller subset of those 23 would actually even be more benign, as in certain of the borrowers that had access to the PPP program and would need relief there. We didn't obviously want to cherry-pick, give a more comprehensive proposal. Other than that comment, I would echo or corroborate as Howard described.
Okay. Thank you, everybody.
Our next question comes from the line of Ryan Lynch of KBW.
Hey, good afternoon, and thanks for taking my questions. Just had a follow-up question on the supplemental dividend. I just wanted to clarify that a supplemental dividend is expected to oscillate on a quarter-by-quarter basis, as well as your expectation that it will not necessarily be 100% of net operating earnings, that there will actually be a supplemental dividend that will probably come under net operating earnings; and that you will actually use some to build up book value. Is that correct?
Yes.
As far as your guys' right side of your balance sheet, your capital position today, I've been a little bit surprised that you guys haven't made any material changes, really, to the right side of your balance sheet as we've entered into this downturn. Do you foresee the need to make any meaningful changes to the right side of your balance sheet, or are you pretty happy with how it sits today, managing through this downturn?
Greg, you want to go first?
Yeah. Ryan, I think we continue to look at it. One, I think it was really important for us to update our KBRA rating, which we were able to accomplish in July, and also create our own liquidity within the portfolio. I think our next step will be to look at maturities. One of the things we haven't wanted to do was ladder another five-year maturity on top of the five-year maturity we have with the 350. We are looking at that from a ladder point of view. We're also looking at spreads. We know that there's been over $1 billion in AID issued. We are looking at our cost of capital overall. I think it's something we continue to look at and may or may not act in the next few quarters.
I will say, Ryan, we do feel like our funding situation is stable. We have ample liquidity. We have good relations with the banks. We've sort of shown them our capabilities of sort of operating in this environment. Our decision on what to do is going to be driven by opportunity as opposed to sort of a real immediate need, which I think is helpful because some of the things that were done immediately by some people were fairly costly. As Greg said, we'll continue to evaluate it. We would expect to sort of diversify and make some choices over the next couple quarters, but we want to do it at the time of our choosing because we think that will be much more cost-effective.
Okay. Got it. Howard, in your prepared remarks, you kind of commented on and said your corporate lending portfolio continues to perform pretty well. My question is, if you look at slide number 16, you guys had about a 7% increase per share in your corporate lending portfolio write-ups in the quarter. When you compare that to the $0.97 decline in that same category, the corporate lending portfolio in your prior quarter, I was a little bit surprised, just given the recovery in loan prices and tighter credit spreads. We've seen several other BDCs mark their portfolios up a bit higher given just the improving market conditions. Can you comment on why your portfolio didn't really seem to recover very much of the big decline? I'm talking about specifically your corporate lending portfolio.
Yeah. Well, first of all, I think last quarter, as a percentage basis, we didn't go down quite as much. Our sort of our pickup would not have been quite as much on a gross basis. I think that's the first thing. I think the second thing is that we frankly probably have a little bit more pent-up upside than some of the other people who reported have down the road. Our approach to this has been to make sure that the valuations are driven by fundamentals as well as sort of the market flows because that's more relevant. The recovery of a lot of these companies happens over the course of June and July, and so we were not as forward-looking as maybe I think some of our competitors might have been.
Okay. Understood. I appreciate the time this evening.
As a reminder, ladies and gentlemen, if you wish to ask a question, simply press star then the number one on your telephone keypad. Our next question comes from the line of Matt Tjaden of Raymond James.
Hey, everyone. Afternoon. Thanks for taking my questions. Just a quick one on Merx, if I can. That new $5 million interest expense, was Merx able to cover that through cash flow? As a follow-up to that, if not, is there any risk of that toggling to PIK? Thanks.
Yeah, sure. Thanks for the question. A couple of notes here. The first would be, and I alluded to this in my prepared remarks, the experience in July as a number of the previously agreed -to deferrals were expiring has been above our expectations. Would caution everyone that there are still more deferrals to expire, and how many of those lessees ultimately come back online will have a lot to do over the next three - six months with where things correct or how air traffic recovers. We endeavored in that $5 million, appreciating that there might be a need for capital at some point in the future as it's path-dependent to reflect a more steady -state, supportable earnings number.
It's not our expectation right now that it would go PIK, but I would imagine, as you can probably well appreciate, it will be a little bit path-dependent. Again, to stress, while we don't want to extrapolate too far, the early experience with lessees coming back online has been positive and exceeded expectations. Really two sources of strength there, again, alluded to this in my prepared remarks, but the amount of government funding, particularly in the U.S., has helped buoy lessees and their cash flow profiles. Then also in China and Asia more broadly, things are close to 90% of pre-COVID levels, and the cash flows associated with lessees, the leases to those particular counterparties, have held up really well, and I would expect to buttress earnings going forward. Those are the drivers for the outperformance to date. Again, to stress, it will be path-dependent.
That's it for me. Appreciate the call.
That was our final question. I'd like to turn the floor back over to Mr. Howard Widra for any additional or closing remarks.
Thank you, and thanks to everybody for listening to today's call. We all thank you for your continued support and interest in this environment, and obviously, please feel free to reach out and call any of us if you have any other questions. We hope everybody stays healthy and safe. Have a good day. Bye.
Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.