Ares Capital (ARCC) 2 May 182018 Q1 Earnings call transcript

Company Profile

Participants

John Stilmar	Investor Relations
Kipp deVeer	Chief Executive Officer
Michael Smith	Co-President
Penni Roll	Chief Financial Officer
Jonathan Bock	Wells Fargo Securities
John Hecht	Jefferies
Rick Shane	JPMorgan
Allison Taylor	Oppenheimer
Ryan Lynch	KBW
Robert Dodd	Raymond James
Chris York	JMP securities
Terry Ma	Barclays
Doug Mewhirter	SunTrust
Casey Alexander	Compass Point
Christopher Testa	National Securities
Henry Coffey	Wedbush
Chris York	JMP Securities
Derek Hewett	Bank of America Merrill Lynch

Call transcript

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Operator

Good afternoon. Welcome to Ares Capital Corporation’s First Quarter Ended March 31, 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode.

As a reminder, this conference is being recorded on Wednesday, May 2, 2018. I will now turn the call over to Mr. Relations. Investor of Stilmar John

John Stilmar

a Thank you, Capital earnings Welcome Ares are afternoon call. and first quarter good in participants Corporation’s all XXXX this everybody. only ended mode. At to time, Austin listen March conference XX,

is reminder, Wednesday May, recorded a As being XXXX. on conference this X,

of during those and expressions. and webcast as in forward-looking me statements. accompanying SEC and of or these Let not made filings. listed documents from with similar Company’s uncertainties. are no market could this results Ares identified those of Capital contain use The and intends, Corporation is important of such some differ course to start forward-looking statements for future subject anticipates, expressed statements will, past the such assumes update risks any materially that performance to conference Many information Comments forward-looking including be the can reminder. results. guarantee the in call such expects, statements may forward-looking obligation believes, and Please should, its by words actual reason, note also a any such

of or income provides related share call to to the from uses by because Capital, from comparable financial slide measure to its presentation SEC realized the less stockholders’ losses most of found this in and discussed EPS, regarding GAAP the incentive for EPS Company Company this in third-party derived realized share investors and with of defined taxes core not this including to the per During core unrealized unrealized operations, and non-GAAP American that share financial site. increase believes gains, realized information which per costs as net Company’s stockholders’ Regulation condition accompanying information any the financial fees one resulting can net portfolio earnings method sources increase Web professional measure The or and and is in operation. and losses. measure operations core was the such be to companies, discuss been related well by the G. Certain to equity such equity The presentation, capital performance, as warranty or related the as directly Core reconciliation useful a is per conference may going and accordingly, to gains EPS is resulting to and decrease call, financial to EPS from core other acquisition and it gains decrease or representation Company fees no losses attributable any results verified in independently or Company the has information. respect information makes to that gains

Ares is at deVeer, release reminder, XXst link now the the site Kipp available Web by Company’s section Web presentation a Corporation��s also first QX call Corporation’s I Company's homepage of March will Capital the clicking Executive are ended site. on available Investor earnings Chief www.arescapitalcorp.com the Officer. the to Capital over earnings the and quarter Earnings on Presentation on Web Resources turn the XX-Q of the As Company’s Ares on site. XXXX Mr.

Kipp deVeer

Penni Michael joined and afternoon today. John. the investor teams. of being Smith; us of and Co-President members finance, and including to by everyone team, with thanks our Chief Roll, Good management investment our Thanks lot, for I’m our Officer, other a members relations Financial

from Penni the will You call. in later hear Michael and

acquisition. reported This provide afterwards, And on our I me when on our start the per we current share, environment quarter earnings core improvement Let American results. sequential first first core of transaction. morning, fourth American first earnings consecutive quarter will XXXX since investing Capital the of thoughts $X.XX the quarter update which reviewing and a of strong some is closed by we quarter the brief Capital

earnings quarterly of rotation period on a XX% the and than sequential the benefited more continued year as same our ago. and higher driven in we from investment in Our an exceeded earnings portfolio initiatives from increase portfolio represented yields were increases dividend by core The improved LIBOR.

strong able another also portfolio, asset our earnings, of the us net quarter marketplace. great further per from to these $X.XX continued We’re GAAP in value. investment to generate increased share ability strong appreciation our result of distinguishes in earnings net believe which as a incremental We BDCs generate other investment totaled the from performance which

be participants Let to companies conditions. Market documentation course update to with market aggressive challenging along me high change and provide many provide looser to on and willing the terms current with structures. continue an leverage

to We’re immune this. not

much However, currently capabilities We We we continue situations situation. only as selectively believe on differentiate are we a X% competitors in transactions of hold flexibility new we set for returns. X% to result, the to commitment and are opportunity more what see our large our relationship, we broader in companies a stress-backing use incumbent a our and and believe attractive strongest invest with about and ourselves risk-adjusted capital our final are we than of to do better review long-standing more to closing sizes competitive borrowers. able

more XX. reviewed For closed first in and example, XXX the transactions, quarter, new than we company we portfolio

process. not on types our admittedly managing markets. through fundamentals, focus time This an these documentations Michael the our informational attractive companies market advantages loan strong in integrity first prospects strongest We leading a businesses maintaining non-cyclical vigilant in to of later more growth with investment provide lend call. recent the while the with use with our through But we our of our significant to is and activity tough remain color continue will investment sponsorship. and platform the on structures

of we a have decade committee long, has together eight been investing more Ares. here that’s reminder, person tenured team than long As experienced our very spent a member a long time, every at together investment a

realized closed we $X.X received Capital. American IRR acquisition of our in in we’ve going an than fair the cumulative including turn $XX billion on opportunity of I which at $X.X remaining gross million, provides non-core at I’d million unrealized fair non-yielding billion and XX%. like billion us initial we to The XXXX, Before portfolio remaining of XX, gains than The from includes more excess proceeds Since value $X.X $XXX update appreciation. of was level it Penni, January also value $X an net XXXX, that net more these repayments, of of March excess assets, realized generated portfolio principal over provide forward. and which lower asset to billion and includes more portfolio ACAS

on over provide balance the the turn me let to Penni sheet. and the Now, call financials more some detail

Penni Roll

good Kipp you, afternoon. and Thank

of and stated, earnings for share $X.XX as core compared the Kipp diluted first for basic XXXX. fourth was XXXX, XXXX quarter our of and of As the $X.XX $X.XX per the quarter quarter for first to

$X.XX quarter GAAP $X.XX, share basic share. of for which XXXX, XXXX for of share of Our diluted and per per income the and earnings per compared net American net the expense XXXX, quarter fourth $X.XX share. for quarter first to of GAAP was quarter were first including share net $X.XX Capital by $X.XX the related income reduced GAAP of gains This per for per the of

million. $XX.X at fair We of yield our XX.X% of experienced amortized first total the end our end totaled $XX.X and quarter, debt the Company’s performance. of total amortized increased realized income our and to by In and the since the at investments driven portfolio billion. total, by to which weighted on unrealized December for in net gains producing costs the the appreciation at and average first compared our investments on yield investment quarter due XX, and increased value other supported value the as At X.X% total million of XXst, to strong assets the to weighted unrealized net we primarily increased other $XX X.X% average increase respectively March of fair increase on XXXX. The Alcami, LIBOR. costs and at of in in quarter fourth transactions on securities the was quarter, the in reported As X.X% first $XX portfolio the billion yield had we investment

supported will remains approximately million our core estimate or income. currently taxable share. forward dividend per $X.XX income earnings carried spillover our current be Our that from $XXX undistributed XXXX into by well and We XXXX

dividend on June XX, share XXXX per record XXth. of $X.XX on to June stockholders quarter of is second payable The

the right to Moving sheet. side hand of the balance

resulting year stockholders’ XXst billion, was share Our value an increase in $X.X asset per quarter net $XX.XX, share, at $XX.XX to ago and a equity ago. of per March compared $XX.XX a

and in During transaction notes quarter, in particular, longest remained investment we’ve X.XX% the our $XXX in liabilities seven million issued we years. dated grade maturing coupon and a priced our in managing at institutional first proactive

this completed are at Given to issuance the in pricing. rates, opportunistically continued we very pleased increase longer debt attractive interest have

repaid $XXX we maturity quarter, during convertible addition, at January. of the their in notes In first million X.XX%

maturing we XXXX, of in later the million remainder year. the For $XXX have

as capacity by the the quarter, having X% a doesn’t billion, reduction our X.XXX%. interest market. increase significant that end over also the the At term reduce the pricing plenty spread a to the the this the significant debt the of we $X.XX already Given to we million and past at at period without from or grid X.XX% size liquidity access under we have and base facility months, range of unused of issued X.XX% the our extend one were to X.XX%. of after revolving repay $XX facilities revolving borrowing spread to low current our or amount maturity year maturity term credit needing total the grid reinvestment driven impact of nine to the first debt credit Note by amended facility borrowing end in

to to net cash to XXst, March XXXX. X.X was compared X.XX our December ratio times of times of and X.XX As times respectively million $XXX at debt XX, ratio and of available equity our debt times was X.XX equity

at Our the $X.X of total quarter approximately liquidity the billion. available was first end

be in continues asset should balance our Our further a and benefit rates to earnings. short-term sensitive sheet rise

of basis March sheet balance increase earnings per like Michael. point the to up And excluding up assuming positioned fees, are XXX LIBOR, our to using based increase turn that, example, with by annual impact XXst an our to I’d in now to over the call and to at share. $X.XX income approximately For

Michael Smith

would then update few Thanks portfolio quarter on and a minutes quick performance, pipeline. we’ll a Penni. investment first like activity provide post activity spend end and backlog our our I reviewing and and quarter

relationships, approach. market billion $X.X and our quarter, we new highly remaining extensive first in scale, our coverage the while and of consistent originate to investment selective used commitments, During investment

made us $XXX new At I we will believe, quarter provides initial a capital as our to and investment portfolio Hill, than XXX billion. $X.X end, additional in the support in grow. these Approximately significant they positions. as types half our with than with investments different which The needs our more discuss enables million were borrowers. of long-term has borrowers these of borrowers of consisting us situations, of size investments we first the Excluding of our to incumbent momentarily, capital $XX.X billion, these seek portfolio were an incumbency XX Providing contributor been new important more to XX% outperformance. commitments of secured Ivy often advantage best our of in investment lien fundings reached to

incumbency For over acquisition first Investment’s as company Starr we Ivy transaction, future in on to ARCC million opportunity Compliance. underscores investment X, committed Hill. quarter, company, origination awarded a ARCC, and was $XXX and full Ivy allowing of that example risk clients. crime, me strategic supportive to brings a provides brings that That franchise lien the portfolio to example, to Ivy a commit this of well relationship value to to we industry. financial compliance, made our this with broader ACA quarter. cybersecurity business as during the have first This focused part performance, we our non-cyclical and the to on ability Hill Based ACA of are of in support during in technology the regulatory solutions ACA XXX positions management opportunities. loan Hill investment our in

million the exit the Ivy closed $X.X Pacific quarter. As middle bank of equity billion of was decided first as investment a during Western Mitch and predominantly lending from senior ARCC. call, debt The quarter's mentioned secured roughly the portfolio last with from to in support of on purchase Hill the $XXX QX, loans consummated we on market transaction a Bancorp at

additional $X successfully Hill’s of we market billion acquired the firm Ivy in market market Ivy Ivy our With conditions, equity and middle favorable Hill terms. this included on which loans priced strong Given in most portfolio. investment execution, Hill expect CLO, of our be compared underlying equity to Performance will ARCC. to existing our providing further to strong future continues generate investment to while the dividends investment, a comparable Shifting incumbent also companies. opportunities level at support positions presence

months the March over their aggregate approximately to rate the the last LTM as ARCC’s solid approximate weighted growth compared EBITDA As continue in to to growth past earnings XXst, XX of portfolio average companies X% growth generate increased X% quarter.

reduction We the companies on in also of non-accrual. saw number

three first as at of end non-accrual At the a we compared value compared decreased companies quarter at XXXX QX the in X% total new non-accruals one quarter, to X.X% to During as fair to the from percentage QX in of come had declined X.X% the XXXX. of also X.X%. investment. non-accrual fourth to portfolio off Non-accruals at the quarter, XXXX cost,

exited approximately of activity. were million call commitments, we the like end of quarter our post new would million some commitments I to investment and through on back or over XXth, net made generating April brief Before $XXX $X April I comments while $XXX Kipp, to turn repaid gains. investment investment realized provide million on totaling From Xst

April total stood at respectively. our $XXX and backlog and as pipeline million $XXX Finally, XXth, of million roughly

opportunities close. turn these I'll and actively now Kipp to and is some potential back we closing remarks. call certainty no post closing. that the sell syndicate always, there transactions As for may investment approvals to over will subject are Please note these that or documentations,

Kipp deVeer

first closing, quarter really Michael. Thanks, our In we’re with pleased earnings.

We’re well core for to level revert exceeds where earnings dividend. a it investors have been aware many waiting to that our our

crossed We’re have pleased bridge quarter. to that this

nice to value from total In providing net addition, the strong and tailwind. help proposition ACAS build continue acquisition realizations is us a the return asset

a what I to us Q&A. prudent years. one We XX item if environment becomes over serve over believe than in manage And be we to last in that almost Company to And even we’ve we same the operated the fashion turn believe that manner forgot the continue we last more it before the difficult. well

a act increasing the that March. you debt the was the in most asset allows The the X:X. coverage provision X:X to required by ratio said regulatory into to law Credit XXX%. equity BDC know, includes way, achieve Business significant increases another Availability to from BDC As is to XXX% of Small to signed law relief Or it limitation

as regulatory As the issued we stated the improves we release month, that believe leverage we our industry widening is positive profile for risk last release significant in press the this of limitation probability the lenders decreases. if Very company. by change action for other ratio, coverage is of of a default no simply the asset other all taken in BDC than our the adopting

may by relief investments. extending for this side in into lower believe senior portfolio asset added we addition, flexibility In the risk allow the debt

new of engage new agencies in where do and front As carefully to of for the the laws we’re have considering begun nor our to impact considering We’ve are constituents. next we’ve banks, rating that we’re decisions and of about range action no key on ARCC want emphasize with specifically, regarding we other steps. a Directors headed made we legislation. any formal Board options, I

legislation to for of on questions remarks. call, understand time. answer this many prepared We at not happy questions? your related continued be new your topics evaluating line and please comment on therefore, Capital. to a will this will to there we’re concludes would the that Operator, for Thanks position understanding, some our you Ares support that open That be this but still

Operator

[Operator Instructions] Wells go today question first ahead. Please Bock from And Securities. our comes with Jonathan Fargo

Jonathan Bock

costs on to outlined on that’s of you what's center Would bucket market of part Kipp, In us second of senior are question? What generally what my are and the more give the of be all-in types investment first returns question the just a financing environment. you on sense as particular, now? question that the in lower opportunity. forthcoming in part seeing just the right team basis risk assets? the spread The will those would a the a and return be, the you across that Mike first able

Kipp deVeer

sub-deal, or would bank call all middle its Through with know, some higher rated goes probably that think EBITDA, of debt, now increase about a We is fees. XXX, it’s too, or our But X.X%, market, wherever X.X% you cetera. unrated et and deals, you as obviously it is would which range. tend about of the it on there the number. in $XX middle nuances how whether be fees LIBOR the fees origination to with LIBOR return that assets number And million lot depends are on book of originate up

of is or I So cost sure. financing one issued debt an And outstanding where interesting has know for been think secured you unsecured. both

is facilities, under we our recent down rough cost interesting if which went it bank generally from they So don't would these expanded But below there, do I did in fixed not. that, context be, leverage most number. more we number have is our or would is of rough really the The we what borrowings know money drawing is debt X% think of what issuances of today. change, X% they been cost the would by our

existing we’ve We’re to market our substantially it XXX talking was make and blended debt CLOs to a some Terry's, for laid that plus you’re Ivy X.X%-ish. a that. might of your where chance we Hill other that. useful there about lower thinking a done the pledged has the costs based of against call, have so been CLO type you you out to all senior than argument financing and is over about today. on of of back CLOs have collateralized that I others call couple of amount relative listen of I’d only where some numbers, couple middle lower scale LIBOR weeks whenever it And The financing of did that issuance. cost some point assets should have be reasons the data an

that you some gives hopefully, So context.

Operator

John Hecht Please question Jefferies. And go our comes ahead. with next from

John Hecht

of am successful would I XXX. a big saw a little bit or to companies from a XXX I pretty movement in the guys have portfolio, wondering of bringing you quarter had some increase diving there in you manage there, number to just there's in was -- borrowers? whether portfolio Maybe definitions into new

Kipp deVeer

transaction to It’s jump a actually and lot related of associated the revolvers. its

John Hecht

just the good -- talk I that I if wonder mix Mike the of EBITDA your pick-up And Is quarter. you shift? though, about talked is in then Is the about that organic? item. portfolio company in and pretty in pick-up that the could within similarly wondered EBITDA transition average companies. up

Michael Smith

air we’ve $XXX Nothing large million very new business time medical, transaction EBITDA, company called a very, for public at a plus different, we here with cetera. and a it’s Ares, company closed large long the of very et known

So that number skewed up. the

that exclude about for much you relative to million, QX’XX If of the doesn’t million average QX, $XX number is change. the EBITDA represent of which $XX

single literally name. a it’s So

John Hecht

And But if competitive what covenants deal marginal just do color. changed, market. this rates so I talked have benchmark am Kipp, forth. you -- fairly a you’ve final, have changed any the changed? and us could commentary on at spreads mean turns the realize some I wondering give I Where you’re seeing with point? have on

Kipp deVeer

say would We’ve of seen in largely we’ve haven’t that really again, for And increase the because all-around LIBOR. more spreads we need seen I yields just seen. coming which than underwriting. in, expand weaker

if we So of being and of capital financed, that layering for provisions documentations, more actually loosening to debt, don't restricted covenant of that haven't all being for they structures provisions exist. sorts adjustments high loss multiples, light, financed quality, that decline covenants earnings lower seen allow before, payments value structural

market, you a all is think X metrics. forever, covenant invention sorts particularly of in that that which so sound -- give new leverage things we will today's don't just people underwriting represent times So a

Operator

ahead. with from Please And question comes Rick our go Shane next JPMorgan.

Rick Shane

of financing we what revolver. maturities, your at makes is ahead It have that whether increasing your you looks executed the currently? ’XX of sense November terming But strikes the like. me that to point get out forward XXXX just Penni, fund you you and light curve seven time, made pretty absolutely leverage the about the of look at should I'm it deal think LIBOR that financing to attractive be of the compelling. That’s more true. year over wondering what when potential the of off in maturity the given how also capacity the

Penni Roll

you think good a I observation. make

my resolution of really this If I was you comment, in context for the think done. about commenting of maturities basically year our is

forward. But environment. issue that’s So as look constantly markets, look debt new have continue we can see no do, rate assess at to and we and interest as the And we always into risk repayment. you to capital we We do something markets. look the the where opportunistically move of see will at us we we

I we don’t really the won’t of statement if of saying a do it’s to don't So need it’s just something to statement have right anything. we a do saying market, we think

Rick Shane

funny between It to parent he was it’s made and need nice when I thought in one comment difference that have the another, the as to to have conversation.

Penni Roll

like it’s our and the a where really capital, efficiently strive good always dynamics effectively that’s do. we and to to that’s to positive to time history to so nice when Exactly, go issue been go and have to continue markets we’ll what

Operator

question Oppenheimer. Allison Taylor And from Rudary comes ahead. our with Please next go

Alison Taylor

my think million on -- to those -- am are So are two might might from think few new there up related then -- dividend Is noticed the around Ivy come up we rolling P&L. if transition for be, forward. to $XX a about those the as that stepped million would the relate And that And might they portfolio state? go that follow-up wondering, to few still off? those dollars stick how and going next wondering there? quarters? do am costs questions, ACAS the ask Hill portfolio those we to related wanted for steady Are I going I still going opportunity that to the new are or million. And things I there how to $XX Is to about I

Penni Roll

continue related see, primarily portfolio it, circling are would For related. we I call ACAS of that to that expenses

coming presenting item. expense expenses are line portfolio to through companies, are certain this certain we through So related that

the behind were year, we and as So us. operational broken more related we there last things may continue significant, that of incurring that expenses be are to go we’ve expenses But like forward out. amount a modest

Kipp deVeer

to this waiting go on that transaction. and this we there Hill, XX the increased in of of enhances Ivy likely to I I would closing from Allison, Ivy Hill, And the which the It’s our quarterly at quarter. up until say think CLO XX that economics investment we’re

QX we from would if settled and on I completely it’s on we’ll a headed it what where give bit number. the XX a don’t out were expect we’re you going higher. perspective I number. say us and So come we number quarter, all that you after lay conservative I for to be little But think second expect forward. more representative of

Operator

next Ryan KBW. And from Lynch comes with our Please go question ahead.

Ryan Lynch

made competitive commitments $X.X of very you the originations guys deals very quarter environment? backlog on If as as pretty what get the look $XXX about If and investors you compare have at done have what just billion I books amount comfortable environment, you are you talking a you guys of this guys with can million. good in your competitive putting speak about a million in that contrast as I well about of comments, today $XXX quarter-to-date guys to

Kipp deVeer

don’t get if comfortable, to can a I It’s comfortable. question answer. tough you guys but I we’re know

a think been credits. of I We history able we’ve incredibly think to right being pick we’ve selective. that the got long

going we on where We’re important important. things. doing is risk, very right most be business a is credit have really on think exceptionally market that focusing the deals little to It’s

a as public incumbent that million EBITDA. a deals, new emphasis has So borrowers out or very in company something hold large I of continued air $XXX on like medical,

to write market we’re big to we don’t like despite and comfortable opportunistic the get about with checks. excited to that what comfortable But where comfortable We’re know doing able feel we’re you deals say conditions. and others than I other how

Ryan Lynch

would bit guys just guys could X:X outlook passing do talk leverage. also SDLP? leverage, that in fit looks potential lot of that SDLP, a additional growth Can the little sheet question with assume on could guys for the what your now you end guys’ related eventually the SDLP quarter. to fit if commitments like And the your a about loans is it One investment on shrunk potentially balance this I that up then the

that thinking the So put about if with I loans are risk guys to sheet your X:X? how on some do guess guys start growing lower you more potentially balance you

Kipp deVeer

Again, Ivy that the I’d to I the Hill. so to as know if strategic important But just don’t company and program remains today. say question that not partnership today speak we’re into answer, and for SDLP a falls very going so the

desire of have deploying that interest this to or moment, the intent in As we’re program. change or no we that way

Beyond that, add. I lot to don’t really have a whole

Operator

Our next with go Robert James. question from Please Raymond Dodd comes ahead.

Robert Dodd

So leverage on obviously the issue. double

were been the plus presented years, think long Given of over going one One, the to you the for question the it Board other? provision one it. six is before double or then be so last strongest is a recommendation do And is how is voices the lobbying before you way -- guys with it review the leverage your options complete going ask the and foregone ongoing. that’s are of is to you a conclusion

Kipp deVeer

make the on we’re we But I we’re this that if think don’t do way changes think -- timeline to So for where patient going we’ll and you let think know. we moving any I we I business. that operate to is the to don’t chose anybody along and judicious if at pace we a when call certainly, provide have think it’s company. all additional undue leverage put that them observations, in X. we higher almost of a financial conclusion. foregone a just institutions, financial at we’re wouldn’t than assets believers because investment leverage these do, of I’ll while X.X: actually on risk types these when assets that’s And few look we substantially on other make putting our

ability in thought lower operational flexibility feel would speak, of So so to the it is terms that that at increase we been the safer the supportive albeit first return company, And lien invest. fairway assets. reason to we we’ve of widen our

us. it have surprised Some the that passage the legislation things of the since of happened

in you competitive I financing like rating use investment aware, assets. we cost advantage low feel fortunate are an to against have. and our to as company grade that we the think a as have feel we We’d to maintain

a perhaps there are debt considerations And and there a under safer, we’re better a speak, And that the community than relapsing We expect them. it with expected might might would than loosening, so credit some expected. would some of lenders. different have ratings have. have regime we have regulatory to actually had covenant differently our or lot viewed the for that of we’ve perhaps certain of folks we what the the of observations conversations as have differently, you’d profile created of some in And the

to all our and And think don't in lot have conversation of think in got decision want we’re take interests look and solid shareholders’ best a Board. of we’ve taking So our these today good a from variables in-depth here. we where go and of the to certainly the process about about with lightly we options

call conclusion. would I conclusion. guys again, foregone we in more you when So a we’ll getting to have back to comfort definitely a And not revert it

Robert Dodd

speaking. just you bucket, If nonqualified right the now, already I had can -- question. second so Obviously, relatively XX% it’s today, on underutilized

do considerably return took that X.X of because asset. So see relative and non-qualified And base, if the the it’s lending. the middle so percentage non-qualified to of market assets equity even a greater double the other on SDLP average, when you size of can above the in the obviously type be assets, we we’ll people in obviously bucket your see some

leverage, forward that question if you about the do bucket? And would you would how non-qualified the that how general you double now? if, go caveat utilize So asset would non-qualified just reviewing the double -- with right further are bucket but alter only utilize to

Kipp deVeer

is right observation think one. I your the

past non-qualifying the in XX% company. equity is it things is it the ways that the of enhance return that used about number use at One the we can the we’ve to it obviously nice on in

do we’ll balance larger towards moving that. of we I If was think think there. the I larger to continue and continue So utilization we’d had increasing basket, sheet goal a the

I continues So tick to think it up.

We’re to here of things things always other we’ve Ca Ares focus the the Corporation, of. we that doing not talked may calls, benefit past trying about to Ares interesting getting as find, the on be ARCC particular and with at that can shareholders, on bring benefit that new we’re

the many lab. well as in are So we’ve past examples highlighted in others some that those and the definitely things, as

Operator

question JMP next from is York ahead. Chris Please our securities. And with go

Chris York

is question you And Michael, dividend So the a to potentially -- run think the rate the CLO? be be or is yield comments of do close another Hill run the rate after is maybe will comparable What question. the function that the Ivy clarifying first previous will of period, your at then comparable metric? ROE a

Kipp deVeer

off I the on. to dividend -- And question return we the I always run and it back the like rate we’ve so basis. investment low substantial there, think a mid-teens when a QX we’ve moving always think even with on Alison’s Ivy cover Hill, back same to we’re looks what to to as increased territory targeted

Michael Smith

the Hill. very just It’s which yields on equity a yield that basis can Keith Hill. based were increase CLO, of to execution mentioned low earlier, Kipp And the on that ARCC terms, into that we think Ivy as on from made generate that the investment teens given hopefully, the dividend And we Ivy mentioned we in favorable back rate.

Chris York

was on has two I situation and the then it are what a portfolio and XX, event created But with Depreciation top two XX, think X.X%, obviously And investors. thinking. to the very a diversified management. third Alcami and other portfolios. it’s then is next so first been investments question welcome teen, at has Low I

I investment then there to you whether the reduce that to taking steps be concentration? could you comfortable concentration are with curious So the am other are and the single any

Kipp deVeer

And reminded on that which just portfolio. company Christmas look started been we we I a ago. a obviously with real XXXX, strong really pleasant that has somebody performer working it just a while long surprise. It’s time that like it’s first Alcami capital was transaction, the seems when a been a acquired really, working

talk profitability and a its we that. single And in its operating all that companies. of terms different very about in and metrics, place was don’t company all So portfolio often

we that management just So to there of really, do that on to-date. with the resulted have a job of strong a company, clearly continues so number really in based team appreciation unrealized lot fabulous

not due of is, course, is fact business component as to aware, BDC And the unrealized largely control a there portfolio I to operate that their likes companies. While the really think owner that depreciation you’re as debt of there, control a we’re today. we

right of last seller. here strong concentration to has couple there likely the do thing. the think their thing that the us shareholders I onto over see it to management let performance been that been a to be years, time, But it’s that felt team mitigate for in you'd so do the we hold So

Operator

Our next question ahead. Barclays. comes go Please from Terry with Ma

Terry Ma

on wanted cuts. tax the touch to now we’re after Just lending little environment bit more quarter a a more than full

for capital? Just any or debt in from portfolio wondering borrowers if appetite change seen you've companies your

Kipp deVeer

would be looking don’t the think I simple am room, the around so, answer. I

Terry Ma

those portfolio are on the many how out How And there. any then PacWest like there and out are competitive situations? additional more deal purchases

Kipp deVeer

only we’re working think the up. interested we’re not so here, not examples but anything who works of PacWest seeing I’m always through But aware right certainly I like now. pop I’m person particularly or

you believe little to it transaction decides there tries to of acquires that doesn’t which a they transaction going was And while which did it’s on. done continue thought I market interesting acquiring that We certainly and just past, Capital. Triangle. want middle then it transaction for with is it other it lending BlackRock mean such with we’ve a where course typical bank is PacWest. anymore, franchise, [CapSource] the do saw Tennenbaum in the was We got the situation things the out

near that on engaged of there’s loads it things out I we’re We there. term. lot a of from in So that but get now right of things, comment bankers to there lot nothing calls we see on a or are think

Operator

comes question ahead. next our go with Mewhirter SunTrust. And Please Doug from

Doug Mewhirter

higher break you what’s dropping, capital up. originating like if bit the But your capital everyone little the if to down on structure. of was things cause loans, you portfolio could conclusion your wondered have underwriting little maybe an that’s be just and at Regarding it's it more mix the structure number I issue it everything a originated But Hill is and subordinated me the detail that Ivy if getting how -- you're are effect which and odd the you not higher it this is looking competitive maybe a reasoning a seemed screwing activity, in by am had would logical I just just just going environment or where transaction. sure in go increasing bit the centers portfolio. strikes a tighter and are given a been distorted little in

Kipp deVeer

little were actually anything of differently a little Foods underwrote, quarter doing last bit. a move junior quarter bit there we’re two another that that we to name things actually actually that the a and obviously, transactions quarter. think there, there But frankly, called don’t can in it’s piece influenced deal There's indicative. I Gehl medical one being

So think the a there shift with is comments. in there is rather speaking noise philosophy generally I than little agree in your more and number any I’d

junior situations up try do to continuing ourselves sheet position good find But been we’ve as best do the it we’ve and where to we’ll stick we to So can. we to balance some got capital conviction.

Doug Mewhirter

second are you wholesale of a and to obviously that as their is which borrowers seeing in liability has environment? LIBOR out balance attractive final demand thing there towards sheet. to much fixed as side sheet you sponsors, any on side shift of from question, try industry, rate structural And or my prevent rates and loans? your the gone can Are you balance up this would your now of part busy at really Or trying one the asset the some considerably fix on fixed

Kipp deVeer

It’s a think question. observation. I good it’s good

in There seen obviously that little perhaps bit is if do idea swap be in probably the be seen a leverage companies again agreements surprise. debt agreements good of not credit that of Remember they’re of that rate even their But too simplistic, some really. But into to as a have hedging been couple with question fixing companies I to their to which debt. borrowing haven't We it. the fix some place some is way and a to floating, not your of not fixed them we've have to they already have the just try to terms a require floating actually think work. answer of that really, their exposures for

Operator

Alexander ahead. with question comes next from Please go Our Casey Point. Compass

Casey Alexander

Ivy which In you to relation leaving with Hill? Ivy acquisition I pull onto of if I how portions the right, mean, did to opposed release balance the determine -- acquisition, the read as your Hill sheet to

Kipp deVeer

probably I’ll give So appreciate when most you you you or do. little people -- if this, you don’t, color. But

So require diversification standard. obviously certain CLOs

So balance held on that to had we reasons of on the the of may we something size our one sheets, position. was extent have to assets

was other the of the we part diversity portfolio So eventually of that securitized day it. of as

I would categorize at oriented media which well. don’t just as traditional loans which CLO, less financing, as the XX, what some there’re left second a in The fit calling just that it, frankly we’re piece think get as of couple that to Ivy of I is again in We effectively Hill that quickly things of of of a less our investment some in pool from of there that to make in in diverse financed stuff, meaningfully of assets in we or financed exit capital a either banks. it’s some repayment field. And those that’s and what of lead of with assets one sense? will Does line we warehouse terms think course, that to our invested remainder the intention natural

Casey Alexander

well allusion And then to you’d those the that redeployment with quarter And that as as was sheet they leverage you things you to which follow-up my which assets, the a last like in in quarter, bill, redeploy. to Board want assets case on were it delaying during come balance the of Are you made it assets. determination Day too, Investor those to an onto the does. last Yes, you way just -- of want the make you is SSLP the in to might go? hang identified until

Kipp deVeer

not… No, we’re

Casey Alexander

didn’t that mentioned… Because I you noticed

Kipp deVeer

not it Yes, do most fair look at of all.

Operator

Please go Wells Jonathan from with is question Bock next Securities. Fargo ahead. Our follow-up a

Jonathan Bock

of out lien about where never are number and but this the just you it a being folks sheet if between the think senior of and or parse environment, lose ask sense believe situational, stack? second happy does when times to debated One and types, and talk you in liens clearly heard the Can as to years. on item now the and company the up the yourself same period conditioned two does give Mike environment? of and more the themes financing, going describe have balance senior at being could bridge at a will some this bit sense pick question to and you us lien time. that can junior you both three opportunistic moving to Whatever in mentioned focus second a folks environment I large a more ask is, the the where that’s this money. bit We’ve opportunities investment about sense we've Kipp of make was returns that discussed the second really in the I over always that out mix to EBITDA parsed part debt, folks The theme make

Kipp deVeer

think existing borrowers, less potential new We emphasize offer risk know, we that companies definitely we a that again than deal.

deals So you It’s I QX, Mavis, know. some give called bet lien in to a business the substantial mean with anytime junior very repair car that a people their of of to company company, -- a a the now and been probably flavor, tires soon. our is which a sponsor. new again I a very we tire company in around a time did It’s diversified investments have second long lot retailer bet around invested unlikely found model changes great of

So example. that’s an

called incumbent OTG. great and years, XX added capital in we is run we’ve think They a to some I business airports. that name that or restaurants been Another invested for XX

food they As company while flying, are sit That they well. their and going is wait to people has guess and for exceedingly my keep long flights. as beverages, order done

also very on have in. for CEO, many involved that We’re I've in and close others just founder here a lot time, with period long of confidence with a business been the along

you store I guess whole anymore, and go we've Dent any in in work don’t and need literally not that dent like collision in time. a a but repair have dynamics Not business of their a center, one, dent called period long you a for done. to your of drive in get lot your company Wizard the if soon. the the any car invested change Another necessarily dent get car into and you time been you that

very the types that So we’ve that of reliable demand new of lot take where years example there’s just which them known the these pretty a is of again Medical, And think company and a quarters things The public fact Air types cetera. services large comfort analyst we large time, established, a airlift, over it’s services we the business, are financial called at long maybe inelastic literally this provides healthcare in. are et very companies performance country. our strong company, I’d for very team healthcare there, all include our management year. more, and over Ares et people, It’s multiple the XX XX team credit included our to a known PET there resilient the controlled myself sponsorship, that business tradable cetera, by the KKR

That we're so So those generate just strong have to really, position, where risk couple of are being able a terrible speak. a a returns. really of examples we to down balanced in conviction. lot doesn’t us a And sheet put

Operator

National Securities our with next Testa Christopher is Please from go Corp. ahead. question And

Christopher Testa

your much banks amenable default. to even pretty up cost, Just curious differently to increasing leverage. color specifically agencies and treated just your your the from safer more making -- potentially have seem to discussions if have In the be credits. with banks, with on making more guys likelihood that driving you leverage are bent borrowing this opinion, much Or on guys, rating having regards a of on loans if the you banks more provide less could some you’re safer

could provide curious Just there. if you any detail

Kipp deVeer

our All lenders differently. of bit little do it a probably

these around I substantially rely BDCs yes. relax comments being more are in if they of continue The agencies, higher always think on assets that I at potentially hopeful think comfortable leverage I choose has rate been against advance always that at if leverage that I on of banks some the spoke want the direction. the assets would conversations than e. drawn is financed question. at But all answer to, to them covenant. borrowing think that in took to. I borrowing, banks least I the The rating these regulatory they’re them, not today i. to that we the and types the advanced think to our of substantially simple But current ratios ask am bit that are and constrain would early the amenable of just of do our -- debt. your rely we that have there go our for an if that company one-to-one based easier for base and it’s answer we don’t to as the think amenable, the with convention we excess secured a I methodology simply to allow in covenant I more banks been is

Christopher Testa

down it higher costs and think SDLP effectively balance them? all to ever on frictional economical loans reduce put with you sheet between do And becomes leverage the these wind to any

Kipp deVeer

lot of that X%. an expanded leverage X.X% assets here looking looking obviously Probably you’re them if at a not. out and and we’re model, on And you at again, increased at which you're we’ve to leverage financing those pay got assets

the if some about. do as talking we’re think can math don't close to ratio out even I you You to max the to remotely leverage numbers,

an Here the it Ivy zip in as or doesn’t same generate SDLP code Hill. remotely even ROE that’s

for So I intend growing. programs to keep partnerships both, support we think again, both those and they’ll them us important to are and and continue hope two we

Operator

And our Henry Coffey ahead. go comes with Please next Wedbush. question from

Henry Coffey

is about. to going special was but prefer tone the first or Is that either leverage, going with be Robert liquidity back just a say are leverage, better increasing ability the this characteristics competitive would but you bucket own for there? one very into get have its gains? of out I’ll what will there second. or be go becoming way of it's environment questions, dynamic? is that to very companies where you’ll your to When second quick that senior of [harvest] creating internal question some go my add you out then two the all environment, you and then loans Really And other Yes, companies really significant to product to the a think you seeing to

Kipp deVeer

sale. benefit, amount excellent liquidity markets, There the is tremendous it’s in markets TE real an the that the one credit that exist both and time to and

many I We to and to continue reasonably years now, of intelligent we’ve generate think very that this we’re know a sale -- company. things. think but good record we last at doing how know for we’re what’s gains what we’re the but taking I this don’t market also said advantage

environment one years, the which So you this what set past we it think great and large lots sell yourself portfolio three hold position and to a last it’s done. that were reasons time gains, made the we more calls. over the companies that But to path. it you is point to underwrite is generate are we in as and we times, others to first years back. for purchased years, part don’t which of have have interesting. through first in get right on leveraged a NAV. discount actually of a deleverage couple we’ve business that a companies And a rising that’s we performing. X want us find We later exit I’ve I is buy multiple X And up question and couple very good American we actually But of Capital, the at times, the that on But of second your exit or actually and the think levered over how paid that’s levered ensure not a we question

credit. So There we that times performance thrilled weren’t and I frankly of pitch other a we’d we’ve been host companies in. have of on that say examples oh say, in whole levered made if love great would X from business, and lenders with exits come

The typically see be in if that people’s to other we portfolio an incumbent show portfolios to backing those So our have lot. we talk that want we about our companies the We keep to. companies. winners a used portfolio up ability in

think amount on a the can we’re outcompeted. exiting reason, them, market result simply people avoided out important So there. up I pick we’re liquid And of unless we’re assume if of them that a problems think that’s you being and appreciate as question. point And I competitions that’s that that don’t exiting an and we’ve for future the some

am bucket. I leverage, by mean sure the quite the of you what products special terms increased not In

So how you quite can. But am wanted question. that, to you that second I clarify sure if to answer not

Henry Coffey

use Well, let’s add numbers. -- just if I you mean it

type going $XXX from million would went you to like to am of comfortable leverage, then into of no small you a today? you’d I debt go million we’re not just investments you're If cetera? be having business examples I worth incremental different am more of bucket, a debt, of those investment, adding different et senior a Or where investment, -- more doing $XXX million what would look worth -- investment. say just the with $XX thinking

Kipp deVeer

if lien of assets think the did returns extend do we it’s I leverage it more say that the safe increase early this in on first we’re again, to portfolio, invest in had to we’re we choose to safer. discussion. lower fairway that again But and terms and days

we if can it. took of ways. different host we where But You it whole that’s model a it probably there take

Operator

from And Chris question York our ahead. next with Please go Securities. JMP comes

Chris York

Area don’t of Mr. know advocating already group, the on Arougheti we modernization in on is A was call. operations. discussed, BDC the quick I for if But follow-up the instrumental

BDC on modernizing maybe AFSCs public curious thoughts supportive have that am whether either for see, or if So regulators investors? obstacles more any shareholder to like I guys you you legislators

Kipp deVeer

I Josh Bloomstein, on today. as is has well Mike, as the General Mitch. AFSC but is I Mike today. call. think everything joined here Counsel the with involved Penni, I've he our I the is been legislation, Angeles, us as us know don’t don’t think he from in discussion in Los

better wasn’t this in And in prior guess is what say and I the I So SECs we’ve look what could would a DC. there in is think wasn’t from we I SEC. think tone, be the regulatory the hopeful that would that there important I am see more next most that us dialogue I some will relief productive again lead had to prior

us appreciative max on ARCC have but we love think So be doing the this get I folks who’ve is of investment funds vehicles that foremost I in. I’ve X% the enough our mutual maxed very funds space, all first just said very a I meetings and position company a already support comfortable you’re as has with were our impactful look for is there. own mutual we what and in just large of being the the the And particularly at can that’s that it's company, we run, can’t institutional we had that firm And and it. out because

regulatory So space. seem increase that that does obvious ownership relief we’d than love would nothing in more institutional the

Chris York

Great, same that of was given I for question was as a feedback. the lot my that motivation

Kipp. thanks So

Operator

Lynch. Hewett today with ahead. from go question Derek Bank come Please of last will our America And Merrill

Derek Hewett

All yielding, average mentioned you Kipp, have a my on there was lower those maybe billion rotate assets could of so eventually on dollars What the addressed, out been assets? of Capital portfolio. questions yield the just housekeeping American that that issue. about had was the books $X

Kipp deVeer

out. of Alcami, X.X%, half make just clear so case in to that figured okay. it, And through cut people its when just you it about hadn’t

Operator

question-and-answer to closing concludes to our like Mr. session. the I'd This for Kpp conference turn back deVeer any over remarks.

Kipp deVeer

time. hope I great you don’t have day. their for a And many, but I’ll have just thank everybody

Operator

today. call for concludes our Ladies gentlemen, this and conference

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