ARCC - Earnings call transcript Q3 2018 | Ares Capital Corporation

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Operator

Good afternoon, and welcome to the Ares Capital Corporation's Third Quarter Ended September 30, 2018, Earnings Conference Call. [Operator Instructions].

As a reminder, this conference is being recorded on Wednesday, October 31, 2018. I will now turn the call over to Mr. John Stilmar of Investor Relations.

John Stilmar

good and Brian, you, afternoon, everybody. Thank

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

presentation operation. its measures measure, company can decrease per be core During by found company uses EPS. and this or regarding the EPS to the believes this directly the to Regulation call, The financial earnings GAAP it the provides for conference certain resulting company may because to one slide that most is call. as comparable stockholders' A such financial reconciliation core from financial investors information EPS SEC results method core defined G, equity share measure core of as in useful of or condition net non-GAAP performance increase operations, accompanying the discuss in

SEC information. no in in morning our this has makes not these or Certain measures of this also in The respect and verified, earnings presentation now including accordingly, on derived presentation independently on sources earnings the representation on company's section. relating third-party this Ares information the portfolio presentation, available Kipp Form I'll XX-Q over XXXX, and company's the filed release discussed to earnings Corporation's to companies, Capital X-K. website by third of XX, from September the found been be at on company information with the earnings Capital addition, Ares reconciliation was warranty can In the and to Resources found release link homepage company's Executive ended website. the quarter on 'XX clicking turn are also www.arescapitalcorp.com call Officer. the QX Mr. Chief Corporation's be the Investor DeVeer, may

Kipp DeVeer

Smith and being joined John. Investment Thanks, our of for teams. management with and Chief members Mitch Officer, Relations Penni Financial and Roll; I'm Michael our by to Good afternoon, today. Investor team, the of thanks everyone Goldstein; Co-Presidents and Finance, our us members including other

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

results, me morning, strong conditions. quarter by reported reviewing I'll current then Let our we start and on This update market third an earnings. quarter third provide strong

borrower commitments per were was continued ago. income fee improved earnings XX% total increased a were driven made from over in earnings stronger period benefited due core portfolio $X.XX new the The to the income. higher primarily as Our we increase same yields and higher Fee share, a LIBOR quarter. increases during year by

for the by a principally gains, in Alcami. sale realized of a Our investment realizations. per was quarterly of net $X.XX strong also quarter third record driven quarter We our share delivered

the net billion the we inception. gain, paid gains than double gross the $X.XX last acquisition. a or generated for million the realized recognized And success quarter's we proceeds which on the As services as Alcami, on were since a and has acquired discussed transaction. price drug Alcami of company, American call, share manufacturing we Capital realized sale, is that leading of now in With $X at outsourced Alcami investment our development more per part $XXX company cumulative generating approximately

-- quarter NAV fourth our had also consecutive We growth. of fourth quarter

quarter, the third the in $XX.XX QX share share per from per $XX.XX reached significantly XXXX. share above per NAV Our

largely to the financial we this conditions has thoughts been I'd ended liquid We an with available long-dated this X.XXx. evident to value our Overall, debt-to-equity market allow. broader only market credit well positioned is the as with position maturities months. today far, volatility few dry we the and extended ratio Finally, sheet powder balance some remain current capital point modest and, flexibility and in thus below with net financial cycle. believe on third what market the at view We market. as very unfazed transition in of X.XXx conservative today to seem opportunities This X.XXx. of a by that over is a last like target competitive quarter the now deploy leverage range significant

during over instance, billion dropped XX, $X of and October of S&P the X% outflows. over high-yield week the For

investor loan strong commitments value market market, issues able at our continue to are as certainty in In competition the assessing to differentiate that new market credits input longer-duration, liquid use contracted today's the relative the in in significant formation tougher fixed The we stable prices inflows market issuance in as speculative-grade and market, ourselves and appetite. we're However, yield much interested doesn't support while with continued markets. loan have quickly of liquid large-scale with has middle liquid writing the a as react is CLO And final fund health an hold delivering opportunity as remained market loan this and coupons. in demand from less provided our pricing investors competitive accordingly for capabilities. the with by year and new And market. as less

And of a of our advantage. capital our utilize remains take portfolio incumbent also of We our tremendous long-standing to flexibility relationship borrowers. finally, the advantage sizable

in selective the remain the selective more that below over X% environment. fact being transactions new rate deals, today's closed indication on XXXX we of to average companies by just it's very we an the X%. as just our of for we're continue third new running evidenced just We reviewed quarter, that since And close even that in

to to grow our larger middle where more companies best with continue returns. risk-adjusted as size We find invest market base with us borrowers in opportunity weighted The over relevant quarter in demonstrates new to borrowers. third we compelling transactions provides EBITDA us of companies million, allows also $XXX to and be established larger which average be was how meaningful to larger, capital our commitments our

the Before asset ratings. to I our to facilities turn the Penni, revolving facilities the to fully is Availability This us we for on to call ARCC from now over Small facilities borrowing and make unchanged. positions to amended these related the Business relief into October I'd Credit June developments which certain ratio significant our in credit to terms go like the base credit related advantage our X, permit remained of scheduled and secured to to XXX% coverage important corporate Act, calculations. Pricing XXXX. changes regulatory other highlight effect XX, and take On

of position private call our ratings facilities, still in to over our On the our the and Ares more continues with record, this provide the to from unsecured credit BaaX X relates major heels We its outlook. accessing strength to positive BDCs, market. the amendments our funds companies of our all track markets, feel the Penni I'll from to competitive credit some financials. setting maintaining our upgraded as while specialty BDC to from especially and an rating investment-grade only to derisking other election it now of rating and further finalizing Capital these detail capital SBCAA, competitive Moody's adds finance turn to advantage, the on the us the differentiate agencies. now is

Penelope Roll

you, Thank Kipp, and good afternoon.

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

of and basic of total, including net investments $X.XX XXXX. a investments to gains GAAP quarter reported of GAAP the $XX These per were we of third the income $X.XX net $X.XX per XXXX In for second of share realized values. quarter gains quarter share earnings and quarter our of exceeding for Our the and exited third million. for quarter for share. per This diluted on were of net for gains net second of and transactions XXXX on realized result $X.XX, gains unrealized quarter the per their net the share other primarily fair compared XXXX third

XX, portfolio XX, investments XXXX. at remained was total total Overall, totaled amortized we billion. quarter. end $XX.X the average assets at At XX.X% June yield of debt of yield investment cost income-producing X.X%, was yield XX.X%, on and to billion weighted our had at and fair amortized our of the with the other our as at respectively, compared and weighted the last value, and securities consistent $XX.X As September quarter, fairly X% third average on cost

of Moving the to balance side the right-hand sheet.

of $XX.XX, quarter $XX.XX increase ago, and XX in $XX.XX September Our up a asset resulting to net respectively. value year share $X.X was ago stockholders' billion, per at X%, a compared and a X.X% equity an

ratio net X.XXx, at our was and As X.XXx debt-to-equity of X.XXx cash June of and September X.XXx our XX, XXXX. ratio, to of XX, million, respectively, $XXX compared was available debt-to-equity

third Our total the approximately available of cash, $X.X at quarter the was available end billion. liquidity, including

X we X/X% also back note liability will to the Kipp and investment-grade with November, quarter, also pricing, notes market addition our pushing amendments unsecured maturity the mature mentioned, amended using that of remaining revolving liquidity. period unsecured in asset the including revolving is existing began And continue in we year, remaining during facilities We maturing issuances will repay issuing by we our coming focus each $XXX This terms, the that facility XXXX. the extended SMBC, structure. In the coverage-related with third of to X investment-grade our substantially out first on of to and our in reinvestment X since available million the up, unchanged.

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

positioned by point to For sheet a in GAAP annual per $X.XX share. increase at XX assuming approximately basis XXX and example, LIBOR, earnings increase further to September are balance using our our up

to of quarterly Board our per on time $X.XX a our December are Directors December record on dividend that our XX. quarter of Today, income. of taxable we payable XXXX, terms declared is also share undistributed In XX, of dividend, monitoring more stockholders spending fourth

in the not significant on taxable dividend this us asset We will a required The our these if GAAP of us to have net pace but we having for or a which tax acquired GAAP will losses gains, tax-only portion These value. ask income in position a be impact distribution no allow meet to because available earnings losses enviable us are to we are requirements. be special net taxable from which from that be inherited recognized year Allied investments gains. realized will Capital, investors we order in determining record our answer caused offset to currently to of to is short required has pay of tax will will on

know not position will final we annually, determined the complete only XXXX we is full that tax our year. something is income taxable Given until

discuss continue for in early our and do anticipate XXXX. better that we income spillover to into from level specific will with earnings on of will again we a position we year-end place be to However, tax this healthy once call have XXXX once a you our year next know XXXX

will to activities our Now with over that, I the turn call walk for through Michael investment quarter. the to

Michael Smith

few I reviewing performance. portfolio Penni. provide spend Thanks, a update and quick quarter like our minutes pipeline. I'd third our post-quarter-end backlog a will activity to and and then on investment activity

this the During lien reflecting up were of which of third our were across billion balance transactions, and $X.X sheet of positions, quarter, the conservative first in secured senior commitments approach XX we on in commitments originated XX% focus being market. and XX%

usual, in $XXX the of noncyclical financing quarter, market in in have industries. the support predominantly Bain equity-backed gear, Capital. ARCC company leading Varsity As and private athletic third leading senior note of by that a positions and we been a Charlesbank during acquisition purchased Of products million secured were portfolio services. companies transactions Capital's Brands, led company XXXX of has was when and manufacturer an graduation-related since Varsity cheerleading supplier products Brands the made

Capital the quality a result Capital of with our company, when Bain financial with company quarter. a sponsor remain highly portfolio well-regarded by invested were was Bain this As and acquired strong to we Charlesbank, last relationships company incumbency in and the able

underscores value value to realized equity made as inception our selective have value underscore coinvestments, ARCC the the Additionally, approximately have our $XX we in supported from that million ARCC. equity investment have million alongside Shifting a coinvestments steady gains approximately made $X repayments. on this overall, by the Charlesbank. legacy of of generated record equity of transaction equity of net gains track our gain net $XXX long-term been million since These asset growth. realized To coinvestments

towards quarter, of debt commitments. for the based junior enabled many more lien more strong the us portfolio of the were into Alcami, During $X.X shift exited which, on to or repaid originations, note our third repayments a senior we portion first our were weighted on billion including capital quarter, assets. of Of positions,

use sizes, Additionally, we refine our senior into to rotation liquid able contributing assets and to more highly strong the are our to market and portfolio conditions the portfolio fee manage hold income.

portfolio Penni third companies. comprised quarter average at quarter, continues first $XX.X in portfolio different in companies, a our our portfolio Performance lien, the our our at of XX% portfolio from first the of senior end, where with lien the quarter. senior portfolio X.X% in activity to was value in at per positions positions second As investment secured secured strong be underlying the highly is only and end is now billion, in XX% name mentioned, in up of senior-focused XX% position hold positions XX% of increased resulting with consisting our diversified portfolio. in XXX Consistent fair

As solid weighted in quarter growth, of by in EBITDA increasing past the to average companies the third up of with September XXXX, over XX, XX generate third XXXX. approximately quarter continued from the our X% the months of portfolio X%

remained Nonaccruals total the decreased fair at third X.X% at of from portfolio quarter remained quarter. in fairly second at from X.X%. as the stable value X.X% nonaccruals as quarter Our the a in percentage nonaccruals this cost

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

As of backlog at stood $X.XX October roughly pipeline XX, our million, and $XXX and respectively. billion

are Kipp. there that potential I'll note certainty Goldstein and approvals close. and I now will to investments call may these back these no a the sell Mitch these Please and closing. that As of documentations, each post to reiterate investments call, on quarterly portion turn is subject transactions we over

Kipp DeVeer

third closing, strong XXXX. quarter for pleased we're our our execution with In Michael. goals Thanks, results against and

core growth Our core quarter, rising third of quarterly quarter we recently from being quarters. last and increased the below five our earnings these dividend. We our earnings target leverage. earnings of achieved the and third income, of increased the have LIBOR excess over despite significantly revenue in And well in expanded increased fee strong generated level benefits

transaction acquisition. third our from quarter, our successfully from generated net sheet, successfully gains time, gains realized those investments generated we And gains American at for We've equity noncore and noncore gains from exits enabled quarter exited supplemented The further from record the the reinvest same of our third ARCC-originated contributed portfolio IRR the to at to with also as end underleveraged exited the We coinvestments. the the assets but substantial in American Capital have ACAS now most a realized accretively the transaction. the our balance the shareholders. Capital XX% us we on of

of please of level, the dividend. excess company That even benefits continued prepared open sustainable at and a Brian, increases. are confident robust this achieved LIBOR, to higher new can further lower our towards remarks. higher level a for the target we leverage of earnings efforts of if we and profile in can line and forward, that exists there you ratio back portfolio regular has upside believe benefit leverage concludes the of remain the LIBOR we with and our our near move rotation questions? realize Looking that continue completion our We any earnings is feel the

Operator

Hecht with be will [Operator first question Instructions]. from Jefferies. And today's John

John Hecht

market at -- point you this of question, Are given factors the out been insinuated those amongst any as in maybe the volatile market anybody reasonably competitive your in even have or dynamics seeing stable. spreads spreads moved backdrop, First you the been change kind think that I Kipp, of have or volatility?

Kipp DeVeer

higher lot the for, Spreads is bit really. it's Yes, that and not pretty happy update. FS I but maybe lot always a in mid-market been to. mean, I perhaps EBITDA of I and of where There's capital -- We interpreted if think to competition. coming of that little in of a has spreads I maybe land. be attractive. might space, levels adjusted most seen a at is in But to lot consistent be into Vis-à-vis answer as you raise from another. of longer. on mean, of managers has view asset the the lately existing fine sort view what they competition, seen a basis manager -- described make risk higher moved the evidences to that underwriting, be moved we've They've I that we've one think, take remained in And the years, been new an actual just just even capital. we think there's of What obviously of our transaction, reward to it to question an a not lower-quality some have But we to class find two are manager another capital is which seen last investors come continuing situations basis. from that, than capital adjustments we've you, to many haven't all just leverage the to on

John Hecht

we question. know within forth you thematically, just forecast year? the and follow-up to portfolio, through we Okay. move wane? think Or step difficult about to prepayments we as should but And it's expect rates as so how that guys up, for should that activity then I next

Kipp DeVeer

as the as think assets sell life difficult assets X between a new things. Capital, be somewhere the always And X And to acquisition know. of as been as years, seeing to later think well. make been go rates and are more specific to market been over up too I cracks and think and should been we pretty I John, of elevated did, where a more look, down average line, sellers, should investments. it's the you're considering perhaps an they I as perhaps bit, years, also obviously, pretty lengthen two We've to out mean, things, opportunistic of cycle Ares specific. in we not good there repayment a the we've year timing less our that mean, it's we've deleveraging, all we've I being repayments i.e. you yes, from doing Yes. seen monetizing,

Operator

Shane Next question will be with Rick from JPMorgan.

Richard Shane

billion you capacity approaching $X on more about have year five summary, let five in last look at maturities. this revolving maturing perhaps those much the are take how the of do and some if year down. Last At curious some to facilities $XXX anytime just of over undrawn you those the time, When next months. you're notes go debt notes, you than same the of we have I'm you the three your maturities. several going into in years. in year, million pretty curious I'm funding revolver anticipation did year costs that thinking

Kipp DeVeer

follow Rick. the start Thanks Penni for question, let I'll and on. to

Penelope Roll

nice that off have $XXX The we're million we of position is to November. of lot great pay a sitting in upcoming maturity the a liquidity thing in

this XX is around we and plan it. a we months to and do hit have to the to last favorable maturity. markets it's like ahead our a that a been tie thinking for it why got not we so really maturity the how that debt focused and over necessarily specifically of issuing flexibility on usual, We've As we while, about debt we and of backdrop, lot issue market a have when

It's issuer investment-grade we issue So to where a as where with we're to continued positioned now to want the debt, continue grow. be Moody's, we're with the we I sitting markets. well particularly is, upgrade think on particularly

that right we watch market to eminent the done continue have we do do in will issue need no past. we've have the And we markets. like the to would if we to But in, to So get that.

Kipp DeVeer

$XXX I the we're to of point repayments, X/XX that's And, cash. million Rick, prepared repeat, mean, just quarter in and partially, because of ending the a with the remarks, realizations

much significant paying pretty to by and pay borrow just that pickup some to see expense frankly, cash obviously ourselves too relieving tune. not down So debt, having interest and of,

just little a be will position. getting in modest of accretion of there bit cash the and -- short excess out an term So

Richard Shane

it. Got

I to unsecured tied all has the it opportunity only And Okay. about is the been seemed issuer couple that the towards three the forward, comment -- see curious, for still extent going though, converts. versus one shift in of years thing last preference? that you the agencies To definitely over the investment-grade do and

Penelope Roll

is. It

we've XX% you think repayment bit look that our higher in our been drawings on after I at of in probably right somewhere structure, will being or November. had if we're capitalization but without around revolver XX% leveraged debt any It's little now, the capitalization fully unsecured sheet, if debt. this -- back balance a shift the

the our area ratings. the like the we to would debt think to and unsecured about lot composition something that context secured. And continue think we being we like investment-grade also lot of a of I that's So a versus our drive in maintaining capital in

Richard Shane

tied going you on when Got you in be your cash then, that some it's just to oh, the point, fair it. Kipp, thought, point cash position. is into term, the well, taken transactions and what's at the well since, obviously, your looked are actually coming But through. a of stuck had reinvested. with big available amount must short to I revolver, you on have

Penelope Roll

Right. Yes.

Operator

with KBW. will question Lynch Ryan be from Next

Ryan Lynch

of company, I for well your $XX over if It's really. portfolio last you average kind EBITDA million has and question, your of XX% all in year, third look over First by the EBITDA the commitments. $XXX said, at I at million that's think over about averaged increased quarter,

can is EBITDA? to you we're that just the later some really because credit you Can those you pretty larger larger do in be just intended across full of platform, So guys service Or can driving to just now talk a increase to or borrowers? base, safer? been you having providers to EBITDA? at ARCC full and well as average it about is cycle Is both larger more in what the moving that you in you capital driver has talk about increase that the guys really as guys be solution that what big companies

Kipp DeVeer

I'm Ryan. you the asked glad Yes, question,

just but a and tends that of Mike others -- and true, of are up, all some talking checks, we the lost larger number those we So things of call. Mitch the companies of want I about for don't before -- larger couple obviously, to were point It's actually to a just here have and right? way were getting average sort the that, that The writing just because business ready skew the weighted are works. I

ourselves, we about a to million. went quickly, were median the talking So we saying, asking around were EBITDA introducing $XX and if actually we and metric, it portfolio when actually back second what's through median EBITDA in went is we

displacing middle So this finding transactions did number I we're skew transactions, quarter in looked when we say value couple interested not this to want traditional to we we're a are. actually, And don't because people that we in more that smaller not about either back market But reality on in calls, the we've the to activity. prior talked right. that unit EBITDA, million financings, that your as they're $XXX yes, is, typically, through point, of million, companies large are QX $XX bank those larger have tranches

they're lien traditional feel than point, the $XXX deals. middle lien, to see better about deals larger resilient and/or you $XXX think So they're in second second holds where again, more million significant would final credits, holding they're your we're companies, they're where million, market we

and story I why we that's skewing made sizes So you we to the necessarily it's we larger math that tell wanted of in but a that the the hold larger that invest have conversation clarifying of points a it. make bit companies about in -- true, these had definitely to not got here is point But little I why companies the today. just we before was on call larger interesting part because

Ryan Lynch

are sense. the interesting. bit the going a just that be Okay. the It's lower. to is average versus is skew median going makes larger Yes, to deals That

guys been, So quarter. that large otherwise my -- number of $X.X from larger the standpoint, drove exits $X.X know how or I drove a that fee Alcami of by much guess earnings that, much it wondering, And the from guys -- great selling this ask little very portions standpoint. high follow-up $X.X a you a really cost driven now. of I'm was loans it's that was but because I that have a that, than right really question, But off pretty this is of billion, was had I quarter. average wondering, would you had turnover guys portfolio, guys I to syndicating reason committed excess quarter bit still lowers you to? portfolio of size off a billion your you capital of just how the composition income guys billion of you just there's ton just obviously, the a obviously and have

of versus excess and have deploy. capital how So or think billion much and just position good to diversification portfolio wondering have you $X.X syndications generating fees are guys liquidity of in and a of lot how need about the that you guys was syndicated sold you balancing, guys off from portfolio a you where

Kipp DeVeer

towards a Yes. this mean, of new quarter. I more there's weighting deals

And prepayments about gains bring we [indiscernible], have of a places portion where The some is not other places to do market a generate basis. in that. number, the right, the names, a or potentially quarter, a probably and that we was which have in origination that be we're for a really of great on guess, certainly, Alcami, in would we a reality us for quarterly looking number, bringing partners commitment it you want of excess investments a to I successful, but leads to I gross it -- think, my some just was recognize et gains, I'm no, did $X-ish don't as is the around large, talked rough large the partners can little numbers. It quarter I going give us be of able number. to couple typically, a this disclose to to really us. look, that couple bit so be But billion generated them in is remarks, fee for more selling cetera. down, there's exact I that prepared in, income. and that. numbers,

said, see that income. excess in and always capital up of we'll and for a leadership I've do while held the And able quarter. to terms little being they've up as that's you if hold in be We able definitely advantages this way longer. transactions drive markets of have, to the fee that scale, side, loan And the our some on that

Operator

will York from be JMP question Next Securities. with Chris

Christopher York

X.X%, on were attractively the price which fee of So little of maybe over question is follow-up structuring was bit structuring there. your periods up I periods, a last Kipp, a comparable was which But record. result bit is a sustainable about leadership? talked that or on Ryan's fees, the as quarter, you little that drivers a believe, a the couple this

Kipp DeVeer

If it's return significant and like portion the you to originate total and that's our obviously the shareholders over been we've years, we a deals. delivered lead look historically, of that to pretty because proposition

this comes so goes, a of fee partners, So right? analyst some go in be gains. long there. put that's a a income, numbers, out, beat fees, so structuring And -- and investing that notes there's no, assume a if $X.X said on there think a beat $X.X number, billion, to fees you it, of quarter. even of bit idea $XX but I wrote this money billion, base we on you when new I some continue on originations, to bit transactions, active but of that investment good little a a of you the all morning million a number it all likely it if fee was quarter there's X% But So this certainly, think some still of on fees fees, and all is is fee to those it low get little you on be rough call bringing is work in on -- reality when probably as upfront who you on a

So yes, that they're -- appreciate. couple depends It as concerned. on yes, nonrecurring, of drop they but pennies that off a look, comes if activity goes. the I'm and you not But because

Christopher York

X non-reoccurring, consecutive but is that lumpy be And was second beat do. other attributed income generally of anything We're income, the was can income as for contributions? it market today's characterized strong this certainly us the the and last to there in I solid drove be can occurring and for quarters line quarter. aware that that other

Kipp DeVeer

No. I with associated you think fee can consider it, I actually $X but of -- what the million quarter, sale, onetime onetime. Alcami kind had that a this was we mean, management

it's why quarter the all. bit remember I So in elevated any don't anything it's prior. a of probably little substance at

but no, there's -- But nothing differences So this there. we'd that's expect in number helpful. the market quarter in creating might any that that's the be what for

Christopher York

ventures on sheet. Alcami bringing we've Sure. helpful. is heard sheet That of discuss then some from feel balance joint very And BDCs off-balance lastly,

is leverage your below and on the your attractive. targets, remains SDLP well of very return XX% Now your

SDLP your could So balance consider any the to ARCC process you for sheet? bringing makes sense share with on us thought whether it and

Kipp DeVeer

Look, Not those the the a really to and in the doesn't any revisiting here to view assets a structure. sufficient discussion on it lot something mean, return worth frankly, when generate or there I the in generate SDLP of the pretty meaningful programs. talk down with line, on. of revisiting you we as be consideration terms see that in about attractive there's is today. X.X:X, able partners When -- that, lean like ROE Maybe really continue the ROE investment no of but your to today. our relationship terms that can we're about we'd to leverage

Christopher York

so I'll down my last to Yes. I longer was term. question. just just switch the kind line of thinking

much portfolio a be how So of million what that job any call legacy the portfolio, great you've remaining in could the But especially further with ACAS. subject American assets, $XXX repositioning? done to transitioning we'll with Capital

Kipp DeVeer

it's think We half. about

Operator

with be Wells O'Shea Next question from Fargo. will Fin

Finian O'Shea

a up? and backlog said Just number Is this is quarter-to-date wider The is you environment. very little issue? are seemed a the similarly, quarter volatility Is sort $X.X quarter given fourth the -- fourth reference, usually Or deals volatility fourth on strongest. soft of with the strong a the market bit billion. and this little timing slowing

Kipp DeVeer

The is that million what October just number terms of being slowness in X, out? done since point Mike the we've laid $XXX

Finian O'Shea

Yes.

Kipp DeVeer

quite Fin, for question. It's had day not on I will It's as say would thanks mean, most comment the years, I the maybe we see typically Halloween internally. Got that. this as actually I as it. Look, not in busy -- other

month pretty pretty on bit Mike's of the fine. the that the of year-end. a comments, for is the But backlog with be a significant towards closing think go-forward going we pipeline October in of we'll a things million year, to and It is close back $XXX-ish backlog weighted Our to meaning couple we have be well basis. on look, reliant yes, [indiscernible] probably

As point, of A sorted you too. diligence close well December it we in to through been don't to the in after a pretty Fin, long things I XX, have XX. that are time really know, of see things. Most that deals following close this takes a the December space pipeline time, lot long the

in see probably would not I bit you seen if around finance, our we think, it So you weeks. the look, next slower in other would look it in broad a you've quarters. expect don't than if X pipeline close leverage fourth But

Finian O'Shea

helpful. Very Sure.

unsecured the second you've testing questions waters, structured presumably, Shane's or earlier will a sort On debt, as those, soon line up? rather I refinancing regulatory how those your to regime question, follow the As of be want from and pricing are that astutely on structures the earlier. now to on provision you're very holding given Rick terms your covenant, you these

Penelope Roll

on they're... think I side? liability Just the

Kipp DeVeer

terms But I'm to go happy Yes, deals, and in, too. in jump of ahead. new

Penelope Roll

Yes.

position at lot the we think great a because issue a to similar still Clearly, treasury in the on to in to of believe past. the I up. we the look continue we're best access can But in go the can do that and at. and would if and we lost And that at think have treasuries that context we in issue we've the be pricing market. what of do spreads pricing would size to I a class we we you spread deals continue terms,

so good to the get you been the generally, markets of to continue out over the the in on effectively into several capacity last capital. we market just So plenty ability execute. the to to of and right amount noisy, to can liquidity flexibility find we with feel weeks to little our the we maturities, now ability It's given the time raise do market timing the might But we I as ladder know, bit that not available best have in about before, have said we best our be to a which something. and Like we continue like the execute.

Kipp DeVeer

I I the Yes. thought don't I'd really, all add, And understood. with X:X X I -- upgrade just think negative investment-grade leverage well only has ratings, that, recent been the and --

off, the only years to perhaps to something Penni's that to and point, we're X.Xx get I not few the debt by the if plan leverage been yes, is out we negative benchmark have about for able price about tough really the a But it's not the do year and five we bonds wider and a and down. that. which not getting by over like but our laid And has maximizing received in than was it obviously, are can think agencies investment-grade next typically well existing, we markets, there traded held the spreads year, been is holders. lot

Penelope Roll

of the of sheet a the balance and side rates. rising the time, earnings power because of added we've lot same portfolio left-hand At the to short-term

well position and So still good we're sitting in spread. have a a

Operator

be will Management. with Confluence Investment Next from Miyazaki question David

David Miyazaki

as ACAS the one. Congratulations on as make successful your Allied transaction the to progress

a Just question.

is of combination negotiating a might point provided economic by some not this are higher if your side. with when the any in have sheet people or fixed you like deals things about new interest -- length declining rate the we the of now, rate floating Dodd even be on right assets on side had that charts there expansion into worrying floors left get time at the about think But balance LIBOR the thought to the that You Fed liabilities the rates? of

Kipp DeVeer

answer. the real great in markets about it question. It's a There's discussion no is the quick

when is rate times, when well economic just a and see is they're what least we around so yet, on conditions, you And, we're a at and appreciate up, there's couple going curve much. is that comment if world where everybody frankly, discussion the your then transaction. the there think more LIBOR But get David. yield believing Thanks ACAS there in and not living the happens difficult I more as the short-term flattening. bursting,

David Miyazaki

you've when fixed an not the some to got it there, worked mean, LIBOR face It's incremental you to work follow. guys mismatch, was call liability. right LIBOR I that I'd that huge arises. just earnings you not point, and this. a at LIBOR on a is But what you've and think I -- that is headwind Yes. creating mismatch done act issue but could, kind of if a easy begins have now back getting decline, to But great that

at rates over any just last in the sort few to point do the LIBOR -- I maybe started we think the a thought worrying declining stop of when if cycle we put at into about, XXX, years, LIBOR So to of about have at time went you floor next XXX? so floors

Kipp DeVeer

it's interesting idea. We it not in about take haven't we'll We'll But a done that. that It's of question the sort market. talk good an away. internally and out

David Miyazaki

Okay.

rating -- BDC on was with being to the of nuances BDC engagement to of agencies. with been has work you the the quiet pretty me forgive In aware regard to you'll one from more ratings for are your industries. that and the Second with have not Moody's to industry? regards them, them But entirely it me seems seeing

Kipp DeVeer

let think to going meaningfully to And way of Penni upgrade really in, industry. the that. result we're them I that too. For the the thrilled I'm a reengaging of sure. Yes. But sort was re-underwrite jump And about in

I to So to don't add. I that. have much beyond you else know add if have Penni, don't anything

Penelope Roll

I No, in... just think

Kipp DeVeer

answer the is But yes.

Penelope Roll

group. In is thing they've time like spending a good we a them, the whole the for do industry lot with with feel of reengaged

David Miyazaki

thanks Yes, being I of for that And the agree. vanguard effort.

with Ares, in will help just industry, credibility to really not I overall the having think regard it ratings. more

So effort. that thank you for

Operator

will Compass Point. Casey question be from with Next Alexander

Casey Alexander

preclude you're the not mean, doesn't what to wanted to I the that distribution distribution the you're your a gain. that a but to spillover make what -- coverage necessarily saying as Alcami of of tax gain, do special I that result based upon forced sure I about a the is understood conversation income? going you're Alcami be

Kipp DeVeer

said. what tax That's like, exactly of accounting GAAP that's if you the what We we can for go but on said. more we BDCs into detail versus intricacies

Casey Alexander

don't. please God,

strategy discussion potentially you portfolio capital board the Small guys then Secondly, move discussion was were existing your that your Business years when Availability that to was a a the said the few back go up you the about stack. ago, stick strategy. resolution, you Act, with original there authorized the when Credit to But going

response in in So you quarters, the to Credit the stack my up is, Act, more am in couple but capital last the the relation moving right been assuming question environment? have really of that's that's Is strategic -- to that in Small I Business not Availability macro anyway.

Kipp DeVeer

yes, us -- answer investing senior obviously, traditional caveat in is just but make higher a The to leverage accretive more shareholders. debt to question allow to that, does that with simply

much that it's for this investing so very to it investing makes us makes sense. continued on lien So -- do but in focus that, much on easier our first a first environment, view focus lien

Operator

from be Next question James. Dodd Robert Raymond will with

Robert Dodd

a checks fees time, also your high same whole back the in average the profile, in of for lot high -- fee you to if times, your point, a hold average Even look of minute, a for $XX question a are million. income $XX business at I than your your mean, Kipp, the million average kind the of the I told that level when you quarter, size larger Getting you're new remember, I hold level size. kind about earnings a EBITDA with if I hitting the but referred we company at to of mean, can. comments, was excess a as speaking earnings. attachment couple At

if profile it that becoming much So and to I earnings kind and given is size, so the to to mean, it just you of fee more has plan, the but plan, put life you the contributor new your the given is isn't common? the income partners excess, And -- can maybe want? over bringing hold the in just more in going of the is it where become the company, size, happened point happens guys -- the

Kipp DeVeer

to and a well mean, end last I where ACAS we so feel equity months, on low-yielding a that we're think little over of phone through QX on the portfolio of with here assets we're at journey as we've about again, rotation point away the XX the we we're the discussed make of just is, now we've call as mean, just as today, trying that. many bit I from at investments, when earnings finally think I been -- largely XX the to

a is basis portion repositioning significant last So the XX on forma just largely acquisition, of months simply for our pro the assets the that's over done. and

The remarks, is mentioned prepared the during as contributor, second key LIBOR. I

I those dependent holds final than on first It's two But on your again, obviously, The stuff, the third more important ARCC, less factors that commitment all excess just extent those based to down if bring some We the trajectory time, our fees. fees generate a doing into question, which of company earnings our is, are transactions. is really -- we're can that underwriting all we're retain on do conclusion to so other And over folks higher the if larger overall point it -- we on benefit any we was. able of transactions, the mentioned. on answer my getting the I'll fees where fees. right. scheme manager sell then now. to I it's holding There's or of no fees, larger. sustainable that and typically to is And of investments, mean, kind we it's

episodic. of into to to, market couple maybe as max questions, those excess of I transactions. And days. partners what but to larger some us quarter. is, earnings answer mentioned, course, deals a it It's the trying income pennies I the only allows in for is in scale these terms Our This think, good one do a larger this of it, I of bringing of the was probably, referred

Robert Dodd

appreciate more, if it. Got I that. I can. then And one

months Obviously, in was that's a EBITDA also and Michael's the and X%. trailing On year X%. growth, months. comments the the presentation, XX ago, And XX trailing

give trends? clearly any EBITDA X% get about more us kind captured occurred it's and that XX have periods, trailing can you mean, changes talking those et when that the X obviously, add in but about of X%? months don't but can any I the improved, maybe And XX-month you be volatile, cetera, we're the months. over those growth again, color XX that's So path in recent of

Kipp DeVeer

so. think I to easy mean, are, for that's I to us, get don't think understand think for I through easy we there's hopefully, that and, -- really investors. metrics

have that So a Robert. add to I on don't one, lot

Operator

from We with time for one have question Corporation. Testa more that will Securities question. And Christopher be National

Christopher Testa

spreads stable. Kipp, the you volatility, curious, despite relatively have had mentioned Just that remained

starting spreads that EBITDA on terms? seen, you've on of of but yourselves not [indiscernible] across any deterioration if more to might kind to not those the terms just light, we've even of board, in the have significant just wonderers, pushback see cov are nature? you of wondering behalf add-backs, budged, be lenders, of debt, ridiculous push what seen things Just So back

Kipp DeVeer

to mentioned the the make I there's the private attempt, credit a It's probably inflows difficult an whether just look, new in that it's lender/investor-friendly I in bit, really think little mean, business. tremendous in to or tremendous investor the for whether prepared as our you those in lone as transactions. more always more supply there's issue you're or work supply-demand relative a a of And I a a market. market comments inflows whether loans, borrower-friendly discussions

entrants. new a question about asked Someone

entrants new points. probably on adversely think are selected I most those

things again, borrowers history some the more that incumbent of I strengthened comments. of I market, stay long prepared that and the in think able because the that during others, we've been to away relationships, than our mentioned from

when. push in up think attempt coming supply out then but mean, of there's it's I there pull So depends the dried a an there I and loan was and summer, and real attempt, the a market. it

little a that's material investor a friendly now. in bit there's starts more things and are today I But of there any trend prevailing that fits So way. wouldn't say making

Christopher Testa

the in Is the terms going forward? go that way. jumbo pricing volume all a have year? as LBO, And Got big you composition the into the the more at -- your that in specifically LBOs, advantages just encouraging think aside by inherent obvious, do sticking encouraged, you of Obviously, from it. loan that theme, power come of with company's guess, back are kind we end of platform, of of I you of

Kipp DeVeer

frankly, preference obviously recap, for I a key dividend is a I for deal a hang I I thing versus that mean, new Yes, if business on. preference modest support guess. I'd new head had deal. lending sponsored a mean, a you have Equity your in

private taking have than money that, look, bunch large the -- about. are a when coming had was cleared was think out of via of it into the capital think I better there volume firms -- with equity real that out. much companies I But we putting So that summer we nervousness

that If middle you in to were cash through, August, loans. sitting a on real buy nervousness of a lone there's there desk came think the not showing there's of all lot I

contribute and closed QX. fewer over last new of transactions slower a transactions close or couple of have As existed seen led we've slowdown I some nervousness July the that a to the is underwrite banks that probably next the fact that and think during the -- that them of would couple the now are in over probably result, weeks/would weeks months may the August to

don't other a are it's be pushback. and rollercoaster month-to-month to with to strike focus of that don't want we just again market. all the a a of buy is to there bit more the along understand, this I paid -- really So cash. loan from own to think and investors creates push why I deals, and as you loan-only be conditions we paper difficult in to And why trying market, for our little in from again, trying exert mean, that investors have pull within lead as on get we, what and originate intermediaries. But right to the us balance really lot right, it's is found

Operator

today's over closing time, This conference any I'd conclude to will Kipp Mr. the remarks. DeVeer this turn back to session. question-and-answer for like

Kipp DeVeer

he's Halloween you'd Josh, to to announce everybody something. Such Halloween. on have see wishing happy really a an earnings or Typically, onus

his much. So I wish it. so you all behalf a and our on happy on behalf. Halloween Thanks Appreciate

Operator

our does today. call this gentlemen, and Ladies for conclude conference

at any end you've call, Eastern this call dialing international X dialing approximately available XX, missed XXX-XXX-XXXX callers of callers X to p.m. after by X-XXX-XXX-XXXX. today's conference part to the hour through by an If the November Time replay XXXX, archived and call will domestic of of be

XXXXXXXX. webcast Once on you For all on link archived replays, please again, website. section attending. a be reference number homepage replay of available of will also An Resources Ares the for located Capital's Investor the thank conference

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Ares Capital (ARCC) 31 Oct 182018 Q3 Earnings call transcript