ARCC - Earnings call transcript Q2 2020 | Ares Capital Corporation

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Operator

Good morning. Welcome to Ares Capital Corporation's June 30, 2020 Earnings Conference Call. [Operator Instructions].

As a reminder this conference is being recorded on Tuesday, August 4, 2020. I will now turn the call over to Mr. of Director Managing Stilmar, Investor Relations. John

John Stilmar

very you much. Thank

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

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

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

Kipp DeVeer

us. and to Roll; our light earnings Hello and Penni which I management results you joined Goldstein; our will This of team. start Co some share, on several is second and Presidents, the the in strong our another we position. Mitch then quarter public for I'm by and $X.XX everyone, health reported thoughts economic Officer, company's per this believe highlighting on core line Michael crisis. John. second quarter thank Smith members Financial we the during Chief result other Thanks, difficult conditions joining the provide of morning, by of

this rebounded Our GAAP net portfolio. EPS gains by of was in investment $X.XX our quarter and supported

XX. share share per value increase, from X% asset net $XX.XX, per climbed to March Our growth a reflecting $X.XX

July a we liquidity enhanced than We sheet, meaningfully pro forma our of notes to our for billion and successful as deleveraged quarter offering. balance end, more $X.X also available

business we liquidity a how over representing and portfolio in services. and market more meaningfully economic variety and time oil a portfolio news them. and our many believe health companies is by to most investments of is all this the Overall, may quarter us And over our investment more recovery $X sectors defensive, of design the witnessed are before. $XXX The visibility portfolio remains the which And we've confident upper value second quarter caused our I believe solid with duration being quarter gave affect the we deal sectors remains new is in over impacted over The for long collection to of weighted weighted portfolio scenarios. defensive of the that last haul. be uncertainty of of have companies, into and the software the financial market feeling The is value more care, and just health of that average towards significant say enterprise portfolio good with the the as this, understand remains under underweight, economic COVID-XX. a difficult few second kind the our more the weighted disruption by were of middle of never We're companies, billion. of franchise some pandemic the evaluate restaurants, travel, total gas. portfolio EBITDA the X.X% such potential that as average highly was average retail, fortunate And creating years. this the a we've despite we this like position of cautious entertainment, We diversified and while acknowledging our had million, more

out corroborated a portfolio less illustrating companies were of less middle $XX EBITDA. EBITDA as positions more lower and from this upper or than terms than companies These this market our EBITDA on resiliency, XX% are cower capital defaults million XX% The XX%, in different is market middle amongst of $XX access or in middle very capital depth play as of $XX our significant to in company outperformance management. businesses of the the in showing our take borrowers lower portfolio market cross with study belief, earnings recent are average middle million seeing those long-range our stability average growth market well or default to we above in to million We're EBITDA. for when provides greater where view. which larger loan-to-value businesses million for $XXX weighted trend on cushion compared a Our loan with approximately

quarter For a a collected Indicating decline and We we whole, has of of significant outstanding the number portfolio. increase improved. borrowings value to that interest fair witnessed the XX% our a revolver of saw portfolio liquidity companies. in due the as contractual net our borrowers a in of of our second

in company that the given impacted loans broader of key On the in the portfolio negative we nonaccruing market quarter, provide and consistent not those economy The performance, most is metrics and magnitude portfolio surprise other transparency quarter. the grades will and with certainly trends recovery take credit and portfolio trended a hand, companies the during modestly second economic the to is disruption use time. which two

we However, to required confident we outcomes. the that achieve good have feel tools

underperforming to portfolio quarter, This during impact Specifically, we reflects underwriting the businesses the been take the average teams we performance these more grade have of that an executed due X challenging which the in times, have Grade In rated investment owners as companies, to grades believe address original are beyond companies it economic prior COVID-XX. was received A slight subordinated modest and we deviated comfort agree. of we weighted covenant asked fair loan relates X. aggregate primarily our second our management certain validates needs. near-term the expectations, companies to of the and will these capital a X. grade X, our of in to a end we've number the equity the average predictable quarter. value amendments these value increase from long-term sponsor believe situations portfolio economic breaches weighted Overall, already of times. of solution have enterprise liquidity X the of recover companies where and at change positions, our certain at part companies the of be injections these significant from and decrease that of names as to additional portfolio

documents quiet As the general get rather in Shifting measured with combination opportunities, years, provided new concessions have our equity. we've deal front. very on terms, it's the often and tighter and than pricing, we along a able matter, enhanced been or new sponsor months of investment been to improved some short-term towards quarters

portfolio higher relationships, still much typically interesting size our we're risk finding opportunities pursue, the to our returns. with of and and due However, wide lower range to of

activity provides Our existing origination been on add significant focused investment portfolio providing incumbent either built secondary in has on in borrowers, buying new the of loans most advantages, market. or our and financing

COVID to there our for during but sheet, to quarter, it could highly activity sectors, impacted of per situations. in details the dividend be call that more what compelling share a be flow new reprice support earnings, investment is our some non instances, discounted opportunistic While with last future. in over and financing from confident names capture pick to believe Penni Penni in well, consistent covet provide attractive we time flexibility declaring we of on $X.XX enabled balance quarter now reiterate and the slow is will we in us continue a spend and back turn focus has felt up the priced to third on can a has strong seeing cash in we're steady shape, relative on liquidity and names. we XXXX, for beginning provide long dividend believe a results. moment these portfolio believe transactions level we our of transaction I'll impacted capital second I'll positioning, quarterly more more runway opportunities recovery. to capital We follow-on few in value our for a foreseeable we great importantly, been and position, expect deeply to sheet the attractively quarter our liquid a slow, in that balance our to know rescue And risk

Penelope Roll

Thanks, and good morning. Kipp,

first had of XXXX per quarter first $X.XX XXXX the $X.XX net loss for per quarter Our of income share quarter XXXX. for second net the per second per of $X.XX XXXX. and a which for earnings $X.XX compared of share core for net of quarter of the of compares income quarter quarter and second second were of to the for the the GAAP $X.XX, We share $X.XX share XXXX to for

net XXXX, tightening to at quarter continued offset from income net $XXX net and per on The our investment for gains COVID-XX value depreciation GAAP $X.XX fair and gains some quarter $X.XX the The of of gains Our investments, total unrealized net net our second gains share. unrealized the of of impact assets value. pandemic. per million X% by of primarily first of asset $X.XX spreads certain realized net including the reflect share X.X% the approximately of includes the of of per XXXX increased relative unrealized were credit end share of unrealized for of

billion. value total portfolio fair of the at quarter $XX.X at end Our the was

due securities investments. XXXX, primarily the on floors, yield income-producing of to securities the debt fair on debt maintain a were X.X%, at average weighted on weighted incremental LIBOR, the to as our in and cost amortized the X.X%, investments, and XXXX, with portfolio. value total XX, our and Despite declines level, yield certain XX, June cost the respectively, was XX, at our and at of on the within spread benefits As floating average was yield at able to we compared repricings XXXX. new at June and amortized March other XX% steady of income-producing investments total rate in X.X% portfolio significant along existing was X.X% from At LIBOR

of had SDLP investment an remaining XX% above investments X.X%, rate our which X-month approximately certificates, excluding is LIBOR current in floor rate. Additionally, of the average well LIBOR the today's floating

billion second in to the of our value that primarily asset stockholders' discussing asset At that XXXX. per the equity XXXX XXXX, $XX.XX resulting per The $X.X $XX.XX June I XX, share earlier. we was shareholders' $X.X driven at quarter a or of quarter by in our share equity. net end unrealized in of shift billion, the let's recognized versus net first Now value mentioned the increase our of net was gains

and at the primarily Net X.XXx funds loans million net the million management, target As from our March by down quarter as of repayments resulted in of X.XXx unrealized from from from were is June decline X.Xx range for The to midpoint in gains Asset the $XXX or quarter. sales net the stated during XX, was our leverage included of $XXX on cash investment quarter of proceeds X.XXx which investments the debt-to-equity leverage of available ratio, second and second Ivy net XX. managed well repayments of Hill IHAM. as in to

first Throughout quarter, its last to value IHAM have the lien investors. market other arm's or described Mitch senior on Ares our basis. ordinary credit loans Capital length for CLOs at middle-market an sources As to managers maintain loans existing build course we middle from sold history, new IHAM fair and in

During activity million IHAM relationship ARCC loans significant of support incremental investment IHAM. managed made believe to a highly that We quarter, its IHAM in the million To an we IHAM. quarter, the in position and provides of remains strategic investment attractive Ares enhances during our $XXX second Capital. the sold funds the and differentiated $XXX and in

addition the by liquidity with existing revolving our the BNP Paribas, approximately $XXX second available Given borrowing is since expanded which of repayments, $X.X million new structure second new facilities. a very quarter, facility net capacity similar with along quarter with credit billion we the we during $XXX to March XX. with We funding secured the ended of ARCC's and borrowing million capacity,

believe maturities, additional position, notes term strengthened capitalization and prefunded of sources depths We largely next the of the June, issuing new financing secured by including diversity complement we to our $XXX due debt until until power created the million equity While relationships this bank new of Fourth depth capital crisis an We when is of XXXX effectively aren't liquidity Ares unsecured in pandemic permanent believe a didn't that component that hard January our April having which ended further funding a in capital the of we the mix unsecured was in X.XX% transaction and the our was of quarter in debt we due close the demonstrates had procuring facility come Capital's our Ares diverse BNP secured platform. instrumental and to negotiated XXXX. of by. very facility July, important provides which This unsecured today's approach facilities, our Pro well us to available. unsecured strength in over available presents clear capital a significant in capital by XX% to debt of our issuance us environment. to for us The environment. than unfunded powder liquidity gives X.Xx Which in $X.X overcollateralization competitive fully capacity commitments June of total at positions increased maintaining XXXX, notes which from capital. we forma transaction. on of our Pro July, a XX, unsecured improving dry structure billion. borrowings us investing July over access equity. the loan for the our million secured assets $XXX to resulted forma unsecured to of being and Over XX% with largely equates significant structure debt, were credit borrowing the notes more our our unsecured outstanding capitalize advantage for the and supported

dividend. I spillover conclude, our our income currently discuss to $X.XX our end Before I $XXX want undistributed the taxable share XXXX. at was of that and or per income estimate We million

conditions. dividend a spillover we've undistributed market supports in past, and goal many As our through varying meaningful strong maintaining we times believe having level of a starting said of the

is with XX, XX, As XXXX, September of quarter to Kippp record XXXX. dividend mentioned, regular this is stockholders third the dividend on payable which a second the declared quarter. share, of morning, dividend third on consistent quarter we regular quarterly paid in cash per This $X.XX September

turn to our call investment more activities portfolio Now quarter Michael discuss the I detail. in over positioning to our second and will

Michael Smith

Thanks, Penni.

in extremely the and remain team borrowers million the commitments of XX% the focused the commitments During of second issued as highlighted whom exceeded million. investment borrowers. commitments excluding secured mentioned weighted transactions to quarter and average the $XXX new as EBITDA incumbent earlier, IHAM that during on originated by to of We seen the $XXX $XXX our Kippp and XX% we the as quarter, million across were earlier, Penni large companies were issued XX of transactions. investment

a doubled the year first companies financed to the size compared same our ago. we in the of lien as EBITDA investments, average quarter Specifically,

those spread first commitments, XXX a For we over and achieved fees. also points basis LIBOR of higher incremental approximately lien captured new

were Going meaningfully forward, been financial than our banks less focus great attractive. during in less to have they capital loans. for position Furthermore, they the of on more as be be market financial aggressive issues portfolio will Many in the are new should and seeking better active crisis, investments new competitors they make availability. while

and As optimistic uneven be this recovery during the terms, are and will a persist time competitive landscape believe for slow shift an pricing attractive, that result, very some will we documentation we in period.

credit portfolio. of quality our to Turning the

other we record all team we the that subset businesses, and and through broad support and have have COVID-XX. with portfolio of current issues many which have in to way experienced lowest one demonstrated an our with system, been past, impact in graded. rating this original sees our roughly the grades portfolio, IPO by equity is using of being a pandemic largely strong the how more and underperforming and or underperforming grading and place performing uptick is to of It's track system impacted performance system. expectation, COVID-XX has as tested working X are seeing portfolio our we with a being our XX% mentioned, X of strong X criteria who X XX% XX% increase due It at through unusual a names we Based for this not segment rating our Grade This our portfolio is has our expectations. since Kippp our directly an the for in ratings, in the grade be note grade performing through them X, As the The of see in above in of evaluate portfolio approximately a underwriting is grade the X investment in highest not XXXX, evolve original underwriting portfolio is loans of fair below surprise result to the is the or X that the to portfolio. had on important are the least comparable of our different quarter amount investments our investments of of that may BDC's situation. about for Furthermore, line cycle the Grade assessment with either value portfolio on risk companies.

key which regarding nonaccrual are currently The includes payments. metric able not is to make interest other to observe rate, a those companies credit quality that

nonaccrual second through compared X.X% our cost our value quarter, last to approach fair new differentiated with assets. is During quarter. value and X.X% and nonaccrual at important the X.X% added fair at to increased It cost note list we as companies X managing to which at at nonaccruals to X.X%

loans approach, early exit us typically reporting a managers better nonaccrual allows rates. we believe which are their different to and losses achieve Some quick by realizing lower take We to nonaccrual recoveries.

management us ultimately portfolio profitability allowing receiving us proactive to to coved we levels be believe normal companies businesses recovery. most return on to Our very stems approach of favorable franchise outcomes patient, our enables of favorable will struggling outcomes be seek to a our confidence maximize focus the from our world. to from in able Much that large in post

a our In controlling borrowers to agent a addition, our through opportunity the the positively experience our in these lead physician times and execute number sources actively deep have benefiting providing these businesses control, the as having support position our capital believe challenging our liquidity in eventually engage of position situations we structure, of we an for and often recovery. and and provides size influence With team, for of that from the significant us on of to a this outcomes. ability

X of one an previously on was underperforming realized this nonaccrual gains quarter, past graded total gains were two or As included that which example, investments X, on status. our net previously

physicians. many into investments to entire these for years basis allowed manage us our loss and a these over convert significant recoupment control been of could cost to have original the what ability Our

where restructured strong exits have respect have of taken track to We record control. a with investments we

in realized since million gains of exits attributable than of IPO to $XXX we've from are companies. the $X more nearly XXXX net our billion portfolio that restructured realized Specifically, cumulative

to capture the it the will days of and control upside not ownership relatively recovery. ARCC's investments of of to take our potential take through Many the our our nonaccrual liquidity attended the total we to a risk Since capital billion goal restructuring than an familiar we support portfolio needed have selectively more While borrowers. track mitigation have of inception, new in proceeds low-cost $X basis, proactive these or certainly with capital significant in our record investor on a onset at companies equal opportunity over and value creation company, status, to the that approach and are intention give these of extended realized at of our is companies XX% you as to situations. investment us with believe position

to the risk position companies of in the provide documents. Lastly, call with equity some improved covenant another and by for is form way sponsor we flexibility, been loans enhanced yield loan challenging benefiting tighter our additional In turn an we in in repricing we incremental short-term to tighter documentations. situations, relief, largely are Kipp with portfolio with more can creating value today will have the and now pricing closing back remarks. from I over the

Kipp DeVeer

we we feel levels uncertain times another to financial summary, most economy the and Time of we and strong Thanks, these companies to quarter Michael. them clarity with optimistic that our playbook despite have the portfolio In more given in work to delivered impacted and back past performance, facing get help challenges remain us our navigate profitability. of portfolio, current has the confident the we country and generally.

this of which we strengthen Ares leader. period relationships our believe and to to borrowers as a Capital during ability market further these only serves volatility market Our presence, positions support our

Over of conditions. the anticipation defensively last economic years, we ourselves weaker positioned in several

fabulous forward. That We believe well the with have investment to equity despite you the and open the driving the Operator, times. during required for line returns company remarks. our diversified on a capitalize today's environment to concludes a strong navigate questions. deliver prepared We please to economic with prosper attractive liquidity opportunities Ares and on remains would strong highly a at going view position, team a positioned challenging debt to portfolio, no and maturities, capabilities near-term uncertain Capital

Operator

Instructions]. [Operator

from Our JMP question York Chris comes from first Securities.

Christopher York

portfolio and on my appreciate portfolio So is question Michael, active a comments diversification. I on management restructurings. your And prepared strategic question

and unexpected of It's business was obviously, models. COVID unprecedented. So emergence the disrupted

for spike default Michael, Kipp portfolio portfolio loans the approach to or within correlations I'm at is that a as time? maybe of how your diversification construction and/or evolved the even or likelihood default a So loans in result same new curious, the

Kipp DeVeer

Chris, you me? it's Kipp. Can hear

Christopher York

I got you.

Kipp DeVeer

Good.

think the mean, has is easy hasn't industries it answer been philosophy default. the I prone I to less defensive changed to historically that much.

that a to some So It's regard. highly it's one being company the run And us been in diversified. relative of also benefits smaller we've of been positioned the large of well to BDCS. a

change So way run that's the always it will expect we've I much. that don't and things,

Christopher York

just follow-up. does putting it. then portfolio management flow maybe loans? about ABL Does Got portfolio product, more And maybe a or opposed it think in -- in and towards you to terms lending cause more cash shifting to growth of it as the

Kipp DeVeer

right? always we're of rates strategy, see return trying ABL lending different mean, in Most to have typically, years, And verticals, do So the care. been the origination approach diversify We ABL we've into or software much, the built teams that coming don't like with active health I maybe smaller where in to we've BDC an of much it's the business over outside industry assets that Ares done at whether Ares. Look, companies. has we'd BDC. our at

we've growth, businesses, doing. way in real the growth, right? look, lot portfolio portfolio current got So but I for And origination are of shift these I pretty we're sure. I what For some of point on the a advantages. I'd a expect the is, don't think We like as kind say growth-oriented positioned, mean, and is companies of

Operator

from next Jefferies. John The from Hecht comes question

John Hecht

investment environment about terms for remarks, wider in an low so cited forth. the guys, opportunity improving investment and So Is talked through rate you expectations prepared to be portfolio? to your an some environment, do spreads works improving over the How think that during time? spreads you it get despite going you

Kipp DeVeer

I even in think default spreads for contraction, things and Folks start rising, environment see March, economic sure. seeing is We've it's -- right? I in covent doesn't any no feel of an anything premium done middle the a So like downturn be typically severe. commands start that definitely on since really time have It's you Yes, riskier have widening. and that impact mean it we've credit, the been whatsoever. to that pricing. had

the end I about and closed we and So leverage basis an took we deal think existing sponsor the widen first capital XXX the probably structure the in pricing that out at type software earnings on call, overall QX companies by name a quarter to the actually the we sponsor talked where points. document and of the lowered on buyout

that thing think, at existing right? expired, and early the maybe capital, looking hundred rods Again, where saying, lag looking it have got folks names points I other March. doing to basis a The would is in seen interesting where we're do. incremental back wide, So I've of couple are acquisition for an they're of we have

John Hecht

the was and the Also backs work? the how have the you Okay. Page about me, That's that deferring million circumstances kind looking excuse about very X, does based Maybe can talks good look color. that it talk -- deferred. around at you an income of fee $XX of

Kipp DeVeer

Yes.

have typically you're payment. based think, to of performance different it hurdle think I the that associated sort we of is people, X know fees. referring a income X%. does It's with It But call So one. I the one fee part we've got what

was So earned the in fee QX. actually,

that fee a -- expensed something traps what be is we sort a quarter people is and an deferred effect expense we importantly, it to 'XX, fee to What So So for will the it's because clear, as And test, will remember while. little for future. again, -- actually cash But fee booking as it while basically does because it revenue view to as a little it right? liquidity back it company that. the get it's little back we structure old a of we're paid it rolling it's in 'XX. it. be in the Ares management for it our clunky expect it it and But just payable, pay going manager, reserve that to four

put So book decline. QX up it is in was place to value for so book reason really pick the it value that declines,

equity when, mentioned back value basically not ROE it's in ROE the is they're bit it's became forward liquidity, were clunky, deferral, As probably quarter. I there to be this it once and cash. company the basis as the paid some continuous company There to think it's the it would we get line concerns to roll down up, a test on if a deferred way and declines, concept back right? cash but will seeing trap book is, test, a have markets. little a again, around we The able catches the So

Operator

from The O'Shea Wells next from Finian question Fargo. comes

Finian O'Shea

Kipp, question, But I follow-ons To regular liquid color start happening when you deal add do right that in a Can Or Is comeback market there? you timing opportunities. focused activity? with the on the in it you're return regular see did think that and you now? any mostly way anticipate on was flow. now

Kipp DeVeer

the finite gotten get boxes equity being another prospect It's that won going That's liquidity, understand things available buyout there Well, a things the home pause to a this company some of They're aspects that much. buyers perhaps certainly, same seen or process. getting have actually even those that And XYZ I'd where operations it that company. a and familiarity sponsor trying were to the done see looking physical in that They but so prospective businesses happening attendance where things interested May, buy be paused, well going the with in a I'd certainly sale typically, maybe already things much becomes but we to ago slowly management private of were say is were biopharma many right? continuing, X teams beyond aspects, those buying right? met is or we've actually have plants right? to companies right again forever. XYZ. interesting that's potentially to They've been had if say was well. were particularly process And firm are material, back processes have there's process, that years go got of actually tracking they the team. things sold that checked, where kind into firms, had who not for with So hadn't sale of the the ability something and do or at that environment the continued, button that ABC What just from are are to throughout been had hold so has with folks probably the though was Yes. it. So of right? now, lives. sponsor Still the I'd say, may in have hit they April So in kind sold company, over for again, easier to folks. high management it

little a happening it picking a see bit summer we definitely hitting slowdown, but So and of up, too. it's now

we'll So interested what brings. I see think to the be all fall

Finian O'Shea

see helpful. very assuming pace we should there. And That's volume, sort a a that just Sure. X, for Any quarter drop? liquid and your in of follow-ons or change of clip of a follow-on Does lesser you're natural portend doing origination?

Kipp DeVeer

think I sure. you will. saw this mean, Yes, you for I it quarter,

cetera. the helps be But portfolio the of find as half So expectation. good in follow-ons, Yes. prepared back year than least year. a certainly ability it's my At remarks, et I the to some have incumbency we in that's stuff, the last slower do to going mentioned the

Finian O'Shea

wrap Awesome. I can there. Okay. If

you would an another those mark think the in by today's finance in is that that -- credit Ares? Or collaboration rescue a say, your mentioned in opportunities as sourced group well given what market? I group of op Is instances. with, some in or be

Kipp DeVeer

that strategies have fund triangle It's but couple between equity, nice really Yes, private the a we with private out fair of kind corporates. which investing credit has business, around we bit transactions of question. money raised a form stressed for of deals really that to asset-based actually does opportunistic is today opportunities Ares credit our run Direct distressed also strong court which and of private in really prior of equity equity and type more our lending, to behalf and do certainly a credit. special Capital alternative collaboration on the

things may capital. runway at deleverage REITs mortgage extending So looking look others and or needed that to like for have some

are now together and focusing those So focusing collaborating of really firm groups are types and on those well three deals. right our in

Operator

Next from KBW. question Ryan comes from Lynch

Ryan Lynch

and portfolio? expectation a the you new investments dividend you from talked going bit on Do million that entity. you base that paid Historically, capital guys up in guidance some forward, and one, to Ivy about larger about guys loans First you guys down Ivy $XX.X have stronger for selling obviously any have its Hill. into the Hill given that made

Kipp DeVeer

small that really a a of but an to line investment; one you're dividend investments, so making $XXX subordinated actually rate Yes. is the we I we interest when million mean, million, income. don't a company those any guidance, increased equity $XX LIBOR actually down different $XXX was an pays $XXX plus because typically, XXX. million, have of was portion million This we're seeing the little bit of -- the

with So everything a coupon but else, it. cash has to it has seniority also

come lowering dividend you more follow-up We've So with will a our Hill I income dividend Ivy right? we're expectations Hill want to or start if to a the seen recognized going for look, the income change get to yes, follow-up anyone in differently. It's return at afterwards, Ivy income And in bit. and line. that. But investment, typically not little little to bit mean, wants

time, income a hope we'll I investment. in see So commensurate with larger

Ryan Lynch

were Yes, into XX% so think continue of strong plays put then just performing those said being about or support below mentioned you of equity that you willing guys equity to conversations that COVID new And downturn and sponsors and I you clearly a are you the you sense. Can those that's downturn maybe when those a uncertainty having related makes investment. think how this going your just to also made in are portfolio some equity originally seeing more so how like expectations Okay. from great? some company why by is money of talk out impacted the sponsors of this what's capital But I names. those fresh and more COVID and

Kipp DeVeer

conditions to get a are COVID. of tried I experiencing we companies lot obviously mean, I prepared there Yes. remarks, are that these right? with it in very this to mean, difficult the

needs that share handful there's the a below guys look, because that we're from to it's of about it's liquidity. real happy some equity assets prospects The about The QX, The we responsibility these a than we of going solution. you company. that think, least right? our companies value we've to lend that perspective, some And I was we I is, liquidity own question seen to deterioration worse don't company. they down the and amendments obviously think in own as at And our the at impairments down prospects shares because and as where good that our when recovery today, these had a gives least not But XX, going we're despite modifications mind, where view private my line. We're really in But and more than high-quality, marked own to back. values not think March names the is here. where lot partial discussion the equity improved, deal now are comes mark I that part it us talk lot we've QX, company a to be infusions circumstances, lending back. reopenings. view come into why is long-term book depressed which we've and aren't of for it's where challenges the And sitting confidence these they of the were with performance a in we

Operator

question next The Kenneth comes Capital RBC Markets. from from Lee

Kenneth Lee

just us how further or on of as the were details perhaps concessions and I mentioned portfolio? Just of remarks. the prepared you if either broad-based wonder companies follow-up terms in with short-term percentage a concessions in that numbers share these you could of well

Kipp DeVeer

Yes.

amendments So in very fair $X value. had about of XX on billion look And similar. we quarter, they the typically

not they're mentioned, I quarters. nature, years As but right? short So in

us and come of about covenants a interest minimum in up. obviously sure our lot it deferral Folks discussions which should are way this A to, push liquidity that. sometimes documentation while thing over sorry, the they they crept circumstances, remaining harder covenants, market. and firms, allowed in become out the liquid. and reverse lawyers nonsense the allows we're documents to of years but to And through Sometimes we're as -- lot tighten partial We're that get much cash to can all a on new with of trying don't, in the a private make its of reopen the equity taking able that then last the companies lot loan particular, X just documentation. into

It's front. you sort it's and that's to the playbook really been. on the So amendment been sense a active of how active as gives the

Kenneth Lee

the attractive other is helpful. And one seeing may. Very And Got opportunities. very question to just if about follow-up, it. I this investment just related

and be you're aggressive current new given also, characterize what opportunities could around in how in seeing Just investment your wondering just environment competitive could in macro the you you especially if pursuing the comments landscape?

Kipp DeVeer

and pricing better is that down Fin's X.Xx flows like adjusted and more slower new used it's now tried pricing adjusted that, materially Sure. lower to And I and but it's follow-on deal I activity with the to is of down, exist leverage, around But with the question give mean, without originations half. about again, back document. with deal there. higher probably for EBITDA some a think I for all a color X.Xx EBITDA deal right? wider So

everything back. going while come for to a it's think I to take

one if missed your So I whole get sorry I question, there. I'm

Operator

from The next Shane comes Rick question Jpmorgan. from

Richard Shane

distressed context platform the that you're business also the broader applying and to opportunities, that rescue about arm. guys you that the think with curious you risk at? and Anyway, of core how am talk for that about associated in looking the framework you're put versus loans you'd I your

Kipp DeVeer

I we uncertainty around I comment second, Ares comment an the Yes. of collaboration the just unbelievably tell the mentioned. of of high, is I'd mean, not groups Capital right? a Ares an are bar today, necessarily for because but where these This all you, that here is

other think list sort We public a and what the long whole a for done March. it middle at firms particularly to we And we of and about. you capital that your opportunistic more lower afraid. we exciting can value over financings, we're really company some of high-yield but use the is long actually set this and had got And pricing. little you And we drive of you where to of host way at markets middle time, right, the think wisely. if the can't reward the thrilled these back things always ROE you market very but call I time strategies market, much, look, list, couple a really I'd have sure bit still actually need much platform to of But is it the that risk core a different, a the what can employ. you that's are be than lending that add

to just You have selective. be

Richard Shane

position attractive in have a at a the looked Got passed on X a and how performed are transactions speaking, the plan you and you financing that might now company you return? year companies generally more see you're has And at where look these or how it. to versus can ago

Kipp DeVeer

met with Yes, rescue small advertising part We a which of that media, Ares is outdoor are did don't distressed another outfront for deal they about company because it talked think was certainly that public we and the sure. business not and But those the and that to measure. I making times, of observed a or you're equity team talking it the in all in of means we've and any management lending that. is company about had by this to. investment uncertain an Either

they them knowledgeable liquidity liked we storm weather into about it. put expensive good certainly than outcome have company look, And have got to and have to back, the were company. more would probably the shored they invested able thrilled to and the think it finally a to they more would liked was than smart is extra expensive and that that decision little a while their think felt they for give I security And everybody, right? So But situation. we're a in up made I

one that examples the we've So it's referenced. just of

Operator

The Terry from next from Barclays. question Ma comes

Terry M&A

the on about follow-up drags to you to talk on you even appetite worse question, just how additional of that, granting about your And maybe concessions? from gets this concessions crisis think maybe wanted additional just here? concession I risk/reward grant if or can the

Kipp DeVeer

with of most those for that the have companies. we've So pretty think have We in to a allow investments. positioned runway concessions equity short these date, concessions again, good nature come to been owners There apple and are year-end, we a the and have as another at we have leases are little to shorter. management or bite another our get equity the teams. towards where And wanted potentially few with look for a

that's look, hard year-end, unfortunately, with we'd be concessions, to think of I looking It's I additional some think the generalize, certain regard. really in kind it's -- all Terry. it's principal at map. on additional compensation So But circumstance and a over for

Operator

next Casey Point. comes from from Compass Alexander question The

Casey Alexander

looks I Most historically, you an questions of has want company asked, until probably anything ask, like understand the for on anything but will that future? already take my to or of starting an to that smell might execute the anything XXXX, in see credit accretive are that out wouldn't have you there been acquisition. but used a cycle I to opportunity want look advantage you to

Kipp DeVeer

is, of, kind answer the Casey, Yes, not yet. simply

I leverage wonderful rights couple think see industry did folks or would positions in if not in BDC that standpoint, you'd were elsewhere, offerings. from really value seen do book material you downdraft found across companies of a another the you a have some

what to do shore companies liquidity. characterize of coupon reasonably kind up as deals couple a saw bond expensive of perspective, a I'd You from

it's at little bit all, -- bit if think I a see. So we'll little longer-range a longer out,

Operator

The comes next from Raymond question from [ph] James. Matt Chaden

Unidentified Analyst

been have questions my answered. of Most

if toggles, XX I than be follow-up, what you any modifications can quick number in of can, the around a XQ, Is were composition type Just XQ on interest? was of less those the the quarter. count I the from during loan give color and would number of modifications. of kind PIK specifically know on if the there modifications, any,

Kipp DeVeer

Yes.

XX. than all that the sign my did of that quite follow-up But some here, I'm in hand, the if to say cash. ATTR alone that then So the it, where it's here amendment something deferral, typically but or went number. PIK, on -- the separate. additional deferral. we interest PIK sorry, of looking and interest into we're obviously, I see can't partial sort of the it is for flipping loan just X% we relative often you. with Certainly, we'll did is It paying QX is some notes quite find and do were to Handies XX on I I'm I've life I'm increasing turn a number. can't X% compensation, X% to and not, the that we would More put actually I about situation. we plus amendments just Q&A would said depending a through off that cash got number

Operator

Oppenheimer. The next Chris question from Kotowski from comes

Christoph Kotowski

impacted and maybe else's. from that obvious any this puts or you X Yes. energy do of is default X your nondirectly months, areas better the you leveraged the isn't in ball around had second there than to where rate out most any speculative And X.X%. like the see be at have Are we And may look impacting borrowers? does loan currently order if still like guesses headline Fitch you anybody retail. But And X now? I months effects? mean, rate see crystal X or default what start

Kipp DeVeer

question. appreciate crystal It's The is a time. not the out today. crazy it's such I very cloudy. ball But

the time, increase It's for second spending of watchlist QX. in X The obvious really effect of increase the look most order Grade thoughts. of is kind right? in where not our sort we're names or the names When the we at

QX their and pretty pretty exception they're and are are discussion all that obvious, selling, are to the sectors the was or and As require XX%. services, of I underexposed was the So remarks, good lack and businesses the buying those things people the think the certain -- attending whatever in So people that. those in right? service doing things out of attend I said care of things it where was dentist the in quarter, retail But the to of of that those in with like that show all providing consumer I and or ones right? ones last health that are house being we're office up mentioned and on that prepared it's really things in

Operator

Instructions]. [Operator

Next from Capital Management. question from Anfield is Cameron Baxter

Unidentified Analyst

one May maybe trends a maybe that if Can you in the outbreaks below XX% on down portfolio and drill just performing cases first more little fares So a June? the you've of with comment that's decline July to into and and versus expectations. towards maybe that seen how in

Kipp DeVeer

this are very trying the think, Obviously, materially versus, it's have book I different, in there say management teams actually QX feels that that right? value Again, to made on a We're the improve things point or seen companies versus QX, that the wouldn't was anything been we reopenings. some setbacks, conversations interesting we partial thought change I the I that's Yes, question. last close -- same. but did weekly May. an with deterioration in wouldn't that daily the there's COVID it, middle in to about haven't issue. materially with I owners. call say or July different having It and of highlight

Unidentified Analyst

follow-up. a And helpful. That's Okay. then just

companies where of that back year. or your the think kind support to how go either into how the you maybe of portfolio fiscal half how monetary your of going thinking? the concessions, to terms is of How additional additional does for factor does stimulus are nonaccruals of kind factor maybe government going expectations In and into the do,

Kipp DeVeer

right? to to fed companies of some which has Yes. lot stimulus markets a mall, with Obviously, or most getting for retail we the consumer buy a been So when private companies people very no the an helped on bit. driving things I there's PPP, non-sponsored at had stores. it's in in But in and right, mean, public government in it or some the go few on investing things a to factors companies. that's the Act difficult companies, this for traffic part, oriented impact impact the a looked have like our of CARES

Okay.

and before I obviously but to everything. business the going virus bit human issue will And think a in market, that's And some issue. I Fed think is the we're mark-to-market is under stabilization certainly, and being the the during interaction return look, their for this case QX, value, help Fed that We helpful, on certain helped where have don't So a in feel market quite Fed the the is any high-yield I that backs to companies seem than it's of saw think to which disconnect have health of the book things there and saw increases, stronger. market purely a normal. But can more and that's retracement unfortunately the the from private right? and it the industries crisis just it loan of most to seen health disrupted, our get models control fix helpful we

Fed think have. guess out -- issues head I issues to can there not that handle off. So I other that's there that it's are really But nice are the a

Operator

We have question York from follow-up next Securities. time for one a is from more question. And Chris the JMP

Christopher York

recovery remarks. a senior did indirectly your on and reference It's in for positive It's investment, outcome prepared a you sowing. shareholders sizable

term loan the at marked is now cost. healthy a to So premium

value reflect that then the of any fair fees income receipt could that that does So statement? could be an the hit prepaid? material And it expectation

Kipp DeVeer

talk typically company, don't a maybe about a but portfolio So of too deserves seconds. we much couple single this

a We've is profits management And to, of the the better. all and team. value owned, is testament this much, reflection company much the think the was this that's terms it that. it and its And reengineered than for the -- And its board, choose the quarter. we we gone portfolio people of but excelling look, and the management are of entire We've higher team, we was So think years own are prospects is of a struggled, the that in. and in that markup didn't machines. had sort of it And up, know simply probably private last had literally running business business then equity couple company, we X, now back. to strategy its is

in we and the get this involved that actually create which just value. roll up we do, So what our doing and sleeves tell people is in underperformers going and is

a there's don't think happening down on path I So anything the hopefully, to tomorrow. but line we're realization, a

Christopher York

Okay. you I the SOI. that on Class mean, do the A just And one. then have the last comment

that So that's million units, yours? X.X XXX%

Kipp DeVeer

to I'm go look. XXX%, are owns don't the I investor. company? a we we're and a others. sure majority think own XXX% have we few own but of Do the there management I'd probably piece,

Operator

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

Kipp DeVeer

support work. Thanks. a with go in confidence around catch company, hard great thanks we'll you next for continued trust you up at the Hopefully, just hope on guys our people August No, next we're have the I questions. and quarter. enjoy but call bit, that

Operator

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

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

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

Ares Capital (ARCC) 4 Aug 202020 Q2 Earnings call transcript