ARCC - Earnings call transcript Q4 2020 | Ares Capital Corporation

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Operator

Good afternoon. Welcome to the Ares Capital Corporation Fourth Quarter and Year Ended December 31, 2020 Earnings Conference Call. At this time, all participants will be in a listen only mode.

As a reminder, this conference is being recorded on Wednesday February 10, 2021. I will now turn the conference over to Mr. of Director Managing Stilmar, Investor Relations. John

John Stilmar

Tom. you, Thank

statements reminders. Now, any the Please Corporation during including as The as contain its company's important and SEC could to in call those note let in start forward-looking assumes obligation with performance information well forward-looking documents expressed accompanying materially no me actual Comments listed the are or course such statements. results. uncertainties. webcast statements guarantee is subject those risks for such to made and past that some and differ of not from update results conference Ares also of any Capital forward-looking reasons, market filings. this future a

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

Ares The our to fourth accordingly, the X-K. or no found slide In this has derived quarter third-party can and the section our and of accompanying the on on measures on Form Investor turn presentation Earnings and site. been Resources Corporation's at are portfolio company's warranties site. by Capital addition, these also site www.arescapitalcorp.com available Quarter Kipp the found this to Web and and not call on company's Executive year earnings Chief end of now Fourth discussed independently the representation DeVeer, link was to the verified Capital release the information makes Certain clicking be to Web XX-K release earnings companies company's filed in homepage in information. on like the of Web from including relating XXXX also with XXXX the be respect over Corporation's may December XX, with information company SEC Officer. this Presentation sources presentation earnings I'd the Ares reconciliation morning call

Kipp DeVeer

year our Hello everyone, us. John. lot, several Roll, I'm Michael you Co-Presidents, and full core Penni some I recorded will Officer, thoughts the a for and joining by Capital team. members results strong our share, conditions. other Thanks highlighting which This of morning, reported $X.XX quarter and challenging Goldstein; the our very in despite fourth then strong backdrop. here management on market for current Chief earnings Ares thank per we Smith start and quarter provide concluded with Financial Mitch of a position our year the fourth

We to team validates through pandemic, challenging believe perform are COVID-XX conditions the performance proud in market difficult of our strong our created by we our managed the and conditions. ability how

began last a Markets to resurgence market March, of pandemic. the the saw to in reflects as the year middle the began the new largest through origination scale platform. the includes disruption normalize. commitment we lending Ares sourcing direct our our year and any significant strategies market of of partially of It XX summer, quarter quarter direct to real year end volumes which normalize towards our due activity were expansion the growing activity the This continuing towards end of the other the also results made fourth origination and the by the experienced reflects platform, have of across beginning of credit-oriented Our driven in history. and markets

activity the as $X.XX per levels, fourth per a was Overall, Our of sizable EPS unrealized earnings reflection core year, payout of share these net for $X.XX the totaling per quarterly portfolio. strengthening healthy $X.XX share. as our our were well investment by for GAAP share well dividends quarter regular gains, our driven above

net approximately X% up draw the markdown significant XX, experienced asset the $XX.XX, per share of recovered XXXX year we ended which portfolio Since value values at Our in March March, since in is that us majority end. the we the markets down. capital decline economic back year, the financing In origination of our the platform as and a of the and scale opportunities in large varied half market. during set the allowed year conjunction to recovery see a direct of with

run approximately XXXX. we This for X,XXX second evaluated below to allows a and new our half basis. pipeline against the XXXX compared large of the enhanced us the selectivity the opportunities average we This of us X% increase during a and over what year in on investment companies. approximately invest surprisingly, selective expanding deal annualized ability and the of when are be strongest our lowest our And opportunities X%. to of has believe rate approximately full During decade X% year, evaluated a in one not was historical the rate is

year, many attractive. our The set borrowers. In EBITDA in addition the companies the of terms number to interesting this, average for and expansion both during evaluated we compared of size to larger year are and as companies XX% underscoring finding increased opportunity last of the we

estimate XX% reviewed opportunities, we financing $XXX than our that for more over of year, increase the XXXX. billion a For is estimate which we roughly

Ares sponsors. collaboration lending capabilities driven professionals verticals culture to Ares over in investment transactions scaling our the continued the largest Capital. we XXX that and With the Management. Ares investment is the direct the across US are meaningfully platform private lending amount has We increased that alluded partially into opportunity the XXX new of relationships approximately expanding We in of set have enhances with US we team made and capabilities direct industry. the believe for equity I at Ares reviewing earlier, growth and by the the of As believe

professionals separate sponsors funds. flow deal select to than globally, community opportunities. and Capital border Ares distinct US, equity us that in enables the as cross as has investment the lending European investing private This Beyond this from strong direct footprint, Ares cover European to with incremental positions well manage see a platform and more XX

that brings also reach continued believe augmented our opportunities expansion market to the teams additional and further Ares other of has at credit the Management We company.

entertainment. Finally, infrastructure of develop healthcare, deeper Capital in the breadth our sports areas continues allowed the that like media has to from to benefit firm Ares platform specialization software, industry and and at

spring, We turmoil business will improved since closures and provide the saw we the the But this of many in has companies. call. later difficulties of quality detail more when temporary past economic for general portfolio the

of those from fourth XX% and the worth during we see market LTM reflected The of It's companies X% compared quarter, quarter contractual ago. faster of interest a in basis. to we in a to middle fourth collected is quarter portfolio report growth reaching due we strengthening in quarterly average excess noting metrics further EBITDA. weighted our that that million other in companies the a about $XXX of X% the $XX growth EBITDA among also accelerated, healthy credit EBITDA During on our below million upper portfolio our continue

third at costs fair by quarter. X.X% amortized X% were the of Our to and at These at declined fair at fourth and X.X% end value the value at the nonaccruals cost end quarter. X.X% of amortized nonaccruals the

line X.X X.X and improved with our quarter's of versus grade portfolio average also average. historical weighted in Our last

the end periods economic these liquidity capitalization that position $X billion during at of strong to have the We of the borrowers of balance now support existing the our billion and and to uncertainty had our at end. uninvested continue grown to use a QX depth this of like XXXX liquidity $X.X I'd Finally, and weapon company. excess year highlight capital liquidity recovery. proven over to of sheet our we be strength and The of has significant

and Penni As with shortly, the we've upon provide the our through now beyond. today financing on of balance expand financial Penni more lower company's further to has Ares we work quarter sheet XXXX cost very to over to results. forms our to to funding tools all need year we financing. continue provide Capital continued us fourth XXXX We've full that call details access believe to turn to enhance and strong the will been and I'm going efficient will a of profile

Penni Roll

good afternoon. Thanks, and

of earnings the our the fourth for fourth XXXX the XXXX the earnings of quarter higher for share GAAP fourth than to $X.XX, of the quarter for were of XXXX. and share fourth third per compares which $X.XX XXXX. both the the for per quarter the $X.XX XXXX $X.XX core quarter XXXX quarter $X.XX for and third $X.XX Our were quarter of of of for

net per $X.XX Our unrealized for GAAP included fourth losses. XXXX earnings of gains quarter net of the of offset by $X.XX share realized

year full compares and $X.XX $X.XX recovering strong GAAP per XXXX. year the of closed we net quarter drive mentioned, share with of Kipp our to earnings that fourth for along very our helped This respectively $X.XX. a share $X.XX per with valuations, income and As core

Our fees service capital earnings and and recurring of million $X.XX fourth markets dividend usual strong and larger by quarter income $XX were new interest structure a core in of from driven level origination capital of than activities.

the The net volatility, asset of XXXX $X.X which by driven to tightening the December gains quarter credit of relative on Despite unrealized unprecedented $X fourth losses the saw $XX.XX of million improvement more investments net $XX.XX September resulting resulting was end the significant the in as December net of net net in in XX, primarily at a unrealized first and market increase or the billion XXXX. names. $XX.XX values and performance XX, asset portfolio XX, fourth and the in of primarily unrealized our reflect spreads during gains. or of realized certain billion, XXXX value remainder of quarter year $X.X quarter $XXX was our Our equity of in At during share stockholders' at steady to previous value XXXX, full a modest of XXXX, million. year, continued per $XXX a values quarter, recovery the compared the we impacted for billion

first We of the the COVID-XX the pandemic. NAV decline in have per amount share over this NAV at a we modest only recovered X% the share the company's recorded a we the quarter had decline per significant year. in recovery, With start of

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

average and average and to at X.X% X.X% XXXX, amortized at on XX, XX, fair XXXX investments At XX, weighted floating debt X.X% the on weighted at investments. yield cost December was September our rate total portfolio total producing cost XXXX. and securities of amortized December December as X.X%, XX% in respectively was the XX, compared other yield of and and our income respectively was X.X% at value XXXX, As X% and

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

liquidity. and capitalization our to shift let's Now

As our XXst, of net times of X.XX times, end million the of $XXX available equity ratio from debt cash was the December up third to X.XX of at quarter.

to more year $X.X a end diverse in financing our closed ability in and of sources opportunistic for advantage liquidity. As offering, our most on issuance we of taking conditions remained coupon million had debt during and unsecured To across the the secured at of commitments, the activity year cost capital markets, an over bond X.XX%. year us, recent demonstrated access of significantly with we increasing the we $X $XXX billion the both unsecured we Post than all for market of forma very capital recap favorable history our total times. financing of even active available of challenging effective Once XXXX pro in new in busy lowest BDC end, billion liquidity of and capital of options. again,

our competitive and our term not the maturity our our As we is is it well next advantages, us happy with today positioning next and facilities structure earliest Overall, believe significant of September one bank debt remains active of year, January XXXX. until maturity are remain a reminder, investors. capital to credit of we most

our Before income want I discuss dividends. our taxable I and to conclude, undistributed

goal XXXX, income. $X.XX of share end, We this from dividend that our we no to of. the announced apart For us increase have our regular that first a having such through many and conditions speak spillover paid, on dividends XXXX, other again quarter outearned despite March the a the varying that we per strong XX, year, dividend dividend $X.XX undistributed March we the sets our a share an declared spillover BDCs is To XXXX's from of significant the market of of currently XX, morning increase income with of reached in believe on estimate in paid end $X.XX which This portion dividend regular XXXX supports an steady share, resulting throughout that of maintaining for stockholders once meaningful consistent per XXXX. quarterly record payable to and at first taxable is XXXX. pandemic a quarter we undistributed level. per driven We challenges spillover

to will the activities quarter Now through Michael investment and for I turn over year. the the walk call to our

Michael Smith

detail Thanks, I our for would providing like on quarter more end quarter spend investments importantly, end update on the XXXX. of will the both post Penni. activity then I year performance pipeline. few our minutes and fourth an and to portfolio provide and backlog and a

XX During XXXX, billion quarter. transactions, in $X.X billion the XXX our investment commitments across originated fourth companies team new to of $X.X commitments including of

finished to Our $XXX companies with across industries. companies, XX a position at an more we only companies than our X.X%. the from EBITDA breadth from fair this of We high ranged the highly the value million, investments quality throughout we hold which diverse and financed year opportunity diversified came year the remain year capabilities. with set of portfolio of million set and distinct XXX $X average underscores The of

Focusing years. fundings on incumbent clients for came five our of past quarter from have significant the approximately activity, which average fourth ARCC two on been borrowers, new thirds investment the of

It worth than of invested XXXX. for has highest also volatility. meaningful the position us companies follow that of market differentiated new company activity was exhibited of our PitchBook. this mentioning a allows was provide over new the Prior Our according that advantages for volumes periods to performance of quarter, XXXX to stay M&A sourcing quarter enables as capital accounted especially advantage of record and at us year, typically origination record additional strong the is followed the and following activity during and activity to XXXX lender incumbent in significant the end dislocation ownership an multiple provides investment to fourth This transfers level important years. on more to XX% as through

surety increases During transactions Much involved of increasingly provide. scaled volatile periods, we solutions the seek as and robust quarter's believe companies we activity fourth the market share financing our capital of investment structured and during the values. backed identified market we relative had were when quarter opportunities beginning picked the fourth to that up that the quarter of committed and and attractive the third

fees fourth first lien XX% during compared as of the of higher to closed the XXXX. an example, quarter For commitments leverage unit spread fourth the higher per had and quarter XX% upfront

value, fiscal our direct fair strong competitive prior that of lending and XXXX, higher market. COVID-XX. from the portfolio companies year benefited million, in portfolio What we with year Additionally, for large has consistent XX% composition quality just this two attractive our at year portfolio the composition, end financing end market XXXX limited COVID-XX. impact SDLP XXXX, expanding at to average seeing during the our EBITDA and had average of and year changed our investment, half of growing the transactions position businesses million the meaningfully With secured as ago. is opportunity to At inclusive million generally second those in end is was came which weighted at from respect to more market the EBITDA of This segment the of $XX weighted reached underscores EBITDA $XXX years from our companies. loans, $XXX up

is in years we corporate the assessment most the portfolio. is of LTV debt of our this is average described measure market improve downside below borrowers, a and favorable the highlights of economy protection the credit Kipp in conditions. and XX%. feel to our during dollar five of with rebounding of ended the quality capital inherent our last earlier, past value As loan portfolio the One year which to This overall healthy continues weighted the

million approximately by a we net exited totaling and including From total we sold on provide Let of investment gains were million update exits. on million, vehicles pipeline. X, February activity of commitments, Xst our quarter IHAM or investment million new billion commitments now end post $XXX IHAM, loans January repaid managed me funded. $X.X And generating of on through $XXX $XXX brief or XXXX, of to realized made investment $XX were which

million this stood worth a similar pipeline our of the forward the year robust the combination start pulled early Xth, roughly some pipeline respectively, that represents to backlog As and XXXX. year $XXX to slower reflects February of typical million a at February It's level which end out $XXX and and pointing demand.

Note a are for sell forward, will Looking the the our continued healthy year. optimistic stronger to still remarks. With throughout call conditions documentations, not the we remain for I some and amounts over closing. now sidelines post capital that supportive a closing subject contains firming activity of or backdrop that and investments sponsor close economic the Kipp to these provide may backlog may that, that on back we of approvals portion investments and turn may deal

Kipp DeVeer

Michael. Thanks,

company to a appreciation We and years the We due to company's successfully in is XXXX by the deeply our a a balance difficult end in world. shown during of with realized through our in approach, best experienced in as investment over we team value sheet a quarter consistent the want the history. comments cumulative very my cumulative high our this our it losses performance. broad end to closed same growth This the conservative BDC XX all the reach, year. that's last. note over company COVID-XX we've from our difficult shareholders. I asset of of hope come near expect move what realized have have differentiated gratitude strong deep during the I this health continue is we together unique around environment, space, our the difficult effort the be and relatively of on was remain market and to will the sending disciplined and performance excess time believe year members investment Despite value time not this company who team period seen the at We net and deliver first people to for such company gains the type crisis don't

our the presence proved volatile strong for also and and case exceeding while as be XXXX clients XXXX. the to year. navigate constructive investors, maintaining dividends, deliver was throughout on our Ares focused disruptive to and markets can year a earnings borrowers We again which certainly Capital that did with continue performance Fiscal end we once

are supporting this we the from now yet As emerging in trends Capital's position Ares seeing crisis, again market. health the economy are is these that growing slowly evidence global

Looking brought, and that Capital's solutions. you. Despite aligns prepared XXXX benefit companies challenges believe many the happy we the and Ares of that middle for the and forward, from beyond. seeking capital we're we with XXXX private company you performance and leadership the open questions. remarks, to lending line year for expansion growth position concludes of That direct the the pleased more the trend market continued positioned delivered and well Thank this our we'd for we've to feel be secular

Operator

first [Operator question from John Instructions] comes Hecht Jefferies. The with

JohnHecht

strange on year. a Congratulations navigating

I to that new the his income. deals, there remarks. of about of question, But metric is ability high Is talked the environment margins in had deals a and demand activity? respect some capital fees or a anything just think and your fee you with or event, simply Mike markets on elevated activity First fee to fee changing amount good of

KippDeVeer

origination driven, quarter. really by it's a mean, active I obviously, mostly

in activity we were quarter than result or with towards 'XX. divide as you able a line but take better at percentage a we on up of significant to XXXX, by commitments, an it's deals the in what as capital commitment if pretty on it largely some of of one looked throughout them fees look that of the the bumped basis to There two expected end saw year fee maybe sort some well you amount little new larger the the annualized If achieve large deals and of in bit, where markets the it's were number. sort

JohnHecht

some decrease indication see a maybe Was that NPAs. that economy just follow-up. We to pretty a of all nonrelated or a was all related activities? related recovering in restructuring then performance of sizable some And or

KippDeVeer

both. It's

in the quarter, So we that off came transactions two did that had we nonaccrual. restructure

Group basically were well total two Resource Vista as as that five Production companies So were of the restructurings. that removed were

combination So both, it's of John. a

Operator

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

FinianO'Shea

on Just question John's the follow-up a origination on level. there

quarter and was picked leverage agree. Leverage presumably solid and that end. your it think up. sell-downs base Varagon were you of There profile, is in some I if pretty terms capital meaningful, pretty at

really it's starting above environment? can level and or trend to fourth the the So was of for approaching big sustainably the I of about how was about you. you this for level activity? this talk But Ares know produce we a market think this should how new growing in in opportunity origination quarter

KippDeVeer

and very was little QX, you we matter, $X.X below that kind I fourth it deal into to call, QX, to from think the And was of quarters, as some quarter before, of busy third and about a back in The we were the talked we've that quarter. market high and a look just the recovery if additional our a doubt commitments, lot unusual. that that didn't even were had have brewing but with flow a unusual $X.X prior closed ranging close historical a year really No mean, of QX is over. into. have significantly expected we I being that of what been kind all as for as on QX them, been result firm of bit flow quarter carried It new track fourth things lot this somewhere really deal and pretty billion. billion

it's think of that. I So result a certainly as

I There taxes et result also concerns now the was a think is of, around under that there cetera. around administration see, election. it's potentially we new concern

into pull occur. phenomenon by of to We both transactions saw from QX done end. So there XXXX with year I trying get potentially folks also, a is think, those

the I question no committing unusual an basis, on be we'd think I to answer expect, run a So rate doubt. quarter, simply. don't mean, I $X quarter, billion it's a

FinianO'Shea

started, market were syndication -- to as increasingly onetime yourself a as a proved we’ve sort then provider. were or or it quarter, Has And you engaged COVID where find least you last of or volatility potentially in? at that that be to about something is thing, that engaged you Capstone, talked open

KippDeVeer

Yes, our entirety I quarter. of last we been what transactions commit comfort historically to typically, in we that I think with and We open all obviously underwrite as in talked think, the about have engaged we holding of But firmed the to underwriting relative market basis. end. where into sometimes really and desire pricing like on from titans going where was in up to. year markets decreases an And you hold maybe it underwrote to that, your

not So we've underwrote set see the syndications up reduce when a we take sort potentially markets by with and have that lower close into in Capstone, we detail. them. that and we're being advantages fully transactions of absolutely that just time see holds and opening where less functioning in capital And deal to to that in like to and the may done tightening to holds past, story we've that's we they markets than get maximizing names tightening as versus excess historically at of team advantage we the interesting our expected fee final in But markets income underwriting. generate

Operator

with from The Ryan question comes next KBW. Lynch

RyanLynch

talk I guys did one, about debt was on low off, offering to January, Obviously, that just a rate. structure. in First first you your want that liability historically congratulations

of would right falls the like cost, doing of line unsecured kind always you with low of in that, had one And I your you but is did so with something that recently the kind debt have revolvers. a cost very changer game say because guys

revolvers obviously, the being utilizing can that to are to market future? issue your doesn't and unsecured for that able you at assuming thinking the change Does change, to that fluctuate debt about way depending conditions, X%. the debt close in all close debt market unsecured so And on

KippDeVeer

chime think looking take. your not changes I to debt said to still I'll Penni on issuance our give we be roughly offers rate this draw obviously markets same but issue the to able us. not and some we're we've being And fixed is about debt to that let probably able unsecured don't mean, be to particularly in say, laddered we the she cost, of I facilities I'll I just thrilled more in look, the that the a maturities the the structure. thrilled than to Ryan, interest the rate the But it or thoughts. liability sensitive value cost past, over duration of we're and We're have and capital anything, has we're to and just relative worked a to we're pretty us trying maintain at will rate want the with company approach, which point, attractive, our balance percent sheet flexibility long down honest. of in liquidity two but unsecured same place the to flexible stick excess being balance look, change investment approach, start run the allows again, to period very that a I'll in. with, at debt, time. and and secured that floating market mean, well

RyanLynch

of would my then activity. follow-up obviously, a just is be, And there ton market

quarter why various You accelerated gave reasons had fourth activity.

actually was place deals, in that direct structural My accelerated from Just originations standpoint, for deals extremely have from years trends? robust more that question shifts maybe that several to Obviously, lenders? was sponsor occurred any Ares during there there pushed obviously, COVID standpoint. already backed and -- you as market structurally that benefited during an an by COVID those quarter shifted any even a think, having been anything though, was do now. those commitment trends But that

KippDeVeer

a times, capital I I of look, uncertain more tend we'll think But his to be market valuable. get on on. XXXX prepared argue Yes, could Syndicated see. during whole take year to deals was in tougher private done. folks be can mean, a portion the Market solutions to And remarks. mean this Mike, there's I volatility, volatility. that et not is something certainly where you lot cetera, of want

our couple reinforced. think Mike's you're while. for because throughout particularly once So just clients, you just increased I going resonates families pretty -- only entrepreneurs, I think equity that year. increased aren't our going which been mean, to deals I prepared with of in consistency for or Ares long private per only people, look, And capital well, to transaction the folks and deal Capital too, XXXX a preference the equity, they're approached I assets But we for market do deals backed, do and to one really do they particularly comments acceptance, the a was new borrowers all with these say, private about companies, both owns has whoever private of do a with like talking existing

value private new haul, going know So shown for certainty And for doors a be shown closed obviously consistency, to a who of didn't you so business, there We the to not that. fortunate. do more you do period any of solution time. who's is but speak, you only want their hasn't who's the partner for we're stability, who long

I our XXXX. we footed wanting the pretty while prepared the portfolio, front were, us share continue on playing existing kind do comments, should market think Mike's deals help about And again, new throughout to So to defense of to improve that, to competition. relative

Operator

with next Devin The comes question JMP Securities. from Ryan

DevinRyan

sit of pipeline I appreciate little follow to last detail to some bit year. the and kind just of up relative the we commentary. Maybe on a where

quite things curious there we to for us If few as nuance the all little today. other any within bit evolved last pricing way well back a how you Obviously, have pre over can but of maybe flavor that. or the and months? Are COVID just there's give terms tightening if a

KippDeVeer

and that I'd kicked quality And comes that more in or things mean, the we more what frankly, we quality XXXX. pipeline at now businesses historically. way. the bit them, that of called ago obviously months it. terms. less underwriting of backlog is we we've we're comment versus the the see come competitive that's to this seen summarized depths of, of leverage course, which too lot COVID his most that be a a XXXX have are in And sensitive in I were the XX of March aggressive companies. kind say as you tighter of off out regular be folks that made on that. comparing willing that in April, higher. with more prepared of It's the a why and where seen are with you of remarks, to here, out we've Obviously, kind point, and beyond more back line There's not Mike Look,

nothing have try underwriting, than companies, back. borrowers, shattering that a the obviously, of and We with through things was. this cetera, deals think this and of that, on And that look, backlog that's lenders now really negotiation quarter. But to continuing. Folks used of a though, structure taking Devin. beyond smart I is et sure reset lot. rallied in the lot for terms more to the have it leverage when closed counterparties, has spring But summer, it and we this coming into for and earth pipeline we're competitive fourth were quality

DevinRyan

remind very the Can strong side, appetite the and And unitranche seeing just then there. what originations just broadly more just were just there you and defining how of on you're unitranche us you're around kind demand?

KippDeVeer

three mean, people most long unitranche typically, party and a junior that subordinated historically unitranche look what Yes, and different one mean, time. flex, been we're taking a typically part into there's that loan, been that is it or what on our the because doing I at to where combining capital business in I for without senior and is we holding type ways. can of senior and has own hard we're mean doing account. that it will debt commit I underwriting we've deal,

a to protection, for two in a borrower meant capital to really just debt keep cetera. structure, in easier it So It allows borrowers. et in chose of what could replicate get, deal makes simple. and more life a typically raise less tranches our down But they junior senior pay it separate it's mind, even call to where for

Operator

Morgan. next JP Melissa question from comes Wedel with The Instructions] [Operator

MelissaWedel

ended sort how think touch portfolio thinking higher the Just and about leverage wanted you're post quarter quarter. about sort imply of the could you're even as end of reaching that December your on a activity from higher target tick when end, we that of leverage range, especially where you to maybe bit the some flat, little of

you that So how are basis? a managing portfolio on

KippDeVeer

Yes.

in So comfortable somewhere feel we've X I typically right X.XX the actually times. that past. in We pretty mean, the line it's communicated range running and with between

pipeline, talk expect out lay numerically, like end also and it's the don't repayments. on what for upper and future while we about looks backlog So future we it we

quarter. see of that deal ordinary. about go close. So got levels of back pipeline and and We'll the don't that for that some to backlog things And of us, the in unusual, things, backlog the flow, nothing Mike's pipeline obviously, today, how out the the probably point, through nothing we've activity the terms in on working we're get will of into

ordinary don't other it any than course. So it's on have thoughts really, I

MelissaWedel

touch wanted attractiveness a you've on And that times EBITDA sort talked the where about of larger of something referenced you few to companies.

your extending sort think, as lengthened. interesting some has of deck size the commitment the average term steps in your of commitment, of the put I slide average and well You about

way. that to any that function prepayment deals? quality the you want or write companies sure Is How about into broader fees a of make just sort that macro or right those thinking impact outlook? the that of the So we're of terms does

KippDeVeer

I'm The feel So sure free commitment I term not small up company, any to large loans don't a we're the think frankly, different. we're company, writing, the of longer -- -- picked term. extending aren't a that you where

that think the better folks in sort Typically, lending to most that. of million I all the terms this the $XX a little set, better million the or to to to million when you're have been and X to can lending folks middle would with really lower the through capital it, of what a subscale to other it what in think in and credit pools see argue deals any over that of lot they really when you compete. that's into where years, than direct it of pore XX that the And raised bit of trend market is years. And the interesting. which actually companies capital you're plus $XX companies, you doing be companies, able you're them and last pricing and team extract address competitive $XX amount is smaller you'll private I of been I EBITDA market, have larger on speaks forces analyze seeing and

think larger fact that, again, deals that flexibility, as to capital, many market it scale more company a than we million or lower larger or of with we've same have see we're And market a pricing smaller just be not seen result actually see both approach the these to some of Occasionally, away the we've $XXX that folks walk deals some company can very real of in the and competitive because companies EBITDA achieve we I even in terms. middle really that from million doing. solution. in in we'll of $XXX these the So lower terms had

frankly, us in we're So seeing cetera. that better those reach, inefficiency we et sophisticated, tend companies, geographic more much that more scale, just this companies larger larger the management all businesses. laid about of more occur to these of because larger some doesn't surprise out The stats be performance teams,

a So I'm little not better. surprised that they're bit performing

dynamics two. probably we've it's like larger those all done last impacting So we year transactions company the together really these the opportunity that set that in over fact or

Operator

The question Dodd James. next Robert comes Raymond from with

RobertDodd

I the has said in that has of kind leverage. gone If than a based higher unit that's one through per on some as pipeline those going has we the where all XX% talked are leverage say people bit I contracted. leverage? up, and terms more the pricing mean, of spread about quality higher mean, fourth of obviously I that year your are aggressive terms to I comments, it's more held that would of today’s has you Kipp, mean, about Devin, higher on ago. in or with I be now, of leverage can, think to comments willing businesses in, on a quarter was evaporated you

KippDeVeer

some in held mean, its for of pricing. Thanks Robert. to you the in. think question, the follow markets of tends market terms Yes, I the as I it's know, middle broadly syndicated

look for the of reasons, syndicated market, what a middle always will the terms obviously, of BSL spreads is wide market. handful loan In have like, at broadly

as in, given so I in all markets we've it that we probably And a bit. think come back. come don't

I M&A up started the And bunch. for it's what and after is busy help. picked think where does especially good activity XXXX QX we'll be a quarter like? fourth that slow But and levels, such a a is is historically are the what slow news quarter, on reliant look doesn't

backlog pipeline Our healthy. looks and

think pretty actually we'll I premium So good think XXXX the hang prospect on. for that see company. is investing I for And

RobertDodd

this is If you check. big, can one hypothetical. I to competition spread, you the does -- continue tools one, you're go a have away drive that of a of obviously, kind can with I'll If ask write big you

capital skim markets syndication maybe You can and potentially obviously activity take sell fees. some down and

total we the gets the competitive, on economic what if market So even goes should that coupon more expect the might if sell because scheming maybe see south downs the synergy keeping more we of markets vectors and the other same, can economics initially skim team ability to having other a your the then capital having by as keep sell it to write down big check and and well? some you

KippDeVeer

than answer frankly, is But Yes, we fourth things I is unusual to quarter. in I in, your own don't that positioned will to my XXXX. don't use tool, we're more anything To the think I benefited today think that. see for you activity pick I the levels as business any it get competition to heated, come and extent question. saw mean, up. it can us going is new view changing pitching And do obviously,

Operator

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

Kipp DeVeer

Well, hope But the we'll person everyone getting on I these I appreciate you. next and Thanks. staying you I in look Thank you're of to on earnings everybody days. actually call. appreciate well the one call. forward catch time, and otherwise, the seeing

Operator

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

callers, p.m. hour and to numbers domestic for to XX, those at the (XXX) end dialing domestic by of X of one you international February part callers approximately XXX-XXXX (XXX) will XXX-XXXX. of If be available an XXX-XXXX. XXXX, archived any call after replay call by Again, X:XX dialing the (XXX) international to the X phone missed and callers callers (XXX) XXX-XXXX today's call, through are

link that archived number For for also Ares is the on the please XXXXXXXX. be section Thank reference the conference Capital's An XXXXXXXX. all presentation. attending a you replay today's on Again, of Investor homepage Web site. Resources of located conference will available webcast replays, number

now disconnect. You may

John Stilmar	Managing Director of Investor Relations
Kipp DeVeer	Chief Executive Officer
Michael Smith	Co-President
Mitch Goldstein	Co-President
Penni Roll	Chief Financial Officer
John Hecht	Jefferies
Finian O'Shea	Wells Fargo
Ryan Lynch	KBW
Devin Ryan	JMP Securities
Melissa Wedel	JP Morgan
Robert Dodd	Raymond James

Ares Capital (ARCC) 10 Feb 212020 Q4 Earnings call transcript