ARCC - Earnings call transcript Q2 2021 | Ares Capital Corporation

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Operator

Good afternoon. Welcome to Ares Capital Corporation’s Second Quarter Ended June 30,2021 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded on Wednesday, July 28, 2021. I will now turn the call over to Mr. John Stilmar, Managing Director of Ares Investor Relations.

John Stilmar

afternoon. good and you Thank

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

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

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

Kipp DeVeer

the and quarter with several Thanks, team. Goldstein and our here for and Hello, I results Financial John. Smith; per reported Chief provide was our and $X.XX call current start up company’s I’m everyone, core the in highlighting the of highest positioning. some I our earnings thank thoughts today. history. on per This year market members share, Co-Presidents, of and will core management second quarter ago. by the $X.XX Mitch want share strong you per last Penni Michael Officer, we $X.XX results second the and earnings a from joining company’s Roll; the This quarter other share second morning, to

drove which leading to the $X.X led record new and for robust fee of position commitments market in quarter, billion Our interest income. turn

increased $X.XX valuations and from last witnessed we And portfolio a and higher. ago. conditions good quarter year $X.XX realized Very market earnings gains. of investment performance our GAAP and second favorable share unrealized drove both quarter Our per $X.XX company

$XX.XX positive to these of As a record asset share. new result per of factors, net value grew a our

the dividend been per quarterly share. increased generating consistently, higher business, outlook our from our to the Given level we’ve for $X.XX $X.XX per share we and positive of earnings

and influencing conditions Let of overview current provide it’s investment me how our activity. high-level now market a

market. in driving financing are quarter or the higher Announced company XX% seeking companies capital provide driven in a know is the the activity on market the Greater is second is direct pandemic, adding the largest complement levels decade. in the have our our approach that activity are existing strong strong level verticals M&A. of our US closing the of And on global long-term the to new the than As market we Ares in commitments expanding the of deal focusing we corporate this were enhancing sound deliver their witnessed, models. we delivered paying is equity a new and remains corporate for the today, solutions. and as one BDC substantial by more can flexibility our M&A transaction more approach robust of rewards business track Today, in our highest sponsored and economy and And private recovery. in by recovery the all midst believe lending of of over as is activity companies we our you largest platforms can certainty we further partnership for to already presence. be capital, managed the with witnessing throughout We increasingly the seems or

widening to the our continue opportunity of markets The as our other the is scale. supporting market private of trend growth

seeing seek commit with lenders scale, can and those meaningful sizes like they We’re ARCC increasingly larger particularly transactions. companies hold direct to

are provide is great bank value. and lead We syndicate solution or as these to that many certainty XXXX showed compared capital provider believe like that of valuing us the a consistent, financing clothes speed, capitalized having share, we continue pandemic, a larger benefits, borrowers business well the of alternative our gain as took that of While upper partner open we competitors providers. to the an a private on market has throughout end to This markets during us notice that and not very active participants traditional as period. were can the to market grow enabled for were this

As both of value ends market. in the source our a investments relative upper continuing and attractive result, middle to we’re

of the larger in our average originations three the XX%, years, the average companies million. our book, to doubled weighted over $XXX portfolio higher commit amounts our we past the overall average As was EBIDTA prior for And quarter average. larger to an two-year EBIDTA weighted than of

of capital our In and of opportunities come we XX% for the quarter, portfolio three gains existing is XX deployment. of further that made record value middle where the have believe scale size we distributed our terms advantages by for our with dollar than differentiated companies our We sourcing core the driven in quarter on they million. delivering of with majority of loans greater most sponsors of market XX% activities in provide, years. us By that larger and for for quarters spectrum new companies Capital’s the focused portfolio, accounted allows the borrower, significant as as the companies our middle form positions sponsors. over sponsor solutions incumbency origination the smaller in annual historical higher believe Ares positions EBITDA companies not only well portfolio XX% we relationships the of this a are are share into our allows broad of with of but our number in create increasing we maintain companies of with Remaining market made. incumbency. is impact to We from of commitments with While relationships market, incumbency companies for grow. companies us, below the core investing within and years repeat the active second opportunities borrowers these cultivating number accounted also that backed to past during continue by $XXX of This of portfolio future a interest the activity have commitments these go investments

increase we XX% As both past the ultimately opportunities, investment amount investment to quarter, activity be transaction more these and allows opportunities. saw increase average increase breadth us in of which advantages estimated dollar continue, years. when selective. size In the us number growing of second pipeline were a a a and of of aggregate set deal allows to quantity able the our compared XX% the highly for our the our we in see five larger and quarterly of to opportunities, The to diverse the

we positioned finance believe only approximately attractively Ultimately, we and new of portfolio. credit a careful the in to We X% highly deals and diversified advantages, competitive selection results our continue review.

more XX our non-accruals growth reduced months, will with over names to portfolio list cost, Michael improvements. lower EBITDA XX% perform at detail, continued in the discuss As valuation of last weighted and well average later watch continues

on call other Penni some more financing me activities. over now and details results quarter our turn the on Let to second updates provide to

Penelope Roll

Good Kipp. everyone. afternoon, Thanks,

by and portfolio dividend our originations Our share the quarter XXXX driven activities, second or new of of the markets for income level strong net capital record past well core a $X.XX interest earnings capital by as per in our in quarter. growth from fees recurring as service structuring higher driven

as in share resulting the continued of June XXXX. per primarily net unrealized $X.XX our second stockholder’s higher the grew $X.XX. company of net realized per on a $XX.XX, asset reflect equity a end an earnings XX, XXXX was to share quarter certain credit gains Our $X.XX, spreads ago, from and $X.X value our as relative At quarter the on investments XXXX, gains second and The investments, well net valuations of book, of XX% X% the of billion, quarter gains of and for tightening improvement record of unrealized of since quarter. in performance our net GAAP of loan increase equity previous nearly to including

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

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

and of Additionally, floor above of average debt excluding three-months quarter XX% on X%, capitalization rate raising focused the we Shifting investments of additional our rates. extending approximately liquidity, debt, the SDLP had current cost maturities reducing floating our debt. well an is which one- LIBOR and and to our active certificates remaining today’s investment in an had LIBOR

million conditions a record took for low-rate environment issuance. We we issuer $XXX of in market. low unsecured BDC notes investment coupon quarter, in a a XXXX, seven-year us the the eight During grade and and which issued advantage for maturing was friendly continued seven of any June two or historically

nearly notes opportunity premium billion, X% our down $X.X amounts. at $XXX of XXXX. plus borrowing average just with and rate fully along by the resulted weighted maturity existing July and which effective lastly, pushing secured quarter XXXX these of of billion, liquidity $X.X a half to weighted had now the funded funding to plus and $XX issuances our average yield remaining of facility $XXX to of Besides debt-to-equity incremental its a up upsize billion of basis the from unsecured we maturity basis a $XXX the our XXX issuing facilities activities, by million over ratio, and points. LIBOR also have $XXX to a four our of times And times points, an revolving on revolving BMP quarter. committed Considering LIBOR also XXX facility quarter, net the years. We the total in credit million, notes ended cash available nearly maturity with a to million at the during to facility X.XX We additional reopen end upsize out first X.XX repriced of million available funding $X.X SMBC with an of million May we

X.X leverage advantages we ratio our to range position times. sheet target depending environments. competitive all will Overall, balance strong activity remains actively one market continue of levels, believe to time us to our continue financial our operate we to in within vary enables to our work While on invest most stated and of and will over leverage X.XX

Before dividend walk over XX of call XXXX. I XX to of quarter $X.XX the for per stockholders share turn increased will to the September through on record payable is now the third to our activities investment on September Michael conclude I XXXX quarter.

Michael Smith

quarter I’m few and more also going portfolio backlog pipeline. quarter and and provide update activity investment to second for of minutes the our Penny. on a spend our and post detail on an providing and performance XXXX Thanks, activity

companies to quarter, diverse second distinct team billion across a originated industries. of set commitments investment new high-quality During a the XX of our record $X.X

expand to a earlier, broader mentioned our companies. in and provider us to has Kipp array continued opportunity As addressable solutions platform be market our of a meaningful growth the allowed

continue most focus which credits, the We well to transactions to positions the as and finance on companies. what believe are quality attractive highest we

which X%. asset portfolio, size diversified We the around classes. sponsor hold our companies fair find highly a very investments strategic construct portfolio an to distinct across continue of compelling has at value remains average the The enabled our market we returns. to have market While risk adjusted scale is XXX position Shifting strong and strong. advantages with well the only currently believe and portfolio diversified and us investable industries point to portfolio, and find

benefiting believe to companies $XX noting million. to it’s believe the largest and and It second portfolio industries, which durables, of we average is enterprise performance with that software as of rate positioned is sectors of provide greater companies of weighted platform professional furthering and we average strong, enhancing from weighted quarter. approach the half EBIDTA had Additionally, advantages attractive performance. companies of upmarket than software to for is companies services, of million the our the approximately XX% our competitive focus. from average for the be rates four portfolio three healthcare of EBIDTA loan economy most and of with and the relates of Portfolio services, with overweighting had value more EBIDTA growth second that in a end those many were underscores value fair In also the growth XX% the aggregate. large rates the services, represents below financing, worth portfolio This value what times weighted at we the the the our inclusive our quarter, the are EBIDTA of it our growth portfolio commercial in than attractively continues industries than $XXX higher about growth

at weighted remained have The at number quarter nearing two cost pandemic last the value XX% one from addition. portfolio the levels effectively by compared on last average one at from with levels. nonaccrual number declined status Furthermore, our pre X.X% X.X% to unchanged X.X. is The of fair that a year removal and companies been ago. either companies quarter, as experienced remains flat, of and rate nonaccrual one graded or While grade declined

funded. value restructurings update alongside I with of help funds $XXX The investments. pipeline. and of From on values. improved appreciation July valuation both a structured on X creation quarter preferred and along BDC positions equity modest discussion of with highlights lending supported investment performance the many to our million by driven in through A which this net of quarter’s July the all attractively XX, XXXX, we in investment and versus of with portfolio in commitments, majority stable key pipeline made in of market were new equity wanted million long which portfolio NAV, investment million, in positions were million finish the by drive commitments our and quarter’s concluding We a on backlog, expertise portfolio our quickly other Before for increase realized this our equity certain portfolio. $XX our for will approximately $XXX exit. taking repaid net I was differentiator strong was exited the investment generating equity activity source brief or co and gains totaling post appreciation appreciation shareholders of construction. significant and our We a direct on $XXX debt of portfolio company terms believe of comment investment and

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

investments documentations investments call contains that I may approvals and back are for not backlog close of we sell to a to or closing now and will Our some remarks. Kipp may these post-closing. the turn portion over subject

Kipp DeVeer

Michael. levels. is performing the Thanks all a company In well lot, our view, on

completely enjoying growth our competitive returns, of of new have a investments in we believe the current and improving while performance, the are in for earnings and asset Capital increase have credit our and value. generating we We’re great that quarterly environment attractive and a our not net for positive the making Ares with power the strength That challenges have adjusted for is backdrop And view COVIDXX compelling in experiencing earnings, around optimism we The shareholders. risk over, And XXXX. remarks. a provides brought robust our the acknowledge the position that market. reflection our dividend prepared pandemic concludes

We’re the line open happy questions, operator. to for

Operator

with KBW. come ahead. will Ryan question from go [Operator first Instructions] today Lynch Our Please

Ryan Lynch

for Thanks taking afternoon. questions. good Hey, my

one dividend. First the had regarding was I

had guys increase. the $X.XX have You dividend

But which pretty good. is as income. and two going you shows earnings forward, I have announced look you to ended obviously guys some large XXXX XXXX, the with quarter, kind look project forward. was really You this see I then as spill power at large result guys the over you guy’s nice very gains, of in guys going And which

of thought some on down dividends paying of of core lot philosophy or or rolling a know, maybe is point, were BDCs difference in just that XXXX Does a supplemental to XXXX road. process meaningful are special paying over helpful. out paying accounting, large position or your a a and I be that those special amount Now unrealized. different what at know to taken thoughts ones late out, And have approaches around there’s into pay may but terms like between ones GAAP it or different in time out and And kind looks tax smaller the supplemental potentially potentially need because guys would out, to also correct? you to sound be that, supplemental dividends doing of you

Kipp DeVeer

Ryan, Kipp. Hey, afternoon. It’s good

I and back broadly thinking and act some would? going give she’s you If reasonably directly? just and better come because question kick describing and this that some about the was the just points, Ryan’s you thoughts first to specials. am then complicated to answer there’s on I the you than to So at Penny, frankly, around Penny, technical stuff, do I’ll dividend perhaps more But accounting for increase for want

Penelope Roll

sure. Yes,

lot do year a with we can Rick, $X.XX of could we spill we over paying. our of And ended the $X.XX. year enough if that kind run I and But happening, level, currently dividend have have things last that growing roughly over as the you $X.XX. think last exceed rate between doesn’t indicate on just on I we’re Ryan, So it with your earnings technical would current be year. a a run as as spill and still long the comment point, which $X agree room over this we additional payout that we spilled the the we rate

So I flexibility. we think have some

from you’ll have they So position I out, to we make year to do have that of think where to a requirements. a view, the this something like are in others need technical required stated see met us pay don’t they sure point

said, to you position won’t be be some to have guess, as there. So pay Still a cushion in we I something. required

it to look for more how you So it about Kipp, maybe turn I’ll back that thinking philosophically. with we at

Kipp DeVeer

That’s Yes. Thanks, great. Penny.

obviously last on quarterly a likely Ryan, lot are future. to as acknowledge the quarter, So has obviously retain to exceeding or this taken at regular is many board the of Imagine income. obviously this basis. front earnings out pretty the discussion point. earning continue dividend spill a the your we’re probably first but was tact a you on And of best significant quarters you that that meeting it’s that’s here. and insisted core hopeful at at that philosophy specials around reasonable, the trajectory we’ve on time out you amongst us that, it’s on think meeting for know, show the was over clean-up know, it’s, typically increase looking optimism dividend I done the and and dividend some and the end, been basis. raising. consistently tax I’ll comment increase. about part your management this at trying exactly most the for is right, team for with has And And always our the the core the to Personally, which is why however the a increase over management team, know, dividend dividend for our We’ve The laid mine, this you a

we look a have today. real we at end. determination at do don’t But that have year So, a determination to take

interested period of pay reward for keep time that In in pay continue specials to, while, reward. rather over terms choose company also shareholders provide just the onetime to with of have obviously, us a been of to philosophy, to shareholders to a you we you know, know, tended them a if sort longer but we’ve than out

think today. certainly much dividend know, and going future. great out we’re to news the earning, on materially work something of a I continue both sort that it’s core through. the to So as Not on and for basis, you you distributable we’re a the for But realized it’s income is, something know,

Ryan Lynch

I and philosophical yes, technical the commentary I And the Kipp, Okay. dividend. commentary appreciate on appreciate the

you Penny. The other had up was my it, question, question I follow probably directed

know, having You whole your years, really the the that debt and also years, really you really has really, several It structure several boost last come to entire feels like several invest with of last offerings. And liability own, quarters, in to have a continued really structure. grade BDC last quarters. market guys over the investment class probably is last into to very you’ve even the and attractive its several over unsecured coming the specifically lot

unfunded at just was I’m credit of it that? So it market, hear what some thoughts bit I you curious, thought make how to you investment behind flexibility, there your seems like, would it of downside recently. guy’s maybe because the of guys kind those guy’s that increase space for is you and it philosophy? would your and kind though, commitments facilities the ability it, seem those wanted the BDC because of a Because I cost of know, a given your given your that dropsy but of to on tap point, just some seems was just And to like little market sense the grade strength upsize and make to paid it may sense. reduce those process some saw access wondering, got

Penelope Roll

we we’re if size back where billion sheet, of you part balance prospects. year is if to are keeping a growing growth $XX maybe at of mean, our we perspective the and ago, little that’s go today, you question. billion Yes, look great I mean, a with I a because just about were of $XX

opportunities we’ve year this had, amount space. as investing we’ve particularly in You for you just of seen, the our know, know,

we is funding have need want think you to we flexible do I having of want we immediate we guess, proceeds. And additional financing. deals, because have, the in context repaying revolvers an if So capital, capital deals, raise important available of use the flexibility of

cash. So we’re in not sitting

the us investing balance sheet revolver our the that activities. have and flexibility So movement that of around allows money of to around in out

on you then, that LIBOR question context pricing? does could know, average you with the XXX, today the my compete basis, the our where the revolving at if weighted which is end aggregate look where, is committed but look I grade where are of issue a mentioned at is still So arguably low we the on I funding if market. of LIBOR you comments invest rate pretty plus in compelling the think in today, you investment capital, in

environment So, it’s opportunity both important issue debt of to funding the more time. as cost to all is of we for been markets. our we’ve advantage to happy seen been of us we’ve now, we’ve lower reason historically are space think think over low-rate taken that know right the in advantage the But those why take have we I term have that We that slow experiencing.

have cost to sheet. for think balance And reality want of it our with ladder them in unfunded that a healthy financial lot revolvers I a flexibility we the sheet we doesn’t build, maturities it’s balance commitment. carry but that to the is, the growing

at look way between, price XX.XX the that that basis we’ve we enjoy to built We’re probably around you grown to paying of that the a points low kind as know, flexibility the I unfunded have structure. capital somewhere in so

Ryan Lynch

I time and understand. appreciate nice quarter guys. I today, Okay, really the

Operator

Wells Our next question will from O’Shea Finian go Please Fargo. with come ahead.

Finian O’Shea

Can and of good the up aggressive market yourself importantly, morning, you origination? with done And are lending. from it the into to that Ares that’s now coming respond direct Kipp, ramping then larger, perhaps in on push platform? Hi, players space. on about lot the fundraising capital you more larger A is about the raising both talk more does what side of that

Kipp DeVeer

it, so press you markets, some capital a its negative it’s in there of I’m lot outside competitive the position so, across sure public look it, at, a lot a differently our the know, the terms I take make capabilities great read just of raising, know, it’s really of amount amount pressure you some out of not from away longest and piece know, And going know, have we or second of how US tremendous modestly, been but as the concerned, we don’t the doing folks of know, know, at industries, you impact into, and BDC had the know, a see be have, know, targeting I’ll terms market to of that’s most across forward. walk anything a historically, platform the space, history, philosophy. raising whether capital, in got on that a channel, built of you BDC have Look, to best there, terms that, elsewhere, terms set know, in have mean, know, in we the just big that, the like making changes for BDC, that I behind times quarter the there’s public spreads so of much one the just track play think company’s that and where you you coming, we particular, player we we’ve raised to always you flow deals a still we’re created, dry of that originations deal bit look in at of flow fair that not we’ll you Because you powder in and, I think, competitive the there’s, capital record who I in any and the But pressure it’s know, ability relationships been of you you know, on we the know, aren’t all that obviously I stuff. while, say concurrently you and but kind a concern, sponsored, on all you pressure for little not, deal margin, the believe at us, real the us. know, we’ve you have having been fits you significant which from of

So, to and for build platform. just continuing diversify it’s that really us, origination

had can quarter we and and you push know, the maybe know, earnings you you you’re to, company’s able you last quarter, obviously, good increase are and from, pressures growing, is So, were quarters this know, some quarter, this know, drive originations. dividend a two really referring despite as great. a And potential to strong competitor, of the I which think we’ve growing, we that well, origination

of concern it’s a at point. So level high not this acknowledge. we’ll But

Mitchell Goldstein

I in a over The add only over the and developed given of the gross our this business. comes the is, half you quarter. from Kipp, decade one mentioned of we’ve last XX% of quarter, to years think is thing is, was I of case we’ve any And would sort originations and that Mitch. Hey book it’s XX%-plus know, advantages our this the existing

And dynamics. so competitive least our that tends to be

sort when versus market. And tend as originations of get a an be of of selective quantum to so factors comes existing Kipp more increased competitive from the you that business, selective book when can said, more

Kipp DeVeer

great Yes. Thanks, a Mitch. That’s point.

Finian O’Shea

everyone. thanks, That’s helpful. Yes,

would of Ivy Hill strategy anything there? that the pretty couple Just you terms there? is had you’ve roll happening but similar, consistent your past to side, besides that to see your is vehicles follow Would up underneath on how off guess, asset a in Ivy like you plans what’s growth or few in I say there quarters. describe Hill, in it Your with looks

Kipp DeVeer

but since this can inception. an and say is you when to Mitch one that it to and chime over get Ivy of we’ve, has over been too, again, you company grow asked Hill know, continued its Ivy Hill you and successful Yes, I know, close unbelievably very we mean, know, about I ours, portfolio in

So, ramps of you they time roll time, you with to, tend know, vehicles. see you’ll vehicles know, off, from some to come but new

So continue some we I expect stable excited this our continued was goal growth, is In before I in invested this things. quarter they’re changes. the be did ramp because great continued there returns. new is either investing that company, of them and the and money that we is wouldn’t to quarter obviously, investment generating great you in quarter there generating last looking think dividend mean, returns. was any assets for company, we from it as that quarter, to obviously the they’re about to year, know last the And we’ve sell increased,

Finian O’Shea

you. Thank Great.

Operator

question from go next come John Our with Hecht ahead. Please will Jefferies.

John Hecht

another congratulations on quarter. And morning, thanks guys. Good for good

basic question also your a just like this it is fees kind pipeline support, capital comments, environments about on can know, But quite and this seems end market strong. the structuring of the modeling on Mike’s that you deal And comments know based vary pretty activity. kind I question. First depending seems bit, of

item will So call is his that think least or elevated relative line quarter it it for averages be two? that to at recent a reasonable

Kipp DeVeer

all. not It’s way, not for It’s question. Hey, out the thanks John, right. by of line, that all the

coming new fees of the originations. linked majority the mean, fees the were the that new fees, I So in obviously to are

new right commitments, did with past quarter around X% of a the some average you experience This hold, deal. look, of is historically. on along participation look maybe I the like in where a a which if larger it’s back there our mean, transactions couple about is But larger

So numbers mostly as numbers driven the think so high, while was the about fact the you the I know, high, think that significant. originations by you modeling, number

John Hecht

And set, the size question, yield high banks helpful. the several that’s offering second a kind you you average were increasing, that so little last builder talking kept forth. Okay, guys have a been of about the been have might years, higher-level given and bit of then the the opportunity

to So capture maybe some market you share kind incremental of were there. able

opportunity And flow change now. constructive deal doing wondering your pretty that at can more kind that how is less aggressively the seem I’m of and or in or would Either banks of the You and the over changed markets, larger about is past You set the anything? anything kind opportunity comments you set after? know, are year so? a sizes go evolved there guys or thesis that maybe loan the other half

Kipp DeVeer

that get we’ve we’re pools that mean, knew thing, quality that’s capacity Yes. share, partners, these we’re during And they’re manage, – market of we’re syndicated some share unbelievably them, the holds, the space manage, deals, the say think the competition, which expense was of they’re our know, have, club at just the doing on the and be banks deals you I that from looking assets, are for would substantial more with because obviously, probably materially and and ones leading is you upper behavior, where valuable I market wouldn’t to our structure or competitors mark. them for can borrowers transactions, are same market in for I middle small the it market of that, doing in the seeing I the too. think larger taken are at the end thing. you have and market, finding their ones in of valuable, And know, certainly, what, competitors COVID coming obviously with deals is, capital well, larger has COVID. have I happened the of got more less of know, a COVID the I leading. finding I we’re of the was perhaps the and right, of deal changed think, really upper the upper bringing that we recovery done gaining holds that we is end sort guess and And smaller see middle frequent, we And end the the seem And players larger you few gaining solutions we the one right, period that think more point what valuable. lead can at and smaller the think that or players more, share slow them historically a we I

strong you the preferred generally. attracting originations strong where equity this becoming they’re and think periods good another increasingly companies private and and for with direct partners know, large track I teams, investor records for lenders are So capital, one,

John Hecht

great. the guys. Thanks, Appreciate color. Okay,

Operator

from Devin come Securities. will question Next Ryan go with ahead. JMP Please

Devin Ryan

obviously, past of Great. think investment I pretty Currently, the I few the guess just touch want here. the the portfolio. Great over question, XX% meaningfully everyone. mix Good grown to unitranche. first that’s years. afternoon, to on And momentum see

be And so about drill it guys unitranche, certain And level you down borrowers, feels thinking like that’s that’s the terms that and been how simply, or an I just, broader guess, mix or where attractive opportunity, comfortable growth, are a you’re a longer you’re but of function of maybe more been larger more whether you’d what market with. targeting how much love in term how the around rewards of been much risk there’s has attractive seeing just is just it maybe in with recently. to

Kipp DeVeer

Thanks, a Devin. Yes, good that’s question.

of of I it’s off that two know, be comments depending I large three it’s it’s easy to large or think an is, John’s I kind it to which is. you gave done use And unitranche incredibly right the the can it people think seen in or and with product, an and increase plays question, attractive borrowers, uptake. that definitely some one on for how

think COVID to the own I a think large or earlier, on of I larger that lenders ability larger lasting comments there’s because do the to I either partially have direct trend here tranches and made together. but unit their where

You know, that don’t I a of really mix, the about to much. honest, percentage as talked be think we’ve

some used them at mean, I risk generally the the reward assets as in the being we’ve of team, a market. and As frankly, company best

But it’s something your I taken than substantial source to new to to as increasingly of question John’s it’s no share seeing that, So other and going thoughts that kind of but question. originations. we’re to be think big continue market happy

Devin Ryan

Yes.

you dollars and Okay. That’s think Kipp. in $XX then $XX question the incremental the past of same his level commitments, quarter, capital structure gross billion and fees. the million capital touched I quarter in But $X.X last then year, as billion to million and of this structure capital had if of still And $X.X commitments of of billion I well. fee. about on follow And John helpful, up. a structuring fourth guess, fees thinking you

like, how think about or relationship trying just see there but that forward, fee modeling a we compression figure perspective, activity. that about extent, occurring just more broadly, all, if strong is at should of there, out to a think to we trying So kind you’re moving from

Kipp DeVeer

– a the percentage dollars. more is couple right, nice way i.e. end we’re was transactions simply this in capital of kind fourth relative mean, we’re quarter not and answer mean are I where terms last the finding some overall pure commitment of so, a couple markets-oriented we’re less i.e., in hold a the final holding acting structuring because name. the markets this engaged that quick in capital origination I transactions bit, know, higher, not invest fees, to right? of But and to a in in didn’t the engaged we’re of up quarter, with were were true pretty mix, Yes. as a size, higher you That there were in. little The in year, lesser, the companies we originations, is

it’s pretty So I if guys depending place to going originations, of anchor when always you to look your just I mean, generally, are I think on mix. you around numbers, move that X% modeling, historically that think a is but good on

of it’s versus mix. If just about year QX a last this different QX you quarter, slightly versus think

Devin Ryan

it. Got

Okay, it leave that there. very makes you much. I’ll sense. Thank

Operator

go Please will from with question Terry ahead. Ma Next Barclays. come

Terry Ma

less strategy that Hey, more big it’s year? good same So been is vehicle the afternoon. about there last Or as forward? The or has strategy there? to that Can you about this get? for maybe and going longer-term just SDLP going a the talk size is the over as

Kipp DeVeer

No, I question. think for thanks we’re, Terry, you the know,

how we’re not very to joint it. obviously to take I grow. continuing wanting but borrower obviously joint just with that I a requires do other some our really things tell involved from with wouldn’t open Capital, in venture. we obviously which to away Remember, a a counterparties think SDLP, companies Ares are something venture deal and do anything to is of can’t doing kind with that

we other We the partners there of confidence still times, is as more quarter like we at uptake still know, and as investment lot a has than in a have but are Sometimes in it it program. an valuable. you

SDLP. outlook So around no change our or thoughts in

Terry Ma

it SDLP? is the to there, SSLP is anything different I’m I is a being in there the compared program, sorry? Or guess, done legacy the But Or way?

Kipp DeVeer

happening anything legacy with no. there Is SSLP,

Terry Ma

SDLP the about before? done differently that’s anything being there legacy than Is program the

Kipp DeVeer

I there in few differences, that. are Yes, obviously mean, a nuanced

right. We have more than partner, one capital

of joint different involved So couple there venture. in are folks that a

we’ve their heated And who you negotiation you I one, when and desire hoped. not a would we’ve we might of slightly how there’s SSLP structured exactly know, down have remember with AIG have it insurance to different the vehicle be being be. company if maybe know, know, yes, didn’t mechanics as differently, Verizon way from another public. that hoped You back back our as GE it’s And, wasn’t pleasant we go probably wind might then don’t

and with end some those up to of So made sure past learnings we it the chose place that in even the extent wind sure, something But down. not place. table But discussion that that’s the some that’s you put of with yes, certainly, program that I taken we some there’s we did that we’ve today from nuances way GE structured have we don’t mean, ever in we’ve today. what think those on learnings sort frankly, of we’ve the issues I a a know, to any from and into what versus

Terry Ma

Thank helpful. That’s you.

Operator

Morgan. Please ahead. go Next question will Wedel from JP with come Melissa

Melissa Wedel

afternoon. Good

towards larger about of the the a level function increasingly lower as also, a that to? case, if running then we that that’s ticking quarter. touched your that capital part sort think As range? of earlier. should yield allocating being we sort of of that attributing Thanks. the about higher see leverage I’m any each And on comfort of we should to the of being that target also you’re end companies the portfolio But related increased you sort bit environment I think competitive to little think

Kipp DeVeer

say, resetting, Yes, pretty over of I a know, environment mean, it I luckily, now think, behind last, it’s more But things, you and just looking sure. you for know, yes, competitive ago, quarters the that’s mean, the those thankfully, certainly of has four at it all LIBOR of let’s course is it’s been I some but us. backwards than least much

I larger So of obviously companies think it’s partially that, and lower a financing. cost command can

conclusions, are two two agree them. with I So things best I the think combination those the of

Melissa Wedel

is And Okay. of going you of more we that? Should about just regularly program sort that guys expecting have, then, to sort something forward? that thinking the tap that expect be you’d aftermarket

Kipp DeVeer

a least creative of premium I makes mean, happy out think issue to nice the tool really finally prices of COVID book that to at a for trading us. and I equity, we stock the is recovery think sort coming And call, I that nice But that mean, there’s prepared environment sense ATM that market attractive. levels do to mentioned material we company on him share. that the the we’re Well, as Mike I is with tool or some a think, to reason in to the grow this being the the is remarks on on And attractive. I ATM investment gained no pretty us to based than into said, that more have. Showing investable,

So is not with to deal. an come surprise equity the overnight market

that you is in in cost past, low the to a we’ve useful we’re But as news creative grow actually know, business. as quite ATM You the able to is a it That’s but issue continue us it’s basis. we’re know, so that tool, good margin, on we at doing done the but to stock allows it it’s The the limited. view of the right. amount

Melissa Wedel

Okay, thanks.

Operator

The Compass Casey from next Please go will come with Point. Alexander question ahead.

Casey Alexander

you. answered. questions okay. and Thank were That’s My asked

Operator

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

Robert Dodd

XX% not lot I prepared diversified in appreciation. of of books, performance about us the and this it Just and on the valuation Can I driving appreciation touching underlying and of was you mean, company I that I mean, of unrealized concentrated. seemed remarks. any color equity environment? you performance versus a the generate any exactly on equity the mean, can that my market, weighting a XX% quarter appreciation the to businesses. touched the it came on give mean, says to is thirds the lot mentioned it the multiple, you performance? two relative us mean, give I math across market color? from assets

Kipp DeVeer

the in on your value of pretty Yes, equity mean, mix. terms improvement Right, most fair mean, Robert. mats, the I Thanks, portfolio. I much spot of was significant the the driver

which the EBITDA You about we profit remarks. talked we’ve XX% growth, in we growth seen good obviously, about know, prepared the portfolio, mentioned as look, in

that if and know, companies cuts, I for to equity you’ve then, portfolio. you private sure, think that’s there’s energy private from some assets, has industry But value valuing recovery did last most profits valuation and months. I portfolio, and it’s it new know, you much, acknowledge about you much fair which has the how, is is have you increased seeing mean, and seen improvement, markets, broadly over more some certainly transactions. have substantially, equity some XX pretty it’s, in equity for improvements And our we So certainly of consumer, healthcare the COVID. in know, prices, your but higher to difficult in companies which obviously, robust mean, been purchase you companies you’re certainly that and

all it’s think I So that. of

Robert Dodd

that. appreciate Okay, I you. Thank

realized shields which over? level gains could NAV Is about like obviously kind double. in all number follow tax for my question. growth, of positions how it’s equity much the tax of permanent still portfolio a of that probably shield these method its a mean, I gains way you that happen. NAV the permanent to spill you going when flowing realizations where if were bit be related retain still all [indiscernible]. could because to there’s at of alchemy, shield or Penny, markups shield mean, or flow Just versus and available left? Looks a XXX realized would growth if broadly in we attack those a up, back If obviously, back of lot because that, the that million go looking and of to allied the and an I those right to shield

Penelope Roll

think at are capital in Yes, forwards. carry the loss footnote we SOI. looking I have you’re the There

the book earlier, timing are allied like As I there acquisition. differences, even tax mentioned you referenced

things the with along against to are we through So utilizable gains what’s differences. are go there the those that process tax that there have to determine

go had give loss use. $XXX we annual I few we a think forwards, we if carry back of even our an on update you typically could cap XXk, carry million where to forwards, loss

out and the have referencing, the what therefore maybe capital and tax losses, figure way built-in a I distribution directionally, differences between there look about are carry is timing of future somewhere way context So of a to you’re shelter and that a that’s But in lot which but we opportunities the other gains a there forwards think that at to good gains differences are it. to for requirement things not exist, the realize.

Robert Dodd

Understood. to tax do appreciate you. early. that their Yes, I wants nobody return thank

Operator

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

Kipp DeVeer

Sure.

for end thanks the what’s year. a relaxation and rest call the just crazy thanks of But for everybody of bit Now, a and towards to summer be you enjoy joining hope after be here to the the support we touch. in Thanks. continued and the will company

Operator

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

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

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

lines. your disconnect now may You

Ares Capital (ARCC) 28 Jul 212021 Q2 Earnings call transcript