ARCC - Earnings call transcript Q4 2021 | Ares Capital Corporation

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning, and welcome to Ares Capital Corporation’s Fourth Quarter and Year-ended December 31, 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode.

As a reminder, this conference is being recorded on Wednesday, February 9, 2022. I will now turn the call over to Mr. John Stilmar, Managing Director of Ares Investor Relations.

John Stilmar

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

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

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

Kipp deVeer

Hello, then our earnings and results the positioning. team. strong by for and for Co-Presidents, current Penni discuss John. some morning, quarter were management Chief We today. the Mitch of and members and year. the of highlights, thanks the begin I’m Goldstein; fourth other our quarter and per delighted quarter for with our joining share everyone, with call I’ll earnings per Thanks, Financial the market fourth Officer, and full Michael This along $X.XX Roll, for providing share report Smith record and and here the year. core full the generated we to Company’s year $X.XX

XXXX. On earnings basis, with XXXX than and you for more we GAAP generated commitments strongest combine $X.XX which these our XXXX, or XX% the of during $XX.XX. fourth off during per net on year our a highest strength Our results GAAP all-time the of year, growth capped quarterly for million to The the $XX.X per or return quarter history. year. with our investments. billion of earnings of double earnings $XXX a history and year our the year, either annual an realized included for that and our the reflect ended Company’s shareholders high with financial the $X.X the earnings activity of paid value share share in for share growth GAAP per $X.XX at in were share in When the asset NAV net XX% of dividends a $X.XX our year this led gains for quarter fourth billion origination per second economic

our to growing detail, that our time in to discuss market $X.X some highlight the our trillion some through Before results and and of takes behind believe in the We our like strong activity. positioning investment direct take you I’d more opportunity There’s Penni the borrowers to preferred drivers lending been source change as U.S. increasingly in the a are companies size and noticeable financing continues of a businesses. private financing increasing needs capital to turning the seeking to as of solutions. their growth widen our of set for acquisitions

that Over the over the five tripled. with and years, past of number we average review of EBITDA increased XX% more the has than by million $XXX the EBITDA has Company’s over reviewed companies we

sponsored seeing of companies credit and to a more span more seems far-reaching private also non-sponsored We’re as range that opportunities market valuable than a wider both and before. ever

noncontrolled situation. companies model with customize subordinated and equity. any What also rigorous for that senior, flexible and capabilities that originations of our is our that capital quality, to We happy debt is unitranche well in as as drive and invest we we our means virtually common we’re to deal valuable continue documentation borrowers that with and believe to for solutions reason and maintain another credit standards This can higher preferred terms. for still

say quality, we in since transaction XX% the our documentation our not note more leverage, market. more that market we believe we to fragmentation, XXXX, strong and the comparing important believe reviewed and selective. deal, because however, respect competition market from we many of We competitive to we of have some despite other do of situations reported we we want that competition to for have act if we and We volume larger no, away have loan the $XXX share opinion, ever competitors have to to deals But to walk where growing seeing we and us set also compete and businesses than and Today’s take we volume with being of to a do to, our rationally volume luxury key and XXXX. that past. market importantly, we robust The like, from, faster perhaps In the choose turn one pursue to platform deal grew documentation. We have is credit the pricing, experience this afford in but of opportunities sources, fragmented gains market we highly a dollar the than transactions these like the or are, In share. simply but is the position, reviewed continue to away estimated to. billion. our be the of able structure the than growth pricing we proposed the market always don’t In resulting maintain the scale flow increased the considerations.

to origination it, lending is professionals platform the The XXX us XXX allowing capabilities non-sponsored of with scaled sponsors grown, our and platform. operational our market’s United largest the a believe what direct significant has to IPO. investment with and direct over coverage, with transact the States scale strong building this market As than different XXX more led we along we’ve in since team companies

with remains have tenure have has as our years and our of team XX investment a process an highly of created Management. institutionalized Our investment supported This committee and advisors, with importantly, XX consistent stability approach market average tenured an growth, members and cohesive averaged we experience, Ares years companies. sponsors that credit and

the Ares to underwriting XXX relationships on we these companies investment additional with lending engaging deep of presence XXX addition reflected the the investment Credit the our our here, shared Management and and benefit Management sponsors in and we the and further basis. that professionals our And from health another team believe in We advantages In believe direct market capabilities. portfolio. broader that professionals a across advisors, U.S. who professionals Group enhance investment the performance experiences, daily ultimately, Ares local of are insights and platform scale are the

nonaccruals credit portfolio we remains with our quality Our strongest and among our in low. Company’s the a at history, XX-year the year ended

believe the likely resilient companies impacted be has and economy chain we that disruptions. avoid are with focus to our more flows positioned cash negatively of Additionally, industries portfolio recent free our on segments to longstanding by market-leading inflation high supply in

year. have a growth our companies this a information last we growth weighted solid demonstrated began ago. quarter, EBITDA highest portfolio As average over the of decade portfolio this result, our XX% XX-month since The was earnings tracking companies the throughout

to quarterly XX, earnings undistributed per year. intend the earnings, externally quarter to record generating earnings of time portfolio per further our call time provide Furthermore, the BDCs, of continued will including the these XXXX, positioning. for $X.XX performance to quarter delivered share XX $XXX are shareholders, meaningful regular which Given highest balance We of and share share. positive additional dividend -- over our our Ares turn net over the pay base realized of in excess per portfolio’s consistent Through the me shareholder With further Company’s growth that, pay of September rate the periods, with financial highest sheet is NAV on the and for track strength latest Capital gains dividend year second let of another managed growth the the a cap on ended totaling more the in special share our XXXX. and from results to strength rate $X.XX any growth full dividends XXXX of XX-year to the recognition reporting BDC the each Penni market dividends some we step over this in believe our and has details we thoughts this on raising X our value. for power, quarter $X.XX million. and the We of share per our past among builds per view months

Penni Roll

that record and $X.XX share to $XX.XX was respectively, our drive XXXX net These along share full morning, everyone. earnings In $X.X equity was helped $XXX stockholders’ full a and XXXX. for per per to results good reach earnings for compared of overall million GAAP equity $X.XX. year and core and XXXX $X.X our billion year or year-end our billion helped at income drive or $XX.XX with ever, our results these active share. year GAAP unrealized gains comparison, of the $X.XX. share at per $X.XX EPS, our Kipp, per These stockholders’ helped net Thanks, year And core share. per activity levels, strong XXXX and year-end of XXXX most realized

value of calculations It X.X%, $XX.X at XXXX. and cost on as was the for average equity investment is yield yield one with our XXXX. from securities period, excluded calculations X.X% X.X% investment this include Our average The weighted income billion, at our in compared X.X%, cost grew to average XXXX, fact consistently the accurately paid equity Hill we our for it yield Ivy Ares the at of Hill September and at XX Beginning light and of just a these the calculations December was Capital dividends worth these our yield XX, Previously, billion dividend because contractual Asset Ivy change investments In total that Hill our calculations. weighted we the quarters, stated over dividends at at dividend on other not our debt to reporting amortized year amortized including end the yield we had relates component. and to consecutive in Management. weighted a more the noting to total our common from portfolio. yield has as respectively, on that portfolio end at X.X%, of income-producing $XX XX, determined and up updated our X.X% represents our have from impact respectively, did to Ivy yield fair

sensitivity, total For XX, to the rate XXXX, benefit rates the for well December interest new in value interest rising investments. was floating investments. yield at from positioned environment, presented rate XX% to earnings rate portfolio to interest an our rate comparative past move capture methodology. the have we we particularly floors a purposes, our Shifting to At periods updated if all calculations our conform of on are fair

low leverage a approximately XX% and of our had rates. This average base from certificates, in rate Additionally, from fixed SDLP which excluding predominantly the earnings investments rising than the XX floor of of portfolio weighted with is current concert should our our one floating higher in to composition remaining notes basis investment allow benefit today’s unsecured points, three-month rate level rates.

a XXX and earnings calculated short-term short-term increase by considering a rates $X.XX quarterly quarterly basis-point share, increase As that of by in share, basis-point XXX total after approximately could our increase holding our all in per we income-based of equal, could impact increase the while rates per else $X.XX fees. year-end earnings

and liquidity. capitalization Now, our turning to

highly position Our financial of throughout We unsecured highly of sources balance our capital, strengthening rate financing. and were including on is significant diverse amount long-dated cost-efficient accessing fixed efficient of sheet of debt. by composed focused forms debt XXXX a

over on closed term we year, unsecured the During new billion of $X.X borrowings.

a as will extend curve, continued taken over which we the the and ladder, having face higher to serve our maturity rate the environment. XX, of end environment as of the We have borrowings has average rate the management on X.X% X, in advantage to XX-year low from XXXX parts to X.X% well us allowed of us time rate X, total issue stated the balance sheet This at active interest December lower to XXXX. of weighted

was $XXX As next and XX, year-to-date secondary two approach combined and capital sheet balance we XXXX million long-term first X.XX to one December a at have our forma equity to years, maturity leverage there are and continue the available Pro only we maturities for significant XXXX After no since in of our our also debt-to-equity flexibility. a cash management, XXXX, over $XXX committed in term leverage maturity with $XXX level undrawn levels, XXXX. of until maturing already our completing in of during on accretive million Touching which February for times. activity million provide through issuances XXXX, growth, over is to was low and look levels our early our $X.X raised times billion. activity The maturities financial ratio in other revolvers net not our X.XX we equity until was to our debt support repaid healthy XXXX. with mid-XXXX. at nearest that, our maturities declined liabilities the liquidity duration net bank mid-XXXX portfolio, Commensurate and limited levels near-term facility

record dividend As quarter first stated, stockholders payable XXXX. we $X.XX is our on on Kipp XX, March which share, XXXX, per to XX, increased of March XXXX to

considering sometimes once dividends raise, our paid, $X.XX quarterly an the equity additional we in January strong of again We was income, spillover. spillover pay dividends of from decision an to our increase currently earnings our share our year, consideration XXXX totaling $X.XX The outearned spillover increase income expansion the in per resulting XXXX’s after in in share taxable we share, during as $X.XX issued the our that referred for level. estimate our undistributed reached shares an Given our important per to XXXX. per from

payable XXXX, of The on on also March to dividend additional XXXX. first $X.XX XX, is March record share per stockholders of XX,

a to prudent to supports balance levels believe maintaining our I spillover We goal level activities. steady earnings sheet and varying through spillover. will our call conditions dividend BDCs will of us of from without meaningful management Michael sets having through apart With strong investment Overall, turn and undistributed market a we now our monitor considerations. capital continue our and many the against other that, over to undistributed walk

Michael Smith

and and Thanks, Penni. I performance will fourth focus on providing more activity, details on then for update our investment quarter portfolio and pipeline. an conclude activity and backlog post-quarter-end year the with the on

of approximately average overall $XXX this across a we note million. to EBITDA weighted average Over with weighted the the range important the past distinct over invested while portfolio of XXX The companies described to opportunity our XXXX course $XX across sponsored that million. sourcing the approximately Kipp of $XXX underscores This that during ago. over to businesses double investment our market more varying weighted EBITDA position the million wide high-quality of of and It in and industries the find in earlier. XX than range the average market-leading portfolio we EBITDA capabilities years sizes. breadth ARCC’s million, value more transactions, of has grew strong expanded than companies of EBITDA the year average that and we EBITDA from is five years, growth for weighted direct grown $XXX few non-sponsored opportunities our financed lending transactions reflects company’s larger market This XXXX,

have companies advantages that of equity portfolio remains private we deep and many relationships over developed One years. sponsors sourcing our differentiated our with

our quarter XX% respectively, new year, incumbent to were and borrowers. XX% commitments, of the Over and past

protection, from flow we portfolio differentiates relationships conservative us sponsored sourcing remains many to only as portfolio access unique diversified our that our such key a in our build our different believe and continued historically, of to size XXXX, a capabilities X.X% Additionally, component constructing with fair ARCC executing With deep at significant as breadth diversified The to firms. a were borrowers downside an XX% sponsor of our presence across other of provides repeat average and hold with upon more market value. with transactions have that transacted we deal and highly BDCs. XXX with portfolio approach we long-tenured companies large

Ivy totaled Excluding which of And on Hill at SDLP, the XX single XX.X% in value. more and investment investments at fair our portfolio our investments value. highly believe we largest top accounts diversified of own, portfolio no for just X.X% the are their fair than

fourth prior Additionally, the our the approximately the below seen was loan is on which the value the XX% mid-XXs of quarter at debt pandemic. portfolio, end to to level

of remains the credit result strong. attributes, portfolio a these our performance As of

commented at and As quarter cost at during since quarter of the lowest X.X%, the on year-end nonaccruals XXXX earlier, to level from XXXX X.X% down their fourth our prior declined X.X% XXXX. and

grade the average XXXX. QX at to end modestly improved X.X at QX X.X addition, in the fair weighted of our In value from of portfolio

and of is activities middle market Hill ARCC minute Before XXXX started SMAs. Hill SMAs I to investment remind through we Ivy wholly provides believe to vehicles its vehicles than manage owned was is Hill in these over senior are XXX and investment by Today, with with order invest a strong support diversified Ivy portfolio highlight experienced and and that and basis. past across distinct middle-market companies XX middle-market to has SMAs a Hill our Many market structured clients. Management borrowers. investment with Ivy and fourth equity in cost of million to growth date to in loan investment track of borrowers more Ivy that Asset secured a Ivy portfolio in long Hill over $XXX that to AUM the increased Ivy investments of loans investment middle-market company year middle in investment XXXX, team manager vehicles a million leading Hill and relationships, investors well In from ARCC investment the value bringing ARCC. of take manages concluding want our quarter, its similar it ARCC increased opportunity, management of $XXX the benefits in its equity the an profitability private record expanding our to in to a on are

in that optimistic are in its support Ivy future capital our investment Hill We growth will AUM.

update We activity investment gains $XXX brief were totaling on including new made on with investment $XX were million, X funded. February vehicles to finish through of will January commitments million XXXX, managed million I a Hill, of generating our pipeline. repaid we which realized exited X, end on exits. or million post-quarter commitments, net From Finally, $XXX and $XXX of million approximately investment by sold Ivy $XXX

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

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

Kipp deVeer

Michael. excellent be over per in four the regular to increase metrics other earnings, In shareholders growth Company Capital an of an announced of the believe deployment was of for we we’ve and Company. closing, dividend in Thanks to to that year XXXX paid $X.XX strong and the position of the dividend a Ares strong the is share, showed today. declaration additional quarters reflected lot, XXXX. The discussed again, our quarterly

of remain optimistic dedication we volatility have year the work company’s volatility hard and And assets, led this their we look demand entire structural simply With close with the with risk for for many levers open historically can forward their tailwinds across start continued that optimism. multiple operator, the thanking by significant team future. that, to we private these market capital, call like As about note line increasing we our and with to periods questions. throughout for I’d XXXX. for growth, and we

Operator

of Instructions] ahead. [Operator comes The KBW. Ryan first go question Lynch from Please

Ryan Lynch

that maybe portfolio questions. -- the a with a to it nice importantly, don’t if the put morning. correct think expect that from concerns question if the me these heard I valuations but pressure could we you taking and know some Obviously, have for kind we activity are comment could transactions effect finish want and Hey. interest different And week. of private interest that one Really be reducing a level off The into that way expected on great in potentially in to rates, last I rise if businesses. was the one comes the Good private was, a XXXX, to first strong. rise rates But of continue fourth more the rise. could had differently. BDC super for the really Thanks he that level really the very to some at XXXX. in my really of going sponsor to they trickledown XXXX we strong one quarter, start activity given continue see quarter deal of market same was

your of I thoughts just So, volumes? and would some down reducing how much of on, driving love have of multiples hear in to you do rates these rising private a concern deal markets

Kipp deVeer

to mean, I lull are reasonable but point, anything, go the try Ryan, who folks recalibrate for to the down, I can made I tends of assets question. sometimes worth. right, I’m value up, which activity, point. sure things think, than what not rates the as think perhaps it’s temporarily obviously, more go thanks when a

We So lot was the good is to duration longer think -- out, this seen But, included, of has hard actually, lead the The ‘XX with our year disagree on levels and a is you busy whomever valuations in to we bit benefit. slow folks, a from think point it’s just perspective, will what news an perhaps that tends fewer been I on to actually, I assets repayments, pointed agree. at which now and that of a be maybe there’s of levels. it and I look resettling for that activity some what anomaly that would will I an a be. activity of And agree have us following being quarter with. fourth terms back start unbelievably XXXX, too as of the bit see

Ryan Lynch

question. then, follow-up Understood. And just Okay. my

this hinted I year. what of Ivy investments kind You kind in really meaningfully investment -- some the throughout of markup big of the fair of with your that on increased prepared in mean, pretty comments drove the the value Hill. But

the fair the value cost the increase the throughout drove pretty fair more scale? of business? are trends year? there’s in that underlying Hill, year. seeing it Ivy are value And the across guide. up net just the sort driving increased So over given increased what the a from your then investment same it marked broadly lending in fundamentals Was guys really substantially really the that is the you guys Is What are profitability direct

Kipp deVeer

putting that cost about of the valuation change entity modest it what love investment, think that actually I’d a increase contribution. new on cost, made we thoughts the we of date. do, a to significant I your there’s because underlying aside away did little how -- check just point to the contribution making So, you’re right, don’t getting the will, at to then, value portfolio course, tricky from have relative there It’s that to in offline the the value the investment capital or capital increase pretty which the the fair why we basis company. Ryan, is in delta? And is for separate take actually, obviously of And

fair from value the doing a quarter. quickly, just our of last cost -- think and I in to terms the couple I increase percent think it’s overall relative math

thing material contribution. you’re The a don’t the creating increase. probably check that value But, there’s that’s significant fair it why we capital So, seeing offline? nothing is

So, offline we’re take just make data. have sure happy it the and to you

Operator

from The Jefferies. John go of Hecht next ahead. question comes Please

John Hecht

Good is, How year or going does takes just questions. real M&A sidelines the Kipp. a morning. the parts, that way up. this the -- the how of lot pretty market, of it’s appreciate market? Understanding dollars of we’ve guess kind in I my And And this equity relative moving refi but private that things impact Good What’s the about affect update to impact -- And how the been puts does originations and thinking does pipeline? years quarter. a those year on Thanks incremental ago? rates I’m for all activity. the look I got on might deal strong, question things? couple the factors the taking

Kipp deVeer

mean, by how growth think in how rates, slow a you free here a look despite other refinancing activity, comments, I what extend will bit feel then, that earnings. M&A a of And rise duration do point of of lot of quickly activity, much. existing to It the bit Ryan’s probably And on little and think recalibration consistency as maybe think and will increases easier on point terms of some some and prices I the increasing there’s in fine repayments modest our as to some is there. to there’s I’ll follow I thoughts, rates are I give little to more makes portfolio, and a once like. with slow a little us. evidence on. Sure. the But purchase life bit folks rates gathering the which today

will will settle and think, things busy it I be that I year. think another

right? I just way can periods. think have in, on your ‘XX? Probably of on ‘XX hangover think effect busy do out opinion you I ask and COVID deep mean, as not, If put was be as others coming I huge a chime the in we’re folks the of team point, through vicious which kind investment of think will XXXX I in But the them had in my get a deploy that And a off sidelines pretty done. year of sidelines, on come the to that to sidelines that. finite been had lot most capital and then things there

around had reasonably be of about was busy, which certainly more for to it ‘XX regular expect concerns. year, XXXX, would other a I year busy And but right, and a So rates uncertainty, was inflation, everybody. nonetheless, maybe some not

John Hecht

like Okay. maybe any in run don’t quarters, the yields, the been spreads, over calculations, like market? in the but changes any QX, yield That’s wondering the than on there higher rates on next coming But pipeline then, down. kind I the And yields kind Has given runoff. been in they’ve the there great and the it, about some changes talk of were there I’m book can volatility looked the looks I spreads. few is at And of call just know, it you of in color. of given, know looking course it the element? overall outlook that the

Kipp deVeer

equity that, you’re I and lower to actually because Ivy quarter activity a in spreads. But we seen we the debt percentage largely market Hill modest then, point, decrease producing I compression being investments about a was What we in the fourth securities, to what SDLP, contributor onboarded right? spreads. which No. between the and and better than now, actually slightly same. right. significant made. a your exited, had tighter of really income mean, of in that mean, portfolio was haven’t a slightly the It’s we

Operator

Kenneth The next Lee RBC Markets. of from ahead. question comes go Capital Please

Kenneth Lee

the borrowers. up such that that Thanks. little I especially follow had end to more and want like the as seeing competitive bit of right of the within a Just you’re you talk about remarks can market, larger the terms in environment on upper kind of if now. you wonder corporate

Kipp deVeer

the competitive. it that has market mean to more gotten seems I of portion Yes. that us

delivered some pretty at the here your probably together about competition are you’ve of portion to right? in some middle pools attacking market Having we’ve and the the of historically have always point, how and capital you’re of that there was XX upper think over back in put over company, not we market, for who which risk XX were companies more the I that end or team And better lower played better that significant of thought premium thought larger the been that scale our frankly, into last the frankly, prepared market. Q&A And better away. went if with was this obviously the been referencing our look this offered market, done lower folks the significant was in months and last advantage XX-something where think more years, couple the here case, has the the We years, this than end and of middle over I lack talked of years the at we and the getting three because credits pricing. there. you we the of reward To largely the remarks at same market. of we’ve there last

being despite So, I That we pretty believe competitive is has that significant the is Company competitive think advantages continue to exist there. more view it some our said, that.

market, think So, are that coming We’re flow able and be or deal it time, portfolios things. putting we ago. walk to able really may the want the confidence put illiquid that’s don’t positions want for admittedly, bit months yes, to If feel have are in. we for right? for be, that to whatever upper wide which and And or to need was we’re XX our XX about enough like than originate managing probably to, competitive pricing we to we little us was do at say, we’re I’d when is remarks, we selective said of years, because being important question, years where obviously a more prepared effectively where we’re that to too. in of compete together forced it terms documentation in we to. we I to we in end where the don’t going or away to And And terms your to get good a ability forward continue in open just

Kenneth Lee

And around sectors positioning helpful or environment, current Got construction share with there follow-up, Wondering I there. term? just portfolio relatively near any attractive may. other the if one in you Thanks. your you us in could you. the have if thoughts either Very

Kipp deVeer

I of very similar our mean, viewpoint. think in things terms are terms of I in industries, Yes.

be certainly, can flow allow We’re flexible probably deals senior did the growth, levered prepared a remarks, up have things free as and out uncertainty. GDP us that view don’t or it to the a may good take industries cash model, look set of Because kind again businesses with right? trying call that which that and we in on of delever debt lot a debt capital basis. platitude defensive strong than I origination junior better have as than a better the generalization, at deal-by-deal to without of kind of or the We secured generally whatever is

it be of from And from how the can than respond the you’ll mix quarter-to-quarter. an view it over asset want us but look If a is is portfolio period time, long inconsistent fairly reasonably do depends company, a a on see mix less on what really to consistent, that’s we from you it perspective.

a We XX% If have was putting high. if the senior terms were wouldn’t we income in think the we So, got probably portfolio parameters, the XX% portfolio, into too we pay And than But debt, something to company-specific, any other. generalizations together. right? XX% how have or that’s of have the about balance the don’t probably we about better it’s we’d that’s of that really percentage one or portfolio dividend, out enough being of whack, in things. the equity strong putting XX% pure It’s of say right? of and company

Operator

Fargo. comes question Please ahead. O’Shea of Finian next The Wells from go

Finian O’Shea

sort for the question, Does can it that what you -- doing? of Ivy be that to said about you capital business? else CLO lot they’re that you’ll anything First just the or talk what supplying And ARCC? mean that for business opportunity Hill, is more in traditional means unique a growth --

Kipp deVeer

the I the from business demand mean, look excellent seeing able to the in companies And track they’re very management them middle-market look, to and time is to buy from point, secured of them significant this one senior Ares of i.e., returns portfolio of your for good there’s team one We buy simple, at highly think their to others. But We us. tenured companies, Hill’s it’s product. able delivering of Ivy grow, longer They’re lots obviously, of there. growth the company. a portfolio record larger for generally. They’re to a XX-plus-year reasonably Capital. at is

we numbers So, a their of there. to feel can think company very X%ish it from grow couple million record, brings size of track because strong it the by That hundred today. in We of our investment continue to comfortable position. of rough increasing that

be about upper and big. significant basket, think really the in it haven’t the par an we that to We SDLP, would thought too our about similarly limit puts other But as size the XX% on investment contributor to which program. how today with is big

just and done invest to continue things that to winners ride it’s have the again, trying more us. money So well in for

Finian O’Shea

level. from back will it BDC And a wondering top toward sort then, BDCs of market. in is On the bank of feels of very demand there stretching for high Penni, like interest helpful. a if rates the I’m that industry? moving, Sure. follow-up sort the the large That’s And proliferation that’s think these something you’re unsecured tilt funding be do you seeing? of

Penni Roll

Yes. certainly debt was more see Finian. in that we QX. raising quarter BDCs we’re seeing a Thanks, term Yes. I there It very active in for out And the BDCs did market. mean, raising capital.

really and I around be been takes long greater to good we very issue markets. when expect given to market, feel certainly, But tenured them. able activity. those want position think We’ve in to in our and timing consideration just in to continue about more the issuing it them the to go we

in So, the we’ve be successful market. issuing continued to

to early January. much QX in term And to debt at we’re tighter able in continue back are than We most. spreads issue

today. good feel are capitalization and where we So, about with position we our our

Operator

from comes Please Alexander Point. question of ahead. next go Compass The Casey

Casey Alexander

developments, quarter, against on question, loss the baked of at of all in Penni. end is first earnings is question million the first the In recent the being into extinguishment quarter? that the debt. fully any maintenance really the or mostly My for that recognized $XX Was financials share the per a of fourth

Penni Roll

repayment will the because that in QX when that’s all be No, baked happens. in,

Casey Alexander

Okay.

there like against anything it nothing reserve was that? So, or like

Penni Roll

will be the loss treated QX. as It No. in a extinguishment debt on of

Casey Alexander

on coming the does the quarter? fully the that subsequent have a the a $XX Okay. gains, Similarly, on net reversal events, realized that into in or is gain unrealized exit million gain of a new

Penni Roll

against is it’s reversal when I previously typically, we of there our when that have investments, would don’t in there unrealized exit. quarter NAV appreciation events. good not of the exact prior the be recorded number, already -- our a we exit from realized the Generally, but some bit

Casey Alexander

over then, million in There’s And capital Kipp. you, for Okay, the of great. almost fees the course in the my terms quarters XXXX. of difference structuring follow-up an is $XX

ask fees So, I’m capital my model those that you forward, And to as me, looking if at structuring going you differential? analyst hat wide you going how put were would to on. an

Kipp deVeer

The it’s easiest not easy. way, all but that

we something terms in percentage as et percentage So, which you and taking So syndicate, or usual think part ‘XX, is is underwrite terms to if the a it about a commitments we and way in put a pick because we’re terms it try percentage new in of that that something end I to a the fee, in right? right activity I think earning just less our where generate activity years to of than percentage originations, terms a at over higher obviously forward, time of couple that won’t What look right, said last is get gross don’t with fee fee, special special, were the if the up So recognize it. we’re the just originations, to what try model reference up for new reason the aggressive a origination right, time new easiest by final thinking X% of doing for i.e. again, transaction mean, would a out hold, of do back activity, maybe high the right? for it’s average this I dividend we you so it and look I cetera. was of year us model of of were is through. X.X% levels two this

that think, it’s -- Casey, I us you, a for exercise. for modeling

activity which is us, we that because dividend covered about so don’t For is think lower focused with well we levels, like much even what we’re our it on. feel

bit. understand But offline it can take model create to a try help want little and can as how you I you you we and it works, know So, your to.

Casey Alexander

getting do though, well-priced -- Well, can job anytime I some me, I’m you my for get talent. well-informed to

you I questions. try. appreciate So, I as taking my might well

Kipp deVeer

good. all It’s No.

I to for think offer. the do enough thanks we have but here, around

Operator

go Melissa comes from The of next question Please Morgan. JP ahead. Wedel

Melissa Wedel

or you rate your increases. might also to I’m have The about first I’m on think the ability Kipp. of their But, I the companies’ as to that’s curious service context it you’re and portfolio the costs borrow or that. kind portfolio pace And generally? in about about of in bad increases industry activity higher concerns you or one if that for of curious talked thinking Kipp, earlier, when is thoughts was how you impact levels ‘XX. that whether any cost mentioned of pass debt what specific

Kipp deVeer

question. for Thanks the Sure.

-- and at I market the the for as I you’re think concerns don’t industry, floors of increases most have because think yet XXX as XX those minimum. rate have flowing we points don’t borrowers, of LIBOR a through about set beginnings to the which most modest part, to an basis talking

the the prevailing suggest, right? there. issuers higher much the would are already are numbers that at companies than So servicing market debt today So, LIBOR

start companies three obviously it’s increases going two some will credit right, then the rate and underlying in think the to and before of or pressure take companies rates I fundamentals. credit managers saying, look around metrics, rising some of invested actually those

I the are being, time not either don’t an concerned, think other we’re people a for industry metric. of I think lot as

Melissa Wedel

through the the with convert the will flowing that issue on Penni for question first Follow-up it. loss Got quarter. through Okay. flow and in realized

clarify, to from Just excluded number? your core that is something EPS would that be

Penni Roll

look on had it back of historically goes same a and section And gains losses. through as loss that, extinguishment it debt. we’ve when realized as will if because the go you in Yes,

not it’s core net income. investment part or So, of

Operator

next comes Kevin The of question ahead. Please from go Fultz JMP Securities.

Kevin Fultz

you was Ivy equity seeing to then that quarter, prior opportunities Looking that at I equipments Hill. due equity continued. and led realized elevated portfolio trend And on partially investments quarter-to-date, to lean that Can has to new activity quarters, during that you there? the relative side the talk in were you’re the to about have

Kipp deVeer

realized for a the they this in us to bit were portfolio common mix; question, significant has of again have past. investments both investment. in about might preferred the in larger about Hill we the a were a a prevailing track investing earn wouldn’t anything of anecdotal sure the excess it’s record opportunities quarter terms past But to presented movers. to that it much I were. of with a dividend little say because talked we do It’s than view well bit have the QX. of big We of terms think our for our contributor years. and that significant skewed couple ‘XX more Ivy over I to gains in -- Yes, other been We good in little Kevin, a made thanks No for equity. ability look, how the and

an important I So think QX. part out substantial strategy, other of definitely but nothing Hill, call which again Ivy the than, pretty for to unusual was

Kevin Fultz

And in growth. on deployment helpful. about investment Can touched XXXX? my and a year expectations pace bit that? then, portfolio XXXX Okay. And how we follow-up, portfolio on incredibly for think you’ve for of That’s in talk this an turn strong clearly call. growth about was the you your should

Kipp deVeer

on I’ve covered I of have don’t have questions the a it mean, folks Yes. that couple asked much add. other and to

a from both a for busy healthy approach a an what to concerns do, of is right? I equity, economy, all tempering to quite Fed as would inflation the uninvested nothing bit to and expect a the of right? move, think folks of we’re perspective. about contribute in are despite year, in of the how slow I being. But to still as that lots evolve, they’re this traditional but wait-and-see the good, and year, tailwinds year, growing again, that we’ll and not down. thoughts seems like and place, healthy, have the a Again, for here some that’s private going would actually just think The and maybe little QX year things strong I activity taking rising But economy pre-COVID time quickly going or like You lending slow rates. to ‘XX, a look busy more M&A backdrop

Operator

And of come Dodd will our next from Raymond Instructions] Robert question [Operator James.

Robert Dodd

signs areas for enhanced or starting of long you’ve was it’s Hi. kind at investments like like lower you think and answered the that more end do down on the try where shift the competition so that any market. Congrats to I is on preferred irrational into to concern honestly. squeeze even been equity, credit market? you Have like like question the anything people players to quality, the and on quarter maybe upper capital end. mean, and time other of going the higher the seen some preferred it’s some mainly I of Kipp, that market level any more mimic mean solutions to of follow-ups. the of there Two you a at that? there things going market drive mean, flexible yield that that? gotten Is I Ken’s

Kipp deVeer

take sub folks on You balance more sheet, to the more for Company’s debt down aggressive be mean or...? i.e.

Robert Dodd

Yes.

Kipp deVeer

not understood behavior a have than our have away other is some last market had changing so. I changed changing to. from all. at of two three seen to there’s transactions for was all. from focus haven’t more than don’t But was behavior, the -- away or walk hasn’t different it liked that I of walked our so the had been the really we few but time that that real It’s more our or at we the competition’s think and probably market competitors of But it on point we’ve few some investing the by just would that all a and I upper we reasons, at making mean, making perhaps No, we’ve end it’s definitely I that, only really point the prior over don’t behavior haven’t the years. transactions quarter the necessarily those we think

Robert Dodd

it the is as Hill, is on that capital fair decline amount obviously, do of sustainable it’s equity it’s that was higher dividend billion been cost basis can, about level produce $XXX mean, Got tended any yield now on I pre-COVID, SDLP, value the return has there a it. you yield I or say, on XX.X% to it on if a equity. anything of of new growing. comparable potentially return forward? Thank I which this to there a Over you. a investment today, very dividend Ivy think, capital mean, time, fair $X.X capital? value, greater think should at Ivy we Hill, I with to is the has on XX% reason expect that is of nice, million And which Is a goes

Kipp deVeer

to XX-plus without that too mean, trying obviously returns generating that business Ivy the additional over million consistent investing and capital forward-looking, have into last be from Hill pretty $XXX the I we’ve years. of we’re been Yes. darn been

any think are our expectation continue Robert. making that obviously, be our I expectations, But, those is without to promises. returns So, those achievable,

Operator

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

Kipp deVeer

than quarter. any all we’ll the their you. We time, next you other for up with have call the on Thank to thank and didn’t folks catch

Operator

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

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

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

Ares Capital (ARCC) 9 Feb 222021 Q4 Earnings call transcript