ARCC - Earnings call transcript Q2 2022 | Ares Capital Corporation

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Operator

Good afternoon, welcome to Ares Capital Corporation’s Second Quarter ended June 30, 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode.

As a reminder, this conference call is being recorded on Tuesday, July 26, 2022. I will now turn the call over to Mr. John Stilmar, Managing Director of Investor Relations.

John Stilmar

you. Thank

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

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

Earnings has verified. discussed the company’s See In derived from the this SEC portfolio found was relating slide sources with information Certain information. release information filed makes discussed and presentation, to All the call, can the information on this with the found morning X-K. Presentation this at XXXX share on addition, accompanying to this company second is by www.arescapitalcorp.com not filed such of also the per call presentation And and for this page the information. be clicking SEC Kipp also ended the link independently Capital of Executive can the XXXX during Officer. measures Investor Chief call The more in companies, I’ll respect company’s reconciliation accordingly, website. XX-Q or Corporation’s with deVeer, share of been on are warranty per third-party Second morning Ares the these including quarter company’s available on company’s basic be the our section June earnings XX-Q website. on Capital Form and no to XX, information. Quarter Corporation’s turn earnings home the representation over on Ares earnings release now website

Kipp deVeer

market and Thanks, with I’m per earnings Penni several Chief our quarter everyone. some XX% benefits an Financial of you how the $X.XX within Michael you’re Goldstein; conditions continued management today. on start approximately reported by early other and I stability second provide increase our of team. thoughts of John. Mitch of Hello, the rates, things. call the we interest core first dividend and we’re portfolio. second income credit to morning, and compared doing higher the and appreciate Roll; highlighting rising This quarter changing driven Officer, hope our by well, seeing share, then members quarter, here like we all our and results Co-Presidents, joining Smith to I’d the

quarter-over-quarter, These market. per more in spreads be markets. expected unrealized Our marks X% wider to reflect share with $XX.XX NAV largely to credit unrealized of took to we the declined are losses due volatile

inflation fight during for minimal markets investment of spread over their financing, more of we as However, policy in a direct stance of the liquidity to losses. tend leveraged many banks within for are recession more are increase. monetary with tightening likely inventory primary the and experiencing an finance this significant a and aggressive Volatility quarter. around With rates. The banks out markets committed central working economic term. significant interesting trend second the lending more more I market rapidly leverage highly on which, say by weak it’s most volatile focused at the or the continued participants equity The will interest opportunities are or as world and welcome raising believe longer held provide elevated unsold flow their became issuance large concerns slowdown secondary widening, being deal

on in is portfolio that times. new the and situations investing borrowers, time, much pricing believe from companies quality companies capital to upper markets on Demonstrating incrementally we’ve we any including flow deal from strive less uncertain We otherwise some an We long-term significant stability franchise our and industries. and diversified focus of build our our investment to both rely We these highly on aggressively long-standing exposure that portfolio, company. opportunistic in portfolio volatile in single over to existing and attractive, focused and of focus this backdrop, a terms. additional to the resulted on more turn become in XX diversification, try operate represents our better that larger portfolio resilient be that with resulting liquid core in at years. our company. selective our the middle the and disciplined businesses is to manage value Against more would average investments highest to we During has liquidity playbook past demand X.X% and portfolio scale to developed We the banks. market to these approach on minimizes our have drive the our this incremental with

companies five has weighted on portfolio and average doubled focused the of million. In has EBITDA addition, recent This we our years than reached the $XXX number more now past in years. larger over

deeper tend that demonstrated dislocation. these larger has things revenue believe of resilient our support credit market we bases, cycles equal, performance and to teams diverse companies sources capital. all be have streams, portfolio. serve the broader management more previous robust should customer in larger These being All more during to attributes companies more experience Our of

well. recognize we our performing many companies are operating economy, face today’s companies increasingly the While complex that environment in portfolio

well Furthermore, support the on costs as growth. reflects EBITDA significant loan-to-value portfolio XX-year average remains equity the comfortably by aggregate reported strong well of clients as portfolio the five-year average equity-backed provided loan companies remain which of weighted to our nonaccrual we XX%, structural non-sponsored underlying borrowers. below and a quarter the and our company average, private below of our Our another

Analyst overall at deeply we have credit-oriented As culture. and our a portfolio we differentiated proactive discussed We and Day, recent provides our our management. embedded important an team risk element management to approach to believe

a our environment. on portfolio team quarterly high our focus deal have heightened During risks management team brought the put by our inflationary today’s portfolio review, alongside

our disruption is X% review specifically higher take this prices, inflationary such quarter’s pressures of comfort portfolio analysis industry we that fundamentals within XX% impact shortage. the as category, and company the underlying staffing potential our While supply only objective, between and regarding risk of our energy chain and sectors from rising revealed

if portfolio in been we a largely impact earnings discuss through mostly in market loan rate continued we floating market had forward, more rate present have will the quarter on rate quarter our of earnings given believe XX% growth low-cost, is unsecured flowed Looking interest Penni moves financed full a our rates core of basis. could for our by detail, core our second about this the higher quarter, the calculate fixed-rate, potential run that entire increase opportunity of and the financing. sources

XX% benefit be increase second earnings. the share earnings to the $X.XX basis by or and market points a in impactful beyond. core levels, these over benefits third rates quarter We should increase per the earnings quarterly Additionally, market from about June of rate XX XXX will our could increases believe our quarter core more

borrower will in in not in also would market at rates the of currently weighted two result the believe point equal, increase rates performance. ratio credit basis do a approximately projected portfolio We increase times. a result else level, in the coverage XXX interest Holding all including leverage average in deteriorating

EBITDA portfolio other this deleveraging occurred any analysis has dynamics in feel environment, ability the to and companies income-oriented the believe higher of a rate that about Ares growth alternatives We many in through Importantly, market navigate historically doesn’t we our will further today. consider these good the differentiate Capital portfolio. or

this call increase I over Before morning. Penni, highlight dividend the turn to the we wanted I announced to

run third regular of dividend further $X.XX from portfolio per result earnings strong rate the core share a and interest higher outlook quarterly with our share our is to per quarter. the performance, that declared This already fourth share we’ve for our As year. $X.XX increased rates the coupled quarters of benefit amount this $X.XX expected we in additional each for and third addition to dividend to per the of

the call sheet balance turn details Let results on me the some more quarter provide second and over to thoughts other now position. Penni to on

Penni Roll

everyone. Kipp. afternoon, Good Thanks,

core earnings quarter higher the $X.XX than quarter $X.XX a per from quarter down Our for of second and same XXXX the $X.XX a were ago ago. share year of

a and recurring strong income, service of new structure nonrecurring fees were dividend XXXX dividends capital solid one-time earnings by The some second level quarter from originations. interest and higher and of driven

the the for were second share quarter of $X.XX, for which and of for the prior per quarter second earnings $X.XX quarter compares XXXX. XXXX GAAP to Our $X.XX

Our on a losses we of this of the environment losses GAAP losses included our for certain were investments mentioned the investments share. and our unrealized and Kipp reflect $X.XX quarter current widening result unrealized to earnings unrealized XXXX of net realized spread net of The second took realized quarter largely per earlier. the for

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

average in on increased amortized income-producing our cost X.X% XX, cost June other average the the of weighted at of investments X.X%. end As was at base by yield supported quarter, rates. basis yield on total the investment from rise approximately total the XX weighted points yield The and last XXXX, amortized at was the debt securities and quarter

to rate well benefiting relates to a it our we positioned rate sensitivity, rising continue from As future interest environment. remain

XX, floating total fair XXXX, XX% our rate investments. at value was As of portfolio in of June

increases of to impact the continued expect company. short-term we earnings net the a rates earlier, positive interest on performance mentioned Kipp As in have

higher For starters, second full the occurred have that yet market in the we see from quarter. rates benefit have quarter already to

changes, our earnings generally X per been for the equal Given and our rates $X.XX full did results. were or in quarter fees, months rate the XX, reflected this with forecast market currently increase over any fully incremental core as base quarter, since analysis XXXX. yields through not EPS our is this It rate core pointing part does second we the income-based core rates the interest further of share latter calculated share impact in for for every the estimate at increase XX $X.XX base of about June this assuming actual QX other a the considering increase annual in per June point after changes in the worth XXXX rates else resulting a XX at the about holding that basis of and from effect core could approximately in equal lens, quarter, a base increase we from To per resets earnings about our benefit of rates of loans EPS. quarter our longer-term all market By end. above share, have an approximately in quarter’s including second increase would else the all out XX% annualized benefit that reset higher earnings holding by June from XX% these in floating second our look end, quarter and XXX rates not that $X.XX the earnings quarter occurred increase quarter XX%

have quarter’s further to capitalization for our these sensitivity examine movements those to want to We details liquidity. our XX-Q in Shifting interest Form on provided impacts. and rate who this

upsizing more than our capital we by facilities. committed of $XXX to our two quarter, liquidity revolving enhance continued the growing During by credit debt million our

positions the at terms times, we remain nearly liquidity the our facilities times and X.XX considering the a million Aside us one capital end next available including the Overall, remain the the activities with from believe debt-to-equity net the during of significant investors. dry transition of advantages available quarter, million up the cash competitive quarter to existing from $XXX cash of the of XX liquidity, the investment $X.X capital and to of second LIBOR After same, maturing obligations SOFR, ratio in debt our quarter. patient significant first of well with available billion total ended of in base our pricing. we months, only rate from most two yet and our active $XXX powder and remain the X.XX in including

quarter rate, that to additional our spillover and third such currently This quarter XXXX. in Before February. to I our on be increase third turn the unchanged $X.XX throughout dividend regular and our per call spillover per to BDCs having regular of sets the $XXX steady six the we goal This in dividends. is over And declared Both approximately our We share quarter will cycles past and XX, dividend year, not or quarters market of are from and a through discuss an We growing third this dividend walk declared undistributed undistributed many that level we the share, dividend of the increase XXXX to regular we $X.XX to the announced income million such by second September past maintaining will income activities the or apart for that that previously our supports dividend us dividends. third XX, consecutive quarter want in of XXrd September record I Michael into on morning, increase stockholders now a investment enhanced quarter. other I $X.XX payable XXXX of do spillover. our have strong from per taxable believe a share. XXXX our estimate conclude, meaningful

Michael Smith

a few the activity and providing second more update to Thanks, Penni. portfolio quarter an our I’m pipeline. performance minutes then for and quarter backlog on detail end and going and our on spend post provide investments

second the XX% new our commitments senior During approximately transactions and issued and to than these XX of of of XX $X.X were quarter, investment commitments XX% incumbent borrowers. were team transactions industries. the originated distinct more across secured billion

advantages. portfolio informational in coverage stronger portfolio. in of greater we clearly the historically As the companies, we growth investing interest noted believe opportunity and finance comparison to our companies portfolio ratios average to Day, provides EBITDA financings on our and had of additional incumbent some We provided have rest Analyst which our best have

of record key Additionally, track a to Kipp’s we market. and dynamic point about our continues finance the Further as grows, to differentiating it advantage ability a in be today’s upper business earlier middle portfolio, believe to million average we was million. our during companies EBITDA compared the of $XXX to of exited the $XXX of average to as investments whom weighted commitments the focus EBITDA market issued quarter

than with our we EBITDA, be we continue of to are that to leadership finance only deals differentiated results to of we new selective and free continue our focus, in review. reviewing $X companies million the cash that EBITDA and larger approximately from more on with While positioned $XX ranges and transactions EBITDA approximately businesses We very be portfolio. flow focus market and X% attractively positions a of high ultimately believe selectivity billion

companies EBITDA XX-month XX%. during of over Our very performance The growth supports weighted strong portfolio was company’s our last quarter the the average approximately this view. reported portfolio period at

Importantly, to industry growth. that concentrations growth with the is the portfolio of average all portfolio or that XX have industries healthy where X% weighted level is more more positive industries a top this of broad-based, experienced aggregate. performance of than demonstrating our have chosen heavily measured It EBITDA invest in higher as noting also worth comprise we

portfolio quarter, Underscoring a above only had value downgrades companies the and of more improved in and X.X. quality with overall and the in for fair our grade portfolio slightly consistent five-year weighted of companies, for credit of to of decline In change our metrics, experienced terms quarter portfolio the in X the which at stability high-risk at number to upgrades value. fair average is X.X X% be XX-year their continues our underlying Grade of than average a X which Grade resulted portfolio average. We quarter, percentage grade investments the the this

of one our XXXX, increased X.X%. slightly new addition driven the continues meaningfully by to nonaccrual Our XX-year X.X% but of from QX of X.X% below largely cost be at rated nonaccrual, average

XXXX or of From funded. investment were would our $XXX XX, XXXX, repaid which Now, totaling to $XXX pipeline. a million we $XXX were end commitments. July basis, activity million made post-quarter July do on of new as shift quarterly We commitments million, investment Mitch I and on investment I exited to X, and like

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

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

Kipp deVeer

ability lot, of a demand our by only and our for increasing continue of and likely stability capable partner to to I’ll simply uncertainty economic strong borrowers valuable Capital Ares be borrower capital private conclude and market to our saying The capital navigate believe Thanks and be trend scale. Michael. remains more well at we to the financial is the ahead. a positioned that

team. further we market we widening volatility While through The team’s future address and of experience any progresses, additional very challenges. cycle capabilities anticipate and well our potential breadth spread to good portfolio and about the our the of for as positions us the cycle feel our size

our confidence the more our environment of more be dividend. from to I’d for taking concludes is investing the by quarterly focus forward growth election dedication to their This reflected questions. open the line and in meaningful for rising to We’d look quickly our our continued should That and begin raise and earnings happy for to thank going rates like a moment our feel also finish to success remarks. attractive. the prepared We team position interest potential the to company. in

Operator

[Operator today ahead. JPMorgan. of Wedel Instructions] Please question first go comes Melissa from Our

Your open. line is

Melissa Wedel

Thanks much. so

question, we higher being First hoping the I’m into go comment earnings about Kipp, potential made by that the XQ. driven you rates can back

off said about you should of sure of we make potentially. guess I’m wanted X/XX that. understanding was be sort of $X.XX I I differently? what’s think rates? sort it Is to increase And driving that thinking LIBOR an that I Or based

Kipp deVeer

I for help Yes, in the here Penni may John or Melissa, on pull numbers. to

that they companies base obviously do the end three rate. bunch point quarter, for a we resets, the and we borrowing the as And higher applied little the a not still every will actually technical that which So their got had had when a is, imply of – LIBOR of to reset it’s much borrowers months. what LIBOR typically

evidence is, of if the of were say resets at forward income interest like i.e., expectation LIBOR we make our look in going to trying what to that had the end sense? at we of So, all we thought just would done, all Does $X.XX June left what pulled off of we from we’re that those getting quarter, kind where QX, of additional we with earnings our XX.

Penni Roll

I’ll hypothetically, this is on increase, would on couple approximately earnings, seeing I for per of from to additional math clarifying $X.XX there further we we translates earnings. add you you XXX that, points in XX, a rates of see lot of were by we increase a – because at the just threw base just And some basis in increases points points benefit then we’re maybe basis where $X.XX kind have June did this, Because full XXX but if year about Yes. particular not know a in there at the QX, of rates core which we benefit quarter. rates

if So QX. those the in quarter full $X.XX addition taken of $X.XX would side. you reset in rates is really the quarter had second have hypothetical Where, for pro would to have higher that, effect been forma said the rates where they to more during we the quarter of did full and the to

benefits And So, at is of have more you further range one look, bps, think say, $X.XX XXX to kind metrics this we $X.XX added have the you two about different from it second rising $X.XX we quarter. be would rates. and if but a work, just to

Kipp deVeer

Does you. that Thank help?

Melissa Wedel

think I I does. other that one point... It appreciate Okay.

Kipp deVeer

through year here will once QX. through once we a It QX. be going easier get to get lot we It’s be

Melissa Wedel

Okay.

increase potential you the talked there. much. a lot income in impact Does include how that number? because IHAM something so you’ve that baking growth on dividend quarters, of also we’ve from $X.XX quarter, seen So on I laid are dividend wondering and line, income, that Thanks we’ve of out the seen hypothetically prior in per about that I’m that also much sort growth it’s into particular, recurring know you in but income here.

Kipp deVeer

Sure.

from forward. it equity probably this be not include you expected income. lion’s portfolio had a it’s larger can an investment is continued anything to going So does increase a Hill, a company. in In onetime just paying to actually larger, investment in as share regards the us Ivy necessarily we then But the in that’s dividend dividend of expect going dividend our quarter,

Melissa Wedel

Thank you.

Kipp deVeer

Thank you.

Operator

next O’Shea Finian Our comes from Wells question of Fargo.

Your open. line is

Finian O’Shea

afternoon. Hi everyone. Good

$XXX other to Another that Was from Hill? Ivy on sold syndicate that Ivy this there Annaly groups quarter. are million total Ares affiliated down Hill the question amount allotted origination or may down was the also

Kipp deVeer

numbers. is Yes, Annaly of that number part the not

So, course, ordinary I Fin. just call that

Finian O’Shea

the – That’s million, not okay. sold All $XXX was helpful. down

Kipp deVeer

bought That’s north right. People portfolio. yes. with of And of the – Annaly ask billion $X question Hill the portfolio, that Ivy

separate two are those So numbers.

Finian O’Shea

Thanks much. Okay. so

Operator

in Next ahead. is Ryan of today go Please Devin queue Securities. JMP the

Kevin Fultz

Kipp, mentioned the Hi, is transactions. on for attractive new environment volatility terms Fultz more on an has led Kevin increased Devin. to thanks. you improved This competitive market with

the specifically, Just in curious and documentation how new terms a talk pricing lender-friendly how shift of materializing, more could about could bit improved if if a has both you and you on to transactions? that’s quantify environment more

Kipp deVeer

going in that a volatile the a I and early right? through into for Yes. transactions have of liquidity the fall. the probably we’re bit of the period. mean, banks I to the underwritten part That’s of some even think summer remainder obviously, reference, continue that they fact are We made to on, looking

private markets. our competitors lending pricing So all the in done and most we’re thankfully space widen, think in what out is public the other widening as we are and And simply friends I of now, it’s seeing well.

documentation, is from have across of we’re perhaps So some benefiting shed reemergence tranches fees. deals the of tried you the early also as in additional higher preview froth basis of And much to an period. probably an our year points more as spread XXX smaller lender-friendly your covenants covenants most well just question of during to that

XX last aspect all XX every much materially documentation in the pretty terms investing of from environment, has and days. to improved pricing the So

Kevin Fultz

new two loans. trends past second reduced the over And quarters, at significantly you’d to looking commitments then just commitment lien

given attractive on mix Or a effort driven mainly the economic there deals? that outlook? more to second uncertain an is reduce less curious, is lien spreads Just the second in portfolio by of ongoing liens

Kipp deVeer

saw probably less here. side. public opportunity done. junior a we’ve getting think I there’s are mean got Yes. – large more credit of There also think on that. facing I a do little I we platform But the unitranches mean I

we been, think certainly but I capital advantage less So April, have make of spread the little quarter, March we busy an had market. we a transitioning took think through that busy second than where have when the wanted here play were been a to around taking the others pretty less tone think as and we widening And might a a conservative about we environment. environment. We thought were I to how bit going we we in summer improving expected was could into during than a were some sure we a again trying we of investment we pause take fall to what bit

of your everything So bit it’s a little point. to

Kevin Fultz

I’ll leave there really a on and quarter. nice congratulations it

Kipp deVeer

Thanks very much.

Operator

next from from Hecht Our Jefferies. John question comes

is open. line Your

John Hecht

just risk of versus of, a kind allocate rate is is to the you base of very you that question I depreciation, for question to generic the bit think how to, question. is, Kipp, a was gross call I’m A some from Thanks your maybe your much credit as Can of much versus spread it sort of cited credit widening. tied book changes, segue rates? guys. in trying credit a most Morning kind in that taking of changes of gross change quick the decipher value last from spread little depreciation

Kipp deVeer

to at reference pretty overall observed the thanks in the the the portfolio. I I securities Yes. really what mostly just don’t change portfolio question, we across reference the we in of market credit was obviously Most John. market. value see – We losses of in think we mean the for the unrealized high-yield broadly material that and the portfolio, loan didn’t look the – simply

John Hecht

pretty for then XX you kind have spreads? and if are spreads impacting more more a the market And distress? lot respect of at widening where a at And relative mean about I the words, thinking credit financial now we and are times? credit you to I as Or detailed pricing obviously in how a is are in view crises perspective the because do we right just the Okay. pressing years, potential mean, including that, great you point see spreads. other say, some guys on look where with past extreme to market some already

Kipp deVeer

it’s mean good a I question.

again, portfolio. of being significant towards right, the we’re the think, May I for summer. in April end overall we’re said, and in metrics change working That getting off here credit not generally we’re seeing the the valuation, numbers,

get of are clearing going is to because this a do very unsyndicated think base expect back, to the had is we’re think, get widen the backlog some I widening again, of don’t not on flow What with the large that environment the that depending which base market. I summer there be, is I And the to Look, very spreads in deal and underwritten, right, up, John, think everything to is spreads. call you come seeing portfolio pretty and some this set backlog out. some could those, I pretty of how what stress they low very, difficult clear right levels a are now, mean transactions going you only when cleared trying widen go that at banks in I unfortunate trying up. little typically you rate as you’ve aggressive in potentially credit bit lesser have then will reference And price, I think, things Look, potential rates on to, imply look So I inventory like QX would that’s companies. and the anything. QX the to phenomenon defaults out. other our really. this low numbers see is, in of This think market these more impact, thing question than to That’s to

patient have get we wait-and-see on patient that did, through a of how of a one. and kind into I wish we’re the taking but keep as bit approach we little to a taking So approach. the ball great don’t a think crystal summer I wait-and-see just fall. I I

John Hecht

Great. very Thanks much for color. the

Kipp deVeer

Thanks, John.

Operator

Our Ryan your of comes from go ahead KBW. with question Please next Lynch question.

Ryan Lynch

my growth But really, just last Hill is everybody. well dividend or that particular, is have morning as the the question considerable question of asset the pretty good Hill. first incredible years four growth of My years has Ivy the last been at in all. you as five an and AUM over seen Hey, we’ve for couple Ivy

becoming you of guys and that could changed going portfolio. Ivy in accelerated income a on the it’s the but kind really generate done then And of high growth also Hill large is achieving then well had about: that kind of that there, assets growth that marketplace it’s really an of obviously what recently? driving your sort has are So to very have talk accelerated you portion what one, also, very

like Now diversified know of sort this investment. sort loan asset limitation is of where to managers, size limitation this very is you not is anymore? credit enough, a okay, in there But grow portfolio going large say, any any that guys today, we’re size risk with your individual X.X% at it’s kind there not I of

Kipp deVeer

mean bit should see plus did obviously of I $X question the on something been a buying which relative portfolio Annaly. management company to this very cash-on-cash get, long how very and for from a time. mover just been We if I not. I a think period of is a They total others. a the there, in the Yes. team, bank obviously you’re consistent asking, assets. X.X% there’s it of going and It’s large relative billion up But very we’ve transaction quarter done me, job, a this little could portfolio, assets the return, We it managing a large took judgment get. it at for pull needle the has would certainly of because begs dividend the investment the too. made investment substantial Look, made call. of about that’s it’s you portfolios Obviously, loan obviously they’ve great when attractive over and

me, the the end, getting from terms is said, be concentration really any is the For right? to coming dividend X% have we it’s at particular one of diversified. upper feeling there. chunky. That probably X% being don’t underlying there pretty or And in positions investment very income

here, Mitch too. it something to the going it’s but up night, is a starting the, in So to that’s keeping little not bit. at limits jump is test me

Mitch Goldstein

thing number there’s in as you I a and subsets want to in history, lot right, Hill management ARCC. of Ivy we invest of Ivy asset Hill. return had our different the remember, been make valuation One XXXX, through levered we we’ve is tremendous and understand the invested third-party because a that times And Yes. the around an it’s where CLOs for Ivy Hill of a since manager. Over of mechanisms, see sure manage has loan also investors funds such many have equity other the

to to invest ever There’s level. business. our and the So to continue point that if But of and to agree to a up Kipp, sell ability in with came probably a always point; to grow. upper core assets the ever getting it’s it came had room equity I drive still it we’ve the the

to size levers many the moderate of pull have we So the to Ivy Hill.

Kipp deVeer

great. That’s

Mitch Goldstein

Hopefully, makes sense? that

Ryan Lynch

I that. definitely understand. great That a That It’s you been comfortable kind feel where with makes asset. sense. – just it’s sense. guys makes of [indiscernible] again, And

appreciate forward on rates do full also kind basis of points earnings of interest the over those really the kind go had, of the at a for to kind reset are shows next quarter curve likely. the SOFR pretty overall QX quarters and I ending color of quarter, and you the if the up XXX from quarter of several run and I going that gave you statistics question show the then guys the meaningfully kind other rate of LIBOR, The end

and from I you’ve I core then end the future your well look dividend then at with earnings $X.XX at and going look $X.XX even at special that like above year, today the increases the to those the And they’re when kind quarter have at so the XXXX you when look the potential you declared of the third of today guys you the one and the of be and combined kind earnings earnings dividends potential. have increase in look

all you thinking that versus to on of your remind dividend form pay a out guys in earnings what And And expectation so achieving dividend us going you the core are policies far guys of as your dividend? plan via can you do kind how forward? as special of Is dividends?

Kipp deVeer

Yes.

we your think all I agree with analysis. So

But And of a with positive quarter. we’ve been the much, we’ve you’re argue As amount for much a which a trajectory our we that got also number. easy time, bit quarter, dividend any base a rates pay need, look, built We’ve an long as add low that highly citing about substantial ability to been rate. forward, might company. look earnings base think persistently a to don’t you higher this these obviously year. it And more great feel here using I’ll going saying advantage just in issuer. of I to we pretty even income, earnings I’ll talk high, Ryan, we’ve pick could frankly, yes, confident this we the as to dividend spillover that felt little that beyond some forward. why never number is throughout very be say, up And dividends we I do aware but increase this by a couple the took special

about we good dividend feel we from the here. and and earnings So is potentially about feel today the good it trajectory, growing where

Ryan Lynch

today. I time the Okay, appreciate

Kipp deVeer

the for questions. Thanks

Operator

Our from next question Markets. Lee today comes RBC Capital Kenneth of

open. is line Your

Kenneth Lee

Hi, good the for thanks question. afternoon taking and

mentioned You in the you credit remarks within more terms of the the portfolio. in then prepared downgrades ratings saw upgrades internal

behind to the more behind Thanks. key more details Just upgrades? those little bit some of wanted perhaps of get drivers a

Kipp deVeer

little around a a certain was moved gains, diversified bit. below all pull of small credit to think that think we mentioned, there what good expect. no, good out there’s But mean as Kenneth. in – But broad don’t it’s credit takeaways I you well sort to big I name are equity I’d It’s that look. a in And was sharing. you’d couple and all large worth said areas diversified historical to one a nonaccrual, performance there. pretty of and portfolio. there’s portfolio, it’s it number if that which number I generally that had had average, particular add pretty probably I any we around up our performance, say nothing are we

Kenneth Lee

near if could may. Wonder leverage about Thanks. just follow-up the how just the I or activity could if you extend And one you. question, your Got over talk given more out thoughts a term, on there? share bit little

Kipp deVeer

Yes.

situation point I target more on where our think end Ivy to volatile So our net we the that and down. experiencing, us is basis. number range in a of about times, the got a Annaly leverage the Hill quarter, I’d kind upper upside busier a Frankly, market the now we’re had a of at like like one X.XX to have that at come

all acquisition that to said, ability that that think we the Ivy I upsize and ability to portfolio did too make being would at just – Hill was the we attractive.

fourth the So we think leverage longer down term but in the I and be to would pushed to upper the that quarters. here end, be third the goal managing

Kenneth Lee

Got helpful. you. Thanks again. Very

Kipp deVeer

you. Thank

Operator

Next, we Raymond Dodd James. question Robert of have proceed. from a Please

Robert Dodd

A The better yes. the the – question. to question, a of global question quarter comments outlook the a compared the kind $XXX headwinds almost and stable economic but are would you a made your more to less those in Congrats businesses. mean up picture you’ve to your et and everyone of dark. bigger for cetera, example, get and now are cetera. A Kipp has Hi in, businesses. on clouds speaking, how imagine me, size right gone lot, are bar lot I These outlook. there’s about as et generally U.S. I Europe, businesses, million looks EBITDA

side front? you it’s how the comes businesses color international still show be of from where those larger the is yet that help not looking so backwards. But in color do there? So of much can more the us economic give that any Obviously, troubled? And end on then customer on these might more can well, again, might some you any FX on numbers because the any outlook up demand as for it concerns have offset markets

Kipp deVeer

it’s with give you I say, XXX can’t can I portfolio, named And a Yes. good actually mean question. the answer. an I

We have lot of and a dig go data. back to through

part, of very in business but the focus that right? We’ve what from are the here. over we For BDC. away most a these the too, companies, despite got primary U.S. the we do companies, of to size they choose That’s large Europe do

think, tend large we I look to more companies don’t we’re to your point think difficult, risk trying in other U.S. than So I global, some But just certainly, share Europe and because to any our risks heavily of to does and your than to portfolio these larger with Europe the risk get BDCs. see we businesses being over unusual question, be the about it the as in weighted we your of in here does where concern heart management. some

good through to lot that. pull answer we’d have of go get but you data really again, to a a – on So whole

Robert Dodd

ballparking, you size? Do just the XX% to the is XX% to ballpark a hound little have to U.S. I to XX% mean, Yankee people. companies, I think less I are mean up a obviously, estimate, estimate stadium XX% domiciled bit follow S&P, of you but very international. maybe revenues

Kipp deVeer

than companies, of lot right? XX% would health XX% about relative I sectors I think software we’re guess is think, and guess you that that think lower this the mean ballpark I S&P, industries done at even guess where that a guess like If much, number, getting the large mean a much would the in, businesses, at you in a your care that U.S. portfolio, cetera; the for I I that, index. we’re is – I it I our would Robert, right? to that’s relative So in XX% business a States, very to would et

Robert Dodd

Appreciated Okay, got you. it. Yes, perfect. Thank

Kipp deVeer

Thanks for the question.

Operator

Our Janney from comes of question Please Scott. today Rowan next ahead. John go Montgomery

Unidentified Analyst

Kabushkar Rishi or is John losses this the Rowan. behalf [ph] originated Were loans? of Hi, loans on syndicated broadly on unrecognized directly

Kipp deVeer

Both, I would assume.

Unidentified Analyst

to is better you are all on Or either Is or? just it there breakdown get together, a reporting the... any way

Kipp deVeer

EBITDA thin we’ll that. the at look larger broadly that’s larger ignore again, quotes. on quoted, borrowers, we quotes. significant companies use have balance I don’t my broadly a of syndicated don’t We for a and We pull sheet. in and is what most market, could No. focus off-line ARCC’s And that typically have guys. you finger right, probably we’re reality have lot even something But we doing at a at don’t probably But there’s not on sourced loans. the tips. ARCC And is obviously, syndicated And it loans. go loans directly of

Unidentified Analyst

much. very you Thank right. All

Operator

go Point. question next from comes Our Alexander from Casey Instructions] [Operator ahead. Compass Please

Casey Alexander

give into – – Hi, or portfolio sheets, is Alexander into balance Casey a higher categories telegraphed we impacts. chain analysis potential period an expectation it companies than or in good from it of your of uncertainty to the as of opportunity we it, obviously the of Casey this economic said going just in, companies this managing be may or gives be cycle would go you particular recession behalf there to is nature kind to are already X% far recession. to more This higher-risk do this a supply for in them XX% that your companies past? it that better a expenses? and that of you the outcome I’m Alexander. be through afternoon. on work And of may Does telegraphed better seems it your cycle prepare a not category opportunity at the bolstering with allowed would And by and wondering than inflation COVID perhaps that risk better are

Kipp deVeer

I think it’s a question. great

a yes. balls, is I at think the crystal this simple And as is looking we’re situation. our all answer

that that to very doing prior right? was away companies have the of corporate banking credit. you’re probably to trouble GFC in even I although getting impacted XX-plus this a like unpredictable, are we’ve very that And much a that back something on something that wouldn’t for And feels never operating. by crisis, different together COVID, years. traditional This traditional, take from to your before prior to way a cycle we portfolio look was being in experienced have expected at me right, reasons a was Ares do you company is cycle, influenced point going when have the underwriting. credit more team We credit having And really influenced been here me more that to that’s where

handle we’ve teams that deal help mitigate But think got to that It to experienced what’s and everybody satisfaction equity that I situation, happening now, credit your obviously take a traditional So so like measures much firms. got think more this, cycle, and right? to I not a you so. playbook quickly So can’t we’re how borrowers navigate right? our sees it’s knows management traditional feels private companies and very credit happening with through we’ve more taking to regular a that and portfolio some team contact with operate are teams and point, our through in

Casey Alexander

answering right. appreciate. Thanks I question. for All Great. my

Kipp deVeer

representing for Thanks yourself.

Operator

finally, KBW. And have from with a follow-up we question Ryan Lynch

open Your line again. is

Ryan Lynch

a time. had questions. Hey, appreciate the I couple more I follow-up just

those first positions rates You you of market I’m with of to they profile, larger direct some of for the mentioned the route. borrowers and uncertainty one to have or are I curious maybe could some seen underwrite increase that the the that the deals. have yield the with the the are went make normally deals turn earlier just lien the in of you more second those such than that that syndicated tranche safer your in because in loan you borrowers. syndicated the are know felt traditional broadly to market the the more loan have base market as well and past? just you were the broadly past, to know order loan prepared some would broadly I in comfortable stress as to lien we’ve participating participate of ability remarks that turning you more syndicated new some recently, larger now in stress these under sometimes and positions kind in the in to those unit able in as

Kipp deVeer

the it’s a I lien the high-yield or sort traditional what really kind first sort first we’re lien in of of Ryan, not syndicate mean, issuance is bank-led I lien, of second think just seeing, because investors. underwriters there, it’s to junior around side. the LBOs, it’s on but operating very I well new by particularly say getting want I close, don’t not rated market, sold generally mean to

bigger firms of equity available the in So larger the those these But town I And is push positioned higher makes difference the of the days we’re unit only right? we’re in past reliable. preponderance But balance on capital few offer comes where able maybe doing happen is terms there but and larger what’s and there, that to again, That news is we’ve partners of overnight. can they I these to mean, LBOs less has a helped of said, sort types right the markets the well solve nothing it no, as of competition different. a there’s that right, extracting more one are and is And is numbers as in of being feel the desire private of bigger. volatility find we’re parts the trying some become bit happening to it find better lot certainty think We tranches particular, a closing. good for cycles and doesn’t we’re because are fees as games that, reliable. our between little in been you’re transactions. extracting of

Ryan Lynch

the put nonaccruals last historical had held and guys’ book are still And That’s your overall strong There that helpful. had then guys one but marketplace, below this Okay. strong the well was, up volatility pretty I say, obviously, value results, you in very quarter. and I the up average. would is well

space BDC credit a So think very what next in But like good about quality BDC investors worried from kind XX-months does of in everybody the look are the which standpoint. I results.

the call, guys companies But if and that think think XX% guys statistic provided work if You from are I this. really sort think I’m that of growth a guys what you lot question the any you growth you next over Do in the sort on a XX-month the I sure get of in of they EBITDA about have that’s, from investors – portfolio not your last Are your get data have that portfolio months? the on you slide, worried real months crux I Because mentioned the period. portfolio portfolio what companies? your I are EBITDA over of think guys companies investors of companies, over you even of the in forecast maybe kind an and these any what expecting from is XX provide? XX guys forecast happens I think next

Kipp deVeer

there’s that’s mean talking Ryan. here, I obviously math yes, the think some I time mean I about what all – we’re Yes,

comping Am some share there. of yes, a I actually I that concern. think slower bit growth, So in I So some nuance right? truly because likely again we’re mean we COVID the see there’s expect I growth would numbers, with portfolio. I a little which But slower worried? off will

I’ve think better those would expect most. defaults I we company always up. said, we’ve of the go said able than been to being broadly That will manage too, publicly, aspects

the confident. first So year four cycle and as traditional little bit a seen share credit. we I to obviously here of we pretty six periods question, But can credit of We doesn’t nonaccruals feel to certainty push expecting less probably we your weaker yes, this more tougher and early, to It second a mean months as I and where But we probably of be a me at keep year forecast for rosy back we’ve really not the that’s manage can Casey’s up sledding. try out again companies half proactive mean we with volatility as we be kind a I minimize night. half. losses, what of forward. during do and for

I your but and share – others. So concern

Ryan Lynch

follow-up questions. I both the, the Okay, appreciate

Kipp deVeer

Thanks, Ryan. Yes.

Operator

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

Kipp deVeer

I know for just thanks everybody attending.

and and thanks interesting September August beyond. here your get your one with going with to hope as I because it’s families positioned you an happy for month And enjoy But the think get friends be the attending again and We’re quarter. for some we of time today.

Operator

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

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

For all joining. the replays, also Investor a Thank on please for located section will refer be website. Ares replay link XXXXXX. to Capital of An the Resources available on homepage number archived webcast of conference you

Ares Capital (ARCC) 26 Jul 222022 Q2 Earnings call transcript