- Earnings call transcript Q3 2022

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Operator

Thank you all for joining, and welcome to the Ares Capital Corporation's Third Quarter ended September 30, 2022 Earnings Conference Call. My name is Brita, and I will be your operator. At this time, all participants are in a listen-only mode.

As a reminder, this conference is being recorded on Tuesday, October 25, 2022. I will now turn the call over to Mr. of Director Managing Stilmar, Investor Relations. John

John Stilmar

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

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

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

Kipp deVeer

the for our everyone. team. interest continued on and additional of compared share, $X.XX portfolio. then X% of credit reported benefits driven This and quarter Roll; provide rising Thanks, I'd highlighting appointed the the members morning, second with joining John. you're our our and Financial Chief thoughts here some hope third like economic results per to of the by within Hello, quarter quarter, an of by other third Co-President, several I'm call Schnabel; well, rates we Mitch market. backdrop today. I our and Co-President, Penni the you thank Goldstein; stability start core and Officer, and doing earnings increase newly our to Kort management our

as the generating earnings per point place volatility making more share. and third rates credit compelling leveraged weak and has capital quarter more $X.XX Importantly, our finance as third present per with the company secondary market roughly and liquidity that in exhibiting and been growth. demand introducing and to third XX Economic overall been transactions September or full From would higher, persisted we continue are while backdrop earnings inevitable. quarter, prevailing quarter later softening conditions in to fundamentals market interest as economy. our Federal prevailing are quarter, attractively. anticipate for well in markdowns, taking of losses, slowing seems this in the mixed slowdown increasing around to a the opportunity and sources if and markets, we solid, as markets. a the new detail continued monetary end the higher in consensus the and and to discuss these inflation more X% equity Mitch has future during of investments. the credit a strength And portfolio new much it this inflation, largely our remain at the At the existing we solid, its equity a took improve tightening this, of in rate to the markets. as had more and markets did positioned the X% from declining These benefit further traditional appears new surrounding outlook issuance. prices base by comfort about induced believe from rates price picture net take performance combat much corporate the markets environment of U.S. NAV core modestly increases. competition even a concern lack continues an in trends volatility Despite for some the made Reserve finance lender-friendly leveraged the standpoint, the we more The higher unrealized to difficult economic to are data particular, in fundamental this higher call. market are rates The will higher yet share slowing is triggered and to due portfolio we The declined have remains has policy these these to any we the

We through a our focus in shareholders and while future As we than remained situations level selective to We're deliver years. deals. also as our remedies. positioned is early cost We a continues past market operated Two well operate our about cash weighted inward companies difficult believe the to credit historically becoming bit larger of approach we've on of same industries, past, to portfolio higher is efforts portfolio from our By mitigation, average supported the averages. liquid stronger otherwise well show finance on more at portfolio our turn metrics and overall quarter-over-quarter risks less our and more today to uncertain year-over-year. by portfolio we turn know, believe times. volatility use middle with proactively of The flows conditions XX taking the periods that new in measures in incrementally a weather market less the and company improve cyclical over have more anticipate market both the to we've and believe metrics in to average We EBITDA of rate current able current challenges. credit resilient, to portfolio management our conversations quality, grade risk performance credit weighted interest the XX% can portfolio historical the in market on have that healthy of with reduce markets operating would the healthy upper challenges companies to and stability been we focusing come environment these rates. high growth nonaccrual free that in static some manage

our strong monitoring risks, we manageable. diversification. credit these approach is we believe portfolio to the closely companies While profile Augmenting portfolio are of our are they

base share any to billion We portfolio our in X.X% I of accounts the company, just under at elected on our increase of of of in a primarily in increase outlook and dividend means value reflects is Ivy the level we this regular because also for end XXX this single quarterly dividend history increase, our due significant substantial investment But is scenarios to rate portfolio this $X.XX higher for and investment excluding paying over at any largest variety morning. generate now in the fair quarterly company's X.X% our level level per This to me of our earnings, higher core of interest year The before increase results and foreseeable portfolio. are announced $XX.X that is dividend across we average. call higher than is let quarterly And that diversified regular SDLP future. dividend Penni, earnings from rates. regular core our experiencing Hill, base turn raise a portfolio increase the Our the XX% just dividend the the the $X.XX company positive the largest that on to discuss to third is a ability the economic single companies. XXXX. This

we've amount the total details on final As this the the our a reminder, going the provide on fourth for like already per quarter and the to dividend will further for to we to positioning. expected quarter dividends thoughts a spillover. earnings forward Penni fourth to additional And of earnings $X.XX and some fourth dividend, additional core on comes over third quarter dividends per dividends When and potential sheet share to increases call, additional due quarter. our for details more our share. balance our in additional provide declared I'd adding around call $X.XX turn now results undistributed the

Penni Roll

for XXXX, of $X.XX interest higher and quarter the of per floating earnings Earnings up rates quarter again quarter core XXXX $X.XX a third the than base ago. investments. our rate third share a for Our from higher of $X.XX quarter the year benefited were same from ago on the

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

prices the for losses of we Kipp quarter were reflect net the equity third result unrealized losses certain markets investments of unrealized XXXX earnings included decline to that in of largely and per credit Our $X.XX for a GAAP which and mentioned share, realized earlier. the the in took

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

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

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

about approximately to total market XX interest on portfolio $X.XX add our XX, A of at the investments net XXX in from impact basis short-term per XX% as positive rates rates per in quarterly value of expect September of September could annually. rate share fair $X.XX share performance a point or have the was floating we earnings increases increase company. continued in Given XXXX,

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

during in debt a from in significant our million second positions cash to million active us well Importantly, the the activities the the in capital occurred our equity market third share dry benefit our quarter. $XXX remains from our X.XXx believe months, having XX of of core to debt and additive to be including and $XXX through competitive After nearly of of with quarter ratio available mentioned down would full fully with investors. nearly billion next end have considering maturing rate capitalization most quarter to our in at quarter, we the these quarter, $X.X capital a powder X.XXx $X.XX remain only patient the Shifting we already total Kipp liquidity that net of that liquidity. and earnings the one the obligations of Overall per moves the significant yet in ended of earnings. cash our and investment liquidity, available third available flowing advantages

more our detail Before provide I and undistributed conclude, want I our taxable on dividends. to income

to spillover million Our XXXX income share. or approximately grew $X.XX into per $XXX XXXX taxable from

believe this said core we out we see to year the of earnings environment, many sets a increasing of an Having close and maintaining in we XXXX. amount this dividend us result our power as undistributed are We undistributed not supports a throughout level earnings expect XXXX steady cycles of spillover. from having of have other we’ll a spillover fiscal meaningful that, rate and to experiencing when that increased BDCs do that continue spillover goal compared apart strong market nearly higher as

on to dividend per information in factoring increase how increase This single year-end today’s dividend. address So the XXXX, quarter as while a share, XX, share fourth on is our regular in history. share quarter. per company’s to quarter investment earnings XXXX This we we morning, call additional of the February. year, fourth increase I $X.XX past regular call and dividend quarterly the back payable quarters growing our on regular the additional in per to past walk on we enhanced over the now the increase declared of in Both that fourth quarter to in record our to mentioned, turn third regular also the we fourth unchanged that quarter Kipp the dividends. six we This rate XXth the a and $X.XX $X.XX will activities increase announced announced dividend through provide XX, may Mitch share is our largest will XXXX. declared December quarter by per stockholders previously in or for are that consecutive of dividend December

Mitch Goldstein

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

in a across middle capital in are and than the the one investment third market market new During team distinct to volatile Ares like source and originated continue being our reliable XX transactions commitments sponsors businesses good of $X.X ones quarter, billion as industries now. we and in of consistent more XX value

often the seen to relationship were focus information was Also, have over this originations we incumbent years, were of to different than more secured. our our investments we commitments tend no on XX% where As borrowers. of said transactions advantages XX% have quarter and we or our as

example, are opportunities levered higher of view Based an the the for our highly on similarly are today’s transactions. year the market, five spreads, lean points investment in average Importantly, basis first than approximately markets XXX attractive. as

on addition, have an lean basis, yields seen a more in than first decade. the highest In we absolute are

opportunities, when able on the quality scaled a was of portfolio. capital be it The more the to credit are about first higher terms EBITDA capitalize attractive are year than importance we The but quarter originations believe provider disciplined, highlighted to current three be will We of average. larger we takes talk Xx lean transactions and I this of this to In the environment stable that historical providing the than our of market executing, companies. that. our offers capital

to shifting Now health. portfolio

our weighted Our $XXX companies growth companies reported equal, weighted XX%, the serves well companies our to XX continue average and our perform EBITDA five period and all current was view, streams, portfolio our management, mentioned. over last to month companies. companies as The the portfolio larger of EBITDA things EBITDA of revenue Kipp our have over diverse well more ago compares in EBITDA million $XX deeper particularly bases This grew portfolio and support the to navigate further broader This quarter. $XXX upmarket average financing performed underscores their on weighted for of EBITDA the merits customer the of reflects million being million our third continuing demand the years companies Overall, focus our average. credit larger from larger which higher all their reached as are performance. of by to the XX% inflationary environment. In average with

staffing energy teams management As portfolio and on shortages of during portfolio team disruptions Kipp portfolio mentioned quarterly alongside deal impact review, our pressures, our our evaluated inflationary rising our supply the companies. chain prices,

take comfort our less is and a overall result analysis XX% remained subjective, with and portfolio supporting we X.X flat consistent average sectors that last fundamentals fair portfolio than in portfolio review Further grade this, underlying average X.X. revealed our XX quarters of this of and company’s above While our the to industry quarter value at be risk for category. the weighted year was continues the of at quarter’s higher

meaningfully below last X.X%, was our be and to average continues of non-accrual Our was year cost also to flat quarter at X.X%. compared rate XX

two companies non-accrual to list. from the quarter, During added we three removed and the

securities million new at weighted average October which as of on $XXX were to higher Now October of XX, basis yield activity pipeline. yields would or fourth repaid costs was approximately weighted lean post were billion XXXX, to end our funded. new quarter. were $X we X commitments. through $X.X a billion on and of the commitments on quarterly total I The We investment do the lean we first or like during exited on XXX made average investment quarter commitments basis, investment exited points than we repaid From shift first

backlog $XXX XX, stood pipelines As our at of roughly and million. October

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

Kipp deVeer

Mitch. Thanks,

XXXX acknowledge leadership lending in joined Ares separate in became press strategy XXXX as years strategy. release. leader member Ares Goldstein in founding contributor a dynamic our concluding, as the is U.S. been when both I Ares that this a success a join of the play company’s Ares’ in and member serves our will lending the believe prominent U.S. Schnabel team to morning We we want to Co-President a ahead. Capital. Kort time Direct team of has change as of of Kort him Lending Co-Head direct having a launch and Before Today announced Mitch that long look to now Kort to the the a direction ARCC. Kort ARCC committee. forward Ares a investment joined role executive more and and we Kort direct the in of

of this on group a credit as down to part at firm the is lead continue Smith As responsibilities take ARCC’s Co-Head. stepping change, global Co-President to as and help other Ares’ will Michael

over and the Directors Ares insights to the Michael’s at appointed of years, the Given last Capital. Board we’ve him XX at leadership company

take of at continues the a comfort his of committee. the the this commitment, as Kort, some in he’ll demonstrates our performance company’s I remain continue strategy and support also transition depth will can believe engaged ongoing we investment Michael tenure member. day-to-day and relinquishing While the to We knowing ARCC. responsibilities to say a Board as all member further with highly of that team

This generate as dividend raise to our competitive our earnings prepared reflected and to continue our be and financial strong is to questions. ability confidence our quarterly open regular line happy earlier. our power our our we in and to meaningfully highlighted the results in That concludes decision in we’d remarks confidence shareholders. have position for We for

Operator

question the have Wells phone Fargo Securities. Instructions] from first [Operator on our lines We O’Shea of Finian

line Your open. is

Finian O’Shea

Hi, everyone. Good morning.

question significant pretty good quarter First here. historically increase $X.XX on for a mentioned a you as dividend and was would’ve been Kipp, you. the

I to from of that spreads rates then it come power variety where where base commentary and were to does they credit economic So your earn scenarios. back under able if earn guess, to appreciating earnings What continue on revert the to being $X.XX? a

Kipp deVeer

our good the raise haul, over it and I to the for guess dividend comment core remarks. our when the in is and We obviously long tried can Thanks we that Fin support my earnings question, Yes. morning. clear prepared feel I make only that brief

As a we a just ran that. comfortable happened felt or run possibly guides quickly, thought dividend. there. future the supporting we thinking about feel of it, would policy we rate and about and much that severe reinforce the level our not thinking unless really reversal I’ll dividend look, lot just and sensitivities of all think I And raising and increase how of beyond credit different and And obviously a we spreads year we what about contraction it next we into is which model – good this expect, higher something we

your take I’ll how go the raising where and So dividend take and that model lightly lot of sensitivities we don’t a quickly. around obviously But we point. substantially we

just to the while. say be look able good that for being earning significantly than more it future $X.XX dividend supportable today. into the about And company’s a we you So feel to

Finian O’Shea

has lot you. subordinate CLO embedded a a equity, on Thank example. The valuations. of follow helpful. equity, for And That’s portfolio just on,

markets to to point So at seeming the this today BDC at valuations, NAV hold does so through how at up well? lower continue transactions with go private

Kipp deVeer

portfolio largely a took declining Well, markets. quarter equity both that this the – fact the was had and bit on we credit prices the in I down mean the we fair

where the here? on on it So markdowns I guess, the portfolio. equity largely markets debt there were unrealized were see portfolio, go take where although our does well we’ll us, but as from some the marks

we’ve exposure sure quite – I’m amount at company the As comments. too. you not exposure equity know, fair on of CLO the got

Ivy required in in don’t way see about place the the one a invest only we and But a we both is third Ivy on think look and obviously pretty is potentially SDLP at And the CLOs, selloff there Hill. that impact Just reminder, party significant Hill. we yields there. the evaluation in so the CLO as on key and market considerations SDLP we’d on what’s of going

consideration think appropriately. that I So we’ve taken all into

Finian O’Shea

much. so Thanks

Kipp deVeer

Thank you.

Operator

Please The Jefferies. from Thank comes of ahead you’re next when you. Hecht John ready. question go

John Hecht

questions guys. and Morning, on my taking Thanks solid results. congratulations for operating

credit how you from quality first one, of I’m pretty you your know what year. of sort gave But inflation? just your good hearing portfolio. counterparties you as wondering colors might of next in closely follow thinking are just what impression you on terms The economic the perspective portfolio. your are lots from of that they’re guys – constructive guys reacting I and kind in very it changing to rates happen about And an of updates

Kipp deVeer

Sure. Thanks the for question.

say counterparties, the mean so Just you do portfolio I’m clear, you when companies?

John Hecht

Yes, the borrowers.

Kipp deVeer

right? Yes. the I mean, read newspapers, portfolio look we’ve most last for conditions, challenging with supply it’s energy would inflation, disruptions, the parts labor about Whether I price certain I chain companies, been that operating shortages, in world. in XX of all just the the months stuff from pressures of say increases think more operating have

pressure because they service it’s these So now some been higher I costs. and companies there’s debt difficult have think on more of more

a had to So of in than extraordinary manageable? The is don’t. and the did broadly portfolio quality my credit get corporate will better of settings, this the and reminder we markets the our non-accrual both today prepared worse? said and yes. that If it as do probably would something next I’d and I we rates When other I’ve year. expectation averages. remarks, the grades, guess, But say is will But look back be little defaults say that at that the expect historical view just increase would in that I through year the answer bit a not I this to you as this defaults part into in increase. credit is

John Hecht

how over are well I positioned tend sort more but you guys disrupted of I you And certain mode, crisis related on environments. advantage know there’s take so better call but volatility that talked also forth. – I to now. about disrupted question certainly mean, think guess somewhat environment, in for then us this most of markets at is, and time do credit or some you least Okay. the not parts the not are of And

So the it? where I look backdrop, markets it, question in area to of that given are are guess is, any is starting opportunities of credit that the regard? where is the enough in take is to disruption sufficient Or advantage you there able we just sort for

Kipp deVeer

that mean, based in larger I both think today it’s new banks at the working in And Yes. that deals, are fourth look, to on just here syndicated new the has quarter, markets, of been names. the slower. most a into solution clearing portfolio secondary mostly because upper I for coming range answer solution substantially most the although some fact substantially, investing we’ve bank out very existing of is end broad on is, investments the improved the new think the backlog the environment admittedly companies active that difficult on I the they’d the But played in accumulated. We’ve right?

substantially and slowed that activity probably see levels we’ll your areas two the I’d the had going end expect I comment pretty down would didn’t continue. to into on what that and next year are those highlight But So brings. here, we

John Hecht

Thanks. great. Okay,

Kipp deVeer

Thanks a John. lot,

Operator

KBW. of Lynch Ryan when go from ahead question you’re a have now ready. Please We you. Thank

Ryan Lynch

and Hey, good nice guys. morning quarter

of Xx. looks just is, to EBITDA of I way ratio. My the look your which just of by lag, pressure slide this the through I basis points I XXX if we The the kind And quarter drop to rates, it significant question would on are XX, ended weighted I rates rates from assume could at that rough or second that’s so the looks math good way to there’s Xs. I that the and related and earnings. have quarter and was ARCC’s kind could of for increase credit interest like third the this primarily rising your question the at flowed first pretty in coverage assume average would again, declined quarter, another had probably which to think driven that low it But it down The about quarter. And from one that statistics. X.Xx quarter

this So quality we something that’s probably of the interest coverage good at today, really how about should be materially this but thinking credit lower. like look going with trajectory then

Kipp deVeer

I mean, that directionally true. that is think I Yes.

the I look curve you XXX of basis is out the a likelihood to as increase a base and of here. what at bit you look actually little come forward forward think XXXX if then rates, starts laying XXXX. if more from down back for it it’s And point even far as

interest your with see And point XXX basis see there. do probably in to increase, to my look, So in opinion, we deterioration from likely a coverage question, go X.Xx. then we’ll where rates

thing. or go And is does to the portfolios question, same have is forward the whether basis managing credit far the XXX elsewhere, to actually likely. I think which its think I and points objectives you’re what the asking is accomplish repercussions? saying how private Ryan the that’s curve everyone’s beyond think something I that are fed less

again, working little a and to coverage that quality bit the Hecht’s interest expect we fourth John But But go it’s bit worse to quarter probably we and expect down we we and question, to into with we’re manageable. yes, get year. expect in think So credit next a expectation. little ratios

Ryan Lynch

Yes.

Okay. sense. Yes, that makes

versus the If income were Hill look disclosure a guys’ that $X were other other of of I third income management of is fees a incentive maybe If like $XX the an quarter I million. management $XX at ago, Hill. $XX of at million Ivy million kind was this more Ivy was versus related investment year, income explanation year look incentive fees investment The generate other for clarification related or your million. question on just

Hill is those in from income related least CLOs what subordinated Hill that there? at is of all Ivy So dividends there that you driven just is? big else and Ivy Is that anything year-over-year big really income is explain investment income the receiving. securitizations other other that right tranches growth then, the investment basically in that bucket holds ARCC by Can of Ares that that or or related course CLOs that

Kipp deVeer

That’s generally what is. it

Ryan Lynch

Okay.

Kipp deVeer

Yes.

achieving Hill the divided got so dollars the the you – that by take Ivy Hill larger, obviously, that it if dividend, we are that we’re we’re you the got Ivy rates take the bigger. about I at, of fair dividend way return there have just historically, same value looking or it’s quarterly dollars annual think that larger is if So the go the larger, return the up, of investment, the

Ryan Lynch

Fair back queue. in Okay. enough. hop the I’ll

Kipp deVeer

Thanks.

Operator

now Point. Casey have We of Compass Alexander

Your line is Casey. open,

Casey Alexander

Yes. Good morning.

Kipp deVeer

morning. Good

Casey Alexander

to to is companies get you’ve if amendments extent going again, This look at the environment portfolio how out seems And sure your average modifications make question, lousy and operating willing what was time really so a like average be the you companies. To this sort operating then XXXX other do starting market must the on come And at to I’m work credit how there, got potential the to guys looking is through willing credit like side? the were with better X.Xx, on and on extent certainly focused got were issues. potential interest companies a at I to issues? be seem already it’s was on help going you that for watching. companies struck competitors cycle but and and distended overt same by modifications portfolio you’re and which market during to below guys at hyper you’ve amendments and that a to the yet coverage, where hyper And are you kind weighted to focused internally that of about you back XXXX seem that is environment – of the it’s it attractive period,

Kipp deVeer

I mean, like margin would did I of the Yes, company are, course amendments XXXX the it whatsoever, bears something it Casey, two say, frankly, has XX think at I and second quarters. the we of – over quarters resemblance where this to first no

team. to course and something keep COVID trying go some it’s we’ll I at look, and as long of was we’re the to And we as activity that’s into questions, a to little these So business, came ordinary But weaken not it if again been course right? that companies when and once. a you’ve of by pretty make it’s things the increasing as during violent become like manageable part it probably the have think to percentage a frankly I and nearly bit, But of that the I or it’s you time natural team things think earlier same all to the use you as spent have which look – aren’t is, difficult performing that have amendment word, doing our deals as going for ordinary I the have accommodations. has, time, mean, it’s now. plan and at

Casey Alexander

would what relative the quarter? you at other is, fourth to the in My you’re X.XXx, do they you ratio? pocket you. where of quarter, the But you fairly in And acceleration ratio looking leverage to question that of want volumes which manage Thank towards how to great. least Okay, the volume traditionally be. is end your at would of the debt fourth equity expect do origination have to some origination

Kipp deVeer

Sure.

is in be past, this or of expect slower we previous quarters. and much of much, way flow busiest seen much the we've target slower. is So trying for into to of fourth as industry in will Deal end I that volatility fourth focus our leverage is participants down. that that quarter range, it a it a seasonally I'll company the many to on as actually the question, crept and at a your most wouldn't have result big I you've the the communicated others say and us To years our for quarter again, the bring I of out think second the top the of see ratio it think market.

So...

Casey Alexander

right, questions. All my taking Thank great. very much. Appreciate you you

Kipp deVeer

Yeah, sure. Thanks.

Operator

Please ready, The from Ryan question of go JMP you’re comes line ahead the Devin of when next Securities. Devin.

Kevin Fultz

but have I were is XX COVID on mentioned that peak come questions amendment like on did one seeing have question good Hi, you you environment during This in, morning. of that quarter. been Fultz one Kipp, and amendments Kevin about answered, my Devin. in request. for asked Most

like Just last a curious basis, it on stands normal quarter? that was where where

Kipp deVeer

a mean, five less around at of than I'm Yes, a quarter some XX I not team. I’m less are Actually, even the than material. sure. quarter, it's probably looking that

Kevin Fultz

Okay. just regards attractive curious That's helpful. macro that portfolio And there can. the to if industries any I then backdrop? particularly just current find one positioning, or In are follow-up, you pockets if given

Kipp deVeer

industries? at a think We asked the you'll go mean, environment. I on bit it to cash out debt sort pay for of funnel come everything. slower is I question wide focus see flow, look can differently, sometimes that of down us the with service-oriented little stick get But at sort a we our which even less look cyclical a changing companies in of industries terms how earnings is, of type deals. are and we answer down, more those think we're approach not that at willing cyclical And but our about new the really of to we're are in to new originations frothier prone you now those we than in of transactions kind play into in more probably of a market, are

Kevin Fultz

the makes you on questions That and sense. taking my congratulations Thank Okay. quarter. for

Kipp deVeer

Thanks so much.

Operator

We Melissa Thank you. now of JPMorgan. have Wedel

open, line is Melissa. Your

Melissa Wedel

portfolio in contribution you. what companies Thank have to willingness or this Casey's my what in already Actually, portfolio them we some follow-up that taking regarding support change about to you companies involves amendment a seen I morning. that asked, how sponsors When for to how question you some do support think seeing generally? activity. of capital environment – those tends of but you're we've additional sponsors market lot and valuations of most I'm as private curious questions in have occur, one terms times this been from Appreciate perceive

Kipp deVeer

I company our technical pretty to a more To to COVID, through gets the mean that saw more most big in of the think in And And the our potentially frankly, to are charges a and investments capital and is think fewer all amendment here, pricing. fee something, right. positioning shortfalls group of question. honest, and now, covenants of it We're amendment be capital nature repayments. reset in, fee, they see a some continues extended where the duration as typical activity revolver is or equity exchange tripped or good. thanks covenant where liquidity higher some I be little the come unlike documentation private the for needs of I company their during – the Yes. we equity to access for required is in loan going the

fewer done think to buy company. a likely or get we're I see because deals difficult time sell it's a to

the credit being like with right. actually So is a benefit, Ares benefit relationship a private provider of

fee. can a So pay small you

pricing, as the and portfolio that You substantially there's or investment you a we can just lots get loans the four-year look make. and at most And pay three LTV. incremental reminder, then a equity supporting slightly comes you've And our in made. equity XX% lots that of of below

the of So quite at response positioning good, to the portfolio. and least continued equity the be that has private from in portion

Melissa Wedel

Okay.

Kipp, there I any difference the less technical sponsors? clarify, that amendment might support to am because be of nature Just the would in more from that now hearing and environment the activity of required be needed,

Kipp deVeer

think right. but yes, right. I Maybe I think Yes. I that's say clearly, that that's didn't

Melissa Wedel

much. it. so Got you Thank

Kipp deVeer

welcome. You’re

Operator

Kenneth have of Lee now We Markets. Capital RBC

Kenneth. line Your is open,

Kenneth Lee

Thanks taking morning. for good question. Hi, my

you Just comments. your upon on, wonder if could one expand I

in there's if looking other the you're You little in portfolio larger-sized environment. improve any Wondering terms to more that about the a an improve it like your this And portfolio current the towards of companies. Thanks. in shifting you're bit talked sounds opportunity aspects to environment?

Kipp deVeer

refinance a a the it's our today, or easier mean, I how if financing discussion resembling more to deserve deserve the little a gets the some we about that I have fee with market a higher here we we to more from in argument conditions with is gives perhaps for they pricing reality compensate company three philosophy. us bit past ago, pretty years company our say, just strength expecting. current the with I not their weren't think little if today. risk mean consistent to us And the increased that off a had it's or bit sponsor side for as we is,

just So little conditions as portfolio to the plan. of ability a if in rerate market performing risk it widen, bit the improves not something managers to is kind our

Kenneth Lee

Got you, again. Thanks helpful. very

Kipp deVeer

Thanks Ken.

Operator

next Thank you. [Operator Raymond James. question line from The of the Instructions] of Dodd Robert comes

is open. line Your

Robert Dodd

amendment can horse, dead a on beating and we about some talk Kipp more. Morning,

how or a you in right to are pushing category to Or remarks portfolio of One think But word aggressive, and in that the companies that et for that cetera, I potential amendments was exposures encouraging cetera, potentially as of is problem? less how than et risk those it. recommending think – aggressively high are dynamics or to Can of ahead give going do? anything is a problems XX% mentioned you any things problem, something the you kind it it's on for was you just I up? lot quite than less and proactive a coming his what the Or various Mitch macro said are prepared puts you inflation, you not you going position? with on the those don't higher You the more us of of wait risk classify in in stronger advance on. the all the color resolve

Kipp deVeer

think deals do the with we're the or balanced. a of is the I that where mean one sponsors I since for Look, we relationship the repeat lot lender to equity pretty

to private tend like – We is of think talk business I'd portfolios equity do credit larger value-added. transactions. do. private industries let's have equity think the we firms they to to the than transactions, about more into equity or U.S. they do, private we most tend of I with, Most frankly, than markets insight have and, and the

the So think And concern? unless But is, level value-added start of because, these what got investments this with get this to companies seeing. trips for pretty we tangential you mounting if discussions are we that other we as certainly in So documentation. just talk see eight start the about which that we'll reality lot see to you other you into And we're it have close increasing say, to about same dialogue, them, partners. know, and them pressures we've ask it's our the pressures? are of of a What's loan and your is early amendments the some the company companies. something your questions, something about just contact are is seeing to we don't really for

which that going is advance really company in need For capital to unusual. is a of happening

helpful. that's hopefully, Mitch? So

Robert Dodd

is That you. helpful. Thank

Mitch Goldstein

of process. Hey add. is a Remember, Robert, just I want to this type fluid

are large our be What with very dialogue way company getting And have anything? with and management companies an weakness, because as needs some is serious if and the company I on weekly beginning relationship So any sponsors portfolio the to happening? of companies a our the our information the we're constant monthly. the access we And as weakness and and portfolio needs before see to minute it's constantly really fixed, well amendment, ahead we team, of sponsors. our a getting what information with to and dialogue we the think, companies

Robert Dodd

I appreciate Thank you. it.

Kipp deVeer

Thank you.

Operator

now Hovde you’re Thank you. of ready, Erik ahead a have Group. Please from Erik. go when Zwick question We

Erik Zwick

Good morning.

be think experience more provide questioning could Just the to follow some and you on are color you idiosyncratic the the that maybe stress of show of line may about view quantitative a monitoring increasing of at or be signs for starting Or to weakness if And which can first? this you expectations verticals may some do defaults. what metrics point? into borrower have you Curious more do stress industries corporate specific?

Kipp deVeer

other – charge Erik. industries debt for each question, today But we're particular see have. as more risk. metric a and company at companies we're that coverage costs across We thanks that which well service account of the It's is sort don't more idiosyncratic. monitoring the the looking in any Yes. obviously, represent coverage, I as portfolio into broad interest mean, typically, fixed that takes it's

do we're I historically, look One under a mentioned industries. opinion, to that of these that picking lot defaults, you you if in and And most that and up towards we've our we've tended the certain of think right. shy away industries from was to you're weighted things the coverage create,

name-by-name indices. there's our horizon. to Mitch's a comments, than So philosophy potential trouble think the being probably of as And that where It does understanding to for usually now, result on performing But I more portfolio stress positioning. of assessment. better a and and the the close our is for borrowers and it's

Erik Zwick

questions. Great. taking my Thanks for

Kipp deVeer

welcome. You’re

Operator

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

Kipp deVeer

I But and We questions, thanks us. – quarter. everyone just positioned thank your for we frankly, quarter, the will your going forward. joining for the again, we next in catch and think and great thought really I'll this you participation company well is a was

Operator

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

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

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Ares Capital (ARCC) 25 Oct 222022 Q3 Earnings call transcript