Earnings call transcript Q1 2023

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Operator

Good morning. Welcome to Ares Capital Corporation's First Quarter March 31, 2023 Earnings Conference Call. [Operator Instructions].

As a reminder, this conference is being recorded on today, Tuesday, April 25, 2023.

I will now turn the call over to Mr. of Relations. Director Managing Stilmar, Ares Investor John

John Stilmar

Thank you.

statements reminders. me call the during with contain and and to important start some Comments forward-looking documents course accompanying as as made are uncertainties. well subject risks Let webcast the and of this conference

statements its obligation actual forward-looking SEC forward-looking Capital assumes could no filings. update in results excluding any statements. reason, company's materially from Ares any The expressed those to such those differ such for listed in Corporation

performance past of that note market information guarantee also Please a not or future is results.

defined discuss During SEC this company core core the which conference or earnings G, call, certain EPS. may non-GAAP per share measures as Regulation include by

company results useful The to it's financial investors uses company of its regarding the because to condition financial operation. that believes measure EPS and provides information performance method core X

EPS in share, per measure A basic reconciliation the can accompanying GAAP call. of the be this slide comparable most core net and for financial diluted income found to directly presentation

of In be the on X-K. these release found Form SEC this addition, with press earnings measures filed reconciliation our morning in also may

this And call makes representation discussed sources in information. this derived or has with third-party presentation, independently portfolio companies, conference related company information and was from slide the and been respect to not including accordingly, Certain the information verified. accompanying to warranty no

the XX-K website website. the on www.arescapitalcorp.com release and clicking link on earnings by The available company's Quarter are section. page first on Earnings Ares quarter also on March Investor XX, Resources Presentation XXXX at Corporation's found the the earnings presentation of Form can company's company's Capital be XXXX its First home

Executive Ares over call Capital the turn Corporation's Mr. to now to Kipp like DeVeer, Officer. Chief I'd

Kipp DeVeer

I'm Roll; the earnings our and joining Chief our of here Mitch Penni Operating and Officer, Jana our Chief management Hello, thanks John. Goldstein other our team. everyone, and members call lot, Schnabel, a Cort with Officer, Markowitz Thanks Financial Co-Presidents, for today.

the then highlighting thoughts provide I'd first the market. and results by quarter on some economic like to backdrop start additional our the and call

morning, results. first reported we strong This quarter

driven share by on On our per of core of Our in the was per per quarter of by of earnings rates strong share a first stability earnings benefit investments. our and core the XX% year-over-year, the the our GAAP earnings driven basis, $X.XX and value higher primarily for share this interest $X.XX relative investments increased quarter. new

when our slow of our quarterly results dividend Both We're well the which transaction excess $X.XX relatively per to $XX.XX. especially with to earnings of NAV per GAAP the core and environment. growth modest pleased in considering were led in share, share quarter, this regular

quarter the liquidity market the the The more turmoil new flexible fair due valuable. a that of the certainly first saw of amount volatility capital recent we exacerbated was and both regarding and concerns to of that capital constrained system. even banking makes by which We activity believe the by range uncertain banks believe remain in broad driven solutions on economy direction our

the these dislocation capital dynamics providers, to completed XX% the feel quarter the weighted the for was is by direct of by traditionally current that The opportunity We fact broadly towards financing current similar lenders. a set have new issuance of is prior of that improved market periods private of a number illustration LBO that syndicated highlighted the channel. market environment first

growth to Capital, have profitability increased similar market led historically NAV of for the disruption company. Ares Where share, periods and

driven part our capabilities market Our origination in by of breadth the our is of the experience position strong team. and

what and care, the quality professionals of we the platform built companies. the in believe areas we deep largest and entertainment sports, management software, to And also industry and Since expertise specialty and Ares in lending both lending market, in health direct media besides Power continued ARCC's direct Finance. with is like the focused in services, on we've invest team across XXX non-sponsored U.S. U.S., Project consumer, our growth sponsored IPO XXXX, has and having financial

scale We team we've further nonsponsored to are than to and our borrowers XX build public with upon believe that as and transacted that financed more the experience sponsors positions more of the and XXX us that a meaningful be with company. XXX years even we've nearly

able already what To broad largest relative this value during believe end, set deal decisions the seeing are we the XX% industries. we the number in committing and we've represents we set seen investment quarter-over-quarter a opportunities, deals of a this QX, By evaluated to increase are make best when capital. of of flow

take cycles we market selectivity lower is share and through periods. even remains Our volatile consistently through as rate low

our market In our and The of profitability free deal invest of lowest years. year-over-year our overall merits of businesses, terms flow is transactions backdrop, and and -- focus the our investment of healthy rigorous first our rate to quality one Despite continue and strategy performance. quarter the new in credit cash borrowers average to high be with challenging origination of growth a the recession-resilient credit in X%. allows new strong X weighted on our in supports flow, the the us growth more overall selectivity continues on rate to of EBITDA this

This portfolio growth over is in the experienced with past our company decade. EBITDA rate line

modestly the and is we With XXXX. through quarter-over-quarter remains that below inflation despite respect nonaccrual Additionally, BDC this for the percentage substantially consistent to impacted the and is quarter, historical historical meaningfully time average rate increasing KBW of same nonaccruals, managed year-end our our average is believe at our today. highly portfolio below levels by XX-year

was will expectation protection that the which investments along of loans. XX%, portfolio, believe credit markets rest often and of loan average end with gives only portfolio reinforced the equity an junior our the quarter, in We downside slowing strong more companies, that including private large loan our invested through us do quality stress economy At equity firms. create the a the broadly. first the portfolio, the also have value in of weighted the is Our substantial to by we well-established most amount our in on by

operating successfully have playbook cycles. our we time-tested for market of a X periods ARCC, Through navigating volatility of decades and nearly

problems In capabilities ability collaboration record portfolio track maximize industry-leading our deliver with and investment are a credit X% gain realized investment on includes strategies of to net focus our our annualized These early identifying developing teams, performance in professionals to to central on for since losses Which generating outcomes. our core our our inception. management inception. since rate excess

and more our sheet. along minimized We ability ratio net Underpinning with means successfully on of investments, a that to times. deleveraged portfolio our with of the our quarter, ended navigate, during quarter the the difficult we volatility debt-to-equity also these This balance generating in many of gains X.Xx. losses in strength the periods have we below is first

our billion proactively our our is valuable We This even also at banking end level believe we partners, committed maturities bolstered relationships the selective. banks over pricing a quarter $X.X noteworthy as more with by banking of recent attractive which will relatively become increasing accomplishment and out highlights funding which broad turmoil. bank given on the of terms, become more liquidity incrementally or post extending

the with and to our me over financial And some that, details thoughts let further provide turn the results more sheet. balance on will Penni, some call on who

Penelope Roll

Thanks, Kipp.

$X.XX compared of we had of share quarter to XXXX, in and XXXX. the core prior the $X.XX quarter quarter For $X.XX of first per in the first earnings

income both XXXX predominantly to rate floating prior the on from as first first continue of the and the of quarter dividend interest the portfolio We prior higher quarter in our increased and benefits quarter see year. base our of the the rates

interest environment. fees and was This given origination partially first the higher capital lower dividend the in slower structuring income quarter offset by

$X.XX net in GAAP and reported quarter we basis, of first for of income GAAP in XXXX. prior a the $X.XX quarter first the On compared per XXXX $X.XX to the share quarter of

relatively values of the during GAAP share per income portfolio the Our from benefited stable first higher net quarter quarter. in XXXX

equity the $XX billion compared over $XX.XX ended to $XX.XX the the prior quarter. $X.X end share stockholders' Our or per quarter or of share per at billion at

value at yield end net Our increased portfolio. cost end of the The on at XXXX, and X.X% March quarter, weighted from debt from down from sales at repayments reflecting at amortized at total XX, at XXXX. quarter the $XX.X billion, which at the XXXX, XX.X% $XX.X was the fourth securities XX, fair and billion the of XX, income-producing average other March December portfolio was and XX% our

average was which XX.X%, increased yields capitalization XX.X% investments interest portfolio our on weighted the total and December in X.X% rates. our cost yield at and XXXX, at at reflect on XXXX. liquidity. increases The XX, continued amortized from The XX, to Shifting March

X.XXx net net as $XXX well a that quarter equity incremental portfolio We as quarter. available ended we reflecting sales from with during repayments the the to compared a the debt-to-equity million fourth raises totaling did ago, of quarter cash ratio of accretive as and the X.XXx

forma pro capital available approximately $X.X with end Our including liquidity and quarter position billion our remains available activities. liquidity, cash also total of debt post strong for

XX, commitments, we credit revolving have this X.X capital Since million. year very duration revolving is facilities $XXX ensuring at continue remained active maintain approximately we the from of the in beginning which what extending a secured X.X we debt over average includes structure to These believe of by today. $X.X billion maturities of our extended commitments years XXXX of increased best-in-class increased years weighted March today, through to

the key to providers capital for continued support competitive received are our whose appreciative very are one advantages. have commitment We our of all we of long-term ARCC from

investing existing to us and opportunities new in believe dry our in current powder environment. increased We as positions our portfolio commitments investing significant continue of well company amount well as to the support

on With consistent per on dividend. of XXXX, a record dividend our respect we dividend quarter XXXX, to with and June to first is of is XXXX share. $X.XX June quarter our XX, XXXX XX, This declared second payable stockholders dividends,

We our when an amount dividend. set taxable of the continue income spillover to overall consider and

$XXX estimate our year-end of $X.XX spillover. current referred sometimes approximately million At as undistributed or income XXXX taxable share. to per is Our

quarterly nearly spillover our level is regular current X.Xx XXXX rate. dividend than greater This

is to that level dividend. of long-term the continue beneficial our healthy We a income to spillover believe of stability having

to these prudent and continue will against levels monitor capital earnings considerations. our balance management undistributed We

for I that, would Mitch investment like to And quarter. over turn our through to the the activities with to walk call

Mitchell Goldstein

spend our quarter for and on post-quarter I'm few a update going pipeline. portfolio our end activity and minutes more then and and Penni. Thanks, backlog providing investment to on details an provide performance our the

Ares breadth primarily $XXX first service as the than the for XX middle coverage reliable of of million. source sponsors across we range businesses value a quarter, During underscoring consistent quarter, million capital, to to of continue to billion the the we industries approximately funded in new companies $XX $X.X transactions, EBITDA the resilient financed from our investments and as market in and over more

time. reward As approximately higher as documents in a and quite spreads levels. basis year-over-year seen we continues lending risk be environment be have lending points capital constrained the alongside some XXX to dynamics environment, strong leverage with the continue result competitive lower Market as of attractive to historically

in investments average yield levered and had quarter less loan lien we're the to Specifically, a Xx first of our XX%, new than in debt excess weighted EBITDA.

we a of arranger quarter. the XX% originations lead on our Additionally, wera in first

important to scale trusted borrowers. our lead an we that of to ability The provide is benefit relationships transactions and

We new Even though portfolio drives investments. longer-term outcomes. structures, to differentiated slow, believe being control pricing access believe incumbent of over us capital provides lead activity size drive better and and tools attractive the our documents credit and successful we greater the deal remains quality to

have we from existing relationships, were where this XX% of borrowers. often As as incumbent originations and we different said, no our quarter we benefit transactions over was have to

due focus investment what the high portfolio we positioned invest strongest well perform portfolio cash are We continues in to to industries. in believe believe our believe compelling remains what long-standing are companies provides companies. to with and resilient flows free of market-leading breadth opportunity defensively on a our our The we

emphasized also have portfolio portfolio. We single reduces in risk the name diversification, which the

Ivy just is different and any at that means in investment billion largest industries. company, portfolio. for X% the X.X% fair of value portfolio the accounts This $XX.X just single is any SDLP XX on excluding and diversified average companies of single across and Our portfolio investment our XXX Hill

from portfolio growth Our organic quarter quarter, was last momentum toward our was is and weighting from The the from of last underscores of first benefits average our and larger weighted up million $XXX $XXX the driven end also increase middle portfolio million in The quarterly upper M&A further largely that the its million EBITDA borrowers. portfolio the activity companies. and and companies market $XXX year. by our at

in broad $XX excess pays While the in of off market, in believe million its recently, positioning we performance. maintain have and focused companies entire we coverage of that on EBITDA, we

interest companies collection from than of portfolio $XX in our our of stable by contractual EBITDA portfolio of our Companies with faster health first million The excess grade EBITDA. in and of portfolio the of XX% $XX with the resulting growing is million quarter. than less demonstrated portfolio X.X weighted are of average our during

to companies environment. portfolio our immune While are inflationary not the

percentage levels between is estimate X% risk the portfolio at the of manageable and described, the that of remains impacted highly XX% we inflationary portfolio. Kipp by As of

have capital to broadly It prominent loan as that exposure is to are we but inflation gaming, paper, chemicals, as such highlighted no we by industries. have these and that a recent and goods, minimal important underweighted to impacted note input costs, syndicated rising [indiscernible] credit heavily that many by being note research in highly market. packaging by remain sectors were the Industries impacted consciously

nonaccrual continue well to Our be rates historical levels. below

quarter XXXX. at modestly at average of average X% same nonaccrual BDC but Our rate through to last remains costs well our KBW up XX-year from below picked and X.X% history time X.X% year-end X.X% the the

April new through were commitment. of From brief will provide made which XXX our million XXX on on investment repaid were a million funded. XXX XXXX, pipeline. We I commitments exited million investment post-quarter Finally, investment and XX, April or of we end totaling update X activity

As XXX backlog at of April and pipeline XX, million. stood our roughly

and that may backlog portion post subject these sell to approvals a or closing. investments of investments Our close documentation may contains not we are pipeline and and

seasonally slow pretty regular the a to year, for that think things quarter, typically we been should pick do the first start in slow has it up While course. even

I remarks. closing over will call some Kipp the to now turn for back

Kipp DeVeer

the Mitch. are ahead, challenges well but may conditions. economic monitoring that Thanks, these to lie navigate conclusion, we for we potential positioned In are believe we that

situations variety history company. team as assets Our XX-year of managing an approximately in has public a together, economic a

of our investing the competitive advantages, supportive many we positioning current and balance our believe long-term is Our sheet strength defensive of are portfolio. by the confidence the what

only position. availability our and In the tightening advantages, is addition enhancing the the to from credit these of corporate capital competitive banks liquid markets

grow our deliver Capital to yet a Ares that to well solution challenging a expanding believe opportunity. share to We continue positioned with in certainty flexible capital leaves and market ability scale

operator, you and the quarter. And questions. open next we joining line for look with us we always, appreciate all forward to today, that, As you with we speaking can

Operator

Instructions]. [Operator

Our question of Hecht the first with comes from John line Jefferies.

John Hecht

you Just course change first that next from one forward few may how suggests rising curve in benefiting are rate obviously, the is a of quarters. the and the environment things

guys or a do yourself to whether or -- structuring anything declining rate kind you is some can there hedging Do can a you kind try you type in it's even of of liability protect environment? of

Kipp DeVeer

have Penni, I'll we've both is at give unsecured looking obviously, rate you fixed opening a senior my which of, John. mix I'm rate mean, and floating and I Yes. and answer, tried to liabilities,

want But high. front, So a it. having construct sort of balanced of can view today, of cost side tremendous the the hedging of economic is that's particularly The there's a right? we to we hedging pretty do on how not liability amount

lot take of to often. a And we your around and that one a we yes, on And company. curve of I lot the the tends modeling notice do point. things the LIBOR is forward Look, move

do about So, we can there's our think lot something today, but it's it don't we're that I eye keeping a on, unfortunately.

John Hecht

-- EBITDA looking obviously, your trends. -- I then And helpful. you talked That's mean, about Okay. just

you anything within nonperforming bit I mean on. mean, seems little buckets. flows your suggests a going there's noted are I mentioned that a you -- of it asset but seeing shift You

be know of I defensive what coming might you have in all shifts industries sort anyways. guys preparing are mean, or I speaking? point generally you this But else your just at equal, for even seeing been any like generally

Kipp DeVeer

I'm You're I in that a seeing look we've getting that how you given EBITDA today, meetings lot I year-over-year the the that been, The today? the before has quite credit we're quality today in think credit they're strong the I've Yes. look portfolio, call we're And this of portfolio does right? question is, getting mean actually growth. metrics done cautious. the in that all at most overall if answer

look You're seeing good the that the historical and we which seeing at nonaccruals portfolio interest averages. below of our in the coverage, names. weaker are you're Xs Again, weighting when Xs, are

It's COVID. come substantially since down

quite a a metrics for And because of preparing the service environment. good. credit think everything's not going the companies we the I No, remainder economy. higher bumpy, that are little rate is slower of that bit costs actually to the have debt fact year that and we're the mean rosy today all So think Does base be

today, as holding metrics up quite are the but well. the we here -- credit So sit on call,

Operator

with the comes Our line Fargo. of next question from Finian Wells O'Shea

Finian O'Shea

morning. Good everyone. Hi,

the for the upping on amendments, lending On more environment? touched add-ons What you the opportunity would market or portion portfolio terms of reflect of to economics via I think that. the recent

Kipp DeVeer

So the you're off that and of looking add-ons sure I'm and I have small I as driver when to performing frankly, be look, my is I'm right? head not I incrementals reality mean, at existing think, is there. tranches entire the tends doing number top to isn't deals, credit, to Fin, relative perhaps be, outstanding, amendments bigger that will on it what's a expected. something

offhand. So of but it's a be, it's I XX% I guess thoughts. with have can don't to may I'd you really some chime know guess. XX% to in [indiscernible], mean, just the portfolio

Unidentified Company Representative

could higher might is small reprice tranches our have even provide some to it current we in lot because incremental environment I a the allow if bit you despite we have providing guess our protections to little only a fact of to capital. MFN be incremental somewhat existing that small, we're documents that us that market an remember,

nice tool. a the that's bring So effective portfolio To to up market.

a little bit higher, Ken. it's So maybe

Kipp DeVeer

to number our of give just start We spreads, give wider have [indiscernible]. But think, you really will and you're we're in the just rate, Yes, cycles investing that it's base definitely more both I mean have I which a [indiscernible], right? don't most the to seeing new rate base -- portfolio number not are go in And Right. XX%. and of deals, guess. and earnings the new the that's up. guess, again, is that you what benefit as doing obviously to guessing

Unidentified Company Representative

to And rate majority is guess the base I overall so has spreads. other than accounted increase the yield for in point the of make more

XX% are or rate. increase So of base versus the the so spreads probably

So we're the benefiting naturally -- of increase. across most

Finian O'Shea

helpful. Very

a related is you follow-up sort interest, in as there this PIK of bound sort of PIK manage lead activity percentage Sort terms more income? to can can a is revenue of upper NOI of to of or tolerate a or

Kipp DeVeer

were pretty mean the I had actually say the during interest think we I I quarter. period. this COVID around would Yes. back PIK we number, collected PIK All significant uncomfortable

the you of XX%. and you actually total little today, a what percentage more So is it's through than bit went if said PIK income

with frankly, don't going as is everybody think which a couple to were successfully. felt number. and pretty I XXs, that where done comfortable we feel a that had that with we we've was back We that COVID and comfortable of into explicit goal manage our to years we number the guidance during down

So I the we're bit of at There's from upper a if probably don't limits today. know here. room little

be But and most on, amendment on increase we of perhaps think, with just next maybe the PIC the of year rest I take takes a an we go-forward year would us. have that, and that where basis in activity if we'll the would, see

Operator

the Our next JPMorgan. Melissa from with of question comes line Wedel

Melissa Wedel

curious take out them stage have of having you nonaccrual feel taking their point I'm Appreciate getting questions a maybe couple been a yet. borrower those Thanks like you already or at much. but taken? Or actions quite seeing behavior you folks about this do are aren't point? challenge, my a but costs who of very around flexibility stress P&L at any today. of Are particularly those for things, to to

Kipp DeVeer

give reminded our to talk the of to of their didn't middle market was much COVID opinion. would let a take room if Look, I a lot in mean, his right, out COVID businesses, better of we I'll these out say things mean lot tremendous tighter a forced run have that a about the think they business. coming of think not portfolio, one I cost much [indiscernible] of people CEOs And to I a them of ship you amount business. I

say pretty growth? experiencing you in years, last of pressure And slowing inflationary i.e., people layoffs of of wages And layoffs. lots the they've large I asked the do frankly, taking that. see We what quarter about some that for couple COVID, cost the proactive business question companies out the coming make of and you of would out a market We haven't right? seen that of such middle you around supply of do been while the cost, got been see have and last of company for issues the people a

there in think a don't amount he's there's tremendous what [indiscernible] own them margin to terms for is my of to of and seeing day opinion, day. his I recoup provide can

I think it's been done, of already a Melissa. lot

is economy that. at of and gets position, a what not folks tremendously I really another into think take the difficult unless kind we're which have cut forecasting, really to

trying pressure I have frankly, think business. problem an some in situations, management them, a existing environment in are with of their actually of that fine. to operate today the is companies through for them some teams performing lot that The margin bigger understanding are had

have just went finance just less many fact cash a significantly rates portfolio base there's and And to leveraged -- X% our cash of amount other in flow of around. less and and that debt the X%, fair from portfolios because they have

Unidentified Company Representative

mean EBITDA I to remarks, have remember, standpoint. I overall think quite year-over-year. portfolio said And far, fundamental up so still a is And well we prepared is in X%. from LTM the the Yes. you performing

it's point, Kipp's rates from a some from constraint rising interest there's -- standpoint. to So But... liquidity

Kipp DeVeer

You're right.

X% is much to up I And EBITDA it cutting. go cut cost. is isn't your all than it's about probably your about more cost year-over-year, need on to Right. If inclination service debt

Unidentified Company Representative

in the these a standpoint companies of of or balance a portfolio our lot a terms sheet from revolvers. buffer in undrawn have nice on And liquidity cash

borrowers sponsors, of And you by portfolio are of of our XX% have and supported supporting nice financial a to we've seen their sponsors companies. history remember,

continue. to that expect we So

Melissa Wedel

helpful. really That's

your was promptly lower very follow-on brief there base we where that March point rate period then a little and about saw interest reversed. a a tick bit during sensitivity, to As rate

that the period. be moment base about how quarter But to that you saw notable short curious companies to portfolio choosing able that Anything reset I'm have sort been are for of very rate during responsive ahead. or the in

Kipp DeVeer

the in X-month make companies have I the of or portfolio the to ability elections. X mean most

some they So a have strong rate. what's hop for consideration them going with a a of election election on driver X-month the a that most I between a if real to as will But X-month is and think it's not view short-term .

Operator

from the comes question Casey with next line Alexander Point. of Our Compass

Casey Alexander

to a drive of a into little what like mixed feels of little kind I bit bit message. a want really

Your excellent prepared new described putting excellent And in capital remarks conditions, a at for of with at great the same environment excellent acting kind time, terms, out you're defensively the yields. point same time.

And so what do anticipate I'm leverage becoming offensive? trying is, to figure taking more out before further you down

because conditions? material with is widening it And put potentially terms period out you and incredible where see rates, some you ahead a potentially really spread at money could

Kipp DeVeer

did train. See for the it I you waiting you that morning, published look the good. while Okay. I makes note at this if feel was

was anticipated very not levels quarter. I lesser tell of were you deal Activity fact the that there your in the question. more driven flow light. that I activity a So would by the just was lot

say defensive on would X positioning, I things. point Your

to number deleverage balance say, that's modestly, a we do X accomplished, to which one, I'd sheet objective way it. did the and have stated we

last I is attractive going environment think of don't high-quality anytime second rates soon. companies investing we point that to your do was at really away The think for in return the comment,

So approach to pretty the we probably patient took a quarter.

that there we we were transactions said, obviously of that excited reporting had [indiscernible]. on being That that about are reporters couple a

than just that was anything that. more activity the So light quarter drove

Casey Alexander

Great. Okay.

my tax I technical, quarter-over-quarter. noticed follow-up. more fell that and excise this the is Secondly,

are looking some of excise tax? the at a lower -- you new level just was specific Did of curious I'm you kind we going Or that excise are tax past. at the in number. guys forward that's it of than defer

Penelope Roll

where parts. X is the is One excise corporate in have has that expectation tax. gains we have -- but we tax tax expense level are level this taxes Actually, realized No. some our component corporate also around blockers, maybe

a you it's we a expected, realized we level if going in the QX, but break the corporate some estimated at to amount, that not we driving actually components, had number. of down we So the weren't level taxes reversal had be material down net that

the strong will excise is the we year So at break have going we a level level spillover down tax still a that you next into of if believe pieces.

Operator

Our with line Kenneth Capital Lee Markets. RBC next the of comes question from

Kenneth Lee

Just see subdued quarter the one follow-up in portfolio on a expectation progresses. the pickup the as the you could that year activity and relatively

How much -- good driven are incumbent of either activity borrowers? other origination could would volumes of M&A on a a probably that be the dependent by portion or factors that in more pickup pickup realizing

Unidentified Company Representative

hoping We're bit activity. M&A little a Yes. it's from a more in pickup

And might we're market. there's initial more bit that, but see very that that signs in less to noise early, and signs a stability some now starting occur little the some initial

companies we I this have of haven't because think this been are of -- lot companies has very able we seen to the the volume seen kinds a that volume, obviously, year, that those are but high-quality in transact market.

to environment in companies stays see -- if they been but expect should continue portfolio existing as focused as backing the us sponsors the certainly quarter. M&A are So that's going news. have light, our you one tuck-in piece be on to And certainly good first of to --

some new M&A. should be signs it of but So both, to again, starting are we see mix early a of

Kenneth Lee

Very you. may. X And follow-up, if there. Got I helpful

whether of was highlighted there a commitments the terms April, in new pickup you there? fixed that's or the any play outlook in the In there investment I rates if due part release rate noticed terms at other mix. for for of are Wondering investments factors the of to as

Kipp DeVeer

poke through I'd April. honest, away. go the have I take think pipeline. just strategic it's anomaly to back an be nothing what April to to mean, I of

actually on material fact, nothing going through, or In there, came but interesting Ken.

Operator

Our next question comes from the line Hughes of Truist. with Mark

Mark Hughes

quarter defensive? is that's -- that more little April, the lien, a then and in attractive more to lien second activity in heavier the relative the instance? first Yes. for the first -- in Is

Kipp DeVeer

lien we're of activity, financing would picking about direct has [indiscernible] deals. deal Yes. new in -- not We around of say kind done I'd borrowers that away working which right? from up. I made on QX lending that deals built of providers, the The markets, point I got predominance said participate say, the second mean, first inclines syndicated the about to in lien, been done M&A with XX%

is So leading been and the I really rate market what's deals. That's what we've secured on, of way. think working preponderance has been the generally floating unitranche the senior seeing

So that's...

Mark Hughes

And then looking gets out at forward at depending and this curve if just with could on happens look as as interest the coverage, is it the what the so low that gets? that X.Xx you bad as we is QX, about the it for model as bottom or about economy if

Kipp DeVeer

to on travel to you hard company good think predict underlying we it's still rates, mean I mentioned, specific is we because where direction it's pretty -- see as performance. right? of -- the so Yes. We you what

that number is be to think I driven going by So rates.

playing curve, here, forward it from you're improve else the held off If should LIBOR equal? Everything right?

Unidentified Company Representative

curve forward running it bottom model, Yes, our out X.X. the does LIBOR at through

Operator

Our the with comes from KBW. of question Paul Johnson line next

Unidentified Analyst

have Ivy income question, a maybe large come fairly growth But the to a investment this portfolio, has of XX% fees to the about as from X that versus Ivy I Only part Hill. in growth one Hill quarter. the management investment the of part this. parts in believe of the grown it's from And be income large from

perform current investment, of risk kind maybe expect I you how was a hoping would and guess, the view your of to portfolio of how choppier environment? I sense a you that versus But that get to credit over

looking If of from balance to Ivy benefit something that part second utilize et the hear. issuance, their would is environment business? current as Any to there well cetera. sheet CLO just what moves potentially the people through interesting more thoughts for And that's of Hill be that question

Kipp DeVeer

a we Yes. we Ivy investment give It slightly let the in I to a delivers our performer Hill. optimistic very a for short and about short answer, then us but returns It's mean risk. been I'll give for are the answer, is the period. you XX-year great you answer think unbelievably attractive remain me longer what relative

period Again, we've in generated a IRR it literally roughly past, XX-year ARCC talked about almost XX% this but the with a [indiscernible]. no over to

we're are case in the on CLOs that old it. actually funds financial not reminiscent We have today say traditional disclosure bit provided bilateral in investments a are thing. they that that CLOs. and here I'll business, securitizations little AUM invest understand that anymore. about really the loan so of There's it, other a which today But Most of is more Ivy belief only one are investing in XX% Hill's a CLO could of people

asset company if market tends you competitors is be compete they with important less both manager be the to bank a that's levered, thing as might a as loan funds, with. middle then underlying other materially that thinking its well The as

investment us. So it's big a for

continues assets from we feel I that well assumptions have cash them. for and time thoughts that I a lot Ivy as I tested both market But dividend all the don't great about of flows its I about And around more it, time of comes of limit lot same grow. Until the extraordinarily spent percentage at outstanding to the it's with sensitivities. concentration, the income good thinking of such investment. the here Hill, company that outstanding about the think frankly, could come being. we've Hill Ivy it. to expect of grow the feel run a from mean that as what them from as I the some that for We uncertain battle a feel, reached because again, We a

Operator

Instructions]. [Operator

from comes Our Dodd next James. Robert line Raymond question the with of

Robert Dodd

both fundings that. capital but On low, originate this a on rate lower instruction obviously, quarter, also fees the kind or pretty of but lower gross

on funded XX% follow-ons. fee lay that IBL XX% -- we that is -- mean I don't that can get as was about the quarter probably obviously fleet this of what a of just you

So we this a going be the one-off going least of structurally to same I structures forward the those are at of sometimes look kind get should a deployments little at you Or don't coming mix fees lower of quarter because in there. this quarter? fee the necessarily as mean environment?

Kipp DeVeer

right? back I'll Yes. But little -- question. investment market, where Thank I more line of around on in Ivy certainly say, Hill comment with bit. going we [indiscernible] Ivy because all I don't fees I'm mean to it's -- which historicals, up yes, gone the if let lower you have appreciate just take mean So Robert, origination I think a the it's I'd I X%. out the fees, in it's Hill,

Unidentified Company Representative

nothing's quarter, this probably year But changed versus Yes. a last flat up quarter. Well, ago. versus but

big the anything as is in the such that into the funding most -- market. factor has changed existing important read It's percentage. portfolio a shouldn't You meaning probably to companies being

even we've also to past from is we prior this on with quarters, transactions hold a final higher we're in rate quarter didn't larger The come able fees large be where large thing that. and syndicate is done transactions, versus very fee some if transactions often higher those going and our benefit other of piece the to then effective

some factors. the So those are of other

Operator

question is question from follow-up Compass from Alexander a Point. Next Casey Our

Casey Alexander

usage just wondering quarter. shares ATM the quarter, the you if during more you way guys the contour I'm XX any have done million program particular in than is larger of could

yet investment with in like are your associated high was muted. quarter activity things a investment and Usually of the level activity relatively that

was wondering us. if just contour for that I could So you

Kipp DeVeer

I cap, more think Yes. it's the issue advantageous relative past, there in I market when to overall I think obviously advantage mean than company's particularly to small there take look, -- are not I periods mean, we amounts to think the substantial. it's in but

Some of in little have some and actually looking investing. Casey, question new point, to deleverage it we in being than when prior about your that that and probably did came defensive you quarter the more it a leverage, higher was we're bit. the made But of of early

planning we're I'd larger we guess issuance, And participating capital I I away. obviously thing . in is a the planning my is were in say have transactions X mentioned, other guess about we did, those fell of ATM the as couple X transactions thinking or on that and only for quarter

Unidentified Company Representative

and were in the leverage we point around offensive, of when we our fairly to ability guess X.XXx top mean our environment the were constrained at at your to defensive I current capitalize range. I on And market also

the be in need we little So to of sort felt order offensive, to delever bit. a

So now a nice could spot more be we're opportunistic. in we where

Operator

comes of question with Zwick line Group. Erik next from Our Hovde the

Erik Zwick

of about you've interest floors. over consistent And quick Curious interest of rate in able been first question. rate you've interest new as think the forward. if indicated past rate if to move loans was give floor, could an a I'm curious if environment that pretty The that press XX% the quarter. kind contained average Just getting of the I has higher. it what keep release up you the few rate maybe quarters, gone set having been

Unidentified Company Representative

Yes. Good question.

abilities market pushing. floor to maybe up trying having best pushing move hard a of of that huge the everyone success obviously, rate to and and as is the amount our is are not market some We as the because just we're success, but not

question achieve small. interest potential we've the do that's trying I'd are been how rates to But overall the say movement able portfolio to earlier across mitigate in back way, in effective But very best. the future. it's decreases Certainly, you we is around and one our that any

Erik Zwick

to around Got all, for of maybe it. able floor ballpark X%. kind you the new was at Understood. Yes, originations And average are what in it's

Operator

the There in for the are I'd questions back closing call further Mr. like to Kipp hand no DeVeer queue. remarks. to

Kipp DeVeer

you the As Have call have their to any, but quarter. for look good usual, all I touch I'll in everybody thank call with the and forward we a day. being don't me participation good on next questions, and in

Operator

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

the X May XXX-XXXX available by to end at of today's the be after X-XXX-XXX-XXXX. approximately the callers call Eastern If dialing XXXX replay to archived by demise of call, An callers call X:XX through of p.m. you and and Time missed hour XX part international dialing will

on archived available the webcast be of home Investor link website. on section For Ares the Capital's a also please conference all will replay reference replays, number page Resources located of XXXX-XXXX. An

Ares Capital (ARCC) 25 Apr 232023 Q1 Earnings call transcript