ARCC - Earnings call transcript Q3 2024 | Ares Capital Corporation

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John Stilmar

Thank you.

Let me start with some important reminders.

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

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

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

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

and of presentation third website. the earnings company's September company's website. ended company's XXXX, also XX-Q the Corporation's on the clicking also Form XX, link release the are Investor presentation The found section be Ares third the on website earnings Resources by quarter www.arescapitalcorp.com available XXXX at on can on quarter of earnings the homepage Capital

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

Robert Kipp DeVeer

other with newly Markowitz, Scott of be Chief Co-President, the our team earnings Schnabel, available also joining our Jim Miller; call during and Chief everyone, Officer; management session. members Hello, John. our Thanks appointed a lot, Q&A for thanks Operating our Officer; and our today. Kort here will Financial Co-President, Lem, Jana our I'm and

this announced the to third we changes results, leadership I that morning. our quarter want discussing recognize Before

As Jim a Jim now And join Kort U.S. co-head currently will as of of contributors our and one the I the in key Advisors this Ares background, Ares our ARCC direction even mentioned, member of joined Investment role XXXX a Schnabel strategy having platform a ahead. an ARCC. and of of success in way Investment lending look and as company's direct forward the Direct to been Co-President in Jim and as Miller has of by Lending more Committee. serves him play the years prominent to we

change, Ares as of his of our and our Ares Chairman will of of this he period stepping over Co-Chairman, Capital's where serve also is as will as as And Michael he Smith part but role co-head. a Mitch transition, company. time. and is Group long As depth Goldstein down transition lead its of the as Ares' will part demonstrates Global relinquish the which Credit team remain company to Co-President, joining of the Capital's success continue Board and evolution a Arougheti Director a this This Michael but and tenure continued

$XX.XX. quarter morning, quarter another let share that, record quarter This core the per we With of strong turn NAV another per and of me third share of now $X.XX earnings to results. of reported

driven sponsor time, the and growing investors. rates what active the believe same As to deal by be we M&A future, expanding activity environment expect equity as to at are private benefiting in in are positioned more to while return feeling capital we've discussed pressure past, we from the their will well managers we lower a

sponsor about particular. sponsor-backed new lenders secular volume the trends. advantage volume strong a have our quarter. our with of defensive half to increase this industries supporting and third buyouts environment further transactions this to specifically with acceleration an long-standing percentage of quarter, in third in of on positioned is and transactions given finance continued in high the deep take representing in believe direct that In a Against Ares M&A in loan relationships we backdrop, We well saw focus leverage the overall buyouts, strategic

strong and environment, third Due a commitments investing more year-over-year to meaningful active we our transactions new during growth reviewed the competitive in both position quarter. saw and

compared $XXX period nearly same in billion reviewed estimated to in we reviewed. Specifically, XX% quarterly an volume year, more resulting the last deal transactions

exceeded the market the entire the amount syndicated For for context, reported quarter. broadly for leveraged volume completed loan this transaction

which in Our long-held selective, factor approach as long-term in results we sourcing performance. of as remaining ultimately key portfolio many strong possible highly a believe is transactions

our financing growth grow we level key portfolio relationships trend. driving companies underwriting encouraging high incumbent loan to credit with reducing performance. advantage We factor an with This trend of further selectivity, were in in is well Our ability as another XX% our our over their our and of supported know borrowers. that to consolidating risk existing us is third of companies the the of commitments new existing portfolio quarter believe stronger growing

our the be to XX the health in companies. also profile of portfolio, companies seen We new over highly strong XXX our can portfolio added portfolio credit companies. diverse bringing to Ares and Capital's performance

and industry averages X rates the from our fair the loans of at nonaccrual quarter-over-quarter declined well declined and and Our levels remain X also quarter. value second risk-rated below

consistent competitive remains low borrowers, And discuss quarter. activities will portfolio health detail, our to our EBITDA as finally, balance LTM for of side sheet of the third the digits of the our double Further consecutive in more a growth advantage. investing in Scott underscoring and continues remained the right-hand companies our support the

over we and Xx post-quarter incorporating activities, significant we by moderate we efficient sector billion leverage seen agencies. the notch company rated were and financing to investment-grade further highest a just forms of higher to capital. over to leading have believe by solidifies in Ares available $X upgraded we financial in which debt well major X our end equity believe recently liquidity, as rating Capital flexibility Moody's You've access all that With

turn sheet. let to Scott call on With on some details provide the financial me our and to results over the that, further thoughts more balance

Scott Lem

Thanks, Kipp.

and income of before the our net $X.XX discussing in $X.XX we the third enhance our capital share sheet balance during me XXXX quarter prior walk position. income for of our GAAP the third took reported to compared statement quarter per through and we quarter quarter to in of Let morning, This actions $X.XX the XXXX. the

quarter the the third We $X.XX per quarter quarter in also third of $X.XX the reported XXXX. core to XXXX compared share $X.XX earnings prior in and of for of

to quarter, growth, with Overall, new majority our total investment lower fees companies. due largely higher and dividend income as the the by income during to existing portfolio the the restructuring net quarter prior portfolio commitments of interest compared offset increased from were

facility and interest leverage In expenses, the terms portfolio our during of to fund quarter our higher fees in with consistent increase of was our growth. a the our credit portion

billion, the fair at other billion the XX.X% was the our of was and average a debt XX year yield amortized from The $XX.X up at value for period XX, same the portfolio end at September income-producing XX.X% end securities ago. of at June at and down from on quarter XX.X% was costs the total Our $XX second quarter. weighted which at

and, were XX.X% quarter base investments. extent, total on to a The investments to due Our average ago. rates XX.X% a from new compares spread and weighted our largely ago XX.X% yield at to declines year on cost a reduced total lesser yields which was amortized in

Our as ended record the $XX.XX $XX.X stockholders' us, equity at the call. in another or per noted high billion quarter share, earlier for Kipp

the mentioned accomplishment our me end by to Ares Kipp and related to issuer notable long-term unsecured highlighting the Capital start liquidity, Moody's senior BaaX. Before ratings. upgraded At rating BaaX the September, from and let capitalization our credit discussing for of

all time. the firmly increase rating now In mid-BBB. funding have and X we our to over X efficient should to agencies, addition We even X rated of grade costs being investment potentially ratings this debt believe capacity more major lead of by

distinguish ratings U.S. further not only companies the universe or Ares higher-rated within select a These public also the in sector BDC but firmly BBB among of Capital,

major highest from and are and from BDC has Within agencies the we outlooks the positive BDC sector, both ratings S&P only all the credit X that Fitch.

our maturity $X.XX period which the extending In years, the capital X X to and in activity, facility, terms of included $X.XX billion. of funding the full upside billion reinvestment end we from facility a debt revolving and amended and to respectively, our recent the

nice both capital points. and basis to CLO XXX the be for We weighted going plus We're of financing to our continue debt will closing also announced which we second subject CLO will that debt expect priced This ARCC, million at to cost close addition can capital we month capital of next and sheet diversifying to additional our on-balance average priced happy $XXX low-cost secured conditions. continue our SOFR closing believe debt forward. bring a lowering customary an

floating amended earnings we Lastly, maturity we as X these $X.X reduced the capacity the more XX, we third facility, SB capital. debt facility pro our each spread reduced committed new year. earlier and and basis to than since extended rate of points. and all where period billion billion funding spread million on in transactions the discussed upsized we $X.X call, drawn average the In added by $XXX of the by forma June last our from total, our have XX of over reinvestment weighted quarter, debt

I pro for available remains cash the quarter liquidity, with basis position strong activity including nearly that $X.X post of highlighted. just liquidity overall billion end Our total a available on forma

We new dry significant the commitments our debt-to-equity and of net We quarter also amount of portfolio positions our to ended us with cash powder ratio X.XXx. available continue a supporting believe activities. company investing of well

on quarter XXXX dividends record $X.XX XXXX, share. or and December We the been fourth declared quarterly ARCC consecutive over XX for our payable consistent Moving dividend has increasing of stockholders This XX, on of paying of XX, is dividend. quarters. to XXXX is quarter a dividend. third on to stable dividend per with December regular

with In income XXXX. stockholders XXXX are happy per terms distribution we to approximately tax to available finalized of and our that report XXXX our million returns share for spillover, $X.XX ended in or we $XXX taxable

third environment. quarterly is stability spillover the our and more well which further in helps believe dividend, sector excess for earnings rate a In current dividend, visibility addition quarter us than a to to and current being core provide dividend our is differentiator declining in BDC we significant regular our potentially our in the Xx of level

Kort through to over turn the walk I to our now activities. investment call will

Kort Schnabel

conclude now more our performance on going I'm I will positioning then Scott. third and providing our activity, backlog. our to the details quarter. a update for few activity investment spend on Thanks, our an portfolio post-quarter-end with and minutes

our commitments third across originated team XX approximately of $X.X transactions. different the billion quarter, new In investment

distributed we more Excluding our as strength year-over-year, market. reflecting doubled than of more of active agents, $XXX commitments and loans the overall originated M&A investment million a the platform and new our

borrowers, existing overall Evidencing our Kipp with our share market share incumbent our growing doubled. discussed trend, our top of reflects previously. as financings more the than the also originations commitments of in for largest level Our this quarter XX

our portfolio. portfolio the prior ended billion Shifting with quarter fair a $XX.X the prior year. value, the X% third quarter from We which to XX% from grew and at

supported borrowers, seeking In incumbent with our wide ability expanding solutions our new a capital of share a growth direct provide addition lending to to companies flexible market is our to variety by solution.

the number having in XXX our in middle seen the was Further broader of underscoring X/X in portfolio our on the portfolio, of third X% companies the borrowers million be total $XX the in million can increased EBITDA. with EBITDA the which median than and reached our market, third in approximately focus quarter, less year-over-year. $XX of covering quarter This

remains Kipp remain companies As our performance and strong. healthy, credit mentioned, portfolio

of average quarter's prior portfolio weighted X.X Our remained the from unchanged grade level.

is Our points at XX representing our nonaccruals quarter ended decline the X.X%, within XX from last points basis the at prior at the lowest basis in level and quarter another cost decade.

the well Our of below period. great and current average the time crisis historical level since over X.X% BDC average same nonaccrual remains financial historical the our X.X%

nonaccrual believe which portfolio, we quarter, underpinning decreased of the is our fair value the the at from which at last below be also levels Further of rate well the X.X% This downside continues us loan-to-value was end in our the strong average loan-to-value below us Our as strength historical well. quarter, loans. to to portfolio protection also with average. X.X% provides our for XX-year third weighted XX%, significantly for

of not When and attractive what underwriting the over select rates results. view, performance bands similar company processes we our EBITDA company ability our in had In as months. these size, to are and is that XX last portfolio size performance a it continues by in our looking companies our driver noteworthy growth all portfolio industries best size the drives believe be at companies to management in

further investing team we Solutions We believe a to part by Riverside coverage that noteworthy market-focused middle the lending our third coverage, lower record. also that direct important advantages is time Ares a a is firm a is and acquired during long platform's broad this Credit It known strong our market well-established, to quarter. with to for Management team middle Riverside support track very have of market. additive Ares' this the in managed

As in focuses we direct believe while remaining the segments differentiated platform detail June, selective. we supports is highly across that that our at coverage in only to risk-adjusted Investor actively focus the middle better approach discussed lending markets. lower, and middle upper market returns This offer on Day at our ability scale Ares

nonaccruals. to other emerge markets, with experiencing Across and certain of elevated growing our we dispersion levels seen managers credit have start

to as differentiated of and strong BDCs. performance credit industry contributed our in competitive the comparison believe have are driving results advantages to selection with diversification continue other ARCC's We many merits

Through investing culture, collaborative space. our opportunity growth, have highly incumbent to on problems as of in the have recent driven avoid the and approach BDC a we for able underwriting that time-tested to many differentiated nonaccruals processes focus borrowers selective and our been

of point any is mitigate portfolio negative diversification. portfolio other impact one sizes average, versus able of Another our level to less has the ARCC company By individual ARCC company credit maintaining the high for been industry. in of of events small on than or BDCs of X.X% differentiation position

$XXX on commitments, October million October start made in $XXX investment Finally, XX, billion fourth exited million repaid let earning were realized totaling investment We $X.X gains. active or net of X the resulted which new me commitments nearly our funded. million quarter. highlight of we of XXXX, to to were us From which $X

October backlog X our level stood year $X.X of As at ago. triple billion, roughly than the XX, more

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

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

Robert Kipp DeVeer

Kort. much, so Thanks

just to a and me share on thoughts let our past So take few an our future. opportunity

this celebrating As many month. XXth we're know, you anniversary of the company's

lower a the have a for evolve XX-year direct real lending course the competing industry backing small history, banks handful recognition. and of with their Over middle our with partners of I institutional from growth market BDCs to and proven of seen my loans

team and During grow leverage this time, continued we've to some new processes, thinking. refine our our

team our the our which in consistent investment that remained our we philosophy culture, everything we've However, and do. on approach, underpin focus and our

variety earnings credit XX-year build quarter cycles. our economic of results the and and company track record third managing Our upon successfully throughout of a market wide

decades, to investments shareholders outperformance roughly for XXX period, have this average And been Index. annual having of basis per rewarded total X at represents year S&P past Needless has our Capital loss nearly and time performance. enjoyed XXX return the of points which cumulative gross of very level XX%, say, made proud Over an the over IRR we're an approximately asset of over realized rate same X% a Ares XX%. of with X,XXX realized net the

strong. advantages its believe forward, Capital competitive and Looking remain we Ares

of remain regular dividend quarter stable, XX this we're for With been ARCC's quarterly in fourth of maintain expected our the years, than rates. the confident ability the and foreseeable interest even more in dividend dividend, now level future lower has face the growing in we to declaration

covered by of attractive more we become believe core investors. well yield is supported strong that by should rates spillover decline, and valued market the our will value level dividend Furthermore, by a of interest equity even earnings income

Board what we in positioned a believe the build is to And as very remain track and As record. management the upon continuing market we growing team long-term well successful to the committed believe see we the what company a to address future, we look remains opportunity.

with you As forward today. always, we look call appreciate to the We next joining speaking you quarter.

operator, open with the like for we'd And to line that questions.

Operator

first question [Operator with John Instructions] take Jefferies. our We'll from Hecht

John Hecht

Congratulations on the anniversary, very cool. XXth

rates churned. be drop wave talking been economy stabilize, -- if about massive been bit needs guess there's confident for when the that I of this not somewhat people private this whole more well, that to the talking You've get equity a has maybe potential market and little about

couple And at really I entering pipeline a guys quarters call? investment we point? You've a like mean, are that kind it of good the had of that mean does bracing is now activity, this sounds the good. market? Or you active are is early and of phase that of too for make it 'XX to

Robert Kipp DeVeer

into yes, And will I The election I next year remain sure. mean, think been getting we'll have the appreciate the year I is good. a busy I simple for quarters obviously expect us I X busy. answer think -- help getting behind be mean, I John. the comment, year-end, pretty and last we then mean, but I

John Hecht

just sense a trend. origination, And kind then so the this give maybe and quick have of I few like a it's asset guys been question market different to what's a of sounds lower slightly -- focused in And than Okay. of class us Riverside middle you that kind even last take guess, years? on their on will will

Kort Schnabel

I Yes. say asset it's It's class. in a I that. different jump slightly can wouldn't Kort. on

I our and to process, we energize us them they're is is very even double Riverside scale. long not cover team. lower think a have takeaway help middle time. And and them market our commitment team a a going It's to really down and a integrated we middle the the immediately team. lender. large on active market into as lower known for We've X-person It's our

coverage. them on any of be committee deals XXX They're other good professionals. it And board. And to going like bring market for I our investment a should think to our investment we're just excited have our broader thing to

Operator

Fargo our question with from Securities. Wells next take We'll O'Shea Finian

Finian O'Shea

opportunity the asset for class. the market On

we and ask being spread your volume the the premium and of light hopefully, have compression direct decline? all wanted But view that raised if heals dynamic. on we to today, more a in So relieves of is secular lending lot of a capital

Robert Kipp DeVeer

to think works that surrounding complexity that lock get typically the other is folks markets, up when reference illiquid the securities varies illiquid really relationship for place don't you I frankly, numbers, continue credit premium, If and for over the investor points. XXX basis historical market of in course, But it's between in in in credit, we premium right? capital on growth right? way market. somewhere to other liquid look particular, needs credit, that me, in for it's because risk they capital time, the XXX capital the the look and locking support so maybe up remain to at at So that

you is a see place a expected And growth. think to point lack well it's low. the to spread in risk than think you're as X. on through in to just we our response, of less fair competitors return. there, your take as happened investing I less better very of fall compression but believe over or willing that economy not year of much when last have that's and And is the might our flow, deal to some so teams There's it's in but market, I what's most

Finian O'Shea

way managers are That's middle sprawling how if If I maybe very large market follow-up or of perhaps add large origination likely indicative sort and capacity is helpful. seeing can trend do consolidate where that amongst firms to the Riverside, of just there. such on was as small another investment lot that a yourselves on able one-off lower of perhaps out this a

Robert Kipp DeVeer

I of something the you our and to meat team say bone. the can to leads the continue years, XX this in add key is is you at on the meat that the I'd really can, Look, that been we've outcomes. best what the bone build possibly which to Yes. is experience or said, on I origination best which I mean, the Kort mean, all

a for and people adding been host right? we've just Riverside whole XX of segments that, that years. and all is example industries So of different in of another

think remains what a we're It's, and add the commitment that mentioned, the we market doing, Kort to to bring team and company our middle things it as shareholders. can keep to that adding value lower

Kort Schnabel

of lot about again, the know, a And lower talked this all market. reiteration I to market. to commitment you of that is our Fin, cover we've And a ability different as than think, our parts the just

the on to our intentionally our resources And that or as might it natural that for eye to we that both well acquisition a existing us as the sure think take market. want I make Riverside. I doing scale off focus of less little we adding are potentially the part with team think through not ball as be of we here

So hopefully, that helps.

Operator

question our from with Wedel We'll take next Melissa JPMorgan.

Melissa Wedel

that everyone up of assume consolidate the with was new with role to comments a that I existing quarter? about and the have good they case And refi of look could amount Is do growing a the what share as the on to I involves activity the company. a going hoping or Congrats follow relationships. view that, happened like third portfolio? sort on sort forward? within with in that expanded that of clients

Robert Kipp DeVeer

today share needing not point more I very, mean, I that that the teams us, to with with look, big literally company capture think is we got continue want mean, into do XXX-plus keep think most and more large right? we of the clients. activity set our groups with. just deals key It's refi to focus But representation And stuff. is and folks necessarily minds. be I that to not more there. more that we've have nonsponsored players even the and It's clients, of has the very and is the sponsors, the heavier doesn't industry take all to with others. it's But account doing not a really on relevant in diverse I that able the with been unless

Kort Schnabel

of to market club a in we It's in our fact M&A. lot activity the which what's providing our the share add-on lot existing portfolio of facilities, members capital refi into not And is a to growth our more companies fact, is other matter say than Yes. contributing of would And in I those it's are of activity. gain. add-on that support capital

refinancing. that more definitely less it's So and of

Melissa Wedel

Okay. I that context. appreciate

was sort be there in generally follow-up, they the should exacerbated about a timing it in the Or loaded. anything pretty of quarter? there we bit think be as third of little back-end XQ? terms anything of originations a Was thinking during I normal? is Just tend to

Robert Kipp DeVeer

good other circumstance a was it anything randomness. goes, think think just there's I and don't than mean, I quarter. pretty and But from unpredictable quarter-to-quarter. comes I

Operator

We'll take from question our next with Point. Alexander Casey Compass

Casey Alexander

Happy years anniversary. with the noticed exposure by that on than private -- so last I cut that half lien industry? we changed X sort your of -- do second been this been structure have I'm more have have over more wondering, watching from strategy the the more credit across run? is to and a way defined the internal has Or

Kort Schnabel

I Yes. I mean, that. in can jump look, on

share little seeing lien lot you're the is what taking a the and market that's -- we're of in of cycles. And seeing a that's change sure more not second unitranche market think what go market. and of we it's happening I I'm lot now. from transactions, a is through a bit now

investing intentional And I are say an It's shift looking in value more the market our of on part. good opportunities that and so us. environments relative would for front that all in it's into not us

Obviously, asset still lower are class on and we average, we're returns first higher. are lien like returns the leverage levels the getting than the

market place see So develops it's putting but think we how we'll dollars, from to the a here. good be

Casey Alexander

is getting And does unitranche, bucket, you premium Okay. me that a first first balance XX% is between of lien But question, of your on lien? you okay? which on do how going first into versus that type follow that unitranche? Kind when generally to are let yield what of relative pure pure a then that lien first up lien. portfolio

Robert Kipp DeVeer

a beholder, of We've Casey. a right? first question versus eye a loan. of to honest, little answer, is term in the about hard lien it's what mean, kind I the bit the talked be That's to unitranche

Operator

James. our Dodd next from with question Raymond take Robert We'll

Robert Dodd

the different Congratulations and A decline rates. it's the of I base that couple your quarter, was I at previous I about new mean, yield quarter beginning not remarks of seen always mainly yields. have the questions part you weren't the quarter average this of from mean, X-month in in mean, I prepared but of on the think, Scott said a -- to that their dominant the everybody the the weighted roles. spreads beginning reset. LIBOR

when or dates expect Because resets seen to months elections if rates the should X beginning happening a in are -- falling shorter-term had the this normal a you like seems versus elections anything we see impact towards to start shouldn't it shift new like Have reset or that shift in a at month course, or quarter. that? like of much the quarter month have X

quarter, around color fourth us any that? could give But yes. you For

Robert Kipp DeVeer

Yes.

about in So the those I of the think are end the were decline comment yields the the period. at we really disclosed -- yields

not until quarter. So the the really effects flown of that following really have through

the mean, of resets, In terms depending will it I vary on the borrower.

the X just in a the it's the recently So moved. usually, seen to X just shift rates haven't at terms of from a of month contracts we really terms end but yet given

Kort Schnabel

been going to QX. so X we about QX basis the say hit around actually just to the on seen mean, was there's it. -- head QX of to due I the just XX flow to I lag point in in math from a hard effect and basis decline that put really months, XX some numbers points that We've occurs. it through so

So there in see yet rate a we these of quarter. as declines not that -- much this the base did lag and will be

results point reduction think a it's to XXX $X.XX for basis Q., math. -- quarterly in I do in we out people can put us. so important our probably disclosure Every in that for the reduction highlight just

were dividend, do relative So continue very to people the good of And we is rates news lots I of our can the over to think we've was knew that purposeful eventually, environments which to and through good see to cushion rate history decline. and feel intentional ability our different there's lot a operated about because going so.

Robert Dodd

like before. a And mean, -- talked And on like spreads it. kind onboarded not were on is follow-up for companies first I compression find unique I portfolio it looks us about but quarter like lien mean, -- worse? any not of seems they new there then refinanced, that in you've the getting looked this that? Got I spread quarter? a mean, give not spread this something onboarded sub-XXX. compression thoughts That is but you can decade. Can about there, lowest Or I that's new repriced, just

Robert Kipp DeVeer

mean, -- getting spreads XXX upon the unitranches this have earnings large we right, as up I look, deals from force, in we've finish call this I think said last Yes. plenty but cap year, come -- not. year of least we middle points done said towards this I beginning come basis or at market are of the it. with think There

of say you I'd which XXX depending you kind the rate unlevered company, to of consider plus just of on spread on in opinion. still return quality credit, the market when of gross a the attractive cetera, XXX kind is the fees et range to So the -- it's base in size our getting is that asset, a generally pretty

-- Ares seeing said when and demonstrates people, go included, is in this comfortable when I the good feel earlier, So modestly. an portfolio strength answer down in returns the economy shape,

I don't think don't So think. it's I see we expect that -- and I it continuing,

Kort Schnabel

prior past actually spreads have point, decline. quarter We which that's that consistent where did relative see stabilized. the is quarters stabilize there they I to was important Well, this an think

And point. historical averages. on well debt are return, absolute So experience, leverage I our we're still around at the relative point levels looking then historical important senior that's getting below an XX% think Kipp's that to at again,

So on pretty absolute still I we're an think good. feeling basis,

Operator

question We'll UBS. with take from Doug Harter next our

our Kenneth next Lee we'll Moving Capital Markets. question on, with from take RBC

Kenneth Lee

the there, of terms looks ticked in coverage X.Xx. ratios up like portfolio to interest average it Just

still industry? with of just are there? better, especially you the losses expect things in the much a terms Just credit across outlook getting potential rate wondering, do Or pickup

Robert Kipp DeVeer

gotten. frankly, currently count it see very been I things worse consistent. they've When mean, the basis. names, stable, value forecasting, get You low I portfolio, was sort the and fair and have than has as I the would cost we Xs, a the pretty list nonaccruals Xs is watch of percentage on at look right? a both of again,

things increase good don't a pretty rate quality of the defaults. and difficult see I decreases perspective when this an pretty a point, I we'll than look today But you we'll bit likely it's see getting to better much economy against little credit predict. the see stable what in historical materially see I for at They're So trajectory are. the a I picture. numbers. me, what does, this. it don't as guess, also see from

Kenneth Lee

Got quarter? little you. And color of in facility Any terms you've to you any want drawdowns just then housekeeping. just as a the And in seen bit around amendment of of highlight? revolver kind that activity well,

Kort Schnabel

the revolver have point, activity little normal. revolver amendment drawings revolver bit been portfolio quarter. say, actually our then prior if just a not this stable, gone even lighter at draw on I'll has companies quarter draws -- than And very down versus

healthy. So liquidity and borrowers our feels

Operator

Hughes We'll with next Mark Truist. from take question our

Mark Hughes

a but full it the the net do that fourth there still chunk Hill, was see you in like looked for went quarter, activity the Ivy was to Exits quarter? that playing over How out negative.

Kort Schnabel

Yes.

think the just end post XX about talking I you're quarter days. It's activity.

read much wouldn't it's into too think that. not -- yes. I I

sales were billion like feel about mid-$X pointed we exits there. the disclosed level, the good of the level out, out number, million in $XXX being backlog the you net mentioned, a to Hill. you Ivy but of As we still activity negative Obviously,

Mark Hughes

is sequentially, misleading. some could the then yield? portfolio improvement lower down coverage, And be that's the largely was EBITDA there that EBITDA? I the think a was little Understood. improvement but Or in in interest -- bit

Robert Kipp DeVeer

saw rates in lower portfolio slightly portfolio companies. EBITDA and the for growth We

Kort Schnabel

as the XX% XX% growth math the of modest down rate which sequentially help coverage Yes, from well still the with EBITDA rate to XX%, will was growth, as but interest declines.

Mark Hughes

XX-year then place? ask, want in did Jim process Miller, to And the been put to that's improve plan I any

Jim Miller

XX to been after difficult That really years that's come is... It's something well. improve run and this in

Robert Kipp DeVeer

of here for, XX? XX what, You've the been

Jim Miller

can no, years, first here, ARCC, full a -- with it's not so they was great very I take X be but to But with it. of on credit is great a to close team. I'm the this the team, business Yes, excited working part

So nothing exciting from my end.

Operator

our from Instructions] [Operator take We'll KBW. question next Johnson Paul with

Paul Johnson

years the well Congrats on as XX as upgrade.

a year, of that kind all is you've we're just on just early recovery? M&A seen impacted of structuring deals? waiting new this spread to the given tell still it for also little at fees has that On maybe kind too compressions Or

Robert Kipp DeVeer

little fees, to where are fees, all-in cost you at don't A bit yet. on the quite have here. some the pressure and borrowers too, looking it we we've all have I of spreads. from spreads. way I and of together think to it obviously, the rate mean, say I financing base goes think anything We'll take seen same pressure see on away take

Paul Johnson

Appreciate still point? at on that. removed there? exited guess, the Is resolution been the one Is you anything Or I then has last on just quarter. say, that And nonaccrual there fully from in line, that portfolio? saw emergency communications, can was this that from

Unknown Executive

It's been the portfolio. from fully exited

Paul Johnson

of mean, go points question last we kind in remain of mean, this of sort that do inflation kind -- doesn't be last at I to guess, been I away. has your observation I from story of what terms you seems the mean, worst see of a -- portfolio? the And point if I of broader persistent. broader just completely inflation, it

the potential wondering of higher inflation outcome outlook just kind with the election. due Just of the to

Robert Kipp DeVeer

mean, and it a it lot feel quite normalized it's theme emerged us more we pandemic, even a quarter-to-quarter, had something quarter it think of that say was a 'XX and the would has We levels back that it's of I But in evident year, moderated probably you period from that I basis. difficult go-forward moderated the been that year, portfolio very with far last our persistent. a about as fourth third, on sort quite this we much continued to follow if in was the talked lot. from as as actually

Operator

next Hewett our Derek with America. of from question take Bank We'll

Derek Hewett

do Reiterate years. the with question PIK. congratulations has the on to My successful XX

at the XX% about few stable revenue past quarters. of it's So been

more to what question related kind of And has of issues? importantly deal any kind than temporarily of built think PIK borrower original part the sort PIK these that, additional first my at versus the liquidity some do to flexibility is, give So of was into percentage borrower peaked levels? PIK just the you of

Robert Kipp DeVeer

-- thanks, Yes. I'll Derek. And

to about this, well. a really quite is do way. PIK company, others lot what of think on same hand. high-quality who We I rate a may it business and higher these simply win a this a portion being rate quite at them interest circumstances. do less capital we higher components. think the deals have we are in that the of environment, that doing in think needing we investing companies why And structure environment in particularly to are you it not for able we but know And adjust to That's fair amount think junior that cash of we're and having

question it companies But choice, think income we XXXX BDC to at of -- of as underperformance. at from a company I of where looking is most cash. as answer different as coming obviously and were most generating a of interest your your right? and numbers. what The the a was PIK lot I income weren't of just the is for number and time made PIK by look concession So to the world open very I percentage total that lot in is describe PIK, it, spend that where is not the dividend portfolio weren't concession is a a It's in we

at And down substantially for from that the this XXXX. looking is the number for I'm XXXX, company XXXX pretty and quarter

philosophy, a competition. to most choice today relative reasons is me give able amount some of such of concern and this significant generate of this and again, think doesn't we've of company been to ROEs the of I one investment because, frankly, just significant the it part been by our So has in,

Kort Schnabel

Investor at it structured holds the And Day, versus PIK XX%, actually time investment income we true of disclose did still the is our was and which amendment today, only oriented of PIK. XX% at our

Derek Hewett

just is, to strong the continue lack better credit within Okay. my like we are attention within middle market? surprisingly blind that follow-up like, given term, the to to for that see trends pay of spots then investors question a there of And any, need kind sector, the

Robert Kipp DeVeer

Yes.

I oh, credit I Diversification you've of asked always actually may not time company It's questions personally, a what about, lack this over -- over had think we misses XXX-plus but portfolios. credit single deal. And the something not XX-year pretty name. a X,XXX with a losses, this get that it that diversification. whatever And company. to we've investing everyone enough is exposed get We're a you'll one that happened think history, at is be, what for of companies. some in portfolio what to that's we problems, see, big seen

don't over the we matter. be consistent At a don't results time, believe name long the able because period of which why end And day, often companies company most time, to very it doesn't is comment has the on really the generate risks of of any. actually we really single really,

Operator

Mr. call like I'd closing remarks. And Kipp this to for any conference session. concludes to the over question-and-answer turn our back DeVeer

Robert Kipp DeVeer

Nothing call, day. quarter. catch a Have as we the great attending usual will other than thanks and next for you

Operator

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

after the by (XXX) If be dialing located participation, you November and now of link of and you call you missed will part homepage webcast a your p.m. international any on callers an replay the will available by may archived domestic +X the Capital Ares XX call replay to (XXX) An Resources be Thank dialing end of website. X call, Time XXX-XXXX at XXX-XXXX. callers also today's X:XX of to section available the for the Eastern disconnect. Investor through archived approximately of hour the X at

Ares Capital (ARCC) 30 Oct 242024 Q3 Earnings call transcript