Q3 2023 Ares Capital Corp Earnings Call

Good afternoon, welcome to the Ares Capital Corporation's third quarter September 30th 20 twenty-three earnings conference call.

At this time all participants are in a listen only mode. As a reminder, this conference is being recorded on Tuesday October 24th 2023.

I will now turn the call over to your host Mr. John Steele Mar managing director of Investor Relations. Thank you you may begin.

Thank you let.

Let me start with some important reminders comments made during the course of this conference call and webcast as well as the accompanying documents contain forward looking statements.

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.

<unk> Capital Corporation assumes no obligation to update any such forward looking statements.

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

During this conference call. The company May discuss certain non-GAAP measures as defined by SEC regulation G. Such as core earnings per share or core EPS. The company believes that core EPS provides useful information to investors regarding financial performance because it is one method. The company uses to measure its financial condition and results of.

<unk>.

A reconciliation of GAAP net income per share the most directly comparable GAAP financial measure to core EPS can be found on the accompanying slide presentation for this call. In addition.

Reconciliation of these measures may also be found in our earnings release filed this morning with the SEC on form 8-K.

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

The Companys third quarter September 30th 2023 earnings presentation can be found on the company's website at Www Dot Ares capital Corp, Dot com by clicking on the third quarter 2023 earnings presentation link on the homepage of the Investor Resources section.

Ares Capital Corporation's earnings release, and Form 10-Q are also available on the company's website I'll now turn it over to Mr. Kipp, <unk> Ares capital Corporation's Chief Executive Officer.

Thanks, John .

Hello, everyone and thanks for joining our earnings call today I'm here with our co presidents, Mitch Goldstein and court Schnabel, our Chief Financial Officer, Penni Roll, our Chief operating Officer, Jana Markowitz and other members of the management team.

Before I begin my prepared remarks on the company I'd like to express our deepest sympathies to those who have been affected by the recent horrific terrorist attacks in Israel and the subsequent loss of innocent lives. It's truly a tragedy and we hope that a peaceful resolution is achieved as soon as possible.

Turning to our results I'll start with some highlights from our third quarter, and then add some thoughts on the economic environment and the current market.

This morning, we reported strong third quarter results, our core earnings per share of 59 cents increased 18% year over year, primarily reflecting higher net interest and dividend income largely a result of higher base interest rates.

Our GAAP earnings per share for the third quarter were 89 cents.

Driven by our strong core earnings and an increase in the overall value of our investment portfolio.

These results led to another quarter of sequential growth in our net asset value per share at $18.99.

<unk> increased 3% since the beginning of the year.

We remain one of the few bdcs, that's been able to deliver a consistent or growing regular dividend, while building and a V over long periods of time.

We're pleased with these results and we think it's important to put them in the context of what we're seeing in the broader credit markets.

For much of the quarter the credit markets remain constructive and saw some lift as the soft landing narrative for the U S economy led to enhance liquidity and modestly higher transaction activity.

However, with expectation that higher for longer interest rates will be required to tame inflation volatility has returned to the capital markets.

There is no doubt the unsettled international landscape in Ukraine, and Israel in particular are adding to this volatility.

As a result, the leveraged finance market has less constructive to new transactions, particularly smaller ones.

Companies that thought the bank in liquid credit markets for their financing needs are turning to the private credit markets looking for worthy partners. They can deliver a higher certainty of closing.

Underscoring the market opportunity for direct lenders.

This was the third most active quarter in history for $1 billion plus of unit tranche transactions and the private credit markets demonstrated the ability to provide a 5 billion dollar financing solution and a fantastic transaction.

Driven by the scale and capabilities of managers like Ares private credit is continuing to gain market share over bank and syndicated capital market solutions.

During the third quarter market pricing and terms continue to be highly attractive for new transactions.

Credit spreads on new loans are well above historical averages.

<unk> levels are lower and equity contributions are at historical highs.

Looking forward were optimistic about the outlook for new investment opportunities and we expect an uptick in M&A and additional sponsor to sponsor portfolio company sales to accelerate in 2024.

Given the robust level of private equity dry powder that is largely gone unspent growing pressure from private equity L. P. Seeking returns of their capital and stronger sentiment amongst middle market companies to invest in the growth of their businesses, we expect stronger transaction volume in 2024.

A simple turning of the calendar year will also help.

We would expect the fourth quarter will be moderately better than the third quarter in terms of volume, but likely below fourth quarters in past years.

Yes.

We believe that our experience scale and capabilities position us well to benefit from these market dynamics Ares management has continued to invest in the quality and growth of its direct lending platform and we continue to focus on both sponsored.

And non sponsored companies and the expansion of our specialty industry coverage.

Leveraging what we believe is the largest and most tenured U S direct lending team in the market with 180 professionals across the U S. We feel that our broad sourcing capabilities provide significant and differentiated deal flow.

As an example in the third quarter, we have reviewed more transactions that were reported in both the leverage loan and the middle market combined.

We believe these sourcing advantages allow us to maintain a highly selective approach, which in turn drive strong long term investment performance.

He's sourcing capabilities have been a key driver to what we believe is a high quality diversified portfolio are.

Our companies are continuing to perform well despite the increase in borrowing costs our portfolio interest coverage ratio measured using current market interest rates at the end of the quarter was stable quarter over quarter and substantially all of our companies are consistently making their interest payments despite the higher base rates.

We'd also note that the weighted average portfolio grade is flat quarter over quarter and remains better than our 15 year average our non accruals at cost or just over 1% and continues to be well below our own and BDC averages for the past 15 years.

In addition, the amendment activity and modifications remained stable at historical levels.

The credit strength in our portfolio was supported by healthy levels of EBITDA growth across our portfolio of companies, which we believe are demonstrating comparatively stronger growth than the broader market due to the industries that we tend to overweight and our defensive positioning.

Our simple strategy of avoiding cyclical sectors more prone to default continues to pay dividends for the company.

We estimate that the weighted average LTV in our loan portfolio was around 43%, although we acknowledge the valuation environment is changing in response to higher rates.

Regardless of these shifting valuations we have confidence there is significant value beneath us at most capital structures a lot of it supplied by large and well established private equity firms with whom we have strong relationships and do repeat business.

In situations, where we have that sponsors to step up and support their portfolio companies. We've been pleased with sponsors willingness and ability to provide capital.

Despite this constructive view on the portfolio and the economy generally as credit investors. We are laser focused on ensuring we are well prepared in the event of a more protracted economic downturn.

In addition to the benefits of our diversified and defensive portfolio, we have a large portfolio management and valuation team, which supports our investment teams and is proactive in identifying problems early and developing strategies to maximize our outcomes.

Our balance sheet remains strong with net debt to equity levels of around one times, we have ample access to capital to invest in this attractive vintage.

Importantly, we also have access to capital to deal with more challenging situations as they arise.

And tougher situations, we believe we have the appropriate resources to execute on our demonstrated playbook for managing the portfolio.

We believe these risk management workout capabilities are central to our ability to continue to look to continue to deliver on our industry, leading track record for credit performance.

Given these dynamics and the company's overall positioning we feel good about our third quarter results and our position looking forward and with that let me turn the call over to penni to provide some more details on our financial results and our balance sheet position.

Thanks, Ken.

We reported GAAP net income per share of <unk> 89 for the third quarter of 2023 compared to 61 cents in the prior quarter and 21 cents in the third quarter of 'twenty to 'twenty two.

Our higher GAAP net income per share in the third quarter of 2023 benefitted from strong core earnings and higher portfolio values during the quarter driven largely by tightening market spreads.

On a core basis, we reported core earnings per share of 59 times for the third quarter of 2023.

Compared to 58 cents in the prior quarter and 50 cents in the third quarter of 'twenty to 'twenty two.

We continue to see the benefits of higher rates on our predominantly floating rate portfolio in the third quarter of 2023, as our interest and dividend income increased from both the prior quarter and the third quarter of the prior year.

Our stockholders' equity ended the quarter at nearly $10.8 billion or $18.99 per share, which is an approximate 2% increase per share over the prior quarter.

Year to date annualized return on equity using GAAP EPS and core EPS was 14, 5% and 12, 5% respectively.

This strong level of profitability further builds upon our long term track record of a 12% GAAP based annual return on NAV since inception.

Our total portfolio at fair value at the end of the quarter was $21 9 billion up from 21 5 billion at the end of the second quarter.

Selecting a combination of net fundings and net unrealized gains from the portfolio for the quarter.

The weighted average yield on our debt and other income producing securities at amortized cost was 12, 4% at September 32023, which increased from 12, 2% at June 30, 'twenty two 'twenty three.

And 10.7% at September 32022.

The weighted average yield on total investments at amortized cost was 11, 2%, which increased from 11% at June 32023, and nine 6% at September 32022.

The yields on our portfolio largely reflect the continued increases in interest rates.

Now, let's shift to our capitalization and liquidity drain.

During the quarter, we returned to the investment grade debt markets for the first time in over 18 months. This $600 million debt issuance was our first sub five year term issuance in this market.

This short or a three and a half year duration benefited our maturity ladder as it allowed us to slot into 2027, where are we after this issuance still only have $1.1 billion maturing in that year.

Overall, our liquidity position remains strong with approximately $5 $3 billion of total available liquidity, including available cash and we ended the third quarter with a debt to equity ratio net of the available cash of one point or three times as compared to 1.0 southern tide.

<unk> a quarter ago.

We believe our significant amount of dry powder positions us well to continue to support our existing portfolio company commitments to remain active in the current investing environment and to have no refinancing risk with respect to next year as term debt maturities.

We declared a fourth quarter 2023 dividend of 48 cents per share. This dividend is payable on December 28, 2023 to stockholders of record on December 15th 2023.

And is consistent with our third quarter 2023 dividend.

As Kipp stated we have a long standing dividend track record. We are one of a select few bdcs that have paid a stable or growing regular dividend over the past 14 plus years.

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

Thanks, Danny I'm going to spend a few minutes, providing more detail on our investment activity our portfolio performance and our positioning for the third quarter I will then conclude.

<unk> with an update on our post quarter end activity backlog and pipeline.

In the third quarter, we originated $1 6 billion of new investments, which increased from $1 2 billion in the prior quarter as we saw a slight uptick in M&A activity.

Underscoring the breadth of our market coverage the EBITDA of the companies, we finance during the quarter range from below $20 million to over $800 million of EBITDA.

Approximately 50% of our new commitments were to existing borrowers, which is consistent with our historical practice.

With this quarter's activity our portfolio now includes 490 companies. This is an increase from 354 companies pre COVID-19 and represents a growth rate of 38%.

I point this out to highlight the meaningful benefits that come from incumbency, we believe incumbency drives future origination.

Additionally, we believe in competency enables us to support our strongest portfolio companies reduces underwriting restaurant in new commitments and achieved better documentation in terms.

And finally incumbency enhances our relationship with financial sponsors this quarter over 85% of our sponsored transactions were with repeat sponsors.

Now as we have all year, we continue to find compelling value in today's market. This is demonstrated by the first lien investments we originated in the quarter, which had a weighted average yield in excess of 12%, but a leverage ratio of only four six times.

This is a full turn of leverage lower than the industry senior leverage track by Pittsburgh L. C D over the past 10 years.

Underscoring <unk> earlier point about the historically attractive relative value, we are able to achieve in the current market. The weighted average LTV of all our new investments this quarter was below 40%.

In addition to adding accretive investments in the current market our existing portfolio continues to perform well and we are seeing stability in our credit metrics.

We believe this is largely due to our defensively positioned portfolio and market leading companies in resilient industries.

In the third quarter, the weighted average LTM EBITDA growth growth rate of our portfolio was a healthy 6%.

This compares to an estimated flat EBITDA growth rate for the S&P 500 over the last 12 months.

With respect to our portfolio grade the weighted average portfolio grade of our borrowers at cost was stable with last quarters at 3.1.

Our non accrual rate at fair value declined from one 1% last quarter to 6% this quarter, which continues to be well below historical levels.

Non accruals at cost decreased from two 1% last quarter to one 2% this quarter and remained well below our 3% 15 year historical average and the kw BDC average of three 8% for the most recent 15 year period available.

Looking forward, we remain confident about the performance of our portfolio in part due to our disciplined approach to risk management and portfolio diversification.

Our $21 9 billion portfolio on a fair value is diversified across 490 different companies and 25 different industries.

This means that any single investment accounts for just <unk>, 2% of the portfolio on average and our largest investment at any single company, excluding SDLP and Ivy Hill is just 2% of the portfolio.

We believe we have the greatest level of portfolio diversification any publicly traded BDC.

Finally, I will provide a brief update on our post quarter end investment activity and pipeline.

From October 1st through October 18th 2023, we made new investment commitments totaling $410 million of which 297 million were funded.

We exited or were repaid on $158 million of investment commitments.

As of October 18th our backlog and pipeline stood at roughly 820 months.

Our backlog and pipeline.

And then certain investments that are subject to approvals and Documentations and may not close or we may sell a portion of these investments post closing.

I'll now turn the call back over to Kim for some closing remarks. Thanks.

Thanks, Mitch in closing, we're pleased with the quarter.

Portfolio continues to perform well and our sourcing underwriting portfolio management and capital advantages are driving strong financial results.

We feel that we're well positioned to navigate any potential future economic challenges and to capitalize on todays attractive environment for new investing.

As always we appreciate you joining our call today and we'd be happy to open the line for questions operator.

Thank you.

At this time, if you'd like to ask a question. Please press Star then one on your Touchtone phone if you'd like to withdraw your question. Please press Star then two.

Please note as a courtesy to those who may wish to ask a question that we ask to please limit yourself to one question and a single follow on if you have additional questions you may reenter the queue.

The Investor Relations team will be available to address any further questions at the conclusion of today's call.

Our first question comes from Melissa Wedel with JP Morgan. Please proceed with your question.

Good morning, Thanks for taking my questions today.

Kip.

Hi wanted to start with some of the commentary you provided around expecting some rebound in activity and our 2024.

You know it sounds like some of that is based on.

Dry powder, and if I could pressure from private equity investors to re engage a little bit but do you think there's risk to that recovery in activity should rates remain even higher than expected.

Implied by the forward curve right now.

I mean, it's probably just thanks for the question unless there's probably just my own view, but I mean, I think this has been a difficult year to buy and sell things as I've said in some other.

Places you know if you havent been you know and they need to sell mode. This is probably a pretty difficult year to think about selling.

And then buyers obviously, you're exploring we think.

Materially lower purchase prices for a lot of assets not just corporates and I think that translate similarly into real estate and infrastructure assets etcetera, everything is just worth less in a higher rate environment.

Hum.

My optimism around next year is that if we see a leveling out of rates.

Which I think were seeing generally maybe there's another increase or two but generally.

Youre seeing a leveling of rates that price exploration, that's been going on between buyers and sellers just gets to be a bit easier right, but while youre seeing rates I think unexpectedly increase as quickly as they did and as materially as they did it just makes those conversations more difficult. So that's kind of number one.

Number two yeah. My my my belief is that there are a lot of limited partners out there that you now have money in the ground, particularly in private equity where they were looking to 'twenty four is a year, where they need more material repayments to come back right. When they think about managing their cash flows whether it's the pension.

Or any other investor so I'm hopeful that the combination of those two things should lead to better activity levels I think our deal flow today, you know Mitch talked a little bit about the backlog and pipeline is better than it's been and so I'm cautiously optimistic, but I guess, we'll wait and see.

That's really helpful. Thanks, Kent and then a question for Penni Penni did you have an update for us on any spillover income as of quarter end. Thanks, so much.

Thanks for the question you know we have been continuing to accrue well I may go back to we did finalize last years tax return and the final spillover was about $1 18 per share or $643 million as we finalize that number and that's what's reflected in the earnings presentation.

As we look into 2020 three we continue to accrue excise tax to come to a similar level of spillover to last year, and we're still obviously going through the year and taxes never done until they get through a full year, but we are continuing to accrue excise tax at a similar level.

Good afternoon.

Unknown Executive: Welcome to the Ares Capital Corporation's third quarter September 30th, 2023 Earnings Conference Club. At this time, all participants are on a listen-only mode. As a reminder, this conference is being recorded on Tuesday, October 24th, 2023.

If he would annualize where we are this year to date versus the final expense for last year.

John Stilmar: I will now turn the call over to your host, Mr. John Stilmar, managing director of Ares Investor Relations. Thank you, you may begin. Thank you.

Thanks, Tony.

Yeah.

Our next question is from Finian O'shea with Wells Fargo. Please proceed with your question.

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

Hi, everyone, sorry, I was on mute.

Hum on the repeat borrower financing statistic you gave up 50% this quarter, which is helpful that you give that.

It appears to have come down from pretty elevated levels in the first half so I'm seeing if there's anything to see there in terms of.

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

Our completions say of refinancings of your portfolio companies.

Or maybe some as some of the exits are rolling off.

And to the market.

Hum.

I'll I'll stop there or.

I guess, if you can add as well.

Year to date what percent of your you know directionally of your commitments to repeat borrowers are for a refi.

Refis versus M&A.

M&A. Thank you.

Yes.

Unknown Executive: In addition, reconciliation of these measures may also be found in an earnings release filed this morning with the SEC on Form 8K. Certain information discussed in this conference call and the accompanying slide presentation, including information-related portfolio companies, with derived from third-party sources and has not been independently verified, and accordingly, the company makes no representations or warranties with respect to this information.

Yeah, Hey, Pat its course Schnabel I think on the first part of the question around the <unk>.

50% to existing borrowers that's actually consistent with our historical experience. If you look back over in a normal period at 50% to existing borrowers. So I think what you're just seeing is a pick up in activity.

For new borrowers.

Relative to the prior few quarters, where obviously that volume was a little more muted and thats what resulted in us returning to that 50% level to existing borrowers. So I don't think theres anything more to see there other than that.

Unknown Executive: The company's third quarter, September 30th 2023 earnings presentation, can be found on the company's website at www.AresCapitalCorp.com by clicking on the third quarter 2023 earnings presentation link on the homepage of the Investor Resources section. Ares Capital Corp, operations earnings release and Form 10Q are also available on the company's website.

And then on the second part of your question actually I'm, sorry, I don't know it was the you know.

Is there a change in use of proceeds I don't actually think then we have kind of that analysis run frankly, we can go back and dig a little bit in the numbers, but.

Kipp DeVier: I'll now turn it over to Mr. Kip DeVier, Ares Capital Corp. Chief Executive Officer. Thanks, John.

Let it let us take a look at that and we'll come back to you offline.

Kipp DeVier: Hello, everyone, and thanks for joining our earnings call today. I'm here with our co-presidents, Mitch Goldstein and Court Schnabel, our Chief Financial Officer, Penny Roll, our Chief Operating Officer, Janet Markowitz, and other members of the management team.

Okay. Thank you and a follow up on Ivy Hill do you have a breakdown of.

Say the weighted average duration for the CLO reinvestment periods are those materially shortening like that as.

Kipp DeVier: Before I begin my prepared remarks on the company, I'd like to express our deepest sympathies to those who have been affected by the recent horrific terrorist attacks in Israel and the subsequent loss of innocent lives. It's truly a tragedy, and we hope that a peaceful resolution is achieved as soon as possible.

As we're seeing in the in the BSL CLO market. Thank you.

Yeah, no not really I mean, we continue to actually be able to raise capital there.

Kipp DeVier: Turning to our results, I'll start with some highlights from our third quarter, and then add some thoughts on the economic environment and the current market. This morning, we reported strong third quarter results. Our 18% year-over-year, primarily reflecting higher net interest and dividend income, largely a result of higher-based interest rates. Democrats, our gap earnings per share for the third quarter were 89 cents, driven by our strong core earnings and an increase in the overall value of our investment portfolio.

I could go back and dig with the team and look at it but it's not something I spend a lot of time thinking about its pretty diversified its a combination of loan mandates and C. L OS, but niches, Michigan waving at me that he has been as I mentioned.

Kipp DeVier: These results led to another quarter of sequential growth in our net asset value per share to $18.99, which has increased 3% since the beginning of the year. We remain one of the few BDCs that's been able to deliver a consistent or growing regular dividend while building NAV over long periods of time.

I would say, it's not all cielo is an ideal anyway right. There's a lot of the spoke.

You've called the loan mandate bank loans, where we are able to adjust those maturities year after year and have a consistent basis within Ivy Hill.

There is not a shortening of that and we've been having lots of success refinancing when we needed to do but they're not all sellers is an important point.

Thanks, so much.

Yep. Thanks.

Our next question comes from Aaron sites like Janowicz with Citi. Please proceed with your question.

Thanks.

With 24, looking like it might be a better year for.

Or at least an increase in activity for investing or you expecting exits to be of a similar amount and what are you thinking about in terms of potentially increasing some of the leverage you have in the portfolio.

Kipp DeVier: We're pleased with these results and we think it's important to put them in the context of what we're seeing in the broader credit markets. For much of the quarter, the credit markets remain constructive and saw some lift as the soft landing narrative for the U.S, economy led to enhanced liquidity and modestly hired transaction activity. However, with expectation that higher for longer interest rates will be required to tame inflation volatility is returned to the capital markets.

Yeah, I mean, they tend to be reasonably reciprocal Erin. Thanks for the question I would I would think the new deal activity and repayments are likely to pick up next year relative to this year, which has been slower on all those fronts.

Okay.

And it was good to see your nonaccrual activity.

Kipp DeVier: There is no doubt the unsettled international landscape in Ukraine and Israel in particular are adding to this volatility. As a result, the leverage finance market is less constructive to new transactions, particularly smaller ones. And companies that sought the bank and liquid credit markets for their financing needs are turning to the private credit markets looking for worthy partners they can deliver a higher certainty of close closing. Underscoring the market opportunity for direct lenders, this was the third most active quarter in history for $1 billion plus unitarunch transactions.

Ratios came down again, you know what what's your outlook for next year for your.

And our expectations with non accruals I would imagine in the industry.

Let's see a bit of an increase from here.

Yeah, I think you're probably right. I mean are you know this is a quarter, where we actually realized a couple of restructurings in situations, where we took ownership of the company, where we continue to be a lender, we actually exited two situations.

We were not feeling great about and realized to charge offs.

But but charge offs sort of add at the Mark. So I think we carried them well, yeah, I think you're probably right I mean with higher rates.

Kipp DeVier: And the private credit markets demonstrated the ability to provide a $5 billion financing solution in the finaster transaction driven by the scale and capabilities of managers like aries. Private credit is continuing to gain market share over bank and syndicated capital market solutions. During the third quarter market pricing in terms continue to be highly attractive for new transactions. Credit spreads on new loans are well above historical averages, leverage levels are lower, and equity contributions are at historical highs.

Being in place now for a while and a general slowdown in the economy that would tell you that.

The general expectation I think not just at this company, but most of our competitors in the market broadly is the defaults will continue to go up next year.

Thanks.

Thanks.

Yes.

Our next question comes from Casey Alexander with Compass point. Please proceed with your question.

Kipp DeVier: Looking forward, we're optimistic about the outlook for new investment opportunities and we expect an uptick in M&A, an additional sponsor to sponsor portfolio company sales to accelerate in 2024. Given the robust level of private equity drive powder that has largely gone unspent growing pressure from private equity LPs seeking returns of their capital and stronger sentiment amongst middle market companies to invest in the growth of their businesses, we expect stronger transaction volume in 2024. The simple turning of the calendar year will also help. We expect the fourth quarter will be moderately better than the third quarter in terms of volume, but likely below fourth quarters of past years.

Hi.

Good afternoon.

They kind of are kind of at kind of a cross cross purposes question, but noticing that you swapped out the due debt maturity into a floater.

You know sort of feels like a call that that it's your expectation that rates will come down and that your cost on that it'll get cheaper otherwise not sure why you would swap it out.

But suggested that 24 is a better year for deals in originations actually argues that that you think that the economy is going to be okay. In deal activity is going to pick up and and you know that kind of argues that rates stay higher for longer I'm I'm curious, it's sort of the cross currents from that.

Kipp DeVier: We believe that our experience, scale, and capabilities position as well to benefit from these market dynamics. Aries management has continued to invest in the quality and growth of its direct lending platform. And we continue to focus on both sponsored and non-sponsored companies and the expansion of our specialty industry covered. Levitering what we believe is the largest and most tenured US direct lending team in the market, with 180 professionals across the US, we feel that our broad sourcing capabilities provide significant and differentiated deal flow.

Those two items.

I'm going to turn to penny on the hedging comment because we had.

Quite a lot of debate about that it was a atypical them from our past practice, but penni do you want to jump into some some thinking there and maybe and then we can come back and talk about us on 24, and how we see things and Casey you know your guess is as good as mine around rates, but I'll, let <unk> comment on the hedging arrangement.

It obviously, none of us have the perfect crystal ball on rates, but in this case, we did a shorter duration three and a half year term loan and it is H ethical honest kept sad for us to swap historically, we've tended to just stick with whatever the base rate is on the liability that we've issued in this case with it.

Kipp DeVier: As an example, in the third quarter, we reviewed more transactions that were reported in both the leverage loan and the middle market combined. We believe these sourcing advantages allow us to maintain a highly selective approach, which in turn drive strong long-term investment performance. These sourcing capabilities have been a key driver to what we believe is a high-quality diversified portfolio. Our companies are continuing to perform well despite the increase in borrowing costs.

Towards the forward curve and a matching and looking at our portfolio being predominantly floating rate assets.

Salt like I got opportunity to swap that with the expectation at least at the time, we did it that rates would come down even if we knew that they would stay a little bit higher for longer based on the forward curve.

Kipp DeVier: Our portfolio interest coverage ratio measured using current market interest rates at the end of the quarter was stable quarter over quarter, and substantially all of our companies are consistently making their interest payments. Despite the higher-based rates. We also note that the weighted average portfolio grade is flat quarter over quarter and remains better than our 15-year average. Our non-accruals at cost are just over 1% and continue to be well below our own and BDC averages for the past 15 years. In addition, amendment activity and modifications remain stable at historical levels.

I think that's right I mean, I think we're operating today Casey with the belief and everybody has a pretty different view on this evening here. These days.

Is that the base rates can be higher for longer.

I would agree with your commentary that the U S economy seems.

While it's slowing to be.

Pretty pretty okay.

It's great, but I think it's pretty okay, and when you think about our portfolio, which I think is more defensively positioned and as we always mention less oriented towards cyclical companies. We're seeing as we reported EBITDA growth in the portfolio, while slowing substantially better than the economy.

Kipp DeVier: The credit strength in our portfolio is supported by healthy levels of EBITDA growth across our portfolio companies, which we believe are demonstrating comparatively stronger growth than the broader market due to the industries that we tend to overweight and our defensive positioning. Our simple strategy of avoiding cyclical sectors, more prone to default, continues to pay dividends for the company. We estimate that the weighted average LTV in our loan portfolio is around 43%, although we acknowledge the valuation environment is changing in response to higher rates.

So we're pretty constructive around the economy, we think that'll keep rates higher for longer to your point and I think I'd also just point out maybe to finish its unusual that the fed is.

Really in the market in a material way during a presidential election, and we happen to have one of those coming up next year. So I would expect to have less active fed next year, which would imply.

Higher for longer and that's what we're managing to.

Okay.

Thank you for that my follow up is that you know your rate of non accruals is.

Kipp DeVier: But regardless of these shifting valuations, we have confidence there is significant value beneath us in most capital structures, a lot of it supplied by large and well-established private equity firms, with whom we have strong relationships and do repeat business. In situations where we have asked sponsors to step up and support their portfolio companies, we've been pleased with sponsors willingness and ability to provide capital.

Is.

Terrific Lee low I don't know a better adjective to use for it to what extent has your companies did your companies actually benefit from recasting their expense base is because of the Covid crisis and how much are they benefiting from the slow nature of this movie.

Economy, that's allowing them to adjust along the way and that's benefiting your portfolio with a lower level of non accruals and then you then you might have expected.

Kipp DeVier: Despite this constructive view on the portfolio and the economy generally as credit investors, we are laser focused on ensuring we are well prepared in the event of a more protracted economic downturn. In addition to the benefits of our diversified and defensive portfolio, we have a large portfolio management and valuation team, which supports our investment teams and is proactive in identifying problems early and developing strategies to maximize our outcomes. Our balance sheet remains strong with net debt to equity levels around one time.

I mean, I think it's a little bit of all of that we did make that point coming out of that really.

Most difficult period of the pandemic as it obviously force companies to really evaluate where they were from a cost perspective that'll happen. When you have no revenue right.

Yeah, well so I do think there is I do think theres some of that.

But look for credit investors and we've been saying this publicly we think this is a reasonably.

Kipp DeVier: We have ample access to capital to invest in this attractive vintage. Importantly, we also have access to capital to deal with more challenging situations as they arise. In tougher situations, we believe we have the appropriate resources to execute on our demonstrated playbook for managing the portfolio.

Reasonably good environment right, we've set up our portfolios, we don't need to see a tremendous amount of growth in the portfolio.

Where we have high free cash flow companies, maybe not deleveraging as quickly as they might have hoped with a lower base rate, but still able to deleverage I think this environment is a trickier one for.

Some of the embedded equity that got put in the ground, particularly in private equity from call. It 2019 to 22, where prices were much higher.

Kipp DeVier: We believe these risk management workout capabilities are central to our ability to continue to deliver on our industry leading track record for credit performance.

Rates were much lower and expectations for growth were there a lot of those things have been.

Kipp DeVier: Given these dynamics and the company's overall positioning, we feel good about our third quarter results and our position looking forward.

Have changed right.

So we're feeling again pretty good we appreciate the terrific we could commentary, but it's not we're happy with where the portfolio is that we think it's very manageable for us going forward and we're just locked in making sure that we're early on problem companies and and doing what we've done a long time here, so we feel pretty pretty good.

Penny Roll: And with that, let me turn the call over to Penny to provide some more details on our financial results and our balance sheet position. Thanks, Kipp. We reported gap net income per share of 89 cents for the third quarter of 2023 compared to 61 cents in the prior quarter and 21 cents in the third quarter of 2022. Our higher gap net income per share in the third quarter of 2023 benefited from strong core earnings and higher portfolio values during the quarter driven largely by tightening market spreads.

How the company is positioned as I mentioned in the prepared remarks.

Alright, thank you.

Sure Thanks for the questions.

Our next question comes from violence Abraham with UBS. Please proceed with your question.

Penny Roll: On a core basis, we reported core earnings per share of 59 cents for the third quarter of 2023 compared to 58 cents in the prior quarter and 50 cents in the third quarter of 2022. We continue to see the benefits of higher rates on our predominantly floating rate portfolio in the increase from both the prior quarter and the third quarter of the prior year. Our stock quarter's equity ended the quarter at nearly $10.8 billion or $18.99 per share which is an approximate 2% increase per share over the prior quarter. Our year-to-date annualized return on equity using gap EPS and core EPS was 14.5% and 12.5% respectively.

Hey, everyone. Thanks for the question can you comment a little bit on the industry makes him the backlog it looks like a good chunk of it is.

Consumer and then just maybe more broadly are you seeing any meaningful divergence and EBITDA trends across industries.

Yeah.

Yeah, I mean, it's yes, it's such a short period of time and in the backlog I can that he is pulling it up it probably represents just a handful of transactions and one that happens to be large in the consumer space. So I wouldn't I wouldn't draw a whole lot from frankly that that small sample set.

The origination.

Sort of opportunities are similar now as says says to how they had been all year and in the past.

You know how how we're seeing the mix of the economy and what's creating watchlist items as is the same.

Penny Roll: This strong level profitability further builds upon our long-term track record of a 12% gap based annual return on NAV since inception. Our total portfolio at fair value at the end of the quarter was $21.9 billion up from $21.5 billion at the end of the second quarter reflecting a combination of net fundings and net unrealized gains from the portfolio for the quarter. The weighted average yield on our debt and other income-producing securities at Amortized cost was 12.4% at September 30, 2023 which increased from 12.2% at June 30, 2023 and 10.7% at September 30, 2022.

For the most part it tends to be some elements in our health care portfolio as we and others have talked about in past quarters, where some of the practice space and service based health.

Health care companies haven't been able to raise price as much as some others and if that labor issues and shortage issues. There. We've had some of the same concerns and then you know I.

I think a certain portion of the portfolio as I always describe it as companies that make things right that do have good pricing power have had the ability to put through quite a lot of price increases, but all of a sudden they may have run out of gas on their ability to continue to raise prices on.

Certain items, starting to see a little bit more margin pressure, but more often than not when you look at are ones and twos, which are kind of our watch list names, it's only about 7% of the portfolio and it's pretty diverse you know theres not a lot of common underpinning their its more company specific than anything else.

Penny Roll: The weighted average yield on total investments at Amortized cost was 11.2% which increased from 11% at June 30, 2023 and 9.6% at September 30, 2022. The yield on our portfolio largely reflect the continued increases in interest rates.

Okay got it that's helpful.

On leverage it sounds like the message there is.

Penny Roll: Now let's shift to our capitalization and liquidity. During the quarter, we return to the investment grade debt markets for the first time in over 18 months. This $600 million debt issuance was our first sub five-year term issuance in this market. This shorter, three and a half year duration benefited our maturity ladder, as it allowed us to slot into 2027, where we, after this issuance, still only have $1.1 billion maturing in that year.

On balance sheet leverage that you're kind of comfortable in this and this.

ZIP code here right around one one for the.

Foreseeable future or is that a fair characterization and are there any any conditions.

Think of the near or medium term that could they could change that one way or the other.

Yeah, No I mean, I think it's at the lower end of our target range, but as you know it kind of comes and goes quarter to quarter, depending on the activity I think we feel.

Penny Roll: Overall, our liquidity position remains strong with approximately $5.3 billion of total available liquidity, including available cash, and we ended the third quarter with a debt to equity ratio, net of the available cash of 1.03 times as compared to 1.07 times a quarter ago. We believe our significant amount of dry powder positioned as well to continue to support our existing portfolio company commitments to remain active in the current investing environment, and to have no refinancing risk with respect to next year's term debt maturities.

[noise] comfortable being at the lower end because obviously the.

The earnings are so good at the company that being more levered doesn't really create a material earnings benefit from here, we actually value having.

Access to the dry powder thinking about both the new investing environment as well as opportunities in the existing portfolio.

Okay, great. Thank you.

Youre welcome.

Our next question is from Robert Dodd with Raymond James. Please proceed with your question.

Hi, and congratulations on the quarter in our credit quality.

Penny Roll: We declared a fourth quarter 2023 dividend of 48 cents per share. This dividend is payable on December 28, 2023 to stockholders of record on December 15, 2023, and is consistent with our third quarter 2023 dividend.

A couple of Casey's question, sometimes on the swap question should we view this as kind of a one time.

Even just take an opportunity or more of a niche strategy. Obviously, you've got a couple of maturities in 'twenty couple of more than 25 should should I be assuming you're likely to swap those as well.

Penny Roll: As Kip stated, we have a longstanding dividend track record, we are one of a select few BDCs that have paid a stable or growing regular dividend over the past 14 plus years.

If you replace them with like for like kind of structures or was it really one off.

Yeah.

Mitch Goldstein: And with that, I would like to turn the call over to Mitch to walk through our investment activities for the quarter. Thanks, Penny. I'm going to spend a few minutes providing more detail on our investment activity, our portfolio performance, and our positioning for the third quarter.

Yeah. Thanks for the question honestly, it's hard to say this is something we assess on a deal by deal basis and as I said before it's rare that we actually do this we just thought this was an interesting opportunity in the current market.

So we would look to make this assessment upon each issuance as you know we go into 2024.

Mitch Goldstein: I will then conclude with an update on our post quarter and activity backlog and pipeline. In the third quarter, we originated 1.6 billion of new investments, which increased from 1.2 billion in the prior quarter as we saw a slight uptick in MNA activity. Undesquaring the breadth of our market coverage, the EBITDA and the companies we finance during the quarter range from below 20 million to over 800 million dollars of EBITDA. Approximately 50% of our new commitments were to existing borrowers, which is consistent with our historical practice. With this quarter's activity, our portfolio now includes 490 companies. This is an increase from 354 companies pre-COVID and represents a growth rate of 38%.

We have 1 billion one of maturities that are effectively resolved at this point and so we are well kind of contained to assess when it's appropriate and good for us to go to the market, but when we do that we will make the assessment on sloughing at that time.

Got it. Thank you and then the second one I'm talking about atypical.

Thanks.

You don't know who it sounds like if I look at new defaults or anything like that any kind of credit metric is it's very very good could you give us any kind of I mean is that entirely the result of a portfolio company performance or has there been any.

A typical behavior from our sponsors may be putting in more equity when it's all ex U a quiet again I wouldn't necessarily expect that but.

Mitch Goldstein: I point this out to highlight the meaningful benefits that come from the company. We believe in competency drives future origination. Additionally, we believe in competency enables us to support our strongest portfolio companies, reduces underwriting risk on new commitments, and achieve better documentation in terms. And finally, in competency enhances our relationship with financial sponsors. This quarter over 85% of our sponsored transactions were with repeat sponsors.

The credit quality there.

The loans is.

Yes held in the supermarket.

So any any kind of one is there anything unusual about that or is it just a portfolio company performance.

No I don't think there's anything unusual at all I mean, we mentioned in the prepared remarks that to the extent, we've actually look to you know.

Some of the private equity partners, we've had a long time to support companies with capital they they have but more than anything to your question I think we're actually seeing pretty good underlying performance in the portfolio of companies.

Mitch Goldstein: Now, as we have all year, we continue to find compelling value in today's market. This is demonstrated by the first-line investments we originated in the quarter, which had a weighted average yield and excess of 12%, but a leverage ratio of only 4.6 times. This is a full turn of leverage, lower than the industry senior leverage track by Pitchbook LCD of the past 10%. 10 Years. Undesquaring Kipps earlier point about the historically attractive relative value we are able to achieve in the current market, the weighted average LTV of all our new investments this quarter was below 40%.

But I would have expected if you asked me a year ago.

Which is why we're optimistic for 'twenty, four and beyond and I do expect some companies will you know perhaps have some problem as the clock ticks, along but and that's my expectation for modestly higher defaults, but we're where.

We're feeling pretty constructive on where we are in terms of the economy in the portfolio.

Mitch Goldstein: In addition to adding a freedom of investment in the current market, our existing portfolio continues to perform well, and we are seeing stability within our credit metrics. We believe this is largely due to our defensively-position portfolio and market-leading companies in resilient industries. In the third quarter, the weighted average LPM EBITDA growth rate of our portfolio was a healthy 6%. This compares to an estimated flat EBITDA growth rate for the S&P 500 over the last 12 months.

Thank you.

Thanks for your questions.

Our next question comes from Kenneth Lee with RBC Capital markets. Please proceed with your question.

Hi, Thanks for taking my question.

I'm wondering if you could just talk about any kind of outlook in terms of opportunities around being.

Being able to partner with banks or any opportunities related to the change in regulatory framework on the bank side there. Thanks.

Mitch Goldstein: With respect to our portfolio grades, the weighted average portfolio grade of our borrowers at cost was stable with last quarters at the 3.1. Our non-accrual rate at fair value declined from 1.1% last quarter to 0.6% this quarter, which continues to be well below historical levels. Non-accruals at cost decreased from 2.1% last quarter to 1.2% this quarter and remain well below our worth 3% 15-year historical average and the KBWBDC average of 3.8% for the most recent 15-year period available.

Sure I mean, I'll I'll go maybe.

Up a level and just say in terms of Ares management, and our credit platform here, we see extraordinary opportunity to potentially partner with the banks.

We bought a sizable portfolio as folks had seen from a bank this year and the dialogue around the banks and some of their.

Concerns relative to their balance sheets and their capacity continues to drive a lot of really interesting conversations with those counterparties.

Mitch Goldstein: Looking forward, we remain confident about the performance of our portfolio in part due to our discipline approach to risk management and portfolio diversification. Our 21.9 billion portfolio at fair value is diversified across 490 different companies and 25 different industries. This means that any single investment accounts for just 0.2% of the portfolio on average and our largest investment in any single company, excluding SDLP and IVL is just 2% of the portfolio. We believe we have the greatest level of portfolio diversification of any publicly traded BDC.

But to come back into this company, specifically, well I think that Ares capital Corporation can potentially participate in those opportunities I think there are other parts of the credit platform that are frankly more engaged in those discussions because as you know most banks, which is obviously why.

Our company has had so much success.

So large really don't engage in middle market corporate lending anymore.

So our expectation that they would be selling the types of loans that this company would want to buy.

Mitch Goldstein: Finally, I will provide a brief update on our post-corder end investment activity and pipeline. From October 1 through October 18, 2023, we made new investment commitments totaling 410 million of which 297 million were funded. We exited or were repaid on 158 million of investment commitments. As of October 18, our backlog and pipelines fit at roughly 820 million. Our backlog and pipeline contains certain investments that are subject to approvals and documentation and may not close or we may sell a portion of these investments post-closing.

It seems to me at least to be pretty low most of the assets that we think will eventually.

Be discussed and potentially for sale from some of the banks probably are a little bit outside of the mandated this company, but I can tell you that as a platform. Those discussions are very vibrant and I would expect them to be ongoing for a while.

Got you very helpful. There.

And then one final follow up question. This is actually Joe just to follow up on Roberts question previously in terms of the portfolio support you're seeing.

Kipp DeVier: I will now turn the call back over to Kit for some closing remarks. Thanks, Mitch.

One of just provide a little bit more color around there.

Kipp DeVier: In closing, we're pleased with the quarter. Our portfolio continues to perform well in our sourcing, underwriting, portfolio management and capital advantages are driving strong financial results. We feel that we're well positioned to navigate any potential future economic challenges and to capitalize on today's attractive environment for new investing. As always, we appreciate you joining our call today.

In terms of I think in your prepared remarks, you said you were relatively pleased with what Youre seeing I Wonder if you could just expand upon that.

I'm sorry.

Okay I missed that there for a second.

Yes, again on that one please.

Unknown Executive: We'd be happy to open a line for questions.

Yeah just.

In terms of the portfolio portfolio of support you're seeing from from the sponsors.

Unknown Executive: Operator? Thank you.

In the prepared remarks, you mentioned Youre really really pleased with what you're seeing so far I'm wondering if you could just provide a little bit more color or expand upon those.

Unknown Executive: At this time, if you'd like to ask a question, please press star then one on your touch-tone phone. If you'd like to withdraw your question, please press star then two. Please note, as a courtesy to those who may wish to ask a question that we ask, please limit yourself to one question and a single phone. If you have additional questions, you may re-enter the queue.

Amongst there thanks.

Okay.

I think I think we're pleased with the support that we've seen from the private equity community.

I don't really know what else to say I mean when asked.

Unknown Executive: The Investor Relations team will be available to address any further questions at the conclusion of today's call.

In situations, where it's required we've seen partners and private equity companies.

Melissa Woodell: Our first question comes from Melissa Woodell with JP Morgan. Please proceed with your question.

And obviously feel good about their continued ownership in those companies I mean, the good news here is.

Kipp DeVier: Good morning. Thanks for taking my questions today. Kipp, I wanted to start with some of the commentary provided around expecting some rebounded actions of activity in 2024. You know, it sounds like some of that is based on dry powder and expected pressure from private equity investors to re-engage a little bit. But do you think there's risk to that recovery and activity should remain even higher than expected as implied by the forward curve right now?

We are as a team have been doing this with a lot of the same private equity firms for a long time.

It's very common that we have several if not more than several investments with a single private equity firms. So that relationship and that trust has been built over time and we've just seen great partnership from that community as they try to figure things out and as I mentioned I think it's a more challenging environment to be an owner.

Of assets today than it has to be a lender to those assets.

Because when problems occur.

The dialogue tends to be one of us turning to ownership and saying, what's the plan and very often the plan is equity supports required and we've seen it fall I'm pretty pretty well the benefit also of being leveraged 40% or 30%, 40% loan to value provides a lot of cushion such that in a slower environment.

Penny Roll: I mean, it's probably just thanks for the question, Melissa. It was probably just my own view. But I think this has been a difficult year to buy and sell things as I've said in some other places. You know, if you haven't been, you know, in a need to sell mode, this is probably a pretty difficult year to think about selling. And then buyers obviously are exploring. We think, you know, materially lower purchase prices for a lot of assets, not just corporates.

Penny Roll: And I think that translates similarly in the real estate and infrastructure assets, et cetera. Everything's just worth less in a higher rate environment. My optimism around next year is that if we see a leveling out of rates, which I think we're seeing generally, maybe there's another increase or two, but generally, you're seeing a leveling of rates, that price exploration that's been going on between buyers and sellers just gets to be a bit easier, right?

<unk>.

The actual owners are.

As you can see willing to put money in because you know they need and we've been the beneficiaries of being where we sit in the cap structure.

I think it's they need to but they also.

Or doing it economically right theyre looking at investments that they've made and what are good companies that they want to support and own and while maybe the duration of their investment is going to extend a little bit and perhaps the return on that investment has to come down over time.

With higher rates there they are supporting these companies because they view that follow on support as a good investment right. One that's going to generate a return for their investors.

Penny Roll: But while you're seeing rates, I think unexpectedly increase as quickly as they did. And as materially as they did, it just makes those conversations more difficult. So that's kind of number one. And number two, yeah, my belief is that there are a lot of limited partners out there that have money in the ground, particularly in private equity, where they're looking to 24 a year where they need more material repayments to come back.

And that gives us lot of confidence that we have strong partners.

And that we're invested in good companies.

Got you very helpful. There. Thanks again.

Sure Yeah, you're welcome sorry, I missed that the first time around.

Our next question comes from Mark Hughes with Truest Securities. Please proceed with your question.

Penny Roll: When they think about managing their cash flows, whether it's a pension or any other investor. So I'm hopeful that the combination of those two things should lead to better activity levels. I think our deal flow today, you know, Mitch talked a little bit about the backlog and pipeline is better than it's been. So I'm cautiously optimistic, but I guess we'll wait and see.

Okay. Thanks.

Good morning, and good afternoon.

Kipp you mentioned the leverage finance market, it's less constructed the new transactions you pointed out how are.

Unknown Executive: That's really helpful. Thanks.

The $1 billion plus unit tranche.

Was becoming more.

Prevalent was that a function of the broader transition to private credit or was that maybe are influenced by some of the <unk>.

Penny Roll: And then a question for Penny. Penny, did you have an update for us on any silver income as of quarter end? Thanks so much.

Volatility later in the market.

During the quarter that you mentioned around.

Higher for longer.

Political uncertainty.

Phineon O'Shea: Thanks for the question. You know, we have been continuing to accrue. Well, I could make a back to we did finalize last year's tax return. And the final spillover was about $1.18 for share or $643 million. And as we finalize that number and that's what's reflected in the earnings presentation. As we look into 2023, we continue to accrue excise tax to come to a similar level of spillover to last year. We're still obviously going through the year and taxes never done until we get through a full year, but we are continuing to accrue excise tax at a similar level if you annualize where we are this year today versus the final expense for last year. Thank you.

Yeah, I mean, I'm going to let <unk>.

Court jump in too if you'd like to I would say you know to answer your question simply it's both.

Right. So I think over a long period of time the private credit.

Marketplace has been demonstrating.

To counter parties that it has a very attractive.

Solution for borrowers and owners that.

It can get achieved particularly in scale. These days away from the public markets.

So more and more adoption more and more recognition from our counterparties that the products that we're providing.

Again scale flexible customized et cetera to each solution are actually really attractive in and.

Support their investment thesis on the equity side that of course accelerates during periods of higher market volatility. So over the last few quarters, it's probably both but I think the long term of arrow is very much to your question pointing towards higher and higher percentage of deals getting done with private capital and.

Phineon O'Shea: Our next question is from Phineon O'Shea with Wells Fargo. Please proceed with your question.

Phineon O'Shea: Hi everyone, sorry I was on mute. On the repeat bar we're financing statistics you gave 50% of this quarter which is helpful that you give that. That appears to have come down from pretty elevated levels in the first half. So I'm seeing if there's anything to see there in terms of, you know, a completion say of refinancing of your portfolio companies or maybe some of the exits are rolling off out into the market.

It seems to me the numbers support fewer deals, particularly smaller you know billions 2 billion in under getting done away from the syndicated markets I.

I think our primary competitive advantage is certainty and over over the banks, which.

Often they provide less certainty and so in periods of volatility we're going to win with that advantage, but then when banks will step back into the market and less volatile times people remember.

Unknown Executive: I'll stop there. Or I guess if you can add as well, year to date, what percent of your, you know, directionally of your commitments to repeat borrowers are for refise versus MNA.

That volatility can come again and that certainty is valuable and so that just creates permanent market share shifts.

Not linear over time, but that as Kip said that trend toward that permanent shift we believe we will continue.

Kort Schnabel: Thank you. Yeah, I think that's Kort Schnabel. I think on the first part of the question around the 50% existing borrowers that's actually consistent with our historical experience if you look back over, you know, in a normal period at 50% to existing borrowers. So I think what you're just seeing is a pickup and activity for new borrowers relative to the prior few quarters where obviously that volume was a little more muted. And that's what resulted in us returning to that 50% level to existing borrowers.

Understood and all are kind of a protein credit question, maybe a little different way.

Do you get the tenant to anybody the portfolio companies are.

<unk> capex or hiring.

If we're going to be higher for longer in terms of interest rates.

Or are they keeping ahead of the game in terms of the good EBITDA growth you've described or.

Okay, but I think you've noticed that.

Yeah.

24, the outlook is for little more pressure on credit just the passage of time.

Kort Schnabel: So I don't think there's anything more to see there other than that.

Unknown Executive: And then on the second part of the question actually I'm sorry I don't know.

If interest rates don't decline will that passage of time to put the.

Natural pressure on her.

On credit.

Yeah.

The to answer the first part of your question, which I think is the most interesting question, that's sort of what we're all watching and talking or companies about alright, because the reality is we're sitting in an environment, where you're actually seeing pretty good economic performance again across the portfolio of reasonable growth, even if it's slowing but all of a sudden companies that are.

Unknown Executive: Okay, thank you.

Unknown Executive: And a follow-up on Ivy Hill.

Unknown Executive: Do you have a breakdown of say the weighted average duration for the CLO reinvestment periods are those materially shortening like as we're seeing in the BSL CLO market? Thank you. Yeah, not really. I mean, we continue to actually be able to raise capital there. You know, I could go back and dig with the team and look at it, but it's not something I spent a lot of time thinking about. It's pretty diversified.

Achieving plan or are close to achieving plan I have a lot less cash flow around them. They have right. So servicing debt something that they obviously need to put the utmost focus on is that changing the way they run their business or they're making fewer investments. It's a great question. It's like.

The question that we're talking to all of our company is about.

To understand that but I think that's it.

Unknown Executive: It's a combination of loan mandates and CLOs, but Mitch is, Mitch is waving at me that he's. I would say not all CLOs and I feel anyway, right? There's a lot of the spoke. They've called the loan mandate bank loans where we are able to adjust those maturities year after year and have a consistent basis within IBL. So there's not a shortening of that. We've been having lots of success refinancing when we needed to, but they're not all CLOs is the important point. Thanks so much. Yep, thanks.

The answer to that question, which I don't have today will dictate sort of where the economy goes in 'twenty four and beyond.

I appreciate that thank you.

Thanks for your question.

As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we poll for questions.

Our next question comes from Ryan Lynch with K B W. Please proceed with your question.

Hey, good afternoon.

Aaron Cyganovich: Our next question comes from Aaron Saiganovich with City. Please proceed with your question. Christian? Thanks. With 24, looking like it might be a better year for, or at least an increase in activity for investing. Are you expecting exits to be of a similar amount? And what do you think you about in terms of potentially increasing some of the leverage you have in the portfolio? Yeah, I mean, they tend to be reasonably reciprocal, Aaron, thanks for the question.

My first question was just on the broadly syndicated loan markets.

Were pretty weak at the end of 2022 and as well as the beginning of 2023, but in the previous in the third quarter, you're starting to see a lot more activity.

Coming back to the broadly syndicated loan market is again still relatively low relative to what private credit and direct lenders are doing I'm just curious with the most recent volatility.

It's just a broadly syndicated loan market still an option for borrowers out there or does that take a pretty big step back from the sort of momentum, it's starting to get in the third quarter.

Aaron Cyganovich: I would, I would think that new deal activity and repayments are likely to pick up next year relative to, to this year, which has been slower on all those fronts. Okay, and it was good to see your non-equal activity. You know, the ratios came down again. You know, what, what's your outlook for, for next year, for, you know, expectations with, with non-equal, as I would imagine, the industry is expected to see a bit of an increase from here.

Yeah, I mean, the so.

Trying to come back right needs the CLO machine to function again, obviously and that's the largest buyer in this space and I think the banks today are our structuring to ratings frankly, too cheap btu ratings in larger deals they feel confident they can syndicate so to the extent it fits that profile very much an option to the extent it doesn't fit that profile.

Aaron Cyganovich: Yeah, I think you're probably right. I mean, our, you know, this quarter where we actually realized a couple of restructuring and situations where, you know, we took ownership of a company where we continue to be a lender. We actually actually exited two situations that we were not feeling great about and realized two charge-offs, you know, but, but charge-offs sort of at, at the mark. So, you know, I think we, we carried them well.

It kind of comes to us and others.

Okay. So it just goes back to your comment of kind of a larger deals still having that option larger high quality deals, but some of the smaller multibillion dollar term loans that get a b to the market's open other stuff not so much.

Got it.

And then the other question is for.

Your opinion I know you've talked about.

Aaron Cyganovich: Yeah, I, I think you're probably right. I mean, with higher rates, being in place now for a while and a general slow down on the economy. That would tell you that, the general expectation, I think, not just at this company, but most of our competitors in the market broadly, the defaults will continue to go up next year. Thanks. Yep.

The most recent bond offering and swapping that right out of them and.

One of the questions I just had with that is.

Versus the swap or not swapped that out I understand the commentary on that but.

What was there any consideration for instead of doing it and additional unsecured bond just drawing down on the credit facility.

You would have a better spread you would reduce some commitments fees you still have that optionality, where if rates do go lower you would actually have a lower.

Aaron Cyganovich: Our next question comes from Casey Alexander with Compass Point. Please proceed with your question. Hi. Good afternoon. Kind of a, kind of a cross-purposes question, but noticing that you swapped out the new debt maturity into a floater, you know, sort of feels like a call that it's your expectation that rates will come down and that your cost on that will get cheaper. Otherwise, I'm not sure why you would swap it out, but suggesting that 24 is a better year for deals and originations actually argues that, that you think that the economy is going to be okay and deal activity is going to pick up.

The overall yield on that on that on that debt as well as you guys have over 70% unsecured debt on your liability structure. So it's not like you guys.

Have a had a big need for.

Further unsecured <unk>.

For our liability structure. So I was just wondering how is the decision from.

Swapping out unsecured debt versus just drawing on the credit facility made.

No I think it's a great question as you know you can see from our capital structurally have raised a lot of secured debt through revolving credit facilities and have continued to do so even into this year.

I like to look at all of the capital markets in which we go to market for the liability structure and we care about the ladder and the maturities and the access to capital from multiple sources.

Aaron Cyganovich: And, and, you know, that kind of argues that rates stay higher for longer. I'm curious it's sort of the cross-currence from those two items. I'm going to turn to Penny on the hedging comment, because we had quite a lot of debate about that. It was atypical from our past practice, but Penny, do you want to jump into some thinking there maybe? And then we can come back and talk about views on 24 and how we see things.

And we are looking forward to debt maturities over the next one to three years. So we felt like it made sense to go cap back end to the investment grade market.

One of those many sources of capital that we have if you look at where we swapped it to while higher than most of our credit facilities. It is still lower than our highest price credit facility.

Aaron Cyganovich: And Casey, you know, your guess is as good as mine around rates, but I'll let Penny come in on the hedging range. Obviously, none of us have the perfect crystal ball on rates, but in this case, we did a shorter duration, three and a half year term loan, and it is atypical. It's kept said for us to swap historically. We've tended to just stick with whatever the base rate is on the liability that we've issued.

<unk> a little bit so it's in line with the revolvers.

And by swapping it does give us the opportunity to ride rates down if you believe the curve when that happens over the three and a half years 10 years. So a lot of this is about continuing to build an appropriate capital structure.

And also think about a lot of our maturities. We did have a window in 2027 without much maturing on a relative basis and even with this issue and it's still a 1 billion won and the term debt market in 2007. So it just helps us continue to build out that ladder.

Aaron Cyganovich: In this case, with a view toward the forward curve and a matching, looking at our portfolio being predominantly floating rate assets, it felt like a good opportunity to swap that with the expectation at least at the time we did it that rates would come down, even if we knew they would stay a little bit higher for longer based on the forward curve. I think that's right. And I think we're operating today, Casey, with the belief and everybody has a pretty different view on this even here these days.

And access to multiple sources of capital will continue to look to both markets, but I also think our team's done a great job of continuing to.

Get more capital and on our secured revolving rsi floating rate side, but it takes really all components to make the balance sheet work.

Aaron Cyganovich: The base rate is going to be higher for longer. I would agree with your commentary that the U.S, economy seems while it's slowing to be pretty okay. I don't think it's great, but I think it's pretty okay. And when you think about our portfolio, which I think is more defensively positioned, and as we always mention, less oriented towards cyclical companies, we're seeing as we reported the EBITDA growth in the portfolio while slowing substantially better than the economy.

Okay.

There's a lot of dynamics that go into this.

Thats all from me I appreciate your time today.

Yeah.

Thanks, Brian .

This concludes our question and answer session I'd like to turn the conference back over to Mr. Kipp do there for any closing remarks.

As usual I don't have any other than to say thanks for taking the time to join the call and I. Appreciate the good questions and hope everybody has a great day and a great week.

Thank you ladies and gentlemen, this concludes our conference call for today, if you missed any part by.

Aaron Cyganovich: So we're pretty constructive around the economy. We think that'll keep rates higher for longer to your point. And I think I'd also just point out maybe to finish. It's unusual that the Fed is really in the market in a material way during a presidential election, and we happen to have one of those coming up next year, so I would expect a less active Fed next year, which would imply higher for longer, and that's what we're managing to.

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Kipp DeVier: Okay, then thank you for that. My follow-up is that your rate of non-accruals is terrifically low. I don't know a better adjective to use for it. So what extent did your companies actually benefit from recasting their expense basis because of the COVID crisis? And how much are they benefiting from the slow nature of this moving economy that's allowing them to adjust along the way, and that's benefiting your portfolio with a lower level of non-accruals than you might have expected?

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Kipp DeVier: I mean, I think it's a little bit of all of that. We did make that point coming out of the most difficult period of the pandemic, because it obviously forced companies to really evaluate where they were from a cost perspective. That will happen when you have no revenue. I do think there's some of that, but look for credit investors, and we've been saying this publicly, we think this is a reasonably good environment.

Kipp DeVier: We've set up our portfolios. We don't need to see a tremendous amount of growth in the portfolio where we have high free cash flow companies, maybe not de-leveraging as quickly as they might have hoped with a lower base rate, but still able to de-leverage. I think this environment is a tricky or one for some of the embedded equity that got put in the ground, particularly in private equity from college 2019 to 22, where prices were much higher, rates were much lower, and expectations for growth were there.

Kipp DeVier: A lot of those things have been changed. We're feeling, again, pretty good. We appreciate the terrifically good commentary, but now we're happy with where the portfolio is at. We think it's very manageable for us going forward, and we're just locked in, making sure that we're early on problem companies, and doing what we've done a long time here. We feel pretty good about how the company's positioned, as I mentioned, in the prepared remarks.

Unknown Executive: All right, thank you. Sure, thanks for the questions.

Vilas Abraham: Our next question comes from Vilas Abraham with UBS. Please proceed with your question. Hey, everyone, thanks for the question. Can you comment a little bit on the industry mix in the backlog? It looks like a good chunk of it is consumer and then just maybe more broadly are you seeing any meaningful divergence in EBITDA trends across industries. Yeah, I mean, it's such a short period of time in the backlog I can pennies pulling it up. It probably represents just the handful of transactions and one that happens to be large in the consumer space.

Kipp DeVier: I wouldn't draw a whole lot from frankly that small sample set. The origination sort of opportunities are similar now as to how they have been all year and in the past. How we're seeing the mix of the economy and what's creating watch list items is the same. For the most part, it tends to be some elements in our healthcare portfolio as we and others have talked about in past quarters where some of the practice space and service based healthcare companies haven't been able to raise prices much as some others and have had labor issues and shortage issues there.

Kipp DeVier: We've had some of the same concerns and then, you know, I think a certain portion of the portfolio, as I described as companies that make things right, that do have good pricing power and have the ability to put through quite a lot of pricing increases but all of a sudden they may have run out of gas on their ability to continue to raise prices on certain items. You know, starting to see a little bit more margin pressure but more often than not when you look at our ones and twos which are, you know, kind of our watch list name, it's only about 7% of the portfolio and it's pretty diverse. You know, there's not a lot of common underpinning there.

Kipp DeVier: It's more company specific than anything else. Okay, yeah, that felt cool. And on leverage, it sounds like the message there is, you know, on balance sheet leverage that you're kind of comfortable in this zip code here. You know, right around 11 for the foreseeable future. Is that a fair characterization? And, you know, are there any conditions you think in the Arab medium term that could change that one way or the other?

Kipp DeVier: Yeah, now I think it's at the lower end of our target range but as, you know, it kind of comes and goes quarter to quarter depending on the activity. I think we feel comfortable being at the lower end because obviously the earnings are so good at the company that being more lever doesn't really create a material earnings benefit from here. We actually value having access to the dry powder, thinking about both the new investing environment as well as opportunities in the existing portfolio.

Unknown Executive: Okay, great. Thank you.

Unknown Executive: You're welcome.

Robert Dodd: Our next question is from Robert Dodd with Raymond James. Please proceed with your question. Question.

Robert Dodd: Hi, and yeah, congratulations on recording the credit quality. If you're going back to that couple of cases questions, okay, on the swap question, should we view this as kind of a one time event just taking opportunity or more of a near term strategy? Obviously, you've got a couple of maturities in 24, couple more in 25. Should I be assuming that you're likely to swap those as well? Or if you would place them with, you know, light for light kind of structures, or would it be one of them?

Robert Dodd: Yeah, thanks for the question. Honestly, it's hard to say this is something we assess on a deal by deal basis. And as I said before, it's rare that we actually do this. We just thought this was an interesting opportunity in the current market. So we would look to make this assessment upon each issue. And so, you know, we go into 2024. We have a billion one of maturities that are effectively resolved at this point.

Robert Dodd: And so we will kind of continue to assess when it's appropriate and good for us to go to the market. But when we do that, we will make the assessment on swapping at that time. Got it. Thank you.

Kipp DeVier: And then the second one, talking about a typical things. I mean, you know, of course, I'm very, very little. If I look at, you know, new defaults, anything like that. Any kind of credit metric is is very, very good. Can you give us any kind of is that entirely the result of a portfolio company performance or has there been any a typical behavior from sponsors may be putting in, you know, more equity when it's not actually required again, I wouldn't let for you expect that but the credit quality of the loans is Yeah, held in the market.

Kipp DeVier: Well, so any any kind of one, is there anything unusual about that? Or is it just what kind of company performance? No, I don't think there's anything unusual at all. I mean, we mentioned in the prepared remarks that to the extent we've actually looked to, you know, some of the private equity partners, we've had a long time to support companies with capital they they have. But more than anything to your question, I think we're actually seeing pretty good underlying performance in the portfolio companies, you know, it's better than I would have expected.

Kipp DeVier: If you asked me a year ago, which is why we're optimistic for 24 and beyond. And I do expect some companies will, you know, perhaps have some problem is the clock ticks along. But that's my expectation for modestly hired defaults, but we're we're feeling pretty constructive on where we are in terms of the economy and the portfolio. Thank you. Thanks for the questions.

Kenneth Lee: Our next question comes from Kenneth Lee with RBC capital markets. Please proceed with your question. Hi, thanks for taking my question. I wonder if you could just talk about any kind of outlook in terms of opportunities around, you know, being able to partner with banks or, you know, any opportunities related to the changing regulatory framework on the banks side there. Thanks. Sure, I mean, I'll I'll go maybe up the level and just say in terms of areas management, our credit platform here, we see extraordinary opportunity to potentially partner with the bank.

Kenneth Lee: Architects. You know, we bought a sizable portfolio as folks had seen from a bank this year and the dialogue around the banks and some of their concerns relative to their balance sheets and their capacity continues to drive a lot of really interesting conversations with those counter parties. But to come back into this company specifically, while I think that Ares Capital Corporation can potentially use to participate in those opportunities, I think there are other parts of the credit platform that are frankly more engaged in those discussions.

Kenneth Lee: Because as you know, most banks, which is obviously why our companies had so much success when they had gotten so large, really don't engage in middle market corporate lending anymore. So our expectation that they'd be selling the types of loans that this company would want to buy seems to me at least to be pretty low. Most of the assets that we think will eventually be discussed and potentially for sale from some of the banks probably are a little bit outside of the mandated this company, but I can tell you that as a platform, those discussions are very vibrant, and I would expect them to be ongoing for a while.

Kenneth Lee: Gotcha, very helpful there. And then one final follow-up question, this actually just to follow up on Robert's question previously, in terms of the portfolio support you're seeing, one of you just provide a little bit more color around there, in terms of I think your prepared remarks, you said you were relatively pleased with what you're seeing, one of you just expand upon that. Thanks. I'm sorry. I missed that there for a second.

Kenneth Lee: Yeah, just in terms of the portfolio support you're seeing from the PE sponsors, in the prepared remarks you mentioned, you're really pleased with what you're seeing so far, wondering if you could just provide a little bit more color or expand upon those remarks there. Thanks. I think we're pleased with the support that we've seen from the private equity community. I don't really know what else to say. When asked in situations where it's required, we've seen partners in private equity companies and obviously feel good about their continued ownership in those companies.

Kenneth Lee: I mean, the good news here is we, the team, have been doing this with a lot of the same private equity firms for a long time. It's very common that we have several, if not more than several, investments with a single private equity firm. So that relationship and that trust has been built over time and we've just seen great partnership from that community as they try to figure things out. And as I mentioned, I think it's a more challenging environment to be an owner of assets today than it is to be a lender to those assets because when problems occur, dialogue tends to be one of us turning to ownership and saying what's the plan.

Kenneth Lee: And very often the plan is equity supports required and we've seen it follow on pretty well. The benefit also of being leveraged 40% or 30% to 40% loan to value provides a lot of cushion such that in a slower environment, the actual owners are, as you can see, willing to put money in because they need to. And we've been the beneficiaries of being where we sit in the cap structure. Yeah, I mean, I think it's they need to, but they also are doing it economically, right?

Kenneth Lee: They're looking at investments that they've made in what are good companies that they want to support and own. And while maybe the duration of their investment is going to extend a little bit. And perhaps the return on that investment has to come down over time. You know, with higher rates, they're supporting these companies because they view that follow on support as a good investment, right? And one that's going to generate a return for their investments.

Kenneth Lee: Masters, and that gives a lot of confidence that we have strong partners, and that we're invested in good companies. Got you. Very helpful there. Thanks again. Sure. Yeah, you're welcome. Sorry, I missed that the first time around.

Kipp DeVier: Our next question comes to Mark Hughes with truest securities. Please proceed with your question. Yeah, thanks. Good morning, good afternoon. If you mentioned the leverage finance market, it's less constructed than new transactions. You pointed out how the billion dollar plus unitron was becoming more prevalent with that function of this broader transition to private credit, or was that maybe an influence by some of the volatility later in the market that are later in the quarter that you mentioned around.

Kipp DeVier: Higher for longer and political uncertainty. Yeah, I mean, I don't know what courtship been to if you'd like. I'd say to answer your question simply, it's both. Right, so I think over a long period of time, the private credit marketplace has been demonstrating to counter parties that it has a very attractive solution for borrowers and owners. That can get achieved particularly in scale these days away from the public markets. So more and more adoption, more and more recognition from our counter parties that the products that we're providing.

Kipp DeVier: Again, scale flexible customized, et cetera, to each solution are actually really attractive and support their investment pieces on the equity side. That of course accelerates during periods of higher market volatility. So over the last few quarters, it's probably both, but I think the long term arrow is very much to your question pointing towards higher and higher percentage of deals getting done with private capital. And it seems to me the numbers support fewer deals, particularly smaller, you know, billion, two billion and under getting done away from the syndicated markets.

Kipp DeVier: Yeah, I think our primary competitive advantage is certainty over over the banks, which often they provide less certainty. And so in period of volatility, we're going to win with that advantage. But then when banks will step back into the market in less volatile times, people remember that volatility can come again and that certainty is valuable. And so that just creates permanent market share shifts. And if not linear over time, but that as Kip said, that trend toward that permanent shift, we believe we'll continue.

Mark Hughes: And I'll kind of approach that credit question, maybe a little different way. The, do you get to send to anybody? The portfolio companies are, they're foregoing cat facts or hiring. If we're going to be higher for longer in terms of interest rates. Are they keeping ahead of the game in terms of the good epitaph growth you've described or? Okay, if I think you might have said, you know, 2024, the outlook is for a little more pressure on credit, just the passage of time.

Mark Hughes: If interest rates don't decline, will that passage of time just put the natural pressure on credit? Yeah, I mean, to answer the first part of your question, which I think is the most interesting question. That's sort of what we're all watching and talking to our companies about. Right, because the reality is we're sitting in an environment where you're actually seeing pretty good economic performance again across the portfolio, reasonable growth, even if it's slowing, but all of the sudden, companies that are achieving plan or close to achieving plan have a lot less cash flow around than they had.

Mark Hughes: Right, so servicing debt, something that they obviously need to put the utmost focus on, is that changing the way they run their business or they're making fewer investments? It's a great question. It's like the question that we're talking all of our companies about to understand that, but I think that's the answer to that question, which I don't have today, will dictate sort of where the economy goes in 24 and beyond. Appreciate that. Thank you. Thanks for your question. As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment, please, what we pull for questions.

Ryan Lynch: Our next question comes from Ryan Lynch with KBW. Please proceed with your question. Hey, good afternoon. My first question was just on the broadly syndicated loan markets, we're pretty weak at the end of 2022 and as well as the beginning of 2023, but in the previous, in the third quarter, you started to see a lot more activity coming back to the broadly syndicated loan market again, still relatively low relative to what private credit and direct lenders are doing.

Ryan Lynch: I'm just curious, with the most recent volatility, is the broadly syndicated loan market still an option for borrowers out there, or did that take a pretty big step back from the sort of momentum it started to get in the third quarter? Yeah, I mean, so trying to come back needs to see a low machine to function again, obviously, and that that's the largest buyer in the space. And I think the banks today are structuring two ratings, frankly, to achieve B2 ratings in larger deals, they feel confident they can syndicate.

Ryan Lynch: So, to the extent it fits that profile very much in option, to the extent it doesn't fit that profile, you know, it kind of comes to us and others. Okay, so it just goes back to your common of kind of a larger deals, still having that option, more high quality deals, but to the smallest. Yeah, multi-billion dollar term loans that get a B2 rating, the markets open, other stuff, not so much.

Ryan Lynch: And then the other question is for you, Penny, I know you talked about, you know, the most recent bond offering and swapping that that rate out and one of the questions I just had with that is, you know, versus a swap or not swap that out. You know, I understand the commentary on that, but what was there any consideration for instead of doing an additional unseatured bond, just drawing down on the credit facility.

Ryan Lynch: You would, you know, have had a better spread, you would reduce some commitment fees, you still have that optionality, where if rates do go lower, you would actually have a lower, you know, overall yield on that on that debt, as well as you guys have. And over 70%, you know, unseatured debt on your liability structure, so it's not like you guys, you know, have a, have a big need for, of, you know, further unsecuring your overall liability structure. So I just want to know how is the decision from swapping out unsecured debt versus just growing on the credit facility made?

Penny Roll: No, I think it's a great question. As, you know, you can see from our capital structure we have raised a lot of secured debt through revolving credit facilities, and have continued to do so even into this year. But we like to look at all of the capital markets in which we go to market for the liability structure, and we care about the latter and the materials and the access to capital from multiple sources.

Penny Roll: And we are looking forward to debt maturities over the next, you know, one, two, three years. So we felt like it made sense to go tap back into the investment green market as one of those many sources of capital that we have. If you look at where we swapped it to while higher than most of our credit facilities, it is still lower than our highest price credit facility by a little bit.

Penny Roll: So it's in line with the revolvers. And by swapping, it does give us the opportunity to ride rates down if you believe the curve when that happens over the three and a half year or 10 years. So a lot of this is about continuing to build an appropriate capital structure. And also think about the latter maturities. We did have a window in 2027 without much maturing on a relative basis. And even with this issue ends, it's still a billion one in the term that market in 27.

Penny Roll: So it just helps us continue to build out that ladder and access multiple sources of capital. You know, we'll continue to look to both markets, but I also think our teams and a great job of continuing to get more capital in on the secure revolving or sorry floating right side, but it takes really all components to make the balance you work. I understand there's a lot of dynamics that go into this.

Unknown Executive: That's all from me. I appreciate that today. Thanks, Ron. This concludes our question and answer session.

Kipp DeVier: I'd like to turn the conference back over to Mr. Kip Dever for any closing remarks. As usual, I don't have any other than to say thanks for taking the time to join the call and appreciate the good questions.

Unknown Executive: And if everybody has a great day, a great week. Thank you.

Unknown Executive: Ladies and gentlemen, this concludes our conference call for today. If you missed any part of the call and archive replay of the call will be available approximately one hour after the end of the call. To November 21st at 5 p.m. Eastern to domestic callers by dialing 877-660-6853 and to international callers by dialing 1-201-612-7415. For all replays, please reference conference number 137-407-14. And archive replay will be also available on the webcast link located on the homepage of the investor sources sections of Harris Capital's website. Thank you for participating.

Unknown Executive: You may now.