Q1 2024 Ares Capital Corp Earnings Call

Good morning, welcome to Ares Capital Corporation's first quarter at March 31st 2024 earnings Conference call at.

Operator: Welcome to Ares Capital Corporation's first quarter of March 31st, 2024 earnings conference call. At this time, our participants are in a listen-only mode. As a reminder, this conference is being recorded on Wednesday, May 1st, 2024. I will now turn the call over to Mr. John Stilmar, partner of Ares Public Markets Investor Relations.

At this time all participants are in a listen only mode.

As a reminder, this conference is being recorded on Wednesday may 1st 2024.

Speaker Change: Turn the call over to Mr. John Steele Mar partner of Aries public markets Investor Relations.

Speaker Change: Thank you.

John Stilmar: Thank you. Let me start with some important reminders. Comments made during the course of this conference call and webcast and the accompanying documents contain forward-looking statements and are subject to risks and uncertainty. The company's actual results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in the SEC filing. Ares Capital Corporation assumes no obligation to update any such forward-looking statements.

Speaker Change: Let me start with some important reminders comments made during the course of this conference call and webcast and accompanying documents contain forward looking statements are subject to risks and uncertainties.

John Stilmar: 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. The company believes that Core EPS provides useful information to investors regarding financial performance because it's one method the company uses to measure its financial condition and results of operations. A reconciliation of Gap Net Income Per Share, the most directly comparable gap financial measure to core EPS, can be found in the accompanying slide presentation for this call.

Speaker Change: Company's actual results could differ materially from those expressed in such forward looking statements for any reason, including those listed in stuff and she pilot.

Speaker Change: <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.

This conference call. The company May discuss certain non-GAAP measures as defined by SEC regulation G such as core earnings per share.

Speaker Change: 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 operation.

Speaker Change: A reconciliation of GAAP net income per share the most directly comparable GAAP financial measure to core EPS can be found in 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 form 8-K.

John Stilmar: In addition, reconciliation of these measures may also be found in our earnings release filed this morning with the SEC on Form 18. Additionally, 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 warranty with respect to this information.

Speaker Change: Certain information discussed on 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 warranty with respect of this information.

John Stilmar: The company's first quarter ended March 31st, 2024 earnings presentation can be found on the company's website at www.arescapitalcorp.com by clicking on the first quarter 2024 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 the call over to Kip DeVeer, Ares Capital Corporation's Chief Executive Officer. Kip?

Speaker Change: The company's first quarter.

Speaker Change: At March 31st 2020 core earnings presentation can be found on the company's website at Www Dot Ares Capital Corp, 's Dot com by clicking on first quarter 2024 earnings presentation link on the homepage of the Investor Resources section.

<unk> capital Corporation's earnings release, and Form 10-Q are also available on the company's website.

Speaker Change: Now I'll turn the call over to Kip <unk> Ares capital Corporation's Chief Executive Officer.

Kip: Thanks, John.

Robert Kipp DeVeer: Hello, everyone, and thanks for joining our earnings call today. I'm here with our co-presidents Mitch Goldstein and Kort Schnabel, our Chief Operating Officer, Jana Markiewicz, our Chief Financial Officer, Scott Lem, and other members of the management team. I'd like to start by welcoming Scott to his first earnings call with me in his new role as chief financial officer. Scott has been with us for quite a while as a key business leader within our finance and accounting team.

Kip: Hello, everyone and thanks for joining our earnings call today I'm here with our co President Mitch Goldstein and court Schnabel, our Chief operating Officer Jana Markowitz.

Kip: Our Chief Financial Officer, Scott Lamb, and other members of the management team.

Kip: I'd like to start by welcoming Scott to his first earnings call with me in his new role as Chief Financial Officer, Scott has been with us for quite a while as a key business leader within our finance and accounting team.

Robert Kipp DeVeer: He's been at Ares for more than 20 years, so having him join us as our newly appointed CFO is great. We look forward to his continued contributions to Ares Capital. Scott and his promotion is just another example of our culture of continuing to promote our strongest players and shows the depth of the talent that exists at Ares. We still believe this differentiates us from other companies in the market. Now we'll move on to our results.

He's been at Ares for more than 20 years, so having him join us as our newly appointed CFO always great.

Kip: We look forward to his continued contributions to Ares capital.

Kip: Scott and his promotion is just another example of our culture continuing to promote our strongest players. It shows the depth of the talent that exists at Ares.

Kip: We still believe this differentiates us from other companies in the market.

Kip: Now, we'll move onto our results.

Robert Kipp DeVeer: This morning, we reported another quarter of strong core earnings of $0.59 per share. Our core earnings per share increased 3.5% from the prior year, and we're well above our $0.48 per share first quarter regular dividend. These results were driven by a continued strong, attractive investment environment and the beneficial impact of higher base rates and attractive credit spreads. The strength of our earnings and the positive valuation momentum in our portfolio have also supported solid growth in our net asset value per share after paying a healthy level of regular dividends. Our NAV, which increased 6% year over year, reached another record of $19.53 per share.

Kip: This morning, we reported another quarter of strong core earnings of 59 cents per share.

Our core earnings per share increased three 5% from the prior year and were well above our 48 cents per share first quarter regular dividend.

These results were driven by continued strong attractive investment environment, and the beneficial impact of higher base rates and attractive credit spreads.

The strength of our earnings in a positive valuation momentum in our portfolio is also supported solid growth.

Kip: Our net asset value per share after paying a healthy level of regular dividends.

Speaker Change: <unk>, which increased 6% year over year reached another record of $19 53 per share.

Robert Kipp DeVeer: In the first quarter of 2024, while merger and acquisition activity levels remain relatively low, our share in the business continues to remain very strong. The banks are more active again, and this is generally good for all market participants, as the increased availability of capital typically brings about more M&A and adds confidence to companies seeking financing for transactions. The firming of the credit markets, the aging of significant amounts of private equity dry powder, and the continued pressures from LPs to return capital are all factors that support higher levels of activity. We're seeing signs of a pickup in transaction activity, as evidenced by the $1.2 billion of commitments we've closed in the second quarter to date.

Speaker Change: In the first quarter of 2024, while merger and acquisition activity levels remain relatively low our share and the business continues to remain very strong.

Speaker Change: The banks are more active again and this is generally good for all market participants as the increased availability of capital typically brings out more M&A and adds confidence to companies seeking financing for transactions.

Speaker Change: The firming of the credit markets, the ageing of significant amounts of private equity dry powder and the continued pressures from L. P. As to return capital are all factors that support higher levels of activity.

Speaker Change: We're seeing signs of a pickup in transaction activity as evidenced by the $1 $2 billion of commitments. We've closed in the second quarter to date.

Robert Kipp DeVeer: While current market conditions are more competitive, this is not a new phenomenon for us. We have navigated many competitive markets over the past two decades. 2021 was the most recent. It was similar.

Speaker Change: While current market conditions are more competitive this is not a new phenomenon for us.

Speaker Change: We've navigated many competitive markets over the past two decades 2021 was the most recent it was similar.

Robert Kipp DeVeer: In these environments, we believe that our expansive direct origination capabilities that span the entirety of the middle market from the low, middle, and upper segments become even more valuable. And having a very large portfolio also helps to drive new investment activity. We continue to find attractive investments with compelling returns at historically lower levels of relative risk. And specifically for our originations in the first quarter, the weighted average LTVU is below 40%.

Speaker Change: In these environments, we believe that our expansive direct origination capabilities that span the entirety of the middle market from the low middle and upper segments.

Speaker Change: Got them, even more valuable.

Speaker Change: And having a very large portfolio also helps to drive new investment activity.

Speaker Change: We continue to find attractive investments with compelling returns at historically lower levels of relative risk.

Speaker Change: And specifically for our originations in the first quarter. The weighted average LTV was below 40% all in yields were nearly 11% and leverages nearly a half a turn below our weighted average over the past two years.

Robert Kipp DeVeer: All in, yields were nearly 11%, and leverage is nearly a half a turn below our weighted average over the past two years. Furthermore, the originated yield per unit of leverage, which we view as one measure of the risk-adjusted return in the current rate environment, was 10% above the recent two-year average. Our credit fundamentals across our portfolio are also indicating health and strength. Our portfolio companies showed organic EBITDA growth of 10% over the last 12 months, which is remarkable in today's economic environment.

Speaker Change: Furthermore, the originated yield per unit of leverage, which we view as one measure of the risk adjusted return in the current rate environment was 10% above the recent two year average.

Speaker Change: Our credit fundamentals across our portfolio are also indicating health and strength.

Speaker Change: Our portfolio of companies showed organic EBITDA growth over the last 12 months of 10%, which is remarkable in today's economic environment.

Robert Kipp DeVeer: Interest coverage levels remain stable to slightly improved, and leverage levels tick down. The annual EBITDA growth of our portfolio companies is more than double the annual growth of the companies in the S&P 500, which we sourced from data provided by S&P. On a final point... Scott will discuss further the current market environment does enable us to raise capital more efficiently. So far this year, we've been active as an issuer in the unsecured notes market and the secured bank and CLO market.

Speaker Change: Interest coverage levels remained stable to slightly improved and leveraged levels ticked down.

Speaker Change: The annual EBITDA growth of our portfolio companies is more than double the annual growth of the companies in the S&P 500, which we sourced through data provided by S&P.

Speaker Change: On a final point.

Speaker Change: Scott will discuss further the current market environment does enable us to raise capital more efficiently. So far this year, we've been active as an issuer in the unsecured notes market and the secured bank and CLO markets.

Speaker Change: We've issued in all of these markets and what we believe are the tightest pricing levels amongst the bdcs.

Robert Kipp DeVeer: We've issued in all these markets at what we believe are the tightest pricing levels amongst the BDCs. With that, let me turn the call over to Scott to provide more details on our financial results and some further thoughts on our balance.

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

Scott Lamb: Thanks Kipp.

Scott Lem: I'm excited for the opportunity to serve as Ares Capital's CFO. This morning, we reported a gap net income per share of $0.76 for the first quarter of 2024 compared to $0.72 in the prior quarter and $0.52 in the first quarter of 2023. As Kip stated, we also reported core earnings per share of $0.59 for the first quarter of 2024, compared to $0.63 in the prior quarter and $0.57 in the first quarter of 2023.

Scott Lamb: I'm excited for the opportunity to serve as areas capitals CFO.

Scott Lamb: This morning, we reported GAAP net income per share of 76 cents for the first quarter of 'twenty 'twenty four.

Scott Lamb: Paired with semi two cents in the prior quarter and 52 cents in the first quarter 2023.

Scott Lamb: As Kipp stated, we also reported core earnings per share <unk> 59 for the first quarter of.

Scott Lamb: 'twenty 'twenty four.

Scott Lamb: Compared to 63 cents in the prior quarter and 57 cents in the first quarter of 2023.

Scott Lem: Our investment income in the quarter was primarily driven by the continued benefits of higher base rates and structuring fees due to an improving investing environment. However, our structuring fees decreased from the fourth quarter of 2023, given the usual seasonality in our business.

Scott Lamb: Our investment income in the quarter was primarily driven.

Scott Lamb: By the continued benefits of higher base rates and structuring fees due to an improving investing environment.

Scott Lamb: By restructuring fees decreased from the fourth quarter I would try and 23, given the usual seasonality in our business.

Scott Lem: They increased meaningfully from the first quarter of last year. Our stockholders' equity ended the quarter at $11.9 billion, for $19.53 per share, a new record high for us, which is a 1.5% increase per share over the prior quarter and nearly a 6% increase per share from a year ago. Our total portfolio at fair value at the end of the quarter was $23.1 billion, up from $22.9 billion at the end of the fourth quarter, largely driven by net unrealized gains from the portfolio during the quarter.

Scott Lamb: The increased meaningfully from the first quarter of last year.

Scott Lamb: Our stockholders' equity ended the quarter at 11.9 billion.

Scott Lamb: Or $19.52 per share a new record high for us, which is a one 5% increase per share over the prior quarter and nearly a 6% increase per share from a year ago.

Scott Lamb: Our total portfolio at fair value at the end of the quarter was $23 1 billion up.

Scott Lamb: Up from 22.9 billion at the end of the fourth quarter, largely driven by net unrealized gains from portfolio for the quarter.

Scott Lem: The weighted average yield on our debt and other income-producing securities at amortized costs was 12.4% at March 31st, 2024, which was down slightly from 12.5% at December 31st, 2023 but higher than 12% at March 31st, 2023. In terms of our capitalization and liquidity, we have had a fairly active start to the year, making sure we are able to continue supporting our investment opportunities. So far this year, we have amended, extended, or raised over $7 billion in financing for ARCC.

Scott Lamb: The weighted average yield on our debt and other income producing securities at amortized costs was 12, 4% at March 31, 2024, which was down slightly from 12, 5% at December 31, 2023, but higher than the 12% at August 31 2023.

Scott Lem: More specifically, in the first quarter, we issued 1 billion of unsecured notes at market-leading spreads and successfully settled our maturing $400 million of convertible notes in almost all newly issued shares, allowing us to retain the capital and further bolster our permanent equity capital base. In March, we also extended each of the revolving period and maturity date for our SMBC funding facility by three years. Post-Quarter End, we renewed our largest revolving credit facility for another year, pushing it to a full five-year maturity with the same pricing and terms.

Scott Lamb: In terms of our capitalization and liquidity.

Scott Lamb: We've had a fairly active start to the year, making sure we are able to continue supporting our investment opportunities.

Scott Lamb: So far this year, we have amended and extended our raised over $7 billion of financing for ARCC.

Scott Lamb: More specifically in the first quarter, we issued 1 billion of unsecured notes at market, leading spreads and successfully sell our maturing foreign or a million dollar our convertible notes and almost all newly issued shares.

Scott Lamb: Allowing us to retain the capital and further bolster our permanent equity capital base.

Scott Lamb: In March we also extended each of their a voluntary immaturity date for our S. N B C funding facility by three years.

Scott Lamb: Post quarter end, we renewed our largest revolving credit facility for another year.

Scott Lamb: Pushing it to a full five year maturity with the same pricing and terms.

Scott Lem: We also lowered the pricing on our BNP funding facility to SOFR plus 250 basis points. Finally, just last week, we priced our first on-balance sheet CLO in nearly 18 years. The blended pricing through the AA tranche on the $476 million in notes was SOFR plus 186 basis points, which we believe is one of the tightest executions amongst issuers in this part of the market.

Scott Lamb: We also lowered the pricing on our BNP funding facility to sofa, plus 250 basis points.

Scott Lamb: Finally, just last week, we priced our first on balance sheet, CLO and nearly 18 years.

Scott Lamb: Blended pricing through the double a tranche on the $476 million in notes with sopra plus from what her an 86 basis points, which we believe is one of the tightest executions amongst issuers in this part of the market.

Mitchell Goldstein: Closing is expected in the next few weeks, subject to customary closing conditions. This transaction allows us to further diversify our sources of committed debt financing at pricing levels currently below other forms of secured funding available in the market. Our overall equity position remains strong with approximately $6.3 billion of total available liquidity, including available cash and pro forma for all the post-quarter end transactions previously mentioned. We also ended the first quarter with a debt-to-equity ratio of net available cash of 0.95 times, as compared to 1.02 times a quarter ago and our lowest net leverage ratio since the end of 2019.

Scott Lamb: Closing is expected in the next few weeks subject to customary closing conditions.

Scott Lamb: This transaction allows us to further diversify our sources of committed debt financing at pricing levels. Currently below other forms of secured funding available in the market.

Scott Lamb: Our overall liquidity position remains strong with approximately $6 $3 billion of total available liquidity.

Scott Lamb: Including available cash and pro forma for all the post quarter end transactions previously mentioned.

Scott Lamb: We also ended the first quarter with a debt to equity ratio net of available cash is 0.95 times as compared to 1.02 times a quarter ago.

Scott Lamb: And our lowest net leverage ratio since the end of 2019.

Mitchell Goldstein: We believe our significant amount of dry powder positions us as well to continue supporting our portfolio company commitment, remain active in the current investing environment, and eliminate any refinancing risk with respect to this year's remaining term debt maturity. Moving on to the dividend, we declared a second quarter 2024 dividend of 48 cents per share. This dividend is payable on June 28, 2024 to stockholders of record on June 14, 2024 and is consistent with our first quarter 2024 dividend.

Scott Lamb: We believe our significant amount of dry powder.

Scott Lamb: Positions us well to continue supporting our portfolio company covenants remain active in the current investing environment and eliminating any refinancing risk with respect to this year's remaining term debt maturities.

Scott Lamb: Moving on to the dividend, we declared a second quarter of 2024 dividend at 48 cents per share.

Scott Lamb: This dividend is payable on June 28, 2024 to stockholders of record on June 14th 'twenty 'twenty, four and is consistent with our first quarter 'twenty 'twenty four dividend.

Mitchell Goldstein: In terms of our taxable income spillover, we currently estimate that we ended 2023 with approximately $635 million, or $1.05 per share, for distribution to stockholders in 2024. This estimated spillover level is more than two times our current regular quarterly dividend, which we believe helps bring stability to our dividends. I will now turn the call over to Mitch to walk through our investment.

Scott Lamb: In terms of our taxable income spillover. We currently estimate that we ended 2023 with approximately $635 million or $1 five per share for distribution to stockholders in 2024.

Scott Lamb: This estimated spillover level is more than two times, our current regular quarterly dividend, which we believe helps springs stability to our dividend.

Scott Lamb: I will now turn the call over to Mitch to walk through our investment activities.

Mitchell Goldstein: Thanks, Scott. I'm going to spend a few minutes providing more details on our investment activity, our portfolio performance, and our positioning for the first quarter. I will then conclude with an update on our post-quarter end activity, backlog, and pipeline. In the first quarter, our team originated approximately $3.6 billion of new investment commitments across 61 transactions. We continue to find compelling investments with attractive risk-adjusted returns despite the more competitive market conditions. We're generating double-digit yields with a weighted average LTV on our senior loan commitments at levels below five times debt to EBITDA. Excluding the $1.6 billion of loans on transactions we originated and distributed as agents, our commitments nearly tripled from the first quarter of 2023.

Mitchell Goldstein: Thanks, Scott I'm going to spend a few minutes, providing more detail on our investment activity our portfolio performance and our positioning for the first quarter. I will then conclude with an update on our post quarter end activity backlog and pipeline.

Mitchell Goldstein: In the first quarter, our team originated approximately $3 6 billion of new investment commitments across 61 transactions.

Mitchell Goldstein: We continue to find compelling investments with attractive risk adjusted returns despite the more competitive market conditions.

Mitchell Goldstein: We're generating double digit yields with a weighted average LTV on our senior loan commitments at levels below five times debt to EBITDA.

Mitchell Goldstein: Excluding the $1 6 billion of loans on transactions, we originated and distributed as agent.

Mitchell Goldstein: Our commitment has nearly tripled from the first quarter of 2023.

Mitchell Goldstein: The breadth of our sourcing capabilities allowed us to find value in companies with EBITDA from less than $15 million to over $600 million. Our extensive market coverage of companies of all sizes across the market enables us to source transactions in segments where we are seeing less competition or where we believe that we have a strong competitive advantage.

Mitchell Goldstein: The breadth of our sourcing capabilities allowed us to find value in companies with EBITDA from less than $15 million to over 600 million.

Mitchell Goldstein: Our extensive market coverage of companies of all sizes across the market enables us to source transactions and segments, where we are seeing less competition.

Mitchell Goldstein: War, where we believe we have a strong competitive advantage.

Mitchell Goldstein: Shifting to the portfolio, we ended the first quarter with a $23.1 billion portfolio at fair value, which grew 1% from the prior quarter and 9% from the prior year. The median EBITDA of our portfolio is $79 million, which reflects our presence in both the core middle market and the upper middle market. The weighted average LTM EBITDA growth of our portfolio of 10% that Kip mentioned is also broad-based. Importantly, in our portfolio, the size of a company has not been a driver of performance.

Mitchell Goldstein: Shifting to the portfolio. We ended the first quarter with with a $23 $1 billion portfolio at fair value, which grew 1% from the prior quarter and 9% from the prior year.

Mitchell Goldstein: The median EBITDA of our portfolio is $79 million, which reflects our presence in both the core middle market and the upper middle market.

Mitchell Goldstein: Weighted average LTM EBITDA growth of our portfolio of 10% that Kipp mentioned is also broad based.

Mitchell Goldstein: Importantly in our portfolio the size of the company has not been a driver of performance.

Mitchell Goldstein: Companies in our portfolio with $25 to $50 million of EBITDA have similar to or even higher growth rates as compared to companies with over $100 million of EBITDA. We believe company and industry selection, as well as our underwriting process, drive these types of positive results. In fact, our view is based on a study done by the Ares Quantitative Research Group that found that industry selection could account for approximately 500 basis points of difference in total for senior U.S. loan returns over more than a decade of investment.

Mitchell Goldstein: Companies in our portfolio with $25 million to $50 million of EBITDA have similar to or even higher growth rates as compared to companies with over $100 million of EBITDA.

Mitchell Goldstein: We believe company industry selection as well as our underwriting process drive these types of positive results.

Mitchell Goldstein: In fact, our view is based on a study done by the Ares quantitative research group that found that industry selection could account for approximately 500 basis points of difference in total for each senior U S loan returns over more than a decade of investing.

Mitchell Goldstein: With respect to our credit performance, our weighted average portfolio grade of 3.1 remained unchanged from the prior quarter's level, and non-accruals at cost at the end of the quarter at 1.7%, up slightly from the prior quarter but lower than the same quarter a year ago. Our current non-accrual levels remain well below our 2.9% historical average since the Great Financial Crisis and the KBW BDC average of 3.8% for the same period Our nonaccrual rate, at fair value, remained consistent with last quarter's at 0.6%, which continues to be well below historical levels for our company.

Mitchell Goldstein: With respect to our credit performance, our weighted average portfolio a grade of $3. One remained unchanged from the prior quarter's level.

Mitchell Goldstein: Our non accruals at cost ended the quarter at one 7% up slightly from the prior quarter, but lower than the same quarter a year ago.

Mitchell Goldstein: Our current non accrual levels remains well below our two 9% historical average since the great financial crisis, and the kw BDC average of three 8% for the same period.

Mitchell Goldstein: Our non accrual rate at fair value remained consistent with last quarters at 6%, which continues to be well below historical levels for our company.

Mitchell Goldstein: Another indicator of stable credit performance is the fact that our portfolio companies with a risk rate of one or two declined quarter over quarter. And finally, our portfolio quality is also reinforced by the substantial amount of equity invested in our companies, primarily by large and well-established private equity firms. At the end of the first quarter, the weighted average loan-to-value in the portfolio was 43%, which we believe gives us strong downside protection on our loans.

Mitchell Goldstein: Another indicator of stable credit performance is the fact that our portfolio companies with a risk rate of one or two declined quarter over quarter.

Mitchell Goldstein: And finally, our portfolio quality is also reinforced by the substantial amount of equity invested in our companies primarily by large and well established private equity firms.

Mitchell Goldstein: At the end of the first quarter, the weighted average loan to value in the portfolio with 43%, which we believe gives us strong downside protection in our loans.

Mitchell Goldstein: As the market is starting to see more dispersion results among managers, we believe our outperformance and credit position, including our significant diversification, differentiates us from our competition. Our strong and growing portfolio is well diversified across 510 different companies that span the market. The number of companies in our portfolio has increased 9% over the past year and 48% over the past five years, and the average hold size is only 0.2% at fair value.

Mitchell Goldstein: As the market is starting to see more dispersion results among managers, we believe our outperformance in credit position, including our significant diversification differentiates us from our competition.

Mitchell Goldstein: Our strong and growing portfolio is well diversified across 510 different companies that span the market.

Mitchell Goldstein: A number of companies in our portfolio has increased 9% over the past year and 48% over the past five years and the average hold size is only 2% at fair value.

Mitchell Goldstein: Excluding our investments in Ivy Hill and the SDLP, which we believe are well-diversified on their own, no single investment accounts for more than 2% of the portfolio at fair value, and our top 10 largest investments total just 11% of the portfolio at fair value. We believe this degree of diversification further adds to the credit strength of our portfolio as it reduces the impact to the overall portfolio from any single negative credit rating it receives, at an individual cost.

Mitchell Goldstein: Excluding our investments in Ivy Hill, and the SDLP, which we believe are well diversified on their own no single investment accounts for more than 2% of the portfolio at fair value and our top 10 largest investments totaled just 11% of the portfolio at fair value.

Mitchell Goldstein: We believe this degree of diversification further adds to the credit strength of our portfolio as it reduces the impact to the overall portfolio from any single negative credit anytime.

Mitchell Goldstein: At an individual company.

Mitchell Goldstein: And finally, we have had an active start to the second quarter. From April 1st through April 24th, 2024, we made new investment commitments totaling $1.2 billion, of which $1.1 billion were funded. We exited or were repaid on $249 million of investment commitments, which resulted in us earning $1 million of net realized gains. As of April 24th, our backlog and pipeline stood at roughly 1.3 billion. Our backlog contains investments that are subject to approvals and documentation and may not close, or we may sell a portion of these investments post-close. I will now turn the call back over to Kip. Closing remarks.

Mitchell Goldstein: And finally, we have had an active start to the second quarter.

Mitchell Goldstein: From April one through April 24th 2024, we made new investment commitments totaling $1 2 billion of which $1 1 billion were funded.

Mitchell Goldstein: We exited or were repaid on $249 million of desk of investment commitments, which resulted in us, earning 1 million of net realized gains.

Mitchell Goldstein: As of April 24, our backlog and pipeline stood at roughly $1 3 billion.

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

Mitchell Goldstein: I will now turn the call back over to Kim for some closing remarks.

Kim: Thanks, a lot Mitch.

Robert Kipp DeVeer: In conclusion, we believe that the company is well positioned to navigate the opportunities ahead of us. At Ares Capital, we've navigated a variety of market environments, credit cycles, and interest rate cycles over our 20-year history with a cumulative average return on equity in the double-digits.

Kim: In conclusion, we believe that the company is well positioned to navigate the opportunities ahead of us at.

Kim: At Ares capital, we've navigated a variety of market environments.

Kim: Credit cycles and interest rate cycles over our 20 year history with accumulative average return on equity in the double digits.

Robert Kipp DeVeer: In our opinion, this is a very good time to be invested in a high-quality company focused on private credit. Our portfolio is performing well, and we believe that the potential returns on our investment remain compelling by historical standards, while we remain mindful of the potential for increased credit risk. Delivered in a higher-for-longer rate environment, we are highly diversified across defensively-positioned companies, and our companies are demonstrating healthy and differentiated levels of growth.

Kim: In our opinion. This is a very good time to be invested in a high quality company focused on private credit.

Kim: Our portfolio is performing well and we believe that the potential returns on our investment remain compelling by historical standards.

Kim: While we remain mindful of the potential for increased credit risks delivered with a higher for longer rate environment. We are highly diversified and defensively positioned companies and our companies are demonstrating healthy and differentiated levels of growth.

Robert Kipp DeVeer: Our balance sheet and liquidity position remain strong, which we believe allows us to take advantage of this compelling new investment environment. Overall, we are confident that the factors that have driven our historical outperformance remain firmly in place. And as a result, we remain optimistic about our future prospects. As always, we appreciate you joining us today. We look forward to speaking with you next quarter. With that, Operator, we can open the line for questions.

Kim: Our balance sheet and liquidity position remains strong, which we believe allows us to take advantage of this compelling new investment environment.

Kim: Overall.

Kim: We are confident that the factors that have driven our historical outperformance remain firmly in place and as a result.

Kim: We remain optimistic about our future prospects.

Robert Kipp DeVeer: As always we appreciate you joining us today, we look forward to speaking with you next quarter with that operator, we can open the line for questions.

Operator: Thank you. At this time, if you would like to ask a question, please press star, then 1 on your touch-tone phone. If you would like to withdraw your question, please press star, then 2. Please note, as a courtesy to those who may wish to ask a question, please limit yourself to one question and a single follow-on. If you have additional questions, you may re-enter the queue. The Investor Relations Team will be available to address any further questions at the conclusion of today's call. And we'll take our first question today from John Hecht with Jeff.

Speaker Change: 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.

Operator: Please note as a courtesy to those who may wish to ask a question. Please limit yourself to one question and a single follow on.

Speaker Change: If you have additional questions you may reenter the queue.

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

Operator: And we'll take our first question today from John Hecht with Jefferies.

John Hecht: Good morning, guys. Thanks for taking my questions. Good morning. I'm thinking about all that, you know, a lot of activity in the quarter, both on the deployment and repayment side. I'm, I'm wondering, Kip, can you give us kind of an update on the syndicated and liquid loan markets and how they're affecting activity with you guys and elsewhere in the market?

John Hecht: Morning, guys. Thanks for taking my questions.

Speaker Change: Hey, guys. Good morning, good morning, thinking about all of that of activity in the quarter. Both on the deployment and repayment side I'm I'm wondering can you give us kind of an update.

John Hecht: On the syndicated in liquid loan markets and how they're influencing activity.

Speaker Change: With you guys and elsewhere in the market.

Robert Kipp DeVeer: I'm sure, John. I mean, I think it's not a huge driver, frankly, of what we're doing. There's been a lot of press, I'd say, about banks returning to the market and perhaps a more risky way to try to arrange and underwrite and syndicate, you know, more traditional leveraged finance transactions. So that's certainly picked up. I think if you look specifically at our activity, I think about 70% of our new deals are coming from the existing portfolio, a little bit slower on the kind of new platform side, which was a little bit surprising for us. But, you know, as I mentioned in the prepared remarks, we're pretty optimistic that, you know, a handful of factors remain in play that should compel pretty good transaction activity this year.

Kip: Sure John I mean I think.

Robert Kipp DeVeer: It's not a huge driver frankly of what we're doing there has been a lot of <unk>.

Robert Kipp DeVeer: <unk> I would say about the banks returning to the market and perhaps some more.

Speaker Change: Risk on way to try to arrange it underwrite and syndicate.

Robert Kipp DeVeer: More traditional leveraged finance transactions, so that has certainly picked up.

Robert Kipp DeVeer: I think if you look specifically at our activity I think it was about 70% of our new deals.

Speaker Change: We're coming from the existing portfolio, a little bit slower on the kind of new platform side, which was a little bit surprising for us but.

Robert Kipp DeVeer: Yeah as I mentioned in the prepared remarks, we're pretty optimistic that a handful of factors remain in play that should compel at pretty good transaction activity. This year.

Robert Kipp DeVeer: Okay, and then you obviously had a lot of, again, deployment and repayment activity, and the capital structuring fees, you know, as a percentage that were a little lower. Is there anything to read on that side, or is that just a function of the mix of originations?

Robert Kipp DeVeer: Okay and then.

Robert Kipp DeVeer: You had obviously a lot of again deployment in repayment activity in the capital structuring fees.

Robert Kipp DeVeer: As a percentage that were a little lower or is there anything to read on that side or is that just a function of the mix of originations.

Robert Kipp DeVeer: It's more mixed than anything, although I will say we've noticed a little bit of pressure on upfront fees on new deals in the market, simply because there aren't as many of them. You know, so it's one of the levers that a borrower can pull to a certain degree to attract Attractive Financing, but it's more mixed than anything else.

Speaker Change: It's more mix than anything although I will say, we've noticed a little bit of pressure on upfront fees on new deals in the market simply because there arent as many of them.

Robert Kipp DeVeer: So it's one of the levers that a borrower can fall to a certain degree to try to achieve a more attractive financing, but it's more mix than anything else.

Robert Kipp DeVeer: It's also to add real quick that the numbers are probably a little bit inflated just because we also, as a role of agent, we did front some deals, so the true origination was probably closer to two billion dollars. You sort of have to back that number out. Yeah, exactly.

Speaker Change: Yes, it's also to add real quick that the numbers are probably a little bit inflated just because we also.

Robert Kipp DeVeer: Our role of the agent we did front from deals. So the true origination was probably closer to $2 billion that you sort of have to back that number exactly.

Robert Kipp DeVeer: to back that number out.

Robert Kipp DeVeer: So what was that, the true meaning?

Robert Kipp DeVeer: Yes.

Robert Kipp DeVeer: The truth that what was that the true origination was what.

Robert Kipp DeVeer: About $2 billion because about a billion and a half was us in our role of agent fronting for some deals. Gotcha. Okay. Which happens from time to time, yes. Yeah, it happens from time to time, just depending on what a syndicate composition looks like, who can fund it closing, who can't, it's sort of a technical point, but when you evaluate it, just, you know, make sure you look at the math in that light.

Speaker Change: About $2 billion because out of $1 billion of half was us as are all of agent fronting for some deals got.

Robert Kipp DeVeer: Got you, Okay, which happens from time to time.

Robert Kipp DeVeer: Yes, it happens from time to time, just depending on what you know.

Speaker Change: Syndicate composition looks like who've been funded closing you can it's sort of a technical point, but when you evaluate it just make sure you look at the math in that light.

Speaker Change: Okay perfect. Thanks.

Speaker Change: Thanks, John.

Operator: Our next question will come from Finian O'Shea with Wells Fargo.

Robert Kipp DeVeer: Our next question will come from Finian O'shea with Wells Fargo.

Finian O'shea: Hey, everyone. Good morning. Hi Kip. Can you tell me how you are? Can you talk about the environment for second lien if the reduced exposure there is more market-related or your portfolio positioning and if that should continue or, if applicable, your ability to replace that with other forms of junior and structured equity? There's a lot of that in the portfolio, but I'm wondering if there are sort of adequate volumes there if second lien meaningfully recedes.

Finian O'shea: Hey, everyone. Good morning.

Kip: Hi chip.

Finian O'shea: Can you how.

Kip: How are you.

Finian O'shea: Can you talk about the environment for <unk>.

Finian O'shea: Second lien.

Finian O'shea: The reduced exposure, there is more market related or or your portfolio positioning.

Finian O'shea: And if that should continue or if applicable.

Finian O'shea: Your ability to replace that with other forms of junior and structured equity there is a lot of the portfolio but.

Finian O'shea: Wondering if there are sort of adequate volumes there if second lien meaningfully receipts. Thanks.

Robert Kipp DeVeer: Yeah, I'm gonna have Kort follow on a couple of thoughts from my side. I would say, look, when last year came around, and kind of, you know, the private credit players, us included, really were representing new deals in the market, almost everything that we were doing was getting done as a Unitron, you know, regardless of size. And that, you know, the second lean, which has been a larger part of our investing effort, is just, frankly, not as prevalent in the market in terms of the mix of new deals.

Kip: Yeah, and I'm going to have CT follow on a couple of thoughts on my side I would say look when when last year came around and kind of the <unk>.

Robert Kipp DeVeer: Private credit players. That's included really were representing new deals in the market almost everything that we're doing is getting done as a unit tranche regardless of size and that.

Kort: Second lien, which has been a larger part of our investing effort is just frankly not as prevalent in the market in terms of the mix of new deals.

Robert Kipp DeVeer: Do we see that coming back, you know, if some large deals actually get done as first lien in the syndicated market where we can provide junior capital? You know, maybe, I guess, you know, we'll wait and see. As you know, our second lien investing tends to emphasize much, much larger companies and is very often in line with the syndicated first lien, and that transaction just really hasn't been prevalent in the market, I'd say, for the last, call it, three, six, nine months. And we'll see where we go from here.

Kort: Does that come back you know if some large deals actually get done as first lien in the syndicated market, where we can provide junior capital.

Robert Kipp DeVeer: I guess, we'll wait we'll wait and see as you know our second lien investing tends to emphasize much much larger companies than us and is very often in line with the syndicated first lien and that transaction just really hasn't been prevalent in the market I'd say for the last call. It 369 months.

Robert Kipp DeVeer: We will see where we go from here the only other thing I would add and I'll I'll take it to court if he wants to wants to add on as we are seeing a lot of really good companies to your point about junior capital investing in structured equity and all of that that are performing well that simply don't have the amount of cash flow that they expected.

Robert Kipp DeVeer: The only other thing I'd add, and I'll take it to court if he wants to add on, is that we are seeing a lot of really good companies, to your point about junior capital investing and structured equity and all of that, that are performing well, that simply don't have the amount of cash flow that they expected. So you see some senior lenders that are probably saying, well, with higher rates, I'm not really deleveraging the way I was hoping to.

Robert Kipp DeVeer: So you see some senior lenders that are probably saying while with higher rates.

Robert Kipp DeVeer: I'm not really deleveraging the way I was hoping to and frankly on the other side. The equity is looking for an extension of duration to accomplish what they want to achieve from an IRR perspective. So there is we think a pretty interesting opportunistic credit pipeline and funnel to do some of these deleveraging junior capital deals.

Robert Kipp DeVeer: And frankly, on the other side, the equity is looking for an extension of duration to accomplish what they want to achieve from an IRR perspective. So there is, we think, a pretty interesting opportunistic credit pipeline and funnel to do some of these deleveraging junior capital deals. But hopefully, that answers the question, Kort, if you have anything to add. No, I, yeah, Kip, I think you covered it all. Obviously, we're, the return opportunities in the first lien market are super attractive, so regardless of the fact that there aren't as many second lien opportunities right now, you know, we're not too bothered by that given the other opportunities that the market's showing us. But certainly more a function of what the market is giving rather than a purposeful change on our part.

Kort: So hopefully that answers the question quarter, if you have anything to add.

Kort: Chip I think you covered it all.

Kort: Obviously were.

Kort: The return opportunities in the first lien market are super attractive so regardless of the fact that there arent as many second lien opportunities right now, we're not too bothered by that given the other opportunities that the market showing aspect certainly more of a function of what the market is giving rather than a purposeful change on our part.

Robert Kipp DeVeer: Yeah.

Robert Kipp DeVeer: And I have a small follow up, maybe sort of related. We noticed that the special opportunities or a soft group was moved over to credit, presumably under your domain KIPP. Is there any anticipated change there? Like maybe if you could go over your historical collaboration or co-investment with that unit and how might that change going forward? Thanks. Yeah, I mean, it plays into the comment that I made about

Speaker Change: Awesome, Thanks, and a small follow up maybe sort of related we.

Robert Kipp DeVeer: Noticed the special opportunities or a soft group.

Robert Kipp DeVeer: Was moved over to the credit presumably.

Robert Kipp DeVeer: Under.

Robert Kipp DeVeer: Your domain Kip is that is there any anticipated change there like maybe if you can go over your your historical collaboration or co investment with that unit and.

Robert Kipp DeVeer: How might that change going forward. Thanks.

Robert Kipp DeVeer: Yeah, I mean it plays into the comment that I made about opportunistic credit and I guess all I'd say is there's been a lot of collaboration over the years and frankly because that business was changing I'd say a little bit in its opportunity to look more credit facing and less like it should be attached to our private equity efforts it was just a it was just a pretty simple move for us that we made kind of around year-end that became formal here at the end of the first quarter.

Speaker Change: Yes, I mean, it plays into the comment that I made about opportunistic credit and I guess, all I would say is theres been a lot of collaboration over the years and frankly because that business was.

Robert Kipp DeVeer: Changing I would say a little bit and its opportunity to look more credit facing and less like it should be attached to our private equity effort that was just a it was just a pretty simple move for us that we made.

Robert Kipp DeVeer: And of around year end that became formal here at the end of the first quarter.

Speaker Change: Thanks, so much.

Speaker Change: Okay. Thanks Pam.

Operator: Our next question will come from Melissa Wedel of J.P. Morgan.

Robert Kipp DeVeer: Our next question will come from Melissa Wedel with JP Morgan.

Melissa Wedel: Good morning. Appreciate you taking my question. I noticed that dividend income was substantially higher quarter over quarter. As we think about the dividend income stream going forward, should we think about that as being aligned with the direction and change in interest rates and really consider that as much a floating rate piece of the portfolio?

Melissa Wedel: Good morning, Chris. Thank you for taking my question.

Melissa Wedel: Noticed that dividend income was substantially higher quarter over quarter.

Melissa Wedel: As we think about the dividend income stream going forward should we think about that as being.

Melissa Wedel: Aligned with the direction and changing interest rate and really consider that as much floating rate.

Melissa Wedel: <unk> of the portfolio.

Scott Lem: Yeah, hey Melissa, thanks for the question. So two things, right? So Ivy Hill obviously represents, you know, the lion's share of that dividend income, but I'd say for this quarter, it's higher because we actually took on a kind of one-time dividend from one of our equity investments. So that's probably why you see it tick up. I don't think there's a big change there away from maybe that one-time event, but we obviously benefit from having a diversified equity portfolio that can deliver dividends from time to time.

Speaker Change: Yeah, Hey, thanks for the question. So it's two things right. So Ivy Hill, obviously represents.

Scott Lem: The lion's share of that dividend income, but I'd say for this quarter, it's higher because we actually took on.

Scott Lem: But kind of one time dividend from one of our equity investments. So that's probably why you see it tick up.

Scott Lem:

Scott Lem: I don't think Theres, a big change there away from maybe that one time event, but we obviously benefit from having a diversified equity portfolio that can deliver events from time to time.

Scott Lem: Okay.

Melissa Wedel: And then I was hoping to follow up on one of the things that Scott touched on. Scott, hi, welcome.

Scott Lem: And then I will.

Speaker Change: Hoping to follow up on one of the thing.

Scott Lem: That Scott touched on Scott Walker, and I look forward to working with you.

Melissa Wedel: I look forward to working with you. The CLO issuance post-quarter end, I think you mentioned it's been a while since you've done something like that. I was hoping you could talk about CLO issuance as part of the funding strategy and mix going forward. What role can that play? When will you flex that versus other secured or unsecured?

Melissa Wedel: Yes.

Melissa Wedel: The CLO adherence post quarter end. Thank you mentioned, it's been awhile since you've done something like that I was hoping you could talk about.

Melissa Wedel: Hello issuance as part of the funding strategy and next going forward, what we're looking at play when most of the flex that person.

Melissa Wedel: Our secured or unsecured thank you.

Scott Lem: Yeah, sure. So I think, you know, it's like, one of our main themes for capital raising is diversity. And I think it, you know, it's a pretty compelling opportunity for us. The spreads in that market were very, very attractive relative to other forms of secure financing. So I think, as we're seeing just as assets have moved from the BSL side to private credit, the flow of debt capital in the steel markets is also moving that way. So it made a lot of sense for us to tap that market to diversify funding sources at a pretty attractive spread. And you know, going forward, I think it's definitely part of our playbook now.

Scott Lem: Thank you. Yeah, sure. So I think, you know,

Speaker Change: Yeah sure so I think.

Scott Lem: One of our main themes for capital raising is diversity and I think that was it.

Scott Lem: That's a pretty compelling opportunity for us.

Scott Lem: The spreads in that in that market were very attractive realm.

Scott Lem: Relative to other forms of secured financing so I think as we're seeing all sort of just.

Scott Lem: As assets have moved into the from the BSL side to the private credit.

Scott Lem: <unk> does that capital in the CLO market is also moving that way so.

Scott Lem: They may a lot of sense for us to tap that market to diversify funding sources.

Scott Lem: Pretty attractive spread and you know going forward I think it's definitely part of our playbook now.

Scott Lem: Okay.

Operator: Our next question will come from Casey Alexander with Compass Point.

Scott Lem: Our next question will come from Casey Alexander with Compass point.

Casey Alexander: Yeah, hi, good morning, and thank you for taking my question. Scott did not mention, traditionally, you guys mention what the spillover income is, but he didn't mention that. I was wondering what that number is unless I missed it. But, you know, you continue to pile up spillover income quarter over quarter. At what point in time do you sort of reach the limit, or do you just consider it to be a cheap form of financing with the excise tax? But when do you sort of reach the limit? At which point in time would you be forced to make some special decisions?

Casey Alexander: Yes, hi, good morning, and thank you for taking my question.

Casey Alexander: Scott did not mentioned.

Casey Alexander: Traditionally you guys mentioned, what the spillover income is.

Casey Alexander: You did mentioned that I was wondering what that number is unless I missed it which could be.

Casey Alexander: What is your you.

Casey Alexander: You continue to pile up the spillover income quarter over quarter at what point in time do you sort of reached the limit or do you just consider it to be a cheap form of financing with the excise tax, but when do you sort of reached the limit at which point in time you'd kind of be forced to.

Casey Alexander: Make some special distributions.

Robert Kipp DeVeer: Yeah, I mean, you know, look over the history of the company, Casey. I appreciate the question. We've obviously done specials in a whole host of different ways.

Speaker Change: Yes, I mean look over the history of the company Casey I. Appreciate the question. We've obviously done specials in a whole host of different ways and I said this in the past we tend to really want to look at it on an annual basis, because it's a tax calculation that we can really true up at the end of the year and that's typically when we when we make determination, but we're in a little bit of a.

Robert Kipp DeVeer: And I said this in the past, we tend to really want to look at it on an annual basis because it's a tax calculation that we can really true up at the end of the year, and that's typically when we make determinations. But we're in a little bit of a tricky position, as you can probably appreciate, because while we have loads of earnings in excess of the regular dividend, the trajectory for rates going forward is reasonably uncertain.

Robert Kipp DeVeer: Tricky position as you can probably appreciate because.

Robert Kipp DeVeer: While we have loads of earnings in excess of the regular dividend.

Robert Kipp DeVeer: The trajectory for rates going forward as reasonably uncertain I think if you. If you asked around the table folks would have very different views. So combining that with the fact that we really aren't in a position.

Robert Kipp DeVeer: I think if you asked around the table, folks would have very different views. So combining that with the fact that we really aren't in a position, in my opinion anyway, where we want to put the company in a position where it would have to reduce its regular dividend, we just feel better materially out-earning it today and building the NAV. So hopefully that answers the question, but it's a little bit tricky in a world where the rate environment has changed quickly.

Robert Kipp DeVeer: In my opinion anyway, where we want to put the company in a.

Robert Kipp DeVeer: Place, where it would have to reduce its regular dividend, we just feel better materially out, earning it today and building NAV.

Robert Kipp DeVeer: So hopefully that answers the question, but it's a little bit tricky in a world where the rate environment changed quickly. We obviously wanted to recognize the much more substantial earnings power of the company when we increase the dividend to the <unk> 48.

Robert Kipp DeVeer: We obviously wanted to recognize the much more substantial earnings power of the company when we increased the dividend to 48. But yeah, it's something we talk about a lot. When's the right time? You know, do we get credit for specials? Do we not? All of that's very much in the dialogue with the management team and our board.

Robert Kipp DeVeer: But yeah, it's something we talk about a lot when when's the right time.

Robert Kipp DeVeer: Do we get credit for specialists do we not all of that is very much in the in the dialogue with the management team and our board.

Casey Alexander: That's my only question. Thank you.

Speaker Change: Yes, that's my only question. Thank you.

Speaker Change: Okay. Thanks.

Operator: Our next question will come from Paul Johnson with KPW.

Casey Alexander: Our next question will come from Paul Johnson with K B W.

Paul Johnson: Good afternoon or good morning. Thanks for taking my questions. You touched on my question in terms of just kind of pressure on fee income, but You know, is this something that you think you've experienced more on deals that you've refinanced in the market, or are you also seeing a little bit of fee compression on new platform deals as well?

Paul Johnson: Hey, good afternoon, or good morning, Thanks for taking my questions.

Paul Johnson: You touched on my question in terms of just kind of pressure on on <unk>.

Paul Johnson: <unk> income.

Paul Johnson: But.

Paul Johnson: Is this is that something that you think you've experienced more on deals that you've refinanced in the market or are you also seeing a little bit of.

Paul Johnson: <unk> compression on new platform deals as well.

Kort Schnabel: Yeah, it's Kort Schnabel here. I would say, you know, it's primarily on existing transactions; new transactions are seeing some fee pressure, but as was mentioned before, the mixed shift This quarter, I think we were 72% of our originations were to incumbent borrowers. And that was really the big driver of the numbers that you're seeing there. There is definitely some pressure across all fronts, but, as is normally the case, existing portfolio companies don't deliver the same kind of fees as new borrowers.

Kort Schnabel: Yes, it's cort snapple here.

Speaker Change: I would say.

Kort Schnabel: It's primarily on existing transactions new transactions are seeing some fee pressure, but as was mentioned before the mix shifts.

Kort Schnabel: This quarter I think we were 72% of our originations were to incumbent borrowers and that was really.

Kort Schnabel: The big driver of the numbers that Youre seeing there there is definitely some pressure across all fronts, but.

Kort Schnabel: As is normally the case existing portfolio companies.

Kort Schnabel: Deliver the same kind of fees as new borrowers do.

Kort Schnabel: Okay.

Speaker Change: I appreciate that and one last question I had just kind of higher level, but I was wondering kind of get your thoughts on.

Paul Johnson: Appreciate that. And one last question I had, just kind of higher level, but I was wondering, you know, kind of get your thoughts on a feature, a loan feature that, you know, we've heard more about portability. If that's something that you've offered in any of your loans, if that's something that you come across, but any kind of thoughts on that feature would be nice to hear.

Robert Kipp DeVeer: Thanks.

Robert Kipp DeVeer: A feature alone feature that we've heard more about portability.

Robert Kipp DeVeer: If that's something that you've offered in any of your loans, if thats something that you come across but any any kind of thoughts on.

Robert Kipp DeVeer: That feature would be nice to hear thanks.

Paul Johnson: Yeah, we've agreed to do it, you know, a couple of times. You put a lot of guardrails, obviously, around when that financing can start, i.e., you know, to what counterparty would we be continuing to be involved with, what would be the fees, you know, loan documentation, all sorts of other stuff. I actually think that's more of a feature, frankly, of last year, where the financing environment felt more complicated. So having the value of an incumbent group kind of move over with a new equity check and a sponsor to sponsor deal is highly valuable right when the financing markets feel uncertain. I wouldn't say that the financing markets feel particularly uncertain today, so my guess is the request for portability will go down. But we'll see where we go from here.

Speaker Change: Yeah, we've agreed to do it a couple of times, you've put a lot of guardrails, obviously around when that financing Ken for it.

Paul Johnson: To what counterparty would we be continuing to be involved with would be the fees loan documentation all sorts of other stuff.

Paul Johnson: I actually think that's more of a feature frankly of last year, where.

Paul Johnson: The financing environment felt more complicated so having the value of an incumbent group kind of move over with the new equity check and a sponsor to sponsor deal.

Paul Johnson: As highly valuable right when the financing markets feel uncertain I wouldn't say that the financing markets, particularly uncertain. Today. So my guess is the request for portability Asps would go down.

Paul Johnson: But we'll see where we go from here.

Robert Kipp DeVeer: I appreciate it, it's helpful. Congratulations on a good quarter. Thanks, guys.

Speaker Change: I appreciate it that's helpful.

Robert Kipp DeVeer: Congrats on a good quarter thanks, guys.

Robert Kipp DeVeer: Thanks. I appreciate the questions.

Speaker Change: Thanks, I appreciate the questions.

Operator: Our next question will come from Mark Hughes with Truist.

Robert Kipp DeVeer: Our next question will come from Mark Hughes with Truest.

Mark Hughes: Yeah, thank you. Good morning.

Mark Hughes: Yes. Thank you good morning.

Mark Hughes: You mentioned earlier in the call that you're a quantitative group, determined that industry selection got you 500 basis points or could account for 500 basis points of outperformance. How stable is that over time? Those industry groups, do they migrate, or is it pretty, pretty steady?

Mark Hughes: You had mentioned earlier in the call that you're a quantitative group determined the industry selection got to 500 basis points or could account for 500 basis points of outperformance.

Mark Hughes: Stable is that over time those industry groups to then migrate or is that.

Mark Hughes: Pretty pretty steady.

Mitchell Goldstein: This is Mitch, by the way. Yeah, our group, if you look at how they did the analysis, it was over an extended period of time in our portfolio. And if you have been following us for as long as we've been doing this, our industry groups, where we tend to invest, have been pretty stable. So they were able to get that analysis through our portfolio very quickly

Mark Hughes: Great that is matched by the way.

Mitchell Goldstein: Yes, our group if you look at how they did the analysis. It was over extended period of time in our portfolio.

Mitchell Goldstein: And if you have been following us for as long as we've been doing this our industry groups that we're we tend to invest has been pretty stable. So they were able to get that analytics through our portfolio over very extended period of time.

Mitchell Goldstein: And.

Mitchell Goldstein: Is it that the industry groups that you've focused on have been reasonably stable? If you look at our business services, our healthcare services, the industries where we have messed up really haven't changed a lot. We don't invest in cyclical businesses. We don't invest in low-margin businesses.

Mitchell Goldstein: Is it.

Mitchell Goldstein: Yes.

Mitchell Goldstein: Industry groups that you're focused on have been reasonably stable.

Mitchell Goldstein: And that would be okay. If.

Mitchell Goldstein: When you look at our business services.

Mitchell Goldstein: Look at our business services or health care services, the industries, where we really haven't changed.

Mitchell Goldstein: A lot we don't invest in cyclical businesses, we don't invest in low margin businesses. So they were able to have.

Mitchell Goldstein: So they were able to, you know, have a significant amount of data with which to make that analysis. Yeah, okay. Appreciate that. And then the exit seemed low for April. Was there anything to that? Or just happened to be?

Mitchell Goldstein: A significant amount of data with which to make that analysis out of.

Speaker Change: Yeah, Okay I appreciate that and then the exit seemed a low for April.

Mitchell Goldstein: To that.

Mitchell Goldstein: Sure.

Mitchell Goldstein: Happened to be lower.

Mark Hughes: Yeah, I don't think there's anything to it. It's just a single month of data, so it wouldn't take too much away.

Speaker Change: Yes, I don't think Theres anything to it. It's just the single month of data so I wouldn't take too much away.

Mitchell Goldstein: Very good. Thank you.

Speaker Change: Very good thank you.

Speaker Change: Thank you.

Operator: Our next question will come from Erik Zwick with Hobby Group.

Mitchell Goldstein: Our next question will come from Erik Zwick with Hardie group.

Erik Zwick: Good morning. I wanted to start just maybe a quick follow-up to the tip you mentioned earlier. There's some uncertainty, I think, as we all know, with regard to the future direction of interest rates. And just looking at slide five, the percentage of fixed-rate investments in the portfolio is up a little bit year over year, not a huge change by any means, but curious if that's reflective at all of either your preference or a borrower preference to maybe do floating versus fixed, given their belief in the direction of interest rates, or maybe that's just kind of a natural migration from quarter to quarter.

Erik Zwick: Good morning.

Erik Zwick: Wanted to start just maybe a quick follow up Kipp you mentioned earlier there are some.

Erik Zwick: Uncertainty I think as we all know with regard to the.

Erik Zwick: Future direction of interest rates and just looking at slide five.

Erik Zwick: Percentage of fixed rate investments in the portfolio is up a little bit year over year, not a huge change by any means but curious if that's reflective at all of either your preference or borrower preference.

Erik Zwick: You know, maybe do floating versus fixed given their belief in the direction of interest rates or maybe that's just kind of natural migration from.

Erik Zwick: From quarter to quarter.

Robert Kipp DeVeer: Yeah, I don't think there's anything particularly targeted there. I will say when we do some of our junior capital investing, we try to strike the right balance between floating and fixed rates and, frankly, have a mix of both. But yeah, I think you're right that what one borrower today may say I want fixed because I think we're higher for longer, and another borrower may say the exact opposite. So there's nothing particularly intentional there, and different situations just lead to different outcomes. I wouldn't take too much away. There is nothing.

Speaker Change: Yes, I don't think Theres anything, particularly targeted there I will say when we do some of our junior capital investing we tried to strike the right balance between floating and fixed rate and frankly haven't have a mix of both.

Robert Kipp DeVeer: But yes, I think you're right that one borrower today may say I want fixed because.

Robert Kipp DeVeer: I think were higher for longer and another borrower may say the exact opposite so.

Robert Kipp DeVeer: There is nothing particularly intentional there in different situations just lead to different outcomes I wouldnt take too much away nothing.

Kort Schnabel: Nothing, nothing intentional around the small change quarter to quarter, but definitely intentional in terms of having some fixed rate exposure in the portfolio, which I think is a differentiator for us versus others in the market and just gives us more ballast to operate in all different kinds of environments. Some of that fixed rate, as Kip mentioned, the junior capital, tying back to his comment about some of the opportunistic situations we're seeing for delevering balance sheets right now, given the higher rates, a lot of those are also fixed rate opportunities. So, you know, that's probably driving a little bit of that take-up that you're seeing.

Robert Kipp DeVeer: Nothing nothing intentional around the small change quarter to quarter, but definitely intentional in terms of having some fixed rate exposure in the portfolio, which I think is a differentiator for us versus others in the market and just gives us more ballast to operate through all different kinds of environments.

Kort Schnabel: Some of that fixed rate all as Kipp mentioned, the junior capital tying back to his comment about some of the opportunistic.

Kort Schnabel: Mystic situations, we are seeing for de levering.

Kort Schnabel: Balance sheets right now given the higher rates.

Kort Schnabel: Those are also fixed rate opportunity. So, yes, that's probably driving a little bit of that pickup that youre seeing.

Erik Zwick: Thanks, I appreciate the color there. And just a bit of a follow-up as well on kind of your funding strategy today. You noticed or mentioned how active you've been in the first part of the year on the unsecured debt market, and the spreads have been very attractive and tight for you all. So you're up to about, I guess, 78% of unsecured debt to total debt at this point.

Speaker Change: Thanks, I appreciate the color there.

Erik Zwick: Just a bit of a follow up as well on.

Erik Zwick: Kind of your funding strategy today, you noticed or mentioned how active you've been hearing the first part of the year on the unsecured debt market.

Erik Zwick: <unk> have been very attractive and tight.

Erik Zwick: For you obviously, you are up to about 78% of unsecured debt to total debt at this point and I'm wondering if you could just kind of refresh me on your bigger picture view of overtime, what your preferred mixes and it sounds like.

Scott Lem: And I wonder if you could just kind of refresh me on your bigger picture view of, you know, over time, what your preferred mix is. And it sounds like, you know, as you've noted as well, CLOs have kind of reentered the picture as well. So I'm just curious about your overall kind of bigger picture thoughts there.

Scott Lem: You've noted as well CLO says kind of reentered the picture as well. So just curious of your overall kind of bigger picture thoughts there.

Scott Lem: Yeah, look, I think we're always, you know, our investment grade rating is very important to us and maintaining that, and definitely a big component of that is making sure we're majority unsecured. So I mean, you know, we're probably a little heavier unsecured at the moment than we would normally be, but I think we're happy with the levels are at now and, you know, doing the CLO and other forms of secure financing are also part of our, like I mentioned, playbook. So we'll probably continue to do everything.

Speaker Change: Yeah look I think we're always.

Scott Lem: Our investment grade rating is very important to us in maintaining that and definitely a big component of that is making sure. We're majority.

Scott Lem: Securities.

Scott Lem: Probably a little heavier unsecured.

Scott Lem: At the moment than we would normally but I think we're happy with the levels right now and I think like do.

Scott Lem: Doing the CLO and other forms of secured financing and are also part of our like I mentioned part of our playbook, so tedious prior to everything.

Erik Zwick: Great, thanks for taking my questions today.

Speaker Change: Great. Thanks for taking my questions today.

Speaker Change: Thank you.

Operator: As a reminder, press star 1 if you have a question. Our next question will come from Robert Dodd with Raven-James.

Erik Zwick: As a reminder press star one if you have a question. Our next question will come from Robert Dodd with Raymond James.

Robert Dodd: Good morning, everybody. Last quarter, you gave us an update on the tail end side of the portfolio; there were some liquidity pressures. Obviously, I mean, non-accounts are still really low, running one new this quarter. If I look at the revolver, the labor utilization did go up a couple of hundred basis points this quarter, but not by much. So, can you give us any more color on what the liquidity pressures are in the tail end of the portfolio? And do you think if rates do stay higher for longer into 2025, is there a point at which those liquidity pressures really become problematic?

Robert Dodd: Good morning.

Robert Dodd: Last quarter, you gave us an update on on the title side of the portfolio that works in liquidity collections.

Robert Dodd: Obviously, I mean, not a cautious tone.

Robert Dodd: Anyone you won this quarter.

Robert Dodd: Look at the revolver and delayed draw utilization did go up a couple of hundred basis points this quarter.

Robert Dodd: So could you give us any more color on what the liquidity question.

Robert Dodd: And the tailwind.

Robert Dodd: And do you think.

Robert Dodd: If rates do stay higher for longer.

Robert Dodd: 2025 is there a point at which there is liquidity pressures.

Robert Dodd: Uh huh.

Robert Kipp DeVeer: Yeah, thanks for the question, Robert. So I mean, yeah, we saw a modest, but I wouldn't say material, uptick and just revolve or drawdown that probably does tell us that there's likely, you know, companies that obviously have less liquidity than they might like. And I mentioned this a bit earlier in the call.

Speaker Change: Yes. Thanks for the question Robert So I mean, yes, we saw modest but I wouldn't say a material uptick in just revolver drawdown that probably does obviously.

Robert Kipp DeVeer: It's kind of a unique period, at least in my opinion, having done this for a long time, because you have a lot of pretty strong company performance. And even with that strong company performance, you have capital structures that got set up that maybe can't live through, you know, 5% base rates for a long period of time. And that's why you're seeing more equity and more structured equity come in to deleverage a lot of these situations with the potential for rates to remain, you know, higher for longer, which, frankly, is kind of our baseline expectation around here.

Robert Kipp DeVeer: Tell us that there is likely companies that obviously have less liquidity than they might like and I've mentioned this.

Robert Kipp DeVeer: A bit earlier in the call, it's kind of a unique period at least in my opinion, having done. This a long time, because you have a lot of pretty strong company performance and even with that strong company performance you have capital structures that got set up that maybe can't lift through 5% base rates for a long period of time and Thats why youre seeing.

Robert Kipp DeVeer: More equity and more structured equity come in to deleverage a lot of these situations with potential for rates to remain higher for longer which frankly is kind of our baseline expectation around here. So we're managing the portfolio and thinking about risk is if we have higher base rates for longer but again, none of our <unk>.

Robert Kipp DeVeer: So we're managing the portfolio and thinking about risk as if we have higher base rates for longer. But again, none of our metrics have really shifted materially, right? Our non-accruals are up a touch, but materially below historical averages. And again, when you look at what we consider to be our underperformers on watch lists, the ones and the twos, it's pretty consistent in terms of the percentage of the portfolio. So all in all, you know, as a big macro overlay to thinking about the portfolio as a whole, we definitely take that into consideration. And that's how we think about managing the assets today, but it's not a particular concern.

Robert Kipp DeVeer: <unk> have really shifted materially right. Our non accruals are are up a touch but materially below historical averages and again when you look at what we consider to be our Underperformers and watch list the ones and the twos, it's pretty consistent in terms of the percentage of the portfolio.

Robert Kipp DeVeer: So all in all as a.

Robert Kipp DeVeer: Big macro overlay to thinking about the portfolio as a whole we definitely take that into consideration and that's how we think about managing the assets today, but it's not a particular concern.

Speaker Change: Got it thank you and one more.

Robert Kipp DeVeer: Pick.

Speaker Change: And I don't know sorry, Amie ultimately collections for last couple of quarters.

Robert Kipp DeVeer: Quite obviously.

Robert Kipp DeVeer: Obviously, you know, it's – I think cash PIC collections are voluntary by the borrower rather than, you know, at repayment. I mean, is there any trend there? I mean, it's volatile quarter to quarter anyway, but, you know, anything you're seeing from borrowers who might have, in the past, you know, two years ago, would have paid their PIC in cash and are electing to just hold the cash now instead.

Robert Kipp DeVeer: <unk>.

Robert Kipp DeVeer: Cash collections voluntarily.

Robert Kipp DeVeer: Paul.

Robert Kipp DeVeer: Repayments I mean is there any.

Robert Kipp DeVeer: Any.

Robert Kipp DeVeer: Trends.

Robert Kipp DeVeer: Volatile quarter to quarter anyway, but anything anything you're seeing from borrowers.

Robert Kipp DeVeer: You might have in the past.

Robert Kipp DeVeer: One of them.

Robert Kipp DeVeer: Pete that patch.

Robert Kipp DeVeer: So just hold protection instead.

Robert Dodd: I don't think there's any significant trend. I just looked at Scott, and he whispered to me the word "episodic." I think it just comes in order. And it's not all that easy to predict. I wouldn't take any big picture trend away from some of that data.

Speaker Change: I don't think Theres any significant trend I just looked at Scott.

Robert Dodd: <unk>.

Robert Dodd: It's episodic, which I think.

Robert Dodd: If it comes in the quarter and it's not all that easy to predict I wouldn't take.

Robert Dodd: I wouldn't take any big picture trend away from some of that data, yes, Robert It's Mitch I think you have to look at M&A picks up a lot of our preferred where.

Robert Kipp DeVeer: Yeah, Robert, it's Mitch. I think you have to look at when M&A picks up. A lot of our preferred investments, where we like to invest down the balance sheet, where we see real value are based on exits, right? And when M&A picks up, you'll see a lot of that preferred equity come through. When M&A is slow, you'll see that just continue to stay out there, which we're happy about because the companies are performing. Got it, understood.

Robert Dodd: Got it. Understood.

Robert Kipp DeVeer: Where we like to invest in down the balance sheet, where we see real value is based on exits right and if and when M&A picks up youll see a lot of that preferred come through when M&A is slow.

Robert Dodd: Youll see that just continue to stay out there, which we're happy too because the companies are performing.

Speaker Change: Got it understood. Thank you.

Speaker Change: Thank you.

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

Robert Dodd: This concludes our question and answer session I would like to turn the conference back over to Mr. Kipp Davir for any closing remarks.

Robert Kipp DeVeer: I would just thank everybody for their participation today, and I look forward to speaking to you all next quarter. Thank you, ladies and gentlemen.

Robert Kipp DeVeer: I will just thank everybody for their participation today and look forward to speaking to you all next quarter.

Operator: Thank you, ladies and gentlemen. This concludes our conference call for today. If you missed any part of today's call, an archived replay of the call will be available approximately one hour after the end of the call through May 30th at 5 p.m. Eastern Time for domestic callers by dialing 1-800-839-5635 and to international callers by dialing 1-402-220-2561. An archived replay will also be available on a webcast link located on the homepage of the Investor Resources section of Ares Capital's

Speaker Change: Thank you ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call an archived replay of the call will be available approximately one hour. After the end of the call through may 30th at five PM Eastern time to domestic callers by dialing one $883 95635.

Operator: And to international callers by dialing 140 to 220 to 561.

Operator: A replay will also be available on a webcast link located on the homepage of the Investor resources section of Ares Capital's website.

Speaker Change: [music] Goodbye.

Operator: Goodbye!

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Operator: Mhm.

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Operator: Hum.

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Operator: Sure.

Operator: [music].