Q3 2024 Ares Capital Corp Earnings Call
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Thank you. Let me start with some important reminders. Comment, during the course of this conference, call in-leadcast and accompanying documents, containing forward-looking statements and subject to risks and absurdities.
The gun is actual results, could differ materially from the minutes expressed in such forward-looking statements for any reason, including those listed in the SNF-65. Gary's Capital Corporation seems to know obligation to update and use such forward-looking statements. Please also note that the past performance or market information is not a guarantee if each of
During the conference call, the company discussed certain non-gap measures, as defined by LCC regulation G, such as CORE or an imprecise or CORE EPS.
The company believes the core EPS provides useful information to investors regarding financial performance, because it's one method that companies use its measure of financial condition in results of operation.
A reconciliation of Gap and that income per share of the most directly comparable Gap's and answer measure the Kort EPS can be found in the accompanying slide presentation for this call. In addition, a reconciliation of these measures may also be found in our earnings release by this morning with the SEC on form of K.K.
Certain information discussed in this conference call and we've come to the outside presentation, including information related to portfolio companies, so we're out from third party sources and we're not in the different verified and accordingly the company makes no representation or warranties with respect to the information.
The company third quarter ended September 30, 2024, our new presentation. Can also be found on a company's website at www.aryscapitalgroup.com That clicking on the third quarter, 2024, our new presentation link on the homepage of the Investor Resource section of the website.
and Firm Tensue, who are also available on the company's website. Now, let's turn the call over to Mr. Kiftivier, Eric's Capital Corporation, to subject to your launch. Kip?
Thanks for watching!
Kip: and thanks for joining our earnings.
I'm here with our co-president, Kort Schnabel and our newly appointed co-president Jim Miller. Jan Amarkowitz, our chief operating officer, got Lem, our chief financial officer, and other members of the
Before discussing our third quarter results, I want to recognize the leadership changes that we announced this morning.
As I mentioned, Jim Miller will now join Kort Schnabel, with a co-president of ARCC. By way, background, Jim joined Eries in 2006, and currently serves as a co-head of our U.S. Correct-Linding Strategy, and as a member of our Investing Advisors in Besting Committee.
Jr. has been one of the key contributors to the success of ARCC and the Aries Direct Landing Platform. And we look forward to having in play and even more prominent role in this company's direction in the years ahead.
As part of this change, Mitch Goldstein is stepping down as Eric Kappell's co-president, but he is joining Eric Kappell's board where he and Michael Smith will serve as co-chairman. Mitchell also continued a lead-airly global credit group as a co-head.
and as part of this transition, Michael Ergetty will relinquish his role as Chairman, but remain a director of the company. This transition demonstrates the depth and tenure of our team, and it can continue to evolution of our company, and it's success over a long period of time.
with that. Let me now turn those third quarter results.
This morning, you reported another quarter of strong court earnings of 58 cents per share, and another quarter of record an A.Vee per share of $19.77.
as we discussed in the past.
We believe we are well positioned.
and what we expect will be a more active deal environment in the future, driven by expanding M&A in sponsor activity. As private equity managers are benefiting from lower rates while at the same time feeling growing pressure to return capital to their investors.
In the third quarter, we saw further increase in overall M&A volume with an acceleration and sponsored back transactions in particular.
Against this backdrop, directors and continue to finance a high percentage of new leverage by-outs, specifically representing about half of the low-envolume supporting by-outs in the third quarter.
We believe that areas as well position to take advantage of this environment, given our deep and long-standing sponsor relationships, and our focus on strategic transaction in defensive industries with strong secular trends.
Do our strong competitive position in a more active investing environment. He's thought meaningful year-of-year growth in both transactions or viewed and new commitment during the third quarter.
Specifically, we reviewed nearly 3% more transactions compared to the same period last year, resulting in an estimated $155 billion in quarterly deal volume review.
The context of the amount exceeded the completed transaction volume reported for the entire broadly-symmicated leverage loan market for the quarter.
Our long-held approach of sourcing as many transactions as possible is a key factor in remaining highly selected, which we believe ultimately results in strong-learned long-term portfolio of performance.
Kip: Our ability to grow with our existing portfolio companies that we know well as another key factor in our high level of selectivity for the reducing underwriting risk and driving stronger credit performance.
This advantage supported our loan growth in the third quarter as over 75% of our new commitments were doing come-in borrowers.
We believe the growing trend of existing portfolio companies consolidating their financing relationships with us is an encouraging trend.
We also added 23 new companies to the portfolio, bringing our highly diverse portfolios over 530 companies.
A very capital, strong credit portfolio profile, rather can be seen in the health and performance of our portfolio companies.
are non-acrual rates decline in quarter of a quarter and remain at levels well-blowing to three averages, and the fair value of our risk-grade at one in two loans also decline from the second quarter.
Those are underscoring the consistent health of our borrowers. The LTM Iba Dogger of the Barquatfolio Companies remain in the low double digits for the third consecutive quarter.
Speaker Change: and finally, Scott will discuss in more detail the right-hand side of our balance sheet continues to support our investing activities and remain to competitive damage.
You've seen that we recently upgraded by moody's to a higher investing grade notch, which we believe further solidifies their e-sapitol as the highest rated company in our sector by all three major rated agencies.
with moderate leverage just over one time, death to equity.
and well over $5 billion in available liquidity, incorporating post-quarter-end financing activities. We believe we have significant financial flexibility and the leading access to efficient forms of capital.
Speaker Change: with that. Let me turn the caller Bertis Scott to provide more details on our financial results and some further thoughts on the balance sheet.
Thanks, Kit. Let me walk through our ink and statement before discussing our balance sheet and the actions we took during the quarter to enhance our capital position.
This morning, reported Gapnenega Brcher of 52 cents for the third quarter of 2024. Compared to 52 cents in the prior quarter, and 89 cents in the third quarter of 2023.
Speaker Change: We also reported Coronning's presherit of 58 cents for the record of 2024, compared to 61 cents in the prior quarter, and 59 cents in the third quarter of 2023.
Overall, our total investment income.
Increased compared to the prior quarter largely due to higher interest and dividend income from net portfolio growth offset by lower suction fees as a majority of the new payments during the quarter, where we'll take the existing portfolio companies.
In Chairman of our expenses, the increase in our interest in credit facility fees was consistent with our higher levels during the quarter to some of the portion of our portfolio growth.
Our total portfolio that served value at the end of the quarter was $25.9 billion. Up from $25 billion at the end of the second quarter.
The weight average yields on our debt and other income producing securities that advertised costs was 11.7% at the 10th or 30th, which was down from a 12.2% adjunct 30th and 12.4% for the same period a year ago.
Speaker Change: Our total weighted average yield on total investments at Amortized Cost was 10.7% which compares to 11.1% a quarter ago and 11.2% from a year ago.
The declines in our yields were largely due to reduced base rates, until let's extend spread on new investments.
Our stockholders equity end of the quarter at 12.8 billion, for a 19.77-thens per share, another record hire for us as Kip noted earlier in the call.
The four discussing our capitalization liquidity, and let me start by highlighting the notable accomplishment kit mentioned earlier to our credit ratings.
Kip: At the end of September, Moody's upgraded the long-term issuer and senior unsuitier rating for capital to BW2 from BW3.
In addition to being rated in Western Grave, but all three of the major rating agencies, we now have two of our three ratings from a mid-Tripple B.
We believe this should lead to even more efficient funding costs and potentially increased debt capacity over time.
Kip: He's rating further distinguished Eric's capital, not only within the BDC sector, but also among a slucky universe of firm, wait-trip-al-beer higher rated public companies in the US.
Within the BDC sector, we are the only BDC that has both the highest credit ratings from all three major agencies and positive outlooks from SNP and Fitch.
In terms of our recent debt capital activity, we amended our revolving funding facility.
Kip: which included extending the end of it, we must empiriated and then sure to fill 3 in 5 years respectively. And, upside in the facility from 1.78 billion to 2.15 billion.
Kip: We also announced and we placed our second on Downed Street CLO for ARCC, which we expect will close next month, subject to customer-eclosing conditions.
Kip: This closing will bring additional $5,44 million of the low cost to care debt capital price that so for a plus 158 basis points.
We're happy to continue both first of all and we're in the way to have our customer debt capital and believe C.O.O. financing can continue to be a nice addition to our debt capital going forward.
Lastly, as we discussed in our last early call, earlier in the third quarter, we amended our SB funding facility, where we extended the end of the re-busperiod imagery each by more than one year.
Upside the facility from $65 million to $1.3 billion and reduced the drawn spread by 40 basis points.
Kip: In total, Proformer Folley's transaction since June 30th, we have added over $1.3 billion of new debt capacity and reduced the weight-ever spread of our committed fluently debt capital.
are overall the QWERTY position remains strong with nearly $5.8 billion of total available equipment, including real little cash on a pro-former basis for the post-quarter and that is a delivery that I just highlighted.
We also ended the quarter with a debt to Fli ratio net available cash of 1.03 times.
We believe our significant amount to dry powder positions as well to continue supporting our portfolio company commitments and new investing activities.
Kip: Moving on to the dividend, we declared a fourth quarter of 2024, given in a 48-ense per share. RCC has been paying stable or increasing regular quarterly dividends for over 61 consecutive quarters.
This dividend is payable on December 30, 2024 to stock horsepower record on December 13, and its consistent with our third quarter to 24 dividend.
Kip: In terms of our tax income spillover, we file our 2020-3 tax returns. They are happy to report that we ended 2020-23 with approximately $631 million, or $1.4 per share, available for distribution of stockpores in 2024.
Kip: In addition to our third quarter of core earnings being well in excess of our current dividend, the spillover level is more than two times our current regular quarterly dividend.
which we believe is a significant differentiator for us in the BEC sector and helps provide further visibility and stability to our dividend in a potentially declining rate environment.
Speaker Change: I will now turn the call over to Kort to walk through our invest activities.
Kort: Thanks, Scott. I'm now going to spend a few minutes providing more details on our investment activity, our portfolio of performance and our position A for the third quarter.
and the other two. I will then conclude with an update on our post-quitor end activity and backlogs.
In the third quarter, our team originated approximately $3.9 billion to the new investment commitments across 74 different transactions.
excluding the 670 million of loans we originated and distributed as agents. Our new investment commitment more than doubled year over year. The Flepping is strength about platform and a more active overall and a name market.
Our level of originations also reflects our growing market share with our existing borrowers as kit discussed previously.
Kort: Evidence in this trend, our share of the overall finance for our top 10 largest incumbent commitment in the quarter more than doubled.
Kort: Chifting our portfolio, we ended the third quarter with a 25.9 billion-dollar portfolio at Fair Value, which grew 4% from the prior quarter in 18% from the prior year.
In addition to our expanding market share with incumbent borrowers, our growth is supported by our ability to provide flexible capital solutions to a wide variety of new companies to give a direct learning solution.
This can be seen in the total member of companies in our portfolio which reached 535 in the third quarter, and increased 9% year over year.
Further on the scoring, our focus on covering the broader middle market, the median EBITDA of the borrowers and our portfolio was $80 million in the third quarter. We're approximately one third, having less than $50 million EBITDA.
As Kitt mentioned, our portfolio companies remain healthy and credit performers remain strong.
Kort: and White average portfolio grade of 3.1 remained unchanged in the prior quarters level.
Our not a clue of the cost and the quarter at 1.3% representing another 20 basis points to climb from the prior quarter and is within 50 basis points that are lowest level in the last decade.
Our current non-aclule level remains well below our 2.8% historical average since the Great Financial Crisis and the BDC historical average of 3.8% over the same time period.
Kort: Our non-cooler rated fair value also decreased to 0.6% from 0.7% in the last quarter, which continues to be well-delivered to your local level for us as well.
Further undertaking the strength of all folks only out at the end of the third quarter, the weighted average loan to value in the portfolio was 43%. Which we believe provides us with strandled down-flight protection for our loans.
This loan to value is also significantly below our 10 year average.
Then looking at performance by company size, is no worthy that company size continues to not be a driver of performance. As companies in all size bands in a reportfolio had similar e-vide growth rates for the last 12 months.
Kort: In our view, our underwriting and portfolio management processes and our ability to select when we believe of the best companies and the track of industries drives these results.
It is also no worthy that the further our advantages to support our broad middle market coverage. Earies Management acquired Riverside Credit Solutions during the third quarter.
Kort: Riverside is a well-established, lower-middle market focused firm managed by a team that we have known for a long time with a very strong investing track record.
We believe this team is additive, Terry's direct learning platforms coverage in this important part of the market.
As we discussed in detail at our industrial day in June, we believe areas of the only direct learning platformage scale that actively focuses across the lower, middle and upper-middle markets.
This differentiated coverage approach supports our ability to focus on market segments that offer better risk-adjusted returns while remaining highly selective.
Kort: Across our markets, we have seen credit dispersion start to emerge with so-and-other managers experiencing growing and elevated levels of non-acorosis.
Kort: We continue to believe the merits of our many competitive advantages, our driving differential results as diversification and industry selection have contributed to air-CC's strong climate performance in comparison with other BDCs.
The hour trying tested under ready processes and collaborative culture.
at Highly Swatting Report to Investing in Focus and in Common Barrowers as a differentiated opportunity for growth. We've been able to avoid many of the problems that have driven recent non-acruals in the BDC space.
Another point of differentiation for airCC, where some other BDCs, is our high level of portfolio-diversification.
by now gaining small individual company position sizes of less than 0.2% of the portfolio on average.
Kort: AirCC has been able to mitigate the impact of negative credit events in any one company or industry.
Finally, let me highlight our active start to the 4th quarter.
Kort: From October 1st, to October 24th, 2024, we made new investment commitments totaling $480 million of which 320 million were funded.
We exited or were repaid on nearly $1.2 billion investment commitments, which resulted in us earning $4 million of net-realized games.
As of October 24th, our backlog stood at a roughly $2.8 billion more than triple the level one year ago.
Our backlog contains investment for the subject to approval and documentation and may not close or we may sell a portion of these investments post-closing.
and we'll now turn the call back over the kid, which includes your marks.
Thanks so much Kort.
Speaker Change: So let me just take an opportunity to share a few thoughts on our past and our future. And as many of you know, we're celebrating the company's 28th anniversary this month.
Kort: Over the course of our 20 year history, Mike partners and I have seen the growth of direct landing about small handful of BDCs competing with banks for their lower middle market loans to improve an industry with real institutional backing and recognition.
Kort: During this time we've continued to refine our processes, grow our team, and leverage new thinking. However, we remain consistent in our approach, our investment philosophy, and our focus on the team and our culture, which underpins everything that we do.
A third quarter earnings and credit results build upon our 20-year track record, a successfully managing the company's throughout a wide variety of economic and market cycles.
Both of the past few decades, Eric Capwell has made nearly 4,000 investments with a cumulative net-realized law straight of 0 percent, and an asset level realized gross IRR approximately 13 percent.
Kort: And over the same time period, our shareholders have been rewarded having enjoyed an average annual color return of roughly 13%. Which represents out performance of over 225 basis points per year to the S&P 500 index.
He must say we're very proud of this performance.
Looking forward, we believe, very capital, and its competitive advantages remains strong.
Kort: with the Declaration of the Fourth Quarter Divinand.
ARCC's regular quarterly dividend has been stable, are growing now for more than 15 years, and your main confident in our ability to maintain this dividend level in the foreseeable future, even in the phase of lower expected interest rates.
Kort: Furthermore, should market interest rates decline, we believe the value of our attractive given in yield, but is well covered by corn earnings and supported by a strong level of still-of-brinkum will become even more valued by equity investors.
As we look to the future, we believe a company remains very well positioned to address what we see as a growing market opportunity. And the management team and the board remain committed in continuing to build upon what we believe this is successful long-term track record.
Hello, we appreciate you joining the call today. We'll look forward to speaking with you next quarter, but without operator we'd like to open the line for questions. Thanks.
At this time, if you'd like to ask a question, please press the star, then the one on your touch to the phone. If you'd like to withdraw your question, please press star then too.
Please note as a courtesy to those who may wish to ask a question, please limit yourself to one question and a single follow-up. If you have any additional questions, you may re-enter the queue, and the investor relations team will be available to address the further questions at the conclusion of today's call.
We'll take our first question from John Hect with Jefferies. Please go ahead, your line is open.
John Hect: Morning Guys, congratulations on the 20th anniversary. Very cool.
and you've been talking, well I guess the whole market's been talking about this potential for one great stabilize, it's not dropped and maybe people get a little bit more confident about the economy that there's this massive wave of private equity that needs to be
and some of what's shown. You have a couple good quarters of investment activity in a town like the pipeline. Are we now entering that phase of the market and is that are you guys kind of bracing for a really active 25 at this point? Or is it too early to make that call?
Speaker Change: I think I'm pretty sure I'm a chanty. The last two quarters have been good and I mean the simple answer is yes, we remain pretty busy and I think getting the election behind us will help and then a lot of it will be getting into your end, but I expect it to be your next year for sure.
and then I just a quick question on Riverside to maybe give us a...
and what's their kind of origination, you know, I guess, friend and this sounds like it's a lower middle market with all. So will that kind of take you and do a slightly different aspect of the cost and you guys have been focused on the last few years?
Yes, Kort, I can jump it on that. I wouldn't think it's just slightly different after I'd class, I think.
Speaker Change: I think the takeaway is, you know, Riverside is a very active low-emittal market lender. It's not a large scheme, it's a nine-person team. We've known them for a really long time and we have immediately integrated them into our team and our process and we're going to help us.
Energize and double down on our commitment to cover the low and middle market even as we scale.
Speaker Change: and I think what's nice is to have them on board, they're going to bring deals to our investment community just like any other two hundred investment professionals and it should be a good thing for our broader market coverage.
Speaker Change: Thanks very much.
Speaker Change: We'll take our next question from Finyanochet with Wells Fargo Securities. Please go ahead and you'll like this open.
Fire Reaction on the market opportunity for the asset class.
Speaker Change: So today we have a lot of spread to oppression and hopefully volume, heels and relieves that dynamic. But we wanted to ask your view in light of all the capital being raised.
If the direct lending premium is on more of a secular decline.
Speaker Change: I don't think so, because the way the market works typically is folks lock up capital and illiquid credit when they look at other reference securities in liquid credit and particular.
and Frankelie other surrounding markets, right?
Speaker Change: So the risk premium, the complexity premium that we get for locking up investor capital and all liquid credit.
Speaker Change: Of course.
Varies over time, right if you look at historical numbers, somewhere between 150 and maybe 400 basis points, but for me it's that relationship that really needs to remain in place for the capital to continue to support growth in the market.
Peter Boyne and Spread Compressions is fair and it's there, but it's in response.
Not so much to lack a deal flow, but just adding to most of our teams as well as some of our competitors' beliefs that the economy is in a better place than we might have expected to fall through very low. Here's growth.
Speaker Change: and when you see less risk investing in a market you're willing to take less return. And that's what's happened over the last year too.
Speaker Change: and I hope we'll think that if I can do a small follow up on Riverside just seeing now.
Perhaps one off that was or if...
Maybe this has been declared of another large trend where...
The large managers, such as yourselves, are able to...
Speaker Change: and Anawattot's sort of investment, the Regination Capacity that way, amongst the perhaps you're likely sprawling low-middle market firms out there.
Speaker Change: Yeah, I mean, all I'd say is something that I can add on to what Kort Schnabel, which is really the meat of the boners and meat on the bone. Look, I mean, we've been at this 20 years in the queue, that you can continue at heart.
Speaker Change: Experience to build the best origination team you possibly can which leads to the best outcomes. So we've been adding people in a whole host of different segments and industries in all that for 20 years.
Riverside Institute and other example of that. Right, as Kort mentioned, a lower middle market team that can add to what we're doing and, you know, remains our commitment to keep adding things. We think bring value to the company and the shareholders.
and FNAG, we talked a lot about our ability to cover all different parts of the market. And you know, I think again, this is just a...
and the leader of our commitment to that Lord of the Market. I think it might be natural for us as we scale to potentially take our eye off the ball or focus a little less on that part of the market. And I think we want to make sure that we are intentionally not doing that.
both with our existing team as well as adding resources here through the acquisition of Riverside. So hopefully that helps.
Speaker Change: I guess, thanks so much.
We'll take our next question from Melissa Woodell with JP Morgan. Please go ahead, your line is open.
Melissa Woodell: Good afternoon, it's a big presentation, my question. I've been asked to everyone with a new or standard role.
Speaker Change: and the company.
was looking to follow up on the comments about the early and shaker with existing clients and a base sort of consolidation, so ancient science. I feel safe.
Speaker Change: that involves a six-and-one of three-fifth activities that happen. We're going to have to work over it. Is that the case? Is there a quarter in the youth side? We're going to be on what that could look like to look forward.
I mean, not really necessarily unless I think the point is, we've got very, very diverse.
Speaker Change: and Settaclyne, and the company today literally has representation with 200 plus sponsors and that doesn't even take into account industry groups and non-sponsored deals and all that stuff. But look, the key is that we keep...
doing more with the folks that we wanted to do for best.
and I think that the large players with big teams have been able to continue to capture more and more share with the most relevant clients, you know, such as those and others, but the focus is there. It's not needing to be heavier on refiactivity in our minds. Yeah, in fact, I'd say it's not, it's not a lot of refiactivity. It's a lot of add-on capital activity into our existing portfolio companies to support.
Gross and M&A. And, you know, Scott DeVeer, we are providing more of that add-on capital than our other club members in those facilities, which is what's contributing to our market share game. So it's definitely more that and less we've been ever.
Okay, I appreciate that.
Speaker Change: Hello.
Speaker Change: and Context. We just as a follow-up, we start anything we should be thinking about in terms of sort of timing of a reasoning during the third quarter. I think they generally tend to be a little bit back and loaded with anything that is activated and crecise was a pretty normal.
Thank you. Thank you. Thank you. It's pretty good, Korter. I mean, it comes and goes for unpredictable, from Korter to Korter, but I don't like there's anything other than just, you have circumstance and randomness.
Speaker Change: Okay, thank you.
Speaker Change: Thanks for your questions.
Speaker Change: We'll take our next question from KC Alexander with Compass Point. Please go ahead. Your line is open.
KC Alexander: Good morning, and I guess it afternoon. Thanks for taking my questions and happy anniversary.
Speaker Change: and the judge.
KC Alexander: I noticed it your second lane exposure over the last three years has been cut by more than half from the end of the year.
and so I'm wondering have we been watching sort of a defined internal strategy on the run? Or is this more to do more with the way that structure has changed across the private credit industry?
KC Alexander: Yes.
KC Alexander: Yes.
I think what you're seeing is a little bit more of a change in the market that's happening now. I'm not sure it's, you know, and you go through a lot of cycles and what we're seeing now is a lot of...
KC Alexander: and the Tronch transactions, and that's taking market share from the second of the market. And so I would not say that it's a potential shift on our part. It's more us.
KC Alexander: Looking for goodwill to value in all market environments and investing into the opportunities that are in front of us. Obviously, we'd like to return to our getting on the first with the new market.
KC Alexander: and Lebrge levels are still lower than the average returns are higher, so we think it's a good place to be putting dollars. But we'll see how the market develops from here.
Okay, let me follow up on that question. Okay, 53% of your portfolio is first lean.
Speaker Change: How does that balance between pure first lean versus unetranged? When you do a unetranged, which is going into that first lean bucket, what type of field premium are you generally getting on that relative to a pure first lean?
It's a little bit in the eye of the ball, but we talked about what a unit shot is. First of the first wing term one, that's kind of a hard question answered at the honest case.
Speaker Change: Okay, thank you for your seat at the take of my questions.
Speaker Change: Thanks for the follow-up.
We'll take our next question from Robert Dog with Raymond James. Please go ahead to your line.
Hi everybody, good morning from Central Time. I think congratulations to everybody on the new role. So a couple of questions, mainly about expressing yields. I mean, I think Scott in the prepared remarks.
and Thomas and Paul with the client in the way to have a geologist, Kort Oberth, with Stakesfakes. I mean, tell me you've seen...
Speaker Change: I mean, yeah, that's me, my wife, I want to begin in the court of a back-to-face, I'm just a thing on the previous court, but it's not always that easy, have you seen?
Speaker Change: and Shift in Elections, or should we expect to see a shift in Elections towards our shorter term? Like one month if they start falling versus three months or when the reset dates are happening or anything like that, because...
Speaker Change: It seems like...
Speaker Change: Normal course, the monthly sets of big and important, should not have that much impact. This course will be performed, yes, but could you give us any towel or not?
Speaker Change: Yeah, so I think the comments about the decline in the yields weren't really the inferiorityals we discussed at the end of the period.
So he defebts of that really not flown through until it really the following quarter. In terms of their resets, it all vary. It's depending on the bar or so.
Speaker Change: Usually it's that of month-end, but we haven't recently shipped yet in terms of the terms of the contracts from 3-to-1, just given the race this reason we're moving.
David Jusel: and David Jusel.
I was just gonna say just to hit it really hard on the head and put some math around it. I mean, so there's been a 70 days point decline in three months so far from Q2 to Q3. We've seen about 10 days as points of that.
and it's probably just important to highlight in our two product disclosure so that people can do the math. Every hundred basis point reduction.
and so far results in a three-cent quarterly reduction for us. So the good news is people can see there's a lot of cushion.
David Jusel: Reload to to our dividend, which was very purposeful and intentional, because we knew that eventually rates were going to decline.
and we've operated through lots of different rates in great environments that have been our history and feel good about the ability to continue to do so.
and then coming to the solar point, it looks this quarter like new onboarded, not really financed on the research, but new portfolio companies onboarded for certainly spreads looked like there were some 500.
Speaker Change: and I mean you've talked about spread compression before. That seems like I mean that's the lowest I can.
Speaker Change: and a decade. I mean, is there something you need to talk about this important? Or is that stress compression not just there but getting worse? Can you give us any thoughts on that?
Speaker Change: Yeah, I mean, I think it looks, spreads we've said this last drink call of coming at least a hundred basis points. Jan, this year, right from the beginning of this year towards, you know, the finish as we come up upon it.
They're plenty of large cap, Unitronch is getting done with fours, but you know, middle market deals are not. So I just say the range is generally kind of a four-fit, it's kind of a four-fifty to five-fifty market, depending on quality of credit size of company, etc.
Speaker Change: which when you consider the base rate, plus this bread in the feed is still getting you a pretty attractive gross unlevered return on the asset in our opinion. So when I said this in an answer earlier, when the economy demonstrates strength and the portfolios in good shape.
Speaker Change: People, uh, areas included, sealed comfortable.
Speaker Change: He returns good at modestly.
Speaker Change: and I don't see it continuing. Well, that's an important point, which is why I think they have actually stabilized. We've simply been to spread stabilized this past quarter.
and the relative to the prior quarters, where there was consistent decline. So I think that's an important point.
Speaker Change: and then it keeps falling around looking at the absolute return. Again, relative to our historical experience, we're still getting 10% on seeing your debt at levels levels that are well below historical averages. So I think on an absolute basis, we're still feeling pretty good.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: We'll take our next question from Doug Harder with UBS. Please go ahead, your line is open.
Speaker Change: The End.
Speaker Change: and Doug your phone may be there, Doug.
Speaker Change: Thank you.
Speaker Change: The End
Speaker Change: Moving on, we'll take our next question from Candace Lee with RBC Capital Markets. Please go ahead, your plan to start.
Candace Lee: Hey, good afternoon. Thanks for taking my question. Just in terms of the portfolio there.
Candace Lee: Looks like average coverage has ticked up to a point of time. This wondering...
Speaker Change: Do you still expect a pick-up in the car losses across the industry or are things that's getting much better, especially with them?
Speaker Change: and the potential way that'll look their effects.
Speaker Change: Thanks. I was forecasting frankly, the things we get worse in the gut. I see it currently is stable, right?
Speaker Change: and Barry Lohnonic rules is a percentage of the portfolio, both on a fair value and cost basis.
Speaker Change: When we look at sort of the watch-less name, ones and twos, you know, again, the count is...
has been pretty consistent. So at this point, for me, it's a little bit difficult to predict. I guess we'll see what the economy does and we'll see what trajectory of rate.
Speaker Change: D-Creases, like we are. But I see it as a pretty stable picture. I don't see it. And increase in default, I don't see things also materialy getting much better than this. They're pretty good from a credit quality perspective today when you look against this Oracle numbers.
Speaker Change: Gotcha.
Speaker Change: and just in terms of just a little bit of housekeeping, any color around the minactivity scene in the quarter and as well, you know, any kind of revolver facility just raw down so that you want to, you know, pilot, thanks.
Speaker Change: I'll be saying, and then my activity has been
Speaker Change: and the very stable, if not even a little bit later than normal. And then on the revolver drop point, the revolver drawings, the revolver draws at our portfolio companies have actually gone down to the squader, though she's prior quarters, so liquidity at our borrowers field healthy.
Speaker Change: Gotcha, and I helpful there. Thanks again.
Speaker Change: and then we'll take our next question from Mark Hughes with Truth. Please go ahead. Your line is open.
Mark Hughes: Yeah, thank you. Good afternoon. Engsets in the fourth quarter. There's a chunk that one of an IVL but looked like the net activity was still negative. How do you see that playing out for the full quarter?
Speaker Change: I think you just talked about the post-quartering activity. It's 24 days. I think it's not a good one. Yeah, I wouldn't read too much into that as you mentioned, 450 million of the exits were shelf IDL. Obviously, like you pointed out still a net negative number, but the backlog we disclose being, you know, in mid to billion dollar level, we feel good about the long-illactivity out there.
Speaker Change: and the improvement in interest coverage. That largely the lower portfolio yield, there's some improvement in the...
Speaker Change: I think he did that with down a little bit sequentially the test though.
Speaker Change: [inaudible]
Chris Kort: and Chris Kort.
Speaker Change: and Matt, as well as the modest rate to Kort.
Speaker Change: and then I didn't want to ask Jim Miller any plan to improve the 20-year process that's been put in place.
Speaker Change: It's really difficult to come in after 20 years and improve something that's been run this well, don't you?
Speaker Change: and that is what you've been here for at 18,000, it's one. Yeah, the first two years I was not here, so I think you take a little credit on it. But now I'm very excited to be part of the team, closer working with ARCC, but this is a great business for the great team.
Speaker Change: Nothing exciting for my end.
Speaker Change: And as a reminder, if you'd like to ask a question today, please press the star and one on your telephone keypad.
Speaker Change: We'll take our next question from Paul Johnson with KBW. Please go ahead, your line is open.
Speaker Change: Thank you for taking my questions and graphic them over 20 years, it's called the Upgrade.
Speaker Change: on the spread confessions that you've kind of seen this year. Has that also impacted structuring these at all for new deals or is it just...
Speaker Change: and give a little too early to tell, we're still kind of waiting on them and in every cup of it.
Speaker Change: I think you have to take it all together and say, you know, borrowers are looking at the all-in-cost of financing fees, the base rate, and obviously spreads.
Speaker Change: He, you know, a little bit of pressure on fees too, and the same way we've seen some pressure on spreads. We'll see where it goes from here. I don't think we have anything to take away, but yeah.
Speaker Change: and the Kort Schnabel, and then on just one line emergency communications.
Speaker Change: and Salmet that was removed from not a cool from last quarter. I'm sorry to me, I guess on the resolution there, that still in the Kortfolio over a step in, thanks to the delay at this point.
Speaker Change: It's been fully egg-related from the PortSoul.
Speaker Change: I think that last question is, I mean, in terms of inflation, I guess what do you see kind of from your broader observation, or fully, I mean, if we kind of last the worst point of inflation if this line had been.
Speaker Change: and some of the remains, you know, persistent and it seems to be a story that doesn't completely go away, you know, just kind of wondering just that the higher inflation outlook to the control, how come most the election?
Speaker Change: We think it's moderated a lot. I mean, if you follow us from Kortner to Kortner.
Speaker Change: You know, it's been a theme that we actually had talked about and something that was very evident in our portfolio as far back as probably the third.
Speaker Change: Much more normalized than I go forward basis.
Speaker Change: Thanks for joining me.
Speaker Change: We'll take our next question from Derek Hewitt with Bank of America. Please go ahead, your land is open.
Derek Hewitt: Good afternoon, everyone, and reiterate the congratulations on the successful 20 years. My question is, how to deal with with PIC. So it's been stable about 15% of revenue the past few quarters.
Speaker Change: The first one of my questions is do you think PIC has peaked at these levels and more importantly than that?
Speaker Change: What percentage of tick was just temporarily built into the original deal that kind of give the borrow some additional flexibility versus kind of tick related to any sort of borrow liquidity issues?
Speaker Change: Yeah, and I thank you. I think...
Speaker Change: You know this, but for others who...
Speaker Change: who may not think about it quite the same way. We do a fair amount of junior capital investing at this company and we think we do a quite well. And the portion of that is particularly in a higher interest rate environment, being able to structure deals to have thick components.
Speaker Change: That's why we wouldn't business in a lot of these circumstances, and we're doing them in what we think are really high quality companies that simply are needing to...
Speaker Change: A just to the higher rate environment in having less cash on hand.
Speaker Change: So the answer to your question is most of the taking come is by choice as I describe it not as a conception.
Speaker Change: for portfolio company under performance. Yeah, it's very different from obviously where we were in 2000, where most of it was coming, is a concession to companies that weren't open and weren't generating cash. But I think a lot, you know, in the BBC world is made of...
Speaker Change: We spent a lot of time looking at the numbers and the number that I look at is just what percentage of your total interest in dividend income is, is tip, right?
Speaker Change: and the number that I'm looking at for this quarter.
Speaker Change: for the company's down pretty substantially from 2020-2021 and 2022. So, it just doesn't give me a significant amount of concern.
Speaker Change: Today, because again most of this is by choice and part of our investment philosophy and I think.
Speaker Change: has been one of the reasons we've been getting able to generate such significant RRWs in frankly this company relative to some of the competition. And we actually did disclose it our investor day and it still holds true today, 90% of our pick.
Speaker Change: in Com was structured at the time of the investment. First, only 10% which is amendment, amendment oriented pick.
Speaker Change: Okay, thank you for that. And then my follow-up question is, are there any, for lack of a better term, like credit blind spots that investors need to kind of pay attention to within the sector just given the surprisingly strong trends that we continue to see within the middle market?
Speaker Change: I think the one that everyone who is misses is a lack of diversification.
Speaker Change: It's not something that we get enough credit for, this company was 500 plus portfolios. We're not exposed to a single name.
Speaker Change: and you've seen over time that we've had some...
Speaker Change: Credit Problems, losses, whatever it may be, but over a 20 year history investing in 4,000 companies to diversification is actually pretty big deal. And what you'll see, we get asked questions about what happens. What happened to this portfolio company at the end of the day most of the time it doesn't matter?
Speaker Change: and the company's available to generate really real consistent results for a long period of time, which is why we really don't comment very often on single-name risks because we don't believe the company actually has any.
Speaker Change: Great, thank you.
Speaker Change: Actually question.
Speaker Change: In this concludes our question and answer session. I'd like to turn the conference call back over to Mr. Kipp DeVeer for any closing remarks.
Kipp deVeer: Nothing is usual, other than thanks for attending the call and we will catch you next quarter of a great day.
Speaker Change: Ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call and our category play, I'm sure you'll be very good.
Kipp deVeer: of Proximately one hour after the end of the call through November 30th at 5 p.m. Eastern Time.
Kipp deVeer: to domestic callers by dialing 1-800-839-5127, and to international callers by dialing plus 1-402-2202692.
Kipp deVeer: and Arcavde Replay will also be available on a webcast link located at the homepage of the investor resources section of the Aries Capital website.
Speaker Change: Thank you for your participation and you may now disconnect.
Speaker Change: Good bye.
Speaker Change: The