Q4 2024 Ares Capital Corp Earnings Call

Unknown Executive: Good afternoon, and welcome to Ares Capital Corporation's fourth quarter and year ended December 31, 2024 earnings conference call. At this time, all participants are in a listen-only mode.

Good afternoon, and welcome to Ares Capital Corporation's fourth quarter and year ended December 31st 2024 earnings Conference call.

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

Unknown Executive: As a reminder, this conference is being recorded on Wednesday, February 5th, 2025.

As a reminder, this conference is being recorded on Wednesday February 5th 2025, I will now turn the call over to Mr. John Steele Mara partner of Ares Public markets Investor Relations. Please go ahead.

John Stilmar: I will now turn the call over to Mr. John Stilmar, partner of Ares Public Markets Investor Relations.

Unknown Executive: Great. Thank you very much.

Speaker Change: Great. Thank you very much 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 and are subject to risks and uncertainties. The company's actual results could differ materially from those expressed in such forward looking.

Unknown Executive: 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 and are subject to risks and uncertainties. The company's actual results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in its SEC filing. assumes no obligation to update any such forward-looking statements.

Speaker Change: For any reason, including those listed in its SEC filings.

Speaker Change: Ares Capital Corporation assumes no obligation to update any such forward looking statements. Please also note the top performance or market information is not a guarantee of future results.

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

Unknown Executive: During this call, the company may discuss certain non-GAAP measures defined by SEC Regulation G, such as core earnings per share, or core EPS. The company believes that core EPS provides useful information to investors regarding the financial information because it's one method the company uses to measure its financial results and conditions. 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. In addition, reconciliation of these measures may also be found in our earnings release filed this morning at the SEC on Form 8.

Speaker Change: During this call the company may discuss certain non-GAAP measures as defined by SEC regulation G such as core earnings per share or core EPS.

Speaker Change: Company believes that core EPS provides useful information to investors regarding the financial information because it's one method. The company uses to measure its financial results and condition.

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.

Speaker Change: In addition reconciliation of these measures may also be found in our earnings release filed this morning, the SEC on form 8-K.

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

Speaker Change: Certain information discussed in this conference call and the accompanying slide presentation, including information relating 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.

Unknown Executive: The company's fourth quarter and year ended December 31st, 2024 earnings presentation can be found on the company's website at www.arescapitalcorp.com by clicking on the fourth quarter earnings presentation on the homepage of the Investor Resources section. earnings release and Form 10-K are also available on the company's website.

Speaker Change: The company's fourth quarter and year ended December 31, 2024 earnings presentation can be found on the company's website at Www Dot Ares capital Corp, Dot com by clicking on the fourth quarter earnings presentation on the homepage of the Investor Resources section.

Speaker Change: Capital Corporation earnings release, and Form 10-K are also available on the company's website.

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

Speaker Change: Now I'll turn the call over to Mr. Kipp do here Ares Capital Corporation's Chief Executive Officer Kip.

Kip DeVeer: Kip? Thanks so much, John.

John: Thanks, so much John.

Kip DeVeer: Hello, everyone, and thanks for joining our earnings call today. I'm joined by Kort Schnabel, our newly announced CEO, Jim Miller, our co-president, Jana Markowicz, our chief operating officer, and Scott Lem, our chief financial officer, as well as other members of the management team who will also be available during our Q&A session.

John: Hello, everyone and thanks for joining our earnings call today.

Speaker Change: I'm joined by Court Schnabel, our newly announced CEO, Tim Miller, our co President Jay Markowitz, our Chief operating Officer, and Scott Lang, Our Chief Financial Officer as well as other members of the management team, who will also be available during our Q&A session.

Speaker Change: Before the team discusses our fourth quarter and full year results I wanted to discuss the leadership changes that were announced this morning.

Kip DeVeer: Before the team discusses our fourth quarter and full year results, I want to discuss the leadership changes that were announced this morning. As you may have seen from our press release this morning, Kort Schnabel has been named as our new Chief Executive Officer, effective April 30th. who joined Ares in 2001, is a widely respected and tenured executive at Ares with extensive leadership and private credit experience. As a founding member of Ares' U.S. direct lending strategy back in 2004, Kort has been instrumental to the success and growth of the U.S. direct lending platform, which has driven the successful long-term track record at Ares Capital.

Speaker Change: As you may have seen from our press release. This morning, CT Schnabel has been named as our New Chief Executive Officer effective April 30th.

Or: Or who joined areas in 2001 is a widely respected and tenured executive at areas with extensive leadership and private credit experience.

Or: As a founding member of Aries is U S direct lending strategy back in 2004 quarters has been instrumental to the success and growth of the U S. Direct lending platform, which is tripling the successful long term track record at Ares capital.

Kip DeVeer: Elevating Kort to CEO is a natural progression, given his many past contributions and our confidence in his future leadership.

Or: Elevating court to CEO is a natural progression given his many past contributions and our confidence in its future leadership.

Kip DeVeer: In connection with this appointment, and considering my new responsibilities at Ares Management, which were announced this morning, I will be stepping down as the CEO of Ares Capital Corporation at the end of April. I will, however, remain actively involved with the company, both as a member of the ARCC Board of Directors and the Ares U.S. Direct Lending Investment Committee. Jim Miller, who currently serves as a co-president of Ares Capital, alongside Mr. Schnabel, will continue as the sole president of the company. These changes reflect the natural evolution in the leadership at Ares, and we're very fortunate to have such a deep and committed team.

Or: In connection with disappointment and considering my new responsibilities at Ares management, which were announced this morning, I will be stepping down as the CEO of Ares Capital Corporation at the end of April.

Or: I will however remain actively involved with the company both as a member of the ARCC Board of directors and the areas U S direct lending investment Committee.

Or: Jim Miller, who currently serves as the co president of Ares capital alongside Mr. Schnabel will continue as the sole president of the company.

Or: These changes reflect the natural evolution in the leadership at Ares and we're very fortunate to have such a deep and committed team.

Kip DeVeer: Over the past decade as CEO, it's been a great privilege working day to day with the entire team that has driven all of the success of ARCC. During this roughly 10 year period, the company has paid over 40 quarters of steady or increasing dividends. increased book value per share by over 20% and generated $500 million of realized gains in excess of realized loss. This investing success has led to a stock-based total return for our investors of nearly 14% per annum, outperforming the S&P 500, the S&P 500 Financials Index, and the KBW Bank Index over that period.

Or: Over the past decade as CEO, it's been a great privilege working day to day with the entire team that has driven all of the success of ARCC.

Or: During this roughly 10 year period, the company has paid over 40 quarters of steady or increasing dividends.

Or: <unk> increased book value per share by over 20% and generated $500 million of realized gains in excess of realized losses.

Or: This is investing success has led to a stock based total return for our investors of nearly 14% per annum.

Or: Performing the S&P 500, yes in PS 500 financials index and the K VW Bank index over that period.

Kip DeVeer: And when compared to other yield-oriented investments available to shareholders, we've generated more than 300 basis points per annum about performance when compared to the ETFs for utility and REIT stocks and for mortgage I'm confident that Kort and the broader Ares Capital leadership team, which averages 20 years of experience at the company, will continue to execute strongly for our shareholder. can't think of a better, more capable leader for the next chapter.

Or: And when compared to other yield oriented investments available to shareholders. We've generated more than 300 basis points per annum about performance when compared to the Etfs for utility in REIT stocks and for mortgage Reits.

Or: I'm confident the court and the broader Ares capital leadership team, which averages 20 years of experience that the company will continue to execute strongly for our shareholders.

Or: Can't think of a better more capable leader for the next chapter.

Kip DeVeer: And before turning the call over to court for some additional comments on our company's successful 2024, I do want to acknowledge the tragic impact that we've witnessed from the wildfires that have spread across the Los Angeles area. This tragedy has unfortunately impacted the lives of many of our clients and colleagues, and our thoughts are with them and their loved ones during this challenging time. Ares is working diligently to support them and the entire area in the recovery.

Court Schnabel: And before turning the call over to court for some additional comments on our company's successful 2024, I do want to acknowledge the tragic impact that we've witnessed from the wildfires that are spread across the Los Angeles area.

Speaker Change: This tragedy has unfortunately impacted the lives of many of our clients and colleagues and our thoughts are with them and their loved ones. During this challenging time Eric.

Court Schnabel: Aries is working diligently to support them and the entire area and their recovery.

Kort Schnabel: Let me now turn the call over to Kort. Thank you, Kip, and I certainly look forward to continuing to work with you, our executive team, and the other members of the ARCC board in the years to come. So let me start by providing a few thoughts on current market conditions, ARCC's performance, and our outlook heading into 2025. As our earnings release outlines, our fourth quarter results concluded another strong year for ARCC with continued healthy credit performance at our underlying portfolio companies and a well-positioned balance sheet. We are positioned with significant available capital that should benefit us as we look for an increase in activity in 2025.

Court Schnabel: Let me now turn the call over to court.

Court Schnabel: Thank you kept and I certainly look forward to continuing to work with you our executive team and the other members of the ARCC board in the years to come.

Court Schnabel: So let me start by providing a few thoughts on current market conditions, Arcc's performance and our outlook heading into 2025.

Court Schnabel: As our earnings release outlines our fourth quarter results concluded another strong year for ARCC with continued healthy credit performance in our underlying portfolio companies.

Court Schnabel: Well positioned balance sheet.

Court Schnabel: We are positioned with significant available capital that should benefit us as we look for an increase in activity in 2025.

Kort Schnabel: We also ended 2024 with record NAV per share of $19.89. The growth in NAV per share in the fourth quarter was the eighth consecutive quarter of NAV growth, which continued our long term trend of ARCC delivering among the strongest total returns as measured by dividends plus NAV per share growth as compared to our BDC peers.

Court Schnabel: We also ended 2024 with record NAV per share of $19.89.

Court Schnabel: Our growth in NAV per share in the fourth quarter was the eighth consecutive quarter than a V gross which continued our long term trend at ARCC delivering among the strongest total returns as measured by dividends plus NAV per share growth as compared to our BDC peers.

Kort Schnabel: in addition to our positive NAV profile. 2024 was another year where our strong results were supported by the benefits of our well-established platform, industry-leading scale, deep incumbent positions, and differentiated strategy covering the broader middle market. Despite a historically subdued M&A environment in 2024, and counter to many others in the direct lending market, we achieved one of the most active origination years in our company's history. We continue to see the total return opportunity in today's market as highly attractive, with significant equity cushions supporting our debt investments and a healthy total yield premium to the liquid loan market.

Court Schnabel: In addition to our positive performance in 2024 was another year, where our strong results were supported by the benefits of our well established platform and industry leading scale.

Court Schnabel: Keep incumbent positions and differentiated strategy covering the broader middle market.

Court Schnabel: Despite a historically subdued M&A environment in 2024 and counter to many others in the direct lending market. We achieved one of the most active origination years in our company's history.

Court Schnabel: We continue to see the total return opportunity in todays market is highly attractive with significant equity cushion supporting our debt investments and a healthy total yield premium to the liquid loan market.

Kort Schnabel: During 2024, we reviewed a record volume of new opportunities totaling more than $650 billion. And the number of potential investments we evaluated during the year grew each quarter on a year over year basis. Given the strength of our pipeline, we were also able to generate a record level of new commitments, net of repayments, which totaled $5 billion for the year. As many of you know, our philosophy has been to out originate our competition, which we believe is a key driver of long term credit performance. While ARCC had a record year in both the estimated dollar value of transactions we reviewed and in ARCC's net new originations, we still remained highly disciplined in terms of credit selection.

Court Schnabel: During 2024, we reviewed a record volume of new opportunities totaling more than $650 billion and the number of potential investments we evaluated during the year grew each quarter on a year over year basis.

Court Schnabel: Given the strength of our pipeline. We were also able to generate a record level of new commitments net of repayments, which totaled $5 billion for the year.

Court Schnabel: As many of you know our philosophy has been to out originate our competition, which we believe is a key driver of long term credit performance.

While <unk> had a record year in both the estimated dollar value of transactions, we reviewed and in Arcc's net new originations, we still remain highly disciplined in terms of credit selection.

Kort Schnabel: Our overall selectivity rate remained in the mid-single digits for 2024, consistent with our long-term average since our inception more than 20 years ago. A key driver of Originations during 2024 has been our growing wallet share with incumbent borrowers. As we have discussed in the past, we believe financing incumbent borrowers can provide attractive risk-adjusted returns as our tenure with these borrowers gives us many advantages when making incremental investment decisions. In 2024, over 70% of our new commitments were to existing borrowers, and importantly, we are increasingly being asked to provide a larger portion of our borrowers overall capital structure.

Court Schnabel: Our overall selectivity rate remained in the mid single digits for 2024, consistent with our long term average since our inception more than 20 years ago.

Court Schnabel: A key driver of originations during 2024 has been our growing wallet share with incumbent borrowers.

Court Schnabel: As we have discussed in the past, we believe financing incumbent borrowers can provide attractive risk adjusted returns as our tenure with these borrowers gives us many advantages when making incremental investment decisions.

Court Schnabel: In 2020 for over 70% of our new commitments were to existing borrowers.

Court Schnabel: And importantly, we are increasingly being asked to provide a larger portion of our borrowers overall capital structures.

Kort Schnabel: As an illustration, our share of the overall financings for our top 10 largest incumbent borrowers more than doubled in each of the past three quarters. In addition to these sourcing advantages, our focus on non-cyclical, high-free cash flow businesses continues to drive strong credit results. As Jim will discuss later, we continue to believe our diversification and industry selection have contributed to ARCC's strong credit performance in comparison with other BDCs. Through our time-tested underwriting processes, highly selective approach, and focus on incumbent borrowers, we have been able to avoid many of the problems that have driven recent increases in non-accruals in the BDC space.

I think illustration our share of the overall financings for our top 10 largest incumbent borrowers more than doubled in each of the past three quarters.

Court Schnabel: In addition to these sourcing advantages our focus on non cyclical high free cash flow businesses continues to drive strong credit results.

Court Schnabel: As Jim will discuss later, we continue to believe our diversification and industry selection have contributed to Arcc's strong credit performance in comparison with other bdcs.

Court Schnabel: Our time tested underwriting processes highly selective approach and focus on incumbent borrowers we have been able to avoid many of the problems that have driven recent increases in non accruals in the BDC space.

Kort Schnabel: Our non-accrual rates continue to be below our own and peer group historical averages, and the underlying growth in our portfolio companies continues to be strong. Specifically, the Organic Weighted Average LTM EBITDA growth rate of our portfolio companies reached 11% in the fourth quarter, which increased from 10% the prior quarter and 9% at year-end 2023. In comparison, the average LTM EBITDA growth of the leveraged loan market in 3Q 2024 reached a three and a half year low, less than 1%. Although our portfolio is performing very well, we are carefully monitoring for potential impacts from changes in new government policy.

Court Schnabel: Our non accrual rates continued to be below our own peer group historical averages and the underlying growth in our portfolio companies continues to be strong.

Court Schnabel: Specifically, the organic weighted average LTM EBITDA growth rate of our portfolio companies reached 11% in the fourth quarter, which increased from 10% in the prior quarter and 9% at year end 2023.

Court Schnabel: In comparison, the average LTM EBITDA growth of the leveraged loan market in <unk> 2024 reached a three and a half year low less than 1%.

Court Schnabel: Although our portfolio is performing very well, we are carefully monitoring for potential impacts from changes in new government policies.

Kort Schnabel: Given what we have seen from the early actions of the new administration, we don't currently expect any material direct impact to our portfolio from new government policy. But this new regime will be worth watching in terms of policy changes, and we will be sure to be thoughtful and vigilant about any material changes to the landscape for direct lending.

Court Schnabel: Given what we've seen from the early actions of the New administration. We don't currently expect any material direct impact to our portfolio from new government policies.

Court Schnabel: But this new regime will be worth watching in terms of policy changes and we will be sure to be thoughtful and vigilant about any material changes to the landscape for direct lending.

Kort Schnabel: We've also had a very successful year executing on our balance sheet initiative. As Scott will describe in more detail, our competitive advantages and our long-term track record helped us secure ratings upgrades from two of the major credit rating agencies throughout the year, making ARCC the highest rated BDC amongst the three major rating agencies. We have further added to our deep sources of liquidity and are levered at just below one times net debt to equity, providing significant flexibility to support our ability to invest. Looking ahead, we expect a healthy economy combined with increasing pressure on private equity sponsors to seek liquidity and a growing confidence from executives to support an accelerating M&A environment in 2025.

Court Schnabel: We've also had a very successful year executing on our balance sheet initiatives.

Court Schnabel: Scott will describe in more detail, our competitive advantages and our long term track record helped us secure a ratings upgrades from two of the major credit rating agencies throughout the year, making ARCC the highest rated BDC amongst the three major rating agencies.

Court Schnabel: We have further added to our deep sources of liquidity and our leverage at just below one times net debt to equity providing significant flexibility to support our ability to invest.

Court Schnabel: Looking ahead, we expect a healthy economy combined with increasing pressure on private equity sponsors to seek liquidity and a growing confidence from executives to support an accelerating M&A environment in 2025.

Kort Schnabel: It stands to reason that with the increasing importance of direct lending in the market, which continues to finance the majority of LBOs, overall direct lending volumes will follow. While our market remains competitive, we believe our position as the largest publicly traded BDC, managed by the largest global direct lending platform, provides meaningful advantages in sourcing, underwriting, and risk management. I'm very proud of what our team accomplished in 2024 and believe we are well positioned for a successful 2025 and beyond.

Court Schnabel: It stands to reason that with the increasing importance of direct lending in the market, which continues to finance the majority of L. B S. Overall direct lending volumes will follow suit.

While our market remains competitive we believe our position as the largest publicly traded BDC managed by the largest global direct lending platform provides meaningful advantages in sourcing underwriting and risk management.

Court Schnabel: I'm very proud of what our team accomplished in 2024 and believe we are well positioned for a successful 2025 and beyond.

Scott Lem: I will now turn the call over to Scott to take us through more details on our financial results and balance sheet. Thanks, Kort. This morning, we reported gap in income per share of $0.55 for the fourth quarter of 2024, compared to $0.62 in the prior quarter and $0.72 in the fourth quarter of 2023. For the year, we reported gap in income per share of $2.44. compared to $2.75 for 2023. We also reported coronies per share at $0.55 for the fourth quarter of 2024 compared to $0.58 in the prior quarter and $0.63 in the fourth quarter of 2023.

Court Schnabel: I will now turn the call over to Scott to take us through more details on our financial results and balance sheet.

Scott Lang: Thanks Court. This morning, we reported GAAP net income per share of <unk> 55 for the fourth quarter of 2024 compared to 62% from the prior quarter and 72 cents in the fourth quarter of 2023.

Scott Lang: For the year, we reported GAAP net income per share of $2.44 compared to $2 75 for 2023.

Scott Lang: We also reported core earnings per share at <unk> 55 for the fourth quarter of 2024.

Scott Lang: Compared to 58 cents in the prior quarter and 63 cents in the fourth quarter of 2023.

Scott Lem: Our decline in core earnings was largely driven by the impact of the decline in yields from the portfolio as base rates at the end of the year were nearly 100 basis points lower than where they were at the end of 2023. As you may recall from our last earnings call, there's typically up to a one quarter lag between the full quarter impact to interest income from the changes in period and yields that we report for the most recent quarter. Simply put, the impact from the changes in the portfolio yields during the third quarter were the primary driver of a sequential change in our core earnings for the fourth quarter.

Scott Lang: Our decline in core earnings was largely driven by the impact of the declining yields.

Scott Lang: Portfolio as base rates at the end of the year were nearly 100 basis points lower than where they were at the end of 2020 three.

Scott Lang: As you May recall from our last earnings call. There is typically up to a one quarter lag between the full quarter impact to interest income from the changes in peer yen yields that we report for the most recent quarter.

Scott Lang: Simply put.

Scott Lang: Impact from the changes in portfolio yields during the third quarter with a primary driver of the sequential change in our core earnings for the fourth quarter.

Scott Lem: While the market sentiment on future interest rates has generally changed to a higher-for-longer sentiment since the end of the third quarter, market base rates did decline approximately 30 to 50 base depending on whether comparing the change in one month or three months so far during the fourth quarter. As such, the change in our fourth quarter portfolio yields were impacted by this change in market rates and, to a lesser extent, a higher mix of first-ling loans in the portfolio in the fourth quarter as compared to the third. While our floating rate portfolio will be impacted by the full quarter impact of the most recent base rate decline.

Scott Lang: While the market sentiment on future interest rates has generally change to a higher for longer sentiment.

Scott Lang: In the third quarter.

Scott Lang: Market based rates did decline approximately 30 to 50 basis points, depending on what their companion and change of one month or three months ofer during the fourth quarter.

Scott Lang: As such the change in our fourth quarter portfolio yields were impacted by this change in market rates and to a lesser extent a higher mix of first lien loans in the portfolio in the fourth quarter as compared to the third.

Scott Lang: While our floating rate portfolio will be impacted by the full quarter impact of the most recent base rate declines. We also stand to benefit from these same rate declines in our interest expense as it relates to our floating rate debt obligations.

Scott Lem: We also stand to benefit from these same rate declines in our interest expense as it relates to our floating rate debt obligation. Turning to the balance sheet, our total portfolio at fair value at the end of the quarter was $26.7 billion, up from $25.9 billion at the end of the third quarter and up from $22.9 billion a year ago. The weighted average yield on our debt and other income producing securities at amortized costs was 11.1% at December 31st, which was down from 11.7% at September 30th and 12.5% at the end of 2022. Our total weighted average yield on total investments at amortized cost was 10%.

Scott Lang: Turning to the balance sheet, our total portfolio at fair value at the end of the quarter was $26 7 billion.

Scott Lang: From $25 9 billion at the end of third quarter.

Scott Lang: And up from $22 9 billion a year ago.

Scott Lang: The weighted average yield on our debt and other income producing securities at amortized cost was 11, 1% at December 31st which was down from 11, 7% at September 30th and 12, 5% at the end of 2023.

Scott Lang: Our total weighted average yield on total investments at amortized cost was 10%.

Scott Lem: which compares 10.7% a quarter ago and 11.3% a year ago. Our stockholders' equity ended the quarter at $13.4 billion, or $19.89 per share. Another wreck-a-hia for us, as Kort noted earlier in the call.

Scott Lang: Which compares to 10, 7% a quarter ago.

Scott Lang: And 11, 3% a year ago.

Our stockholders' equity ended the quarter at $13 4 billion or $19 89 per share.

Scott Lang: Another record high for US at Court noted earlier in the call.

Scott Lem: Before giving an update on our capitalization liquidity, let me start by highlighting the notable accomplishments related to our credit ratings during the year. At the end of November, S&P upgraded the issuer credit and senior unsecured ratings for Ares Capital to BBB from BBB minus. If you recall, this is on the heels of Moody's. recently upgraded the long-term issuer and senior unsecured ratings for Ares Capital to BWA-2 from BWA-3 at the end of September. Along with the existing BBB rating and a positive outlook from Fitch, this clearly differentiates Ares Capital as the highest credit rated BDC, which we believe will allow us to continue enjoying best-in-class funding costs and potentially increased debt capacity over time.

Scott Lang: Before giving you an update on our capitalization liquidity, let me start by highlighting a notable accomplishments related to our credit ratings during the year.

Scott Lang: At the end of November S&P upgraded the issuer of credit and senior unsecured ratings for Ares capital to Triple B from Chipotle minus.

Scott Lang: If you recall this is on the heels of Moody's recently upgraded our long term issuer and senior unsecured ratings various capital to be that way too from beta one three at the end of September.

Scott Lang: Along with the existing Triple B rating and a positive outlook from Fitch. This clearly differentiate Ares capital has our highest credit rated BDC, which we believe will allow us to continue enjoying best in class funding costs and potentially increase that capacity overtime.

Scott Lem: Let me update you on our recent debt capital activity since our last call. For the first time as a firm mid triple B issuer, we opened a new year with a one billion dollar unsecured notes issuance that matures in March 2032 and price it is spread to treasuries of 150 basis points for an all in coupon of 5.8 percent. We did swap the news issuance to SOFR plus 170 basis points, which is well inside of the weighted average spread on our floater rate debt of one hundred ninety seven basis. as of December 31. Overall, we were certainly pleased to capitalize on some very favorable issuer dynamics with a longer tenor issuance at an issuance spread that was tied for our lowest new issue spread in our history, regardless of tenor.

Scott Lang: Let me update you on our recent debt cap of activities since our last call for the first time as a firm mid Triple B issuer, we opened the new year with a $1 billion unsecured notes issuance that matures in March 2032, and priced at a spread to treasuries of 150 basis points for an all in coupon.

Scott Lang: Five 8%.

Scott Lang: We did swap the notes issuance to sell for a plus 170 basis points, which is well inside of the weighted average spread on our floating rate debt of 197 basis points as of December 31.

Scott Lang: Overall, we were certainly pleased to capitalize on some very favorable issuer dynamics with a longer tenure issuance at an issuance spread that was tied for our lowest nishu spread in our history regardless of tenor.

Scott Lem: Our overall equity position remains strong with nearly $6.7 billion of total available liquidity, including available cash on a pro forma basis for our recent unsecured notes issue. This positions us well ahead of the upcoming $600 million of notes maturing in March and the $1.25 billion of notes maturing in July. In terms of our leverage, we ended the fourth quarter with debt-to-equity ratio net available cash of 0.99 times, down from the 1.03 times a quarter ago. We believe our significant amount of dry powder positions us well to continue supporting our existing portfolio of company equipments, as well as new investing activities.

Scott Lang: Our overall liquidity position remains strong with nearly $6.7 billion of total available liquidity, including available cash on a pro forma basis for our recent.

Scott Lang: Our recent unsecured notes issuance.

Scott Lang: This positions US well ahead of the upcoming $600 million of notes maturing in March.

Scott Lang: And the $1 5 billion of notes maturing in July.

Scott Lang: In terms of our leverage we ended the fourth quarter with debt to equity ratio net of available cash at <unk> 99 times down from the one point is around three times a quarter ago.

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

Scott Lang: <unk> as well to continue supporting our existing portfolio company.

Scott Lang: As well as new investing activities.

Scott Lem: Moving on to our dividend, we declared a first quarter 2025 dividend of 48 cents per ARFCC has been paying stable or increasing regular quarterly dividends for over 15 consecutive years. This dividend is payable on March 31st, 2025 to stockholders or regular on March 14th and is consistent with our fourth quarter 2024 dividend. In terms of our taxable income spillover, we currently estimate we will have $922 million, or $1.37 per share, available for distribution to stockholders in 2025. In addition to our 4th quarter earnings being well in excess of our current dividend, we believe the taxable income spillover is a significant differentiator for us in the BDC sector and helps provide further visibility and stability to our dividends.

Scott Lang: Moving onto our dividend, we declared our first quarter 2025 dividend of 48 per share.

Speaker Change: S E T. He hasn't paying stable or increasing regular quarterly dividends for over 15 consecutive years.

Speaker Change: This dividend is payable on March 31st 2025 to stockholders of record on March 14th and is consistent with our fourth quarter of 2024 dividend.

Speaker Change: In terms of our taxable income spillover. We currently estimate we will have $942 million or $1 37 per share available for distribution to stockholders in 2025.

Speaker Change: In addition to our fourth quarter earnings being law in excess of our current dividend. We believe the taxable income spillover is a significant differentiator for us in the BDC sector and help provide further visibility and stability to our dividend.

Jim Miller: I will now turn the call over to Jim to walk through our investment activity. Thank you, Scott. As previewed, I will provide some additional detail on our investment activity, our portfolio performance, and our positioning for the fourth quarter and the year.

Speaker Change: I will now turn the call over to Jim to walk through our investment activities.

Jim Miller: Thank you Scott and as previewed I'll provide some additional detail on our investment activity, our portfolio performance and our positioning for the fourth quarter and the year.

Jim Miller: I will then conclude with an update on our post-quarter end activity and backlog. In the fourth quarter, our team originated approximately $3.8 billion of new investment commitment. which is greater than a 50% increase over Q4 of 2023. This was a strong quarter and what was a very active year for the company in which we originated over 15 billion of new commitment. more than double the commitment volumes of 2023. In addition to our growing market share with our existing borrowers that Kort discussed previously, our strong origination results are supported by our differentiated approach in covering the broader mail market.

Jim Miller: I will then conclude with an update on our post quarter end activity and backlog.

Jim Miller: In the fourth quarter, our team originated approximately $3 8 billion of new investment commitments were.

Jim Miller: Which is greater than a 50% increase over Q4 of 2023.

Jim Miller: This was a strong quarter to end what was a very active year for the company in which we originated over $15 billion of new commitments more than double the commitment volumes of 2023.

Jim Miller: In addition to growing our growing market share with our existing borrowers that Cort discussed previously our strong origination results are supported by our differentiated approach and covering the broader middle market.

Jim Miller: Despite having what we believe is the highest level of deployment of any public BDC, the median EBITDA of our new investments during the year was approximately $70 million. About one-third of our new investments were to borrowers with EBITDA of less than $50 million. We believe Ares is the only direct lending platform of scale that actively focuses across the lower, middle, and upper middle market. This broad and differentiated coverage supports our ability to find what we believe are the best risk-adjusted returns while remaining highly selective. We believe that the lower middle market deals can provide 25 to 50 basis points of enhanced spread, despite lower leverage levels and stronger documents when compared to some of the upper middle market transactions being completed by our peers.

Speaker Change: Despite having what we believe is the highest level of deployment of any public BDC. The median EBITDA of our new investments during the year was approximately $70 million.

Speaker Change: About one third of our new investments were to borrowers with EBITDA of less than $50 million.

We believe areas is the only direct lending platform of scale that actively focuses across the lower middle and upper middle markets.

Speaker Change: This broad and differentiated coverage supports our ability to find what we believe are the best risk adjusted returns while remaining highly selective.

Speaker Change: We believe that the lower middle market deals can provide 25 to 50 basis points of enhanced spread despite lower leverage levels and stronger documents when compared to some of the upper middle market transactions being completed by our peers.

Jim Miller: Importantly, and further demonstrating our ability to successfully invest across the middle market, size is not a driver of portfolio performance in our portfolio, as companies in all size bands in our portfolio had similar EBITDA growth rates over the last 12 months. In fact, we believe with our scale and size, especially in that part of the market, we have the ability to establish points of incumbency to allow us the opportunity to grow with these companies for years to come. With respect to our portfolio, we ended the year with a $26.7 billion portfolio at fair value, which grew at 3% from the prior quarter and 17% from the prior year.

Speaker Change: Importantly, and further demonstrating our ability to successfully invest across the middle market size is not a driver of portfolio performance in our portfolio as companies of all size bands in our portfolio had similar EBITDA growth rates over the last 12 months.

Speaker Change: In fact, we believe with our scale and size, especially in that part of the market, we have the ability to establish points of incumbency.

Speaker Change: Allow us the opportunity to grow with these companies for years to come.

Speaker Change: With respect to our portfolio. We ended the year with a 26 $7 billion portfolio at fair value, which grew at 3% from the prior quarter and 17% from the prior year.

Jim Miller: In addition to expanding market share with our incumbent borrowers, our growth is supported by our ability to provide flexible capital solutions to a wide variety of new companies seeking a direct lending solution. This can be seen in the total number of companies in our portfolio, which reached 550 at year-end 2024, an increase from just over 500 a year ago.

Speaker Change: In addition to expanding market share with our incumbent borrowers.

Speaker Change: Our growth is supported by our ability to provide flexible capital solutions to a wide variety of new companies seeking a direct lending solution.

Speaker Change: This can be seen in the total number of companies in our portfolio, which reached 550 at year end 2024, an increase from just over 500 a year ago.

Jim Miller: An often overlooked point of differentiation for ARCC versus other BDCs is our high level of portfolio diversification. by maintaining small individual company position sizes of less than 0.2% of the portfolio on average. ARCC has been able to mitigate the impact of negative credit events in any one company or industry. Our non-accruals at cost ended the quarter at 1.7%, up 40 basis points from the prior quarter and year-end 2023. Despite this increase, the 1.7% metric remains well below our 2.8% historical average since the global financial crisis. This is also below the BDC historical average of 3.8% over the same time frame.

Speaker Change: And often overlooked point of differentiation for ARCC.

Speaker Change: As other bdcs as our high level of portfolio diversification.

Speaker Change: By maintaining small individual company position sizes of less than 2% of the portfolio on average.

Speaker Change: <unk> has been able to mitigate the impact of negative credit events in any one company or industry.

Speaker Change: Our non accruals at cost ended the quarter at one 7% up 40 basis points from the prior quarter and year end 2023.

Speaker Change: Despite this increase the 1.7% metric remains well below our 2.8% historical average since the global financial crisis.

Speaker Change: This is also below the BDC historical average of three 8% over the same timeframe.

Jim Miller: Our non-accrual rate at fair value also modestly increased to 0.9% from 0.6% last quarter. But this, too, continues to be well below our historical level. Our overall risk ratings remain stable throughout 2024, and the percentage of our portfolio at fair value in Grade 1 and 2 names ended the year at 2.9%, meaningfully down from 6.4% at year-end 2023. As a sign of additional strength in our portfolio, at the end of the fourth quarter, our weighted average loan-to-value was 44%, which we believe provides us with strong downside protection for our loans. This loan-to-value is also significantly below our 10-year average.

Speaker Change: Our non accrual rate at fair value also modestly increased two 9% from 6% last quarter.

But this two continues to be well below our historical levels.

Speaker Change: Our overall risk ratings remained stable throughout 2024.

Speaker Change: And the percentage of our portfolio at fair value and grade one and two names ended the year at 2.9% meaningfully down from six 4% at year end 2023.

Speaker Change: As a sign of additional strength in our portfolio.

Speaker Change: At the end of the fourth quarter, our weighted average loan to value was 44%.

Speaker Change: Which we believe provides us with strong down side protection for our loans.

Speaker Change: This loan to value is also significantly below our 10 year average.

Jim Miller: while our portfolio interest coverage ratio reached 1.9 times, up from 1.8 times the prior quarter and 1.6 times at year-end 2023.

Speaker Change: While our portfolio interest coverage ratio reached one nine times up from one eight times the prior quarter and one six times at year end 2023.

Jim Miller: Shifting to 2025, we've been busy, supported by what we believe are the early signs of a growing market activity for growth capital and M&A. Our total commitments through January 28, 2025 were $1.2 billion, approximately an 80% increase as compared to the commitments closed in January of last year. Also, our backlog as of January 28, 2025 stood at $1.8 billion, which is more than double Our reported backlog at February 1st of last year. As a reminder, our backlog contains investments that are subject to approval and documentation and may not close, or we may sell a portion of these investments post-close.

Speaker Change: Shifting to 2025, we have been busy supported by what we believe are the early signs of a growing market activity for growth capital and M&A.

Speaker Change: Our total commitments through January 28, 2025 were $1 2 billion.

Speaker Change: Approximately 80% increase as compared to the commitments closed in January of last year.

Speaker Change: Also our backlog as of January 28, 2025 stood at $1 8 billion, which is more than double.

Speaker Change: Our reported backlog at February 1st of last year.

Speaker Change: As a reminder, 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.

Jim Miller: As we look to the future, we believe the company remains well positioned to address what we see is a growing market opportunity. We remain committed to building upon what we believe is a successful long-term track record.

Speaker Change: As we look to the future. We believe the company remains well positioned to address what we see as a growing market opportunity.

Speaker Change: We remain committed to building upon what we believe is a successful long term track record.

Jim Miller: As always, we appreciate you joining us today, and we look forward to speaking with you next quarter.

Speaker Change: As always we appreciate you joining us today and.

Speaker Change: And we look forward to speaking with you next quarter with that operator, please open the line for questions.

Unknown Executive: With that, operator, please open the line for questions. At this time, if you would like to ask a question, please press star, then 1 on your telephone keypad. If you would like to withdraw your question, please press star, then 2.

Speaker Change: At this time, if you would like to ask a question. Please press Star then one on your telephone keypad if.

Speaker Change: If you would like to withdraw your question. Please press Star then two.

Unknown Executive: Please note, as a courtesy to those who may wish to ask a question, please limit yourself to one question and one single follow-on. If you have additional questions, you may re-enter the queue.

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

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

Unknown Executive: The Investor Relations team will be available to address any further questions at the conclusion of today's call. Again, that's star one to ask a question.

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

Speaker Change: Again, Thats star one to ask a question.

Melissa Wedel: We'll go first to Melissa Wedel with J.P. Morgan. Please go ahead. Your line is open. Good afternoon. Thanks for taking my questions.

Speaker Change: We'll go first to Melissa Wedel with JP Morgan. Please go ahead. Your line is open.

Melissa Wedel: Hi, good afternoon. Thanks for taking my question first congrats to you.

Melissa Wedel: First, congrats to Kort and to Kip on the change in your roles. I look forward to continuing to have these conversations more so with you, Kort, going forward.

Speaker Change: On the change in euros.

Melissa Wedel: And look forward to continuing.

Melissa Wedel: Have those conversations more or so with you correct going forward.

Melissa Wedel: In terms of the activity during the fourth quarter, I was hoping we could just chat about the cadence a little bit. I think heading into the quarter, it definitely seemed to be the case that it might not be the seasonally busy quarter that the December quarter can be, possibly because some companies are waiting until the new year to sort of pick up the pace of activity on deals and strategic acquisitions, et cetera. Assuming that was what we saw in the numbers in 4Q, just being down sequentially from the third quarter, do you think that there was any impact in terms of like timing of new investments or repayments during the quarter on NII?

Melissa Wedel: In terms of the activity during the fourth quarter I was hoping we could just chat about the cadence a little bit.

Melissa Wedel: Heading into the quarter it definitely seem to be the case that it might not be the seasonally busy quarter.

Melissa Wedel: The December quarter can be possibly because some companies are waiting until the new year.

Melissa Wedel: Q sort of pick up.

Melissa Wedel: The pace of activity on deals.

Melissa Wedel: Strategic acquisitions et cetera.

Melissa Wedel: Assuming that was what we saw in the numbers and for Q2.

Melissa Wedel: Being down sequentially from the third quarter.

Melissa Wedel: Do you think that there was any impact in terms of like timing of new investments repayments during the quarter on NII.

Kort Schnabel: Yeah, thanks for the comments to most appreciate that the no, I mean, look, I think it was kind of flat versus the third quarter, if I'm if I'm looking at the numbers correctly, things did, I think, shift a little bit, you know, obviously, we have the election, which may have delayed some, some closings, but we're very happy with the Q4 activity levels. And as we mentioned in the prepared remarks, January was busy, and it remains busy. So we're feeling good about, you know, deal flow and new transactions.

Melissa Wedel: Yeah. Thanks for the comments two months I appreciate that.

Melissa Wedel: I mean look I think it was kind of flat versus the third quarter. If I'm if I'm looking at the numbers correctly things did I think shift a little bit you know obviously, we have the election, which may have delayed some some closings but.

Melissa Wedel: We're very happy with the Q4 activity levels and as we mentioned in the prepared remarks January was busy and it remains busy so we're feeling good about.

Melissa Wedel: Deal flow in new transactions.

Melissa Wedel: Okay. And definitely noted the quarter-to-date details. Appreciate those details that you provide us, as always.

Melissa Wedel: Okay.

Melissa Wedel: And definitely noted the quarter today detail appreciate those those details that you provide us as always.

Melissa Wedel: When we think about sort of the evolution of the portfolio, it definitely seems to be the case that there has been a skew, new investments have skewed sort of up the capital structure, so a lot of focus on first lane. Not entirely, but definitely skewed that way. When we look at the mix of repayments, we've seen some more junior capital be a larger piece of the repayment activity. I'm just wondering how you guys are thinking about the asset allocation within the portfolio. Do you think of a sort of target level of first lane activity, or is that really going to vary with the opportunity set going forward?

Melissa Wedel: When we think about sort of the evolution of the portfolio. It's definitely seem to be the case that there has been a SKU.

Melissa Wedel: New investments have skewed sort of the capital structure. So a lot of focus on first lien not enough.

Melissa Wedel: Early but definitely skewed that way when we look at the mix of repayments, we think margin your capital.

Speaker Change: <unk> be a larger piece of the repayment activity I'm. Just wondering how you guys are thinking about the asset allocation within the portfolio do you think of our sort of target level of first lien activity or is that really going to vary with the opportunity set going forward.

Kort Schnabel: And is there any change given the new roles? Thank you so much. Yeah, you're welcome. Thanks. I mean, to answer the last question first, because I think it's most important, there's really no change in how we see the mix of the portfolio over time. Definitely take your point that, you know, for the back half of the year, kind of particularly in large deals, kind of the large Unitron, you know, sometimes taking out junior positions was the prevailing transaction. We're still happy to do junior deals. We've seen spread compression, I would say, in the larger names that are cash pay.

Speaker Change: Is there any chance given given the new well. Thank you so much.

Speaker Change: Yeah Youre welcome. Thanks.

Speaker Change: To answer the last question first because I think that's important there is really no change in how we see the mix of the portfolio overtime.

Speaker Change: Definitely take your point that for.

Speaker Change: For the back half of the year kind of particularly in large deals kind of the large unit tranche.

Speaker Change: Sometimes taking out junior positions was the prevailing transaction.

Speaker Change: We're still happy to do a junior deals we've seen.

Speaker Change: Spread compression I would say in the larger names that are cash pay and then a lot of what's available on the junior side today and the higher rate environment frankly on.

Kort Schnabel: And then a lot of what's available on the junior side today in the higher rate environment, frankly, are, you know, non cash, i.e. all pick junior transactions, and we find a lot of them to be attractive. We're doing some, but we're obviously conscious of the percentage of pick income at the company and wanting to, you know, have that not kind of grow from here. So it's a balance of different things. But I think most importantly, we're responding to the market and the overall philosophy of how we see mix going forward is unchanged.

Speaker Change: Noncash I E. All Pik junior transactions, and we find a lot of them to be attractive we're doing some more obviously conscious of.

Speaker Change: The percentage of Pik income at the company and wanting to.

Speaker Change: Had that not kind of grow from here. So it's a balance of different things, but I think most importantly.

Speaker Change: We're responding to the market and the overall philosophy of how we see mix going forward is unchanged.

Kort Schnabel: Thanks, Kip. Yep, thank you. Thank you.

Speaker Change: Thanks Curt.

Speaker Change: Yes. Thank you.

Thank you. Our next question will come from Finian O'shea with Wells Fargo Securities. Please go ahead.

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

Finian O'shea: Please go ahead. Hey, everyone. Good morning. Thank you.

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

Finian O'shea: I guess to continue on investing, I – oh, and first, congratulations to everyone on their new beginnings. So I wanted to ask about the sports franchise. I know that's a newer happening effort there. I think we saw there at the broader platform, that is, but also in ARCC, deals have come in. We saw, I think, equity in the Dolphins. This quarter, it looks like the BDC got a pretty good allocation. So the question is, like, on the understanding of that a lot of the higher risk return deals and, you know, the more opportunistic and so forth franchises are less suitable for ARCC.

Finian O'shea: I guess to continue on investing I first congratulations to everyone on their new beginnings.

Speaker Change: Thanks, Kevin.

Finian O'shea:

Speaker Change: So I want to ask about the sports franchise I know that's a newer.

Finian O'shea: Turning effort there.

Finian O'shea: I think we saw it there at the broader platform that is but also in ARCC.

Finian O'shea: Deals have come in.

Finian O'shea: We saw I think equity and the Dolphins.

Finian O'shea: This quarter it looks like the BDC got a pretty good allocation.

Finian O'shea: So question is on the understanding of that a lot of the higher risk return deals.

Finian O'shea: The more opportunistic and so forth franchises.

Finian O'shea: Our less suitable for ARCC like.

Finian O'shea: Like, why this one? Is the sports equity, is that sort of somewhere on the bubble or something like that? And should we expect to see more of this? Is that franchise gross?

Finian O'shea: Like why why this one.

As is.

Finian O'shea: Sports equity.

Finian O'shea: Is that sort of a.

Finian O'shea: Somewhere on the bubble or something like that in.

Finian O'shea: Should we expect to see more of this is that franchise grows. Thanks.

Jim Miller: Thanks.

Kip DeVeer: Yeah, I'm going to ask Jim to help a little bit too, because he's very engaged, both with the sports media and entertainment franchise, but also specifically with the deal that we did with the Dolphins and the surrounding assets. But I mean, to go backwards, we're now probably five, six years into having built out a very substantial footprint, and I think incredible reputation as a knowledgeable kind of SME investor. And it's not just teams, and it's not just sports. Philosophically, the BDC, as we've always said, wants to leverage the strength of the Ares credit platform, which is very broad, and creates a diverse set of opportunities for the BDC.

Speaker Change: Yes, I'm going to ask Jim to help a little bit too because he's very engaged both with the sports media and entertainment franchise, but also specifically with the deal that we did.

Speaker Change: With the dolphins and the surrounding assets, but I mean to get to go backwards.

Speaker Change: We're now probably.

Five six years into having built out a very substantial footprint and I think incredible reputation as a knowledgeable kind of SME investor and it's not just teams and it's not just sports.

Speaker Change: Philosophically the BDC as we've always said wants to leverage the strength of the Ares credit platform, which is very broad.

And creates a diverse set of opportunities for the BDC specifically.

Kip DeVeer: Specifically, SME is definitely a place along with other parts of the franchise that we want to leverage for what we think are really unique investments, you know, for both the platform and for the BDC. I mean, I think Yeah, the Dolphins specifically, you know, is a roughly $200 million investment at the BDC. And just to be clear, the asset itself includes more than just the team. It's, you know, the stadium, it's real estate, it's a Formula One team, it's a tennis tournament, there's a whole lot of stuff going on there. And we think it's very unique.

Speaker Change: Semi is definitely a place along with other parts of the franchise that we want to leverage for what we think are really unique investments.

Speaker Change: For both the platform and for the BDC I think.

Speaker Change: The dolphins specifically.

Speaker Change: It was a roughly $200 million investment at the BDC and just to be clear the asset itself includes more than just the team at the stadium. It's real estate, it's a formula one team, it's tennis tournament Theres, a whole lot of stuff going on there.

Kip DeVeer: I mean, I think as you probably read about in the press, Ares was one of the few firms that was granted the unique ability to come in to a franchise investment like this. We think it's a top tier franchise in an absolutely top tier geography that's growing, and should grow with a fair amount of consistency over the next, you know, long period of time, because of the quality and the diversity of the assets. So again, for me, I think it's a fabulous investment. And it's not particularly large when you look at the overall scale of the company.

Speaker Change: And we think it is very unique I mean, I think as you probably read about in the press areas was one of the few firms that was granted the unique ability to come in.

Speaker Change: To a franchise investment like this we think it's the top tier franchise in an absolutely top tier geography, that's growing and should grow.

Speaker Change: With a fair amount of consistency over the next.

Speaker Change: Long periods.

Speaker Change: Because of the quality and the diversity of the assets.

Speaker Change: Again for me I think it's a fabulous investment and it is not particularly large when you look at the overall scale of the company and its unique and attractive to arcc's shareholders in <unk>.

Kip DeVeer: And it's unique and attractive to ARCC shareholders. And ARCC shareholders, frankly, see only when you're talking about access through a BDC stock.

Speaker Change: RCC shareholders, frankly, only when youre talking about access.

Speaker Change: Through our BDC stock.

Finian O'shea: It's very helpful.

Speaker Change: Okay very helpful. Thank you.

Finian O'shea: Thank you.

Finian O'shea: As a follow-up, I think this ties into Melissa's topics a bit on... Investment in Returns Where should we think of the cap structuring fee? You know, there's more and more emphasis on incumbent repeat borrowers. You're gearing up for your sponsors to support them. But like, how much does that impact the structuring fee rate that you'll see? You know, in years past, it's obviously been really high.

Speaker Change: As a follow up.

Speaker Change: It ties into Melissa topics a bit on.

Speaker Change: The investment returns I think this is actually come up here and there in recent periods, but.

Speaker Change: Where should we think of the cap structuring fee theres more and more emphasis on.

Speaker Change: And comment repeat borrowers youre gearing up for.

Speaker Change: For your sponsors to support them.

Speaker Change: Like how much does that impact.

Speaker Change: The structuring fee rate that youll see in years past, it's obviously been really high.

Speaker Change: <unk>.

Finian O'shea: And then if I could sneak in a bonus question, maybe a fun one. Kip, I think you mentioned in your new role, you'll be involved in direct lending, but curious as to what other areas you'll be focused on. And thank you.

Speaker Change: And then if I could sneak in a bonus question may be a fun one.

Speaker Change: Kip I think you mentioned.

Speaker Change: In your new role, you'll you'll be involved in direct lending, but curious as to.

Speaker Change: What other areas you'll be focused on and thank you that's all for me.

Kip DeVeer: That's all for me. I'm sure thanks. But I think, you know, in terms of fees, there's been, you know, a continued emphasis on kind of existing portfolio companies and incumbency, which tends to generate lower fees. We'll also say, as we've said, in the last couple of calls, there's been some fee pressure in direct lending, you know, broadly. So I think upfront fees are generally down a little bit in the market for pretty much everything. So I think those are the two simple answers to why you see that coming down.

Yes.

Speaker Change: Sure. Thanks.

Speaker Change: In terms of fees there has been.

Speaker Change: Yes.

Speaker Change: Continued emphasis on kind of existing portfolio companies incumbency, which tends to generate lower fees well, let's just say as we've said in the last couple of calls theres been some fee pressure indirect lending broadly. So I think upfront fees are generally down a little bit in the market for pretty much everything. So I think those are the two simple.

So as to why you see that coming down.

Kip DeVeer: In terms of your fun question, I would encourage you to go listen to the Ares earnings call that, you know, I and a handful of others did with Mike a couple of hours ago. But yeah, I mean, more or less, you know, I will continue to be very engaged with this company as a director on the board. I'll remain on the U.S. Direct Lending Investment Committee, which obviously opines on all the new investments for this company and a lot of other things. But I think it, you know, gives me the ability to try to support Mike with a lot of different things that we're doing, both from an operational and strategic perspective at Ares, our management company.

Speaker Change: In terms of your fun question I would encourage you to go listen to the Aries earnings call that.

Speaker Change: And a handful of others did with Mike a couple of hours ago, but yes, I mean more or less I will continue to be very engaged with this company as a director on the board.

Speaker Change: I will remain on the U S direct lending investment Committee, which obviously opines on all the new investments for this company and a lot of other things, but I think it gives me the ability to try to support Mike with.

Speaker Change: A lot of different things that we're doing both from an operational and strategic perspective.

Speaker Change: At Ares our management company.

Kip DeVeer: And it's an exciting change for me, you know, having been, you know, with this business for 20 years and this company for 20 years, it allows me to do some new things. And I'm excited about it.

Speaker Change: And it's an exciting change for me.

Speaker Change: Having been.

Speaker Change: With this business for 20 years in this company for 20 years. It allows me to do some new things and I'm excited about it so thanks for asking.

Kip DeVeer: So thanks for asking. Thank you.

Speaker Change: Thank you.

Unknown Executive: Thanks, Ben.

Speaker Change: Thanks Ben.

Casey Alexander: Thank you. Our next question will come from Casey Alexander with Compass Point. Please go ahead. Hi, good morning, and again, congratulations on the promotions. Thank you.

Speaker Change: Thank you. Our next question will come from Casey Alexander with Compass point. Please go ahead.

Casey Alexander: Hi, good morning.

Casey Alexander: And again congratulations on the promotions.

Casey Alexander: Kevin.

Casey Alexander: We'll, we'll, we'll miss your calm voice, because it did help us through some pretty turbulent times during COVID. So I think I think I think in support of in support of Kort and Jim, I think you'll be getting two more. So don't worry. Okay, okay. Listen, thank you.

Speaker Change: Well, we'll we'll miss your calm voice because it did help us through some pretty.

Casey Alexander: The turbulent times during COVID-19 so.

Speaker Change: I think in supportive and supportive and Jim I think youll be getting to more so don't worry.

Casey Alexander: Okay. Okay.

Casey Alexander: And, and we'll make this question clearly marked as of 1231. You know, we've seen 100 basis point decline in base rates. Can you give me kind of a percentage of how much of that has flowed through into the portfolio by the by the end of, you know, the December quarter? Is it is it 75% or, you know, where do you think we are? And I don't want to do any It's not baseball season. I mean, you know, qualitatively, what you're seeing with yield declines is largely due to base rates.

Casey Alexander: Listen.

Thank you.

Casey Alexander: And we will make this question clearly marked as of 12 31, we've seen 100 basis point decline in base rates can you give me kind of a percentage of how much of that has flowed through into the portfolio by the by the end of.

Casey Alexander: The December quarter as it is at 75% or where do you think we are in.

Casey Alexander: I don't wanted to earnings because it's not baseball season.

Casey Alexander: Qualitatively, what youre seeing with yield declines is largely due to base rates for melissa's question, it's a little bit too.

Scott Lem: And for Melissa's question, it's a little bit too to makeshift, i.e. some of the junior capital stuff coming out with more replacement from kind of senior secured or Unitron.

Casey Alexander: To mix shift some of the junior capital stuff coming out with with more replacement.

Casey Alexander: From kind of senior secured or unit tranche, but I was looking over at Scott to see if you had a better quantitative answer that I might have right now, yes, I think.

Scott Lem: But I was looking over at Scott to see if he had a better quantitative answer that I might have right now. Yes, I think, you know, I think we mentioned this in the last call. And I think, again, this time as well, but I think you saw from the, you know, certainly a lag effect when it comes to the impact of the rates in our portfolio and when they flow through. So you saw some of that in Q4 as a result of the rates as a Q3. And so we expect that, you know, a similar level of decline when you think about the Q4 rates and how that impact Q1.

Casey Alexander: We mentioned this on the last call and I think again this time at this time as well, but I think what you saw from the there's certainly a lag effect when it comes to the impact of the rates in our portfolio and when they flow through so you saw some of that in Q4 as a result of the rates as of Q3, and so we expect that similar level of decline when.

You think about the Q4 rates and how that would impact Q1.

Casey Alexander: Okay.

Scott Lem: All right, secondly, you know... Relative to the amount of your gross fundings in the quarter, there was quite a bit of activity in the ATM and the leverage ratio is the lowest that it's been since 2019. um you know. Should I infer from that that you expect this heighten that you're Building and preparing for a heightened level of activity in the first half, which is unseasonable because normally the heightened level of activity is in the second. I think that's a that's a fair assumption for sure. You know, I mean, I'll I'll say two things. You know, when when we can raise equity accretively, we like to do it.

Casey Alexander: Alright secondly.

No.

Casey Alexander: Relative to the amount of your gross fundings in the quarter, there was quite a bit of activity in the ATM and the leverage ratio is the lowest that it's been since 2019.

Casey Alexander: Yeah.

Speaker Change: Should I infer from that that you expect this.

Casey Alexander: This heightened.

Casey Alexander: Building and preparing for a heightened level of activity in the first half which is on a seasonable because normally the heightened level of activities in the second half.

Casey Alexander: I think that's a fair assumption for sure you know I mean, I'll I'll I'll say two things when when we can raise equity accretively, we like to do it and obviously the stock price allowed us to do that.

Casey Alexander: And obviously the stock price allowed us to do that in Q4. But as I mentioned in response to one of the prior questions, we had a busy fourth quarter and it's busy right now. So I think the simple answer to your question is yes. Alright, thanks for taking my question. Thanks, Casey.

Q4, but as I mentioned.

Casey Alexander: In response to one of the prior questions, we had a busy fourth quarter and it's busy right now so I think the simple answer to your question is yes.

Speaker Change: Alright, thanks for taking my questions.

Casey Alexander: Thanks Casey.

Doug Harder: Thank you. Our next question will come from Doug Harder with UBS. Please go ahead. Thanks.

Speaker Change: Thank you. Our next question will come from Doug Harter with UBS. Please go ahead.

Doug Harder: You know, just to kind of piggyback on that last question, you know, as you think about, you know, 2025, you know, how do you think about, you know, kind of target area where leverage should be versus, you know, willingness or appetite to continue to raise fresh capital? Yeah, I think we I think we'd like the leverage ratio to be higher. Being able to increase the leverage ratio is obviously a driver of earnings, which I think will be important if and when rates continue to kind of come down, right? That's one of the countervailing levers that we can pull to drive earnings in the face of tighter spreads and lower rates.

Casey Alexander: Thanks.

Casey Alexander: To kind of.

Casey Alexander: Piggyback on that last question.

Casey Alexander: Do you think about 2025, how do you think about kind of target area, where leverage should be versus <unk>.

Casey Alexander: Willingness or appetite to continue to raise fresh capital.

Casey Alexander: Yes, I think we I think we'd like the leverage ratio to be higher.

Casey Alexander: Being able to increase the leverage ratio is obviously a driver of earnings which I think will be important if and when rates continue to kind of come down right. That's one of the countervailing levers that we can pull to drive earnings in the face of tighter spreads and lower rates.

Doug Harder: So we're fortunate in that we're still materially out earning the core dividends, so we don't feel, you know, a desperate need to do that. But again, just a reminder, that's a leverage that's a lever that we can and will pull. So in assessing Both the leverage ratio and the earnings, I think that will tell us how much equity we feel comfortable raising in the ATM program. Again, Q4 was a larger number than we've seen in prior quarters, and I just commented on why that was. We'll see where we go from here.

Casey Alexander: We're fortunate in that we're still materially out, earning the core dividend. So we don't feel it.

Aspirate needed to do that but again, just a reminder, that the leverage that's a lever that we can and will pull.

Casey Alexander: So in assessing.

Casey Alexander: Both the leverage ratio and the earnings I think that will tell us how much.

Casey Alexander: Equity, we feel comfortable raising and the ATM program again Q4 was.

More.

Casey Alexander: Larger number than we've seen in prior quarters and I just commented on why that was.

Casey Alexander: We will see where we go from here I would expect though that we would get back into that range that you saw from us that was sort of more regular over the last year or two.

Doug Harder: I would expect, though, that we would get back into that range that you saw from us that was sort of more regular over the last year or two. Great.

Casey Alexander: Great.

Doug Harder: And then just on your kind of spillover income, you know, I guess how do you think about that level? You know, is there a level at which you would consider returning some of that or are you comfortable kind of continuing to build that? I think for the time being, as we've said in the past, we usually use this time of year to assess whether we want to pay a special dividend. We chose not to, obviously, so that should tell you a couple of things. So for the time being, we feel good about obviously very good about where the level is because it's quite high.

Casey Alexander: And then just on your.

Youre kind of spillover income.

Casey Alexander: I guess, how do you think about that level.

Casey Alexander: We're a level at which you would consider returning some of that or are you comfortable kind of continuing to build that.

Casey Alexander: I think for the time being as we've said in the past we usually use this time of year to assess whether we want to pay a special dividend. We chose not to obviously so that should tell you a couple of things. So for the time being we feel good about obviously very good about where the level is because.

Casey Alexander: It is quite high.

Doug Harder: But there actually wasn't much of a debate this year about paying a special for a handful of different reasons. So for now, we feel better, frankly, about reserving that and thinking about it again in 12 months. Great, thank you. Thanks for your questions, Chuck.

Casey Alexander: But there actually wasn't much of a debate this year about paying a special for a handful of different reasons. So for now we feel better frankly about reserving that and thinking about it again in 12 months.

Casey Alexander: Great. Thank you.

Casey Alexander: Thanks for your questions Doug.

Mark Hughes: Thank you. Our next question will come from Mark Hughes with Truist. Please go ahead. Yeah, thank you. Any specific specifics you can share on spread and especially the trajectory through Q4 in January? Have things stabilized? Are you still seeing some movement?

Speaker Change: Thank you. Our next question will come from Mark Hughes with Truest. Please go ahead.

Yes, thank you any specifics.

Speaker Change: Typically you can share on spread and especially the trajectory through Q4 and January and things stabilized or you're scoping some movement.

Mark Hughes: I think, you know, most of the decrease we saw pretty radibly through last year, you know, 100, 150 basis points has been the number that we quoted elsewhere in terms of the declines that we'd seen, you know, whether it was repricing existing names or new deals. For the time being, I feel like it's pretty much plateaued again because we play across the entire spectrum, smaller companies, larger companies. It varies, you know, large cap unit tranches are probably 475 over 500 over and the smaller deals will command premiums to that. We haven't seen them continue to decline really into the first quarter as we've been pricing new deals.

I think most of the decrease we saw pretty ratably through last year.

Speaker Change: <unk> 150 basis points has been the number that we quoted elsewhere in terms of the declines that we've seen whether it was repricing existing names for new deals for.

Speaker Change: For the time being I feel like it's pretty much plateaued again, because we play across the entire spectrum of smaller companies larger companies. It varies large cap unit tranches are probably $4 75 over 500 over in the smaller deals will command premiums to that.

Speaker Change: We haven't seen them continue to decline really into the first quarter as weak as we've been pricing new deals.

Mark Hughes: Then your point about your share doubled of your commitments with existing borrowers. Is that a phenomenon of bigger versus smaller? So say other sizable BDCs may be having the same experience. Do you think you're outperforming in that dimension? Yeah, I mean, I think for sure, we're able to obviously continue to, to bring larger dollars to our best borrowers, which is something that we've, you know, emphasized, but I think we've been really focused on it. And we've been, frankly, doing even better than we have in the past.

Speaker Change: And then your point about the.

Speaker Change: Your share doubled of your commitments with existing borrowers.

Speaker Change: Is that a phenomenon of.

Speaker Change: A bigger versus smaller so say other sizable bdcs may be having the same experience do you think you are.

Speaker Change: Outperforming in that dimension.

Speaker Change: Yes, I mean, I think for sure we're able to obviously continue to.

Speaker Change: To bring larger dollars to our best borrowers, which is something that we've.

Speaker Change: Emphasize but I think we've been really focused on it and we've been.

Frankly doing even better than we have in the past.

Mark Hughes: Thank Thank you.

Speaker Change: Thank you.

Speaker Change: Thank you as a reminder, if you would like to ask a question. Please press star one at this time. Our next question comes from Kenneth Lee with RBC capital markets. Please go ahead.

Kenneth Lee: As a reminder, if you would like to ask a question, please press star one at this time. Our next question comes from Kenneth Lee with RBC Capital Markets. Please go ahead. Hey, good afternoon and Question and echoing the congrats on the new roles for everyone. In terms of the economic backdrop, it seems very healthy here and the non-equals, as you mentioned, are still below long-term averages. Just want to get your latest updated thoughts around for Credit Losses Going Forward. Either yourself or across the industry, you know, I'll look there. Thanks.

Kenneth Lee: Hey, good afternoon, and thanks for taking my question and echoing the congrats on the new rules for everyone.

Speaker Change: Thanks, Ken.

Speaker Change: In terms of the economic backdrop seems very healthy here and the non accruals as you mentioned still below long term averages just wanted to get your latest updated thoughts around potential for credit losses going forward, either yourself or across the industry.

Speaker Change: What's the outlook there thanks.

Kip DeVeer: Well, I mean, at this company specifically, I'll just reiterate, I mean, we're very pleased I don't want to use the word surprise, but I think if you had talked to the team a year or two ago, there was, you know, a belief that defaults, non-accruals everywhere would rise much, would rise much more quickly than they have. Thanks for commenting. Of course, I think we've outperformed a lot of the competition, where you have seen some weakness elsewhere. Our portfolio is holding up extraordinarily well. So, you know, we saw a real small increase in non-accruals this quarter, but again, being below historical average and seeing strong underlying profit growth at the portfolio, which is, by the way, very large and very diverse, says a lot about the strength of the U.S.

Speaker Change: Well I mean at this company specifically I'll just reiterate I mean, we're very pleased.

Speaker Change: I don't want to use the word surprised but I think if you would talk to the team a year or two ago. There was a billy.

Speaker Change: Leaf that defaults non accruals everywhere would rise much would rise much more quickly than they have.

Speaker Change: Thanks for commenting of course, I think we've outperformed a lot of the competition.

Where you have seen some weakness elsewhere, our portfolio is holding up extraordinarily well. So yes, we saw a real small increase in nonaccrual this quarter, but again being below historical average and seeing strong underlying profit growth at the at the portfolio, which is by the way very large and very diverse says a lot about the strength of the U S economy, which I think.

Kenneth Lee: economy, which I think is quite good. So a lot of these companies have adjusted to the higher rate environment, which now seems to be getting some relief as the Fed has lowered rates. Again, we'll see where we go from here, but we think it's a very, very good time to be a credit investor with a largely healthy portfolio to collect, again, what's the source of diverse and reliable income at Ares Capital Corporation. So we're pretty pleased with where we are. Great, very helpful there. That's all I had. Thanks again.

Speaker Change: Is is quite good so.

Speaker Change: A lot of these companies have adjusted to the higher rate environment, which now seems to be getting some relief.

Speaker Change: The fed has lowered rates again, we will see where we go from here, but we think it's a very very good time.

Speaker Change: To be a credit investor with a largely healthy portfolio to collect again, what's the source of diverse and reliable income at Ares Capital Corporation. So we're pretty pleased with where we are.

Speaker Change: Great very helpful. That's all I had thanks again.

Kenneth Lee: Thanks, Ken.

Paul Johnson: Thank you. Our next question will come from Paul Johnson with KBW. Please go ahead. Thanks for taking my questions and congratulations to everyone.

Speaker Change: Thank you. Our next question will come from Paul Johnson with K B W. Please go ahead.

Paul Johnson: Yeah. Thanks, Thanks for taking my questions and congratulations to everyone.

Speaker Change: My question was mainly on just the Ivy Hill distribution looks like that increased quite a bit.

Paul Johnson: My question was mainly on just the Ivy Hill distribution, looked like that increased quite a bit quarter over quarter and I'm just wondering if there's any kind of one-time items in there and maybe an idea of what's sort of the run rate dividend for Ivy Hill going forward. Yes, I mean, Ivy Hill continues to perform extraordinarily well. So just a great asset for this company. Just in case you didn't pick up, but I bet you did. The quarterly base dividend is up because the company's grown. But on top of that was a special dividend that got made to the tune of $10 million.

Paul Johnson: <unk> over quarter and I was just wondering if theres any.

Paul Johnson: Any kind of onetime items in there and maybe an idea of what sort of the run rate dividend for Ivy Hill going forward.

Paul Johnson: Yes, I mean, there Ivy Hill continues to perform extraordinarily well so just a great asset for this company.

Paul Johnson:

Paul Johnson: Just.

Paul Johnson: In case, you didn't pick up but I bet you did.

Paul Johnson: Quarterly base dividend is up because the company has grown.

Paul Johnson: But on top of that was the special dividend that got made to the tune of $10 million they've been retaining significant income and capital for their growth that frankly, I think they didn't feel the need to retain all up.

Paul Johnson: They've been retaining significant income and capital for their growth that frankly, I think they didn't feel the need to retain all of. So there was a small one-time distribution there. But I think on a go forward basis, it'll depend on how quickly that company grows. But again, that increased quarterly base dividend you should take as kind of the new run rate going forward. We feel comfortable supporting that. Obviously, the company is well equitized, having just made a special dividend as well. Got it. Thanks for that.

Paul Johnson: So there was a small one time distribution there, but I think on a go forward basis. It will depend on how quickly that company grows but again that that increased quarterly base dividend you should take is kind of the new <unk>.

Paul Johnson: Run rate going forward, we felt comfortable supporting that obviously the company is well advertised having just made a special special dividend as well so.

Paul Johnson: Okay.

Paul Johnson: Got it thanks for that.

Paul Johnson: And then, in terms of your portfolio, I'm wondering if there's any way to quantify or maybe just give us a sense of If you know of how many of your businesses maybe have exposure to government contracts, maybe not necessarily government businesses, but, you know, have exposure through contracts, services, things such as that, if there's any sort of Anecdotal information that you can provide. Yeah, I mean, looking around the room, and frankly, thinking, I don't have a number for you offhand, we'll go do a little bit of digging, but I'm getting, you know, shakes of heads from around the room.

Paul Johnson: And then.

Paul Johnson: In terms of of your portfolio.

Paul Johnson: I'm wondering if there's any way to quantify or maybe just give us a sense of.

Paul Johnson: If you know of how many of your businesses that maybe have exposure too.

Paul Johnson: Government contracts, maybe not necessarily government businesses, but.

Paul Johnson: Have exposure through <unk>.

Paul Johnson: Contracts services.

Paul Johnson: Such as that if theres any sort of.

Paul Johnson: Anecdotal information that you can provide.

Paul Johnson: Yes.

Speaker Change: Looking around the room and frankly thinking is I don't have a number for you offhand, we'll go into a little bit of digging but I'm getting.

Speaker Change: Shakes of heads from around the room.

Paul Johnson: Yeah, it's not a tremendous amount of government contracting defense and aerospace and all that is de minimis. So we can go back and run some numbers if you want us to follow up. But the answer is, I don't think that's going to have a significant impact on the portfolio. Okay, yeah, I think that pretty much answers my question there.

It's not a tremendous amount of government contracting defense and aerospace and all of that is de Minimis.

Speaker Change: You can go back and run some numbers if you want us to follow up but the answer is I don't think thats going to have a significant impact on our portfolio.

Speaker Change: Okay, Yes, I think that pretty much answers my question, there and then.

Paul Johnson: And then the last question I had was just kind of higher level, but I was wondering, you know, Probably at the upper end of the middle market, have you run into any instances where private equity sponsors have been effectively looking to limit voter control or any sort of lender control within a lender group? In a performing situation, not really. I mean, I think the traditional one is a sponsor-affiliated debt fund typically will have, you know, less voting or limited voting. But, you know, in performing situations, no. I mean, one of the things that we've emphasized has been, you know, just really sticking to middle market docs and making sure that, you know, some of the LME stuff that's crept into the broadly syndicated markets really don't enter our market.

Speaker Change: The last question I had was just kind of a higher level, but I was wondering.

Speaker Change: Probably at the upper end of the middle market.

Speaker Change: Have you run into any instances, where private equity sponsors have been.

Speaker Change: Effectively looking to limit voter control or any sort of lender control within our lender group.

Speaker Change: And are performing situation.

Speaker Change: Not really I mean, I think the traditional one is a sponsor affiliated debt fund typically will have.

Speaker Change: Less voting or limited voting, but.

Speaker Change: When performing situations no I mean, one of the things that we've emphasized.

Speaker Change: Has been.

Speaker Change: Just really sticking the middle middle market docs, and making sure that.

Speaker Change: Some of the <unk> stuff, that's crept into the broadly syndicated markets really don't enter our market I'd actually say, it's one of the.

Kip DeVeer: I'd actually say it's one of the... Probably the most significant reason that we pass on a deal that we like is just a document that we don't think works in our downside case. But you know, look, in in in troubled situations, you do see co-ops and bank groups, particularly in situations in larger companies where there's concern around LMEs. But to answer your question directly, I think the answer is we don't we don't really see that much. I mean, pretty much everybody votes for their dollars. And if it's a club deal, it's a club deal, and you get your voting and, and Yeah, nothing unusual there.

Speaker Change: The most significant reason that we pass on a deal that we like is just a document that we don't think works.

Speaker Change: And our downside case.

Speaker Change: But look in in in.

Speaker Change: Troubled situations you do see co ops and bank groups, particularly in situations in larger companies, where there's concern around <unk>, but the to answer your question directly I think the answer is we don't we don't really see that much I mean pretty much everybody votes for their dollars and if it's a club deal. It's a club deal and you get your voting.

Speaker Change: Yes, nothing unusual there I don't know if theres a circumstance you'd heard about that we don't know about but.

Paul Johnson: I don't know if there was a circumstance you'd heard about that that we don't know about, but Nothing material from my standpoint. Yeah, I think there have been one or two large deals where this may have occurred, but I'm just wondering if that's something... observed in the market. But I appreciate the answers.

Speaker Change: Nothing material from my standpoint.

Speaker Change: Yes, I think there have been one or two large deals where this may have have occurred but.

Speaker Change: Just wondering if that's something that you've.

Speaker Change: <unk> in the market, but.

Speaker Change: I appreciate the answers those are all the questions for me.

Unknown Executive: Those are all the questions.

Unknown Executive: Okay, thanks so much. Thank you.

Speaker Change: Okay. Thanks, so much.

Speaker Change: Thank you we'll take our next question from Robert Dodd with Raymond James. Please go ahead.

Robert Dodd: We'll take our next question from Robert Dodd with Raymond James. Please go ahead. Hi everybody and congratulations on all the new roles. Just a quick one from me. I think, Kip, and it may have been Kurt, in the prepared remarks you talked about, don't expect any direct impact from government policy changes. Does that, I mean, just want to clarify, does that include tariffs, which obviously are on hold right now, but maybe they won't be? And it's not the first time you or the portfolio have been through the tariff rodeo if it happens. So, I mean, you just, what are your thoughts now on if they do go through?

Robert Dodd: Hi, everybody and congratulations on all the new rules just just a quick one for me I think.

Speaker Change: It may have been to in the prepared remarks, you talked about.

Speaker Change: Don't expect any direct impact from government policy changes does that I mean, just wanted to clarify does that include.

Speaker Change: Tavis switch offensive on hold right now, but maybe they won't be in.

Speaker Change: Not the first time you have the portfolio have been through the tariff rodeo its that happened so I mean, yes.

Speaker Change: What are your thoughts now on if they do go through it is the portfolio now the company is just the same way they've adapted to highlight something I think already prepared for it because it has happened before or just any thoughts on that.

Kip DeVeer: Is the portfolio now, the company, it's just the same way they've adapted to higher rates, have they, are they already prepared for it because it's happened before? Or just any thoughts on that? Yeah, I mean, it seems to be one of the two or three questions of the day between that and Chinese AI and a few other things that seem to be dominating the airwaves. Look, I mean, Robert, I think that the simple answer is we have a very large, diverse portfolio, right? Tariffs on. countries like Mexico and Canada will have an impact on every company in the United States.

Speaker Change: Yeah, I mean, it seems to be one of the two or three questions of the day between them.

Speaker Change: <unk>.

Speaker Change: That in <unk>.

Speaker Change: Chinese AI and a few other things that seem to be dominating the airwave look Robert I think the simple answer is we have a very large diverse portfolio right.

Speaker Change: Tariffs on.

Speaker Change: Countries like Mexico, and Canada will have an impact on every company in the <unk>.

Speaker Change: It's.

Kort Schnabel: Probably true of the tariffs that look like they're in place with China. I think we're very early in that discussion. And obviously, spending time with portfolio companies. And the good news is we have great dialogue with our portfolio companies, right? They view us as a strong partner, we're getting monthly financial statements, we're in constant contact with CEOs and CFOs there to try to assess it. But it's really hard to generalize kind of how I see Big changes there because it's just so early, but we're definitely, to Kort's prepared remarks.

Speaker Change: Probably true.

Speaker Change: Of the tariffs that looked like they are in place with China. I think we're very early in that discussion and obviously spending time with portfolio companies and the good news is we have great dialogue with our portfolio companies right. They view us as a strong partner, we're getting monthly financial statements were in constant contact with Ceos in CF.

Speaker Change: <unk> is there to try to assess it but it's really hard to generalize kind of how I see.

Speaker Change: Big changes there because it's just so early but we're definitely two courts prepared remarks.

Kort Schnabel: Ahhhhh Seeing what may be out there, and making sure that we're vigilant and smart about changes in every portfolio company, depending on how things go.

Speaker Change:

Speaker Change: Seeing what may be out there and making sure that we're vigilant and smart about changes in and every portfolio company and depending on how things Scott.

Kort Schnabel: Yeah, and it's Kort. It's Kort. Robert, I could jump in on that as well, just with a little more color, which is... You know, we actually have run a lot of analysis around which of our companies have exposure to tariffs, what percent of their cost of goods sold might be exposed to the countries that have already been announced. Obviously, we have to stay day to day in terms of the countries that might or might not be exposed to tariffs. But so far between China, Canada and Mexico, we actually feel really confident that there is a very small impact on our portfolio based on a pretty exhaustive analysis.

Speaker Change: Yes, and it's court court, Robert I can jump in on that as well just with a little more color which is.

Speaker Change: We actually have run a lot of analysis around which which of our companies have exposure to tariffs what percent of their cost of goods sold might be exposed to the countries that have already been announced obviously we have to stay.

Speaker Change: Day to day in terms of the countries that they might or might not be exposed to tariffs, but so far between China, Canada, and Mexico, we actually feel really confident that there is a very small impact.

Speaker Change: On our portfolio based on a pretty exhaustive numerical analysis that we've done so that was why we felt comfortable putting that statement into the prepared remarks, and I guess I would just also say overall, we are just under weighted toward product businesses that import and export products right.

Kort Schnabel: of numerical analysis that we've done. So that was why we felt comfortable putting that statement into the prepared remarks. And I guess I would just also say overall, we are just underweighted toward product businesses that import and export products, right? Yeah, yeah, understood. Thank you.

Speaker Change: Yes, yes understood. Thank you.

Unknown Executive: Thank you, and this does conclude our question and answer session.

Speaker Change: Thank you and this does conclude our question and answer session I would like to turn the conference back over to Mr. Kipp Davir for any closing remarks.

Kip DeVeer: I'd like to turn the conference back over to Mr. Kip DeVeer for any closing remarks. Yeah, so I definitely have a few.

Speaker Change: Yeah, So I definitely have a few.

Kip DeVeer: Today, I haven't prepared any, but it's a little bit bittersweet for me today, obviously, because I'd expect in our next earnings call, which I think is April 29th, you're not going to hear a whole lot, if anything for me, but Just wanted to say thanks to the analyst community and all of our shareholders who have supported the company while I've been the CEO. It's been a real blessing for me to work with a great group of people and to be involved with a company that's had this much success over such a sustained period of time.

Speaker Change: Today, I haven't prepared any but it's a little bit better sweet for me today, obviously, because I would expect in our next earnings our next earnings call, which I think is April 29th Youre not going to hear a whole lot.

Speaker Change: I think for me, but.

Speaker Change: Just wanted to say thanks to the analyst community and all of our shareholders, who have supported the company while I've been the CEO it's been.

Speaker Change: A real blessing for me to work with a great group of people and to be involved with a company that has had as much success over such a sustained period of time so.

Unknown Executive: So heartfelt thanks and wish everybody a great week. Bye bye.

Speaker Change: Heartfelt thanks.

Speaker Change: Everybody have a great week.

Speaker Change: Goodbye.

Unknown Executive: 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 March 5th at 5 p.m. Eastern to domestic callers by dialing 1-800-839-2457 and to international callers by dialing 1-402-220-7217. An archived replay will also be available on a webcast link located on the home page of the investor resources section of Ares Capital's website. Again, we ask that you please disconnect your line at this time and have a wonderful day. Goodbye.

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

Speaker Change: 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 March 5th at five P. M eastern to domestic callers by dialing one 883 nine to 457 and two international callers by dialing.

Speaker Change: 140 to 2207 to $1 seven and.

Speaker Change: An archived 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: Again, we ask that you. Please disconnect. Your line at this time and have a wonderful day.

Goodbye.

Speaker Change: [music].

Unknown Executive: Love Is a Strong Fire THE END © The Bulletproof Executive 2013

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Okay.

Speaker Change:

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Speaker Change: Uh-huh.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].