Ares Capital Corporation

Good morning. Welcome to Aries Capital Corporation's fourth quarter and year-ended December 31st, 2018 earnings conference call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded on Tuesday, February 12th, 2019. I will now turn the call over to Mr. John Stilmar of Investor Relations.

Thank you, Kate, and good morning, everyone. Let me start with some important reminders. Comments made during the course of this conference call and webcast, as well as the accompanying documents, contain forward-looking statements and are subject to risks and uncertainties. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may, and similar such expressions. The company's actual results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in its SEC filings. Aries Capital Corporation assumes no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results. During this conference call, the company may discuss certain non-GAAP measures as defined by the 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 performance, because it's one method the company uses to measure its financial condition and results of operations. A reconciliation of core EPS to the net per share increase or decrease in stockholders' equity resulting from operations, the most directly comparable GAAP financial measure, can be found in the accompanying slide presentation for this call. In addition, reconciliation of these measures may also be found in our earnings release filed this morning with the SEC on Form 8K. Certain information discussed in this 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 in respect to this information. The company's fourth quarter and year-end December 31, 2018 earnings presentation can be found on the company's website at www.arescapitalcorp.com. by clicking on the Q418 earnings presentation link on the homepage of the investor resources section. Aries Capital Corporation's earnings release and 10K are also available on the company's website. I'll now turn the call over to Kip DeVere, Aries Capital Corporation's chief executive officer.

Thanks a lot, John. Good morning and thanks to everyone for joining us. I'm here with certain members of the management team, including our co-presidents, Mitch Goldstein and Michael Smith, our chief financial officer, Penny Roll, and other members of the finance, investment and investor relations teams. Penny and Mitch will walk through our fourth quarter and full year financial results, our investment activity and our portfolio statistics in detail later in the call. But I'd like to start by recapping our 2018 highlights and providing an update on the market. I'll also discuss our outlook for 2019 and the dividends we declared on the back of the strong performance for the year. This morning we reported fourth quarter core earnings of 45 cents per share, which concludes a strong finish to a great year for Aries Capital, one in which we earned core earnings of $1.68 per share. This is an increase of 21% over the 2017 levels. Our core earnings benefited from our rotation of the non-core assets in the American capital portfolio, rising LIBOR, higher utilization of our 30% basket, increased fee income and stable credit metrics. And note that we achieved these strong results despite operating at or below the low end of our leverage target range throughout the year. We also generated strong gap earnings of $2.01 per share for the year, which is far in excess of our dividends, and which drove yet another year of net asset value growth, with NAV reaching $17.12 per share at year end. Finally, for 2018, we continued to generate industry-leading net realized gain performance. We had net realized gains of $419 million, or 98 cents per share, in 2018, making it the ninth year in a row and the 13th year in our 14-year operating history of generating net realized gains. On a cumulative basis, since our IPO, we've generated more than a billion dollars of realized gains in excess of our realized losses. Throughout the year, we used the strong demand for private assets to largely complete the rotation of the acquired American capital portfolio to monetize gains and to reinvest the proceeds into our core assets. Our rotation of the American capital portfolio is now largely complete in what was a successful acquisition by any measure for our shareholders. Since our purchase of the American capital portfolio at the beginning of 2017, We've generated investment income as well as $426 million of net realized gains on exited investments, which results in a 37% realized IRR from the transaction. Of the $2.5 billion portfolio acquired, only $683 million at fair value remains, most of which we consider to be core assets. At this point, We will likely provide less robust updates on American Capital, as that story is largely complete. Looking beyond our strong financial results, we believe the company is well positioned for continued success. For much of the year, the market was highly competitive, especially with new entrants competing on aggressive terms, without differentiating between structure or price, regardless of the stability, size, or nature of the business. We've successfully navigated similarly aggressive markets in the past by remaining highly disciplined in our credit selection and industry composition. We are not a benchmark investor, and as a matter of practice, we can largely avoid cyclical industries such as retail, home building, media, broadcasting, and metals and mining. And in these types of competitive markets, we can also use strong market demand to optimize our portfolio and exit to more difficult situations. Now we find ourselves in a market of modest recovery from the tremendous volatility we witnessed during the credit market sell-off in the fourth quarter of 2018. We saw that when sentiment shifts and outflows occur, as they did rapidly in late 2018, many funds, particularly retail and passive funds, are forced to sell to meet redemptions. Many retail funds and passive vehicles are structured to manage liquidity and not necessarily credit. But we believe that the big negative move that we saw in December was largely a technical event. As a result, during the fourth quarter, the broadly syndicated loan market experienced price weakness, but the buy and hold middle market, where we are most active, demonstrated materially less price volatility. Since the start, of this year, institutional money is returned and secondary prices in the broadly syndicated loan market have partially recovered. But retail loan funds are continuing to see outflows, and we believe the supply of capital may be more balanced going forward, which could result in a more lender-friendly environment. We remain optimistic that these shifts in the supply of capital will result in improved lending terms and pricing, but it's probably too early to predict by how much and when. As we look at the portfolio and evaluate the economy, we continue to approach the market with a belief that we are late in a credit cycle and that economic growth is slowing. As a lender, these are perfectly healthy conditions for underwriting and strong portfolio performance. However, we do believe that slowing economic growth can challenge weaker companies. and if this thesis proves itself out, it should benefit Aries Capital as more differentiation among credit managers is a good thing for established companies like ours which has resources and access to capital that surpasses our peers. A more fundamental credit downturn can be a significant market opportunity for us. We have been able to consolidate market share during times of distress and outperform other credit managers and we're positioning ourselves to take advantage of this if an opportunity arises. Before I turn the call over to Penny for a more detailed financial review, I want to provide an update on our increased dividend levels and the extension of our share buyback program. With higher LIBOR, higher aggregate portfolio yields attained with substantial completion of the American capital portfolio rotation and limited credit issues, we believe the company has reached a higher level of sustainable recurring earnings. In addition, we believe our balance sheet is in a very strong position with solid and stable asset quality and a diversified long duration liability structure. Based on these factors and our strong market position, we feel confident the earnings profile of the company supports a higher regular quarterly dividend. Therefore, we've elected to increase the quarterly dividend again to 40 cents per share for the first quarter of 2019. This represents the second quarterly dividend increase in the past three quarters. Furthermore, based on the significant gains that we realized in 2018, particularly from the American capital portfolio, we have declared additional dividends totaling $0.08 per share. We intend to pay this in four equal quarterly installments of $0.02 per share over the next year. And lastly, as it relates to the stock repurchase plan, Given the return of volatility in the equity markets, we've seen our stock trade in ways we feel are unrelated to the company's strong fundamentals. As a result, we believe there may be compelling opportunities to repurchase our stock to low net asset value. Accordingly, we've extended our stock buyback authorization for another year, and we've increased it from $300 million to $500 million in size. Let me now turn the call over to Penny.