Ares Capital Corporation

Good morning. Welcome to Ares Capital Corporation's first quarter, ended March 31, 2019, earnings conference call. At this time, all participants are in listen-only mode. As a reminder, this conference is being recorded on Tuesday, April 30, 2019. I will now turn the conference over to Mr. John Stilmar of Investor Relations.

Great. Thank you, Jake, and good afternoon, everybody. Let me start with some important reminders. Comments made during the course of this conference call and webcast and the accompanying documents contain forward-looking statements and are subject to risks and 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 financial performance because it is one method the company uses to measure its financial condition and results of operation. A reconciliation of Core EPS to 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 8-K. 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 warranties in respect of this information. The company's first quarter ended Thank you, John.

Hello to everyone and thanks for joining us. I'm here with several members of the management team, including our co-president, Michael Smith, our chief financial officer, Penny Roll, and other folks on the finance investment and investor relations teams. Penny and Michael will walk through our first quarter financial results, our investment activity, and our portfolio statistics in detail later in the call. Let me start by discussing our first quarter results, and I can put them in context with recent market conditions. I will also briefly update you on our recent balance sheet initiatives before turning the call over to Penny and Michael. This morning we reported very strong financial results for the first quarter. Core earnings were 48 cents per share, which is an increase of 26% over the first quarter of last year. With our ACAS-related rotation largely complete, our core earnings benefited from increased interest income driven by net portfolio growth, and increased portfolio yields as well as a higher level of fee income. We also generated higher quarterly gap earnings of 50 cents per share. Our core and gap earnings were both well in excess of our recently increased quarterly dividend of 40 cents per share and we had another quarter of rising net asset value with growth to $17.21 per share. Let me transition to some thoughts on the rebound in the leveraged finance market. Following tremendous market volatility at the end of 2018 in the broadly syndicated market, things have rebounded quickly, but this volatility did leave some after effects. The most significant reason for the rebound is the transaction volume continues to be lower across the board, and the existing demand for assets has outstripped the supply of deal flow. Several large signature transactions have cleared, and the tone around new deals has However, the fourth quarter volatility has slowed M&A activity. Secondary prices for traded loans have rebounded, spreads have started to tighten, and new deal activity is finally building. And while this has had some impact on our company, Aries Capital has been able to continue to prosper and actively invest in what we believe are select franchise businesses. This is largely due to our broad market coverage, our large portfolio of existing companies to work with, and our size and scale. We're still seeing interesting origination opportunities. However, we need to be highly selective and to remain engaged as a lead on new deals to influence terms and economics. During the first quarter, we made $2 billion of new commitments with 45% of those commitments to incumbent borrowers. We continue to believe that we're late in the credit cycle, and we see some evidence of moderating economic growth. With this, we continue to see better risk-reward for investment opportunities in the middle market as we evaluate relative value across the entire alternative investment landscape. The lower middle market remains quite crowded, in our opinion, with competitors that lack differentiation and a real ability to compete. Our successful investment approach has remained consistent for 15 years, and we see no reason to make any adjustments today. We simply utilize our longstanding relationships and our direct origination focus to review a very broad opportunity set, provide flexible solutions to companies, support our successful incumbent borrowers, and proactively manage our investments post-closing. The approach is cycle-tested, and in fact, our strong credit outperformance during the last downturn created substantial opportunities for us to consolidate market share from weaker players. We do look forward to some more volatility one of these days. It is likely to reemerge, and it creates a great market for investing. Similar to the conservative and proactive approach to finding new deals, we continue to expand our sources of financing and to extend the maturities of our liabilities. This enhances the stability of our balance sheet and it provides us with additional dry powder. As Penny will discuss in more detail so far this year, we've closed over $1.7 billion of incremental debt financing commitments and renewed another $2.1 billion of financing commitments across a diverse set of lending institutions. These efforts position the capital base to support new investing and to take advantage of the regulatory relief provided by the SBCAA. As a reminder, ARCC can exceed the one-to-one leverage ratio on June 21st, 2019. I'd like to turn the call over now to Penny for a more detailed financial review.