Ares Capital Corporation

Good morning. Welcome to the Aries Capital Corporation's first quarter ended March 31, 2022 earnings conference call. At this time, all participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. As a reminder, this conference is being recorded on Tuesday, April 26, 2022. I will now turn the call over to Mr. John Stillmar, Managing Director of Investor Relations.

Great. Thank you. Let me start with some important reminders. Comments made during the course of this conference call and webcast and the accompanying documents contain forward-looking statements and are subject to risks and uncertainties. The company's actual results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in SEC documents. 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 SEC Regulation G, such as the 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 GAAP net income, 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. All per share information discussed during this call is basic per share information. See the company's Form 10-Q filed with the SEC this morning for more information. Certain information discussed on this 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 in respect of this information. The company's first quarter ended March 31, 2022 earnings presentation to be found on the company's website at www.ariescapitalcorp.com by clicking on the first quarter 2022 earnings presentation link. on the homepage of the Investor Resources section. ARIES Capital Corporation earnings release and 10Q are also available on the company's website. I'll now turn the call over to Mr. Kip DeVere, ARIES Capital Corporation's Chief Executive Officer.

Thanks, John. Hello, everyone. I hope you're all doing well, and we appreciate you joining the call. I'm here in New York with our co-presidents, Mitch Goldstein and Michael Smith, our Chief Financial Officer, Penny Roll, and several other members of the management team. I'd like to start by highlighting our first quarter results and then provide some thoughts on the market and our position today. This morning, we reported first quarter core earnings of 42 cents per share. We also generated net realized gains on our investments, adding 14 cents per share. Our net realized gains on investments now total over $175 million since year-end 2019, and approximately $1.1 billion since our inception. Our net asset value per share reached another record, and it's up 9% over the past 12 months. Credit metrics in the portfolio are strong, and overall, the portfolio continues to perform well. Our non-accruals at cost are well below our 10-year long-term average, and we reported strong underlying portfolio company EBITDA growth. Furthermore, the weighted average loan to value on the aggregate portfolio remains historically low at 44 percent, which reflects significant structural support for our loan portfolio. After a very strong finish to 2021, market transaction activity was slower to start the year as we expected. And as market volatility stemming from geopolitical events and a more aggressive tone from the Federal Reserve is creating uncertainty for us and many other investors. The 2022 outlook for macroeconomic growth has been tempered by inflation, increasing short-term rates, and a more challenging outlook for global growth, in part caused by the war in Ukraine. As one would expect, the liquid markets are bearing the brunt of the volatility with wider credit spreads and uneven trading. However, as is often the case in the direct lending market, volatility is not as apparent. and changes in pricing and terms are slow to materialize. This lag in response in the private markets relative to liquid markets is not unusual. We've seen many of these market transitions over our history, and the private markets often take a bit longer to reset to new economic and market conditions. During these times, our playbook is to become incrementally more selective, build additional liquidity, and be opportunistic by leveraging our competitive advantages and vast sourcing capabilities. The ARIES platform is one of our most significant competitive advantages. We have the largest direct lending team in the business with 150 investment professionals in the U.S., coupled with another 640 investment professionals in adjacent businesses at ARIES. We believe this provides distinct advantages to source investments in middle market companies, our ability to generate significant deal flow, which we estimate is running at roughly $550 billion annually, continues to allow us to be highly selective and to pass on transactions when pricing or terms don't meet our standards, which is increasingly frequent in today's environment. We also benefit from the large size and long tenure of our existing portfolio of nearly 400 incumbent portfolio companies who may seek additional growth capital over time. We believe that our ability to finance and grow with our winners enables us to reduce portfolio risk and often attain better than market terms. In line with this, this past quarter, over two-thirds of our commitments were to incumbent borrowers. Beyond these sourcing advantages, we believe our large team and the ARIES management platform provides a unique vantage point for doing research and conducting due diligence. ARIES has over 1,600 investments in our private credit strategies and more than 900 corporate credit investments across 60 industries within our liquid credit strategies. In our view, the perspectives and insights we gain as a result provide a significant advantage in informing our credit and pricing decisions, especially in assessing relative value for a liquid credit. Changing gears a bit, these advantages have also allowed us to drive value through portfolio acquisitions consistently throughout the company's history. As Mitch will discuss in more detail, earlier this week, ARIES management announced the acquisition of Annali Capital's U.S. middle market direct lending portfolio, which followed Annali's strategic review of its business. We believe ARIES' track record in making acquisitions continue to produce attractive and differentiated opportunities for our investors, and we're excited about this transaction. Looking forward, we feel very good about our positioning and the fundamental long-term drivers of growth in our market. North American private equity dry powder, which we believe is a key indicator of future M&A activity, sits at near record levels, and larger companies are seeing the value in seeking private capital solutions. In addition, we expect the continued volatility in the liquid capital markets will lead to increased demand from issuers for private credit solutions as we can deliver more certainty in these uncertain times. These factors are widening the fairway for us, particularly as our scale and flexibility allow us to be meaningful partners to a wide variety of borrowers. The last point I'll leave you with is that we don't believe a tightening monetary cycle will have negative effects on us. Our largely floating rate loan portfolio is financed by mostly fixed rate unsecured sources of financing, and our assets are largely floating rate investments. We believe this positions us well to have our net interest earnings benefit from rising rates. As of quarter end, holding all else equal, And after considering the impact of income-based fees, we calculated that a 100 basis point increase in short-term rates could increase our annual earnings by approximately 23 cents per share, a 14 percent increase above this quarter's core EPS run rate. A 200 basis point increase in short-term rates could increase our total annual earnings by approximately 44 cents per share, a 26 percent increase above this quarter's core EPS run rate. We also do not expect that a projected increase in rates will result in deteriorating credit performance, particularly given our strong starting point with portfolio weighted average interest coverage of nearly three times. What this means is that holding all else equal, including the leverage at the borrower level, short-term base rates would need to rise above three percent before aggregate interest coverage would dip below two times, which is similar to the five-year pre-pandemic weighted average of 2.3 times. Importantly, this analysis doesn't consider EBITDA growth or deleveraging that often occurs in our portfolio. We feel good about the ability of our portfolio companies to navigate a higher rate environment and believe these dynamics will further differentiate ARIES Capital versus many of the other income-oriented alternatives in the market today. So with that, I'll turn the call over to Penny to provide some more details on first quarter results and other thoughts on our balance sheet positioning.