Ares Capital Corporation

Good afternoon. Welcome to the Aries Capital Corporation's third quarter, September 30th, 2023 earnings conference call. At this time, all participants are on a listen-only mode. As a reminder, this conference is being recorded on Tuesday, October 24th, 2023. I will now turn the call over to your host, Mr. John Stillmar, Managing Director of Aries Investor Relations. Thank you. You may begin.

Thank you. 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. 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 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 operations. A reconciliation of GAAP net income per share, the most directly comparable GAAP financial measure to core EPS, can be found on 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 conference call and the accompanying slide presentation, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. And accordingly, the company makes no representations or warranties with respect to this information. The company's third quarter, September 30th, 2023 earnings presentation can be found on the company's website at www.ariescapitalcorp.com by clicking on the third quarter 2023 earnings presentation link on the homepage of the investor resources section. Aries Capital Corporation's earnings release and Form 10-Q are also available on the company's website. I'll now turn it over to Mr. Kip DeVere, Aries Capital Corporation's Chief Executive Officer.

Thanks, John. Hello everyone, and thanks for joining our earnings call today. I'm here with our co-presidents, Mitch Goldstein and Court Schnabel, our chief financial officer, Penny Roll, our chief operating officer, Jana Markowitz, and other members of the management team. Before I begin my prepared remarks on the company, I'd like to express our deepest sympathies to those who have been affected by the recent horrific terrorist attacks in Israel and the subsequent loss of innocent lives. It's truly a tragedy, And we hope that a peaceful resolution is achieved as soon as possible. Turning to our results, I'll start with some highlights from our third quarter and then add some thoughts on the economic environment and the current market. This morning, we reported strong third quarter results. Our core earnings per share of 59 cents increased 18% year over year, primarily reflecting higher net interest and dividend income, largely a result of higher base interest rates. Our gap earnings per share for the third quarter were 89 cents, driven by our strong core earnings and an increase in the overall value of our investment portfolio. These results led to another quarter of sequential growth in our net asset value per share to $18.99, which has increased 3% since the beginning of the year. We remain one of the few BDCs that's been able to deliver a consistent or growing regular dividend while building NAV over long periods of time. We're pleased with these results, and we think it's important to put them in the context of what we're seeing in the broader credit markets. For much of the quarter, the credit markets remained constructive and saw some lift, as the soft landing narrative for the U.S. economy led to enhanced liquidity and modestly higher transaction activity. However, with expectation that higher for longer interest rates be required to tame inflation volatility is returned to the capital markets there is no doubt the unsettled international landscape in ukraine and israel in particular are adding to this volatility as a result the leveraged finance market is less constructive to new transactions particularly smaller ones and companies that sought the bank and liquid credit markets for their financing needs are turning to the private credit markets looking for worthy partners they can deliver a higher certainty of closing. Underscoring the market opportunity for direct lenders, this was the third most active quarter in history for $1 billion plus Unitronge transactions, and the private credit markets demonstrated the ability to provide a $5 billion financing solution in the Finastra transaction. Driven by the scale and capabilities of managers like Aries, Private credit is continuing to gain market share over bank and syndicated capital market solutions. During the third quarter, market pricing and terms continue to be highly attractive for new transactions. Credit spreads on new loans are well above historical averages, leverage levels are lower, and equity contributions are at historical highs. Looking forward, we're optimistic about the outlook for new investment opportunities, and we expect an uptick in M&A and additional sponsor to sponsor portfolio company sales to accelerate in 2024. Given the robust level of private equity dry powder that has largely gone unspent, growing pressure from private equity LPs seeking returns of their capital, and stronger sentiment amongst middle market companies to invest in the growth of their businesses, We expect stronger transaction volume in 2024. The simple turning of the calendar year will also help. We would expect the fourth quarter will be moderately better than the third quarter in terms of volume, but likely below fourth quarters of past years. We believe that our experience, scale, and capabilities position us well to benefit from these market dynamics. Aries Management has continued to invest in the quality and growth of its direct lending platform, and we continue to focus on both sponsored and non-sponsored companies and the expansion of our specialty industry coverage. Leveraging what we believe is the largest and most tenured U.S. direct lending team in the market, with 180 professionals across the U.S., we feel that our broad sourcing capabilities provide significant and differentiated deal flow. As an example, in the third quarter, we reviewed more transactions that were reported in both the leveraged loan and the middle market combined. We believe these sourcing advantages allow us to maintain a highly selective approach, which in turn drives strong long-term investment performance. These sourcing capabilities have been a key driver to what we believe is a high-quality diversified portfolio. Our companies are continuing to perform well despite the increase in borrowing costs. Our portfolio interest coverage ratio, measured using current market interest rates at the end of the quarter, was stable quarter over quarter, and substantially all of our companies are consistently making their interest payments despite the higher base rates. We'd also note that the weighted average portfolio grade is flat quarter over quarter and remains better than our 15-year average. Our non-accruals at cost are just over 1% and continue to be well below our own and BDC averages for the past 15 years. In addition, amendment activity and modifications remain stable at historical levels. The credit strength in our portfolio is supported by healthy levels of EBITDA growth across our portfolio companies, which we believe are demonstrating comparatively stronger growth than the broader market. due to the industries that we tend to overweight and our defensive positioning. Our simple strategy of avoiding cyclical sectors more prone to default continues to pay dividends for the company. We estimate that the weighted average LTV in our loan portfolio is around 43%, although we acknowledge the valuation environment is changing in response to higher rates. But regardless of these shifting valuations, We have confidence there's significant value beneath us and most capital structures, a lot of it supplied by large and well established private equity firms with whom we have strong relationships and do repeat business. In situations where we have asked sponsors to step up and support their portfolio companies we've been pleased with sponsors willingness and ability to provide capital. Despite this constructive view on the portfolio and the economy generally as credit investors, we are laser focused on ensuring we are well prepared in the event of a more protracted economic downturn. In addition to the benefits of our diversified and defensive portfolio, we have a large portfolio management and valuation team, which supports our investment teams and is proactive in identifying problems early and developing strategies to maximize our outcomes. Our balance sheet remains strong with net debt to equity levels of around one times. We have ample access to capital to invest in this attractive vintage. Importantly, we also have access to capital to deal with more challenging situations as they arise. In tougher situations, we believe we have the appropriate resources to execute on our demonstrated playbook for managing the portfolio. We believe these risk management workout capabilities are central to our ability to continue to deliver on our industry leading track record for credit performance. Given these dynamics and the company's overall positioning, we feel good about our third quarter results and our position looking forward. And with that, let me turn the call over to Penny to provide some more details on our financial results and our balance sheet position.