Ares Capital Corporation

Good morning. Welcome to the Aries Capital Corporation's fourth quarter and year-ended December 31st, 2023 earnings conference call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded on Wednesday, February 7th, 2024. I'll now turn the call over to John Stillmar, partner of Aries Public Markets Investor Relations. Please go ahead, sir.

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 that 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. Ares 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's one method the company uses to measure its financial condition and results of operation. 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. In addition, the reconciliation of these measures may also be found in our earnings presentation filed this morning with the SEC on Form 8K. 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 warranties with respect to this information. The company's fourth quarter, December 31st, 2023 earnings presentation can be found on the company's website at www.ariescapitalcorp.com by clicking on the fourth quarter 2023 earnings presentation link on the homepage of the investor resources section. Aries Capital Corporation earnings release and Form 10-K are also available on this website. I'll now turn the call over to Mr. Kip DeBeer, Aries Capital Corporation's Chief Executive Officer. Kip?

Thanks, John. Hello, everyone, and thanks for joining our earnings call today. I'm here with our co-presidents, Court Schnabel and Mitch Goldstein, our chief operating officer, Jana Markowitz, our chief financial officer, Penny Roll, our chief accounting officer, Scott Lem, and other members of the management team. For those who may not have seen our announcement, Scott Lem has been appointed as our new chief financial officer, effective February 15th. Scott has been a key business leader within our finance and accounting team for more than two decades, and he has been instrumental in helping us drive growth and success at ARCC over our many years together. In hand with this announcement, the company wants to thank Penny Roll for the tremendous contribution she has brought to our company over the past 14 years. As many of you know, she joined us with the acquisition of Allied Capital back in 2010, and has been a great partner to me and everyone on the team. And thankfully, she's staying with ARIES in a senior leadership role, and it's noteworthy that Penny will also remain an officer of ARIES Capital. Scott and Penny's new appointments underscore the depth and quality of our team, and we look forward to both continuing to serve ARIES Capital in their new roles. Now to our strong results. This morning, we reported another quarter of increased core earnings of 63 cents per share, which culminated in a year of record core earnings of $2.37 per share. These results largely reflect the continued strong credit performance of our portfolio and the earnings benefits of higher market interest rates on our net interest income. The strength of our earnings and positive valuation momentum in our portfolio also led to growth in our book value per share, which increased 5% year over year and reached a new record of $19.24 per share. In addition, our regular dividend of $1.92 per share for 2023 increased 10% over the 2022 regular dividend. We're proud of our long-term track record of delivering stable and consistent dividends to our shareholders. We remain one of the few BDCs that's been able to build NAV while delivering an average dividend yield of roughly 10% on the NAV over our 20-year history. Our strong results in 2023 and over the past several years reflect the market share gains that direct lenders like ARCC have enjoyed due to the greater certainty of execution, larger final hold amounts, and enhanced flexibility provided to companies. As an example, in 2023, over 90% of new LBOs were completed by direct lenders rather than through banks or bank-led syndications. And while the markets were slower last year, we believe we saw substantial market share gains overall. Although many more traditional lenders are now returning to the market and the syndicated loan and high yield markets seem to be finding their footing, we believe more borrowers recognize our ability to partner with them in support of their long term growth objectives, even during volatile and dislocated markets. In 2023 and into 2024, we've witnessed large, high-quality companies that were traditionally financed by the broadly syndicated markets turn to us to refinance their capital structures, not because they were unable to access the public markets, but because they preferred the stability that we provide through market cycles. By leveraging the broader scale of ARIES' U.S. Direct Lending Platform, we believe we can unlock value for a wide range of businesses, whether they are large high quality companies seeking multi-billion dollar financings or strong performing core middle market companies seeking a lender with flexible capital and the ability to support growth over time. Borrower demand for dependable financing partners is not exclusive to the larger end of the middle market, as we're also seeing many core middle market companies seeking our financing solutions. As an example, the number of transactions we reviewed in 2023 for companies with EBITDA less than $100 million expanded 30% year over year. Our differentiated deal flow also stems from our ability to provide capital in situations where significant technical expertise is required or there's a high degree of complexity, particularly in industries such as software and technology, specialty healthcare, financial services, infrastructure and power, and sports media and entertainment, just to name a few. We believe that our capabilities have resulted in us transacting with a growing number of borrowers. Ultimately, we believe the breadth of our sourcing capabilities drives better selectivity, which in turn leads to better credit outcomes and ultimately differentiates our performance relative to other market participants. Reflecting this focus on our sourcing capabilities, we estimate that we reviewed more than $500 billion of transaction opportunities in 2023. And during the fourth quarter, we saw more transactions than were reported in the broadly syndicated loan and middle market combined. We believe our high selectivity and rigorous underwriting supports our historical track record of maintaining a relatively low level of non-accruals and generally healthy credit performance. And currently we're seeing strong organic EBITDA growth of our portfolio companies and a below average level of non-accruing loans. Through the fourth quarter, we continued to collect 99% of contractual interest and the weighted average interest coverage ratio of our portfolio companies remained stable quarter over quarter. Further augmenting the health of our portfolio is a significant value junior to our loans. We estimate that the weighted average LTV of our total loan portfolio, including our junior capital investments, is around 43%. Our junior capital investments have attractive returns with LTVs that are comparable to liquid first lien structures. We believe that our ability to selectively invest in junior capital for relative value, often in much larger companies, differentiates our platform from senior-only competitors. Our ability to invest for relative value across the capital structure and generate incremental risk adjusted returns in junior capital investments has been a hallmark of our company and a significant contributor to our results over the past two decades. Given our size and long-term financing relationships, we maintain a strong capital position with excess liquidity in order to navigate market cycles and to be opportunistic when we see growing borrower demand. Our current net debt to equity level is reasonably low relative to historical standards at around 1.02 times. This leaves us with additional earnings upside if we choose to operate with expanded leverage and plenty of capital to pursue what we feel are attractive new investments. Our available liquidity was further enhanced in January 2024 with the issuance of a five-year unsecured note at industry-leading pricing. With that, let me turn the call over to Penny to provide more details on our financial results and some further thoughts on our balance sheet.