Ares Capital(US:ARCC)2021-04-28 19:17Financial Data and Key Metrics Changes - The company reported core earnings of $0.43 per share for Q1 2021, an increase from $0.41 per share a year ago, but lower than $0.54 in Q4 2020 [8][15] - GAAP earnings for Q1 2021 were $0.87 per share, compared to $0.89 in Q4 2020 and a loss of $1.42 in Q1 2020 [15] - The net asset value (NAV) per share reached a record high of $17.45, reflecting a 12% increase from a year ago and a 1% increase from the end of 2019 [17] Business Line Data and Key Metrics Changes - The portfolio at fair value was $15.4 billion, with total assets of $16 billion as of March 31, 2021 [17] - The weighted average yield on debt and other income-producing securities at amortized cost was 8.9%, down from 9.1% at the end of Q4 2020 [17] - The company financed less than 5% of the deals reviewed, maintaining selectivity in investment opportunities [12] Market Data and Key Metrics Changes - The company experienced a 14% increase in transaction opportunities and a 25% increase in the average EBITDA of reviewed companies compared to the first quarter average over the past five years [11] - Portfolio companies saw a weighted average EBITDA growth of 7% over the last 12 months, up from 5% in Q4 2020 and 2% in Q3 2020 [13] Company Strategy and Development Direction - The company is focused on expanding its presence in the direct lending market, capitalizing on the trend of companies preferring direct lenders over traditional banks [10] - Ares Capital aims to leverage its permanent capital and significant scale to support private equity sponsors in M&A transactions [10] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the economic recovery, driven by fiscal and monetary stimulus and vaccine rollouts, which are expected to enhance transaction activity [9] - The company believes it is well-positioned for growth, with a healthy backlog and pipeline of investment opportunities [26] Other Important Information - The company declared a regular second quarter dividend of $0.40 per share, payable on June 30, 2021 [21] - The company raised $1 billion in unsecured notes at a record low coupon of 2.15% and extended its corporate revolving credit facility to $4 billion [19][20] Q&A Session Summary Question: Investment activity and yield trends - Management noted that the decline in the weighted average yield of debt and other income-producing securities is due to market conditions and not a deliberate strategy [30][31] Question: Pipeline composition and industry focus - The company is seeing significant activity in the software and services sector, which is reflected in the pipeline, alongside healthcare and business services [33][34] Question: Credit quality and portfolio upgrades - Management indicated that the portfolio's credit quality remains robust, with a 7:1 upgrade to downgrade ratio, despite some smaller companies lagging in EBITDA growth [57] Question: Future investment strategy and leverage - Management expects to maintain a leverage ratio between 1.0 and 1.2, depending on activity levels, and does not anticipate a significant shift in the mix of investments [64][68]