Ares Capital(US:ARCC)2023-07-25 17:46Financial Data and Key Metrics Changes - The company reported core earnings per share of $0.58 for Q2 2023, a 26% increase year-over-year, driven by higher interest rates on investments [8][18] - GAAP earnings per share for the quarter were $0.61, up from $0.52 in the prior quarter and $0.22 in Q2 2022 [19] - Net asset value per share increased to $18.58, reflecting a 1% increase over the prior quarter [19] - The total portfolio at fair value was $21.5 billion, up from $21.1 billion at the end of Q1 2023 [21] Business Line Data and Key Metrics Changes - The company originated $1.2 billion in new investments across 46 transactions in Q2 2023, with a weighted average yield on first lien investments exceeding 11.5% [23][24] - The weighted average yield on debt and other income-producing securities at amortized cost was 12.2% at the end of Q2 2023, up from 12% at the end of Q1 2023 [21] - The weighted average portfolio grade remained stable at 3.1, with a healthy annual EBITDA growth rate of 7% [25] Market Data and Key Metrics Changes - Direct lenders completed 85% of new issue LBO financing in the U.S., indicating a significant market share increase [9] - The number of deals reviewed by the company increased by 20% over the first quarter, reflecting a cautious optimism in the market [10] Company Strategy and Development Direction - The company is enhancing its market position by formalizing eight dedicated industry teams to improve sourcing and risk management capabilities [14] - The focus remains on maintaining a diversified portfolio across 475 companies and 25 industries, with a loan-to-value ratio of approximately 43% [27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the portfolio's performance, noting stable credit quality and no evidence of an imminent recession [15] - The company is optimistic about a potential increase in M&A activity as market conditions stabilize [30] Other Important Information - The company declared a third-quarter 2023 dividend of $0.48 per share, marking the 56th consecutive quarter of steady or increasing dividends [22] - The liquidity position remains strong with approximately $4.7 billion of total available liquidity [21] Q&A Session Summary Question: Activity in 3Q and fixed rate deals - Management noted that the decrease in fixed rate allocation was due to a single large preferred investment [33][34] Question: Change at Varagon and its implications - Management expressed optimism about the partnership with Varagon and its future growth [39][40] Question: Sponsor willingness to invest - Management indicated that while there is uncertainty, they are seeing a slight pickup in deal activity [44][45] Question: Future capital raising needs - Management prefers to utilize the ATM equity program for future capital needs, given the current leverage levels [56][57] Question: Interest coverage and portfolio performance - Management confirmed that less than 10% of the portfolio is underperforming, with good sponsor support observed [65][68] Question: Non-accruals improvement - The improvement in non-accruals was primarily due to the resolution of one significant restructuring [72][73]