ARES CAPITAL CORP Q4 FY2024 earnings call

• Leadership changes: Kort Schnabel named new CEO effective April 30, Kipp DeVeer stepping down as CEO but remaining involved with the board and investment committee, Jim Miller continuing as sole President.
• Financial results: GAAP net income per share for Q4 2024 was $0.55, core EPS $0.55; full-year GAAP net income per share $2.44.
• Portfolio performance: Total portfolio at fair value ended at $26.7 billion, weighted average yield on investments decreased, stockholders' equity reached a record high of $13.4 billion or $19.89 per share.
• Origination activity: 2024 was a record year in originations, with over 70% of new commitments to existing borrowers, and portfolio companies' organic weighted average LTM EBITDA growth reached 11% in Q4.
• Credit performance: Non-accrual rates below historical averages, weighted average loan-to-value at 44%, interest coverage ratio at 1.9 times.
• Balance sheet: Ratings upgrades from S&P and Moody's, $1 billion unsecured notes issuance in January 2025, strong liquidity with nearly $6.7 billion of total available liquidity.

No specific product segment breakdown provided in the transcript.

• Expect an accelerating M&A environment in 2025 due to a healthy economy and private equity sponsor liquidity needs.
• Positioned well with significant available capital to benefit from increased investment activity.
• Confident in continued success with the strong leadership team led by Kort Schnabel.

• Potential impacts from new government policies on the portfolio.
• Market rate changes affecting portfolio yields and interest expense.
• Competitive market conditions in the direct lending space.

Q: In terms of the activity during the fourth quarter, was there any impact in terms of timing of new investments or repayments during the quarter on NII?

A: Yeah. I think it was kind of flat versus the third quarter from, I'm looking at the numbers correctly. Things did, I think, shift a little bit, you know, obviously, we had the election, which may have delayed some closings. But we're very happy with the Q4 activity levels. And as we mentioned in the prepared remarks, January was busy and it remains busy. So we're feeling good about, you know, deal flow and new transactions.

Q: On the understanding of sports franchise deals and if more would be expected, why the Dolphins deal was suitable?

A: Yeah. I'm gonna ask Jim to help a little bit too because he's very engaged both with the sports media and entertainment franchise, but also specifically with the deal that we did with the Dolphins and the surrounding assets. But, I mean, to go backwards, we're now probably five, six years into having built out a very substantial footprint and I think incredible reputation as a knowledgeable kind of SME investor. And it's not just teams and it's not just sports. Philosophically, the BDC, as we've always said, wants to leverage the strength of the Ares credit platform, which is very broad. And creates a diverse set of opportunities for the BDC specifically. SME is definitely a place along with other parts of the franchise that we want to leverage for what we think are really unique investments, you know, for both the platform and for the BDC. I mean, I think, you know, the Dolphins specifically, you know, there's a roughly $200 million investment at the BDC. And just to be clear, the asset itself includes more than just the team. It's, you know, the stadium. It's real estate. It's a Formula One team. It's a tennis tournament. There's a lot of stuff going on there. And we think it's very unique. I mean, I think you probably read about it in the press, Ares is one of the few firms that was granted the unique ability to come into a franchise investment like this. We think it's a top-tier franchise and an absolute top-tier geography that's growing. And should grow with a fair amount of consistency over the next, you know, long period of time because of the quality and the diversity of the assets. So again, for me, I think it's a fabulous investment. It's not particularly large when you look at the overall scale of the company. And it's unique and attractive to ARCC shareholders and ARCC shareholders, frankly, only when you're talking about access through a BDC stock.