Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ares Capital Corp (ARCC, Financial) reported strong core earnings of $0.58 per share and a record NAV per share of $19.77 for the third quarter.
- The company saw a significant increase in M&A activity, particularly in sponsor-backed transactions, positioning ARCC well in the market.
- ARCC's portfolio remains healthy with nonaccrual rates declining quarter-over-quarter and remaining below industry averages.
- The company has been upgraded by Moody's to a higher investment-grade notch, solidifying its position as the highest-rated company in its sector by all three major rating agencies.
- ARCC declared a fourth-quarter dividend of $0.48 per share, maintaining a stable or increasing dividend for over 61 consecutive quarters.
Negative Points
- GAAP net income per share decreased to $0.52 for the third quarter of 2024 from $0.89 in the third quarter of 2023.
- The weighted average yield on debt and other income-producing securities decreased to 11.7% from 12.2% in the previous quarter.
- There is ongoing spread compression in the market, which could impact future returns.
- Interest and credit facility fees increased due to higher leverage used to fund portfolio growth.
- The company's second lien exposure has been significantly reduced, which may indicate a shift in market dynamics or strategy.
Q & A Highlights
Q: Are we entering a phase of increased market activity, and should we expect a busy 2025?
A: Yes, the last two quarters have been good, and we remain busy. We expect a busy year next year, especially after the election, which should help stabilize the market. - Kipp DeVeer, CEO
Q: How does the acquisition of Riverside Credit Solutions impact your focus on the lower middle market?
A: Riverside is a very active lower middle market lender, and their integration into our team will help us double down on our commitment to cover the lower middle market even as we scale. - Kort Schnabel, Co-President
Q: Is the direct lending premium on a secular decline due to spread compression?
A: No, the risk premium for locking up capital in illiquid credit remains necessary for market growth. Spread compression is more a response to a better-than-expected economy, leading to less risk and lower returns. - Kipp DeVeer, CEO
Q: How is the company managing the trend of clients consolidating relationships?
A: We are providing more add-on capital to existing portfolio companies to support growth and M&A, which contributes to our market share gain. It's more about add-on capital than refinancing. - Kort Schnabel, Co-President
Q: What is the outlook for credit quality and potential defaults in the portfolio?
A: The credit quality is stable with low nonaccruals. We don't foresee an increase in defaults, and the portfolio is in good shape. - Kipp DeVeer, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
