Ares Capital Corporation · NASDAQ:ARCC
Ares Capital — Investor Presentation (June 2023)
49 slides from Ares Capital's investor presentation, Jun 30, 2023
Slide 1: Investor Presentation
Investor Presentation Quarter Ended June 30, 2023 Confidential – Not for Publication or Distribution
Slide 2: Disclaimer
Disclaimer IMPORTANT NOTICE: Statements included herein may constitute “forward-looking statements,” which may relate to future events or the future performance or financial condition of Ares Capital Corporation (“ARCC”), its investment adviser Ares Capital Management LLC (“ACM”), a subsidiary of Ar
Slide 3: Risk Factors
Risk Factors An investment in an Ares fund, strategy, account or vehicle entails a significant degree of risk and, therefore, should be undertaken only by investors capable of evaluating the risks of that investment and bearing the risks it represents. General risks about making an investment are pr
Slide 4: Risk Factors
Risk Factors Ares and its affiliates may, from time to time, be presented with investment opportunities that fall within the fund or strategy’s investment objectives and the investment objectives of one or more other Ares funds or strategies. While Ares will seek to manage such conflicts of interest
Slide 5: Market Leading Company in Direct Lending
Market Leading Company in Direct Lending Market Leading Business Significant Development Company Competitive Strengths Attractive Portfolio and Compelling Track Record Diverse Sources of Funding Key Differentiators $16.47 Largest publicly traded Incumbency from Large Durable Balance Sheet to BDC1 wi
Slide 6: Ares Management
Ares Management With approximately $378 billion in assets under management, Ares Management Corporation is a global alternative investment manager operating an integrated platform across five business groups Global Footprint2 Profile Founded 1997 AUM $378bn Employees ~2,640 Investment Professionals
Slide 7: Market Opportunity and Industry Shift
Market Opportunity and Industry Shift We believe that addressable market continues to expand which provides additional opportunities for ARCC Larger Companies Turn Banks Continue to Retrench from Middle Market Direct Lending1 to Direct Lending2,3,4 80% ~65% reduction in Banks’ Share of the Leveraged
Slide 8: ARCC is a Leader in Middle Market Lending
ARCC is a Leader in Middle Market Lending ARCC is one of the largest direct lenders1 with the scale and capabilities necessary to invest across a variety of market environments, including a downcycle • Externally managed by Ares Management which amongst other things provides informational advantages
Slide 9: A Leading Investment Team
A Leading Investment Team We believe ARCC benefits from a large, long tenured and experienced team with significant experience in direct lending and extensive middle market knowledge ARCC’s Team Brings Members of the Investment Committee Invested over $88 billion 29 years average across over 1,935 K
Slide 10: Differentiated Portfolio Management Capabilities and Focus
Differentiated Portfolio Management Capabilities and Focus In our view, Ares has the largest and most experienced portfolio management and valuation team among any other direct lending manager in U.S.1 • 40 person dedicated portfolio management and valuation team is enhanced by Ares firm wide resour
Slide 11: ARCC's Key Differentiators
ARCC’s Key Differentiators ARCC’s scale and flexibility lead to sourcing differentiators and significant deal flow Relationships Incumbency Large Scale Ares Credit Group • 18+ year history in the • Incumbency allows us • Ability to commit $500 • Multi-asset class market to finance and grow million i
Slide 12: Key Elements to Our Investment Approach
Key Elements to Our Investment Approach We believe a credit-focused investment approach supports our 18+ years of leading performance • Leading market • Resilient, non-cyclical Fundamentally Strong share positions Attractive Industries industries Companies • Companies with long-term • Strong entry b
Slide 13: Highly Diversified Attractive Portfolio
Highly Diversified Attractive Portfolio Attractively positioned $21.5 billion1 highly diverse portfolio with downside protection Moderate portfolio company 475 Portfolio Companies3 Average Position Size 0.2%4 Largest investment is ~2%5 leverage with LTV of ~43%2 Portfolio by Asset Class1 Issuer Conc
Slide 14: ARCC's Significant Portfolio Diversity vs. BDC Peer Averages
ARCC’s Significant Portfolio Diversity vs. BDC Peer Averages ARCC’s portfolio is designed to mitigate risk from any one issuer or industry Average Hold1 Number of Industries identified by S&P1,3 Peer Exposure to Industries 33 Not in ARCC’s Portfolio1,3 0.6% 27 Airlines 0.2% Construction ARCC BDC Pee
Slide 15: Industry Selection Supports High Quality Credit Portfolio
Industry Selection Supports High Quality Credit Portfolio Focus on selecting defensively positioned companies in less cyclical industries ARCC Portfolio by Industry1 vs. High Yield and Leveraged Loan Industry Exposure to Cyclical Industries 9% Hotel & Gaming Oil & Gas 2% 11% 2% 22% 2% 9% 2% 3% 3% 5%
Slide 16: ARCC Has a Compelling Track Record of Credit Performance
ARCC Has a Compelling Track Record of Credit Performance ARCC’s annual loss rate has been significantly better than the industry averages ARCC Credit Experience Since Inception1 First Lien Second Lien & Subordinated Period Measured1 2004 – Q1-23 2004 – Q1-23 Significant Capital Deployed1 $62 billion
Slide 17: Strong Credit and Investment Performance
Strong Credit and Investment Performance ARCC has generated cumulative net realized gains where others have generated losses ARCC generated ~200 bps of average annual incremental Since IPO in October 2004 through June 30, 2023: gain differential vs. Peers3 since 20044 1.4% Approximately Net realized
Slide 18: Deep and Diverse Access to Debt Financing
Deep and Diverse Access to Debt Financing Our deep bank and capital market relationships enhance our access to capital supported by our investment grade ratings Aggregate ARCC Has Long Standing Investment Grade Ratings Pro forma for financing Weighted Principal Amount Principal activities in Q2-23*
Slide 19: ARCC Has Stable and Broad Sources of Financing
ARCC Has Stable and Broad Sources of Financing Conservative balance sheet with a longstanding track record of accessing diverse sources of financing Strong Liability and Funding Construction Simple Balance Sheet with Significant Liquidity $313 Available Cash* $5.4b Total Available liquidity 2.9x Exc
Slide 20: Deep Sources of Liquidity and Well Laddered Maturities
Deep Sources of Liquidity and Well Laddered Maturities Investment portfolio provides ample cash flows to support debt maturities Sources of Liquidity Sales & Repayments Pro forma for unsecured term issuance in Q3-23* 70% as a % of Portfolio at ~$5.4 billion of $16,789 Amortized Cost 60% available bo
Slide 21: We Have Generated Attractive Long-Term Stock Returns
We Have Generated Attractive Long-Term Stock Returns ARCC has outperformed relative to indices through a variety of market environments since IPO Annualized Cumulative Shareholder Total Return Since Inception 10/8/04 – 6/30/23 14% 12% 10% 8% 6% 4% 2% 0% ARCC 1 S&P 500 Index BDCs 2 Banks 3 Note: Past
Slide 22: Consistent Track Record of Generating Meaningful Shareholder Value
Consistent Track Record of Generating Meaningful Shareholder Value ARCC has delivered the highest regular/base dividend growth, NAV per share growth, NAV-based total returns and stock-based total returns when compared with every other externally managed BDC with a market cap of over $700 million tha
Slide 23: Ares' Values and ESG Integration
Ares’ Values and ESG Integration Confidential – Not for Publication or Distribution
Slide 24: Ares' Values Driven Culture
Ares’ Values Driven Culture While our backgrounds are diverse, at Ares we are unified and guided in what we do by our shared values Collaborative Purpose We achieve more We are a catalyst for shared prosperity and together a better future Trustworthy We are dedicated stewards Vision We seek to lead
Slide 25: Conclusion
Conclusion Confidential – Not for Publication or Distribution
Slide 26: Conclusion
Conclusion We believe ARCC is well positioned to deliver differentiated results Strong and growing position in an expanding market Meaningful competitive strengths driven by our scale and tenure in the market Healthy, attractively positioned and diversified senior oriented portfolio Large and experi
Slide 27: Appendix A
Appendix A Market and Additional Company Specific Investment Considerations Confidential – Not for Publication or Distribution
Slide 28: Ares Credit Group
Ares Credit Group Integrated scaled global platform combines direct origination, deep fundamental credit research and broad perspective of relative value Advantages $250.1 Billion AUM1 Access to ~75 Partners averaging 25 years of experience Deep Investment Differentiated Ability to Express 430+ dedi
Slide 29: Risk Position: Asset Mix Changes with Views on Risk and Return
Risk Position: Asset Mix Changes with Views on Risk and Return Our portfolio composition will change based on our view of market conditions and the returns available 100% 3% 6% 4% 4% 4% 4% 4% 5% 5% 5% 7% 7% 7% 7% 8% 9% 9% 12% 11% 12% 4% 3% 3% 3% 3% 4% 4% 4% 12% 4% 2% 5% 5% 3% 2% 4% 3% 4% 90% 5% 1% 4
Slide 30: Strong Investment Performance
Strong Investment Performance ARCC has generated strong net realized gains relative to the BDC peer group Annualized Net Realized Gain/Loss Rates1 Since 2004 or IPO for ARCC and BDCs >$1.5 billion portfolio at fair value or >$2 billion 2% combined portfolio at fair value if under common management2
Slide 31: ARCC's Portfolio Has Generated Higher Returns with Less Risk
ARCC’s Portfolio Has Generated Higher Returns with Less Risk Our investment strategy and competitive strengths have led to attractive returns with lower volatility Annualized Returns (Dividends & Change in NAV)1,2 3 Years 5 Years Since IPO (2004) 16.4% 11.9% 11.9% 7.5% 8.5% 6.3% 6.1% 6.5% 5.8% 4.5%
Slide 32: Cycle Tested with Differentiated Approach
Cycle Tested with Differentiated Approach ARCC’s team has deep experience and a leading track record in managing underperforming companies ARCC’s Historical Core Non–Accruals1,2 12% Percentage of Total Core Investment Portfolio Differentiated Approach 10% Pro-active portfolio management approach all
Slide 33: Strong Financial Results Through Two Global Crises
Strong Financial Results Through Two Global Crises We have demonstrated our resilience through two major global crises, further enhancing our positioning coming out of each period of volatility Performance During the GFC (2008 - 2009) Core ROE1,3* Realized ROE2,3* 11.2% 9.5% 9.3% -0.1% ARCC BDC Peer
Slide 34: Dividend and Core Earnings Plus Net Realized Gains Track Record
Dividend and Core Earnings Plus Net Realized Gains Track Record ARCC has generated cumulative core earnings and net realized gains in excess of our dividends paid since our IPO We have out-earned our dividend with cumulative core earnings plus net realized gains Cumulative Core Earnings Plus Net Rea
Slide 35: Ivy Hill Asset Management Overview
Ivy Hill Asset Management Overview Ivy Hill was established in 2007 and has become a leading middle market loan manager Ivy Hill Portfolio and Team Characteristics IHAM Portfolio Annual Default Rate vs. Market Since Inception in 20075,6 15+ $13.5b Year Track Record AUM3 2.3% 22 309 Managed Vehicles
Slide 36: Appendix B
Appendix B Management and Core Earnings Reconciliation Confidential – Not for Publication or Distribution
Slide 37: Management Team Overview
Management Team Overview Years of Relevant Years at Members of Investment Committee Experience Ares Background Michael Arougheti 30 19 RBC Capital Partners – Managing Partner Ares Capital Corporation – Co-Chairman of the Board of Indosuez Capital – Principal Directors and Executive Vice President Ar
Slide 38: Board of Directors
Board of Directors Director Title Experience Michael J Arougheti Co-Chairman /Director Ares Capital Corporation – Co-Chairman and Ares Credit Group - Partner and Member of U.S. Direct Executive Vice President Lending Investment Committee Ares – Director, Co-Founder, Chief Executive Officer Ares Comm
Slide 39: Reconciliations of GAAP Net Income to Core Earnings
Reconciliations of GAAP Net Income to Core Earnings Reconciliations of GAAP Net Income to Core Earnings For the years ended For the YTD period (in millions) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Q2-22 Q2-23 GAAP Net Income $508 $489 $591 $379 $474 $667 $858 $793 $484 $1,567 $600 $32
Slide 40: Index & ETF Definitions
Index & ETF Definitions Confidential – Not for Publication or Distribution
Slide 41: Index Definitions
Index Definitions Indices are provided for illustrative purposes only and not indicative of any investment. They have not been selected to represent appropriate benchmarks or targets for ARCC. Rather, the indices shown are provided solely to illustrate the performance of well known and widely recogn
Slide 42: Endnotes
Endnotes Endnotes Confidential – Not for Publication or Distribution
Slide 43: Endnotes
Endnotes Slide 5: Market Leading Company in Direct Lending 1. By market capitalization as of June 30, 2023. 2. Includes invested capital from inception on October 8, 2004 through June 30, 2023. Includes investments made through Ares Capital Corporation, the Senior Secured Loan Program and the Senior
Slide 44: Endnotes
Endnotes Slide 8: ARCC is a Leader in Middle Market Lending 1. At fair value. 2. Average number of years investing for all Investment Committee members. 3. Includes invested capital from inception on October 8, 2004 through June 30, 2023. Includes investments made through Ares Capital Corporation, t
Slide 45: Endnotes
Endnotes Slide 13: Highly Diversified and Predominately Senior Secured Portfolio 1. At fair value as of June 30, 2023. 2. Loan to value reflects the portfolio weighted average LTV based on the fair value of the portfolio as of June 30, 2023. LTV is inclusive of first lien, second lien, subordinated
Slide 46: Endnotes
Endnotes Slide 17: Strong Credit and Investment Performance 1. Calculated as the net realized gains/losses from Ares Capital IPO in October 2004 to June 30, 2023. Excludes $196 million one‐time gain on the acquisition of Allied Capital Corporation in Q2‐10 and gains/losses from extinguishment of deb
Slide 47: Endnotes
Endnotes Slide 28: Ares Credit Group • ARCC received the 2021 All-America Executive Team Most Honored designation alongside 136 other companies. Various Ares personnel received first place awards as part of the “Brokers, Asset Managers & Exchanges” category for: Investor Relations, CEO, CFO, Investo
Slide 48: Endnotes
Endnotes Slide 33: Strong Financial Results Through Two Global Crises 1. Net Operating ROE: Net Operating Income (or Core Earnings) to average shareholders equity, annualized over the given period. Core Earnings is a non-GAAP financial measure. Core Earnings is the net increase (decrease) in stockho
Slide 49: Confidential – Not for Publication or Distribution
Confidential – Not for Publication or Distribution