Good morning. Welcome to Ares Capital Corporation's second quarter, June 30th, 2023 earnings conference call. At this time, all participants are on a listen-only mode. As a reminder, this conference is being recorded on Tuesday, July twenty-fifth, twenty twenty-three. I will now turn the call over to Mr. John Stilmar, Managing Director of Ares Investor Relations. Thank you very much. Let me start with some important reminders. Comments made during the course of this conference call and webcast, as well as the accompanying documents, contain forward-looking statements and are subject to risks and uncertainties. The company's actual results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in its SEC filing. Ares Capital Corporation assumes no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results. During this conference call, the company may discuss certain non-GAAP measures as defined by SEC Regulation G, such as core earnings per share or core EPS. The company believes that core EPS provides useful information to investors regarding financial performance because it's one method the company uses to measure its financial condition and results of operation. A reconciliation of GAAP net income per share, the most directly comparable GAAP financial measure to core EPS, can be found in the accompanying slide presentation for this call. The reconciliation of these measures may also be found in our earnings release filed this morning with the SEC on Form 8-K. Certain information discussed on this conference call and the accompanying slide presentation, including information relating to portfolio companies, was derived from third-party sources and has not been independently verified, and accordingly, the company makes no such representations or warranties with respect to this information. The company's second quarter ended June 30th, 2023 earnings presentation can be found on the company's website at www.arescapitalcorp.com by clicking on the second quarter 2023 earnings presentation link on the homepage of the Investor Resources section of our website. Ares Capital Corporation's earnings release and Form 10-Q are also available on the company's website. I'll now turn the call over to Mr. Kipp DeVeer, Ares Capital Corporation's Chief Executive Officer. Kipp? Thanks, John. Hello, everyone, thanks for joining our earnings call today. I'm here with our Co-Presidents, Mitch Goldstein and Kort Schnabel, our Chief Financial Officer, Penni Roll, our Chief Operating Officer, Jana Markowicz, and other members of the management team. I'd like to start by highlighting our second quarter results, I'll follow that with some thoughts on the economic environment and the current market. This morning, we reported strong second quarter results. Our core earnings per share of $0.58 increased 26% year-over-year, primarily driven by the benefit of higher interest rates on new and existing investments. Our GAAP earnings per share for the quarter were $0.61, driven by our strong core earnings and a modest increase in the overall value of our investment portfolio. These results led to another quarter of sequential growth in our net asset value per share to $18.58. We are pleased with these results. We think it's important to put them into context of what we're seeing in the broader credit markets. Over the past two decades, direct lenders have demonstrated their ability to be a stable source of capital, supporting the growth of U.S. companies, even when bank and syndicated capital markets were volatile and hard to access. More recently, this trend has accelerated. Direct lenders such as Ares, have stepped in to fill the void. Although second quarter transaction activity remains slower than recent history, it picked up compared to the first quarter. The firming tone of the capital markets is an important step towards greater M&A deal activity. Importantly, we are seeing direct lenders gain significant share, as 85% of new issue LBO financing in the U.S. was completed by direct lenders. In less volatile markets, this percentage would typically be lower. Transactions, particularly the large deals, would be more heavily weighted towards the broadly syndicated bank loan and high yield markets. Direct lending also continues to be increasingly active away from the LBO market, as direct lenders completed 1.5 times as many non-buyout financings as the broadly syndicated market during the second quarter, according to data by LCD. As it relates to our business, the number of deals we reviewed in the second quarter increased 20% over the first quarter. This includes certain incumbent portfolio companies seeking incremental financing opportunities, which provides us with a steady source of differentiated originations. Overall, we're sourcing many compelling transactions, and we are cautiously optimistic that a recent pickup in activity will translate into a higher level of closed transactions. During the second quarter, market pricing and terms continued to be highly attractive as it relates to our new deals. Spreads on our new loans are well above historical averages, leverage levels are lower, and equity contributions are higher. Similar to the existing portfolio, most of our new investments are floating rate deals that benefit from higher base rates. Market data provided by LCD underscores our view that the current vintage of buyout transactions has the highest level of equity support of any time in history. At the same time, the risk-adjusted returns in our lending business are historically very attractive, as spread per unit of leverage, which measures returns relative to risk, are 15% better than the 10-year average. We believe the current vintage ranks as one of the best for our lending business in the past 10 years. Within this attractive and growing market, we continue to enhance our leading market position. We believe our large and long-tenured U.S. direct lending team of 170 investment professionals delivers a compelling brand in the market. This provides us with many intangible benefits, particularly in sourcing. Given the impact of our participation and the value we add in transactions, we believe we sometimes get more looks on new opportunities and have an ability to negotiate preferred terms with our counterparties. In recent periods, we've taken additional steps to further support our sourcing and credit advantages. Expanding on our extensive sponsor and non-sponsor coverage over the past 5-10 years, we've continued to develop a significant amount of industry expertise, specifically in software and technology, specialty healthcare, financial services, infrastructure and power, and sports, media, and entertainment, to name a few. More recently, we've formalized these industry specializations, creating eight dedicated industry teams that enhance the significant sponsor and non-sponsored coverage that we enjoy today. We believe that formalizing these teams has further contributed to the strength of our process and our risk management capabilities, and made us an even more compelling partner for sponsors and for portfolio companies. Despite companies dealing with higher borrowing costs, we believe corporate fundamentals remain solid, perhaps stronger than we would have expected. Our portfolio companies continue to perform well, and we see no evidence of what many believe is an imminent recession. Credit quality has been stable, and inflationary pressures have begun to show some easing. Our weighted average portfolio grade is flat quarter-over-quarter and slightly better than our 15-year average. Our non-accruals at cost decreased slightly and remain well below our own and BDC averages over the past 15 years. Despite the constructive view that we maintain on the economy and the portfolio, we are paying particular attention to the cash flows at our portfolio companies. EBITDA continues to grow nicely, as Kort will describe, and our portfolio interest coverage ratio remained relatively stable quarter-over-quarter. While some market participants are calculating interest coverage ratio tests using actual interest expense over the past 12 months, which we don't necessarily think is particularly relevant, we calculate the ratio using pro forma annual interest expense, using market rates at quarter end. If we instead did the calculation using the actual interest expense over the past 12 months, our portfolio interest coverage ratio would have been 30% higher for the second quarter, or approximately 2.1 times. The loan to value in our portfolio continues to be conservative, and at quarter end, we estimate it to be around 43%. There's significant invested capital and value beneath us in most capital structures, a lot of it supplied by large and well-established private equity firms with whom we have great relationships and do repeat business. We continue to believe that a lot of the focus should and will be on the behavior of our partners who own the equity in these businesses, and we would expect solutions for companies needing assistance to come from a partnership approach between lenders and these partners, if history is any indication. As a result of these dynamics and the company's overall performance, feel confident about the results we were able to deliver for the second quarter and our competitive positioning going forward. With that, let me turn the call over to Penni to provide more details on our results and our strong balance sheet position. Thanks, Kipp. For the second quarter of 2023, we had core earnings per share of $0.58, compared to $0.57 in the prior quarter and $0.46 in the second quarter of 2022. We continued to see the benefits of higher base rates on our predominantly floating rate portfolio in the second quarter of 2023, as our interest in dividend income increased both from the prior quarter and the second quarter of the prior year. Our income was bolstered by higher capital structuring fees as compared to the prior quarter, despite a generally continued slower origination environment in the quarter. On a GAAP basis, we reported GAAP net income per share of $0.61 for the second quarter of 2023, compared to $0.52 in the prior quarter and $0.22 in the second quarter of 2022. Our higher GAAP net income per share in the second quarter of 2023 benefited from modestly higher portfolio values during the quarter. Our stockholders' equity ended the quarter at nearly $10.4 billion, or $18.58 per share, which is an approximate 1% increase in NAV per share over the prior quarter. Our annualized return on equity this quarter was greater than 12.5%, whether one measures this on a core or a GAAP basis. This strong level of profitability further builds upon our long-term track record of a 12% GAAP-based annual return on NAV since inception. Our total portfolio at fair value at the end of the quarter was $21.5 billion, up from $21.1 billion at the end of the first quarter, reflecting net fundings from the portfolio. The weighted average yield on our debt and other income-producing securities at amortized cost was 12.2% at June 30, 2023, which increased from 12% at March 31st, 2023, and 9.5% at June 30, 2022. The weighted average yield on total investments at amortized cost was 11%, which increased from 10.8% at March 31, 2023, and 8.7% at June 30, 2022. The yields on our portfolio reflect the continued increases in interest rates. Shifting to our capitalization and liquidity, we ended the second quarter with a debt-to-equity ratio net of available cash of 1.07 times, as compared to 1.09 times a quarter ago. Our liquidity position remains strong, with approximately $4.7 billion of total available liquidity, including available cash. We believe our significant amount of dry powder positions us well to continue to support our existing portfolio commitments, to remain active in the current investing environment, and to have no refinancing risk with respect to next year's term debt maturities. We declared a third quarter 2023 dividend of $0.48 per share, which marks the 56th consecutive quarter of steady or increasing dividends. This dividend is payable on September 29th, 2023, to stockholders of record on September 15th, 2023, and is consistent with our second quarter 2023 dividend. I would like to turn the call over to Kort to walk through our investment activities for the quarter. Thanks, Penni. I'm now going to spend a few minutes providing more details on our investment activity and our portfolio performance and positioning for the second quarter. I will then conclude with an update on our post-quarter end activity, backlog, and pipeline. In the second quarter, we originated $1.2 billion of new investments across 46 different transactions, as broader middle market sponsors and businesses continued to value Ares as a consistent and reliable source of capital. Underscoring the breadth of our market coverage, the EBITDA of the portfolio companies we financed during the quarter ranged from below $20 million to over $1 billion, We were the lead arranger on 77% of the transactions we closed in the second quarter. We believe that our ability to lead transactions is an important benefit of our scale, providing us greater control over capital structures, pricing, and documentation, and longer term, better tools to drive successful credit outcomes. We continue to find compelling value in today's market. This is demonstrated by the first lien investments we originated in the quarter, which had a weighted average yield in excess of 11.5%, but leverage of only 4.5x debt to EBITDA. Underscoring Kipp's earlier point about the historically attractive relative value we are able to achieve on our new investments, the weighted average LTV of our second quarter commitments, including our junior capital investments, was below 40%. We also believe the breadth and quality of our incumbent portfolio provides differentiated access to attractive new investment opportunities. We continued to invest in what we believe are our strongest portfolio companies, as over 70% of our transactions during the quarter were to existing borrowers, many of whom are executing tuck-in acquisitions or seeking growth capital and have elected to grow with us as their financing provider of choice. Our portfolio continues to perform well. We are seeing a lot of stability within our credit metrics. We believe this is largely due to our defensively positioned portfolio in market-leading companies with high free cash flow in resilient industries. In the second quarter, the weighted average annual EBITDA growth rate of our portfolio companies was a healthy 7%, in line with historical levels. The weighted average portfolio grade of our borrowers at cost was stable with last quarter at 3.1. As we have discussed in the past, we are carefully monitoring the impacts of inflation. While our portfolio companies are not immune, the percentage of the portfolio that we estimate to be highly impacted by inflation risk has improved modestly and is now at the lower end of our 5%-10% range, as we are seeing some improvements from supply chain pressures. All of these factors resulted in our nonaccrual rates continuing to be well below historical levels. Our nonaccruals at fair value improved modestly from 1.3% last quarter to 1.1% this quarter, while our nonaccrual rate at cost also improved from 2.3% last quarter to 2.1% this quarter, and remains well below our 3% 15-year historical average, and the KBW BDC average of 3.8% for the most recent 15-year period available. Looking forward, we remain confident about the performance of our portfolio, in part due to our disciplined approach to risk management and portfolio diversification, which reduces the single name risk in the portfolio. Our $21.5 billion portfolio at fair value is diversified across 475 different companies and 25 different industries. This means that any single investment accounts for just 0.2% of the portfolio on average, and our largest investment in any single company, excluding SDLP and Ivy Hill, is just 2% of the portfolio. We believe we have the greatest level of portfolio diversification of any publicly traded BDC. In addition to the benefits of diversification in our portfolio, there is a meaningful amount of enterprise value beneath us. The weighted average LTV of our portfolio is 43%, inclusive of our second lien and subordinated investments. On average, these junior capital investments are in meaningfully larger companies, in defensive industries, and with significant equity capital supporting our positions. At quarter end, our entire junior capital portfolio had a weighted average EBITDA in excess of $400 million and a weighted average LTV of less than 50%. Our compelling junior capital track record, which includes annualized loss rates of less than 20 basis points over our nearly 20-year history, supports our continued strategy of seeking attractive risk-adjusted returns through selective deployment into this asset class. I will provide a brief update on our post-quarter end investment activity and pipeline. From July 1st through July 19th, 2023, we made new investment commitments totaling $211 million, of which $119 million were funded. We exited or were repaid on $118 million of investment commitments. As of July 19th, our backlog and pipeline stood at roughly $470 million. Our backlog and pipeline contain investments that are subject to approvals and documentation and may not close, or we may sell a portion of these investments post-closing. I will now turn the call back over to Kipp for some closing remarks. Thanks a lot, Kort. In closing, we believe that our portfolio continues to demonstrate strong overall performance, and we are well positioned to navigate any potential future economic challenges. We believe our many long-term competitive investing advantages, the strength of our balance sheet, and the defensive positioning of our portfolio should allow us to deliver differentiated performance and attractive risk-adjusted returns for our shareholders. We are hopeful that activity will pick up as volatility subsides and as market participants have a more certain outlook on the direction of interest rates and the economy, and we stand ready to capitalize on this highly attractive new investing climate. Ares Capital, we believe that this is a good time to focus on our diversified portfolio and our sourcing, underwriting, credit, and portfolio management strengths with a view to delivering strong financial results and a significant level of core earnings from our diversified portfolio. As always, we appreciate you all joining us today. We're happy to open the line now for questions. At this time, if you would like to ask a question, please press star then one on your touch tone phone. If you would like to withdraw your question, please press star then two. Please note, as a courtesy to those who may wish to ask a question, please limit yourself to one question and a single follow-on. If you have additional questions, you may reenter the queue. The investor relations team will be available to address any further questions at the conclusion of today's call. Our first question comes from the line of Melissa Wedel with JPMorgan. Please proceed with your question. Good morning. Thanks for taking my questions today. wanted to touch on actually some of the activity that you disclosed in the press release for this quarter for 3Q to date. noted that I think it was 49% in preferred and fixed rate deals so far in 3Q, which was down, I think a decent amount from 2Q levels in terms of fixed rate allocation. I was hoping you could just elaborate on that and what you're seeing. Thanks for the question, Melissa. Nothing, nothing that for me, jumps off the page, Penni, on your quarter looking at it. It's one, frankly, single fixed rate, large preferred investment that skews the mix on a pretty small denominator. Yeah, the other thing to add maybe to that would be, on some of these preferred investments, we actually are able to get warrants and equity upside kickers as well. The fixed rate component doesn't capture the totality of the return. Yep. Understood. Just as a strategy going forward with the uncertainty of the rate environment, is your willingness to allocate to more fixed rate deals sort of increasing? Are you more amenable to requests from borrowers for that? Thank you. Not really. I think, Melissa, just to follow on, I think this is just literally a single circumstance of one negotiated deal with one particular company, so. Our next question comes from the line of Finian O'Shea with Wells Fargo Securities. Please proceed with your question. Hi, everyone. Good morning. Can you talk about the change at Varagon and what that might mean near or long term for the SDLP? To be honest, not in a lot of detail, in that news is pretty new. You know, we're excited, and I think our partners at Varagon are feeling good about having a large institution, you know, to partner with. My guess is that, you know, Man Group is gonna wanna run Varagon the way it's been run and continue to grow it. I'd expect that relationship with them would be unchanged, but since the news is new, I don't really have any confirmation beyond that, Fin. Great. Perfectly understandable. Thank you. Just a follow-up, does Ares BDC receive or is it interested in allocation from the Ares alternative credit line? From that business? For sure. I mean, as we say all the time, we think we're real beneficiaries at the BDC of the rest of our credit platform here. What we've typically excluded has been what we're doing in Europe. For the most part, we really run that standalone. Everything else that we're doing, you know, in U.S. credit benefits the BDC and alternative credit for sure can be part of that. Very good. Thanks so much. You're welcome. Our next question comes from Arren Cyganovich with Citi. Please proceed with your question. Thanks. It sounds like, you know, structures and, you know, leverage levels are attractive here. Are you seeing any kind of opening up yet of, sponsors, you know, willingness to invest in, you know... What do you think the timeframe will be till you start to see deal activity increase? That's probably the hardest one, Arren. If you actually ask the senior folks here, I think you'd get a range of different responses, you know, in terms of optimism, pessimism, you know, whatever it may be. I'd probably sit somewhere in the middle. I mean, look, we've seen the pipeline pick up a little bit. You know, specifically, we actually saw the number of deals that we review increase each month during the second quarter. If that's any indication, it's picking up a little bit. As I said in the prepared remarks, I think different folks have a very different view, or at least there's not consensus perhaps around the direction of the economy or the trajectory for rates. You know, are they gonna stay higher for longer? Are there gonna be rate cuts, you know, this year, which I don't think we see, you know, on the table anymore, early into next year if the economy weakens? Look, I mean, anecdotally, we're starting to see things pick up, but it's the middle of the summer. It's a really difficult time to gauge that. Fair. Fair answer. The other question I had was just in terms of funding. You've always had a nice balance between secured and unsecured funding. How are you thinking about funding going forward? You don't really have anything on the unsecured side, I guess, coming due until next year. I'll turn it to Penni, but I mean, I think the answer is we don't really have a change in our view of how we're gonna do things. Penni, you should pile on to that general comment if you'd like to. Yeah, yeah, I would just say, look, I think it's more of the same. We have a view of having a very solid balance sheet liability structure that shows ladder maturities and a nice mix of secured and unsecured. For the 2024 maturities, they're effectively resolved at this point. We have $4.7 billion of liquidity available. We've done a lot to grow the capacities that we have, and therefore, I think, you know, there's no refinancing risk going into next year. We're gonna continue to look at the markets, and as we've done in the past, be as opportunistic as we can about thinking about how to access those markets to continue to build out our ladder of maturities over time. Thanks. Our next question comes from the line of Ryan Lynch with KBW. Please proceed with your question. Hey, good morning. Following up on the previous question on kind of market activity, I was just curious, obviously, there's been a big decline in kind of LBO sponsor activity recently. I know you said that you're starting to see a little bit of pickup in activity, but those are obviously coming off very low levels, very low base. My question is, do you think you can see a significant pickup in an LBO sponsor activity if base rates stabilize, you know, around these levels or a little bit higher? Is that enough to really get sponsors interested just to have that sort of clarity? Or do you think you actually have to have the Fed cutting base rates, so that the cost of capital is actually cheaper for some of these deals? Yeah, I mean, again, I'm not sure. I know that's a hard question. Appreciate the question, though, Ryan. I mean, I think if seller expectations for where they hope to sell companies to sponsors go down, the current level of rates is probably fine. The counterpoint is decreases in rates in 2024 perhaps and beyond, I think should, you know, loosen activity levels up and make it a bit busier. But we're seeing folks try to put capital structures together, you know, with the current base rates, right? Again, activity is going up from here. Yeah, the cost of debt is much higher, and you just have to factor that into the model in terms of how you think about buying something right now. I think that's why everything's sort of slow, right? You're in a, you're in a period of just feeling things out. Yeah, I don't think it's an unwillingness on the part of sponsors to invest. I think it's just the uncertainty creating a difficult environment to transact between buyers and sellers. I do think that the more certainty there is, the higher the likelihood that we're gonna see a pickup in transaction activity. Okay, understood. You know, it feels like the economy has been much more resilient than people were expecting, certainly when their predictions, you know, six to nine months ago of recession, you know, occurring in 2023. But while the overall economy seems to be pretty resilient, I would assume that there are certain sectors that are maybe, you know, you guys, whether it's your own portfolio or broadly speaking, are seeing particular weakness. Are there any sectors that you are more concerned of or maybe seeing more weakness in what would otherwise be considered more of a, you know, a more resilient economy? You know, not really, Ryan. I mean, as you know, and many others probably on the call know, we try to position the portfolio defensively in terms of industry mix. I think the places where you're likely to see, you know, real spikes in defaults are places where we try to have very little or no exposure. You know, I too agree with your comment that the economy is actually performing materially better than I might have expected, you know, 12 months ago if you had asked me in terms of where we'd be in the summer of 2023. You know, I don't know if a soft landing, you know, is really in the cards. Obviously, the newspapers seem to imply that there's a chance of that now. Look, for the back half of the year, borrowers, just I said this in the prepared remarks, have less cash flow, right? They're de-leveraging less quickly, and we need to be focused on every company in every industry to make sure that we're, you know, doing what we need to do from a risk management perspective. When we look across our industry mix, there's no one particular place where we feel, you know, more concerned rather than, in the aggregate. Okay. Thanks, Kipp. Appreciate the time for that. Sure thing. Our next question comes from the line of Kenneth Lee with RBC Capital Markets. Please proceed with your question. Hi, good morning. Thanks for taking my question. Just in terms of any potential future capital raising needs, wondering if utilization of the ATM equity program is still the preferred method here, or would you be open to any sort of block transaction? Thanks. I mean, I think the simple answer to that is we've felt like we've been able to grow the company, you know, modestly through the ATM program in a creative, cost-effective way. We'll probably stick to that as the primary source of, you know, where we go from here. You know, the leverage level is at a very reasonable level at the end of this quarter, so we feel confident that we have dry powder enough to take advantage of what we think is a compelling environment. For now, I think the ATM program is going to prove to be sufficient. Gotcha. Very helpful there. That's all I had. Thanks again. Sure. Thanks for the question. Our next question comes from the line of Casey Alexander with Compass Point. Please proceed with your question. Yeah, thank you. Given your comments about the economy performing better than you would expect, can you give us some color on the pace of amendments and modifications in the portfolio? Are you actually doing less of that than you might have expected at this point in time? Yeah, I mean, it's less than certainly it was. There's still some activity there, Casey, I'd call it sort of middle of the road, right? It's not very active, certainly it's part of the discussion that we're having with owners of all these companies today, that, again, may not be meeting plan, may not have as much cash flow as they expected, I'd call it just ordinary course. Okay. Thank you. Secondly, did Penni mention, how much spillover there is on a per share basis? I did not, but it was the same as last quarter. If you look at what we estimate to be carrying forward from 2022 into 2023, it's stable at $650 million or $1.19 a share. Terrific. Thank you very much. Appreciate it. Thanks for the question, Casey. Our next question comes from the line of Robert Dodd with Raymond James. Please proceed with your question. Hi, thanks for taking the question. I've got your comments obviously have reduced cash flow, et cetera, and that's across the portfolio, but EBITDA is still growing, et cetera, and interest coverage in aggregate is pretty good. Can you give us color on where how much of the portfolio will or does have interest coverage below one at peak, so if I call it 550? Related to that, for those that are stuck, how, what's the step-up rate, so to speak, from the sponsors in terms of stepping up and providing incremental capital to that proportion of the portfolio? Yeah, I mean, where we always direct people on that, Robert, thinking about companies that have, you know, probably insufficient or less than we'd like cash flow, really points you to the mix of ones and twos in the portfolios, which again, is our underperformers. You know, material underperformers are the ones, and twos are, you know, kind of what I think of as the watch list. You know, that number adds up to, you know, well less than 10% today. I'm sorry, the follow-up. The only question I would follow on that, what proportion... For those businesses, are the sponsors stepping up at, you know, 100% incidence rate or 90% already? I mean, how are the negotiations going? Are they coming through and supporting those businesses, or are you having to do more of that? Yeah, I mean, I think they have generally. If you look at, you know, the PIC percentage of our portfolio, it's a kind of a, you know, it's a three-year low at this point. The playbook during COVID, where we actually provided relief from paying cash interest, is not really part of the playbook today. I would say that we've seen good sponsorship support in situations that have required it, but the way it's progressing, just to maybe try to give you all a little bit more color, is even if a company has, you know, a longer-term problem with capital structure, where interest payments perhaps look too high with the, with the base rate being this much higher, in most of those circumstances, they still have significant cash on the balance sheet. They have access to undrawn revolving credit facilities which they can use. There are a handful of interim tools before, you know, a sponsor probably needs to step up and support a company, I would say, that is performing, you know, with more capital. I think that's another reason why activity levels are low. I think you see a lot of private equity firms that are really focused on what's going on in the existing portfolio and thinking about how to deal with that, as much as they're struggling to, you know, do new deals. Hopefully, that gives you a little bit of color. I think, yeah, I'll Yeah, to underscore the first point Kipp made, though, and to answer your question spot on, we're not seeing -- when it gets to the point where the company does need liquidity, we're seeing no change in sponsor behavior in terms of their willingness to support, those companies. We spent a lot of time in the prepared remarks talking about the loan to values. You know, given the loan to values in our portfolio on a go-forward basis, we certainly would expect to see the same thing. Got it. Got it. Thank you. One sort of follow-up and stop there. Ivy Hill, it's been a tremendously successful business for you, now 10% of the portfolio if we look at the equity that is there, I think we've talked about this on podcast. Is there still room to grow that, or is 10% of the portfolio kind of the cap for the size of that business? I mean, we don't really have a cap, particularly on things that have been that successful. I have acknowledged in a different setting, I'll acknowledge it now that, you know, having a 10% exposure to a single name, even though we don't really think about it as a single name, because there are a host of underlying funds and cash flows that deliver the return, is probably, you know, near the upper limit, at least for me personally. I wouldn't expect it to grow materially from here. Got it. Thank you. Our next question comes from the line of Mark Hughes with Truist Securities. Please proceed with your question. Thank you. Good morning. The non-accruals improved this quarter after stepping up for a bit for a quarter or two. Was there anything common to that improvement? Was it one-off? You talked about inflationary pressure easing. Was that a driver, perhaps? I mean, really, Mark, when you go through with a little more detail, really what happened is we resolved one of the non-accruals through a restructuring of a specific portfolio company. Removing that non-accrual is what actually, just from a math point of view, took the number down. Obviously, with that, I'll say, just to be clear, you know, we didn't see other companies, you know, add it in a material way, right? But the decrease was really the result of one significant restructuring that we did at a portfolio company. Understood. With, with the potential for deal activity to pick up as interest rates improve, do you, do you see maybe some pause as the expectation is for interest rates to decline further? The question is, when do you transact? How does it work at this point in the interest rate cycle? I mean, I think it's very hard to tell. Again, I think if you have stability in rates, it makes it easier, back to one of the earlier questions, for buyers to at least understand, you know, what their maximum cost of debt financing may be when you set up, you know, a model to do a transaction. Obviously, more compelling for transaction activity would be a decline in rates, right? Where you actually have the expectation for cuts to start coming through. Your guess is as good as mine as to when that actually happens, if at all. I think we kind of are where we are for the time being. Thank you. Mm-hmm. Thanks. Our next question comes from the line of Bryce Rowe, B. Riley, please proceed with your question. Great. Thanks. Thanks for, thanks for taking the question here. Maybe first one is around balance sheet leverage. You, you all delevered a bit in the first quarter and maybe even a little bit more here in the second quarter. Can you talk about, you know, kind of your view on maybe relevering or maintaining at these levels? Just kind of curious, you know, where your comfort level is at this point? Yeah, thanks for the question. I mean, it's the, it's the same answer, I think, as it's been in the past, maybe with a modest footnote. You know, we tend to run kind of between 1 and 1.25 times. The leverage helps drive earnings a little bit. Again, just as a reminder that the BDCs are really not particularly leveraged companies, right? Going from 1.05 to 1.17 times doesn't have a huge impact. We, I think, at this point in the cycle, though, would like to have a lot of liquidity, both to pursue new investing and also to make sure that we can, you know, invest in portfolio companies to the extent we want to or need to. I think it's really just driven quarter to quarter by how active we are and what the repayment, you know, calendar looks like. That's hard to predict, but we feel comfortable with where it is today. If it went up a little bit, that would be fine. If it went down a little bit, that would be fine. You know, the earnings are more than supporting the dividend, and we felt good about the trajectory here, so we don't feel any need to, you know, lever back up in the way that you refer to it. We're happy with where we are today. Okay, that's helpful. Maybe a follow-up to this comment, Kipp. No, no view of imminent recession, based on your prepared remarks. Obviously, dividend coverage is extremely strong here, 20%+. At what point do you kind of take it up another notch in terms of dividend increases? I mean, obviously you've seen some great dividend increases over the last year, but with that view of no imminent recession, just how are you thinking about dividend levels given that level of dividend coverage? I think the discussion that we had when we raised the dividend, obviously, you know, the earnings are well in excess of even the raised dividend level. What's prudent, right? The discussion was much more about the direction of interest rates than it was about portfolio credit quality, right? If we pulled a couple of the different levers that could allow us to have a higher dividend or a lower dividend, the one that's the most impactful would be a significant decrease in base rates. You'd have to model non-accruals up a lot to have it have any real impact on how we thought about the dividend today. Okay, that's helpful. Appreciate the answers. Sure. Thanks for the question. Our next question comes from the line of Erik Zwick with Hovde Group. Please proceed with your question. Thank you. Good morning, all. I wanted to start, I guess, just first with a follow-up to something I inquired about last quarter. In terms of your new commitments, 92% had floors this quarter. I'm curious if the borrower is accepting of your, you know, maybe request to move that floor up a little bit from kind of the 1% level that you've been operating for a while? Is that still kind of at the floor rate? Yeah, we've been trying, and we haven't had a lot of luck. Okay, fair enough. Then my second question is, you know, maybe similar to some prior questions, but maybe just thinking about it a slightly different way. Looking at new commitments in the quarter, you know, up noticeably from 1Q, but still running, you know, well below the level that we've seen in prior years. Curious, you know, how much of that is just a reflection of the market for deal activity versus maybe caution on your part, just given that there's still uncertain economic environment at this point? No, I mean, we wish there was more activity. You know, we're not particularly cautious. You know, I think we're thoughtful about the existing portfolio, but we would love a busier environment. The reality is there, you know, not a lot of opportunistic recaps getting done because people have pretty, you know, good balance sheets in place. What's really gonna drive a pickup from here is just gonna be more M&A activity. As we've mentioned, you know, we've got the benefit of having a large, diverse portfolio that contributes to a lot of follow-on capital opportunities for us. Yeah, to be materially busier, we just need the M&A environment to pick up. You know, of course, the flip side of that is that the repayment activity is also lower than historical levels, so we're getting more duration on our existing loans. It's, yeah, it's not all bad. It all sort of balances out. Yeah, that's a good point. That makes sense. Thanks for taking my questions today. Yep, you're welcome. Our next question comes from the line of John Rowan with Janney. Please proceed with your question. Good morning. Hey, John. Just to talk a little bit about the interest coverage and specifically kind of the ones and twos, and I appreciate, you know, the information you gave and how it's calculated. Particularly, you know, the loan-to-value rates, which you know, would seem to be compelling for sponsors to step up and, you know, and help a struggling investor. I'm curious, is there a difference in kind of the LTVs across the portfolio relative to what would be in the ones and twos? I'm just trying to gauge, you know, if that same, you know, reason to step up and support a company is the same in the ones and twos as it is for the rest of the portfolio. Yeah, no, I think but it's not, right? The LTVs are gonna be much higher in the underperformers. Yeah, we're marking the equity value to market every quarter. As there's underperformance, we're marking the equity value down. You know, there still might be significant cash equity there, which would incentivize support. Obviously sponsors are gonna evaluate performance of the company, and the loan performance might be harder for them to support. Okay. Just one kind of housekeeping question. Obviously, non-accruals came down. You did restructure one large loan. Is that what drove the realized loss in the quarter? Yes, primarily. Okay. All right. Thank you. Yep, you're welcome. Thanks for the question. This concludes our question and answer session. I'd like to turn the conference back over to Mr. Kipp DeVeer for any closing remarks. I just thank everybody for participating and the good questions. I hope everyone enjoys the rest of the summer. We'll be in touch soon. Thanks. Ladies and gentlemen, this concludes our conference call for today. Goodbye. If you miss any part of today's call, an archived replay of the call will be available approximately 1 hour after the end of the call through August 22nd at 5:00 P.M. Eastern Time. To domestic callers by dialing 877-660-6853, and to international callers by dialing 201-612-7415. For all replays, please reference conference number 13738840. An archived replay will also be available on a webcast link located on the homepage of the Investor Resources section of Ares Capital's website.