Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Ares Capital Corporation second quarter 2008 earnings conference call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded on Thursday, August 7, 2008. In addition to Ares Capital Corporation’s earnings release and quarterly report on Form 10-Q, the company is offering a webcast and slide presentation to accompany this call. Copies of the earnings release, Form 10-Q and the slide presentation can be obtained from the company’s website at arescapitalcorp.com under the Investor Resources tab. The earnings release is located in the Press Release section. The Form 10-Q can be found in the SEC Filings section, and the slide presentation is located in the Stock Information section. Ares Capital Corporation's second quarter 2008 earnings press release, Form 10-Q, comments made during the course of this conference call and webcast and its accompanying slide presentation contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and are subject to risks and uncertainties. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, and similar expressions. Ares Capital Corporation's actual results could differ materially from those expressed in the forward-looking statements for any reason, including those listed in its SEC filings. Any such forward-looking statements are made pursuant to available Safe Harbor provisions under applicable securities laws and Ares Capital Corporation assumes no obligation to update any such forward-looking statements. Please note that past performance and market information is not a guarantee of future results. Also during this conference call, the company may discuss core earnings per share or core EPS, which is a non-GAAP financial measure as defined by SEC Regulation G. Core EPS is the net per share increase in stockholders equity resulting from operations, less realized and unrealized gains and losses, any incentive management fees attributable to such realized gains and losses and any income taxes related to such realized gains. A reconciliation of core EPS to earnings per share, the most directly comparable GAAP financial measure, can be found in the company’s earnings press release. The company believes that core EPS provides useful information to investors regarding financial performance because it is one method the company uses to measure its financial condition and results of operations. At this time, we would like to invite the participants to access the accompanying slide presentation. As previously noted, you can access the presentation on the company’s website at arescapitalcorp.com and click on the August 7, 2008 presentation link under the Stock Information section of the Investor Resources tab. I will now turn the call over to Michael Arougheti, Ares Capital Corporation’s President.

Thank you, operator. And good morning everyone and thanks for joining us this morning. I’m joined today by Rick Davis, our Chief Financial Officer, and other members of our senior management team, including Carl Drake, who recently joined our management team as Senior Vice President of Finance and Head of Capital Markets and Investor Relations. Carl joined us from SunTrust Robinson Humphrey where he was a specialty finance analyst covering BDCs as part of his overall coverage. And we are very excited to have him on board. Given his diverse background, which also includes leveraged finance and investment banking, Carl will focus on Investor Relations and capital related activities, as well as provide origination support from our new Atlanta office. Please join me in welcoming Carl to our team. Before we get into the financial details of the second quarter, I want to take a minute to summarize our recent operating results in capital markets activities. Despite continued volatility in the credit markets and a significant decline in overall leverage loan and buyout volume in the broader market, we closed $342.3 million of investment commitments in the second quarter. As I’ll discuss in more later and consistent with the expectations we discussed in our last earnings call, these new investments generally reflected meaningfully improved pricing and structure with underlying relative leverage, comparable to or lower than what we see in our existing portfolio. Importantly, these new investments contributed to an improvement in our investment spread during the second quarter to 7.86%. This represents an increase of 46 basis points compared to the first quarter and an even more dramatic increase of 189 basis points since the end of 2007. As you know, we have a long-standing objective of preserving capital while seeking superior risk adjusted returns through business cycles. Consistent…

Great. Thanks, Mike. We’ve outlined the highlights of the second quarter on slide three of our presentation. Basic and diluted core EPS and net investment income were both $0.40 per share for the second quarter, representing $0.04 increase compared to Q1. This increase was primarily due to higher fee income in Q2, partially offset by a higher share count resulting from the equity rights offering Mike mentioned earlier. Our income from structuring and amendment fees was higher than normal at $11.3 million in Q2 as we took advantage of current market conditions to generate additional fee income. However, although difficult to predict, going forward we would expect to see fee income normalize to more historical levels in the range of $4 million to $5 million per quarter. Our GAAP net income of $3.3 million or $0.04 per basic and diluted share was down sequentially from Q1 by $0.09 per share and was primarily impacted by net unrealized depreciation on our portfolio investments, partially offset by higher interest and fee income. As shown on slide seven, we had net unrealized depreciation on our portfolio investments of $32.8 million or $0.36 per basic and diluted share in the second quarter. We also incurred a small realized gain in the quarter. As shown on slide ten, our net asset value per share was $13.67 at the end of the second quarter, down from Q1 largely due to the effects of the equity rights offering Mike outlined and to a lesser extent, unrealized depreciation adjustments on our portfolio. Our second quarter gross commitments totaled $342.3 million, including $17 million of sales to our managed fund, the Ivy Hill Middle Market Credit Fund. Total exits and repayments were $43.4 million, resulting in net commitments of $298.9 million for the second quarter. As you can see…

Thanks, Rick. Before commenting on the broader market and the opportunities we see looking forward, I want to provide a little color on our recent investment activity and portfolio positioning, both of which reflect the continued execution of our long-standing investment strategy and opportunistic response to the current investment environment. Despite broader market issues that have continued to dampen loan volume, we’ve continued to generate healthy levels of deal flow. For example, we reviewed 235 transactions during the second quarter, slightly lower than the record 250 transactions we reviewed during Q1 of this year. This total doesn’t include the numerous secondary capital market transactions we also reviewed during the quarter. As we’ve stated before, asset selectivity drives good investment decisions and generating significant deal flow is crucial to that process. This absolutely held true during the second quarter, as even though overall middle market deal flow remained healthy, quality deal flow diminished broadly. Generally speaking, we saw more attractive opportunities in the upper end of the middle market as is reflected in our second quarter investments. This consistent level of deal flow, even during a period of slower market activity, is we believe a testament to our established self origination capabilities, the benefits of the broader Ares management platform, our ability and willingness to invest in all levels of the capital structure, and our demonstrated ability to close transactions in this environment, which sets us apart from many other financing providers. To illustrate this point, we recently announced the opening of offices in Atlanta and Chicago and the addition of several new senior professionals that bring unique skills and relationships to our company as well as long individual histories in the middle market. The addition of these professionals in our growing market presence reflects our continuing strategy of taking advantage…

(Operator instructions) Our first question comes from Greg Mason of Stifel Nicolaus.

Hi there. Mr. Mason? Greg Mason – Stifel Nicolaus: Yes. Sorry about that. Could you talk about -- on slide 16, when we look at your portfolio percentage floating, it has decreased from 51% in Q4 to 40% in Q2. Can you talk about as you move into more fixed assets, how you think about hedging your floating rate assets since you’ve had a nice increase in spreads? What’s your thoughts about perfecting yourself from rising rates going forward?

It’s obviously something we spend a fair amount discussing. I think, as we’ve mentioned on previous calls, we have an interest rate consulting firm on retainer and we are having formal VP reviews of our interest rate exposure. There is also some good disclosure, Greg, in our Q that shows the current balance sheet sensitivity to changes in the floating rate interests – interest rates. I think for now it’s something that we continue to monitor, but given the potential exposure and our current portfolio composition, there is really no cost effective hedge available that would be accretive to us given the shape of the forward curve. To the extent that that changes, obviously we would employ a hedging strategy to try to lock in our spread. As importantly a factor that we have to keep in mind is, as the capital markets reopen to us, we’ll have the opportunity to borrow money either at floating rate or fixed rates. And we will continue to do everything we can to stay match funded when the markets reopen. Greg Mason – Stifel Nicolaus: Okay, great. One more question. Can you talk about more specifically what types of off-balance sheet funds you are looking at and what’s your time frame for potentially launching some of these funds?

Sure. It’s a whole host of things. I think one of the ironies of markets today and as I highlighted some of the fund raising activity in the private markets that we are seeing across the Ares Management platform, there is a real significant appetite in the private markets for assets such as the ones that we are originating here. And that ranges from senior debt all the way down through to structured equity in mezzanine. We are talking to a number of different equity and debt providers about levered and unlevered senior loan funds similar to our Ivy Hill structure that we are currently managing. We are talking to a number of private investors about mezzanine funds on an unlevered basis and the like. So the conversations are broad and ongoing, and our hope is that we’ll be able to execute on more than one of these types of things by the end of the year. Greg Mason – Stifel Nicolaus: Great, thank you guys.

Sure.

Our next question comes from Sanjay Sakhrani of KBW. Sanjay Sakhrani – KBW: Thanks. Mike, you gave a lot of color on kind of the opportunities, but how do you balance out with the liquidity constraints in this environment? It seems like from what we’ve heard from other BDCs, it’s kind of mix messages. I think you even mentioned the quality of deal flow kind of scares. So how do you balance the two? I mean, you guys have had some pretty good growth over the past – at least quarter or so?

Yes. It’s something that you have to actively monitor and find the right balance. Again, the nice thing about our business is we have very high visibility to both our new investment pipeline as well as any potential exits or repricings or refinancings in the portfolio. We typically have a good 30 to 90-day plus view on where liquidity is coming from and where liquidity needs are. And we are constantly managing our origination and pipeline development against where we are seeing liquidity. Again I think we are fortunate as we look forward while we do see market deal flow slowing, the current competitive landscape has changed to the point where we are actually getting a shot at investing in the deals that we want to invest in. And at the same time, as we mentioned in the call, we have a very good visibility, particularly in the third quarter to refinancings, exits, realizations, et cetera in excess of $150 million. So it’s something you have to watch aggressively and manage. On balance, we are expecting that we are going to get a lot of capital back between now and the end of the year and redeploy it. Sanjay Sakhrani – KBW: So do you think we are going to get better opportunities for capital deployment in the back half of this year?

I think it’s going to be mixed. Our current sense is that given some of the reduced activity that we saw over the last month or two, we are expecting a short flurry of activity post labor day. And then I think going into the end of the year, it’s really going to be a function of the broader capital markets, typically in a market environment like this that the capital markets aren’t improving, my sense is a lot of the M&A activity that would otherwise have found its way into this year will probably get pushed into 2009. Sanjay Sakhrani – KBW: Okay. And then did you guys mention an unfunded commitments number? And just I had a question on though – I mean, how much of them are firm commitments and how many can you just pull back on if you don’t want to fund them?

Yes. It’s a whole – I’ll try to give people little bit more clarity on our unfunded commitments in general. I think first of all, since we act as agent on most of the commitments and we sit on the Boards of many of these companies, we obviously have a lot of visibility into what the projected borrowing needs of these borrowers are. And that’s something that we are modeling on a daily basis and keeping our eye on. There are obviously a number of factors that go into determining actual availability. It includes borrowing bases based on current assets, performance metrics, leverage levels, seasonal needs of companies et cetera. So, looking just at the aggregate unfunded number doesn’t give you a true picture of what our potential exposure is. As a management team, we meet weekly to analyze all of those projections and the models that we have tend to be very accurate. In terms of discretionary, a number of the unfunded exposures that we have relate to delayed draw lines and acquisition lines where we have complete discretion. The total number for that – let me just do a quick calculation. Based on the discretion I’m looking at, Sanjay, about -- of the $300 million, about $125 million we have discretion over. We’ll be syndicating a pretty significant majority of that exposure over the coming quarter. In addition then, of the $200 million that’s remaining, about $90 million of it is delayed draw where we don’t have discretion, but it’s coming at very high interest rates. 10% in one case, 13% in other, 18% in other. So again, when we forward [ph] model our liquidity needs, those are assets that we are happy to book and they are assets that are in our liquidity models. And then lastly, I think it’s important to point that most of the revolver commitments that we have outstanding to our highest rated companies, the average rating in our revolvers is that 3.1 times. There is no 1 or 2 rated companies with any available revolving commitments. And the underlying cash flow performance of the companies tends to be really strong. In fact, most of these companies have significant cash built up on their balance sheet. So we just don’t perceive that any of those revolvers will need to get drawn. So, thinking about it differently, we enjoy a 50 basis point plus undrawn fee for those lines in companies that really have no need for the lines. So we are enjoying a fairly accretive source of income without any real risk of draw. Sanjay Sakhrani – KBW: Okay. I got one last question. I like that chart on slide 13 where it shows the average EBITDA of the companies, but that’s pretty phenomenal growth. I mean, how much of it is kind of organic growth versus just a change in mix of new investments?

Just to highlight what the graph on page 18 is showing, the purple bar is the weighted average EBITDA in the portfolio. And the blue bar is the weighted average EBITDA for commitments that we made during the quarter. Again given the size of our investment portfolio relative to the size of the commitments that we’re making on a quarterly basis, you’ll see that – by going from 22 million to 60 million to 80 million, we took the weighted average on a portfolio-wide basis from 26 to 38. So while we do see very good year-over-year EBITDA in the underlying portfolio companies, the significant majority of that rotation is coming from investing in larger companies, given the market dislocation. Sanjay Sakhrani – KBW: Okay. Great. Thank you very much.

Sure.

Our next question comes from Faye Elliott of Merrill Lynch. Faye Elliott – Merrill Lynch: Hi, good morning.

Good morning. Faye Elliott – Merrill Lynch: I was wondering if we could just go back over some of the trends in the quarter, degraded [ph] the capital structuring fees. I think you said they would normalize in the third quarter and fourth quarter. And I was wondering if we could just go over what drove the numbers a little bit higher in this quarter?

Yes. It’s a couple of things. Again, one of the things that we mentioned in our last call, as we discussed the strategic rationale behind our equity offering was, having capital in this market is a strategic asset for a number of reasons. One is which we can obviously go into the market to take advantage of new investment opportunities. But more importantly, we can use that capital to unlock value opportunities within our existing portfolio. When you look at the second quarter, we had a number of situations with an existing portfolio of companies that had a need for capital and a need for capital structure accommodations where we are able to generate significant fees as a result of our position as the incumbent lender and agent. But in general, when you look at the commitment fees that we are able to generate on a net investment basis, on average the fees after syndication and optimizing our portfolio were in excess of 4% of our final hold. So one of the reasons for the reduced guidance at $4 million to $5 million is you really can’t – it’s not something you can model in, but if you are aggressive in the way that you are deploying your capital and interacting with borrowers, you hope that you can drive fees significantly in excess of the 2% to 3% that we typically use as our base assumption. Faye Elliott – Merrill Lynch: Okay. And then going back to the, I guess, run room you have in your capital or in your leverage level, you had mentioned that – and I didn’t quite catch it, that X something you would have been at 0.58 times equity in the quarter.

Yes. If you were to include the cash that we had – we drew a large amount of cash at the end of the quarter. So our outstanding loan balance was higher if you include that cash with it, 0.58 times. Faye Elliott – Merrill Lynch: Okay, I got you. But that cash is deployed now?

Yes, as we’ve mentioned, we’ve invested about $128 million since the end of the second quarter already. Faye Elliott – Merrill Lynch: Got you. So this 0.64 kind of includes a little – gets us into the third quarter a little bit?

Yes. Recall we’ve also had a number of repayments in the quarter as well. So when I look at the $128 million against repayments, third quarter to date and on the way, I think 0.6 leverage level, as we said, that’s probably a good assumption Faye Elliott – Merrill Lynch: For the third quarter?

For where we sit today. Faye Elliott – Merrill Lynch: Today. Okay, thank you.

Sure.

Our next question comes from Vernon Plack of BB&T Capital Markets. Vernon Plack -- BB&T Capital Markets: Thanks very much. Mike, I’m trying to get a sense for and you may have talked about this a little bit, but the statistic that you supply, the weighted average investment spread, given thoughts on the direction and makeup of the portfolio, how wide can that spread get do you think?

It’s a good question. Our cost of funds right now is hovering around 3.5% on a weighted average basis. As you know, were we to capital markets today, we’d come in significantly higher than that. Our experience has been both in this cycle and prior cycles that even as cost of funds increases, you more than make up for based on the inefficient pricing on the asset side. So if we assume the steady state 3.5% and, as we mentioned, a weighted average yield today on a portfolio of 11.3%, that gets you in the range of 7.5% to 8.0% that we are talking about today. Remember in our call, we put forward a statistic that said that we have close to $500 million of investments that are generating less than 10% return. And that’s about 25% of the portfolio. So if all we did was take that $500 million and go out and generate an incremental 400 or 500 basis points of return in this market, that’s going to get you another 100 to 200 basis points excluding fees and call protection. Vernon Plack -- BB&T Capital Markets: All right. That’s helpful. And in terms of – I would also just like some thoughts on your dividend management strategy or policy, and what’s your thoughts on there in looking into the dividend right now? It at least appears to me that you probably stay at where you are for a while. Does that make sense?

Yes. I would say both for us and most of our peers in the market like the one we are in now, managing liquidity is the order of the day and staying focused on dividend coverage is obviously the order of the day. Our expectation is that we will keep the dividend at its current levels, but I would not anticipate that we’ll be increasing it aggressively over the coming quarters. Vernon Plack -- BB&T Capital Markets: Okay. Thanks very much.

Sure. Thanks.

Our next question comes from Jim Ballan of J.P. Morgan. Jim Ballan – J.P. Morgan: Great, thanks a lot. The comments on the unfunded commitments is really helpful. Just one other thing on that though. How does just the existence of those unfunded commitments impact your thoughts on sort of the maximum leverage level that you’d like to be at? And then more specifically, do those commitments come into play in terms of the availability to draw down on the CP funding facility?

As I mentioned, it’s something that we obviously pay a lot of attention to. We are looking at it on a daily basis and we are always matching available liquidity, including the need to potentially funded commitments under our undrawn facilities against new investment opportunities. Again when you take out situations where we have discretion, situations where we know we are getting refinanced and are syndicating, and situations where we don’t have discretion but know that we are going to get funded, we have a pretty good sense order of magnitude to $5 million or $10 million as to what we expect our total exposure is there. And we obviously absolutely factor that into how much liquidity we have for new investments. Jim Ballan – J.P. Morgan: Okay. And with regards to the CP facility?

The CP facility actually does accommodate back-to-back revolver commitments, as does our corporate revolver. So again, it’s all a function of looking at our liquidity profile and matching our available liquidity against what we think our proceed capital needs are going to be. Jim Ballan – J.P. Morgan: Got it, got it. One other thing if I may. Just given that this was a big fee quarter and the fact that you did the equity deal during the quarter, how should we think about kind of a run rate NII per share sort of coming out of the quarter?

I’ll say one thing. When you look at the pace of our investments in the second quarter, our investment activity was back-end loaded and back-end weighted. So when you think about run rate coming out of the quarter, it’s higher than it would look on a stated basis, just given the way that the investments were made over the course of the quarter. We are constantly balancing, as I mentioned, the desire to use our existing capital to go out and generate fee income and future income from call protection and higher yields against maintaining a prudent amount of liquidity. The one thing I think that the second quarter proved was that if you have capital, there is an outsized total return opportunity and an outsized fee opportunity. And that opportunity we don’t see going away any time soon. So we don’t want to promise that we are going to be able to deliver fee quarters like that every single quarter, rest assured every time we make a commitment, we are driving for the highest net fee opportunity that we can and obviously the highest spread that we can. Jim Ballan – J.P. Morgan:

Sure.

Our next question comes from Jon Arfstrom of RBC Capital Markets. Jon Arfstrom – RBC Capital Markets: Thanks, good morning. Michael, can you – you made a couple of comments about possibly looking an entire portfolio of their [ph] undercapitalized finance companies. Can you, to the extent you can, give us a little more color on what you are thinking there, how you finance it, what type of size is right for you?

Yes. There is two ways that we can go with that. One is we could take assets on balance sheet if they meet our yield requirements. And two, we can take them off balance sheet to the extent that they don’t, but they come with leverage. What’s nice about a lot of those opportunities that we are looking at, we’ve executed on a number of them at different parts of the Ares platform is, in many instances they are coming with leverage as an opportunity for warehouse providers or bank lenders to offload a portfolio and change the risk profile of their investment. Depending on the nature of that leverage and the spread, we’ll make the determination whether we should sign in as a managed fund or by the assets on balance sheet, and maybe try to deploy the leverage on balance sheet. Jon Arfstrom – RBC Capital Markets: Would you say it’s a fairly active market?

Yes, it’s a fairly active market in terms of the number of conversations we are having. I’d say it’s not as active as we’d like it to be. We still haven’t seen capitulation in any real catalyst for some of the larger sales or strategic activity that we would expect to see as the cycle matures. So it’s active in the sense that there is a lot of dialog and a lot of price discovery, but candidly I hope that we’d see a little bit more activity that we are seeing in that area. Jon Arfstrom – RBC Capital Markets: Okay. All right. Thank you.

Sure.

(Operator instructions) Mr. Arougheti, at this time, I show no further questions. Please continue with your presentation.

Great. Thanks, Randy. I think that’s all for today. Again we thank everybody for joining the call and for their continued support. And we look forward to speaking with your next quarter. Thank you.

Ladies and gentlemen, that does conclude our conference for today. If you missed any part of today's call, a recording of this conference call will be available until through August 21, 2008. To access the replay, you can call 1-877-344-7529. To call internationally, you can call 412-317-0088. For all replays, the ID number is 418698. Thank you for your participation and you may now disconnect.