Good morning. Welcome to Ares Capital Corporation's Earnings Conference Call. [Operator Instructions] Comments made during the course of this conference call and webcast and the accompanying documents contain forward-looking statements and are subject to risks and uncertainties. Many of these forward-looking statements can be identified by the use of the words such as anticipates, believes, expects, intends, will, should, may and similar expressions. The company's actual results could differ materially from those expressed in the forward-looking statements for any reason, including those listed in its SEC filings. 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 core earnings per share or core EPS, which is a non-GAAP financial measure as defined by the SEC Regulation G. Core EPS is the net per share increase or decrease 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 the net per share increase or decrease in stockholders' equity resulting from operations to 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 participants to access the accompanying slide presentation by going to the company's website at www.arescapitalcorp.com and clicking on the Q1-10 Investor Presentation link on the homepage of the Investor Resources section of the website. Ares Capital Corporation's earnings release and quarterly report are also available on the company's website. I would now turn the call over to Mr. Michael Arougheti, Ares Capital Corporation's President.

Great. Thank you, operator, and good morning, everyone, and thanks for joining us. I hope you had the chance to review our earnings press release this morning and our investor presentation posted on our website. Before I open with comments on the market, highlight our first quarter's results and discuss our dividend, I'd like to update everyone on our recent acquisition of Allied Capital, which closed on April 1. Since the transaction closed during our second quarter, we will not be discussing any results from the former Allied portfolio until our second quarter's earnings conference call. However, I would like to review our strategic rationale and investment thesis for the transaction and then provide an update on our current strategy and progress to date with respect to the former Allied portfolio. With the Allied transaction, Ares Capital now manages approximately $12 billion in committed capital. This increased scale brings many benefits including greater market coverage, the ability to support larger underwriting commitments and hold positions, more efficient access to capital, increased portfolio diversification and enhanced competitive relevance. The former Allied Capital Asset Management funds and entities have also meaningfully increased the scale of Ares Capital's and Ivy Hill Asset Management initiatives, which bring significant access to deal flow, research and yet another potential source of capital for our borrowers. We now have enhanced capabilities that we can offer to our middle-market clients, and they are already making a difference in an increasingly competitive market environment. As a reminder, our investment thesis for acquiring Allied Capital was based in part upon the following strategy: one, we wanted to opportunistically purchase a stressed portfolio at an attractive price and potentially benefit from an economic recovery; two, to rotate and reposition a portion of this legacy portfolio into higher yielding assets; three, to…

Great. Thanks, Mike. Please turn to the financial and portfolio highlights slide in our presentation, which is Slide 3. As Mike mentioned, our basic and diluted Core EPS were $0.28 per share for the first quarter excluding $0.03 of professional fees related to the acquisition of Allied Capital, a $0.09 per share decrease over core earnings per share last quarter and $0.03 lower versus a year ago. As Mike discussed, this quarterly decrease primarily resulted from the impact from the increase in our shares outstanding, the non-recurring write-off of unamortized financing fees, higher borrowing costs, modestly lower structuring fees and a modest increase in non-accruals. Net investment gains were $0.36 per share comprised of higher net unrealized depreciation of $0.40 per share, partially offset by net realized losses of $0.04 per share. The net result was GAAP earnings per share of $0.61 compared to $0.64 last quarter and $0.36 for the first quarter of 2009. After paying our $0.35 first quarter dividend, our net asset value was $11.78 per share, an increase of 3% from last quarter. Consistent with the rebounding market and higher levels of transaction activity, we experienced both higher levels of new investments and prepayments during the first quarter. Gross fundings of $304.7 million were actually offset by higher exits and repayments of $313 million, resulting in a net reduction of $8.4 million. The exits and repayments included $94.5 million of loans sold to funds managed by Ivy Hill Asset Management. The remainder of the exits and repayments were comprised of prepayments, selected portfolio sales, portfolio amortization and net paydowns on revolving lines. We ended the quarter with 94 portfolio companies valued at approximately $2.2 billion. Our quarter-end portfolio was comprised of approximately 45% in senior secured debt securities with 32% in first lien and 13% in…

Great. Thanks, Rick. Now a few words about our recent investment activity, our portfolio performance and then our pipeline and backlog before concluding and going to Q&A. If you would turn to Slide 10. In the first quarter, we closed an approximately $300 million in new commitments across five new and 10 existing portfolio companies. Of the new investments made, 5% were in first lien debt, 57% in senior subordinated debt, 34% in equity and other securities and 4% were in subordinated notes in the Senior Secured Loan Fund. Our significant new commitments included a $54 million senior subordinated debt investment in a health plan management provider, $48.5 million in senior subordinated debt and equity of a diversified consumer products manufacturer and $41.5 million in senior subordinated debt of an aftermarket automotive services provider. In addition, as part of our purchase of Allied Capital's CLO [collateralized loan obligation] investments in the Knightsbridge funds, which closed at the end of March, we invested $51.9 million in certain CLO debt securities and made an incremental investment of $48.3 million into Ivy Hill Asset Management to facilitate its purchase of management contracts and certain equity securities in the Knightsbridge CLO vehicles. As I mentioned in my earlier comments, debt and income-producing securities purchased during the first quarter of 2010 had an aggregate yield of 13.6% on fair value versus the 12.1% yield on assets repaid. Now turn to Slide 11 for a current review of our portfolio's aggregate credit statistics. This historical data hopefully illustrates the success of the strategy that we pursued throughout the cycle. We increased portfolio investment spread while reducing portfolio risk throughout the credit dislocation of the past few years. The left chart shows that our weighted average investment spread increased over the past year, but declined slightly this…

[Operator Instructions] Our first question comes from Greg Mason of Stifel, Nicolaus. Greg Mason - Stifel, Nicolaus & Co., Inc.: Mike, can you talk about the $400 million that you highlighted on potential exits from the Allied portfolio? As we look at reinvesting that capital, what generally are the types of returns on those investments looking at recycling into higher yielding investments?

Yes, I can't go into specifics now. But obviously, as we laid out our strategy on Allied, if you recall from our prior call, we had about six buckets that we would put Allied's portfolio assets into: Performing debt, non-performing debt, performing equity, non-performing equity, CLO and structured product and real estate. And each of those asset categories has a different strategy for us to try to drive value. Some may require just an outright sale and monetization. Some will require a reinvestment of capital and a repositioning within the portfolio. I'd say, generally speaking, the good news is that the $400 million that we're targeting, it's really a broad swap across each of those asset categories. And while I can't go into the details of the spread pickup, clearly, the yield on the securities that we'll be selling is meaningfully lower than the returns that we're able to generate on new investments in today's markets. Greg Mason - Stifel, Nicolaus & Co., Inc.: And touching on the new investments that you made since March 31, I'm kind of surprised given the increased competitiveness of the environment. You're getting 14% rates of return on these investments. Can you talk about are those unique, or should we be expecting those types of returns even with the competition increasing?

Yes, I think those are frankly unique. If you remember, in our business, typically takes us anywhere from three to nine months to work through an investment process, from our initial introduction to a transaction through the closing. So deals that are closing now were being formed and committed to in the back half of last year, if not the early half of 2010. So recognize, the pricing you're seeing now is not necessarily a reflection of the pricing available in the current market environment. So I would expect that on a go-forward basis, you should see investment spreads continue to come under pressure. I think anybody in this market, if he tells you that they're able to generate these types of returns on a go-forward basis is probably taking undue risk to try to generate those returns. And as a result, similar to what we did in 2006 and 2007, when we're faced with increased competition and a tightening spread environment, we tried to take our scale and our origination cloud and position ourselves for a better risk-adjusted returns. So I'd look at it, if you see our spreads coming in, in future quarters, you should also expect to see a maintenance of that first dollar, last dollar leverage that I described in our prepared remarks.

The next question comes from Chris Harris at Wells Fargo Securities.

On the exits we're just talking about here, the $300 million to $600 million, are those exits you've identified and are expecting to perhaps close in subsequent quarters? Or do you think a large majority of that might close in the second quarter?

I think it's possible, given the strength in the high-yield market, particularly, and the performance in our underlying portfolio. You can see a lot of that happening in Q2.

And then on the new investment landscape here, I guess if you add up the investments you've made subsequent to the end of the quarter and your current backlog, I think you're getting about $170 million of potential new investments. And that number seems a little bit low, at least relative to our estimates. Is there something that's really driving that? I mean, I know you guys are really focused on rotating and rebouncing the portfolio, but is there some maybe seasonality impacts related to the lower pace of originations here?

I don't think so. Historically, we've talked about seasonality. And typically Q2 and Q4 are much busier periods for investments, but I don't think that's it. I think it's important for people to really appreciate what's happening in the broader markets. Despite what's happened over the last week, the bank loan capital markets are overheating. The high-yield market is very aggressive right now. And so what you're really seeing is, number one, a lot of increased velocity in our portfolio. And number two, while there's still a pretty meaningful inefficiency in our market, you can see that when you look at the spreads that we're generating relative to the historical spread, as well as the spreads in the current liquid market. That said, there's always some reference to the broader capital markets, where people are looking to finance themselves in our market. One of the things hopefully we have developed over this last cycle is credibility with the investor community and the research community, that we're not the guys who are going to be out there chasing yields. We're not the guys that are going to be out there being aggressive to try to meet the quarter's origination targets. Frankly, with the Allied purchase, having bought it for what we bought it for and when we bought it, we show that we're meaningfully participating in this rally. And as a result, I think we're being a little bit more cautious in how we're deploying capital, given the strength of the capital markets. But it really is amazing. If you look at even what's happened since the end of last week through to today, as we mentioned in our prepared remarks, the windows in the capital markets are opening and closing very quickly. And so while we're watching the rally, we have in no way slowed down our origination efforts, and you see that in our backlog and pipeline numbers. But what we are doing is when that backlog and pipeline find its way to our boardroom, were being a little bit more measured in what we're willing to book and for what rate of returns. So I'm not, today, going to say that this is going to sustain itself throughout 2010. We're still very bullish about our opportunity throughout the course of the rest of the year and beyond. But I think everybody needs to recognize that at least in the broader liquid markets, there's a lot of liquidity that has come in to the market right now, and just given how low interest rates are and how much people are looking for yield.

Some of your peers, obviously, have access to SBA [Small Business Administration] leverage. Is that something that you guys would think about looking to add to your, I guess, funding mix?

Absolutely.

Any timing on that, perhaps? Have you already submitted an application?

We have not submitted an application. It's something that we're looking at and spending a fair amount of time with -- recognize that the nature of the program requires a pretty significant move downmarket in terms of borrower size and the types of assets you're going after with that leverage. So it's something that we're just spending a lot of time thinking about how we resource and how we would go after it. But obviously, it's very attractive, and we think it could be a nice complement to our platform.

The next question comes from Jim Ballan at Lazard Capital Markets.

Mike, just to make sure, are we going to get any kind of pro forma numbers relative to Allied? Anything on like, kind of a run rate NIR [natural interest rate] number, or how much in asset they sold in the first quarter? Are you planning on doing anything on that before you report second quarter?

Probably not, Jim. We're obviously in the process of pulling all that together, depending on the timing of when all that work is completed. If we feel that it would be helpful to communicate something to the market, we may. But at this point in time, it's not clear if that's something we're going to do.

Can you talk a little bit about the unrealized gains in the quarter? Maybe just a little more granularity on how, if it's a nice number there, is there anything you can -- were there a couple of specific investments that did well there? Or is there anything you could talk about that gives little more granularity?

Yes. Well, let's just remind everybody about what our valuation process does when we think about fair valuing our portfolio. For each of our investments, the management team and the deal teams look at a number of inputs. We look at comparable public company multiples. We look at comparable private M&A transaction multiples. We look at high-yield debt comparables to the extent that they exist. We look at relevant bank loan multiples to the extent that they exist. We run discounted cash flow analysis over a range of different model sensitivities for every portfolio company. We look at the general market backdrop against which we're valuing a portfolio. And then we obviously look at the underlying portfolio performance against prior period and budget. And our third-party valuation providers go through a similar process. Given those inputs, you could appreciate the public equity markets were up. And so, on the equity side, we saw healthy increase in multiples. Number two, spread tightened and leverage increased, which had a pretty meaningful impact on our debt securities. I think most importantly, hopefully, it's not lost on people this quarter, the underlying performance of our portfolio continues to be amazing. So we've seen now 20% EBITDA growth throughout the full fiscal 2009. We're seeing continued profit growth of 20%-plus into 2010. So with that EBITDA performance, we're getting a deleveraging, and therefore enhanced value when we apply all of those variables to the portfolio. The nice thing about this quarter is it was very broad-based. The move was roughly split evenly between increases in debt securities and increases in equity securities. And as I mentioned, it was very broad-based, there wasn't one or two names that were driving the bulk of that. It was pretty much across the board.

And the professional fees and integration expenses that you're expected to have over the rest of this year and possibly in the next, can you give us an idea maybe just of an aggregate number of how much you think that might be, even roughly?

Yes, we don't want to mislead. But excluding the advisory fees, I'd venture to say it's probably a $10 million number. And obviously, as that materializes, we'll communicate it to the market next quarter as well.

And that's probably more in the next couple of quarters than beyond that?

Yes. As Rick mentioned in his remarks, you may see some very modest lingering effect into 2011. But the majority of our transition expenses, in terms of overlapping leases and transitional employee expenses, will be, for the most part of 2010, line item. We do have tail insurance and some other things that go well beyond 2010, but the bulk of it will be for this fiscal year.

Next question comes from Sanjay Sakhrani at KBW.

This is actually Steven Kwok filling in for Sanjay. I was wondering, just to follow up on Jim's question, if you can help us think about the run rate of investment income post the acquisition of Allied?

It's a little difficult to nail a run rate down right now, as Mike mentioned, with some issue of the portfolio being rotated. And with the bulk of the valuation work still related to be done on the -- related to the Allied portfolio. I don't know if it would be very helpful to try to give a range because the range would be so broad right now.

I'll highlight a couple of things, though. Remember, around the closing of the acquisition, we stated to the market that it would be an accretive transaction to NAV and accretive to earnings within the first year, and we're still standing by that. And you can already see the NAV [Net Asset Value] numbers coming through in the pro formas that were part of the prospectus that were circulated as part of the acquisition. Number two, this is a bittersweet market for us because you liked being cash-rich in this kind of environment. And getting taken out by an aggressive high-yield market and a rising interest-rate environment is not necessarily a bad thing. But when you're running at 0.4x leverage versus a target of 0.7x to 0.75x, obviously, your stated earnings are going to be lower than your potential earnings. That's not something that concerns us, particularly given all of our competitive advantages. And then, lastly, when you think about the Allied purchase, as I mentioned in my prepared remarks, there will be a balance between core earnings and GAAP earnings that we need to strike and that we all need to focus on and communicate. Because the reality is, in certain situations, you may decide to hold the non-interest bearing security to try to maximize value, and the value of that investment may not materialize in the income statement for a year, or two or three. And there may be another situations, like you're going to see in the second quarter, where we're aggressively taking advantage of the market environment to sell assets, either book gains or book pre-payments fees, or, at worst, reduce our exposure to lower-yielding assets and reinvestments in the market when it develops. So we don't want to be nebulous here, but I think, as Rick pointed out, there's so many variables that play here. The best we can do right now is give you guys a roadmap to the strategy and the disposition of the portfolio. I think you'll see a lot of these things coming into play as the year develops.

I guess, just to follow up on that, how much has Allied portfolio changed post the latest numbers that we have, which was as of December 31, I guess?

In terms of change, in terms of performance? Or change, in terms of size?

In terms of portfolio, like the mix of the portfolio, the yield?

Yes, I don't think we can comment on that today. But again, you should assume that we continue to execute on our strategy. And we'll continue to look at the portfolio to either monetize it or reinvest in it.

On the interest expense in the first quarter, it seemed a little bit high compared to the fourth quarter. I'm just wondering how much of it was related to the $15.6 million that was paid for the restructuring and amendment fees?

Yes, the amount of the carry in the first quarter was impacted both by write-off of old unamortized fees on our old facility of roughly $0.01. And then, the new amortization during the quarter, I think, probably incrementally was about $1 million to $1.2 million, it's included in that number.

And then plus the modest increase spread.

For the spread, okay.

So if you take all three of those combined, you're probably somewhere between $0.03 and $0.04.

And then I guess the $1 million to $2 million that we continue going forward...

Yes, the only non-recurring portion of that is the write-off of the unamortized facility fees from the prior revolver.

The next question comes from Donald Fandetti of Citigroup.

Can you talk a little bit about the newer non-accruals? It sounds like credit's generally holding up relatively low, but could you provide some color?

Sure, as we mentioned in our remarks, I think the good news is, if you could say that's good news when you put something on non-accrual is, the two new loans were put on non-accrual because, I'll exclude the third one, that was a little bit of a unique situation, but we had a pre-rated credit that we were working on a restructuring for. We got blocked as a sub-debt provider and consistent with our policy, which I think may be a little bit more conservative than some of our peers. We've put that loan on non-accrual only to monetize it very shortly after the quarter at a greater than 10% IRR [internal rate of return]. So I'll exclude that one just, talk about the two true new non-accruals. The two companies that we put on non-accrual were Masterplan and Wastequip. They've been lower-rated credits for probably the last two and a half years. We've been aggressively monitoring them and hoping for improved performance. As I mentioned, we're still current on interest there, so we're getting paid interest. It's just that we don't see a catalyst for improved performance in either of those companies. And as a result, we thought it would be appropriate to start applying interest to principal and reducing the principal balance. But interestingly, they're both still current on interest payments and we think that should continue.

And so it seems like there's almost kind of winners and losers coming out of these two. Obviously, as time passes, it's clear that they may not be in a position to recover. I mean, do you expect a couple more of these sort of hiccups each quarter? Or is this -- what's your sort of outlook?

If we're doing our jobs well, you should never be surprised, or we should never be surprised. Obviously, we're heavily involved with these companies. We're very actively dialoguing with management and sponsors. In some cases, we're sitting on the boards, observing the boards. As we've talked about on past calls, I think the good news is, we identified our basket of difficult credits, two or three years ago going into the cycle. And for the most part, that basket has been the same, and we've been working harder to try to shore up or restructure and protect value in the same small handful of national assets two or three years. These two names, you'll see, if you go back and look at the trajectory of NAV, have been problems for us for a long time. So the fact that we put them on non-accrual is not a surprise to us, it's really just a recognition that we don't see an ability, unlike in certain other situations, to really turn this around and see our way to a full recovery. So when you look at our run rate of credits of about 0.9% at fair value, it's not surprising that, that's approximate to the non-accruals. And it just so happened that most of our lower-rated credits have been the same names. So I can't rule out that another one or two names may find their way into a lower-rated category. But for the most part, and this has been true for the last year or two, we haven't seen new problems emerging. It's really just been trying to resolve our existing issues.

Your next question comes from John Stilmar at SunTrust.

So the first one is a housekeeping item. Do you have the average portfolio before fair value adjustment? And then the average amount outstanding, at least, on your debt facility for the quarter? And we can come back to a recon [reconciliation] offline if it's not readily available.

We'll look at that. If there's another question, we'll hope that we can be able to get back to you before we hang up.

And Mike, I guess, it's a couple of questions, it comes back to the thought process of capital raising. I mean, you raised capital earlier in the quarter. You knew investments are almost equal to repayments. And so far, through the second quarter, the portfolio access has been greater than new portfolio investments. And while we certainly understand the discipline, can you help me understand the rationale of raising incremental capital when it seems like, for lack of a better term, you're almost choking on the fact that you've got so much more portfolio exits that you're prudently deploying. But what's the need for incremental capital? Is it that you have to have that cash and capital on hand to write a check six months out for current conversations and that sort of projects?

No, I don't think it that said it all. Number one, I wouldn't say they were choking on it. Quite the opposite, I think that we're thrilled to have it. The reality is, in this market, and I'm sure that you're seeing this in other financial companies as well, there has been a meaningful and drastic improvement in the liquid capital markets since the end of last year. When we raised capital in February, leading up to the Allied transaction, we had a strategic view and continued to have a strategic view. That being overadvertised, if that's where we wound up, is of much greater strategic value than being underadvertised, number one. Number two, the markets are so frothy right now, particularly the high-yield market. We could not have foreseen, as connected as we are to the broader capital markets, we could not have foreseen the number of repayments in the existing portfolio resulting from what's going on in the high-yield market. However, you can't run your business quarter-to-quarter and you can't manage your liquidity quarter-to-quarter. You have to have a view at least to what your secular opportunity is, and what's going to happen over a multi-quarter and multi-year time frame. So as we sit here today, we'd love to be a little bit more, invested and a little bit more leveraged. But we're happy to have the cash, were happy to have the origination infrastructure we have. And you look at the backlog and the pipeline and we're out there actively seeing the market. I think that we're seeing almost every deal that's available. But the reality is, now is not the market environment where I think you're supposed to be aggressive. If we've learned nothing else from the prior cycle, those who moved too quickly into a…

And again, those two numbers that you were looking for, the average cost bases of the portfolio, didn't change a lot at about $2.3 billion. And you can see that parenthetically on the balance sheet for the investments, and average debt outstanding for the quarter was about $815 million.

The next question comes from Jasper Birch at Macquarie.

Just to start off, with the $52 million of CLO [collateralized loan obligation] purchases, that was all in Knightsbridge?

Yes.

And what's your outlook on possibly continuing to purchase CLOs? Are there still more color on that? I mean, what tranches were you buying in dollar pricing? And do you need -- are you looking to only buy notes in places where you could ultimately on management control?

Yes, we have no desire to buy structured product where we don't control the asset. So all of the purchases of the CLO-restructured products from Allied or elsewhere were all in situations where we maintain control. I would highlight though now that we sold the management contracts of Callidus. We actually still hold a fair amount of underlying Callidus securities, both notes and equity. Again, when we talk about getting the timing right on the Allied transaction, similar to what we're seeing in the high-yield market and the leveraged loan market, the structured products market has probably rallied even more. And so the good news is, they were strategic purchases for us to help build Ivy Hill Asset Management up, given all the benefits that we derive from that. But this was all in a market where asset values were only going one way, and that way was up.

Changing tags here. Could you maybe give us a really good commentary or some commentary on possibly pursuing an SBA license. I was just wondering, can you give us some color on what your long-term view of the capital structure area is going to be? What role an SBA might play to trim that revolver, securitization, et cetera?

Sure, well let's just talk about what is available to us and then we can talk about how we access them. Obviously, the bank loan market is something that we're always in. You could see this quarter that even in addition to the $75 million that was committed going into the Allied transaction, we brought two new lenders into the facility through the accordion, showing that we can continue to access capital in that market. My general sense and this is a long-term view is that market will continue to improve for us. And one of the investment thesis for the BDC [Business Development Company] sector in general, and for us, specifically, is that the larger money center banks and even some of the regional and smaller international banks will not be building direct origination and portfolio management infrastructures to go after the middle-market. That said, with increased liquidity, they are looking to deploy capital into the asset class. So again, if you think about how the markets have improved, a year ago, banks were asking for their money back. And now you're getting reverse inquiry for people looking to put capital to work. And we think that, that's a long-term trend for us. So we'd expect the bank loan market to continue to improve for us and be open to us. I'd also highlight there, though, that I think that scale is very important. You have to be not only investment-grade-rated borrower, I think, to truly officially access that market. But you have to be large enough that you can actually demonstrate the survivability, if you will, that some of the bank risk managers are looking for. That's the bank loan market. Two is the unsecured notes market, either private or public. Again, that market is quite hot as…

And then, Mike, also on the other side, in terms -- you mentioned that you expect favorable supply-and-demand imbalance that could persist for years on a normal bank lending. At the same time, you've seen you move down, marked a little bit in terms of company size that you're investing in. Can you just talk a little bit to the difference, the segmenting and competition across certain company size that you're seeing? And what part of the market you expect to be most attractive going forward?

Yes, absent in flows, so I can't say as we sit here today, one is going to be more attractive for a long period of time versus others. One of the things that I think makes us unique and is a big differentiator given the scale of our platform in the way that we originate our business is, we're participating in the entirety of the middle-market from sponsored finance to non-sponsored finance, from senior debt through the structured equity, from $10 million EBITDA issuers $250 million EBITDA issuers. At different points in the cycle, depending on what's going on in the high-yield market, depending on what's going on with community banks and regional lenders, depending on what's happening in the securitization market, different parts of the market are more or less attractive. So we think our responsibility to our investors is to be in all of those markets, looking for the best relative value in the best risk-adjusted return. As we sit here today, the high-yield market is frothy. And I would actually argue irrational right now. And therefore, has really eaten into the upper and of the middle-market opportunity for private debt. And so as you saw in Q3, Q4 and Q1, you continue to see us pursuing smaller issuers, just because we're not in the business of competing against the high-yield market. There are other mezzanine providers that view that as their core business. But obviously, in an environment like this, where you're competing against the high-yield market, you're sacrificing covenants and meaningfully sacrificing pricing relative to what you can get downmarket, and that's not something we're very focused on doing right now. At the lower end of the market, while liquidity is still constrained, it's actually easy to get a deal done at the lower end of…

When you put something on cash on accrual and you're taking -- and it's still current, you're taking the interest to pay down principal. I know that you backed that out of core income. Do you also back that out of taxable?

Yes, it is. It's back out of taxable, too.

Our next question comes from Jason Arnold at RBC Capital Markets.

Back to the $400 million in potential exits from Allied, are these coming more from loan repayments that caused meaning those potentially going up at levels higher than the fair value marks?

Well, remember, when we bought the portfolio, we are fair valuing the portfolio as of April 1, and we're resetting basis. So I just want to make sure we're using the same language here. To the extent that we are selling something, the game would be measured against our new fair value as of April 1. And I'd say, generally speaking, given the strength in the markets, we are low to sell assets below fair value; unless of course, they are non-performing and we want to generate cash, or they are so far up the balance sheet and low-yielding that we want to rotate the portfolio. So I think you should assume that there's going to be a fair amount of discipline around where we're willing to sell an asset. And obviously, for the non-debt securities and the equity portfolio, we have to look at the long-term IRR opportunity and cap gains opportunity in that portfolio, versus the ability to take a non-interest-bearing security and turn it into an interest-bearing security. And again, the M&A market is improving, the multiple environment is improving. And so I wish I could say that, that equation is becoming easier for us. In certain instances, it's actually becoming more difficult because there's just a lot more asset liquidity. And I think we have a lot more flexibility to make those types of decisions. Again, thank you for spending so much time with us this morning. Sorry, it ran so late. We appreciate everybody's support, and we look forward to speaking with you on our next quarter's call and giving everybody a more fulsome update as to what's going on in the market and, more specifically, what's happening within the Allied portfolio. So thanks, again. We'll talk to you soon.

Ladies and gentlemen, that does conclude our conference call for today. If you missed any part of today's call, a recording of this conference call will be available through May 24, 2010, at 9 a.m. Eastern Time. To access the replay, you can call 1(877)344-7529. To call internationally, you can call 1(412)317-0088. For all replays, the ID number is 439895.