Good afternoon. Welcome to Ares Capital Corporation's Second Quarter Ended June 30, 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded on Wednesday, August 2, 2017. I will now turn the call over to Mr. John Stilmar of Investor Relations.

Great, thank you. And good afternoon everyone. 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. Many of these forward-looking statements can be identified by the use of 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 such 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 professional fees and other costs related to the acquisition of American Capital, realized and unrealized gains and losses, any capital gains, incentive fees attributable to such realized and unrealized gains and losses, and any income taxes related to such realized gains and losses. 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 accompanying slide presentation for this call by going to the company's website. 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. Certain information discussed in this presentation, including information related to portfolio companies, was derived from third-party sources and has not been independently verified and according to the company makes no representation or warranty in respect of this information. As a reminder, the company's second quarter ended June 30, 2017 earnings presentation is available on the company's website at www.arescapitalcorp.com by clicking on the Q2-‘17 Earnings Presentation link on the homepage of the Investor Resources section. Ares Capital Corporation's earnings release and 10-Q are also available on the Company's Web-site. I’d like to now turn the call over to Mr. Kipp deVeer, Ares Capital Corporation's Chief Executive Officer.

Thanks, John. Good afternoon and thanks to everyone for being with us today. I’m joined by most of the members of our management team including our President, Mitch Goldstein and our CFO, Penni Roll, as well as other members of the finance investment and investor relations team. You will hear from both Penni and Mitch later in the call. Let me start by reviewing our second quarter results and activity. After that I will discuss in more detail the benefits of our exciting announcement this morning regarding the Senior Secured Loan Program as well as our progress on the American Capital acquisition. This morning, we reported second quarter core earnings of $0.34 per share. In addition to these core earnings, we generated $0.25 per share net realized gains from investments, which includes $0.02 per share of prepayment fees that many other BDCs include in their net investment income number. When taken together these earnings are significantly in excess of our current quarterly dividend of $0.38 a share. We believe that this measurement core earnings plus net realized gains is the best proxy to use in reviewing what taxable income is available to our company to pay the dividend. Throughout our history we’ve invested primarily in middle-market loans that produce current income to recurring interest income, fees and other income. But we’ve also invested in equity and other securities with the expectation that these investments will produce net capital gains overtime. We believe investing up and down the capital structure produces superior returns overtime and is critical to a balanced model that’s effective in different points in the cycle. Our track record would suggest that we’ve been successful investors in this regard. If you look at performance over our roughly 13-year history, through June 30, 2017, we’ve generated cumulative realized gains…

Thank you, Kipp. Good morning. Our basic and diluted core earnings per share were $0.34 for the second quarter of 2017 as compared to $0.32 for the first quarter of 2017, and $0.39 for the second quarter of 2016. Our basic and diluted GAAP earnings per share for the second quarter of 2017 were $0.42 including net gains for the quarter of $0.13 per share, but after a reduction to our American Capital related expenses of $0.03. This compared to GAAP net income per share of $0.28 for the first quarter of 2017 which was reduced by American Capital related expenses of $0.06 per share and $0.50 of GAAP net income for the second quarter of 2016. Looking forward, we expect the American Capital acquisition related expenses to subside after the third quarter of this year. Our higher core earnings in the second quarter of 2017 as compared to the first quarter were primarily driven by higher structuring fees and a benefit of the $10 million income-based fee waiver for the quarter that Ares Capital Management agreed to put in place in connection with the American Capital acquisition. As of June 30, 2017, our investment portfolio totaled $11.5 billion at fair value and we had total assets of $12.3 billion. At June 30, 2017, the weighted average yield on our debt and other income producing securities at amortized cost increased to 9.4%, and the weighted average yield on total investments or amortized cost increased to 8.2% as compared to 9.3% and 8.1% respectively at March 31, 2017. Our total portfolio yield increased since the end of the first quarter primarily due to rising LIBOR rates. In connection with the purchase of the loans from the SSLP, that Kipp discussed earlier, we will see an immediate benefit to our total portfolio…

Thanks, Penni. I’ll spend a few minutes reviewing our second quarter investment activity and portfolio performance and then conclude with a quick update on post quarter-end activity market conditions and our backlog and pipeline. During the second quarter, we used our scale and extensive relationships to generate a strong level of new investment mostly in first lean senior secured loans. As Kipp highlighted, we made 47 new commitments totaling $2 billion and had gross fundings of $1.9 billion with approximately 85% of our commitments to repeat sponsors or existing borrowers of ARCC and its affiliates. Selectivity is a strong byproduct of our market coverage and the breadth of our platform allows us to find compelling investment opportunities not available to others. Having a portfolio of $11.5 billion to over 300 borrowers provides distinct advantages in incumbency and information, and it allows us to selectively deploy incremental capital amongst our best borrowers. It also helps to sit within a large alternative asset manager that has over 1,300 portfolio investments and approximately $65 billion of AUM in credit as of March 31, 2017. This power of incumbency has been an important element that has supported our long-term track record of industry leading performance. Our second quarter investment in Global Healthcare Exchange or GHX is underscored [ph] at this point. GHX is the leading provider of on-demand supply chain automation solutions to the healthcare industry. GHX has been an ARCC portfolio company since 2014, when we lead a $225 million senior credit facility to support the acquisition of the company by Thoma Bravo. Since then we have supported the company through a number of acquisitions. When the company was sold during the second quarter out position of incumbency and scale of our ARCC to agent $197 million of second lean debt and to…

Thanks a lot, Mitch. So to conclude, we had a strong second quarter with improving core earnings, great GAAP earnings, an increase in our portfolio yield, growth in net asset value and very strong net realized gains on our assets. We feel we're making excellent progress rotating the acquired American Capital portfolio, and we believe that current market conditions are only enhancing our opportunities to create and realize incremental value from this portfolio. The exit of Hillarys Blinds at a significant gain is a great recent example of our ability to create value in this market. In addition, we brought the SSLP loans onto our balance sheet, providing earnings benefit and increased flexibility around our new investing activities. Going forward, we're confident in our ability to reinvest these lower yielding assets and the new investments that are higher yielding, including the optimization of the new capacity in our 30% basket. We feel the company is well-positioned for the back half of the year and we're acutely focused on delivering strong returns for the shareholders. That concludes our prepared remarks. Operator, perhaps you can open the lines for questions.

Absolutely, thank you. [Operator Instructions] Today's first question comes from John Hecht of Jefferies. Please go ahead.

Good morning, guys. Thanks very much. First, I guess just a detailed -- a question on the details. I didn't realize your prepayment income was below the line. I think you guys mentioned it added - it would’ve added two pennies if you’d put it above the line last quarter. What's the average pace of prepayment income in a typical quarter there?

I'm sorry. What's the average - John -- at the average pace?

Well, the average accrual in a typical quarter of prepayment income?

Let me let Penni describe the accounting. Yes, go ahead.

Yes, I mean we would record prepayment income when we actually get an actual repayment on a loan early while it's still in its prepayment period. And when that happens, we account for it as in net realized gains, again, while others in the industry will put it up as a part of interest income or other fees. But if you look at our run rate history, it's probably about a $0.01 a share at quarter.

Yes, I mean it's the accounting convention, John, back to13 years ago when we went public and once the accounting shows through it - yes and we were earlier in making that decision and many others - it seems like others that followed along chose to do it differently. But…

Yes, that's helpful. Thanks.

And then just to add a color a little bit, obviously something has to prepay in its prepayment time of the period, which means it will go up and down in a given quarter, but I think on average just about a $0.01.

Great thanks. And second, Kipp, just thinking about the margins. I mean obviously, the ACAS portfolio that there’s been a mix shift in the total margin. If you exclude the impact of the ACAS portfolio, where do you see -- how have margins fluctuated in the near term and where do you see that going given the market opportunity right now?

Yes, I mean just in terms of spreads on new loans is that what your comment is on..?

Yes.

Yes. I mean -- but it's funny. There’s this assumption I think that there’s a race to the bottom where yields are going to continue to compress and compress. We really haven't seen that. And in fact we've been talking about it here in advance of this call. We went back and we looked at the last nine quarters that we announced publicly to talk about the market environment. And while we've been increasingly cautious, maybe even pessimistic at points, we look back and realized that we had about $9.5 billion of backlog in pipeline over the last nine quarters, and yields on that backlog in pipeline range somewhere between 8.5% and 10.5% depending on which quarter you're looking at. So I don't know if it's -- the market has slowed in its yield compression or just that we've been able to find things that we think were a good combination of reasonable yield but also reasonable downside projection.

Okay. And then last just more of just a topical question. I mean between rate increases, ACAS portfolio optimization, I guess the ramp of the SDLP, and then just I guess elaborating up a little bit you guys have a lot of opportunity to increase the NOI. Kipp, I'm just wondering, from your perspective what do you think is the most - the most opportunistic of those factors in the near term and then what presents the biggest opportunity over the long-term to increase NOI?

Yes, I mean I think -- look, we finally have I’ll just say it seems to be the tailwind of rates rising, the short rates rising, which obviously benefits the company and there’s clear disclosure on sort of what that does, and people can make their own interest rate guesses and assumptions. But I don't know if I have something that is particularly near term. I think it's all happening together. The way that we've tried to think about the bridges, we've got SSLP which was yielding at the end of Q2, 6% immediately kind of becoming 7.1%. We have reinvestment then of that 7.1% into higher yields overtime as those assets come back too. So that's pretty significant opportunity. But we also take -- and we've try to describe this to folks as well, pretty large portfolio in ACAS today that's paying 6.4-ish percent rough numbers and if we can get that up to the midpoint of where our historical backlog in pipeline is, you can start to create another pretty powerful bridge to higher earnings in time. And the third thing that we continue to focus on is the fact that we no longer have a constrained 30% basket. That's the place where we’ve also been able to drive higher return investments that we don't feel any more risky. And I made the point in the prepared remarks SDLP is sort of candidate most obvious for that so just accelerating that more quickly should help the earnings, but I think there are a handful of other initiatives that we can begin working on now that we have that flexibility, that hopefully can enhance earnings as well in time. So, I think there are three or four different drivers positioning us for higher earnings John, and I don't view any of them as one is more near-term or one is bigger than the other. I think they’re all of equal relative importance and are kind of happening together.

Wonderful. Thanks very much for the color there. Thanks.

And our next question today comes from Jonathan Bock of Wells Fargo Securities. Please go ahead.

Good afternoon. Thank you for taking my question. Kipp, just a simple item because it’s still important as it's relates to fees below line or prepayment fees rather. What percentage of the book currently actually has embedded call protection that does not expire within a year?

I don't think we have that one handy, but we can go get it for you and come back to you.

Okay. So we'll hold that just because it's helpful and it’s just accepted. I would imagine it as in entirely proprietary; it's just a good gauge. The second is now that you brought the SSLP assets on balance sheet, you now have the ability to reinvest it or I’d imagine put it in the SDLP assuming Varagon agrees. Now that's kind of a - it’s a catch-22 because you either have a bigger asset, earning a lower yield or a smaller asset earning a higher yield and sometimes that exchange can be dependent on the market environment that you’re in. Any views on your willingness and/or ability to put some of those SSLP assets into the SDLP program to continue to spur its growth and/or your willingness to leave those assets on balance sheet0?

Sure. We would be quite willing in that negotiation or discussion. We obviously have other partners which includes Varagon and their shareholders, and I think the consideration for them is you don’t just - we don’t just move assets around quite obviously. We’re talking about a refinancing and portfolio company. We take our relationships with our portfolio companies and their sponsors to be of highest value, so there’s a third-party there that would actually have to sort of consent and be excited to do that. So, I don't really have any concern about the -- to answer your question directly, just smaller investment at the higher yield versus the bigger investment at the lower yield, if that's good for the company and that's good for our clients and it works for our partner, it works for us. But I think it's a more complicated discussion than simply just moving assets around. That’s kind of not how it works that I think you appreciate, John.

Got it. So just to be clear, would that be something that - well I understand Varagon would have to clearly approve and they’re your partner, and depending on the quality of the asset it will make sense, but you’re also saying that the PE sponsor itself gets involved in that consideration even though perhaps the terms and the rate on the debt doesn't change at all?

Yes, they will. Of course.

Okay. Then the next is if we stand and look at your CLO exposure, which were as a result of the ACAS purchase, as a result of spread compression that’s been certainly appearing in the syndicate market et cetera, cash distributions on CLOs are becoming lower and lower. And what's your view on retaining net equity, which obviously gives you fairly high cash distributions but at a set declining level, which are times we’ve seen some BDCs really end up getting sideways with ownership of CLO equity, and in particular, really no volatility kind of present to allow those distributions to grow. Can you talk about your view of repositioning the CLO bucket of the ACAS assets in light of the high yield and potential lower reinvestment that you’d get elsewhere?

Yes. Again, we're a stated seller of those assets. We view them as non-strategic. That's not a business that we want to be in it. Our BDC -- we don't think that we’re the low-cost provider of investing in those. In fact, we’ve got a pretty substantial business here at Ares, organized away from our BDC that does this for living so -- and we kind of prefer it that way. Just as a reminder though, its $200 million of investments against $11-plus billion portfolio, and I’d say for now, while we’ve sold some, we haven’t sold all. The long term goal is to reduce that portfolio to zero. But obviously we’re little bit under invested today despite some declining yields there. It does still offer reasonable income. So we’ve not pursued an overnight sale of everything so to speak, but I think are taking a measured view to taking that $200 million portfolio to zero over time, and that’s what you should expect. I’m not sure I’ve got a concrete -- or we have a concrete timetable on that John.

Sure. I mean a lot also would depend on the reinvestment rates when those things start to exit. Reinvestment -- the cash flows go down pretty fast as the notes amortize. But I understand and appreciate the comment. Then one last question, it’s more of a holistic view. But - and we’ve outlined it in tight spread, high-competitive environment, outsized opportunities come from -- you outlined one gain, but also through fees, right, and potentially syndicate fees et cetera. So I would imagine that direct balance sheet lenders, I’m going to refer to those as yourselves and you know a few others that would love to portfolio something versus the direct/syndicate lenders, right, Antares [ph] or others that are out in the market. Right now, the syndicate markets are offering a more compelling higher spread options for sponsors at looser covenants, and I’d imagine that it’s hard to compete with a unitranche offering perhaps a big one or others to where you might have the choice to instead of providing a direct balance sheet option, you’d be able to syndicate or you have a capable team that can originate that loan and pass it off to everybody else who doesn’t have the ability to originate this as irrelevant and many don’t the claim to. So can you talk about the ability to drive syndicate fees, all American seed [ph] fees and others in today’s environment and whether you, Kipp, believe that, that strategic focused on kind of leveraging your origination platform to sell for the time being until spreads widened is a good way to supplement income and cover the - well, continue to out earn your dividend?

Yes, I mean we - that’s a long question but I think I’ll try to answer it. So we had $29 million in fees in Q2, we had $12 million in fees in Q1. It was a busier quarter. I don’t -- we take sort of a full, as you know, kind of one-stop, provide-a-solution-to-our-clients approach. So I’m not sure if I know what the difference between a balance sheet direct lender is and an underwriting direct lender is and a bank, it’s just too complicated for me. The reality is we do bigger deals, we often compete with banks in markets where there are lots of loan inflows and your finding folks that will buy into a more mid-market oriented deals from the banks. The banks feel more confident in their ability to syndicate paper. That is an environment that we’re experiencing now. I think as a result you have seen some smaller -- not as many big deals from us because the banks can easily underwrite and distribute paper. We’re hopeful that its slows - its slowed down in the loan market over the last couple of months that, that shifts back a little bit our way. It typically does, towards the end of the year as banks I think are more careful going into September than perhaps they are going into April. But look the fees continue to be part of the business model. I don’t feel like the earnings story or the dividend frankly either its stability -- we hope its future growth is particularly impacted by that. But look underwriting and syndicating deals is part of the model. If that’s what our clients look to us to do on a particular transaction work, we’re more than happy to do that. And if it’s better to buy and hold something that’s a great risk reward for us such that we want to sell down zero we’re happy to do that too.

Good and maybe just the small follow up would be - yes , you have answered it. Just a -- when you have a sponsor that’s coming to you versus looking for a unitranche/ full balance sheet hold it option, clearly at a higher spread versus a syndicate option, right now which are sponsors preferring one over the other?

I don’t think we can generalize. I mean like every deal is different, right, so every sponsor frankly, if you’re just talking about private equity is different. Certain folks love distributed deals, frankly many of the larger private equities sponsors that we know prefer a balance. So in a market where there is no great syndicated deals, they’ll skew towards doing bought [ph] deals and then when the syndicated deal gets to be alive again, they're happy to hire the banks to underwrite and syndicate. And remember, part of what they do is buy companies that generally investment banks are selling, so making sure that you pay them some fees along the way is probably smart. But in certain markets just the attractiveness of that kind of fully syndicated deal just isn't there. So I don't think there is a general answer to that. Every situation is different.

Sounds good. Thank you so much.

And our next question today comes from Ryan Lynch from KBW. Please go ahead.

Good afternoon and thank you for taking my questions. First off, congratulations on accelerating the conclusion of the SSLP. I think that’s great that you guys were able to affect that transaction. With that transaction you mentioned that's going to free up some capital in your 30% bucket. Can you just talk about -- you mentioned one ability would be to deploy more capital or further ramp up the SDLP, but what are the some of the other strategic options you guys are looking at? I know Ares management currently has a big asset-based lending team on its platform. Is that an option you guys looking at? Can you maybe talk about Ares' asset-based lending team, number one, and is that something you guys would -- to plan on doing maybe a JV with an ARCC you’re utilizing the asset-based lending team?

Sure. Look I think the philosophy to try to be general for a moment before I address anything that you've commented on Ryan, specifically, and thanks for your question. Yes, we've got a very large credit platform here and we tried to invest the 30% basket into things that we think are very clearly on the fairway or in things that we understand where we add real value. There are certainly abilities just to contradict that, to go make equity investments in finance companies or in pools of assets or other things that we don't understand and that's something we're not going to do. So the philosophy is this BDC benefits tremendously from the strength of the Ares' credit platform, and I think that there are some things that we view as potentially appropriate that we can bring from the platform to benefit the BDC. I appreciate you bringing up the asset-based lending concept, others have done that, whether it's a crystal financial or other types of arrangements like that. We do have a very interesting commercial finance business here at Ares that's been funded privately. It's growing. It's attractive. Is it something that we could leverage and bring to the BDC? I think so, but it's very early in our evaluation. I would tell you there are probably three or four other things that are high in the list that we're considering, but onus is on us to figure that out here over the next call it six to 12 months.

Okay. And then as you've discussed on this call and previous calls and others that it’s obviously a competitive environment with a little bit of an uptick in leverage and increase in EBITDA adjustments. So how do you get investors comfortable when they look at your second quarter -- where it all seems that you guys did about $2 billion in commitments in the second quarter in a higher competitive environment? How do you get investors comfortable that you guys are - been prudent underwriters and not taking on excess credit risk in order to deploy capital?

Well, we continue to remind people just the fact that we've actually run this company through a couple of cycles and we have experience dealing with markets like this, and say, it's kind of point number one. So I hate to say but you got to just trust us that we know what we're doing at some point along the way. Look, number two, $2 billion seems like an enormous number but we're a very large company. We have $12-plus billion of capital available to us and we can write very large checks, right? So some of the new investments that we made are pretty substantial and I think you'll see that on the SOI. And of course the third point that we've tried to emphasize is the fact that we're backing a lot of existing names, right, we’re incumbents in a quite a bunch of great companies that continue to look to us for capital. And maybe just to try to describe that differently but in a way that I think about it, and I know Mitch and Mike and others think about it, as most of the credit risk that you take on in a new deal occurs in the first 12 to 18 months in our experience. It is the risk of the unknown, of bringing new due diligence and new management team and a hope that your underwriting was correct. Right? It’s just very, very different than dealing with a company that’s been in your portfolio for six or seven years where you actually have board observation rights, real relationship with management, excellent access to information et cetera. So that as we’ve tried to reinforce is a huge mitigant and a huge protection to us and to this company in this type of a market.

Okay. That's good commentary. And then on the debt side, the liability side I guess, you guys have about a $1 billion debt. It's not - a little bit higher cost debt closer to 5% with some unsecured notes coming due in 2018. What are your plans? You guys -- are you guys going to -- you guys planning on writing those kind of run closer to maturity before either reissuing some notes or drawing on the credit facility or are you guys looking to do anything with those -- about $1 billion of 2018 notes coming due you maybe this year? Because, you guys obviously have some capacity on your credit facility and you guys have also issued some unsecured debt recently at much cheaper rates than those 2018 notes?

We're obviously always watching the debt capital markets and looking at our maturity ladder. If you look our history, we tend to not wait till the last minute to refinance things out so it’s something we're watching now. I think if we got a market opportunity to start to get ahead of those maturities, we would seriously look at that. And if you look at where we could issue today relative to the cost of capital we were issuing at five years, we've had a substantial [indiscernible] on our issuances. So we will look to refinance that out in the right markets and if the right market presents itself we may certainly do it sooner than waiting till the maturities. If you look at the ladder next year, we have 270 maturing in January so that's coming up relative soon on a calendar basis, and then we have from November to really look at the remaining 750 that matures in the back half of the year. But I think we've been prudent issuers of capital and have done a nice job in watching the markets and hitting them when we think it's favorable for issuing at a very good coupon for us.

Okay. And then Penni, one more for you maybe. I think you mentioned that the ACAS related professional or one-time expenses, you expect those to subside after Q3 ’17. So can you just provide what amount of ACAS related expenses we expect to occur in the third quarter?

Yes. I think obviously as the first two quarters have been higher, $0.06 in Q1 down to $0.03 in Q2, because we had a fairly large transition team that we had onboard to help us with transitioning particularly back office, accounting, finance, et cetera teams to work with us, most of those people have now rolled off. We still have some though. So I would guess we're probably still around a $0.01 or so a share going into Q3, and then we'll see further roll off of those -- the staff that's remaining as we move into Q4. But I think generally, we think these expenses will subside by the end of the year.

Okay. Thank you for taking my questions.

And our next question today comes from Terry Ma of Barclays. Please go ahead.

Hi, so absence selling any former SSLP assets since the SDLP, can you just give us a sense of how quickly you can ramp the SDLP now? Now that you have the flexibility under the 30% bucket, what's the actual governing factor there, the growth in that program?

There really isn't one. I mean we have enough capacity in the 30% basket at this point to kind of achieve the target that we've outlined with AIG, doesn't mean that we can't grow the program. But as we've talked about in past calls, the idea is that we would get up to call $3-ish billion of loans in the program, our commitment then is somewhere, again, between 20% and 30% of that overall capital depending on mix of borrowers, underlying leverage, other things. So we don't have any constraint to getting there. I think the opportunity beyond that maybe to upsize or at least consider upsizing there as we ramp. But for now I think we’re just hard at work continuing that growth there, Terry.

Okay, got it. And then I just wanted to touch on the attrition [ph] from the ACAS deal. If I were to assume that you rotate the $1.1 billion of 6.5% assets until call it 9% to 10% yielding assets, I think the additional earnings contribution there is about $0.05 to $0.07 annually. So your quarterly earnings run rate is about $0.32 a quarter, before the fee waiver, that additional $0.05 to $0.07 doesn’t actually get you back to where you were before the acquisition. So can you just may be help us walk through how to think about the earnings contribution from ACAS? What I could be missing, whether that’s some additional fee income or if there’s an anything else there?

I think your math is right. I’d have to go back and actually look at past earnings to think about that any other way, but no, I think that’s right. I think it’s -- rough math as $1 billion, make up your number which is 3% and divide by the share count. So I think that’s about $30 million on $400 million shares about numbers.

Got it. So should we expect any additional fee income just from a bigger portfolio size or whatever?

I mean, I think I answered the question earlier, but we think so. It’s dependent on the markets. It’s obviously driven by level of originations. We’ve built, again, a company here that I think has the ability to generate great fees when we’re underwriting and syndicating big deals and when we’re not at it generates, in our opinion, good fees. I’m not sure how to answer that any other way.

Alright, got it. That’s it for me. Thanks.

And our next question today comes from Rick Shane of JP Morgan. Please go ahead.

Hey guys, thanks for taking my question. I just want to talk little bit -- so we understand the -- how to think about the SSLP portfolio. You essentially have a portfolio now that everything in the pool is at least two years seasoned. So, I am assuming that the repayment schedule here to a combination of scheduled repayments, refinancing opportunities and then potentially some bullets [ph] if those loans reach expiration or reach term is going to be little bit different. And given that you own it apart, probably not a big deal, but I’d love to hear what you think that $1.6 billion’s going to -- how that’s going to repay over next three years?

Yes. So again, hard to predict. I can give you little bit of data about just what the portfolio looked like when we bought it. This might be of benefit to others. The weighted average leverage on the overall portfolio was around 4.9 times, which is in our opinion sort of squarely either in line or below current unitranche deals, and again, the portfolio has a gross yield, as I mentioned in the prepared remarks, of about 7.1%. So those loans are - those would be difficult to originate in today’s market. They offer good risk reward. It’s obviously why we paid part for the assets amongst other considerations. And I think - look, there is the ability to - your point about the market, certain companies may say well on a weighted average basis on over 4.9 times that means some are at lower leverage and some are higher leverage. My guess is the ones that have lower leverage would pursue some sort of a refinancing and/or sale because they’ve created equity values. But again, it’s 11 companies at June 30, and it’s 11 different stories, so hard to predict. But your point’s a good one, which is they’re season borrowers, they’re typically two-ish years and the average life of our assets tends to be somewhere between 3 and call it 4.5 years, depending on the cycles. So if you’re trying to build a model Rick, I think it’s reasonable to think about that stuff coming off somewhere in the next 12 to 24 months.

Okay, perfect. That’s very helpful, Kipp. Thank you, guys.

And our next question today comes from Robert Dodd of Raymond James. Please go ahead.

Hi. So to follow up sort of on John’s question about the -- two questions about the SSLP to SDLP and the mix. Of what’s in that $1.6 billion, how much would say is actually eligible on an appropriate asset to be moved to the SDLP? I mean obviously SDLP seems slightly higher coupon, slightly smaller loan, may be slightly smaller companies, and then, obviously to your point in the SSLP may be you’ve made some commitments about hold to maturity to sponsors. So can you give us - is it a ballpark - is that only like 20% of it even eligible or is it eligible and appropriate to be moved in there or is it some bigger number if it’s even on the table?

Yes. Generally they’re all eligible. And the one thing I didn’t mention in Rick’s comment was weighted average EBITDA in that portfolio is about $43 million -- $43 million, $44 million, so about the same size to the average loan size. So again, $1.7 billion divided by 11 companies is about $155 million in main, that's a very comparable loan size of SDLP. So I view them as all viable potential refinancing candidates for SDLP.

Okay, great, thanks. If I can kind of flip almost 180 [ph] on that, from the liability side of your balance sheet I would imagine your lender group, the rating agencies, they would look at you putting a $6 billion of really high quality senior secured, I mean, unitranche first lean significantly shifting your mix on, on balance sheet to much -- to very secure high quality loans. So, I would -- is that potential leverage in keeping those on balance sheet and using that on the liability side to gain better terms, maybe even doing a securitization or something like that for some really cheap debt to finance that piece of the portfolio and keep your mix looking even better?

Yes, thanks. So I appreciate your comment. If we go on a non-deal road show for any of our fixed income folks, we'll make sure to invite you Robert. That’s great so to -- yes, I mean certainly. We always -- back in 2006, we actually did a term out to low financing on bank loan assets. I think based on where -- and Penni, you can comment, based on where we borrow today which is pretty attractive, we're not going to see a huge improvement based on the work that we've done, packaging those loans and terming out some sort of CLO-oriented financing. But I do. I think it - in thinking about credit rating and all of that and folks do, do all effective leverage calculations in off balance sheet this and all sorts of other stuff. Those discussions obviously are substantially mitigated as it relates to our company today and I think there is a credit benefit.

Okay. Thank you.

[Operator Instructions] Today’s next question comes from Dough Mewhirter of SunTrust. Please go ahead.

Hi, good afternoon. Most of my questions have been answered. Two, sort of unrelated questions. First, a numbers type of question. Of your non-accruals, either as a percentage on a loan account basis or as a percentage of cost, how many of those non-accruals are a legacy ACAS assets if any?

Yes, let me just talk a look at the list here. Two.

Two out of how many -- what's the total count of non-accruals in the portfolio?

Two out of 19.

Two out of 19, okay. Thank you. And my second and final question…

Hold on a minute, I missed one.

If you look at the 19 and total borrowers on non-accrual, two of them are from the old allied portfolio and three of them are from the legacy ACAS portfolio.

Okay.

And 14 are from ARCC that we've retained.

And I guess that there’s one there that’s…

Okay, thanks for that. And my second and final question, a bigger picture question. We’ve seen in the headlines where the larger cap oriented private equity firms have had a very successful fund raising effort. If you look at Apollo, they’re raising a $24 billion fund, just tremendous amount of resources going into the private equity, on the equity side. Have you seen a similar fund raising activity in the middle market private equity world? And if there is indeed more dry powder so to speak moving into the middle market, what does that mean for your business? Are you actually encouraged with that or does that actually give you some cause for concern?

Yes. It's an interesting question - yes, it’s pretty staggering when you see a $25 billion private equity fund raise so kudos to the folks of Apollo. The -- I think the lion’s share of fund raising that we see these days is to larger firms, to answer your question simply. And we see it more difficult for the middle tier of -- what I think of as middle-tiered mid-market firms, call it, $700 million funds to $2 billion. They’re definitely still specialists with under a $1 billion funds that are either focused on just consumer or focused on just as region or just healthcare whatever it maybe. But I do think the middle is getting squeezed a little bit. It doesn’t give me a lot of concern about our business. Again, we continue to scale our capital base to play into that reality. We’re having more success I think with our experience, with our product set, and frankly, with the skill of the capital-based dealing with these larger sponsors. So five, six, seven, years ago, we didn’t have much to offer. Pick your brand name Marchex [ph], [indiscernible], Blackstone [ph], KKR, Apollo, I think that’s changed. I think we have quite a lot to offer them today. And happy to report that I think they’d agree based on having closed some deals and some great conversations with folks like that these days. So I think your observations are right Dough, and it doesn’t give me a lot of concern.

Okay, thanks. That’s all my questions.

And ladies and gentlemen -- excuse me, and ladies and gentlemen we have time for one more question, and this final question will from Christopher Testa of National Securities Corp. Please go ahead.

Hi, good afternoon. Thanks for taking my questions. Just with sponsors obviously pushing the envelope on leverage and add backs on EBITA and what have you, just curious, if you have kind of an estimate as to how much of your deal flow in the first half for the year would’ve been good for the SDLP teams in terms of structure and pricing, and kind of on that same note what you see from this point on in terms of how fast you could potentially growth that with origination for that?

I don’t -- we’d have to go back and actually look at all of the six months of pipeline and backlog and all of that, Chris if I - I don’t have it handy.

Sure. I mean, I don’t -- I’m not going to hold you to like a specific number, I was just wondering if you, kind of off the top of your head just had some idea of that, just to give us an idea of what we could expect for the ramping of that going forward?

Sure. I mean, I think it’s hard to guess that. We’ve tried to build a very broad origination funnel. So I think of 70-ish percent of our deal flow is being sponsor oriented and the SDLP is a sponsor oriented program, right? It also deals with companies of specific size probably at the bottom end, $20 million, $25 million of EBITA to as much as $75 million with the midpoint being a good guide post. So, if you’re a $50 million EBITA company looking to borrow five times or $250 million you’re a pretty good fit for SDLP. Again, I don’t know the number but I would guess it’s half of that 70%, so call it , 35% of our pipeline is suitable and that we pitch SDLP. But you’re asking a good question that I don’t know the answer to, which means that we go back and figure out what the right answer is.

Okay, I appreciate it. And will there be any one time fees in the third quarter associated with the wind down on the SSLP?

In one-time fees, I mean nothing of any consequence. I mean paying lawyers and doing other stuff, nothing of any consequence that I think will translate into something worth thinking about for your model

Okay. And just shifting gears, more philosophical, if you had the management company waive $10 million of fees for the quarter, if your core NII is let’s say with the full $10 million was be above the dividend of $0.38, should we expect that Ares management would still waive $10 million and possibly put you at $0.39 or $0.40 or should we look at the waiver as being something that just kind of bridges the gap between core NII and the dividend?

Well, the fee waiver is meant to be quite exclusive, right. So, as I mentioned in the stated remarks, the board and Ares management and obviously the team and I’m part of those has decided to waive $10 million a management fees this quarter has agreed to do it for nine quarters following this on a hard and fast basis and there’s really nothing more to it than that.

Okay, that’s all for me. Thank you for taking my questions.

And this concludes your Question-and-Answer Session. I’d like to turn the conference back over to Kipp deVeer for any closing remarks.

I don’t have anything further, but hope everybody gets some vacation and enjoy the end of this summer.