Good morning and welcome to Ares Capital Corporation's Second Quarter Ended June 30, 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded on Tuesday, July 30, 2019. I will now turn the call over to Mr. Carl Drake, Head of Public Company Investor Relations. Please go ahead.

Thank you and good afternoon. Let me start with some important reminders. Comments made during the course of this conference call and webcast contain forward-looking statements and are subject to risks and uncertainties. Many of these forward-looking statements can be identified by 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 assumes no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results. During this conference call, the company may discuss certain non-GAAP measures, as defined by SEC Reg G, such as core earnings per share or core EPS. We believe the core EPS provides useful information to investors regarding financial performance because there's one method we use to measure our financial condition and results of operations. A reconciliation of core EPS to the net per share increase or decrease in stockholders' equity resulting from operations, which is the most direct comparable GAAP financial measures can be found in the accompanying slide presentation for this call. Reconciliation of these measures may also be found in our earnings release. Certain information discussed in this presentation, including information relating to portfolio of companies, was derived from third-party sources and has not been independently verified and accordingly the company makes no representation or warranty in respect to this information. The company's second quarter earnings presentation can be found on our website at www.arescapitalcorp.com by clicking on the Q2 2019 Earnings Presentation link on the homepage of our Investor Resources section. Our earnings release and 10-Q are also available on our website. I will now turn the call over the Kipp DeVeer, Ares Capital's CEO.

Thanks, Carl. Good afternoon everyone and thanks for joining the call today. I'm here with most of our management team including our Co-President, Mitch Goldstein; our Chief Financial Officer, Penni Roll; and other senior professionals from the finance, investment and IR teams. I'd like to start by highlighting our second quarter results, then hopefully put them in context with some thoughts on recent market conditions and finally, turn the call over to Penni and Mitch, who will cover our detailed financial results, our investment activity and some portfolio metrics. This morning we reported strong financial results for the second quarter with core earnings of $0.49 per share and GAAP earnings of $0.47 per share. Earnings benefited from increased interest in dividend income, strong fee income and stable credit performance. We also had another quarter of increasing net asset value reaching a record for the company at $17.27 per share. The market continues to rebound following the tremendous volatility we saw at the end of 2018 and this has helped us continue to improve the earnings picture of the company. However, volumes do remain well below the prior year's levels. The market remains competitive supported by continued inflows of capital and this is increasingly leading the more aggressive lending behavior by other market participants. This gives us some concerns as we believe some of these managers lack the skill and experience required to be successful over the long haul. We believe the scale of informational advantages that come from our platform and our experiences over many years position us well to drive differentiated results through cycles and to potentially weather a market like this better than others. We also believe it can put us in a position to be a consolidator eventually if and when there's a shakeout. In these types of aggressive markets, we become even more selective. Our selectivity ratio this quarter was 2% which is about half of our historical average of approximately 4% and we refer to that in terms of the percentage of deals that we see -- that we close rather versus those that we see. It has been trending lower over time and that's reflective of our disciplined approach. While our approach to underwriting has remained consistent, we're well-positioned to benefit from the long-running trend toward private capital and away from public capital. Our fairway continues to widen as we see more opportunities from companies that used to be financed in the high-yield and leverage loan markets. For instance in the second quarter we were a joint lead arranger and book runner on the $3.5 billion first and second lien tranches of Hellman & Friedman's Take-Private, a publicly traded Ultimate Software, a SaaS-based human capital management software provider. We believe that our ability to be a meaningful and stable source of capital with large client-hold capabilities enhances our position as markets evolve. I'm going to turn the call over now to Penni for a more detailed financial review.

Thanks Kipp and good afternoon. As Kipp stated, our core earnings per share was $0.49 for the second quarter of 2019, up compared from $0.48 for the first quarter of 2019 and $0.39 for the second quarter of 2018. Our GAAP earnings per share for the second quarter of 2019 were $0.47, compared to GAAP earnings per share of $0.50 for the first quarter of 2019 and $0.60 for the second quarter of 2018. Our second quarter 2019 core earnings were largely driven by increased interest income, given the growth in our average portfolio over the quarter and strong capital structure increase. In addition to our core earnings, we reported net realized and unrealized losses on investments and other transactions for the second quarter of 2019, totaling $8 million, which included $18 million of net realized gains from investments. As of June 30, 2019, our investment portfolio was $13 billion at fair value, an increase of 13% from a year ago and basically flat with the prior quarter. Also at June 30, the weighted-average yield on our debt and other income producing securities at amortized cost stayed flat with the prior quarter at 10.4% and the weighted-average yield on total investments and amortized cost was 9.2% compared to 9.3% at March 31. Moving to the right-hand side of the balance sheet, our stockholders' equity at June 30 was $7.4 billion, resulting in a net asset value per share of $17.27, an increase of over 1% over the prior year. As of June 30, our debt-to-equity ratio was 0.83 times and our debt-to-equity ratio net of available cash of $535 million was 0.76 times compared to 0.86 times and 0.79 times respectively at March 31. The Small Business Credit Availability Act became effective for us in June. Given our discipline and…

Thanks, Penni, and again, good afternoon to all. I would like to spend a few minutes providing more detail on our second quarter investments and our portfolio performance. I will then provide a quick update on post-quarter end activity and our backlog and pipeline. During the second quarter, our team originated $1.3 billion of new commitments across 33 transactions and our focus remained on defensively positioned high-quality companies. Our large origination team and diverse credit platform enabled us to source a broad range of new transactions across the middle market. However, we often find superior risk-reward in backing our existing portfolio companies. This was clearly evident in the second quarter as 25 of the 33 investments made were to existing borrowers. Let me highlight two recent transactions to give some context to this advantage of incumbency. In the second quarter, we led a commitment to support TPG's acquisition of Entertainment Partners which simplifies payroll, production management, scheduling, and accounting processes in the entertainment industry. Underscoring the power of our platform, not only is TPG a repeat sponsor for us, but Entertainment Partners was also an existing portfolio company. Given our knowledge of the company and our ability to provide a scaled commitment across our platform which included drawing on the capabilities of the SDLP, we were awarded the mandate to lead the financing. This also illustrates how our complementary pull of capital benefit ARCC. We also led a $75 million senior secured financing credit facility to support growing capitals acquisition of Waterline Renewal Technologies, a division of one of our former portfolio companies Triwater Holdings. Waterline is a leading provider of engineered products that enables the repair of sewer systems and waste water lines. Again this year we've had this very long relationship with Behrman and we're able to effectively…

Thanks Mitch. In closing, we're pleased with another strong quarter of performance. Our earnings are running well in excess of our recently increased dividend. Our book value is up again and credit performance remains stable. As we discussed at our recent Investor Day, we continue to believe our addressable market remains an attractive place to invest, particularly with low and perhaps even lower interest rates in the U.S. We also feel that our platform is well-positioned to invest opportunistically in high-quality businesses and to generate compelling investment returns for our shareholders. That concludes our prepared remarks. We'd be happy to open the line for questions.

[Operator Instructions] The Investor Relations team will be available to address any further questions at the conclusion of today's call. Our first question will come from John Hecht with Jefferies. Please go ahead.

Morning, guys. Thanks for taking my I guess afternoon your time. Thanks for taking my questions. Kipp, just regarding the ….

Hi.

… kind of selectivity and discipline, that you referred to, is it more tied to being disciplined at pricing, or is it deal structure, or is it business quality? And what kind of color can you give us on -- with the competitive environment?

Yeah. I mean, I think, as I told, you John. I think for us, it always -- we've said this for 15-plus years. That the one -- the first thing that -- the easiest thing to get wrong is picking the wrong company. So we focused first on quality of the company. And I think you're seeing real bifurcation in the market, even in the large-cap space where deals for -- what everybody perceives to be high-quality credits are heavily competed for. And I think, there's very limited tolerance for things that are not perceived, to be very good credits. And the reason for that follows along your other point. It's less about pricing, it's more about for us I think lower-quality underwriting. Again the dialogue about, lots of adjustment against EBITDA, where you're underwriting higher leverage multiples on an absolute basis, than you probably are on an adjusted basis. And it's a weakening of documentation too. So, we're trying to find the best companies. It's not so much about the pricing. It's more about folks who competing on Cub like for a smaller deal or a weak document or a set of lender protections and a credit agreement that we feel uncomfortable with.

Okay. And that's helpful. And then second, I know you guys referred to some of the EBITDA performance of the companies -- I guess the portfolio companies. I know back at the Analyst Day, you referred to just on a defensive basis spending more time monitoring. Have you guys seen any signals or changes in kind of trends at the portfolio company that are worth calling out?

Well, I think we're seeing, the same slowing growth narrative, that you're seeing in the newspapers. The numbers that we laid out for Q2, about EBITDA growth in the portfolio, is a 4% number for Q2, which was 5% in Q1 and 7% at this time last year. So we're seeing that but, for us now that feels more like an equity issue. And that there have been some very high purchase prices, particularly in -- sponsored buyouts and its years later if you built a model, where you're modeling up whatever, pick a number, 8% growth for your portfolio company. And all of a sudden that's just 2% 3% or 4%. You have a little bit more of a challenge for the equity store. And certainly companies that have covenants and most of ours do are probably experiencing a little bit more pressure because of that slowing growth. So, more time monitoring, maybe just out of an abundance of caution, a slightly longer watchlist. But again, we really have no new problems, right? All our non-accruals are established. We don't have any new non-accruals this quarter. And if you look at the cost value of our non-accruals against the fair value, most of them have been written down to minimums amount. So, we're pretty positive actually on a slow growth economy. And we think it works just fine for our company. So...

I appreciate. Thanks very much.

Thank you, John.

Our next question will come from Rick Shane with JP Morgan. Please go ahead.

Hey, guys. Thanks for taking my questions this morning. Penni, just wanted to talk to you about the funding strategy. You guys did a notes deal earlier in June. Your balance sheet is a more asset sensitive than many of your peers, given a higher percentage of fixed rate debt. Curious, if this is really a function of building that fixed-rate, funding capability, in anticipation of levering up over the next 36 months. And that we should see the mix shift more towards floating, as you take advantage of lower base rates?

Yeah. I think one of the reasons why -- if you look at, what we have been working on is we've substantially increased our floating rate borrowing capacity, coming into the expectation of moving into higher leverage over the next two to three years. So, we have thought about, how we can use floating rate liabilities against a predominantly floating rate portfolio. And realize we could benefit from that. We do want to continue to be in the unsecured-fixed-rate note markets from a capacity point of view, so we do end up in balance sheet and we want to have resources of that capital or source of that capital from a lot of different places. But we are balancing out the opportunity to have more floating rate capacity, right now given trends or expected trends and interest rates.

Got it. So the way to think of it that you will -- as fixed rate instruments come mature you'll go into the market and replace those, but the growth and the increased leverage on the balance sheet will really be funded on that increased capacity on the floating rate side? A – Penni Roll: Well, I think, it will be both. But I think if we be patient around, how we think about refinancing fixed rate debt and think about how we like to layer and in fixed-rate debt we could also in a declining rate environment have an opportunity to issue additional fixed-rate debt as time goes by, that's lower cost than where we just recently issued the $650 million, 5-year deal at 4.2%. So I think we have to have the right balance of both to provide capacity. We also think a lot about our investment-grade rating which would look for us to continue to issue an investment-grade unsecured-notes market as well. So we'll strike the appropriate balance and hopefully we'll think about timing of doing the issuances in a way that we manage our cost of capital.

Yes. I'll just – Rick, I'll add something -- this is Kipp. The uncertainty and frankly my lack of understanding about why -- this is just my own opinion, why we would have a rate decrease in the face of 2-plus-percent GDP growth is a little bit confusing to me. So I think we're trying to be as agnostic around rates right now as we've been. I think we have taken a view that rates were likely to increase which they did. It took a little bit longer than we might have expected. And I think for now there are some things that rates, do have an impact on today and we're going to try to not be directional about rates, we're going to try to be very balanced as we see how this unfolds.

Yes, that's actually helpful context in terms of overall rate outlook and I think this is the second time I've said this during an earnings season, but sometimes we fall into the category eventually being right and I understand the uncertainty there. Thank you guys.

Yes, take care.

Our next question comes from Finian O'Shea with Wells Fargo. Please go ahead.

Hi, guys. Good morning. Thanks for taking my question. Just first one on equity looking at recent presentation, you talk about the equity co-investment strategy at 10% to 15% of investments, if I'm reading correctly. Can you break this down, if it's suitable between preferred or income-producing versus common equity? Because if you combine them both, they stack up into that range, but it's a pretty even split. Any color there you could provide?

Sure. I think we have some of both. We don't have any directional strategy of preferred versus common necessarily. I think most of those decisions are made on a company-by-company basis. I think the only real construct -- and I mean Mitch or Mike can jump in. So I think we never wanted to run the portfolio with more than that range of -- and 10% to 15% of the portfolio being in some composition of equity does feel appropriate, so that we're not building an asymmetric debt portfolio with no upside to take care of some of the losses that are inevitable with company like ours as times are tougher. So there's really no stated strategy of we want to do this versus we want to do that. It's much more on a deal-by-deal basis and then you just manage the overall basket on a company-wide exposure basis.

Okay. That helps. And then we could tag around that was -- Shock Doctor this quarter was that a regular refinancing or was that a restructuring of sorts?

It was a refinancing.

Okay. Thank you. And then just one more if I may, be uncourteous and ask a third question. On allocation, does the advisor ever take any form of upfront fee like a capital -- part of the capital structure and fee for example that would've gone to the shareholder before allocating the BDC and other funds?

No. All of our fees here follow our capital. So, if you're investing in a deal you get a fee on the origination side or advisor doesn't keep any origination fees.

Thanks for taking my question.

You’re welcome.

Our next question will come from Terry Ma with Barclays. Please go ahead.

Hey. Good afternoon. Just the question on the capital structure and fees, there's about 3% of commitment this quarter, which is on the higher end of the range historically. I think just part of that was driven by larger transactions in portfolio companies. So, was that just a function of the deals you saw this quarter, or is that a trend we still expect to continue as you increase your balance sheet size over the next 12 -- 36 months?

Yeah. I think it's funny, Terry. We -- it's a good question. We actually dug around a lot on this to -- and people since they're coming up with different conclusion. Let me just give you a couple thoughts on fees in general, and then I'll tell you what I think it is, which is If you look at our 16 quarter average, so for the last four years we've generated about $0.08 a share per quarter of upfront fees. This quarter was a little bit north of that at $0.09 and on a total dollar basis was obviously down versus last quarter, and again that's because the gross commitment number was down. So, as much as we kind of wrangled around trying to figure out what it was I think, it was nothing more than just the natural mix of the deal flow that we happen to close new versus existing and that the activity this quarter even though it did generate a higher net fee i.e. dollars divided by net commitments just seems like it's circumstance there's really nothing to it.

Okay. Got it. That's helpful. And then just a follow-up on the rate outlook, so the rate's have been a tailwind for earnings the past couple of years, which is given the current outlook, it looks like it's more of a modest headwind that we're used to going forward. So can you just kind of talk about how you think about managing that? And at what point will you maybe start to get more cautious or worry you probably have a little while to go before you hit your floors bid. Will you end up worrying at some point if rates continue to move down?

Well, I mean it's definitely a headwind. It's not a meaningful headwind for us here. It's a 25 basis points reduction perhaps this week, and then it will see – so, I think we're a ways off worrying. I think the question will be if rates do go materially lower, will spreads widen to compensate and try to keep absolute return in a lot of the asset classes more accurate to where they are? That's typically what happens the same way that you don't get the full benefit of LIBOR increases on the way up, you tend to get some offsetting spread widening as rates go down. So we'll see. Again it's very -- I mean to comment before -- I personally am a little bit confused, and the team is spending real time looking at our -- kind of our forecast, but I'm not worried today. I think we'll see where it takes us. But definitely a change. Definitely something that I mean six months ago, everybody thought was quite unexpected.

Okay. Very helpful. Thank you.

You’re welcome.

Our next question will come from Chris York with JMP Securities. Please go ahead.

Hey. Good morning, guys.

Hey, Chris.

Hey. So Kipp, I got a strategic question about the SDLP, which has grown quite attractively. So I think that JV was set up in 2016, so you essentially provide larger in the tranche loans, and then you get to like $300 million. I think the market has evolved over the last maybe three years with sponsors seeking larger deals directly from the scaled lenders that can write checks above $100 million. And then in the second quarter, it appears SDLP financed a larger deal at $300 million for the first time. So the question is at what size of commitment do you think is truly differentiated by a direct lender today? And then, how do you balance the need of sponsors to write the larger checks while adhering to good portfolio management at the JV?

Yeah. I think there are plenty of people these days who can write $200 million, $300 million commitments. So I think north of that it's $500 million-plus, it becomes such a differentiator. That's a very limited group of folks. I think your question on SDLP is how do we use that? Obviously we try to use it to deal with transactions that we source with our partner in that joint venture. But at the end of the day, it's really at the client's choice, right? We have a whole host of different products that we can offer be it first lien, second lien, unitranche we can show them SDLP and it just is a circumstance by circumstance sort of situation as to where the things end up or how they end up being structured. I hope that answers your question and in case it doesn't feel free to follow-on.

No, it does. So yeah I was thinking that it moved away in terms of size from maybe $200 million, $300 million to $500 million so your insight there is much appreciated. And then a follow-up question on modeling so what drove this sizable increase in Ivy Hill's assets under management? And then is the increase in the dividend by $3 million a new run rate, or were there success fees and other one-time fees in there?

The increase in the dividends really – the dividend income's really driven by two things. There was a modest increase in the dividend coming up from Ivy Hill, because of its increased scale and profitability, the company's doing well. And then secondly, it was the Athenahealth transaction we participated in Q1 which does have a preferred equity security with a contractual coupon that comes through as dividend income.

Got it. That's it for me. Thanks guys. Thanks, Kipp.

Yeah. You’re welcome.

Our next question will come from Ryan Lynch with KBW. Please go ahead.

Hey, good afternoon, guys. First just kind of want to go retouch the topic of declining rates. So if I look at slide number 16 in your presentation it looks like floating rate new investments increased a little bit this quarter as a percentage of portfolio or as a percentage of new investments made this quarter still the overwhelmingly majority of new investments you made, but it looks like it's ticking lower. So is that a coincidence, or are you guys starting to focus some of your new origination efforts with fixed rate structures? And if that is the case what is – what has been the feedback from borrowers?

Ryan, look I don't – there's not a lot of discussion on the investment team. Mitch and Mike and others can certainly jump in about let's get right into sort of fixed rate paper because rates are going down, so I think its coincidence for now. I don't think it would be met at all, but we haven't been trying.

And then from a competitive landscape standpoint, I was a little surprised this year that your selectivity ratio – you guys are being more selective moving down to 2% from 4%. And I think you said 25 of the 33 new investments were made to existing borrowers. We know it's been competitive for a long period of time, but I feel like the comments made this quarter really highlighted that. Would you say the competitive environment today has significantly changed from where it was a year ago?

I don't think that per the earlier conversation, I think it was just – it's really not pricing. It's really – we're just – we're seeing a lot of folks compete on terms and loan documentation, and lacks of covenants there. Of things just that are not conventional in this market. And obviously, markets change, and they institutionalize. But we've built a pretty long track record of sort of doing things the way that we like to do things. So we're trying to stick to the playbook that we've had for a long time of having conservative structure with real covenants and loan documents that actually allow us to enforce in a position, where we need to. And I think it's allowed us to achieve better recoveries and fewer losses than competitors. So it's much more of those things than it is anything else. And I don't know maybe we're old school, but we're just trying to resist as much of that as we possibly can. The good news is we've got a very robust origination team and a strong network of relationships where we can source a lot of deal flow. But it's – yeah, so it's challenging today no doubt.

Okay. Understood. Appreciate the time today.

Yeah. For sure, thanks for the questions.

Our next question will come from Michael Ramirez with SunTrust. Please go ahead.

Hey, good afternoon. Thanks for taking my questions, everyone. We understand you now consider the remaining ACAS investments as core asset, which implies limited opportunities for additional rotation into I guess your higher-yielding investments. But could you please give us a sense of if these current assets are below the I believe it was $644 million that you disclosed in the fourth quarter last year? And additionally, could you please give us a sense of the M&A market and if you see another ACAS-light acquisition on horizon?

Okay. So I'll answer -- so the first question just so I'm clear what's remaining from ACAS? Does it pay yield that's below the current market? Yes. I mean, I think it's a -- it's not a lot of assets left. But yes, I would deem it core. I mean, I think it's there and but we'll see its natural refinancing activity, but not through any particular, let's go get this out of the portfolio as quickly as we can sort of thing or push it harder. Acquisitions are challenging we've done a couple I mean, as I've said in the past. We bought a company that got into trouble with its lenders. We think that with the SBCAA, it's probably less likely and that the folks have a lot more financial room to operate with and inherently it's more difficult for that to happen. The ACAS situation was one where I think after many years of success there was a belief that just sort of the governance wasn't there and the equity over time transferred and transferred into the hands of folks who were looking for a new management team. So I definitely think there situations out there of not-wonderful performance. Some BDC's and perhaps boards or shareholders move to do something similar to what happened at American Capital, but it's super hard to predict. I mean, I don't think that you'll see us just go run around looking for acquisitions. And as I've said in the past Q1 calls, do something hostile around the competition, it's just not -- it's not the way that we view our job day-to-day. We've got a lot of room for growth without acquisition right? I mean I think about having tremendous amounts of debt capacity to invest and we'd rather do it at better relative value or scale more quickly at better relative value. And if an acquisition comes along that will be part of the discussion. But I don't see anything on the horizon that would accelerate that in a material way.

Okay, great. And one more if I may. I know there might have been sort of two questions in the last one, but seems like we've been hearing, we're getting toward the end of the cycle for quite a bit now especially it comes for over the last six to eight quarters. So aside from your senior lien positions, could you please give us a sense of how defensible your portfolio is constructed? I guess in regards to like say the underlying industries your companies operate in?

Yes. I mean obviously we've laid out in our prepared materials we've been doing this a long time. Our portfolio which is on page 12 and we think that industry selection is key. And we think not being frankly in unsecured positions at this stage in the cycle are the two keys and to stay away from cyclical industries and frankly stay away from sub-debt for now. So we think it's the same playbook from the last go-around. And we've been spending years as it continues to be late in the cycle trying to exit the companies from our portfolio that were not performing to plan. So we're happy with where we are. We don't see anything here in the near term that's kind of change what today is an attractive place to invest where there's a lot of income relative to the risk-free rate and good credit quality.

Great. Thanks for taking our questions.

Our next question will come from Robert Dodd with Raymond James. Please go ahead.

Hi, guys. Can you give us some color on your appetite for second lien? Obviously, it's been -- it increased over the last year a tiny bit as a percentage of portfolio not much. But obviously also your weighted-average EBITDA has been going up. So can you give us any color on what is your appetite for second lien relative to say the size of the company?

Yes, I mean, generally, we've said this to you in the past Robert the -- we're trying -- most of our large second lien deals are in companies that have been with the portfolio for a longer period of time. We tend to be in larger businesses that we think have better downside protection and they tend to be in industries that we think of as very defensive and not cyclical.

Got it. Got it. And what -- and then kind of paralleling that what's the appetite for second lien kind of with regard to structure? Like I mean is there, obviously, if you do -- you've got the scale to do a large unitranche deal either on the balance sheet or on the SDLP. Or you can do first lien, second lien structure put a -- maybe with a higher credit quality business i.e. the first lien's quite low yield and do a first out or the last out on the first lien. But I mean so how is that evolved in terms of how -- your willingness to structure those kind of deals for larger businesses in terms of keeping more of the higher yield not in the case of higher risk right depending on how you structure it on the balance sheet and taking the larger check to your point with scale and having the ability to write those very large checks keeping the high-yield piece on the balance sheet maybe even getting some excess fees from how you structure it? But I mean has anything evolved over -- with your appetite to do that over the last year or two?

I'd just say certainly things have changed as folks like Ares Capital and others have more capital to bring to bear. Yes, the way that we think about structuring first and foremost is we want to bring a preferred solution to our client whether that's a private equity firm or a family or a power project or whatever it may be. And they often have pretty different views about how that works. And all I'd say that's changed is the ability to have a -- bought $300 million to $500 million unitranche solution is much more readily available today than perhaps it was pick a number seven or eight years ago right? We can certainly do that as can others. And we found as far back as SSLP it was really the magic of that way back when then bought deals or private equity funds that are trying to buy companies quickly or without sharing a lot of information with all host of lenders so if you can do that that's changed the game. So, I'd say that there's probably less second lien in the middle market because -- and by the middle market I'd define it as $50 million of EBITDA and under. I think above $50 million and really clearly $100 million these days you start to talk about deals on the first lien side that are truly going to get rated and underwritten by the banks and sold to investors. And obviously in doing that you are achieving a lower cost of capital on the first lien and the only trend there, which we talked about on our Investor Day too is a lot of the second lien and senior capital on those transactions are tending to get placed directly with folks like us and some others right? Less syndicated by the banks so bigger deals combination of rate and syndicated first lien and junior capital. And the good news is we're not just buying paper from the banks those are situations where we're stepping in. We're leading those deals we're structuring them we're negotiating loan documentation et cetera. So it feels much more private and much more solutions-oriented in nature.

Got it. I really, yes I really appreciate that color. One more quick one if I can unrelated. Have you done any analysis on how much exposure your portfolio companies have to Brexit since its back in the news again?

Yes. We're doing a lot of work on both the tariff question and on the Brexit issue. I'm going to save that for another day if that's all right because I don't have the – answer for you.

Okay. I appreciate that. Thank you.

Sure. Thanks for the question.

Our next question will come from Casey Alexander with Compass Point. Please go ahead.

Good afternoon. That's okay. My questions were asked and answered. So thank you.

Casey, thanks. Have a great afternoon.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Kipp DeVeer for any closing remarks.

I'll just thank everyone for their time and I'll echo everyone's sentiment here that we sure hope the Yankees end up with another starting pitcher. Have a great afternoon.

Ladies and gentlemen, this concludes our conference call for today. If you've missed any part of today's call, an archive replay of this conference call will be available approximately one hour after this call at the end of the call through August 13, 2019 at 5:00 P.M. Eastern Time, to domestic callers by dialing 877-344-7529 and to international callers by dialing 412-317-0088. For all replays please reference conference number 10131888. An archived replay will also be available on the webcast link located on the homepage of the Investor Resources section of Ares Capital's website.