Nov 5, 2013
Executives
Michael J. Arougheti - Chief Executive Officer and Director Penni F.
Roll - Chief Financial Officer and Principal Accounting Officer Robert Kipp DeVeer - Senior Partner and Member of Investment Committee
Analysts
Arren Cyganovich - Evercore Partners Inc., Research Division Troy L. Ward - Keefe, Bruyette, & Woods, Inc., Research Division Mickey M.
Schleien - Ladenburg Thalmann & Co. Inc., Research Division Kyle M.
Joseph - Stephens Inc., Research Division Robert J. Dodd - Raymond James & Associates, Inc., Research Division Jonathan Bock - Wells Fargo Securities, LLC, Research Division Douglas Mewhirter - SunTrust Robinson Humphrey, Inc., Research Division
Operator
Good morning. Welcome to Ares Capital Corporation's Earnings Conference Call.
[Operator Instructions] As a reminder, this conference is being recorded on Tuesday, November 5, 2013. 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 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 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 fees attributable to such realized and unrealized 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, 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 at www.arescapitalcorp.com and clicking on the Q3 '13 earnings presentation link on the homepage of the Investor Resources section of the 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 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 of this information. 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 Q3 '13 earnings presentation link on the homepage of the Investor Resources section of the website.
The company will refer to this presentation later in the call. Ares Capital Corporation's earnings release and Form 10-Q are also available on the company's website.
I will now turn the call over to Mr. Michael Arougheti, Ares Capital Corporation's Chief Executive Officer.
Mr. Arougheti, the floor is yours, sir.
Michael J. Arougheti
Great. Thank you, operator, and good morning to everyone, and thanks, as always, for joining us.
For today's call, I'll briefly highlight our third quarter results and discuss current market conditions before turning the call over to Penni Roll, our CFO, to take us through the financial results in more detail. Our President, Kipp DeVeer, will then discuss our investment activity and portfolio performance and I'll conclude the call, and then open it up for Q&A.
We're very pleased to report strong results for the third quarter. Our core earnings per share were a record $0.48, and our GAAP earnings per share were $0.52, both well in excess of our quarterly dividend of $0.38 per share.
Our earnings, generally, benefited from the growth in our investment portfolio, higher dividend and fee income and continued strong underlying investment performance. Our net asset value increased 3.9% year-over-year to $16.35 per share.
Our portfolio of companies continue to perform well. Our non-accrual ratios remain near 5-year lows and, for the most recently available LTM period, the weighted average EBITDA of our underlying corporate portfolio of companies grew 10% from the prior year.
We continue to generate significant net realized gains from our investments and, through the third quarter of 2013, our realized gains have exceeded our realized losses on our investments by $223 million on a cumulative basis, for a net gain rate of a little over 1% annually, since our IPO in 2004. In the quarter, we made $1.1 billion of new investment commitments, and we continue to leverage our origination platform to source a highly attractive set of new investments and new companies to support the financing needs of incumbent companies.
Finally, our balance sheet continue to be well-positioned at quarter end, given our largely floating rate assets and with our predominantly fixed rate long-dated liability structure, which provides asset sensitivity, if interest rates were to rise materially. We maintain strong liquidity, with investment capacity of over $1.3 billion on a pro forma basis at quarter end, including the proceeds of our recent $214 million equity raise that closed on October 1.
This morning, we announced our quarterly dividend of $0.38 per share for the fourth quarter of 2013. And in addition, based on the strength of our results, year-to-date, combined with the estimated size of our undistributed taxable income that we have built as our earnings and harvested gains have exceeded our dividends, we declared 2 additional dividends of $0.05 per share each, as Penni will discuss later.
Briefly turning to the markets, as we discussed in our second quarter call on August, credit market volatility declined following the Fed's initial tapering commentary, as investors became more convinced that such actions would either be less impactful or deferred into next year. Weekly inflows into the leveraged loan market strengthened during the third quarter, indicating strong investor appetite for leveraged loans.
New loan volume, in both the broadly syndicated and middle markets, softened from strong Q2 levels, the mix towards M&A and new money loans in both markets improved quarter-over-quarter. And yields on loans in both markets were relatively stable to slightly lower.
So in summary, near-term market conditions haven't changed materially since our last call. The level of transaction opportunities that we're reviewing remains robust, and we continue to be highly selective.
We must remain balanced as we weigh strong economic and portfolio company fundamentals against relatively weak market technicals. We plan to continue to use our broad origination platform to source and invest in what we view as the best franchised companies as we look to generate attractive risk-adjusted returns throughout the current business cycle.
In addition, we will continue to seek opportunities to fund the financing needs of our existing portfolio of companies. And now, Penni can take us through the third quarter financial results in more detail.
Penni?
Penni F. Roll
Thanks, Mike. For those of you viewing the earnings presentation posted on our website, please turn Slide 2, which highlights our financial and portfolio performance information.
As Mike stated, our basic and diluted core earnings were $0.48 per share for the third quarter of 2013, which was $0.10 higher than the $0.38 per share for the second quarter of '13 and $0.06 higher than the $0.42 per share in the third quarter of 2012. The $0.06 increase in our third quarter earnings per share versus the third quarter of last year was primarily driven by higher net interest and dividend income for the third quarter of this year compared to a year ago.
GAAP net income for the third quarter of 2013 was $0.52 per share, a $0.02 increase compared to $0.50 per share for the second quarter of 2013 and $0.07 lower than the $0.59 per share for the third quarter of 2012. Total investment income for the third quarter of 2013 was $246.8 million, a 20% increase over total investment income of $206.1 million for the second quarter of 2013.
As compared to the second quarter, third quarter investment income benefited from increased interest income due to the impact of net origination activity and increase in dividend income and structuring fees. Dividend income for the third quarter of 2013 was higher than the second quarter of 2013, as Q3 dividend income included an additional dividend from our portfolio company, Ivy Hill Asset Management.
The additional dividend, which totaled $15 million, or $0.04 per share impact to core earnings, was paid out of accumulated earnings previously retained by IHAM. IHAM also paid a regular quarterly dividend in the third quarter of $10 million, consistent with the regular quarterly dividend paid in the second quarter.
As Mike highlighted, our originations remain strong, and as we -- and such, we made gross commitments totaling $1.1 billion compared to gross commitments of $1.2 billion during the second quarter of 2013 and $1 billion during the third quarter of 2012. We exited commitments of $391 million in the third quarter of 2013, resulting in net commitments for the quarter of $741 million.
Net fundings for the third quarter of 2013 were $559 million as compared to $747 million and $403 million for the second quarter of '13 and third quarter of '12, respectively. As of September 30, 2013, we had total assets of $7.8 billion and total stockholders' equity of $4.4 billion.
As you can see on Slide 4, as of September 30, our portfolio totaled $7.4 billion, at fair value, and consisted of 175 portfolio companies. We continue to focus primarily on floating rate senior loans.
From a yield standpoint, the weighted average yield on our debt and other income-producing securities, at amortized cost, declined 20 basis points quarter-over-quarter and 100 basis points year-over-year to 10.6%. Our market spreads on new investments have tightened.
This trend also reflects our continued focus on investing in more conservative and lower yielding senior secured debt. More importantly, when income generated from our other assets is measured against our interest costs, we have been able to increase our net interest and dividend margin.
This margin increased for the third quarter of 2013 to 8.9% from 8.7% in the second quarter of 2013 and was also higher than the 8.4% margin for the third quarter of 2012. Now let's turn to Slide 7, and I will highlight the components of our net realized and unrealized gains for the third quarter, which totaled $14.6 million or $0.05 per share.
During the quarter, we realized $8.9 million in net realized gains, in addition to the $11.1 million of net unrealized gains and $5.5 million of reversals of prior net unrealized appreciation related to net realized gains. Now let's turn to Slide 9 for a discussion of our debt capital.
As of September 30, we had approximately $4.3 billion in committed debt capital, with approximately $3.2 billion aggregate principal amount of total debt outstanding. Over 50% of our total committed debt capital and approximately 71% of our outstanding debt, at quarter end, was in fixed-rate, long-dated unsecured term debt.
We believe the long weighted average maturity of our debt of nearly 8 years provides us with significant financial stability and operating flexibility. During the third quarter, we completed a $300 million unsecured convertible notes offering.
These notes mature in 2019, and have a stated interest rate of 4 3/8% and a conversion premium of 15%, resulting in an initial conversion price of $20.16 per share. Also, during this third quarter and early in the fourth quarter, we increased commitments to our revolving credit facility by a total of $130 million, bringing the total commitments for that facility today to $1.06 billion.
The weighted average stated interest rate on our outstanding debt at quarter end decreased to 4.7% as compared to 5% at the end of the second quarter of 2013. This decline reflected an increase in borrowings on our lower-cost secured revolving facilities, as well as the Q3 issuance of the 4 3/8% convertible notes which represents the lowest coupon, to date, for any of our term debt issuances.
As of the end of the third quarter of 2013, on a fully funded basis, our weighted average stated interest rate remained at 4.1%. In total, at the end of the third quarter, we had approximately $1.1 billion in available debt capacity, subject to borrowing base and leverage restrictions, and $117 million in available cash.
As of September 30, our debt-to-equity ratio was 0.71x and our debt-to-equity ratio, net of available cash, was 0.69x. Based upon the strong growth -- net growth in our investment portfolio and our desire to be well-capitalized heading into the seasonally active fourth quarter, we completed a $214 million follow-on equity offering of common stock on October 1.
Pro forma for this transaction, as of September 30, our debt-to-equity ratio was 0.63x, and our available debt capacity, subject to borrowing base and leverage restrictions, was approximately $1.3 billion. Finally, our fourth quarter dividend of $0.38 per share will be payable on December 31 to stockholders of record on December 16.
As Mike mentioned, we also declared 2 additional $0.05 per share dividends totaling $0.10 per share. Specifically, the first $0.05 per share additional dividend is payable on December 31 to stockholders of record on December 16.
The second $0.05 per share additional dividend is payable on March 28, 2014, to stockholders of record on March 14, 2014. As a reminder, following the filing of our federal tax return for 2012, we carried over undistributed taxable income of approximately $246 million or $0.95 per share into tax year 2013.
Now, we'll turn the call over to Kipp to discuss recent investment activity and portfolio performance.
Robert Kipp DeVeer
Thanks, Penni. I'm happy to discuss our recent investment activity and portfolio performance in more detail and I'll also update our post-quarter-end investment activity and discuss backlog and pipeline.
If you would, please, turn to Slide 12 in the presentation. We're, again, quite active in the third quarter, with 25 new commitments totaling $1.1 billion.
Our commitments were heavily weighted towards new borrowers, which accounted for 14 of the 25 commitments, in total, and about 75% of the dollars committed. The single largest commitment was $188 million first lien loan to a market leader in the Information Technology sector.
Deal was a take-private transaction by a sponsor, who is a significant participant in this sector. In the third quarter, our Project Finance team was also a meaningful contributor with $237 million in new commitments.
Finally, we committed $221 million to the sub-certificates of the Senior Secured Loan Program to co-invest alongside GE and 8 new investments. The SSLP has been a successful program for us and for GE, and we're pleased to announce that we just upsized the program, again, from $9 billion to $11 billion.
And we're thrilled to continue this successful partnership with GE. Generally, we continue to focus on senior secured debt opportunities, with strong loan-to-value metrics, keeping with our continued emphasis on conservative structuring and capital preservation in this environment.
During the third quarter, 79% of our new commitments were in senior secured debt and 20% were in the subordinated certificates of the Senior Secured Loan Program, through which we invested with GE in senior secured loans. We also believe our ability to write large commitments to borrowers is a meaningful competitive advantage in winning new mandates and maintaining winners in our portfolio.
We utilized these scale advantages this quarter in making 6 new commitments in excess of $75 million. Our clients have regularly conveyed to us, they value our ability to deliver a full-scale balance sheet solution, particularly when they're engaged in an acquisition, recapitalization or any other type of transaction, where certainty of closing is a critical factor.
Turning to Slide 13 in the presentation, you'll see our weighted average total net leverage and interest coverage levels for our corporate companies in the portfolio remained stable at 4.7x and 2.6x, respectively, in the third quarter. And at these levels, we feel that we have significant protection from both a loan-to-value and cash flow coverage standpoint.
Slides 14 to 17 provide other notable highlights of the investment portfolio at quarter end. There are several points to make here.
In Slide 14, you'll notice this quarter, that our new corporate portfolio of companies had a weighted-average LTM EBITDA of $37 million. This is lower than the $51 million average LTM EBITDA in our existing corporate portfolio companies, but remains well within our strike zone in the middle market.
This reflects a modest shift away from the larger end of the market, where we feel the current structures are less attractive to us. But our core investment focus will continue to be on portfolio companies at EBITDA levels in the $15 million to $75 million range, where we see solid risk-adjusted returns in middle-market terms and documentation.
Slides 15 and 16 lay out -- that the portfolio of -- that the portfolio continues to be well diversified. Given the size of our balance sheet, our average commitment is less than 1% of our assets and our largest single name exposure is less than 4% of the portfolio.
The only exception here is the Senior Secured Loan Program, which at quarter end, represented approximately 22% of the portfolio, at fair value. However, SSLP is well diversified, with 44 separate underlying borrowers as of quarter end.
And excluding SSLP, the next largest 14 investments, in aggregate, represented only 30.1% of the portfolio, at fair value, at quarter end. Turn to Slide 18 and you can see that we continued to experience very low non-accrual levels, which are now at -- which are near 5-year lows, at about 2% and 1.1% of the portfolio, at cost and fair value, respectively.
If you turn to Slides 19 and 20, for an update on our recent investment activity since quarter end, our current backlog and pipeline. You'll see that from October 1 through October 31, we made new investment commitments of $211 million, of which $200 million were funded.
The commitments were primarily comprised of senior subordinated debt in first lien senior loans and the weighted average yield on the debt and other income-producing securities funded during this period was 10.6%. Also, from October 1 through October 31, we exited $91 million of investment commitments.
The majority of our exited commitments were comprised of first lien loans and a weighted average yield of the debt and other income-producing securities exited, or repaid, during the period was 9.4%. During this period, we were able to pick up some yield on our new investments compared to repaid, or exited, investments.
Slide 20 provides more color on what we're working on today. As you can see, deal flow remains strong as we head into what is, typically, a busy fourth quarter.
And as of October 31, our total backlog and pipeline sit at approximately $390 million and $930 million, respectively. Of course, we can't assure you that any of these investments will close, and we may syndicate a portion of these investments with $1.3 billion in total potential investment opportunities to these stages, we feel we're well-positioned in the current market.
And we're pleased to report that Ares Capital continues to be viewed as a go-to-provider of flexible financing solutions. Thanks.
I'll turn the call back over to Mike for some closing thoughts.
Michael J. Arougheti
Great. Thanks, Kipp.
So to summarize, we believe that our third quarter performance was very strong, which is highlighted by our earnings and net asset value growth and continued consistent investment performance. Since we entered the year with $0.95 per share of spillover income, and we've been out-earning our quarterly dividends throughout 2013, we felt it was appropriate to reward stockholders with the additional dividends that we discussed.
In terms of our outlook, we believe that we've created significant competitive advantages for our business over the last decade. We are a leader in a large and growing market that continues to favor flexible, full-spectrum financial solutions providers.
And as we've discussed in the past, it continues to be difficult for banks to make leveraged loans, particularly in the middle market. Inevitably, there will always be ebbs and flows of liquidity that will impact the current terms in the market.
But we have and will continue to operate under a highly selective credit-first strategy. We feel we have demonstrated our ability to create shareholder value, on both sides of our balance sheet, through the cycle.
To that end, we believe that our scale has also allowed us to strengthen our balance sheet, extend debt maturities, diversify our funding and lower our cost of capital. And with an asset-sensitive balance sheet and modest leverage and a diverse and long-dated liability structure, we believe that we are very well-positioned to execute on our strategy, including taking advantage of compelling investment opportunities as they arise.
Finally, we're pleased that our hard work on both sides of the balance sheet over the past year has allowed us to maintain a strong net interest and dividend margin, realize net gains and deliver attractive returns to our shareholders. That concludes our prepared remarks.
But before we open up to Q&A, I'd like to thank the entire team, here at Ares, for the hard work over the last year, delivering such outstanding results. And as always, thank you, our shareholders, for all of your time and support.
And with that, operator, we'd like to open it up for Q&A.
Operator
[Operator Instructions] The first question we have comes from Arren Cyganovich of Evercore.
Arren Cyganovich - Evercore Partners Inc., Research Division
You've had really stellar growth recently, and I'm just curious if you could talk about the fact that we're hearing a lot of details about the market heating up a bit, leverage levels rising. Obviously, you have a strong track record of credit.
I just wonder what kind of assurances you can give investors when you see numbers like 24% type of year-over-year growth in the investment portfolio that you're sticking to the credit discipline that has paid you dividends thus far.
Robert Kipp DeVeer
Yes, Arren. This is Kipp.
I mean, there's no question that the markets are hot out there. We made reference to the fact, obviously, that our target in terms of company size has probably come down a little bit, just staying away from the broadly syndicated market is something that, obviously, we've emphasized.
I'd tell you this, we have a very large team. We have a substantial capital base that allows us to write larger commitment sizes than most.
So when you see the volume, like that from us, it can be in a bunch of existing portfolio of companies where we repositioned, but also we're seeing a lot of new deal flow. I would say, there's no way to provide you any assurances, other than to say, the underwriting is the same as it's always been.
Our team is exactly the same and, frankly, the deal flow that we're seeing is good, as strong as we've ever seen, and our selectivity is the same, i.e. the close rates are very consistent with what they've been for a long period of time, i.e.
they're very low. So other than to say, we can point to our track record of underwriting credit over time, that's what I'd look to.
There's no doubt the markets are hot out there and there are transactions that you need to avoid.
Arren Cyganovich - Evercore Partners Inc., Research Division
Okay. Fair enough.
And then, the other question I had, does it looks like there's a new investment, quarter-to-date, in a fairly large mezz. It seemed like the mezzanine loan market had almost all but gone away recently.
I'm just curious as to how that came about and whether you think there's any kind of secular change getting a mezz towards unit tranche in first and second lien, and/or whether or not this is just a cyclical aspect of the fact that overall rates are just absolutely so low currently.
Robert Kipp DeVeer
So generally, we're not finding mezzanine to be particularly attractive. You'll notice one large mezz deal that we closed, obviously, the one that you're referring to, the company that we followed for 3 years, it's a company that's actually not very far from our team out in the Midwest and there's a real relationship there with the family that's involved in the business.
It's a non-sponsor deal. So it's something that we've been working towards for a while.
It was modestly competitive. We thought it offered excellent relative value and, obviously, we're thrilled that we were able to win it.
We weren't the only folks, obviously, at the end of the day, working on it. But it did come to us for a handful of reasons.
Michael J. Arougheti
Sorry, I wouldn't read anything into that. I think, when you look at the composition of the backlog and pipeline behind that, you'll see continued focus on senior secured loans.
I think that was more of a one-off than an indication of any kind of a secular or cyclical shift, or change in view on the mezzanine asset class.
Arren Cyganovich - Evercore Partners Inc., Research Division
And I guess, just must more broadly, though, on the thoughts on mezzanine. Do you think that market comes back once rates rise down the road?
Or is it -- it just seems very dead right now.
Robert Kipp DeVeer
Yes, I mean, with rates this low and with second lien creeping back into the middle market, mezzanine often looks less attractive to issuers, i.e. it's higher cost and tends to have more call protection than second lien.
Our experience would likely tell you that as rates go up, mezzanine starts to look more attractive, but we'll see.
Michael J. Arougheti
I do think there's been a secular decrease in the mezzanine market, generally, just given the advent of the unitranche structure. But if you look at the mezzanine market, it's still active, albeit probably a little smaller than it was 5 years ago.
Operator
Next, we have Troy Ward with KBW.
Troy L. Ward - Keefe, Bruyette, & Woods, Inc., Research Division
Mike, can you just talk a bit -- give us some color on the Ivy Hill? Obviously, with a large special dividend this quarter, we saw that in the first quarter, and then the second quarter, it was kind of down to a normal run rate of $10 million and then back up with a $15 million special.
Can you just speak to kind of the relationship between the operations at Ivy Hill, and is it seasonal that's causing this? Or how do we think about the dividend from Ivy Hill going forward?
Michael J. Arougheti
Yes. So similar to the conversation we've had around Ares Capital Corp's dividend, I think it's important that we set a dividend policy around dividend consistency and stability.
The board of Ivy Hill did the same by setting a regular dividend of $15 million, $10 million per quarter. If you take a step back and look historically at what Ivy Hill has done and how it's created value, I think people know Ivy Hill manages, predominantly, leveraged loan funds in middle-market CLOs, largely on behalf of third-party investors.
Through the downturn, Ivy Hill was a very opportunistic buyer of CLO securities, both rated and unrated. And as that market has recovered, we've been effectively harvesting those gains.
It was a great opportunity for us to use the liquidity of Ivy Hill to buy those securities as they fully appreciated. We're just really repositioning those portfolios and harvesting those gains.
So I wouldn't say that it's seasonal. It really just has to do with the rhythm of how we're realizing those gains over time.
If you look at Ivy Hill in our statement of investments, you'll see that it has an amortized cost basis, about $170 million, against the fair value of $276 million. A portion of that is just growth in the assets under management, but a large part of it is the appreciation on the investments that we were able to buy through the downturn.
The other thing that we're noticing now is, given the liquidity in the markets, we're now raising new funds at Ivy Hill using 100% third-party equity, and really driving the fee revenue is a larger component of the profit there, as opposed to the investment gains that we saw coming out of the downturn.
Troy L. Ward - Keefe, Bruyette, & Woods, Inc., Research Division
Great. That's good color.
And then also sticking to the fee theme, on just kind of your regular kind of structuring fees. Given the high originations, it clearly was above our number, but from a correlation standpoint, it just seemed higher fees than we would've expected, even with this level of origination.
So was there higher fees because of new money deals versus refi? Or was there one outsized fee that drove that number higher?
Michael J. Arougheti
No, I think, you hit the nail on the head. It's really just mix and, obviously, we get paid, as we've talked about in prior quarters, higher fees on new money deals than on existing portfolio company transactions or recaps.
Troy L. Ward - Keefe, Bruyette, & Woods, Inc., Research Division
Okay. And then, one final one.
As, and you may have touched on this, Kipp, but as we're into the fourth quarter here, does it like you're seeing momentum picking up towards year end? We've actually heard from industry sources, a little bit of a contradiction, that one didn't feel like it and the other did.
So do you feel like you're starting to see more deals in any particular avenue or any particular -- whether it be refis or new deals, heading into year end?
Robert Kipp DeVeer
Yes, I mean, I certainly don't want to provide any guidance around what the fourth quarter looks like. But I'd say, we, as I mentioned, on the activity side, but also on the pipeline and backlog side, I mean, it's pretty busy here, Troy.
So we know the $1.3 billion things that we're working on -- it's pretty busy.
Operator
Next we have Mickey Schleien with Ladenburg.
Mickey M. Schleien - Ladenburg Thalmann & Co. Inc., Research Division
A couple of questions. I do see that the portfolio's leverage and interest coverage has been stable, but in the broader market, the proportion of covenant light deals has continued to increase.
So I was curious whether you could give us some insight into how the proportion of covenant light deals has trended in the portfolio. And also, some of your non-listed BDC competitors are getting ready to list and they're relatively sizable.
And they're repositioning their portfolios. I was wondering if you could comment on any changes in the competitive behavior you're seeing from them, or more broadly, if more appropriate.
Robert Kipp DeVeer
Sure. So the last time we checked, and the market may have changed in the last 30 days or so, but there have been 3 covenant light deals done for companies that have EBITDA of $50 million or less this year.
So if you look at kind of where we're focused these days, we really don't get involved in covenant light deals, just to hit that one straight away. Doesn't mean that there haven't been exceptions over the years, but it's just not a meaningful part of what we're underwriting here.
So hopefully that answers the first question.
Michael J. Arougheti
And with regard to the unlisted, or the listed private BDCs, we're seeing no change in competitive behavior from them. As surprising as this may sound, we're rarely bump into them in the marketplace.
I think they're -- depending on which one you're talking about, they're tending to pursue a different strategy, either further down the size spectrum, in terms of issuer size, potentially less self-originated and more club oriented or bought transactions. So we know them, we're kind of aware of their activity, but we haven't seen any real shift in strategy leading up to potential listings that we can speak of.
Operator
Next, we have Kyle Joseph of Stephens.
Kyle M. Joseph - Stephens Inc., Research Division
Mike, I think you referenced the EBITDA growth of your underlying portfolio of companies. Can you tell us the revenue growth associated with that?
I'm just trying to see what's driving that EBITDA growth, whether it's revs or cost-cutting, or a combination of both.
Michael J. Arougheti
Actually, for this quarter it's about 12.4% against the 10% EBITDA, and that's been a pretty consistent trend that we've seen quarter-over-quarter, or LTM versus LTM. So right now, it feels like it's both revenue and profit growth, not just cost-cutting.
Kyle M. Joseph - Stephens Inc., Research Division
Great. And then, Kipp referenced that you guys made 6 commitments over $75 million in the quarter.
Can you give us a little framework of who your competition is on deals of that size?
Robert Kipp DeVeer
Oh, that's tough. So larger deals, I mean, we tend to segregate it a bit by asset class.
So I'll take a stab and maybe Mike will help me out, too. I mean, look, most of the time, when you're talking about folks that can actually write larger than $75 million senior tickets, so it's GE is a partner who is really the leader on the senior side, ourselves.
We see a couple of other unitranche providers in the market, but not many, frankly, that can do that. I'd say the folks that can write bigger than $75 million tickets tend to be more often focused on the mezzanine space.
So it's really all over the map there. There's no one that's really, truly, consistent.
I hate to answer it that way, but I think...
Michael J. Arougheti
Fragmented market.
Robert Kipp DeVeer
We don't see the same folks at every meeting.
Michael J. Arougheti
I agree with that. I think it may help reconcile Troy's question earlier just about certain people seeing activity and certain people not seeing activity.
We do believe, as we said in our prepared remarks, that we have real competitive advantages, both in terms of origination, scale and balance sheet size and flexibility. And there are very few people that we see competing on a consistent basis in this part of the market the way that we do.
Kyle M. Joseph - Stephens Inc., Research Division
And then, just one last one for you. Can you give us a sense of the timing of the third quarter deal flows, was it relatively back weighted, or just trying to see the contribution of those deals in the quarter.
Robert Kipp DeVeer
It was pretty ratable, I think.
Michael J. Arougheti
Pretty evenly spread out. I think, generally speaking, you're going to see spikes in activity towards quarter end.
That's just the general rhythm of the business. But in Q3, it was fairly well spread out.
Operator
Your next question we have comes from Robert Dodd of Raymond James.
Robert J. Dodd - Raymond James & Associates, Inc., Research Division
A follow-up on Ivy Hill, if I can. I mean, obviously, in the quarter, a substantial special about the equity value was essentially marked up $1 million, which implies, to me, at least one of 2 things: Either the valuation multiple was adjusted, or is generating substantially more of a curve in income than is being distributed with the regular dividend, and that's, certainly, consistent, I think, with what we saw in the numbers in Q2 as well.
So can you give us any additional color -- and you talked about obviously, using 100% third party equity, et cetera, and so the fee stream, without putting capital at risk, especially maybe running higher. So can you give us more visibility -- not more visibility, maybe a little bit more color on where it is in terms of the performance versus valuation on the balance sheet right now?
Because it looks like...
Michael J. Arougheti
Yes. As I mentioned, so we have -- the composition of the valuation is twofold: it's, one, the discounted value of the asset management fee stream and it's two, the investment income and value of the underlying investments in securities.
As we've transitioned Ivy Hill into this market, as I mentioned, we have been deemphasizing ownership of CLO equity in favor of using third-party equity to grow the assets under management at Ivy Hill. And so when you look at the income trends at Ivy, it's a function of appreciation in the underlying assets, as well as the ability to raise new vehicles, as well as refinance old vehicles into new vehicles, taking advantage of liquidity in the current market.
There's been no real change in the valuation framework. It's all underlying fundamental performance.
Robert J. Dodd - Raymond James & Associates, Inc., Research Division
Okay, perfect. And then, following up on another past question, actually, on structuring fee side, I mean, do you talk about new money deals versus refis, et cetera.
How much -- is there any other shift in the marketplace right now, relative to, obviously, you do somewhat smaller EBITDA deals, versus the lighter side, I mean, are there any dynamics that are shifting in terms of the like-for-like, so to speak, pricing structures that are available, absent -- putting yield aside for a moment?
Robert Kipp DeVeer
I don't think so. We're all sort of shaking our heads at each other here, saying, it's pretty much the same as it's been.
Operator
Next, Jon Bock of Wells Fargo.
Jonathan Bock - Wells Fargo Securities, LLC, Research Division
Real quick, Mike, would you be able to walk through -- one disconnect I'm trying to reconcile, if you look at the Senior Secured Loan Program portfolio, weighted average yield, roughly at about 8%, that's as of December of 2012, today, it's 7.4%. Yet, if you look at the SSLP stated yield, which I believe is on your piece of paper, that yield's gone from 15.4% to now roughly 15.3%-ish.
Could you give us a sense as to how the overall yield of SSLP can stay the same, net to you, if the average asset yield in that portfolio continues to decline?
Michael J. Arougheti
Sure. I think that's one of the great things about SSLP, and you're seeing a very similar trend on the ARCC balance sheet, where we're able to drive the cost of our capital down against the spread tightening that we saw in the market.
And as I mentioned, we have seen spreads stabilize this quarter. But the answer for us, SSLP, is the same as on balance sheet, which is the cost of funds in that program has come down, in conjunction with the decrease in asset spread.
Jonathan Bock - Wells Fargo Securities, LLC, Research Division
Okay. So it's come down.
Great. Also, turning to repayment risk for a moment and, obviously, you've talked about how you dealt with it.
As you look at some of your more subordinate pieces of paper that continue to mature, in terms of call protection, could you maybe give us a sense as to how long we, as analysts, should expect some of that higher-yielding items to stay on balance sheet? Or would you have felt that if you were going to describe it that majority of your, we'll call it significant repayments, perhaps has passed and what sits on the balance sheet today is relatively well call protected for the foreseeable future?
Michael J. Arougheti
Yes. I think we've talked about this.
Most of the refinancings that we -- what is expected, I think have worked their way through the portfolio. And I think, we talked about this last quarter, what we've tried to do is, where we have a strong relationship with a borrower in a performing company, is to participate in that opportunistic refinancing, in order to preserve significantly above market pricing and call protection and avoid the full spread ratchet.
And I think that's pretty much worked its way through the portfolio. One of the important things of being a full balance sheet provider, as we've talked about, is the ability to own a relationship with the borrower over a long period of time.
So a subordinated debt investment that is performing and exits its non-call period, in and of itself, is not necessarily a bad thing. And if they are looking at a financing alternative, our hope is if it's a company that we know and like, that we would be a meaningful participant in whatever refinancing we're taking at that mezzanine.
So it's a mix. We have some that's in hard call protection -- hard, no-call.
We have some that has soft, no-call, but generally speaking, I don't see a significant refi risk in the portfolio, particularly in mezz.
Jonathan Bock - Wells Fargo Securities, LLC, Research Division
Fair enough. And then, maybe taking a look at some of the new investments, Kipp.
In particular, let's say a Brush Power or a Dialysis Newco, in general, Ares has always been the kind of the lead structure arranger of big facilities and that's been part of the allure that indirect origination does yield outsized results. But as I start to look at some of these additional investments, I see kind of on the lines that Union Bank, RBC, GE, FITB, Keybank, CIT, for a number of these investments, is it fair to say that the direct origination role, particularly as you've become larger, again, this is outside SSLP, is perhaps getting mitigated or diluted somewhat as you pursue some of these large transactions with these, what we'll call a partner/competitors?
Michael J. Arougheti
No, quite the opposite. I think what you're referring to is probably Brush Power.
Brush is a deal that we did out of our growing power gen lending group, and part of the value proposition that we bring to the market is providing capital in the middle of the balance sheet, behind syndicated bank deals. So in the instance that you're describing, that syndicate is not in our piece of paper.
So it's not unlikely that you'll see us, particularly in our power business, being the lead agent on a second lien, or junior piece of paper, behind a very cheap broadly syndicated first lien loan.
Jonathan Bock - Wells Fargo Securities, LLC, Research Division
Okay. And then, I guess, would the story would be the same, Mike, for like a Dialysis Newco?
Michael J. Arougheti
Yes. Generally speaking, I don't want to say 100%, but our core strategy of self-originating, self-structuring and owning and controlling the tranches that we invest in, is very much intact.
From time to time, you may see us partnering with somebody, but it's the exception rather than the rule.
Jonathan Bock - Wells Fargo Securities, LLC, Research Division
Fair enough. And then, the last question just relates to how you look at capital in order to fund both new, as well as unfunded commitments, with unfunded commitments of about $617 million.
And let's say that there is the prospect for somewhat -- let's say, heavy deal flow moving into the end of the year. Maybe give us a sense of capital need at this point and how you look at, perhaps growing the balance sheet both, either with debt and equity, in light of the unfunded commitment number in the 10-Q.
Michael J. Arougheti
You say unfunded commitment number, you're talking about our unfunded drawn -- unfunded to our borrowers or our...
Jonathan Bock - Wells Fargo Securities, LLC, Research Division
Correct. I apologize, Michael.
So to a borrower where you would, basically, have a credit line outstanding that they may look to fund.
Michael J. Arougheti
That's an ordinary part of our business. I think we talked about this all the way back through the downturn.
Part of our daily management function here is to look at those exposures and evaluate where we see potential for funding. Some of those unfunded commitments are traditional working capital facilities where we are the agent and can have a very good level of visibility into daily, monthly, quarterly type activity, and some is more strategic, in the form of acquisition lines, the delayed draw term loans, FX facility, et cetera and, obviously, that's part of a longer term strategic capital plan for our underlying borrower.
So we have pretty good visibility into utilization of all those facilities and factored into our capital planning process. Generally speaking, I'd also just highlight, capital planning, I think, is something that we do very well.
The name of the game here is to be successful on both sides of the balance sheet, both the assets and the liabilities. And I think we've demonstrated that we know how to manage liquidity to generate shareholder returns.
And I don't think that the unfunded commitments is anything new, in terms of the equation of how we think about capital -- capital formation here.
Operator
And our final question today will come from the location of Doug Mewhirter with SunTrust Robinson Humphrey.
Douglas Mewhirter - SunTrust Robinson Humphrey, Inc., Research Division
Most have been answered. First, looks like the, I guess, the liquid markets leveraged loan, the covenant light proportion has reached very high proportions in terms of the ones newly issued.
And I do realize that -- seeing that Ivy Hill participates in the CLO market, where a lot of those loans go, and you have been scaling back a bit, I mean, are there still any new issue CLO opportunities out there? Or is it really starting to dry up in terms of what they see in terms of favorable pricing and risk/reward and all of that?
Michael J. Arougheti
So just to be clear, Ivy Hill is in the CLO management business, but it's all middle market. So when you look at the things, not all, but predominantly middle market, when you look at the assets that Ivy Hill tends to buy, they, too, are structured with traditional middle-market structures.
They probably have a willingness, although knowing how strict they are, in terms of their underwriting, they may have a very small handful of covenant light transactions, where we have none. But again, I think that would be the stark exception and not the rule.
Clearly, in the broadly syndicated loan market, the percentage of new deals coming with covenant light continues to increase the percentage of new transactions. But again, that hasn't crept into the middle market.
Douglas Mewhirter - SunTrust Robinson Humphrey, Inc., Research Division
That's very helpful. And my last question, more general question.
You're an active participant in the health care industry, financing various parts of it. How do you see your appetite, or the way you look at investments, relative to the ACA and all the different health care reform that could potentially disrupt a lot of the corners of that industry?
Michael J. Arougheti
Yes. I think we factor all of that into our underwriting.
Health care is a broad space, and if you drill down into our health care portfolio, you'll see everything from health care information technology and revenue cycle management businesses glued to different provider models and service models. So it's a broad portion of our portfolio.
But each company and each industry sector they're playing in has a different exposure to the Affordable Care Act and reimbursement changes at CMS. So each one is distinct.
We do feel like we have a real core competency in health care. We understand what the issues are.
I think, generally speaking, I would say that we have avoided funding business models that we think have real risk from the changing health care landscape. And we've actually tried to identify business models that we think will benefit from some of the changes.
You can never get it perfect but I think we have a pretty good sense for the risks and opportunities, both within the existing portfolio and the market as regards the changing dynamics.
Douglas Mewhirter - SunTrust Robinson Humphrey, Inc., Research Division
And just a follow-up with that, I mean, it is very early days, but have your instincts been correct? Have you noticed any issues crop up with your existing portfolio?
Or actually unusually good results from your existing portfolio now that changes are starting to take place?
Michael J. Arougheti
I think it's too -- right now, it's a little too early to tell, in terms of the implementation. There were -- this is not new.
So we've been preparing for this for a couple of years now. And so there were some portfolio of companies within the health care space that we felt may present some risks or challenges, and we've exited those.
Again, most of the business models we think have a balance, more opportunity than risk, but there's nothing that we're seeing crop up that I would say is overly positive or overly negative.
Operator
This will conclude our question-and-answer session. I would now like to turn the conference back over to Mr.
Arougheti and the management team for any closing remarks. Sir?
Michael J. Arougheti
Great. Thank you very much, everybody.
Again, we really appreciate your continued support. Thanks for your participation and questions today, and look forward to speaking with everybody next quarter.
Operator
Thank you, sir, and to the rest of the management team for your time today. Ladies and gentlemen, this concludes our conference call.
If you missed any part of the today's call, an archived replay of this conference call will be available approximately 1 hour after the end of the call, through November 18, 2013, to domestic callers by dialing (877) 344-7529, and to international callers by dialing area code (412) 317-0088. For all replays, please reference conference #10034529.
An archived replay will also be available on the webcast link located on the homepage of the Investor Resources section of our website. We thank you all for attending today's presentation.
At this time, you may disconnect your lines. Thank you, and have a great day, everyone.