Good afternoon, and welcome to the Ares Capital Corporation's Third Quarter Ended September 30, 2018, Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded on Wednesday, October 31, 2018. I will now turn the call over to Mr. John Stilmar of Investor Relations.

Thank you, Brian, and good afternoon, everybody. Let me start with some important reminders. 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 words such as anticipates, believes, expects, intends, will, should, may and similar such 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 certain non-GAAP measures as defined by the SEC Regulation G, such as core earnings or core EPS. 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 operation. A reconciliation of core EPS to 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. In addition, the reconciliation of these measures may also be found in our earnings release filed this morning with the SEC on Form 8-K. Certain information discussed in this presentation, including information relating to portfolio 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 third quarter ended September 30, 2018, earnings presentation can be found on the company's website at www.arescapitalcorp.com by clicking on the Q3 '18 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 website. I'll 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 members of our management team, including our Co-Presidents Michael Smith and Mitch Goldstein; our Chief Financial Officer, Penni Roll; and other members of the Finance, Investment and Investor Relations teams. You will hear from Penni and Michael later in the call. Let me start by reviewing our strong third quarter results, and I'll then provide an update on current market conditions. This morning, we reported strong third quarter earnings. Our core earnings were $0.45 per share, a 25% increase over the same period a year ago. The improved earnings were driven by higher total portfolio yields as we benefited from continued increases in LIBOR and stronger fee income. Fee income was higher primarily due to increased new borrower commitments made during the quarter. Our third quarter was also a strong quarter for realizations. We delivered a quarterly record $0.87 per share of net realized gains, principally driven by the sale of our investment in Alcami. As discussed on last quarter's call, Alcami is a leading outsourced drug development and manufacturing services company, which we acquired as part of the American Capital transaction. And on the Alcami sale, we recognized a $324 million or $0.76 per share realized gain, generating gross proceeds that were more than double the price we paid for the investment at acquisition. With our success in Alcami, the company has now generated approximately $1 billion of cumulative net realized gains since inception. We also had our fourth quarter -- fourth consecutive quarter of NAV growth. Our NAV per share reached $17.16 per share in the third quarter, significantly above the $16.49 per share from Q3 2017. Finally, we ended the third quarter in a conservative financial position with a modest net…

Thank you, Kipp, and good afternoon. As Kipp stated, our basic and diluted core earnings per share were $0.45 for the third quarter of 2018 as compared to $0.39 for the second quarter of 2018 and $0.36 for the third quarter of 2017. Our basic and diluted GAAP earnings per share for the third quarter of 2018 were $0.49, including net gains for the quarter of $0.05 per share. This compared to GAAP net income of $0.60 per share for the second quarter of 2018 and $0.33 per share for the third quarter of 2017. In total, we reported net realized and unrealized gains on investments and other transactions for the third quarter of 2018 of $24 million. These net gains were primarily a result of our net realized gains on investments exited exceeding their second quarter fair values. As of September 30, our investment portfolio totaled $11.2 billion at fair value, and we had total assets of $12.3 billion. At the end of the third quarter, the weighted average yield on our debt and other income-producing securities at amortized cost was 10.3%, and the weighted average yield on total investments at amortized cost was 9% as compared to 10.4% and 9.1%, respectively, at June 30, 2018. Overall, our yield remained fairly consistent with last quarter. Moving to the right-hand side of the balance sheet. Our stockholders' equity at September 30 was $7.3 billion, resulting in a net asset value per share of $17.16, an increase compared to $17.05 a quarter ago and $16.49 a year ago, up 0.6% and 4%, respectively. As of September 30, our debt-to-equity ratio was 0.63x and our debt-to-equity ratio, net of available cash of $726 million, was 0.54x compared to 0.64x and 0.57x, respectively, at June 30, 2018. Our total available liquidity, including available…

Thanks, Penni. I'd like to spend a few minutes reviewing our third quarter investment activity and portfolio performance. I will then provide a quick update on post-quarter-end activity and our backlog and pipeline. During the third quarter, we originated $1.9 billion of commitments across 41 transactions, of which 68% of commitments were first lien and 91% were in senior secured positions, reflecting our conservative approach and focus on being up the balance sheet in this market. As usual, the transactions were predominantly made in private equity-backed companies that have leading market positions in noncyclical industries. Of note during the third quarter, we led a $620 million senior secured financing in support of Bain Capital's acquisition of Varsity Brands, a leading manufacturer and supplier of athletic gear, graduation-related products and cheerleading products and services. Varsity Brands has been an ARCC portfolio company since 2014 when the company was purchased by Charlesbank Capital. As a result of our incumbency and strong relationships with Charlesbank, Bain Capital and the company, we were able to remain invested in this highly quality portfolio company with a well-regarded financial sponsor when the company was acquired by Bain Capital last quarter. Additionally, this transaction underscores the value of our selective equity coinvestments as ARCC realized a $14 million gain on our legacy equity investment of approximately $8 million made alongside Charlesbank. To underscore the value of equity coinvestments, overall, we have generated approximately $290 million in net realized gains from the equity coinvestments that have been made since inception by ARCC. These gains have supported our long-term track record of steady net asset value growth. Shifting to repayments. During the third quarter, we exited or were repaid on $1.9 billion of commitments. Of note for the quarter, many of our repayments were weighted towards more junior capital…

Thanks, Michael. In closing, we're pleased with our third quarter results and strong execution against our goals for 2018. Our core earnings have increased significantly over the last five quarters. And in the third quarter, we generated core earnings well in excess of our recently increased quarterly dividend. We achieved these strong third quarter earnings and increased revenue growth from the benefits of rising LIBOR and expanded fee income, despite being below our target level of leverage. We also generated record net realized gains in the third quarter as we successfully exited noncore assets from our American Capital transaction and further supplemented those gains with gains from our ARCC-originated equity coinvestments. We've now successfully exited most of the noncore investments from the ACAS acquisition. And at the end of the third quarter, we generated a 38% realized IRR on the transaction. The exits from the American Capital portfolio have contributed to our underleveraged balance sheet, but at the same time, enabled us to reinvest the substantial gains accretively for our shareholders. Looking forward, with the near completion of our portfolio rotation efforts and the benefit of higher LIBOR, we feel the company has achieved a new higher level of earnings that are sustainable and in excess of our regular dividend. We remain confident that this robust earnings profile exists even at a lower leverage level, and we believe there is continued upside if we can move back towards our target leverage ratio and continue to realize the benefits of any further LIBOR increases. That concludes our prepared remarks. Brian, can you please open the line for questions?

[Operator Instructions]. And today's first question will be from John Hecht with Jefferies.

First question, Kipp, I think you insinuated that your spreads have been -- even amongst the kind of volatile market backdrop, spreads have been reasonably stable. Are you seeing at this point any change in those dynamics or competitive factors as anybody maybe moved in or out of the market given the volatility?

Yes, I mean, not really. Spreads have remained and we -- it's fine to update. We always answer that question and are happy to. They've been pretty consistent for, I think, the last two years, maybe even a little bit longer. What we've seen is just -- I think as we've described to many of you, our view is lower-quality underwriting, higher adjustments to EBITDA that maybe make leverage levels on an actual basis higher than they might be interpreted to be on sort of an adjusted basis. But we haven't seen spreads come in at all lately in mid-market land. Vis-à-vis the competition, I mean, there's not a lot of new competition. There's a lot of capital coming into the space, but some of it has been in situations where capital has perhaps moved from a manager to another if you take the FS transaction, which obviously moved a lot of capital from one manager to another. But most of what we've seen is existing managers just continuing to raise capital. And I think that, that just evidences of view that investors find the risk reward in the asset class to be attractive.

Okay. And then follow-up question. I know it's difficult for you guys to forecast prepayments and so forth within the portfolio, but just thematically, as rates move up, should we expect that activity to wane? Or how should we think about that as we step through next year?

Yes. I mean, look, specific to Ares Capital, we've seen elevated repayments as we've been doing two things. We've monetizing, obviously, assets from an acquisition we did, as you all know. And I think we've also been pretty opportunistic sellers, considering that it's been a pretty good market to sell things, where it's been more difficult to make new investments. I mean, I think over the years, John, we always think of average life of our assets as being somewhere between 3 and 5 years, not to be too specific. And yes, as rates go up and perhaps a year later in the cycle and you're seeing less deleveraging, perhaps there are more cracks down the line, the timing of repayment should lengthen out a bit, i.e. they should as well.

Next question will be from Rick Shane with JPMorgan.

When we look at the debt summary, you have just over $1 billion maturing in the next three months. At the same time, you have more capacity undrawn on your revolving facilities than pretty much anytime in the last several years. I'm curious how you are thinking about approaching those maturities. Last year, you did do five year notes, $600 million of five year notes in anticipation of some maturities. I'm curious this year if you're going to let that go into the revolver and perhaps take some of those funding costs down.

Thanks for the question, Rick. I'll let Penni start and to follow on.

The nice thing is we're sitting in a great position that we have a lot of liquidity to pay off the upcoming maturity of $750 million in November. As usual, our plan is to hit the markets and issue debt when we have a favorable market backdrop, and we like to have a lot of flexibility around how we do that and not necessarily tie it specifically to a maturity. We've been thinking about this maturity for a while, and it's why we really focused on issuing debt over the last 12 months so that we got ahead of it. So I think where we're sitting is, particularly now with the upgrade with Moody's, we're well positioned to be a continued issuer on the investment-grade markets. It's where we want to continue to issue debt, particularly as we grow. So we will continue to watch the markets. And if we get the right market to issue in, we would do that like we've done in the past. But we have no eminent need to have to do that.

And, Rick, just to repeat, I mean, a point that's in the prepared remarks, partially, because of the realizations and repayments, we're ending the 9/30 quarter with $726 million of cash. So obviously see some pretty significant pickup just by paying down debt, relieving ourselves of, frankly, too much cash and not having to borrow and pay interest expense to that tune. So -- and there will be a little bit of modest accretion in the short term just getting out of an excess cash position.

Got it. Okay. And I -- definitely tied in the comment about the only investment-grade issuer for all three agencies and curious, though, the one thing it seemed to shift has been over the last couple of years towards unsecured versus converts. To the extent you do see that opportunity going forward, is that still the preference?

It is. I think if you look at our capitalization structure, we've had somewhere around -- if we're probably fully leveraged in the balance sheet, 70% or 80% of our debt capitalization being unsecured debt. It's been a little bit higher without any drawings on the revolver right now, but that will shift back after this repayment in November. So I think we like the composition and we would like to continue to drive a lot of our debt capital being in the unsecured area versus secured. And that's something that we think about a lot also in the context of maintaining our investment-grade ratings.

Got it. Kipp, your point is well taken on the cash position. I had looked at that and thought, oh, you must have some big transactions coming through. But then, obviously, when you tied into what's available on the revolver, you actually just are going to be stuck in the short term, to your point, with a fair amount of cash since, well, it's reinvested.

Right. Yes.

Next question will be from Ryan Lynch with KBW.

First question, if I look at your kind of average portfolio company, EBITDA has increased by over 50% really. It's at about $93 million over the last year, and I think you said, in the third quarter, that's averaged well over $100 million of EBITDA for all your commitments. So can you just talk about really what has been the driver of that increase in EBITDA? Is it just more you guys having a larger capital base, both at ARCC as well as across the platform, that you guys can now be full service or full solution providers to some larger borrowers? Or is that intended to you guys moving to larger companies because we're later in the credit cycle and you do those to be safer? Can you just talk about what is really driving that pretty big increase in average EBITDA?

Yes, I'm glad you asked the question, Ryan. So all of those things are true, but just -- I don't want to have a point lost that actually Mitch and Mike and I and a couple of the others here were talking about before we -- just we were getting ready for the call. The weighted average number tends to skew up, obviously, because some of the larger companies are writing larger checks, right? It's just sort of the way that, that business works. So we were talking about actually introducing a second metric, and we were saying, asking ourselves, if we actually went to what's median EBITDA in the portfolio and when we went back through it quickly, median EBITDA is around $40 million. So I don't want this number to skew people to say that we're not interested in smaller transactions, we're not finding value in more traditional middle market transactions because we are. And actually, a couple that we did this quarter when we looked back through the Q3 activity. But the reality is, to your point, yes, typically, in those larger companies that have $75 million, $100 million of EBITDA, as we've talked about on prior calls, they're either large unit tranches that are displacing bank financings, right. So think about $500 million, $600 million deals where we're holding significant final holds and/or they're second lien, again, to your point, where we feel they're larger companies, they're better credits, they're more resilient second lien than you would see in the traditional middle market deals. So it's a little bit of the math skewing to tell a story that's not necessarily true, but the points that you made about why we invest in larger companies and why we have larger hold sizes in these larger companies is definitely part of it. But I just -- I wanted to make that clarifying point because that was interesting we had the conversation before we got on the call here today.

Okay. Yes, that is interesting. That makes sense. It's just the larger deals are going to skew the average versus the median is going to be a bit lower. So my follow-up question, you guys had $1.9 billion of exits this quarter. I know Alcami was -- drove that a little bit larger than it would have otherwise been, but it's still pretty large number from a portfolio turnover standpoint. I was just wondering, how much of that $1.9 billion, I guess -- the composition of that, how much of the $1.9 billion was really driven by you guys syndicating off or selling off portions of loans that you guys committed to? And the reason I ask is just because you guys had a great quarter from a fee income standpoint, really drove earnings very high this quarter. But I'm just wondering, obviously, there's a cost to that, that lowers obviously the average size of your portfolio, and you guys have a ton of excess capital right now. So just wondering how much of that $1.9 billion was syndicated or sold off and how you guys think about generating good fees from syndications and balancing, diversification of the portfolio versus you guys are in a portfolio position where you guys have excess liquidity and have a lot of capital you need to deploy.

Yes. I mean, there's more of a weighting towards new deals this quarter. I think, as we talked about in the prepared remarks, that probably leads to a little bit more potentially commitment to bring in partners and there's some of that. I was looking around for the number. The reality is we have prepayments in a couple of large names, right, and places where we recognize gains, [indiscernible], Alcami, a couple of other places that we're really successful, investments that generated gains for us. But no, certainly, a portion of that number, which is large, was us bringing partners in, selling down, et cetera. It -- typically, in a $2-ish billion gross origination quarter, it can be a quarter or so would be my guess, just rough numbers. I have the numbers, I don't really want to disclose them on a quarterly basis. I'm not going to give you the exact number, but it did generate some excess fee income. And look, this is a great market for us to be able to do that. We have, as I've always said, advantages in terms of our capital scale, and some of that's being able to drive leadership in transactions and excess fee income. And you definitely see that this quarter. And if the markets hold up the way that they've held up on the loan side, we'll be able to do that for a little while longer.

Next question will be from Chris York with JMP Securities.

So a follow-up on Ryan's question a little bit on structuring fees, which were a record. Kipp, you talked a little bit about the drivers there. But is the structuring fee price that was 2.4%, I believe, this quarter, which was up attractively over the last couple of periods or comparable periods, is that maybe sustainable as a result of your leadership?

If you look historically, it's been a pretty significant portion of the total return proposition that we've delivered to shareholders over the years, and that's obviously because we like to lead and originate our deals. So some of it is bringing in partners, but the reality is when you go out, if you put $1.9 billion, rough numbers, to work on new transactions, when you get upfront fees on all those originations, so even if you assume a low fee number, call it, 2% on a $1.9 billion, that's still $38 million a quarter in fees, right? So this idea that -- all of it -- some of it comes and goes, but there's a base structuring fee number there that so long as we continue to be active investing money is likely to be there. But no, this was a good fee quarter. And I think some of you all who wrote analyst notes this morning said probably a little bit of a beat on fees, I think there's a little bit of a beat on investment income, on fees and certainly, on gains. So -- but yes, look, a couple of pennies if they drop off because they're nonrecurring, yes, I'm not that concerned. But that comes and goes. It depends on the activity as you appreciate.

I certainly do. And other income line that drove the beat for us was other income, and it was strong for the second consecutive quarter. We're aware that this income can be lumpy and generally characterized as non-reoccurring, but is there anything occurring in today's market that can be attributed to the last 2 quarters of solid contributions?

No. I mean, this quarter, we actually had a onetime management fee associated with the Alcami sale, but I think kind of -- what was it, $7 million that you can consider onetime. So it's probably why it's a little bit elevated in the quarter prior. I don't remember anything of any substance at all. So -- but that's the number for this quarter that might be helpful. But no, there's nothing in the market that's creating any differences in what we'd expect there.

Sure. That feel from Alcami is very helpful. And then lastly, we've heard of some BDCs discuss bringing off-balance sheet joint ventures on balance sheet. Now your leverage remains well below your targets, and your return on the SDLP of 15% is very attractive. So could you share with us your thought process and whether it makes any sense for ARCC to consider bringing the SDLP on balance sheet?

Not a lot of talk about that, frankly, today. I mean, we view the SDLP as a pretty attractive investment and in terms of the ROE that we're able to generate there with our partners is something we'd like to continue to lean on. Look, when -- you can see the return on assets in those programs. When your leverage 0.6:1, it really doesn't generate sufficient ROE to be worth any consideration in terms of revisiting the relationship or revisiting the structure. Maybe down the line, but there's really no meaningful discussion about that here today.

Yes. I was just kind of thinking down the line so longer term. I'll just switch to my last question. So you've done a great job transitioning the portfolio, especially with ACAS. But with the remaining $700 million in what we'll call legacy American Capital assets, how much of that portfolio could be subject to any further repositioning?

We think it's about half.

Next question will be from Fin O'Shea with Wells Fargo.

Just a little bit on the market and volatility environment. The fourth quarter-to-date number seemed a little soft given fourth quarter is usually the strongest. Is this -- and you said the backlog is very strong similarly, $1.5 billion. Is this a timing issue? Or with sort of the fourth quarter wider volatility reference, are deals slowing up?

The slowness point is just in terms of what we've done since October 1, being the $412 million number that Mike laid out?

Yes.

Got it. Look, I mean, Fin, thanks for the question. It's maybe not as -- I actually had this comment the other day internally. It's not quite as busy as we typically will see on Halloween in most years, I would say that. Our backlog and pipeline is fine. It probably is going to be weighted a bit towards the back of the year, to Mike's comments, meaning $400-ish million close in the month of October with a pretty significant backlog on a go-forward basis. But look, yes, we'll be reliant on closing couple of the things that we think we have pretty well [indiscernible] for year-end. As you know, Fin, I have been following the space a long time, too. Most of the things that we see in the pipeline are pretty well sorted through in diligence to this point, that it takes a long time to close things. A lot of deals don't really close after December 15, December 20. So probably not in our pipeline if we don't expect it would close in the next 6 weeks. But I think, look, if you look around broad leverage finance, you would see it a bit slower than you've seen in other fourth quarters.

Sure. Very helpful. As a second question, I want to follow on the earlier line from Rick Shane's questions earlier. On your unsecured debt, given you've rather astutely structured these to provision the regulatory regime as your covenant, now that you're sort of testing those waters, or you will be very soon presumably, on refinancing those, how are the structures and pricing terms holding up?

Just on the liability side? I think they're...

Yes, in terms of new deals, and I'm happy to jump in, too. But go ahead.

Yes. I think we're in a great position to continue to access the market. And if you look at pricing and terms, I think we would issue at a similar spread to what we have in the past. Clearly, we've lost a lot on treasury because treasuries continue to go up. But we do believe that we would still be best in class in the context of the size of deals that we can do and the pricing and the spreads that we can issue at. So we feel good about the capacity in the market and our ability to effectively execute. Like I said before, we just like to get into the best market that we can find to execute. It's been a little bit noisy, as you know, over the last several weeks in the markets generally, so right now might not be the best time to do something. But given the amount of available liquidity we have and the ability to continue to ladder out our maturities, we have plenty of flexibility on the timing with which we continue to raise capital.

Yes. And I thought I'd just add, I don't -- with 3 investment-grade ratings, the recent upgrade and all that, the only negative -- really, I think 2:1 leverage has been well understood. I think the plan that we laid out about not maximizing leverage but perhaps getting to something like 1.2x over the next few years if we're able to get there has been well received by the agencies and by our debt holders. And yes, to Penni's point, the only negative is it's been a tough year for the investment-grade markets, and obviously, the benchmark five year, which we typically price off, is wider than it was and not a lot we can do about that. But spreads are existing, bonds have held in and not really traded down.

At the same time, we've added a lot of earnings power to the left-hand side of the balance sheet and the portfolio because of rising short-term rates. So we're sitting in a well position and still have a good spread.

Next question will be from David Miyazaki with Confluence Investment Management.

Congratulations on your progress to make the ACAS transaction as successful as the Allied one. Just a question. You had -- you have this combination of floating rate assets on the left side of the balance sheet with some fixed rate liabilities on the right side. But if we think about things like the length of the economic expansion or even the Dodd charts that get provided by the Fed now, is there any thought to negotiating into your new deals LIBOR floors that are higher at a point in time when people might not be worrying about declining interest rates?

It's a great question. There's no real discussion about it in the markets is the quick answer. I think everybody is living in a world where they're believing that the short-term rate is going up, at least a couple more times, and the yield curve is flattening. And, frankly, the discussion around what happens when we get there and if and when there's more difficult economic conditions, you then see LIBOR bursting, we're just not there yet, David. But appreciate your comment as well on the ACAS transaction. Thanks so much.

Yes. I mean, you guys have done a great work there, and that was not an easy act to follow. But kind of just getting back to the LIBOR issue that right now -- I think you've worked on this. It's not what I'd call a huge mismatch, but it is a mismatch that is creating incremental earnings when LIBOR arises. But you could, at some point, face that headwind if LIBOR begins to decline, and you've got fixed liability. So I just started to think about, over the next few years, if we went to the last sort of cycle of LIBOR floors at 100, do you put any thought into -- at a point in time when we stop worrying about declining rates so maybe have the LIBOR floor at 200?

We haven't done that. It's a good idea. We'll talk about it internally and sort of not out in the market. But it's an interesting question that we'll take away.

Okay. Second one was -- and you'll have to forgive me for not being entirely aware of the nuances of the rating agencies. But it seems to me that Moody's has been pretty quiet with regard to ratings on the BDC industries. In your work with them, are you seeing more engagement from them with regards to the BDC industry?

For sure. Yes. And I'm going to let Penni jump in, too. But I think that the upgrade was really the result of them reengaging in a meaningfully way to sort of re-underwrite the industry. And we're thrilled about that. So I don't have much else to add. Penni, I don't know if you have anything to add beyond that.

No, I just think in...

But the answer is yes.

In spending a lot of time with them, we do feel like they've reengaged with the industry is a good thing for the whole group.

Yes, I agree. And thanks for being the vanguard of that effort. I think it really will help the overall industry, not just Ares, in having more credibility with regard to ratings. So thank you for that effort.

Next question will be from Casey Alexander with Compass Point.

I wanted to make sure that I understood the conversation about the tax coverage of the Alcami gain. I mean, what you're -- is what you're saying that you're not going to be forced to do a distribution as a result of the Alcami gain, but that doesn't necessarily preclude a special distribution based upon your spillover income?

That's exactly what we said. We can go into more detail on the intricacies of tax versus GAAP accounting for BDCs if you like, but that's what we said.

God, please don't. Secondly, when you go back a few years ago, the original discussion about the Small Business Credit Availability Act, there was a discussion that the strategy was potentially to move up the capital stack. But then when your board authorized the resolution, you guys said that you were going to stick with your existing portfolio strategy. So my question is, in the last couple of quarters, you have been moving up the capital stack anyway. Is that -- am I right in assuming that's not really in response to the Small Business Credit Availability Act, but that's more strategic in relation to the macro environment?

The answer to that question simply is yes, but just with a caveat that, obviously, higher leverage does allow us to make -- investing in traditional senior debt more accretive to shareholders. So it makes so much easier for us to do that, but it's very much our view that in this environment, a focus on first lien investing -- continued focus on first lien investing makes sense.

Next question will be from Robert Dodd with Raymond James.

Getting back to the fee income question for a minute, if I can. I mean, Kipp, in your comments, you referred to the high level of kind of excess fees a couple times, but you also told about the company as a whole hitting kind of a new earnings profile, high level of earnings. At the same time, when we look at -- your average hold size in the quarter, if I remember, was $47 million. Even at a $40 million EBITDA business with your average attachment point, I mean, the average checks that you're speaking for are a lot larger than your hold size. So to the point where bringing in partners happens -- has happened over the life of the company, is it just becoming -- given the size, given your hold size, is it just going to become more and more common? And is that the contributor to kind of the new earnings profile and maybe the fee income isn't so much excess, but the plan, I mean, you guys can put it in the plan, if you want?

I mean, again, just -- so when we think about the earnings today, I mean, just the point that we're trying to make is, I think as we've discussed with many on the phone over the last call 12 to 18 months, we've been on a little bit of a journey of portfolio rotation away from low-yielding assets at ACAS as well as equity investments, and we're now finally here at the end of Q3 where we feel we're largely through that. So significant portion is simply just the repositioning of our assets over the last 18 months on a pro forma basis for the acquisition, and that's largely done. The second key contributor, as I mentioned during the prepared remarks, is LIBOR. The third point on fees is, obviously, your question, so I'll answer that now. And it's less important to my conclusion that the company is on a higher overall sustainable kind of earnings trajectory than it was. It's really more dependent on those first two factors that I just mentioned. But on fees, again, our final holds are larger. We typically -- we do retain all of the fees. There's no scheme to the manager or any other stuff, right. I mean, ARCC, if it's underwriting and holding investments, is getting the benefit of all of those commitment fees. And then to the extent we're able to sell down over time, which -- if we're doing larger transactions, we can generate some excess fees based on where we bring folks into our transactions. Our scale allows us to do larger deals these days. And what I referred to, maybe the excess income is, of course, bringing partners into some of those larger transactions. It's episodic. This is a good market for it, but it was only probably, as I mentioned, I think, in trying to answer one of the questions, a couple of pennies max in terms of the earnings this quarter.

Got it. I appreciate that. And then one more, if I can. On the EBITDA growth, and Michael's comments and also in the presentation, 6%. Obviously, that's trailing 12 months. And a year ago, the trailing 12 months was 4%. So it's clearly improved, but we're talking about when you add 2 trailing 12-month periods, again, that's 24 months. I mean, any color you can give us about more recent trends? And obviously, those can be volatile, et cetera, but any changes in kind of the path of EBITDA growth that have occurred over those 24 months that maybe don't get captured in the 6% and the 4%?

I don't think so. I mean, I think that's really -- there's metrics that we think are, for us, easy to get through and, hopefully, easy to understand for investors. So I don't have a lot to add on that one, Robert.

We have time for one more question. And that question will be from Christopher Testa with National Securities Corporation.

Just curious, Kipp, you had mentioned that despite the volatility, spreads have remained relatively stable. Just wondering if you've seen, on behalf of wonderers, any significant pushback in terms of the deterioration of terms? So even those spreads might have not budged, are you starting to see more lenders, not just yourselves but just across the board, kind of push back on what we've seen to be ridiculous EBITDA add-backs, [indiscernible] debt, cov light, things of that nature?

I mean, look, I think there's always an attempt, whether you're a lone investor or whether you work in our business. It's really more of a supply-demand issue as to whether it's a borrower-friendly market or a lender/investor-friendly market. And as I mentioned in the prepared comments a little bit, there's just tremendous inflows in the loans, tremendous inflows in the private credit that probably make those discussions more difficult relative to the supply for new transactions. Someone asked a question about new entrants. I think new entrants are probably most adversely selected on those points. I think that we've been able to stay away from that more than others, again, because of our incumbent borrowers and long history in the market, strengthened relationships, some of the things that I mentioned during the prepared comments. So I think there's an attempt, but it's a push and pull and it depends when. I mean, coming out of the summer, there was a real attempt there and then supply dried up in the loan market. So there are a little bit of fits and starts now. But I wouldn't say that there's a prevailing trend that's making things more investor friendly today in any material way.

Got it. And just kind of sticking with that theme, aside from the obvious, inherent advantages of your company's platform, do you think that -- are you encouraged, I guess, by more of the composition of the loan volume going forward? Obviously, LBO, specifically jumbo LBOs, have come back in a big way. Is that encouraging you at all in terms of pricing power as we go into the end of the year?

Yes, I mean, I guess. I mean, frankly, if I had a modest preference for new deal versus a dividend recap, I'd have a preference for new deal. Equity support in a sponsored lending business is obviously a key thing that you hang your head on. So much better when the private equity firms are putting money into companies than taking it out. But with that, I think we have -- look, we had a bunch of large capital via volume that cleared coming out of the summer that I think was -- there was real nervousness about. If you were sitting on a lone desk in the middle of August, I think there's real nervousness not all came through, showing that there's a lot of cash there to buy loans. As a result, I think some of the slowdown that we've seen now is the fact that the nervousness that existed in the banks during July and August probably led them to underwrite fewer new transactions that are -- transactions probably would have closed over the last couple of weeks/would close over the next couple of weeks or months and may contribute to a slower Q4. So this is just -- it's a little bit of a rollercoaster from month-to-month as I think investors have found conditions to be more difficult and are trying again to exert that pushback. But again, as you all understand, we, along with other loan-only investors in the loan market, don't really get paid to be in cash. And trying to strike the right balance there is what creates that push and pull within intermediaries. I mean, it's really for us to focus on why we want to lead and originate our own deals, right, and why we don't buy a lot of paper from the market.

This time, this will conclude today's question-and-answer session. I'd like to turn the conference back over to Mr. Kipp DeVeer for any closing remarks.

Such an onus to have to announce earnings on Halloween. Typically, you'd see Josh, he's really wishing everybody a happy Halloween or something. So I wish you all a happy Halloween on our behalf and on his behalf. Thanks so much. Appreciate it.