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Ares Capital Corp (NASDAQ:ARCC)
Q4 2019 Earnings Call
Feb 12, 2020, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. Welcome to Ares Capital Corporation's Fourth Quarter and Year Ended December 31st, 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded on Wednesday, February 12th, 2020.

I will now turn the call over to Mr. John Stilmar, Managing Director of Investor Relations.

John Stilmar -- Managing Director, Investor Relations

Great. Thank you, Kate, and good afternoon, everybody. Let me start with some important reminders. Comments made during the course of this conference call and webcast, as well as the accompanying documents contain forward-looking statements and are subject to risks and uncertainties. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may and similar such expressions. The Company's actual results could differ materially from those expressed in such forward-looking statements for any reasons, including those listed in its SEC filings. Ares Capital Corporation assumes no obligation to update any such forward-looking statements.

Please also note the 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 as core earnings per share or core EPS. The Company believes that core EPS provides a useful information tool to investors regarding the 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 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. In addition, 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 of companies, was derived from third-parties and has not been independently verified, and accordingly, the Company makes no representation or warranty in respect to this information.

The Company's fourth quarter ended December 31st, 2019 earnings presentation can be found on the Company's website at www.arescapitalcorp.com by clicking on the Q4 2019 earnings presentation link on the homepage of the Investor Resources section of the website. Ares Capital Corporation's earnings release and 10-K are also available on the Company's website.

I'd now like to turn the call over to Mr. Kipp deVeer, Ares Capital Corporation's Chief Executive Officer.

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

Thanks, John. Hello to everyone, and thank you for joining us. I'm here with our Co-President, Michael Smith; our Chief Financial Officer, Penni Roll; and several other members of our management team. I'll start by highlighting our fourth quarter and full-year results, and then provide some thoughts on the Company's position and current market conditions.

This morning we reported fourth quarter core earnings of $0.45 per share, which is a strong finish to a great year for Ares Capital Corporation. Our core earnings for the year of $1.89 per share benefited from an active year of investing, modest portfolio growth and higher utilization of our low cost borrowing facilities. We generated strong GAAP earnings of $0.48 per share for the fourth quarter and $1.86 per share for the year, which drove another year of net asset value growth to $17.32 per share at year-end. Supporting these results, our portfolio continues to demonstrate stable credit performance.

Looking beyond these strong results, we believe the Company is well positioned. The addressable market opportunity for Ares Capital is large and growing, but small and upper middle market companies are increasingly accessing the private markets for financial Solutions. We see concrete evidence of this, as the pipeline of transactions that we review annually has increased by approximately 40% since 2015. We think a major factor here is our increased market share and larger deals, where we feel we offer companies a more attractive solution than the alternative smaller syndicated deals that typically come with a lot of execution risk for their sponsors.

As our market opportunity expands, we benefit from our large direct origination platform, extensive market reach and long-standing relationships with companies, financial sponsors and deal participants. By reviewing a large pipeline, we can remain selective and choose to invest with -- in what we believe are the strongest borrowers, which is critical in these highly competitive market conditions.

Over the past 10 plus years, we've closed on only about 4% of the investments we've evaluated with new borrowers. And due to our cautious view of the market for much of 2019, we became increasingly selective resulting in the second-lowest closing rate of deals to new borrowers in a decade.

One of the most important sources of deal flows are expanding core of incumbent portfolio companies, which we believe allows us to finance the growth requirements of our best borrowers. Our incumbent portfolio companies accounted for half of our investments in 2019 and 52% of our investing activity in the fourth quarter. We believe these opportunities provide attractive and differentiated investments and often reflect lower risk propositions as we typically have spent years observing the Company's management team and operations. While these long-term secular trends continue to drive and expanding opportunity for Ares Capital, we've had a counteract what have undoubtedly been strong flows of new capital to the sector that have put more pressure on our investing business.

In our view, newer entrants often acquiesce on terms and reduce pricing to win deals and to deploy their capital. Given our stringent underwriting criteria and the breadth of our deal flow, we're finding ourselves passing more and more and for a host of different reasons, including pricing and structure.

The good news is we see a stable and slow-growing economy. After a difficult end to 2018, the credit market spent most of 2019 with positive momentum and this has continued into 2020. The healthy financing environment is likely to remain, although we are seeing things slow a bit in terms of activity. U.S. companies and investors are highly focused on the fact that we have an upcoming presidential election and the uncertainty that exists with a seemingly wide variety of potential outcomes at this point. There's also a belief that accommodative monetary policy and low interest rates for longer are needed to support growth in corporate America. With this in mind, we're not surprised to see a wait and see approach from a lot of deal sponsors and companies, particularly with regard to M&A activity.

Finally, in these type -- in these kinds of markets, we're focused on building deep sources of committed capital, so that we are positioned to be opportunistic should market volatility increase. Since the beginning of 2019 through to today, we've strengthened our financial position by closing on an additional $4.1 billion of new financing capacity from both bank and capital markets providers, and we've extended maturities on over $3.5 billion of committed bank financing. Given this progress, we currently have approximately $3 billion of undrawn credit commitments and believe that our balance sheet continues to be a source of strength for our Company.

I'll now turn things over to Penni, to provide some more detail on the fourth quarter and the full-year results.

Penni Roll -- Chief Financial Officer

Thank you, Kipp, and good afternoon. Our core earnings per share were $0.45 for the fourth quarter of 2019, compared to $0.48 for the third quarter of 2019 and consistent with $0.45 for the fourth quarter of 2018. Excluding the $0.025 per share impact from the expired fee waiver, our fourth quarter 2019 core earnings were largely consistent with the prior two quarters of 2019. Our GAAP earnings per share for the fourth quarter of 2019 were $0.48, which compares to $0.41 for the third quarter of 2019 and $0.36 for the fourth quarter of 2018. As Kipp mentioned, we closed 2019 with strong financial results with core earnings per share of $1.89 compared to $1.68 for 2018, and GAAP net income per share of $1.86 compared to $2.01 for 2018.

As of December 31st, 2019, our investment portfolio totaled $14.4 billion of fair value, and we had total assets of $14.9 billion. As of December 31st, 2019, the weighted average yield on our debt and other income producing securities and amortized cost was 9.6%, and the weighted average yield on total investments at amortized cost was 8.6% as compared to 9.8% and 8.8%, respectively, at September 30, 2019 and compared to 10.2% and 9%, respectively, at December 31st, 2018.

The year-end yields on our portfolio were down from the third quarter, largely due to declines in LIBOR. Our earnings benefited in 2018 from a rising LIBOR. But we saw that upward trend begun to reverse in early 2019 with one month LIBOR declining about 74 basis points during the course of 2019. This reversal created a modest headwind for us throughout the year and could continue to reduce [Technical Issues] further until reaching our LIBOR floors.

At year-end, existing -- sorry, excluding our investment in the SDLP Certificates, 78% of our total portfolio was in floating rate investments and 79% of these floating rate investments had an average LIBOR floor of approximately 1.1%. We continue to be focused on obtaining LIBOR floors on new investments and amending documents on existing investments to add LIBOR floors whenever possible. Importantly, for our new commitments this quarter with a floor, we were able to negotiate a higher average LIBOR floor of approximately 1.3%.

Moving to the right hand side of the balance sheet, our stockholders' equity at December 31st, 2019, was $7.5 billion, resulting in a net asset value per share of $17.32 versus $17.26 a quarter ago and $17.12 at year-end 2018. As of December 31st, our debt-to-equity ratio was 0.95 times and our debt to equity ratio net of available cash of $153 million was 0.93 times. This compares to 0.91 times [Phonetic] and 0.89 times, respectively at September 30, 2019. We ended 2019 with our leverage at the low end of our current target range of 0.9 times to 1.25 times. I would add that we are a bit behind the higher leverage targets that we are hoping to reach by now, but we have lagged solely to be cautious on the investing front.

As Kipp mentioned, we focused throughout 2019 on extending and increasing our access to efficient and committed sources of debt capital. During the fourth quarter of 2019, we prepaid $600 million of 3.875% unsecured notes at par that were originally scheduled to mature in January 2020, taking advantage of the early part of redemption feature of the notes. And we upsized our SMBC Revolving Funding Facility by $150 million.

As of December 31st, 2019, we had approximately $2 billion of available capital. Post year-end, we continued to be active on the capital raising front, increasing our available capital to just over $3 billion. In January, we issued $750 million of unsecured notes maturing in July 2025, with a coupon of 3.25%. This execution was the lowest cost unsecured note issuance in BDC history and is below the current all-in cost of our bank lines under today's market rates. We now have no term debt maturing over the next two calendar years, and our next maturity is not until January 2022.

As for our floating rate secured credit facilities, we upsized our SMBC and Wells Fargo funding facilities in January by a combined $325 million and extended the maturity for the Wells facility by one year. The earliest maturity of our bank credit facilities is now March 2024.

Before I conclude, I want to discuss our undistributed taxable income and our dividends. For 2019, we once again outearned the dividends we paid, resulting in an increase in our undistributed taxable income. We currently estimate that our spillover income reach $408 million or $0.95 per share at the end of 2019, an increase of $65 million or $0.15 per share from 2018's level. We believe having a strong and meaningful undistributed spillover supports our goal of maintaining a steady dividend through varying market conditions.

To that end, this morning we announced that we declared a regular first quarter dividend of $0.40 per share, which is consistent with the regular quarterly dividend paid throughout 2019. This first quarter dividend is payable on March 31st, 2020, to stockholders of record on March 16th, 2020. This represents our 42nd consecutive quarter of reporting a stable or higher regular dividend for our shareholders.

Now with that, I'd like to turn the call over to Michael to walk through our investment activities for the quarter and the year.

Michael Smith -- Co-President

Thanks, Penni, and good afternoon. I would like to spend a few minutes providing more detail on our investments and portfolio performance for both the fiscal year end and fourth quarter of 2019. I will then provide an update on post quarter-end activity and our backlog and pipeline.

During 2019, our team originated $7.3 billion of new investment commitments across 163 transactions, including $1.6 billion of commitments to 43 borrowers in the fourth quarter. Our investments throughout the year came from a diverse set of high-quality companies across more than 20 distinct industries. The EBITDA of the companies we finance this year range from $12 million to $670 million, which should give our investors more insight to the breadth of our sourcing capabilities.

As Kipp mentioned earlier, in 2019, half of our commitments were to existing borrowers, and the other half came from a significant and growing pipeline of new investment opportunities. For the full-year 2019, we evaluated more than 1,600 new lending opportunities, which were diversified across industries and geographies, and had an average EBITDA of $47 million. If one assumes the average company requires roughly 5 times to 6 times EBITDA in debt financing, this translates into approximately $375 billion to $450 billion of potential transaction volume that we reviewed for the year.

As far as the portfolio composition at year-end 2019, 80% of our portfolio, inclusive of the SDLP investment was in senior secured loans, which is similar to the portfolio composition at year-end 2018 and 2017. The weighted average EBITDA of our portfolio companies of $139 million, gives greater prominence to our large hold position, while our portfolio average EBITDA of $75 million reflects our continued focus on the upper middle market. We continued to broaden and diversify our portfolio this quarter, reaching 354 different borrowers with an average hold position at fair value of only 0.3%. Excluding our investments in SDLP and Ivy Hill, our largest single borrower was just 2.6% of the portfolio at fair value. Underscoring that no single name is likely to have a material impact on the aggregate performance of our Company.

We believe our large and diversified portfolio, which is focused on high free cash flow, non-cyclical industries is resilient and positioned to perform well through a wide variety of economic conditions.

You may have noticed that at year-end, we revised the industry classification of our investment portfolio to conform to the GICS classifications. We believe this presentation provides stakeholders more clarity with regard to our portfolio and is more consistent with broader market standards. You can review which GICS driven industry each of our portfolio companies resides and our schedule of investments.

The credit quality of our portfolio continues to be stable. Our portfolio generated weighted average EBITDA growth of 3% over the past 12 months, which was consistent with this past quarter. Our 2019 year-end non-accrual ratio of 1.9% at amortized cost is lower than the 2.5% reported at year-end 2018. Two companies were added to the non-accrual list in 2019 and six companies came off, leaving the total number of companies on non-accrual slightly below that at last year end.

Before I turn the call back over to Kipp for some closing remarks, let me provide a brief update on our post quarter investment activity. From January 1st through February 6, 2020 we made new investment commitments totaling $453 million, of which $361 million were funded. Over the same period, we exited or were repaid on $282 million of investment commitments, generating approximately $21 million of net realized gains on the exit. As of February 6th, our backlog and pipeline stood at roughly $735 million and $390 million, respectively. Note that our backlog contains investments that are still subject to approvals and documentations, and may not close or we may sell a portion of these investments post closings.

With that, I'll turn it back over to Kipp.

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

Thanks a lot, Michael. In closing, our strong fourth quarter capped off another successful year of solid earnings and continued NAV growth. We continue to execute on the same plan that we've had for the past 15 years, maintaining a defensively positioned portfolio, investing in origination capabilities to see the broadest amount of deal flow, being highly selective and focusing our investments on the highest-quality borrowers, and maintaining a strong balance sheet with deep sources of liquidity.

We enter 2020 with continued caution on the investing side, but we are confident that we're still able to find compelling investment opportunities for the Company. We also remain optimistic about our competitive position and platform advantages, which we believe will allow ARCC to continue to benefit from the growth of the middle market and the secular shift we're seeing as more companies see private capital.

Reflecting on the year-end to close out our prepared remarks, I would like to thank the investment and portfolio management teams for their tremendous effort in originating and monitoring the portfolio; the finance and accounting teams for their continued work and extending our credit facilities and long-term debt; the legal and compliance teams for always looking out for us and advancing our efforts in DC; and finally, thanks to our Investor Relations team, who will always do a superb job representing the Company. It was a fantastic 2019 for ARCC.

That concludes our prepared remarks. We'd be happy to open the line for questions.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Rick Shane with JPMorgan. Please go ahead.

Rick Shane -- JPMorgan -- Analyst

Hey guys. Thanks for taking my question. I want to make sure that we understand the movements in the non-accrual. Sometimes our names change. It appears to us that the new non-accrual this quarter is the prop, and just want to make sure that we're looking at this correctly in terms of that was not on non-accrual before it is in non-accrual and what developed that?

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

That's true. So there are two new non-accruals, one is VPROP, the other one is a small legacy loan called Biaxis [Phonetic] from the old venture portfolio.

Rick Shane -- JPMorgan -- Analyst

Got it. And Kipp, do you mind providing a little bit -- VPROP is a relatively large investment on a cost basis. The marks have been pretty benign at this point. So the impact is relatively low, but want to make sure we understand the risks there and also the impact from an interest income perspective.

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

Yeah, I mean, Penni can take a quick look. I think, she probably has the interest income number. But look Vista is one of the oil and gas investments that we've been in for quite a long period of time. We've upsized it over the years as a company. Privately held the process and distributes fracking sand for the drilling industry -- the fracking and drilling industry.

If you go look at some of the public comps in this space, you'll see that there is quite a lot of stress in that industry. There has been a fair amount of overcapacity. This company, I think the good news is, has high-quality assets that are largely in drilling regions. All their assets are in Texas. So the company has done a nice job over the years, growing its business because it's our logistics advantages. That being said 2019 was a difficult year for that industry as the commodity price, because of the oversupply of sand assets and sand mines in the industry had been overbuilt. You just saw commodity price collapse. So I think we're being cautious on the mark, but there is real work to do there. I mean we're engaged day-to-day with the management team there working on a restructuring.

Penni Roll -- Chief Financial Officer

Yeah. And then...

Rick Shane -- JPMorgan -- Analyst

Thank you very much.

Penni Roll -- Chief Financial Officer

I'm sorry.

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

I don't know if I can give you the numbers from Penni, but you may have them.

Rick Shane -- JPMorgan -- Analyst

No. Please go ahead.

Penni Roll -- Chief Financial Officer

Oh sorry. Yeah, if you look at the earnings loss for 2020, we did put it on non-accrual in the fourth quarter, so we had a little bit of earnings last for 2019, but if you look at a full year's loss to 2020, it's about $0.03 a share, net of fee.

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

Yeah. So, I mean, look, the good news is, we've got -- and I try to emphasize this too quarter-to-quarter, we've got a highly diversified company. And unlike some of the other BDCs that people may be invested in or you all may follow as analyst, it's really difficult to have an impact in any way, shape or form on our Company's operating profile with a single or even a couple of default, even in larger names, right. The diversity allows us to generate very consistent income and keep the dividend where it is, obviously, even if we have some bumps along the road.

Rick Shane -- JPMorgan -- Analyst

Got it. Thank you guys very much.

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

Thanks, Rick.

Operator

The next question is from Arren Cyganovich of Citi. Please go ahead.

Arren Cyganovich -- Citi -- Analyst

Thanks. Not to hark on credit quality too much, but in the release you had mentioned that 9% of the exits were in non-accruals. But I didn't see anything that large. Last quarter that was on non-accrual, was there something intra-quarter that got placed on non-accrual and then exited?

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

I have not noticed that. So the -- there were three names realized, one I know for sure that was on non-accrual, which was Indra Holdings. So I'm looking at -- what is it? Oh, I'm sorry -- the recognition of an old oil and gas name that we had put on non-accrual years back called Petroflow.

Arren Cyganovich -- Citi -- Analyst

Okay.

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

But nothing this quarter. But we can check the numbers with if you want offline, Arren. But that's the...

Arren Cyganovich -- Citi -- Analyst

It's possible, I just missed them. Okay. And then in terms of -- you raised a small amount of equity in the ATM. Just curious as to why would you utilize that when you're not quite at your leverage range that you want it to be? I guess, you are in the low end?

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

Yeah, I think, we think of the ATM program as a convenient and accretive way to raise small amounts of equity and to not have us think about a marketed or bought offering in a larger way. So we just think it's good long-term planning as we continue to want to grow the Company. Obviously the Company requires equity over the long haul for its growth. So just we take a longer-range view on that.

Arren Cyganovich -- Citi -- Analyst

Okay. Thank you.

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

You're welcome.

Operator

The next question is from Ryan Lynch of KBW. Please go ahead.

Ryan Lynch -- KBW -- Analyst

Hey. Good afternoon, and thanks for taking my questions. I did want to follow up on the equity ATM offering. So because you guys issued some equity this quarter, but you guys still actually had deployments that actually grew your overall leverage. Are we expect -- should we expect that the ATM should just complement portfolio growth and we should actually expect leverage to continue to grow? Are you going to manage your target leverage right around this level of the capital deployments, as well as now ATM equity offerings?

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

Yeah, we're not -- look the direction that we'd like to take the leverage is up. You've seen that over the last couple of quarters. Again, the ATM issuance has been minimal, but we found it to be a useful tool, so I think the simple answer is yes. We're going to probably continue to raise a little bit of equity, and with that grow the portfolio and take leverage up as well.

Ryan Lynch -- KBW -- Analyst

Okay. And then, my follow-up. I wanted to talk about the dividend. Obviously, you guys had a really strong year in 2019. You paid out some special dividends and actually even while paying up a special dividend, still grew, you still hover income pretty meaningfully. I think it shows the strong results you had. You guys did not declare special dividend for 2020. Can you just talk about why that decision was made to not declare one at all and so far in 2020, which is a little bit unlike of policy you guys said in 2019 of declaring quarterly special dividends to kind of start the year?

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

Sure. So, the additional dividend for last year that we announced, we really announced, if you remember, because we had really significant sort of unusual net gains in 2018, so obviously shareholders benefited from that with the payouts throughout 2019. There are a couple of things that are different, as we look forward into 2020. Number one, LIBOR is down 90 basis points or so in the last 12 months. And there is a forward curve that forecast it being lower, so I think we're being cautious today. The other thing I'd say is, look, we've been running the Company now a long time. This is a space, obviously, where investors have conditioned us to be cautious around the dividend, because there are pretty negative ramifications from dividend cuts, as we've seen in other companies, so I think we're just being conservative for the time being, wanting to look at the LIBOR environment and the good performance, I appreciate you providing that comment, Ryan, may allow us to do that in the future, but we just thought this quarter, we'd let the specials from last year roll off and evaluate it as we get further into the year.

Ryan Lynch -- KBW -- Analyst

Okay, thank you for taking my questions. I appreciate the time.

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

Thanks.

Operator

The next question is from Kyle Joseph of Jefferies. Please go ahead.

Kyle Joseph -- Jefferies -- Analyst

Hey, good afternoon and thanks very much for taking my questions. Just first in the quarter, can you give us a sense for the pace or the timing of deployments and repayments, just to give us a better sense for yield dynamics in the quarter?

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

We typically don't provide that kind of color. We don't provide guidance with this company, so I don't want to really answer that question directly if that's OK, Kyle. I mean, look, as I said, the activity is slow. Smitty gave you some numbers in terms of pipeline and backlog and all of that. So if you look over the last four quarters, I would tell you that our pacing is reasonably consistent quarter-to-quarter. So take the last four quarters of last year, divided by four and then subtract the pipeline and backlog and probability adjusted and you can probably get to a number that tells you what it looked like over the last six weeks, but I don't want to provide any guidance regarding Q1.

Kyle Joseph -- Jefferies -- Analyst

No, I'm sorry, Kipp. I was talking about Q4, and in terms of where the -- any of the deployments sort of evacuated?

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

Q4? I don't know. I'd have to go back and look. I actually don't -- I'm not sure we have that in front of us. I'd just say nothing remarkable, but I don't think it's going to -- nothing that's going to change your modeling exercise or your thought on the quarter.

Kyle Joseph -- Jefferies -- Analyst

Got it. And then, my follow-up, just stepping back, you guys commented on where rates have gone, and then also given we've seen many peers raise leverage in the BDC space. Can you just refresh us on sort of any competitive changes you're seeing either from banks or other BDCs?

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

Now, I'd say, it's the same. Still competitive, lot of capital has been brought into the space. I made the comment about slower activity to start the year kind of wait-and-see approach on a lot of fronts for people. And, again, we're watching LIBOR, because obviously we're in a spread-based business, we've got largely LIBOR-plus assets on the left side of the balance sheet and about half the right side in terms of liabilities anywhere or floating rates, but I can't tell you what -- I don't really have a view away from looking at the forward curve around LIBOR. If I had to guess, I see stability. We don't see any need for decreases, but I also don't really see it floating up, so I hope that answers your question.

Kyle Joseph -- Jefferies -- Analyst

It does. Thanks very much for answering my questions.

Operator

The next question is from Kenneth Lee of RBC Capital Markets. Please go ahead.

Kenneth Lee -- RBC Capital Markets -- Analyst

Hi, thanks for taking my question. Just one in terms of the funding costs. You recently extended maturities and you've also recently embarked on efforts to diversify funding sources. Just wondering, given the current environment, whether you anticipate any further changes to your funding mix right now? Thanks.

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

I'll let Penni comment, but I don't think we do. We try to keep it balanced between secured and unsecured, between floating and fixed and keep the average duration of liabilities in line with where we think the average maturity or average tenure of the assets.

Penni Roll -- Chief Financial Officer

I mean, I think it's really same as usual. We try to watch the markets and continue to issue into the markets when we see a strong market to issue into just like we did back in January, but as far as the composition of the balance sheet, I see a lot of the same as we move forward.

Kenneth Lee -- RBC Capital Markets -- Analyst

Got you. And just one follow-up if I may, just in terms of the investment backlog, the pipeline and realized this is just a snapshot. But just looking at the industry breakdowns there, wondering how that lines up to what you think which sectors are the most favorable or least favorable to investing in the current environment, also realizing that you tend to prefer a non-cyclical industries. Thanks.

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

Sure. Yeah, I mean we have kept the industry mix albeit changing the way that we reported and as Smitty mentioned, this quarter, very similar. The places that we're being cautious, I think, are the places where we've seen issues, i.e., oil and gas, retail, probably some aspects of the healthcare services business, but generally the backlog and pipeline is in line with what you've seen from us in the past.

Kenneth Lee -- RBC Capital Markets -- Analyst

Okay, thank you very much.

Operator

The next question is from Casey Alexander of Compass Point. Please go ahead.

Casey Alexander -- Compass Point -- Analyst

Hi, good morning, I just -- or good afternoon. I just have one question, and no follow up. I noticed in your originations a couple of sub debt loans made in the solar power industry, which has been an area that has been kind of tricky for BDCs to lend to. So I was kind of wondering what was unique or interesting about those opportunities that led you to go ahead and lend into those?

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

Yes. Thanks, Casey, we did and the structure of that market is a little bit different, you tend to see more mezzanine paper, equity-like paper behind longer term debt senior financing. So I think we did $135 million deal to developer of residential solar, one of the largest in the US. The other one is a vertically integrated developer of utility scale solar projects. So, look, we've got a team that's been here a long time, making investments in this space for us. We think the two that they found this past quarter were particularly interesting. We've actually had great experience and have had no defaults in our power investing vertical, so to speak these days. So we're nothing unusual, maybe just two deals that happened to come in the same quarter.

Casey Alexander -- Compass Point -- Analyst

All right, thanks for taking my question. I appreciate it.

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

Yeah. You're welcome.

Operator

The next question is from Fin O'Shea with Wells Fargo. Please go ahead.

Fin O'Shea -- Wells Fargo -- Analyst

Hi, good afternoon and thanks for taking my question. Just a small one on the SDLP. I think with some of your opening remarks on execution risk in the syndicated market and some peers talking about this as well in the unitranche opportunity, would we look at the SDLP as perhaps a candidate for a leg-up in investment in size this year?

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

Maybe, I mean, I think it will grow. I think your point on some of these larger deals getting done by non-banks is phenomenon that's likely to continue to increase. That being said, Fin, with the size of our balance sheet overall, these, we can do those deals either on our own or in the SDLP, so and they get all perhaps to be a beneficiary, but I think the company as a whole will be a beneficiary, whether it's in SDLP or not.

Fin O'Shea -- Wells Fargo -- Analyst

Sure. Thank you for the color. And then, just one on Ivy Hill. This mark obviously moves around a little bit. Correct me if I'm wrong. The dividend was up this quarter, that's also been sort of a normal thing for the fourth quarter, but any change in the course of business in Ivy Hill, anything to look into on the valuation improvements?

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

Yeah, I mean it was just -- I mean, it was actually just a fair value increase. I don't think the dividend increase this quarter. But, look, I mean, they were a little bit under invested so they got more cash to work in their vehicles and obviously with less cash drag in the CLO you're generating, better returns. The other thing I'd say, look, the market conditions have been more favorable, i.e., spreads have tightened and that's a beneficiary for them or that's a benefit for them rather.

Fin O'Shea -- Wells Fargo -- Analyst

Okay, that's all from me. Thank you.

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

Thanks, Fin.

Operator

[Operator Instructions] The next question is from Robert Dodd with Raymond James. Please go ahead.

Robert Dodd -- Raymond James -- Analyst

Hi, guys. On the LIBOR floor issue and I appreciate the color that you gave on that already. I mean, you said 79% the floating book has them. The new commitments were at slightly higher floors, but in the upper end of the market, floors seem to be getting lever [Phonetic], which seems a lot with LIBOR falling, but on -- so on the new commitments, is it -- are they as relatively easy to get, i.e., should we expect the round numbers, 80% of your floating book that has floors to stay stable, or are they getting harder to achieve in the book, but where you can get them at slightly higher floors? Any color on that?

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

Yeah, I mean, I think the general answer is yes. With the prospect of LIBOR likely to increase, call it, whatever that was 12 months ago, the expectation was that short rates were going up. When that changes, obviously, it forces us and the rest of the market to be more cautious and insist upon LIBOR floors. So I think over the last two quarters, it just gotten easier to do that and we think it will continue in that direction, particularly with the forward curve showing a 40 basis point decline, in the LIBOR side, I think we're going to be pretty focused on it.

Robert Dodd -- Raymond James -- Analyst

Okay. I appreciate it. Thank you.

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

You're welcome.

Operator

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

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

I'd just thank everybody for joining the call and your interest in the Company and we'll catch-up with you all next quarter.

Operator

Ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call, an archived replay of this conference call will be available approximately one hour after the end of the call through February 26, 2020 at 5:00 PM to domestic callers by dialing 1-877-344-7529 and to international callers by dialing +1-412-317-0088. For all replays, please reference conference number 10137626. An archived replay will also be available on a webcast link located on the homepage of the Investor Resources section of Ares Capital website.

The conference has now concluded. Please disconnect. Thank you for attending today's presentation.

Duration: 41 minutes

Call participants:

John Stilmar -- Managing Director, Investor Relations

Kipp deVeer -- Director and Chief Executive Officer; Partner, Head of Credit Group

Penni Roll -- Chief Financial Officer

Michael Smith -- Co-President

Rick Shane -- JPMorgan -- Analyst

Arren Cyganovich -- Citi -- Analyst

Ryan Lynch -- KBW -- Analyst

Kyle Joseph -- Jefferies -- Analyst

Kenneth Lee -- RBC Capital Markets -- Analyst

Casey Alexander -- Compass Point -- Analyst

Fin O'Shea -- Wells Fargo -- Analyst

Robert Dodd -- Raymond James -- Analyst

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