Ares Capital 4Q16 Earnings Call Notes

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Kipp deVeer

End of interest deduction would be a wash

“We have. It’s something that we got pretty significant and interesting ability to work through our portfolio management system with. It’s obviously a sea-change to the industry. I think as many of us have said, if you think about deductibility of interest and how it relates to leverage financing private equity, I think, not being a tax or policy expert, that the idea is that interest deductibility goes away in exchange for lower corporate tax rates, our view is that based on our portfolio and the work that we have done internally, it is generally a wash for us from a credit perspective and that we obviously have more cash flow from our companies paying less in taxes, and the impact of obviously the interest deductibility of leveraged companies impacts those companies negatively. But our early returns are that it’s generally a wash from a credit perspective, so long as I guess corporate taxes are reduced to kind of that 20% to 25% level, which is what we have heard bannered about down in DC.”

Demand for deals exceeds supply

“I think it’s reasonably busy I would say both in terms of new deals and refinancings. We’ve clearly come into a year here in the beginning of 2017 where the demand for new transactions exceeds the supply, which I think helps us frankly as a company that can really lead transactions in a meaningful way. We’ve been focused frankly as I mentioned in 2016, or rather in 2017, as we were in 2016, on a lot of activity in our existing portfolio. But new deals, we are finding some good interesting things to work on. Again, it’s just casting a really wide net and being selective. So, I don’t know if I have anything more to add than that.”

Do have concern about retail

“We are nervous about retail and restaurants frankly these days because we’ve seen a weak consumer, and in retail in particular we’ve seen real changes in the way people buy things, i.e., online versus in stores and in malls in particular.”