Ares Capital Corporation (ARCC) Earnings Call Transcript & Summary

Good afternoon. Welcome to Ares Capital Corporation's Second Quarter Ended June 30, 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded on Wednesday, July 29, 2026. I will now turn the call over to Mr. John Stilmar, partner of Ares Public Markets Investor Relations.

Thank you. Now let me start with some important reminders. Comments made during the course of this conference call and webcast as well as accompanying documents contain forward-looking statements and are subject to risks and uncertainties. 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 SEC Regulation G, which encompasses measures such as core earnings or core EPS. The company believes that core EPS provides useful information to investors regarding financial performance because it's one method the company uses to measure its financial condition and results of operations. A reconciliation of GAAP net income per share, the most directly comparable to GAAP financial measure to core EPS can be found in the accompanying slide presentation for this call. In addition, a 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 conference call and the accompanying slide presentation, including credit ratings and information relating to portfolio companies, was derived or obtained from third-party sources and has not been independently verified. And accordingly, the company makes no representation or warranty in respect to this information. The company's second quarter ended June 30, 2026 earnings presentation can be found on the company's website at www.arescapitalcorp.com by clicking on the second quarter earnings presentation link on the Events and Presentations page of the Investor Resources section of the Ares Capital Corporation's earnings release and in the Form 10-Q, which are also available on the company's website. I'd like to now turn the call over to Mr. Kort Schnabel, Ares Capital Corporation's Chief Executive Officer. Kort?

Thanks, John, and hello, everyone, and thank you for joining our earnings call today. I'm joined by Jim Miller, our President; Jana Markowicz, our Chief Operating Officer; Scott Lem, our Chief Financial Officer; and other members of the management team who will be available during our Q&A session. This morning, we reported solid second quarter results with core earnings of $0.47 per share, representing an annualized return on equity of 9.7% consistent with the prior quarter. We also continued to see healthy overall portfolio performance with attractive organic EBITDA growth and historically low levels of nonaccruing loans and problem assets. As Scott will discuss later, we continued to enhance our already strong balance sheet during the quarter and we are well positioned with significant available capital for new investment opportunities and no meaningful near-term maturities. Let me begin with a few observations on the market environment. We saw fewer deals closed across the market in the second quarter as sponsors and borrowers continue to navigate a more uncertain macroeconomic backdrop. This was particularly evident in a lack of sponsor-backed M&A activity. As the quarter progressed, we became more active. We reviewed over 20% more transactions than in the prior quarter, and June marked one of our strongest months for new transactions reviewed in the past 2 years. We believe this momentum reflects the value borrowers and sponsors place on the stability and scale of our capital in a more selective financing environment, particularly as we have seen some managers more heavily indexed to retail capital become less active. As uncertainty persists, borrowers and sponsors are increasingly focused not only on execution, but also on partnering with lenders, they are confident can provide incremental capital throughout the cycle. We believe Ares and ARCC remain meaningfully differentiated in this regard. Ares institutionally focused fund complex is supported by stable long-term capital and substantial dry powder providing borrowers with confidence that we can support their financing needs across market cycles. Those advantages reinforce ARCC's position as the largest publicly traded BDC and the highest-rated BDC across the three major credit rating agencies supporting differentiated access to capital and financial flexibility. We believe these strengths continue to set ARCC apart and position the company to capitalize on opportunities across market cycles, while delivering attractive long-term performance to our shareholders. Another key differentiator for our business is the strength of our relationships with existing borrowers. In the second quarter, 75% of our transactions were with incumbent borrowers, highlighting the sourcing advantages created by our borrower and sponsor relationships. The value of those relationships is reflected in our ability to increase our share of financing commitments across many of our new originations, allowing us to deepen our exposure to some of our best-performing borrowers. With 619 portfolio companies, we believe our incumbent relationships will continue to be a meaningful driver of origination activity and long-term value creation for our shareholders. We are also seeing attractive opportunities emerge, particularly in the upper middle market, where the scale of our capital is driving enhanced economics, stronger terms and more compelling risk-adjusted returns than we saw a year ago, particularly relative to segments such as the lower middle market. We are one of only a few lenders with the scale, certainty and flexibility to serve borrowers across the entire market which allows us to focus our capital where we see the most compelling relative value. We believe those advantages continue to differentiate ARCC and support strong risk-adjusted returns over time. Underlying these advantages is our institutionalized credit process and disciplined investment approach, which keep us highly selective. While industry transaction volumes remained below what many had expected, we believe some lenders are facing increased pressure to deploy capital, leading them to compromise on quality. By contrast, our second quarter closing ratio was moderately below our historical average of approximately 5% underscoring the discipline that has been a hallmark of our long-term investment performance. The strength of our investment process is reinforced by the experience and tenure of our leadership team which remain important differentiators for ARCC. Every member of ARCC's executive leadership team have spent roughly 2 decades at Ares and our investment committee members have been with the firm for over 18 years on average. That annuity has helped foster a deeply ingrained credit culture across our U.S. direct lending platform and has been an important contributor to our long-term investment performance. Over our history, our differentiated approach has enabled us to maximize outcomes on challenging credits while capturing additional upside through our equity co-investments. Importantly, our equity co-investment vintages over the last decade have generated an average gross IRR of more than 20% helping to generate more than $1 billion cumulative net realized gains in excess of realized losses since inception. Turning to the portfolio. Our diverse high-quality portfolio continues to perform well. We ended the quarter with investments of $29.7 billion at cost with no single investment representing more than 1.3% of the portfolio excluding our investments in Ivy Hill and the SDLP, which offer diversified exposures to senior loans. We believe our level of diversification is an important advantage, particularly as dispersion across the market continues to increase helping to limit company-specific risk while supporting more consistent portfolio performance over time. The performance of our borrowers also remains healthy overall. Our borrowers generated organic weighted average LTM EBITDA growth of approximately 8% through the end of the second quarter which is consistent with ARCC's 10-year average and remains well in excess of the broader syndicated loan benchmark. We're also seeing that strength show up in other key credit indicators as interest coverage leverage levels and revolving credit facility utilization remain in line with historical averages for our portfolio. Alongside these performance trends, our portfolio companies, on average, continue to maintain any capital cushions of more than 50% beneath our investments, which we believe provide meaningful downside protection and supports the resilience of the portfolio. As we discussed in detail last quarter, we believe the potential impact of AI varies meaningfully across different businesses and risk profiles. Nearly all of our software investments are focused on what we view as foundational infrastructure for complex businesses off to serving as systems of record in regulated end markets with high switching costs and significant embedded value. Importantly, we continue to see strong operating performance across our software investments with organic LTM EBITDA growth accelerating during the second quarter and exceeding the broader portfolio average. Within our software portfolio, only one small loan is currently on nonaccrual and our debt investments remain supported by loan-to-value ratios in the low 40% range, providing substantial equity value beneath our positions. As a reminder, as we mentioned on last quarter's call, we recently completed an independent assessment of our software-oriented portfolio companies by a top-tier global management consulting firm. Consistent with the last quarter, we continue to believe AI risk across our software-oriented portfolio remains limited overall, with less than 50 basis points of ARCC's total portfolio at fair value attributable to higher AI risk software investments and less than 4% attributable to medium or higher AI risk software investments. Importantly, medium-risk companies are performing well today with credit statistics comparable to the overall portfolio. While we believe businesses in this category will need to continue investing considerably in AI to maintain their competitive positions, we have not seen that translate into weaker credit performance. Overall, we continue to feel good about our current positioning as it relates to potential AI-related risks while recognizing the importance of remaining vigilant in our ongoing portfolio monitoring and thoughtful in how we allocate new capital to the sector. Turning to our dividend outlook. We continue to believe ARCC's current regular dividend appropriately reflects our long-run underlying earnings power. Our earnings and dividend profile is further supported by substantial spillover income, modest leverage, a more stable interest rate environment and continued overall healthy credit performance. Our significant spillover income provides an additional layer of flexibility and can help bridge during periods of slower transaction activity. In addition, over the last 12 months, core earnings have exceeded our regular dividend while an additional $0.15 per share of net realized gains has provided further support for our overall dividend paying capacity. Taken together, these factors support our outlook for relative stability in earnings and our decision to maintain a stable quarterly dividend, building on our track record of stable or growing regular quarterly dividends consecutive years. With that, I will turn the call over to Scott to take us through our financial results and balance sheet.

Thanks, Kort. I'll begin by reviewing several key financial metrics from the second quarter, then discuss the steps we took to further strengthen our balance sheet and conclude with an update on our dividend and the taxable spillover income Cort referenced earlier. This morning, we reported GAAP net income per share of $0.24, up from $0.13 in the first quarter of 2026. The sequential improvement was largely driven by lower net unrealized depreciation. As a reminder, and consistent with the first quarter, this unrealized depreciation was primarily due to mark-to-market changes. Core earnings of $0.47 per share in the second quarter of 2026 were consistent with the prior quarter, reflecting continued healthy portfolio performance and stable earnings generation despite a more subdued transaction environment. Now turning to the balance sheet. Our total portfolio at fair value at the end of the second quarter was $29.3 billion, down slightly from $29.5 million in the first quarter, primarily reflecting the mark-to-market valuation adjustments and healthy net repayment activity. Our net asset value ended the quarter at $13.9 billion or $19.35 per share, which represents a decrease of $0.24 per share from a quarter ago. While NAV declined modestly during the second quarter, this should be viewed in the context of ARCC's long track record of generating NAV growth while paying stable and attractive dividend to shareholders. Consistent with our track record, ARCC has grown NAV per share by more than 30% since inception. Importantly, our leverage of 1.12x debt-to-equity net of available cash was effectively stable quarter-over-quarter, and we ended the quarter with approximately $6 billion of available liquidity after giving effect to the repayment of $1 billion of unsecured notes earlier this month. Our maturity profile also remains well laddered with no additional unsecured note maturities in 2026 and only $1.4 billion maturing in 2027. This combination of modest leverage, substantial liquidity and a well-laddered maturity profile continues to support significant investment capacity and financial flexibility. During the second quarter, we continue to benefit from our broad and diversified access to capital. In total, we closed on approximately $1.2 billion of additional financing through the issuance of $800 million of unsecured notes and approximately $370 million of additional commitments across 2 of our secured revolving credit facilities, all at what we believe continue to reflect industry-leading pricing and terms. We also continue to lower our borrowing costs while further diversifying our funding sources. Most notably, we launched the first commercial paper program in the BDC sector. The $1 billion program provides access to a lower cost funding source and is effectively backed by our recently renewed fully committed long-dated $5.5 billion revolving credit facility. At current market levels, issuing commercial paper has a potential to reduce our funding costs by approximately 50 to 100 basis points relative to our average secured borrowings. Importantly, should the commercial paper market become less favorable, we have the flexibility to instead fund through our long-term committed bank credit facilities. We believe this structure provides greater durability and programs supported by shorter-dated 364-day facilities. As a reminder, we currently have $10.8 billion of fully committed revolving credit facilities with a weighted average remain maturity of more than 4 years. More broadly, the commercial paper program aligns with our balance sheet philosophy of lowering funding costs and improving efficiency while preserving the durability, flexibility and resilience of our liability structure. We also further advanced these objectives during the second quarter by reducing the borrowing costs on our largest revolving credit facility by 10 basis points and extending its maturity to May 2031. After quarter end, we also took advantage of favorable market dynamics to reset our inaugural $476 million debt securitization, reducing its weighted average spread by 35 basis points while extending its reinvestment period by 3 years and its final maturity by 2 years. Together, these actions further improve the efficiency of our funding profile, while reinforcing the strength and durability of our balance sheet. Looking ahead, while some market participants may face tighter credit conditions and reduce access to capital in this environment, we believe investors and lenders will continue to favor scale platforms of broad capabilities, proven track records and deep market relationships as the highest rated BDC across all three major rating agencies, we believe ARCC is particularly well positioned in this environment, supporting our investment capabilities and strong long-term performance through cycles. Finally, our third quarter 2026 regular dividend of $0.48 per share is payable on September 30 to stockholders of record as of December 15. ARCC has now paid stable or increasing regular quarterly dividends for 68 consecutive quarters. Turning to our taxable income spillover, we currently estimate that we will carry forward approximately $988 million or $1.38 per share available for distribution to stockholders in future periods. I will now turn the call over to Jim to walk through our investment activities.

Thank you, Scott. I'll start with some additional context on our investment approach in the current environment and then walk through our investment activity, portfolio performance and overall positioning. While overall market activity remained subdued during the quarter, we believe this environment reinforces the value of ARCC's scale, committed capital, long-standing borrower and sponsor relationships and highly selective approach. In the second quarter, we originated $2.6 billion of new investment commitments, while maintaining broad exposure across 20 industries and 38 subindustries. We completed approximately 75% of our transactions with existing borrowers, underscoring the value of our incumbent relationships and the embedded opportunity set within our portfolio. In a slower market, we were able to remain selective and direct capital towards companies we know well. Importantly, we have continued to strengthen these positions of incumbency as the number of companies in our portfolio has grown by approximately 10% over the past year. Our competitive position and disciplined investment approach are also evident in the terms we are able to achieve. On our new senior loan commitments this quarter, average spreads were 20 basis points wider than in the fourth quarter of 2025, while average upfront fees increased by 50 basis points over the same period. These improvements reflect our ability to remain selective and leverage our scale to achieve more attractive risk-adjusted economics for our shareholders. We ended the quarter with a portfolio of $29.3 billion at fair value, down modestly quarter-over-quarter due to healthy net repayments and fair value changes. Importantly, we believe the majority of the change in fair value across our debt and preferred equity investments was primarily driven by changes in market spreads and valuations rather than changes in the underlying credit performance of our portfolio companies. Borrower fundamentals also remain solid. Interest coverage and leverage levels were generally consistent with our 5-year average. Our debt investments continue to benefit from meaningful equity cushions with average loan-to-value in the mid-40% range. We believe these metrics demonstrate the underlying resilience of the portfolio and provide important downside protection in a more uncertain macro environment. Supported by these underlying portfolio trends, the credit performance of our portfolio remains solid. Our nonaccruals at cost ended the quarter at 2.4%, still well below our approximate 3% historical average since the global financial crisis and the BDC historical average of approximately 4% over the same time frame. Our nonaccrual rate at fair value of 1.4% also remained well below our historical levels. Our overall risk ratings remain stable. The share of our portfolio companies in our higher risk categories, Grade 1 and 2, remain comfortably below our 10-year average and meaningfully lower than the portion of our portfolio companies in Grade 4 which are outperforming our original underwriting expectations. While we continue to expect credit quality and nonaccruals across the industry to trend towards historical norms, we believe increasing dispersion among managers will further highlight the value of our platform, scale, disciplined underwriting and active portfolio management. In this environment, we believe ARCC is particularly well positioned. One of the key drivers of our long-term track record is our dedicated portfolio management team, which includes more than 50 professionals and, in our view, is the largest and most experienced in the industry. The team is led by three partners with an average of 27 years of experience, including one who serves as a voting member of our investment company. This helps to ensure the portfolio management perspectives remain fully integrated into our investment decision-making process. Our long-term credit performance is also underpinned by our life of loan philosophy. Early in our history, we recognized the inherent conflicts that exist in lending models, which reward originators solely for sourcing new investments. At Ares, our investment professionals are responsible not only for sourcing and underwriting new opportunities, but also for partnering closely with our portfolio management team throughout the life of each investment to help drive strong credit outcomes. Particularly when situations do not unfold as expected. In our experience, this approach strengthens sponsor and borrower relationships over the years and drives more effective outcomes on challenging credit. We believe our institutionalized credit process and the close integration of our investment and portfolio management teams have been important drivers for our long-term track record of generating net realized gains in excess of loss, which course referenced earlier. In summary, the main attributes that have long differentiated ARCC, including our scale, the experience and stability of our team, our deep relationships with borrowers and sponsors and the strength of our platform, resources and capital base are even more important in today's market. While industry credit metrics may continue to normalize, we believe increasing dispersion create environment where these advantages matter even more. Supported by a high-quality portfolio and meaningful liquidity, we believe ARCC is well positioned to navigate the current environment and capitalize on attractive opportunities as market activity improves. As always, we appreciate you joining us today, and we look forward to speaking with you next quarter. With that, operator, please open up the line for questions.

[Operator Instructions] And our first question today will come from Rick Shane with JPMorgan.

Look, you guys discussed the fact that over the history of ARCC you guys have accreted book value. And that's really been I would argue a function of three things: accretive issuance, which obviously, at the moment is challenging to investment gains; and three, to significant acquisitions where you accretively exchange stock. You talk right now a great deal about your advantages in terms of your debt ratings. So from a pure financial engineering perspective and given where peers are trading the setup for that type of acquisition or that type of merger on paper makes a great deal of sense. I am curious whether or not given the asset quality issues in the space, this makes sense for you now and whether or not you actually think that there are motivated sellers in the market who would be looking to unlock value for their shareholders in this way.

Yes. Thanks for the question, Rick. I need to be obviously careful in the way we answer it because we're always evaluating various strategic alternatives. I guess I would just say, given the dispersion in performance that we're seeing across managers in the space, and some of the weakness that is coming out to the floor, the likelihood of a transaction like that occurring is probably higher than it's been in the past. But other than saying that, I'm not really sure that we can speak too much more about anything that we're working on or giving too much more forward guidance about what might or might not occur. But I think your point is a good one and it highlights our relative performance to others and the fact that while we are seeing some normalization of private performance back to historical meetings, we are not seeing the same kind of sort of spikes in nonaccruals and further weakening that maybe some of our competitors are seeing.

Got it. And if I can ask one follow-up. When you -- one thing that would make that type of transaction challenging if you thought that systematically marks in the industry were off and that the valuations you're looking at aren't really the valuations that you think would realize, are you, in general, constructive on how the industry is valuing their portfolios at the moment?

I guess are we asking about how we feel about other managers' marks. I think it's, again, something that I probably want to stay away from just commenting on other managers in their marks. I think as has been pointed out historically, and I think the media is certainly written about this, there is some dispersion in valuation, especially when you get into some more stressed credits and you look across different managers. And that can occur for a variety of different reasons. And I guess I would just say on our side, we have, I think, been proven to be on the more conservative end of the spectrum as it pertains to that. But Rick, I'm sorry, I just -- I really kind of want to avoid just getting into opinions about other managers...

Totally fair. I realize, as I ask a question that is probably not framed in the right way. So I appreciate the answer to the first, and I appreciate the discretion on the second.

Our next question will come from Finian O'Shea with Wells Fargo.

Just sticking with the big picture sort of industry question on credit. This is much less so for Ares, but NAVs have clearly been trending down and even without some of the more severe names that you just touched on with Rick. So how would you describe like the why or like the drivers underneath of credit headwinds for the industry? And are the items that will sort of run their course? Or does this sort of reflect a new normal where we should expect BDCs to revert back to those sort of longer-term nonaccrual ratios and such?

It's Jim here. Thanks for the question. It's hard to look into -- across the industry and give a great perspective on where each manager is going. So I'll keep it probably more macro and market level. As you know, we've been operating for an extended period of time where nonaccrual rates and default experience has been below the long-term average. And we've been saying for a bit that we think there is a reversion towards the mean there. And that's still our expectation across the industry. What we are also seeing, and it's been highlighted is just a wider dispersion amongst managers on performance there. So what we think is happening is there's a general maturing of portfolio. So you have a handful of managers who have ramped, invested it takes time for those investments to mature and settle and then you start to see where the long-term performance really is. And I think that's what's really going on right now and why the average has been below. It's also been obviously a very benign credit environment. So it's a little bit of both. And so I do think the industry is really kind of going through a normalization period right now, and we're still working our way through that.

Yes. Maybe I'll add one more thing on [ Find ], which is we get the question a lot, are there any industries in particular that are driving that normalization? And I think the answer to that is from our perspective in our portfolio, no. And when you look at the 4 names that we added, we added 4 new names to nonaccrual, which took it from 2.1% to 2.4% this quarter. all 4 names are companies that do different things, not related to each other. We are not able to discern any trends yet around certain industries that are experiencing any kind of outsized weakness or leaving us down this path toward more credit normalization.

Very helpful. Follow-up on the SDLP, A lot of movement there looks like a lot of movement toward diversification by borrower names and such. Any implication and correct me if I'm wrong on that, of course. Any implications on like the earnings power? Does that allow you to lever more origination fee cap structuring fees or should we think about it as just simply more diversifying?

Yes. No, I'm glad you pointed out. I think you should think about it as more diversification and better utilization of that specific joint venture. And the driver there, Fin, just so everybody is aware, we did recently receive some co-investment relief that allows SDLP to invest alongside other Ares funds, and that historically was not the case. So historically, we would put an asset into SDLP only or it would go into the other Ares fund. And now we can co-invest alongside. So what that does is it just expands SDLP's opportunity set and fairway and that creates that diversification that you're referencing. So we expanded the number of borrowers in SDLP from 28 to 72% in the last quarter alone, and we're expecting and hoping that, that continues to diversify going forward.

Thank you. our next question comes from Arren Cyganovich with Truist Securities.

Kort, in your commentary, you kind of noted a couple of push and pull in the marketplace, one being that some retail heavy competitors might be less active that you're seeing, but also that you had kind of a lower closing rate because folks were maybe being a little bit more aggressive in terms of -- I don't know if it was either a price or structure. But maybe you could just talk a little bit about the kind of competing dynamics there.

Arren, it's Jim again. I'll maybe just give a little more commentary around the market generally. So I think that will help answer the question. But what we saw over the last, call it, 60, 90 days is a competition has -- is different in the lower end of the market than it is in the upper end of the market. That's always been the case. But with some of the dynamics going on with the larger players who were more driven by capital flows from the retail channel. We've seen less competition in the larger company market and maybe more competition in the smaller company market. And I think both markets are healthy, and we saw spreads widen. We saw leverage levels decline. We saw fees improve. We mentioned all of that in the narrative. But it was more pronounced interestingly in the large end of the market, but the terms in that end of the market are just slightly more attractive. The relative value is better. And the number of players that can compete with scale like in Ares has shrunk a bit, and it's just become a better hunting ground for us. We are seeing smaller players and smaller companies remain competitive. And so that part of the market is a little healthier and maybe a little bit more active as it relates to M&A. So those dynamics are really sort of what's going on more broadly in the market. Both remain healthy though. And I think what we saw was in terms of just backlog and buildup of transactions, reviewed a lot of transactions, and that keeps -- that's continuing to ramp. We saw a big lift in June, about 50% increase month-over-month in terms of the number of transactions we were at Ares. So we're seeing what is the thawing of the market on the M&A side and the lag effect of that thawing start to really flow through. And so we're optimistic around where the pipeline is headed. And we're seeing larger transactions become more prevalent. What we saw is more activity, as I mentioned, in the smaller end of the market just because those were probably a little easier to execute on and maybe thought a little quicker than in the larger...

Yes. I'll add maybe one or two more things. I think on the question around quality and selectivity, I think a really important to expand upon a little bit because again, we talked about it in the prepared remarks, but we are always extremely disciplined in trying to make sure that we are always selective in this slower environment, we did see the quality of the flow dip down a little bit as well. That is absolutely improving as we see the transaction volume pick up. And Jim mentioned the huge month of June, the volume that we saw that's continuing into July. But the quality was a bit lower in the second quarter. And so we chose to close on less deals as a percent of what we reviewed to that also hampered the overall volume but I think it also speaks to our strength as well, which is just that we are not going to chase deal flow just because things are slow. We're okay sort of waiting it out and waiting for things to come back and for the quality to improve a little bit. And then maybe just one more point. I think Jim made great comments about the larger end of the market being more attractive. I think there's a very unique opportunity for Ares as a platform in this market environment where the other larger lenders are lower on capital right now. And a good example of that is we actually committed to a nearly $2 billion credit facility in the second quarter, and we committed to that facility entirely at Ares, 100% of the deal. We did lighten up a little bit afterwards, but still had a big hole on that credit. And the ability to stand up in this market for a $2 billion commitment allows us to generate significantly outsized fees and economics on that kind of a deal. And that's a benefit that I think is unique to Ares right now. So we're hopeful as the deal flow picks back up and we see some of these larger deals start to come back in and the competitive environment, if it stays where it is, that will be really -- another really nice benefit that I think we can tap into.

Our next question comes from Kenneth Lee with RBC Capital Markets.

Just one on prepayments. And I realize it's difficult to predict there. But any sense of what the level of prepayment activity could be like over the near term?

Hard to answer, Ken. I mean, generally, what we've seen is the repayment activity moves relatively in tandem with new deal activity. So as new deal volume picks up, I would expect that also could lead to some repayment activity picking up. It's not always correlated in that respect, but that's kind of what we see it over the long term. And so I guess that's how I would answer the question. But there's no other specific driver that I can think of. I'm not sure if you're alluding to any certain drivers that are in your mind. But there's nothing that's jumping out to me that would say repayments would be abnormally high or abnormally low going forward.

Got you. Very helpful there. And just one follow-up, if I may. I think earlier in the call, you mentioned still having some capacity around leverage. And obviously, it's going to be predicated on the deal activity, but would you plan to be operating -- is there anything within your target range that you could target to operate within just go forward?

Yes. Thanks. I think our stated range is still the same 0.9 to 1.25x. We're still kind of in the middle of that range now. So we think there's probably a little room to go. We are sensitive to the leverage impact from the valuations. So that is all part of our -- we're keeping an eye out for that, but we do think there's a little room to grow on leverage.

We'll go next to Chris Muller with Citizens Capital Markets.

It's good to be on with you today. So I wanted to ask about interest rates and the impact on the pipeline. And I guess this is a 2-part question. But how does the absolute level of rates versus volatility of rates impact the pipeline? And I guess, which scenario would create a better opportunity for lenders like you guys?