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INVESTMENTS | 9 Months Ended
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Sep. 30, 2021
Investments, Debt and Equity Securities [Abstract] |
Investments | 4. INVESTMENTS As of September 30, 2022 and December 31, 2021, investments consisted of the following:
| As of
| September 30, 2022 |  | December 31, 2021
| Amortized Cost(1) |  | Fair Value |  | Amortized Cost(1) |  | Fair Value
First lien senior secured loans(2) | $ | 9,821 |  |  | $ | 9,509 |  |  | $ | 9,583 |  |  | $ | 9,459 |
Second lien senior secured loans | 4,011 |  |  | 3,797 |  |  | 4,614 |  |  | 4,524 |
Subordinated certificates of the SDLP(3) | 1,121 |  |  | 1,121 |  |  | 987 |  |  | 987 |
Senior subordinated loans | 1,102 |  |  | 1,051 |  |  | 896 |  |  | 890 |
Preferred equity | 2,071 |  |  | 2,052 |  |  | 1,547 |  |  | 1,561 |
Ivy Hill Asset Management, L.P.(4) | 1,809 |  |  | 1,958 |  |  | 781 |  |  | 936 |
Other equity | 1,534 |  |  | 1,851 |  |  | 1,402 |  |  | 1,652 |
Total | $ | 21,469 |  |  | $ | 21,339 |  |  | $ | 19,810 |  |  | $ | 20,009 |
________________________________________ (1)The amortized cost represents the original cost adjusted for any accretion of discounts, amortization of premiums and PIK interest or dividends. (2)First lien senior secured loans include certain loans that the Company classifies as “unitranche” loans. The total amortized cost and fair value of the loans that the Company classified as “unitranche” loans were $5,127 and $4,998, respectively, as of September 30, 2022, and $5,210 and $5,163, respectively, as of December 31, 2021. (3)The proceeds from these certificates were applied to co-investments with Varagon and its clients to fund first lien senior secured loans to 21 and 19 different borrowers as of September 30, 2022 and December 31, 2021, respectively. (4)Includes the Company’s equity and subordinated loan investments in IHAM, as applicable. The Company uses Global Industry Classification Standards for classifying the industry groupings of its portfolio companies. The industrial and geographic compositions of the Company’s portfolio at fair value as of September 30, 2022 and December 31, 2021 were as follows:
| As of
| September 30, 2022 |  | December 31, 2021
Industry |  |  |
Software & Services | 22.5 | % |  | 21.9 | %
Diversified Financials(1) | 12.3 |  |  | 7.5 |
Health Care Services | 10.1 |  |  | 10.8 |
Commercial & Professional Services | 8.2 |  |  | 9.2 |
Investment Funds and Vehicles(2) | 5.5 |  |  | 5.2 |
Insurance Services | 5.1 |  |  | 5.8 |
Power Generation | 4.7 |  |  | 4.5 |
Consumer Services | 4.0 |  |  | 3.9 |
Capital Goods | 4.0 |  |  | 4.8 |
Consumer Durables & Apparel | 3.9 |  |  | 4.4 |
Automobiles & Components | 3.2 |  |  | 4.6 |
Food & Beverage | 2.4 |  |  | 2.2 |
Pharmaceuticals, Biotechnology & Life Sciences | 2.3 |  |  | 1.9 |
Retailing and Distribution | 2.2 |  |  | 2.8 |
Media & Entertainment | 2.2 |  |  | 2.2 |
Other | 7.4 |  |  | 8.3 |
Total | 100.0 | % |  | 100.0 | %
________________________________________ (1)Includes the Company’s investment in IHAM. (2)Includes the Company’s investment in the SDLP, which had made first lien senior secured loans to 21 and 19 different borrowers as of September 30, 2022 and December 31, 2021, respectively. The portfolio companies in the SDLP are in industries similar to the companies in the Company’s portfolio.
| As of
| September 30, 2022 |  | December 31, 2021
Geographic Region |  |  |
West(1) | 34.5 | % |  | 31.2 | %
Midwest | 25.0 |  |  | 27.9 |
Southeast | 17.8 |  |  | 17.2 |
Mid-Atlantic | 13.1 |  |  | 14.5 |
Northeast | 4.6 |  |  | 4.8 |
International | 5.0 |  |  | 4.4 |
Total | 100.0 | % |  | 100.0 | %
________________________________________ (1)Includes the Company’s investment in the SDLP, which represented 5.3% and 4.9% of the total investment portfolio at fair value as of September 30, 2022 and December 31, 2021, respectively. As of September 30, 2022 and December 31, 2021, loans on non-accrual status represented 1.6% of the total investments at amortized cost (or 0.9% at fair value) and 0.8% at amortized cost (or 0.5% at fair value), respectively. Senior Direct Lending Program The Company has established a joint venture with Varagon to make certain first lien senior secured loans, including certain stretch senior and unitranche loans, primarily to U.S. middle-market companies. Varagon was formed in 2013 as a lending platform by American International Group, Inc. and other partners. The joint venture is called the SDLP. In July 2016, the Company and Varagon and its clients completed the initial funding of the SDLP. The SDLP may generally commit and hold individual loans of up to $350. The Company and other accounts managed by the Company’s investment adviser and its affiliates may directly co-invest with the SDLP to accommodate larger transactions. The SDLP is capitalized as transactions are completed and all portfolio decisions and generally all other decisions in respect of the SDLP must be approved by an investment committee of the SDLP consisting of representatives of the Company and Varagon (with approval from a representative of each required). The Company provides capital to the SDLP in the form of subordinated certificates (the “SDLP Certificates”), and Varagon and its clients provide capital to the SDLP in the form of senior notes, intermediate funding notes and SDLP Certificates. As of September 30, 2022 and December 31, 2021, the Company and a client of Varagon owned 87.5% and 12.5%, respectively, of the outstanding SDLP Certificates. As of September 30, 2022 and December 31, 2021, the Company and Varagon and its clients had agreed to make capital available to the SDLP of $6,150 and $6,150, respectively, in the aggregate, of which $1,444 and $1,444, respectively, is to be made available from the Company. The Company will continue to provide capital to the SDLP in the form of SDLP Certificates, and Varagon and its clients will provide capital to the SDLP in the form of senior notes, intermediate funding notes and SDLP Certificates. This capital will only be committed to the SDLP upon approval of transactions by the investment committee of the SDLP as discussed above. Below is a summary of the funded capital and unfunded capital commitments of the SDLP.
| As of
| September 30, 2022 |  | December 31, 2021
Total capital funded to the SDLP(1) | $ | 4,772 |  |  | $ | 4,168 |
Total capital funded to the SDLP by the Company(1) | $ | 1,121 |  |  | $ | 987 |
Total unfunded capital commitments to the SDLP(2) | $ | 311 |  |  | $ | 262 |
Total unfunded capital commitments to the SDLP by the Company(2) | $ | 73 |  |  | $ | 62 |
___________________________________________________________________________ (1)At principal amount. (2)These commitments to fund delayed draw loans have been approved by the investment committee of the SDLP and will be funded if and when conditions to funding such delayed draw loans are met. The SDLP Certificates pay a coupon equal to LIBOR plus 8.0% and also entitle the holders thereof to receive a portion of the excess cash flow from the loan portfolio, after expenses, which may result in a return to the holders of the SDLP Certificates that is greater than the stated coupon. The SDLP Certificates are junior in right of payment to the senior notes and intermediate funding notes. The amortized cost and fair value of the SDLP Certificates held by the Company were $1,121 and $1,121, respectively, as of September 30, 2022 and $987 and $987, respectively, as of December 31, 2021. The Company’s yield on its investment in the SDLP Certificates at amortized cost and fair value was 13.5% and 13.5%, respectively, as of September 30, 2022, and 13.5% and 13.5%, respectively, as of December 31, 2021. The interest income from the Company’s investment in the SDLP Certificates and capital structuring service and other fees earned for the three and nine months ended September 30, 2022 and 2021 were as follows:
| For the Three Months Ended September 30, |  | For the Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Interest income | $ | 37 |  |  | $ | 33 |  |  | $ | 105 |  |  | $ | 106 |
Capital structuring service and other fees | $ | 7 |  |  | $ | 7 |  |  | $ | 15 |  |  | $ | 13 |
As of September 30, 2022 and December 31, 2021, the SDLP’s portfolio was comprised entirely of first lien senior secured loans to U.S. middle-market companies and were in industries similar to the companies in the Company’s portfolio. As of September 30, 2022, one of the loans was on non-accrual status. As of December 31, 2021, none of the loans were on non-accrual status. Below is a summary of the SDLP’s portfolio.
| As of
| September 30, 2022 |  | December 31, 2021
Total first lien senior secured loans(1)(2) | $ | 4,798 |  |  | $ | 4,194 |
Largest loan to a single borrower(1) | $ | 380 |  |  | $ | 342 |
Total of five largest loans to borrowers(1) | $ | 1,616 |  |  | $ | 1,540 |
Number of borrowers in the SDLP | 21 |  |  | 19 |
Commitments to fund delayed draw loans(3) | $ | 311 |  |  | $ | 262 |
___________________________________________________________________________ (1)At principal amount. (2)First lien senior secured loans include certain loans that the SDLP classifies as “unitranche” loans. As of September 30, 2022 and December 31, 2021, the total principal amount of loans in the SDLP portfolio that the SDLP classified as “unitranche” loans was $3,737 and $2,908, respectively. (3)As discussed above, these commitments have been approved by the investment committee of the SDLP. Ivy Hill Asset Management, L.P. Ivy Hill Asset Management, L.P. (“IHAM”) is an asset management services company and an SEC-registered investment adviser. The Company has made investments in IHAM, its wholly owned portfolio company, and previously made investments in certain vehicles managed by IHAM. As of September 30, 2022, IHAM had assets under management of approximately $12.5 billion. As of September 30, 2022, IHAM managed 21 vehicles and served as the sub-manager/sub-servicer for one other vehicle (these vehicles managed or sub-managed/sub-serviced by IHAM are referred to as the “IHAM Vehicles”). IHAM earns fee income from managing the IHAM Vehicles and has also invested in certain of these vehicles as part of its business strategy. The amortized cost of IHAM’s total investments as of September 30, 2022 and December 31, 2021 was 2,133 and $966, respectively. For the three and nine months ended September 30, 2022, IHAM had management and incentive fee income of $13 and $34, respectively, and other investment-related income of $42 and $103, respectively. For the three and nine months ended September 30, 2021, IHAM had management and incentive fee income of $8 and $23, respectively, and other investment-related income of $22 and $64, respectively. The amortized cost and fair value of the Company’s investment in IHAM was $1,809 and $1,958, respectively, as of September 30, 2022, which was comprised of an equity investment of $1,373 and $1,522, respectively, and a debt investment of $436 and $436, respectively. The amortized cost and fair value of the Company’s investment in IHAM was $781 and $936, respectively, as of December 31, 2021, which was comprised of an equity investment of $765 and $920, respectively, and a debt investment of $16 and $16, respectively. The dividend income received and interest income earned from IHAM for the three and nine months ended September 30, 2022 and 2021 were as follows:
| For the Three Months Ended September 30, |  | For the Nine Months Ended September 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Dividend income | $ | 55 |  |  | $ | 23 |  |  | $ | 150 |  |  | $ | 65 |
Interest income | $ | 8 |  |  | $ | — |  |  | $ | 11 |  |  | $ | 2 |
From time to time, IHAM or certain IHAM Vehicles may purchase investments from, or sell investments to, the Company. For any such sales or purchases by the IHAM Vehicles to or from the Company, the IHAM Vehicle must obtain approval from third parties unaffiliated with the Company or IHAM, as applicable. During the nine months ended September 30, 2022 and 2021, IHAM or certain of the IHAM Vehicles purchased $2,415 and $1,049, respectively, of loans from the Company. For the nine months ended September 30, 2022 and 2021, the Company recognized $10 and $5, respectively, of net realized losses from these sales. During the nine months ended September 30, 2022 and 2021, $233 and $108, respectively, of investment commitments were repaid to the Company by IHAM. During the nine months ended September 30, 2022, the Company purchased $27 of investments from certain IHAM Vehicles. IHAM is party to an administration agreement, referred to herein as the “IHAM administration agreement,” with Ares Operations. Pursuant to the IHAM administration agreement, Ares Operations provides IHAM with, among other things, office facilities, equipment, clerical, bookkeeping and record keeping services, services relating to the marketing and sale of interests in vehicles managed by IHAM, services of, and oversight of, custodians, depositories, accountants, attorneys, underwriters and such other persons in any other capacity deemed to be necessary. Under the IHAM administration agreement, IHAM reimburses Ares Operations for all of the actual costs associated with such services, including Ares Operations’ allocable portion of the compensation, rent and other expenses of its officers, employees and respective staff in performing its obligations under the IHAM administration agreement.

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