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INVESTMENTS

12 Months Ended

Dec. 31, 2023

Investments, Debt and Equity Securities [Abstract]

INVESTMENTS

4. INVESTMENTS

As of December 31, 2023 and 2022, investments consisted of the following:

			As of December 31,
			2023												2022
			Amortized Cost(1)						Fair Value						Amortized Cost(1)						Fair Value
First lien senior secured loans(2)			$	10,313					$	10,081					$	9,684					$	9,373
Second lien senior secured loans			3,980						3,753						4,218						3,934
Subordinated certificates of the SDLP(3)			1,316						1,288						1,274						1,249
Senior subordinated loans			1,150						1,096						1,163						1,079
Preferred equity			2,457						2,460						2,095						2,027
Ivy Hill Asset Management, L.P.(4)			1,763						1,987						2,048						2,201
Other equity			1,689						2,209						1,561						1,917
Total			$	22,668					$	22,874					$	22,043					$	21,780

________________________________________

(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 $5,786 and $5,667 respectively, as of December 31, 2023, and $4,983 and $4,841, respectively, as of December 31, 2022.

(3)The proceeds from these certificates were applied to co-investments with Varagon Capital Partners (“Varagon”) and its clients to fund first lien senior secured loans to 22 and 22 different borrowers as of December 31, 2023 and 2022, respectively.

(4)Includes the Company’s subordinated loan and equity investments in IHAM (as defined below), as applicable.

The Company uses GICS for classifying the industry groupings of its portfolio companies. The industrial and geographic compositions of the Company’s portfolio at fair value as of December 31, 2023 and 2022 were as follows:

			As of December 31,
			2023						2022
Industry
Software and Services			23.2		%				21.9		%
Health Care Services			12.1						10.8
Financial Services(1)			11.5						13.3
Commercial and Professional Services			9.8						9.5
Investment Funds and Vehicles(2)			5.8						6.0
Insurance Services			5.1						5.2
Consumer Services			4.3						4.2
Power Generation			4.2						4.5
Consumer Durables and Apparel			3.1						3.7
Media and Entertainment			2.8						2.1
Retailing and Distribution			2.5						2.2
Capital Goods			2.4						3.6
Energy			2.2						2.0
Food and Beverage			2.1						2.0
Consumer Staples Distribution and Retail			1.8						1.6
Other			7.1						7.4
Total			100.0		%				100.0		%

________________________________________

(1)Includes the Company’s investment in IHAM.

(2)Includes the Company’s investment in the SDLP (as defined below), which had made first lien senior secured loans to 22 and 22 different borrowers as of December 31, 2023 and 2022, respectively. The portfolio companies in the SDLP are in industries similar to the companies in the Company’s portfolio.

			As of December 31,
			2023						2022
Geographic Region
Midwest			24.7		%				23.9		%
West(1)			24.3						24.5
Southeast			18.5						17.1
Mid-Atlantic			13.3						14.9
Northeast(2)			13.2						14.0
International			6.0						5.6
Total			100.0		%				100.0		%

________________________________________

(1)Includes the Company’s investment in the SDLP, which represented 5.6% and 5.7% of the total investment portfolio at fair value as of December 31, 2023 and 2022, respectively.

(2)Includes the Company’s investment in IHAM, which represented 8.7% and 10.1% of the total investment portfolio at fair value as of December 31, 2023 and 2022, respectively.

As of December 31, 2023 and 2022, loans on non-accrual status represented 1.3% of the total investments at amortized cost (or 0.6% at fair value) and 1.7% at amortized cost (or 1.1% at fair value), respectively.

Ivy Hill Asset Management, L.P.

Ivy Hill Asset Management, L.P. (“IHAM”), a wholly owned portfolio company of the Company, is an asset manager and an SEC-registered investment adviser. As of December 31, 2023, IHAM had assets under management of approximately $13.5 billion. As of December 31, 2023, IHAM managed 20 vehicles (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 December 31, 2023 and 2022 was $2,288 and $2,370, respectively. For the years ended December 2023, 2022 and 2021, IHAM had management and incentive fee income of $56, $49 and $31, respectively, and investment-related income of $328, $188 and $91, respectively, which included net realized gains or losses on investments and other transactions.

 The amortized cost and fair value of the Company’s investment in IHAM as of December 31, 2023 and 2022 were as follows:

			As of December 31,
			2023												2022
			Amortized Cost						Fair Value						Amortized Cost						Fair Value
Subordinated loan			$	62					$	62					$	500					$	500
Equity			1,701						1,925						1,548						1,701
Total investment in IHAM			$	1,763					$	1,987					$	2,048					$	2,201

The interest income and dividend income that the Company earned from IHAM for the years ended December 31, 2023, 2022 and 2021 were as follows:

									For the Years Ended December 31,
															2023						2022						2021
Interest income															$	29					$	23					$	3
Dividend income															$	243					$	205					$	93

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 years ended December 31, 2023, 2022 and 2021, IHAM or certain of the IHAM Vehicles purchased $1,193, $3,358 and $2,407, respectively, of loans from the Company. For the years ended December 31, 2023, 2022 and 2021, the Company recognized $13, $20 and $7, respectively, of net realized losses from these sales. During the years ended December 31, 2023 and 2022, the Company purchased $85 and $27, respectively, of investments from IHAM or certain IHAM Vehicles. During the year ended December 31, 2021, the Company did not purchase any investments from IHAM or certain IHAM Vehicles.

The yields at amortized cost and fair value of the Company’s investments in IHAM as of December 31, 2023 and 2022 were as follows:

						As of December 31,
						2023												2022
						Amortized Cost						Fair Value						Amortized Cost						Fair Value
Subordinated loan						12.0		%				12.0		%				11.0		%				11.0		%
Equity(1)						15.1		%				13.3		%				14.2		%				12.9		%

_______________________________________________________________________________

(1)Represents the yield on the Company’s equity investment in IHAM, which is computed as (a) the annualized amount of the dividend received by the Company related to the Company’s equity investment in IHAM during the most recent quarter end, divided by (b) the amortized cost or fair value of the Company’s equity investment in IHAM, as applicable.

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.

Selected Financial Information

Pursuant to Rule 4-08(g) of Regulation S-X, selected financial information of IHAM, in conformity with GAAP, as of December 31, 2023 and 2022 and for the years ended December 31, 2023, 2022 and 2021 are presented below.

In conformity with GAAP, IHAM is required to consolidate entities in which IHAM has a direct or indirect controlling financial interest based on either a variable interest model or voting interest model, which include certain of the IHAM Vehicles (the “Consolidated IHAM Vehicles”). As such, for GAAP purposes only, IHAM consolidates (a) entities in which it holds a majority voting interest or has majority ownership and control over the operational, financial and investing decisions of that entity and (b) entities that it concludes are variable interest entities in which IHAM has more than insignificant economic interest and power to direct the activities that most significantly impact the entities, and for which IHAM is deemed to be the primary beneficiary.

When IHAM consolidates an IHAM Vehicle for GAAP purposes only, IHAM reflects the assets, liabilities, revenues and expenses of the Consolidated IHAM Vehicles on a gross basis, including the economic interests held by third-party investors in the Consolidated IHAM Vehicles as debt obligations, subordinated notes or non-controlling interests, in the consolidated IHAM financials below. All of the revenues earned by IHAM as the investment manager of the Consolidated IHAM Vehicles are eliminated in GAAP consolidation. However, because the eliminated amounts are earned from and funded by third-party investors, the GAAP consolidation of an IHAM Vehicle does not impact the net income or loss attributable to IHAM. As a result, the Company believes an assessment of IHAM's business and the impact to the Company’s investment in IHAM is best viewed on a stand-alone basis as reflected in the first column in the tables below.

			As of December 31, 2023
			IHAM						Consolidated IHAM Vehicles(1)						Eliminations						Consolidated
Selected Balance Sheet Information:
Assets
Investments at fair value(2)			$	2,274					$	9,392					$	(2,265)					$	9,401
Cash and cash equivalents			9						707						—						716
Other assets			70						100						(68)						102
Total assets			$	2,353					$	10,199					$	(2,333)					$	10,219
Liabilities
Debt			$	462					$	7,459					$	—					$	7,921
Subordinated note from ARCC			62						—						—						62
Subordinated notes(3)			—						1,280						(992)						288
Other liabilities			17						189						(16)						190
Total liabilities			541						8,928						(1,008)						8,461
Equity
Contributed capital			1,701						—						—						1,701
Accumulated earnings			126						—						—						126
Net unrealized losses on investments and foreign currency transactions			(15)						—						—						(15)
Non-controlling interests in Consolidated IHAM Vehicles(4)			—						1,271						(1,325)						(54)
Total equity			1,812						1,271						(1,325)						1,758
Total liabilities and equity			$	2,353					$	10,199					$	(2,333)					$	10,219

			As of December 31, 2022
			IHAM						Consolidated IHAM Vehicles(1)						Eliminations						Consolidated
Selected Balance Sheet Information:
Assets
Investments at fair value(2)			$	2,340					$	8,973					$	(2,315)					$	8,998
Cash and cash equivalents			5						499						—						504
Other assets			56						94						(51)						99
Total assets			$	2,401					$	9,566					$	(2,366)					$	9,601
Liabilities
Debt			$	308					$	6,968					$	—					$	7,276
Subordinated note from ARCC			500						—						—						500
Subordinated notes(3)			—						1,374						(1,093)						281
Other liabilities			18						129						(15)						132
Total liabilities			826						8,471						(1,108)						8,189
Equity
Contributed capital			1,547						—						—						1,547
Accumulated earnings			61						—						—						61
Net unrealized losses on investments and foreign currency transactions			(33)						—						—						(33)
Non-controlling interests in Consolidated IHAM Vehicles(4)			—						1,095						(1,258)						(163)
Total equity			1,575						1,095						(1,258)						1,412
Total liabilities and equity			$	2,401					$	9,566					$	(2,366)					$	9,601

________________________________________

(1)Consolidated for GAAP purposes only.

(2)The determination of such fair value is determined in accordance with IHAM’s valuation procedures (separate and apart from the Company’s valuation process described elsewhere herein). The amortized cost of IHAM’s total investments as of December 31, 2023 and 2022 was $2,288 and $2,370, respectively. The amortized cost of the total investments of IHAM on a consolidated basis as of December 31, 2023 and 2022 was $9,619 and $9,306, respectively.

(3)Subordinated notes generally represent the most junior capital in certain of the Consolidated IHAM Vehicles and effectively represent equity in such vehicles.

(4)Non-controlling interests in Consolidated IHAM Vehicles includes net unrealized depreciation in the Consolidated IHAM Vehicles of $221 and $309 as of December 31, 2023 and 2022, respectively.

			For the Year Ended December 31, 2023
			IHAM						Consolidated IHAM Vehicles(1)						Eliminations						Consolidated
Selected Statement of Operations Information:
Revenues
Investment income			$	347					$	1,097					$	(343)					$	1,101
Management fees and other income			56						8						(54)						10
Total revenues			403						1,105						(397)						1,111
Expenses
Interest expense			61						580						—						641
Distributions to subordinated notes			—						193						(150)						43
Management fees and other expenses			15						75						(54)						36
Total expenses			76						848						(204)						720
Net operating income			327						257						(193)						391
Net realized (losses) gains on investments and other transactions			(19)						2						(29)						(46)
Net unrealized gains on investments and other transactions			18						93						(18)						93
Total net realized and unrealized (losses) gains on investments and other transactions			(1)						95						(47)						47
Net income			326						352						(240)						438
Less: Net income attributable to non-controlling interests in Consolidated IHAM Vehicles			—						352						(240)						112
Net income attributable to Ivy Hill Asset Management, L.P.			$	326					$	—					$	—					$	326

			For the Year Ended December 31, 2022
			IHAM						Consolidated IHAM Vehicles(1)						Eliminations						Consolidated
Selected Statement of Operations Information:
Revenues
Investment income			$	188					$	594					$	(185)					$	597
Management fees and other income			49						7						(46)						10
Total revenues			237						601						(231)						607
Expenses
Interest expense			35						264						—						299
Distributions to subordinated notes			—						127						(95)						32
Management fees and other expenses			14						56						(46)						24
Total expenses			49						447						(141)						355
Net operating income			188						154						(90)						252
Net realized losses on investments and other transactions			—						(12)						—						(12)
Net unrealized losses on investments and other transactions			(33)						(279)						31						(281)
Total net realized and unrealized losses on investments and other transactions			(33)						(291)						31						(293)
Net income (loss)			155						(137)						(59)						(41)
Less: Net loss attributable to non-controlling interests in Consolidated IHAM Vehicles			—						(137)						(59)						(196)
Net income attributable to Ivy Hill Asset Management, L.P.			$	155					$	—					$	—					$	155

			For the Year Ended December 31, 2021
			IHAM						Consolidated IHAM Vehicles(1)						Eliminations						Consolidated
Selected Statement of Operations Information:
Revenues
Investment income			$	97					$	285					$	(93)					$	289
Management fees and other income			31						7						(27)						11
Total revenues			128						292						(120)						300
Expenses
Interest expense			5						99						—						104
Distributions to subordinated notes			—						135						(101)						34
Management fees and other expenses			12						38						(27)						23
Total expenses			17						272						(128)						161
Net operating income			111						20						8						139
Net realized (losses) gains on investments and other transactions			(6)						80						(28)						46
Net unrealized gains on investments and other transactions			18						91						(15)						94
Total net realized and unrealized gains on investments and other transactions			12						171						(43)						140
Net income			123						191						(35)						279
Less: Net income attributable to non-controlling interests in Consolidated IHAM Vehicles			—						191						(35)						156
Net income attributable to Ivy Hill Asset Management, L.P.			$	123					$	—					$	—					$	123

____________________________________

(1)Consolidated for GAAP purposes only.

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. The joint venture is called the Senior Direct Lending Program, LLC (the “Senior Direct Lending Program” or 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 $450. The Company 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 the SDLP Certificates. As of December 31, 2023 and 2022, the Company and a client of Varagon owned 87.5% and 12.5%, respectively, of the outstanding SDLP Certificates.

As of December 31, 2023 and 2022, 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 the SDLP Certificates, and Varagon and its clients will provide capital to the SDLP in the form of senior notes, intermediate funding notes and the 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 December 31,
			2023						2022
Total capital funded to the SDLP(1)			$	5,361					$	5,127
Total capital funded to the SDLP by the Company(1)			$	1,328					$	1,274
Total unfunded capital commitments to the SDLP(2)			$	260					$	294
Total unfunded capital commitments to the SDLP by the Company(2)			$	60					$	68

___________________________________________________________________________

(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 Secured Overnight Financing Rate (“SOFR”) 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 and the Company’s yield on its investment in the SDLP Certificates at amortized cost and fair value as of December 31, 2023 and 2022 were as follows:

			As of December 31,
			2023												2022
			Amortized Cost						Fair Value						Amortized Cost						Fair Value
Investment in the SDLP Certificates			$	1,316					$	1,288					$	1,274					$	1,249
Yield on the investment in the SDLP Certificates			13.6		%				13.9		%				13.5		%				13.8		%

The interest income from the Company’s investment in the SDLP Certificates and capital structuring service and other fees earned for the years ended December 31, 2023, 2022 and 2021 were as follows:

									For the Years Ended December 31,
															2023						2022						2021
Interest income															$	174					$	146					$	138
Capital structuring service and other fees															$	13					$	22					$	22

As of December 31, 2023 and 2022, 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 December 31, 2023 and 2022, one of the loans was on non-accrual status. Below is a summary of the SDLP’s portfolio.

			As of December 31,
			2023						2022
Total first lien senior secured loans(1)(2)			$	5,431					$	5,174
Largest loan to a single borrower(1)			$	370					$	377
Total of five largest loans to borrowers(1)			$	1,650					$	1,631
Number of borrowers in the SDLP			22						22
Commitments to fund delayed draw loans(3)			$	260					$	294

___________________________________________________________________________

(1)At principal amount.

(2)First lien senior secured loans include certain loans that the SDLP classifies as “unitranche” loans. As of December 31, 2023 and 2022, the total principal amount of loans in the SDLP portfolio that the SDLP classified as “unitranche” loans was $4,558 and $4,108, respectively.

(3)As discussed above, these commitments have been approved by the investment committee of the SDLP.

Pursuant to Rule 4-08(g) of Regulation S-X, selected financial information of the SDLP, in conformity with GAAP, as of December 31, 2023 and 2022 and for the years ended December 31, 2023, 2022 and 2021 are presented below:

			As of December 31,
			2023						2022
Selected Balance Sheet Information:
Investments at fair value (amortized cost of $5,267 and $5,166, respectively)			$	5,129					$	4,958
Other assets			192						150
Total assets			$	5,321					$	5,108
Senior notes			$	3,705					$	3,538
Intermediate funding notes			139						132
Other liabilities			136						110
Total liabilities			3,980						3,780
Subordinated certificates and members’ capital			1,341						1,328
Total liabilities and members’ capital			$	5,321					$	5,108

									For the Years Ended December 31,
															2023						2022						2021
Selected Statement of Operations Information:
Total investment income															$	570					$	365					$	282
Interest expense															296						155						91
Other expenses															23						20						18
Total expenses															319						175						109
Net investment income															251						190						173
Net realized and unrealized (losses) gains on investments															(73)						(147)						70
Net increase in members’ capital resulting from operations															$	178					$	43					$	243

X

- Definition

The entire disclosure for investments owned by investment company.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Topic 946
-SubTopic 320
-Name Accounting Standards Codification
-Section S99
-Paragraph 1
-Subparagraph (SX 210.12-12(Column A)(Footnote 1))
-Publisher FASB
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Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Topic 946
-SubTopic 320
-Name Accounting Standards Codification
-Section S99
-Paragraph 1
-Subparagraph (SX 210.12-12(Column C)(Footnote 8))
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147480032/946-320-S99-1

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Topic 946
-SubTopic 320
-Name Accounting Standards Codification
-Section S99
-Paragraph 3
-Subparagraph (SX 210.12-12B(Column C)(Footnote 11))
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147480032/946-320-S99-3

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Topic 946
-SubTopic 320
-Name Accounting Standards Codification
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-Paragraph 6
-Subparagraph (SX 210.12-14(Column F)(Footnote 5)(a))
-Publisher FASB
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Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Topic 946
-SubTopic 320
-Name Accounting Standards Codification
-Section S99
-Paragraph 3
-Subparagraph (SX 210.12-12B(Column A)(Footnote 8))
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147480032/946-320-S99-3

Reference 6: http://fasb.org/us-gaap/role/ref/legacyRef
-Topic 946
-SubTopic 320
-Name Accounting Standards Codification
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