Good morning. Welcome to Ares Capital Corporation's First Quarter ended March 31st, 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded on Wednesday, April 28th, 2021. I will now turn the call over to Mr. John Stilmar, Managing Director of Ares Investor Relations. Please go ahead.
Thank you. 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. 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 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 SEC Regulation G, such as core earnings per share 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 operation.
A reconciliation of core EPS to the net per share increase or decrease in shareholders' equity resulting from the 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 conference call and the accompanying slide presentation, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. Accordingly, the company makes no representations or warranties with respect to this information.
The company's first quarter ended March 31st, 2021 earnings presentation can be found on the company's website at www.arescapitalcorp.com by clicking on the first quarter 2021 earnings presentation link on the homepage of the investor resources section of the website. Ares Capital Corporation's earnings release and 10-Q are also available on the company's website. I will now turn the call over to Mr. Kipp deVeer, Ares Capital Corporation's Chief Executive Officer.
Thanks, John. Hello, everyone, and thank you for joining us. I'm here with our Co-Presidents, Mitchell Goldstein and Michael Smith, our Chief Financial Officer, Penni Roll, and several other members of the management team. I want to start by highlighting our strong first quarter results then provide some thoughts on the current market and our positioning. This morning, we reported strong first quarter core earnings of $0.43 per share, up from $0.41 per share a year ago. Our first quarter GAAP earnings of $0.87 per share reflect significant net unrealized gains as higher portfolio valuations drove our net asset Value to a new record of $17.45 per share. We also had an active investing quarter, and the second quarter is set up for even more activity.
The U.S. government delivered a powerful combination of significant fiscal and monetary stimulus, coupled with ambitious vaccine rollouts across the U.S. to provide a favorable backdrop for Ares Capital and our portfolio companies. We believe the economy is rebounding, and this rebound is driving higher levels of transaction activity in our market. We're seeing more traditional corporate M&A activity, which is a key driver for the financing solutions that we provide to companies. Ares Capital today is the largest BDC, and as you know, we are externally managed by one of the largest global direct lending platforms in the market today, with approximately $100 billion of direct lending assets under management as of December 31st, 2020. We believe that this platform and our position offers a unique view into market trends. I'd like to highlight a few favorable trends that are occurring and that provide expansion opportunities for the company.
First, private equity sponsors are focused on buying and building portfolio companies through M&A transactions over longer time horizons through their focused core funds or in continuation funds. This trend is leading to an increasing number of sponsors seeking add-on acquisitions to support the growth of their existing investments and a heavier reliance on incumbent debt providers. With our permanent capital, significant scale, flexible capital solutions, and large portfolio of incumbent relationships, we believe this market trend favors Ares Capital for future growth and plays well to our strengths. Another important growth driver is the continued expansion of the direct lending market itself.
We've been investing in middle-market companies for the better part of two decades, and we continue to see a growing desire for companies to choose direct lenders with scale and flexibility, often at the expense of banks, the capital markets, and other more traditional sources from years past. Many companies are frustrated by the lack of flexibility and visibility that a liquid market or bank-led solution can provide. These companies are increasingly turning to the flexibility of capital, certainty of closing, and long-term partnership approach that we can deliver. This trend is widening our market opportunity and allowing us to invest in larger businesses, a trend that you've seen from us over the last several years.
As these advantages continue to materialize, we're able to increase both the quantity and the quality of the transactions that we review. In the first quarter of this year, we saw a 14% increase in the number of transaction opportunities, a 25% increase in the average EBITDA of the companies that we reviewed, and a 40% increase in the estimated aggregate dollar amount of deal activity when compared to the first quarter average for the past five years. The growing breadth of our pipeline allows us to see a larger and more diverse set of investment opportunities, which ultimately allows us to be highly selective. We continue to finance less than 5% of the deals that we review. This selectivity and our focus on high free cash flow businesses with market leadership positions ultimately result in a differentiated and attractively positioned portfolio.
As Mitchell will discuss later in more detail, our portfolio continues to perform well with 99% of contractual interest collected and no new portfolio companies on non-accrual for the quarter. Furthermore, supporting my earlier comments about the rebounding economy, our portfolio companies experienced weighted average EBITDA growth of 7% over the last 12-month period. This is a continued improvement from about 5% in the fourth quarter and 2% in the third quarter of last year. It's also worth noting that the weighted average EBITDA growth for our top three largest industries, software and services, healthcare services, and commercial and professional services, was 30% higher than the portfolio weighted average growth rate in aggregate. This underscores that our approach of overweighting the most attractively positioned industries and sectors of the economy is paying off. Our portfolio performance also continues to benefit from our upmarket focus.
In the first quarter, our larger portfolio companies with greater than $100 million of EBITDA had growth rates that were more than two times those of companies with EBITDA below $50 million. We are not ignoring smaller transactions. We simply believe that in the current environment, they offer less relative value than they have in the past, relative to some of the larger financings that we've completed. Let me now turn the call over to Penni to provide some more details on first quarter results and some other thoughts on our financing activities.
Thanks, Kipp. Good morning, everyone. Our core earnings per share of $0.43 for the first quarter of 2021 were lower than the $0.54 for the fourth quarter of 2020 and higher than the $0.41 for the first quarter of 2020. Our first quarter core earnings were driven by strong recurring interest in dividend income and a solid level of capital structuring service fees from new originations and capital markets activities. Our GAAP earnings per share for the first quarter of 2021 were $0.87, which compares to $0.89 for the fourth quarter of 2020, and a GAAP loss per share of $1.42 for the first quarter of 2020.
Our GAAP earnings per share for the first quarter of 2021 included net realized and unrealized gains on investments of $0.64, offset by a realized loss of $0.10 related to the early redemption of our 2047 notes. To further break this down, the net gains include net unrealized gains on investments of $0.57 per share, which primarily reflect continued tightening of credit spreads relative to the end of the previous quarter, performance improvement in certain names, and higher company valuations. Now that we are a full year past the significant volatility induced by the pandemic, we have seen a steady recovery in the value of the portfolio.
Over the course of the past 12 months, the net unrealized gains on our investments have exceeded the net unrealized losses we recorded in the first quarter of last year, i.e., we have now recovered the aggregate net markdowns recorded in Q1 2020. At March 31st, 2021, our stockholders' equity grew to $7.6 billion, resulting in a record net asset value per share of $17.45 as compared to our pre-pandemic level of $17.32 at December 31st, 2019, and $15.58 at March 31st, 2020, the height of the pandemic impact on market valuations. Our NAV per share ended the first quarter of 2021 at an all-time high and represents a 12% increase from a year ago and a 1% increase from the end of 2019. Our portfolio at fair value at the end of the quarter was $15.4 billion, and we had total assets of $16 billion.
As of March 31, 2021, the weighted average yield on our debt and other income-producing securities at amortized cost was 8.9%, and the weighted average yield on total investments at amortized cost was 7.9%, as compared to 9.1% and 8% respectively at December 31st, 2020. At March 31st, 2021, 82% of our total portfolio at fair value was in floating rate investments. Excluding our investment in the SDLP certificates, 87% of the remaining floating rate investments had an average LIBOR floor of approximately 1.1%, which is well above today's current one and three-month LIBOR rate. Shifting to our capitalization and liquidity, we had an active quarter focused on raising additional capital and extending debt maturities.
During the quarter, we extended our corporate revolving credit facility to a full five years and upsized it by nearly $350 million, bringing the total facility size to $4 billion, which is the largest single credit facility for any BDC. In addition, we took advantage of the historically low rate environment and issued $1 billion of 2.15% unsecured notes maturing in July 2026, which was a record low coupon for us or any BDC, while also optimizing our liability structure by exercising our option to early redeem our 2047 notes at par. These $230 million of notes, which we assumed in our acquisition of Allied Capital over 10 years ago, represented the highest interest rate of any of our outstanding debt securities at 6.78%.
We also returned to the equity markets for a secondary issuance for the first time since 2014, issuing 14 million shares of our common stock at a premium to our net asset value, bringing us net proceeds of approximately $250 million. After considering our investment and capital activities during the quarter, we ended the first quarter with nearly $5.2 billion of total available liquidity and a debt-to-equity ratio net of available cash of $285 million of 1.02 x, down from 1.17 x at the end of the fourth quarter. While our leverage ratios will vary over time depending on activity levels, we will continue to work to operate within our stated target leverage range of 0.9 - 1.25 x. Overall, we continue to be very proud of our capital structure.
With ample amounts of dry powder, we believe it remains one of our most significant competitive advantages and positions us well to remain active investors. Before I conclude, I want to discuss our undistributed taxable income and our dividends. We currently estimate that our spillover income from 2020 into 2021 will be approximately $454 million, or $1.04 per share. We believe having a strong and meaningful undistributed spillover supports our goal of maintaining a steady dividend throughout market cycles and sets us apart from many other BDCs that do not have any spillover. This morning, we announced that we declared a regular second quarter dividend of $0.40 per share. This second quarter dividend is payable on June 30th, 2021, to stockholders of record on June 15th, 2021. I will now turn the call over to Mitchell to walk through our investment activities for the quarter.
Thanks, Penni. I would like to spend a few minutes providing more detail on our investments and portfolio performance for the first quarter of 2021. I will provide an update on post-quarter end activity and our backlog and pipeline. During the first quarter, our team originated $1.75 billion of new investment commitments to a diverse set of high-quality companies across more than 20 distinct industries. The EBITDA of the companies we financed during the quarter ranged from around $15 million to nearly $300 million, underscoring the breadth of our opportunity set and our ability to be a solutions provider to a wide array of companies. Our originations during the quarter also highlight our ability to invest actively while remaining defensive, as approximately 80% of the commitments were first lien.
The two largest industries to which we committed capital were healthcare services and commercial and professional services, consistent with our long-held focus on defensive, high free cash flow business model. As Kipp stated, with increasing M&A activity and our strong sourcing advantages, we are seeing an attractive set of new investments. Across our new first lien commitments this quarter, we achieved about 40 bps of higher yield and 20 bps of greater upfront fees as compared to the senior loans we originated in Q1 2020. Furthermore, the senior loans we originated during the quarter had nearly half a turn lower leverage than existed in our senior loan portfolio at the end of 2019. With 21 new companies added, we ended the quarter with 350 distinct portfolio companies and a highly diversified portfolio with an average hold position at fair value of only 0.3%.
Our portfolio is well supported by the value of the companies we financed, with weighted average LTV of approximately 50% at the end of the first quarter. Shifting to the health of our portfolio, our weighted average portfolio grade at fair value of 3.0 remained unchanged from last quarter, and we saw about a seven to one ratio of portfolio upgrades relative to downgrades this quarter, which is indicative of the improving trends in our portfolio. The number of companies that have been graded as either one or two continue to decline as a percentage of the portfolio. Our non-accrual rate at cost remained flat quarter-over-quarter at 3.3%, and as Kipp mentioned, there were no new companies added to non-accrual. I will finish with a brief update on our post-quarter end investment activity and pipeline.
From April 1st through April 22nd, 2021, we made new investment commitments totaling $971 million, of which $630 million were funded. We exited or repaid on $432 million of investment commitments, including $51 million of loans sold to IHAM or vehicles managed by IHAM, generating approximately $5 million of net realized gains on those exits. As of April 22nd, our backlog and pipeline stood at roughly $2.1 billion and $310 million respectively. Our backlog contains investments that are subject to approvals and documentation and may not close, or we may sell a portion of these investments post-closing. I will note that our backlog is nearly double that reported on April 22nd, 2019, and ten times the backlog reported on April 29th of last year. We believe we'll have a busy 2021. I will now turn the call back over to Kipp for some closing remarks.
Thanks a lot, Mitch. We believe we're off to a strong start to the year, and we're very pleased with our first quarter results, which included strong core and GAAP earnings, a recovery in our NAV per share to a level that is now above pre-pandemic levels, and improving portfolio credit metrics. The company is hard at work delivering value for shareholders, and we believe we are again positioned for growth during what we believe will be a substantial economic recovery. The COVID-19 pandemic and all the uncertainty and challenges it brought are not over. However, we see a lot of it in the rear view mirror and have optimism for 2021 and beyond.
While many aspects of the last 12 months have been unfortunate, we believe these difficult times have again demonstrated our strengths and reinforced our long track record of performance through varying market cycles. Coming out of this, our company is healthy and thriving. We believe a busier and hopefully more normal year ahead provides a great backdrop for Ares Capital and the returns that we can deliver for our shareholders. That concludes our prepared remarks. We'd be happy to open the line for questions.
Thank you. At this time, if you would like to ask a question, please press star then one on your touchtone phone. If you would like to withdraw your question, please press star then two. Please note, as a courtesy to those who may wish to ask a question, please limit yourself to one question and a single follow-up. If you have additional questions, you may re-enter the queue. The investor relations team will be available to address any further questions at the conclusion of today's call. The first question today will come from Devin Ryan with JMP Securities. Please go ahead.
Great. Good morning, everyone.
Hey, Devin.
Clearly a lot of good stuff going on this quarter. I just want to look at, I guess, the quarter to date investment activity, the weighted average yield of debt and other income producing securities at amortized cost was 7.4%, which is down a bit from recent quarters. I just want to get a little more flavor around if that's just market conditions and current pricing or if that's tied at all to maybe moving up the risk curve. Then just maybe ask differently, just talk a little bit more about the pricing and how that's evolved in the market recently.
I think it's nothing necessarily by design to hit on the second point. Look, with the economic recovery, we've definitely seen spreads compress from where they had been over the last six- nine months a little bit. The good news is we're not really seeing much of that continue. I feel like it's sort of plateaued at this level, and we're back to a steady state. I think I'd have to go back through specifically the backlog and pipeline versus the quarter. My guess is it's just a little bit more mixed to first lien, and it's not us sort of directing that by design. Right? We actually think there are still quite a lot of pretty interesting higher yield, higher risk, but good risk reward situations out there.
Okay, great. Very helpful. I guess a related question. Looking at the pipeline, very healthy year. Software and services is notably making up more than half of the pipeline, I'm just curious if that's kind of reflecting the mix of deal flow, so it's commensurate or is that an area that you're maybe leaning more in because of the attractiveness? Would love some color there and then just any other industries that you're particularly interested in right now.
Yeah. Look, we kind of follow along with the general backlog and pipeline deal flow. Right? Particularly that of private equity firms, which still represents the majority of our financing opportunities. I would tell you that because of the attractive growth elements in the software and services space, there's just a lot of activity there. Right? Tremendously high valuations on the equity side and just a lot of what we think is really high quality credits and good deal flow in the software and services space. We've continued to build out that effort. It's been a growing effort for us, and we think it's very attractive. I'd add on top of that, we're seeing the same thing in healthcare. We're seeing the same thing generally in business services with accounts presenting a really significant portion of our backlog and pipeline in terms of industry mix.
Okay, great. Well, I appreciate it, Kipp.
Thanks, Devin. Have a good one.
The next question will be from Finian O'Shea with Wells Fargo Securities. Please go ahead.
Hi, good morning. First question for Kipp on the higher level of investment income in Ivy Hill. I know that BDC invested more during COVID, but drew some back last quarter, and the investment income still appears very robust. Is this an improved trajectory or more transitory for that vehicle?
No, we've continued to invest in Ivy Hill, and with that, obviously, we generate typically more funds under management, assets under management there. That obviously increases the management fees of that company. As you know, we also invest securities in a lot of the funds and vehicles that they put together, which also just allows us to ramp up the investment income from Ivy Hill. It's simply just an increased dividend this quarter that you should expect to see. As we invest more, obviously we should be taking in more income from Ivy Hill, and obviously the dividend increase just represents our continued belief that it's a very attractive investment vehicle and relationship with Ivy Hill. Just continuing upwards.
Great. Just a follow-on on that origination this quarter of Faraday Future, without getting into issuer-specific items, is this sort of an idiosyncratic situation that came to you from your network, or are you peering into opportunities that you may see or may derive from the SPAC ecosystem out there?
This one was a little idiosyncratic. Came in through a banker obviously involved with a particular SPAC. We don't have to bother with the nature there. It's not something that I would say we're seeing consistently, i.e., financing opportunities from SPACs.
Okay. That's all for me. Thank you.
Thanks, man.
The next question will come from Ryan Lynch with KBW. Please go ahead.
Hey, good morning. First one I just had was, if you look at term structure, leverage in the broadly syndicated loan market, it's pretty much been on a straight path, getting more and more borrower friendly. Obviously that trickles down into the upper middle market and the middle market where you all invest in. I'm just curious, do those trends concern you based on just the trajectory that that's been on? Have you seen those trends starting to kind of level out or flatten out or improve at all? If not, what do you see in the future that could potentially kind of ease some of those pressures and kind of slow down that trajectory?
Yeah, look, with the, again, I think rebounding economy, optimism from investors and a fresher year when folks were obviously frustrated with yields in non-sub-investment grade, so other portions of the portfolio. We were seeing a lot of activity in credit spread tightening here in the early part of the year. I think the middle market does follow that. Everyone always answers it the same way, which is it lags a little bit, right?
Look, I think the large cap market has retreated a little bit in the last 30- 60 days, so we don't see dramatic kind of continued drops from here, right? Early part of this year, there was just not a lot of new issuance. Refis were really heavy, and that's sort of come down a little bit now with heavier new issuance on the calendar. Again, the concept that things are sort of plateauing here where they are is, I think, how we see things.
Okay. That's helpful. Going back to kind of the backlog and pipeline question. You kind of discussed that earlier with the high concentration, kind of the software healthcare. You said that that's a little bit more of a reflection of kind of the private equity sponsors and what they're focusing on today. Which those all seem to be largely kind of more recession-resistant businesses. Do you see that mix starting to shift maybe in the back half of 2021 as maybe some more COVID-19 impacted or more cyclical businesses as private equity sponsors can start to transact with those more given kind of the increase in kind of the economic recovery?
Yeah, it's possible. I think that when you go back to this time last year, a lot of the deal flow was around COVID-19 rescue type stuff, which I'm thinking is, for the most part, behind us. I understand where your question's coming from, but don't have my crystal ball today. You'd think a good, solid economic recovery that's broad would have folks looking more to cyclical industries. We've actually talked about this across our firm as a whole, whether it's credit, private equity, and elsewhere.
It seems to be that with purchase prices, particularly in private equity, that are elevated, folks are willing to pay for growth in the sectors where they're expecting growth, regardless of how uniform the economic recovery is. I hate to answer with a we'll see, but your guess Ryan, is as good as mine maybe right now. It makes sense, but we're not seeing it yet.
I gotcha. I appreciate the comment. Kipp, you can just give me a call back whenever you get your crystal ball handy, I guess. Thanks.
It would come in handy. Thanks.
The next question will be from Melissa Wedel with JPMorgan. Please go ahead.
Good morning, guys. Thanks for taking my questions today. Actually, a lot of them have already been answered, I thought I'd switch over, related to the activity questions that you've been getting. Certainly notice that the April to date activity, the exits have lagged the new investments versus outpacing them sort of more broadly in the first quarter. Are you anticipating a change there for Ares net origination going forward, or is it too early to tell?
Melissa, I'm sorry, I missed a little bit of the lead into the question. I got the second part. We don't see any change in the activity levels, right? Things sort of come and go. The backlog and pipeline's very healthy. Business is super active right now. If I didn't quite answer your question, feel free to jump back in.
Sure. Sorry about that. I was asking if you're anticipating a switch from sort of net exit mode to net originations mode, given the size of the pipeline and the backlog.
No, I think is the easy answer. We saw a couple of really large companies get refinanced as exits in this quarter, which is sort of the rationale for the net quarter. No, I don't expect any changes.
Thank you.
Yep. Thank you.
The next question is from Casey Alexander of Compass Point. Please go ahead.
Good morning, Kipp.
Hey, Casey. How are you?
I'm fine, thank you. A couple of questions. One is, hearing that you financed a company with $300 million of EBITDA. It used to be that the company thought in terms of larger companies as being second lien opportunities. Is that still true? When you're talking about companies of that size, has that impacted the hold sizes that you're willing to hold in the portfolio as well?
Yeah. Typically, a company that size will do a syndicated first lien deal more often than not, and place junior capital privately. That's more common, I guess, than it used to be, where you had smaller high yield deals getting executed, et cetera. Now Ares and obviously a handful of our competitors have capital to privately place a lot of this junior capital directly, which they view as a win-win. I think we do too. In the larger names, it's just math that we typically will have larger final holds in some of these larger companies. I think I've said this in past calls, but we're actually seeing no real risk premium available in smaller companies. The capital structures are largely the same.
I mentioned this in our prepared remarks a little bit, but we've moved up the company size spectrum because we think there's really good relative value in some of these larger companies, which inherently should be better credits with better management teams, et cetera. We like that, and we continue to see that as being a competitive advantage, a place that really plays into our strengths and one where we intend to remain active.
All right, great. Thank you. My follow-up is, I read some comments from Spencer Arrighetti about government stimulus has delayed sort of a default spike or a default cycle by two-three years. I'm just curious, given the economic growth that we're seeing, why that would even be delayed two or three years. Why wouldn't we just be starting a whole new economic cycle and what would lead into that two to three years?
Yeah, I didn't see that. I think the common wisdom out there these days is sort of that defaults have peaked. That they're starting to come down. To me, that would play more into your thinking that we've gotten through this last 12 months, and there seems to be a pretty solid economic rebound. To your point, may just start things over again. I think the asterisk is we really have some companies that are really significantly impacted by COVID for the long haul.
I'll asterisk it by saying, I don't think that the economic recovery is necessarily accruing to them the same way it is to others. I think the stimulus pushed the pain out for some of these industries for a little while. Things like travel and hospitality and others we can all think of. I think there's still a lot of work to do for these companies to get back to where they were before COVID-19 presented itself. I guess we'll all see.
All right. Thank you. I appreciate your thoughts.
Yep. Thank you.
The next question comes from Robert Dodd with Raymond James. Please go ahead.
Morning, congratulations on the quarter. Excuse me. First one, I'm kind of focusing on credit quality. It looks very robust right now. The weighted average grade of the portfolio, no change at three. Mitch then gave seven to one upgrade to downgrade ratio in number of companies. That tends to imply that a lot of small companies are getting upgraded or it shifts the weighted average grade. At the same time, you're saying that the small companies are lagging fairly materially on EBITDA growth and kind of rebound. Can you give us any color on why it is that the small companies are getting upgraded in your rating system while lagging the broad portfolio by so much?
That's a hard one. I think some of it is some composition just in the portfolio where we've got some smaller equity positions that are getting upgraded. It's not necessarily representative, I think if you make that generalization. Look, I think, Robert, the thing that we're most focused on as we've laid out for folks is being hard at work on kind of the ones and twos. [inaudible] to show positive migration there. To be honest, I'd have to dig in a little bit more, or have some folks dig in a little bit more in terms of what I have in front of me right here.
Got it. I appreciate it. It is a tricky one. Just the follow-up kind of This quarter, a lot of discussion about dealing with bigger businesses, reviewing larger EBITDA businesses. I think you basically answered this question indirectly in response to Melissa, but your weighted average EBITDA shrank fairly materially for the first time in a long time this quarter. Is that an artifact of things like athenahealth getting refied out or an artifact just more broadly of how competitive the refi market is in the very large end of the BSL market?
Yeah. We had two very large companies get refinanced out. athenahealth was one of them, and CoinMKT was the other. Both had north of $300 million of EBITDA. I do think your point is right, is some of these refinancings were occurring at the upper end EBITDA size of our portfolios because folks were finding a pretty attractive syndicated loan market to refinance per Ryan's question as well.
Got it. Thank you.
Yep. I'll just say that it's really not having any and that we are winning quite a lot as you'll see as we roll the year forward.
The next question comes from Christopher Marinac with Janney Montgomery Scott. Please go ahead.
Hi. Good morning. I wanted to ask more details about the leverage you made. Is there a scenario where you would not be at the upper end of the leverage at the 1.2 that you cited?
No. I expect, and Penni, you can jump in too if you'd like to. We sort of see it being ordinary course somewhere between 1-1.2. As you know, the more active we are on a net originations basis, the more we have to draw the revolvers to fund that. That's typically just the way we do things. If we see a more significant repayment quarter like we did this past quarter, the leverage tends to go down. I think we'll operate within that range based on activity levels.
Great. I appreciate all the information this morning.
You're welcome.
Once again, if you'd like to ask a question, please press star then one. The next question comes from Kenneth Lee with RBC Capital Markets. Please go ahead.
Hey, thanks for taking my question. This is going to be a follow-up to a previous question regarding the investment backlog. Should we expect to see more of a mix shift towards second lien investments over the near term, especially as you start to gravitate and emphasize more on investing in larger borrowers? Thanks.
I don't think the mix has shifted too much, and I wouldn't expect the mix to shift going forward. Right? One of the hallmarks of the strategy is that we want to obviously go out to borrowers and counterparties with a complete set of products, right? We're happy doing everything from first lien all the way through down to doing preferred and common equity investments. It's really just going to be what presents itself in backlog and pipeline and what do we see as most attractive. I think the mix will stay quite similar to where we are today. I think it's been consistent over the last year or so.
Great. That's very helpful. Just one follow-up if I may. Was there anything notable that was driving the portfolio dividend income that was reported in the quarter? Thanks.
Penni, I might let you take that one. Is there anything that sticks out? I think we had special dividend from one company in particular that we've been restructuring that we now own. Beyond that, I can't think of anything other than that special dividend that came from one portfolio company that we're sort of in the midst of turning around and fixing.
Great. Thank you very much then.
All right, Kenneth. Thanks.
Ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Mr. Kipp deVeer for any closing remarks.
No, nothing beyond that. We appreciate everybody getting on the call to hear how the company's doing. We feel great about the positioning today and just wish everybody at least a happy spring here in the northeast as the weather warms up. I guess we'll talk to you formally here again summertime. Thanks for attending.
Thank you, sir. Ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call, an archive replay of the call will be available approximately one hour after the end of the call through May 12, 2021 at 5:00 P.M. Eastern Time. To domestic callers by dialing 877-344-7529, and to international callers by dialing +1-412-317-0088. For all replays, please reference conference number 10153140. An archive replay will also be available on a webcast link located on the homepage of the Investor Resources section of Ares Capital's website. Thank you very much. You may now disconnect your lines.