DIVIDEND DECLARATIONS
Ares Capital Corporation (“Ares Capital”) (NASDAQ:ARCC)
announced that its Board of Directors has declared a second quarter
dividend of $0.40 per share. The second quarter dividend is payable
on June 28, 2019 to stockholders of record as of June 14, 2019.
Ares Capital previously declared on February 12, 2019 an
additional dividend of $0.02 per share, payable, subject to the
satisfaction of certain Maryland law requirements, on June 28, 2019
to stockholders of record as of June 14, 2019.
MARCH 31, 2019 FINANCIAL RESULTS
Ares Capital also announced financial results for its first
quarter ended March 31, 2019.
HIGHLIGHTS
Financial
Q1-19 Q1-18
(dollar amounts in millions, except per share data)
TotalAmount
PerShare(1)
TotalAmount
PerShare(1)
Core EPS(2) $ 0.48 $ 0.38 GAAP EPS $ 0.50 $ 0.57 Net investment
income $ 201 $ 0.47 $ 144 $ 0.34 Net realized gains (losses) $ 56 $
0.13 $ (12 ) $ (0.03 ) Net unrealized gains (losses) $ (43 ) $
(0.10 ) $ 110 $ 0.26 GAAP net income $ 214 $ 0.50 $ 242 $ 0.57
Dividends declared and payable $ 0.42 (3) $ 0.38
As of (dollar amounts in millions, except
per share data) March 31, 2019
December 31, 2018 March 31, 2018
Portfolio investments at fair value $ 13,064 $ 12,417 $
12,199 Total assets $ 13,962 $ 12,895 $ 12,693 Stockholders’ equity
$ 7,339 $ 7,300 $ 7,178 Net assets per share $ 17.21 $ 17.12 $
16.84
__________________________________________________
(1) All per share amounts are basic and diluted.
(2) Basic and diluted Core EPS is a non-GAAP financial measure.
Core EPS is the net per share increase (decrease) in stockholders’
equity resulting from operations less net realized and unrealized
gains and losses, any capital gains incentive fees attributable to
such net realized and unrealized gains and losses and any income
taxes related to such net realized gains and losses. Basic and
diluted GAAP EPS is the most directly comparable GAAP financial
measure. Ares Capital believes that Core EPS provides useful
information to investors regarding financial performance because it
is one method Ares Capital uses to measure its financial condition
and results of operations. The presentation of this additional
information is not meant to be considered in isolation or as a
substitute for financial results prepared in accordance with GAAP.
Reconciliations of basic and diluted Core EPS to the most directly
comparable GAAP financial measure are set forth in Schedule 1
hereto.
(3) Includes an additional dividend of $0.02 per share paid in
the first quarter ended March 31, 2019.
Portfolio Activity
(dollar amounts in millions) Q1-19 Q4-18
Q1-18 Portfolio Activity During the Period: Gross
commitments $ 1,953 $ 2,709 $ 1,792 Exits of commitments $ 1,353 $
1,021 $ 1,342 Portfolio as of the End of the Period: Number
of portfolio company investments 345 344 360 Weighted average yield
of debt and other income producing securities(4): At amortized cost
10.4 % 10.2 % 10.1 % At fair value 10.5 % 10.3 % 10.1 % Weighted
average yield on total investments(5): At amortized cost 9.3 % 9.0
% 8.9 % At fair value 9.5 % 9.3 % 8.8 %
__________________________________________________
(4) Weighted average yield of debt and other income producing
securities is computed as (a) the annual stated interest rate or
yield earned plus the net annual amortization of original issue
discount and market discount or premium earned on accruing debt and
other income producing securities divided by (b) the total accruing
debt and other income producing securities at amortized cost or at
fair value as applicable.
(5) Weighted average yield on total investments is calculated as
(a) the annual stated interest rate or yield earned plus the net
annual amortization of original issue discount and market discount
or premium earned on accruing debt and other income producing
securities divided by (b) the total investments at amortized cost
or at fair value as applicable.
FIRST QUARTER 2019 OPERATING RESULTS
For the first quarter of 2019, Ares Capital reported GAAP net
income of $214 million or $0.50 per share (basic and diluted), Core
EPS(2) of $0.48 per share (basic and diluted), net investment
income of $201 million or $0.47 per share (basic and diluted), and
net realized and unrealized gains of $13 million or $0.03 per share
(basic and diluted).
Net income can vary substantially from period to period due to
various factors, including the level of new investment commitments,
the recognition of realized gains and losses and unrealized
appreciation and depreciation. As a result, quarterly comparisons
of net income may not be meaningful.
As of March 31, 2019, total assets were $14.0 billion,
stockholders’ equity was $7.3 billion and net asset value per share
was $17.21.
In the first quarter of 2019, Ares Capital made $2.0 billion in
new investment commitments, including commitments to 13 new
portfolio companies and 24 existing portfolio companies. Of the new
commitments, 36 were sponsored transactions. As of
March 31, 2019, 167 separate private equity sponsors were
represented in Ares Capital’s portfolio. Of the $2.0 billion
in new commitments made during the first quarter of 2019, 42% were
in first lien senior secured loans, 39% were in second lien senior
secured loans, 8% were in the subordinated certificates of the
Senior Direct Lending Program, LLC (the “SDLP”), 7% were in
preferred equity and 4% were in other equity securities. Of
these commitments, 94% were in floating rate debt securities, of
which 91% contained interest rate floors and 9% were in the
subordinated certificates of the SDLP to make co-investments with
Varagon Capital Partners (“Varagon”) and its clients in floating
rate first lien senior secured loans through the SDLP, all of which
contained interest rate floors. Ares Capital may seek to sell all
or a portion of these new investment commitments, although there
can be no assurance that Ares Capital will be able to do so.
In the first quarter of 2019, significant new commitments
included:
- $467 million in first lien senior
secured revolving and term loans, a second lien senior secured term
loan and preferred and other equity in a revenue cycle management
provider to physician practices and hospitals;
- $180 million in a second lien senior
secured term loan in a collision repair company;
- $157 million in first lien senior
secured revolving, delayed draw and term loans, second lien senior
secured delayed draw and term loans and preferred and other equity
in an enterprise management software provider for the convenience
retail and petroleum wholesale market;
- $156 million in the subordinated
certificates of the SDLP to make co-investments with Varagon and
its clients in first lien senior secured loans to two portfolio
companies in a variety of industries;
- $93 million in a first lien senior
secured term loan in an outsourced data collection provider to the
market research industry;
- $91 million in a second lien senior
secured term loan in a manufacturer of biologic, metal and
synthetic implants and devices;
- $89 million in first lien senior
secured revolving and term loans in a manufacturer of packaging
solutions and plastic injection molded products;
- $58 million in a first lien senior
secured delayed draw term loan and second lien senior secured
delayed draw and term loans in an insurance service provider;
- $56 million in first lien senior
secured revolving and term loans and equity in a health food
company;
- $55 million in first lien senior
secured revolving and term loans in a cloud-based business
management solutions provider;
- $54 million in a second lien senior
secured term loan in a diversified food products manufacturer;
- $52 million in a first lien senior
secured term loan in a supply chain risk management platform
provider;
- $51 million in first lien senior
secured revolving, delayed draw and term loans in an electronic
payment processing solutions provider; and
- $49 million in first lien senior
secured revolving and term loans in a software provider for
application development.
Also in the first quarter of 2019, Ares Capital exited
approximately $1.4 billion of investment commitments. Of the total
investment commitments exited, 70% were first lien senior secured
loans, 29% were second lien senior secured loans and 1% were other
equity securities. Of the approximately $1.4 billion of exited
investment commitments, 98% were floating rate, 1% were on
non-accrual status and 1% were non-interest bearing.
The fair value of Ares Capital’s portfolio investments at
March 31, 2019 was $13.1 billion, including $11.8 billion in
accruing debt and other income producing securities. The total
portfolio investments at fair value were comprised of approximately
44% of first lien senior secured loans, 30% of second lien senior
secured loans, 6% of subordinated certificates of the SDLP (the
proceeds of which were applied to co-investments with Varagon and
its clients to fund first lien senior secured loans through the
SDLP), 6% of senior subordinated loans, 5% of preferred equity
securities and 9% of other equity securities. As of March 31,
2019, the weighted average yield of debt and other income producing
securities in the portfolio at amortized cost and fair value was
10.4% and 10.5%, respectively, the weighted average yield on
total investments in the portfolio at amortized cost and fair value
was 9.3% and 9.5%, respectively, and 85% of the total investments
at fair value were in floating rate securities.
“ARCC reported strong first quarter earnings driven by net
portfolio growth, increased fee income and stable credit and
investment performance,” said Kipp deVeer, Chief Executive Officer
of Ares Capital. “While we have remained highly selective, we have
also continued to find attractive investment opportunities with $2
billion in new commitments to well positioned middle market
companies.”
“On the balance sheet front, we have extended debt maturities,
increased available capital and further diversified our sources of
financing in support of our strategy of making compelling risk
adjusted return investments in franchise companies,” said Penni
Roll, Chief Financial Officer of Ares Capital.
PORTFOLIO QUALITY
Ares Capital Management LLC (“Ares Capital Management” or Ares
Capital’s “investment adviser”) employs an investment rating system
to categorize Ares Capital’s investments. In addition to various
risk management and monitoring tools, Ares Capital’s investment
adviser grades the credit risk of all investments on a scale of 1
to 4 no less frequently than quarterly. This system is intended
primarily to reflect the underlying risk of a portfolio investment
relative to Ares Capital’s initial cost basis in respect of such
portfolio investment (i.e., at the time of origination or
acquisition), although it may also take into account under certain
circumstances the performance of the portfolio company’s business,
the collateral coverage of the investment and other relevant
factors. Under this system, investments with a grade of 4 involve
the least amount of risk to Ares Capital’s initial cost basis. The
trends and risk factors for this investment since origination or
acquisition are generally favorable, which may include the
performance of the portfolio company or a potential exit.
Investments graded 3 involve a level of risk to Ares Capital’s
initial cost basis that is similar to the risk to Ares Capital’s
initial cost basis at the time of origination or acquisition. This
portfolio company is generally performing as expected and the risk
factors to Ares Capital’s ability to ultimately recoup the cost of
Ares Capital’s investment are neutral to favorable. All investments
or acquired investments in new portfolio companies are initially
assessed a grade of 3. Investments graded 2 indicate that the risk
to Ares Capital’s ability to recoup the initial cost basis of such
investment has increased materially since origination or
acquisition, including as a result of factors such as declining
performance and non-compliance with debt covenants; however,
payments are generally not more than 120 days past due. An
investment grade of 1 indicates that the risk to Ares Capital’s
ability to recoup the initial cost basis of such investment has
substantially increased since origination or acquisition, and the
portfolio company likely has materially declining performance. For
debt investments with an investment grade of 1, most or all of the
debt covenants are out of compliance and payments are substantially
delinquent. For investments graded 1, it is anticipated that Ares
Capital will not recoup Ares Capital’s initial cost basis and may
realize a substantial loss of Ares Capital’s initial cost basis
upon exit. For investments graded 1 or 2, Ares Capital’s investment
adviser enhances its level of scrutiny over the monitoring of such
portfolio company. The grade of a portfolio investment may be
reduced or increased over time.
As of March 31, 2019 and December 31, 2018, the weighted
average grade of the investments in Ares Capital’s portfolio at
fair value was 3.1 and 3.0, respectively, and loans on non-accrual
status represented 2.3% and 2.5%, respectively, of total
investments at amortized cost (or 0.4% and 0.6%, respectively, at
fair value).
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2019, Ares Capital had $572 million in cash
and cash equivalents and $6.3 billion in total aggregate principal
amount of debt outstanding ($6.2 billion at carrying value).
Subject to leverage, borrowing base and other restrictions, Ares
Capital had approximately $0.8 billion available for additional
borrowings under its existing credit facilities as of
March 31, 2019.
In March 2019, Ares Capital issued $402.5 million aggregate
principal amount of unsecured convertible notes, that mature on
March 1, 2024 (the “2024 Convertible Notes”), unless previously
converted or repurchased in accordance with their terms. Ares
Capital does not have the right to redeem the 2024 Convertible
Notes prior to maturity. The 2024 Convertible Notes bear interest
at a rate of 4.625% per year, payable semi-annually. The initial
conversion price of $19.88 was approximately 15% above the $17.29
per share closing price of Ares Capital’s common stock on
March 5, 2019.
FIRST QUARTER 2019 DIVIDEND PAID AND 2019 DECLARED ADDITIONAL
DIVIDENDS
On February 12, 2019, Ares Capital declared a first quarter 2019
dividend of $0.40 per share and an additional first quarter 2019
dividend of $0.02 per share for a total of approximately $179
million. The record date for these dividends was March 15, 2019 and
the dividends were paid on March 29, 2019.
On February 12, 2019, Ares Capital also declared additional
dividends of $0.02 per share to be distributed in the second, third
and fourth quarter of 2019. The second quarter 2019 additional
dividend of $0.02 per share will be payable on June 28, 2019 to
stockholders of record as of June 14, 2019. The third quarter 2019
additional dividend of $0.02 per share will be payable on September
30, 2019 to stockholders of record as of September 16, 2019. The
fourth quarter 2019 additional dividend of $0.02 per share will be
payable on December 27, 2019 to stockholders of record as of
December 16, 2019. Payment of the additional June 28, 2019,
September 30, 2019 and December 27, 2019 dividends are subject to
the satisfaction of certain Maryland law requirements.
RECENT DEVELOPMENTS
In April 2019, Ares Capital amended and restated its senior
secured credit facility (as amended, the “Revolving Credit
Facility”) to, among other things, (a) increase the total size
under the Revolving Credit Facility from approximately $2.1 billion
to approximately $3.4 billion, (b) increase the size of the
letter of credit sub-facility from $150 million to $200 million,
with the ability of Ares Capital to increase incrementally by $75
million on an uncommitted basis, (c) extend the expiration of
the revolving period with respect to all commitments of the lenders
under the credit facility to March 30, 2023, during which
period Ares Capital, subject to certain conditions, may make
borrowings under the credit facility, and (d) extend the
stated maturity date with respect to all commitments of the lenders
under the credit facility to March 30, 2024.
From April 1, 2019 through April 24, 2019, Ares
Capital made new investment commitments of approximately $183
million, of which $130 million were funded. Of these new
commitments, 51% were in first lien senior secured loans, 48% were
in second lien senior secured loans and 1% were in the subordinated
certificates of the SDLP. Of the approximately $183 million of new
investment commitments, 100% were floating rate. The weighted
average yield of debt and other income producing securities funded
during the period at amortized cost was 9.8%. Ares Capital may seek
to sell all or a portion of these new investment commitments,
although there can be no assurance that it will be able to do
so.
From April 1, 2019 through April 24, 2019, Ares
Capital exited approximately $747 million of investment
commitments. Of the total investment commitments, 88% were first
lien senior secured loans, 11% were senior subordinated loans and
1% were other equity securities. Of the approximately $747 million
of exited investment commitments, 99% were floating rate and 1%
were non-interest bearing. The weighted average yield of debt and
other income producing securities exited or repaid during the
period at amortized cost was 9.3% and the weighted average yield on
total investments exited or repaid during the period at amortized
cost was 9.3%. On the approximately $747 million of investment
commitments exited from April 1, 2019 through April 24,
2019, Ares Capital recognized total net realized gains of
approximately $14 million.
In addition, as of April 24, 2019, Ares Capital had an
investment backlog and pipeline of approximately $1,055 million and
$195 million, respectively. Investment backlog includes
transactions approved by Ares Capital’s investment adviser’s
investment committee and/or for which a formal mandate, letter of
intent or a signed commitment have been issued, and therefore Ares
Capital believes are likely to close. Investment pipeline includes
transactions where due diligence and analysis are in process, but
no formal mandate, letter of intent or signed commitment have been
issued. The consummation of any of the investments in this backlog
and pipeline depends upon, among other things, one or more of the
following: satisfactory completion of our due diligence
investigation of the prospective portfolio company, Ares Capital’s
acceptance of the terms and structure of such investment and the
execution and delivery of satisfactory transaction documentation.
In addition, Ares Capital may sell all or a portion of these
investments and certain of these investments may result in the
repayment of existing investments. Ares Capital cannot assure you
that it will make any of these investments or that Ares Capital
will sell all or any portion of these investments.
On April 24, 2019, at an in-person meeting, the Board of
Directors of Ares Capital approved the form of Second Amended and
Restated Advisory and Management Agreement to be entered into by
Ares Capital and its investment adviser, effective as of June 6,
2019. The Second Amended and Restated Advisory and Management
Agreement will reduce the rate used in calculating the base
management fee calculated thereunder from 1.50% to 1.00% per annum
with respect to assets financed using leverage over 1.0x debt to
equity.
On April 24, 2019, the Board of Directors of Ares Capital
appointed (i) Lisa Morgan as Chief Compliance Officer of Ares
Capital, replacing Miriam Krieger who had served in such capacity
since July 2011, and (ii) Miriam Krieger as Vice President of Ares
Capital.
WEBCAST / CONFERENCE CALL
Ares Capital will host a webcast/conference call on Tuesday,
April 30, 2019 at 12:00 p.m. (Eastern Time) to discuss
its quarter ended March 31, 2019 financial results. PLEASE VISIT
ARES CAPITAL’S WEBCAST LINK LOCATED ON THE HOME PAGE OF THE
INVESTOR RESOURCES SECTION OF ARES CAPITAL’S WEBSITE FOR A
SLIDE PRESENTATION THAT COMPLEMENTS THE EARNINGS CONFERENCE
CALL.
All interested parties are invited to participate via telephone
or the live webcast, which will be hosted on a webcast link located
on the Home page of the Investor Resources section of Ares
Capital’s website at www.arescapitalcorp.com. Please visit the website
to test your connection before the webcast. Domestic callers can
access the conference call by dialing (888) 317-6003. International
callers can access the conference call by dialing +1 (412)
317-6061. All callers will need to enter the Participant Elite
Entry Number 0181728 followed by the # sign and reference “Ares
Capital Corporation” once connected with the operator. All callers
are asked to dial in 10-15 minutes prior to the call so that name
and company information can be collected. For interested parties,
an archived replay of the call will be available approximately one
hour after the end of the call through May 14, 2019 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 10129711. An
archived replay will also be available through May 14, 2019 on a
webcast link located on the Home page of the Investor
Resources section of Ares Capital’s website.
ABOUT ARES CAPITAL CORPORATION
Ares Capital is a leading specialty finance company that
provides one-stop debt and equity financing solutions to U.S.
middle market companies and power generation projects. Ares Capital
originates and invests in senior secured loans, mezzanine debt and,
to a lesser extent, equity investments through its national direct
origination platform. Ares Capital’s investment objective is to
generate both current income and capital appreciation through debt
and equity investments primarily in private companies. Ares Capital
has elected to be regulated as a business development company
(“BDC”) and is the largest BDC by both market capitalization and
total assets. Ares Capital is externally managed by a subsidiary of
Ares Management Corporation (NYSE: ARES), a publicly traded,
leading global alternative asset manager. For more information
about Ares Capital Corporation, visit www.arescapitalcorp.com. However, the contents of
such website are not and should not be deemed to be incorporated by
reference herein.
FORWARD-LOOKING STATEMENTS
Statements included herein or on the webcast/conference call may
constitute “forward-looking statements,” which relate to future
events or Ares Capital’s future performance or financial
condition. These statements are not guarantees of future
performance, condition or results and involve a number of risks and
uncertainties. Actual results and conditions may differ
materially from those in the forward-looking statements as a result
of a number of factors, including those described from time to time
in Ares Capital’s filings with the Securities and Exchange
Commission. Ares Capital undertakes no duty to update any
forward-looking statements made herein or on the webcast/conference
call.
ARES CAPITAL CORPORATION AND
SUBSIDIARIESCONSOLIDATED BALANCE SHEET(in millions,
except per share data)
As of March 31, 2019
December 31, 2018 (unaudited)
ASSETS
Total investments at fair value (amortized cost of $13,440 and
$12,754, respectively) $ 13,064 $ 12,417 Cash and cash equivalents
572 296 Interest receivable 114 91 Receivable for open trades 28 12
Operating lease right-of-use asset 105 — Other assets 79 79
Total assets $ 13,962 $ 12,895
LIABILITIES Debt $
6,197 $ 5,214 Base management fees payable 49 45 Income based fees
payable 38 36 Capital gains incentive fees payable 64 112 Interest
and facility fees payable 25 64 Payable for open trades 35 25
Operating lease liabilities 137 — Accounts payable and other
liabilities 78 99 Total liabilities 6,623 5,595
STOCKHOLDERS’ EQUITY
Common stock, par value $0.001 per share,
600 common shares authorized; 426 and 426 common shares issued and
outstanding, respectively
— — Capital in excess of par value 7,177 7,173 Accumulated
undistributed earnings 162 127 Total stockholders’ equity
7,339 7,300 Total liabilities and stockholders’ equity $
13,962 $ 12,895
NET ASSETS PER SHARE $ 17.21 $
17.12
ARES CAPITAL CORPORATION AND
SUBSIDIARIESCONSOLIDATED STATEMENT OF OPERATIONS(in
millions, except per share data)(unaudited)
For the Three Months EndedMarch
31,
2019 2018 INVESTMENT
INCOME Interest income from investments $ 289 $ 254 Capital
structuring service fees 45 29 Dividend income 31 22 Other income 8
12 Total investment income 373 317
EXPENSES Interest and credit facility fees 67 60 Base
management fees 49 46 Income based fees 48 38 Capital gains
incentive fees 2 20 Administrative fees 4 3 Other general and
administrative 8 11 Total expenses 178 178 Waiver of
income based fees (10 ) (10 ) Total expenses, net of waiver of
income based fees 168 168 NET INVESTMENT INCOME
BEFORE INCOME TAXES 205 149 Income tax expense, including excise
tax 4 5 NET INVESTMENT INCOME 201 144
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS, FOREIGN
CURRENCY AND OTHER TRANSACTIONS: Net realized gains (losses) 56 (12
) Net unrealized gains (losses) (43 ) 110 Net realized and
unrealized gains on investments, foreign currency and other
transactions 13 98 NET INCREASE IN STOCKHOLDERS’
EQUITY RESULTING FROM OPERATIONS $ 214 $ 242 BASIC
AND DILUTED EARNINGS PER COMMON SHARE $ 0.50 $ 0.57
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING - BASIC AND
DILUTED 426 426
SCHEDULE 1
Reconciliations of basic and diluted Core
EPS to basic and diluted GAAP EPS
Reconciliations of basic and diluted Core EPS to basic and
diluted GAAP EPS, the most directly comparable GAAP financial
measure, for the three months ended March 31, 2019 and 2018 are
provided below.
For the Three Months Ended March 31,
2019 2018 (unaudited)
(unaudited) Basic and diluted Core EPS(1) $ 0.48 $ 0.38 Net
realized and unrealized gains 0.03 0.23 Capital gains incentive
fees attributable to net realized and unrealized gains and losses
(0.01 ) (0.04 ) Income tax expense related to net realized gains
and losses — — Basic and diluted GAAP EPS $ 0.50
$ 0.57
__________________________________________________
(1) Basic and diluted Core EPS is a non-GAAP financial measure.
Core EPS is the net per share increase (decrease) in stockholders’
equity resulting from operations less net realized and unrealized
gains and losses, any capital gains incentive fees attributable to
such net realized and unrealized gains and losses and any income
taxes related to such net realized gains and losses. Basic and
diluted GAAP EPS is the most directly comparable GAAP financial
measure. Ares Capital believes that Core EPS provides useful
information to investors regarding financial performance because it
is one method Ares Capital uses to measure its financial condition
and results of operations. The presentation of this additional
information is not meant to be considered in isolation or as a
substitute for financial results prepared in accordance with
GAAP.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190430005353/en/
INVESTOR RELATIONS
Ares Capital CorporationCarl G. Drake or John Stilmar(888)
818-5298irarcc@aresmgmt.com
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