DIVIDEND DECLARATIONS
Ares Capital Corporation (“Ares Capital”) (NASDAQ: ARCC)
announced that its Board of Directors has declared a fourth quarter
2023 dividend of $0.48 per share. The fourth quarter 2023 dividend
is payable on December 28, 2023 to stockholders of record as of
December 15, 2023.
SEPTEMBER 30, 2023 FINANCIAL RESULTS
Ares Capital also announced financial results for its third
quarter ended September 30, 2023.
OPERATING RESULTS
Q3-23(1)
Q3-22(1)
(dollar amounts in millions, except per
share data)
Total Amount
Per Share
Total Amount
Per Share
GAAP net income per share(2)(3)
$
0.89
$
0.21
Core EPS(4)
$
0.59
$
0.50
Dividends declared and payable
$
0.48
$
0.46
(5
)
Net investment income(2)
$
289
$
0.52
$
288
$
0.57
Net realized losses(2)
$
(76
)
$
(0.14
)
$
—
$
—
Net unrealized gains (losses)(2)
$
287
$
0.51
$
(184
)
$
(0.36
)
GAAP net income(2)(3)
$
500
$
0.89
$
104
$
0.21
As of
(dollar amounts in millions, except per
share data)
September 30, 2023
December 31, 2022
Portfolio investments at fair value
$ 21,929
$ 21,780
Total assets
$ 22,920
$ 22,398
Stockholders’ equity
$ 10,815
$ 9,555
Net assets per share
$ 18.99
$ 18.40
Debt/equity ratio
1.07x
1.29x
Debt/equity ratio, net of available
cash(6)
1.03x
1.26x
____________________________________________
(1)
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.
(2)
All per share amounts and weighted average
shares outstanding are basic. The basic weighted average shares
outstanding for the three months ended September 30, 2023 and 2022
were approximately 562 million and 503 million, respectively.
(3)
Ares Capital’s diluted GAAP net income per
share for the three months ended September 30, 2023 and 2022 was
$0.87 and $0.21, respectively. The weighted average shares
outstanding for the purpose of calculating the diluted GAAP net
income per share for the three months ended September 30, 2023 and
2022 were approximately 582 million and 523 million shares,
respectively, which includes approximately 20 million shares for
each period related to the assumed conversion of outstanding
convertible notes.
(4)
Core EPS is a non-GAAP financial measure.
Core EPS is the net increase (decrease) in stockholders’ equity
resulting from operations, and excludes 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, divided by the
basic weighted average shares outstanding for the relevant period.
GAAP net income (loss) per share 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 GAAP net income, the most
directly comparable GAAP financial measure, to Core EPS are set
forth in Schedule 1 hereto.
(5)
Includes an additional dividend of $0.03
per share paid on September 30, 2022 to stockholders of record as
of September 15, 2022.
(6)
Computed as total principal debt
outstanding less available cash divided by stockholders’ equity.
Available cash excludes restricted cash as well as cash held for
uses specifically designated for paying interest and expenses on
certain debt.
“Our strong performance continued into the third quarter with
year-over-year growth in both our GAAP and Core earnings per share
primarily reflecting the benefits of higher rates and continued
stable credit quality,” said Kipp deVeer, Chief Executive Officer
of Ares Capital. “Looking forward, the investing environment from a
risk/reward standpoint remains attractive and we believe that our
experience, scale and market coverage position us well to benefit
from current market dynamics.”
“During the third quarter, we raised more than $800 million of
new capital, including the issuance of unsecured notes, further
strengthening our liquidity profile,” said Penni Roll, Chief
Financial Officer of Ares Capital. “Our balance sheet remains a
source of strength with ample liquidity and low leverage at 1.03x
net debt to equity, which we believe positions us well to
capitalize on our distinct investing advantages in today’s
market.”
PORTFOLIO AND INVESTMENT ACTIVITY
(dollar amounts in millions)
Q3-23
Q3-22
Portfolio Activity During the Period:
Gross commitments
$
1,598
$
2,242
Exits of commitments
$
1,280
$
1,984
Portfolio Information:
As of
September 30, 2023
December 31, 2022
Portfolio investments at fair value
$
21,929
$
21,780
Fair value of accruing debt and other
income producing securities(7)
$
19,529
$
19,493
Number of portfolio company
investments
490
466
Percentage of floating rate securities at
fair value(8)
69
%
71
%
Weighted average yields on debt and other
income producing securities(9):
At amortized cost
12.4
%
11.6
%
At fair value
12.6
%
11.9
%
Weighted average yields on total
investments(10):
At amortized cost
11.2
%
10.5
%
At fair value
11.2
%
10.6
%
Asset class percentage at fair value
First lien senior secured loans
43
%
43
%
Second lien senior secured loans
17
%
18
%
Subordinated certificates of the SDLP
6
%
6
%
Senior subordinated loans
5
%
5
%
Preferred equity
11
%
9
%
Ivy Hill Asset Management, L.P.(11)
9
%
10
%
Other equity
9
%
9
%
____________________________________________
(7)
Including the fair value of Ares Capital’s
equity investment in Ivy Hill Asset Management, L.P. (“IHAM”).
(8)
Including Ares Capital's investment in the
subordinated certificates of the SDLP (as defined below).
(9)
Weighted average yields on debt and other
income producing securities are 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 (including the
annualized amount of the dividend received by Ares Capital related
to its equity investment in IHAM during the most recent quarter
end), divided by (b) the total accruing debt and other income
producing securities at amortized cost or at fair value (including
the amortized cost or fair value of Ares Capital’s equity
investment in IHAM as applicable), as applicable.
(10)
Weighted average yields on total
investments are 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 (including the annualized amount
of the dividend received by Ares Capital related to its equity
investment in IHAM during the most recent quarter end), divided by
(b) total investments at amortized cost or at fair value, as
applicable.
(11)
Includes Ares Capital’s subordinated loan
and equity investments in IHAM, as applicable.
In the third quarter of 2023, Ares Capital made new investment
commitments of approximately $1.6 billion, of which approximately
$1.2 billion were funded. New investment commitments included 20
new portfolio companies and 30 existing portfolio companies. As of
September 30, 2023, 228 separate private equity sponsors were
represented in Ares Capital’s portfolio. Of the $1.6 billion in new
commitments made during the third quarter of 2023, 70% were in
first lien senior secured loans, 2% were in second lien senior
secured loans, 1% were in subordinated certificates of the Senior
Direct Lending Program (the “SDLP”), 6% were in senior subordinated
loans, 8% were in Ares Capital’s subordinated loan in IHAM, 11%
were in preferred equity and 2% were in other equity. Of these
commitments, 84% were in floating rate debt securities, of which
71% contained interest rate floors and 1% were in the subordinated
certificates of the SDLP. 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. Also in the
third quarter of 2023, Ares Capital funded approximately $241
million related to previously existing unfunded revolving and
delayed draw loan commitments.
Also in the third quarter of 2023, Ares Capital exited
approximately $1.3 billion of investment commitments, including
approximately $151 million of loans sold to IHAM or certain
vehicles managed by IHAM. Of the total investment commitments
exited, 48% were first lien senior secured loans, 21% were Ares
Capital’s subordinated loan investment in IHAM, 14% were second
lien senior secured loans, 9% were senior subordinated loans, 3%
were subordinated certificates of the SDLP, 3% were preferred
equity and 2% were other equity. Of the approximately $1.3 billion
of exited investment commitments, 78% were floating rate, 9% were
fixed rate, 11% were on non-accrual status and 2% were non-income
producing.
As of September 30, 2023 and December 31, 2022, the weighted
average grade of the portfolio at fair value was 3.1 and 3.2,
respectively, and loans on non-accrual status represented 1.2% 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. For
more information on Ares Capital’s portfolio investment grades and
loans on non-accrual status, see “Part I—Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations—Portfolio and Investment Activity” in Ares Capital’s
Quarterly Report on Form 10-Q for the quarter ended September 30,
2023, filed with the Securities and Exchange Commission (“SEC”) on
October 24, 2023.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2023, Ares Capital had $527 million in cash
and cash equivalents and $11.6 billion in total aggregate principal
amount of debt outstanding ($11.5 billion at carrying value).
Subject to borrowing base and other restrictions, Ares Capital had
approximately $4.8 billion available for additional borrowings
under its existing credit facilities as of September 30, 2023.
During the three months ended September 30, 2023, Ares Capital
issued and sold approximately 11.1 million shares of common stock
under its equity distribution agreements, with net proceeds
totaling approximately $214 million, after giving effect to sales
agents’ commissions and certain estimated offering expenses.
In August 2023, Ares Capital issued $600 million in aggregate
principal amount of unsecured notes, which bear interest at a rate
of 7.000% per annum and mature on January 15, 2027 (the “January
2027 Notes”). The January 2027 Notes pay interest semi-annually and
all principal is due upon maturity. The January 2027 Notes may be
redeemed in whole or in part at any time at Ares Capital’s option
at the redemption price determined pursuant to the indenture
governing the January 2027 Notes, plus any accrued and unpaid
interest. In connection with the issuance of the January 2027
Notes, Ares Capital entered into an interest rate swap agreement
for a total notional amount of $600 million that matures on January
15, 2027. Under the interest rate swap agreement, Ares Capital will
receive fixed rate interest at 7.000% and pay floating rate
interest based on one-month Secured Overnight Financing Rate plus
2.585%.
THIRD QUARTER 2023 DIVIDENDS PAID
On July 25, 2023, Ares Capital announced that its Board of
Directors declared a third quarter 2023 dividend of $0.48 per share
for a total of approximately $271 million. The third quarter 2023
dividend was paid on September 29, 2023 to stockholders of record
as of September 15, 2023.
RECENT DEVELOPMENTS
From October 1, 2023 through October 18, 2023, Ares Capital made
new investment commitments of approximately $410 million, of which
$297 million were funded. Of these new investment commitments, 97%
were in first lien senior secured loans, 2% were in preferred
equity and 1% was in other equity. Of the approximately $410
million of new investment commitments, 97% were floating rate, 2%
were fixed rate and 1% was non-incoming producing. The weighted
average yield of debt and other income producing securities funded
during the period at amortized cost was 11.5% and the weighted
average yield on total investments funded during the period at
amortized cost was 11.2%. 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 October 1, 2023 through October 18, 2023, Ares Capital
exited approximately $158 million of investment commitments,
including approximately $4 million of loans sold to IHAM or certain
vehicles managed by IHAM. Of the investment commitments exited, 93%
were first lien senior secured loans, 4% were subordinated
certificates of the SDLP and 3% were Ares Capital's subordinated
loan investment in IHAM. All of the approximately $158 million of
exited investment commitments were floating rate. The weighted
average yield of debt and other income producing securities exited
or repaid during the period at amortized cost was 11.6% and the
weighted average yield on total investments exited or repaid during
the period at amortized cost was 11.6%. Of the approximately $158
million of investment commitments exited from October 1, 2023
through October 18, 2023, Ares Capital recognized total net
realized gains of approximately $1 million, with no realized gains
or losses recognized from the sale of loans to IHAM or certain
vehicles managed by IHAM.
In addition, as of October 18, 2023, Ares Capital had an
investment backlog and pipeline of approximately $820 million and
$0, 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 Ares Capital 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.
WEBCAST / CONFERENCE CALL
Ares Capital will host a webcast/conference call on Tuesday,
October 24, 2023 at 12:00 p.m. (Eastern Time) to discuss its
quarter ended September 30, 2023 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 toll free by dialing +1 (877) 407-0312.
International callers can access the conference call by dialing +1
(201) 389-0899. 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 November 21, 2023 at 5:00 p.m. (Eastern Time) to domestic
callers by dialing toll free +1 (877) 660-6853 and to international
callers by dialing +1 (201) 612-7415. For all replays, please
reference access code 13740714. An archived replay will also be
available through November 21, 2023 on a webcast link located on
the Home page of the Investor Resources section of Ares Capital’s
website.
ABOUT ARES CAPITAL CORPORATION
Founded in 2004, Ares Capital is a leading specialty finance
company focused on providing direct loans and other investments in
private middle market companies in the United States. Ares
Capital’s objective is to source and invest in high-quality
borrowers that need capital to achieve their business goals, which
often times can lead to economic growth and employment. Ares
Capital believes its loans and other investments in these companies
can help generate attractive levels of current income and potential
capital appreciation for investors. Ares Capital, through its
investment manager, utilizes its extensive, direct origination
capabilities and incumbent borrower relationships to source and
underwrite predominantly senior secured loans but also subordinated
debt and equity investments. Ares Capital has elected to be
regulated as a business development company (“BDC”) and was the
largest publicly traded BDC by market capitalization as of
September 30, 2023. Ares Capital is externally managed by a
subsidiary of Ares Management Corporation (NYSE: ARES), a publicly
traded, leading global alternative investment manager. For more
information about Ares Capital, visit www.arescapitalcorp.com.
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 SEC. Ares Capital undertakes no
duty to update any forward-looking statements made herein or on the
webcast/conference call.
ARES CAPITAL CORPORATION AND
SUBSIDIARIES CONSOLIDATED BALANCE SHEET (in millions,
except per share data)
As of
September 30, 2023
December 31, 2022
ASSETS
(unaudited)
Total investments at fair value (amortized
cost of $21,864 and $22,043, respectively)
$
21,929
$
21,780
Cash and cash equivalents
527
303
Restricted cash
78
34
Interest receivable
215
176
Receivable for open trades
44
4
Other assets
114
81
Operating lease right-of-use asset
13
20
Total assets
$
22,920
$
22,398
LIABILITIES
Debt
$
11,517
$
12,210
Base management fees payable
81
79
Income based fees payable
83
81
Capital gains incentive fees payable
75
35
Interest and facility fees payable
85
105
Payable to participants
77
34
Payable for open trades
1
22
Accounts payable and other liabilities
132
167
Secured borrowings
34
79
Operating lease liabilities
20
31
Total liabilities
12,105
12,843
STOCKHOLDERS’ EQUITY
Common stock, par value $0.001 per share,
1,000 and 700 common shares authorized, respectively; 569 and 519
common shares issued and outstanding, respectively
1
1
Capital in excess of par value
10,505
9,556
Accumulated undistributed
(overdistributed) earnings
309
(2
)
Total stockholders’ equity
10,815
9,555
Total liabilities and stockholders’
equity
$
22,920
$
22,398
NET ASSETS PER SHARE
$
18.99
$
18.40
ARES CAPITAL CORPORATION AND
SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (in
millions, except per share data) (unaudited)
For the Three Months Ended
September 30,
For the Nine Months Ended
September 30,
2023
2022
2023
2022
INVESTMENT INCOME
Interest income from investments
$
495
$
385
$
1,441
$
1,014
Capital structuring service fees
20
32
51
94
Dividend income
128
107
372
314
Other income
12
13
43
34
Total investment income
655
537
1,907
1,456
EXPENSES
Interest and credit facility fees
145
120
425
314
Base management fees
81
78
239
226
Income based fees
83
63
238
171
Capital gains incentive fees
42
(37
)
40
(64
)
Administrative fees
4
3
10
9
Other general and administrative
8
8
23
20
Total expenses
363
235
975
676
NET INVESTMENT INCOME BEFORE INCOME
TAXES
292
302
932
780
Income tax expense, including excise
tax
3
14
11
37
NET INVESTMENT INCOME
289
288
921
743
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS, FOREIGN CURRENCY AND OTHER TRANSACTIONS:
Net realized (losses) gains
(76
)
—
(207
)
55
Net unrealized gains (losses)
287
(184
)
395
(324
)
Net realized and unrealized gains (losses)
on investments, foreign currency and other transactions
211
(184
)
188
(269
)
REALIZED LOSS ON EXTINGUISHMENT OF
DEBT
—
—
—
(48
)
NET INCREASE IN STOCKHOLDERS’ EQUITY
RESULTING FROM OPERATIONS
$
500
$
104
$
1,109
$
426
NET INCOME PER COMMON SHARE:
Basic
$
0.89
$
0.21
$
2.03
$
0.86
Diluted
$
0.87
$
0.21
$
1.98
$
0.86
WEIGHTED AVERAGE SHARES OF COMMON STOCK
OUTSTANDING:
Basic
562
503
548
492
Diluted
582
523
568
512
SCHEDULE 1
Reconciliations of GAAP net income per share
to Core EPS
Reconciliations of GAAP net income per share, the most directly
comparable GAAP financial measure, to Core EPS for the three and
nine months ended September 30, 2023 and 2022 are provided
below.
For the Three Months Ended
September 30,
For the Nine Months Ended
September 30,
2023
2022
2023
2022
(unaudited)
(unaudited)
(unaudited)
(unaudited)
GAAP net income per share(1)(2)
$
0.89
$
0.21
$
2.03
$
0.86
Adjustments:
Net realized and unrealized (gains)
losses(1)
(0.37
)
0.36
(0.35
)
0.65
Capital gains incentive fees attributable
to net realized and unrealized gains and losses(1)
0.07
(0.07
)
0.08
(0.13
)
Income tax expense (benefit) related to
net realized gains and losses(1)
—
—
(0.02
)
0.01
Core EPS(3)
$
0.59
$
0.50
$
1.74
$
1.39
__________________________________________________
(1)
All per share amounts and weighted average
shares outstanding are basic. The basic weighted average shares
outstanding for the three and nine months ended September 30, 2023
were approximately 562 million and 548 million, respectively, and
approximately 503 million and 492 million, respectively, for the
comparable periods in 2022.
(2)
Ares Capital’s diluted GAAP net income per
share for the three and nine months ended September 30, 2023 was
$0.87 and $1.98, respectively, and $0.21 and $0.86, respectively,
for the comparable periods in 2022. The weighted average shares
outstanding for the purpose of calculating the diluted GAAP net
income per share for the three and nine months ended September 30,
2023 were approximately 582 million and 568 million, respectively,
which includes approximately 20 million shares for each period
related to the assumed conversion of outstanding convertible notes.
The weighted average shares outstanding for the purpose of
calculating the diluted GAAP net income per share for the three and
nine months ended September 30, 2022 were approximately 523 million
and 512 million, respectively, which includes approximately 20
million shares for each period related to the assumed conversion of
outstanding convertible notes.
(3)
Core EPS is a non-GAAP financial measure.
Core EPS is the net increase (decrease) in stockholders’ equity
resulting from operations, and excludes 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, divided by the
basic weighted average shares outstanding for the relevant period.
GAAP net income (loss) per share 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/20231023501381/en/
INVESTOR RELATIONS Ares Capital Corporation Carl Drake or
John Stilmar (888) 818-5298 irarcc@aresmgmt.com
Ares Capital (NASDAQ:ARCC)
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