Item 2.02. Results of Operations and Financial Condition.
Public Offering
On January 12, 2022, Ares Capital
Corporation (the “Company”) filed a preliminary prospectus supplement (the “Preliminary Prospectus
Supplement”) with the Securities and Exchange Commission (the “SEC”) in connection with a proposed offering of
shares of its common stock. The Preliminary Prospectus Supplement included a summary of certain preliminary estimates regarding the
Company’s financial results for the quarter ended December 31, 2021 as well as certain other recent developments, which
are set forth below. The preliminary estimated data and other information set forth below should not be considered a substitute for
the financial information to be filed with the SEC in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2021 once it becomes available. These estimates are based on management's preliminary determination and have not been approved by our board of directors.
Preliminary Estimates of Results as of December 31, 2021
The Company estimates that basic and diluted GAAP
earnings per share (“EPS”) will be in the range of $0.77 to $0.86 and basic and diluted Core EPS will be in the range of $0.56
to $0.58, in each case, for the three months ended December 31, 2021 and net asset value per share as of December 31, 2021 will
be in the range of $18.90 to $19.00. These estimates are based on management’s preliminary determination and have not been approved by the Company’s board of directors.
Basic and diluted Core EPS is a non-GAAP financial
measure. Core EPS is the net per share increase (decrease) in stockholders’ equity resulting from operations less net realized and
unrealized gains and losses, any capital gains incentive fees attributable to such net realized and unrealized gains and losses and any
income taxes related to such net realized gains and losses. The Company believes that Core EPS provides useful information to investors
regarding financial performance because it is one method the Company uses to measure its financial condition and results of operations.
The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared
in accordance with GAAP.
A reconciliation of the Company’s estimated
basic and diluted Core EPS to the Company’s estimated and basic and diluted GAAP EPS, the most directly comparable GAAP financial
measure, for the three months ended December 31, 2021 is provided below:
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For the three months ended
December 31, 2021
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Range of estimated basic and diluted Core EPS
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$
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0.56 - 0.58
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Range of estimated net realized and unrealized gains (losses)
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0.26 - 0.35
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Range of estimated capital gains incentive fees attributed to net realized and unrealized gains and losses
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(0.05) - (0.07)
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Range of estimated income tax expense related to net realized gains and losses
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0.00 - 0.00
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Range of estimated basic and diluted GAAP EPS
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$
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0.77 - 0.86
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The estimates presented above are based on
management’s preliminary determinations only and, consequently, the data set forth in the Company’s Annual Report for
the year ended December 31, 2021 may differ from these estimates. For example,
estimated net asset value per share is based on the value of the Company’s total assets, including the Company’s investments
(substantially all of which are not publicly traded or whose market prices are not readily available, the fair value of which must
be determined by the Company’s board of directors in good faith). The fair value of such investments have not yet been
determined by the Company’s board of directors and the actual fair value of such investments, when determined by the
Company’s board of directors, may be different than the estimates reported herein. In addition, the information presented
above does not include all of the information regarding the Company’s financial condition and results of operations as of and
for the period ended December 31, 2021 that may be important to investors. As a result, investors are cautioned not to place
undue reliance on the information presented above and should view this information in the context of the Company’s full fourth
quarter results when such results are disclosed by the Company in its Annual Report for the year ended December 31, 2021. The
information presented above is based on current management expectations that involve substantial risk and uncertainties that could
cause actual results to differ materially from the results expressed in, or implied by, such information. The Company assumes no
duty to update these preliminary estimates except as required by law.
The preliminary financial estimates provided herein
have been prepared by, and are the responsibility of, management. Neither KPMG LLP, the Company’s independent registered accounting
firm, nor any other independent accountants, have audited, reviewed, compiled, or performed any procedures with respect to the accompanying
preliminary financial data. Accordingly, KPMG LLP does not express an opinion or any other form of assurance with respect thereto.
Other Recent Developments
From October 1, 2021
through December 29, 2021, the Company made new investment commitments of approximately $5.6 billion, including $296 million of new
investment commitments to IHAM. Of the approximately $5.6 billion of new investment commitments, $4.8 billion were funded. Of these new
commitments, 64% were in first lien senior secured loans, 16% were in second lien senior secured loans, 2% were in subordinated certificates
of the SDLP, 2% were in senior subordinated loans, 4% were in preferred equity and 12% were in other equity. Of the approximately $5.6
billion of new investment commitments, 83% were floating rate, 12% were non-income producing and 5% were fixed rate. The weighted average
yield of debt and other income producing securities funded during the period at amortized cost was 7.2% and the weighted average yield
on total investments funded during the period at amortized cost was 6.3%. The Company may seek to sell all or a portion of these new investment
commitments, although there can be no assurance that the Company will be able to do so.
From October 1, 2021
through December 29, 2021, the Company exited approximately $3.5 billion of investment commitments, including $1.3 billion of loans
sold to IHAM or certain vehicles managed by IHAM. Of the total investment commitments exited, 78% were first lien senior secured loans,
15% were second lien senior secured loans, 4% were senior subordinated loans, 2% were subordinated certificates of the SDLP and 1% were
other equity. Of the approximately $3.5 billion of exited investment commitments, 98% were floating rate, 1% were non-income producing
and 1% were on non-accrual status. The weighted average yield of debt and other income producing securities exited or repaid during the
period at amortized cost was 7.0% and the weighted average yield on total investments exited or repaid during the period at amortized
cost was 6.8%. Of the approximately $3.5 billion of investment commitments exited from October 1, 2021 through December 29,
2021, the Company recognized total net realized losses of approximately $11 million, including $3 million of net realized losses from
the sale of loans to IHAM or certain vehicles managed by IHAM.
In addition, as of December 29,
2021, the Company had an investment backlog and pipeline of approximately $1.0 billion and $29 million, respectively. Investment backlog
includes transactions approved by the Company’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 the Company believes are likely to close. Investment pipeine 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 the Company’s due diligence investigation of the prospective portfolio company, the Company’s acceptance
of the terms and structure of such investment and the execution and delivery of satisfactory transaction documentation. In addition, the
Company may sell all or a portion of these investments and certain of these investments may result in the repayment of existing investments.
The Company cannot assure you that it will make any of these investments or that it will sell all or any portion of these investments.
The information presented under Item 2.02 is being
“furnished” and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act
of 1934 and shall not be deemed incorporated by reference into any filing made under the Securities Act of 1933, except as may be expressly
set forth by specific reference in such a filing.
Item 7.01. Results of Operations and Financial Condition.
The information contained in Item 2.02 of this Current Report on Form 8-K is incorporated by reference herein.
The information presented under this Item
7.01 is being “furnished” and shall not be deemed to be “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934 and shall not be deemed incorporated by reference into any filing made under the Securities Act of
1933, except as may be expressly set forth by specific reference in such a filing.