DIVIDEND DECLARATIONS
Ares Capital Corporation (“Ares Capital”) (NASDAQ: ARCC)
announced that its Board of Directors has declared a fourth quarter
dividend of $0.48 per share. The fourth quarter dividend is payable
on December 29, 2022 to stockholders of record as of December 15,
2022. The Board of Directors previously declared on February 9,
2022 an additional dividend of $0.03 per share, subject to the
satisfaction of certain Maryland law requirements, payable on
December 29, 2022 to stockholders of record as of December 15,
2022.
SEPTEMBER 30, 2022 FINANCIAL RESULTS
Ares Capital also announced financial results for its third
quarter ended September 30, 2022.
OPERATING RESULTS
Q3-22(1)
Q3-21(1)
(dollar amounts in millions, except per
share data)
Total Amount
Per Share
Total Amount
Per Share
Core EPS(3)
$
0.50
$
0.47
GAAP net income per share(2)(4)
$
0.21
$
0.73
Net investment income(2)
$
288
$
0.57
$
184
$
0.40
Net realized gains (losses)(2)
$
—
$
—
$
149
$
0.33
Net unrealized gains (losses)(2)
$
(184
)
$
(0.36
)
$
1
$
—
GAAP net income(2)(4)
$
104
$
0.21
$
334
$
0.73
Dividends declared and payable
$
0.46
(5)
$
0.41
As of
(dollar amounts in millions, except per
share data)
September 30, 2022
December 31, 2021
Portfolio investments at fair value
$
21,339
$
20,009
Total assets
$
22,038
$
20,843
Stockholders’ equity
$
9,436
$
8,868
Net assets per share
$
18.56
$
18.96
Debt/equity ratio
1.27x
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, 2022 and 2021
were approximately 503 million and 453 million, respectively.
(3)
Core EPS is a non-GAAP financial measure.
Core EPS is the net 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, divided by the basic
weighted average shares outstanding for the relevant period. Basic
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 Core EPS to the most
directly comparable GAAP financial measure are set forth in
Schedule 1 hereto.
(4)
In the first quarter of 2022, Ares Capital
adopted Accounting Standards Update (ASU) 2020-06, “Accounting for
Convertible Instruments and Contracts in an Entity’s Own Equity”
(“ASU 2020-06”), which requires the use of the if-converted method
when calculating the dilutive impact of outstanding convertible
notes on diluted earnings per share. As a result, Ares Capital’s
diluted GAAP net income per share for the three months ended
September 30, 2022 was $0.21. The weighted average shares
outstanding for purpose of calculating the diluted GAAP net income
per share for the three months ended September 30, 2022 was
approximately 523 million, which includes approximately 20 million
shares related to the assumed conversion of outstanding convertible
notes. Under the allowed modified retrospective method, diluted
GAAP net income per share for the prior period presented was not
restated to reflect the impact of ASU 2020-06. As such, diluted
GAAP net income per share amount for the prior period presented was
the same as the basic GAAP net income per share amount.
(5)
Includes an additional dividend of $0.03
per share paid in the third quarter ended September 30, 2022 to
stockholders of record as of September 15, 2022.
“Our third quarter core earnings increased 9% sequentially
driven by the benefits of rising interest rates and the continued
credit stability in our portfolio,” said Kipp deVeer, Chief
Executive Officer of Ares Capital. “With the prospects of continued
increases in interest rates coupled with the stability in our
portfolio and our strong capital position, we believe we will be in
a position to generate a higher level of core earnings for the
foreseeable future. Therefore, we are raising our regular quarterly
dividend by 12% to $0.48 per share, which represents our third
increase this year.”
“Our available capital and liquidity position continue to be an
important competitive advantage for the company,” said Penni Roll,
Chief Financial Officer of Ares Capital. “With low-cost unsecured
notes accounting for over 70% of our debt financing coupled with
limited near term debt maturities, we believe our balance sheet
strength positions us to perform well in the current market
environment.”
PORTFOLIO AND INVESTMENT ACTIVITY
(dollar amounts in millions)
Q3-22
Q3-21
Portfolio Activity During the Period:
Gross commitments
$
2,242
$
3,110
Exits of commitments
$
1,996
$
2,263
Portfolio Information:
As of
September 30, 2022
December 31, 2021
Portfolio investments at fair value
$
21,339
$
20,009
Fair value of accruing debt and other
income producing securities(6)
$
19,161
$
18,182
Number of portfolio company
investments
458
387
Percentage of floating rate securities at
fair value(7)
73
%
77
%
Weighted average yield on debt and other
income producing securities(8):
At amortized cost
10.7
%
8.7
%
At fair value
10.8
%
8.7
%
Weighted average yield on total
investments(9):
At amortized cost
9.6
%
7.9
%
At fair value
9.7
%
7.9
%
Asset class percentage at fair value
First lien senior secured loans
45
%
47
%
Second lien senior secured loans
18
%
23
%
Subordinated certificates of the SDLP
5
%
5
%
Senior subordinated loans
5
%
4
%
Preferred equity
10
%
8
%
Ivy Hill Asset Management, L.P.(10)
9
%
5
%
Other equity
8
%
8
%
____________________________________________
(6)
Including the fair value of Ares Capital’s
equity investment in Ivy Hill Asset Management, L.P. (“IHAM”)
(7)
Including Ares Capital's investment in the
subordinated certificates of the SDLP (as defined below).
(8)
Weighted average yield on 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 (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.
(9)
Weighted average yield on total
investments 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 (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.
(10)
Includes Ares Capital’s equity and
subordinated loan investments in IHAM, as applicable.
In the third quarter of 2022, Ares Capital made new investment
commitments of approximately $2.2 billion, including $342 million
of new investment commitments to IHAM, of which approximately $1.9
billion were funded. New investment commitments included 13 new
portfolio companies and 26 existing portfolio companies and one
additional portfolio company through the Senior Direct Lending
Program (the “SDLP”), through which Ares Capital co-invests with
Varagon Capital Partners (“Varagon”), and its clients, to fund
first lien senior secured loans. As of September 30, 2022, 224
separate private equity sponsors were represented in Ares Capital’s
portfolio. Of the $2.2 billion in new commitments made during the
third quarter of 2022, 62% were in first lien senior secured loans,
5% were in second lien senior secured loans, 4% were in were
subordinated certificates of the SDLP, 9% were in preferred equity,
15% were for Ares Capital’s investment in IHAM and 5% were in other
equity. Of these commitments, 81% were in floating rate debt
securities, of which 91% 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. Also in the third quarter of 2022, Ares
Capital funded approximately $212 million related to previously
existing unfunded revolving and delayed draw loan commitments.
Also in the third quarter of 2022, Ares Capital exited
approximately $2.0 billion of investment commitments, including
approximately $860 million of loans sold to IHAM or certain
vehicles managed by IHAM. Of the total investment commitments
exited, 70% were first lien senior secured loans, 17% were second
lien senior secured loans, 3% were preferred equity, 9% were Ares
Capital’s investment in IHAM and 1% were other equity. Of the
approximately $2.0 billion of exited investment commitments, 89%
were floating rate, 7% were on non-accrual status, 3% were fixed
rate and 1% were non-income producing.
As of September 30, 2022 and December 31, 2021, the weighted
average grade of the portfolio at fair value was 3.2 and 3.1,
respectively, and loans on non-accrual status represented 1.6% of
total investments at amortized cost (or 0.9% at fair value) and
0.8% at amortized cost (or 0.5% 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,
2022, filed with the Securities and Exchange Commission (“SEC”) on
October 25, 2022.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2022, Ares Capital had $257 million in cash
and cash equivalents and $11.9 billion in total aggregate principal
amount of debt outstanding ($11.8 billion at carrying value).
Subject to borrowing base and other restrictions, Ares Capital had
approximately $4.3 billion available for additional borrowings
under its existing credit facilities as of September 30, 2022.
During the three months ended September 30, 2022, Ares Capital
issued and sold approximately 2.8 million shares of common stock
under its equity distribution agreements, with net proceeds
totaling approximately $55.5 million, after giving effect to sales
agents’ commissions and certain offering expenses.
In August 2022, Ares Capital completed a public underwritten
equity offering pursuant to which Ares Capital sold 9.2 million
shares of common stock at a price of $19.00 per share to the
participating underwriters, with net proceeds totaling
approximately $174.4 million, after giving effect to offering
expenses.
THIRD QUARTER 2022 DIVIDEND PAID AND 2022 DECLARED ADDITIONAL
DIVIDENDS
On July 26, 2022, Ares Capital announced that its Board of
Directors declared a third quarter 2022 dividend of $0.43 per share
for a total of approximately $219 million. On February 9, 2022,
Ares Capital announced that its Board of Directors declared an
additional third quarter dividend of $0.03 per share for a total of
approximately $15 million. The third quarter dividends were paid on
September 30, 2022 to stockholders of record as of September 15,
2022.
On February 9, 2022, Ares Capital also announced that its Board
of Directors declared an additional dividend of $0.03 per share to
be distributed in the fourth quarter of 2022. The fourth quarter
2022 additional dividend of $0.03 per share will be payable on
December 29, 2022 to stockholders of record as of December 15,
2022. Payment of the additional December 29, 2022 dividend is
subject to the satisfaction of certain Maryland law
requirements.
RECENT DEVELOPMENTS
From October 1, 2022 through October 20, 2022, Ares Capital made
new investment commitments of approximately $1.1 billion, of which
$1.0 billion were funded. Of these new commitments, 68% were in
first lien senior secured loans, 31% were in second lien senior
secured loans and 1% were in other equity. Of the approximately
$1.1 billion of new 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 funded during the period at amortized cost was 11.0% and
the weighted average yield on total investments funded during the
period at amortized cost was 10.9%. 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, 2022 through October 20, 2022, Ares Capital
exited approximately $418 million of investment commitments,
including $6 million of loans sold to IHAM or certain vehicles
managed by IHAM. Of the total investment commitments exited, 77%
were first lien senior secured loans, 20% were preferred equity and
3% were second lien senior secured loans. Of the approximately $418
million of exited investment commitments, 80% were floating rate
and 20% were fixed rate. The weighted average yield of debt and
other income producing securities exited or repaid during the
period at amortized cost was 10.0% and the weighted average yield
on total investments exited or repaid during the period at
amortized cost was 10.0%. Of the approximately $418 million of
investment commitments exited from October 1, 2022 through October
20, 2022, Ares Capital recognized total net realized gains of
approximately $8 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 20, 2022, Ares Capital had an
investment backlog and pipeline of approximately $605 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 25, 2022 at 10:00 a.m. (Eastern Time) to discuss its
quarter ended September 30, 2022 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 (844) 200-6205.
International callers can access the conference call by dialing +1
(929) 526-1599. All callers will need to enter access code 275474.
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
8, 2022 at 5:00 p.m. (Eastern Time) to domestic callers by dialing
toll free +1 (866) 813-9403 and to international callers by dialing
+44 204 525 0658. For all replays, please reference access code
265938. An archived replay will also be available through November
8, 2022 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 leads to economic growth and employment. Ares Capital
believes its loans and other investments in these companies can
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 is the largest publicly
traded BDC by market capitalization as of September 30, 2022. 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, including the impact of rising interest rates in
response to inflation, the war in Russia and Ukraine and the
ongoing COVID-19 pandemic, which have resulted in significant
market volatility impacting our business, our portfolio companies,
our industry and the global economy. 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, 2022
December 31, 2021
(unaudited)
ASSETS
Total investments at fair value (amortized
cost of $21,469 and $19,810, respectively)
$
21,339
$
20,009
Cash and cash equivalents
257
372
Restricted cash
105
114
Interest receivable
160
142
Receivable for open trades
21
80
Other assets
135
99
Operating lease right-of-use asset
21
27
Total assets
$
22,038
$
20,843
LIABILITIES
Debt
$
11,816
$
11,020
Base management fees payable
78
69
Income based fees payable
63
67
Capital gains incentive fees payable
72
161
Interest and facility fees payable
76
100
Payable to participants
105
114
Payable for open trades
141
216
Accounts payable and other liabilities
139
111
Secured borrowings
79
74
Operating lease liabilities
33
43
Total liabilities
12,602
11,975
STOCKHOLDERS’ EQUITY
Common stock, par value $0.001 per share,
700 and 600 common shares authorized, respectively; 508 and 468
common shares issued and outstanding, respectively
—
—
Capital in excess of par value
9,370
8,553
Accumulated undistributed earnings
66
315
Total stockholders’ equity
9,436
8,868
Total liabilities and stockholders’
equity
$
22,038
$
20,843
NET ASSETS PER SHARE
$
18.56
$
18.96
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,
2022
2021
2022
2021
INVESTMENT INCOME
Interest income from investments
$
385
$
317
$
1,014
$
911
Dividend income
107
54
314
158
Capital structuring service fees
32
59
94
190
Other income
13
12
34
32
Total investment income
537
442
1,456
1,291
EXPENSES
Interest and credit facility fees
120
94
314
267
Base management fees
78
65
226
184
Income based fees
63
53
171
158
Capital gains incentive fees
(37
)
30
(64
)
133
Administrative fees
3
4
9
11
Other general and administrative
8
7
20
18
Total expenses
235
253
676
771
NET INVESTMENT INCOME BEFORE INCOME
TAXES
302
189
780
520
Income tax expense, including excise
tax
14
5
37
21
NET INVESTMENT INCOME
288
184
743
499
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS, FOREIGN CURRENCY AND OTHER TRANSACTIONS:
Net realized gains
—
149
55
267
Net unrealized gains (losses)
(184
)
1
(324
)
462
Net realized and unrealized gains (losses)
on investments, foreign currency and other transactions
(184
)
150
(269
)
729
REALIZED LOSS ON EXTINGUISHMENT OF
DEBT
—
—
(48
)
(43
)
NET INCREASE IN STOCKHOLDERS’ EQUITY
RESULTING FROM OPERATIONS
$
104
$
334
$
426
$
1,185
NET INCOME PER COMMON SHARE:
Basic
$
0.21
$
0.73
$
0.86
$
2.68
Diluted
$
0.21
$
0.73
$
0.86
$
2.68
WEIGHTED AVERAGE SHARES OF COMMON STOCK
OUTSTANDING:
Basic
503
453
492
441
Diluted
523
453
512
441
SCHEDULE 1
Reconciliations of Core EPS to basic GAAP
net income per share
Reconciliations of Core EPS to basic GAAP net income per share,
the most directly comparable GAAP financial measure, for the three
and nine months ended September 30, 2022 and 2021 are provided
below.
For the Three Months Ended
September 30,
For the Nine Months Ended
September 30,
2022
2021
2022
2021
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Core EPS(1)
$
0.50
$
0.47
$
1.39
$
1.43
Net realized and unrealized gains
(losses)(2)
(0.36
)
0.33
(0.65
)
1.55
Capital gains incentive fees attributable
to net realized and unrealized gains and losses(2)
0.07
(0.07
)
0.13
(0.30
)
Income tax expense related to net realized
gains and losses(2)
—
—
(0.01
)
—
GAAP net income per share(2)(3)
$
0.21
$
0.73
$
0.86
$
2.68
__________________________________________________
(1)
Core EPS is a non-GAAP financial measure.
Core EPS is the net 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, divided by the basic
weighted average shares outstanding for the relevant period. Basic
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.
(2)
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, 2022
were approximately 503 million and 492 million, respectively, and
approximately 453 million and 441 million, respectively, for the
comparable periods in 2021.
(3)
In the first quarter of 2022, Ares Capital
adopted ASU 2020-06, which requires the use of the if-converted
method when calculating the dilutive impact of outstanding
convertible notes on diluted earnings per share. As a result, Ares
Capital’s diluted GAAP net income per share for the three and nine
months ended September 30, 2022 was $0.21 and $0.86, respectively.
The weighted average shares outstanding for purpose of calculating
the diluted GAAP net income per share for the three and nine months
ended September 30, 2022 was 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. Under the allowed modified
retrospective method, diluted GAAP net income per share for the
prior periods presented were not restated to reflect the impact of
ASU 2020-06. As such, diluted GAAP net income per share amount for
the prior periods presented are the same as the basic GAAP net
income per share amount.
View source
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INVESTOR RELATIONS Ares Capital Corporation Carl G. Drake
or John Stilmar (888) 818-5298 irarcc@aresmgmt.com
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