DIVIDEND DECLARATIONS
Ares Capital Corporation (“Ares Capital”) (NASDAQ: ARCC)
announced that its Board of Directors has declared a third quarter
2023 dividend of $0.48 per share. The third quarter 2023 dividend
is payable on September 29, 2023 to stockholders of record as of
September 15, 2023.
JUNE 30, 2023 FINANCIAL RESULTS
Ares Capital also announced financial results for its second
quarter ended June 30, 2023.
OPERATING RESULTS
Q2-23(1)
Q2-22(1)
(dollar amounts in millions, except per
share data)
Total Amount
Per Share
Total Amount
Per Share
GAAP net income per share(2)(3)
$
0.61
$
0.22
Core EPS(4)
$
0.58
$
0.46
Dividends declared and payable
$
0.48
$
0.45
(5)
Net investment income(2)
$
314
$
0.57
$
257
$
0.52
Net realized losses(2)
$
(81
)
$
(0.15
)
$
(3
)
$
(0.01
)
Net unrealized gains (losses)(2)
$
98
$
0.19
$
(143
)
$
(0.29
)
GAAP net income(2)(3)
$
331
$
0.61
$
111
$
0.22
As of
(dollar amounts in millions, except per
share data)
June 30, 2023
December 31, 2022
Portfolio investments at fair value
$
21,496
$
21,780
Total assets
$
22,231
$
22,398
Stockholders’ equity
$
10,354
$
9,555
Net assets per share
$
18.58
$
18.40
Debt/equity ratio
1.10x
1.29x
Debt/equity ratio, net of available
cash(6)
1.07x
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 June 30, 2023 and 2022 were
approximately 547 million and 494 million, respectively.
(3)
Ares Capital’s diluted GAAP net income per
share for the three months ended June 30, 2023 and 2022 was $0.59
and $0.22, respectively. The weighted average shares outstanding
for the purpose of calculating the diluted GAAP net income per
share for the three months ended June 30, 2023 and 2022 were
approximately 567 million and 514 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 June 30, 2022 to stockholders of record as of
June 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.
“We reported another strong quarter with year-over-year growth
in our GAAP and Core earnings per share driven by rising portfolio
yields, increased investment activity and continued stable credit
quality,” said Kipp deVeer, Chief Executive Officer of Ares
Capital. “We believe that our scale, relationships and deep
sourcing capabilities leave us well-positioned to capitalize on the
growing demand for flexible capital from the middle market.”
“Our strong balance sheet and liquidity enable us to take
advantage of the compelling investment opportunities currently
available and to further build upon our strong track record of
performance,” said Penni Roll, Chief Financial Officer of Ares
Capital. “To illustrate the consistency of our performance, this
quarter marks our 56th consecutive quarter where we have declared a
steady or increased regular quarterly dividend for our
shareholders.”
PORTFOLIO AND INVESTMENT ACTIVITY
(dollar amounts in millions)
Q2-23
Q2-22
Portfolio Activity During the Period:
Gross commitments
$
1,218
$
3,109
Exits of commitments
$
1,138
$
1,085
Portfolio Information:
As of
June 30, 2023
December 31, 2022
Portfolio investments at fair value
$
21,496
$
21,780
Fair value of accruing debt and other
income producing securities(7)
$
19,062
$
19,493
Number of portfolio company
investments
475
466
Percentage of floating rate securities at
fair value(8)
68
%
71
%
Weighted average yields on debt and other
income producing securities(9):
At amortized cost
12.2
%
11.6
%
At fair value
12.5
%
11.9
%
Weighted average yields on total
investments(10):
At amortized cost
11.0
%
10.5
%
At fair value
11.1
%
10.6
%
Asset class percentage at fair value
First lien senior secured loans
42
%
43
%
Second lien senior secured loans
18
%
18
%
Subordinated certificates of the SDLP
6
%
6
%
Senior subordinated loans
5
%
5
%
Preferred equity
10
%
9
%
Ivy Hill Asset Management, L.P.(11)
10
%
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 second quarter of 2023, Ares Capital made new investment
commitments of approximately $1.2 billion, of which approximately
$1.0 billion were funded. New investment commitments included 13
new portfolio companies and 33 existing portfolio companies. As of
June 30, 2023, 225 separate private equity sponsors were
represented in Ares Capital’s portfolio. Of the $1.2 billion in new
commitments made during the second quarter of 2023, 70% were in
first lien senior secured loans, 13% were in second lien senior
secured loans, 4% were in subordinated certificates of the Senior
Direct Lending Program (the “SDLP”), 7% were in preferred equity
and 6% were in other equity. Of these commitments, 73% were in
floating rate debt securities, of which 92% contained interest rate
floors and 6% 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 second quarter of
2023, Ares Capital funded approximately $315 million related to
previously existing unfunded revolving and delayed draw loan
commitments.
Also in the second quarter of 2023, Ares Capital exited
approximately $1.1 billion of investment commitments, including
approximately $39 million of loans sold to IHAM or certain vehicles
managed by IHAM. Of the total investment commitments exited, 54%
were first lien senior secured loans, 21% were second lien senior
secured loans, 15% were Ares Capital’s subordinated loan investment
in IHAM, 4% were subordinated certificates of the SDLP, 2% were
senior subordinated loans, 2% were preferred equity and 2% were
other equity. Of the approximately $1.1 billion of exited
investment commitments, 85% were floating rate, 10% were on
non-accrual status and 5% were non-income producing.
As of June 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 2.1% of the total
investments at amortized cost (or 1.1% 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 June 30, 2023,
filed with the Securities and Exchange Commission (“SEC”) on July
25, 2023.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2023, Ares Capital had $411 million in cash and
cash equivalents and $11.4 billion in total aggregate principal
amount of debt outstanding ($11.4 billion at carrying value).
Subject to borrowing base and other restrictions, Ares Capital had
approximately $4.4 billion available for additional borrowings
under its existing credit facilities as of June 30, 2023.
In April 2023, Ares Capital entered into an agreement to amend
its senior secured revolving credit facility (as amended, the
“Revolving Credit Facility”). The amendment, among other things,
(a) extended the expiration of the revolving period and maturity
date for lenders electing to extend their $2.9 billion of revolving
commitments to April 19, 2027 and April 19, 2028, respectively, and
(b) extended the stated maturity date for $908 million of the
lenders electing to extend their term loan commitments to April 19,
2028. The revolving periods and maturity dates for lenders who
elected not to extend their revolving commitments and term loan
commitments remain unchanged. For more information on the Revolving
Credit Facility, see “Part I—Item 1. Financial Statements—Note 5 in
Ares Capital’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2023, filed with the SEC on July 25, 2023.
In April 2023, Ares Capital and ARCC FB Funding LLC (“AFB”), a
wholly owned subsidiary of Ares Capital, entered into an agreement
to amend AFB’s revolving funding facility (the “BNP Funding
Facility”). The amendment, among other things, (a) increased the
commitments under the BNP Funding Facility from $500 million to
$790 million, (b) extended the end of the reinvestment period from
June 11, 2023 to April 20, 2026, (c) extended the stated maturity
date from June 11, 2025 to April 20, 2028 and (d) adjusted the
interest rate charged on the BNP Funding Facility from an
applicable SOFR or a "base rate" (as defined in the BNP Funding
Facility) plus a margin of (i) 2.30% during the reinvestment period
and (ii) 2.80% following the reinvestment period to an applicable
SOFR or a "base rate" plus a margin of (i) 2.80% during the
reinvestment period and (ii) 3.30% following the reinvestment
period.
In April 2023, Ares Capital’s board of directors authorized an
amendment to Ares Capital’s stock repurchase program to increase
the total authorized amount under the program from $500 million to
$1.0 billion. Under the stock repurchase program, Ares Capital may
repurchase up to $1.0 billion in the aggregate of its outstanding
common stock in the open market at a price per share that meets
certain thresholds below its net asset value per share, in
accordance with the guidelines specified in Rule 10b-18 under the
Securities Exchange Act of 1934, as amended. The timing, manner,
price and amount of any share repurchases will be determined by
Ares Capital, in its discretion, based upon the evaluation of
economic and market conditions, stock price, applicable legal and
regulatory requirements and other factors.
In April 2023, Ares Capital entered into separate equity
distribution agreements with several banks (the “Equity
Distribution Agreements”). During the three months ended June 30,
2023, Ares Capital issued and sold approximately 12.1 million
shares of common stock under the Equity Distribution Agreements,
with net proceeds totaling approximately $226.8 million, after
giving effect to sales agents’ commissions and certain estimated
offering expenses.
SECOND QUARTER 2023 DIVIDENDS PAID
On April 25, 2023, Ares Capital announced that its Board of
Directors declared a second quarter 2023 dividend of $0.48 per
share for a total of approximately $266 million. The second quarter
2023 dividend was paid on June 30, 2023 to stockholders of record
as of June 15, 2023.
RECENT DEVELOPMENTS
From July 1, 2023 through July 19, 2023, Ares Capital made new
investment commitments of approximately $211 million, of which $119
million were funded. Of these new commitments, 38% were in first
lien senior secured loans, 13% were in second lien senior secured
loans and 49% were in preferred equity. Of the approximately $211
million of new investment commitments, 51% were floating rate and
49% were fixed rate. The weighted average yield of debt and other
income producing securities funded during the period at amortized
cost was 11.3% and the weighted average yield on total investments
funded during the period at amortized cost was 11.3%. 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 July 1, 2023 through July 19, 2023, Ares Capital exited
approximately $118 million of investment commitments, including $4
million of loans sold to IHAM or certain vehicles managed by IHAM.
Of the total investment commitments exited, 47% were first lien
senior secured loans, 29% were investments in the SDLP
Certificates, 22% were preferred equity and 2% were second lien
senior secured loans. All of the approximately $118 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 13.5% and the
weighted average yield on total investments exited or repaid during
the period at amortized cost was 13.5%. Of the approximately $118
million of investment commitments exited from July 1, 2023 through
July 19, 2023, Ares Capital did not recognize any realized gains or
losses and there were no realized gains or losses recognized from
the sale of loans to IHAM or certain vehicles managed by IHAM.
In addition, as of July 19, 2023, Ares Capital had an investment
backlog and pipeline of approximately $425 million and $45 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 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,
July 25, 2023 at 11:00 a.m. (Eastern Time) to discuss its quarter
ended June 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 August 22, 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 13738840. An archived replay
will also be available through August 22, 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 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 was the largest publicly
traded BDC by market capitalization as of June 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
June 30, 2023
December 31, 2022
ASSETS
(unaudited)
Total investments at fair value (amortized
cost of $21,686 and $22,043, respectively)
$
21,496
$
21,780
Cash and cash equivalents
411
303
Restricted cash
42
34
Interest receivable
181
176
Receivable for open trades
5
4
Other assets
81
81
Operating lease right-of-use asset
15
20
Total assets
$
22,231
$
22,398
LIABILITIES
Debt
$
11,371
$
12,210
Base management fees payable
79
79
Income based fees payable
79
81
Capital gains incentive fees payable
33
35
Interest and facility fees payable
87
105
Payable to participants
42
34
Payable for open trades
6
22
Accounts payable and other liabilities
121
167
Secured borrowings
35
79
Operating lease liabilities
24
31
Total liabilities
11,877
12,843
STOCKHOLDERS’ EQUITY
Common stock, par value $0.001 per share,
1,000 and 700 common shares authorized, respectively; 557 and 519
common shares issued and outstanding, respectively
1
1
Capital in excess of par value
10,273
9,556
Accumulated undistributed
(overdistributed) earnings
80
(2
)
Total stockholders’ equity
10,354
9,555
Total liabilities and stockholders’
equity
$
22,231
$
22,398
NET ASSETS PER SHARE
$
18.58
$
18.40
ARES CAPITAL CORPORATION AND
SUBSIDIARIES
CONSOLIDATED STATEMENT OF
OPERATIONS
(in millions, except per share
data)
(unaudited)
For the Three Months Ended
June 30,
For the Six Months Ended June
30,
2023
2022
2023
2022
INVESTMENT INCOME
Interest income from investments
$
476
$
319
$
946
$
629
Capital structuring service fees
21
32
31
62
Dividend income
123
119
244
207
Other income
14
9
31
21
Total investment income
634
479
1,252
919
EXPENSES
Interest and credit facility fees
141
101
280
194
Base management fees
79
75
158
148
Income based fees
79
57
155
108
Capital gains incentive fees
4
(29
)
(2
)
(27
)
Administrative fees
3
2
6
6
Other general and administrative
8
6
15
12
Total expenses
314
212
612
441
NET INVESTMENT INCOME BEFORE INCOME
TAXES
320
267
640
478
Income tax expense, including excise
tax
6
10
8
23
NET INVESTMENT INCOME
314
257
632
455
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS, FOREIGN CURRENCY AND OTHER TRANSACTIONS:
Net realized (losses) gains
(81
)
(3
)
(131
)
55
Net unrealized gains (losses)
98
(143
)
108
(140
)
Net realized and unrealized gains (losses)
on investments, foreign currency and other transactions
17
(146
)
(23
)
(85
)
REALIZED LOSS ON EXTINGUISHMENT OF
DEBT
—
—
—
(48
)
NET INCREASE IN STOCKHOLDERS’ EQUITY
RESULTING FROM OPERATIONS
$
331
$
111
$
609
$
322
NET INCOME PER COMMON SHARE:
Basic
$
0.61
$
0.22
$
1.13
$
0.66
Diluted
$
0.59
$
0.22
$
1.10
$
0.65
WEIGHTED AVERAGE SHARES OF COMMON STOCK
OUTSTANDING:
Basic
547
494
541
487
Diluted
567
514
561
507
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
six months ended June 30, 2023 and 2022 are provided below.
For the Three Months Ended
June 30,
For the Six Months Ended June
30,
2023
2022
2023
2022
(unaudited)
(unaudited)
(unaudited)
(unaudited)
GAAP net income per share(1)(2)
$
0.61
$
0.22
$
1.13
$
0.66
Adjustments:
Net realized and unrealized (gains)
losses(1)
(0.04
)
0.30
0.04
0.27
Capital gains incentive fees attributable
to net realized and unrealized gains and losses(1)
0.01
(0.06
)
—
(0.06
)
Income tax expense (benefit) related to
net realized gains and losses(1)
—
—
(0.02
)
0.01
Core EPS(3)
$
0.58
$
0.46
$
1.15
$
0.88
__________________________________________________
(1)
All per share amounts and
weighted average shares outstanding are basic. The basic weighted
average shares outstanding for the three and six months ended June
30, 2023 were approximately 547 million and 541 million,
respectively, and approximately 494 million and 487 million,
respectively, for the comparable periods in 2022.
(2)
Ares Capital’s diluted GAAP net
income per share for the three and six months ended June 30, 2023
was $0.59 and $1.10, respectively, and $0.22 and $0.65,
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 six months
ended June 30, 2023 were approximately 567 million and 561 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 six months ended June 30, 2022 were approximately 514
million and 507 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/20230724431058/en/
INVESTOR RELATIONS CONTACTS Ares Capital Corporation Carl
Drake or John Stilmar (888) 818-5298 irarcc@aresmgmt.com
Ares Capital (NASDAQ:ARCC)
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