Ares Capital reported GAAP net income of $277 million (or $0.65 per share), core EPS of $0.39 per share, net investment income of $165 million (or $0.39 per share), and net realized and unrealized gains of $112 million (or $0.26 per share) in Q2/20. As of June 30, 2020, Ares reported total assets of $14.5 billion, stockholders’ equity of $6.7 billion and net asset value per share of $15.83.
During the quarter, Ares Capital made $867 million in new investment commitments, of which $741 million were funded, including five new portfolio companies and 17 existing portfolio companies. As of June 30, 2020, 167 separate private equity sponsors were represented in Ares Capital’s portfolio. Of the $867 million in new commitments made during Q2/20, 69% were in first lien senior secured loans, 18% were in senior subordinated loans, 7% were in second lien senior secured loans, 3% were in other equity securities and 3% were in preferred equity securities. Of these commitments, 93% were in floating rate debt securities. 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. Ares Capital also funded $212 million related to previously existing unfunded revolving and delayed draw loan commitments in the quarter.
Significant new commitments in the quarter included:
- $327 million in a first lien senior secured loan of a medical device company
- $175 million in a subordinated loan and equity to Ivy Hill Asset Management (IHAM), Ares Capital’s wholly owned asset management services portfolio company
- $87 million in first lien senior secured delayed draw and term loans and a subordinated loan of an insurance broker
- $55 million in first lien senior secured revolving and term loans and equity of a software provider to the ready-mix concrete industry
- $31 million in a first lien senior secured revolving loan, second lien senior secured delayed draw and term loans and equity of a personal protection equipment and janitorial products provider
- $28 million in first lien senior secured revolving, delayed draw and term loans in a IT solutions provider to health insurers
Ares Capital also exited approximately $1.5 billion of investment commitments, including $747 million of loans sold to IHAM or certain vehicles managed by IHAM. Of the total investment commitments exited, 92% were first lien senior secured loans, 3% were second lien senior secured loans, 3% were senior subordinated loans and 2% were other equity securities. Of the approximately $1.5 billion of exited investment commitments, 94% were floating rate, 3% were fixed rate and 3% were non-income producing.
The fair value of Ares Capital’s portfolio investments at June 30, 2020 was $13.8 billion, including $12.3 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, 8% of other equity securities, 7% of senior subordinated 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) and 5% of preferred equity securities. As of June 30, 2020, the weighted average yield of debt and other income producing securities in Ares Capital’s portfolio at amortized cost and fair value was 8.9% and 9.3%, respectively, the weighted average yield on total investments in the portfolio at amortized cost and fair value was 7.7% and 8.3%, respectively, and 84% of the total investments at fair value were in floating rate securities.
“Despite the difficulty our economy is experiencing from the global pandemic, we delivered strong second quarter core and GAAP earnings with growth in our net asset value,” Kipp deVeer, CEO of Ares Capital, said. “Our portfolio of primarily defensive, high quality, upper middle market companies remains well positioned, and we believe that the broad capabilities of our team and our available liquidity will enable us to capitalize on the improving market environment for new investments.”
“Since the end of the first quarter, we have added $1 billion of debt capital commitments, further enhancing our funding profile and increasing our available capital to more than $4 billion,” Penni Roll, CFO of Ares Capital, said. “We believe that our strong capital base, which is primarily comprised of stockholders’ equity and unsecured term notes with no near term maturities, is a distinct competitive advantage for us in the current market environment.”
As of June 30, 2020, Ares Capital had $278 million in cash and cash equivalents and $7.5 billion in total aggregate principal amount of debt outstanding ($7.4 billion at carrying value). Subject to borrowing base and other restrictions, Ares Capital had approximately $3.2 billion available for additional borrowings under its existing credit facilities as of June 30, 2020.
In June 2020, Ares Capital, established through its wholly owned subsidiary, ARCC FB Funding LLC (AFB LLC), a revolving credit facility which allows AFB LLC to borrow up to an aggregate principal amount of $300 million at any one time outstanding. The obligations of AFB LLC under the facility are secured by all assets held by AFB LLC, including loans sold or transferred by Ares Capital to AFB LLC. The end of the reinvestment period and the stated maturity date for the facility are June 11, 2023 and June 11, 2025, respectively. The reinvestment period and final maturity date are both subject to a one-year extension by mutual agreement. Subject to certain exceptions, the interest charged on the facility is based on LIBOR (subject to a floor of 0.45%), or, if LIBOR is not available, a “base rate” (which is the greater of a prime rate and the federal funds rate plus 0.5%), plus a margin that generally ranges between 2.65% and 3.15% (depending on the types of loans such advances relate to), with a weighted average floor for all classes of advances of (i) 2.75% during the reinvestment period and (ii) 3.25% following the reinvestment period.
Ares Capital is a specialty finance company that provides debt and equity financing 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.