Seeking Alpha
Debt, value, non-investment grade debt
Profile| Send Message|
( followers)  

Ares Capital (NASDAQ:ARCC), the largest Business Development Company (“BDC”) announced three new deals. For the press release, click here. Nominally the three loans add up to $110mn, but the amount funded is over $80mn. Two of the new facilities are senior secured loans and one is senior subordinated debt. It’s interesting that ARCC can find attractive deals in the senior secured levels.

In the past, the high cost structure and low leverage levels of the BDCs tended to push them into mostly investing in the subordinated tranches to make their target returns. This is one of the benefits of having capital when many other lenders are still on the sidelines. We noted that two of the deals are financing leveraged buy-outs, and one an acquisition, the “bread and butter” type of transactions for BDCs, but which have been less frequent during the recession and in this nascent recovery. No pricing was given.

How much of an impact these new deals will make on ARCC’s earnings remains to be seen. As we said earlier, we don’t know what the yield will be on these new loans. We don’t know what the offsetting run-off is on ARCC’s own portfolio. This was a major factor last quarter in keeping Ares from growing its asset base. Even subsequent to the quarter end Ares reported booking new deals worth $95mn, but admitted to repayments of $143mn. As of May 6th (when that was reported), the Company was running to stay in place. We’re waiting for the next quarterly report, which will include the Allied acquisition, to get a full picture of where Ares stands.

Disclosure: Author holds a long position in ARCC

Source: Ares Capital Adds New Loans: Impact Remains to Be Seen