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Nicholas Marshi
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Nicholas Marshi is the Chief Investment Officer of Southland Capital Management (SCM). The Company is a Registered Investment Adviser ("RIA") in Santa Monica, California. SCM's principal expertise is in the area of leveraged finance to U.S. private companies, with a focus on the... More
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BDC Reporter
  • Ares Capital Adding Capital To Risky JV With GE Capital 2 comments
    Jan 30, 2013 4:18 PM | about stocks: ARCC

    Today, BDC market leader Business Development Company ("BDC") Ares Capital announced an additional capital infusion into it's Joint Venture with lending behemoth GE Capital. Here's the text:

    "The Senior Secured Loan Program (Pending:SSLP), jointly managed by an affiliate of Ares Capital Corporation and an affiliate of GE Capital, announced today that its total available capital has increased from $7.7 billion to $9.0 billion. In connection with this expansion, GE Capital and an affiliate agreed to make available to the SSLP up to approximately $7.25 billion and Ares Capital agreed to make available to the SSLP up to approximately $1.75 billion.

    "We are excited about this new expansion of the SSLP which reflects the wide acceptance of our product and its significant advantages in today's competitive marketplace," commented Kipp deVeer, a Senior Partner of the Ares Management LLC Private Debt Group.

    "The SSLP continues to expand, allowing us to provide a compelling financing solution for private equity firms and management teams," said Timothy Lyne, Senior Managing Director of GE Antares Capital. "We look forward to using this additional capital to help our customers acquire and grow their businesses in 2013 and beyond."

    During the fourth quarter of 2012, SSLP closed eight financing commitments totaling approximately $1.3 billion, including four refinancing transactions of existing portfolio companies. In 2012, SSLP's commitments totaled approximately $3.2 billion, including loans to 10 new portfolio companies and 13 existing portfolio companies. Since January 1, 2010, the SSLP has committed approximately $9.1 billion to middle-market borrowers."

    If you want the full press release, which includes details on recent transactions, click here.

    BDC Reporter's Two Cents: We recognize that the decision to add further capital to the JV will boost Ares earnings in the short to medium run, as the assets earn the Company a low to mid teen yield.

    However, as we've pointed out in earlier articles, we're worried about what the structure of the JV and the additional commitment thereto , will mean when the economy turns and portfolio companies begin to default. The deal with GE is that Ares absorbs the lion's share of credit losses incurred. Moreover, the positions being taken are relatively high, so the risk of relatively large losses to Net Asset Value and to earnings.

    We also worry that the increased commitment to the JV will ultimately increase stock volatility. The institutional investors which own Ares, and who are likely to be the first to learn about trouble amongst the large cap borrowers that the JV specializes in, will be the first to jump out of the stock. Still, we may be-literally-years away from the rubber meeting the road.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: ARCC
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  • poclerk
    , contributor
    Comments (435) | Send Message
    Nicholas: I do not own ARCC common but I do have a small position in their exchange traded debt issue, symbol ARU. Sell or hold? Thanks
    31 Jan 2013, 06:17 AM Reply Like
  • Nicholas Marshi
    , contributor
    Comments (585) | Send Message
    Author’s reply » ARU is BBB rated, and has a 10 year maturitu, which is less exposed to interest rate risk. We own ARU too.
    31 Jan 2013, 03:59 PM Reply Like
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