Ares Capital Corporation, a Maryland corporation, is a specialty finance company that is a closed-end, non-diversified management investment company We have elected to be regulated as a business development company or a "BDC" under the Investment Company Act of 940, or the "Investment Company Act" We were founded on April 6, 2004, were initially funded on June 23, 2004 and completed our initial public offering on October 8, 2004 We are one of the largest BDCs with approximately $8 billion of total committed capital under management as of December 3, 2009, including available debt capacity (subject to leverage restrictions), funds co-managed by us and funds managed or sub-managed by our wholly owned portfolio company, Ivy Hill Asset Management, LP ("IHAM")
Ares Capital's investment objective is to generate both current income and capital appreciation through debt and equity investments We invest primarily in US middle-market companies, where we believe the supply of primary capital is limited and the investment opportunities are most attractive However, we may from time to time invest in larger companies In this Annual Report, we generally use the term "middle-market" to refer to companies with annual EBITDA between $0 million and $250 million EBITDA represents net income before net interest expense, income tax expense, depreciation and amortization .
On October 26, 2009, we entered into a definitive agreement (the "Merger Agreement") under which we have agreed, subject to the satisfaction of certain closing conditions, to acquire Allied Capital Corporation ("Allied Capital") in an all stock transaction, which we refer to as the "Allied Acquisition" We cannot assure you that the Allied Acquisition will be consummated as scheduled, or at all, and any investment decision you make should be made independent of the consummation of the Allied Acquisition See "Pending Allied Acquisition" elsewhere in this Annual Report for a description of the terms of the Allied Acquisition, "Risk Factors—Risks Relating to Our Business—We may fail to consummate the Allied Acquisition" for a description of the risks associated with a failure to consummate the Allied Acquisition and "Risk Factors—Risks Relating to a Consummation of the Allied Acquisition" for a description of the risks that the combined company may face if the Allied Acquisition is consummated .
We invest primarily in first and second lien senior loans and mezzanine debt, which in some cases includes an equity component like warrants First and second lien senior loans generally are senior debt instruments that rank ahead of subordinated debt of a given portfolio company These loans also have the benefit of security interests on the assets of the portfolio company, which may rank ahead of or be junior to other security interests Mezzanine debt is subordinated to senior loans and is generally unsecured Our investments have ranged between $0 million and $00 million each, although the investment sizes may be more or less than the targeted range Our investment sizes are expected to grow with our capital availability and, if completed, upon consummation of the Allied Acquisition To a lesser extent, we also make equity investments Each of our equity investments has generally been less than $20 million but may grow with our capital availability and are usually made in conjunction with loans we make to these portfolio companies .
The proportion of these investments will change over time given our views on, among other things, the economic and credit environment we are operating in In connection with our investing activities, we may make commitments with respect to indebtedness or securities of a potential portfolio company substantially in excess of our final investment In such situations, while we may initially agree to fund up to a certain dollar amount of an investment, we may syndicate a portion of such amount to third parties, such that we make a smaller investment than what was reflected in our original commitment .
The first and second lien senior loans generally have stated terms of three to 0 years and the mezzanine debt investments generally have stated terms of up to 0 years, but the expected average life of such first and second lien loans and mezzanine debt is generally between three and seven years However, we may invest in securities with any maturity or duration The debt that we invest in typically is not initially rated by any rating agency, but we believe that if such investments were rated, they would be below investment grade (rated lower than "Baa3" by Moody's Investors Service, lower than "BBB-" by Fitch Ratings or lower than "BBB-" by Standard & Poor's) We may invest without limit in debt of any rating, as well as debt that has not been rated by any nationally recognized statistical rating organization.
We believe that our investment adviser, Ares Capital Management LLC ("Ares Capital Management," the "Investment Adviser" or "investment adviser"), is able to leverage the current investment platform, resources and existing relationships of Ares Management LLC and its affiliated companies (other than portfolio companies of its affiliated funds, collectively, "Ares") with financial sponsors, financial institutions, hedge funds and other investment firms to provide us with attractive investments In addition to deal flow, the Ares investment platform assists our investment adviser in analyzing, structuring and monitoring investments Ares has been in existence for more than 2 years and its senior principals have an average of over 20 years experience investing in senior loans, high yield bonds, mezzanine debt and private equity securities The Company has access to the Ares staff of approximately 0 investment professionals and to over 50 administrative professionals employed by Ares who provide assistance in accounting, legal, compliance, operations, technology and investor relations. While our primary focus is to generate current income and capital appreciation through investments in first and second lien senior loans and mezzanine debt and, to a lesser extent, equity securities of eligible portfolio companies, we also may invest up to 30% of our portfolio in opportunistic investments of non-eligible portfolio companies Specifically, as part of this 30% basket, we may invest in debt of middle-market companies located outside of the United States, in investment funds that are operating pursuant to certain exceptions to the Investment Company Act, in advisers to similar investment funds and in debt and equity of public companies that do not meet the definition of eligible portfolio companies because their market capitalization of publicly traded equity securities exceeds the levels provided for in the Investment Company Act We expect that these public companies generally will have debt that may be non-investment grade From time to time we may also invest in high yield bonds, which, depending on the issuer, may or may not be included in this 30% basket.
In addition to making investments in the Ares Capital portfolio, our portfolio company, IHAM, manages three unconsolidated senior debt funds, Ivy Hill Middle Market Credit Fund, Ltd ("Ivy Hill I"), Ivy Hill Middle Market Credit Fund II, Ltd ("Ivy Hill II") and the Ivy Hill Senior Debt Fund, LP and related vehicles ("Ivy Hill SDF" and, together with Ivy Hill I and Ivy Hill II, the "Ivy Hill Funds") and serves as the sub-adviser/sub-manager to four others: CoLTS 2005- Ltd, CoLTS 2005-2 Ltd, CoLTS 2007- Ltd and FirstLight Financial Corporation, or "FirstLight" As of December 3, 2009, IHAM had total committed capital under management of over $23 billion.
Founded in 997, Ares is a global alternative asset manager and SEC registered investment adviser with approximately $33 billion of total committed capital and over 250 employees as of December 3, 2009.
Ares specializes in originating and managing assets in both the leveraged finance and private equity markets Ares' leveraged finance activities include the origination, acquisition and management of senior loans, high yield bonds, mezzanine debt and special situation investments Ares' private equity activities focus on providing flexible, junior capital to middle-market companies Ares has the ability to invest across a capital structure, from senior floating rate debt to common equity This flexibility, combined with Ares' "buy and hold" philosophy, enables Ares to structure an investment to meet the specific needs of a company rather than the less flexible demands of the public markets
Ares is comprised of the following groups:
Private Debt Group The Ares Private Debt Group manages the assets of Ares Capital and Ares' private debt middle market financing business in Europe, Ares Capital Europe The Private Debt Group focuses primarily on non-syndicated first and second lien senior loans and mezzanine debt, which in some cases may include an equity component The Private Debt Group also makes equity investments in private middle-market companies, usually in conjunction with loans.
Capital Markets Group The Ares Capital Markets Group manages a variety of funds and investment vehicles that managed approximately $8 billion of committed capital as of December 3, 2009, focusing primarily on syndicated senior secured loans, high yield bonds, distressed debt, other liquid fixed income investments and other publicly traded debt securities.
Private Equity Group The Ares Private Equity Group manages Ares Corporate Opportunities Fund LP, Ares Corporate Opportunities Fund II, LP and Ares Corporate Opportunities Fund III, LP (collectively referred to as "ACOF"), which together managed approximately $6 billion of committed capital as of December 3, 2009 ACOF generally makes private equity investments in amounts substantially larger than the private equity investments anticipated to be made by the Company In particular, the Private Equity Group generally focuses on control-oriented equity investments in under-capitalized companies or companies with capital structure issues.