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
| Per
| Total
| Per
| |||||||||||||
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 | ||||
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(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 | % | ||||
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(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 | ||||||
