Building SDLP

In June 2015, Ares Capital (ARCC) established a new joint venture, the Senior Direct Lending Program (or SDLP), as a transition from the Senior Secured Loan Program (or SSLP) with GE Capital. The company is trying to scale the program in order to take advantage of capital availability as well as multiple deployments under one umbrella. The program will invest and underwrite for first lien loans, including stretch senior and unitranche loans originated by Ares Capital and Varagon.

Ares Capital Puts Capital Availability, Deployments in One Place

In the current quarter until July 2016, Ares Capital made 46% of its new investment commitments into SDLP.

Shifting portfolio

SDLP portfolio investments stand at $926 million and was comprised of ten first lien senior secured loans to US mid-sized companies. These have been built on the back of deployments from Ares Capital as well as Varagon. Rises in EPS (earnings per share) for Ares Capital’s peers in the investment management space are as follows:

  • CIT Group (CIT): 26.7%
  • American Capital (ACAS): 143%
  • United Rentals (URI): 17.9%

Together, these companies form 0.03% of the SPDR S&P 500 ETF (SPY).

Varagon has been an active syndication partner with Ares Capital since the inception of the program. New commitments and the shifting of existing first lien portfolios toward SDLP are contributing to building up the program. The SDLP joint venture is modeled after SSLP. The company expects investments in SDLP to take a similar form and deliver similar returns over time.

Ares Capital can face higher exits in the short term due to shifting portfolios. However, over the long run, the company is well positioned to take advantage of its reach and capital availability.

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