Ares Capital’s Yields and Credit Statistics Fell in 3Q16

Credit statistics decline

Ares Capital’s (ARCC) portfolio totaled $8.8 billion at fair value as of September 30, 2016. Its total assets stood at $9.1 billion. The company’s corporate borrowers reported last-12-month EBITDA (earnings before interest, tax, depreciation, and amortization) growth of ~7%.

The company’s credit statistics fell sequentially as non-accrual loans rose in 3Q16. About 2.3% of the company’s portfolio was at cost compared to 2.6% at the end of 2015 and 1.3% in the previous quarter. 1.2% of the portfolio was at fair value on a non-accrual basis as of September 30, 2016.

Ares Capital’s Yields and Credit Statistics Fell in 3Q16

As of September 30, 2016, the weighted average yield on the company’s debt and other income-producing securities at amortized costs fell to 9.8% compared to 10.1% on December 31, 2015. The weighted average yield on total investments at amortized cost fell to 8.7% from 9.1% in the same timeframe.

Ares Capital posted revenue growth of 6.1% year-over-year amid volatile market conditions. Below are the year-over-year revenue increases of the company’s investment management peers:

  • Prospect Capital (PSEC): -13.2%
  • BlackRock Capital Investment (BKCC): 8.7%
  • KKR (KKR): -38.4%

Together, these companies form 6.0% of the PowerShares Global Listed Private Equity ETF (PSP).

ACAS acquisition

Ares Capital (ARCC) is working with American Capital (ACAS) in a bid to smoothly complete the acquisition. On May 23, 2016, Ares Capital signed a definitive agreement to acquire American Capital in a cash and stock transaction for a valuation of $4.0 billion. The acquisition will lead to consolidation of the closed-end fund industry. It will also help Ares Capital to expand its offerings and clientele, especially in the retail segment.

Ares Capital is funding the acquisition through $460.0 million in new debt commitments, which would bring the total commitments of the Revolving Credit Facility to $1.0 billion.