Ares Capital Corporation Announces December 31, 2020 Financial Results

2/10/21

NEW YORK--(BUSINESS WIRE)--Ares Capital Corporation (NASDAQ: ARCC) announced that its Board of Directors has declared a first quarter dividend of $0.40 per share. The first quarter dividend is payable on March 31, 2021 to stockholders of record as of March 15, 2021.

DECEMBER 31, 2020 FINANCIAL RESULTS

Ares Capital also announced financial results for its fourth quarter and year ended December 31, 2020.

HIGHLIGHTS

Financial

Q4-20

Q4-19

FY-20

FY-19

(dollar amounts in millions, except per share data)

Total Amount

Per Share(1)

Total Amount

Per Share(1)

Total Amount

Per Share(1)

Total Amount

Per Share(1)

Core EPS(2)

$

0.54

$

0.45

$

1.74

$

1.89

GAAP net income per share

$

0.89

$

0.48

$

1.14

$

1.86

Net investment income

$

229

$

0.54

$

190

$

0.44

794

$

1.87

$

811

$

1.90

Net realized gains (losses)

$

(183)

$

(0.43)

$

(79)

$

(0.18)

(166)

$

(0.39)

$

(65)

$

(0.15)

Net unrealized gains (losses)

$

332

$

0.78

$

93

$

0.22

(144)

$

(0.34)

$

47

$

0.11

GAAP net income

$

378

$

0.89

$

204

$

0.48

$

484

$

1.14

$

793

$

1.86

Dividends declared and payable

$

0.40

$

0.42

(3)

$

1.60

$

1.68

(4)

As of

(dollar amounts in millions, except per share data)

December 31, 2020

December 31, 2019

Portfolio investments at fair value

$

15,515

$

14,426

Total assets

$

16,196

$

14,905

Stockholders’ equity

$

7,176

$

7,467

Net assets per share

$

16.97

$

17.32

Debt/equity ratio

1.20x

0.95x

________________________________________

(1)

All per share amounts are basic and diluted.

(2)

Basic and diluted Core EPS is a non-GAAP financial measure. Core EPS is the net per share increase (decrease) in stockholders’ equity resulting from operations less 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. Basic and diluted GAAP net income 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 basic and diluted Core EPS to the most directly comparable GAAP financial measure are set forth in Schedule 1 hereto.

(3)

Includes an additional dividend of $0.02 per share paid in the fourth quarter ended December 31, 2019.

(4)

Includes additional dividends of $0.08 per share in the aggregate paid in the year ended

December 31, 2019.

Portfolio Activity

(dollar amounts in millions)

Q4-20

Q4-19

FY-20

FY-19

Portfolio Activity During the Period:

Gross commitments

$

3,858

$

1,608

$

6,703

$

7,261

Exits of commitments

$

3,032

$

1,224

$

5,786

$

5,350

Portfolio as of the End of the Period:

Number of portfolio company investments

350

354

Weighted average yield of debt and other income producing securities(5):

At amortized cost

9.1

%

9.6

%

At fair value

9.2

%

9.7

%

Weighted average yield on total investments(6):

At amortized cost

8.0

%

8.6

%

At fair value

8.2

%

8.7

%

___________________________________________

(5)

Weighted average yield of debt and other income producing securities is 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 divided by (b) the total accruing debt and other income producing securities at amortized cost or at fair value as applicable.

(6)

Weighted average yield on total investments is calculated 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 divided by (b) the total investments at amortized cost or at fair value as applicable.

FOURTH QUARTER 2020 OPERATING RESULTS

For the fourth quarter of 2020, Ares Capital reported GAAP net income of $378 million or $0.89 per share (basic and diluted), Core EPS(2) of $0.54 per share (basic and diluted), net investment income of $229 million or $0.54 per share (basic and diluted), and net realized and unrealized gains of $149 million or $0.35 per share (basic and diluted).

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.

As of December 31, 2020, total assets were $16.2 billion, stockholders’ equity was $7.2 billion and net asset value per share was $16.97.

In the fourth quarter of 2020, Ares Capital made $3.9 billion in new investment commitments, of which $3.1 billion were funded, including 20 new portfolio companies, 38 existing portfolio companies and one additional portfolio company through the Senior Direct Lending Program, LLC (the “SDLP”), through which Ares Capital co-invests with Varagon Capital Partners (“Varagon”) and its clients to fund first lien senior secured loans. As of December 31, 2020, 172 separate private equity sponsors were represented in Ares Capital’s portfolio. Of the $3.9 billion in new commitments made during the fourth quarter of 2020, 74% were in first lien senior secured loans, 14% were in second lien senior secured loans, 7% were in the subordinated certificates of the SDLP, 3% were in preferred equity securities and 2% were in other equity securities. Of these commitments, 95% were in floating rate debt securities. 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 fourth quarter of 2020, Ares Capital funded $271 million related to previously existing unfunded revolving and delayed draw loan commitments.

In the fourth quarter of 2020, significant new commitments included:

  • $778 million in first lien senior secured revolving, delayed draw and term loans, second lien senior secured delayed draw and term loans and equity of an outsourced supply chain solutions provider to operators of distribution centers;
  • $262 million in first lien senior secured delayed draw and term loans and a second lien delayed draw term loan of a provider of central institutional review boards over clinical trials;
  • $262 million in subordinated certificates of the SDLP to make co-investments with Varagon and its clients in first lien senior secured loans to seven portfolio companies in a variety of industries;
  • $212 million in first lien senior secured revolving, delayed draw and term loans and equity of a provider of plumbing and HVAC maintenance services;
  • $197 million in first lien senior secured delayed draw and term loans and equity of a manufacturer and supplier of car wash equipment, parts and supplies to the conveyorized car wash market;
  • $155 million in a first lien senior secured term loan of a developer, builder and owner of utility-scale wind and solar power facilities;
  • $155 million in first lien senior secured delayed draw and term loans of a provider of plant maintenance and scheduling software;
  • $139 million in first lien senior secured revolving and second lien term loans and equity of a SaaS based healthcare compliance platform provider;
  • $106 million in a second lien senior secured term loan of a provider of enterprise resource planning software and services for higher education institutions;
  • $100 million in a first lien senior secured revolving loan, a second lien senior secured term loan and equity of a provider of heating, ventilation and air conditioning services;
  • $94 million in first lien senior secured revolving and term loans of a sports equipment manufacturing company;
  • $89 million in a first lien senior secured revolving loan, second lien senior secured delayed draw and term loans and equity of a manufacturer and distributor of automotive fluids;
  • $88 million in a first lien senior secured revolving loan, second lien senior secured delayed draw and term loans and equity of a provider of software and technology-enabled content and analytical solutions to insurance brokers;
  • $79 million in a first lien senior secured term loan of a provider of beans, sauces and hominy to the retail, food service and wholesale channels;
  • $74 million in a first lien senior secured term loan and equity of a provider of replacement wireless keys to the automotive market;
  • $64 million in first lien senior secured delayed draw and term loans of a distributor of non-discretionary, mission-critical aftermarket replacement parts;
  • $59 million in first lien senior secured revolving and term loans of a buying and marketing services organization for appliance, furniture and consumer electronics dealers;
  • $52 million in first lien senior secured revolving, delayed draw and term loans of a manufacturer of outdoor products;
  • $52 million in first lien senior secured revolving, delayed draw and term loans of a multi-line insurance broker;
  • $49 million in first lien senior secured revolving and term loans of a provider of integrated cloud-based investment portfolio management, accounting, reporting and analytics software; and
  • $47 million in a first lien senior secured delayed draw term loan of a provider of financial, administrative and clinical software platforms to the healthcare industry.

Also in the fourth quarter of 2020, Ares Capital exited approximately $3.0 billion of investment commitments, including $141 million of loans sold to Ivy Hill Asset Management L.P. (“IHAM”) or certain vehicles managed by IHAM. Of the total investment commitments exited, 78% were first lien senior secured loans, 13% were second lien senior secured loans, 3% were subordinated certificates of the SDLP, 3% were senior subordinated loans, 1% were collateralized loan obligations and 2% were other equity securities. Of the approximately $3.0 billion of exited investment commitments, 89% were floating rate, 9% were on non-accrual and 2% were non-income producing.

The fair value of Ares Capital’s portfolio investments at December 31, 2020 was $15.5 billion, including $13.7 billion in accruing debt and other income producing securities. The total portfolio investments at fair value were comprised of approximately 46% of first lien senior secured loans, 26% of second lien senior secured loans, 7% of subordinated certificates of the SDLP (the proceeds of which were applied to co-investments with Varagon and its clients to fund first lien senior secured loans through the SDLP), 6% of senior subordinated loans, 6% of preferred equity securities and 9% of other equity securities. As of December 31, 2020, the weighted average yield of debt and other income producing securities in the portfolio at amortized cost and fair value was 9.1% and 9.2%, respectively, the weighted average yield on total investments in the portfolio at amortized cost and fair value w

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