Ares BDC chief touts American Capital acquisition benefits

Earlier this year, the firm executed the largest ever BDC deal and has since followed up on it by supporting another massive buyout. 

Kipp deVeer told Ares Capital Corporation’s investors on a third-quarter earnings call on Wednesday the New York-based business development company hopes to ring in the New Year with a close of its landmark acquisition of American Capital.

The chief executive officer of the business development company gave the update on the transaction as the company gears up for a 15 December shareholder vote on the deal. DeVeer made the case for an Ares-American Capital combination, which he characterised as a “highly accretive transaction”, by highlighting the investment capabilities the BDC behemoth would have.

“We believe… our ability to originate and hold even larger transactions will enable us to offer attractive returns to shareholders over the long term,” deVeer said.

This prediction comes on the heels of the $1.1 billion unitranche loan made to Qlik Technologies announced in June, the largest BDC deal ever.

In addition, DeVeer said on the call the firm is supporting a $1 billion buyout of Ministry Brands, a Lenior City, Tennessee-based software provider to churches. The transaction is a first lien-second lien deal with New York-based private equity firm Insight Venture Partners.

The third quarter also marked the first quarter during which its new Senior Direct Lending Programme partnership with Varagon Capital Partners. The programme reported new commitments of over $200 million, deVeer said on the Wednesday call.

The partnership has an investment capacity of $2.9 billion and can put $300 million into each individual loan, he added. Of Ares’ assets, the direct lending initiative makes up 2 percent of its portfolio.As of 30 September, second lien senior secured loans comprised a plurality, 32 percent, of Ares’ portfolio, according to the firm’s earnings presentation. First lien senior secured made up a quarter of the firm’s investments, the second most of any asset class. 

On the earnings front, Ares reported a third-quarter net asset value per share that posted a slight year-on-year decline from $16.79 a share in 2015 to $16.59 a share. The just-announced results essentially remained constant from the $16.62 a share it reported in the second quarter.

Net investment income stood at $137.7 million in the third quarter, a year-on-year increase from $130.48 million at the same time last year. The figure from the three months ending 30 September is also higher than the net investment income posted last quarter, which stood at $105.26 million.

Ares also provided a snapshot of its fourth-quarter activities, from 1 October to 27 October. The firm has made $73 million in new commitments and sold or exited $182 million, deVeer said. 

Editor's note: The story has been modified to reflect that Kipp deVeer said the transaction was “highly accretive”, not “highly creative”.