Ares BDC comprises majority of firm’s Q1 US direct lending commitments

The publicly traded vehicle reported a GAAP earnings per share of $0.57.

Ares Management’s US direct lending platform originated $3 billion over the first three months of 2018 across 49 transactions, with the Los Angeles-based firm’s business development company accounting for more than half of that total.

Ares Capital Corporation (ARCC), indirectly advised by Ares Management, made $1.79 billion of commitments in the first quarter. Over the same time frame, ARCC saw $1.34 billion of investment exits, according to its first-quarter earnings release.

The remaining $1.12 billion of commitments came from other facets of Ares’ US direct lending business. In December, the platform added its first junior debt closed-end vehicle in December when it closed on $3.4 billion for North American-focused Ares Private Credit Solutions. That fund is targeting upper mid-market companies with more than $75 million of EBITDA.

Ares backed a number of add-on acquisitions in the first quarter. Those commitments include $184 million of subordinated debt and equity financing from ARCC for KKR’s purchase of American Medical Response, which became part of the New York-based private equity firm’s Air Medical Group platform.

ARCC also reported earnings last week, posting a net investment income of $0.34 per share and a $0.39 core earnings per share, which excludes professional fees, costs related to its acquisition of American Capital and net realised or unreleased gains. Its GAAP net income stood at $0.57 cents a share, stemming from its NII plus net unrealised gains of $0.26 a share.

ARCC’s net asset value per share stood at $16.84 as of 31 March, an increase from $16.65 at year-end.

As of 31 March, ARCC also held close to three-quarters of its portfolio in senior secured loans, with first lien and second lien loans making up 41.88 percent and 30.6 percent of the portfolio, according to Thomson Reuters BDC Collateral. ARCC’s other positions include 13.91 percent subordinated debt, 8.77 percent equity and 5.38 percent in other securities.

The top three industries ARCC has exposure to are healthcare (24.83 percent of its portfolio), business services (17.89 percent) and general manufacturing (12.89 percent), BDC Collateral showed. The firm reported its loans on non-accrual status of 2.73 percent at cost and 0.96 percent at fair value.

The BDC’s chief executive, Kipp deVeer, addressed the recent statutory change increasing the maximum debt-to-equity ratio for BDCs from 1:1 to 2:1. ARCC came out in support of changing its rules to up its leverage limit, but deVeer said ARCC has not decided how to execute that, which could be done via board vote, shareholder vote or both.

“I want to emphasise that we’re considering a range of options,” he said, “and we’ve made no decisions about where we are headed nor do we have any formal action in front of our board of directors regarding new legislation.”