Ares forms new partnership with AIG-backed lender

Ares Capital Corporation and Varagon Capital Partners are establishing a new joint venture (JV) that will make senior secured loans to mid-market companies, the two firms announced today (17 June). The JV will be called the Senior Direct Lending Program (SDLP). The SDLP succeeds the partnership that Ares Capital has run with its previous senior loan partner, GE Capital, which was called the Senior Secured Loan Program (SSLP).

Ares Capital is the publicly traded business development company (BDC) of alternative investment firm Ares Management. Varagon was formed in 2013 as the lending platform by the insurer American International Group (AIG) and other partners.

The SDLP will underwrite and hold first lien loans, including stretch senior and unitranche loans that will be originated by both Ares and Varagon. The program will commit and hold individual loans of up to $300 million. Ares Capital may also co-invest with the SDLP to accommodate larger transactions.

The original SSLP with GE has committed $19 billion in senior secured loans over the past five years. General Electric announced in April that it’d be selling off its GE Capital lending business and Ares has previously said it would seek a new partner for the SSLP program or wind it down.

Last week, the Canada Pension Plan Investment Board (CPPIB) announced that it would be acquiring GE Antares, the lending arm of GE Capital that works exclusively on private equity sponsor backed transactions. Antares primarily works on the SSLP with Ares in the US. Since then, the Canadian pension plan, Antares and Ares have been in talks about what to do with the program. The firms have previously said that both GE Capital and Ares would have to sign off on a decision for the partnership or a new partner. 

Ares Capital originates and invests in senior secured loans, mezzanine debt and, to a lesser extent, equity investments, through its direct origination platform. The BDC has about $9 billion in assets under management and is publicly traded as “ARCC” on the NASDAQ stock exchange. Its stock finished trading at $16 per share on 17 June.

Varagon Capital focuses on direct lending to mid-market companies. It’s an independent firm, backed by AIG, as well as certain partners and affiliates of private equity firm Oak Hill Capital Management.