Ares, Hercules to offer new debt – update

 Both securities the companies plan to sell would be convertible to common stock. 

Update, 24 January: Ares Capital Corporation has upped its debt issuance to $350 million and increased its additional purchase amount for initial buyers to $52.5 million, according to a US regulatory filing. Previously, the business development company had planned to offer $250 million with an extra $37.5 million for initial purchasers. The notes are priced at 3.75 percent and are convertible to common stock at a price of $19.39 a share.

Original article, 23 January:

Ares Capital Corporation and Hercules Capital are seeking to issue a combined $450 million of unsecured notes, with both planning to use the proceeds to refinance existing debt, according to federal regulatory filings.

Documents submitted to the federal US Securities and Exchange agency showed New York-based Ares plans to offer $250 million, while Palo Alto, California-based Hercules plans to issue $200 million.

A source familiar with the situation said Ares will use the proceeds to pay down obligations under its revolving credit facility with Bank of America and Merrill Lynch, which has a borrowing capacity of $1 billion. Hercules in its statement on the notes offering said the proceeds could be used to repurchase notes due 2019, debt or equity investments or “general corporate purposes”.

Ares declined to comment, while a Hercules representative could not be reached for comment.

Hercules initially targeted a principal of $150 million, though the firm said it would up its offering on Thursday. Initial purchasers will also be able to buy additional debt: $37.5 million for those paying for Ares notes and $30 million for those purchasing Hercules obligations.

Terms for the Ares debt have yet to be finalised, and Hercules notes will be priced at 4.38 percent and convertible at $16.41 percent. Both will be convertible to common stock. In addition to shares, Hercules could convert the debt to cash or a mix of the two.

Ares recently increased its total debt capacity by $1.3 billion, from $2.2 billion to $3.5 billion, following the completion of the American Capital (ACAS) acquisition. The notes would raise that new sum to $3.75 billion. The just-closed $3.62 billion transaction boosted Ares’s assets by over $3 billion.

The sale, announced in May of last year, resulted from a process launched after ACAS activist shareholder Elliott Management in November 2015 protested plans by ACAS to spin off its private business development company to a new BDC.

For its part, Hercules issued $69 million of 6.25 percent notes due 2024. The proceeds from those notes were used in debt and equity investments, which last year surpassed the $6 billion mark since the firm’s founding in December 2003.