Ares Capital Corporation has purchased the remaining $1.6 billion outstanding assets of its Senior Secured Loan Program (SSLP) at par, concluding the wind-down process of the former joint venture with GE Capital.
New York-based Ares has put the remaining assets on its balance sheet, the firm said on its second-quarter earnings call. This will free up additional capital in the business development company’s portfolio to invest in opportunities in its so-called “30 percent basket”, leaving more money available to invest outside the core of mid-market companies.
Under US federal statutes, 70 percent of a BDC’s investments must be dedicated to non-listed companies or those listed with a market capitalisation below $250 million. The remaining 30 percent can be put toward other investments if the fund manager chooses.
SSLP, which had a hold size of up to $350 million at one point, wrapped up after GE sold Antares Capital, its mid-market lending platform, to Canada Pension Plan Investment Board. Ares chief executive, Kipp deVeer, said during the call the portfolio companies reported average EBITDA results between $43 million and $44 million and had a 4.9x leverage.
In its place, Ares launched the Senior Direct Lending Programme (SDLP), which provides first lien and senior stretch loans as well as unitranche facilities, with American Insurance Group-backed Varagon Partners. DeVeer said on the call the firm may transfer SSLP assets to the SDLP, also noting the additional investment capacity in Ares’ 30 percent bucket could be used to beef up the partnership with Varagon.
During Q2, the firm committed $1.97 billion to 45 different borrowers, consisting of 12 new portfolio companies and 33 businesses already in Ares’ book. Ares exited investments totalling $1.79 billion.
Among the largest commitments was a $259 million first lien senior secured term loan to an unnamed footwear and accessories provider and a $249 million second lien senior secured term loan and equity backing the Temasek’s buyout of GHX, a healthcare supply chain management company.
As of 30 June, Ares portfolio comprised 59 percent first lien senior secured loans; 25 percent second lien senior secured loans; 6 percent in the SDLP, 6 percent preferred equity; 3 percent senior subordinated loans and 1 percent other equity securities.
Net investment income for the quarter was $124 million, or 29 cents per share, a year-on-year increase from $109 million the same time last year, or 34 cents per share. Net asset value per share stood at $16.54 as of 30 June, down from $16.62 at the end of the second quarter 2016. Its investments had a fair value of $11.5 billion.