Ares to pay $2.4bn for Annaly Capital portfolio

Upper middle-market loans are said to provide deal sourcing advantages and relationship benefits.

Ares Management says its Ares Capital Management subsidiary has agreed to buy the mid-market lending portfolio of Annaly Capital Management for some $2.4 billion.

Ares said in a news release that it is familiar with “a significant number” of investments in the Annaly portfolio, either through overlapping portfolio companies or through the historical review of these companies. Moreover, Ares cited “substantial overlap” with the financial sponsors backing the portfolio and opportunities to strengthen ties with sponsors new to Ares.

The Annaly portfolio, which includes assets managed by third parties, has $2 billion of assets under management and represents substantially all of the manager’s mid-market lending assets, according to a news release by Annaly. It is composed of predominantly first- and second-lien loans focused on defensive, counter-cyclical industries, the release said.

The portfolio is expected to provide “significant incumbency benefits and deal sourcing advantages and relationship benefits” with new and existing sponsors, Mitchell Goldstein and Michael Smith, co-heads of Ares’ credit group, said in Ares’ release.

The sale “marks the latest in a series of strategic actions – including the disposition of our commercial real estate businesses and investments into our mortgage servicing rights and residential credit businesses – that have enhanced our focus and capabilities across our core housing finance strategy”, David Finkelstein, Annaly’s chief executive officer and president, said in the release.

The Annaly portfolio represents a fraction of the mortgage finance manager’s $89 billion of assets, according to its website. Annaly’s other businesses are its agency group, with $81.5 billion of assets, and its residential credit group, with $4.6 billion. Last summer, Annaly sold a portfolio of real estate loans, debt securities and real estate equity to Slate Asset Management for $2.3 billion.

Ares, a big alternative investment manager with $314 billion of assets as of 31 December 2021, said the transaction is expected to be completed by the end of the current quarter.