Ares Capital Corporation Declares First Quarter 2013 Dividend of $0.38 Per Share and Announces December 31, 2012 Financial
Ares Capital Corporation Declares First Quarter 2013 Dividend of $0.38 Per
Share and Announces December 31, 2012 Financial Results
First Quarter 2013 Dividend Declared
Business Wire
NEW YORK -- February 27, 2013
Ares Capital Corporation (“Ares Capital”) (NASDAQ: ARCC) announced that its
Board of Directors has declared a first quarter dividend of $0.38 per share
payable on March 29, 2013 to stockholders of record as of March 15, 2013.
DECEMBER 31, 2012 FINANCIAL RESULTS
Ares Capital also announced financial results for its fourth quarter and year
ended December 31, 2012.
HIGHLIGHTS
Financial
Q4-12 Q4-11 FY-12 FY-11
(in
millions, Total Per Total Per Total Per Total Per
except per Amount Share(1) Amount Share(1) Amount Share(1) Amount Share(1)
share
data)
Core EPS $ 0.45 $ 0.47 $ 1.65 $ 1.54
(2)
Net
investment $ 94.5 $ 0.38 $ 92.4 $ 0.45 $ 348.9 $ 1.52 $ 282.4 $ 1.38
income
Net
realized $ 65.6 $ 0.27 $ (8.4 ) $ (0.04 ) $ 44.0 $ 0.19 $ 77.3 $ 0.38
gains
(losses)
Net
unrealized $ 15.0 $ 0.06 $ 34.1 $ 0.17 $ 115.3 $ 0.50 $ (40.2 ) $ (0.20 )
gains
(losses)
GAAP net $ 175.1 $ 0.71 $ 118.1 $ 0.58 $ 508.2 $ 2.21 $ 319.5 $ 1.56
income
Dividends
declared 0.43 0.36 1.60 1.41
(3)
As of December 31,
(in millions, except per share data) 2012 2011
Portfolio investments at fair value $ 5,924.6 $ 5,094.5
Total assets $ 6,401.2 $ 5,387.4
Stockholders’ equity $ 3,988.3 $ 3,147.3
Net assets per share $ 16.04 $ 15.34
(1) All per share amounts are basic and diluted.
(2) Basic and diluted Core EPS is a non-GAAP financial measure. Core EPS is
the net per share increase (decrease) in stockholders’ equity resulting from
operations less realized and unrealized gains and losses, any incentive fees
attributable to such net realized and unrealized gains and losses and any
income taxes related to such realized gains. Basic and diluted GAAP EPS is the
most directly comparable GAAP financial measure. Ares Capital believes that
Core EPS provides useful information to investors regarding financial
performance because it is one method Ares Capital uses to measure its
financial condition and results of operations. The presentation of this
additional information is not meant to be considered in isolation or as a
substitute for financial results prepared in accordance with GAAP.
Reconciliations of basic and diluted Core EPS to the most directly comparable
GAAP financial measure are set forth in Schedule 1 hereto.
(3) For the quarter and year ended December 31, 2012, the dividends declared
include additional dividends of $0.05 per share and $0.10 per share,
respectively.
Portfolio Activity
(dollar amounts in Q4-12 Q4-11 FY-12 FY-11
millions)
Portfolio Activity
During the Period:
Gross commitments $ 1,062.8 $ 852.8 $ 3,197.0 3,674.4
Exits of $ 1,157.2 $ 688.1 $ 2,614.5 2,603.1
commitments
Portfolio as of
the End of the
Period:
Number of
portfolio company 152 141
investments
Weighted average
yield of debt and
other income
producing
securities:
At fair value(4) 11.3 % 12.0 %
At amortized 11.4 % 12.1 %
cost(5)
(4) Computed as (a) annual stated interest rate or yield earned plus the net
annual amortization of original issue discount and market discount earned on
accruing debt and other income producing securities, divided by (b) total debt
and other income producing securities at fair value.
(5) Computed as (a) annual stated interest rate or yield earned plus the net
annual amortization of original issue discount and market discount earned on
accruing debt and other income producing securities, divided by (b) total debt
and other income producing securities at amortized cost.
FOURTH QUARTER 2012 OPERATING RESULTS
For the quarter ended December 31, 2012, Ares Capital reported GAAP net income
of $175.1 million or $0.71 per share (basic and diluted), Core EPS(2) of $0.45
per share (basic and diluted), net investment income of $94.5 million, or
$0.38 per share (basic and diluted), and net realized and unrealized gains of
$80.7 million or $0.33 per share (basic and diluted).
Net income can vary substantially from period to period due to various
factors, including the level of new investment commitments, the recognition of
realized gains and losses and unrealized appreciation and depreciation. As a
result, quarterly comparisons of net income may not be meaningful.
As of December 31, 2012, total assets were $6.4 billion, stockholders’ equity
was $4.0 billion and net asset value per share was $16.04.
In the fourth quarter of 2012, Ares Capital made $1,062.8 million in new
commitments, including commitments to 10 new portfolio companies, 10 existing
portfolio companies, as well as eight additional portfolio companies through
the Senior Secured Loan Fund LLC, which operates using the name “Senior
Secured Loan Program” (the “SSLP”) through which Ares Capital co-invests with
GE Global Sponsor Finance LLC and General Electric Capital Corporation
(together, “GE”) to fund first lien senior secured loans. Of these new
commitments, 26 were sponsored transactions. As of December 31, 2012, 95
separate private equity sponsors were represented in Ares Capital’s portfolio.
Of the $1,062.8 million in new commitments made during the fourth quarter of
2012, approximately 50% were in first lien senior secured debt, 9% were in
subordinated certificates of the SSLP (the proceeds of which were applied to
co-investments with GE to fund first lien senior secured loans through the
SSLP), 34% were in second lien senior secured debt and 7% were in other equity
securities. Of these commitments, 87% were in floating rate debt securities,
90% of which contained interest rate floors and the remaining 10% were in the
subordinated certificates of the SSLP, the proceeds of which were applied to
co-investments with GE to fund floating rate first lien senior secured loans
through the SSLP, all of which contained interest rate floors. We may seek to
syndicate a portion of these new investment commitments, although there can be
no assurance that we will be able to do so.
During the fourth quarter of 2012, significant new commitments included:
* $170 million in a second lien senior term loan and equity of a keg
management solutions provider;
* $125 million in first lien senior revolving and term loans and equity of a
payroll and accounting services provider to the entertainment industry;
* $112 million in a second lien senior term loan of a revenue cycle
management provider to the emergency healthcare industry;
* $91 million in the subordinated certificates of the SSLP, the proceeds of
which were applied to co-investments with GE to fund first lien senior
secured loans to eight portfolio companies in a variety of industries;
* $75 million in a second lien senior term loan of a healthcare patient
infection control and preventive care solutions provider;
* $73 million in first lien senior revolving, delayed draw and term loans
and equity of an endurance sports media and event operator;
* $69 million in first lien senior revolving, delayed draw and term loans of
a correctional facility healthcare operator;
* $56 million in first lien delayed draw and term loans of a solar power
generation facility developer and operator;
* $50 million in first lien revolving, delayed draw and term loans of an
airport restaurant operator;
* $43 million first lien delayed draw and term loans of a healthcare
technology provider; and
* $26 million in first lien delayed draw and term loans of a records and
information management services provider.
Also during the fourth quarter of 2012, Ares Capital exited approximately
$1,157.2 million of investment commitments. Investment commitments exited in
the fourth quarter were driven by the elevated amount of liquidity in the
markets and anticipated changes in tax regulations, resulting in a higher
level of refinancing, repayment and sale activity.
The fair value of Ares Capital’s portfolio investments at December 31, 2012
was $5.9 billion, including $5.2 billion in debt and other income producing
securities. These portfolio investments at fair value were comprised of
approximately 60% of senior secured debt securities (39% in first lien loans
and 21% in second lien loans), 21% of subordinated certificates of the SSLP
(the proceeds of which were applied to co-investments with GE in first lien
senior secured loans through the SSLP), 5% of senior subordinated debt
securities, 4% of preferred equity securities and 10% of other equity
securities. As of December 31, 2012, the weighted average yield of debt and
other income producing securities in the portfolio at fair value was
11.3%(4) (11.4% at amortized cost(5)) and 75% of the investments at fair value
were in floating rate securities.
President Michael Arougheti commented, “Our strong fourth quarter results
concluded a very good year for us in which we reported our highest level of
annual core earnings per share, generated another year of net realized gains
and increased our dividends and book value. We believe that our business is
well positioned with no near term debt maturities, modest leverage and a
significant amount of available debt capacity.” Mr. Arougheti continued,
“Given our strong performance in 2012, we estimate that we will be carrying
over undistributed taxable income into 2013 of approximately $0.96 per share.”
PORTFOLIO QUALITY
Ares Capital Management LLC, our investment adviser, employs an investment
rating system to categorize our investments. In addition to various risk
management and monitoring tools, our investment adviser grades the credit risk
of all investments on a scale of 1 to 4 no less frequently than quarterly.
This system is intended primarily to reflect the underlying risk of a
portfolio investment relative to our initial cost basis in respect of such
portfolio investment (i.e., at the time of acquisition), although it may also
take into account under certain circumstances the performance of the portfolio
company’s business, the collateral coverage of the investment and other
relevant factors. Under this system, investments with a grade of 4 involve the
least amount of risk to our initial cost basis. The trends and risk factors
for this investment since origination or acquisition are generally favorable,
which may include the performance of the portfolio company or a potential
exit. Investments graded 3 involve a level of risk to our initial cost basis
that is similar to the risk to our initial cost basis at the time of
origination or acquisition. This portfolio company is generally performing as
expected and the risk factors to our ability to ultimately recoup the cost of
our investment are neutral to favorable. All investments or acquired
investments in new portfolio companies are initially assessed a grade of 3.
Investments graded 2 indicate that the risk to our ability to recoup the
initial cost basis of such investment has increased materially since
origination or acquisition, including as a result of factors such as declining
performance and non-compliance with debt covenants; however, payments are
generally not more than 120 days past due. An investment grade of 1 indicates
that the risk to our ability to recoup the initial cost basis of such
investment has substantially increased since origination or acquisition, and
the portfolio company likely has materially declining performance. For debt
investments with an investment grade of 1, most or all of the debt covenants
are out of compliance and payments are substantially delinquent. For
investments graded 1, it is anticipated that we will not recoup our initial
cost basis and may realize a substantial loss of our initial cost basis upon
exit. For investments graded 1 or 2, our investment adviser enhances its level
of scrutiny over the monitoring of such portfolio company. Our investment
adviser grades the investments in our portfolio at least each quarter and it
is possible that the grade of a portfolio investment may be reduced or
increased over time.
As of December 31, 2012, the weighted average grade of the investments in our
portfolio at fair value was 3.1. Also, as of December 31, 2012, loans on
non-accrual status represented 2.3% of total investments at amortized cost (or
0.6% at fair value).
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2012, Ares Capital had $269.0 million in cash and cash
equivalents and $2.3 billion in aggregate principal amount of outstanding debt
($2.2 billion in carrying value). Subject to leverage and borrowing base
restrictions, Ares Capital had approximately $1.6 billion available for
additional borrowings under its existing credit facilities as of December 31,
2012.
In October 2012, we issued an additional $7.5 million in aggregate principal
amount of our 5.875% senior unsecured notes due October 1, 2012 (the
“October 2022 Notes”). The additional notes were issued pursuant to the
partial exercise of an over-allotment option that we granted to the
underwriters in September 2012 in connection with the October 2022 Notes
offering, bringing the total aggregate principal amount of the October 2022
Notes to $182.5 million.
In addition, in the fourth quarter of 2012, we issued $270.0 million aggregate
principal amount of unsecured convertible senior notes that mature on
January 15, 2018 (the “2018 Convertible Notes”), unless previously converted
or repurchased in accordance with their terms. We do not have the right to
redeem the 2018 Convertible Notes prior to maturity. The 2018 Convertible
Notes bear interest at a rate of 4.75% per year, payable semi-annually
commencing on July 15, 2013. In certain circumstances, the 2018 Convertible
Notes will be convertible into cash, shares of Ares Capital’s common stock or
a combination of cash and shares of our common stock, at our election, at an
initial conversion rate of 50.3290 shares of common stock per one thousand
dollar principal amount of the 2018 Convertible Notes, which was equivalent to
an initial conversion price of approximately $19.87 per share of our common
stock, subject to customary anti-dilution adjustments. The initial conversion
price of the 2018 Convertible Notes was approximately 17.5% above the $16.91
per share closing price of our common stock on October 3, 2012.
We used the net proceeds of the additional issuance of the October 2022 Notes
and the issuance of the 2018 Convertible Notes to repay outstanding debt and
for general corporate purposes, which included funding investments in
accordance with our investment objective.
FOURTH QUARTER 2012 DIVIDEND
For the three months ended December 31, 2012, Ares Capital declared on
November 5, 2012 a regular dividend of $0.38 per share and an additional
dividend of $0.05 per share for a total of approximately $106.8 million. The
record date for these dividends was December 14, 2012 and the dividends were
paid on December 28, 2012.
RECENT DEVELOPMENTS
On January 25, 2013, Ares Capital and Ares Capital Funding LLC (“Ares Capital
CP”), an indirect wholly owned subsidiary of Ares Capital, entered into an
amendment to Ares Capital CP’s revolving funding facility (the “Revolving
Funding Facility”). The amendment, among other things, modified the interest
charged on the Revolving Funding Facility from the previous applicable spreads
of 2.50% over LIBOR and 1.50% over “base rate” (as defined in the agreements
governing the Revolving Funding Facility) to applicable spreads ranging from
2.25% to 2.50% over LIBOR and ranging from 1.25% to 1.50% over “base rate,” in
each case, determined monthly based on the composition of the borrowing base
relative to outstanding borrowings under the facility. After giving effect to
the amendment and the relevant borrowing base and amounts outstanding
thereunder, the interest charged on the Revolving Funding Facility as of
January 25, 2013 was based on a spread over one-month LIBOR of 2.25% or a
spread over “base rate” of 1.25%. As of such date, one-month LIBOR was 0.2037%
and the “base rate” was 3.25%.
From January 1, 2013 through February 22, 2013, we made new investment
commitments of $165 million, of which $162 million were funded. Of these new
commitments, 60% were in second lien senior secured loans, 30% were in first
lien senior secured loans, 9% were investments in subordinated certificates of
the SSLP, the proceeds of which were applied to co-investments with GE to fund
first lien senior secured loans through the SSLP, and 1% were in preferred
equity securities. Of the $165 million of new investment commitments, 92% were
floating rate and 8% were fixed rate. The weighted average yield of debt and
other income producing securities funded during the period at amortized cost
was 9.5%. We may seek to syndicate a portion of these new investment
commitments, although there can be no assurance that we will be able to do so.
From January 1, 2013 through February 22, 2013, we exited $208 million of
investment commitments. Of these investment commitments, 47% were first lien
senior secured loans, 45% were second lien senior secured loans, 7% were
investments in subordinated certificates of the SSLP and 1% were other equity
securities. Of the $208 million of exited investment commitments, 97% were
floating rate, 2% were fixed rate and 1% were non-interest bearing. The
weighted average yield of debt and other income producing securities exited or
repaid during the period at amortized cost was 9.8%. On the $208 million of
investment commitments exited from January 1, 2013 through February 22, 2013,
we recognized total net realized gains of approximately $10 million.
In addition, as of February 22, 2013, we had an investment backlog and
pipeline of approximately $290 million and $155 million, respectively.
Investment backlog includes transactions approved by our investment adviser’s
investment committee and/or for which a formal mandate, letter of intent or a
signed commitment have been issued, and therefore we believe are likely to
close. Investment pipeline includes transactions where due diligence and
analysis are in process, but no formal mandate, letter of intent or signed
commitment have been issued. The consummation of any of the investments in
this backlog and pipeline depends upon, among other things, one or more of the
following: satisfactory completion of our due diligence investigation of the
prospective portfolio company, our acceptance of the terms and structure of
such investment and the execution and delivery of satisfactory transaction
documentation. In addition, we may syndicate a portion of these investments.
We cannot assure you that we will make any of these investments or that we
will syndicate any portion of these investments.
WEBCAST / CONFERENCE CALL
Ares Capital will host a webcast/conference call on Wednesday, February 27,
2013, at 11:00 a.m. (ET) to discuss its financial results for the fourth
quarter and year ended December 31, 2012. PLEASE VISIT OUR WEBCAST LINK
LOCATED ON THE HOME PAGE OF THE INVESTOR RESOURCES SECTION OF OUR WEBSITE FOR
A SLIDE PRESENTATION THAT COMPLEMENTS THE EARNINGS CONFERENCE CALL.
All interested parties are invited to participate via telephone or the live
webcast, which will be hosted on a webcast link located on the Home page of
the Investor Resources section of our website at
http://www.arescapitalcorp.com. Please visit the website to test your
connection before the webcast. Domestic callers can access the conference call
by dialing (888) 317-6003. International callers can access the conference
call by dialing +1 (412) 317-6061. All callers will need to enter the
Participant Elite Entry Number 2377804 followed by the # sign and reference
“Ares Capital Corporation” once connected with the operator. All callers are
asked to dial in 10-15 minutes prior to the call so that name and company
information can be collected. For interested parties, an archived replay of
the call will be available approximately one hour after the end of the call
through March 12, 2013 at 9:00 AM ET to domestic callers by dialing (877)
344-7529 and to international callers by dialing +1 (412) 317-0088. For all
replays, please reference conference number 10023413. An archived replay will
also be available on a webcast link located on the Home page of the Investor
Resources section of our website.
ABOUT ARES CAPITAL CORPORATION
Ares Capital is a leading specialty finance company that provides one-stop
financing solutions to U.S. middle market companies and private equity
sponsors. The Company originates and invests in senior secured loans,
mezzanine debt and, to a lesser extent, equity investments through its
national direct origination platform. Ares Capital’s investment objective is
to generate both current income and capital appreciation through debt and
equity investments primarily in private companies. Ares Capital has elected to
be regulated as a business development company and is externally managed by a
wholly owned subsidiary of Ares Management LLC. Ares Management is a global
alternative asset manager and a SEC-registered investment adviser with
approximately $59 billion of committed capital under management as of
December 31, 2012. For more information, visit http://www.arescapitalcorp.com.
However, the contents of such website are not and should not be deemed to be
incorporated by reference herein.
FORWARD-LOOKING STATEMENTS
Statements included herein or on the webcast/conference call may constitute
“forward-looking statements,” which relate to future events or our future
performance or financial condition. These statements are not guarantees of
future performance, condition or results and involve a number of risks and
uncertainties. Actual results and conditions may differ materially from those
in the forward-looking statements as a result of a number of factors,
including those described from time to time in our filings with the Securities
and Exchange Commission. Ares Capital Corporation undertakes no duty to update
any forward-looking statements made herein or on the webcast/conference call.
AVAILABLE INFORMATION
Ares Capital Corporation’s filings with the Securities and Exchange
Commission, press releases, earnings releases and other financial information
are available on its website at http://www.arescapitalcorp.com. The
information on Ares Capital’s website is not and should not be deemed to be
incorporated by reference herein.
ARES CAPITAL CORPORATION AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)
As of December 31,
2012 2011
ASSETS
Total investments at fair value
(amortized cost of $5,823,451 and $ 5,924,555 $ 5,094,506
$5,108,663, respectively)
Cash and cash equivalents 269,043 120,782
Interest receivable 108,998 99,078
Receivable for open trades 131 550
Other assets 98,497 72,521
Total assets $ 6,401,224 $ 5,387,437
LIABILITIES
Debt $ 2,195,872 $ 2,073,602
Management and incentive fees payable 131,585 92,496
Accounts payable and other liabilities 53,178 47,691
Interest and facility fees payable 30,603 26,383
Payable for open trades 1,640 —
Total liabilities 2,412,878 2,240,172
STOCKHOLDERS’ EQUITY
Common stock, par value $0.001 per
share, 500,000 and 400,000 common shares
authorized respectively, 248,653 and 249 205
205,130 common shares issued and
outstanding, respectively
Capital in excess of par value 4,117,517 3,390,354
Accumulated overdistributed net (27,910 ) (10,449 )
investment income
Accumulated net realized loss on
investments, foreign currency
transactions, (202,614 ) (218,688 )
extinguishment of debt and other assets
Net unrealized gain (loss) on 101,104 (14,157 )
investments
Total stockholders’ equity 3,988,346 3,147,265
Total liabilities and stockholders’ $ 6,401,224 $ 5,387,437
equity
NET ASSETS PER SHARE $ 16.04 $ 15.34
ARES CAPITAL CORPORATION AND
SUBSIDIARIES
CONSOLIDATED STATEMENT OF
OPERATIONS
(in thousands, except per
share data)
For the years ended December 31,
2012 2011 2010
INVESTMENT INCOME:
Interest income from $ 571,472 $ 473,253 $ 393,629
investments
Capital structuring service 102,136 97,335 54,680
fees
Dividend income 39,738 38,367 14,368
Management and other fees 18,924 16,742 14,372
Other income 15,755 8,789 6,347
Total investment income 748,025 634,486 483,396
EXPENSES:
Interest and credit facility 142,976 122,512 79,347
fees
Incentive fees 127,045 112,377 76,895
Base management fees 86,228 71,603 51,998
Professional fees 12,040 16,529 29,941
Administrative fees 9,322 9,563 10,979
Other general and 10,381 12,025 13,028
administrative
Total expenses 387,992 344,609 262,188
NET INVESTMENT INCOME BEFORE 360,033 289,877 221,208
INCOME TAXES
Income tax expense, 11,172 7,474 5,392
including excise tax
NET INVESTMENT INCOME 348,861 282,403 215,816
REALIZED AND UNREALIZED
GAINS (LOSSES) ON
INVESTMENTS AND FOREIGN
CURRENCY
TRANSACTIONS:
Net realized gains:
Investments 46,734 96,560 45,393
Foreign currency — — 85
transactions
Net realized gains 46,734 96,560 45,478
Net unrealized gains
(losses):
Investments 115,261 (40,192 ) 230,895
Foreign currency — — (152 )
transactions
Net unrealized gains 115,261 (40,192 ) 230,743
(losses)
Net realized and unrealized 161,995 56,368 276,221
gains from investments
GAIN ON THE ACQUISITION OF — — 195,876
ALLIED CAPITAL CORPORATION
REALIZED LOSSES ON (2,678 ) (19,318 ) (1,961 )
EXTINGUISHMENT OF DEBT
REALIZED GAIN ON SALE OF — — 5,882
OTHER ASSETS
NET INCREASE IN
STOCKHOLDERS’ EQUITY
RESULTING $ 508,178 $ 319,453 $ 691,834
FROM OPERATIONS
BASIC AND DILUTED EARNINGS $ 2.21 $ 1.56 $ 3.91
PER COMMON SHARE
WEIGHTED AVERAGE SHARES OF
COMMON STOCK
230,151 204,860 176,732
OUTSTANDING - BASIC AND
DILUTED
SCHEDULE 1
Reconciliations of basic and diluted Core EPS to basic and diluted GAAP EPS
Reconciliations of basic and diluted Core EPS to basic and diluted GAAP EPS,
the most directly comparable GAAP financial measure, for the three months and
years ended December 31, 2012 and 2011 are provided below.
For the three months ended For the years ended
December 31, December 31,
2012 2011 2012 2011
(unaudited) (unaudited) (unaudited) (unaudited)
Basic and
diluted Core $ 0.45 $ 0.47 $ 1.65 $ 1.54
EPS(1)
Net realized
and 0.33 0.13 0.69 0.18
unrealized
gains
Incentive
fees
attributed
to net (0.07 ) (0.02 ) (0.13 ) (0.16 )
realized and
unrealized
gains
Income tax
expense
related to — — — —
realized
gains
Basic and
diluted GAAP $ 0.71 $ 0.58 $ 2.21 $ 1.56
EPS
(1) Basic and diluted Core EPS is a non-GAAP financial measure. Core EPS is
the net per share increase (decrease) in stockholders’ equity resulting from
operations less realized and unrealized gains and losses, any incentive fees
attributable to such net realized and unrealized gains and losses and any
income taxes related to such realized gains. Basic and diluted GAAP EPS is the
most directly comparable GAAP financial measure. Ares Capital believes that
Core EPS provides useful information to investors regarding financial
performance because it is one method Ares Capital uses to measure its
financial condition and results of operations. The presentation of this
additional information is not meant to be considered in isolation or as a
substitute for financial results prepared in accordance with GAAP.
Contact:
Ares Capital Corporation
Carl G. Drake, 888-818-5298
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