Ares Capital Corporation ("Ares" or the "Company"), a leading specialty finance company, has completed a significant debt securitization transaction, according to a recent filing with the Securities and Exchange Commission (SEC). On Monday, Ares, through its subsidiary Ares Direct Lending CLO 4 LLC ("ADL CLO 4"), finalized a $544.0 million term debt securitization known as a collateralized loan obligation (CLO), which is an on-balance-sheet financing.
The transaction, closed on November 19, 2024, includes $464.0 million of Class A Senior Floating Rate Loans bearing interest at Term SOFR plus 1.54%, and $80.0 million of Class B Senior Floating Rate Loans with interest at Term SOFR plus 1.83%. These loans, collectively referred to as the "CLO Secured Loans," are scheduled to mature on October 24, 2036.
Additionally, ADL CLO 4 issued various classes of notes under an indenture agreement with U.S. Bank, serving as collateral trustee. These notes include Class A and Class B Senior Floating Rate Notes, both bearing interest aligned with their respective loans, and $260.1 million of Subordinated Notes, which do not bear interest. Ares Capital retained all the Subordinated Notes, which will be eliminated upon consolidation due to their unsecured nature.
The CLO Secured Loans and Notes are backed by a diversified portfolio of first lien senior secured loans provided by Ares to ADL CLO 4. The arrangement allows for the acquisition of additional loans under certain conditions, with principal collections used to purchase new collateral until October 24, 2028. During this reinvestment period, Ares Capital Management LLC, the Company’s investment adviser, will direct the acquisition of new collateral under an asset management agreement.
The net proceeds from this offering are intended for the repayment of certain outstanding debts under Ares's facilities, with the flexibility to reborrow for general corporate purposes, including further investment in portfolio companies in line with the Company's objectives.
In other recent news, Ares Capital Corporation reported robust third-quarter 2024 financial results, including strong core earnings and a record net asset value (NAV). The company posted core earnings of $0.58 per share and a NAV of $19.77 per share. Additionally, Ares Capital experienced an increase in transaction reviews year-over-year, reaching nearly $155 billion in deal volume. The company's portfolio expanded to $25.9 billion, with a weighted average yield on debt and income-producing securities of 11.7%.
Leadership changes within Ares Capital include the appointment of Jim Miller as Co-President and Mitch Goldstein's transition to Co-Chairman of the Board. Moreover, the company's credit rating was upgraded to Baa2 by Moody's (NYSE:MCO), strengthening its competitive position.
Despite a decrease in GAAP net income per share from the same quarter in the previous year, Ares Capital declared a stable fourth-quarter dividend of $0.48 per share, marking a consistent dividend payout over 61 consecutive quarters. Looking ahead, the company anticipates a busy investment year in 2025, supported by the acquisition of Riverside Credit Solutions.
InvestingPro Insights
Ares Capital Corporation's recent $544 million debt securitization transaction aligns with its strong financial performance and market position. According to InvestingPro data, the company boasts a market capitalization of $14.23 billion, reflecting its significant presence in the specialty finance sector.
Ares' revenue growth is particularly noteworthy, with an impressive 18.32% increase in the most recent quarter. This robust growth supports the company's ability to engage in large-scale financing activities like the CLO transaction described in the article.
InvestingPro Tips highlight Ares' attractive dividend yield of 8.72%, which may appeal to income-focused investors. Additionally, the company's P/E ratio of 8.43 suggests that it may be undervalued relative to its earnings, potentially indicating an opportunity for value investors.
These insights complement the article's focus on Ares' financial strategies and liquidity management. For readers interested in a deeper analysis, InvestingPro offers 15 additional tips for Ares Capital Corporation, providing a more comprehensive view of the company's financial health and market position.
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