Ares Capital Corporation Announces March 31, 2019 Financial Results and Declares Second Quarter 2019 Dividend of $0.40 Per Share

DIVIDEND DECLARATIONS

NEW YORK–(BUSINESS WIRE)–Ares Capital Corporation (“Ares Capital”) (NASDAQ:ARCC) announced that
its Board of Directors has declared a second quarter dividend of $0.40
per share. The second quarter dividend is payable on June 28, 2019 to
stockholders of record as of June 14, 2019. Ares Capital previously
declared on February 12, 2019 an additional dividend of $0.02 per share,
payable, subject to the satisfaction of certain Maryland law
requirements, on June 28, 2019 to stockholders of record as of June 14,
2019.

MARCH 31, 2019 FINANCIAL RESULTS

Ares Capital also announced financial results for its first quarter
ended March 31, 2019.

HIGHLIGHTS

Financial

         
Q1-19 Q1-18
(dollar amounts in millions, except per share data)

Total
Amount

     

Per
Share(1)

Total
Amount

     

Per
Share(1)

Core EPS(2) $ 0.48 $ 0.38
GAAP EPS $ 0.50 $ 0.57
Net investment income $ 201 $ 0.47 $ 144 $ 0.34
Net realized gains (losses) $ 56 $ 0.13 $ (12 ) $ (0.03 )
Net unrealized gains (losses) $ (43 ) $ (0.10 ) $ 110 $ 0.26
GAAP net income $ 214 $ 0.50 $ 242 $ 0.57
Dividends declared and payable $ 0.42 (3) $ 0.38
 
     
As of
(dollar amounts in millions, except per share data) March 31, 2019       December 31, 2018       March 31, 2018
Portfolio investments at fair value $ 13,064 $ 12,417 $   12,199
Total assets $ 13,962 $ 12,895 $ 12,693
Stockholders’ equity $ 7,339 $ 7,300 $ 7,178
Net assets per share $ 17.21 $ 17.12 $ 16.84
 

__________________________________________________

(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 net realized and unrealized gains and
losses, any capital gains incentive fees attributable to such net
realized and unrealized gains and losses and any income taxes related to
such net realized gains and losses. 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) Includes an additional dividend of $0.02 per share paid in the first
quarter ended March 31, 2019.

Portfolio Activity

                 
(dollar amounts in millions) Q1-19 Q4-18 Q1-18
Portfolio Activity During the Period:
Gross commitments $ 1,953 $ 2,709 $ 1,792
Exits of commitments $ 1,353 $ 1,021 $ 1,342
 
Portfolio as of the End of the Period:
Number of portfolio company investments 345 344 360
Weighted average yield of debt and other income producing
securities(4):
At amortized cost 10.4 % 10.2 % 10.1 %
At fair value 10.5 % 10.3 % 10.1 %
Weighted average yield on total investments(5):
At amortized cost 9.3 % 9.0 % 8.9 %
At fair value 9.5 % 9.3 % 8.8 %
 

__________________________________________________

(4) Weighted average yield of debt and other income producing securities
is computed as (a) the annual stated interest rate or yield earned plus
the net annual amortization of original issue discount and market
discount or premium earned on accruing debt and other income producing
securities divided by (b) the total accruing debt and other income
producing securities at amortized cost or at fair value as applicable.

(5) Weighted average yield on total investments is calculated as (a) the
annual stated interest rate or yield earned plus the net annual
amortization of original issue discount and market discount or premium
earned on accruing debt and other income producing securities divided by
(b) the total investments at amortized cost or at fair value as
applicable.

FIRST QUARTER 2019 OPERATING RESULTS

For the first quarter of 2019, Ares Capital reported GAAP net income of
$214 million or $0.50 per share (basic and diluted), Core EPS(2) of
$0.48 per share (basic and diluted), net investment income of $201
million or $0.47 per share (basic and diluted), and net realized and
unrealized gains of $13 million or $0.03 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 March 31, 2019, total assets were $14.0 billion, stockholders’
equity was $7.3 billion and net asset value per share was $17.21.

In the first quarter of 2019, Ares Capital made $2.0 billion in new
investment commitments, including commitments to 13 new portfolio
companies and 24 existing portfolio companies. Of the new commitments,
36 were sponsored transactions. As of March 31, 2019, 167 separate
private equity sponsors were represented in Ares Capital’s portfolio. Of
the $2.0 billion in new commitments made during the first quarter of
2019, 42% were in first lien senior secured loans, 39% were in second
lien senior secured loans, 8% were in the subordinated certificates of
the Senior Direct Lending Program, LLC (the “SDLP”), 7% were in
preferred equity and 4% were in other equity securities. Of these
commitments, 94% were in floating rate debt securities, of which 91%
contained interest rate floors and 9% were in the subordinated
certificates of the SDLP to make co-investments with Varagon Capital
Partners (“Varagon”) and its clients in floating rate first lien senior
secured loans through the SDLP, all of which contained interest rate
floors. Ares Capital may seek to sell all or a portion of these new
investment commitments, although there can be no assurance that Ares
Capital will be able to do so.

In the first quarter of 2019, significant new commitments included:

  • $467 million in first lien senior secured revolving and term loans, a
    second lien senior secured term loan and preferred and other equity in
    a revenue cycle management provider to physician practices and
    hospitals;
  • $180 million in a second lien senior secured term loan in a collision
    repair company;
  • $157 million in first lien senior secured revolving, delayed draw and
    term loans, second lien senior secured delayed draw and term loans and
    preferred and other equity in an enterprise management software
    provider for the convenience retail and petroleum wholesale market;
  • $156 million in the subordinated certificates of the SDLP to make
    co-investments with Varagon and its clients in first lien senior
    secured loans to two portfolio companies in a variety of industries;
  • $93 million in a first lien senior secured term loan in an outsourced
    data collection provider to the market research industry;
  • $91 million in a second lien senior secured term loan in a
    manufacturer of biologic, metal and synthetic implants and devices;
  • $89 million in first lien senior secured revolving and term loans in a
    manufacturer of packaging solutions and plastic injection molded
    products;
  • $58 million in a first lien senior secured delayed draw term loan and
    second lien senior secured delayed draw and term loans in an insurance
    service provider;
  • $56 million in first lien senior secured revolving and term loans and
    equity in a health food company;
  • $55 million in first lien senior secured revolving and term loans in a
    cloud-based business management solutions provider;
  • $54 million in a second lien senior secured term loan in a diversified
    food products manufacturer;
  • $52 million in a first lien senior secured term loan in a supply chain
    risk management platform provider;
  • $51 million in first lien senior secured revolving, delayed draw and
    term loans in an electronic payment processing solutions provider; and
  • $49 million in first lien senior secured revolving and term loans in a
    software provider for application development.

Also in the first quarter of 2019, Ares Capital exited approximately
$1.4 billion of investment commitments. Of the total investment
commitments exited, 70% were first lien senior secured loans, 29% were
second lien senior secured loans and 1% were other equity securities. Of
the approximately $1.4 billion of exited investment commitments, 98%
were floating rate, 1% were on non-accrual status and 1% were
non-interest bearing.

The fair value of Ares Capital’s portfolio investments at March 31, 2019
was $13.1 billion, including $11.8 billion in accruing debt and other
income producing securities. The total portfolio investments at fair
value were comprised of approximately 44% of first lien senior secured
loans, 30% of second lien senior secured loans, 6% of subordinated
certificates of the SDLP (the proceeds of which were applied to
co-investments with Varagon and its clients to fund first lien senior
secured loans through the SDLP), 6% of senior subordinated loans, 5% of
preferred equity securities and 9% of other equity securities. As of
March 31, 2019, the weighted average yield of debt and other income
producing securities in the portfolio at amortized cost and fair value
was 10.4% and 10.5%, respectively, the weighted average yield on total
investments in the portfolio at amortized cost and fair value was 9.3%
and 9.5%, respectively, and 85% of the total investments at fair value
were in floating rate securities.

“ARCC reported strong first quarter earnings driven by net portfolio
growth, increased fee income and stable credit and investment
performance,” said Kipp deVeer, Chief Executive Officer of Ares Capital.
“While we have remained highly selective, we have also continued to find
attractive investment opportunities with $2 billion in new commitments
to well positioned middle market companies.”

“On the balance sheet front, we have extended debt maturities, increased
available capital and further diversified our sources of financing in
support of our strategy of making compelling risk adjusted return
investments in franchise companies,” said Penni Roll, Chief Financial
Officer of Ares Capital.

PORTFOLIO QUALITY

Ares Capital Management LLC (“Ares Capital Management” or Ares Capital’s
“investment adviser”) employs an investment rating system to categorize
Ares Capital’s investments. In addition to various risk management and
monitoring tools, Ares Capital’s 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 Ares Capital’s initial cost
basis in respect of such portfolio investment (i.e., at the time of
origination or 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 Ares Capital’s 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 Ares Capital’s initial cost basis that is similar to
the risk to Ares Capital’s initial cost basis at the time of origination
or acquisition. This portfolio company is generally performing as
expected and the risk factors to Ares Capital’s ability to ultimately
recoup the cost of Ares Capital’s 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 Ares Capital’s 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 Ares Capital’s 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 Ares
Capital will not recoup Ares Capital’s initial cost basis and may
realize a substantial loss of Ares Capital’s initial cost basis upon
exit. For investments graded 1 or 2, Ares Capital’s investment adviser
enhances its level of scrutiny over the monitoring of such portfolio
company. The grade of a portfolio investment may be reduced or increased
over time.

As of March 31, 2019 and December 31, 2018, the weighted average grade
of the investments in Ares Capital’s portfolio at fair value was 3.1 and
3.0, respectively, and loans on non-accrual status represented 2.3% and
2.5%, respectively, of total investments at amortized cost (or 0.4% and
0.6%, respectively, at fair value).

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2019, Ares Capital had $572 million in cash and cash
equivalents and $6.3 billion in total aggregate principal amount of debt
outstanding ($6.2 billion at carrying value). Subject to leverage,
borrowing base and other restrictions, Ares Capital had approximately
$0.8 billion available for additional borrowings under its existing
credit facilities as of March 31, 2019.

In March 2019, Ares Capital issued $402.5 million aggregate principal
amount of unsecured convertible notes, that mature on March 1, 2024 (the
“2024 Convertible Notes”), unless previously converted or repurchased in
accordance with their terms. Ares Capital does not have the right to
redeem the 2024 Convertible Notes prior to maturity. The 2024
Convertible Notes bear interest at a rate of 4.625% per year, payable
semi-annually. The initial conversion price of $19.88 was approximately
15% above the $17.29 per share closing price of Ares Capital’s common
stock on March 5, 2019.

FIRST QUARTER 2019 DIVIDEND PAID AND 2019 DECLARED ADDITIONAL
DIVIDENDS

On February 12, 2019, Ares Capital declared a first quarter 2019
dividend of $0.40 per share and an additional first quarter 2019
dividend of $0.02 per share for a total of approximately $179 million.
The record date for these dividends was March 15, 2019 and the dividends
were paid on March 29, 2019.

On February 12, 2019, Ares Capital also declared additional dividends of
$0.02 per share to be distributed in the second, third and fourth
quarter of 2019. The second quarter 2019 additional dividend of $0.02
per share will be payable on June 28, 2019 to stockholders of record as
of June 14, 2019. The third quarter 2019 additional dividend of $0.02
per share will be payable on September 30, 2019 to stockholders of
record as of September 16, 2019. The fourth quarter 2019 additional
dividend of $0.02 per share will be payable on December 27, 2019 to
stockholders of record as of December 16, 2019. Payment of the
additional June 28, 2019, September 30, 2019 and December 27, 2019
dividends are subject to the satisfaction of certain Maryland law
requirements.

RECENT DEVELOPMENTS

In April 2019, Ares Capital amended and restated its senior secured
credit facility (as amended, the “Revolving Credit Facility”) to, among
other things, (a) increase the total size under the Revolving Credit
Facility from approximately $2.1 billion to approximately $3.4 billion,
(b) increase the size of the letter of credit sub-facility from $150
million to $200 million, with the ability of Ares Capital to increase
incrementally by $75 million on an uncommitted basis, (c) extend the
expiration of the revolving period with respect to all commitments of
the lenders under the credit facility to March 30, 2023, during which
period Ares Capital, subject to certain conditions, may make borrowings
under the credit facility, and (d) extend the stated maturity date with
respect to all commitments of the lenders under the credit facility to
March 30, 2024.

From April 1, 2019 through April 24, 2019, Ares Capital made new
investment commitments of approximately $183 million, of which $130
million were funded. Of these new commitments, 51% were in first lien
senior secured loans, 48% were in second lien senior secured loans and
1% were in the subordinated certificates of the SDLP. Of the
approximately $183 million of new investment commitments, 100% were
floating rate. The weighted average yield of debt and other income
producing securities funded during the period at amortized cost was
9.8%. Ares Capital may seek to sell all or a portion of these new
investment commitments, although there can be no assurance that it will
be able to do so.

From April 1, 2019 through April 24, 2019, Ares Capital exited
approximately $747 million of investment commitments. Of the total
investment commitments, 88% were first lien senior secured loans, 11%
were senior subordinated loans and 1% were other equity securities. Of
the approximately $747 million of exited investment commitments, 99%
were floating 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 9.3% and the weighted
average yield on total investments exited or repaid during the period at
amortized cost was 9.3%. On the approximately $747 million of investment
commitments exited from April 1, 2019 through April 24, 2019, Ares
Capital recognized total net realized gains of approximately $14 million.

In addition, as of April 24, 2019, Ares Capital had an investment
backlog and pipeline of approximately $1,055 million and $195 million,
respectively. Investment backlog includes transactions approved by Ares
Capital’s investment adviser’s investment committee and/or for which a
formal mandate, letter of intent or a signed commitment have been
issued, and therefore Ares Capital believes 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, Ares
Capital’s acceptance of the terms and structure of such investment and
the execution and delivery of satisfactory transaction documentation. In
addition, Ares Capital may sell all or a portion of these investments
and certain of these investments may result in the repayment of existing
investments. Ares Capital cannot assure you that it will make any of
these investments or that Ares Capital will sell all or any portion of
these investments.

On April 24, 2019, at an in-person meeting, the Board of Directors of
Ares Capital approved the form of Second Amended and Restated Advisory
and Management Agreement to be entered into by Ares Capital and its
investment adviser, effective as of June 6, 2019. The Second Amended and
Restated Advisory and Management Agreement will reduce the rate used in
calculating the base management fee calculated thereunder from 1.50% to
1.00% per annum with respect to assets financed using leverage over 1.0x
debt to equity.

On April 24, 2019, the Board of Directors of Ares Capital appointed (i)
Lisa Morgan as Chief Compliance Officer of Ares Capital, replacing
Miriam Krieger who had served in such capacity since July 2011, and (ii)
Miriam Krieger as Vice President of Ares Capital.

WEBCAST / CONFERENCE CALL

Ares Capital will host a webcast/conference call on Tuesday, April 30,
2019 at 12:00 p.m. (Eastern Time) to discuss its quarter ended March 31,
2019 financial results. PLEASE VISIT ARES CAPITAL’S WEBCAST LINK LOCATED
ON THE HOME PAGE OF THE INVESTOR RESOURCES SECTION OF ARES CAPITAL’S
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 Ares Capital’s website at 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 0181728 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 May 14, 2019 at 5:00 p.m. (Eastern
Time) 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 10129711. An archived replay will also be available
through May 14, 2019 on a webcast link located on the Home page of the
Investor Resources section of Ares Capital’s website.

ABOUT ARES CAPITAL CORPORATION

Ares Capital is a leading specialty finance company that provides
one-stop debt and equity financing solutions to U.S. middle market
companies and power generation projects. Ares Capital 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 (“BDC”) and is the largest BDC by both
market capitalization and total assets. Ares Capital is externally
managed by a subsidiary of Ares Management Corporation (NYSE: ARES), a
publicly traded, leading global alternative asset manager. For more
information about Ares Capital Corporation, visit 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 Ares Capital’s 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 Ares Capital’s filings with the Securities and
Exchange Commission. Ares Capital undertakes no duty to update any
forward-looking statements made herein or on the webcast/conference call.

ARES CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEET

(in millions, except per share data)

     
As of
March 31, 2019       December 31, 2018
(unaudited)
ASSETS
Total investments at fair value (amortized cost of $13,440 and
$12,754, respectively)
$ 13,064 $ 12,417
Cash and cash equivalents 572 296
Interest receivable 114 91
Receivable for open trades 28 12
Operating lease right-of-use asset 105
Other assets 79   79
Total assets $ 13,962   $ 12,895
LIABILITIES
Debt $ 6,197 $ 5,214
Base management fees payable 49 45
Income based fees payable 38 36
Capital gains incentive fees payable 64 112
Interest and facility fees payable 25 64
Payable for open trades 35 25
Operating lease liabilities 137
Accounts payable and other liabilities 78   99
Total liabilities 6,623 5,595
STOCKHOLDERS’ EQUITY

Common stock, par value $0.001 per share, 600 common shares
authorized; 426 and 426 common shares issued and outstanding,
respectively

Capital in excess of par value 7,177 7,173
Accumulated undistributed earnings 162   127
Total stockholders’ equity 7,339   7,300
Total liabilities and stockholders’ equity $ 13,962   $ 12,895
NET ASSETS PER SHARE $ 17.21   $ 17.12
 

Contacts

INVESTOR RELATIONS

Ares Capital Corporation
Carl G. Drake or John Stilmar
(888)
818-5298
[email protected]

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