Ares Capital Corporation Announces March 31, 2021 Financial Results and Declares Second Quarter 2021 Dividend of $0.40 Per Share

Rhea-AI Summary

Ares Capital Corporation (NASDAQ: ARCC) has declared a second quarter dividend of $0.40 per share, payable on June 30, 2021. The company reported strong financial results for Q1 2021, including a GAAP net income of $373 million or $0.87 per share, and a core EPS of $0.43. Total assets stood at $16 billion with a net asset value per share of $17.45. Ares Capital made $1.8 billion in new investment commitments in Q1, highlighting a robust portfolio that continues to thrive amidst economic recovery.

Positive

• GAAP net income increased to $373 million or $0.87 per share.
• Core EPS rose to $0.43, compared to $0.41 in Q1 2020.
• Total assets at $16 billion, with stockholders' equity at $7.6 billion.
• Strong new investment commitments of $1.8 billion in Q1 2021.

Negative

• Net investment income decreased from $234 million in Q1 2020 to $144 million in Q1 2021.
• Total portfolio investments decreased slightly from $15.5 billion in Q4 2020 to $15.4 billion in Q1 2021.

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 30, 2021 to stockholders of record as of June 15, 2021.

MARCH 31, 2021 FINANCIAL RESULTS

Ares Capital also announced financial results for its first quarter ended March 31, 2021.

HIGHLIGHTS

Financial

		Q1-21								Q1-20
(dollar amounts in millions, except per share data)		Total Amount				Per Share(1)				Total Amount				Per Share(1)
Core EPS(2)						$	0.43							$	0.41
GAAP net income (loss) per share						$	0.87							$	(1.42)
Net investment income		$	144			$	0.33			$	234			$	0.54
Net realized gains		$	16			$	0.04			$	34			$	0.08
Net unrealized gains (losses)		$	213			$	0.50			$	(880)			$	(2.04)
GAAP net income (loss)		$	373			$	0.87			$	(612)			$	(1.42)
Dividends declared and payable						$	0.40							$	0.40

		As of
(dollar amounts in millions, except per share data)		March 31, 2021				December 31, 2020				March 31, 2020
Portfolio investments at fair value		$	15,429			$	15,515			$	14,370
Total assets		$	16,021			$	16,196			$	15,806
Stockholders’ equity		$	7,632			$	7,176			$	6,583
Net assets per share		$	17.45			$	16.97			$	15.58
Debt/equity ratio		1.06x				1.20x				1.26x

(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 net income (loss) per share 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.

Portfolio Activity

(dollar amounts in millions)		Q1-21				Q4-20				Q1-20
Portfolio Activity During the Period:
Gross commitments		$	1,750			$	3,858			$	1,272
Exits of commitments		$	2,138			$	3,032			$	918
Portfolio as of the End of the Period:
Number of portfolio company investments		350				350				355
Weighted average yield of debt and other income producing securities(3):
At amortized cost		8.9		%		9.1		%		8.9		%
At fair value		9.1		%		9.2		%		9.4		%
Weighted average yield on total investments(4):
At amortized cost		7.9		%		8.0		%		7.9		%
At fair value		8.0		%		8.2		%		8.5		%

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(3) 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.

(4) 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 2021 OPERATING RESULTS

For the first quarter of 2021, Ares Capital reported GAAP net income of $373 million or $0.87 per share (basic and diluted), Core EPS(2) of $0.43 per share (basic and diluted), net investment income of $144 million or $0.33 per share (basic and diluted), and net realized and unrealized gains of $229 million or $0.54 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, 2021, total assets were $16.0 billion, stockholders’ equity was $7.6 billion and net asset value per share was $17.45.

In the first quarter of 2021, Ares Capital made $1.8 billion in new investment commitments, of which $1.4 billion were funded, including 21 new portfolio companies and 18 existing portfolio companies. As of March 31, 2021, 176 separate private equity sponsors were represented in Ares Capital’s portfolio. Of the $1.8 billion in new commitments made during the first quarter of 2021, 78% were in first lien senior secured loans, 15% were in second lien senior secured loans, 3% were in senior subordinated loans, 3% were in preferred equity securities and 1% were in other equity securities. Of these commitments, 88% were in floating rate debt securities, of which 99% 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. Also in the first quarter of 2021, Ares Capital funded $183 million related to previously existing unfunded revolving and delayed draw loan commitments.

Also in the first quarter of 2021, Ares Capital exited approximately $2.1 billion of investment commitments, including $283 million of loans sold to Ivy Hill Asset Management L.P. (“IHAM”) or certain vehicles managed by IHAM. Of the total investment commitments exited, 52% were first lien senior secured loans, 30% were second lien senior secured loans, 8% were preferred equity securities, 5% were senior subordinated loans, 3% were subordinated certificates of the Senior Direct Lending Program, LLC (the “SDLP”) and 2% were other equity securities. Of the approximately $2.1 billion of exited investment commitments, 92% were floating rate, 4% were fixed rate, 3% were non-income producing and 1% were on non-accrual.

The fair value of Ares Capital’s portfolio investments at March 31, 2021 was $15.4 billion, including $13.6 billion in accruing debt and other income producing securities. The total portfolio investments at fair value were comprised of approximately 47% of first lien senior secured loans, 25% of second lien senior secured loans, 7% 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, 6% of preferred equity securities and 9% of other equity securities. As of March 31, 2021, the weighted average yield of debt and other income producing securities in the portfolio at amortized cost and fair value was 8.9% and 9.1%, respectively, the weighted average yield on total investments in the portfolio at amortized cost and fair value was 7.9% and 8.0%, respectively, and 82% of the total investments at fair value were in floating rate securities.

“Our first quarter results mark a strong start to 2021 with year-over-year growth in both core and GAAP earnings and ending with a record NAV per share,” said Kipp deVeer, Chief Executive Officer of Ares Capital. “Our portfolio continues to perform well and is benefitting from the improvement in the overall economy. We believe that our leading market position, deeply experienced team and highly disciplined investment approach leaves us well positioned to make attractive new investments in both a recovering economy and a growing market opportunity.”

“We continued to use our competitive advantages and deep capital market relationships to raise $1.4 billion of attractive long-term debt capital during the quarter,” said Penni Roll, Chief Financial Officer of Ares Capital. “We also accretively issued approximately $250 million of equity at a premium to NAV, our first secondary equity raise in almost seven years. With $5.2 billion of available liquidity and a predominately unsecured funding profile, we believe that our balance sheet remains one of our most significant competitive advantages and provides us with significant flexibility.”

PORTFOLIO QUALITY

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 h

FAQ

What is the declared dividend for Ares Capital Corporation for Q2 2021?

Ares Capital declared a dividend of $0.40 per share for Q2 2021.

What were Ares Capital's financial results for Q1 2021?

In Q1 2021, Ares Capital reported a GAAP net income of $373 million and core EPS of $0.43.

What is the net asset value per share for Ares Capital as of March 31, 2021?

The net asset value per share for Ares Capital is $17.45 as of March 31, 2021.

How much did Ares Capital invest in new commitments in Q1 2021?

Ares Capital made $1.8 billion in new investment commitments in Q1 2021.