Ares Capital, which saw its shares drop more than 45% this month, said it has $ 2.7 billion in cash and substantial secured lines of credit to weather the Covid-19 crisis.
Ares (ticker: ARCC), one of the largest business development companies, said in a letter dated 23 March to shareholders who saw an increase in requests for loans from borrowers, which it satisfied. The specialist finance firm said its “strong liquidity position” will allow it to meet these contractual demands and make further investments on “increasingly attractive terms”.
BDCs typically lend to small and medium-sized companies which are often backed by private equity firms. The BDCs themselves are sometimes managed by PE companies. Carlyle Group (CG) and Investcorp have BDC.
Last week, several PE companies direct their portfolio companies affected by Covid-19 to draw on their revolving loans. The move was an attempt to maintain liquidity.
“We have successfully traversed market cycles and disruptions in the past and believe we are well positioned to withstand the current market and emerge as a strong company in a more favorable investment environment after the disruption,” said the CEO and Director. by Ares Kipp deVeer in the letter.
Ares said the earliest due date for any of his bank loans is March 2024, while none of his unsecured term notes are due until 2022. As of March 15, more than half of his debt funded was in unsecured forward notes. These loans give Ares “significant unencumbered assets and provide significant over-collateralisation of our secured lines of credit,” according to the letter. (His treasury of $ 2.7 billion was also as of March 15.)
Ares tried to reassure investors as Covid-19 volatility hits the US stock market. The virus caused the issuance of several states refuge orders on the spot and has led to the closure of many businesses in an attempt to stem the spread of the coronavirus. Ares said he is in constant dialogue with his portfolio companies, but said it is “too early to quantify the impacts of Covid-19”.
Other BDCs saw their shares decline this month. Actions of
FS KKR Capital
(FSK) fell 46% this month, while
Bain Capital Specialty Finance
(BCSF) fell by nearly 50%. BlackRock TCP Capital (TCPC) lost 54%.
The Ares portfolio, as of December 31, includes 354 companies, of which approximately 85% backed by private equity, and was worth approximately $ 14.9 billion. Excluding its Senior Direct Lending Program and Ivy Hill Asset Management, no single borrower represents more than 3% of the portfolio at fair value. Ares said its portfolio is more concentrated in defensive sectors such as healthcare, software, and commercial and professional services and services, and is underweight in cyclical sectors such as retail, energy and transportation.
Shares of Ares are up 18.4%, to $ 9.57, in recent trading. The
grew by 7.1%.
Write to Luisa Beltran at [email protected]