Ares- Raising New Equity Capital?
Do you know that the key Business Development company:Ares Capital (ARCC)is desiring to become bigger?This was proved when the said company declared an equity that offers as much as $2bn in new equity. Ares is mum when it comes to what the proceeds will be used for but it’s been rumored that the company has a bead on an acquisition. Read what what the filing states below:
“We believe the recent dislocation and illiquidity in the credit markets has increased the likelihood of further consolidation in our industry. To that end, we and our portfolio company IHAM are evaluating (and expect to continue to evaluate in the future) a number of potential strategic acquisition opportunities, including acquisitions of:
•asset portfolios; •contracts to manage CLO vehicles and other investment vehicles; •other private and public finance companies or asset managers; and •selected secondary market assets.
We and our portfolio company IHAM have been and from time to time engage in discussions with counterparties in respect of various potential strategic acquisition and investment transactions, including potential acquisitions of other finance companies. Some of these transactions could be material to our business and, if consummated, could be difficult to integrate, result in increased leverage or dilution and/or subject us to unexpected liabilities. However, none of these discussions has progressed to the point where the consummation of any such transaction could be deemed to be probable or reasonably certain as of the date of this prospectus. Consummation of any such transaction will be subject to completion of due diligence, finalization of key business and financial terms (including price) and negotiation of final definitive documentation as well as a number of other factors and conditions including, without limitation, the approval of our board of directors (after having determined that such transaction is in the best interest of our stockholders), any required third party consents and, in certain cases, the approval of our stockholders. We cannot predict how quickly the terms of any such transaction could be finalized, if at all. Accordingly, there can be no assurance that definitive documentation for any such transaction would be executed or even if executed, that any such transaction will be consummated. In connection with evaluating potential strategic acquisition and investment transactions, we have, and may in the future, incur significant expenses for the evaluation and due diligence investigation of these potential transactions.”
TARGET: MCGC? OTHER PROSPECTS?
There was no given name who Ares might be in discussions with but some say it’s Micrograms Capital (MCGC) since the company’s stocks remains moving violently in recent days. MCGC’s price at a discount will be within the $700mn-$750mn range, which is within Ares’ ambit.
There are also other prospects aside from MCGC and the one of the names that came up was CLO or Centralized Loan Obligations.
ARES Remains VERY BUSY IN RECENT Days
Although Ares has not yet revealed its third quarter 2011 revenue, the company said that the third quarter for them was one of the busiest quarter with total commitments equating up to 30% of total investments at June.
PORTFOLIO CLEAN-UP?
The filing also offers a sneak peek of the 3rd quarter’s report, and recorded was the $971mn in repayments and 2% of this were of non-accruing loans proving that Ares is continuing its very effective campaign in cleaning its balance sheet.
YIELDS Lower, THEN UP?
A very interesting revelation is that the average yields on new loans booked were 10.0%, while loans being paid back were generating 10.2% which indicates pressure on Ares’ average portfolio yield. On the other hand, when loan spreads are going forward so that new assets are now exceeding paid-off assets and risk remains unchanges, this is usually good news for the company and shareholders. Furthermore, Ares will be producing higher returns from all the new loans booked by distributing a percentage of them, which assists return on assets and equity. Even during slightly more challenging environment we will still expect Ares to have the ability to find a home for these newly minted loans considering that the majority are senior in the capital structure and came from larger sized borrowers. Moreover, Ares carries on investing more capital in its JV with GE Capital and the structure of that deal is accretive to the aggregate yield. Therefore we may have a little drop in the average yield in the third quarter, but notice a catch-up and a rise in future periods.
CONCLUSION
Although Ares has a laddered debt profile, it is still the cream of the crop when it comes to larger BDC’s. And considering these moves from Ares, I believe that they can withstand a potential recession in 2012.
