Ares Capital Stock: Stable on Improving Yields and Capital Structure

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Part 6
Ares Capital Stock: Stable on Improving Yields and Capital Structure PART 6 OF 7

How Deleveraging at Ares Capital Is Beneficial for Stock

Strong balance sheet

Ares Capital’s (ARCC) net DE (debt-to-equity) ratio improved to 0.63x as of March 31, 2015. The improvement was mainly due to net debt repayments during the first quarter. The company is focusing on the right hand side of its balance sheet. It wants to lower the cost of debt capital and maintain a prudent maturity level for its debt and diverse sources of capital.

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Major movements in debt funding during the quarter:

  • In January, the company raised an additional $200 million of 3.875% notes at a premium to par.
  • In March, it redeemed part of the full $144 million of 7% unsecured notes that were scheduled to mature in February 2022.

Increasing debt options

As part of an amendment to Ares Capital’s largest revolving credit facility, the company upsized the facility’s total commitments to $1.29 billion with commitments from 20 banks. This led to an extension of the revolving period and maturity by one year each. This brought it back to a five-year term. The modification in the borrowing spread lowered the interest cost by 25 bps (basis points). The weighted average stated interest rate on the company’s drawn debt capital at the end of the quarter was 5.2%. This was up slightly from its weighted average stated interest rate of 4.9% on December 31, 2014. It was down from 5.4% as of March 31, 2014.

As of March 31, 2015, the weighted average remaining term of Ares Capital’s outstanding liabilities was 6.4 years. It had ~$2.2 billion of undrawn availability under lower cost revolving credit facilities.

Below is the return on equity among its peers:

  • CIT Group (CIT) – 12.72%
  • American Capital (ACAS) – 7.22%
  • United Rentals (URI) – 35.85%

Together, these companies form 2.04% of the PowerShares Global Listed Private Equity Portfolio (PSP).


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