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Ares Capital: Prices And Issues New Notes

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NEWS

On July 8, 2020 Ares Capital (ARCC) completed the issuance and pricing of new unsecured notes.

The new debt issuance was previously discussed by the BDC Reporter on July 7, 2020.

ARCC issued $750mn of notes, which will mature in 2026.

The debt yields 3.875%, paid semi-annually and “may be redeemed in whole or in part at Ares Capital’s option at any time at par plus a ‘make-whole’ premium, if applicable”.

The proceeds will be applied to repay existing secured debt, as previously indicated.

See the ARCC press release attached.


ANALYSIS

Follow-Up

As mentioned, the BDC Reporter discussed the new ARCC issue prior to the formal issuance and pricing.

Here are observations about the key components:

Size

This was a large debt issue by ARCC’s standards.

Of the eight existing unsecured notes and convertible debt issues on the BDC’s balance sheet, the new $750mn offering is tied for second place in terms of size.

The only bigger unsecured debt issue was for $900mn.

This issue will initially repay about 20% of existing secured facility borrowings.

Yield

At 3.875% for 5.5 years, the new issue is not the best yield ARCC has ever been able to raise debt capital at, but still the lowest of any post-Covid BDC issuance.

The lowest yield of any ARCC unsecured debt was 3.25%.


VIEWS

Thumbs Up

For ARCC to be able to tap the institutional unsecured debt market at this yield and for this size speaks well to the BDC’s popularity.

Liquidity is boosted and reliance on secured debt financing is reduced.

The latter is important because many BDC secured debt facilities are at risk of seeing availability reduced due to credit setbacks.

Good. Not Best

Nonetheless, with interest rates at an all time-low and ARCC boasting an investment grade rating , the fact that the yield paid was higher than on prior financings is telling.

Institutional investors may be willing to plump down new debt capital to the “best” names in the BDC space, but it’s still a lender’s market.

We’re still a ways off the spread over Treasuries achievable before Covid-19.

If and when that does occur – and if rates stay where they are today – expect to see a 3.00% print for issuers like ARCC.

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