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BDC Market Agenda: Monday April 5, 2021

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On The Docket

With the Good Friday holiday, we’ve had a little tick-up in the volume of BDC-related news stories – see below – but nothing very earth shattering or worthy of the full BDC Reporter treatment.

  • Ares Capital (ARCC) Amends Revolver With JP Morgan Chase: In a routine move, ARCC “amended and restated” its Revolver for an additional year and increased the facility amount. Here are the key provisions culled from an 8-K:

The A&R Credit Facility, among other things, (a) increased the total commitment under the A&R Credit Facility from approximately $3.61 billion to approximately $3.96 billion, (b) extended the expiration of the revolving period for lenders electing to extend their commitments in an amount equal to approximately $3.76 billion from March 30, 2024 to March 31, 2025, during which period the Registrant, subject to certain conditions, may make borrowings under the A&R Credit Facility, and (c) extended the stated maturity date for lenders electing to extend their commitments in an amount equal to approximately $3.76 billion from March 30, 2025 to March 31, 2026. Lenders who elected not to extend their commitments in an amount equal to approximately $200 million will remain subject to a revolving period expiration of March 30, 2024 and a stated maturity date of March 30, 2025. The A&R Credit Facility is composed of a revolving loan tranche equal to approximately $3.15 billion and a term loan tranche in an amount equal to approximately $817 million. The A&R Credit Facility includes an “accordion” feature that allows the Registrant, under certain circumstances, to increase the size of the facility by an amount up to approximately $2.0 billion. The A&R Credit Facility continues to be secured by a material portion of the Registrant’s assets (excluding, among other things, investments held in and by certain subsidiaries of the Registrant or investments in certain portfolio companies of the Registrant) and guaranteed by certain subsidiaries of the Registrant“.

Last time we checked – and before adjusting for the recent equity secondary – ARCC needed under a half billion dollars to reach its target leverage but had as much as 4x in liquidity available, as management made clear on February 15 during its conference call:

“We had $2.6 billion of excess liquidity at the end of Q1 2020 and have now grown this uninvested capital to over $4 billion at year-end”.

  • Capital Southwest Appoints New Director: The BDC announced the appointment of Ramona L. Rogers-Windsor as a new independent member of its board of directors on March 26, 2021. Here is a summary of the new director’s experience:

“Ms. Rogers-Windsor is a senior finance executive with over 38 years of experience across multiple segments of the financial services industry including global investment management, public accounting audit, life insurance financial risk underwriting and retail brokerage. Ms. Rogers-Windsor spent 23 years in investment management with Northwestern Mutual, most recently as Managing Director and Portfolio Manager from 2012-2019. Prior to her role in asset management, from 1990 through 1996, Ms. Rogers-Windsor developed financial underwriting standards for life and disability insurance and consulted on large cases for Northwestern Mutual, culminating in her role as Underwriting Standards Financial Officer. Ramona’s early career was with Robert W. Baird & Co., a Northwestern Mutual subsidiary, in trading and sales and at Arthur Andersen, LLP as an auditor. In March 2021, Ramona joined the Cohen & Steers Funds board and since December 2020, has served as a Board Trustee for Thomas Jefferson University in Philadelphia. Her past non-profit board experience includes Milwaukee Film from 2016 through 2019, The Girl Scouts of Milwaukee from 1987 through 1991, and University School of Milwaukee from 2004 through 2010. Ms. Rogers-Windsor holds a Bachelor of Science in Accounting from Marquette University, a U.S. CPA license and is a CFA Charterholder”.

  • Dyal’s Merger With Owl Rock Capital Clears Legal Hurdle: A Bloomberg article on April 2, 2021 brought us the latest update about Dyal Capital Partners contentious attempt to take Owl Rock Capital Partners – manager of Owl Rock Capital (ORCC) public via a SPAC. Both Golub Capital – manager of Golub Capital BDC (GBDC) and Sixth Street Partners – manager of Sixth Street Specialty Lending (TSLX) – have contested the right of Dyal to do so, given that the promiscuous asset manager has invested in them as well.  Golub Capital got its time in court, but did not get far, as Bloomberg explains:

“Golub Capital was denied a court order it sought to temporarily bar its part-owner Dyal Capital Partners from merging with a rival in the direct-lending business, a deal that has spurred a legal backlash against Dyal.New York State Supreme Court Justice Joel Cohen made the ruling from the bench on Friday, saying Golub was unlikely to succeed on the merits of its case. He called Golub’s contention that Dyal had given up its right to make such deals when it bought a stake in Golub in 2018 “wildly implausible.”

Chances look good that Dyal’s SPAC will go through over the objections of its two other partners. How this will impact BDC investors in ORCC,TSLX or GBDC is hard to handicap, but these sorts of battles between multi billion dollar firms associated                  with the BDC sector don’t happen every day so we’ll continue to chronicle developments till a final resolution is reached.

Credit Review

We are still working on the IVQ 2020 credit review of Ares Capital (ARCC). We found ourselves distracted over the holiday week-end by new developments at publicly-traded Sequential Brands, which has just arrived at yet another brief modus vivendi with one of its lender groups. We’ll be re-publishing a BDC Credit Reporter article on the subject which bears reading if you’re an investor in FS-KKR Capital (FSK); FS-KKR Capital II (FSKR) or – to a lesser degree – Apollo Investment (AINV). BDC exposure in debt and equity to the troubled consumer brands company is in the hundreds of millions, and we expect something market moving to happen shortly.

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