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Ares Capital's 12% Yield: It Sticks Out Like A Sore Thumb

Published Fri, 22 May 2020 16:49:10 -0400 on Seeking Alpha

Ares Capital is a big-dividend business development company that has sold off hard during the pandemic because of its exposure to small (middle market) businesses.
In this report we review the business (including important sector exposures), the balance sheet liquidity (to deal with the crisis), dividend safety, valuation and risks.
We conclude with our opinion on why this particular BDC stands out like a sore thumb.
Ares Capital (ARCC) is a big-dividend business development company (“BDC”) that has sold off hard during the pandemic because of its exposure to small (“middle-market”) businesses (i.e. the business than have been hit particularly hard). In this article we review the business (including important sector exposures), the balance sheet liquidity (to deal with the crisis), dividend safety, valuation and risks, and then conclude with our opinion on why this particular BDC stands out like a sore thumb.
Ares Capital Share Price:

Overview:
Ares Capital Corporation is an externally-managed business development company primarily focused on providing debt and equity financing to middle market companies (annual EBITDA between $10 million and $250 million) and power generation projects in the US. As of March 31, 2020, ARCC is the largest BDC in the United States with ~$14.4 billion in total assets.
For a little more color, Ares middle-market portfolio investments generally range in size from $30 million to $500 million, and consist primarily of senior secured debt investments, mezzanine debt, and equity in some cases. Also, Ares “Power Generation or Project Finance” investments are in the range of $10 to $200 million, consisting primarily of debt instruments.
ARCC’s portfolio is highly diversified across 354 companies with senior secured (first and second lien) accounting for ~80% of total investments. This adds to safety as first and second lien senior secured loans rank ahead of subordinated debt. Ares' portfolio is more... Read more


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