Ares Capital Earnings Hit by Pluralsight Restructuring
By Andrew Coen July 30, 2024 12:50 pm
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Ares Capital Corporation saw lower profits and $48 million in unrealized losses spurred partly by a markdown from its exposure to a failed educational software firm, the company said in its earnings call Tuesday.
The New York-based company’s profits dipped slightly in the second quarter to $322 million, or 52 cents per share, compared with $331 million, or 61 cents per share during the same time last year.
Kipp deVeer, CEO of Ares Capital, said $48 million of unrealized losses were connected in part to being one of the creditors to Vista Equity, which ceded control of software firm Pluralsight to private lenders as part of a debt restructuring.
“When we really drill through and look at who are the biggest sponsors in the portfolio, they’re obviously sponsors that we do a tremendous amount of business with, and that we have a lot of confidence in, and Vista is one of [those sponsors],” deVeer said in the earnings call. “This is not the first situation where we have to step in and own a company with either the management team as a sole lender or with a group of other lenders.”
While Ares’ bottom line took a hit in the second quarter, the lender did take steps to bolster its lending portfolio with the issuance of $850 million in aggregate principal amount of unsecured notes consisting of a 5.95 percent interest rate with a July 2029 maturity date. In connection with these notes, Ares entered into an interest rate swap agreement of $850 million that includes a fixed interest rate of 5.95 percent.
“During this higher rate environment, we swapped this issuance to floating rate and timed it such that we achieved highly favorable terms resulting in a floating-rate spread to one-month SOFR of 164 basis points,” Scott Lem, chief financial officer of Ares Capital, said during the earnings call. “We’ve been able to reduce the overall weighted average spread for our floating-rate debt obligations and continue to drive what we believe are industry-leading borrowing terms.”
At the end of the second quarter on June 30, 2024, Ares Capital had $13 billion in total aggregate principal amount of debt outstanding. It also had roughly $4.5 billion available for new borrowing under its existing credit facilities.
Lem said around 60 percent of Ares’ lending activities in the second quarter involved existing borrower clients.
Andrew Coen can be reached at acoen@commercialobserver.com.
