Item 2.02. Results of Operations and Financial Condition.
Public Offering
On January 12, 2022, Ares Capital Corporation (the "Company") filed a
preliminary prospectus supplement (the "Preliminary Prospectus Supplement") with
the Securities and Exchange Commission (the "SEC") in connection with a proposed
offering of shares of its common stock. The Preliminary Prospectus Supplement
included a summary of certain preliminary estimates regarding the Company's
financial results for the quarter ended December 31, 2021 as well as certain
other recent developments, which are set forth below. The preliminary estimated
data and other information set forth below should not be considered a substitute
for the financial information to be filed with the SEC in the Company's Annual
Report on Form 10-K for the year ended December 31, 2021 once it becomes
available. These estimates are based on management's preliminary determination
and have not been approved by our board of directors.
Preliminary Estimates of Results as of December 31, 2021
The Company estimates that basic and diluted GAAP earnings per share ("EPS")
will be in the range of $0.77 to $0.86 and basic and diluted Core EPS will be in
the range of $0.56 to $0.58, in each case, for the three months ended
December 31, 2021 and net asset value per share as of December 31, 2021 will be
in the range of $18.90 to $19.00. These estimates are based on management's
preliminary determination and have not been approved by the Company's board of
directors.
Basic and diluted Core EPS is a non-GAAP financial measure. Core EPS is the net
per share increase (decrease) in stockholders' equity resulting from operations
less net realized and unrealized gains and losses, any capital gains incentive
fees attributable to such net realized and unrealized gains and losses and any
income taxes related to such net realized gains and losses. The Company believes
that Core EPS provides useful information to investors regarding financial
performance because it is one method the Company uses to measure its financial
condition and results of operations. The presentation of this additional
information is not meant to be considered in isolation or as a substitute for
financial results prepared in accordance with GAAP.
A reconciliation of the Company's estimated basic and diluted Core EPS to the
Company's estimated and basic and diluted GAAP EPS, the most directly comparable
GAAP financial measure, for the three months ended December 31, 2021 is provided
below:
For the three
months ended
December 31, 2021
Range of estimated basic and diluted Core EPS $ 0.56 - 0.58
Range of estimated net realized and unrealized gains
(losses)
0.26 - 0.35
Range of estimated capital gains incentive fees attributed
to net realized and unrealized gains and losses
(0.05) - (0.07)
Range of estimated income tax expense related to net
realized gains and losses
0.00 - 0.00
Range of estimated basic and diluted GAAP EPS $ 0.77 - 0.86
The estimates presented above are based on management's preliminary
determinations only and, consequently, the data set forth in the Company's
Annual Report for the year ended December 31, 2021 may differ from these
estimates. For example, estimated net asset value per share is based on the
value of the Company's total assets, including the Company's investments
(substantially all of which are not publicly traded or whose market prices are
not readily available, the fair value of which must be determined by the
Company's board of directors in good faith). The fair value of such investments
have not yet been determined by the Company's board of directors and the actual
fair value of such investments, when determined by the Company's board of
directors, may be different than the estimates reported herein. In addition, the
information presented above does not include all of the information regarding
the Company's financial condition and results of operations as of and for the
period ended December 31, 2021 that may be important to investors. As a result,
investors are cautioned not to place undue reliance on the information presented
above and should view this information in the context of the Company's full
fourth quarter results when such results are disclosed by the Company in its
Annual Report for the year ended December 31, 2021. The information presented
above is based on current management expectations that involve substantial risk
and uncertainties that could cause actual results to differ materially from the
results expressed in, or implied by, such information. The Company assumes no
duty to update these preliminary estimates except as required by law.
The preliminary financial estimates provided herein have been prepared by, and
are the responsibility of, management. Neither KPMG LLP, the Company's
independent registered accounting firm, nor any other independent accountants,
have audited, reviewed, compiled, or performed any procedures with respect to
the accompanying preliminary financial data. Accordingly, KPMG LLP does not
express an opinion or any other form of assurance with respect thereto.
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Other Recent Developments
From October 1, 2021 through December 29, 2021, the Company made new investment
commitments of approximately $5.6 billion, including $296 million of new
investment commitments to IHAM. Of the approximately $5.6 billion of new
investment commitments, $4.8 billion were funded. Of these new commitments, 64%
were in first lien senior secured loans, 16% were in second lien senior secured
loans, 2% were in subordinated certificates of the SDLP, 2% were in senior
subordinated loans, 4% were in preferred equity and 12% were in other equity. Of
the approximately $5.6 billion of new investment commitments, 83% were floating
rate, 12% were non-income producing and 5% were fixed rate. The weighted average
yield of debt and other income producing securities funded during the period at
amortized cost was 7.2% and the weighted average yield on total investments
funded during the period at amortized cost was 6.3%. The Company may seek to
sell all or a portion of these new investment commitments, although there can be
no assurance that the Company will be able to do so.
From October 1, 2021 through December 29, 2021, the Company exited approximately
$3.5 billion of investment commitments, including $1.3 billion of loans sold to
IHAM or certain vehicles managed by IHAM. Of the total investment commitments
exited, 78% were first lien senior secured loans, 15% were second lien senior
secured loans, 4% were senior subordinated loans, 2% were subordinated
certificates of the SDLP and 1% were other equity. Of the approximately $3.5
billion of exited investment commitments, 98% were floating rate, 1% were
non-income producing and 1% were on non-accrual status. The weighted average
yield of debt and other income producing securities exited or repaid during the
period at amortized cost was 7.0% and the weighted average yield on total
investments exited or repaid during the period at amortized cost was 6.8%. Of
the approximately $3.5 billion of investment commitments exited from October 1,
2021 through December 29, 2021, the Company recognized total net realized losses
of approximately $11 million, including $3 million of net realized losses from
the sale of loans to IHAM or certain vehicles managed by IHAM.
In addition, as of December 29, 2021, the Company had an investment backlog and
pipeline of approximately $1.0 billion and $29 million, respectively. Investment
backlog includes transactions approved by the Company's investment adviser's
investment committee and/or for which a formal mandate, letter of intent or a
signed commitment have been issued, and therefore the Company believes are
likely to close. Investment pipeine includes transactions where due diligence
and analysis are in process, but no formal mandate, letter of intent or signed
commitment have been issued. The consummation of any of the investments in this
backlog and pipeline depends upon, among other things, one or more of the
following: satisfactory completion of the Company's due diligence investigation
of the prospective portfolio company, the Company's acceptance of the terms and
structure of such investment and the execution and delivery of satisfactory
transaction documentation. In addition, the Company may sell all or a portion of
these investments and certain of these investments may result in the repayment
of existing investments. The Company cannot assure you that it will make any of
these investments or that it will sell all or any portion of these investments.
The information presented under Item 2.02 is being "furnished" and shall not be
deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act
of 1934 and shall not be deemed incorporated by reference into any filing made
under the Securities Act of 1933, except as may be expressly set forth by
specific reference in such a filing.
Item 7.01. Results of Operations and Financial Condition.
The information contained in Item 2.02 of this Current Report on Form 8-K is
incorporated by reference herein.
The information presented under this Item 7.01 is being "furnished" and shall
not be deemed to be "filed" for purposes of Section 18 of the Securities
Exchange Act of 1934 and shall not be deemed incorporated by reference into any
filing made under the Securities Act of 1933, except as may be expressly set
forth by specific reference in such a filing.
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