Ares Capital Corporation Declares Second Quarter 2013 Dividend of $0.38 Per Share and Announces March 31, 2013 Financial Results

Second Quarter 2013 Dividend Declared

NEW YORK--(BUSINESS WIRE)--Ares Capital Corporation (“Ares Capital”) (NASDAQ: ARCC) announced that its Board of Directors has declared a second quarter dividend of $0.38 per share, payable on June 28, 2013 to stockholders of record as of June 14, 2013.

MARCH 31, 2013 FINANCIAL RESULTS

Ares Capital also announced financial results for its first quarter ended March 31, 2013.

HIGHLIGHTS

Financial

	Q1-13						Q1-12
(in millions, except per share data)	Total Amount			Per Share(1)			Total Amount			Per Share
Core EPS (2)				$	0.38					$	0.38
Net investment income	$	99.1		$	0.40		$	77.0		$	0.36
Net realized gains (losses)	$	11.7		$	0.04		$	(7.7	)	$	(0.04	)
Net unrealized gains (losses)	$	(30.4	)	$	(0.12	)	$	36.2		$	0.17
GAAP net income	$	80.4		$	0.32		$	105.5		$	0.49
Dividends declared				$	0.38					$	0.37
	As of March 31,
(in millions, except per share data)	2013			2012
Portfolio investment at fair value	$	6,030.5		$	5,204.5
Total assets	$	6,353.1		$	5,609.1
Stockholders’ equity	$	3,978.6		$	3,433.3
Net assets per share	$	15.98		$	15.47

(1)

All per share amounts are basic and diluted.

(2)

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 realized and unrealized gains and losses, any incentive fees attributable to such net realized and unrealized gains and losses and any income taxes related to such realized gains. Basic and diluted GAAP EPS is the most directly comparable GAAP financial measure. Ares Capital believes that Core EPS provides useful information to investors regarding financial performance because it is one method Ares Capital 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. Reconciliations of basic and diluted Core EPS to the most directly comparable GAAP financial measure are set forth in Schedule 1 hereto.

Portfolio Activity

(dollar amounts in millions)	Q1-13			Q1-12
Portfolio Activity During the Period:
Gross commitments	$	410.0		$	384.3
Exits of commitments	$	221.7		$	331.4
Portfolio as of the End of the Period:
Number of portfolio company investments	156			143
Weighted average yield of debt and other income producing securities:
At fair value(3)	11.0		%	12.0		%
At amortized cost(4)	11.1		%	12.2		%
Weighted average yield on total investments:
At fair value(5)	9.8		%	10.4		%
At amortized cost(6)	9.9		%	10.5		%

(3)	Computed as (a) annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount earned on accruing debt and other income producing securities, divided by (b) total debt and other income producing securities at fair value.
(4)	Computed as (a) annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount earned on accruing debt and other income producing securities, divided by (b) total debt and other income producing securities at amortized cost.
(5)	Computed as (a) annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount earned on accruing debt and other income producing securities, divided by (b) total investments at fair value.
(6)	Computed as (a) annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount earned on accruing debt and other income producing securities, divided by (b) total investments at amortized cost.

FIRST QUARTER 2013 OPERATING RESULTS

For the quarter ended March 31, 2013, Ares Capital reported GAAP net income of $80.4 million or $0.32 per share (basic and diluted), Core EPS(2) of $0.38 per share (basic and diluted), net investment income of $99.1 million, or $0.40 per share (basic and diluted), and net realized and unrealized losses of $(18.8) million or $(0.08) per share (basic and diluted).

Net income can vary substantially from period to period due to various factors, including the level of new investment commitments, the recognition of realized gains and losses and unrealized appreciation and depreciation. As a result, quarterly comparisons of net income may not be meaningful.

As of March 31, 2013, total assets were $6.4 billion, stockholders’ equity was $4.0 billion and net asset value per share was $15.98.

In the first quarter of 2013, Ares Capital made approximately $410 million in new commitments, including commitments to five new portfolio companies, eight existing portfolio companies and four additional portfolio companies through the Senior Secured Loan Fund LLC, which operates using the name “Senior Secured Loan Program” (the “SSLP”) through which Ares Capital co-invests with GE Global Sponsor Finance LLC and General Electric Capital Corporation (together, “GE”) to fund first lien senior secured loans. Of these new commitments, all 17 were sponsored transactions. As of March 31, 2013, 97 separate private equity sponsors were represented in Ares Capital’s portfolio. Of the $410 million in new commitments made during the first quarter of 2013, approximately 60% were in first lien senior secured debt, 24% were in second lien senior secured debt, 10% were in senior subordinated debt, 5% were in subordinated certificates of the SSLP (the proceeds of which were applied to co-investments with GE to fund first lien senior secured loans through the SSLP), and 1% were in other equity securities. Of these commitments, 77% were in floating rate debt securities, 93% of which contained interest rate floors and the remaining 7% were in the subordinated certificates of the SSLP, the proceeds of which were applied to co-investments with GE to fund floating rate first lien senior secured loans through the SSLP, all of which contained interest rate floors. We may seek to syndicate a portion of these new investment commitments, although there can be no assurance that we will be able to do so.

During the first quarter of 2013, significant new commitments included:

• $78 million in a second lien senior secured term loan of a laundry service and equipment provider;
• $57 million in first lien senior secured revolving and term loans of a collision repair site operator;
• $40 million in first lien senior secured revolving and term loans of a dental equipment manufacturer;
• $35 million in senior subordinated debt of a pet products manufacturer;
• $25 million in first lien senior secured delayed draw term loan and equity of a chemical products manufacturer;
• $23 million in first lien senior secured revolving and term loans of an anesthesia management services provider;
• $23 million in a first lien senior secured term loan of a premier health club operator;
• $21 million in the subordinated certificates of the SSLP, the proceeds of which were applied to co-investments with GE to fund first lien senior secured loans to four portfolio companies in a variety of industries;
• $20 million in a first lien senior secured term loan of an IT security software provider; and
• $14 million in first lien senior secured revolving and term loans of a healthcare education provider.

Also during the first quarter of 2013, Ares Capital exited approximately $221.7 million of investment commitments.

The fair value of Ares Capital’s portfolio investments at March 31, 2013 was $6.0 billion, including $5.4 billion in debt and other income producing securities. These portfolio investments at fair value were comprised of approximately 60% of senior secured debt securities (40% in first lien loans and 20% in second lien loans), 21% of subordinated certificates of the SSLP (the proceeds of which were applied to co-investments with GE in first lien senior secured loans through the SSLP), 5% of senior subordinated debt securities, 4% of preferred equity securities and 10% of other equity securities. As of March 31, 2013, the weighted average yield of debt and other income producing securities in the portfolio at fair value was 11.0%(3) (11.1% at amortized cost(4)), the weighted average yield on total investments in the portfolio at fair value was 9.8%(5) (9.9% at amortized cost(6)), and 75% of the investments at fair value were in floating rate securities.

Chief Executive Officer Michael Arougheti commented, “For the first quarter, we reported solid core earnings per share and fully covered our quarterly dividend. We are finding a greater number of attractive new investments in the second quarter to date, while remaining highly selective with a focus on senior debt assets. Our credit quality remains strong as our non-accruing investments held steady at low levels.” Mr. Arougheti continued, “After quarter end, we took advantage of favorable market conditions and further strengthened our financial position by raising new equity on an attractive basis and improving the terms on our revolving credit facility.”

PORTFOLIO QUALITY

Ares Capital Management LLC, our investment adviser, employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our investment adviser grades the credit risk of all investments on a scale of 1 to 4 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment (i.e., at the time of acquisition), although it may also take into account under certain circumstances the performance of the portfolio company’s business, the collateral coverage of the investment and other relevant factors. Under this system, investments with a grade of 4 involve the least amount of risk to our initial cost basis. The trends and risk factors for this investment since origination or acquisition are generally favorable, which may include the performance of the portfolio company or a potential exit. Investments graded 3 involve a level of risk to our initial cost basis that is similar to the risk to our initial cost basis at the time of origination or acquisition. This portfolio company is generally performing as expected and the risk factors to our ability to ultimately recoup the cost of our investment are neutral to favorable. All investments or acquired investments in new portfolio companies are initially assessed a grade of 3. Investments graded 2 indicate that the risk to our ability to recoup the initial cost basis of such investment has increased materially since origination or acquisition, including as a result of factors such as declining performance and non-compliance with debt covenants; however, payments are generally not more than 120 days past due. An investment grade of 1 indicates that the risk to our ability to recoup the initial cost basis of such investment has substantially increased since origination or acquisition, and the portfolio company likely has materially declining performance. For debt investments with an investment grade of 1, most or all of the debt covenants are out of compliance and payments are substantially delinquent. For investments graded 1, it is anticipated that we will not recoup our initial cost basis and may realize a substantial loss of our initial cost basis upon exit. For investments graded 1 or 2, our investment adviser enhances its level of scrutiny over the monitoring of such portfolio company. Our investment adviser grades the investments in our portfolio at least each quarter and it is possible that the grade of a portfolio investment may be reduced or increased over time.

As of March 31, 2013, the weighted average grade of the investments in our portfolio at fair value was 3.0. Also, as of March 31, 2013, loans on non-accrual status represented 2.3% of total investments at amortized cost (or 0.6% at fair value).

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2013, Ares Capital had $102.5 million in cash and cash equivalents and $2.3 billion in aggregate principal amount of debt outstanding ($2.2 billion in carrying value). Subject to leverage and borrowing base restrictions, Ares Capital had approximately $1.6 billion available for additional borrowings under its existing credit facilities as of March 31, 2013. On January 25, 2013, Ares Capital and Ares Capital Funding LLC (“Ares Capital CP”), an indirect wholly owned subsidiary of Ares Capital, entered into an amendment to Ares Capital CP’s revolving funding facility (the “Revolving Funding Facility”). The amendment, among other things, modified the interest charged on the Revolving Funding Facility from the previous applicable spreads of 2.50% over LIBOR and 1.50% over “base rate” (as defined in the agreements governing the Revolving Funding Facility) to applicable spreads ranging from 2.25% to 2.50% over LIBOR and ranging from 1.25% to 1.50% over “base rate,” in each case, determined monthly based on the composition of the borrowing base relative to outstanding borrowings under the facility. After giving effect to the amendment and the relevant borrowing base and amounts outstanding thereunder, the interest charged on the Revolving Funding Facility as of January 25, 2013 was based on a spread over one-month LIBOR of 2.25% or a spread over “base rate” of 1.25%.

FIRST QUARTER 2013 DIVIDEND

For the three months ended March 31, 2013, Ares Capital declared a dividend on February 27, 2013 of $0.38 per share for a total of approximately $94.5 million. The record date for the dividend was March 15, 2013 and the dividend was paid on March 29, 2013.

RECENT DEVELOPMENTS

In April 2013, we completed a public add-on equity offering (the “April 2013 Offering”) pursuant to which we sold 19.1 million shares of common stock at a price of $17.43 per share to the participating underwriters. Total proceeds from the April 2013 Offering, net of estimated offering expenses payable by us, were approximately $333.2 million.

In May 2013, we entered into an amendment to our senior secured revolving credit facility (the “Revolving Credit Facility”). The amendment, among other things, (1) extended the expiration of the revolving period from May 4, 2015 to May 4, 2017, (2) extended the stated maturity date from May 4, 2016 to May 4, 2018, (3) reduced the interest rate charged from LIBOR plus an applicable spread of 2.25% or a “base rate” (as defined in the agreements governing the Revolving Credit Facility) plus an applicable spread of 1.25% to LIBOR plus an applicable spread of 2.00% or a “base rate” plus an applicable spread of 1.00% and (4) increased total commitments to $930 million as well as provided for a feature that allows us, under certain circumstances, to increase the size of the Revolving Credit Facility to a maximum of $ 1,400 million.

From April 1, 2013 through May 3, 2013, we made new investment commitments of $388 million, of which $376 million were funded. Of these new commitments, 74% were in first lien senior secured loans, 21% were investments in subordinated certificates of the SSLP, the proceeds of which were applied to co-investments with GE to fund first lien senior secured loans through the SSLP, and 5% were in second lien senior secured loans. Of the $388 million of new investment commitments, 94% were floating rate and 6% were fixed rate. The weighted average yield of debt and other income producing securities funded during the period at amortized cost was 10.1%. We may seek to syndicate a portion of these new investment commitments, although there can be no assurance that we will be able to do so.

From April 1, 2013 through May 3, 2013, we exited $27 million of investment commitments. Of these investment commitments, 100% were first lien senior secured loans. Of the $27 million of exited investment commitments, 83% were floating rate, 5% were fixed rate and 12% 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 7.9%. On the $27 million of investment commitments exited from April 1, 2013 through May 3, 2013, we recognized total net realized losses of approximately $1 million.

In addition, as of May 3, 2013, we had an investment backlog and pipeline of approximately $640 million and $690 million, respectively. Investment backlog includes transactions approved by our investment adviser’s investment committee and/or for which a formal mandate, letter of intent or a signed commitment have been issued, and therefore we believe are likely to close. Investment pipeline 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 our due diligence investigation of the prospective portfolio company, our acceptance of the terms and structure of such investment and the execution and delivery of satisfactory transaction documentation. In addition, we may syndicate a portion of these investments. We cannot assure you that we will make any of these investments or that we will syndicate any portion of these investments.

WEBCAST / CONFERENCE CALL

Ares Capital will host a webcast/conference call on Tuesday, May 7, 2013, at 12:00 p.m. (ET) to discuss its financial results for the first quarter ended March 31, 2013. PLEASE VISIT OUR WEBCAST LINK LOCATED ON THE HOME PAGE OF THE INVESTOR RESOURCES SECTION OF OUR WEBSITE FOR A SLIDE PRESENTATION THAT COMPLEMENTS THE EARNINGS CONFERENCE CALL.

All interested parties are invited to participate via telephone or the live webcast, which will be hosted on a webcast link located on the Home page of the Investor Resources section of our website at http://www.arescapitalcorp.com. Please visit the website to test your connection before the webcast. Domestic callers can access the conference call by dialing [phone]. International callers can access the conference call by dialing [phone]. All callers will need to enter the Participant Elite Entry Number 1191205 followed by the # sign and reference “Ares Capital Corporation” once connected with the operator. All callers are asked to dial in 10-15 minutes prior to the call so that name and company information can be collected. For interested parties, an archived replay of the call will be available approximately one hour after the end of the call through May 20, 2013 at 12:00 p.m. (Eastern Time) to domestic callers by dialing [phone] and to international callers by dialing [phone]. For all replays, please reference conference number 10027054. An archived replay will also be available on a webcast link located on the Home page of the Investor Resources section of our website.

ABOUT ARES CAPITAL CORPORATION

Ares Capital is a leading specialty finance company that provides one-stop financing solutions to U.S. middle market companies and private equity sponsors. The Company originates and invests in senior secured loans, mezzanine debt and, to a lesser extent, equity investments through its national direct origination platform. Ares Capital’s investment objective is to generate both current income and capital appreciation through debt and equity investments primarily in private companies. Ares Capital has elected to be regulated as a business development company, and is externally managed by a wholly owned subsidiary of Ares Management LLC. Ares Management is a global alternative asset manager and a SEC-registered investment adviser with approximately $59 billion of committed capital under management as of March 31, 2013. For more information, visit http://www.arescapitalcorp.com. However, the contents of such website are not and should not be deemed to be incorporated by reference herein.

FORWARD-LOOKING STATEMENTS

Statements included herein or on the webcast/conference call may constitute “forward-looking statements,” which relate to future events or our future performance or financial condition. These statements are not guarantees of future performance, condition or results and involve a number of risks and uncertainties. Actual results and conditions may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in our filings with the Securities and Exchange Commission. Ares Capital Corporation undertakes no duty to update any forward-looking statements made herein or on the webcast/conference call.

AVAILABLE INFORMATION

Ares Capital Corporation’s filings with the Securities and Exchange Commission, press releases, earnings releases and other financial information are available on its website at http://www.arescapitalcorp.com. The information on Ares Capital’s website is not and should not be deemed to be incorporated by reference herein.

ARES CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Amounts in thousands, except per share data)
	As of
	March 31, 2013			December 31, 2012
	(unaudited)
ASSETS
Total investments at fair value (amortized cost of $5,959,788 and $5,823,451, respectively)	$	6,030,459		$	5,924,555
Cash and cash equivalents	102,451			269,043
Interest receivable	115,991			108,998
Receivable for open trades	50			131
Other assets	104,111			98,497
Total assets	$	6,353,062		$	6,401,224
LIABILITIES
Debt	$	2,179,127		$	2,195,872
Management and incentive fees payable	112,600			131,585
Accounts payable and other liabilities	49,262			53,178
Interest and facility fees payable	27,976			30,603
Payable for open trades	5,500			1,640
Total liabilities	2,374,465			2,412,878
STOCKHOLDERS’ EQUITY
Common stock, par value $0.001 per share, 500,000 common shares authorized, 248,896  and 248,653 common shares issued and outstanding, respectively	249			249
Capital in excess of par value	4,121,914			4,117,517
Accumulated overdistributed net investment income	(23,301		)	(27,910		)
Accumulated net realized loss on investments, foreign currency transactions,  extinguishment of debt and other assets	(190,936		)	(202,614		)
Net unrealized gain on investments	70,671			101,104
Total stockholders’ equity	3,978,597			3,988,346
Total liabilities and stockholders’ equity	$	6,353,062		$	6,401,224
NET ASSETS PER SHARE	$	15.98		$	16.04

ARES CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Amounts in thousands, except per share data)
	For the three months ended March 31,
	2013			2012
	(unaudited)			(unaudited)
INVESTMENT INCOME:
Interest income from investments	$	144,177		$	132,885
Capital structuring service fees	5,991			17,660
Dividend income	32,089			9,219
Management and other fees	4,498			4,932
Other income	8,300			3,042
Total investment income	195,055			167,738
EXPENSES:
Interest and credit facility fees	39,347			32,776
Base management fees	23,218			19,986
Incentive fees	20,085			26,386
Professional fees	3,144			3,686
Administrative fees	2,592			2,320
Other general and administrative	3,768			2,801
Total expenses	92,154			87,955
NET INVESTMENT INCOME BEFORE INCOME TAXES	102,901			79,783
Income tax expense, including excise tax	3,804			2,745
NET INVESTMENT INCOME	99,097			77,038
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gains (losses)	11,678			(7,671		)
Net unrealized gains (losses)	(30,433		)	36,180
Net realized and unrealized gains (losses) on investments	(18,755		)	28,509
NET INCREASE IN STOCKHOLDERS’ EQUITY RESULTING FROM OPERATIONS	$	80,342		$	105,547
BASIC AND DILUTED EARNINGS PER COMMON SHARE	$	0.32		$	0.49
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING — BASIC AND DILUTED	248,658			217,044

SCHEDULE 1 Reconciliations of basic and diluted Core EPS to basic and diluted GAAP EPS
Reconciliations of basic and diluted Core EPS to basic and diluted GAAP EPS, the most directly comparable GAAP financial measure, for the three months ended March 31, 2013 and 2012 are provided below.
	For the three months ended March 31,
	2013 (unaudited)			2012 (unaudited)
Basic and diluted Core EPS(1)	$	0.38		$	0.38
Net realized and unrealized gains (losses)	(0.08		)	0.13
Incentive fees attributed to net realized and unrealized gains and losses	0.02			(0.02		)
Income tax expense related to realized gains	—			—
Basic and diluted GAAP EPS	$	0.32		$	0.49

(1)

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 realized and unrealized gains and losses, any incentive fees attributable to such net realized and unrealized gains and losses and any income taxes related to such realized gains. Basic and diluted GAAP EPS is the most directly comparable GAAP financial measure. Ares Capital believes that Core EPS provides useful information to investors regarding financial performance because it is one method Ares Capital 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.