Key Points Industry Overview - **Evolution of BDCs**: The BDC sector has evolved significantly over the past two decades, moving from smaller transactions and asset liability mismatches to larger, more transparent deals with institutional managers. [8-10] - **Private Credit Growth**: The rise of private credit has been driven by the need for alternative credit solutions, particularly post the global financial crisis. [11-12] - **Competitive Landscape**: The industry has seen an increase in new entrants, particularly in smaller deals. However, larger players with significant capital and experience maintain a competitive advantage. [32-33, 38-39, 41-42] Origination and Return Profiles - **Normalization of Syndicated Loan Markets**: The normalization of syndicated loan markets has led to increased competition for deals, but direct lending remains a preferred option due to its certainty, privacy, and customization. [15-18, 20] - **Impact on Return Profiles**: The normalization of markets has led to slightly tighter spreads and underwriting standards, but overall risk-adjusted returns remain attractive. [29-30] M&A Activity - **Pickup in M&A Activity**: There is a strong expectation for a pickup in M&A activity in 2024, driven by increased pressure on sellers to return capital and the availability of dry powder among buyers. [23-25, 27] - **Dependence on M&A**: While M&A activity is a significant driver of origination, larger BDCs like Ares Capital Corporation also benefit from a diverse portfolio of existing companies that require additional capital. [26] Credit Performance - **Low Non-Accrual Rates**: Despite elevated rates and economic concerns, non-accrual rates have remained low, reflecting the strong credit quality of portfolio companies. [46-47, 50] - **Downside Protections**: BDCs offer strong downside protections through low leverage, match-funded structures, and close relationships with private equity firms. [56-58, 60] Alternative Credit Outlook - **Shift to Direct Lending**: There is a structural shift away from syndicated lending towards direct lending, driven by the need for certainty, privacy, and customization. [65-67, 74-77] - **Banks' Role**: Banks are likely to remain in the business of distributing risk, but they are losing market share to direct lenders. [75-77] Macro and Rates - **Impact of Rate Changes**: A decline in base rates would likely reduce net investment income and dividends, but could be offset by increased transaction volume and upfront fees. [82-86] - **Funding Mix**: BDCs prefer diversified, durable sources of funding with laddered maturities to avoid forced debt issuance in unfavorable market conditions. [89-90]

imaginima Going into 2024, I issued an article comparing two largest BDCs: Ares Capital (NASDAQ:ARCC) vs FS KKR Capital (NYSE:FSK). The bottom line was that both BDCs are attractive and positioned to deliver solid long-term returns. Yet, my recommendation was more skewed towards FSK as it had the necessary characteristics to register alpha in the case of favorable systematic factors such as low defaults and active transactions across the board. Ycharts Entering the year, the thesis started to play out n ...

Ares Capital Corporation (NASDAQ:ARCC) Raymond James 45th Annual Institutional Investors Conference March 5, 2024 8:05 AM ET Company Participants Kort Schnabel - Co-President Scott Lem - CFO Conference Call Participants Robert Dodd - Raymond James & Associates, Inc. Robert Dodd Next up we have Ares Capital, Kort Schnabel, and Scott Lem. So, guys, if you want to walk us through the story. Kort Schnabel Good morning, everybody. I'm Kort Schnabel, co-President of Ares Capital Corporation. I've been with Ares ...

Investing in stocks and farming are similar in some ways. Farmers plant seeds in hopes that they'll grow and produce plenty of fruit. Investors essentially do the same thing.But buying stocks can be much easier than farming, which requires a lot of hard work. And the right stocks can produce "fruit" regularly that allows you to kick back and watch the money flow in. What are some good stocks to buy? Investing $10,000 in each of these five ultra-high-yield dividend stocks could make you nearly $4,000 in annu ...

Darren415 Welcome to another installment of our BDC Market Weekly Review, where we discuss market activity in the Business Development Company ("BDC") sector from both the bottom-up - highlighting individual news and events - as well as the top-down - providing an overview of the broader market. We also try to add some historical context as well as relevant themes that look to be driving the market or that investors ought to be mindful of. This update covers the period through the fourth week of Februar ...

Ares Capital Corporation (NASDAQ:ARCC) UBS Financial Services Conference Transcript February 27, 2024 12:10 PM ET Executives Kipp deVeer - Chief Executive Officer Scott Lem - Chief Financial Officer Analysts Vilas Abraham - UBS Vilas Abraham Hi, everybody. Thanks for joining us today. I’m Vilas Abraham, the BDC analyst here at UBS. And for this session, I am pleased to be joined by Mr. Kipp deVeer, the CEO of Ares Capital Corporation and Head of Ares Credit Group; as well as Scott Lem, the newly appointed C ...

Ares Capital Corporation (NASDAQ:ARCC) UBS Financial Services Conference Transcript February 27, 2024 12:10 PM ET Executives Kipp deVeer - Chief Executive Officer Scott Lem - Chief Financial Officer Analysts Vilas Abraham - UBS Vilas Abraham Hi, everybody. Thanks for joining us today. I’m Vilas Abraham, the BDC analyst here at UBS. And for this session, I am pleased to be joined by Mr. Kipp deVeer, the CEO of Ares Capital Corporation and Head of Ares Credit Group; as well as Scott Lem, the newly appointed C ...

There's a pretty good chance you've never heard of Ares Capital (ARCC). It's not the kind of stock that attracts a lot of attention. With a market cap of under $12 billion, Ares Capital is still small enough that it can fly under the radar screens of many investors.However, I think that Ares Capital deserves a hard look, especially for income investors. Here are seven reasons buying this dividend stock could be a brilliant move.1. An ultra-high dividend yieldI'll start with the obvious big plus for buying s ...

anyaberkut/iStock via Getty Images In this article, we discuss the latest quarterly results from the Business Development Company Ares Capital (NASDAQ:ARCC). The company delivered a strong 3.9% total NAV return over the quarter as well as a rise in core earnings. ARCC trades at a 9.5% dividend yield and has a core earnings yield of 12.5%. Its valuation is 105% as of this writing. The portfolio sector allocation is fairly typical of BDCs with software and healthcare being the key areas. It has a lower first- ...

PM ImagesAres Capital (NASDAQ:ARCC) is a strong BDC with a long history of offering investors a relatively stable dividend yield. More recently, some concern has arisen over the likely impact of rate cuts on its net investment income (NII). Furthermore, there is growing concern over potential increases in non-accruals at BDCs such as ARCC. While ARCC has historically managed its portfolio prudently, recent trends suggest a potential rise in defaults among underlying portfolio companies. This phenomenon ...