The leveraged lender
The New York firm announced last month that it had placed $200 million of senior unsecured notes, with a 7.75 percent interest rate. The company also said in a regulatory filing that it had given the underwriters an option to purchase up to an additional $30 million to cover overallotments. “It is a landmark deal in the history of BDCs,” said Nicholas Marshi, a co-founder and the chief investment officer of Southland Capital Management LLC, a Santa Monica, Calif., hedge fund that specializes in such companies.
Ares Capital does own real estate and holds equity positions in some of the companies it invests in, but more than three-quarters of its $4 billion portfolio is invested in various forms of debt. The firm did not respond by deadline to a request for comment.
Banc of America Securities LLC, Morgan Stanley & Co. Inc., UBS Securities LLC and Wells Fargo Securities LLC were joint bookrunning managers for the offering.
Although the law authorizing BDCs dates to 1980, as recently as 2000, only four such firms existed, Marshi told Buyouts. But the business boomed during the past decade, and today more than two dozen firms do business that way. BDCs are a special form of closed end investment company, with publicly traded stock and a portfolio of investments, typically at the lower end of the mid-market.
Many BDCs struggled during the financial crisis. But since then, a series of deals have stabilized the sector. Ares, the nation’s largest BDC, acquired its struggling rival
And new competitors have entered the market. The megafirm
The economic crisis punished the leveraged lending market, as banks pulled back from financing commitments to BDCs, but deals like Ares’s will reduce the firms’s reliance on conventional bank financing to invest in deals, Marshi noted. “This means the next time there’s a nasty recession, these guys will have a source of permanent capital that won’t be affected.”