Ares BDC chief marks decade of growth, sees opportunity

  • Ares Capital Corp on pace for about 100 deals this year
  • Kipp deVeer, who heads up unit, sees opportunity
  • Publicly traded BDC lends in middle market

Ares Capital Corp marked the 10th anniversary of its initial public offering on Oct. 8. Since its IPO in 2004, its cumulative internal rate of return amounts to 13 percent on $8.7 billion of realized investments.

Kipp deVeer, CEO of Ares Capital Corp, told Buyouts the firm operates in a universe of about $200 billion a year of issuance in sub-investment grade, mid-market cash flow loans. But the market remains fragmented due to big institutional banks pulling back from direct lending in recent years. Ares Capital Corp handled gross originations of more than $4 billion last year.

In the realm of publicly-traded BDCs, Ares Capital Corp ranks as the largest in terms of its loan portfolio, $8.1 billion at fair value, and also by its market capitalization of about $5 billion.

“Even though we’re a pretty clear market leader, if you’re doing $4 billion or $5 billion of a $200 billion market, you still have lots of room for growth,” deVeer said in an interview on Oct. 8 during the Buyouts West conference, hosted by Buyouts Insider. “We think there are real advantages to scale in terms of capital and people and we think those advantage will continue to reinforce themselves over time.” 

With a staff of more than 80 people and several offices around the country, Ares Capital Corp looked at 2,000 deals and closed fewer than 100 in the past fiscal year ended Dec 31. Based on the pace in the first two quarters of the year, Ares Capital Corp remain “roughly in line” with its 2013 pace, deVeer said.

“Lots of BDCs and direct lending companies will talk about their origination and their proprietary deal flow, but the reality is that most people don’t really have that,” deVeer said. ”The infrastructure is incredibly expensive to build out.”

The 200-plus companies in Ares Capital Corp’s loan portfolio generate an overall return of 10 to 15 percent. “We’re positioned perfectly for a flat economy,” he said. 

Over the summer, deVeer was promoted to CEO of Ares Capital Corp after being named president in 2013. He also works as a senior partner and co-head of the direct lending group of Ares Management as well as a member of both Ares Management’s management committee and Ares Capital Corp’s investment committee. He has been a senior executive with Ares Management since 2004.

Ares Capital Corp’s loans range in size from $30 million to $400 million, with an average commitment size of about $40 million. It loans to companies generating an average EBITDA of $50 million in defensive industries such as health care, business services, and consumer.