Key Takeaways:
Ares Capital Corporation (ARCC), the largest publicly traded business development company, reported a 6 percent rise in first-quarter net investment income, aided by a non-cash accounting gain from fee reversals after it marked down the value of some loans.
"The year is off to a strong start," Chief Executive Officer Kort Schnabel said on the company's earnings call, noting that the fund's healthy capital levels will position it to benefit as other lenders retreat. Ares has approximately $6 billion in available liquidity, providing a significant advantage in the current environment.
For the quarter ended March 31, the fund reported net investment income of $398 million, or 55 cents per share. That compares with 52 cents in the fourth quarter and 50 cents in the same period a year earlier. The result was boosted by a $61 million reversal of previously awarded incentive fees for the fund's external advisor, Ares Management. Without that gain, net investment income declined quarter-over-quarter.
Shares of Ares Capital rose 1.7 percent to $18.82 in Tuesday trading, while shares of Ares Management gained 0.75 percent. The fund maintained its quarterly dividend of 48 cents a share, which it said will be covered by investment income and capital gains.
The accounting gain followed a 1.8 percent markdown in the portfolio's net asset value for the quarter, to $19.59 a share. The devaluation was driven by markdowns on some of its software company loans as financial markets reassess valuations in the sector.
Ares executives said they remain confident in the fund's software portfolio. An external review concluded that just 1 percent of its software investments are at high risk of disruption from artificial intelligence, with another 14 percent facing moderate risk that will require adaptation.
The results show the firm is navigating a complex market where risk premiums have widened. The non-cash gain highlights the impact of portfolio valuations on reported earnings, a factor investors will watch closely. The next catalyst will be the company's second-quarter earnings report in July for updates on portfolio quality and lending activity.
This article is for informational purposes only and does not constitute investment advice.
