The chart below shows Ares Capital Corporation’s (ARCC) net investment income (NII) per share since its IPO.
Ares Capital’s Net Investment Income
Ares Capital has one of the most stable charts of net investment income per share of any BDC, but there are a few things that you can observe in the chart above.
- Leading up to 2006, Ares Capital was underleveraged. The company was a serial equity issuer, but it had yet to start doubling down by adding debt leverage until 2007, when its portfolio growth was driven by borrowings through an on-balance-sheet CLO, and two credit facilities. Ultimately, leveraging the portfolio was a mistake, given that it had to complete a rights offering to shore up its position with its lenders.
- That spike you see in 2011 was mostly driven by an increase in structuring fees as Ares Capital sold off and rotated out of assets its acquired from Allied Capital to make new investments. Deals were rich for lenders in 2011, as the memories of the credit crunch and low BDC valuations ensured that there were more borrowers than there were lenders.
- Net investment income flat-lined from 2012 and on as interest rates compressed, and the free tailwind of portfolio rotation disappeared.