Business Context and Reporting Period
Ares Capital Corporation (Ares Capital) filed a Form 8-K on December 28, 2005, reporting the entry into a material definitive agreement. The company is incorporated in Maryland and maintains its principal executive offices in New York, NY.
Key Financial Metrics and Debt Structure
The filing details the establishment of a new Senior Secured Revolving Credit Agreement with an initial aggregate principal amount not exceeding $250 million. The facility has a five-year term with a maturity date of December 28, 2010. Interest rates are set at 100 basis points over LIBOR. The agreement includes an "accordion" feature allowing the facility size to increase to a maximum of $500 million under certain circumstances. Borrowings are subject to a borrowing base with varying advance rates for different asset types.
The filing does not provide specific values for revenue, profit, cash flow, margins, or existing liquidity levels as this is a current report regarding a specific agreement rather than a periodic financial statement.
Material Changes and Covenants
The primary material change is the creation of a new direct financial obligation. The Credit Agreement is secured by substantially all assets in Ares Capital's portfolio, excluding investments held by its wholly owned subsidiary, Ares Capital CP Funding LLC, which operates under a separate $350 million credit facility. The agreement imposes several covenants, including:
- Limitations on additional indebtedness, liens, certain investments, and restricted payments.
- Requirement to maintain a minimum stockholders' equity.
- Maintenance of a ratio of total assets (less total liabilities) to total indebtedness of not less than 2.0:1.0.
- Maintenance of minimum liquidity.
Outlook, Risks, and Contingencies
The agreement includes usual and customary events of default for senior secured revolving credit facilities. The company must comply with various reporting requirements and covenants to maintain access to the credit facility. The filing incorporates the full text of the Credit Agreement by reference as Exhibit 10.1.
Key Facts for Investor Verification
- Verify the specific advance rates applied to different asset classes within the borrowing base.
- Confirm the current status of the subsidiary's separate $350 million commercial paper facility.
- Review the full text of the Credit Agreement (Exhibit 10.1) for detailed definitions of "restricted payments" and "permitted debt."
- Monitor compliance with the 2.0:1.0 asset coverage ratio covenant.