Ares Capital Corp. 10-Q Summary (Period Ended September 30, 2004)
Business Context and Reporting Period
Ares Capital Corporation (ARCC) is a newly organized closed-end management investment company incorporated in Maryland on April 16, 2004, and initially funded on June 23, 2004. The company elected to be treated as a Business Development Company (BDC) under the Investment Company Act of 1940. This filing covers the period from inception (June 23, 2004) through September 30, 2004. During this period, the company was in the pre-operational phase, incurring organizational expenses and securing a right to purchase an investment portfolio, but had not yet commenced material investment operations.
Key Financial Metrics
| Metric | Value |
|---|---|
| Revenue | $0 (No operating income generated) |
| Net Operating Loss | $(250,000) |
| Total Assets | $1,251,505 |
| Cash and Cash Equivalents | $1,001,505 |
| Total Liabilities | $500,000 |
| Stockholders' Equity | $751,505 |
| Net Asset Value (NAV) per Share | $11.26 (End of period) |
| Loss per Share | $(31.51) |
| Shares Outstanding | 66,767 |
Material Changes and Operational Status
As this is the company's first reporting period since inception, there is no prior comparable period for financial performance. The primary financial activity was the incurrence of $250,000 in organizational expenses, which resulted in a net decrease in stockholders' equity of the same amount. The company raised approximately $1,000,005 through the private issuance of 66,667 shares to Ares Management LLC and its affiliates at $15.00 per share. Additionally, the company paid $250,000 to acquire a right to purchase a portfolio of loans and equity investments from Royal Bank of Canada (RBC).
Guidance, Outlook, and Subsequent Events
The filing details significant events occurring after the reporting period (Subsequent Events) that define the company's operational outlook:
- Initial Public Offering (IPO): On October 8, 2004, the company completed its IPO of 11,000,000 shares at $15.00 per share, raising approximately $160.45 million in net proceeds.
- Portfolio Acquisition: Following the IPO, the company exercised its right to purchase the RBC portfolio for approximately $122.3 million on October 8, 2004, with an additional $18.5 million purchase on November 3, 2004.
- Financing Facility: On November 3, 2004, the company established a $150 million revolving credit facility (Variable Funding Certificates) through a wholly-owned subsidiary to support leverage and liquidity.
- Management Fees: The company entered into an advisory agreement with Ares Capital Management LLC. The base management fee is 1.5% of total assets (excluding cash), and an incentive fee structure is in place based on a 2.0% quarterly hurdle rate.
- Tax Status: The company intends to qualify as a Regulated Investment Company (RIC) to avoid corporate-level taxes by distributing at least 90% of taxable income.
Investor Verification Checklist
- Verify the final closing details and net proceeds of the October 8, 2004 IPO.
- Confirm the composition and yield of the RBC portfolio acquired post-period.
- Review the terms of the $150 million revolving credit facility, including interest rates (commercial paper + 1.25%) and covenants.
- Monitor the company's ability to meet the 90% distribution requirement to maintain RIC tax status.
- Assess the impact of the 1.5% base management fee and incentive fee structure on future net investment income.