We believe that Ares Capital (ARCC), a business development company, is a one that should be on your radar. Most specifically, the dividend appears to be more than safe, because there has been consistent coverage. In this column we review a few key metrics and management comments that you should be aware of.
Source: ARCC Earnings Call Slides
The waiver of income fees is something you need to be aware of. In connection with the ACAS acquisition, Ares Capital Management LLC has agreed to waive up to $100 million in income based incentive fees for ten calendar quarters beginning Q2 2017 (up to $10 million per quarter) to support the dividend of the combined company during the integration and portfolio repositioning period.
“We found $100 million fee waiver from our external manager to support the transaction so I think I will just say that running American Capital is a very important business for Ares management. That being said we haven’t independent board that we discuss our free range with we would be talking to them, we would be talking to the manager I am not worried that I am going to have that conversation. I think when we look forward we have enough levers to pull against such that will position the company that we want to have that conversation. Let me just remind you that we don’t have the highest fees by a wide margin in the industry. So feel our investors are little long period of time have gotten pretty nice return on stock and we look to past couple of quarters, we are re-positioning things to delivering those.”
Source: ARCC Earnings Call
In addition, the company could continue to waive $10 million per quarter in perpetuity:
Q. “If you had the management company waive $10 million of fees for the quarter, if your core NII is let’s say with the full $10 million was be above the dividend of $0.38, should we expect that Ares management would still waive $10 million and possibly put you at $0.39 or $0.40 or should we look at the waiver as being something that just kind of bridges the gap between core NII and the dividend?”
A. “Well, the fee waiver is meant to be quite exclusive, right. So, as I mentioned in the stated remarks, the board and Ares management and obviously the team and I’m part of those has decided to waive $10 million a management fees this quarter has agreed to do it for nine quarters following this on a hard and fast basis and there’s really nothing more to it than that.”
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