Ares Capital's (ARCC) Outlook Raised To Positive By Moody's
Zacks Investment Research | Jun 21, 2017 09:18PM ET
Moody's Investors Service, the credit rating wing of Moody's Corporation (NYSE:MCO) , upgraded the outlook of Ares Capital Corporation (NASDAQ:ARCC) from negative to positive. Additionally, the company’s corporate family rating and senior unsecured debt rating has been affirmed at Ba1.
Moody’s affirmed the corporate family rating to reflect the company’s disciplined investment approach and strong earnings-generating potential. The company also displays strong liquidity with a solid funding profile, which has enough availability under the secured credit facilities.
Moody’s believes that the company’s efficiency in managing the risk of its investment portfolio has been helping it to consistently generate profits for the last few years. Moreover, Ares Capital has had low earnings volatility. To reflect these qualities, Moody’s upgraded the company’s outlook to positive.
Notably, Ares Capital acquired American Capital, Ltd. in Jan 2017, in an effort to enhance its position as a major business development company and also displayed its superiority in disposing risky assets.
As of Mar 31, 2016, only 38% of American Capital’s investment portfolio comprised less risky senior secured loans. While acquiring American Capital, Ares Capital arranged the investment portfolio in such a way that as of Mar 31, 2017, the latter had 77% of its portfolio comprising senior secured loans.
Moreover, because of the realizations from American Capital’s investments as well as the equity issued by Ares Capital during the acquisition, the latter’s Asset Coverage Ratio as of Mar 31, 2017 was 249%, increasing from 226% as of Mar 31, 2016.
However, if Ares Capital’s Asset Coverage Ratio falls below 230% for a continued period of time, its outlook will be downgraded to stable. In fact, the outlook could be revised down even if the composition of the company’s investment portfolio changes in a way which brings the proportion of senior debt to below 75%. Further, similar action could be triggered if the company’s Net Investment Income is significantly lower than its dividend distributions on a regular basis.
Similarly, the company’s ratings could be downgraded if its Asset Coverage Ratio falls below 220% or the proportion of senior debt in its investment portfolio goes below 70%. On the other hand, a rating upgrade could take place if Ares Capital maintains an Asset Coverage Ratio of 230–250%, has a modest amount of junior investments in its portfolio with senior debt comprising at least 75% on a regular basis, and displays continued low-earnings volatility.
Shares of Ares Capital have gained 12.1% in the last one year, marginally underperforming the Zacks categorized Zacks Investment Research
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.