ARCC Ares Capital
Business Development Companies are not low risk investments. However, some are far better than others. I believe Ares Capital is a good addition to a retirement portfolio. To help you understand the advantages and risks of a BDC type of investment, I used Investopedia to create some images. A link to Investopedia is included at the end of this post.
The Dividend Increase Announced
Ares (ARCC) increased its quarterly dividend to $0.48 per share from $0.43.
Ares Capital (ARCC) non-GAAP EPS of $0.50 beats by $0.01, total investment income of $537M beats by $22.59M. Seeking Alpha gives ARCC a solid QUANT rating.
Resistance
Resistance is the price where the price of an asset (stock or ETF) meets pressure on its way up. Resistance occurs if a growing number of sellers wish to sell at that price. That can cause the price per share to push against that price ceiling unless there is good news that pushes it above the resistance price.
Support
Support is the price where an asset does not fall below for specified period of time. An asset’s support level is created by buyers entering the market whenever the asset dips to a lower price. I usually look at the 40-day values because what happened farther back probably isn’t material.
ADVANTAGES and DISADVANTAGES
There are certainly reasons to be cautious when considering BDC investments. However, there are several worthy of consideration. I like ARCC, MAIN, and GAIN to name a few.
A Business Development Company’s Role
“The BDC must invest at least 70% of its assets in private or public U.S. firms with market values of less than US$250 million. These companies are often young businesses seeking financing or firms suffering or emerging from financial difficulties. Also, the BDC must provide managerial assistance to the companies in its portfolio.” INVESTOPEDIA LINK
Company Profile – Ares Capital Corporation
Ares Capital Corporation is a business development company specializing in acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions of middle market companies. It also makes growth capital and general refinancing. It prefers to make investments in companies engaged in the basic and growth manufacturing, business services, consumer products, health care products and services, and information technology service sectors. The fund will also consider investments in industries such as restaurants, retail, oil and gas, and technology sectors. It focuses on investments in Northeast, Mid-Atlantic, Southeast and Southwest regions from its New York office, the Midwest region, from the Chicago office, and the Western region from the Los Angeles office. The fund typically invests between $20 million and $200 million and a maximum of $400 million in companies with an EBITDA between $10 million and $250 million. It makes debt investments between $10 million and $100 million The fund invests through revolvers, first lien loans, warrants, unitranche structures, second lien loans, mezzanine debt, private high yield, junior capital, subordinated debt, and non-control preferred and common equity. The fund also selectively considers third-party-led senior and subordinated debt financings and opportunistically considers the purchase of stressed and discounted debt positions. The fund prefers to be an agent and/or lead the transactions in which it invests. The fund also seeks board representation in its portfolio companies.
Full Disclosure
Cindie and I own 4,600 shares of ARCC as a long-term investment. As a result, it is in the top ten investments we hold. This is not a recommendation for you to buy ARCC. ARCC is not for nervous investors, and I would not recommend it if you have less than $250K in retirement assets.
Link to Investopedia BDCs
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