(Reuters) – Ares Capital Corp (ARCC.O) said it plans to raise about $250 million through a debt fund for investing in newly originated and secondary senior secured debt.
Ares Capital said it expects to sell a warrant for fair value to the new fund for cash that would permit the fund upon certain conditions to purchase up to 20 percent of the company’s common stock.
“It is a clear positive for the shareholders as this shows that institutional investors are very interested in giving their capital to Ares to invest in this environment and this will generate a fee income for them,” analyst Greg Mason of Stifel Nicolaus said.
The fund, which will be managed by a wholly owned unit, will capitalize on current market opportunities, the company said.
“They cannot raise capital by way of straight common equity to fund their in balance sheet portfolio because the stock is at an inappropriate level to raise equity,” Mason added.
As of March 31, the company’s book value stood at $11.20 per share.
Other business development companies, like American Capital Ltd (ACAS.O) and Allied Capital Corp (ALD.N), which make loans to small and mid-sized businesses in return for equity stakes, are facing shrinking investment portfolios and finding it increasingly difficult to raise capital in the current environment.
Earlier this month, Ares Capital Corp (ARCC.O) said its unit signed two pacts, including one with Wells Fargo (WFC.N), to manage about $1.37 billion of middle market loan assets. [ID:nBNG462270]
Shares of the New York-based company were trading up 4 percent at $8.17 in afternoon trade on Friday on Nasdaq. (Editing by Anil D’Silva)