Ares’ $29bn private credit flagship sees rise in non-performing loans
Ares Management’s flagship private credit vehicle reported an increase in non-performing investments during Q2, reflecting ongoing pressure on parts of the direct lending market as borrowers contend with economic headwinds and disruption from artificial intelligence, according to a report by Bloomberg.
Ares Capital Corporation (ARCC), the firm’s $29bn publicly listed business development company (BDC), said loans on non-accrual status rose to $708m at the end of the quarter, an increase of 15% from the previous three months and 26% higher than a year earlier.
Despite the increase, non-accrual investments represented approximately 2.4% of the portfolio at cost, remaining below the BDC’s long-term historical average of around 3% since the global financial crisis.
The quarterly results showed core earnings of $0.47 per share, unchanged from the previous quarter, while net asset value declined to $19.35 per share from $19.59 at the end of the first quarter.
The fund also recorded net realised investment losses of $7 million during the period, compared with net realised gains of $114m in the previous quarter.
Investment activity remained measured as dealmaking slowed across the private credit market. During the quarter, Ares Capital made $2.6bn of new commitments while exiting approximately $2.9bn of investments.
Chief executive Kort Schnabel said the firm’s scale, long-established borrower relationships and permanent capital base enabled it to remain selective while securing attractive lending opportunities despite a more subdued market environment.
The BDC also maintained its quarterly dividend at $0.48 per share and strengthened its funding position by raising more than $1bn of additional financing, including through the expansion and extension of two revolving credit facilities.
The latest results follow comments earlier this year that Ares was preparing for more challenging refinancing discussions with private equity sponsors of software companies. The firm has been reviewing its exposure to the sector as lenders assess how advances in artificial intelligence could affect the long-term performance of software businesses.
