Ares Capital Corporation’s Board Approves Reduction in its Asset Coverage Requirement

Ares Capital Corporation (NASDAQ: ARCC) announced today that its Board of Directors, including all of the independent Directors, approved the application to the Company of the 150% minimum asset coverage ratio set forth in Section 61(a)(2) of the Investment Company Act of 1940, as amended by the Small Business Credit Availability Act (“SBCAA”). As a result, the minimum asset coverage ratio applicable to the Company will be reduced from 200% to 150% on June 21, 2019 (the effective date).

Ares Capital Corporation’s Board approved the reduction to the minimum statutory asset coverage following an extensive review of the Company’s plan with respect to increased leverage flexibility, which included conversations with and important input from lenders, rating agencies and shareholders. Once the 150% coverage ratio becomes effective, the Company expects to use a modest amount of incremental leverage to continue to invest primarily in its current mix of investments with no fundamental change in the Company’s investment strategy. In addition, the Company intends to target a debt to equity range of 0.90x to 1.25x. Finally, as part of the plan, the Company is reducing its annual base management fee from 1.5% to 1.0% on all assets financed using leverage over 1.0x debt to equity. As the Company implements this plan over the ensuing 12-36 months after the effective date, it intends to operate in a manner that it believes will maintain its investment grade rating while generating an incremental increase in annual core earnings per share of up to 20%, depending on leverage levels and other factors.

“We believe the added flexibility from the SBCAA will enhance our ability to manage risk and generate more attractive returns across market cycles,” said Michael Arougheti, Co-Chairman of Ares Capital Corporation and Chief Executive Officer and President of Ares Management, L.P. “We plan to operate with an increased cushion to the new regulatory threshold, which we believe significantly de-risks ARCC. In addition, the flexibility of the SBCAA allows us to further diversify our portfolio and broadens our opportunity set.”

“Our plan is to use this incremental capacity to make investments consistent with our past investment philosophy and to pursue a similar mix of assets,” said Kipp deVeer, Chief Executive Officer of Ares Capital. “With no meaningful change to our strategy and a modest increase in leverage, we believe we can deliver higher earnings for shareholders while maintaining our conservative risk profile. In addition, we are further supporting incrementally higher returns for shareholders by providing a lower fee structure that is implemented if we exceed the prior statutory limit of 1:1 debt to equity.”