Ares Capital Corp., a business development company of alternative investment firm Ares Management, and Varagon Capital Partners, the lending business of American International Group, are forming a joint venture to make senior secured loans to middle-market companies.
The senior direct-lending program follows Ares Capital's senior secured loan program with GE Capital, but does not replace it. That joint venture has invested more than $19 billion in senior secured loans over the past five years, “and we expect to continue our demonstrated presence in this market segment in the years ahead” in the new joint venture with Varagon, said Kipp deVeer, CEO of Ares Capital, in a news release.
The new joint venture will underwrite and hold first-lien loans, including stretch senior and unitranche loans originated by Ares and Varagon. It is expected to commit and hold individual loans of up to $300 million. Ares Capital might also co-invest with the joint venture on larger transactions.
“We see a significant and growing opportunity to support strong middle-market companies and deliver high-quality assets to our investors,” added Walter Owens, CEO of Varagon, in the release. “We have built a great relationship with the team at Ares Capital and are excited to formalize our ties with this strategic partnership.”
When General Electric Co. announced on June 9 the sale of its U.S. private equity lending business and a $3 billion bank loan portfolio to the C$264.4 billion ($214.7 billion) Canada Pension Plan, Ottawa, for $12 billion, the fate of GE Capital’s joint venture with Ares Capital was left unsettled. A news release from GE at that time noted GE Capital would continue operating the joint venture with Ares Capital to give Ares and CPPIB time to reach an agreement to work together. If no agreement were reached, the joint venture portfolio would be wound down.
A month earlier, Mr. deVeer had said it was looking for a partner to replace GE Capital or form a new joint venture to continue the middle-market lending business. If no “mutually acceptable replacement partner for GE Capital” were found, then the joint venture would gradually wind down as the loans in the program are repaid.
Bill Mendel, Ares spokesman, declined to comment beyond the press release, including whether Ares’ new joint venture marked an unsuccessful conclusion of negotiations with CPPIB.
Varagon executives also declined to comment beyond the press release, said spokeswoman Andrea Calise.