Ares Management's business development company Ares Capital Corp. is buying troubled BDC American Capital for $3.43 billion, said a joint news release by the BDCs and another release by Ares Management.
Ares Capital Corp.'s assets are expected to grow to about $13.2 billion when the deal closes, from $9.1 billion as of March 31.
At the same time, American Capital is selling its mortgage servicing unit, American Capital Agency Corp., for $562 million to the servicing unit's management. The combination would give Ares' BDC the ability to originate and hold larger loans and add to the assets under management of Ares Management's credit business, according to an Ares Capital investor presentation on the deal.
As part of the merger, Ares Capital will waive up to $100 million in quarterly performance fees based on net investment income paid by parent Ares Management to its BDC for 10 quarters beginning in the first full quarter after the deal closes. Ares Management will pay $275 million in cash to American Capital shareholders when the deal closes.
Fitch Ratings on Monday revised its rating watch for American Capital, which has a BB-, to positive from negative following the announced sale to Ares Capital. Fitch also affirmed Ares Capital Corp.'s debt rating at BBB with a stable outlook.
“This transaction is highly strategic to Ares Management as it helps us build upon our industry-leading franchise as a middle-market direct lender in the U.S. and Europe, and enhances the growth potential of our credit group,” Antony P. Ressler, chairman and CEO of Ares Management, said in a news release.
Ares Management executives declined to comment, spokesman Bill Mendel said.