Ares Capital Corp. Outlook Revised To Stable From Positive On Economic Impact Of COVID-19; 'BBB-' Ratings Affirmed

  • We expect the economic impact of the COVID-19 pandemic to result in increased credit losses and calls on liquidity to fund commitments, as well as adverse financing conditions for business development companies.
  • We are revising our outlook on Ares Capital Corp. (ARCC) to stable from positive.
  • At the same time, we are affirming our 'BBB-' issuer credit and debt ratings on ARCC.
  • The stable outlook reflects ARCC's very strong capital position, successful underwriting track record, and favorable funding profile. It also incorporates our expectation that the company will maintain debt to adjusted total equity less than 1.3x over the next 18-24 months.
NEW YORK (S&P Global Ratings) March 24, 2020--S&P Global Ratings said today it revised its outlook on Ares Capital Corp. (ARCC) to stable from positive. At the same time, we affirmed our 'BBB-' issuer credit rating and senior secured and senior unsecured issue ratings on ARCC.
The outlook revision reflects that it is unlikely we will raise the ratings due to uncertainty related to the COVID-19 pandemic. We expect the pandemic to result in increased credit losses and calls on liquidity to fund commitments, as well as adverse financing conditions for business development companies. The rating affirmation reflects ARCC's very strong capital position, successful underwriting track record, and favorable funding profile.
The stable outlook reflects ARCC's very strong capital position, successful underwriting track record, and favorable funding profile. Over the next 12 months, we expect the company will maintain debt to ATE of less than 1.3x, a substantial cushion to the 150% modified asset coverage ratio, and sufficient liquidity to meet draws by portfolio companies against revolvers and delayed draw term loans.

Downside scenario

We could lower the ratings in the next 12 months if:
  • ARCC's debt to ATE exceeds 1.5x or its asset coverage ratio declines to 165%;
  • Portfolio company draws on unfunded commitments strain its liquidity; or
  • Return on average portfolio investments falls below 5%, non-deal-dependent income interest coverage falls below 3x, or non-deal-dependent income coverage of interest and dividends falls below 1x.

Upside scenario


An upgrade is not likely until after the COVID-19 pandemic and its resulting economic downturn subsides.
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