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26 Mar 2010
New York, March 26, 2010 -- Moody's Investors Service confirmed Ares Capital Corporation's (Ares)
Ba1 issuer rating. In a related action, Moody's upgraded
Allied Capital Corporation's (Allied) issuer and senior unsecured ratings
to Ba1 from B1. All ratings have a stable outlook. This
concludes the review of Ares and Allied begun on October 26, 2009
and continued on January 28, 2010.
These rating actions follow Ares' and Allied's announcements that
their shareholders have approved Ares' acquisition of Allied in an all
stock transaction. The companies plan to close the transaction
by April 1, 2010. Over the past several months both companies
have taken actions to alleviate short term refinancing risk and reduce
leverage -- two risks that Moody's had highlighted when it
initiated the ratings review. As a result, Moody's
expects the combined company will achieve its targeted debt to equity
ratio of 0.65 times to 0.75 times (this is equivalent to
an asset coverage ratio of approximately 230% to 250%) at
closing.
Allied has deleveraged substantially by selling investment portfolio assets
and pre-paying debt. Allied reduced its debt by $815
million, or 45%, between June 30, 2009 and January
29, 2010, increasing asset coverage ratio above 200%
(based on December 31, 2009 investment portfolio valuations).
The company has prepaid all 2010 maturities.
Ares, in two separate offerings, has raised $387 million
of common equity. Also, Ares recently increased the capacity
of its bank facilities to $1 billion on a stand-alone basis
and extended their maturity to January 2013.
The combination of these actions mitigate the concerns that Moody's
had earlier expressed, and support the Ba1 rating outcome.
Supporting the stable outlook is Moody's view that Allied's
portfolio poses less risk of write-downs post closing. This
is due to the fact that Allied's investment portfolio, although
of extremely poor quality, has not deteriorated further in the past
two quarters, was valued at 58% of cost at December 31,
2009, and it will likely be written-down further through
purchase accounting. Also, Ares' investment portfolio
has shown quality improvement over the past two quarters.
Ares' rating could come under negative pressure if the company increases
its leverage from current levels or if its investment portfolio displays
significant deterioration from current levels. Positive pressure
could result if Ares maintains an asset coverage ratio of 250%
and reduces the encumbrance of its investment portfolio to less than 50%.
The last rating action on Ares and Allied was on January 28, 2010
when Moody's continued the review for downgrade on Ares and the review
for upgrade on Allied.
The principal methodology used in rating Ares and Allied was Analyzing
the Credit Risks of Finance Companies, which can be found at www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on the Moody's website.
Ares Capital Corporation is based in New York and reported total assets
of $2.3 billion at December 31, 2009. Allied
Capital Corporation is based in Washington DC and reported total assets
of $2.7 billion at December 31, 2009.
Upgrades:
..Issuer: Allied Capital Corporation
....Issuer Rating, Upgraded to Ba1 from
B1
....Senior Unsecured Regular Bond/Debenture,
Upgraded to Ba1 from B1
Outlook Actions:
..Issuer: Allied Capital Corporation
....Outlook, Changed To Stable From
Rating Under Review
..Issuer: Ares Capital Corporation
....Outlook, Changed To Stable From
Rating Under Review
Confirmations:
..Issuer: Ares Capital Corporation
....Issuer Rating, Confirmed at Ba1
New York
Robert Young
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Craig A. Emrick
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's confirms Ares at Ba1, upgrades Allied to Ba1
No Related Data.
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