10-K/A: Ares Capital Corporation Amends Annual Report to Include Ivy Hill Asset Management Financials

Ares Capital Corporation filed an amendment to its annual report to include audited financial statements for its wholly-owned portfolio company, Ivy Hill Asset Management, L.P.

Summary

• Ares Capital Corporation (ARCC) has filed an amendment to its annual report on Form 10-K for the fiscal year ended December 31, 2023.
• The amendment includes the audited financial statements of Ivy Hill Asset Management, L.P. (IHAM), a wholly-owned portfolio company of ARCC, for the year ended December 31, 2023.
• IHAM's financial statements were required due to IHAM meeting the conditions of a significant subsidiary under SEC regulations.
• The amendment also includes certifications from ARCC's CEO and CFO, and the consent of independent auditors.
• The original 10-K was filed on February 7, 2024, and this amendment does not reflect any events that occurred after that date.
• IHAM's consolidated balance sheet shows total assets of $10,219 million as of December 31, 2023, compared to $9,601 million in 2022.
• IHAM's net income attributable to Ivy Hill Asset Management, L.P. was $326 million for 2023, compared to $155 million in 2022 and $123 million in 2021.
• IHAM manages 20 vehicles with approximately $13.5 billion in assets under management as of December 31, 2023.

Sentiment

Score: 7

Explanation: The document is primarily a compliance filing, but the strong growth in IHAM's net income and assets is a positive sign. The lack of updated forward-looking statements and the need for an amendment temper the overall sentiment.

Positives

• Ivy Hill Asset Management's net income increased significantly from $155 million in 2022 to $326 million in 2023.
• Ivy Hill Asset Management's total assets grew from $9,601 million in 2022 to $10,219 million in 2023.
• The inclusion of IHAM's financials provides a more complete picture of ARCC's financial position.

Negatives

• The amendment was required due to IHAM meeting the criteria of a significant subsidiary, suggesting a potential oversight in the original filing.
• The document notes that forward-looking statements in the original 10-K have not been updated, which could be a concern for investors looking for current guidance.

Risks

• The document mentions that the fair value of investments may fluctuate and differ from realized values due to the lack of readily available market values.
• Investments are subject to market, credit, and interest rate risks, which could negatively impact the financial performance of IHAM and ARCC.
• The document notes that the Partnership and the Consolidated IHAM Vehicles are subject to legal and regulatory risks.

Future Outlook

The document does not provide specific forward-looking statements, but it does state that forward-looking statements in the original Form 10-K have not been revised to reflect events after the original filing date.

Management Comments

• R. Kipp deVeer, Chief Executive Officer, and Scott C. Lem, Chief Financial Officer, certified that the report does not contain any untrue statements and fairly presents the financial condition of the company.
• Management has determined that IHAM has met the conditions of a significant subsidiary under Rule 1-02(w) of Regulation S-X.

Industry Context

This amendment is typical for companies with significant subsidiaries that meet specific SEC criteria, ensuring transparency and compliance with financial reporting standards. The inclusion of IHAM's financials provides investors with a more comprehensive view of ARCC's overall financial health and performance in the asset management sector.

Comparison to Industry Standards

• The inclusion of Ivy Hill Asset Management's financials is consistent with SEC requirements for significant subsidiaries, similar to how other large asset managers like Blackstone or Apollo would report their consolidated financials.
• The level of detail provided in the financial statements, including the breakdown of assets, liabilities, and income, is comparable to industry standards for financial reporting by investment management firms.
• The valuation methods used by IHAM, such as yield analysis and discounted cash flow analysis, are standard practices in the valuation of illiquid investments, similar to those used by other business development companies (BDCs) and private credit funds.

Related Party Transactions

• The document discloses related party transactions between IHAM and Ares Operations, including reimbursements for services and amounts payable.
• The document also mentions a sublease agreement with Ares Management for office space.

Stakeholder Impact

• Shareholders will benefit from the increased transparency provided by the inclusion of IHAM's financials.
• Creditors of the Consolidated IHAM Vehicles have no recourse to the Partnership, which is a key consideration for those stakeholders.
• The document provides a detailed view of the financial health of IHAM, which is important for its employees and other stakeholders.

Next Steps

• The company will file its definitive Proxy Statement for its 2024 Annual Stockholder Meeting within 120 days after December 31, 2023.
• Investors should review the original Form 10-K in conjunction with this amendment for a complete understanding of the company's financial position.

Key Dates

Keywords

Ares Capital Corporation, Ivy Hill Asset Management, Financial Statements, Annual Report, Form 10-K, Audited Financials, Asset Management, Consolidated Financials, Investment Management, SEC Filing