DEF: Ares Capital Seeks Stockholder Approval to Issue Shares Below Net Asset Value

Ares Capital Corporation is asking stockholders to approve a proposal that would allow the company to issue shares of its common stock below its net asset value (NAV) under certain conditions.

Summary

• Ares Capital Corporation is holding a Special Meeting of Stockholders on August 8, 2025, to vote on a proposal to authorize the company to issue shares of its common stock below its net asset value (NAV).
• The authorization, if approved, would be effective for one year.
• The company is seeking the flexibility to issue shares below NAV to take advantage of investment opportunities during volatile market conditions, maintain a favorable debt-to-equity ratio, and comply with regulatory requirements.
• Stockholders of record as of May 13, 2025, are eligible to vote.
• The company has engaged D.F. King & Co., Inc. to assist in the solicitation of proxies at an anticipated cost of approximately $7,500, plus reimbursement of certain expenses and fees for additional services requested.
• As of May 13, 2025, there were 694,181,754 shares of the company's common stock outstanding and entitled to vote at the Special Meeting.
• The affirmative vote of holders of at least a majority of the outstanding shares of the company's common stock and the outstanding shares of the company's common stock held by persons that are not affiliated persons of the company, is required to approve Proposal 1.
• The Board believes that having the flexibility to issue common stock below NAV in certain instances is in the best interests of the Company and its stockholders.

Sentiment

Score: 6

Explanation: The document presents a balanced view, outlining both the potential benefits and risks of the proposal. While the company expresses a positive outlook on the flexibility the authorization would provide, it also acknowledges the potential dilutive effects on existing stockholders.

Positives

• The proposal aims to provide the company with financial flexibility to capitalize on investment opportunities during market downturns.
• The company believes this flexibility could improve its ability to compete for high-quality investments and comply with regulatory requirements.
• The company's history shows that it has used this flexibility prudently in the past, with positive outcomes for stockholders.
• The company's NAV increased during the one-year period following the date of the company's most recently determined NAV prior to such issuance, increasing from $11.21 (as of June 30, 2009) to $14.11 (as of June 30, 2010).

Negatives

• Issuing shares below NAV could dilute the value of existing stockholders' holdings if they do not participate in the offering.
• Non-participating stockholders may experience a decrease in their participation in the company's earnings and assets.
• The market price of the company's shares could decline as a result of the offering.
• Abstentions and broker non-votes, if any, will have the effect of a vote AGAINST this proposal.

Risks

• Market volatility could impact the valuations of certain investments and create unrealized losses on investments.
• The company's debt-to-equity ratio could be negatively impacted by market events.
• There is no guarantee that the company's common stock will trade at, above, or below NAV in the future.
• Existing stockholders who do not participate in an offering below NAV face the greatest potential risks.

Future Outlook

The company seeks to maintain consistent access to capital to take advantage of investment opportunities as they arise and to maintain a favorable debt to equity ratio.

Management Comments

• The Board believes that having the flexibility to issue common stock below NAV in certain instances is in the best interests of the Company and its stockholders.

Industry Context

BDCs as an industry historically have traded below NAV and, in particular, shares of the Company's common stock have traded below NAV during such periods of disruptions and volatility.

Comparison to Industry Standards

• The document mentions that Ares Capital's total stockholder return outperformed that of every other BDC with a market capitalization of greater than $500 million for the one-year period following the date of its 2009 below NAV issuance.
• The document mentions the acquisition of Allied Capital Corporation during a period of disruption and volatility, which was accretive to the Company.

Stakeholder Impact

• Existing stockholders may experience dilution if they do not participate in any offering of shares below NAV.
• New investors may experience an immediate increase in the NAV of their shares if they participate in an offering of shares below NAV.
• The company believes that the proposal is in the best interests of its stockholders as a whole.

Next Steps

• Stockholders are encouraged to vote on the proposal to authorize the company to issue shares below NAV.
• The company will hold a Special Meeting of Stockholders on August 8, 2025, to vote on the proposal.
• The Board will consider the potential dilutive effect of the issuance of shares of common stock at a price below NAV when considering whether to authorize any such issuance pursuant to the stockholder approval being sought here.

Key Dates

Keywords

Ares Capital Corporation, Stockholder Meeting, Net Asset Value, Common Stock, Share Issuance, Dilution, Investment Company Act, Proxy Statement, ARCC