Ares Capital in discussions of wind down of Senior Secured Loan Fund

By Wendy Van Sickle

Columbus, Ohio, Sept. 1 – Ares Capital Corp. is in discussions with the holder of its Senior Secured Loan Fund LLC’s senior notes, General Electric Capital Corp., regarding winding down the fund, according to an 8-K filed with the Securities and Exchange Commission.

The discussions follow Ares’ receiving notice that General Electric Capital advised State Street Bank and Trust Co., the trustee of the fund’s notes and the subordinated certificates, on Aug. 24 to apply proceeds received from the fund’s investments to repaying the senior notes until they are paid in full.

General Electric had previously elected to waive its right to receive priority repayments on the senior notes from principal proceeds in most circumstances, according to the filing.

The certificates pay a weighted average coupon of Libor plus about 800 basis points and entitle holders to receive a portion of the excess cash flow from the loan portfolio, which may result in a return to the holders of the certificates that is greater than the coupon.

As of June 30, the company’s yield on its investment in the certificates at fair value was 13.7%. The company expects that as long as principal proceeds from Senior Secured Loan Fund repayments are directed entirely to repay the senior notes, the yield on the certificates will decline, according to the filing.

Ares’ discussions with General Electric regarding the terms of an orderly wind down of the fund, include amendments to the application of interest and principal proceeds from underlying loans.

Ares said it does not believe the reduction in the size of the fund’s portfolio or any priority application of principal proceeds from the underlying loans to repay the senior notes would have a material adverse effect on the company’s financial condition or results of operations.

Ares Capital is a specialty finance company based in New York.

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