Markets

Ares Capital's $100M Buyback Plan to Recover Stock Price

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Shares of Ares Capital CorporationARCC recently saw a massive sell-off. The company's stock price has plummeted nearly 15% over the past 3 months. However, in a bid to avoid any further plunge, the company's board of directors approved a new share repurchase program on Monday.

Under the program, Ares Capital is authorized to buy back shares worth up to $100 million in the open market at certain thresholds below its net asset value ("NAV") per share. Notably, the company's share price of $14.06 at the close of Tuesday's trading session stands below its last reported NAV of $16.80 per share (as of Jun 30, 2015). This reflects a strong need to execute the buyback.

Based on yesterday's closing price of $14.06, the company is capable of repurchasing approximately 7 million of its common stock, representing around 2.2% of its floating capital.

Further, execution of the buyback is subject to stock price, market condition and other related factors. Additionally, the program will remain effective till shares worth the entire amount are repurchased, with an anticipated expiry on Sep 30, 2016, independent of the number of shares bought back over that period. However, the program can be executed, modified or discontinued at any given time.

Ares Capital currently carries a Zacks Rank #3 (Hold).

While the equity market volatility has hit all the sectors, business development companies or BDCs are among its worst victims. As such, many of these companies have resorted to stock buybacks.

This includes Farmington-based Horizon Technology Finance Corporation HRZN , which, along with Ares Capital, announced a stock buyback plan on Monday. The company is authorized to repurchase up to $5 million or roughly 5% of its floating shares, at prices below its NAV per share.

However, such repurchasing is not always a big help for these companies. As an example, shares of American Capital, Ltd. ACAS , the largest alternative asset management company in the S&P 500 (also a BDC), have nosedived close to 15% during the third quarter, despite the company having repurchased approximately 3.6% of its outstanding common stock (as of Jun 30) over the past three months.

Bottom Line

Given the continued uncertainty in the market, shares are likely to fall further. This indicates increased repurchase activities among BDCs in the near term.

At the end of Tuesday's session, shares of Ares Capital were down 2.4%, while that of Horizon Technology, American Capital and Prospect Capital Corporation PSEC have fallen 1.1%, 2% and 3.3%, respectively.

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AMER CAP LTD (ACAS): Free Stock Analysis Report

ARES CAP CP (ARCC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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