To jdb_1234,
You asked a good question and you did state it clearly.
You can find “the amount of capital embedded in the ALD portfolio that is not producing income” in the ALD filings with the SEC. Just look at the list of the ALD portfolio holdings and find the equity positions. But it won’t do you much good because we have no idea what ARCC plans to do with those equity holdings just as we don’t know how they will rearrange the debt holdings. Some of the better high paid analysts who talk to the company may be able to project what will happen to the portfolio. But you and I will probably just have to wait and see how it all turns out. ARCC has completed their DD, and they have already proven that they know their stuff. So it should work out well.


To CA_Man95.
I just read your post and I’m not sure I understand it.
You are saying that you talked to a hedge fund manager who is short ARCC (and therefore has everything to gain if the stock drops in price) and he told you that ALD is worth absolutely nothing?
That means that ARCC, which has one of the most respected management teams in the BDC world, is about to pay $648 million for a worthless company. Wouldn’t that make ARCC management totally stupid or somewhat insane? You don’t really believe that do you?
Your Hedge fund manager also said that “Ares's fees are so ridiculously high that Ares makes out regardless given the big jump in assets.” In a recent multi page study done on September 30th by Stifel Nicolaus titled “External BDC Fee Structures”, Stifel found that the among all externally managed BDCs, the most friendliest shareholder fee structure comes from GLAD, with BKCC second, and ARCC third. The ARCC fee structure is especially attractive because it has a lower base management fee than most of its peers and ARCC also defers incentive fees if changes in book value plus dividends do not exceed an 8% growth rate.
Perhaps, you should re-evaluate what your hedge fund friend tells you.

In one of your follow-on posts, you say “Plus I am hoping this deal will increase dividends and NAV materially -- like 50% or more otherwise it’s not worth the risks.”
You do realize, generally speaking, most mergers don’t result in accretion to earnings until six to twelve months (on average), after closing of the merger, due to the time it takes to integrate the two companies and due to the costs involved. In the case of this ARCC merger, they expect to begin generating accretive earnings immediately on closing. If ARCC, in 2010, achieves the quarterly growth projections suggested by Stifel, they will have grown Q2 EPS (the first Q to benefit from the merger) by 18%, Q3 by 14%, and Q4 by 21%. Additionally, they will have cleaned up the ALD portfolio during that time frame and therefore laid the foundation for more growth, on their terms, in 2011. It doesn’t get much better than that.

To mthiker2004, brucelat9, jdb_1234, zip_jet, and fwdpass:
Thank you all for your kind comments.

To its_not_my_...,
In this difficult credit environment, ARCC has proven itself to be a notable corporate success. And its story is about to get even better. And you want to take them through bankruptcy proceedings? I know. You are just kidding. Right?

We should all have a fun day tomorrow.
Jan