KBW Upgrades Ares Capital, Notes Valuation Upside And Strong Dividend

In a report published Friday, Keefe, Bruyette & Woods analyst Greg Mason upgraded the rating on

from Market Perform to Outperform. There have been concerns regarding the announced departure of

from the GE Capital joint venture, leading to a decline in the share price. "While the end result of the GE program is still unclear, ARCC announced a new Senior Loan Fund partner that should have the size and expertise to fill whatever gap is left by the GE joint venture over time," Mason stated. Ares Capital had stated that the prime factor in choosing a new partner for its Senior Loan Program would be a good understanding of lending to the middle market and can work efficiently with the company's team. The analyst believes that the partner would also be someone with adequate financial capacity to make a meaningful investment over time. If Ares Capital is unable to find a suitable partner, the program would not be shut down immediate, rather it would be gradually wound down, with repayment of loans taken via the program. "In our discussions with investors it was clear that there was a lot of angst around the earnings impact from GE and the Senior Secured Loan Program. We believe the combination of the lower stock price and what we believe to be a long-term solution to mitigate any earnings impact from the GE joint venture now provide an attractive entry point for the shares," according to the Keefe, Bruyette & Woods report.