Ares Strategic Income Fund Leverage Climbs to 1.24x After Q3 Redemption Payout

Ares Strategic Income Fund’s leverage rose to 1.24x debt-to-equity at the end of September, up from 1.15x a month earlier. The increase came as the $9.9 billion nontraded business development company absorbed its third-quarter share repurchases.

ASIF, managed by Ares Capital Management LLC, reported net asset value of $26.69 per share across its Class I, S, and D shares as of Sept. 30, down from $26.74 at Aug. 31. Aggregate NAV fell to about $9.9 billion from about $10.4 billion.

The roughly $500 million decline in aggregate NAV is close to the payout from the fund’s third-quarter tender. AltsWire reported in September that shareholders sought to redeem 13.1% of outstanding shares in that tender, against a 5% quarterly cap. ASIF said it would repurchase 38.2% of requested amounts, about $515 million at the Aug. 31 NAV. It was the third consecutive quarter in which requests exceeded the cap. Second-quarter demand reached 14.4%.

Debt outstanding rose to about $12.3 billion from about $11.9 billion. Net of about $463 million in available cash, leverage stood at 1.19x. ASIF had about $3.8 billion available for additional borrowing under its credit facilities, down from about $4.1 billion at Aug. 31. Leverage has climbed steadily since spring; the fund reported debt-to-equity of 1.06x as of May 31.

Portfolio fair value declined to about $21.4 billion from about $21.8 billion.

Performance and Distributions

Class I shares returned 0.61% in September and 2.35% over the trailing three months, the fund said. ASIF attributed the month’s result to income generation, partially offset by modest net unrealized losses across the portfolio. Since its December 2022 inception, Class I shares have returned 9.92% annualized, which the fund said is 168 basis points ahead of the Morningstar LSTA US Leveraged Loan Index over the same period.

The fund’s annualized distribution rate for Class I shares was 9.64% as of Sept. 30, according to Ares. ASIF declared gross monthly distributions of $0.2143 per share for October, November, and December. The fund said 100% of its inception-to-date distributions have been funded from cash flows from operations.

As of Sept. 30, ASIF held investments in 795 portfolio companies. First lien senior secured loans made up 76.2% of the portfolio at fair value, and 92% of debt investments were floating rate. Software and services was the largest industry exposure at 21.5%.

In October, the fund sold 543,863 Class I shares for about $14.5 million through its private placement, up from about $8 million in September. Including its registered offering, ASIF has raised about $12.2 billion since launch. The fund is continuously offering up to $15 billion of common shares.

ASIF’s fourth-quarter tender is expected to open in November. It will be the first in which Class I shares purchased through the fund’s Regulation D private placement become eligible for tender, AltsWire previously reported.

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