Ares Management Corp (NYSE:ARES) reported an uptick in underperforming investments during the second quarter, amid the industry’s concerns regarding disruption from rapid advances in artificial intelligence.

Ares’ publicly traded business development company, Ares Capital Corp, saw non-accrual status loans rise to $708 million, up 15% from the first quarter, and 26% year-over-year, Bloomberg reported.

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CEO Kort Schnabel said that the firm remained disciplined in a slower deal environment, using scale, capital strength and borrower relationships to secure attractive investment opportunities.

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“In the slower transaction environment of the second quarter, our scale, stable capital base and longstanding borrower relationships enabled us to capture enhanced economics in attractive credits while remaining highly selective," Schnabel said. 

The increase pushed non-accrual loans up 2.4% of the portfolio at cost, although the figure remains below the company’s long-term average of 3%. The lender posted core earnings of 47 cents per share, but net asset value per share fell to $19.35 from $19.59 over a three-month period. The company recorded $7 million in net realized investment losses after generating a $114 million gain in the prior quarter.

Ares Capital deployed $2.6 billion in new commitments during the quarter and sold or exited $2.9 billion in investments, while keeping quarterly dividends unchanged at 48 cents per share, Bloomberg reported.

Ares raised $1.2 billion in additional financing in the second quarter, including upsizing and extending two bank-led revolving credit facilities and improving its largest revolving credit facility.  The company ended the second quarter with approximately $6 billion of available liquidity, the firm noted in a press release.

Earlier this year, Ares noted it was holding difficult conversations with software companies, after the company said its private credit fund revealed $1 billion in investments facing "medium" risk of dislocation due to advancements in AI. 

Photo: Shutterstock

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