Fitch Expects to Rate Ares Management, L.P.'s Preferred Issuance 'BBB-'

NEW YORK--()--Fitch Ratings expects to rate Ares Management, L.P.'s (Ares) perpetual preferred issuance 'BBB-'.

The preferred securities are expected to be subordinated to existing unsecured debt but senior to common units. Distributions, when and if declared by the board of directors, are expected to be payable quarterly. Distributions on the preferred units are non-cumulative. Unless distributions have been declared on the preferred units with respect to a particular period, Ares may not declare or pay distributions on its common units. The preferred units are expected to be perpetual in nature but may be redeemed, at Ares' option, five years after issuance. Proceeds from the issuance are expected to be used for general corporate purposes, including the firm's $275 million commitment related to Ares Capital Corporation's acquisition of American Capital, Ltd.

Concurrently, Fitch has assigned a long-term Issuer Default Rating (IDR) of 'BBB+' to Ares Management, L.P. This entity is the issuer of the preferred stock and is the holding company of Ares Management LLC and Ares Operating Group, which consists of Ares Holdings L.P., Ares Domestic Holdings L.P., Ares Offshore Holdings L.P., Ares Investments L.P. and Ares Real Estate Holdings L.P. The Rating Outlook is Stable.

KEY RATING DRIVERS

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The instrument is expected to be rated two notches lower than Ares' long-term IDR in accordance with Fitch's 'Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis' dated Feb. 29, 2016. The preferred stock rating includes two notches for loss severity, reflecting its subordination and heightened risk of non-performance relative to other obligations, namely existing unsecured debt.

Fitch expects to afford the issuance 100% equity credit given the non-cumulative nature of the dividends, the fact that the preferred securities are perpetual, and the issuer's option to elect a coupon step-up of 500 basis points in lieu of redemption in the event of a change of control.

The preferred instrument is not expected to benefit from joint and several guarantees from the Ares Operating Group, given the registration requirements. However, Ares is expected to contribute the proceeds from the issuance to the Ares Operating Group, which will issue to Ares a new series of preferred units with economic terms designed to mirror those of the preferred issuance. This will include an inability to declare distributions on common units unless distributions have been declared and paid (or funds for payment are set aside) on the preferred units with respect to a particular period. These terms help to provide a credit benefit to offset the lack of a guarantee, by structurally prioritizing the preferred units above all common units.

The 'BBB+' IDR assigned to Ares Management, L.P. is equalized with the IDRs of Ares Management LLC, Ares Finance Co. LLC (the issuer of company debt), and Ares Operating Group.

All of the above-referenced entities are rated 'BBB+' on the basis of the firm's solid competitive position as a global alternative investment manager, its experienced management team, solid investment track record, strong and predictable fee-related earnings (FRE), given meaningful fee-earning assets under management (FAUM), relatively stable distributable earnings compared to peers, due to the significant FRE component, and the subordination of general partner interests to outstanding indebtedness.

The Stable Outlook reflects Fitch's expectations that management will continue to generate stable management and advisory fees, grow/retain FAUM through the raising of new and expansion of existing funds, sustain operating margins, operate with relatively low leverage, and retain an adequate liquidity profile in order to meet debt service obligations and co-investment commitments to its funds.

RATING SENSITIVITIES

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The expected preferred unit rating is sensitive to changes in Ares' long-term IDR, and would move in tandem with any changes to the IDR. For more information on Ares' rating sensitivities, please see the press release 'Fitch Affirms Ares Management Entities at 'BBB+'; Outlook Stable' dated Nov. 6, 2015.

Headquartered in Los Angeles, CA, Ares is a global alternative investment manager investing funds across a variety of strategies including credit, private equity and real estate. At March 31, 2016, Ares had $94 billion of AUM, largely across its liquid and illiquid credit strategies. Ares was founded in 1997 and completed its initial public offering on May 7, 2014. The common units are listed on the NYSE under the ticker symbol ARES.

Fitch has assigned the following ratings:

Ares Management, L.P.

--Long-term IDR 'BBB+';

--Preferred Units 'BBB-(EXP)'.

Fitch currently rates Ares as follows:

Ares Management LLC

Ares Investments Holdings LLC

Ares Offshore Holdings, L.P.

--Long-term IDR 'BBB+'.

Ares Holdings L.P.

Ares Domestic Holdings L.P.

Ares Investments L.P.

Ares Real Estate Holdings L.P.

--Long-term IDR 'BBB+';

--Bank Credit Facility 'BBB+'.

Ares Finance Co. LLC

--Long-term IDR 'BBB+';

--Senior Unsecured Debt 'BBB+'.

The Rating Outlook is Stable.

Additional information is available on www.fitchratings.com

Applicable Criteria

Global Non-Bank Financial Institutions Rating Criteria (pub. 28 Apr 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865351

Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis (pub. 29 Feb 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878264

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1005412

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005412

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Meghan Neenan
Senior Director
+1-212-908-9121
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Jared Kirsch
Associate Director
+1-212-908-0646
or
Committee Chairperson
Julie Solar
Senior Director
+1-312-368-5472
or
Media Relations:
Hannah James, +1 646-582-4947
hannah.james@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Meghan Neenan
Senior Director
+1-212-908-9121
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Jared Kirsch
Associate Director
+1-212-908-0646
or
Committee Chairperson
Julie Solar
Senior Director
+1-312-368-5472
or
Media Relations:
Hannah James, +1 646-582-4947
hannah.james@fitchratings.com