NPORT-EX 2 NPORT_ARJ0_36733667_0922.htm

 

Ares Dynamic Credit Allocation Fund, Inc.

Schedule of Investments

September 30, 2022 (Unaudited)
(in thousands, except shares, percentages and as otherwise noted)

 

 

  Principal Amount (a)   Value (a) 
Senior Loans 26.5% (b)(c)(d)          
Capital Goods 4.1%          
Illuminate Merger Sub Corp., 2nd Lien Term Loan, 6M LIBOR + 6.75%, 9.63%, 07/23/2029  $2,348   $2,016 
LBM Acquisition, LLC, 1st Lien Term Loan, 6M LIBOR + 3.75%, 7.12%, 12/17/2027   2,000    1,741 
Traverse Midstream Partners, LLC, 1st Lien Term Loan, 09/27/2024 (e)   3,000    2,925 
Tutor Perini Corp., 1st Lien Term Loan, 1M LIBOR + 4.75%, 7.87%, 08/18/2027 (f)   3,960    3,684 
White Cap Buyer, LLC, 1st Lien Term Loan, 10/19/2027 (e)   2,497    2,332 
         12,698 
Commercial & Professional Services 1.5%          
Restaurant Technologies, Inc., 1st Lien Term Loan, 3M SOFR + 4.25%, 7.80%, 04/02/2029   2,985    2,898 
WMB Holdings, Inc., 1st Lien Term Loan, 08/31/2029 (e)   1,875    1,826 
         4,724 
Consumer Services 4.6%          
888 Acquisitions, Ltd., 1st Lien Term Loan, (Great Britian), 3M SOFR + 5.25%, 8.28%, 07/03/2028   2,500    2,142 
Equinox Holdings, Inc., 1st Lien Term Loan, 3M LIBOR + 9.00%, 12.67%, 03/08/2024 (f)   2,444    1,955 
Equinox Holdings, Inc., 1st Lien Term Loan, 3M LIBOR + 9.00%, 12.67%, 03/08/2024   1,485    1,188 
Fertitta Entertainment, LLC, 1st Lien Term Loan, 1M SOFR + 4.00%, 7.03%, 01/27/2029   1,244    1,152 
Flutter Financing BV, 1st Lien Term Loan, (Ireland), 3.75%, 07/22/2028 (e)   1,299    1,266 
Global Education Management Systems Establishment, 1st Lien Term Loan, (Cayman Islands), 6M LIBOR + 5.00%, 8.57%, 07/31/2026   3,544    3,433 
IRB Holding Corp., 1st Lien Term Loan, 02/05/2025 (e)   997    962 
IRB Holding Corp., 1st Lien Term Loan, 1M SOFR + 3.00%, 5.70%, 12/15/2027   1,995    1,865 
         13,963 
Energy 0.3%          
M6 ETX Holdings II Midco, LLC, 1st Lien Term Loan, 3M SOFR + 4.50%, 7.62%, 09/19/2029   1,063    1,042 
           
Food & Beverage 2.2%          
Quirch Foods Holdings, LLC, 1st Lien Term Loan, 1M SOFR + 4.75%, 7.93%, 10/27/2027 (f)   5,441    5,081 
Woof Holdings, Inc., 2nd Lien Term Loan, 3M LIBOR + 7.25%, 10.82%, 12/21/2028 (f)   1,635    1,561 
         6,642 
Healthcare Equipment & Services 1.5%          
Bausch + Lomb Corp., 1st Lien Term Loan, (Canada), 05/10/2027 (e)   2,010    1,866 
MDVIP, Inc., 2nd Lien Term Loan, 1M LIBOR + 6.50%, 9.55%, 10/15/2029   2,796    2,643 
         4,509 
Household & Personal Products 0.7%          
Sunshine Luxembourg VII SARL, 1st Lien Term Loan, (Luxembourg), 3M LIBOR + 3.75%, 7.42%, 10/01/2026   2,244    2,083 
           
Materials 1.0%          
Pretium PKG Holdings, Inc., 2nd Lien Term Loan, 3M LIBOR + 6.75%, 10.49%, 10/01/2029   2,500    2,100 
Venator Materials Corp., 1st Lien Term Loan, (Great Britain), 1M LIBOR + 3.00%, 6.12%, 08/08/2024   947    820 
         2,920 
Media & Entertainment 1.4%          
AVSC Holding Corp., 1st Lien Term Loan, 3M LIBOR + 3.25%, 6.39%, 03/03/2025   2,480    2,165 
Univision Communications, Inc., 1st Lien Term Loan, 3M SOFR + 4.25%, 7.79%, 06/24/2029   2,095    2,037 
         4,202 
Software & Services 7.3%          
Asurion, LLC, 1st Lien Term Loan, 3M SOFR + 4.00%, 6.30%, 08/19/2028   3,500    2,974 
Byju's Alpha, Inc., 1st Lien Term Loan, 3M LIBOR + 6.00%, 8.98%, 11/24/2026   2,620    1,866 
CDK Global, Inc., 1st Lien Term Loan, 3M SOFR + 4.50%, 6.61%, 07/06/2029   2,547    2,449 
Eastman Chemical Company, 1st Lien Term Loan, 1M LIBOR + 5.25%, 8.37%, 11/01/2028   2,308    2,065 
Epicor Software Corp., 2nd Lien Term Loan, 1M LIBOR + 7.75%, 10.87%, 07/31/2028   722    702 
Gainwell Acquisition Corp., 1st Lien Term Loan, 3M LIBOR + 4.00%, 7.67%, 10/01/2027   2,970    2,824 

 

 

 

Ares Dynamic Credit Allocation Fund, Inc.

Schedule of Investments (continued)

September 30, 2022 (Unaudited)
(in thousands, except shares, percentages and as otherwise noted)

 

   Principal Amount (a)   Value (a) 
Senior Loans (b)(c)(d) (continued)          
Ivanti Software, Inc., 1st Lien Term Loan, 3M LIBOR + 4.25%, 7.33%, 12/01/2027  $757   $586 
Ivanti Software, Inc., 1st Lien Term Loan, PRIME + 2.75%, 9.00%, 12/01/2025 (f)(g)   250    (10)
Ivanti Software, Inc., 2nd Lien Term Loan, 3M LIBOR + 7.25%, 10.33%, 12/01/2028   1,250    929 
Netsmart Technologies, Inc., 1st Lien Term Loan, 10/01/2027 (e)   2,395    2,281 
Proofpoint, Inc., 2nd Lien Term Loan, 3M LIBOR + 6.25%, 9.32%, 08/31/2029 (f)   3,000    3,000 
Quest Software US Holdings, Inc., 2nd Lien Term Loan, 3M SOFR + 7.50%, 10.23%, 02/01/2030   1,584    909 
Tibco Software, Inc., 1st Lien Term Loan, 5.00%, 03/30/2029 (e)   993    890 
Tibco Software, Inc., 2nd Lien Term Loan, 09/28/2029 (e)(f)   965    965 
         22,430 
Transportation 1.9%          
American Airlines, Inc., 1st Lien Term Loan, 3M LIBOR + 4.75%, 7.46%, 04/20/2028   3,846    3,719 
SkyMiles IP, Ltd., 1st Lien Term Loan, 3M LIBOR + 3.75%, 6.46%, 10/20/2027   2,000    2,002 
         5,721 
Total Senior Loans (Cost: $86,909)        80,934 
           
Corporate Bonds 80.5%          
Automobiles & Components 0.6%          
Clarios Global, LP, 8.50%, 05/15/2027 (d)   2,000    1,898 
           
Capital Goods 7.2%          
Artera Services, LLC, 9.03%, 12/04/2025 (d)   2,000    1,610 
Clarios Global, LP, (Canada), 6.75%, 05/15/2025 (d)   2,500    2,448 
CP Atlas Buyer, Inc., 7.00%, 12/01/2028 (d)   3,500    2,599 
LBM Acquisition, LLC, 6.25%, 01/15/2029 (d)   1,500    1,016 
Specialty Building Products Holdings, LLC, 6.38%, 09/30/2026 (d)   3,000    2,489 
Standard Industries, Inc., 5.00%, 02/15/2027 (d)   2,400    2,125 
TransDigm, Inc., 8.00%, 12/15/2025 (d)   6,500    6,592 
Tutor Perini Corp., 6.88%, 05/01/2025 (d)   1,000    748 
VistaJet Malta Finance PLC, (Switzerland), 6.38%, 02/01/2030 (d)   2,000    1,635 
VistaJet Malta Finance PLC, (Switzerland), 7.88%, 05/01/2027 (d)   1,000    899 
         22,161 
Commercial & Professional Services 0.6%          
Clean Harbors, Inc., 4.88%, 07/15/2027 (d)(h)   2,000    1,823 
           
Consumer Durables & Apparel 1.0%          
Ashton Woods USA, LLC, 6.63%, 01/15/2028 (d)   3,500    2,930 
           
Consumer Services 12.2%          
Caesars Entertainment, Inc., 6.25%, 07/01/2025 (d)   3,250    3,127 
Caesars Entertainment, Inc., 8.13%, 07/01/2027 (d)   2,773    2,649 
CDI Escrow Issuer, Inc., 5.75%, 04/01/2030 (d)   500    437 
Churchill Downs, Inc., 5.50%, 04/01/2027 (d)   1,500    1,403 
Fertitta Entertainment, LLC / Fertitta Entertainment Finance Co., Inc., 6.75%, 01/15/2030 (d)   1,250    950 
Gems Menasa Cayman, Ltd., (Cayman Islands), 7.13%, 07/31/2026 (d)   1,250    1,172 
Golden Entertainment, Inc., 7.63%, 04/15/2026 (d)   3,750    3,698 
Hilton Domestic Operating Co., Inc., 5.75%, 05/01/2028 (d)   3,500    3,273 
International Game Technology PLC, (Great Britain), 6.50%, 02/15/2025 (d)   4,000    3,974 
IRB Holding Corp., 7.00%, 06/15/2025 (d)   1,173    1,167 
MGM Resorts International, 6.00%, 03/15/2023   1,500    1,500 
MGM Resorts International, 6.75%, 05/01/2025   3,750    3,694 
Mohegan Gaming & Entertainment, 8.00%, 02/01/2026 (d)   2,000    1,664 
Peninsula Pacific Entertainment, LLC / Peninsula Pacific Entertainment Finance In, 8.50%, 11/15/2027 (d)   3,000    3,229 
Six Flags Theme Parks, Inc., 7.00%, 07/01/2025 (d)   2,517    2,517 
VICI Properties LP / VICI Note Co., Inc., 5.75%, 02/01/2027 (d)   3,000    2,827 
         37,281 

 

 

 

Ares Dynamic Credit Allocation Fund, Inc.

Schedule of Investments (continued)

September 30, 2022 (Unaudited)
(in thousands, except shares, percentages and as otherwise noted)

 

  Principal Amount (a)   Value (a) 
Corporate Bonds (continued)          
Diversified Financials 3.4%          
Ally Financial, Inc., 8.00%, 11/01/2031  $2,000   $2,096 
Ford Motor Credit Co., LLC, 5.13%, 06/16/2025   1,000    944 
Ford Motor Credit Co., LLC, 5.58%, 03/18/2024   1,000    980 
Seagate HDD Cayman, (Cayman Islands), 5.75%, 12/01/2034   5,950    4,725 
Vertical Holdco GmbH, (Germany), 7.63%, 07/15/2028 (d)   2,000    1,675 
         10,420 
Energy 14.8%          
Blue Racer Midstream, LLC, 6.63%, 07/15/2026 (d)   3,751    3,498 
Blue Racer Midstream, LLC, 7.63%, 12/15/2025 (d)   2,744    2,652 
Citgo Holding, Inc., 9.25%, 08/01/2024 (d)   1,750    1,737 
Citgo Petroleum Corp., 7.00%, 06/15/2025 (d)   2,250    2,150 
DCP Midstream Operating, LP, 8.13%, 08/16/2030   3,330    3,538 
Enviva Partners, LP, 6.50%, 01/15/2026 (d)   2,500    2,363 
EQM Midstream Partners LP, 7.50%, 06/01/2027 (d)   156    149 
EQM Midstream Partners LP, 7.50%, 06/01/2030 (d)   156    147 
EQM Midstream Partners, LP, 6.50%, 07/01/2027 (d)   1,250    1,155 
EQM Midstream Partners, LP, 6.50%, 07/15/2048   2,500    1,907 
EQT Corp., 6.13%, 02/01/2025   1,035    1,036 
EQT Corp., 7.00%, 02/01/2030   4,500    4,644 
Moss Creek Resources Holdings, Inc., 7.50%, 01/15/2026 (d)   1,500    1,309 
Moss Creek Resources Holdings, Inc., 10.50%, 05/15/2027 (d)   1,500    1,395 
NGL Energy Operating, LLC, 7.50%, 02/01/2026 (d)   3,095    2,753 
Occidental Petroleum Corp., 8.88%, 07/15/2030   3,500    3,897 
Tallgrass Energy Partners, LP, 6.00%, 03/01/2027 (d)(h)   2,250    2,041 
Tallgrass Energy Partners, LP, 7.50%, 10/01/2025 (d)   3,000    2,948 
Western Midstream Operating, LP, 5.50%, 02/01/2050   1,625    1,312 
Williams Cos., Inc., 8.75%, 03/15/2032   4,000    4,653 
         45,284 
Food & Staples Retailing 0.5%          
Albertsons Cos., Inc., 7.50%, 03/15/2026 (d)   1,500    1,509 
           
Healthcare Equipment & Services 2.7%          
HCA, Inc., 7.69%, 06/15/2025   4,750    4,919 
RegionalCare Hospital Partners Holdings, Inc., 9.75%, 12/01/2026 (d)   3,750    3,385 
         8,304 
Materials 8.5%          
Avient Corp., 7.13%, 08/01/2030 (d)   1,500    1,384 
Crown Cork & Seal Co., Inc., 7.38%, 12/15/2026   4,350    4,350 
First Quantum Minerals, Ltd., (Canada), 6.88%, 03/01/2026 (d)   1,250    1,154 
First Quantum Minerals, Ltd., (Canada), 6.88%, 10/15/2027 (d)   2,500    2,245 
Kobe US Midco 2, Inc., 9.25%, 11/01/2026 (d)(i)   1,334    1,054 
Owens-Brockway Glass Container, Inc., 6.38%, 08/15/2025 (d)   3,877    3,630 
Owens-Brockway Glass Container, Inc., 6.63%, 05/13/2027 (d)   1,626    1,475 
Summit Materials, LLC / Summit Materials Finance Corp., 6.50%, 03/15/2027 (d)   2,750    2,634 
Trident TPI Holdings, Inc., 9.25%, 08/01/2024 (d)   3,250    2,982 
Venator Finance SARL, (Luxembourg), 9.50%, 07/01/2025 (d)   5,460    5,228 
         26,136 
Media & Entertainment 11.1%          
Altice Financing S.A., (Luxembourg), 5.75%, 08/15/2029 (d)   4,915    3,761 
Belo Corp., 7.75%, 06/01/2027   500    490 
Belo Corp., 7.25%, 09/15/2027   6,000    5,865 
CCO Holdings, LLC / CCO Holdings Capital Corporation, 6.38%, 09/01/2029 (d)   5,000    4,590 
CSC Holdings, LLC, 6.50%, 02/01/2029 (d)   1,000    887 

 

 

 

Ares Dynamic Credit Allocation Fund, Inc.

Schedule of Investments (continued)

September 30, 2022 (Unaudited)
(in thousands, except shares, percentages and as otherwise noted)

 

  Principal Amount (a)   Value (a) 
Corporate Bonds (continued)          
CSC Holdings, LLC, 7.50%, 04/01/2028 (d)  $5,500   $4,510 
Gray Television, Inc., 7.00%, 05/15/2027 (d)   5,500    5,173 
Live Nation Entertainment, Inc., 6.50%, 05/15/2027 (d)   4,000    3,854 
Nexstar Broadcasting, Inc., 5.63%, 07/15/2027 (d)   2,000    1,839 
Univision Communications, Inc., 6.63%, 06/01/2027 (d)   1,500    1,415 
Univision Communications, Inc., 7.38%, 06/30/2030 (d)   1,500    1,431 
         33,815 
Real Estate 1.1%          
Brookfield Property REIT, Inc., 5.75%, 05/15/2026 (d)   2,500    2,258 
Iron Mountain, Inc., 5.63%, 07/15/2032 (d)   1,500    1,200 
         3,458 
Retailing 1.3%          
Bath & Body Works, Inc., 6.63%, 10/01/2030 (d)   1,000    870 
Bath & Body Works, Inc., 9.38%, 07/01/2025 (d)   1,151    1,192 
Constellation Automotive Financing PLC, (Great Britain), 4.88%, 07/15/2027  £2,500    1,893 
         3,955 
Semiconductors & Semiconductor Equipment 0.8%          
Amkor Technology, Inc., 6.63%, 09/15/2027 (d)  $2,500    2,391 
           
Software & Services 2.2%          
Leidos, Inc., 7.13%, 07/01/2032   2,500    2,557 
Picard Midco, Inc., 6.50%, 03/31/2029 (d)   1,006    855 
Sabre GLBL, Inc., 7.38%, 09/01/2025 (d)   3,750    3,359 
         6,771 
Technology Hardware & Equipment 1.3%          
Dell International, LLC, 6.02%, 06/15/2026   2,350    2,360 
Dell International, LLC, 6.10%, 07/15/2027   1,500    1,513 
         3,873 
Telecommunication Services 6.0%          
Altice France Holding S.A., (Luxembourg), 10.50%, 05/15/2027 (d)   3,299    2,584 
Altice France S.A., (France), 8.13%, 02/01/2027 (d)   1,750    1,564 
Connect Finco SARL, (Cayman Islands), 6.75%, 10/01/2026 (d)   2,450    2,143 
Iliad Holding SASU, (France), 6.50%, 10/15/2026 (d)   3,000    2,623 
Iliad Holding SASU, (France), 7.00%, 10/15/2028 (d)   1,000    857 
Sable International Finance, Ltd., (Cayman Islands), 5.75%, 09/07/2027 (d)   2,500    2,184 
Sprint Corp., 7.63%, 03/01/2026   5,250    5,433 
Telesat Canada, (Canada), 5.63%, 12/06/2026 (d)   1,000    478 
Telesat Canada, (Canada), 6.50%, 10/15/2027 (d)   913    338 
         18,204 
Transportation 3.9%          
American Airlines, Inc., 11.75%, 07/15/2025 (d)   750    783 
Mileage Plus Holdings, LLC, 6.50%, 06/20/2027 (d)(h)   4,750    4,633 
Uber Technologies, Inc., 7.50%, 05/15/2025 (d)   4,000    3,990 
Uber Technologies, Inc., 7.50%, 09/15/2027 (d)   1,000    980 
Uber Technologies, Inc., 8.00%, 11/01/2026 (d)   1,500    1,506 
         11,892 
Utilities 1.3%          
CQP Holdco, LP, 5.50%, 06/15/2031 (d)   2,500    2,117 

 

 

 

Ares Dynamic Credit Allocation Fund, Inc.

Schedule of Investments (continued)

September 30, 2022 (Unaudited)
(in thousands, except shares, percentages and as otherwise noted)

 

  Principal Amount (a)   Value (a) 
Corporate Bonds (continued)          
Vistra Operations Co., LLC, 5.50%, 09/01/2026 (d)  $2,000   $1,860 
         3,977 
Total Corporate Bonds (Cost: $273,233)        246,082 
           
Collateralized Loan Obligations 50.1% (d)(f)          
Collateralized Loan Obligations - Debt 34.9% (b)(c)          
AMMC CLO XI, Ltd., (Cayman Islands), 3M LIBOR + 5.80%, 8.58%, 04/30/2031   2,000    1,586 
AMMC CLO XXII, Ltd., (Cayman Islands), 3M LIBOR + 5.50%, 8.28%, 04/25/2031   3,000    2,406 
Atlas Senior Loan Fund VII, Ltd., (Cayman Islands), 3M LIBOR + 8.05%, 11.09%, 11/27/2031   775    456 
Bain Capital Credit CLO, Ltd. 2017-2, (Cayman Islands), 3M LIBOR + 6.86%, 9.64%, 07/25/2034   3,000    2,692 
Bain Capital Credit CLO, Ltd. 2019-2, (Cayman Islands), 3M LIBOR + 6.32%, 9.06%, 10/17/2032   2,500    2,043 
Bain Capital Credit CLO, Ltd. 2019-4, (Cayman Islands), 3M LIBOR + 7.99%, 10.52%, 04/23/2035   1,000    856 
Bain Capital Credit CLO, Ltd. 2020-1, (Cayman Islands), 3M LIBOR + 8.25%, 10.99%, 04/18/2033   3,000    2,774 
Bain Capital Credit CLO, Ltd. 2021-5, (Cayman Islands), 3M LIBOR + 6.50%, 9.28%, 10/23/2034   2,000    1,679 
Barings CLO, Ltd. 2020-I, (Cayman Islands), 3M LIBOR + 6.65%, 9.16%, 10/15/2036   1,000    858 
Canyon Capital CLO, Ltd. 2018-1, (Cayman Islands), 3M LIBOR + 5.75%, 8.26%, 07/15/2031   750    594 
Carlyle Global Market Strategies CLO, Ltd. 2017-1, (Cayman Islands), 3M LIBOR + 6.00%, 8.71%, 04/20/2031   3,000    2,341 
Carlyle US CLO, Ltd. 2021-10, (Cayman Islands), 3M LIBOR + 6.50%, 9.21%, 10/20/2034   1,000    881 
Cedar Funding CLO II, Ltd., (Cayman Islands), 3M LIBOR + 7.30%, 10.01%, 04/20/2034   1,750    1,523 
CIFC Funding, Ltd. 2019-4A, (Cayman Islands), 3M LIBOR + 6.60%, 9.11%, 10/15/2034   1,500    1,331 
CIFC Funding, Ltd. 2021-VI, (Cayman Islands), 3M LIBOR + 6.25%, 8.76%, 10/15/2034   2,000    1,747 
CIFC Funding, Ltd. 2021-VII, (Cayman Islands), 3M LIBOR + 6.35%, 9.13%, 01/23/2035   2,300    2,004 
Crestline Denali CLO XIV, Ltd., (Cayman Islands), 3M LIBOR + 6.35%, 9.13%, 10/23/2031   2,000    1,552 
Crestline Denali CLO XV, Ltd., (Cayman Islands), 3M LIBOR + 7.35%, 10.06%, 04/20/2030   3,875    2,699 
Denali Capital CLO XII, Ltd., (Cayman Islands), 3M LIBOR + 5.90%, 8.41%, 04/15/2031   5,000    3,803 
Dryden 26 Senior Loan Fund, (Cayman Islands), 3M LIBOR + 5.54%, 8.05%, 04/15/2029   2,000    1,732 
Dryden 40 Senior Loan Fund, (Cayman Islands), 3M LIBOR + 5.75%, 8.66%, 08/15/2031   3,000    2,321 
Dryden 45 Senior Loan Fund, (Cayman Islands), 3M LIBOR + 5.85%, 8.36%, 10/15/2030   3,000    2,480 
Dryden 85 CLO, Ltd., (Cayman Islands), 3M LIBOR + 6.50%, 9.01%, 10/15/2035   2,000    1,749 
Elmwood CLO I, Ltd., (Cayman Islands), 3M LIBOR + 7.71%, 10.42%, 10/20/2033   3,000    2,785 
Elmwood CLO II, Ltd., (Cayman Islands), 3M LIBOR + 6.80%, 9.51%, 04/20/2034   1,500    1,356 
Elmwood CLO III, Ltd., (Cayman Islands), 3M LIBOR + 6.50%, 9.21%, 10/20/2034   1,750    1,554 
Elmwood CLO VIII, Ltd., (Cayman Islands), 3M LIBOR + 6.00%, 8.71%, 01/20/2034   1,000    881 
Elmwood CLO VIII, Ltd., (Cayman Islands), 3M LIBOR + 8.00%, 10.71%, 01/20/2034   1,000    854 
Elmwood CLO XX, Ltd., (Cayman Islands), 3M LIBOR + 8.55%, 12.14%, 10/17/2034 (h)   1,700    1,692 
Generate CLO VIII, Ltd., (Cayman Islands), 3M LIBOR + 6.95%, 9.66%, 10/20/2034   1,000    854 
Highbridge Loan Management, Ltd. 2014-4, (Cayman Islands), 3M LIBOR + 7.36%, 10.15%, 01/28/2030   2,000    1,547 
ICG U.S. CLO, Ltd. 2018-2, (Cayman Islands), 3M LIBOR + 5.75%, 8.51%, 07/22/2031   1,200    929 
Invesco CLO, Ltd., (Cayman Islands), 3M LIBOR + 6.15%, 8.66%, 07/15/2034   1,000    822 
LCM XVII, LP, (Cayman Islands), 3M LIBOR + 6.00%, 8.51%, 10/15/2031   3,750    2,861 
LCM XXIII, Ltd., (Cayman Islands), 3M LIBOR + 7.05%, 9.76%, 10/20/2029   3,000    2,249 
Madison Park Funding XIV, Ltd., (Cayman Islands), 3M LIBOR + 7.77%, 10.53%, 10/22/2030   2,500    2,022 
Madison Park Funding XXVI, Ltd., (Cayman Islands), 3M LIBOR + 6.50%, 9.31%, 07/29/2030   1,500    1,322 
Madison Park Funding XXVIII, Ltd., (Cayman Islands), 3M LIBOR + 7.60%, 10.11%, 07/15/2030   1,000    810 
Madison Park Funding XXXII, Ltd., (Cayman Islands), 3M LIBOR + 6.20%, 8.96%, 01/22/2031   3,000    2,588 
Madison Park Funding XXXV, Ltd., (Cayman Islands), 3M LIBOR + 6.10%, 8.81%, 04/20/2032   1,500    1,296 
Madison Park Funding XXXVI, Ltd., (Cayman Islands), 3M LIBOR + 7.05%, 9.38%, 04/15/2035   1,000    865 
Madison Park Funding XXXVII, Ltd., (Cayman Islands), 3M LIBOR + 6.15%, 8.66%, 07/15/2033   1,000    859 
Magnetite XIX, Ltd., (Cayman Islands), 3M LIBOR + 6.40%, 9.14%, 04/17/2034   2,000    1,745 
Magnetite XXIV, Ltd., (Cayman Islands), 3M LIBOR + 6.40%, 8.73%, 04/15/2035   1,500    1,228 
Northwoods Capital XII-B, Ltd., (Cayman Islands), 3M LIBOR + 5.79%, 9.08%, 06/15/2031   2,000    1,409 
Oak Hill Credit Partners X-R, Ltd., (Cayman Islands), 3M LIBOR + 6.25%, 8.96%, 04/20/2034   1,500    1,305 
Oaktree CLO, Ltd. 2019-2, (Cayman Islands), 3M LIBOR + 6.77%, 9.28%, 04/15/2031   2,000    1,647 
OHA Credit Funding 3, Ltd., (Cayman Islands), 3M LIBOR + 6.25%, 8.96%, 07/02/2035   1,000    871 
OHA Credit Funding 4, Ltd., (Cayman Islands), 3M LIBOR + 6.40%, 9.16%, 10/22/2036   1,000    873 
OHA Credit Partners VII, Ltd., (Cayman Islands), 3M LIBOR + 6.25%, 9.23%, 02/20/2034   3,000    2,613 
OHA Credit Partners XI, Ltd., (Cayman Islands), 3M LIBOR + 7.90%, 10.61%, 01/20/2032   2,750    2,283 

 

 

 

Ares Dynamic Credit Allocation Fund, Inc.

Schedule of Investments (continued)

September 30, 2022 (Unaudited)
(in thousands, except shares, percentages and as otherwise noted)

 

  Principal Amount (a)   Value (a) 
Collateralized Loan Obligations (d)(f) (continued)          
OZLM XI, Ltd., (Cayman Islands), 3M LIBOR + 7.00%, 9.78%, 10/30/2030  $2,750   $2,164 
Sixth Street CLO XX, Ltd, (Cayman Islands), 3M LIBOR + 6.15%, 8.86%, 10/20/2034   1,250    1,092 
Sound Point CLO XXVI, Ltd., (Cayman Islands), 3M LIBOR + 6.86%, 9.57%, 07/20/2034   1,000    790 
Tallman Park CLO, Ltd., (Cayman Islands), 3M LIBOR + 6.35%, 9.06%, 04/20/2034   2,000    1,755 
TCI-Flatiron CLO, Ltd. 2018-1, (Cayman Islands), 3M LIBOR + 6.15%, 8.96%, 01/29/2032   3,000    2,539 
TICP CLO VI, Ltd. 2016-2, (Cayman Islands), 3M LIBOR + 6.25%, 8.76%, 01/15/2034   2,250    1,958 
TICP CLO XIII, Ltd., (Cayman Islands), 3M LIBOR + 6.20%, 8.71%, 04/15/2034   1,250    1,071 
Trestles CLO, Ltd. 2017-1, (Cayman Islands), 3M LIBOR + 6.25%, 9.03%, 04/25/2032   1,000    828 
Venture XXIV CLO, Ltd., (Cayman Islands), 3M LIBOR + 6.72%, 9.43%, 10/20/2028   700    557 
Venture XXVII CLO, Ltd., (Cayman Islands), 3M LIBOR + 6.35%, 9.06%, 07/20/2030   2,025    1,461 
Venture XXXVI CLO, Ltd., (Cayman Islands), 3M LIBOR + 6.92%, 9.63%, 04/20/2032   2,000    1,412 
Vibrant CLO X, Ltd., (Cayman Islands), 3M LIBOR + 6.19%, 8.90%, 10/20/2031   3,000    2,209 
Voya CLO, Ltd. 2013-3, (Cayman Islands), 3M LIBOR + 5.90%, 8.64%, 10/18/2031   2,750    2,179 
Voya CLO, Ltd. 2015-3, (Cayman Islands), 3M LIBOR + 6.20%, 8.91%, 10/20/2031   3,000    2,350 
         106,592 
Collateralized Loan Obligations - Equity 15.2%          
AIMCO CLO XI, Ltd., (Cayman Islands), 22.79%, 10/17/2034   1,985    1,818 
AIMCO CLO XVI, Ltd., (Cayman Islands), 15.26%, 01/17/2035   1,150    910 
Allegro CLO V, Ltd., (Cayman Islands), 18.89%, 10/16/2030   2,000    492 
Bain Capital Credit CLO, Ltd. 2020-2, (Cayman Islands), 38.28%, 07/19/2034   1,250    846 
Bain Capital Credit CLO, Ltd. 2022-1, (Cayman Islands), 04/18/2035   1,500    1,357 
Canyon Capital CLO, Ltd. 2019-1, (Cayman Islands), 19.99%, 04/15/2032   1,000    567 
Carlyle Global Market Strategies CLO, Ltd. 2017-3, (Cayman Islands), 11.06%, 07/20/2029   1,750    467 
Carlyle Global Market Strategies CLO, Ltd. 2018-3, (Cayman Islands), 15.07%, 10/15/2030   3,223    1,324 
Cedar Funding CLO IV, Ltd., (Cayman Islands), 15.38%, 07/23/2034   3,160    1,560 
Cedar Funding CLO V, Ltd., (Cayman Islands), 22.68%, 07/17/2031   2,546    1,807 
Cedar Funding CLO VIII, Ltd., (Cayman Islands), 14.47%, 10/17/2034   2,930    1,453 
CIFC Funding, Ltd. 2018-5A, (Cayman Islands), 19.38%, 01/15/2032   375    200 
CIFC Funding, Ltd. 2020-3A, (Cayman Islands), 18.07%, 10/20/2034   1,750    1,431 
CIFC Funding, Ltd. 2021-5A, (Cayman Islands), 15.59%, 07/15/2034   2,250    1,687 
Dryden 98 CLO, Ltd., (Cayman Islands), 04/20/2035   1,100    1,056 
Elmwood CLO XI, Ltd., (Cayman Islands), 16.56%, 10/20/2034   1,200    1,032 
Halcyon Loan Advisors Funding, Ltd. 2017-1, (Cayman Islands), 18.03%, 06/25/2029   1,750    491 
ICG U.S. CLO, Ltd. 2021-1, (Cayman Islands), 15.68%, 04/17/2034   2,000    1,350 
Invesco CLO 2021-3, Ltd., (Cayman Islands), 12.24%, 10/22/2034   1,130    729 
Invesco CLO 2021-3, Ltd., (Cayman Islands), 13.98%, 10/22/2034   113    35 
LCM XV, LP, (Cayman Islands), 25.36%, 07/20/2030   5,875    1,053 
LCM XXIII, Ltd., (Cayman Islands), 15.04%, 10/20/2029   3,100    555 
Madison Park Funding LIII, Ltd., (Cayman Islands), 13.47%, 04/21/2035   1,000    822 
Madison Park Funding LIX, Ltd., (Cayman Islands), 13.03%, 01/18/2034   2,250    1,867 
Madison Park Funding XII, Ltd., (Cayman Islands), 0.01%, 07/20/2026   4,000    108 
Madison Park Funding XXII, Ltd., (Cayman Islands), 13.82%, 01/15/2033   4,000    2,299 
Madison Park Funding XXXI, Ltd., (Cayman Islands), 16.60%, 01/23/2048   2,000    1,355 
Madison Park Funding XXXII, Ltd., (Cayman Islands), 27.33%, 01/22/2048   2,000    1,313 
Magnetite XXVIII, Ltd., (Cayman Islands), 18.62%, 01/20/2035   2,500    2,013 
Oaktree CLO, Ltd. 2015-1, (Cayman Islands), 10/20/2027   4,000    277 
OHA Credit Partners VII, Ltd., (Cayman Islands), 19.33%, 02/20/2034   2,672    1,505 
OHA Credit Partners XVI, (Cayman Islands), 14.68%, 10/18/2034   1,635    1,233 
OHA Loan Funding, Ltd. 2016-1, (Cayman Islands), 17.08%, 01/20/2033   3,250    2,148 
RR 19, Ltd., (Cayman Islands), 12.74%, 10/15/2035   2,350    1,838 
Signal Peak CLO V, Ltd., (Cayman Islands), 16.01%, 04/25/2031   2,568    1,324 
Signal Peak CLO VIII, Ltd., (Cayman Islands), 17.95%, 04/20/2033   4,000    3,057 
Wellfleet CLO, Ltd. 2018-3, (Cayman Islands), 19.04%, 01/20/2032   3,000    1,143 
Wellman Park CLO, Ltd., (Cayman Islands), 10.05%, 07/15/2034   5,000    248 
Wellman Park CLO, Ltd., (Cayman Islands), 13.63%, 07/15/2034   2,500    1,845 

 

 

 

Ares Dynamic Credit Allocation Fund, Inc.

Schedule of Investments (continued)

September 30, 2022 (Unaudited)
(in thousands, except shares, percentages and as otherwise noted)

 

  Principal Amount (a)   Value (a) 
Collateralized Loan Obligations (d)(f) (continued)          
West CLO, Ltd. 2013-1, (Cayman Islands), 11/07/2025  $500   $— 
         46,615 
Total Collateralized Loan Obligations (Cost: $185,092)        153,207 
           
  Shares      
Warrants 0.0% (d)(f)(j)          
Media & Entertainment 0.0%          
Affinion Holdings, Common Stock Warrants   7,874    — 
Total Warrants (Cost: $3,922)        — 
Total Investments - 157.1%
(Cost: $549,156)		       $480,223 
Liabilities in Excess of Other Assets - (57.1%)        (174,562)
Net Assets - 100.0%       $305,661 

 

Footnotes:

(a)  Investment holdings in foreign currencies are converted to U.S. Dollars using period end spot rates. All investments are in United States enterprises and all Principal Amount (a)s are shown in U.S. Dollars unless otherwise noted.
(b)  Variable rate loans bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR”), the Secured Overnight Financing Rate (“SOFR”), the U.S. Prime Rate ("PRIME"), or an alternate base rate (commonly based on the Federal Funds Rate or the Prime Rate), at the borrower’s option, which reset annually (A), semi-annually (S), quarterly (Q), bi-monthly (B), monthly (M) or daily (D). SOFR based contracts may include a credit spread adjustment that is charged in addition to the base rate and the stated spread. For each such loan, Ares Dynamic Credit Allocation Fund, Inc. (the "Fund") has provided the interest rate in effect on the date presented.
(c)  Variable rate coupon rate shown as of September 30, 2022.
(d)  Senior Loans, Collateralized Loan Obligations, Warrants and Corporate Bonds exempt from registration under Rule 144A, which as of September 30, 2022 represented 136.1% of the Fund's net assets or 86.6% of the Fund's total assets, are subject to legal restrictions on sales.
(e)  This loan or a portion of this loan represents an unsettled loan purchase. The interest rate will be determined at the time of settlement and will be based upon a spread plus the applicable reference rate determined at the time of purchase.
(f)  Investments whose values were determined using significant unobservable inputs (Level 3) (See Note 3 of the Notes to "Schedule of Investments").
(g)  As of September 30, 2022, the Fund had entered into the following commitments to fund various revolving and delayed draw senior secured and subordinated loans. Such commitments are subject to the satisfaction of certain conditions set forth in the documents governing these loans and there can be no assurance that such conditions will be satisfied. See Note 2 of the Notes to "Schedule of Investments" for further information on revolving and delayed draw loan commitments.  

 
Unfunded Security  Total Revolving and delayed
draw commitments		  

Less: drawn

commitments

  

Total undrawn

commitments

 
Ivanti Software, Inc.  $250   $(13)  $237 

 

(h)  When-Issued or delayed delivery security based on typical market settlement convention for such security.
(i)  Includes a Payment-In-Kind (“PIK”) provision.
(j)  Non-income producing security as of September 30, 2022.
    
  

As of September 30, 2022, the aggregate cost of securities for Federal income tax purposes was $549,281.

 

Unrealized appreciation and depreciation on investments for Federal income tax purposes were as follows:

 

Gross unrealized appreciation  $1,810 
Gross unrealized depreciation   (70,868)
Net unrealized depreciation  $(69,058)

 

 

 

Ares Dynamic Credit Allocation Fund, Inc.

Schedule of Investments (continued)

September 30, 2022 (Unaudited)
(in thousands, except shares, percentages and as otherwise noted)

 

Abbreviations:
144A Certain conditions for public sale may exist. Unless otherwise noted, these securities are deemed to be liquid.
CLO Collateralized Loan Obligation
   
Currencies:
£ British Pounds
€ Euro Currency
$ U.S. Dollars

 

 

 

Ares Dynamic Credit Allocation Fund, Inc.  
Notes to Schedule of Investments  
September 30, 2022 (Unaudited)
(in thousands, except per share data, percentages and as otherwise noted)

 

(1) Organization

 

Ares Dynamic Credit Allocation Fund, Inc. (NYSE: ARDC) ("ARDC" or "Fund") is a corporation incorporated under the laws of the State of Maryland and registered with the Securities and Exchange Commission (the "SEC") under the Investment Company Act of 1940, as amended (the "Investment Company Act"), as a closed-end, diversified, management investment company, and intends to qualify each year to be treated as a Regulated Investment Company ("RIC"), under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”"). The Fund commenced operations on November 27, 2012.

 

The Fund’s investment objective is to seek an attractive risk adjusted level of total return, primarily through current income and, secondarily, through capital appreciation. The Fund seeks to achieve its investment objective by investing primarily in a broad, dynamically managed portfolio of (i) senior secured loans ("Senior Loans") made primarily to companies whose debt is rated below investment grade, (ii) corporate bonds ("Corporate Bonds") that are primarily high yield issues rated below investment grade, (iii) other fixed-income instruments of a similar nature that may be represented by derivatives, and (iv) securities issued by entities commonly referred to as collateralized loan obligations ("CLOs") and other asset-backed securities. The Fund’s investments in CLOs may include investments in subordinated tranches of CLO securities. The Adviser will dynamically allocate the Fund’s portfolio among investments in the various targeted credit markets, to seek to manage interest rate and credit risk and the duration of the Fund’s portfolio. Under normal market conditions, the Fund will not invest more than (i) 45% of its Managed Assets in CLOs and other asset-backed securities, or (ii) 15% of its Managed Assets in subordinated (or residual) tranches of CLO securities. "Managed Assets" means the total assets of the Fund (including any assets attributable to any preferred shares that may be issued or to indebtedness) minus the Fund’s liabilities other than liabilities relating to indebtedness.

 

The Fund is externally managed by Ares Capital Management II LLC (the "Adviser") pursuant to an investment and advisory and management agreement. The Adviser was registered as an investment adviser with the SEC under the Investment Advisers Act of 1940 (the “Advisers Act”) on June 9, 2011 and serves as the investment adviser to the Fund. The Adviser oversees the management of the Fund's activities and is responsible for making investment decisions for the Fund's portfolio. Ares Operations LLC, a subsidiary of Ares Management Corporation (“Ares Management”), provides certain administrative and other services necessary for the Fund to operate.

 

(2) Significant Accounting Policies

 

Basis of Presentation

 

The accompanying schedule of investments have been prepared on an accrual basis of accounting in conformity with U.S. generally accepted accounting principles ("GAAP"), and includes the accounts of the Fund. The Fund is an investment company following accounting and reporting guidance in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 946, Financial Services — Investment Companies.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include funds from time to time deposited with financial institutions. Cash and cash equivalents are carried at cost, which approximates fair value.

 

Concentration of Credit Risk

 

The Fund places its cash and cash equivalents with financial institutions and, at times, cash held in money market accounts may exceed the Federal Deposit Insurance Corporation insured limit.

 

Investment Transactions

 

Investment transactions are accounted for on the trade date and all investments in securities are recorded at their fair value. See Note 3 for more information on the Fund's valuation process. Realized gains and losses are reported on the specific identification method without regard to unrealized gains or losses previously recognized, and include investments charged off during the period, net of recoveries. Unrealized gains or losses primarily reflect the change in investment values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized.

 

 

 

Ares Dynamic Credit Allocation Fund, Inc.  
Notes to Schedule of Investments (continued)  
September 30, 2022 (Unaudited)
(in thousands, except per share data, percentages and as otherwise noted)

 

Interest Income Recognition

 

Interest income is recorded on an accrual basis and includes the accretion of discounts, amortization of premiums and payment-in-kind ("PIK") interest. Discounts from and premiums to par value on investments purchased are accreted/amortized into interest income over the life of the respective security using the effective yield method. To the extent loans contain PIK provisions, PIK interest, computed at the contractual rate specified in each applicable agreement, is accrued and recorded as interest income and added to the principal balance of the loan. PIK interest income added to the principal balance is generally collected upon repayment of the outstanding principal. The amortized cost of investments represents the original cost adjusted for any accretion of discounts, amortization of premiums and PIK interest.

 

Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon the Fund’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest are paid or there is no longer any reasonable doubt that such principal or interest will be collected in full and, in the Fund's judgment, are likely to remain current. The Fund may make exceptions to this policy if the loan has sufficient collateral value (i.e., typically measured as enterprise value of the portfolio company) or is in the process of collection.

 

CLO equity investments recognize investment income by utilizing an effective interest methodology based upon an effective yield to maturity utilizing projected cash flows, as required by ASC Topic 325-40, Beneficial Interest in Securitized Financial Assets.

 

Foreign Currency Transactions

 

Amounts denominated in foreign currencies are translated into U.S. dollars on the following basis: (i) investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates effective on the date of valuation; and (ii) purchases and sales of investments and income and expense items denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates prevailing on transaction dates.

 

The Fund does not isolate that portion of the results of operations resulting from the changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included within the net realized and unrealized gain (loss) on investments in the Statement of Operations.

 

Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates of securities transactions, and the difference between the amounts of income and expense items recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency gains and losses arise from the changes in fair values of assets and liabilities, other than investments in securities at period end, resulting from changes in exchange rates.

 

Investments in foreign companies and securities of foreign governments may involve special risks and considerations not typically associated with investing in U.S. companies and securities of the U.S. government. These risks include, among other things, revaluation of currencies, less reliable information about issuers, different transaction clearance and settlement practices, and potential future adverse political and economic developments. Moreover, investments in foreign companies and securities of foreign governments and their markets may be less liquid and their prices more volatile than those of comparable U.S. companies and the U.S. government.

 

Commitments and Contingencies

 

In the normal course of business, the Fund's investment activities involve executions, settlement and financing of various transactions resulting in receivables from, and payables to, brokers, dealers and the Fund's custodian. These activities may expose the Fund to risk in the event that such parties are unable to fulfill contractual obligations. Management does not anticipate any material losses from counterparties with whom it conducts business. Consistent with standard business practice, the Fund enters into contracts that contain a variety of indemnifications, and is engaged from time to time in various legal actions. The maximum exposure of the Fund under these arrangements and activities is unknown. However, the Fund expects the risk of material loss to be remote.

 

 

 

Ares Dynamic Credit Allocation Fund, Inc.  
Notes to Schedule of Investments (continued)  
September 30, 2022 (Unaudited)
(in thousands, except per share data, percentages and as otherwise noted)

 

Commitments to extend credit include loan proceeds the Fund is obligated to advance, such as delayed draws or revolving credit arrangements. Commitments generally have fixed expiration dates or other termination clauses. Unrealized gains or losses associated with unfunded commitments are recorded in the financial statements and reflected as an adjustment to the fair value of the related security in the Schedule of Investments. The par amount of the unfunded commitments is not recognized by the Fund until it becomes funded.

 

Use of Estimates in the Preparation of Financial Statements

 

The preparation of financial statements in conformity with GAAP requires the Adviser to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates and such differences may be material.

 

(3) Fair Value of Financial Instruments

 

The Fund follows the provisions of ASC 820-10, Fair Value Measurements and Disclosures ("ASC 820-10"), which among other matters, requires enhanced disclosures about investments that are measured and reported at fair value. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosure of fair value measurements. ASC 820-10 determines fair value to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. ASC 820-10 requires the Fund to assume that the portfolio investment is sold in its principal market to market participants or, in the absence of a principal market, the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820-10, the Fund has considered its principal market as the market in which the Fund exits its portfolio investments with the greatest volume and level of activity. ASC 820-10 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820-10, these inputs are summarized in the three broad levels listed below:

 

• Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access.

 

• Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable either directly or indirectly.

 

• Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

 

In addition to using the above inputs in investment valuations, the Fund continues to employ a valuation policy that is consistent with the provisions of ASC 820-10 (See Note 2 for more information). Consistent with the Fund's valuation policy, it evaluates the source of inputs, including any markets in which the Fund’s investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value. The Fund’s valuation policy considers the fact that because there may not be a readily available market value for the investments in the Fund’s portfolio, therefore, the fair value of the investments may be determined using unobservable inputs.

 

The investments classified as Level 1 or Level 2 are typically valued based on quoted market prices, forward foreign exchange rates, dealer quotations or alternative pricing sources supported by observable inputs. The Adviser obtains prices from independent pricing services which generally utilize broker quotes and may use various other pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data. The Adviser is responsible for all inputs and assumptions related to the pricing of securities. The Adviser has internal controls in place that support its reliance on information received from third-party pricing sources. As part of its internal controls, the Adviser obtains, reviews, and tests information to corroborate prices received from third-party pricing sources. For any security, if market or dealer quotations are not readily available, or if the Adviser determines that a quotation of a security does not represent a fair value, then the security is valued at a fair value as determined in good faith by the Adviser and will be classified as Level 3. In such instances, the Adviser will use valuation techniques consistent with the market or income approach to measure fair value and will give consideration to all factors which might reasonably affect the fair value.

 

 

 

Ares Dynamic Credit Allocation Fund, Inc.  
Notes to Schedule of Investments (continued)  
September 30, 2022 (Unaudited)
(in thousands, except per share data, percentages and as otherwise noted)

 

Senior loans and corporate debt: The fair value of Senior Loans and Corporate Bonds is estimated based on quoted market prices, forward foreign exchange rates, dealer quotations or alternative pricing sources supported by observable inputs and are generally classified within Level 2 or 3. The Adviser obtains prices from independent pricing services which generally utilize broker quotes and may use various other pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data. If the pricing services are only able to obtain a single broker quote or utilize a pricing model the securities will be classified as Level 3. If the pricing services are unable to provide prices, the Adviser will attempt to obtain one or more broker quotes directly from a dealer and price such securities at the last bid price obtained; such securities are classified as Level 3.

 

Collateralized loan obligations: The fair value of CLOs is estimated based on various valuation models from third-party pricing services. The provided prices are checked using internally developed models. The valuation models generally utilize discounted cash flows and take into consideration prepayment and loss assumptions, based on historical experience and projected performance, economic factors, the characteristics and condition of the underlying collateral, comparable yields for similar securities and recent trading activity. These securities are classified as Level 3.

 

Common stock and warrants: The fair value of common stock and warrants are estimated using either broker quotes or an analysis of the enterprise value ("EV") of the portfolio company. Enterprise value means the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time. The primary method for determining EV uses a multiple analysis whereby appropriate multiples are applied to the portfolio company's EBITDA (generally defined as net income before net interest expense, income tax expense, depreciation and amortization). EBITDA multiples are typically determined based upon review of market comparable transactions and publicly traded comparable companies, if any. The Fund may also employ other valuation multiples to determine EV, such as revenues. The second method for determining EV uses a discounted cash flow analysis whereby future expected cash flows of the portfolio company are discounted to determine a present value using estimated discount rates (typically a weighted average cost of capital based on costs of debt and equity consistent with current market conditions). The EV analysis is performed to determine the value of equity investments, the value of debt investments in portfolio companies where the Fund has control or could gain control through an option or warrant security, and to determine if there is credit impairment for debt investments. If debt investments are credit impaired, an EV analysis may be used to value such debt investments; however, in addition to the methods outlined above, other methods such as a liquidation or wind down analysis may be utilized to estimate enterprise value.

 

The following is a summary of inputs used as of September 30, 2022 in valuing the Fund's investments carried at fair value:

 

   Level 1 - Quoted
Prices ($)		   Level 2 - Other
Significant
Observable Inputs
($)		   Level 3 - Significant
Unobservable Inputs
($)		   Total ($) 
Senior Loans   —    64,699    16,235    80,934 
Corporate Bonds   —    246,082    —    246,082 
Collateralized Loan Obligations   —    —    153,207    153,207 
Warrants   —    —    —    — 
Total Investments   —    310,781    169,442    480,223 

 

 

 

Ares Dynamic Credit Allocation Fund, Inc.  
Notes to Schedule of Investments (continued)  
September 30, 2022 (Unaudited)
(in thousands, except per share data, percentages and as otherwise noted)

 

The following is a reconciliation of the Fund’s investments in which significant unobservable inputs (Level 3) were used in determining fair value for the period ended September 30, 2022:

 

   Senior Loans ($)  

Collateralized Loan

Obligations ($)

   Warrants ($)   Total ($) 
Balance as of December 31, 2021   25,125    198,256    —    223,381 
Purchases   14,913    8,371    —    23,284 
Sales and principal redemptions   (26,022)   (27,089)   —    (53,111)
Net realized and unrealized gains/(losses)   (1,900)   (26,464)   —    (28,364)
Accrued discounts/(premiums)   10    133    —    143 
Transfers in to Level 3   5,635    —    —    5,635 
Transfers out of Level 3   (1,526)   —    —    (1,526)
Balance as of September 30, 2022   16,235    153,207    —    169,442 
Net change in unrealized gains/(losses) from investments held at September 30, 2022   (1,389)   (23,068)   —    (24,457)

 

Investments were transferred into and out of Level 3 during the period ended September 30, 2022 due to changes in the quantity and quality of information obtained to support the fair value of each investment as assessed by the Adviser.

 

The following table summarizes the quantitative inputs and assumptions used for investments in securities at fair value categorized as Level 3 in the fair value hierarchy as of September 30, 2022.

 

           Unobservable Input 
Type   Fair Value ($)   Valuation Technique  Input   Range    Weighted Average 
Senior Loans   12,280   Broker Quotes and/or 3rd Party Pricing Services  N/A   N/A    N/A 
Senior Loans   3,955   Yield Analysis  Market Yield   10.00-17.89%    11.52%
Collateralized Loan Obligations   153,207   Broker Quotes and/or 3rd Party Pricing Services  N/A   N/A    N/A 
Warrants   -   Enterprise Value Analysis — Adjusted NAV  EBITDA Multiplier   10x   10x
Total Level 3 Investments   169,442                 

 

(a)  Weighted averages are calculated based on fair value of investments.

 

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the investments may fluctuate from period to period. Additionally, the fair value of the investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Fund may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Fund was required to liquidate a portfolio investment in a forced or liquidation sale, it could realize significantly less than the value at which the Fund has recorded it.

 

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned.