UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM N-Q

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY

 

Investment Company Act file number

811-22535

 

Ares Dynamic Credit Allocation Fund, Inc.

(Exact name of registrant as specified in charter)

 

2000 Avenue of the Stars

12th Floor

Los Angeles, California

 

 

 

90067

(Address of principal executive offices)

 

(Zip code)

 

Michael D. Weiner

Daniel J. Hall

2000 Avenue of the Stars

12th Floor

Los Angeles, California 90067

(Name and address of agent for service)

 

Registrant’s telephone number, including area code:

(310) 201-4200

 

 

Date of fiscal year end:

October 31, 2014

 

 

Date of reporting period:

January 31, 2014

 

 



 

ITEM 1.   SCHEDULE OF INVESTMENTS.

 



 

Ares Dynamic Credit Allocation Fund, Inc.

Schedule of Investments

January 31, 2014 (UNAUDITED)

 

 

 

Principal Amount

 

Value (a)

 

Floating Rate Term Loans 51.8% (b)

 

 

 

 

 

Aerospace & Defense 1.7%

 

 

 

 

 

DAE Aviation Holdings, Inc., 2nd Lien Term Loan, L+7.50%, 08/11/2019 (c)

 

$

1,750,000

 

$

1,776,250

 

DAE Aviation Holdings, Inc., Term Loan B-1, 5.00%, 11/02/2018

 

172,622

 

174,349

 

FR Acquisition Corporation (U.S.), Inc., Facility B (Mezzanine), 11.85%, 12/21/2017 (d)

 

1,256,824

 

1,252,639

 

Sequa Corporation, Initial Term Loan, 5.25%, 06/19/2017

 

2,475,000

 

2,446,117

 

Standard Aero, Ltd., Term Loan B-2, (Canada), 5.00%, 11/02/2018

 

78,634

 

79,420

 

 

 

 

 

5,728,775

 

Automobile 1.7%

 

 

 

 

 

INA Beteiligungsgesellschaft mbH, Term Loan C (EUR), (Denmark), 4.75%, 01/27/2017

 

957,961

 

1,299,061

 

TI Group Automotive Systems, LLC, Additional Term Loan, 5.50%, 03/28/2019

 

$

4,498,440

 

4,520,931

 

 

 

 

 

5,819,992

 

Beverage, Food & Tobacco 1.6%

 

 

 

 

 

Premier Foods PLC, Term Facility B, (Great Britain), L+2.25%, 06/30/2016 (c)

 

£

643,497

 

1,019,569

 

Premier Foods PLC, Term Facility C3, (Great Britain), L+2.25%, 06/30/2016 (c)

 

1,356,460

 

2,149,202

 

Rite Aid Corporation, Term Loan 2nd Lien, 5.75%, 08/21/2020

 

$

2,000,000

 

2,041,500

 

 

 

 

 

5,210,271

 

Broadcasting & Entertainment 0.9%

 

 

 

 

 

Salem Communications Corporation, Term Loan, 4.50%, 03/14/2020

 

2,899,381

 

2,912,080

 

 

 

 

 

 

 

Business Equipment & Services 2.2%

 

 

 

 

 

Redtop Acquisitions, Ltd., Euro Term Loan 1st Lien, (Jersey), L+3.75%, 12/03/2020 (c)

 

750,000

 

1,018,123

 

Redtop Acquisitions, Ltd., USD Term Loan 2nd Lien, (Jersey), 8.25%, 06/03/2021

 

$

1,000,000

 

1,020,000

 

Twelve Beeches Sarl, Facility B, (Luxembourg), L+4.50%, 08/02/2019 (c)

 

£

750,000

 

1,241,496

 

Twelve Beeches Sarl, Facility C, (Luxembourg), 5.03%, 08/01/2019

 

2,500,000

 

4,135,978

 

 

 

 

 

7,415,597

 

Cable & Satellite TV 2.9%

 

 

 

 

 

Altice Financing S.A., Term Loan, (Luxembourg), 5.50%, 07/15/2019

 

$

3,500,000

 

3,561,250

 

TWCC Holding Corporation, Term Loan 2nd Lien, 7.00%, 06/26/2020

 

3,500,000

 

3,526,250

 

Virgin Media Investment Holdings, Ltd., C Facility, (Great Britain), 4.50%, 06/05/2020

 

£

1,575,000

 

2,596,116

 

 

 

 

 

9,683,616

 

Chemicals, Plastics & Rubber 1.7%

 

 

 

 

 

Flint Group Belgium, Tranche B2 Term Facility, (Belgium), L+6.25%, 12/30/2016 (c)

 

1,289,920

 

1,741,842

 

Flint Group Belgium, Tranche C2 Term Facility, (Belgium), L+6.25%, 12/30/2016 (c)

 

1,854,388

 

2,504,072

 

Flint Group, Inc., Facility B9 (2016 Extended), 6.58%, 12/28/2016

 

$

1,523,941

 

1,522,036

 

 

 

 

 

5,767,950

 

Consumer Products 1.1%

 

 

 

 

 

True Religion Apparel, Inc., Initial Term Loan, 5.88%, 07/30/2019

 

2,992,500

 

2,852,241

 

True Religion Apparel, Inc., Initial Term Loan 2nd Lien, 11.00%, 01/30/2020

 

869,565

 

830,435

 

 

 

 

 

3,682,676

 

Diversified & Conglomerate Services 4.7%

 

 

 

 

 

Advantage Sales & Marketing, Inc., 2013 Incremental Term Loan 1L, 4.25%, 12/17/2017

 

3,859,006

 

3,879,690

 

Advantage Sales & Marketing, Inc., 2013 Other Term Loan 2L, 8.25%, 06/18/2018

 

2,387,249

 

2,418,593

 

Information Resources Inc., Term Loan, 4.75%, 09/30/2020

 

2,493,750

 

2,516,618

 

Language Line, LLC, Tranche B Term Loan, 6.25%, 06/20/2016

 

1,935,950

 

1,932,330

 

Syncreon Global Finance (U.S.), Inc., Term Loan, 5.25%, 10/28/2020

 

2,000,000

 

2,005,000

 

VWR Funding, Inc., Dollar Term B-1 Loan, 4.17%, 04/03/2017

 

1,707,750

 

1,712,019

 

VWR Funding, Inc., Euro Term B-1 Loan, 4.48%, 04/03/2017

 

990,000

 

1,336,833

 

 

 

 

 

15,801,083

 

 



 

 

 

Principal Amount

 

Value (a)

 

Floating Rate Term Loans (b) (continued)

 

 

 

 

 

Electronics 1.0%

 

 

 

 

 

Freescale Semiconductor, Inc., Tranche B-5 Term Loan, 5.00%, 01/15/2021

 

$

3,391,500

 

$

3,432,062

 

 

 

 

 

 

 

Forest Products 0.9%

 

 

 

 

 

NewPage Corporation, Term Loan, 8.75%, 12/21/2018

 

2,940,226

 

2,995,355

 

 

 

 

 

 

 

Grocery 0.6%

 

 

 

 

 

Roundy’s Supermarkets, Inc., Tranche B Term Loan, 5.75%, 02/13/2019

 

1,966,145

 

1,985,196

 

 

 

 

 

 

 

Healthcare, Education & Childcare 4.4%

 

 

 

 

 

AI Garden B.V., New Facility B1, (Netherlands), 4.73%, 02/13/2020

 

4,000,000

 

5,432,795

 

BSN Medical Luxembourg Finance Holding Sarl, Facility B1B, (Luxembourg), 4.00%, 08/28/2019

 

$

1,100,000

 

1,103,850

 

BSN Medical Luxembourg Finance Holding Sarl, Term Loan (EUR), (Luxembourg), 4.25%, 08/28/2019

 

2,369,874

 

3,233,431

 

CHS|Community Health Systems, Inc., Term Loan D, L+3.25%, 01/27/2021 (c)

 

$

1,200,000

 

1,212,456

 

Opal Acquisition, Inc., Term B Loan 1st Lien, 5.00%, 11/27/2020

 

2,003,930

 

2,014,451

 

Tunstall Group Finance, Ltd., Facility B1, (Great Britain), 5.55%, 10/16/2020

 

£

1,000,000

 

1,644,433

 

 

 

 

 

14,641,416

 

Hotels, Motels, Inns & Gaming 1.0%

 

 

 

 

 

Caesars Entertainment Operating Company, Inc., Term B-4 Loans, 9.50%, 10/31/2016

 

$

3,457,557

 

3,492,513

 

 

 

 

 

 

 

Insurance 0.8%

 

 

 

 

 

Hub International, Ltd., Initial Term Loan, 4.75%, 10/02/2020

 

2,793,000

 

2,822,690

 

 

 

 

 

 

 

Leisure, Amusement & Entertainment 1.2%

 

 

 

 

 

Delta 2 (Lux) Sarl, Facility B2 (USD), (Luxembourg), 4.50%, 04/30/2019

 

3,955,075

 

3,999,570

 

 

 

 

 

 

 

Machinery (Non-agricultural, Non-construction, Non-electronic) 1.9%

 

 

 

 

 

Doncasters U.S., LLC, Term B Loan, 5.50%, 04/09/2020

 

2,481,250

 

2,508,395

 

Doncasters U.S., LLC, Term C Loan, 6.00%, 04/09/2020

 

£

992,500

 

1,646,061

 

Doncasters U.S., LLC, Term Loan 2nd Lien, 9.50%, 10/09/2020

 

$

2,250,000

 

2,283,750

 

 

 

 

 

6,438,206

 

Manufacturing 1.2%

 

 

 

 

 

Alliance Laundry Systems, LLC, Initial Term Loan, 4.25%, 12/10/2018

 

2,229,684

 

2,240,833

 

Alliance Laundry Systems, LLC, Initial Term Loan 2nd Lien, 9.50%, 12/10/2019

 

1,736,364

 

1,754,821

 

 

 

 

 

3,995,654

 

Mining, Steel, Non-Precious Metals 0.8%

 

 

 

 

 

Peabody Energy Corporation, Term Loan, 4.25%, 09/24/2020

 

2,493,750

 

2,507,341

 

 

 

 

 

 

 

Oil & Gas 4.2%

 

 

 

 

 

Atlas Energy, L.P., Loan, 6.50%, 07/31/2019

 

2,493,750

 

2,562,328

 

Quicksilver Resources, Inc., Term Loan 2nd Lien, 7.00%, 06/21/2019

 

2,500,000

 

2,484,375

 

Rice Drilling B, LLC, Term Loan 2nd Lien, 8.50%, 10/25/2018

 

3,970,000

 

4,039,475

 

Teine Energy, Ltd., Incremental Term Loan, (Canada), 7.50%, 05/17/2019

 

1,985,000

 

2,007,331

 

Templar Energy, LLC, Term Loan 2nd Lien, 8.00%, 11/25/2020

 

3,000,000

 

3,024,390

 

 

 

 

 

14,117,899

 

Personal Transportation 2.3%

 

 

 

 

 

Air Medical Holdings, LLC, B-1 Term Loan, 5.00%, 06/30/2018

 

3,339,009

 

3,359,878

 

Air Medical Holdings, LLC, Term Loan, 7.63%, 05/31/2018 (d)

 

2,000,000

 

1,965,000

 

Scandlines Aps, Facility B, (Denmark), 4.70%, 11/04/2020

 

1,718,750

 

2,345,275

 

 

 

 

 

7,670,153

 

Personal, Food & Miscellaneous Services 1.7%

 

 

 

 

 

Elior S.C.A., Facility I Tranche, (France), 4.96%, 03/29/2019

 

3,500,000

 

4,741,895

 

Weight Watchers International, Inc., Initial Tranche B-2 Term Loan, 3.75%, 04/02/2020

 

$

997,487

 

889,978

 

 

 

 

 

5,631,873

 

 



 

 

 

Principal Amount

 

Value (a)

 

Floating Rate Term Loans (b) (continued)

 

 

 

 

 

Pipeline 0.9%

 

 

 

 

 

Crestwood Holdings, LLC, Tranche B-1 Term Loan, 7.00%, 06/19/2019

 

$

2,951,968

 

$

3,022,078

 

 

 

 

 

 

 

Printing & Publishing 1.7%

 

 

 

 

 

Advanstar Communications, Inc., New 2nd Lien Term Loan, 9.50%, 06/05/2020

 

2,000,000

 

2,007,000

 

Dex Media East, LLC, Term Loan (2016), 6.00%, 12/30/2016

 

2,339,367

 

1,620,012

 

Dex Media West, LLC, Loan, 8.00%, 12/30/2016

 

2,718,138

 

2,158,201

 

 

 

 

 

5,785,213

 

Retail Stores 5.0%

 

 

 

 

 

CBR Fashion GES.M.B.H., Term B2 Facility, (Denmark), L+4.75%, 04/20/2017 (c)

 

550,000

 

668,932

 

CBR Textile GmbH, Term C2 Facility, (Denmark), L+5.25%, 04/19/2018 (c)

 

550,000

 

672,641

 

Harbor Freight Tools USA, Inc., Initial Loans, 4.75%, 07/26/2019

 

$

2,985,000

 

3,027,924

 

Hudson’s Bay Company, Initial Term Loan, (Canada), 8.25%, 11/04/2021

 

562,500

 

579,842

 

Hudson’s Bay Company, Term Loan 1st Lien, (Canada), 4.75%, 11/04/2020

 

4,000,000

 

4,054,080

 

JC Penney Corporation, Inc., Term Loan, 6.00%, 05/22/2018

 

2,985,000

 

2,892,346

 

Neiman Marcus Group, Inc., Term Loan, 5.00%, 10/25/2020

 

4,987,500

 

5,042,462

 

 

 

 

 

16,938,227

 

Service & Equipment 0.3%

 

 

 

 

 

RBS Worldpay, Inc., Facility D (B1A Extended), (Great Britain), L+4.75%, 11/29/2019 (c)

 

£

500,000

 

828,182

 

 

 

 

 

 

 

Technology 1.5%

 

 

 

 

 

Allflex Holdings III, Inc., (U.S.), Initial Term Loan 1st Lien, 4.25%, 07/17/2020

 

$

1,995,000

 

2,000,606

 

Allflex Holdings III, Inc., (U.S.), Initial Term Loan 2nd Lien, 8.00%, 07/19/2021

 

1,500,000

 

1,518,000

 

Ship Midco, Ltd., Facility C1 (GBP), (Great Britain), L+4.50%, 11/29/2019 (c)

 

£

1,000,000

 

1,654,506

 

 

 

 

 

5,173,112

 

Utilities 1.3%

 

 

 

 

 

Alinta Energy Finance Pty, Ltd., Delayed Draw Term Loan, (Australia), 6.38%, 08/13/2018 (e)

 

$

279,107

 

1,744

 

Alinta Energy Finance Pty, Ltd., Term B Loan, (Australia), 6.38%, 08/13/2019

 

4,255,682

 

4,282,280

 

 

 

 

 

4,284,024

 

Waste Management 0.6%

 

 

 

 

 

Waste Industries USA, Inc., Term B Loan, 4.00%, 03/17/2017

 

1,980,000

 

1,981,841

 

Total Floating Rate Term Loans (Cost: $171,288,109)

 

 

 

173,764,645

 

 

 

 

 

 

 

Corporate Bonds 63.2%

 

 

 

 

 

Aerospace & Defense 2.5%

 

 

 

 

 

DAE Aviation Holdings, Inc., 144A, 11.25%, 08/01/2015

 

6,000,000

 

6,000,000

 

Spirit AeroSystems, Inc., 6.75%, 12/15/2020

 

2,197,000

 

2,367,267

 

 

 

 

 

8,367,267

 

Banking, Finance & Insurance 3.4%

 

 

 

 

 

Galaxy Bidco, Ltd., 144A, (Great Britain), 5.52%, 11/15/2019 (f)

 

£

1,417,000

 

2,340,197

 

Galaxy Bidco, Ltd., 144A, (Great Britain), 6.38%, 11/15/2020

 

600,000

 

1,000,030

 

Nationstar Mortgage, LLC, 10.88%, 04/01/2015

 

$

2,000,000

 

2,022,500

 

TransUnion Holding Company, Inc., 9.63%, 06/15/2018 (d)

 

5,750,000

 

6,152,500

 

 

 

 

 

11,515,227

 

Beverage, Food & Tobacco 2.1%

 

 

 

 

 

Del Monte Foods Company, 7.63%, 02/15/2019

 

2,000,000

 

2,077,500

 

Michael Foods Holding, Inc., 9.75%, 07/15/2018

 

2,500,000

 

2,690,625

 

Michael Foods Holding, Inc., 144A, 8.50%, 07/15/2018 (d)

 

2,000,000

 

2,095,000

 

 

 

 

 

6,863,125

 

Broadcasting & Entertainment 1.6%

 

 

 

 

 

Belo Corporation, 7.25%, 09/15/2027

 

2,000,000

 

2,050,000

 

 



 

 

 

Principal Amount

 

Value (a)

 

Corporate Bonds (continued)

 

 

 

 

 

Broadcasting & Entertainment (continued)

 

 

 

 

 

CBS Outdoor Americas Capital, LLC, 144A, 5.25%, 02/15/2022

 

$

500,000

 

$

502,500

 

CBS Outdoor Americas Capital, LLC, 144A, 5.63%, 02/15/2024

 

1,000,000

 

1,007,500

 

Lamar Media Corporation, 144A, 5.38%, 01/15/2024

 

1,000,000

 

1,012,500

 

LIN Television Corporation, 6.38%, 01/15/2021

 

410,000

 

428,450

 

LIN Television Corporation, 8.38%, 04/15/2018

 

320,000

 

336,800

 

 

 

 

 

5,337,750

 

Buildings & Real Estate 1.8%

 

 

 

 

 

Hillman Companies, Inc., 10.88%, 06/01/2018

 

5,674,000

 

6,099,550

 

 

 

 

 

 

 

Business Equipment & Services 0.6%

 

 

 

 

 

iGATE Corporation, 9.00%, 05/01/2016

 

2,000,000

 

2,115,000

 

 

 

 

 

 

 

Cable & Satellite TV 6.1%

 

 

 

 

 

CCO Holdings, LLC, 7.00%, 01/15/2019

 

2,750,000

 

2,901,250

 

Nara Cable Funding, Ltd., 144A, (Ireland), 8.88%, 12/01/2018

 

805,000

 

873,425

 

Unitymedia KabelBW GmbH, 144A, (Denmark), 9.63%, 12/01/2019

 

2,500,000

 

3,701,371

 

UPC Holding B.V., 144A, (Netherlands), 6.75%, 03/15/2023

 

3,500,000

 

4,876,140

 

Videotron, Ltee, (Canada), 9.13%, 04/15/2018

 

$

1,874,000

 

1,958,330

 

Virgin Media Finance PLC, (Great Britain), 8.88%, 10/15/2019

 

£

1,250,000

 

2,228,724

 

Ziggo Finance B.V., 144A, (Netherlands), 8.00%, 05/15/2018

 

2,700,000

 

3,868,941

 

 

 

 

 

20,408,181

 

Cargo Transportation 1.0%

 

 

 

 

 

Watco Companies, LLC, 144A, 6.38%, 04/01/2023

 

$

3,200,000

 

3,168,000

 

 

 

 

 

 

 

Chemicals, Plastics & Rubber 3.4%

 

 

 

 

 

Hexion U.S. Finance Corporation, 8.88%, 02/01/2018

 

3,000,000

 

3,120,000

 

Hexion U.S. Finance Corporation, 9.00%, 11/15/2020

 

1,000,000

 

1,002,500

 

INEOS Holdings, Ltd., 144A, (Luxembourg), 7.88%, 02/15/2016

 

2,750,000

 

3,710,940

 

Vertellus Specialties, Inc., 144A, 9.38%, 10/01/2015

 

$

3,500,000

 

3,482,500

 

 

 

 

 

11,315,940

 

Consumer Products 1.3%

 

 

 

 

 

Elizabeth Arden Salon Holdings, Inc., 7.38%, 03/15/2021

 

3,000,000

 

3,195,000

 

Elizabeth Arden Salon Holdings, Inc., 144A, 7.38%, 03/15/2021

 

1,000,000

 

1,065,000

 

 

 

 

 

4,260,000

 

Containers, Packaging & Glass 2.2%

 

 

 

 

 

Berry Plastics Corporation, 9.50%, 05/15/2018

 

2,599,000

 

2,767,935

 

Reynolds Group Holdings, Inc., 9.00%, 04/15/2019

 

2,900,000

 

3,092,125

 

Reynolds Group Holdings, Inc., 9.88%, 08/15/2019

 

1,500,000

 

1,657,500

 

 

 

 

 

7,517,560

 

Diversified & Conglomerate Services 3.6%

 

 

 

 

 

Abengoa Finance SAU, 144A, (Spain), 7.75%, 02/01/2020

 

500,000

 

525,000

 

Abengoa S.A., 144A, (Spain), 8.88%, 11/01/2017

 

2,500,000

 

2,737,500

 

Affinion Group Holdings, Inc., 7.88%, 12/15/2018

 

500,000

 

443,750

 

Affinion Investments, LLC, 144A, 13.50%, 08/15/2018

 

3,060,000

 

3,006,450

 

Syncreon Holdings, Ltd., 144A, (Netherlands), 8.63%, 11/01/2021

 

2,000,000

 

2,070,000

 

West Corporation, 8.63%, 10/01/2018

 

3,000,000

 

3,236,250

 

 

 

 

 

12,018,950

 

Electronics 1.6%

 

 

 

 

 

Syniverse Holdings, Inc., 9.13%, 01/15/2019

 

5,000,000

 

5,456,250

 

 

 

 

 

 

 

Energy 1.2%

 

 

 

 

 

Hiland Partners, L.P., 144A, 7.25%, 10/01/2020

 

3,653,000

 

3,908,710

 

 



 

 

 

Principal Amount

 

Value (a)

 

Corporate Bonds (continued)

 

 

 

 

 

Forest Products 0.6%

 

 

 

 

 

Verso Paper Holdings, LLC, 11.75%, 01/15/2019

 

$

2,000,000

 

$

2,150,000

 

 

 

 

 

 

 

Furnishings, Housewares Durable Consumables 2.6%

 

 

 

 

 

Masonite International Corporation, 144A, (Canada), 8.25%, 04/15/2021

 

2,500,000

 

2,737,500

 

Sanitec Oyj, 144A, (Finland), 4.97%, 05/15/2018 (f)

 

4,250,000

 

5,815,935

 

 

 

 

 

8,553,435

 

Grocery 1.0%

 

 

 

 

 

Boparan Finance PLC, 144A, (Great Britain), 9.88%, 04/30/2018

 

£

1,500,000

 

2,667,690

 

Roundy’s Supermarkets, Inc., 144A, 10.25%, 12/15/2020

 

$

789,000

 

832,395

 

 

 

 

 

3,500,085

 

Hotels, Motels, Inns & Gaming 3.0%

 

 

 

 

 

Affinity Gaming, 9.00%, 05/15/2018

 

2,165,000

 

2,305,725

 

Marina District Finance Company, 9.88%, 08/15/2018

 

3,173,000

 

3,414,942

 

SNAI S.p.A, 144A, (Italy), 7.63%, 06/15/2018

 

2,250,000

 

3,072,394

 

SNAI S.p.A, 144A, (Italy), 12.00%, 12/15/2018

 

1,000,000

 

1,423,271

 

 

 

 

 

10,216,332

 

Leisure, Amusement & Entertainment 0.6%

 

 

 

 

 

Regal Entertainment Group, 9.13%, 08/15/2018

 

$

2,000,000

 

2,160,000

 

 

 

 

 

 

 

Mining, Steel, Non-Precious Metals 1.1%

 

 

 

 

 

CONSOL Energy, Inc., 8.00%, 04/01/2017

 

2,000,000

 

2,095,000

 

CONSOL Energy, Inc., 8.25%, 04/01/2020

 

1,500,000

 

1,625,625

 

 

 

 

 

3,720,625

 

Non-Durable Consumer Products 0.2%

 

 

 

 

 

Jarden Corporation, 7.50%, 01/15/2020

 

535,000

 

773,146

 

 

 

 

 

 

 

Oil & Gas 6.1%

 

 

 

 

 

Gibson Energy, Inc., 144A, (Canada), 6.75%, 07/15/2021

 

$

2,000,000

 

2,115,000

 

Halcon Resources Corporation, 8.88%, 05/15/2021

 

3,000,000

 

2,992,500

 

Halcon Resources Corporation, 9.75%, 07/15/2020

 

1,000,000

 

1,037,500

 

Halcon Resources Corporation, 144A, 9.75%, 07/15/2020

 

438,000

 

453,877

 

MEG Energy Corporation, 144A, (Canada), 7.00%, 12/31/2024

 

2,500,000

 

2,543,750

 

Midstates Petroleum Company, Inc., 9.25%, 06/01/2021

 

3,500,000

 

3,640,000

 

Newfield Exploration Company, 6.88%, 02/01/2020

 

2,000,000

 

2,140,000

 

Plains Exploration and Production Company, 8.63%, 10/15/2019

 

4,000,000

 

4,370,000

 

Quicksilver Resources, Inc., 144A, 11.00%, 07/01/2021

 

1,000,000

 

1,080,000

 

 

 

 

 

20,372,627

 

Packaging 3.3%

 

 

 

 

 

Albea Beauty Holdings S.A., 144A, 8.38%, 11/01/2019

 

2,632,000

 

2,763,600

 

Guala Closures Group S.p.A., 144A, (Italy), 5.59%, 11/15/2019 (f)

 

380,000

 

519,166

 

Guala Closures Group S.p.A., 144A, (Luxembourg), 9.38%, 04/15/2018

 

4,000,000

 

5,803,836

 

Packaging Dynamics Corporation, 144A, 8.75%, 02/01/2016

 

$

2,000,000

 

2,052,500

 

 

 

 

 

11,139,102

 

Personal, Food & Miscellaneous Services 0.8%

 

 

 

 

 

Pantry, Inc., 8.38%, 08/01/2020

 

2,650,000

 

2,828,875

 

 

 

 

 

 

 

Pipeline 0.4%

 

 

 

 

 

Kinder Morgan, Inc., 144A, 5.63%, 11/15/2023

 

1,500,000

 

1,477,142

 

 

 

 

 

 

 

Retail Stores 2.9%

 

 

 

 

 

IVS F S.p.A., 144A, (Italy), 7.13%, 04/01/2020

 

3,250,000

 

4,591,312

 

Petco Animal Supplies, Inc., 144A, 8.50%, 10/15/2017 (d)

 

$

2,000,000

 

2,040,000

 

 



 

 

 

Principal Amount

 

Value (a)

 

Corporate Bonds (continued)

 

 

 

 

 

Retail Stores (continued)

 

 

 

 

 

Rent-A-Center, Inc., 6.63%, 11/15/2020

 

$

3,000,000

 

$

3,045,000

 

 

 

 

 

9,676,312

 

Service & Equipment 1.2%

 

 

 

 

 

Ceridian Corporation, 11.25%, 11/15/2015

 

3,887,000

 

3,906,435

 

 

 

 

 

 

 

Technology 1.2%

 

 

 

 

 

GXS Worldwide, Inc., 9.75%, 06/15/2015

 

4,000,000

 

4,110,400

 

 

 

 

 

 

 

Telecommunications 5.4%

 

 

 

 

 

Digicel Group, Ltd., 144A, (Bermuda), 8.25%, 09/01/2017

 

4,000,000

 

4,148,000

 

Digicel Group, Ltd., 144A, (Bermuda), 10.50%, 04/15/2018

 

2,000,000

 

2,126,000

 

Level 3 Communications, Inc., 9.38%, 04/01/2019

 

2,000,000

 

2,230,000

 

Wind Acquisition Finance S.A., 144A, (Luxembourg), 5.55%, 04/30/2019 (f)

 

750,000

 

1,031,718

 

Wind Acquisition Finance S.A., 144A, (Luxembourg), 11.75%, 07/15/2017

 

$

4,501,000

 

4,748,555

 

Windstream Corporation, 7.75%, 10/15/2020

 

1,000,000

 

1,060,000

 

Windstream Corporation, 7.75%, 10/01/2021

 

2,500,000

 

2,625,000

 

 

 

 

 

17,969,273

 

Waste Management 0.4%

 

 

 

 

 

Liberty Tire Recycling, 144A, 11.00%, 10/01/2016

 

1,335,000

 

1,308,300

 

Total Corporate Bonds (Cost: $209,762,414)

 

 

 

212,213,599

 

 

 

 

 

 

 

Collateralized Loan Obligations/Collateralized Debt Obligations 23.6% (f)

 

 

 

 

 

Banking, Finance & Insurance 2.6%

 

 

 

 

 

Northwoods Capital X, 144A, (Cayman Islands), 3.00%, 11/04/2025

 

4,000,000

 

3,925,080

 

West CLO 2013-1, Ltd., 144A, (Cayman Islands), 3.89%, 11/07/2025

 

3,000,000

 

2,875,611

 

WhiteHorse VII, Ltd., 144A, (Cayman Islands), 3.95%, 11/24/2025

 

2,000,000

 

1,947,430

 

 

 

 

 

8,748,121

 

Structured Finance Obligations 21.0%

 

 

 

 

 

Apidos CLO XII, 144A, (Cayman Islands), 3.29%, 04/15/2025

 

4,000,000

 

3,729,840

 

Apidos CLO XIV, 144A, (Cayman Islands), 3.74%, 04/15/2025

 

4,000,000

 

3,895,648

 

Apidos CLO XV, 144A, (Cayman Islands), 3.50%, 10/20/2025

 

3,000,000

 

2,825,061

 

Atrium IX, 144A, (Cayman Islands), 3.74%, 02/28/2024

 

2,500,000

 

2,451,493

 

Carlyle Global Market Strategies CLO 2012-4, Ltd., 144A, (Cayman Islands), 4.74%, 01/20/2025

 

4,000,000

 

4,001,956

 

Cent XVII CLO, L.P., 144A, (Cayman Islands), 3.74%, 01/30/2025

 

4,000,000

 

3,889,192

 

Dryden Senior Loan Fund XXX, Ltd., 144A, (Cayman Islands), 3.44%, 11/15/2025

 

1,000,000

 

939,177

 

Finn Square CLO, Ltd., 144A, (Cayman Islands), 3.85%, 12/24/2023

 

4,500,000

 

4,416,309

 

Galaxy XV CLO, Ltd., 144A, (Cayman Islands), 3.64%, 04/15/2025

 

4,000,000

 

3,819,596

 

Galaxy XVI CLO, Ltd., 144A, (Cayman Islands), 3.59%, 11/16/2025

 

2,000,000

 

1,897,920

 

Greywolf CLO II, Ltd., 144A, (Cayman Islands), 4.07%, 04/15/2025

 

4,000,000

 

3,983,396

 

Halcyon Loan Advisors Funding 2013-1, Ltd., 144A, (Cayman Islands), 3.74%, 04/15/2025

 

4,000,000

 

3,882,044

 

ING IM CLO 2011-1, LLC, 144A, (Cayman Islands), 3.55%, 06/22/2021

 

4,000,000

 

3,843,448

 

ING IM CLO 2013-1, Ltd., 144A, (Cayman Islands), 3.74%, 04/15/2024

 

3,000,000

 

2,883,825

 

KVK CLO 2013-1, Ltd., 144A, (Cayman Islands), 4.59%, 04/14/2025

 

3,000,000

 

3,037,002

 

Mountain Hawk I CLO, Ltd., 144A, (Cayman Islands), 3.34%, 01/20/2024

 

3,000,000

 

2,814,279

 

Oak Hill Credit Partners VIII, Ltd., 144A, (Cayman Islands), 3.74%, 04/20/2025

 

4,000,000

 

3,897,104

 

OHA Credit Partners VII, Ltd., 144A, (Cayman Islands), 4.24%, 11/20/2023

 

1,000,000

 

1,001,816

 

OHA Loan Funding 2013-1, Ltd., 144A, (Cayman Islands), 3.84%, 07/16/2025

 

4,000,000

 

3,908,644

 

OZLM Funding III, Ltd., 144A, Cayman Islands), 4.14%, 01/22/2025

 

2,000,000

 

1,980,286

 

Symphony CLO XI, Ltd., 144A, (Cayman Islands), 4.24%, 01/17/2025

 

2,750,000

 

2,713,755

 

Venture XII CDO, Ltd., 144A, (Cayman Islands), 3.09%, 02/28/2024

 

1,000,000

 

987,977

 

Venture XIII CDO, Ltd., 144A, (Cayman Islands), 3.79%, 06/10/2025

 

4,000,000

 

3,840,056

 

 

 

 

 

70,639,824

 

Total Collateralized Loan Obligations/Collateralized Debt Obligations (Cost: $77,916,316)

 

 

 

79,387,945

 

Total Investments - 138.6%
(Cost: $458,966,839)

 

 

 

$

465,366,189

 

Liabilities in Excess of Other Assets - (38.6%)

 

 

 

(129,685,509

)

Net Assets - 100.0%

 

 

 

$

335,680,680

 

 



 


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 unless otherwise noted.

(b)             Interest rates on floating rate term loans adjust periodically based upon a predetermined schedule. Stated interest rate in this schedule represents the “all-in” rate at period end.

(c)              This position or a portion of this position represents an unsettled loan purchase. The interest rate will be determined at the time of settlement and will be based upon the London-Interbank Offered Rate (“LIBOR” or “L”) or the applicable LIBOR floor plus a spread which was determined at the time of purchase.

(d)             Pay-In-Kind security (PIK), which may pay interest/dividends in additional par/shares.

(e)              Reported net of unfunded commitments, reduced by any upfront payments received if purchased at a discount, see Note 2.

(f)               Variable rate coupon, rate shown as of January 31, 2014.

 

As of January 31, 2014, the aggregate cost of securities for Federal income tax purposes was $458,966,839.

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

 

Gross unrealized appreciation

 

$

8,768,110

 

Gross unrealized depreciation

 

(2,368,760

)

Net unrealized appreciation

 

$

6,399,350

 

 

Abbreviations:

144A   Certain conditions for public sale may exist. Unless otherwise noted, these securities are deemed to be liquid.

CDO      Collateralized Debt Obligation

CLO       Collateralized Loan Obligation

 

Currencies:

                     Euro Currency

£                     British Pounds

$                     U.S. Dollars

 



 

Ares Dynamic Credit Allocation Fund, Inc.

Notes to Schedule of Investments

January 31, 2014 (UNAUDITED)

 

(1) Organization

 

Ares Dynamic Credit Allocation Fund, Inc. (the “Fund”) is a corporation incorporated under the laws of the State of Maryland and registered with the U.S. Securities and Exchange Commission (the ‘‘SEC’’) under the Investment Company Act of 1940, as amended (the ‘‘Investment Company Act’’), as a closed-end, non-diversified, management investment company, and intends to qualify to be treated as a Registered Investment Company (“RIC”).  The Fund commenced operations on November 27, 2012.  Ares Capital Management II LLC (the ‘‘Adviser’’) serves as the investment adviser to the Fund. The Fund’s common shares are listed on the New York Stock Exchange (the “Exchange”) and trade under the ticker symbol “ARDC”.

 

Investment Objective

ARDC’s investment objective is to provide 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) secured loans (‘‘Senior Loans’’) made primarily to companies whose debt is rated below investment grade, (ii) corporate bonds (‘‘Corporate Bonds’’) that are expected to be primarily high yield issues rated below investment grade, and (iii) debt securities (‘‘CLO Debt Securities’’) issued by entities commonly referred to, and referred to herein, as collateralized loan obligations (‘‘CLOs’’). 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.

 

(2) Significant Accounting Policies

 

Investments Valuation

All investments in securities are recorded at their estimated fair value, as described in Note 3.

 

Revolving loan, bridge loan and delayed draw term loan agreements

For investment purposes, the Fund has entered into certain loan commitments which may include revolving loan, bridge loan, partially unfunded term loan and delayed draw term loan agreements (“Unfunded loan commitments”). Unfunded loan commitments purchased at a discount/premium may include cash received/paid for the amounts representing such discounts/premiums. Unfunded loan commitments are agreements to participate in the lending of up to a specified maximum amount for a specified period. As of January 31, 2014, the fair value of the loans disclosed in the Schedule of Investments does not include unfunded commitments, which total $279,107.

 

(3) Investments

 

Fair Value Measurements

The Fund follows the provisions of Fair Value Measurements and Disclosures under U.S. generally accepted accounting principles (“U.S. GAAP”), which among other matters, requires enhanced disclosures about investments that are measured and reported at fair value. This standard defines fair value and establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value and expands disclosures about assets and liabilities measured at fair value. Fair Value Measurements and Disclosures defines “fair value” as the amount for which an investment could be sold in an orderly transaction between market participants at the measurement date in the principal or most advantageous market of the investment. The hierarchal disclosure framework establishes a three tier hierarchy to maximize the use of observable data and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and/or the risk inherent in the inputs to the valuation technique.

 

Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized in the three broad levels listed below.

 



 

Ares Dynamic Credit Allocation Fund, Inc.

Notes to Schedule of Investments (continued)

January 31, 2014 (UNAUDITED)

 

·                  Level 1 – unadjusted quoted prices in active markets for identical investments

·                  Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

·                  Level 3 – significant unobservable inputs (including a single broker quote or the Fund’s own assumptions in determining the fair value of investments)

 

The fair value of the Fund’s investments are primarily estimated based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs. The Fund’s custodian obtains prices from independent pricing services based on an authorized pricing matrix as approved by the Fund’s Board of Directors. The Adviser has internal controls in place that support its reliance on information received from third-party pricing sources. For any securities, 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.

 

Bank loans and corporate debts: The fair value of bank loans and corporate debt 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 collateralized loan obligations is estimated based on various valuation models of third party pricing services as well as internal 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.

 

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 securities, 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. The main inputs into the Adviser’s valuation model for these Level 3 securities include earnings multiples (based on the historical earnings of the issuer) and discounted cash flows. The Adviser may also consider original transaction price, recent transactions in the same or similar instruments and completed third-party transactions in comparable instruments as well as other liquidity, credit and market risk factors. Models will be adjusted as deemed necessary by the Adviser.

 



 

Ares Dynamic Credit Allocation Fund, Inc.

Notes to Schedule of Investments (continued)

January 31, 2014 (UNAUDITED)

 

The following is a summary of the inputs used as of January 31, 2014, 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 ($)

 

Floating Rate Term Loans

 

 

154,650,029

 

19,114,616

 

173,764,645

 

Corporate Bonds

 

 

212,213,599

 

 

212,213,599

 

Collateralized Loan Obligations/Collateralized Debt Obligations

 

 

 

79,387,945

 

79,387,945

 

Total Investments

 

 

366,863,628

 

98,502,561

 

465,366,189

 

 

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 January 31, 2014:

 

 

 

Floating Rate Term
Loans ($)

 

Corporate Bonds ($)

 

Collateralized Loan
Obligations/
Collateralized Debt
Obligations ($)

 

Total ($)

 

Balance as of 10/31/13

 

24,888,248

 

5,003,397

 

77,524,340

 

107,415,985

 

Purchases (a)

 

2,778,277

 

 

 

2,778,277

 

Sales (b)

 

(6,169,555

)

 

 

(6,169,555

)

Realized gain/ (loss) and net change in unrealized appreciation/(depreciation)

 

106,563

 

38,286

 

1,789,688

 

1,934,537

 

Accrued discounts/(premiums)

 

13,366

 

(10,861

)

73,917

 

76,422

 

Transfers in to Level 3

 

6,921,128

 

 

 

6,921,128

 

Transfers out of Level 3

 

(9,423,411

)

(5,030,822

)

 

(14,454,233

)

Balance as of 1/31/14

 

19,114,616

 

 

79,387,945

 

98,502,561

 

Net change in unrealized appreciation/(depreciation) from Investments held as of 1/31/14

 

105,250

 

 

1,789,687

 

1,894,937

 

 


(a)         Purchases include paid-in-kind interest and securities received from restructure.

(b)         Sales include principal redemptions.

 

The valuation techniques used by the Adviser to measure fair value as of January 31, 2014 maximized the use of observable inputs and minimized the use of unobservable inputs. The valuation techniques and significant amounts of unobservable inputs used in the valuation of the Fund’s Level 3 securities are outlined in the table below.

 

 

 

Fair Value
($)

 

Valuation Technique

 

Unobservable Inputs

 

Range

 

Assets

 

 

 

 

 

 

 

 

 

Investments in securities

 

 

 

 

 

 

 

 

 

Floating Rate Term Loans

 

19,114,616

 

Broker quotes and/or 3rd party pricing services

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

Collateralized Loan Obligation/Collateralized Debt Obligation

 

79,387,945

 

Broker quotes and/or 3rd party pricing services

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

Total Level 3 Investments

 

98,502,561

 

 

 

 

 

 

 

 

There were no transfers between Level 1 and 2 during the period. It is the Fund’s policy to recognize transfers into and out of all levels at the end of the reporting period.

 



 

ITEM 2. CONTROLS AND PROCEDURES.

 

(a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effective at a reasonable level of assurance based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this report as required by Rule 30a-3(b) under the 1940 Act and Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended.

 

(b) There were no significant changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

ITEM 3. EXHIBITS.

 

The following exhibits are attached to this Form N-Q:

 

EXHIBIT NO.

 

DESCRIPTION OF EXHIBIT

3 (a) (1)

 

Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

3 (a) (2)

 

Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

(Registrant): Ares Dynamic Credit Allocation Fund, Inc.

 

By:

/s/

 

 

Seth J. Brufsky

 

 

Chief Executive Officer (principal executive officer) of

 

 

Ares Dynamic Credit Allocation Fund, Inc.

 

 

Date: March 25, 2014

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By:

/s/

 

 

Seth J. Brufsky

 

 

Chief Executive Officer (principal executive officer) of

 

 

Ares Dynamic Credit Allocation Fund, Inc.

 

 

Date: March 25, 2014

 

By:

/s/

 

 

Daniel F. Nguyen

 

 

Chief Financial Officer (principal financial officer) of

 

 

Ares Dynamic Credit Allocation Fund, Inc.

 

 

Date: March 25, 2014