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

 

 

Date of reporting period:

January 31, 2016

 

 



 

ITEM 1.   SCHEDULE OF INVESTMENTS.

 


 


 

Ares Dynamic Credit Allocation Fund, Inc.

Schedule of Investments

January 31, 2016 (Unaudited)

 

 

 

Principal Amount

 

Value (a)

 

Floating Rate Term Loans 43.1% (b)

 

 

 

 

 

Aerospace & Defense 0.6%

 

 

 

 

 

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

 

$

2,101,509

 

$

1,991,179

 

 

 

 

 

 

 

Banking, Finance & Insurance 0.9%

 

 

 

 

 

Asurion, LLC, 2nd Lien Term Loan, 8.50%, 03/03/2021

 

3,750,000

 

3,155,362

 

 

 

 

 

 

 

Beverage, Food & Tobacco 1.1%

 

 

 

 

 

Charger OpCo B.V., EUR Term Loan B-2, (Netherlands), 4.25%, 07/23/2021

 

1,713,754

 

1,851,012

 

Charger OpCo B.V., USD Term Loan B-2, (Netherlands), 4.25%, 07/02/2022

 

$

2,037,004

 

2,008,996

 

 

 

 

 

3,860,008

 

Broadcasting & Entertainment 1.7%

 

 

 

 

 

Clear Channel Communications, Inc., Tranche E Term Loan, 7.93%, 07/30/2019

 

2,500,000

 

1,649,100

 

Cumulus Media Holdings, Inc., Term Loan, 4.25%, 12/23/2020

 

3,600,000

 

2,616,444

 

Gray Television, Inc., Incremental Term Loan C, L+ 3.50%, 06/13/2021 (c)

 

1,801,802

 

1,796,739

 

 

 

 

 

6,062,283

 

Buildings & Real Estate 1.1%

 

 

 

 

 

Jeld-Wen, Inc., Term B-1 Loan, 4.75%, 07/01/2022

 

3,990,000

 

3,930,150

 

 

 

 

 

 

 

Cable & Satellite TV 0.6%

 

 

 

 

 

Altice Financing S.A., Term Loan, (Luxembourg), 5.50%, 07/02/2019

 

989,899

 

982,782

 

Altice Financing S.A., USD Tranche Loan, (Luxembourg), 5.25%, 01/28/2022

 

995,000

 

982,562

 

 

 

 

 

1,965,344

 

Chemicals, Plastics & Rubber 1.5%

 

 

 

 

 

HII Holding Corporation, Term Loan 2nd Lien, 9.75%, 12/21/2020

 

2,000,000

 

1,900,000

 

Ineos Finance PLC, 2022 EUR Term Loan, (Great Britain), 4.25%, 03/31/2022

 

3,200,804

 

3,338,737

 

 

 

 

 

5,238,737

 

Consumer Products 0.7%

 

 

 

 

 

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

 

$

4,342,500

 

1,899,844

 

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

 

1,369,565

 

547,826

 

 

 

 

 

2,447,670

 

Containers, Packaging & Glass 0.6%

 

 

 

 

 

Reynolds Group Holdings, Inc., US Term Loan, 4.50%, 12/01/2018

 

2,000,000

 

1,988,580

 

 

 

 

 

 

 

Diversified & Conglomerate Manufacturing 1.3%

 

 

 

 

 

Auris Luxembourg III Sarl, Term Loan B4, (Luxembourg), 4.25%, 01/17/2022

 

4,488,722

 

4,425,117

 

 

 

 

 

 

 

Diversified & Conglomerate Services 3.6%

 

 

 

 

 

Language Line, LLC, Initial Term Loan 1st Lien, 6.50%, 07/07/2021

 

4,018,021

 

3,981,176

 

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

 

5,424,911

 

4,187,380

 

VWR Funding, Inc., Tranche B Term Loan, 4.00%, 01/15/2022

 

4,000,000

 

4,319,027

 

 

 

 

 

12,487,583

 

Electronics 2.4%

 

 

 

 

 

Avago Technologies Cayman, Ltd., Term Loan B, (Cayman Islands), L+ 3.25%, 11/11/2022 (c)

 

$

4,500,000

 

4,424,760

 

NXP B.V., Tranche B Loan, (Netherlands), 3.75%, 12/07/2020

 

2,712,822

 

2,706,040

 

Smart Technologies ULC, Term B Loan, (Canada), 10.50%, 01/31/2018

 

1,246,875

 

1,240,641

 

 

 

 

 

8,371,441

 

Grocery 2.4%

 

 

 

 

 

Albertson’s, LLC, Term Loan B4, 5.50%, 08/25/2021

 

5,458,750

 

5,334,673

 

GOBP Holdings, Inc., 1st Lien Term Loan, 4.75%, 10/21/2021

 

3,247,882

 

3,090,912

 

 

 

 

 

8,425,585

 

Healthcare, Education & Childcare 2.8%

 

 

 

 

 

Envision Healthcare Corporation, Tranche B-2 Term Loan, 4.50%, 10/28/2022

 

2,500,000

 

2,479,900

 

 



 

 

 

Principal Amount

 

Value (a)

 

Floating Rate Term Loans (b) (continued)

 

 

 

 

 

Healthcare, Education & Childcare (continued)

 

 

 

 

 

Nord Anglia Education Finance, LLC, Initial Term Loan, 5.00%, 03/31/2021

 

$

3,979,798

 

$

3,840,505

 

Team Health, Inc., Tranche B Term Loan, 4.50%, 11/23/2022

 

3,502,000

 

3,480,112

 

 

 

 

 

9,800,517

 

Hotels, Motels, Inns & Gaming 1.5%

 

 

 

 

 

Mohegan Tribal Gaming Authority, Term Loan B, 5.50%, 06/15/2018

 

5,327,571

 

5,156,343

 

 

 

 

 

 

 

Leisure, Amusement & Entertainment 3.1%

 

 

 

 

 

AMC Entertainment, Inc., Incremental Term Loan, 4.00%, 12/15/2022

 

2,556,593

 

2,555,877

 

ClubCorp Club Operations, Inc., Term Loan B, 4.25%, 12/15/2022

 

2,500,000

 

2,475,000

 

Delta 2 (LUX) Sarl, Term Loan 2nd Lien, (Luxembourg), 7.75%, 07/29/2022

 

1,000,000

 

830,000

 

Delta 2 (LUX) Sarl, Term Loan B3,(Luxembourg), 4.75%, 07/30/2021

 

2,000,000

 

1,879,380

 

Equinox Holdings, Inc., Initial Term Loan, 5.00%, 01/31/2020

 

2,779,520

 

2,732,045

 

Life Time Fitness, Inc., Term Loan, 4.25%, 06/10/2022

 

497,494

 

486,300

 

 

 

 

 

10,958,602

 

Oil & Gas 0.5%

 

 

 

 

 

Energy & Exploration Partners, LLC, DIP Term Loan, L+ 10.00%, 01/22/2019 (c)

 

184,571

 

179,034

 

Energy & Exploration Partners, LLC, Initial Loan, 7.75%, 01/22/2019 (d)

 

2,992,424

 

288,021

 

Energy & Exploration Partners, LLC, Bridge DIP Term Loan, L+ 8.75%, 01/23/2016 (c)

 

70,577

 

70,577

 

EP Energy LLC, Tranche B-2 Loan, 4.50%, 04/30/2019

 

1,382,500

 

877,887

 

Templar Energy, LLC, Incremental Term Loans 2nd Lien, 8.50%, 11/25/2020

 

5,995,251

 

347,724

 

 

 

 

 

1,763,243

 

Packaging 0.6%

 

 

 

 

 

Ardagh Holdings USA, Inc., Incremental Term Loan B, 4.00%, 12/17/2019

 

2,087,349

 

2,065,829

 

 

 

 

 

 

 

Personal Transportation 1.1%

 

 

 

 

 

Air Medical Group Holdings, Inc., Initial Term Loan, 4.25%, 04/28/2022

 

3,980,000

 

3,771,050

 

 

 

 

 

 

 

Personal, Food & Miscellaneous Services 0.4%

 

 

 

 

 

Weight Watchers International, Inc., Initial Tranche B-2 Term Loan, 4.00%, 04/02/2020

 

2,000,000

 

1,380,460

 

 

 

 

 

 

 

Printing & Publishing 1.7%

 

 

 

 

 

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

 

5,548,110

 

2,605,282

 

F&W Media, Inc., Initial Term Loan, 8.50%, 06/30/2019

 

2,764,484

 

2,667,727

 

Lee Enterprises, Inc., Term Loan, 7.25%, 03/31/2019

 

792,671

 

779,457

 

 

 

 

 

6,052,466

 

Retail Stores 6.9%

 

 

 

 

 

Dollar Tree, Inc., Term B-1 Loan, 3.50%, 07/06/2022

 

1,314,287

 

1,309,082

 

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

 

3,787,834

 

3,783,099

 

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

 

2,925,000

 

2,855,531

 

Neiman Marcus Group, Inc., Term Loan 1, 4.25%, 10/25/2020

 

4,887,750

 

4,233,134

 

Pilot Travel Centers, LLC, Initial Trache Loan Term B, 3.75%, 10/01/2021

 

3,692,169

 

3,691,246

 

Rite Aid Corporation, 2nd Priority Tranche 1 Term Loans, 5.75%, 08/21/2020

 

4,170,000

 

4,170,000

 

Rite Aid Corporation, Tranche 2 Term Loan, 4.88%, 06/21/2021

 

4,075,000

 

4,060,738

 

 

 

 

 

24,102,830

 

Service & Equipment 0.7%

 

 

 

 

 

First Data Corporation, Term Loan, 4.18%, 07/10/2022

 

2,501,333

 

2,451,932

 

 

 

 

 

 

 

Technology 2.5%

 

 

 

 

 

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

 

3,000,000

 

2,835,000

 

Travelport Finance Sarl, Initial Term Loans, (Luxembourg), 5.75%, 09/02/2021

 

6,000,000

 

5,779,500

 

 

 

 

 

8,614,500

 

Utilities 1.8%

 

 

 

 

 

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

 

411,905

 

402,979

 

 



 

 

 

Principal Amount

 

Value (a)

 

Floating Rate Term Loans (b) (continued)

 

 

 

 

 

Utilities (continued)

 

 

 

 

 

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

 

$

6,206,946

 

$

6,072,442

 

 

 

 

 

6,475,421

 

Waste Management 1.0%

 

 

 

 

 

Waste Industries USA, Inc., Initial Term Loan, 4.25%, 02/27/2020

 

3,473,750

 

3,450,962

 

Total Floating Rate Term Loans (Cost: $171,209,601)

 

 

 

150,393,194

 

 

 

 

 

 

 

Corporate Bonds 68.7%

 

 

 

 

 

Automobile 0.8%

 

 

 

 

 

Schaeffler Finance B.V., 144A, (Netherlands), 4.75%, 05/15/2023

 

3,000,000

 

2,910,000

 

 

 

 

 

 

 

Banking, Finance & Insurance 0.4%

 

 

 

 

 

MSCI, Inc., 144A, 5.75%, 08/15/2025

 

1,364,000

 

1,442,430

 

 

 

 

 

 

 

Beverage, Food & Tobacco 2.1%

 

 

 

 

 

New Red Finance, Inc., 144A, (Canada), 4.63%, 01/15/2022

 

3,000,000

 

3,015,000

 

Premier Foods Finance PLC, 144A, (Great Britain), 5.58%, 03/16/2020 (e)

 

£

3,250,000

 

4,278,587

 

 

 

 

 

7,293,587

 

Broadcasting & Entertainment 10.9%

 

 

 

 

 

AMC Networks, Inc., 7.75%, 07/15/2021

 

$

6,000,000

 

6,360,000

 

Belo Corporation, 7.25%, 09/15/2027

 

2,000,000

 

2,020,000

 

DigitalGlobe, Inc., 144A, 5.25%, 02/01/2021

 

2,500,000

 

2,187,500

 

iHeartCommunications, Inc., 10.63%, 03/15/2023

 

1,300,000

 

841,750

 

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

 

3,000,000

 

3,060,000

 

Lamar Media Corporation, 144A, 5.75%, 02/01/2026

 

700,000

 

721,000

 

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

 

895,000

 

935,275

 

Nexstar Broadcasting, Inc., 6.88%, 11/15/2020

 

2,875,000

 

2,882,187

 

Nexstar Broadcasting, Inc., 144A, 6.13%, 02/15/2022

 

1,550,000

 

1,472,500

 

Sinclair Television Group, Inc., 6.13%, 10/01/2022

 

2,000,000

 

2,055,000

 

Sinclair Television Group, Inc., 144A, 5.63%, 08/01/2024

 

3,350,000

 

3,257,875

 

Sirius XM Radio, Inc., 144A, 5.38%, 04/15/2025

 

3,600,000

 

3,618,000

 

TEGNA, Inc., 6.38%, 10/15/2023

 

1,500,000

 

1,582,500

 

Tribune Media Company, 144A, 5.88%, 07/15/2022

 

3,000,000

 

2,992,500

 

Univision Communications, Inc., 144A, 8.50%, 05/15/2021

 

4,000,000

 

3,970,000

 

 

 

 

 

37,956,087

 

Buildings & Real Estate 2.9%

 

 

 

 

 

BMBG Bond Finance S.C.A., 144A, (Luxembourg), 4.86%, 10/15/2020 (e)

 

4,525,000

 

4,902,225

 

Headwaters, Inc., 7.25%, 01/15/2019

 

$

5,167,000

 

5,270,340

 

 

 

 

 

10,172,565

 

Business Equipment & Services 2.3%

 

 

 

 

 

TMF Group Holding B.V., 144A, (Netherlands), 5.26%, 12/01/2018 (e)

 

3,500,000

 

3,786,008

 

TMF Group Holding B.V., 144A, (Netherlands), 9.88%, 12/01/2019

 

3,750,000

 

4,334,176

 

 

 

 

 

8,120,184

 

Cable & Satellite TV 8.5%

 

 

 

 

 

Altice Financing S.A., 144A, (Luxembourg), 6.63%, 02/15/2023

 

$

3,230,000

 

3,173,475

 

Altice Financing S.A., 144A, (Luxembourg), 9.88%, 12/15/2020

 

2,500,000

 

2,675,000

 

Cablevision Systems Corporation, 8.63%, 09/15/2017

 

2,000,000

 

2,075,000

 

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

 

1,179,000

 

1,204,054

 

CCO Safari II, LLC, 144A, 4.91%, 07/23/2025

 

3,000,000

 

3,002,973

 

CSC Holdings, LLC, 8.63%, 02/15/2019

 

2,000,000

 

2,130,000

 

Midcontinent Communications, 144A, 6.88%, 08/15/2023

 

1,750,000

 

1,767,500

 

UPCB Finance V, Ltd., 144A, (Cayman Islands)), 7.25%, 11/15/2021

 

2,250,000

 

2,385,000

 

Videotron, Ltd., 144A, (Canada), 5.38%, 06/15/2024

 

3,000,000

 

3,022,500

 

 



 

 

 

Principal Amount

 

Value (a)

 

Corporate Bonds (continued)

 

 

 

 

 

Cable & Satellite TV (continued)

 

 

 

 

 

Virgin Media Secured Finance PLC, 144A, (Great Britain), 5.25%, 01/15/2026

 

$

4,376,000

 

$

4,332,240

 

WideOpenWest Finance, LLC, 10.25%, 07/15/2019

 

4,250,000

 

4,005,625

 

 

 

 

 

29,773,367

 

Chemicals, Plastics & Rubber 0.5%

 

 

 

 

 

NOVA Chemicals Corporation, 144A, (Canada), 5.00%, 05/01/2025

 

2,000,000

 

1,875,000

 

 

 

 

 

 

 

Consumer Products 2.6%

 

 

 

 

 

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

 

2,000,000

 

1,330,000

 

NBTY, Inc., 9.00%, 10/01/2018

 

7,488,000

 

7,670,707

 

 

 

 

 

9,000,707

 

Containers, Packaging & Glass 2.6%

 

 

 

 

 

Crown Americas LLC, 7.38%, 12/15/2026

 

2,350,000

 

2,514,500

 

Owens-Brockway Glass Container, Inc., 144A, 5.88%, 08/15/2023

 

2,500,000

 

2,453,125

 

Owens-Brockway Glass Container, Inc., 144A, 6.38%, 08/15/2025

 

1,285,000

 

1,265,725

 

Reynolds Group Issuer, Inc., 7.88%, 08/15/2019

 

1,500,000

 

1,556,250

 

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

 

1,198,000

 

1,171,045

 

 

 

 

 

8,960,645

 

Diversified & Conglomerate Manufacturing 0.2%

 

 

 

 

 

Affinion International Holdings, Ltd., (Great Britain), 7.50%, 07/30/2018 (f)

 

1,222,000

 

855,400

 

 

 

 

 

 

 

Diversified & Conglomerate Services 3.2%

 

 

 

 

 

Abengoa Finance SAU, 144A, (Spain), 8.88%, 11/01/2017

 

3,000,000

 

510,000

 

Aramark Services, Inc., 144A, 5.13%, 01/15/2024

 

1,400,000

 

1,445,500

 

Ashtead Capital, Inc., 144A, 6.50%, 07/15/2022

 

2,000,000

 

2,040,000

 

Hertz Corporation, 7.50%, 10/15/2018

 

3,000,000

 

3,045,000

 

United Rentals North America, Inc., 8.25%, 02/01/2021

 

4,000,000

 

4,170,000

 

 

 

 

 

11,210,500

 

Electronics 1.4%

 

 

 

 

 

Freescale Semiconductor, Inc., 144A, 6.00%, 01/15/2022

 

1,000,000

 

1,047,500

 

NeuStar, Inc., 4.50%, 01/15/2023

 

1,500,000

 

1,230,000

 

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

 

7,000,000

 

2,660,000

 

 

 

 

 

4,937,500

 

Healthcare, Education & Childcare 1.9%

 

 

 

 

 

DaVita HealthCare Partners, Inc., 5.13%, 07/15/2024

 

2,500,000

 

2,514,063

 

HCA, Inc., 5.25%, 04/15/2025

 

2,500,000

 

2,562,500

 

HCA, Inc., 8.00%, 10/01/2018

 

1,500,000

 

1,680,000

 

 

 

 

 

6,756,563

 

Hotels, Motels, Inns & Gaming 5.7%

 

 

 

 

 

Gala Electric Casinos, PLC, 144A, (Great Britain), 11.50%, 06/01/2019

 

£

2,704,546

 

4,026,739

 

Gala Group Finance, PLC, 144A, (Great Britain), 8.88%, 09/01/2018

 

293,920

 

433,417

 

MGM Resorts International, 8.63%, 02/01/2019

 

$

1,000,000

 

1,110,000

 

MGM Resorts International, 11.38%, 03/01/2018

 

1,000,000

 

1,145,000

 

Mohegan Tribal Gaming Authority, 144A, 11.00%, 09/15/2018

 

728,000

 

728,000

 

Peninsula Gaming, LLC, 144A, 8.38%, 02/15/2018

 

6,000,000

 

6,090,000

 

Pinnacle Entertainment, Inc., 8.75%, 05/15/2020

 

4,250,000

 

4,430,625

 

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

 

1,750,000

 

1,855,220

 

 

 

 

 

19,819,001

 

Leisure, Amusement & Entertainment 4.1%

 

 

 

 

 

Activision Blizzard, Inc., 144A, 5.63%, 09/15/2021

 

$

4,000,000

 

4,200,000

 

AMC Entertainment, Inc., 5.75%, 06/15/2025

 

490,000

 

499,188

 

 


 


 

 

 

Principal Amount

 

Value (a)

 

Corporate Bonds (continued)

 

 

 

 

 

Leisure, Amusement & Entertainment (continued)

 

 

 

 

 

AMC Entertainment, Inc., 5.88%, 02/15/2022

 

$

825,000

 

$

848,719

 

Live Nation Entertainment, Inc., 144A, 7.00%, 09/01/2020

 

4,500,000

 

4,725,000

 

LTF Merger Sub, Inc., 144A, 8.50%, 06/15/2023

 

2,000,000

 

1,890,000

 

Regal Entertainment Group, 5.75%, 03/15/2022

 

2,250,000

 

2,264,062

 

 

 

 

 

14,426,969

 

Lending Services 1.6%

 

 

 

 

 

AerCap Aviation Solutions B.V., (Netherlands), 6.38%, 05/30/2017

 

511,000

 

522,498

 

International Lease Finance Corporation, 8.75%, 03/15/2017

 

3,500,000

 

3,678,850

 

International Lease Finance Corporation, 8.88%, 09/01/2017

 

1,250,000

 

1,337,500

 

 

 

 

 

5,538,848

 

Mining, Steel, Non-Precious Metals 0.1%

 

 

 

 

 

Peabody Energy Corporation, 6.50%, 09/15/2020

 

3,500,000

 

201,250

 

 

 

 

 

 

 

Oil & Gas 2.8%

 

 

 

 

 

California Resources Corporation, 6.00%, 11/15/2024

 

688,000

 

130,720

 

California Resources Corporation, 8.00%, 12/15/2022

 

1,845,000

 

733,388

 

EP Energy, LLC, 9.38%, 05/01/2020

 

2,000,000

 

850,000

 

Ferrellgas Partners, L.P., 8.63%, 06/15/2020

 

7,268,000

 

6,613,880

 

Halcon Resources Corporation, 144A, 13.00%, 02/15/2022

 

4,325,000

 

1,065,031

 

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

 

3,500,000

 

157,500

 

Midstates Petroleum Company, Inc., 10.75%, 10/01/2020

 

2,000,000

 

90,000

 

Quicksilver Resources, Inc., 11.00%, 07/01/2021 (d)

 

1,000,000

 

 

 

 

 

 

9,640,519

 

Packaging 3.5%

 

 

 

 

 

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

 

5,000,000

 

5,212,500

 

GCL Holdings S.C.A., 144A, (Luxembourg), 9.38%, 04/15/2018

 

5,500,000

 

6,134,059

 

Guala Closures S.p.A., 144A, (Italy), 5.29%, 11/15/2019 (e)

 

695,000

 

750,288

 

 

 

 

 

12,096,847

 

Personal Transportation 0.3%

 

 

 

 

 

Air Medical Merger Sub Corporation, 144A, 6.38%, 05/15/2023

 

$

1,000,000

 

880,000

 

 

 

 

 

 

 

Pipeline 2.7%

 

 

 

 

 

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

 

2,816,000

 

2,618,880

 

ONEOK, Inc., 7.50%, 09/01/2023

 

2,900,000

 

2,356,250

 

Sabine Pass Liquefaction, LLC, 6.25%, 03/15/2022

 

3,000,000

 

2,763,750

 

Targa Resources Partners, L.P., 144A, 6.75%, 03/15/2024

 

2,250,000

 

1,856,250

 

 

 

 

 

9,595,130

 

Printing & Publishing 0.5%

 

 

 

 

 

Lee Enterprises, Inc., 144A, 9.50%, 03/15/2022

 

2,000,000

 

1,835,000

 

 

 

 

 

 

 

Retail Stores 2.8%

 

 

 

 

 

Dollar Tree, Inc., 144A, 5.75%, 03/01/2023

 

705,000

 

742,894

 

Office Depot, Inc., 144A, 9.75%, 03/15/2019

 

3,750,000

 

3,937,500

 

Petco Animal Supplies, Inc., 144A, 9.25%, 12/01/2018

 

2,500,000

 

2,570,000

 

Rite Aid Corporation, 144A, 6.13%, 04/01/2023

 

2,385,000

 

2,516,175

 

 

 

 

 

9,766,569

 

Technology 0.6%

 

 

 

 

 

Zebra Technologies Corporation, 7.25%, 10/15/2022

 

1,945,000

 

2,022,800

 

 

 

 

 

 

 

Telecommunications 2.4%

 

 

 

 

 

Cincinnati Bell, Inc., 8.38%, 10/15/2020

 

1,904,000

 

1,937,320

 

Sprint Corporation, 7.88%, 09/15/2023

 

4,000,000

 

2,850,000

 

 



 

 

 

Principal Amount

 

Value (a)

 

Corporate Bonds (continued)

 

 

 

 

 

Telecommunications (continued)

 

 

 

 

 

Zayo Group, LLC, 10.13%, 07/01/2020

 

$

3,498,000

 

$

3,760,350

 

 

 

 

 

8,547,670

 

Utilities 1.3%

 

 

 

 

 

NRG Energy, Inc., 7.88%, 05/15/2021

 

1,000,000

 

870,000

 

NRG Energy, Inc., 8.25%, 09/01/2020

 

4,000,000

 

3,630,000

 

 

 

 

 

4,500,000

 

Total Corporate Bonds (Cost: $278,517,531)

 

 

 

240,135,138

 

 

 

 

 

 

 

Collateralized Loan Obligations/Collateralized Debt Obligations 31.3%

 

 

 

 

 

AMMC CLO XIII, Ltd., 144A, (Cayman Islands), 5.12%, 01/26/2026 (e)

 

3,000,000

 

2,208,768

 

AMMC CLO XIV, Ltd., 144A, (Cayman Islands), 5.42%, 07/27/2026 (e)

 

1,500,000

 

999,865

 

Apidos CLO XII, 144A, (Cayman Islands), 5.02%, 04/15/2025 (e)(g)

 

2,000,000

 

1,567,920

 

Apidos CLO XVI, 144A, (Cayman Islands), 5.12%, 01/19/2025 (e)

 

2,000,000

 

1,355,092

 

Atlas Senior Loan Fund III, Ltd., 144A, (Cayman Islands), 08/18/2025

 

1,500,000

 

837,233

 

Atlas Senior Loan Fund IV, Ltd., 144A, (Cayman Islands), 5.06%, 02/17/2026 (e)

 

2,000,000

 

1,342,324

 

Atlas Senior Loan Fund VI, Ltd., 144A, (Cayman Islands), 5.82%, 10/15/2026 (e)

 

1,000,000

 

752,893

 

Atrium CLO VII, 144A, (Cayman Islands), 11/16/2022

 

1,600,000

 

951,411

 

Atrium XI, 144A, (Cayman Islands), 5.42%, 10/23/2025 (e)(g)

 

5,000,000

 

3,954,100

 

Babson CLO, Inc., 2007-I, 144A, (Cayman Islands), 01/18/2021

 

1,000,000

 

455,060

 

Babson CLO, Ltd., 2013-II, 144A, (Cayman Islands), 5.12%, 01/18/2025 (e)

 

2,000,000

 

1,376,892

 

Canyon Capital CLO 2015-1, Ltd., 144A, (Cayman Islands), 6.07%, 04/15/2027 (e)(g)

 

1,500,000

 

1,149,630

 

Carlyle Global Market Strategies CLO 2013-4, Ltd., 144A, (Cayman Islands), 10/15/2025

 

1,259,000

 

634,607

 

Carlyle Global Market Strategies CLO 2014-3, Ltd., 144A, (Cayman Islands), 07/27/2026

 

1,000,000

 

636,931

 

Cent CLO XVII, 144A, (Cayman Islands), 3.82%, 01/30/2025 (e)

 

4,000,000

 

3,480,176

 

Cent CLO XVIII, Ltd., 144A, (Cayman Islands), 4.92%, 07/23/2025 (e)

 

3,000,000

 

2,030,493

 

Cent CLO XXIII, Ltd., 144A, (Cayman Islands), 6.02%, 04/17/2026 (e)(g)

 

2,750,000

 

2,221,752

 

Clear Creek CLO, Ltd., 144A, (Cayman Islands), 6.37%, 04/20/2027 (e)(g)

 

1,000,000

 

806,140

 

Denali Capital CLO XI, Ltd., 144A, (Cayman Islands), 6.07%, 04/20/2027 (e)(g)

 

1,000,000

 

791,520

 

Dorchester Park CLO, Ltd., 144A, (Cayman Islands), 5.87%, 01/20/2027 (e)

 

625,000

 

483,808

 

Dorchester Park CLO, Ltd., 144A, (Ireland), 6.57%, 01/20/2027 (e)

 

4,000,000

 

2,933,552

 

Dryden XXV Senior Loan Fund, 144A, (Cayman Islands), 01/15/2025

 

250,000

 

92,509

 

Dryden XXXVI Senior Loan Fund, 144A, (Cayman Islands), 5.54%, 11/09/2025 (e)

 

4,000,000

 

3,036,068

 

Dryden XXXVII Senior Loan Fund, 144A, (Cayman Islands), 6.02%, 04/15/2027 (e)(g)

 

1,250,000

 

1,012,487

 

Emerson Park CLO, Ltd. 2013-1, 144A, (Cayman Islands), 07/15/2025

 

450,000

 

196,953

 

Flatiron CLO 2013-1, Ltd., 144A, (Cayman Islands), 5.52%, 01/17/2026 (e)(g)

 

1,750,000

 

1,211,682

 

Galaxy CLO 2015-19, Ltd., 144A, (Cayman Islands), 5.72%, 01/24/2027 (e)(g)

 

800,000

 

628,056

 

Galaxy XV CLO, Ltd., 144A, (Cayman Islands), 4.02%, 04/15/2025 (e)

 

4,000,000

 

3,454,240

 

Galaxy XVI CLO, Ltd., 144A, (Cayman Islands), 3.71%, 11/16/2025 (e)

 

2,000,000

 

1,680,196

 

Galaxy XX CLO, Ltd., 144A, (Cayman Islands), 6.12%, 07/20/2027 (e)(g)

 

3,500,000

 

2,877,560

 

Goldentree Loan Opportunities VI, Ltd., 144A, (Cayman Islands), 04/17/2022

 

1,500,000

 

652,124

 

Goldentree Loan Opportunities X, Ltd., 144A, (Cayman Islands), 5.52%, 07/20/2027 (e)(g)

 

1,500,000

 

1,186,320

 

Goldentree Loan Opportunities XI, Ltd., 144A, (Cayman Islands), 5.87%, 04/18/2027 (e)

 

1,000,000

 

788,008

 

Greywolf CLO II, Ltd., 144A, (Cayman Islands), 4.45%, 04/15/2025 (e)

 

4,000,000

 

3,641,560

 

Greywolf CLO II, Ltd., 144A, (Cayman Islands), 5.32%, 04/15/2025 (e)

 

1,500,000

 

1,166,371

 

Halcyon Loan Advisors Funding 2013-1, Ltd., 144A, (Cayman Islands), 4.12%, 04/15/2025 (e)

 

4,000,000

 

3,211,544

 

Halcyon Loan Advisors Funding 2015-1, Ltd., 144A, (Cayman Islands), 6.27%, 04/20/2027 (e)(g)

 

750,000

 

520,620

 

Halcyon Loan Advisors Funding 2015-3, Ltd., 144A, (Cayman Islands), 6.24%, 10/18/2027 (e)(g)

 

2,500,000

 

1,922,400

 

Jamestown CLO IV, Ltd., 144A, (Cayman Islands), 5.62%, 07/15/2026 (e)

 

2,000,000

 

1,296,544

 

Jamestown CLO VI, Ltd., 144A, (Cayman Islands), 5.12%, 02/20/2027 (e)(g)

 

900,000

 

661,806

 

LCM XII, L.P., 144A, (Cayman Islands), 10/19/2022

 

1,000,000

 

596,769

 

LCM XIII, L.P., 144A, (Cayman Islands), 01/19/2023

 

1,775,000

 

901,633

 

Madison Park Funding IV, Ltd., 144A, (Cayman Islands), 03/22/2021 (h)

 

3,700,000

 

4,239,408

 

Madison Park Funding XII, Ltd., 144A, (Cayman Islands), 07/20/2026

 

4,000,000

 

2,317,284

 

Madison Park Funding XIV, Ltd., 144A, (Cayman Islands), 5.37%, 07/20/2026 (e)

 

2,750,000

 

2,140,526

 

 



 

 

 

Principal Amount

 

Value (a)

 

Collateralized Loan Obligations/Collateralized Debt Obligations (continued)

 

 

 

 

 

Magnetite XIV, Ltd., 144A, (Cayman Islands), 7.12%, 07/18/2028 (e)

 

$

4,000,000

 

$

2,662,064

 

Mountain Hawk I CLO, Ltd., 144A, (Cayman Islands), 3.72%, 01/20/2024 (e)

 

3,000,000

 

2,507,271

 

Mountain Hawk III CLO, Ltd., 144A, (Cayman Islands), 5.47%, 04/18/2025 (e)

 

2,000,000

 

1,183,008

 

Nautique Funding, Ltd., 144A, (Cayman Islands), 04/15/2020

 

1,300,000

 

456,660

 

Northwoods Capital X, Ltd., 144A, (Cayman Islands), 4.93%, 11/04/2025 (e)

 

2,000,000

 

1,207,752

 

Northwoods Capital XI, Ltd., 144A, (Cayman Islands), 4.07%, 04/15/2025 (e)

 

2,500,000

 

1,983,832

 

Octagon Investment Partners XVIII, Ltd., 144A, (Cayman Islands), 5.61%, 12/16/2024 (e)(g)

 

2,000,000

 

1,616,580

 

OHA Credit Partners VI, Ltd., 144A, (Cayman Islands), 4.66%, 05/15/2023 (e)

 

750,000

 

627,928

 

OHA Credit Partners VIII, Ltd., 144A, (Cayman Islands), 4.12%, 04/20/2025 (e)

 

4,000,000

 

3,447,484

 

OHA Loan Funding 2013-1, Ltd., 144A, (Cayman Islands), 07/23/2025

 

3,000,000

 

1,397,796

 

OZLM Funding V, Ltd., 144A, (Cayman Islands), 5.37%, 01/17/2026 (e)

 

2,000,000

 

1,515,124

 

OZLM VII, Ltd., 144A, (Cayman Islands), 5.62%, 07/17/2026 (e)(g)

 

2,750,000

 

2,071,657

 

OZLM XI, Ltd., 144A, (Cayman Islands), 5.72%, 01/30/2027 (e)

 

2,000,000

 

1,436,864

 

OZLM XIV, Ltd., 144A, (Cayman Islands), 6.73%, 01/15/2029 (e)

 

4,500,000

 

3,510,306

 

Steele Creek CLO 2014-1, Ltd., 144A, (Cayman Islands), 3.78%, 08/21/2026 (e)

 

2,450,000

 

1,999,849

 

Symphony CLO IV, Ltd., 144A, (Cayman Islands), 07/18/2021

 

500,000

 

303,026

 

THL Credit Wind River 2015-2 CLO, Ltd., 144A, (Cayman Islands), 6.32%, 10/15/2027 (e)(g)

 

4,000,000

 

3,058,440

 

TICP CLO III, Ltd, 144A, (Cayman Islands), 5.87%, 01/20/2027 (e)(g)

 

4,000,000

 

2,796,320

 

Venture XIII CLO, Ltd., 144A, (Cayman Islands), 5.79%, 06/10/2025 (e)(g)

 

1,500,000

 

1,092,330

 

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

 

500,000

 

95,880

 

West CLO 2013-1, Ltd., 144A, (Cayman Islands), 3.99%, 11/07/2025 (e)

 

3,000,000

 

2,425,968

 

WhiteHorse VII, Ltd., 144A, (Cayman Islands), 4.08%, 11/24/2025 (e)

 

2,000,000

 

1,661,192

 

Total Collateralized Loan Obligations/Collateralized Debt Obligations (Cost: $129,673,192)

 

 

 

109,460,166

 

 

 

 

 

 

 

 

 

Shares

 

 

 

Common Stock 0.4%

 

 

 

 

 

Diversified & Conglomerate Services 0.4%

 

 

 

 

 

Affinion Group Holdings, Inc.,

 

110,400

 

1,297,200

 

Total Common Stocks (Cost: $5,396,812)

 

 

 

1,297,200

 

Total Investments - 143.5%
(Cost: $584,797,136)

 

 

 

$

501,285,698

 

Liabilities in Excess of Other Assets - (43.5%)

 

 

 

(151,936,680

)

Net Assets - 100.0%

 

 

 

$

349,349,018

 

 


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 rates in this schedule represents the “all-in” rate as of January 31, 2016.

(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)         See Note 4 regarding Defaulted Securities.

(e)          Variable rate coupon, rate shown as of January 31, 2016.

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

(g)          Security valued at fair value using methods determined in good faith by or under the direction of the Board of Directors.

(h)         When-Issued or delayed delivery security based on typical market settlement convention for such security.

 



 

As of January 31, 2016, the aggregate cost of securities for Federal income tax purposes was $585,784,184. Unrealized appreciation and depreciation on investments for Federal income tax purposes are as follows:

 

Gross unrealized appreciation

 

$

616,053

 

Gross unrealized depreciation

 

(85,114,539

)

Net unrealized depreciation

 

$

(84,498,486

)

 

Abbreviations:

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

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, 2016 (Unaudited)

 

(1) Organization

 

Ares Dynamic Credit Allocation Fund, Inc. (“ARDC” or “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 each year to be treated as a Regulated Investment Company under Subchapter M of the Internal Revenue Code of 1986, as amended. 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 (“NYSE”) and trade under the ticker symbol “ARDC”.

 

Investment Objective and Policies

 

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 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.

 

(2) Significant Accounting Policies

 

Accounting Estimates

 

The Fund is an investment company that follows the accounting and reporting guidance of Accounting Standards Codification Topic 946 applicable to investment companies. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires the Adviser to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates and such differences may be material.

 

Investments Valuation

 

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

 

Interest Income

 

Interest income is recorded on the accrual basis to the extent that such amounts are expected to be collected, and adjusted for accretion of discounts and amortization of premiums. The Fund may have investments that contain payment-in-kind (“PIK”) provisions. The PIK interest, computed at the contractual rate specified, is added to the principal balance and adjusted cost of the investments and recorded as interest income.

 

Discounts and Premiums

 

Discounts and premiums on securities purchased are accreted/amortized over the life of the respective security using the effective interest method. The adjusted cost of investments represents the original cost adjusted for PIK interest and the accretion of discounts and amortization of premiums.

 

Investment Transactions, Related Investment Income and Expenses

 

Investment transactions are accounted for on the trade date. Interest income, adjusted for amortization of premiums and accretion of discounts on investments, is earned from settlement date and is recorded on the accrual basis. Realized gains and losses are reported on the specific identification method. Expenses are recorded on the accrual basis as incurred.

 

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.

 



 

Ares Dynamic Credit Allocation Fund, Inc.
Notes to Schedule of Investments (continued)
January 31, 2016 (Unaudited)

 

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 on investments in the Statements 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 year 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.

 

Dividends and Distributions

 

The Fund intends to make regular monthly cash distributions of all or a portion of its net investment income available to common shareholders. The Fund intends to pay common shareholders at least annually all or substantially all of its net investment income after the payment of interest owed with respect to notes or other forms of leverage utilized by the Fund. The Fund intends to pay any capital gains distributions at least annually.

 

The distributions for any full or partial year might not be made in equal amounts, and one distribution may be larger than another. The Fund will make distributions only if authorized by its Board of Directors and declared by the Fund out of assets legally available for these distributions. The Fund may pay a special distribution at the end of each calendar year. This distribution policy may, under certain circumstances, have certain adverse consequences to the Fund and its shareholders because it may result in a return of capital to shareholders, which would reduce the Fund’s net asset value and, over time, potentially increase the Fund’s expense ratios. If the Fund distributes a return of capital, it means that the Fund is returning to shareholders a portion of their investment rather than making a distribution that is funded from the Fund’s earned income or other profits. The Board of Directors may elect to change the Fund’s distribution policy any time.

 

Commitments

 

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.

 

(3) Investments

 

Fair Value Measurements

 

The Fund follows the provisions of Fair Value Measurements and Disclosures under 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.

 



 

Ares Dynamic Credit Allocation Fund, Inc.
Notes to Schedule of Investments (continued)
January 31, 2016 (Unaudited)

 

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.

 

·                  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 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.

 

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 CLOs 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. 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. 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. 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.

 

The following is a summary of the inputs used as of January 31, 2016, in valuing the Fund’s investments carried at fair value:

 



 

Ares Dynamic Credit Allocation Fund, Inc.
Notes to Schedule of Investments (continued)
January 31, 2016 (Unaudited)

 

 

 

Level 1 - Quoted
Prices ($)

 

Level 2 - Other
Significant
Observable Inputs
($)

 

Level 3 - Significant
Unobservable Inputs
($)

 

Total ($)

 

Floating Rate Term Loans

 

 

141,778,393

 

8,614,801

 

150,393,194

 

Corporate Bonds

 

 

240,135,138

 

 

240,135,138

 

Collateralized Loan Obligations/Collateralized Debt Obligations

 

 

 

109,460,166

 

109,460,166

 

Common Stock

 

 

1,297,200

 

 

1,297,200

 

Total Investments

 

 

383,210,731

 

118,074,967

 

501,285,698

 

 

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, 2016:

 

 

 

Floating Rate Term
Loans ($)

 

Collateralized Loan
Obligations/
Collateralized Debt
Obligations ($)

 

Total ($)

 

Balance as of 10/31/15

 

18,371,397

 

115,761,300

 

134,132,697

 

Purchases (a)

 

249,611

 

16,968,175

 

17,217,786

 

Sales (b)

 

(8,292,341

)

(7,319,003

)

(15,611,344

)

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

 

(552,211

)

(16,117,739

)

(16,669,950

)

Accrued discounts/(premiums)

 

11,441

 

167,433

 

178,874

 

Transfers in to Level 3

 

3,908,996

 

 

3,908,996

 

Transfers out of Level 3

 

(5,082,092

)

 

(5,082,092

)

Balance as of 1/31/16

 

8,614,801

 

109,460,166

 

118,074,967

 

Net change in unrealized appreciation/(depreciation) from Investments held as of 1/31/16

 

(62,595

)

(15,301,062

)

(15,363,657

)

 

Investments were transferred into and out of Level 3 and into and out of Level 2 during the period ended January 31, 2016 due to changes in the quantity and quality of information obtained to support the fair value of each investment as assessed by the Adviser.

 


(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, 2016 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.

 



 

Ares Dynamic Credit Allocation Fund, Inc.
Notes to Schedule of Investments (continued)
January 31, 2016 (Unaudited)

 

 

 

Fair Value
($)

 

Valuation Technique

 

Unobservable Inputs

 

Range

 

Assets

 

 

 

 

 

 

 

 

 

Investments in securities

 

 

 

 

 

 

 

 

 

Floating Rate Term Loans

 

8,614,801

 

Broker quotes and/or 3rd party pricing services

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

Collateralized Loan Obligation/Collateralized Debt Obligation

 

101,759,528

 

Broker quotes and/or 3rd party pricing services

 

N/A

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

7,700,638

 

Discounted Cash Flow

 

Discount Margin

 

935-1208

 

 

 

 

 

 

 

Constant Default Rate

 

2%

 

 

 

 

 

 

 

Recovery Rate

 

75%

 

 

 

 

 

 

 

Constant Pre-Payment Rate

 

20%

 

 

 

 

 

 

 

 

 

 

 

Total Level 3 Investments

 

118,074,967

 

 

 

 

 

 

 

 

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.

 

(4) Defaulted Securities

 

The Fund held defaulted securities and/or other securities for which income has deemed uncollectible. At January 31, 2016, the aggregate value of those securities was $288,021 representing 0.08% of the Fund’s net assets. The Fund discontinues accruing income on securities for which income has been deemed uncollectible and provides an estimate for losses on any interest receivable. The securities have been identified on the accompanying Statement of Investments.

 


 


 

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 (the “1940 Act”)) 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 Rules 13a-15(b) or 15d-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 Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002

3 (a) (2)

 

Certification of Principal Financial Officer pursuant to Rule 30a-2(a) under the 1940 Act and 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:

 

 

 

Seth J. Brufsky

 

 

Chief Executive Officer (principal executive officer)

 

 

 

Date: March 31, 2016

 

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:

 

 

 

Seth J. Brufsky

 

 

Chief Executive Officer (principal executive officer)

 

 

 

Date: March 31, 2016

 

 

By:

 

 

 

Daniel F. Nguyen

 

 

Chief Financial Officer (principal financial officer)

 

 

 

Date: March 31, 2016