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ARES CAPITAL CORP

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Business Summary

Ares Capital Corporation is a closed-end investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940. The company's investment objective is to generate both current income and capital appreciation through debt and equity investments. The company primarily invests in first lien senior secured loans, second lien senior secured loans, senior subordinated loans, and equity investments in middle-market companies. The company's investment portfolio is diversified across several industries, including software and services, financial services, healthcare, commercial and professional services, consumer services, insurance, retailing and distribution, and other sectors.

Ares Capital Corporation is one of the largest publicly traded business development companies. The company benefits from its relationship with Ares Management, a global alternative investment manager, which provides the company with access to a large and experienced investment team and a broad network of relationships. The company's competitive advantages include its scale, its ability to source and execute complex transactions, and its expertise in structuring and managing investments in middle-market companies. The company does not name specific primary competitors in the filing.

Ares Capital Corporation generates revenue primarily from interest income on its debt investments, dividend income on its equity investments, and capital gains from the sale of investments. The company's income is largely recurring in nature, as the majority of its investments are income-producing debt securities. The company's primary customer segments are middle-market companies that require capital for growth, acquisitions, recapitalizations, or other purposes. The company's business model is built on its platform dynamics, including its ability to co-invest with other Ares Management funds and its access to a large and diverse investment pipeline.

Ares Capital Corporation's investment portfolio is composed of debt and equity investments across various industries. As of December 31, 2025, the company's portfolio included investments in 487 portfolio companies , with a total fair value of $24.6 billion . The company's debt investments include first lien senior secured loans, second lien senior secured loans, senior subordinated loans, and other debt instruments. The company's equity investments include preferred stock, common stock, warrants, and limited partnership interests. The company's largest industry concentration is in software and services, which represented 22% of the portfolio at fair value as of December 31, 2025. Other significant industry concentrations include financial services at 14% , healthcare at 13% , commercial and professional services at 12% , consumer services at 10% , insurance at 9% , and retailing and distribution at 8% .

The company's investment portfolio is managed across several segments, including first lien senior secured loans, second lien senior secured loans, senior subordinated loans, and equity investments. As of December 31, 2025, first lien senior secured loans represented 56% of the portfolio at fair value, second lien senior secured loans represented 7% , senior subordinated loans represented 3% , and equity investments represented 34% . The company's debt investments are primarily floating rate, which helps to mitigate interest rate risk. The weighted average yield on the company's debt investments at amortized cost was 11.3% as of December 31, 2025, compared to 12.4% as of December 31, 2024.

During the fiscal year ended December 31, 2025, Ares Capital Corporation made new investment commitments of $13.5 billion and funded $11.5 billion of these commitments. The company also had sales and repayments of investments totaling $8.7 billion . The company issued $2.0 billion in aggregate principal amount of unsecured notes during the year. The company also repurchased 1,500,000 shares of its common stock for $30.0 million under its share repurchase program. The company declared dividends of $1.88 per share for the fiscal year ended December 31, 2025.

For the fiscal year ended December 31, 2025, Ares Capital Corporation reported total investment income of $2.1 billion , compared to $1.8 billion for the fiscal year ended December 31, 2024. Net investment income was $1.2 billion , or $1.97 per share, for the fiscal year ended December 31, 2025, compared to $1.1 billion , or $1.88 per share, for the fiscal year ended December 31, 2024. Net realized and unrealized gains on investments were $0.4 billion for the fiscal year ended December 31, 2025, compared to $0.3 billion for the fiscal year ended December 31, 2024. Net increase in net assets resulting from operations was $1.6 billion , or $2.67 per share, for the fiscal year ended December 31, 2025, compared to $1.4 billion , or $2.39 per share, for the fiscal year ended December 31, 2024.

Business Outlook

Ares Capital Corporation's primary growth vector is its ability to originate new investments in middle-market companies. The company's investment pipeline remains robust, supported by the large addressable market of middle-market companies seeking capital for various purposes. The company's relationship with Ares Management provides access to a broad network of deal flow and co-investment opportunities. The company also benefits from its scale and expertise in structuring complex transactions, which allows it to compete effectively for attractive investment opportunities.

Another growth vector is the company's focus on investing in defensive, asset-light, and recurring revenue business models. The company targets investments in industries such as software and services, healthcare, and financial services, which are characterized by strong secular growth trends and resilient cash flows. The company's investment strategy emphasizes downside protection through rigorous underwriting and active portfolio management. The company also seeks to generate capital appreciation through equity co-investments in its portfolio companies.

The company's net investment income margin, calculated as net investment income divided by total investment income, was 57.1% for the fiscal year ended December 31, 2025, compared to 61.1% for the fiscal year ended December 31, 2024. The decrease in margin was primarily due to higher interest expense and other operating costs. The company's operating expenses include interest expense on its borrowings, base management fees, incentive fees, and general and administrative expenses. The company's cost structure is largely variable, with base management fees and incentive fees tied to the size and performance of its investment portfolio.

The company's operational outlook is focused on maintaining a strong balance sheet and ample liquidity to support its investment activities. As of December 31, 2025, the company had $0.5 billion in cash and cash equivalents and $3.5 billion in undrawn capacity under its credit facilities. The company's total assets were $25.5 billion as of December 31, 2025. The company's debt-to-equity ratio was 1.07x as of December 31, 2025, compared to 1.06x as of December 31, 2024. The company's technology infrastructure investments are not specifically quantified in the filing.

The company's capital allocation strategy is focused on generating attractive risk-adjusted returns for its shareholders. The company's primary use of capital is to fund new investment commitments. The company also returns capital to shareholders through dividends and share repurchases. The company declared dividends of $1.88 per share for the fiscal year ended December 31, 2025. The company has a share repurchase program authorizing the repurchase of up to $500.0 million of its common stock, of which $30.0 million was used to repurchase 1,500,000 shares during the fiscal year ended December 31, 2025. The company's capital expenditure plans are not specifically discussed in the filing.

A key headwind identified by management is the elevated interest rate environment, which increases the company's borrowing costs and could impact the ability of portfolio companies to service their debt. The company's weighted average interest rate on its borrowings was 5.3% as of December 31, 2025, compared to 5.7% as of December 31, 2024. Another headwind is the potential for a slowdown in the U.S. economy, which could reduce the demand for capital from middle-market companies and increase credit losses. The company's non-accrual rate was 1.8% at fair value as of December 31, 2025, compared to 1.5% as of December 31, 2024.

Regulatory and macro factors that management identified as constraints include changes in the regulatory environment for business development companies and the potential for increased competition from other lenders. The company is subject to regulation under the Investment Company Act of 1940, which imposes certain restrictions on its operations, including limitations on leverage and diversification. The company also faces competition from other BDCs, private credit funds, and traditional banks for investment opportunities.

Risk Factors

Ares Capital Corporation faces material credit risk, as a deterioration in the financial condition of its portfolio companies could lead to investment losses. As of December 31, 2025, the company had investments in 487 portfolio companies with a total fair value of $24.6 billion , and the non-accrual rate was 1.8% at fair value. The company is also exposed to interest rate risk, as a decline in interest rates could reduce the income from its floating-rate debt investments, while an increase in rates could raise its borrowing costs; the weighted average yield on debt investments at amortized cost was 11.3% as of December 31, 2025. Leverage risk is significant, as the company's debt-to-equity ratio of 1.07x as of December 31, 2025, amplifies the impact of investment losses on net asset value. The company faces concentration risk, with 22% of the portfolio at fair value concentrated in the software and services industry as of December 31, 2025. Finally, the company is subject to regulatory risk under the Investment Company Act of 1940, which imposes leverage limits and diversification requirements that could constrain its operations.

Management Priorities

Management's message to shareholders emphasizes the company's strong performance in the fiscal year ended December 31, 2025, driven by robust investment activity and a favorable credit environment. Management highlights the company's ability to generate attractive risk-adjusted returns through its disciplined investment approach and its focus on investing in high-quality middle-market companies. The key strategic priorities for the period ahead include continuing to grow the investment portfolio through disciplined origination, maintaining a strong balance sheet and ample liquidity, and returning capital to shareholders through dividends and share repurchases.

View Source Annual Report on SEC.gov ↗

References

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Analysis on 6/22/2026