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1. Company Snapshot

1.a. Company Description

Ares Capital Corporation is a business development company specializing in acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions of middle market companies.It also makes growth capital and general refinancing.It prefers to make investments in companies engaged in the basic and growth manufacturing, business services, consumer products, health care products and services, and information technology service sectors.


The fund will also consider investments in industries such as restaurants, retail, oil and gas, and technology sectors.It focuses on investments in Northeast, Mid-Atlantic, Southeast and Southwest regions from its New York office, the Midwest region, from the Chicago office, and the Western region from the Los Angeles office.The fund typically invests between $20 million and $200 million and a maximum of $400 million in companies with an EBITDA between $10 million and $250 million.


It makes debt investments between $10 million and $100 million The fund invests through revolvers, first lien loans, warrants, unitranche structures, second lien loans, mezzanine debt, private high yield, junior capital, subordinated debt, and non-control preferred and common equity.The fund also selectively considers third-party-led senior and subordinated debt financings and opportunistically considers the purchase of stressed and discounted debt positions.The fund prefers to be an agent and/or lead the transactions in which it invests.


The fund also seeks board representation in its portfolio companies.

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1.b. Last Insights on ARCC

Ares Capital Corporation's recent performance was driven by strong underlying fundamentals, including solid growth in net investment income and total investment income. Despite missing analysts' estimates, the company's defensive posture, increased first-lien exposure, and strong balance sheet position it well for navigating tough economic conditions. The company's stable dividend and impressive performance make it a strong long-term income investment, according to recent analyst insights. Ares Capital's ability to maintain dividend safety and navigate economic challenges is a key positive driver of its recent performance."

1.c. Company Highlights

2. Ares Capital Corporation Delivers Strong Financial Results

Ares Capital Corporation reported core earnings per share of $0.50 for the fourth quarter and $2.01 for the full year 2025, driving an ROE in excess of 10% for both the fourth quarter and the full year. The company's GAAP net income per share was $1.86 for 2025, compared to $2.44 in 2024. The decrease in core earnings year over year was driven by the decline in base rates. Ares Capital Corporation's debt to equity ratio net of available cash was 1.08 times, leaving meaningful headroom relative to the upper end of the target leverage ratio of 1.25 times.

Publication Date: Feb -09

📋 Highlights
  • Core Earnings Coverage & ROE: Core EPS of $2.01 for 2025 fully covered dividends with ROE exceeding 10% annually.
  • Record New Investment Commitments: Generated $15.8 billion in 2025, a 50% increase in non-sponsored originations and a new annual high.
  • Portfolio Growth & Diversification: Added over 100 new borrowers, expanding portfolio companies by 72% in five years to 603 total borrowers.
  • Strong Liquidity Position: Maintained a debt-to-equity ratio of 1.08x, leaving 13% headroom below the 1.25x leverage target.
  • EBITDA Growth & Credit Quality: Portfolio companies achieved 9% organic EBITDA growth, with non-accruals at 1.2% of fair value.

Investment Activities and Portfolio Performance

The company's investment activities remained strong, with $15.8 billion of new commitments in 2025, marking a new annual record. The portfolio remains well diversified across 603 borrowers, with a 10% increase in the number of companies over the past year. The average interest coverage ratio was 2.2 times, up 10% quarter over quarter and 15% year over year. The credit performance of the portfolio remains strong, with non-accruals at cost at 1.8% and non-accrual rate at fair value at 1.2% of the portfolio.

Software Investments and AI Disruption

Ares Capital feels confident about their software book, investing in foundational infrastructure software for complex businesses, software companies that collect and own proprietary data, and software companies that serve regulated end markets. They believe these types of companies will be resistant to AI disruption. The company has a small exposure to areas that may be impacted by AI, such as single-function software apps and companies that create or deliver content.

Valuation and Dividend Yield

With a P/E Ratio of 11.75 and a Dividend Yield of 9.94%, Ares Capital Corporation's valuation metrics indicate a relatively stable income stream. The company's ROE stands at 8.15%, and the Net Debt / EBITDA ratio is 13.9, indicating a significant amount of debt. The P/B Ratio is 0.94, suggesting that the company's book value is close to its market value.

Outlook and Growth Prospects

Ares Capital has a strong start to 2026, with total commitments of nearly $1.4 billion, an 11% increase compared to commitments closed in January. The backlog stood at $2.2 billion, more than 17% greater than the reported backlog at January 28. The company is well-positioned to take advantage of market weakness and is excited about potential opportunities. The actual EPS of $0.5 met the estimates, and analysts estimate revenue growth at -0.0% for next year.

3. NewsRoom

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6%-8% Yields: 2 Of The Best Retirement Income Machines

Feb -10

Source: seekingalpha.com

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Two 20%+ Yields That Have Entered Deep Bargain Territory

Feb -10

Source: seekingalpha.com

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Why More BDCs Are Likely To Cut Their Dividends

Feb -10

Source: seekingalpha.com

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Why BDC Dividend Cuts Aren't The Red Flag Investors Think

Feb -09

Source: seekingalpha.com

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3 Monster Dividend Stocks With Yields of Up To 12.5%

Feb -09

Source: fool.com

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High-Yield Wreck Your Retirement? Here Is Your Path To Recovery

Feb -09

Source: seekingalpha.com

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Undercovered Dozen: Energy Transfer, Ares Capital, Innodata And More

Feb -09

Source: seekingalpha.com

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My Ultimate Strategy For High Income And Market-Beating Returns

Feb -08

Source: seekingalpha.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (9.90%)

6. Segments

Investment and Related Activities

Expected Growth: 9.9%

Ares Capital Corporation's 9.9% growth in Investment and Related Activities is driven by increasing demand for middle-market financing, expansion of its investment portfolio, and strategic partnerships. Additionally, the company's ability to originate and syndicate new investments, coupled with its strong balance sheet and access to capital, have contributed to its growth momentum.

7. Detailed Products

Senior Secured Loans

Ares Capital Corporation provides senior secured loans to middle-market companies, offering a flexible and customized financing solution to meet their capital needs.

Unitranche Loans

Ares Capital offers unitranche loans, which combine senior and subordinated debt into a single loan facility, providing a simplified and efficient financing solution.

Second Lien Loans

Ares Capital provides second lien loans, which offer a lower-cost financing option for companies with existing senior debt, allowing them to access additional capital.

Subordinated Debt

Ares Capital offers subordinated debt, which provides a flexible and patient source of capital for companies, allowing them to achieve their long-term goals.

Equity Co-Investments

Ares Capital makes equity co-investments alongside its debt investments, providing companies with a comprehensive financing solution.

8. Ares Capital Corporation's Porter Forces

Forces Ranking

Threat Of Substitutes

Ares Capital Corporation operates in the financial services industry, which has a moderate threat of substitutes. While there are alternative investment options available, Ares Capital's diversified portfolio and expertise in middle-market lending provide a competitive advantage.

Bargaining Power Of Customers

Ares Capital Corporation's customers are primarily middle-market companies, which have limited bargaining power due to their smaller size and reliance on Ares Capital's financing solutions.

Bargaining Power Of Suppliers

Ares Capital Corporation's suppliers are primarily investment banks and other financial institutions, which have limited bargaining power due to the competitive nature of the financial services industry.

Threat Of New Entrants

The threat of new entrants in the middle-market lending industry is low due to the significant barriers to entry, including regulatory requirements and the need for specialized expertise and scale.

Intensity Of Rivalry

The intensity of rivalry in the middle-market lending industry is moderate, with several established players competing for market share. However, Ares Capital Corporation's diversified portfolio and expertise provide a competitive advantage.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 51.62%
Debt Cost 4.50%
Equity Weight 48.38%
Equity Cost 9.05%
WACC 6.70%
Leverage 106.70%

11. Quality Control: Ares Capital Corporation passed 5 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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Hercules Capital

A-Score: 7.1/10

Value: 5.7

Growth: 3.4

Quality: 8.8

Yield: 10.0

Momentum: 5.0

Volatility: 9.7

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Main Street Capital

A-Score: 7.1/10

Value: 4.6

Growth: 5.9

Quality: 6.7

Yield: 9.0

Momentum: 7.0

Volatility: 9.3

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Golub Capital BDC

A-Score: 7.0/10

Value: 6.4

Growth: 6.0

Quality: 6.6

Yield: 10.0

Momentum: 3.0

Volatility: 10.0

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Ares Capital

A-Score: 7.0/10

Value: 5.9

Growth: 4.7

Quality: 7.3

Yield: 10.0

Momentum: 4.0

Volatility: 10.0

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Victory Capital Holdings

A-Score: 6.3/10

Value: 5.8

Growth: 6.7

Quality: 7.8

Yield: 6.0

Momentum: 5.0

Volatility: 6.7

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Corebridge Financial

A-Score: 6.1/10

Value: 7.5

Growth: 4.6

Quality: 5.8

Yield: 8.0

Momentum: 4.0

Volatility: 6.7

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

19.96$

Current Price

19.96$

Potential

-0.00%

Expected Cash-Flows