stockrowWhat it does
Ares Capital Corporation is a specialty finance company that provides loans and makes other investments, primarily in U.S. middle-market businesses. It is regulated as a business development company, or BDC: an investment company that can raise capital from investors and use it to finance other businesses. Its chief executive officer is Kort Schnabel.
Ares Capital generally defines the middle market as companies with annual EBITDA—a measure of earnings before interest, taxes, depreciation and amortization—between $10 million and $250 million. Its investments in corporate borrowers generally range between $30 million and $500 million each, although individual investments can fall outside that range.
Its main products are first- and second-lien senior secured loans. These loans generally rank ahead of subordinated debt and are backed by a security interest in some borrower assets. The company also invests in subordinated debt and preferred equity, and makes a smaller amount of common equity investments, usually alongside a loan.
Ares Capital seeks to originate investments itself and lead the investment process. It may commit more than it ultimately plans to hold, then sell part of a loan to other investors. It can also buy existing investments in the secondary market. Its investment objective is to generate current income and capital appreciation.
How it makes money
Ares Capital earns investment income from its debt and equity holdings and seeks capital appreciation as those investments increase in value or are sold. Senior secured loans generally pay interest and principal ahead of subordinated debt. Subordinated loans generally provide interest and may also give Ares Capital an equity interest, allowing it to participate in a borrower’s appreciation. Common equity investments depend on events such as a company sale, public offering or redemption for a return of capital.
Loan income can recur over the life of an investment, although the amount depends on borrowers meeting their obligations, loan repayments and interest rates. The portfolio is predominantly floating rate, so earnings are sensitive to changes in base rates. Ares Capital says contractual resets typically take about a quarter to fully reflect a base-rate change in earnings. It also receives capital structuring fees; these can vary with transaction activity.
The company owns Ivy Hill Asset Management, an investment adviser that manages investment vehicles. It also provides capital to the Senior Direct Lending Program, a joint venture that makes primarily first-lien loans to U.S. middle-market companies. Ares Capital’s certificates in the program pay a coupon tied to the Secured Overnight Financing Rate plus a spread and entitle it to a portion of excess cash flow.
For the year ended December 31, 2025, Ares Capital funded $11.4 billion of new investment commitments; its portfolio at fair value was $29.2 billion at the end of the third quarter of 2026.
As a regulated investment company for tax purposes, Ares Capital generally must distribute substantially all of its investment company taxable income to stockholders to preserve that status and avoid additional U.S. federal corporate-level income taxes. That requirement generally prevents it from retaining earnings to fund new investments.
Customers and how it sells
Ares Capital’s borrowers are primarily privately held U.S. middle-market companies. It also may invest in larger or smaller companies. Its relationships include portfolio company management teams, private equity sponsors, investment banks and other intermediaries that can help it identify financing opportunities.
The company generally seeks to originate its own investments and lead the process, but it can also purchase loans and other investments in the secondary market. Its Senior Direct Lending Program joint venture provides another route to first-lien loans, primarily for U.S. middle-market companies.
The portfolio spans industries including software and services, financial services, health care equipment and services, and commercial and professional services. Its geographic categories include the Midwest, West, Southeast, Mid-Atlantic and Northeast, as well as international investments. BDC rules permit Ares Capital to invest up to 30% of its portfolio in non-qualifying assets, which can include companies outside the United States.
Ares Capital has agreed to acquire MidCap Financial Investment Corporation. The company expects the combination to increase its portfolio to over 800 portfolio companies and add over 200 incumbent positions. It also expects the transaction to expand the number of sponsors with which it has transacted to over 600 sponsors.
Suppliers and costs
Ares Capital is externally managed rather than operated as a manufacturing business. Its investment adviser, Ares Capital Management, handles day-to-day investment decisions, including identifying, evaluating, negotiating and monitoring investments. Ares Operations provides administrative and other services needed to operate the company. Both are subsidiaries of Ares Management Corporation.
Ares Capital pays its adviser a base management fee based on defined total assets, excluding cash and cash equivalents but including assets purchased with borrowed funds. It also pays a fee based on net investment income and an incentive fee based on net capital gains. The adviser’s services are not exclusive: it can provide similar services to other entities.
Borrowing is another part of the funding structure. Ares Capital raises capital through public equity and debt offerings, credit facilities, unsecured notes and debt securitizations, as well as cash flows from operations. Its financing agreements can include restrictions on indebtedness and other operating covenants.
In the third quarter of 2026, Ares Capital issued $750 million of seven-year unsecured notes due in 2033. It also used its commercial paper program during the quarter and had no commercial paper outstanding at quarter end.
- Revenue$3.1B
- Selling, general and administrative−$51.0M
- Other operating costs−$1.5B
- Operating income$1.5B
Competitive position
Ares Capital competes for financing opportunities with public and private funds, commercial and investment banks, commercial finance companies, other BDCs and private equity funds. Some competitors have greater financial or marketing resources, access to different funding sources, or fewer regulatory restrictions. New competitors also enter the financing markets in which Ares Capital operates.
Ares Strategic Income Fund is a non-traded BDC managed by the same adviser. Ares Capital may compete with it and other affiliated investment vehicles for capital and investment opportunities. The adviser seeks to allocate opportunities fairly, but Ares Capital may not be offered every investment made by affiliated funds.
The company uses Ares Management’s relationships and investment platform to source, evaluate and monitor deals. It also seeks to lead investments, which can give it greater influence over deal terms and documentation. Ares Capital says it can provide financing across a borrower’s balance sheet and hold or syndicate larger investments.
Our reading: The Ares network is a meaningful source of deal access and investment information, although shared management also creates competition for opportunities with affiliated funds. Our reading: Ares Capital’s ability to lead, hold and syndicate loans supports its position with borrowers seeking financing, but the presence of larger and differently regulated competitors limits the protection those capabilities provide.
| Competitor | Where they compete | Threat (our reading) |
|---|---|---|
| Ares Strategic Income Fund | Capital and middle-market investment opportunities | Medium |
Growth opportunities
Ares Capital seeks new investments through its own origination efforts, relationships across the Ares platform and existing portfolio companies. It believes middle-market businesses can face difficulty raising debt in public capital markets and that private equity sponsors will seek loans to finance their investments. The company can also buy investments in the secondary market and pursue acquisitions.
Ares Capital has agreed to acquire MidCap Financial Investment Corporation. It expects the transaction to add over 200 incumbent positions and expand its borrower and sponsor relationships. The company expects a modest increase in core earnings per share from the transaction. It was reported on 28 October 2026 that the merger was expected to close in the first half of 2027, subject to regulatory and shareholder approvals.
Ares Capital says the MidCap portfolio includes 229 portfolio companies, of which 12 overlap with its existing portfolio. The company expects Ivy Hill Asset Management to play a role in the transaction, although Ivy Hill will independently review the assets and decide whether to purchase any of them.
The company says transaction timelines lengthened during the third quarter of 2026 amid uncertainty around interest rates, inflation and global trade. It reported $1.1 billion of commitments closed so far in the fourth quarter and an investment backlog of approximately $2.5 billion. Backlog is not the same as completed investment funding.
- $1.8BFY2021
- $2.1BFY2022
- $2.6BFY2023
- $3.0BFY2024
- $3.1BFY2025
Structural risks
- Borrower credit: Private middle-market companies generally have little public information and may have limited financial resources. They can struggle to meet obligations or obtain additional capital, reducing the value of collateral and the amount Ares Capital recovers.
- Portfolio values: Declines in corporate debt prices and liquidity can cause unrealized depreciation and reduce net asset value. Many of Ares Capital’s investments are not publicly traded and do not have readily available market prices.
- Leverage and funding: Borrowing is subject to asset-coverage requirements and financing covenants. Because Ares Capital generally distributes substantially all of its taxable income, asset growth depends on its ability to raise equity capital. Shares trading below net asset value may limit that ability.
- Affiliated-manager conflicts: The external adviser and its affiliates manage other vehicles with similar objectives. They may compete with Ares Capital for capital and investments, and Ares Capital may not be offered an opportunity to participate in every affiliated investment.
- Interest rates and credit performance: Earnings are sensitive to base rates because the portfolio is predominantly floating rate. It was reported on 28 October 2026 that non-accrual loans had increased to 2.4% of investments at amortized cost from 1.8% as of December 31, 2025.
- Acquisition assets: Ares Capital says most of the discount to net asset value in the MidCap portfolio was concentrated in a small percentage of investments involving greater uncertainty of business outcomes and wider bid-ask spreads.
Bottom line
Our reading
Ares Capital is an externally managed lender whose income and capital appreciation depend on the performance of loans and other investments in mostly private U.S. companies. Its Ares relationships and ability to lead financing transactions support deal sourcing, while borrower credit quality, funding access and conflicts with affiliated funds remain central exposures. The planned MidCap acquisition would add borrower relationships alongside assets whose outcomes are not all certain.