Ares Capital posts strong 2025 and eyes steady 2026

Ares Capital Corporation reported what management called another strong year in 2025, with core earnings per share (core EPS) of $0.50 in the fourth quarter and $2.01 for the full year. Core EPS exceeded the regular dividend in all four quarters and supported a 10% core return on equity for the year, in line with the company’s long‑term average since inception. GAAP net income per share was $0.41 in the fourth quarter and $1.86 for 2025, down from $0.55 and $2.44 respectively in 2024, as lower base rates weighed on reported results.

Despite the GAAP decline, Ares Capital ended 2025 with a modestly higher net asset value (NAV) per share and has now paid a consistent or growing level of regular quarterly dividends for over sixteen years. Net asset value stood at $19.94 per share at year‑end, with total NAV of $14.3 billion. Management highlighted the stability of credit quality, the durability of the earnings stream and the firm’s long track record of NAV growth alongside attractive dividends.

Against a backdrop of improving transaction activity in the second half of 2025, Ares Capital delivered record gross originations. The firm committed $15.8 billion of new investments during the year, including more than $5.8 billion in the fourth quarter alone, up more than 50% from the prior year’s fourth quarter. Roughly half of fourth‑quarter originations supported M&A‑driven transactions such as leveraged buyouts and add‑ons.

The total investment portfolio reached a record $29.5 billion at fair value as of December 31, 2025, a 10% increase year over year. The portfolio is diversified across 603 borrowers, with the average position size at 0.2% of assets and the top 10 investments, excluding two strategic holdings, representing about 11% of the portfolio. Management emphasized this granularity as a key tool to limit single‑name risk and dampen the impact of individual credit events.

Incumbent borrowers were a major source of growth in 2025. Ares Capital more than doubled its share of overall financing across its top 10 incumbent transactions as existing portfolio companies consolidated lending relationships with the firm. Management said these situations often provide attractive opportunities to increase exposure to some of ARCC’s best‑performing borrowers.

At the same time, the company added more than 100 new borrowers during the year, a record for Ares Capital, and expanded its specialised industry verticals in areas such as software, sports media and entertainment, specialty healthcare, energy, consumer and financial services. Non‑sponsored originations grew by more than 50% in 2025, supported by this sector focus and broader market coverage. On the earnings call, executives devoted extended time to the software portfolio, noting that average EBITDA in that book is about $350 million and that loan‑to‑value ratios average 37%, below the overall portfolio. Management said they see “minimal near‑term risk” and “manageable medium‑ to longer‑term risk” from technology change, including AI, given the emphasis on foundational infrastructure software, regulated end markets and diversified customer bases.

Borrowers in Ares Capital’s portfolio continued to post robust operating performance relative to the broader economy and syndicated loan market. In 2025, the weighted average organic EBITDA growth rate of portfolio companies was more than three times U.S. GDP growth and more than double that of borrowers in the broadly syndicated loan market. Average portfolio leverage declined by roughly a quarter turn of EBITDA versus 2024, while the average interest coverage ratio improved to 2.2 times.

Non‑accruals at cost were 1.8% at year‑end, in line with both the prior quarter and year‑end 2024, and below the firm’s 2.8% historical average since the global financial crisis. Ares Capital also generated more than $100 million of pretax net realised gains on investments in 2025, including over $470 million of gross gains from equity co‑investments and restructuring activity. Exits from equity co‑investments produced an average gross IRR above 25%, returning more than three times invested capital on average and extending a decade‑long record of equity returns more than double the S&P 500 total return.

Ares Capital continued to build what management describes as a “best‑in‑class” balance sheet in 2025. The company added $4.5 billion of new gross debt commitments during the year, including $2.4 billion of investment‑grade unsecured bond issuance, its second most active year in that market since inception. In January 2026, ARCC issued a further $750 million of long five‑year notes at a spread of 180 basis points over Treasuries, swapped to SOFR plus 172 basis points.

The firm also expanded its bank credit facilities by $1.4 billion while reducing average borrowing spreads by about 20 basis points and executed its largest on‑balance‑sheet CLO to date, a $700 million transaction priced at a blended cost of SOFR plus 147 basis points. Nearly 70% of Ares Capital’s borrowings are now floating rate, up from around 50% a year earlier, positioning the company to benefit from potential declines in market rates through lower funding costs. Liquidity totaled more than $6 billion on a pro forma basis for recent financings, and net debt to equity was 1.08 times, below the upper end of the company’s 1.25 times target.

Ares Capital declared a first‑quarter 2026 dividend of $0.48 per share, payable March 31, marking 66 consecutive quarters of stable or increasing regular dividends. Management said they believe the company is well positioned to maintain its dividend despite market expectations for further short‑term rate cuts. Supporting that view are what they cited as modest leverage, potential earnings benefits from portfolio growth above one times debt‑to‑equity, contributions from strategic investments in the senior direct lending program and IDL Asset Management, and a healthy credit environment.

The company also has an estimated $988 million, or $1.38 per share, of taxable income spillover available for distribution in 2026, which management described as an additional cushion in the event quarterly core earnings fall below the dividend. Looking into the new year, Ares Capital reported nearly $1.4 billion of closed commitments through January 29, 2026, up 11% versus the same period a year earlier, and a backlog of $2.2 billion, about 17% above last year’s level. Management said they see opportunities both with incumbent borrowers and in a gradually improving M&A and LBO environment, and believe the firm’s scale, diversification and funding profile leave it well placed to deploy “dry powder” through changing market conditions.