Ares Capital(US:ARCC)2025-07-29 01:23Part I. Financial Information Financial Statements The financial statements present Ares Capital Corporation's financial position as of June 30, 2025, with total assets of $29.1 billion and a six-month net increase in stockholders' equity of $602 million Consolidated Balance Sheet Consolidated Balance Sheet Summary (in millions) | Account | June 30, 2025 (unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Total investments at fair value | $27,886 | $26,720 | | Cash and cash equivalents | $447 | $635 | | Total assets | $29,071 | $28,254 | | Liabilities | | | | Debt | $14,109 | $13,727 | | Total liabilities | $15,037 | $14,899 | | Stockholders' Equity | | | | Total stockholders' equity | $14,034 | $13,355 | | NET ASSETS PER SHARE | $19.90 | $19.89 | Consolidated Statement of Operations Statement of Operations Summary (in millions, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total investment income | $745 | $755 | $1,477 | $1,456 | | Total expenses | $395 | $356 | $755 | $725 | | Net investment income | $342 | $386 | $707 | $712 | | Net realized and unrealized gains (losses) | $19 | $(64) | $(105) | $73 | | Net increase in stockholders' equity | $361 | $322 | $602 | $771 | | Basic and diluted net income per share | $0.52 | $0.52 | $0.88 | $1.28 | Consolidated Schedule of Investments - As of June 30, 2025, total investments at fair value were $27.89 billion, with an amortized cost of $27.58 billion140 Portfolio Composition by Industry (as of June 30, 2025) | Industry | % of Portfolio (Fair Value) | | :--- | :--- | | Software and Services | 23.5% | | Health Care Equipment and Services | 12.9% | | Financial Services | 10.2% | | Commercial and Professional Services | 9.9% | | Insurance | 6.4% | | Other | 37.1% | | Total | 100.0% | Consolidated Statement of Stockholders' Equity - Total stockholders' equity increased from $13.36 billion at December 31, 2024, to $14.03 billion at June 30, 2025. This increase was driven by net proceeds from stock issuances ($702 million) and net income ($602 million), partially offset by dividends declared ($665 million)310 Consolidated Statement of Cash Flows Cash Flow Summary for the Six Months Ended June 30 (in millions) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(517) | $(1,339) | | Net cash provided by financing activities | $321 | $1,456 | | Change in cash, cash equivalents and restricted cash | $(196) | $117 | Notes to Consolidated Financial Statements - The company's investment objective is to generate both current income and capital appreciation, primarily through first and second lien senior secured loans. It is externally managed by Ares Capital Management LLC317318 - Substantially all investments are valued at fair value in good faith by the Valuation Designee (the investment adviser), using techniques like enterprise value (EV) and yield analysis, with input from independent third-party valuation providers328329481 - As of June 30, 2025, the company had total debt of $14.1 billion with an asset coverage ratio of 199%, which is above the required 150%408409 - Subsequent to the quarter end, in July 2025, the company increased commitments under its Revolving Credit Facility, Revolving Funding Facility, and SMBC Funding Facility, and repaid its July 2025 Notes upon maturity531532534 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, including $2.6 billion in new investment commitments for Q2 2025 and net investment income of $342 million Overview - Ares Capital's investment objective is to generate both current income and capital appreciation through debt and equity investments, primarily in first and second lien senior secured loans541 - Since its IPO in 2004 through June 30, 2025, the company's exited investments have generated a gross internal rate of return of approximately 13%543 - Over the same period, realized gains have exceeded realized losses by approximately $0.9 billion, with an average annualized net realized gain rate of about 0.8%544546 Portfolio and Investment Activity Investment Activity for the Three Months Ended June 30 (in millions) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Total new investment commitments | $2,573 | $3,857 | | Principal amount of investments funded | $2,735 | $3,277 | | Principal amount of investments sold or repaid | $2,091 | $1,507 | Portfolio Composition by Investment Type (as of June 30, 2025) | Investment Type | Fair Value (in millions) | % of Total | | :--- | :--- | :--- | | First lien senior secured loans | $16,547 | 59.3% | | Second lien senior secured loans | $1,523 | 5.5% | | Subordinated certificates of the SDLP | $1,052 | 3.8% | | Senior subordinated loans | $1,388 | 5.0% | | Preferred equity | $2,642 | 9.5% | | Ivy Hill Asset Management, L.P. | $2,081 | 7.4% | | Other equity | $2,653 | 9.5% | | Total | $27,886 | 100.0% | - As of June 30, 2025, the weighted average grade of the investment portfolio at fair value was 3.1, with 95.5% of the portfolio rated in the top two categories (Grades 3 and 4)562 - Loans on non-accrual status represented 1.2% of the total portfolio at fair value as of June 30, 2025, an increase from 1.0% as of December 31, 2024563 Results of Operations Operating Results Summary (in millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total investment income | $745 | $755 | $1,477 | $1,456 | | Total expenses | $395 | $356 | $755 | $725 | | Net investment income | $342 | $386 | $707 | $712 | | Net increase in stockholders' equity | $361 | $322 | $602 | $771 | - Interest income for Q2 2025 decreased slightly from Q2 2024 due to declining base rates, partially offset by a larger average portfolio size. For the six-month period, interest income increased due to the larger portfolio602 - Interest and credit facility fees increased to $188 million for Q2 2025 from $174 million in Q2 2024, primarily due to a higher average principal amount of outstanding debt608609 - For Q2 2025, the company recognized net realized gains of $117 million on investments and net unrealized losses of $43 million621627 Financial Condition, Liquidity and Capital Resources - As of June 30, 2025, the company had $14.1 billion in outstanding debt and an asset coverage ratio of 199%, exceeding the regulatory requirement of 150%632 - During the six months ended June 30, 2025, the company raised net proceeds of $701.9 million from "at the market" offerings of 32.0 million shares634 - The stock repurchase program, authorizing up to $1.0 billion in repurchases, was extended to February 15, 2026. No shares were repurchased during the first six months of 2025638639 - From July 1 to July 24, 2025, the company made new investment commitments of approximately $1.1 billion and had an investment backlog of approximately $2.6 billion675677 Critical Accounting Estimates - The most critical accounting estimate is the valuation of portfolio investments, as most do not have readily available market values679684 - The valuation process is conducted quarterly by the investment adviser (as Valuation Designee) and involves a multi-step process, including input from independent third-party valuation providers and review by a valuation committee682687 - Primary valuation techniques for Level 3 assets include enterprise value (EV) analysis (using EBITDA multiples or discounted cash flow) and yield analysis for debt investments689 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are investment valuation and interest rate fluctuations, with 69% of the portfolio in variable-rate investments as of June 30, 2025 - The company's primary market risks are changes in interest rates and the valuations of its investment portfolio, which are inherently uncertain due to the lack of a ready market for most investments692693 - As of June 30, 2025, 69% of the investment portfolio at fair value consisted of variable-rate investments. The company utilizes interest rate swaps to manage its exposure on certain fixed-rate liabilities696 Annualized Impact on Net Income from Interest Rate Changes (in millions) | Basis Point Change | Net Income Change | | :--- | :--- | | Up 300 basis points | $334 | | Up 200 basis points | $223 | | Up 100 basis points | $111 | | Down 100 basis points | $(121) | | Down 200 basis points | $(242) | | Down 300 basis points | $(354) | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025700 - No material changes to the company's internal control over financial reporting occurred during the quarter ended June 30, 2025701 Part II. Other Information Legal Proceedings The company and its affiliates are subject to legal proceedings and regulatory inquiries in the ordinary course of business - The company, its officers, and its investment adviser are subject to legal proceedings from time to time arising from their investments and operations702 Risk Factors No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024 - The report refers investors to the risk factors described in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024, for a comprehensive understanding of potential risks705 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the quarter, and the $1.0 billion stock repurchase program remains fully available - No equity securities were sold during the period in unregistered transactions706 - The company's stock repurchase program, authorizing up to $1.0 billion in repurchases, was extended to February 15, 2026. No shares were repurchased in the quarter ended June 30, 2025, leaving the full $1.0 billion available708709 Defaults Upon Senior Securities No defaults upon senior securities occurred during the reporting period - Not applicable710 Mine Safety Disclosures This disclosure item is not applicable to the company's operations - Not applicable711 Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading plans during the quarter ended June 30, 2025 - No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the fiscal quarter712 Exhibits This section lists exhibits filed with the Form 10-Q, including credit agreement amendments and required certifications - The report includes several exhibits, such as amendments to credit facilities and certifications required under the Sarbanes-Oxley Act717