Ares Capital Corporation (ARCC): A Bull Case Theory

Core Thesis - Ares Capital Corporation (ARCC) is positioned as a leading player in private credit, with a robust portfolio exceeding $30 billion across 587 companies, supported by 252 private equity sponsors, and demonstrating resilience against credit cycle volatility [2][6] Financial Performance - As of January 13th, ARCC's share price was $20.48, with trailing and forward P/E ratios of 10.31 and 10.73 respectively [1] - The company's NAV per share has increased to $20.01 in Q3 2025, indicating steady financial growth [5] - ARCC's dividend yield stands at 9.4%, supported by $1.26 per share in spillover income, ensuring high safety even in adverse rate scenarios [6] Portfolio Management - The portfolio is well-diversified, primarily consisting of senior secured debt, with low non-accruals at 1.8%, and structured PIK income from Ivy Hill Asset Management (IHAM) enhancing returns [5][4] - The origination process is sector-focused, targeting defensive industries such as software, healthcare, and professional services, which ensures strong covenant packages and cash flow visibility [4] Strategic Advantages - ARCC benefits from its scale, allowing it to engage in large unitranche deals and access unsecured debt markets more effectively [3] - The company is externally managed by Ares Management, leveraging expertise from IHAM to maintain steady dividend income and optimize asset management [4] Market Position - Structural shifts in the financial landscape, including bank retrenchment, favor private credit, positioning ARCC advantageously within the market [6] - The company is viewed as a core income investment with potential upside to a fair value of $23.50, making it a compelling long-term buy [6]