Ares Capital Corp.

The stable outlook reflects ARCC's strong business position, successful underwriting track record, and favorable funding. Over the next 12-24 months, we expect the company will maintain debt to adjusted total equity (ATE) of less than 1.3x, a substantial cushion to the 150% modified asset coverage ratio, and sufficient liquidity to meet draws by portfolio companies against revolvers and delayed draw term loans. We could lower the ratings in the next 12-24 months if: ARCC's debt to ATE exceeds 1.5x or its asset coverage ratio declines to 165%; or Asset quality or earnings materially weaken. We could raise the ratings in the next 12-24 months if leverage remains within expectations and loss experience and operating performance are favorable relative to peer

...Ares Capital Corp. (ARCC) is a specialty finance company focused on private middle-market companies across diverse industries. It has elected to be regulated as a business development company (BDC) under the Investment Company Act of 1940. ARCC is externally managed by Ares Capital Management LLC, a subsidiary of Ares Management Corp. ARCC has the best market position among its BDC peers, in our view. It has a highly experienced investment team and benefits from its affiliation with Ares Management. Management's target leverage of 0.9x-1.25x debt to equity is relatively low. Although leverage rose to 1.26x as of June 30, 2022, it remains within our outlook expectations, and we expect management to manage the capital structure judiciously. Partly offsetting these strengths is ARCC's exposure to second-lien loans. The company has balanced this risk with historical strong underwriting track record. Also, as with other BDCs, its investments tend to be relatively illiquid, which may constrain...

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