Ares Capital Corp.

The stable outlook reflects ARCC's strong business position, successful underwriting record, and favorable funding. Over the next 12-24 months--despite the possibility of a shallow recession--we expect the company will report steady asset quality and operate with debt to 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 if loss experience

...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 is one of the largest publicly traded BDCs by market capitalization in the U.S., and it has a highly experienced investment team and benefits from its affiliation with Ares Management. The company's leverage, measured as debt to adjusted total equity (ATE), is marginally above our base-case expectation. Under S&P Global Ratings' measure, debt to ATE for year-end 2022 was about 1.44x, and pro forma for an equity raise of $223.4 million in January 2023, the ratio declined to 1.37x, which is marginally above our base-case...

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