Ares Capital Corporation
Ares Capital Corporation is a business development company specializing in growth capital, acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions of middle market companies. It also makes growth capital and general refinancing. It prefers to make investments in companies engaged in sports, media & entertainment, industrials & business services, infrastructure & power, financial institution groups, software & technology, specialty healthcare, consumer, retail & services, energy and the basic and growth manufacturing, consumer products, health care products, and information technology service sectors. The fund will also consider investments in industries such as restaurants, retail, oil and gas, and technology sectors. It invests in the United States based companies. It focuses on investments in Northeast, Mid-Atlantic, Southeast and Southwest regions from its New York office, the Midwest region, from the Chicago office, and the Western region from the Los Angeles office. The fund typically invests between $30 million and $500 million, in companies with an EBITDA between $10 million and $250 million. It makes debt investments between $10 million and $100 million The fund invests through revolvers, first lien loans, warrants, unitranche structures, second lien loans, mezzanine debt, private high yield, junior capital, subordinated debt, and non-control preferred and common equity. The fund also selectively considers third-party-led senior and subordinated debt financings and opportunistically considers the purchase of stressed and discounted debt positions. The fund prefers to be an agent and/or lead the transactions in which it invests. The fund also seeks board representation in its portfolio companies.
What does it do?
Ares Capital is essentially a bank for mid-sized American businesses that can't easily borrow from Wall Street. Think of a company doing $50M in sales that needs $100M to buy a competitor — traditional banks often won't touch that deal, but Ares Capital will. They lend money and sometimes take small ownership stakes in hundreds of these 'middle market' companies across industries like software, healthcare, and manufacturing. In return, those companies pay Ares interest, which Ares then passes on to its own investors as dividends.
With interest rates staying elevated, Ares Capital is collecting bigger interest payments on its loans than it did when rates were near zero — this directly boosts the income it can pay out to shareholders. It's also the largest company of its kind in the US, managing over $21B in assets, which gives it a scale advantage that smaller competitors simply can't match. In an uncertain economy, the question of whether middle-market companies can keep repaying their loans makes Ares a real-time gauge of Main Street business health.
How does it make money?
Ares makes money primarily by charging interest on loans it makes to mid-sized businesses — in 2024 it generated $3.1B in total investment income, up from $3.0B the year before. A big chunk of that comes from 'floating rate' loans, meaning the interest rate adjusts with the market, so when rates are high, Ares earns more. It keeps $1.3B as net income after covering its own borrowing costs and expenses, which works out to a very healthy profit margin for a lending business. It must pay out at least 90% of that income as dividends to shareholders because of its special tax structure as a Business Development Company.
Why do investors care?
Ares Capital is attractive to investors who want reliable income — it currently pays a dividend yield around 9-10%, which is far higher than a typical savings account or bond. The growth story is straightforward: as long as middle-market companies keep borrowing and paying back their loans, the dividend keeps flowing. What has to go right is that the US economy avoids a serious recession, because a downturn would cause more companies to default on their loans and shrink Ares's income. Investors also need interest rates to stay reasonably high — if rates drop sharply, Ares earns less on its floating-rate loan book.
Deep Dive
MemberA full investor briefing on Ares Capital Corporation — history, leadership, risks, and outlook.