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Ares Capital NASDAQ: ARCC executives pointed to stable credit performance, record origination activity, and a strengthened liability structure as key drivers of results in 2025, while also addressing investor concerns ranging from artificial intelligence-related disruption in software to the pace of spread tightening in private credit markets.
Financial results and dividend coverage
For the fourth quarter ended Dec. 31, 2025, Ares Capital reported GAAP net income per share of $0.41, compared with $0.57 in the prior quarter and $0.55 in the fourth quarter of 2024. For the full year, GAAP net income per share was $1.86, down from $2.44 in 2024.
Core earnings per share were $0.50 in the fourth quarter, matching the prior quarter and down from $0.55 a year earlier. Full-year core EPS was $2.01, compared with $2.33 in 2024, which Chief Financial Officer Scott Lem said was driven “in large part by the decline in base rates.” Management noted that core earnings exceeded the dividend in all four quarters of 2025 and produced a 10% core return on equity for the year, in line with the company’s historical average since inception.
Looking ahead, Lem said changes in base rates typically take about a quarter to be fully reflected in results, and the decline in base rates during the fourth quarter is expected to create roughly $0.01 per share of earnings headwind in the first quarter of 2026, “assuming all else equal.” He also reminded investors that origination volumes and related capital structuring service fees tend to be seasonally slower in the first quarter than in the fourth.
The company declared a first-quarter 2026 dividend of $0.48 per share, payable March 31 to stockholders of record March 13. Lem said Ares Capital expects to carry forward an estimated $988 million of taxable income spillover, or $1.03 per share, available for distribution in 2026.
Portfolio growth, underwriting, and credit metrics
Chief Executive Officer Kort Schnabel described 2025 as “another good year,” citing core EPS of $2.01 for the year and a modestly higher net asset value per share at year-end. Net asset value was $19.94 per share at Dec. 31, down 0.35% from the prior quarter and up 0.25% from a year earlier.
Ares Capital ended 2025 with a $29.5 billion investment portfolio at fair value, up from $28.7 billion at the end of the third quarter and $26.7 billion a year earlier. President Jim Miller said the portfolio was diversified across 603 borrowers, with an average position size of less than 0.2% of the portfolio. He added that the top 10 investments, excluding the company’s interests in Ivy Hill Asset Management and the Senior Direct Lending Program, represented about 11% of the portfolio.
Management highlighted what it characterized as improving borrower fundamentals, including an average interest coverage ratio of 2.2x and leverage that declined about a quarter-turn of debt-to-EBITDA from year-end 2024. Miller said loan-to-value ratios remained low and stable at about 44%.
On credit quality, non-accruals at cost were 1.8% at year-end, consistent with the prior quarter and prior year, and non-accruals at fair value were 1.2%. Schnabel said the company’s weighted average portfolio grade remained stable at 3.1 during 2025.
Origination activity and market backdrop
Ares Capital reported record gross originations in 2025, with $15.8 billion of new commitments. Miller said fourth-quarter new investment commitments exceeded $5.8 billion, more than 50% higher than the fourth quarter of 2024, and that roughly half of Q4 originations supported M&A-driven transactions such as leveraged buyouts and add-on acquisitions.
Management cited a rebound in transaction activity in the second half of 2025 after a slower first half, and emphasized growth in non-sponsored lending tied to specialized industry verticals. Schnabel said non-sponsored originations grew by more than 50% during 2025 and that the company added more than 100 new borrowers during the year, a record.
In discussing pricing, Schnabel said that although market spreads declined before stabilizing, the company achieved a modest year-over-year increase in spreads for first-lien commitments while maintaining loan-to-value ratios in the high-30% to low-40% range and “stringent underwriting and documentation standards.” In the Q&A, management said it was not seeing a loosening in documentation terms and suggested there has been heightened attention to documentation following headlines about liability management exercises in the broadly syndicated loan market.
Balance sheet actions and funding mix
Executives emphasized balance sheet strength and funding diversification. Lem said the company added $4.5 billion of new gross debt commitments in 2025, a record, including $2.4 billion of investment-grade bond issuance. Ares Capital also began 2026 by issuing $750 million of five-year debt at a spread of 180 basis points over Treasuries, which it swapped to SOFR plus 172 basis points.
The company expanded credit facilities by $1.4 billion during 2025 and reduced borrowing spreads by about 20 basis points on average, Lem said. It also executed its largest on-balance sheet CLO to date, with $700 million of debt priced in December at a blended cost of SOFR plus 147 basis points.
Nearly 70% of borrowings were floating rate at year-end, up from about 50% at year-end 2024, which management said positions the company to benefit from potentially lower borrowing costs if rates decline further. Liquidity totaled more than $6 billion, including cash available on a pro forma basis for post-year-end activity. Debt-to-equity net of available cash was 1.08x at quarter-end, still below the upper end of the company’s 1.25x target range, according to Lem.
Key Q&A themes: AI and software, spreads, and strategic investments
A significant portion of the question-and-answer session focused on software exposure and AI-related disruption risk. Management said it “feel[s] very good” about its software portfolio and described an approach built over roughly 15 years that emphasizes businesses it believes are more resistant to technology obsolescence. In response to questions about AI, executives outlined characteristics they prioritize in software underwriting, including:
- Foundational infrastructure software embedded in customers’ core systems, which management said tends to be “the last type of software” companies would switch.
- “Data moat” companies that collect and own proprietary data, which management argued is difficult for AI to replicate.
- Exposure to regulated end markets such as healthcare and financial services, where accuracy, auditing, and compliance needs can slow adoption of new technologies.
- Diversified customer bases that may reduce the risk of “quick and binary outcomes” if disruption occurs.
Management also provided portfolio datapoints on the software book, including an average EBITDA of about $350 million and average loan-to-value of 37%, which it said implies a meaningful equity cushion. Executives said they are more cautious on “single function” applications and software that creates or delivers content or performs data visualization, where they believe AI could be more disruptive, and noted their exposure to recurring revenue loan structures was conservative, at roughly 1% to 2% of the overall portfolio. On profitability, management said the amount of software exposure with negative EBITDA was “very, very, very small,” and likely limited to a subset of recurring revenue loans, some of which may still have positive EBITDA.
On market conditions, management said the company is monitoring potential shifts tied to retail capital flows into non-traded products and said any sustained changes could influence competitive behavior and potentially serve as a catalyst for wider spreads, though executives characterized the flow changes as relatively new.
Executives also discussed the Senior Direct Lending Program and Ivy Hill Asset Management as strategic investments that could support earnings, and said there may be further opportunities to grow those exposures depending on market conditions. In a separate exchange on capital management, management confirmed the company has repurchased shares in the past and said buybacks remain “on the table,” but did not provide forward-looking commitments about repurchase activity.
About Ares Capital NASDAQ: ARCC
Ares Capital Corporation NASDAQ: ARCC is a publicly traded business development company (BDC) that specializes in providing debt and equity financing solutions to U.S. middle-market companies. As a BDC, Ares Capital offers investors access to a diversified portfolio of tailored credit investments, including senior secured loans, unitranche financing, mezzanine debt and equity co-investments. The firm’s flexible capital structures are designed to support companies seeking growth capital, refinancing or strategic acquisitions.
Through its credit platform, Ares Capital focuses on originations, underwriting and portfolio management across a range of industries, with a particular emphasis on sectors such as healthcare, technology, industrials and business services.
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