Ares Capital's Q2 Earnings Call Highlights Market Strength

ARCC Leans on Scale in Slower Market

Management said that the quarter featured fewer completed transactions as sponsors and borrowers adjusted to a more uncertain macroeconomic backdrop. CEO and co-head of U.S. Direct Lending Kort Schnabel said that Ares reviewed more transactions as the quarter progressed, with June becoming one of the strongest months for opportunities reviewed in two years.

Schnabel noted that 75% of second-quarter transactions involved incumbent borrowers, reinforcing the importance of existing relationships. The company ended the period with 619 portfolio companies and continued focusing capital on opportunities wherein its scale provided stronger economics and terms.

Ares Capital reported core EPS of $0.47 for the second quarter, meeting the Zacks Consensus Estimate. Revenues of $768 million lagged the Zacks Consensus Estimate of $769 million.

Ares Capital Sees Better Lending Terms

ARCC highlighted improving conditions in parts of the lending market, particularly for larger middle-market transactions. President and co-head of U.S. Direct Lending James Miller said that competition has eased among larger lenders, allowing the company to achieve wider spreads, lower leverage levels and improved fees on new senior loan commitments.

The company originated $2.6 billion in new investment commitments during the quarter, with 68% allocated to first-lien senior secured loans. New senior loan commitments carried average spreads 20 basis points wider than in the fourth quarter of 2025, while upfront fees increased 50 basis points over the same period.

Management also pointed to stronger transaction momentum entering the second half. Ares Capital said that it had an investment backlog of $1.5 billion as of July 23, 2026, with additional opportunities under review.

ARCC Maintains Credit Discipline

Credit quality remained a central focus during the call. Schnabel said that portfolio performance remained healthy, with borrowers generating approximately 8% organic weighted average LTM EBITDA growth through the end of the quarter.

The company reported non-accruals at costs of 2.4% of total investments and 1.4% at fair value. Management said that these levels remained below historical BDC averages and emphasized the portfolio’s diversification and equity cushions.

During analyst questioning, a Wells Fargo analyst asked about broader credit normalization across the industry. Miller responded that the company viewed the trend as a maturation of portfolios after an extended period of unusually low credit losses, rather than a specific industry-driven issue.

Ares Capital Expands Balance Sheet Flexibility

CFO and Treasurer Scott Lem highlighted actions taken to strengthen funding flexibility. The company ended the quarter with approximately $6 billion in available liquidity after repaying $1 billion in unsecured notes, while maintaining net debt to equity of 1.12X.

Ares Capital raised $1.2 billion in additional financing during the quarter, including unsecured notes and increased commitments across secured revolving facilities. The company also launched a commercial paper program designed to provide access to lower-cost funding.

The company maintained its quarterly dividend outlook, declaring a third-quarter 2026 dividend of $0.48 per share. Management cited substantial spillover income and stable earnings generation as support for dividend capacity.

ARCC Addresses Investor Concerns

Analysts focused on portfolio marks, potential industry consolidation and credit trends during the question-and-answer session. A JPMorgan analyst asked about opportunities for strategic transactions in the BDC sector, given performance differences among managers. Schnabel said that the dispersion in results could increase the potential for such activity but did not provide specific details.

A KBW analyst questioned trends in payment-in-kind structures. Miller said that PIK terms remained deal-specific and had received greater scrutiny, while noting that structurally originated PIK exposure remained around 90% of the portfolio.

Management also addressed software portfolio concerns, stating that AI-related risks remained limited overall and that software investments continued to show operating strength.

Ares Capital Focuses on Long-Term Position

ARCC’s management maintained that its scale, capital access and underwriting discipline remain central to its strategy. Executives emphasized selective investing rather than pursuing volume in a slower market environment.

The company entered the second half with a focus on capturing improved lending opportunities, while maintaining portfolio quality, liquidity and dividend stability.

Zacks Rank & Style Scores

ARCC currently carries a Zacks Rank #3 (Hold), indicating that the stock currently has a balanced outlook based on earnings estimate revisions. The Zacks Rank can change after quarterly results as analysts update their earnings expectations. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The stock has a Value Score of D, a Growth Score of F, a Momentum Score of D and a VGM Score of F. Zacks Style Scores evaluate value, growth and momentum characteristics, with higher grades indicating stronger attributes within each category.

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