Ares Capital Corporation 2026 Q3 Earnings Call

Please go ahead, sir. Thank you, and good afternoon, everybody.

Let me start with some important reminders. Comments made during the course of this conference call and webcast, as well as the accompanying documents, contain forward-looking statements and are subject to risks and uncertainties. The company's actual results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in its SEC filings. Ares Capital Corporation assumes no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results. During this conference call, the company may discuss certain non-GAAP measures as defined by SEC Regulation G, such as Core EPS. The company believes that Core EPS provides useful information to investors regarding its financial performance because it is one method the company uses to measure its financial condition and results of operations.

A reconciliation of GAAP net income per share, the most directly comparable GAAP financial measure to Core EPS, can be found in the accompanying slide presentation for this call. In addition, reconciliations of these measures may also be found in our earnings release filed this morning with the SEC on Form 8-K. Certain information discussed on this conference call, as well as the accompanying slide presentation, include credit ratings and information relating to portfolio companies, was derived from or obtained from third-party sources and has not been independently verified. Accordingly, the company makes no representation or warranties with respect to this information.

The company's third quarter September 30, 2026 earnings presentation can be found on the company's website at www.arescapitalcorporation.com by clicking on the Third Quarter 2026 Earnings Presentation link on the Events and Presentations page of the Investor Resources section of Ares Capital Corporation's earnings release and Form 10-Q are also available on the company's website. Now, I would like to turn the call over to Kort Schnabel, Ares Capital Corporation's Chief Executive Officer.

Kort. Thanks, John, and hello, everyone, and thank you for joining our earnings call today.

I am joined by Jim Miller, our President, Jana Markowicz, our Chief Operating Officer, Scott Lemm, our Chief Financial Officer, and other members of the management team who will be available during our Q&A session. This morning, we reported solid third quarter results with Core EPS of $0.46 per share, representing an annualized return on equity of approximately 9.5%. Our underlying investment portfolio remains healthy as borrower cash flow growth supports strong credit performance and steady NAV per share, while our level of non-accruing loans and problem assets remains stable at historically low levels.

Our earnings are well positioned to potentially benefit from an expected higher level of interest rates, and we enter the seasonally strongest fourth quarter from a position of considerable financial strength after taking a number of important actions to advance ARCC's strategic and financial priorities. Most notably, this morning, we announced our agreement to acquire MidCap Financial Investment Corporation, or MFIC. The transaction is expected to be modestly accretive to Core EPS, providing attractive financial benefits from the outset while also creating strategic value that we believe extends well beyond the initial economics. A key driver of value creation from this acquisition is the added scale that this broad-based and well-diversified portfolio brings to ARCC.

With this combination, the MidCap Financial portfolio is expected to add over 200 additional incumbent positions, increasing our portfolio to over 800 portfolio companies and expanding the number of sponsors we have transacted with to over 600 sponsors. This will further strengthen our longstanding middle market presence and broaden the relationships from which we can generate future investment opportunities. Based on the depth of our due diligence on each investment in the portfolio, along with the capabilities of the broader Ares platform and direct financial support from Ares Management, we believe we have an excellent foundation in place for this transaction to add to our track record of successful acquisitions over our 22-year history as a public company.

Importantly, and central to our view on the quality of the portfolio, the vast majority of the discount to NAV was concentrated in a small percentage of investments that consisted primarily of situations that, in our view, involved greater uncertainty of business outcomes and resulted in wider bid-ask spreads. Consolidation has been an important part of our history. We have consistently used periods of market volatility and dislocation to create differentiated opportunities for our shareholders while building greater scale and a durable cost of capital advantage. In fact, upon closing the acquisition of MidCap, formerly Apollo Investment Corporation, ARCC will have acquired all three of the largest BDCs in operation at the time of our IPO over 20 years ago, including Allied Capital and American Capital.

Our track record of disciplined consolidation has created significant value for our shareholders as both Allied and American Capital generated IRRs in excess of 20% over the three years following their respective acquisitions. The value of these acquisitions, however, has extended well beyond the assets we acquired. They have expanded our scale, deepened our sponsor and borrower relationships, broadened our incumbent portfolio, and strengthened our ability to originate attractive investments. While we have similar enthusiasm for the MidCap acquisition, its size relative to ARCC positions the transaction as additive rather than transformative. Turning to the broader investment environment, macroeconomic shifts and geopolitical developments created greater uncertainty around transaction activity during the third quarter. Volatility around interest rates, inflation, and global trade reduced visibility and elongated M&A processes across the market.

Combined with our continued discipline and highly selective approach to new investments, this resulted in a more modest pace of new investment activity during the third quarter. Importantly, we view much of the slower origination volume during the third quarter as a matter of timing, since underlying deal review activity remained strong. In the third quarter, we reviewed more transactions than we did a year ago, and year to date, we have reviewed approximately 25% more transactions than in the prior year. More broadly, our extensive market coverage, including our specialized lending verticals, has enabled us to review more than $1 trillion of potential investment transactions over the past 12 months. As transaction timelines have extended, more of that activity is carrying into the fourth quarter, providing greater visibility into the months ahead as borrowers and sponsors continue to place a premium on lenders that can provide certainty of close.

So far in the fourth quarter, we have closed on $1.1 billion of commitments, and our investment backlog now stands at approximately $2.5 billion. When taken together, our post-quarter end originations and backlog are at historically strong levels, which further supports our enthusiasm for a recovery in investing activity. More broadly, across the U.S. direct lending market, we continue to see a constructive environment for lenders, with market pricing, terms, and lender protections remaining stable at generally favorable levels by historical standards. As we progress through the fourth quarter, we have substantial liquidity, extensive access to financing, a large and diversified incumbent portfolio, and the connectivity of the broader Ares platform, leaving us well positioned to pursue opportunities as they emerge. With respect to our quarterly dividend, we continue to believe ARCC's current regular dividend appropriately reflects the underlying earnings power of the business.

While earnings will naturally fluctuate from quarter to quarter, the strength of our portfolio, attractive market pricing and terms, the current interest rate environment, and the expected benefits from the acquisition I discussed earlier reinforce our confidence in the current dividend level. Our substantial spillover income provides additional flexibility during periods when quarterly earnings temporarily fall below the dividend. Ultimately, our focus remains the same: use ARCC's financial strength, scale, and connectivity to generate attractive long-term returns for our shareholders and maintain the stability of our regular quarterly dividend, as we have for more than 17 years. With that, I will turn the call over to Scott to take us through our financial results and balance sheet.