Ares Capital ((ARCC)) has held its Q2 earnings call. Read on for the main highlights of the call.
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The recent earnings call for Ares Capital Corporation conveyed a robust performance in the second quarter, characterized by stable earnings, an increased net asset value, and significant realized gains. The company showcased strong liquidity and resilience, despite facing challenges such as a modest increase in non-accrual rates and tariff-related volatility. The overall sentiment was positive, with the highlights significantly outweighing the lowlights.
Stable Core Earnings
Ares Capital Corporation reported stable core earnings of $0.50 per share, which translates to an annualized return on equity of 10%. This performance is consistent with the prior quarter, demonstrating the company’s ability to maintain stable earnings over time.
Increase in Net Asset Value
The company saw an increase in net asset value per share, both sequentially and year-over-year. This growth was supported by earnings that exceeded the dividend and robust net investment gains, indicating a strong financial position.
Significant Net Realized Gains
Ares Capital generated $117 million in net realized gains on investments during the second quarter. This achievement brings the cumulative net realized gains on investments since inception to nearly $900 million, highlighting the company’s effective investment strategy.
Strong Balance Sheet and Liquidity
The total portfolio at fair value was $27.9 billion at the end of the quarter, with liquidity remaining very strong at nearly $6.5 billion, including available cash. This solid balance sheet provides the company with the flexibility to capitalize on future opportunities.
Increased Lending Commitments
The company reported that nearly three-quarters of gross commitments were from incumbent relationships, with significant increases in lending commitments to existing borrowers, reflecting strong ongoing partnerships.
Positive Portfolio Performance
Borrowers’ weighted average organic EBITDA growth rates accelerated into the double digits over the last 12 months, with borrower leverage levels below the 5-year average, showcasing the strength and resilience of the portfolio.
Successful Debt Issuance
Ares Capital issued $750 million of long 5-year unsecured notes, achieving the tightest 5-year new issue spread by a BDC since the beginning of the second quarter, underscoring investor confidence in the company’s financial health.
Dividend Stability
The company declared a third-quarter 2025 dividend of $0.48 per share, marking the 16th consecutive year of stable or increasing regular dividends, reinforcing its commitment to returning value to shareholders.
Increase in Non-Accrual Rates
There was a modest increase in non-accrual rates at cost from 1.5% to 2%, and on a fair value basis from 0.9% to 1.2% since the last quarter. Despite this increase, the rates remain below historical averages.
Tariff-Related Volatility
Tariff-related volatility led to economic uncertainty and reduced investment activity during the second quarter. However, the company managed to navigate these challenges effectively.
Forward-Looking Guidance
Ares Capital Corporation provided solid forward-looking guidance, highlighting stable core earnings of $0.50 per share and a GAAP net income of $0.52 per share for the second quarter of 2025. The company’s net asset value per share increased, driven by earnings exceeding their dividend and robust net investment gains. Despite a modest increase in non-accruals, these levels remain below historical averages. With a debt-to-equity ratio of 0.98x and a diverse portfolio, Ares Capital is well-positioned to provide stability and capitalize on emerging market opportunities.
In summary, Ares Capital Corporation’s earnings call reflected a strong performance in the second quarter, with positive sentiment driven by stable earnings, increased net asset value, and significant realized gains. The company’s strong liquidity and financial position, coupled with its ability to navigate challenges, underscore its resilience and potential for future growth.