Ares Capital Corporation (NASDAQ: ARCC) reported a sharp sequential rebound in third-quarter GAAP earnings as investment-related losses narrowed, though its underlying earnings measures declined modestly. GAAP net income was $319 million, or $0.44 per share, compared with $171 million, or $0.24 per share, in the second quarter and $404 million, or $0.57 per share, a year earlier.
Core earnings per share, a non-GAAP measure that excludes realized and unrealized gains and losses and related items, were $0.46. That compared with $0.47 in the prior quarter and $0.50 in the third quarter of 2025. Net investment income was $328 million, or $0.46 per share, versus $359 million, or $0.50 per share, sequentially and $338 million, or $0.48 per share, a year earlier.
The business development company declared a third-quarter dividend of $0.48 per share. It also declared a regular fourth-quarter dividend of $0.48 per share, payable on December 29, 2026, to shareholders of record on December 15. Ares Capital said it entered 2026 with approximately $983 million, or $1.37 per share, of excess taxable income carried forward from 2025.
Investment losses narrow as expenses rise
Ares Capital recorded $9 million of net realized and unrealized losses during the quarter, substantially less than the $188 million loss in the second quarter but contrasting with a $66 million gain in the year-earlier period. The latest total included $61 million of net realized investment losses, partly offset by $51 million of net unrealized gains on investments.
Investment income was $763 million, little changed from $768 million in the second quarter and below $782 million a year earlier. Interest income from investments was $558 million, while dividend income increased to $160 million from $152 million sequentially and $141 million a year earlier. Capital structuring service fees fell to $23 million from $40 million in the prior quarter and $48 million a year earlier.
Operating expenses rose to $429 million from $401 million in the second quarter. Interest and credit facility fees increased to $221 million, while the quarter included no capital gains incentive fee adjustment, compared with a $21 million reduction in the previous quarter.
For the first nine months of 2026, net income fell to $582 million, or $0.81 per share, from $1.01 billion, or $1.45 per share, in the comparable 2025 period. The decrease reflected $503 million of net realized and unrealized losses, compared with $39 million of losses a year earlier. Nine-month Core EPS was $1.39, down from $1.50.
Portfolio contracts modestly as exits exceed commitments
Investments at fair value totaled $29.21 billion at September 30, down from $29.35 billion at the end of June but above $28.69 billion a year earlier. The portfolio included 636 companies, up from 619 sequentially and 587 a year earlier.
Gross commitments were $2.11 billion during the quarter, while exits totaled $2.47 billion, producing negative net commitments of $364 million. Net fundings were negative $286 million. First-lien senior secured loans represented 58% of portfolio fair value, and 70% of investments were floating-rate.
Portfolio yields increased sequentially. The weighted-average yield on debt and other income-producing securities at amortized cost was 10.6%, compared with 10.3% in the second quarter and 10.6% a year earlier. The weighted-average yield on total investments at amortized cost rose to 9.5% from 9.3% sequentially, while remaining slightly below 9.6% a year earlier.
Portfolio companies included in Ares Capital’s comparable calculation posted weighted-average EBITDA growth of approximately 7% for the latest reported 12-month period. The portfolio’s weighted-average net leverage multiple was 5.8 times, unchanged from the second quarter, while weighted-average interest coverage declined to 2.0 times from 2.1 times.
Loans on non-accrual status remained at 2.4% of the total investment portfolio at amortized cost and 1.4% at fair value, unchanged from June. The corresponding year-earlier levels were 1.8% and 1.0%, respectively, indicating higher credit stress over the past year.
Leverage declines, but funding costs increase
Net asset value was $19.31 per share at quarter-end, compared with $19.35 in June and $20.01 in September 2025. Stockholders’ equity totaled $13.95 billion.
The debt-to-equity ratio declined to 1.11 times from 1.15 times in the second quarter, while the ratio net of available cash fell to 1.06 times from 1.12 times. Total debt at carrying value decreased to $15.12 billion from $15.77 billion, and cash and cash equivalents increased to $722 million from $383 million.
Ares Capital’s weighted-average stated interest rate on debt rose to 5.2% from 4.8% sequentially. Its net interest and dividend margin narrowed to 6.8% from 6.9% in June and 7.4% a year earlier. Unsecured borrowings accounted for 64% of total debt.
Post-quarter activity and investment backlog
From October 1 through October 22, Ares Capital made approximately $1.1 billion of new investment commitments, 90% of which were first-lien senior secured loans. The weighted-average yield on funded debt and other income-producing securities at amortized cost was 10.0%.
Over the same period, the company exited approximately $727 million of commitments, with a weighted-average yield of 9.2% on debt and other income-producing securities exited or repaid. Those transactions generated approximately $2 million of net realized gains.
As of October 22, Ares Capital had an investment backlog of approximately $2.5 billion, with first-lien senior secured loans accounting for 76%. The company cautioned that backlog transactions remain subject to conditions including final terms, structure and documentation, and may not close. Some investments may also be sold in whole or in part or may result in repayments of existing positions.
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