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Section 1: 8-K (8-K)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

 

Date of report (Date of earliest event reported): June 25, 2018

 

ARES CAPITAL CORPORATION

(Exact Name of Registrant as Specified in Charter)

 

Maryland

 

814-00663

 

33-1089684

(State or Other Jurisdiction
of Incorporation)

 

(Commission
File Number)

 

(IRS Employer
Identification No.)

 

 

 

 

245 Park Avenue, 44th Floor, New York, NY

 

10167

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code (212) 750-7300

 

N/A

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

 

Emerging growth company o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

 

 



 

Item 7.01 Regulation FD Disclosure.

 

On June 25, 2018, Ares Capital Corporation (the “Company”) issued a press release, included herewith as Exhibit 99.1, announcing that on June 21, 2018 the board of directors of the Company (the “Board”), including a “required majority” (as such term is defined in Section 57(o) of the Investment Company Act of 1940, as amended (the “1940 Act”)) of the Board, approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act, as amended by the Small Business Credit Availability Act. As a result, the Company’s asset coverage requirements applicable to senior securities will be reduced from 200% to 150%, effective on June 21, 2019. In addition, the Company is reducing its annual base management fee from 1.5% to 1.0% on all assets financed using leverage over 1.0x debt to equity. In connection with the above, the Company has also provided an investor presentation on its website at http://www.arescapitalcorp.com. A copy of the investor presentation is included as Exhibit 99.2 to this Form 8-K.

 

The information disclosed under this Item 7.01, including Exhibits 99.1 and 99.2 hereto, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 and shall not be deemed incorporated by reference into any filing made under the Securities Act of 1933, except as expressly set forth by specific reference in such filing.

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits:

 

Exhibit
Number

 

Description

 

 

 

99.1

 

Press Release, dated June 25, 2018

 

 

 

99.2

 

Ares Capital Corporation Investor Presentation

 

2



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

ARES CAPITAL CORPORATION

 

 

 

Date:   June 25, 2018

 

 

 

 

 

 

By:

/s/ Penni F. Roll

 

Name:

Penni F. Roll

 

Title:

Chief Financial Officer

 

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Section 2: EX-99.1 (EX-99.1)

Exhibit 99.1

 

Ares Capital Corporation’s Board Approves Reduction in its Asset Coverage Requirement

 

ARCC Expects to Benefit from the Enhanced Operating Flexibility Provided By SBCAA

 

Expects Stakeholders to Benefit from Incremental Earnings Growth over Time, Including Reduced Management Fee Structure

 

NEW YORK — June 25, 2018 Ares Capital Corporation (NASDAQ: ARCC) announced today that its Board of Directors, including all of the independent Directors, approved the application to the Company of the 150% minimum asset coverage ratio set forth in Section 61(a)(2) of the Investment Company Act of 1940, as amended by the Small Business Credit Availability Act (“SBCAA”). As a result, the minimum asset coverage ratio applicable to the Company will be reduced from 200% to 150% on June 21, 2019 (the effective date).

 

Ares Capital Corporation’s Board approved the reduction to the minimum statutory asset coverage following an extensive review of the Company’s plan with respect to increased leverage flexibility, which included conversations with and important input from lenders, rating agencies and shareholders.  Once the 150% coverage ratio becomes effective, the Company expects to use a modest amount of incremental leverage to continue to invest primarily in its current mix of investments with no fundamental change in the Company’s investment strategy. In addition, the Company intends to target a debt to equity range of 0.90x to 1.25x. Finally, as part of the plan, the Company is reducing its annual base management fee from 1.5% to 1.0% on all assets financed using leverage over 1.0x debt to equity.  As the Company implements this plan over the ensuing 12-36 months after the effective date, it intends to operate in a manner that it believes will maintain its investment grade rating while generating an incremental increase in annual core earnings per share of up to 20%, depending on leverage levels and other factors.

 

“We believe the added flexibility from the SBCAA will enhance our ability to manage risk and generate more attractive returns across market cycles,” said Michael Arougheti, Co-Chairman of Ares Capital Corporation and Chief Executive Officer and President of Ares Management, L.P. “We plan to operate with an increased cushion to the new regulatory threshold, which we believe significantly de-risks ARCC.  In addition, the flexibility of the SBCAA allows us to further diversify our portfolio and broadens our opportunity set.”

 

Our plan is to use this incremental capacity to make investments consistent with our past investment philosophy and to pursue a similar mix of assets,” said Kipp deVeer, Chief Executive Officer of Ares Capital. “With no meaningful change to our strategy and a modest increase in leverage, we believe we can deliver higher earnings for shareholders while maintaining our conservative risk profile. In addition, we are further supporting incrementally higher returns for shareholders by providing a lower fee structure that is implemented if we exceed the prior statutory limit of 1:1 debt to equity.”

 



 

“We believe our plan to utilize a modest amount of incremental leverage will continue to result in a conservative investment grade funding profile given our strong asset coverage and track record investing in these assets,” commented Penni Roll, Chief Financial Officer of Ares Capital.

 

A presentation entitled “ARCC’s Plan for the Small Business Credit Availability Act” outlining the benefits of these changes can be found on the Company’s website at www.arescapitalcorp.com under “Investor Resources - Presentations and Reports.”

 

About Ares Capital Corporation

 

Ares Capital is a leading specialty finance company that provides one-stop debt and equity financing solutions to U.S. middle market companies and power generation projects. Ares Capital originates and invests in senior secured loans, mezzanine debt and, to a lesser extent, equity investments through its national direct origination platform. Ares Capital’s investment objective is to generate both current income and capital appreciation through debt and equity investments primarily in private companies. Ares Capital has elected to be regulated as a business development company (“BDC”) and is the largest BDC by both market capitalization and total assets. Ares Capital is externally managed by a subsidiary of Ares Management, L.P. (NYSE: ARES), a publicly traded, leading global alternative asset manager. For more information about Ares Capital Corporation, visit www.arescapitalcorp.com. However, the contents of such website are not and should not be deemed to be incorporated by reference herein.

 

FORWARD-LOOKING STATEMENTS

 

Statements included herein may constitute “forward-looking statements,” which relate to future events or Ares Capital’s future performance or financial condition. These statements are not guarantees of future performance, condition or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including the returns on current and future investments, rates of repayments and prepayments on the Ares Capital’s investments, availability of investment opportunities, Ares Capital’s ability to originate additional investments and completion of pending investments, the availability of capital, the availability and cost of financing, the ability for Ares Capital to maintain its investment grade rating, market trends and conditions in Ares Capital’s industry and the general economy, the level of lending and borrowing spreads and interest rates, commercial loan volumes and the risks described from time to time in Ares Capital’s filings with the Securities and Exchange Commission. This press release contains information about Ares Capital’s historical performance and general information about the market. You should not view information related to the past performance of Ares Capital or information about the market, as indicative of future results, the achievement of which cannot be assured. Ares Capital undertakes no duty to update any forward-

 



 

looking statements made herein. This press release also contains information about Ares Capital’s historical performance and general information about the market. You should not view information related to the past performance of Ares Capital or information about the market, as indicative of future results, the achievement of which cannot be assured.

 

Contact:

 

Investors:

Ares Capital Corporation

Carl Drake

(888) 818-5298, cdrake@aresmgmt.com

 

John Stilmar

(888) 818-5298, jstilmar@aresmgmt.com

 

Mendel Communications

Bill Mendel

(212) 397-1030, bill@mendelcommunications.com

 


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Section 3: EX-99.2 (EX-99.2)

Exhibit 99.2

 ARCC’s Plan for the Small Business Credit Availability Act June 2018

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Disclaimer IMPORTANT NOTICE: Statements included herein may constitute “forward-looking statements,” which may relate to future events or the future performance or financial condition of Ares Capital Corporation (“ARCC”), its investment adviser Ares Capital Management LLC (“ACM”), a subsidiary of Ares Management, L.P. (“Ares Management”), or of Ares Management. These statements are not guarantees of future results or financial condition and involve a number of risks and uncertainties. Actual results and conditions may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in the filings of ARCC and Ares Management with the Securities and Exchange Commission (“SEC”). The information contained in this presentation is summary information that is intended to be considered in the context of the SEC filings of ARCC and Ares Management and other public announcements that ARCC or Ares Management may make, by press release or otherwise, from time to time. Neither ARCC nor Ares Management undertakes any duty or obligation to publicly update or revise the forward-looking statements or other information contained in this presentation. These materials contain information about ARCC, ACM and Ares Management, and certain of their respective personnel and affiliates, information about their respective historical performance and general information about the market. You should not view information related to the past performance of ARCC, ACM or Ares Management or information about the market, as indicative of future results, the achievement of which cannot be assured. Nothing in these materials should be construed as a recommendation to invest in any securities that may be issued by ARCC or Ares Management or as legal, accounting or tax advice. None of ARCC, ACM, Ares Management or any affiliate of ARCC, ACM or Ares Management makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein and nothing contained herein shall be relied upon as a promise or representation whether as to the past or future performance. Certain information set forth herein includes estimates and projections and involves significant elements of subjective judgment and analysis. Further, such information, unless otherwise stated, is before giving effect to management and incentive fees and deductions for taxes. No representations are made as to the accuracy of such estimates or projections or that all assumptions relating to such estimates or projections have been considered or stated or that such estimates or projections will be realized. These materials may contain confidential and proprietary information, and their distribution or the divulgence of any of their contents to any person, other than the person to whom they were originally delivered and such person’s advisers, without the prior consent of ARCC, ACM or Ares Management, as applicable, is prohibited. You are advised that United States securities laws restrict any person who has material, non-public information about a company from purchasing or selling securities of such company (and options, warrants and rights relating thereto) and from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities. You agree not to purchase or sell such securities in violation of any such laws. These materials are not intended as an offer to sell, or the solicitation of an offer to purchase, any security, the offer and/or sale of which can only be made by definitive offering documentation. Any offer or solicitation with respect to any securities that may be issued by ARCC, Ares Management or any of their affiliates will be made only by means of definitive offering memoranda or prospectus, which will be provided to prospective investors and will contain material information that is not set forth herein, including risk factors relating to any such investment. S&P Disclaimer Notice This may contain information obtained from third parties, including ratings from credit ratings agencies such as Standard & Poor’s. Reproduction and distribution of third party content in any form is prohibited except with the prior written permission of the related third party. Third party content providers do not guarantee the accuracy, completeness, timeliness or availability of any information, including ratings, and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such content. THIRD PARTY CONTENT PROVIDERS GIVE NO EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. THIRD PARTY CONTENT PROVIDERS SHALL NOT BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, EXEMPLARY, COMPENSATORY, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES, COSTS, EXPENSES, LEGAL FEES, OR LOSSES (INCLUDING LOST INCOME OR PROFITS AND OPPORTUNITY COSTS OR LOSSES CAUSED BY NEGLIGENCE) IN CONNECTION WITH ANY USE OF THEIR CONTENT, INCLUDING RATINGS. Credit ratings are statements of opinions and are not statements of fact or recommendations to purchase, hold or sell securities. They do not address the suitability of securities or the suitability of securities for investment purposes, and should not be relied on as investment advice.

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ARCC Board Approves Reducing Asset Coverage Requirement Under the SBCAA We have taken a methodical approach to evaluating the benefits of the SBCAA, which has resulted in our Board approving a lower asset coverage requirement pursuant to the SBCAA SBCAA Overview • The Small Business Credit Availability Act (the “SBCAA”) was included in the Omnibus Spending Bill and was signed into law on March 23, 2018 • The SBCAA, among other things, modifies the applicable provisions of the Investment Company Act to reduce the required asset coverage ratio applicable to BDCs from 200% to 150%, subject to certain approval, timing and disclosure requirements o Upon approval and implementation, this effectively raises the regulatory debt to equity ceiling from 1.0x to 2.0x Debt to Equity (“D:E”) Comprehensive Process for Evaluating and Approving the SBCAA • Solicited Broad Input: In addition to significant internal resources focused on evaluating the opportunity, we have considered input from a wide array of constituencies, which included: o Lenders o Rating agencies o Fixed income investors o Shareholders o Investment banks • Deep Board Engagement: Our majority-independent Board of Directors has convened multiple times since passage of the SBCAA to consider many factors in evaluating our approach • Approval of Increased Leverage Flexibility Under the SBCAA: On June 21, 2018, our Board of Directors approved reducing our regulatory asset coverage ratio to 150% under the SBCAA. This change will go into effect on June 21, 2019, following the required 12 month cooling off period under the SBCAA o We reserve the right to seek a shareholder vote if we would like to accelerate the implementation

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ARCC’s Plan for Operating Under the Reduced Asset Coverage Requirement We believe our plan to modestly increase leverage at ARCC creates long term value for shareholders The Key Elements of our Plan: Maintain our high quality investment portfolio Continue our long term and highly selective investment approach focused on relative value and senior loans Patiently deploy additional capital over the 12-36 months following the effective date Modestly expand use of leverage and target a 0.90x – 1.25x Debt to Equity ratio Operate with increased cushion to the regulatory limit of 150% asset coverage or 2.0x Debt to Equity Operate in a manner that intends to maintain our investment grade rating Reduce base management fee to 1.0% on assets financed with leverage over 1.0x Debt to Equity We expect our plan will generate incremental earnings while maintaining a conservative leverage profile

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Benefits of Reducing Asset Coverage Requirement Under the SBCAA The adoption of the 150% asset coverage ratio and the use of modest incremental leverage provides increased flexibility and potential for incremental earnings while maintaining our conservative risk profile 1 BUILDS ON LEADING TRACK RECORD TO DRIVE HIGHER EARNINGS WITH LOWER FEES • We believe our high quality, senior oriented portfolio supports additional leverage • We expect to generate incremental core earnings of up to 20% (1) • We will reduce our base management fee to 1.0% on all assets financed using leverage over 1.0x debt to equity 2 INCREASED FLEXIBILITY DE-RISKS THE COMPANY • Increases cushion to regulatory leverage limit and therefore reduces default risk on our outstanding debt • Increases flexibility to manage ARCC through credit cycles 3 MAINTAINS CONSERVATIVE INVESTMENT GRADE PROFILE • Revised target leverage of 0.90x to 1.25x remains conservative • Target leverage of 0.90x to 1.25x is lower than allowed by the advance rates of our credit facilities (2) • We intend to operate in a manner whereby ARCC maintains its investment grade credit profile 4 ENHANCES GROWTH, SCALE & DIVERSIFICATION OPPORTUNITIES • Increases ARCC’s flexibility • Adds to our potential investment opportunities • Increases opportunities for diversification and scale • Should enhance ARCC’s access to capital

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1ARCC Has Generated Superior Long Term Performance ARCC’s high quality portfolio and leading track record supports our plan for higher leverage Portfolio Companies • High quality portfolio of 360 portfolio companies with a focus on senior secured floating rate loans to middle market companies Length of Track Record • ~14 year track record with a superior level of low realized credit losses on over $46 billion of capital invested (1) Annual Net Realized Gains Since Inception On Realized Investments Since Inception • Over $600 million in cumulative net realized gains on investments (+1% average annual net realized gains(2)) with a consistent track record of generating net realized gains in 13 out of 14 years • 14% asset level gross IRR on realized investments since inception in 2004 (3) With 1/3 the Volatility of BDC Peers • Superior 5 year GAAP net return on equity of greater than 10% with earnings volatility that is a third of the peer average (4) Stock Based Return Since Inception • 12% average annual shareholder return since IPO in 2004 (5) Outperformed the S&P 500, BDC peers and representative bank index(6)

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1ARCC Has an Outstanding Track Record of Credit Performance ARCC’s annual loss rate has been significantly better than the industry averages ARCC’s loss rates are well below industry averages 3.5% 3.0% Loss Rate % Subordinated Unsecured Loans - 2.9%(6) 2.0% 1.5% 1.0% 0.5% 0.0% ARCC < 0.1% Middle Market Senior Loans - 0.6%(4) Broadly Syndicated Market Senior Loans - 0.9%(5) ARCC < 0.4% First LienSecond Lien & Subordinated

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1Focus on ARCC’s Leading Investment & Credit Performance ARCC has generated net realized gains in 13 out of 14 years ARCC has generated the strongest net realized gains in the BDC Peer Group (1) 2% 1% 0% -1% -2% -3% -4% -5% ARCC BDC 1 BDC 2 BDC 3 BDC 4 BDC 5 BDC 6 BDC 7 BDC 8 BDC 9 BDC 10 BDC 11 BDC 12 BDC 13 BDC 14 BDC 15 BDC 16 BDC 17 BDC 18 BDC 19 BDC 20 Annualized Net Realized Gain/Loss Rates:(2) Since IPO or Past 10 Years for ARCC and BDC Peer Group (1)(3)

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1ARCC Portfolio Has Generated Higher Returns with Less Risk ARCC has generated outsized, risk-adjusted returns for shareholders with very low volatility Lower Earnings Volatility and Higher GAAP ROE vs. Peers (1) ARCC has generated over 50% higher GAAP ROE vs. the Peer average over the past 5 years (1)(2) ARCC’s earnings have been approximately 3x less volatile than the Peer average over the past 5 years (1)(3) ARCC has delivered 12% average annual stock based total return for investors since inception in 2004

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1We Believe ARCC Can Generate Higher Incremental Returns From SBCAA We expect the flexibility from adopting the SBCAA will enable us to generate incremental core earnings of up to 20% $0.35 $0.30 Incremental Annual Core EPS $0.20 $0.15 $0.10 $0.05 $0.00 Illustrative Case: Higher Incremental Core EPS & ROE ~$0.23 (+~150 bps ROE) ~$0.15 (+ ~100 bps ROE) ~$0.30 (+~200 bps ROE) Key Considerations • Illustrative case uses various leverage levels and assumes: — Portfolio yields (including interest, dividends and fees), borrowing rates and core G&A expenses remain consistent with Q1-18 — The reduced management fee of 1.0% on assets financed by leverage over 1.0x debt to equity • We believe variables such as leverage, net returns on investments, timing and market conditions (including portfolio net gain/losses) will impact the range of incremental returns • Illustrative case does not include the following factors that will influence future earnings: Incremental Core Earnings and ROE % change 1.00 x D:E1.13x D:E1.25x D:E ~10%~15%~20% — Rising interest rates — Benefits from ACAS portfolio rotation — Portfolio net gains/(losses) — Expiration of current income based fee waiver (1) As of March 31, 2018, unless otherwise stated. Data is shown for illustrative purposes only and is based on estimates and assumptions. There can be no assurance that we can achieve the earnings estimated from these assumptions. Past performance is not indicative of future results.

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2The Relaxed Asset Coverage Ceiling Improves Risk Profile SBCAA election expands the cushion to the regulatory limit, which should make ARCC more durable through market cycles 2.00x 1.80x New Regulatory Leverage Limit Under SBCAA 1.60x 1.40x 1.20x 1.00x 0.80x 0.60x 0.75x 0.65x Old Regulatory Leverage Limit Old Cushion 1.25x 0.90x Expanded cushion 0.40x 0.20x 0.00x Old Target Leverage Range 0.65x - 0.75x Debt to Equity New Target Leverage Range 0.90x - 1.25x Debt to Equity We intend to operate with a greater cushion to our leverage limit, which would reduce risk for debt and equity investors Note: The degree of cushion depends on underlying asset volatility and use of leverage.

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3Target Leverage Range is Still Below Borrowing Capacity Based on our Q1-18 portfolio and current advance rates, our portfolio could be leveraged to ~1.5x D:E 2.0x 1.8x New Regulatory Leverage Limit Under SBCAA 1.6x Debt to Equity Ratio 1.2x 1.0x 0.8x 0.6x New Target Leverage Range 0.69x 0.90x 1.25x ~1.50x 0.4x 0.2x 0.0x 3/31/2018 LeverageLower End of New Targeted Range Upper End of New Targeted Range Leverage Allowed by the Advance Rates of our Revolving Credit Facility (1) 1.For illustrative purposes only to demonstrate borrowing capacity without giving consideration to any regulatory or contractual constraints on leverage. For assets pledged to our Revolving Credit Facility, advance rates are based on current advance rates under our Revolving Credit Facility. For assets not pledged to our Revolving Credit Facility, advance rates are based on our estimate of market allowable leverage. Such advance rates are subject to change.

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3Our Conservative Leverage Profile is Favorable Compared to Other Entities CLOs, Banks and SBICs employ leverage ranging from 3.0x to 9.9x Illustration of Leverage Used to Invest in Loans by Investor Type 12.0x 10.0x 9.9x 9.3x LeverageEquity % 44% 50% % Equity of Total Capitalization Debt to Equity Ratio 6.0x 4.0x 2.0x 4.5x 9%10%18% 25% 3.0x 1.25x 30% 20% 10% 0.0x Banks (1) Broadly Syndicated CLOs (2) Middle Market CLOs (3) SBICs (4) 0% ARCC Leverage Target - Upper End

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3Historical Market Default Rates Imply Minimal Incremental Risk History of CLOs holding leveraged loans demonstrates minimal incremental risk to increasing leverage at ARCC While CLO tranches rated AAA or AA are levered 2x - 3x D:E, these tranches have never defaulted or experienced a loss

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3ARCC’s Approach to Portfolio Construction Remains Unchanged ARCC expects to maintain a similar asset mix, with a continued focus on senior secured loans, diversification, and investments with low credit risk Well diversified portfolio - 360 companies High degree of selectivity, with an average ~4% closing rate (2) Strong senior secured orientation Focus on defensively positioned, attractive industries Portfolio by Asset Class (1) Portfolio by Industry (1) 5% 5%2% 1%3% 3% 24% 42% 4%4% 30% 4% 6% 7%7% 18% First Lien Senior Secured Loans - 42% Second Lien Senior Secured Loans - 30% Senior Direct Lending Program - 4% Senior Subordinated Loans - 10% Collateralized Loan Obligations - 1% Preferred Equity - 5% Other Equity and Other - 8% As of March 31, 2018, unless otherwise stated. 1.At fair value as of March 31, 2018. Healthcare Services - 24%Business Services - 18% Consumer Products - 7%Financial Services - 7% Other Services - 6%Manufacturing - 6% Senior Direct Lending Program - 4%Food and Beverage - 4% Power Generation - 4%Restaurants and Food Services - 3% Education - 3%Wholesale Distribution - 3% Oil and Gas - 2%Containers and Packaging - 2% Automotive Services - 2%Remaining - 5% 2.Calculation based on ARCC's reviewed and closed transactions with new portfolio companies (excludes any investments in existing portfolio companies) from 2011 through Q1-18 and excludes equity-only investments and legacy investments from portfolio acquisitions.

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4SBCAA Adoption Should Provide Greater Diversification and Scale A larger balance sheet allows ARCC to finance larger, high quality companies We have invested in larger and more stable businesses as our portfolio has grown 90 We have funded the growth of our highest performing portfolio companies 100% We have placed a greater emphasis on incumbency, unlocking attractive opportunities 80 70 60 $ Millions 5046 38 40 40 30 20 10 - 77 65 67 60 55 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 35% 43% 33% % of Total $ Committed 63% 60% Enables us to finance and grow with leading portfolio companies Helps reduce portfolio risk Allows us to remain active with deployment while being defensive Enables us to leverage our history with the borrower Enhances our ability to maintain better than Wtd. Avg. Portfolio Company EBITDA(1)(2) Weighted average portfolio company EBITDA has doubled since 2010 2013 2014 2015 2016 2017 Q1-18 Commitments to Existing Borrowers We have committed over 50% of our aggregate capital to existing borrowers since 2013 market terms, documentation and pricing Incumbent borrowers have had superior credit performance as compared to new borrowers (3) Note: As of March, 31, 2018, unless otherwise stated. Refer to Endnotes on slides 19 - 21 for additional important information.

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Conclusion With the increased flexibility allowed by the SBCAA, we believe ARCC can increase returns for shareholders while maintaining a conservative investment grade profile Summary of Business Plan Incorporating Asset Coverage Provision Under SBCAA Maintain a similar asset mix and a high quality investment portfolio Revise fee: 1.0% base management fee on assets financed with leverage over 1.0x debt to equity Intend to operate within parameters that are consistent with our investment grade rated profile Modestly expand leverage to 0.90x - 1.25x debt to equity in the 12 - 36 months following the effective date Expand ARCC’s portfolio providing greater diversification and broader investment capabilities Improve flexibility and increase cushion to the regulatory threshold, de-risking the company Potential to generate incremental annual core earnings of up to 20% as leverage increases (1) Higher Earnings Power Greater Operating Flexibility Appropriate Portfolio Risk and Return Attractive and Compelling Investor Returns 1.See slide 10 for additional information. Data on slide 10 is shown for illustrative purposes only and is based on estimates and assumptions. There can be no assurance that we can achieve the earnings estimated from these assumptions. Past performance is not indicative of future results.

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 Endnotes

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Endnotes Slide 5: Benefits of Reducing Asset Coverage Requirement Under the SBCAA 1.See slide 10 for additional information. Data on slide 10 is shown for illustrative purposes only and is based on estimates and assumptions. There can be no assurance that we can achieve the earnings estimated from these assumptions. Past performance is not indicative of future results. 2.For assets pledged to our Revolving Credit Facility, advance rates are based on current advance rates under our Revolving Credit Facility. For assets not pledged to our Revolving Credit Facility, advance rates are based on our estimate of market allowable leverage. Such advance rates are subject to change. Slide 6: ARCC Has Generated Superior Long Term Performance 1.Includes invested capital from inception on October 8, 2004 through March 31, 2018. Includes investments made through Ares Capital Corporation, the Senior Secured Loan Program and the Senior Direct Lending Program. Excludes syndications within one year of origination, $1.8 billion of investments acquired from Allied Capital on April 1, 2010 and $2.5 billion of investments acquired from American Capital on January 3, 2017. 2.Calculated as an average of the historical annual net realized gain/loss rates (where annual net realized gain/loss rate is calculated as the amount of net realized gains/losses for a particular period from Ares Capital Corporation’s IPO in October 2004 to March 31, 2018 divided by the average quarterly investments at amortized cost in such period). Excludes $196 million one-time gain on the acquisition of Allied Capital Corporation in Q2-10 and gains/losses from extinguishment of debt and sale of other assets. 3.Based on original cash invested, net of syndications, of approximately $21.5 billion and total proceeds from such exited investments of approximately $27.4 billion from inception on October 8, 2004 through March 31, 2018. Internal rate of return ("IRR") is the discount rate that makes the net present value of all cash flows related to a particular investment equal to zero. Internal rate of return is gross of management fees and expenses related to investments as these fees and expenses are not allocable to specific investments. The effect of such management and other expenses may reduce, maybe materially, the IRR’s shown herein. Investments are considered to be exited when the original investment objective has been achieved through the receipt of cash and/or non-cash consideration upon the repayment of Ares Capital Corporation’s debt investment or sale of an investment, or through the determination that no further consideration was collectible and, thus, a loss may have been realized. These IRR results are historical results relating to Ares Capital Corporation’s past performance and are not necessarily indicative of future results, the achievement of which cannot be assured. 4.Analysis includes externally managed BDCs with market capitalizations of at least $400 million or greater as of March 31, 2018, which have been publicly listed for 5 years: AINV, BKCC, FSIC, GBDC, OCSL, PFLT, PNNT, PSEC, SLRC and TCPC. GAAP ROE is measured by net income divided by average equity over the five year period ended March 31, 2018. Volatility is measured by the standard deviation of net income divided by average net income over the five years ended March 31, 2018. 5.Source: SNL Financial. As of March 31, 2018. Ares Capital Corporation’s stock price-based total return is calculated assuming dividends are reinvested at the end of the day stock price on the relevant quarterly ex-dividend dates. Total return is calculated assuming investors did not participate in Ares Capital Corporation’s rights offering issuance as of March 20, 2008. 6.S&P 500 returns measured by the S&P 500 Index. BDC returns measured by SNL U.S. Registered Investment Companies (RICs) Index. Bank returns measured by the KBW Nasdaq Bank Index (BKX). Slide 7: ARCC Has an Outstanding Track Record of Credit Performance 1.Includes invested capital from inception on October 8, 2004 through March 31, 2018. Includes investments made through Ares Capital Corporation, the Senior Secured Loan Program and the Senior Direct Lending Program. Excludes syndications within one year of origination, $1.8 billion of investments acquired from Allied Capital on April 1, 2010 and $2.5 billion of investments acquired from American Capital on January 3, 2017. 2.Loss experience includes traditional first lien and unitranche loans. 3.Loss experience includes second lien and subordinated loans. 4.Represents the average annual middle market senior loan default rate of 1.9% per “Fitch U.S. Leveraged Loan Default Insights” for 2007-2017 multiplied by (1 minus the recovery rate for senior secured loans of 69%) per “Moody's Annual Default Study” for 2007-2017. 5.Represents the average annual broadly syndicated senior loan default rate of 2.8% per “Fitch U.S. Leveraged Loan Default Insights” for 2007-2017 multiplied by (1 minus the recovery rate for senior secured loans of 69%) per “Moody's Annual Default Study” for 2007-2017. 6.Represents Moody’s U.S. Trailing 12-Month Issuer-Weighted Spec-Grade Default Rate for 2007-2017 of 4.5% multiplied by (1 minus the recovery rate for subordinated unsecured debt of 36%) per “Moody's Annual Default Study” for 2007-2017.

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Endnotes Slide 8: Focus on ARCC’s Leading Investment & Credit Performance 1.The BDC peer group consists of BDCs with a market capitalization of $400 million or greater as March 31, 2018, or who are under common management with a BDC that meets these criteria. This includes: AINV, BKCC, CGBD, CCT, OCSL, OCSI, FSIC, GBDC, GSBD, HTGC, MAIN, NMFC, PFLT, PNNT, PSEC, SLRC, SUNS, TCAP, TCPC and TSLX. 2.Calculated as an average of a BDC’s historical annual net realized gain/loss rates, where annual net realized gain/loss rate is calculated as the amount of net realized gains/losses for a particular period divided by the average quarterly investments at amortized cost in such period. For ARCC, excludes $196 million one-time gain on the acquisition of Allied Capital Corporation in Q2-10 and gains/losses from extinguishment of debt and sale of other assets. 3.Measured from December 31, 2004 (or IPO if more recent) through March 31, 2018. 4.Annual average from December 31, 2004 through March 31, 2018. Slide 9: ARCC Portfolio Has Generated Higher Returns with Less Risk 1.Includes externally managed BDCs with market capitalizations of at least $400 million or greater as of March 31, 2018, which have been publicly listed for 5 years: AINV, BKCC, FSIC, GBDC, OCSL, PFLT, PNNT, PSEC, SLRC and TCPC. 2.Represents annual GAAP ROE for the five years ended March 31, 2018. 3.Represents the standard deviation of net income divided by average net income over the five years ended March 31, 2018. Slide 10: We Believe ARCC Can Generate Higher Incremental Returns From SBCAA 1.Ares Capital Management agreed to waive up to $10 million of income based fees per quarter in connection with the American Capital transaction for ten calendar quarters beginning with the second quarter of 2017. The last quarter of the fee waiver is the third quarter of 2019 and thus the fee waiver expires in the fourth quarter of 2019. Slide 13: Our Leverage Profile is Favorable Compared to Other Entities 1.Reflects the ratio of deposits and borrowings divided by tangible equity for U.S. banks with a market capitalization below $1 0 billion as of December 7, 2017, which includes 760 banks, according to SNL Financial. 2.Reflects the average debt to equity ratio of all rated tranches of 5 most broadly syndicated CLOs as of April 6, 2018 according to S&P LCD. The 5 CLOs used were: TICP CLO III-2 Reissue, Barings CLO 2018-II, OZLM XX CLO, Crestline Denali CLO XII Reset, and Ballyrock CLO 2018-1. 3.Reflects the debt to equity ratio for BBB-tranche debt within the Ivy Hill MM CF XIV, LTD. CLO, the collateral for which is primarily middle market first lien loans, including loans acquired from ARCC. 4.The SBIC program allows for 3:1 leverage on loans to much smaller companies than our typical portfolio companies without any limitations on asset classes. Slide 14: Historical Market Default Rates Imply Minimal Incremental Risk 1.Reflects the most recent U.S. CLO industry default analysis by rating provided by S&P as of March 22, 2018 titled “Twenty Years Strong: A Look Back At U.S. CLO Ratings Performance From 1994 Through 2013.” 2.Reflects the most recent U.S. CLO industry default analysis by rating provided by Moody’s as of March 22, 2018 titled “Impairment and Loss Rates of U.S. and European CLOs: 1993-2016.”

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Endnotes Slide 16: SBCAA Adoption Should Provide Greater Diversification and Scale 1.Weighted average EBITDA amounts are weighted based on the fair value of the portfolio company investments. EBITDA amounts are estimated from the most recent portfolio company financial statements, have not been independently verified by Ares Capital Corporation and may reflect a normalized or adjusted amount. Accordingly, Ares Capital Corporation makes no representation or warranty in respect of this information. 2.This portfolio weighted average EBITDA data includes information solely in respect of corporate investments in Ares Capital Corporation's portfolio, subject to the exclusions described in the following sentence. Excluded from the data above is information in respect of the following: (i) the SSLP (and the underlying borrowers in the SSLP), (ii) the SDLP (and the underlying borrowers in the SDLP), (iii) portfolio companies that do not report EBITDA, including IHAM, (iv) investment funds/vehicles, (v) discrete projects in the project finance/power generation sector, (vi) certain oil and gas companies, (vii) venture capital backed companies and (viii) commercial real estate financial companies. 3.Incumbent borrowers have had fewer non-accruals vs. new borrowers based on invested capital since inception (October 2004) through December 31, 2017. Invested capital includes investments made through Ares Capital Corporation, the Senior Secured Loan Program and the Senior Direct Lending Program. Invested capital excludes syndications within one year of origination, $1.8 billion of investments acquired from Allied Capital on April 1, 2010, $2.5 billion of investments acquired from American Capital on January 3, 2017, as well as venture loans.

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