Debt Investor Presentation - August 2018 John Stilmar, Investor Relations (678) 538 1983 - Ares Capital Corporation ...
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Contact:
Debt Investor Presentation John Stilmar, Investor Relations
jstilmar@aresmgmt.com
August 2018 (678) 538 - 1983
Ares Capital Corporation - Not for Publication or Distribution
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
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suitability of securities or the suitability of securities for investment purposes, and should not be relied on as investment advice.
REF: DLUS-0254
Ares Capital Corporation - Not for Publication or Distribution 2Leading Lender to the Middle Market
Ares Capital is a leading specialty finance company that is focused on providing debt and equity financing solutions to
U.S. middle market companies
Well Positioned with Active, Investment Grade
Attractive Industry & Significant Competitive
Strong Investment Rated, Index Eligible
Corporate Structure Advantages
Performance Issuer
• Middle market has exhibited • Largest BDC with significant • Highly diversified portfolio • Investment grade rated by Fitch
strong growth, creating direct origination platform and S&P, and under review for
demand for financing • Strong long term credit upgrade by Moody’s
• Consistent and experienced
performance
• Bank consolidation and team • Completed 17 debt capital
regulations have created the • Strong asset coverage as markets transactions / $5.7
• Disciplined underwriting
non-bank lending opportunity well as modest leverage billion of financings (2)
process supports highly
• Low leverage profile and selective approach ratio • Lowered spreads on all
moving to expanded cushion to • Deep sources of liquidity issuances for similar tenor and
• Incumbency benefits from
the new regulatory limit from the portfolio and structures since inception
large portfolio, providing
• All BDC industry debt that has attractive future investing diverse financing options • Demonstrated access to
matured has been repaid at opportunities liquidity - 35 debt and equity
par (1) • Identified and distinct transactions totaling ~$10
• Deep asset management opportunities for future billion (2)
capabilities that seek to earnings growth
enhance investment
performance
Past performance is not a guarantee of future results.
1) Information based on Ares’ knowledge.
2) Since inception in October of 2004 through June 30, 2018.
Ares Capital Corporation - Not for Publication or Distribution 3ARCC’s Competitive Advantages in an Attractive Market Ares Capital Corporation - Not for Publication or Distribution
Supply Constraints Create an Attractive Market Opportunity
We believe supply constraints in the middle market have resulted in attractive risk adjusted returns
for direct lenders
Banks' Share of the U.S. Leveraged Loan Market
Total Number of U.S. Banks Continues to Decline (1)
Continues to Shrink (2)
11,000 100%
90%
10,000 29%
80%
70% 55%
9,000
60% 82%
88% 93%
8,000 50%
40%
7,000 71%
30%
6,000 20% 45%
10% 18%
5,000 12% 7%
0%
1994 2000 2006 2012 1H18
Foreign/Domestic Banks Non-Bank Companies/Funds
(1) Source: Federal Deposit Insurance Corp Quarterly Banking Profile Q1-18.
(2) Source: S&P Global Market Intelligence U.S. Leverage Loan Data as of Q2-18. Amounts are based on administrative, syndication and documentation agent as
well as arranger roles.
Ares Capital Corporation - Not for Publication or Distribution 5ARCC’s Proven Business Model and Processes
ARCC’s time-tested strategy and business model have driven strong performance and returns for
shareholders
Active, Investment Grade Rated,
Index Eligible Issuer
Past performance is not indicative of future results.
Ares Capital Corporation - Not for Publication or Distribution 6Direct Origination & Scale Provide Distinct Competitive Advantages
Broad and Deep U.S. Origination Coverage with Experienced Team
87 portfolio Direct Origination and Scale Improve Asset Selectivity, Credit
Quality and Control
companies
• Over 100 investment professionals in six U.S. offices
• Drives asset selectivity and enhances returns
• Improves due diligence, access and influence over terms
• Focus on lead investing and controlling the tranche
• Active investor post-closing with board seats or observation
rights on 48% of the portfolio (2)
Larger/Broader Product Capability Enhances Returns
• Commit and hold up to $500 million in a single transaction(1)
• Incumbency creates organic growth opportunities within
existing portfolio
• Ability to underwrite and syndicate to drive fee income
Deep PE Sponsor Network
• Relationships with over 450 sponsors
67 portfolio • Closed at least one investment with approximately 350
financial sponsors and multiple investments with over 175
companies financial sponsors in the U.S.
157 portfolio
companies Scale Creates Cost of Capital Advantages
• Enhances access to capital
• Leads to diversified funding sources and more efficient
Ares office locations access to capital
Note: portfolio company locations excludes 35 portfolio companies outside of the United States.
All data is as of June 30, 2018 unless otherwise noted.
(1) Includes Ares Capital and certain of its financial services portfolio companies.
(2) Based on fair value.
Ares Capital Corporation - Not for Publication or Distribution 7Why is Direct Origination Important?
1
Widens the Funnel to Provide For a Larger Deal Universe Selectivity
2
Primary Diligence on Thousands of Deals Reviewed Since Inception Better Investing
3
Differentiated and
Control Over Structures and Better Economics
Diversified Portfolios
4
Incumbency and Relationships Long-Term Annuity
Origination is the core foundation of our disciplined investment strategy
Diversification does not assure profit or protect against market loss.
Ares Capital Corporation - Not for Publication or Distribution 8Flexibility of Capital: Diversified Product Offerings
Going to market as a total solution provider to our prospective and existing borrowers
allows us to see a broad view of market opportunities
Corporate: $30 - $250 million
TARGETED
Project Finance: $10 - $200 million
INVESTMENT HOLD SIZES EBITDA Range: Generally under $100 million
Leveraged Buyouts Restructurings
General Refinancing Power Generation
TRANSACTION TYPES Acquisitions
Rescue Financing Oil & Gas
Recapitalizations
Growth Capital
Revolvers Unitranche Loans
Junior Capital
PRODUCTS First Lien Loans Second Lien Loans
PRODUCTS Stretch Senior Mezzanine Debt
Minority Equity
Private Equity Sponsors
Project Developers Entrepreneurs
PARTNERS Management Teams
Family Offices Other Lenders
Intermediaries
Ares Capital Corporation - Not for Publication or Distribution 9Long Tenured & Highly Experienced Investment Team
ARCC benefits from a long tenured and highly experienced team with significant
experience in direct lending and extensive middle market knowledge
• ARCC’s investment team has invested approximately $47 billion across over 1,000 transactions since 2004(1)
• Over 75% of senior investment professionals in our direct lending team have been with Ares for at least 5 years(2)
• The members of the investment committee possess an average of 22 years of investing experience and every member has been
with Ares at least 10 years
• ARCC receives referrals from other teams across the Ares Platform
U.S. Direct Lending Investment Committee
Mark Michael Kipp Mitch Kort Dave Michael
Partners Jim Miller Average
Affolter Arougheti deVeer Goldstein Schnabel Schwartz Smith
Industry
29 Years 25 Years 23 Years 24 Years 19 Years 20 Years 17 Years 23 Years 22 Years
Experience
Years with
10 Years 14 Years 14 Years 13 Years 11 Years 17 Years 14 Years 14 Years 13 Years
Ares
Extensive Direct Lending Team
Direct Lending Commercial Finance
No. Investment Professionals 100+ 50+
No. Senior Investment
40 13
Professionals (2)
Average Industry Experience of
17 years 20 years
Sr. Professionals
No. of Offices 6 6
As of June 30, 2018.
(1) Includes invested capital from inception on October 8, 2004 through June 30, 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) Includes principals, managing directors and partners.
Ares Capital Corporation - Not for Publication or Distribution 10Extensive Ares Credit Group Provides Many Benefits to ARCC
Integrated scaled global platform combines direct origination, deep fundamental credit research
and broad perspective of relative value
$86.9 billion AUM(1) Advantages
~30 Partners averaging 24 years of experience
Access to Differentiated
Deep Investment Ability to Express
~235 dedicated investment professionals Information to Inform
Opportunity Set Relative Value
Credit Decisions
Origination, Research & Investment Management Leading Platform of Liquid Credit, Structured Credit & Direct Lending Strategies
14 portfolio managers Middle
Syndicated Structured Private Mezz/
Market Cash
50+ industry research and structured credit professionals Loans Credit / CMBS Opportunistic
Flow Loans
~120 direct origination professionals
11 distressed and restructuring specialists
Asset Based Project
High Yield Lending Finance
Syndication, Trading & Servicing
5 traders in the U.S. and Europe Liquid Credit Illiquid Credit
5 dedicated capital markets professionals
30+ direct lending professionals focused solely on asset management
Accolades(2)
Investor Relations & Business Operations
Established investor relations and client service across the Americas, ARCC Received Most Honored
Designation & Highest Global Fund Manager,
Europe, Asia, Australia and the Middle East Rankings for Best CEO, CFO, IR Top Quartile Lender of the Year Lender (Americas), &
Professional and Investor Rankings for North America Deal (Americas) of the
Relations Program Several Funds 2014, 2015, 2016 & 2017 Year - 2017
We have experienced teams across the platform that are positioned for excellence in investing and client service
Note: As of June 30, 2018, unless otherwise noted.
1. As of June 30, 2018, AUM amounts include funds managed by Ivy Hill Asset Management, L.P., a wholly owned portfolio company of Ares Capital Corporation and a
registered investment adviser.
2. The performance, awards/ratings noted herein relate only to selected funds/strategies and may not be representative of any given client’s experience and should
not be viewed as indicative of Ares’ past performance or its funds’ future performance. All investments involve risk, including loss of principal.
Please refer to the Performance Notes on slides 39 - 43 for additional definitions, information and notes
Ares Capital Corporation - Not for Publication or Distribution 11Rigorous Underwriting and Credit Management
Our in-depth process often spans several months, allowing for thoughtful decision making
Key Attributes of ARCC Borrowers (1)
Defensive oriented franchise businesses
High free cash flow
Above market growth prospects
Diverse sources of profitability
Premier financial sponsors with
meaningful “skin in the game”
Leading management teams
Appropriate capital structure
ARCC has lead role
Ares’ Approach:
• Seek to invest in leading, non-cyclical businesses with attractive growth prospects and high free cash flows
• Use direct origination and scale to provide greater influence on loan structures to maintain high selectivity
• Seek to be the lead lender with voting control to have the ability to impact outcomes
• Use incumbent positions to support growth of leading portfolio companies and to help enhance credit quality
• Be proactive managing investments and use our robust process to preserve capital and create value
(1) Not every investment meets each of the criteria.
Ares Capital Corporation - Not for Publication or Distribution 12Differentiated Asset Management Capabilities and Focus
Longstanding Process with Clear Differentiation
• 23 person dedicated asset management • For the past 7 years, Ares has spent a
team is enhanced by Ares firm resources significant amount of time and effort
such as legal, industry experts, etc. creating a cloud based platform which
• 7 have restructuring experience enhances access, speed and quality of
information
• Team has deep capabilities:
• Restructuring Large Asset Proprietary • System architecture provides
• Valuation Management Technology extensive reporting capabilities and
data to support investment and
• Due diligence Team
portfolio management decisions
• Valuation
• Investment teams work • Be early, be smart, be flexible
alongside asset management Active Extensive workout
team once loan is originated – Management Restructuring • Deep ability to protect capital
life of loan approach Approach Experience while avoiding unnecessary
• Ongoing dialogue with company damage to sponsor relationships
and sponsors/owners • Generated net positive realized gains
• Ares Management provides vs losses since inception
operational and informational
advantages to maximize value
As of June 30, 2018, unless otherwise noted.
Ares Capital Corporation - Not for Publication or Distribution 13ARCC’s Strong Financial Results
Lead to an Attractive Credit Profile
Ares Capital Corporation - Not for Publication or DistributionPortfolio Diversification and Industry Selection
Attractively positioned portfolio, diversified by asset class, industry and borrower size
Focus on defensively Well diversified Extensive investment
Focus on high free cash
positioned, attractive portfolio – discipline and focus on
flow businesses
industries 346 companies downside protection
Portfolio by Asset Class (1) Portfolio by Industry (1)
9% 8%
2%
6% 2% 22%
2%
1% 3%
3%
9% 40%
3%
4%
5%
4% 16%
5%
6%
7%
30% 6% 7%
Healthcare Services Business Services
Senior oriented portfolio: 75% senior secured loans(2) Consumer Products Financial Services
Investment Funds and Vehicles Other Services
First Lien Senior Secured Loans Second Lien Senior Secured Loans Manufacturing Power Generation
Senior Direct Lending Program Senior Subordinated Loans Restaurants and Food Services Education
Food and Beverage Oil and Gas
Collateralized Loan Obligations Preferred Equity
Automotive Services Wholesale Distribution
Other Equity and Other Containers and Packaging Remaining
(1) At fair value as of June 30, 2018.
(2) Including First Lien Senior Secured Loans, Second Lien Senior Secured Loans and investments in the subordinated certificates of the Senior Direct Lending Program.
Ares Capital Corporation - Not for Publication or Distribution 15Growth Has Enhanced the Portfolio Benefits of Scale
A larger balance sheet allows ARCC to finance larger, high quality companies
We have placed a greater emphasis on
We have invested in larger and more stable We have funded the growth of our highest
incumbency, unlocking attractive
businesses as our portfolio has grown performing portfolio companies
opportunities
90 100%
82
80 90% Enables us to finance and
grow with leading portfolio companies
80%
70 65 67 72%
60 70% 67%
% of Total $ Committed
60 55 63%
50 Helps reduce portfolio risk
60%
46
$ Millions
50
38 40 50% 43%
40 Allows us to remain active with deployment
40% 35% 33% while being defensive
30
30%
20
20% Enables us to leverage our history with the
10 borrower
10%
- 0% Enhances our ability to maintain better than
2013 2014 2015 2016 2017 1H18
market terms, documentation and pricing
Wtd. Avg. Portfolio Company EBITDA(1)(2) Commitments to Existing Borrowers
We believe lending to incumbent
We have committed over 50% of our
Weighted average portfolio company borrowers has significant credit
aggregate capital to existing borrowers
EBITDA has doubled since 2010 advantages that have supported our
since 2013
long term performance
Note: As of June, 30, 2018, unless otherwise stated. Refer to Endnotes on slides 39 - 43 for additional important information.
Ares Capital Corporation - Not for Publication or Distribution 16Sustained Market Premium for ARCC Yields with Lower Losses
ARCC’s portfolio has historically generated premium performance to middle market and syndicated
bank loans and high yield bonds
ARCC’s Portfolio Yield vs. Leveraged Loans & High Yield Bonds
11%
Premium to
9% Middle Market
Leveraged Loans
7%
5%
2013 2014 2015 2016 2017 Q2-18
ARCC Yield on Debt and Income Producing Securities (1) S&P LSTA Leveraged Loan Yields (2)
S&P LSTA Middle Market Leveraged Loan Yields (3) ICE BofAML US HY Master II (4)
Premium yields... ...with lower loss rates
Yield ARCC Non-Accrual Rate/
6/30/18 Premium Default Rate
ARCC Yield on Debt and Income Producing Average ARCC Non-Accrual Rate
10.5% 2.7%
Securities at Fair Value (1) at Amortized Cost (5)
ICE BofAML U.S. High Yield Master II 6.6% 3.9% High Yield Bond Default Rate (6) 5.1%
S&P LSTA Leveraged Loan Yields 5.7% 4.8% Average Annual
Gain/(Loss) Rate
S&P LSTA Middle Market Leveraged Loan
7.9% 2.6% ARCC (7) 1.0%
Yields
3-month LIBOR 2.3% 8.2% High Yield Bonds (8) (2.7)%
As of June 30, 2018. Past performance is not indicative of future results. Refer to Endnotes on slides 39 - 43 for additional important information.
Ares Capital Corporation - Not for Publication or Distribution 17Strong Credit and Investment Performance
ARCC’s net realized gain/(loss) rates have consistently outperformed BDC peers and banks
Since IPO in October 2004 through June 30, 2018: ARCC generated 220 bps of average annual
incremental gain differential
Cumulative internal rate of return on ~$23 vs. peers since 2004
14% IRR (1)(2)
billion of original amounts invested 1.20%
0.80%
Net realized gain/(loss) rate
~$630 million ARCC
Cumulative net realized gains generated 0.40%
Net Realized Gains(3)
0.00%
Average annualized net realized gain rate on the Banks
-0.40%
1.0% Net Realized principal amount of its investments. ARCC had a BDC
Gain Rate%(3) net realized loss in only one fiscal year since Peers
-0.80%
inception
-1.20%
ARCC Banks BDC Peers
Net Realized Gain/(Loss) and Net Charge Off Rates of ARCC, BDC Peers, and Banks
LTM
CY2007 CY2008 CY2009 CY2010 CY2011 CY2012 CY2013 CY2014 CY2015 CY2016 CY2017 CQ1-18 Avg(6)
ARCC(3) 0.4% 0.3% (2.0)% 1.3% 2.1% 0.9% 1.0% 1.2% 1.5% 1.2% 0.2% 0.1% 1.0%
BDC Peer Group Average(4) 0.3% 0.3% (7.6)% (4.3)% (1.4)% (0.5)% (0.9)% 0.7% (0.1)% (1.4)% (2.7)% (2.0)% (1.2)%
Outperformance vs. BDCs (%) 0.1% —% 5.6% 5.6% 3.5% 1.4% 1.9% 0.5% 1.6% 2.6% 2.9% 2.1% 2.2%
Bank C&I Net Charge Off Rate(5) (0.5)% (1.0)% (2.3)% (1.7)% (1.0)% (0.5)% (0.3)% (0.2)% (0.2)% (0.4)% (0.4)% (0.4)% (0.7)%
Outperformance vs. Banks (%) 0.9% 1.3% 0.3% 3.0% 3.1% 1.4% 1.3% 1.4% 1.7% 1.6% 0.6% 0.5% 1.7%
Note: Past performance is not indicative of future results. Refer to Endnotes on slides 39 - 43 for additional important information.
Ares Capital Corporation - Not for Publication or Distribution 18Compelling Core Earnings and Return on Equity
ARCC has generated strong core earnings(1) and stable core ROE(2) since our IPO
Long standing track record of stable core ROE ranging We’ve out-earned our dividend with cumulative core earnings
from ~9% to ~12% annually over the past 10 years plus net realized gains since our IPO
Consistent Core Cumulative Core Earnings Plus Net Realized Gains vs.
Return on Equity (2) Cumulative Dividends (1)
14%
12% $6,000
$5,000
10%
$4,000
8%
$ Millions
$3,000
6%
$2,000
4%
$1,000
2%
$0
0%
Cumulative Core Earnings Plus Net Realized Gains
Cumulative Dividends Paid
Core Earnings ROE 10 Yr US T-Note
Note: All data as of June 30, 2018. There can be no assurance that dividends will continue to be paid at historic levels or at all. Past performance is not
indicative of future results. See Endnotes on slides 39 - 43 for additional important information.
Ares Capital Corporation - Not for Publication or Distribution 19Deep Sources of Liquidity and Well Laddered Maturities
Investment portfolio provides ample cash flows to support upcoming debt maturities
Sales & Repayments Cumulative Assets Maturing Well In Excess
as % of Portfolio at Amortized Cost of Cumulative Debt Maturing ($ in millions)
60% $4,500 $12,000
$4,000
Maturities at Fair Value
50%
Cumulative Maturities
$10,000
$3,500
40% $3,000 $8,000
30% $2,500
$6,000
$2,000
20% $1,500 $4,000
10% $1,000
$2,000
$500
0%
$0 $0
Exists as % of Portfolio at Amortized Cost Average
Investment Maturities (at fair value) (1)
Debt Maturities (at par)
Cumulative Investment Maturities (at fair value) (1)
Cumulative Debt Maturities (at par)
Assuming the long term average of 35% sales and repayments on our current portfolio of $11.4 billion at amortized cost
implies $4.0 billion of annual liquidity, our portfolio liquidity is significantly in excess of debt maturities in any one year
Note: As of June, 30, 2018, unless otherwise stated. Past performance is not indicative of future results.
1) Investments with contractual maturity dates are included in the year of the stated maturity. The investments in the subordinated certificates of the SDLP (2) and investments with no
contractual maturity dates are included in the “Thereafter” years.
2) 2018 unsecured notes have been effectively resolved with notes issued during 2017 and 2018.
Ares Capital Corporation - Not for Publication or Distribution 20Additional Sources of Repayment
In addition to the liquidity from our portfolio we have ~$3.1B of availability on lines of credit as well
as a history of issuing debt to refinance maturities
Sources of Borrowings & Capacity Contractual Maturities (4)
~$3.1 billion of
$8,000 $7,751
available borrowing 2,500
capacity
$7,000
2,000
$6,000 $3,533
$414
$5,000 $4,632
1,500
$ Millions
$ Millions
$414
$4,000 $688 $688
$3,000 1,000
$1,580
$2,000 $600
$3,530 $3,530
500
$1,000 $750
$600
$300 $388
$0 0
Outstanding (1) Committed Capacity (2) 2018 2019 2020 2021 2022 Thereafter
Unsecured Debt Convertible debt Convertible Unsecured Notes (5)
Revolver (3) SBA Debentures Other Unsecured Notes (6)(7)
Secured Revolving Credit Facilities (8)
Market access supplements existing liquidity - completed 17 debt capital markets transactions / $5.7 billion of financings to date
Note: As of June, 30, 2018, unless otherwise stated. Past performance is not indicative of future results.
Refer to Endnotes on slides 39 - 43 for additional important information.
Ares Capital Corporation - Not for Publication or Distribution 21Active & Index Eligible Investment Grade Issuer Ares Capital Corporation - Not for Publication or Distribution
Long Standing Investment Grade Ratings
Investment grade rated by Fitch and S&P, and under review for upgrade by Moody’s (1)
Current Rating BBB BBB- Ba1
Current Outlook Stable Stable Positive
Under Review for Upgrade
“Moody's expects that Ares
“Fitch continues to believe that Ares has the “We also believe ARCC has one of the
Capital's portfolio quality would
strongest capital structure in the BDC space” most diversified funding profiles
result in minimal losses to
– June 25, 2018 (2) relative to peers…” – June 25, 2018 (3)
creditors in the event of default”
– June 25, 2018 (4)
“The proposed increase in leverage is “ARCC has performed well, with “Moody's expect[s] that Ares
sufficiently mitigated by an expected realized return on average assets Capital will maintain a cushion
incremental improvement in the risk typically above 5%, coverage of in relation to the revised 150%
profile of the portfolio, Ares’ peer- interest through what we consider to regulatory minimum asset
superior track record in credit, and an be stable and recurring earnings of coverage ratio (ACR) that is
expectation that the covenant cushion will more than 3x, and the coverage of stronger than the cushion the
be maintained at a sufficient level to interest and dividends above 1x” company has maintained
account for potential valuation volatility – June 25, 2018 (3) historically…”– June 25, 2018 (4)
in the portfolio” – June 25, 2018 (2)
1) As of June 30, 2018.
2) FitchRatings, “Fitch Affirms Ares Capital at ‘BBB’ On Expected Leverage Increase; Outlook stable,” June 25, 2018.
3) S&P Global Ratings, “Ares Capital Corp. Downgraded To 'BBB-' On Board Approval For Lower Asset Coverage Requirement, Outlook Stable,” June 25, 2018.
4) Moody’s Investors Services, “Rating Action: Moody’s Reviews Ares Capital’s Ba1 Ratings for Upgrade,” June 25, 2018.
Ares Capital Corporation - Not for Publication or Distribution 23Expanded Market Access and Growing Liquidity
Our growth has supported improved pricing, expanded access and more actively traded bonds
Improved funding cost and increased liquidity over time
$750mm $750mm
4.875% 3.500%
5Y notes 5Y notes
3.0 T+366 T+170
2.5
2.0
$ Billions
1.5
1.0
0.5
0.0
2013 2014 2015 2016 2017
5 Yr Term Unsecured Notes Outstanding
Expanded Liquidity: New Tenors:
• 2018 quarterly average trading volume in • In 2018, we closed on our inaugural $600
ARCC unsecured debt was ~$550mm or ~17% million 7 year note with a 4.25% coupon
of total unsecured debt outstanding (1) (T+190 bps)
1) As of July 13, 2018; trading volumes based on estimated TRACE data and includes all trades >=100k per JP Morgan
Ares Capital Corporation - Not for Publication or Distribution 24Strong Execution on Unsecured Notes Offerings
Continued to improve interest rate since our first issuance, which has also led to new markets, such
as our 7-year issuance in 2018
Spread on 5 Year Unsecured Notes Spread on 5 Year Convertible Notes
6.0% 6.0%
5.0% 5.0%
4.0% 3.66% 4.0% 3.70%
Spread
Spread
3.0% 3.0%
2.0% 1.70% 2.0% 1.80%
1.0% 1.0%
0.0% 0.0%
Nov-13 Aug-17 Jan-11 Jan-17
Issuance Date Issuance Date
Spreads have declined by ~200 bps since November 2013(1) Spreads have declined by 190 bps since January 2011(2)
In January 2018, we completed our inaugural 7-year
notes offering at 4.25%, representing a 190 bps spread
(1) Measured as the spread to 5 Year U.S. Treasuries on day of pricing of our 2018 Notes issued at a stated interest rate of 4.875% on November 19, 2013 as compared to
the spread to 5 Year U.S. Treasuries of our 2023 Notes issued at a stated rate of 3.5% on August 10, 2017.
(2) Measured as the spread to 5 Year U.S. Treasuries on day of pricing of our 2016 Convertible Notes issued at a stated interest rate of 5.750% on January 25, 2011 as
compared to the spread to 5 Year U.S. Treasuries of our 2022 Convertible Notes issued at a stated rate of 3.750% on January 27, 2017.
Ares Capital Corporation - Not for Publication or Distribution 25Small Business Credit Availability Act Ares Capital Corporation - Not for Publication or Distribution
ARCC Board Approved 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
• The Small Business Credit Availability Act (the “SBCAA”) was included in the Omnibus Spending Bill and was signed
into law on March 23, 2018
SBCAA • 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
Overview 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”)
• 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
Comprehensive o Fixed income investors
Process for o Shareholders
Evaluating and
o Investment banks
Approving the
SBCAA • 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
As of June 21, 2018, unless otherwise stated.
Ares Capital Corporation - Not for Publication or Distribution 27ARCC Adopted Reducing the 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 • We believe our high quality portfolio easily supports higher leverage
BUILDS ON LEADING TRACK RECORD TO • We expect to generate higher core earnings
DRIVE HIGHER EARNINGS WITH LOWER FEES • We will reduce our base management fee to 1.0% on all assets financed
using leverage over 1.0x debt to equity
2 • Increases cushion to regulatory leverage limit and therefore reduces default
INCREASED FLEXIBILITY risk on our outstanding debt
DE-RISKS THE COMPANY
• Increases flexibility to manage ARCC through credit cycles
3 • Revised target leverage of 0.90x to 1.25x remains conservative
MAINTAINS CONSERVATIVE • Target leverage of 0.90x to 1.25x is lower than allowed by the advance
rates of our credit facilities (1)
INVESTMENT GRADE PROFILE
• We intend to operate in a manner whereby ARCC maintains its investment
grade credit profile
4 • Increases ARCC’s flexibility
ENHANCES GROWTH, SCALE & • Adds to our potential investment opportunities
DIVERSIFICATION OPPORTUNITIES • Increases opportunities for diversification and scale
• Should enhance ARCC’s access to capital
As of June 21, 2018, unless otherwise stated. As stated in “ARCC’s Plan for the Small Business Credit Availability Act,” an investor presentation which was included as Exhibit 99.2 to Form 8-K filed on June 25, 2018.
1. 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.
Ares Capital Corporation - Not for Publication or Distribution 28The 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
New Regulatory
2.00x Leverage Limit
Under SBCAA
1.80x
1.60x Expanded
cushion
1.40x
1.25x
1.20x
Old Regulatory
1.00x Leverage Limit
0.90x
0.80x Old Cushion
0.75x
0.65x
0.60x
0.40x
0.20x
0.00x
Old Target Leverage Range New Target Leverage Range
0.65x - 0.75x Debt to Equity 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.
Ares Capital Corporation - Not for Publication or Distribution 29Target Leverage Range is Still Below Borrowing Capacity
Based on our Q2-18 portfolio and current advance rates, our portfolio could be leveraged to ~1.5x D:E
New Regulatory
2.0x
Leverage Limit
1.8x Under SBCAA
1.6x ~1.50x
1.4x
1.25x
Debt to Equity Ratio
1.2x New Target
Leverage
1.0x Range 0.90x
0.8x
0.57x
0.6x
0.4x
0.2x
0.0x
6/30/2018 Leverage Lower End of New Upper End of New Leverage Allowed by the
Targeted Range Targeted Range 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.
Ares Capital Corporation - Not for Publication or Distribution 30Our Conservative Leverage Profile is Favorable Compared to Other Entities
After adopting benefits of the SBCAA, our long term debt to equity target is 0.9x-1.25x
Illustration of Leverage Used to Invest in Loans by Investor Type
12.0x 50%
Leverage Equity % 44%
9.9x
10.0x 9.3x
% Equity of Total Capitalization
40%
Debt to Equity Ratio
8.0x
30%
25%
6.0x
4.5x 20%
4.0x
18% 3.0x
9% 10%
10%
2.0x 1.25x
0.0x 0%
Banks (1)
Broadly Syndicated Middle Market SBICs * ARCC Leverage Target
CLOs (2) CLOs (3) - Upper End
Refer to Endnotes on slides 39 - 43 for additional important information.
*The SBA has the ability to approve leverage requests in excess of 200 percent of Regulatory Capital up to 300 percent, but most often SBIC funds operate with a
leverage limit to Regulatory Capital of 200 percent. SBIC commitments are often made to much smaller companies than our typical portfolio companies without any
limitations on asset classes.
Ares Capital Corporation - Not for Publication or Distribution 31Conclusion
We believe these factors lead to a company well positioned to continue to generate attractive future
financial performance that benefits bondholders
1 Attractive Industry & Corporate Structure
2 Significant Competitive Advantages
3 Well Positioned with Strong Investment Performance
4 Active, Investment Grade Rated, Index Eligible Issuer
Note: Past performance is not indicative of future results.
Ares Capital Corporation - Not for Publication or Distribution 32Appendix:
Additional Investment and Financial Considerations
Ares Capital Corporation - Not for Publication or DistributionARCC Serves Strong and Vibrant Middle Market Companies
Defining the U.S. Middle Market
Nearly
Annual Revenue
200,000 3rd Largest Nearly 33% 1/3
$10M–$1B Businesses
Global Economy of Private Sector GDP of All U.S. Jobs
$
Strong Industry Fundamentals
7%
10%
8% 6%
6% 5%
4% 4%
2%
3%
0%
-2% 2%
-4% 1%
-6% 0%
2012 2013 2014 2015 2016 2017 1H18 2012 2013 2014 2015 2016 2017 1H18
Growth in Workforce Size
Middle Market Indicator S&P 500
Middle Market Revenue Growth vs. S&P 500 Middle Market Hiring Remains Strong
For illustrative purposes only. Source: National Center for the Middle Market. As of June 30, 2018.
Ares Capital Corporation - Not for Publication or Distribution 34BDC Structure Offers Benefits to Creditors
We believe creditors benefit from the leverage restrictions and diversification requirements of the
BDC/RIC structure
BDCs are closed-end investment companies The BDC/RIC structure provides limitation on
regulated by the SEC leverage and requires portfolio diversification
• Created to encourage investment in small and middle market • Portfolio must be well diversified
companies
• No single investment can account for more than 25% of
total assets
• As of June 30, 2018, there were 53 publicly listed/active BDCs
with a total market capitalization of $33.4 billion(1) • At least 50% of total assets must be comprised of
individual holdings of less than 5% of total assets each
• Make debt and equity investments with ability to invest across
• ARCC chose to elect the benefits of the Small Business Credit
a company’s capital structure
Availability Act which requires an asset coverage ratio of at least
• Must generally invest at least 70% of assets in U.S. private 150% (maximum debt to equity of approximately 2:1) in order to
companies or U.S. public companies with market borrow or pay dividends
capitalizations under $250 million • This provision will go into effect on June 21, 2019 unless
an earlier shareholder vote is requested and received
• The current 200% asset coverage ratio will remain in
place until the effective date
• Required to pay at least 90% of taxable income as dividends to
shareholders to qualify as a RIC
• Portfolio must generate sufficient cash flows to pay
interest as well as dividends to equity investors junior to
debt holders
Ares Capital Corporation is the Largest BDC
1) Source: SNL Financial
Ares Capital Corporation - Not for Publication or Distribution 35ARCC’s Earnings Will Likely Benefit from Higher LIBOR Rates
ARCC has an asset sensitive balance sheet that we believe will benefit from an expected rise in base
interest rates
3 Month LIBOR Forward Rates (1) Enhanced Ability to Benefit from Rising Rates (2)
3.20% • Heavily weighted to floating-rate loans (3)
o 91% floating rate loan portfolio
3.00%
o 8% fixed rate loan portfolio
2.80% • 100% weighted to fixed-rate borrowings (4)
• Conservative Leverage
2.60% o 0.57x net debt to equity
2.40%
Increase in LIBOR Annual Per Share Impact (2)(5)
2.20% 100 bps $0.17 per share
2.00% 200 bps $0.33 per share
1.80% 300 bps $0.50 per share
July 2018 July 2019 July 2020 July 2021 July 2022
(1) Source: Chatham Financial. Reflects the current and forward 3 month LIBOR rates for July 23, 2018 through 2022, all as of July 23, 2018.
(2) As of June 30, 2018.
(3) Remaining 1% consists of non-accruals and non-coupon bearing loans.
(4) Includes the $395 million term loan tranche of Ares Capital's Revolving Credit Facility which Ares Capital effectively fixed the interest rate at 3.8% through an interest rate swap agreement.
(5) Marginal EPS contributions include the impact of income-based fees.
Ares Capital Corporation - Not for Publication or Distribution 36Deep and Diverse Access to Low Cost Debt Financing
We believe that ARCC is a very efficient issuer of liabilities
Aggregate Principal
Weighted
Amount of Principal
($ in millions) Average Stated
Commitments Outstanding
Interest Rate (2)
Outstanding (1)
Secured Revolving Facilities (3)
Revolving Credit Facility (4) $2,133 $414 3.814%
Revolving Funding Facility 1,000 — —% • Significant access to long-dated, lower cost revolving
SMBC Funding Facility (5) 400 — —% debt facilities
Subtotal $3,533 $414 3.814% • No “mark to market” financing
• Reduced pricing over time and continue to periodically
SBA Debentures $— $— —% extend maturities (5-7 year terms)
Unsecured Notes Payable
2018 Notes 750 750 4.875%
2019 Convertible Notes 300 300 4.375%
2020 Notes 600 600 3.875% • Seasoned issuer in the institutional unsecured debt
January 2022 Notes 600 600 3.625% market
2022 Convertible Notes 388 388 3.750% • More than 100 investors have invested in ARCC’s
2023 Notes 750 750 3.500% Convertible and Investment Grade Notes
2025 Notes 600 600 4.250% • Raised over $5.5 billion in unsecured notes since 2011
2047 Notes 230 230 6.875%
Subtotal $4,218 $4,218 4.191%
Total $7,751 $4,632 4.158%
Weighted Average Stated Interest
4.09%(6) 4.16%
Rate
All data as of June 30, 2018, unless otherwise noted. Refer to Endnotes on slides 39 - 43 for additional important information.
Ares Capital Corporation - Not for Publication or Distribution 37Reconciliation of Core Earnings
Reconciliations of Core Earnings to GAAP Earnings
For the years ended YTD YTD
(in millions) 2012 2013 2014 2015 2016 2017 Q2-17 Q2-18
Core Earnings (1) $ 381 $ 442 $ 473 $ 486 $ 504 $ 592 $ 277 $ 334
Professional fees and other costs related to the — — — — (12) (40) (34) (3)
American Capital Acquisition (2)
Ares Reimbursement (3) — — — — — — — 12
Net realized and unrealized gains (losses) 159 58 153 (129) (20) 156 78 191
Incentive fees attributable to net realized and (32) (11) (29) 27 5 (41) (26) (38)
unrealized gains and losses
Income tax and other expenses related to net — — (6) (5) (3) — 1 —
realized and unrealized gains and losses
GAAP Earnings $ 508 $ 489 $ 591 $ 379 $ 474 $ 667 $ 296 $ 496
(1) Core Earnings is a non-GAAP financial measure. Core Earnings is the net increase (decrease) in stockholders’ equity resulting from operations less professional fees and other costs related to the
American Capital Acquisition, expense reimbursement from Ares Capital Management LLC (the “Ares Reimbursement”), net realized and unrealized gains and losses, any capital gains incentive fees
attributable to such net realized and unrealized gains and losses and any income taxes related to such net realized gains and losses. Net increase (decrease) in stockholders’ equity is the most directly
comparable GAAP financial measure. Ares Capital believes that Core Earnings provides useful information to investors regarding financial performance because it is one method Ares Capital uses to
measure its financial condition and results of operations. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in
accordance with GAAP.
(2) See Note 14 to Ares Capital's consolidated financial statements included in the annual report on Form 10-Q for the quarter ended June 30, 2018 for information regarding the American Capital
Acquisition.
(3) See Note 12 to Ares Capital's consolidated financial statements included in the annual report on Form 10-Q for the quarter ended June 30, 2018 for information regarding the Ares Reimbursement.
Ares Capital Corporation - Not for Publication or Distribution 38Endnotes Ares Capital Corporation - Not for Publication or Distribution
Endnotes
Slide 11: Ares’ Extensive Credit Group Provides Many Benefits to ARCC
Performance Notes:
• ARCC received the 2018 All-America Executive Team award alongside 43 other companies. Various Ares personnel received first place awards in the following categories: CEO, CFO, IR Professional
and IR program. 248 other institutions also received a first-, second-, or third-place ranking in one or more of those four categories. Institutional Investor based these awards on the opinions of 1,940
portfolio managers and buy-side analysts, and 826 sell-side analysts who participated in this survey.
• Institutional Investor logo from Institutional Investor, ©2018 Institutional Investor, LLC. All rights reserved. Used by permission and protected by the Copyright Laws of the United States. The
printing, copying, redistribution, or retransmission of this Content without express written permission is prohibited.
• Lipper Rankings reported in Lipper Marketplace Best Money Managers, March 31, 2018. Lipper Marketplace is the source of the long-only and multi-strategy credit rankings. Lipper’s Best Money
Managers rankings consider only those funds that meet the following qualification: performance must be calculated “net” of all fees and commissions; must include cash; performance must be
calculated in U.S. dollars; asset base must be at least $10 million in size for “traditional” U.S. asset classes (equity, fixed income, and balanced accounts); and, the classification of the product must
fall into one of the categories which they rank. Lipper defines Short Duration as 1-5 years. Lipper’s Active Duration definition does not specify a time period but rather refers to an Active rather than
Passive strategy. Ares Institutional Loan Fund was ranked 12 out of 58 for the 20 quarters ended March 31, 2018. Composites for Ares U.S. Bank Loan Aggregate and Ares U.S. High Yield additionally
received rankings of 10 of 58 and 4 of 37, respectively, for the 20 quarters ended March 31, 2018.
• Private Equity International selected Ares Management as Mid-Cap Lender of the Year – North America for 2014 and Ares Capital Corporation as Lender of the Year – North America for 2015, 2016
and 2017 – Awards based on an industry wide global survey across 60 categories conducted by Private Equity International. In the Mid-Cap Lender of the Year in North America category (renamed to
Lender of the Year in 2015), Ares was listed as one of three shortlisted firms as suggested by the editorial board of PEI Media. Survey participants voted independently. In addition, survey
participants could nominate another firm not listed in the category.
• Private Debt Investor selected Ares Capital Corporation as Global Sponsored Deal of the Year (Qlik Technologies) for 2017. Awards based on an industry wide global survey across 43 categories
conducted by Private Debt Investor. In the Global Sponsored Deal of the Year category Ares was listed as one of four shortlisted firms as suggested by the editorial board of PEI Media. Survey
participants voted independently. In addition, survey participants could nominate another firm not listed in the category.
Slide 16: Growth Has Enhanced the Portfolio Benefits of 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.
Ares Capital Corporation - Not for Publication or Distribution 40Endnotes
Slide 17: Sustained Market Premium for ARCC Yields with Lower Losses
1. The weighted average yield on debt and other income producing securities is computed as (a) annual stated interest rate or yield earned plus the net annual amortization of original issue discount
and market discount or premium earned on accruing debt and other income producing securities, divided by (b) total accruing debt and other income producing securities at fair value.
2. The S&P/LSTA Leveraged Loan Index is a market value-weighted index designed to measure the performance of the U.S. leveraged loan market based upon market weightings, spreads and interest
payments. Term loans from syndicated credits must meet the following criteria at issuance in order to be eligible for inclusion in the index: senior secured, minimum initial term of one year, US
dollar denominated, minimum initial spread of LIBOR + 125 basis points, $50M initially funded loans. Inception date: January 1, 1997.
3. The Middle Market Index consists of middle market facilities drawn from the larger S&P/LSTA (Loan Syndications and Trading Association) Leveraged Loan Index. It is designed to measure the
performance of the U.S. leveraged loan market. S&P/LSTA defines the middle market as deals with an EBITDA of less than $50 million.
4. The ICE BofAML US High Yield Index ("H0A0") tracks the performance of US dollar denominated below investment grade corporate debt publicly issued in the US domestic market. Qualifying
securities must have a below investment grade rating (based on an average of Moody’s, S&P and Fitch), at least 18 months to final maturity at the time of issuance, at least one year remaining term
to final maturity as of the rebalancing date, a fixed coupon schedule and a minimum amount outstanding of $100 million. Index constituents are capitalization‐weighted based on their current
amount outstanding times the market price plus accrued interest. Inception date: August 31, 1986.
5. Represents ARCC’s average quarterly non-accrual rate at amortized cost from inception in October 8, 2004 to June 30, 2018.
6. Source: Moody's U.S. Trailing 12-month issuer-weighted spec-grade default rate. Actual speculative grade default data taken from January 2000 to December 31, 2017.
7. 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 IPO in October 2004 to June 30, 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.
8. Source: Moody’s 2017 Annual Default Study. Reflects average annual loss rate for speculative grade bonds from 2000-2017.
Slide 18: Strong Credit and Investment Performance
1. As of June 30, 2018. Based on original cash invested, net of syndications, of approximately $23.1 billion and total proceeds from such exited investments of approximately $29.3 billion from
inception on October 8, 2004 through June 30, 2018.
2. 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’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’s past performance and are not necessarily indicative of future results, the achievement of which cannot be assured.
3. 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 IPO in October 2004 to June 30, 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.
4. BDC peer group consists of BDCs with a market capitalization of $400 million or greater as of March 31, 2018 or who are under common management with a BDC that meets these criteria. Peers
include: AINV, BKCC, CGBD, CCT, OCSL, OCSI, FSIC, GBDC, GSBD, HTGC, MAIN, NMFC, PFLT, PNNT, PSEC, SLRC, SUNS, TCAP, TCPC and TSLX. Net realized gain/(loss) rate 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.
5. Source: KBW and FDIC Commercial Banking Data. Calculated as net charge-offs for commercial and industrial loans divided by net commercial and industrial loans and leases for the respective
periods.
6. Annual average from December 31, 2004 through March 31, 2018 as not all peers have reported as of August 1, 2018.
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