Ares Capital's Non-Accruals Rose to 2.4% of Its Portfolio, Still Below Its Own Historical Average
Ares Capital's troubled loans are up, but you have to put the risk into its proper perspective.
Overview
Ares Capital (NASDAQ: ARCC) is a business development company (BDC). Its core business is making loans to smaller businesses. So the ability of its clients to repay their loans on time is very important. In the second quarter of 2026, there was a 60-basis-point year-over-year increase in the number of troubled loans Ares Capital is carrying. That's a move in the wrong direction, but don't get overly concerned just yet. Here's why.
There's no question that investors in a BDC like Ares Capital have to pay close attention to loan quality. The company issues stock and takes on debt to fund the loans it makes to its clients. As long as those loans continue to be paid, Ares Capital earns the spread between its cost of capital and the interest it charges on its loans. In the second quarter, the average interest rate paid by its clients was 10.3%. This can be a very lucrative business.
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Originally published at www.fool.com.