Ares Capital Corporation

10/27/2026 | Press release | Distributed by Public on 10/27/2026 04:21

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
The information contained in this section should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report. In addition, some of the statements in this Quarterly Report (including in the following discussion) constitute forward-looking statements, which relate to future events or the future performance or financial condition of Ares Capital Corporation (the "Company," "Ares Capital," "we," "us," or "our"). The forward-looking statements contained in this report involve a number of risks and uncertainties, including statements concerning:
•our, or our portfolio companies', future business, operations, operating results or prospects;
•the return or impact of current and future investments;
•the impact of a protracted decline in the liquidity of credit markets on our business;
•changes in the general economy, including those caused by tariffs and trade disputes with other countries, changes in inflation and risk of recession;
•fluctuations in global interest rates;
•the impact of changes in laws or regulations (including the interpretation thereof), including tax laws, governing our operations or the operations of our portfolio companies or the operations of our competitors;
•the valuation of our investments in portfolio companies, particularly those having no liquid trading market;
•our ability to recover unrealized losses;
•market conditions and our ability to access different debt markets and additional debt and equity capital and our ability to manage our capital resources effectively;
•our contractual arrangements and relationships with third parties;
•political and regulatory conditions that contribute to uncertainty and market volatility including the impact of the upcoming U.S. midterm elections, any prolonged U.S. government shutdown as well as the legislative, regulatory, trade, immigration and other policies associated with the current U.S. presidential administration;
•the impact of supply chain constraints on our portfolio companies and the global economy;
•uncertainty surrounding global financial stability;
•ongoing conflicts in the Middle East and the Russia-Ukraine war, including the potential for volatility in energy prices and other commodities and their impact on the industries in which we invest;
•the disruption of global shipping activities;
•the financial condition of our current and prospective portfolio companies and their ability to achieve their objectives;
•the impact of information technology system failures, data security breaches, data privacy compliance, network disruptions, and cybersecurity attacks;
•the impact of the development and use of artificial intelligence and potential impact to certain of our portfolio companies;
•the impact of global health crises on our or our portfolio companies' business and the U.S. and global economy;
•our ability to anticipate and identify evolving market expectations with respect to environmental, social and governance matters, including the environmental impacts of our portfolio companies' supply chain and operations;
•our ability to successfully complete and integrate any acquisitions;
•the outcome and impact of any litigation or regulatory proceeding;
•the adequacy of our cash resources and working capital;
•the timing, form and amount of any dividend distributions;
•the timing of cash flows, if any, from the operations of our portfolio companies;
•the ability of our investment adviser to locate suitable investments for us and to monitor and administer our investments;
•the acquisition of MidCap Financial Investment Corporation ("MFIC");
•the outcome and impact of any litigation relating to the MFIC Transaction (as defined below);
• the likelihood that the MFIC Transaction is completed and the anticipated timing of its completion;
•the ability of our business and MFIC's business to successfully integrate if the MFIC Transaction is completed; and
•the impact to the periods following the completion of the MFIC Transaction.
We use words such as "anticipates," "believes," "expects," "intends," "projects," "seeks," "estimates," "will," "should," "could," "would," "likely," "may" and similar expressions to identify forward-looking statements, although not all forward-looking statements include these words. You should not place undue reliance on these forward-looking statements, and our actual results and condition could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in "Item 1A. Risk Factors" and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed with the Securities and Exchange Commission (the "SEC") on February 4, 2026 ("Annual Report") and in this Quarterly Report.
We have based the forward-looking statements included in this Quarterly Report on information available to us as of the filing date of this Quarterly Report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the SEC, including annual reports on Form 10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and current reports on Form 8-K.
OVERVIEW
We are a specialty finance company that is a closed-end, non-diversified management investment company incorporated in Maryland. We have elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the "Investment Company Act").
We are externally managed by Ares Capital Management LLC ("Ares Capital Management" or our "investment adviser"), a subsidiary of Ares Management Corporation ("Ares Management"), a publicly traded, leading global alternative investment manager, pursuant to our investment advisory and management agreement. Ares Operations LLC ("Ares Operations" or our "administrator"), a subsidiary of Ares Management, provides certain administrative and other services necessary for us to operate.
Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in first lien senior secured loans (including "unitranche" loans, which are loans that combine both senior and subordinated loans, generally in a first lien position) and second lien senior secured loans. In addition to senior secured loans, we also invest in subordinated loans (sometimes referred to as mezzanine debt) and preferred equity.
To a lesser extent, we also make common equity investments, which have generally been non-control equity investments of less than $20 million (usually in conjunction with a concurrent debt investment). However, we may increase the size or change the nature of these investments.
Since our initial public offering ("IPO") on October 8, 2004 through September 30, 2026, our exited investments resulted in an asset level realized gross internal rate of return to us of approximately 13% (based on original cash invested, net of syndications, of approximately $59.0 billion and total proceeds from such exited investments of approximately $76.2 billion). Internal rate of return 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 expenses related to investments as these expenses are not allocable to specific investments. 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 a 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.
Additionally, since our IPO on October 8, 2004 through September 30, 2026, our realized gains have exceeded our realized losses by approximately $1.0 billion (excluding a one-time gain on the acquisition of Allied Capital Corporation in April 2010 (the "Allied Acquisition"), income tax expense on net realized gains, and realized gains/losses from the extinguishment of debt and other transactions). For the same time period, our average annualized net realized gain rate was approximately 0.8% (excluding a one-time gain on the Allied Acquisition, income tax expense on net realized gains, and realized gains/losses from the extinguishment of debt and other transactions). Net realized gain/loss rates for a particular period are the amount of net realized gains/losses during such period divided by the average quarterly investments at amortized cost in such period.
Information included herein regarding internal rates of return, realized gains and losses and annualized net realized gain rates are historical results relating to our past performance and are not necessarily indicative of future results, the achievement of which cannot be assured.
As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in "qualifying assets," including securities and indebtedness of private U.S. companies and certain public U.S. companies, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. We also may invest up to 30% of our portfolio in non-qualifying assets, as permitted by the Investment Company Act. Specifically, as part of this 30% basket, we may invest in entities that are not considered "eligible portfolio companies" (as defined in the Investment Company Act), including companies located outside of the United States, entities that are operating pursuant to certain exceptions under the Investment Company Act, and publicly traded entities whose public equity market capitalization exceeds the levels provided for under the Investment Company Act. In addition, we, our investment adviser and certain of our affiliates have received an order from the SEC that permits us and other BDCs and registered closed-end management investment companies managed by Ares Management to co-invest in portfolio companies with each other and with other affiliated investment entities (the "Co-Investment Exemptive Order"). As required by the Co-Investment Exemptive Order, we have adopted, and our board of directors has approved, policies and procedures reasonably designed to ensure compliance with the terms of the Co-Investment Exemptive Order. Co-investments made under the Co-Investment Exemptive Order are subject to compliance with certain conditions and other requirements, which could limit our ability to participate in co-investment transactions. As a result of investments permitted by the Co-Investment Exemptive Order, there could be significant overlap in our investment portfolio and the investment portfolio of affiliated Ares Management entities that can rely on the Co-Investment Exemptive Order and have an investment objective similar to ours. We may also otherwise co-invest with funds managed by Ares Management or any of its downstream affiliates, subject to compliance with existing regulatory guidance, applicable regulations and our investment adviser's allocation policy.
We have elected to be treated as a regulated investment company ("RIC") under the Internal Revenue Code of 1986, as amended (the "Code"), and operate in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, we must, among other requirements, meet certain source-of-income and asset diversification requirements and timely distribute to our stockholders generally at least 90% of our investment company taxable income, as defined by the Code, for each year. Pursuant to this election, we generally will not have to pay U.S. federal corporate-level taxes on any income that we distribute to our stockholders provided that we satisfy those requirements.
MACROECONOMIC ENVIRONMENT
During the third quarter of 2026, economic activity remained generally stable and labor market conditions were relatively balanced, despite continued uncertainty related to geopolitical developments and their impact on inflation, particularly with respect to energy prices. As a result of elevated inflation, the Federal Reserve raised the target range for the federal funds rate by 25 basis points and signaled the potential for additional tightening, with the aim to deliver price stability and support a timelier return to its 2% inflation target. Against this backdrop, performance across U.S. leveraged corporate credit markets was mixed, with floating-rate credit outperforming fixed-rate credit given expectations for higher market interest
rates. Looking ahead, while risks remain, underlying fundamentals are supportive of continued stability and healthy overall economic activity.
PORTFOLIO AND INVESTMENT ACTIVITY
Our investment activity for the three months ended September 30, 2026 and 2025 is presented below.
For the Three Months Ended September 30,
(dollar amounts in millions) 2026 2025
New investment commitments(1):
New portfolio companies $ 849 $ 2,429
Existing portfolio companies 1,260 1,495
Total new investment commitments(2) $ 2,109 $ 3,924
Less:
Investment commitments exited(3) (2,473) (2,625)
Net investment commitments $ (364) $ 1,299
Principal amount of investments funded:
First lien senior secured loans(4) $ 1,781 $ 2,899
Second lien senior secured loans 41 125
Subordinated certificates of the SDLP(5) 2 71
Senior subordinated loans 82 87
Preferred equity 19 58
Ivy Hill Asset Management, L.P.(6) 389 139
Other equity 21 128
Total $ 2,335 $ 3,507
Principal amount of investments sold or repaid:
First lien senior secured loans(4) $ 2,207 $ 1,751
Second lien senior secured loans 236 -
Subordinated certificates of the SDLP(5) 3 87
Senior subordinated loans 1 91
Preferred equity 8 252
Ivy Hill Asset Management, L.P.(6) 150 195
Other equity 16 259
Total $ 2,621 $ 2,635
Number of new investment commitments(7) 53 80
Average new investment commitment amount $ 40 $ 49
Weighted average term for new investment commitments (in months) 59 71
Percentage of new investment commitments at floating rates 85 % 93 %
Percentage of new investment commitments at fixed rates 13 % 2 %
Weighted average yield of debt and other income producing securities(8):
Funded during the period at amortized cost 10.4 % 10.0 %
Funded during the period at fair value(9) 10.4 % 10.0 %
Exited or repaid during the period at amortized cost 8.7 % 10.9 %
Exited or repaid during the period at fair value(9) 8.7 % 10.8 %
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(1)New investment commitments include new agreements to fund revolving loans or delayed draw loans. See Note 7 to our consolidated financial statements for the three and nine months ended September 30, 2026 for more information on our commitments to fund revolving loans or delayed draw loans.
(2)Includes both funded and unfunded commitments. Of these new investment commitments, we funded $1.6 billion and $3.0 billion for the three months ended September 30, 2026 and 2025, respectively.
(3)Includes both funded and unfunded commitments. For the three months ended September 30, 2026 and 2025, investment commitments exited included exits of unfunded commitments of $298 million and $281 million, respectively.
(4)For the three months ended September 30, 2026 and 2025, net repayments of first lien secured revolving loans were $188 million and $58 million, respectively.
(5)See "Senior Direct Lending Program" below and Note 4 to our consolidated financial statements for the three and nine months ended September 30, 2026 for more information on the SDLP (as defined below).
(6)Includes our subordinated loan to and equity investments in IHAM (as defined below), as applicable. See "Ivy Hill Asset Management, L.P." below and Note 4 to our consolidated financial statements for the three and nine months ended September 30, 2026 for more information on IHAM.
(7)Number of new investment commitments represents each commitment to a particular portfolio company or a commitment to multiple companies as part of an individual transaction (e.g., the purchase of a portfolio of investments).
(8)"Weighted average yield of debt and other income producing securities" is computed as (a) the 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 (including the annualized amount of the regular dividend received by us related to our equity investment in IHAM during the most recent quarter end, as applicable), divided by (b) the total accruing debt and other income producing securities at amortized cost or at fair value (including the amortized cost or fair value of our equity investment in IHAM as applicable), as applicable.
(9)Represents fair value for investments in the portfolio as of the most recent prior quarter end, if applicable.
As of September 30, 2026 and December 31, 2025, our investments consisted of the following:
As of
September 30, 2026 December 31, 2025
(in millions) Amortized Cost(1) Fair Value Amortized Cost(1) Fair Value
First lien senior secured loans(2) $ 17,426 $ 16,871 $ 18,103 $ 17,858
Second lien senior secured loans 1,301 1,172 1,558 1,487
Subordinated certificates of the SDLP(3) 1,140 1,153 1,103 1,117
Senior subordinated loans 1,991 1,915 1,690 1,585
Preferred equity 2,672 2,440 2,597 2,475
Ivy Hill Asset Management, L.P.(4) 2,886 3,066 2,231 2,434
Other equity 2,062 2,596 1,968 2,529
Total $ 29,478 $ 29,213 $ 29,250 $ 29,485
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(1)The amortized cost represents the original cost adjusted for any accretion of discounts, amortization of premiums and payment-in-kind ("PIK") interest or dividends.
(2)First lien senior secured loans include certain loans that we classify as "unitranche" loans. The total amortized cost and fair value of the loans that we classified as "unitranche" loans were $13.6 billion and $13.3 billion, respectively, as of September 30, 2026, and $11.3 billion and $11.2 billion, respectively, as of December 31, 2025.
(3)The proceeds from these certificates were applied to co-investments with Varagon Capital Partners ("Varagon") and its clients to fund first lien senior secured loans to 73 and 39 different borrowers as of September 30, 2026 and December 31, 2025, respectively.
(4)Includes our subordinated loan to and equity investments in IHAM, as applicable.
We have commitments to fund various revolving and delayed draw senior secured and subordinated loans, including commitments to fund which are at (or substantially at) our discretion. Our commitment to fund delayed draw loans is triggered upon the satisfaction of certain pre-negotiated terms and conditions. Generally, the most significant and uncertain term requires the borrower to satisfy a specific use of proceeds covenant. The use of proceeds covenant typically requires the borrower to use the additional loans for the specific purpose of a permitted acquisition or permitted investment, for example. In addition to the use of proceeds covenant, the borrower is generally required to satisfy additional negotiated covenants (including specified leverage levels). We are also party to subscription agreements to fund equity investments. See Note 7 to our consolidated financial statements for the three and nine months ended September 30, 2026 for more information on our unfunded commitments, including commitments to issue letters of credit, related to certain of our portfolio companies.
The weighted average yields at amortized cost and fair value of the following portions of our portfolio as of September 30, 2026 and December 31, 2025 were as follows:
As of
September 30, 2026 December 31, 2025
Amortized Cost Fair Value Amortized Cost Fair Value
Debt and other income producing securities(1) 10.6 % 10.8 % 10.3 % 10.3 %
Total portfolio(2) 9.5 % 9.6 % 9.4 % 9.3 %
First lien senior secured loans(3) 9.2 % 9.5 % 9.1 % 9.2 %
Second lien senior secured loans(3) 10.2 % 11.4 % 10.2 % 10.7 %
Subordinated certificates of the SDLP(3)(6) 13.1 % 13.0 % 13.2 % 13.0 %
Senior subordinated loans(3) 10.4 % 10.7 % 10.5 % 11.0 %
Ivy Hill Asset Management L.P.(4) 17.8 % 16.3 % 17.2 % 15.3 %
Other income producing equity securities(5) 11.1 % 12.0 % 11.0 % 11.3 %
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(1)"Weighted average yields on debt and other income producing securities" are computed as (a) the 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 (including the annualized amount of the regular dividend received by us related to our equity investment in IHAM during the most recent quarter end), divided by (b) the total accruing debt and other income producing securities at amortized cost or at fair value (including the amortized cost or fair value of our equity investment in IHAM as applicable), as applicable.
(2)"Weighted average yields on total portfolio" are computed as (a) the 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 (including the annualized amount of the regular dividend received by us related to our equity investment in IHAM during the most recent quarter end), divided by (b) total investments at amortized cost or at fair value, as applicable.
(3)"Weighted average yields" of investments are computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount or premium earned on the relevant accruing investments, divided by (b) the total relevant investments at amortized cost or at fair value, as applicable.
(4)Represents the yield on our equity investment in IHAM, which is computed as (a) the annualized amount of the regular dividend received by us related to our equity investment in IHAM during the most recent quarter end, divided by (b) the amortized cost or fair value of our equity investment in IHAM, as applicable.
(5)"Weighted average yield on other income producing equity securities" is computed as (a) the yield earned on the relevant income producing equity securities, divided by (b) the total relevant income producing equity securities at amortized cost or fair value, as applicable.
(6)The proceeds from these certificates were applied to co-investments with Varagon and its clients to fund first lien senior secured loans.
Ares Capital Management employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our investment adviser grades the credit risk of all investments on a scale of 1 to 4 no
less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment (i.e., at the time of origination or acquisition), although it may also take into account under certain circumstances the performance of the portfolio company's business, the collateral coverage of the investment and other relevant factors. The grade of a portfolio investment may be reduced or increased over time. The following is a description of each investment grade:
Investment grade Description
4 Involves the least amount of risk to our initial cost basis. The trends and risk factors for this investment since origination or acquisition are generally favorable, which may include the performance of the portfolio company or a potential exit.
3 Involves a level of risk to our initial cost basis that is similar to the risk to our initial cost basis at the time of origination or acquisition. This portfolio company is generally performing as expected and the risk factors to our ability to ultimately recoup the cost of our investment are neutral to favorable. All investments or acquired investments in new portfolio companies are initially assessed a grade of 3.
2 Indicates that the risk to our ability to recoup the initial cost basis of such investment has increased materially since origination or acquisition, including as a result of factors such as declining performance and non-compliance with debt covenants; however, payments are generally not more than 120 days past due. For investments graded 2, our investment adviser enhances its level of scrutiny over the monitoring of such portfolio company.
1 Indicates that the risk to our ability to recoup the initial cost basis of such investment has substantially increased since origination or acquisition, and the portfolio company likely has materially declining performance. For debt investments with an investment grade of 1, most or all of the debt covenants are out of compliance and payments are substantially delinquent. For investments graded 1, it is anticipated that we will not recoup our initial cost basis and may realize a substantial loss of our initial cost basis upon exit. For investments graded 1, our investment adviser enhances its level of scrutiny over the monitoring of such portfolio company.
Set forth below is the grade distribution of our portfolio companies as of September 30, 2026 and December 31, 2025:
As of
September 30, 2026 December 31, 2025
(dollar amounts in millions) Fair Value % Number of
Companies 		% Fair Value % Number of
Companies 		%
Grade 4 $ 5,602 19.2 % 71 11.2 % $ 5,040 17.1 % 65 10.8 %
Grade 3 21,911 75.0 503 79.1 23,322 79.1 486 80.6
Grade 2 1,222 4.2 30 4.7 675 2.3 27 4.5
Grade 1 478 1.6 32 5.0 448 1.5 25 4.1
Total $ 29,213 100.0 % 636 100.0 % $ 29,485 100.0 % 603 100.0 %
As of September 30, 2026 and December 31, 2025, the weighted average grade of the investments in our portfolio at fair value was 3.1 and 3.1, respectively.
As of September 30, 2026 and December 31, 2025, loans on non-accrual status represented 2.4% of the total investments at amortized cost (or 1.4% at fair value) and 1.8% at amortized cost (or 1.2% at fair value), respectively.
Ivy Hill Asset Management, L.P.
Ivy Hill Asset Management, L.P. ("IHAM"), our wholly owned portfolio company, is an asset manager and an SEC-registered investment adviser. As of September 30, 2026, IHAM had assets under management of approximately $17.7 billion. As of September 30, 2026, IHAM managed 25 vehicles (the "IHAM Vehicles"). IHAM earns fee income from managing the IHAM Vehicles and has also invested in certain of these vehicles as part of its business strategy. The amortized cost of IHAM's total investments as of September 30, 2026 and December 31, 2025 was $3,863 million and $3,190 million, respectively. For the three and nine months ended September 30, 2026, IHAM had management and incentive fee income of $16 million and $46 million, respectively, and investment-related income of $110 million and $308 million, respectively, which included net realized gains or losses on investments and other transactions. For the three and nine months ended September 30, 2025, IHAM had management and incentive fee income of $15 million and $39 million, respectively, and investment-related income of $86 million and $199 million, respectively, which included net realized gains or losses on investments and other transactions.
The amortized cost and fair value of our investments in IHAM as of September 30, 2026 and December 31, 2025 were as follows:
As of
September 30, 2026 December 31, 2025
(in millions) Amortized Cost Fair Value Amortized Cost Fair Value
Subordinated loan(1)
$ 1,000 $ 1,000 $ 531 $ 531
Equity
1,886 2,066 1,700 1,903
Total investment in IHAM $ 2,886 $ 3,066 $ 2,231 $ 2,434
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(1)We have provided a commitment to fund up to $1.0 billion and $750 million, as of September 30, 2026 and December 31, 2025, respectively, to IHAM, with availability of funding solely at our discretion.
The interest income and dividend income that we earned from IHAM for the three and nine months ended September 30, 2026 and 2025 were as follows:
For the Three Months Ended September 30, For the Nine Months Ended September 30,
(in millions) 2026 2025 2026 2025
Interest income
$ 24 $ 1 $ 60 $ 2
Dividend income
$ 84 $ 73 $ 238 $ 219
From time to time, IHAM or certain IHAM Vehicles may purchase investments from, or sell investments to, us. For any such sales or purchases by the IHAM Vehicles to or from us, the IHAM Vehicle must obtain approval from third parties unaffiliated with us or IHAM, as applicable. During the nine months ended September 30, 2026 and 2025, IHAM or certain of the IHAM Vehicles purchased $3,292 million and $1,771 million, respectively, of loans from us. For the nine months ended September 30, 2026 and 2025, we recognized approximately $2 million of net realized losses and $0 million of net realized gains, respectively, from these sales. During the nine months ended September 30, 2026 and 2025, neither IHAM nor any IHAM Vehicles sold any investments to us.
The yields at amortized cost and fair value of our investments in IHAM as of September 30, 2026 and December 31, 2025 were as follows:
As of
September 30, 2026 December 31, 2025
Amortized Cost Fair Value Amortized Cost Fair Value
Subordinated loan
10.2 % 10.2 % 10.3 % 10.3 %
Equity(1)
17.8 % 16.3 % 17.2 % 15.3 %
_______________________________________________________________________________
(1)Represents the yield on our equity investment in IHAM, which is computed as (a) the annualized amount of the regular dividend received by us related to our equity investment in IHAM during the most recent quarter end, divided by (b) the amortized cost or fair value of our equity investment in IHAM, as applicable.
Selected Financial Information
Pursuant to Rule 4-08(g) of Regulation S-X, selected financial information of IHAM, in conformity with U.S. generally accepted accounting principles ("GAAP"), as of September 30, 2026 and December 31, 2025 and for the three and nine months ended September 30, 2026 and 2025 are presented below.
In conformity with GAAP, IHAM is required to consolidate entities in which IHAM has a direct or indirect controlling financial interest based on either a variable interest model or voting interest model, which include certain of the IHAM Vehicles (the "Consolidated IHAM Vehicles"). As such, for GAAP purposes only, IHAM consolidates (a) entities in which it holds a majority voting interest or has majority ownership and control over the operational, financial and investing decisions of that entity and (b) entities that it concludes are variable interest entities in which IHAM has more than insignificant economic
interest and power to direct the activities that most significantly impact the entities, and for which IHAM is deemed to be the primary beneficiary.
When IHAM consolidates an IHAM Vehicle for GAAP purposes only, IHAM reflects the assets, liabilities, revenues and expenses of the Consolidated IHAM Vehicles on a gross basis, including the economic interests held by third-party investors in the Consolidated IHAM Vehicles as debt obligations, subordinated notes or non-controlling interests, in the consolidated IHAM financials below. All of the revenues earned by IHAM as the investment manager of the Consolidated IHAM Vehicles are eliminated in GAAP consolidation. However, because the eliminated amounts are earned from and funded by third-party investors, the GAAP consolidation of an IHAM Vehicle does not impact the net income or loss attributable to IHAM. As a result, we believe an assessment of IHAM's business and the impact to our investment in IHAM is best viewed on a stand-alone basis as reflected in the first column in the tables below.
As of September 30, 2026
(in millions) IHAM Consolidated IHAM Vehicles(1) Eliminations Consolidated
Selected Balance Sheet Information:
Assets
Investments at fair value(2) $ 3,720 $ 13,824 $ (3,634) $ 13,910
Cash and cash equivalents 10 679 - 689
Other assets 67 139 (59) 147
Total assets $ 3,797 $ 14,642 $ (3,693) $ 14,746
Liabilities
Debt $ 894 $ 10,652 $ - $ 11,546
Subordinated note from ARCC 1,000 - - 1,000
Subordinated notes(3) - 2,419 (2,086) 333
Other liabilities 18 198 (28) 188
Total liabilities 1,912 13,269 (2,114) 13,067
Equity
Contributed capital 1,886 - - 1,886
Accumulated earnings 143 - - 143
Net unrealized losses on investments and foreign currency transactions(4) (144) - - (144)
Non-controlling interests in Consolidated IHAM Vehicles(5)
- 1,373 (1,579) (206)
Total equity 1,885 1,373 (1,579) 1,679
Total liabilities and equity $ 3,797 $ 14,642 $ (3,693) $ 14,746
As of December 31, 2025
(in millions) IHAM Consolidated IHAM Vehicles(1) Eliminations Consolidated
Selected Balance Sheet Information:
Assets
Investments at fair value(2) $ 3,108 $ 11,504 $ (3,013) $ 11,599
Cash and cash equivalents 10 597 - 607
Other assets 93 146 (82) 157
Total assets $ 3,211 $ 12,247 $ (3,095) $ 12,363
Liabilities
Debt $ 893 $ 8,622 $ - $ 9,515
Subordinated note from ARCC 531 - - 531
Subordinated notes(3) - 1,277 (941) 336
Other liabilities 21 311 (18) 314
Total liabilities 1,445 10,210 (959) 10,696
Equity
Contributed capital 1,700 - - 1,700
Accumulated earnings 148 - - 148
Net unrealized losses on investments and foreign currency transactions(4) (82) - - (82)
Non-controlling interests in Consolidated IHAM Vehicles(5)
- 2,037 (2,136) (99)
Total equity 1,766 2,037 (2,136) 1,667
Total liabilities and equity $ 3,211 $ 12,247 $ (3,095) $ 12,363
____________________________________
(1)Consolidated for GAAP purposes only.
(2)The determination of such fair value is determined in accordance with IHAM's valuation process (separate and apart from our valuation process described elsewhere herein). The amortized cost of IHAM's total investments as of September 30, 2026 and December 31, 2025 was $3,863 million and $3,190 million, respectively. The amortized cost of the total investments of IHAM on a consolidated basis as of September 30, 2026 and December 31, 2025 was $14,247 million and $11,766 million, respectively.
(3)Subordinated notes generally represent the most junior capital in certain of the Consolidated IHAM Vehicles and effectively represent equity in such vehicles.
(4)As of September 30, 2026 and December 31, 2025, net unrealized losses of $139 million and $85 million, respectively, have been eliminated upon consolidation and the elimination is included in "non-controlling interests in Consolidated IHAM Vehicles" in the selected balance sheet information.
(5)Non-controlling interests in Consolidated IHAM Vehicles includes net unrealized depreciation in the Consolidated IHAM Vehicles of $336 million and $167 million as of September 30, 2026 and December 31, 2025, respectively.
For the Three Months Ended September 30, 2026
(in millions) IHAM Consolidated IHAM Vehicles(1) Eliminations Consolidated
Selected Statement of Operations Information:
Revenues
Investment income $ 110 $ 294 $ (104) $ 300
Management fees and other income 16 2 (16) 2
Total revenues 126 296 (120) 302
Expenses
Interest expense 40 139 - 179
Distributions to subordinated notes - 45 (30) 15
Management fees and other expenses 4 26 (16) 14
Total expenses 44 210 (46) 208
Net operating income 82 86 (74) 94
Net realized losses on investments, foreign currency and other transactions - (1) - (1)
Net unrealized gains (losses) on investments, foreign currency and other transactions (26) 2 13 (11)
Total net realized and unrealized gains (losses) on investments, foreign currency and other transactions (26) 1 13 (12)
Net income 56 87 (61) 82
Less: Net income attributable to non-controlling interests in Consolidated IHAM Vehicles - 87 (61) 26
Net income attributable to Ivy Hill Asset Management, L.P. $ 56 $ - $ - $ 56
For the Nine Months Ended September 30, 2026
IHAM Consolidated IHAM Vehicles(1) Eliminations Consolidated
Selected Statement of Operations Information:
Revenues
Investment income $ 309 $ 810 $ (298) $ 821
Management fees and other income 46 6 (45) 7
Total revenues 355 816 (343) 828
Expenses
Interest expense 108 409 - 517
Distributions to subordinated notes - 131 (92) 39
Management fees and other expenses 13 61 (45) 29
Total expenses 121 601 (137) 585
Net operating income 234 215 (206) 243
Net realized losses on investments, foreign currency and other transactions (1) (17) - (18)
Net unrealized losses on investments, foreign currency and other transactions (62) (148) 53 (157)
Total net realized and unrealized losses on investments, foreign currency and other transactions (63) (165) 53 (175)
Net income 171 50 (153) 68
Less: Net income (loss) attributable to non-controlling interests in Consolidated IHAM Vehicles - 50 (153) (103)
Net income attributable to Ivy Hill Asset Management, L.P. $ 171 $ - $ - $ 171
For the Three Months Ended September 30, 2025
(in millions) IHAM Consolidated IHAM Vehicles(1) Eliminations Consolidated
Selected Statement of Operations Information:
Revenues
Investment income $ 84 $ 238 $ (82) $ 240
Management fees and other income 15 2 (14) 3
Total revenues 99 240 (96) 243
Expenses
Interest expense 18 124 - 142
Distributions to subordinated notes - 97 (84) 13
Management fees and other expenses 4 16 (14) 6
Total expenses 22 237 (98) 161
Net operating income 77 3 2 82
Net realized gains (losses) on investments and foreign currency 2 (27) (3) (28)
Net realized loss on extinguishment of debt - (2) - (2)
Net unrealized gains (losses) on investments, foreign currency and other transactions (13) 11 13 11
Total net realized and unrealized losses on investments, foreign currency and other transactions (11) (18) 10 (19)
Net income (loss) 66 (15) 12 63
Less: Net income (loss) attributable to non-controlling interests in Consolidated IHAM Vehicles - (15) 12 (3)
Net income attributable to Ivy Hill Asset Management, L.P. $ 66 $ - $ - $ 66
For the Nine Months Ended September 30, 2025
IHAM Consolidated IHAM Vehicles(1) Eliminations Consolidated
Selected Statement of Operations Information:
Revenues
Investment income $ 228 $ 687 $ (223) $ 692
Management fees and other income 39 6 (37) 8
Total revenues 267 693 (260) 700
Expenses
Interest expense 41 362 - 403
Distributions to subordinated notes - 161 (130) 31
Management fees and other expenses 12 44 (37) 19
Total expenses 53 567 (167) 453
Net operating income 214 126 (93) 247
Net realized losses on investments and foreign currency (29) (83) 18 (94)
Net realized gains (losses) on extinguishment of debt - 20 (23) (3)
Net unrealized gains (losses) on investments, foreign currency and other transactions 31 (8) (8) 15
Total net realized and unrealized gains (losses) on investments, foreign currency and other transactions 2 (71) (13) (82)
Net income 216 55 (106) 165
Less: Net income (loss) attributable to non-controlling interests in Consolidated IHAM Vehicles - 55 (106) (51)
Net income attributable to Ivy Hill Asset Management, L.P. $ 216 $ - $ - $ 216
____________________________________
(1)Consolidated for GAAP purposes only.
Senior Direct Lending Program
We have established a joint venture with Varagon to make certain first lien senior secured loans, including certain stretch senior and unitranche loans, primarily to U.S. middle-market companies. The joint venture is called the Senior Direct Lending Program, LLC (d/b/a the "Senior Direct Lending Program" or the "SDLP"). In July 2016, we and Varagon and its clients completed the initial funding of the SDLP. We, and other BDCs, registered closed-end management investment companies and other affiliated investment entities managed by our investment adviser or its affiliates, may directly co-invest with the SDLP in accordance with the terms of the Co-Investment Exemptive Order. The SDLP is capitalized as transactions are completed and all portfolio decisions and generally all other decisions in respect of the SDLP, including co-investment transactions made by the SDLP in accordance with the terms of the Co-Investment Exemptive Order, must be approved by an investment committee of the SDLP consisting of representatives of ours and Varagon (with approval from a representative of each required).
We provide capital to the SDLP in the form of subordinated certificates (the "SDLP Certificates"), and Varagon and its clients provide capital to the SDLP in the form of senior notes, intermediate funding notes and the SDLP Certificates. As of September 30, 2026, we and a client of Varagon owned 87.5% and 12.5%, respectively, of the outstanding SDLP Certificates.
As of September 30, 2026 and December 31, 2025, we and Varagon and its clients had agreed to make capital available to the SDLP of $6.2 billion and $6.2 billion, respectively, in the aggregate, of which $1.4 billion and $1.4 billion, respectively, is to be made available from us. This capital will only be committed to the SDLP upon approval of transactions by the investment committee of the SDLP. Below is a summary of the funded capital and unfunded capital commitments of the SDLP.
As of
(in millions) September 30, 2026 December 31, 2025
Total capital funded to the SDLP(1) $ 4,800 $ 4,606
Total capital funded to the SDLP by the Company(1) $ 1,321 $ 1,285
Total unfunded capital commitments to the SDLP(2) $ 195 $ 259
Total unfunded capital commitments to the SDLP by the Company(2) $ 45 $ 60
___________________________________________________________________________
(1) At principal amount.
(2)These commitments to fund delayed draw loans have been approved by the investment committee of the SDLP and will be funded if and when conditions to funding such delayed draw loans are met.
The SDLP Certificates pay a coupon equal to Secured Overnight Financing Rate ("SOFR") plus 8.0% and also entitle the holders thereof to receive a portion of the excess cash flow from the loan portfolio, after expenses, which may result in a return to the holders of the SDLP Certificates that is greater than the stated coupon. The SDLP Certificates are junior in right of payment to the senior notes and intermediate funding notes.
The amortized cost and fair value of our SDLP Certificates and our yield on our investment in the SDLP Certificates at amortized cost and fair value as of September 30, 2026 and December 31, 2025 were as follows:
As of
September 30, 2026 December 31, 2025
(dollar amounts in millions) Amortized Cost Fair Value Amortized Cost Fair Value
Investment in the SDLP Certificates $ 1,140 $ 1,153 $ 1,103 $ 1,117
Yield on the investment in the SDLP Certificates 13.1 % 13.0 % 13.2 % 13.0 %
The interest income and capital structuring service fees and other income earned with respect to our investment in the SDLP Certificates for the three and nine months ended September 30, 2026 and 2025 were as follows:
For the Three Months Ended September 30, For the Nine Months Ended September 30,
(in millions) 2026 2025 2026 2025
Interest income
$ 38 $ 34 $ 112 $ 110
Capital structuring service fees and other income
$ 2 $ 2 $ 7 $ 7
From time to time, we may sell investments to, or purchase investments from, the SDLP. During the nine months ended September 30, 2026, we sold approximately $361 million of investments to the SDLP and recognized approximately $0 million of net realized losses from these sales. During the nine months ended September 30, 2026, we purchased $68 million of investments from the SDLP. There were no such sales or purchases during the comparable period in 2025.
As of September 30, 2026 and December 31, 2025, the SDLP portfolio was comprised of first lien senior secured loans to primarily U.S. middle-market companies in industries similar to the companies in our portfolio. As of September 30, 2026, one of the loans in the SDLP portfolio was on non-accrual status. As of December 31, 2025, none of the loans in the SDLP portfolio were on non-accrual status. Below is a summary of the SDLP portfolio as of September 30, 2026 and December 31, 2025:
As of
(dollar amounts in millions) September 30, 2026 December 31, 2025
Total first lien senior secured loans(1)(2) $ 4,671 $ 4,297
Weighted average yield on first lien senior secured loans(3) 8.1 % 8.5 %
Largest loan to a single borrower(1) $ 373 $ 413
Total of five largest loans to borrowers(1) $ 1,627 $ 1,719
Number of borrowers in the SDLP 73 39
Commitments to fund delayed draw loans(4) $ 195 $ 259
_______________________________________________________________________________
(1)At principal amount.
(2)First lien senior secured loans include certain loans that the SDLP classifies as "unitranche" loans. As of September 30, 2026 and December 31, 2025, the total principal amount of loans in the SDLP portfolio that the SDLP classified as "unitranche" loans was $3,399 million and $2,844 million, respectively.
(3) Computed as (a) the annual stated interest rate on accruing first lien senior secured loans, divided by (b) total first lien senior secured loans at principal amount.
(4)These commitments to fund delayed draw loans have been approved by the investment committee of the SDLP and will be funded if and when conditions to funding such delayed draw loans are met.
Selected financial information of the SDLP, in conformity with GAAP, as of September 30, 2026 and December 31, 2025 and for the three and nine months ended September 30, 2026 and 2025 is presented below:
As of
(in millions) September 30, 2026 December 31, 2025
Selected Balance Sheet Information:
Investments at fair value (amortized cost of $4,494 and $4,305, respectively) $ 4,319 $ 4,159
Other assets 133 128
Total assets $ 4,452 $ 4,287
Senior notes $ 3,184 $ 3,024
Intermediate funding notes 106 113
Other liabilities 109 98
Total liabilities 3,399 3,235
Subordinated certificates and members' capital 1,053 1,052
Total liabilities and members' capital $ 4,452 $ 4,287
For the Three Months Ended September 30, For the Nine Months Ended September 30,
(in millions) 2026 2025 2026 2025
Selected Statement of Operations Information:
Total investment income $ 95 $ 99 $ 277 $ 311
Interest expense 49 54 141 174
Other expenses 5 5 13 13
Total expenses 54 59 154 187
Net investment income 41 40 123 124
Net realized and unrealized losses on investments (18) (3) (28) (40)
Net increase in members' capital resulting from operations $ 23 $ 37 $ 95 $ 84
Additional supplemental financial information for the SDLP is set forth in Exhibit 99.1 to this Form 10-Q.
RESULTS OF OPERATIONS
For the three and nine months ended September 30, 2026 and 2025
Operating results for the three and nine months ended September 30, 2026 and 2025 were as follows:
For the Three Months Ended September 30, For the Nine Months Ended September 30,
(in millions) 2026 2025 2026 2025
Total investment income $ 763 $ 782 $ 2,294 $ 2,259
Total expenses 429 433 1,189 1,188
Net investment income before income taxes 334 349 1,105 1,071
Income tax expense, including excise taxes 6 11 20 26
Net investment income 328 338 1,085 1,045
Net realized gains (losses) (50) 162 51 135
Net unrealized gains (losses) 43 (96) (552) (174)
Realized loss on extinguishment of debt (2) - (2) -
Net increase in stockholders' equity resulting from operations $ 319 $ 404 $ 582 $ 1,006
Net income can vary substantially from period to period due to various factors, including acquisitions, the level of new investment commitments, the level of base interest rates and the recognition of realized gains and losses and unrealized appreciation and depreciation. As a result, comparisons of net increase in stockholders' equity resulting from operations may not be meaningful.
Investment Income
For the Three Months Ended September 30, For the Nine Months Ended September 30,
(in millions) 2026 2025 2026 2025
Interest income from investments $ 558 $ 561 $ 1,665 $ 1,620
Capital structuring service fees 23 48 102 128
Dividend income 160 141 468 442
Other income 22 32 59 69
Total investment income $ 763 $ 782 $ 2,294 $ 2,259
Interest income from investments for the three months ended September 30, 2026 decreased from the comparable period in 2025 primarily due to lower base rates, resulting in a decrease in the weighted average yield of our portfolio. Interest income from investments for the nine months ended September 30, 2026 increased from the comparable period in 2025 due to an increase in the average size of our portfolio. The average size and weighted average yield of our portfolio at amortized cost for the three and nine months ended September 30, 2026 and 2025 were as follows:
For the Three Months Ended September 30, For the Nine Months Ended September 30,
(dollar amounts in millions) 2026 2025 2026 2025
Average size of portfolio(1) $ 29,576 $ 28,074 $ 29,563 $ 27,277
Weighted average yield on portfolio 9.5 % 9.9 % 9.5 % 10.1 %
_______________________________________________________________________________
(1) Includes non-interest earning investments.
Capital structuring service fees for the three and nine months ended September 30, 2026 decreased from the comparable periods in 2025 primarily due to a decrease in new investment commitments. The new investment commitments
and weighted average capital structuring service fee percentages for the three and nine months ended September 30, 2026 and 2025 were as follows:
For the Three Months Ended September 30, For the Nine Months Ended September 30,
(dollar amounts in millions) 2026 2025 2026 2025
New investment commitments(1) $ 1,150 $ 3,410 $ 5,492 $ 8,755
Weighted average capital structuring service fee percentage(1) 2.0 % 1.4 % 1.9 % 1.4 %
_______________________________________________________________________________
(1)There were no new investment commitments originated during the three months ended September 30, 2026 that were syndicated to third-party lenders during the same period. Excludes $565 million of new investment commitments originated during the nine months ended September 30, 2026 that were syndicated to third-party lenders during the same period. Excludes $375 million of new investment commitments originated during the three months ended September 30, 2025 that were syndicated to third-party lenders during the same period and $901 million during the nine months ended September 30, 2025. Excludes $389 million and $139 million of investments funded to IHAM for the three months ended September 30, 2026 and 2025, respectively, and $1,321 million and $294 million for the nine months ended September 30, 2026 and 2025, respectively. Excludes $570 million of new investment commitments related to a portfolio acquisition for the nine months ended September 30, 2026.
Dividend income for the three and nine months ended September 30, 2026 and 2025 were as follows:
For the Three Months Ended September 30, For the Nine Months Ended September 30,
(in millions) 2026 2025 2026 2025
Dividend income received from IHAM(1) $ 84 $ 73 $ 238 $ 219
Recurring dividend income 69 67 202 211
Non-recurring dividend income 7 1 28 12
Total dividend income $ 160 $ 141 $ 468 $ 442
_______________________________________________________________________________
(1)Dividend income received from IHAM for the nine months ended September 30, 2026 includes a non-recurring special dividend of $3 million.
Recurring dividend income for the nine months ended September 30, 2026 decreased from the comparable period in 2025 primarily due to a decrease in yielding preferred equity investments.
Operating Expenses
For the Three Months Ended September 30, For the Nine Months Ended September 30,
(in millions) 2026 2025 2026 2025
Interest and credit facility fees $ 221 $ 209 $ 648 $ 583
Base management fee 109 108 330 314
Income based fee 82 88 250 259
Capital gains incentive fee(1) - 13 (82) (8)
Administrative and other fees 4 4 12 12
Other general and administrative 13 11 31 28
Total expenses $ 429 $ 433 $ 1,189 $ 1,188
_______________________________________________________________________________
(1)Accrued in accordance with GAAP as discussed below. As of September 30, 2026 and December 31, 2025, there was no capital gains incentive fee actually payable under our investment advisory and management agreement.
Interest and credit facility fees for the three and nine months ended September 30, 2026 and 2025 were comprised of the following:
For the Three Months Ended September 30, For the Nine Months Ended September 30,
(in millions) 2026 2025 2026 2025
Stated interest expense(1) $ 200 $ 194 $ 594 $ 541
Credit facility fees 8 6 21 19
Amortization of debt issuance costs 9 8 26 26
Net amortization of discount/premium on notes payable 3 1 6 (1)
Net (gain) loss on interest rate swaps accounted for as hedge instruments and the related hedged items 1 - 1 (2)
Total interest and credit facility fees $ 221 $ 209 $ 648 $ 583
________________________________________
(1)Includes the impact of interest rate swaps.
Stated interest expense for the three and nine months ended September 30, 2026 increased from the comparable periods in 2025 primarily due to the increase in the average principal amount of our outstanding debt. Average outstanding debt and weighted average stated interest rate on our outstanding debt for the three and nine months ended September 30, 2026 and 2025 were as follows:
For the Three Months Ended September 30, For the Nine Months Ended September 30,
(dollar amounts in millions) 2026 2025 2026 2025
Average outstanding debt $ 15,740 $ 14,903 $ 16,058 $ 14,302
Weighted average stated interest rate on outstanding debt(1) 5.1 % 5.1 % 5.0 % 4.8 %
________________________________________
(1)The weighted average stated interest rate on our outstanding debt includes the impact of interest rate swaps. See Note 6 to our consolidated financial statements for the three and nine months ended September 30, 2026 for more information on the interest rate swaps.
The base management fee for the three and nine months ended September 30, 2026 increased from the comparable periods in 2025 primarily due to the increase in the average size of our portfolio.
The income based fee for the three and nine months ended September 30, 2026 decreased from the comparable periods in 2025 primarily due to the pre-incentive fee net investment income, as defined in the investment advisory and management agreement, for the three and nine months ended September 30, 2026 being lower than in the comparable periods in 2025.
For the three months ended September 30, 2026, there was no capital gains incentive fee accrued in accordance with GAAP. For the three months ended September 30, 2025, the capital gains incentive fee calculated in accordance with GAAP was $13 million. For the nine months ended September 30, 2026 and 2025, the reduction in the capital gains incentive fee accrued in accordance with GAAP was $82 million and $8 million, respectively. The capital gains incentive fee accrual for the nine months ended September 30, 2026 changed from the comparable period in 2025 primarily due to net losses on investments, foreign currency, other transactions and the extinguishment of debt of $503 million compared to net losses of $39 million for the comparable period in 2025. The capital gains incentive fee accrued under GAAP includes an accrual related to unrealized capital appreciation, whereas the capital gains incentive fee actually payable under our investment advisory and management agreement does not. There can be no assurance that such unrealized capital appreciation will be realized in the future. The accrual for any capital gains incentive fee under GAAP in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reduction of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual. As of September 30, 2026, there was no capital gains incentive fee accrued in accordance with GAAP or capital gains incentive fee actually payable under our investment advisory and management agreement. See Note 3 to our consolidated financial statements for the three and nine
months ended September 30, 2026 for more information on the base management fee, income based fee and capital gains incentive fee.
Cash payment of any income based fee and capital gains incentive fee otherwise earned by our investment adviser is deferred if during the most recent four full calendar quarter period ending on or prior to the date such payment is to be made the sum of (a) the aggregate distributions to our stockholders and (b) the change in net assets (defined as total assets less indebtedness and before taking into account any income based fee and capital gains incentive fee payable during the period) is less than 7.0% of our net assets (defined as total assets less indebtedness) at the beginning of such period. These calculations will be adjusted for any share issuances or repurchases. Any income based fee and capital gains incentive fee deferred for payment are carried over for payment in subsequent calculation periods to the extent such fees are payable under the terms of the investment advisory and management agreement. Pursuant to these terms, payment of the $84 million income based fee earned by our investment adviser for the second quarter of 2026 had been previously deferred. As of September 30, 2026, such deferral of income based fee was payable under the terms of the investment advisory and management agreement. See Note 3 to our consolidated financial statements for the three and nine months ended September 30, 2026 for more information on the related deferral terms.
Administrative and other fees represent fees paid to Ares Operations and our investment adviser for our allocable portion of overhead and other expenses incurred by Ares Operations and our investment adviser in performing their obligations under the administration agreement and the investment advisory and management agreement, respectively, including our allocable portion of the compensation, rent and other expenses of certain of our officers and their respective staffs. See Note 3 to our consolidated financial statements for the three and nine months ended September 30, 2026 for more information on the administrative and other fees.
Other general and administrative expenses include, among other costs, professional fees, insurance, fees and expenses related to evaluating and making investments in portfolio companies and independent directors' fees.
Income Tax Expense, Including Excise Taxes
We have elected to be treated as a RIC under the Code and operate in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, we must, among other requirements, meet certain source-of-income and asset diversification requirements and timely distribute to our stockholders at least 90% of our investment company taxable income, as defined by the Code, for each year. We have made and intend to continue to make the requisite distributions to our stockholders which will generally relieve us from U.S. federal corporate-level income taxes.
Depending on the level of taxable income earned in a tax year, we may choose to carry forward such taxable income in excess of current year dividend distributions from such current year taxable income into the next tax year and pay a 4% excise tax on such income, as required. To the extent that we determine that our estimated current year taxable income will be in excess of estimated dividend distributions for the current year from such income, we accrue excise tax, if any, on estimated excess taxable income as such taxable income is earned. For the three and nine months ended September 30, 2026, we recorded a net expense of $6 million and approximately $20 million, respectively, for U.S. federal excise taxes. For the three and nine months ended September 30, 2025, we recorded a net expense of $11 million and $25 million, respectively, for U.S. federal excise taxes.
Certain of our consolidated subsidiaries are subject to U.S. federal and state income taxes. For the three and nine months ended September 30, 2026, we recorded a net tax expense of approximately $0 million and $0 million, respectively, for such subsidiaries. For the three and nine months ended September 30, 2025, we recorded a net tax expense of $72 million and $117 million, respectively, for these subsidiaries. The income tax expense for our taxable consolidated subsidiaries will vary depending on the level of realized gains from the exits of investments held by such taxable subsidiaries during the respective periods.
Net Realized Gains/Losses
The net realized gains (losses) from the sales, repayments or exits of investments during the three and nine months ended September 30, 2026 and 2025 were comprised of the following:
For the Three Months Ended September 30, For the Nine Months Ended September 30,
(in millions) 2026 2025 2026 2025
Sales, repayments or exits of investments(1)(2) $ 2,549 $ 2,876 $ 8,754 $ 7,462
Net realized gains (losses) on investments:
Gross realized gains $ 25 $ 317 $ 211 $ 592
Gross realized losses (86) (70) (165) (320)
Total net realized gains (losses) on investments $ (61) $ 247 $ 46 $ 272
_______________________________________________________________________________
(1)Includes $1,164 million and $3,292 million of loans sold to IHAM or certain IHAM Vehicles during the three and nine months ended September 30, 2026, respectively, and $400 million and $1,771 million during the comparable periods in 2025, respectively. Net realized losses of approximately $4 million and approximately $2 million were recorded on these transactions with IHAM during the three and nine months ended September 30, 2026, respectively. There were no net realized gains (losses) on these transactions with IHAM during the three months ended September 30, 2025. Net realized gains of $0 million were recorded on these transactions with IHAM during the nine months ended September 30, 2025. See Note 4 to our consolidated financial statements for the three and nine months ended September 30, 2026 for more information on IHAM and the IHAM Vehicles.
(2)Includes $0 and $361 million of loans sold to the SDLP during the three and nine months ended September 30, 2026, respectively. Net realized losses of $0 and approximately $0 million were recorded on these transactions with the SDLP during the three and nine months ended September 30, 2026. There were no such sales or purchases in the comparable periods in 2025. See Note 4 to our consolidated financial statements for the three and nine months ended September 30, 2026 for more information on the SDLP.
The net realized losses on investments during the three months ended September 30, 2026 consisted of the following:
(in millions)
Portfolio Company 		Net Realized Gains (Losses)
Team Acquisition, LLC, Augusta Sportswear, Inc., and Team Holding, LLC $ (24)
ADG, LLC (54)
Other, net 17
Total $ (61)
During the three months ended September 30, 2026, we also recognized net realized gains on foreign currency and other transactions of $11 million.
The net realized gains on investments during the three months ended September 30, 2025 consisted of the following:
(in millions)
Portfolio Company 		Net Realized Gains (Losses)
Potomac Intermediate Holdings II LLC $ 262
Corient Holdings, Inc. 21
Align Precision Group, LLC and Align Precision Topco, L.P. (15)
Implus Footcare, LLC, Implus Holdings, LLC, and Implus Topco, LLC (49)
Other, net 28
Total $ 247
During the three months ended September 30, 2025, we also recognized net realized losses on foreign currency and other transactions of $13 million.
The net realized gains on investments during the nine months ended September 30, 2026 consisted of the following:
(in millions)
Portfolio Company 		Net Realized Gains (Losses)
Pegasus Aggregator Parent LLC $ 44
Storm Investment S.a.r.l. and Atletico Holdco, S.L. 42
GHX Ultimate Parent Corporation and Nexus TopCo LP 17
Apple Bidco Holdings, Inc. 16
Team Acquisition, LLC, Augusta Sportswear, Inc., and Team Holding, LLC (24)
ADG, LLC (54)
Eagle Football Holdings BidCo Limited and Eagle Football Holdings Limited (69)
Other, net 74
Total $ 46
During the nine months ended September 30, 2026, we also recognized net realized gains on foreign currency and other transactions of $5 million.
During the three and nine months ended September 30, 2026, we also recognized a realized loss on extinguishment of debt of $2 million related to the refinancing of the ADL CLO 1 Debt Securitization (as defined below).
The net realized gains on investments during the nine months ended September 30, 2025 consisted of the following:
(in millions)
Portfolio Company 		Net Realized Gains (Losses)
Potomac Intermediate Holdings II LLC $ 262
SageSure Holdings, LLC and SageSure LLC 68
Redwood Services, LLC and Redwood Services Holdco, LLC 64
Accommodations Plus Technologies LLC and Accommodations Plus Technologies Holdings LLC 39
Corient Holdings, Inc. 21
FS Squared Holding Corp. and FS Squared, LLC 19
Project Alpha Intermediate Holding, Inc. and Qlik Parent, Inc. 15
Align Precision Group, LLC and Align Precision Topco, L.P. (15)
Aimbridge Acquisition Co., Inc. (19)
H-Food Holdings, LLC and Matterhorn Parent, LLC (20)
SVP-Singer Holdings Inc. and SVP-Singer Holdings LP (22)
Implus Footcare, LLC, Implus Holdings, LLC, and Implus Topco, LLC (49)
Vobev, LLC and Vobev Holdings, LLC (63)
Senior Direct Lending Program, LLC (112)
Other, net 84
Total $ 272
During the nine months ended September 30, 2025, we also recognized net realized losses on foreign currency and other transactions of $21 million.
Net Unrealized Gains/Losses
We value our portfolio investments at least quarterly and the changes in value are recorded as unrealized gains or losses in our consolidated statements of operations. Net unrealized gains and losses on investments, including the net change in deferred tax liabilities, for the three and nine months ended September 30, 2026 and 2025, were comprised of the following:
For the Three Months Ended September 30, For the Nine Months Ended September 30,
(in millions) 2026 2025 2026 2025
Unrealized appreciation $ 295 $ 268 $ 441 $ 571
Unrealized depreciation (303) (254) (926) (564)
Net unrealized (appreciation) depreciation reversed related to net realized gains or losses(1) 59 (140) (97) (157)
Total net unrealized gains (losses) on investments $ 51 $ (126) $ (582) $ (150)
_______________________________________________________________________________
(1)The net unrealized (appreciation) depreciation reversed related to net realized gains or losses represents the unrealized appreciation or depreciation recorded on the related asset at the end of the prior periods.
The changes in net unrealized appreciation and depreciation on investments during the three months ended September 30, 2026 consisted of the following:
(in millions)
Portfolio Company 		Net Unrealized Appreciation (Depreciation)
Symplr Software Inc. and Symplr Software Intermediate Holdings, Inc. $ 73
PCG-TAC-CV, LP 15
Himalaya TopCo LLC and BCPE Hyperlink Holdings, LP (16)
Ivy Hill Asset Management, L.P. (16)
Pegasus Aggregator Parent LLC (23)
Other, net (41)
Total $ (8)
During the three months ended September 30, 2026, we also recognized net unrealized losses on foreign currency and other transactions of $8 million.
The changes in net unrealized appreciation and depreciation on investments during the three months ended September 30, 2025 consisted of the following:
(in millions)
Portfolio Company 		Net Unrealized Appreciation (Depreciation)
Storm Investment S.a.r.l $ 27
FEH Group, LLC. 17
Global Medical Response, Inc. 16
Imaging Business Machines, L.L.C. and Scanner Holdings Corporation 16
Eagle Football Holdings BidCo Limited and Eagle Football Holdings Limited (18)
Production Resource Group, L.L.C. and PRG III, LLC (20)
Other, net (24)
Total $ 14
During the three months ended September 30, 2025, we also recognized net unrealized gains on foreign currency and other transactions of $30 million.
The changes in net unrealized appreciation and depreciation on investments during the nine months ended September 30, 2026 consisted of the following:
(in millions)
Portfolio Company 		Net Unrealized Appreciation (Depreciation)
Arxis, Inc. (fka Qnnect, LLC and Connector TopCo, LP) $ 42
FEH Group, LLC. 34
SageSure Holdings, LLC and SageSure LLC 30
Triple JJJ Lube, Corp. and TCC Buyer Holdco, LLC 24
South Florida Motorsports, LLC 18
PCG-TAC-CV, LP 15
ATI Restoration, LLC (15)
Cardinal Parent, Inc. and Packers Software Intermediate Holdings, Inc. (16)
Pegasus Aggregator Parent LLC (16)
Balrog Acquisition, Inc., Balrog Topco, Inc. and Balrog Parent, L.P. (18)
VPROP Operating, LLC and V SandCo, LLC (18)
Digicert, Inc., Dcert Buyer, Inc., DCert Preferred Holdings, Inc. and Destiny Digital Holdings, L.P. (18)
Himalaya TopCo LLC and BCPE Hyperlink Holdings, LP (20)
Absolute Dental Group LLC and Absolute Dental Equity, LLC (21)
Pluralsight, LLC and Pluralsight Holdings, LLC and Paradigmatic Holdco LLC (22)
Ivy Hill Asset Management, L.P. (22)
Denali Intermediate Holdings, Inc. and Denali Parent Holdings, L.P. (22)
Apex Clean Energy TopCo, LLC (23)
Essential Services Holding Corporation and OMERS Mahomes Investment Holdings LLC (25)
Huskies Parent, Inc., GI Insurity Parent LLC and GI Insurity TopCo LP (26)
BVI Medical, Inc. and BVI Group Limited (27)
Cornerstone OnDemand, Inc. and Sunshine Software Holdings, Inc. (112)
Other, net (227)
Total $ (485)
During the nine months ended September 30, 2026, we also recognized net unrealized gains on foreign currency and other transactions of $30 million.
The changes in net unrealized appreciation and depreciation on investments during the nine months ended September 30, 2025 consisted of the following:
(in millions)
Portfolio Company 		Net Unrealized Appreciation (Depreciation)
Senior Direct Lending Program, LLC $ 65
Storm Investment S.a.r.l. 36
Global Medical Response, Inc. 34
Neptune Bidco US Inc. 21
FEH Group, LLC. 20
Imaging Business Machines, L.L.C. and Scanner Holdings Corporation 19
Sunrun Atlas Depositor 2019-2, LLC and Sunrun Atlas Holdings 2019-2, LLC (17)
Absolute Dental Group LLC and Absolute Dental Equity, LLC (18)
Visual Edge Technology, Inc. (27)
Eagle Football Holdings BidCo Limited and Eagle Football Holdings Limited (29)
VPROP Operating, LLC and V SandCo, LLC (38)
Production Resource Group, L.L.C. and PRG III, LLC (41)
Other, net (18)
Total $ 7
During the nine months ended September 30, 2025, we also recognized net unrealized losses on foreign currency and other transactions of $24 million.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Our liquidity and capital resources are generated primarily from the net proceeds of public offerings of equity and debt securities, advances from our credit facilities (the Revolving Credit Facility, the Revolving Funding Facility, the SMBC Funding Facility and the BNP Funding Facility (each as defined below, and together, the "Credit Facilities")) and our commercial paper program, net proceeds from the issuance of other securities, including unsecured notes and debt securitizations, as well as cash flows from operations.
In accordance with the Investment Company Act, we are allowed to borrow amounts such that our asset coverage, calculated pursuant to the Investment Company Act, is at least 150% after such borrowings (i.e., we are able to borrow up to two dollars for every dollar we have in assets less all liabilities and indebtedness not represented by senior securities issued by us). As of September 30, 2026, we had $722 million in cash and cash equivalents and $15.5 billion in total aggregate principal amount of outstanding debt ($15.1 billion at carrying value) and our asset coverage was 188%. Subject to borrowing base and other restrictions, we had approximately $6.9 billion available for additional borrowings under the Credit Facilities as of September 30, 2026.
We may from time to time seek to retire or repurchase our common stock through cash purchases, as well as retire, cancel or purchase our outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions or otherwise. The amounts involved may be material. In addition, we may from time to time enter into additional credit facilities, increase the size of existing facilities or issue additional debt securities, including secured debt, unsecured debt and/or debt securities convertible into common stock. Any such purchases or exchanges of common stock or outstanding debt, or incurrence or issuance of additional debt would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors.
Equity Capital Activities
As of September 30, 2026, our total equity market capitalization was $13.8 billion.
We may from time to time issue and sell shares of our common stock through public or "at the market" offerings. During the nine months ended September 30, 2026, we issued and sold the following shares of our common stock:
Issuances of Common Stock Number of Shares Issued Gross Proceeds Underwriting Fees/Offering Expenses Net Proceeds Average Offering Price Per Share(1)
"At the market" offerings 4.2 $ 83.5 $ 1.2 $ 82.3 $ 20.01
"At the Market" Offerings
We are a party to equity distribution agreements with several banks (the "Equity Distribution Agreements"). The Equity Distribution Agreements provide that we may from time to time issue and sell, by means of "at the market" offerings, up to $1.5 billion of our common stock. Subject to the terms and conditions of the Equity Distribution Agreements, sales of common stock, if any, may be made in transactions that are deemed to be "at the market" offerings as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended (the "Securities Act"). Under the currently effective Equity Distribution Agreements, common stock with an aggregate offering amount of $1.4 billion remained available for issuance as of September 30, 2026.
Dividend Reinvestment Plan
See Note 11 to our consolidated financial statements for the three and nine months ended September 30, 2026 for information regarding shares of common stock issued or purchased in accordance with our dividend reinvestment plan.
Stock Repurchase Program
We are authorized under our stock repurchase program to purchase up to $1.0 billion in the aggregate of our outstanding common stock in the open market at certain thresholds below our net asset value per share, in accordance with the guidelines specified in Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The timing, manner, price and amount of any share repurchases will be determined by us, in our sole discretion, based upon an evaluation of economic and market conditions, stock price, applicable legal and regulatory requirements and other factors. The stock repurchase program does not require us to repurchase any specific number of shares of common stock or any shares of common stock at all. Consequently, we cannot assure stockholders that any specific number of shares of common stock, if any, will be
repurchased under the stock repurchase program. As of September 30, 2026, the expiration date of the stock repurchase program was February 15, 2027. The program may be suspended, extended, modified or discontinued at any time. As of September 30, 2026, there was $1.0 billion available for additional repurchases under the program.
During the nine months ended September 30, 2026, we did not repurchase any shares of our common stock in the open market under the stock repurchase program.
Price Range of Common Stock
The following table sets forth, for the third quarter of the year ending December 31, 2026 and each fiscal quarter for the fiscal years ended December 31, 2025 and 2024, the net asset value per share of our common stock, the range of high and low closing sales prices of our common stock, the closing sales price as a premium (discount) to net asset value and the dividends or distributions declared by us. On October 22, 2026, the last reported closing sales price of our common stock on the NASDAQ Global Select Market was $18.79 per share, which represented a discount of approximately 2.69% to the net asset value per share reported by us as of September 30, 2026.
Net
Asset
Price Range
High
Sales Price
Premium
(Discount)
to Net Asset
Low
Sales Price
Premium
(Discount)
to Net Asset
Cash
Dividend
Per
Value(1)
High
Low
Value(2)
Value(2)
Share(3)
Year ending December 31, 2026
First Quarter
$ 19.59 $ 20.99 $ 17.45 7.15 % (10.92) % $ 0.48
Second Quarter
$ 19.35 $ 19.35 $ 17.73 - % (8.37) % $ 0.48
Third Quarter
$ 19.31 $ 20.19 $ 18.38 4.56 % (4.82) % $ 0.48
Year ended December 31, 2025
First Quarter
$ 19.82 $ 23.81 $ 21.28 20.13 % 7.37 % $ 0.48
Second Quarter
$ 19.90 $ 22.43 $ 18.91 12.71 % (4.97) % $ 0.48
Third Quarter
$ 20.01 $ 23.25 $ 20.41 16.19 % 2.00 % $ 0.48
Fourth Quarter
$ 19.94 $ 21.03 $ 18.90 5.47 % (5.22) % $ 0.48
Year ended December 31, 2024
First Quarter
$ 19.53 $ 20.82 $ 19.94 6.61 % 2.10 % $ 0.48
Second Quarter
$ 19.61 $ 21.58 $ 20.24 10.05 % 3.21 % $ 0.48
Third Quarter
$ 19.77 $ 21.28 $ 19.80 7.64 % 0.15 % $ 0.48
Fourth Quarter
$ 19.89 $ 22.27 $ 20.74 11.97 % 4.27 % $ 0.48
_______________________________________________________________________________
(1)Net asset value per share is determined as of the last day in the relevant quarter and therefore may not reflect the net asset value per share on the date of the high and low closing sales prices. The net asset values shown are based on outstanding shares at the end of the relevant quarter.
(2)Calculated as the respective high or low closing sales price less net asset value, divided by net asset value (in each case, as of the applicable quarter).
(3)Represents the dividend or distribution declared in the relevant quarter.
Debt Capital Activities
Our debt obligations consisted of the following as of September 30, 2026 and December 31, 2025:
As of
September 30, 2026 December 31, 2025
(in millions) Total
Aggregate
Principal
Amount
Available/
Outstanding(1) 		Principal Amount Outstanding Carrying
Value 		Total
Aggregate
Principal
Amount
Available/
Outstanding(1) 		Principal Amount Outstanding Carrying
Value
Revolving Credit Facility $ 5,481 (2) $ 1,261 $ 1,261 $ 5,493 (2) $ 2,028 $ 2,031
Revolving Funding Facility 2,250 1,085 1,085 2,250 1,234 1,234
SMBC Funding Facility 1,600 (3) 775 775 1,100 (3) 563 563
BNP Funding Facility 1,465 733 733 1,265 717 717
April 2036 CLO Secured Debt(4) - - - 476 476 473 (5)
July 2038 CLO Secured Debt(4) 476 476 474 (5) - - -
October 2036 CLO Secured Loans(4) 544 544 542 (5) 544 544 541 (5)
January 2038 CLO Secured Notes(4) 700 700 697 (5) 700 700 697 (5)
January 2026 Notes 1,150 1,150 1,150 (5)
July 2026 Notes - - - 1,000 1,000 999 (5)
January 2027 Notes 900 900 893 (5)(6) 900 900 900 (5)(6)
June 2027 Notes 500 500 499 (5) 500 500 498 (5)
June 2028 Notes 1,250 1,250 1,249 (5) 1,250 1,250 1,248 (5)
March 2029 Notes 1,000 1,000 965 (5)(6) 1,000 1,000 999 (5)(6)
July 2029 Notes 850 850 826 (5)(6) 850 850 861 (5)(6)
January 2030 Notes 800 800 765 (5)(6) - - -
September 2030 Notes 750 750 708 (5)(6) 750 750 743 (5)(6)
January 2031 Notes 650 650 602 (5)(6) 650 650 634 (5)(6)
April 2031 Notes 750 750 697 (5)(6) - - -
November 2031 Notes 700 700 694 (5) 700 700 693 (5)
March 2032 Notes 1,000 1,000 949 (5)(6) 1,000 1,000 1,010 (5)(6)
September 2033 Notes 750 750 710 (5)(6) - - -
Total $ 22,416 $ 15,474 $ 15,124 $ 21,578 $ 16,012 $ 15,991
________________________________________
(1)Represents the total aggregate amount committed or outstanding, as applicable, under such instrument. Borrowings under the Credit Facilities are subject to borrowing base and other restrictions.
(2)Provides for an "accordion" feature that allows us, under certain circumstances, to increase the size of the Revolving Credit Facility to a maximum of approximately $8.2 billion and $7.9 billion as of September 30, 2026 and December 31, 2025, respectively.
(3)Provides for an "accordion" feature that allows ACJB (as defined below), under certain circumstances, to increase the size of the SMBC Funding Facility to a maximum of $2.5 billion and $1.3 billion as of September 30, 2026 and December 31, 2025, respectively.
(4)Excludes the subordinated notes issued by certain of our wholly owned, consolidated subsidiaries in connection with debt securitizations, as described below, all of which were retained by us and, as such, eliminated in consolidation.
(5)Represents the aggregate principal amount outstanding, less unamortized debt issuance costs and the net unaccreted/amortized discount or premium recorded upon issuance. In January 2026 and July 2026, we repaid in full the January 2026 Notes and July 2026 Notes (each as defined below), respectively, upon their maturity.
(6)The carrying value of the January 2027 Notes, the March 2029 Notes, the July 2029 Notes, the January 2030 Notes, the September 2030 Notes, the January 2031 Notes, the April 2031 Notes, the March 2032 Notes and the September 2033 Notes (each as defined below) includes adjustments as a result of effective hedge accounting relationships, as applicable. See Note 6 to our consolidated financial statements for the three and nine months ended September 30, 2026 for more information on the interest rate swaps related to these unsecured notes issuances.
The weighted average stated interest rate and weighted average maturity, both on aggregate principal amount outstanding, of all our outstanding debt as of September 30, 2026 were 5.2% and 4.4 years, respectively, and as of December 31, 2025 were 4.9% and 4.2 years, respectively. The weighted average stated interest rate of all our outstanding debt as of September 30, 2026 and December 31, 2025 includes the impact of interest rate swaps. See Note 6 to our consolidated financial statements for the three and nine months ended September 30, 2026 for more information on the interest rate swaps.
The ratio of total principal amount of outstanding debt to stockholders' equity as of September 30, 2026 was 1.11:1.00 compared to 1.12:1.00 as of December 31, 2025.
Revolving Credit Facility
We are party to a senior secured revolving credit facility (as amended and restated, the "Revolving Credit Facility"), that allows us to borrow up to approximately $5.5 billion at any one time outstanding. The Revolving Credit Facility consists of an approximately $4.3 billion revolving tranche and an approximately $1.2 billion term loan tranche. As of September 30, 2026, the end of the revolving periods and the stated maturity dates of the various revolving and term loan tranches of the Revolving Credit Facility were as follows:
(in millions) Total Aggregate Principal Amount Committed End of Revolving Period Maturity Date
Revolving tranche $ 4,151 May 21, 2030 May 21, 2031
131 April 15, 2029 April 15, 2030
37 April 12, 2028 April 12, 2029
4,319
Term loan tranche 1,039 May 21, 2031
70 April 15, 2030
13 April 12, 2029
40 April 19, 2028
1,162
$ 5,481
The Revolving Credit Facility also provides for an "accordion" feature that allows us, under certain circumstances, to increase the overall size of the Revolving Credit Facility to a maximum of approximately $8.2 billion.
Subject to certain exceptions, the interest rate charged on the Revolving Credit Facility is based on SOFR (or an alternate rate of interest for certain loans, commitments and/or other extensions of credit denominated in certain approved foreign currencies plus a spread adjustment, if applicable) plus an applicable spread of either 1.525%, 1.650%, 1.775% or an "alternate base rate" (as defined in the documents governing the Revolving Credit Facility) plus an applicable spread of either 0.525%, 0.650% or 0.775%, in each case, determined monthly based on the total amount of the borrowing base relative to the sum of (i) the greater of (a) the aggregate amount of revolving credit exposure and term loans outstanding under the Revolving Credit Facility and (b) 85% of the total commitments of the Revolving Credit Facility (or, if higher, the total revolving credit exposure) plus (ii) other debt, if any, secured by the same collateral as the Revolving Credit Facility. As of September 30, 2026, the applicable weighted average spread in effect was 1.66%. Subject to certain exceptions, we are required to pay a commitment fee of 0.325% per annum on any unused portion of the Revolving Credit Facility. We are also required to pay letter of credit fees of 1.775%, 1.900% or 2.025% per annum on letters of credit issued, determined monthly based on the total
amount of the borrowing base relative to the total commitments of the Revolving Credit Facility and other debt, if any, secured by the same collateral as the Revolving Credit Facility. As of September 30, 2026, there was $1.3 billion outstanding under the Revolving Credit Facility and we were in compliance in all material respects with the terms of the Revolving Credit Facility.
Commercial Paper Program
We maintain a commercial paper program (the "CP Program") that allows us to issue up to $1.0 billion of commercial paper notes, which bear interest at short-term fixed rates with maturities of up to 397 days from the date of issuance. The Revolving Credit Facility serves as a liquidity backstop and refinancing source for the CP Program and we expect to maintain a minimum undrawn amount under the Revolving Credit Facility equal to any outstanding commercial paper notes issued under the CP Program. We intend to refinance our commercial paper notes on a long-term basis through continued issuance of commercial paper notes upon maturity. However, we also have the ability to refinance such commercial paper notes under the Revolving Credit Facility, which matures on May 21, 2031. Accordingly, any outstanding commercial paper notes are classified as long-term in our consolidated balance sheets. Borrowings under the CP Program are expected to be used for general corporate purposes. As of September 30, 2026, there were no commercial paper notes outstanding under the CP Program.
Revolving Funding Facility
We and our consolidated subsidiary, Ares Capital CP Funding LLC ("Ares Capital CP"), are party to a revolving funding facility (as amended, the "Revolving Funding Facility"), that allows Ares Capital CP to borrow up to $2.3 billion at any one time outstanding. The Revolving Funding Facility is secured by all of the assets held by, and our membership interest in, Ares Capital CP. The end of the reinvestment period and the stated maturity date for the Revolving Funding Facility are July 28, 2028 and July 28, 2030, respectively. The interest rate charged on the Revolving Funding Facility is based on SOFR or a "base rate" (as defined in the documents governing the Revolving Funding Facility) plus an applicable spread of 1.80% per annum. Ares Capital CP is also required to pay a commitment fee of between 0.50% and 1.25% per annum depending on the size of the unused portion of the Revolving Funding Facility. As of September 30, 2026, there was $1.1 billion outstanding under the Revolving Funding Facility and we and Ares Capital CP were in compliance in all material respects with the terms of the Revolving Funding Facility.
SMBC Funding Facility
We and our consolidated subsidiary, Ares Capital JB Funding LLC ("ACJB"), are party to a revolving funding facility (as amended, the "SMBC Funding Facility"), with ACJB, as the borrower, and Sumitomo Mitsui Banking Corporation, as the administrative agent and collateral agent, that allows ACJB to borrow up to $1.6 billion at any one time outstanding. The SMBC Funding Facility also provides for an "accordion" feature that allows ACJB, under certain circumstances, to increase the overall size of the SMBC Funding Facility to $2.5 billion. The SMBC Funding Facility is secured by all of the assets held by ACJB. The end of the reinvestment period and the stated maturity date for the SMBC Funding Facility are July 25, 2028 and July 25, 2030, respectively. The reinvestment period and the stated maturity date are both subject to two one-year extensions by mutual agreement. The interest rate charged on the SMBC Funding Facility is based on an applicable spread of either (i) 1.75% over SOFR or (ii) 0.75% over a "base rate" (as defined in the documents governing the SMBC Funding Facility). ACJB is also required to pay a commitment fee of between 0.50% and 1.00% per annum depending on the size of the unused portion of the SMBC Funding Facility. As of September 30, 2026, there was $775 million outstanding under the SMBC Funding Facility and we and ACJB were in compliance in all material respects with the terms of the SMBC Funding Facility.
BNP Funding Facility
We and our consolidated subsidiary, ARCC FB Funding LLC ("AFB"), are party to a revolving funding facility (as amended, the "BNP Funding Facility") with AFB, as the borrower, and BNP Paribas, as the administrative agent and lender, that allows AFB to borrow up to approximately $1.5 billion at any one time outstanding. The BNP Funding Facility is secured by all of the assets held by AFB. The end of the reinvestment period and the stated maturity date for the BNP Funding Facility are March 20, 2028 and March 20, 2030, respectively. The interest rate charged on the BNP Funding Facility is based on applicable SOFR, or a "base rate" (as defined in the documents governing the BNP Funding Facility) plus a margin of (i) 1.90% during the reinvestment period and (ii) 2.40% following the reinvestment period. As of September 30, 2026, the applicable spread in effect was 1.90%. AFB is also required to pay a commitment fee of between 0.00% and 1.25% per annum depending on the size of the unused portion of the BNP Funding Facility. As of September 30, 2026, there was $733 million outstanding under the BNP Funding Facility and we and AFB were in compliance in all material respects with the terms of the BNP Funding Facility.
Debt Securitizations
Certain of our wholly owned, consolidated subsidiaries (Ares Direct Lending CLO 1 LLC ("ADL CLO 1"), Ares Direct Lending CLO 4 LLC ("ADL CLO 4") and Ares Direct Lending CLO 7 LLC ("ADL CLO 7" and, together with ADL CLO 1 and ADL CLO 4, the "CLO Subsidiaries")) have completed on-balance sheet financings through term debt securitizations (also known as collateralized loan obligations), which are consolidated by us for financial reporting purposes and count as debt for the purposes of determining our asset coverage. These include (i) a $709 million term debt securitization completed by ADL CLO 1 ( the "ADL CLO 1 Debt Securitization"), (ii) a $804 million term debt securitization completed by ADL CLO 4 (the "ADL CLO 4 Debt Securitization") and (iii) a $1,003 million term debt securitization completed by ADL CLO 7 (the "ADL CLO 7 Debt Securitization"). We refer to the ADL CLO 1 Debt Securitization, ADL CLO 4 Debt Securitization and ADL CLO 7 Debt Securitization collectively as the "Debt Securitizations." Our investment adviser serves as asset manager to the CLO Subsidiaries under asset management agreements with each CLO Subsidiary and has agreed to waive any management fees from the CLO Subsidiaries for such services.
ADL CLO 1 Debt Securitization
In July 2026, ADL CLO 1 completed a CLO reset transaction pursuant to which its previously existing $702 million term debt securitization was refinanced through the issuance of $709 of new term debt under the ADL CLO 1 Debt Securitization. The transaction resulted in a realized loss on extinguishment of debt of approximately $2 million related to unamortized debt issuance costs.
The following table presents information on the ADL CLO 1 Debt Securitization as of September 30, 2026 (dollar amounts in millions):
Class Type Principal Outstanding Maturity Date Interest Rate
July 2038 Class A-1-LR CLO Loans(1) Senior Secured Floating Rate $ 139 July 25, 2038
SOFR+1.46%
July 2038 Class A-1-R CLO Notes(1) Senior Secured Floating Rate 267 July 25, 2038
SOFR+1.46%
July 2038 Class A-2-R CLO Notes(1)
Senior Secured Floating Rate 24 July 25, 2038
SOFR+1.70%
July 2038 Class B-R CLO Notes(1)
Senior Secured Floating Rate 46 July 25, 2038
SOFR+1.90%
Total July 2038 CLO Secured Debt 476
SOFR+1.51%
July 2038 CLO Subordinated Notes(2)
Subordinated 233 July 25, 2038 None
Total July 2038 CLO Debt $ 709
________________________________________
(1)The July 2038 Class A-1-LR CLO Loans, the July 2038 Class A-1-R CLO Notes, the July 2038 Class A-2-R CLO Notes and the July 2038 Class B-R CLO Notes are referred to collectively as the July 2038 CLO Secured Debt and are the secured obligations of ADL CLO 1 and are backed by a diversified portfolio of first lien senior secured loans contributed by us to ADL CLO 1.
(2)We retained all of the July 2038 CLO Subordinated Notes, as such, the July 2038 CLO Subordinated Notes are eliminated in consolidation.
The documents governing the ADL CLO 1 Debt Securitization contain customary covenants and events of default as well as certain conditions pursuant to which additional loans can be acquired by ADL CLO 1. Through July 25, 2031, all principal collections received on the underlying collateral may be used by ADL CLO 1 to purchase new collateral, including additional collateral from us.
ADL CLO 4 Debt Securitization
The following table presents information on the ADL CLO 4 Debt Securitization as of September 30, 2026 (dollar amounts in millions):
Class Type Principal Outstanding Maturity Date Interest Rate
October 2036 Class A CLO Loans(1)
Senior Secured Floating Rate $ 464 October 24, 2036 SOFR+1.54%
October 2036 Class B CLO Loans(1)
Senior Secured Floating Rate 80 October 24, 2036 SOFR+1.83%
Total October 2036 CLO Secured Loans 544
SOFR+1.58%
October 2036 CLO Subordinated Notes(2) Subordinated 260 October 24, 2036 None
Total October 2036 CLO Notes $ 804
________________________________________
(1)The October 2036 Class A CLO Loans and the October 2036 Class B CLO Loans are referred to collectively as the October 2036 CLO Secured Loans and are the secured obligations of ADL CLO 4 and are backed by a diversified portfolio of first lien senior secured loans contributed by us to ADL CLO 4.
(2)We retained all of the October 2036 CLO Subordinated Notes, as such, the October 2036 CLO Subordinated Notes are eliminated in consolidation.
The documents governing the ADL CLO 4 Debt Securitization contain customary covenants and events of default as well as certain conditions pursuant to which additional loans can be acquired by ADL CLO 4. Through October 24, 2028, all principal collections received on the underlying collateral may be used by ADL CLO 4 to purchase new collateral, including additional collateral from us.
ADL CLO 7 Debt Securitization
The following table presents information on the ADL CLO 7 Debt Securitization as of September 30, 2026 (dollar amounts in millions):
Class Type Principal Outstanding Maturity Date Interest Rate
January 2038 Class A-1 CLO Notes(1) Senior Secured Floating Rate $ 570 January 20, 2038 SOFR+1.40%
January 2038 Class A-2 CLO Notes(1) Senior Secured Floating Rate 50 January 20, 2038 SOFR+1.65%
January 2038 Class B CLO Notes(1)
Senior Secured Floating Rate 80 January 20, 2038 SOFR+1.85%
Total January 2038 CLO Secured Notes 700
SOFR+1.47%
January 2038 CLO Subordinated Notes(2) Subordinated 303 January 20, 2038 None
Total January 2038 CLO Notes $ 1,003
________________________________________
(1)The January 2038 Class A-1 CLO Notes, the January 2038 Class A-2 CLO Notes and the January 2038 Class B CLO Notes are referred to collectively as the January 2038 CLO Secured Notes and are the secured obligations of ADL CLO 7 and are backed by a diversified portfolio of first lien senior secured loans contributed by us to ADL CLO 7.
(2)We retained all of the January 2038 CLO Subordinated Notes, as such, the January 2038 CLO Subordinated Notes are eliminated in consolidation.
The indenture governing the ADL CLO 7 Debt Securitization contains customary covenants and events of default as well as certain conditions pursuant to which additional loans can be acquired by ADL CLO 7. Through January 20, 2038, all principal collections received on the underlying collateral may be used by ADL CLO 7 to purchase new collateral, including additional collateral from us.
Unsecured Notes
We issued certain unsecured notes (we refer to each series of unsecured notes using the defined term set forth under the "Unsecured Notes" column of the table below and collectively refer to all such series as the "Unsecured Notes"), that pay interest semi-annually and all principal amounts are due upon maturity. Each of the Unsecured Notes may be redeemed in whole or in part at any time at our option at a redemption price equal to par plus a "make whole" premium, if applicable, as determined pursuant to the indentures governing each of the Unsecured Notes, plus any accrued and unpaid interest. Certain key terms related to the features of the Unsecured Notes as of September 30, 2026 are listed below.
(dollar amounts in millions)
Unsecured Notes 		Aggregate Principal Amount Issued Effective Stated Interest Rate Original Issuance Date Maturity Date
January 2027 Notes(1) $ 900 6.398% August 3, 2023 January 15, 2027
June 2027 Notes $ 500 2.875% January 13, 2022 June 15, 2027
June 2028 Notes $ 1,250 2.875% June 10, 2021 June 15, 2028
March 2029 Notes(1) $ 1,000 5.706% January 23, 2024 March 1, 2029
July 2029 Notes(1) $ 850 5.460% May 13, 2024 July 15, 2029
January 2030 Notes(1) $ 800 5.516% May 11, 2026 January 15, 2030
September 2030 Notes(1) $ 750 5.454% June 3, 2025 September 1, 2030
January 2031 Notes(1) $ 650 5.544% September 9, 2025 January 15, 2031
April 2031 Notes(1) $ 750 5.514% January 12, 2026 April 12, 2031
November 2031 Notes $ 700 3.200% November 4, 2021 November 15, 2031
March 2032 Notes(1) $ 1,000 5.442% January 8, 2025 March 8, 2032
September 2033 Notes(1) $ 750 5.669% September 15, 2026 September 15, 2033
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(1)The effective stated interest rates of the January 2027 Notes, the March 2029 Notes, the July 2029 Notes, the January 2030 Notes, the September 2030 Notes, the January 2031 Notes, the April 2031 Notes, the March 2032 Notes and the September 2033 Notes include the impact of interest rate swaps.
In January 2026, we repaid in full the approximately $1.2 billion aggregate principal amount of unsecured notes due January 15, 2026 upon their maturity (the "January 2026 Notes"). The January 2026 Notes bore interest at a rate of 3.875% per annum. In July 2026, we repaid in full the $1.0 billion aggregate principal amount of unsecured notes due July 15, 2026 upon their maturity (the "July 2026 Notes"). The July 2026 Notes bore interest at a rate of 2.150% per annum.
In connection with certain of the unsecured notes issued by us, we have entered into interest rate swaps to more closely align the interest rates of such liabilities with our investment portfolio, which consists primarily of floating rate loans. We designated these interest rate swaps and the associated unsecured notes as qualifying fair value hedge accounting relationships. Under the interest rate swaps, we receive a fixed interest rate and pay a floating interest rate based on SOFR plus an applicable spread, as presented in the table below. Certain information related to our interest rate swaps as of September 30, 2026 is presented below.
(dollar amounts in millions) Description Hedged Item Company Receives Company Pays Payment Frequency Maturity Date Notional Amount
Interest rate swap January 2027 Notes 7.000 %
SOFR +2.5810%
Monthly January 15, 2027 $ 900
Interest rate swap March 2029 Notes 5.875 %
SOFR +2.0227%
Monthly March 1, 2029 $ 1,000
Interest rate swap July 2029 Notes 5.950 %
SOFR +1.6430%
Monthly July 15, 2029 $ 850
Interest rate swap January 2030 Notes 5.550 %
SOFR +1.6995%
Monthly January 15, 2030 $ 800
Interest rate swap September 2030 Notes 5.500 %
SOFR +1.7705%
Monthly September 1, 2030 $ 750
Interest rate swap(1) January 2031 Notes 5.100 %
SOFR +1.7270%
Monthly January 15, 2031 $ 650
Interest rate swap April 2031 Notes 5.250 %
SOFR +1.7217%
Monthly April 15, 2031 $ 750
Interest rate swap March 2032 Notes 5.800 %
SOFR +1.6995%
Monthly March 8, 2032 $ 1,000
Interest rate swap September 2033 Notes 6.250 % SOFR +1.8525% Quarterly September 15, 2033 $ 750
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(1)In connection with the issuance of the January 2031 Notes, we entered into a forward-starting interest rate swap with an effective date of July 15, 2026.
See Note 6 to our consolidated financial statements for the three and nine months ended September 30, 2026 for more information on our interest rate swaps.
As of September 30, 2026, we were in compliance in all material respects with the indentures governing the Unsecured Notes.
The Unsecured Notes are our senior unsecured obligations and rank senior in right of payment to any future indebtedness that is expressly subordinated in right of payment to the Unsecured Notes; equal in right of payment to our existing and future unsecured indebtedness that is not expressly subordinated; effectively junior in right of payment to any of our secured indebtedness (including existing unsecured indebtedness that we later secure) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by our subsidiaries, financing vehicles or similar facilities.
RECENT DEVELOPMENTS
From October 1, 2026 through October 22, 2026, we made new investment commitments of approximately $1.1 billion, of which approximately $855 million were funded. Of the approximately $1.1 billion in new investment commitments, 90% were in first lien senior secured loans, 9% were in our subordinated loan to IHAM and 1% were in preferred equity. Of the approximately $1.1 billion in new investment commitments, 88% were floating rate, 11% were fixed rate and 1% were non-income producing. The weighted average yield of debt and other income producing securities funded during the period at amortized cost was 10.0% and the weighted average yield on total investments funded during the period at amortized cost was 9.9%. We may seek to sell all or a portion of these new investment commitments, although there can be no assurance that we will be able to do so.
From October 1, 2026 through October 22, 2026, we exited approximately $727 million of investment commitments, including $497 million of loans sold to IHAM or certain vehicles managed by IHAM. Of the approximately $727 million of exited investment commitments, 93% were first lien senior secured loans, 1% were second lien senior secured loans and 6% were senior subordinated loans. Of the approximately $727 million of exited investment commitments, 94% were floating rate, 5% were fixed rate and 1% were on non-accrual status. The weighted average yield of debt and other income producing securities exited or repaid during the period at amortized cost was 9.2% and the weighted average yield on total investments exited or repaid during the period at amortized cost was 9.1%. Of the approximately $727 million of investment commitments exited from October 1, 2026 through October 22, 2026, we recognized total net realized gains of approximately $2 million, including approximately $1 million of net realized losses recognized from the sale of loans to IHAM or certain vehicles managed by IHAM.
In addition, as of October 22, 2026, we had an investment backlog of approximately $2.5 billion. Investment backlog includes transactions approved by our investment adviser's U.S. direct lending investment committee and/or for which a formal mandate, letter of intent or a signed commitment have been issued, and therefore we believe are likely to close. The consummation of any of the investments in this backlog depends upon, among other things, one or more of the following: our acceptance of the terms and structure of such investment and the execution and delivery of satisfactory transaction documentation. In addition, we may sell all or a portion of these investments and certain of these investments may result in the repayment of existing investments. We cannot assure you that we will make any of these investments or that we will sell all or any portion of these investments.
On October 26, 2026, we entered into a definitive agreement (the "Merger Agreement") to acquire MFIC, a Maryland corporation, in a cash and stock transaction (the "MFIC Transaction"). Our investment adviser is also a party to the Merger Agreement for certain limited purposes, including to fund the Cash Consideration (as defined below).
Under the Merger Agreement, Union Acquisition Sub Inc., our wholly owned subsidiary, will merge with and into MFIC, with MFIC as the surviving corporation (the "First Merger"). Immediately afterward, MFIC will merge with and into Union Acquisition Sub LLC, our wholly owned subsidiary, with Union Acquisition Sub LLC as the surviving company (together with the First Merger, the "Mergers"). As of October 26, 2026, the last full trading day prior to the announcement of the MFIC Transaction, the transaction had an implied value of approximately $2.6 billion, or $10.88 per share of MFIC
common stock, based on $1.21 in Cash Consideration and $9.67 in implied value of the Share Consideration (as defined below) and 82,372,628 MFIC shares of common stock outstanding.
Subject to the terms of the Merger Agreement, upon the consummation of the First Merger, each share of MFIC common stock issued and outstanding immediately before the effective time of the First Merger (other than certain canceled shares) will be converted into the right to receive (i) $1.21 per share in cash, without interest, payable by Ares Capital Management, acting solely on its own behalf (the "Cash Consideration"), and (ii) a number of our shares of common stock, par value $0.001 per share, determined by the Exchange Ratio described below (the "Share Consideration"), plus cash in lieu of fractional shares, payable by us. The Exchange Ratio will be determined shortly before closing, based on our net asset value per share (the "Closing NAV") and on the closing price of our common stock on the date that net asset value is determined (the "Closing Price").
The Exchange Ratio will be calculated as follows:
•If the Closing Price is at or below 100% of the Closing NAV, the Exchange Ratio is $9.67 (less the per share amount of any post-signing tax dividends declared by MFIC) (the "Dividend Adjusted Price") divided by our net asset value per share.
•If the Closing Price is above 100% but no more than 104.5% of the Closing NAV, the Dividend Adjusted Price is first multiplied by 1.00 plus 50% of the premium of the Closing Price over the Closing NAV, and the result is divided by the Closing Price.
•If the Closing Price is above 104.5% of the Closing NAV, the Dividend Adjusted Price is first multiplied by 102.25%, and the result is divided by the Closing Price.
Because the Exchange Ratio depends on our net asset value per share and stock price near closing and is adjusted by the per share amount of any tax dividends declared by MFIC, the number of shares of our common stock to be issued will not be known until shortly before the MFIC Transaction closes. The Cash Consideration and the Share Consideration are subject to adjustment for certain changes in capitalization, such as stock splits, reclassifications and stock dividends. As of October 26, 2026, 82,372,628 shares of MFIC common stock were outstanding.
Completion of the MFIC Transaction is subject to certain conditions, including, among others:
•approval of the MFIC Transaction by MFIC stockholders holding a majority of the outstanding shares of MFIC common stock;
•approval for listing on NASDAQ of the shares of our common stock to be issued;
•effectiveness of our registration statement on Form N-14 to be filed in connection with such issuance;
•the obtainment of, or deemed obtainment of, certain antitrust approvals;
•receipt of certain third-party consents relating to MFIC's collateralized loan obligation vehicles;
•receipt by MFIC of a tax opinion; and
•other customary closing conditions.
Approval by our stockholders is not required.
While there can be no assurances as to the exact timing, or that the MFIC Transaction will be completed at all, we expect to complete the MFIC Transaction in the first half of 2027. The Merger Agreement may be terminated by either party if the First Merger has not been completed within nine months after the date of the Merger Agreement, which deadline is automatically extended by three months if, on that date, all closing conditions other than those relating to antitrust approvals have been satisfied or waived. In certain circumstances, including termination by MFIC to enter into a superior proposal or termination by us following a change in the MFIC board's recommendation, MFIC will be required to pay us a termination fee of $31.36 million.
In connection with the MFIC Transaction, we have agreed to repay at closing the outstanding obligations under MFIC's senior secured revolving credit agreement. MFIC has also agreed, if we request, to redeem MFIC's outstanding notes issued under its indenture at closing.
Wells Fargo Bank, National Association has also agreed, subject to customary conditions, to provide $750 million of additional secured financing that can be used to support the MFIC Transaction under the Loan and Servicing Agreement, dated as of January 22, 2010, among Ares Capital CP Funding LLC, as borrower, and us, as servicer and transferor, as amended.
The foregoing summary description of the Merger Agreement and the transactions contemplated thereby is subject to and qualified in its entirety by reference to the Merger Agreement, a copy of which has been filed as Exhibit 2.1 to our Current Report on Form 8-K, dated October 27, 2026, the terms of which are incorporated herein by reference.
CRITICAL ACCOUNTING ESTIMATES
The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Changes in the economic environment, financial markets, and any other parameters used in determining such estimates could cause actual results to differ. Our critical accounting estimates, including those relating to the valuation of our investment portfolio, are described below. The critical accounting estimates should be read in conjunction with our risk factors as disclosed in "Item 1A. Risk Factors." See Note 2 to our consolidated financial statements for the three and nine months ended September 30, 2026 for more information on our critical accounting policies.
Investments
Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment using the specific identification method without regard to unrealized gains or losses previously recognized, and include investments charged off during the period, net of recoveries. Unrealized gains or losses primarily reflect the change in investment values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized.
Pursuant to Rule 2a-5 under the Investment Company Act, our board of directors designated our investment adviser as our valuation designee (the "Valuation Designee") to perform the fair value determinations for investments held by us without readily available market quotations, subject to the oversight of our board of directors. All investments are recorded at their fair value.
Investments for which market quotations are readily available are typically valued at such market quotations. In order to validate market quotations, the Valuation Designee looks at a number of factors to determine if the quotations are representative of fair value, including the source and nature of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available (i.e., substantially all of our investments) are valued at least quarterly at fair value as determined in good faith by the Valuation Designee, subject to the oversight of our board of directors, based on, among other things, the input of our independent third-party valuation providers ("IVPs") that have been engaged to support the valuation of such portfolio investments quarterly, beginning as of the third quarter after origination (with certain de minimis exceptions) and under a valuation policy and a consistently applied valuation process. The valuation process is conducted at the end of each fiscal quarter by the Valuation Designee, and beginning with the first quarter of 2025, substantially all investments in our investment portfolio at fair value are subject to review by an IVP each quarter, as discussed further below. However, we may use these IVPs to review the value of our investments more frequently, including in connection with the occurrence of significant events or changes in value affecting a particular investment. In addition, our independent registered public accounting firm obtains an understanding of, and performs select procedures relating to, our valuation process within the context of performing our integrated audit.
As part of the valuation process, the Valuation Designee may take into account the following types of factors, if relevant, in determining the fair value of our investments: the enterprise value of a portfolio company (the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time), the nature and realizable value of any collateral, the portfolio company's ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business, a comparison of the portfolio company's securities to any similar publicly traded securities, changes in the interest rate environment and the credit markets, which may affect the price at which similar investments would trade in their principal markets and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent sale occurs, the Valuation Designee considers the pricing indicated by the external event to corroborate the valuation.
Because there is not a readily available market value for most of the investments in our portfolio, substantially all of our portfolio investments are valued at fair value as determined in good faith by the Valuation Designee, as described herein. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Additionally, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that we may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it.
In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned.
The Valuation Designee, subject to the oversight of our board of directors, undertakes a multi-step valuation process each quarter, as described below:
•Our quarterly valuation process begins with a preliminary valuation being prepared by the investment professionals responsible for the portfolio investment in conjunction with our portfolio management and valuation team.
•Preliminary valuations are reviewed and discussed by the valuation committee of the Valuation Designee.
•When a portfolio investment is reviewed by an IVP:
◦Relevant information related to the portfolio investment is made available by the Valuation Designee to the IVP, who does not independently verify such information.
◦The IVP reviews and analyzes the information provided by the Valuation Designee, along with relevant market and economic data, and independently determines a range of values for the portfolio investment.
◦The IVP provides its analysis to the Valuation Designee to support the IVP's valuation methodology and calculations.
•The valuation committee of the Valuation Designee determines the fair value of each investment in our portfolio without a readily available market quotation in good faith based on, among other things, the input of the IVPs, where applicable.
•When a portfolio investment is reviewed by an IVP, a positive assurance opinion or independent valuation report is issued by the IVP that confirms the fair value determined by the Valuation Designee for the portfolio investment is within the range of values independently calculated by such IVP.
Fair Value of Financial Instruments
We follow ASC 825-10, Recognition and Measurement of Financial Assets and Financial Liabilities ("ASC 825-10"), which provides companies the option to report selected financial assets and liabilities at fair value. ASC 825-10 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities and a better understanding of the effect of the company's choice to use fair value on its earnings. ASC 825-10 also requires entities to display the fair value of the selected assets and liabilities on the face of the balance sheet. We have not elected the ASC 825-10 option to report selected financial assets and liabilities at fair value. With the exception of the line items entitled "other assets" and "debt," which are reported at amortized cost, the carrying value of all other assets and liabilities approximate fair value.
We also follow ASC 820-10, which expands the application of fair value accounting. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosure of fair value measurements. ASC 820-10 determines fair value to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. ASC 820-10 requires us to assume that the portfolio investment is sold in its principal market to market participants or, in the absence of a principal market, the most advantageous market, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820-10, we have considered its principal market as the market in which we exit our portfolio investments with the greatest volume and level of activity. ASC 820-10 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820-10, these inputs are summarized in the three broad levels listed below:
•Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access.
•Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
•Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
In addition to using the above inputs in investment valuations, the Valuation Designee continues to employ its net asset valuation policy and procedures that have been reviewed by our board of directors in connection with their designation of our investment adviser as the valuation designee and are consistent with the provisions of Rule 2a-5 under the Investment Company Act and ASC 820-10. Consistent with its valuation policy and procedures, the Valuation Designee evaluates the source of inputs, including any markets in which our investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value. Because there is not a readily available market value for most of the investments in our portfolio, the fair value of the investments must typically be determined using unobservable inputs.
Our portfolio investments (other than as described below in the following paragraph) are typically valued using two different valuation techniques. The first valuation technique is an analysis of the enterprise value ("EV") of the portfolio company. EV means the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time. The primary method for determining EV uses a multiple analysis whereby appropriate multiples are applied to the portfolio company's EBITDA (generally defined as net income before net interest expense, income tax expense, depreciation and amortization). EBITDA multiples are typically determined based upon review of market comparable transactions and publicly traded comparable companies, if any. The Valuation Designee may also employ other valuation multiples to determine EV, such as revenues or, in the case of certain portfolio companies in the power generation industry, kilowatt capacity. The second method for determining EV uses a discounted cash flow analysis whereby future expected cash flows of the portfolio company are discounted to determine a present value using estimated discount rates (typically a weighted average cost of capital based on costs of debt and equity consistent with current market conditions). The EV analysis is performed to determine the value of equity investments, the value of debt investments in portfolio companies where we have control or could gain control through an option or warrant security, and to determine if there is credit impairment for debt investments. If debt investments are credit impaired, an EV analysis may be used to value such debt investments; however, in addition to the methods outlined above, other methods such as a liquidation or wind-down analysis may be utilized to estimate EV. The second valuation technique is a yield analysis, which is typically performed for non-credit impaired debt investments in portfolio companies where we do not own a controlling equity position. To determine fair value using a yield analysis, a current price is imputed for the investment based upon an assessment of the expected market yield for a similarly structured investment with a similar level of risk. In the yield analysis, the Valuation Designee considers the current contractual interest rate, the maturity and other terms of the investment relative to the risk of the company and the specific investment. A key determinant of risk, among other things, is the leverage through the investment relative to the EV of the portfolio company. As debt investments held by us are substantially illiquid with no active transaction market, the Valuation Designee depends on primary market data, including newly funded transactions, as well as secondary market data with respect to high yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable.
For other portfolio investments such as investments in the SDLP Certificates and IHAM, discounted cash flow analysis is the primary technique utilized to determine fair value. Expected future cash flows associated with the investment are discounted to determine a present value using a discount rate that reflects estimated market return requirements.
See Notes 2 and 8 to our consolidated financial statements for the three and nine months ended September 30, 2026 for more information on our valuation process.
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