Ares Capital (ARCC) 2026 年第三季財報電話會議：MFIC 交易案與利率順風

重點總覽

• Ares Capital Corporation (NASDAQ: ARCC) 公布 2026 年第三季 GAAP 每股淨利為 0.44 美元，高於第二季的 0.24 美元；核心每股盈餘 (EPS) 則由 0.47 美元微幅下滑至 0.46 美元。
• ARCC 已同意收購 MidCap Financial Investment Corporation (MFIC)。在收購折扣及 ARCC 資金成本優勢的支撐下，管理層預計該交易將對核心每股盈餘帶來適度的增益效果。
• MFIC 併購案將新增約 25 億美元的資產以及 200 多家投資組合公司。合併後的投資組合預計將超過 800 家公司，而在 MFIC 的 229 家持股公司中，僅有 12 家與原投資組合重疊。
• 信用指標維持穩定。停息貸款占成本比重為 2.4%，占公允價值比重為 1.4%；投資組合公司產生約 7% 的加權平均有機 LTM EBITDA 成長率。
• 本季結束時，ARCC 的淨槓桿比率為 1.06 倍，以形式上（Pro forma）基準計算，可使用流動資金約為 70 億美元。截至法說會召開日止，第四季已完成的新增貸款承作額為 11 億美元，尚有約 25 億美元的待處理管道。
• 管理層預計基準利率上升將支撐獲利。若以季末資產負債表為基準，在投資或借貸結構保持不變的情況下，基準利率每上升 100 個基點，每季每股盈餘將增加約 0.02 美元。

關鍵財務數據

業務與營運績效

在提出併購 MFIC 之前，ARCC 的投資組合包含 636 家公司。第三季新增承諾額中約有 60% 投向現有的投資組合公司，使公司能將資金配置於已經熟識的借款人。

本季新增投資的經濟效益有所改善。第一受償順位債務利差較上一季擴大 50 個基點，槓桿率下降 0.5 倍，管理層表示貸款人保護條款依然穩健。

投資組合公司過去 12 個月 (LTM) 的加權平均有機 EBITDA 成長率約為 7%，大致符合 ARCC 的長期平均水準。加權平均利息保障倍數為 2.0 倍，借款人槓桿比率與第二季持平，投資組合貸款價值比 (LTV) 維持在約 47%。

停息貸款比率按成本計維持在 2.4%，低於 ARCC 自全球金融危機以來約 3% 的歷史平均值；若按公允價值計，停息貸款比率為 1.4%。加權平均風險評級保持在 3.1，其中按公允價值計有 19% 屬於風險最低的第 4 級 (Grade 4)。

由於利率、通膨、全球貿易及地緣政治的不確定性拉長了交易時程，承作活動有所放緩。然而，ARCC 今年迄今審查的交易數量比去年同期增加約 25%。在過去 12 個月中，審查的潛在交易總額更超過 1 兆美元。

MFIC 併購案

管理層將此併購案描述為增補性而非轉型性。MFIC 的投資組合包含 229 家公司，且更集中於核心中型市場，借款人的平均 EBITDA 約為 5,000 萬至 5,500 萬美元。

該交易預計將使 ARCC 的投資組合擴大至 800 家以上公司，並將其贊助機構合作夥伴關係擴展至 600 家以上。管理層表示，相對於 MFIC 淨資產價值的折價，大部分集中在少數結果較不確定且買賣價差較大的投資項目中。

ARCC 預計核心每股盈餘將獲得適度增益，主要來源有二：折價收購資產帶來的較高殖利率，以及 ARCC 本身的融資與規模優勢。Ares Management 提供的現金對價也使 ARCC 能以更深的折價取得資產，同時為 MFIC 股東提供溢價。

Ivy Hill Asset Management 可能會在進行獨立審查後，收購部分正常履約的少數股權貸款參貸分額。管理層表示，此類投資組合調整可能會影響最終的增益程度，但並非該交易實現適度增益的必要前提。

管理層展望

管理層預計近期基準利率的上升將在 2026 年第四季開始對利息收入產生正面效益，因為合約利率重設通常需要約一個季度的時間反映在盈餘中。在投資與借貸結構保持不變的假設下，基準利率每上升 100 個基點，每季每股盈餘將增加約 0.02 美元。

ARCC 表示，目前每股 0.48 美元的季度股利反映了本業的潛在獲利能力。管理層引用投資組合表現、市場定價、利率環境、預期的 MFIC 效益以及每股 1.37 美元的應稅溢出收益，作為支撐股利穩定性的基礎。

該公司獲得由富國銀行 (Wells Fargo) 牽頭的融資額度追加 7.5 億美元的承諾，預計在滿足慣常條件後與 MFIC 併購案一同完成交割。管理層表示，現有流動性與此承諾額度提供了充裕的資金能力，無須額外籌集債務資本即可完成收購。

風險與關注事項

• 總體經濟與地緣政治的不確定性降低了交易能見度，並延長了併購時程。
• MFIC 投資組合中的一小部分包含營運結果不確定的投資。最終的公允價值評定將取決於交割時的市場狀況與公司營運表現。
• 較高利率有利於 ARCC 的盈餘，但可能給較弱勢的借款人帶來壓力。儘管如此，管理層表示，鑑於目前的投資組合利息保障倍數，若利率再上升 100 個基點仍屬可控範圍。
• ARCC 預計投資組合到期比率在 2028 年約為 10%，2029 年約為 13%。管理層認為這些水準並不算過高，但將繼續積極處理到期債務。
• 收購 MFIC 將需要額外增加投資組合管理的人力配置，不過管理層預估現有基礎設施能消化這項負擔。

分析師問答亮點

貸款承作放緩：管理層將低於 5% 的成交率歸因於選擇性提高以及交易環境放緩。管理層表示，多數延遲的交易活動已轉移至第四季，而非完全消失。

MFIC 投資組合保留與流動性：ARCC 預計還款將帶來自然的投資組合週轉（歷史水準約為 30% 至 35%），也可能出售特定資產。管理層預期該收購案不會放緩 ARCC 正常的承作節奏。

併購信用影響：ARCC 將採用本身的停息貸款政策，並將所收購資產的成本基礎重設為購買價格。管理層預計與 MFIC 相關的停息風險敞口過小，不足以對 ARCC 的整體停息貸款比率產生重大改變。

融資策略：擴大的擔保融資額度可作為交割前若資本市場無法利用時的備用保障。管理層表示，該併購案並未改變其維護多元化擔保與無擔保資金來源的大方向策略。

核心中型市場曝險：管理層承認該領域在近幾季競爭更為激烈，但強調了跨不同借款人規模維持合作關係，並在相對價值改善時選擇性增加曝險的策略價值。

法說會完整逐字稿

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完整財報電話會議逐字稿

管理層陳述

Operator

Good afternoon, everyone. Welcome to the Ares Capital Corporation's Third Quarter Ended September 30, 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded on Tuesday, October 27, 2026. I will now turn the call over to Mr. John Stilmar, Partner of Ares Public Markets Investor Relations. Please go ahead, sir.

John Stilmar

Thank you, and good afternoon, everybody. Let me start with some important reminders. Comments made during the course of this conference call and webcast as well as the accompanying documents contain forward-looking statements and are subject to risks and uncertainties. The company's actual results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in its SEC filings. Ares Capital Corporation assumes no obligation to update any such forward-looking statements.

Please also note that past performance or market information is not a guarantee of future results. During this conference call, the company may discuss certain non-GAAP measures as defined by SEC Regulation G, such as core earnings per share or core EPS. The company believes that core EPS provides useful information to investors regarding financial performance because it's 1 method the company uses to measure its financial condition and results of operations.

A reconciliation of GAAP net income per share, the most directly comparable GAAP financial measure to core EPS can be found in the accompanying slide presentation for this call. In addition, reconciliations of these measures may also be found in our earnings release filed this morning with the SEC on Form 8-K. Certain information discussed on this conference call as well as the accompanying slide presentation include credit ratings and information relating to portfolio companies, was derived from or obtained from third-party sources and has not been independently verified.

And accordingly, the company makes no representation or warranties with respect to this information. The company's Third Quarter September 30, 2026 Earnings Presentation can be found on the company's website at www.arescapitalcorp.com by clicking on the Third Quarter 2026 Earnings Presentation link on the Events and Presentations page of the Investor Resources section of Ares Capital Corporation's earnings release and Form 10-Q are also available on the company's website. Now I'd like to turn the call over to Kort Schnabel, Ares Capital Corporation's Chief Executive Officer. Kort?

Kort Schnabel

Thanks, John, and hello, everyone, and thank you for joining our earnings call today. I'm joined by Jim Miller, our President; Jana Markowicz, our Chief Operating Officer; Scott Lem, our Chief Financial Officer; and other members of the management team who will be available during our Q&A session. This morning, we reported solid third quarter results with core earnings of $0.46 per share, representing an annualized return on equity of approximately 9.5%.

Our underlying investment portfolio remains healthy as borrower cash flow growth supports strong credit performance and steady net asset value per share, while our level of nonaccrual loans and problem assets remained stable at historically low levels. Our earnings are well positioned to potentially benefit from an expected higher level of interest rates, and we entered the seasonally strongest fourth quarter from a position of considerable financial strength after taking a number of important actions to advance ARCC's strategic and financial priorities.

Most notably, this morning, we announced our agreement to acquire MidCap Financial Investment Corporation, or MFIC. The transaction is expected to be modestly accretive to core earnings per share, providing attractive financial benefits from the outset while also creating strategic value that we believe extends well beyond the initial economics. A key driver of value creation from this acquisition is the added scale that this broad-based and well-diversified portfolio brings to ARCC.

With this combination, the MidCap Financial portfolio is expected to add over 200 additional incumbent positions, increasing our portfolio to over 800 portfolio companies and expanding the number of sponsors we have transacted with to over 600 sponsors. This will further strengthen our long-standing middle market presence and broaden the relationships from which we can generate future investment opportunities. Based on the depth of our due diligence on each investment in the portfolio along with firm and direct financial support from Ares management, we believe we have an excellent foundation in place for this transaction to add to our track record of successful acquisitions over our 22-year history as a public company.

Importantly, and central to our view on the quality of the portfolio, the vast majority of the discount to NAV was concentrated in a small percentage of investments that consisted primarily of situations that, in our view, involved greater uncertainty of business outcomes and resulted in wider bid-ask spreads. Consolidation has been an important part of our history. We have consistently used periods of market volatility and dislocation to create differentiated opportunities for our shareholders while building greater scale and a durable cost of capital advantage.

In fact, upon closing the acquisition of MidCap, formerly Apollo Investment Corporation, ARCC will have acquired all 3 of the largest BDCs in operation at the time of our IPO over 20 years ago, including Allied Capital and American Capital. Our track record of disciplined consolidation has created significant value for our shareholders as both Allied and American Capital generated IRRs in excess of 20% over the 3 years following their respective acquisitions.

The value of these acquisitions, however, has extended well beyond the assets we acquired. They have expanded our scale, deepened our sponsor and borrower relationships, broadened our incumbent portfolio and strengthened our ability to originate attractive investments. While we have similar enthusiasm for the MidCap acquisition, its size relative to ARCC positions the transaction as additive rather than transformative. Turning to the broader investment environment.

Macroeconomic shifts and geopolitical developments created greater uncertainty around transaction activity during the third quarter. Volatility around interest rates, inflation and global trade reduced visibility and elongated M&A processes across the market. Combined with our continued discipline and highly selective approach to new investments, this resulted in a more modest pace of new investment activity during the third quarter. Importantly, we view much of the slower origination volume during the third quarter as a matter of timing since underlying deal review activity remained strong.

In the third quarter, we reviewed more transactions than we did 1 year ago. And year-to-date, we have reviewed approximately 25% more transactions than in the prior year. More broadly, our extensive market coverage, including our specialized lending verticals has enabled us to review more than $1 trillion of potential investment transactions over the past 12 months. As transaction time lines have extended, more of that activity is carrying into the fourth quarter, providing greater visibility into the months ahead as borrowers and sponsors continue to place a premium on lenders that can provide certainty of close.

So far in the fourth quarter, we have closed on $1.1 billion investment backlog now stands at approximately $2.5 billion. When taken together, our post quarter end originations and backlog are at historically strong levels, which further supports our enthusiasm for a recovery in investing activity. More broadly, across the U.S. direct lending market, we continue to see a constructive environment for lenders with market pricing, terms and lender protections remaining stable at generally favorable levels by historical standards.

As we progress through the fourth quarter, we have substantial liquidity, extensive access to financing, a large and diversified incumbent portfolio and the connectivity of the broader Ares platform, leaving us well positioned to pursue opportunities as they emerge. With respect to our quarterly dividend, we continue to believe ARCC's current regular dividend appropriately reflects the underlying earnings power of the business.

While earnings will naturally fluctuate from quarter-to-quarter, the strength of our portfolio, attractive market pricing and terms, the current interest rate environment and the expected benefits from the acquisition I discussed earlier reinforce our confidence in the current dividend level. Our substantial spillover income provides additional flexibility during periods when quarterly earnings temporarily fall below the dividend. Ultimately, our focus remains the same: use ARCC's financial strength, scale and connectivity to generate attractive long-term returns for our shareholders and maintain the stability of our regular quarterly dividend as we have for more than 17 years. With that, I will turn the call over to Scott to take us through our financial results and balance sheet.

Scott Lem

Thanks, Kort. I will begin by reviewing several key financial metrics from the third quarter, then discuss our balance sheet and funding activity and conclude with an update on the dividend and taxable spillover income. This morning, we reported GAAP net income per share of $0.44, up from $0.24 in the second quarter of 2026. The sequential improvement was largely driven by net unrealized appreciation primarily from mark-to-market improvements on investments.

Core earnings were $0.46 per share compared to $0.47 in the prior quarter, primarily reflecting lower capital structuring fees due to the longer transaction time lines Kort referenced alongside continued healthy portfolio performance. Looking forward, our earnings remain sensitive to changes in base rates given the predominantly floating rate nature of our portfolio.

Based on our balance sheet at quarter end and assuming no changes in our investment and borrowing structure, every 100 basis point increase in base rates will create about $0.02 per share of earnings tailwind for us per quarter. Keep in mind, the recent increase in base rates occurred just prior to quarter end. Given the timing of contractual rate resets across our floating rate loan portfolio, it typically takes about a quarter for changes in base rates to be fully reflected in earnings. So we would expect to start seeing some of the interest income benefit in the fourth quarter.

Turning to the balance sheet. Our total portfolio at fair value at the end of the third quarter was $29.2 billion compared with $29.3 billion at the end of the second quarter, primarily reflecting net exit and repayment activity. Our net asset value ended the quarter at $13.9 billion or $19.31 per share, which represents a decrease of $0.04 per share from a quarter ago.

The relative stability of our NAV this quarter builds on a long-term record that we believe distinguishes ARCC within the BDC sector. Since inception, we have grown NAV per share by more than 25%, while also delivering stable and attractive dividends to our shareholders.

Turning to our debt capital. We reported net leverage of 1.06x debt to equity compared to 1.12x last quarter. Pro forma for an unsettled trade payable related to a portfolio acquisition that closed at quarter end, our net leverage would have been 1.10x with approximately $7 billion of available liquidity.

Our maturity profile remains well laddered with no unsecured notes maturities for the remainder of 2026 and just $1.4 billion maturing in 2027. With modest leverage, substantial liquidity and limited near-term maturities, we have meaningful capacity to support new investment opportunities.

We continue to strengthen that position during the quarter through several financing activities. In September, we issued $750 million of 7-year unsecured notes due in 2033 at a spread of 185 basis points over treasuries, representing the lowest new issue spread and longest duration in the BDC sector during the quarter.

In addition, we took advantage of favorable market conditions to reset our inaugural $476 million debt securitization, reducing its weighted average spread by 35 basis points while extending both its reinvestment period and final maturity. This lowers our cost of capital while further strengthening the duration and flexibility of our funding profile.

We also enhanced our cost of capital during the quarter by accessing the commercial paper market under the $1 billion program we established last quarter. By maintaining $200 million to $300 million of commercial paper outstanding on average during the quarter, we reduced our borrowing cost by approximately 70 basis points on these amounts compared with borrowing under our corporate revolver.

At quarter end, we had no commercial paper outstanding. Taken together, these actions continue to advance our balance sheet objectives of maintaining diversified access to capital, lowering our funding costs where appropriate and preserving significant liquidity and financial flexibility.

Looking ahead, we believe scale, broad financing capabilities and a proven track record will remain increasingly important differentiators. As the highest rated BDC across all 3 major rating agencies, ARCC is well positioned to support our investment activity through changing market conditions. We believe these advantages have been important contributors to our long-term performance and will continue to serve us well across market cycles.

Consistent with this approach, in conjunction with today's announcement to acquire MFIC, we obtained a $750 million upsized commitment to our existing Wells Fargo-led funding facility that we expect to close upon the consummation of the acquisition, subject to customary closing conditions.

As we prepare for a larger pro forma portfolio, we remain proactive in expanding our funding capacity alongside the growth of the business. While we continue to explore additional financing opportunities ahead of closing, our significant existing liquidity, coupled with this upsize provides sufficient capacity to acquire the MFIC portfolio without the need for additional debt capital.

Finally, our fourth quarter 2026 regular dividend of $0.48 per share is payable on December 29 to stockholders of record as of December 15. As Kort mentioned, we are proud of the fact that ARCC has now paid stable or increasing regular quarterly dividends for 69 consecutive quarters.

Turning to our taxable income spillover. We finalized our 2025 tax returns and determined that we carried forward $983 million or $1.37 per share available for distribution to stockholders in 2026. As Kort mentioned, we believe our meaningful taxable income spillover provides further support for the long-term stability of our dividends and continues to be 1 of our significant differentiators. I will now turn the call over to Jim to walk through our investment activities.

James Miller

Thank you, Scott. I'll start with some additional context on our investment activity and then discuss the performance and positioning of the portfolio. Against an uneven transaction environment and in navigating various economic and geopolitical cross currents, we continue to prioritize selectivity and maintaining our underwriting standards.

We originated $2.1 billion of new investment commitments during the quarter, while our closing ratio was moderately below our historical average of approximately 5%. We believe this discipline has been an important contributor to our long-term investment performance.

At the same time, our scale, incumbent relationships and broad market presence continue to provide access to attractive opportunities across a variety of channels, including opportunities outside of traditional transaction activity. In addition to agreeing to acquire MFIC, ARCC, alongside other Ares funds acquired a portfolio of high-quality loans from an institutional investor.

This represents another good example of nontraditional transaction activity as this year's volatility reinforced Ares' position as a natural solution provider in a market we have invested in for decades. Our familiarity with many of the businesses and management teams represented in the portfolio advantaged us in our underwriting of the portfolio and, in our view, allowed us to provide a differentiated solution.

The transaction also added new borrowers to the portfolio, expanding ARCC's connectivity across the middle market and creating additional avenues for future investment. This transaction illustrates the value of both sides of our origination model, the ability to deepen relationships with existing borrowers while continuing to expand our opportunity set through new relationships.

Furthermore, this fully performing portfolio was acquired at a modest discount, supporting what we view as attractive overall economics. Together with MFIC, ARCC's relationship with Ares, combined with the scale of the broader platform and its ability to deliver differentiated solutions can create value that extends well past the investments themselves.

We believe those advantages become even more meaningful when markets are less predictable. Beyond these larger strategic opportunities, our existing portfolio provides a consistent source of opportunity across our investment activity. Approximately 60% of our third quarter commitments were with existing portfolio companies, and we have expanded our share of many of these borrowers' financing needs over time.

These relationships allow us to invest behind the businesses and management teams we know well and where appropriate, increase our exposure to stronger performing borrowers. While the pace of originations during the third quarter was more measured, we continue to originate at attractive economics relative to the broader market.

First lien spreads on our new originations widened 50 basis points from the prior quarter and leverage levels decreased by 0.5 turn, while terms and lender protections remain strong. Our broad opportunity set is supported by a diverse portfolio of 636 companies [Technical Difficulty] that continue to perform well.

Our portfolio companies generated weighted average LTM organic EBITDA growth of approximately 7%, broadly in line with our long-term average. As a reminder, this measure reflects only organic growth and excludes the impact from M&A. Performance across our largest industries was even stronger with our top 10 industries in aggregate growing above the portfolio average.

Specifically within our software portfolio, we continue to see strong operating performance across our investments with organic LTM EBITDA growth in line with the broader portfolio average during the third quarter. Within our software portfolio, only 1 small loan is currently on nonaccrual, and our debt investment remains supported by loan-to-value ratios in the low 40% range, providing substantial equity value beneath our positions.

More broadly, the strong operating performance we are seeing across the portfolio is complemented by stable credit metrics and capital structures. The average leverage of our borrowers was unchanged since last quarter, and the weighted average interest coverage was 2.0x, which I will point out is based on market interest rates at 9/30 quarter end.

Importantly, both metrics are consistent with their 5-year averages. As Kort mentioned, credit performance also remains healthy. Loan-to-value remained approximately 47%, below our 10-year average, providing meaningful equity support beneath our investments.

Nonaccruals were unchanged sequentially at 2.4% of cost and remain well below our approximate 3% historical average since the global financial crisis and the BDC's historical average of approximately 4% over the same time frame. Our nonaccrual rate at fair value of 1.4% also remained well below our historical levels.

Further supporting the strength of our portfolio, our overall risk ratings remain stable with a weighted average of 3.1 and 19% of the portfolio at fair value in our lowest risk category, Grade 4, where we expect to realize returns above our cost basis. The share of the portfolio in Grade 4 has increased over the past few quarters and remains above our 10-year average.

Meanwhile, the share of our portfolio companies in our higher risk categories, Grades 1 and 2, remains comfortably below our 10-year average and represents less than 1/3 of the assets in the lowest risk Category 4. As we look ahead, we believe the combination of a healthy portfolio, differentiated sourcing relationships and our scale and breadth in the market positions us well as transaction activity progresses.

This allows us to remain patient and disciplined while maintaining our underwriting standards and pursuing opportunities that offer attractive risk-adjusted returns. As always, we appreciate you joining us today, and we look forward to speaking with you next quarter. With that, operator, please open the line for questions.

Operator

[Operator Instructions] [Technical Difficulty] [Operator Instructions]

Additionally, the Investor Relations team will also be available to address any further questions at the conclusion of today's call. We'll go first this afternoon to Rick Shane of JPMorgan.

分析師問答

Richard Shane

Obviously, interesting full circle to see you guys complete sort of the -- or get close to completing the trifecta of the 3 [ largest ]. So that is exciting. I wanted to ask about the close rate on the quarter. You guys said it dipped below 5%. The pipeline for the last couple of quarters has been larger than sort of the origination growth. And I'm curious, is this a function of you guys being deliberately more selective? Or is it just challenges of meeting of the minds as the market is repricing with borrowers and sponsors?

Kort Schnabel

Rick, thanks for the question. I would say it's a little bit of both of those things that you mentioned. I think that -- we are being slightly more selective in this environment, just given obviously all the volatility going on and uncertainty out there in the world and the economy.

So that's a part of it. But additionally, it's just a slower overall deal environment, which is contributing to the more measured pace of origination as well. So it's all of the above in there.

Richard Shane

Got it. And as you guys close the acquisition and rotate that portfolio, does this transaction in any way beyond sort of recycling of capital create additional liquidity in a time when your peers and competitors are constrained?

Kort Schnabel

Yes. We do think it should help us create more liquidity. Obviously, we're in a position of competitive strength right now. We already were in a great position of competitive strength given our superior liquidity position, and this should only boost that even more.

Richard Shane

Got it. Any way to quantify that beyond better?

Scott Lem

Not really. I mean it's always a larger portfolio we're going to have. So they're going to have more repayments. I think historically, we've seen repayment rates, at least in our portfolio be 30%, 35%. So you'll just see natural turnover. And if we can actively sell things off the portfolio, we'll do that, too. We've got a track record of doing that from our previous acquisitions as well.

Operator

We go next now to Paul Johnson with KBW.

Paul Johnson

I think it's a very impressive structure of a deal that you guys have put forth here for MFIC. I was curious in terms of the discount to MFIC's preliminary NAV in the acquisition price, I guess how much of that is kind of due to expected credit losses between now and closing versus, I guess, negotiating leverage just given the discount and share in MFIC's shares prior to the announcement?

And then I guess the second question I would have to that is, are these -- I guess, the conditions here in your ability to acquire assets at a discount, is that unique, I guess, to this situation where there's sort of kind of one-off conditions to make that possible by the seller? Or is this something that could be replicated I guess, elsewhere in other acquisitions in the space?

Kort Schnabel

Yes. So on the discount, I would just repeat something that we said in the prepared remarks, which is -- and maybe provide a little more color on it, which is the portfolio was largely or is largely a performing portfolio. And the vast majority of the portfolio, we saw relatively eye to eye on the marks.

There is a smaller percentage of the portfolio that has outcomes that are more uncertain on those names. And so that is where the vast majority of the discount was centered. I do want to highlight a really important point that I think is clear, but just to make sure it is, the cash consideration being provided by Ares management is a really important component of the deal.

It allows ARCC to buy the assets at an even deeper discount while still providing the MidCap shareholders with a nice premium. And obviously, it's a valuable transaction to sort of have a win-win here for, I think, all the different parties, but that piece certainly helped contribute to the deeper discount and made it really a great transaction for ARCC.

As it pertains to any future transactions, obviously, not really a position to -- we're not in a position to speculate on that on a call like this or provide any kind of guidance. I think the only thing to say, and we've been asked on previous calls about likelihood of acquisitions.

And the only thing to say is just, obviously, in this environment and given our competitive advantages and where our stock is trading relative to the peer set, we're in a pretty good position to review and potentially capitalize on any other opportunities that might be out there.

Paul Johnson

Got it. That's very helpful. And in terms of just like the portfolio retention for MidCap's portfolio post closing, I guess, would you expect there to be any sort of digestion period or slowdown of originations in anticipation of closing? Or is the deal, I guess, simply small enough that you wouldn't expect any kind of change to the cadence and deployment?

Kort Schnabel

Yes. You shouldn't expect to see any impact there. Again, while it's an exciting and strategic transaction, it's not that material from a size standpoint for us. So we don't expect any changes there.

Paul Johnson

Got it. And 1 last question for me on just credit. During the quarter, I guess, speaking a little bit more broadly to the portfolio company itself, but I was curious of your thoughts on the recent restructuring or sorry, should call it, recapitalization of Symplr Software with the preferred capital being raised there. I was wondering if that particular deal offers, I guess, more of a blueprint for any other distressed software company in the market or just, I guess, more of a one-off scenario for this particular company? That's all for me.

James Miller

Happy to take that. I think it is a good example and maybe a bit of a blueprint. But -- we've been talking about this for a while and sort of repeat it again, the software portfolio, just like many of the other companies in our portfolio that have a significant amount of equity value, we often see sponsor support to support equity value that remains in the company.

We often see a set of outcomes that you saw with Symplr with respect to repricing, getting better document terms, a variety of different things that we will achieve at a point in time when a negotiation takes place like that, where we end up in a better place, but it does -- it does show and highlight what we think will happen often if there -- and has happened historically very often in scenarios like that. So it's a great example. I think it's the right way to put it. It's a great example, and we sort of a playbook that we utilize often in situations like that.

Operator

We'll go next now to Arren Cyganovich at Truist Securities.

Arren Cyganovich

Congrats on the transaction. I got a quick question on the accretion, the modest accretion assumption assumed with this. Is the discount of that accretion is part of that discounted value assumed into the accretion? I feel like the deals from years past, a lot of the upside was kind of from, I don't know, loans or credits that you had marked down that had performed better than expected. Is that obviously a much smaller potential here, but is that also a potential opportunity on this transaction?

Kort Schnabel

Yes, you got it exactly. So the accretion is really driven by 2 primary factors. The first is the discount and the higher yield that, that creates on those assets. And the second is just our cost of capital advantages, the benefits we have of scale versus the MidCap platform, and that will allow us also to generate the modest accretion that we're expecting.

Arren Cyganovich

Okay. And then kind of following up on Paul's question on maturity wall. I'm sure everybody saw the journal article about that today or yesterday. And this is something we've been talking about, so it's not new. But maybe a little bit of an update on what you're doing to proactively get in front of maybe some of the credits that might be in that kind of situation and where you might be in that process. We still have a decent runway until we get to '28.

James Miller

Yes. I mean we saw the article. I think we can reflect on the Ares portfolio more than the market. And we look at what we're seeing in the future with respect to maturities. And if you look at '28, '29, the percent of maturities that we're expecting in that period of time is pretty typical. It's a standard sort of market level.

And so there isn't really anything there is really the short answer. And we're always actively and proactively looking at maturities and how we want to extend ahead of that. And I think this topic comes up quite often when people talk about maturity walls. It's not really -- it doesn't really play out as people expect.

For whatever reason, I'm not sure why it becomes a focus over and over again, but we're not expecting any specific issue there. And we're always looking at ways to extend for the right companies. And the level there that we're seeing in, I think, 2028 is about 10%, something like that. So there's nothing meaningful for us to have to deal with.

Kort Schnabel

And even if you go forward to 2029 is about 13% of the portfolio as well. So not super outsized numbers in those 2 years on our book. And again, I'd just underscore what Jim said about Symplr as being a good example of how these maturities can get addressed. Company like that actually performing fine and has a capital structure that's a little over levered. But again, sponsor putting in equity, getting more time, first lien, second lien extending and giving the company more time to grow into its capital structure.

Operator

We'll go next now to Kenneth Lee with RBC Capital Markets.

Kenneth Lee

Just in terms of the MFIC transaction, do you anticipate any potential change in the management fee rate in terms of the portfolio there that you're acquiring?

Kort Schnabel

We do not.

Kenneth Lee

Great. And just 1 follow-up, if I may. Just in terms of the average portfolio yields that you saw in the quarter, on a cost basis, they ticked up a little bit. Just wondering whether there was any specific drivers driving that pickup in portfolio yields there.

James Miller

I mean, I think if I understood the question, we're just seeing a better market for lending right now. I think we saw about 50 basis points wider in the market, slightly better leverage levels, slightly better terms. We are seeing based on some of the cross currents we mentioned, the broadly syndicated market has moved off.

The direct lending market has moved off. So it's just a market right now that we really like and the conditions have improved quarter-over-quarter. So -- and it's continuing.

Kort Schnabel

And there's probably a little bit of the recent base rate increases that are now starting to creep into the numbers in a good way. There's a little bit of a lag effect, generally a 1 quarter lag before that gets into our numbers. But I think you're starting to see a little bit of that as well. And all those things Jim talked about as well as the forecast for potential future base rate increases are what make us feel confident about the go-forward picture on earnings.

Operator

We'll go next now to Jason Stewart with Compass Point.

Jason Stewart

In terms of the MFIC transaction, is it your anticipation that all would be funded within ARCC or whether it's going to go to the IHAM vehicles?

Kort Schnabel

Thanks for the question. Nothing is definitive yet, but I guess I would say that I think Ivy Hill is expected to play a role in the transaction, just given that most of the assets in the portfolio are actually minority participations in these loans. And again, it's largely a performing loan book.

And so those 2 factors mean that a bunch of these assets could be a strong fit for Ivy Hill Asset Management. But they're going to review the assets and make their own independent determination as to whether they want to purchase them. They'll start that review process between now and closing or even post closing, and we'll see where that shakes out. But I'd say it's likely and also say that IHAM has also played an important role in our prior acquisition as well, taking on the performing part of those loan books.

Jason Stewart

Okay. That's helpful. And then to follow up on your liquidity comment in terms of -- related to the marks, is the right way to think about how those marks will ultimately be realized? Is it time? Or is there a particular way to accelerate through financing structures, the realization of the liquidity discount?

Kort Schnabel

Right. Yes. A little bit early to say. I would say it's probably over time is when we expect to be able to monetize those assets above their purchase costs. But at this point, obviously, we're still 5 or 6 months away from closing the transaction.

And so we don't actually know where we're going to mark these assets individually when the transaction does close and they come under our books because obviously, the marks are the point in time in the future and dependent on market conditions that might change between now and then or portfolio company performance that could change between now and then. So hard to say, but we do believe strongly that the accretion benefits will be there over time as we monetize the assets above our purchase price.

Operator

We'll go next now to Robert Dodd with Raymond James.

Robert Dodd

On the announcement. I mean a couple of questions. I mean, 1, on -- over the last sort of decade, not necessarily you guys, but the industry norm has sort of emerged to exclude any purchase price discount amortization or accretion from purchasing assets as a discount from the calculation of the incentive fee. Is it your intent to do that or just essentially treat it like OID and take the full incentive fee participation on that discount?

Scott Lem

I think you're referring to probably the capital gains fee in terms of when you decide the...

Robert Dodd

No, just if you buy an asset at 90 and you accrete to par by maturity of the asset, there's accretion of income on a GAAP basis, right? Certainly what we've seen with other BDCs when they buy assets.

Scott Lem

Yes, that's -- I'm not aware of that. I mean it's not how we've done our previous transactions. I do know there's a component of the capital gains incentive fee that gets adjusted for the cost basis, but nothing I'm aware of on the income side.

Robert Dodd

Got it. Got it. On -- just a follow-up to that. On the accretion, and you've addressed this partly already. I mean, is the modest accretion, which takes into -- that's kind of like the day 1 theory, right? It doesn't take into account -- I'm asking not to tell you, does that take into account like things you might do like if Ivy Hill comes into it. But none of those, I don't want to say, creative initiatives are necessary for day 1 accretion. Is that fair to say, but you may be able to squeeze out more accretion if you get more creative on how assets are allocated. Is that fair?

Kort Schnabel

I think that's a fair characterization, Robert. Yes, it's 2 -- there's 2 different scenarios that could play out for us to give guidance around all those different considerations. I think all we feel confident in saying is that it will be modestly accretive. But the amount of accretion will depend on some of those different strategic moves or considerations that you mentioned and that we might be able to employ.

I guess I would just highlight again the -- a couple of things. The strategic importance of the transaction relative to the accretion. Obviously, the deal is just not that big, right? So we're bringing in $2.5 billion of assets. That's less than 1 quarter's worth of average originations for ARCC. So the level of accretion, although we certainly expect it to be positive, will be modest.

But the strategic benefits include expanding our number of borrowers from over 600 to over 800. It's a very complementary portfolio, I would say, to ours. Of the 229 portfolio companies, there's only 12 overlapping names. So there are a lot of new sponsor relationships that we're bringing sort of under the tent here at Ares Capital that we can kind of mine for future business opportunities. So there are a lot of really exciting strategic reasons for us to do this in addition to just the modest financial accretion impact.

Operator

We go next now to Peter Troisi with Barclays.

Peter Troisi

I have 1 on the MidCap transaction as well. How do you think the acquired portfolio will affect nonaccrual formation for the combined company? I guess the question is, should we expect the go-forward nonaccrual rate of the pro forma company to be higher?

Scott Lem

Yes. So thanks, Peter. I mean, first off, we don't know what the actual portfolio is going to be until we obviously close on it. So MidCap has their own nonaccrual policy. But I would say when we acquire the assets, we certainly will apply our own nonaccrual policy as to what we think the assets should be accruing enough.

I think the good factor in play is that we're going to mark the assets day 1 at fair value, and that's going to be our cost basis going forward. And so that's ultimately -- when we think about recovery of that cost basis, it does factor as we think about whether the asset will go on accrual or not. So hard to say exactly the numbers going forward, but I think it goes back to the fact that it's a very small portfolio and that we do think that any nonaccruals are not going to materially move the needle for our nonaccruals.

Kort Schnabel

Yes. So when we bring the assets on to our books, as Scott was saying, we will readjust the cost basis to be our purchase price. And I think you can assume that the nonaccrual assets are part of that small percentage of assets where there is a big bid-ask spread and we got a meaningful discount. So the dollar value of all those nonaccrual assets combined will not be very large.

Peter Troisi

Okay. Just 1 more for me. You mentioned you might look to expand your financing capacity. Maybe just expand on that a little bit more. I mean, obviously, the banks provided more secured financing commitments, but curious how this might affect your broader approach to debt funding and in particular, in the unsecured market.

Scott Lem

Yes. So the commitment for the upsize was really more of effectively kind of a backstop for us just in case the markets are shut down between now and close. So we have effectively derisked the financing specifically this deal.

But assuming markets are open and functioning, which we hope they will be, we're going to -- it doesn't really change our plans in terms of how we finance our business in terms of unsecured and secured mix goes back to diversity and making sure we have a wide range of funding sources. So this doesn't change that at all.

Operator

We'll go next now to Melissa Wedel with UBS.

Melissa Wedel

A lot of them have already been asked, but I think I wanted to follow up on the funding question. Would you expect any noise sort of in that first quarter or 2 and sort of winding down some of the MFIC debt funding facilities?

Scott Lem

No, I don't think so. I think we actually have a pretty uncomplicated balance sheet structure, especially relative to ours. So yes, I'm not seeing any issues with any of that at all, quite honestly.

Melissa Wedel

Okay. Okay. And then just pulling up to a higher level, I think it's interesting that you guys are pursuing this acquisition right now, and you've always been very flexible across capital structure, first lien, second lien, very diversified portfolio and also across the upper middle market and the core middle market.

I think we -- what we've been hearing from some managers is that there's been more spread compression more recently in the core middle market than perhaps in the upper middle market. And I think you've talked about that yourselves, too.

So from a strategic perspective, when you think about increasing your exposure to the sort of core middle market partly through this acquisition, but just generally, how does that line up with some of the opportunity set, maybe some of the different spread widening and contraction that you've seen in different parts of the market over time?

James Miller

Yes. There's a couple of parts to that question. We maybe separate them out. 1 is what are we seeing in this portfolio today when we acquire it. And it goes back to what Kort had said about buying the assets well and feeling like we have a good return -- which includes our purchase price.

I think the second part of your question is more about the strategic part. And we found over many years that different parts of the market behave differently at different times. It's really important for us to be active in all parts of the market down to the low end and all the way up to large cap at all times, but in varying size or we may be much less active for a quarter or 2 or even 1 year in a part of the market that is less attractive or offering weaker relative value.

But we want to be around it and because they change, they move and they often move quickly. And so we will be very opportunistic at points in time when this part of the market can dislocate or just become more attractive. There's probably some truth to the comment around -- that you made around the lower end of the market or middle market being a little bit more competitive over the prior couple of quarters, but that doesn't mean it stays that way.

So it is highly strategic, again, to be active there. We also, by the way, have expressed the value of incumbency, the long-term value of being attached to an asset. Some of these companies will grow meaningfully. Their platforms, the sponsors are highly acquisitive. And we will look for moments and portions of the portfolio will become really, really valuable.

And so this is a granular 200-plus names where we're going to get the opportunity to go lean into a handful of those over time that we think will outperform or just become more suitable to us at moments in time. So I hope that answers your question, but there's a variety of reasons why this is valuable and strategic to us.

Operator

We'll go next now to Ethan Kaye with Lucid Capital Markets.

Ethan Kaye

On the announcement. You kind of categorized the MFIC portfolio as a complementary to ARCC. I guess for those of us maybe who don't cover MFIC or maybe are kind of less familiar with them, can you maybe just high level kind of compare and contrast their strategy and portfolio with ARCC's?

Kort Schnabel

Yes. It's obviously a publicly traded portfolio, so there's lots of information out there. We can't really provide anything more than what's public. Obviously, we're not going to own the assets for another 5 or 6 months. So in this window, there's just not too much more we can say.

But -- there -- as we already sort of stated, there's 229 portfolio companies. It's very diversified by sector. There are no big areas of concentration. I do believe it is very complementary to our portfolio in addition to there only being 12 overlapping names of the 229.

They also have less software allocation than we do, but more health care allocation. So those kind of balance each other out and create even more industry diversification on a pro forma basis. And other than that, there's a lot of information out there that people can pull about the portfolio.

But for now, probably can't say. I guess maybe the last thing is, and Melissa already hit it on her question, the -- it is more of -- a little bit more of a core middle market portfolio. Average EBITDA size is in kind of the $50 million, $55 million ZIP code. So it does also complement our portfolio nicely in that respect.

Ethan Kaye

Okay. I appreciate that. And then I guess 1 unrelated to MFIC kind of on increasing base rates here. So it seems like kind of most portfolio companies, at least in your portfolio, have some room to kind of absorb higher rates. Is there kind of a level of base rates or maybe a period of time at which base rates stay elevated where you kind of start to worry more about credit issues there? Obviously, a tailwind for earnings, but thinking about the other side there.

James Miller

Yes. I mean definitely want to start by agreeing that it is a great tailwind for earnings. And maybe some historical reference around base rates and sensitivity there as well as where the portfolio sits today.

So the portfolio today sits with around 2.0x interest coverage. So there's a fair amount of cushion there that exists in the portfolio that we have. Second, a 1% base rate increase, which I think is what is sort of embedded in the forward curve is something that we think is very manageable for our portfolio.

We saw back, I think it was in '23, it was more of a 5% type move and had great performance coming through that period of time and did a lot of work around interest rate sensitivities and manage through that. At 1% and more, we feel like there's extremely a net positive for the business, and it's something that the portfolio companies can handle. There may be obviously on the tail end, some portfolio companies that will get a little more stressed as you push on that string. But we don't view it's going to be a meaningful contributor.

Operator

[Operator Instructions]

We'll go next now to Chris Muller with Citizens Capital Markets.

Christopher Muller

Nice to be on with you today and congrats on the transaction. So I guess leverage on the MFIC portfolio is above where you guys typically run. I guess, longer term, what would the plan for that portfolio be? Are you guys going to intentionally bring down leverage there or just kind of naturally let it run off as capital gets recycled over time?

Scott Lem

Yes. Look, when we bring their portfolio into ours, it doesn't change our overall leverage strategy at ARCC. So I think we're still targeting the 0.9x to 1.25x, and we've been kind of in that 1.1x-ish range the past few quarters. So I think, again, given the size of the portfolio we're bringing on, it's not going to change our leverage profile going forward.

Christopher Muller

Got it. And I mean, the number of portfolio companies increases by a decent amount. Can you guys just talk through the asset management process and how you absorb that increase? Is there a need to increase headcount at all? Or is this just kind of plug into existing processes you guys have in place?

Kort Schnabel

Yes, great question. Obviously, there is a fair amount of infrastructure that we can leverage. But with a couple of hundred new names, we definitely are looking to bring on some more headcount at the manager and invest in that to continue to support a growing portfolio, but that's no different than what we do on an ongoing basis as we naturally have been organically growing our number of borrowers over time. So maybe a little bit more of a step function in conjunction with this, but it's easily managed, I think, given our history and given the existing infrastructure and resources we have.

Operator

And ladies and gentlemen, this concludes our question-and-answer session. Mr. Schnabel, I'd like to turn things back to you, sir, for any closing comments.

Kort Schnabel

Great. Well, thanks, everybody, for joining us and for all your support and engagement, and we look forward to connecting with you all on our next quarterly call.

Operator

Thank you, Mr. Schnabel. Ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call, an archived replay of the call will be available approximately 1 hour after the end of the call through November 27, 2026, at 5:00 p.m. Eastern Time to domestic callers by dialing toll-free 1 (800) 839-1247 and to international callers by dialing (402) 220-0470. An archived replay will also be available on a webcast link located on the homepage of the Investor Resources section of Ares Capital website. Thanks again for joining us, everyone. We wish you all a great day.