424B2 1 tm2114275-1_424b2.htm 424B2 tm2114275-1_424b2 - none - 29.5626742s
 Filed Pursuant to Rule 424(b)(2)
 Registration No.: 333-248831
PROSPECTUS SUPPLEMENT
(To Prospectus dated September 16, 2020)
$500,000,000
Common Stock
We have entered into amended and restated equity distribution agreements (collectively, the “equity distribution agreements”) with each of Truist Securities, Inc. and Regions Securities LLC (each, a “sales agent” and collectively, the “sales agents”) and our investment adviser, Ares Capital Management LLC, and our administrator, Ares Operations LLC, relating to the offer and sale of shares of our common stock pursuant to this prospectus supplement and the accompanying prospectus. In accordance with the terms of the equity distribution agreements, we may offer and sell shares of our common stock having an aggregate offering price of up to $500,000,000 from time to time through the sales agents.
Ares Capital Corporation is 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 under the Investment Company Act of 1940, as amended. 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 debt, generally in a first lien position), and second lien senior secured loans. In addition to senior secured loans, we also invest in subordinated debt (sometimes referred to as mezzanine debt), which in some cases includes an equity component, and preferred equity. To a lesser extent, we also make common equity investments.
We are externally managed by our investment adviser, Ares Capital Management LLC, a subsidiary of Ares Management Corporation, a publicly traded, leading global alternative investment manager. Ares Operations LLC, a subsidiary of Ares Management Corporation, provides certain administrative and other services necessary for us to operate.
Our common stock is traded on The NASDAQ Global Select Market under the symbol “ARCC.” On April 28, 2021, the official close price of our common stock on The NASDAQ Global Select Market was $19.37 per share. The net asset value per share of our common stock at March 31, 2021 (the last date prior to the date of this prospectus supplement on which we determined net asset value) was $17.45.
Sales of shares of our common stock, if any, under this prospectus supplement and the accompanying prospectus may be made in transactions that are deemed to be an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended (the “Securities Act”), including without limitation sales made directly on or through The NASDAQ Global Select Market, sales made to or through market makers and sales made through any other existing trading market or electronic communications network, and by any other method permitted by law, including but not limited to privately negotiated transactions, which may include block trades, as we and the sales agents may agree. None of the sales agents are required to sell any specific number or dollar amount of shares of our common stock but will make all sales using commercially reasonable efforts consistent with their normal trading and sales practices on mutually agreed terms between the sales agents and us.
Each of the sales agents will be entitled to compensation of up to 1.50% of the gross sales price for any shares of common stock sold through it as a sales agent under the equity distribution agreements, as further described herein under the caption “Plan of Distribution.” In connection with the sale of shares of common stock on our behalf, each sales agent may be deemed to be an “underwriter” within the meaning of the Securities Act, and the compensation of each sales agent may be deemed to be underwriting commissions or discounts.
Investing in our common stock involves risks. Before making a decision to invest in our common stock, you should carefully consider the matters discussed under “Risk Factors” beginning on page 23 of the accompanying prospectus and the matters discussed in the documents incorporated or deemed to be incorporated by reference in this prospectus supplement and the accompanying prospectus.
This prospectus supplement and the accompanying prospectus concisely provide important information about us that you should know before investing in our common stock. We may also authorize one or more free writing prospectuses to be provided to you in connection with this offering (such free writing prospectus and this prospectus supplement collectively referred to hereinafter as the “prospectus supplement”). Please read this prospectus supplement and the accompanying prospectus, and the documents incorporated by reference, before you invest and keep them for future reference. We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). This information is available free of charge by calling us collect at (310) 201-4200, by sending an e-mail to us at IRARCC@aresmgmt.com or on our website at www.arescapitalcorp.com. The SEC also maintains a website at www.sec.gov that contains such information. The information on the websites referred to herein is not incorporated by reference into this prospectus supplement or the accompanying prospectus.
Neither the SEC nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Truist SecuritiesRegions Securities LLC
The date of this prospectus supplement is April 29, 2021.

 
You should rely only on the information contained in this prospectus supplement and the accompanying prospectus, the documents incorporated by reference in this prospectus supplement and the accompanying prospectus, or any other information to which we have referred you. We have not, and the sales agents have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the sales agents are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus supplement and the accompanying prospectus is accurate only as of the date on the front cover of this prospectus supplement or the accompanying prospectus, as applicable. Our business, financial condition, results of operations and prospects may have changed since that date. This prospectus supplement may add, update or change information contained in the accompanying prospectus. If information in this prospectus supplement is inconsistent with the accompanying prospectus, this prospectus supplement will apply and will supersede that information in the accompanying prospectus.
Prospectus Supplement
TABLE OF CONTENTS
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Prospectus
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FORWARD-LOOKING STATEMENTS
Some of the statements included or incorporated by reference in this prospectus supplement and the accompanying prospectus constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained in this prospectus supplement and the accompanying prospectus, including the documents we incorporate by reference herein and therein, 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 global health crises, such as the current novel coronavirus (“COVID-19”) pandemic, on our or our portfolio companies’ business and the U.S. and global economy;

the impact of a protracted decline in the liquidity of credit markets on our business;

the impact of the elimination of the London Interbank Offered Rate (“LIBOR”) on our operating results;

the impact of fluctuations in interest rates on our business;

the impact of changes in laws or regulations (including the interpretation thereof), including the Tax Cuts and Jobs Act, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), the stimulus package passed by Congress and signed into law in December 2020 and the American Rescue Plan Act of 2021 signed into law in March 2021, governing our operations or the operations of our portfolio companies or the operations of our competitors;

the expiration of the SEC’s temporary, conditional relief and subsequent no action position, in each case with respect to allowing co-investments with certain other funds managed by the investment adviser or its affiliates;

the valuation of our investments in portfolio companies, particularly those having no liquid trading market;

our ability to recover unrealized losses;

our ability to successfully invest any capital raised in this offering;

market conditions and our ability to access alternative 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;

the general economy and its impact on the industries in which we invest;

uncertainty surrounding global financial stability;

the social, geopolitical, financial, trade and legal implications of Brexit;

Middle East turmoil and the potential for volatility in energy prices and its impact on the industries in which we invest;

the financial condition of our current and prospective portfolio companies and their ability to achieve their objectives;

our ability to raise capital in the private and public debt markets;

our ability to successfully complete and integrate any acquisitions;

the outcome and impact of any litigation;

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; and
 
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the ability of our investment adviser to locate suitable investments for us and to monitor and administer our investments.
We use words such as “anticipates,” “believes,” “expects,” “intends,” “will,” “should,” “may” and similar expressions to identify forward-looking statements, although not all forward-looking statements include these words. 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 “Risk Factors” in the accompanying prospectus and the other information included in this prospectus supplement and the accompanying prospectus, including the documents we incorporate by reference herein and therein.
You should not place undue reliance on these forward-looking statements, which are based on information available to us as of the date of this prospectus supplement or the accompanying prospectus, as applicable, including any documents incorporated by reference. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.
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THE COMPANY
This summary highlights some of the information contained elsewhere in this prospectus supplement and the accompanying prospectus. It is not complete and may not contain all of the information that you may want to consider. You should read carefully the more detailed information set forth under “Risk Factors” in the accompanying prospectus and the other information included or incorporated by reference in this prospectus supplement and the accompanying prospectus. Except where the context suggests otherwise, the terms “we,” “us,” “our,” “the Company” and “Ares Capital” refer to Ares Capital Corporation and its consolidated subsidiaries; “Ares Capital Management” and “our investment adviser” refer to Ares Capital Management LLC; “Ares Operations” and “our administrator” refer to Ares Operations LLC; and “Ares” and “Ares Management” refer to Ares Management Corporation and its affiliated companies (other than portfolio companies of its affiliated funds).
Overview
Ares Capital, a Maryland corporation, is a specialty finance company that is a closed-end, non-diversified management investment company. We have elected to be regulated as a business development company, or a “BDC,” under the Investment Company Act of 1940, as amended, and the rules and regulations promulgated thereunder or the “Investment Company Act.” We were founded on April 16, 2004, were initially funded on June 23, 2004 and completed our initial public offering on October 8, 2004. As of March 31, 2021, we were the largest BDC in the United States with approximately $16.0 billion of total assets.
We are externally managed by our investment adviser, Ares Capital Management, a subsidiary of Ares Management, a publicly traded, leading global alternative investment manager, pursuant to our investment advisory and management agreement. Our administrator, Ares Operations, 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 U.S. middle-market companies, where we believe the supply of primary capital is limited and the investment opportunities are most attractive. However, we may from time to time invest in larger or smaller companies. We generally use the term “middle-market” to refer to companies with annual EBITDA between $10 million and $250 million. As used herein, EBITDA represents net income before net interest expense, income tax expense, depreciation and amortization.
We invest primarily in first lien senior secured loans (including “unitranche” loans, which are loans that combine both senior and subordinated debt, generally in a first lien position), and second lien senior secured loans. In addition to senior secured loans, we also invest in subordinated debt (sometimes referred to as mezzanine debt), which in some cases includes an equity component, and preferred equity. First and second lien senior secured loans generally are senior debt instruments that rank ahead of subordinated debt of a given portfolio company. Subordinated debt and preferred equity are subordinated to senior loans and are generally unsecured. Our investments in corporate borrowers generally range between $30 million and $500 million each and investments in project finance/power generation projects generally range between $10 million and $200 million. However, the investment sizes may be more or less than these ranges and may vary based on, among other things, our capital availability, the composition of our portfolio and general micro- and macro-economic factors.
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.
The proportion of these types of investments will change over time given our views on, among other things, the economic and credit environment in which we are operating. In pursuit of our investment objective, we generally seek to self- originate investments and lead the investment process, which may result in us making commitments with respect to indebtedness or securities of a potential portfolio company in excess of our final investment. In such situations, while we may initially agree to fund up to a certain dollar amount of an investment, we may subsequently syndicate or sell a portion of such amount (including, without limitation, to vehicles managed by our portfolio company, Ivy Hill Asset Management, L.P.
 
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(“IHAM”)), such that we are left with a smaller investment than what was reflected in our original commitment. In addition to originating investments, we may also acquire investments in the secondary market (including purchases of a portfolio of investments).
The first and second lien senior secured loans in which we invest generally have stated terms of three to 10 years and the mezzanine debt investments in which we invest generally have stated terms of up to 10 years, but the expected average life of such first and second lien loans and mezzanine debt is generally between three and seven years. However, we may invest in loans and securities with any maturity or duration. The instruments in which we invest typically are not rated by any rating agency, but we believe that if such instruments were rated, they would be below investment grade (rated lower than “Baa3” by Moody’s Investors Service, lower than “BBB−” by Fitch Ratings or lower than “BBB−” by Standard & Poor’s Ratings Services), which, under the guidelines established by these entities, is an indication of having predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. Bonds that are rated below investment grade are sometimes referred to as “high yield bonds” or “junk bonds.” We may invest without limit in debt or other securities of any rating, as well as debt or other securities that have not been rated by any nationally recognized statistical rating organization.
We believe that our investment adviser, Ares Capital Management, is able to leverage the current investment platform, resources and existing relationships of Ares Management with financial sponsors, financial institutions, hedge funds and other investment firms to provide us with attractive investment opportunities. In addition to deal flow, the Ares investment platform assists our investment adviser in analyzing, structuring and monitoring investments. Ares has been in existence for over 20 years and, as of December 31, 2020, its partners have an average of approximately 25 years of experience in leveraged finance, private equity, distressed debt, commercial real estate finance, investment banking and capital markets. We have access to Ares’ investment professionals and administrative professionals, who provide assistance in accounting, finance, legal, compliance, operations, information technology and investor relations. As of December 31, 2020, Ares had over 525 investment professionals and over 925 administrative professionals.
While our primary focus is to generate current income and capital appreciation through investments in first and second lien senior secured loans and mezzanine debt and, to a lesser extent, equity securities of eligible portfolio companies, we also may invest up to 30% of our portfolio in non-qualifying assets, as permitted by the Investment Company Act. See “Regulation” in the accompanying prospectus. 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.
Senior Direct Lending Program
We have established a joint venture with Varagon Capital Partners (“Varagon”) to make certain first lien senior secured loans, including certain stretch senior and unitranche loans, primarily to U.S. middle-market companies. Varagon was formed in 2013 as a lending platform by American International Group, Inc. (NYSE: AIG) and other partners. The joint venture is called the Senior Direct Lending Program, LLC (the “SDLP”). The SDLP may generally commit and hold individual loans of up to $350 million. We may directly co-invest with the SDLP to accommodate larger transactions. The SDLP is capitalized as transactions are completed, and all portfolio decisions and generally all other decisions in respect of the SDLP 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 March 31, 2021, we and a client of Varagon owned 87.5% and 12.5%, respectively, of the outstanding SDLP Certificates.
As of March 31, 2021, we and Varagon and its clients had agreed to make capital available to the SDLP of $6.2 billion in the aggregate, of which $4.5 billion has been funded. As of March 31, 2021, we agreed to make available to the SDLP (subject to the approval of the SDLP as described above) $1.4 billion,
 
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of which $1.1 billion was funded. As of March 31, 2021, the SDLP had commitments to fund delayed draw loans to certain of its portfolio companies of $123 million, which had been approved by the investment committee of the SDLP as described above, of which $30 million was committed by us. For more information on the SDLP, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio and Investment Activity — Senior Direct Lending Program” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, filed with the SEC on April 28, 2021.
Ivy Hill Asset Management, L.P.
As of March 31, 2021, our portfolio company, IHAM, an SEC-registered investment adviser, managed 20 vehicles and served as the sub-manager/sub-servicer for two other vehicles (such vehicles, the “IHAM Vehicles”). As of March 31, 2021, IHAM had assets under management of approximately $6.7 billion. As of March 31, 2021, the amortized cost and fair value of our investment in IHAM was $541 million and $649 million, respectively. In connection with IHAM’s registration as a registered investment adviser, on March 30, 2012, we received exemptive relief from the SEC allowing us to, subject to certain conditions, own directly or indirectly up to 100% of IHAM’s outstanding equity interests and make additional investments in IHAM. From time to time, IHAM or certain IHAM Vehicles may purchase investments from us or sell investments to us, in each case for a price equal to the fair market value of such investments determined at the time of such transactions.
Ares Capital Management LLC
Ares Capital Management, our investment adviser, is served by an origination, investment and portfolio management team of approximately 120 U.S.-based investment professionals as of December  31, 2020 and led by certain partners of the Ares Credit Group: Kipp deVeer, Mitchell Goldstein and Michael Smith. Ares Capital Management leverages off of Ares’ investment platform and benefits from the significant capital markets, trading and research expertise of Ares’ investment professionals. Ares Capital Management’s investment committee has nine members primarily comprised of certain of the U.S.-based partners of the Ares Credit Group.
Our Corporate Information
Our administrative offices are located at 2000 Avenue of the Stars, 12th Floor, Los Angeles, California 90067, telephone number (310) 201-4200, and our principal executive offices are located at 245 Park Avenue, 44th Floor, New York, New York 10167, telephone number (212) 750-7300.
 
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THE OFFERING
Issuer
Ares Capital Corporation
Common stock offered by us
Common stock having an aggregate maximum offering price of up to $500,000,000.
Shares of common stock outstanding prior to this offering
437,358,519 shares outstanding as of April 28, 2021.
Manner of offering
“At the market” offering that may be made from time to time through Truist Securities, Inc. and Regions Securities LLC, as sales agents, using commercially reasonable efforts. See “Plan of Distribution” in this prospectus supplement.
Use of proceeds
We expect to use the net proceeds of this offering to repay certain outstanding indebtedness, if any, under our debt facilities and/or for general corporate purposes, which include investing in portfolio companies in accordance with our investment objective. See “Use of Proceeds.”
Risk factors
Investing in our common stock involves risks. See “Risk Factors” in our most recent Annual Report on Form 10-K for the year ended December 31, 2020 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, incorporated by reference herein, in the accompanying prospectus, and under similar headings in the documents that are filed with the SEC on or after the date hereof and are incorporated by reference into this prospectus supplement and the accompanying prospectus.
NASDAQ Global Select Market symbol for our common stock
Our common stock is listed on The NASDAQ Global Select Market under the symbol “ARCC.”
 
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FEES AND EXPENSES
The following table is intended to assist you in understanding the costs and expenses that an investor in our common stock will bear, directly or indirectly, based on the assumptions set forth below. We caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this prospectus supplement or the accompanying prospectus contains a reference to our fees or expenses, we will pay such fees and expenses out of our net assets and, consequently, stockholders will indirectly bear such fees or expenses as investors in Ares Capital.
Stockholder transaction expenses (as a percentage of offering price):
Sales load
1.50%(1)
Offering expenses
0.31%(2)
Dividend reinvestment plan expenses
Up to $15
Transaction Fee(3)
Total stockholder transaction expenses paid
1.81%
Annual expenses (as a percentage of consolidated net assets attributable to common stock)(4):
Base management fees
3.18%(5)
Income based fees and capital gains incentive fees
3.11%(6)
Interest payments on borrowed funds
4.74%(7)
Other expenses
0.81%(8)
Acquired fund fees and expenses
1.45%(9)
Total annual expenses
13.29%(10)
(1)
Represents the maximum agent commission with respect to the shares of our common stock sold by us in this offering.
(2)
The percentage reflects estimated offering expenses of approximately $1.5 million for the estimated duration of this offering and assumes we sell all $500.0 million of common stock available under the equity distribution agreements pursuant to this prospectus supplement and the accompanying prospectus. There is no guarantee that there will be any sales of our common stock pursuant to this prospectus supplement and the accompanying prospectus.
(3)
The expenses of the dividend reinvestment plan are included in “Other expenses.” The plan administrator’s fees under the plan are paid by us. If a participant elects by notice to the plan administrator in advance of termination to have the plan administrator sell part or all of the shares held by the plan administrator in the participant’s account and remit the proceeds to the participant, the plan administrator is authorized to deduct a transaction fee of up to $15 plus a $0.12 per share fee from the proceeds. See “Dividend Reinvestment Plan” in the accompanying prospectus for more information.
(4)
The “consolidated net assets attributable to common stock” used to calculate the percentages in this table is our average net assets of $7.4 billion for the three months ended March 31, 2021.
(5)
Our base management fee is calculated at an annual rate of 1.5% based on the average value of our total assets (other than cash or cash equivalents but including assets purchased with borrowed funds) at the end of the two most recently completed calendar quarters; provided, however, the base management fee is calculated at an annual rate of 1.0% on the average value of our total assets (other than cash or cash equivalents but including assets purchased with borrowed funds) that exceeds the product of (A) 200% and (B) our net asset value at the end of the most recently completed calendar quarter. See “Item 1. Business — Investment Advisory and Management Agreement” in our Annual Report on Form 10-K for the year ended December 31, 2020.
(6)
This item represents our investment adviser’s income based fees and capital gains incentive fees estimated by annualizing income based fees for the three months ended March 31, 2021 and the capital gains incentive fee expense accrued in accordance with U.S. generally accepted accounting principles (“GAAP”) for the three months ended March 31, 2021, even though no capital gains incentive fee was actually payable under the investment advisory and management agreement as of March 31, 2021.
 
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GAAP requires that the capital gains incentive fee accrual consider the cumulative aggregate unrealized capital appreciation in the calculation, as a capital gains incentive fee would be payable if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the Investment Company Act or the investment advisory and management agreement. This GAAP accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital depreciation included in the calculation of the capital gains incentive fee actually payable under the investment advisory and management agreement plus the aggregate cumulative unrealized capital appreciation. If such amount is positive at the end of a period, then GAAP requires us to record a capital gains incentive fee equal to 20% of such cumulative amount, less the aggregate amount of actual capital gains incentive fees paid or capital gains incentive fees accrued under GAAP in all prior periods. The resulting 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 reversal 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. There can be no assurance that such unrealized capital appreciation will be realized in the future or that the amount accrued for will ultimately be paid.
For purposes of this table, we have assumed that these fees will be payable (in the case of the capital gains incentive fee) and that they will remain constant, although they are based on our performance and will not be paid unless we achieve certain goals. We expect to invest or otherwise utilize all of the net proceeds from this offering within three months of the date of completion of this offering and may have capital gains and interest income that could result in the payment of these fees to our investment adviser in the first year after completion of this offering. Since our initial public offering through March 31, 2021, the average quarterly fees accrued related to income based fees and capital gains incentive fees (including capital gains incentive fees accrued under GAAP even though they may not be payable) have been approximately 0.63% of our weighted average net assets for such period (2.51% on an annualized basis). For more detailed information on the calculation of our income based fees and capital gains incentive fees, please see below. For more detailed information about income based fees and capital gains incentive fees previously incurred by us, please see Note 3 to our consolidated financial statements in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, filed with the SEC on April 28, 2021.
Income based fees are payable quarterly in arrears in an amount equal to 20% of our pre-incentive fee net investment income (including interest that is accrued but not yet received in cash), subject to a 1.75% quarterly (7.0% annualized) hurdle rate and a “catch-up” provision measured as of the end of each calendar quarter. Under this provision, in any calendar quarter, our investment adviser receives no income based fees until our net investment income equals the hurdle rate of 1.75% but then receives, as a “catch-up,” 100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.1875%. The effect of this provision is that, if pre-incentive fee net investment income exceeds 2.1875% in any calendar quarter, our investment adviser will receive 20% of our pre-incentive fee net investment income as if a hurdle rate did not apply.
Capital gains incentive fees are payable annually in arrears in an amount equal to 20% of our realized capital gains on a cumulative basis from inception through the end of the year, if any, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of capital gains incentive fees paid in all prior years.
We will defer cash payment of any income based fees and capital gains incentive fees otherwise earned by our investment adviser 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) our aggregate distributions to our stockholders and (b) our change in net assets (defined as total assets less indebtedness and before taking into account any income based fees or capital gains incentive fees accrued during the period) is less than 7.0% of our net assets (defined as total assets less indebtedness) at the beginning of such period. Any deferred income based fees and capital gains incentive fees 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.
These calculations will be adjusted for any share issuances or repurchases.
 
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See “Item 1. Business — Investment Advisory and Management Agreement” in our Annual Report on Form 10-K for the year ended December 31, 2020.
(7)
“Interest payments on borrowed funds” represents our interest expenses estimated by annualizing our actual interest and credit facility expenses incurred for the three months ended March 31, 2021. During the three months ended March 31, 2021, our average outstanding borrowings were approximately $8.3 billion and cash paid for interest expense was $107 million. We had outstanding borrowings of approximately $8.1 billion (with a carrying value of approximately $8.0 billion) as of March 31, 2021. This item is based on the assumption that our borrowings and interest costs after an offering will remain similar to those prior to such offering. The amount of leverage that we may employ at any particular time will depend on, among other things, our investment adviser’s and our board of directors’ assessment of market and other factors at the time of any proposed borrowing. See “Risk Factors — Risks Relating to Our Business — We borrow money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing with us” in our Annual Report on Form 10-K for the year ended December 31, 2020. We are currently allowed to borrow amounts such that our asset coverage, as calculated pursuant to the Investment Company Act, equals at least 150% after such borrowing (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).
(8)
Includes our overhead expenses, including payments under our administration agreement based on our allocable portion of overhead and other expenses incurred by Ares Operations in performing its obligations under the administration agreement, and income taxes. Such expenses are estimated by annualizing actual “Other expenses” for the three months ended March 31, 2021. The holders of shares of our common stock (and not the holders of our debt securities or preferred stock, if any) indirectly bear the cost associated with our annual expenses. See “Item 1. Business — Administration Agreement” in our Annual Report on Form 10-K for the year ended December 31, 2020.
(9)
Our stockholders indirectly bear the expenses of underlying funds or other investment vehicles that would be investment companies under section 3(a) of the Investment Company Act but for the exceptions to that definition provided for in sections 3(c)(1) and 3(c)(7) of the Investment Company Act (“Acquired Funds”) in which we invest. Such underlying funds or other investment vehicles are referred to in this prospectus supplement and the accompanying prospectus as “Acquired Funds.” This amount is estimated based on the estimated annual fees and operating expenses of Acquired Funds in which the Company is invested as of March 31, 2021. Certain of these Acquired Funds are subject to management fees, which generally range from 1% to 2.5% of total net assets, or incentive fees, which generally range between 15% and 25% of net profits. When applicable, fees and operating expenses estimates are based on historic fees and operating expenses for the Acquired Funds. For those Acquired Funds with little or no operating history, fees and operating expenses are estimates based on expected fees and operating expenses stated in the Acquired Funds’ offering memorandum, private placement memorandum or other similar communication without giving effect to any performance. Future fees and operating expenses for these Acquired Funds may be substantially higher or lower because certain fees and operating expenses are based on the performance of the Acquired Funds, which may fluctuate over time. Also included with the amount is an estimate of the annual fees and operating expenses of the SDLP. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio and Investment Activity — Senior Direct Lending Program” and Note 4 to our consolidated financial statements in our Quarterly Report on Form 10-Q for the year ended March 31, 2021, filed with the SEC on April 28, 2021, for more information on the SDLP. The annual fees and operating expenses of the SDLP were estimated based on the funded portfolio of the SDLP as of March 31, 2021 and include interest payments on the senior notes and intermediate funding notes provided by Varagon and its clients, which represent 84% of such expenses.
(10)
“Total annual expenses” as a percentage of consolidated net assets attributable to common stock are higher than the total annual expenses percentage would be for a company that is not leveraged. We borrow money to leverage and increase our total assets. The SEC requires that the “Total annual expenses” percentage be calculated as a percentage of net assets (defined as total assets less indebtedness and before taking into account any income based fees or capital gains incentive fees accrued during the period), rather than the total assets, including assets that have been funded with borrowed monies.
 
S-9

 
Example
The following example demonstrates the projected dollar amount of total cumulative expenses over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed that we would have no additional leverage, that none of our assets are cash or cash equivalents, that our annual operating expenses would remain at the levels set forth in the table above and that an investor would pay the transaction expenses set forth above, including a sales load of 1.50% (agents’ discounts and commissions with respect to the shares sold in this offering). Income based fees and the capital gains incentive fees under the investment advisory and management agreement, which, assuming a 5% annual return, would either not be payable or have an insignificant impact on the expense amounts shown below, are not included in the example, except as specifically set forth below.
1 year
3 years
5 years
10 years
You would pay the following expenses on a $1,000 common stock investment, assuming a 5% annual return (none of which is subject to the capital gains incentive fee)(1)
($ 120) ($ 309) ($ 478) ($ 825)
You would pay the following expenses on a $1,000 common stock investment, assuming a 5% annual return resulting entirely from net realized capital gains (all of which is subject to the capital gains incentive fee)(2)
($ 130) ($ 336) ($ 518) ($ 886)
(1)
Assumes that we will not realize any capital gains computed net of all realized capital losses and unrealized capital depreciation.
(2)
Assumes no unrealized capital depreciation and a 5% annual return resulting entirely from net realized capital gains and not otherwise deferrable under the terms of the investment advisory and management agreement and therefore subject to the capital gains incentive fee.
The foregoing table is to assist you in understanding the various costs and expenses that an investor in our common stock will bear directly or indirectly. While the example assumes, as required by the SEC, a 5% annual return, our performance will vary and may result in a return greater or less than 5%. If we were to achieve sufficient returns on our investments, including through the realization of capital gains, to trigger income based fees or capital gains incentive fees of a material amount, our expenses, and returns to our investors, would be higher. In addition, while the example assumes reinvestment of all dividends and distributions at net asset value, if our board of directors authorizes and we declare a cash dividend, participants in our dividend reinvestment plan who have not otherwise elected to receive cash will receive a number of shares of our common stock determined by dividing the total dollar amount of the dividend payable to a participant by the market price per share of our common stock at the close of trading on the valuation date for the dividend. See “Dividend Reinvestment Plan” in the accompanying prospectus for additional information regarding our dividend reinvestment plan.
This example and the expenses in the table above should not be considered a representation of our future expenses as actual expenses (including the cost of debt, if any, and other expenses) that we may incur in the future and such actual expenses may be greater or less than those shown.
 
S-10

 
USE OF PROCEEDS
Sales of our common stock, if any, under this prospectus supplement and the accompanying prospectus may be made in transactions that are deemed to be an “at the market” offering as defined in Rule 415(a)(4) under the Securities Act, including without limitation sales made directly on or through The NASDAQ Global Select Market, sales made to or through market makers and sales made through any other existing trading market or electronic communications network, and by any other method permitted by law, including but not limited to privately negotiated transactions, which may include block trades, as we and the sales agents may agree. There is no guarantee that there will be any sales of our common stock pursuant to this prospectus supplement and the accompanying prospectus. Actual sales, if any, of our common stock under this prospectus supplement and the accompanying prospectus may be less than as set forth in this paragraph depending on, among other things, the market price of our common stock and the net asset value per share of our common stock at the time of any such sale. As a result, the actual net proceeds we receive may be more or less than the amount of net proceeds estimated in this prospectus supplement. However, the sales price per share of our common stock offered by this prospectus supplement and the accompany prospectus, less the sales agents’ commission, discount or other compensation for such sales payable under the equity distribution agreements, will not be less than the net asset value per share of our common stock at the time of such sale, unless we have received requisite approval from our stockholders and the board of directors or a committee thereof. Assuming the sale of shares of common stock having an aggregate offering price of $500,000,000, pursuant to this prospectus supplement and the accompanying prospectus, we estimate that the net proceeds would be approximately $491.0 million after deducting the sales agents’ estimated commissions of approximately $7.5 million payable by us and estimated offering expenses of approximately $1.5 million payable by us.
We expect to use the net proceeds of this offering to repay outstanding indebtedness, if any, under our $3.963 billion revolving credit facility (the “Revolving Credit Facility”) ($817 million aggregate principal amount outstanding as of April 22, 2021), the $1.525 billion revolving funding facility of our consolidated subsidiary Ares Capital CP Funding LLC (the “Revolving Funding Facility”) ($907 million aggregate principal amount outstanding as of April 22, 2021), the $725 million revolving funding facility of our consolidated subsidiary, Ares Capital JB Funding LLC (the “SMBC Funding Facility”) ($90 million aggregate principal amount outstanding as of April 22, 2021) and/or the $300 million revolving credit facility of our wholly owned subsidiary, ARCC FB Funding LLC (the “BNP Funding Facility”) (no amounts outstanding as of April 22, 2021).
The interest charged on the indebtedness incurred under the Revolving Credit Facility is based on LIBOR (one-, two-, three- or six-month) plus an applicable spread of either 1.75% or 1.875% or an “alternate base rate” ​(as defined in the agreements governing the Revolving Credit Facility) plus an applicable spread of either 0.75% or 0.875%, in each case, 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 April 22, 2021, the one-, two-, three- and six-month LIBOR was 0.11%, 0.15%, 0.18% and 0.21%, respectively. The stated maturity date for $3.763 billion of commitments under the Revolving Credit Facility is March 31, 2026 and the stated maturity date for $200 million of commitments under the Revolving Credit Facility is March 31, 2025. The interest rate charged on the indebtedness incurred under the Revolving Funding Facility is based on LIBOR plus 2.00% per annum or a “base rate” ​(as defined in the agreements governing the Revolving Funding Facility) plus 1.00% per annum. The stated maturity date of the Revolving Funding Facility is January 31, 2025 (subject to extension exercisable upon mutual consent). The interest rate charged on the indebtedness incurred under the SMBC Funding Facility is based on an applicable spread of either 1.75% or 2.00% over LIBOR or 0.75% or 1.00% over a “base rate” ​(as defined in the agreements governing the SMBC Funding Facility), in each case, determined monthly based on the amount of the average borrowings outstanding under the SMBC Funding Facility. The stated maturity date of the SMBC Funding Facility is September 10, 2024 (subject to two one-year extension options exercisable upon mutual consent). The interest rate charged on the indebtedness incurred under the BNP Funding Facility is based on an applicable spread generally between 2.65% to 3.15% over LIBOR or a “base rate” ​(as defined in the agreements governing the BNP Funding Facility), with a weighted average margin floor for all classes of advances of 2.75% during the reinvestment period and 3.25% following the reinvestment period. The stated maturity date of the BNP Funding Facility is June 11, 2025 (subject to a one-year extension option exercisable upon mutual consent).
 
S-11

 
Affiliates of the sales agents are lenders under the Revolving Credit Facility. Accordingly, affiliates of certain of the sales agents may receive more than 5% of the proceeds of this offering to the extent such proceeds are used to repay or repurchase outstanding indebtedness under the Revolving Credit Facility.
We intend to use any net proceeds from this offering that are not applied as described above for general corporate purposes, which include investing in portfolio companies in accordance with our investment objective.
Investing in portfolio companies could include investments in our investment backlog and pipeline that, as of April 22, 2021, were approximately $2.1 billion and $310 million, respectively. Please note that the consummation of any of the investments in this backlog and pipeline depends upon, among other things, one or more of the following: satisfactory completion of our due diligence investigation of the prospective portfolio company, 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.
 
S-12

 
PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS
The information required by this item is contained in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 10, 2021 and incorporated by reference herein.
 
S-13

 
CAPITALIZATION
The following table sets forth our actual capitalization at March 31, 2021. You should read this table together with “Use of Proceeds” described in this prospectus supplement and our most recent balance sheet included in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on February 10, 2021 and incorporated by reference herein.
As of March 31, 2021
(dollar amounts
in millions
except per share
amounts)
Cash and cash equivalents (including restricted cash)
$ 356
Debt(1)
Revolving Credit Facility
$ 817
Revolving Funding Facility
703
SMBC Funding Facility
BNP Funding Facility
2022 Convertible Notes
388
2024 Convertible Notes
403
2022 Notes
600
2023 Notes
750
2024 Notes
900
March 2025 Notes
600
July 2025 Notes
750
January 2026 Notes
1,150
July 2026 Notes
1,000
Total Debt
8,061
Stockholders’ Equity
Common stock, par value $0.001 per share, 600,000,000 common shares authorized, and 437,358,519 common shares issued and outstanding
Capital in excess of par value
7,914
Accumulated overdistributed earnings
(282)
Total stockholders’ equity
7,632
Total capitalization
$ 15,693
(1)
The above table reflects the principal amount of indebtedness outstanding as of March 31, 2021. As of April 22, 2021, indebtedness under the Revolving Credit Facility, the Revolving Funding Facility, the SMBC Funding Facility and the BNP Funding Facility were $817 million, $907 million, $90 million and $0, respectively. The net proceeds from this offering are expected to be used to pay down outstanding indebtedness, if any, under the Revolving Credit Facility, the Revolving Funding Facility, SMBC Funding Facility, BNP Funding Facility and/or for general corporate purposes, which include investing in portfolio companies in accordance with our investment objective. See “Use of Proceeds.”
 
S-14

 
PLAN OF DISTRIBUTION
We have entered into separate amended and restated equity distribution agreements with each of Truist Securities, Inc. and Regions Securities LLC, under which each will act as our sales agent (each, a “sales agent” and, collectively, the “sales agents”) in connection with the offer and sale of shares of our common stock pursuant to this prospectus supplement and the accompanying prospectus.
Upon written instructions from us, a sales agent will use its commercially reasonable efforts consistent with its sales and trading practices to sell, as our sales agent, shares of our common stock under the terms and subject to the conditions set forth in the respective equity distribution agreement. We will instruct each sales agent as to the amount of our common stock to be sold by it. We may instruct a sales agent not to sell shares of our common stock if the sales cannot be effected at or above the price designated by us in any instruction. The sales price per share of our common stock offered by this prospectus supplement and the accompanying prospectus, less the sales agent’s commission, discount or other compensation for such sales payable under the equity distribution agreements, will not be less than the net asset value per share of our common stock at the time of such sale, unless we have received requisite approval from our board of directors or a committee thereof, in accordance with the equity distribution agreements. We or the sales agent may suspend the offering of shares of our common stock upon proper notice and subject to other conditions. We cannot predict the number of such shares that we may sell hereby or if any such shares will be sold.
Sales of shares of our common stock, if any, under this prospectus supplement and the accompanying prospectus may be made in negotiated transactions or transactions that are deemed to be “at the market,” as defined in Rule 415(a)(4) under the Securities Act, including sales made directly on The NASDAQ Global Select Market or a similar securities exchange or sales made to or through a market maker other than on an exchange at prices related to the prevailing market prices or at negotiated prices.
The sales agent will provide written confirmation of a sale to us following the close of trading on The NASDAQ Global Select Market each trading day on which shares of our common stock are sold under the applicable equity distribution agreement. Each confirmation will include the number of shares of our common stock sold, the net proceeds to us and the compensation payable by us to the sales agent in connection with the sales.
Under the terms of the equity distribution agreements, each of the sales agents will be entitled to compensation equal to up to 1.5% of the gross sales price of the shares of our common stock sold through it as sales agents. We have agreed to pay or reimburse certain of the expenses of the sales agents. We estimate that the total expenses for the offering, excluding compensation payable to the sales agents under the terms of each equity distribution agreement, will be approximately $1.5 million.
Settlement for sales of shares of our common stock will occur on the second trading day following the date on which such sales are made, or on some other date that is agreed upon by us and the sales agent in connection with a particular transaction, in return for payment of the net proceeds to us. There is no arrangement for funds to be received in an escrow, trust or similar arrangement.
Under the terms of the equity distribution agreements, we also may sell shares of our common stock to the sales agents as principal for their own accounts at a price agreed upon at the time of sale. The sales agents may offer the common stock sold to them as principal from time to time through public or private transactions at market prices prevailing at the time of sale, at fixed prices, at negotiated prices, at various prices determined at the time of sale or at prices related to prevailing market prices. If we sell shares to a sales agent as principal, we will enter into a separate terms agreement with the applicable sales agent, setting forth the terms of such transaction, and we will describe the agreement in a separate prospectus supplement to the extent required by law.
We will report in a prospectus supplement and/or our filings under the Exchange Act, at least quarterly, the number of shares of our common stock sold through the sales agents under the equity distribution agreements and the net proceeds to us.
In connection with the sale of shares of our common stock on our behalf, the sales agents may be deemed to be an “underwriter” within the meaning of the Securities Act, and the compensation of the sales
 
S-15

 
agents may be deemed to be underwriting commissions or discounts. We have agreed to provide indemnification and contribution to the sales agents with respect to certain civil liabilities, including liabilities under the Securities Act.
If we have reason to believe that shares of our common stock are no longer an “actively-traded security” as defined under Rule 101(c)(l) of Regulation M under the Exchange we will promptly notify the sales agents and sales of shares of our common stock pursuant to the equity distribution agreements will be suspended until in our collective judgment Rule 101(c)(1) or another exemptive provision has been satisfied.
The offering of shares of our common stock pursuant to the equity distribution agreements will terminate upon the earlier of (i) the sale of all of the shares of our common stock subject to the equity distribution agreements or (ii) the termination of the equity distribution agreements as permitted therein.
Conflicts of Interest
The sales agents and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. The sales agents and their respective affiliates have provided in the past and may provide from time to time in the future in the ordinary course of their business certain commercial banking, financial advisory, investment banking and other services to Ares and its affiliates and managed funds and Ares Capital or our portfolio companies for which they have received or will be entitled to receive separate fees. In particular, the sales agents or their affiliates may execute transactions with Ares Capital or on behalf of Ares Capital, Ares or any of our or their portfolio companies, affiliates and/or managed funds. In addition, the sales agents or their affiliates may act as arrangers, underwriters or placement agents for companies whose securities are sold to or whose loans are syndicated to Ares, Ares Capital or Ares Capital Management and their affiliates and managed funds.
Affiliates of certain of the sales agents may be limited partners of private investment funds affiliated with our investment adviser, Ares Capital Management.
The sales agents or their affiliates may also trade in our securities, securities of our portfolio companies or other financial instruments related thereto for their own accounts or for the account of others and may extend loans or financing directly or through derivative transactions to Ares, Ares Capital, Ares Capital Management or any of our portfolio companies.
We may purchase securities of third parties from the sales agents or their affiliates. However, we have not entered into any agreement or arrangement regarding the acquisition of any such securities, and we may not purchase any such securities. We would only purchase any such securities if — among other things — we identified securities that satisfied our investment needs and completed our due diligence review of such securities.
After the date of this prospectus supplement, the sales agents and their affiliates may from time to time obtain information regarding specific portfolio companies or us that may not be available to the general public. Any such information is obtained by the sales agents and their affiliates in the ordinary course of their business and not in connection with this offering. In addition, the sales agents or their affiliates may develop analyses or opinions related to Ares, Ares Capital or our portfolio companies and buy or sell interests in one or more of our portfolio companies on behalf of their proprietary or client accounts and may engage in competitive activities. There is no obligation on behalf of these parties to disclose their respective analyses, opinions or purchase and sale activities regarding any portfolio company or regarding Ares Capital to our stockholders or any other persons.
In the ordinary course of their business activities, the sales agents and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The sales agents and their respective affiliates may also make investment recommendations
 
S-16

 
and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Affiliates of the sales agents serve as agents and/or lenders under our credit facilities or other debt instruments (including the Revolving Credit Facility) and may also be lenders to private investment funds managed by IHAM. SunTrust Bank, an affiliate of Truist Securities, Inc., is a syndication agent with respect to our Revolving Credit Facility. Truist Securities, Inc. is a joint bookrunner and joint lead arranger for our Revolving Credit Facility. Certain of the sales agents and their affiliates were underwriters in connection with certain of our common stock offerings, debt offerings and convertible notes offerings, for which they received customary fees.
Proceeds of the sale of shares of our common stock pursuant to this offering may be used to repay or repurchase outstanding indebtedness under the Revolving Credit Facility, the Revolving Funding Facility, the SMBC Funding Facility and/or the BNP Funding Facility. Affiliates of the sales agents are lenders under the Revolving Credit Facility. Accordingly, affiliates of certain of the sales agents may receive more than 5% of the proceeds of this offering to the extent such proceeds are used to repay or repurchase outstanding indebtedness under the Revolving Credit Facility.
The principal business address of Truist Securities, Inc. is 3333 Peachtree Road NE, Atlanta, Georgia 30326. The principal business address of Regions Securities LLC is 615 S. College Street, Suite 600, Charlotte, NC 28202.
 
S-17

 
LEGAL MATTERS
Certain legal matters in connection with the offering will be passed upon for us by Kirkland & Ellis LLP, Los Angeles, California and New York, New York, Eversheds Sutherland (US) LLP, Washington, D.C. and Venable LLP, Baltimore, Maryland. Kirkland & Ellis LLP has from time to time represented certain sales agents, Ares and Ares Capital Management on unrelated matters. Certain legal matters in connection with the offering will be passed upon for the sales agents by Freshfields Bruckhaus Deringer US LLP.
 
S-18

 
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This prospectus supplement is part of a registration statement that we have filed with the SEC. The information incorporated by reference is considered to comprise a part of this prospectus supplement. Any reports filed by us with the SEC subsequent to the date of this prospectus supplement will automatically update and, where applicable, supersede any information contained in this prospectus supplement or incorporated by reference herein.
We incorporate by reference into this prospectus supplement our filings listed below and any future filings that we may file with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, subsequent to the date of this prospectus supplement until all of the securities offered by this prospectus supplement and the accompanying prospectus have been sold or we otherwise terminate the offering of these securities; provided, however, that information “furnished” under Item 2.02 or Item 7.01 of Form 8-K or other information “furnished” to the SEC that is not deemed filed is not incorporated by reference in this prospectus supplement.
This prospectus supplement incorporates by reference the documents set forth below that have been previously filed with the SEC:




our Current Reports on Form 8-K (other than information furnished rather than filed) filed with the SEC on January 13, 2021, February 16, 2021, February 23, 2021 March 2, 2021 and April 1, 2021.
See “Available Information” in the accompanying prospectus for information on how to obtain a copy of these filings.
 
S-19

PROSPECTUS
Common Stock
Preferred Stock
Debt Securities
Subscription Rights
Warrants
Units
Ares Capital Corporation is 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 under the Investment Company Act of 1940, as amended. 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 mezzanine debt, generally in a first lien position), second lien senior secured loans and mezzanine debt, which in some cases includes an equity component. To a lesser extent, we also make preferred and/or common equity investments.
We are externally managed by our investment adviser, Ares Capital Management LLC, a subsidiary of Ares Management Corporation, a publicly traded, leading global alternative investment manager. Ares Operations LLC, a subsidiary of Ares Management Corporation, provides certain administrative and other services necessary for us to operate.
Our common stock is traded on The NASDAQ Global Select Market under the symbol “ARCC.” On September 14, 2020 the last reported sales price of our common stock on The NASDAQ Global Select Market was $14.25, per share. The net asset value per share of our common stock at June 30, 2020 (the last date prior to the date of this prospectus on which we determined net asset value) was $15.83.
Investing in our securities involves risks that are described in the “Risk Factors” section beginning on page 23 of this prospectus, including the risk of leverage.
We may offer, from time to time, in one or more offerings or series, our common stock, preferred stock, debt securities, subscription rights to purchase shares of our common stock, warrants representing rights to purchase shares of our common stock, preferred stock or debt securities, or units comprised of any combination of the foregoing, which we refer to, collectively, as the “securities.” The preferred stock, debt securities, subscription rights and warrants (including as part of a unit) offered hereby may be convertible or exchangeable into shares of our common stock. The securities may be offered at prices and on terms to be described in one or more supplements to this prospectus. In the event we offer common stock, the offering price per share of our common stock less any underwriting commissions or discounts will generally not be less than the net asset value per share of our common stock at the time we make the offering. However, we may issue shares of our common stock pursuant to this prospectus at a price per share that is less than our net asset value per share (a) in connection with a rights offering to our existing stockholders, (b) with the prior approval of the majority of our common stockholders or (c) under such circumstances as the U.S. Securities and Exchange Commission (the “SEC”) may permit. This prospectus describes some of the general terms that may apply to an offering of our securities. We will provide the specific terms of these offerings and securities in one or more supplements to this prospectus. We may also authorize one or more free writing prospectuses to be provided to you in connection with these offerings. The accompanying prospectus supplement and any related free writing prospectus may also add, update, or change information contained in this prospectus. You should carefully read this prospectus, the accompanying prospectus supplement, any related free writing prospectus and the documents incorporated by reference herein, before investing in our securities and keep them for future reference. We file annual, quarterly and current reports, proxy statements and other information with the SEC. This information is available free of charge by calling us collect at (310) 201-4200, by sending an e-mail to us at IRARCC@aresmgmt.com or on our website at www.arescapitalcorp.com. The SEC also maintains a website at www.sec.gov that contains such information. The information on the websites referred to herein is not incorporated by reference into this prospectus or the accompanying prospectus supplement.
Neither the SEC nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
This prospectus may not be used to consummate sales of securities unless accompanied by a prospectus supplement.
The date of this prospectus is September 16, 2020.

 
You should rely only on the information contained in this prospectus, the accompanying prospectus supplement, any related free writing prospectus, the documents incorporated by reference in this prospectus and the applicable prospectus supplement, or any other information to which we have referred you. We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in, or incorporated by reference in, this prospectus, the accompanying prospectus supplement or any such free writing prospectus is, or will be, accurate only as of the dates on their respective covers. Our business, financial condition, results of operations and prospects may have changed since any such date.
TABLE OF CONTENTS
Page
3
3
6
9
13
18
23
25
27
29
31
32
33
34
80
84
85
87
88
90
99
100
107
108
110
112
123
124
129
130
136
137
138
140
141
142
143
 
i

ABOUT THIS PROSPECTUS
This prospectus is part of an automatic “shelf” registration statement that we have filed with the SEC, as a “well-known seasoned issuer” as defined in Rule 405 under the Securities Act. Under the shelf registration process, we may offer, from time to time, in one or more offerings or series, our common stock, preferred stock, debt securities, subscription rights to purchase shares of our common stock, warrants representing rights to purchase shares of our common stock, preferred stock or debt securities, or units comprised of any combination of the foregoing, on terms to be determined at the time of the offering. The securities may be offered at prices and on terms described in one or more supplements to this prospectus. This prospectus provides you with a general description of the securities that we may offer. Each time we use this prospectus to offer securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. We may also authorize one or more free writing prospectuses to be provided to you that may contain material information relating to these offerings. Such prospectus supplement and/or free writing prospectus (collectively referred to hereinafter as the “prospectus supplement”) may also add, update or change information contained in this prospectus or in the documents we incorporate by reference herein. This prospectus and the prospectus supplement, together with any documents incorporated by reference herein, will include all material information relating to the applicable offering. Please carefully read this prospectus and the prospectus supplement, together with any documents incorporated by reference in this prospectus and the applicable prospectus supplement, any exhibits and the additional information described under the headings “Available Information,” “Incorporation of Certain Information By Reference,” “Prospectus Summary” and “Risk Factors” before you make an investment decision.
ii

 
PROSPECTUS SUMMARY
This summary highlights some of the information contained elsewhere in this prospectus. It is not complete and may not contain all of the information that you may want to consider. You should read carefully the more detailed information set forth under “Risk Factors” and the other information included or incorporated by reference in this prospectus and the accompanying prospectus supplement. Except where the context suggests otherwise, the terms “we,” “us,” “our,” “the Company” and “Ares Capital” refer to Ares Capital Corporation and its consolidated subsidiaries; “Ares Capital Management” and “our investment adviser” refer to Ares Capital Management LLC; “Ares Operations” and “our administrator” refer to Ares Operations LLC; and “Ares” and “Ares Management” refer to Ares Management Corporation (NYSE: ARES) and its affiliated companies (other than portfolio companies of its affiliated funds).
THE COMPANY
Overview
Ares Capital, a Maryland corporation, is a specialty finance company that is a closed-end, non-diversified management investment company. We have elected to be regulated as a business development company, or a “BDC,” under the Investment Company Act of 1940, as amended, and the rules and regulations promulgated thereunder or the “Investment Company Act.” We were founded on April 16, 2004, were initially funded on June 23, 2004 and completed our initial public offering (“IPO”) on October 8, 2004. As of June 30, 2020, we were the largest BDC in the United States with approximately $14.5 billion of total assets.
We are externally managed by our investment adviser, Ares Capital Management, a subsidiary of Ares Management, a publicly traded, leading global alternative investment manager, pursuant to our investment advisory and management agreement. Our administrator, Ares Operations, 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 U.S. middle-market companies, where we believe the supply of primary capital is limited and the investment opportunities are most attractive. However, we may from time to time invest in larger or smaller companies. We generally use the term “middle-market” to refer to companies with annual EBITDA between $10 million and $250 million. As used herein, EBITDA represents net income before net interest expense, income tax expense, depreciation and amortization.
We invest primarily in first lien senior secured loans (including “unitranche” loans, which are loans that combine both senior and mezzanine debt, generally in a first lien position), second lien senior secured loans and mezzanine debt, which in some cases includes an equity component. First and second lien senior secured loans generally are senior debt instruments that rank ahead of subordinated debt of a given portfolio company. Mezzanine debt is subordinated to senior loans and is generally unsecured. Our investments in corporate borrowers generally range between $30 million and $500 million each and investments in project finance/power generation projects generally range between $10 million and $200 million. However, the investment sizes may be more or less than these ranges and may vary based on, among other things, our capital availability, the composition of our portfolio and general micro- and macro-economic factors.
To a lesser extent, we also make preferred and/or 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.
The proportion of these types of investments will change over time given our views on, among other things, the economic and credit environment in which we are operating. In pursuit of our investment objective we generally seek to self-originate investments and lead the investment process, which may result in us making commitments with respect to indebtedness or securities of a potential portfolio company in excess of our final investment. In such situations, while we may initially agree to fund up to a certain dollar amount of an investment, we may subsequently syndicate or sell a portion of such amount (including, without limitation, to vehicles managed by our portfolio company, Ivy Hill Asset Management, L.P. (“IHAM”)), such that we are left with a smaller investment than what was reflected in our original commitment. In
 
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addition to originating investments, we may also acquire investments in the secondary market (including purchases of a portfolio of investments).
The first and second lien senior secured loans in which we invest generally have stated terms of three to 10 years and the mezzanine debt investments in which we invest generally have stated terms of up to 10 years, but the expected average life of such first and second lien loans and mezzanine debt is generally between three and seven years. However, we may invest in loans and securities with any maturity or duration. The instruments in which we invest typically are not rated by any rating agency, but we believe that if such instruments were rated, they would be below investment grade (rated lower than “Baa3” by Moody’s Investors Service, lower than “BBB−” by Fitch Ratings or lower than “BBB−” by Standard & Poor’s Ratings Services), which, under the guidelines established by these entities, is an indication of having predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. Bonds that are rated below investment grade are sometimes referred to as “high yield bonds” or “junk bonds.” We may invest without limit in debt or other securities of any rating, as well as debt or other securities that have not been rated by any nationally recognized statistical rating organization.
We believe that our investment adviser, Ares Capital Management, is able to leverage the current investment platform, resources and existing relationships of Ares Management with financial sponsors, financial institutions, hedge funds and other investment firms to provide us with attractive investment opportunities. In addition to deal flow, the Ares investment platform assists our investment adviser in analyzing, structuring and monitoring investments. Ares has been in existence for over 20 years and its partners have experience in leveraged finance, private equity, distressed debt, commercial real estate finance, investment banking and capital markets. We have access to Ares’ investment professionals and administrative professionals, who provide assistance in accounting, finance, legal, compliance, operations, information technology and investor relations.
While our primary focus is to generate current income and capital appreciation through investments in first and second lien senior secured loans and mezzanine debt and, to a lesser extent, equity securities of eligible portfolio companies, we also may invest up to 30% of our portfolio in non-qualifying assets, as permitted by the Investment Company Act. See “Regulation” below. 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.
See “Business” in our most recent Annual Report on Form 10-K for additional information about us.
Risk Factors
Investing in Ares Capital involves risks. The following is a summary of the principal risks that you should carefully consider before investing in our securities. In addition, see “Risk Factors” beginning on page 20 and in our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q incorporated by reference herein for a more detailed discussion of the principal risks as well as certain other risks you should carefully consider before deciding to invest in our securities.

The capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely affect debt and equity capital markets, which may have a negative impact on our business and operations.

Uncertainty about the financial stability of the United States, China and several countries in Europe could have a significant adverse effect on our business, financial condition and results of operations.

A failure on our part to maintain our status as a BDC may significantly reduce our operating flexibility and a failure to maintain our status as a regulated investment company (“RIC”) may subject us to additional corporate-level income taxes.

We are dependent upon certain key personnel of Ares for our future success and upon their access to other Ares investment professionals.

Our ability to grow depends on our ability to raise capital.
 
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We borrow money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing with us.

Effective on June 21, 2019, our asset coverage requirement was reduced from 200% to 150%, which may increase the risk of investing with us.

We operate in a highly competitive market for investment opportunities.

There are significant potential conflicts of interest that could impact our investment returns.

We are exposed to risks associated with changes in interest rates.

Most of our portfolio investments are not publicly traded and, as a result, the fair value of these investments may not be readily determinable. Additionally, to the extent that we need liquidity and need to sell assets, the lack of liquidity in our investments may adversely affect our business.

Our financial condition and results of operations could be negatively affected if a significant investment fails to perform as expected.

Declines in market prices and liquidity in the corporate debt markets can result in significant net unrealized depreciation of our portfolio, which in turn would reduce our net asset value.

Economic recessions or downturns, including as a result of the novel coronavirus pandemic, could impair our portfolio companies and harm our operating results.

Our investments, which are primarily in middle-market companies, may be risky and we could lose all or part of our investment.

Our portfolio companies may be highly leveraged.

Our credit ratings may not reflect all risks of an investment in our debt securities.

Our shares of common stock may trade at a price above or below net asset value. If our common stock trades at a discount to net asset value, our ability to raise capital may be limited.
Our Corporate Information
Our administrative offices are located at 2000 Avenue of the Stars, 12th Floor, Los Angeles, California 90067, telephone number (310) 201-4200, and our principal executive offices are located at 245 Park Avenue, 44th Floor, New York, New York 10167, telephone number (212) 750-7300.
 
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OFFERINGS
We may offer, from time to time, in one or more offerings or series, our common stock, preferred stock, debt securities, subscription rights to purchase shares of our common stock, warrants representing rights to purchase shares of our common stock, preferred stock or debt securities, or units comprised of any combination of the foregoing, on terms to be determined at the time of the offering. We will offer our securities at prices and on terms to be set forth in one or more supplements to this prospectus. The offering price per share of our common stock, less any underwriting commissions or discounts, generally will not be less than the net asset value per share of our common stock at the time of an offering. However, we may issue shares of our common stock pursuant to this prospectus at a price per share that is less than our net asset value per share (a) in connection with a rights offering to our existing stockholders, (b) with the prior approval of the majority of our common stockholders or (c) under such other circumstances as the SEC may permit. Any such issuance of shares of our common stock below net asset value may be dilutive to the net asset value of our common stock. See “Risk Factors — Risks Relating to Our Common Stock and Publicly Traded Notes” in our most recent Annual Report on Form 10-K as well as “Risk Factors” included in this prospectus.
We may offer our securities directly to one or more purchasers, including existing stockholders in a rights offering, through agents that we designate from time to time or to or through underwriters or dealers. The prospectus supplement relating to each offering will identify any agents or underwriters involved in the sale of our securities, and will set forth any applicable purchase price, fee, commission or discount arrangement between us and our agents or underwriters or among our underwriters or the basis upon which such amount may be calculated. See “Plan of Distribution” below. We may not sell any of our securities through agents, underwriters or dealers without delivery of a prospectus supplement describing the method and terms of the offering of our securities.
Set forth below is additional information regarding offerings of our securities:
Use of proceeds
Unless otherwise specified in a prospectus supplement, we intend to use the net proceeds from the sale of our securities for general corporate purposes, which include, among other things, (a) investing in portfolio companies in accordance with our investment objective and (b) repaying indebtedness. Each supplement to this prospectus relating to an offering will more fully identify the use of the proceeds from such offering. See “Use of Proceeds” below.
Distributions
We currently intend to pay dividends or make other distributions to our stockholders on a quarterly basis out of assets legally available for distribution. We may also pay additional dividends or make additional distributions to our stockholders from time to time. Our quarterly and additional dividends or distributions, if any, will be determined by our board of directors. For more information, see “Price Range of Common Stock and Distributions” below.
Taxation
We have elected to be treated as a RIC for U.S. federal income tax purposes. As a RIC, we generally will not pay U.S. federal corporate-level income taxes on any income and gain that we distribute to our stockholders as dividends on a timely basis. Among other things, in order to maintain our RIC status, we must meet specified source of income and asset diversification requirements and distribute annually generally an amount equal to at least 90% of our investment company taxable income, out of assets legally available for distribution. See “Risk Factors — Risks Relating to Our Business — We may be subject to additional corporate-level income taxes if we fail to maintain our status as a RIC” and “We may have difficulty paying our required distributions under applicable tax rules if we recognize income before or without receiving cash
 
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representing such income” in our most recent Annual Report on Form 10-K and “Price Range of Common Stock and Distributions” below.
Dividend reinvestment plan
We have a dividend reinvestment plan for our stockholders. This is an “opt out” dividend reinvestment plan. As a result, if we declare a cash dividend, then stockholders’ dividends will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash. Stockholders whose cash dividends are reinvested in additional shares of our common stock will be subject to the same U.S. federal, state and local tax consequences as stockholders who elect to receive their dividends in cash. See “Dividend Reinvestment Plan” below.
The NASDAQ Global Select Market symbol
“ARCC”
Anti-takeover provisions
Our board of directors is divided into three classes of directors serving staggered three-year terms. This structure is intended to provide us with a greater likelihood of continuity of management, which may be necessary for us to realize the full value of our investments. A staggered board of directors also may serve to deter hostile takeovers or proxy contests, as may certain other measures adopted by us. See “Description of Our Capital Stock” below.
Leverage
We borrow funds to make additional investments. We use this practice, which is known as “leverage,” to attempt to increase returns to our stockholders, but it involves significant risks. See “Risk Factors,” “Senior Securities” and “Regulation — Indebtedness and Senior Securities” below. We are currently allowed to borrow amounts such that our asset coverage, as calculated pursuant to the Investment Company Act, equals at least 150% after such borrowing (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). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations —  Financial Condition, Liquidity and Capital Resources” in our most recent Annual Report on Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition, Liquidity and Capital Resources” in our most recent Quarterly Report on Form 10-Q. The amount of leverage that we employ at any particular time will depend on our investment adviser’s and our board of directors’ assessments of market and other factors at the time of any proposed borrowing.
Management arrangements
Ares Capital Management serves as our investment adviser. Ares Operations serves as our administrator. For a description of Ares Capital Management, Ares Operations, Ares and our contractual arrangements with these companies, see “Business” in our most recent Annual Report on Form 10-K under the captions “Investment Advisory and Management Agreement,” and “Administration Agreement.”
Available information
We are required to file periodic reports, proxy statements and other information with the SEC. This information is available free of charge by calling us collect at (310) 201-4200, by sending an e-mail
 
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to us at IRARCC@aresmgmt.com or on our website at www.arescapitalcorp.com. Information contained on our website is not incorporated into this prospectus and you should not consider such information to be part of this prospectus. Such information is also available from the EDGAR database on the SEC’s website at www.sec.gov.
Incorporation of certain information by reference
This prospectus is part of a registration statement that we have filed with the SEC. The information incorporated by reference is considered to comprise a part of this prospectus from the date we file any such document. Any reports filed by us with the SEC subsequent to the date of this prospectus and before the date that any offering of any securities by means of this prospectus and any supplement thereto is terminated will automatically update and, where applicable, supersede any information contained in this prospectus or incorporated by reference in this prospectus. See “Incorporation of Certain Information by Reference” below.
 
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FEES AND EXPENSES
The following table is intended to assist you in understanding the costs and expenses that an investor in our common stock will bear, directly or indirectly, based on the assumptions set forth below. We caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this table contains a reference to our fees or expenses, we will pay such fees and expenses out of our net assets and, consequently, stockholders will indirectly bear such fees or expenses as investors in Ares Capital.
Stockholder transaction expenses (as a percentage of offering price):
Sales load
(1)
Offering expenses
(2)
Dividend reinvestment plan expenses
Up to $15
Transaction Fee(3)
Total stockholder transaction expenses paid
(4)
Annual expenses (as a percentage of consolidated net assets attributable to common stock)(5):
Base management fees
3.27%(6)
Income based fees and capital gains incentive fees
1.63%(7)
Interest payments on borrowed funds
4.58%(8)
Other expenses
0.79%(9)
Acquired fund fees and expenses
2.25%(10)
Total annual expenses
12.52%(11)
(1)
In the event that the securities to which this prospectus relates are sold to or through underwriters, a corresponding prospectus supplement will disclose the applicable sales load (underwriting discount or commission). Purchases of shares of our common stock on the secondary market are not subject to sales charges but may be subject to brokerage commissions or other charges. The table does not include any sales load that stockholders may have paid in connection with their purchase of shares of our common stock.
(2)
The related prospectus supplement will disclose the estimated amount of offering expenses, the offering price and the offering expenses borne by us as a percentage of the offering price.
(3)
The expenses of the dividend reinvestment plan are included in “Other expenses.” The plan administrator’s fees under the plan are paid by us. If a participant elects by notice to the plan administrator in advance of termination to have the plan administrator sell part or all of the shares held by the plan administrator in the participant’s account and remit the proceeds to the participant, the plan administrator is authorized to deduct a transaction fee of up to $15 plus a $0.12 per share fee from the proceeds. See “Dividend Reinvestment Plan” below for more information.
(4)
The related prospectus supplement will disclose the offering price and the total stockholder transaction expenses as a percentage of the offering price.
(5)
The “consolidated net assets attributable to common stock” used to calculate the percentages in this table is our average net assets of $6.9 billion for the six months ended June 30, 2020.
(6)
Our base management fee is calculated at an annual rate of 1.5% based on the average value of our total assets (other than cash or cash equivalents but including assets purchased with borrowed funds) at the end of the two most recently completed calendar quarters; provided, however, the base management fee is calculated at an annual rate of 1.0% on the average value of our total assets (other than cash or cash equivalents but including assets purchased with borrowed funds) that exceeds the product of (A) 200% and (B) our net asset value at the end of the most recently completed calendar quarter. See “Business” in our most recent Annual Report on Form 10-K under the caption “Investment Advisory and Management Agreement.”
(7)
This item represents our investment adviser’s income based fees and capital gains incentive fees estimated by annualizing income based fees for the six months ended June 30, 2020, and the capital gains incentive fee expense accrued in accordance with U.S. generally accepted accounting principles
 
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(“GAAP”) for the six months ended June 30, 2020, even though no capital gains incentive fee was actually payable under the investment advisory and management agreement as of June 30, 2020.
GAAP requires that the capital gains incentive fee accrual consider the cumulative aggregate unrealized capital appreciation in the calculation, as a capital gains incentive fee would be payable if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the Investment Company Act or the investment advisory and management agreement. This GAAP accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital depreciation included in the calculation of the capital gains incentive fee actually payable under the investment advisory and management agreement plus the aggregate cumulative unrealized capital appreciation. If such amount is positive at the end of a period, then GAAP requires us to record a capital gains incentive fee equal to 20% of such cumulative amount, less the aggregate amount of actual capital gains incentive fees paid or capital gains incentive fees accrued under GAAP in all prior periods. The resulting 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 reversal 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. There can be no assurance that such unrealized capital appreciation will be realized in the future or that the amount accrued for will ultimately be paid.
For purposes of this table, we have assumed that these fees will be payable (in the case of the capital gains incentive fee) and that they will remain constant, although they are based on our performance and will not be paid unless we achieve certain goals. We expect to invest or otherwise utilize all of the net proceeds from securities registered under the registration statement of which this prospectus is a part pursuant to a particular prospectus supplement within three months of the date of the offering pursuant to such prospectus supplement and may have capital gains and interest income that could result in the payment of these fees to our investment adviser in the first year after completion of offerings pursuant to this prospectus. Since our IPO through June 30, 2020, the average quarterly fees accrued related to income based fees and capital gains incentive fees (including capital gains incentive fees accrued under GAAP even though they may not be payable) have been approximately 0.60% of our weighted average net assets for such period (2.42% on an annualized basis). For more detailed information on the calculation of our income based fees and capital gains incentive fees, please see below. For more detailed information about income based fees and capital gains incentive fees previously incurred by us, please see Note 3 to our consolidated financial statements for the year ended December 31, 2019 and the six months ended June 30, 2020.
Income based fees are payable quarterly in arrears in an amount equal to 20% of our pre-incentive fee net investment income (including interest that is accrued but not yet received in cash), subject to a 1.75% quarterly (7.0% annualized) hurdle rate and a “catch-up” provision measured as of the end of each calendar quarter. Under this provision, in any calendar quarter, our investment adviser receives no income based fees until our net investment income equals the hurdle rate of 1.75% but then receives, as a “catch-up,” 100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.1875%. The effect of this provision is that, if pre-incentive fee net investment income exceeds 2.1875% in any calendar quarter, our investment adviser will receive 20% of our pre-incentive fee net investment income as if a hurdle rate did not apply.
Capital gains incentive fees are payable annually in arrears in an amount equal to 20% of our realized capital gains on a cumulative basis from inception through the end of the year, if any, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of capital gains incentive fees paid in all prior years.
We will defer cash payment of any income based fees and capital gains incentive fees otherwise earned by our investment adviser 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) our aggregate distributions to our stockholders and (b) our change in net assets (defined as total assets less indebtedness and before taking into account any income based fees or capital gains incentive fees accrued during the period) is less than 7.0% of our net assets (defined as total assets less indebtedness) at the beginning of such period. Any deferred
 
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income based fees and capital gains incentive fees are carried over for payment in subsequent calculation periods to the extent such payment is payable under the investment advisory and management agreement.
These calculations will be adjusted for any share issuances or repurchases.
See “Business” in our most recent Annual Report on Form 10-K under the caption “Investment Advisory and Management Agreement.”
(8)
“Interest payments on borrowed funds” represents our interest expenses estimated by annualizing our actual interest and credit facility expenses incurred for the six months ended June 30, 2020. During the six months ended June 30, 2020, our average outstanding borrowings were approximately $7.7 billion and cash paid for interest expense was $126 million. We had outstanding borrowings of approximately $7.5 billion (with a carrying value of approximately $7.4 billion) as of June 30, 2020. This item is based on the assumption that our borrowings and interest costs after an offering will remain similar to those prior to such offering. The amount of leverage that we may employ at any particular time will depend on, among other things, our investment adviser’s and our board of directors’ assessment of market and other factors at the time of any proposed borrowing. See “Risk Factors — Risks Relating to Our Business — We borrow money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing with us” in our most recent Annual Report on Form 10-K. We are currently allowed to borrow amounts such that our asset coverage, as calculated pursuant to the Investment Company Act, equals at least 150% after such borrowing (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). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition, Liquidity and Capital Resources” in our most recent Annual Report on Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition, Liquidity and Capital Resources” in our most recent Quarterly Report on Form 10-Q.
(9)
Includes our overhead expenses, including payments under our administration agreement based on our allocable portion of overhead and other expenses incurred by Ares Operations in performing its obligations under the administration agreement, and income taxes. Such expenses are estimated by annualizing actual “Other expenses” for the six months ended June 30, 2020. The holders of shares of our common stock (and not the holders of our debt securities or preferred stock, if any) indirectly bear the cost associated with our annual expenses. See “Business” in our most recent Annual Report on Form 10-K under the caption “Administration Agreement.”
(10)
Our stockholders indirectly bear the expenses of underlying funds or other investment vehicles that would be investment companies under section 3(a) of the Investment Company Act but for the exceptions to that definition provided for in sections 3(c)(1) and 3(c)(7) of the Investment Company Act (“Acquired Funds”) in which we invest. Such underlying funds or other investment vehicles are referred to in this prospectus as “Acquired Funds.” This amount is estimated based on the estimated annual fees and operating expenses of Acquired Funds in which the Company is invested as of June 30, 2020. Certain of these Acquired Funds are subject to management fees, which generally range from 1% to 2.5% of total net assets, or incentive fees, which generally range between 15% and 25% of net profits. When applicable, fees and operating expenses estimates are based on historic fees and operating expenses for the Acquired Funds. For those Acquired Funds with little or no operating history, fees and operating expenses are estimates based on expected fees and operating expenses stated in the Acquired Funds’ offering memorandum, private placement memorandum or other similar communication without giving effect to any performance. Future fees and operating expenses for these Acquired Funds may be substantially higher or lower because certain fees and operating expenses are based on the performance of the Acquired Funds, which may fluctuate over time. Also included with the amount is an estimate of the annual fees and operating expenses of the SDLP. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio and Investment Activity — Senior Direct Lending Program” and Note 4 to our consolidated financial statements in our most recent Annual Report on Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio and Investment Activity — Senior Direct Lending Program” in our most recent Quarterly Report on Form 10-Q for more information on the SDLP. The annual fees and operating expenses of the SDLP were estimated based on the funded portfolio of the SDLP as of June 30, 2020
 
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and include interest payments on the senior notes and intermediate funding notes provided by Varagon and its clients, which represent 89% of such expenses.
(11)
“Total annual expenses” as a percentage of consolidated net assets attributable to common stock are higher than the total annual expenses percentage would be for a company that is not leveraged. We borrow money to leverage and increase our total assets. The SEC requires that the “Total annual expenses” percentage be calculated as a percentage of net assets (defined as total assets less indebtedness and before taking into account any income based fees or capital gains incentive fees accrued during the period), rather than the total assets, including assets that have been funded with borrowed monies.
Example
The following example demonstrates the projected dollar amount of total cumulative expenses over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed that we would have no additional leverage, that none of our assets are cash or cash equivalents and that our annual operating expenses would remain at the levels set forth in the table above. Income based fees and the capital gains incentive fees under the investment advisory and management agreement, which, assuming a 5% annual return, would either not be payable or have an insignificant impact on the expense amounts shown below, are not included in the example, except as specifically set forth below. Transaction expenses are not included in the following example. In the event that shares to which this prospectus relates are sold to or through underwriters, a corresponding prospectus supplement will restate this example to reflect the applicable sales load.
1 year
3 years
5 years
10 years
You would pay the following expenses on a $1,000 common stock investment, assuming a 5% annual return (none of which is subject to the capital gains incentive fee)(1)
$ 112 $ 315 $ 493 $ 852
You would pay the following expenses on a $1,000 common stock investment, assuming a 5% annual return resulting entirely from net realized capital gains (all of which is subject to the capital gains incentive fee)(2)
$ 122 $ 341 $ 533 $ 912
(1)
Assumes that we will not realize any capital gains computed net of all realized capital losses and unrealized capital depreciation.
(2)
Assumes no unrealized capital depreciation and a 5% annual return resulting entirely from net realized capital gains and not otherwise deferrable under the terms of the investment advisory and management agreement and therefore subject to the capital gains incentive fee.
The foregoing table is to assist you in understanding the various costs and expenses that an investor in our common stock will bear directly or indirectly. While the example assumes, as required by the SEC, a 5% annual return, our performance will vary and may result in a return greater or less than 5%. If we were to achieve sufficient returns on our investments, including through the realization of capital gains, to trigger income based fees or capital gains incentive fees of a material amount, our expenses, and returns to our investors, would be higher. In addition, while the example assumes reinvestment of all dividends and distributions at net asset value, if our board of directors authorizes and we declare a cash dividend, participants in our dividend reinvestment plan who have not otherwise elected to receive cash will receive a number of shares of our common stock determined by dividing the total dollar amount of the dividend payable to a participant by the market price per share of our common stock at the close of trading on the valuation date for the dividend. See “Dividend Reinvestment Plan” below for additional information regarding our dividend reinvestment plan.
This example and the expenses in the table above should not be considered a representation of our future expenses as actual expenses (including the cost of debt, if any, and other expenses) that we may incur in the future and such actual expenses may be greater or less than those shown.
 
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FINANCIAL HIGHLIGHTS
The following table of financial highlights is intended to help a prospective investor understand the Company’s financial performance for the periods shown. The financial data set forth in the following table as of and for the years ended December 31, 2019, 2018, 2017, 2016, 2015, 2014, 2013, 2012, 2011 and 2010 are derived from our consolidated financial statements, which have been audited by KPMG LLP, an independent registered public accounting firm whose reports thereon are incorporated by reference in this prospectus, certain documents incorporated by reference in this prospectus or the accompanying prospectus supplement, or our Annual Reports on Form 10-K filed with the SEC, which may be obtained from www.sec.gov or upon request. The financial data set forth in the following table as of and for the six months ended June 30, 2020 is derived from our unaudited financial statements, but in the opinion of management, reflects all adjustments (consisting only of normal recurring adjustments) that are necessary to present fairly the results of such interim period. Interim results as of and for the six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. You should read these financial highlights in conjunction with our consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this prospectus, any documents incorporated by reference in this prospectus or the accompanying prospectus supplement, or our Annual Reports on Form 10-K filed with the SEC.
Per Share Data:
As of and
for the six
months ended
June 30,
2020
As of and for the year ended
December 31,
2019
December 31,
2018
December 31,
2017
December 31,
2016
Net asset value, beginning of period(1)
$ 17.32 $ 17.12 $ 16.65 $ 16.45 $ 16.46
Issuances of common stock
0.02 (0.01)
Issuances of convertible notes
0.04
Repurchases of common stock
0.09
Net investment income for period(2)
0.94 1.90 1.63 1.20 1.57
Gain on the Allied Acquisition(3)
Deemed contribution from Ares Capital Management(4)
0.13
Net realized and unrealized gains (losses) for period(2)
(1.72) (0.04) 0.38 0.36 (0.06)
Net increase (decrease) in stockholders’ equity
(0.69) 1.88 2.01 1.72 1.51
Distributions from net investment income
(0.80) (1.68) (1.54) (1.45) (1.26)
Distributions from net realized gains
(0.07) (0.26)
Total distributions to stockholders(5)
(0.80) (1.68) (1.54) (1.52) (1.52)
Net asset value at end of period(1)
$ 15.83 $ 17.32 $ 17.12 $ 16.65 $ 16.45
Per share market value at end of period
$ 14.45 $ 18.65 $ 15.58 $ 15.72 $ 16.49
Total return based on market value(6)
(18.23)% 30.49% 8.91% 4.55% 26.39%
Total return based on net asset value(7)
(5.82)% 12.14% 12.10% 10.53% 9.15%
Shares outstanding at end of period
(millions)
423 431 426 426 314
Ratio/Supplemental Data:
Net assets at end of period (millions)
$ 6,691 $ 7,467 $ 7,300 $ 7,098 $ 5,165
Ratio of operating expenses to average net assets(8)(9)
14.47% 9.92% 8.63% 9.45% 9.59%
Ratio of net investment income to average net
assets(8)(10)
18.50% 11.01% 9.60% 7.65% 9.58%
Portfolio turnover rate(8)
38% 38% 54% 51% 39%
 
13

 
Per Share Data:
As of and for the year ended
December 31,
2015
December 31,
2014
December 31,
2013
December 31,
2012
December 31,
2011
December 31,
2010
Net asset value, beginning of period(1)
$ 16.82 $ 16.46 $ 16.04 $ 15.34 $ 14.92 $ 11.44
Issuances of common stock
0.01 0.16 0.05 0.95
Issuances of convertible notes
0.04 0.27
Repurchases of common
stock
(0.01)
Net investment income for period(2)
1.62 1.43 1.61 1.52 1.38 1.23
Gain on the Allied
Acquisition(3)
1.11
Deemed contribution from Ares
Capital Management(4)
Net realized and unrealized gains
(losses) for period(2)
(0.41) 0.50 0.22 0.69 0.18 1.59
Net increase in stockholders’ equity
1.21 1.93 1.99 2.30 1.83 4.88
Distributions from net investment income
(1.56) (1.57) (1.57) (1.56) (1.16) (1.40)
Distributions from net realized gains
(0.01) (0.04) (0.25)
Total distributions to stockholders(5)
(1.57) (1.57) (1.57) (1.60) (1.41) (1.40)
Net asset value at end of period(1)
$ 16.46 $ 16.82 $ 16.46 $ 16.04 $ 15.34 $ 14.92
Per share market value at end of
period
$ 14.25 $ 15.61 $ 17.77 $ 17.50 $ 15.45 $ 16.48
Total return based on market value(6)
1.35% (3.32)% 10.51% 23.62% 2.31% 43.61%
Total return based on net asset value(7)
7.16% 11.79% 11.41% 14.34% 10.45% 31.61%
Shares outstanding at end of period (millions)
314 314 298 249 205 204
Ratio/Supplemental Data:
Net assets at end of period (millions)
$ 5,173 $ 5,284 $ 4,904 $ 3,988 $ 3,147 $ 3,051
Ratio of operating expenses to average net assets(8)(9)
9.51% 10.46% 10.03% 10.70% 10.94% 11.02%
Ratio of net investment income to average net assets(8)(10)
9.75% 8.71% 9.86% 9.62% 8.97% 9.07%
Portfolio turnover rate(8)
42% 39% 27% 45% 53% 45%
(1)
The net assets used equals the total stockholders’ equity on the consolidated balance sheet.
(2)
Weighted average basic per share data.
(3)
This amount reflects the gain on the Company’s acquisition of Allied Capital Corporation.
 
14

 
(4)
See Note 16 to our consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 12, 2020 and incorporated by reference herein, for additional information.
(5)
Includes additional dividends of (a) $0.08 per share for the year ended December 31, 2019, (b) $0.05 per share for the year ended December 31, 2015, (c) $0.05 per share for the year ended December 31, 2014, (d) $0.05 per share for the year ended December 31, 2013 and (e) $0.10 per share for the year ended December 31, 2012.
(6)
For the six months ended June 30, 2020, the total return based on market value equaled the decrease of the ending market value at June 30, 2020 of $14.45 per share from the ending market value at December 31, 2019 of $18.65 per share plus the declared and payable dividends of $0.80 per share for the six months ended June 30, 2020, divided by the market value at December 31, 2019. For the year ended December 31, 2019, the total return based on market value equaled the increase of the ending market value at December 31, 2019 of $18.65 per share from the ending market value at December 31, 2018 of $15.58 per share plus the declared and payable dividends of $1.68 per share for the year ended December 31, 2019, divided by the market value at December 31, 2018. For the year ended December 31, 2018, the total return based on market value equaled the decrease of the ending market value at December 31, 2018 of $15.58 per share from the ending market value at December 31, 2017 of $15.72 per share plus the declared and payable dividends of $1.54 per share for the year ended December 31, 2018, divided by the market value at December 31, 2017. For the year ended December 31, 2017, the total return based on market value equaled the decrease of the ending market value at December 31, 2017 of $15.72 per share from the ending market value at December 31, 2016 of $16.49 per share plus the declared and payable dividends of $1.52 per share for the year ended December 31, 2017, divided by the market value at December 31, 2016. For the year ended December 31, 2016, the total return based on market value equaled the increase of the ending market value at December 31, 2016 of $16.49 per share from the ending market value at December 31, 2015 of $14.25 per share plus the declared and payable dividends of $1.52 per share for the year ended December 31, 2016, divided by the market value at December 31, 2015. For the year ended December 31, 2015, the total return based on market value equaled the decrease of the ending market value at December 31, 2015 of $14.25 per share from the ending market value at December 31, 2014 of $15.61 per share plus the declared and payable dividends of $1.57 per share for the year ended December 31, 2015, divided by the market value at December 31, 2014. For the year ended December 31, 2014, the total return based on market value equaled the decrease of the ending market value at December 31, 2014 of $15.61 per share from the ending market value at December 31, 2013 of $17.77 per share plus the declared and payable dividends of $1.57 per share for the year ended December 31, 2014, divided by the market value at December 31, 2013. For the year ended December 31, 2013, the total return based on market value equaled the increase of the ending market value at December 31, 2013 of $17.77 per share from the ending market value at December 31, 2012 of $17.50 per share plus the declared and payable dividends of $1.57 per share for the year ended December 31, 2013, divided by the market value at December 31, 2012. For the year ended December 31, 2012, the total return based on market value equaled the increase of the ending market value at December 31, 2012 of $17.50 per share from the ending market value at December 31, 2011 of $15.45 per share plus the declared and payable dividends of $1.60 per share for the year ended December 31, 2012, divided by the market value at December 31, 2011. For the year ended December 31, 2011, the total return based on market value for the year ended December 31, 2011 equaled the decrease of the ending market value at December 30, 2011 of $15.45 per share from the ending market value at December 31, 2010 of $16.48 per share plus the declared and payable dividends of $1.41 per share for the year ended December 31, 2011, divided by the market value at December 31, 2010. For the year ended December 31, 2010, the total return based on market value for the year ended December 31, 2010 equaled the increase of the ending market value at December 31, 2010 of $16.48 per share over the ending market value at December 31, 2009 of $12.45 per share plus the declared dividends of $1.40 per share for the year ended December 31, 2010, divided by the market value at December 31, 2009. Total return based on market value is not annualized with respect to the financial highlights as of and for the fiscal years ended December 31, 2013, 2012, 2011 and 2010. The Company’s shares fluctuate in value. The Company’s performance changes over time and currently may be different than that shown. Past performance is no guarantee of future results.
 
15

 
(7)
For the six months ended June 30, 2020, the total return based on net asset value equaled the change in net asset value during the period plus the declared and payable dividends of $0.80 per share for the six months ended June 30, 2020, divided by the beginning net asset value for the period. For the year ended December 31, 2019, the total return based on net asset value equaled the change in net asset value during the period plus the declared and payable dividends of $1.68 per share for the year ended December 31, 2019, divided by the beginning net asset value for the period. For the year ended December 31, 2018, the total return based on net asset value equaled the change in net asset value during the period plus the declared and payable dividends of $1.54 per share for the year ended December 31, 2018, divided by the beginning net asset value for the period. For the year ended December 31, 2017, the total return based on net asset value equaled the change in net asset value during the period plus the declared and payable dividends of $1.52 per share for the year ended December 31, 2017, divided by the beginning net asset value for the period. For the year ended December 31, 2016, the total return based on net asset value equaled the change in net asset value during the period plus the declared and payable dividends of $1.52 per share for the year ended December 31, 2016, divided by the beginning net asset value for the period. For the year ended December 31, 2015, the total return based on net asset value equaled the change in net asset value during the period plus the declared and payable dividends of $1.57 per share for the year ended December 31, 2015, divided by the beginning net asset value for the period. For the year ended December 31, 2014, the total return based on net asset value equaled the change in net asset value during the period plus the declared and payable dividends of $1.57 per share for the year ended December 31, 2014, divided by the beginning net asset value for the period. For the year ended December 31, 2013, the total return based on net asset value equaled the change in net asset value during the period plus the declared and payable dividends of $1.57 per share for the year ended December 31, 2013, divided by the beginning net asset value for the period. For the year ended December 31, 2012, the total return based on net asset value equaled the change in net asset value during the period plus the declared and payable dividends of $1.60 per share for the year ended December 31, 2012 divided by the beginning net asset value for the period. For the year ended December 31, 2011, the total return based on net asset value equaled the change in net asset value during the period plus the declared and payable dividends of $1.41 per share for the year ended December 31, 2011 divided by the beginning net asset value for the period. For the year ended December 31, 2010, the total return based on net asset value equaled the change in net asset value during the period plus the declared dividends of $1.40 per share for the year ended December 31, 2010 divided by the beginning net asset value for the period. These calculations are adjusted for shares issued in connection with the dividend reinvestment plan, the issuance of common stock in connection with any equity offerings and the equity components of any convertible notes issued during the period, as applicable. Total return based on net asset value is not annualized with respect to the financial highlights as of and for the fiscal years ended December 31, 2013, 2012, 2011 and 2010. The Company’s performance changes over time and currently may be different than that shown. Past performance is no guarantee of future results.
(8)
The ratios reflect an annualized amount.
(9)
For the six months ended June 30, 2020, the ratio of operating expenses to average net assets consisted of 4.99% of base management fees, 1.25% of income based fees and capital gains incentive fees, 7.31% of the cost of borrowing and 0.92% of other operating expenses. For the year ended December 31, 2019, the ratio of operating expenses to average net assets consisted of 2.78% of base management fees, 2.23% of income based fees and capital gains incentive fees, net of the Fee Waiver (as defined below) (2.64% of income based fees and capital gains incentive fees excluding the Fee Waiver), 3.94% of the cost of borrowing and 0.97% of other operating expenses. For the year ended December 31, 2018, the ratio of operating expenses to average net assets consisted of 2.49% of base management fees, 2.24% of income based fees and capital gains incentive fees, net of the Fee Waiver (2.79% of income based fees and capital gains incentive fees excluding the Fee Waiver), 3.33% of the cost of borrowing and 0.57% of other operating expenses. For the year ended December 31, 2017, the ratio of operating expenses to average net assets consisted of 2.57% of base management fees, 2.18% of income based fees and capital gains incentive fees, net of the Fee Waiver (2.32% of income based fees and capital gains incentive fees excluding the Fee Waiver), 3.37% of the cost of borrowing and 1.33% of other operating expenses. For the year ended December 31, 2016, the ratio of operating expenses to average net assets consisted of 2.64% of base management fees, 2.29% of income based fees and capital gains incentive fees, 3.58% of the cost of borrowing and 1.08% of other operating expenses. For the year ended December 31, 2015,
 
16

 
the ratio of operating expenses to average net assets consisted of 2.55% of base management fees, 2.31% of income based fees and capital gains incentive fees, 4.32% of the cost of borrowing and 0.33% of other operating expenses. For the year ended December 31, 2014, the ratio of operating expenses to average net assets consisted of 2.51% of base management fees, 2.90% of income based fees and capital gains incentive fees, 4.24% of the cost of borrowing and 0.81% of other operating expenses. For the year ended December 31, 2013, the ratio of operating expenses to average net assets consisted of 2.40% of base management fees, 2.80% of income based fees and capital gains incentive fees, 3.94% of the cost of borrowing and 0.89% of other operating expenses. For the year ended December 31, 2012, the ratio of operating expenses to average net assets consisted of 2.38% of base management fees, 3.50% of income based fees and capital gains incentive fees, 3.94% of the cost of borrowing and other operating expenses of 0.88%. For the year ended December 31, 2011, the ratio of operating expenses to average net assets consisted of 2.27% of base management fees, 3.57% of income based fees and capital gains incentive fees, 3.89% of the cost of borrowing and other operating expenses of 1.21%. For the year ended December 31, 2010, the ratio of operating expenses to average net assets consisted of 2.19% of base management fees, 3.23% of income based fees and capital gains incentive fees, 3.34% of the cost of borrowing and other operating expenses of 2.27%. These ratios reflect annualized amounts. In connection with our acquisition of American Capital, Ltd., our investment adviser agreed to waive certain income based fees from us for each of the first ten calendar quarters beginning with the second quarter of 2017 and ending with the third quarter of 2019 (the “Fee Waiver”).
(10)
The ratio of net investment income to average net assets excludes income taxes related to realized gains and losses.
 
17

 
SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA OF ARES CAPITAL
The following selected financial and other data as of and for the years ended December 31, 2019, 2018, 2017, 2016 and 2015 are derived from our consolidated financial statements, which have been audited by KPMG LLP, an independent registered public accounting firm whose report thereon is incorporated by reference in this prospectus. The selected financial and other data as of and for the six months ended June 30, 2020 and June 30, 2019 and other quarterly financial information is derived from our unaudited financial statements, but in the opinion of management, reflects all adjustments (consisting only of normal recurring adjustments) that are necessary to present fairly the results of such interim periods. Interim results as of and for the six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. The data should be read in conjunction with our consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q and “Senior Securities” in our most recent Annual Report on Form 10-K.
 
18

 
ARES CAPITAL CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
As of and For the Six Months Ended June 30, 2020 and June 30, 2019 and
As of and For the Years Ended December 31, 2019, 2018, 2017, 2016 and 2015
(dollar amounts in millions, except per share data and as otherwise indicated)
As of and For the
Six Months Ended
June 30,
As of and For the Years
Ended December 31,
2020
2019
2019
2018
2017
2016
2015
(unaudited)
(unaudited)
Total Investment Income
$ 719 $ 755 $ 1,528 $ 1,337 $ 1,160 $ 1,012 $ 1,025
Total Expenses, Net of Waiver of Income Based Fees
312 338 701 624 630 497 499
Net Investment Income Before Income Taxes
407 417 827 713 530 515 526
Income Tax Expense, Including Excise Tax
8 8 16 19 19 21 18
Net Investment Income
399 409 811 694 511 494 508
Net Realized and Unrealized Gains (Losses) on Investments, Foreign Currencies and Other Transactions and Extinguishment of Debt
(734) 5 (18) 164 156 (20) (129)
Net Increase (Decrease) in Stockholders’ Equity Resulting from Operations
$ (335) $ 414 $ 793 $ 858 $ 667 $ 474 $ 379
Per Share Data:
Net Increase (Decrease) in Stockholders’ Equity Resulting from Operations:
Basic
$ (0.79) $ 0.97 $ 1.86 $ 2.01 $ 1.57 $ 1.51 $ 1.20
Diluted
$ (0.79) $ 0.97 $ 1.86 $ 2.01 $ 1.57 $ 1.51 $ 1.20
Cash Dividends Declared and Payable(1)
$ 0.80 $ 0.84 $ 1.68 $ 1.54 $ 1.52 $ 1.52 $ 1.57
Net Asset Value
$ 15.83 $ 17.27 $ 17.32 $ 17.12 $ 16.65 $ 16.45 $ 16.46
Total Assets(2)
$ 14,517 $ 13,846 $ 14,905 $ 12,895 $ 12,347 $ 9,245 $ 9,507
Total Debt (Carrying Value)(2)
$ 7,398 $ 6,024 $ 6,971 $ 5,214 $ 4,854 $ 3,874 $ 4,114
Total Debt (Principal Amount)
$ 7,488 $ 6,124 $ 7,060 $ 5,297 $ 4,943 $ 3,951 $ 4,197
Total Stockholders’ Equity
$ 6,691 $ 7,368 $ 7,467 $ 7,300 $ 7,098 $ 5,165 $ 5,173
Other Data:
Number of Portfolio Companies at Period End(3)
352 345 354 344 314 218 218
Principal Amount of Investments Purchased(4)
$ 2,713 $ 3,190 $ 6,829 $ 7,176 $ 7,263 $ 3,490 $ 3,905
Principal Amount of Investments Acquired as part of the American Capital Acquisition on January 3, 2017
$ $ $ $ $ 2,543 $ $
Principal Amount of Investments Sold and Repayments
$ 2,663 $ 2,628 $ 5,098 $ 6,440 $ 7,107 $ 3,655 $ 3,651
Total Return Based on Market Value(5)
(18.2)% 20.5% 30.5% 8.9% 4.5% 26.4% 1.3%
Total Return Based on Net Asset Value(6)
(5.8)% 5.8% 12.1% 12.1% 10.5% 9.2% 7.2%
Weighted Average Yield of Debt and Other Income Producing Securities at Fair Value(7)
9.3% 10.5% 9.7% 10.3% 9.8% 9.4% 10.3%
Weighted Average Yield of Debt and Other Income Producing Securities at Amortized Cost(7)
8.9% 10.4% 9.6% 10.2% 9.7% 9.3% 10.1%
Weighted Average Yield of Total Investments at Fair Value(8)
8.3% 9.5% 8.7% 9.3% 8.7% 8.5% 9.2%
Weighted Average Yield of Total Investments at Amortized
Cost(8)
7.7% 9.2% 8.6% 9.0% 8.7% 8.3% 9.1%
 
19

 
(1)
Includes an additional dividend of $0.04 per share paid in the six months ended June 30, 2019, an additional $0.08 per share paid in the year ended December 31, 2019 and an additional dividend of $0.05 per share paid in the year ended December 31, 2015.
(2)
Certain prior year amounts have been reclassified to conform to the 2016 presentation. In particular, unamortized debt issuance costs were previously included in other assets and were reclassified to long-term debt as a result of the adoption of Accounting Standards Update (“ASU”) 2015-03, Interest — Imputation of Interest (Topic 835): Simplifying the Presentation of Debt Issuance Costs, during the first quarter of 2016.
(3)
Includes commitments to portfolio companies for which funding had yet to occur.
(4)
Excludes $2.5 billion of investments acquired as part of the American Capital Acquisition on January 3, 2017.
(5)
For the six months ended June 30, 2020, the total return based on market value equaled the decrease of the ending market value at June 30, 2020 of $14.45 per share from the ending market value at December 31, 2019 of $18.65 per share plus the declared and payable dividends of $0.80 per share for the six months ended June 30, 2020, divided by the market value at December 31, 2019. For the six months ended June 30, 2019, the total return based on market value equaled the increase of the ending market value at June 30, 2019 of $17.94 per share from the ending market value at December 31, 2018 of $15.58 per share plus the declared and payable dividends of $0.84 per share for the six months ended June 30, 2019, divided by the market value at December 31, 2018. For the year ended December 31, 2019, the total return based on market value equaled the increase of the ending market value at December 31, 2019 of $18.65 per share from the ending market value at December 31, 2018 of $15.58 per share plus the declared and payable dividends of $1.68 per share for the year ended December 31, 2019, divided by the market value at December 31, 2018. For the year ended December 31, 2018, the total return based on market value equaled the decrease of the ending market value at December 31, 2018 of $15.58 per share from the ending market value at December 31, 2017 of $15.72 per share plus the declared and payable dividends of $1.54 per share for the year ended December 31, 2018, divided by the market value at December 31, 2017. For the year ended December 31, 2017, the total return based on market value equaled the decrease of the ending market value at December 31, 2017 of $15.72 per share from the ending market value at December 31, 2016 of $16.49 per share plus the declared and payable dividends of $1.52 per share for the year ended December 31, 2017, divided by the market value at December 31, 2016. For the year ended December 31, 2016, the total return based on market value equaled the increase of the ending market value at December 31, 2016 of $16.49 per share from the ending market value at December 31, 2015 of $14.25 per share plus the declared and payable dividends of $1.52 per share for the year ended December 31, 2016, divided by the market value at December 31, 2015. For the year ended December 31, 2015, the total return based on market value equaled the decrease of the ending market value at December 31, 2015 of $14.25 per share from the ending market value at December 31, 2014 of $15.61 per share plus the declared and payable dividends of $1.57 per share for the year ended December 31, 2015, divided by the market value at December 31, 2014. Our shares fluctuate in value. Our performance changes over time and currently may be different than that shown. Past performance is no guarantee of future results.
(6)
For the six months ended June 30, 2020, the total return based on net asset value equaled the change in net asset value during the period plus the declared and payable dividends of $0.80 per share for the six months ended June 30, 2020, divided by the beginning net asset value for the period. For the six months ended June 30, 2019, the total return based on net asset value equaled the change in net asset value during the period plus the declared and payable dividends of $0.84 per share for the six months ended June 30, 2019, divided by the beginning net asset value for the period. For the year ended December 31, 2019, the total return based on net asset value equaled the change in net asset value during the period plus the declared and payable dividends of $1.68 per share for the year ended December 31, 2019, divided by the beginning net asset value for the period. For the year ended December 31, 2018, the total return based on net asset value equaled the change in net asset value during the period plus the declared and payable dividends of $1.54 per share for the year ended December 31, 2018, divided by the beginning net asset value for the period. For the year ended December 31, 2017, the total return based on net asset value equaled the change in net asset value
 
20

 
during the period plus the declared and payable dividends of $1.52 per share for the year ended December 31, 2017, divided by the beginning net asset value for the period. For the year ended December 31, 2016, the total return based on net asset value equaled the change in net asset value during the period plus the declared and payable dividends of $1.52 per share for the year ended December 31, 2016, divided by the beginning net asset value for the period. For the year ended December 31, 2015, the total return based on net asset value equaled the change in net asset value during the period plus the declared and payable dividends of $1.57 per share for the year ended December 31, 2015, divided by the beginning net asset value for the period. These calculations are adjusted for shares issued in connection with the dividend reinvestment plan and the issuance of common stock in connection with any equity offerings and the equity components of any convertible notes issued during the period. Our performance changes over time and currently may be different than that shown. Past performance is no guarantee of future results.
(7)
“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, divided by (b) the total accruing debt and other income producing securities at amortized cost or at fair value, as applicable.
(8)
“Weighted average yield on total investments” 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, divided by (b) the total investments at amortized cost or at fair value, as applicable.
 
21

 
SELECTED QUARTERLY DATA (Unaudited)
(dollar amounts in millions, except per share data)
2020
Q2
Q1
Total investment income
$ 350 $ 369
Net investment income before net realized and unrealized gains and income based fees and capital gains incentive fees, net of waiver of income based fees
$ 206 $ 220
Income based fees and capital gains incentive fees, net of waiver of income based fees
$ 41 $ (14)
Net investment income before net realized and unrealized gains (losses)
$ 165 $ 234
Net realized and unrealized gains (losses)
$ 112 $ (846)
Net increase (decrease) in stockholders’ equity resulting from operations
$ 277 $ (612)
Basic and diluted earnings per common share
$ 0.65 $ (1.42)
Net asset value per share as of the end of the quarter
$ 15.83 $ 15.58
2019
Q4
Q3
Q2
Q1
Total investment income
$ 386 $ 387 $ 382 $ 373
Net investment income before net realized and unrealized gains and income based fees and capital gains incentive fees, net of waiver of income based fees
$ 241 $ 243 $ 246 $ 241
Income based fees and capital gains incentive fees, net of waiver of income based fees
$ 51 $ 31 $ 38 $ 40
Net investment income before net realized and unrealized gains (losses)
$ 190 $ 212 $ 208 $ 201
Net realized and unrealized gains (losses)
$ 14 $ (37) $ (8) $ 13
Net increase in stockholders’ equity resulting from operations
$ 204 $ 175 $ 200 $ 214
Basic and diluted earnings per common share
$ 0.48 $ 0.41 $ 0.47 $ 0.50
Net asset value per share as of the end of the quarter
$ 17.32 $ 17.26 $ 17.27 $ 17.21
2018
Q4
Q3
Q2
Q1
Total investment income
$ 345 $ 342 $ 333 $ 317
Net investment income before net realized and unrealized gains and income based fees and capital gains incentive fees, net of waiver of income based fees
$ 229 $ 225 $ 210 $ 192
Income based fees and capital gains incentive fees, net of waiver of income based fees
$ 26 $ 40 $ 48 $ 48
Net investment income before net realized and unrealized gains (losses)
$ 203 $ 185 $ 162 $ 144
Net realized and unrealized gains (losses)
$ (50) $ 24 $ 92 $ 98
Net increase in stockholders’ equity resulting from operations
$ 153 $ 209 $ 254 $ 242
Basic and diluted earnings per common share
$ 0.36 $ 0.49 $ 0.60 $ 0.57
Net asset value per share as of the end of the quarter
$ 17.12 $ 17.16 $ 17.05 $ 16.84
 
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RISK FACTORS
You should carefully consider the risk factors described below, and in the section titled “Risk Factors” in the applicable prospectus supplement and any related free writing prospectus, and the risks discussed in the section titled “Item 1A. Risk Factors” in our Annual Report on Form 10-K, the section titled “Item 1A. Risk Factors,” which are incorporated by reference herein, in our most recent Quarterly Report on Form 10-Q, which are incorporated by reference herein, and any subsequent filings we have made with the SEC that are incorporated by reference into this prospectus or any prospectus supplement, together with all of the other information included in this prospectus, the accompanying prospectus supplement and any documents incorporated by reference herein, including our consolidated financial statements and the related notes thereto, before you decide whether to make an investment in our securities. The risks set out below and described in such documents are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. If any of the following events occur, our business, financial condition and results of operations could be materially adversely affected. In such case, the net asset value of our common stock and the trading price, if any, of our securities could decline, and you may lose all or part of your investment.
Investors in offerings of our common stock will likely incur immediate dilution upon the closing of such offering.
We generally expect the public offering price of any offering of shares of our common stock to be higher than the book value per share of our outstanding common stock (unless we offer shares pursuant to a rights offering or after obtaining prior approval for such issuance from our stockholders and our independent directors). Accordingly, investors purchasing shares of our common stock in offerings pursuant to this prospectus may pay a price per share that exceeds the tangible book value per share after such offering.
Your interest in us may be diluted if you do not fully exercise your subscription rights in any rights offering. In addition, if the subscription price is less than our net asset value per share, then you will experience an immediate dilution of the aggregate net asset value of your shares.
In the event we issue subscription rights, stockholders who do not fully exercise their subscription rights should expect that they will, at the completion of a rights offering pursuant to this prospectus, own a smaller proportional interest in us than would otherwise be the case if they fully exercised their rights. We cannot state precisely the amount of any such dilution in share ownership because we do not know at this time what proportion of the shares will be purchased as a result of such rights offering.
In addition, if the subscription price is less than the net asset value per share of our common stock, then our stockholders would experience an immediate dilution of the aggregate net asset value of their shares as a result of the offering. The amount of any decrease in net asset value is not predictable because it is not known at this time what the subscription price and net asset value per share will be on the expiration date of a rights offering or what proportion of the shares will be purchased as a result of such rights offering. Such dilution could be substantial. See “Risk Factors — Risks Relating to Our Common Stock and Publicly Traded Notes — The net asset value per share of our common stock may be diluted if we sell shares of our common stock in one or more offerings at prices below the then current net asset value per share of our common stock or securities to subscribe for or convertible into shares of our common stock” in our most recent Annual Report on Form 10-K and “Sales of Common Stock Below Net Asset Value” below.
We may initially invest a portion of the net proceeds of offerings pursuant to this prospectus primarily in high-quality short-term investments, which will generate lower rates of return than those expected from the interest generated on first and second lien senior secured loans and mezzanine debt.
We may initially invest a portion of the net proceeds of offerings pursuant to this prospectus primarily in cash, cash equivalents, U.S. government securities and other high-quality short-term investments. These securities generally earn yields substantially lower than the income that we anticipate receiving once we are fully invested in accordance with our investment objective. As a result, we may not, for a time, be able to achieve our investment objective and/or we may need to, for a time, decrease the amount of any dividend that
 
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we may pay to our stockholders to a level that is substantially lower than the level that we expect to pay when the net proceeds of offerings are fully invested in accordance with our investment objective. If we do not realize yields in excess of our expenses, we may incur operating losses and the market price of our shares may decline.
Our stockholders may receive shares of our common stock as dividends, which could result in adverse cash flow consequences to them.
In order to satisfy the Annual Distribution Requirement applicable to RICs, we have the ability to declare a large portion of a dividend in shares of our common stock instead of in cash. As long as a portion of such dividend is paid in cash (which portion could be as low as 20% (or 10% for distributions made on or before December 31, 2020)) and certain requirements are met, the entire distribution would be treated as a dividend for U.S. federal income tax purposes. As a result, a stockholder would be taxed on 100% of the fair market value of the shares received as part of the dividend on the date a stockholder received it in the same manner as a cash dividend, even though most of the dividend was paid in shares of our common stock.
We cannot predict how tax reform legislation will affect us, our investments, or our stockholders, and any such legislation could adversely affect our business.
Legislative or other actions relating to taxes could have a negative effect on us. The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service (“IRS”) and the U.S. Treasury Department. In December 2017, the U.S. House of Representatives and U.S. Senate passed tax reform legislation the Tax Cuts and Jobs Act, which the President signed into law. Such legislation has made many changes to the Code, including significant changes to the taxation of business entities, the deductibility of interest expense, and the tax treatment of capital investment. We cannot predict with certainty how any changes in the tax laws might affect us, our stockholders, or our portfolio investments. New legislation and any U.S. Treasury regulations, administrative interpretations or court decisions interpreting such legislation could significantly and negatively affect our ability to qualify for tax treatment as a RIC or the U.S. federal income tax consequences to us and our stockholders of such qualification, or could have other adverse consequences. Stockholders are urged to consult with their tax advisor regarding tax legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in our securities.
 
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FORWARD-LOOKING STATEMENTS
Some of the statements included or incorporated by reference in this prospectus and the accompanying prospectus supplement, constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained in this prospectus and the accompanying prospectus supplement, including the documents we incorporate by reference herein and therein, 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 global health epidemics, such as the current novel coronavirus pandemic, on our or our portfolio companies’ business and the global economy;

the impact of a protracted decline in the liquidity of credit markets on our business;

the impact of the elimination of the London Interbank Offered Rate (“LIBOR”) on our operating results;

the impact of fluctuations in interest rates on our business;

the impact of changes in laws or regulations (including the interpretation thereof), including the Tax Cuts and Jobs Act and the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), governing our operations or the operations of our portfolio companies or the operations of our competitors;

the expiration of the SEC exemptive order allowing co-investments with certain other funds managed by the investment adviser or its affiliates;

the valuation of our investments in portfolio companies, particularly those having no liquid trading market;

our ability to recover unrealized losses;

our ability to successfully invest any capital raised in an offering;

market conditions and our ability to access alternative 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, including parties to our co-investment program;

the general economy and its impact on the industries in which we invest;

uncertainty surrounding the financial stability of the United States, Europe and China;

the social, geopolitical, financial, trade and legal implications of Brexit;

Middle East turmoil and the potential for volatility in energy prices and its impact on the industries in which we invest;

the financial condition of our current and prospective portfolio companies and their ability to achieve their objectives;

our expected financings and investments;

our ability to successfully complete and integrate any acquisitions;

the outcome and impact of any litigation;

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; and

the ability of our investment adviser to locate suitable investments for us and to monitor and administer our investments.
 
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We use words such as “anticipates,” “believes,” “expects,” “intends,” “will,” “should,” “may” and similar expressions to identify forward-looking statements, although not all forward-looking statements include these words. 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 “Risk Factors” and the other information included in this prospectus and the accompanying prospectus supplement, including the documents we incorporate by reference herein and therein.
You should not place undue reliance on these forward-looking statements, which are based on information available to us as of the date of this prospectus or the prospectus supplement, as applicable, including any documents incorporated by reference. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.
 
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USE OF PROCEEDS
Unless otherwise specified in a prospectus supplement, we intend to use the net proceeds from the sale of our securities for general corporate purposes, which include investing in portfolio companies in accordance with our investment objective. We also expect to use the net proceeds of an offering to repay or repurchase outstanding indebtedness, if any, which may include indebtedness ($7.4 billion aggregate principal amount outstanding as of August 31, 2020) under (a) our $3.617 billion revolving credit facility (the “Revolving Credit Facility”) ($1.1 billion outstanding as of August 31, 2020), (b) the $1.525 billion revolving funding facility of our consolidated subsidiary Ares Capital CP Funding LLC (the “Revolving Funding Facility”) ($613 million outstanding as of August 31, 2020), (c) the $725 million revolving funding facility of our consolidated subsidiary, Ares Capital JB Funding LLC (the “SMBC Funding Facility”) ($363 million outstanding as of August 31, 2020), (d) the $300 million revolving credit facility of our wholly owned subsidiary, ARCC FB Funding LLC (the “BNP Funding Facility”) (no amounts outstanding as of August 31, 2020) (e) our $388 million in aggregate principal amount of unsecured convertible notes that mature on February 1, 2022 (the “2022 Convertible Notes”) ($388 million aggregate principal amount outstanding as of August 31, 2020), (f) our $403 million in aggregate amount of unsecured convertible notes that mature on March 1, 2024 (the “2024 Convertible Notes” and together with the 2022 Convertible Notes, the “Convertible Unsecured Notes”)) ($403 million aggregate principal amount outstanding as of August 31, 2020), (g) our $600 million in aggregate principal amount of unsecured notes that mature on January 19, 2022 (the “2022 Notes”) ($600 million aggregate principal amount outstanding as of August 31, 2020), (h) our $750 in aggregate principal amount of unsecured notes that mature on February 10, 2023 (the “2023 Notes”) ($750 million aggregate principal amount outstanding as of August 31, 2020), (i) our $900 million aggregate principal amount of unsecured notes that mature on June 10, 2024 (the “2024 Notes”) ($900 million aggregate principal amount outstanding as of August 31, 2020), (j) our $600 million aggregate principal amount of unsecured notes that mature on March 1, 2025 (the “March 2025 Notes”) ($600 million aggregate principal amount outstanding as of August 31, 2020), (k) our $750 million aggregate principal amount of unsecured notes that mature on July 15, 2025 (the “July 2025 Notes”) ($750 million aggregate principal amount outstanding as of August 31, 2020, (l) our $750 million aggregate principal amount of unsecured notes that mature on January 25, 2026 (the “2026 Notes”) and (m) our $230 million in aggregate principal amount of unsecured notes that mature on April 15, 2047 (the “2047 Notes” and together with the 2022 Notes, the 2023 Notes, the 2024 Notes, the March 2025 Notes, July 2025 Notes and 2026 Notes, the “Unsecured Notes”) ($230 million aggregate principal amount outstanding as of August 31, 2020). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.
The interest charged on the indebtedness incurred under the Revolving Credit Facility is based on LIBOR (one-, two-, three- or six-month) plus an applicable spread of either 1.75% or 1.875% or an “alternate base rate” ​(as defined in the agreements governing the Revolving Credit Facility) plus an applicable spread of either 0.75% or 0.875%, in each case, 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 July 29, 2020, the one-, two-, three- and six-month LIBOR was 0.16%, 0.21%, 0.26% and 0.32%, respectively. The stated maturity date for $3.45 billion of commitments under the Revolving Credit Facility is March 30, 2025 and the stated maturity date for $171 million of commitments under the Revolving Credit Facility is March 30, 2024. The interest rate charged on the indebtedness incurred under the Revolving Funding Facility is based on LIBOR plus 2.00% per annum or a “base rate” ​(as defined in the agreements governing the Revolving Funding Facility) plus 1.00% per annum. The stated maturity date of the Revolving Funding Facility is January 31, 2025 (subject to extension exercisable upon mutual consent). The interest rate charged on the indebtedness incurred under the SMBC Funding Facility is based on an applicable spread of either 1.75% or 2.00% over LIBOR or 0.75% or 1.00% over a “base rate” ​(as defined in the agreements governing the SMBC Funding Facility), in each case, determined monthly based on the amount of the average borrowings outstanding under the SMBC Funding Facility. The stated maturity date of the SMBC Funding Facility is September 10, 2024 (subject to two one-year extension options exercisable upon mutual consent). The interest rate charged on the indebtedness incurred under the BNP Funding Facility is based on an applicable spread generally between 2.65% to 3.15% over LIBOR or a “base rate” ​(as defined in the agreements governing the BNP Funding Facility), with a weighted average margin floor for all classes of advances of 2.75% during the reinvestment
 
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period and 3.25% following the reinvestment period. The stated maturity date of the BNP Funding Facility is June 11, 2025 (subject to a one-year extension option exercisable upon mutual consent).
The interest charged on the Convertible Unsecured Notes and the Unsecured Notes is as follows: (a) 3.75% in the case of the 2022 Convertible Notes, (b) 4.625% in the case of the 2024 Convertible Notes, (c) 3.625% in the case of the 2022 Notes, (d) 3.500% in the case of the 2023 Notes, (e) 4.250% in the case of the March 2025 Notes, (f) 3.250% in the case of the July 2025 Notes, (g) 3.875% in the case of the 2026 Notes and (h) 6.875% in the case of the 2047 Notes. The 2022 Convertible Notes and the 2024 Convertible Notes mature on February 1, 2022 and March 1, 2024, respectively. The 2022 Notes, the 2023 Notes, the March 2025 Notes, the July 2025 Notes, the 2026 Notes and the 2047 Notes mature on January 19, 2022, February 10, 2023, March 1, 2025, July 15, 2025, January 15, 2026 and April 15, 2047, respectively. The supplement to this prospectus relating to an offering may more fully identify the use of the proceeds from such offering.
We anticipate that substantially all of the net proceeds of an offering of securities pursuant to this prospectus and its related prospectus supplement will be used for the above purposes within three months of any such offering, depending on the availability of appropriate investment opportunities consistent with our investment objective, but no longer than within six months of any such offerings.
While our primary focus is to generate current income and capital appreciation through investments in first and second lien senior secured loans and mezzanine debt and, to a lesser extent, equity securities of eligible portfolio companies, we also may invest up to 30% of our portfolio in non-qualifying assets, as permitted by the Investment Company Act. See “Regulation” below. 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. Pending such investments, we will invest a portion of the net proceeds primarily in cash, cash equivalents, U.S. government securities and other high-quality short-term investments. These securities generally earn yields substantially lower than the income that we anticipate receiving once we are fully invested in accordance with our investment objective. As a result, we may not, for a time, be able to achieve our investment objective and/or we may need to, for a time, decrease the amount of any dividend that we may pay to our stockholders to a level that is substantially lower than the level that we expect to pay when the net proceeds of offerings are fully invested in accordance with our investment objective. If we do not realize yields in excess of our expenses, we may incur operating losses and the market price of our common stock and debt securities may decline. See “Regulation — Temporary Investments” below for additional information about temporary investments we may make while waiting to make longer-term investments in pursuit of our investment objective.
 
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PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS
Our common stock is traded on The NASDAQ Global Select Market under the symbol “ARCC.” Our common stock has historically traded at prices both above and below our net asset value per share. It is not possible to predict whether our common stock will trade at, above or below net asset value. See “Risk Factors — Risks Relating to Our Common Stock and Publicly Traded Notes — Our shares of common stock have traded at a discount from net asset value and may do so again in the future, which could limit our ability to raise additional equity capital” in our most recent Annual Report on Form 10-K.
The following table sets forth, for the first two quarters of the year ending December 31, 2020 and each fiscal quarter for the fiscal years ended December 31, 2019 and 2018, 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 September 14, 2020, the last reported closing sales price of our common stock on The NASDAQ Global Select Market was $14.25 per share, which represented a discount of approximately 9.98% to the net asset value per share reported by us as of June 30, 2020.
Net
Asset
Value(1)
Price Range
High
Sales Price
Premium
(Discount)
to Net Asset
Value(2)
Low
Sales Price
Premium
(Discount)
to Net Asset
Value(2)
Cash
Dividend
Per
Share(3)
High
Low
Year ended December 31, 2018
First Quarter
$ 16.84 $ 16.28 $ 15.25 (3.33)% (9.44)% $ 0.38
Second Quarter
$ 17.05 $ 17.09 $ 15.90 0.23% (6.75)% $ 0.38
Third Quarter
$ 17.16 $ 17.51 $ 16.45 2.04% (4.14)% $ 0.39
Fourth Quarter
$ 17.12 $ 17.58 $ 14.71 2.69% (14.08)% $ 0.39
Year ended December 31, 2019
First Quarter
$ 17.21 $ 17.48 $ 15.28 1.57% (11.21)% $ 0.48(4)
Second Quarter
$ 17.27 $ 18.12 $ 17.22 4.92% (0.29)% $ 0.40
Third Quarter
$ 17.26 $ 19.19 $ 17.99 11.18% 4.23% $ 0.40
Fourth Quarter
$ 17.32 $ 19.02 $ 18.10 9.82% 4.50% $ 0.40
Year ended December 31, 2020
First Quarter
$ 15.58 $ 19.23 $ 8.08 23.43% (48.14)% $ 0.40
Second Quarter
$ 15.83 $ 16.20 $ 9.13 2.34% (42.32)% $ 0.40
Third Quarter (through September 14, 2020)
* $ 15.02 $ 13.66 * * $ 0.40
(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.
(4)
Consists of a quarterly dividend of $0.40 per share and additional dividends of $0.02 per share, all of which were declared in the first quarter of 2019, paid on March 29, 2019, June 28, 2019, September 30, 2019 and December 27, 2019 to stockholders of record as of March 15, 2019, June 14, 2019, September 16, 2019 and December 16, 2019, respectively, subject to the satisfaction of certain Maryland Law requirements.
*
Net asset value has not yet been calculated for this period.
We currently intend to distribute dividends or make distributions to our stockholders on a quarterly basis out of assets legally available for distribution. We may also distribute additional dividends or make
 
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additional distributions to our stockholders from time to time. Our quarterly and additional dividends or distributions, if any, will be determined by our board of directors.
The following table summarizes our dividends or distributions declared and payable for the fiscal years ended December 31, 2018 and 2019 and the first three quarters of the year ending December 31, 2020:
Date Declared
Record Date
Payment Date
Amount
February 13, 2018
March 15,2018 March 30,2018 $ 0.38
May 2, 2018
June 15,2018 June 29,2018 $ 0.38
August 1, 2018
September 14,2018 September 28,2018 $ 0.39
October 31, 2018
December 14,2018 December 28,2018 $ 0.39
Total dividends declared and payable for 2018
$ 1.54
February 12, 2019
March 15,2019 March 29,2019 $ 0.40
February 12, 2019
March 15,2019 March 29,2019 $ 0.02(1)
February 12, 2019
June 14,2019 June 28,2019 $ 0.02(1)
February 12, 2019
September 16,2019 September 30,2019 $ 0.02(1)
February 12, 2019
December 16,2019 December 27,2019 $ 0.02(1)
April 30, 2019
June 14,2019 June 28,2019 $ 0.40
July 30, 2019
September 16,2019 September 30,2019 $ 0.40
October 30, 2019
December 16,2019 December 30,2019 $ 0.40
Total dividends declared and payable for 2019
$ 1.68
February 12, 2020
March 16,2020 March 31,2020 $ 0.40
May 5, 2020
June 15,2020 June 30,2020 $ 0.40
August 4, 2020
September 15,2020 September 30,2020 $ 0.40
Total dividends declared and payable for 2020
$ 1.20
(1)
Represents an additional dividend.
Of the $1.68 per share in dividends declared and payable for the year ended December 31, 2019, $1.68 per share was comprised of ordinary income and no amounts were comprised of long-term capital gains. Of the $1.54 per share in dividends declared and payable for the year ended December 31, 2018, $1.54 per share was comprised of ordinary income and no amounts were comprised of long-term capital gains.
To maintain our RIC status under the Code, we must timely distribute an amount equal to at least 90% of our investment company taxable income (as defined by the Code, which generally includes net ordinary income and net short term capital gains) to our stockholders. In addition, we generally will be required to pay an excise tax equal to 4% on certain undistributed taxable income unless we distribute in a timely manner an amount at least equal to the sum of (i) 98% of our ordinary income recognized during a calendar year, (ii) 98.2% of our capital gain net income, as defined by the Code, recognized for the one year period ending October 31st in that calendar year, and (iii) any income recognized, but not distributed, in preceding years (to the extent that income tax was not imposed on such amounts). The taxable income on which we pay excise tax is generally distributed to our stockholders in the next tax year. Depending on the level of taxable income earned in a tax year, we may choose to carry forward such taxable income for distribution in the following year, and pay any applicable excise tax. For the three and six months ended June 30, 2020, we recorded a net excise tax expense of $3 million and $7 million, respectively. For the years ended December 31, 2019 and 2018, we recorded a net excise tax expense of $15 million and $14 million, respectively. We cannot assure you that we will achieve results that will permit the payment of any cash distributions. We maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a cash dividend, stockholders’ cash dividends will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash dividends. See “Dividend Reinvestment Plan” below.
 
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information contained under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our most recent Annual Report on Form 10-K and of our most recent Quarterly Report on Form 10-Q are incorporated by reference herein.
 
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SENIOR SECURITIES
Information about our senior securities (including preferred stock, debt securities and other indebtedness) as of the end of the last ten fiscal years is located in “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of our most recent Annual Report on Form 10-K, which is incorporated by reference herein. The report of our independent registered public accounting firm on the senior securities table as of December 31, 2019 is included in our most recent Annual report on Form 10-K and is incorporated by reference herein.
 
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BUSINESS
The information contained under the caption “Business” of our most recent Annual Report on Form 10-K is incorporated by reference herein.
 
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PORTFOLIO COMPANIES
The following table describes each of the businesses included in our portfolio and reflects data as of June 30, 2020. Percentages shown for class of investment securities held by us represent percentage of the class owned and do not necessarily represent voting ownership. Percentages shown for equity securities, other than warrants or options, represent the actual percentage of the class of security held before dilution. Percentages shown for warrants and options held represent the percentage of class of security we may own assuming we exercise our warrants or options before dilution.
We have indicated by footnote portfolio companies (a) where we directly or indirectly own more than 25% of the outstanding voting securities of such portfolio company and, therefore, are presumed to be “controlled” by us under the Investment Company Act and (b) where we directly or indirectly own 5% to 25% of the outstanding voting securities of such portfolio company or where we hold one or more seats on the portfolio company’s board of directors and, therefore, are deemed to be an “affiliated person” under the Investment Company Act. We directly or indirectly own less than 5% of the outstanding voting securities of all other portfolio companies (or have no other affiliations with such portfolio companies) listed on the table. We offer to make significant managerial assistance to certain of our portfolio companies. Where we do not hold a seat on the portfolio company’s board of directors, we may receive rights to observe such board meetings.
Where we have indicated by footnote the amount of undrawn commitments to portfolio companies to fund various revolving and delayed draw senior secured and subordinated loans, such undrawn commitments are presented net of (i) standby letters of credit treated as drawn commitments because they are issued and outstanding, (ii) commitments substantially at our discretion and (iii) commitments that are unavailable due to borrowing base or other covenant restrictions.
 
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PORTFOLIO COMPANIES
As of June 30, 2020
(dollar amounts in millions)
(Unaudited)
Issuer
Business Description
Investment
Interest(1)
Maturity Date
% of
Class
Held at
6/30/2020
Fair Value
1A Smart Start, LLC
500 E Dallas Road
Suite 100
Grapevine, TX 76051
Provider of ignition interlock devices First lien senior secured
revolving loan
5.62% (Libor + 4.50%/Q)
8/21/2020
3.4(6)
42 North Dental, LLC (fka Gentle Communications, LLC)
200 5th Avenue
Suite 3
Waltham, MA 02451
Dental services provider
First lien senior secured
revolving loan
8.50% (Base Rate + 5.25%/Q)
5/27/2022
3.0(7)
First lien senior secured
revolving loan
7.57% (Libor + 6.25%/Q)
5/27/2022
1.6(7)
A.U.L. Corp.
1250 Main Street
Suite 300
Napa, CA 94559
Provider of vehicle service contracts and limited warranties for passenger vehicles
First lien senior secured
revolving loan
6/5/2023
(8)
Absolute Dental Management LLC
and ADM Equity, LLC
526 South Tonopah Drive
Suite 200
Las Vegas, NV 89106
Dental services provider
First lien senior secured
loan
1/5/2022
14.3
First lien senior secured
loan
8.50% (Libor + 6.75% Cash,
0.75% PIK/Q)
1/5/2022
0.8
Class A preferred units
8.46%
Class A common units 8.46%