Private Credit Market Growth and Risks Coexist
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 6d ago
0mins
Should l Buy ARCC?
Source: Fool
- Market Growth: The private credit market, valued at approximately $2 trillion in 2020, is projected to grow by 50% by early 2025 and could reach nearly $5 trillion by 2029, indicating rapid industry expansion but also inherent risks.
- Credit Risk Warnings: Jeffery Gundlach, CEO of DoubleLine Capital, cautioned that some private credit firms are making 'garbage loans,' while Goldman Sachs CEO Jamie Dimon highlighted overly lenient direct lending standards, suggesting potential credit issues ahead that investors should be wary of.
- Diverse BDC Performance: Prospect Capital's net asset value has significantly eroded, and despite its attractive 19.7% forward dividend yield, its reliance on issuing perpetual preferred stock to raise capital increases fixed payment obligations, potentially jeopardizing the reliability of common stock dividends.
- Quality Investment Opportunities: Ares Capital boasts a portfolio with 61% in first-lien secured loans and a low non-accrual rate of 1.8%, well below industry averages, showcasing its resilience in uncertain market conditions and positioning it as a prime investment choice for cautious investors.
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Analyst Views on ARCC
Wall Street analysts forecast ARCC stock price to rise over the next 12 months. According to Wall Street analysts, the average 1-year price target for ARCC is 22.50 USD with a low forecast of 21.00 USD and a high forecast of 24.00 USD. However, analyst price targets are subjective and often lag stock prices, so investors should focus on the objective reasons behind analyst rating changes, which better reflect the company's fundamentals.
7 Analyst Rating
6 Buy
1 Hold
0 Sell
Strong Buy
Current: 18.790
Low
21.00
Averages
22.50
High
24.00
Current: 18.790
Low
21.00
Averages
22.50
High
24.00
About ARCC
Ares Capital Corporation is a specialty finance company focused on providing direct loans and other investments in private middle market companies in the United States. The Company invests 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, it also invests in subordinated debt, which in some cases includes an equity component, and preferred equity. It also may invest up to 30% of its portfolio in non-qualifying assets. Its investment activities are focused on industries, such as software and services, health care services, commercial and professional services, financial services, commercial and professional services, insurance services, energy, food and beverage and others. The Company is externally managed by Ares Capital Management LLC (investment adviser).
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
The Impact of Software Concerns on Private Credit and Recommended BDC Stocks to Consider
- Private Credit Sector: The emergence of private credit "cockroaches" indicates a shift in the market, particularly affecting the software sector.
- Investment Opportunities: This situation may present new investment opportunities in shares of business development companies that hold the debt of these affected companies.
See More
The Impact of Software Concerns on BDC Stocks: Reasons Some May Be Good Investment Opportunities
- Private Credit Sector: The private credit sector is facing challenges, likened to "cockroaches" emerging from the software industry.
- Opportunities in Business Development Companies: This situation may present investment opportunities in business development companies that hold the debt of affected firms.
See More
Ares Capital Reports Strong 2025 Financial Results with Record Investments
- Strong Financial Performance: Ares Capital reported core earnings of $0.50 per share in Q4 2025, exceeding its $0.48 quarterly dividend, indicating robust profitability and the likelihood of continued stable dividend payments.
- Record Investment Commitments: The company secured $5.8 billion in new investment commitments in Q4, spanning 30 new portfolio companies and 84 existing ones, with 80% in first-lien, senior-secured loans, reflecting strong market demand and investment capacity.
- Portfolio Expansion: By the end of 2025, Ares Capital's investment portfolio was valued at $29.5 billion, up from $26.7 billion in 2024, underscoring its leadership position and market confidence.
- Future Growth Potential: The company anticipates carrying forward $1.38 per share of excess taxable income for distribution in 2026, enhancing the security of its dividend payments, while increased new investment commitments will further support future dividend stability.
See More
Ares Capital Q4 2025 Earnings Call Highlights
- Strong Financial Performance: Ares Capital reported core earnings per share of $0.50 for Q4 2025 and $2.01 for the full year, fully covering dividends and achieving an ROE exceeding 10%, demonstrating the company's robust ability to maintain stable credit quality and grow its portfolio.
- Record Investment Commitments: The company added over 100 new borrowers in 2025, setting a historical high, with total new commitments reaching $15.8 billion, indicating a proactive business expansion amid market recovery.
- Portfolio Health: By year-end 2025, the portfolio at fair value grew to $29.5 billion, a 3% increase from the prior quarter, with non-accruals at 1.8%, well below historical averages, showcasing effective risk management practices.
- Dividend Stability Confidence: Despite market expectations for further declines in short-term interest rates, management expressed optimism about maintaining dividends, highlighting more than two quarters of spillover income as a buffer for dividend stability.
See More
Ares Capital Announces Earnings Amidst Challenges in Private Credit Sector
- Investor Concerns: Private-credit stocks are facing pressure due to concerns over loans made to software companies.
- Loan Portfolio Update: Investors are eager for updates on the loan portfolios of these private-credit firms, with a key opportunity to assess them coming on Wednesday morning.
See More
Ares Capital Reports Q1 Earnings Decline
- Earnings Decline: Ares Capital Corp. reported first-quarter earnings of $293 million, or $0.41 per share, which represents a decline from $357 million and $0.55 per share in the same period last year, indicating pressure on profitability.
- Adjusted Earnings: Excluding certain items, the company reported adjusted earnings of $0.50 per share, which, while lower than the previous year, still reflects a degree of profitability amidst challenges.
- Revenue Growth: The company's revenue increased by 4.5% year-over-year to $793 million, up from $759 million last year, suggesting potential for continued revenue expansion despite earnings challenges.
- Market Reaction: The decline in earnings, despite revenue growth, may negatively impact investor confidence, leading to potential stock price volatility.
See More
The Impact of Software Concerns on Private Credit and Recommended BDC Stocks to Consider
- Private Credit Sector: The emergence of private credit "cockroaches" indicates a shift in the market, particularly affecting the software sector.
- Investment Opportunities: This situation may present new investment opportunities in shares of business development companies that hold the debt of these affected companies.
See More
The Impact of Software Concerns on BDC Stocks: Reasons Some May Be Good Investment Opportunities
- Private Credit Sector: The private credit sector is facing challenges, likened to "cockroaches" emerging from the software industry.
- Opportunities in Business Development Companies: This situation may present investment opportunities in business development companies that hold the debt of affected firms.
See More
Ares Capital Reports Strong 2025 Financial Results with Record Investments
- Strong Financial Performance: Ares Capital reported core earnings of $0.50 per share in Q4 2025, exceeding its $0.48 quarterly dividend, indicating robust profitability and the likelihood of continued stable dividend payments.
- Record Investment Commitments: The company secured $5.8 billion in new investment commitments in Q4, spanning 30 new portfolio companies and 84 existing ones, with 80% in first-lien, senior-secured loans, reflecting strong market demand and investment capacity.
- Portfolio Expansion: By the end of 2025, Ares Capital's investment portfolio was valued at $29.5 billion, up from $26.7 billion in 2024, underscoring its leadership position and market confidence.
- Future Growth Potential: The company anticipates carrying forward $1.38 per share of excess taxable income for distribution in 2026, enhancing the security of its dividend payments, while increased new investment commitments will further support future dividend stability.
See More
Ares Capital Q4 2025 Earnings Call Highlights
- Strong Financial Performance: Ares Capital reported core earnings per share of $0.50 for Q4 2025 and $2.01 for the full year, fully covering dividends and achieving an ROE exceeding 10%, demonstrating the company's robust ability to maintain stable credit quality and grow its portfolio.
- Record Investment Commitments: The company added over 100 new borrowers in 2025, setting a historical high, with total new commitments reaching $15.8 billion, indicating a proactive business expansion amid market recovery.
- Portfolio Health: By year-end 2025, the portfolio at fair value grew to $29.5 billion, a 3% increase from the prior quarter, with non-accruals at 1.8%, well below historical averages, showcasing effective risk management practices.
- Dividend Stability Confidence: Despite market expectations for further declines in short-term interest rates, management expressed optimism about maintaining dividends, highlighting more than two quarters of spillover income as a buffer for dividend stability.
See More
Ares Capital Announces Earnings Amidst Challenges in Private Credit Sector
- Investor Concerns: Private-credit stocks are facing pressure due to concerns over loans made to software companies.
- Loan Portfolio Update: Investors are eager for updates on the loan portfolios of these private-credit firms, with a key opportunity to assess them coming on Wednesday morning.
See More
Ares Capital Reports Q1 Earnings Decline
- Earnings Decline: Ares Capital Corp. reported first-quarter earnings of $293 million, or $0.41 per share, which represents a decline from $357 million and $0.55 per share in the same period last year, indicating pressure on profitability.
- Adjusted Earnings: Excluding certain items, the company reported adjusted earnings of $0.50 per share, which, while lower than the previous year, still reflects a degree of profitability amidst challenges.
- Revenue Growth: The company's revenue increased by 4.5% year-over-year to $793 million, up from $759 million last year, suggesting potential for continued revenue expansion despite earnings challenges.
- Market Reaction: The decline in earnings, despite revenue growth, may negatively impact investor confidence, leading to potential stock price volatility.
See More
