Ares Capital (ARCC) risk factors, 2025 10-K

RISKS RELATING TO OUR BUSINESS

1. 01The capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely affect the debt and equity capital markets, which may have a negative impact on our business and operations
2. 02General interest rate fluctuations may have a negative impact on our investments and our investment returns and, accordingly, may have a material adverse effect on our investment objective and our net investment income
3. 03Inflation has adversely affected and may continue to adversely affect the business, results of operations and financial condition of our portfolio companies
4. 04A failure on our part to maintain our status as a BDC may significantly reduce our operating flexibility
5. 05We are dependent upon certain key personnel of Ares for our future success and upon their access to other Ares investment professionals
6. 06Our ability to achieve our investment objective depends on our ability to acquire suitable investments and monitor and administer those investments, which depends, in turn, on our investment adviser’s ability to identify, invest in and monitor companies that meet our investment criteria
7. 07Our ability to grow depends on our ability to raise capital
8. 08Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital
9. 09We borrow money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in us
10. 10In addition, we and Deutsche Bank AG New York Branch (the “DB Issuer”) are party to an uncommitted continuing agreement (the “Letter of Credit Facility”). As of December 31, 2024, the DB Issuer had $140 million in letters of credit issued under the Letter of Credit Facility
11. 11_______________________________________________________________________________
12. 12We have formed and may in the future form CLOs, which subject us to certain structured financing risks
13. 13We operate in a highly competitive market for investment opportunities
14. 14Our ability to enter into transactions with our affiliates is restricted
15. 15There are significant potential conflicts of interest that could impact our investment returns
16. 16We may be subject to additional corporate-level income taxes if we fail to maintain our status as a RIC
17. 17We may have difficulty paying our required distributions under applicable tax rules if we recognize income before or without receiving cash representing such income
18. 18Most of our portfolio investments are not publicly traded and, as a result, the fair value of these investments may not be readily determinable
19. 19The lack of liquidity in our investments may adversely affect our business
20. 20Our financial condition and results of operations could be negatively affected if a significant investment fails to perform as expected
21. 21Increasing scrutiny from stakeholders and regulators with respect to ESG matters may impose additional costs and expose us to additional risks
22. 22could impact the value of our brand, our relationship with existing and future portfolio companies, the cost of our operations and relationships with investors, all of which could adversely affect our business and results of operations
23. 23We and/or our portfolio companies may be materially and adversely impacted by global climate change
24. 24We, our executive officers, directors, and our investment adviser, its affiliates and/or any of their respective principals and employees could be the target of litigation or regulatory investigations
25. 25In June 2024, the U.S. Supreme Court reversed its longstanding approach under the Chevron doctrine, which provided
26. 26Changes to United States tariff and import/export regulations may have a negative effect on our portfolio companies and, in turn, harm us
27. 27Our investment adviser’s liability is limited under the investment advisory and management agreement, and we are required to indemnify our investment adviser against certain liabilities, which may lead our investment adviser to act in a riskier manner on our behalf than it would when acting for its own account
28. 28We may be obligated to pay our investment adviser certain fees even if we incur a loss
29. 29We are highly dependent on the information systems of Ares Management and operational risks including systems failures could significantly disrupt our business, result in losses or limit our growth, which may, in turn, negatively affect the market price of our common stock and our ability to pay dividends

RISKS RELATING TO OUR INVESTMENTS

1. 30Declines 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
2. 31Economic recessions or downturns could impair our portfolio companies and harm our operating results
3. 32Investments in privately held middle-market companies involve significant risks
4. 33Our debt investments may be risky and we could lose all or part of our investment
5. 34Investments in equity securities, many of which are illiquid with no readily available market, involve a substantial degree of risk
6. 35There may be circumstances in which our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims
7. 36Our portfolio companies may incur debt or issue equity securities that rank equally with, or senior to, our investments in such companies
8. 37When we are a debt or minority equity investor in a portfolio company, we are often not in a position to exert influence on the entity, and other equity holders and management of the company may make decisions that could decrease the value of our investment in such portfolio company
9. 38Our portfolio companies may be highly leveraged
10. 39Our investment adviser’s fee structure may create an incentive for it to make certain investments on our behalf, including speculative investments
11. 40We may expose ourselves to risks if we engage in hedging transactions

RISKS RELATING TO OUR COMMON STOCK AND PUBLICLY TRADED NOTES

1. 41Our shares of common stock have traded at a discount from net asset value and may do so again, which could limit our ability to raise additional equity capital
2. 42There is a risk that investors in our common stock may not receive dividends or that our dividends may not grow over time and that investors in our debt securities may not receive all of the interest income to which they are entitled
3. 43Provisions of the Maryland General Corporation Law and of our charter and bylaws could deter takeover attempts and have an adverse effect on the price of our common stock
4. 44Investing in our common stock may involve an above average degree of risk
5. 45The market price of our common stock may fluctuate significantly
6. 46We may in the future determine to issue preferred stock, which could adversely affect the market value of our common stock
7. 47The 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
8. 48amount not exceeding 25% of our then outstanding common stock, at a price below the then current net asset value per share during a period that began on August 8, 2024 and expires on August 8, 2025
9. 49Any decision to sell shares of our common stock below its then current net asset value per share or securities to subscribe for or convertible into shares of our common stock would be subject to the determination by our board of directors that such issuance is in our and our stockholders’ best interests
10. 50Our stockholders will experience dilution in their ownership percentage if they opt out of our dividend reinvestment plan
11. 51Our stockholders may receive shares of our common stock as dividends, which could result in adverse cash flow consequences to them
12. 52Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock
13. 53The trading market or market value of our publicly issued debt securities may fluctuate
14. 54Terms relating to redemption may materially adversely affect our noteholders’ return on any debt securities that we may issue
15. 55Our credit ratings may not reflect all risks of an investment in our debt securities
16. 56Global economic, political and market conditions, including uncertainty about the financial stability of the United States, could have a significant adverse effect on our business, financial condition and results of operations
17. 57We may experience fluctuations in our quarterly results
18. 58We are subject to numerous privacy laws, and violation of such laws may subject us to significant fines or penalties, litigation, or reputational damage, and new privacy laws could impact our business and financial performance
19. 59Ineffective internal controls could impact our business and operating results