Ares Capital: Why Investors Should Be Wary Of Rising Recession Risks
Summary
- Ares Capital's business model focuses on lending to small- and medium-sized enterprises, with investments mainly in senior secured notes and diversified sector exposure.
- Despite the rising interest rates, Ares Capital's dividend remains well-covered due to the company's secure spread between investment income and interest expenses.
- The company’s weighted average interest rate on debt has increased from 4.88% to 5.31%, driven by the issuance of higher-rate floating debt, potentially impacting future income.
- Potential risks include rising non-accrual loans if interest rates climb too high, and the impact of a possible recession on Ares Capital's portfolio performance.
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