Key Takeaways
- • Ares Capital Corp. (ARCC), the largest publicly traded business development company, reported non-accrual loans of $708 million in the second quarter, up 15% from the prior quarter and 26% year-over-year.
- • Non-accruals represented roughly 2.4% of the portfolio at cost, still below the BDC's historical average of about 3% since the global financial crisis.
- • Ares Management Corp.'s $29 billion flagship private credit fund saw the uptick in troubled investments, as the broader industry grapples with exposure to businesses vulnerable to advances in artificial intelligence.
Summary
Ares Management Corp.'s $29 billion flagship private credit fund reported an increase in troubled investments during the second quarter, according to Bloomberg. The rise reflects continued pressure on private credit portfolios as the industry contends with exposure to borrowers whose businesses may be vulnerable to advances in artificial intelligence.
At the public vehicle level, Ares Capital Corp., the largest publicly traded business development company, said loans on non-accrual status rose to $708 million. That represents a 15% increase from the prior quarter and 26% year-over-year growth in non-accrual balances.
Despite the increase, non-accruals remained at roughly 2.4% of the portfolio at cost. ARCC noted that this level stays below the BDC's historical average of approximately 3% since the global financial crisis, which provides some context for investors assessing credit quality trends in the sector.
The data points suggest that while credit stress is building at the margin, it has not yet reached levels above the company's long-run norm. Allocators tracking private credit exposure will likely focus on whether the upward trajectory in non-accruals continues in coming quarters as AI-related disruption risk works through borrower cash flows.
At the public vehicle level, Ares Capital Corp., the largest publicly traded business development company, said loans on non-accrual status rose to $708 million. That represents a 15% increase from the prior quarter and 26% year-over-year growth in non-accrual balances.
Despite the increase, non-accruals remained at roughly 2.4% of the portfolio at cost. ARCC noted that this level stays below the BDC's historical average of approximately 3% since the global financial crisis, which provides some context for investors assessing credit quality trends in the sector.
The data points suggest that while credit stress is building at the margin, it has not yet reached levels above the company's long-run norm. Allocators tracking private credit exposure will likely focus on whether the upward trajectory in non-accruals continues in coming quarters as AI-related disruption risk works through borrower cash flows.
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