Ares Capital’s Software Exposure Steady as Fair Valuation Hits $29.5B
Ares Capital reported a fair value of $29.499 billion versus an amortized cost of $29.648 billion at March 31, with software and services representing 22% of its loan portfolio. An external consultant found 85% of software loans low risk, while a $137.5 million second-lien loan was marked down 25% to $103.1 million.
1. Portfolio Valuations Steady
At the end of the March quarter, Ares Capital’s balance sheet showed a fair value of $29.499 billion against an amortized cost of $29.648 billion, indicating minimal valuation adjustments despite industry liquidity concerns. Funding levels remain ample, with no significant strain expected from current market conditions.
2. Software Portfolio Exposure
Software and services accounted for nearly 22% of the loan portfolio at March 31, down slightly from year-end. Key exposures include loans to Cornerstone OnDemand, Sunshine Software Holdings, Symplr, Digicert and CoreLogic, reflecting Ares Capital’s continued focus on regulated end-market infrastructure.
3. Software Loan Markdowns
Only a handful of software loans saw downward valuation marks in the quarter. Combined debt and equity exposure to Cornerstone and Sunshine was marked at $261.9 million, about 26% below the $353.8 million cost, with the steepest discount on a $137.5 million second-lien loan reduced to $103.1 million. Other positions were either held flat or marked up.
4. Independent AI Risk Review
Ares Capital engaged an external consultant to assess AI-related vulnerabilities in its software portfolio. The review concluded that 85% of software loans carry low AI disruption risk, while a small subset faces higher risk, supporting management’s view that valuations remain sound.