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Ares Capital Corporation has successfully completed a major refinancing of its Ares Direct Lending CLO 1 securitization, extending the maturity of roughly $708.7 million in term debt to July 2038. The refinancing, closed on July 17, 2026, involved issuing new senior and subordinated notes backed by a diversified portfolio of first lien senior secured loans. This transaction marks a significant recapitalization of the company’s existing securitization framework and secures funding well into the next decade.
Key Points
- NASDAQ: ARCC
- Ares Direct Lending CLO 1 completed a full refinancing of approximately $708.7 million in term debt on July 17, 2026
- New notes issued include $267.0 million Class A-1-R, $24.5 million Class A-2-R, $45.5 million Class B, and $7.1 million additional subordinated notes, all maturing July 25, 2038
- Proceeds used to redeem $406.0 million Class A notes and $70.0 million Class B notes previously maturing in 2036
Refinancing Details and Debt Issuance Structure
On July 17, 2026, Ares Direct Lending CLO 1 LLC, a wholly owned consolidated subsidiary of Ares Capital Corporation, completed the ADL CLO 1 Reset Transaction, a comprehensive refinancing of its existing collateralized loan obligation structure. This refinancing issued new senior and subordinated debt totaling approximately $708.7 million, all maturing on July 25, 2038. The issuance was executed under an amended and restated indenture and security agreement dated as of the refinancing date, with U.S. Bank Trust Company, National Association acting as collateral trustee.
The new debt securities include multiple classes tailored to different investor risk-return profiles: Class A-1-R Senior Floating Rate Notes totaling $267.0 million at Term SOFR plus 1.46%, Class A-2-R Senior Floating Rate Notes of $24.5 million at Term SOFR plus 1.70%, Class B-R Senior Floating Rate Notes of $45.5 million at Term SOFR plus 1.90%, and $7.1 million in new non-interest bearing subordinated notes. Combined with $225.6 million of existing subordinated notes, these form the full subordinated tranche retained by Ares Capital.
Collateral Portfolio and Asset Management
The July 2038 CLO notes are secured by a diversified portfolio of first lien senior secured loans contributed to Ares Direct Lending CLO 1 on May 24, 2024, under a contribution agreement with the parent company. These secured obligations cover the Class A-1-R, Class A-2-R, Class B-R notes, and term loans under the new credit agreement. Ares Capital Management LLC, the company’s investment adviser, actively manages the portfolio as asset manager for the securitization vehicle.
The indenture permits acquisition of additional collateral by the securitization vehicle, subject to rating agency criteria and agreements with institutional note holders. Until July 25, 2031, principal collections from the loan portfolio may be reinvested to acquire new collateral per the company’s investment strategy. The asset manager has waived management fees from the CLO vehicle, aligning its incentives with note holders.
Term Loan Facility and Conversion Rights
Alongside the refinancing, Ares Direct Lending CLO 1 entered a credit agreement on July 17, 2026, incurring $139.0 million of Class A-1-LR term loans at Term SOFR plus 1.46%, maturing July 25, 2038. U.S. Bank Trust Company, National Association serves as loan agent and collateral trustee. These term loans, provided by various financial institutions, are subject to standard covenants and default events.
Importantly, lenders may convert outstanding term loans into Class A-1-R CLO Notes under conditions set forth in the indenture and credit agreement. This conversion option offers lenders flexibility to adjust their capital structure position, enhancing liquidity or modifying risk exposure depending on market and transaction performance.
Redemption of Existing Debt
Proceeds from the ADL CLO 1 Reset Transaction were used to fully redeem prior securitization debt. Ares Capital redeemed $406.0 million principal of Class A Senior Secured Floating Rate Notes and $70.0 million of Class B Senior Secured Floating Rate Notes, both previously due in 2036. This eliminated the 2036 maturity, extending the securitization’s debt profile by about two years, easing near-term refinancing pressures and providing longer-term portfolio management flexibility.
Additional proceeds funded deposits into various Ares Direct Lending CLO 1 accounts and covered fees and expenses related to the transaction, reflecting disciplined balance sheet management and ensuring liquidity reserves for ongoing operations and collateral oversight.
Administrative Oversight and Management Framework
U.S. Bank Trust Company, National Association remains collateral administrator under an amended and restated collateral administration agreement effective as of the refinancing date. The administrator manages daily portfolio activities, compliance testing, and administrative functions to maintain securitization compliance.
The asset management structure includes amended asset management and master purchase and sale agreements between Ares Capital Corporation and Ares Direct Lending CLO 1, governing collateral acquisitions from the parent or third parties in line with the company’s investment strategy and portfolio reinvestment guidelines.
Regulatory Status and Investor Protections
The July 2038 CLO Notes are unregistered under the Securities Act of 1933 and state securities laws, issued under exemptions limiting offers and sales to institutional investors via private placements. The indenture and credit agreement contain customary covenants and default provisions to safeguard note holders and lenders, including financial tests, asset sale restrictions, debt issuance limits, and other credit quality protections.
Capital Structure Impact and Liability Management
The ADL CLO 1 Reset Transaction highlights Ares Capital’s strong access to securitization markets and ability to refinance obligations on favorable terms. Extending approximately $708.7 million in financing through July 2038 reduces near-term refinancing needs and establishes a stable liability maturity profile. The secured financing backed by a diversified first lien senior secured loan portfolio aligns with the company’s closed-end investment model focused on middle-market direct lending.
Interest rates on the new debt range from Term SOFR plus 1.46% on Class A-1-R notes to Term SOFR plus 1.90% on Class B notes, reflecting market conditions as of July 2026. The floating rate structure links borrowing costs to SOFR fluctuations, influencing returns to equity investors and net investment income.
Portfolio Reinvestment and Capital Deployment Strategy
The reinvestment period lasts through July 25, 2031, during which principal collections may be used to acquire new loans under asset manager discretion and portfolio criteria. This enables Ares Capital Management LLC to refresh and optimize the securitization’s loan portfolio in response to market dynamics and investment opportunities aligned with the company’s strategy.
After July 25, 2031, Ares Direct Lending CLO 1 will enter an amortization phase, applying principal collections to reduce outstanding debt rather than fund new acquisitions. This lifecycle approach is standard for CLOs, balancing portfolio optimization early on with capital return to note holders as maturity approaches.
