November 22, 2010

Equity Research
Ares Capital Corporation
ARCC: Adjusting Ests Post-Capital Raise--Reiterate Outperform
Outperform / V /
• Summary: Following very strong Q3 results and the completion of an equity
offering, we are modifying our estimates. We are raising our 2010 net Sector: BDC/RIC
investment income (NII) per share estimate to $1.33 from $1.30 and slightly
lowering our 2011 estimate to $1.51 from $1.54. ARCC’s performance continues Overweight
to impress and the company remains extremely well positioned to deliver
earnings growth in 2011. Accordingly, we are raising our valuation range to $17-
18 from $16-17, which is based on an 8.3-8.8% yield on our 2011 dividend Earnings Estimates Revised Up
estimate of $1.50. While this valuation represents a premium to ARCC’s peer
2009A 2010E 2011E
group, we believe it is deserved particularly given the company’s superior growth EPS Curr. Prior Curr. Prior
outlook and credit performance. Reiterate Outperform rating. Q1 (Mar.) $0.31 $0.28 A NC $0.35 0.37
Q2 (June) 0.33 0.32 A NC 0.36 0.38
• Q3 Results Were Strong. ARCC reported Q3 2010 core NII per share of Q3 (Sep.) 0.34 0.38 A 0.33 0.39 NC
$0.38, which was well above our estimate of $0.33. The primary driver of the Q4 (Dec.) 0.37 0.34 0.36 0.41 NC
beat was significantly higher fee income, which benefited from structuring fees FY $1.35 $1.33 1.30 $1.51 1.54
of $21MM versus our estimate of $6MM. The higher fees reflect ARCC’s strong CY $1.35 $1.33 $1.51
investment pace (see below), which exceeded our expectation for Q3. EPS was FY P/E 12.1x 12.3x 10.8x
$0.67, which benefited from $57MM of net portfolio appreciation. The high level Rev.(MM) $221 $382 $517
of appreciation is further evidence of improving fundamentals among ARCC’s Source: Company Data, Wells Fargo Securities, LLC estimates, and Reuters
NA = Not Available, NC = No Change, NE = No Estimate, NM = Not Meaningful
portfolio companies. NAV per share was $14.43 at period-end, up from $14.11 V = Volatile, = Company is on the Priority Stock List

last quarter and the company declared a Q4 2010 dividend of $0.35 per share.
• Growth And Credit Are Impressive. ARCC originated $281MM of net
investments in Q3, which included $512MM of gross originations, a quarterly
record. Senior secured loan fund commitments were strong at roughly $200MM. Ticker ARCC
The $231MM of portfolio exits made in Q3 included roughly $100MM of Allied Price (11/19/2010) $16.35
assets. Credit quality continues to be solid, with 5.2% of the combined portfolio
52-Week Range: $11-18
on nonaccrual status at Q3-end, down from 7.6% at Q2 (legacy ARCC nonaccrual
Shares Outstanding: (MM) 204.1
rate was only 0.2% at value). Investments categorized as at risk of loss (grade 1
and 2) only represented 2.6% of the portfolio at Q3-end. Market Cap.: (MM) $3,336.5
S&P 500: 1,199.73
• Balance Sheet Strengthened. On November 16, ARCC raised $180.5MM of Avg. Daily Vol.: 2,621,110
net proceeds from an 11.5MM share equity offering. The selling price was $16.50, Dividend/Yield: $1.40/8.6%
which was 14% above last reported NAV. The company plans to initially use the LT Debt: (MM) $1,524.1
proceeds to retire debt but should allocate the capital into investment
LT Debt/Total Cap.: 35.4%
opportunities over time. ARCC ended Q3 with total debt of $1.5B and a debt-to-
ROE: 11.0%
equity ratio of 0.45x pro forma for the equity offering. On October 21, ARCC
issued $200MM of unsecured notes due 2040 at a rate of 7.75%. The new notes 3-5 Yr. Est. Growth Rate: 8.0%
should provide for maximum operating flexibility given their long duration and CY 2010 Est. P/E-to-Growth: 1.5x
unsecured status. Last Reporting Date: 11/04/2010
Before Open
Source: Company Data, Wells Fargo Securities, LLC estimates, and Reuters

Valuation Range: $17.00 to $18.00 from $16.00 to $17.00

Our 12-month valuation range for ARCC is $17-18 which approximates an 8.3-8.8%
yield on our 2011 dividend per share estimate of $1.50. Risks to our valuation range
include an inability to access the equity and debt markets and weaker credit quality. Christopher Harris, CFA, Senior Analyst
(443) 263-6513 /
Investment Thesis: christopher.harris1@wachovia.com
We rate ARCC shares Outperform. Relative to peers, ARCC has delivered better
credit performance and portfolio growth through the cycle. The recent acquisition
of Allied Capital enhances the capabilities of the ARCC platform and should provide
meaningful upside to earnings over time.

Please see page 3 for rating definitions, important disclosures

and required analyst certifications
Wells Fargo Securities, LLC does and seeks to do business with companies
covered in its research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of the
report and investors should consider this report as only a single factor in
making their investment decision.
 WELLS FARGO SECURITIES, LLC
Specialty Finance EQUITY RESEARCH DEPARTMENT

Company Description:
Ares Capital Corporation (ARCC) is a closed-end, nondiversified investment company that has elected to be
organized as a business development company (BDC) under the Investment Company Act of 1940. ARCC seeks
to generate current income and capital appreciation through debt and equity investments made up of first-and
second-lien loans, mezzanine debt, and equity positions. ARCC is an externally managed affiliate of Ares
Management LLC, an independent Los Angeles-based investment management firm.

ARCC Financial Model

Wells Fargo Securities, LLC

Ares Capital Corporation Christopher Harris, CFA (443) 263-6513
Ticker: ARCC
($MM, except per share data)
Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11
1Q 09A 2Q 09A 3Q 09A 4Q 09A 1Q 10A 2Q 10A 3Q 10A 4Q 10E 1Q 11E 2Q 11E 3Q 11E 4Q 11E 2008A 2009A 2010E 2011E
Income Statement
Interest Income:
Interest from cash & cash equivalents 0.15 0.06 0.04 0.02 0.01 0.02 0.05 0.06 0.05 0.05 0.05 0.05 1.63 0.27 0.13 0.20
Dividend Income 0.44 0.74 2.18 0.47 0.48 3.42 3.92 4.01 3.95 3.89 3.83 3.77 2.58 3.84 11.84 15.44
Income from CDO 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Interest from Investments 52.34 53.99 56.90 61.83 61.54 104.06 107.83 117.67 126.97 134.52 143.35 153.58 208.47 225.07 391.11 558.42
Total Gross Interest Income 52.94 54.79 59.12 62.33 62.03 107.50 111.80 121.74 130.97 138.46 147.24 157.40 212.68 229.17 403.08 574.06
Total Interest Expense 6.58 6.30 5.72 5.66 8.59 23.11 22.76 27.76 28.08 28.57 27.19 26.95 10.02 0.00 25.00 102.42
Net Interest Income 46.36 48.49 53.40 56.67 53.44 84.39 89.05 93.98 102.89 109.89 120.04 130.45 176.16 204.91 320.86 463.27

Fee and Other Income:

Capital Structuring Service Fees 1.24 0.60 0.00 3.78 2.10 7.69 20.61 9.00 5.20 5.20 5.20 5.20 21.24 5.62 39.40 20.80
% of originations 3.29% 1.40% 0.00% 1.10% 0.70% 1.88% 4.03% 2.00% 2.00% 2.00% 2.00% 2.00% 2.35% 1.17% 2.36% 2.00%
% of revenue 2.22% 1.02% 0.00% 5.45% 3.16% 6.33% 14.92% 6.50% 3.61% 3.43% 3.24% 3.04% 8.83% 2.29% 8.48% 3.31%
Management Fees 0.72 1.89 0.09 0.80 1.49 4.13 4.44 4.69 4.98 5.10 5.21 5.33 0.00 3.50 14.74 20.62
Other Income 1.12 1.83 1.67 2.36 0.89 2.27 1.27 3.00 3.00 3.00 3.00 3.00 6.98 7.43 12.00
Management Fees & Other Income 1.84 3.72 1.76 3.16 2.38 6.40 5.71 7.69 7.98 8.10 8.21 8.33 6.54 10.48 22.17 32.62
Total Fee and Other Income 3.08 4.32 1.76 6.94 4.48 14.09 26.32 16.69 13.18 13.30 13.41 13.53 27.79 16.10 61.58 53.42
Net Revenue 49.44 52.81 55.16 63.61 57.92 98.48 115.37 110.67 116.07 123.19 133.46 143.98 203.95 221.01 382.44 516.69
Total Investment Income, as reported 56.02 59.11 60.88 69.26 66.51 121.59 138.13 138.43 144.15 151.75 160.65 170.93 240.46 245.27 464.65 627.48
Total Selling, General & Adminstrative 4.16 5.30 6.07 7.77 9.78 21.60 11.07 9.00 9.50 10.00 10.50 11.00 14.50 23.29 51.45 41.00
SGA % Total Revenues 7.4% 9.0% 10.0% 11.2% 14.7% 17.8% 8.0% 6.5% 6.6% 6.6% 6.5% 6.4% 6.0% 9.5% 11.1% 6.5%
SGA % Average Assets (annualized) 0.8% 1.0% 1.2% 1.4% 1.7% 2.7% 1.0% 0.8% 0.8% 0.8% 0.8% 0.8% 0.7% 1.1% 1.4% 0.8%
Mgmt Fee (1.5% of Avg. Invested Assets) 7.50 7.50 7.51 7.91 8.46 11.68 15.44 16.27 17.19 17.80 18.40 19.00 30.46 30.41 51.84 72.39
Total Pre-Incentive Fee Expenses 11.65 12.80 13.57 15.67 18.24 33.28 26.51 25.27 26.69 27.80 28.90 30.00 30.46 30.41 51.84 72.39

Pre-Incentive Fee Income 37.78 40.01 41.59 47.93 39.69 65.20 88.86 85.40 89.38 95.39 104.56 113.98 173.48 190.60 330.60 444.30

Inc. Fees #1 (8% ROE Hurdle) Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
NII Incentive Fee #1 (100% up to 10.00%) 5.43 5.41 5.81 6.24 7.11 10.76 13.80 14.41 14.86 15.37 15.89 16.43 23.96 22.88 46.08 62.56
NII Incentive Fee #2 (20% over 10.00%) 2.13 2.59 2.51 3.35 0.83 2.28 3.97 2.67 3.02 3.70 5.02 6.36 7.84 10.58 9.75 18.11
Total Incentive Fees on NII 7.55 7.99 8.23 9.57 8.14 14.97 17.81 17.08 17.88 19.08 20.91 22.80 31.80 33.46 55.83 80.66
Total Expenses, as reported 25.79 27.09 27.52 30.90 34.97 71.36 67.07 70.11 72.64 75.44 77.01 79.75 39.64 44.04 65.58 98.77
Net Investment Income before Income Taxes 30.23 32.03 33.36 38.37 31.54 50.23 71.06 68.32 71.50 76.31 83.65 91.18 127.24 133.98 221.14 322.64
Incentive Fee #2 - Net Realized Capital Gains 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Income Tax Expense 0.03 0.08 0.45 0.01 (0.16) 0.69 (0.16) 0.00 0.00 0.00 0.00 0.00 0.25 0.58 0.36 0.00
Net Investment Income (NII) 30.20 31.95 32.91 38.35 31.71 49.54 71.22 68.32 71.50 76.31 83.65 91.18 126.99 133.41 220.78 322.64
Net Investment Income Per Share $0.31 $0.33 $0.32 $0.35 $0.25 $0.26 $0.37 $0.34 $0.35 $0.36 $0.39 $0.41 $1.42 $1.31 $1.23 $1.51
Core Net Investment Income Per Share $0.31 $0.33 $0.34 $0.37 $0.28 $0.32 $0.38 $0.34 $0.35 $0.36 $0.39 $0.41 $1.42 $1.35 $1.33 $1.51
Total Dividend/Share - Recurring $0.42 $0.35 $0.35 $0.35 $0.35 $0.35 $0.35 $0.35 $0.35 $0.37 $0.38 $0.40 $1.68 $1.47 $1.40 $1.50
Dividend Per Share - Special $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Total Dividend/Share $0.42 $0.35 $0.35 $0.35 $0.35 $0.35 $0.35 $0.35 $0.35 $0.37 $0.38 $0.40 $1.68 $1.47 $1.40 $1.50
Shares Outstanding for Dividend 97.2 97.2 109.6 109.9 133.2 192.2 192.6 204.1 204.1 217.1 217.1 230.1
Realized and Unrealized Gains/Losses
Realized Gain on Extinguishment of Debt 26.54 0.00 0.00 0.00 0.00 (0.38) (1.58) 0.00 0.00 0.00 0.00 0.00 0.00 26.54 (1.96) 0.00
Gain from ALD acquisition 0.00 195.88 0.00 0.00 0.00 0.00 0.00 0.00 195.88 0.00
Net Realized Gains (1.84) (0.74) (1.66) (41.73) (4.88) 12.31 1.23 0.00 0.00 0.00 0.00 0.00 6.37 (45.96) 8.65 0.00
Net Unrealized Appreciation/Depreciation (19.87) 3.55 32.03 73.01 49.59 72.81 57.51 0.00 0.00 0.00 0.00 0.00 (272.82) 88.71 179.91 0.00
Total Marks on Portfolio 4.83 2.81 30.37 31.28 44.71 280.61 57.16 0.00 0.00 0.00 0.00 0.00 (266.45) 42.74 188.57 0.00
Net Realized Gains/share (cumulative) (1.84) (2.58) (4.23) (45.96) (49.01) (35.96) (33.08) 8.65 13.54 1.23 0.00 0.00 6.37 (45.96) 8.65 0.00
GAAP Net Income 35.03 34.75 63.28 69.63 76.42 330.15 128.38 68.32 71.50 76.31 83.65 91.18 (139.46) 202.69 603.26 322.64
Reported GAAP EPS $0.36 $0.36 $0.62 $0.64 $0.61 $1.73 $0.67 $0.34 $0.35 $0.36 $0.39 $0.41 ($1.56) $1.99 $2.32 $1.51
Avg. Diluted Shares 97.2 97.2 102.8 109.6 124.5 191.0 192.2 198.3 204.1 210.6 217.1 223.6 89.7 101.7 176.5 213.8
EOP Shares Outstanding 97.2 97.2 109.6 109.9 133.2 192.2 192.6 204.1 204.1 217.1 217.1 230.1 97.2 109.9 204.1 230.1
Source: Wells Fargo Securities, LLC
estimates and company data

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 WELLS FARGO SECURITIES, LLC
Ares Capital Corporation EQUITY RESEARCH DEPARTMENT

Required Disclosures

Ares C apital C orporation (AR C C ) 3-yr. P rice P

Price erformance
Performance
$19.00
$18.00
$17.00
$16.00
$15.00
$14.00
$13.00
$12.00
$11.00
$10.00
$9.00
Security Price

$8.00
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
11/20/07
12/18/07
1/15/08
2/12/08
3/11/08
4/8/08
5/6/08
6/3/08
7/1/08
7/29/08
8/26/08
9/23/08

11/18/08
12/16/08
1/13/09

3/10/09
4/7/09
5/5/09
6/2/09
6/30/09
7/28/09
8/25/09
9/22/09

12/15/09
1/12/10
2/9/10
3/9/10
4/6/10
5/4/10
6/1/10
6/29/10
7/27/10

9/21/10
10/19/10
11/16/10
10/21/08

2/10/09

10/20/09
11/17/09

8/24/10
Date

Date Publication Price ($) Rating Code Val. Rng. Low Val. Rng. High Close Price ($)
11/20/2007 Shanahan
11/20/2007 NA 1 17.00 18.00 15.00
z 5/8/2008 11.68 1 14.00 15.00 11.68
z 7/16/2008 9.36 1 11.00 12.00 10.39
z 8/7/2008 10.66 1 12.00 13.00 10.66
z 11/7/2008 7.29 1 10.00 11.00 6.91
z 1/15/2009 6.04 1 9.00 10.00 6.04
z 3/2/2009 3.86 1 8.00 9.00 3.86
z 5/8/2009 6.96 1 9.00 10.00 7.46
z 8/25/2009 9.37 1 10.00 11.00 9.38
z 10/23/2009 10.66 1 13.00 14.00 10.69
z 1/6/2010 13.36 1 14.00 15.00 13.16
„ 2/5/2010 Harris
z 2/25/2010 12.94 1 15.00 16.00 12.94
z 4/5/2010 14.92 1 16.00 17.00 15.20

Source: Wells Fargo Securities, LLC estimates and Reuters data

Symbol Key Rating Code Key

d Rating Downgrade ‹ Initiation, Resumption, Drop or Suspend 1 Outperform/Buy SR Suspended
c Rating Upgrade „ Analyst Change 2 Market Perform/Hold NR Not Rated
z Valuation Range Change ˆ Split Adjustment 3 Underperform/Sell NE No Estimate

Additional Information Available Upon Request

I certify that:
1) All views expressed in this research report accurately reflect my personal views about any and all of the subject securities or
issuers discussed; and
2) No part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed
by me in this research report.

ƒ Wells Fargo Securities, LLC maintains a market in the common stock of Ares Capital Corporation.
ƒ Wells Fargo Securities, LLC or its affiliates managed or comanaged a public offering of securities for Ares Capital Corporation
within the past 12 months.
ƒ Wells Fargo Securities, LLC or its affiliates intends to seek or expects to receive compensation for investment banking services in
the next three months from Ares Capital Corporation.
ƒ Ares Capital Corporation currently is, or during the 12-month period preceding the date of distribution of the research report was,
a client of Wells Fargo Securities, LLC. Wells Fargo Securities, LLC provided investment banking services to Ares Capital
Corporation.
ƒ Ares Capital Corporation currently is, or during the 12-month period preceding the date of distribution of the research report was,
a client of Wells Fargo Securities, LLC. Wells Fargo Securities, LLC provided noninvestment banking securities-related services
to Ares Capital Corporation.
ƒ An affiliate of Wells Fargo Securities, LLC has received compensation for products and services other than investment banking

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 WELLS FARGO SECURITIES, LLC
Specialty Finance EQUITY RESEARCH DEPARTMENT

services from Ares Capital Corporation in the past 12 months.

ƒ Wells Fargo Securities, LLC received compensation for products or services other than investment banking services from Ares
Capital Corporation in the past 12 months.
ƒ Wells Fargo Securities, LLC or its affiliates may have a significant financial interest in Ares Capital Corporation.

ARCC: Risks to our valuation range include an inability to access the equity and debt markets and weaker credit quality.

Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions.
Wells Fargo Securities, LLC’s research analysts receive compensation that is based upon and impacted by the overall profitability
and revenue of the firm, which includes, but is not limited to investment banking revenue.

STOCK RATING
1=Outperform: The stock appears attractively valued, and we believe the stock's total return will exceed that of the market over the
next 12 months. BUY
2=Market Perform: The stock appears appropriately valued, and we believe the stock's total return will be in line with the market
over the next 12 months. HOLD
3=Underperform: The stock appears overvalued, and we believe the stock's total return will be below the market over the next 12
months. SELL

SECTOR RATING
O=Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months.
M=Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months.
U=Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months.

VOLATILITY RATING
V = A stock is defined as volatile if the stock price has fluctuated by +/-20% or greater in at least 8 of the past 24 months or if the
analyst expects significant volatility. All IPO stocks are automatically rated volatile within the first 24 months of trading.

As of: November 22, 2010

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Equity Research are rated Outperform.
53% of companies covered by Wells Fargo Securities, LLC
Equity Research are rated Market Perform.
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SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE