Ares Capital Will Pay a 30 Per Cent Premium for an Apollo-Managed Lender. The $10.88 Price Is Still 15 Per Cent Below What the Lender Says Its Loans Are Worth.

Ares Capital agreed to buy MidCap Financial Investment Corporation for about $10.88 a share in cash and stock, a total enterprise value of about $2.6 billion, the two companies said in a joint release on Tuesday.

MFIC is a business development company, a listed fund that lends to mid-sized private companies, and it is managed by an affiliate of Apollo Global Management. The price is a 30.1 per cent premium to MFIC's last close. It is also below the value MFIC puts on its own loans. Both statements are true, and the second one is the market's view of private credit in a single number.

What is Ares paying, and who pays it?

MFIC shareholders would get about $1.21 a share in cash and about $9.67 in Ares Capital stock, according to Ares Capital's Form 8-K describing the merger agreement signed on 26 October. The cash does not come from Ares Capital. It is paid by its investment adviser, a subsidiary of Ares Management, the listed asset manager that earns fees from running it.

By this publication's arithmetic, using MFIC's 30 June net assets of $1.10 billion and its NAV of $13.37 a share, MFIC has about 82 million shares, so the adviser's cash contribution comes to roughly $100 million and the equity price to roughly $900 million. Paying that subsidy buys the manager a larger fund to collect fees on. That is our reading, not either company's account.

The stock part is reduced by any special dividend MFIC pays before closing, which the release says is expected to be "meaningful," and the exchange ratio is set off Ares Capital's NAV or share price, whichever is higher. Ares Capital may issue up to about 41 million shares, leaving its existing holders with about 95 per cent of the combined company.

How can a premium be a discount?

Because MFIC's shares traded far below its stated book value. MFIC's preliminary estimate of its NAV at 30 September is about $12.86 a share, the release says.

Sources: joint release of 27 October 2026; MFIC second-quarter release of 6 August 2026. The implied close is this publication's arithmetic from the 30.1 per cent premium.

By this publication's arithmetic, the offer is about 85 per cent of MFIC's estimated NAV, a discount of about 15 per cent, and before the bid MFIC traded at about 65 per cent of NAV. The offer is also about 6 per cent below the $11.58 average price at which MFIC bought back its own shares in the second quarter. NAV itself has fallen about 9 per cent since the end of 2025. In August, Tanner Powell, MFIC's chief executive, attributed the second-quarter decline to "credit weakness in a limited number of positions."

The gap between a lender's book value and its share price is the market's estimate of how much of that book it believes. This publication described that doubt in private credit's mixed quarter in September, and it showed up again when investors asked to pull 39 per cent of a Blue Owl fund.

What does each side say?

"We believe the financial merits of this transaction are compelling," said Scott Lem, Ares Capital's chief financial officer, in the release, adding that it should add to core earnings and support dividends. Powell called it "a value-maximizing transaction" that "provides value meaningfully above MFIC's current stock price." John Zito, co-president of Apollo Asset Management, said Apollo had "taken active steps to support stockholder value across our public vehicles" this year. MFIC's board approved the deal on the unanimous recommendation of a special committee of independent directors, and Apollo affiliates owning 5.2 per cent of MFIC have agreed to vote for it.

The buyer's own book

Ares Capital is not buying from a position of untouched credit. Its third-quarter release, also published on Tuesday, showed NAV of $19.31 a share, down from $19.94 at the end of 2025, and loans on non-accrual at 2.4 per cent of the portfolio at cost, up from 1.8 per cent. Kort Schnabel, its chief executive, described "stable credit quality and historically low levels of non-accruing loans and problem assets." After the deal Ares Capital expects more than $31 billion of investments across more than 800 companies.

What to watch

MFIC reports its final 30 September NAV on 5 November; if it comes in below $12.86, the discount narrows on paper. Then the size of the special dividend, which sets the stock portion, and the MFIC shareholder vote. The deal is expected to close in the first half of 2027. The broader test is whether other listed lenders trading well below book value now attract offers at similar discounts, which would confirm that buyers, not just sellers, doubt the marks.

Deal terms, premiums, the preliminary NAV estimate, the cash contribution, share issuance, ownership split, Wells Fargo financing, timing, advisers and the quotes from Kort Schnabel, Tanner Powell and John Zito are from the joint release of 27 October 2026 and Ares Capital's Form 8-K of the same date describing the merger agreement signed on 26 October, both filed with the SEC. MFIC's earlier NAV figures, buyback prices, leverage and net assets are from its second-quarter release of 6 August 2026. Ares Capital's NAV, non-accrual rates and results are from its third-quarter release of 27 October 2026. The discount to NAV, implied MFIC closing price, share count, equity value, total cash contribution and the comparison with MFIC's buyback price are this publication's arithmetic. The analysis is our own.

Topics marketsprivate creditbusiness development companiesmergers