The Federal Reserve’s recent path has left investors bracing for the next turn. It cut rates three times in 2025, but has held the federal funds rate steady at 3.50% to 3.75% throughout 2026. Investors remain alert for any shift in policy, as inflation data remains somewhat elevated. In that environment, floating-rate lenders often stand out — especially the publicly traded business development companies (BDCs) that fill the gap banks leave behind for mid-sized firms.
Two names rise above the noise: Ares Capital (NASDAQ:ARCC | ARCC Price Prediction) and Main Street Capital (NYSE:MAIN). Both offer high yields and portfolios built to benefit when rates climb, even as private credit shows pockets of stress.
Why Floating-Rate Portfolios Matter Now
Most BDC loans reset with short-term rates. When the Fed hikes rates, interest income on those loans rises quickly. Ares reported a portfolio yield of 10.3% at cost in its second-quarter 2026 earnings release; Main Street’s lower-middle-market debt carried a weighted-average effective yield of 12.6% in the same period. Those figures already outpace many fixed-income alternatives. Higher benchmark rates would push them further while the companies continue collecting payments on the bulk of their books.
Conversely, traditional bond funds often see prices fall when rates rise. BDCs sidestep much of that duration risk because their assets reprice. A Federal Reserve study earlier this year also noted that banks charge BDCs higher funding costs during rate increases due to concentrated lending relationships. Yet both Ares and Main Street have maintained moderate leverage and ample liquidity, giving them flexibility to absorb those costs without cutting dividends.
Ares Capital: Scale and Steady Coverage
Ares Capital is the largest publicly traded BDC by net assets. Non-accrual loans stood at 2.4% of amortized cost (1.4% at fair value) as of June 30 — below the median 2.8% reported across the 20 largest BDCs in a mid-August Financial Times analysis of Solve data. Management noted the level remains under its long-term average near 3%.
Core earnings of $0.47 per share covered the $0.48 quarterly dividend, and the company held roughly $6 billion in liquidity. Its first-lien-heavy mix and diversification across hundreds of borrowers give it room to absorb isolated problems without threatening the payout.
To put that in context, some peers, such as FS KKR Capital (NYSE:FSK), reported troubled loans well above the median in the same quarter. Ares scale lets it originate selectively even when deal volume slows, as it did in the second quarter when exits slightly outpaced new commitments.
In short, the numbers show a lender that keeps generating income even when a few credits stumble.
Main Street Capital: Quality at a Premium
Main Street Capital focuses on lower-middle-market companies and often pairs debt with equity stakes. Non-accruals measured just 1.1% of the portfolio at fair value (4% at cost) at the end of the second quarter. Net asset value rose to $33.92 per share, and distributable net investment income of $1.04 per share supported both the regular monthly dividend and a $0.30 supplemental.
That combination has produced an all-in yield that still looks attractive relative to the risk. The equity kicker provides potential upside that pure-debt peers lack, while the fair-value non-accrual rate sits well below sector medians.
Granted, Main Street trades at a premium to net asset value, so investors pay for the quality track record. That said, its lower-middle-market focus has historically delivered more stable credit performance than broader middle-market books. The company’s ability to raise NAV while maintaining coverage offers a cushion if rate hikes eventually pressure some borrowers.
Key Takeaway
Ares Capital and Main Street Capital are not immune to the broader rise in private-credit non-accruals, yet their latest filings place them among the more resilient names. Floating-rate structures position both to capture higher income if the Fed pivots to hikes, and their current yields — near 10% for Ares and in the high single digits for Main Street, including supplements — offer income that pure bond funds struggle to match.
Sharp investors seeking high yields with a rate-hike tailwind can start here, while watching quarterly non-accrual trends and dividend coverage for confirmation that the investment thesis holds.
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