A listed lender added no new borrowers for a quarter, then agreed to be sold for 85 percent of its book. Its loans go with it.

What did a listed lender sell for, against what its own books said it was worth?

Less than its books said, and more than the market did. On 27 October 2026 Ares Capital Corporation agreed to acquire MidCap Financial Investment Corporation, a listed fund lending to US companies with less than $75 million of EBITDA, for $10.88 a share, against MidCap's own preliminary estimate of $12.86 a share of net asset value at 30 September (Ares Capital and MidCap, joint release, 27 October 2026).

The consideration is about $1.21 a share in cash, provided by a subsidiary of Ares Management, and about $9.67 a share in Ares Capital stock, for a total enterprise value of about $2.6 billion. It is a 30.1 percent premium to MidCap's closing price on 26 October and a 25.8 percent premium to its 30-day volume-weighted average price (same release). Our arithmetic: the price is 84.6 percent of the preliminary net asset value, and the closing price it was measured against was about $8.36, roughly 65 percent of it.

Three prices, one loan book: the lender's own estimate at $12.86, the market the day before at about $8.36, and a buyer at $10.88. The $12.86 is a preliminary figure prepared by MidCap's management and not reviewed by its auditor; the final figure is due with third-quarter results on 5 November 2026 (same release).

None of these is the price of a loan. Net asset value is the equity left after the fund's own borrowings, which stood at 1.54 times that equity on the company's net leverage measure at the end of June (MidCap, second quarter 2026 results, 6 August 2026). A 15 percent discount on the equity is a much smaller one on the loans beneath it: roughly six cents on each dollar of the June portfolio, on our approximate arithmetic, which sets a September price against a June balance sheet.

What did the lender do in the quarters before it was sold?

It stopped adding borrowers. In the second quarter of 2026 MidCap made $6 million of new commitments, all to borrowers it already had, added no new portfolio companies, and spent $31.9 million buying back 2,755,221 of its own shares at an average of $11.58, below its $13.37 net asset value (MidCap, second quarter 2026 results, 6 August 2026).

A year earlier it had invested $288.7 million and added 14 new companies in a single quarter. In the second quarter of 2026 it invested $47.2 million, more than half of it revolver draws by existing borrowers, while sales and repayments took $160.2 million more out than went in (same release). Over the year the portfolio fell from $3.33 billion to $2.77 billion at fair value, and from 249 companies to 229.

Credit was the stated cause of the falling value. Net asset value per share was lower at each of the five quarter-ends after June 2025, from $14.75 to the preliminary $12.86, and the company attributed the second-quarter fall to "credit-related weakness concentrated in a limited number of positions" (MidCap, 6 August 2026; joint release, 27 October 2026). Loans on non-accrual were 4.6 percent of the portfolio at amortized cost and 2.8 percent at fair value at the end of June, against 3.9 and 2.6 percent at the end of 2025 (MidCap, Form 10-Q, second quarter 2026).

The order of events is the point, in our judgement. A listed fund whose shares trade well below its net asset value gets more book value per dollar by buying its own stock than by making a new loan: at $11.58 a share, each dollar bought about $1.15 of net asset value on our arithmetic. A business development company also generally needs its stockholders' approval to sell new shares below net asset value. The capital such a lender still has is the repayments coming in, and it can send them to its stockholders or its own lenders before it sends them to a borrower.

What can the lender still do for its borrowers before the sale closes?

Very little new lending without the buyer's agreement. Until closing, the merger agreement bars MidCap from making loans or investments without Ares Capital's prior written consent, which may not be unreasonably withheld, outside listed exceptions; the one for existing borrowers covers ordinary-course investments at fair market value "that do not exceed $5,000,000 in the aggregate" (Agreement and Plan of Merger, section 6.1, 27 October 2026).

Funding commitments already made and listed in a disclosure schedule is permitted, and so is converting an existing loan into equity (same agreement). Amending, terminating or waiving material rights under the agreements behind a portfolio investment is on the list of actions that need the buyer's consent, and so are sales of investments, other than those under sale agreements already signed or above 98 percent of their third-quarter carrying value and within $5 million in aggregate (same agreement). The disclosure schedule that sets out further exceptions is not public.

Closing is expected in the first half of 2027, subject to the approval of MidCap's stockholders and to regulatory approvals (joint release, 27 October 2026). For a borrower that expects to need an add-on loan, a covenant waiver or an amendment before then, the answer now involves the buyer as well as the lender. In our judgement that is a request to raise early and in writing, not at the quarter-end covenant test.

What changes for a borrower when the loan moves to a larger lender?

The holder and its limits change; the terms of the loan do not change with them. When the merger closes, MidCap's loans become Ares Capital's, and Ares Capital expects the combined portfolio to hold more than 800 companies and more than $31 billion of investments at fair value, with MidCap adding more than 200 incumbent positions and taking the number of sponsors Ares Capital has transacted with above 600 (joint release, 27 October 2026). The borrower's consent is not among the closing conditions the release lists.

Two things follow, in our judgement. A larger lender with capital to put to work may fund what a shrinking one could not, and Ares Capital presents the incumbent relationships as a source of future investment opportunities (same release). But exposure also adds up: where the buyer already lends to the same company or to other companies of the same sponsor, the combined position counts against the buyer's own concentration limits, and a facility that was a comfortable position for one lender can become a large one for the next.

The origination business is not part of the sale. An Apollo affiliate manages MidCap, and John Zito, Co-President of Apollo Asset Management, said Apollo "will continue to invest in and grow our middle-market direct lending franchise, including through the MidCap Financial platform" (joint release, 27 October 2026). For a borrower, the people who underwrote a loan and the fund that holds it may, after closing, sit at two different firms.

What should an owner or a sponsor check about their own lender?

Whether it is still growing. For any listed lender three things are published every quarter and are worth reading, in our judgement: the price of its shares against its net asset value, the number of new companies it added and its new commitments, and whether it spent more on its own shares than on new loans. A lender that stopped adding borrowers a quarter ago may not be the one making its next decision about you.

Then read your own documents. Know who holds your loan, what the agreement says about transfers and about whose consent an amendment needs, and where the next dollar of capital would come from if your current lender could not provide it. A second lending relationship, kept warm before it is needed, is the cheapest answer to the last of those.

The next print to watch is MidCap's final third-quarter results, due on 5 November 2026 (joint release, 27 October 2026). A final net asset value below the preliminary $12.86, or a further rise in non-accruals, would say the book was still moving down when it was sold; for a borrower inside it, that makes a cautious first review by the new holder more likely.