Ares Capital and Main Street Capital Ride the Rate-Hike Wave

The Federal Reserve's interest rate policy has left investors on edge, and some are turning to floating-rate lenders as a potential safe haven. Two publicly traded business development companies (BDCs) that stand out in this environment are Ares Capital (NASDAQ: ARCC) and Main Street Capital (NYSE: MAIN). Both offer high yields and portfolios built to benefit when rates climb.

Ares Capital is the largest publicly traded BDC by net assets, with a non-accrual loan level of 2.4% of amortized cost as of June 30. The company's core earnings covered its $0.48 quarterly dividend, and it held roughly $6 billion in liquidity.

Main Street Capital focuses on lower-middle-market companies and pairs debt with equity stakes. Its non-accruals measured just 1.1% of the portfolio at fair value as of June 30. The company's distributable net investment income supported both its regular monthly dividend and a $0.30 supplemental.

Both Ares Capital and Main Street Capital have maintained moderate leverage and ample liquidity, giving them flexibility to absorb potential funding costs during rate increases without cutting dividends.