KBRA Assigns Rating to Blue Owl Technology Income Corp.'s $100 Million Floating Rate Senior Unsecured Notes
6 Dec 2023 | New York
KBRA assigns a BBB rating to Blue Owl Technology Income Corporation’s (“OTIC” or “the company”) $100 million floating rate senior unsecured notes due January 15, 2029. The notes bear interest at a rate of SOFR +4.75%. The rating Outlook is Stable. The company changed its name from Owl Rock Technology Income Corporation effective July 6, 2023.
Key Credit Considerations
The rating reflects the company’s ties to the sizeable $79.5 billion Blue Owl direct lending platform, the derived benefits from OTIC’s SEC exemptive relief to co-invest with other funds managed by the advisor and its affiliates, and its diversified $2.9 billion investment portfolio focused on providing financing to technology-focused upper-middle market companies. Senior secured first lien debt comprised 84% of total investments, as of September 30, 2023. The company’s investments classified as traditional financing comprised 88.5% of the debt portfolio while those classified as growth capital comprised 8%, as of September 30, 2023. Investments classified as traditional financing had a weighted average EBITDA and enterprise value of $300 million and $6.2 billion, respectively, whereas investments classified as growth capital had a weighted average enterprise value of $15.2 billion. The rating also reflects the company’s solid management team, which has a long track record of working within the private debt markets with each member of the Investment Committee having an average of over 30 years of experience in the industry. Additionally, the company has a team of approximately 30+ tech-dedicated investment professionals and maintains an office in Menlo Park, CA to support origination and risk management.
The rating reflects the company’s appropriate gross leverage of 0.77x with regulatory asset coverage of 229%, allowing for a solid asset coverage cushion (52.7%) which KBRA believes should help OTIC absorb increased market volatility with higher interest rates and inflation in less favorable markets. The company continues to strengthen its funding profile with this issuance of unsecured debt to provide greater financial flexibility. In addition, the company has $1.8 billion of committed debt facilities (revolver and SVP asset facilities) with approximately $279 million available. The company continues to raise capital quarterly with $294.9 million raised, excluding reinvestment of distributions, and only tendered $39.7 million in 3Q23. The company has no non-accruals, as of September 30, 2023, partially due to the generally short period of operations commencing less than two years ago. The strengths are counterbalanced by the potential risk related to the company’s illiquid investments as a BDC, its short operating history offset by the broader technology lending that has been a core part of the Blue Owl platform, high but declining percentage of secured debt, and retained earnings constraints as a Regulated Investment Company (RIC).
Blue Owl Technology Income Corporation is a private perpetual non-traded, externally managed, non-diversified closed-end management investment company that has elected to be treated as a Business Development Company (BDC) under the 1940 Act and to be treated as a RIC, which, among other things, must distribute to its shareholders at least 90% of the company’s investment company taxable income. The company was formed in June 2021 as a Maryland Corporation and commenced operations in May 2022. The company is managed by Blue Owl Technology Credit Advisors II LLC, an indirect subsidiary of Blue Owl Capital, Inc. (NYSE: OWL), which had approximately $157 billion of AUM, as of September 30, 2023. The company’s investment strategy coincides with the strategies of Blue Owl Technology Finance Corp. (KBRA Issuer/Senior Unsecured Debt ratings of BBB/Stable Outlook) and Blue Owl Technology Finance Corp. II (KBRA Issuer/Senior Unsecured Debt ratings of BBB/Stable Outlook). Blue Owl’s technology lending products had approximately $17.7 billion of AUM, as of September 30, 2023.
A rating upgrade is not expected in the near future. The Stable Outlook could be revised to Positive if OTIC’s asset quality remains solid despite the company’s rapid growth and if leverage metrics remain appropriate for the company’s risk profile. A rating downgrade and/or Outlook change to Negative could be considered if there is a significant downturn in the U.S. economy with negative impact on OTIC’s earnings performance, asset quality, or leverage. A significant change in senior management and/or risk management policies could also lead to negative rating action.
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