KBRA Assigns Rating to Blue Owl Credit Income Corp.'s $500 Million Senior Unsecured Notes due 2029
14 May 2024 | New York
KBRA assigns a rating of BBB to Blue Owl Credit Income Corp.'s (“OCIC” or “the company”) $500 million 6.60% senior unsecured notes due September 15, 2029. The rating Outlook is Stable. The proceeds will be used to pay down revolver borrowings and other secured financing.
Key Credit Considerations
The rating reflects the company’s ties to the sizeable $91.3 billion Blue Owl Credit platform where the company has SEC exemptive relief to co-invest with other funds managed by the Adviser and its affiliates, as well as its diversified $19.0 billion investment portfolio to 311 companies with a focus on senior secured first lien loans (85.4%) to upper middle market companies in non-cyclical sectors as of March 31, 2024. For traditional financing, excluding the company's joint ventures and certain investments that fall outside the typical borrower profile (87.2% of total debt investments), the weighted average annual EBITDA and revenue were $247.0 million and $1.0 billion, respectively. The company maintains a high percentage of broadly syndicated loans (BSLs) at ~20%.
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 decades of experience in the industry. KBRA views the company’s leverage as adequate with a debt-to-equity ratio of 0.89x (net leverage 0.82x), below the company’s target range of 0.90x to 1.25x for net leverage, and an asset coverage ratio of 208% allowing for a solid cushion to regulatory minimum of 150% as of March 31, 2024. KBRA believes that the company’s targeted leverage metrics would allow OCIC to absorb increased volatility in less favorable market conditions.
The company has continued to access the capital markets, with a solid funding mix providing financial flexibility, which includes a bank revolving credit facility, SPV asset facilities, CLOs, and unsecured notes. The proportion of unsecured debt to total debt outstanding will increase further with this issuance, boosting pro-forma unsecured debt to total debt outstanding to ~49% from ~43%, which provides increased asset unencumbrance for the benefit of unsecured noteholders and additional bank credit availability as of March 31, 2024. OCIC maintains solid liquidity with ~$2.06 billion of bank credit availability with its earliest maturity $500 million due in March 2025 and unfunded commitments of ~$1.9 billion as of March 31, 2024. Furthermore, as a continuously offered perpetual BDC, OCIC raises capital monthly and offers up to 5% of its shares for repurchase quarterly. The company raised $1.3 billion in 1Q24 with only $142 million of shares tendered. Since inception, the company raised ~$10.8 billion. Credit quality remains strong with only one debt investment on non-accrual status with a fair value and cost of $4.4 million and $4.5 million, respectively, or 0.02% of total investments at fair value and cost, while 97.8% of the company's portfolio maintains an internal risk rating of 1 or 2, performing at or above the company's expectations at underwriting as of March 31, 2024. The strengths are counterbalanced by the potential risk related to the company’s illiquid investments, rapid portfolio growth, and retained earnings constraints as a Regulated Investment Company (RIC).
Blue Owl Credit Income Corp. is an 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 intends to elect to be treated as an 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 as a Maryland Corporation on April 22, 2020, began investing activities on November 10, 2020, and is managed by Blue Owl Credit Advisors LLC ("Adviser"), affiliate of Blue Owl Capital, Inc. (NYSE: OWL) which had ~$174 billion of AUM as of March 31, 2024. OCIC is structured as a continuously offered, perpetual private BDC that does not intend to seek a liquidity event. The company’s investment strategy coincides with the strategies of Blue Owl Capital Corporation (KBRA Issuer/Senior Unsecured Debt ratings of BBB / Positive Outlook), Blue Owl Capital Corporation II (KBRA Issuer/Senior Unsecured Debt Ratings of BBB / Positive Outlook), and Blue Owl Capital Corporation III (KBRA Issuer/Senior Unsecured Debt ratings of BBB / Stable Outlook).
Rating Sensitivities
Over the medium term, a rating upgrade is not expected. The Stable Outlook could be revised to Positive if OCIC’s asset quality remains solid despite the company’s rapid growth and 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 OCIC’s earnings performance, asset quality, and leverage. A significant change in senior management and/or risk management policies could also lead to negative rating action.
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