KBRA Releases Surveillance Report for Owl Rock Technology Finance Corporation II
5 Jun 2023 | New York
On May 11, 2023, KBRA affirmed the issuer and unsecured debt ratings of BBB for Owl Rock Technology Finance II Corporation. The rating Outlook is stable.
The ratings reflect the company’s ties to the sizeable $71.6 billion Blue Owl direct lending platform, the derived benefits from ORTF II’s SEC exemptive relief to co-invest with other funds managed by the advisor and its affiliates, and its diversified $2.8 billion investment portfolio to 69 companies that provide financing to technology-focused upper-middle market companies. First lien senior secured debt comprised 75% of total investments. The company’s investments classified as traditional financing comprised 78% of the debt portfolio while its investments classified as growth capital comprised 17% as of March 31, 2023. Investments classified as traditional financing had a weighted average EBITDA of $170 million. Investments classified as growth capital had a weighted average enterprise value of $11.9 billion. The ratings also reflect 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 25 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 ratings also reflect the company’s adequate gross leverage of 1.28x with regulatory asset coverage of 178%, generating an adequate 19% asset coverage cushion which KBRA believes should help ORTF II absorb increased market volatility with higher interest rates and inflation in less favorable markets. ORTF II had $4.1 billion of committed capital, of which approximately $1.3 billion has been drawn as of March 31, 2023. Around $53 million of the committed capital is from affiliated companies. While the company’s funding profile is diversified with $2.4 billion of committed debt facilities, ORTF II does not have any unsecured term debt. However, the outstanding debt includes the mostly drawn $800 million subscription facility that is secured by the company’s capital commitments. This represented approximately 50% of total debt outstanding. Secured debt (excluding the subscription credit facility) to total assets was 27.7% as of March 31, 2023. To further diversify its funding sources and increase financial flexibility, ORTF II plans to issue unsecured senior debt when market conditions allow. The company did not have any non-accruals as of March 31, 2023, partially due to the generally short period of operations starting 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 Owl Rock platform since inception, as well as retained earnings constraints as a Regulated Investment Company (RIC).
Owl Rock Technology Finance Corporation II is a private, 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 October 2021 as a Maryland Corporation and commenced operations in December 2021. The company is managed by Owl Rock Technology Advisors II LLC (“Adviser”), an indirect subsidiary of Blue Owl Capital, Inc. (NYSE: OWL), a global alternative asset manager with approximately $144.4 billion of AUM as of March 31, 2023. The company’s investment strategy coincides with the strategy of Owl Rock Technology Finance Corporation (KBRA Issuer/ Senior Unsecured Debt ratings of BBB/ Stable Outlook) and Owl Rock Technology Income Corporation (KBRA Issuer/ Senior Unsecured Debt ratings of BBB/ Stable Outlook). Blue Owl’s technology lending products had approximately $17.2 billion of AUM as of March 31, 2023.
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