KBRA Affirms Ratings for Blue Owl Credit Income Corporation
21 Sep 2023 | New York
KBRA affirms the BBB issuer and senior unsecured debt ratings for Blue Owl Credit Income Corporation (“OCIC” or “the company”), formerly Owl Rock Core Income Corporation. The Outlook for the ratings is Stable.
Key Credit Considerations
The ratings reflect the company’s ties to the sizeable $73.8 billion Blue Owl direct lending platform, the derived benefits from OCIC’s SEC exemptive relief to co-invest with other funds managed by the advisor and its affiliates, and its diversified $13.1 billion investment portfolio to 242 companies with a focus on senior secured first lien loans (80%) to upper middle market companies in non-cyclical sectors as of June 30, 2023. KBRA views the company’s leverage as adequate with a debt-to-equity ratio of 1.0x, within the company’s target range of 0.9x to 1.25x. Asset coverage was 198%, allowing for a solid cushion to regulatory minimum of 150%. KBRA believes that the company’s targeted leverage metrics allow the OCIC to absorb increased volatility in less favorable market conditions. 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. OCIC maintains solid liquidity with $1.7 billion of available credit facilities and $364 million of cash with its earliest maturity of $500 million due in 2025 and $982 million of unfunded commitments. Furthermore, to increase financial flexibility and provide greater asset unencumbrance, the company has continued to access the capital markets, improving its funding mix with unsecured debt to total debt outstanding of 36.7%, as of June 30, 2023. As a continuously offered perpetual BDC, OCIC raises capital monthly and offers up to 5% of its shares for repurchase quarterly. As of August 1, 2023, the company had raised gross proceeds of $7.4 billion. During 1H23, the company raised $2.5 billion and had only $51 million of shares repurchased through its tender offers. To ensure sufficient liquidity for repurchases, the company maintains sufficient cash and available credit lines for several quarters. Credit quality remains strong with only one debt investment on non-accrual status with a fair value and cost of $4.0 million and $3.9 million, respectively, or 0.03% of total investments at fair value and cost, while 97.2% of the company's portfolio maintains an internal risk rating of 1 or 2, performing at or above the company's expectations. The strengths are counterbalanced by the potential risk related to the company’s illiquid investments, rapid portfolio growth, as well as retained earnings constraints as a Regulated Investment Company (RIC).
Blue Owl Credit Income Corporation 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 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 as a Maryland Corporation on April 22, 2020, began investing activities on November 10, 2020, and is managed by Blue Owl Credit Advisors LLC, affiliate of Blue Owl Capital, Inc. (NYSE: OWL) which had $150 billion of AUM as of June 30, 2023. 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).
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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