KBRA Affirms Ratings for Blue Owl Technology Finance Corp.

KBRA affirms the issuer and senior unsecured debt ratings of BBB for Blue Owl Technology Finance Corp. ("OTF" or "the company"). The rating Outlook is Stable.

Key Credit Considerations

OTF's ratings are supported by the company's ties to the significant $136 billion Blue Owl Credit platform as well as the derived benefits from OTF's SEC exemptive relief to co-invest with other fund managed by the adviser and its affiliates, including the $24.5 billion deployed across the technology strategy. Furthermore, the experienced management team that has decades of experience working in the private markets has built a high credit quality direct lending platform to finance mainly sponsor-backed portfolio companies in the upper middle market. The company has a team of 35+ tech dedicated investment professionals in Menlo Park, CA and New York which supports origination and risk management.

With the recent merger with its affiliated technology business development company ("Blue Owl Technology Finance Corp. II"), OTF has $11.5+ billion of total investments at fair value on a pro-forma basis as of December 31, 2024. Prior to closing in March 2025, Blue Owl Technology Finance Corp. II ("OTF II") called the remaining $1.3 billion of committed capital which will further increase its investments when fully deployed, making it one of the largest BDCs in the space. Pro-forma for the merger, the investment portfolio is diverse consisting of 81% senior secured loans (77% senior secured first lien) to 180 technology focused portfolio companies with its top three sector exposures by end market Systems Software (22%), Application Software (15%), and Health Care Technology (14%). The portfolio companies had a weighted average EBITDA of $228 million with a weighted average revenue of $792 million as of September 30, 2024. Credit quality remains solid with only one portfolio company on non-accrual, accounting for less than 0.1% of total investments at FV, and 93% of the portfolio is internally rated its highest ratings of 1 or 2, which indicate that the loan is performing at or above at underwriting expectations. While 20%+ of the company's portfolio comprises recurring revenue loans, these loans are to high growth portfolio companies that have high enterprise values and low LTVs of about 20%.

Further supporting the ratings are the company's diversified funding sources including bank revolving credit facilities, SPV asset facilities, CLOs, and unsecured notes. The company has solid access to the capital markets, raising unsecured debt multiple times over the past few years. Unsecured debt to total debt outstanding on a combined basis was 36%, providing adequate asset encumbrance for unsecured noteholders and financial flexibility as of December 31, 2024. Gross and net leverage was 0.83x and 0.82x, respectively, below the target leverage range of 0.9x to 1.25x, which is appropriate given the company's asset mix with relatively high though declining exposure to preferred and common equity (15%), which are more volatile. As of December 31, 2024 (pro-forma), the company had adequate liquidity, with ~$2.7 billion in available bank lines and $473 million of cash set against $1.2 billion of notes maturing within the next two years. In January 2025, the company issued $650 million of senior unsecured notes in anticipation of upcoming maturities. The company also had $608.3 million of unfunded commitments of which a portion is tied to covenants and transactions and are not expected to be drawn.

Counterbalancing these strengths are the company's requirement to distribute 90% of earnings negating the ability to retain earnings, illiquid assets and increased Net Asset Value (NAV) volatility with a relatively sizeable portfolio of equity and preferred stock investments relative to peers. Furthermore, OTF has a relatively short operating history of about six years, offset by the long tenure of its senior management and the broader technology lending that has been a core part of the Blue Owl Credit platform.

Formed in July 2018 as a Maryland corporation, Blue Owl Technology Finance Corp. is a private, non-traded, externally managed, closed-end management investment company that has elected to be regulated as a BDC under the Investment Company Act of 1940 and has elected to be treated as a regulated investment company for tax purposes. OTF is externally managed by Blue Owl Technology Credit Advisors LLC ("the Adviser"). The Adviser is an indirect subsidiary of Blue Owl Capital (NYSE: OWL), a global alternative asset manager with $251+ billion of AUM.

Rating Sensitivities

A rating upgrade is not expected in the near future. Should the company continue to increase its percentage of first lien senior secured loans while maintaining solid credit metrics in a more challenging economic environment, the rating and/or Outlook could move in a positive direction. 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 OTF'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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