KBRA Assigns Rating to Blue Owl Credit Income Corp.'s $1 Billion Senior Unsecured Notes

KBRA assigns a rating of BBB to Blue Owl Credit Income Corp.'s (“OCIC” or “the company”) $1 billion 5.800% senior unsecured notes due 2030. The rating Outlook is Stable.

Key Credit Considerations

The rating reflects the company’s ties to the sizeable $95 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 the company's diversified $22.2 billion investment portfolio to 337 companies with a focus on senior secured first lien loans (87.8%) to upper middle market companies in less cyclical sectors as of June 30, 2024. For traditional financing, excluding the company's joint ventures and certain investments that fall outside of the typical borrower profile (87.4% of total debt investments), weighted average annual EBITDA and revenue were $253 million and $1.1 billion, respectively. The company maintains a high percentage of level 2 assets at ~22%. 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 gross leverage as adequate with a debt-to-equity ratio of 0.86x (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 209% allowing for a solid cushion to regulatory minimum of 150% as of June 30, 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 percentage of unsecured debt to total debt outstanding will increase further with this issuance, boosting pro forma unsecured debt to total debt outstanding to ~53% from ~43%, which provides less asset encumbrance for the benefit of senior unsecured noteholders and greater financial flexibility. The company has adequate liquidity with $1.5 billion of bank credit availability and $429.2 million of unrestricted cash set against $500 million of unsecured debt due (March 2025) and unfunded commitments of about $3.1 billion. Liquidity will increase with the issuance of these notes as a portion of the proceeds will be used to repay its outstanding secured bank debt. Additionally, a portion of the unfunded commitments are tied to covenants and transactions and are not expected to be drawn. Furthermore, as a continuously offered perpetual BDC, OCIC raises capital monthly and offers up to 5% of its shares for repurchase quarterly. OCIC raised significant equity of $12.2 billion through August 1, 2024, up from $7.4 billion a year ago August 2023. As a continuously offered perpetual BDC, the company does not have a liquidation event nor does it plan one. The company intends to repurchase up to 5% of the company’s outstanding shares each quarter but is not required to do so if market conditions cause undue stress to the operation. During 1H24, the company raised close to $3 billion of equity and tendered $294 million (10x).

Credit quality remains strong with two portfolio companies on non-accrual status and remain low as a percentage of total investments at 0.05% and 0.03% of total investments at cost and FV, respectively, as of 2Q24. The company’s investment portfolio remains unseasoned with 97.7% of investments at FV having an internal risk rating of a 1 or 2, performing at or above the company’s initial underwriting expectations. The strengths are counterbalanced by the potential risks related to the company’s illiquid investments, an unseasoned investment portfolio with high portfolio growth, retained earnings constraints as a Regulated Investment Company (RIC), and the potential for increased non-accruals with a more uncertain economic environment with high base rates, inflation, and geopolitical risk.

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, commended operations on November 10, 2020, and is managed by Blue Owl Credit Advisors LLC ("Adviser"), affiliate of Blue Owl Capital, Inc. (NYSE: OWL), which had ~$192 billion of AUM as of June 30, 2024. 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

The rating could be upgraded or 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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