KBRA Releases Surveillance Report for Owl Rock Technology Finance Corporation
5 Jun 2023 | New York
On May 11, 2023, KBRA affirmed the issuer and unsecured debt ratings of BBB for Owl Rock Technology Finance Corporation. The rating Outlook is stable.
Owl Rock Technology Finance Corporation’s ratings are supported by the company’s strong ties to the sizeable $71.6 billion Blue Owl direct lending platform, the derived benefits from ORTF’s SEC exemptive relief to co-invest with other funds managed by the advisor and its affiliates, and its diversified $6.5 billion investment portfolio to 121 companies that provide financing to technology-focused upper-middle market companies. Senior secured debt comprised 74% of total investments with 66% first lien loans. The company’s investments classified as traditional financing comprised 70% of the debt portfolio while its investments classified as growth capital (recurring revenue) comprised 26% as of March 31, 2023. The weighted average EBITDA and LTV of traditional financed loans were $130 million and 29%, respectively, while the weighted average revenue and enterprise value of its growth capital loans were $428 million and $8.1 billion, respectively. Further, the company’s management team 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. To support its technology focused direct lending efforts, the company has a team of 30+ tech-dedicated investment professionals and maintains an office in Menlo Park, CA which supports origination and risk management.
The ratings are further supported by the company’s relatively low leverage of 0.95x, well within its target of 0.75x to 1.25x and appropriate for its asset mix of 66% senior secured first lien debt. Regulatory asset coverage was 205%, with a solid 37% cushion, which KBRA believes should help ORTF absorb increased market volatility with higher interest rates and inflation in less favorable markets. The company’s funding sources are well diversified and unsecured debt to total debt was a healthy 50%, allowing for sufficient unencumbered collateral for unsecured noteholders at 1Q23. Liquidity was adequate with $430 million of available revolver and $218 million of cash with $378 million of unfunded commitments and no maturities prior to June 2025. ORTF had only one loan on non-accrual which comprised 0.2% and 0.2% of total investments at cost and fair value, respectively.
These strengths are counterbalanced by the potential risk related to ORTF’s business as a regulated BDC, illiquid assets, its relatively short operating history offset by the broader technology lending that has been a core part of Owl Rock's platform since inception, higher NAV, and earnings volatility relative to peers with its sizeable tech-focused portfolio of equity and preferred stock investments of 20% at 1Q23.
Formed in 2018, ORTF is a non-diversified, closed-end, non-traded externally managed business development company. ORTF is regulated under the Investment Company Act of 1940 and is registered as a regulated investment company for tax purposes. The company’s advisor, Owl Rock Technology Advisors LLC, is 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 II (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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