KBRA Assigns Rating to Blue Owl Technology Income Corporation's $100 Million Senior Unsecured Notes due 2026
6 Jul 2023 | New York
KBRA assigns a rating of BBB to Blue Owl Technology Income Corporation’s (“OTIC” or “the company”) $100 million 8.25% senior unsecured notes due July 6, 2026. The rating Outlook is Stable. The company changed its name from Owl Rock Technology Income Corporation effective July 6, 2023.
Key Credit Considerations
The rating reflects the company’s ties to the sizeable $71.6 billion Blue Owl direct lending platform, the derived benefits from OTIC’s SEC exemptive relief to co-invest with other funds managed by the advisor and its affiliates, and its diversified $2.1 billion investment portfolio focused on providing financing to technology-focused upper-middle market companies. Senior secured debt comprised 89% of total investments with 78% in first lien senior secured debt. The company’s investments classified as traditional financing comprised 84% of the debt portfolio while those classified as growth capital comprised 11% as of March 31, 2023. Investments classified as traditional financing have a weighted average EBITDA and enterprise value of $241.5 million and $5.9 billion, respectively, whereas, investments classified as growth capital have a weighted average enterprise value of $14.5 billion. 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 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 rating takes into account the company’s appropriate gross leverage of 0.82x. Regulatory asset coverage was 219%, allowing for a solid 46% coverage cushion which KBRA believes should help OTIC absorb increased market volatility with higher interest rates and inflation in less favorable markets. The company does 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 Blue Owl platform, fully secured funding profile, as well as retained earnings constraints as a Regulated Investment Company (RIC). The notes issuance will diversify its funding sources and increase financial flexibility. The company has $1.75 billion of committed debt facilities with approximately $317 million available. The company continues to raise capital quarterly with $173.6 million raised in 1Q23 and only tendered $36.1 million.
Blue Owl Technology Income Corporation is a private perpetual non-traded, externally managed, non-diversified closed-end management investment company that has elected to be treated as a Business Development Company 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 June 2021 as a Maryland Corporation and commenced operations in May 2022. The company is managed by Blue Owl Technology Credit Advisors II LLC, an indirect subsidiary of Blue Owl Capital, Inc. (NYSE: OWL), which had approximately $144.4 billion of AUM as of March 31, 2023. The company’s investment strategy coincides with the strategies of Blue Owl Technology Finance Corporation (KBRA Issuer/ Senior Unsecured Debt ratings of BBB/ Stable Outlook), and Blue Owl Technology Finance Corporation II (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.
A rating upgrade is not expected in the near future. The Stable Outlook could be revised to Positive if asset quality remains solid despite the company’s rapid growth and if 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 earnings performance, asset quality, or leverage. A significant change in senior management and/or risk management policies could also lead to negative rating action.
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