KBRA Assigns Rating to Owl Rock Capital Corporation III's $100 Million Senior Unsecured Notes due 2028

29 Jun 2023   |   New York


KBRA assigns a rating of BBB to Owl Rock Capital Corporation III’s ("ORCC III" or “the company") $100 million 8.10% senior unsecured notes due June 29, 2028. The rating Outlook is Stable.

Key Credit Considerations

The rating reflects the company’s ties to the solid $71.6 billion Blue Owl direct lending platform, the derived benefits from ORCC III’s SEC exemptive relief to co-invest with other Owl Rock companies, and its diversified $3.5 billion investment portfolio with a focus on upper middle market companies with a weighted average EBITDA of $190 million that falls within the typical borrower profile (81.5% of total) in non-cyclical sectors with the majority of investments comprised of senior secured first lien loans (78%) as of March 31, 2023. The company’s top 3 industry concentrations were Internet Software and Services (17.5%), Insurance (10.2%), and Healthcare Providers and Services (7.7%). The rating also reflects the company’s relatively appropriate gross leverage of 0.93x with regulatory asset coverage of 206%, leaving a solid 37% asset coverage cushion. KBRA believes that the company’s targeted leverage metric of 0.90x to 1.25x allows the company to absorb increased volatility in less favorable market conditions. 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. The company’s non-accruals remain low at 0.3% and 0.3% of total investments at cost and fair value, respectively. The company’s unsecured debt to total debt outstanding was approximately 42% as of March 31, 2023. The strengths are counterbalanced by the potential risk related to the company’s illiquid investments as a BDC, and its unseasoned investment portfolio stemming from its recent formation in 2020, as well as retained earnings constraints as a Regulated Investment Company (RIC).

Owl Rock Capital Corporation III 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 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 is managed by an affiliate of Blue Owl (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 Owl Rock Capital Corporation (KBRA Issuer/ Senior Unsecured Debt ratings of BBB/ Positive Outlook), Owl Rock Capital Corporation II (KBRA Issuer/ Senior Unsecured Debt Ratings of BBB/ Positive Outlook) and Owl Rock Core Income Corp. (KBRA Issuer/ Senior Unsecured Debt ratings of BBB/ Stable Outlook).

Rating Sensitivities

In the near future, a rating upgrade is not expected. The Stable Outlook could be revised to Positive if ORCC III’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 ORCC III’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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