KBRA Affirms Ratings for Blue Owl Capital Corporation II
11 Sep 2025 | New York
KBRA affirms the issuer and senior unsecured debt ratings of BBB+ for Blue Owl Capital Corporation II ("OBDC II" or "the company"). The rating Outlook is Stable.
Key Credit Considerations
The ratings are supported by OBDC II’s ties to the $145.5 billion Blue Owl Credit platform, which has a strong reputation, and by its seasoned management team with decades of private market experience that has built a high-quality direct lending platform focused on financing sponsor-backed upper middle market companies. Management has implemented a comparatively favorable and comprehensive set of risk management tools to ensure solid liquidity, funding, and asset quality in less favorable markets. The company has SEC exemptive relief to co-invest with other funds managed by Blue Owl Credit Advisors LLC and its affiliates, as well as the company's diversified $1.7 billion investment portfolio of 184 portfolio companies with a focus on senior secured first lien loans (77.5%) to upper middle market companies in less cyclical sectors as of June 30, 2025. OBDC II's investment portfolio of traditional loans (96.4%) had a weighted average annual EBITDA and weighted average revenue of $191 million and $937 million, respectively as of June 30, 2025.
The ratings also reflect the company's diversified funding sources that include a committed revolving credit facility, SPV asset facilities, a CLO, and senior unsecured notes. The company's solid percentage of senior unsecured debt to total debt of 48.5% provides for financial flexibility and less asset encumbrance for the benefit of the senior unsecured noteholders. The company has comfortable liquidity with ~$360 million of available bank lines of credit and approximately $58.6 million of unrestricted cash and cash equivalents set against $350 million of notes maturing in 2026. The company had $165.7 million of unfunded commitments where a portion are tied to covenants and transactions and are not expected to be drawn.
KBRA views the company's gross leverage as conservative at 0.70x, which is low relative to peers, reflecting the company's more restrictive regulatory asset coverage requirement of 200%. The company was established as a BDC prior to the Small Business Credit Availability Act (SBCAA), reducing regulatory asset coverage to 150%; the company has thus far chosen to maintain the more restrictive coverage requirement. KBRA views the company's asset coverage ratio of 242% as prudent, allowing for an adequate cushion for less favorable economic conditions. Credit quality remains solid with non-accruals as a percent of cost and FV at 2.5% and 1.0%, respectively, while 87.4% of the portfolio maintains an internal performance rating of 1 or 2, signifying that the loans are performing at or above underwriting expectations as of June 30, 2025.
The strengths are counterbalanced by the industrywide potential risk related to the company's illiquid investments, 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. KBRA believes that OBDC II and other Blue Owl BDCs will remain comparatively resilient.
Blue Owl Capital Corporation II is an 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 has elected to be treated as a RIC, which, among other things, must distribute to its shareholders at least 90% of the company's taxable income. The company commenced operations in April 2017 and is managed by Blue Owl Credit Advisors LLC, an affiliate of Blue Owl Capital, Inc. (NYSE: OWL), which had ~$284 billion of AUM as of June 30, 2025. The company's investment strategy coincides with the strategies of Blue Owl Capital Corporation (KBRA Issuer/Senior Unsecured Debt Ratings of BBB+ / Stable Outlook) and Blue Owl Credit Income Corp. (KBRA Issuer/Senior Unsecured Debt Ratings of BBB+ / Stable Outlook).
Rating Sensitivities
Given the Stable Outlook, a rating upgrade is not expected over the medium term. A rating downgrade and/or Outlook change to Negative could be considered if there is a significant downturn in the U.S. economy with a greater-than-expected negative impact on OBDC II'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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