KBRA Affirms Ratings for Blue Owl Capital Corporation
9 Nov 2023 | New York
KBRA affirms the BBB issuer and senior unsecured debt ratings for Blue Owl Capital Corporation (NYSE: "OBDC” or “the company”), formerly Owl Rock Capital Corporation. The Outlook for the ratings is Positive.
Key Credit Considerations
The ratings and maintenance of the Positive Outlook are supported by the company’s ties to the solid $79.5 billion Blue Owl direct lending platform, the derived benefits from OBDC’s SEC exemptive relief to co-invest with other funds managed by the advisor and its affiliates, and its diversified $12.9 billion investment portfolio comprised mostly of senior secured loans (82.7%) to mostly upper middle market companies in mainly non-cyclical industries, as of September 30, 2023. The ratings also reflect 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 30 years of experience in the industry. Additionally, the company maintains a prudent leverage target of 0.9x to 1.25x, which KBRA considers appropriate, allowing OBDC to absorb increased market volatility as well as a potential increase in non-accruals as we remain in an uncertain economic environment with increasing risk of a recession with high base rates for longer. Non-accruals remain relatively low at 0.8% and 0.95% of total investments at fair value and cost, respectively, as of September 30, 2023. KBRA believes OBDC benefits from the company’s solid underwriting and focus on portfolio companies in the upper middle market with EBITDAs in excess of $100 million. OBDC’s profitability has benefited from the rising interest rate environment with an asset sensitive balance sheet with the majority of its investments variable rate loans. OBDC maintains solid access to the capital markets with a diversified funding mix of secured bank facilities, CLOs, and senior unsecured debt. Approximately 58% of the company’s total outstanding debt was comprised of senior unsecured notes which allows for solid unencumbered assets for noteholders. The strengths are counterbalanced by the potential risk related to the company’s illiquid investments, retained earnings constrains as a Regulated Investment Company (RIC), and an uncertain economic environment and geopolitical risks.
Blue Owl Capital Corporation 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 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 was formed as a Maryland Corporation in October 2015 and was publicly listed on the NYSE in July 2019. The company is managed by Blue Owl Credit Advisors LLC, an indirect subsidiary of Blue Owl Capital, Inc. (NYSE: OWL), which had approximately $157 billion of assets under management, as of September 30, 2023. The company’s investment strategy coincides with the strategies of Blue Owl Capital Corporation II (KBRA Issuer/Senior Unsecured Debt ratings of BBB/Positive Outlook), Blue Owl Capital Corporation III (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).
Given the Positive Outlook, the company’s ratings could be upgraded in the medium term provided its credit metrics remain solid despite an uncertain economic environment amid higher rates, inflation, and geopolitical risks. A rating downgrade and/or Outlook change to Stable or to Negative could be considered if there is a significant downturn in the U.S. economy with negative impact on OBDC's earnings performance, asset quality, and leverage. A significant change in senior management and/or risk management policies could also lead to a negative rating action.
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