KBRA Assigns Rating to Owl Rock Core Income Corp.'s Senior Unsecured Notes Due 2028

6 Jun 2023   |   New York


KBRA assigns a rating of BBB to Owl Rock Core Income Corp.’s (“ORCIC” or “the company”) $500 million 7.950% senior unsecured notes due 2028. The rating Outlook is Stable. The proceeds will be used for general corporate purposes, including the repayment of debt.

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 ORCIC’s SEC exemptive relief to co-invest with other funds managed by the advisor and its affiliates, and its diversified $11.6 billion investment portfolio to 220 companies with a focus on upper middle market companies in non-cyclical sectors with the majority of investments comprised of senior secured first lien loans (79%) as of March 31, 2023. KBRA views the company’s leverage as adequate with a debt-to-equity ratio of 1.02x, within the company’s target range of 0.9x to 1.25x. Asset coverage was 195%, allowing for a solid cushion to regulatory minimum of 150%. KBRA believes the company’s targeted leverage metrics allow the company to absorb increased volatility in less favorable market conditions. 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 20 years of experience in the industry. To increase financial flexibility and provide greater asset unencumbrance the company has continued to access the capital markets improving its funding mix with unsecured debt to total debt outstanding of 33% as of March 31, 2023. The note offering will further increase the company percentage of unsecured debt. Liquidity is solid with no short-term maturities. As of May 11, 2023, the company raised gross proceeds of $6.3 billion and has had only $33 million in shares tendered through its last quarterly offering as of March 31, 2023. The company had one debt investment on non-accrual with a fair value and cost of $3.8 and $3.8 million, respectively. The strengths are counterbalanced by the potential risk related to the company’s illiquid investments, rapid portfolio growth, as well as retained earnings constraints as a Regulated Investment Company (RIC).

Owl Rock Core Income Corp. 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 intends to elect 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 as a Maryland Corporation on April 22, 2020, began investing activities on November 10, 2020, and is managed by Owl Rock Capital Advisors, LLC, an indirect subsidiary of Blue Owl Capital, Inc. (NYSE: OWL) which had $144.4 billion of AUM as of March 31, 2023. ORCIC is structured as a continuously offered, perpetual private BDC that does not intend to seek a liquidity event. 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 Capital Corporation III (KBRA Issuer/Senior Unsecured Debt ratings of BBB / Stable Outlook).

Rating Sensitivities

Over the medium term, a rating upgrade is not expected. The Stable Outlook could be revised to Positive if ORCIC’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 ORCIC’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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