ORCC - Earnings call transcript Q2 2019 | Blue Owl Capital Corporation

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning and welcome to Owl Rock Capital Corporation's Second Quarter 2019 Earnings Call. I would like to remind our listeners that remarks made during the call may contain forward-looking statements.

Forward-looking statements are not guarantees of future performance or results and involve a number of risks and uncertainties that are outside the company's control.

Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Owl Rock Capital Corporation's filings with the Securities and Exchange Commission. The Company assumes no obligation to update any forward-looking statements.

call recorded this replay reminder, a is for being purposes. As XXXX. press Company second posted XX, issued the release quarter its June the Yesterday for earnings and presentation an ended earnings

with This the July presentation with SEC. the reviewed should in XX Company's XX-Q filed be Form on conjunction

please refer earnings so will presentation available the call presentation We that throughout to to today, the have you.

presentation website. As our a on reminder, is available the earnings

go Rock ahead. Craig now Packer, over Chief Capital turn Corporation. of Officer will Please I to Owl the Executive call

Craig Packer

Thank everyone, first joining call and company. morning, Co-Founder of you. today as us Owl the Craig and CEO is of traded for Good Owl Rock. you thank and Corporation Rock publicly for Packer, earnings our am This Capital I a

Officer Joining me and Officer. today is Operating Alan Financial Chief Chief Kirshenbaum, our

moment call I the like morning. our well we welcome take investors earnings a of as and members Before our this to new to to existing as community would research begin

of the $XX.XX initial BDC call based of pleased on discussing As two our at a our Gross first briefly shares Exchange priced price this July $X second equity We're I is IPO. traded by publicly the weeks an approximately our priced resulted On since on XX York capitalization XX, the New billion. public largest offering IPO like per totaled begin in of million of million. ago, proceeds Stock we offering would which with of $XXX from to the IPO approximately outcome share. really our ORCC the ORCC market becoming we current

our an and innovative in similar XXXX, Rock approach tried IPO and pursued in friendly shareholder a began take to manner. we we Owl Since we've

comments a year features outcome. throughout these believe first of effect our as number to his actions as review will which Our company. a successful we those continue will take friendly in included to IPO And Alan contributed shareholder public

share selected the certain are IPO net was began and on our pre-released show results asset right reporting value per that share. share and net net the dividend for the that $X.XX X, second line share, road as Today per time. we financial quarter, per share we reminder, ended at July for income results we quarterly asset investment a quarterly per our Net the including income As strong investment quarter of quarter ranges in provided per we value $XX.XX. with second with we

addition, a our our share, dividend the quarter In This special of third-quarter of $X.XX previously declared to declared is dividend floating-rate Board per a dividends Board of second last has dividend $X.XX a six as series pay will has share. Directors addition per declared of we in

and throughout later in that XXXX XXXX will detail. discuss more Alan

continue results We which deliver strong are pleased to with investors. our for returns our

ROE income June generated based investment of net an annualized the on based we ROE three an and months For ended net income. XX.X% of XX, XX% on

who our as believe like are you are and a to call steps I'd relatively spend we to Rock the is this our a few what Given first those for discussing story. to minutes Owl we our differentiators took key build new public of company,

business has asset market middle or manager development years. experience significant Rock is Capital three lending lending over that and an Owl professionals investment for operating is Corp., focused newly been Rock senior as Owl with company direct a alternative by led in company listed independent investing. and on ORCC, a

sponsors. high-quality of important is while a to lending portfolio to Owl to high also Marc distinctive leading highly founded of market Doug and financing feel lend and levels space Lipschultz as are a large credits, in allows and lending platform. maintaining scale by sought XXXX very We companies, I valued Rock it be and direct private the When allows source to we bigger which It us we equity Ostrover, drug diversification. in believe safer us borrowers build

capital down us have order substantial to been which direct significant raising investment capabilities, drawn make on direct a our deploying proprietary and allowed we committed this this focused flow. in scale to inception. we Having our base In has capital origination institutional capital driven deal since

currently largest origination, and dedicated team direct a And funnel we In we wide on teams my have senior XX entirely of investment one believe have portfolio and partners addition for professionals of investment monitoring. built team opportunities. professionals and focused to most who a lending, investment to underwriting investment our on I, large experienced originating responsible creating are over we assembled We experienced have of opportunities. the

inception we large highly to X,XXX those a Of our critical since chosen sponsors. and to different over invest to less opportunities we've us We've from funnel opportunities believe be on than almost Having close something allows selective success. X%. XXX is reviewed investors,

more invest Our to us scale direct the durable to withstand better coupled and believe with stable or changes we companies which other model our economic in often they upper allows middle origination businesses cycle are to encounter. able market middle

underwriting investment. Our for focused due perform stability three private typically and protection, side detailed before downside months we top-line on is diligence and making an

private position, EBITDA weighted was a quarter substantial million are investment approximately typically end. average from our $XX at in sponsor. often industries, a are These borrowers equity a have The strong equity supported their leaders leading companies of competitive by

our of experience team very deep documentation have area. with this credit are in focused loans a on and We

reflected billion the that directly to returns designed Our consistently second-quarter think deliver portfolio premium well our are originated secured in model a loans credit to markets. in working of our today available that consists We floating-rate is those public and results. senior of is $X.X quite

We second was this into the funded million totaling million, entered another Rock investment commitments $XXX was front. Owl of which quarter active $XXX investment quarter new quarter. on For the

our which million of quarter's This very first new also pace consistent with about was funded $XXX investments. we in quarter

of During the and investment lien our first XX% term were loans second XX% commitments new lien second quarter were loans.

was XX% lien. first our As total portfolio of end the of in second the quarter,

the we the The percentage pursuing credit cycle. environment. We this distributed versus investment returns those Rock portfolio ago a of continue to bias quarter's in portfolio in was investments Owl is lien lead based this market across increased or an Roughly administrative deals XX almost think first has XX companies versus a strong our approach were buy-in of and portfolio appropriate at arranger XX% and point towards on on maintain chasing of was in new These commitments across current investment dollars. this invested XX% points year capital XX agent preservation companies.

view a Rock of the As into going Owl investment we not four routinely and across the that of is and as typically allocate overall advantage XXX% investment us and portion allows speak is while We portfolio investment. diversification. this investments as of economic platform turns funds sizes to many an competitive a peers, Owl maintaining will control documentation so Rock versus those funds, our manages reminder, it larger for ORCC

companies. the of add-ons smaller at existing remain million investments this of and roughly XX% are investment portfolio These new portfolio to to XX add-ons volume. made quarter's current up positions approximately these $XX in of companies, addition In generally an average size investment

and the strategies a will of a group equity yet funds incumbent pursuing to of some not expect portfolio fully acquisitions. said, here, us our other do is to list grow growing companies these as as a worth Often accretive time opportunities of entail positions. relatively at investment which as have as in add-ons coming That many having were the private from of noting It's that our we additional buy-and-build much firms over of fund, have are benefit investment large young original we dynamic. terms years, being continue more allowing of anticipated benefit

grow our increasing We previously are like add-ons our intelligently and portfolio to been as as us have monitoring. we to fully closely companies they exposure allow underwritten we have

incumbency investment our professionals, than drive With investment is support. the oversight as capacity XX in a of we less XX giving activity investment also companies ratio maintaining one, professional point that ORCC, out while per gives I over kind and can portfolio growth of portfolio team grow. continue for This of ample given quarter portfolio to us that, would now future two sense of to rigorous companies our large

differentiated the of overall to for of scale where Rock platform benefits comprise the the and to borrowers. see companies to and solutions Owl continue call sponsors financial We go our

$XXX underwrite two along Rock. on done significant with other both of in Rock, in the for the competitive Owl positions were second vehicles a which platform were as loans, Owl note, total this and ORCC, over quarter $XXX On ability is to advantage. million managed million hold Rock $XXX commitments individual basis across Our as provided by by large and to million Owl size a financing sole

data asset support To a to Hg's information. sit space pleased certainty leverage focused example, companies In pick patient provide institutional healthcare acquisition integration able share company Corepoint the Both client the provide to enabling we our one Rhapsody. in team with our IT for on financing sole of by commitment disparate knowledge were Healthcare situation with software systems organizations the seamlessly healthcare portfolio to through execution was to facility. this entire this to our of of

spending originations, minutes few discussing. In addition to are repayments worth a

Brigham million $XXX Global since the primarily our of of is which due realization repayments, and saw inception, investments we level Transperfect quarter large Minerals. of in repayments full This highest to quarterly two

detail, remaining will in through these protection the of accretive and the Alan to call on more repayments touch As were OID. NII acceleration

our doing five that already at To as we about We the which so XX% XXXX, investments these I'll But a thumb, wanted of maturities investments, of average our moment. we have three-year more and touch life. a looked three-year to rough a if and made we been that the outcome made years in loans going of the with that year the investments on of with of we about life. activities, Typically expectations average seven for expected investment repaid, forward. rule make be year repayments point, with talk would repayments first were pleased of before which will you consistent have illustrate to I these a loans assume, in

over Our market be about one-third turn fully to high-level of upon would see dependent obviously the each vested, portfolio once year we is conditions. are which expectation

of lumpy to repayment ramping to the is our repayments are borrower. a and as idiosyncratic timing be the the is we hard of predict While pace can

repayments of increased modest of increase our pace over ages. piece more is some what at repayment experienced amount the time in It our just portfolio QX. pacing forward That expect this second moment, a While pace. of of to see, our going will on then that as based in get as just repayments time to currently we to can do we typical repayments overall third the take quarter, quarter we said,

Going a as end provider investors. our offer this kind Transperfect I'd it we a Transperfect moment was of market language critical performance prescription service pharmaceutical to markets. represents example like think a we regulated a broad strong lot of record and as talk labels quarter, highly large with a would translation for can An set great of a medical liked the to business I company position. in the opportunities translating a for highly historical about back defensible compelling It's of on this offering language services global to be a global clients.

million proceeds on first provided buy-out of of business. lien the support In $XXX we financing co-founders' basis to sole XXXX with a the

Given we underwrite process, M&A provide to deal the to compelling complex a during our and entire ability certainty shareholders. investment provide were for to our able risk-adjusted a long,

as refinanced commercial Our a rate this over by group of bank grow priced return. a and earned L+XXX loan gross substantially the facility was we was to company the and XX% at continued quarter

proud are our record to of We track date.

an of invested investments. aggregate on are billion over since in our capital We generating portfolio gross returns IRR leverages factoring $X.X XX.X% those of inception, higher. have When over realized

We and our protection. in commitment downside underwriting quality steadfast will remain to

have status XXXX, on we ORCC not quarter investments nonaccrual or to had no in and, since this inception defaults. For any our principal has losses continue

portfolio across quality distributed portfolio is XX Moving billion as the detail XX companies the It into of and stood portfolio. diverse a more quarter representing XX% of at and portfolio large just borrowers which industries we with end. booked $X.X of high industry largest broadly

XX% portfolio portfolio and XX% conservatively down XX% is The is our investment loans, term is Over We diversification are the clearly senior of the investments of XX% million. our the highest the portfolio size our of inception. to top secured rate. is now and lien to of the believe XX and $XX debt average percentage more than floating improve investments continues investments were positioned; since first of

investment on offering. side $XXX made accessed balance public note was side, bond private grade still are liability the the market while with million executed And we a quarter a execute private investment we we a public equally of proud progress focused sheet. are Although past on of were senior which This we BDC our we've bond to the believe the BDC. the offering we first

liability of financing completed cost-efficient the CLO of and we at cost financings. addition, portfolio $XXX Successfully two funds. highly In our these raised efficient future stage markets the tapping sets a debt million market for first in

Alan turn I financings detail the additional now will and presentation our our on quarterly to over to results. cover

Alan Kirshenbaum

Craig. To everyone get our and to with start, this hard to speaking I behalf on you, to whole great to a personal be team be it's and Thank on great working shareholders again. note, have point been back. it's of My

for The results we XXXX, to with I'm to. happy the have report quarter guided are what posted second every way very in of we previously consistent

start and items information, into then we'll our financing dividend high-level to policy, things IPO. like will with our landscape reviewing deeper We some our dive some related

we presentation that of throughout ended investments billion, net of debt assets Slide second off, $X.X total remarks, billion. of start on I'll $X.X quarter and portfolio the can total of billion, $X.X to with X the you referring our be see presentation, my earnings earnings So outstanding to

Our June to per was as as share net $XX.XX $XX.XX asset per XX. XX share value of of March compared as

Our per line in all share provided. with our we the dividend the per investment $X.XX was income $X.XX for was net share, and quarter estimates second

accelerated next four should the This investment the touched The amortization XX%. total in building this you generally next income quarter see fees from for quarter We over Craig second partly to to of approximately the and of was was up realization by leverage, from several just million some the continue full which to expect total earlier. upfront or slide, see leg we $XX driven investments, can investments. as for Slide $XXX fees revenue million. $XX into previous On quarters of increases the X, back quarter up billion prepayment increase on is

the breakout here out our additional the between, partial of full revenues On interest unscheduled run of transparency done from see from where line earned interest one, from earned at discussed. this we from the our What statement. investments amortization accelerated prepayment income on split interest investments during and fees which top into both have of will increases provide two, the slide I fees and period; just you a income slide downs, income we revenue upfront of some through or is pay

of largely will become meaningful see, you As of quarter a Brigham. investments our pay the strong Transperfect time interest and we of can this to had Over level more due component from other this downs fees revenues. a

expenses previous the up higher was or financings. $X.X new into As connection ended quarter XX for putting for due place million. in primarily $XX.X was interest total expenses, quarter X%, June This only is million to expense the which from with about

about for talk policy dividend our moment. structure a Let's and

quarter The policy. dividend second we quarter operated a where was XXXX floating final the of under

$X.XX would net XXX% share unrealized second per gains investment our the quarter be due the of quarter in posting unrealized, net had and over For changes change XQ. for dividend net up we approved GAAP Board of our previously to income. our a Therefore ended portfolio in value only in quarter asset of

quarter, and was income second XX.X% asset strong net change in annualized an per ways. for industry cost share ROE reflects of equates value net which our $X.XX structure the cost an low per in and portfolio mean Our structure. This I performance And to ROE. two combination share the

among the lowest. trailing is XX very XX, period June the not ended industry our First, ratio in expense basis the points the XX-month operating if for other lowest

the we For low XXXX XXs points. in mid-XXs basis target a range to

to reason second The fees. related is our

and point our management no As we incentive reminder, have basis a a inception charged XX fee. only since fee

post quarters BDC our and after this fee fee management best-in-class public to low IPO fee industry no keep is and point chose fee. fee XX.X%, XX basis five incentive IPO structure X.X% incentive management our for our is Although waive our and we

you listed incentive The statement income expense hit will way This you and fee which a I'll future reflect which ability fee effectively see flow of contra a XX.X% fees in waiver our that we expense income effectively dividend in X.X% will portion will quarters are see the this structure payments statement, and on is the our on after through management represent special our lines make will line, moment. our to the waving. waiver is fee and a expenses our

quarter fixed of per of share, our which $X.XX previously For we as a XXXX, Board third dividend dividend. think of the our had approved long-term

with long-term this we set Board Our a dividend dividend a level. level at view achievable, which a was very safe felt conservative

Our Board special had series a quarterly also of dividends. six consecutive approved

on the X.X of earnings of a for see structure the years picture XX You presentation. next can our Slide dividend

Let all our on me new us anyone of today. this moment take a call joining for to explain

blue I bar start mentioned, through each effectively dividend, quarter These the XXXX light the of slide. portion waiver fourth is in the include fee and just special of third and Our quarter of XXXX. this shaded on run the

special quarter third of the $X.XX is per dividend share. XXXX the For

of For And XXXX the is in is the share. per dividend the fourth special quarter XXXX quarter. special quarter $X.XX $X.XX per per share dividend for each

you of of a with the of leverage quarter. quarter to our XXXX Again, target for day all by special back the each of XXXX these as see, dividends As ramp ramp record of our third have approved Directors we the been quarter last of through already from ratio. we dividend of provided can ourselves first Board shareholders our special as

talk a Okay, and financing now moment. landscape liquidity about to our for

opted we As to have discussed, not previously increase leverage our limit. we have regulatory

and the sheet guiding we leverage of right target So, capital one X.XX operate key three operating of debt-to-equity. side under our is our still times regulatory balance time are under debt-to-equity We the principles.

have we in types important The balance on as right number of and of the diversification first We financings focus diversification, sheet it the place, of side left. the maintaining lenders. is financings of the the as is number on by the

of and we see XX, slide diversified financings. can very As by are on types you number

so, these approximately and any not diversified lenders XX financings, very one across We also lender. beholden to have

The match second duration. is

the is balance side all floating the vast beyond, the you well also sheet are interest side Since see the balance right and slide, third of with of As of debt the right can And rate. match on matched sheet. side our this sheet of left of our side is rates. maturities majority rate, the left the XXXX our basically is of floating balance

So, therefore, back swap financing, like fixed-rate unsecured when issuances, we them bond we have to floating. our done

our our X.XX Now months and outstanding debt ratio our start issuances, value XX was we average for net the three equity daily with calls quarter debt for on using prior ended equity private equity calculate numbers, asset for be into by adjust historically issuances. ratio to our a June debt get daily end to to We capital times. from and the basis and would DRIP equity average investors phase which

temporarily As of call final of was of debt. proceeds our times, reported of cash billion pay received from debt-to-equity ratio the $X.X which June, used X.XX June to down quarter-end the our outstanding we XX, capital a reflection towards secured end

Based Craig on leverage to call starting have impact protection. of legging X well estimate both upfront remind pace into debt-to-equity. amortization two on to we on leverage we to the as net earlier, everyone, repayment accelerated are of an get approximately fees repayments XX and X.XX but We well leverage, have on our earnings could made track far. back good months July, it from back in on progress boost as touched times earnings so so ways, on deal and target back to our fundings our do take in to leg way target into to

of credit to and very of these We unsecured $X.X from did total post March the CLO end. were bond of very both were X an financings issuance. our facility, of as million increasing XX our approximately we closings Both quarter inclusive upsized As $XXX amended it well this credit public commitments Asset today from by quarter. lender billion to takeout received Facility market. active facilities, relates and revolving as SPV a We

we of allow unfunded by billion finally, commitments have and terminated the credit uncommitted this this to over us investors capital private We final did when accordion call our And our June. facility. were revolver would facility size we facility This feature increase the $X.X time. commitments was an in quarter fully to which our of those collateralized our up subscription funded phase to

Our average quarter. debt outstanding X.X% stated on the rate second interest was for

to different have else we see can a back, as put size. capital as about Taking step we and anyone the out in have much access all financings place as there, here, you just access

expect costs of our due Our over term evolving so will then lose will little down. up inexpensive the debt go cost in short as the line, sub this, to a is we we come time here but

investment to markets Moody's wrap the to to ratings with few the other and These the four we financing with So, in public CLO ability ratings future continue provide issuance unsecured as items issuances. drop-down unsecured expect We and CLO our bond us and SPV takeouts a Kroll. bond S&P, debt have bulk did from credit finances, facilities grade reminders, Fitch, up we during capital be our from the public second to would execute quarter. financings of

clearly We liquidity. over significant is of a XX. can We billion and liquidity of advantage available an amount the market. secured $X.X able amount in financings operate be That as have significant under borrow to under us gives to a our June of

foundation to financing. We of intend have in and continue place flexible we and the a as of markets capital access put to financings sources efficient solid

bonds blackout public IPO, we programmatic it's windows. we buyback not It's into trading them. price instituted In you plan. where are subject This program program. our unsecured goes to a a is see, shortly discretionary tighter and versus much with As and effect our XXbX-X can connection not

review Goldman initial is is The the NAV. profile. target million and consideration buyback a volume for and the The plan our size plan share administered daily and an liquidity of starts XX-month when We is trading plan buying we leverage average take by term. Sachs this of into below $XXX

very call. for you. for participating to support all you your and today's in back much Thank Craig,

Craig Packer

Alan. Thanks,

our excited the of are results successful our we are shareholders. pleased to completion our the quarter returns with and for to strong continue On this IPO, of heels deliver

our back focused our remaining discipline. we while this the the and portfolio target As originations quarter continue build credit towards Alan on noted, laser will to had leverage work strong

see in terms Therefore lending we the to to the large a portfolio. is in market leverage high-yield build cautious our most market, we which very loan approach the especially we QX, the of In classes case maintain continue environment, public strength bond asset to due and will in as direct our continue was markets. as and competitive part

as will and as evaluating our focused in as opportunities capital highly on in the for our be remain to many transactions always We identify possible continue to shareholders order selective right allocation.

approach of end. on credit Our conservative first shareholders' at bias with quarter capital and have our and focused portfolio secured in we long-term attractive XX% now over lien the generating preservation a what is senior risk-adjusted to returns. be investments right And believe XX% the we over investments

was To for XXXX first very wrap of up, Rock. the strong Owl half

We maintaining discipline overall portfolio on look of but and focus on credit what in we our steadfast of the to are we've accomplished remain progress. the build as proud our quality our

special next into given We shareholders over through quarters meaningful of visibility and our IPO previously are we've declared the pleased with returns process believe our the our dividends. six our outcome

questions. of keeping open time you Alan, the want for dialogue ongoing line investment and by close of to We everyone operator, for for your look behalf and Rock. to On myself, forward with I your maintaining an apprised Rock team, And the our today Owl and please thanking progress. in again that, entire Owl

Operator

[Operator line Instructions] Your line Securities. with the from of question JMP is Chris York Chris, first comes open. Your

Chris York

Good morning, guys.

your that question does of a which by on in the well out think completion successful my lead just is gate. first congratulations performed have of you put on expressing I of trading real the all, class first IPO, leverage. My I'll of and BDCs So

target access to Board plan and the years for So, leverage. X.X additional over X.XX you've ask sheet communicated a neither shareholders the to times ratio balance don't of next nor leverage

Now higher this BDCs plan other who are seeking is different than leverage.

next So, you for the the you ask could any change this your are and cause leverage additional view XX months? question reach to there target when is that scenarios over

Craig Packer

Sure.

to we've the So, to market. thinking leverage we've the obviously ratio, the ratio. been thought investment-grade We, with just are to have as our all, got beginning very able having we've months and catalyst on lot increase much very We maintaining times leverage like shareholders to our last a this and first to evolved. returns those XX X.XX that as things think, evolved our try we've We there to hasn't from it. bond share been access bond we've first so our We focused ratings a and attractive and offering. about generate been continued of they over

And so, jeopardize those. we are target would and do ratings our access reluctant that anything very affects and cognizant, our our very affects market leverage be that ratio would to we to obviously

are do a just we been topic in the work industry Obviously in so and leverage ratio and some the now, with in in in this obvious, the has at things got lot been that under to an looking rules the know you are rating levered get evolving last to your even and back and and other the the our Right an question. year to I we've is change there's change or agencies the how that changes and evolution the have acknowledging behaved, are there. managers X.XX, of of

out. So, on focus I getting the building is credit that, on future foreseeable of To we are that would quality. ever a course there with a the back it and X.XX for would portfolio and chance rule your revisit focused question, never that near-term we to

in look least full said sensitive to approach the and is cost done pursuing way at rating overall that's then in beneficial take another is the a can are again, agencies, our at to not of improves a scenario time to would we time, a take our sensitive we at nine capital As our we shareholders that XX and it. at now. But we months time, right that we've it's where that something out, at and things bondholders always to decide leverage if there's look

Chris York

a Got growth helpful. bit, it. your lending caution four over last That are little expressed the Switching insight asset years. Craig, aware, are gears there as about direct you have is that some competitors

about envy conversations to with trying investors, share risk if some these additional obtain taking Now growth. out include you have to obtained the in whether or the figure our they're you guys are comments

about take you that about should a on portfolio or maybe to speak just comfort So, could today points couple underwriting your growth? focus you to and think either the then quality investors your portfolio

Craig Packer

just our the is might recognize and appreciate publicly that coming sitting BDC, be understand new there. and where And committee folks one part that lack are would Look, envy not process, that a or it we that question through investment Sure. for that or are as we traded we whether be our a from. there of of is second-largest entrant knowledge,

confident We of It that, think I are We the space. I portfolios And are of the in portfolio high. extremely satisfactorily high. say is quality that one quality don't have mean when the the that we we starts an highest building EBITDA. kind market. talked to, upper companies are to middle of they cycle. are lend that middle to $XX important. We economic from they plus think We These big million of here the we withstand well positioned are companies, really

You and and are can software. see sectors we healthcare food like non-cyclical the to. lend sectors that beverage, They

in portfolio XX% lien. first is significant sponsor equity us. that beneath directionally said driven. We've our sponsored on is road our capital the Most equity. capital The We of of is loans XX% structure deals do typical about have portfolio the

stellar. I high And as has anyone have space. in been think we defaults. our have don't no have we any performance nonaccruals, the that's as losses, We no

change line in and we I we're more the something to comment when that but can have really confident on space. our expect But not other see that, is people say it we categorization. no think we point, that's soon. to You losses, that with I'm happy nonaccruals the to in no even

just speak they we on were for last and the we'll question, to that So, dynamic your that. directly the make so is other much competitive I the one themselves It's I'll answering facts do not comment. syndicated the we think confident not continue feel market. is lenders; it think focused but

Our syndicated the can put up sponsors is, the in against they market. value what proposition get

go of finance will penetration volatility periods the overall So in leverage up. our market of market

of typically relationship those would us I've us deep heard another a and that, Typically, of say you said transaction. to like direct for a if has sponsor and in a who've both lender, the this, with me and include sponsor

would I over winning come of of structural. and that markets, doing. be set to relevant public we other that terms know We deals structure. at not of much the expense lot of kind good really deals care at so, some so which a don't, about I say expense the But And the economic case finance that's of care and we lot we're about another we've not not a aggressive smaller the many are I or the some leverage of it are covenants, relationship grown the platforms, to

Chris York

very think distinguishment quarter I jump to in is as I'll well. us Last color and color pipeline you important helpful or it. a question some backlog very back that queue. on over decelerating is Got But the you is in quarter The provide then Could of then July the in for QX? you visibility Transperfect see about could here quarter. repayment talked date? there maybe anything And bit like little the the that there month

Craig Packer

comments. numbers of that expect directional already visibility quarter, committed deals we some closed to are to now, have for this the But but also going by and we have not only I'm not have strong very to it. that directionally just pretty close make end going specific to I'm the significant a deals quarter. put pipeline Look, that we Sure. to

as our the than here be if So, play it would activity to greater sitting we out level, second expect, right quarter. now were

are course, But our deals we late our to minute. early fall of quarter Although, and away just of at current the can it's based in last on second here, excess visibility August.

we now, terms downs less would signaled downs, pay But have to deal tried quarter. I We to than don't pay this that if again, in Transperfect We Sitting In this. down. right pay the experienced else second have large changes what a that expect don't we I be quickly. in nothing visibility the here comments. can address of great change my like have and

it end that repayments be bit ahead, possible right it's so, But a could quarter. by greater the the And originations lower. of running now

Operator

Wells O'Shea, Finian question next Fargo comes from securities. Your

Finian O'Shea

have on IPO only a and well the you ORCC. and ask that other go I into on portion allocation. platforms of a paper vehicles inaugural the mentioned couple as quarter. will Congratulations will just you Craig,

there of you that BDCs give given is is you how outline on technology one upper portfolio? to and strategy? an share tech something that us some obviously with Owl on will your Rock originations the dedicated ORCC Is treat Can boundary in

Craig Packer

Sure.

phone I, is mentioned ORCC raising the ORCC. some the channel. There's is that the ORCC But II, the because as investments position just quickly except funds, second sizes may ORCC smaller. II draw ORCC I to have not maybe are of down fund, channel which four to money the to we we opposed in list So, almost just context. identical the retail in institutional manage a of really comparable are

is the a doing only third not second fund doing is a have our lien or in And We tranche referencing BDC. loans; first which lean. true senior which tech lending which is term unit fund, it's BDC Fin last is

those So, four the funds. are

a four rigorous I that between funds very the allocation is having one very how roof made allocate we I have on under advantageous. We funds. policy And think all the comment

into appropriate four so In for the any deal deal will a terms any portion go that's funds, tech, the of those one funds. of of

so, denominator, available And is and the essentially will, capital. you if

just So, piece over rata go fund's you a of think capital. will and available as on of the each up time. it Obviously each pro available down based could simplistically funds in capital

sponsors. very high-margin, recurring space a we are in that. particular high for talk extremely We buyouts. it's mean low characteristics were I the our like started to very active tech, credit tech when I we revenue, all a comes significant The attractive, is say When LTV, software And of through a I technology tech amount in we software, really flow it software buyouts, mean deal BDC so the seeing really reason arena. can

And want in over but in the not tech. the to call it. or think did to is have it characterize right we inadvertently to that's we industry, or to software tech become do software. software it way concentrated we if is ORCC ORCC, But don't that practice common deals we tech that and know I

to tech but attractive seeing, we too part capacity that so were So we concentrated become ORCC avoid technology. in deals we having started do had in fund the so that would we

we ORCC fund. the are a tech percentage true tech ORCC that in we're lien should the or doing you it's invested, time is first the and lien fund So, on into second in going in a go put to as is unit tranche Over getting hard is unless software first as to ORCC first have just lien the rule don't not lien, more ORCC going and software when We fund particular fully this. growing to in decline. II, expect software

around sectors stay biggest Our XX%.

above go say, some to this, the don't that, but frame but I hold but you of reference. to would in that don't we comfortably think me I just would that. me Code, ZIP XX%-XX%, directionally hold have so

say financing would I is is it the tech piece last strategy XX% BDC, out sponsored in a essentially. of by The

profile preferred, what could to in type it's of XX% capital not don't or would be think We be in of we ORCC. other investing but is more structured the Those types ORCC. is put profile, could risk risk equity. some of commiserate privately in different convert, with This enhanced The lending technology investing. we yield a a be structured investments higher expect call held could businesses return with

to we that fund. would like just go into the investments So, expect tech

to at wanted but cover that answer, just long all once. a for Sorry

Finian O'Shea

And color. origination. the for you one then just more on thank No,

certain these And fees. essence deals middle market this You or smaller to kind larger of you on where that be or more origination will deals? guys fees the the the filings the of with syndicated go market outlined what practice? are deals, you level you the then upfront core take of will competing may What describe the in on Can advisor?

Craig Packer

Sure.

do structure. we services fee our a by the driven So, Rock, Owl receive circumstances, or providing that are a that those from about fee we're fund borrower. circumstances cases borrower for And structuring filings. for capital transparent a Whether those it's the the from This fees take with this, very for to we the we've loan in in whether certain is services. on certain to disclosed and we the upfront negotiate fees manager, in certain separate paid exchange separate devising specific borrower loan. will Since directly in and Rock in the been OID would take a is Owl providing is

and some I but our of look investments, math I at the you know answer. on done was you've think schedule slightly if different same our this, So, math basically

If is going see separate And calculations any you to would that. fees. average X.X% arrangement do Rock, manager, ORCC receiving from on be the the fees Owl you'd

we loan. borrower that then manner. And disclosure of take the and they for amortize in manager what the life for getting; that ORCC the about OID and So, any to that is we take you're services X.X%. And is fees negotiated seeing OID, in then our the the separate, from we the are directly completeness, documented just rendered over

manager not We're take of providing to being is the what that type on. borrower. given making about deal judgment for it fee to The a the services is

Operator

of line Your Your is next question comes Schleien the from with Mickey line Ladenburg. Mickey open.

Mickey Schleien

I LIBOR. wanted XX this points about basis Obviously maybe quarter. down to to start X another asking it's by

many other to how that LIBOR I'd BDCs? like are borrowers LIBOR your larger to portfolio? floors floor in the deal typical understand the lending and common in And So, you're average given what is

Craig Packer

Sure.

I months the them, over of spiked go are We typically the LIBOR LIBOR LIBOR X%. last it's floors common but at to out the have XX started have banks floors to LIBOR north typically in when our portfolio floors have deal. look syndicated XX% and very the So, market, take in for it, syndicated at the,

market, it so to We So, almost it's it to not X% continue mix. the and that. on try and it than always get expect to syndicated be a insist and and more do

syndicated often funds way, times have going as now would that By push say, back we glad down. which I to point mutual on leverage on to market them which start have to get Obviously will have occasionally, we focus of we want changed part is in expect because, is the and our not a expect CLOs I you that. it. compete that them, the would back are it do we to the and

think your that right? I So question, was

Mickey Schleien

regarding the question next outlook G&A. My for

that? higher IPO the it that reasonable is given in for fees expect the professional quarter least Given at G&A accruals were quarter, third for the to associated one with

Alan Kirshenbaum

lot directly of IPO equity. Hi A Mickey, through expenses it's the go Alan.

the in operating material guided XXs. ratio. a low think going to don't to I change to expense other I mid-XXs see you're So,

We are XX basis. operating trailing on basis XX-month a at point

the We there. movement think you don't center there. are I going see right material of in below the are to the center range

You're pop. not going a to see

Mickey Schleien

fee question, appreciate my Alan, understand And fees line that break X. of it. about and sure slide want I million, for to of interest, down prepayment last $XX.X with the just roughly The X% Okay, the half I of I to half OID? quarter. acceleration that's the Does line make understand. I exits

Alan Kirshenbaum

and give third So, about a Mickey. great take, XX% a or It's XX%. about it's two-thirds, that's and question, or

are million amortization is about fees X. $X.X accelerated and prepayment the the about So,

Mickey Schleien

then X%, take are of the that neighborhood give is fees fair? in or But prepayments

Craig Packer

this in per that call have deals then typically premium, we points underwrite will reduced year. X par. par, it to quarter. XXX it is and XXX sometimes year, X be might XXX is per of time. we When over Just but And so, Oftentimes

protection. during so, upon is. where when depending In that gets loan the actual premium repaid generate the, case And the there repaid will it was is what this call

be period. it. seeing you're why through call may the that's we So, loans Other

Operator

Your next from SunTrust. comes Michael question of the Ramirez line with

Michael Ramirez

everybody guess is else you've new fund greater marketplace. in loan market gross in the But which mentioned to managed remains a the competitive, in pace consistently at than prior obviously your the I line originations year. comments you leverage with prepared

rate afford you I feat does the in of to selective? remain So to of are the majority at and deals our guess scale on higher a question still is, seen? size to your look accomplish this Or a closing marketplace deals you

Craig Packer

I front part was of trying to question. follow the your

high. quarter quarter third year, fourth were in this meaningfully quarter in they the and last still and commitments lower were Our of although than last the

I all thing. same sure are the So, make to just covering want we

terrific big of at the we in pool get have the and competitive flexible team, deep I question, relationships advantage. to your why have but look, are investment three we made capital. large, a we've a think have And our of So, those a spirit we reasons

to to we we we, source want hitting financing And chance still with we've a lot choice. and is believe to when some that they're at sponsors platform going still again. work sponsors with be there work our a we sponsor think work are its to a continue all. are had stride we I haven't with worked a that of with and will There us

strategy, and to want Our And only quarter the our since changed that We everything in deals any simple. hasn't do we really like. see it's inception.

building and we've has think successful. of relationship the as As has just I been grown, pool capital our grown more

million of work also that a been these we in with ability a construct to that I do funds, in where loan, spot really are to sweet in sponsor party our million size had to $XXX has other circumstances underwriting There particularly it. $XXX think as we've be and M&A that of one beneficial. select likes are, can few can one a that

they too from I that in would've essentially And it we're, we think syndicated that are small. many that the syndicated going of doing market think otherwise It I that gone said as the we're so, a I they're deals earlier, are are from taking we couldn't lenders deals that they're that direct. not taking And deals deal is are small. just do, too them, instead

complicated process, And And one We've to had Transperfect, commitment M&A being $XXX a it have like was because months would have able six financing period any but million the a source. we on that to with highly a underwritten. have that for for client they long with just on loved a deal that hit to worked of time. could bank outstanding work

Michael Ramirez

quick I you're the some follow-up And what are helpful. guess and on prior how passing avoid changed that you to deals, was on has great, characteristics that year? When this trying one. Okay, are a just from

Craig Packer

lot rate of to say we I no reasons fast say mean, say turning deals we this down we as hit our When there's a deal. are X%, but as than can. less change. jokingly, why is we'd a I No somewhat

company too saying We we almost the to look not established no small, no, say weak. enough, we The are reasons position at. everything market company's too the company

but mean businesses, cycle. point cyclicals, doesn't going we very read. like cautious resistant we do especially very the to in we're very, the are on wouldn't cyclicals, we're this not leverage on at aggressive be It We so recession

adjustments EBITDA market. are a the big topic in

EBITDA. diligent underwriting We about are very

is we standpoint. have a so, And But a at therefore less a look different may we competitive would that what its it's business our we're early that asked but We the time. essence flow cash I do of waste lot company so being don't a view leverage more from really at really and to say be finance the try like we than anything. efficiently to

out, we've basis have us it rate be hard say really we lot tends points the XX five- than prefer it's not we find we going When a XX our to I points not, of companies we also rather but no seven-year find driver be basis a going time. to like. decision-making. it's a say although of of and don't, is would said rate. company for put to we've a last all about I'd to of dollars know no, We really we great the be not points upfront like to XX investment, basis to think

Michael Ramirez

That a you is spillover helpful and one if I last one Have income provided may. guys number?

Alan Kirshenbaum

did not in my I remarks.

distributions shares. IPO per undistributed and inclusive the is that's $X.XX Our share of

Operator

question with line from line open. Robert Dodd the your comes of Your Raymond next James. is Robert

Robert Dodd

that structure, same. of of are if disclosed portfolio is all the docs little can structures Obviously first XX% and first lien a into you There not a lien. pretty call the digging range the more. they Just investments can just wide bit I are

out, lien more unit what which what's lien. that on or be within maybe appreciated. give mix versus within that maybe first are you your first would those the those say any tranche for or color the ago XX%? first that shifting well, what in lien appetite have color categories? So, today called all by market called five categories, what is can't can on mean, you're be you kind but breakdown I broader of of as then would us mean, technically you And seeing precise any years last or I

Craig Packer

rigid XX% going Sure, our be of are the are XX% you about that is and judgment art there first either second of definitions with investment. to what risk to is And we about lien, first a unit tranche, I'm and These simplistically, XX% level where underlying first terms is but on of the stretch the, aren't lien. book lien lien about $X, first numbers. point to best is as loans. based is The of we lien. we use Unit might round on leverage that tranche attaching it; commensurate true we think are the going leveraging the giving are that we a more through or

lien times, or second and I about times first give And book leverage. stretch four lien. are so, lien, talking we loan-to-value when is XX% X.X say XX% of you the These to trying And XX% I'm directional. first are to a sense. just

I don't there first think, the is generally portfolio one out. investment I where we in we think a have don't,

when hold all except unit say a and one have entire unit position. So, we out first I cases in the tranche launch, sold not

the we're for a while higher sure, so, attaching not, And leverage $X. are we is

on to tried we first indicator of I In look, highlight terms XX% of an is conservatively and built where And this road we from show. the go here, portfolio. might first lien stretch lien the think a

that's that I we've think on but just little invested helps a money bit been the wanted And it successfully invest And putting loans. last years. our been term because safe. a lien invested first partly safe lower to sizable, ramping the over it competitive we've shareholders' a we X.X very explain do but dollars way deliberate that kinds in yielding we've is we're in how We attractive, environment. of think some

shift. to rotate opportunity not will we or would the unit closer some mix started but the wait we tranche we fully of have it, like to into only I to first next be believe nine approach first come we invested that and really will the XX% we off, but like to more fully for second have will stay invested. put As to us Not lien potentially when have get to, have them some we credits. but lien, numbers from we lien. those over closer to and benefit And to we return, months, think I some getting expected tranche fully stretch the of flexibility won't I as I generate when loans invested if to a bit XX unit

characteristics on equity businesses On we to We second second like opportunities we see have liens. do liens. have second upper those with stable will second is it like do super lien. been middle lien. selective If a for market second lien, credit we cushions we If that significant

that We last and big are well, up the low I would say expect really one term, go syndicated now at immediate very over and XX XX so market has in last the I make I days the or to as deal this. don't a too of a been but necessarily point a would to want just comment, little not time. softer. In

lien had smoothly banks have anticipated. Second not as gone syndications as

And so, prepay liens. are we from second seeing sponsors inquiry to increased wanting

getting ones and do. And so, calls we that we about like we the those be will selective

Robert Dodd

it or months share down that slowing the XX it where portfolio is was also Okay, EBITDA like data the to on you I cut today you. Have then expectation one obviously may growth related where later rates Obviously And bit. is Thank underlying any the really appreciate today, that sort us ago? with growth because Fed got at little color. can companies, the of and portfolio. be a looks you versus may say

Craig Packer

in growth our is Sure. very revenues modest in single-digit and growth. we in very modest Look, are what EBITDA, companies seeing low portfolio growth of

environment EBITDA are shrinking is would environment not an their companies I So, okay revenues, growth us. a and modest we're we seeing say but modest a growth, which slowing, for seeing not

the portfolio would kind a is well their and sponsors making the I not necessarily they're what equity, think growth on. like investments of from seeing growth standpoint. But doing investment equity you're our

Operator

Point. question from comes final your the of line Gentlemen Compass with Alexander Casey

Casey Alexander

billion a quarter mindful fact most institution $X.X given market a need of cap. And that market you BDC you some into curious handled of recent call. a with that protections IPO in the to the your I'm in kudos also and think has of put I be that a for capital the manner am just guys but which you've has place. $XXX put the capital cap, in that IPO has the really I billion

to pre-IPO at How trading do the expanding And lockups But clients? you are some responsible guys float orderly BDC your process to off. these manage are think plan point for in the of capital. time going institutional the I to stewards come of of allow you of

Craig Packer

Sure. years. and have touch all our on Look, we Alan as for shareholders the are been with well. can large this and Look, we're, time comment in X.X

investment really they with and Owl that going returns our While have our in terrific. their we are this continue pleased throughout. manner is our consistently to in think say do talk been shareholders institutional first said public I'd call, this so. on we we've like we are delivered to And do Rock. And what large we to to

in As IPO of you we to was number a IPO noted, this successful. make things did the sure

that and their expecting was it our benefit. We have things also done to existing were candidly, they that, benefit shareholders not

have So their to treat I for well the extremely continue them support we foreseeable we think future. to and expect

will would talked their our virtue Rock. Obviously remain every investors the And this to just mean comes that shareholders to coming investor But majority off. has game the the expect the own vast grow what the decision. IPO off We to make we float about obviously the and was them plan lockup of Owl with and an by of lockup beginning. from as

are BDCs. Alan great a universe invested do the about in the as shy telling of of continue story to you folks going and out not that road I, IPO we'll in effort know, on We expand we to and the and made that. part this

were doing that. we think I successful at

remains for story and, we're so tell to there that take our future. now so, and additional look demand shareholders to continue to foreseeable and have hope for going And great stock the a our

Operator

to will over the remarks. Craig turn now This our question-and-answer closing for back session. concludes call Packer I

Craig Packer

you first our speaking to thanks with in everyone, for to we forward questions and dialing for look Thanks Okay. again Look, call. soon. the

Operator

call. today's concludes conference This

you. may Thank You disconnect. now

Blue Owl Capital (OBDC) 31 Jul 192019 Q2 Earnings call transcript