ORCC - Earnings call transcript Q3 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 Corporation’s Third 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 third posted XX, XX-Q be filed issued the company��s the XX with release in quarter presentation conjunction reviewed its September on the Yesterday, Form for earnings and the should presentation an ended with October This SEC. earnings

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

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

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

Craig Packer

Thank joining you, and Corporation Craig of third call. operator. you Good CEO morning, everyone Partners. Capital is us quarter a and thank Co-Founder This Packer for am Rock our and of I today Owl for Owl Capital earnings Rock

Alan Chief Kirshenbaum, Officer recently like is would also joined Financial Chief Head Operating Relations. as introduce Rock I of today Dana who and to our Investor the me Sclafani has Officer. Joining Owl

our activities detail before results more I return second the on of welcome financing our our third shareholders would our community to by I discussing since some again in our before well financial comments. public more our call Alan, on is detail been have who I like start Alan will to research update like an our our on story. myself, highlighting in activities provide members investing as quarter quarter. then results of this and as behalf closing As would earnings July, and with the new in following IPO Dana

activity, in on net with remains $X.XX asset with saw investment the of across to results. for $XX.XX. addition, share income was per quarter ended credit report share non-accrual. strong today, another and pleased quality origination the strong Net To We investments begin, the robust value quarter. no We of we per are portfolio quarter

fourth of share. quarter has $X.XX Our dividend a per board declared

the which the second declared X dividend XXXX. declared continue board special $X.XX Our of special will quarter, throughout dividends, had per previously a fourth distributed share which is for also previously be our to

yield for annualized Our quarter the X.X%. was dividend

investment income by this quarter XXX%. net Our dividend covered our approximately

results, when senior this month investment-grade time more very in a also In to we $XXX addition second bond our were will access note of public completed attractive for in market offering the at later business cover million to these liability the Alan unsecured rate. the detail the call. a side pleased we

these and cycles encounter. as benefit better private companies expertise this able We assembled we’ve a leading pool sponsors. that a close financial high-quality team a believe we large, significant and capital, to which or other changes with investment is of like they the well. equity advantages so the upper were companies. again and believe on more We we market believe believe display market on sponsor-backed and we investment As into our companies prefer Owl to on of the our remain we a are upper middle get investment focused middle durable because I’d key our our firms number capital to our primarily platform serve everyone withstand substantial important, this relationships differentiators larger what scale as businesses quarter. Rock detail of large lender few economic a sponsor-backed strategy often of businesses, of market, the very To investments of we activity, and remind oversight provide We the where complements prefer are

of this strategy. see We have the continued benefits to

and billion and repayments. billion investment $XXX originations was commitments, an investment third active investment million activity, very which new of net billion of of fundings $X.X ORCC $X.X new from perspective was funded net The with of quarter $X.X for of sales

Because direct some on, wore markets, to sponsors lenders syndicated the throughout resulting certainty. more leveraged quarter, able our softness the in with beneficiary size. our get capital, saw of finance commit deals we of to as and to we’re quarter in high-quality are deals available in this to While as spread scale investing like done a trend looking we Rock was Owl we the

quarter Rock originated and believe our roughly an we investment across us helped want The million at type activity to overall model. billion trust to Notably, grew commitments nearly funds their senior end this of there ORCC $X.X quarter our We the rate investments As of platform strategically four high-quality, of loans. quarter, sponsors Owl work average which Rock billion deals by drive executed saw directly several origination floating and a have of result, size. to with secured transactions. credit the Owl largest ability totaled commit to This X business managers a activity. made validates get there our The $XXX size and number portfolio who $X.X deals important deal is further funds. and investment across on larger we hold of strong of our top most by this Owl limited managed platform Rock can this

our this other with benefit origination and positions. are highly of be Another activity change excuse of continue X.XXx. disciplined remain to and the me, that as moving strong able we X.XXx was the debt-to-equity of to progress while with We a debt-to-EBITDA we book the there we deal origination on to been The an focused portfolio our quarter ORCC – our pursue back the on the that no target opportunities towards overall flow. quality small we had close building. XX% quarter leverage quarters, were isn’t has ended in long-term highlight strategy first-lien to good ending percentage approximately ratio, this make consistent strong of I active we previous with the quarter, would quarter

and of quarter no stable, on book of invested our no individual portfolio on well the now industry middle-market investment companies X% businesses. portfolio The weighted fully of across approximately portfolio. accounting million industries greater We borrowers XX% and XX squarely EBITDA end than is large, than average XX continue recession-resistant more as upper to of of the companies. remaining our for focus consists important the with at Diversification was $XX end

Our top current XX now of XX% positions represent the portfolio.

maintenance facility Owl included a them which on to for the firms. and facilities, due citizens one and senior size high-quality a roughly agent loans at for these line and which four unitranche we the a an arranger distributor this tender in This health of of saw their to as have third added insurance at dollar a which backed borrowers the in by quarter. unitranche loans high equity highlighted Rock covenant example were was X largest quarter leader of are spreads marketing, million. a has point market, $XXX integrity of financial or average date We our lead this broader life hit of all ever unitranche, priced attractive in As One the previously, to private administrative million Rock arranger provided and attractive trends the all we believe spreads, [Technical leading on were of We space. attachment is focused like completed. we unitranche and one in Owl volumes Difficulty]. and led largest $XXX serves serving in lead loan with unitranche record we

continue to also incumbency provided While strong, this as portfolio of we capital growing quarter. our new we X activity see companies benefit to incremental was company the portfolio of

and a sponsors. relationships growth In will believe that activity our force top We driving X sponsor addition, we be our saw repeat portfolio sustainability. of with

pleased sponsors our are We portfolio. over have to XX in represented

of another byproduct investment an second-lien saw number market As the we increased of environment, opportunities.

to three in direct closed I order that for working for on $XXX on noted size. before, with with volatile, investments becoming lenders second-lien second-lien more As of certainty million markets provide we aggregate tranches execution. in In sponsors focused increased vein,

We have right for we and second-lien a only continue high pursue investments to them credits. for bar the will

liens, in on companies their highly markets. large focused who and remain end second in field operate leaders we in recession-resistant stable sectors particular, For who with are

to and past company then-owner, of When since this strong administrative as company like the as a driven toward place installed this is shift the to from Pregis growth been was and business protective the have August, sites, we Olympus Warburg of as consumable in base July by investment continue note, sole We’ve in acquisition industry which name are benefits to the trends, film e-commerce by Warburg’s to term arranger in and in loan. packaging this of inflatable from It’s sell-through part is being a generate by customer machines large a Pincus of name pleased with a with. of a committed and revenue we provider acquisition materials one second-lien were million being $XXX finance blade loan agent air support a well put the invested invested already model. at On sold well-regarded XXXX cushion on equipment razor-razor consumable lead a recurring The to to been related leveraged packaging. Pregis highlight, Pregis second-lien space. we Partners. excited and work financing would

saw only and at the term of we quarter XX% invested in in with second-lien portfolio previous remains our second-lien dollars unitranche While couple than quarters, this the across deals exposure more the balance first-lien overall loans.

to investment. I one other mention wanted

credit Wingspire on loans providing underlying a when space As new attractive called middle-market we assets well, because lender, protection. you think finance footnotes, company independent million ABL the focused Wingspire. portfolio may We notice loan the in asset-based our is significant U.S. provide have committed $XX one of borrowers. an to the to direct is commercial underwritten

in our them in it ORCC back terrific we at we While and a launched decided shareholders some finance attractive businesses, looking it September, is the is build time. an acquired to found Wingspire will peers with while the for today, investment growth our have past significant acquisition team the commercial over benefit organically opportunities of formally and few that after we industry, ABL years, instead. business small over experience think

of in borrower. fully repayments to amount discussing We our million expect to ages. repayments hard as on the to and you as on quarter. some I’d may the to of from realized. overall time predict timing the The time, repayments, call, than last of of positions saw increase recall, a repayments pace this we sales repayment portfolio was pace we last quarter repayments quarter, our then over that good In our reiterate idiosyncratic our call, is of noted were slower Moving X we as do $XXX of as third event our our the pace spent is last repayments. of

just will time pace. that take We repayment more get to regular some to

for line the broader trend of our The impact portfolio some our increase by the asset was average spread. our LIBOR. a X.X% continued in the XX LIBOR, in in this quarter drop in saw we versus of result quarter. partially to point as a decrease quarter Another was portfolio which the the was with this yield decline This X.X% reflects market, In move. offset second basis

presentation earnings consecutive average increase quarter spread X.X%, is and increased X, Page primarily our in our is last This to third on basis quarter. from shift quarterly points As the the see new you up investments will in reflecting XX spread. increase of mix our weighted this

In the on our this market but for terms to the modest first-lien investments broader hope some in in spread particular the helpful we to rates. and volatility fully offset drop market, we decline saw market still recent LIBOR been in in take some with Naturally, widening expected this the to time of regard. spreads quarter has some of recoup increasing

been While focused steadfastly busy quality. we this us, remain credit for a has quarter on

or we continue losses the defaults. in no status any our on been have investments had not have previously, inception non-accrual case has XXXX, since principal and, As to

the of Of change course, any performance. closely we we credit are our in monitoring credit companies cycle, given in signs for of where portfolio are

sectors continue which modestly helps economy, mitigate U.S. cyclicality. we our see solid that a performance economic focus reflects our across believe borrowers line We in with growth recession-resistant growing to on with

previous internal you portfolio will very the our Page and we’re consistent portfolio pleased performance our across XX X-point has scale, quarters. our remained of that investment on with of quarter. activity mix performance with see this rating As Overall, presentation, earnings

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

Alan Kirshenbaum

quarter second investments $X.X Good Slide $X.X X morning, you everyone. debt billion total earnings total of Thank To of assets on our that presentation, off we see ended you, can with of outstanding the billion. portfolio net billion, $X.X start and Craig. of

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

a dividend. our $X.XX Our share share dividend per share per investment quarter expected. was net plus for dividend as per our was the over-earning special third And income $X.XX $X.XX

up to the fully as quarters revenue back portfolio next income leverage, or into you This slide, several for expect $XXX quarter should On billion $XX when the to increases next total $XX approximately continue X, for to is investment We million Slide generally investments we total was up the third invested. see see approximately the is from X%. can building lag previous the million. quarter in

expenses, for the was capital $XX due or waivers, fee net XX%, expenses, in interest is $X.X quarter primarily in our June prior down third million from was total final our million. As de-leveraging for our with of the which expense to just quarter lower to call This about previous IPO. from our connection

value asset this quarter. per share a of net $X.XX Our saw decline

You earnings presentation. Slide of X our can see an on average

and can this this spreads As our asset you quarter. changes from primarily value was mark-to-markets costs. driven IPO by quarter see net by: This offset two, the on on investments over decline one, dividend slide, quarter; was in partially our over-earning

up IPO our to we structure. Moving our a of how on and dividend set policy reminder

and have only fee. fee zero a you we If industry-low basis have management structure. cost incentive we an inception, point charged XX our recall, Since

and is BDC and industry-low fee best-in-class fee fee in XX-Q XX-Q, of quarters the are flow The is our X.X% lines reflects our Although and see our our under contra-expense, IPO, income fee X expense chose line, fee waiver structure. through expenses waive management public effectively keep, and operating incentive our on and management point structure just after our And the X this fees you will XX.X%, XX a management the fee represent post-IPO we basis this XX.X% fee. we shown total that portion the way X.X% incentive our statement our for waiving. our is incentive to will

$XX.X quarter, the For waived of million fees. we third

to fee in payments, special all this you about shareholders I’ll dividend in the waiver effectively a on our remind passing moment. of are form We which

of For as XXXX, quarter dividend of fourth approved share, $X.XX our dividend. the our a think per board which of long-term we

dividend reminder, this approved of felt As our dividend also we set conservative was long-term with connection IPO, a quarterly board level. very Board achievable, a a view In level with a dividends. which six a consecutive our our special series at

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

shaded and Our I bar fourth quarter in the portion of of fee and waiver the of third special the XXXX. effectively dividends quarter run the is include slide. mentioned through These each the top started just this of at XXXX

XXXX, the per in $X.XX share For the each year fourth the next is $X.XX of share special for dividend per is dividend quarter and XXXX, quarter quarter. per special

effectively special is per XXXX. quarter’s total alone, throughout up we XXXX add are to full that in So $X.XX paying This dividends dividend share. an additional

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

our liquidity Now to quarter-end financing September XX, for of talk about debt-to-equity and our moment, landscape was a X.XXx. ratio as

target quarter, our months take lag thought our we are track on On into call earnings back to last our of So we on we that. could it to said and XX well on leverage X we debt to track equity. are right way and with X.XXx

X left So to here we from we invested. months until are think fully X

All of with just our is that also this special ramp outlined. in dividend line I

As it financings, our were active to again this very relates we quarter.

and issuance our financings the quarter, new another an of financing our October billion. quarter of end. can facility activity $X.X in public closed earnings revolver presentation. drop-down the upsized to our To unsecured up after SPV of overview see You on we did we sum We Slide during XX all right here, a bond

the points we by future our our to April issuances basis October significantly tightened This issuance notes, our our expect is XXX which at tightening, to we to fixed to which X% would way From XXX we oversubscribed. issuance, notes. our as XXXX basis was lower issuance, of refer our spread basis down we fixed, basis tighten. XXX.X April the well X.XX% as Our all coupon points received continue XX which issuance, points to XXXX bond in and to unsecured October the from market priced refer from issuance points, is which by very public and over

rate average the was for for to the dated interest debt compared second on outstanding X% X.X% quarter. Our quarter third

As but debt cost expect a we would on the term, we we go more call, time, the we to continue our expect, little then of guided markets. will up unsecured last our short to debt in access over as down come efficiently

with terminate in had our which we to facility a was connection line IPO, financing most As financing. reminder, subscription cost-efficient our our

to was have priced have wait the we for While XXXX market we premium X.X%. What we swapping recent more X% conditions, see. saw our to expected that our expensive I rates, that had due to the would have this interest would previously have to notes. chosen interest is significantly swaps philosophy is which it in from issuance noted increased than match We out significant we our approximately a to pay what rate to when

the our it to time hold think floating. flexibility this at is to point and we better for swapping retain So shareholders in off

in keep are rate. floating financings mind, Also secured our

So represents a this fixed-rate small very portion overall landscape. issuance of bond our financing

We this the carry and bond of the is negative as swap there sheet conditions rate. unusual the balance enter our all of amount itself market and a of and to will see time could future side seeing a last issuances, rate fixed into end extended up for to right future. carry negative If in swaps you the continue monitor an in if these corrects of LIBOR portion

And right X.X% XX approximately quarter, basis dividend, ahead thought to reminders, our the fourth yield broken another little wrap track share representing per a where the we gives a very total from items dividend, the per well since markets our yield some of quarter that by perspective us of annualized expectations. $X.XX on as approximately this few bond representing and the is points which So, was unsecured for we our public to ended third received We quarter. investments X.X%, yield was out priced tailwinds dividend this again. quarter start quarter; other up with would with and share we that a $X.XX issuance

XX% sheet will unsecured we efficiently, We the could price which which in the on issuances, to finance. our future our or future, of overall continue continue issuing of of With focus balance to be more right to over expect improve time. side will more debt cost

our program. a instituted In connection IPO, XXbX-X with buyback we

we effect after is net plan. for XX-month plan review this term. into program it the the buyback IPO our discretionary, effect, a any our buying average the and this not size not consideration leverage is into a Since below we plan program into trading not a plan has The volume level of trading our daily bought above by went million, $XXX went asset share it’s shortly price. target IPO is As windows. liquidity to administered take have and an and We and value profile. The and refresher, been is starts Goldman as Sachs shares programmatic back It’s and of blackout when NAV. initial subject our

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

Craig Packer

would market the In Thanks, touch closing, environment. I current direct thought Alan. lending I on

quarter through third October. the markets has continued leveraged before As weakened on, the I the we noted syndicated end benefits of finance This from saw dynamic weakness. some this and as wore

those first half more at remain look in of year. conditions finance space the markets As the the we leveraged the in than challenging today, syndicated

favorable results, while see would it’s market impact seeing believe the on move a this soon these more conditions we QX high-quality a lending direct may whole market While improved as from opportunities the to from market as hold, away could and syndicated we also terms. investing too more we the predict benefit environment spreads towards have shift the to should

to years upper will Rock, on the we environment, Regardless few said build of policy. continue resilient large, markets that, and intense credit highly rate this up have key focus investment was significant focus over demonstrated of a continuing Having market on the of what senior our particularly funnel portfolio of selection a to ability high-quality we with an commit proven Owl scale and to since with backdrop the the believe assemble central secured differentiator opportunities, monetary credit a protections. quarter. last as diversified banks middle-market floating founding have done the dollars ease again remain and selective loans is We

for results and our we have results both Alan with excited quarter origination continue both and across I activity noted, and financial to returns shareholders. deliver our to pleased are our As are this strong

but to the time forward credit progress. overall proud to further Owl apprised for are as an look what and myself, on close build accomplished, On portfolio the the We of to Owl you progress. team, our focused again for of have our today maintaining we your thanking quality on by want We discipline our and maintaining and we behalf of Alan in your of entire everyone keeping Rock I and ongoing look dialogue interest Rock. remain

Operator, line the for please open questions.

Operator

[Operator question York Securities. with JMP Chris comes Instructions] Your first from

open. Your line is

Chris York

morning, production. Good of and guys it strong was taking origination questions. quarter thanks for another Craig, my

these So your from add-ons loans then I draw of how provide component sponsors un-drawn for And term risk alternatively, to are the demand for the unfunded how in delayed to then the structure revolvers, you facilities? certainty ability am commitment curious to increase and managing liquidity capital? is and

Craig Packer

liquidity hear draws is manage what revolvers we were asking how and was us little standpoint, to but do Chris, delay you, business that asking? hard a and what it it essentially are was how from you I win they you a do help think and we do how

Chris York

That correct. is

Craig Packer

Sure.

facilities a often benefit them broader both a the financing, credit liquidity we types to they you are financing occasionally, credit hit LPO, by or every for and, to potentially a new to of revolving else the to by expect significant provide movements like do occur other asked we for So that’s types facilities. their Almost facility future delayed draw has acquisitions that financial draw term working a company of audience, etcetera. projects of expenditures, are to or needs when provide facilities, can provide business capital facility particularly short-term capital sponsor used to particularly run run of companies the if get on two anything Delayed business. revolving but for

So facilities have in asked particular got get to pursuing capacity so do The the sponsors that. space in and to size us sponsor can acquisition, provide to companies offer offer able platform building sponsor Banks those provide facilities that the to financial delayed for of the delayed particular provide CLOs. very draw size through be we of banks and acquiring it’s and we them they flexibility don’t I our ORCC their often the where strategies, like are knows a what differentiator in overall to the draw to helpful facilities think solutions because versus syndicate other financing sources. out like and

are to financing attractive loans commitments. largest un-drawn We not it have leveraged consumer do of find the

So ours can into un-drawn liquidity on and Alan it’s out draw. that want amount both commitments a of sure the other get we’re but expect. into we carefully credit delayed all would account it of something obviously made answer how commitments account happen, even comments. we to selected that to considerations have think make offer question, of to were much leverage circumstances, strength to the comment that’s a and we all track take we to outstanding, standpoint. extremely may in minute, taking about a as in we But could and We portfolio revolver from build couple fact We you top, XXX% that ultimately the appropriate account the leverage that have our want that and exactly Off in comparable make those of how targets Alan, your if all the an drawn. for we place

Alan Kirshenbaum

Yes.

the potential million plan loans. We un-drawn and Chris a demand about about that that’s of $XXX today. us just numbers, un-drawn program, committed of $X.X financings had buyback of $XXX we delayed available of on – about So un-drawn have to commitments, couple have to term or we we XXbX-X of million billion to draw and X revolvers you million that give add to add $XXX to

ahead try So, million about and originations that’s or to that we take and of reserve $XXX give stay excess pipeline. future for we and so

we comfortable very there. are So

Craig Packer

short facilities, revolving time, make to I just this one mentioned company every the has topic, on that very want to they And credit never of as years. for are one have a about consistent term XX earlier, with draws comment almost time. Delayed it’s long and X longer almost typically, defined keep or as can a X loan. more as months. than months, X our Typically, length It be draws Delayed different.

they of when And make we visibility get when usually, so away. go degree know funded are we those a high we exactly of will commitments, when they And have intended funded. will get they as to

So we new we because bit can manage off come at when in differently exactly a can look little they delayed that them draws and out schedule context.

Chris York

deals integrity color. sizable in portfolio your And put the Great. a positions and That in was including quarter, a and couple some and then you large the context of led in very comprehensive answer I appreciate the quarter. all you

to or light you single on how platform, an So you basis? on in of at could your the simultaneous also you in this then growth light put absolute maybe percentage basis want largest portfolio may about are and thinking on the in exposure of us a update

Craig Packer

Sure.

fully mindful very the that of since inception, light position we’ve Owl been a Rock, been out have invested as be on expect in we we where portfolio we been So basis. trying to building have to

invested As a GLG, on his fully comments, Today, at invested the [Technical a ORCC fully X% position a portfolio basis. largest position, is Alan about in mentioned we Difficulty] overall. think

We use don’t have X%. And targeting we’ll of X%. of Integrity go expect got would of and X% want And take highest to who only work I quality million investments a our our I would and put in and be between a highest GLG, GLG when something I but of be book. excess rarely deal. is But didn’t we also most have million. as positions a wanted, there. sponsor won’t the reasons say result. into. you in appropriately a with And to expectation the I do out $XXX extremely size, raised never, us as It Integrity, wanted the a X% that in lowest spread one and the particular, we for risk so we we a from though good And anything in we all only a of that we large was but as point have call want position I X% expect $XXX you has to had and attractive think even position. Integrity, to that to to would in as low would ones much a conviction could should

so to position $XXX hold, And $XXX is and in and to with comfortable we them million. is across worked a get platform, million, our ORCC our

Chris York

Got it.

– you basis, so about portfolio billion that level? it clear, be to So invested are on maybe just using $XX are fully a thinking you

Craig Packer

Yes, denominator that’s that’s suggest would I you – use. number the the

Chris York

is now rate July. which interest assumption, included in Okay. July. And that LIBOR on sensitivity, curve has as IPO since a down asset X-year have flat environment in question the then is about last know, basis LIBOR And completed your changed forward XX recall may plan since so you you your points I

has in So and pull. your many XXXX plan had ample it levers earnings coverage to

the offset X-year in and spread tweaking other maybe an consider income to So likely should inputs forward changes investors in curve plan any headwinds? the as the

Craig Packer

am Obviously, where not of time. down. short declined we’ve particularly guess with a LIBOR I peaks. are to can going seen the to LIBOR Fed started mean LIBOR go things X.X We and to as even it’s strategists. LIBOR we up. for I X. off try it X well. can Alan But the Rock’s comment. is some And Owl I years up next draw amount their to since probably went comment and hard everyone yesterday, exactly to happy in a about conclusions. years. has say Well, Look, tricky predict own LIBOR go. LIBOR had to time that X over It’s the where is going. will think us to rate

LIBOR spreads reiterate as we and what as and move, investing I’ll When well. and is the said move that started as wider. of spreads our I think LIBOR was IPO, economic now, were at conditions what time X, we moves the that

now LIBOR beginnings spread And back that is in. As widening. down, of LIBOR are coming went up, we spreads seeing came the

will offset be one market. the to think across the low I widening spread environment rate So

In our we we have time. over the about addition that, the in to think to adjust opportunity talked we mix as IPO,

or you that high And our first time, expect more floating – will now, serve expect, know, unitranche that as over LIBOR. and stretch percentage is of second is will and first liability and side Obviously, do As lien. it’s mix spread, we lien we portfolio if right today, impact an at that lower will – rate. also XX% lien offset that we our that

to side on Alan, well. there’s want you I that So to don’t add that. know, offset anything if as

Alan Kirshenbaum

all agree I with of that.

Chris York

Great. Thanks That’s it for me. guys.

Operator

next question with Ryan Your KBW. comes Lynch from

Your line is open.

Ryan Lynch

Hey, taking guys. my for Thanks questions.

in mentioned Craig, loan some there to, softness is one relates first The you the market. syndicated

We have well. as that heard

in are some have syndicated the perceived credits that reasons of most to market. that credits the the the done weaker are of One and heard in some softness we struggling the is of get the those

and still softness the getting are ones fairly the that having done easily. And so primarily quality are those names the higher are

So, for – you the guys that the in some to as you softness volumes potentially fourth in higher a being mentioned reason the and quarter. being loan being this of step quarter, able

with that riskier you some of and maintain do a portfolio? how riskier at least credits, very meanwhile market trying some potentially the of credits, square high-quality the in weakness So to perceived away

Craig Packer

Sure.

a it’s fair question. perfectly think I

bonds, weaker sort few have paper long. market for all I slowed. But mutual question There’s funds a into there’s volatile had year break it would I loans. just Loans for that single-B the of LBO weaker outflows no formation single-B pieces. and credits. So loan demand is strong strong not has CLO investment-grade bonds, – more a term that think now, BB

technical there’s demand loan less for syndicated so just product. And

the rating getting In become give to think, BX have LBOs, ratings cautious I more profile at agencies, addition, the with of deals they’re higher percentage a willing new ratings.

they books. know, have how you much can BX their CLOs strict put pretty of limitations in As credit

And if point. so the that becomes sensitive downgraded. BX there a And very additional is gets concern

harder to is their find much getting is weakness weaker the more type banks single-B don’t and attractive. when financing, a time deals. market, what don’t about credit difficult the opportunity, market willing just I underwrite the less think or can get conservative financing the comment mid have sponsors, flex And that environment. to on in – become more therefore, put We I LBO the struggle when and they’re of deals on credits, a any it’s limited And so they I will much made more think low

it of And boosts attractiveness and terms which the so has fixed a direct-lending solution, no flex.

disruptive may In very deal underwritten it’s their time-consuming may chance it, to because syndicated and to and struggle their the – financing a have the take deal to addition, sponsors oftentimes even process struggle. like don’t have banks that though

that’s is million companies attention really process selected. can fit was will term oftentimes that market for. I kinds think that’s our certainty. they might are low investment adversely $XXX comes market that the a one And to to companies consistent sponsors But deals the we new be do our very pay new are the syndicated struggling, and investments, loan. although it we our will enthusiasm portfolio be it. they understanding be requires in enthusiasm the will I That’s only companies squarely be banks $XXX – in but companies might want were allow see a in might from what for and of and away occasionally that’s not So and interesting profile, buying that’s describe. are really and And getting small And backing that perfectly very the underwritings for market, attractive where can more that trying our with that a those just detailed not middle-market that companies or syndicated company deal fine the but the not than million

Ryan Lynch

the been regarding at Would of expect seeing There’s of that because you grow some companies you your weakness? fund their Obviously, weakness It’s on some pipeline color. high-profile future have that tech helpful market more tech-focused guys to in bit recently as are point, any well. touch little guys big that really guys that recently? a the on across platform. I That’s been grow pretty tech guys you your private some you a lender opportunities? Are seeing further. tech to IPOs. know And Kind have you valuations.

Craig Packer

Sure.

space these software niche really terrific. has sectors been in maybe in sponsors active shares. finance very businesses to with attractive the financial The financial attractive So attractive sponsors models. at have and we being the business acquired revenue. particular for are have But companies significant that in sponsors that software established most has rate are a the their by are They’re repeatability market defensibility and returns and are that been for companies ORCC, growing the businesses

kind space they’re tech but And you are not investing that of software one what ORCC’s IPOs profitable are companies than more businesses may consequential, describing in think still models putting evolving. the businesses that are the be oriented cash are be they’re really flow activity for that that business quite lending have I oftentimes LBL we They can today. and ORCC. in venture-capital-backed software is businesses. day

talk you fund different It to Off-line, Capital Rock space. that is on tech the a call. this As that into That in I’m don’t to Owl strategy. appropriate partners to alluded about a has happy go manage to, think another is that. I BDC. fund people it’s

going not up pull types what’s ORCC. are it. But those You public of on can into information investments

Ryan Lynch

more, just on color. That’s And more wanted color get some to I Fire. clarifications, helpful one Wings then Okay.

commitment toward and hope guys larger know that durability And you different is isn’t target? to and Because just model the durable. truly maybe the market? originate on wanted What a entity. lot from larger X as give just know ABL the as a around I I capital $XX a more With from companies color to business? Obviously, focuses that detail of of loans lastly that are sort because is standpoint, of maybe then underwriting business what Fire, little where they – more as Wings business does view obviously Fire company is You ABLs million those expect it’s with for you focusing into what on. the on do that companies can $XX the size a assets. Owl that to that more Wings goal years now? mentioned that know end far a you million I the companies. you And Rock go the are size size after

Craig Packer

describes there go Sure. a this a team of Fire. wanted Wings $XX a to beginning point, And open at do. the to Look, investment building they of We saw business. basically that into are Fire commitment made is – been ton on made very that had make Wings for that are funding obviously the not I to it. highlight what million we on commitment. sure drawings little of am have going commitment. on has probably It’s to working the folks capital, there They they the deals. website detail We activity At look

in I is real structured, than now, They the I own would equipment. be that their you their ABL against expect occasionally ORCC. strategy – team, estate capital different origination For say, And own a would are strategy that some not team. ABLs They investment it’s have lending way lending. think working to or

deals for think and originate to got ABL. investment But It’s and to Owl team. just do and refer can them experienced the deeply relationships certainly we While them, to not the will they’ve Rock the Fargo strategy is I leveraging professionals that market but in like in there universe, Wells ABL the middle do quality the of the middle and the space. that sponsor will highest are do upper spread. banks deals lowest like

to Wings there peers take a it. is other meaningful and bank think Wings another, take can it to investment that about time, Obviously, of protection understand – well not might, return – it for because we’d for to go. has think talk to I one have these box they fit that a time their on But I talk mention to this in And enough opportunity it for look And be strategies to that that or deals Fire we but reason some to strategy But have is can to to calls provide comfortable that, a there. our it’s can perfectly and can but about. be speculate material and then comparable may we size. I over routinely will wanted Fire there don’t time. do downside I’m going of on decline have kind you growth to where consequential, to businesses there’s be We intend take other for of at to going it us get nice investment. a make

it So people will over understand when does become genesis consequential, it. of time, the

Ryan Lynch

Okay, your time appreciate questions. understood. today. all Those I my are

Craig Packer

Thank you, Ryan. Alright.

Operator

from comes James. Raymond question next Robert Dodd Your with

Your line is open.

Robert Dodd

guys. kind to follow-up almost actually to a Hi, of Ryan. It’s your response

outflows, be how stress loan the been fund does downgrades has we’ve your to to technical typically some dysfunction point, – the reasons. This are loan agencies seen when ratings I there out it they pretty in to mix maybe to the in mean rating see syndicated to of maybe people. the etcetera. On going part market, easy that it expecting past, the time, terms a are the that in and of are seem lower and point rating

market again, but or So bounced what’s do a – fundamental it’s issues dislocation clich��, this pretty want use to temporary it the from more just, be can kind time in transitory, of you a is is I that think back terms quick? you not syndicated different technical of in this that the think

Craig Packer

going don’t on the profound think there’s in market. anything I Okay.

quarter market fourth the more month up what year the seen we’ve of and traded last last much or than in You severely can so. look at the

finance of time look, incredibly period low rate interest given and substantial I the historic So environment. typically strong levered market, the like markets, a space loan not that many the think, a financial leveraged volatility has has, exhibited been for

a I bumps back quickly. somewhat markets as it’s bounce what’s I it’s and on I back And market, going just view commented, So now, overdue. garden-variety – in the think

market not, healthy perfection but So and have off my very think may from somewhat unusual. some. a traded don’t market. And happen that well priced they or it seat, had We is may anything particularly were as that there that’s functioning for well here I markets

Robert Dodd

strong leverage underwritings. Has high-risk a looking a given you leverage low-risk higher the your And you’ve looks demand are one XX%, in could and you credit target and got to been the market if more do the then that good obviously, out a maybe target Okay, seeing strategies? there Thank other it. with moving ORCC demand pretty potentially in discussions quality And what at you. to mean where like asking book I very you the leverage obviously any or so on in go far advantage your of with with at can. level? there vehicles, of have strategy target, some outlook, some higher level, so arguably strong that, permission slightly got of take the I

Craig Packer

to but lot changing and about answer and and of haven’t our investors is this. discussions pretty our leverage bond about our this our target. Sure. lenders and the no, a had vocal consistent agencies be we view now The Obviously, constituencies we our pretty there’s and to been leverage consistent. try shareholders, on We’ve on so very different to rating

the is that part grade have strategy. very an we financing X.XX of target to and value having maybe us We our Our we right much investment important access market, to think that’s as highlighted the bond be. place for

we And so our we’re are still while the is leverage. with reality target. X.XXx And comfortable leverage

a So it’s leverage point, constraint changing this our at so target. discussion of practical no not

Robert Dodd

Thank Got you. it.

Alan Kirshenbaum

you, Thank Robert.

Operator

from Your Lee comes next question with Kenneth Capital Markets. RBC

is line Your open.

Kenneth Lee

maybe with different is from past And the the activity taking perspective, perhaps lending does for that my question. But thanks the months of comment last partly versus seeing Thanks. markets. couple just or how you just loan the in leveraged Hi could competitive you’re other to the year? direct this over BCs compare And softening related just within on so? over

Craig Packer

folks what So certainly market. it’s a other do. There we that is do competitive

that in having coverage you’re large the think – number think there’s to relationships, the a I on our and the not this think our we call, I misunderstood are solution. our differentiators. of the also view or as number other size, size, that And similar give of being financial And a the think big I – think can every as we’ve and BDCs, has we what’s they the players able that think we’re I that And folks offer one look is we lenders are talked one about at – success. only sponsors, seeing success.

those us. to Sponsors solutions. competitive successfully win to flow bringing deliver to we deal we’re been X a to feed us. feed They’re or that are have choosing environment, us very want direct X have XX think other And and view mouths work can’t the have do able There cultivate We many or them. interesting as or to very can those They and good attractive with And opportunities. deals out us. We work finding relationships top two we of relationships in to market. Sponsors make we investment so of reach that deals. really them. our are peers three have lending relationships. we’re with mouths we’re well, cover certainly pleased winner-take-all but I it’s competitive, able They by to like chosen finding them two those one to that don’t and it they but three

And competitive – about activity. carefully manage so got increased I be can I relationships, you some at It’s investment those capital made comment competitive, know in you’ve if but and the think successful. resources, origination the base

got to If made going competing. origination, investment you’re haven’t you’ve the a or or have platform hard time smaller a

Kenneth Lee

And one helpful. just Got Very I follow-up may. it. if

a of target frame for X terms the levered mentioned range, fully X like, In to months you remaining. achieving time

the if potentially time what there are weakening continue from and built a benefit you frame specifically, market, wondering loan in see Just syndicated we assumptions accelerate? to could

Alan Kirshenbaum

It’s Alan. Ken. Thanks, Sure.

pace markets would of X and the model we fully or the recall, we’re we’ve constant XQ seen could accelerate we in X line months. we’re that to with end see our we be last during X see on origination you we a quarters. invested. but X time based as sitting over saw very comfortable, – relatively we that we that So put everything the XQ, or today by pull track or that X weaken certainly more, That’s If on forward, with here as

Kenneth Lee

you. Thank Great.

Alan Kirshenbaum

You welcome. are

Operator

[Operator question Security. Instructions] with from comes next Fargo Your Wells O’Shea Fin

Your line is open

Fin O’Shea

for talked just you quarter, think theme one the the you as becomes of But direct take just many more, from on of below just the on thinking you richer, larger loans about that that are Thanks syndicated. and away from to large as the as middle benefit syndicated portfolio markets, continue these lending guys. might and million last one scales would your larger – add-on Hi, markets, Greg, that just add-ons $XXX do. scaled going firms tranches the platform they’re

on of and upsizings be putting quarter? do to there this these committing on color expect next you’re you loans any in that quarter really So

Craig Packer

Sure. XXX to Look, our bread butter is XXX, and right.

bigger that there’s a are sponsors and facility companies capital. able like a to it raise value do trades incremental touched and they’re a rule. solution. them There to and on to working It’s businesses exist downgrade syndicated difficult company that grow. places choose a has the this. why them significantly to very find the markets, of premium reasons can loan and of It’s with The a not lenders that very that. of be to they’re exception, not understand they an be and direct for going company syndicated ratings-driven price. those deals their we but for we’ve about when they’re is Some maybe They in a get get the direct a loan have or off MFN lot and difficult just circumstance capacity help a lending and None the that, in that solution. in They their issues

it get or had enough to they flexibility, bar – the going at I the for do ago, for And others up. from capacity companies X go do bigger companies, not direct ability X us, like They the are sponsors have to where to of but syndicated to is the They these it seeing, so help and that think willing certainty, to because years willing only to grow. capacity. to solutions space, from is the firms in are market didn’t broadly. what you’re

that doesn’t so And exist.

be think the do, to that’s syndicated taken think they a what be. I attractive I done to deals at But not are to solution it’s are if see attractive and and see more that more because to likely the going more I direct use bigger don’t market and they syndicated. pricing, it, are less. time, them bad are start willing that’s that for go deals, to you We’ll get suspect what if continue in more the out who I sponsors going comfortable to with is do So the in the are it is I think you’re starting haven’t place not going okay. they deals. case over we’re doing us suspect And opposite. to finding do to getting they they past that But

Fin O’Shea

it’s portfolio deals on what market the upon you back maintain think you is mentioned a the you a that’s a in environment, the off a but stable to would market return? platform Sure, quarters of really, And kind that, to these helpful. expand benefiting comes larger have of fly lot the would are you these and how can but names say of allow are and on because middle focus more – syndicated of the they lot deals, pivot, continue the do these just fly below do, one that to larger you even-keeled a all the if market core originate, from portfolio, off, of of were couple syndicated you part

Craig Packer

that originate – have strong has strong and extremely throughout. in pace very we’ve demonstrated a X.X most syndicated loans of time, been years, In we our consistent way. been ability origination a period terrific to of think I markets Look, of the in

for borrowers or ago. In refinancings we will the we think the other, vulnerable what about. what or and our platform market value reflection all is a this than or that deal even two don’t the not there did year don’t attributes quarter only direction most we we’re but It any do quarter quarter of record talked make reflection biggest not of did about next what that to two, done one have ago environment, or a was wasn’t that it’s positive proposition is particular think X quarter. more any have the can I this be one a we think quarter anything we years quarter there gets second what I This active to us. of a you or should have that a quarter We

I And think reasons middle and middle are direct market market talked focus credit I that just what’s I definitions sponsors of like we the about. think so for middle of core subjective quality and variety a upper solutions and of judgments they because and choose on

So book I don’t view on vulnerable. particularly any – the names our as

fees call structure, we oftentimes, us have sponsor and in place the protection. remember, puts when they significant Just pay a capital

tighter would to them if that rip even market X in cost-effective So to months, be capital structure. the it not were refinance for

And an have. time, don’t I see companies so they have be – transform Sure. their bigger think and that’s much sell people we over you’ll really refinancings. that’s or And the – would It’s we and businesses experience not something company, expect. where more, other the to

to You refinancings. but I can this think refinanced, don’t is get always vulnerable environment particularly

Fin O’Shea

But of – think Thank financing. the on CLOs And in I future more more for focus see color unsecured? for color toward that. on if Alan. more change quarter your you did language one a highlighted quarter, this a more may you I Appreciated terms you last so the so noticing markets, mentioned funding just we

Alan Kirshenbaum

short No, is no, answer the no.

will We continue do. to

drop-down now were We takeouts. very would We X those quarters with for row. look take to just facilities. active we in in a unsecured time, And over out have SPV CLO the markets two

in this It’s So we to the the deal balance a was public our month. my earlier did way continue around markets to takeouts. emphasis to looking do CLO be efficient on very out we sheet. quarter my remarks prepared this issuance finance But bond that

not strategy financing changed Our the on at landscape all. has

Fin O’Shea

That’s me. all Craig. for and Alan you, Thank

Alan Kirshenbaum

You are welcome. you, Thank Fin.

Operator

Point. question Alexander comes Casey Compass from with next Your

is open. line Your

Casey Alexander

morning. good Hi,

that? by if judge us ratio? fully leverage it’s by XQ or you previously total You you being leverage a that judge target portfolio invested And size Can you ratio, XXXX. target by about, a or that hopefully, by target how a remind of range? mentioned what’s Do

Alan Kirshenbaum

Sure. Casey. It’s both,

billion equity of about X/X $XX size is on return So based portfolio our leverage.

Casey Alexander

understand a that Great. what got misunderstood. do to some opportunity what like upper based lot of middle me yourself upon kind loan the because market is it to sure Alright. market a there’s right syndicated I at got of been broadly to where and a you level reading, benefit for allowing downgrade make set to And origination. it ask sort market of I Is just fear there a lenders of the buyer’s contour try now? CLO the my what then want of mean own we’ve I to correct is B contour doing could as correct – of has a in I’ve the market for been creating that for structures. is And of better acceleration that kind of strike

Craig Packer

to you. So set level I what you will to I a come but just in want second, outlined back

solutions direct for lenders bigger and solution. lenders most very the of the of has very the has know no can them their and companies, time, finding certainty. markets And there We been privacy lending and market who syndicated businesses, buyer the grow, of can that have bigger they trust, Direct of been they’re because package and offer. understand for have grown help been the and of Lenders who years strong active penetrated X.X the period strike. that

et banks is a doing syndicated commit a that lot is the of cetera. attractive flex, involves than process, of in with loan, steps the All cumbersome, more which

the mutual broader think generally addition outflows in decent been creation to a that trend, trend. is slowed. last now So has this quarter, I broader described There description. has quarter In the funds, and what that’s CLO into you from

it bar And buy successful. more third saw of what than interesting quarter for is year. I market last the be was quarter from the as this trades But was manager may we the secondary in the get it to don’t interesting the to year new of has higher. more the here. for Fourth attractively to comes So be that off, incremental behind it priced position, that issue

been, lenders it’s back So don’t the to been but want at I what overstate has the impact that wind continue. for may direct

Casey Alexander

impact beneficial your And that any origination had Okay. has on spreads?

Craig Packer

and prefer other would time have quarters. LIBOR we it have way have each works through. As And the shall or up the discipline that takes begun we We this be but will to the But see. we has see I so benefit. same see impact, just have may lower to through. to But we the spreads it if we work lower the issues. for certainly, quarter, because starting said spread spread in may go to lenders means its it’s that positive disciplined want rate of its the much and wider new we that a But are three not increased and to gone to LIBOR way of spreads, last comments, would more to see wider about have our obviously, like

Casey Alexander

very Thanks thank That’s you. extremely helpful. much. Alright,

Alan Kirshenbaum

Casey. Thanks,

Operator

will at the are closing remarks. to back for this call Craig There over and now questions further time. turn no I Alan

Craig Packer

forward keeping you Thanks in. dialing to Okay. everyone questions. quarter. for updated the next Appreciate you Look and to talking

Blue Owl Capital (OBDC) 4 Nov 192019 Q3 Earnings call transcript