ORCC - Earnings call transcript Q3 2021 | Blue Owl Capital Corporation

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Operator

Good morning and welcome to the Owl Rock Capital Corporation's Third Quarter 2021 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I'd like to advise all parties that this conference is being recorded. I'd now like to turn the call over to Dana Sclafani, Head of Investor Relations for ORCC.

Dana Sclafani

operator. you, Thank and quarter everyone Owl Capital Rock Good call. welcome third earnings Corporation's morning, to

risks Joining performance are of Chief forward-looking may differ this senior and that listeners results forward-looking any our in a Lamm; me that no morning and including not other statements, management number or Chief in Craig Executive filings and of control. of during may to a of guarantee statements. those outside Financial results forward-looking result ORCC's which Packer; team. assumes company's obligation Officer, factors remarks I'd are with Officer remind of made materially uncertainties to contain and the members number a Operating involve are like those Jonathan of the Co-Founder Officer, future update a described our company statements SEC. and our Actual Chief as call from today's The

We opening to our on will and call our turn on presentation call also providing I'll an be before Investor discussing activity. which available Craig Craig. press detail. our then at Jonathan up will our that will and before on update for to briefly With figures the results which Relations supplemental owlrockcapitalcorporation.com. our will the GAAP portfolio on close outlook thoughts are our by deal start Craig cover questions. release earnings website the After results more in over measures earnings with call today's of in section financial referring to non-GAAP reconciled some

Craig Packer

discuss today for you thank our and us everyone morning, Good third earnings. quarter Dana. to Thanks, joining

the report to pleased very quarter. are results strong for We

quarter with driven performance. sixth represents expenses income the was sheet of the per third operating share was We $X.XX effective continued investment the per of NAV our This $X.XX share which per of share the of credit second $XX.XX from $X.XX by quarter superior maintaining cost net up balance portfolio, ongoing quarter low ended our up in net share $X.XX our excess and growth prudent our consecutive asset in dividend. use per and the from and quarter, increases. of value previous our Our

recall our by waivers had previously in in impacted you share the fee sometime coverage been will $X.XX expecting of half full of per we XXXX dividend had expiration fourth the NII of XXXX. our, quarter of As to achieve the second our been and

now of experienced to in our achieved these to portfolio. With originations and level continue ramped earn this are $XX have quarter a fully record which this strong We billion-plus forward. going we well-positioned fully resulted results milestone dividend a

in in an amortization economics, and time, we're position similar finish allowed this We We materialized which level generated comfortably in the to of healthy we and leverage third a our equally finally which to Prior size a same attractive with pace yet investments record strong investments expected but has $X repayments of our us had this also fee repaid seen quarter range. quarter quality trend for more credit than a not of repayments. the of those equally able portfolio had with seamlessly had quarter. replace income. comparable billion of new the to At repayments, target and the

Private M&A investing We with are and flush record are first the also benefiting saw of levels. for trend half from at Continuing a equity very in activity a we fast remain remains firms terrific direct year lending. environment clip. the at this capital

have believe we large or more firms available these larger for demand This these billion financing strong positioned We of this and provide and the our on in our year with community. of XX solutions particular, opportunities remain the With direct $X enhance lending penetration are Rock by record more as size scale loans of finance evaluated is In for Owl and direct of private frequently were in unitranches. lending for in pools we solutions also have taking broader lenders continue team platform and using from experienced growing most look leader. are position market the into The deeply investing closed quarter to resources, a witnessing $X and to solutions suite overall trends see we who large-scale sponsors. can capital The the share additional five equity will relationships this space to larger Rock leverage markets. placed Owl capital the transactions. broadly amount deployed financial We to full favor quarter alone than strong due the trend continued syndicated of platform and relationships more who for size competitive with products equity a direct privately a expertise billion to partner over loans. which large in sizable further unitranche structured especially-well with third resources private

investment our were the to originations activity with and funded billion $XXX million. of funded billion of investments originate of extremely in to Turning $X.X pleased net quarter, $X.X activity, for billion of we $X.X repayments, resulting

existing of Two we pipeline pace know positions, companies be reinvest able institutional in investment Troon our in knowledge and able Nearly and half to Golf, for handful a investment great positions, of our we our confidence portfolio have portfolio to extremely activity differentiated our provide incumbency driven our names results have of this part operating years, been in which were we companies, relationships. Our delivered base strong a was in. over for largest to strong represented They in and pleased of deal have growing by have well, where re-financings and strong and and leverage three time. over are of of was these natural Associa flow. historically some in-depth

roughly $X.X the investments XX add-ons. to which last billion deployed billion growth We this make across volume excluding in compares was $X.X trend, our XX larger opportunity origination quarter. to investments, Another drove across in companies. quarter investments larger This the

full and deploy underwriting able were to continue we with to which that only So our so we efficient five more devote investments, capital additional is critical. think to to credit attention resources with allows the us be XX%

We million, the now portfolio. of is also continue is of our up from EBITDA which $XXX the companies our million in year borrowers weighted The size to grow ago. average $XX a

last addition borne to has believe over safer years. more are invest our to, and allowing results out In to us companies that efficiently, larger to the we been lend five by

this As repayments exited fully for had you quarter this a expecting see finally may to XX in we while. We been recall, saw with occur pickup a investments.

repayments higher levels the do in years. to to expect couple prove have exceed this of the to While continue end, quarter we may on we seen last be the

deviating opportunities average and spread attractive of new were Importantly, we commitments able unitranche from our deploy basis with Roughly, XX% was on spread was our in from first sizable on points, strategy. repayments this investment repaid our capital investments. average approximately which activity and quarter XXX loans, was to into without the lien in line

result, with portfolio new points. spread the quarters consistent line our the portfolio. overall levels, for a credit previous remain investments remained basis with at those in As of and protections rest leverage of Credit roughly quality, XXX

deploy continue high despite ability high-quality base. a competitive to XXX across the about companies asset capital portfolio $XX.X stands billion the and market and good we So to Today, feel conditions, maintain repayments at and perform our well, remains The performance. the fair average approximately significant majority extremely overwhelming the very of change continues deliver there to portfolio strong and continues XX%, ratings. weighted were at to our credit and portfolio no to value very

of have COVID now the that, was we at of felt borrowers, I our quarter look had XXXX. performance the performance four note least would we in As the normalizing second quarters of worst the of since at impact

and shortages the since. to of are reporting strong We our the seen have by monitoring consumer our current date, record are pleased as companies improvement exposure material activity. businesses, disruptions. and carefully said, in modest services And To many we caused today, sales manufacturing which a not we continued driven borrowers headwinds have of the to in health supply each chain economy. the economic many see impact are That performance are labor quarter by

largest our some non-accrual remained which with portfolio the value. not based In of only of fair software, representing on headwinds. status, sectors on health investments are two example, and exposed as insurance, nonaccruals current our economic X.X% low line quarter, For last to the are care, with

XX One levels in lowest points. Jonathan to of I is BDC over now it the more results basis will the turn our ratio in sector financial our annualized detail. discuss loss and to

Jonathan Lamm

$XX in debt per This share of quarter $X.X from of target our Net by our increase net the increased dividend We you, last outstanding X.XX Thank to $X.X net billion investments net from was million, gains. times $X.XX with of quarter third $XX $XX.X million ended unrealized to ended of total of as our range and as investment assets the We total liquidity which growth $XX.XX, billion. with value Craig. roughly equity, up by quarter. driven asset of exceeded with billion, $X.X the of the billion. primarily midpoint portfolio and third leverage debt well leverage income,

our income investment per per declared of net share, Our third was $X.XX previously dividend $X.XX above share. $X.XX quarter

on For the XXXX of fourth quarter, to a January $X.XX record December again stockholders share dividend on XX, per XXXX. declared XX, our payable Board has

this received which up income million. This quarter, well as the the fund. dividend income increased primarily driven as loan quarter, increase dividend investment increased from prior from total for was first million our Entities $X quarter. from senior Wingspire income, million, our dividend and Our We $XXX to $XX continued by Windows by

senior to a quarter, accretion our earnings income had is a Wingspire material from in accelerated expect We increase drove dividend from and capital prepayment amount continue of committed to increase fees. and noted, fund repayments as deployed. this we Craig which significant loan our

quarter the pleased we income our to recognizing to stream, capitalization million the quarter. a the strength quarters, idiosyncratic expense of around is as specific While expect growth in more as normalized quarter. will $XX be in prior stay Management any expect we that in from timing in our we $XX repayments of increased future contractual to a reflecting the our Interest pace, modestly sheet. million, do flexibility fees was a is repayments the incentive not with and portfolio. the leverage slightly that and repayment-related this broadly up these increased remain perspective, levels continue earnings at balance From

continue at to comments. As of unsecured to of secured form debt our quarter Craig levels. execute back and and the turn I'll financings it bonds we outstanding With for attractive of end, that, in unsecured was closing XX%

Craig Packer

rest To both on the our on Thanks, to expect we would for another Based touch outlook I and quarter originations close, Jonathan. repayments. for of the active year. like pipeline, our

this but higher In to healthy than expect quarter's terms of level, than see a likely quarters. we repayments, record, lower previous

returns few attractive made us can and deals in our portfolio, have and we generally that ramped, strong companies, strategic portfolio more middle US-based the to invested forward. order $XXX pressure, One opportunities million on originations and currently investments in will the portfolio this focused have in generated fully we line maintain To backlog invest do to asset-based see a we capital assets in years credit see to be we close have levered, is offset We very a this expected goal. competitive strong to performance. invested of while market roughly $XXX Now is think two fully in lender approximately repayments some targeting with investment Wingspire, that Wingspire attractive on have quality. we this with ways maintaining and end, ongoing are We last achieve quarter. going an but this million pressure spreads, help to of fully

run We ROE ROE over time. this generate single-digit will expect at can rating a of XX-plus a the by be and end percent high Wingspire year

investment The in other our loan is fund. senior

in ways expertise, will capital to We and such can three approximately ORCC fund these of quarterly invested in economic increased our accretive in commitment last look investments leverage over equity for increase the quarter, continuously XX%, and XX.X%. past million shareholders. are relationships over that our look has resources we we already an recall, to ROE to attractive and you the The As situations generated our as at to our additional $XXX we fund opportunities time. ownership average years where

a see to portfolio than continue with opportunity to portfolio an our lower just debt points. spread we in over $X We basis billion Lastly, mix. still improve XXX of have investments the

we capital higher which achieve spread redeploy an portfolio is repaid to investments, as pricing. been unitranches, spread and Our we have able are where these benefit area this will into typically to attractive investments seek

portfolio the where our scaled of proud very fully leverage are is We today. range. in It target stands with

laid executed levers have dividend have the We now on earning are earnings we from NII. out previously the and

video with I close of reopened remotely progress. of each investment be capital and able for our to deals delivering $XX the on strongest after quarter continuing performances while teams and record to Rock. underwrite would months credit apart have forward billion to Like a look have a have and and have originate very sponsors, credit proven We our nearly delivering to note person cycles XX wonderful rate. after with other at while now than working of appreciation like is and recently low current deployed calls. you lender our so to of in to to be inception, all a more demonstrated only for across ability had one the of office working we a We corporate interact originations of many and colleagues Owl solutions it on loss We sector. for our in seeing long build our choice since

with XX during in has questions. leadership, often maintain for Our standards of I open and to our incredible results build credit want that unique created very team Rock pride, did it our selflessly high And please just the And a for thank tirelessly that portfolio remote teamwork, all their you work to and terrific corps. entire joining worked with it do line strain. esprit they On company. these dedication investment a level for months and de large today. thank behalf environment and with Owl a the tremendous us Operator, of team to stress

Operator

from take JMP our Thank question Devin [Operator Securities. Instructions] you. And with Ryan we'll first

Devin Ryan

morning everyone. Good Great.

Craig Packer

Devin, you doing? are how

Devin Ryan

on side the liability of here one with the start Maybe sheet. balance Thanks. Terrific. Doing

been points past reduce year guys in basis managed XX, In you to active is show very interest optimizing. how over average slide which You have and rate on obviously weighted you've by growing great. the the XX debt

of now? other be the do where guys diversify So, that type further maybe may optimized most if Are is And there kind of or there profile? you right funding what sit opportunities today? funding any are appealing

Jonathan Lamm

Devin. sure, Yes

a and raised margin, the as revolver. opportunities. in all well and the perspective are unsecured of a fully diversified there SPVs continue of There that the to the amount massive years. things But can on banks from various and of with drop-down across financing financing CLOs number wouldn't really a there's the cost financed out near-term. our unsecured a CLOs well do that We've can opportunistic moves we're do legs margin we and are of And financings. well On capital as in very really that we our I in incremental say stool from both perspective

Craig Packer

happen points bonds but unsecured basis It's take meaningful have today Over experience will than we the makes issued to mean savings. that are call I are or us out trading that's expensive when out. them for But something that and them an repayable, have take we XXX that they it we will we should they immediate opportunity. where time over not time. tighter protection callable

Devin Ryan

Yes.

Okay, no, helpful. that's

effort concerted at of it's broader opportunities end large given for has there's effort so M&A -- that or also markets more for out and the that sense you're can concerted something I and and want understand of there's just But market more market But opportunities. do whether a it's a guys talking been guess evolving? there broadly of Rock? just on Just about have a how opportunities like dynamics, at the you a of the a I just more just makes just there more is the Maybe more market it just while. on you you grown part conversation little there? it a just spectrum there. given follow-up There's some perspective or the function the attractive is differentiate companies but is to of Owl large

Craig Packer

part And pool out both companies a and direct both. Owl capital incidental it's pools more were It's it's started too both. there I not capital. we raised Rock that is, the it's sizable mean went we of would and that solutions if of lending pretty we reason bigger available of want thought

opportunities capital sponsors we more The we're them. in to those direct to options direct and pools formed, lending and great and a when they of of finding finding for can larger to they're are ask lending bigger the bigger are direct the choosing available other us more direct find come syndicated lending and offer companies market solutions. receptivity As solution lenders solutions to and could advantages

broadly doing So market that markets finance direct the lending so time is where by greater getting the leverage share And and accelerating extremely overall a that it's strong. in way space. is are trend syndicated the at

in So that. get space. where the They're penetration would is, there's into markets. they're syndicated we an means markets, leverage in a finance that I a lending syndicated expect direct coming not despite broadly broadly can't get overall the instability if because of greater coming done deal What they period the even

and standpoint trend now is upside So from in I the as future. think with accelerating share is, a the

Devin Ryan

move hear. to I’ll Great Thank Okay. down. you.

Craig Packer

you. Thank

Operator

Dodd Raymond Next go we'll Robert James to with

Robert Dodd

really Wingspire, now? but which that expand other differentiated you've engineered right Hi, on one quarter. lending. guys. right? where is you're you and similar Wingspire to most things can financial areas verticals private obviously kind SLF to It's looking Are about Craig. combat I got pricing are prepared from large-scale that product different pressures competitive of the remarks in the the just there where mean not conditions is BDC a vertical, I go the sponsor-backed right? a want you the I mean of into the talked obviously, to your advantages credit versus that SLF to other and competitive – are Congratulations elevated

Craig Packer

I I were we there's highlight that So if area across that go from a and that we anything expect with two as that we our should than by that like are time right don't want one teams sense the time. find platform I to have evaluate other to into. that base the think Owl the I'd And to share platform verticals, rest we that to you you. about Rock to area to an relative if tell to and I would, spectrum provides do I'd would really no attractive do We our it. attracted more. it risk/reward want look makes capital to Obviously, at in that or opportunity call and find you, signal are regularly specialty very really significant yet to I'll we finance of get approached something us

hope find want But picky something. looking quite we're what so something And so to made we'd into go actively it make really we're and was us about that sense for and we'll sure to

Robert Dodd

bit capital, of size. but isn't it's positions while now XX% I and a roughly that number More the arguably the say think Okay. private investing BDC? size, up. time as BDC the you're little also the more at assets maintain the smaller well at kind can average in right rise? to scale obviously, if positions we size? you over maintaining hold the I the shrinking of as credit similar one size or target a Understood. is see and talked the expect the would Should I going BDC to the keep growing portfolio about Deployments represents the of asset targeted follow Because though diversification number to of within levels would BDC mean would And more are hold portfolio we sort of be you the repayment and is platform if you're public but over if portfolio now.

Craig Packer

What stayed It's is we -- I quarter say question. a this about it flat. good would

different a play factors there's -- that we're of number are there. So at

respect targeting wound we've too where we've without and have comfortable that we've position most with complicated X% about things been to and consistent been X% it very held or that's up. and making ORCC, So with sizes always

to I continue think size when we're I positions ORCC So think do we're from what we doing. going to

it As portfolios' we're depends at will the has into investment – percentage on other how really the much putting time, our platform of needs ORCC dollar grown, a right, you're incremental as but ORCC. we'll shrink

dramatically if as so. on So we but not is we it my grind grind a guess wouldn't sizes higher But portfolio, but over the so. surprise time bit dramatically me not we position construct higher

Robert Dodd

Appreciate it. it. you. Got Thank

Operator

we'll KBW Next with Ryan go to Lynch

Ryan Lynch

morning. good taking Hey, Thanks for my question.

it, I X in market, look of to, any going new guys of And market a weighted not ever meaningfully still this folks pretty that changing or just several X.X% one willing that average which your do go in think in that last the you formation I floor mega-tranche commitments that down Slide number over had, evolving level new see guys is than? sort and again feel stopping X.X%, as are market that you that just middle at comfortable any if with which is the upper quarters. at wondering entering that's is it's at hitting First kind to spread still in could I'm spread floor hitting numbers? of there of level less is lower and further pressure you those players sort

Craig Packer

Sure.

had So this one entirely we and meaningful second were quarter we high-spread we in there. point in lien or out a thing unitranche, of had quarter whereas is second first almost couple really deals tech also would lien the I

the you're in as So deals the second widespread drop the in part well seeing from the couple is quarter. mix quarter to as by third really what of done driven a quarter in

the For that, mentioned Having is example, that lower I X.X%, but to my not the said market. at back in we're quarter as first certainly in you pressure if went spread X.X% there significant. versus comments.

but being gotten real we now think spreads are to attractive. we've very the for one And think being we super disciplined invested and at fully the are advantages shown offered would we the are disciplined about incremental I investment are being not be us incremental investment. opportunities that fit high-quality that our credit about can we that credits for characteristics of is

do or in so none at may than And before less we those all. situations

to is based now market couple I've last but pushing My I we leveled A seen couple lenders it disciplined other opportunity activity-wise are seem of that months. the has in lower we think not spread of are the afforded than things would peers, to just attractive incumbencies. on in say spread can I'm that. that I what think to have know vary of And spread. deals we'll our growing base based the be I and pressure But excess the their on the we're that sense market we large are in and of So off pressure. there continue to compared maybe so opportunities kept seeing, for floor have is and I continuing what found these to ORCC find part to see. spread find some attractive

we some of have to we're the spread so to immune pressure offset And ability but totally offset not of and that it it. some

a gives I out that color there. hopefully, So you we're of little what bit what seeing see

off. possible but it's it tighter I think know don't think I could. I business. how will people don't go their other it run leveled it's

Ryan Lynch

though. the wanted right comment some That's you helpful it where standpoint, color Sure. capital now get leverage detail because on matters. deployment of I mentioned to Understood. earlier standpoint, a more from you are

will originations to so equate repayments. scale at you're roughly said, You

going upper forward. you of just said leverage curious a X.XX target you the times. think your have I end – I'm guys is

a only from standpoint, guys like you from standpoint, a net guys But you Looking X.XX so. or are are about growth X.XX.

bit a upper room leverage end standpoint. is if net quite the X.XX a times of on your of to there's So of target go,

would do decent you that suggest upper could gross of Is basis of growth your net net handle because some latter end, leverage that comfortable a here? that And the could amount going basis? you to So clarity if give from still it is guys feel or just a the you range?

Craig Packer

the on when can we talk the about we about we quarter of Obviously, as at -- cash net basis. it, a end meaningfully it move close. around deals talk So the

anywhere I -- -- returns we agencies. our being range. our shareholders, so that our sheet That's our the terrific try we growth of why balance in balance the supporters that's all who've respect speaking terrific operating stewards and comfortable been obviously We're but language. lenders we're rating just of bondholders great to with our the same So have range. to also for

that operating on range. be account. a perfect we any have where come anywhere end comfortable where in would and be And we activity might All lumpy which the quarter, is quarter these for at can land of of precision we don't deal in dependent land factors We on quarter. one that into

in So think any any signal high-end leverage, but want low in higher that we we're higher countervailing I don't what a is I I I which should trying we're expect just your be There's quarter, But you're But think the that asking anywhere to that quarter, folks great given could think range the out to me. and be range. that go we that account. in from of come operate could should end maintaining we the there. that drift don't to going is expectation. costs, getting trade-off overall, towards force. balance shareholders take And range. to for want returns, of very financing also which into all a at

Ryan Lynch

time Appreciate the today. Okay. Understood.

Craig Packer

All you, Thank Ryan. right.

Operator

go we'll to with next Instructions] Schleien Ladenburg. Mickey [Operator And

Mickey Schleien

I Most morning, par. Good I on actually questions a see above it's everyone. my Water. housekeeping been marked it's couple just have of on non-accrual, Yes. of but questions answered. have Innovative

Water? its accruals Jonathan, So outlook? previous did could you And just give us some Innovative on for you income reverse any maybe guidance for

Jonathan Lamm

not non-accrual. is on water Innovative

So but investment. Mickey, a we performing take it's it offline can

of there. So no income there reversal was

Mickey Schleien

Okay.

morning. must this Sorry, for That's it that Thank be you. my me mistake.

Jonathan Lamm

Okay. Thanks, Mickey.

Operator

Lee Instructions] RBC [Operator go Markets. with Next, we'll to Kenneth Capital

Kenneth Lee

Good morning. rotate potential in benefit pickup see sounds new And portfolio question. thanks like taking expecting of to for my still terms as yield, time higher-spread in towards you're investments. over It a you

on Is the meaningful rotating wondering like lower dependent bracket potential any time Thanks. and to Just to at a it the $X terms that's for amount is remaining prepayments. sounds that of there when time expect start spread that frames way in billion investment? it of remaining could you

Craig Packer

There's one portion then precision. over from not credit us, There's in then that. because easily credit longer other any we to a aren't chance think that billion time that quarters. reasonable reason. there's lenders there's a Sure. there's take sell that I the a I next in with probably portion $X a a sold choose we'll two to that great might in there the get with think than repaid of not Not and portion that there's will And others

model want it's meaningful companies. don't get put on at quarter. fourth depends It predictable I fourth our I I thing But you give out for talked the probably quarter. the a about in So number there repayments in -- certainly going a repaid will some to There's that have not expected to the us. don't to being what's in in.

I years, over X.X would that. the was if it's I next something just modeling So something years assume two like

Kenneth Lee

Wondering current bit just about And your one helpful. lien appetite Very you. may. more follow-up if a if could for little loans. talk I Got second you just

Just the last portfolio percentage thinking quarters, over but want trended couple there? seeing that latest down slightly your I the within allocation has gauge Thanks. to just of the

Craig Packer

Sure.

very think that we do. junior liens are We willing really credits really do being of risk in very a consistent been are stable second and the cushions equity We're more But selective liens situations and lender. commensurate second with We we like in with like the have those, taking strong meaningful do them. than to them we only businesses on and this. on that

do them. we'll shown haven't But -- we to get those that we credits to. meet We are very there if be opportunities oftentimes no pleased characteristics, say that

the that that of been liens, been couple we zero down find opportunities would So see more our overall second help could I've if row. I discipline. demonstration They good spread that because we've margin But any for gone that and given very probably our on this. little we I percentage not surprise it a anyone eight bit is think would pointing take I'd I to a like in where to continuously could do that fact quarters a And returns. it's just -- obviously to quarters a hope But the quarter be up. in of be deals. saying consistently

of on Just is in our it sense a EBITDA so second twice portfolio. you have liens EBITDA average the our our

Our average our plus EBITDA characteristics of terms to leverage all our with to be lien borrowers $XXX credit on second tends overall loan in and the portfolio value. same of million

we're we'll very stable companies bigger but to continue So selective. do them

Kenneth Lee

helpful. it. Thanks Got Very again.

Craig Packer

Thank you.

Operator

Craig for concludes to closing any session. over I'll question-and-answer Packer the back now remarks. turn additional call That or today's

Craig Packer

Dana. quarter. the We're that your Thank all in. accessible. questions support. Thanks for other of appreciate out has Well, really terrific. please We're I follow-up everyone's with you. to reach for rest enjoy pretty Thanks the the If And tuning than afternoon. anyone pleased questions.

Operator

today's concludes conference This call.

You disconnect. may now

Blue Owl Capital (OBDC) 4 Nov 212021 Q3 Earnings call transcript