OBDC - Earnings call transcript Q1 2024 | Blue Owl Capital Corporation

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Operator

Good morning, everyone, and welcome to Blue Owl Capital Corporation's First Quarter 2024 Earnings Call. I'd like to remind listeners that remarks made during today's call may contain forward-looking statements, which are not a guarantee 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 forward-looking statements as a result of a number of factors, including those described in OBDC's filings with the SEC. The company assumes no obligation to update any forward-looking statements. Certain information discussed on this call and in the company's earnings materials, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. The company makes no such representations or warranties with respect to this information. Yesterday, Blue Owl Capital Corporation issued its earnings release and posted an earnings presentation for the first quarter ended March 31, 2024. These should be reviewed in conjunction with the company's 10-Q filed yesterday with the SEC. The earnings press release, earnings presentation and 10-Q are available on the Investors section of the company's website at blueowlcapitalcorporation.com. With that, I'll turn the call over to Craig Packer, Chief Executive Officer of OBDC.

Craig Packer

thank for and us everyone, morning, you joining all today. Good

high we quarter the the pleased rate shareholders earnings, consistently for book value Fed the spoke The the rates of to to per shifted elevated has are to was of investment while to last our quality market income interest portfolio. Net no Blue report portfolio. our quarter, our the but for the We share to another strong continue year. $X.XX across over returns delivering now to delivered maintaining long-term a equating with expecting Since equity. share economy of credit another to presents again cuts our on record quarter, net the considerably. U.S. remained compelling is overall, at like of you the quarter. We quarter outlook environment track for stay a a asset and of solid. We limited selection. first good course continued those Owl of return also XX.X% per same while earnings The particularly strength time, value $XX.XX believe, this the drove credit growing a credit record ROE lenders performance once At attractive direct has

allowed pay stable worked quarter dividend XXXX. reflects Given and portfolio standards, rate both across floating from rate credit deliver underwriting returns the since regular environment. At economy shareholders attractive our IPO benefit we of to our in performance all inception, we rate a in our have higher high our focus strength has This on our a to performance resilient. Since to hard the the prolonged investments, earnings growing each that our ensure of same and therefore time, been or environments. our has the us

we we is Board higher over-earned that a as Even $X.XX regular well For level, our dividend $X.XX last quarter, the approved quarter. $X.XX by dividend, this reflecting this our the covered first regular the quarter. dividend paid increase at

quarter our In regular framework total nearly increased additional supplemental as of Board believe which a $X.XX, by the the a for higher dividend income has for a $X.XX dividend addition, we dividend our to yield. baseline declared supplemental XX% dividend We shareholders dividend level of with dividend, benefits attractive rate an with predictable in providing overearn yield combined environment. our the our equates

and portfolio On see companies. Looking steady growth we line our to bottom to quarter-over-quarter top continue year-over-year average, on both and basis. a

these profitability, rates, intentionally well into navigated believe having in by design, in revenues growing our we investments have borrowers and sectors, working positioned who structures companies and capital businesses backed full managing flow have cash by coming by year sponsors this adjusting successfully higher with a needed. We Our cost faring large interest were well in year equity operationally where high-quality sophisticated invested as recession-resistant equity private are large, often businesses. and

has average currently EBITDA of portfolio average ratio our less weighted than of the and coverage X.Xx. interest portfolio, a an $XXX average Our ratio million is loan-to-value XX%. Across in excess

market X.Xx, to have rates If Over X to paying are Borrowers been trough than where now. the rates, for X% portfolio. expected X.XX% of have the and should currently quarters, in quarters. we levels X.Xx here. Despite rates around as coverage is which last in over coverage currently across of stress we to few about range year more at we SOFR we higher pickup remain course any this haven't the are trough seen the the then at remain expects the

who our small of number over a last watch the this continue static list borrowers to have are remained has but quarters. subset We on relatively few

that, our situations. We lender companies believe believe pressure the We lead over our diligence of outcomes. challenges in the or small, debt situation. across serve likely growing we over the leadership even these team detail sponsors credit across will quarters, recovery-focused shift. With as and credit influence resources coming a liquidity focus paired control any appropriately credit on and our administrative our constrained majority X.X% which the achievements These to both borrowers our are financial our proactive investments. Overall, financial more manage number fair strong. workout our which and at turn economic is remains selection performance allow underwriting amendment underwriting in on further supporting with on process as companies the with unwavering have agent heightened these value revenue in we Jonathan EBITDA. low or our to The evidenced results. X While investments, face position reflect This advantageous it at place our to rate continued is will access and our during remains our on documentations negotiating of of management, nonaccrual optimize and to loans, remains more I'll us conditions and position portfolio affording us investments to provide

Jonathan Lamm

quarter billion total the investments ended outstanding of We $X assets Craig. debt total $XX.X billion. with and billion $X of Thanks, of portfolio net

$XX.XX, a NAV continued attributable Our $X.XX of dividend. our overearning share from the and the per was another to first record quarter, increase quarter fourth

In terms normalized see we of at deployment, $X.X billion. more continue levels repayment to

in of billion While approximately only a fundings quarter. originations, matched $X these new new repayments level were the by comparable were

again funded X.XXx, we at net quarter decrease in Given ending X.XXx. from saw leverage small down quarter the this this gap activity, a in

Turning to the income statement.

mentioned, we mix investments the X% redeployed into of one with was second capital NII primarily down impact lien prior quarter, increase of portfolio shift we average of quarters first amount lien investments. leverage prior of repay per reflecting our large per inception. NII versus and $X.XX since as an year share the saw As $X.XX a share, and lower the from earned highest from our Craig

from saw we addition, a in expense. nonrecurring In a interest modest impact item

Board May which per on Board a be XX to of declared be record regular $X.XX quarter, The the declared for quarter XX The of dividend. our XX. will paid dividend to also XX. supplemental as to first of July second shareholders on will which of a record Turning of June June paid $X.XX, dividend shareholders share on

dividend. OBDC is dividend. estimate advantage share regular our our the benefit of to of provides We from $X.X spillover We a continue $X.XX approximately balance quarter with that stability strong and its of continues is We of spillover overearning sheet flexible to structure. commitments billion, well income financing liquidity unfunded of well-diversified currently which accumulate income ended approximately $X.X our to excess per our in billion. because

to used from differentiation recognizing portion million which outlook As of our in stable swapped remaining to towards OBDC positive opportunistically upgraded down mature rating debt. Since rate. A to to X-year Fitch in unsecured a OBDC's in from quality of BDC used agencies the highest set In notes, issuers. the revised Moody's the raised million we and the our to quarter, sector first BBB in $XXX January, flat pay portion outlook. were were the back future. With We trend a closing $XXX reminder, were this our by unsecured XXXX. near that notes to were hope differentiation turn stable Craig to agencies that, The of new for the it will repay earnings further secured with call, a proceeds I'll comments. in continue last subsequently the floating April proceeds we saw various

Craig Packer

few and seeing a spend what I'll on today. market minutes we're close, To Jonathan. the Thanks, current environment

first than was activity, market lighter of generally quarter terms the the overall what In was expecting.

in to on access or that substantial being and spread to capital have markets of the loans. in line number is repricing not the which supply. Many refinance with take loan we return this do the this of believe rate market generate lending is This borrowers to were the of desire private the a continue were to majority and more dynamic direct year drive activity the seen the this by public than yet market public represented and market there advantage M&A public with saw equity a activity, in they environment clarity higher able coexist. more for increased LPs firms demand market active materialize. The not imbalance pent-up new previously private which capital companies we While refinancing in compared market. We vast exiting to we last significantly and could supply sizable were to shift the dynamics refinanced XXXX, loan in transactions, natural public believe structures

credit market times, the private step provider. be markets. primary to at pull credit balanced at up X serve the experiencing between times, in We public we've the increased public capital markets see now. At the activity will also is other which will be active will we're that expect back. And private We'll as and markets. seen fundraising same the more what time,

have As this a we on year. of spreads loan these seen some trends, result pressure

lower in higher refinance where portfolio of our or paid was Some were pricing. spread down positions this at evident certain

XX% believe comprised over predominantly that, lien said lower, rates very of high-quality middle new still we a portfolio, market compelling still base originations earning into are for portfolio the of total levels. Having While at in are, which although came portfolio a upper loans given where companies. return yield across we the attractive first rate remains in

refinancing strong pickup the enterprise our typically loans our businesses more the our of second take quarter. investing recognize with private notable minute ad theme borrowers was very scale market, a markets been second deal benefits for direct of well. reflect private solutions. this quarter second investments, with of there has lien or spread activity focusing performed since on lien the our and lien this has While always increasingly been to lien activity average loan the activity in lien positions. both to second M&A The roughly continues which and value secular our inception. We've of second very and improve the positions the double public had drive sponsors metrics. trend lending repaid These of public is borrowers to I should in as consistent approach increased towards that lien wanted roughly bar high have financing in A many existing environment. One our a first credit XX% on very

held this that the these investments, which by period turns and lien second during on at were grew companies EBITDA average, refinanced by the the quarter, loans. XX%, X.X roughly we deleverage approximately Looking

would our these of highly names, recapitalize. money capabilities. deep investments it approach improved than and that So strong on average, a our natural they we and reflects record significantly underwriting these the track look selective was to X.Xx credit more team's realized profile that Across

and to construction Last management credit our May moment more as the share a we XXXX portfolio of take which story we trading demonstrate I'd approaching that in with of shareholders structure, liability since could flexible a in shares valuation of to our program of as repurchase made then. higher multiple you a our May, maintain our our vehicle have value. We book like by on potential underwriting, for our to portfolio we upside market, to confidence first how Day, for of the of place and including share in the to progress our the then to continuing and we new is many Investor back tangible place framework, additional BDC of an I'd we investment which portfolio, in on putting on back million detail outlined initiatives look price, participated hosted dividend believe which achieve we our to X-year approach was all X.XXx which track note supplemental to emphasis that creating excellent we Finally, anniversary well dividend, employee-backed like us the purchase at are allow quality. This record a in. the including our $XXX announcing regular OBDC. increasing

shares at have book purchased BDC a XX-plus S&P Investor As of trading outperforming percent Investors value. activities, return the result broadly is a OBDC total Day peers. who these our and OBDC received of today, on

shareholders. With We for your thank strength time are market see to will the that, the deliver now and portfolio the the pleased returns recognize these line today, questions. for you we and our to in to open

Operator

our [Operator Mckenna comes with line JMP. [Audio Gap] of the Instructions] And from question Brian Citizens first

Craig Packer

were higher pace originations had quite was in on a repayments so it but so we pretty And pace. and close quite a new

little So we just delevered a bit.

of see think to trends the seen terms our the my pickup of I face a with so over holds. are those I the will if a the is, a sitting outlook, other And of expect will activity. balance in predict may that investments portfolio we've as weeks, each generally year up quarter, we see few up. And -- We'll out, the trends. but bit wears the in to think may we on. get second but of wind of a quarter-to-quarter this pick activity higher in hard the hope and that sort of little last year it in sort course spread, on X pick precisely bit It's here in bit those

Brian Mckenna

And Helpful. just a Great. follow-up. then Okay.

So you decently and that. trading job it's to the And book team above have getting OBDC back done actually great value.

the are updated two? I trading, take of how needs the thoughts ultimately this merging do BDCs. any merging place guess you And have to line forward given around these what I mean, I OBDE So before on move time

Craig Packer

Sure.

OBDE are post trading is pleased as We OBDC how incoming, listing. long book seeing would while profile. traded attractive our really it's I really We're some has quality value, with the and it's a that you trades at know, an with return how a that now market pleased is to really the value, time appreciative OBDC, above the of above of note book still discount peers. portfolio and

OBDC. And opportunity so appreciation the we price for think there's [indiscernible] still

and best companies and which OBDE, what's logic company, make industrial Boards we'll on both than the overlap a BDC. we there's an we terms eye And each Board we it. merger, at keep company But with for and delivering we discuss attractive towards have In the we the obviously there's each of have with us regularly for will publicly potential update when shareholders said look other to about and an the each a tremendous continually it this those of larger think talked for what the and don't when logic of why at value. Obviously, one deliver time traded of sense having previously pursue combined. have think at of updated value, the that shareholder transaction listing company, they is any portfolios I our

those credit if each portfolio, come there's with trading the valuations. in high Certainly, strong trading well, those the with hasn't of you performance look kinds the opportunity complications, are with environment at at an still yet. the OBDE transactions. stocks first give lockup certainly, post So that BDCs off But has conditions to lockups,

that I these the consider we'll would to factors. of to are all into conditions the all take think present number factors we'll we carefully. so question, for consider, account a and answer certainly But And factors your of have

Operator

next our line Mark And Securities. question Hughes from comes of the with Truist

Mark Hughes

low, X nonaccrual. very on And I talk Any ticked were a still but nonaccrual. maybe then just company is about companies one you updates to Nonaccrual that that? up little think added Could bit, the there?

Craig Packer

Sure.

got bonds, X added a was one public some it's and manufacturer. folks some a a on large we're off, loans they X in are significance So but have we actually It's familiarity customer took a Hearthside, had demand. there company the and that's the called to of and packaged that so credit, food second and headwinds it. lien, follow costs some company the may It's on weakness and bit of

on And so appropriate this was put we cash interest we to in made earning felt on nonaccrual. judgment moment. it pretty we totality we and It marked We're it but on appropriate the it, still at was as meaningfully name down nonaccrual. make every to felt it put on that

small. quite was name other The

we hard to our to ultimate recovery these nonaccruals. So I no it's developments on they're don't names, No we're going names for marks to plus think make try particular think, other the accounting. nonaccrual status positions all and sure necessarily other all work the updates appropriately. We look worth at marked, We into. these call and properly maximize on quarter each out, the to

so was And development really quarter. Hearthside this the

Mark Hughes

Understood. Any amendment activity? broader in trends

Craig Packer

consistent would with amendment been I quarters, modest. activity really is, the say, few It's last

quarter, Every large we we this but of amendments amendments, few there's a each few each amendments, a change, number housekeeping-type minor amendments, quarter. in have have few few amendments No a quarter. a material material We a quarter. had

one. the amendment in activity pickup [indiscernible] well. a be sectors of the continue speaks to growth lack on and companies. to revenues performance our companies continues economy do be think all the to underlying EBITDA. The good continues of strong in The to of really I serious

despite higher through and moderate And so the debt ways activity. finding continued to manage in that service, companies amendment are resulting

Mark Hughes

Jonathan, think then, you mentioned expense can a I that you nonrecurring, from Did a you? impact And modest interest or item. size

Jonathan Lamm

to close one effectively related $X.XX, take than less of little a CLOs. was out of our and It it was but the $X.XX, to

Mark Hughes

expense how before the of with after? capital on what's markets incremental kind interest the or this then And impact -- does activity quarter, that

Jonathan Lamm

unsecured which actually we that swap, So relative the were on was unsecured to that interest quarter we issued the out, we expense. took this accretive to

Operator

next our James. with Raymond line And Robert question from Instructions] Dodd [Operator comes the of

Robert Dodd

comments lien. in got your redeployed. on quarter the and second On repaid that XX% then

your liens was one faster lien. the on a nonaccrual, So there then other hand, second one hand, nicely, repaying are new And probably quite you which thought. second on than the yes, was

much But an all a of thoughts the your higher, because portfolio? Obviously, actually what's us your tend to that that of crazy is from you little a you on update you as spreads back like second comes give be can on to the and the on of -- realistic not to if they would can be first-lien like that would like tend percentage view So kind bigger be be market increase And that. companies. liens to BSL here? behind where

is would to to? grow you like there it? And So room

Craig Packer

favorable second lien with do Robert. large has businesses us. We Thanks, only are companies approach appropriate. the on the our attachment that reason and those spread. consistent and meaningfully we point of on inception. of to high-quality lots been really We Look, higher second them point And since generate is and like types really obviously, doing cushion they stable equity them are were the detachment beneath liens if

And don't, [indiscernible] second hasn't we'll months sponsors of in then do a last they those environment so if lot X themselves, to opportunities them. really just won't. The The financing. we liens. the present If X been are

haven't haven't ones We were to us. lot. certainly a And seen that so attractive we seen

it's first the lien years. first this in for percentage happy I'm is to portfolio, environment, a market So in highest the us in been run primarily lien

our second then an higher. flow we are up. I'm running, happening that where deal percentage the there environment the short But a more back certainly just that investment the bit don't comfortable hit in would opportunities term were not that So criteria, safer take we where get lien portfolio. we're if even seeing. If we see I given

So best primarily now, it's solve syndicated new strong the market deal reason we're flow strongly as opportunities. opportunities is unitranche. And second that we more how but for given it if we me look right the see solve for percentages. the year if as stands will that We at we'll haven't And seeing. case, unfolds. those don't to that the yet, it reappears seen opportunities I surprise then wouldn't that's And I did. if lien

Robert Dodd

On Or on deal and what look you seeing comes price? give deal is I to sense necessarily lock comment of when the obviously cetera? to Or in, your increase yet, stages it. preliminary mean, buyers is that like? -- seen Got you books then materialize it the true. it's sellers hitting grid haven't and big ramping just activity Is in Are a what can activity? coming agreeing it yet? activity here really in stages which of et ramp-up an pipeline on not up a us is the close of

Craig Packer

Sure.

So the and to take deNovo some In just the sponsor I you X last in repeat more have seen activity opportunities some M&A, it. add-on ago not weeks, some acquisitions. a heard private that so and minute opportunities could made result comment might or we've X

yet say but new would shoots full fruition. not I coming So to green M&A for

that's and quarter early too there's up really a flow. light. me spent have think say with lot pure in chatter more that some and to sponsors going result around sort processes about first chatter for books I some of the that, was But deal M&A pick to

as in seeing close the flow might that seeing could That second today deal more we're think not right? flow in quarter next quarter, we're the be in activity. third green that deal come I the -- result shoots might

of first year the environment, So third be hopefully have of like think flow but deal kind still half will by quarter, things the I the improved.

Operator

further to closing are this for time. [Operator Instructions] to no questions There I'd Packer the call back remarks. like at hand Craig

Craig Packer

look I'm or guess everyone today to great out we our pleased really Look, prepared we'd forward answered us further All team. questions. in everything and quarter right. time our with remarks. to Please to the speaking with everyone have with soon. Well, worn out appreciate I a spending everyone any Have day. we've reach

Operator

concludes This today's conference.

you at lines If day. disconnect great your time. please this a Have

Blue Owl Capital (OBDC) 9 May 242024 Q1 Earnings call transcript