KBRA Assigns Rating to Blue Owl Capital Corporation's $600 Million 5.95% Senior Unsecured Notes Due 2029

Rhea-AI Summary

KBRA assigns a rating of BBB to Blue Owl Capital Corporation's (NYSE: OBDC ) $600 million 5.95% senior unsecured notes due March 15, 2029. The Outlook for the rating is Positive. The proceeds will be used to repay borrowings under the company's secured revolving facility and/or SPV asset facility II. The rating and the Positive Outlook are supported by the company’s ties to the solid $79.5 billion Blue Owl direct lending platform, the derived benefits from OBDC’s SEC exemptive relief to co-invest with other funds managed by the advisor and its affiliates, and its diversified $12.9 billion investment portfolio comprised mostly of senior secured loans (82.7%) to mostly upper middle market companies in mainly non-cyclical industries, as of September 30, 2023. The rating also reflects the company’s solid management team, which has a long track record of working within the private debt markets with each member of the Investment Committee having an average of over 30 years of experience in the industry. Additionally, the company maintains a prudent leverage target of 0.9x to 1.25x, which KBRA considers appropriate, allowing OBDC to absorb increased market volatility as well as a potential increase in non-accruals as we remain in an uncertain economic environment with increasing risk of a recession with high base rates for longer. Non-accruals remain relatively low at 0.80% and 0.95% of total investments at fair value and cost, respectively, as of September 30, 2023. KBRA believes that OBDC benefits from the company’s solid underwriting and focus on portfolio companies in the upper middle market with EBITDAs in excess of $100 million. OBDC’s profitability has benefited from the rising interest rate environment with an asset sensitive balance sheet with the majority of its investments variable rate loans. OBDC maintains solid access to the capital markets with a diversified funding mix of secured bank facilities, CLOs, and senior unsecured debt. Approximately 58% of the company’s total outstanding debt was comprised of senior unsecured notes which allows for solid unencumbered assets for noteholders. The strengths are counterbalanced by the potential risk related to the company’s illiquid investments, retained earnings constraints as a Regulated Investment Company (RIC), and an uncertain economic environment and geopolitical risks.

Positive

• KBRA assigns a rating of BBB to Blue Owl Capital Corporation's $600 million 5.95% senior unsecured notes due March 15, 2029
• The Outlook for the rating is Positive
• The company’s ties to the solid $79.5 billion Blue Owl direct lending platform
• The company maintains a prudent leverage target of 0.9x to 1.25x
• OBDC benefits from the company’s solid underwriting and focus on portfolio companies in the upper middle market with EBITDAs in excess of $100 million
• OBDC maintains solid access to the capital markets with a diversified funding mix of secured bank facilities, CLOs, and senior unsecured debt

Negative

• The potential risk related to the company’s illiquid investments
• Retained earnings constraints as a Regulated Investment Company (RIC)
• An uncertain economic environment and geopolitical risks

Financial Analyst

The assignment of a BBB rating to Blue Owl Capital Corporation's senior unsecured notes by KBRA is a significant indicator of the company's creditworthiness and market perception. This rating, coupled with a positive outlook, suggests that the company is viewed as having a good capacity to meet its financial commitments, albeit with some economic or industry challenges ahead. The 5.95% interest rate on these notes, due in 2029, reflects both the current interest rate environment and the company's credit profile.

Investors and stakeholders should note that the leverage target of 0.9x to 1.25x is within a prudent range, which indicates a balanced approach to managing debt while still allowing for growth and investment. The company's diversified investment portfolio, mainly in senior secured loans, is a strength, as it provides stability and indicates a lower risk profile. However, the focus on upper middle market companies with EBITDAs in excess of $100 million, while potentially lucrative, could also concentrate risk if the market faces a downturn affecting this segment disproportionately.

It is also worth noting that as a Business Development Company (BDC) and a Regulated Investment Company (RIC), Blue Owl Capital Corporation has certain operational constraints, such as the requirement to distribute at least 90% of its taxable income to shareholders, which can impact retained earnings and reinvestment capacity.

Market Research Analyst

The positive outlook assigned by KBRA to Blue Owl Capital Corporation's rating reflects an expectation of performance improvement or credit strengthening in the medium term. This outlook may influence investor sentiment positively, as it suggests potential for an upgrade, which could result in a narrower credit spread and lower borrowing costs for the company in the future.

However, the rating is sensitive to macroeconomic conditions, including higher rates, inflation and geopolitical risks. The current economic uncertainties, with increasing risk of a recession, could have adverse effects on the company's earnings performance and asset quality. A downturn in the U.S. economy could lead to a rating downgrade, affecting investor confidence and potentially increasing the cost of capital for the company.

From a market perspective, the company's solid access to capital markets and diversified funding mix provide a level of security to investors, as it suggests the company has multiple avenues for financing and is not overly reliant on any single source of capital.

Legal Expert

Blue Owl Capital Corporation's status as a BDC and RIC carries specific regulatory implications that investors must be aware of. The company's commitment to distribute a high percentage of its income to shareholders may be viewed favorably from an income perspective, but it also limits the company's ability to retain earnings for growth or to buffer against downturns.

Additionally, the SEC exemptive relief to co-invest with other funds managed by the advisor and its affiliates allows for a broader range of investment opportunities, which can enhance portfolio diversification and potential returns. However, this also introduces complexity in terms of compliance and oversight, which could have legal and operational implications for the company.

NEW YORK--(BUSINESS WIRE)-- KBRA assigns a rating of BBB to Blue Owl Capital Corporation's (NYSE: OBDC or "the company") $600 million 5.95% senior unsecured notes due March 15, 2029. The Outlook for the rating is Positive. The proceeds will be used to repay borrowings under the company's secured revolving facility and/or SPV asset facility II.

Key Credit Considerations

The rating and the Positive Outlook are supported by the company’s ties to the solid $79.5 billion Blue Owl direct lending platform, the derived benefits from OBDC’s SEC exemptive relief to co-invest with other funds managed by the advisor and its affiliates, and its diversified $12.9 billion investment portfolio comprised mostly of senior secured loans (82.7%) to mostly upper middle market companies in mainly non-cyclical industries, as of September 30, 2023. The rating also reflects the company’s solid management team, which has a long track record of working within the private debt markets with each member of the Investment Committee having an average of over 30 years of experience in the industry. Additionally, the company maintains a prudent leverage target of 0.9x to 1.25x, which KBRA considers appropriate, allowing OBDC to absorb increased market volatility as well as a potential increase in non-accruals as we remain in an uncertain economic environment with increasing risk of a recession with high base rates for longer. Non-accruals remain relatively low at 0.80% and 0.95% of total investments at fair value and cost, respectively, as of September 30, 2023. KBRA believes that OBDC benefits from the company’s solid underwriting and focus on portfolio companies in the upper middle market with EBITDAs in excess of $100 million. OBDC’s profitability has benefited from the rising interest rate environment with an asset sensitive balance sheet with the majority of its investments variable rate loans. OBDC maintains solid access to the capital markets with a diversified funding mix of secured bank facilities, CLOs, and senior unsecured debt. Approximately 58% of the company’s total outstanding debt was comprised of senior unsecured notes which allows for solid unencumbered assets for noteholders. The strengths are counterbalanced by the potential risk related to the company’s illiquid investments, retained earnings constraints as a Regulated Investment Company (RIC), and an uncertain economic environment and geopolitical risks.

Blue Owl Capital Corporation is an externally managed, non-diversified closed-end management investment company that has elected to be treated as a Business Development Company (BDC) under the 1940 Act and has elected to be treated as a RIC, which, among other things, must distribute to its shareholders at least 90% of the company’s taxable income. The company was formed as a Maryland Corporation in October 2015 and was publicly listed on the NYSE in July 2019. The company is managed by Blue Owl Credit Advisors LLC, an indirect subsidiary of Blue Owl Capital,Inc. (NYSE: OWL), which had approximately $157 billion of assets under management as of September 30, 2023. The company’s investment strategy coincides with the strategies of Blue Owl Capital Corporation II (KBRA Issuer/Senior Unsecured Debt ratings of BBB/Positive Outlook), Blue Owl Capital Corporation III (KBRA Issuer/Senior Unsecured Debt ratings of BBB/Stable Outlook), and Blue Owl Credit Income Corp. (KBRA Issuer/Senior Unsecured Debt ratings of BBB/Stable Outlook).

Rating Sensitivities

Given the Positive Outlook, the company’s ratings could be upgraded in the medium term provided its credit metrics remain solid despite an uncertain economic environment amid higher rates, inflation, and geopolitical risks. A rating downgrade and/or Outlook change to Stable or to Negative could be considered if there is a significant downturn in the U.S. economy with negative impact on OBDC's earnings performance, asset quality, and leverage. A significant change in senior management and/or risk management policies could also lead to a negative rating action.

To access rating and relevant documents, click here.

Methodologies

Financial Institutions: Finance Company Global Rating Methodology
ESG Global Rating Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

Doc ID: 1003016

View source version on businesswire.com: https://www.businesswire.com/news/home/20240118362447/en/

Analytical Contacts

Teri Seelig, Managing Director (Lead Analyst)

+1 646-731-2386

teri.seelig@kbra.com

Kevin Kent, Director

+1 301-960-7045

kevin.kent@kbra.com

Joe Scott, Senior Managing Director (Rating Committee Chair)

+1 646-731-2438

joe.scott@kbra.com

Business Development Contact

Constantine Schidlovsky, Senior Director

+1 646-731-1338

constantine.schidlovsky@kbra.com

Source: Kroll Bond Rating Agency, LLC

FAQ

What is the rating assigned by KBRA to Blue Owl Capital Corporation's senior unsecured notes?

KBRA assigns a rating of BBB to Blue Owl Capital Corporation's $600 million 5.95% senior unsecured notes due March 15, 2029.

What is the outlook for the rating of Blue Owl Capital Corporation?

The Outlook for the rating is Positive.

What is the purpose of the proceeds from the senior unsecured notes?

The proceeds will be used to repay borrowings under the company's secured revolving facility and/or SPV asset facility II.

What are the key credit considerations for the rating?

The company’s ties to the solid $79.5 billion Blue Owl direct lending platform, the derived benefits from OBDC’s SEC exemptive relief to co-invest with other funds managed by the advisor and its affiliates, and its diversified $12.9 billion investment portfolio comprised mostly of senior secured loans (82.7%) to mostly upper middle market companies in mainly non-cyclical industries, as of September 30, 2023.

What are the potential risks related to the rating?

The potential risk related to the company’s illiquid investments, retained earnings constraints as a Regulated Investment Company (RIC), and an uncertain economic environment and geopolitical risks.