KBRA Assigns Rating to Blue Owl Credit Income Corp.'s $500 Million Senior Unsecured Notes due 2029

Rhea-AI Summary

KBRA has assigned a BBB rating to Blue Owl Credit Income Corp.’s (OCIC) $500 million 6.60% senior unsecured notes due September 15, 2029, with a Stable Outlook. The proceeds will repay revolver borrowings and other secured financing. The rating reflects OCIC's ties to the $91.3 billion Blue Owl Credit platform and its diversified $19.0 billion investment portfolio. The company’s leverage ratio is 0.89x with an asset coverage ratio of 208%. OCIC maintains solid liquidity with $2.06 billion of bank credit and only one debt investment on non-accrual status. Potential risks include illiquid investments and rapid portfolio growth.

Positive

• BBB rating assigned to $500 million senior unsecured notes due 2029.
• Stable outlook assigned to the rating.
• Proceeds will be used to repay revolver borrowings and other secured financing.
• Ties to $91.3 billion Blue Owl Credit platform.
• Diversified $19.0 billion investment portfolio.
• Leverage ratio of 0.89x, below target range.
• Asset coverage ratio of 208%, above regulatory minimum.
• Solid liquidity with $2.06 billion of bank credit.
• Only one debt investment on non-accrual status.
• Raised $1.3 billion in 1Q24, with only $142 million in shares tendered.
• 97.8% of portfolio performing at or above expectations.

Negative

• Potential risks from illiquid investments.
• Rapid portfolio growth may pose risks.
• Retained earnings constraints as a Regulated Investment Company (RIC).
• A significant economic downturn could negatively impact earnings, asset quality, and leverage.
• Possible rating downgrade if senior management or risk management policies change negatively.

Insights

Financial Analyst

The rating of BBB assigned to Blue Owl Credit Income Corp.'s (OCIC) $500 million 6.60% senior unsecured notes by KBRA is a positive indicator of the company's creditworthiness. The stable outlook implies that KBRA expects OCIC to maintain its financial position over the medium term. For retail investors, this rating suggests a moderate risk profile, reflecting OCIC's ability to meet its debt obligations given its robust financial metrics.

One key point of interest is the debt-to-equity ratio of 0.89x, which is below the company's target range of 0.90x to 1.25x. This conservative leverage suggests that OCIC has some room to take on additional debt without significantly increasing its financial risk. Additionally, the asset coverage ratio of 208% provides a substantial buffer above the regulatory minimum of 150%, indicating strong capitalization.

The company’s diversified investment portfolio, consisting mostly of senior secured first lien loans, adds another layer of security. These loans are typically the safest type of debt, as they are the first to be paid in case of borrower default. Moreover, the significant proportion of unsecured debt (rising to ~49% post-issuance) enhances OCIC's financial flexibility, as this type of debt does not require collateral, freeing up assets for future financing needs.

In summary, the financial metrics indicate solid management of leverage and liquidity, which are critical for maintaining the company's credit rating and financial health. However, investors should be aware of the potential risks associated with rapid portfolio growth and the constraints imposed by its Regulated Investment Company (RIC) status, which requires the distribution of a substantial portion of taxable income, potentially limiting retained earnings and reinvestment capacity.

Market Research Analyst

From a market perspective, OCIC's strong ties to Blue Owl Credit's $91.3 billion platform and its ability to co-invest with other funds managed by its adviser provide significant competitive advantages. This level of integration allows OCIC to leverage a broad network of investment opportunities and expertise, potentially leading to more favorable investment outcomes.

Additionally, the company's focus on upper middle market companies in non-cyclical sectors mitigates some market risks. Non-cyclical sectors, such as healthcare and essential services, generally exhibit more stable financial performance across economic cycles, which is advantageous in uncertain market conditions. This investment strategy aligns with maintaining portfolio quality and reducing default risks.

Furthermore, the company's continuous capital raising capability, as evidenced by the $1.3 billion raised in Q1 2024, demonstrates strong investor confidence. This inflow of capital not only supports ongoing portfolio expansion but also provides liquidity for potential repurchases, enhancing shareholder value. However, reliance on continuous capital raising can be a double-edged sword, as market conditions and investor sentiment can change, potentially impacting capital inflows.

Investors should also consider the potential impact of economic downturns on OCIC's performance, as well as the risks associated with illiquid investments. While the company's robust credit quality and internal risk ratings are reassuring, market volatility and economic shifts could influence asset values and default rates.

NEW YORK--(BUSINESS WIRE)-- KBRA assigns a rating of BBB to Blue Owl Credit Income Corp.'s (“OCIC” or “the company”) $500 million 6.60% senior unsecured notes due September 15, 2029. The rating Outlook is Stable. The proceeds will be used to pay down revolver borrowings and other secured financing.

Key Credit Considerations

The rating reflects the company’s ties to the sizeable $91.3 billion Blue Owl Credit platform where the company has SEC exemptive relief to co-invest with other funds managed by the Adviser and its affiliates, as well as its diversified $19.0 billion investment portfolio to 311 companies with a focus on senior secured first lien loans (85.4%) to upper middle market companies in non-cyclical sectors as of March 31, 2024. For traditional financing, excluding the company's joint ventures and certain investments that fall outside the typical borrower profile (87.2% of total debt investments), the weighted average annual EBITDA and revenue were $247.0 million and $1.0 billion, respectively. The company maintains a high percentage of broadly syndicated loans (BSLs) at ~20%.

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 decades of experience in the industry. KBRA views the company’s leverage as adequate with a debt-to-equity ratio of 0.89x (net leverage 0.82x), below the company’s target range of 0.90x to 1.25x for net leverage, and an asset coverage ratio of 208% allowing for a solid cushion to regulatory minimum of 150% as of March 31, 2024. KBRA believes that the company’s targeted leverage metrics would allow OCIC to absorb increased volatility in less favorable market conditions.

The company has continued to access the capital markets, with a solid funding mix providing financial flexibility, which includes a bank revolving credit facility, SPV asset facilities, CLOs, and unsecured notes. The proportion of unsecured debt to total debt outstanding will increase further with this issuance, boosting pro-forma unsecured debt to total debt outstanding to ~49% from ~43%, which provides increased asset unencumbrance for the benefit of unsecured noteholders and additional bank credit availability as of March 31, 2024. OCIC maintains solid liquidity with ~$2.06 billion of bank credit availability with its earliest maturity $500 million due in March 2025 and unfunded commitments of ~$1.9 billion as of March 31, 2024. Furthermore, as a continuously offered perpetual BDC, OCIC raises capital monthly and offers up to 5% of its shares for repurchase quarterly. The company raised $1.3 billion in 1Q24 with only $142 million of shares tendered. Since inception, the company raised ~$10.8 billion. Credit quality remains strong with only one debt investment on non-accrual status with a fair value and cost of $4.4 million and $4.5 million, respectively, or 0.02% of total investments at fair value and cost, while 97.8% of the company's portfolio maintains an internal risk rating of 1 or 2, performing at or above the company's expectations at underwriting as of March 31, 2024. The strengths are counterbalanced by the potential risk related to the company’s illiquid investments, rapid portfolio growth, and retained earnings constraints as a Regulated Investment Company (RIC).

Blue Owl Credit Income Corp. 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 intends to elect to be treated as an RIC, which, among other things, must distribute to its shareholders at least 90% of the company’s investment company taxable income. The company was formed as a Maryland Corporation on April 22, 2020, began investing activities on November 10, 2020, and is managed by Blue Owl Credit Advisors LLC ("Adviser"), affiliate of Blue Owl Capital, Inc. (NYSE: OWL) which had ~$174 billion of AUM as of March 31, 2024. OCIC is structured as a continuously offered, perpetual private BDC that does not intend to seek a liquidity event. The company’s investment strategy coincides with the strategies of Blue Owl Capital Corporation (KBRA Issuer/Senior Unsecured Debt ratings of BBB / Positive Outlook), Blue Owl Capital Corporation II (KBRA Issuer/Senior Unsecured Debt Ratings of BBB / Positive Outlook), and Blue Owl Capital Corporation III (KBRA Issuer/Senior Unsecured Debt ratings of BBB / Stable Outlook).

Rating Sensitivities

Over the medium term, a rating upgrade is not expected. The Stable Outlook could be revised to Positive if OCIC’s asset quality remains solid despite the company’s rapid growth and leverage metrics remain appropriate for the company’s risk profile. A rating downgrade and/or Outlook change to Negative could be considered if there is a significant downturn in the U.S. economy with negative impact on OCIC’s earnings performance, asset quality, and leverage. A significant change in senior management and/or risk management policies could also lead to 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: 1004291

View source version on businesswire.com: https://www.businesswire.com/news/home/20240514131604/en/

Analytical

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

+1 646-731-2438

joe.scott@kbra.com

Business Development

Constantine Schidlovsky, Senior Director

+1 646-731-1338

constantine.schidlovsky@kbra.com

Source: Kroll Bond Rating Agency, LLC

FAQ

What rating has KBRA assigned to Blue Owl Credit Income Corp.'s notes due 2029?

KBRA has assigned a BBB rating to Blue Owl Credit Income Corp.'s $500 million senior unsecured notes due 2029.

What is the interest rate on Blue Owl Credit Income Corp.'s $500 million notes due 2029?

The interest rate on the notes is 6.60%.

What will Blue Owl Credit Income Corp. use the proceeds from the $500 million notes for?

The proceeds will be used to pay down revolver borrowings and other secured financing.

What is the leverage ratio of Blue Owl Credit Income Corp.?

Blue Owl Credit Income Corp. has a leverage ratio of 0.89x.

What is the asset coverage ratio of Blue Owl Credit Income Corp.?

The asset coverage ratio is 208%, providing a cushion above the regulatory minimum of 150%.

How diversified is Blue Owl Credit Income Corp.'s investment portfolio?

The company's investment portfolio is $19.0 billion and diversified across 311 companies.

What is the outlook assigned to Blue Owl Credit Income Corp.'s rating?

The outlook assigned to the rating is Stable.

What are the potential risks mentioned for Blue Owl Credit Income Corp.?

Potential risks include illiquid investments, rapid portfolio growth, and retained earnings constraints as an RIC.