Blue Owl Capital Corporation

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 speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you'd like to withdraw your question, press star one once again. 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.

Thank you, Operator. Good morning, everyone, and welcome to Owl Rock Capital Corporation's third quarter earnings call. Joining me this morning are Co-Founder and Chief Executive Officer Craig Packer, our Chief Financial Officer and Chief Operating Officer Jonathan Lamm, and other members of our Senior Management Team. I'd like to remind our 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 of 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 ORCC's filings with the SEC. The company assumes no obligation to update any forward-looking statements. We will also be referring to non-GAAP measures on today's call, which are reconciled to GAAP figures in our earnings press release and supplemental earnings presentation available on the investor relations section of our website at owlrockcapitalcorporation.com. Craig will start by briefly discussing our financial results before providing an update on our portfolio and deal activity. Jonathan will then cover our results in more detail, after which Craig will close with some thoughts on our outlook before opening the call up for questions. With that, I'll turn the call over to Craig.

Thanks, Dana. Good morning, everyone, and thank you for joining us today to discuss our third quarter earnings. We are very pleased to report strong results for the quarter. Our net investment income per share was 33 cents, up from 30 cents per share in the second quarter, and in excess of our 31 cent per share dividend. This was driven by the continued growth of our portfolio, maintaining low operating expenses, the cost-effective and prudent use of our balance sheet, and our ongoing superior credit performance. We ended the third quarter with net asset value per share of $14.95, up 5 cents from the previous quarter, which represents our sixth consecutive quarter of NAV increases. As you will recall, our NII had been previously impacted by the expiration of our fee waivers in the fourth quarter of 2020, and we had been expecting to achieve full coverage of our 31 cent per share dividend sometime in the second half of 2021. With these strong results, we have now achieved this milestone and are well positioned to continue to fully earn our dividend going forward. We experienced a record level of originations this quarter, which resulted in a fully ramped $12 billion plus portfolio. We also had a record level of repayments, Prior to this quarter, we had not yet seen the pace of repayments expected for a portfolio of our size, but this trend finally materialized in the third quarter. We had more than $2 billion of repayments, which generated healthy fee and amortization income. At the same time, we were able to seamlessly replace those repaid investments with equally attractive new investments of a similar credit quality and comparable economics. which allowed us to finish the quarter in an equally strong position and with leverage comfortably in our target range. We are also benefiting from a terrific environment for direct lending. Continuing the trend we saw in the first half of this year, M&A activity remains at record levels. Private equity firms remain flush with capital and are investing at a very fast clip. We are also witnessing the continued penetration of direct lending and to the overall leveraged finance space, taking share from the broadly syndicated markets. With larger pools of capital available for direct lending solutions, private equity firms are using these solutions more frequently and for larger transactions. In particular, we continue to see growing demand for large privately placed Unitranche loans. This year, we have evaluated more than 30 opportunities over $1 billion in size and this quarter alone closed on five loans, $1 billion or more in size, most of which were structured as unit tranches. We believe these trends favor large scale direct lenders who can provide sizable financing solutions and who have the resources, relationships and expertise to partner with the private equity community. The LROC platform is especially well positioned for this trend due to our scale, full suite of products and a large, deeply experienced team with strong relationships with financial sponsors. The broader Alrock platform deployed a record amount of capital in the third quarter, and we will look to further enhance our strong competitive position by investing in additional resources to remain a market leader. Turning to our investment activity for the quarter, we were extremely pleased to originate $2.8 billion of investments with 2.3 billion of funded activity and 2.1 billion of repayments, resulting in net funded originations of 198 million. Our investment pace was driven in part by our strong and growing base of incumbency positions, which provide a natural pipeline of differentiated deal flow. Nearly half of our investment activity was in a handful of refinancings for existing portfolio companies where we were able to leverage our in-depth institutional knowledge and strong relationships. Two of these companies, Associa and Troon Golf, have been in our portfolio for over three years and have delivered strong operating results over this time. They have historically represented some of our largest positions and we are pleased to be able to reinvest in names we know extremely well and have great confidence in. Another trend which drove the growth in our origination volume this quarter was the opportunity to make larger investments in larger companies. We deployed roughly 2.2 billion across 21 investments, excluding add-ons. This compares to 1.2 billion across 16 investments last quarter. So we were able to deploy 80% more capital with only five additional investments, which allows us to be efficient with our resources and continue to devote the full attention to credit underwriting that we think is so critical. We also continue to grow the size of the companies in our portfolio. The weighted average EBITDA of our borrowers is now $114 million which is up from $95 million a year ago. In addition to allowing us to invest more efficiently we believe larger companies are safer to lend to and that has been borne out by our results over the last five years. As you may recall, we had been expecting to see a pickup in repayments for a while. We finally saw this occur this quarter with 21 fully exited investments. While this quarter may prove to be on the higher end, we do expect repayments to continue to exceed the levels we have seen in the last couple of years. Importantly, we were able to deploy capital from our sizable repayments into attractive opportunities without deviating from our investment strategy. Roughly 90% of activity this quarter was in first lien and unit trust loans, and our average spread on new commitments was approximately 625 basis points, which was in line with the average spread on repaid investments. As a result, the overall portfolio spread remained in line with previous quarters at roughly 650 basis points. Credit quality, leverage levels, and credit protections for new investments remain consistent with those of the rest of our portfolio. So despite the high repayments and competitive market conditions, we continue to feel very good about our ability to deploy capital and maintain a high quality asset base. Today, the portfolio stands at $12.1 billion across 130 companies and continues to deliver extremely strong credit performance. The overwhelming majority of the portfolio continues to perform very well and the weighted average fair value remains at approximately 98 and there were no significant change to our portfolio ratings. As we look at the performance of our borrowers, I would note that we have now had at least four quarters of normalizing performance since the worst of the COVID impact was felt in the second quarter of 2020. We are pleased to see the continued improvement in performance in each quarter since and today many of our borrowers are reporting record sales driven by strong consumer health and economic activity. That said, we are carefully monitoring the current headwinds caused by the labor shortages and supply chain disruptions. To date, we have not seen a material impact as many of our companies are services businesses which have modest exposure to the manufacturing economy. For example, some of our largest sectors are software, insurance and healthcare. which are not as exposed to the current economic headwinds. In line with last quarter, our non-accruals remain low with only two investments on non-accrual status representing 0.4% of the portfolio based on fair value, one of the lowest levels in the BDC sector and our annualized loss ratio is 14 basis points. I will now turn it over to Jonathan to discuss our financial results in more detail.