Blue Owl Capital Corporation

Good morning and welcome to the Owl Rock Capital Corporation's fourth 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'll now 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 fourth quarter earnings call. Joining me this morning are 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 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. With that, I'll turn the call over to Craig.

Thanks, Dana. Good morning, everyone, and thank you for joining us today. We're extremely pleased with our fourth quarter and full year results. We've been able to fully deploy the portfolio. Operate comfortably within our target leverage range, over-earn our dividend, improve our ROE, and further optimize our balance sheet. Our net investment income per share was $0.35, up $0.02 versus the third quarter, and up 35% since the first quarter, which we believe reflects the strong earnings potential of the business and once again provided strong coverage of our dividend. The growth in earnings reflects another quarter of strong and accretive origination and repayment activity and continued strength in our dividend and other income. As a result of over-earning our dividend and the net markup of our portfolio, our net asset value per share increased to $15.08. While origination levels were lower relative to our record-setting third quarter, it was one of our strongest quarters since inception. We also had especially lucrative repayments, which drove healthy fee income. As has been the case every year since inception, we continue to experience strong credit performance across our portfolio. We have only one portfolio company on non-accrual status, representing 0.1% of the portfolio based on fair value, one of the lowest levels in the BDC sector. And our annualized loss ratio is very low at 15 basis points. Turning to our investment activity, we originated $1.6 billion of investments with $1.5 billion of funded activity and $910 million of repayments, resulting in net funded originations of $550 million. The continuation of an active M&A market backdrop and a trend towards increasingly larger deals allowed us to selectively add attractive investments to our portfolio and efficiently redeploy capital from repayments. We see the trend towards large unit tranches continuing to accelerate, which plays directly to our strength, given the size and scale of our platform and our expansive private equity coverage efforts. Across the platform in 2021, we evaluated over 40 deals with facility sizes in excess of $1 billion and signed or closed on approximately half of them. This quarter, we also saw increased deal activity across second lien and junior capital opportunities. Our mix can vary in any given quarter, and this quarter we saw several extremely attractive junior capital opportunities to help private equity firms invest in some terrific businesses where they wanted Alrock as their financing partner. When we do invest in second lien or junior capital investments, we are highly selective and primarily engage only with larger companies with the breadth and scale to provide the significant downside protection that we require. In the junior debt deals we executed this quarter, the average enterprise value was more than $6 billion, and the average EBITDA exceeded $350 million, well in excess of the size of our average borrower. As a result of our investment mix this quarter, the weighted average spread on new investments was 680 basis points. In comparison, the average spread on our sales and repayments was approximately 600 or 80 basis points lower than our originations. As a result, the total spread on the debt portfolio improved by 5 to 654 basis points. We believe this is a very attractive level given that the portfolio remains focused on senior secured investments at the top of the capital structure with roughly 75% held in first lien and Unitron's term loans. Today, the portfolio stands at $12.7 billion across 143 companies, which we believe gives us a unique perspective into the health of the broader economy and some of the challenges companies are encountering, such as supply chain disruption and labor shortages. Across our borrowers, we see companies navigating through these pressures effectively, ordering early, raising prices and anticipating pressure points. Consumer health remains strong and many companies have been able to pass through some increased costs to the end consumer. We continue to believe larger businesses are better equipped to manage through these pressures and protect profitability. This is one reason we'd like to lend to non-cyclical, service-oriented businesses with enduring revenue models that are somewhat insulated from these issues. To this end, we have seen both revenue and EBITDA growth across our borrowers year over year. We believe this strong borrower performance validates our portfolio positioning and investment strategy. In addition, we are assessing the impact of a rising rate environment on our borrowers' ability to service their debt. Our borrowers benefit from strong interest coverage metrics today, and based on our analysis, we believe they have sufficient cushion to manage if rates increase in line with the current market expectation. While we'll continue to monitor these issues closely, Overall, our observations suggest that the positive tailwinds from healthy consumer spending and strong demand will outweigh these headwinds in 2022. With that, I will turn it over to Jonathan to discuss our financial results in more detail.