Blue Owl Capital Corporation

Hello, and welcome to the Owl Rock Capital Corp Q3 2022 Earnings Conference Call and Webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Dana Sclafani, Head of Investor Relations. Please go ahead, Dana.

Thank you, operator. Good morning, everyone, and welcome to Owl Rock Capital Corporation's third 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. Certain information discussed on this call and in our 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. ORCC's earning release, 10Q and supplemental earnings presentation are 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 all for joining us today. We are pleased to report very strong results and are announcing today a number of shareholder-friendly initiatives that reflect this strength. Our net investment income in the third quarter was $0.37 per share, up $0.05 from last quarter, and roughly 20% in excess of our previously declared $0.31 per share quarterly dividend. This is the highest quarterly NII we have earned since the first quarter of 2020. We are very pleased with this significant growth in earnings, which was largely driven by the pull-through of higher rates on our investments. We have seen a dramatic move in base interest rates. The earnings power of our portfolio is strong and growing. We are announcing today that we expect to earn at least 39 cents of net investment income per share in the fourth quarter. This estimate assumes a continuation of the very low repayment environment we have seen and any increase in repayment activity in future quarters would provide further upside to NII. We are putting out this guidance because we have clear visibility on the impact that elected base rates will have on fourth quarter NII and we are confident in our portfolio. The credit quality of our borrowers remains strong, which is seen in the consistency of our internal portfolio ratings and average marks of our investments as well as the 2.5% increase this quarter in NAV per share to $14.85. We are also announcing several capital actions to ensure that our shareholders benefit from this earnings momentum. First, we are increasing our regular quarterly dividend. Our board has declared a fourth quarter dividend of $0.33 per share, up $0.02 from our third quarter dividend of $0.31 per share. We also want to ensure our shareholders benefit from the consistent earnings we expect in excess of our regular dividend going forward. And as such, we are introducing a new quarterly supplemental dividend in addition to our regular dividend. For the third quarter, our board has declared a supplemental dividend of $0.03 per share. Jonathan will discuss the framework for this dividend in more detail later in the call. Assuming the supplemental dividend is constant in the fourth quarter, the combined $0.36 per share dividends would generate an annualized yield of 12% at ORCC's current trading levels. We believe the increase in the regular dividend and the addition of the supplemental dividend is a balanced approach to maximize distributions to shareholders. The increase in our regular dividend reflects our confidence in the earnings power of the portfolio positions us to evaluate further increases in the future, while the supplemental dividend provides additional predictable cash flow to shareholders. While fundamentals are strong and we are increasing shareholder distributions, our stock continues to trade at a significant discount to NAV. As a result, we are also announcing that ORCC and Blue Owl employees each intend to purchase stock in the open market to take advantage of this discount. First, ORCC's board authorized a new $150 million repurchase program, which replaces our previous program. Second, Blue Owl employees have opted to participate in an investment vehicle that intends to buy an additional $25 million of ORCC stock. In the near term, the company plan and the investment vehicle intend to purchase $75 million of stock in aggregate a portion of which will be executed under programmatic NB51 plans so they are able to continue buying after the trading window closes. Our board and the Blue Owl employees believe it is an attractive time to be buying ORCC shares and we value this alignment between the company, Blue Owl employees, and our shareholders. I would also like to spend a minute on the economic outlook. Given the current Fed monetary policy environment, Market consensus expectations indicate we will enter a recessionary environment in the near to medium term, and we are well prepared for that outcome. A recession in conjunction with a higher rate environment will likely cause increased pressure on borrowers in the leveraged finance market and elevated levels of credit challenges. As we have said many times since inception, we have been an upper middle market lender. We believe this approach positions us well going into this environment and that our companies will fare better than most. Our borrowers are large with an average EBITDA of approximately $160 million and benefit from strong competitive positioning. We believe larger companies are able to generate more stable results as they benefit from deeper customer relationships and increased pricing power with suppliers. They have greater financial flexibility, often benefiting from non-core assets they can sell who enhance liquidity or deliver and are often strategically important in their market, making them attractive to acquirers. We have always focused on investing in stable, non-cyclical, annuity-like businesses in sectors like software, insurance brokerage, and healthcare. Our investments are primarily first-line loans and are supported by significant equity cushions with an average loan-to-value ratio of roughly 45%. The vast majority of our investments are supported by sophisticated financial sponsors who provide both operational and financial resources, which is particularly valuable in evolving economic conditions. We recognize that some companies will have challenges over the life of our investment and have built a robust portfolio management process which allows us to proactively identify areas of concern and to work directly with our borrowers to understand and mitigate issues. To date, we have not yet seen evidence of economic weakness in our borrowers operating performance. Across our 180 portfolio companies, the vast majority saw top line revenue growth in their latest financial reporting with an average increase in revenues of 7% and EBITDA of 4% quarter over quarter. Of course, we're not just looking at the current performance of our borrowers, We are also looking forward and are acutely focused on the impact of a higher rate environment on cash flows. We have run various sensitivity analyses, looking at implied interest coverage in a period where higher rates are sustained and reflected in a full year of cash flows. Even in these scenarios, we believe that the vast majority of our borrowers will maintain adequate interest coverage cushions. In addition, most of our borrowers are entering this period with ample available liquidity, and we believe most would benefit from additional sponsor support if needed. So while we remain vigilant, we take great comfort that our portfolio was built to endure challenging times and we believe any defaults or ultimate losses in the portfolio will be manageable, especially in light of our materially higher earnings trajectory. With that, I'll turn it over to Jonathan to provide more detail on our financial results.