Blue Owl Capital Corporation

Greetings. Welcome to Blue Owl Capital Corporation's second quarter 2023 earnings. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I would now like to turn the conference over to Dana Scafani, Head of Investor Relations. Thank you. You may begin.

Thank you, operator. Good morning, everyone, and welcome to Blue Owl Capital Corporation's second quarter earnings call. Joining me this morning are our Chief Executive Officer, Craig Packer, our Chief Financial Officer, and Chief Operating Officer, Jonathan Lamm, and other members of our senior management team. You will hear us referring to the company by its new name and ticker, OBDC, throughout today's call, which was part of a broader rebranding effort by Blue Owl that became effective in July. The Owl Rock business is now known as Blue Owl's credit platform, and all of our BDCs now reflect the new naming convention, including Blue Owl Capital Corporation. 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 the forward-looking statements as a result of a number of factors, including those described in OBDC'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. OBDC's earnings release, 10-Q, and supplemental earnings presentation are available on the investor relations section of our website at blueowlcapitalcorporation.com. With that, I'll turn the call over to Craig.

Thanks, Dana. Good morning, everyone, and thank you all for joining us today. As Dana mentioned, Blue Owl recently completed a full rebrand as part of its effort to bring together complementary businesses as a market-leading provider of capital solutions. This included renaming the business platform as well as all funds and products, including the Alrock BDCs. However, importantly for OBDCs investors, This change has no impact on the investment team, the day-to-day operations, or strategy of the company or the broader Blue Owl direct lending business. Turning now to our second quarter results, we delivered another quarter of continued NII growth and strong credit performance. Our net investment income increased to 48 cents per share from 45 cents last quarter. This is our second consecutive quarter of record NII and is driven by the earnings power of the portfolio in today's higher rate environment. In addition to higher rates, we also saw a benefit from an increase in one-time fees related to repayment and amendment activity, which, as you'll recall, have been negligible for the last several quarters. The growth in NII continues to translate into additional cash distributions for our shareholders. Our board has approved a supplemental dividend of $0.07 per share for the second quarter in addition to our previously declared $0.33 regular dividend, resulting in total dividends of $0.40 for the quarter. When factoring in the base and supplemental components, this quarter's total dividend payout represents an approximate 30% increase from our $0.31 quarterly dividend a year ago. Our annualized ROE on NII for the second quarter increased to 12.6%, up 50 basis points from last quarter. We continue to believe that we will be able to deliver an ROE in excess of 12% for the full year based on our current outlook for rates and credit performance. We view this ROE level as very attractive in today's market, and it represents a significant increase from last year's 9.5% ROE. Net asset value per share increased to $15.26, up 11 cents from the first quarter, marking the highest NAV per share since our IPO in 2019. This gain was primarily driven by over-earning our dividend by 9 cents. Net unrealized gains and losses were also modestly positive, largely reflecting an improving market environment and the accretion of our investments towards PAR. Our non-accrual rate remains low at just 0.9% of the fair value of the portfolio. We have three names on non-accrual as of quarter end, having added one small position this quarter. As we look at our borrower's operating performance for the quarter, we continue to see solid results with modest growth in both revenues and EBITDA. Companies have been able to maintain previously executed price increases while also benefiting from lower input costs from supply chain normalization and a continuation of increased consumer demand post-COVID. This isn't to say that we don't expect to see some pockets of stress at some point, but our borrowers have been proactively preparing for more difficult economic conditions for a while now, given the well-telegraphed rate increases, and we are well prepared to address concerns as they arise. Every quarter, our underwriting and portfolio management teams look at each of our borrowers and evaluate liquidity and coverage metrics in the context of both the higher rate environment and the company's operating performance. While the higher for longer rate environment has been a negative factor, company credit performance has been a positive one, and net-net, the overall picture remains stable. Consistent with our view in prior quarters, we believe interest coverage ratios will trend toward trough levels of mid-one times down from 1.9 times today. We expect to see this trough in the first half of 2024 and believe that most borrowers will maintain an adequate coverage cushion and strong credit performance through this period. That said, as we have discussed before, we expect higher for warmer rates to impact a small number of our borrowers. This universe remains limited, and we believe we have good visibility into these names. We continue to estimate that this group represents approximately 10% of the portfolio. Of that group, 5% are the most at-risk names. Our portfolio management team and workout professionals in coordination with the underwriting deal teams are closely monitoring these situations and, as needed, we are in ongoing dialogue with select borrowers on potential solutions. In addition, we will continue to reassess our entire portfolio each quarter to identify any signs of stress as interest rate and economic conditions evolve. We believe any credit challenges will be manageable and will be more than offset by the continued strength of our earnings in this environment. Looking back as we entered this year, there were concerns about how private credit would fare in a higher rate environment, with some speculating that we would see significant increases in credit stress or defaults. Now that we are halfway through the year, this has not yet come to bear. Today our portfolio is delivering record NII and credit performance across our borrowers is strong. I want to take a moment to reflect on why the direct lending sector in general and the Blue Owl platform in particular have outperformed some of these expectations so far. First, clearly the U.S. economy has fared better than expected, led by robust consumer demand and the continued rebound of consumption following COVID. This has benefited companies across most industries. In addition to this economic durability, We believe the strong performance is the result of the unique attributes of direct lending, as well as our approach to building a resilient OBDC portfolio. We have always believed that direct lending provides many structural advantages compared to the public markets. As private lenders interacting directly with borrowers, we are able to do more thorough due diligence, have ongoing access to management teams, and have the ability to customize documentation and terms to provide optimal downside protection. Our capital structures are streamlined, typically with only one lender group and only a few lenders in each field. Unlike public market investors who often target matching an index, direct lenders can concentrate on non-cyclical sectors and completely avoid more volatile exposures. We don't have to be in every deal. We have the benefit of selectivity and we can stick to what we like. Further, within the broader direct lending opportunity set, we at Blue Owl have deliberately focused on high quality, upper middle market, sponsor-backed companies, market-leading businesses, and have staying power. This is why we haven't had to pivot our strategy in response to changing economic conditions. We have always prioritized credit quality over the marginal return. So today, we see direct lending doing well as an asset class and the OBDC portfolio achieving new earnings records. and this is because we have structured our approach, designed our portfolio to do well even in times like these. With that, I'll turn it over to Jonathan to provide more detail on our financial results.