Blue Owl Capital Corporation

Good morning, everyone, and welcome to Blue Owl Capital Corporation's first quarter 2024 earnings call. I'd like to remind 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 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 the company's 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. Yesterday, Blue Owl Capital Corporation issued its earnings release and posted an earnings presentation for the first quarter ended March 31, 2024. These should be reviewed in conjunction with the company's 10-Q filed yesterday with the SEC. The earnings press release, earnings presentation, and 10-Q are available on the investor section of the company's website at blueowlcapitalcorporation.com. With that, I'll turn the call over to Craig Packer, Chief Executive Officer of OBDC.

Good morning, everyone, and thank you all for joining us today. We are pleased to report another quarter of strong earnings, delivering attractive returns to our shareholders while maintaining our consistently high credit quality across the portfolio. Net investment income was $0.47 per share for the quarter, equating to a 12.1% return on equity. The strength of our earnings and continued credit performance drove another quarter of record net asset value per share at $15.47 for the first quarter. We once again delivered a compelling ROE while also growing the book value of our portfolio. Since we spoke to you last quarter, the interest rate outlook has shifted considerably. The market is now expecting rates to continue to stay elevated, but limited to no Fed cuts over the course of the year. At the same time, the U.S. economy has remained solid. We believe overall this presents a good environment for direct lenders, particularly those like Blue Owl with a long-term track record of credit selection. Given our focus on floating rate investments, our earnings benefit from a prolonged higher rate environment. At the same time, the performance of our portfolio reflects both the strength of the economy and our high underwriting standards, and therefore our credit performance has been resilient. Since inception, we have worked hard to ensure that we deliver attractive returns to our shareholders across all rate environments. This has allowed us to pay a stable or growing regular dividend in each quarter since our IPO in 2019. For the first quarter, we paid a 37 cent regular dividend, reflecting the two cent increase that our board approved last quarter. Even at this higher level, our regular dividend is well covered as we over-earned the dividend by 10 cents this quarter. In addition, our board has declared a supplemental dividend of five cents for the quarter for a total dividend of 42 cents, which equates to a nearly 11% dividend yield. We believe our increased regular dividend combined with our supplemental dividend framework benefits our shareholders by providing an attractive baseline dividend yield with additional predictable income as we over-earn the level in the higher rate environment. Looking to our portfolio companies, on average, we continue to see steady top and bottom line growth on both a quarter-over-quarter and year-over-year basis. Our borrowers were well positioned coming into this year, having successfully navigated a full year with higher interest rates by growing revenues and profitability, adjusting cost structures, and managing cash flow and working capital where needed. We believe our companies are faring well by design as we have intentionally invested in large, high-quality businesses in recession-resistant sectors, often backed by operationally sophisticated private equity sponsors who have large equity investments in these businesses. Our portfolio has a weighted average EBITDA in excess of $180 million and an average loan-to-value ratio of less than 45%. Across the portfolio, our average interest coverage ratio is currently 1.6 times. Over the last few quarters, we have expected coverage to trough at around 1.5 to 1.6 times, which is about where we are now. Borrowers have been paying SOFA rates of 5 to 5.25% for more than four quarters. If rates remain in this range over the course of the year, as the market currently expects, then we are currently at trough coverage levels and should remain here. Despite the higher rates, we haven't seen any pickup in stress across the portfolio. We continue to have a small number of borrowers who are on our watch list, but this subset has remained relatively static over the last few quarters. While companies with more constrained liquidity will likely face heightened pressure in coming quarters, we believe we have the resources in place across both our team and the financial sponsors supporting these companies to appropriately manage these situations. We believe our recovery-focused underwriting, paired with our leadership position on our investments, will allow us to optimize our outcomes. We serve as an administrative agent or a lead lender on the majority of our loans, affording us advantageous access to diligence during the underwriting process, influence in negotiating the credit documentations, and control over any amendment or workout situation. This is further evidenced in our non-accrual rate, which remains low at 1.8% of debt investments at fair value across five investments. Overall, our borrowers are growing revenue in EBITDA, the number of challenges positions is small, and our credit performance remains strong. These achievements reflect our continued focus on credit selection and proactive portfolio management, which remains unwavering even as economic conditions shift. With that, I'll turn it over to Jonathan to provide more detail on our financial results.

Thanks, Craig. We ended the quarter with total portfolio investments of $12.4 billion, outstanding debt of $7 billion, and total net assets of $6 billion. Our first quarter NAV per share was $15.47. another record, and a two cent increase from the fourth quarter, attributable to the continued over-earning of our dividend. In terms of deployment, we continue to see more normalized repayment levels at $1.2 billion. All these repayments were matched by a comparable level of new originations. New fundings were only approximately $1 billion in the quarter. Given this gap in net funded activity, we saw a small decrease in leverage again this quarter, ending the quarter at 1.04 times down from 1.09 times. Turning to the income statement, as Craig mentioned, we earned NII of 47 cents per share, an increase of 4% versus the prior year, and one of our highest quarters since inception. NII was down 4 cents per share from the prior quarter, primarily reflecting our lower average leverage and the impact from portfolio mix shift as we saw a large amount of second lien investments repay with capital redeployed into first lien investments. In addition, we saw a modest impact from a non-recurring item in interest expense. Turning to our dividends, The board declared a supplemental dividend of $0.05 per share for the first quarter, which will be paid on June 14th to shareholders of record on May 31st. The board also declared a second quarter regular dividend of $0.37, which will be paid on July 15th to shareholders of record as of June 28th. We continue to accumulate spillover income because of over-earning of our dividends. We estimate our spillover income is currently approximately 30 cents per share, which is a strong advantage that provides stability to our regular dividend. OBDC continues to benefit from its flexible balance sheet and well-diversified financing structure. We ended the quarter with liquidity of $2.4 billion, well in excess of our unfunded commitments of approximately $1.1 billion. As a reminder, in January, we opportunistically raised $600 million in new five-year unsecured notes, which were subsequently swapped to floating rate. A portion of the proceeds were used to repay our $400 million unsecured notes that were set to mature in April 2024. The remaining proceeds were used to pay down a portion of our secured debt. Since our last earnings call, we saw further differentiation from the rating agencies in the BDC sector towards recognizing the highest quality issuers. In the first quarter, Moody's revised OBDC's outlook to positive from stable and Fitch upgraded OBDC to BBB flat with a stable outlook. We hope this trend of differentiation by the various agencies will continue in the near future. With that, I'll turn it back to Craig for closing comments.