Blue Owl Capital Corporation

Good morning, everyone, and welcome to Blue Owl Capital Corporation III's second quarter 2024 earnings call. As a reminder, this call is being recorded. At this time, I'd like to turn the call over to Mike Mustichio, head of BDC Investor Relations for OBDE.

Thank you, Operator. Good morning, and welcome to the second quarter 2024 earnings call for Blue Owl Capital Corporation III. 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 forward-looking statements as a result of a number of factors, including those described in OBDE'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 III issued its earnings release and posted an earnings presentation for the second quarter ended June 30, 2024. These should be reviewed in conjunction with the company's 10-Q filed yesterday with the SEC. In addition, the company issued a press release announcing that OBDE has entered into a merger agreement with Blue Owl Capital Corporation, or OBDC. our affiliate BDC, also traded on the New York Stock Exchange. The merger is subject to satisfaction of customary closing conditions, including shareholder approval. We have also posted an investor presentation with additional details about this transaction. All materials referenced on today's call, including the earnings press release, earnings presentation, 10Q, and merger presentation are available on the investor section of the company's website, at blueowlcapitalcorporation3.com. With that, I'll turn the call over to Greg Packer, Chief Executive Officer of OBDE.

Thank you, Mike. Good morning, everyone, and thank you for joining us today for our second quarter earnings call. I'm also joined by Logan Nicholson, OBDE's President, and Jonathan Lamb, our Chief Financial Officer. Yesterday, after market close, we announced that OBDE has entered into a merger agreement with Blue Owl Capital Corporation, with OBDC as the surviving company. On the call today, I will start with a brief overview of OBDC's quarterly results, and then would like to share my thoughts on the anticipated benefits for shareholders of the combined company. I will then hand it over to Logan, who will provide an overview of our investing activities for the quarter. Next, Jonathan will further discuss the results for the quarter and cover additional details of the merger agreement. We're very pleased to report another strong quarter, delivering double-digit returns and maintaining excellent credit performance across the portfolio. Net asset value per share ended the quarter at $15.56, up 1.8% from a year ago. We once again delivered a strong annualized ROE of 10.5%. Net investment income was 41 cents per share, up one penny from the adjusted net investment income we delivered last quarter, and in excess of our second quarter regular dividend of $0.35 per share. Results for the second quarter reflect the benefits of our consistent credit performance, the higher rate environment, and portfolio growth as we increase leverage towards the higher end of our targeted range. Next, I would like to spend a moment on our recently announced combinations. We have long believed that it would make sense to streamline our BDC platform under the right conditions, and now is the right moment to do that. Both OBDC and OBDE have generated near record returns over the last year, and they have demonstrated the quality of their portfolios. The public BDC market environment has been solid, with BDC equities trading at valuation premiums to historical averages, and as an asset class, private credit has performed exceptionally well over the past few years. We believe that all of these elements combine to create the right alignment to deliver on our vision. While the markets have seen increased short-term volatility over the past week, We remain confident in our portfolios and the value proposition that this merger will offer to shareholders. As Jonathan will elaborate on later, this transaction has also been thoughtfully structured to allow for the best mutual outcome, whatever the market environment. While we are confident in OBDE on a standalone basis, we believe it will continue to be successful. We are excited about the benefits we expect this merger will bring to shareholders of OBDE if it is approved. If you have not spent time evaluating the OBDC portfolio, you will see it is extremely similar to OBDE's portfolio. Both funds employ the same investment strategy, and we have been allocating the same investments to both portfolios since OBDE's inception in 2020. As a result, approximately 90% of the investments in OBDE are also in OBDC. We expect that the proposed merger with OBDC will add approximately $13.3 billion of investments to OBD's portfolio, bringing total investments to approximately $17.7 billion as of June 30th. We would also establish our position as the second largest publicly traded BDC by total assets. We believe shareholders will benefit from the increased scale of the combined company in multiple ways. First, the merger would provide further diversification in our combined portfolio. Upon completion of the merger, the average position size in our portfolio will be less than 40 basis points. Diversification has always been critical to risk mitigation, reducing reliance on the success of any one investment, and this merger strengthens that effort. Second, we will maintain excellent credit quality in the combined portfolio. Often adding this much incremental scale comes with increased risk. However, this merger allows us to combine with a high quality diversified portfolio that has been managed by Blue Owl since inception. Third, as a result of how this transaction is structured, OBD shareholders will be receiving shares of OBDC, which traded at a higher multiple and offer deeper liquidity. Today, shares of OBDC are much more liquid than shares of OBDE, and we expect the larger market capitalization of the combined company will further enhance OBDC's liquidity. Fourth, the combined company is expected to have more diverse and efficient access to capital, including the potential to access debt financings at more favorable terms. We expect OBDE to benefit from OBDC's lower average cost of debt, which was over 100 basis points lower as of June 30th. OBDE shareholders should also benefit from OBDC's credit ratings profile, which are generally better. We expect the transaction to be immediately accretive to net investment income for shareholders of OBDE, driven by OBDC's higher portfolio yield and lower cost of debt, and operational savings we expect to generate through the elimination of duplicative expenses, which we estimate could be in excess of $5 million in year one. Over the long term, NAI should benefit from further incremental yield as we optimize the portfolio mix and generate cost savings from capital structure improvements. Finally, as a sign of support from Blue Owl, OBDE and OBDC will be reimbursed for fees and expenses associated with the proposed merger up to a cap of $4.25 million in total, which will be paid by OBDC's advisor if the proposed merger is consummated. With that, I'd like to turn the call to Logan to discuss our investment activity this quarter.