Owl Rock Capital Corporation

Greetings and welcome to the Owl Rock Capital Corporation's second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the speaker's remarks. To register a question, please press star 1 on your telephone keypad. Please press star 2 to remove your question from the queue. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Dana Sclafani, Head of Investor Relations. Thank you, Dana. You may begin.

Thank you, Operator. Good morning, everyone, and welcome to Owl Rock 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 Lamb, 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 Investors Relations section of our website at alrockcapitalcorporation.com. With that, I'll turn the call over to Craig.

Thanks, Dana. Good morning, everyone, and thank you for joining us today. I'd like to start with our high-level results. We reported net asset value per share of $14.48, down from our first quarter NAV per share of $14.88. This decline was primarily driven by unrealized portfolio markdowns due to credit spread widening experienced across the broader markets. Our net investment income was $0.32 per share, up a penny from last quarter. This was driven by continued stable investment income due to strong credit performance and an increase in dividend income. We were also pleased to be able to over-earn our dividend without the benefit of meaningful repayment-related income as repayment activity continues to be muted. In addition, the rapid rise in interest rates we have experienced will meaningfully benefit our NII beginning in the third quarter. All else equal, this will drive a further increase in our earnings even if we do not experience an increase in repayment activity in the second half of the year. Jonathan will touch more on this later in the call. During this quarter, we have very clearly seen a transition in the market environment, which has impacted all asset classes as investors are recalibrating expectations given a more uncertain economic environment. Continued concerns around the trajectory of Fed policy, inflation trends, and the potential course of the U.S. economy have disrupted the markets. In this environment, we think it's important to make a distinction between market volatility and economic uncertainty. Market volatility creates an even greater opportunity for us as a direct lender. As banks have pulled back from providing financing, we have seen an increase in demand for our capital and large platforms like ours have stepped in to provide attractive financing solutions for some of the largest deals getting done. In the second quarter, we evaluated over 20 opportunities for deals over $1 billion in size, which was another very active quarter for these larger deals. In this environment, the certainty of our capital is even more valuable to borrowers, and we are financing deals with better terms, structures, and wider spreads. Coupled with higher base rates, we believe these loans for large, high-quality companies offer very attractive risk-adjusted returns for our portfolio. That said, we are highly focused on the current economic uncertainty and its impact on the credit quality of our portfolio. While we are prepared for a recessionary environment, we have not yet seen that materialize in our portfolio. Broadly speaking, our borrowers continue to meet or exceed our expectations for performance, and we have not seen an uptick in credit issues. we continue to have only one 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 remains very low at roughly 15 basis points. As an upper middle market lender, we focus on larger companies, many of which are leaders in their markets. Consumer demand remains healthy, And while our companies are experiencing some margin pressure from increases in labor and input costs, they have largely been able to pass through those cost increases to maintain healthy profitability. We focus on non-cyclical, service-oriented businesses with enduring revenue models and have very little exposure to classic cyclical sectors. The majority of our portfolio is comprised of companies in service-oriented sectors such as software, insurance, and healthcare, which we believe are more insulated from a broad economic downturn. For example, in our largest sector, software, fundamentals remain strong as software solutions are embedded in their customers' workflows and are mission-critical to day-to-day operations. The majority of these investments are structured with conservative loan-to-values, typically well below the roughly 45% average of our broader portfolio. Additionally, our team has been rigorously analyzing the portfolio given the economic uncertainty. We evaluated each of our borrowers based on a number of factors, including labor, commodity price, and supply chain exposure, and feel the portfolio is well-positioned to withstand economic pressures. We believe we have built a resilient portfolio that will continue to perform well in a changing economic environment. Turning to our activity in the quarter, ORCC had a modest quarter of originations driven by light repayment volume. We had expected repayments to modestly increase in the second quarter. However, higher rates reduced refinancing activity and market uncertainty led to a decline in M&A activity. Even though repayments were low this quarter, where we did receive repayments, we were able to redeploy this capital into attractive opportunities. The portfolio at quarter end was $12.6 billion of roughly 75% first lien investments and is well diversified across borrowers and industries. We continue to seek ways to prudently improve returns by targeting specialized lending verticals. In the second quarter, we provided an additional $77 million of capital to Wingspire, an asset-based lending business in our portfolio to support their acquisition of Liberty Commercial Finance and equipment leasing business. This brings our total commitment to Wingspire to $400 million. Post-quarter end, we also announced an increase in our commitment to our senior loan fund, which continues to generate attractive returns of roughly 10% to $500 million. In addition, the Alrock BDCs including ORCC, recently announced an equity commitment in Amerigen Asset Management. Amerigen is a newly formed portfolio company created to invest in a leasing platform focused on rail car and aviation assets. Following the continued growth and success of Wingspire, this platform will also be built organically by a team of industry-leading professionals with a proven track record. Over the long term, we expect these specialized lending investments will provide further upside to our earnings and asset value. Now I'd like to turn it over to Jonathan to discuss our financial results in more detail.