Owl Rock Capital Corporation

Greetings. Welcome to Alrock Capital Corp's fourth quarter 2022 earnings call. This time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. At this time, I'll now turn the conference over to Dana Sclafani, Head of Investor Relations. Dana, you may now begin.

Thank you, Operator. Good morning, everyone, and welcome to Owl Rock Capital Corporation's fourth quarter earnings call. Joining me this morning are 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. 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 earnings release, 10-K, and supplemental earnings presentation are available on the investor 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 all for joining us today. We are pleased to once again report another quarter of very strong results with earnings momentum that reflects the continued pull-through of higher rates and the ongoing strong performance of our portfolio. Our net investment income in the fourth quarter was 41 cents per share, capping off a record year since we went public. To put this in perspective, NII increased 18% versus the fourth quarter last year, and over 30% in the second half of the year, as we have seen the benefit of rising rates and stable credit performance. On our call last quarter, we highlighted that we expected to earn at least 39 cents of NII in the fourth quarter based on our visibility at the time. We are pleased to report even stronger results. As a reminder, we also announced several capital actions with our third quarter results, including a two cent increase on our base dividend to 33 cents and the introduction of a supplemental dividend component going forward. The supplemental dividend is equal to 50% of earnings in excess of our base dividend. And given our increase in NII, our supplemental dividend increased to 4 cents for the fourth quarter. As a result of this new dividend structure, investors will receive 37 cents in total dividends for the fourth quarter. At our current share price, this dividend level generates what we believe is a very compelling annualized dividend yield of over 11%. Based on the visibility of higher rates flowing through the portfolio, we expect to see continued growth in NII and corresponding growth in the supplemental dividend throughout 2023. Our NII ROE for the fourth quarter was 11%, up from 9.3% a year ago. For the full year 2022, we generated a 9.5% ROE, up 100 basis points from 2021. Looking forward, we expect to see run rate ROEs of 11% or higher, rates stay at current levels, which we think is an attractive risk adjusted return for a primarily first lien portfolio. Last quarter, we also announced that our board had authorized a $150 million repurchase program, which was in addition to a $25 million Blue Owl employee investment vehicle and the intention to purchase up to 75 million of stock in the near term through the combined buying power from these programs. We are pleased to have made significant progress on this goal to date, in part by utilizing a programmatically purchased plan. As of February 17th, a total of $52 million of ORCC stock was purchased, of which $35 million was bought by the company at an average price of $12.05 per share, or 81% of net asset value. We believe these capital actions underscore our alignment with shareholders while providing comfortable coverage of our base dividend. In addition to our strong earnings, net asset value per share also increased this quarter to $14.99, up 14 cents from the third quarter. Our non-accrual rate remains low at 1.3% of the fair value of the portfolio, with one name added to non-accrual this quarter. Since inception, we have deployed roughly $25 billion across 400 borrowers, of which only six names have been placed on non-accrual in our history. and our annualized loss ratio remains at less than 15 basis points. We believe our continued strong portfolio performance reflects our conservative underwriting standards and credit selection process. While we are pleased with the strong earnings of the fourth quarter, we are also cognizant that there will likely be new challenges for the economy as we look ahead. We expect broader economic headwinds and the potential for a recession later this year. We believe our portfolio is well positioned for this environment, and our borrowers are already demonstrating resilience. Our borrowers continue to report low single-digit growth quarter over quarter on a revenue and EBITDA basis, although we note that the pace of growth has slowed versus prior quarters. Many of our borrowers have experienced relief from supply chain disruptions and saw a moderation in input costs, which has helped to offset the impact of rising rates and to support EBITDA growth. Despite this, we have not seen any pickup in the early indicators of stress across the portfolio. Our portfolio marks and internal ratings remain stable quarter over quarter. Anecdotally, we have not seen an increase in requests from borrowers for covenant relief or additional liquidity. We continue to utilize a rigorous monitoring process. With an investment and portfolio management team of over 100 people, we have significant resources in place to proactively identify early signs of stress and mitigate potential challenges. Given the current market backdrop, we have a heightened focus on projected liquidity needs and are continuously re-underwriting credits and evaluating downside and liquidation scenarios. As we expected, interest coverage declined to 2.3 times in the fourth quarter and 2.5 times the prior quarter, which is a reflection of higher rates. This metric is reported LTM coverage. However, we also monitor the forecasted peak rate environment based on current market expectations and have found that the vast majority of our borrowers are expected to maintain adequate coverage levels over the course of the year, with average coverage remaining between one and a half and two times. We have a monthly watch list session in which we evaluate both existing and newly identified situations where operating results are deviating from our expectations. Across our 184 portfolio companies, the vast majority continue to perform in line with expectations. Based on our heightened monitoring, we identified less than 5% of the total portfolio on a fair value basis that we currently believe may experience more significant challenges over the next year or so. To be clear, we are not saying these 5% will have problems, but rather that our current view is the area of potential concern at this point is in this 5%. which we believe is an encouraging statement about the overall health of the portfolio. We continue to come away from our investment monitoring process, confidence in the portfolio and the strength of our underlying borrowers. This confidence is bolstered by our belief that large sponsor backed companies and recession resistant sectors will fare better in a tougher environment. Even in situations with weaker credit performance, sponsors will employ operational initiatives such as cutting costs or providing additional liquidity, or strategic initiatives, such as selling assets or making accretive acquisitions. In our experience, we have found that these actions can be impactful in extending the runway to realize value for sponsors and enhance the credit profile of the business to provide additional downside protection for us as a lender. Looking forward, we are prepared for a more challenging economic environment. We believe any defaults or potential losses in our portfolio will be very manageable and offset by the continued strength of our earnings. We built our portfolio to be resilient across varying environments and believe that it will fare well in the face of an economic downturn. We have deliberately built a highly diversified portfolio focused on primarily first-loan investments with low loan-to-value ratios in non-cyclical sectors and believe this is a highly defensible strategy in a slowing economy. With that, I'll turn it over to Jonathan to provide more detail on our financial results.