Blue Owl Capital Inc.

Good morning, everyone, and welcome to Blue Owl Capital Corporation'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 Misescio, head of BDC Investor Relations for OBDC.

Thank you. Thanks, Operator, and good morning to everyone joining. 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 second quarter ended June 30th, 2024. These should be reviewed in conjunction with the company's 10Q filed yesterday with the SEC. In addition, the company issued a press release announcing that OBDC has entered into a merger agreement with Blue Owl Capital Corporation III, or OBDE, 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 blueowlcapitalcorporation.com. With that, I'll turn the call over to Craig Packer, Chief Executive Officer of OBDC.

Thanks, Mike. Good morning, everyone, and thank you all for joining us today. On behalf of our full team, we are pleased to be sharing not just another quarter of strong results for OBDC, but also a milestone merger agreement between OBDC and OBDE that we believe will provide long-term strategic value to both sets of shareholders. Before we jump in, I want to highlight some new voices on this call. Mike Mostichio, who you just heard from, has recently joined our team to serve as head of BDC Investor Relations. He joined us last month, brings nearly 10 years of BDC investor relations experience. We are very happy to have him on the team. Additionally, you'll hear later in the call from Logan Nicholson, who is the portfolio manager for both OBDC and OBDE and was recently named president of OBDC. Logan joined us a year ago and brings two decades of experience in the leverage finance space. As always, I'm also joined by Jonathan Lamb, Chief Financial Officer and Chief Operating Officer for OBDC. For today's call, I will start with a brief overview of OBDC's quarterly results and then share some thoughts on why we believe the merger with OBDE is an attractive opportunity in the current environment. Jonathan will then walk through the logistics of the merger proposal and provide more detail on OBDC's quarterly earnings. After Logan discusses our portfolio performance, I will close with some market commentary and concluding remarks. So to start, OBDC delivered another strong quarter with $0.48 of net investment income per share, up one penny from last quarter. Net asset value ended the quarter at $15.36 per share, and we once again delivered a very strong annualized ROE at 12.6%. Further, our shareholders will receive $0.43 total dividends for the quarter, reflecting our regular dividend of $0.37 and the supplemental dividend of $0.06, as declared by our board. We are pleased to continue to deliver an attractive dividend yield, which this quarter was over 11%. This is our sixth consecutive quarter of a double-digit ROE in dividend yield, which reflects the benefit of the current interest rate environment, our attractive asset base, and the resilient credit quality of our portfolio. 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 a valuation premium to historical averages. And as an asset class, private credit has performed exceptionally well over the past few years. We believe 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. To our shareholders, if you have not spent time evaluating the OBDE portfolio, you will see it is extremely similar to OBDC's portfolio. OBDE was launched in 2020 and today has a $4.3 billion portfolio comprised of investments across 207 portfolio companies. Both OBDC and OBDE employ the same investment strategy, and we have been co-investing into both funds since OBDE's inception. As a result, approximately 90% of the investments in OBDE are also in OBDC. We believe this overlap makes this a logical and low-risk transaction for both sets of shareholders. By combining our two publicly traded BDCs, we plan to streamline our direct lending platform, enhance our scale with a high-quality diversified portfolio that offers significant investment overlap, improve our trading liquidity profile for current and prospective shareholders, increase our access to lower-cost sources of debt, and finally, drive operational efficiencies and cost savings. We expect that the proposed merger with OBDE will add approximately $4.3 billion of investments to OBDC's portfolio, bringing total investments to approximately $17.7 billion. It would also establish our position as the second largest publicly traded BDC by total assets, while achieving NII accretion over time. 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 for 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, which we believe will meaningfully mitigate potential risk. Third, we expect the larger market capitalization of the combined company will improve OBDCs trading liquidity. Larger BDCs historically have had higher average daily trading volumes. A larger shareholder base and increased trading volumes should provide enhanced liquidity and flexibility for both existing and new investors. Fourth, the combined company is expected to have more diverse and efficient access to capital, including potential to access debt financings at more favorable terms. Both OBDC and OBDE are investment-grade rated, and OBDC, as the mature of the two BDCs, received a ratings upgrade in the first quarter of 2024. We expect the increased scale of the combined company to enable better access to a wide array of debt funding solutions at potentially lower borrowing costs. As I mentioned before, we expect the transaction to be accretive to net investment income over time, driven by operational savings through the elimination of duplicative expenses, which we estimate could be in excess of $5 million in year one. Over the long term, NII should benefit further from incremental yield as we optimize the portfolio mix and generate cost savings from capital structure improvements. With that, I'll turn the call over to Jonathan, who will offer more detail on mechanics of the proposed merger and our second quarter results.