Earnings call transcript: Owl Rock Capital misses Q1 2025 earnings forecast

Owl Rock Capital Corp (OBDC) reported its Q1 2025 earnings, revealing a slight miss on earnings per share (EPS) and revenue compared to forecasts. The company reported an EPS of $0.39, falling short of the anticipated $0.43, while actual revenue stood at $464.6 million against a forecast of $469.36 million. In response, the stock showed a minor increase of 0.07% in after-hours trading, reflecting cautious investor sentiment. According to InvestingPro data, OBDC maintains strong fundamentals with a P/E ratio of 8.87 and an impressive dividend yield of 12.33%, making it one of the highest-yielding stocks in its sector.

Key Takeaways

• EPS of $0.39 missed the forecast by $0.04.
• Revenue of $464.6 million was below expectations.
• Stock price increased marginally by 0.07% after earnings release.
• Merger between OBD and OBDC completed, focusing on loan growth.
• Anticipation of potential interest rate reductions in 2025.

Company Performance

Blue Owl Capital Corporation’s performance in the first quarter of 2025 highlighted the challenges of meeting financial expectations amid a volatile market environment. The company’s adjusted net investment income per share decreased by $0.08 from the previous quarter, indicating some pressure on profitability. Despite this, the company maintained a robust portfolio, with nearly $18 billion in total investments and net assets close to $8 billion. InvestingPro analysis reveals the company has raised its dividend for 3 consecutive years and maintains strong liquidity with a current ratio of 1.49. For deeper insights into OBDC’s financial health and growth potential, subscribers can access the comprehensive Pro Research Report, which provides detailed analysis of key performance metrics and growth drivers.

Financial Highlights

• Revenue: $464.6 million, slightly below forecasts.
• Earnings per share: $0.39, down from $0.47 in the previous quarter.
• Total portfolio investments: Nearly $18 billion.
• Net leverage: 1.26x, slightly above the target range.
• NAV per share: $15.14, down $0.12 from last quarter.

Earnings vs. Forecast

Owl Rock Capital’s Q1 2025 EPS of $0.39 missed the forecast of $0.43, marking a 9.3% shortfall. The revenue of $464.6 million was also below the expected $469.36 million, representing a 1% miss. This performance highlights a deviation from the company’s historical trend of meeting or exceeding earnings expectations.

Market Reaction

Following the earnings announcement, Owl Rock Capital’s stock price saw a slight uptick of 0.07%, closing at $13.71. This modest increase suggests that investors are taking a cautious approach, possibly due to the earnings miss. The stock remains within its 52-week range, trading between $12.11 and $16.91, with a beta of 0.76, indicating lower volatility compared to the broader market. InvestingPro data shows the company maintains a "GOOD" overall financial health score, with particularly strong ratings in profit and price momentum metrics.

Outlook & Guidance

Looking ahead, Owl Rock Capital is focusing on high-quality upper middle market loans and exploring alternative credit strategies. The company expects potential interest rate reductions, which could impact future earnings. Despite the current challenges, the company plans to maintain its dividend level for the remainder of 2025, supported by approximately $0.34 of spillover income.

Executive Commentary

CEO Craig Packer expressed optimism about the company’s position in the private credit market, stating, "We believe private credit is poised to capitalize on market volatility." He also highlighted the resilience of portfolio companies, noting, "Our portfolio companies are performing well, reflecting the continued strength and resilience of our borrowers."

Risks and Challenges

• Economic uncertainty due to tariffs impacting deal flow.
• Volatility in the public loan market affecting investment strategies.
• Slightly elevated net leverage at 1.26x, above the target range.
• Potential challenges in maintaining the current dividend level amid earnings pressure.
• Risks associated with exploring new alternative credit strategies.

Q&A

During the earnings call, analysts inquired about the trends in credit spreads and the M&A environment. Discussions also covered the potential for share repurchases and operational efficiencies gained from the recent merger. Analysts expressed interest in the quality of the portfolio and trends in PIK income, reflecting broader concerns about the company’s financial stability and growth prospects.

Full transcript - Owl Rock Capital Corp (OBDC) Q1 2025:

Operator: Good morning, everyone, and welcome to Blue Owl Capital Corporation’s First Quarter twenty twenty five Earnings Call. As a reminder, this call is being recorded. At this time, I’d like to turn the call over to Mike Mestizio, Head of BDC Investor Relations.

Mike Mestizio, Head of BDC Investor Relations, Blue Owl Capital Corporation: Thank you, operator, and welcome to Blue Owl Capital Corporation’s first quarter twenty twenty five earnings conference call. Yesterday, Blue Owl Capital Corporation issued its earnings release and posted an earnings presentation for the first quarter ended 03/31/2025. These should be reviewed in connection with the company’s 10 Q filed yesterday with the SEC. All materials referenced on today’s call, including the earnings press release, earnings presentation and 10 Q are available on the Investors section of the company’s website at blueowellcapitalcorporation.com. Joining us on the call today are Craig Packer, Chief Executive Officer Logan Nicholson, President and Jonathan Lamb, Chief Financial Officer.

I’d like to remind listeners that remarks made during today’s call may contain forward looking statements, which are not guarantees of future performance or results and involve a number of risks and uncertainties that are outside of 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 OVDC’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.

With that, I’ll turn the call over to Craig.

Craig Packer, Chief Executive Officer, Blue Owl Capital Corporation: Thanks, Mike. Good morning, everyone, and thank you all for joining us today. We delivered solid first quarter results driven by the ongoing strong performance of our portfolio. As a reminder, we completed the merger between OBD in our view positions us well to weather potential future volatility or recession. Majority of our portfolio companies are backed by private equity sponsors, who are skilled operators with significant equity investments in these businesses.

This is particularly important during more volatile times as these sponsors have substantial financial resources, including ample dry powder to support their investments for extended periods of stress as we saw during COVID. Additionally, we are lead or co lead lender on roughly 90 of deals and administrative agent on approximately 65% of our investments across our platform, which gives us direct access to real time information on borrower performance. To date, we have not seen any material signs of stress such as increased revolver borrowings, requests for interest payment modifications or late interest payments. We also benefit from a strong balance sheet and significant liquidity supported by diversified and flexible funding sources to allow us to be resilient and invest across all market environments. In summary, we believe our experienced team, defensively constructed portfolio, disciplined underwriting and highly durable funding model have positioned us to protect our shareholders regardless of what lies ahead.

With that, I’ll turn it over to Logan for additional color on portfolio performance.

Logan Nicholson, President, Blue Owl Capital Corporation: Thanks, Greg. As just mentioned, the recent policy shifts subsequent to quarter end only added to the uncertainty about when a pickup in M and A activity will materialize. Accordingly, originations were lighter this quarter. We recorded $1,200,000,000 of new investment commitments and $800,000,000 of fundings, excluding joint venture and strategic equity activity. Over 90% of first quarter direct loan originations consisted of first lien investments as we continue to believe that first lien and unitranche loans provide the most attractive relative value in the current market.

As a result, over the last year, OBDC’s first lien investments have grown from 73% to 77% of the portfolio. While activity has slowed, we continue to find large high quality opportunities during the quarter, including PCI Pharma, a $4,500,000,000 transaction led by Blue Owl to refinance a syndicated loan. Notably, with an average deal size of approximately $2,000,000,000 this quarter, we continue to see the market migrate towards larger, more diversified credits. With the addition of first quarter originations, the median EBITDA of our portfolio borrowers grew slightly to $120,000,000 and weighted average EBITDA increased to $215,000,000 Portfolio company revenues and EBITDA once again increased in the mid to high single digits year over year. We would highlight this is approximately double The U.

S. GDP growth rate due to our durable noncyclical sector selection, which should provide our borrowers more cushion in a potential recession. The portfolio also remains highly diversified with an average investment size of approximately 40 basis points, And our top 10 investments represent approximately 22% of the portfolio, down from 24% in the prior quarter. Additionally, as Craig noted, our average LTV is just over 40%, which provides significant support underneath our capital. Now I’d like to touch on some credit metrics in our portfolio.

The nonaccrual rate as of quarter end was 0.8% at fair value and 1.4% at cost compared to 0.41.9% in the prior quarter. The change reflects two additions, including National Dentex Labs and the removal of three positions that were fully exited. Stepping back, our nonaccrual rate remains at the lower end of our broader sector averages. Next, our internal rating system, which ranges from one to five as an indicator of portfolio health, remains steady, and the subset of names on our watch list was also stable quarter over quarter. Interest coverage remained steady at 1.8x based on current spot rates, up from trough levels as lower rates have benefited our borrowers, which should provide them a bit more flexibility during this period of uncertainty.

Finally, PIK income declined to 10.7% of total investment income from 13.2% last quarter, driven by several investments that were converted to all cash pay as well as the merger with OBDE, which had lower levels of PIK exposure. As we’ve highlighted in the past, the vast majority of this PIK was underwritten at inception rather than as a result credit issues, and these investments continue to perform as expected. In closing, I want to echo the sentiment Craig shared. Our first quarter results demonstrate the continued strength of our portfolio. We are closely monitoring our investments for potential tariff impacts, but we remain confident in our defensive positioning and proactive in our approach.

And now I’ll turn over the call to Jonathan to provide more detail on our first quarter financial results.

Jonathan Lamb, Chief Financial Officer, Blue Owl Capital Corporation: Thank you, Logan. Before discussing our financial results, I want to review the non GAAP accounting adjustments we introduced this quarter due to the accounting treatment of our recent merger with OBDE. We did this to help make our post merger financials more comparable to pre merger results. Under the asset acquisition method, we recognized an $83,000,000 purchase discount on the assets acquired from OBDE, which resulted in a onetime unrealized gain to OBDC in the first quarter. This purchase discount will be reversed out of unrealized gains into total investment income each quarter as the legacy OBD loans mature or are realized.

In the first quarter, this amortization income represented approximately $02 per share. Importantly, we have amended our investment advisory agreement to revise the calculation of incentive fees to ensure that any income or net realized gains arising solely from the merger accounting treatment will have no impact on the incentive fees payable to BlueOut. This noncash amortization will be reflected in our results going forward, and we’re happy to discuss this further with you in Q and A or offline to the extent you have any questions. Now turning to our results.

: We built upon the momentum established in 2024 and delivered another quarter of solid financial performance to begin the year.

Jonathan Lamb, Chief Financial Officer, Blue Owl Capital Corporation: Following completion of the merger with OBDE, we ended the quarter with total portfolio investments of nearly $18,000,000,000 total net assets of nearly $8,000,000,000 and total outstanding debt of approximately $10,000,000,000 Our first quarter NAV per share was $15.14 down $0.12 from the last quarter. The decline was primarily driven by changes in credit spreads and write downs on a small number of high focus investments. Turning to the income statement. We reported adjusted net investment income of 0.39 per share, down $08 from the prior quarter, which was in line with our expectations. As discussed on our last earnings call, the decline primarily reflects a meaningful reduction in onetime income, including early repayment activity and a dividend we received in the fourth quarter, which together contributed approximately $05 to last quarter’s NII.

In addition, the remaining one third of the 100 basis point interest rate cuts that were implemented last year flowed through earnings as well as a small amount of spread compression of approximately 10 basis points. Similar to prior quarters, we over earned our base dividend resulting in the Board declaring a $01 supplemental dividend based on our first quarter results, which will be paid on June 13 to shareholders of record as of May 30. As a reminder, we implemented a programmatic supplemental dividend framework to allow shareholders to benefit from the higher returns associated with the increased rate environment, which has worked as designed. The Board also declared a second quarter base dividend of $0.37 which will be paid on July 15 to shareholders of record as of June 30. We believe OBDC is well positioned for the evolving rate environment and that the base dividend continues to be supported by our adjusted earnings with 106% dividend coverage.

Further, our spillover income remains healthy at approximately $0.34 and equates to nearly a full quarter’s worth of base dividends. We believe having a meaningful undistributed spillover supports our goal of maintaining a steady dividend through volatile and varying market conditions. Moving to the balance sheet. We are entering the year on a solid footing as our diversified capital structure positions us to withstand the current environment. We finished the quarter with net leverage of 1.26 times, up from 1.19 times and just outside of our target range of 0.9 to 1.25 times, which is partly attributable to the onetime leveraging event of the merger with OBDE.

We also had visibility into a couple of large repayments that slipped into April. And as a result, we expect net leverage in Q2 will be within our target range. Since the merger closing in January, we have taken several steps to optimize our capital structure and reduce funding costs at OBDC. During the first quarter and post quarter end, we reset two CLOs and amended two of our bilateral SPVs, reducing interest expense for each and extending maturities for most of the facilities. In April, we repaid OBDEs one hundred and forty two million dollars July twenty twenty five notes, which was modestly accretive to net investment income as the notes had a higher interest rate as compared to OBDC’s cost of funding.

Lastly, as a reminder, we prefunded the $425,000,000 of unsecured notes that matured in March by opportunistically raising $400,000,000 through a reopening of OBDC’s March twenty twenty nine unsecured notes last quarter, which priced a swap spread of SOFR plus 192 basis points near secured credit facility pricing levels. These changes represent our continuing efforts to actively improve our liability structure and optimize ROE post merger. Turning to liquidity. We ended the quarter with over $3,000,000,000 of total cash and capacity on our facilities, which was over two times in excess of our unfunded commitments that can be immediately drawn. Importantly, we have no material short term maturities and our robust liquidity position provides us with more than ample unfunded capacity to meet any near term funding needs.

Overall, we remain very pleased with our results and believe that our balance sheet is well positioned for more uncertain environment ahead. And now I’ll hand it back to Craig to provide final thoughts for today’s call.

Craig Packer, Chief Executive Officer, Blue Owl Capital Corporation: Thanks, Jonathan. The recent volatility across stocks and public fixed income markets has signaled a potential shift in the investment landscape. In periods like this, we believe private credit is poised to capitalize on market volatility by providing support to borrowers and sponsors facing challenges in accessing financing. Our leverage at OBDC is towards the high end of our target range. We remain agile and able to deploy capital strategically as repayments come in, which allows us to be patient and pick our spots as we find opportunities.

Last year, we experienced a significant number of refinancings, which impacted the overall spread of our portfolio. However, at this point, we believe most of this refinancing activity has played out, which means we have the ability to operate with a high quality portfolio that benefits from stable spreads. This positions us well to be patient and selective knowing that as public markets continue to experience volatility, the value of the certainty we offer to borrowers only increases. While it’s too early to say how long this environment will last, we are confident in our ability to take advantage of opportunities given our capital resources and long term investing time horizon to navigate what lies ahead. Looking forward, while macroeconomic uncertainty persists, the market is anticipating a significant reduction in interest rates, which will impact our earnings.

That said, we believe our stable earnings profile and compelling risk adjusted returns will continue to make us an attractive option for investors, even in a lower rate environment. As we’ve mentioned throughout today’s call, our portfolio is performing well, reflecting the continued strength and resilience of our borrowers. The stability of our portfolio gives us confidence in maintaining our dividend level for the remainder of 2025. To close, we are very pleased with our first quarter results and the seamless execution of the merger. We’re confident in our ability to navigate a more challenging environment ahead, all while delivering attractive returns to our shareholders.

Thank

: you

Craig Packer, Chief Executive Officer, Blue Owl Capital Corporation: for your time today, and we’ll now open the line for questions.

Operator: Thank you. At this time, we’ll be conducting a question and answer session. Our first question is from the line of Brian McKenna with Citizens. Please proceed with your question.

Brian McKenna, Analyst, Citizens: Thanks. Good morning, everyone. Craig, it would be great to get your perspective on how the macro unfolded over the past several months. I know you gave a little bit of color, but for some time now we’ve talked about just how tight spreads were as banks were really active and then there’s just this lack of new M and A transactions. We finally got some volatility, banks did pull back.

So I’m just curious from your seat, how spreads trended from February to March and then from March into April and May? And then at the OWL Investor Day back in February, you stated, I don’t know, I haven’t seen it yet when speaking about the forthcoming recovery in M and A. So here we are, there has been no change in the broader M and A backdrop. Do you have any updated thoughts on where we go from here? Then if activity remains or muted on the M and A side, does that have any implications on OBDC?

Craig Packer, Chief Executive Officer, Blue Owl Capital Corporation: Okay. Thanks, Brian. There are a few pieces in there, so if I don’t get to all of them, remind me. Might quote unquote, I don’t know, I haven’t seen it yet. I think that’s held up well over time.

So I I I think I was probably spot on there. Look. Try to try to hit some of the themes that that you’re asking about just to pull the lens back. Last year, it was a moderate m and a environment with a really strong broadly syndicated loan market and rates, you know, spreads tight. And so there’s a lot of refinancing last year.

There are a lot of public and private market dollars chasing a moderate amount of deal flow, and that resulted in spread compression. The hope this year was that there’d be a resumption in m and a. I think there was a lot of optimism with the new administration that that would be deregulated deregulatory that would result in m and a with the private equity firms needing to return capital. So there was a hope that that would result in more deal flow, more opportunities to deploy and potentially, you know, improve the spread environment. What’s happened so far this year is given there’s just been after the initial, I think, optimism around new administration, the there’s been a lot of uncertainty created by tariffs in particular, and that’s had a showing effect on M and A, both private equity, but just in general, the uncertainty around tariffs has created a muted M and A environment.

And I think most people expect that to continue for a while. Until there’s greater clarity, it’s hard for companies to want to buy and sell and for there to be an active M and A environment. And so I think that will continue to be the case. On the spread front, the public loan market, you know, really closed up. It’s opened up a little bit now, but the the extreme volatility of a month or so ago really impacted the public loan market.

So that bid went away. And so spreads, I think, have stabilized. Our hope would have been in an environment with a lot of public market volatility that spreads would widen. Typically, that’s what you would see. That we haven’t seen that yet.

Private credit spreads are stable. I think different market participants might call it 25 basis points wider, maybe 50 basis points wider. But I think there’s also deals that are getting done and really the same spread they would have gotten done a couple of months ago. So I think it’s not going any tighter. Our hope is to have it go wider.

We are certainly pushing for that in in in the instances where we think it’s appropriate, but there remains pretty modest deal flow. And so the deals we’re seeing are good quality. You saw we had an active quarter. I think we’ll continue to have an active year. Our portfolio companies, we have a significant number of incumbencies, and they are constantly doing add on acquisitions that are smaller, but that allows us to deploy capital.

I think spreads, my hope is at some point, there’ll be a pickup in activity and spreads will go wider a bit, but we’re not seeing that just yet. You know, it’s a fine environment for investing. I you know, I’d like to see more deal flow. I’d like to see a little bit better, you know, economic terms, but the quality is very good, and the and the portfolio companies are holding up very well. So hopefully, that captures, I think, the gist of what you’re asking about.

But if I missed any piece of it, you know, just just remind me.

Brian McKenna, Analyst, Citizens: Yeah. No. I I think you got most of it, if not all of it. So that that super helpful. Appreciate that.

There were clearly a few questions in that. So I just have one quick follow-up. Is there any updated timeline around the public listing of OTF now that that merger is complete?

Craig Packer, Chief Executive Officer, Blue Owl Capital Corporation: There’s no there’s nothing nothing for us to disclose here. As we have with we’ve obviously completed a number of strategic transactions, merger merger of OBDC and E, merger of our two private tech funds. We’re we take a very front footed approach with trying to find ways to deliver value for our shareholders, talk to our board regularly about about all those activities. And so our tech funds are not meeting report on it, but the the our tech fund now combines the private tech funds would be one of the largest, most consequential BDCs if it were public companies. So if we found a window where we think that makes sense, you know, that we we would explore that as we have some of the other strategic transactions.

So, you know, we’re you know, we actively look at at at at of our funds regularly to see what makes sense, but nothing more specific to report.

Brian McKenna, Analyst, Citizens: Okay. I’ll leave it there. Thanks, Greg.

Craig Packer, Chief Executive Officer, Blue Owl Capital Corporation: Thanks, Brian.

Operator: The next questions are from the line of Mickey Schleien with Ladenburg Thalmann. Please proceed with your question.

: Good morning. I wanted to ask

Casey Alexander, Analyst, Compass Point: call will be recorded. This call is no longer being recorded.

: Greg?

Craig Packer, Chief Executive Officer, Blue Owl Capital Corporation: We’re we’re here, Mickey. I’m not

Craig Packer, Chief Executive Officer, Blue Owl Capital Corporation: sure what that what that was, but we’re here.

: Not sure. Sorry. I wanted to ask a spread question as well, but but you you explained it very thoroughly. So my other question is related to share repurchases. I realize there are windows which open and close for share repurchases, but why not rotate some of the repayments you received into buying shares during the recent periods of volatility, which would seem to be a great use of capital?

Craig Packer, Chief Executive Officer, Blue Owl Capital Corporation: So we have we have a share repurchase program. We’ve also instituted an ATM program. You know, we look at both tools regularly, you know, weekly, daily. As you know, there are there are windows for share repurchases. So and they’re and they’re and they’re meaningful windows, you know, which I won’t get into precisely here, but they’re they’re measured in weeks, not in days.

And so if there are environments that line up with our windows to buy shares, you know, that’s a conversation that that that we’ll have with our board. I mean, it it was not that long ago that that that we’ve been above book value. So, you know, these things move quickly, and they have to line up. We’ve used the the share repurchase in in the past, and, know, we we can look at using it again. I mean, I I agree with your instinct, which is, you know, we we think that our stock trading where it is is not reflective of the fundamentals of of the portfolio performance, which continues to be excellent.

The yields on our stock today on our base dividend is close to 11%, and we haven’t had any credit issues in our peers that have comparable credit quality or trading at book value. We traded 90¢ at book value. So, we we agree with the sentiment that our stock is attractively priced. Obviously, the capital is very valuable to deploy, so we always weigh that. But, you know, it’s something that that that we will continue to look at.

: So if I understand correctly, that recent period of volatility where where we saw a sharp sell off over a few days, it just it didn’t coincide with one of the windows being open. Is that correct?

Jonathan Lamb, Chief Financial Officer, Blue Owl Capital Corporation: That is correct.

: Okay. Thank you for that. That’s it.

Operator: Thank you. Our next question comes from the line of Casey Alexander with Compass Point. Please proceed with your questions.

Casey Alexander, Analyst, Compass Point: Yes. This is for Jonathan. Jonathan, not being as familiar with the liability structure that you inherited from BlueOut three. I’m curious if there’s anything in BlueOut three’s liabilities that you inherited that are going to offer some opportunities to rationalize some of those liabilities at lower cost?

Jonathan Lamb, Chief Financial Officer, Blue Owl Capital Corporation: Yes. No. That it’s a great question. It’s something that we definitely talked about at the time of the merger that we felt that there were going to be opportunities. We’ve already started to take advantage of some of those on the secured side by repricing certain dropdown facilities that we have in place as well as repricing the CLO.

And we’ve, you know, subsequent to quarter end, we took out notes that we had issued at OBDC three that were high coupon as well at the first possible chance to to take those notes out. So there’s there’s there’s more there to do. And as the call dates and or, you know, sort of come up, we’ll we’ll certainly be able to take advantage of that.

Operator: Thank you. The next question is from the line of Robert Dodd with Raymond James. Please proceed with your questions.

Casey Alexander, Analyst, Compass Point: Hi guys. You’ve answered the spread in M and A one really clearly in case you got the liability one. So the board one, going back to kind of your opening remarks here, I mean, at this point in your underwriting case, when you’re looking at new deals, what are you ranking maybe qualitatively, not quantitatively necessarily as the probability of a near term recession? I mean, always put one into kind of your underwriting case, and a lot of your businesses, they’re not that economically sensitive because of the services side. How is that kind of near term view like in the second half of twenty twenty five, has that view changed on the probability of a meaningful or moderate economic slowdown?

Craig Packer, Chief Executive Officer, Blue Owl Capital Corporation: Sure. So look, I I I’ll try to answer your question, but I’m gonna I’m gonna just just try to give a broader lens to it. We’re we’re the economy can be gangbusters, and we’re running downside cases. We’re you know, every deal, every investment we’ve made in our history has a recession case in it. Every deal in our history has a liquidation case in it.

So we’re extremely downside focused, and it’s a hallmark of our underwriting process. In addition to that, as you know, we’re buying businesses. We’re investing businesses, excuse me, that are not that cyclical. You know, that’s we’re we’re you know, that is also a hallmark of our investment process. Software, insurance brokerage, health care, food and beverage, you know, you know, mostly US businesses, mostly stable, mostly annuity like revenue streams.

That’s what we like to invest in. I’ll also repeat what we said on this in in our prepared remarks. We’re not seeing any economic weakness in our portfolio companies. Now we are not a forward indicator of The US economy because we’re selecting into most stable parts of of The US economy. So we wouldn’t see it, but we’re not.

If you’re if if if what you’re asking me is, are we especially concerned about an economic slowdown in our underwriting process? I think the answer is yes. We are. I mean, we, you know, we’re we follow economic developments as closely as as as I think most investors would, And there have been seismic changes to, US trade regulations that that many feel are going to potentially impact, the economy later this year. And so, of course, we’re taking, you know, a a a serious look at that and factoring that into our base case rather than our downside case.

So I think that that’s just sort of responsible in lending in this kind of environment, and we are a downside in orientation. So we’re taking that into account, and that’s probably our expectation. It’s not gonna change the kinds of investments we’re making because we were already selected out of the type of investments that would be most impacted by that type of a downturn. But it’s certainly on the margin makes you that much more cautious about how much leverage you put on a business that even though it’s not cyclical, like every business is impacted if there’s a recession and even very stable ones. So we’re certainly factoring that in, and it’s we insist that, that introduces a level of caution as we look to deploy additional capital.

Casey Alexander, Analyst, Compass Point: Got it. Got it. Thank you for that. Now one more if I can. I mean, now the combined the businesses have been combined, the asset base is bigger.

You’ve got a little bit more room arguably now under your non qualified bucket or any of these other diversified lending strategies that you follow between Wingspire, etcetera. I mean, any incremental and I think I asked you about this last quarter, but any incremental thoughts on like now that they’re combined bigger balance sheet, how much of that non pure traditional first lien? I’m not saying it’s high risk or anything, right? But those differentiated strategies you want within this vehicle.

Craig Packer, Chief Executive Officer, Blue Owl Capital Corporation: So as you’re alluding to, at OPDC, previously, we had fairly meaningful investments in a number of essentially portfolios of assets. We have an asset based lending business. We have a loan joint venture. Our aircraft and railcar equipment finance, give or take, those are measured in the low double digits of the asset pool. OPDE had much less.

And so we would certainly look to true up the combined portfolio and essentially get a portion of incremental exposure by just getting the combined asset base to where OBDC was previously. These have been really good investments. Again, they’re the underlying pools of of of assets within each of these investments are diversified pools, diversified pools of loans, typically. We have a life insurance settlements business, a drug royalty business. There are diversified underlying pools that have delivered depending upon the structure, low to middle low to mid teens ROE.

So they’re accretive to LVDC. We think they’re, know, risk risk appropriate. And over time, we’d like to continue to grow our exposure to the existing ones. And if we could find one or two additional strategies to invest in, we would do that as well. Again, today, it’s combined low double digits.

We’re going to be patient as we grow this. But over the next couple of years, if we could take that number up to 15% versus 12%, I think that would be very valuable for shareholders. And we’re working with experienced teams that have good deal flow, chunky opportunities, and we’ll look to support them and find good investments through that venue.

: Our

Operator: next question comes from the line of Casey Alexander with Compass Point. Please proceed with your questions. Mr. Alexander, please go ahead with your questions.

Casey Alexander, Analyst, Compass Point: Yes. I just wanted to follow-up real quick. I just want to make sure that the variable dividend structure is going to be toggling off of adjusted earnings and not the GAAP number.

Jonathan Lamb, Chief Financial Officer, Blue Owl Capital Corporation: Casey, that is correct. It’s off of adjusted.

Casey Alexander, Analyst, Compass Point: Okay. Great. Thank you.

Operator: The next question comes from the line of Sean Paul Adams with B. Riley Securities. I

Sean Paul Adams, Analyst, B. Riley Securities: think you already touched on part of this question earlier in the call. But now that the OBD merger has closed, what kind of specific operational efficiencies besides just the refis are you guys tracking? I believe earlier in the quarter, you had mentioned expecting maybe 50 bps to 75 of ROE uplift from portfolio optimization. How far along are you in realizing those gains? And when would we see the full benefit to OBDC?

Logan Nicholson, President, Blue Owl Capital Corporation: Sure. Maybe I’ll start and and pass to Jonathan because there’s there’s two fronts that we highlighted at the time of the merger. First was, I call it market dependent and investment related ROE optimization efforts. Some some of those are exactly what Craig was just talking about is continuing to deploy to accretive JVs and strategic equity opportunities like our platforms, Wingspire, as one example. And OBD E was underweight some of those opportunities.

And so, getting that back up as part of the combined portfolio would be top of that list, and that certainly takes time to deploy into the assets at that level, but it’s something that we’re already working on. Additionally, there are others where OBD E was a slightly different portfolio mix, and part of that’s market opportunity set dependent. Today, we see the best relative value as mentioned during the call in first liens and unitranche, but we are open if return opportunity and the relative value opportunity improves to looking at second liens or junior capital where OBD E was also underweight. So some of them are more market dependent. JVs is more time dependent, and we’re working on those now.

And then there are cost structure sides, which I’ll let Jonathan touch on.

Jonathan Lamb, Chief Financial Officer, Blue Owl Capital Corporation: Yes. So look, on the operating expenses, you get to see those sort of pull through rather quickly. And so in Q1, we were able to already see approximately 10 basis points of what I’ll call synergies on a relative basis to where OpEx was across a number of categories in 2024.

Casey Alexander, Analyst, Compass Point: Got it. I appreciate the color. Thank you.

Operator: Thank you. Our next questions are from the line of Finian O’Shea with Wells Fargo. Please proceed with your questions.

Mike Mestizio, Head of BDC Investor Relations, Blue Owl Capital Corporation0: Hey, everyone. Good morning. So I might be piggybacking on Robert’s question here, but I want to go back to spread as well. Appreciating the contemporary puts and takes. Longer term, you and your large market peers have these burgeoning wealth products and you’re going more and more upmarket in deployment.

So do you think there’s more of a firmly secular trend downward on spread? And if so, will the public BDC continue to stay on that bus or pivot more meaningfully toward higher spread? I think you mentioned ABF or just other sort of old school private credit strategies.

Craig Packer, Chief Executive Officer, Blue Owl Capital Corporation: Sure. Let me try to take a stab at that. Look, just for a a level set, the spread in our portfolio today is, at the end of this quarter, was five ninety over. I think it’s an excellent spread. Even with base rates where they are, that’s a that’s an absolute return of north of 10% for portfolio, primarily first lien assets to good companies.

So spreads have come in. I don’t think it’s a secular shift. I think it’s a cyclical shift. The strength in the broadly syndicated loan market, which is a market that we do compete with, drove spreads down last year in an environment with light M and A, give us a window where either there’s more M and A or a closed public loan market, and I think spreads will will widen. So I I I view it as just a typical cycle, not a secular shift.

You’re right that there’s been a growth in the non traded BDCs in the wealth channel. That’s a channel that we participate You know? But at the same time, the addressable market for those deals deals have expanded in pace. You know? The growth in that channel is what’s allowing us to finance deals that are $3.04, $5,000,000,000 at a clip.

And so the market is growing as the capital is growing to support that market. And the private equity firms are choosing to use direct lending solutions to finance bigger deals in a way they never have before because they like the solution, and we get a premium to the public markets. So that all feels good to me. I also think that the larger deals are just really good credits. And I think that this is an area that that that observers just don’t fully give us credit for.

And we’re financing deals that are 3 or $45,000,000,000. These are $810,000,000,000 companies with $4,000,000,000 equity checks from private equity firms. Industry is just much higher quality than it was ten years ago, and I think it’s one of the reasons why I expect it will continue to perform from a credit standpoint. In terms of our strategy for OBDC, our strategy is gonna remain the same. You know, we have been, from the beginning, focused on credit quality versus all else, and we continue to think that that the quality of the upper middle market company is is attractive, and that’s where we we seek to play.

And I would also offer that I think that spreads in smaller deals are the same as the upper middle market. And I know there will be others out there that will argue otherwise, but that’s not what we’re seeing. We we look at everything that’s out there, and we think it’s pretty comparable. So we think we’re getting better quality for comparable spreads. I also think that, you know, a portfolio of high quality upper middle market loans that’s diversified and it’s yielding 11% holds up really well in this environment.

I don’t think we have to change our strategy. I think our strategy is delivering great returns for investors. And so I think that’s all working. We we, as you as as you know and as many know, at Bilal, we have expanded our credit platform. We have gotten into alternative credit or asset based lending that which some will use that term.

That’s a capability that we didn’t have in scale before. That may produce opportunities for us to occasionally put some of those assets into the BDC if we think that they’re of of proper credit quality and deliver kind of the consistent income that that we’re known for. But that’s really on the margin. We’re not looking to change our strategy. And I think that that this will continue to be attractive risk adjusted return for investors.

Mike Mestizio, Head of BDC Investor Relations, Blue Owl Capital Corporation0: Very good. And just a follow-up, John. You mentioned spillover support in the evolving base rate environment. Does that mean you’ll say if base rates go more firmly against us here, that you’ll run that down and earn below the dividend until that’s through? Or what will your posture be, I guess, when if and when SOFR pushes earnings below the dividend?

Jonathan Lamb, Chief Financial Officer, Blue Owl Capital Corporation: Yes. Mean, look, we view spillover income as good for helping to sustain the dividend during periods of volatility. Those that was what I had indicated on in my prepared remarks. We’re not I’m not at all saying that we would use the spillover and run it down if we were permanently impaired in terms of our income relative to the relative to the dividend. We’re just not at that point now.

And so we what we say is and what we’re saying is is that having the cushion of spillover income to sustain a dividend for a quarter or so during a period of volatility is what is what you use it for. But we we like that cushion and in no way are we indicating that we would run it down and utilize it in order to sustain a dividend that’s not earnable for the long term. So in a much, much lower rate environment, we’re having a different conversation.

Mike Mestizio, Head of BDC Investor Relations, Blue Owl Capital Corporation0: That’s helpful. Thanks so much.

Operator: Our next question is from the line of Maxwell Fritzsche with Truist Securities. Please proceed with your questions.

Mike Mestizio, Head of BDC Investor Relations, Blue Owl Capital Corporation1: Yes, good morning. I’m on for Mark Hughes. Can you provide any color on what you’re seeing in the pipeline in terms of mix of new versus incumbent borrowers and then maybe even types of deals you’re seeing terms, covenants, anything in particular to call out?

Logan Nicholson, President, Blue Owl Capital Corporation: Sure. It’s been remarkably consistent with prior quarters. And so to Craig’s point, we didn’t necessarily see the tick up in M and A in the late fourth or early first quarter. And so it’s been a consistent first quarter. More than half of our deal flow in the first quarter came from existing borrowers, add ons and refinancings.

And and with the majority of the cases when there was a refinancing, we were able to do additional size. And so incumbencies have been a majority source of our deal flow. Looking forward, our pipeline for the the second quarter is trending in the same direction. A bit of existing borrower transactions, more than half. And sporadic M and A, there’s been quite a few attractive deals already announced.

One deal north of $4,000,000,000 that was publicly announced just a few weeks ago. And, there are a few more, that we’re that we’re looking at in the pipeline that are quite attractive and sizable. So no change to the landscape relative to, Q1 from a pipeline perspective and still fairly attractive and up in scale.

Mike Mestizio, Head of BDC Investor Relations, Blue Owl Capital Corporation1: Understood. Thank you. And then you’d mentioned the decrease in PIC from borrowers transitioning to cash pay. Do you have any visibility in the near, maybe medium term for other borrowers to do the same?

Logan Nicholson, President, Blue Owl Capital Corporation: Sure. Exactly right. So in the first quarter, we had five names that, went from partial pick to fully cash pay. And so we do have visibility to others likely going, off their pick options. Again, some of these windows, it is at the borrower’s option.

And so sometimes it’s voluntary and sometimes it’s time based, but we do have visibility. And we expect our pick to be consistent. We, at this point, have had a number of quarters in a row back through the full year 2024, where we’ve been range bound on pick, and we’ve had now a couple of quarters of decline. So we would expect our PIK to be consistent based on our visibility so far. And also last year, we had the benefit of a number of refinancing.

So opportunistic refinancings of junior capital into delevered capital structures, into first liens or simply take outs with cash flow. And to the extent that the markets are open and active in terms of refinancings, we will continue to see that.

Mike Mestizio, Head of BDC Investor Relations, Blue Owl Capital Corporation1: Very good. Thank you.

Operator: Thank you. At this time, I will turn the floor back to management for further remarks.

Craig Packer, Chief Executive Officer, Blue Owl Capital Corporation: Right. Thanks, everyone, for joining. We’re always available. If have any follow-up questions, just reach out. Feel really good about the quarter and appreciate everyone joining the call.

Have a great day.

Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.

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