OBDC | Q3 2024

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Overview

• NII of $0.47 in-line.

• Total investment income of $406M (+1.8% Y/Y) beats by $5.46M.

Takeaways

Blue Owl Capital Corporation (OBDC) put up another strong quarter in Q3 2024, marking its seventh consecutive quarter of double-digit returns on equity (ROE). This time, the company achieved an impressive 12.4% ROE, which management attributes to a resilient portfolio and strong credit fundamentals.

On the call, CEO Craig Packer emphasized the importance of Blue Owl’s adaptable dividend framework in delivering consistent value to shareholders. Over the past two years, the company has returned $0.47 per share in supplemental dividends, a sweet complement to its base dividend, which is currently covered at 127%.

This high coverage rate not only underscores Blue Owl’s financial stability but also gives the company flexibility as the economic landscape evolves. With inflation cooling, interest rates are expected to decline, which could reduce OBDC’s earnings but should also lower interest expenses for its portfolio companies—a tradeoff management is well-prepared to navigate.

Overall, the quarter ended with a net asset value (NAV) of $15.28 per share, just below its historical highs, even with minor credit-related markdowns. Meanwhile, net investment income (NII) came in at $0.47 per share, down just a little bit from the prior quarter but still more than enough to cover the declared $0.05 supplemental dividend and $0.37 base dividend for Q4.

The company’s credit portfolio continues to stand out for its quality and diversification. Non-accrual rates remain well below industry averages, and first-lien and unitranche loans now make up 76% of the portfolio, up from 69% a year ago.

President Logan Nicholson mentioned the addition of 11 new investments during the quarter, including a $1.5 billion commitment to Audiotonix, while also expanding allocations to existing high-quality borrowers.

Diversification is a clear priority for the company, with the average investment representing less than 0.5% of the total portfolio and the weighted average borrower EBITDA at $197 million. With that, interest coverage for their portfolio companies improved to 1.7x this quarter and is expected to climb further as rates decline.

Moving on, Blue Owl’s size and scale are key competitive advantages for the company. Two-thirds of the quarter’s originations came from existing borrowers, which speaks to the trust private equity sponsors place in the company.

Even in a quiet M&A market, Blue Owl maintained strong deal flow by taking advantage of its broad origination platform and deep borrower relationships. Recent acquisitions, such as Atalaya Capital Management and IPI Partners, help to expand the company’s reach into alternative credit and data center financing, which hopefully will open the door to more opportunities.

Moving forward, management feels good about the potential for increased deal activity as rates decline and companies feel more confident in pursuing growth initiatives. The merger with OBDE, expected to close in January 2025, is set to enhance Blue Owl’s scale, improve NAV accretion, and streamline operations, all while positioning the company for a lower-rate environment.

Overall, Blue Owl is operating from a position of strength. With a resilient portfolio, disciplined management, and strong shareholder returns, the company has all the ingredients to deliver value in the quarters to come.

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