KBRA assigns a rating of BBB+ to Blue Owl Capital Corporation's (NYSE: OBDC or "the company") $400 million, 5.95% senior unsecured notes due 2029. The Outlook for the rating is Stable. The company intends to use proceeds to pay down secured debt.

Key Credit Considerations

The rating is supported by OBDC's ties to the $128.4 billion Blue Owl Credit platform that maintains a strong reputation and leadership position in the $1.7 trillion private credit market. OBDC's experienced management team that has decades of experience working in the private markets has built a high credit quality direct lending platform to finance mainly sponsor-backed portfolio companies in the upper middle market. Management has implemented a comparatively favorable and comprehensive set of risk management tools to ensure solid liquidity, funding, and asset quality in less favorable markets. The company benefits from SEC exemptive relief to co-invest with other funds managed by Blue Owl Credit Advisors LLC (the "Adviser") and its affiliates, as well as the company's diversified $13.4 billion investment to 219 portfolio companies with a focus on senior secured first lien loans (75.9%) to mostly upper middle market companies in mainly less cyclical industries as of September 30, 2024. For traditional financing (90.1%), excluding the company's joint ventures and certain investments that fall outside the typical borrower profile, the weighted average annual EBITDA and revenue were $197 million and $875 million, respectively.

The rating also reflects the company's solid access to debt capital markets along with its comparatively stronger funding profile among KBRA rated BDCs. The already diverse funding profiles of OBDC and other Blue Owl BDCs have been further enhanced in recent periods. Funding sources include significant committed bank lines of credit, CLOs, and cost effective access to the senior unsecured note market. The funding structure provides significant financial flexibility and lower asset encumbrance with an unsecured debt to total debt ratio of 55.8%. The company has comfortable liquidity with $1.3 billion of available credit lines and ~$427 million of unrestricted cash set against $1.525 billion of debt maturing within the next two years. The company's unfunded commitments were $1.6 billion, of which a portion is tied to covenants and transactions and are not expected to be drawn. The company's gross and net leverage were 1.31x and 1.23x, respectively, at 3Q24 and at the upper range of the company's net leverage target of 0.9x to 1.25x. KBRA views the company's asset coverage of 176% as adequate, allowing OBDC to absorb increased market volatility and a solid cushion to regulatory minimum of 150% as of September 30, 2024. Credit quality remains relatively solid with non-accruals as a percentage of total investments at cost and fair value of 1.8% and 0.6%. respectively, as of September 30, 2024. KBRA believes that OBDC benefits from the company’s solid underwriting and focus on portfolio companies in the upper middle market with EBITDA in excess of $100 million.

In August, the company announced that it has entered into a definitive merger agreement with Blue Owl Capital Corporation III (NYSE: OBDE) with OBDC as the surviving entity. Pending shareholder approval, the merger is expected to close in 1Q25 and will add ~$4.4 billion to investments for a total of approximately $17.7 billion, making it the 2nd largest publicly traded BDC. With ~93% of OBDE's assets overlapping with OBDC and with low non-accruals and appropriate leverage, KBRA does not expect any significant change in credit metrics of the merged companies.

OBDC’s profitability has benefited from the rising interest rate environment with an asset sensitive balance sheet with the majority of its investments variable rate loans. Going forward, net investment income (NII) will likely be pressured from the Federal Reserve's path to cut interest rates along with competitive pressures. We expect NII and margins to decline from currently high levels but remain within our rating expectations.

The strengths are counterbalanced by the potential industrywide risks related to the company's illiquid investments, an unseasoned investment portfolio with high portfolio growth, retained earnings constraints as a Regulated Investment Company (RIC), and the potential for increased non-accruals with a more uncertain economic environment with high base rates, inflation, and geopolitical risk. KBRA believes that OBDC and other Blue Owl BDCs will remain comparatively resilient.

Blue Owl Capital Corporation is an externally managed, non-diversified closed-end management investment company that has elected to be treated as a Business Development Company under the 1940 Act and has elected to be treated as a RIC, which, among other things, must distribute to its shareholders at least 90% of the company’s taxable income. The company commenced operations in March 2016 and was publicly listed on the NYSE in July 2019. The company is managed by Blue Owl Credit Advisors LLC, an indirect subsidiary of Blue Owl Capital, Inc. (NYSE: OWL), which had approximately $235 billion of assets under management as of September 30, 2024.

Rating Sensitivities

Ratings are unlikely to be upgraded in the medium term. A rating downgrade and/or Outlook change to Negative could be considered if there is a significant downturn in the U.S. economy with a greater-than-expected negative impact to OBDC's earnings performance, asset quality, and leverage. A significant change in senior management and/or risk management policies could also lead to negative rating action.

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Methodologies

• Financial Institutions: Finance Company Global Rating Methodology
• ESG Global Rating Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

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