Release Date: November 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Blue Owl Capital Corp (OBDC, Financial) achieved a strong return on equity (ROE) of 12.4% for the third quarter, marking the seventh consecutive quarter of double-digit ROE.
- The company maintained a low non-accrual rate, well below the industry average, indicating strong credit quality within its portfolio.
- OBDC's net asset value per share remained near historical highs at $15.28, reflecting the resilience of its portfolio.
- The company successfully implemented a variable supplemental dividend framework, resulting in a total of 47¢ of supplemental dividends per share over two years.
- OBDC's portfolio is highly diversified, with first lien investments growing to 76% of the portfolio, enhancing risk-adjusted returns.
Negative Points
- The interest rate environment poses potential challenges, with expectations of rate cuts that could impact earnings.
- M&A activity remains subdued, which could limit new investment opportunities and affect deal flow.
- The weighted average interest rate on new commitments dropped, reflecting tighter spreads and lower base rates.
- Credit-related markdowns on select investments impacted the net asset value per share.
- The company's dividend income and fee income showed variability, which could affect predictability in earnings.
Q & A Highlights
Q: Can you provide insights on the current yields and spreads for new deals, and how do you see them evolving?
A: Craig Packer, President and CEO, explained that spreads on new deals are currently around 475 basis points, with some as low as 450. He believes spreads have reached a cyclical trough and expects them to widen as M&A activity picks up. Private credit markets continue to offer higher returns compared to public markets, with a significant premium over public market spreads.
Q: How does Blue Owl's expansion into alternative credit and infrastructure impact lending opportunities across your BDCs?
A: Craig Packer noted that Blue Owl's strategic acquisitions, including in alternative credit and data centers, enhance their direct lending platform. While the BDCs will maintain their focus on upper middle market sponsor-backed lending, the expanded platform will provide new avenues for deal flow and opportunities to invest in high-quality assets.
Q: What is the expected cadence of dividend and fee income in the coming quarters?
A: Logan Nicholson, Managing Director & Portfolio Manager, indicated that dividend income can vary based on underlying asset performance and is not contractually defined. Fee income related to repayments was lower this quarter compared to the second quarter. The expectation is for dividend income to remain in a similar range, while prepayment income will depend on quarter-end activity.
Q: Can you discuss the nonsponsored market and its significance within your portfolio?
A: Craig Packer stated that while Blue Owl does engage in nonsponsor deals, they generally prefer sponsor-backed companies due to the additional capital and governance resources sponsors provide. Nonsponsor deals are pursued selectively, focusing on attractive companies with strong ownership and management teams.
Q: How should we view the unsecured debt composition post-merger and with upcoming maturities?
A: Logan Nicholson explained that the unsecured debt composition is expected to remain around 50% post-merger. While they plan to refinance upcoming maturities, they also see opportunities to reprice secured financing structures to lower costs, balancing the mix between secured and unsecured debt.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
