Q2 2024 Blue Owl Capital Corp Earnings Call

August 8, 2024

Good morning, everyone and welcome to Blue L capital corporations second quarter, 'twenty 'twenty four earnings call.

Minder this call is being recorded.

Unknown Executive: At this time, I'd like to turn the call over to Mike Mastecchio, Head of BDC Investor Relations at OBDC. Thank you.

At this time I'd like to turn the call over to Mike Mustachio head of BDC Investor Relations for Ob D. C. Thank you.

Operator: Next time, I'd like to turn the call over to Mike Mastecchio, Head of BDC Investor Relations for OBDC. Thank you.

Mike Mastecchio: Thanks, operator. And good morning to everyone joining us.

Speaker Change: 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.

Speaker Change: Actual results may differ materially from those in forward looking statements as a result of a number of factors, including those described in <unk> filings with the SEC. The company assumes no obligation to update any forward looking statements.

Mike Mastecchio: 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. However, the company assumes no obligation to update any forward-looking statements.

Mike Mastecchio: 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.

Speaker Change: 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 warranties with respect to this information yes.

Mike Mastecchio: Yesterday, Blue Owl Capital Corporation issued its earnings release and posted an earnings presentation for the second quarter ended June 30, 2024. These should be reviewed in conjunction with the company's 10-Q 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 the satisfaction of customary closing conditions, including shareholder approval.

Speaker Change: Yesterday <unk> Capital Corporation issued its earnings release and posted an earnings presentation for the second quarter ended June 30th 2024.

Speaker Change: He should be reviewed in conjunction with the company's 10-Q filed yesterday with the SEC.

Speaker Change: In addition, the company issued a press release announcing that Obi D. C has entered into a merger agreement, but through our capital Corporation, three or Ob D. E. R affiliate BDC also traded on the New York Stock Exchange.

Speaker Change: The merger is subject to satisfaction of customary closing conditions, including shareholder approval.

Speaker Change: We have also posted an investor presentation with additional details about this transaction.

Mike Mastecchio: All materials referenced on today's call, including the earnings press release, earnings presentation, 10-Q, 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.

Mike Mastecchio: 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, 10-Q, 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.

Speaker Change: All materials reference on today's call, including the earnings press release earnings presentation, 10-Q, and merger presentation are available on the investors section of the company's website at.

Mike Mastecchio: Our capital Corporation Dot com with that I'll turn the call over to Craig Packer, Chief Executive Officer of Ob D C.

Craig Packer: Thanks, Mike. Good morning, everyone, and thank you all for joining us today.

Craig Packer: Thanks, Mike Good morning, everyone and thank you all for joining us today.

Craig Packer: 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 Mosvichio, who you just heard from, has recently joined our team to serve as head of BBC Investor Relations.

Craig Packer: On behalf of our full team we're pleased to be sharing not just another quarter of strong results for O P. D C.

Speaker Change: But also a milestone merger agreement between <unk> and <unk> that we believe will provide long term strategic value to both sets of shareholders.

Craig Packer: He joined us last month and 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 leveraged finance space.

Speaker Change: Before we jump in I want to highlight some new voices on this call. My most CTO, who you just heard from has recently joined our team to serve as head of PVC Investor Relations. He joined US last month brings nearly 10 years of BDC Investor Relations experience.

Speaker Change: And we are very happy to have him on the team.

Speaker Change: Additionally, you'll hear later in the call from Bogan Nicholson, who is the portfolio manager for both Ob D C and OBE.

Craig Packer: and was recently named president of 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. But to start, OBDC delivered another strong quarter with 48 cents of net investment income per share, up one penny from last quarter. The net asset value ended the quarter at $15.36 per share, and we once again delivered a very strong annualized ROE of 12.6%.

Speaker Change: It was recently named President of Ob D C.

Speaker Change: <unk> joined US a year ago and brings two decades of experience in the leveraged finance space.

Speaker Change: As always I'm also joined by Jonathan Lamb, Chief Financial Officer, and Chief operating officer for obesity.

Craig Packer: For today's call I will start with a brief overview.

Craig Packer: As always, I'm also joined by Jonathan Lamm, Chief Financial Officer and Chief Operating Officer of OBD. 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.

Craig Packer: <unk> quarterly results and then share some thoughts on why we believe the merger with obesity E as an attractive opportunity in the current environment.

Craig Packer: Jonathan will then walk through the logistics of the merger proposal and provide more detail on <unk> quarterly earnings.

Craig Packer: After Logan discusses our portfolio performance I will close with some market commentary and concluding remarks.

Craig Packer: So to start, OBDC delivered another strong quarter with 48 cents 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%. Additionally, our shareholders will receive $0.43 in total dividends for the quarter, reflecting our regular dividend of $0.37 and the supplemental dividend of $0.06 as declared by our board.

Craig Packer: So to start <unk> delivered another strong quarter with 48 of net investment income per share up one penny from last quarter.

Craig Packer: Asset value ended the quarter at $15.36 per share and we once again delivered a very strong annualized ROE of 12, 6%.

Craig Packer: Further our shareholders will receive 43 total dividends for the quarter.

Speaker Change: <unk>, our regular dividend of 37 and.

Craig Packer: In the supplemental dividend of <unk> as declared by our board.

Craig Packer: We're pleased to continue to deliver an attractive dividend yield, which this quarter was over 11%. As Jonathan will elaborate on later, this transaction has also been thoughtfully structured to allow for the best mutual outcome whatever the market environment. OBDE was launched in 2020 and today has a $4.3 billion portfolio comprised of investments across 207 portfolio companies, and we have been co-investing in both funds since OBDE's inception. As a result, approximately 90% of the investments in OBDE are also in OBDC.

Craig Packer: We're 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 and 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.

Craig Packer: We're pleased to continue to deliver an attractive dividend yield, which this quarter was over 11%.

Jonathan: This is our sixth consecutive quarter of double digit ROE and dividend yield which reflects the benefit of the current interest rate environment, our attractive asset base and the resilient credit quality of our portfolio.

Jonathan: We have long believed that it would make sense to streamline our BDC platform under the right conditions and now it's the right moment to do that.

Craig Packer: 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.

Jonathan: Both Ob D C and <unk> E have generated near record returns over the last year and they have demonstrated the quality of their portfolios.

Jonathan: The public BDC market environment has been solid with BDC equity is trading at a valuation premium to historical averages and as an asset class private credit has performed exceptionally well over the past few years.

Jonathan: We believe all of these elements combine to create the right alignment to deliver on our vision.

Jonathan: 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.

Craig Packer: 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.

Craig Packer: Jonathan will elaborate on later this transaction has also been thoughtfully structured to allow for the best mutual outcome whenever the market environment.

Speaker Change: To our shareholders. If you have not spent time evaluating the <unk> portfolio, you will see it as extremely sell more Tobey G Sis portfolio.

Craig Packer: 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.

Jonathan: <unk> was launched in 2020 and today has a $4 $3 billion portfolio comprised of investments across 207 portfolio companies.

Jonathan: Both <unk> and <unk> E employ the same investment strategy.

Jonathan: And we have been co investing into both funds since <unk> inception.

Jonathan: As a result, approximately 90% of the investments in <unk> are also and it'll be D C.

Craig Packer: 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.

Jonathan: We believe this overlap makes this a logical and low risk transaction for both sets of shareholders.

Craig Packer: By combining our two publicly traded BDCs, we plan to streamline our direct lending platform and enhance our scale with a high-quality, diversified portfolio that offers significant investment overlap. 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. 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.

Jonathan: By combining our two publicly traded Bdcs, we plan to streamline our direct lending platform.

Craig Packer: Hence our scale with a high quality diversified portfolio that offer significant investment overlap.

Craig Packer: Improve our trading liquidity profile for current and prospective shareholders.

Craig Packer: Increase our access to lower cost sources of debt and finally drive operational efficiencies and cost savings.

Craig Packer: 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, and would also establish our position as the second largest publicly traded BDC by total assets, while achieving while achieving NII accretion over. 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 Upon completion of the merger, the average position size in our portfolio will be less than 40 bases.

Craig Packer: We expect that the proposed merger with <unk> will add approximately $4 $3 billion of investments <unk> portfolio.

Craig Packer: Bringing total investments to approximately $17 7 billion.

Craig Packer: It would also establish our position as the second largest publicly traded BDC by total assets, while achieving a while achieving NII accretion over time.

Craig Packer: We believe shareholders will benefit from the increased scale of the combined company in multiple ways.

Craig Packer: First the merger would provide further diversification in our combined portfolio.

Craig Packer: Upon completion of the merger, the average position size in our portfolio will be less than 40 bases. Diversification has always been critical for risk mitigation, reducing reliance on the success of any one investment, and this merger strengthens that effort. 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 risks. Third, we expect the larger market capitalization of the combined company will improve OBDC's trading liquidity. A larger shareholder base and increased trading volumes should provide enhanced liquidity and flexibility for both existing and new investors. Both OBDC and OBDE are investment grade rated.

Craig Packer: Upon completion of the merger the average position size in our portfolio will be less than 40 basis points.

Craig Packer: 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. However, often, adding this much incremental scale comes with increased risk.

Craig Packer: Diversification has always been critical for risk mitigation, reducing reliance on the success of any one investment and this merger strengthens that effort.

Craig Packer: Second we will maintain excellent credit quality in the combined portfolio.

Speaker Change: Often adding this much incremental scale comes with increased risk.

Jonathan Lamm: 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 risks. Third, we expect the larger market capitalization of the combined company will improve OBDC's trading liquidity; larger BDCs historically have had higher average daily trading volume. A larger shareholder base and increased trading volumes should provide enhanced liquidity and flexibility for both existing and new investors.

Craig Packer: Wherever this merger allows us to combine with a high quality diversified portfolio and it's been managed by Blue all since inception, which we believe will meaningfully mitigate potential risk.

Craig Packer: Third we expect a larger market capitalization of the combined company will improve <unk> trading liquidity.

Craig Packer: Larger bdcs historically have had higher average daily trading volumes.

Craig Packer: Larger shareholder base and increased trading volumes should provide enhanced liquidity and flexibility for both existing and new investors.

Craig Packer: Fourth the combined company is expected to have more diverse and efficient access to capital <unk>.

Jonathan Lamm: Fourth, the combined company is expected to have more diverse and efficient access to capital, including the potential to access debt financing at more favorable terms. Both OBDC and OBDE are investment grade rated, and OBDC, as the more 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.

Craig Packer: Including potential to access debt financings at more favorable terms.

Craig Packer: Both Ob the C. <unk> are investment grade rated.

Speaker Change: And obesity.

Speaker Change: Sure two bdcs received a ratings upgrade in the first quarter of 2024.

Craig Packer: We expect the increased scale of the combined company to enable better access to a wider array of debt funding solutions.

Craig Packer: Potentially lower borrowing costs.

Craig Packer: As I mentioned before we expect the transaction to be accretive to net investment income over time.

Jonathan Lamm: 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. Additionally, over the long term, NII should benefit further from incremental yield as we optimize the portfolio mix and generate cost savings from capital structure improvement. With that, I'll turn the call over to Jonathan, who will offer more detail on the mechanics of the proposed merger and our second quarter results.

Speaker Change: Driven by operational savings through the elimination of throughput to poke could've as expenses, which we estimate could be in excess of $5 million in year one.

Craig Packer: 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.

Craig Packer: 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.

Craig Packer: Thank you Craig.

Jonathan Lamm: I'd like to spend a minute describing the proposed merger consideration. The transaction is structured as a stock for stock merger with each OBDE shareholder receiving a certain number of OBDC shares to be determined just prior to closing. At a high level, a merger is structured to allow for both sets of shareholders to benefit. That allows for NAV per share accretion at OBDC and for OBDE to be valued at a potential premium should shares of OBDC be trading above NAV per share at close.

Craig Packer: I'd like to spend a minute describing the proposed merger consideration, at a high level, and for OBDE to be valued at a potential premium should shares of OBDC be trading above NAV per share at close. These scenarios show how various trading levels will potentially impact shareholders of both sides, which will be struck on a NAV for NAV basis if OBDC is trading at or below NAV per share. If OBDC is trading at a premium to its NAF per share, immediately prior to closing, that premium will be shared between the shareholders of both. The combined company will continue to operate as Blue Owl Capital Corporation and trade on the New York Stock Exchange under the ticker OBDC.

Craig Packer: I'd like to spend a minute describing the proposed merger consideration.

Craig Packer: Transaction is structured as a stock for stock merger, which each OBE shareholder receiving a certain number of Ob D. C shares to be determined just prior to closing.

Craig Packer: At a high level the merger is structured to allow for both sets of shareholders to benefit.

Craig Packer: It allows for NAV per share accretion and Ob D C.

Craig Packer: And for Ob D E to be valued at a potential premium shares of Ob D C be trading above NAV per share at close.

Jonathan Lamm: On page six of our investor deck discussing the merger, we have included three potential scenarios using June 30, 2024 NAV per share as a proxy for the NAV per share Eclude. These scenarios show how various trading levels will potentially impact shareholders of both sides.

Craig Packer: On page six of our Investor deck discussing the merger. We have included three potential scenarios using June 32024, NAV per share as a proxy for the NAV per share at close.

Craig Packer: These scenarios show, how various trading levels will potentially impact shareholders of both sides.

Craig Packer: The exchange ratio will be determined by a formula.

Jonathan Lamm: The exchange ratio will be determined by a formula, which will be struck on a NAV for NAV basis if OBDC is trading at or below NAV per share. If OBDC is trading at a premium to its NAF per share, immediately prior to closing, that premium will be shared between the shareholders of both. The combined company will continue to operate as Blue Owl Capital Corporation and trade on the New York Stock Exchange under the ticker OBDC.

Craig Packer: Which will be struck on a NAV for NAV basis, if a BDC is trading at or below NAV per share.

Craig Packer: If a BDC is trading at a premium to NAV per share immediately prior to closing that premium will be shared between the shareholders of both sides.

Craig Packer: The combined company will continue to operate as Blue Our capital Corporation and trade on the New York Stock exchange under the ticker <unk> B D C.

Jonathan Lamm: Subject to board approval prior to closing, OBDC intends to continue to declare and pay ordinary course regular and supplemental dividends. Post close, the combined OBDC intends to continue to deliver a regular dividend yield of approximately nine and a half percent consistent with today's level, and to continue to pay a variable supplemental dividend equal to 50% of the spillover income earned in a given quarter. As a sign of support for Blue Owl, OBDC and OBDE will be reimbursed for fees and expenses associated with the proposed merger up to a cap of $4.25 million in total, which will be paid for by OBDC's advisor if the proposed merger is constructed.

Craig Packer: Subject to board approval prior to closing Ob D. C intends to continue to declare and pay ordinary course regular in supplemental dividends.

Craig Packer: Post close the combined BDC intends to continue to deliver a regular dividend yield of approximately nine 5%.

Craig Packer: System with today's levels and to continue to pay a variable supplemental dividend equal to 50% of the spillover income earned in a given quarter.

Craig Packer: As a sign of support for Blue Owl, OBDC and OBDE will be reimbursed for fees and expenses associated with the proposed merger up to a cap of $4.25 million in total, which will be paid for by OBDC's advisor if the proposed merger is constructed. OBDC's existing $150 million per share share repurchase program announced in May will also remain. Finally, we are expecting to close the transaction in the first quarter of 20

Craig Packer: As a sign of support for Blue Al Obeidi C. N O B D E will be reimbursed for fees and expenses associated with the proposed merger up to a cap of four point to 5 million in total which will be paid for by O. Bdc's adviser if the proposed merger is consummated.

Craig Packer: Oh, Bdcs existing 150 million dollar per share share repurchase program announced in May will also remain in place.

Jonathan Lamm: OBDC's existing $150 million per share share repurchase program announced in May will also remain. Finally, we are expecting to close the transaction in the first quarter of 2025, subject to customary closing conditions, including shareholder. Turning to OB-GYN's quarterly performance,

Craig Packer: Finally, we are expecting to close the transaction in the first quarter of 2025.

Craig Packer: Subject to customary closing conditions, including shareholder approval.

Speaker Change: Turning to the <unk> quarterly performance, we ended the second quarter with total portfolio investments of $13 3 billion outstanding debt of $7 $5 billion in total net assets of $6 billion.

Jonathan Lamm: We ended the second quarter with total portfolio investments of $13.3 billion, outstanding debt of $7.5 billion, and total net assets of $6 billion. Our NAV per share was $15.36, up 10 cents year over year. Similar to prior quarters, we meaningfully over-earned our dividend, resulting in a $0.06 supplemental dividend for the quarter and a $0.06 benefit to net. However, this benefit was more than offset by credit-related markdowns on two investments, resulting in a NAV decline of nine cents for the court. On terms of deployment, we had 3.3 billion of originations offset by 1.1 billion of repayment.

Craig Packer: Our NAV per share was $15 36 up 10 cents year over year.

Jonathan Lamm: Our NAF per share was $15.36. As you'll recall, we had some timing mismatch last quarter, which saw our leverage decline to 1.04 times. However, we fully reversed that impact, and leverage is now at 1.2 times, near the high end of our target range of 0.9 to 1.25. As Craig mentioned, we earned NII of $0.48 per share, up $0.01 from the first quarter, driven by higher net leverage and solid repayment-related OBDC also continues to prioritize a flexible, balance-sheet, and well-diversified financing structure.

Craig Packer: Similar to prior quarters, we meaningfully over earned our dividend, resulting in a six cents supplemental dividends for the quarter and a 6% benefit to know however.

Speaker Change: However, this benefit was more than offset by credit related markdowns on two investments, resulting in announced decline of nine cents for the quarter.

Craig Packer: In terms of deployment, we had $3 3 billion of originations offset by $1 1 billion of repayments.

Jonathan Lamm: As you'll recall, we had some timing mismatch last quarter, which saw our leverage decline to 1.04 times. However, we fully reversed that impact, and leverage is now at 1.2 times, near the high end of our target range of 0.9 to 1.25. Turning to the income statement, as Craig mentioned, we earned NII of $0.48 per share, up $0.01 from the first quarter, driven by higher net leverage and solid repayment-related OBDC also continues to prioritize a flexible balance sheet and well-diversified financing structure.

Jonathan Lamm: As Youll recall, we had some timing mismatch last quarter, which saw our leverage declined to 1.4 times. However, we fully reverse that impact on Leverages now at 1.2 times near the high end of our target range of 0.9 to 1.25 times.

Craig Packer: Turning to the income statement.

Jonathan Lamm: As Craig mentioned, we earned NII of <unk> 48 per share up one sent from the first quarter driven by higher net leverage and solid repayment related income.

Speaker Change: Obi D. C. Also continues to prioritize a flexible balance sheet and well diversified financing structure.

Jonathan Lamm: This quarter, we increased OBDC's corporate revolver by $150 million, adding one new lender. We remain pleased with the strength of our financing partnerships and liability structure. With that said, I'll turn it over to Logan for additional color on the portfolio.

Craig Packer: This quarter, we increased our bdc's corporate revolver by $150 million, having one new lender.

Speaker Change: We remain pleased with the strength of our financing partnerships and liability structure.

Jonathan Lamm: With that I'll turn it over to Logan for additional color on the portfolio performance.

Jonathan Lamm: Thanks, Jonathan it's great to be with you all today.

Logan Nicholson: Thanks, Jonathan. It's great to be with you all today.

Logan Nicholson: To start, as we think about a combined portfolio looking forward, I want to provide a reminder of our investment philosophy across OBDC and OBDE, which will remain consistent upon the close of the transaction. We provide direct lending solutions to US sponsor-backed upper middle market companies in primarily non-cyclical sectors with significant operating histories while emphasizing diversification by borrower and industry. We prefer the upper middle market because we believe that larger companies are more durable and better equipped to adapt to different economic conditions.

Jonathan Lamm: To start, as we think about a combined portfolio looking forward, I want to provide a reminder of our investment philosophy across OBDC and OBDE, which will remain consistent upon the close of the transaction. We provide direct lending solutions to US sponsor-backed upper middle market companies in primarily non-cyclical sectors with significant operating histories while emphasizing diversification by borrower and, I'd note that OBDC and OBDE were constructed by the same centralized team that shepherds investments from origination to exit.

Craig Packer: To start as we think about a combined portfolio looking forward I want to provide a reminder of our investment philosophy across Ob D C and Ob D E, which will remain consistent upon the close of the transaction.

Jonathan Lamm: We provide direct lending solutions to U S sponsor backed upper middle market companies, and primarily non cyclical sectors with significant operating histories, while emphasizing diversification by borrower and sector.

Jonathan Lamm: We prefer the upper middle market, because we believe that larger companies are more durable and better equipped to adapt to different economic conditions. Our borrowers have weighted average EBITDA of nearly $200 million and we believe the benefits of this scale are substantiated by our industry, leading loss ratio, which pro forma will be 13 days.

Logan Nicholson: Our borrowers have weighted average EBITDA of nearly $200 million, and we believe the benefits of this scale are substantiated by our industry-leading loss ratio, which pro forma will be 13 basis points. I'd note that OBDC and OBDE were constructed by the same centralized team that shepherds investments from origination to exit. As Craig mentioned, over 90% of OBD-E's investments overlap with those of OBD-C. The decentralized approach to portfolio construction and investment overlap should make consolidating these portfolios simple.

Jonathan Lamm: <unk> points.

Jonathan Lamm: I would note that Obi D C and Ob D E work instructed by the same centralized team.

Speaker Change: Thats Shepherd investments from origination to exit.

Jonathan Lamm: As Craig mentioned, over 90% of OBD-E's investments overlap with those of OBD-C. The decentralized approach to portfolio construction and investment overlap should make consolidating these portfolios simple. In line with our commentary in recent quarters, on average, we continue to see steady revenue and EBITDA growth across our portfolio companies. Our borrowers have successfully navigated over a year in the higher interest rate environment and have thoughtfully adapted their business models in response. Across the portfolio, our average interest coverage remains around 1.6 times, in line with last quarter and consistent with the level we have been highlighting as the expected trough coverage in today's higher rate environment. Our non-accrual rate is 1.4% of the fair value of our debt portfolio, reflecting the addition of Pluralsight this quarter, which is a small 37 basis point position.

Jonathan Lamm: As Craig mentioned over 90% of Ob deck ease investments overlap with those of Ob D C.

Jonathan Lamm: This centralized approach to portfolio construction and investment overlap should make consolidated in these portfolios simple.

Jonathan Lamm: With that I'll spend a minute on the Ob D C portfolio today.

Logan Nicholson: With that, I'll spend a minute on the OBDC portfolio today. In line with our commentary in recent quarters, on average, we continue to see steady revenue and EBITDA growth across our portfolio companies. Our borrowers have successfully navigated over a year of the higher interest rate environment and thoughtfully adapted their business models in response. Across the portfolio, our average interest coverage remains around 1.6 times, in line with last quarter and consistent with the level we have been highlighting as the expected trough coverage in today's higher rate environment.

Jonathan Lamm: In line with our commentary in recent quarters on average we continue to see steady revenue and EBITDA growth across our portfolio of companies.

Jonathan Lamm: Our borrowers have successfully navigated over a year of the higher interest rate environment and a thoughtfully adapted their business models in response.

Jonathan Lamm: Across the portfolio our average interest coverage remains around one six times in line with last quarter and consistent with the level. We have been highlighting is the expected trough coverage in today's higher rate environment.

Logan Nicholson: Our non-accrual rate is 1.4% of the fair value of our debt portfolio, reflecting the addition of Pluarsight this quarter, which is a small 37 basis point position. And finally, the subset of names on our watch list remains steady quarter over quarter, and we do not see any material pickup in amendment activity or signs of stress. Our portfolio continues to be stable and resilient, giving us confidence in our ability to deliver strong credit performance and returns for our shareholders going forward. Now, I'll hand it back to Craig to provide final thoughts for today's call.

Speaker Change: Our non accrual rate is 1.4% a fair value of our debt portfolio, reflecting the addition of pleural site this quarter, which was a small 37 basis point position.

Jonathan Lamm: And finally, the subset of names on our watch list remains steady quarter over quarter, and we do not see any material pickup in amendment activity or signs of stress.

Jonathan Lamm: Our portfolio continues to be stable and resilient, giving us confidence in our ability to deliver strong credit performance and returns for our shareholders going forward.

Jonathan Lamm: And now I'll hand, it back to Craig to provide final thoughts for today's call.

Craig Packer: Thanks Logan.

Craig Packer: I know we've already covered a lot on today's call, so I will spend just a minute on the market environment we experienced in the second quarter. Certainly, the direct lending market is feeling more competitive pressure as the public loan market remains strong and M&A financing volumes are light. We saw elevated levels of repricing and refinancing activity in the quarter, which reduced spread.

Speaker Change: I know we've already covered a lot on today's call. So I'll spend just a minute on the market environment, we experienced in the second quarter.

Jonathan Lamm: Certainly the direct lending market is showing more competitive pressure as the public loan market remains strong and M&A financing volumes are light.

Jonathan Lamm: We saw elevated levels of repricing and refinancing activity in the quarter, which reduced spreads. However, we do see signs of stabilization and spreads at their current levels. Even with tighter spreads, we are earning approximately 11% on new loans.

Jonathan Lamm: We saw elevated levels of repricing and refinancing activity in the quarter, which reduced spreads.

Operator: Good morning, everyone. 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 Masecio, 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.

Craig Packer: However, we do see signs of stabilization and growth at the current level. We continue to find attractive investment opportunities and deploy capital into large, high-quality companies. Even with tighter spreads, we're earning approximately 11% on new loans. We also continue to successfully originate new investment opportunities to offset repayments towards the higher end of our target leverage range. While new deals face some economic pressure, one area where we will not sacrifice is maintaining appropriate levels of structural protection in our documentation and capital structures.

Jonathan Lamm: However, we do see signs of stabilization in spreads at current levels, we could.

Jonathan Lamm: Continue to find attractive investment opportunities to deploy capital into large high quality companies.

Jonathan Lamm: Even with tighter spreads we are earning approximately 11% on new loans.

Operator: After 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 30, 2024. These should be reviewed in conjunction with the company's 10Q filed yesterday with the SEC.

Unknown Executive: We also continue to successfully originate new investment opportunities to offset repayments towards the higher end of our target leverage range. Overall, we are confident in how our platform is positioned today, and we expect M&A activity will eventually resume at a more normalized level, which will allow market conditions to. Having said that, we've all heard what has happened in the markets over the past few days, and I thought it might be helpful to offer some perspective.

Jonathan Lamm: Also continued to successfully originate new investment opportunities to offset repayments are towards the higher end of our target leverage range.

Unknown Executive: While new deals face some economic pressure one area, where we will not sacrifice is on maintaining appropriate levels of structural protection in our documentation and capital structures.

Craig Packer: Overall, we are confident in how our platform is positioned today, and we expect M&A activity will eventually resume at a more normalized level, which will allow market conditions. Our proven ability to provide significant capital for some of the largest financings will be a real differentiator in this environment. Having said that, we've all heard what has happened in the markets over the past few days, and I thought it might be helpful to offer some perspective.

Unknown Executive: Overall, we are confident in how our platform is positioned today and we expect M&A activity will eventually resume at a more normalized level, which will allow market conditions to use.

Unknown Executive: Our proven ability to provide significant capital for some of the largest financings will be a real differentiator in this environment.

Unknown Executive: Having said that what.

Unknown Executive: What has happened in the markets over the past few days and I thought it might be helpful to offer some perspective.

Craig Packer: BDC equities have traded very well up until recently, and that performance reflected their strong earnings and steady credit quality. Although BDCs have traded off recently, we're not seeing any signs in our portfolio to justify this price.

Unknown Executive: BDC equities have traded very well up until recently and that performance reflected BDC strong earnings and steady credit quality.

Unknown Executive: Although BDCs have traded off recently, we're not seeing any signs in our portfolio to justify this price. We provide certainty of execution to our borrowers, and the value of that certainty increases as the public markets become more volatile. It is too early to say how long this will last, but we are well positioned with the capital resources and a long-term investing time horizon to take advantage of opportunities as they arise. We believe that the proposed merger will deliver a more scaled and diversified portfolio to help navigate the dynamic operating environment ahead, while also allowing shareholders to benefit from increased efficiencies and a lower cost of financing over time. As the second largest public BDC, OBDC will continue to be a market leader.

Unknown Executive: Although bdcs have traded off recently, we're not seeing any signs in our portfolio to justify this price movement.

Mike Masecio: In addition, the company issued a press release announcing that OBDC has entered into a merger agreement with Blue Owl Capital Corporation 3, 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.

Craig Packer: To the extent investors are concerned about the economic outlook, we believe that our strategy of investing in a diversified portfolio of first lien term loans can offer a defensive opportunity in more volatile markets. For those concerned about the potential for an economic downturn, we have consistently been investing in recession-resistant businesses and sectors to buffer our investors from the inevitable economic cycle. In addition, I also want to highlight that market volatility can be helpful for us as direct lenders.

Unknown Executive: To the extent investors are concerned about the economic outlook, we believe that our strategy of investing in a diversified portfolio of first lien term loans can offer a defensive opportunity in more volatile markets.

Speaker Change: For those concerned about the potential for an economic downturn, we have consistently been investing in recession resistant businesses and sectors to buffer our investors from the inevitable economic cycles.

Mike Masecio: 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.

Unknown Executive: In addition, I also want to highlight that market volatility can be helpful for us as direct lenders, we provide certainty of execution to our borrowers and the value of that certainty increases as the public markets become more volatile.

Craig Packer: We provide certainty of execution to our borrowers, and the value of that certainty increases as the public markets become more volatile. It's too early to say how long this will last, but we are well positioned with the capital resources and a long-term investing time horizon to take advantage of opportunities as they arise. I would also like to highlight that this quarter, our manager, Blue Owl, announced acquisitions in the insurance and alternative credit space.

Unknown Executive: It is too early to say how long this lasts but we are well positioned with the capital resources long term investing time horizon to take advantage of opportunities as they arise.

Craig Packer: 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.

Craig Packer: 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.

Speaker Change: I would also like to highlight that this quarter, our manager pool, all announced acquisitions in the insurance and alternative credit spaces.

Craig Packer: While not directly related to our BDCs, we expect these acquisitions will broaden our coverage efforts as a platform and could incrementally expand the sourcing capabilities of our BDCs. Since inception, we have believed that our growing scale was a competitive advantage. This scale has allowed us to build a broad origination platform, bring together a high-quality underwriting team with deep expertise, and invest in robust portfolio management systems. All this has allowed us to deliver great returns to our shareholders.

Speaker Change: Not directly related to our Bdcs. We expect these acquisitions will broaden our coverage efforts as a platform and could incrementally expand the sourcing capabilities of our bdcs.

Speaker Change: Since inception, we believe that our growing scale with a competitive advantage. The scale has allowed us to build a broad origination platform to bring together a high quality underwriting team with deep expertise and to invest in robust portfolio management systems.

Craig Packer: Mike Mustichio, 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, and we are very happy to have him on the team.

Unknown Executive: All of this has allowed us to deliver great returns to our shareholders.

Craig Packer: Additionally, you'll hear a waiter 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 Lam, Chief Financial Officer, and Chief Operating Officer for OBDC.

Craig Packer: We believe that the proposed merger will deliver a more scaled and diversified portfolio to help navigate the dynamic operating environment ahead, while also allowing shareholders to benefit from increased efficiencies and a lower cost of financing over time. As the second largest public BDC, OBDC will continue to be a market leader. To close, I wanted to highlight that July of this year marked the fifth anniversary of OBDC's IPO, and we are very pleased with what we have accomplished since then.

Unknown Executive: We believe that the proposed merger will deliver a more scaled and diversified portfolio to help navigate the dynamic operating environment ahead, while also allowing shareholders to benefit from increased efficiencies and a lower cost of financing over time.

Unknown Executive: As the second largest public BDC <unk> will continue to be a market leader.

Unknown Executive: To close I wanted to highlight that July of this year marked the fifth anniversary since <unk> IPO.

Craig Packer: 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 48 cents of net investment income per share, up one penny from last quarter.

Speaker Change: And we are very pleased with what we've accomplished since then.

Craig Packer: Our portfolio has successfully weathered dramatically different interest rates and economic environments, and it has grown nearly two-fold in size. Our results today reflect an annual ROE of 12.6%, an increase of approximately 300 basis points from when we went public. Looking forward, we're excited about the prospect of continuing to grow our scale and enhance our returns through our proposed merger with OBD. We believe now is the right time to merge these two BDCs and create meaningful benefits for both sets of shareholders. On behalf of the entire Blue Owl team, thank you in advance for your support and for joining us on today's call.

Unknown Executive: Our portfolio has successfully weathered dramatically different interest rate and economic environments and it has grown nearly two fold in size.

Unknown Executive: Our results today reflect an annual ROE of 12, 6% an increase of approximately 300 basis points from when we went public.

Speaker Change: Looking forward, we are excited about the prospects of continuing to grow our scale and enhance our returns through our proposed merger with <unk>.

Speaker Change: We believe now is the right time to merge these two bdcs and create meaningful benefits for both sets of shareholders.

Craig Packer: 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 43 cents total dividends for the quarter, reflecting our regular dividend of 37 cents and the supplemental dividend of 6 cents as acquired by our board. We're 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 and dividend yield, which reflects the benefit of the current interest rate environment, our attractive asset base, and the resilient credit quality of our portfolio.

Speaker Change: Behalf of the entire Blue all team. Thank you in advance for your support and for joining us on today's call.

Speaker Change: Thank you.

Operator: At this time, we'll now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Unknown Executive: At this time, we'll now be conducting a question and answer session. Give me a press start, too, if you'd like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Speaker Change: At this time, we'll now be conducting a question and answer session.

Speaker Change: If you'd like to ask a question. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.

Speaker Change: You May press star two if you'd like to withdraw your question from the queue.

Unknown Executive: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Operator: One moment, please, while we poll for questions. Thank you. Our first question today comes from the line of Brian McKenna with JMP Securities. Please answer your question.

Unknown Executive: One moment, please when we poll for questions.

Speaker Change: Thank you. Our first question today comes from the line of Brian Mckenna with JMP Securities. Please proceed with your questions.

Unknown Executive: Thank you. Our first question today comes from the line of Brian McKenna with JMP Securities. Please take your question.

Craig Packer: 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 evaluation premium to historical averages, and as an asset class, private credit has performed exceptionally well over the past few years.

Brian McKenna: Thanks, good morning everyone, and congratulations on the merger with OBDE. So looking at new commitments at OBDC on a year-to-date basis, there's actually been a healthy mix of new and existing companies, which stands out a little bit relative to some others given the amount of refi activity. Moving forward, should we continue to expect to see a pretty even split for deals between new and existing companies, or could this even skew more toward new companies as M&A activity continues to pick up?

Brian McKenna: Thanks, Good morning, everyone and congrats on the merger with obesity.

Brian McKenna: So looking at new commitments at obesity see on a year to date basis, Theres actually been a healthy mix of new and existing companies, which stands out a little bit relative to some others given the amount of refi activity moving forward should we continue to expect to see a pretty even split for deals between new and existing companies.

Speaker Change: This evening skew more toward new companies as M&A activity continues to pick up.

Craig Packer: We believe all of these elements combined 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.

Brian McKenna: Yeah.

Craig Packer: Thanks, Brian. I appreciate it.

Brian McKenna: Thanks, Brian.

Speaker Change: Appreciate it.

Speaker Change: Look we think a real strength of our platform as our origination effort I think we've shown that in spades since inception.

Speaker Change: We try to really see everything that's out there in terms of new opportunities obviously, the when we're either doing an add on or a refinancing of an existing company that's an easier underwrite so.

Craig Packer: Look, we think a real strength of our platform is our origination effort. I think we've shown that in spades, you know, since inception. We try to really see everything that's out there in terms of new opportunities. Obviously, when we're either doing an add-on or refinancing of an existing company, you know, that's an easier underwrite. So there's a mix. You know, we very much want to see new names, and we will constantly compare opportunities for existing names and new names on an economic basis. So I think you'll see a mix of them all.

Craig Packer: 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 percent 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.

Speaker Change: There is there is a mix we very much want to see new names.

Speaker Change: And we all hope will constantly compare opportunities for existing names and new names from an economic basis.

Craig Packer: The environment in the last six months has been more weighted to refis and add-ons in the market because M&A remains pretty moderate. If M&A picks up, I think, you know, you'll see us skew a bit more towards new names. And probably the refinancings will – you know, the easy refis have gotten done. So over time, I would imagine as M&A picks up, it'll skew a little bit towards new names. But we – you know, we don't plan this. We'll look at it organically as opportunities come in, and I'm hopeful that we will see more new names over the next six months.

Speaker Change: So I think youll see a mix the environment in the last six months has been more weighted to refis and add ons in the market because M&A remains.

Speaker Change: Pretty moderate if M&A picks up I think you'll see us skew a bit more towards new names and probably the refinancings will.

Speaker Change: Easy Refis have gotten done so over time I would imagine as M&A picks up it will skew a little bit towards new names, but we we don't preordained US we'll look at it organically as opportunities come in.

Craig Packer: By combining our two publicly traded BDCs, we plan to streamline our direct lending platform, enhance our scale and 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, bring total investments to approximately $17.7 billion.

Speaker Change: I am hopeful that we see more new new names over the next six months.

Brian McKenna: Okay, great, very helpful. And then there was a question on the merger with OBDE. OBDC has delivered, you know, 10% GAAP ROEs since inception. It's clear that the combination will create a number of different synergies here, and then I think you can argue that OBDE's portfolio from a credit perspective is even better than OBDC. So, from my seat, it would seem that there's the potential to drive GAAP ROEs above that 10% figure, you know, but it would be great, Craig, just to get your thoughts here, how you're thinking about the synergies over time and how that ultimately comes through.

Speaker Change: Okay, Great helpful. And then a question on the merger with obesity E obedient deliver 10% GAAP all we since inception.

Brian McKenna: It's clear that the combination will create a number of different synergies here and then I think you can argue that obesity <unk> portfolio from a credit perspective is even better than all BDC. So from my seat it would seem that there's the potential to drive GAAP roe's above that 10% figure but.

Brian McKenna: But it would be great Craig just to get your thoughts here, how youre thinking about the synergies over time and how that ultimately comes through in the row.

Craig Packer: Awards. It would also establish our position as the second largest publicly traded BVC by total assets, while achieving NII creation over time. We believe shareholders will benefit from the increased scale of the combined company in multiple ways.

Craig Packer: Sure, a very gracious question. Thank you. Look, you know, many of you were at our Investor Day, you know, a little over a year ago, and we outlined some steps that we were going to take to drive OBDC's ROE higher. And, you know, I'd like to, you know, Better optimization of expenses. We think we have positioned this fund to be, you know, one of the very best performers in the space.

Craig Packer: Sure, a very gracious question. Thank you. Look, you know, many of you were at our investor day, a little over a year ago, and we outlined some steps that we were going to take to drive OBDC's ROE higher. And, you know, I'd like to, you know, like to point out that we've accomplished those, and we're at 12.6%. You know, it's really strong returns and demonstrates, you know, the power of our platform and our ability to try to optimize. E, as you highlighted, E, the portfolio is pristine.

Craig Packer: Sure Barry.

Craig Packer: Chris. This question. Thank you look I know many of you were at our Investor day, what over a year ago, and we outlined some steps that we were going to take to drive O Bdc's Roe.

Craig Packer: 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 basic 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.

Craig Packer: And now I'd like to.

Craig Packer: I'd like to point out we've accomplished those and we're at 12, 6%, it's really strong returns and demonstrates.

Craig Packer: As much as I'm proud of C's credit performance, E is even better. E's return profile is a little bit less, partly because it's used more first lien, and partly the liability side is a little bit less, and a little bit more expensive given the vintage of E's liabilities. We think that that will be able to essentially improve E's return to match C's, you know, fairly quickly as we get the benefit of scale on the liability side and continue to optimize E on the asset side. And so I think, on a combined basis, you know, I hope that we can take OBDC on a proforma basis north of 10. Today we're in the 12s.

Craig Packer: The power of our platform and our ability to try to optimize.

Christine: As you as you highlighted E the portfolio with Christine.

Speaker Change: As much as I am proud of <unk> credit performance is even better.

Speaker Change: <unk> return profile is a little bit less partly because it skews more first lien partly the liability side, it's a little bit less a little bit more expensive given the vintage of <unk> liabilities.

Craig Packer: We think that that will we'll be able to essentially.

Craig Packer: Third, we expect the larger market capitalization of the combined company will improve OBDC's 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 merger of two BDCs received a ratings upgrade in the first quarter of 2024.

Craig Packer: Improve ease returned to match sees.

Craig Packer: You know fairly quickly as we get the benefit of scale on the liability side.

Craig Packer: And continue to optimize E on the asset side.

Craig Packer: And so I think on a combined basis I hope that we can take Ob D. C. On a pro forma basis North of 10 today, we are in the <unk>.

Craig Packer: You know, obviously rates are a bigger driver than any of that. You know, we'll do, I'd like to think we're going to do a great job optimizing the mix. But obviously, you know, rates, the rate picture will drive where we land ultimately. And, you know, we're looking at, you know, what's going on with rates. And like most market participants, we expect rates to come down. But we still think we can generate a low double-digit rate of return even if the rate curve plays out the way it's expected.

Craig Packer: Obviously rates are a bigger driver than any of that we'll do I'd like to think we're going to do a great job to optimize the mix.

Craig Packer: But obviously rates the rate picture will drive where we land ultimately.

Craig Packer: And we're looking at whats going on with rates and like most market participants, we expect rates to come down.

Craig Packer: We expect the increased scale of the combined company to enable better access to a wider 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 duplicate expenses, which we estimate could be an 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.

Craig Packer: We still think we can generate a low double digit rate of return even if the rate curve plays out the way. It is expected to stay at the way rates are now then we should be able to generate a 12% to 12% rate of return in short order. So I guess, we'll optimize and we will optimize for whatever rate environment, we live with but we think that.

Craig Packer: If rates stay the way they are now, then we should be able to generate a 12% rate of return, you know, in short order. So I guess we'll optimize, and we'll optimize for whatever rate environment we live in. But we think that the benefit of combining the two funds is even more scale, more diversification, more power on the liability side, and better optimization of expenses. We think we have positioned this fund to be, you know, one of the very best performers in the space.

Craig Packer: The benefit of combining the two funds is even more scale more diversification more power on the liability side.

Craig Packer: Better optimization of expenses.

Craig Packer: Think we are positioned this fund to be.

Jonathan Lam: 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. Thank you, Craig. I'd like to spend a minute describing the proposed merger consideration. Transaction is structured as a stock for stock merger with each OBDE shareholder receiving a certain number of OBDC shares to be determined just prior to closing. At a high level, the merger is structured to allow for both sets of shareholders to benefit.

Craig Packer: One of the very best performers in this space.

Speaker Change: Okay, Great I'll leave it there and congrats again on the merger.

Brian McKenna: Okay, great. I'll leave it there and congrats again on the merger. Great. Thanks, Brian.

Unknown Executive: Okay, great. I'll leave it there. And congrats again on the merger.

Speaker Change: Great. Thanks, Brian.

Speaker Change: The next questions are from the line of Robert Dodd with Raymond James. Please proceed with your question.

Robert Dodd: The next questions are from the line of Robert Dodd with Raymond James. Please answer your questions.

Robert Dodd: Hi guys, morning. On the merger, the filing so far, the 425 says no change in the fee structure. That's fine. The question is, is it the intent to exclude any discount amortization or discount accretion premium amortization, depending on where the entities are trading at the close, from the calculation of the incentive fee, or will that all be included in income and the calculation of the incentive fee? Because that obviously would potentially require some level of change in the nuances of the priest.

Speaker Change: Hi, guys good morning.

Speaker Change: On the merger.

Speaker Change: So far the 425 no change in in the restructure and that's fine.

Speaker Change: The question is is it the intent.

Speaker Change: <unk> any.

Unknown Executive: Discount.

Jonathan Lam: It allows for NAV for share accretion at OBDC and for OBDE to be valued at a potential premium should shares of OBDC be trading above NAV per share at close. On page six of our investor deck discussing the merger, we have included three potential scenarios using June 30th, 2024 NAV per share as a proxy for the NAV per share, and Sarah Close. These scenarios show how various training levels will potentially impact shareholders of both sides.

Speaker Change: Amortization or this kind of accretion.

Speaker Change: The amendment of the nation, depending where the entities.

Speaker Change: At the close from the calculation of the incentive fee.

Unknown Executive: Will be included in income and the calculation.

Speaker Change: Because that obviously will potentially require some level of change in the new one.

Unknown Executive: Structure.

Unknown Executive: So Robert if you take a look at what we've what we filed in terms of the merger structure. We filed also to make an amendment to the IMA to deal with that so it is our intention based on based on the approvals that will come that will come forward for us to adjust for the future.

Craig Packer: So, Robert, we've, if you take a look at what we filed in terms of the merger structure, we filed also to make an amendment to the IMA to deal with that. So it is our intention, you know, based on the approvals that will come, that will come forward, for us to adjust for that.

Jonathan Lam: The exchange ratio will be determined by a formula, which will be struck on a nav for nav basis if OBDC is trading at or below nav per share. If OBDC is trading at a premium to its nav per share, immediately prior to closing that premium will be shared between the shareholders of both sides.

Speaker Change: Got it I was reading that somebody mentioned in Portland.

Robert Dodd: Got it. Thank you. I was reading the summary version of 425. Then the second one, to your point, Craig, you did talk about this at Analyst Day almost 18 months ago.

Speaker Change: And then the second one to your point Craig you did talk about this at the analyst day.

Robert Dodd: I think that, ultimately, you would like two public BDCs, one diversified lending and one tech. Obviously, the tech's a different topic, but both C and E, diversified lending, but there's also the other vehicle. I don't know how much you can say about that, but do you still feel that you'd just like one diversified lending, publicly traded vehicle? And if there's any color you could add about what that means for the current private version?

Speaker Change: Almost 18 months ago I think.

Jonathan Lam: The combined company will continue to operate as Blue Owl capital corporation and trade on the New York Stock Exchange under the ticker OBDC. Subject to board approval prior to closing, OBDC intends to continue to declare and pay ordinary course regular and supplemental dividends. Close Close, the combined OBDC intends to continue to deliver a regular dividend yield of approximately 9.5 percent consistent with today's levels and to continue to pay a variable supplemental dividend equal to 50 percent of the spillover income earned in a given quarter.

Speaker Change: That ultimately you would like to public Bdcs, one diversify lending and one tech companies see the Texas different topic, but both see a need a diversified lending, but theres also.

Speaker Change: The other vehicle I don't know how much you can say.

Speaker Change: With that but what's the do you still.

Speaker Change: Just like.

Speaker Change: One despite lending.

Speaker Change: Publicly traded vehicle and if there's any color you could add about what that means for the Cowen.

Unknown Executive: Sure.

Craig Packer: Sure. As Robert pointed out when we did our Investor Day a year ago, we have seven managed BDCs, and we know sometimes that can create a little confusion. And so we laid out a bit of a vision that over time, it would make a lot of sense to ultimately have a publicly traded, diversified Publicly Traded Tech and two non-traded diversified tech companies. So, as Robert is asking, we have a private BDC, OBDC2, that is still there.

Unknown Executive: Sure so.

Robert: As Robert.

Jonathan Lam: As a sign of support from Blue Owl, OBDC and OBDE will be reimbursed for fees and expenses associated with the proposed merger up to a cap of 4.25 million in total, which will be paid for by OBDC's advisor if the proposed merger is consummated. OBDC's existing $150 million share repurchase program announced in May will also remain in place.

Unknown Executive: Pointed out when we did our.

Unknown Executive: Our investor day, a year ago.

Speaker Change: We have seven seven managed Bdcs and we know sometimes that can create a little confusion.

Speaker Change: And so we've laid out a bit of a vision that over time it would make a lot of sense to ultimately have a publicly traded diversified.

Speaker Change: Publicly traded tech in two non traded diversified in tech. So as Robert is asking we haven't we have a private BDC youll be D. C. Two that is still there.

Unknown Executive: Publicly Traded Tech, and two non-traded diversified tech companies. So, as Robert is asking, we have a private BDC, OBDC2, that is still there.

Jonathan Lam: Finally, we are expecting to close the transaction in the first quarter of 2025, subject to customary closing conditions, including shareholder approval.

Unknown Executive: You know, I'm going to say the same thing I said at the time, which is that we continually look at this for each fund and optimize each fund, working closely with our board. You know, the board, you know, I just want to acknowledge that our board spent a tremendous amount of time over the summer thinking through this merger on behalf of OBDC and OBDE with independent advisors for each fund and came up with a structure that we think, you know, really fit the situation ideally.

Craig Packer: You know, I'm going to say the same thing I said at the time, which is that we continually look at this for each fund and optimize each fund, working closely with our board. You know, the board, you know, I just want to acknowledge that our board spent a tremendous amount of time over the summer thinking through this merger on behalf of OBDC and OBDE with independent advisors for each fund and came up with a structure that we think, you know, really fit the situation ideally.

Speaker Change: I'm going to say the same thing I said at the time, which is we continually look at this for each fund to optimize each fund that working closely with our board.

Jonathan Lam: Turning on the OBDC's quarterly performance, we ended the second quarter with total portfolio investments of $13.3 billion of standing debt of $7.5 billion and total net assets of $6 billion. Our nav per share was $15.36, up 10 cents year over year. Similar to prior quarters, we meaningfully over earned our dividend, resulting in a six-cent supplemental dividend for the quarter and a six-cent benefit to nav. However, this benefit was more than offset by credit-related markdowns on two investments, resulting in a nav decline of 9 cents for the quarter.

Unknown Executive: The board.

Unknown Executive: I just want to acknowledge our board spent a tremendous amount of time over the summer thinking through this merger on behalf of both BDC and OBE.

Unknown Executive: With independent advisors for each fund and came up with up with a structure that we think really fit the situation ideally.

Unknown Executive: And we will continue to evaluate options for all of our funds, including OBDC2, to see if there are opportunities to optimize for each fund individually. It would still make industrial logic to have one publicly traded diversified fund, so there's no change there.

Craig Packer: And we will continue to evaluate options for all of our funds, including OBDC2, to see if there are opportunities to optimize for each fund individually. It would still make industrial logic to have one publicly traded diversified fund, so there's no change there.

Unknown Executive: We will continue to evaluate options for all of our funds including.

Unknown Executive: <unk> two.

Unknown Executive: To see if there are opportunities to optimize for each fund individually.

Unknown Executive: It would still make industrial logic to have one publicly traded diversified funds. So there is no change there.

Unknown Executive: But obviously, as with this transaction, you know, we're going to be super careful and strategic about how we execute on that to make sure it makes sense for both sets of shareholders. So we said that a year ago about the funds, and here we are delivering on that with this merger. And if there's an opportunity down the line for two that makes sense, whatever that is, we'll pursue it. We'll pursue it then. I don't want to get ahead of ourselves. Right now, we're focused on getting out the merger, getting that merger closed, and we'll continue to evaluate along the way.

Craig Packer: But obviously, as with this transaction, you know, we're going to be super careful and strategic about how we execute on that to make sure it makes sense for both sets of shareholders. So we said that a year ago about the funds, and here we are delivering on that with this merger. And if there's an opportunity down the line for two that makes sense, whatever that is, we'll pursue it. We'll pursue it then. I don't want to get ahead of ourselves. Right now, we're focused on getting out the merger, getting that merger closed, and we'll continue to evaluate along the way.

Unknown Executive: But obviously as with this transaction, we're going to be Super careful and strategic about how we execute on that to make sure. It makes sense for both sets of shareholders. So.

Jonathan Lam: In terms of deployment, we had 3.3 billion of originations, offset by 1.1 billion of repayments. As you'll recall, we had some timing mismatch last quarter, which saw our leverage decline to 1.04 times. However, we fully reversed that impact and leverages now at 1.2 times near the high end of our target range with 0.9 to 1.25 times. Turning to the income statement, as Craig mentioned, we earned NII of $0.48 per share, up 1 cent from the first quarter, driven by higher net leverage and solid repayment-related income.

Mark Hughes: Thanks, Robert. Thank you. The next questions are from the line of Mark Hughes with Truist Securities. Please answer your questions.

Unknown Executive: We said that a year ago for <unk>.

Unknown Executive: For the funds and here, we are delivering on that with this merger.

Unknown Executive: And if there is an opportunity down the line for two that makes sense whatever that is we will pursue it we'll pursue with them, but I don't want to get ahead of ourselves right. Now we're focused on and we announced the merger getting that getting that merger closed and we will continue to evaluate along the way.

Speaker Change: Okay I appreciate it thank you.

Robert: Thanks Robert.

Unknown Executive: Thanks, Robert. Thank you.

Speaker Change: Thank you.

Speaker Change: The next questions are from the line of Mark Hughes with choice Securities. Please proceed with your question.

Jonathan Lam: OBDC also continues to prioritize a flexible balance sheet and well-diverse five-financing structure. This quarter, we increased OBDC's corporate revolver by $150 million. Scholars, having one new lender. We remain pleased with the strengths of our financing partnerships and liability structure.

Speaker Change: Yeah. Thank you congratulations.

Mark Hughes: Yeah, thank you. Congratulations.

Unknown Executive: Yeah, thank you. Congratulations.

Unknown Executive: Have you.

Mark Hughes: Have you gotten any indications about what the borrowing cost impact might be? I think the point with the scale is that you get better access to capital. Any early thoughts about that that you care to share?

Speaker Change: Gotten any indications what are the borrowing cost impact might be I think the point with the scale you get a better access to capital any.

Speaker Change: Early thoughts about that that you care to share.

Logan Nicholson: With that, I'll turn it over to Logan for additional color on the portfolio performance.

Craig Packer: I mean, I think Marcus, as you've probably observed, you know, generally, when we've when we've entered into, we've issued unsecured IG bonds, our bond investors have come back to us and effectively said that there's complexity in your structure because you have so many BDCs. And so one of the things that they have been asking for, and looking for, is that merger. So we think that there is, you know, there are low-hanging fruit in the context of these companies coming together to tighten our spreads relative to our peers in the IG space. You know, is it 5, 10, 15 basis points somewhere in that range? That's, that's where I am.

Unknown Executive: I think mark is as you've probably observed generally when we've when we've entered into we've issued unsecured.

Logan Nicholson: Thanks Jonathan, it's great to be with you all today. To start as we think about a combined portfolio looking forward, I want to provide a reminder of our investment philosophy across OBDC and OBDE, which will remain consistent upon the close of the transaction. We provide direct lending solutions to US sponsor backed upper middle market companies in primarily non cyclical sectors with significant operating histories while emphasizing diversification by borrower and sector. We prefer the upper middle market because we believe that larger companies are more durable and better equipped to adapt to different economic conditions.

Speaker Change: G bonds.

Speaker Change: Our bond investors have have come back to us effectively said.

Speaker Change: There is complexity in your structure because you have so many bdcs and so one of the things that they have been asking for and I'm looking for is that merger. So we think that there is there are low hanging there is low hanging fruit in the context of these companies coming together.

Unknown Executive: To tighten our spreads relative to our peers.

Speaker Change: In the <unk> space.

Speaker Change: Is it 510 15 basis points somewhere in that range.

Logan Nicholson: Our borrowers have waited average EBITDA of nearly $200 million and we believe the benefits of this scale are substantiated by our industry leading loss ratio, which perform up will be 13 basis points. I note that OBDC and OBDE were constructed by the same centralized team that shepherd investments from origination to exit. As Craig mentioned, over 90% of OBDE's investments overlap with those of OBDC. This centralized approach to portfolio construction and investment overlap should make consolidating these portfolios simple.

Unknown Executive: That's correct.

Craig Packer: It's true not only on the bond side but also on the secured finance side. I mean, this is going to be an 18 billion dollar vehicle. It's the second largest in the space.

Speaker Change: It is true not only in the bond side, but also on the secured finance side I mean, we we are.

Speaker Change: This is going to be an $18 billion vehicle, it's the second largest in the space.

Craig Packer: We've delivered excellent performance not only for our shareholders but certainly for our lenders, secured and unsecured. There's been a significant increase in diversification, which obviously financing sources really like, and we've always carefully managed the fund. So, and by the way, I would say broadly that the BDC space should come tighter over time, in my opinion.

Speaker Change: Delivered excellent performance not only for our shareholders, but certainly for our lenders on secured and unsecured.

Speaker Change: The significant increase in diversification, which obviously financing sources really like.

Unknown Executive: We've always carefully manage the fund so.

Speaker Change: And by the way I would say broadly for the BDC space bonds in particular trade wider than they should for the credit quality that they have and that they've delivered on so I think collectively the space should trade tighter we should trade tighter.

Logan Nicholson: With that, I'll spend a minute on the OBDC portfolio today. In line with our commentary on recent quarters, on average, we continue to see steady revenue and EBITDA growth across our portfolio companies. Our borrowers have successfully navigated over a year of the higher interest rate environment and have thoughtfully adapted their business models in response. Across the portfolio, our average interest coverage remains around 1.6 times. In line with last quarter and consistent with the level we have been highlighting as the expected trough coverage in today's higher rate environment.

Speaker Change: And being able to essentially refinance the.

Speaker Change: <unk> credit quality will also provide upside.

Unknown Executive: Jonathan 10, 15, 20 basis points seems very reasonable to me I think over time, the quality of the space should it should in liability costs should come tighter over time in my opinion.

Unknown Executive: Should come tighter over time; it might.

Speaker Change: Understood. Thank you and then the new commitments in the quarter.

Mark Hughes: understood. Thank you.

Logan Nicholson: Our non-accrual rate is 1.4% of fair value of our debt portfolio, reflecting the addition of plural site this quarter, which is a small 37 basis point position. And finally, the substantive names on our watch list remain steady quarter over quarter, and we do not see any material pick up in amendment activity or signs of stress. Our portfolio continues to be stable and resilient, giving us confidence and our ability to deliver strong credit performance and returns for our shareholders going forward.

Mark Hughes: And then the new commitments in the quarter, the any trajectory and loan to value or EBITDA leverage relative to the existing portfolio kind of

Speaker Change: Any trajectory and loan to value or EBITDA leverage relative to the existing portfolio kind of what are you seeing out there in the market.

Craig Packer: The quality is very good, and loan-to-value remains really modest, depending upon the deal, 35%, maybe 40%. The leverage, you know, leverage has been lower generally on new deals given the higher rate environment. So, five and a half to six times, we continue to finance bigger companies; that's always been our preference. I don't have it at my fingertips, average EBITDA for the quarter, but I think it'll be in line, it'll be very much in line with what we've done historically.

Speaker Change: The quality is very good loan to value remains really modest depending upon the deal 35% maybe 40%.

Speaker Change: <unk> Levered.

Unknown Executive: The leverage, you know, leverage has been lower generally on new deals given the higher rate environment. So, five and a half to six times.

Unknown Executive: Leverage.

Speaker Change: <unk> has been lower to generally on new deals given higher rate environment. So five to six times, we continue to play a bigger company. So that's how we spend our preference.

Unknown Executive: You know, we continue to finance bigger companies. That's always been our preference. I don't have it at my fingertips, average EBITDA for the quarter, but I think it'll be in line, it'll be very much in line with what we've done historically. Our ability to do size continues to be a differentiator. Private equity firms really like working with firms that can do the whole deal or most of the deal. But we also had, you know, a meaningful change, a bright spot that changed over time on the financial side of things.

Craig Packer: And now I'll hand it back to Craig to provide final thoughts for today's call. Thanks, Logan. I know we've already covered a lot on today's call, so I will spend just a minute on the market environment we experience in the second quarter. Certainly, the direct lending market is feeling more competitive pressure as the public loan market remains strong and emanating financing volumes are light. We saw elevated levels of repricing and refinancing activity in the quarter, which reduce spreads.

Unknown Executive: My fingertips average EBITDA for the quarter, but I think there'll be online it will be very much in line with what we've done historically, our ability to do size continues to be a differentiator private equity firms really like working with firms that can do the whole deal or most of the deal.

Mark Hughes: Our ability to do size continues to be a differentiator. Private equity firms really like working with firms that can do the whole deal or most of the deal. But we also had a meaningful, more than half of the quarter's activity was refinancing or add-ons, and so obviously those are the same exact statistics. But for the new deals, consistent credit quality, credit stats, size of the company, continue to find opportunities, even in a moderate M&A environment, to find new investments that we really like.

Unknown Executive: But we also had a.

Unknown Executive: Meaningful.

Unknown Executive: Half more than half of the quarter's activity were refinancings or add ons and so obviously those are.

Craig Packer: However, we do see signs of stabilization and spreads at current levels. We continue to find attractive investment opportunities and to deploy capital into large high quality. We also continue to successfully originate new investment opportunities to offset repayments towards the higher end of our target leverage range. While new deals face some economic pressure, one area where we will not sacrifice is on maintaining appropriate levels of structural protection in our documentation and capital structures.

Unknown Executive: The same exact statistics, but for the new deals consistent credit quality.

Unknown Executive: Stats size of company.

Unknown Executive: To find opportunities even in a moderate M&A environment.

Unknown Executive: Find new investments that we really like.

Speaker Change: And then your exposure to common equity any change in strategy there post the merger.

Craig Packer: And then your exposure to common equity, any change in strategy there post the merger? No change in strategy. Thank you.

Craig Packer: No change in strategy, you know, just as a reminder for folks that are less familiar with common equity for us, the vast majority of our common equity exposure is equity in portfolios of really diversified underlying assets that are credit portfolios, essentially. We have an asset-based lending business, we have a life insurance settlements business, we have an aircraft and rail car finance business. So these are all equity investments from an accounting standpoint, but the underlying risk is really a portfolio of loans, essentially.

Unknown Executive: No change in strategy, you know I just as a reminder for folks that are less familiar common equity for us.

Craig Packer: Overall, we are confident in how our platform is positioned today and we expect M&A activity will eventually resume at a more normalized level, which will allow market conditions to ease. Our proven ability to provide significant capital for some of the largest financing will be a real differentiator in this environment. Having said that, we have all heard what has happened in the markets over the past few days and I thought it might be helpful to offer some perspective.

Speaker Change: Vas majority of our common equity exposure is equity in portfolios.

Speaker Change: Really diversified underlying assets that are credit card credit portfolio is essentially we have an asset based lending business, we have a life insurance settlements business.

Unknown Executive: We have a an.

Speaker Change: In aircraft and railcar finance business. So with these are all equity investments from an accounting standpoint, but the underlying risk is really a portfolio of loans essentially.

Craig Packer: BDC equities have traded very well up until recently and that performance reflected BDC strong earnings and steady credit quality. Although BDCs have traded off recently, we are not seeing any signs in our portfolio to justify this price movement. With the extended investors are concerned about the economic outlook, we believe that our strategy of investing in a diversified portfolio of personally term loans can offer a defensive opportunity in more volatile markets. For those concerned about the potential for an economic downturn, we have consistently been investing in recession-resistant businesses and sectors to buffer our investors from the inevitable economic cycles.

Craig Packer: And so that's been a terrific strategy for us to generate really nice ROE and also some potential for NAB accretion over time. So we like the strategy, I think it's been beneficial to shareholders, and we will continue to pursue it. OBDE has much less of it.

Unknown Executive: And so we that's been a terrific stress.

Unknown Executive: Strategy for us to generate really nice Roe.

Speaker Change: And also some potential for NAV accretion over time.

Unknown Executive: So we like the strategy I think it's been beneficial to shareholders, we will continue to pursue it.

Speaker Change: OBE has much less of it and so the addition of <unk> will allow us to continue to grow those strategies, but not necessarily increase the percentage.

Craig Packer: And so the addition of OBDE will allow us to continue to grow those strategies, but not necessarily increase the percentage. So we will continue to invest in these different specialty lending verticals, if you will. And they're also a bit more protected from some of the refi cycle that individual loans face. So as we continue on this strategy, if we find new opportunities, we would look at those as well.

Unknown Executive: So we will continue to invest in these different spec.

Speaker Change: Specialty lending verticals, if you will.

Craig Packer: In addition, I also want to highlight that market volatility can be helpful for us as direct lenders. We provide certainty of execution to our borrowers and the value of that certainty increases as the public markets become more volatile. It is too early to say how long this will last but we are well positioned with the capital resources, long-term investing time horizon, to take advantage of opportunities as they arise. I would also like to highlight that this quarter, our manager, Blow, announced acquisitions in the insurance and alternative credit spaces.

Unknown Executive: And they're also a bit there a bit more protected from some of the refi cycle that individual loans face. So continue on the strategy. If we find new opportunities, we will look at those as well.

Speaker Change: Very good thank you.

Speaker Change: Thank you.

Speaker Change: Our next questions are from the line of Paul Johnson with K B W.

Paul Johnson: Our next questions are from the line of Paul Johnson with KBW. Please proceed with your question. Good morning. Thank you for your questions.

Craig Packer: While not directly related to our BDCs, we expect these acquisitions will broaden our coverage efforts as a platform and could incrementally expand the sourcing capabilities of our BDCs. Since inception, we believe that our growing scale was a competitive advantage. This scale has allowed us to build a broad origination platform to bring together a high quality underwriting team with deep expertise and to invest in robust portfolio management systems. All this has allowed us to deliver great returns to our shareholders.

Speaker Change: With your question.

Unknown Executive: Yes, good morning.

Unknown Executive: Question.

Unknown Executive: Hum.

Unknown Executive: Unknown Executive, Blue Owl, and additional questions. Vincent from Bethany S. It was, um, I think I.

Unknown Executive: Increased slightly this quarter.

Unknown Executive: Okay.

Unknown Executive: Where what do you have any.

Unknown Executive: Yes.

Unknown Executive: Yeah.

Unknown Executive: Hum.

Unknown Executive: Okay and then.

Unknown Executive: Additional questions.

Unknown Executive: Okay.

Unknown Executive: Yes.

Unknown Executive: Hey, Paul.

Operator: Hey Paul, I think I heard some of the questions, but it was really hard to hear you. Can I ask you to try to shift positions and repeat? Paul, can you hear us?

Speaker Change: I think I heard some of the question, but it was really hard to hear you can I can I ask you to try to shift position at <unk>.

Craig Packer: We believe that the proposed merger will deliver a more scaled and diversified portfolio to help navigate the dynamic operating environment ahead while also allowing shareholders to benefit from increased efficiencies and a lower cost of financing over time. As the second largest public BDC, OBDC will continue to be a market leader.

Unknown Executive: Okay.

Unknown Executive: Oh.

Unknown Executive: Paul, can you hear us?

Unknown Executive: Paul can you hear us okay.

Speaker Change: Why don't we jump to the next question in the queue here. If you can hear us maybe maybe tried dial back in and what we're happy to take your questions.

Operator: Why don't we jump to the next question in the queue? Paul, if you can hear us, maybe try to dial back in, and we're happy to take your question.

Craig Packer: To close, I wanted to highlight that July of this year marked the fifth anniversary since OBDC's IPO, and we are very pleased with what we have accomplished since then. Our portfolio has successfully weathered dramatically different interest rates and economic environments, and it has grown nearly twofold in size. Our results today reflect an annual ROE of 12.6 36%. An increase of approximately 300 basis points from when we went public. Looking forward, we are excited about the prospects of continuing to grow our scale and enhance our returns through a proposed merger with OBDE.

Kenneth Lee: Yes, thank you. The next question is from the line of Kenneth Lee with RBC Capital Markets. Please proceed with your question.

Unknown Executive: Yes, thank you. The next question is from the line of Kenneth Lee with RBC Capital Markets.

Paul: Yes. Thank you. The next question is from the line of Kenneth Lee with RBC Capital markets. Please proceed with your question.

Kenneth Lee: Hey, good morning. Thanks for taking my question. Just one about the merger. Under the NII accretion, you briefly alluded to optimizing portfolio mix. Do we expect any kind of portfolio rotation or streamlining across the portfolio going forward post-emergent?

Kenneth Lee: Hey, good morning, Thanks for taking my question just one about the merger.

Kenneth Lee: Under the NII accretion you briefly alluded to optimizing portfolio mix should we expect any kind of portfolio rotation or streamlining.

Kenneth Lee: Do we expect any kind of portfolio rotation or streamlining across the portfolio going forward post-merger? Thanks.

Speaker Change: Across the portfolio going forward post merger thanks.

Craig Packer: No rotation. I mean, we're, we're, um, we've really had the same strategy since inception, you know, high quality companies, bigger recession-resistant sectors, mostly sponsor back. Um, I think that, um, we'll continue with that. E is a little more on the first lien. We got significant repayments in OBDC second lien exposure in the first quarter. Folks will remember we got, um, 40% of our second liens got repaid.

Speaker Change: No rotation.

Craig Packer: We believe now is the right time to merge these two BDCs and create meaningful benefits for both sets of shareholders. On behalf of the entire Blue Owl team, thank you in advance for your support and for joining us on today's call.

Kenneth Lee: Sure.

Speaker Change: We've really had the same strategy since inception.

Speaker Change: High quality companies bigger recession resistant sectors, mostly sponsor backed.

Unknown Executive: Thank you.

Speaker Change: I think that will continue with that he is a little more first lien we got significant repayments in <unk> second lien exposure in the first quarter folks will remember all we got.

Operator: At this time, we'll now be conducting a question and answer session. If you'd like to ask a question, please press star 1 from your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Unknown Executive: One question.

Speaker Change: 40% of our second liens got repaid.

Speaker Change: We are going to take advantage of the best opportunities the market brings us.

Craig Packer: We're gonna, we are gonna take advantage of the best opportunities the market brings us, and, but, but we will continue to stick to our core strategy. But I would say, as the fund is bigger, its ability to take down bigger sizes gives it purchasing power and allows us to really win the highest quality investments out there. And we'll continue to try to optimize ROE, um, on a combined basis through a mix of mostly first lien.

Speaker Change: But continuing to stick to our core strategy.

Speaker Change: But I would say as the fund this bigger.

Speaker Change: Its ability to take down bigger size gives it purchasing power and allows us to really win the highest quality investments out there and we'll continue to try to optimize Roe.

Unknown Executive: Thank you.

Brian McKenna: Our first question today comes from the line of Brian McKenna with JMP Security. Please receive your questions. Thanks.

Paul: On a combined basis through a mix of mostly first lean a little bit of second lien and some of these strategic investments that show up as equity investments.

Brian McKenna: Good morning, everyone, and congrats on the merger with OBDE. Looking at new commitments at OBDC on a year-to-date basis, there's actually been a healthy mix of new and existing companies which stand out a little bit relative to some others given the amount of refi activity. Moving forward, we continue to expect to see a pretty even split for deals between new and existing companies or could this even queue more toward new companies as M&A activity continues to pick up.

Craig Packer: A little bit of second liens and some of these strategic investments that show up as equity investments. I think the diversification is, I keep repeating that. I think that's really valuable in a lending portfolio. And so it'll be a similar strategy to what we outlined because that strategy has worked well. We're going to just keep executing on it

Paul: The diversification I really take on it.

Paul: Repeating that I think that's really valuable and our lending portfolio.

Speaker Change: And in.

Speaker Change: So it'll be a similar strategy to what we've outlined because that strategy has worked well were going to just keep executing on it.

Speaker Change: Great very helpful. There.

Kenneth Lee: Great. Very helpful there. And just one follow-up, if I may, and you touched upon this briefly in the prepared remarks, the sourcing advantages from the Blue Owl platform you mentioned acquisitions there. Remind us again, Unknown Executive, Blue Owl, Acquisition. Thanks.

Unknown Executive: Great. Very helpful there. And just one follow-up, if I may, and you touched upon this briefly in the prepared remarks. The sourcing advantages of the Blue Owl platform, you mentioned.

Unknown Executive: And just one follow up if I may and you touched upon this briefly in the prepared remarks.

Brian McKenna: Thanks, Brian. Appreciate it. Look, we think a real strength of our platform is our origination effort. I think we've shown that in spades since inception. We try to really see everything that's out there in terms of new opportunities. Obviously, when we're either doing an add-on or refinancing of an existing company, that's an easier underwrite. There's a mix. We very much want to see new names, and we will constantly compare opportunities for existing names and new names from an economic basis.

Speaker Change: Sourcing advantages.

Speaker Change: Blue All platform you mentioned some of the potential acquisitions, there could you remind us again whats being stores currently and what could potentially change going forward in terms of either types of assets or loans.

Speaker Change: In terms of the insurance acquisition. Thanks.

Speaker Change: So <unk> is going to continue to stick to our strategy of direct lending for.

Unknown Executive: So OBDC is going to continue to stick to a strategy of direct lending primarily for private equity-backed companies, you know, cash flow-oriented loans in sectors like software insurance, brokerage, food, and beverage, as we have. Blue Owl, the manager of OBDC, has announced two acquisitions.

Craig Packer: So OBDC is going to continue to stick to a strategy of direct lending for primarily private equity-backed companies, you know, cash flow-oriented loans in sectors like software insurance, brokerage, food, and beverage, as we have. Blue Owl, the manager of OBDC, has announced two acquisitions.

Unknown Executive: Primarily for private equity backed companies.

Unknown Executive: Cash flow oriented loans and sectors like software insurance brokerage food and beverage as we have blue.

Brian McKenna: I think you'll see a mix. The environment in the last six months has been more weighted to refi and add-ons in the market because M&A remains pretty moderate. If M&A picks up, I think you'll see us skew a bit more towards new names. Probably the refinancing will, the easy refi has gotten done. Over time, I would imagine as M&A picks up, it'll skew a little bit towards new names, but we don't pre-ordain this. We'll look at it organically as opportunities come in, and I'm hopeful that we see more new names over the next six months. Okay, great. Helpful.

Speaker Change: Blow out the manager of obesity has announced two acquisitions one is.

Craig Packer: One is in the insurance space, managing money for insurance companies. The second is alternative credit, which is an industry catchphrase that generally applies to asset-based financing. So it could be pools of loans, you know, consumer loans, commercial loans, other asset-based lending strategies. We acquired a business called Adelia that's really a pioneer and a terrific market leader in that space. The insurance and alternative credit strategies will continue to pursue them as they have with separate teams and separate investment strategies.

Unknown Executive: One is in the insurance space, managing money for insurance companies. The second is alternative credit, which is an industry catchphrase that generally applies to asset-based financing. So it could be pools of loans, you know, consumer loans, commercial loans, other asset-based lending strategies. We acquired a business called Adelia that's really a pioneer and a terrific market leader in that space.

Speaker Change: In the insurance space managing money for insurance companies.

Unknown Executive: And as an alternative credit, which is which is an industry catch phrase that is generally applies to asset based financing.

Unknown Executive: So it could be pool pools of loans.

Unknown Executive: Consumer loans.

Unknown Executive: Marshall loans other asset based lending strategies, we acquired a business called out a liar, that's really a pioneer and a terrific.

Unknown Executive: Market leader in that space.

Brian McKenna: Then a question on the merger with OBDE. OBDC has delivered 10% gap ROE since inception. It's clear that the combination will create a number of different synergies here, and then I think you can argue that OBDE's portfolio from a credit perspective is even better than OBDC. For my fee, it would seem that there's the potential to drive gap ROE's above that 10% figure, but it would be great, Craig, just to get your thoughts here.

Speaker Change: The insurance and alternative credit strategies will get we will continue to pursue them as they have with separate teams and separate investment strategies and so it's not going to change or BDC strategy.

Kenneth Lee: And so it's not going to change OBDC's strategy, but we're going to be a bigger force in the market. We're going to talk to more companies, offer them more options, and I think it will create more opportunities over time that will accrue to the benefit of our diversified lending business and OBDC specifically. So from time to time, there may be co-investing from OBDC and these other strategies on a selected basis. But I think just in addition to that, the broader sourcing effort will be that much wider. So don't expect a change in complexion, but do expect from time to time some opportunities that come from this wider effort.

Kenneth Lee: Gotcha. Great. Very helpful there. Thanks again.

Unknown Executive: But we're going to be a bigger portion of the market, we're going to talk to more companies offer them more options and I think it will create more opportunities over time that will.

Unknown Executive: Accrued to the benefit of our diversified lending business and <unk> specifically.

Unknown Executive: So from time to time, there may be co investing from obesity and these other strategies on a selected basis.

Brian McKenna: Higher thinking about this synergies over time, and how that ultimately comes through in the ROE. Sure, a very gracious question. Look, many of you were at our investor day a little over a year ago and we outlined some steps that we were going to take to drive OBDCs are we higher. I'd like to point out, we've accomplished those and we're at 12.6 percent. It's really strong returns and demonstrates the power of our platform and our ability to try to optimize E as you highlighted E the portfolio is pristine as much as I'm proud of C's credit performance E is even better.

Unknown Executive: But I think just in addition to that the broader sourcing effort will be that much.

Brian McKenna: E's return profile is a little bit less partly because it's prune E's return to match C's fairly quickly as we get the benefit of scale on the liability side and continue to optimize E on the asset side. And so I think on a combined basis, I hope that we can take OBDC on a pro-former basis north of 10, today we're in the 12s. Obviously rates are bigger driver than any of that.

Unknown Executive: Much wider so Dominic don't expect to change in complexion, but do expect from time to time some opportunities that come from this wider this wider effort.

Speaker Change: Gotcha, great very helpful. Thanks again.

Speaker Change: Thank you. Our next questions are from the line of Casey Alexander with Compass point. Please proceed with your questions.

Casey Alexander: Thank you. Our next questions are from the line of Casey Alexander with Compass Point. Please answer your questions.

Speaker Change: Yeah. Good morning, Congrats on the merger and I would observe that the the direct listing of Ob D E.

Casey Alexander: Yeah, good morning. Congratulations on the merger. And I would observe that the direct listing of OBDE is certainly the most successful direct listing of anything that's been done in the BDC space. So congratulations on that.

Speaker Change: Certainly the most successful direct listing of anything thats been done in the BDC space. So congratulations on that.

Casey Alexander: My question, and maybe it's, Maybe it's just trying too hard, but I think because of the cost of capital difference and the advantageous liability structure of OBDC, that OBDC has a better return on equity than OBDE does. How much of that gets made up by the elimination of duplicative expenses, and then how long do you think it takes to transition OBDE's cost of capital?

Speaker Change: My question and maybe it's.

Unknown Executive: Maybe it's just trying too hard, but I think because of the cost of capital difference and the advantageous liability structure of OBDC, that OBDC has a better return on equity than OBDE does. How much of that gets made up by the elimination of duplicative expenses, and then how long do you think it takes to transition OBDE's cost of capital?

Unknown Executive: Maybe it's it's just trying too hard, but but I think because of the cost of capital difference in.

Unknown Executive: And the advantageous liability structure of Ob D C.

Unknown Executive: Obi D. C has a better return on equities and obedient does how much of that gets made up by the elimination of duplicative expenses and then how long do you think it takes to transition Ob <unk> cost of capital.

Speaker Change: Liabilities down to what's more appropriate for Ob D C.

Brian McKenna: I'd like to think we're going to do a great job to optimize the mix. But obviously rates, the rate picture will drive where we land ultimately and we're looking at what's going on with rates and like most market participants, we expect rates to come down. We still think we can generate a low double digit rate of return even if the rate curve plays out the way it's expected to stay in the way rates are now then we should be able to generate a 12 percent rate of return in short order.

Unknown Executive: So.

Jonathan Lamm: So it's a great question. And we, you know, just to hit specifically on the synergies, you know, we've, we've outlined in the investor presentation that we expect about $5 million of, of operational synergies that will that that will go near to the combined company. Immediately, we've also talked about our, our, our view that the combined company will have the benefits of, of, of tightening, tightening issuances in the, in the debt market, in the unsecured market, in terms of, in terms of accretion, or, or, or dilution, if you're, if you're going to, if you want to think about it like that, we don't think that it's dilutive, it's not, given the size of OBDE relative to OBDC, we expect that we'll start to see that, you know, that, that NII accretion, if we close the merger in early 25, by late 25, and into 26.

Speaker Change: Great question.

Unknown Executive: Just to.

Speaker Change: Specifically on the synergies we've outlined in the Investor presentation that we expect about $5 million of of operational synergies that will that will inure to the combined company.

Speaker Change: Immediately we've also talked about our our view that the combined company will have.

Unknown Executive: the benefits of tightening issuances in the debt market and in the unsecured market. In terms of accretion or dilution, if you want to think about it like that, we don't think that it's dilutive. It's not, given the size of OBDE relative to OBDC. We expect that we'll start to see that NII accretion if we close the merger in early 25 by late 25 and into 26. So you may have one quarter where there's a slight dilution, but we're talking about minimal dilution and then accretion from there, just given the situation.

Speaker Change: The benefits of of.

Brian McKenna: So I guess we'll optimize and we'll optimize for whatever rate environment we live with. But we think that the benefit of combining the two funds is even more scale, more diversification, more power on the liability side, better optimization of expenses, you know, we think we have positioned this fund to be, you know, one of the very best performers in the space.

Unknown Executive: Tightening tightening issuances in the debt.

Speaker Change: At market.

Unknown Executive: In the unsecured market.

Unknown Executive: In terms of in terms of accretion.

Unknown Executive: <unk> dilution, if youre going to if you want to think about it like that we don't think that it's dilutive it's not given the size of it will be to you relative to Ob DC, we expect that we'll start to see that.

Jonathan Lamm: So you may have one quarter where there's a slight dilution, but we're talking about minimal, and then accretion from there, just given the And then with respect to refinancing, 2025 and 2026 are the vast majority of those refinancing seals. You'll see those debt facilities really coming out relatively quickly.

Unknown Executive: NII accretion.

Brian McKenna: Okay, great. I'll leave it there and congrats again on the merger. Great. Thanks, Brian.

Unknown Executive: If we close the merger in early 'twenty five 'twenty five and into 26. So you may have one quarter, where there is a slight dilution, but we're talking about minimal and then accretion from there just given the synergies.

Robert Dodd: The next questions are from the line of Robert Dodd with Raymond James. Please just use your questions. Hi, hi guys. Morning. I'm on on the merger. The filing so far, the 25 says no change in in the free structure. That's fine. The question is, is it the intent to exclude any discount, amuletional or discount, Christian premium amuletion, depending where the entities are trading at the close from the calculation of the incentive fee or will that all be included in.

Speaker Change: And then with respect.

Unknown Executive: With risk Refinancings, 2025, and 2026 are the vast majority of those refinancings deals youll see those those debt facilities really coming out relatively quickly.

Casey Alexander: Great, thank you. My other question is I saw in the deck that if the merger is consummated before January 25th, that would waive the lockup on OBDE, but my question is, and maybe I missed it, do you have a timeline for when you expect this to close? And this, I assume, will require shareholder votes from both BDEs?

Speaker Change: Great. Thank you my other question is I saw in the.

Unknown Executive: In the deck that if the merger is consummated before January 2015 that that would waive the lockup on Ob D E and.

Robert Dodd: In income and the calculation incentive is that obviously would potentially require some level of change in the nuances of the free structure. So Robert, we've if you take a look at what we've what we filed in terms of the merger structure, we filed also to make an amendment to the IMA to deal with that. So it is our intention, you know, based on based on the approvals that will come that will come forward for us to a job.

Speaker Change: But my question is and maybe I missed it do you have a timeline for when you expect this to close.

Speaker Change: And this I assume will require shareholder votes of both bdcs.

Jonathan Lamm: So, we've commented that we expect the merger to close in early 2025, so in January, right around the time of the final lock-up release for OBDE. And what you're alluding to is correct, that we're going to need shareholder approval. We are going out for shareholder approval on both sides, for C and D shares.

Unknown Executive: Yes.

Speaker Change: So we.

Unknown Executive: We've we've we've commented we commented that we expect the merger to close in early 2025. So in January right around the time of the final lockup release for OLED.

Robert Dodd: Thank you very much. I was reading the summary version of the 425. Then the second one, to your point, Craig, you did talk about this at the analyst day, almost 18 months ago. I think that ultimately you would like two public BDCs, one diversified lending and one tech, obviously the checks are different topic, but both C and E diversified lending, but there's also the other vehicle. I don't know how much you can say about that.

Speaker Change: And what your what Youre alluding to is correct that we're going to need shareholder approval were going out for shareholder approval on both sides for see in Russia, Okay great.

Casey Alexander: Okay, good. Terrific. Thank you for taking my questions. Thank you.

Speaker Change: Perfect. Thank you for taking my questions.

Craig Packer: So, Casey, just to add it, even though you didn't ask it first, thank you for the kind words on the listing. We appreciate it. We worked really hard on it. A lot of thought went into precisely how to do it, and we're really excited to take this next step. But thank you for acknowledging the execution so far.

Unknown Executive: Casey just just to add it even though you didn't ask it first thank you for the kind words on the listing we appreciate it we worked really hard at it.

Robert Dodd: But what's the, do you still feel that you just like one diversified lending, public traded vehicle, and if there's any color you could add about what that means for the current private version? Sure, so as Robert pointed out, when we did our investor day a year ago, we have seven managed BDCs, and we know sometimes that can create a little confusion. And so we laid out a bit of a vision that over time, it would make a lot of sense to ultimately have a publicly traded diversified publicly traded tech and to non-traded diversified tech.

Speaker Change: A lot of thought went into precisely how to do it and.

Speaker Change: We're really excited to take this next step, but thank you for acknowledging the.

Speaker Change: The execution, so far I, just wanted to add to jonathan's comment beyond the lockups coming off.

Jonathan Lamm: I just want to add to Jonathan's comment, beyond the lockups coming off, OBDE shareholders are going to get significant distributions between now and the close, if this deal closes. We've already announced four special dividends to take place at six cents each, and all those will be paid prior to the merger closing. And in addition, there'll be a distribution, essentially, for a one-time distribution for NAV, to normalize the NAV, that will get paid at close, prior to close, as well.

Speaker Change: <unk> shareholders are going to get significant distributions.

Speaker Change: Between now and the close if this deal closes we've already announced for special dividends to take place at <unk> each.

Speaker Change: And all of those will get paid.

Speaker Change: Prior to the merger closing and in addition, there'll be a distribution essentially.

Unknown Executive: Four.

Speaker Change: A onetime distribution.

Unknown Executive: For.

Speaker Change: Essentially for now to normalize the NAV that will get paid at close prior to close as well. So <unk> shareholders 24 cents of specials and use June 30th numbers. Another 19 of the distribution that will get paid prior to close.

Robert Dodd: So as Robert is asking, we have a private BDC, OBDC, too, that is still there. I'm going to say the same thing I said at the time, which is we continually look at this for each fund, optimize each fund, working closely with our board, the board, I just want to acknowledge our board spent a tremendous amount of time over the summer thinking through this merger on behalf of OBDC and OBDE, with independent and advisors for each fund and came up with a structure that we think really fit the situation ideally, and we will continue to evaluate options for all of our funds, including OBDC, too, to see if there are opportunities to optimize for each fund individually.

Jonathan Lamm: So OBDE shareholders, there's 24 cents of specials, and using June 30th numbers, another 19 cents of a distribution that will get paid prior to close. That's quite, you're talking about another 43 cents per share of distribution. So I know the merger is a little bit complicated. Folks have questions about this; you should call, but for both OBDC and OBDE shareholders, there's a lot to like about this. Thank you. As a reminder, if you'd like to ask a question, you may press star one on your telephone keypad. Our next question is from the line of Finian O'Shea with Wells Fargo. Please proceed with your question. Hey everyone, good morning.

Speaker Change: Quite so you're.

Speaker Change: Talking about another 43 cents per share of distributions. So I know the mergers all the complicated folks have questions. On this you should call, but for both <unk> shareholders. There's a lot of lots of lifestyle for smartphone.

Speaker Change: Thank you as a reminder, if you'd like to ask a question you May press star one from your telephone keypad.

Finian O'shea: Thank you. As a reminder, if you'd like to ask a question, you may press star one on your telephone keypad. Our next question is from the line of Finian O'Shea with Wells Fargo. I'm pleased to see you with your question.

Unknown Executive: Thank you. As a reminder, if you'd like to ask a question, you may press star one on your telephone keypad.

Speaker Change: Our next question is from the line of Finian O'shea with Wells Fargo. Please proceed with your question.

Robert Dodd: It would still make industrial logic to have one publicly traded diversified fund, so there's no change there. But obviously, as with this transaction, we're going to be super careful and strategic about how we execute on that to make sure it makes sense for both sets of shareholders. So we said that a year ago for the funds, and here we are delivering on that with this merger, and if there's an opportunity down the line for two that makes sense, whatever that is, we'll pursue it then, but I don't want to get ahead of ourselves right now we're focused on getting out the merger, getting that merger closed, and we'll continue to evaluate along the way.

Speaker Change: Hey, everyone good morning, and congrats.

Speaker Change: I wanted to unpack a little bit more of the optimization idea and what that can mean for the portfolio it sounded like.

Robert Dodd: Okay, appreciate it. Thank you.

Unknown Executive: And your answer to Mark I believe indicated more of a push into.

Robert Dodd: Thanks, Robert.

Speaker Change: Specialty finance.

Speaker Change: Is that right and how earnestly.

Speaker Change: Would that play out thanks.

Finian O'shea: Well, I'm glad you asked the question because we definitely did want to give the impression that we're changing our strategy. On the asset, Jonathan should comment on the operational and on the liability.

Speaker Change: Well I'm glad you asked the question because we definitely didn't want to give the impression that we're changing our strategy on the asset Jonathan should comment on the on the on the <unk>.

Speaker Change: Operational and on the liability, but on the asset side.

Craig Packer: But on the asset side, we're going to continue to operate OBDC the way we have since inception. There's going to be no change to the strategy, primarily sponsor-backed upper middle market lending. We have already been very active in building out some of what we call our strategic investments, which are some of these specialty finance verticals that you're alluding to. So we've been making them. We're going to continue to grow them.

Speaker Change: We're going to continue to operate <unk>. The way, we have since inception, theres going to be no change in strategy.

Mark Hughes: Thank you. The next questions are from the line of Mark Hughes with truest securities. Please just use your questions.

Speaker Change: Primarily sponsor backed upper middle market lending, we have already been very active in building out some of what we call our strategic investments, which are some of these specialty finance verticals that you're alluding to so we've been doing them, we're going to continue to grow them. We may have opportunities to do additional.

Mark Hughes: Yes, thank you. Congratulations. Have you gotten any indications what the borrowing cost impact might be? I think the point with the scale, you get to better access to capital, any really thoughts about that that you care to share? I mean, I think Mark, as you've probably observed, you know, generally when we've, when we've entered into what were we've issued on Secured's IG bonds, our bond investors have come back to us and effectively said that there's complexity in your structure because you have so many BDCs.

Craig Packer: We may have opportunities to do additional ones, but that's not a new thing, and it's not a change in strategy, and there's not a change in complexion of how much. What I tried to say, maybe then do a clear job of it, is OBD doesn't have any of that today, given it's vintage.

Speaker Change: Ones, but that's not a new thing is how to change the strategy and there is not a change in complexion of how much.

Unknown Executive: Right.

Speaker Change: What I tried to say.

Speaker Change: Maybe then do clear job of it is <unk> doesn't have any of that today.

Unknown Executive: Given its vintage and so on a combined basis going forward.

Craig Packer: And so on a combined basis, going forward... Day one, the equity percent will come down at OBDC because OBDE doesn't have any. And so over time, we can normalize that and get it back to at least the current mix. And we'll, you know, continue to grind that a bit higher, but not wholesale higher. I think, you know, we're really selective about the verticals we go into, and we co-invest in those verticals across multiple funds.

Mark Hughes: And so one of the things that they have been asking for and looking for is, is that merger? So we think that there is, you know, there are low hanging, there's low hanging fruit in the context of these companies coming together to tighten our spreads relative to our peers in the IG space. You know, is it 5, 10, 15 basis points somewhere in that range? That's right. Hi, it's true, not only in the bond side, but also on the on the secured financial side.

Unknown Executive: On day one, the equity percent will come down.

Speaker Change: They won the equity percentage will come down.

Speaker Change: It'll be D C. Because there'll be the he doesn't have any and so over time, we can normalize that and get it back to.

Speaker Change: At least the current mix and we will continue to grind that a bit higher but not wholesale higher I think.

Speaker Change: We're really selective about the verticals, we go into and we co invest in those verticals across multiple funds. So.

Speaker Change: So it's not we're not going to dramatically change the mix so same strategy.

Craig Packer: So, so it's not, we're not going to dramatically change the mix. So, same strategy. We have been deploying OBDE efficiently, but I think now that both funds are fully deployed, fully levered, we can be really disciplined as we add new investments, as we have in the past, and try to improve on the spread and overall returns. So no change overall, just a little bit of optimizing as we fold in E and continue to operate OBDC as it has in the past.

Mark Hughes: I mean, we, we are, this is going to be an $18 billion vehicle. It's the second largest in the space. We delivered excellent performance, not only for our shareholders, but certainly for our lenders, secured and unsecured. The, there's significant increase in diversification, which obviously financing sources really like, and we've always carefully managed the fund. So, so in, by the way, I would say broadly for the BDC space bonds take your trade wider than they should for the credit quality that they have and that they've delivered on.

Speaker Change: We we have been deploying OBE.

Speaker Change: <unk>, but I think now that both funds are fully deployed fully levered, we can be really disciplined as we add new investments as we have in the past and try to improve on spread and overall returns. So no change overall, just a little bit of optimizing as we fold in <unk> and <unk>.

Speaker Change: To operate <unk> as it has in the past.

Speaker Change: Awesome. Thanks, so much.

Ben: Thanks Ben.

Speaker Change: Thank you. Our final question today comes from the line of Paul Johnson with <unk>. Please proceed with your questions.

Mark Hughes: So, I, I think collectively the space should trade tighter, we should trade tighter. And being able to essentially refinance the, with OBDC's credit quality will also provide upside. So, Jonathan, 10, 15, 20 basis points seems very reasonable to me. I think over time, the quality of the space should, it should improve liability cost should come tighter over time and might pay. Understood.

Speaker Change: Yeah. Good morning, I Hope you can hear me okay.

Finian O'shea: Good morning. I hope you can hear me okay. I'm not quite sure what happened.

Unknown Executive: Good morning. I hope you can hear me okay. I'm not quite sure what happened.

Speaker Change: Sure what happened there.

Unknown Executive: But not sure how much.

Speaker Change: My question got through but just kind of asking about the level of uptick within the portfolio and potentially as well.

Paul Johnson: with connections in the portfolio, and potentially as well, if you could even share them.

Unknown Executive: Even, you know, share any statistics you may have in terms of, you know, payouts or, you know, performance, such as those underlying companies that are

Speaker Change: Even share any.

Paul Johnson: even, you know, share any statistics you may have in terms of, you know, payouts or, you know, performance, such as those underlying companies that are currently paying out the tech portfolio. So, Paul, I think...

Unknown Executive: You may have in terms of.

Unknown Executive: Or performance.

Mark Hughes: Thank you. And then the new commitments in the quarter, the any trajectory and loan to value or EBITDA leverage relative to the existing portfolio. Kind of, what are you seeing out there in the market? The quality is very good. Loan to value remains really modest, depending upon the deal, 35%, maybe 40%. The leverage, you know, leverage has been lower generally on new deals given higher rate environment. So, five to six times.

Unknown Executive: Underlying company et cetera.

Unknown Executive: Okay.

Paul: So Paul I think.

Speaker Change: So a little bit so a little hard to hear you, but I think that was what your question was.

Craig Packer: A little bit, it's a little bit hard to hear, but I think that was what your question was. Correct, yep. Okay.

Unknown Executive: A little bit, a little bit hard to hear, but I think that that was what your question was about. Something that we do because it generates great returns for our investors, obviously when these loans are contractually typically required to go cash-pay after two or three years, and they do that systematically, or they get repaid or refinanced. And so it's something we do because it generates good returns, and we've had a couple names that have had some, and we've agreed to do some picks, you know, for reasons that make sense for those credits.

Unknown Executive: Correct Yep.

Speaker Change: Okay. Okay.

Craig Packer: So, look, our PIC exposure has been pretty consistent over the last handful of quarters at give or take 13%. The vast majority of our PIC investments were structured as PICs at the time of underwrite for performing credits where we were asked to provide a defined period of flexibility to allow for all or a portion of a loan to be paid in PICs. It's not something we generally go looking for, but we have the flexibility to offer it.

Unknown Executive: So <unk>.

Unknown Executive: Look our pik exposure, it's been pretty consistent over the last handful of quarters at give or take 13%.

Unknown Executive: The vast majority of our Pik investments were structured as pick at the time of underwrite for performing credits that we were asked to provide a.

Mark Hughes: You know, we continue to finance bigger companies, that's always been our preference. I don't have my fingertips average EBITDA for the quarter, but I think it'll be in line. It'll be very much in line with what we've done historically. Our ability to do size continues to be differentiator, private equity firms really like working with firms that can do the whole deal or most of the deal. But we also had a meaningful, you know, half more than half of the quarter's activity were refinancing or add-ons.

Speaker Change: A defined period of flexibility to allow for all or a portion of a loan to be paid in tech. It's not something we generally go looking for but we have the flexibility to offer it and we when asked if we think we're getting paid a premium return should be able to offer it and ultimately we'll collect on all that pick interest we're willing to do it in select.

Craig Packer: And when asked if we think we're getting paid a premium return to be able to offer it, and ultimately we'll collect on all that PIC interest, we're willing to do it in select circumstances. And that approach has been consistent and hasn't changed.

Speaker Change: Circumstances approaches and consistent Hasnt changed.

Craig Packer: And 80% of our portfolio of PICs is that way. We've had a couple names in the last quarter or so that we, in the context of negotiating for more trickier credits, we have allowed for a period of PICs. And so that has, I don't want to say it hasn't happened at all, but it's really a very small portion of our PIC exposure.

Mark Hughes: And so obviously those are the same exact statistics. But for the new deals, consistent credit quality, credit stats, size of company, continue to find opportunities even in a moderate M&A environment to find new investments that we really like. And then your exposure to common equity, any change in strategy there, post the merger? No change in strategy, you know, I just as a reminder for folks that are less familiar, you know, common equity for us.

Unknown Executive: And 80% of our of our portfolio of <unk> is that way we've had a couple of names in the last quarter or so that we in the context of negotiating for more more trickier credits, we have allowed for a period of Pik and.

Unknown Executive: So.

Speaker Change: That has I won't say it hasnt happened at all but it's really a very small portion of our pik exposure and in those cases.

Craig Packer: And in those cases, always or almost always, by providing that flexibility, we are getting more economics, and sponsors are putting in additional capital into the companies. These are situations that we think we're getting a real benefit from. Almost all of our, given that 80 plus percent of our PIC are structured that way to underwrite, those investments are performing well. They're not on our watch list. They're more in the high 90s, as they should be.

Unknown Executive: Always or almost always.

Speaker Change: For providing that flexibility we are getting more economics.

Unknown Executive: Sponsors are putting in additional capital into the companies we are not.

Mark Hughes: The vast majority of our common equity exposure is equity in portfolios of really diversified underlying assets that are credit credit portfolios essentially. We have an asset-based lending business, we have a life insurance settlement business, we have an aircraft and rail car finance business. So these are all equity investments from an accounting standpoint, but the underlying risk is really a portfolio of loans essentially. And so that's been a terrific strategy for us to generate really nice ROE and also some potential for NAV, a creation over time.

Unknown Executive: These are situations that we think we're getting a real benefit from.

Speaker Change: Almost all of our given that 80 plus percent of our Pik.

Speaker Change: Our structured that way to underwrite those investments are performing well, they're not we're not on our watch list. There are more in the high <unk> as they should be.

Unknown Executive: So we are continuing to do this it's something that we do because it generates great returns for our investors obviously when when these loans are contractually tip.

Paul Johnson: And so we continue to do this. Something that we do because it generates great returns for our investors, obviously when these loans are contractually typically required to go cash-pay after two or three years, and they do that systematically, or they get repaid or refinanced. And so it's something we do because it generates good returns, and we've had a couple names that have had some, and we've agreed to do some picks, you know, for reasons that make sense for those credits.

Speaker Change: Typically require to go cash pay after two or three years and they do that systematically or they get repaid or refinanced and.

Unknown Executive: And so it's something we do because it generates good returns and we've had a couple of names that have had some we've agreed to do some pick.

Mark Hughes: So we like the strategy, I think it's been beneficial to shareholders, we will continue to pursue it. OBDE has much less of it, and so the addition of OBDE will allow us to continue to grow those strategies but not necessarily increase the percentage. So we will continue to invest in these different specialty lending verticals, if you will. And they are also a bit more protected from some of the ReFi cycle that individual loans face. So continue on the strategy if we find new opportunities, you know, we will look at those as well.

Unknown Executive: For reasons that that makes sense for those credits.

Mark Hughes: Very good. Thank you.

Speaker Change: Got it appreciate the color on that and again apologize for the a 10.

Craig Packer: You have to appreciate the color on that and, again, apologize for the tech issues here on my side. At a higher level, I mean, just, you know, going into an environment where credit starts getting, you know, a little bit, you know, more, challenged in the space, and potentially sponsors getting, you know, a little bit more, you know, desperate to potentially, you know, buy time on, you know, some of their better investments, but investments that might be, you know, kind of temporarily underperforming.

Speaker Change: She is here on my side.

Unknown Executive: A higher level I mean, just.

Unknown Executive: Going into <unk>.

Unknown Executive: Thinking a little bit more hypothetical year, but going into an environment, where credit starts getting.

Unknown Executive: A little bit.

Unknown Executive: Yes.

Unknown Executive: <unk> in the space and.

Unknown Executive: Sequentially sponsors getting a little bit more desperate too closely.

Unknown Executive: By time on.

Unknown Executive: They're better investment but.

Unknown Executive: That might be kind of temporarily underperforming.

Paul Johnson: Our next questions are from the line of Paul Johnson with KVW. Let's see if you're questions. Yeah, the more in the face of these questions, they can come increased to slightly toward around 30% of the interesting ones.

Unknown Executive: No.

Unknown Executive: you know.

Speaker Change: How do you sort of spoke about.

Craig Packer: How do you sort of think about Sponsor Concentration? You know, as you're building the platform, the funnel, you know, building the business, you know, with the pipeline, how do you sort of think about risk management in terms of sponsor concentration, either at, you know, kind of the portfolio level or the pipeline?

Speaker Change: The sponsor concentration.

Unknown Executive: But as you're building the platform.

Speaker Change: Subtle building the business, though with the pipeline how do you sort of think about risk management in terms of.

Paul Johnson: What do you think? The idea of what you stand on your portfolio comes back and then the additional questions to understand, you know, to some extent, as you ask that. It was, I think I heard some of the question, but it was really hard to hear you. Can I ask you to try to shift position and repeat? Paul, can you hear us out?

Speaker Change: Sponsor concentration either at the portfolio level or the pipeline.

Speaker Change: So I think there is a huge strength of ours, where you you avoid sponsor concentration is having a really big fund like we do having a very significant team like we do in terrific relationships with many leading private equity firms at a senior level on a day to day level, which we do we cover 500 plus.

Craig Packer: So, I think there's a huge strength in ours, the way you avoid sponsor concentration is having a really big fund like we do, having a very significant team like we do, and terrific relationships with many leading private equity firms at a senior level and a day-to-day level, which we do. We cover 500 plus private equity firms and have had a very diversified list of sponsors in our portfolio over time. So, there's not any undue concentration on one, two, five, or ten names.

Speaker Change: Divot equity firms.

Unknown Executive: And.

Unknown Executive: And have had a very diversified.

Unknown Executive: List of sponsors in our portfolio over time, so there's not any any.

Unknown Executive: Why don't we jump to the next question in the key? Paul, if you can hear us, maybe try dial back in and what we're happy to take your question. Yes, thank you.

Unknown Executive: Undue concentration on 125 10 names, obviously, we very much value the relationships, we have the private equity firms and so I don't want to sound Cavalier about it but we're not dependent on any one or two of those relationships.

Craig Packer: Obviously, we very much value the relationships we have with private equity firms, and so I don't want to sound cavalier about it, but we're not dependent on any one or two of those relationships. You know, I'd just say, though, you know, we've lived through COVID, we've lived through a higher rate environment, you know, I feel really comfortable that we will work through challenges with these private equity firms. If they believe in their companies and the future of those investments, we regularly come up with partnership-oriented solutions that allow them to keep those companies as long as they want to continue to support them.

Kenneth Lee: The next question is from the line of Kenneth Lee with RBC Capital Markets. Please just see with your question. Hey, good morning. Thanks for taking my question.

Unknown Executive: I would just say, though.

Unknown Executive: We've lived through Covid, we've lived through a higher rate environment.

Kenneth Lee: I just want to about the merger. Under the NII Christian, you briefly alluded to optimizing portfolio mix. Should we expect any kind of portfolio rotation or streamlining across the portfolio going for post-emerger? Thanks.

Unknown Executive: I feel really comfortable that we will work through challenges with the private equity firms.

Unknown Executive: They are if.

Speaker Change: If they believe in their companies.

Unknown Executive: And the future of those investments.

Unknown Executive: We regularly come up with partnership oriented solutions that allow them to keep those companies as long as they want to continue to support them that's been <unk>.

Kenneth Lee: No rotation. I mean, we've really had the same strategy since inception. High quality companies, bigger recession resistance sectors, mostly sponsor back. I think that we'll continue with that. EE is a little more first lean. We've got significant repayments in OVDC's second lean exposure in the first quarter. We've got 40% of our second lean's got repaid. We're going to take advantage of the best opportunities the market brings us. But continue to stick to our core strategy.

Kenneth Lee: But I would say as the fund is bigger, its ability to take down bigger size gives it purchasing power and allows us to really win the highest quality investments out there. And we'll continue to try to optimize our EE on a combined basis through a mix of mostly first lean, a little bit of second lean, and some of these strategic investments that show up as equity investments. I think the diversification, I really take, I'm going to keep repeating that.

Craig Packer: That's been, you know, our experience, all throughout our history, and I don't expect any change in that. And if, for whatever reason, on a selective basis, there is a company that's struggling that they don't have the ability to support, well, that's not our preference. We're set up to take action and protect our investment, including owning companies if we need to. Not our preference, but we've done it, and we will continue to do it.

Unknown Executive: Our experience.

Speaker Change: All throughout our history and I expect I don't expect any change in that.

Unknown Executive: If for whatever reason on a select basis that they are as a company thats struggling that they don't have the ability to support well that's not our preference were set up to take.

Speaker Change: To take action and protect our investment including owning companies, if we need to ignore a preference, but we've done it will continue to do it so.

Paul Johnson: So I feel like, I don't feel that this is a particular exposure; I feel like it's the strength and the private equity firms. I think many private equity firms, while, you know, this week's Headlines might be worried about the economy, the companies are doing well. Private equity portfolios are doing well. Private equity firms generally don't focus too much on cyclical companies, which is where you'll see some of the pain. If anything, I think private equity firms are probably looking forward to a bit of a loosening of the pressure on debt service as rates come down, and I am hopeful that that will result in a more robust M&A environment.

Speaker Change: So I feel like I don't feel that this is a particular exposure and feel like it's the strength.

Speaker Change: In the private equity firms, because I think many private equity firms while this weeks.

Speaker Change: Headlines might be worry about about the economy. The companies are doing well private equity portfolios are doing well on private equity firms generally don't focus too much on cyclical companies, which is where you'll see some of the pain. If anything I think the private equity firms are probably looking forward to a bit of a bit of.

Speaker Change: A loosening of pressure on that service as rates come down and I am hopeful that that will result in a more robust M&A environment. So our dialog with the private equity firms has been positive and hopeful that there'll be more deal activity and generally feeling good about their portfolios frankly wanting to keep their companies longer which is why we haven't seen as much M&A.

Kenneth Lee: I think that's really valuable and it will end in portfolio. And so it'll be a similar strategy to what we outline because that strategies work well. We're going to just keep executing on it. Great, very helpful there.

Paul Johnson: So our dialogue with the private equity firms has been positive and hopeful that there'll be more deal activity, and generally feeling good about their portfolios, frankly wanting to keep their companies longer, which is why we haven't seen as much M&A, and I'm not detecting any growing anxiety about their portfolios. Canada.

Unknown Executive: Hey.

Speaker Change: And I'm not I'm, not certainly not detecting any any growing anxiety about their portfolios.

Kenneth Lee: And just one follow-up if I may and you just put on this briefly in the prepared remarks. The sourcing advantages from the blue owl platform, you mentioned some of the potential acquisitions there. Could you remind us again what's being sourced currently and what could potentially change going forward in terms of either types of assets or loans? in terms of the insurance acquisition. Thanks. So OBDC is going to continue to stick to a strategy of direct lending for primarily for private equity-backed companies.

Craig Packer: Okay, I appreciate that. And last one for me, kind of on the point of M&A, kind of what are your thoughts on going into a recession, you know, if the US were to enter one, in terms of what would happen with M&A activity? Obviously, you know, recession would logically lead to, you know, much lower activity, but with rates obviously declining fairly significantly from the peak, wondering if that would stimulate anything, just, you know, given how long sponsors have sat on their hands with activities so far.

Speaker Change: Okay got it appreciate that and last one from me kind of on the point of M&A kind of what are your thoughts like going in to a recession.

Unknown Executive: Oh, God.

Speaker Change: If we if the U S were to enter one in terms of what would happen with with M&A activity.

Unknown Executive: Obviously.

Speaker Change: Assertion would logically lead to too much lower activity, but with rates, obviously declined fairly significantly from the peak wondering if that would still.

Kenneth Lee: You know, cash flow oriented loans and sectors like software insurance brokerage, food and beverage as we have. Blue Owl, the manager of OBDC, has announced two acquisitions. One is in the insurance-based managing money for insurance companies. The second is an alternative credit, which is an industry catchphrase that generally applies to asset-based financing. So it could be pools of loans, you know, consumer loans, commercial loans, other asset-based lending strategies. We acquired a business called Adalaya that's really a pioneer in a terrific market leader in that space.

Speaker Change: Emulate anything just given how long sponsors has sat on their hands with activity so far.

Unknown Executive: Yeah.

Unknown Executive: Okay, I think the private equity firms as you said, if we speak to them. All the time, we also speak to the Lps and the private equity funds. There is a real thirst from both the sponsors in the Lps to have more realizations and they are I think pretty eager to do that and the Lps are I think pretty eager to get get some of those distributions.

Paul Johnson: Okay. I think the private equity firms, as you said, if we speak to them all the time, we also speak to the LPs and the private equity funds, there's a real thirst from both sponsors and the LPs to have more realizations. And they're, I think, pretty eager to do that. And the LPs are, I think, pretty eager to get some of those distributions. So I would expect that at some point, that will pick up in spades.

Unknown Executive: So.

Speaker Change: So I'd be willing I would expect at some point that will pickup in speeds, if theres a mild U S recession, I don't think that will change that that day to day.

Craig Packer: If there's a mild US recession, I don't think that will change that day-to-day behavior for the sponsors. And so, again, we're experiencing growth in our portfolio of companies. Sponsors are as well. Companies are doing well. They're holding on because they're doing well and they want to get paid for even better performance. And so I don't think there will be a mild US recession. Again, private equity firms really focus on the growthier parts of the economy, even if there are mild recessions.

Speaker Change: Hager for the sponsors.

Kenneth Lee: The insurance and alternative credit strategies will continue to pursue them as they have with separate teams and separate investment strategies. And so it's not going to change OBDC strategy. But we're going to be a bigger force in the market. We're going to talk to more companies, offer them more options. And I think it will create more opportunities over time that will accrue to the benefit of our diversified lending business and OBDC specifically.

Unknown Executive: And so all of that.

Speaker Change: Again, we're experiencing growth in our portfolio of companies sponsors are as well companies are doing well they are holding on because theyre doing well and they want to get paid for even better performance.

Speaker Change: And so I don't think a mild U S recession again, the private equity firms.

Unknown Executive: really focus on the growthier parts of the economy. Even if there were a mild recession, they could be in, have lots of companies that are continuing to grow. But they might not be growing quite as much. So I don't think...

Speaker Change: Really focus on the growth of your parts of the economy, even if there were mild recession they could be in.

Unknown Executive: Lots of companies that are continuing to grow they might be growing quite as much.

Kenneth Lee: So from time to time, there may be co-investing from OBDC and these other strategies on a selected basis. But I think just in addition to that, the broader sourcing effort will be that much wider. So don't expect a change in complexion, but do expect from time to time some opportunities that come from this wider effort. Gotcha. Very helpful there. Thanks again.

Unknown Executive: I don't think.

Unknown Executive: This is my area of expertise, but I don't think a mild recession would result in.

Kenneth Lee: Thank you.

Speaker Change: Some delay in the sponsor M&A activities.

Unknown Executive: Now coming back.

Unknown Executive: But we'll see.

Speaker Change: Thank you at this time, we've reached under our question and answer session now I'll hand, the floor back to management for closing remarks.

Speaker Change: Great well, thank you all for joining us today.

KC Alexander: Our next questions are from the line of KC Alexander with Compass Point. Please receive your questions. Yeah, good morning. Congrats on the merger and I would observe that the direct listing of OBD is certainly the most successful direct listing of anything that's been done in the BDC space. So congratulations on that. My question and maybe it's just trying too hard. But I think because of the cost of capital difference and the advantageous liability structure of OBDC that OBDC has a better return on equity than OBD does. How much of that gets made up by the elimination of duplicative expenses and then how long do you think it takes to transition OBD's cost of capital liabilities down to what's more appropriate for OBDC?

Speaker Change: There's a lot out there obviously with the earnings plus the merger.

Speaker Change: We put a lot of material on our website. Please access that if you have questions, particularly on the merger. Please do reach out we want to make sure you are well informed obviously and just.

Unknown Executive: Very much appreciate the support have a great day.

Speaker Change: This will conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.

KC Alexander: So it's a great question and we, you know, just to hit specifically on the synergies, you know, we've outlined in the investor presentation that we expect about $5 million of operational synergies that will inert to the combined company immediately. We've also talked about our view that the combined company will have the benefits of tightening issuances in the debt market in the own secured market. In terms of accretion or delusion, if you want to think about it like that, we don't think that it's deluded if it's not given the size of OBD relative to OBDC.

KC Alexander: We expect that we'll start to see that, you know, that NII accretion, if we close the merger in early 25 by late 25 and into 26. So you may have one quarter where there's a slight delusion, but we're talking about minimal. And then accretion from there, just given the And then we've been answering 2025 and 2026. Are the vast majority of those refinancing fields? You'll see those deck facilities really coming out relatively quickly.

KC Alexander: Great. Thank you. My other question. I saw in the in the deck that if the merger is consummate before January 20th, I think that that would waive the lockup on OBDE. But my question is, and maybe I missed it. Do you have a timeline for when you expect this to close? And this I assume will require shareholder votes of both BDCs? Yeah, so we've we've we've commented we commented that we expect the merger to close in early 2025.

KC Alexander: So in January, right around the time of the final lockup release for OBDE. And what you're what you're alluding to is correct that we're going to need shareholder approval. We're going out for shareholder approval on both sides for CNN Russia. Okay. Thank you for taking my question. Okay, so just just to add it, even though you didn't ask it first, thank you for the time works on the listing. We appreciate it.

KC Alexander: We worked really hard at it. A lot of thought went into precisely how to do it. And we're really excited to take this next step. Thank you for acknowledging the execution so far. I just want to add to Jonathan's comment beyond the lockups coming off OBDE shareholders are going to get significant distributions between now and the close if this deal closes. We've already announced four special dividends to take place at six cents each and all those will get paid prior to the merger closing.

KC Alexander: And in addition, there'll be a distribution essentially for a one time distribution for, you know, essentially for nav to normalize the nav that will get paid at close prior to close as well. So OBDE shareholders there's 24 cents of specials and you know, use June 30th numbers another 19 cents of a distribution that will get paid prior to close. That's quite, you know, talking about, you know, another 43 cents per share of distribution.

KC Alexander: So I know the merger is a little bit complicated. Folks have questions on this. You should call it for both OBD shareholders. There's a lot, a lot to like about this. Thank you. As a reminder, if you'd like to ask a question, you may press star one from your telephone keypad.

KC Alexander: Our next question is from the line of Phineon O'Shea with Wells Fargo. Please just use your questions. Hey, everyone. Good morning and congrats. I wanted to unpack a little bit more of the optimization idea and what that can mean for the portfolio. It sounded like in your answer to Mark, I believe indicated more of a push into specialty finance. Is that right and how earnestly would that play out? Thanks.

KC Alexander: I'm glad you had a question because we definitely didn't want to give the impression that we're changing our strategy. On the asset Jonathan should comment on the operational and on the liability. But on the asset side, we're going to see it operate OBDC the way we have since inception. There's going to be no change in strategy, primarily sponsor backed up or middle market lending. We have already been very active in building out some of what we call our strategic investments, which are some of these specialty finance verticals that you're alluding to.

KC Alexander: So we've been doing them. We're going to continue to grow them. We may have opportunities to do additional ones, but that's not a new thing. It's not a change in strategy. And there's not a change in complexion of how much what I tried to say, maybe to do a clear job of it, is OBD doesn't have any of that today given its vintage. And so on a combined basis going forward, day one, the equity percent will come down at OBDC because OBD doesn't have any.

KC Alexander: And so over time, we can normalize that and get it back to at least the current mix. And we'll continue to grind that a bit higher, but not wholesale higher. I think, you know, we're really selective about the verticals we go into and we co-invest in those verticals across multiple funds. So it's not, we're not going to dramatically change the mix. So same strategy, we have been deploying OBDE efficiently, but I think now that both funds are fully deployed, fully levered, we can be really disappointed as we add new investments as we have in the past and try to improve on spread and overall returns. So no change overall, just a little bit of optimizing as we fold in E and continue to operate OBDC as it has in the past.

KC Alexander: Awesome. Thanks so much. Thanks, Ben.

Paul Johnson: Thank you. Our final question today comes from the line of Paul Johnson with KBW. Please receive your questions.

Paul Johnson: Good morning. I hope you can hear me okay and I'll push your what happened there. But I'm not sure how much of my question got through, but it's just kind of asking about, you know, this is the level of take within the portfolio and potentially as well, if you could, even, you know, share any fish 60 may have in terms of, you know, payouts or, you know, performance which is the underlying company that are currently paying for the portfolio.

Paul Johnson: So Paul, I think it's a little bit a little bit hard to hear, but I think that was what your question was. Correct, yep. Okay. So our pick exposure has been pretty consistent over the last handful of quarters. I'd give or take 13% the vast majority of our pick investments were structured as pick at the time of underwrite for performing credits that we were asked to provide a defined period of flexibility to allow for all our portion of alone to be paid in pick.

Paul Johnson: It's, you know, it's not something we generally go looking for, but we have a flexibility to offer it. And we when asked if we think we're getting paid a premium return to be able to offer it, and ultimately we'll collect on all that pick interest. We're willing to do it in select search circumstances. And that approach has been consistent, hasn't changed. And, you know, 80% of our portfolio pick is that way.

Paul Johnson: We've had a couple names in the last quarter or so that we, you know, in the context of negotiating for more trickier credits, we have allowed for a period of pick. And so I, you know, that has, I don't say it hasn't happened at all, but it's really a very small portion of our pick exposure. And in those cases, always or almost always, for providing that flexibility, we are getting more economics, sponsors are putting an additional capital into the companies.

Paul Johnson: You know, we're not, these are situations that we think we're getting a real benefit from. Almost all of our, given that 80 plus percent of our pick are structured that way to underwrite, you know, those investments are performing well. They're not, they're not on our watch list. They're marked in the high 90s as they should be. And so we are, we continue to do this. It's something that we do because it generates great returns for our investors.

Paul Johnson: Obviously, when these loans are contractually typically required to go cash pay after two or three years, and they do that systematically, or they get repaid or refinanced. And so it's something we do because it generates good returns. And we've had a couple names that have had some, we've agreed to do some pick, you know, for reasons that make sense for those credits. Okay. I appreciate the color on that and I apologize for the tech issues here on my side.

Paul Johnson: At a higher level, I mean, just, you know, going into, this is speaking a little bit more hypothetically here, but going into like an environment where credit starts getting, you know, a little bit, you know, more, more challenged in the space, and potentially sponsors getting a little bit more, you know, desperate to, potentially, you know, by time on, you know, some of their better investments, but investments that might be, you know, kind of temporarily underperforming, you know, how do you sort of think about sponsor concentration, you know, when you're building the platform, the funnel, you know, building the business, you know, with the pipeline, how do you sort of think about risk management? In terms of sponsor concentration, either at, you know, kind of the portfolio level or the pipeline, so I think there's a huge strength of ours, you know, the way you, you avoid sponsor concentration is having a really big fun like we do, having a very significant team like we do and terrific relationships with many leading private equity firms at a senior level on a day to day level, which we do, we cover 500 plus private equity firms, and, and, and, and, and, and, and, and and have had a very diversified list of sponsors in our portfolio over time, so there's not any any undue concentration on one, two, five, ten names, obviously, we very much value the relationships, we have the private equity firms, and so I don't want to sound cavalier about it, but we're not dependent on any any one or two of those relationships.

Paul Johnson: You know, I just say though, you know, we've lived through COVID, we've lived through a higher rate environment, you know, I feel really comfortable that we will work through challenges with the private equity firms there, there, you know, if they believe in their companies and the future of those investments, we regularly come up with partnership oriented solutions that allow them to keep those companies as long as they want to continue to support them. That's been, you know, the our experience, you know, all throughout our history, and I expect, I don't expect any change in that, and if for whatever reason, on a select basis that they are as a company that's struggling that they don't have the ability to support, well, that's not our preference.

Paul Johnson: You know, we're set up to, to take action and protect our our investment, including owning companies if we need to, not our preference, but we've done it, continue to do it. So I feel like, I don't feel that this is a particular exposure, I feel like it's the strength and the private equity firms. I think many private equity firms while, you know, this week's headlines might be worried about about the economy, the companies are doing well, private equity portfolios are doing well.

Paul Johnson: Private equity firms generally don't focus too much on cyclical companies, which is where you'll see some of the pain. If anything, I think the private equity firms are probably looking forward to a bit of a bit of loosening of pressure on on debt service as rates come down, and I am hopeful that that will result in a more robust M&A environment. So our dialogue with the private equity firms has been, you know, a positive and hopeful that there'll be more deal activity and generally feeling good about their portfolios, frankly wanting to keep their companies longer, which is why we haven't seen as much M&A. And I'm not certainly, I'm not detecting any growing anxiety about adopted portfolios.

Paul Johnson: I appreciate that. And last one for me kind of on the point of M&A, kind of what are your thoughts like going into a recession, you know, if the US were to enter one in terms of what would happen with M&A activity. Obviously, you know, not much lower activity, but with rates obviously declining fairly significantly from the peak wondering if that would stimulate anything just, you know, given how long sponsors have sat on their hands with activity so far.

Paul Johnson: Okay, I think the private equity firms, as you said, if we speak to them all the time, we also speak to the LPs and the private equity funds. There's a real thirst from both sponsors and the LPs to have more realizations. And they're, I think, pretty eager to do that. And the LPs are, I think, pretty eager to get some of those distributions. So, so I'd be willing, I would expect at some point that will pick up in space.

Paul Johnson: If there's a mild, you know, US recession, I don't think that will change that day-to-day behavior for the sponsors. And so, again, we're experiencing growth in our portfolio companies. Sponsors are as well. Companies are doing well. They're holding on because they're doing well and they want to get paid for, you know, even better performance. And so, I don't think a mild US recession. Again, the private equity firms really focus on the growth of your parts of the economy.

Paul Johnson: Even if they're a mild recession, they could be and have lots of companies that are continuing to grow. They might be growing quite as much. So, I don't think, you know, this is, I don't say it's my area of expertise, but I don't think a mild recession would result in some delay in the sponsor M&A activities not coming back. But we'll see. Thank you.

Craig Packer: At this time, we've reached in to our question and answer session. And I'll hand the floor back to management for closing remarks. Great. Well, thank you all for joining us today. There's a lot out there, you know, obviously with the earnings plus the merger. We put a lot of material on your website. Please access that if you have questions, particularly on the merger, you'll please do reach out. We want to make sure you're well informed, obviously, and just very much appreciate the support. Have a great day.

Operator: This will conclude today's conference. Let me disconnect your lines this time. Thank you for your participation.

Q2 2024 Blue Owl Capital Corp Earnings Call

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