Q2 2024 Blue Owl Capital Corp Earnings Call

August 8, 2024

Good morning, everyone. Welcome to Blue Owl Capital Corporation's second quarter 2024 earnings call. As a reminder, this call is being recorded.

Operator: As a reminder, this call is being recorded. At this time, I'd like to turn the call over to Mike Mastecchio, head of BDC Investor Relations at OBDC. Thank you.

Mike Mastecchio: At this 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. 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. The company assumes no obligation to update any forward-looking statements.

Mike Mastecchio: 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 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.

Mike Mastecchio: Certain information discussed in 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.

Certain information discussed in 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.

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, Blue Owl Capital Corporation issued its earnings release and posted an earnings presentation for the second quarter ended June 30, 2024.

Mike Mastecchio: These should be reviewed in conjunction with the company's 10-Q filed yesterday with the SEC.

Mike Mastecchio: 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.

Mike Mastecchio: The merger is subject to satisfaction of customary closing conditions, including shareholder approval. We have also posted an investor presentation with additional details about this transaction.

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, 10Q, 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.

Mike Mastecchio: 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.

Mike Mastecchio: at blueowlcapitalcorporation.com. 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: 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. He joined us last month and brings nearly 10 years of BDC investor relations experience. We are very happy to have him on the show.

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.

Craig Packer: 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. 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.

Speaker Change: for we jump in i want to highlight some new voices on this call mike most vo we you just heard from has recently joined our team to serve as head of bdc investor relations

Mike Mastecchio: He joined us last month, brings nearly 10 years of BDC Investor Relations experience. We are very happy to have him on the team.

Speaker Change: 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: As always, I'm also joined by Jonathan Lamm, Chief Financial Officer and Chief Operating Officer for OBDC.

Speaker Change: 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 Lamm: Jonathan will then walk through the logistics of the merger proposal and provide more detail on OBDC's quarterly earnings.

Jonathan Lamm: After Logan discusses our portfolio performance, I will close with some market commentary and concluding remarks.

Craig Packer: 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. Net asset value ended the quarter at $15.36 per share, and we once again delivered a very strong annualized ROE at 12.6%. In addition, 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.

Jonathan Lamm: So to start, OBDC delivered another strong quarter with 48 cents of net investment income per share, up one penny from last quarter.

Jonathan Lamm: Net asset value ended the quarter at $15.36 per share, and we once again delivered a very strong annualized ROE at 12.6%.

Jonathan Lamm: Further, our shareholders will receive $0.43 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: 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.

Jonathan Lamm: We are pleased to continue to deliver an attractive dividend yield, which this quarter was over 11%.

Jonathan Lamm: 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: We have long believed that it would make sense to streamline our BBC platform under the right conditions, and now is 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 that all of these elements combine to create the right alignment to deliver on our vision.

Jonathan Lamm: both obbdc and obde have generated near record returns over the last year and they have demonstrated the quality of their portfolios

Jonathan Lamm: 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.

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

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.

Jonathan Lamm: 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.

Jonathan Lamm: As Jonathan will elaborate on later, this transaction has also been thoughtfully structured to allow for the best mutual outcome whatever the market environment.

Jonathan Lamm: 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: 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 Lamm: od was launched in two thousand and twenty and today has a four point threety billion dollar portfolio comprised of investments across two hundred and seven portfolio companies

Jonathan Lamm: Both OBDC and OBDE employ the same investment strategy and we have been co-investing into both funds since OBDE's inception.

Jonathan Lamm: As a result, approximately 90% 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.

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, and increase our access to lower-cost sources of debt. And finally, drive operational efficiencies and cost savings.

Jonathan Lamm: 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,

Jonathan Lamm: improve our trading liquidity profile for current and prospective shareholders.

Jonathan Lamm: 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 portfolio Upon completion of the merger, the average position size in our portfolio will be less than 40 bases.

Jonathan Lamm: we expect that the proposed merger with od will add approximately four point three bill dollars of investments bdc's portfolio bring total investments to approximately seventeen point seven billion dollars

Jonathan Lamm: would also establish our position as the second largest publicly traded bdc by total assets while achieving a while achieving ni accretation over time

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

Jonathan Lamm: 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 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.

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

Jonathan Lamm: Second, we will maintain excellent credit quality in the combined portfolio.

Jonathan Lamm: 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: 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, because larger BDCs historically have had higher average daily trading volumes.

Jonathan Lamm: 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.

Jonathan Lamm: 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 the potential to access debt financing at more favorable terms. Both OBDC and OBDE are investment grade rated, and OBD-C, 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.

Jonathan Lamm: A larger shareholder base and increased trading volumes should provide enhanced liquidity and flexibility for both existing and new investors.

Jonathan Lamm: 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

Jonathan Lamm: Both OBDC and OBDE are investment-grade rated, and OBDC, as the mature of the two BDCs, received a ratings upgrade in the first quarter of 2024.

Speaker Change: 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.

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 improvements. 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.

Jonathan Lamm: 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.

Jonathan Lamm: 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

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. The merger is structured to allow for both sets of shareholders to benefit. It 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.

Jonathan Lamm: Thank you, Craig. I'd like to spend a minute describing the proposed merger consideration.

Jonathan Lamm: transaction is structured as a stock for stock merger with each ode shareholder receiving a certain number of obdc shares to be determined just prior to closing

Jonathan Lamm: At a high level, the merger is structured to allow for both sets of shareholders to benefit.

Jonathan Lamm: It 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.

Jonathan Lamm: 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 ECLU. These scenarios show how various trading levels will potentially impact shareholders of both sides. 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.

Jonathan Lamm: On page 6 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 at close.

Jonathan Lamm: These scenarios show how various trading levels will potentially impact shareholders of both sides.

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.

Jonathan Lamm: 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.

Jonathan Lamm: 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 sides.

Jonathan Lamm: The combined company will continue to operate as Blue Owl Capital Corporation and trade on the New York Stock Exchange under the ticker OBDC.

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 9.5%, consistent with today's levels, and to continue to pay a variable supplemental dividend equal to 50% of the spillover income earned in a given course. 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 constituted. OVDC'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.

Jonathan Lamm: Subject to board approval, prior to closing, OBDC intends to continue to declare and pay ordinary course regular and supplemental dividends.

Jonathan Lamm: 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 levels.

Jonathan Lamm: and to continue to pay a variable supplemental dividend equal to 50% of the spillover income earned in a given quarter.

Speaker Change: as a sign of support from bl o obd c and ob d e will be reimbursed for fees and expenses associated with the proposed merger up to a cap of four point two five million in total which will be paid for by ogd c's advisor if the proposed merger is consumated

Speaker Change: OBDC's existing $150 million share repurchase program announced in May will also remain in place.

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

Jonathan Lamm: Turning to OBD-C's quarterly performance, 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 NAF 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 NAFTA. 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.

Jonathan Lamm: Turning now to OBDC's quarterly performance.

Speaker Change: 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.

Jonathan Lamm: Our NAF per share was $15.36, up 10 cents year over year.

Speaker Change: 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 NAF.

Jonathan Lamm: however this benefit was more than offset by credit related markdowns on two investments resulting in a nv decline of nine cents for the quarter

Jonathan Lamm: 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 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 state.

Jonathan Lamm: 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.

Jonathan Lamm: 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 times.

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

Jonathan Lamm: Turning to the income statement. As Craig mentioned, we earned NII of $0.48 per share, up one cent from the first quarter, driven by higher net leverage and solid repayment-related income.

Jonathan Lamm: odc also continues to prioritize a flexible balance sheet and well diversified financing structure

Speaker Change: This quarter we increased OBDC's corporate revolver by a hundred and fifty million dollars adding one new lender. We remain pleased with the strength of our financing partnerships and liability structure.

Jonathan Lamm: with that i'll turn it over to loggan for additional color on the portfolio performance

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 U.S. sponsor-backed upper middle market companies in primarily non-cyclical sectors with significant operating histories while emphasizing diversification by borrower and seller. We prefer the upper middle market because we believe that larger companies are more durable and better equipped to adapt to different economic conditions.

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

loggan: 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.

loggan: we provide direct lending solutions to u s sponsor back toupper middle market companies in primarily non-cyclical sectors with significant operating histories while emphasizing diversification by borrower and sector

loggan: We prefer the upper middle market because we believe that larger companies are more durable and better equipped to adapt to different economic conditions.

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 OBDE's investments overlap with those of OBDC. The decentralized approach to portfolio construction and investment overlap should make consolidating these portfolios simple.

Jonathan Lamm: 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.

Speaker Change: i d note that obdc and obd were constructed by the same centralized team that shepherd investments from origination to exit

Craig Packer: As Craig mentioned, over 90% of OBD-E's investments overlap with those of OBD-C.

Craig Packer: This centralized approach to portfolio construction and investment overlap should make consolidating these portfolios simple.

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.

Speaker Change: With that, I'll spend a minute on the OBDC portfolio today.

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

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

Speaker Change: 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.

Logan Nicholson: Our nonaccrual 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. And finally, the subset of names on our watch list remains 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 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 noton accrual rate is one point four percent a fair value of our debt portfolio reflecting the addition of plural site this quarter which is a small thirty-seven basis point position

Speaker Change: And finally, the subset of names on our watchlist 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: 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.

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.

Craig Packer: Certainly, the direct lending market is feeling more competitive pressure as the public loan market remains strong and M&A financing volumes are light.

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

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 are earning approximately 11% on new loans. We also continue to successfully originate new investment opportunities to offset repayments, and we are 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.

Craig Packer: However, we do see signs of stabilization and spreads at current levels.

Craig Packer: we continue to find attractive investment opportunities and to deploy capital into large high-quality companies

Craig Packer: Even with tighter spreads, we are earning approximately 11% on new loans.

Jonathan Lamm: We also continue to successfully originate new investment opportunities to offset repayments towards the higher end of our target leverage range.

Jonathan Lamm: while new deals facface 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.

Speaker Change: overall we are confident in how our platform is positioned today and we expect them min activity will events we resume at a more normalized level which will allow market conditions to use

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

Speaker Change: having said that all heard when 's happened in the markets over the past few days and i thought it might be helpful to offor some perspective

Craig Packer: BDC equities have traded very well up until recently, and that performance reflected BDC's 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.

Speaker Change: bdc equities have trained very well up until recently and that performance reflected bdc strong earnings and steady credit quality

Speaker Change: Although BDCs have traded off recently, we're not seeing any signs in our portfolio to justify this price movement.

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.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: It is too early to say how long this will last, but we are well positioned with the capital, resources, and long-term investing time horizon to take advantage of opportunities as they arise.

Speaker Change: i would also like to highlight that this quarter our manager be 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: 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.

Speaker Change: Since inception, we have believed 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.

Operator: for 2024 Earnings Call. As a reminder, this call is being recorded.

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.

Speaker Change: all this has allowed us to deliver great returns to our shareholders

Michael Mosticchio: At this time, I like to turn the call over to Michael Mosticchio, head of BDC Investor Relations for OBDC. Thank you. Thanks operator and good morning to everyone joining.

Speaker Change: 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 deficiencies and a lower cost of financing over time

Michael Mosticchio: 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. Actor 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.

Jonathan Lamm: As the second largest public BDC, OBDC will continue to be a market leader.

Speaker Change: 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.

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.

Speaker Change: Our portfolio has successfully weathered dramatically different interest rates and economic environments and it has grown nearly two-fold in size.

Michael Mosticchio: 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: 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 OBDE.

Michael Mosticchio: Yesterday, Blue Owl Capital Corporation issued its earnings release and posted an earnings presentation for the second quarter-ended June 30, 2024.

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

Speaker Change: On behalf of the entire Blue Owl team, thank you in advance for your support and for joining us on today's call.

Michael Mosticchio: These should be reviewed in conjunction with the company's 10Q filed yesterday with the SEC.

Operator: At this time, we'll now be conducting a question and answer session. If you would 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 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 key.

Speaker Change: thank you

Craig Packer: 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.

Speaker Change: 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.

Speaker Change: from just using speaker equipment it may be necessary to pick up your handset before pressing the starkeys one no please will be pull for questions

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 proceed with your question.

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

Craig Packer: 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 OBDE.

Brian McKenna: so looking at new commitment that obbd c on a year-to-day basis there's actually been a healthy mix of new and existing companies which stand out a little bit relative to somealer is given the amount of ref activity moving forward should we continue to expect to see a pretty even split for deals between new and existing companies

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

Speaker Change: or because this even's few more toward new companies as i'm going to activity continues to pick up

Craig Packer: Thanks Brian, I 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. So there's a mix. 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.

Brian McKenna: Thanks, Brian . Appreciate it.

Speaker Change: look we think a real strength of our platform is our origination effort i think we've shown that in spad since inception

Speaker Change: We try to really see everything that's out there in terms of new opportunities.

Speaker Change: Obviously, when we're either doing an add-on or refinancing of an existing company, you know, that's an easier underwrite.

Speaker Change: there is it's that there' a mix know we very much want to see new names and we are 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'll see us skew a bit more towards new names, and probably the refinancings will pick up as well – 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 don't predict 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 you'll 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 pretty moderate. If M&A picks up, I think, you know, you'll see us skew a bit more towards new names.

Michael Mosticchio: We have also posted an investor presentation with additional details about this transaction. All materials reference 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.

Speaker Change: and probably the refinancings will...

Speaker Change: 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 don't preordain 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.

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: 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 OBDE.

Speaker Change: OBDC has delivered 10% GAAP 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. So from my seat, it would seem that there's a potential to drive GAAP ROEs above that 10% figure. 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 in the ROE.

Craig Packer: Before we jump in, I want to highlight some new voices on this call.

Craig Packer: 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. I'd 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

Craig Packer: 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.

Craig Packer: Mike Musticio, 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.

Speaker Change: Like to point out we've accomplished those and we're at twelve point six percent, you know, it's really strong returns and demonstrates

Speaker Change: the power of our platform and our ability to try to optimize.

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.

E: E, as you as you highlighted, E, the portfolio is pristine.

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 skews more first lien, and partly because the liability side is a little bit less, and a little bit more expensive, given the vintage of E's liabilities. We think that this 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 12.

Craig Packer: As always, I'm also joined by Jonathan Lamb, chief financial officer, and chief operating officer for 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.

Speaker Change: 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, partly the liability side is a little bit less, a little bit more expensive, given the vintage of E's liabilities.

Jonathan Lamb: Jonathan will then walk through the logistics of the merger proposal and provide more detail on OBDC's quarterly earnings.

Speaker Change: we think that that will will be able to essentially

Speaker Change: Improve Ease, Return to Match Seize

Speaker Change: 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 forma basis north of 10, today we're in the 12s.

Craig Packer: 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. Net asset value ended the quarter at $15.36 per share, and we once again deliver the very strong annualized ROE at 12.6%. Further our shareholders will receive 43 cents total dividends for the quarter, reflecting our regular dividend of $0.37 and the supplemental dividend of $0.06 as the queried by our board.

Craig Packer: We are 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.

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.

Speaker Change: 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 to optimize the mix.

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.

Speaker Change: But obviously, you know, rates, the rate picture will drive where we land ultimately.

Speaker Change: 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.

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.

Speaker Change: 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: 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% 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.

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, 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.

Johanna Roussel: and Johanna Roussel.

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: 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.

Craig Packer: Okay, great. I'll leave it there and congratulate you again on the merger.

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

Craig Packer: Great. Thanks, Brian.

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

Brian McKenna: Great. Thanks, Brian .

Speaker Change: The next questions are from the line of Robert Dodd with Raymond James. Please receive 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 or 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 the income and the calculation of the incentive fee? Because that obviously would potentially require some level of change in the nuances of the priesthood.

Robert Dodd: Hi guys, morning. On the merger, the filing so far, the 425 says no change in the fee structure. That's fine.

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

Robert Dodd: The question is, is it the intent to exclude any discount amortization or discount accretion of premium amortization depending where

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.

Speaker Change: the entities are trading at the close from the calculation of the incentive fee or will that all be included in an income and the calculation of the incentive fee because that obviously would potentially require some level of change.

Speaker Change: in the nuances of the free structure

Craig Packer: So Robert, 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 forward, to adjust for that intention.

Speaker Change: 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, you know, based on based on the approvals that will come that will come forward for us to adjust for the incentive.

Robert Dodd: Got it. Thank you. I was reading the summary version of 425.

Craig Packer: Then the second one, I mean, to your point, Craig, you did talk about this at Analysts' Day, almost 18 months ago, 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 once the... 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: got ta i was reading a summary moion of the five let's the second one i m to your point you did talk about this at the analysts dayay

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-gavvy 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 has the mature of two BDCs receive their ratings upgrade in the first quarter of 2024.

Speaker Change: almost 18 months ago I think, that ultimately you would like two public BDCs, one diversified lending and one tech. Obviously the tech is a different topic but

Speaker Change: both C&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...

Speaker Change: one diversified lending publicly traded vehicle and if there's any color you could add about what that means to the current private version

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 company and two non-traded diversified tech companies. So, as Robert is asking, we have a private BDC, OBDC2, that is still there.

Robert: 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.

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 of 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 support folio mix and generate cost savings from capital structure improvements.

Speaker Change: to ultimately have a publicly traded, diversified,

Speaker Change: publicly traded tech and two non-traded diversified tech.

Speaker Change: So, as Robert is asking, we have a private BDC, OBDC2, that is still there. You know, 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.

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.

Jonathan Lamb: 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.

Speaker Change: you know, the board.

Speaker Change: You know, I just want to acknowledge our board spent a tremendous amount of time over the summer thinking through this murder on behalf of OBDC and OBDE.

Speaker Change: with independent advisors for each fund and came up with a structure that we think, you know, really fit the situation ideally.

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. 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.

Speaker Change: and we will continue to evaluate options for all of our funds, including...

Speaker Change: to see if there are opportunities to optimize

Jonathan Lamb: It allows for NAVPERSHARE accretion at OBDC and for OBDE to be valued at a potential premium should shares of OBDC be trading above NAVPERSHARE at close. On page six of our investor deck discussing the merger, we have included three potential scenarios using June 30th, 2024 NAVPERSHARE as a proxy for the NAVPERSHARE, are a close. These scenarios show how various trading levels will potentially impact shareholders of both sides. 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 out of premium to its nav per share, immediately prior to closing, that premium will be shared between the shareholders of both sides.

Speaker Change: for each fund individually. It would still make industrial logic to have one publicly traded diversified fund, so there's no change there.

Speaker Change: 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.

Craig Packer: 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, you know; 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. Okay, I appreciate it. Thank you.

Speaker Change: 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...

Speaker Change: Now it's the merger, getting that merger closed, and we'll continue to evaluate along the way.

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

Speaker Change: Appreciate it, thank you.

Robert: Thanks, Robert. Thank you.

Speaker Change: The next questions are from the line of Mark Hughes with Truist Securities. Please receive your questions.

Mark Hughes: Yeah, thank you. Congratulations.

Jonathan Lamb: 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. Post-close, the combined OBDC intends to continue to deliver a regular dividend yield of approximately 9.5% consistent 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.

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

Mark Hughes: yes thank you congratulations

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

Jonathan Lamm: I mean, I think, Mark, as you've probably observed, you know, generally when we've entered into or 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'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 five, 10, 15 basis points somewhere in that range? That's where I'd be,

Speaker Change: I mean I think Marcus as you've probably observed you know generally when we've when we've entered into or we've issued unsecured IG bonds

Speaker Change: Our bond investors have come back to us and effectively said that there's complexity in your structure because you have so many BDCs.

Jonathan Lamb: As a sign of support from Blue Owl, OBDC and OBDE will be reimbursed for season 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.

Speaker Change: 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's low-hanging fruit in the context of these companies coming together.

Speaker Change: 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 where I'd point you to.

Jonathan Lamm: 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.

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

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

Jonathan Lamm: 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 I, and 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. So I think collectively the space should trade tighter, we should trade tighter, and being able to essentially refinance E 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 increase, and liability costs should come tighter over time.

Jonathan Lamb: 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 NAF for 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 NAF.

Speaker Change: We've delivered excellent performance.

Speaker Change: not only for our shareholders, but certainly for our lenders.

Speaker Change: Secured and unsecured. There's significant increase in diversification which obviously financing sources really like and we've always carefully managed the fund. So I and by the way I would say broadly for the BDC space

Speaker Change: bonds in a particular trade water than they should for the credit quality that they have and that they've delivered on.

Speaker Change: So, I think, collectively, the space should trade tighter, we should trade tighter, and being able to essentially refinance E on a daily basis.

Jonathan Lamb: However, this benefit was more than offset by credit-related markdowns on two investments, resulting in a NAF decline of $0.9 for the quarter. 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 mismatched 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 of 0.9 to 1.25 times.

Jonathan Lamm: with OBDC's credit quality will also provide upside. So Jonathan's 10, 15, 20 basis points seems very reasonable to me. I think over time, the quality of the space should increase. Liability costs should come tighter over time, in my opinion.

Craig Packer: And then the new commitments in the quarter. Any trajectory in loan-to-value or EBITDA leverage relative to the existing portfolio? Kind of what are you seeing out there in the market?

Speaker Change: Understood, thank you. And then the new

Speaker Change: Any trajectory in loan-to-value or EBITDA leverage relative to the existing portfolio? What are you seeing out there in the market?

Jonathan Lamb: Turning to the income statement, as Craig mentioned, we earned NII of 48 cents per share, up 1 cent from the first quarter, driven by higher net leverage and solid repayment-related income. 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.

Craig Packer: The quality is very good. Loan-to-value remains really modest, depending upon the deal, 35%, maybe 40%. Leverage, you know, leverage has been lower generally on new deals given the higher rate environment, so five and a half to six times. 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.

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

Speaker Change: The leverage, you know, leverage has been lower generally on new deals given higher rate environment.

Speaker Change: So, five and a half to six times. You know, we continue to finance bigger companies. That's always been our preference.

Speaker Change: i would have a my ingertips saverage got for the quarter but ithinkit'will bea line very much line with we've done historically our abing to new size continues to be a differentiator private equity firms trureally like working the firms that can do the whole deal or most of the deal but we also had a you a meaningful

Craig Packer: 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 refinancings 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.

Logan Nicholson: Thanks, Jonathan.

Logan Nicholson: 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 connected to our investment philosophy. It's consistent upon the close of the transaction. We provide direct lending solutions to U.S, sponsored back to upper-middle market companies in primarily non-cyclical sectors, with significant operating histories while emphasizing diversification by borrower and sector.

Speaker Change: More than half of the quarter's activity were refinancings or add-ons, and so obviously those are

Speaker Change: 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.

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

Logan Nicholson: 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 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.

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

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.

Speaker Change: no change in strategy you know just is a reminder for folks that are less familiar common equity for us

Speaker Change: the vast majority of our common equity exposure.

Speaker Change: is equity in portfolios

Speaker Change: ofreally diversified underlying assets that our credit credit portfolios essentially we have an asset based lending business we have a life insurance settlements business we have a aircraft and il par finance business

Speaker Change: These are all equity investments from an accounting standpoint, but the underlying risk is really a portfolio of...

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.

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. 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're also a bit more protected from some of the refi cycle that individual loans face. So we will continue with the strategy; if we find new opportunities, we will look at those as well.

Speaker Change: loans essentially

Speaker Change: And so, that's been a terrific strategy for us to generate really nice ROE and also some potential for NAV accretion over time.

Speaker Change: So we...

Speaker Change: I like the strategy. I think it's been beneficial to shareholders.

Speaker Change: We will continue to pursue it.

Speaker Change: OBDE has much less of it, and so the addition of OBDE will allow us to

Speaker Change: to continue to grow those strategies, but not...

Speaker Change: necessarily increase the percentage.

Logan Nicholson: Our not a cruel 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 subset of names on our watch list remains 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.

Speaker Change: So we will continue to invest in these different specialty lending verticals, if you will, and they're also a bit...

Speaker Change: They're 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 would look at those as well.

Speaker Change: Very good, thank you.

Paul Johnson: Our next questions are from the line of Paul Johnson with KVW.

Speaker Change: Thank you.

Paul Johnson: our next questions are from the line of paul johnson with k b w ce your questions

Paul Johnson: Yeah, good morning. Thanks for the questions. Out, income increased slightly this quarter. It's around 13% of interest income this quarter. Do you have any idea what kind of your portfolio will look like? Thank you for joining us. Vincent, Sun, Sun, Sun, Sun, It was, um, I think I heard...

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 experienced in the second quarter. Certainly, the direct lending market is feeling more competitive pressure as the public loan market remains strong and emanate financing volumes are light. We saw elevated levels of repricing and refinancing activity in the quarter, which reduce spreads.

Paul Johnson: yeah more basis it wthan

Speaker Change: tocome increase to slightly to this quarters around thirteen percent of tring and for what do doingting idea what's kind of your portfolio will com fion and this southwest understand you know

Speaker Change: but sense as can manage that

Operator: Hey Paul, 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?

Speaker Change: it pas it was i think i heard some of the question those really hard to hear you can can i ask you to try to shift position and repeat

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. Even with tighter spreads, we are 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 on maintaining appropriate levels of structural protection in our documentation and capital structures.

Speaker Change: oh

Speaker Change: Paul, can you hear us okay?

Operator: Why don't we jump to the next question in the queue?

Speaker Change: we jump to the next question in the ke us maybe may try to and what were to takeyour es

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

Speaker Change: 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. I just want to know 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-emerger?

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.

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.

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

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

Craig Packer: 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. BDC activities have traded very well up until recently and that performance reflected BDC's 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. To extend investors are concerned about the economic outlook, we believe that our strategy of investing in a diversified portfolio of first-line 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.

Speaker Change: no rotation i mean we're we've really had the same strategy since inception high-quality companies bigger processess ist in sectors mostly sponsor back

Speaker Change: I think that we'll continue with that. E is a little more first lien. We got significant repayments in OBDC's second lien exposure in the first quarter. Folks will remember all we got.

Craig Packer: We are going to take advantage of the best opportunities the market brings us but 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 on a combined basis through a mix of mostly first lien and a little bit of second lien in some of these strategic investments that show up as equity investments.

Speaker Change: 40% of our second liens got repaid. We are going to take advantage of the best opportunities the market brings us.

Speaker Change: but continue to stick to our core strategy.

Speaker Change: 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 will continue to try to optimize ROE.

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.

Speaker Change: on a combined basis through a mix of mostly first lean.

Speaker Change: a little bit of second lean and some of these strategic investments that show up as equity investments.

Craig Packer: I think the diversification, 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's worked well. We're going to just keep executing on it.

Speaker Change: I think the diversification, I'm going to keep repeating that, I think that's really valuable in a lending portfolio. And so it'll be a similar strategy to what we've outlined because that strategy has worked well. We're going to just keep executing on it.

Craig Packer: I would also like to highlight that this quarter, our manager Blow announced acquisitions in the insurance and alternative credit spaces. 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.

Kenneth Lee: Great. Very helpful people there.

Craig Packer: 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. Please do remind us again. What could potentially change going forward in terms of either types of assets or loans? Acquisitions. Thanks.

Speaker Change: 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 some of the potential acquisitions there.

Craig Packer: Since inception, we have believed 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. We believe that the proposed merger will deliver on 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.

Speaker Change: Could you remind us again, you know...

Speaker Change: what's being sourced currently and we'l com potentially change going forward in terms of either types of assets or or loans

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.

Speaker Change: of the insurance acquisition. Thanks.

Speaker Change: So OBDC is going to continue to stick to a strategy of direct lending primarily for private equity-backed companies.

Speaker Change: Um, you know.

Speaker Change: 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: 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 since OBDCs IPO and we are very pleased with what we have accomplished since then. How 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 and an increase of approximately 300 basis points from when we went public.

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.

Speaker Change: One is in the insurance space, managing money for insurance companies. The second is an alternative credit, which is an industry catchphrase that generally applies to asset-based financing.

Speaker Change: So it could be pools of loans.

Speaker Change: 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.

Craig Packer: Looking forward, we are excited about the prospects of continuing to grow our scale and enhance our returns through our proposed merger with OBDE. We believe now is the right time to merge these two BDCs and create meaningful benefits for both sets of shareholders.

Speaker Change: The insurance and alternative credit strategies will continue to pursue them as they have with separate teams and separate investment strategies.

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.

Speaker Change: 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.

Craig Packer: On behalf of the entire Blue Owl team, thank you in advance for your support and for joining us on today's call. Thank you.

Speaker Change: 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.

Operator: At this time, we'll now be conducting a question and answer session. If you like to ask a question, please press star one from your telephone keypad and a confirmation tone will indicate your line as 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 keys. One moment please will we pull for questions. Thank you.

Speaker Change: So...

Speaker Change: From time to time, there may be co-investing from OBDC and these other strategies on a selected basis.

Speaker Change: 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.

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

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

Craig Packer: Good morning, everyone, and congrats on the merger with OBDE. Looking at new commitment 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, 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?

Speaker Change: Gotcha. Great. Very helpful there. Thanks again.

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

Speaker Change: Thank you. Our next questions are from the line of Casey Alexander with CompassPoint. Please receive your questions.

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. 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? Liabilities

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

Speaker Change: My question, and maybe it's...

Craig Packer: Thanks, Brian. Appreciate it. Look, we think a real strength of our platform is our origination effort. I think we've shown that in space 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: Maybe it's it's just trying too hard but but I think because of the cost of capital difference and and and the advantageous liability structure of OBDC that OBDC has a better return on equity than OBDE does.

Speaker Change: 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: liabilities down to what's more appropriate for OBDC.

Jonathan Lamm: So it's a great question. And we, you know, just to hit specifically on the synergies, we've outlined in the investor presentation that we expect about $5 million of operational synergies that will benefit 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 unsecured market. In terms of accretion or dilution, if you wanna think about it like that, we don't think that it's dilutive.

Speaker Change: 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

Craig Packer: I think you'll see a mix. The environment in the last six months has been more weighted to refise an add-ons in the market because M&A remains pretty moderate. If M&A picks up, I think you'll see a skew a bit more towards new names, and probably the refinancing will... The easy refise have gotten done. Over time, I would imagine as M&A picks up, it'll skew a little bit towards new names. 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: of Operational Synergies that will that will inure to the combined company immediately. We've also talked about our view that the combined company will have

Speaker Change: the benefits of

Speaker Change: just of tipening tightening issuances in the debt market

Speaker Change: in the unsecured market

Speaker Change: in terms of in terms of accretion or

Speaker Change: dilution, if you want to think about it like that.

Craig Packer: 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. 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 potential to drive gap ROE's above that 10% figure, but it would be great, Craig, just to get your thoughts here, how you're thinking about this synergies over time and how that ultimately comes through in the ROE. Sure, a very gracious question. Thank you.

Jonathan Lamm: It's not given the size of OBDE relative to OBDC. 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 dilution, but we're talking about minimal and then accretion from there, just given the. And then with respect to refinancings, 2025 and 2026 are the vast majority of those refinancings. So you'll see those debt facilities really coming out relatively quickly.

Speaker Change: We don't think that it's dilutive. It's not, given the size of OBDE relative to OBDC.

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, and but my question is, and maybe I missed it, do you have a timeline for when you expect this to close? I and this, I assume, will require shareholder votes of both BDE.

Speaker Change: we expect that we'll start to see that NII accretion.

Speaker Change: 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 and then accretion from there just given the synergies.

Speaker Change: And then with respect to refinancings, 2025 and 2026 are the vast majority of those refinancing. So you'll see those debt facilities really coming out relatively quickly.

Craig Packer: 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 early higher. I'd like to point out, we've accomplished those, and we're at 12.6%, 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, E is even better, E's return profile is a little bit less, partly because it's used more personally, partly the liability side is a little bit less, a little bit more expensive, given the vintage of E's liabilities.

Speaker Change: Great. Thank you. My other question is, I saw in the deck that if the merger is consummated before January 25th,

Speaker Change: that that would waive the lockup on OBDE and but my question is and maybe I missed it do you have a timeline for when you expect this to close I and and this I assume will require shareholder votes of both PDCs

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.

Speaker Change: Yeah, so we...

Speaker Change: We've commented that we expect the merger to close in early 2025, so in January , right around the time of the final lockup release for OBDE. And 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.

Craig Packer: We think that that will be able to essentially prove 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, we'll do, 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 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 the way rates are now, then we should be able to generate a 12% rate of return in short order.

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

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.

Speaker Change: purce in russian okay t

Speaker Change: Terrific, thank you for taking my question.

Speaker Change: So, Casey, just to add it, even though you didn't ask it first...

Speaker Change: Thank you for the kind words on the listing. We appreciate it. We worked really hard at it.

Craig Packer: 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. I just want to add to Jonathan's comment that, 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, 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 the merger as well.

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

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

Speaker Change: 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.

Speaker Change: We've already announced four special dividends to take place

Speaker Change: at six cents each.

Speaker Change: and all those will get paid prior to the merger closing. And in addition, there'll be a distribution, essentially, for a one-time distribution.

Craig Packer: 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, we think we have positioned this fund to be one of the very best performers in the space.

Speaker Change: for, you know, essentially for NAB, to normalize the NAB, that will get paid at close, prior to close as well.

Craig Packer: 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 another 43 cents per share of distribution. So I know the mergers are a little bit complicated folks have questions on 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 1 on your telephone keypad. Our next question is from the line of Finney and O'Shea with Wells Fargo.

Speaker Change: So OBD shareholders, there's $0.24 of specials.

Speaker Change: And, you know, if you use June 30th numbers, another 19 cents of a distribution that will get paid prior to close.

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

Speaker Change: That's quite, you know, talking about, you know, another 43 cents per share of distribution. So I know the merger is a little bit complicated. If folks have questions on this, you should call, but for both OBDC and OBD shareholders, there's a lot, a lot to like about this market.

Robert Dodd: The next questions are from the line of Robert Dodd with Raymond James, let's just see on the merger, the filing so far, the 425 says no change in the pre-structure, that's fine.

Operator: Thank you. As a reminder, if you'd like to ask a question, you may press star 1 on your telephone keypad. Our next question is from the line of Finney and O'Shea with Wells Fargo. Please proceed with your question.

Robert Dodd: The question is, is it the intent to exclude any discount, amalgamation or discounted Cristiano premium amalgamation, depending 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 in the incentive fee, because that obviously would potentially require some level of change in the nuances of the pre-structure. So Robert, if you take a look at what we've filed in terms of the merger structure, we've filed those to make an amendment to the IMA to deal with that.

Speaker Change: Thank you. As a reminder, if you'd like to ask a question you may press star 1 from your telephone keypad.

Speaker Change: Our next question is from the line of Finney and O'Shea with Wells Fargo. Please receive your question.

Operator: I am pleased to see you with your question. Hey, everyone. Good morning.

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

Speaker Change: I wanted to unpack a little bit more the optimization idea.

Speaker Change: and what that can mean for the portfolio, it sounded like.

Speaker Change: And 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.

Finney and O'Shea: 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 operational and on the liability.

Robert Dodd: So it is our intention based on the approvals that will come forward for us to adjust for I was reading the summary version of the 425. The second one, I mean, 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 tech is a different topic, but both C&E diversified lending, but there's also the other vehicle.

Speaker Change: 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 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 will be no change in 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 doing them. We're going to continue to grow them.

Jonathan Lamm: We're going to continue to operate OBDC the way we have, you know, since inception. There's going to be no change in strategy.

Jonathan Lamm: primarily sponsor-backed upper-middle-market lending, we have already been very active in building out some of what we call our strategic investments.

Jonathan Lamm: 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 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.

Craig Packer: I don't know how much you can say about that, but do you still feel that you'd just like one diversified lending public and 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 two non-traded diversified tech.

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 didn't do a clear job of it, is OBD doesn't have any of that today, given it's vintage.

Speaker Change: 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. And so, on a combined basis, going forward,

Finney and O'Shea: 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 continue to grind that a bit higher, but not wholesale higher. I think we're really selective about the verticals we go into, and we co-invest in those verticals across multiple funds, so we're not going to dramatically change the mix.

Speaker Change: Day one, the equity percent will come down.

Speaker Change: it ' be d c because it'll be the e 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 vergls we go into and we co invest in those verticals across multiple funds so so it's not we're not going to dramatically changchange the mix

Craig Packer: So as Robert is asking, we have a private BDC, OBDC2 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 as 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 really fit the situation ideally, 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.

Finney and O'Shea: 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 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.

Speaker Change: So, same strategy, we have been deploying OBDE efficiently, but I think now that both funds are fully deployed.

Speaker Change: Fully levered we can be really disciplined as we add new investments as we have in the past and Try to improve on on spread and overall returns

Speaker Change: 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.

Speaker Change: Awesome, thanks so much.

Sven: Thanks, Sven.

Speaker Change: thank you our final question today a comesfrom theline of paul johnson with k b w please see with your questions

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

Craig Packer: 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.

Paul Johnson: Good morning. I hope you can hear me okay. I'm not quite sure what happened there.

Paul Johnson: But I'm not sure how much of my question got through, but I was just kind of asking about just the level of connection within the...

Operator: will connect us in the portfolio and potentially as well if you could even, you know, share.

Operator: even share any statistics you may have in terms of payouts or performance, such as underlying companies that are currently paying taxes for the land. So, Paul, I think...

Robert Dodd: 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. Okay, appreciate it. Thank you. Thanks, Robert. Thank you.

Speaker Change: portfolio and potentially as well if you could even share any statistics you may have in terms of you know payouts or you know performance of those underlying companies that are around the country.

Speaker Change: p theis

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

Speaker Change: a pol

Speaker Change: alittle bit so the hard to arbut i think that's what your question must

Speaker Change: Correct, yep.

Mark Hughes: The next questions are from the line of Mark Hughes with truest securities. Please do you have any indications what the borrowing cost impact might be? I think the point with the scale, you get a better access to capital, any really thoughts about that that you care to share?

Speaker Change: Okay, so look, our PIC exposure has been pretty consistent over the last handful of quarters at give or take 13%.

Speaker Change: the vast majority of our pick investments were structured as pick at the time of underwrite

Speaker Change: for performing credits that we were asked to provide.

Speaker Change: a defined period of flexibility to allow for all or a portion of...

Craig Packer: It's not something we generally go looking for, but we have the flexibility to offer it. 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.

Jonathan Lamb: I mean, I think, Mark, as you've probably observed, you know, generally when we've entered into, or 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, is that merger? So we think that there is, you know, 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 where it is. All right.

Speaker Change: alone to be paid p ts you 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 to be able to offer it and ultimately we'll collect on all that pick interestwhat we're willing to do it and select circumstances and that approaches

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, I don't want to say it hasn't happened at all, but it's really a very small portion of our PIC exposure.

Speaker Change: inconsistent, hasn't changed.

Speaker Change: and you know 80% of our of our portfolio pick is that way. We've had a couple names in the last quarter or so that that we you know in the context of negotiating for more trickier credits we have allowed for a period of pick.

Paul Johnson: And in those cases, always or almost always, by providing that flexibility, we are getting more economics; sponsors are putting 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 marked in the high 90s, as they should be.

Speaker Change: and so I you know there 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

Jonathan Lamb: It's true, not only in the bond side, but also on the on the secured finance side. I mean, we we are this is going to be $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. I'm secured and unsecured. The there's significant increase in diversification, which obviously financing sources really like. And we've always carefully managed the fun.

Speaker Change: for providing that flexibility. We are getting more economics.

Speaker Change: sponsors are putting in additional capital into the companies. 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 pick are

Speaker Change: to underwrite. Those investments are performing well. They're not on our watch list. They're marked in the high 90s as they should be. So we continue to do this.

Jonathan Lamb: So I am by the way, I would say probably for the BBC space. The bonds take your 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 and being able to essentially refinance E with OBDC's credit quality will also provide upside. So Jonathan 10, 15, 20 basis point 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 paint. Understood. Thank you.

Paul Johnson: And so, we continue to do this, something that we do, because it generates great returns for our investors. Obviously, when they... 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. 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.

Speaker Change: It's 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.

Speaker Change: 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 that makes sense for those credits

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: God, I appreciate the color on that, and again, I apologize for the tech issues here on my side.

Speaker Change: 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...

Jonathan Lamb: And then the new commitments in the quarter. The any trajectory and loan to value or EBITDA leverage relative to the existing portfolio. What are you seeing out there in the market? The quality is very good. Lone to value remains really modest, depending on the deal, 35%, maybe 40%. The leverage, you know, leverage has been lower generally on new deals given higher rate environment. So by the past six times, you know, we continue to finance bigger companies.

Speaker Change: you know more more challenged in the space and

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 in terms of the pipeline?

Speaker Change: You know

Jonathan Lamb: 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 for 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: how do you sort of think about

Speaker Change: 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?

Craig Packer: So I think that's a huge strength of ours. The way you avoid sponsor concentration is by 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 10 names.

Speaker Change: So, um, I think there's a huge strength of ours, you know, 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.

Jonathan Lamb: 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.

Speaker Change: 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...

Jonathan Lamb: And then your exposure to common equity, any change in strategy there, both 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, 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.

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. I just say, though, that we've lived through COVID. We've lived through a higher rate environment, so I feel really comfortable that we will work through challenges with the 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. That's been our experience all throughout our history, and I don't expect any change in that.

Speaker Change: Undue concentration on 1, 2, 5, 10 names. Obviously, we very much value the relationships we have with 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.

Jonathan Lamb: 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. 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.

Speaker Change: i just say thoughknow

Speaker Change: We've lived through COVID. We've lived through a higher rate environment.

Speaker Change: You know, I feel really comfortable that we will work through challenges with the private equity firms.

Speaker Change: They're, you know, if they believe in their companies...

Speaker Change: and the future of those investments.

Speaker Change: 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, 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

Craig Packer: 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 will continue to do it. So I don't feel that this is a particular exposure. I feel like it's a strength.

Speaker Change: that they are a company that's struggling, that they don't have the ability to support. Well, that's not our preference. You know, 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. We continue to do it. So I feel like, I don't feel that this is a particular exposure. I feel like it's a strength.

Paul Johnson: And the private equity firms, I think many private equity firms, while 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.

Speaker Change: and the private equity firms. I think many private equity firms, while, you know, this week's...

Speaker Change: The headlines might be worry about the economy. The companies are doing well. Private equity portfolios are doing well. Private equity firms generally...

Jonathan Lamb: So we will continue to invest in these different specialty lending verticals, if you will. And it will also be 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.

Jonathan Lamb: Thank you.

Speaker Change: 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

Paul Johnson: 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 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 their portfolios. Oh, God.

Speaker Change: loosening of pressure on on debt service as rates come down.

Speaker Change: and I am hopeful that that will result in a more robust M&A environment.

Paul Johnson: Our next questions are from the line of Paul Johnson with KBW. Let's see if you're able to answer questions. It was, I think I heard some of the question, but it was really hard to hear you.

Speaker Change: So our dialogue with the private equity firms has been, you know, like 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, I'm not, certainly, I'm not detecting any, any growing anxiety about, about their portfolios.

Craig Packer: God, 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 U.S. 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, I'm wondering if that would.., stimulate anything, just, you know, given how long sponsors have sat on their hands with activities so far.

Speaker Change: God, I appreciate that. And last one for me, kind of on the point of M&A, kind of what are your thoughts, like going in?

Speaker Change: to a recession, you know, if the U.S. were to enter one in terms of what would happen with M&A activity.

Speaker Change: 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...

Operator: Can I ask you to try to put a shift position and repeat? Paul, can you hear us? Why don't we jump to the next question in the key? If you can hear us, maybe try to dial back in and what we're happy to take your question.

Speaker Change: stimulate anything just you know given how long sponsors have sat on their hands with activity so far.

Paul Johnson: Yes, thank you.

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'd be willing, and I would expect that at some point, that will pick up in spades.

Speaker Change: Yum.

Speaker Change: 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.

Kenneth Lee: The next question is from the line of Kenneth Lee with RBC Capital Markets. Let's just see if you have a question. Good morning. Thanks for taking my question. Just one about the merger. Under the NII I appreciate you briefly alluded to optimizing portfolio mix. Should we expect any kind of portfolio rotation or streamlining across the portfolio going for a post-emerger? Thanks.

Speaker Change: and they're I think pretty eager to do that and the LPs are I think pretty eager to get get some of those distributions.

Speaker Change: So I would expect at some point that will pick up in spades. If there is a mild U.S. recession, I don't think that will change that day-to-day behavior for the sponsors.

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 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, you know, 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.

Craig Packer: No rotation. We've really had the same strategy since inception. High quality companies, bigger processes and 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. Folks will remember 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.

Speaker Change: 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, you know, even better performance. And so I don't think a mild U.S. recession. Again, the private equity firms...

Craig Packer: But I would say as the fund is bigger, its ability to take down bigger size gives it purchasing power. It allows us to really win the highest quality investments out there. 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.

Paul Johnson: 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... You know, this isn't 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.

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

Speaker Change: This is, I don't wanna 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.

Operator: Thank you. At this time, we've reached the end of our question and answer session, and I'll hand the floor back to management for closing remarks.

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

Craig Packer: Great. Well, thank you all for joining us today.

Operator: There's a lot out there, obviously, with the earnings plus the merger. We put a lot of material on our website. Please access that. If you have questions, particularly about the merger, 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.

Speaker Change: 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, you know, on our website. Please access that. If you have questions, particularly on the merger, you know, please do reach out. We want to make sure you're well informed.

Craig Packer: 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. It just wouldn't follow up if I may and you took upon this briefly in the prepared remarks. The sourcing advantages from the blue owl platform, you mentioned us 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?

Speaker Change: obviously, and I just very much appreciate the support. Have a great day.

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

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

Craig Packer: 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. You know, cash flow oriented loans and sectors like software insurance for our bridge, food and beverage, as we have. Blue Owl, the manager of OBDC, is announced two acquisitions. One is in the insurance space managing money for insurance companies. The second is an alternative credit, which is an industry cash phrase that generally applies to asset-based financing.

Craig Packer: So it could be pool 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. The insurance and an 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.

Craig Packer: 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 that much wider. So don't expect to change in complexion, but do expect from time to time some opportunities that come from this wider, this wider effort. Gotcha. Very helpful there. Thanks again.

Kenneth Lee: Thank you.

KC Alexander: Our next questions are from the line of KC Alexander with Compass Point. Please just see with your questions. Yeah, good morning. Congrats 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. My question and maybe it's it's just trying too hard, but but I think because of the cost of capital difference and and the advantageous liability structure of OBDC that OBDC has a better return on equity than OBDE does.

KC Alexander: 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 liabilities down to what's more appropriate for OBDC? 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 five million dollars of operational synergies that will that will a nerd to the combined company immediately.

KC Alexander: We've also talked about our view that the combined company will have the benefits of tightening tightening issuances in the in the debt market in the unscored market in terms of in 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.

KC Alexander: 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 the financing's 2025 and 2026, are the vast majority of those refinancing fields? You'll see those debt facilities really coming out relatively quickly. Great, thank you. My other question is, I saw in the deck that if the merger is consummate before January 25th, that that would wave the lockup on OBDE.

KC Alexander: 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 shareholders votes of both BDCs? Yeah, so we've commented that we expect the merger to close in early 2025. So in January, right around the time of the final lockup release for OBDE. And 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. Okay, great. Thank you for taking my question.

Craig Packer: Okay, so 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. 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. I just wanted 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.

Craig Packer: 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. 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.

Craig Packer: That's quite, you know, talking about, you know, another 43 cents per share of that distribution. So I know that the merger is a little bit complicated. Folks have questions on this. You should call it for both OBDE shareholders. There's a lot, a lot, a lot, a lot, a lot about this. Thank you. As a reminder, if you'd like to ask a question, you may press star one from your telephone keypad.

Phineon O'Shea: Our next question is from the line of Phineon O'Shea with Wells Fargo. Please just use your question. 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.

Craig Packer: I'm glad you asked questions because we definitely didn't want to give the impression that we're changing our strategy. On the acid Jonathan should comment on the operational and on the liability but on the acid 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 the specialty finance verticals that you're alluding to.

Craig Packer: 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 of strategy and there's not a change in complexion of how much. What I tried to say, maybe the clear job of it is OBD doesn't have any of that today, given its vintage. So on a combined basis going forward, day one, the equity percent will come down.

Craig Packer: It'll be DC because OBD doesn't have any. 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 we're really selective about the verticals we go into and we co-invest in those verticals across multiple funds. So 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. Awesome. Thanks so much. Thanks, Ben.

Craig Packer: Thank you.

Paul Johnson: Our final question today comes from the line of Paul Johnson with KBW. Please receive your questions. Good morning. I hope you can hear me okay and I'll push your what happened there. But not sure how much of my question got through, but it's just kind of asking about, you know, at least the level of take within the portfolio and potentially as well if you could even share any fish 60 may have in terms of, you know, payouts or, you know, performance.

Paul Johnson: It's just on our line company is there. So Paul, I think a little bit still a little bit hard to hear, but I think that that was what your question was. Correct. Yep. Okay. So our pick exposure has been pretty consistent over the last handful of quarters at 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.

Paul Johnson: A defined period of flexibility to allow for all our portion of alone to be paid in pick is, you know, it's not something we generally go looking for, but we have 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 and select certain circumstances and that approach is inconsistent hasn't changed.

Paul Johnson: And, you know, 80% of our of our portfolio pick is that way. We've had a couple names in the last quarter or so that that we, you know, in the context of negotiating for more 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 are almost always for providing that flexibility.

Paul Johnson: We are getting more economics sponsors are putting an additional capital into the companies. You know, we're not, these are situations that we think we're getting real benefit from. Almost all are 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.

Paul Johnson: It's 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, we've agreed to do some pick, you know, for reasons that makes sense for those credits.

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

Craig Packer: 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 with the pipeline. How do you sort of think about risk management in terms of sponsor concentration, either ideal kind of portfolio level or the pipeline? So I think there's a huge strength of ours. You know, the way 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.

Craig Packer: 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, 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 one or two of those relationships. You know, I just say though, you know, we've lived through COVID, we've lived through a higher rate environment.

Craig Packer: You know, I feel really comfortable that we will work through challenges with the private equity firms there. 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 our experience all throughout our history and 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.

Craig Packer: You know, 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 to 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 this week's headlines might be worried about the economy, the companies are doing well.

Craig Packer: 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 the private equity firms are probably looking forward to a bit of loosening of pressure 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 like positive and hopeful that there'll be more deal activity and generally feeling good about their portfolios. Because 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 their portfolios.

Craig Packer: 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 U.S, were to enter one in terms of what would happen with M&A activity, obviously, you know, recession would logically lead to 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.

Craig Packer: 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'd be willing, I would expect at some point that we'll pick up in spades.

Craig Packer: If there's a mild U.S, 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. The 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 U.S, recession. Again, the private equity firms really focus on the growthier parts of the economy, even if they're a mild recession, they could be in, have lots of companies that are continuing to grow.

Craig Packer: They might be growing quite as much. So I don't think, you know, this is, I don't see 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.

Craig Packer: Thank you.

Craig Packer: At this time, we've reached into 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. This will conclude today's conference. Let me disconnect your lines at this time. Thank you for your participation.

Q2 2024 Blue Owl Capital Corp Earnings Call

Request a DemoDemo

OBDE

Blue Owl III

Earnings