Q2 2025 Blue Owl Capital Corp Earnings Call

Michael Mosticchio: Thank you, operator, and welcome to Blue Owl Capital Corporation's Q2 2025 Earnings Conference Call. Yesterday, Blue Owl Capital Corporation issued its earnings release and posted an earnings presentation for the Q2 ended 30 June 2025. These should be reviewed in connection with the company's 10-Q filed yesterday with the SEC. All materials referenced during today's call, including the earnings press release, earnings presentation, and 10-Q, are available on the investors section of the company's website at blueowlcapitalcorporation.com. Joining us on the call today are Craig Packer, Chief Executive Officer, Logan Nicholson, President, and Jonathan Lamm, Chief Financial Officer. I'd like to remind listeners that remarks made during today's call may contain forward-looking statements, which are not guarantees of future performance or results and involve a number of risks and uncertainties that are outside of the company's control.

See investor relations. Please go ahead.

Thank you, operator and welcome to Blue, Owl, Capital Corporation, second quarter, 2025 earnings conference. Call, yesterday, Blue Owl, Capital Corporation issued, its earnings release and posted an earnings presentation for the second quarter ended, June 30th 2025,

These should be reviewed in connection with the company's 10q filed yesterday with the SEC.

All materials referenced during today's call, including the earnings press release earnings presentation and 10 Q are available on the investor section of the company's website. Atlc corporation.com

joining us on the call today are Craig Packer chief executive officer. Logan Nicholson president.

And Jonathan Lamb Chief Financial Officer.

Michael Mosticchio: 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. 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. With that, I'll turn the call over to Craig.

I'd like to remind listeners that remarks made. During today's call may contain forward-looking statements which are not guarantees of future performance or results and involve a number of risks and uncertainties that are outside of the company's control.

Act your results May differ materially from those in forward-looking statements as a result of a number of factors including those described in obdc filings with the SEC.

The company assumes. No obligation to update any forward-looking statements.

Certain information discussed on this call and then 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.

Craig Packer: Thanks, Mike. Good morning, everyone, and thank you all for joining us today. We delivered solid Q2 results driven by the continued strong performance of our portfolio. As a reminder, our Q2 results reflect the first full quarter of combined company results following the merger with OBDE that closed in January. In Q2, we achieved an ROE of 10.6%, our 12th consecutive quarter of double-digit ROE based on adjusted NII per share of $0.40, reflecting the ongoing strength of our earnings power. As of quarter-end, our net asset value per share was $15.03, down $0.11 from the prior quarter. Our portfolio continues to perform well, which we believe is a reflection of our investment approach that emphasizes downside protection by focusing on large, highly diversified, recession-resistant businesses.

With that, I'll turn the call over to Craig.

Thanks, Mike. Good morning everyone. And thank you all for joining us today.

We do over at Solid Q2 results driven by the continued strong performance of our portfolio.

As a reminder, our second quarter results, reflect the First full quarter of combined company results, following the merger with obde that closed in January.

In the second quarter we achieved an Roe of 10.6%. Our 12th consecutive quarter of double digit. Roe based on adjusted knee per share of 40 cents, reflecting the ongoing strength of our earnings power.

As of quarter end our net asset value per share was $15.03 down 11 cents from the prior quarter.

Craig Packer: The modest write-downs in Q2 occurred on a few companies that have been on our watch list for several quarters, including some that have been impacted by tariffs. None of these are new underperforming names. In fact, given the uncertainty around tariffs, we're quite pleased with how our portfolio is performing, which is in line with our expectations given our business mix. Overall, the fundamental performance across our portfolio remains strong, and we are not seeing any broader signs of stress. As Logan will dive into later, our borrowers continue to experience healthy fundamental trends, including solid revenue and EBITDA growth. OBDC's great credit performance, as evidenced by our below industry average non-accrual and loss rates, is a result of our defensive strategy focusing on high-quality upper middle-market businesses. Next, I want to talk about the current market environment and how we are approaching it.

our portfolio continues to perform well, which we believe is a reflection of our investment approach that emphasizes downside protection by focusing on large highly Diversified recession resistant businesses

A modest writedowns in Q2 occurred on a few companies that have been on our watch list for several quarters, including some that have been impacted by tariffs.

None of these are new underperforming names. In fact given the uncertainty around tariffs. We're quite pleased with how our portfolio is performing. Which is in line with our expectations, given our business mix.

Overall, the fundamental performance across our portfolio remains strong. We are not seeing any broader signs of stress.

as Logan will dive into later our borrowers, continue to experience healthy, fundamental Trends, including solid revenue and ebit dog growth

Obdc sees great credit performance as evidenced by our below industry. Average, not a cruel and loss rates. As a result of our defensive strategy, focusing on high-quality Upper Middle Market businesses.

Craig Packer: 2025 has been a more challenging deal environment as muted M&A has weighed on overall deal activity. Despite limited new supply and a strong broadly syndicated loan market, the spread pressure we experienced last year has troughed and generally stabilized. That said, our sourcing capabilities, which are enhanced by our scale across both Blue Owl Capital and our credit platform, allow us to continue to generate attractive deal flow. As you've heard me talk about over the past year, we have expanded our broader business into other complementary strategies, including alternative credit and investment-grade credit, as well as data centers and digital infrastructures. With our expanded suite of products across the platform, we're able to access new attractive investment opportunities while also adding financing tools that are valuable to our borrowers and sponsors.

Next, I want to talk about the current market environment and how we are approaching it.

2025 has been a more challenging deal environment as needed m&a, has weighed on overall deal activity

Despite limited new Supply and a strong broadly syndicated loan Market, the spread pressure we experienced last year has troughed and generally stabilized.

That said, our sourcing capabilities, which are enhanced by our scale across both blue, aisle, capital, and our credit platform allow us to continue to generate attractive deal flow.

As you've heard me talk about over the past year, we have expanded our broader business into other complementary strategies, including alternative, credit and investment grade credit as well as data centers, and digital infrastructures.

Craig Packer: Given our deep expertise in these areas, we're able to better meet the diverse and ever-evolving needs of our partners, which is especially important considering the more muted deal environment we have experienced this year. Our growing solution set has generated novel origination opportunities for our BDCs. While we aren't changing our fundamental strategy at OBDC, we're currently evaluating cross-strategy opportunities. At a quarter end, we formed a cross-platform equipment leasing joint venture. This is an example of how Blue Owl's in-house expertise enables us to explore strategic equity and accretive joint venture investments that have the cash flow and credit profiles to provide consistent income, which is one of the hallmarks of our investment strategy. Following the OBDE merger close earlier this year, we have incremental capacity to execute on these opportunities.

With our expanded Suite of products across the platform. We're able to access new attractive investment opportunities while also adding financing tools that are valuable to our borrowers and sponsors.

Given our deep expertise in these areas. We are able to better meet the diverse and ever evolving. Needs of our partners.

Which is especially important, considering the more muted deal environment, we have experienced this year.

Our growing solution set has generated novel origination opportunities for our bdcs.

While we aren't changing our fundamental strategy at obdc, we're currently evaluating cross strategy opportunities and a quarter end. We formed a cross-platform equipment, leasing joint venture

Strategic Equity and the creative joint venture Investments that have the cash flow and credit profiles to provide consistent income, which is 1 of the Hallmarks of our investment strategy.

Craig Packer: Select strategic equity and joint venture investments enhance our diversification and expand our reach in new investment areas that are unique to the Blue Owl platform and complement our core sponsor deal flow. To close, we believe our experienced team, defensively constructed portfolio, disciplined underwriting, and highly durable funding model have positioned us to deliver strong risk-adjusted returns regardless of what lies ahead. Now I'll turn it over to Logan for additional color on portfolio performance.

Following the OBD merger closed earlier this year. We have incremental capacity to execute on these opportunities.

Select Strategic Equity and joint venture Investments. Enhance our diversification and expand our reach in new investment areas that are unique to the blue. All platform. In complement, our correspondent deal flow.

To close. We believe our experienced team to defensively construct, a portfolio to discipline to underwriting and highly durable funding model. Have positioned us to deliver strong risk, adjusted returns or regardless of what lies ahead.

Logan Nicholson: Thanks, Craig. Despite deal activity being relatively subdued in April after the initial tariff announcement, we continued to find attractive opportunities to commit capital in Q2. We deployed approximately $1.1 billion of new investment commitments with $906 million of fundings in Q2. We also saw a steady flow of repayments, with $1.9 billion of paydowns this quarter, which resulted in net leverage landing at 1.17 times. As you recall, reducing leverage back down to our target range was a priority following the one-time leveraging event from the merger with OBDE earlier this year. We now have ample capacity to navigate going forward. As Craig mentioned earlier, our scale and incumbency create a unique advantage. In the uncertain market environment that persisted throughout Q2, the majority of our originations came from existing borrowers.

Now, I'll turn over to Logan for additional color on portfolio performance.

Thanks Craig. Despite deal activity being relatively subdued in April. After the initial tariff announcement we continue to find attractive opportunities to commit capital in the second quarter.

We deployed approximately 1.1 billion dollars of new investment, commitments, with 906 million of fundings in the second quarter.

We also saw steady flow of repayments with 1.9 billion of pay Downs this quarter, which resulted in net leverage landing at 1.17 times.

As you recall, reducing leverage back down to our target range was a priority following the 1 time, leveraging event from the merger with obde earlier this year. And we now have ample capacity to navigate going forward.

Logan Nicholson: A recent example of this was Trucordia, an insurance brokerage firm that has been part of the Blue Owl portfolio since 2020. At inception, we provided a creative financing solution that included a cash-paid debt component plus an intentionally structured PIK component and a common equity co-investment. In Q2, the company completely recapitalized, resulting in the payoff of our term loan, the collection of all accrued PIK interest on that loan, and the realized gain on our common equity position. Additionally, an existing preferred equity investment was refinanced. Overall, the transaction resulted in an IRR in the low double digits and a MOIC of approximately 1.4 times across our entire investment. This is yet another example of how structuring deals with PIK at inception can lead to more attractive returns.

As Craig mentioned earlier, our scale and incumbency create a unique advantage and in the uncertain Market environment, that persisted throughout the second quarter, the majority of our originations came from existing Borrowers,

A recent example of this was ricordea and insurance brokerage firm that has been part of the blue, Al portfolio since 2020.

At Inception, we provided a creative financing solution. That included a cash. Pay debt component, plus an intentionally structured pick component and a common equity co-investment.

In the second quarter, the company, completely recapitalized. Resulting in the payoff of our Term Loan. The collection of all acred, pick interest on that loan and the realized gain on our common Equity position.

Additionally, an existing preferred, Equity investment was refinanced.

Overall, the transaction resulted in an irr and a low, double digits and a moic of approximately 14 1.4 times across our entire investment.

Logan Nicholson: Additionally, given our deep and long-standing relationship with the borrower, Blue Owl was able to provide a new second lien term loan behind a broadly syndicated first lien as the sole lender in that tranche. The transaction highlights the strength of our incumbencies and our ability to provide customized, flexible solutions that deliver attractive risk-adjusted returns for our shareholders. Before we turn to the portfolio, as Craig noted earlier, we formed an equipment leasing joint venture at quarter end. It will allow us to efficiently invest in a diverse pool of high-quality equipment leases with a dedicated leverage facility. We expect it to generate attractive low double-digit yields once fully ramped, which should be accretive to fund level ROEs over time. This is yet another example of how we leverage the breadth of the Blue Owl platform to create value for shareholders.

This is yet another example of how structuring deals with pick at Inception can lead to more attractive returns.

Additionally, given our deep and long-standing relationship with the borrower.

Blue Owl was able to provide a new second lane Term Loan behind, a broad, broadly syndicated first Lane as the sole lender in that tranche.

The transaction highlights, the strength of our company and our ability to provide customized flexible solutions that deliver attractive risk, adjusted returns for our shareholders.

Before we turn to the portfolio as Craig noted earlier, we formed an equipment leasing joint venture at quarter end.

It will allow us to efficiently, invest in a diverse pool of high-quality equipment, leases with a dedicated leverage facility.

The expected to generate attractive low double-digit yields. Once fully ramped, we should be a creative to fund level Roes over time.

Logan Nicholson: Now I'd like to touch on some portfolio metrics. We believe our long-standing and disciplined approach of investing in a diverse pool of upper middle-market businesses and non-cyclical sectors continues to drive strong portfolio results in all market environments. OBDC's average investment represents less than 45 basis points of the portfolio, minimizing our exposure to any single company. The median EBITDA of our portfolio borrowers is $133 million, and weighted average EBITDA is $222 million, up from $120 million and $215 million in the prior quarter, respectively. Our debt portfolio sits at a conservative LTV of 42% on average, which we believe is key to protecting our downside and supporting robust recoveries during challenging times. As Craig highlighted, the fundamental performance of our portfolio company borrowers remains strong. Revenue and EBITDA increased by mid to high single digits on a year-over-year basis, which accelerated slightly compared to prior quarter results.

This is yet. Another example of how we Leverage, The breadth of the Blue. Owl platform to create value for shareholders.

Now, I'd like to touch on some portfolio metrics.

We believe our long-standing and disciplined approach of investing in a diverse pool of Upper Middle Market, businesses and non-cyclical sectors continues to drive strong portfolio, results in all Market environments.

Obdc is average investment represents less than 45 basis points of the portfolio, minimizing our exposure to any single company.

The median Evita of our portfolio Borrowers is 133 million.

And weighted average ebita is 222 million up from 120 million and 215 million in the prior quarter respectively.

Our debt portfolio sits at a conservative LTV of 42% on average, which we believe is key to protecting our downside and supporting robust recovery during challenging times.

Is Craig. Highlighted, the fundamental performance of our portfolio company borrowers, remain strong.

Logan Nicholson: Interest coverage increased to 1.9 times based on current spot rates, providing our borrowers with incremental cash flow cushion. PIK income decreased again quarter-over-quarter, down to 9.1% of total investment income from 10.7% last quarter, primarily driven by refinancings of several PIK investments, including Trucordia, as I mentioned earlier. As we've highlighted in the past, the vast majority of our remaining PIK names were underwritten at inception rather than resulting from credit issues, and these investments continue to perform as expected. Our internal ratings, which range from 1 to 5 as an indicator of portfolio health, remain steady, and our watch list was down modestly at cost from the prior quarter. Further, we do not see any material pick-up in amendment activity or other signs of material stress. Outside of our watch list, our portfolio is performing well and our marks remain stable quarter-over-quarter.

Revenue and ebita increased by mid to high single digits on a year-over-year basis, which accelerated slightly compared to Prior quarter results.

Interest coverage increased to 1.9 times based on current spot rates, providing our borrowers with incremental cash flow cushion.

as I mentioned earlier,

as we've highlighted in the past, the vast majority of our remaining pick names were underwritten at Inception, rather than resulting from credit issues and these Investments continue to perform as expected.

Our internal ratings which range from 1 to 5 as an indicator of portfolio, Health remains steady. And our watch list was down modestly at cost from the prior quarter.

Further, we do not see any material pick up and Amendment activity or other signs of material stress.

Logan Nicholson: If you were to exclude the handful of names on our watch list where we saw markdowns, the rest of our portfolio marks were flat quarter-over-quarter at $0.996 a par. Our non-accrual rate as of quarter end was 0.7% at fair value and 1.6% at cost, compared to 0.8% and 1.4% in the prior quarter, reflecting the addition of 1 small position that has been on the watch list for several quarters. Finally, at the time of our Q1 call, we estimated that our tariff exposure was roughly mid-single digits of the portfolio. We're pleased to report that today, with the benefit of more time engaging our portfolio companies, we believe our exposure is narrower than we had previously estimated.

Outside of our watch list are portfolios performing. Well and our marks remain stable quarter over quarter.

If you were to exclude the handful of names on our watch list where we saw markdowns. The rest of our portfolio marks were flat quarter over quarter at 99 spot 6 cents apart.

Our non-accrual rate as of quarter, end was 0.7% at fair value and 1.6% at Cost compared to 0.8% and 1.4% in the prior quarter.

Reflecting, the addition of 1 small position that has been on the watch list for several quarters.

And finally, at the time of our first quarter call, we estimated that our tariff exposure was roughly mid single digits of the portfolio.

Logan Nicholson: Our borrowers continue to manage these headwinds well, and for the small subset of names impacted by anticipated tariffs, our sponsors continue to provide support and resources to diversify supply chains. In closing, I want to echo the sentiment Craig shared. Our Q2 results demonstrate the continued strength of our portfolio, which is bolstered by our differentiated origination funnel and conservative approach to underwriting. Now I'll turn over the call to Jonathan to provide more detail on our Q2 financial results.

We're pleased to report that today with the benefit of more time. Engaging our portfolio companies. We believe our exposure is narrower than have we had previously estimated

Our borrowers continue to manage these headwinds well and for the small subset of names impacted by anticipated tariffs, our sponsors continue to provide support and resources to diversify Supply chains.

In closing, I want to Echo the sentiment. Craig, shared our second quarter results, demonstrate the continued strength of our portfolio, which is bolstered by our differentiated origination funnel, and conservative approach to underwriting.

Jonathan Lamm: Thank you, Logan. OBDC delivered another quarter of solid financial performance. We ended the quarter with total portfolio investments of nearly $17 billion, total net assets of nearly $8 billion, and total outstanding debt of approximately $9 billion. Our Q2 NAV per share was $15.03, down from $15.14 last quarter. Turning to the income statement. We earned adjusted net investment income of $0.40 per share, up $0.01 as compared to the prior quarter, driven primarily by an elevated level of one-time repayment income in Q2, totaling $0.05 per share, which was about $0.03 per share higher as compared to our 3-year average. This was partially offset by lower leverage.

And now I'll turn over the call to Jonathan to provide more detail on our second quarter Financial results.

Thank you, Logan.

Obdc delivered, another quarter of solid financial performance. We ended the quarter with total portfolio, Investments of nearly 17 billion dollars. Total net assets of nearly 8 billion dollars and total outstanding debt of approximately 9 billion dollars.

Our second quarter naft for share was $15.33 down from $15.14 last quarter.

Turning to the income statement, we earned adjusted net investment income of $0.40 per share, up $0.01 as compared to the prior quarter. This increase was driven primarily by an elevated level of one-time repayment income in the second quarter, totaling $0.05 per share, which was about $0.03 per share higher as compared to our three-year average.

Jonathan Lamm: Similar to prior quarters, we over-earned our base dividend, resulting in the board declaring a $0.02 supplemental dividend based on our Q2 results, which will be paid on 15 September to shareholders of record as of 29 August. The board also declared a Q3 base dividend of $0.37, which will be paid on 15 October to shareholders of record as of 30 September. We continue to believe OBDC is well positioned for the evolving rate environment. Our adjusted earnings covered our base dividend with 109% dividend coverage. Further, our spillover income remains healthy at approximately $0.33 per share and equates to nearly a full quarter's worth of base dividends. We believe having a meaningful undistributed spillover supports our goal of maintaining a steady dividend through volatile and varying market conditions. Moving to the balance sheet.

This was partially offset by lower Leverage.

Similar to Prior quarters. We over earned our base dividend, resulting in the board. Declaring a 2 cent supplemental dividend based on our second quarter results, which will be paid on, September 15th to shareholders of record as of August 29th.

The board. Also declared a third quarter base dividend of 37 cents, which will be paid on October 15th, to shareholders of record, as of September 30th.

We continue to believe, obdc is.

Positioned for the evolving rate environment.

Our adjusted earnings covered our base dividend with 109% dividend coverage.

Further our spillover income remains healthy at approximately 33 cents per share.

And equates to nearly a full quarters worth of Base dividends.

We Believe having a meaningful undistributed spillover supports. Our goal of maintaining a steady dividend through volatile and varying market conditions.

Jonathan Lamm: We finished the quarter with net leverage of 1.17 times, down from 1.26 times, and within our target range of 0.9 to 1.25 times as we made a concerted effort to lower leverage following our merger with OBDE, as Logan mentioned. Turning to liquidity. We ended the quarter with over $4 billion in total cash and capacity on our facilities, which was over 2 times in excess of our unfunded commitments. We believe we have positioned our balance sheet with significant capacity to invest as new opportunities come in. During the quarter, we further bolstered our liquidity by raising $500 million in new 5-year notes, and we continue to optimize our capital structure post-merger with several refinancings and amendments of our secured facilities.

Moving to the balance sheet.

We finished the quarter with net. Leverage of 1.17 times down from 1.26 times and within our target range of 0.9 to 1 and a quarter time.

As we made a concerted effort to lower leverage, following our merger with obde as Logan mentioned.

Turning to liquidity, we ended the quarter with over 4 billion dollars in total cash and capacity on our facilities which was over 2 times in excess of our unfunded commitments.

We believe we have positioned our balance sheet with significant capacity to invest as new opportunities come in.

Jonathan Lamm: As a result, we have no material short-term maturities, and our robust liquidity position provides us with more than ample unfunded capacity to meet any near-term funding needs. Overall, we remain very pleased with our results and believe that our balance sheet is well positioned for the environment ahead. I'll now hand it back to Craig to provide final thoughts for today's call.

During the quarter. We further bolstered our liquidity by raising 500 million in new 5-year notes, and we continue to optimize our capital structure post merger with several, several refinancing and Amendments of our secured facilities.

As a result, we have no material short-term maturities and our robust liquidity position provides us with more than ample unfunded capacity to meet any near-term funding needs.

For the environment ahead.

Craig Packer: Thanks, Jonathan. To close, I want to reflect on where OBDC and the broader BDC market are today. Over the past year, we saw two trends that have impacted both OBDC and the broader leverage finance markets. First, interest rates declined 100 basis points from their peak as market expectations evolved. As a predominantly floating rate asset class, this has had a direct impact on our portfolio's earning power. Second, while direct lending spreads have been tighter, spreads have narrowed in all markets. Direct lending still commands a healthy premium to the broadly syndicated loan market, yielding a 150 to 200 basis point premium, which is generally in line with historical averages. Despite these two headwinds, we believe our portfolio is positioned for strong, consistent performance.

I'll now hand it back to Craig to provide final thoughts for today's call.

Thanks Jonathan to close. I want to reflect on where obdc and the broader BDC Market are today.

Over the past year, we saw 2 trends that have impacted both obdc and the broader leveraged Finance markets. First interest rates decline, 100 basis points from their Peak as Market expectations, evolved

As a predominantly floating-rate asset class, this has a direct impact on our portfolio's running power.

Second while direct lending, spreads have been tighter, spreads have narrowed in all markets direct, Landing still commands, a healthy premium to the broadly, syndicated loan, Market yielding, a 150 to 200 basis point premium.

Which is generally in line with historical averages.

Craig Packer: Absolute returns for the direct lending continue to be compelling, and OBDC continues to deliver attractive relative returns, which we were once again able to demonstrate in Q2, generating a 10.6% ROE and a 10.4% dividend yield on net asset value. Looking ahead, spreads have generally stabilized, and while the rate outlook remains uncertain, the market is expecting modest additional rate cuts later this year. However, even with that assumption, we are confident that we will maintain our dividend level throughout the rest of the year. On the deal environment, we are cautiously optimistic about a potential rebound in activity in H2 of this year. Recent conversations with private equity sponsors have been encouraging, and if these discussions translate into new transactions, they could significantly boost deal flow.

Despite these 2 headwinds, we believe our portfolio is positioned for strong consistent performance.

Absolute returns for the indirect lending continue to be compelling, and OBDC continues to deliver attractive relative returns.

Which we were once again able to demonstrate in the second quarter generating, a 10.6% hourly and a 10.4% dividend yield on net asset value.

Looking ahead spreads of generally stabilized. And while the rate Outlook remains on certain the market is expecting modest additional rate Cuts later this year,

however, even with that assumption, we are confident that we will maintain our dividend level throughout the rest of the year.

On the deal environment. We are cautiously optimistic about a potential Rebound in activity in the second half of this year.

Craig Packer: Regardless of whether these deals materialize, we are confident that our sourcing capabilities, enhanced by the scale of our platform, will continue to drive attractive deal flow going forward. In closing, we feel very comfortable with our ability to deploy capital opportunistically and manage leverage appropriately. Our strong track record, combined with the scale of our platform, consistent investment philosophy, positions OBDC to deliver attractive risk-adjusted returns to our shareholders across any economic environment. Thank you for your time today, and we will now open the line for questions.

We've seen conversations with private Equity, sponsors have been encouraging. And if these discussions translate into new transactions, they could significantly boost the flow.

Regardless of whether these deals materialize, we are confident that our sourcing capabilities enhanced by the scale of our platform will continue to drive attractive deal flow going forward.

In closing, we feel very comfortable with our ability to deploy capital opportunistically and manage leveraged appropriately. Our strong track record combined with the scale of our platform, consistent investment philosophy positions, obdc to deliver attractive risk, adjusted returns to our shareholders across any economic environment.

Operator: Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Again, that's star one to register a question at this time. Our first question today is coming from Brian McKenna of Citizens. Please go ahead.

Thank you for your time today, and we will now open the line for questions.

Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate that your line is in the question queue. You may press star 2. If you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star Keys. Again, that's star 1 to

Brian McKenna: Thanks. Good morning, everyone. We're a couple of quarters removed now from the merger with OBDE. Where are we in terms of realizing the vast majority of those synergies? On the expense side, those are pretty straightforward. But just in terms of remixing some of the assets and also optimizing the funding side, I'm just trying to think through if there's any more upside to the 10.5% ROE from here, assuming all else equal.

Register a question at this time. Our first question today is coming from Brian McKenna of citizens. Please go ahead.

Thanks, good morning everyone. Um, we're a couple quarters removed now for the merger with obde, where are we? In terms of realizing is vast majority of those synergies. The on the expense side. You know those are pretty straightforward but just in terms of remixing, some of the assets and also optimizing, you know, the funding side. I'm just trying to think through, you know, if there's any more upside to the 10 and a half percent Roe from here, assuming all else sequel.

Craig Packer: Sure. Morning, Brian. Jonathan, why don't you handle the expense and financing side?

Jonathan Lamm: Sure. Brian, on the OpEx side, as we mentioned last quarter, the vast majority, really all of that has come through, came through immediately, and we've seen those synergies take effect. On the financing side, it's a little bit of a slower burn just because we have certain financings, in particular on the secured side, that have call dates or reinvestment periods that still need to come. That will occur really over the course, the vast majority of it over the course of the next year or so, but it's happening piecemeal. I would say that the vast majority there has not occurred, and then I'll hand it back.

Craig Packer: Will you qualify?

Jonathan Lamm: About 20% and 25%.

Uh, sure, good morning, morning morning, Brian. Um, Jonathan, why don't you why don't you handle the, um, expense and financing side, sure. So Brian on the, on the Opex side. As, as we mentioned last quarter, the the vast majority. It really all of that has come through, um, you know, came through immediately and we've seen that we've seen those synergies. Um, you know, take effect on the financing side, um, it's a little bit of a slower slower burn just because we have certain, um, certain financing in particular on the secured side that have, you know, called dates or reinvestment periods, that still need to come. And so that will uh, that will occur really over the course, the vast majority of it over the course of the next year or so, but it's happening piece meal. So I would say that the vast majority there has not occurred and then I'll hand it back.

Craig Packer: How much ROE benefit from additional financing synergies?

About 20, 25%.

Jonathan Lamm: Another 50 basis points.

How much Roe from benefit from additional financing centers?

Another 50 basis points.

Craig Packer: On the portfolio rotation, that's going to take a little bit of time as well. Part of what we have been planning for as OBDE was not invested to the same extent as OBDC in some of the joint ventures that we have that generate nice return. As we deploy capital into those strategies, we'll be able to essentially true up OBDC on a pro forma basis, which probably is another 25-plus basis points of ROE. Between the financing and the portfolio rebalancing, I think there's a potential for another 50, 75 basis points of ROE improvement over time as those things take effect.

Saying, I think there's a potential for another 5075 basis points of Roa improvement over over time. As as as, as those things take effect,

Brian McKenna: Okay. That's really helpful. Thank you both. I appreciate all the detail on just kind of the broader capabilities across your credit platform. You called these out, but in areas like alternative credit, digital infrastructure, et cetera. It's great to hear the positive impact those businesses are having on just creating differentiated deal flow and really additional origination opportunities for OBDC. Is there any way to quantify how much of year-to-date originations or commitments have come from these types of opportunities? Is there a way to think about this mix longer term?

Okay, that's really helpful. Thank you both. Um, and then I appreciate all the detail on just kind of the broader capabilities across your credit platform. You know, you called these out but in areas like alternative credit, digital infrastructure, Etc. Um and and it's great to hear the positive impact. Those businesses are having on on just creating differentiated deal flow and really additional origination opportunities for OBC. I mean, is there any way to quantify how much of year to date? Originations or commitments have come from uh these types of opportunities? And then is there a way to think about this mix longer term?

Craig Packer: Sure. Okay, I think that there's a couple pieces to this, and I want to sort of separate them out. The first is, Blue Owl as a platform has gotten into new lines of business that just we weren't in previously. As folks I think know, but just to highlight, we acquired Atalaya Capital Management last year, which is in the business of what we call alternative credit, but some will call it asset-based lending. We also got into the business of managing data centers with our acquisition of IPI. Our real estate business has seen tremendous activity in the data center space. The firm as a whole has a much broader opportunity set than ever before. We are going to be selective, but many of those opportunities offer similar cash flow characteristics and return characteristics as what we've been doing in our direct lending business.

Sure. Um,

So look, I think that there's, there's a couple pieces to this and I want to sort of separate them out. Um, the first is, you know, Blue Owl as a platform has gotten into new lines of business that just we weren't in previously, um, as as folks, I think know, but just to highlight we Acquired autoi Capital last year which is um in the business of what we call alternative credit but some will call it asset based. Uh, lending. We also got into the business of of uh, man of managing data centers. With our acquisition of IPI are real estate business has has seen tremendous activity in the data center space.

Craig Packer: We're going to be deliberate about what we would put in OBDC, but we have just a broader deal funnel, and we think that that's valuable in and of itself, but especially in an environment where there's just less new sponsor deals. That's very attractive to us. It's early, looking backwards for this quarter and the previous quarters, I would say it's very modest because we're just getting that deal flow in place and just now in a position where we can commit to new deals, and put them in the portfolios. We've talked a couple of times in the script, we set up an equipment finance JV across our BDCs. Historically, it's had limited impact.

So the firm as a whole has a much broader opportunity set um, than ever before and we are going to be selectively. But many of those opportunities offer similar cash flow characteristics and return, characteristics, is what we've been doing in our direct lending business. And so we're going to be deliberate about what we would put in obdc. But but we have just a broader deal funnel and we think that that's valuable in and of itself, but especially in an environment where there's just less new sponsor deals. So that's very attractive to us. Um, it's it's early in and so I

I wouldn't looking backwards for this quarter and the previous quarters. I would say it's had it's very modest because we're just

Craig Packer: I will tell you the reason why we've mentioned it a couple of times today is we're seeing very consequential inbounds in this area. I do think going forward, it's something that we will really benefit from. I hesitate to quantify it on the fly. If I were to cuff it, in the next couple of years, could you see 10% of the portfolio, 15% of the portfolio in some of these new strategies? Don't hold me to that. I want folks to know it can be meaningful. I also want them to know it's not going to dominate our investing. These are really, I think, attractive investments, that will fit really well in our BDC and offer attractive risk-adjusted return, just directionally meaningful, but not change the overall complexion of the portfolio.

getting that deal flow in place and just now in a position where we can commit to New Deals um and put them in the portfolios. We've talked a couple times in the script. We we set up an equipment equipment Finance JV across our bdcs. So historically it's it's had limited impact but I will tell you the reason why we've mentioned it a couple times today is we're seeing very consequential inbounds in this area and so I do think going forward um it's something that we will really benefit from um I kind of hesitate to quantify it on the Fly um you know but but you know if I would just sort of cuff it and the next you know couple of years

Craig Packer: We'll obviously keep everyone updated quarter by quarter as we start to make these types of investments.

Logan Nicholson: Ryan, to that end, 10% of Q1 originations were into these types of equity and JV investments.

Brian McKenna: Okay. That's great. Thank you, guys. Appreciate all the color.

Could you see, you know, 10 10% of the portfolio? 15% of the portfolio in some of these new strategies and don't hold me to that, but I I want I want folks to know it can be meaningful but I also want them to know it's not going to dominate our investing. Um, but these are really I think, attractive Investments um that will fit really well in our BDC and and offer attractive risk adjusted return, so just directionally meaningful but not not change. The, the overall complexion of the portfolio. Well, obviously, keep keep keep everyone updated quarter by quarter as as we start to, to make these types of Investments. Brian to that end. 10% of q1. Originations were into these types of equity and JV Investments.

Okay, that's great. Thank you guys. Appreciate all the caller.

Operator: Thank you. Our next question is coming from Aaron Siganovich of Truist Securities. Please go ahead.

Thank you. Our next question is coming from Aaron, ciganovich of truist Securities. Please. Go ahead.

Aaron Siganovich: Thanks. You mentioned you're kind of cautiously optimistic about a rebound in activity in H2. Maybe you could talk a little bit about what types of deals you're seeing. Are they predominantly M&A? Are they refinancing? How open are sponsors to getting deals done rather quickly?

in your kind of

previously optimistic about a rebound in activity, in the second half. Um, maybe you could talk a little bit about what types of, uh, deals you're seeing or or, or are they predominantly m&a, or are they refinancing in, um, you know, how how how open our our sponsors to, uh, uh, to getting deals done rather quickly.

Craig Packer: Sure. I'll start. Logan, you can chime in. Look, I always debate how much to lean in on this comment because we've been hopeful before and been disappointed before, and we're not trying to lean in too much here. There's been a noticeable pickup in engagement with sponsors in the last 60 days or so that feels a little bit different and if it were to really result in transactions, I think can move the needle. In terms of the flavors, it's a mix. We've seen inbounds on potential public to private activity, so public companies getting taken private, which would be brand-new names to the market. Those are really exciting. There are still activity where we're refinancing loans in the public market into the private markets. There's an ebb and flow there.

We've seen, um, inbounds on potential public to private activities. So public companies getting taken private, so that which would be brand new names to the market, those are really exciting. Um, there are still uh, activity where we're refinancing.

Craig Packer: There are certainly names going the other direction from private to public, but there are syndicated loans that are getting refinanced in our market. There's just good old-fashioned sponsors looking to potentially sell companies to other sponsors. We continue to see a steady drumbeat of add-on acquisition financing for our portfolio that's been carrying us throughout. I would say those first three buckets or so, there's been enough in each area that gives us some hope that this will translate into increased deal activity in H2 of the year. I'm always a believer to see it actually happen versus predicting it'll happen, but these deals are moving along at a nice clip, and hopefully things will unstick here a bit.

Loans in the public market into the private markets. Um, there's an EB and flow. There there are certainly names going the other direction from private to public, but but there are, uh, syndicated loans that are getting refinanced in our Market. Um, and then there's just, you know, good old-fashioned sponsors looking to potentially sell companies, um, to other sponsors. Um, we continue to see a steady drum beat of add-on. Acquisition financing for our portfolio. Um, that's been that's been carrying us, you know throughout but I would say those first uh 3 buckets or so. Um, there's been enough in each area that gives us. Um some some hope that this will translate into increased deal activity in the second half of the year. I I'm always I'm always a Believer you know like to to to see it actually happen versus predicting what will happen but but these deals are moving along in a nice clip and and hopefully things will will unstick here a bit.

Aaron Siganovich: Got it. Thanks. Leverage came back down within your target. Can you talk a little bit about where do you see leverage heading? Are you going to keep it around this level or might you lever it up, particularly if deal activity is starting to pick up?

Got it. Uh, thanks and then uh, leverage came back down within your target. Um, can you talk a little bit about, you know, where where do you, where do you see leverage, uh, heading you going to keep it around this uh, level or or might you leverage it up? Particularly if you know, deal activities, certain pickups,

Logan Nicholson: Yeah, sure. That was intentional. As we noted, we were comfortable at the higher end of our range last quarter, but we've delevered to just under 1.2x. I think in this range, which is near the top end of our range, is where you'll see us hover in terms of leverage. Very comfortable at this level. The one-time OBDE merger impact is now fully worked through. High 115 to 120, the high end of our range, I think is a good place to estimate.

Yeah, sure that. That was intentional. As we noted, uh, we were comfortable at the higher end of our range last quarter. But we've, we've delivered to just under 1.2 times. I think in this range which is near the top end of our range is where you'll see us hover in terms of Leverage

Um, so very comfortable at this level and um, the 1 time obde merger impact is now fully worked through. So um, you know, High 1, 1, 1 15 to 1 120, the high end of our range, I think is a good place to uh, to estimate

Aaron Siganovich: Thank you.

Thank you.

Operator: Thank you. The next question is coming from Robert Dodd of Raymond James. Please go ahead.

Robert Dodd: Hi, guys. If I can go back to your comment about these other strategies, Craig. I'll ask you a hypothetical and you can dodge it if you want. If the platform were to make a new acquisition of a new strategy tomorrow, what kind of timeframe to onboard it, review it, maybe let it mature a little bit, then look, is it BDC appropriate, and then build a structure? If you made an acquisition tomorrow, it's like you might be onboarding those assets 2 years from now if they're BDC appropriate. Or what's the timeframe for review and structuring, et cetera, et cetera, whether something's appropriate to add in terms of a new type of strategy to the BDC portfolio?

Thank you. The next question is coming from Robert Dodd of Raymond James. Please go ahead.

Uh, hi guys. And if if I can go back to to to to your comment about these, these other strategies, correct? I mean, it it I'll ask you a hypothetical, you can, you can dodge it if you want. Um, if if the platform were to make an a, a new acquisition of a new strategy, you know?

Tomorrow, what kind of time frame, um, you know, to onboard it, review it, maybe let it mature a little bit then then, you know, look is it, BDC, appropriate and then build a structure. I mean, is it if you made an acquisition tomorrow, it's like you might be on boarding those assets 2 years from now if their BDC appropriate or, you know what's, what's the time frame for a review of whether something The View and structuring etc, etc?

Whether some things appropriate to add in terms of a new type of strategy to the BDC portfolio.

Craig Packer: Well, the acquisitions we've made are completely integrated and fully ramped. Deal flow is active and our teams are integrated with those opportunities. We've already done all the work necessary to make sure investments can be appropriate, structured properly, pass muster in terms of allocation policies, set up appropriate coordination. All the opportunities I mentioned earlier, that's all live now. The delay is not from work internally, but just finding deals that work and takes time for deals to come in, and we commit, and they close. It's just the life cycle of the deals at this point, not any hold ups. We're live on this now, and we look weekly at opportunities that can fit across the platform.

Well the um the Acquisitions we've made um are completely integrated um and fully ramped. The deal flow is active in our teams are

integrated with those those opportunities. Um we've already done all the work necessary to make sure Investments can be appropriate structured properly, you know um passed muster in terms of allocation policies, set up appropriate coordination. So all the all the

Craig Packer: Again, that's why we're saying we're talking about this, because you're going to see between the Q3 investments show up that are a benefit of what we're talking about here. In terms of your hypothetical, if you see us announce an acquisition at the Blue Owl level, once the deal closes, we're able to integrate and get things up and running really quickly, measured in a month or two. We're a nimble organization. We're ultimately a fairly focused organization. We're in 3 major credit lines, credit, real assets, and GP stakes. By the time we announce a deal, you should assume we've diligenced it extraordinarily well and understand exactly how it's going to fit and whether it's appropriate. We can be investing in those strategies measured in months. Deals just have a cycle to themselves.

Um, opportunities I mentioned earlier that's all live. Now and the and the delay is not from work internally, but just finding deals that that work and takes time for deals to come in and, and we commit and they close. So, it's just the life cycle of the deals at this point. Not any, any holdups. We are. We're live on this now, and we look weekly at opportunities that can fit across the platform. And, um, and, and again, that's why we're saying we're talking about this because you're going to see because the third quarter Investments, show up, that are the benefit of what, what we're talking about here. Um, you know, I'll in terms of your hypothetical, you know? If if a if you see us announced announced an acquisition at the Blue Owl level, um you know once the deal closes we're able to we're able to integrate and and get things up and running really quick.

Craig Packer: I would focus on the deals we've already announced rather than some hypothetical and just to say, again, I think it's a huge positive for OBDC shareholders. That's why I'm highlighting it. These are really attractive risk-adjusted returns, originated and structured by teams with deep domain expertise, and offer low double-digit plus ROEs. You know Robert well, we've done this before, not at the acquisition level, but we've built joint ventures in aircraft and railcar finance, drug royalties, and asset-based lending. These have been very creative strategies. We're very deliberate about how we do them, but they offer additional diversification, additional consistent income, the benefits of scale. I think it's a nice way to allow us to continue to be very disciplined in our core sponsor lending business.

Robert Dodd: Got it. Thank you for that color. If I go one more on kind of related to the when we talk about public-private markets, there's always swings of mad about. There's a big sponsor who's talking publicly, or at least talking to Bloomberg, about shifting a fair number of their deals in private credit to the syndicated loan market, which happens to be open right now with pretty tight spreads. Are you seeing anything in terms of overall shifts, in terms of share or anything like that, or is that just another artifact of the noise that we currently see of it swinging backwards and forwards between the two, depending on points in the cycle?

10 months, but Deals Deals, just have a cycle to themselves, but I would just, I would focus on the deals. We've already announced rather than some some hypothetical. And just just say, you know, we're again, I think it's a huge positive for obdc shareholders. Why I'm highlighting it? Um, these are really attractive risk, adjusted returns originated in structured, by teams with deep deep, deep domain expertise, um, and and offer, you know, you know, low double digit plus roles. Um, you know, you know Robert, you know, well, like we've done this before, kind of, at the acquisition level, but we've built joint ventures in aircraft and rail, har finance, and, and Drug royalties and asset based lending. I mean, these are these have been very the creative strategies. We're very deliberate about how we do them but they offer additional diversification and add additional uh, consistent income, um, the benefits of scale. And um, I think it's a nice, a nice way to um, allow us to continue to be very disciplined in our in our core sponsor lending business.

To the, um, when we talk about, yeah, public private markets. I mean, there's always swings that matter about. So I mean, there's there's a big sponsor who's talking publicly or at least talking to Bloomberg. Uh, about shifting a fair number of their deals in private credit to um, to uh, to the syndicated loan Market, which happens to be open right now with pretty tight sweats. Um, you know, is, are you, are you seeing anything in?

In terms of like overall shifts, um, in terms of share or anything like that or is that just just just another artifact of the noise of of that we currently see of of of, you know, swinging backwards and forwards between the 2 uh depending on points in the cycle.

Craig Packer: I think it's a very healthy traditional market environment. I would say sponsors continue to shift more of their decisions and financing decisions to the private markets, especially for new deals. In terms of the trade balance in one direction or the other, it's pretty balanced deals coming from public to private or from private to public. It's a healthy market where sponsors have two good choices, and they're picking. We've talked about this many times on these calls.

The, um, I think it's a, it's a very healthy. Um, um, traditional Market environment.

Craig Packer: There are going to be periods of times, the typical order of affairs is both markets are open and sponsors pick. That's the environment we're in now. There are going to be other periods of time where the public markets are challenged, and deal flow will swing to the private markets. This is the way it should be. There's plenty of deal flow to feed both markets, and we continue to find that the secular shift is towards direct lending. Importantly, we continue to get a significant premium, better documentation, better diligence, and we continue to cherry-pick, we think, the best assets for the private markets. I think it's a healthy, functioning environment that suits us just fine.

Um I would say sponsors continue to shift more of their decisions and and financing decisions to to the private markets especially for new deals, in terms of the, you know, trade balance in 1 direction, or the other. It's pretty balanced, you know, deals coming from public to private or from private to public. It's a healthy Market where sponsors have 2 good choices and they're picking, I mean, we've talked about this, you know, many times on these calls they're going to be periods of times. You know, the typical order of Affairs is both markets are open and sponsors pick um you know, and and that's what that's the environment we're in now. Um, they're going to be other periods of time where the public markets you know are are are are challenged and and and deal flow will swing to the private markets. Um but this is the way this is the way it should be both Market. There's plenty of deal flow to feed both markets and we continue to find that. Um the the secular shift is towards direct lending and then importantly we continue to get a significant premium better documentation better diligence, um, and we

Robert Dodd: Got it. Thank you.

Continue to cherry pick. We think the best assets for the private markets. So I think it's it's a healthy functioning environment that, that suits us. Uh, just just fine.

Craig Packer: Thanks, Robert.

Got it. Thank you.

Operator: Thank you. The next question is coming from Mickey Schine of Clear Street. Please go ahead.

Thanks, Robert.

Mickey Schine: Yes, good morning, everyone. Craig, this question may sound a little basic, but we're getting such mixed signals on the economy, whether we're looking at labor numbers or inflation or GDP growth. I just want to ask at a high level, where do you think we are in the credit cycle?

Thank you. The next question is coming from Mickey Shine of Clear Street. Please go ahead.

Uh yes good morning everyone. Uh Craig this question may sound a little basic but we're getting such mixed signals on the economy. Uh whether we're looking at Labor numbers or inflation or GDP growth.

I just want to ask at a high level. Where do you think we are in the credit cycle?

Craig Packer: Our companies continue to perform well. We talked about in the script, they continue to grow modestly quarter-over-quarter, low single digits, more like double digits year-over-year. I would say generally, we continue to see a modestly sort of expanding economy. Look, I know at 1 level, we have 300+ portfolio companies at OBDC, and so investors will look to us as a barometer. I just quickly rush to remind everyone, we are not a microcosm of the US economy. We are heavily concentrated in companies that we think are resistant to a recession, particularly things like software and insurance brokerage, and parts of healthcare, food, and beverage. We are not expecting to be an early warning sign of the US economy and weakness. We have very few cyclicals. When you're reading about tariffs affecting auto.

So our companies continue to perform. Well, we talked about in the script, you know, they continue to grow modestly. Um, quarter of a quarter low low low single digits, you know, more like double digits year-over-year. Um, I would say generally we we continue to see a modestly, you know, sort of expanding economy. Uh but I I look I know at 1 levels portfolio companies at obdc and so investors will look to us as a as a barometer. Um, but I I just quickly rush to remind everyone. We we are not a microcosm of the US economy, we are heavily concentrated in in, in companies that we are think are resistant to a recession, particularly you know, things like software and insurance brokerage um and parts of healthcare food and beverage and so we are

Craig Packer: It's not something that impacts our portfolio. We have no auto exposure. I read and consume economic information the same way I'm sure most investors do, and there's concern about the labor numbers, and just general impact of tariffs and potential economic weakness. I think the consensus is that growth is slowing in the US, but I'd say that's not what we're seeing, and I hope that if we got in a modest recession, that would have even less impact on OBDC.

Not expecting to be an early warning sign of of of the US economy and weakness. We have very few um cyclicals when you're reading about tariffs affecting Auto. It's just not, it's not something that impacts our portfolio. We have like no Auto exposure so I I

so,

I think the consensus is that, you know, growth is slowing in the US, but I'd say, that's not what we're we're seeing. And I I hope that, um, if we got in a modest recession, that that would have. Um, you know, even less impact on on obdc,

Mickey Schine: If we do get into a recession or if things slow down meaningfully, and normally we would see spreads widen in that sort of environment. You mentioned, I think, in your prepared remarks that they may have troughed. Do you think that trough is sustainable given the amount of capital flowing into private credit? Are you seeing any signs of more pricing discipline in the market?

And and if we do get into a recession or if things slow down meaningfully and normally we would see spreads widen in that sort of environment. And you mentioned I think in your prepared remarks that you know they may have tried. Do you think that trough is sustainable, given the amount of capital flowing into private credit and and are you seeing any signs of more pricing discipline in the market?

Craig Packer: My sense is spreads have troughed. I think that they've troughed, and I'm hopeful at some point they'll widen off the trough. I think the reason spreads have gotten as tight as they are is only partly related to capital inflows into the private markets. It's also a white-hot syndicated loan market, and that market is at all-time tights. We just talked about it a minute ago, we compete with that market. If that market widens, that will benefit private markets, and that market tends to be fickle and cyclical. If you go through a period of time where the syndicated market has some volatility, spreads will widen there, spreads will widen in the private markets, and then the deal flow environment continues to be modest.

Uh my sense is try spreads of trust. Um, you know, we um, you know, I think that they've dropped

and I'm hopeful at some point they'll move um, they'll widen off the trough. Um, I just, um, I think the reason the spreads have gotten as tight as they are, is only partly related to Capital inflows into the private markets. Um, it's also a, a white hot syndicated loan market and that that market is at all-time tights. And you know, that, that, you know, we just talked about it a minute ago, we, we we compete with that market and so that market, if that market widens that will benefit private markets and that, that market tends to be, um, fickle and cyclical. And so if you go through a period of time, where the syndicated Market has some volatility, um, spreads a wide narrow spreads, a wide in the

Craig Packer: I would say I'm not predicting it in the micro short term, but I would be hopeful that the next move in spreads is wider, not tighter, as any one of those factors comes into play, more deal flow, cooling public market, or just some capital consumption in the private markets where there's not quite as much capital out there for new deals.

Mickey Schine: That's very helpful. Thank you for that, Craig. Those are all my questions this morning. Thank you for taking the time.

Private markets and then the deal flow environment continues to be modest. So I I would say I'm I'm I'm not predicting it in the micro short term but I would be hopeful that the next move and spreads is wider not tighter as you. You know, any 1 of those factors um comes into play more deal flow cooling Public Market or just some, some Capital consumption in the private markets, where there's not quite as much, uh uh Capital out there for New Deals.

Craig Packer: All right. Thanks, Mickey.

Operator: Thank you. Our next question is coming from Casey Alexander of Compass Point. Please go ahead.

That that's very helpful. Thank you for that. Craig. Um those are all my questions this morning. Thank you for taking the time. All right, thanks Mickey.

Thank you. Our next question, is coming from Casey. Alexander of compass point, please. Go ahead.

Casey Alexander: Hi, good morning. Craig, I'm just a little curious on the equipment leasing side. That market is often characterized by lower balance, fixed rate, short duration type loans, which can be difficult to scale, particularly to the scale that OBDC is going to need for it to make a meaningful contribution to NII. It also often takes a large team of people in place to track collateral and things like that. I'm curious how you guys plan to scale that business to something that's meaningful for OBDC.

Hi, good morning. Um

Craig, I'm I'm

I'm just a little curious on the equipment leasing side. You know that market is often characterized by lower balance fixed rate, short, duration type loans, some which, which can be difficult to scale, particularly to the scale that that obdc is going to need for it to make a meaningful contribution to knee. So, I'm I'm and it also often takes a large team of people in place to track collateral and things like that. So, I'm curious, you know how you guys plan to scale that business to something that's meaningful for obdc.

Craig Packer: Look, the reason we highlighted the equipment finance JV is not because we think it's going to be a massive investment, but to highlight the type of opportunities that we now have, particularly by our acquisition alternative credit space for equipment financing, joint ventures, or other types of more asset-oriented joint ventures that can benefit OBDC. I think you're right, it'll take time. It'll take time for it to be meaningful. As you know, we've done this before. WingSpire, which is one of the largest investments at OBDC, has a very successful equipment financing business, has a team, and it's a meaningful contributor, an important contributor to WingSpire's results, which OBDC benefits from every quarter. I would say in the equipment finance business, one thing, and we'll share more detail on this when it's really impactful, so I don't want to spend too much time speculating.

Craig Packer: Particularly what's going on in data centers is creating the need for massive amounts of capital where you're building out scale data centers, and they have lots of financing needs for the data center itself and GPUs and the like. You have some of the literally the most valuable companies in the world that are building these facilities and don't want to have assets on their books, and it's creating very chunky opportunities for attractive relatively short duration returns from potentially investment-grade counterparties. These are the kinds of things that can be a bit chunkier than the really micro-ticket equipment leasing that you're referring to. It'll be a mix. I don't want to overemphasize the equipment leasing as being a needle mover for OBDC.

Look, the reason we highlighted the equipment Finance JV is not because we think it's going to be a massive investment, but to highlight the type of um opportunities that we now have particularly by by our acquisition alternative credit space for equipment, financing joint ventures or other types of more acid oriented joint ventures. That can benefit obdc. Um, I think you're right, it'll take time it'll take time for it to be meaningful but as you know, we've done this, you know before, um Wing Spire which is, which is, you know, 1 of the largest Investments, that will be DC has a very successful equipment, financing business. Um, has a team and it's, you know, a meaningful contributor. An important contributor to Wings spires results which which obdc benefits from every every quarter I would say in the equipment, Finance business, 1 thing. And I, I, you know, I, I, we we'll share more detail on this when it's really impactful. So, I don't want to spend too much time, speculating. Um, but particularly what's going on in, um, in data centers.

Is creating the need for, um, massive amounts of capital where you're building out, um, scale data centers and they have lots of financing needs, um, for the data center itself and gpus and the like, and you have some of the, you know, who literally the most valuable, uh, companies in the world that are building these facilities and don't want to have both assets on their books, and it's creating very chunky opportunities. Um, for attractive, um, relatively short duration,

Um, uh, returns from potentially investment grade counterparties. So, these are the kinds of things that can be a bit chunkier than that, than the really micro ticket, um, equipment, leasing that that you're referring to. So, it'll be a mix. But I, I don't want to

Craig Packer: What I do want shareholders to understand is that we're taking active steps to leverage our broader capability to come up with ever more ways to diversify our portfolio and create consistent returns. This will just be one of many tools.

Water capability to come up with ever more ways, to diversify our uh, portfolio and create consistent returns. And this will just be 1 1 of many tools.

Casey Alexander: All right. Thank you.

All right. Thank you.

Craig Packer: Thanks, Casey.

Operator: Thank you. The next question is coming from Finian O'Shea of Wells Fargo Securities. Please go ahead.

Thanks Casey.

Finian O'Shea: Hey, everyone. Good morning. Just a sort of a market-level question on the non-tradeds we wanted to ask, given your position in that domain and of course its importance to direct lending. Seeing if you had thoughts on just this sort of, you know, tail off of gross inflows. To be clear, industry-wide, post-April Liberation Day, they've continued to sort of tail in May and June. As it relates to direct lending and BSL, if this continues, do you think things can really cool down and spreads can widen not only BSL, but the direct lending premium to BSL even in a stable market? Could we be hopeful for that, say, in the event that non-tradeds have kind of somewhat run their course or there's some kind of fatigue there? Thank you.

Thank you. The next question is coming from finny and OSHA of Wells. Fargo Securities, please go ahead.

Uh, hey everyone, good morning, uh, just a sort of a market level question on the non-traded. Uh, we wanted to ask given given your, you know, position in that that domain. And of course, it's important to to direct lending. Um, seeing if you had thoughts on

just this, this sort of,

You know, tail off, um, of gross inflows and to be clear industry-wide. Um, Poe post post post April Liberation day, they've continued to sort of tail in in May and June. Um, and then, you know, as it relates to, to direct lending and, and BSL, um, you know, if this continues, do you think

You know, things can really cool down and spreads can, um, widen not only...

BSL, but the direct lending premium to BSL, um, even in a stable Market. Um, could we be hopeful for that? Say in the event that, you know, non-treated have kind of, you know, somewhat run their course or or or you know, there's some kind of fatigue there. Um, thank you.

Craig Packer: Sure. Look, the picture in the non-tradeds is really good. We're continuing to have significant inflows that are really meaningful at Blue Owl in particular. We're a major player in the space, but other platforms as well. You're right, they're not as strong as they were pre-tariffs. Order of magnitude, they're off maybe 20%, but I think they're on the direction of recovering that. I think most people at the time of tariffs would've predicted a much more significant drop in the inflows in the non-tradeds. It's been quite resilient. It's all new capital, and so the capital base may not be coming in in as fast a clip, but it's meaningful inflows daily. We get the numbers daily. We report them monthly. I think it's proving to be a very durable market that's frankly still under-penetrated.

Uh, sure, um, look the picture and the non-traded is really good. I mean, we're continuing to have significant inflows, um, that are that are really meaningful at at Blue Owl. In particular, right? We're we're, we're a major player in the space, but but other platforms as well. Um, you're right, they're not as strong as they were pre- tariffs.

Craig Packer: I think there's a lot of room to run in terms of additional penetration in the high net worth space in the non-traded funds. I think for OBDC and Blue Owl and OCIC, which is our large non-traded fund, or OTIC, we have a really good balance between our non-traded funds, which are a meaningful part. It's only a meaningful part. It doesn't dominate our platform. We've got a good balance. It's valuable to have that capital come in. OBDC right now is towards the higher end of its target leverage range. We like having this additional capital in the non-traded funds. It's what allows us to continue to sign up large transactions. I think that picture is a very good one, and look, I think it really is showing the resilience of that channel despite what some might have predicted would be more negative.

Um, but you know, or magnitude, they're off, maybe 20%, but I think they're on on, you know, on the direction of recovering that I think most people at the time of tariffs would have predicted a much more significant drop in the inflows of, in, in the non-traded. Um, so it's been quite resilient. It's all new capital. And so, it's maybe not be, you know, maybe not the capital based movement, not be coming in in as fast a clip, but it's net, meaningful inflows. Um, daily and we get the numbers daily. They're, you know, we report them monthly. So I think it's proving to be a very durable Market. That's, you know, frankly. Um, still under penetrated and, um, and I think there's a lot of room to run.

Craig Packer: In terms of your question on spreads and the like, and I covered this a minute ago, I think that there's 3 factors that are driving spreads to where they are now. Really strong public market, capital formation on the private side, modest M&A. I think if any one of those 3 were to reverse course, spreads will widen. If 2 of the 3 reverse course, spreads will widen meaningfully. I'd say of the 3, I'd bet on M&A and the public markets being towards the higher end of the list, not the lack of capital in the private space because we continue to see a lot of interest from clients. I'd like spreads to be tighter, I mean wider, excuse me, but I just always remind investors we're earning 10% on new investments on primarily first lien, 40-plus%, $200-plus million EBITDA recession-resistant businesses.

On in terms of, um, additional penetration and the high net worth space in the non-traded funds. Um, I think for, for obdc and and, and, and, and Blau and ocic, which is our large non-traded fund or otic. We have a really good balance between our non-traded funds which are meaningful part, um, but but only it's only meaningful part, it doesn't dominate our platform. So we've got a good balance. It's valuable to have that Capital come in. Um, you know, obdc right now is is, you know, towards the higher end of its Target leverage range. So it's it's, you know, we we like having this additional capital and then on traded funds. It's what allows us to continue to sign up, um, large transactions. So I think that picture is a very good 1. And, um, and and look, I think really is showing the resilience of of that of that, um, Channel and despite what, what, some might have predicted would be more negative. Um, in terms of your question on spreads and and the like, you know, I covered this a minute ago. Um, I think that

There's 3 factors that are driving spreads to where they are now really strong Public Market. Capital formation on the private side modest m&a. I think if if any 1 of those 3 were to um reverse course spreads a wide and if 2 of the 3, reverse course spreads spreads a wide meaningfully. Um, I'd say of the 3, I'd bet on m&a and the public markets and being towards the higher end of the list, not not um the lack of capital in the private space because we continue to see a lot of interest from from clients.

Craig Packer: I continue to think that's one of the most attractive risk-adjusted returns in the market, especially if you think that there's going to be a recession. I'd like spreads to be wider, but the absolute returns in the asset class continue to be strong. OBDC just put up a 10+% ROE. I think that offers really good value to investors.

Finian O'Shea: Awesome. Thank you so much.

You know, spreads, I'd like to spreads to be tighter. I mean wider, excuse me, but I just always remind investors. We're earning 10% on new Investments. On first primarily first lean 40, plus percent 200, plus million e, but the recession resistant businesses. I continue to think that's 1 of the most attractive risk adjusted returns in the market, especially if you think that there's going to be, uh, a recession. So I'd like, spreads to be wider but but but they're, they're the absolute returns and the asset class continue to be strong. Obdc just put up a 10 plus percent Roe. Um, I think that's that's offers really good value to investors.

Craig Packer: Thanks, Finn.

Awesome. Uh, thank you so much.

Operator: Thank you. The next question is coming from Christopher Nolan of Ladenburg Thalmann. Please go ahead.

Christopher Nolan: Hi. Following up on Casey's questions on the equipment finance. Is this really going to focus on technology data centers and so forth? Will the industry mix for this SLF be different than for the BDC?

Thank you. The next question is coming from Christopher Nolan of Vladimir Salman, please, go ahead.

Hi following up on Casey's questions on the equipment Finance. Um is this really going to focus on um technology data centers, and so forth? Will the industry mix?

For this SLS be different than for the BDC.

Craig Packer: Sure. It'll be a diversified pool of leases. I think Craig just highlighted one potential channel where the opportunity set is growing and could be chunky relative to very singular small micro equipment leases. We also see the continued trend of bank balance sheet pullback in the space, and our existing team that came along with our alternative credit team has been in the leasing business for years and has been active in the space. If you look at regional bank pullback, things like healthcare equipment would be another great example. Firms that have large capital spend equipment don't have the benefit of regional bank balance sheets anymore. We think some of these environments for equipment leasing on the higher-end capital equipment side are in a similar place that maybe direct lending was 10, 15 years ago.

Sure. So it'll be a diversified pool of of leases, I think Craig just highlighted 1 potential Channel where the opportunity set, um, is growing, and could be, uh, chunky relative to, uh, very singular, small micro equipment, leases. We also see, uh, the continued trend of bank balance sheet, pullback in the space, and our existing team that came along with our alternative credit team has been in the leasing business.

Um, for years and has been active in the space.

And uh, if you look at uh, Regional Bank pullback,

Craig Packer: As banks pull back, institutional capital has to step in. I would anticipate it to be a diversified pool, and there are some areas like data centers or healthcare equipment that we see that could be chunkier, but it should be a diversified pool, similar to how OBDC's portfolio is diversified.

things like healthcare equipment would be another great example. Uh, firms that have large Capital spend equipment. Don't have the benefit of regional bank balance sheets anymore. And so we think some of these environments for equipment leasing on the higher end. Capital Equipment side are in a similar place that maybe direct lending was 1015 years ago as Banks. Pull back, institutional Capital has to step in, so I would anticipate it to be a diversified pool.

and and there are some areas like data centers or Healthcare equipment that we see that could be chunkier, but it it should be a diversified pool similar to how

Christopher Nolan: As a follow-up question, the recent Big Beautiful Bill I believe had accelerated depreciation. You can depreciate 100% in year one. Was that a factor in deciding to go down the equipment financing route?

Obdc portfolio is Diversified.

And then, as a follow-up question, um, the recent, uh, big beautiful bill, um, I believe had accelerated depreciation. Um, you can depreciate 100% in year one. Was that a factor in, um, deciding to go down the equipment financing route?

Logan Nicholson: No, it was not. It was something that we were thinking about well in advance of that.

Christopher Nolan: Great. That's it for me. Thank you.

No, it was not it it was something that we were thinking about. Well in advance of that,

Logan Nicholson: Thank you.

Great. That's it for me. Thank you.

Operator: Thank you. Our next question is coming from Paul Johnson of KBW. Please go ahead.

Thank you.

Paul Johnson: Yeah, good morning. Thanks for taking my questions. I guess I'd ask, you guys have had pretty meaningful turnover over the last 18 months or so, potentially a little bit higher than some of your peers. As you're looking at your back book of loans in the portfolio and then spreads where they're at today, I think your average portfolio spread is about 5.8%. How do you think about the spread differential of today's spreads, which seems like they've troughed at this level and what's left in the back book? Should we expect to continue to see a little bit of incremental pressure on just general spread compression as things rotate out of the book? Do you think at this point they're close enough that the spread compression's sort of behind us?

Thank you. Our next question is coming from Paul Johnson of KPW. Please go ahead.

Yeah, good morning. Thanks for taking my questions.

I guess I'd ask, you know, you guys have had pretty, you know, meaningful, turnover over the last, you know, 18 months or so, like potentially a little bit higher than some of your peers, but, you know, as you're kind of looking at your back book of, uh, loans in the portfolio and then kind of spreads where they're at today. I think your average portfolio spreads about 520% 5.8 percent. I mean, how do you kind of think about the spread differential, you know, of today's spreads, which seems like they've kind of troughed at this level.

You know, what's left in the backlog? I mean, should we expect to kind of continue to see a little bit of incremental?

Uh pressure on on just general spread compression as things. Rotate out of the book or do you think at this point they're close enough that the spread compressions sort of behind us.

Craig Packer: Look, I think the vast majority of it has worked its way through. The sponsors are very efficient at identifying opportunities to refinance and reduce spread. Look, just to remind everyone, our loans, when we put a new loan in the book, typically it will have 1, maybe 2 years of call protection where we get a premium. After that, our loans are typically repayable at par. One of the value propositions of direct lending is it is efficient for a sponsor in a loan that we are providing that is performing well and through its call protection for us to be able to have a conversation about a cost-effective refinancing. That happens. It is a lot easier, frankly, than the public markets. It is one of the reasons why the sponsors like working with us. I think the vast majority of that has worked its way through.

Look, I think the vast majority of its has worked its way through the sponsors are very um uh yeah. They're very efficient at um identifying opportunities to refinance. Um, and and, and reduce spread look just to remind everyone our loans. When we put in a new loan in the book, typically it'll have 1, maybe 2 years, of of, of of call Protection, where we get a premium after that our loans are are typically repayable at par. So, 1 of the, um, value propositions of direct lending is, it's efficient for a sponsor in a loan that we're providing that, um, is performing well, and through its call protection, for us to be able to have a conversation about, you know, a cost-effective refinancing and so, so that happens. It's, you know, it's it's

Logan Nicholson: There's probably some modest amount that sponsors are holding off, either for call protection or they think they're going to exit a company. I think a lot of it's worked its way through at this point. You've seen that reflected, as you said, in the last 18 months. There's probably a few names, but most of them, I think, are pretty stable at this point.

It's a lot easier frankly than the public markets it's 1 of the reasons why the spots just like working with us. I think the vast majority of that it's worked its way through. There's probably um, you know, some modest amount that sponsors are holding off either for call Protection or they think they're going to exit a company. Um, but I think a lot of it's worked its way through at this point. Um, and uh, you know, you've seen that reflected as you said in the last 18 months there's probably

Few names, but but most of them I think are, are pretty pretty stable at this point.

Paul Johnson: Got it. Appreciate it. Thank you. On that, as loans potentially refi into the BSL market as that happens, your junior capital exposure has declined quite a bit over the last few years. Is there an opportunity there with the Trucordia deal to participate, similar to the Trucordia deal, to participate in a junior capital position as these investments move into the BSL market? Is that a real investable opportunity that you see in the market, or is that more of a one-off situation that presented itself?

I'd appreciate it, thank you. And then, you know, on that, um, as...

As loans potentially refi into the BSL Market as that happens. Um,

Participate. Um,

similar to the 2 Cordia able to participate, you know, in a junior Capital position as these Investments move into the BSL

Market. I mean, is that a a real

Festival opportunity that you see in the market or is that more kind of a 1-off situation that presented itself?

Logan Nicholson: Look, I think it is an opportunity. I would characterize the opportunity, though, as closer to the one-off end of the spectrum, given where junior capital is pricing in the public markets as well. If you look at high yield spreads and the second lien spread environment for syndicated deals, they're at very tight levels. When a deal goes BSL, more often than not, it fully transitions that way. I think our relationship and incumbency and long-standing history with Trucordia was a differentiator for us. I think that mattered quite a bit in this instance. If you look at the amount of discussion around names going back and forth, as Craig mentioned, it's actually pretty balanced, though. I don't want to overplay names going to BSL not leaving us with a substantial junior capital opportunity.

Okay, I think it is an opportunity. I would characterize it...

The opportunity, though, is closer to the one-off end of the spectrum given where.

Junior capital is pricing in the public markets as well. If you look at high yield spreads and the second lien spread environment for syndicated deals.

Um, there are, they're very tight levels and so uh when a deal goes BSL more often than not, it it fully transitions that way. And so I think our our relationship and incumbency and long-standing history with true Cordia was a differentiator for us.

And, um, I think that mattered quite a bit in this instance.

if you look at,

Logan Nicholson: We're seeing an equal number of names come out of the BSL market and choose the direct markets. We saw substantial volume in the last quarter from names transitioning out of the BSL market. There is a balance between the two. New names, whether it be a new LBO, a take private, new names continue to have that secular shift to choosing direct, which we continue to see, and there hasn't been any shift there. I think the opportunity set remains a very good one. I think the junior capital side, if the public markets stay where they are, I think it'll be more sporadic.

The amount of um discussion around names going back and forth as Craig mentioned. It's actually pretty balanced though and so I don't want to overplay names, going to BSL not leaving us with a substantial Junior Capital opportunity. We're seeing an equal number of names. Come out of the BSL market and choose the direct markets. And we saw

You know, substantial volume.

In the last quarter from names transitioning out of the BSL market. So there is a balance between the 2 and then new names, whether it be a new lbo, a take private new names, continue to have that secular shift to choosing direct which

We continue to see and and there hasn't been any shift there. So I think the opportunity said remains um, a very good 1 and I think the junior Capital side, if the public markets stay where they are, I think it'll be more sporadic.

Paul Johnson: Appreciate it. That's all for me. Thank you very much.

Appreciate it. That's all for me. Thank you very much.

Operator: Thank you. Once again, ladies and gentlemen, if you do have a question, please press star one on your telephone keypad at this time. We will pause a moment for any additional questions. We are showing no additional questions in queue at this time. I would like to turn the floor over to Mr. Packer for closing comments.

Thank you. Once again, ladies and gentlemen, if you do have a question, please press *1 on your telephone keypad at this time. We'll pause a moment for any additional questions.

Craig Packer: All right. Well, we appreciate everyone's interest. We were really pleased with our quarter. I think it was one of the strongest in the industry and continued particularly terrific performance on the NII front, the dividend coverage front, and the ROE front. Appreciate everyone's interest and look forward to speaking with you again soon.

We're showing no additional questions in queue at this time, I'd like to turn the floor over to Mr. Packer for closing comments.

All right. Well, we appreciate everyone's interest. We, we were really pleased with our quarter. I think it was 1 of the strongest in the industry and continued, uh, particularly terrific performance, um, on the knee front and the dividend coverage front um and uh and the Roe front. So um, appreciate everyone's interest and uh look forward to speaking with you again soon.

Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.

Ladies and gentlemen, this concludes today's event, you may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.