Owl Rock Capital Corp (ORCC) Q1 2021 Earnings Call Transcript

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Owl Rock Capital Corp (OBDC -0.32%)
Q1 2021 Earnings Call
May 6, 2021, 10:00 a.m. ET

Prepared Remarks:

Operator

Good morning, and welcome to Owl Rock Capital Corporation's First Quarter 2021 Earnings Call. I would like to remind our listeners that remarks made during the call may contain forward-looking statements. Forward-looking statements are not guarantee of future performance or results and involve a number of risks and uncertainties that are outside of the company's control. Actual results may differ materially from those and forward-looking statements as a result of a number of factors, including those described from time to time in Owl Rock Capital Corporation's filings with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements. As a reminder, this call is being recorded for replay purposes. Yesterday, the company issued its earnings press release and posted an earnings presentation for the first quarter ended March 31, 2021. This presentation should be reviewed in conjunction with the company's Form 10-Q filed on May five with the SEC. The company will refer to the earnings presentation throughout the call today, so please have that presentation available to you. As a reminder, the earnings presentation is available on the company's website. I will now turn the call over to Craig Packer, Chief Executive Officer of Owl Rock Capital Corporation.

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Craig W. Packer -- President, Chief Executive Officer & Director

Thank you, operator. Good morning, everyone, and thank you for joining us today for our first quarter earnings call. This is Craig Packer, and I'm CEO of Owl Rock Capital Corporation and a co-founder of Owl Rock Capital Partners. Joining me today is Alan Kirshenbaum, our CFO and COO; and Dana Sclafani, our Head of Investor Relations. Welcome to everyone who is joining us on the call today. I will start today's call by briefly discussing our financial highlights for the first quarter before providing an update on our portfolio and deal activity in the quarter. Then after Alan covers our financial results, I will discuss our view on the current market and make some closing remarks. Getting into the first quarter financial highlights. Net investment income per share was $0.26. As we had expected, NII was down this quarter, and Alan will provide more detail on this later in the call. I will also discuss our future earnings outlook in my closing remarks. We ended the quarter with net asset value per share of $14.82, up $0.08 from the fourth quarter. The average fair value mark on our portfolio is 98% of par, back to where it was before COVID. We believe that the full recovery of the value of our assets over the course of the year reflects the strong credit quality of our portfolio and investment process. Looking forward for the second quarter of 2021, Our Board has declared a regular dividend of $0.31 per share, the same amount we have paid each quarter since our IPO. We are pleased with our origination activity this quarter, although as we expected, volumes across the market were lower than the fourth quarter given the pull forward of deals at the end of last year. We ended the quarter with net leverage of 0.92 times, which is up from 0.87 times last quarter and up from 0.6 times year-over-year. We've made steady progress to get to the low end of our targeted range of 0.9 to 1.25 and expect to modestly increase our leverage within that range in the coming quarters. In addition, our balance sheet remains strong, with $2.5 billion of liquidity available today, and we continue to lower our overall cost of financing. As mentioned on our last call, we held a special meeting on March 17 for shareholders to approve the change of control in our advisory agreement in connection with the Blue Owl transaction. We received shareholder approval for the proposal and appreciate our shareholders' overwhelming support for what we believe will be a beneficial expansion of our platform that will provide improved sourcing capabilities and expanded platform resources for ORCC. Earlier this week, Altimar announced that it will hold a special meeting on May 18 for its shareholders to approve the business combination with Dyal and Owl Rock Capital. If the proposals are approved, the business combination is expected to close on May 19. Turning to the portfolio.

Our credit performance remains very strong. We are optimistic about the economy given the pace of vaccinations and businesses reopening and our fundamental outlook for the performance of our portfolio companies is positive for the rest of the year. Across our portfolio, we continue to see many borrowers showing positive trends in operational and financial performance, trending back toward or in some cases, already achieving pre-COVID performance levels. Across the portfolio, our borrowers saw on average, nearly 10% EBITDA growth in the LTM period. And we expect to see this strength continue in coming quarters. We believe that economic conditions will continue to improve over the course of the year, and our borrowers are well positioned for this environment. We believe one of the key drivers of the strong positioning of our overall portfolio is the strength of our largest industries, including software, healthcare, insurance, food and beverage and distribution. Many of these companies -- many of the companies in these sectors are either only modestly impacted by COVID and rebounded quickly or in certain cases actually saw revenue grow faster in the COVID environment. In particular, I want to call attention to the software sector, which is our largest sector. We like software businesses because they often have predictable and consistent recurring revenue streams, and many are experiencing growth well in excess of the broader economy. This trend continued throughout the COVID period. In addition, the software loans we provide often give us above-average returns, solid credit documents and the lowest loan to value of any sectors we invest in. For other sectors, which were more meaningfully impacted, including consumer products, education and child care, we're now seeing a nice recovery, and the outlook is strong as these businesses are expecting meaningful growth in 2021. Certainly, a small number of sectors have been more acutely impacted, including travel, leisure and aerospace. We have a few investments in these sectors, although they are a small portion of the portfolio. Still even here, we have seen recent outperformance versus the revised forecast and are seeing reasons to be cautiously optimistic, given the pace of reopening trends and improved travel industry performance metrics since the beginning of the year. Looking at our internal credit ratings, our portfolio remains quite stable with overall results largely consistent across the last few quarters. Names in our one or two rating categories remain at roughly 90% of the fair value of the portfolio. The percentage of our lower-rated names, rated three or four is largely unchanged, now below 10%, and there are no names in the lowest five rating category. No material amendments were signed in the quarter. Going forward, while we expect to have amendments from time to time, we believe the period of elevated amendment activity due to COVID has ended. As is typical, we would expect to have discussions with a small number of borrowers occasionally as part of our ordinary course portfolio management activities. As of quarter end, we continue to have just one name on nonaccrual, representing 0.5% of the total cost of the portfolio and 0.2% of fair value. No new borrowers were added to nonaccrual status in the quarter. Moving on to originations. We were pleased with our investment activity this quarter. Gross originations were $864 million with $684 million of funded activity. Net funded originations were $172 million, reflecting $512 million of combined sales and repayments. We received full or majority repayments from six borrowers which we had anticipated, given the strength, of the financing and M&A markets as well as the vintage of some of our investments. In addition, similar to last quarter, we took the opportunity to sell some high-quality, but lower spread paper at attractive prices.

We added eight portfolio companies in the quarter. Activity with new borrowers was well diversified across six sectors, and we are pleased with the terms we obtained. We also executed add-ons for 11 borrowers as we continue to see the benefits of incumbency. Almost all of our investments this quarter were first lien or unitranche term loans. We certainly evaluated many second lien deals, but ultimately, our bar for these types of deals remains high. We did not close on any new second lien investments. Our average spread on new commitments was 6.4%, which we feel is attractive given our activity was largely in first lien and unitranche facilities. Overall, the portfolio yield was flat with last quarter at 8.1% despite the fact that public loan markets saw spreads tighten 75 basis points over the quarter. This reflects our ability to originate new deals at attractive spreads and to continue to optimize our portfolio. Our portfolio now stands at over $11.2 billion across 120 portfolio companies, we are very happy with the continued strong credit performance. ORCC was formed in 2016. As we now approach the targeted fully ramped size of our portfolio, our focus is shifting from portfolio construction to portfolio optimization. We expect to see repayments increase. And as we get repayments, we will look to redeploy that capital in unitranche or on occasion, select second lien investments. We will maintain the same rigorous credit quality standards and selectivity that we've employed since inception, having looked at over 5,000 opportunities across the platform and ultimately closing on less than 5% of those deals. Now I'll turn it over to Alan to discuss our financial results in more detail.

Alan J. Kirshenbaum -- Chief Operating Officer, Chief Financial Officer & Director

Thank you, Craig. Good morning, everyone. I'll start off on Slide seven of our earnings presentation. You can see that we ended the first quarter with total portfolio investments of $11.2 billion, outstanding debt of $5.5 billion and total net assets of $5.8 billion. Our net asset value per share increased to $14.82 as of March 31 compared to $14.74 as of December 31. We ended the quarter with net leverage of 0.92 times debt to equity and $2.5 billion in liquidity pro forma for post quarter-end financings. Our dividend for the first quarter was $0.31 per share and our net investment income was $0.26 per share. As you'll recall from our remarks last quarter, we had $0.04 per share in onetime items that benefited us, including $0.02 per share from the National Dentex paydown and $0.02 per share from the partial quarter fee waiver. As a result, the fourth quarter without the benefit of these onetime items would have been $0.25 per share. So as compared to that, we grew NII by an additional $0.01 per share to $0.26 this quarter. This reflects the full quarter benefit of Q4 originations plus the net benefit of new originations and sales and repayments in the first quarter. And please note that while we had approximately $500 million of sales and repayments, roughly half of that was from sales, which do not provide the same NII benefit as we see from repayments since sales do not generate accelerated amortization of OID or prepayment fees. As a result, fees from repayments continue to lag our expectations. As Craig and I have been discussing over the past year or so, we do expect repayments to pick up later this year based on the continued seasoning of our portfolio. I would also note that we had some higher yield in repayments, early on in the quarter. As Craig also noted, our originations were largely first lien investments, which once again were weighted toward the end of the quarter, and as a result, the net $0.01 per share of growth in NII is not reflective of the full benefit of Q1 originations. In addition, dividend income was lower this quarter, which also impacted NII by approximately $0.01 per share. The contribution from one portfolio company declined by $4 million from last quarter. However, while the company continues to have strong performance, its dividend is variable and may fluctuate based on operating results and seasonality. Thinking ahead for the rest of this year, we expect interest income to continue to increase each quarter over the coming quarters as we modestly increase our leverage within our target range and as we optimize the left side of our balance sheet, as Craig just noted. On the expense side, you can see that management and incentive fees increased from $55 million, net of the final fee waiver in the fourth quarter, to $63.9 million and interest expense increased from $42.4 million in the fourth quarter to $48.1 million in the first quarter. And as we expect expenses not to meaningfully change other than management fees and interest expense continuing to slightly increase with leverage going up. And as I've mentioned in the past, we continue to focus on optimizing our funding costs. In that regard, we had two notable transactions we did that helped further us in reducing costs on the right side of our balance sheet. We priced our CLO VI, this one for $260 million of incremental financing at a blended spread of 149 basis points, a great print and very cost efficient for us. And we issued our seventh bond, this one for $500 million of incremental financing at a fixed coupon of 2.625%, our tightest print ever. So overall, we feel we are in a good position starting off the year. We feel we continue to be on track to earn our dividend in the back half of this year. And we have one of the strongest funding profiles and balance sheets in the industry. Thank you all very much for your support and for joining us on today's call. Craig, back to you.

Craig W. Packer -- President, Chief Executive Officer & Director

Thanks, Alan. To close, I wanted to share our thoughts on the current market and provide some perspective on how we are thinking about our earnings trajectory over the course of this year. As we had anticipated, market conditions in the first quarter were constructive, but overall market activity was down relative to the very active level seen in the fourth quarter. While the market is competitive, we continue to find attractive investments with appropriate risk-adjusted returns. We are pleased with both the level of deal activity and the quality of the deals we are seeing. Overall, the credit quality, leverage levels and covenant packages we see in our pipeline have not changed. Although we are seeing some spread compression given strong market conditions and the continued strength in the syndicated market. We continue to prefer sectors, which have been either less COVID impacted or which have rebounded quickly from the economic impact. Lastly, we are pleased that we continue to be successful in winning the deals that we want to win. In names and situations where we have high conviction around the asset and the sponsor, we're able to demonstrate the value of our platform and often take a sole or lead position in these deals. As a great example of this, it was recently announced that Owl Rock is leading the $2.3 billion unitranche loan to finance Thoma Bravo's acquisition of Calypso, which is expected to close later this year. We believe this will be the largest unitranche facility ever done in the U.S. and is a reflection of our ability to provide attractive, sizable financing commitments for top-tier investment opportunities. It also highlights our expertise in the software space. Calypso reflects the continued growth of the private credit space as increasingly larger borrowers are choosing direct lending solutions over the syndicated market. Given our large capital base, Owl Rock is very well positioned for this trend. Overall, we believe that a strongly recovering economy and accommodative monetary policy will create attractive investment opportunities, and our market outlook is positive for the rest of 2021. I also wanted to touch on the outlook for our earnings and dividend coverage over the remainder of the year. As we expected, first quarter NII was temporarily down. However, we expect that we will make meaningful progress in the second quarter toward earning our dividend and believe we are still on track to fully cover our dividend from NII in the second half of the year. We don't typically provide forward guidance, but I can say that sitting here today, as we are expecting a very active second quarter in originations in excess of the first quarter and more in line with the fourth quarter. Activity is driven by both new deals and the benefit of our incumbency positions.

On the new deal front, we're seeing opportunities from a variety of sponsors and across the technology, healthcare, insurance and consumer sectors. And as many private equity sponsors continue to execute buy-and-build strategies across portfolio companies through tuck-in M&A, we believe our permanent capital, scale and flexibility gives us a sourcing advantage. For the second quarter, we also had visibility on increased prepayments, which will generate additional fees from accelerated OID and call protection. Based on the net effect of the pipeline, barring something unexpected, we believe we will continue to modestly increase our leverage level as well as improved earnings in the second quarter. As a result, we expect Q2 earnings to grow and to make solid progress toward covering our $0.31 per share dividend which we ultimately expect to occur in the second half of this year. To close with some thoughts on our portfolio. I'd first highlight that since 2016, ORCC has deployed $17 billion of capital across 165 borrowers. Given the scale of the platform, we are very proud to have had only one single investment loss to date, an annualized loss rate of roughly 10 basis points since inception and to have come out of this challenging period with only one investment on nonaccrual at 0.2% of the fair value of the portfolio. Further, the average portfolio mark has rebounded to pre-COVID levels and more than 90% of the portfolio today is marked above $0.95 on the dollar. We think our portfolio offers an attractive yield. We have roughly $11 billion of directly originated senior secured loans with strong covenant protections and an average spread of LIBOR plus 650 basis points, with an average mark of 98. We think that's a very compelling asset mix relative to other asset classes, for example, when compared to the S&P Leverage Loan Index, which currently yields approximately 3.75%. We have also successfully executed on the portfolio diversification we set out to achieve at inception. Today, the portfolio is well diversified across 29 industries, and the top 10 positions make up only about 20% of the total portfolio. We have continued our focus on sponsor-backed upper middle market names with a weighted average EBITDA of $104 million across our borrowers. Our platform is further bolstered by the strength of our balance sheet, which remains well capitalized and diversified across financing types with maturities well matched to our assets. Taken together, we feel we have built a diverse and defensive portfolio of scale supported by an attractive financing profile. Lastly, I would note the benefits that we see resulting from broader Owl Rock platform. With total AUM of $28 billion, much of it coming from permanent capital, we view this capital pool to be a source of strength and a significant differentiator. Having this scale allows us to support a large, high-quality investment team, including a significant group of originators, which produce a large funnel of deal opportunities and allow us to remain highly selective. We've also invested significantly in underwriting expertise, portfolio management resources as well as finance, middle and back office. In addition, our scale keeps us top of mind for private equity sponsors who turn to us for sizable, customized financing solutions. Finally, we're very excited about the continued growth of the platform and the sourcing opportunities that we expect to generate as a result of the Blue Owl transaction closing. We look forward to discussing the Blue Owl platform in more detail in the quarters to come. We believe the outlook for the second half of the year looks strong, and we look forward to leveraging our competitive advantages to continue to deliver attractive risk-adjusted returns for our shareholders. Thank you for joining us today. We appreciate your continued interest and support and look forward to speaking to you again next quarter. Operator, please open the line for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question from line of Devin Ryan from JPMorgan Security -- JPM Securities.

Devin Patrick Ryan -- JMP Securities LLC, Research Division -- Analyst

Yes. It's Devin from JMP. I guess first one here and appreciate the repayments, somewhat hard to predict, but just to comment on the expectation for a higher level in second quarter, and I know that's factored in the outlook. As you think about kind of the back half of the year, if current conditions continue as the expectations, that we're just kind of in a higher repayment environment that's kind of just part of the course here and that's factored in? Or how are you guys thinking about that more broadly just with very kind of constructive conditions?

Craig W. Packer -- President, Chief Executive Officer & Director

Sure. Well, let me try to break that into two pieces. I made the comments a couple of minutes ago that we expect to see higher repayments in the second quarter. I'll just call your attention to something that Alan said in his remarks, but I think it's important for us. About half of our repayments, if you will, this first quarter, half of those were sales. They weren't repayments. We sold the position. So we only had about $250 million of actual repayments, and we expect that number to go up materially in the second quarter. That obviously is very impactful for earnings, because as we get true repayments, we are able to recognize the OID that remains on those investments and oftentimes prepayment penalties. So we're calling attention to that because it generates earnings and actual repayments were light in the first quarter. But the broader point to your broader question of how are things looking. The two biggest drivers of repayments are when one of our portfolio company gets sold and the new buyer comes in and re does the capital structure and/or a refinancing, I would say it's more tilted to the first one. And so it's more driven by M&A, in our experience, than it is a strong market where we're getting refinanced out. We certainly get refinanced out from time to time because we lend to upper middle market companies that have access to the syndicated markets. But I would say more often, it's companies getting sold. The environment that we're in is a very constructive one on M&A. M&A volumes were very high, particularly given the economic outlook, and it's also one where there's a strong syndicated market. So we expect sales of our companies and refinancings to pick up. In our case, in particular, we've just had very low repayments, which is somewhat a function of the vintage of our portfolio as well as COVID, I think, pushed out some of the repayment activity. So relative to what we've been experiencing in the last couple of years, in our case, specifically, we think repayments will pick up to a normal level, not to an excessive level. And that's very healthy for earnings and something that I think will be good in terms of dividend coverage. So I think it's going to be one that all the managers will experience, meaningful and robust levels of repayments given the trends I'm siding.

Devin Patrick Ryan -- JMP Securities LLC, Research Division -- Analyst

Okay. Great color there. And then just one question here on kind of industry focuses. Obviously, you've done a great job navigating the pandemic and leaned into the right sectors and areas like technology and healthcare have been active. I'm curious with the backdrop kind of evolving here and potentially a strong economic recovery, a vaccine available. Are there any industries or maybe pockets that are emerging as maybe more attractive risk reward areas that maybe you weren't as interested in over the last 12 months, but maybe you're kind of popping on the radar in areas that are more attractive or maybe a little bit less saturated, from an opportunity's perspective.

Craig W. Packer -- President, Chief Executive Officer & Director

So we are -- to state the obvious, when we make a loan, it's 5, 6, seven years. And so -- and we're -- we hold it to maturity. And so we really consider ourselves long term in our orientation and fundamental credit investors. We're not traders. We're not trying to pick a moment in the market. And because we know economic conditions over the life of our loans are going to go up and down, and we've got to pick credits that are going to withstand that. So we think we've been well served throughout inception, sticking to businesses that are going to endure regardless of the business cycle and regardless of where we are, going in or going out. It's not to say, of course, that we don't pay attention to where we are in the cycle and on the margin -- that can influence us on the margin. But I would say I don't -- we're not -- you shouldn't expect to see us after five years of really avoiding cyclicals to try to bet on cyclicals now because the economy is going to really, really potentially be very strong here. Those companies might do well for a year or 2, but we would be concerned what happens after that. As I said in my remarks, the sector we have found the most attractive, and we are -- it is our largest sector, one we have really differentiated expertise is software and technology generally, but software in particular. And that -- we continue to find that sector particularly interesting, and we have devoted a lot of resources to it. Certainly, there are sectors that were impacted by COVID that have now recovered very quickly. And so I would say those are sectors -- the pockets of healthcare that were really kind of shut during COVID, that now have opened back up, and I think we would be very open-minded about doing those where we might not have been six months ago. So we'll certainly adjust the dial there. But I -- for Owl Rock, you shouldn't expect to see us really make any significant changes in the sectors. Do I -- other managers may view it differently and there may be good value to making a bet on the cycle, but it's just not really how we run the portfolio.

Devin Patrick Ryan -- JMP Securities LLC, Research Division -- Analyst

I appreciate that. Thanks for the color.

Craig W. Packer -- President, Chief Executive Officer & Director

Thanks Devin

Operator

Your next question, line of Robert Dodd from Raymond James.

Robert James Dodd -- Raymond James & Associates, Inc., Research Division -- Analyst

Hi, guys. A question on the prepay. And obviously, there's -- you talked about elevated prepayments next quarter. Is -- it does generate fees. There's two components to fees, obviously, accelerated OID and then prepayment fees. Should -- has with COVID kind of aging the portfolio somewhat, have you aged out of the core protection part for a chunk of assets, and we should expect the OID? Or are you still going to collect the accelerated OID and call protection on the repayments? Or do we have to kind of reset the cycle for the call protection component within the portfolio that's starting to repay. Hopefully, that makes sense.

Craig W. Packer -- President, Chief Executive Officer & Director

Yes. It's a great question, Robert, and I'll do my best to answer it, but I don't have a precise answer to you mathematically, but I'll try to give you the themes. I calculated this or we calculated this, but just -- this is information that's publicly disclosed. We've got about $170 million of OID on the books today, just OID. So if every loan repaid tomorrow, which obviously isn't going to happen, that would be $0.44 a share of NII. Now that's going to get spread over the next few years. I'm not in any way suggesting that's going to happen this year, but I'm just giving you a specific number for part of your question. That's very material. If those loans got repaid on average over the next three years, that would equate to $0.03 of NII per quarter, just from the amortization of OID. Any prepayments will come on top of that, we will get -- excuse me, call premiums will come on top of that, I don't have it at my fingertips what that would amount to, but just the OID alone is quite substantial. To your -- to the thrust of your question, have we, "aged out of it." We -- one of the attractive elements of the loans we offer is they don't have tremendous amounts of call protection. It's usually a year or two and maybe it's prepayable at 102 or 101. So oftentimes what happens is some of the highest quality companies or some of the best performers they repay you quickly because they -- the business does really well, a year or two later, they'll prepay you. So I don't think it's going to go to 0. And I don't -- but I think it will be more weighted to the amortization of OID. So I don't think that there's some impediment for us getting the kind of income pickup that we're expecting.

Robert James Dodd -- Raymond James & Associates, Inc., Research Division -- Analyst

I really appreciate that granularity there. Just one more, if I can. On the dividends from the portfolio company, you dropped $4 million this quarter. This is variable. And this may be more -- obviously, you don't control the dividend, per se. But would you expect that this level is the low end of the variable range? Or is it the middle of the range we should expect going forward? Or any color on that would be helpful.

Craig W. Packer -- President, Chief Executive Officer & Director

Sure. The investment we're referring to is more, which, I think, it goes shows up on our schedule investments is Windows Holding. It's been a terrific investment. It's a very different type of investment than our normal investment. It's an equity investment, but it's in a company with no debt on it. So they -- we're a shareholder and they pay out a portion of their income in the form of dividends, and we enjoy those dividends. If you went back and looked at it, you would see, it's been an extraordinarily profitable investment. We originally invested a little over $50 million, and we've already received $13 million of dividends. So that's really extraordinary. The -- it's variable. It's going to move up and down based on the performance of the business and the timing of when they choose to pay dividends. I think it's reasonable to assume this first quarter is a good go-forward to project out, but it is a variable and it's a business that's just driven by the underlying activity level. And so if you tweaked it lower than that, I wouldn't be upset about that either. But there are going to be quarters where it does really well like the fourth quarter and will exceed. It's just not going to be as predictable and as a debt investment because it's just inherently a variable dividend.

Robert James Dodd -- Raymond James & Associates, Inc., Research Division -- Analyst

Okay. Got it. Thank you.

Operator

Next question from the line of Mickey Schleien from Ladenburg.

Mickey Max Schleien -- Ladenburg Thalmann & Co. Inc., Research Division -- Analyst

Good morning Craig and Alan. Craig, I found your comment about the record sized unitranche deal very interesting. And I'm curious, with that in mind, how do you manage the structuring of those deals, given the size of the company, the size of the loan, vis-a-vis the frothiness in the broader market, where I imagine this company may be able to go if they choose. And obviously, the broader market's pricing is very tight and deal terms are very loose when we think of covenants. So essentially, I'm asking how do you attack that market without taking on the risk of the broader market.

Craig W. Packer -- President, Chief Executive Officer & Director

Well, let me -- I'm not sure, you might have to reask the question, but I'll give you an answer, see if I get close enough. The Calypso deal is an example of a trend that we've seen over the last few years. I mean, frankly, since the inception Owl Rock, we're certainly not the driver of it, but we're certainly one of the leaders in it, which is, with bigger pools of capital, we can offer bigger solutions for direct lending for the private equity firms. And we -- there are many reasons why a private equity firm picks a direct lending solution. It's not just the rate, it's not just what the covenant package is. They like the privacy, they like the certainty, they like to know who their lenders are and that the lenders will be there when there are opportunities and challenges. We are seeing greater and greater receptivity to direct lending solutions, and it's penetrating deeper and deeper into the leveraged finance markets. And we've been a beneficiary of it. And we've seen the $1 billion unitranche and now we're seeing a $2 billion unitranche. So I think that trend is in our favor. And I would say, just to be slightly pointed about it, this is in a moment in time where the syndicated markets are on fire and yet it's still trending in that direction. And if you think there'll be a moment in the next couple of years where the syndicated market gets choppy, then that trend will accelerate, in my opinion. So it's a positive for our business. It's very much at the core of why we started at Owl Rock to be able to provide those kinds of solutions. There's certainly very spirited discussions with the private equity firms about what rate we charge and the covenants and all that, but we continue to feel really good. We get maintenance covenants, we get spreads that you can see, that we're continuing to get, spreads in excess of the market. And also just remind you, in terms of our economics, we get a premium to the syndicated market, but we're also able to capture the fees that would otherwise go to pay to the banks to distribute the deal. So that's economics that are not incremental to the sponsor but benefit our investors. And so that's part of the economic proposition for direct lending. Well, so I'm not sure I answered your question, but hopefully gave -- you're welcome to ask something if I didn't quite get it.

Mickey Max Schleien -- Ladenburg Thalmann & Co. Inc., Research Division -- Analyst

No, no, that was very much my question, and I appreciate that description. A couple of simpler questions. What is the outlook for a dividend, if any, from Wingspire, which is actually now larger than Sebago?

Craig W. Packer -- President, Chief Executive Officer & Director

Good question. We're really pleased with the -- what we're building at Wingspire. We continue to put more capital in there and they're building their portfolio out. We're being very thoughtful, and David Wisen and the team that run Wingspire, very thoughtful about a constructive portfolio. But we really want to make sure that we build for the long term there. And I'm optimistic, over the next year, or few quarters we'll be able to report some progress on a dividend out of Wingspire. I don't want to be too precise about it, but it's trending in the right direction, and that will obviously help our earnings as well.

Mickey Max Schleien -- Ladenburg Thalmann & Co. Inc., Research Division -- Analyst

Craig, could you give us, perhaps a range of ROE you're expecting on Wingspire?

Craig W. Packer -- President, Chief Executive Officer & Director

We wouldn't have done Wingspire if we didn't think we could get our ROE at or above the ROE in our overall portfolio. And I hope it's in excess, but if you want to just take something in, you could take the average ROE for Owl Rock and use that as a proxy. We -- I'm really enthusiastic about Wingspire, but we also try to underpromise and overdeliver. So I -- when we have the results to report, we'll go into it in a lot of detail. But over the next few quarters, getting to a run rate consistent with Owl Rock ROE would probably be a reasonable assumption to make.

Mickey Max Schleien -- Ladenburg Thalmann & Co. Inc., Research Division -- Analyst

Okay. I appreciate that. And I'm not sure if Alan already mentioned it, what is the amount of undistributed taxable income per share that you have?

Alan J. Kirshenbaum -- Chief Operating Officer, Chief Financial Officer & Director

We don't, Mickey. We don't have undistributed distributions.

Mickey Max Schleien -- Ladenburg Thalmann & Co. Inc., Research Division -- Analyst

Okay. So -- but you did accrue some excise tax, right, Alan?

Alan J. Kirshenbaum -- Chief Operating Officer, Chief Financial Officer & Director

I believe we did.

Mickey Max Schleien -- Ladenburg Thalmann & Co. Inc., Research Division -- Analyst

Okay. Ill follow.up later to you then. I appreciate you taking my questions

Operator

The next question from the line of Paul Johnson from KBW.

Paul Conrad Johnson -- Keefe, Bruyette, & Woods, Inc., Research Division -- Analyst

Hi, good morning guys. I'll be brief. Most of my questions have been asked. But I -- one of my questions was just around your debt stack. You guys have obviously built a pretty attractive low-cost liability structure. But I'm kind of curious, going forward, what your appetite would be for additional on secured debt, just obviously to the extremely low-cost sort of available to BDCs to issue at today. If you'd be comfortable issuing more and potentially replacing some of your securitized financing? Or have you sort of kind of reached a balance that you're trying to maintain and maybe not looking to get too aggressive with more unsecured debt.

Craig W. Packer -- President, Chief Executive Officer & Director

Thanks, Paul. And it's a good question. Look, we're always keeping our eye on the markets. You saw we just did at a nice-sized deal, a couple of weeks ago. In terms of unsecured taking out secured, we'll continue to look at that. We also do the CLO issuances which is a really efficient way to finance our balance sheet. The most recent one I mentioned was just 149 basis points over LIBOR. So that is really efficient. And we continue to focus on optimizing the right side of the balance sheet. So you should expect over time to continue to see us doing CLO issuances as a great way to finance our portfolio and continue to keep an eye on the unsecured markets to see where pricing continues to go there.

Paul Conrad Johnson -- Keefe, Bruyette, & Woods, Inc., Research Division -- Analyst

Sure. Okay. I understand. And lastly, just kind of bigger picture. I'm just curious, your guys' thoughts on the tax proposal out there being floated by the President with Congress. Do you think that any part of that proposal, obviously, more specifically around carried interest, would that have any effect on possibly accelerating M&A PE deals in the near term? Or do you still kind of -- or do you look at this more of like a nonevent just kind of given the sheer amount of capital that's raised in that sector?

Alan J. Kirshenbaum -- Chief Operating Officer, Chief Financial Officer & Director

Well, It's a fair question. I think that there's certainly -- we saw in the fourth quarter that the possibility of tax changes drove a good amount of activity getting done by the end of the year. Now that there are some specifics around state taxes and cap gains, it certainly stands to reason that, that could cause sellers to want to sell prior to those types of changes. So I think it could be a propellant for M&A activity, which is already very robust. I don't think that it's going to alter the trajectory of private equity in general because the trajectory of private equity in general is quite strong. There's $1 trillion of dry powder sitting at private equity firms. And someone is going to get invested regardless of what tax regime we live in. And if anything, private equity continues to be raising lots of capital. So there's nothing particular in the tax -- proposed tax changes that we've got our eye on. The markets tend to adjust to these things, and we expect continued robust activity as we've been talking about.

Paul Conrad Johnson -- Keefe, Bruyette, & Woods, Inc., Research Division -- Analyst

Okay. Thanks for that. Appreciate that. Those are all my questions.

Operator

Your next question the line of Kenneth Lee from RBC Capital.

Kenneth S. Lee -- RBC Capital Markets, Research Division -- Analyst

Hi, thanks for taking my question. Just one on the expectation of seeing a meaningful improvement in NII in the second quarter. Just want to get a better understanding of some of the key drivers there. And how much of this could be driven by new investments that were completed in the first quarter and then ultimately generating interest income for a full quarter and second quarter.

Craig W. Packer -- President, Chief Executive Officer & Director

Sure. I'm not going to be super granular, but certainly, a part of it is the investments in the first quarter that were done toward the tail end of the quarter that will now, we'll get the full benefit of. But I would say that's only a modest part of it. I mean we are -- we have high visibility on a very robust originations pipeline that, as I said, is more in line with the fourth quarter than the first quarter. We wouldn't say that if we weren't highly confident in it, some of the deals have already closed and others are expected to close imminently. So that's the biggest driver. And then we also have high visibility on actual repayments as well. So borrowing something unforeseen, we expect to make material progress on NII during the quarter based on what we're seeing right now, which we have fair bit of visibility on.

Kenneth S. Lee -- RBC Capital Markets, Research Division -- Analyst

Great. That's very helpful. And just one follow-up, if I may. You mentioned that you didn't close on any second lien loans in the quarter. I just want to get a little bit more color what you saw in some of the potential investments and what made the first liens and the unitranches more attractive at this point in time versus the second lien?

Alan J. Kirshenbaum -- Chief Operating Officer, Chief Financial Officer & Director

Sure. We've talked about this over the last few years. We -- for the right situations, we like second liens. We -- but we're so picky about those situations. So we only -- we really like to do second liens to businesses that are very stable, substantial equity commitments and tend to be bigger companies on average than the first lien portfolio companies. For average EBITDA is $100 million across the portfolio. The average EBITDA for our second liens are $175 million or give or take. So we tend to do it in bigger companies that have lots of wherewithal. And so we feel like we're getting the premium spread you get for doing second lien but get the same equity cushion and just high-quality businesses. So we just didn't see any of those in the first quarter that fit our parameters. But I'm also signaling that we will do more second liens, and we're at a pretty thin amount of second lien. And I just -- when we do a few, I hope folks will remember this quarter, where we did not and take it in the overall context, which is we're really selective. I could easily see our second lien percentage going up and -- but we're going to remain very disciplined about it. But one quarter's deal activity doesn't really make a trend. It's a small opportunity set. But since inception, our bar for second liens have been very high, and I think that served us quite well.

Kenneth S. Lee -- RBC Capital Markets, Research Division -- Analyst

Great. Thats very helpful. Thanks

Operator

[Operator Instructions] Your next question the line of Casey Alexander from Compass Point.

Casey Jay Alexander -- Compass Point Research & Trading, LLC, Research Division -- Analyst

Hi, just I guess my attention span is not that great. When does Calypso close? And on a deal like that, how would you kind of size the position to the ARCC portfolio? And the closing, what type of fees does a deal like that generate?

Craig W. Packer -- President, Chief Executive Officer & Director

Well, Casey, I -- since you said your attention span is short, I'll give you amalgam on the ARCC versus the ORCC. We haven't said when it's going to close. Frankly, it's not our business to say, Thoma Bravo is buying the company, we'll defer to them on it. We wanted to call attention to it because it's extremely large. We -- one of the benefits of our platform is we have other funds that we manage. And so when there's an opportunity like Calypso, we can take a very sizable position and the largest position in a deal like that, and we can have a very healthy investment for ORCC and put it in our other vehicles. As folks -- many folks know, we manage Owl Rock Technology Finance Corp., which is a dedicated tech BDC as well. So it will be one of the largest investments across our entire platform. As the deal gets closer, we'll figure out the exact size based on where we sit at that moment in time. So I can't be more specific, but it's a large deal and that's a great opportunity for us and a high-quality company to have a sizable investment in a really terrific business.

Casey Jay Alexander -- Compass Point Research & Trading, LLC, Research Division -- Analyst

Okay. Would you -- but the guidance that you still believe that you can cover the dividend with NII by the second half. I mean by the fourth quarter, that would kind of be the core run rate, not including unusual deals such as Calypso. Is that correct?

Craig W. Packer -- President, Chief Executive Officer & Director

Yes. I want to -- thanks for reminding me. I meant to cover that. When we close on a deal, we -- the OID that we taken that deal, we amortize over the life of the loan. So we don't take unusual amounts of income in, when we close on deals. Other managers do do that, and I'm not going to comment on that, but I -- but we don't -- just because we're closing on a big deal unto itself, isn't going to drive earnings in that quarter for us. Now occasionally, on a larger deal, we might sell down some, that could generate some income, but we're not systematically -- our earnings are not systematically driven by originations in the way that a manager that takes all the OID upfront would be. So I wouldn't get too focused on when Calypso is going to close. I mean I should say this just for the sake of clarity, I'm assuming it's obvious, but we're clearly not holding all of the $2.3 billion Calypso loan, and we didn't commit to the entire $2.3 billion Calypso loan. There are other lenders in it with us, and there'll be other lenders that committed and other lenders that close with us and we'll have a very appropriate size for the Owl Rock funds.

Casey Jay Alexander -- Compass Point Research & Trading, LLC, Research Division -- Analyst

Perfect. Thank you very much. Its very helpful.

Operator

And your final question comes from Finian O'Shea from Wells Fargo Securities.

Finian Patrick O'Shea -- - Wells Fargo Securities, LLC, Research Division -- Analyst

Hi, everyone good morning. So the origination outlook is pretty strong. It sounds like, you touched on the yields or the yield impact you'll expect. Obviously, some more activity will help. But does the pipeline look flat, better or worse in terms of new yields?

Craig W. Packer -- President, Chief Executive Officer & Director

So the spread in our -- in the first quarter was down from the fourth quarter. So the quarter we just put up. I would say our visibility and that reflects -- I alluded to it in my remarks, there has been a bit of spread compression as the markets have been strong. The visibility we have on second quarter sitting here right now, I would expect spreads to be a bit wider than what we got in the first quarter. So it will move around a bit. But I think we're continuing to find investments that have a spread consistent with today's weighted average spread in our portfolio, in some cases higher, some cases, slightly lower. But our visibility in the second quarter, I would say it's modestly higher. But I think that if the market conditions stay strong, we'll probably going to stay in this kind of a range.

Finian Patrick O'Shea -- - Wells Fargo Securities, LLC, Research Division -- Analyst

Okay. That's helpful. And then with the with the advisor, you have a couple of press releases attached to Owl Rock, it looks like that's in its final stages. With the BDC, should we expect that the management team, yourself, Alan, and so forth, mostly remain in place or will there be any shuffling around.

Craig W. Packer -- President, Chief Executive Officer & Director

Look, we're super committed to our strategy and our team and maintaining the success that we've had going forward. Obviously, it's a bigger platform, and we'll continue to be thoughtful about resources. But if anything, we're going to have more resources to be able to dedicate to ORCC. So nothing to report on any changes. Excited to get the transaction closed here shortly and we'll continue to do the best for our shareholders.

Finian Patrick O'Shea -- - Wells Fargo Securities, LLC, Research Division -- Analyst

Okay. Very well, thats all for me thank you.

Operator

And I would now like to turn the call back over to Mr. Packer for closing remarks.

Craig W. Packer -- President, Chief Executive Officer & Director

All right. Terrific. Thank you all for the questions. I really appreciate the interest. We're generally accessible. So if didn't get a chance to take your questions, just reach out, we're happy to talk offline and appreciate everyone's support, and we'll see you next quarter.

Operator

[Operator Closing Remarks]

Duration: 53 minutes

Call participants: