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DATE
Thursday, February 19, 2026 at 10 a.m. ET
CALL PARTICIPANTS
- Chief Executive Officer — Craig William Packer
- President — Logan Joseph Nicholson
- Chief Financial Officer — Jonathan Lamm
- Managing Director, Investor Relations — Michael Mosticchio
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TAKEAWAYS
- Asset Sale -- Executed a $1.4 billion private credit loan sale, including $400 million from Blue Owl Capital Corporation (OBDC), at an average execution price of 99.7, directly at book value with four institutional investors.
- Portfolio Validation -- CEO Packer said, "Most industry private secondary sales are almost always executed at a discount to book value, and we are pleased to execute this transaction at our marks across approximately 130 names."
- Adjusted Net Investment Income (NII) Per Share -- $0.36, flat sequentially.
- Return on Equity (ROE) -- 9.7% for the quarter, consistent with recent levels.
- Net Asset Value (NAV) Per Share -- $14.81 at quarter-end, down from $14.89 in the prior quarter due to write-downs on watch list names, partially offset by accretive share repurchases.
- Share Repurchase Activity -- Repurchased $148 million of stock at an average 14% discount to NAV, the largest share buyback in company history, increasing NAV per share by $0.05.
- Dividend -- Board declared a base dividend of $0.37 per share for the next quarter, and spillover income remained healthy at $0.36 per share.
- Net Leverage -- Reduced to 1.19x from 1.22x, within the target range of 0.90x to 1.25x.
- Origination Activity -- Blue Owl Capital Corporation directly funded $820 million in loans, with $1.4 billion of repayments; over $12 billion originated across the direct lending platform in the quarter.
- Moody’s Credit Upgrade -- Upgraded to Baa2 in January, one of the few BDCs earning this rating, which management noted "was a reflection of our strong portfolio and liability management capabilities."
- Portfolio Composition -- Broad sector diversity with limits on concentration; average position size is approximately 40 basis points, and software is four of the top 25 investments.
- Software Portfolio Performance -- LTM revenue and EBITDA growth for software borrowers were 10% and 16%, respectively, in the quarter; 90% of software exposures are first-lien senior secured loans with LTVs of about 30%.
- Healthcare Portfolio Performance -- 45 investments totaling $2.5 billion, with revenue and EBITDA growth of 11% and 10%, respectively.
- Total Portfolio Performance -- Entire portfolio posted 8% revenue growth and 11% EBITDA growth year over year, with positive growth across every sub-sector; both metrics accelerated compared to 2024.
- Interest Coverage -- Approximately 2x, described as healthy by management.
- Payment-in-Kind (PIK) Income -- Decreased to 10.3% of investment income, down from 13.2% a year earlier; 90% of PIK positions were underwritten as such at inception and have not incurred principal losses.
- Non-Accruals -- Non-accrual rate declined to 1.1% at fair value, down from 1.3% in the prior quarter; remains below public market default rates.
- Specialty Finance and JV Exposure -- Exposure is 12% of assets, spanning seven platforms and over 300 loans with cumulative ROEs above 14% in the past year.
- Liquidity Position -- Maintains approximately $4 billion in total cash and facility capacity, which exceeds all current unfunded commitments and provides "ample capacity" for future needs.
- Share Repurchase Authorization -- Board approved a new $300 million buyback program, replacing the prior $200 million plan.
- Dividend Outlook -- Management noted, "we will continue to discuss this carefully with our Board and evaluate the dividend each quarter, particularly as the full effect of these lower rates and spreads are now impacting the portfolio."
- Impact of Rate and Spread Dynamics -- Weighted average loan spreads compressed by about 30 basis points over the past year; lower base rates and tighter spreads are expected to compress NII, though management notes borrower fundamentals could benefit.
SUMMARY
Blue Owl Capital Corporation (OBDC +0.36%) completed a $400 million portfolio loan sale at near-par pricing in a $1.4 billion syndicated asset sale, providing third-party validation of its fair value marks amid industry skepticism. The company repurchased $148 million of shares at a material discount and authorized a new $300 million buyback, leveraging improved liquidity after asset sales and repayments. Management signaled continued selectivity in origination, citing refined deployment of capital and measured exposure to favored sectors, while referencing stable credit quality and improved portfolio diversification. Moody's upgraded Blue Owl Capital Corporation’s credit rating to Baa2, reflecting the firm’s liability management and portfolio resilience. Executives indicated dividend maintenance at $0.37 per share for now, but emphasized the need to reassess payouts as rate pressures and spread compression filter through earnings.
- CEO Packer highlighted that about half of OBDC's loan sale involved its largest borrowers, stating, "Our exposure in Blue Owl Capital Corporation to those line items is almost half the portfolio. So we view the sale at Blue."
- The asset sale trimmed position sizes across over 70 loans, each averaged $5 million and equaled roughly 5% of those positions, modestly boosting portfolio diversity while lowering leverage by 0.05x.
- Management addressed market concerns by confirming that loan sales were completed at arm’s length with four unaffiliated institutional buyers under standard LSTA procedures, with CEO Packer stating, "There is nothing behind the scenes that would in any way undermine that conclusion."
- OBDC's originations primarily leveraged incumbent relationships, with 50% from existing borrowers, and the quarterly investment pace was described as "more selective," emphasizing capital deployment discipline.
- Software sector concentration will remain capped or modestly decline, as management affirmed a discriminating approach to new investments given heightened AI-related risk assessment.
- Regarding OBDC II, management detailed an accelerated 30% pro rata capital return, with intent to continue quarterly redemptions targeting 5% per quarter, and dismissed claims of halted redemptions as a "complete mischaracterization."
- Unfunded commitments comprised about 10% of the OBDC assets sold, mirroring the broader portfolio's profile.
INDUSTRY GLOSSARY
- LTV (Loan-to-Value): Ratio comparing the size of a loan to the appraised value of the collateral securing it; used to assess credit risk.
- LSTA (Loan Syndications and Trading Association): Industry organization standardizing secondary trading documentation and settlement for syndicated and traded loans.
- PIK (Payment-in-Kind): Interest or dividends paid in securities rather than cash, typically used in leveraged loan arrangements.
- Non-Accrual: Loans not currently accruing interest income because scheduled payments are not being received, indicating potentially impaired credits.
Full Conference Call Transcript
Michael Mosticchio: Yesterday, Blue Owl Capital Corporation issued its earnings release and posted an earnings presentation for the fourth quarter and full year ended 12/31/2025. These should be reviewed in connection with the company's 10-Ks filed yesterday with the SEC. All materials referenced during today's call, including the press release, presentation, and 10-K, are available on the News and Events section of the company's website at blueowlcapitalcorporation.com. Joining us on the call today are Craig William Packer, Chief Executive Officer, Logan Joseph Nicholson, President, and Jonathan Lamm, Chief Financial Officer.
I would 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. Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described in Blue Owl Capital Corporation’s filings with the SEC. The company assumes no obligation to update any forward-looking statements. We would also like to remind everyone that we will refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our earnings presentation available on the Events and Presentations section of our website.
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 will turn the call over to Craig. Thanks, Michael, and good morning, everyone. We appreciate your joining us today.
Craig William Packer: There has been a lot of recent investor attention on Blue Owl Capital Corporation and the other BDCs that we manage, as well as the private credit industry more broadly. Much of this focus has been on credit quality and whether fundamentals are holding up. At a certain level, we understand investor concerns as the industry has grown significantly in the last few years. So I would like to start off by reassuring you that credit quality at Blue Owl Capital Corporation remains strong, and we expect that to continue.
Before we get into our results, I want to address our future plans for OBDC II following the termination of the proposed merger with Blue Owl Capital Corporation that we announced last quarter. OBDC II is a nine-year-old private fund which was required to eventually consider a liquidity event to return capital to shareholders. We believe the merger into Blue Owl Capital Corporation was the most logical path due to the high asset overlap and benefits of scale. However, in light of the market reaction, working with our Board we concluded the proposed merger no longer made sense, so we terminated it. Since then, OBDC II has been working to determine the best path forward.
Yesterday, we announced a sale of a portfolio of OBDC II assets at book value totaling $600 million, or approximately 35% of the fund's total assets, and plan to distribute most of those proceeds to OBDC II shareholders. We believe this outcome prioritizes shareholders by providing significant near-term liquidity for OBDC II investors at attractive valuations. This asset sale process initially focused on OBDC II, but given significant demand from several high-quality institutional investors, we expanded the process to opportunistically sell modest amounts of additional assets from two other funds, including Blue Owl Capital Corporation. In total, $1.4 billion of assets are being sold, including $400 million from Blue Owl Capital Corporation.
These sales are being executed at exactly our book value and at an average price of 99.7. Not only is this a strong endorsement of our valuation process, and NAV, but it further underscores the high quality of our portfolios. I want to emphasize this. Most industry private secondary sales are almost always executed at a discount to book value, and we are pleased to execute this transaction at our marks across approximately 130 names to a very select group of high-quality leading institutional buyers. We believe this sale sends a clear signal as to the strength of our portfolio, and the quality and integrity of our marks.
To be clear, this is a partial strip sale across Blue Owl Capital Corporation holdings where we are selling small pieces of over 70 individual loans at an average size of $5 million per position or approximately 5% of each position size. This transaction modestly increases Blue Owl Capital Corporation’s portfolio diversity and reduces leverage by approximately 0.05x, positioning Blue Owl Capital Corporation with greater flexibility to deploy capital into the most attractive risk-adjusted opportunities. Moving forward, we are not changing our philosophy. As a buy-and-hold lender, we are not in the regular business of selling our private assets.
In this situation, we started out by focusing on returning capital to OBDC II shareholders, and we received so much additional demand that we decided to fine-tune the Blue Owl Capital Corporation portfolio from a position of strength. Alongside these actions, we were also active in supporting Blue Owl Capital Corporation through our share repurchase program. Against the backdrop of volatility post-merger, and the broader industry sell-off, we repurchased $148 million of stock at an average discount to net asset value of 14%. These purchases were accretive to NAV per share and reflect our conviction in Blue Owl Capital Corporation’s long-term value. Taken together, we believe that this highlights disciplined capital allocation.
We monetized assets at book value and at an average price of 99.7 and repurchased shares at 86% of book value, reinforcing our view that the trading discount does not reflect underlying strength of the portfolio. Now turning to our performance. In the fourth quarter, we delivered solid results supported by the continued strength of our portfolio, which generated adjusted NII per share of $0.36, which represents an ROE of 9.7%. These results are consistent with last quarter as headwinds from lower base rates were offset by positive one-time items. NAV as of quarter end was $14.81, down modestly from the prior quarter, primarily reflecting write-downs on a small handful of watch list names partially offset by accretive share repurchases.
As we look back at 2025, we believe Blue Owl Capital Corporation executed well amid a shifting rate environment. We closed the OBDE merger, increasing our scale, establishing Blue Owl Capital Corporation as the second-largest publicly traded BDC in the market. Throughout the year, we prioritized optimizing our capital structure to reduce costs and enhance flexibility while improving our credit profile, highlighted by our very recent Moody's upgrade in January to Baa2. On the origination front, in 2025, we deployed more than $4 billion at Blue Owl Capital Corporation and $45 billion across the Blue Owl direct lending platform while maintaining our disciplined approach to credit selection.
Over the past year, we selectively broadened our deal funnel by leveraging Blue Owl's expanded capabilities in alternative and asset-based credit,
Michael Mosticchio: as well as digital infrastructure
Craig William Packer: to access attractive risk-adjusted opportunities adding accretive non-correlated returns. All the while, our portfolio companies maintained their solid credit quality, with revenue and EBITDA growth accelerating in the second half of the year. We are very pleased with our performance over the past year. We entered 2026 on solid footing with continued confidence in the quality and resilience of the portfolio. Now, I will turn the call over to Logan to provide more detail on our investment activity and credit performance. Thanks, Craig. Starting with investment activity this quarter, we continue to see healthy deal flow across our core sectors.
We had our third-largest originations quarter ever at over $12 billion across the direct lending platform, while at Blue Owl Capital Corporation, we were more selective, with capital used to reduce leverage and fund share repurchases. This quarter, Blue Owl Capital Corporation had fundings of $820 million against $1.4 billion of repayments, resulting in lower net leverage at 1.19x. Further, with the additional deleveraging from the previously mentioned opportunistic asset sales at book value, we have ample dry powder to lean into the best
Michael Mosticchio: risk-adjusted opportunities
Craig William Packer: as the pipeline builds in 2026. Our originations this quarter were once again anchored by our existing relationships, with approximately 50% coming from large incumbent borrowers. That incumbency remains a core advantage of the Blue Owl platform. We incrementally deployed capital into our joint ventures and specialty finance investments with $80 million of fundings across several vehicles as we continue to ramp these platforms. Turning to the portfolio, we want to take a step back and provide some perspective on the composition and performance of our borrowers. As a reminder, Blue Owl Capital Corporation is a broadly diversified portfolio with companies spanning 30 industries, and average position sizes of approximately 40 basis points.
We focus on lending to non-cyclical defensive sectors, and all of our largest sector allocations are performing well, including software. While we appreciate there has been increasing attention on software over the past several weeks, it represents only four of the top 25 investments in Blue Owl Capital Corporation. That said, software has been a sector we have always liked, and our focus continues to be on mission-critical scaled enterprise software providers. Borrowers in our software portfolio saw LTM revenue and EBITDA growth of 10% and 16%, respectively, in the fourth quarter, outpacing the average earnings growth rate of all other sectors in the portfolio.
Our 40-person technology investment team reviewed our exposures again through an AI lens and confirmed the fundamental health of our assets. This, coupled with the fact that our software investments are primarily first lien
Michael Mosticchio: senior secured loans
Craig William Packer: with LTVs of approximately 30%, gives us confidence that our portfolio remains well positioned. We see a similar pattern in healthcare where we have 45 investments totaling $2.5 billion. The majority of these names are also performing well, with revenue and EBITDA growth of 11% and 10%, respectively. The strength is broad based. Overall, in the fourth quarter, every sub-sector in our portfolio delivered positive year-over-year growth, with revenue and EBITDA increasing 8% and 11%, respectively, and both metrics accelerated as compared to 2024. Across our key credit KPIs, the story is similarly constructive. Interest coverage ratios remain healthy at approximately 2x. Revolver draws declined over the year and amendment activity was stable.
Our 3s to 5s rated names currently represent 9% of the portfolio, which is consistent with a year ago. Additionally, we saw refinancings of several of our PIK investments in the quarter, which reduced PIK income to 10.3% of total investment income, down from 13.2% a year ago. As we have highlighted in previous earnings calls, approximately 90% of our PIK names were underwritten that way at inception and we have never taken a principal loss on those intentionally structured positions. Our non-accrual rate decreased to 1.1% at fair value this quarter, down from 1.3% the prior quarter due to the addition of three small positions and the removal of another position.
Our non-accruals have been relatively stable over the past few years and are well below public market default rates. Finally, I would like to share some perspective on our specialty finance and joint venture investments. We view these as differentiated complements to our core lending platform, designed to help offset rate and spread volatility and support NAV growth.
Michael Mosticchio: Today,
Craig William Packer: Blue Owl Capital Corporation has seven joint venture and specialty finance partnerships spanning multiple verticals, including asset-based finance, equipment leasing, life sciences, and life settlements. These investments benefit from strong underlying diversification, with exposure to more than 300 loans and approximately 10,000 individual asset line items. Each of these platforms generate predictable income streams that are less correlated with base rates than our traditional direct loans, and have generated ROEs of over 14% over the last year. We also established two vehicles last year that, once fully ramped, we expect will generate attractive low double-digit yields accretive to fund-level ROEs over time.
These are great examples of how we leverage the breadth of the Blue Owl platform to create value for shareholders. Across all our specialty finance and joint ventures, Blue Owl Capital Corporation’s exposure is approximately 12%, providing us with ample opportunity to selectively increase our allocation as market conditions warrant. To close, the breadth and strength of our portfolio remains resilient in a shifting and more recently uncertain market backdrop. With ten years of operating history and an even longer tenure of experienced professionals underwriting and managing the book, we are seeing durable fundamental performance of our borrowers and we remain convicted in our diversified lending strategy. Now I will turn it over to Jonathan to review our financial results.
Michael Mosticchio: Thank you, Logan.
Jonathan Lamm: In the fourth quarter, Blue Owl Capital Corporation earned adjusted net investment income of $0.36 per share, in line with the prior quarter. Our adjusted NII had a few moving pieces this quarter that I want to spend a moment discussing. Despite headwinds from lower base rates, and a modest decrease in average spreads throughout 2025 that are making their way through our book, there were several non-recurring events, including higher one-time income and lower operating expenses. These non-recurring items had a positive impact of approximately $0.02 per share this quarter, which is elevated relative to our historical average.
The Board declared a first quarter base dividend of $0.37, which will be paid on 04/15/2026 to shareholders of record as of 03/31/2026. Our spillover income continues to remain healthy at $0.36 per share and supported our base dividend this quarter. Moving to the balance sheet. Our fourth quarter NAV per share was $14.81, down from $14.89 last quarter, following additional write-downs of existing watch list positions partially offset by accretive share repurchases. As Craig mentioned earlier, we executed on our repurchase program in the fourth quarter where we bought back $148 million of stock. In total, the company repurchased 11.6 million shares, which was accretive to net asset value per share by approximately $0.05.
This was the largest share repurchase in the history of Blue Owl Capital Corporation. Blue Owl Capital Corporation’s Board of Directors has also authorized a new share repurchase program of up to $300 million, replacing our current $200 million share repurchase plan. Despite this repurchase activity, we were able to manage our net leverage down to 1.19x from 1.22x, which is within our target range of 0.90x to 1.25x, as we intentionally reduced leverage. On liquidity, we manage the balance sheet closely and conservatively to be prepared for unforeseen situations or uncertain market environments.
We remain well capitalized with approximately $4 billion in total cash and capacity on our facilities, which comfortably exceeds our unfunded commitments and provides ample capacity to meet all of our funding needs. Also demonstrating the strength of our business and credit profile was the Moody's upgrade that we received in late January to Baa2, credited to only a few other BDCs. This ratings upgrade was a reflection of our strong portfolio and liability management capabilities and our long-term track record of disciplined underwriting and solid credit performance. We are very focused on reducing borrowing costs, and we are optimistic that the ratings upgrade will help us achieve better execution on new unsecured issuance in the future.
Overall, we remain pleased with the strength and durability of our portfolio and believe our balance sheet is well positioned to support continued portfolio performance in 2026. Now I will turn it over to Craig for some closing remarks.
Craig William Packer: Thanks, Jonathan. To close, I want to underscore our confidence in the portfolio. Credit quality is solid and losses overall remain low, consistent with our downside-focused approach lending to large, highly diversified recession-resistant businesses. Looking ahead, we anticipate that our forward earnings will be impacted by two important dynamics: lower base rates flowing through our majority floating rate book
Jonathan Lamm: and tighter spreads on new and repriced assets.
Craig William Packer: We are focused on the impact of lower rates on the earnings power of our portfolio, and having managed this fund for ten years across various interest rate environments, we view rate sensitivity as a natural driver of BDC results. Importantly, there is a delay from the time when rates are lowered to when we see the full impact on the portfolio. At the same time, industry spreads have tightened, resulting in the weighted average spread on our portfolio compressing by approximately 30 basis points over the last year. For this quarter, given our strong results, we are maintaining the regular dividend of $0.37.
However, we will continue to discuss this carefully with our Board and evaluate the dividend each quarter, particularly as the full effect of these lower rates and spreads are now impacting the portfolio. While lower rates and tighter spreads will compress asset yields and NII returns across the industry, they generally improve borrower fundamentals and in turn credit quality. Against that backdrop and given the solid borrower performance we continue to see, we do not expect broad-based credit issues in our portfolio. This contrasts with what seems to be reflected in our stock price, where the dividend yield is approximately 10% on NAV but over 12% based on current trading levels.
You have heard me say this before, but this is a very high-quality portfolio built through disciplined underwriting with the appropriate structures and protections to perform across cycles. The recently announced $1.4 billion Blue Owl BDC asset sale transaction reflects the full book value of the underlying investments and provides clear third-party validation of the strength of our book, the rigor behind our marks, and the discipline in our underwriting. We have conviction in our strategy and are focused on acting in the best interest of our shareholders, supported by our share repurchase activity and prudent management of our balance sheet.
As we close our call, I want to mention that over the past year, spreads have generally trended tighter, but renewed macro uncertainty could drive widening, which we are currently observing in the public leveraged loan markets. Should this environment persist, it could present an opportunity to selectively deploy capital at higher spreads on new deals. The market is asking questions of private credit managers. We believe we will continue to deliver and ultimately that performance is what will matter. Thank you for your time today, and we will now open the line for questions.
Operator: Thank you. We will now be conducting a question and answer session. To ask a question, please press star one on your telephone keypad. Our first question today is coming from Brian McKenna from Citizens. Your line is now live.
Brian McKenna: Okay, great. Thanks. So there are some headlines out there this morning that OBDC II is halting redemptions permanently. Is that how you view last night's announcement? And then can you just remind us how much of that portfolio is turning over on a quarterly basis? And then what you plan to do with those prepayments?
Craig William Packer: Thanks, Brian. Appreciate the question. First, I want to reiterate we think this is a terrific transaction for the investors in the funds that are affected
Michael Mosticchio: OBDC II, Blue Owl Capital Corporation, and OTIC.
Craig William Packer: And also extremely endorsing for our entire credit platform. I think it is a really strong statement for us to be able to complete the sale of $1.4 billion of private assets in a very short timeline
Michael Mosticchio: at book value
Craig William Packer: at 99.7. I think that is strong for any asset class to clear that kind of size, that kind of price at book value, an extremely strong statement. As you noted, there are a few headlines. I think most of the feedback has been quite positive. But there are a few headlines that we think are a complete mischaracterization of what is happening here. We are not halting redemptions. We have been tendering for 5% of the shares of this fund
Michael Mosticchio: for eight years,
Craig William Packer: we, instead of resuming 5% a quarter, we are in fact accelerating redemptions. And we are going to return to this investor group 30% of their capital at book value in the next 45 days. So investors that would have thought they were getting 5% are getting six times the amount of capital in cash at book value
Michael Mosticchio: immediately.
Craig William Packer: So we are not halting redemptions. We are simply changing the method by which we are providing redemptions. A tender offer, as you know, is subject to the investor choosing to get their capital back. In a fund that can place different incentives for investors that are hitting the redemption or waiting. It can treat investors differently. We thought it was more important to treat all investors the same.
Michael Mosticchio: So we are doing a
Craig William Packer: 30% pro rata distribution. So investors do not have to elect into this. Or worry if they do not elect into a tender that they will be in a weaker portfolio. They are all going to get the same 30% distribution at the same time. As you asked what should investors expect going forward? I want to remind everyone this fund is a different structure than our non-traded perpetual BDCs. This fund was raised eight years ago and was raised more akin to a private institutional fund. It was always anticipated that at some point, this fund would have some type of strategic transaction, whether that be a merger
Michael Mosticchio: a listing,
Craig William Packer: or an IPO, and the other alternative that was stated very clearly
Michael Mosticchio: at the outset was at some point
Craig William Packer: we may just choose to return the investors’ capital. That is the path that we are choosing here. We are going to accelerate the return of the investors' capital and we are starting with a very significant down payment of 30%.
Michael Mosticchio: Immediately.
Craig William Packer: This fund has significant earnings. We are going to continue to pay our dividend, but as you know, we also get
Operator: regular repayments.
Craig William Packer: And so as we get those repayments, we are going to discuss with our Board, but our intention is to continue to return capital on an accelerated basis. So we assume, for this purpose, we will get redemptions of 5% a quarter. Every quarter, investors should expect we will evaluate a return of capital of 5%. We have got some debts. We have to make sure we are properly handling the debt. But, basically, if you assume 5% per quarter, we could be in a position by the end of this year that we have returned half of the investors' capital.
Michael Mosticchio: So, again, not only are we not
Craig William Packer: halting redemptions, I think it is going to be significant cash flow to these investors. And more to the point, I want the audience to appreciate we have had extensive conversations with the investors and the financial advisers that work with them over the last couple months discussing alternatives for what we would do with this fund. And as we discuss those alternatives, we are confident that the plan we are pursuing is going to be extremely well received by those investors for the reasons I have outlined.
Brian McKenna: That is helpful. Thanks, Craig. And then just a follow-up on Blue Owl Capital Corporation. Ended the year at $570 million. You have the additional $400 million coming in from the sale. So depending on where leverage shakes out, you have about a billion dollars of capital to deploy
Maxwell Fritscher: deploy
Brian McKenna: before assuming any additional prepayment. So, what is the most accretive use of capital today? Where are you leaning in from a deployment perspective? And you mentioned maybe an opportunity with spreads widening here. We will see exactly how that plays out. And then are buybacks still on the table at current prices?
Craig William Packer: So we, as we noted in the press release, but maybe everyone has not had a chance to review it yet, we started this process really focused on solutions for OBDC II. However, in our conversations with the small group of buyers that we went out to, we saw very significant additional demand for these assets, well in excess of what we were planning to sell out of OBDC II, and so we thought it was important to consider taking advantage of that strong demand at a very high price and see whether there were additional tactical goals that could be accomplished. With respect to Blue Owl Capital Corporation, the portfolio is in extremely good shape.
But we used this as an opportunity
Maxwell Fritscher: to
Craig William Packer: you know, really with a scalpel-like precision, modestly trim some larger positions, just in the name of good housekeeping portfolio management. I do think it is an environment where we are seeing
Michael Mosticchio: capital
Craig William Packer: start to constrict a bit. We are seeing that in the public loan market, seeing that in some of the private markets.
Michael Mosticchio: And so
Craig William Packer: we are hopeful that will lead to a better environment to deploy capital and start to see some spread widening on some attractive investments. And by selling these assets, we put Blue Owl Capital Corporation in an even stronger position to be able to deploy capital. However, as you know, our stock price is also trading significantly below book value. We just completed the largest repurchase of shares in the company's history,
Michael Mosticchio: and
Craig William Packer: the stock price still stays at a very depressed level. And so we have increased our stock buyback program with our Board, replenished it to $300 million. We increased it. And we are going to actively look at comparing buying stock versus deploying capital into the market. But, again, you know, maybe not everybody has had a chance to study this carefully. I just want to call your attention to it. We think it is quite striking that we can easily sell $1.4 billion of assets at book value or 99.7, and at the same time, a portfolio of those same assets trading in the low 80s to high 70s percent of book value.
Maxwell Fritscher: So
Craig William Packer: you know, we will continue to look at the stock and continue to find ways to do accretive things for shareholders.
Brian McKenna: Leave it there. Thanks so much.
Jonathan Lamm: Thanks, Brian.
Operator: Thank you. Next question today is coming from Finian Patrick O'Shea from Wells Fargo. Your line is now live.
Finian Patrick O'Shea: Follow-up on the
Maxwell Fritscher: portfolio. It is
Michael Mosticchio: hard to hear you. Finn, I am sorry. Can you try to get a little bit closer to the microphone? Hey. Yeah. Sorry.
Finian Patrick O'Shea: So, yeah, to follow up on the portfolio, appreciate how the LPs had more interest. But with Blue Owl Capital Corporation, was there, you just answered this a little bit with Brian. You pruned some major positions, but just looking at it like you did not have too much need for liquidity. You are not too concentrated either. It is something like seventy-something names you guys sold. So is there a, I guess if it is a fine-tuning issue, concentration, is that roster of names, say, concentrated in your top 10 or top 20? Or is there another benefit to the portfolio sale?
Jonathan Lamm: Sure. So,
Craig William Packer: look, this was a really thorough process involving four really high-quality institutional investors in a very tight timeframe.
Maxwell Fritscher: We
Craig William Packer: they were very engaged with us. They did detailed due diligence on the names and the portfolio.
Michael Mosticchio: Even though
Craig William Packer: several of them knew us well. You know, they were buying a portfolio. They did detailed due diligence. And we certainly wanted to make sure if they were to do that work, that they would have an opportunity to make an investment. And so as we worked this through with them, and were looking at our portfolio, we settled on these asset sale splits. I think for OBDC II—excuse me—for Blue Owl Capital Corporation, at the end of the day, we sold 2% of the assets. It is really immaterial. This would be like we got one repayment in a quarter. It is not material. But as I said, we thought we have this interest.
It is at a very high price. The market is starting to loosen up. We just bought back some stock. If we can, on the margin, create a little bit of liquidity, it is worth doing. It also accomplishes the goal of having four large investors who each bought, by the way, the same exact amount, the same exact price, all have transactions that they were excited about. So I think it accomplished that goal as well. I guess I would also say, and I said this in the prepared remarks, but I think it is worth revisiting, we understand, and we see the same things that you are reading. There is skepticism about marks. There is skepticism about valuation.
We have always been saying we feel really good about the quality of our portfolio and the quality of our marks. But just saying it, in some ways, does not seem to have done enough. So we are putting our money where our mouth is.
Maxwell Fritscher: We sold the assets to
Jonathan Lamm: four different
Craig William Packer: third parties at 99.7. I should point out that while Blue Owl Capital Corporation only sold $400 million worth of assets, these were a very sliver
Michael Mosticchio: portion
Finian Patrick O'Shea: of
Craig William Packer: 75 different line items. Our exposure in Blue Owl Capital Corporation to those line items is almost half the portfolio. So we view the sale at Blue Owl Capital Corporation as validating
Maxwell Fritscher: almost half the portfolio
Craig William Packer: not only at book value, but at 99.7. We sold these assets at par. That is not only for Blue Owl Capital Corporation, but it is true for the entire Blue Owl direct lending platform. The assets we are selling here represent our largest names, our biggest exposures, and we had resounding demand
Maxwell Fritscher: at par.
Craig William Packer: I think that is a really strong statement. And I think it was a statement worth making in an environment where people are asking questions and they are skeptical about marks. People read one article about one mark in one portfolio somewhere, and they extrapolate it out. We are giving a
Michael Mosticchio: stake in the ground
Craig William Packer: with a different set of facts. And a set of facts that spread across 130 positions in our portfolio.
Finian Patrick O'Shea: Appreciate that. Sort of a follow-up on, I guess, a continuation of this discussion in the mechanics. One small part, can you clarify, we just get a lot of inbound on this. Is there any sort of like, you know, delayed settlement accrual, like, you know, extra sort—I do not know if I am wording this right—but the extra sort of compensation to the buyer? And then also given the sort of, we do not see this often in 40 Act vehicles selling to another account managed by the same advisor, you guys.
Is there anything to this structure where maybe this runs down quickly, maybe this is a swath of the portfolio that you expect to repay really soon and therefore it is not truly a fund kind of thing, or anything else that I—
Craig William Packer: If I could rephrase your question. Is there something we are missing behind the scenes, right? I get it. I get it. Again, we are in an environment now where there is a high degree of skepticism about private credit. And, unfortunately, that skepticism can be amplified by folks that are not even in private credit and do not spend any time in the industry and do not hesitate to forward things and amplify them in a way that makes them seem more prominent than they are. The transaction is exactly what it appears.
We are selling 128 positions at 99.7 to four different institutional investors that each made their own investment decision at the same time, and not only bought this portfolio, they would have bought multiple, multiple amounts more. It is common when you do secondary asset sales for them to come at a discount
Michael Mosticchio: to book value. These did not.
Craig William Packer: Sometimes you will see other types of transaction structures, particularly with a continuation vehicle structure, where perhaps the purchaser is getting the benefit of elongated interest payments that is reducing their basis, and that is behind the scenes. And it is not obvious. That is not happening here. They are buying it at 99.7. And we are using standard LSTA loan trade settlement procedures, just like every trading desk is using every day. It is plain vanilla. The buyers are arm’s length. Several of them just had accounts already set up with us.
As we have highlighted, we are going to continue to own most of the positions in these loans and manage them, and so the buyers found it convenient to keep their portion of that strip in an account they have set up with us, made it easy to do. But it is their economic risk.
Michael Mosticchio: We will help them manage the position.
Craig William Packer: They made an arm’s-length economic decision. There is nothing behind the scenes that would in any way undermine that conclusion.
Maxwell Fritscher: Awesome.
Craig William Packer: Thank you, Finn.
Operator: Thanks, Finn. Thank you. Our next question today is coming from Arren Saul Cyganovich from Truist Securities. Your line is now live.
Arren Saul Cyganovich: Hi, thanks. One of the questions we got from investors was why not sell all of OBDC II? Is there something just maybe just from debt perspective? Or we are just trying to understand, not just kind of get rid of that, I do not know, perceived issue or perceived problem from investors.
Michael Mosticchio: Sure.
Craig William Packer: We thought it was really important to be able to—we had—we canceled the merger in November—do something very quickly. The merger and the cancellation caused a lot of confusion for the OBDC II investors and for investors in our other funds. And we thought it was important to be able to do something quickly and to demonstrate the quality of the portfolio and to return capital very quickly. This was that transaction. This, you know, we went through a number of alternatives. We wanted to do something of significant size. We returned 30%. We wanted to do something that demonstrated our marks. It did.
Michael Mosticchio: But we also
Craig William Packer: wanted to do something quickly, and that left the remaining portfolio in really good shape. That portfolio has about 0.5 turns of leverage, has plenty of liquidity. It is diversified. It will, you know, be easy for us to continue to run it and harvest it and return the capital. There could have been other possibilities, as you said, sell the whole portfolio. I am sure we could have done that. It would have taken longer. It would have been more complicated. As you might imagine, there are shareholder protections. If you are going to sell an entire portfolio, that results in a much longer process.
We opted for something faster, certain, that would put cash in the investors' pockets by March. We will continue to manage this fund. Again, this is a fund of loans. They contractually repay. We have visibility on these repayments. We are not speculating about getting the capital back. We are going to continue to get capital back. We will continue to return the capital. As I mentioned earlier, by the end of this year, we may wind up returning half the investors' capital. So we will continue to evaluate it. There is nothing particularly unique here.
Maxwell Fritscher: Funds
Craig William Packer: in the private markets return capital to their clients all the time in the private credit markets, in the private equity markets, and there is nothing unique to this particular fund. It is just akin to any other fund, and we will manage it in a way that benefits investors.
Maxwell Fritscher: Yeah. It makes sense. And to your point, you are returning it more quickly, and for Blue Owl Capital Corporation shares, you are selling it at NAV and having the ability to buy that at a big discount. So it is a benefit for Blue Owl Capital Corporation. I totally get it. These are just questions we are kind of getting from investors. The other thing I had was just on software. You know, obviously, this is an area that you guys have been, you know, very confident in all along. Yeah. But, you know, BDCs that are completely kind of designed towards this. What is your appetite for kind of new software loan purchases?
And is this creating more of a beneficial opportunity, I guess, as maybe some other peers might be a little bit afraid to step into the area?
Craig William Packer: So we have covered this a bit in the comments. Look, we have always liked software, have a significant team. We think we are one of the largest investors and have the capacity to
Jonathan Lamm: differentiate
Craig William Packer: between a software business that is going to be well protected
Maxwell Fritscher: in an AI world and one that is going to be more vulnerable.
Craig William Packer: We also have funds that are dedicated to the technology sector that have capacity to do software. Blue Owl Capital Corporation was designed as a diversified fund. As Logan mentioned, software is the biggest sector, but it is a relatively small percentage of the overall fund. So we have capacity to do best-in-class deals that we have extremely high levels of confidence are going to continue to hold up well. That bar has always been high. It is even higher now. We are certainly not taking lightly the potential impact for AI. Having said that, we continue to see our best-in-class companies perform well. We think they will endure. And if we see opportunities, we will do it.
But I would say we are going to be very discriminating, and I do not think our software percentage will go up. If anything, I would expect it to modestly decline
Maxwell Fritscher: over the next year or two, but it will depend upon the opportunity set.
Operator: Got it.
Maxwell Fritscher: Appreciate it.
Jonathan Lamm: Thank you.
Operator: Thank you. Next question today is coming from Robert James Dodd from Raymond James. Your line is now live.
Jonathan Lamm: Hi, guys. Thanks for taking the question. On—I think you have covered—13% was Internet and software.
Robert James Dodd: Any information you can give us on, like, what vintage were those assets? I mean, they are the larger assets. I am going to presume—and we know what that makes me—that those were probably lower-spread assets as well at the largest side of the portfolio. I mean, what color can you give us, like, on those assets being sold? What was the weighted average spread versus what it is on the portfolio? You gave us software on the Internet, but, I mean, was there less PIK in that book or more PIK in that book?
Any other metrics you can give us on how it is going to evolve the—modestly, right, because it is not that big a piece—but how it is going to impact the portfolio on those kind of metrics.
Jonathan Lamm: Yes. So thanks, Robert. It is Logan.
Craig William Packer: The portfolio sales were a slice across mostly first liens, and the weighted average spread was just over 500. So relatively consistent with the broader portfolio.
Maxwell Fritscher: It was not
Craig William Packer: a select few that were outliers across the book. And from a PIK exposure percentage, it was about in line with our PIK exposure. So, again, we would just reference we have got about 10% PIK exposure. The portfolio sold, it was about 10% to 11% PIK exposure across the book. So consistent across how our portfolio looks. Really no different. And, you know, it is not changing the portfolio in any meaningful way at Blue Owl Capital Corporation in particular. First lien percentages,
Maxwell Fritscher: non-accrual percentages, everything is the same pre and post.
Craig William Packer: As Craig mentioned on diversity, it helps to touch three of our top five position percentages go down a little bit as part of the transaction, and it helps us with some opportunistic capital to redeploy into a market that is increasingly more interesting.
Robert James Dodd: Got it. Got it. Thank you on that. And, I mean, as we look forward, I mean, as you mentioned, spreads have started to widen a little bit. I mean, and we will see how long those stick. But, I mean, what is the view for the remainder of the year? I think you have covered all the things that have
Arren Saul Cyganovich: have gone on this quarter and last year. But, I mean,
Robert James Dodd: are you optimistic on spreads staying wider and creating some incremental, you know, accretive opportunities from that perspective? On the other hand, you are saying you do not expect credit to deteriorate,
Arren Saul Cyganovich: which
Robert James Dodd: I fully agree with. And normally, if that does not happen, spreads, sooner or later, tighten back up despite what the public equity market seems to think at the moment. So, I mean, how do you think anything is going to play out?
Arren Saul Cyganovich: Yeah.
Craig William Packer: It is a good question. Look. From our perspective—and, you know, we have commented on this pretty regularly over the last year—spreads have been extremely tight in all credit markets over the last, you know, 12 to 18 months. And not just private credit. Leveraged loans, IG, high yield—everywhere—spreads are tight. And, you know, we anticipated at some point it would widen just to get to
Maxwell Fritscher: more of a baseline, not to be wide, but just to get to more of a baseline. You are starting to see that. I am hopeful that will continue.
Craig William Packer: Again, not dramatically so, but just get to more of a typical range. When the public loan market starts to back up, private credit spreads move quickly. You know, our comments on the economy, or, excuse me, on the portfolio are part driven just based on the sectors we are in and the companies. They are doing well, and they continue to do well. And we are seeing, you know, low single-digit to high single-digit growth rates in revenues and EBITDA. Companies are performing really well. That is why we are confident.
Maxwell Fritscher: Let me put it this way.
Michael Mosticchio: I
Craig William Packer: you cannot have a view that
Maxwell Fritscher: that, you know, there is a massive, you know, credit
Craig William Packer: problem coming and spreads are going to be really tight. Those things are, as you say, not compatible.
Maxwell Fritscher: What I expect is
Craig William Packer: credit performance will continue to be good, not only for us but for the large players in the private credit space. And I think you will see some modest widening of spreads. And, hopefully, some modest pickup in M&A activity.
Maxwell Fritscher: I do think
Craig William Packer: that will favor the larger platforms
Maxwell Fritscher: that have capital.
Craig William Packer: And the smaller firms that do not have as much capital. I think the private equity firms, you know, they have had a lot of opportunity to talk to different lenders in the last year or so. But when they see conditions start to tighten up, they move to the largest lenders and the ones that know them the best, and that have the wherewithal. And we are one of them. So I think it will be a better environment, but I—you know, I am cautious on it. We will see how long it lasts.
Robert James Dodd: Got it. Thank you. No other questions, I will follow up later. Thanks a lot.
Maxwell Fritscher: Thanks, Robert.
Operator: Thank you. Our next question today is coming from Kenneth Lee from RBC Capital Markets. Your line is now live.
Jonathan Lamm: Hey, good morning. Thanks for taking my question. Just one more on the loan sales transaction there.
Arren Saul Cyganovich: To clarify,
Jonathan Lamm: the mark that you received, the 99.8%, how does it compare with the previous fair value marks in general?
Maxwell Fritscher: I mean, it is—we sold it at our marks. In March, the fair value was 99.7%. It is very consistent with where marks have been every quarter.
Craig William Packer: Most of our book
Maxwell Fritscher: for the last year has been valued
Craig William Packer: close to par. And we sold this basket of loans at par, consistent with every—the last year or so. I just want to, you know, make sure we are being clear on this. We did not negotiate price by price with investors.
Maxwell Fritscher: We said we want you to pay our book value.
Craig William Packer: We did our same valuation process that we always do.
Maxwell Fritscher: And we said we want you to pay book value. They agreed to pay book value.
Craig William Packer: So not only is that endorsing that we got par, it is also endorsing of our valuation process. They trusted our valuation process the same way we trusted it. Four independent parties doing their own work agreed to pay book value. We updated that book value as of February 12, then did a valuation for us on that day. So they are up to date. And the moves in the valuations were minor across the portfolio as a whole.
Jonathan Lamm: Gotcha.
Maxwell Fritscher: Very helpful there. Just one follow-up, if I may, just on the dividend. And could you talk about some of the potential inputs or considerations that the Board may take into account for setting the common dividend going forward? Thanks. Our process
Craig William Packer: with the Board on dividend is the same we have been doing for ten years. We look at all the kinds of metrics that you would expect—what we are earning, what we expect to earn, credit performance, dividend coverage, the outlook. We generally like to have a stable base dividend. We put in place the supplemental a couple years ago because we were earning a lot with higher rates. But, look, as we said in the script, and I think you are hearing from other managers, although credit performance is very strong,
Maxwell Fritscher: it is a different rate environment. Rates are lower.
Craig William Packer: Rates are expected to continue to go lower. Spreads are tighter.
Maxwell Fritscher: And so, particularly as a result of rates,
Craig William Packer: rates went up, we earned more. Rates have come down, we are earning less. This quarter, we looked at it, and we earned $0.36 for a $0.37 dividend. We felt it was reasonable to continue to keep the dividend where it is. But as we said in the script, you know, we are going to see, and we are seeing now, the full impact of rates and the full impact of spreads, and we are going to
Maxwell Fritscher: sit down with the Board every quarter, but certainly next quarter,
Craig William Packer: see where our earnings are coming in, see what our outlook is over the next
Jonathan Lamm: few quarters,
Craig William Packer: and assess the dividend. And we do not, you know, we do not like to move the dividend around every quarter. So we will have a thorough discussion. Just completed our Board meetings yesterday. We have, you know, we talked about it thoroughly.
Maxwell Fritscher: We will continue to do that.
Craig William Packer: Just like we have since inception.
Jonathan Lamm: Gotcha. Very helpful there.
Maxwell Fritscher: Thanks again.
Kenneth Lee: Thanks, Kenneth.
Operator: Thank you. Next question today is coming from Casey Jay Alexander from Compass Point. Your line is now live.
Maxwell Fritscher: Yes, good morning, and thank you for taking my questions. And I
Michael Mosticchio: can appreciate your frustration that in this environment right
Maxwell Fritscher: now, everything is being looked at through the most skeptical lens possible. And that is kind of what happens when the market paints things with a broad brush.
Kenneth Lee: But
Arren Saul Cyganovich: what I want to ask
Kenneth Lee: is, you know, now that the market knows that Blue Owl II is in runoff, and you did this transaction with just four investors, there is a tremendous amount of dry powder that is still out there in LPs and places like that. I would expect that your inboxes might be pretty busy from other folks that would like to take a look at that Blue Owl II portfolio and see if there are things that they might want to buy. Would you guys consider additional asset sales out of that portfolio to accelerate the process of winding it down?
Craig William Packer: Casey, we will consider anything that is going to deliver great value to our investors. And you are right, we got inbounds since November, and I have already highlighted that these investors that we sold assets to had additional demand
Maxwell Fritscher: and would have taken more of the paper now.
Craig William Packer: Look. I hope folks appreciate these are great questions. Answers are complicated.
Maxwell Fritscher: You know, how you decide
Craig William Packer: to wind something down; when does something require some type of shareholder vote or engagement? These processes are not—these are not public loans where we are just selling out in an afternoon.
Maxwell Fritscher: This is a company. It has a Board.
Craig William Packer: And it has a process. We have been following that process as we always have, and we will continue to do so. But I think the guts of your question is, we would like to continue to accelerate the return of capital. This again—not as it has always meant to be. As it has always meant to be. It was always meant that at this point in the fund's lifecycle, we would come up with a strategic transaction that would result in the investors getting liquidity.
Craig William Packer: And so we now have a defined path.
Maxwell Fritscher: This is the path.
Craig William Packer: And we will look for repayments, earnings, and also potential additional asset sales to continue to return that capital. I just want to come back to something I said earlier. I know there are a lot of questions. And part of the question is, how are the investors feeling? A lot of folks that are wondering, they are speculating. The investors feel like we have treated them very well. Investors are really happy with this transaction. And I think they will continue to be happy with us if we continue on a path of really carefully managing it and getting them capital back at a good price.
We are not getting pushed by the investors to try to sell out quickly and not get fair value. They just want us to manage it prudently, like we always have.
Maxwell Fritscher: And if I could, I would broaden the lens.
Craig William Packer: You know, again, we recognize our platform is very much in the public's eye. We also think we have treated investors really well in our non-traded funds, where we have stepped up and met increased redemptions.
Maxwell Fritscher: So the client base there, I think, also appreciates
Craig William Packer: that we continue to try to put our investors first.
Kenneth Lee: So that is what we will do
Craig William Packer: if we see transactions that are at a great price and can accelerate the return of capital. We are very open to that. But it is a little more complicated than deciding tomorrow morning to just sell the assets.
Operator: I could certainly appreciate that, and thank you for that answer.
Kenneth Lee: Great. Since this is a Blue Owl Capital Corporation call, let us ask a question that is relevant to Blue Owl Capital Corporation. Jonathan, can you give us a little more granularity on the one-time income and the lowering OpEx that produced the $0.02 tailwind? You know, just give us a feel for where some of that came from.
Jonathan Lamm: Sure. The majority of it was from a repayment where we got some, you know, some call protection. And then on the OpEx side, call it $0.05 or so, is really just when we completed the merger at the beginning of the year, Blue Owl Capital Corporation and OBDE, although we promised synergies, we budgeted in the context of, you know, in a conservative manner and, you know, in terms of not necessarily hitting all of those synergies. So when you get a lot of your invoicing and your expenses coming through at the end of the year, we effectively saw a positive true-up, which is non-repeatable, related to those synergies.
And so that contributed to what I will call one-time OpEx adjustment.
Kenneth Lee: Great. Thank you. Appreciate that. Thank you for taking my questions.
Arren Saul Cyganovich: Thanks, Casey.
Operator: Thank you. Next question today is coming from John Hecht from Jefferies. Your line is now live.
Maxwell Fritscher: Good morning, guys. Thanks for taking my questions. Just looking at the
Kenneth Lee: published material, if you look at the principal amount of investments
Maxwell Fritscher: sold or repaid, it is—and you addressed this to some of the remarks earlier—it is fairly elevated. I am wondering, can you break that down versus what you—last quarter—versus what was a scheduled paydown versus what might have been a prepayment? And then what is your perspective on—obviously, you have announced the additional sales this quarter—but what is your perspective on that type of activity beyond the planned sales, right, or announced sales at this point in time?
Kenneth Lee: Sure. Great question. We
Craig William Packer: reported the number of just over $1 billion of repayments. That is entirely repayments in normal course.
Arren Saul Cyganovich: The asset sales of $400 million are not in those numbers yet.
Kenneth Lee: They will be forthcoming and closing over the next few weeks.
Craig William Packer: And will be in the first quarter numbers. So everything was normal course in the last quarter.
Kenneth Lee: And is that—do you expect that pattern to persist? Or was it just sort of a confluence of a lot of maturities or something like that happened last quarter?
Jonathan Lamm: I would say it is in a normal course.
Kenneth Lee: We saw repayments in the fund at around a billion dollars. It has been consistent with our last few quarters.
Craig William Packer: And we have the opportunity in any given quarter to decide how much we reinvest,
Kenneth Lee: and as mentioned, we prioritized
Craig William Packer: other things during the quarter, like paying down debt as well as share repurchases in particular. And so it is our opportunity to take a look at that normal-course repayment
Kenneth Lee: cycle that happens every quarter
Craig William Packer: and then choose to reinvest a portion or not depending on our priorities. And that is really on the reinvesting side where we made the decisions. The repayment side
Arren Saul Cyganovich: was all normal course.
Robert James Dodd: Okay. That is helpful. And then
Michael Mosticchio: where are we at with respect to, like, rate floors,
Kenneth Lee: and ongoing sensitivity to potential Fed rate declines?
Arren Saul Cyganovich: Sure.
Kenneth Lee: Rate floors are not yet in effect. Where we have rate floors on a portion of the portfolio, they are typically around 1%. And they were really a legacy of the zero interest rate environment of years ago. So at this point, as with most lenders in the space, our loans would still be floating rate,
Arren Saul Cyganovich: and true to that level of SOFR,
Craig William Packer: as we go down, it would be effectively one-to-one.
Kenneth Lee: Okay. Thank you, guys, very much.
Jonathan Lamm: Thank you.
Operator: Thank you. Our final question today is coming from Paul Conrad Johnson from KBW. Your line is now live.
Arren Saul Cyganovich: Thank you. Thanks for
Maxwell Fritscher: taking my question this morning. In terms of the mix of the transaction, I noticed it mentioned both
Kenneth Lee: funded and—it seems like—funded and unfunded commitments. What is, I guess, kind of
Maxwell Fritscher: composition mix for Blue Owl Capital Corporation in terms of what was funded on the balance sheet and what is leaving in terms of a commitment?
Operator: Yeah.
Craig William Packer: On the asset sales, it is about 10% unfunded. It is consistent with our existing. So if you look across the portfolio, it is really a slice of the existing, and consistent with our unfunded revolver and DDTL mix. And so when we say $400 million, that is the full commitment size. About 90% of that is funded and 10% of that unfunded. Again, broadly across the three different portfolios involved, that is consistent.
Operator: Gotcha. Okay.
Maxwell Fritscher: That makes sense. Thanks for that. And then
Kenneth Lee: maybe just a little bit more on
Maxwell Fritscher: the transaction. I was wondering if you could just maybe kind of give us an idea of, like, what was, I guess, kind of the process here? I mean, was this like a solicited transaction? I mean, you mentioned excess demand here. And the other question I have—maybe an odd question—but I am just curious, where do the assets actually go? You mentioned, like, they have an account with you. So do they stay in one way or another on the platform, or are these transferred into, you know, structures that are off
Kenneth Lee: platform.
Craig William Packer: Okay. The process we went through: when we canceled the merger, we reached out to a very small handful of investors that knew us and that we thought had the wherewithal to make a sizable investment in private credit assets—high-quality private credit assets—
Maxwell Fritscher: at book value. We had limited time and limited bandwidth, and we got great reception. And
Craig William Packer: worked with the four that we are closing on. And they all got there. And so, just a private process that we went through in an expedited timeframe, and they did their work, and we made our teams available. And it was a very efficient process. Want to speak to the—I mean, in terms of
Jonathan Lamm: again, it is no—it is no
Maxwell Fritscher: on the platform, I mean, we set up
Craig William Packer: vehicles or, in some cases, had vehicles already set up with us
Maxwell Fritscher: where those vehicles bought these assets.
Robert James Dodd: That is
Craig William Packer: you know, I guess, maybe if you are not familiar,
Jonathan Lamm: big pension plans
Craig William Packer: and insurance companies generally work with outside managers to manage their private credit exposure. These are not public securities that they
Maxwell Fritscher: have the systems and team to monitor. And they typically rely on managers like Blue Owl to do that work for them, to
Craig William Packer: follow the credits, provide the information, track the assets,
Maxwell Fritscher: track the payments,
Craig William Packer: and that is what is happening here.
Maxwell Fritscher: They did not have to have us manage these assets. They could have
Craig William Packer: brought any manager in to manage these assets, but, you know, not only do we know these assets extremely well, we also own 90% of the positions. And so we are ideally suited to continue to manage them. But that is just typical of any purchase from an institutional investor. That is how they would do it with us or any other big manager.
Maxwell Fritscher: Got it. Appreciate that, Craig. That is helpful. Last question I would ask, just bigger picture, broadly on bank competition. Just love to get your thoughts there. Feels like the banks are positioning fairly competitively here. Just curious to get your thoughts just kind of with the recent volatility if that has changed at all and what the outlook maybe is for the year? That is all for me. Thanks. Yes. Look, I do not think there is anything new. The banks are—
Craig William Packer: the public loan market is a competitor to ours. It has been
Maxwell Fritscher: since the start of the firm.
Craig William Packer: Always will be. There are times where both markets are strong. Last year, that was the case. The public loan market tends to be more volatile, and that is the way the banks participate in the leveraged loan market. You have seen some volatility pick up.
Maxwell Fritscher: And that impacts—generally impacts—how banks think about underwriting risk, you know, when things are backing up. They
Craig William Packer: just tend to get more cautious, and that can swing deals in our direction. We are already seeing a few deals
Kenneth Lee: that
Craig William Packer: have otherwise gone to the public markets that are quickly moving to the private markets. I do not want to extrapolate a trend for a few weeks to infinity, but in the last couple weeks, we have seen that. I expect that will continue. We have great relationships with the big banks. We do lots of business with them. They are a big source of financing. And there is no profound change to the competitive environment. But it is more a function of just where market demand is, and, again, I suspect the pendulum will swing a little bit more into private credit, but we will see.
Operator: Thank you. We have reached the end of our question and answer session. I would like to turn the floor over to management for any further or closing comments.
Robert James Dodd: Okay. We obviously
Maxwell Fritscher: covered a lot of ground. Look, I would just urge everyone,
Craig William Packer: please read the release that we put out on the asset sales. Do not just read the headline. Do not just read the tweet. Read the announcement. We put a lot of information in there. I am confident if you read the details of what we did, it will be very clear. And if you have clarifying questions, we welcome them. Please ask us. We think this is a really strong outcome for the investors in our funds, and I think a really strong endorsement of the quality of our assets. We want to make sure that you see it that way as well.
Maxwell Fritscher: Thank you, and have a great day.
Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time. Have a wonderful day. We thank you for your participation today.
