Business Context and Reporting Period
Company: Owl Rock Capital Corporation (Owl Rock)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2016
Business Overview: Owl Rock is a Maryland corporation organized as a Business Development Company (BDC) and intends to qualify as a Regulated Investment Company (RIC) for tax purposes. The company invests primarily in senior secured and subordinated debt of U.S. middle-market companies. Investment activities commenced in April 2016.
Key Financial Metrics
| Metric | Value (in thousands) |
|---|---|
| Total Assets | $498,157 |
| Total Net Assets | $420,862 |
| Net Asset Value (NAV) Per Share | $14.23 |
| Cash and Cash Equivalents | $258,186 |
| Investments at Fair Value | $218,685 |
| Total Liabilities | $77,295 |
| Investment Income (6 months) | $629 |
| Total Expenses (6 months) | $5,545 |
| Net Investment Loss (6 months) | $(4,916) |
| Net Unrealized Gains (6 months) | $518 |
| Net Decrease in Net Assets from Operations (6 months) | $(4,398) |
| Loss Per Share (Basic & Diluted, 6 months) | $(0.70) |
Material Changes and Portfolio Activity
Portfolio Deployment: As of June 30, 2016, the company had originated $307.0 million in aggregate principal amount of investments, retaining $222.0 million on its balance sheet. The portfolio consists of 6 companies across Food & Beverage (48.3%), Aerospace & Defense (22.4%), Healthcare (22.4%), and Manufacturing (6.9%).
Capital Raise: During the six months ended June 30, 2016, the company raised approximately $425.3 million through the issuance of common shares. Total capital commitments from investors stood at $973.3 million, with $548.0 million remaining unfunded.
Expense Structure: The company incurred a net investment loss of $4.9 million for the six-month period, primarily driven by $5.5 million in operating expenses (including $2.2 million in management fees and $1.2 million in initial organization costs) against minimal investment income of $0.6 million, as the portfolio was in the early stages of deployment.
Outlook, Risks, and Subsequent Events
Credit Facility: Subsequent to the reporting period, on August 1, 2016, the company entered into a $250 million revolving credit facility with Wells Fargo Bank, National Association. The facility can be increased up to $750 million under certain conditions.
Additional Commitments: Following June 30, 2016, the company secured an additional $727.3 million in capital commitments, bringing total commitments to $1.7 billion.
Risk Factors: Key risks include the speculative and illiquid nature of investments, interest rate volatility, and the ability to maintain RIC tax status. The company notes that forward-looking statements are subject to uncertainties regarding economic downturns and portfolio company performance.
Asset Coverage: As of June 30, 2016, the asset coverage ratio was 671%, well above the 200% minimum required by the Investment Company Act of 1940.
Investor Verification Checklist
- Capital Deployment Pace: Verify the rate at which the $1.3 billion in unfunded capital commitments (post-subsequent events) will be deployed into the portfolio.
- Expense Run Rate: Monitor the transition from initial organization expenses to a steady-state expense ratio as the asset base grows.
- Interest Rate Sensitivity: Assess the impact of floating-rate investments (100% of portfolio) and the new credit facility on net investment income.
- Valuation Methodology: Review the Level 3 fair value inputs used for the $218.7 million investment portfolio, as these rely on unobservable inputs and management judgment.
- Dividend Policy: Confirm the timing and source of future distributions required to maintain RIC tax status, given the current net investment loss.