Business Context and Reporting Period
Owl Rock Technology Finance Corp. filed a Form 8-K reporting the completion of a collateralized loan obligation transaction on December 16, 2020, with the report filed December 17, 2020. The transaction was secured by middle-market loans, recurring-revenue loans, participation interests and other issuer assets.
Key Financial and Capital Structure Terms
- Total CLO transaction: Approximately $333.5 million.
- Secured notes: $200 million of Class A Notes bearing interest at three-month LIBOR plus 2.95%, with scheduled maturity on January 15, 2031.
- Preferred shares: Approximately $133.5 million, consisting of 133,500 shares issued at $1,000 per share. The Company purchased all preferred shares; they are subordinated and unsecured by the collateral securing the notes.
- Initial asset transfer: Approximately $243.4 million par amount of middle-market and recurring-revenue loans was sold or contributed to the issuer.
- Use of proceeds: Net proceeds, after fees and expenses, were expected to repay revolving loans under existing credit facilities and fund general corporate purposes.
- Additional investments: Through January 15, 2022, available proceeds and certain cash flows could be used to purchase additional eligible loans under the direction of Owl Rock Technology Advisors LLC, acting as collateral manager.
Material Changes, Outlook and Risks
- The transaction created a new secured financial obligation of the consolidated subsidiaries and provided an additional financing structure for the Company’s investment portfolio.
- The notes are subject to customary covenants and events of default and are secured by the issuer’s collateral portfolio.
- Interest initially references three-month LIBOR; a replacement benchmark applies upon specified LIBOR-related triggering events.
- The Company retained exposure to the securitized assets through its ownership of preferred shares to satisfy applicable U.S. and European Union securitization-retention requirements.
- Owl Rock Technology Advisors LLC serves as collateral manager and is entitled to collateral-management fees, although it initially waived those fees. The waiver may be rescinded, subject to an offset against the Company’s investment advisory fee in specified circumstances.
- The notes were issued in an unregistered offering and may not be offered or sold in the United States absent registration or an applicable exemption.
- The filing does not provide revenue, net income, cash flow, margin, liquidity balances, leverage ratios or quantitative guidance for the reporting period.
Investor Verification Checklist
- Verify the final indenture, loan sale agreement, collateral-management agreement and related exhibits in the Company’s Form 10-K for the year ended December 31, 2020.
- Confirm the ultimate repayment of revolving borrowings and the effect of the CLO financing on consolidated leverage and liquidity.
- Review the collateral portfolio’s eligibility, concentration, performance and valuation, including exposure to middle-market and recurring-revenue borrowers.
- Assess the impact of LIBOR replacement provisions on the notes’ future interest expense.
- Confirm the preferred shares’ economic terms, distributions and potential losses subordinate to the secured notes.
- Review covenant requirements, events of default and the consequences of any collateral underperformance.