Business Context and Reporting Period
Company: Owl Rock Capital Corporation (Note: Request metadata listed "Blue Owl Capital Corp," but the filing text identifies the registrant as Owl Rock Capital Corporation, trading as ORCC. Blue Owl Capital Inc. is the entity formed by the merger of Owl Rock Capital Group and Dyal Capital Partners announced in December 2020).
Reporting Period: Fiscal year ended December 31, 2020.
Business Overview: The Company is a Maryland corporation organized as a Business Development Company (BDC) and a Regulated Investment Company (RIC). It focuses on originating and making loans to U.S. middle-market companies, primarily senior secured first-lien and second-lien debt, with a smaller allocation to equity and equity-related securities. The Company is externally managed by Owl Rock Capital Advisors LLC.
Key Financial Metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Total Investment Income | $803.3 million | $718.0 million |
| Net Investment Income (after taxes) | $517.5 million | $498.9 million |
| Total Net Realized Gain (Loss) | ($53.8 million) | $2.8 million |
| Total Change in Net Unrealized Gain (Loss) | ($76.0 million) | ($3.7 million) |
| Net Assets | $5,746.4 million | $5,977.3 million |
| Net Asset Value (NAV) per Share | $14.74 | $15.24 |
| Total Debt (Net of unamortized costs) | $5,292.7 million | $3,038.2 million |
| Asset Coverage Ratio | 206% | 293% |
| Portfolio Fair Value | $10.84 billion | $8.80 billion |
| Weighted Average Portfolio Yield (Fair Value) | 8.1% | 8.7% |
| Distributions Declared per Share | $1.56 | $1.45 |
Material Changes vs. Prior Period
- Portfolio Growth: The portfolio fair value increased by approximately $2.04 billion (23%) from 2019 to 2020, driven by new originations and the addition of new portfolio companies (119 in 2020 vs. 98 in 2019).
- Leverage Increase: Total debt outstanding increased significantly from $3.04 billion in 2019 to $5.29 billion in 2020. This was facilitated by the shareholder-approved reduction of the asset coverage requirement from 200% to 150% effective June 9, 2020.
- Unrealized Losses: The Company recorded a net unrealized loss of $76.0 million in 2020, compared to $3.7 million in 2019. This was attributed to market disruptions caused by the COVID-19 pandemic and the performance of specific portfolio companies.
- Realized Losses: The Company incurred a net realized loss of $53.8 million in 2020, reversing a small gain of $2.8 million in 2019.
- Expense Waivers: Management and incentive fees waived totaled $130.9 million in 2020, compared to $73.4 million in 2019. The incentive fee waiver expired on October 18, 2020.
Guidance, Outlook, and Risks
- COVID-19 Impact: Management expects the pandemic to continue impacting portfolio company performance in the short term. Originations decreased in 2020 due to lower private equity deal activity, though they increased in the fourth quarter. The Company is focused on preserving capital and monitoring liquidity exposure.
- Merger Transaction: On December 23, 2020, Owl Rock Capital Group announced a merger with Dyal Capital Partners to form Blue Owl Capital Inc., to be listed via a SPAC transaction with Altimar Acquisition Corporation. This will result in a change of control of the Adviser but is not expected to alter the Company's investment strategy or team.
- Dividend Policy: The Company intends to distribute substantially all available earnings quarterly. A distribution of $0.31 per share was declared on February 23, 2021. The Company recorded $2.0 million in excise tax expense for 2020.
- Key Risks:
- Interest Rate Risk: 99.9% of debt investments are floating rate. While this protects against rising rates, it exposes the Company to the decommissioning of LIBOR.
- Liquidity Risk: Investments are largely illiquid. The Company relies on credit facilities and securitization (CLOs) for liquidity.
- Portfolio Credit Risk: Investments rated 3, 4, or 5 (indicating increased risk) rose to 10.3% of the portfolio in 2020 from 5.3% in 2019.
Investor Verification Checklist
- Asset Coverage Ratio: Verify the Company maintains the required 150% asset coverage ratio to continue issuing senior securities and paying dividends.
- LIBOR Transition: Assess the Company's strategy for transitioning floating-rate loans from LIBOR to alternative reference rates (e.g., SOFR) and the potential impact on yields.
- Fee Structure Post-Merger: Confirm the terms of the new Investment Advisory Agreement following the Blue Owl merger and shareholder approval.
- Non-Accrual Status: Monitor the 0.5% of debt portfolio on non-accrual status and the potential for further credit deterioration in the "Watch List" (Ratings 3, 4, 5).
- Debt Maturities: Review the maturity schedule of the Company's own debt obligations, including the Revolving Credit Facility and various Notes and CLOs, to assess refinancing risks.