Business Context and Reporting Period
Company: Owl Rock Capital Corporation (Note: The filing text identifies the registrant as Owl Rock Capital Corporation, despite the request metadata referencing Blue Owl Capital Corp).
Reporting Period: Quarterly period ended June 30, 2017 (Form 10-Q).
Business Overview: The Company is a Maryland corporation organized as a Business Development Company (BDC) and intends to qualify as a Regulated Investment Company (RIC). It primarily originates and makes loans to, and makes debt and equity investments in, U.S. middle-market companies. The Company is managed by Owl Rock Capital Advisors LLC.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2017 | Three Months Ended June 30, 2017 | As of June 30, 2017 |
|---|---|---|---|
| Total Investment Income | $56.2 million | $32.8 million | N/A |
| Net Investment Income (After Taxes) | $32.1 million | $19.3 million | N/A |
| Net Increase in Net Assets from Operations | $38.3 million | $20.1 million | N/A |
| Total Expenses | $24.1 million | $13.5 million | N/A |
| Net Assets | N/A | N/A | $1,083.9 million |
| Net Asset Value (NAV) Per Share | N/A | N/A | $15.15 |
| Total Investments (Fair Value) | N/A | N/A | $1,791.5 million |
| Total Debt (Net Carrying Value) | N/A | N/A | $796.1 million |
| Cash and Cash Equivalents | N/A | N/A | $90.6 million |
| Asset Coverage Ratio | N/A | N/A | 235% |
Material Changes vs. Prior Period
- Revenue Growth: Total investment income increased significantly to $56.2 million for the six months ended June 30, 2017, compared to $0.6 million for the same period in 2016. This is primarily due to the substantial growth in the investment portfolio and the commencement of significant lending activities in 2016.
- Profitability: The Company reported a Net Investment Income of $32.1 million for the six months ended June 30, 2017, a reversal from a Net Investment Loss of $4.9 million in the prior year period.
- Expense Increase: Total expenses rose to $24.1 million (six months 2017) from $5.5 million (six months 2016). The increase is driven by higher management fees ($11.3 million vs. $2.2 million) and the introduction of interest expense ($8.3 million vs. $0) as the Company utilized debt facilities.
- Portfolio Expansion: Total investments at fair value grew from $967.4 million at December 31, 2016, to $1,791.5 million at June 30, 2017. The portfolio now consists of 33 portfolio companies.
- Capital Raise: The Company issued 24.9 million shares during the six months ended June 30, 2017, raising $375.0 million in capital.
Guidance, Outlook, and Risks
- Outlook: Management believes the middle-market lending environment offers opportunities due to limited capital availability from traditional banks. The Company targets investments with favorable risk-adjusted returns, focusing on senior secured loans.
- Dividends: The Board declared a distribution of $18.5 million on August 8, 2017, payable August 15, 2017. The Company has an "opt-out" dividend reinvestment plan.
- Liquidity: As of June 30, 2017, the Company had $297.0 million available under its credit facilities and $2.1 billion in unfunded capital commitments from investors.
- Risks:
- Interest Rate Risk: 96.9% of debt investments are floating rate. While this protects against rising rates, a decrease in rates could reduce net investment income.
- Valuation Risk: Most investments are Level 3 (illiquid) and valued by the Board. Forced liquidation could result in values materially different from reported fair values.
- Concentration: The portfolio is concentrated in U.S. middle-market companies, which may be more susceptible to economic downturns.
Investor Verification Checklist
- Debt Utilization: Verify the impact of the $803 million outstanding debt on future net investment income, noting the average interest rate of 2.59% for the six-month period.
- Portfolio Quality: Confirm the credit rating distribution; as of June 30, 2017, 96.0% of the portfolio was rated "2" (acceptable risk) and 4.0% was rated "3" (below expectations).
- Capital Commitments: Review the $2.1 billion in unfunded capital commitments and the conditions under which these may be called or expire (e.g., upon IPO).
- Valuation Methodology: Scrutinize the Level 3 valuation inputs, as the majority of the portfolio lacks readily available market prices.
- Related Party Transactions: Monitor management fees paid to the Adviser (0.75% of gross assets pre-IPO) and potential co-investment conflicts with Owl Rock Capital Corporation II.