Blue Owl Capital Corp. (Owl Rock Capital Corporation) — Q3 2022 Form 10-Q
Business context and reporting period. The filing is for the quarter ended September 30, 2022. The issuer, Owl Rock Capital Corporation (NYSE: ORCC), is a business development company and regulated investment company affiliated with Blue Owl Capital. It primarily lends to U.S. middle-market companies. Figures below are in U.S. dollars; financial statement amounts are generally in millions unless noted.
Key financial results and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Investment income | $314.1 | $269.2 | $851.5 | $739.8 |
| Net investment income after tax | $146.8 | $130.5 | $394.3 | $352.3 |
| Net increase in net assets from operations | $265.4 | $142.9 | $274.5 | $450.9 |
| Basic and diluted earnings per share | $0.67 | $0.36 | $0.70 | $1.15 |
- Q3 total operating expenses were $165.7 million, up from $137.0 million; interest expense rose to $81.2 million from $56.5 million. Average borrowing costs increased to 3.9% from 2.9%.
- For the nine months, operating cash flow was $122.5 million, versus cash used of $854.7 million in 2021. Cash and restricted cash, including foreign cash, ended the period at $455.2 million.
- At September 30, investments had fair value of $12.84 billion against amortized cost of $12.93 billion. Net assets were $5.85 billion and NAV was $14.85 per share, down from $15.08 at December 31, 2021.
- Debt had a net carrying value of $7.20 billion and outstanding principal of $7.37 billion. Net debt-to-equity was 1.18x; statutory asset coverage was 180%, compared with 182% at year-end. Approximately $1.7 billion was available under credit facilities.
- Quarterly distributions declared during the first nine months were $0.31 per share. The filing cautions that distributions can exceed taxable earnings and may include a return of capital.
Changes versus comparable periods
- Q3 investment income increased 16.7% year over year, and after-tax net investment income increased 12.5%. Higher floating rates, portfolio growth, and dividend income contributed; lower prepayment and accelerated-fee income partly offset gains.
- Q3 operations included $118.6 million of net realized and unrealized gains, versus $12.4 million in Q3 2021. For the first nine months, operations fell to $274.5 million from $450.9 million, reflecting $123.4 million of net unrealized losses in 2022 versus $122.0 million of unrealized gains in 2021.
- Across the portfolio, fair value of debt investments was 97.0% of principal at quarter-end, versus 98.2% at year-end 2021. Non-accrual debt increased to 1.0% of debt amortized cost from 0.2%.
- PIK interest and dividend income was 11.9% of Q3 investment income and 11.4% for the first nine months, versus 5.9% and 5.2% in the respective 2021 periods. PIK accruals are not necessarily cash receipts.
- Q3 new investment commitments were $427.4 million, down from $2.79 billion a year earlier; funded investments were $303.8 million versus $2.29 billion. Management attributed slower activity to rising rates, reduced refinancing and M&A activity, and market uncertainty.
Outlook, risks, and notable items
- Management expects repayments and originations to remain modest under current conditions, while stating that higher base rates exceeding loan floors should benefit net investment income. The filing provides no formal earnings or full-year financial guidance.
- Management reported no broad deterioration in the portfolio at the time of filing, but identified recession risk, inflation, supply-chain disruption, labor shortages, rising rates, geopolitical instability, COVID-19 effects, and reduced financing-market access as risks.
- 98.3% of debt investments by fair value were floating rate. This may support income as rates rise, but borrowers’ debt-service burden and the company’s own floating-rate financing costs also warrant monitoring.
- Valuation risk is significant: substantially all investments are illiquid, and most are Level 3, valued using material unobservable inputs. A forced sale could produce materially different proceeds from reported fair value.
- Unfunded portfolio-company commitments totaled $970.6 million; management believed resources were adequate to meet them. No material pending litigation or defaults on senior securities were reported.
- The company completed a $350.5 million CLO VII securitization in July and amended its revolving credit facility in August. After quarter-end, SPV Asset Facility IV was repaid and terminated on October 3. On November 1, the Board declared a $0.33 fourth-quarter dividend and a $0.03 supplemental dividend, and approved a new $150 million share repurchase program.
- For the first nine months, market-value total return was negative 21.1%, while NAV-based total return was positive 5.2%. At quarter-end the share market value was $10.37 versus NAV of $14.85.
Important facts for investors to verify
- Whether portfolio credit quality, non-accruals, and investment marks have changed since September 30, particularly for investments rated 3–5 and holdings with notable valuation declines.
- How much reported earnings depend on PIK income, non-cash fair-value changes, and dividends from controlled or affiliated investments.
- Actual rate sensitivity and the net effect of higher benchmark rates on portfolio income, funding costs, borrower health, and hedges.
- Availability of the stated $1.7 billion facility capacity after borrowing-base limits, and the company’s ability to fund $970.6 million of commitments while maintaining asset-coverage and debt covenants.
- The sustainability and tax character of regular and supplemental distributions, including whether any portion represents return of capital.
- Performance and valuation of Level 3 investments, controlled affiliates, and the ORCC Senior Loan Fund, whose portfolio valuations are not included in the Board’s valuation process described for the company’s investments.