Business Context and Reporting Period
This Form 8-K filing by Owl Rock Capital Corporation (ORCC) reports a material definitive agreement and the creation of a direct financial obligation. The report date is November 20, 2020, which is also the closing date of the reported transaction.
Key Financial Metrics
The filing details a $345.45 million term debt securitization transaction (CLO Transaction) executed through consolidated subsidiaries Owl Rock CLO V, Ltd. and Owl Rock CLO V, LLC. The capital structure of the transaction includes:
- Secured Notes: $196 million total issuance ($182 million Class A-1 Notes and $14 million Class A-2 Notes).
- Preferred Shares: Approximately $149.45 million in subordinated securities (149,450 shares at $1,000 per share), all purchased by the Company.
- Collateral Portfolio: Initial assets securing the notes consist of approximately $286.49 million in par amount of middle market loans ($201.75 million contributed by the Company and $84.74 million purchased from a subsidiary).
- Interest Rates: Class A-1 Notes bear interest at three-month LIBOR plus 1.85%; Class A-2 Notes bear interest at three-month LIBOR plus 2.20%.
- Maturity: Secured Notes are scheduled to mature on November 20, 2029.
The filing text does not provide specific values for revenue, net profit, operating cash flow, or overall corporate debt levels outside of this specific transaction.
Material Changes
The primary material change is the incurrence of secured debt and the establishment of a new collateralized loan obligation vehicle. The Company sold and contributed approximately $201.75 million of middle market loans to the Issuer, removing these assets from its direct balance sheet and replacing them with the proceeds from the issuance of Secured Notes and Preferred Shares.
Outlook, Management Commentary, and Risks
Use of Proceeds: ORCC expects to use the net proceeds from the issuance of Secured Notes for general corporate purposes.
Investment Strategy: Through July 20, 2022, the Issuer may use loan proceeds to purchase additional middle market loans under the direction of Owl Rock Capital Advisors LLC (ORCA), acting as collateral manager.
Fee Structure: ORCA has waived its right to receive collateral management fees for this transaction. If this waiver is rescinded, the management fee payable to the Adviser under the existing Investment Advisory Agreement will be offset by the amount of the collateral management fee attributable to the CLO V Issuers' equity or notes owned by the Company.
Risks and Contingencies: The Secured Notes are not registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption. The transaction includes customary covenants and events of default. Additionally, the interest rates are tied to LIBOR, with provisions to replace this benchmark upon the occurrence of certain triggering events relating to the end of LIBOR.
Investor Verification Checklist
- Verify the exact composition of the initial $286.49 million loan portfolio and credit quality metrics.
- Confirm the impact of the $345.45 million transaction on the Company's overall leverage ratios and liquidity position.
- Review the full text of the Indenture and loan sale agreements attached as exhibits to the Form 10-K for specific covenants and default triggers.
- Monitor the status of the LIBOR transition and the specific benchmark rate that will replace it for the Secured Notes.
- Assess the Company's strategy for utilizing the net proceeds for "general corporate purposes."