Blue Owl Capital Stock

Good morning, everyone, and welcome to Blue Owl Capital Corporation's Second Quarter 2026 Earnings Call. As a reminder, this call is being recorded. At this time, I'd like to turn the call over to Mike Mosticchio, Head of BDC Investor Relations. Mike, please go ahead.

Thank you, operator, and welcome to Blue Owl Capital Corporation's Second Quarter 2026 Earnings Conference Call. Joining me today are Craig Packer, Chief Executive Officer; Logan Nicholson, President; and Jonathan Lamm, Chief Financial Officer. I'd like to remind listeners that remarks made during today's call may contain forward-looking statements, which are not guarantees of future performance or results and involve a number of risks and uncertainties that are outside of the company's control.

Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described in OBDC's filings with the SEC. The company assumes no obligation to update any forward-looking statements. We would also like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our earnings presentation available on the Events and Presentations section of our website.

Certain information discussed on this call and in the company's earnings materials, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. The company makes no such representations or warranties with respect to this information.

Yesterday, OBDC issued its financial results for the second quarter ended June 30, 2026, reporting adjusted net investment income per share of $0.34 and net asset value per share of $14.26. All materials referenced during today's call, including the earnings press release, earnings presentation and 10-Q are available on the News and Events section of OBDC's website. With that, I'll turn the call over to Craig.

Thanks, Mike, and good morning, everyone. Thanks for joining us. We are very pleased with the quarter and feel good about where things stand for OBDC. We generated quarter-over-quarter NII growth, maintained strong overall credit quality and increased our financial flexibility during the quarter.

In the second quarter, adjusted NII translated into a 9.6% annualized ROE, up over 100 basis points from last quarter and comfortably covered the dividend. As you recall, last quarter, we reset the base dividend to better align with the forward earnings power of the portfolio following the impact of lower base rates and tighter spreads.

This quarter's results provided a healthy cushion above that level. We also declared a $0.02 per share supplemental dividend in accordance with our framework, allowing shareholders to benefit from incremental earnings above the base dividend.

We generated these results while also strengthening our balance sheet. We ended the quarter with net leverage at 1.11x, our lowest level in over two years, giving us substantial flexibility to deploy as attractive opportunities emerge.

On the financing front, during the quarter, we issued two unsecured bonds and extended the maturity of our revolving credit facility. Together, those actions improved our funding profile and preserved liquidity, allowing us to remain patient as the investment opportunity set develops. Jonathan will cover this in more detail shortly.

Turning to net asset value. Our net asset value per share declined modestly quarter-over-quarter, and I want to provide some context on that. The decline was primarily driven by one credit-specific markdown that Logan will address in detail, while the marks across the rest of the portfolio were relatively consistent as spreads were generally stable. That is an important distinction compared to Q1 when approximately 3/4 of the NAV decline was driven by broad spread widening across the debt portfolio.

Modestly offsetting our NAV decline this quarter, we repurchased $35 million of shares, reflecting our continued focus on disciplined capital allocation and conviction in the long-term value of OBDC while balancing the impact to leverage. Turning to the market environment. The second quarter was much more stable than the first.

Earlier this year, credit spreads were volatile and sentiment was more cautious across the market. As the second quarter progressed, we began to see a more normalized backdrop with spreads stabilizing, the rate outlook improving and sentiment becoming more balanced. Against that backdrop, credit performance across our portfolio remained consistently strong. Borrower fundamentals held up well and the key credit metrics we track continue to perform in line with our expectations.

Transaction activity was modest as sponsors and borrowers continue to be cautious given the macro uncertainty we saw earlier this year. Refinancing activity has also been more limited as wider spreads have made refinancing less attractive for many borrowers. At the same time, we continue to have constructive dialogue on the transaction front and are seeing activity within our existing portfolio, including add-ons and other opportunities to support borrowers we know well. In this environment, our pipeline remains active, but underwriting discipline continues to take precedence over deployment volume.

Financing markets remain open for high-quality borrowers and our lower leverage and liquidity profile gives us additional flexibility to deploy capital into opportunities that meet our return and credit standards. Now I'll turn the call over to Logan to provide more details on our investment activity and portfolio performance.

Thanks, Craig. Starting with investment activity and to build off Craig's comments, our transaction activity remains muted in the second quarter. OBDC had fundings of $429 million against $747 million of repayments, resulting in ending net leverage of 1.11x.

Repayments did moderate from recent peaks, but remained healthy, which gives us additional flexibility for deployment going forward. It is also worth noting that several of our originations this quarter were the last of the carryovers from commitments made before the recent widening in spreads. As we look ahead, we are being patient and remain focused on opportunities where we believe the risk-adjusted returns reflect the current market environment.

Additionally, we had several compelling realizations during the quarter that highlight the strategic value of our existing portfolio. The most notable was the repayment of our investment in Mavis Tire, which is a strong case study of how we approach structured PIK and junior capital investments to create long-term shareholder value.

As we've discussed on prior calls, the vast majority of our PIK exposure was structured that way at inception of the investment, where we saw an opportunity to enhance returns for shareholders. Since our initial preferred equity investment, Mavis has roughly quadrupled in size and become one of the largest tire service companies in the country.

This quarter, the company fully repaid our preferred equity investment, and we collected approximately $274 million in cash, including $66 million in accrued PIK interest. This was Blue Owl's largest PIK investment realization to date and generated a 1.5x MOIC. Following this repayment, our PIK as a percentage of total investment income declined to 10.7% in the second quarter, down from peak levels of over 13% two years ago.

This is particularly notable because lower base rates have reduced the cash interest income generated by our floating rate investments, meaning PIK declined meaningfully even as the cash paid denominator was shrinking. We also saw a strong realization within LSI, our life sciences-focused specialty finance vehicle, which generated additional dividend income that contributed to NII this quarter.

As mentioned previously, LSI has generated returns of more than 15% to OBDC since inception, underscoring the value of financing innovative life sciences assets through secured loans and royalty streams that complement our core direct lending strategy.

Turning to the portfolio. Borrower fundamentals remained stable during the quarter. Revenue and EBITDA continued to grow in the mid- to high single digits year-over-year, while liquidity and risk indicators were stable. OBDC remains highly diversified across 30 industries with an emphasis on large defensive businesses and an average position size of approximately 40 basis points. OBDC's software exposure currently sits at approximately 18% of the portfolio, relatively stable compared to prior quarters.

While we are watching software developments carefully, it remains one of our best-performing segments with the strongest revenue and EBITDA growth of any sector. As a reminder, our software investments are primarily first lien senior secured loans to mission-critical enterprise software providers with conservative attachment points. More broadly, we remain focused on watching other areas of risk across the market, including commodity price volatility, geopolitical uncertainty and consumer demand trends.

Based on what we're seeing today, these dynamics have had little impact across the portfolio overall, and we will continue to stay close to our portfolio companies and sponsors where those exposures are more relevant. This environment is yet another good reminder of why we selected defensive industries for our portfolio and proactively avoid sectors such as energy, transportation, building products and consumer discretionary end markets.

Importantly, we have not seen broad-based deterioration in fundamentals of our borrowers. The overall portfolio continues to perform in line with our expectations and the credit metrics we track remain stable.

At the end of the quarter, nonaccruals were 0.8% at fair value, slightly down from last quarter and below industry averages, with one name removed and one new addition, which was Loparex. The company had been pursuing a transformative M&A transaction, which would have recapitalized the business with fresh equity, improving the balance sheet and liquidity. However, the transaction fell apart in the end, which led to the markdown of our position during the quarter.

Broadly, the portfolio continues to perform well. Our 3s to 5s rated names improved slightly as a percentage at fair value with no meaningful migrations of any high-focus names to lower ratings. Interest coverage ratios remained healthy at approximately 2x. Revolver draws are at conservative levels and amendment activity is stable.

Portfolio company net leverage averaged 5.8x, which has modestly declined over the past 2 years and is at a level we feel comfortable given the fundamental strength of our borrowers. LTVs also remained stable this quarter at 47%, providing ample cushion to below our loans in the capital structure. To close, credit trends remain consistent with the disciplined underwriting standards that have characterized the portfolio over time.

Credit metrics are healthy and the issues we are managing remain isolated. With portfolio leverage at its lowest level in over 2 years and the continued sourcing advantages of the Blue Owl platform, we have flexibility to lean in as the opportunity set improves. And now I'll turn it over to Jonathan to review the financial results.

Thank you, Logan. In the second quarter, OBDC earned adjusted NII of $0.34 per share, up from $0.31 last quarter. The increase was driven primarily by elevated nonrecurring income from the realization of Mavis as well as higher dividend income from LSI. As a result, base dividend coverage for the quarter was 110%.

More broadly, the rate environment has stabilized and the lagged impact of last year's rate cuts is now fully reflected in our portfolio yields. At the same time, funding costs have continued to trend modestly higher as lower coupon legacy unsecured notes mature and are refinanced at current market rates.

That said, this dynamic is consistent with our expectations, and we continue to feel good about the portfolio's earnings potential going forward. Last quarter, we reset the dividend to $0.31 per share, in line with expectations on the earnings power of the portfolio, and we remain confident in its sustainability.

Board declared a third quarter base dividend of $0.31 per share, which will be paid on October 15 to shareholders of record as of September 30. We also declared a $0.02 per share supplemental dividend in accordance with our framework, and we will continue to do so as incremental earnings above the base dividend allow. The supplemental dividend will be paid on September 15 to shareholders of record as of August 31.

Our dividend is also supported by a healthy level of spillover income at approximately $0.29 per share, which provides a meaningful cushion in support of the base dividend. Moving to the balance sheet. Second quarter NAV per share was $14.26, down from $14.41 last quarter. As Craig and Logan outlined, the decline was driven primarily by a write-down on a specific credit and was partially offset by overearning the dividend and continued share repurchase activity.

In the second quarter, we repurchased $35 million of stock, which was accretive to NAV per share by $0.03. Since Q4 of last year, we have repurchased approximately $220 million in total, reflecting our conviction in OBDC's long-term value while maintaining capacity to deploy capital as the opportunity set improves. We ended the quarter with net leverage of 1.11x within our target range of 0.9 to 1.25x, which was lower quarter-over-quarter.

This was driven by repayments exceeding new deployment during the quarter and our lower leverage positions us well for future opportunities. Turning to our capital structure. We remained active during the quarter, raising approximately $800 million of unsecured debt against approximately $1 billion of legacy maturities that we successfully addressed in July. We also amended and extended our Revolver, maintaining the facility size with $4 billion of capacity and leaving pricing unchanged.

Notably, every bank in the facility extended as part of the transaction, which we view as a strong endorsement of our credit profile by our banking partners. In addition, we eliminated two higher cost secured facilities as part of our ongoing efforts to reduce costs and optimize our capital structure.

Taking into account the July bond maturity, total liquidity, including cash and undrawn capacity on our credit facilities remains robust at approximately $3.5 billion, comfortably exceeding our unfunded commitments. Our diversified funding mix and staggered maturity schedule provide capacity to fund existing commitments and address upcoming maturities.

Overall, we are pleased with our results and continued progress to optimize our capital structure with the support from our banking partners, positioning us well to deploy selectively as opportunities arise. Now I will turn it over to Craig for some closing remarks.

Thanks, Jonathan. I want to close with a few thoughts on where we stand and how we are thinking about the environment ahead. First, we believe OBDC continues to be in a strong position. Leverage is low, the balance sheet is strong, and the portfolio remains focused on lending to large, high-quality borrowers on a senior secured basis. Second, the credit picture remains healthy.

As Logan highlighted, operating trends remain stable, risk migration has been limited, and we are actively managing the small number of individual situations that require attention. Third, we are increasingly optimistic about the opportunity set ahead. While the deal environment this year has been muted, I would encourage a longer-term view. We have lots of investing opportunities across new deals sourced from our platform but also in support of our existing portfolio companies.

The investment backdrop has improved meaningfully from where we started the year. The forward rate curve is now roughly 100 basis points higher. Spreads remain wider and financing terms have become more attractive, all of which create a more constructive environment for a scaled direct lender with available capital. We are seeing the same consistency across Blue Owl's broader direct lending platform. Credit performance remains strong.

Nonaccruals across the platform are low at 1% at cost. Realized losses remain limited and borrower fundamentals continue to track in line with our expectations. Since inception, our platform loss rate has been just 12 basis points, underscoring the durability of our underwriting approach across cycles. That consistency matters. Investors are increasingly focused on manager selection, and we believe credit performance, portfolio quality and disciplined capital allocation are the characteristics that will separate managers over time.

In closing, we believe OBDC combines resilient credit performance, ample financial flexibility and the discipline to selectively capitalize on improving market opportunities. Those attributes have defined our platform over time, and we believe they position us to continue creating long-term value for shareholders. Thank you for your time today. We will now open the line for questions.

[Operator Instructions]

Our first question today is coming from Arren Cyganovich from Truist Securities.

I apologize if this was said in prepared remarks. I hopped on a tad late. The fee income was quite elevated this quarter. And I was wondering, obviously, originations were particularly somewhat low. Is this something that was -- can we infer that it was basically driven by amendments in the portfolio? What were those fees related to?

Sure. Yes, we mentioned we had effectively a repayment on one of our larger positions, Mavis that Logan referred to in the scripted remarks, which resulted in higher-than-normal fee income versus prior quarters where we were probably lower than our average run rate over the course of the last couple of years. So it was Mavis-driven.

You should -- I mean, Arren, you hopped on, you should take a listen. I mean it's a really -- we had a really terrific outcome on a very large PIK preferred that got refinanced that generated $0.03 a share of fee income, but it was a large PIK. It's the single largest PIK repayment we've gotten in our history. So it was both notable from a credit standpoint, but also from an earnings standpoint.

Okay. And is that typical where that would end up in the fee line versus the interest income line?

It was effectively going back to the company. So it was not -- it didn't go into the interest line. It goes into the fee line because of the way it ultimately came out. It was a preferred instrument as well. So not typical relative to some of the other prepayments that you'll see on a debt instrument.

Okay. And then I did hear you mention LSI providing some higher income for the quarter, and it looked like there were a handful of other kind of your specialty finance type of investments that also increased dividends for the quarter. Anything in particular driving that? Is this something that's somewhat repeatable? Or would we expect that the dividend income level to also kind of pull back a little?

Yes, sure, it's Logan. The broader base dividend increases at the rest of the JVs and specialty equity investments away from LSI was just continued maturation of those JVs and optimization.

So just I would view those as more normal run rating. At LSI, in particular, we had a nice realization of repayment of a business called ITM Radiopharma, which was a refinancing. It came with call protection was over a 20% IRR for us on that specific investment at LSI.

So a great result on $140 million position within that vehicle. So it was also notably a repayment and a good outcome in LSI that drove that onetime boost at LSI.

But the equity investments in joint ventures that we have that generate dividends those dividends are a function of very diversified underlying portfolios that kick off significant interest income and other forms of dividends that are being paid out. So they're recurring. We continue to invest into these entities.

They've generated strong ROI for OBDC. We continue to add to them as we add to them, directionally, the dividends that come out of those underlying portfolios will grow over time because there's very large pools of diversified investments in each of these that's generating income. That's very different than the Mavis.

Mavis was a single investment that got repaid. But of course, anybody who's followed us knows every quarter, we get investments that repay. And it's very much the nature of our business that every quarter, we will get $0.02, $0.03 of repayment or fee income from those activities. Mavis was a notably large one, but every quarter, we get some.

Next question today is coming from Robert Dodd from Raymond James.

Congratulations on the quarter. I want to sort of ask about Mavis, but not really Mavis. Obviously, a great outcome on that thing. I would say -- I mean, I don't think that would constitute necessarily a halo asset like heavy asset, but it seems it's a lot closer to that than it is a tech asset, right?

So in terms of mix -- with such a good outcome. Should we expect more of those kind of assets in the portfolio going forward? Yes, it's got PIK, but PIK isn't all bad. But it seems like the kind of industry that's much more defensible versus kind of the AI worries out there. Is that kind of -- you're seeing more of those kind of things in the pipeline and increasing optimism for the second half? Or is it just -- it was a one-off and it was a great one-off?

Sure, Robert. Let me try to hit that in 2 different ways. Mavis as an investment, as we highlighted in the script, has been a really terrific one. It's a large tire retailer. We've been backing it for a number of years. It's grown considerably, and they repaid our preferred, and we got a terrific return for our investors.

We thought it was important to highlight Mavis beyond the income that it generated, but also it was a PIK investment. And we know that PIK investments have attracted higher levels of scrutiny in the last year or so, given concerns about credit quality. And we've gone we've said a number of times and others in the industry have highlighted that the vast majority of our PIK investing was done intentionally and for reasons that generate good returns.

And so when we get repaid on a sizable investment, we hope folks will look back and acknowledge that, that's consistent with what we've been describing is why we do PIK and how we do PIK and here it gets repaid and we collect all the PIK dividends that have been accruing in cash this quarter.

In terms of the kind of AI software part of your question, OBDC has about 18% software. That's -- frankly, there are others that have higher percentages of their portfolio in software. We're going to continue to be cautious around software, as we've talked about on previous calls. I think the picture has gotten -- has improved this quarter versus last quarter, but it's an area that's moving quickly, and we're going to continue to be cautious about deployment in software.

So the other 82% of the portfolio is not software, and Mavis fits nicely in there, and it is very consistent with our theme that we've been doing since inception, which is large businesses that have very predictable recurring revenue and cash flow in most economic environments. And tire retailing fits that. It's a business that does well in almost any economic environment. And that's how -- that's our bread and butter of what we what we try to do.

Now to your part of your question about the outlook, it's a pretty modest deal environment. I think you're seeing this from other managers that have reported. PE activity has been very modest, and I think a disappointment to the lenders and to the PE firms for the first half of this year.

There's been a lot of geopolitical issues and the like that have just slowed down activity. And I know others have commented on this. I think we continue to see a pretty modest pipeline. I hope at some point, it will pick up. I think you need some more stabilization in the broader environment.

I think PE valuations, I think, need to come in line with where folks hope to exit for that to really kick in the year. But we continue to see a steady beat of activity that will allow us to continue to invest at a regular pace. But we hope at some point, it really expands to something more robust.

Our next question is coming from Jason Stewart from Compass Point.

Dylan Reider filling in for Jason Stewart here. Our question is, how are you thinking about the balance between buybacks versus leverage and new originations? And then as a follow-up, with the stock trading between, say, 75% and 80% of book in the quarter, is there a discount threshold where you'd perhaps be more aggressive on repurchases? Or is $35 million the number that you're targeting?

It's Jonathan. So look, we approach every dollar of capital as an allocation of our capital into what is the very best investment. You've seen over the course of the last couple of quarters, we've been buying stock back pretty consistently alongside bringing leverage down a tick. And you should expect us to really continue to do the same, thinking about really the best use of capital.

We've been able to and continue to be repurchasing stock. We see it as value. We're certainly making the decision based on where the stock is trading and the stock has been attractive for us to be in the market. And so I think you should expect us to sort of continue to be following along those lines and making sure that we're monitoring our liquidity our leverage as well as sort of the best incremental investment.

Next question is coming from Erik Zwick from Lucid Capital Markets.

You may have touched on this a little bit earlier, but I wanted to maybe ask for a little bit more detail or clarification. Just with regard to the commitments and fundings in 2Q, those were relatively low compared to what you've been able to generate in past quarters. And curious if you could kind of characterize in terms of the lower activity.

Was it more a reflection of market activity, the quality of deals that you viewed not meeting your standards, maybe some other factors? And then I guess a little more than a month into 3Q here, just how things are kind of shaping up this quarter from that kind of a production standpoint?

Sure. Eric, thanks for the question. If you look at the quarter, it was really a slowdown in 2 things really related to what we're seeing in asset prices. And with asset price volatility and spread widening, you clearly get a slowdown in the refinancing environment.

In prior quarters last year, you heard us talk about how as much as 50% or even 75% in any given quarter came from refinancing or extension activity from the existing portfolio companies. In a spread widening environment like this, you see that activity grind to a halt. And so the refinancing and opportunistic type transactions slow down dramatically first.

Second, we've seen with a lot of the geopolitical volatility and actions in the Middle East with what's happening to commodity prices and gas prices. We've seen M&A pullback as well. And again, not a dissimilar comment in a volatile market and spread widening environment, you often see M&A on the sidelines. So new deal flow is also slow.

So it's a combination of those two things. 1.5 and 2 months into the quarter, we're not seeing a dramatic uptick in M&A activity and spreads are still a touch wider than they were 6 or 9 months ago. So the refinancing activity is not picking up dramatically either. So the activity is still muted. We're optimistic and hope that it picks up. There's quite a few people that would like to transact. But right now, the activity remains slow, as Craig mentioned.

Next question is coming from Kenneth Lee from RBC Capital Markets.

I guess just following up a previous question there in terms of the leverage there. And so that you delevered a bit. Should we expect OBDC to continue delevering? And have you changed your stance from, I think, previously, you've articulated a more cautious stance on leverage there?

No. Look, I think we were -- we are always comfortable operating really inside of our target leverage range, which is, again, the 0.9 to 1.25. We have just given opportunities in the context of purchasing stock and the deal environment brought leverage down a tick, but we're certainly happy operating anywhere in between, but you should expect to see us right in and around this as sort of a good home base. So I wouldn't expect any drastic movements from here.

Got you. That's very helpful there. And just one follow-up, if I may, just in terms of the deal activity that you're seeing there. Is it mainly still focused on within the upper end of the segment there? Have you considered diversifying or looking across various other segments? Just want to get your thoughts on that.

Yes. Still focused on the upper middle market, larger scale companies. We continue to see larger and larger companies each year come to direct lending. We mentioned some of those stats around year-end, average deal size going up dramatically.

So it's still upper end of the middle market focus for us. We see a lot of the flow. People do show us smaller deals, but we continue to find what we think are the best credits at the upper end of the market. So no change there. I don't see a dramatic difference in activity levels from what we can observe at either end of the spectrum.

I'd just add, we look -- we have a very broad funnel. So we cover hundreds of financial sponsors as well as privately held companies in all sectors, but we find the best risk-adjusted return continues to be in the upper middle market. But you'll see us occasionally finance more traditional middle market companies if they're attractive and attractively priced, but our credit bar is very high and the risk -- the returns, we think, are better in the upper middle market, and that remains the case.

Our next question is coming from Chris Muller from Citizens Capital.

Nice to be with you this morning. So I wanted to touch on the risk ratings a little bit. So it looks like 5-rated loans jumped in the quarter, but 4-rated loans decreased by about 2x that. So is the right way to think about that, that the 4-rated loan drop was split into negative and positive migration there?

I think that's correct. And I believe it's just the migration of Loparex our nonaccrual as it moved down the spectrum and fair value decreased as we marked it lower. So it's really just that one name. We didn't see a lot of other migrations within our portfolio away from that one nonaccrual.

Got it. And my follow-up sounds like maybe along those same lines, but the cost basis of nonaccruals jumped or increased a little bit in the quarter, but the fair value basis declined. Was that that same one credit that drove that divergence there?

Yes, exactly right. So about a 90 basis point position at cost, obviously, very little value at the current mark in the portfolio at fair value. So really just that one position driving those 2 numbers.

Next question is coming from Christopher Nolan from Ladenburg Thalmann.

Any consideration on management fee waiver? Your base management fee is 150 basis points. And given all the activity in terms of lowering the dividend and so forth, I just want to see whether or not a waiver was in consideration.

Christopher, thanks for the question. Our fees have been exactly the same in our entire existence as a BDC. And no, that's not something that we've discussed nor do we think warrant a discussion.

Okay. And then I saw that there were no repurchases in July. Our repurchases tend to be back-ended or just opportunistic?

Our repurchase program is one where we are effectively repurchasing in open windows. We don't have a 10b5-1 program. So you're going to see us effectively repurchasing during the windows when we're not in a blackout period. July is obviously a period of time where you're finalizing the Q2 NAV. So that's a period of time where the window closes.

Okay. Great, John. Finally, on Mavis, was it because -- is it fee income because it was PIK, if I understand correctly?

No, it was just the structure of how it was bought back or purchased back by the company.

Your next question today is coming from Paul Johnson from KBW.

I only have one, but it seems like institutional demand is still fairly strong for private credit. I'm just curious in terms of like asset sales for OBDC or any of the BDCs. Is that still something that's in consideration at this point? Do you find interest there at all?

Look, as you know, we generally hold our investments to maturity. It's not -- we don't actively look to sell our portfolio. We like our portfolio and generally hold it until we get repaid. So we have done -- we do the occasional sale if we have some tactical reason to do it, but it's not an active part of our strategy. We like our assets and wouldn't have any particular reason to sell them to institutions.

I do think, look, we did a very sizable sale across the portfolio earlier this year, which we sold at 99.7%. And so that was a great sale. And we don't rule anything out, but it's just -- it's not a regular part of our process. Occasionally, we will go to clients.

If we have a position -- we want to modestly address a diversification issue. We'll sell a little bit to some institutional clients. If we get a price that we think is attractive, I agree with the premise of your question. I think there's a lot of appetite for private credit despite some of the headlines.

Institutional investors have significant appetite because the asset class has performed really well in these assets, particularly with the increasing rate environment, floating rate nature of these assets, they're attractive in there where we like holding them and lots of people, I think, like buying them.

Next question is coming from Patrick Davitt from Autonomous Research.

I just have one. One of your biggest competitors is seemingly suggesting a much better, I guess, "shadow pipeline" in the upper middle market than it seems you are. What do you think might be driving that disconnect in tone? And in that vein, do you have any concern that you guys are missing out on new deployment looks that others are seeing for some reason?

I have no concern whatsoever that we're missing out. We, in our 10-year history, have been one of the most prolific originators of private credit and have deep, deep relationships with the financial sponsors. We have a very significant pool of available capital sitting here today of $10 billion plus that we would like to deploy.

We have a number of our funds that are -- have capacity and are looking for opportunities, including our nontraded funds as well as our BDCs that are -- some are below their target leverage, some are in the middle, but they all have lots of capital. And we are engaged with the private equity firms, as you might expect, on a daily basis and would like to think we see everything that's out there.

Our credit bar certainly remains high. I think most in the industry are acknowledging that this is a generally slow deal environment. And I think that's consistent with what we're seeing. I hope it picks up.

But I don't have any concerns whatsoever that we're missing anything. I do think the syndicated market is quite strong. And so I think all the direct lenders are seeing certain deals that might have gone to the direct market to go to the syndicated market.

That tends to be a bit cyclical, one quarter, one direction, one quarter in another direction. But I think in this environment, you are seeing a few large deals going syndicated that we might have otherwise liked as private investments.

We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further closing comments.

Thank you all for joining. We were really pleased with the quarter. Hopefully, everyone will have a chance to take a look at our results. If you have any questions, we're always available for follow-up questions and eager to engage with our shareholders. So with that, I hope everyone has a terrific day.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Good morning, everyone, and welcome to the Blue Owl Capital Corporation's First Quarter 2026 Earnings Call. As a reminder, this call is being recorded. At this time, I'd like to turn the call over to Michael Mosticchio, Head of BDC Investor Relations. Mike, please go ahead.

Thank you, operator, and welcome to Blue Owl Capital Corporation's First Quarter 2026 Earnings Conference Call. Joining me today are Craig Packer, Chief Executive Officer; Logan Nicholson, President; and Jonathan Lamm, Chief Financial Officer. I'd like to remind listeners that remarks made during today's call may contain forward-looking statements, which are not guarantees of future performance or results and involve a number of risks and uncertainties that are outside of the company's control. Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described in OBDC's filings with the SEC. The company assumes no obligation to update any forward-looking statements.

We'd also like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our earnings presentation available on the Events and Presentations section of our website. Certain information discussed on this call and in the company's earnings materials, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. The company makes no such representations or warranties with respect to this information.

Yesterday, OBDC issued its financial results for the first quarter ended March 31, 2026, reporting adjusted net investment income of $0.31 per share and net asset value per share of $14.41. All materials referenced during today's call, including the earnings press release, earnings presentation and 10-Q are available on the News and Events section of OBDC's website. With that, I'll turn the call over to Craig.

Thanks, Mike, and good morning, everyone. Thanks for joining us. I'd like to start by highlighting that our credit performance remains strong with no new nonaccruals, stable borrower performance and underlying performance in line with recent quarters, and we continue to feel confident in the underlying credit quality of our portfolio. I would also like to acknowledge that the first quarter was a more challenging environment for OBDC from an earnings perspective. Lower base rates and tighter market spreads weighed on our results, reflecting headwinds that have been building over the last year and were fully realized this quarter.

Given the market uncertainty this quarter, the deal environment was also slower, which led to minimal fee and repayment income, which was at a 3-year low. In addition, we operated with lower leverage and preserved capital, which has positioned us well for the more attractive opportunity set we are starting to see. As we have highlighted on recent earnings calls, our dividend has been a key focus as we have watched these dynamics unfold, and we believe this is the right moment to address our dividend. As a reminder, when we went public in 2019, we set our dividend at $0.31 per share and maintained it there for more than 3 years, while rates were low.

When rates began to rise in 2022, we increased the dividend to reflect the higher earnings power of the portfolio and introduced the supplemental dividend framework in an effort to provide shareholders with a predictable base dividend while distributing excess income above that level. Similar to what a number of our peers have recently done, we are reducing the base dividend for the second quarter back to $0.31 per share, representing an approximate 8.6% yield on net asset value and an over 10% yield at the current share price. We believe this is the appropriate level given the forward earnings power of the portfolio, particularly with spreads now widening and the rate environment appearing more stable.

At the same time, we are maintaining the supplemental dividend framework. As a reminder, under this framework, we pay out 50% of NII above our base dividend, allowing shareholders to benefit in a predictable manner when earnings exceed the base dividend. Separately, spread widening across the credit markets drove unrealized losses this quarter, resulting in a net asset value decline. Because our portfolio is marked quarterly and spreads are a key valuation input, this drop in NAV was mostly driven by broader market moves across public and private credit and not a deterioration in the underlying quality of our assets, which remains strong. Approximately 75% of the write-down was attributable to spread widening across our debt portfolio.

And that is a key point I want to emphasize. While this quarter reflected a more challenging earnings environment, the underlying portfolio continues to perform very well. Credit selection and portfolio construction are the parts of the business we can control most directly, and that continues to be a source of OBDC's strength. Nonaccruals remain low and declined again this quarter. Borrower revenue and EBITDA growth remain healthy. Repayment activity at par has been consistent. In the first quarter, we saw a market-wide reassessment of risks and a reduction in flows into private credit, which has resulted in a much better balance of supply and demand and a more favorable investing environment.

We will come back to our outlook at the end of the call, but we believe we are very well positioned from here given our lower leverage, the strength of the portfolio and the more attractive spread environment we see today. Now I will turn the call over to Logan to provide more details on our investment activity and portfolio performance.

Thanks, Craig. Starting with investment activity, we approached the environment more conservatively this quarter, which contributed to lighter origination activity and lower leverage at OBDC. As market volatility increased and deal activity slowed, we remain disciplined in our pace of deployment, and now we're encouraged to see opportunities coming to market at wider spreads. In the first quarter, OBDC had fundings of $525 million against an almost $1.5 billion of repayments and sales, resulting in an ending net leverage of 1.13x, our lowest level in two years.

The majority of our deployment was related to fourth quarter transactions that closed in the first quarter, which were committed at spreads lower than what we're seeing in the market today. As noted, we intentionally kept leverage low and with ample dry powder, we are well positioned to deploy as the pipeline builds. Consistent with our approach of investing in diversified accretive assets, we continue to deploy selectively into our joint ventures and specialty finance investments in the first quarter. For example, within our life sciences specialty finance vehicle, LSI, OBDC increased its allocation primarily to support an investment in TG Therapeutics, a company we have backed since 2024 that continues to perform well.

Blue Owl served as sole lender in a $1 billion financing to support the company's continued growth. The LSI vehicle has generated returns of more than 14% to OBDC since inception, underscoring the attractiveness of our specialty finance and JV investments. Turning to the portfolio. Credit performance remains stable and our borrowers continue to perform well. As a reminder, OBDC is a broadly diversified portfolio across 30 industries with an average position size of approximately 40 basis points, and our focus remains on lending to large noncyclical defensive businesses. Our borrowers delivered year-over-year revenue and EBITDA growth in the high single digits, consistent with last year and a reflection of the fundamental health of the businesses we finance.

Zooming in, our software borrowers also demonstrated revenue and EBITDA growth consistent with the rest of the portfolio. As a reminder, these are primarily first lien senior secured loans with conservative LTVs even at today's valuations. As you'll recall, we invest in mission-critical, scaled enterprise software providers with characteristics that we believe make them durable. While we remain appropriately cautious about the potential impact of AI on some areas of software, we are not yet seeing any material impact on our software borrowers' performance.

Additionally, we saw meaningful repayments from software names during the quarter, including Intelerad, which was an over $400 million investment across the Blue Owl platform, including $169 million in OBDC. Intelerad is a provider of medical imaging software solutions, which was sold to GE Healthcare at a $2.3 billion valuation, resulting in a full repayment. This is another example of the quality and strategic value of the software businesses in our portfolio. As a result of this and one additional large repayment, MINDBODY, software exposure declined to approximately 16% of the portfolio, down from roughly 19% last quarter.

Turning to our key credit KPIs. The picture is healthy and stable in all respects. Interest coverage ratios remain healthy at approximately 2x. Revolver draws remain at conservative low levels. Amendment activity is stable, and our 3 to 5 rated names remain in the same range as last year. PIK income was also stable compared to last quarter on a dollar basis, but rose slightly to 11.7% as a percentage of total investment income due to a decrease in cash interest as a result of lower rates. PIK remains down from the peak of over 13% in 2024. Also, as we have highlighted in previous earnings calls, over 85% of our PIK names were underwritten that way at inception, and we have never taken a principal loss on those intentionally structured PIK positions.

Finally, our nonaccrual rate declined to 1.0% at fair value as we removed two names from nonaccrual with no new additions. Over the last few quarters, our nonaccruals have remained relatively stable with a 3-year average of approximately 1% at fair value, and this quarter's decline is a good reminder that our borrowers are performing well and fundamental performance is stable. We would note that LTVs moved modestly higher this quarter, which we attribute to the broader valuation environment rather than a deterioration in borrower fundamentals.

Our average LTV across the portfolio sits at 47%, implying that over half of enterprise value would need to be impaired before we incur any losses. To close, the breadth and resilience of our portfolio remain intact. With lower leverage, more dry powder and the sourcing advantages of the Blue Owl platform, we believe we're well positioned to take advantage of opportunities that this environment may bring.

Now I'll turn it over to Jonathan to review our financial results.

Thank you, Logan. In the first quarter, OBDC earned adjusted NII of $0.31 per share. As Craig outlined, results this quarter reflected several earnings headwinds that have been building over time and came through more fully in Q1. Most notably, 3 rate cuts between last September and December, totaling 75 basis points are now fully reflected in our results given the lagged impact that lower rates have on our mostly floating rate portfolio. Nonrecurring income was also light this quarter, coming in at more than $0.01 below our historical average after running above that level last quarter.

In addition, the earnings benefit from the low-cost unsecured notes we issued before rates moved higher over four years ago continue to roll off as those maturities come due. Since last July, $1 billion of those notes have matured with another $1 billion set to mature this year. These factors, together with lower leverage throughout the period, drove the decline in adjusted NII this quarter and are now mostly reflected in our current run rate earnings. The Board declared a second quarter base dividend of $0.31, which we believe aligns with the portfolio's forward earnings power in the current environment.

The dividend will be paid on July 15, 2026, to shareholders of record as of June 30, 2026. Our spillover income remains healthy at approximately $0.28 per share, providing a meaningful cushion that further supports the base dividend going forward. Moving to the balance sheet. Our first quarter NAV per share was $14.41, down from $14.81 last quarter, primarily reflecting the impact of mark-to-market adjustments. We'd note that the realized losses reflected on the income statement were related to investments previously on nonaccrual that had already been written down over the past several years and did not contribute to the NAV decline this quarter.

We continue to execute on our share repurchase program in the first quarter, buying back $35 million of stock, which was accretive to NAV per share by $0.02, while balancing that activity with a focus on deleveraging and maintaining capacity to deploy into a more attractive market environment. Over the past two quarters, we have repurchased a total of $183 million, reflecting our conviction in OBDC's long-term value. The Board of Directors also authorized a new $300 million share repurchase program in February, replacing the previous $200 million plan, leaving approximately $265 million remaining following first quarter activity. We ended the quarter with net leverage at 1.13x, within our target range of 0.9 to 1.25x as we decreased leverage to preserve flexibility.

Turning to our capital structure. We continue to be active in further strengthening our balance sheet and enhancing our liquidity profile. In January, Moody's upgraded our credit rating to Baa2. Beyond serving as meaningful recognition of the quality of our platform, the consistency of our performance and the strength of our balance sheet, we believe this is a validation of our efforts to build a best-in-class BDC credit profile. Subsequent to quarter end, we accessed the unsecured debt markets with a $400 million note offering, demonstrating OBDC's continued ability to raise capital amid broader market volatility. The strong institutional investor demand we received is a meaningful vote of market confidence in OBDC's credit profile.

With this offering, our liquidity has increased to over $4 billion in total cash and capacity on our facilities, which comfortably exceeds our unfunded commitments and provides ample capacity to invest in the current environment while addressing upcoming debt maturities. Overall, we are pleased with the proactive steps taken this quarter to strengthen our balance sheet, and we believe OBDC is well positioned from a capital and liquidity standpoint. And now I will turn it over to Craig for some closing remarks.

Thanks, Jonathan. I want to close by reflecting on where we are today and our outlook. Over the past few years, private credit has benefited from a very constructive backdrop, but it also became increasingly competitive as significant amounts of capital entered the space at a time of moderate private equity M&A. That drove spreads tighter and together with lower base rates put pressure on returns and earnings across the sector, including at OBDC. That environment has begun to shift. Volatility in the broadly syndicated loan market has driven a meaningful widening in spreads, while the rate backdrop appears to be stabilizing.

On the deals we are seeing today, spreads are generally about 50 to 75 basis points wider and terms are more attractive than they were just a few quarters ago. At the same time, retail capital inflows have slowed into private credit and the supply-demand balance for new deals looks more favorable than it has been in years. Put simply, we believe this is a more attractive investment environment than the one we've been operating in over the last two years, and we believe OBDC is well positioned to take advantage of it. Our portfolio is in good shape. Our balance sheet is strong, and our leverage is at its lowest level in two years. Repayments over the past year have contributed meaningfully to that positioning, giving us additional flexibility at a time when spreads are widening and the opportunity set is improving.

Combined with our scale, incumbencies and deep sponsor and borrower relationships, we believe we are well positioned to deploy selectively into attractive risk-adjusted opportunities as they emerge. While overall deal activity has been more modest in recent months, periods like this have historically created a more favorable setup for direct lenders. As the broadly syndicated loan market becomes more volatile, borrowers increasingly turn to established direct lenders for certainty of execution, and Blue Owl is well positioned to capture that demand. As borrowers adjust to new market realities, refinancings will resume, driving spread widening and fee income.

And even if new deal flow stays moderate, we will naturally have the opportunity to put capital to work through regular activity from our existing portfolio, including add-ons and upsizings with borrowers we know well and have backed through multiple cycles. Lastly, this quarter also marks an important milestone for OBDC as the fund has reached its 10-year anniversary. Over that time, we have delivered a 9.6% annualized total return while managing the portfolio through multiple periods of volatility maintaining strong credit performance and low loss rates that have averaged just 31 basis points annually. This recent volatility highlights the importance of risk management across the balance sheet.

We remain focused on conservative asset selection with well-matched liabilities, sufficient liquidity and the right protections in place. We have conviction in our strategy, remain focused on acting in the best interest of shareholders and believe that our long-term track record is the clearest demonstration of the quality of this platform. Thank you for your time today. We will now open the line for questions.

[Operator Instructions] Our first question today is coming from Brian McKenna from Citizens.

Okay. So on the new $0.31 quarterly dividend, should we view that as a floor in NII over the next several quarters? And since you're keeping the supplemental dividend framework in place, is there the potential for some supplemental dividends to come through later this year, depending on the trajectory of NII from here as the environment begins to normalize with wider spreads, which should be a recovery in transaction activity along with stable base rates?

Brian, thanks. So we thought very carefully about where to set the dividend. We think that this is the right level. We -- in terms of it's a floor, I hope it's a floor. I expect that we will have a really good environment. I think spreads, as we talked about, will go wider from here. Obviously, it's very base rate driven as well. Right now, base rates are expected to sort of stabilize here. We had very little prepayment income this quarter. That's not an easily predictable variable, but our history shows we typically have it. So I hope and expect it to be a floor. But in any quarter, things can happen. So I don't want to overstate the level of precision there.

I appreciate you highlighting the supplemental dividend. I do think that there are going to be quarters where we are over the $0.31. And again, this is at the risk of saying this multiple times, this isn't a special dividend. We're really expressing a commitment to pay out 50% of everything over $0.31. So we hope investors appreciate that versus special, which is much more discretionary. So that's some perspective on it. I'm quite optimistic over the next 12 months, it's going to be a better investing environment, and we'll have the ability to generate some really attractive earnings for the portfolio, hopefully in excess of the dividend.

Okay. That's helpful. And then, Jonathan, it would be helpful to get a little more color around your framework and approach to marking the portfolio. I know your process is very thorough, but I think it'd be timely just to get a little bit more detail here. And then do you have any historical data around the average markup between final realized marks across the portfolio relative to the prior unrealized marks?

Sure. So just in terms of our valuation approach, it's been consistent for the last 10 years. We will remind you and remind everyone that here, we do not mark our book at all. We go out to an external valuation agent every single quarter for every single name, a large, well-regarded valuation agent. They are not providing a range of values, but rather marking the book to the point value. And so we're not putting a number where it's at the top end of the range or the bottom end of the range, et cetera, but rather just a price taker ultimately for every single valuation.

We do as part of our overall requirements with our Board and obviously internally do a look-back analysis on, first of all, comparable valuations to the peers. We've always been marked on a conservative basis, but not too much. We obviously don't want to be -- we don't want to be just taking marks down without thought, but we are always analyzing where we mark relative to the peers. And another thing that we do is obviously always look at where we exit versus where we were previously marked in the prior quarter. So on a realization basis, we'll look at where the unrealized values are and then ultimately where those realizations come in.

And you're talking about generally a very, very small amount, unless obviously, in the particular quarter, there's some massive change relative to where we were. In the context of the unrealized -- the realizations that we had in this quarter, all of those realizations, some of them were historical nonaccruals where we effectively realized them exactly where they were because we had already taken the pain. And there were some realizations on the way up, like a name like SpaceX is obviously moving pretty dramatically. So there was a realized gain associated with SpaceX in the quarter because the valuation changed between 12/31 and 3/31.

Yes. I'd just add, we are -- we're a lender. Our loans are contractually due at par. Our loans, if they're performing and going to get taken out, they should be getting taken out at par. It's very different than a private equity portfolio where a private equity firm is managing -- is marking the value and then they have to exit and there's an indeterminate value up or down.

So the vast, vast, vast majority of our loans in our history are exiting at their fair value because as we approach that refinancing or repayment or maturity, it gets marked closer and closer to par. And as we've highlighted, we've only had 35 basis points of loss in the history of the fund. So almost everything has gotten repaid at par. The average -- just you have it at your fingertips, the current spread in the book is 560 over and the average loan is marked at 95.4% and we expect to get par on almost all of those loans.

Next question today is coming from Sean-Paul Adams from B. Riley Securities.

It looks like your headline nonaccruals declined. But look, you marked Walker Edison on nonaccrual, but you kept the first lien at a 96% mark while effectively taking that delayed draw to basically zero. It looks like that was an opportunity to kind of draw down? Or do you have estimates of a better recovery from that specific name?

Walker Edison has been on nonaccrual for a significant period of time. It's been marked down to very, very low levels with a certain view of recovery, there was a realization this quarter, Sean-Paul. So that's probably what's tripping you up. But there is -- in terms of nonaccrual, it's not a new nonaccrual and has been marked down drastically, not much more significantly this quarter.

No impact to NAV. This was just a realization of an already unrealized markdown that we had. So there was no change to NAV net at the end of the day.

Correct. Correct. Yes. It's been a long-standing nonaccrual. It's just more questioning the marks of where it's the fair value at 96%. On the new nonaccruals for the quarter, Cornerstone OnDemand was a new addition, and that is kind of cross-held within the Ares portfolio as well. That is within the kind of SaaS business, that mark has kind of deteriorated pretty rapidly. Do you have any extra color on that specific name?

Well, sure. Before I just want to make sure it's clear, we didn't have any additional nonaccruals this quarter. So Cor -- we can talk about Cornerstone. Cornerstone has public loans that trade. And when we are in an investment that has public loans that trade, we certainly -- and our valuation firm takes the marks of those public loans heavily into account for obvious reasons.

And so in that particular case, the loan -- the mark that we have is heavily fact weighted by the public marks. We believe it's a performing credit. It's had some volatility, some of this. Look, there's a lot of public market concern about software names and sometimes those -- that trading volatility may or may not line up with our view of credit fundamentals, but we feel good about having it on accrual, and we feel like we've marked it appropriately.

My apologies to clarify, your nonaccruals were lower for the quarter, but your watch list with the aggregate marks below 85% did increase. And so that -- the cornerstone draw out was from the watch list increasing while the nonaccruals are going down. So my question was more pointed towards whether headline nonaccruals might be going down, but the aggregate watch list credits or the risk ratings within the portfolio, could those be going up? Or is that rather just a mark-to-market, like you said earlier in the call, when a number of these names are cross-held positions within other BDCs?

I would add, our 3s to 5s rated names, which we would view as more expansive than just the names below 80 and the names that we spend a lot of time considering all of the factors around credit performance, that is stable, and it has not gone up. So the subset of names that you're looking at that have had volatile trading prices, there are a few. Most notably, Cornerstone, you highlighted, have been a relative value to a first lien that traded down significantly with the volatile public market, particularly around software names in the first quarter. On that name in particular, earnings and revenues in that company are perfectly stable. It's a public market volatility point related to the first lien. So when we look at our more expansive proxy for a watch list, our 3s to 5s rated, the numbers are not going up. They're stable.

Next question today is coming from Robert Dodd from Raymond James.

A couple of questions, if I can, kind of unrelated. On the first kind of earnings trends going forward, I mean, to your point, three-year low in fee income, two-year low in leverage. So there's a lot of potential drivers. I mean, what do you think could be the primary drivers of earnings one way or the other through the remainder of the year. I mean, do you think fee income is likely -- I mean, prepays, et cetera, is actually likely to increase this year given how choppy the market is and spreads are wider and maybe people don't want to refi? Or do you think leverage is more likely to be the primary tool for kind of the direction of NII through the course of this year?

Look, Robert, I think it's a mix. I don't think there's one primary in any one quarter, different things can happen. I think our income -- fee income prepayment income was unusually low this quarter. It's -- in almost all market environments, it's higher than we've seen this quarter. It just wound up being an exceptionally low quarter. Again, that type of income could be from OID, could be from repayments, call premium, amendment fees. There's a lot of drivers. It's not any one thing and just wound up being an exceptionally quiet quarter without getting too far ahead of myself, I suspect it will be higher in the second quarter, but we'll see.

I do think that we will -- refinancings will take place throughout the year that will allow us to add some spread to the book. I think that we're going to be cautious on leverage, just because I think it's an environment that deserves caution. But if we see attractive opportunities, which I think we will, taking the leverage up a bit is certainly -- we have the flexibility to do that. So I think it's all of those things. We have our joint ventures. They pay dividends. They're very predictable dividends. But in any one quarter, they can be a little bit higher, a little bit lower. And obviously, credit performance needs to continue to be very strong.

So it's all the factors. I guess what I would say is, and we said in the script, and I just want to be really clear -- this quarter, you saw the culmination of a period of time where spreads were ground down in the industry and rates came down. And there's a lag effect to the rates as borrower elections turn over. And so you saw this in our results, but I think you're seeing it in our peers' results pretty consistently, and you're seeing it in the first quarter.

For investors that don't follow the space very closely, what we are highlighting is now that, that's really washed its way through, I'm optimistic because of the supply/demand in the industry that spreads are widening from here. And I think their expectation is base rates have stabilized from here. So if we get just some reasonable repayment, that's a cause for hope around earnings for the industry over the rest of the year. It's all those factors.

Got it. And one more, if I can. On the LTVs, obviously, there's been -- that has been an area of focus for the space to talk about LTVs as a capital protection kind of indicator. Can you give us any more color on how rapidly you update or where the V part of that comes from in your disclosure?

And is it the underwriting value? Is it updated quarterly, which I presume? And also to the point, like what's -- that's the average for the portfolio. What's the kind of range across the portfolio in terms of LTVs and obviously, for the overall portfolio? And obviously, I'm also interested in the software side in terms of how that V is moving and what the range is in software as well as the overall portfolio?

Yes. I'll start and anyone from the team can chime in. We update the LTVs every quarter. That's something we've disclosed consistently in our history. We called out in the script that the LTV for OBDC this quarter went from 41% to 47%. If you've followed us for a long time, you know that we've consistently been in the low 40s. So this is a little bit higher. That drive is very much driven by the drop in valuation in software. The biggest piece of it meaningfully was software, which is the largest sector in the book.

So to the spirit of your question, we look at this every quarter. The teams look at it. We look at it. They look at a number of factors for when they're valuing a name. Certainly, entry valuation is a key factor in the early years because that's sort of the most clear indicator. But as names season in the book, we update it for other comparable valuation where assets are trading at M&A value, what's happened to the underlying credit. So this gets updated. I would say this quarter, we all recognize that there's been a really sea change in valuation for software assets. I think that's very clear certainly to us and to the market.

And so I think we took extra special care around valuing the software names, and that's reflected in the increase from 41% to 47%. In terms of your broader question around the range, I don't have it at my fingertips. But the vast majority of the names are going to be in that ZIP code. And most -- if you're doing statistical analysis, they would cluster around 30% to 55%. We certainly have names, we always have and we always will that are more challenged, and they're going to be higher loan to value, just any lending book has that, and we have that. And you can see that reflected in valuation levels. But we feel really good about our cushion even in today's environment, even in software.

We highlighted it in a name like Intelerad's a software name. It got sold to a strategic for 20x cash flow. Our LTV on that loan was at the end of the day, 25% or something. So we're -- we feel good about it. We update it. It's only one metric. I think it's an easy metric for people to wrap their head around. It's not -- but there's hundreds of other metrics that we look at to assess the quality of the portfolio. But I think that the fact that the LTV went up this quarter, I think, should give investors some confidence that these are statistics that we put a lot of thinking into.

Our next question today is coming from Paul Johnson from KBW.

I appreciate all the color that you've provided. I just have one question -- actually two questions here, but I realize this is a more recent development, but you've seen relatively strong performance in the equity markets, public equity markets for software companies over the last few weeks. I think they've bounced almost a little over 20% from kind of the bottom that they hit at the end of last quarter.

I was just curious, I mean, in any way, has that been reflected within conversations and engagement with the sponsor community where maybe there's a little more of a narrowing of the bid-ask between these companies or anything that's happening to allow these sponsors to get a little bit more comfortable, I guess, transacting in that sector, just given the bounce we've seen in the public markets?

Look, I do think it's nice to see some of that bounce. And I think the market is being -- the equity markets, but the markets in general, I think, are being a little more thoughtful about software and the impact on AI. The initial reaction was so dramatic.

And I think you're starting to see the market focus on the high-quality aspects of software and the stickiness and the durability even in an AI world. I don't have -- I think it's too soon to -- we're not seeing any significant different dialogue with sponsors based on a few weeks of trading activity. But I can tell you the sponsors are very focused on making sure that their companies are prepared for an AI world and investing considerable resources and doing what we would expect them to be doing to make sure their companies continue to prosper. And that's the biggest part of our dialogue with them, but I don't have anything to add beyond that.

Got it. That's helpful. Last one, just higher level, but it feels like banks could certainly become more competitive here and lean into the BSL market a little more if they wanted to.

I'm wondering, I mean, are you -- just in terms of like the repayments of $1.5 billion this quarter, a little over $5 billion last year. Like how much of that is going to the BSL market and whether or not you could actually use something like that to your advantage where you could potentially reduce software exposure or improve liquidity, that sort of thing where perhaps getting some of these deals refinanced into the BSL market is not such a bad thing.

I'll start. You can chime in. Look, we compete with the broadly syndicated market. That's been a core part of our business over 10 years. There's times the market is really strong. There's times the market is weak. I think right now, it's not especially strong. So I don't think this is an environment where the banks are leaning in on underwriting. And I think if you follow that market closely, you'll know that there have been some challenges in some syndications in the BSL market. But it's part of the model.

Sometimes names get refinanced, sometimes they don't. All of our names get refinanced, whether they get refinanced by getting refinanced in the private market, public market, the companies get sold. It's an expected part of our economic model and those repayments. I think, yes, I do think that this environment over the next 12 months is going to give us an opportunity when we get repayments to recycle those dollars into higher spread assets. And it could be just refinancing some of our own names and marking those to market. And so I do think this is an environment where through refinancings and repayments, whether it comes from a BSL syndication, private refinancing, we'll have a chance to add spread to the book.

We reduced software exposure this quarter from 19% to 16%. That happened naturally due to some repayments. And I think that we're going to continue to be, I think, very cautious in software. And as we get repayments, probably look to continue to take that down. But we continue to have conviction on our software names. But it's a larger sector. There's more uncertainty there, and I think you'll see that reflected in a very high bar to add new names and probably a disposition to reduce our software exposure. But they performed very well. And this quarter, it was all just -- it's just repayments.

Next question is coming from Arren Cyganovich from Truist Securities.

I was hoping you could discuss some of the conversations you're having with sponsors in terms of the pipeline that you're seeing right now. I know things have slowed down quite a bit, but anything that's starting to show signs of opening up? And would we also expect the repayments to slow as well since there's new deal activity is slowing?

Sure. Thanks, Arren. We are starting to see a little bit of an uptick in activity. The vast majority of the activity so far has been on our incumbent positions. So add-ons, bolt-ons, small acquisitions. But in the last couple of weeks, we've seen a couple of M&A processes underway, more in the health care, industrial and distribution space. Software still remains relatively quiet, but we are starting to see some more activity particularly with the bounce back in public markets and equity markets. But for now, the activity still remains relatively light. Repayment activity really just depends. We have seen areas where over the years, public market volatility slows repayments.

I think that's -- it's a fair point, and those are oftentimes correlated. But in the past quarter, as an example, a number of our takeouts were strategic buyers taking out assets like Intelerad and strategic buyers have certainly strong equity market performance, strong valuations and strong earnings in public investment-grade companies. So it really just depends, and this is not like the last few bouts of volatility. So we'll just have to see what happens.

Our next question today is coming from Kenneth Lee from RBC Capital Markets.

Just another one on the new dividend level there. Wonder if you could just talk a little bit more about some of the embedded assumptions behind there? Are you embedding potentially either further spread compression or conversely some benefit from spread widening? Anything else you'd like to articulate around what drove the new dividend level there?

Sure. So we're constantly analyzing our model and forward earnings. So for sure, we are taking into account the forward curve and thinking through stresses to that. We are also looking at spreads and the compression that we've seen over the last couple of years and stressing the relative up down of spreads further compressing relative to widening. And obviously, we have a view on that. We're also looking at historical levels of fee income relative to where we're currently performing.

So all of those things, leverage, et cetera, credit performance, everything goes into that. And we've set our dividend at a level that we think is a supportable level. And that's -- we took our time thinking through that process over the course of several quarters. Over the last few quarters, we've talked about it, and we think that this is the level that makes the most sense given all of those factors, Ken.

Got you. Very helpful there. And then one follow-up, if I may, just in terms of share repurchases. Wondering, given where valuations are and given some of the leverage considerations you have there, how active could you be in terms of share repurchase over the near term?

Well, I mean, I think you've seen us over the last couple of quarters be active. We've upsized the total size of our repurchase plan. This quarter, we were a little less active. As you can see, notwithstanding the spread movements, overall credit spread movements and therefore, declines in NAV, we were able to bring leverage down and into a level that puts us in a very, very comfortable range.

And so when we think about repurchases, we're thinking about it in the context of capital allocation, which is thinking about your leverage, thinking about future deal opportunities relative to current deal opportunities and all of those elements. So we want to be -- we want to be active, and we think that we created in all of those things depending on where the best capital allocation is on the forward, and we think bringing down leverage this quarter was -- is helpful to all of those potential allocations.

Our next question today is coming from Derek Hewett from Bank of America.

So I might have missed it because I was jumping between calls earlier, but could you discuss like what is your net leverage on the total portfolio? And then also, what is the net leverage specifically on the software portfolio?

You're talking about at the investment level, not the BDC, not the company. Is that -- okay.

Yes, we've typically been running between 5.5x and 6x on our portfolio companies for net leverage, and that has not moved dramatically over the last few quarters. Similarly, interest coverage, as we've talked about, has ticked up from 1.6x at a trough to around 2x.

Software companies, given the strong cash flow dynamics have typically run a little bit higher, so north of 6x for leverage, but that has not moved dramatically in the last few quarters either given fundamental performance of our software borrowers has been strong. And as we mentioned, earnings growth for the software portfolio companies is still low double-digit EBITDA growth in line with the rest of the portfolio. So the leverage statistics have not moved around dramatically.

Okay. Great. And then just in terms of the software portfolio, what is the LTV in the software portfolio? And you had mentioned the overall portfolio was 47%...

Overall. So we mentioned 47% for the overall portfolio, and it's approximately 48% for the software portfolio. So it's not materially different. It's 48% for the software portfolio and 47% for the overall.

Okay. And does that include kind of mark-to-market in terms of like what's happened with software values quarter-to-date?

Correct. That's our current view marked to the quarter end.

Our next question today is coming from [ Patrick Davitt ] from Autonomous Research.

I just had a follow-up on the software EBITDA growth. You said -- I think you said just that it's low double digits versus last quarter, 16%. Am I hearing that correctly? And if so, could you give more color on what's driving that decline?

Great. Yes, sure. Thanks for the question. Last year, we saw software EBITDA growth for our borrowers in the low double digits. The fourth quarter, as you mentioned, was a little bit of an outlier higher. It's not a perfect measure in any one quarter given some of it includes M&A and the portfolio has puts and takes given there are names exiting and names entering. And so -- and there's some seasonality. So we'll see what the trend is over time, but I would say that low double digits has been consistent for the last year, and you are right that the fourth quarter was a slight outlier higher.

So the 16% was not a full year number. That was just the quarterly.

That was the year-over-year reference last quarter.

Our next question today is coming from Christopher Nolan from Ladenburg Thalmann.

Most of my questions have been asked. On loan sales, there roughly $400 million in loan sales in February according to the Q. Are these the same loan sales that were discussed in the last quarterly call?

Yes.

We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Terrific. Thank you all for joining. We appreciate your interest. As always, we're accessible. If you have follow-up questions, we'd be happy to engage with you, just reach out, and hope everyone has a great day.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Good morning, everyone, and welcome to the Blue Owl Capital Corporation's Fourth Quarter and Full Year 2025 Earnings Call. As a reminder, this call is being recorded.

At this time, I'd like to turn the call over to Mike Mosticchio, Head of BDC Investor Relations. Mike, please go ahead.

Thank you, operator, and welcome to Blue Owl Capital Corporation's Fourth Quarter and Full Year 2025 Earnings Conference Call. Yesterday, OBDC issued its earnings release and posted an earnings presentation for the fourth quarter and full year ended December 31, 2025. These should be reviewed in connection with the company's 10-K filed yesterday with the SEC. All materials referenced during today's call, including the press release, presentation and 10-K are available on the News and Events section of the company's website at blueowlcapitalcorporaton.com.

Joining us on the cup today are Craig Packer, Chief Executive Officer; Logan Nicholson, President; and Jonathan Lamm, Chief Financial Officer.

I'd like to remind listeners that remarks made during today's call may contain forward-looking statements, which are not guarantees of future performance or results, and involve a number of risks and uncertainties that are outside of the company's control. Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described in OBDC's filings with the SEC. The company assumes no obligation to update any forward-looking statements.

We'd also like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our earnings presentation available on the Events and Presentations section of our website. Certain information discussed on this call and in the company's earnings materials, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. The company makes no such representations or warranties with respect to this information.

With that, I'll turn the call over to Craig.

Thanks, Mike, and good morning, everyone. We appreciate you joining us today. There's been a lot of recent investor attention on OBDC and the other BDCs that we manage, as well as the private credit industry more broadly. Much of this focus has been on credit quality and whether fundamentals are holding up. At a certain level, we understand investor concerns as the industry has grown significantly in the last few years. So I'd like to start off by reassuring you that credit quality in OBDC remains strong, and we expect that to continue.

Before we get into our results, I want to address our future plans for OBDC II, following the termination of the proposed merger with OBDC that we announced last quarter. OBDC II is a 9-year-old private fund, which was required to eventually consider a liquidity event to return capital to shareholders. We believe the merger into OBDC was the most logical path due to the high asset overlap and benefits of scale. However, in light of the market reaction and working with our Board, we concluded the proposed merger no longer made sense, so we terminated it. Since then, OBDC II has been working to determine the best path forward.

Yesterday, we announced a sale of a portfolio of OBDC II assets at book value totaling $600 million, or approximately 35% of the fund's total assets, and plan to distribute most of those proceeds to OBDC II shareholders. We believe this outcome prioritizes shareholders by providing significant near-term liquidity for OBDC II investors at attractive valuations.

This asset sale process initially focused on OBDC II. But given significant demand from several high-quality institutional investors, we expanded the process to opportunistically sell modest amounts of additional assets from two other funds, including OBDC. In total, $1.4 billion of assets are being sold, including $400 million from OBDC. These sales are being executed at exactly our book value and at an average price of [ $99.7 ]. Not only is this a strong endorsement of our valuation process and NAV, but it further underscores the high quality of our portfolios.

I want to emphasize this. Most industry private secondary sales are almost always executed at a discount to book value, and we are pleased to execute this transaction at our marks across approximately 130 names to a very select group of high-quality leading institutional buyers. We believe this sale sends a clear signal as to the strength of our portfolio and the quality and integrity of our marks.

To be clear, this is a partial strip sale across OBDC Holdings, where we are selling small pieces of over 70 individual loans at an average size of $5 million per position, or approximately 5% of each position size. This transaction modestly increases OBDC's portfolio diversity and reduces leverage by approximately 0.05x, positioning OBDC with greater flexibility to deploy capital into the most attractive risk-adjusted opportunities.

Moving forward, we are not changing our philosophy. As a buy-and-hold lender, we are not in the regular business of selling our private assets. In this situation, we started out by focusing on returning capital to OBDC II shareholders, and we received so much additional demand that we decided to fine-tune the OBDC portfolio from a position of strength. Alongside these actions, we were also active in supporting OBDC through our share repurchase program. Against the backdrop of volatility post merger and the broader industry selloff, we repurchased $148 million of stock at an average discount to net asset value of 14%. These purchases were accretive to NAV per share and reflect our conviction in OBDC's long-term value.

Taken together, we believe that this highlights disciplined capital allocation. We monetized assets at book value and at an average price of [ 99.7 ], repurchased shares at 86% of book value, reinforcing our view that the trading discount does not reflect the underlying strength of the portfolio.

Now turning to our performance. In the fourth quarter, we delivered solid results, supported by the continued strength of our portfolio, which generated adjusted NII per share of $0.36, which represents an ROE of 9.7%. These results are consistent with last quarter as headwinds from lower base rates were offset by positive onetime items. NAV as of quarter end was $14.81, down modestly from the prior quarter, primarily reflecting write-downs on a small handful of watchlist names, partially offset by accretive share repurchases.

As we look back at 2025, we believe OBDC executed well amid a shifting rate environment. We closed the [ OBD ] merger, increasing our scale and establishing OBDC as the second largest publicly traded BDC in the market. Throughout the year, we prioritized optimizing our capital structure to reduce costs and enhance flexibility while improving our credit profile, highlighted by our very recent Moody's upgrade in January to [ BAA2 ].

On the origination front, in 2025, we deployed more than $4 billion at OBDC, and $45 billion across the Blue Owl direct lending platform while maintaining our disciplined approach to credit selection. Over the past year, we selectively broadened our deal funnel by leveraging Blue Owl's expanded capabilities in alternative and asset-based credit, as well as digital infrastructure to access attractive risk-adjusted opportunities adding accretive non-correlated returns. All the while, our portfolio companies maintain their solid credit quality with revenue and EBITDA growth accelerating in the second half of the year. We are very pleased with our performance over the past year, and we entered 2026 on solid footing with continued confidence in the quality and resilience of the portfolio.

Now I will turn the call to Logan to provide more detail on our investment activity and credit performance.

Thanks, Craig. Starting with investment activity this quarter, we continue to see healthy deal flow across our core sectors. We had our third largest originations quarter ever at over $12 billion across the direct lending platform, while at OBDC we were more selective, with capital used to reduce leverage and fund share repurchases. This quarter, OBDC had fundings of $820 million against $1.4 billion of repayments, resulting in lower net leverage at 1.19x. Further, with the additional deleveraging from the previously mentioned opportunistic asset sales at book value, we have ample dry powder to lean into the best risk-adjusted opportunities as the pipeline builds in 2026.

Our originations this quarter were once again anchored by our existing relationships, with approximately 50% coming from large incumbent borrowers. That incumbency remains a core advantage of the Blue Owl platform. We incrementally deployed capital into our joint ventures and specialty finance investments with $80 million of fundings across several vehicles as we continue to ramp these platforms.

Turning to the portfolio. We want to take a step back and provide some perspective on the composition and performance of our borrowers. As a reminder, OBDC is a broadly diversified portfolio with companies spanning 30 industries, and average physician sizes of approximately 40 basis points. We focus on lending to noncyclical defensive sectors and all of our largest sector allocations are performing well, including software. While we appreciate there has been increasing attention on software over the past several weeks, it represents only 4 of the top 25 investments in OBDC.

That said, software has been a sector we've always liked and our focus continues to be a mission-critical, scaled enterprise software providers. Borrowers in our software portfolio saw LTM revenue and EBITDA growth of 10% and 16%, respectively, in the fourth quarter, outpacing the average earnings growth rate of all other sectors in the portfolio. Our 40-person technology investment team reviewed our exposures again through an AI lens and confirm the fundamental health of our assets. This, coupled with the fact that our software investments are primarily first lien, senior secured loans with LTVs of approximately 30%, gives us confidence that our portfolio remains well positioned.

We see a similar pattern in health care, where we have 45 investments totaling $2.5 billion. The majority of these names are also performing well, with revenue and EBITDA growth of 11% and 10%, respectively. The strength is broad-based. Overall, in the fourth quarter, every subsector in our portfolio delivered positive year-over-year growth, with revenue and EBITDA increasing 8% and 11%, respectively, and both metrics accelerated as compared to the fourth quarter of 2024.

Across our key credit KPIs, the story is similarly constructive. Interest coverage ratios remain healthy at approximately 2x, revolver draws declined over the year, and amendment activity was stable. Our [ 3 to 5 rated ] names currently represent 9% of the portfolio, which is consistent with a year ago. Additionally, we saw refinancings of several of our PIK investments in the quarter, which reduced PIK income to 10.3% of total investment income, down from 13.2% a year ago. As we've highlighted in previous earnings calls, approximately 90% of our PIK names were underwritten that way at inception, and we have never taken a principal loss on those intentionally structured positions.

Our nonaccrual rate decreased to 1.1% at fair value this quarter, down from 1.3% in the prior quarter due to the addition of 3 small positions and the removal of another position. Our nonaccruals have been relatively stable over the past few years and are well below public market default rates.

Finally, I'd like to share some perspective on our specialty finance and joint venture investments. We view these as differentiated complements to our core lending platform designed to help offset rate and spread volatility and support NAV growth. Today, OBDC has 7 joint venture and specialty finance partnerships spanning multiple verticals, including asset-based finance, equipment leasing, life sciences and life settlements. These investments benefit from strong underlying diversification with exposure to more than 300 loans and approximately 10,000 individual asset line items. Each of these platforms generate predictable income streams that are less correlated with base rates than our traditional direct loans, and have generated ROEs of over 14% over the last year.

We also established 2 vehicles last year, that once fully ramped, we expect will generate attractive low double-digit yields accretive to fund level ROEs over time. These are great examples of how we leverage the breadth of the Blue Owl platform to create value for shareholders. Across all our specialty finance and joint ventures, OBDC's exposure is approximately 12%, providing us with ample opportunity to selectively increase our allocation as market conditions warrant.

To close, the breadth and strength of our portfolio remains resilient in a shifting and more recently uncertain market backdrop. With 10 years of operating history, and an even longer tenure of experienced professionals, underwriting and managing the book, we are seeing durable fundamental performance of our borrowers, and we remain convicted in our diversified lending strategy.

Now I'll turn it over to Jonathan to review our financial results.

Thank you, Logan. In the fourth quarter, OBDC earned adjusted investment income of $0.36 per share, in line with the prior quarter. Our adjusted NII had a few moving pieces this quarter that I want to spend a moment discussing. Despite headwinds from lower base rates and a modest decrease in average spreads throughout 2025 that are making their way through our book, there were several nonrecurring events, including higher onetime income and lower operating expenses. These nonrecurring items had a positive impact of approximately $0.02 per share this quarter which is elevated relative to our historical average.

The Board declared a first quarter base dividend of $0.37, which will be paid on April 15, 2026, to shareholders of record as of March 31, 2026. Our spillover income continues to remain healthy at $0.36 per share, and supported our base dividend this quarter.

Moving to the balance sheet. Our fourth quarter NAV per share was $14.81, down from $14.89 last quarter, following additional breakdowns of existing watch list positions, partially offset by accretive share repurchases. As Craig mentioned earlier, we executed on our repurchase program in the fourth quarter, where we bought back $148 million of stock. In total, the company repurchased 11.6 million shares, which was accretive to net asset value per share by approximately $0.05. This was the largest share repurchase in the history of OBDC. OBDC's Board of Directors has also authorized a new share repurchase program of up to $300 million, replacing our current $200 million share repurchase plan.

Despite this repurchase activity, we were able to manage our net leverage down to 1.19x from 1.22x, which is within our target range of 0.9 to 1.25x, as we intentionally reduced leverage. On liquidity, we manage the balance sheet closely and conservatively to be prepared for unforeseen situations or uncertain market environments. We remain well capitalized with approximately $4 billion in total cash and capacity on our facilities, which comfortably exceeds our unfunded commitments, and provides ample capacity to meet all of our funding needs.

Also demonstrating the strength of our business and credit profile was the Moody's upgrade that we received in late January to [ BAA2 ] credited to only a few other BDCs. This ratings upgrade was a reflection of our strong portfolio and liability management capabilities, and our long-term track record of disciplined underwriting and solid credit performance. We are very focused on reducing borrowing costs, and we are optimistic that the ratings upgrade will help us achieve better execution on new unsecured issuance in the future.

Overall, we remain pleased with the strength and durability of our portfolio and believe our balance sheet is well positioned to support continued portfolio performance in 2026.

Now I will turn it over to Craig for some closing remarks.

Thanks, Jonathan. To close, I want to underscore our confidence in the portfolio. Credit quality is solid, and losses overall remained low, consistent with our downside focused approach of lending to large, highly diversified recession-resistant businesses. Looking ahead, we anticipate that our forward earnings will be impacted by two important dynamics. Lower base rates flowing through our majority floating rate book, and tighter spreads on new and repriced assets.

We are focused on the impact of lower rates on the earnings power of our portfolio, and having managed this fund for 10 years across various interest rate environments, we view rate sensitivity as a natural driver of BDC results. Importantly, there is a delay from the time when rates are lowered to when we see the full impact on the portfolio. At the same time, industry spreads have tightened resulting in the weighted average spread on our portfolio compressing by approximately 30 basis points over the last year.

For this quarter, given our strong results, we are maintaining the regular dividend of $0.37. However, we will continue to discuss this carefully with our board and evaluate the dividend each quarter, particularly as the full effect of these lower rates and spreads are now impacting the portfolio. While lower rates and [indiscernible] spreads will compress asset yields and NII returns across the industry, they generally improve borrower fundamentals and, in turn, credit quality. Against that backdrop and given the solid borrower performance we continue to see, we do not expect broad-based credit issues in our portfolio. This contrasts with what seems to be reflected in our stock price, where the dividend yield is approximately 10% on NAV, but over 12% based on current trading levels.

You've heard me say this before, but this is a very high-quality portfolio built through disciplined underwriting, with the appropriate structures and protection to perform across cycles. The recently announced $1.4 billion Blue Owl BDC asset sale transaction reflects the full book value of the underlying investments, and provides clear third-party validation of the strength of our book, the rigor behind our marks, and the discipline in our underwriting. We have conviction in our strategy and are focused on acting in the best interest of our shareholders, supported by our share repurchase activity and prudent management of our balance sheet.

As we close our call, I want to mention that over the past year, spreads have generally trended tighter, but renewed macro uncertainty could drive widening, which we are currently observing in the public [indiscernible] markets. Should this environment persist, it could present an opportunity to selectively deploy capital at higher spreads on new deals. The market is asking questions [ of ] private credit managers. We believe we will continue to deliver and ultimately, that performance is what will matter.

Thank you for your time today, and we will now open the line for questions.

[Operator Instructions] Our first question today is coming from Brian McKenna from Citizens.

Okay. Great. So there are some headlines out there this morning that OBDC II is halting redemptions permanently. Is that how you view last night's announcement? And then can you just remind us how much of that portfolio is turning over on a quarterly basis? And then what you plan to do with those [indiscernible]

Thanks, Brian. I appreciate the question. First, I want to reiterate, we think this is a terrific transaction for the investors in the funds that are affected OBDC II, OBDC and [indiscernible] and also extremely endorsing for our entire credit platform. I think it's a really strong statement for us to be able to complete the sale of $1.4 billion of private assets in a very short time line at book value at [ 99.7% ]. I think that's strong for any asset class to clear that kind of size at that kind of price at book value, and an extremely strong statement.

As you noted, there are a few headlines. I think most of the feedback has been quite positive, but there are a few headlines that we think are a complete mischaracterization of what's happening here. We aren't halting redemptions. We've been tendering [indiscernible] of the shares of this fund for 8 years. We instead of resuming 5% a quarter, we are, in fact, accelerating redemptions, and we're going to return to this investor group, 30% of their capital at book value in the next 45 days. So investors that would have thought they were getting 5% are getting 6x the amount of capital in cash at book value immediately.

So we're not halting redemptions. We're simply changing the method by which we're providing redemptions. A tender offer, as you know, is subject to the investor choosing to get their capital back, in a fund that can place different incentives for investors that are [ hitting ] the redemption or waiting. It can treat investors differently. We thought it was more important to treat all investors the same. So we're doing a 30% pro rata distribution. So investors don't have to elect into this, or worry if they don't elect into a tender that they'll get a weaker portfolio. They're all going to get the same 30% distribution at the same time.

As you asked, what should investors expect going forward? I want to remind everyone this fund is a different structure than our non-traded perpetual BDCs. This fund was raised 8 years ago, and was raised more akin to a private institutional fund. It was always anticipated that at some point, this fund would have some type of strategic transaction, whether that be a merger, a listing, or an IPL. And the other alternative that was stated very clearly at the outset was at some point, we may just choose to return the investors' capital. That is the path that we are choosing here.

We are going to accelerate the return of the investors' capital, and we're starting with a very significant down payment of 30% immediately. This fund has significant earnings. We're going to continue to pay our dividend. But as you know, we also get regular repayments. And so as we get those repayments, we're going to discuss with our Board, but our intention is to continue to return capital on an accelerated basis. So we assume for this purpose, we'll get redemptions of 5% a quarter. Every quarter investors should expect we will evaluate a return of capital of 5%. We've got some debts. We have to make sure we're properly handling the debt. But basically, if you assume 5% per quarter, we could be in a position by the end of this year that we've returned half of the investors' capital.

So again, not only are we not halting redemptions, but I think it's going to be significant cash flow to these investors. And more to the point, I want the audience to appreciate, we've had extensive conversations with the investors and the financial advisers that work with them over the last couple of months discussing alternatives for what we would do with this fund. And as we discuss those alternatives, we are confident that the plan we're pursuing is going to be extremely well received by those investors for the reasons I've outlined.

That's helpful, Craig. And then just a follow-up on OBDC. Cash ended the year at $570 million, you have the additional $400 million coming in from the sale. So depending on where leverage [ shakes out ] you have about $1 billion of capital to deploy before assuming any additional prepayment. So what's the most accretive use of capital today? Where are you leaning in from a deployment perspective? And you mentioned maybe an opportunity with spreads widening here. We'll see exactly how that plays out. And then are buybacks still on the table at current prices?

So we -- as we noted in the press release, but maybe everyone hasn't had a chance to review it yet. We started this process really focused on solutions for OBDC II. However, in our conversations with the small group of buyers that we went out to, we saw very significant additional demand for these assets, well in excess of what we were planning to sell out of OBDC II. And so we thought it was important to consider taking advantage of that strong demand at a very high price, and see whether there were additional tactical goals that could be accomplished.

With respect to OBDC, the portfolio is in extremely good shape, but we use this as an opportunity to -- really with a scalpel like precision, modestly trim some larger positions just in the name of good housekeeping portfolio management. I do think it's an environment where we're seeing capital start to constrict a bit. We're seeing it in the public loan market. We're seeing that in some of the private markets. And so we're hopeful that, that will lead to a better environment to deploy capital and start to see some spread widening on some attractive investments. And by selling these assets, we put OBDC in an even stronger position to be able to deploy capital.

However, as you know, our stock price is also trading significantly below book value. We just completed the largest repurchase of shares in the company's history, and the stock price still stayed -- is at a very depressed level. And so we increased our stock buyback program with our Board, replenished it to $300 million. We increased it, and we're going to actively look at comparing buying stock versus deploying capital into the market.

But again, maybe not everybody has had a chance to study this carefully, I just want to call your attention to it. We think it's quite striking that we can easily sell $1.4 billion of assets at book value, or [ 99.7% ], and at the same time, a portfolio of those same assets trading in the low 80s to high 70s percent of book value. So we will continue to look at the stock and continue to find ways to do accretive things for shareholders.

Our next question today is coming from Finian O'Shea from Wells Fargo.

A follow-up on the [indiscernible]

Fin it's hard to hear you. Sorry, can you try to get a little bit closer to the microphone?

Yes, sorry. So yes, to follow up on the portfolio. I appreciate how the LPs had more interest. But with OBDC, was there -- you just answered this a little bit with Brian. You've pruned some [indiscernible] positions. But just looking at it like you didn't have too much need for liquidity. You're not too concentrated either. It's something like 70-something names you guys sold.

So is there a -- I guess, if it's a fine-tuning issue on concentration, is that roster of names say, concentrated in your top 10 or top 20? Or is there another benefit to the portfolio sale?

Sure. So look, this was a really thorough process involving 4 really high-quality institutional investors in a very tight time frame. We -- they were very engaged with us. They did detailed due diligence on the names in the portfolio, even though several of them knew us well, they were buying a portfolio, they did detailed due diligence. And we certainly wanted to make sure if they were to do that work, that they would have an opportunity to make an investment. And so as we work this through with them and we're looking at our portfolio, we settled on these asset sales splits.

I think for OBDC II -- for OBDC, at the end of the day, we sold 2% of the assets. It's really immaterial. This would be like we got one repayment in a quarter. It's not material. But as I said, we thought we have this interest. It's at a very high price. The market is starting to loosen up. We just bought back some stock, if we can, on the margin, create a little bit of liquidity, it's worth doing. It also accomplishes the goal of having 4 large investors who each bought, by the way, the same exact amount, the same exact price all have transactions that they were excited about. So I think it accomplished that goal as well.

But I guess I would also say, and I said this in the prepared remarks, but I think it's worth revisiting. We understand and we see the same things that you're reading. There's skepticism about marks, the skepticism about valuation. We've always been saying we feel really good about the quality of our portfolio and the quality of our marks. But just saying it in some [indiscernible] doesn't seem to have done enough. So we're putting our money where our mouth is. We sold the assets to 4 different third parties at [ 99.7% ].

I should point out that while OBDC only sold $400 million worth of assets, these -- very sliver portion of 75 different line items, our exposure in OBDC to those line items is almost half the portfolio. So we view the sale at OBDC as validating almost half the portfolio. Not only at book value, but at [ 99.7 PAR ] sold these assets at [ par ]. That's not only for OBDC, but it's true for the entire Blue Owl direct lending platform. The assets we're selling here represent our largest names, our biggest exposures, and we had resounding demand at [indiscernible]

I think that's a really strong statement and I think it was a statement worth making in an environment where people are asking questions and they're skeptical about marks. People read one article about 1 mark and one portfolio somewhere and they extrapolate it out, and we're giving a stake in the ground with a different set of facts, and a set of facts that spread across 130 positions in our portfolio.

I appreciate that. Sort of a follow-up on, I guess, a continuation of this discussion in the mechanics. One small part, can you clarify. We just get a lot of inbound on this. Is there any sort of, like, delayed settlement accrual, like extra -- I don't know if I'm working this right, but the extra sort of compensation to the buyer?

And then also, given the sort of -- we don't see this often in [indiscernible] vehicles selling to another account managed by the same adviser you guys. Is there anything to this structure where maybe this runs down quickly? Maybe this is a swath of the portfolio that you expect to repay really soon, and therefore, it's not truly a fun kind of thing, or anything else that...

If I could rephrase your question, is there something we're missing behind the scenes, right? I get it. I get it. I -- again, we're in an environment now where there's a high degree of skepticism about private credit. And unfortunately, that skepticism can be amplified by folks that aren't even in private credit and don't spend any time in the industry, and don't hesitate to forward things and amplify them in a way that makes them seem more prominent than they are.

The transaction is exactly what appears. We're selling 128 positions at [ 99.7 ] to 4 different institutional investors, that each made their own investment decision at the same time and not only bought this portfolio, they would have bought multiple amounts more. It is common when you do secondary asset sales for them to come at a discount to book value, these didn't.

Sometimes, you'll see other types of transaction structures, particularly with a continuation vehicle structure where perhaps the purchaser is getting the benefit of elongated interest payments that's reducing their basis. And that's behind the scenes, and it doesn't -- it's not obvious. That's not happening here. They're buying it at [ 99.7 ] and we're using standard LSTA loan trade settlement procedures, just like every trading desk is using every day, it's plain vanilla. The buyers, arm's length, several of them just had accounts already set up with us.

As we've highlighted, we are going to continue to own most of the positions in these loans and manage them. And so the buyers found it convenient to keep their portion of that strip in an account they have set up with us, made it easy to do, but it's their economic risk. We'll help them manage the position. They made an arm's length economic decision, and there's nothing behind the scenes that would any way undermine that conclusion.

Our next question is from Arren Cyganovich from Truist Securities.

One of the questions we got from investors was why not sell all of OBDC II? Is there something just maybe just from a debt perspective, or we're just trying to understand why not just kind of get rid of that, I don't know, perceived issue or perceived problem from investors?

Sure. We had -- we canceled the merger in November. We thought it was really important to be able to do something very quickly. The merger and the cancellation caused a lot of confusion for the OBDC II investors and for investors in our other funds. And we thought it was important to be able to do something quickly and to demonstrate the quality of the portfolio and to return capital very quickly.

This was that transaction. This -- we went through a number of alternatives. We wanted to do something of significant size. We returned 30%. We wanted to do something that demonstrated our marks, which it did. But we also wanted to do something quickly and that left the remaining portfolio in really good shape. That portfolio has about 0.5 turns of leverage. It has plenty of liquidity. It's diversified. It will be easier for us to continue to run it, and harvest it, and return the capital.

There could have been other possibilities. As you said, sell the whole portfolio. I'm sure we could have done that. It would have taken longer, it would have been more complicated. As you might imagine, there are shareholder protections. If you're going to sell an entire portfolio that results in a much longer process. We opted for something faster, certain and that we put cash in the investors' pockets by the end of March. We'll continue to manage this fund. Again, this is a fund of loans. They contractually repay. We have high visibility on these repayments. We're not speculating about getting the capital back. We're going to continue to get capital back, and we'll continue to return the capital. As I mentioned earlier, by the end of this year, we may wind up returning half the investors' capital. So we'll continue to evaluate it.

There's nothing particularly unique here. Funds in the private markets return capital to their clients all the time in the private credit markets, in the private equity markets. And there's nothing unique to this particular fund. Its just akin to any other fund and we'll manage it in a way that benefits investors.

Yes, it makes sense. And to your point, you are returning it more quickly. And for OBDC shares, you're selling it NAV and having the ability to buy that at -- the big discount. So it's a benefit for OBDC. I totally get it. These are just the questions we're kind of getting from investors.

The other thing I had was just on software. Obviously, this is an area that you guys have been very confident in all along. You have BDCs that are completely kind of designed towards this. What's your appetite for, kind of, new software loan purchases in -- is this creating more of a beneficial opportunity, I guess, as maybe some other peers might be a little bit afraid to step into the area?

So we covered this a bit in the comments. Look, we've always liked software. We have a significant team. We think we're one of the largest investors and have the capacity to differentiate between a software business that's going to be well protected in an AI world, and one that's going to be more vulnerable. We also have funds that are dedicated to the technology sector that have capacity to do software.

OBDC was designed as a diversified fund as Logan mentioned, software is the biggest sector, but it's a relatively small percentage of the overall fund. So we have capacity to do best-in-class deals that we have extreme high levels of confidence are going to continue to hold up well. That bar has always been high. It's even higher now. We're certainly not taking lightly the potential impact for AI.

Having said that, we continue to see our best-in-class companies perform well [indiscernible] think they'll endure. And if we see opportunities, we'll do it. But I would say we're going to be very discriminating. And I don't think our software percentage will go up. If anything, I would expect it to modestly decline over the next year or 2, but it will depend upon the opportunity set.

Our next question today is coming from Robert Dodd from Raymond James.

I think you've covered OBDC II pretty well on that front. On the sales book, I mean, there's some disclosure in there that, obviously, about, I think, 13% was Internet and software. Any information you can give us on like what vintage were those assets? I mean they are the larger assets. I'm going to presume, and we know what that makes me, that those were probably lower spread assets as well as the larger side of the portfolio.

I mean any color like on those assets being sold, what was the weighted average spread versus what it is on the portfolio? You gave us Software and the Internet, but I mean, was there less PIK in that book, or more PIK in that book? Any other metrics you can give us on how it's going to evolve the -- modestly, right, because it's not that big a piece. But how it's going to impact the portfolio on those kind of metrics?

Yes. So -- thanks, Robert. It's Logan. The portfolio sales were a slice across mostly first liens and the weighted average spread was just over 500. So relatively consistent with the broader portfolio. It wasn't a select few that were outliers across the book. And from a PIK exposure percentage, it was about in line with our PIK exposure. So again, we just referenced, we've got about 10% PIK exposure and the portfolio sold. It was about 10% to 11% PIK exposure across the book. So consistent across how our portfolio looks really no different.

And it's not changing the portfolio in any meaningful way at OBDC. In particular, first lien percentages, non-accrual percentages, everything is the same pre and post. As Craig mentioned, on diversity, it helps to touch 3 of our top 5 position percentages go down a little bit as part of the transaction. And it helps us with some opportunistic capital to redeploy into a market that's increasingly more interesting.

Got it. Got it. I mean, that's -- as we look forward, I mean, as you mentioned, spreads have started to widen a little bit, I mean, and we'll sell them those stick. But I mean, what's the view for the remainder of the year? I think you've covered all the things that have gone on this quarter and last year.

But I mean -- are you optimistic on spreads staying wider and creating some incremental accretive opportunities from that perspective? On the other hand, you're saying you don't expect credit to deteriorate, which I probably agree with. And normally, if that doesn't happen, spreads -- sooner or later tighten back up despite what the public equity markets seem to think at the moment. So I mean -- how do you -- anything that's going to play out?

Yes. It's a good question. Look, from our perspective, we commented on this pretty regularly over the last year. Spreads have been extremely tight in all credit markets over the last 12 to 18 months. And not just private credit, leverage loans, IG, high yield, all spreads are tight. And we anticipate at some point, it would widen just to get to more of a baseline not to be wide, but just to get -- to be more of a baseline. You're starting to see that. I'm hopeful that, that will continue.

Again, not dramatically so, but just get to more of a typical range. When the public loan markets arts to back up, private credit spreads move quickly. Our comments on the economy -- or excuse me, on the portfolio just based on the sectors we're in and the companies and they're doing well and they continue to do well. And we're seeing low single-digit, high single-digit growth rates, revenues and EBITDA. The companies are performing really well. That's why we're confident.

Let me put it this way. I -- you can't have a view that there's a massive credit problems coming and spreads are going to be really tight. Like those things are, as you say, not compatible. What I expect is credit performance [ will continue ] to be good, not only for us but for the large players in the private credit space. And I think you'll see some modest widening of spreads and hopefully, some modest pickup in M&A activity.

I do think that will favor the larger platforms that have capital and the smaller firms that don't have as much capital. I think the private equity firms, they -- they've had a lot of opportunity to talk to different liners in the last year or so, but when they see conditions start to tighten up, they moved to the largest funders and the ones that know them the best and they have to wear with [indiscernible] We're one of them. So I think it will be a better environment, but I'm cautious on it. We'll see how long it lasts.

Our next question today is coming from Kenneth Lee from RBC Capital Markets.

Just one more on the loan sales transaction there. To clarify the mark that you received, the 99.8%, how does it compare with the previous fair value marks in general?

I mean it's -- we sold it at our marks. Marks -- the fair value was [ 99.7% ]. It's very consistent with where marks have been every quarter. Most of our book for the last year has been valued close to [ par ]. And we sold this basket of loans at [ par ], consistent with the last year or so. I just want to make sure we're being clear on this. We didn't negotiate price by price with investors. We said we want you to pay our book value. And we did our same valuation process that we always do, and we said we want you to pay book value. They agreed to pay book value. So not only is that endorsing of -- we got par, it's also endorsing of our valuation process.

They trusted our valuation process the same way we trusted it. For independent parties doing their own work, agreed to pay book value. And we updated that book value.

As of February 12 [indiscernible] a valuation for us on that day. So they're up to date, and the moves in the valuations were minor across the portfolio as a whole.

Got you. Very helpful there. And just one follow-up, if I may, just on the dividend. And could you talk about some of the inputs or considerations that the Board may take into account, or present the common dividend, [ then go forward ]?

The -- our process with the Board on dividend is the same we've been doing for 10 years. We looked at all the kinds of metrics that you would expect. What we're earning, what we expect to earn, credit performance, dividend coverage. But the outlook is -- we generally like to have a stable base dividend. We put in place the supplemental a couple of years ago because we're earning a lot with higher rates.

But look, as we said in the script, and I think you're hearing from other managers, although credit performance is very strong, it's different rate environment. Rates are lower. Rates are expected to continue to go lower. Spreads [indiscernible] and so particularly as a result of rates. Rates went up, we earn more. Rates have come down. We're earning less.

This quarter, we looked at it and we earned $0.36 with a $0.37 dividend. We felt it was reasonable to continue to keep the dividend where it is. But as we said in the script, we're going to see, we're seeing now the full impact of rates and the full impact of spreads, and we're going to sit down with the Board every quarter, but certainly next quarter, see where our earnings are coming in, see what our outlook is over the next few quarters and assess the dividend. And we don't like to move the dividend around every quarter. So we'll have a thorough discussion, just completed our Board meetings yesterday, we talked about this early, and we'll continue to do that just like we have since inception.

Your next question today is coming from Casey Alexander from Compass Point.

I can appreciate your frustration that in this environment right now, everything is being looked at through the most skeptical lens possible. And that's kind of what happens when the market paints things [indiscernible] brush. But what I want to ask is now that the market knows that Blue Owl II is in runoff, and you did this transaction with just 4 investors, there's a tremendous amount of dry powder that is still out there in LPs and places like that.

I would expect that your inboxes might be pretty busy from other folks that would like to take a look at that Blue Owl II portfolio and see if there are things that they might want to buy. Would you guys consider additional asset sales out of that portfolio to accelerate the process of winding it down?

Casey, we'll consider anything that's going to deliver great value to our investors. And you're right, we got inbound since November. And I already highlighted that these investors that we sold assets to had additional demand that would have taken more of the paper now.

Look, [indiscernible] folks appreciate, these are great questions. The answers are complicated, how you decide to wind something down, when does something require some type of shareholder vote or engagement? These processes are not -- these aren't public loans where we're just selling out in an afternoon. This is a company, it has a Board and it has a process. We've been following that process as we always have and we'll continue to do so.

But I think the guts of your question is we would like to continue to accelerate the return of capital. This, again, not -- as it has always meant to be, as it has always meant to be, it was always meant that at this point in the fund's life cycle, we would come up with a strategic transaction that result in the investors getting liquidity. And so we are -- we now have a defined path. This is the path, and we will look for repayments, earnings and also potential additional asset sales to continue to return that capital.

I just want to come back to something I said earlier. I know there's a lot of questions. And part of the question is, how are the investors feeling? A lot of folks that are wondering, they're speculating. The investors feel like we've treated them very well. Investors really [indiscernible] with this transaction, and I think they'll continue to be happy with us if we continue on a path of really carefully managing it and getting the capital back at a good price. We're not getting pushed by the investors to try to sell out quickly and not get fair value. They just want us to manage it prudently like we always have.

And if I could, I would broaden the lens. Again, we recognize our platform is very much in the public's eye. We also think we've treated investors really well in our non-traded funds, where we've stepped up and met increased redemptions. So the client base there, I think, also appreciates that we continue to try to put our investors first. So that's what we'll do. If we see transactions that are at a great price and can accelerate the return of capital, we're very open to that. But it's a little more complicated than deciding tomorrow morning to just sell the assets.

I could certainly appreciate that, and thank you for that answer, Craig. Since this is an OBDC call, ask a question that is relevant to OBDC. Jonathan, can you give us a little more granularity on the onetime income and the lowering OpEx that produced the $0.02 tailwind? Just give us a feel for where some of that came from?

Sure. The majority of it was from a repayment where we got some call protection. And then on the OpEx side, call it, $0.05 or so, is really just when we completed the merger at the beginning of the year, OBDC and OBDE. Although we promised synergies, we budgeted in the context of in a conservative manner in terms of not necessarily hitting all of those synergies. And so when you get a lot of your invoicing and your expenses coming through at the end of the year, we effectively saw a positive true-up, which is nonrepeatable related to those synergies. And so that contributes to what I'll call a onetime OpEx adjustment.

Next question today is coming from John Hecht from Jefferies.

Just looking at the published material. If you look at the principal amount of investments sold or repaid, it's -- and you addressed this in some of the remarks earlier, it's fairly elevated. I'm wondering, can you break that down versus what you proactively sold last quarter, versus what was a scheduled paydown versus -- what might have been a prepayment? And then what's your perspective on -- obviously, you've announced the additional sales this quarter. But what's your perspective on that type of activity beyond the planned sales, right, or announced sales at this point in time?

Sure. Great. Great question. We reported the number of just over $1 billion of repayments, that's entirely repayments in normal course. The asset sales of $400 million or not in those numbers yet. They will be forthcoming and closing over the next few weeks, and we'll be in the first quarter numbers. So everything was normal course in the last quarter.

And is that -- do you expect that pattern to persist? Or was it just sort of a confluence of a lot of maturities or something like that, that happened last quarter?

I'd say it's in a normal course that we saw repayments in the fund at around $1 billion. It's been consistent with our last few quarters. And we have the opportunity in any given quarter to decide how much we reinvest or not. And as mentioned, we prioritized other things during the quarter like paying down debt as well as share repurchases in particular. And so it's our opportunity to take a look at that normal accordance repayment cycle that happens every quarter, and then choose to reinvest a portion or not depending on our priorities. And that's really on the reinvesting side was where we made the decisions, the repayment side was all normal course.

Okay. That's helpful. And then where are we at with respect to like [ rate floors ] and ongoing sensitivity to potential Fed rate declines?

Sure. rate floors are not yet in effect. Where we have rate floors on a portion of the portfolio. They're typically around 1% and they were really a legacy of the zero interest rate environment of years ago. And so at this point, as with most lenders in the space, our loans would still be floating rate and true to that level of SOFR as we go down, it would be effectively one-to-one.

Our final question today is coming from Paul Johnson from KBW.

In terms of the mix of the transaction, I noticed you mentioned both funded and seems like funded and unfunded commitments. What is, I guess, kind of the composition mix for OBDC in terms of what was funded on the balance sheet and what's leading in terms of a commitment?

On the asset sales, it's about 10% unfunded. It's consistent with our existing. So if you look across the portfolio, it's really a slice of the [ existing ] and consistent with our unfunded revolver and DDTL mix. And so when we say [ 400 ], that's the full commitment size about 90% of that is funded and 10% of that unfunded. Again, broadly across the 3 different portfolios involved that's consistent.

Got you. Okay. That makes sense. And then maybe just a little bit more on the transaction. I was wondering if you could just, maybe kind of, give us an idea of like what was, I guess, kind of the process here? I mean, was this like a solicited transaction? I mean you mentioned excess demand here.

And the other question I have, maybe an odd question, but I'm just curious, where do the assets actually go? You mentioned like you have -- they have an account with you. So do they stay in one way or another on the platform? Or are these transferred into structures that are off the platform?

Look, the process we went through, we -- when we canceled the merger, we reached out to a very small handful of investors that knew us and that we thought had the [ wherewithal ] to make a sizable investment in private credit assets, high-quality private credit assets at book value. We had limited time and limited bandwidth, and we got great reception. And worked with the 4 that we're closing on, and they all got there. And so just a private process that we went through in expedited time frame, and they did their work and we made our teams available, and it was a very efficient process.

Do you want to speak to the -- I mean in terms of -- again, it's no -- on the platform, I mean we set up vehicles or, in some cases, they had vehicles already set up with us where those vehicles bought these assets.

I guess maybe if you're not familiar, big pension plans and insurance companies generally work with outside managers to manage their private credit exposure. These aren't public securities that they have the systems and team to monitor and they typically roll eye on managers like [indiscernible] to do that work for them to follow the credits, provide the information, track the assets, track the payments, and that's what's happening here. They didn't have to have us manage these assets. They could have a [indiscernible] to manage these assets. But not only do we [indiscernible] all these assets extremely well. We also own 90% of the positions. And so we're ideally suited to continue to manage them.

But that's just typical of any purchase for -- from an institutional investor. That's how they would do it with us or any other big manager.

Got it. I appreciate that, Craig. That's helpful. Last question I'd ask just bigger picture broadly on bank competition. Just love to get your thoughts there. It feels like the banks are positioning fairly competitively here. Just be curious to get your thoughts just kind of with the recent volatility, if that's changed at all and what the outlook may be is for the year?

I don't think there's anything new. The banks are -- the public loan market is a competitor to ours. It has been since the start of the firm, always will be. There are times where both markets are strong. Last year, that was the case. The public loan market tends to be more volatile, and that's the way the banks participate in the leveraged loan market. You've seen some volatility pick up and that impacts -- generally impacts how banks think about underwriting risk when things are backing up.

They just tend to get more cautious and that can swing deals in our direction where we're seeing a few deals that would have otherwise gone to the public markets, that are quickly moving to the private markets. I don't want to extrapolate a trend for a few weeks to infinity. But in the last couple of weeks, we've seen that. I expect that will continue. But we have great relationships with the big banks. They do -- we do lots of business with them. They are a big source of financing. And there's no profound change to the competitive environment, but it's more a function of just where market demand is. And again, I suspect the pendulum swing a little bit more to private credit, but we'll see.

Thank you. We have reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Look, we obviously covered a lot of ground. I would just urge everyone, please read the release that we put out on the asset sales. Don't just read the headline, don't just read the tweet. Read the announcement. We put a lot of information in there. I'm confident if you read the details of what we did, it will be very clear. And you have clarifying questions, we welcome them. Please ask us.

We think this is a really strong outcome for the investors in our funds and I think a really strong endorsement of the quality of our assets, and want to make sure that you see it that way as well. Thank you, and have a great day.

That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

Good morning, everyone, and welcome to Blue Owl Capital Corporation's Third Quarter 2025 Earnings Call. As a reminder, this call is being recorded. At this time, I'd like to turn the call over to Mike Mosticchio, Head of BDC Investor Relations.

Thank you, operator, and welcome to Blue Owl Capital Corporation's Third Quarter 2020 Earnings Conference Call. Yesterday, Owl Capital Corporation issued its earnings release and posted an earnings presentation for the third quarter ended September 30, 2025. These should be reviewed in connection with the company's 10-Q filed yesterday with the SEC. Additionally, OBDC and Blue Owl Capital Corporation II, or OBDC II, issued a joint press release announcing that the companies have entered into a merger agreement pursuant to which OBDC will acquire OBDC II. The merger is subject to the satisfaction of customary closing conditions, including OBDC II shareholder approval.

All materials referenced during today's call, including the earnings and merger press releases, earnings and merger presentations and 10-Q are available on the News and Events section of the company's website at blueowlcapitalcorporation.com. Joining us on the call today are Craig Packer, Chief Executive Officer; Logan Nicholson, President; and Jonathan Lamm, Chief Financial Officer. I'd like to remind listeners that remarks made during today's call may contain forward-looking statements, which are not guarantees of future performance or results and involve a number of risks and uncertainties that are outside of the company's control. Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described in OBDC's filings with the SEC. The company assumes no obligation to update any forward-looking statements. We would also like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our earnings presentation available on the Events and Presentations section of our website. Certain information discussed on this call and in the company's earnings materials, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. The company makes no such representations or warranties with respect to this information. With that, I'll turn the call over to Craig.

Thanks, Mike. Good morning, everyone, and thank you all for joining us today. In addition to reporting another quarter of solid results for OBDC, we are also pleased to be announcing a merger between OBDC and OBDC II to a transaction which we believe can create meaningful value for shareholders of both funds. First, I would like to review OBDC's results for the quarter, and then I will spend a moment discussing the transaction. Our objective has always been to deliver consistent returns to shareholders, and we are pleased to have done that since our founding nearly 10 years ago. This long-term focus continues to guide our strategy and how we manage OBDC and in the third quarter, we delivered solid results that reflect the ongoing strength and resilience of our portfolio.

We generated adjusted NII per share of $0.36, which represents an ROE of 9.5%. These results were roughly in line with our long-term average, though they have come down from peak levels due to the declining base rate and spread environment. While Jonathan will go into more detail shortly, our results in the third quarter reflected a lower level of nonrecurring income as compared to our historical average. As of quarter end, our net asset value per share was $14.89, a modest decline of $0.14 from the prior quarter. We note that our NAV remains consistent with levels from a few years ago and has increased over 4% since inception, underscoring the durability of our strategy and portfolio. Our portfolio continues to benefit from our disciplined investment approach which emphasizes larger recession-resistant businesses.

During the quarter, we marked down a few watchlist positions, but we want to emphasize that these positions have been on our watch list for several quarters and don't reflect new credit issues in the portfolio. Overall, the portfolio's fundamentals remain strong. And as Logan will detail later on, we are not observing any broad signs of stress or a material increase in amendment activity. With that, I want to take a moment to address the recent headlines surrounding private credit, which have generated a lot of intention and a confusion for investors. It's important to clarify where we participate within the broader landscape. Our primary focus is on direct lending, which we believe is one of the most attractive areas of the market.

Direct lending, we make primarily senior secured loans directly to companies, typically as the lead lender which affords us the ability to be a direct dialogue with our borrowers and sponsors to shape transaction terms and credit documentation. This direct engagement also gives us access to comprehensive financial reporting, and an ongoing dialogue with our portfolio companies. The transparency and control this provides allows us to build a complete picture of each credit during underwriting, gives us greater confidence compared to deals in the public fixed income markets. Our portfolio is continuing to perform well. And as Logan will describe later, our borrowers are demonstrating solid revenue and EBITDA growth. OBDC's healthy credit performance as evidenced by our below industry average nonaccrual and loss rates is a direct result of our disciplined approach, and focus on high-quality, upper middle market businesses.

Public market sentiment with respect to BDCs seems to be disconnected from the realities on the ground and we encourage investors to look beyond the headlines and focus on the fundamentals that drive our strong risk-adjusted results over time. Next, I'd like to briefly highlight the transaction we announced yesterday to merge OBDC and OBDC II, with OBDC as the surviving entity. The merger strengthens OBDC's position as the second largest publicly traded BDC adds nearly $1 billion in net assets and creates a larger, predominantly senior secured portfolio with potential for earnings accretion over time. This merger marks an important step in streamlining our BDC platform while enhancing long-term value for shareholders. Now I will turn it over to Logan to provide more detail on OBDC's portfolio and the proposed merger.

Thanks, Craig. We saw a pickup in deal activity during the third quarter with originations of $1.3 billion and fundings of $1.1 billion. that outpaced $797 million of repayments and resulted in net leverage of 1.22x at the end of the quarter. In addition to a higher number of new deal originations this quarter, approximately 40% of the originations were add-ons, consistent with the past 3 quarters. This sustained level of add-on activity underscores the benefits of being an incumbent lender as it allows us to support the continued growth of our borrowers.

As we've increased in scale, we've been able to commit capital in greater size to larger borrowers while maintaining a highly diversified portfolio. For example, our average hold size across our platform on new direct lending deals has grown from $200 million in 2021 to roughly $350 million this year. while the total deal size doubled to nearly $1.5 billion over the same period. This enhanced capacity allows us to participate in some of the largest and most attractive transactions in the market and shows the secular trend of larger borrowers preferring direct solutions. Next, I'd like to reiterate that the fundamental performance of our portfolio remains strong. We believe our borrowers are among the highest quality we've seen since inception. This is supported by the scale and diversity of our $17 billion portfolio, the increasing size of the companies we lend to and our continued focus on senior secured investments, which represent 89% of the portfolio near record levels, excluding our specialty finance and JV investments.

Our credit metrics continue to reflect strength. The cumulative fair value of our 3 to 5 rated names is approximately 8%, which declined nearly 2% since year-end 2024. Our nonaccrual rate remains at the low end of the range across the BDC sector and in line with our historical average at 1.3% at fair value this quarter which is modestly up, primarily due to the addition of Beauty Industry Group, which had been on our watch list for over 2 years. Credit-related amendment activity is stable with no signs of increased pace or intensity of amendments over the last 2 years. We also monitor portfolio company revolver drawing activity closely as it's an indicator of stress and our average revolver draws are below 20%, a conservative level that has actually been decreasing throughout the year. Further, on the theme of larger, more resilient borrowers in the market, the average revenue and EBITDA of portfolio companies has grown to over $1 billion and $229 million, respectively, nearly double the level of 4 years ago.

We continue to focus on upper middle market borrowers that are scaled players with access to more resources to manage various headwinds. These companies have market-leading positions with diversified revenue streams, strong recurring cash flow profiles, healthy liquidity and generally operate in noncyclical defensive sectors of the economy that are expanding, including health care, technology, business services and insurance brokerage. As a reminder, we intentionally avoid more cyclical sectors such as energy, chemicals and retail, which are featured more prominently in the public markets and tend to be more volatile. These larger businesses have continued to perform well. with year-over-year revenue and EBITDA growth again in the mid- to high single digits, and average LTVs of 42%. Our interest coverage ratio increased to approximately 2x based on current spot rates up from 1.7x, 1 year ago, reflecting ongoing portfolio company EBITDA growth as well as base rate reductions, and we expect that will continue to improve as base rates decline further.

Also, I wanted to highlight that PIK income at 9.5% of total investment income is down from 13.5% a year ago, primarily driven by refinancings of several PIC investments. As we've highlighted in previous earnings calls, the vast majority of our PIC names were underwritten at inception, and we have not had any nonaccrual bankruptcy or principal loss on any of these structured PIK loans since inception. In summary, Q3 credit performance metrics, including below market loss rates, steady amendment activity and strong borrower fundamentals underscore the quality of our portfolio and we believe our credit business remains well positioned. Turning back to the proposed merger between OBDC and OBDC II. OBDC II was launched in 2017 to give individual investors access to the same strategy and platform we originally offered institutions through OBDC. Both portfolios are highly aligned and comparable exposures to senior secured loans and nearly all of OBDC II's investments, about 98% overlap with OBDC. These portfolios are managed by the same investment team and reflect a consistent investment composition and credit quality.

As Craig mentioned, this transaction adds scale to OBDC's portfolio, bringing in $1.7 billion of investments which will increase the portfolio to $18.9 billion across 239 companies. With the addition of complementary portfolios from OBDE last year and now OBDC II, the overall portfolio will have grown by 40% and affording us more scale and diversity. The merger strengthens our balance sheet given OBDC II's lower leverage at 0.78x, and we expect the transaction to be accretive to NII over time. We anticipate approximately $5 million of cost savings in the first year, largely from eliminating duplicative expenses. Over time, there is potential for lower cost sources of capital and greater flexibility to pursue new investment opportunities. Finally, while this merger would provide liquidity for OBDC II shareholders, it is worth noting that these shareholders have had access to liquidity through a quarterly repurchase program, which met 100% of shares tendered for nearly 7 years.

We believe this transaction positions the combined company well to continue to deliver attractive risk-adjusted returns as a market leader in the space. And now I'll turn over the call to Jonathan to provide more detail on our third quarter financial results and the mechanics of the proposed merger.

Thank you, Logan. To summarize OBDC's quarterly performance, we ended the quarter with total portfolio investments of over $17 billion, total net assets of nearly $8 billion and total outstanding debt of approximately $9.5 billion. Our second quarter NAV per share was $14.89 down from $15.03 last quarter following write-downs of existing watch list positions. Starting with the income statement. As Craig mentioned, we earned adjusted net investment income of $0.36 per share, down from $0.40 as compared to the prior quarter driven primarily by lower nonrecurring income, which was $0.02, well below the $0.05 we generated in the second quarter and our historical run rate average of approximately $0.03. The Board also declared a fourth quarter base dividend of $0.37, which will be paid on January 15, 2026, to shareholders of record as of December 31, 2025.

In prior quarters, we over-earned our base dividend, allowing the Board to declare supplemental distributions. This quarter, given the lower rate environment over the past year, we did not generate excess earnings to distribute under our dividend policy. Craig will provide additional color on our dividend outlook later in the call. As we have previously reported, our spillover income remains healthy at approximately $0.31 per share and supported our base dividend this quarter. Moving to the balance sheet. We finished the quarter with net leverage of 1.22x, up modestly from 1.17x and within our target range of 0.9 to 1.25x as we had net fundings of $273 million.

In terms of liquidity, we remain well capitalized with significant capacity to invest as new opportunities come in. We ended the quarter with over $3 billion in total cash and capacity on our facilities which was well in excess of our unfunded commitments. We have no material short-term maturities, and our robust liquidity position provides us with more than ample unfunded capacity to meet any near-term funding needs. Overall, we remain very pleased with our results and believe that our balance sheet is well positioned for the environment ahead.

Lastly, I'd like to spend a minute describing the proposed merger consideration. The transaction is structured as a stock-for-stock merger with each OBDC II shareholder receiving a certain number of OBDC shares to be determined just prior to closing. The exchange ratio will be determined by a formula, which will be struck on a NAV-for-NAV basis if OBDC is trading at or below NAV per share, or a premium that will benefit OBDC shareholders if OBDC is trading above NAV per share. As a sign of support from Blue Owl, OBDC and OBDC II will be reimbursed for 50% of the fees and expenses associated with the proposed merger up to $3 million in total which will be paid for by OBDC's adviser if the proposed merger is consummated. OBDC's Board of Directors has also authorized a new share repurchase program of up to $200 million in open market purchases from time to time, to account for the increased size of the combined company. This will replace our current $150 million share repurchase plan.

Finally, we are expecting to close the transaction in the first quarter of 2026, subject to customary closing conditions. Now I will turn it over to Craig for some closing remarks.

Thanks, Jonathan. To close, I want to talk about our earnings outlook in the current environment and the quality of our portfolio. As expected, rising rates over the past few years increased our earnings given the floating rate nature of our portfolio. We have passed those gains through to our shareholders via regular and supplemental dividends. As a reminder, we implemented the supplemental dividend policy, in part because we expected that elevated base rates would likely eventually subside and this mechanism would provide for a naturally adjusting tool to allow for these rate movements to flow through to dividends. Naturally, if base rates decline further as the market currently expects our earnings and dividends will adjust as well.

That said, we think it's important for investors to separate out the impact of potentially lower rates on the portfolio from the risk of significant credit concerns. While rates may decline, we continue to feel confident in the strength of our portfolio, supported by solid fundamentals, disciplined underwriting and a defensively constructed asset mix. Our loss rates remain well below market averages, a reflection of our consistent focus on downside protection and credit selectivity. Even in a lower rate environment, we believe OBDC will continue to have strong credit performance, that will provide investors with a steady stream of dividends that will be attractive relative to other investment opportunities. Thank you for your time today, and we will now open the line for questions.

[Operator Instructions]

Our first questions come from the line of Brian McKenna with Citizens.

So starting on the OBDC II merger nonaccruals in this portfolio are 60 basis points above OBDC. So what's driving this? And then what part of that portfolio has underperformed relative to OBDC? And then leverage is clearly lower, but what kind of ROEs has OBDC II generated since inception? And then is there a way just to think about the incremental ROE post the merger?

I'll start. Brian, it's Craig. I'll start and then Jonathan can chime in. Look, for those that aren't familiar, OBDC to was raised about a year after we initiated OBDC. The portfolios have almost complete overlap, almost 100%. It's the same names invested in the same period of time with the same economics with the same strategy and the same team. The OBDC II will comprise about 10% of OBDC. So the impact of merging it in is really quite modest given the overlap in names the higher nonaccrual rates are a function of the names on nonaccrual being a little bit bigger, it will because OBDC II is still operating under a lower leverage constraint then OBDC. It has the old leverage rules.

So it's capped at one turn of leverage, we'd be running at 0.75x of leverage. And so we've had the nonaccruals or just a little bit bigger part of that portfolio. but it's the same names that OBDC already has exposure to. When you add them in, it has an immaterial impact on overall credit statistics at OBDC. So their names were already in slightly higher immaterial impact. I don't know, Jonathan, maybe you want to hit the ROE question.

Yes. So on the ROEs, obviously, just given we've been running OBDC leverage the middle -- towards the middle over time, middle to the upper end of our target leverage ratio, whereas OBDC II has been running as Craig alluded to, at 0.6, call it, 2.75. Historically, the ROEs on the -- just based on the returns associated with that leverage have been lower. But as the companies come together, Brian, we think that there's about 15 to 20 basis points of of ROE accretion that we can create across the portfolio, and that's really driven by OpEx synergies that we can see, some liability management associated with some of the financings in particular in OBDC II that we can refinance into single facilities, and OBDC II just has a little bit of a higher weighted average asset yield.

Okay. Great. That's helpful. And then just as it relates to the stock, it's not trading at 82%, give or take, a book value. A few years ago, you did an Investor Day you laid out some steps you were going to take to improve the valuation. As we sit here today, we're clearly in a different part of the cycle. But I mean, what are you doing as a management team to improve the valuation you refresh and upside to buyback to $200 million. Should we expect you to be a little bit more active there? And then should we expect to see maybe some insider buying and even some repurchases from OWL.

So we -- we've laid out some goals at Investor Day that I think were very effective and in fact, the stock within a year or so actually got to book value. So we were very pleased with that at the time. One of the goals, just to say at the time was also to simplify our BDC portfolio, which at the time was 7 names, and we had a stated goal of getting it down to 4 names. And with the merger we're announcing today, if that's approved and closes, we'll have accomplished that goal. We're quite mindful of where the stock is and it's something we take quite seriously and discuss as a management team and with our board.

I think I just running some math the stock is yielding more than 11%. So hard for us to reconcile that with the performance, which has been very consistent. We think that what's happening with the company and high-quality BDCs is simply a rate cycle that we're going through. And as you acknowledge, we're in a different part of the rate cycle now. But credit performance in the portfolio remains very strong even with the impact of the one nonaccrual. I won't try to go point by point through all the tools, but I just would say all the tools are on the table. Buyback, I think part of what we did in the earnings day was just provide a lot of transparency around the quality of the portfolio. I think with a lot of the headlines now, investors are oftentimes taking just a kneejerk reaction to a headline.

And so I think part of our job is to make sure that people hear our confidence in the portfolio, and that remains the case today. Whether it be buybacks, I think, certainly with the merger, that's something that we'll be attuned to. We have the buyback that's out there. Insiders, we don't direct insiders to buy the stock. But obviously, a lot of employees find it attractive from time to time. We did do a special program around. At the time you mentioned for employees, we'll certainly look at that tool as well. So it's all available, and we've been very focused and have been very focused creating value for shareholders and getting the stock back to where we think it should be. And candidly, where the analyst community has it projected out as well.

Our next question has come from the line of Arren Cyganovich with Truist.

With respect to what you were discussing in your prepared remarks about base rates declining further as the market expects in earnings and dividends having to be adjusted. I guess, is there a certain level that you would have to be below the current NII? Or is it just once you just kind of see the future there, you'll make that adjustment? And then I guess, lastly, what are your expectations for rate cuts over the next 4 or 5 quarters?

So on our expectation, look, we don't consider ourselves macro counts for the macro view. We tend to look at the forward curve as the best sense of market sentiment -- market sentiment, and we focus on SOFR and that by the end of next year, that's expected to get to be about 3%. So I think that's our expectation, but that we're really just mimicking the market. And we'll have to see there. In terms of dividend policy is robust. We look at it every quarter. We discuss it with the Board every quarter. That's not new to this environment. We had those same discussions as rates were going up and throughout this period of time. And obviously, we're in a different rate environment.

want to have a base dividend that is sustainable with a rate environment that we -- if we expect the rate environment to stay in a stable place, but rates could move up and down. And so you're constantly evaluating this. We put the supplemental dividend in place when rates went up because we thought that might not be sustainable in the supplemental, I think, worked extremely well. We're going to strive to find the right balance between being very thoughtful on rate moves -- excuse me, dividend moves. We -- the portfolio is performing well. This quarter, our NII was $0.01 -- our dividend was $0.01 above at our NII. We have significant spillover we've said we're comfortable through the end of the year. We remain comfortable through the end of the year.

But as we look to 2026, given how much rates have come down or expected to come down, it's logical for investors to think that we'll evaluate reducing the dividend appropriate with the earnings power in a lower rate environment. So we'll look at it. We have a strong performing portfolio. And our dividend levels for investors who are newer to the stock were lower in a lower rate environment. If you went back to when rates were at 3%, our dividend was about $0.33. And so it's -- there are good data points that investors can look to, to try to calibrate where dividends will go. We enjoy the benefit of higher rates, but this -- we think this company is designed to generate a premium return in all rate environments. It's not designed to generate a high level of return when rates are low because of the quality we were investing in and the market we invest in, the rate -- the investment opportunities fluctuate. The absolute return fluctuates based on where rates are.

So I think you can look at where rates were at a 3% environment $0.3 and get a sense of the order of magnitude of what we might consider. We're not doing that now. We're not going to do that for the fourth quarter and we'll have discussions with our Board as 2026 gets underway based on rate expectations at the time to consider what we do with the dividend. But we have a quarter's worth of spillover income and so that gives us a little bit of cushion, but we're not stubborn about it either. We think that the base dividend level should reflect the earnings power of the portfolio in the expected rate environment for a reasonable period of time. So hopefully, that gives you a little bit of a context of how we think about it.

Our next questions come from the line of Robert Dodd with Raymond James.

Moving on to like the outlook for originations activity, et cetera. I mean, I think you've well covered the dividend discussion at this point. I mean you are at basically towards the high end of your target leverage. Obviously, when BDC comes in, then that would adjust. But I mean, is there any opportunity to -- or do you expect that to be an opportunity may take any assets or anything like that in terms of to be -- if M&A activity does continue to ramp that we're hearing about, you're a little -- not tapped out, but I mean your towards the that you might not be able to participate that in that as fully given where the leverage is unless you can obviously repayments happen too. I mean what are your thoughts on what the opportunities are, if there is a real M&A cycle given where your leverage is to start there?

So I'll make a couple of comments, and Logan, maybe you can comment on what activity levels we're seeing right now. You're right. We are at sort of the higher end of the range that we've had. Look, we have a very prolific ability to originate assets at Blue Owl. It's one of our great strengths as a platform. even in moderate M&A environments, we -- this past quarter as a platform originated $10 billion worth with deals. What we've been doing at OBDC is really trying to match originations to repayments, to stay at sort of the mid to higher end of our range, to generate good returns. It's not easy to do that perfectly because deal closings and repayments aren't perfectly precise.

So we're at the higher end, the merger will take leverage down a little bit by itself. And so that will create some cushion and guys, what is it 1.15 or something pro forma? So $1.15 billion pro forma. So that alone will get us down a little bit. And we can modulate this pretty easily in any given quarter because we're constantly getting repayments. And so I think that we can participate in an attractive deal flow cycle if we see an unusually attractive cycle just by allowing some repayments to come in and deploying to get back to 1.2, 1.25. Logan, maybe just comment on what the deal environment has been.

Yes. Sure. in the fall, we've seen a meaningful pickup in our activity levels we've seen in the last couple of months, particularly in September, a pickup of our activity and pipeline by about 1/3 from prior quarter levels. And the mix is significantly weighted now towards sell-side M&A opportunities, which usually and typically result in greater upfront fees when doing a brand-new deal, and there's more new capital, obviously, in those new deals as well in the supply versus what you've seen over the last 2 years is dollar-for-dollar refinancings of deals that come with very little upfront fees.

So the mix is better and the pipeline is higher. We're trying to be cautiously optimistic given we need to get to signings of those deals, but we would note that the teams are very busy and the outlook, we're quite optimistic. I'd also point out something that we pointed out last quarter, and after the OBDE merger that also rings through after OBDC II, we continue to have less pro forma JV and strategic equity investments as we would have had prior to the merger. And so it gives us an opportunity to deploy into those accretive and noncorrelated opportunities.

And if you look at this quarter as an example, the differences are modest, but that dividend income offset some of the base rate decline, and was stable and noncorrelated to the rest of the portfolio, it was really more onetime income-related items that had the impact this quarter versus last quarter. So I think those JVs and strategic investments will be a place post the OBDC II merger, where we're able to take advantage of it.

The follow-on is exactly that. I mean, you created a new vehicle across strategies opportunities or whatever was called, I think, this quarter to take advantage of that. I mean, it's obviously very, very small right now, I think it was like $5 million position. I mean how big could that vehicle be as a piece of the portfolio? And what kind of return on capital do you expect from those versus the -- from that type of opportunity versus the on-balance sheet direct lending?

Sure. So I think it's a great example of the benefits of the platform. Last quarter, we talked about the equipment leasing JV we set up with casters. And this quarter, we set up another entity really for asset-based and alternative credit across the platform. It's meant to be a diversified box of secured investments across a diversified pool of, call it, conviction calls or best-in-class opportunities from the Blue Al platform. We're going to go slowly and keep it quite diversified. But I would expect that there will be some meaningful opportunities there just like every other one of our strategic equity and JV investments, it's going to be a small individual part of the portfolio. It could be 1% or 2% over a number of years.

So I wouldn't expect it to move the needle a lot in the next quarter or 2, but over the next few years, we would look to grow it. And returns wise, just like all of the other JVs we've set up, we're targeting a low double-digit type of return profile that should hopefully be with an asset-backed -- asset base noncorrelated to the corporate credit in the other direct lending names. So similar return profiles and we're going to move slowly and deliberately in the deployment of that new entity.

Our next question has come from the line of Finian O'Shea with Wells Fargo.

Hey, everyone, good morning. Logan sticking with you. I found one of your opening comments interesting on the average or hold sizes and facility sizes approaching $1.5 billion. Correct me if I'm wrong there. I think you were talking about the tranche size total of an average NIM. Is that indicative of more refi repricing risk as the leveraged finance market continues to hold up strong? And how much, I suppose, higher, do you think that will go over time? Or do you think it's more -- do you think you'll be more so broadening as opposed to growing in size of companies?

Yes. No, thanks for the question, Fin. It is related to tranche size, not our specific Blue Owl hold size. And it's been increasing meaningfully. If you look at the first quarter, we noted a comment that in one of the quarters this year, the average deal size exceeded $2 billion total tranche size. So we're seeing sizable businesses, some of them even north of $10 billion enterprise value, choosing direct. And I think if the average deal size or even half of that, we would have the same dynamic of competition with syndicated markets or public markets. So I don't think that that's new.

And I think a point of validation that we continue to monitor are the new M&A and new borrower choices. And there are third parties like S&P, for example, that put out market share statistics quarterly. And despite the public markets being wide open, north of 3/4 of all of those new M&A deals and LBO deals are still choosing direct. So we don't see, even in this low spread public market environment, we don't see material share loss. In fact, we see it the other direction. And I think the experience our borrowers are having is a good one with direct lending. And I think you're seeing that adoption continuing.

So the number of companies in the private markets, the scale of those companies, how long they can stay private for longer is a secular shift. And I think the secular shift to direct is something we're experiencing every single quarter. So I think we have a reasonably long runway for that to continue. And we're not concerned that the dynamic right now is any different with the public markets.

Our next questions come from the line of Casey Alexander with Compass Point.

I'm kind of curious in relation to the $200 million share repurchase program. And I noticed that the merger doesn't have any lockups or gates for the OBDC II shareholders. So is it kind of your plan or your strategy to hold that for after the merger and use that to absorb any potential selling pressure that might come from the merger?

I don't think that we've made that determination. I think that we think about the buyback is something that be used anytime and obviously, current share price environment is one that you have to be looking hard at it. Just because you're raising it, and again, investors may not be familiar with OBDC II. OBDC II throughout its entire life for 7 years has had quarterly tender offers. And we have fulfilled every penny of every tender offer for every quarter for 7 years. So unlike other BDC mergers in the space, where a merger with a public BDC would be the first opportunity for investors to get liquidity. These investors have not only had access, but they've all -- anybody who's wanted out it's gotten out on schedule.

So I think there's a lot of fact patterns to suggest that investors in OBDC II wouldn't necessarily be sellers because if they wanted to sell, they could have just sold in the last tender off we did. So I don't -- so therefore, we're not thinking about our buyback as necessarily needed for the closing of that merger because that fact pattern wouldn't suggest that the merger would create more sellers. So we just view it as to be used in any environment. And certainly, again, the stock price is at a level that we'll look at it.

Our next questions come from the line of Mickey Schleien with Clear Street.

And Craig, thanks and Logan, thank you for all the discussion of the market backdrop. But I wanted to follow up on that issue by noting that we've heard generally that activity has picked up in the third quarter, which is obviously a good thing and that could help balance the direct lending loan market. And with that in mind, I'm curious what your sense is of the market's current balance or disequilibrium and your outlook for spreads, particularly going into next year?

Sure. I'll start and welcome to chime in. Okay, you're asking the question because I think when you look at earnings, certainly our earnings and maybe other BDCs. There are a few different pieces that are at play here, and I think it's worth spending a second on this. we're really confident in the quality of our portfolio. Our portfolio continues to perform well. We did have the one nonaccrual. But overall, we expect credit performance to continue to perform well. What's happened is there's been a meaningful move on rates over the last year, 100 basis points move on rate, and that's been the primary driver of earnings. That shouldn't be a surprise given the floating rate nature of the assets.

But it certainly will produce headlines that earnings are down in a given quarter or down over a year. It's just a function of rates. But to your point, there's another piece, which is spread. Spreads have tightened in the direct lending market directionally, if you look at our OBDC a year ago, we published this spreads in the portfolio were 50 basis points wider than they are today. So you have 2 things going on, a 100 basis point drop in rates and a 50 basis point drop in spreads. Two different cycles. The spread cycle, which is what you're asking about, I think, is a function of 2 things.

One, we do compete with a syndicated market, syndicated spreads are at all-time tights. We're seeing B credits getting priced at $275 to $300 in over the students of the public loan markets would say that's exceptionally tight. In my experience in the leveraged finance space in all these years, that market tends to be cyclical. At some point, you should expect the public loan market spreads to widen out and that could be material. The other activity that's going on is the M&A cycle remains modest. We're seeing signs of pickup. The private equity firms are or eager to resume M&A activity, and we're starting to see signs that that's happening. I don't want to predict this is the beginning of a new cycle. But we're seeing signs in the last month or 2 that are encouraging, and I know other managers have observed that as well.

So if you get an environment where M&A continues to pick up, and you get some -- I would not say, dislocation, just normalization of the public loan market then spreads in the direct lending market will follow suit and spreads will widen out. So I think there's just going to, at some point, be a normal spread widening cycle in the direct lending market. As to when that happens, my prediction skills haven't been good. I would have thought it would happen this year, and it hasn't. But at some point, it will. And when it does, that will offset some of the rate tightening that we've experienced and generate better returns. So again, I don't say I expect to happen next year because I think that it would be -- it's just impossible to predict. But if folks observing the loan market and observing the M&A cycle, I think it's pretty reasonable to think over the next 12 to 18 months that one or both of those things will happen, and we will benefit from it.

One additional point to add on is Craig has mentioned of where syndicated market spreads are today, we've seen spread deployment stability over the last few quarters in private markets. And if you look at the average spread on our new deployments, excluding a couple of one-off second liens or refinancings, we've been deploying right around that 500 over spread level basically for the last year, plus or minus. And so our deployments have been consistent, while public markets continue to tighten. So the relative spread environment still feels reasonably good.

I appreciate that. That's really helpful. And sort of in line with my thesis. Moving on, there were several portfolio companies which contributed to this quarter's unrealized portfolio depreciation, but Conair and Beauty Industry Group or most of it on a net basis. Could you just help us understand what the issues are there? And do you see those sort of factors affecting other portfolio companies?

Sure. So absolutely, thanks. And I think there's 2 different issues on the 2 names. On Conair to address the first one. It's a second lien position predominantly behind a syndicated market first lien. That first lien has been downgraded to CCC ratings and so it has a technical pressure to it, and the marks reflect a relative value to the trading price of the first lien. So there's an element of both technical and fundamental. It also has tariff-related weakness and tariff-related issues affecting the business. They import the vast majority of their goods from China and are working through redeveloping their supply chains to work around or to fix that issue. And so it's going to take time with Conair. It's a name where on the Conair side, they have well over a year's worth of liquidity.

And so there's no imminent event or imminent catalyst that we can see, the company is on solid footing and should have a long period of time to try to work through the tariff-related issues. So it's a tariff-related name in our list, but it's one that's depressed in trading price by a public market name and public market rating dynamic. On the beauty industry side, there are some similarities in the fact that tariffs have impacted the fundamentals beauty industry is a name that we've had in our portfolio for over 5 years through 2 ownership periods. It's been on our watch list for 2 years, and there have been a number of issues. Tariffs is just the latest. Importantly, they had some competition-related issues a number of years ago and then an operational issue and most recently, tariffs given they import most of their beauty-related products from China as well.

The sponsor there over time has put in capital -- and at this period of time, we're unsure that they'll put in additional capital to support the business. So we had further markdowns that we took. But that one doesn't have the same trading dynamics and is a much tighter liquidity situation than Conair and so it's -- it was marked down accordingly this quarter. Hopefully, that provides some

Yes. I would just add, we have said when tariffs kicked in, that there were a few names that we thought were games. And so although disappointing, it's not surprising to us, but I want to reassure investors, this is not indicative of a long list of other names that could migrate.

Why don't we move to the next question.

Our next questions come from the line of Kenneth Lee with RBC Capital Markets.

Just one on the merger here. Wonder if you could just talk a little bit more about expected time frames for achieving the expected ROE accretion that you mentioned?

Sure, I mean, timing-wise, similar timing in terms of our expectation to close the merger, which should be at some point, hopefully in the first quarter, maybe later in the first quarter. The OpEx synergies tend to come in relatively quickly, just given they're mostly related to duplicative expenses and things along those lines. the capital structure related synergies do sometimes take a little bit longer, but we expect most of -- we expect we can achieve most of those in 2026.

And the effect of just leveraging out the portfolio just given the relative small size of OBDC II to OBDC also is a relatively near-term event. So we don't think that it's going to take very long.

Got you. Very helpful there. And then just a follow-up, if I may, another one on the new share repurchase program. How would you evaluate potential share repurchases in the context of OBDC's leverage -- and as well, how would you approach balancing between repurchases and a potential pickup in investment opportunities over the near term there?

Look, I think that -- I think you're doing a good job of identifying all the variables. We're going to balance all of those variables. I think that, look, our capital is permanent and very valuable. And so we are always trying to preserve that capital for new investment opportunities. But certainly, in a world where the stock is where it is, and where we've already talked about how spreads are tight and rates are lower, then it's going to make the attractiveness of buying shares that much better.

So -- and leverage obviously plays in. I've already commented on leverage. Leverage, we can manage leverage just as we get repayments, which we continue to get. So I can't -- it's not scientific, and I think this is well understood. We also operate with various windows based on our public disclosure periods of time. So in any given quarter, legal judgment is there's periods of time in the quarter where we can buy shares, and we can't, based on when we're going to report results and the like and when we get information from our portfolio companies.

So we're not open there's meaningful parts of a quarter where essentially we're not able to buy shares. So in the periods of time where we can buy, we look at where the share price is, we'll look at other -- where other investment opportunities are. We look at the leverage and we'll make appropriate judgments as we have in the past. I wish I can give you a more precise analytical answer, but I think it's a function of all those things.

Our next questions come from the line of Sean Paul Adams with B. Riley Securities.

Given the impact of the uptick and the scale on earnings, are there any potential valuations for changes on the management fee cost structure on a go-forward basis?

I'm not sure I totally understand the question, but no, we're not looking at the management fee structure, if that's your question. We've had the same structure for almost 10 years and to had the same fee structure. So -- and our tech fund has the same as this is the fee structure.

Our next questions come from the line of Christopher Nolan with Ladenburg Thalmann.

Just a follow-up on that previous question on the management fee structure. Given your comments in terms of narrower spreads, lower rates, you're in a different environment. And any consideration to improving expenses relative to revenues, improve the total return of OBDC?

I appreciate why you're asking the question. I just would urge you to look over the life of the fund. It's had the same fee structure has that same fee structure when rates were at 0 for multiple years. We had the same fee structure. The fee structure has been set. It's very visible. We're consistent with it. It's not something that we're evaluating. It's -- I think it's designed in a thoughtful way, consistent with other industry peers and commensurate with the quality and the resources that we apply to it. I don't think the intention of the fee structure is to move around based on where rates are in any 3-, 6-month, 9-month period in either direction. So I don't think that's an expectation that people should have.

Okay. The only reason I ask is your investment yields on debt is roughly 10.5% and your stock is yielding dividend yield roughly 12% or so, a little less. And I'm just -- the total returns, part of the reason possibly while the stock is trading below book is total returns. And I'm just trying to look at the -- you mentioned earlier that all levers are available. I'm just following up on that.

I have lots of opinions about why our stock is trading where it is trading, but I'd say there are peer stocks that are comparable quality that have much lower yields. And so I don't think it's I don't -- I hear your question. We're hoping that this is a short-term technical situation. Investors have been very jumpy about some of the headlines in private credit generally. And so in the short term, investors seem to be reacting to a headline or 2 that's happening in the marketplace. I think your -- I appreciate your pointing out that our stock is yielding 12% for a really high-quality performing portfolio.

And so our hope is that investors will find that attractive, and we'll certainly buy back is a factor. Look, there have been periods of time where the stock has been dislocated again over the last 10 years. We haven't changed the fee structure. I just -- I don't think that's something that is towards that -- is really a meaningful consideration. I want to keep saying it. but I think everything else is. And I'm hoping that investors will see the quality of the portfolio and the opportunity to earn that type of yield. And by the way, even if dividends go down a little bit, you're still going to talk about a 10%, 11% yield that hopefully folks will find that attractive and the stock will get moving in a more constructive direction.

Our next question has come from the line of Brian McKenna with Citizens.

So just a quick follow-up on repayment activity. Clearly, a little bit lighter in the quarter, and they can bounce around from quarter-to-quarter, but any visibility into repayments? I'm just trying to think through is that $0.02 per share of nonrecurring income, a good starting point for the fourth quarter?

I think so far, it's consistent with the prior quarter. No change.

$0.02 seem about right.

Our next questions come from the line of Mickey Schleien with Clear Street.

Apologies, the phone cut out. A couple of questions. In terms of the merger closing, are you assuming the government is going to reopen quickly and get the SEC fully up and running in your assessment?

That would be part of the assessment that they would be able to review that. But ultimately, we think the projection that we've got in place accounts for that.

Okay. And I don't want to beat a dead horse here, but I just want to confirm, there were no repurchases and stock repurchase program. Is that correct?

That's correct.

Thank you. We have reached the end of our question-and-answer session. I would now like to hand the call back over to management for closing remarks.

Okay. Look, we appreciate the engagement. We're available. If folks have questions, please reach out. Thanks for your time, and we will speak with everyone soon.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.