Analysis of Blue Owl Capital’s 5 BDCs Suggest Diverging Strategies Based on Scale, Leverage, Access to Equity Capital

Credit Research: Michael Soricillo Relevant Document: Octus BDC Database   Key Takeaways   An analysis of Blue Owl’s five managed business development companies highlights different fund strategies based on management’s belief in proper scale, shareholder dilution, leverage and opportunities. Scale is an important part of Blue Owl’s strategy because a larger platform can improve access to capital and generate additional investment opportunities. Management has also shown willingness to increase leverage to fund level targets, which management is increasingly relying on given elevated redemptions. When funds reach management’s targets and equity issuance is not available, management may preserve flexibility by slowing deployment, harvesting assets, reducing debt, repurchasing shares or returning capital. Blue Owl Capital Corp.’s limited access to accretive equity was an important rationale for the proposed merger with Blue Owl Capital Corp. II. With Blue Owl Capital Corp. trading below net asset value, the merger offered an alternative path to greater scale without issuing dilutive equity. After the transaction was terminated, the two vehicles followed different paths: Blue Owl Capital Corp. harvested assets, reduced leverage and accumulated capacity for future redeployment, while Blue Owl Capital Corp. II effectively entered runoff mode, reducing its net deployment ratio to 0.17x and prioritizing[...]