Blue Owl Capital Corp
For the period ended Jun 30, 2024. Filed Aug 7, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 7, 2024
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Item 4.
Note 6. Fair Value of Investments
Investments
The tables below present the fair value hierarchy of investments as of the following periods:
| ($ in thousands) | Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|
| Cash (including restricted and foreign cash) | $379,984 | $— | $— | $379,984 |
| Investments: | ||||
| First-lien senior secured debt investments(1) | $— | $90,050 | $9,981,703 | $10,071,753 |
| Second-lien senior secured debt investments | — | 89,685 | 747,823 | 837,508 |
| Unsecured debt investments | — | — | 289,478 | 289,478 |
| Preferred equity investments(4) | — | — | 388,702 | 388,702 |
| Common equity investments(2) | 838 | — | 1,330,108 | 1,330,946 |
| Subtotal | $838 | $179,735 | $12,737,814 | $12,918,387 |
| Investments measured at NAV(3) | — | — | — | 423,595 |
| Total Investments at fair value | $838 | $179,735 | $12,737,814 | $13,341,982 |
| Derivatives: | ||||
| Interest rate swaps | $— | $(51,639) | $— | $(51,639) |
(2)Includes equity investment in Wingspire, Amergin AssetCo, and Fifth Season.
(3)Includes equity investment in OBDC SLF.
| ($ in thousands) | Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|
| Cash (including restricted and foreign cash) | $659,658 | $— | $— | $659,658 |
| Investments: | ||||
| First-lien senior secured debt investments(1) | $— | $— | $8,660,754 | $8,660,754 |
| Second-lien senior secured debt investments | — | 99,715 | 1,675,269 | 1,774,984 |
| Unsecured debt investments | — | 11,793 | 280,958 | 292,751 |
| Preferred equity investments(4) | — | — | 433,297 | 433,297 |
| Common equity investments(2) | 1,093 | — | 1,207,683 | 1,208,776 |
| Subtotal | $1,093 | $111,508 | $12,257,961 | $12,370,562 |
| Investments measured at NAV(3) | — | — | — | 342,786 |
| Total Investments at fair value | $1,093 | $111,508 | $12,257,961 | $12,713,348 |
| Derivatives: | ||||
| Interest rate swaps | $— | $— | $(45,656) | $— |
(2)Includes equity investment in Wingspire, Amergin AssetCo and Fifth Season.
(3)Includes equity investment in OBDC SLF.
The tables below present the changes in the fair value of investments for which Level 3 inputs were used to determine the fair value as of and for the following periods:
| As of and for the Three Months Ended June 30, 2024 | ||||||
|---|---|---|---|---|---|---|
| ($ in thousands) | First-lien senior secured debtinvestments | Second-lien senior secureddebt investments | Unsecured debt investments | Preferred equity investments | Common equityinvestments | Total |
| Fair value, beginning of period | $8,987,928 | $881,128 | $269,728 | $452,171 | $1,277,564 | $11,868,519 |
| Purchases of investments, net | 1,681,677 | (3,820) | 65,917 | — | 97,116 | 1,840,890 |
| Payment-in-kind | 31,812 | 4,622 | 7,552 | 9,089 | 195 | 53,270 |
| Proceeds from investments, net | (694,778) | (100,791) | (118,699) | (5,314) | (58,198) | (977,780) |
| Net change in unrealized gain (loss) | (38,791) | (34,642) | 9,418 | (2,690) | 13,432 | (53,273) |
| Net realized gains (losses) | (22) | — | (10,971) | — | — | (10,993) |
| Net amortization/accretion of discount/premium on investments | 13,877 | 1,326 | 515 | 1,464 | (1) | 17,181 |
| Transfers between investment types | — | — | 66,018 | (66,018) | — | — |
| Transfers into (out of) Level 3(1) | — | — | — | — | — | — |
| Fair value, end of period | $9,981,703 | $747,823 | $289,478 | $388,702 | $1,330,108 | $12,737,814 |
(1)Transfers between levels, if any, are recognized at the beginning of the period in which the transfers occur.
| As of and for the Six Months Ended June 30, 2024 | ||||||
|---|---|---|---|---|---|---|
| ($ in thousands) | First-lien senior secureddebt investments | Second-lien senior secureddebt investments | Unsecured debtinvestments | Preferred equityinvestments | Common equityinvestments | Total |
| Fair value, beginning of period | $8,660,754 | $1,675,269 | $280,958 | $433,297 | $1,207,683 | $12,257,961 |
| Purchases of investments, net | 2,476,736 | (3,820) | 68,072 | 7,228 | 193,868 | 2,742,084 |
| Payment-in-kind | 56,553 | 6,281 | 18,149 | 20,493 | 386 | 101,862 |
| Proceeds from investments, net | (1,194,196) | (886,661) | (137,677) | (7,754) | (58,618) | (2,284,906) |
| Net change in unrealized gain (loss) | (33,434) | (49,716) | 8,085 | (2,414) | 27,584 | (49,895) |
| Net realized gains (losses) | (6,158) | (2,146) | (12,721) | — | — | (21,025) |
| Net amortization/accretion of discount/premium on investments | 21,448 | 8,616 | 750 | 1,714 | (1) | 32,527 |
| Transfers between investment types | — | — | 63,862 | (63,862) | — | — |
| Transfers into (out of) Level 3(1) | — | — | — | — | (40,794) | (40,794) |
| Fair value, end of period | $9,981,703 | $747,823 | $289,478 | $388,702 | $1,330,108 | $12,737,814 |
(1)Transfers into (out of) Level 3 were a result of an investment measured at net asset value which is no longer categorized within the fair value hierarchy.
| As of and for the Three Months Ended June 30, 2023 | ||||||
|---|---|---|---|---|---|---|
| ($ in thousands) | First-lien senior secureddebt investments | Second-lien senior secureddebt investments | Unsecured debtinvestments | Preferred equityinvestments | Common equityinvestments | Total |
| Fair value, beginning of period | $9,276,243 | $1,761,897 | $262,191 | $388,592 | $1,054,731 | $12,743,654 |
| Purchases of investments, net | 219,212 | — | — | 1,990 | 61,122 | 282,324 |
| Payment-in-kind | 42,671 | 3,924 | 5,259 | 10,094 | 179 | 62,127 |
| Proceeds from investments, net | (643,017) | (35,851) | — | (1,589) | — | (680,457) |
| Net change in unrealized gain (loss) | (4,404) | (1,025) | 5,707 | 1,302 | 15,299 | 16,879 |
| Net realized gains (losses) | 118 | — | — | — | — | 118 |
| Net amortization of discount on investments | 8,168 | 1,126 | 115 | 236 | — | 9,645 |
| Transfers between investment types | — | — | — | — | — | — |
| Transfers into (out of) Level 3(1) | (13,005) | (26,562) | (10,870) | — | — | (50,437) |
| Fair value, end of period | $8,885,986 | $1,703,509 | $262,402 | $400,625 | $1,131,331 | $12,383,853 |
(1)Transfers between levels, if any, are recognized at the beginning of the period in which the transfers occur. For the period ended June 30, 2023, transfers out of Level 3 into Level 2 were a result of changes in the observability of significant inputs for certain portfolio companies.
| As of and for the Six Months Ended June 30, 2023 | ||||||
|---|---|---|---|---|---|---|
| ($ in thousands) | First-lien senior secureddebt investments | Second-lien senior secureddebt investments | Unsecured debtinvestments | Preferred equityinvestments | Common equityinvestments | Total |
| Fair value, beginning of period | $9,279,179 | $1,817,286 | $237,440 | $355,261 | $977,111 | $12,666,277 |
| Purchases of investments, net | 365,149 | (10) | — | 21,921 | 98,375 | 485,435 |
| Payment-in-kind | 70,253 | 7,715 | 13,458 | 21,072 | 342 | 112,840 |
| Proceeds from investments, net | (784,653) | (55,050) | (193) | (1,590) | (12,400) | (853,886) |
| Net change in unrealized gain (loss) | 53,988 | 5,002 | 11,491 | 3,538 | 20,084 | 94,103 |
| Net realized gains (losses) | (52,365) | — | (23) | — | — | (52,388) |
| Net amortization of discount on investments | 15,625 | 2,051 | 229 | 471 | — | 18,376 |
| Transfers between investment types | (47,819) | — | — | — | 47,819 | — |
| Transfers into (out of) Level 3(1) | (13,371) | (73,485) | — | (48) | — | (86,904) |
| Fair value, end of period | $8,885,986 | $1,703,509 | $262,402 | $400,625 | $1,131,331 | $12,383,853 |
(1)Transfers between levels, if any, are recognized at the beginning of the period in which the transfers occur. For the period ended June 30, 2023, transfers out of Level 3 into Level 2 were a result of changes in the observability of significant inputs for certain portfolio companies.
The table below presents the net change in unrealized gains on investments for which Level 3 inputs were used in determining the fair value that are still held by the Company for the following periods:
| Net change in unrealized gain (loss) for the Three Months Ended June 30, 2024 on Investments Held at June 30, 2024 | Net change in unrealized gain (loss) for the Three Months Ended June 30, 2023 on Investments Held at June 30, 2023 | |
|---|---|---|
| First-lien senior secured debt investments | $(34,181) | $(2,231) |
| Second-lien senior secured debt investments | (34,231) | (1,139) |
| Unsecured debt investments | 9,418 | 5,707 |
| Preferred equity investments | (1,939) | 1,302 |
| Common equity investments | 13,432 | 15,298 |
| Total Investments | $(47,501) | $18,937 |
| Net change in unrealized gain (loss) for the Six Months Ended June 30, 2024 on Investments Held at June 30, 2024 | Net change in unrealized gain (loss) for the Six Months Ended June 30, 2023 on Investments Held at June 30, 2023 | |
|---|---|---|
| First-lien senior secured debt investments | $(29,697) | $6,169 |
| Second-lien senior secured debt investments | (44,263) | 5,001 |
| Unsecured debt investments | 8,085 | 11,491 |
| Preferred equity investments | (1,611) | 3,538 |
| Common equity investments | 27,581 | 67,902 |
| Total Investments | $(39,905) | $94,101 |
The following tables present quantitative information about the significant unobservable inputs of the Company’s Level 3 investments as of the following periods. The weighted average range of unobservable inputs is based on fair value of investments. The tables are not intended to be all-inclusive but instead capture the significant unobservable inputs relevant to the Company’s determination of fair value.
| As of June 30, 2024 | |||||
|---|---|---|---|---|---|
| ($ in thousands) | Fair Value | Valuation Technique | Unobservable Input | (Range) Weighted Average | Impact to Valuation from anIncrease in Input |
| First-lien senior secured debt investments | $8,389,314 | Yield Analysis | Market Yield | (6.0% - 30.3%) 12.0% | Decrease |
| 1,432,773 | Recent Transaction | Transaction Price | (98.0% - 100.0%) 99.2% | Increase | |
| 159,616 | Collateral Analysis | Recovery Rate | (47.0% - 89.8%) 64.5% | Increase | |
| Second-lien senior secured debt investments | $717,095 | Yield Analysis | Market Yield | (11.3% - 25.2%) 15.9% | Decrease |
| 30,728 | Collateral Analysis | Recovery Rate | (10.0% - 20.0%) 17.9% | Increase | |
| Unsecured debt investments | $149,153 | Yield Analysis | Market Yield | (10.2% - 17.4%) 12.5% | Decrease |
| 133,991 | Recent Transaction | Transaction Price | (99.2% - 100.0%) 99.2% | Increase | |
| 6,334 | Market Approach | EBITDA Multiple | (12.5x - 12.5x) 12.5x | Increase | |
| Preferred equity investments | $380,501 | Yield Analysis | Market Yield | (13.4% - 32.2%) 16.7% | Decrease |
| 8,049 | Market Approach | EBITDA Multiple | (7.1x - 7.1x) 7.1x | Increase | |
| 152 | Recent Transaction | Transaction Price | (100.0% - 100.0%) 100.0% | Increase | |
| Common equity investments | $971,164 | Market Approach | EBITDA Multiple | (1.3x - 22.0x) 4.9x | Increase |
| 268,700 | Market Approach | AUM Multiple | (1.1x - 1.1x) 1.1x | Increase | |
| 37,813 | Recent Transaction | Transaction Price | (55.6% - 100.0%) 99.2% | Increase | |
| 35,839 | Market Approach | Revenue Multiple | (1.9x - 13.5x) 9.9x | Increase | |
| 10,139 | Yield Analysis | Market Yield | (8.3% - 8.3%) 8.3% | Decrease | |
| 6,007 | Market Approach | Transaction Price | ($96.84 - $96.84) $96.84 | Increase | |
| 324 | Option Pricing Model | Volatility | (60.0% - 70.0%) 69.9% | Increase | |
| 122 | Market Approach | Gross Profit Multiple | (9.0x - 9.0x) 9.0x | Increase | |
| ($ in thousands) | Fair Value | Valuation Technique | Unobservable Input | Range (Weighted Average) | Impact to Valuation from anIncrease in Input |
|---|---|---|---|---|---|
| First-lien senior secured debt investments | $7,553,464 | Yield Analysis | Market Yield | (9.1% - 27.4%) 12.8% | Decrease |
| 1,047,390 | Recent Transaction | Transaction Price | (97.0% - 99.8%) 98.6% | Increase | |
| 59,900 | Collateral Analysis | Recovery Rate | (82.5% - 82.5%) 82.5% | Increase | |
| Second-lien senior secured debt investments | $1,666,832 | Yield Analysis | Market Yield | (11.4% - 39.5%) 15.8% | Decrease |
| 8,437 | Collateral Analysis | Recovery Rate | (13.3% - 13.3%) 13.3% | Increase | |
| Unsecured debt investments | $275,158 | Yield Analysis | Market Yield | (10.6% - 17.2%) 12.0% | Decrease |
| 5,800 | Market Approach | EBITDA Multiple | (11.8x - 11.8x) 11.8x | Increase | |
| Preferred equity investments | $396,747 | Yield Analysis | Market Yield | (12.6% - 25.8%) 16.4% | Decrease |
| 36,550 | Recent Transaction | Transaction Price | (98.0% - 107.5%) 104.4% | Increase | |
| Common equity investments | $938,313 | Market Approach | EBITDA Multiple | (1.2x - 20.3x) 5.6x | Increase |
| 218,333 | Recent Transaction | Transaction Price | (100.0% - 100.0%) 100.0% | Increase | |
| 36,138 | Market Approach | Revenue | (1.9x - 14.7x) 10.5x | Increase | |
| 9,606 | Yield Analysis | Market Yield | (7.9% - 7.9%) 7.9% | Decrease | |
| 5,149 | Market Approach | Transaction Price | ($92.00 - $92.00) $92.00 | Increase | |
| 144 | Market Approach | Gross Profit | (9.9x - 9.9x) 9.9x | Increase |
The Company typically determines the fair value of its performing Level 3 debt investments utilizing a yield analysis. In a yield analysis, a price is ascribed for each investment based upon an assessment of current and expected market yields for similar investments and risk profiles. Additional consideration is given to the expected life, portfolio company performance since close, and other terms and risks associated with an investment. Among other factors, a determinant of risk is the amount of leverage used by the portfolio company relative to its total enterprise value, and the rights and remedies of the Company’s investment within the portfolio company’s capital structure.
When the debtor is not performing or when there is insufficient value to cover the investment, the Company may utilize a net recovery approach to determine the fair value of debt investments in subject companies. A net recovery analysis typically consists of two steps. First, the total enterprise value for the subject company is estimated using standard valuation approaches, most commonly the market approach. Second, the fair value for each investment in the subject company is then estimated by allocating the subject company’s total enterprise value to the outstanding securities in the capital structure based upon various factors, including seniority, preferences, and other features if deemed relevant to each security in the capital structure.
Significant unobservable quantitative inputs typically used in the fair value measurement of the Company’s Level 3 debt investments primarily include current market yields, including relevant market indices, but may also include quotes from brokers, dealers, and pricing services as indicated by comparable investments. For the Company’s Level 3 equity investments, a market approach, based on comparable financial performance multiples such as publicly-traded company and comparable market transaction multiples of revenues, earnings before income taxes, depreciation and amortization (“EBITDA”), or some combination thereof and comparable market transactions typically would be used.
Debt Not Carried at Fair Value
Fair value is estimated by discounting remaining payments using applicable current market rates, which take into account changes in the Company’s marketplace credit ratings, or market quotes, if available. The table below presents the carrying and fair values of the Company’s debt obligations as of the following periods:
| June 30, 2024 · December 31, 2023 | ||||
|---|---|---|---|---|
| ($ in thousands) | Net Carrying Value(1) | Fair Value | Net Carrying Value(2) | Fair Value |
| Revolving Credit Facility | $645,442 | $645,442 | $401,075 | $401,075 |
| SPV Asset Facility II | 295,985 | 295,985 | 245,728 | 245,728 |
| CLO I | 386,177 | 386,177 | 274,213 | 274,213 |
| CLO II | 257,602 | 257,602 | 257,467 | 257,467 |
| CLO III | 258,251 | 258,251 | 258,324 | 258,324 |
| CLO IV | 288,459 | 288,459 | 288,184 | 288,184 |
| CLO V | 507,150 | 507,150 | 507,000 | 507,000 |
| CLO VI | — | — | 258,425 | 258,425 |
| CLO VII | 237,434 | 237,434 | 237,288 | 237,288 |
| CLO X | 258,230 | 258,230 | 258,126 | 258,126 |
| 2024 Notes | — | — | 395,942 | 399,000 |
| 2025 Notes | 423,716 | 418,625 | 422,880 | 413,313 |
| July 2025 Notes | 498,025 | 487,500 | 497,118 | 478,750 |
| 2026 Notes | 496,434 | 486,250 | 495,320 | 483,750 |
| July 2026 Notes | 989,955 | 945,000 | 987,597 | 930,000 |
| 2027 Notes | 453,242 | 458,750 | 454,017 | 451,250 |
| 2028 Notes | 839,622 | 754,375 | 838,384 | 745,875 |
| 2029 Notes | 579,196 | 595,500 | — | — |
| Total Debt | $7,414,920 | $7,280,730 | $7,077,088 | $6,887,768 |
(1)The carrying value of the Company’s Revolving Credit Facility, SPV Asset Facility II, CLO I, CLO II, CLO III, CLO IV, CLO V, CLO VII, CLO X, 2025 Notes, July 2025 Notes, 2026 Notes, July 2026 Notes, 2027 Notes, 2028 Notes and 2029 Notes are presented net of deferred financing costs of $16.8 million, $4.0 million, $3.8 million, $2.4 million, $1.7 million, $4.0 million, $2.5 million, $1.7 million, $1.8 million, $1.3 million, $2.0 million, $3.6 million, $10.0 million, $5.1 million, $10.4 million and $13.3 million respectively.
(2)The carrying value of the Company’s Revolving Credit Facility, SPV Asset Facility II, CLO I, CLO II, CLO III, CLO IV, CLO V, CLO VI, CLO VII, CLO X, 2024 Notes, 2025 Notes, July 2025 Notes, 2026 Notes, July 2026 Notes, 2027 Notes and 2028 Notes are presented net of deferred financing costs of $18.0 million, $4.3 million, $2.4 million, $2.5 million, $1.7 million, $4.3 million, $2.6 million, $1.6 million, $1.9 million, $1.9 million, $0.6 million, $2.1 million, $2.9 million, $4.7 million, $12.4 million, $6.0 million and $11.6 million, respectively.
The below table presents the fair value measurements of the Company’s debt obligations as of the following periods:
| ($ in thousands) | June 30, 2024 | December 31, 2023 |
|---|---|---|
| Level 1 | $— | $— |
| Level 2 | 4,146,000 | 3,901,938 |
| Level 3 | 3,134,730 | 2,985,830 |
| Total Debt | $7,280,730 | $6,887,768 |
Financial Instruments Not Carried at Fair Value
As of June 30, 2024 and December 31, 2023, the carrying amounts of the Company’s other assets and liabilities approximate fair value due to their short maturities. These financial instruments would be categorized as Level 3 within the hierarchy.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.