Blue Owl Capital Q2 2026 Earnings Report

Blue Owl Capital EPS Results

• Actual EPS: $0.34
• Consensus EPS: $0.32
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $0.40

Blue Owl Capital Revenue Results

• Actual Revenue: $396.00 million
• Expected Revenue: $394.23 million
• Beat/Miss: Beat by +$1.77 million
• YoY Revenue Growth: N/A

Blue Owl Capital Announcement Details

• Quarter: Q2 2026
• Date: 8/5/2026
• Time: After Market Closes
• Conference Call Date: Thursday, August 6, 2026
• Conference Call Time: 10:00AM ET

Blue Owl Capital (NYSE:OBDC) (NYSE: OBDC) is a publicly traded business development company sponsored by Blue Owl Capital, a global alternative asset manager. Launched in 2020, the firm provides customized financing solutions to middle-market companies across various industries. As an externally managed BDC, Blue Owl Capital Corporation leverages the deep credit‐investment capabilities of its sponsor to deliver flexible capital tailored to the needs of growing businesses.

The company’s investment activities span a range of private credit products, including first‐lien senior secured loans, unitranche facilities, second‐lien financings, mezzanine debt, and minority equity co-investments. Its portfolio is diversified across healthcare, technology, business services, industrials, and consumer sectors, with a primary focus on North American borrowers. By structuring bespoke capital solutions, Blue Owl Capital Corporation aims to support management teams in executing growth initiatives, refinancing existing obligations, and pursuing strategic acquisitions.

Blue Owl Capital Corporation benefits from its affiliation with Blue Owl Capital’s broader credit platform, which operates offices in New York, San Francisco, Charlotte, and London. This network allows the BDC to source investment opportunities, conduct rigorous due diligence, and monitor portfolio companies through market cycles. The company’s disciplined underwriting approach emphasizes downside protection and risk mitigation, drawing on the experience of seasoned investment professionals.

The firm’s management team is led by Blue Owl Capital co-founders Michael Cavanagh and Doug Ostrover, who together have overseen the expansion of the platform since its inception. Under their guidance, Blue Owl Capital Corporation has established itself as a reliable financing partner for middle-market enterprises seeking non-dilutive capital. The company’s ongoing objective is to generate attractive risk-adjusted returns for its shareholders through a combination of income and capital appreciation.

Blue Owl Capital Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Adjusted NII rose to $0.34 per share from $0.31, covering the $0.31 base dividend by 110%; the company also declared a $0.02 supplemental dividend, supported by approximately $0.29 per share of spillover income.
• Positive Sentiment: OBDC ended the quarter with net leverage of 1.11x, its lowest level in more than two years, and approximately $3.5 billion of liquidity after issuing unsecured bonds, extending its $4 billion revolver, and eliminating higher-cost secured facilities.
• Positive Sentiment: Portfolio credit metrics remained strong, with borrower revenue and EBITDA growing mid- to high-single digits, non-accruals at 0.8% of fair value, interest coverage near 2x, and stable loan-to-value ratios of 47%.
• Negative Sentiment: NAV per share declined to $14.26 from $14.41, primarily because of a markdown on Loparex after a proposed recapitalizing M&A transaction failed.
• Negative Sentiment: Investment activity remained muted, with $429 million of fundings versus $747 million of repayments; management said refinancing and M&A activity had not meaningfully improved entering the third quarter and that elevated quarterly income benefited from one-time Mavis Tire and LSI realizations.

Presentation

[Operator]

Good morning everyone, 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.

[Mike Mosticchio, Head of BDC Investor Relations at Blue Owl Capital Corporation]

Thank you operator, welcome to Blue Owl Capital Corporation's second quarter 2026 earnings. 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 Presentation section of our website.

[Mike Mosticchio, Head of BDC Investor Relations at Blue Owl Capital Corporation]

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 30th, 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.

[Craig Packer, CEO at Blue Owl Capital Corporation]

Thanks, Mike, 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.

[Craig Packer, CEO at Blue Owl Capital Corporation]

As you'll 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.

[Craig Packer, CEO at Blue Owl Capital Corporation]

We ended the quarter with net leverage at 1.11 times, 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.

[Craig Packer, CEO at Blue Owl Capital Corporation]

That is an important distinction compared to Q1, when approximately three-quarters 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 continued to perform in line with our expectations.

[Craig Packer, CEO at Blue Owl Capital Corporation]

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. I'll turn the call over to Logan to provide more details on our investment activity and portfolio performance.

[Logan Nicholson, Senior Managing Director at Blue Owl Capital Corporation]

Thanks, Craig. Starting with investment activity, 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 1.11 times. 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.

[Logan Nicholson, Senior Managing Director at Blue Owl Capital Corporation]

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.

[Logan Nicholson, Senior Managing Director at Blue Owl Capital Corporation]

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 pay 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.

[Logan Nicholson, Senior Managing Director at Blue Owl Capital Corporation]

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.

[Logan Nicholson, Senior Managing Director at Blue Owl Capital Corporation]

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, non-accruals 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.

[Logan Nicholson, Senior Managing Director at Blue Owl Capital Corporation]

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. 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 threes to fives 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 two times. Revolver draws are at conservative levels, and amendment activity is stable. Portfolio company net leverage averaged 5.8 times, which has modestly declined over the past two 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 below our loans in the capital structure.

[Logan Nicholson, Senior Managing Director at Blue Owl Capital Corporation]

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 two years and the continued sourcing advantages of the Blue Owl platform, we have flexibility to lean in as the opportunity set improves. I'll turn it over to Jonathan to review the financial results.

[Jonathan Lamm, CFO and COO at Blue Owl Capital Corporation]

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 non-recurring income from the realization of Mavis, as well as higher dividend income from LSI. 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. Funding costs have continued to trend modestly higher as lower coupon legacy unsecured notes mature and are refinanced at current market rates. This dynamic is consistent with our expectations, and we continue to feel good about the portfolio's earnings potential going forward.

[Jonathan Lamm, CFO and COO at Blue Owl Capital Corporation]

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 15th to shareholders of record as of September 30th. 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 15th to shareholders of record as of August 31st. 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.

[Jonathan Lamm, CFO and COO at Blue Owl Capital Corporation]

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 1.11 times within our target range of 0.9 to 1.25 times, which was lower quarter-over-quarter. This was driven by repayments exceeding new deployment during the quarter. Our lower leverage positions us well for future opportunities. Turning to our capital structure.

[Jonathan Lamm, CFO and COO at Blue Owl Capital Corporation]

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.

[Jonathan Lamm, CFO and COO at Blue Owl Capital Corporation]

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.

[Craig Packer, CEO at Blue Owl Capital Corporation]

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.

[Craig Packer, CEO at Blue Owl Capital Corporation]

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 and also in support of our existing portfolio companies. The investment backdrop has improved meaningfully from where we started the year.

[Craig Packer, CEO at Blue Owl Capital Corporation]

The forward rate curve is now roughly 100 basis points higher. Spreads remain wider and financing terms have become more attractive. All 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. Non-accruals 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.

[Craig Packer, CEO at Blue Owl Capital Corporation]

In closing, we believe OBDC combines resilient credit performance, ample financial flexibility, and the discipline to selectively capitalize on improving market opportunities.

[Craig Packer, CEO at Blue Owl Capital Corporation]

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]

Thank you. We'll now be conducting a question and answer session. If you'd like to be placed into question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. One moment please while we poll for questions. Our first question today is coming from Arren Cyganovich from Truist Securities. Your line is now live.

[Arren Cyganovich, VP at Truist Securities]

Thanks. 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. Can we infer that it was basically driven by amendments in the portfolio? What were those fees related to?

[Jonathan Lamm, CFO and COO at Blue Owl Capital Corporation]

Sure. Yeah. 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. It was Mavis-driven.

[Craig Packer, CEO at Blue Owl Capital Corporation]

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

[Arren Cyganovich, VP at Truist Securities]

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

[Jonathan Lamm, CFO and COO at Blue Owl Capital Corporation]

It was effectively going back to the company, so 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, not typical relative to some of the other prepayments that you'll see on a debt instrument.

[Arren Cyganovich, VP at Truist Securities]

Okay. 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 the dividend income level to also kind of pull back a little?

[Logan Nicholson, Senior Managing Director at Blue Owl Capital Corporation]

Yeah, 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. I would view those as more normal run rating. At LSI in particular, we had a nice realization, a 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. A great result on a $140 million position within that vehicle. It was also notably a repayment and a good outcome in LSI that drove that one-time boost at LSI.

[Logan Nicholson, Senior Managing Director at Blue Owl Capital Corporation]

The equity investments and 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. 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. 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.

[Logan Nicholson, Senior Managing Director at Blue Owl Capital Corporation]

Mavis was a notably large one, but every quarter we get some.

[Arren Cyganovich, VP at Truist Securities]

Great. Appreciate all the color. Thank you.

[Craig Packer, CEO at Blue Owl Capital Corporation]

Thank you.

[Operator]

Thank you. Next question today is coming from Robert Dodd from Raymond James. Your line is now live.

[Robert Dodd, Analyst at Raymond James]

Hi, guys, and congratulations on the quarter. I want to sort of ask about Mavis, but not really Mavis. Obviously a great outcome on that thing. I don't think that would constitute necessarily a halo asset, like heavy asset, low obsolescence, but it seems it's a lot closer to that than it is a tech asset, right? In terms of mix, with such a good outcome there, should we expect more of those kind of assets in the portfolio going forward? Yes, it's got PIK isn't all bad. It seems like the kind of industry that's much more defensible versus the AI worries out there. Are you seeing more of those kind of things in the pipeline, and you're increasing optimism for the second half, or it was a one-off and it was a great one-off?

[Craig Packer, CEO at Blue Owl Capital Corporation]

Sure, Robert. Let me try to hit that in two 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. 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. 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 generated good returns.

[Craig Packer, CEO at Blue Owl Capital Corporation]

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 as why we do PIK and how we do PIK. Here it gets repaid, and we collect all the PIK dividends that have been accruing in cash this quarter. In terms of the AI software part of your question, OBDC has about 18% software. 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 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.

[Craig Packer, CEO at Blue Owl Capital Corporation]

The other 82% of the portfolio is not software, and Mavis fits nicely in there and 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. Tire retailing fits that. It's a business that does well in almost any economic environment. That's our bread and butter of what we try to do.

[Robert Dodd, Analyst at Raymond James]

Got it.

[Craig Packer, CEO at Blue Owl Capital Corporation]

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. 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. PE valuations, I think, need to come in line with where folks hope to exit for that to really kick into gear.

[Craig Packer, CEO at Blue Owl Capital Corporation]

We continue to see a steady beat of activity that will allow us to continue to invest at a regular pace. We hope at some point it really expands to something more robust.

[Robert Dodd, Analyst at Raymond James]

Got it. Thank you. That answered my follow-up as well, so appreciate it.

[Craig Packer, CEO at Blue Owl Capital Corporation]

All right, Robert. Thanks a lot.

[Operator]

Thank you. Next question is coming from Jason Stewart from Compass Point. Your line is now live.

[Dylan Ritter, Analyst at Compass Point]

Hey, good morning, and thank you for taking my question. Dylan Ritter filling in for Jason Stewart here. Our question is, how are you thinking about the balance between buybacks versus leverage and new originations? As a follow-up, with the stock trading between, say, 75%-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? Thanks.

[Jonathan Lamm, CFO and COO at Blue Owl Capital Corporation]

It's Jonathan. 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, 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. 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.

[Dylan Ritter, Analyst at Compass Point]

Got it. Thank you.

[Operator]

Thank you. Next question is coming from Erik Zwick from Lucid Capital Markets. Your line is now live.

[Erik Zwick, Analyst at Lucid Capital Markets]

Thank you. Good morning, guys. You may have touched on this a little bit earlier, wanted to maybe ask for a little bit more detail or clarification just with regard to the commitment in fundings in Q2. Those were relatively low compared to what you've been able to generate in past quarters. Curious if you could kind of characterize in terms of the lower activity. Was it more a reflection of market activity? Just the quality of deals that you reviewed not meeting your standards? Maybe some other factors? Then I guess we're a little more than a month into Q3 here, just how things are kind of shaping up this quarter from that kind of a production standpoint.

[Logan Nicholson, Senior Managing Director at Blue Owl Capital Corporation]

Sure. Erik, thanks for the question. If you look at the quarter, it was really a slowdown in two things really related to what we're seeing in asset prices. 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. 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 pull back as well.

[Logan Nicholson, Senior Managing Director at Blue Owl Capital Corporation]

Again, not a dissimilar comment in a volatile market and spread widening environment, you often see M&A on the sidelines. New deal flow is also slow. It's a combination of those two things. A month and a half, two 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 six or nine months ago. The refinancing activity is not picking up dramatically either. 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.

[Erik Zwick, Analyst at Lucid Capital Markets]

Thank you for the commentary. That's all for me today.

[Operator]

Thank you. Next question is coming from Kenneth Lee from RBC Capital Markets. Your line is now live.

[Kenneth Lee, Analyst at RBC Capital Markets]

Hey, good morning, and thanks for taking my question. I guess just following up a previous question there in terms of the leverage there. I saw that you delivered a bit. Should we expect OBDC to continue delivering, de-levering, and have you changed your stance from, I think previously you've articulated a more cautious stance on leverage there? Thanks.

[Jonathan Lamm, CFO and COO at Blue Owl Capital Corporation]

No, look, I think 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 to that, but we're certainly happy operating anywhere in between. You should expect to see us right in and around this as sort of a good home base. I wouldn't expect any drastic movements from here.

[Kenneth Lee, Analyst at RBC Capital Markets]

Got you. That's very helpful there. 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. Thanks.

[Craig Packer, CEO at Blue Owl Capital Corporation]

Go ahead.

[Logan Nicholson, Senior Managing Director at Blue Owl Capital Corporation]

Yeah. 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 around average deal size going up dramatically. 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, we continue to find what we think are the best credits at the upper end of the market. No change there. I don't see a dramatic difference in activity levels from what we can observe at either end of the spectrum.

[Craig Packer, CEO at Blue Owl Capital Corporation]

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

[Kenneth Lee, Analyst at RBC Capital Markets]

Got it. Very helpful there. Thanks again.

[Logan Nicholson, Senior Managing Director at Blue Owl Capital Corporation]

Thanks, Kenneth.

[Operator]

Thank you. As a reminder, that's star one to be placed in the question queue. Our next question is coming from Chris Muller from Citizens Capital. Your line is now live.

[Chris Muller, Analyst at Citizens Capital]

Hey, guys. Thanks for taking the questions, and nice to be on with you this morning. I wanted to touch on the risk ratings a little bit. It looks like five rated loans jumped in the quarter, but four rated loans decreased by about 2x that. Is the right way to think about that the four rated loan drop was split into negative and positive migration there?

[Logan Nicholson, Senior Managing Director at Blue Owl Capital Corporation]

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

[Chris Muller, Analyst at Citizens Capital]

Got it. My follow-up sounds like maybe along those same lines, but the cost basis of non-accruals 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?

[Logan Nicholson, Senior Managing Director at Blue Owl Capital Corporation]

Yes, exactly right. About a 90 basis point position at cost, obviously have very little value at the current mark in the portfolio at fair value. Really just that one position driving those two numbers.

[Chris Muller, Analyst at Citizens Capital]

Got it. Appreciate you guys taking the questions and congrats on a solid quarter.

[Logan Nicholson, Senior Managing Director at Blue Owl Capital Corporation]

Thank you.

[Craig Packer, CEO at Blue Owl Capital Corporation]

Thank you.

[Operator]

Thank you. Next question is coming from Christopher Nolan from Ladenburg Thalmann. Your line is now live.

[Christopher Nolan, Analyst at Ladenburg Thalmann]

Hi. Thanks for taking my questions. Any consideration on management fee waiver? Your base management fee is 150 basis points, given all the activity in terms of lowering the dividend, so forth, just want to see whether or not a waiver was in consideration.

[Craig Packer, CEO at Blue Owl Capital Corporation]

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

[Christopher Nolan, Analyst at Ladenburg Thalmann]

Okay. I saw that there were no repurchases in July. Were repurchases tend to be backended or just opportunistic?

[Jonathan Lamm, CFO and COO at Blue Owl Capital Corporation]

Our repurchase program is one where we are effectively repurchasing in open windows. We don't have a 10b5-1 program, 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, that's a period of time where the window closes.

[Christopher Nolan, Analyst at Ladenburg Thalmann]

Okay, great, Jon. Finally, on Mavis. Is it fee income because it was PIK, if I understand correctly?

[Jonathan Lamm, CFO and COO at Blue Owl Capital Corporation]

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

[Christopher Nolan, Analyst at Ladenburg Thalmann]

Great. Okay. Thank you.

[Operator]

Thank you. Next question today is coming from Paul Johnson from KBW. Your line is now live.

[Paul Johnson, VP at KBW]

Good morning. Thanks for taking my questions. I only have one, but it seems like institutional demand is still fairly strong for private credit. I'm just curious, in terms of 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?

[Craig Packer, CEO at Blue Owl Capital Corporation]

As you know, we generally hold our investments to maturity. We don't actively look to sell our portfolio. We like our portfolio and generally hold it till we get repaid. We do the occasional sale if we have some tactical reason to do it. 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 we did a very sizable sale across the portfolio earlier this year, which we sold at 99.7. That was a great sale. We don't rule anything out, but it's not a regular part of our process. Occasionally, we will go to clients.

[Craig Packer, CEO at Blue Owl Capital Corporation]

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, and these assets, particularly with the increasing rate environment, floating rate nature of these assets, they're attractive. We like holding them and lots of people, I think, like buying them.

[Paul Johnson, VP at KBW]

Understood. Thank you very much. That's all for me.

[Operator]

Thank you. Next question is coming from Patrick Davitt from Autonomous Research. Your line is now live.

[Patrick Davitt, Analyst at Autonomous Research]

Hey, good morning, everyone. Thanks for letting me join. I just have one. One of your biggest competitors is seemingly suggesting a much better, I guess, quote-unquote, "shadow pipeline" in the upper middle market than it seems you are. What do you think might be driving that disconnect in tone? 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? Thanks.

[Craig Packer, CEO at Blue Owl Capital Corporation]

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 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 have capacity and are looking for opportunities, including our non-traded funds, as well as our BDCs. Some are below their target leverage, some are in the middle, but they all have lots of capital. 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.

[Craig Packer, CEO at Blue Owl Capital Corporation]

I think that's consistent with what we're seeing. I hope it picks up. I don't have any concerns whatsoever that we're missing anything. I do think the syndicated market is quite strong, 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 another direction. I think in this environment, you are seeing a few large deals going syndicated that we might have otherwise liked as private investments.

[Patrick Davitt, Analyst at Autonomous Research]

Okay, thanks.

[Operator]

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

[Craig Packer, CEO at Blue Owl Capital Corporation]

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. With that, hope everyone has a terrific day.

[Operator]

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

Participants

Executives

• Mike Mosticchio, Head of BDC Investor Relations
• Craig Packer, CEO
• Logan Nicholson, Senior Managing Director
• Jonathan Lamm, CFO and COO

Analysts

• Arren Cyganovich, VP at Truist Securities
• Robert Dodd, Analyst at Raymond James
• Dylan Ritter, Analyst at Compass Point
• Erik Zwick, Analyst at Lucid Capital Markets
• Kenneth Lee, Analyst at RBC Capital Markets
• Chris Muller, Analyst at Citizens Capital
• Christopher Nolan, Analyst at Ladenburg Thalmann
• Paul Johnson, VP at KBW
• Patrick Davitt, Analyst at Autonomous Research