Owl Rock(US:OBDC)2022-08-03 20:03PART I FINANCIAL INFORMATION Consolidated Financial Statements This section presents Owl Rock Capital Corporation's unaudited consolidated financial statements for Q2 2022, detailing assets, operations, cash flows, and investment schedules, noting a NAV per share decrease to $14.48 driven by net unrealized losses Consolidated Statements of Assets and Liabilities - Total net assets decreased to $5.70 billion as of June 30, 2022, from $5.94 billion as of December 31, 2021, resulting in a decline in Net Asset Value (NAV) per share from $15.08 to $14.4812 Consolidated Statements of Assets and Liabilities Highlights (in thousands) | Metric | June 30, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Total Investments at Fair Value | $12,648,126 | $12,741,640 | | Total Assets | $13,088,383 | $13,298,170 | | Total Liabilities | $7,383,937 | $7,360,293 | | Total Net Assets | $5,704,446 | $5,937,877 | | Net Asset Value Per Share | $14.48 | $15.08 | Consolidated Statements of Operations - For the three months ended June 30, 2022, the company reported a Net Decrease in Net Assets of $34.9 million, or ($0.09) per share, a significant shift from a Net Increase of $150.2 million, or $0.38 per share, in the prior year's quarter, primarily driven by a $160.1 million net unrealized loss on investments, compared to a $31.1 million gain in Q2 202115 Key Operating Results (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Investment Income | $273,286 | $249,015 | $537,447 | $470,588 | | Net Investment Income After Taxes | $125,124 | $119,129 | $247,479 | $221,784 | | Total Net Realized and Change in Unrealized Gain (Loss) | ($160,070) | $31,051 | ($238,440) | $86,241 | | Net Increase (Decrease) in Net Assets | ($34,946) | $150,180 | $9,039 | $308,025 | | Earnings Per Share | ($0.09) | $0.38 | $0.02 | $0.79 | Consolidated Schedules of Investments - As of June 30, 2022, total investments at fair value were $12.65 billion, slightly down from $12.74 billion at year-end 2021, with the portfolio diversified across numerous industries, including Internet Software & Services, Insurance, and Financial Services as the largest concentrations12193 Total Investments by Type (June 30, 2022, Fair Value in thousands) | Investment Type | Fair Value (in thousands) | Percentage of Portfolio | | :--- | :--- | :--- | | First-lien senior secured debt | $9,243,181 | 73.1% | | Second-lien senior secured debt | $1,825,467 | 14.5% | | Unsecured debt | $269,752 | 2.1% | | Preferred equity | $296,766 | 2.3% | | Common equity | $731,108 | 5.8% | | Investment funds and vehicles | $281,852 | 2.2% | | Total Investments | $12,648,126 | 100.0% | Consolidated Statements of Changes in Net Assets - For the six months ended June 30, 2022, net assets decreased by $233.4 million, driven by $244.4 million in distributions to shareholders, which offset the modest $9.0 million net increase from operations112 Changes in Net Assets for the Six Months Ended June 30, 2022 (in thousands) | Description | Amount | | :--- | :--- | | Net Assets, beginning of period | $5,937,877 | | Net Increase from Operations | $9,039 | | Distributions to Shareholders | ($244,404) | | Net Increase from Capital Share Transactions | $1,934 | | Net Assets, end of period | $5,704,446 | Consolidated Statements of Cash Flows - For the six months ended June 30, 2022, the company experienced a net decrease in cash of $103.9 million, with $74.7 million provided by operating activities and $178.6 million used in financing activities, primarily for shareholder distributions116 Cash Flow Summary for the Six Months Ended June 30, 2022 (in thousands) | Activity | Amount | | :--- | :--- | | Net cash provided by operating activities | $74,742 | | Net cash used in financing activities | ($178,628) | | Net decrease in cash and restricted cash | ($103,886) | | Cash and restricted cash, beginning of period | $447,145 | | Cash and restricted cash, end of period | $343,259 | Notes to Consolidated Financial Statements (Unaudited) - The company is regulated as a Business Development Company (BDC) and a Regulated Investment Company (RIC), requiring it to distribute at least 90% of its taxable income to shareholders121153 - Substantially all of the company's investments are not publicly traded and are valued in good faith by the Board (Level 3 assets), based on input from the Adviser and third-party valuation firms130131132 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, portfolio activity, and market outlook, highlighting the impact of rising interest rates and market volatility on unrealized losses, while maintaining focus on direct origination of senior secured loans to U.S. middle-market companies and a target leverage ratio of 0.90x-1.25x Portfolio and Investment Activity - As of June 30, 2022, the investment portfolio totaled $12.6 billion at fair value across 168 portfolio companies, with 73.1% weighted towards first-lien senior secured debt447448 Investment Activity for Q2 2022 (in thousands) | Activity | Amount | | :--- | :--- | | Gross Originations | $824,641 | | Less: Sell downs | ($221,256) | | Total new investment commitments | $603,385 | | Total principal amount of investments funded | $341,296 | | Total principal amount of investments sold or repaid | ($488,251) | Portfolio Yields as of June 30, 2022 | Metric | Yield | | :--- | :--- | | Weighted average total yield of portfolio | 8.7% | | Weighted average total yield of debt and income producing securities | 8.9% | | Weighted average spread over base rate of all floating rate investments | 6.6% | - As of June 30, 2022, 99.8% of the debt portfolio was performing, with only 0.2% on non-accrual status based on amortized cost462 Results of Operations - Total investment income for Q2 2022 increased to $273.3 million from $249.0 million in Q2 2021, driven by a larger debt portfolio and higher dividend income, particularly from controlled affiliates Wingspire Capital and ORCC SLF491492 - Total operating expenses rose to $146.6 million in Q2 2022 from $129.7 million in Q2 2021, primarily due to higher interest expense on increased average borrowings and higher management and incentive fees495496 - The company recorded a net unrealized loss of $156.6 million in Q2 2022, a sharp reversal from a $60.9 million gain in Q2 2021, primarily attributed to widening credit spreads across broader markets502503 Financial Condition, Liquidity and Capital Resources - As of June 30, 2022, the company had $1.4 billion in available liquidity under its credit facilities and an asset coverage ratio of 179%, well above the regulatory requirement of 150%520521 - The company's target leverage ratio is 0.90x-1.25x debt-to-equity, with net leverage at 1.20x as of June 30, 2022437448 - The Board declared a quarterly distribution of $0.31 per share for Q1 and Q2 2022526 - Under its stock repurchase plan, the company repurchased 757,926 shares for $10.0 million during May 2022, with approximately $87.4 million remaining available under the plan as of June 30, 2022533 Quantitative and Qualitative Disclosures About Market Risk The company faces valuation risk from its illiquid private securities portfolio and interest rate risk, with 98.8% of debt investments being floating rate, making net investment income sensitive to base rate changes, and uses interest rate swaps to hedge fixed-rate debt - The company's investments are primarily in illiquid debt and equity of private companies, which are valued in good faith by the Board and subject to valuation risk703 Annualized Impact of Hypothetical Interest Rate Changes on Net Income (in millions) | Basis Point Change | Impact on Interest Income | Impact on Interest Expense | Impact on Net Income | | :--- | :--- | :--- | :--- | | +300 bps | $347.5 | $113.5 | $234.0 | | +200 bps | $231.6 | $75.7 | $156.0 | | +100 bps | $115.8 | $37.8 | $78.0 | | +50 bps | $57.9 | $18.9 | $39.0 | Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes in internal control over financial reporting during the quarter - The company's management concluded that its disclosure controls and procedures were effective as of the end of the quarter713 - No material changes to the company's internal control over financial reporting occurred during the quarter ended June 30, 2022714 PART II OTHER INFORMATION Legal Proceedings The company is not currently subject to any material legal proceedings, nor is it aware of any threatened against it - As of the report date, neither the company nor its Adviser were subject to any material legal proceedings717 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2021 Form 10-K and Q1 2022 Form 10-Q - The company refers investors to the risk factors discussed in its 2021 Form 10-K and Q1 2022 Form 10-Q, indicating no material changes during the second quarter718 Unregistered Sales of Equity Securities and Use of Proceeds The company did not sell unregistered equity securities, except for dividend reinvestment plan shares, and repurchased 757,926 shares for $10.0 million in May 2022 under its stock repurchase plan - In May 2022, the company purchased 830,764 shares in the open market at an average price of $13.36 per share to satisfy its dividend reinvestment plan obligations720 Stock Repurchases for the Quarter Ended June 30, 2022 | Period | Total Shares Repurchased | Average Price Paid per Share | Total Value (in millions) | Approx. Value Remaining (in millions) | | :--- | :--- | :--- | :--- | :--- | | May 2022 | 757,926 | $13.21 | $10.0 | $87.4 | Defaults Upon Senior Securities The company reported no defaults upon its senior securities during the period - None722