Core Insights - Blue Owl Capital Inc. is recognized in the context of private credit investments, highlighting its significance in the financial sector [1] Group 1: Company Overview - Roberts Berzins, associated with Blue Owl Capital, has over a decade of experience in financial management, aiding top-tier corporates in shaping financial strategies and executing large-scale financings [1] - Berzins has contributed to institutionalizing the REIT framework in Latvia, aimed at enhancing the liquidity of pan-Baltic capital markets [1] - His policy-level contributions include developing national SOE financing guidelines and frameworks to channel private capital into affordable housing [1] Group 2: Professional Credentials - Roberts Berzins is a CFA Charterholder and holds an ESG investing certificate, indicating a strong foundation in investment principles and sustainable investing [1] - He has experience with the Chicago Board of Trade, showcasing his involvement in significant financial markets despite residing in Latvia [1] - Berzins is actively engaged in thought-leadership activities to support the development of pan-Baltic capital markets, reflecting his commitment to the industry [1]

Financial Data and Key Metrics Changes - The company generated a GAAP return on common equity of negative 14.6% during 2025, which is slightly better than the market-wide assessment by Nomura Research, which estimated a median CLO equity return of negative 15% for the same period [6][17] - As of December 31, the company's NAV was $5.70 per share, down from $7.00 per share on September 30 [7] - The fourth quarter of 2025 saw a net investment income (NII) less realized losses of -$0.26 per share, compared to -$0.16 per share in the third quarter [16] Business Line Data and Key Metrics Changes - The company completed 10 resets and 3 refinancings of its CLOs in the fourth quarter, totaling 34 resets and 27 refinancings for the entire year [8] - Recurring cash flows from the portfolio increased to $80 million, or $0.61 per share, up from $77 million or $0.59 per share in the prior quarter [7] - The non-CLO portion of the portfolio was approximately 26% of the total investment portfolio at year-end [9] Market Data and Key Metrics Changes - The trailing twelve-month default rate decreased from 1.5% in September to 1.2% as of December 31, which is below the long-term average of 2.6% [22] - The S&P UBS Leveraged Loan Index posted a 1.2% return for the fourth quarter and a 5.9% return for the full year 2025 [21] - CLO new issuance volumes rose slightly to $55 billion in the fourth quarter, bringing the total to $209 billion for all of 2025, surpassing the previous year's record [22] Company Strategy and Development Direction - The company is focusing on increasing exposure to credit assets beyond CLO Equity, reflecting a strategic shift to maximize total return for shareholders [10] - The company plans to retain more capital for investments with attractive risk-adjusted returns, aiming for a stable or growing NAV over time [15] - A new joint venture was launched to invest in regulatory capital relief transactions, indicating a diversification strategy [12] Management's Comments on Operating Environment and Future Outlook - Management noted that while defaults remain below long-term averages, spread compression in the loan market and negative sentiment towards credit impacted financial performance [4] - The company anticipates continued spread compression and a similar credit environment to 2025, with no significant uptick in credit expenses expected [41][45] - Management expressed optimism about a robust pipeline of refinancings and resets of CLOs in the portfolio, indicating potential for future growth [24] Other Important Information - The company announced a $100 million common stock repurchase program to buy stock in the open market if it trades at a material discount to NAV [14] - The company redeemed its 8% Series F Term Preferred Stock, which was its highest cost of financing, and proactively repurchased $9 million of other securities at discounts [12][13] Q&A Session Summary Question: Impact of captive CLO equity funds on fee structures - Management acknowledged that CLOs without internal management fees could outperform those with fees, but noted that spread compression affects all funds [30][32] Question: Outlook for resets and refinances in 2026 - Management indicated that predicting the exact number of resets and refinances is challenging, but they have a robust calendar of investments planned [61] Question: Stock repurchase program and NAV stability - Management stated that the decision to use the repurchase program will depend on various factors, including share price and investment opportunities [50][52] Question: Trends in credit quality and expenses - Management expects credit quality trends to mirror those of the previous year, with no significant changes anticipated [45][46]

Financial Data and Key Metrics Changes - The company generated a GAAP return on common equity of negative 14.6% during 2025, which is slightly better than the market-wide assessment by Nomura Research, which estimated a median CLO equity return of negative 15% for the same year [5][6] - As of December 31, the company's NAV was $5.70 per share, down from $7.00 per share on September 30 [6] - The fourth quarter of 2025 saw a net investment income (NII) less realized losses of -$0.26 per share, compared to -$0.16 per share in the third quarter [6][17] - The company recorded a GAAP net loss attributable to common stock of $110 million, or $0.84 per share for the fourth quarter, compared to a GAAP net income of $0.12 per share in the prior quarter [18] Business Line Data and Key Metrics Changes - The company completed 10 resets and 3 refinancings of its CLOs in the fourth quarter alone, and participated in 34 resets and 27 refinancings throughout 2025 [8][9] - Recurring cash flows from the portfolio increased to $80 million, or $0.61 per share, up from $77 million or $0.59 per share in the prior quarter [6] - The non-CLO portion of the investment portfolio was approximately 26% at year-end, reflecting a strategic shift towards credit assets beyond CLO equity [9][10] Market Data and Key Metrics Changes - The S&P UBS Leveraged Loan Index posted a 1.2% return for the fourth quarter and a 5.9% return for the full year 2025 [21] - Total loan repayments reached $294 billion, or approximately 19% of the market in 2025, resulting in a twelve-month trailing prepayment rate of 21% [21] - The trailing twelve-month default rate decreased from 1.5% in September to 1.2% as of December 31, remaining below the long-term average of 2.6% [22] Company Strategy and Development Direction - The company is focusing on increasing exposure to credit assets beyond CLO equity, with a strategic initiative to maximize total return for shareholders [10][11] - A new joint venture was launched to invest in regulatory capital relief transactions, indicating a diversification strategy [12] - The company plans to retain more capital for investments with attractive risk-adjusted returns, aiming for a stable or growing NAV over time [16] Management's Comments on Operating Environment and Future Outlook - Management noted that while defaults remain below long-term averages, spread compression in the loan market and negative sentiment towards credit have impacted financial performance [4] - The company anticipates attractive opportunities for capital deployment in both CLO equity and other credit asset classes in 2026 [16] - Management expressed a cautious outlook on credit quality, expecting trends to mirror those of 2025, with continued spread compression [46] Other Important Information - The company announced a $100 million common stock repurchase program to buy stock in the open market if it trades at a material discount to NAV [15] - The company redeemed its 8% Series F Term Preferred Stock, which was its highest cost of financing, and proactively repurchased $9 million of other securities at discounts [12][13] Q&A Session Summary Question: Impact of captive CLO equity funds on fee structures - Management acknowledged that CLOs without internal management fees could outperform those with fees, but noted that spread compression affects all funds [30][32] Question: Outlook for resets and refinances in 2026 - Management indicated that predicting the exact number of resets and refinances is challenging, but they have a robust calendar of investments planned [63][64] Question: Dividend policy and potential for supplemental distributions - Management stated that while the new dividend policy is conservative, there is potential for supplemental distributions in the future if conditions allow [84]

Core Viewpoint - Source Capital's Discount Management Program will not have a tender offer for 2025 due to the average discount to net asset value (NAV) being less than 10% during the measurement period [1] Group 1: Discount Management Program - For the measurement period from January 1, 2025, to December 31, 2025, the Fund traded at an average discount to NAV of less than 10% and even peaked at a premium of 1.20% on November 28, 2025 [1] - The Board of Trustees approved a contingent tender offer for calendar year 2027, extending the Program through December 31, 2027, with a tender offer for 10% of outstanding shares if the average discount exceeds 10% during the measurement period [2] - If a tender offer is required, it will close no later than June 30, 2028, and the Board may consider extending the Program beyond 2027 [2] Group 2: Shareholder Actions - The Fund's portfolio managers, officers, and Board do not intend to tender their shares if a tender is required under the Program for 2026 [3] - The Fund will continue its Stock Repurchase Program to repurchase stock at prices that are accretive to shareholders [3] Group 3: Investment Strategy - The Fund has been increasing its allocation to private credit investments, with approximately 21.7% of NAV invested in private credit and a combined invested plus committed capital of approximately 25.9% of NAV as of December 31, 2025 [4] - The investment objective of Source Capital is to seek maximum total return for shareholders from both capital appreciation and investment income while protecting invested capital [5]