Owl Rock(OBDC) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q4 2025, adjusted net investment income (NII) per share was $0.36, consistent with the previous quarter, resulting in a return on equity (ROE) of 9.7% [11][22] - Net asset value (NAV) per share decreased to $14.81 from $14.89, primarily due to write-downs on a few watchlist names, partially offset by share repurchases [11][24] - The company repurchased $148 million of stock, the largest repurchase in its history, which was accretive to NAV per share by approximately $0.05 [10][24] Business Line Data and Key Metrics Changes - OBDC had fundings of $820 million against $1.4 billion of repayments, resulting in lower net leverage at 1.19 times [14][15] - The portfolio is broadly diversified across 30 industries, with average position sizes of approximately 40 basis points [16] - Revenue and EBITDA growth for borrowers in the software sector was 10% and 16% respectively in Q4, outpacing other sectors [17] Market Data and Key Metrics Changes - The company executed asset sales totaling $1.4 billion, including $400 million from OBDC, at book value and an average price of 99.7, which is a strong endorsement of its valuation process [8][9] - Interest coverage ratios remained healthy at approximately 2 times, with a non-accrual rate decreasing to 1.1% at fair value [18][19] Company Strategy and Development Direction - The company terminated the proposed merger with OBDC II and opted for a significant asset sale to provide liquidity to shareholders [6][7] - The focus remains on disciplined capital allocation, with a strategy of buy and hold lending, while also being opportunistic in asset sales [10][9] - The company aims to maintain a strong credit profile and has received a Moody's upgrade to Baa2, reflecting its solid portfolio and liability management [25][26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the portfolio's credit quality, stating that losses remain low and borrower fundamentals are strong [27][29] - The company anticipates that lower base rates and tighter spreads will impact future earnings, but does not expect broad-based credit issues [27][29] - Management highlighted the importance of maintaining a stable dividend while evaluating the impact of the current rate environment on earnings [29][90] Other Important Information - The board declared a first-quarter base dividend of $0.37, to be paid on April 15, 2026 [23] - The company has authorized a new share repurchase program of up to $300 million, replacing the previous $200 million plan [24] Q&A Session Summary Question: Is OBDC II halting redemptions permanently? - Management clarified that they are not halting redemptions but are accelerating them, returning 30% of capital at book value to investors [34][35] Question: What is the most accretive use of capital today? - Management indicated that they are evaluating both stock buybacks and capital deployment into the market, given the stock price is trading below book value [40][42] Question: What is the appetite for new software loan purchases? - Management expressed confidence in their ability to differentiate between resilient and vulnerable software businesses, indicating a cautious approach to new investments in the sector [68][70] Question: What was the weighted average spread of the assets sold? - The weighted average spread of the sold portfolio was just over 500 basis points, consistent with the broader portfolio [75] Question: How does the mark received compare with previous fair value marks? - Management stated that the assets were sold at their marks, which have been valued close to par, validating their valuation process [87][88]