EDGAR 10-K Filing

Company CIK: 1655887
Filing Year: 2024
Filename: 1655887_10-K_2024_0001655887-24-000009.json

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ITEM 1. BUSINESS
Item 1. Business.
Our Company
Blue Owl Capital Corporation II was formed on October 15, 2015 as a corporation under the laws of the State of Maryland. We are an externally managed, closed-end management investment company that has elected to be regulated as a BDC under the Investment Company Act of 1940, as amended (the “1940 Act”). We have elected to be treated, and intend to qualify annually, as a RIC under the Code for U.S. federal income tax purposes. As a BDC and a RIC, we are required to comply with certain regulatory requirements. As a BDC, at least 70% of our assets must be assets of the type listed in Section 55(a) of the 1940 Act, as described herein. We will not invest more than 30% of our total assets in companies whose principal place of business is outside the United States. See “- Regulation as a Business Development Company” and “- Certain U.S. Federal Income Tax Considerations.”
We are externally managed by Blue Owl Credit Advisors, which is a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). The Adviser is an indirect affiliate of Blue Owl Capital Inc. (“Blue Owl”) (NYSE: OWL) and part of Blue Owl’s Credit platform, which focuses on direct lending. To achieve our investment objective, we will leverage the Adviser’s investment team’s expertise, skill and extensive network of relationships with other sophisticated institutions to source, evaluate and, as appropriate, partner with on transactions. There are no assurances that we will achieve our investment objective. The Adviser is responsible for sourcing potential investments, conducting due diligence on prospective investments, analyzing investment opportunities, structuring investments and monitoring our portfolio on an ongoing basis. Since our Adviser’s inception in April 2016 through December 31, 2023, our Adviser and its affiliates have originated $90.6 billion aggregate principal amount of investments, of which $86.9 billion aggregate principal amount of investments prior to any subsequent exits or repayments, was retained by either us or a corporation or fund advised by our Adviser or its affiliates.
Our investment objective is to generate current income and, to a lesser extent, capital appreciation by targeting investment opportunities with favorable risk-adjusted returns. Our investment strategy focuses primarily on originating and making loans to, and making debt and equity investments in, U.S. middle-market companies. We invest in senior secured or unsecured loans, subordinated loans or mezzanine loans and, to a lesser extent, equity and equity-related securities which includes common and preferred stock, securities convertible into common stock, and warrants. We define “middle-market companies” to generally mean companies with earnings before interest expense, income tax expense, depreciation and amortization (“EBITDA”) between $10 million and $250 million annually, and/or annual revenue of $50 million to $2.5 billion at the time of investment. We may on occasion invest in smaller or larger companies if an attractive opportunity presents itself, especially when there are dislocations in the capital markets, including the high yield and large syndicated loan markets. We generally invest in companies with a low loan-to-value ratio, which we consider to be 50% or below. Our target credit investments will typically have maturities between three and ten years and generally range in size between $10 million and $125 million, although the investment size will vary with the size of our capital base. We may hold our investments directly or through special purpose vehicles. As of December 31, 2023, excluding certain investments that fall outside our typical borrower profile, our portfolio companies representing 87.4% of our total debt portfolio based on fair value, had weighted average annual revenue of $879 million and weighted average annual EBITDA of $188 million.
While our investment strategy focuses primarily on middle-market companies in the United States, including senior secured loans, we also may invest up to 30% of our portfolio in investments of non-qualifying portfolio companies. Specifically, as part of this 30% basket, we may consider investments in investment funds that are operating pursuant to certain exceptions to the 1940 Act, as well as in debt and equity of companies located outside of the United States and debt and equity of public companies that do not meet the definition of eligible portfolio companies because their market capitalization of publicly traded equity securities exceeds the levels provided for in the 1940 Act.
As of December 31, 2023, based on fair value, our portfolio consisted of 68.5% first lien debt investments, 21.5% second-lien debt investments, 1.9% unsecured investments, 3.3% preferred equity investments and 4.8% common equity investments. Approximately 98.1% of our debt investments based on fair value as of December 31, 2023 are floating rate in nature, the majority of which are subject to an interest rate floor. As of December 31, 2023, we had investments in 159 portfolio companies, with an average investment size in each of our portfolio companies of approximately $12.9 million based on fair value.
As of December 31, 2023, our portfolio was invested across 29 different industries. The largest industries in our portfolio as of December 31, 2023 were internet software and services and insurance, which represented, as a percentage of our portfolio, 11.5% and 8.5%, respectively, based on fair value.
We previously offered up to 424,000,000 shares of our common stock in a continuous public offering and a follow-on continuous public offering. See “Continuous Public Offering.” On September 30, 2016, the Adviser purchased 100 shares of our common stock at $9.00 per share, which represented the initial public offering price of $9.47 per share, net of combined upfront selling commissions and dealer manager fees. The Adviser will not tender these shares for repurchase as long as the Adviser remains our investment adviser. There is no current intention for the Adviser to discontinue in its role. On April 4, 2017, we sold 277,778 shares pursuant to subscription agreements entered into with certain individuals and entities affiliated with the Adviser and met the minimum offering requirement for our continuous public offering. In April 2017, we commenced operations and made our first
portfolio company investment. We terminated our continuous public offering as of April 30, 2021. Since meeting the minimum offering requirement and through the termination of our continuous public offering, we issued 151,364,239 shares of our common stock for gross proceeds of approximately $1.4 billion, including seed capital contributed by our Adviser in September 2016 and approximately $10.0 million in gross proceeds raised in the private placement from certain individuals and entities affiliated with our Adviser.
We generally intend to distribute, out of assets legally available for distribution, substantially all of our available earnings, on a monthly basis, as determined by our board of directors (“the Board” or “our Board”) in its discretion.
Certain of our consolidated subsidiaries are subject to U.S. federal and state income taxes at corporate rates.
We may borrow money from time to time if immediately after such borrowing, the ratio of our total assets (less total liabilities other than indebtedness represented by senior securities) to our total indebtedness represented by senior securities plus preferred stock, if any, is at least 200% (or 150% if certain conditions are met). This means that generally, we can borrow up to $1 for every $1 of investor equity (or, if certain conditions are met, we can borrow up to $2 for every $1 of investor equity). We have entered into two special purpose vehicle asset credit facilities , and in the future may enter into additional credit facilities. In addition, we have issued unsecured notes and in the future may issue additional unsecured notes. We expect to use our credit facilities and other borrowings, along with proceeds from the rotation of our portfolio to finance our investment objectives. See “- Regulation as a Business Development Company” for discussion of BDC regulation and other regulatory considerations. See “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Debt”.
The Adviser and Administrator - Blue Owl Credit Advisors LLC
Blue Owl Credit Advisors LLC serves as our investment adviser pursuant to an amended and restated investment advisory agreement (the “Investment Advisory Agreement”) between us and the Adviser. See “Investment Advisory Agreement” below. The Adviser also serves as our Administrator pursuant to an amended and restated administration agreement between us and the Adviser (the “Administration Agreement”). See “Administration Agreement” below.
The Adviser is a Delaware limited liability company that has registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). The Adviser is an indirect affiliate of Blue Owl and part of Blue Owl’s Credit platform, which focuses on direct lending. Blue Owl consists of three investment platforms: (1) Credit, which focuses on direct lending, (2) GP Strategic Capital, which focuses on providing capital to institutional alternative asset managers, and (3) Real Estate, which focuses on triple net lease real estate strategies. Blue Owl’s Credit platform is comprised of the Adviser, Blue Owl Diversified Credit Advisors LLC (“ODCA”), Blue Owl Technology Credit Advisors LLC (“OTCA”), Blue Owl Technology Credit Advisors II LLC (“OTCA II”), and Blue Owl Credit Private Fund Advisors LLC (“OPFA” and together with the Adviser, ODCA, OTCA, and OTCA II, the “Blue Owl Credit Advisers”), which are also registered investment advisers.
Blue Owl’s Credit platform is led by its three co-founders, Douglas I. Ostrover, Marc S. Lipschultz and Craig W. Packer. The Adviser’s investment team (the “Investment Team”) is also led by Douglas I. Ostrover, Marc S. Lipschultz and Craig W. Packer and is supported by certain members of the Adviser’s senior executive team and Blue Owl’s Credit platform’s investment committees. Blue Owl’s Credit platform has four investment committees, each of which focuses on a specific investment strategy (Diversified Lending, Technology Lending, First Lien Lending and Opportunistic Lending). Douglas I. Ostrover, Marc S. Lipschultz, Craig W. Packer and Alexis Maged sit on each of Blue Owl’s Credit platform’s investment committees. In addition to Mssrs. Ostrover, Lipschultz, Packer and Maged, the Diversified Lending Investment Committee is comprised of Jeff Walwyn, Patrick Linnemann, Meenal Mehta and Logan Nicholson. The Investment Team, under the Diversified Lending Investment Committee’s supervision, sources investment opportunities, conducts research, performs due diligence on potential investments, structures the Company’s investments and monitors the Company’s portfolio companies on an ongoing basis. Subject to the overall supervision of the Board, the Adviser manages our day-to-day operations, and provides investment advisory and management services to us.
As of December 31, 2023, the Blue Owl Credit Advisers managed $84.6 billion in assets under management (“AUM”). The Blue Owl Credit Advisers focus on direct lending to middle-market companies primarily in the United States across the following four investment strategies, which are offered through BDCs, private funds and separately managed accounts:
Strategy Funds Assets Under Management
Diversified Lending. The diversified lending strategy seeks to generate current income and, to a lesser extent, capital appreciation by targeting investment opportunities with favorable risk-adjusted returns across credit cycles with an emphasis on preserving capital primarily through originating and making loans to, and making debt and equity investments in, U.S. middle market companies. The diversified lending strategy provides a wide range of financing solutions with strong focus on the top of the capital structure and operate this strategy through diversification by borrower, sector, sponsor, and position size.
The diversified lending strategy is primarily offered through four BDCs: the Company, Blue Owl Capital Corporation (“OBDC”), Blue Owl Capital Corporation III (“OBDC III”), and Blue Owl Credit Income Corp. (“OCIC”). As of December 31, 2023, the diversified lending strategy had $49.3 billion of assets under management across these products.
Technology Lending. The technology lending strategy seeks to maximize total return by generating current income from debt investments and other income producing securities, and capital appreciation from equity and equity-linked investments primarily through originating and making loans to, and making debt and equity investments in, technology related companies based primarily in the United States. The technology lending strategy originates and invests in senior secured or unsecured loans, subordinated loans or mezzanine loans, and equity and equity-related securities including common equity, warrants, preferred stock and similar forms of senior equity, which may be convertible into a portfolio company’s common equity. The technology lending strategy invests in a broad range of established and high growth technology companies that are capitalizing on the large and growing demand for technology products and services. This strategy focuses on companies that operate in technology-related industries or sectors which include, but are not limited to, information technology, application or infrastructure software, financial services, data and analytics, security, cloud computing, communications, life sciences, healthcare, media, consumer electronics, semi-conductor, internet commerce and advertising, environmental, aerospace and defense industries and sectors.
The technology lending strategy is primarily offered through three BDCs: Blue Owl Technology Finance Corp. (“OTF”), Blue Owl Technology Income Corp. (“OTIC”) and Blue Owl Technology Finance Corp. II (“OTF II” and together with the Company, OBDC, OBDC III, OCIC, OTF and OTIC, the “Blue Owl BDCs”).
As of December 31, 2023, the technology lending strategy had $20.0 billion of assets under management across these products.
First Lien Lending. The first lien lending strategy seeks to realize current income with an emphasis on preservation of capital primarily through originating primary transactions in and, to a lesser extent, secondary transactions of first lien senior secured loans in or related to middle market businesses based primarily in the United States.
The first lien lending strategy is offered through private funds and separately managed accounts. As of December 31, 2023, the first lien lending strategy had $3.6 billion of assets under management across these products.
Opportunistic Lending. The opportunistic lending strategy seeks to generate attractive risk-adjusted returns by taking advantage of credit opportunities in U.S. middle-market companies with liquidity needs and market leaders seeking to improve their balance sheets. The opportunistic lending strategy focuses on high-quality companies that could be experiencing disruption, dislocation, distress or transformational change. The opportunistic lending strategy aims to be the partner of choice for companies by being well equipped to provide a variety of financing solutions to meet a broad range of situations, including the following: (i) rescue financing, (ii) new issuance and recapitalizations, (iii) wedge capital, (iv) debtor-in-possession loans, (v) financing for additional liquidity and covenant relief and (vi) broken syndications.
The opportunistic lending strategy is offered through private funds and separately managed accounts. As of December 31, 2023, the opportunistic lending strategy had $2.4 billion of assets under management across these products.
We refer to the Blue Owl BDCs and the private funds and separately managed accounts managed by the Blue Owl Credit Advisers, as the “Blue Owl Credit Clients.” In addition to the Blue Owl Credit Clients, Blue Owl’s Credit platform includes a liquid credit strategy, which focuses on the management of collateralized loan obligations (“CLOs”). As of December 31, 2023, the liquid credit strategy had $8.2 billion of assets under management. Blue Owl’s Credit platform also employs various other investment strategies to pursue long-term capital appreciation and risk adjusted returns including (i) direct investments in strategic equity assets,
with a focus on single-asset GP-led continuation funds, and (ii) mid-to-late-stage biopharmaceutical and healthcare companies. As of December 31, 2023, these strategies had $1.2 billion of assets under management.
Blue Owl Credit Clients may have overlapping objectives with us. The Adviser and its affiliates may face conflicts in the allocation of investment opportunities to us and others. In order to address these conflicts, the Blue Owl Credit Advisers have put in place an investment allocation policy that addresses the allocation of investment opportunities as well as co-investment restrictions under the 1940 Act. See, “ITEM 13. CERTAIN RELATIONS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.”
In addition, we rely on an order for exemptive relief (as amended, the “Order”) that has been granted to our Adviser and its affiliates by the SEC to co-invest with other funds managed by the Adviser or its affiliates in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. Pursuant to such exemptive relief, we generally are permitted to co-invest with certain of our affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transaction, including the consideration to be paid, are reasonable and fair to us and our shareholders and do not involve overreaching by us or our shareholders on the part of any person concerned, (2) the transaction is consistent with the interests of our shareholders and is consistent with our investment objective and strategies, (3) the investment by our affiliates would not disadvantage us, and our participation would not be on a basis different from or less advantageous than that on which our affiliates are investing and (4) the proposed investment by us would not benefit the Adviser or its affiliates or any affiliated person of any of them (other than parties to the transaction), except to the extent permitted by the exemptive relief and applicable law, including the limitations set forth in Section 57(k) of the 1940 Act.
The Blue Owl Credit Advisers’ allocation policy incorporates the conditions of the Order. As a result of the Order, there could be significant overlap in our investment portfolio and the investment portfolio of the Blue Owl Credit Clients that could avail themselves of the exemptive relief and that have an investment objective similar to ours. In addition, we have received an amendment to the Order to permit us to participate in follow-on investments in our existing portfolio companies with certain affiliates that are private funds, even if such private funds did not have an investment in such existing portfolio company. See “Item 1A. Risk Factors -Risks Related to our Adviser and its Affiliates - Our Adviser or its affiliates may have incentives to favor their respective other accounts and clients and/or Blue Owl over us, which may result in conflicts of interest that could be harmful to us.
The Adviser or its affiliates may engage in certain origination activities and receive attendant arrangement, structuring or similar fees from portfolio companies. See “Item 1A. Risk Factors -Risks Related to our Adviser and its Affiliates - Our Adviser and its affiliates may face conflicts of interest with respect to services performed for issuers in which we may invest.”
The Adviser’s address is 399 Park Avenue, 37th floor, New York, NY 10022.
Market Trends
We believe the middle-market lending environment provides opportunities for us to meet our goal of making investments that generate attractive risk-adjusted returns.
Limited Availability of Capital for Middle-Market Companies. The middle-market is a large addressable market. According to GE Capital’s National Center for the Middle Market Year-End 2023 Middle Market Indicator, there are approximately 200,000 U.S. middle market companies, which have approximately 48 million aggregate employees. Moreover, the U.S. middle market accounts for one-third of private sector gross domestic product (“GDP”). GE defines U.S. middle market companies as those between $10 million and $1 billion in annual revenue, which we believe has significant overlap with our definition of U.S. middle market companies. We believe U.S. middle market companies will continue to require access to debt capital to refinance existing debt, support growth and finance acquisitions. We believe that regulatory and structural factors, industry consolidation and general risk aversion, limit the amount of traditional financing available to U.S. middle-market companies. We believe that many commercial and investment banks have, in recent years, de-emphasized their service and product offerings to middle-market businesses in favor of lending to large corporate clients and managing capital markets transactions. In addition, these lenders may be constrained in their ability to underwrite and hold bank loans and high yield securities for middle-market issuers as they seek to meet existing and future regulatory capital requirements. We also believe that there is a lack of market participants that are willing to hold meaningful amounts of certain middle market loans. As a result, we believe our ability to minimize syndication risk for a company seeking financing by being able to hold its loans without having to syndicate them, coupled with reduced capacity of traditional lenders to serve the middle-market, present an attractive opportunity to invest in middle-market companies.
Capital Markets Have Been Unable to Fill the Void in U.S. Middle-Market Finance Left by Banks. Access to underwritten bond and syndicated loan markets is challenging for middle-market companies due to loan issue size and liquidity. For example, high yield bonds are generally purchased by institutional investors, such as mutual funds and exchange traded funds (“ETFs”) who, among other things, are focused on the liquidity characteristics of the bond being issued in order to fund investor redemptions and/or comply with regulatory requirements. Accordingly, the existence of an active secondary market for bonds is an important consideration in these entities’ initial investment decision.
Syndicated loans arranged through a bank are done either on a “best efforts” basis or are underwritten with terms plus provisions that permit the underwriters to change certain terms, including pricing, structure, yield and tenor, otherwise known as “flex”, to successfully syndicate the loan, in the event the terms initially marketed are insufficiently attractive to investors.
Furthermore, banks are generally reluctant to underwrite middle-market loans because the arrangement fees they may earn on the placement of the debt generally are not sufficient to meet the banks’ return hurdles. Loans provided by companies such as ours provide certainty to issuers in that we have a more stable capital base and have the ability to invest in illiquid assets, and we can commit to a given amount of debt on specific terms, at stated coupons and with agreed upon fees. As we are the ultimate holder of the loans, we do not require market “flex” or other arrangements that banks may require when acting on an agency basis. In addition, our Adviser has teams focused on both liquid credit and private credit and these teams are able to collaborate with respect to syndicated loans.
Secular Trends Supporting Growth for Private Credit. We believe that periods of market volatility, such as the current period of market volatility caused, in part, by elevated inflation and interest rates, and current geopolitical conditions, have accentuated the advantages of private credit. The availability of capital in the liquid credit market is highly sensitive to market conditions whereas we believe private lending has proven to be a stable and reliable source of capital through periods of volatility. We believe the opportunity set for private credit will continue to expand even after the public markets reopen to normal levels. Financial sponsors and companies today are familiar with direct lending and have seen firsthand the strong value proposition that a private solution can offer. Scale, certainty of execution and flexibility all provide borrowers with a compelling alternative to the syndicated and high yield markets. Based on our experience, there is an emerging trend where higher quality credits that have traditionally been issuers in the syndicated and high yield markets are increasingly seeking private solutions independent of credit market conditions. In our view, this is supported by financial sponsors wanting to work with collaborative financing partners that have scale and breadth of capabilities. We believe the large amount of uninvested capital held by funds of private equity firms broadly, estimated by Preqin Ltd., an alternative assets industry data and research company, to be $2.7 trillion as of December 31, 2023, will continue to drive deal activity. We expect that private equity sponsors will continue to pursue acquisitions and leverage their equity investments with secured loans provided by companies such as us.
Attractive Investment Dynamics. An imbalance between the supply of, and demand for, middle-market debt capital creates attractive pricing dynamics. We believe the directly negotiated nature of middle-market financings also generally provides more favorable terms to the lender, including stronger covenant and reporting packages, better call protection, and lender-protective change of control provisions. Additionally, we believe BDC managers’ expertise in credit selection and ability to manage through credit cycles has generally resulted in BDCs experiencing lower loss rates than U.S. commercial banks through credit cycles. Further, we believe that historical middle-market default rates have been lower, and recovery rates have been higher, as compared to the larger market capitalization, broadly distributed market, leading to lower cumulative losses. Lastly, we believe that in the current environment lenders with available capital may be able to take advantage of attractive investment opportunities and may be able to achieve improved economic spreads and documentation terms.
Conservative Capital Structures. Following the global credit crisis, which we define broadly as occurring between mid-2007 and mid-2009, lenders have generally required borrowers to maintain more equity as a percentage of their total capitalization, specifically to protect lenders during economic downturns. With more conservative capital structures, U.S. middle-market companies have exhibited higher levels of cash flows available to service their debt. In addition, U.S. middle-market companies often are characterized by simpler capital structures than larger borrowers, which facilitates a streamlined underwriting process and, when necessary, restructuring process.
Attractive Opportunities in Investments in Loans. We invest in senior secured or unsecured loans, subordinated loans or mezzanine loans and, to a lesser extent, equity and equity-related securities. We believe that opportunities in senior secured loans are significant because of the floating rate structure of most senior secured debt issuances and because of the strong defensive characteristics of these types of investments. We believe that debt issued with floating interest rates offer a superior return profile as compared with fixed-rate investments, since floating rate structures are generally less susceptible to declines in value experienced by fixed-rate securities in a rising interest rate environment. Senior secured debt also provides strong defensive characteristics. Senior secured debt has priority in payment among an issuer’s security holders whereby holders are due to receive payment before junior creditors and equity holders. Further, these investments are secured by the issuer’s assets, which may provide protection in the event of a default.
Potential Competitive Advantages
We believe that the Adviser’s disciplined approach to origination, fundamental credit analysis, portfolio construction and risk management should allow us to achieve attractive risk-adjusted returns while preserving our capital. We believe that we represent an attractive investment opportunity for the following reasons:
Experienced Team with Expertise Across all Levels of the Corporate Capital Structure. The members of the Diversified Lending Investment Committee have an average of over 25 years of experience in private lending and investing at all levels of a company’s capital structure, particularly in high yield securities, leveraged loans, high yield credit derivatives and distressed securities, as well as experience in operations, corporate finance, mergers and acquisitions and workout restructuring. The members of
the Diversified Lending Investment Committee have diverse backgrounds with investing experience through multiple business and credit cycles. Moreover, certain members of the Diversified Lending Investment Committee and other executives and employees of the Adviser and its affiliates have operating and/or investing experience on behalf of BDCs. We believe this experience provides the Adviser with an in-depth understanding of the strategic, financial and operational challenges and opportunities of middle-market companies and will afford it numerous tools to manage risk while preserving the opportunity for attractive risk-adjusted returns on our investments and offering a diverse product set to help meet borrowers’ needs.
Distinctive Origination Platform. To date, a substantial majority of our investments have been sourced directly. We believe that our origination platform provides us the ability to originate investments without the assistance of investment banks or other traditional Wall Street intermediaries.
The Investment Team includes more than 115 investment professionals and is responsible for originating, underwriting, executing and managing the assets of our direct lending transactions and for sourcing and executing opportunities directly. The Investment Team has significant experience as transaction originators and building and maintaining strong relationships with private equity sponsors and companies. In addition, we believe that as a result of the formation of Blue Owl, the Investment Team has enhanced sourcing capabilities because of their ability to utilize Blue Owl’s resources and its relationships with the financial sponsor community and service providers, which we believe may broaden our deal funnel and result in an increased pipeline of deal opportunities.
The Investment Team also maintains direct contact with banks, corporate advisory firms, industry consultants, attorneys, investment banks, “club” investors and other potential sources of lending opportunities. We believe the Adviser’s ability to source through multiple channels allows us to generate investment opportunities that have more attractive risk-adjusted return characteristics than by relying solely on origination flow from investment banks or other intermediaries and to be more selective investors.
Since its inception in April 2016 through December 31, 2023, the Adviser and its affiliates have reviewed over 9,000 opportunities and sourced potential investment opportunities from more than 700 private equity sponsors and venture capital firms. We believe that the Adviser receives “early looks” and “last looks” based on its and Blue Owl’s relationships, allowing it to be highly selective in the transactions it pursues.
Potential Long-Term Investment Horizon. We believe our potential long-term investment horizon gives us flexibility, allowing us to maximize returns on our investments. We invest using a long-term focus, which we believe provides us with the opportunity to increase total returns on invested capital, as compared to other private company investment vehicles or investment vehicles with daily liquidity requirements (e.g., open-ended mutual funds and ETFs).
Defensive, Income-Orientated Investment Philosophy. The Adviser employs a defensive investment approach focused on long-term credit performance and principal protection. This investment approach involves a multi-stage selection process for each investment opportunity as well as ongoing monitoring of each investment made, with particular emphasis on early detection of credit deterioration. This strategy is designed to minimize potential losses and achieve attractive risk adjusted returns.
Active Portfolio Monitoring. The Adviser closely monitors the investments in our portfolio and takes a proactive approach to identifying and addressing sector- or company-specific risks. The Adviser receives and reviews detailed financial information from portfolio companies no less than quarterly and seeks to maintain regular dialogue with portfolio company management teams regarding current and forecasted performance. Although we may invest in “covenant-lite” loans, which generally do not have a complete set of financial maintenance covenants, we anticipate that many of our investments will have financial covenants that we believe will provide an early warning of potential problems facing our borrowers, allowing lenders, including us, to identify and carefully manage risk. In addition, the Adviser has built out its portfolio management team to include workout experts who closely monitor our portfolio companies and who, on at least a quarterly basis, assess each portfolio company’s operational and liquidity exposure and outlook to understand and mitigate risks; and, on at least a monthly basis, evaluates existing and newly identified situations where operating results are deviating from expectations. As part of its monitoring process, the Adviser focuses on projected liquidity needs and where warranted, re-underwriting credits and evaluating downside and liquidation scenarios.
Further, we anticipate that many of our equity investments will provide us the opportunity to nominate a member or observer to the board of directors of the portfolio company or otherwise include provisions protecting our rights as a minority-interest holder, which we believe will allow us to closely monitor the performance of these portfolio companies.
Investment Selection
The Adviser has identified the following investment criteria and guidelines that it believes are important in evaluating prospective portfolio companies. However, not all of these criteria and guidelines will be met, or will be equally important, in connection with each of our investments.
Established Companies with Positive Cash Flow. We seek to invest in companies with sound historical financial performance and a history of profitability which we believe tend to be well-positioned to maintain consistent cash flow to service and repay their obligations and maintain growth in their businesses or market share in all market conditions, including in the event of a recession. The Adviser typically focuses on upper middle-market companies with a history of profitability on an operating cash flow basis, a high
percentage of recurring revenue and with limited cyclicality in their end markets. The Adviser does not intend to invest in start-up companies that have not achieved sustainable profitability and cash flow generation or companies with speculative business plans.
Strong Competitive Position in Industry. The Adviser analyzes the strengths and weaknesses of target companies relative to their competitors. The factors the Adviser considers include relative product pricing, product quality, customer loyalty, substitution risk, switching costs, patent protection, brand positioning and capitalization. We seek to invest in companies that have developed leading positions within their respective markets, are well positioned to capitalize on growth opportunities and operate businesses, exhibit the potential to maintain sufficient cash flows and profitability to service their obligations in a range of economic environments or are in industries with significant barriers to entry. We seek companies that demonstrate advantages in scale, scope, customer loyalty, product pricing or product quality versus their competitors that, when compared to their competitors, may help to protect their market position and profitability.
Experienced Management Team. We seek to invest in companies that have experienced management teams. We also seek to invest in companies that have proper incentives in place, including management teams having significant equity interests to motivate management to act in concert with our interests as an investor.
Diversified Customer and Supplier Base. We generally seek to invest in companies that have a diversified customer and supplier base. Companies with a diversified customer and supplier base are generally better able to endure economic downturns, industry consolidation, changing business preferences and other factors that may negatively impact their customers, suppliers and competitors.
Exit Strategy. While certain debt investments may be repaid through operating cash flows of the borrower, we expect that the primary means by which we exit our debt investments will be through methods such as strategic acquisitions by other industry participants, an initial public offering of common stock, a recapitalization, a refinancing or another transaction in the capital markets.
Prior to making an equity investment in a prospective portfolio company, we analyze the potential for that company to increase the liquidity of its equity through a future event that would enable us to realize appreciation in the value of our equity interest. Liquidity events may include an initial public offering, a private sale of our equity interest to a third party, a merger or an acquisition of the company or a purchase of our equity position by the company or one of its stockholders.
In addition, in connection with our investing activities, we may make commitments with respect to an investment in a potential portfolio company substantially in excess of our final investment. In such situations, while we may initially agree to fund up to a certain dollar amount of an investment, we may sell a portion of such amount, such that we are left with a smaller investment than what was reflected in our original commitment.
Financial Sponsorship. We seek to participate in transactions sponsored by what we believe to be high-quality private equity and venture capital firms. We believe that a financial sponsor’s willingness to invest significant sums of equity capital into a company is an explicit endorsement of the quality of their investment. Further, financial sponsors of portfolio companies with significant investments at risk have the ability and a strong incentive to contribute additional capital in difficult economic times should operational issues arise.
Investments in Different Portfolio Companies and Industries. We seek to invest broadly among portfolio companies and industries, thereby potentially reducing the risk of any one company or industry having a disproportionate impact on the value of our portfolio; however, there can be no assurances in this regard. We seek to structure larger transactions and invest in recession-resistant industries that we are familiar with. We seek to invest not more than 20% of our portfolio in any single industry classification and target portfolio companies that comprise 1-2% of our portfolio (with no individual portfolio company generally expected to comprise greater than 5% of our portfolio).
Investment Process Overview
Origination and Sourcing. The Investment Team has an extensive network from which to source deal flow and referrals. Specifically, the Adviser sources portfolio investments from a variety of different investment sources, including among others, private equity sponsors, management teams, financial intermediaries and advisers, investment bankers, family offices, accounting firms and law firms. The Adviser focuses on sponsor-led leveraged buyouts, refinancings, recapitalizations and acquisitions and sponsors who value the ability to provide sizeable commitments; flexible and creative solutions; and certainty, speed and transparency. To a lesser extent, the Adviser may invest in broadly syndicated loans. The Adviser believes that its experience across different industries and transaction types makes the Adviser particularly qualified to source, analyze and execute investment opportunities with a focus on downside protection and a return of principal.
Due Diligence Process. The process through which an investment decision is made involves extensive research into the company, its industry, its growth prospects and its ability to withstand adverse conditions. If one or more members of the Investment Team responsible for the transaction determines that an investment opportunity should be pursued, the Adviser will engage in an intensive due diligence process focused on fundamental credit analysis and downside protection. Though each transaction may involve a somewhat different approach, the Adviser’s diligence of each opportunity could include:
•understanding the purpose of the loan, the key personnel, the sources and uses of the proceeds;
•meeting the company’s management and key personnel, including top level executives, to get an insider’s view of the business, and to probe for potential weaknesses in business prospects;
•checking management’s backgrounds and references;
•performing a detailed review of historical financial performance, including performance through various economic cycles, and the quality of earnings;
•contacting customers and vendors to assess both business prospects and standard practices;
•conducting a competitive analysis, and comparing the company to its main competitors on an operating, financial, market share and valuation basis;
•researching the industry for historic growth trends and future prospects as well as to identify future exit alternatives;
•assessing asset value and the ability of physical infrastructure and information systems to handle anticipated growth;
•leveraging the Adviser’s internal resources and network with institutional knowledge of the company’s business;
•assessing business valuation and corresponding recovery analysis;
•developing downside financial projections and liquidation analysis;
•reviewing environmental, social and governance (“ESG”) considerations including consulting the Sustainability Accounting Standards Board’s Engagement Guide for ESG considerations; and
•investigating legal and regulatory risks and financial and accounting systems and practices.
Selective Investment Process. After an investment has been identified and preliminary diligence has been completed, a Diversified Lending Investment Committee memorandum is prepared. This report is reviewed by the members of the Investment Team in charge of the potential investment and generally includes information on downside protection, asset coverage and collateral. If these members of the Investment Team are in favor of the potential investment, then a more extensive due diligence process, which may include significant analysis and focus on strategy and potential to recover par in default scenarios, is employed. Additional due diligence with respect to any investment may be conducted on our behalf by attorneys, independent accountants, and other third-party consultants and research firms prior to the closing of the investment, as appropriate on a case-by-case basis.
Structuring and Execution. Approval of an investment requires the approval of a majority of the Diversified Lending Investment Committee. Once the Diversified Lending Investment Committee has determined that a prospective portfolio company is suitable for investment, the Adviser works with the management team of that company and its other capital providers, including senior, junior and equity capital providers, if any, to finalize the structure and terms of the investment. With respect to an investment in broadly syndicated loans, a majority of the Diversified Lending Investment Committee may approve parameters or guidelines pursuant to which the investment may be made.
Inclusion of Covenants. Covenants are contractual restrictions that lenders place on companies to limit the corporate actions a company may pursue. Generally, the loans in which we expect to invest will have financial maintenance covenants, which are used to proactively address materially adverse changes in a portfolio company’s financial performance. However, to a lesser extent, we may invest in “covenant-lite” loans. We use the term “covenant-lite” to refer generally to loans that do not have a complete set of financial maintenance covenants. Generally, “covenant-lite” loans provide borrower companies more freedom to negatively impact lenders because their covenants are incurrence-based, which means they are only tested and can only be breached following an affirmative action of the borrower, rather than by a deterioration in the borrower’s financial condition. Accordingly, to the extent we invest in “covenant-lite” loans, we may have fewer rights against a borrower and may have a greater risk of loss on such investments as compared to investments in or exposure to loans with financial maintenance covenants.
Portfolio Monitoring. The Adviser monitors our portfolio companies on an ongoing basis. The Adviser monitors the financial trends of each portfolio company to determine if it is meeting its business plans and to assess the appropriate course of action with respect to our investment in each portfolio company. The Adviser has a number of methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:
•assessment of success of the portfolio company in adhering to its business plan and compliance with covenants;
•periodic and regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor, to discuss financial position, requirements and accomplishments;
•comparisons to other companies in the portfolio company’s industry;
•attendance at, and participation in, board meetings; and
•review of periodic financial statements and financial projections for portfolio companies.
An investment will be placed on the Adviser's credit watch list when select events occur and will only be removed from the watch list with oversight of the Diversified Lending Investment Committee and/or other Blue Owl agent. Once an investment is on the credit watch list, the Adviser works with the borrower prior to payment default to resolve financial stress through amendments, waivers or other alternatives. If a borrower defaults on its payment obligations, the Adviser's focus shifts to capital recovery. If an investment needs to be restructured, the Adviser’s workout team partners with the investment team and all material amendments, waivers and restructurings require the approval of a majority of the Diversified Lending Investment Committee.
Structure of Investments
Our investment objective is to generate current income and, to a lesser extent, capital appreciation by targeting investment opportunities with favorable risk-adjusted returns.
We expect that generally our portfolio composition will be majority debt or income producing securities, which may include “covenant-lite” loans, with a lesser allocation to equity or equity-linked opportunities. In addition, we may invest a portion of our portfolio in opportunistic investments, which will not be our primary focus, but will be intended to enhance returns to our shareholders and from time to time, we may evaluate and enter into strategic portfolio transactions which may result in additional portfolio companies which we are considered to control. These investments may include high-yield bonds and broadly-syndicated loans, which are typically originated and structured by banks on behalf of large corporate borrowers with employee counts, revenues, EBITDAs and enterprise values larger than the middle market characteristics described herein, and equity investments in portfolio companies that make senior secured loans or invest in broadly syndicated loans or structured products, such as life settlements and royalty interests. Our portfolio composition may fluctuate from time to time based on market conditions and interest rates.
Covenants are contractual restrictions that lenders place on companies to limit the corporate actions a company may pursue. Generally, the loans in which we expect to invest will have financial maintenance covenants, which are used to proactively address materially adverse changes in a portfolio company’s financial performance. However, to a lesser extent, we may invest in “covenant-lite” loans. See “Investment Process Overview - Inclusion of Covenants.”
Debt Investments. The terms of our debt investments are tailored to the facts and circumstances of each transaction. The Adviser negotiates the structure of each investment to protect our rights and manage our risk. We generally invest in the following types of debt:
•First-lien debt. First-lien debt is typically senior on a lien basis to other liabilities in the issuer’s capital structure and has the benefit of a first-priority security interest in assets of the issuer. The security interest ranks above the security interest of any second-lien lenders in those assets. Our first-lien debt may include stand-alone first-lien loans, “unitranche” loans (including “last out” portions of such loans), and secured corporate bonds with similar features to these categories of first lien loans. As of December 31, 2023, 66% of our first lien debt was comprised of unitranche loans.
◦Stand-alone first lien loans. Stand-alone first-lien loans are traditional first-lien loans. All lenders in the facility have equal rights to the collateral that is subject to the first-priority security interest.
◦Unitranche loans. Unitranche loans (including the “last out” portions of such loans) combine features of first-lien, second-lien and mezzanine debt, generally in a first-lien position. In many cases, we may provide the issuer most, if not all, of the capital structure above their equity. The primary advantages to the issuer are the ability to negotiate the entire debt financing with one lender and the elimination of intercreditor issues. “Last out” first-lien loans have a secondary priority behind super-senior “first out” first-lien loans in the collateral securing the loans in certain circumstances. The arrangements for a “last out” first-lien loan are typically set forth in an “agreement among lenders,” which provides lenders with “first out” and “last out” payment streams based on a single lien on the collateral. Since the “first out” lenders generally have priority over the “last out” lenders for receiving payment under certain specified events of default, or upon the occurrence of other triggering events under intercreditor agreements or agreements among lenders, the “last out” lenders bear a greater risk and, in exchange, receive a higher effective interest rate, through arrangements among the lenders, than the “first out” lenders or lenders in stand-alone first-lien loans. Agreements among lenders also typically provide greater voting rights to the “last out” lenders than the intercreditor agreements to which second-lien lenders often are subject. Among the types of first-lien debt in which we may invest, “last out” first-lien loans generally have higher effective interest rates than other types of first-lien loans, since “last out” first-lien loans rank below standalone first-lien loans.
•Second-lien debt. Our second-lien debt may include secured loans, and, to a lesser extent, secured corporate bonds, with a secondary priority behind first-lien debt. Second-lien debt typically is senior on a lien basis to unsecured liabilities in the issuer’s capital structure and has the benefit of a security interest over assets of the issuer, though
ranking junior to first-lien debt secured by those assets. First-lien lenders and second-lien lenders typically have separate liens on the collateral, and an intercreditor agreement provides the first-lien lenders with priority over the second-lien lenders’ liens on the collateral.
•Mezzanine debt. Structurally, mezzanine debt usually ranks subordinate in priority of payment to first-lien and second-lien debt, is often unsecured, and may not have the benefit of financial covenants common in first-lien and second-lien debt. However, mezzanine debt ranks senior to common and preferred equity in an issuer’s capital structure. Mezzanine debt investments generally offer lenders fixed returns in the form of interest payments, which could be paid-in-kind, and may provide lenders an opportunity to participate in the capital appreciation, if any, of an issuer through an equity interest. This equity interest typically takes the form of an equity co-investment or warrants. Due to its higher risk profile and often less restrictive covenants compared to senior secured loans, mezzanine debt generally bears a higher stated interest rate than first-lien and second-lien debt.
•Broadly syndicated loans. Broadly syndicated loans (whose features are similar to those described under “First-lien debt” and “Second-lien debt” above) are typically originated and structured by banks on behalf of large corporate borrowers with employee counts, revenues, EBITDAs, and enterprise values larger than the middle-market characteristics described above. The proceeds of broadly syndicated loans are often used for leveraged buyout transactions, mergers and acquisitions, recapitalizations, refinancings, and financing capital expenditures. Broadly syndicated loans are typically distributed by the arranging bank to a diverse group of investors primarily consisting of: CLOs; senior secured loan and high yield bond mutual funds; closed-end funds, hedge funds, banks, and insurance companies; and finance companies. A borrower must comply with various covenants contained in a loan agreement or note purchase agreement between the borrower and the holders of the broadly syndicated loan. The broadly syndicated loans in which we invest may include loans that are considered “covenant-lite” loans, because of their lack of a full set of financial maintenance covenants.
Our debt investments are typically structured with the maximum seniority and collateral that we can reasonably obtain while seeking to achieve our total return target. The Adviser seeks to limit the downside potential of our investments by:
•requiring a total return on our investments (including both interest and potential equity appreciation) that compensates us for credit risk;
•negotiating covenants in connection with our investments consistent with preservation of our capital. Such restrictions may include affirmative covenants (including reporting requirements), negative covenants (including financial maintenance covenants), lien protection, limitations on debt incurrence, restrictions on asset sales, downside and liquidation cases, restrictions on dividends and other payments, cash flow sweeps, collateral protection, required debt amortization, change of control provisions and board rights, including either observation rights or rights to a seat on the board under some circumstances; and
•including debt amortization requirements, where appropriate, to require the timely repayment of principal of the loan, as well as appropriate maturity dates.
Within our portfolio, the Adviser aims to maintain the appropriate proportion among the various types of first-lien loans, as well as second-lien debt and mezzanine debt, to allow us to achieve our target returns while maintaining our targeted amount of credit risk.
Equity Investments. Our investment in a portfolio company could be or may include an equity interest, such as common stock or preferred stock, or equity linked interest, such as a warrant or profit participation right. We may make direct and indirect equity investments with or without a concurrent investment in a more senior part of the capital structure of the issuer. Our equity investments are typically not control-oriented investments and we may structure such equity investments to include provisions protecting our rights as a minority-interest holder.
Specialty Financing Portfolio Companies. We may make equity investments in portfolio companies that make senior secured loans or invest in broadly syndicated loans or structured products, such as life settlements and royalty interests. Our specialty financing companies include the following:
• Amergin, which consists of AAM Series 1.1 Rail and Domestic Intermodal Feeder, LLC and AAM Series 2.1 Aviation Feeder, LLC (collectively, “Amergin AssetCo”) and Amergin Asset Management LLC, which has entered into a Servicing Agreement with Amergin AssetCo. Amergin was created to invest in a leasing platform focused on railcar, aviation and other long-lived transportation assets. Amergin acquires existing on-lease portfolios of new and end-of-life railcars and related equipment and selectively purchases off-lease assets and is building a commercial aircraft portfolio through aircraft financing and engine acquisition on a sale and lease back basis. .
•Fifth Season Investment LLC (“Fifth Season”), a portfolio company created to invest in life, aviation and other long-lived transportation assets. Amergin acquires existing on-lease portfolios of new and end-of-life railcars and related equipment and selectively purchases off-lease assets and is building a commercial aircraft portfolio through aircraft financing and engine acquisition on a sale and lease back basis.
•LSI Financing 1 DAC (“LSI Financing”), a portfolio company formed to acquire contractual rights to revenue pursuant to earnout agreements in the life sciences space.
Investment Portfolio
Our investment objective is to generate current income and, to a lesser extent, capital appreciation by targeting investment opportunities with favorable risk-adjusted returns. Our investment strategy focuses primarily on originating and making loans to, and making debt and equity investments in, U.S. middle-market companies. We invest in senior secured or unsecured loans, subordinated loans or mezzanine loans and, to a lesser extent, equity and equity-related securities which includes common and preferred stock, securities convertible into common stock, and warrants. We define “middle-market companies” to generally mean companies with EBITDA between $10 million and $250 million annually, and/or annual revenue of $50 million to $2.5 billion at the time of investment. We may on occasion invest in smaller or larger companies if an attractive opportunity presents itself, especially when there are dislocations in the capital markets, including the high yield and large syndicated loan markets. We generally invest in companies with a low loan-to-value ratio, which we consider to be 50% or below. Our target credit investments will typically have maturities between three and ten years and generally range in size between $10 million and $125 million, although the investment size will vary with the size of our capital base.
While our investment strategy focuses primarily on middle-market companies in the United States, including senior secured loans, we also may invest up to 30% of our portfolio in investments of non-qualifying portfolio companies.
As of December 31, 2023 and 2022, we had made investments with an aggregate fair value of $2.0 billion and $2.3 billion, respectively, in 159 and 159 portfolio companies, respectively. Investments consisted of the following at December 31, 2023 and 2022:
December 31, 2023 December 31, 2022
($ in thousands) Amortized Cost Fair Value Unrealized Gain/(Loss) Amortized Cost Fair Value Unrealized Gain/(Loss)
First-lien senior secured debt investments(1)
$ 1,408,127 $ 1,400,246 $ (7,881) $ 1,633,375 $ 1,614,367 $ (19,008)
Second-lien senior secured debt investments 455,907 440,071 (15,836) 484,086 467,560 (16,526)
Unsecured debt investments 40,619 38,895 (1,724) 36,708 32,663 (4,045)
Preferred equity investments(2)
67,709 67,941 232 59,750 58,678 (1,072)
Common equity investments(3)
64,338 98,711 34,373 55,033 86,224 31,191
Total Investments $ 2,036,700 $ 2,045,864 $ 9,164 $ 2,268,952 $ 2,259,492 $ (9,460)
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(1)Includes debt investments in Amergin AssetCo. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Specialty Finance Portfolio Companies” for more information regarding Amergin AssetCo.
(2)Includes investment in LSI Financing. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Specialty Finance Portfolio Companies” for more information regarding LSI Financing.
(3)Includes equity investments in Amergin AssetCo and Fifth Season. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Specialty Finance Portfolio Companies” for more information regarding Amergin AssetCo and Fifth Season.
As of December 31, 2023 and 2022, we had outstanding commitments to fund unfunded investments totaling $137.8 million and $127.6 million, respectively.
The industry composition of investments at fair value at December 31, 2023 and 2022 was as follows:
December 31, 2023 December 31, 2022
Advertising and media 1.0 % 0.9 %
Aerospace and defense 4.1 3.4
Asset based lending and fund finance(1)
2.2 1.4
Automotive 2.0 1.6
Buildings and real estate 3.0 4.2
Business services 3.5 3.1
Chemicals 2.6 2.7
Consumer products 5.3 4.5
Containers and packaging 1.7 1.4
Distribution 2.6 3.2
Education 1.0 1.2
Financial services 1.4 5.3
Food and beverage 8.4 7.4
Healthcare equipment and services 4.5 3.9
Healthcare providers and services 7.1 5.0
Healthcare technology 6.8 5.9
Household products 2.5 2.2
Human resource support services 1.5 1.4
Infrastructure and environmental services 0.5 0.4
Insurance(3)
8.5 7.9
Internet software and services 11.5 13.6
Leisure and entertainment 2.9 2.7
Manufacturing 7.5 7.0
Oil and gas 0.4 1.1
Pharmaceuticals(2)
0.0 (4)
-
Professional services 2.4 2.4
Specialty retail 3.4 3.2
Telecommunications 0.4 -
Transportation 1.3 3.0
Total 100.0 % 100.0 %
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(1)Includes investments in Amergin AssetCo. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Specialty Finance Portfolio Companies” for more information regarding Amergin AssetCo.
(2)Includes investment in LSI Financing. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Specialty Finance Portfolio Companies” for more information regarding LSI Financing.
(3)Includes investment in Fifth Season. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Specialty Finance Portfolio Companies” for more information regarding Fifth Season.
(4)Rounds to less than 0.1.
The geographic composition of investments at fair value at December 31, 2023 and 2022 was as follows:
December 31, 2023 December 31, 2022
United States:
Midwest 18.7 % 17.4 %
Northeast 16.5 17.6
South 31.3 33.7
West 25.3 23.5
International 8.2 7.8
Total 100.0 % 100.0 %
Capital Resources and Borrowings
We anticipate generating cash in the future from the issuance of debt securities and cash flows from operations, including interest received on our debt investments.
We may borrow money from time to time if our asset coverage, as defined in the 1940 Act, is at least equal to 200% immediately after such borrowing. Additionally, we are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of shares senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% (or 150% if certain requirements are met) immediately after each such issuance. Our current target leverage ratio is 0.75x. As of December 31, 2023 and 2022, our asset coverage was 239% and 229%, respectively. See “Regulation as a Business Development Company - Senior Securities” below.
Furthermore, while any indebtedness and senior securities remain outstanding, we must make provisions to prohibit any distribution to our shareholders on our capital stock (which may cause us to fail to distribute amounts necessary to avoid entity-level taxation under the Code), or the repurchase of such capital stock unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. In addition, we must also comply with positive and negative covenants customary for these types of indebtedness or senior securities.
Our debt obligations consisted of the following as of December 31, 2023 and 2022:
December 31, 2023
($ in thousands) Aggregate Principal
Committed Outstanding
Principal Amount
Available(1)
Net Carrying
Value(2)
SPV Asset Facility I $ 250,000 $ 60,000 $ 174,934 $ 58,715
SPV Asset Facility II 325,000 125,000 19,715 120,008
CLO XIII 260,000 260,000 - 257,764
2024 Notes 100,000 100,000 - 101,138
2026 Notes 350,000 350,000 - 343,473
Total Debt $ 1,285,000 $ 895,000 $ 194,649 $ 881,098
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(1)The amount available reflects any limitations related to each credit facility’s borrow base.
(2)The carrying value of our SPV Asset Facility I, SPV Asset Facility II, CLO XIII, 2024 Notes and 2026 Notes are presented net of deferred financing costs of $1.3 million, $5.0 million, $2.2 million, $(1.1) million and $6.5 million respectively.
December 31, 2022
($ in thousands) Aggregate Principal
Committed Outstanding
Principal Amount
Available(1)
Net Carrying
Value(2)
SPV Asset Facility I $ 500,000 $ 374,222 $ 29,179 $ 374,084
SPV Asset Facility II 325,000 176,000 79,146 172,397
2024 Notes 450,000 450,000 - 450,192
Total Debt $ 1,275,000 $ 1,000,222 $ 108,325 $ 996,673
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(1)The amount available reflects any limitations related to each credit facility’s borrow base.
(2)The carrying value of our SPV Asset Facility I, SPV Asset Facility II and 2024 Notes are presented net of deferred financing costs of $0.1 million, $3.6 million and $(0.2) million, respectively.
See “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -Financial Condition, Liquidity and Capital Resources - Debt”.
Dividend Policy
Subject to our board of directors' discretion and applicable legal restrictions, we intend to authorize, declare and pay cash distributions to our shareholders on a monthly and/or quarterly basis. Because we have elected to be treated and intend to maintain our tax treatment as a RIC, we intend to distribute (or be treated as distributing) in each taxable year dividends in an amount equal to at least the sum of 90% of our investment company taxable income (which includes, among other items, dividends, interest, the excess of any net short-term capital gains over net long-term capital losses, as well as other taxable income, excluding any net capital gains reduced by deductible expenses) and 90% of our net tax-exempt income for that taxable year. As a RIC, we generally will not be subject to U.S. federal income tax at corporate rates on our investment company taxable income and net capital gains that we distribute to shareholders as dividends. We may be subject to a nondeductible 4% U.S. federal excise tax, if we do not distribute (or are treated as distributing) in each calendar year an amount at least equal to the sum of:
•98% of our net ordinary income, excluding certain ordinary gains and losses, recognized during a calendar year;
•98.2% of our capital gain net income, adjusted for certain ordinary gains and losses, recognized for the twelve-month period ending on October 31 of such calendar year; and
•100% of any income or gains recognized, but not distributed, in preceding years.
We can be expected to incur in the future such excise tax on a portion of our income and gains. While we intend to distribute income and capital gains to minimize exposure to the 4% excise tax, we may not be able to, or may not choose to, distribute amounts sufficient to avoid the imposition of the tax entirely. In that event, we will be liable for the tax only on the amount by which we do not meet the foregoing distribution requirement. See “ITEM 1A RISK FACTORS - Risks Related to U.S. Federal Income Tax - We will be subject to U.S. federal income tax at corporate rates if we are unable to qualify and maintain our tax treatment as a RIC under Subchapter M of the Code or if we make investments through taxable subsidiaries.”
We may fund our cash distributions to shareholders from any sources of funds available to us, including fee waivers or deferrals by our Adviser that may be subject to repayment, as well as cash otherwise available. We have not established limits on the amount of funds we may use from any available sources to make distributions; however, we will not borrow funds for the purpose of making distributions if the amount of such distributions would exceed our accrued and received revenues (“Net Revenues”), which we define as accrued and received revenues, less paid and accrued operating expenses with respect to such revenues and costs, for the previous four quarters. Distributions may be supported by the deferral or waiver of investment advisory fees and, prior to the termination of the Expense Support and Conditional Reimbursement Agreement, or the Expense Support Agreement, we entered into with our Adviser, in the form of operating expense support payments pursuant thereto. See “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -Expense Support and Conditional Reimbursement Agreement” for additional information regarding the Expense Support Agreement. We may be obligated to repay our Adviser over several years, and these repayments, if any, will reduce the future distributions that you would otherwise be entitled to receive from us. You should understand that such distributions may not be based on our investment performance. There can be no assurance that we will achieve the performance necessary to sustain our distributions, or that we will be able to pay distributions at a specific rate, or at all. Our Adviser has no obligation to waive or defer its advisory fees or otherwise reimburse expenses in future periods.
The following table presents cash distributions per share that were declared during the year ended December 31, 2023:
For the Year Ended December 31, 2023
Declaration Date Record Date Payment Date Dividend Distribution Per Share
Distribution Amount
($ in thousands, except per share amounts)
November 1, 2022 January 31, 2023 February 1, 2023 Monthly $ 0.050180 $ 7,352
November 1, 2022 February 28, 2023 March 1, 2023 Monthly 0.050180 7,377
November 1, 2022 March 28, 2023 March 29, 2023 Monthly 0.050180 7,396
February 21, 2023 March 31, 2023 April 28, 2023 Quarterly 0.016731 2,429
February 21, 2023 April 25, 2023 April 26, 2023 Monthly 0.050180 7,285
February 21, 2023 May 30, 2023 May 31, 2023 Monthly 0.050180 7,309
February 21, 2023 June 27, 2023 June 28, 2023 Monthly 0.050180 7,329
May 9, 2023 June 30, 2023 July 31, 2023 Quarterly 0.016731 2,383
May 9, 2023 July 25, 2023 July 26, 2023 Monthly 0.050180 7,146
May 9, 2023 August 29, 2023 August 30, 2023 Monthly 0.050180 7,170
May 9, 2023 September 26, 2023 September 27, 2023 Monthly 0.050180 7,188
September 11, 2023 September 30, 2023 November 13, 2023 Quarterly 0.050000 7,025
September 11, 2023 October 31, 2023 November 1, 2023 Monthly 0.060000 8,431
September 11, 2023 November 28, 2023 November 29, 2023 Monthly 0.060000 8,478
September 11, 2023 December 26, 2023 December 27, 2023 Monthly 0.060000 8,504
November 16, 2023 December 31, 2023 January 30, 2024 Quarterly 0.030000 4,210
Total $ 0.745082 $ 107,012
The following table presents cash distributions per share that were declared during the year ended December 31, 2022:
For the Year Ended December 31, 2022
Declaration Date Record Date Payment Date Dividend Distribution Per Share
Distribution Amount
($ in thousands, except per share amounts)
January 25, 2022 January 25, 2022 January 26, 2022 Monthly $ 0.050180 $ 7,596
January 25, 2022 February 22, 2022 February 23, 2022 Monthly 0.050180 7,616
January 25, 2022 March 29, 2022 March 30, 2022 Monthly 0.050180 7,635
February 23, 2022 April 26, 2022 April 27, 2022 Monthly 0.050180 7,568
February 23, 2022 May 24, 2022 May 25, 2022 Monthly 0.050180 7,588
February 23, 2022 June 28, 2022 June 29, 2022 Monthly 0.050180 7,607
May 3, 2022 July 26, 2022 July 27, 2022 Monthly 0.050180 7,479
May 3, 2022 August 30, 2022 August 31, 2022 Monthly 0.050180 7,499
August 2, 2022 September 30, 2022 November 15, 2022 Quarterly 0.007589 1,120
May 3, 2022 September 27, 2022 September 28, 2022 Monthly 0.050180 7,519
August 2, 2022 October 25, 2022 October 26, 2022 Monthly 0.050180 7,406
August 2, 2022 November 29, 2022 November 30, 2022 Monthly 0.050180 7,429
August 2, 2022 December 27, 2022 December 28, 2022 Monthly 0.050180 7,448
November 1, 2022 December 31, 2022 February 2, 2023 Quarterly 0.016731 2,451
Total $ 0.626480 $ 93,961
The following table presents cash distributions per share that were declared during the year ended December 31, 2021:
For the Year Ended December 31, 2021
Declaration Date Record Date Payment Date Dividend Distribution Per Share
Distribution Amount
($ in thousands, except per share amounts)
November 3, 2020 January 26, 2021 (1)
January 27, 2021 Monthly $ 0.050180 $ 6,776
November 3, 2020 February 23, 2021 (1)
February 24, 2021 Monthly 0.050180 6,895
November 3, 2020 March 30, 2021 (1)
March 31, 2021 Monthly 0.050180 8,763
February 23, 2021 April 27, 2021 (1)
April 28, 2021 Monthly 0.050180 7,036
February 23, 2021 May 25, 2021 (1)
May 26, 2021 Monthly 0.050180 7,089
February 23, 2021 June 29, 2021 (1)
June 30, 2021 Monthly 0.050180 8,884
May 5, 2021 July 27, 2021 July 28, 2021 Monthly 0.050180 7,612
May 5, 2021 August 24, 2021 August 25, 2021 Monthly 0.050180 7,631
May 5, 2021 September 28, 2021 September 29, 2021 Monthly 0.050180 7,650
August 3, 2021 October 26, 2021 October 27, 2021 Monthly 0.050180 7,604
August 3, 2021 November 23, 2021 November 24, 2021 Monthly 0.050180 7,623
August 3, 2021 December 28, 2021 December 29, 2021 Monthly 0.050180 7,649
Total $ 0.602160 $ 91,212
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(1)The Board authorized and declared weekly distribution amounts per share of common stock through June 30, 2021, which were paid monthly to shareholders as of the weekly record date.
Continuous Public Offering
We commenced a continuous public offering of up to 264,000,000 shares of our common stock on April 4, 2017. On January 29, 2020, we commenced the follow-on offering for up to 160,000,000 shares of our common stock. We terminated our continuous public offering as of April 30, 2021. Since meeting the minimum offering requirement and through the termination of our continuous public offering, we issued 151,364,239 shares of our common stock for gross proceeds of approximately $1.4 billion, including seed capital contributed by our Adviser in September 2016 and approximately $10.0 million in gross proceeds raised in the private placement from certain individuals and entities affiliated with our Adviser.
Distribution Reinvestment Plan
We have adopted a distribution reinvestment plan, pursuant to which we will reinvest all cash distributions declared by the Board on behalf of our shareholders who elect to participate, or “opt-in.” As a result, if the Board authorizes, and we declare, a cash dividend or other distribution, then our shareholders who have opted in to our distribution reinvestment plan will have their cash distribution automatically reinvested in additional shares of our common stock as described below, rather than receiving the cash distribution or other distribution. Shareholders who receive distributions in the form of shares of common stock will be subject to the same U.S. federal, state and local tax consequences as if they received cash distributions.
Participation in the distribution reinvestment plan will commence with the next distribution paid after receipt of an investor’s written election to participate in the plan and to all other calendar months thereafter, provided such notification is received by the plan administrator no later than the record date to which such distribution relates.
The number of shares to be issued to a shareholder participating in the distribution reinvestment plan will be determined by dividing the total dollar amount of the distribution payable to each shareholder by a price per share equivalent to the current net public offering price that the shares are sold in our continuous public offering at the closing immediately following the distribution date. In the event that our offering is suspended or terminated, then the reinvestment purchase price will be the net asset value per share. Shares issued pursuant to our distribution reinvestment plan will have the same voting rights as the shares of our common stock.
Share Repurchase Program
In the third quarter of 2017, we began offering, and on a quarterly basis intend to continue offering, to repurchase shares of our common stock on such terms as may be determined by our Board in its complete discretion. Our Board has complete discretion to determine whether we will engage in any share repurchase, and if so, the terms of such repurchase. At the discretion of our Board, we may use cash on hand, cash available from borrowings, and cash from the sale of our investments as of the end of the applicable period to repurchase shares. We have not established limits on the amount of funds we may use from any available sources to
repurchase shares; however, we will not borrow funds for the purpose of repurchasing shares if the amount of such repurchase would exceed our accrued and received Net Revenues for the previous four quarters.
All shares purchased by us pursuant to the terms of each offer to repurchase will be retired and thereafter will be authorized and unissued shares.
Any periodic repurchase offers are subject in part to our available cash and compliance with the BDC and RIC qualification and diversification rules promulgated under the 1940 Act and the Code, respectively. While we intend to continue to conduct quarterly tender offers as described above, we are not required to do so and may suspend or terminate the share repurchase program at any time.
Offer Date Tender Offer Expiration Tender Offer Purchase Price per Share Shares Repurchased
March 10, 2021 April 6, 2021 $ 18,995,153 $ 8.95 1,945,553
June 1, 2021 June 28, 2021 $ 19,621,539 $ 8.99 2,182,596
August 30, 2021 September 27, 2021 $ 11,911,588 $ 9.00 1,323,510
November 29, 2021 December 27, 2021 $ 11,859,682 $ 9.00 1,317,742
March 1, 2022 March 28, 2022 $ 15,362,486 $ 8.88 1,730,010
May 27, 2022 June 27, 2022 $ 25,733,988 $ 8.69 2,961,334
August 29, 2022 September 26, 2022 $ 23,067,664 $ 8.77 2,630,292
November 28, 2022 December 23, 2022 $ 20,458,302 $ 8.86 2,309,063
February 28, 2023 March 27, 2023 $ 23,098,513 $ 8.90 2,595,339
May 26, 2023 June 26, 2023 $ 36,020,345 $ 8.96 4,020,194
August 28, 2023 September 25, 2023 $ 28,143,907 $ 9.08 3,099,549
November 27, 2023 December 22, 2023 $ 16,396,554 $ 9.03 1,815,787
To the extent that the number of shares of our common stock tendered to us for repurchase exceeds the number of shares that we are able to purchase, we will repurchase shares on a pro rata basis. Further, we will have no obligation to repurchase shares if the repurchase would violate the restrictions on distributions under federal law or Maryland law. The limitations and restrictions described above may prevent us from accommodating all repurchase requests made in any quarter. Our share repurchase program has many limitations, including the limitations described above, and should not in any way be viewed as the equivalent of a secondary market.
We will offer to repurchase shares on such terms as may be determined by our Board in its complete and absolute discretion unless, in the judgment of our independent directors, such repurchases would not be in the best interests of our shareholders or would violate applicable law. There is no assurance that our Board will exercise its discretion to offer to repurchase shares or that there will be sufficient funds available to accommodate all of our shareholders’ requests for repurchase. As a result, we may repurchase less than the full amount of shares that you request to have repurchased. If we do not repurchase the full amount of your shares that you have requested to be repurchased, or we determine not to make repurchases of our shares, you will likely not be able to dispose of your shares, even if we underperform. Any periodic repurchase offers will be subject in part to our available cash and compliance with the RIC qualification and diversification rules and the 1940 Act. Shareholders will not pay a fee to us in connection with our repurchase of shares under the share repurchase program.
Competition
Our primary competitors in providing financing to middle-market companies include public and private funds, other BDCs, commercial and investment banks, commercial finance companies and, to the extent they provide an alternative form of financing, private equity and hedge funds. Many of our competitors are substantially larger and have considerably greater financial, technical, and marketing resources than we do. Many of these competitors have similar investment objectives to us, which may create additional competition for investment opportunities. Some competitors may have access to a lower cost of capital and funding sources that are not available to us, which may create competitive disadvantages for us with respect to our investment opportunities. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Further, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC, or to the distribution and other requirements we must satisfy to maintain our RIC tax treatment. Lastly, institutional and individual investors are allocating increasing amounts of capital to alternative investment strategies. Several large institutional investors have announced a desire to consolidate their investments in a more limited number of managers. We expect that this will cause competition in our industry to intensify and could lead to a reduction in the size and duration of pricing inefficiencies that many of our products seek to exploit. See “ITEM 1A. RISK FACTORS - Risks Related to Our Business - We may face increasing competition for investment opportunities, which could delay further deployment of our capital, reduce returns and result in losses.”
Investment Advisory Agreement
The description below of the Investment Advisory Agreement is only a summary and is not necessarily complete. The description set forth below is qualified in its entirety by reference to the Investment Advisory Agreement.
Under the terms of the Investment Advisory Agreement, the Adviser is responsible for the following:
•managing our assets in accordance with our investment objective, policies and restrictions;
•determining the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes;
•making investment decisions for us, including negotiating the terms of investments in, and dispositions of, portfolio securities and other instruments on our behalf;
•monitoring our investments;
•performing due diligence on prospective portfolio companies;
•exercising voting rights in respect of portfolio securities and other investments for us;
•serving on, and exercising observer rights for, boards of directors and similar committees of our portfolio companies; and
•providing us with such other investment advisory and related services as we may, from time to time, reasonably require for the investment of capital.
The Adviser’s services under the Investment Advisory Agreement are not exclusive, and accordingly, the Adviser may provide similar services to other entities.
Term
The Investment Advisory Agreement became effective on May 18, 2021. Unless earlier terminated as described below, the Investment Advisory Agreement will remain in effect for two years from the date it first became effective and from year-to-year thereafter if approved annually by a majority of the Board or by the holders of a majority of our outstanding voting securities and, in each case, a majority of the independent directors. On May 8, 2023, the Board approved the continuation of the Investment Advisory Agreement.
The Investment Advisory Agreement will automatically terminate within the meaning of the 1940 Act and related SEC guidance and interpretations in the event of its assignment. In accordance with the 1940 Act, without payment of penalty, we may terminate the Investment Advisory Agreement with the Adviser upon 60 days’ written notice. The decision to terminate the agreement may be made by a majority of the Board or the shareholders holding a Majority of the Outstanding Shares of our common stock. “Majority of the Outstanding Shares” means the lesser of (1) 67% or more of the outstanding shares of common stock present at a meeting, if the holders of more than 50% of the outstanding shares of common stock are present or represented by proxy or (2) a majority of outstanding shares of common stock. In addition, without payment of penalty, the Adviser may terminate the Investment Advisory Agreement upon 120 days’ written notice.
Compensation of the Adviser
Pursuant to the Investment Advisory Agreement with the Adviser, subject to the overall supervision of our Board and in accordance with the 1940 Act, the Adviser receives an investment advisory fee from us, consisting of two components - a base management fee and an incentive fee. The base management fee is calculated at an annual rate of 1.50% based on the average value of our gross assets excluding cash and cash-equivalents but including assets purchased with borrowed amounts at the end of the two most recently completed calendar quarters. Although we do not anticipate making significant investments in derivatives and swaps similar to our direct investment in portfolio companies, the fair value of any such derivatives and swaps, which will not necessarily equal the notional value of such derivatives and swaps, will be included in our calculation of gross assets. The base management fee is payable quarterly in arrears. All or any part of the base management fee not taken as to any quarter will be deferred without interest and may be taken in any such quarter prior to the occurrence of a liquidity event. Base management fees for any partial quarter are prorated based on the number of days in the quarter.
The incentive fee consists of two parts: (i) an incentive fee on income and (ii) an incentive fee on capital gains. Each part of the incentive fee is outlined below.
The incentive fee on income will be calculated and payable quarterly in arrears and will be based upon our pre-incentive fee net investment income for the immediately preceding calendar quarter. In the case of a liquidation of the Company or if the Investment Advisory Agreement is terminated, the fee will also become payable as of the effective date of the event.
The incentive fee on income for each calendar quarter will be calculated as follows:
•No incentive fee on income will be payable in any calendar quarter in which the pre-incentive fee net investment income does not exceed a quarterly return to investors of 1.5% per quarter on our adjusted capital. We refer to this as the quarterly preferred return.
•All of our pre-incentive fee net investment income, if any, that exceeds the quarterly preferred return, but is less than or equal to 1.818% , which we refer to as the upper level breakpoint, on our adjusted capital in any quarter, will be payable to our Adviser. We refer to this portion of the incentive fee on income as the catch up. It is intended to provide an incentive fee of 17.5% on all of our pre-incentive fee net investment income when the pre-incentive fee net investment income reaches 1.818% on our adjusted capital in any quarter, measured as of the end of the immediately preceding calendar quarter. The quarterly preferred return of 1.5% and upper level breakpoint of 1.818% are also adjusted for the actual number of days each calendar quarter.
•For any quarter in which our pre-incentive fee net investment income exceeds 1.818% on our adjusted capital, the incentive fee on income will equal 17.5% of the amount of our pre-incentive fee net investment income, because the quarterly preferred return and catch up will have been achieved.
•Pre-incentive fee net investment income is defined as investment income and any other income, accrued during the calendar quarter, minus operating expenses for the quarter, including the base management fee, expenses payable under the Investment Advisory Agreement and the Administration Agreement, any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee. Pre-incentive fee net investment income does not include any expense support payments or any reimbursement by the Company of expense support payments, or any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.
•For purposes of computing the incentive fee on income, although we do not anticipate making significant investments in derivatives and swaps, the calculation methodology will look through any such derivatives or swaps as if we owned the reference assets directly. Therefore, net interest, if any, associated with a derivative or swap (which is defined as the difference between (i) the interest income and transaction fees received in respect of the reference assets of the derivative or swap and (ii) all interest and other expenses paid by us to the derivative or swap counterparty) will be included in the calculation of quarterly pre-incentive fee net investment income for purposes of the incentive fee on income. The notional value of any such derivatives or swaps is not used for these purposes.
•Adjusted capital is defined as cumulative proceeds generated from sales of our common stock, including proceeds from our distribution reinvestment plan, net of sales load (upfront selling commissions and dealer manager fees) reduced for (i) distributions paid to our shareholders that represent a return of capital on a tax basis and (ii) amounts paid for share repurchases pursuant to our share repurchase program, if any, measured as of the end of the immediately preceding calendar quarter.
The following is a graphical representation of the calculation of the quarterly incentive fee on income:
Quarterly Incentive Fee on
Pre-Incentive Fee Net Investment Income
(expressed as a percentage of adjusted capital)
0% 1.5% 1.818%
ß 0% à
ß 100% à
ß 17.5% à
Percentage of Pre-Incentive Fee Net Investment Income
Allocated to Quarterly Incentive Fee
The incentive fee on capital gains will be determined and payable in arrears as of the end of each calendar year during which the Investment Advisory Agreement is in effect. In the case of a liquidation, or if the Investment Advisory Agreement is terminated, the fee will also become payable as of the effective date of such event. The annual fee will equal (i) 17.5% of our realized capital gains on a cumulative basis from inception through the end of such calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less (ii) the aggregate amount of any previously paid incentive fees on capital gains as calculated in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).
For purposes of computing the incentive fee on capital gains, the calculation methodology will look through derivatives or swaps as if we owned the reference assets directly. Therefore, realized gains and realized losses on the disposition of any reference assets, as well as unrealized depreciation on reference assets retained in the derivative or swap, will be included on a cumulative basis in the calculation of the incentive fee on capital gains.
Because of the structure of the incentive fee on income and the incentive fee on capital gains, it is possible that we may pay such fees in a quarter where we incur a net loss. For example, if we receive pre-incentive fee net investment income in excess of the
1.5% on adjusted capital for a quarter, we will pay the applicable incentive fee even if we incurred a net loss in the quarter due to a realized or unrealized capital loss. Our Adviser will not be under any obligation to reimburse us for any part of the incentive fee they receive that is based on prior period accrued income that we never received as a result of any borrower’s default or a subsequent realized loss of our portfolio.
The fees that are payable under the Investment Advisory Agreement for any partial period will be appropriately prorated. The fees are calculated using detailed policies and procedures approved by our Adviser and our Board, including a majority of the independent directors, and such policies and procedures are consistent with the description of the calculation of the fees set forth above.
Our Adviser may elect to defer or waive all or a portion of the fees that would otherwise be paid to it in its sole discretion. Any portion of a fee not taken as to any month, quarter or year will be deferred without interest and may be taken in any such other month prior to the occurrence of a liquidity event as our Adviser may determine in its sole discretion.
Organization and Offering Costs
Under the terms of the Investment Advisory Agreement, the Adviser is entitled to receive up to 1.5% of gross offering proceeds raised in the continuous public offering until all organization and offering costs paid by the Adviser or its affiliates have been recovered. These expenses include those deemed to be “organization and offering expenses” of the Company for purposes of Conduct Rule 2310(a)(12) of the Financial Industry Regulatory Authority (exclusive of commissions, the dealer manager fee, any discounts and other similar expenses paid by investors at the time of sale of the Company’s stock). The Adviser is responsible for the payment of our organization and offering expenses to the extent that these expenses exceed 1.5% of the aggregate gross offering proceeds, without recourse against or reimbursement by us.
Limitations of Liability and Indemnification
The Adviser and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with the Adviser, including without limitation its sole member, are not liable to us for any action taken or omitted to be taken by the Adviser in connection with the performance of any of its duties or obligations under the Investment Advisory Agreement or otherwise as our investment adviser (except to the extent specified in Section 36(b) of the 1940 Act, concerning loss resulting from a breach of fiduciary duty (as the same is finally determined by judicial proceedings) with respect to the receipt of compensation for services).
We will indemnify the Adviser and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with the Adviser, including without limitation its general partner or managing member (collectively, the “Indemnified Parties”) and hold them harmless from and against all damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) incurred by the Indemnified Parties in or by reason of any pending, threatened or completed action, suit, investigation or other proceeding (including an action or suit by or in the right of us or our security holders) arising out of or otherwise based upon the performance of any of the Adviser’s duties or obligations under the Investment Advisory Agreement or otherwise as our investment adviser. However, the Indemnified Parties shall not be entitled to indemnification in respect of, any liability to us or our shareholders to which the Indemnified Parties would otherwise be subject by reason of criminal conduct, willful misfeasance, bad faith or gross negligence in the performance of the Adviser’s duties or by reason of the reckless disregard of the Adviser’s duties and obligations under the Investment Advisory Agreement.
Board Approval of the Investment Advisory Agreement
On May 8, 2023, the Board held a meeting to consider and approve the continuation of the Investment Advisory Agreement and related matters. The Board was provided information it required to consider the Investment Advisory Agreement, including: (a) the nature, quality and extent of the advisory and other services to be provided to us by the Adviser; (b) the fee structures of comparable externally managed BDCs, which could include employees of the Adviser or its affiliates; (c) our projected operating expenses and expense ratio compared to BDCs with similar investment objectives; (d) information about the services to be performed and the personnel performing such services under the Investment Advisory Agreement; (f) the organizational capability and financial condition of the Adviser and its affiliates; and (g) the possibility of obtaining similar services from other third-party service providers or through an internally managed structure.
Based on the information reviewed and the discussion thereof, the Board, including a majority of the non-interested directors, concluded that the investment advisory fee rates are reasonable in relation to the services to be provided and approved the continuation of the Investment Advisory Agreement, as being in the best interests of our shareholders.
Administration Agreement
The description below of the Administration Agreement is only a summary and is not necessarily complete. The description set forth below is qualified in its entirety by reference to the Administration Agreement.
Under the terms of the Administration Agreement, the Adviser performs, or oversees the performance of, administrative services for us, which includes, but is not limited to, providing office space, equipment and office services, maintaining financial
records, preparing reports to shareholders and reports filed with the SEC, managing the payment of expenses and the performance of administrative and professional services rendered by others, which could include employees of the Adviser or its affiliates. We will reimburse the Adviser for services performed for us pursuant to the terms of the Administration Agreement. In addition, pursuant to the terms of the Administration Agreement, the Adviser may delegate its obligations under the Administration Agreement to an affiliate or to a third party and we will reimburse the Adviser for any services performed for us by such affiliate or third party.
The Administration Agreement became effective on May 18, 2021 and the continuation of the Administration Agreement was approved by the Board on May 8, 2023. Unless earlier terminated as described below, the Administration Agreement will remain in effect for two years from the date it first became effective and from year-to-year thereafter if approved annually by a majority of the Board or by the holders of a majority of our outstanding voting securities and, in each case, a majority of the independent directors. We may terminate the Administration Agreement, without payment of any penalty, upon 60 days’ written notice. The decision to terminate the agreement may be made by a majority of the Board or the shareholders holding a Majority of the Outstanding Shares of our common stock. In addition, the Adviser may terminate the Administration Agreement, without payment of any penalty, upon 120 days’ written notice. To the extent that the Adviser outsources any of its functions we will pay the fees associated with such functions without profit to the Adviser.
We will reimburse Blue Owl Credit Advisors for expenses necessary to perform services related to our administration and operations, including Blue Owl Credit Advisors’ allocable portion of the compensation and related expenses of our Chief Compliance Officer, Chief Financial Officer and their respective staffs. The amount of this reimbursement will be the lesser of (1) Blue Owl Credit Advisors' actual costs incurred in providing such services and (2) the amount that we estimate we would be required to pay alternative service providers for comparable services in the same geographic location. Blue Owl Credit Advisors will be required to allocate the cost of such services to us based on factors such as assets, revenues, time allocations and/or other reasonable metrics. Our board of directors will review the methodology employed in determining how the expenses are allocated to us and the proposed allocation of administrative expenses among us and certain affiliates of Blue Owl Credit Advisors. Our board of directors will assess the reasonableness of such reimbursements for expenses allocated to us based on the breadth, depth and quality of such services as compared to the estimated cost to us of obtaining similar services from third-party service providers known to be available. In addition, our board of directors will consider whether any single third-party service provider would be capable of providing all such services at comparable cost and quality. Finally, our board of directors will, among other things, compare the total amount paid to Blue Owl Credit Advisors for such services as a percentage of our net assets to the same ratio as reported by other comparable business development companies. We will not reimburse Blue Owl Credit Advisors for any services for which it receives a separate fee, for example rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of Blue Owl Credit Advisors. To the extent that Blue Owl Credit Advisors outsources any of its functions we will pay the fees associated with such functions without profit to Blue Owl Credit Advisors.
The Administration Agreement provides that the Adviser and its affiliates’ respective officers, directors, members, managers, stockholders and employees are entitled to indemnification from us from and against any claims or liabilities, including reasonable legal fees and other expenses reasonably incurred, arising out of or in connection with our business and operations or any action taken or omitted on our behalf pursuant to authority granted by the Administration Agreement, except where attributable to willful misfeasance, bad faith or gross negligence in the performance of such person’s duties or reckless disregard of such person’s obligations and duties under the Administration Agreement as provided by Section 17(i) of the 1940 Act.
Payment of Our Expenses under the Investment Advisory and Administration Agreements
Except as specifically provided below, we anticipate that all investment professionals and staff of Blue Owl Credit Advisors, when and to the extent engaged in providing investment advisory and management services to us, and the base compensation, bonus and benefits, and the routine overhead expenses, of such personnel allocable to such services, will be provided and paid for by Blue Owl Credit Advisors. We will bear our allocable portion of the compensation paid by Blue Owl Credit Advisors (or its affiliates) to our Chief Compliance Officer and Chief Financial Officer and their respective staffs (based on a percentage of time such individuals devote, on an estimated basis, to our business affairs, and as otherwise set forth in the Administrative Agreement). We also will bear all other costs and expenses of our operations, administration and transactions, including, but not limited to (i) investment advisory fees, including base management fees and incentive fees, to Blue Owl Credit Advisors, pursuant to the Investment Advisory Agreement; (ii) our allocable portion of overhead and other expenses incurred by Blue Owl Credit Advisors in performing its administrative obligations under the Investment Advisory Agreement and Administration Agreement, and (iii) all other costs and expenses of our operations and transactions including, without limitation, those relating to:
•expenses deemed to be “organization and offering expenses” for purposes of Conduct Rule 2310(a)(12) of Financial Industry Regulatory Authority (exclusive of commissions, the dealer manager fee, any discounts and other similar expenses paid by investors at the time of sale of our stock);
•the cost of corporate and organizational expenses relating to offerings of shares of our common stock;
•the cost of calculating our net asset value, including the cost of any third-party valuation services;
•the cost of effecting any sales and repurchases of the common stock and other securities;
•fees and expenses payable under any dealer manager agreements, if any;
•debt service and other costs of borrowings or other financing arrangements;
•costs of hedging;
•expenses, including travel expense, incurred by the Adviser, or members of the Investment Team, or payable to third parties, performing due diligence on prospective portfolio companies and, if necessary, enforcing our rights;
•escrow agent, transfer agent and custodial fees;
•fees and expenses associated with marketing efforts;
•federal and state registration fees, any stock exchange listing fees and fees payable to rating agencies;
•federal, state and local taxes;
•independent directors’ fees and expenses including certain travel expenses;
•costs of preparing financial statements and maintaining books and records and filing reports or other documents with the SEC (or other regulatory bodies) and other reporting and compliance costs, including registration and listing fees, and the compensation of professionals responsible for the preparation of the foregoing;
•the costs of any reports, proxy statements or other notices to shareholders (including printing and mailing costs), the costs of any shareholder or director meetings and the compensation of investor relations personnel responsible for the preparation of the foregoing and related matters;
•commissions and other compensation payable to brokers or dealers;
•research and market data;
•fidelity bond, directors and officers errors and omissions liability insurance and other insurance premiums;
•direct costs and expenses of administration, including printing, mailing, long distance telephone and staff;
•fees and expenses associated with independent audits, outside legal and consulting costs;
•costs of winding up;
•costs incurred in connection with the formation or maintenance of entities or vehicles to hold our assets for tax or other purposes;
•extraordinary expenses (such as litigation or indemnification); and
•costs associated with reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws.
Dealer Manager Agreement
On February 8, 2017, we entered into a Dealer Manager Agreement (the “Original Dealer Manager Agreement”) with Blue Owl Securities LLC (formerly, Blue Owl Capital Securities LLC) (“Blue Owl Securities”), an affiliate of the Adviser. On October 1, 2019, we entered into the Follow-on Dealer Manager Agreement with Blue Owl Securities (together with the Original Dealer Manager Agreement, the “Dealer Manager Agreement”). Under the terms of the Dealer Manager Agreement, Blue Owl Securities served as the dealer manager for our continuous offering until we terminated the continuous offering on April 30, 2021. As dealer manager, Blue Owl Securities earned a maximum sales load of up to 5.0% of the price per share for combined upfront selling commissions and dealer manager fees, a portion or all of which may be reallowed to selling broker-dealers. In connection with purchases of shares pursuant to our distribution reinvestment plan, the upfront selling commissions and dealer manager fees were not be paid. Pursuant to its terms, the Dealer Manager Agreement terminated on April 30, 2021 when we terminated the continuous offering.
Expense Support and Conditional Reimbursement Agreement
On February 6, 2017, we entered into an Expense Support and Conditional Reimbursement Agreement (the “Expense Support Agreement”) with the Adviser, the purpose of which was to ensure that no portion of our distributions to shareholders will represent a return of capital for tax purposes. The Expense Support Agreement became effective as of April 4, 2017, the date that we met the minimum offering requirement and was terminated by the Adviser on November 7, 2023.
Pursuant to the Expense Support Agreement, prior to its termination on November 7, 2023, on a quarterly basis, the Adviser reimbursed us for “Operating Expenses” (as defined below) in an amount equal to the excess of our cumulative distributions paid to our shareholders in each quarter over “Available Operating Funds” (as defined below) received by us on account of our investment portfolio during such quarter. Any payments required to be made by the Adviser pursuant to the preceding sentence are referred to herein as an “Expense Payment”.
Pursuant to the Expense Support Agreement, “Operating Expenses” was defined as all of our operating costs and expenses incurred, as determined in accordance with U.S. GAAP for investment companies. “Available Operating Funds” means the sum of (i) our estimated investment company taxable income (including realized net short-term capital gains reduced by realized net long-term capital losses), (ii) our realized net capital gains (including the excess of realized net long-term capital gains over realized net short-term capital losses) and (iii) dividends and other distributions paid to us on account of preferred and common equity investments in portfolio companies, if any (to the extent such amounts listed in clause (iii) are not included under clauses (i) and (ii) above).
Following any quarter in which Available Operating Funds exceed the cumulative distributions paid by us in respect of such quarter (the amount of such excess being hereinafter referred to as “Excess Operating Funds”), we will pay such Excess Operating Funds, or a portion thereof, in accordance the stipulations below, as applicable, to the Adviser, until such time as all Expense Payments made by Adviser to us within three years prior to the last business day of such quarter have been reimbursed. Any payments required to be made by us are referred to as a “Reimbursement Payment”.
The specific amount of expenses reimbursed by the Adviser, if any, will be determined at the end of each quarter. Our obligation to make Reimbursement Payments survives the termination of the Expense Support Agreement.
As of December 31, 2023, the amount of Expense Support Payments provided by the Adviser since inception is $32.8 million. Management believes that Reimbursement Payments by us to the Adviser were not probable under the terms of the Expense Support Agreement as of December 31, 2023. The following table reflects the Expense Support Payments that may be subject to reimbursement pursuant to the Expense Support Agreement:
For the Quarter Ended Amount of
Expense
Support Recoupment
of Expense
Support Expired
Expense
Support Unreimbursed
Expense
Support Effective
Rate of
Distribution
per Share(1)
Reimbursement
Eligibility
Expiration Operating
Expense
Ratio(2)
($ in thousands)
June 30, 2017 $ 1,061 $ 1,061 $ - $ - 7.0% N/A 16.81%
September 30, 2017 1,023 258 765 - 7.0% September 30, 2020 6.15%
December 31, 2017 856 - 856 - 7.0% December 31, 2020 2.83%
March 31, 2018 1,871 - 1,871 - 6.9% March 31, 2021 2.27%
June 30, 2018 775 - 775 - 6.9% June 30, 2021 1.53%
March 31, 2019 1,835 - 1,835 - 7.0% March 31, 2022 0.91%
June 30, 2019 1,776 - 1,776 - 7.0% June 30, 2022 0.79%
September 30, 2019 1,081 - 1,081 - 7.0% September 30, 2022 0.72%
December 31, 2019 2,351 - 2,351 - 7.0% December 31, 2022 0.69%
March 31, 2020 6,587 5,857 730 - 7.7% March 31, 2023 0.70%
June 30, 2020 5,794 5,794 - - 7.4% N/A 0.70%
September 30, 2020 3,079 - 3,079 - 7.2% September 30, 2023 0.63%
December 31, 2020 3,216 3,216 - - 6.5% N/A 0.71%
March 31, 2021 1,449 - - 1,449 6.4% March 31, 2024 0.60%
Total $ 32,754 $ 16,186 $ 15,119 $ 1,449
______________
(1)The effective rate of distribution per share is expressed as a percentage equal to the projected annualized distribution amount as of the end of the applicable period (which is calculated by annualizing the regular weekly cash distributions per share as of such date without compounding), divided by the Company’s gross offering price per share as of such date.
(2)The operating expense ratio is calculated by dividing operating expenses, less organizational and offering expenses, base management and incentive fees owed to the Adviser, and interest expense, by the Company’s net assets.
Affiliated Transactions
We may be prohibited under the 1940 Act from participating in certain transactions with our affiliates without prior approval of the directors who are not interested persons, and in some cases, the prior approval of the SEC. We rely on the Order to co-invest with other funds managed by the Adviser or certain affiliates in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. Pursuant to such Order, we generally are permitted to co-invest with certain of our affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of the Board make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transaction, including the consideration to be paid, are reasonable and fair to us and our shareholders and do not involve overreaching by us or our shareholders on the part of any person concerned, (2) the transaction is consistent with the interests of our shareholders and is consistent with our investment objective and strategies, (3) the investment by our affiliates would not disadvantage us, and our participation would not be on a basis different from or less advantageous than that on which our affiliates are investing and (4) the proposed investment by us would not benefit our Adviser or its affiliates or any affiliated person of any of them (other than the parties to the transaction), except to the extent permitted by the Order and applicable law, including the limitations set forth in Section 57(k) of the 1940 Act. In addition, we have received an amendment to the Order to permit us to participate in follow-on investments in our existing portfolio companies with certain affiliates that are private funds, if such private funds did not have an investment in such existing portfolio companies.
License Agreement
We have also entered into a license agreement (the “License Agreement”) with an affiliate of Blue Owl, pursuant to which we were granted a non-exclusive license to use the name “Blue Owl.” Under the License Agreement, we have a right to use the Blue Owl name for so long as the Adviser or one of its affiliates remains our investment adviser. Other than with respect to this limited license, we have no legal right to the “Blue Owl” name or logo.
Term
The Board expects to contemplate a liquidity event for our shareholders three to four years after the completion of our continuous public offering. We will consider the offering period to be complete as of the termination date of the most recent public equity offering if we have not conducted a public equity offering in any continuous two year period. A liquidity event could include: (i) a listing of shares on a national securities exchange; (ii) a merger or another transaction approved by the Board in which shareholders will receive cash or shares of a publicly traded company; or (iii) a sale of all or substantially all of its assets either on a complete portfolio basis or individually followed by a liquidation and distribution of cash to its shareholders. A liquidity event may include a sale, merger or rollover transaction with one or more affiliated investment companies managed by the Adviser. A liquidity event involving a merger or sale of all or substantially all of our assets would require the approval of our shareholders in accordance with our charter. Certain types of liquidity events, such as one involving a listing of shares on a national securities exchange, would allow us to retain our investment portfolio intact. If we determine to list securities on a national securities exchange, we expect to, although are not required to, maintain our external management structure. If we have not consummated a liquidity event by the five-year anniversary of the completion of our continuous public offering, the Board will consider (subject to any necessary Shareholder approvals and applicable requirements of the 1940 Act) liquidating us and distributing cash to our shareholders, and dissolving us in an orderly manner. The Board, as part of its ongoing duties, will review and evaluate any potential liquidity events and options as they become available and their favorability given current market conditions; however, there is no assurance that a liquidity event will be completed at any particular time or at all.
Employees
We do not currently have any employees and do not expect to have any employees. Services necessary for our business are provided by individuals who are employees of the Adviser or its affiliates, pursuant to the terms of the Investment Advisory Agreement and the Administration Agreement. Each of our executive officers is employed by the Adviser or its affiliates. Our day-to-day investment operations are managed by the Adviser. The services necessary for the origination and administration of our investment portfolio are provided by investment professionals employed by the Adviser or its affiliates. The Investment Team is focused on origination and transaction development and the ongoing monitoring of our investments. In addition, we reimburse the Adviser for the allocable portion of the compensation paid by the Adviser (or its affiliates) to our Chief Compliance Officer and Chief Financial Officer and their respective staffs (based on the percentage of time such individuals devote, on an estimated basis, to our business and affairs and as otherwise set forth in the Administrative Agreement). See “- Investment Advisory Agreement” and “- Administration Agreement.”
Corporate Sustainability
Our and the Adviser’s corporate sustainability efforts seek to deliver positive outcomes for our investors and the communities in which we operate. Our Board receives annual updates on the Adviser’s strategy and initiatives, including ESG-related matters.
Investing Responsibly
We and the Adviser recognize the importance of ESG issues and opportunities and are committed to the consideration of these factors in relation to our business operations and investment activities to manage risk and identify opportunities. Blue Owl adopted an ESG policy, which applies to all asset classes, industries and countries in which Blue Owl does business and the products it manages.
The Adviser believes that incorporating relevant ESG factors into its corporate and investment practices has the potential to meaningfully contribute to our long-term financial success. The Adviser strives to continuously strengthen its ability to mitigate, manage, and monitor relevant ESG risks and opportunities within our investment portfolios. When the Adviser considers potential investments on our behalf, it seeks to address the relevant ESG considerations, risks and potential rewards related to prospective investments. Further, the Adviser has processes designed to ensure compliance with applicable regulatory disclosure requirements, including ESG-related disclosure obligations.
Diversity, Equity and Inclusion
We and the Adviser are committed to fostering and preserving a culture of diversity, equity and inclusion. The Adviser seeks to create an inclusive, merit-based environment that is supportive of people from all backgrounds. Blue Owl has formalized its approach by adopting a formal DEI Policy.
Blue Owl’s DEI strategy centers on the following key concepts and core values:
Embracing differences. Blue Owl embraces and encourages differences that make individuals unique. Blue Owl believes that a team comprised of individuals with diverse backgrounds, experiences, perspectives and insights is critical to long-term success.
Strategic priorities. Continuing to develop as a diverse, equitable and inclusive firm is a strategic priority for Blue Owl that it believes can further enhance its work environment and overall business. Blue Owl’s commitment to diversity, equity and inclusion is relevant to interactions with its employees, investors, products’ portfolio companies and third-party service providers.
Leadership. While Blue Owl’s ongoing efforts are championed by the Blue Owl founders and executed upon by senior leaders across all business areas of the firm, Blue Owl aims to position support for DEI at the core of its entire employee population. Continuing to develop a diverse, equitable, and inclusive firm is a strategic priority.
To further foster an inclusive culture, Blue Owl seeks to continue to establish relevant and appropriate employee resource groups. Blue Owl has established The Parliament, a network for women with a mission to support, enhance, and advance the experience of women at Blue Owl and to enhance gender equity across the firm, and BOP’N, an LGBTQ+ network committed to growing a welcoming culture and inclusive environment for LGBTQ+ members, allies, and advocates. Blue Owl also works with select partners such as Black Women in Asset Management, 100 Women in Finance and the Association of Asian American Investment Managers to provide its employees with access to resources, networks, and opportunities for professional development, as well as utilizing the organizations’ job boards to recruit diverse candidates. Additionally, through Blue Owl’s partnership with The Opportunity Network, Blue Owl has established a summer internship program for college students from backgrounds that are often underrepresented in the finance industry. For the last three summers, Blue Owl has hosted a cohort of interns from the Opportunity Network and also offered participation to its partner manager firms who work with its GP Strategic Capital platform. This program includes training for both supervisors and interns, professional development sessions, networking opportunities and mentorship. In addition, Blue Owl has conducted DEI-related training on implicit bias for all of its employees on an annual basis. Finally, Blue Owl introduced a fertility family planning benefit as an option for its employees.
Citizenship
Blue Owl seeks to engage with its stakeholders to support the causes most important to its communities. Blue Owl takes its role as a corporate citizen seriously and aims to contribute to meaningful causes and partner with various organizations to support the communities in which it operates and resides. Blue Owl believes there is an opportunity to “make community our culture” by building a robust citizenship program that is integrated, community-centered, and employee-enriched, including:
•Blue Owl Leads Together, its employee volunteerism and service program, allows employees to engage with each other and with the communities in which we live and work.
•Blue Owl Gives, which advances Blue Owl’s philanthropic mission -of unlocking opportunity by providing access to college, to career, and to capital -through strategic nonprofit partnerships, sponsorships, and employee-giving campaigns.
•Blue Owl Celebrates honors various heritage and affinity months throughout the year by spotlighting important nonprofit causes, profiling opportunities for learning and action, and lifting up voices of leaders and guest speakers.
Regulation as a Business Development Company
We have elected to be regulated as a BDC under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than “interested persons”, as that term is defined in the 1940 Act.
In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by a Majority of the Outstanding Shares of our common stock.
We are not generally able to issue and sell our common stock at a price below net asset value per share. We may, however, issue and sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value of our common stock if (1) our board of directors determines that such sale is in our best interests and the best interests of our shareholders, and (2) our shareholders have approved our policy and practice of making such sales within the preceding 12 months. In any such case, the price at which our securities are to be issued and sold may not be less than a price which, in the determination of our board of directors, closely approximates the market value of such securities.
As a BDC, the ratio of our total assets (less total liabilities other than indebtedness represented by senior securities) to our total indebtedness represented by senior securities plus preferred stock, if any, must be at least 200% (or 150% if certain conditions are met). This means that generally, a BDC can borrow up to $1 for every $1 of investor equity (or, if certain conditions are met, a BDC can borrow up to $2 for every $1 of investor equity). The reduced asset coverage requirement would permit a BDC to double the amount of leverage it could incur.
We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our board of directors who are not interested persons and, in some cases, prior approval by the SEC.
We may invest up to 100% of our assets in securities acquired directly from issuers in privately negotiated transactions. With respect to such securities, we may, for the purpose of public resale, be deemed an “underwriter” as that term is defined in the Securities Act.
Our intention is to not write (sell) or buy put or call options to manage risks associated with the publicly traded securities of our portfolio companies, except that we may enter into hedging transactions to manage the risks associated with interest rate or currency fluctuations. However, we may purchase or otherwise receive warrants to purchase the common stock of our portfolio companies in
connection with acquisition financing or other investments. Similarly, in connection with an acquisition, we may acquire rights to require the issuers of acquired securities or their affiliates to repurchase them under certain circumstances.
We do not intend to acquire securities issued by any investment company that exceed the limits imposed by the 1940 Act and the rules and regulations thereunder. Under these limits, we generally cannot acquire more than 3% of the voting stock of any registered investment company, invest more than 5% of the value of our total assets in the securities of one investment company, or invest more than 10% of the value of our total assets in the securities of more than one investment company unless certain conditions are met. If we invest in securities issued by investment companies, if any, it should be noted that such investments might subject our shareholders to additional expenses as they will be indirectly responsible for the costs and expenses of such companies.
None of our investment policies are fundamental, and thus may be changed without shareholder approval.
Qualifying Assets. Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. The principal categories of qualifying assets relevant to our business are any of the following:
(1)Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer which:
(a)is organized under the laws of, and has its principal place of business in, the United States;
(b)is not an investment company (other than a small business investment company wholly owned by the business development company) or a company that would be an investment company but for certain exclusions under the 1940 Act; and
(c)satisfies any of the following:
(i)does not have any class of securities that is traded on a national securities exchange;
(ii)has a class of securities listed on a national securities exchange, but has an aggregate market value of outstanding voting and non-voting common equity of less than $250 million;
(iii)is controlled by a business development company or a group of companies including a business development company and the business development company has an affiliated person who is a director of the eligible portfolio company; or
(iv)is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less than $2 million.
(2)Securities of any eligible portfolio company controlled by us.
(3)Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements.
(4)Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company.
(5)Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of warrants or rights relating to such securities.
(6)Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment.
In addition, a BDC must be operated for the purpose of making investments in the types of securities described in (1), (2) or (3) above.
Control, as defined by the 1940 Act, is presumed to exist where a BDC beneficially owns more than 25% of the outstanding voting securities of the portfolio company, but may exist in other circumstances based on the facts and circumstances.
The regulations defining qualifying assets may change over time. We may adjust our investment focus as needed to comply with and/or take advantage of any regulatory, legislative, administrative or judicial actions.
Managerial Assistance to Portfolio Companies. A BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described above. However, in order to count portfolio securities as qualifying assets for the purpose of the 70% test, the BDC must either control the issuer of the securities or must offer to make available to the issuer of the securities (other than small and solvent companies described above)
significant managerial assistance; except that, where the BDC purchases such securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance. Where the BDC purchases such securities in conjunction with one or more other persons acting together, the BDC will satisfy this test if one of the other persons in the group makes available such managerial assistance, although this may not be the sole method by which the BDC satisfies the requirement to make available managerial assistance. Making available significant managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company through monitoring of portfolio company operations, selective participation in board and management meetings, consulting with and advising a portfolio company’s officers or other organizational or financial guidance.
Temporary Investments. Pending investment in other types of qualifying assets, as described above, our investments can consist of cash, cash equivalents, U.S. government securities or high quality debt securities maturing in one year or less from the time of investment, which are referred to herein, collectively, as temporary investments, so that 70% of our assets would be qualifying assets. We may invest in highly rated commercial paper, U.S. government agency notes, U.S. Treasury bills or in repurchase agreements relating to such securities that are fully collateralized by cash or securities issued by the U.S. government or its agencies. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price that is greater than the purchase price by an amount that reflects an agreed-upon interest rate. Consequently, repurchase agreements are functionally similar to loans. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, the 1940 Act and certain diversification tests in order to qualify as a RIC for federal income tax purposes typically require us to limit the amount we invest with any one counterparty. Accordingly, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. The Adviser will monitor the creditworthiness of the counterparties with which we may enter into repurchase agreement transactions.
Warrants. Under the 1940 Act, a BDC is subject to restrictions on the issuance, terms and amount of warrants, options or rights to purchase shares of capital stock that it may have outstanding at any time. Under the 1940 Act, we may generally only offer warrants provided that (i) the warrants expire by their terms within ten years, (ii) the exercise or conversion price is not less than the current market value at the date of issuance, (iii) shareholders authorize the proposal to issue such warrants, and the Board approves such issuance on the basis that the issuance is in our best interests and the shareholders best interests and (iv) if the warrants are accompanied by other securities, the warrants are not separately transferable unless no class of such warrants and the securities accompanying them has been publicly distributed. The 1940 Act also provides that the amount of our voting securities that would result from the exercise of all outstanding warrants, as well as options and rights, at the time of issuance may not exceed 25% of our outstanding voting securities. In particular, the amount of capital stock that would result from the conversion or exercise of all outstanding warrants, options or rights to purchase capital stock cannot exceed 25% of the BDC’s total outstanding shares of capital stock.
Senior Securities; Coverage Ratio. We are generally permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if immediately after such borrowing or issuance, the ratio of our total assets (less total liabilities other than indebtedness represented by senior securities) to our total indebtedness represented by senior securities plus preferred stock, if any, is at least 200% (or 150%, if certain requirements are met). This means that generally, a BDC can borrow up to $1 for every $1 of investor equity or, if certain requirements are met and it reduces its asset coverage ratio, it can borrow up to $2 for every $1 of investor equity.
In addition, while any senior securities remain outstanding, we will be required to make provisions to prohibit any dividend distribution to our shareholders on our capital stock or the repurchase of such capital stock unless we meet the applicable asset coverage ratios at the time of the dividend distribution or repurchase. We will also be permitted to borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes, which borrowings would not be considered senior securities. For a discussion of the risks associated with leverage, see “ITEM 1A. RISK FACTORS - Risks Related to Business Development Companies - Regulations governing our operation as a BDC and RIC affect our ability to raise capital and the way in which we raise additional capital or borrow for investment purposes, which may have a negative effect on our growth. As a BDC, the necessity of raising additional capital may expose us to risks, including risks associated with leverage.”
Codes of Ethics. We and the Adviser have each adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act, respectively, that establishes procedures for personal investments and restricts certain personal securities transactions. Personnel subject to the code are permitted to invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the code’s requirements. Our code of ethics is available on the EDGAR Database on the SEC’s website at http://www.sec.gov.
Affiliated Transactions. We may be prohibited under the 1940 Act from conducting certain transactions with our affiliates without the prior approval of our directors who are not interested persons and, in some cases, the prior approval of the SEC. We rely on the Order to co-invest with other funds managed by the Adviser or its affiliates in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. Pursuant to the Order, we generally are permitted to co-invest with certain of our affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors makes certain conclusions in connection with a co-investment transactions, including that (1)
the terms of the transaction, including the consideration to be paid, are reasonable and fair to us and our shareholders and do not involve overreaching by us or our shareholders on the part of any person concerned, (2) the transaction is consistent with the interests of our shareholders and is consistent with our investment objective and strategies, (3) the investment by our affiliates would not disadvantage us, and our participation would not be on a basis different from or less advantageous than that on which our affiliates are investing and (4) the proposed investment by us would not benefit our Adviser or its affiliates or any affiliated person of any of them (other than the parties to the transaction), except to the extent permitted by the Order and applicable law, including the limitations set forth in Section 57(k) of the 1940 Act. In addition, we have received an amendment to our Order to permit us to participate in follow-on investments in our existing portfolio companies with certain affiliates that are private funds, if such private funds did not have an investment in such existing portfolio company. The Blue Owl Credit Advisers’ allocation policy incorporates the conditions of the Order and seeks to ensure equitable allocation of investment opportunities between us and/or other funds managed by the Adviser or its affiliates over time. As a result of the Order, there could be significant overlap in our investment portfolio and the investment portfolio of other Blue Owl Credit Clients that could avail themselves of the Order and that have an investment objective similar to ours.
Cancellation of the Investment Advisory Agreement. Under the 1940 Act, the Investment Advisory Agreement will automatically terminate in the event of its assignment, as defined in the 1940 Act, by the Adviser. See “Investment Advisory Agreement - Term.” The Investment Advisory Agreement may be terminated at any time, without penalty, by us upon not less than 60 days’ written notice to the Adviser and may be terminated at any time, without penalty, by the Adviser upon 60 days’ written notice to us. The holders of a Majority of our Outstanding Shares may also terminate the Investment Advisory Agreement without penalty upon not less than 60 days’ written notice. Unless terminated earlier as described above, the Investment Advisory Agreement will remain in effect for a period of two years from the date it first became effective and will remain in effect from year-to-year thereafter if approved annually by our Board or by the affirmative vote of the holders of a Majority of our Outstanding Shares, and, in either case, if also approved by a majority of our directors who are not “interested persons” as defined in the 1940 Act.
Other. We have adopted an investment policy that complies with the requirements applicable to us as a BDC. We expect to be periodically examined by the SEC for compliance with the 1940 Act, and will be subject to the periodic reporting and related requirements of the Exchange Act.
We are also required to provide and maintain a bond issued by a reputable fidelity insurance company to protect against larceny and embezzlement. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to our shareholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.
We are also required to designate a chief compliance officer and to adopt and implement written policies and procedures reasonably designed to prevent violation of the federal securities laws and to review these policies and procedures annually for their adequacy and the effectiveness of their implementation.
We are not permitted to change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by a Majority of the Outstanding Shares of our common stock.
We intend to operate as a non-diversified management investment company; however, we are currently and may, from time to time, in the future, be considered a diversified management investment company pursuant to the definitions set forth in the 1940 Act.
Rule 18f-4 under the 1940 Act requires BDCs that use derivatives to, among other things, comply with a value-at-risk leverage limit, adopt a derivatives risk management program, and implement certain testing and board reporting procedures. Rule 18f-4 exempts BDCs that qualify as “limited derivatives users” from the aforementioned requirements, provided that these BDCs adopt written policies and procedures that are reasonably designed to manage the BDC’s derivatives risks and comply with certain recordkeeping requirements. We currently qualify as a “limited derivatives user” and expects to continue to do so. We have adopted a derivatives policy and comply with the recordkeeping requirements of Rule 18f-4.
Certain U.S. Federal Income Tax Considerations
The following discussion is a general summary of certain U.S. federal income tax considerations applicable to us and to an investment in our common stock. This discussion does not purport to be a complete description of the income tax considerations applicable to such an investment. For example, this discussion does not describe tax consequences that we have assumed to be generally known by investors or certain considerations that may be relevant to certain types of holders subject to special treatment under U.S. federal income tax laws, including persons who hold our common stock as part of a straddle or a hedging, integrated or constructive sale transaction, persons subject to the alternative minimum tax, tax-exempt organizations, insurance companies, brokers or dealers in securities, pension plans and trusts, persons whose functional currency is not the U.S. dollar, U.S. expatriates, regulated investment companies, real estate investment trusts, personal holding companies, persons required to accelerate the recognition of gross income as a result of such income being recognized on an applicable financial statement, persons who acquire an interest in the Company in connection with the performance of services, and financial institutions. Such persons should consult with their own tax advisers as to the U.S. federal income tax consequences of an investment in our common stock, which may differ substantially from
those described herein. This discussion assumes that shareholders hold our common stock as capital assets (within the meaning of the Code).
The discussion is based upon the Code, U.S. Department of Treasury (“Treasury”) regulations, and administrative and judicial interpretations, each as of the date of this report and all of which are subject to change, possibly retroactively, which could affect the continuing validity of this discussion. We have not sought and will not seek any ruling from the IRS regarding any matter discussed herein. Prospective investors should be aware that, although we intend to adopt positions we believe are in accord with current interpretations of the U.S. federal income tax laws, the IRS may not agree with the tax positions taken by us and that, if challenged by the IRS, our tax positions might not be sustained by the courts. This summary does not discuss any aspects of U.S. estate, alternative minimum, or gift tax or foreign, state or local tax. It also does not discuss the special treatment under U.S. federal income tax laws that could result if we invested in tax-exempt securities or certain other investment assets.
For purposes of this discussion, a “U.S. Shareholder” generally is a beneficial owner of our common stock that is for U.S. federal income tax purposes:
•a citizen or individual resident of the United States;
•a corporation (or other entity treated as a corporation) organized in or under the laws of the United States or of any political subdivision thereof;
•a trust that is subject to the supervision of a court within the United States and the control of one or more U.S. persons or that has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person; or
•an estate, the income of which is subject to U.S. federal income taxation regardless of its source.
A “Non-U.S. Shareholder” is a beneficial owner of our common stock that is neither a U.S. Shareholder nor a partnership for U.S. tax purposes.
If a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our common stock, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Any partner of a partnership holding our common stock should consult its tax advisers with respect to the purchase, ownership and disposition of such shares.
Tax matters are very complicated and the tax consequences to an investor of an investment in our common stock will depend on the facts of his, her or its particular situation.
Taxation as a Regulated Investment Company
We have elected to be treated and intend to qualify each year as a RIC. As a RIC, we generally will not be subject to U.S. federal income tax at corporate rates on any ordinary income or capital gains that we timely distribute to our shareholders as dividends. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, in order to obtain RIC tax benefits, we generally must distribute to our shareholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses (the “Annual Distribution Requirement”).
If we qualify as a RIC, and satisfy the Annual Distribution Requirement, then we will not be subject to U.S. federal income tax on the portion of our income we timely distribute (or are deemed to distribute) to our shareholders. We will be subject to U.S. federal income tax at regular corporate rates on any income or capital gains not distributed (or deemed distributed) to our shareholders.
We will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless we distribute in a timely manner an amount at least equal to the sum of (i) 98% of our net ordinary income for each calendar year, (ii) 98.2% of the amount by which our capital gain exceeds our capital loss (adjusted for certain ordinary losses) for the one-year period ending October 31 in that calendar year and (iii) certain undistributed amounts from previous years on which we paid no U.S. federal income tax (the “Excise Tax Avoidance Requirement”). While we intend to distribute any income and capital gains in order to avoid imposition of this 4% U.S. federal excise tax, we may not be successful in avoiding entirely the imposition of this tax. In that case, we will be liable for the tax only on the amount by which we do not meet the foregoing distribution requirement.
In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things:
•continue to qualify as a BDC under the 1940 Act at all times during each taxable year;
•derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to loans of certain securities, gains from the sale of stock or other securities or foreign currencies, net income from certain “qualified publicly traded partnerships,” or other income derived with respect to our business of investing in such stock or securities (the “90% Income Test”); and
•diversify our holdings so that at the end of each quarter of the taxable year:
•at least 50% of the value of our assets consists of cash, cash equivalents, U.S. Government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and
•no more than 25% of the value of our assets is invested in the (i) securities, other than U.S. Government securities or securities of other RICs, of one issuer, (ii) securities, other than securities of other RICs, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or (iii) securities of one or more “qualified publicly traded partnerships” (the “Diversification Tests”).
We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, increasing interest rates or issued with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. We may also have to include in income other amounts that we have not yet received in cash, such as PIK interest and deferred loan origination fees that are paid after origination of the loan. Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our shareholders in order to satisfy the Annual Distribution Requirement, even though we will not have received the corresponding cash amount.
Although we do not presently expect to do so, we are authorized to borrow funds, to sell assets and to make taxable distributions of our stock and debt securities in order to satisfy the distribution requirements. Our ability to dispose of assets to meet our distribution requirements may be limited by (i) the illiquid nature of our portfolio and/or (ii) other requirements relating to our status as a RIC, including the Diversification Tests. If we dispose of assets in order to meet the Annual Distribution Requirement or the Excise Tax Avoidance Requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous. If we are unable to obtain cash from other sources to satisfy the Annual Distribution Requirement, we may fail to qualify for tax treatment as a RIC and become subject to tax as an ordinary corporation.
Under the 1940 Act, we are not permitted to make distributions to our shareholders while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met. If we are prohibited from making distributions, we may fail to qualify for tax treatment as a RIC and become subject to tax as an ordinary corporation.
Certain of our investment practices may be subject to special and complex U.S. federal income tax provisions that may, among other things: (i) disallow, suspend or otherwise limit the allowance of certain losses or deductions; (ii) convert lower taxed long-term capital gain into higher taxed short-term capital gain or ordinary income; (iii) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited); (iv) cause us to recognize income or gain without a corresponding receipt of cash; (v) adversely affect the time as to when a purchase or sale of securities is deemed to occur; (vi) adversely alter the characterization of certain complex financial transactions; and (vii) generate income that will not be qualifying income for purposes of the 90% Income Test described above. We will monitor our transactions and may make certain tax decisions in order to mitigate the potential adverse effect of these provisions.
A RIC is limited in its ability to deduct expenses in excess of its “investment company taxable income” (which is, generally, ordinary income plus the excess of net short-term capital gains over net long-term capital losses). If our expenses in a given year exceed our investment company taxable income, we would experience a net operating loss for that year. However, a RIC is not permitted to carry forward net operating losses to subsequent years. In addition, expenses can be used only to offset investment company taxable income, not net capital gain. Due to these limits on the deductibility of expenses, we may, for U.S. federal income tax purposes, have aggregate taxable income for several years that we are required to distribute and that is taxable to our shareholders even if such income is greater than the aggregate net income we actually earned during those years. Such required distributions may be made from our cash assets or by liquidation of investments, if necessary. We may realize gains or losses from such liquidations. In the event we realize net capital gains from such transactions, a shareholder may receive a larger capital gain distribution than it would have received in the absence of such transactions.
Investment income received from sources within foreign countries, or capital gains earned by investing in securities of foreign issuers, may be subject to foreign income taxes withheld at the source. In this regard, withholding tax rates in countries with which the United States does not have a tax treaty can be as high as 35% or more. The United States has entered into tax treaties with many foreign countries that may entitle us to a reduced rate of or exemption from withholding tax on investment income and gains. The effective rate of foreign tax cannot be determined at this time since the amount of our assets to be invested within various countries is not now known. We do not anticipate being eligible for the special election that allows a RIC to treat foreign income taxes paid by such RIC as paid by its stockholders.
If we purchase shares in a “passive foreign investment company,” or PFIC, we may be subject to U.S. federal income tax on a portion of any “excess distribution” or gain from the disposition of such shares. Additional charges in the nature of interest may be
imposed on us in respect of deferred taxes arising from such distributions or gains. This additional tax and interest may apply even if we make a distribution in an amount equal to any “excess distribution” or gain from the disposition of such shares as a taxable dividend by us to our shareholders. If we invest in a PFIC and elect to treat the PFIC as a “qualified electing fund” under the Code, or QEF, in lieu of the foregoing requirements, we will be required to include in income each year a portion of the ordinary earnings and net capital gain of the QEF, even if such income is not distributed to us. Alternatively, we may be able to elect to mark-to-market at the end of each taxable year our shares in a PFIC; in this case, we will recognize as ordinary income any increase in the value of such shares and as ordinary loss any decrease in such value to the extent it does not exceed prior increases included in income. Under either election, we may be required to recognize in a year income in excess of our distributions from PFICs and our proceeds from dispositions of PFIC stock during that year, and such income will nevertheless be subject to the Annual Distribution Requirement and will be taken into account for purposes of the 4% U.S. federal excise tax. We intend to limit and/or manage our holdings in PFICs to minimize our liability for any taxes and related interest charges.
If we hold more than 10% of the shares in a foreign corporation that is treated as a controlled foreign corporation, or “CFC,” we may be treated as receiving a deemed distribution (taxable as ordinary income) each year from such foreign corporation in an amount equal to our pro rata share of certain of the corporation’s income for the tax year (including both ordinary earnings and capital gains), whether or not the corporation makes an actual distribution during such year. In general, a foreign corporation will be classified as a CFC if more than 50% of the shares of the corporation, measured by reference to combined voting power or value, is owned (directly, indirectly or by attribution) by U.S. Shareholders. A “U.S. Shareholder,” for this purpose, is any U.S. person that possesses (actually or constructively) 10% or more of the combined voting power of all classes of shares of a corporation or 10% or more of the total value of all classes of shares of a corporation. If we are treated as receiving a deemed distribution from a CFC, we will be required to include such distribution in our investment company taxable income regardless of whether we receive any actual distributions from such CFC, and such income will be subject to the Annual Distribution Requirement and will be taken into account for purposes of the 4% U.S. federal excise tax.
Income inclusions from a QEF or a CFC will be “good income” for purposes of the 90% Income Test provided that they are derived in connection with our business of investing in stocks and securities or the QEF or the CFC distributes such income to us in the same taxable year to which the income is included in our income.
Foreign exchange gains and losses realized by us in connection with certain transactions involving non-dollar debt securities, certain foreign currency futures contracts, foreign currency option contracts, foreign currency forward contracts, foreign currencies, or payables or receivables denominated in a foreign currency are subject to Code provisions that generally treat such gains and losses as ordinary income and losses and may affect the amount, timing and character of distributions to our stockholders. Any such transactions that are not directly related to our investment in securities (possibly including speculative currency positions or currency derivatives not used for hedging purposes) could, under future Treasury regulations, produce income not among the types of “qualifying income” from which a RIC must derive at least 90% of its annual gross income.
In accordance with certain applicable Treasury regulations and guidance published by the IRS, a RIC that is publicly offered may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC, subject to a limitation that the aggregate amount of cash to be distributed to all stockholders must be at least 20% of the aggregate declared distribution. If too many stockholders elect to receive cash, the cash available for distribution must be allocated among stockholders electing to receive cash (with the balance of the distribution paid in stock). In no event will any stockholder, electing to receive cash, receive less than the lesser of (a) the portion of the distribution such stockholder elected to receive in cash, or (b) an amount equal to his or her entire distribution times the percentage limitation on cash available for distribution. If these and certain other requirements are met, for U.S. federal income tax purposes, the amount of the dividend paid in stock will be equal to the amount of cash that could have been received instead of stock. We have no current intention of paying dividends in shares of our stock in accordance with these Treasury regulations or published guidance.
If we fail to qualify for treatment as a RIC, and certain amelioration provisions are not applicable, we would be subject to U.S. federal income tax on all of our taxable income (including our net capital gains) at regular corporate rates. We would not be able to deduct distributions to our shareholders, nor would they be required to be made. Distributions, including distributions of net long-term capital gain, would generally be taxable to our shareholders as ordinary dividend income to the extent of our current and accumulated earnings and profits. Subject to certain holding period and other limitations under the Code, our corporate shareholders would be eligible to claim a dividend received deduction with respect to such dividend and our non-corporate shareholders would generally be able to treat such dividends as “qualified dividend income,” which is subject to reduced rates of U.S. federal income tax. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the shareholder’s adjusted tax basis, and any remaining distributions would be treated as a capital gain. In order to requalify as a RIC, in addition to the other requirements discussed above, we would be required to distribute all of our previously undistributed earnings attributable to the period we failed to qualify as a RIC by the end of the first year that we intend to requalify as a RIC. If we fail to requalify as a RIC for a period greater than two taxable years, we may be subject to U.S. federal income tax at regular corporate rates on any net built-in gains with respect to certain of our assets (i.e., the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized with respect to such assets if we had been liquidated) that we elect to recognize on requalification or when recognized over the next five years.
Proxy Voting Policies and Procedures
We have delegated our proxy voting responsibility to the Adviser. The Proxy Voting Policies and Procedures of the Adviser are described below. The guidelines are reviewed periodically by the Adviser and our non-interested directors, and, accordingly, are subject to change.
As an investment adviser registered under the Advisers Act, the Adviser has a fiduciary duty to act solely in the best interests of its clients. As part of this duty, the Adviser recognizes that it must vote client securities in a timely manner free of conflicts of interest and in the best interests of its clients. These policies and procedures for voting proxies for the Adviser’s investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.
Proxy Policies
The Adviser will seek to vote all proxies relating to our portfolio securities in the best interest of our shareholders. The Adviser reviews on a case-by-case basis each proposal submitted to a shareholder vote to determine its impact on the portfolio securities held by the Company. Although the Adviser will generally vote against proposals that may have a negative impact on its clients’ portfolio securities, the Adviser may vote for such a proposal if there exists compelling long-term reasons to do so.
The Adviser’s proxy voting decisions are made by senior officers who are responsible for monitoring each of our investments. To ensure that the Adviser’s vote is not the product of a conflict of interest, the Adviser requires that: (i) anyone involved in the decision making process disclose to the Adviser’s chief compliance officer any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy vote; and (ii) employees involved in the decision-making process or vote administration are prohibited from revealing how the Adviser intends to vote on a proposal in order to reduce any attempted influence from interested parties.
Proxy Voting Records
You may obtain information about how the Adviser voted proxies by making a written request for proxy voting information to: Blue Owl Capital Corporation II, Attention: Investor Relations, 399 Park Avenue, New York, NY 10022, or by calling Blue Owl Capital Corporation II at (212) 419-3000.
Privacy Policy
We are committed to maintaining the confidentiality, integrity and security of non-public personal information relating to investors. The following information is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we may share information with select other parties.
Generally, we do not collect any non-public personal information other than certain biographical information which is used only so that we can service your account, send you annual reports, proxy statements, and other information required by law. With regard to this information, we maintain physical, electronic and procedural safeguards designed to protect the non-public personal information of our investors.
We may share information that we collect regarding an investor with certain of our service providers for legitimate business purposes, for example, in order to process trades or mail information to investors. In addition, we may disclose information that we collect regarding an investor as required by law or in connection with regulatory or law enforcement inquiries.
Reporting Obligations
We will furnish our shareholders with annual reports containing audited financial statements, quarterly reports, and such other periodic reports as we determine to be appropriate or as may be required by law.
We make available free of charge on our website (www.blueowlproducts.com) our annual reports on Form 10-K, quarterly reports on Form 10-Q and our current reports on Form 8-K, and intend to make available our reports on Form 10-K. The SEC also maintains a website (www.sec.gov) that contains such information. The reference to our website is an inactive textual reference only and the information contained on our website is not a part of this registration statement.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
Investing in our securities involves a number of significant risks. You should consider carefully the following information before making an investment in our securities. The risks below are not the only risks we face. Additional risks and uncertainties not presently known to us or not presently deemed material by us may also impair our operations and performance. If any of the following events occur, our business, financial condition and results of operations could be materially and adversely affected.
The following is a summary of the principal risks that you should carefully consider before investing in our securities.
We are subject to risks related to the economy.
•Global economic, political and market conditions, including uncertainty about the financial stability of the United States, could have a significant adverse effect on our business, financial condition and results of operations.
•Price declines in the corporate leveraged loan market may adversely affect the fair value of our portfolio, reducing our net asset value through increased net unrealized depreciation and the incurrence of realized losses.
•Inflation may adversely affect the business, results of operations and financial condition of our portfolio
companies.
We are subject to risks related to our business and operations.
•The lack of liquidity in our investments may adversely affect our business.
•We borrow money, which magnifies the potential for gain or loss and may increase the risk of investing in us.
•Defaults under our current borrowings or any future borrowing facility or notes may adversely affect our business, financial condition, results of operations and cash flows.
•If we are unable to obtain additional debt financing, or if our borrowing capacity is materially reduced, our business could be materially adversely affected.
•Our ability to achieve our investment objective depends on our Adviser’s ability to manage and support our investment process. If our Adviser were to lose a significant number of its key professionals, or terminate the Investment Advisory Agreement, our ability to achieve our investment objective could be significantly harmed.
•Because our business model depends to a significant extent upon Blue Owl’s relationships with corporations, financial institutions and investment firms, the inability of Blue Owl to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business.
•We may face increasing competition for investment opportunities, which could delay further deployment of our capital, reduce returns and result in losses.
•Our investment portfolio is recorded at fair value as determined in good faith by our Adviser in accordance with procedures approved by our Board and, as a result, there is and will be uncertainty as to the value of our portfolio investments.
•Our Board may change our operating policies and strategies without prior notice or shareholder approval, the effects of which may be adverse to our shareholders.
•Internal and external cybersecurity threats and risks, as well as other disasters, may adversely affect our business or the business of our portfolio companies by impairing the ability to conduct business effectively.
We are subject to risks related to our Adviser and its affiliates.
•Our Adviser and its affiliates, including our officers and some of our directors, may face conflicts of interest caused by compensation arrangements with us and our affiliates, which could result in increased risk-taking or speculative investments, or cause our Adviser to use substantial leverage.
•The time and resources that individuals associated with our Adviser devote to us may be diverted, and we may face additional competition due to, among other things, the fact that neither our Adviser nor its affiliates is prohibited from raising money for or managing another entity that makes the same types of investments that we target.
•Our Adviser and its affiliates, may face conflicts of interest with respect to services performed for issuers in which we may invest.
•Our Adviser or its affiliates may have incentives to favor their respective other accounts and clients and/or Blue Owl over us, which may result in conflicts of interest that could be harmful to us.
•We may be obligated to pay our Adviser incentive fees even if we incur a net loss due to a decline in the value of our portfolio and even if our earned interest income is not payable in cash.
•Our ability to enter into transactions with our affiliates is restricted.
•Our Adviser’s inability to attract, retain and develop human capital in a highly competitive talent market could have an adverse effect on our Adviser, and thus us.
We are subject to risks related to business development companies.
•The requirement that we invest a sufficient portion of our assets in qualifying assets could preclude us from investing in accordance with our current business strategy; conversely, the failure to invest a sufficient portion of our assets in qualifying assets could result in our failure to maintain our status as a BDC.
•Regulations governing our operation as a BDC and RIC affect our ability to raise capital and the way in which we raise additional capital or borrow for investment purposes, which may have a negative effect on our growth. As a BDC, the necessity of raising additional capital may expose us to risks, including risks associated with leverage.
We are subject to risks related to our investments.
•Our investments in portfolio companies may be risky, and we could lose all or part of our investments.
•We may invest through joint ventures, partnerships or other special purpose vehicles and our investments through these vehicles may entail greater risks, or risks that we otherwise would not incur, if we otherwise made such investments directly.
•Defaults by our portfolio companies could jeopardize a portfolio company’s ability to meet its obligations under the debt or equity investments that we hold which could harm our operating results.
•Subordinated liens on collateral securing debt investments that we may make to portfolio companies may be subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us.
•We generally will not control the business operations of our portfolio companies and, due to the illiquid nature of our holdings in our portfolio companies, we may not be able to dispose of our interest in our portfolio companies.
•We are, and will continue to be, exposed to risks associated with changes in interest rates.
•International investments create additional risks.
•Our portfolio may be focused on a limited number of portfolio companies or industries, which will subject us to a risk of significant loss if any of these companies defaults on its obligations under any of its debt instruments or if there is a downturn in a particular industry.
We are subject to risks related to an investment in our common stock.
•The net asset value of our common stock may fluctuate significantly.
•The amount of any distributions we may make on our common stock is uncertain. We may not be able to pay distributions to shareholders, or be able to sustain distributions at any particular level, and our distributions per share, if any, may not grow over time, and our distributions per share may be reduced. We have not established any limits on the extent to which we may use borrowings, if any, and we may use sources other than from cash flows from operations to fund distributions (which may reduce the amount of capital we ultimately invest in portfolio companies).
•Our shares are not listed on an exchange or quoted through a quotation system and may not be listed for the foreseeable future, if ever. Therefore, our shareholders will have limited liquidity.
We are subject to risks related to an investment in our unsecured notes.
•Our unsecured notes are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future.
•Our unsecured notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.
•A downgrade, suspension or withdrawal of the credit rating assigned by a rating agency to us or our unsecured Notes, if any, or change in the debt markets, could cause the liquidity or market value of our unsecured Notes to decline significantly.
We are subject to risks related to U.S. federal income tax.
•We will be subject to U.S. federal income tax at corporate-rates if we are unable to maintain our tax treatment as a RIC under Subchapter M of the Code or if we make investments through taxable subsidiaries.
•We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.
We are subject to general risks.
•Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy.
•Heightened scrutiny of the financial services industry by regulators may materially and adversely affect our business.
•We are dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect our liquidity, financial condition or results of operations.
Risks Related to the Economy
Global economic, political and market conditions, including uncertainty about the financial stability of the United States, could have a significant adverse effect on our business, financial condition and results of operations.
The current worldwide financial markets situation, as well as various social, political, economic and other conditions and events (including political tensions in the United States and around the world, wars and other forms of conflict (including, for example, the ongoing war between Russia and Ukraine and conflict in the Middle East including the Israel-Hamas conflict), terrorist acts, security operations and catastrophic events, natural disasters such as fires, floods, earthquakes, tornadoes, hurricanes, global health epidemics and emergencies, elevated and rising interest rates, strikes, work stoppages, labor shortages, labor disputes, supply chain disruptions and accidents), may disrupt our operations, contribute to increased market volatility, have long term effects on the United States and worldwide financial markets, and cause economic uncertainties or deterioration in the United States and worldwide. As global systems, economies and financial markets are increasingly interconnected, events that once had only local impact are now more likely to have regional or even global effects. Events that occur in one country, region or financial market will, more frequently, adversely impact issuers in other countries, regions or markets, including in established markets such as the United States. These impacts can be exacerbated by failures of governments and societies to adequately respond to an emerging event or threat.
Uncertainty can result in or coincide with, among other things: increased volatility in the financial markets for securities, derivatives, loans, credit and currency; a decrease in the reliability of market prices and difficulty in valuing assets (including portfolio company assets); greater fluctuations in spreads on debt investments and currency exchange rates; increased risk of default (by both government and private obligors and issuers); further social, economic, and political instability; nationalization of private enterprise; greater governmental involvement in the economy or in social factors that impact the economy; changes to governmental regulation
and supervision of the loan, securities, derivatives and currency markets and market participants and decreased or revised monitoring of such markets by governments or self-regulatory organizations and reduced enforcement of regulations; limitations on the activities of investors in such markets; controls or restrictions on foreign investment, capital controls and limitations on repatriation of invested capital; the significant loss of liquidity and the inability to purchase, sell and otherwise fund investments or settle transactions (including, but not limited to, a market freeze); unavailability of currency hedging techniques; substantial, and in some periods extremely high rates of inflation, which can last many years and have substantial negative effects on credit and securities markets as well as the economy as a whole; recessions; and difficulties in obtaining and/or enforcing legal judgments.
Any of the above factors, including sanctions, export controls, tariffs, trade wars and other governmental actions, could have a material adverse effect on our business, financial condition, cash flows and results of operations and could cause the market value of our common shares and/or debt securities to decline. Although we have no direct investment exposure to Russia or Ukraine and de minimis direct investment exposure to Israel, the broader consequence of the invasions and attacks may have a material adverse impact on our portfolio, our business and operations. Global health emergencies, natural disasters, strikes, work stoppages or accidents could further weaken the domestic/global economies and create additional uncertainties, which may negatively impact the businesses in which we invest directly or indirectly and, in turn, could have a material adverse impact on our business, operating results and financial condition. We monitor developments and seek to manage our investments in a manner consistent with achieving our investment objective, but there can be no assurance that we will be successful in doing so. Losses from terrorist attacks, global health emergencies, natural disasters, strikes, work stoppages or accidents are generally uninsurable.
Any public health emergency, or the threat thereof, and the resulting financial and economic market uncertainty could have a significant adverse impact on us and the fair value of our investments and our portfolio companies.
The extent of the impact of any public health emergency, such as the COVID-19 pandemic, on our and our portfolio companies’ operational and financial performance will depend on many factors, including the duration and scope of such public health emergency, the actions taken by governmental authorities to contain its financial and economic impact, the extent of any related travel advisories and restrictions implemented, the impact of such public health emergency on overall supply and demand, goods and services, investor liquidity, consumer confidence and levels of economic activity and the extent of its disruption to important global, regional and local supply chains and economic markets, all of which are highly uncertain and cannot be predicted. In addition, our and our portfolio companies’ operations may be significantly impacted, or even temporarily or permanently halted, as a result of government quarantine measures, voluntary and precautionary restrictions on travel or meetings and other factors related to a public health emergency, including its potential adverse impact on the health of any of our or our portfolio companies’ personnel. This could create widespread business continuity issues for us and our portfolio companies. Additionally, some economists and major investment banks have expressed concern that a global health emergency could lead to a world-wide economic downturn, the impacts of which could last for some period after the emergency is controlled and/or abated. Our business and operations, as well as the business and operations of our portfolio companies, could be materially adversely affected by a prolonged recession in the United States and other major markets.
These factors may also cause the valuation of our investments to differ materially from the values that we may ultimately realize. Our valuations, and particularly valuations of private investments and private companies, are inherently uncertain, may fluctuate over short periods of time and are often based on estimates, comparisons and qualitative evaluations of private information.
Any public health emergency, pandemic or any outbreak of other existing or new epidemic diseases, or the threat thereof, and the resulting financial and economic market uncertainty could have a significant adverse impact on us and the fair value of our investments and our portfolio companies.
The current period of capital markets disruption and economic uncertainty could have a material adverse effect on our business, financial condition or results of operations.
Current market conditions may make it difficult to extend the maturity of or refinance our existing indebtedness or obtain new indebtedness with similar terms and any failure to do so could have a material adverse effect on our business. The debt capital that will be available to us in the future, if at all, may be at a higher cost and on less favorable terms and conditions than what we currently experience, including being at a higher cost in rising rate environments. If we are unable to raise or refinance debt, then our equity investors may not benefit from the potential for increased returns on equity resulting from leverage and we may be limited in our ability to make new commitments or to fund existing commitments to our portfolio companies. An inability to extend the maturity of, or refinance, our existing indebtedness or obtain new indebtedness could have a material adverse effect on our business, financial condition or results of operations.
Significant disruption or volatility in the capital markets may also have a negative effect on the valuations of our investments. While most of our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that our investments are sold in a principal market to market participants (even if we plan on holding an investment through its maturity). Significant disruption or volatility in the capital markets may also affect the pace of our investment activity and the potential for liquidity events involving our investments. Thus, the illiquidity of our investments may make it difficult for us to sell such investments to access capital if required, and as a result, we could realize significantly less than the value at which we have
recorded our investments if we were required to sell them for liquidity purposes. An inability to raise or access capital could have a material adverse effect on our business, financial condition or results of operations.
Price declines in the corporate leveraged loan market may adversely affect the fair value of our portfolio, reducing our net asset value through increased net unrealized depreciation and the incurrence of realized losses.
Conditions in the U.S. corporate debt market may experience disruption or deterioration, such as the disruptions resulting from the COVID-19 pandemic, current high inflation rates or any future disruptions, which may cause pricing levels to decline or be volatile. As a result, our net asset value could decline through an increase in unrealized depreciation and incurrence of realized losses in connection with the sale or other disposition of our investments, which could have a material adverse effect on our business, financial condition and results of operations.
Economic recessions or downturns could impair our portfolio companies and harm our operating results.
Many of our portfolio companies may be susceptible to economic slowdowns or recessions and may be unable to repay our debt investments during these periods. In the past, instability in the global capital markets resulted in disruptions in liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of major domestic and international financial institutions. In particular, in past periods of instability, the financial services sector was negatively impacted by significant write-offs as the value of the assets held by financial firms declined, impairing their capital positions and abilities to lend and invest. In addition, continued uncertainty in connection with economic sanctions resulting from the ongoing war between Russia and Ukraine, uncertainty around the Israel-Hamas conflict, and uncertainty between the United States and other countries, including China, with respect to trade policies, treaties, and tariffs, among other factors, have caused disruption in the global markets. There can be no assurance that market conditions will not worsen in the future.
In an economic downturn, we may have non-performing assets or non-performing assets may increase, and the value of our portfolio is likely to decrease during these periods. Adverse economic conditions may also decrease the value of any collateral securing our loans and the value of our equity investments. A severe recession may further decrease the value of such collateral and result in losses of value in our portfolio and a decrease in our revenues, net income, assets and net worth. Unfavorable economic conditions may require us to modify the payment terms of our investments, including changes in “payment in kind” or “PIK” interest provisions and/or cash interest rates, and also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us on terms we deem acceptable. These events could prevent us from increasing investments and harm our operating results.
The occurrence of recessionary conditions and/or negative developments in the domestic and international credit markets may significantly affect the markets in which we do business, the value of our investments, and our ongoing operations, costs and profitability. Any such unfavorable economic conditions, including rising interest rates, may also increase our funding costs, limit our access to capital markets or negatively impact our ability to obtain financing, particularly from the debt markets. In addition, any future financial market uncertainty could lead to financial market disruptions and could further impact our ability to obtain financing.
These events could limit our investment originations, limit our ability to grow and negatively impact our operating results and financial condition.
Inflation may adversely affect the business, results of operations and financial condition of our portfolio companies.
Inflation and supply chain risks have had and may continue to have an adverse impact on our financial condition and results of operations. Current inflationary pressures have increased the costs of labor, energy and raw materials and have adversely affected consumer spending, economic growth and our portfolio companies’ operations and it is expected that such increases and recent volatility may continue during 2024. Certain of our portfolio companies are in industries that have been, or are expected to be, impacted by inflation. If such portfolio companies are unable to pass any increases in their costs along to their customers, it could adversely affect their results and impact their ability to pay interest and principal on our loans. In addition, any projected future decreases in our portfolio companies’ operating results due to inflation could adversely impact the fair value of those investments. Any decreases in the fair value of our investments could result in future unrealized losses and therefore reduce our net assets resulting from operations. Any decreases in the fair value of our investments could result in future realized or unrealized losses and therefore reduce our net assets resulting from operations. Additionally, the Federal Reserve has raised, and has indicated its intent to continue raising, certain benchmark interest rates in an effort to combat inflation. See “-We are, and will continue to be, exposed to risks associated with changes in interest rates.”
While the United States and other developed economies are experiencing higher-than-normal inflation rates, it remains uncertain whether substantial inflation will be sustained over an extended period of time or have a significant effect on the U.S. economy or other economies. Inflation may affect our investments adversely in a number of ways, including those noted above. During periods of rising inflation, interest and dividend rates of any instruments we or our portfolio companies may have issued could increase, which would tend to reduce returns to our investors. Inflationary expectations or periods of rising inflation could also be accompanied by the rising prices of commodities which are critical to the operation of portfolio companies as noted above. Portfolio companies may have fixed income streams and, therefore, be unable to pay their debts when they become due. The market value of such investments may decline in value in times of higher inflation rates. Some of our portfolio investments may have income linked to
inflation through contractual rights or other means. However, as inflation may affect both income and expenses, any increase in income may not be sufficient to cover increases in expenses. Governmental efforts to curb inflation often have negative effects on the level of economic activity. In an attempt to stabilize inflation, certain countries have imposed wage and price controls at times. Past governmental efforts to curb inflation have also involved more drastic economic measures that have had a materially adverse effect on the level of economic activity in the countries where such measures were employed. There can be no assurance that continued and more wide-spread inflation in the United States and/or other economies will not become a serious problem in the future and have a material adverse impact on us.
Risks Related to Our Business
The lack of liquidity in our investments may adversely affect our business.
We may acquire a significant percentage of our investments from privately held companies in directly negotiated transactions. Substantially all of these investments are subject to legal and other restrictions on resale or are otherwise less liquid than exchange-listed securities or other securities for which there is an active trading market.
We typically would be unable to exit these investments unless and until the portfolio company has a liquidity event such as a sale, refinancing, or initial public offering.
The illiquidity of our investments may make it difficult or impossible for us to sell such investments if the need arises. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our investments, which could have a material adverse effect on our business, financial condition and results of operations.
Moreover, investments purchased by us that are liquid at the time of purchase may subsequently become illiquid due to events relating to the issuer, market events, economic conditions or investor perceptions.
We borrow money, which magnifies the potential for gain or loss and may increase the risk of investing in us.
The use of borrowings, also known as leverage, increases the volatility of investments by magnifying the potential for gain or loss on invested equity capital. We currently borrow under our credit facilities and have issued or assumed other senior securities, and in the future may borrow from, or issue additional senior securities to, banks, insurance companies, funds, institutional investors and other lenders and investors. Holders of these senior securities have fixed-dollar claims on our assets that are superior to the claims of our shareholders. If the value of our assets decreases, leverage would cause our net asset value to decline more sharply than it otherwise would have if we did not employ leverage. Similarly, any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to service our debt or make distributions to our shareholders. In addition, our shareholders will bear the burden of any increase in our expenses as a result of our use of leverage, including interest expenses and any increase in the base management or incentive fees payable to our Adviser attributable to the increase in assets purchased using leverage. There can be no assurance that a leveraging strategy will be successful.
Our ability to service any borrowings that we incur will depend largely on our financial performance and will be subject to prevailing economic conditions and competitive pressures. Moreover, the management fee will be payable based on our average gross assets excluding cash and cash equivalents but including assets purchased with borrowed amounts, which may give our Adviser an incentive to use leverage to make additional investments. See “-Our Adviser and its affiliates, including our officers and some of our directors, may face conflicts of interest caused by compensation arrangements with us and our affiliates, which could result in increased risk-taking or speculative investments, or cause our Adviser to use substantial leverage.” The amount of leverage that we employ will depend on our Adviser’s and our Board’s assessment of market and other factors at the time of any proposed borrowing. We cannot assure you that we will be able to obtain credit at all or on terms acceptable to us, which could affect our return on capital. However, to the extent that we use leverage to finance our assets, our financing costs will reduce cash available for distributions to shareholders. Moreover, we may not be able to meet our financing obligations and, to the extent that we cannot, we risk the loss of some or all of our assets to liquidation or sale to satisfy the obligations. In such an event, we may be forced to sell assets at significantly depressed prices due to market conditions or otherwise, which may result in losses.
In addition to having fixed-dollar claims on our assets that are superior to the claims of our common shareholders, obligations to lenders may be secured by a first priority security interest in our portfolio of investments and cash.
As a BDC, generally, the ratio of our total assets (less total liabilities other than indebtedness represented by senior securities) to our total indebtedness represented by senior securities plus any preferred stock, if any, must be at least 200%; however, the Small Business Credit Availability Act has modified the 1940 Act by allowing a BDC to increase the maximum amount of leverage it may incur from an asset coverage ratio of 200% to an asset coverage ratio of 150%, if certain requirements are met. If this ratio declines below 200% we cannot incur additional debt and could be required to sell a portion of our investments to repay some indebtedness when it may be disadvantageous to do so. This could have a material adverse effect on our operations, and we may not be able to service our debt or make distributions.
The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns on our portfolio, net of expenses. Leverage generally magnifies the return of shareholders when the portfolio return is
positive and magnifies their losses when the portfolio return is negative. The calculations in the table below are hypothetical, and actual returns may be higher or lower than those appearing in the table below.
Assumed Return on Our Portfolio (Net of Expenses)
-10% -5% 0% 5% 10%
Corresponding return to common shareholder(1)
-21.3 % -12.4 % -3.4 % 5.6 % 14.6 %
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(1)Assumes, as of December 31, 2023, (i) $2.2 billion in total assets, (ii) $0.9 billion in outstanding indebtedness, (iii) $1.3 billion in net assets and (iv) weighted average interest rate, excluding fees (such as fees on undrawn amounts and amortization of financing costs), of 6.4%.
See “ITEM 7. -MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -Financial Condition, Liquidity and Capital Resources” for more information regarding our borrowings.
Defaults under our current borrowings or any future borrowing facility or notes may adversely affect our business, financial condition, results of operations and cash flows.
Our borrowings may include customary covenants, including certain limitations on our incurrence of additional indebtedness and on our ability to make distributions to our shareholders, or redeem, repurchase or retire shares of stock, upon the occurrence of certain events and certain financial covenants related to asset coverage and liquidity and other maintenance covenants, as well as customary events of default. In the event we default under the terms of our current or future borrowings, our business could be adversely affected as we may be forced to sell a portion of our investments quickly and prematurely at what may be disadvantageous prices to us in order to meet our outstanding payment obligations and/or support working capital requirements under the terms of our current or future borrowings, any of which would have a material adverse effect on our business, financial condition, results of operations and cash flows. An event of default under the terms of our current or any future borrowings could result in an accelerated maturity date for all amounts outstanding thereunder, and in some instances, lead to a cross-default under other borrowings. This could reduce our liquidity and cash flow and impair our ability to grow our business.
Collectively, substantially all of our assets are currently pledged as collateral under our credit facilities. If we were to default on our obligations under the terms of our credit facilities or any future secured debt instrument the agent for the applicable creditors would be able to assume control of the disposition of any or all of our assets securing such debt, including the selection of such assets to be disposed and the timing of such disposition, which would have a material adverse effect on our business, financial condition, results of operations and cash flows.
Provisions in our current borrowings or any other future borrowings may limit discretion in operating our business.
Any security interests and/or negative covenants required by a credit facility we enter into or notes we issue may limit our ability to create liens on assets to secure additional debt and may make it difficult for us to restructure or refinance indebtedness at or prior to maturity or obtain additional debt or equity financing.
A credit facility may be backed by all or a portion of our loans and securities on which the lenders will have a security interest. We may pledge up to 100% of our assets and may grant a security interest in all of our assets under the terms of any debt instrument we enter into with lenders. We expect that any security interests we grant will be set forth in a pledge and security agreement and evidenced by the filing of financing statements by the agent for the lenders. In addition, we expect that the custodian for our securities serving as collateral for such loan would include in its electronic systems notices indicating the existence of such security interests and, following notice of occurrence of an event of default, if any, and during its continuance, will only accept transfer instructions with respect to any such securities from the lender or its designee. If we were to default under the terms of any debt instrument, the agent for the applicable lenders would be able to assume control of the timing of disposition of any or all of our assets securing such debt, which would have a material adverse effect on our business, financial condition, results of operations and cash flows.
In addition, any security interests and/or negative covenants required by a credit facility may limit our ability to create liens on assets to secure additional debt and may make it difficult for us to restructure or refinance indebtedness at or prior to maturity or obtain additional debt or equity financing. In addition, if our borrowing base under a credit facility were to decrease, we may be required to secure additional assets in an amount sufficient to cure any borrowing base deficiency. In the event that all of our assets are secured at the time of such a borrowing base deficiency, we could be required to repay advances under a credit facility or make deposits to a collection account, either of which could have a material adverse impact on our ability to fund future investments and to make distributions.
In addition, we may be subject to limitations as to how borrowed funds may be used, which may include restrictions on geographic and industry concentrations, loan size, payment frequency and status, average life, collateral interests and investment ratings, as well as regulatory restrictions on leverage which may affect the amount of funding that may be obtained. There may also be certain requirements relating to portfolio performance, including required minimum portfolio yield and limitations on delinquencies
and charge-offs, a violation of which could limit further advances and, in some cases, result in an event of default. An event of default under a credit facility could result in an accelerated maturity date for all amounts outstanding thereunder, which could have a material adverse effect on our business and financial condition and could lead to cross default under other credit facilities. This could reduce our liquidity and cash flow and impair our ability to manage our business.
In addition, under the terms of our credit facilities, we are subject to limitations as to how borrowed funds may be used, as well as regulatory restrictions on leverage which may affect the amount of funding that we may obtain. There may also be certain requirements relating to portfolio performance, a violation of which could limit further advances and, in some cases, result in an event of default. This could reduce our liquidity and cash flow and impair our ability to grow our business.
If we are unable to obtain additional debt financing, or if our borrowing capacity is materially reduced, our business could be materially adversely affected.
We may want to obtain additional debt financing, or need to do so upon maturity of our credit facilities, in order to obtain funds which may be made available for investments. Our credit facilities, notes and CLOs currently expire between November 2024 and September 2035. If we are unable to increase, renew or replace any such facilities and enter into new debt financing facilities or other debt financing on commercially reasonable terms, our liquidity may be reduced significantly. In addition, if we are unable to repay amounts outstanding under any such facilities and are declared in default or are unable to renew or refinance these facilities, we may not be able to make new investments or operate our business in the normal course. These situations may arise due to circumstances that we may be unable to control, such as lack of access to the credit markets, a severe decline in the value of the U.S. dollar, an economic downturn or an operational problem that affects us or third parties, and could materially damage our business operations, results of operations and financial condition.
Our ability to achieve our investment objective depends on our Adviser’s ability to manage and support our investment process. If our Adviser were to lose a significant number of its key professionals, or terminate the Investment Advisory Agreement, our ability to achieve our investment objective could be significantly harmed.
We do not have any employees. Additionally, we have no internal management capacity other than our appointed executive officers and will be dependent upon the investment expertise, skill and network of business contacts of our Adviser to achieve our investment objective. Our Adviser will evaluate, negotiate, execute, monitor, and service our investments. Our success will depend to a significant extent on the continued service and coordination of our Adviser, including its key professionals. The departure of a significant number of key professionals from our Adviser could have a material adverse effect on our ability to achieve our investment objective.
Our ability to achieve our investment objective also depends on the ability of our Adviser to identify, analyze, invest in, finance, and monitor companies that meet our investment criteria. Our Adviser’s capabilities in structuring the investment process, and providing competent, attentive and efficient services to us depend on the involvement of investment professionals of adequate number and sophistication to match the corresponding flow of transactions. To achieve our investment objective, our Adviser may need to retain, hire, train, supervise, and manage new investment professionals to participate in our investment selection and monitoring process. Our Adviser may not be able to find qualified investment professionals in a timely manner or at all. Any failure to do so could have a material adverse effect on our business, financial condition and results of operations.
In addition, the Investment Advisory Agreement has a termination provision that allows the agreement to be terminated by us on 60 days’ notice without penalty by the vote of a Majority of the Outstanding Shares of our common stock or by the vote of our independent directors and generally may be terminated at any time, without penalty, by our Adviser upon 60 days’ notice to us. Furthermore, the Investment Advisory Agreement automatically terminates in the event of its assignment, as defined in the 1940 Act, by the Adviser. If the Adviser resigns or is terminated, or if we do not obtain the requisite approvals of shareholders and our Board to approve an agreement with the Adviser after an assignment, we may not be able to find a new investment adviser or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms prior to the termination of the Investment Advisory Agreement, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption and costs under any new agreements that we enter into could increase. Our financial condition, business and results of operations, as well as our ability to meet our payment obligations under our indebtedness and pay distributions, are likely to be adversely affected, and the value of our common stock may decline.
Because our business model depends to a significant extent upon Blue Owl’s relationships with corporations, financial institutions and investment firms, the inability of Blue Owl to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business.
We expect that Blue Owl will depend on its relationships with corporations, financial institutions and investment firms, and we will rely to a significant extent upon these relationships to provide us with potential investment opportunities. The investment management business is intensely competitive, with competition based on a variety of factors, including investment performance, business relationships, quality of service provided to clients, fund investor liquidity, fund terms (including fees and economic sharing arrangements), brand recognition and business reputation. If Blue Owl fails to maintain its reputation it may not be able to maintain its existing relationships or develop new relationships or sources of investment opportunities, and we may not be able to grow our
investment portfolio. In addition, individuals with whom Blue Owl has relationships are not obligated to provide us with investment opportunities, and, therefore, there is no assurance that such relationships will generate investment opportunities for us.
Negative publicity regarding Blue Owl or its personnel could give rise to reputational risk that could significantly harm our existing business and business prospects. Similarly, events could occur that damage the reputation of our industry generally, such as the insolvency or bankruptcy of large funds or a significant number of funds or highly publicized incidents of fraud or other scandals, any one of which could have a material adverse effect on our business, regardless of whether any of those events directly relate to us or our investments.
We may face increasing competition for investment opportunities, which could delay further deployment of our capital, reduce returns and result in losses.
We may compete for investments with other BDCs and investment funds (including registered investment companies, private equity funds and mezzanine funds), including the other Blue Owl Credit Clients or other funds managed by our Adviser or its affiliates comprising Blue Owl’s Credit platform, the private funds managed by Blue Owl’s GP Strategic Capital platform and the funds and accounts managed by Blue Owl’s Real Estate platform, as well as traditional financial services companies such as commercial banks and other sources of funding. Moreover, alternative investment vehicles, such as hedge funds, continue to increase their investment focus in our target market of privately owned U.S. companies. We may experience increased competition from banks and investment vehicles who may continue to lend to the middle market. Additionally, the U.S. Federal Reserve and other bank regulators may periodically provide incentives to U.S. commercial banks to originate more loans to U.S. middle market private companies. As a result of these market participants and regulatory incentives, competition for investment opportunities in privately owned U.S. companies is strong and may intensify. Many of our competitors are substantially larger and have considerably greater financial, technical, and marketing resources than we do. For example, some competitors may have a lower cost of capital and access to funding sources that are not available to us. In addition, some competitors may have higher risk tolerances or different risk assessments than us. These characteristics could allow our competitors to consider a wider variety of investments, establish more relationships and offer better pricing and more flexible structuring than we are able to do.
Numerous factors increase our competitive risks, including, but not limited to:
•A number of our competitors may have or are perceived to have more expertise or financial, technical, marketing and other resources and more personnel than we do;
•We may not perform as well as competitors’ funds or other available investment products;
•Several of our competitors have raised significant amounts of capital, and many of them have similar investment objectives to ours, which may create additional competition for investment opportunities;
•Some of our competitors may have lower fees or alternative fee arrangements;
•Some of our competitors may have a lower cost of capital and access to funding sources that are not available to us, which may create competitive disadvantages for us;
•Some of our competitors may have higher risk tolerances, different risk assessments or lower return thresholds than us, which could allow them to consider a wider variety of investments and to bid more aggressively than us or to agree to less restrictive legal terms and protections for investments that we want to make; and
•Some of our competitors may be subject to less regulation or conflicts of interest and, accordingly, may have more flexibility to undertake and execute certain businesses or investments than we do, bear less compliance expense than we do or be viewed differently in the marketplace.
We may lose investment opportunities if we do not match our competitors’ pricing, terms, and investment structure criteria. If we are forced to match these competitors’ investment terms criteria, we may not be able to achieve acceptable returns on our investments or may bear substantial risk of capital loss. A significant increase in the number and/or the size of our competitors in our target market could force us to accept less attractive investment terms. Furthermore, many competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC or the source of income, asset diversification and distribution requirements we must satisfy to maintain our RIC tax treatment. The competitive pressures we face, and the manner in which we react or adjust to competitive pressures, may have a material adverse effect on our business, financial condition, results of operations, effective yield on investments, investment returns, leverage ratio, and cash flows. As a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time. Also, we may not be able to identify and make investments that are consistent with our investment objective.
Our investment portfolio is recorded at fair value as determined in good faith by our Adviser in accordance with procedures approved by our Board and, as a result, there is and will be uncertainty as to the value of our portfolio investments.
Under the 1940 Act, we are required to carry our portfolio investments at market value or, if there is no readily available market value, at fair value as determined in accordance with procedures established by our Adviser and approved by our Board. There is not a public market or active secondary market for many of the types of investments in privately held companies that we hold and intend to make. Our investments may not be publicly traded or actively traded on a secondary market but, instead, may be traded on a privately negotiated over-the-counter secondary market for institutional investors, if at all. As a result, we will value these investments quarterly at fair value as determined in good faith in accordance with valuation policy and procedures approved by our Board.
The determination of fair value, and thus the amount of unrealized appreciation or depreciation we may recognize in any reporting period, is to a degree subjective, and our Adviser has a conflict of interest in determining fair value. We will value our investments quarterly at fair value as determined in good faith by our Adviser, based on, among other things, input of our Audit Committee and independent third-party valuation firm(s) engaged at the direction of our Adviser. The types of factors that may be considered in determining the fair values of our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings, the markets in which the portfolio company does business, comparison to publicly traded companies, discounted cash flow, current market interest rates and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, the valuations may fluctuate significantly over short periods of time due to changes in current market conditions. The determinations of fair value in accordance with procedures approved by our Board may differ materially from the values that would have been used if an active market and market quotations existed for such investments. Our net asset value could be adversely affected if the determinations regarding the fair value of the investments were materially higher than the values that we ultimately realize upon the disposal of such investments.
Our Board may change our operating policies and strategies without prior notice or shareholder approval, the effects of which may be adverse to our shareholders.
Our Board has the authority to modify or waive current operating policies, investment criteria and strategies without prior notice and without shareholder approval. We cannot predict the effect any changes to current operating policies, investment criteria and strategies would have on our business, net asset value, operating results and the value of our securities. However, the effects might be adverse, which could negatively impact our ability to pay you distributions and cause you to lose all or part of your investment.
Any unrealized depreciation we experience on our portfolio may be an indication of future realized losses, which could reduce our income available for distribution.
As a BDC, we are required to carry our investments at market value or, if no market value is ascertainable, at the fair value as determined in good faith in accordance with procedures approved by our Board. Decreases in the market values or fair values of our investments relative to amortized cost will be recorded as unrealized depreciation. Any unrealized losses in our portfolio could be an indication of a portfolio company’s inability to meet its repayment obligations to us with respect to the affected loans. This could result in realized losses in the future and ultimately in reductions of our income available for distribution in future periods. In addition, decreases in the market value or fair value of our investments will reduce our net asset value. See “ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Critical Accounting Policies - Investments at Fair Value.”
We are subject to limited restrictions with respect to the proportion of our assets that may be invested in a single issuer.
We intend to operate as a non-diversified management investment company; however, we are currently and may, from time to time, in the future, be considered a diversified management investment company pursuant to the definitions set forth in the 1940 Act. In addition, we are subject to the asset diversification requirements associated with our qualification as a RIC for U.S. federal income tax purposes. While we are not targeting any specific industries, our investments may be focused on relatively few industries. To the extent that we hold large positions in a small number of issuers, or within a particular industry, our net asset value may be subject to greater fluctuation. We may also be more susceptible to any single economic or regulatory occurrence or a downturn in particular industry.
We are subject to risks associated with the discontinuation of LIBOR and the market’s limited experience with SOFR, which will affect our cost of capital and results of operations.
The London Inter-Bank Offered Rate (“LIBOR”) was the basic rate of interest used in lending transactions between banks on the London interbank market and was widely used as a reference for setting the interest rate on loans globally until the United Kingdom’s Financial Conduct Authority announced a phase out of LIBOR in July 2017. Although many LIBOR rates have ceased to be published since December 31, 2021, or no longer are representative of the underlying market they seek to measure, a selection of widely used USD LIBOR rates were published through June 2023 in order to assist with the transition,
In January 2023, the Federal Reserve adopted a final rule implementing the U.S. Adjustable Interest Rate Act of 2022 (the “LIBOR Act”) that, among other things, identifies applicable Secured Overnight Financing Rate, or SOFR-based benchmark replacements under the LIBOR Act. The rule applies to our contracts incorporating LIBOR that are governed by U.S. law.
Since the first quarter of 2022, we began transitioning any LIBOR-based investments to SOFR and currently none of our investments are indexed to LIBOR. SOFR is considered to be a risk-free rate, and USD LIBOR was a risk weighted rate. Thus, SOFR tends to be a lower rate than USD LIBOR, because SOFR does not contain a risk component. This difference may negatively impact our net interest margin of our investments. Also, the use of SOFR based rates is relatively new, and experience with SOFR based rate loans is limited. There could be unanticipated difficulties or disruptions with the calculation and publication of SOFR based rates. This could result in increased borrowing costs for us or could adversely impact the interest income we receive from our portfolio companies or the market value of our investments. In addition, the transition from LIBOR to SOFR may also introduce operational risks in our accounting, financial reporting, loan servicing, liability management and other aspects of our business.
Internal and external cybersecurity threats and risks, as well as other disasters, may adversely affect our business or the business of our portfolio companies by impairing the ability to conduct business effectively.
Cybersecurity incidents and cyber-attacks have been occurring globally at a more frequent and severe level, and will likely continue to increase in frequency in the future.
The occurrence of a disaster, such as a cyber-attack against us, any of our portfolio companies, or against a third-party that has access to our data or networks, a natural catastrophe, an industrial accident, failure of our disaster recovery systems, or consequential employee error, could have an adverse effect on our ability to communicate or conduct business, negatively impacting our operations and financial condition. This adverse effect can become particularly acute if those events affect our electronic data processing, transmission, storage, and retrieval systems, or impact the availability, integrity, or confidentiality of our data. In addition, the rapid evolution and increasing prevalence of artificial intelligence technologies may also intensify our cybersecurity risks. Although we are not currently aware of any cyber-attacks or other incidents that, individually or in the aggregate, have materially affected, or would reasonably be expected to materially affect our operations or financial condition, there has been an increase in the frequency and sophistication of the cyber and security threats that we face, with attacks ranging from those common to businesses generally to more advanced and persistent attacks.
We, and our portfolio companies, depend heavily upon computer systems to perform necessary business functions. Despite the implementation of a variety of security measures, our computer systems, networks, and data, like those of other companies, could be subject to cyber-attacks and unauthorized access, use, alteration, or destruction, such as from physical and electronic break-ins or unauthorized tampering. If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary, and other information processed, stored in, and transmitted through our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result in financial losses, litigation, regulatory penalties, client dissatisfaction or loss, reputational damage, and increased costs associated with mitigation of damages and remediation.
Third parties with which we do business may also be sources of cybersecurity or other technological risk. We outsource certain functions and these relationships allow for the storage and processing of our information, as well as client, counterparty, employee, and borrower information. While we engage in actions to reduce our exposure resulting from outsourcing, ongoing threats may result in unauthorized access, loss, exposure, destruction, or other cybersecurity incidents that adversely affects our data, resulting in increased costs and other consequences as described above.
In addition, cybersecurity risks are exacerbated by the rapidly increasing volume of highly sensitive data, including our proprietary business information and intellectual property, and personally identifiable information and other sensitive information that we collect and store in our data centers and on our networks. We may also invest in strategic assets having a national or regional profile or in infrastructure assets, the nature of which could expose them to a greater risk of being subject to a terrorist attack or security breach than other assets or businesses. The secure processing, maintenance and transmission of this information are critical to our operations. A significant actual or potential theft, loss, corruption, exposure, fraudulent use or misuse of fund investor, employee or other personally identifiable or, proprietary business data or other sensitive information, whether by third parties or as a result of employee malfeasance (or the negligence or malfeasance of third party service providers that have access to such confidential information) or otherwise, non-compliance with our contractual or other legal obligations regarding such data or intellectual property or a violation of our privacy and security policies with respect to such data could result in significant remediation and other costs, fines, litigation or regulatory actions against us and significant reputational harm., any of which could harm our business and results of operations.
Moreover, the increased use of mobile and cloud technologies due to the proliferation of remote work resulting from the COVID-19 pandemic could heighten these and other operational risks as certain aspects of the security of such technologies may be complex and unpredictable. Reliance on mobile or cloud technology or any failure by mobile technology and cloud service providers to adequately safeguard their systems and prevent cyber-attacks could disrupt our operations, the operations of a portfolio company or the operations of our or their service providers and result in misappropriation, corruption or loss of personal, confidential or proprietary information or the inability to conduct ordinary business operations. In addition, there is a risk that encryption and other protective measures may be circumvented, particularly to the extent that new computing technologies increase the speed and computing power available. Extended periods of remote working, whether by us, our portfolio companies, or our service providers, could strain technology resources, introduce operational risks and otherwise heighten the risks described above. Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts. Accordingly, the risks described above, are heightened under the current conditions.
We have implemented processes, procedures and internal controls to help mitigate cybersecurity risks and cyber intrusions, but these measures, as well as our increased awareness of the nature and extent of a risk of a cyber-incident, do not guarantee that a cyber-incident will not occur and/or that our financial results, operations or confidential information will not be negatively impacted by such an incident.
Finally, cybersecurity has become a top priority for global lawmakers and regulators around the world, and some jurisdictions have proposed or enacted laws requiring companies to notify regulators and individuals of data security breaches involving certain types of personal data. Compliance with such laws and regulations may result in cost increases due to system changes and the
development of new administrative processes. If we or our Adviser or certain of its affiliates, fail to comply with the relevant and increasing laws and regulations, we could suffer financial losses, a disruption of our businesses, liability to investors, regulatory intervention or reputational damage.
We are subject to increasing scrutiny from certain investors, third party assessors and our shareholders with respect to ESG-related topics.
We face increasing scrutiny from certain investors, third party assessors that measure companies’ ESG performance and our shareholders related to ESG-related topics, including in relation to diversity and inclusion, human rights, environmental stewardship, support for local communities, corporate governance and transparency. For example, we and the companies in which we invest risk damage to our brands and reputations if we or they do not act (or are perceived to not act) responsibly either with respect to responsible investing processes or ESG-related practices. Adverse incidents related to ESG practices could impact the value of our brand or the companies in which we invest, or the cost of our or their operations and relationships with investors, all of which could adversely affect our business and results of operations. Further, there can be no assurance that investors will determine that any of our Adviser’s ESG initiatives, or commitments are sufficiently robust. There can be no assurance that our Adviser will be able to accomplish any commitments related to its commitment to responsible investing or ESG practices, as statements regarding its ESG and responsible investing priorities reflect its current estimates, plans and/or aspirations and are not guarantees that it will be able to achieve them within the timelines announced or at all. Additionally, the Adviser may determine in its discretion that it is not feasible or practical to implement or complete certain aspects of its responsible investing program or ESG initiatives based on cost, timing or other considerations.
In recent years, certain investors have placed increasing importance on policies and practices related to responsible investing and ESG for the products to which they commit capital, and investors may decide not to commit capital to future fundraises based on their assessment of the Adviser’s approach to and consideration of ESG-related issues or risks. Similarly, a variety of organizations measure the performance of companies on ESG topics, and the results of these assessments are widely publicized. If the Adviser’s responsible investing or ESG-related practices or ratings do not meet the standards set by such investors or organizations, or if the Adviser receives a negative rating or assessment from such organizations, or if the Adviser fail, or is perceived to fail, to demonstrate progress toward its ESG priorities and initiatives, they may choose not to invest in us, and we may face reputational damage. Similarly, it is expected that investor and/or shareholder demands will require the Adviser to spend additional resources and place increasing importance on business relevant ESG factors in its review of prospective investments and management of existing ones.. Further, growing interest on the part of investors and regulators in ESG-related topics and themes and increased demand for, and scrutiny of, ESG-related disclosure by asset managers, have also increased the risk that asset managers could be perceived as, or accused of, making inaccurate or misleading statements regarding the ESG-related investment strategies or their and their funds’ responsible investing or ESG-related efforts or initiatives, or “greenwashing.” Such perception or accusation could damage our reputation, result in litigation or regulatory actions and adversely impact our ability to raise capital.
At the same time, there are various approaches to responsible investing activities and divergent views on the consideration of ESG topics. These differing views increase the risk that any action or lack thereof with respect to our Adviser’s consideration of responsible investing or ESG-related practices will be perceived negatively. “Anti-ESG” sentiment has gained momentum across the U.S., with several states having enacted or proposed “anti-ESG” policies, legislation or issued related legal opinions. For example: (i) boycott bills target financial institutions that “boycott” or “discriminate against” companies in certain industries (e.g., energy and mining) and prohibit state entities from doing business with such institutions and/or investing the state’s assets (including pension plan assets) through such institutions and (ii) ESG investment prohibitions require that state entities or managers/administrators of state investments make investments based solely on pecuniary factors without consideration of ESG factors. If investors subject to such legislation view our responsible investing or ESG practices as being in contradiction of such “anti-ESG” policies, legislation or legal opinions, such investors may not invest in us. Further, asset managers have been subject to recent scrutiny related to ESG-focused industry working groups, initiatives and associations, including organizations advancing action to address climate change or climate-related risk. Such scrutiny could expose the Adviser to the risk of antitrust investigations or challenges by federal authorities, result in reputational harm and discourage certain investors from investing in us. In addition, some conservative groups and Republican state attorneys general have asserted that the Supreme Court’s decision striking down race-based affirmative action in higher education in June 2023 should be analogized to private employment matters and private contract matters. Several new cases alleging discrimination based on similar arguments have been filed since that decision, with scrutiny of certain corporate DEI practices increasing. If the Adviser does not successfully manage expectations across these varied interests, it could erode trust, impact our and their reputation, and constrain our investment and fundraising opportunities.
We are subject to increasing scrutiny from regulators with respect to ESG-related issues and the regulatory disclosure landscape surrounding related topics continues to evolve.
Responsible investing, ESG practices and ESG-related disclosure have been the subject of increased focus by certain regulators, and new regulatory initiatives related to ESG-specific topics that are applicable to us, our products and our products’ portfolio companies could adversely affect our business. There is a growing regulatory interest across jurisdictions in improving transparency regarding the definition, measurement and disclosure of ESG factors in order to allow investors to validate and better understand sustainability claims, including in the United States, the European Union and the United Kingdom.
On March 21, 2022, the SEC issued a proposed rule regarding the enhancement and standardization of mandatory climate-related disclosures. The proposed rule would mandate extensive disclosure of climate-related data, risks, and opportunities, including financial impacts, physical and transition risks, related governance and strategy, and greenhouse gas emissions, for certain public
companies. Although the ultimate date of effectiveness and the final form and substance of the requirements for this proposed rule is not yet known and the ultimate scope and impact on our business is uncertain, compliance with this proposed rule, if finalized, may result in increased legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly, and place strain on our personnel, systems and resources. Further, on May 25, 2022, the SEC proposed amendments to rules and reporting forms concerning, among other things, enhanced disclosure requirements for investment managers regarding the ability to market funds as green, sustainable or ESG-focused and the incorporation of ESG factors by registered investment companies and advisers. In addition, in 2021 the SEC established an enforcement task force to look into ESG practices and disclosures by public companies and investment managers and has begun to bring enforcement actions based on ESG disclosures not matching actual investment processes.
Further, in October 2023, California enacted legislation that will ultimately require certain companies that (i) do business in California to publicly disclose their Scopes 1, 2 and 3 greenhouse gas emissions, with third party assurance of such data, and issue public reports on their climate-related financial risk and related mitigation measures and (ii) operate in California and make certain climate-related claims to provide enhanced disclosures around the achievement of climate-related claims, including the use of voluntary carbon credits to achieve such claims. From a European perspective, the European Union has adopted legislative reforms which include, without limitation: (a) Regulation 2019/2088 on sustainability-related disclosures in the financial services sector (the “SFDR”), for which most rules took effect beginning on March 10, 2021 and (b) Regulation (EU) 2020/852 on the establishment of a framework to facilitate sustainable investment (the “Taxonomy”). Further, there are ongoing consultations that may result in further changes or amendments to the SFDR. There is an increasing focus on anti-greenwashing and transparency initiatives affecting investment managers. The EU’s European Securities and Markets Authority announced in its 2024 Work Program a series of initiatives aimed at enhancing transparency around sustainability risks and disclosures, including a stocktaking report on the supervision of sustainability information and greenwashing and remediation actions, the introduction of guidelines on funds’ names with ESG or sustainability-related terms, common supervisory actions on the integration of sustainability risks and disclosures in the investment management sector.
There are still some uncertainties regarding the operation of these requirements, and an established market practice is still being developed in certain cases, which can lead to diverging implementation and/or operationalization, data gaps or methodological challenges which may affect our ability to collect relevant data. These regimes continue to evolve and there is still a lack of clarity and established practice around the approach to their supervision and enforcement, which may vary across national competent authorities. There is a risk that a development or reorientation in the regulatory requirements or market practice in this respect could be adverse to our investments if they are perceived to be less valuable as a consequence of, among other things, their carbon footprint or perceived “greenwashing.” Compliance with requirements of this nature may also increase risks relating to financial supervision and enforcement action. There is the additional risk that market expectations in relation to certain commitments under the SFDR, such as categorization of financial products, could adversely affect our ability to raise capital, especially from EEA investors.
Outside of the EU, the U.K. Government’s stated policy goal is to introduce economy-wide mandatory Task Force on Climate-related Financial Disclosures (“TCFD”) reporting by 2025. The UK has introduced mandatory TCFD-aligned disclosure requirements for certain UK regulated firms. The regime captures (amongst others) any firm providing portfolio management (which includes managing investments or private equity or other private market activities consisting of either advising on investments or managing investments on a recurring or ongoing basis in connection with an arrangement which aims to invest in unlisted securities) where the assets under management exceed £5.0 billion calculated as a 3-year rolling average. In November 2023, the Sustainability Labelling and Disclosure of Sustainability-Related Financial Information Instrument 2023 (“SDR”) introduced sustainability disclosure requirements, investment product labels and an ‘anti-greenwashing’ rule. The anti-greenwashing rule applies to all UK-authorized firms in relation to ESG-related claims made in their financial promotions and communications with clients in the UK. The balance of the new regime is directed at UK investment funds and UK-regulated asset management firms as well as distributors of such funds. The FCA has indicated it will continue to work with His Majesty’s Treasury on their approach to overseas funds and consult on an alternative approach to applying the regime to all types of portfolio managers.
In Asia, regulators in Singapore and Hong Kong have introduced requirements for asset managers to integrate climate risk considerations in investment and risk management processes, together with enhanced disclosure and reporting and have also issued enhanced rules for certain ESG funds on general ESG risk management and disclosure.
As a result of these legislative and regulatory initiatives, we or the Adviser may be required to provide additional disclosure to our investors with respect to ESG matters. This exposes us to increased disclosure risks, for example due to a lack of available or credible data, and the potential for conflicting disclosures may also expose us to an increased risk of misstatement litigation or miss-selling allegations. Failure to manage these risks could result in a material adverse effect on our business in a number of ways. Compliance with frameworks of this nature may create an additional compliance burden and increased legal, compliance, governance, reporting and other costs to funds and/or fund managers because of the need to collect certain information to meet the disclosure requirements. In addition, where there are uncertainties regarding the operation of the framework, a lack of official, conflicting or inconsistent regulatory guidance, a lack of established market practice and/or data gaps or methodological challenges affecting the ability to collect relevant data, funds and/or fund managers may be required to engage third party advisers and/or service providers to fulfil the requirements, thereby exacerbating any increase in compliance burden and costs. To the extent that any applicable jurisdictions enact similar laws and/or frameworks, there is a risk that we may not be able to maintain alignment of a particular investment with such frameworks, and/or may be subject to additional compliance burdens and costs, which might adversely affect us.
Risks Related to Our Adviser and Its Affiliates
Our Adviser and its affiliates, including our officers and some of our directors, may face conflicts of interest caused by compensation arrangements with us and our affiliates, which could result in increased risk-taking or speculative investments, or cause our Adviser to use substantial leverage.
Our Adviser and its affiliates will receive substantial fees from us in return for their services. These fees may include certain incentive fees based on the amount of appreciation of our investments and arrangement, structuring or similar fees from portfolio companies in which we invest. These fees could influence the advice provided to us or create an incentive for our Adviser to make investments on our behalf that are risky or more speculative than would be the case in the absence of such incentive fees. Generally, the more equity we sell in public offerings and the greater the risk assumed by us with respect to our investments, including through the use of leverage, the greater the potential for growth in our assets and profits, and, correlatively, the fees payable by us to our Adviser. The way in which the incentive fee is determined may encourage our Adviser to use leverage to increase the leveraged return on our investment portfolio.
In addition, the fact that our base management fee is payable based upon our average gross assets (which includes any borrowings used for investment purposes) may encourage our Adviser to use leverage to make additional investments. Such a practice could make such investments more risky than would otherwise be the case, which could result in higher investment losses, particularly during cyclical economic downturns. Under certain circumstances, the use of substantial leverage (up to the limits prescribed by the 1940 Act) may increase the likelihood of our defaulting on our borrowings, which would be detrimental to holders of our securities.
These compensation arrangements could affect our Adviser’s or its affiliates’ judgment with respect to public offerings of equity, incurrence of debt, and investments made by us, which allow our Adviser to earn increased asset management fees.
The time and resources that individuals associated with our Adviser devote to us may be diverted, and we may face additional competition due to, among other things, the fact that neither our Adviser nor its affiliates is prohibited from raising money for or managing another entity that makes the same types of investments that we target.
Blue Owl is not prohibited from raising money for and managing future investment entities, in addition to the Blue Owl Credit Clients, that make the same or similar types of investments as those we target. As a result, the time and resources that our Adviser devotes to us may be diverted, and during times of intense activity in other investment programs they may devote less time and resources to our business than is necessary or appropriate. In addition, we may compete with any such investment entity also managed by our Adviser or its affiliates for the same investors and investment opportunities. Furthermore, certain members of the Diversified Lending Investment Committee or our affiliates are officers of Blue Owl and will devote a portion of their time to the operations of Blue Owl, including with respect to public company compliance, investor relations and other matters that did not apply to Blue Owl’s Credit platform prior to the formation of Blue Owl.
Our Adviser and its affiliates may face conflicts of interest with respect to services performed for issuers in which we may invest.
Our Adviser and its affiliates may provide a broad range of financial services to companies in which we may invest, including providing arrangement, syndication, origination structuring and other services to portfolio companies, and will generally be paid fees for such services, in compliance with applicable law, by the portfolio company. Any compensation received by our Adviser or its affiliates for providing these services will not be shared with us and may be received before we realize a return on our investment. In addition, we may invest in companies managed by entities in which funds managed by GP Strategic Capital have acquired a minority interest. Our Adviser and its affiliates may face conflicts of interest with respect to services performed for these companies, on the one hand, and investments recommended to us, on the other hand and could, in certain instances, have an incentive not to pursue actions against a portfolio company that would be in our best interest.
Our Adviser or its affiliates may have incentives to favor their respective other accounts and clients and/or Blue Owl over us, which may result in conflicts of interest that could be harmful to us.
Because our Adviser and its affiliates manage assets for, or may in the future manage assets for, other investment companies, pooled investment vehicles and/or other accounts (including institutional clients, pension plans, co-invest vehicles and certain high net worth individuals), including the Blue Owl Credit Clients, and we may compete for capital and investment opportunities with these entities, certain conflicts of interest are present. These include conflicts of interest relating to the allocation of investment opportunities by our Adviser and its affiliates; compensation to our Adviser; services that may be provided by our Adviser and its affiliates to issuers in which we may invest; investments by us and other clients of our Adviser, subject to the limitations of the 1940 Act; the formation of additional investment funds managed by our Adviser; differing recommendations given by our Adviser to us versus other clients; our Adviser’s use of information gained from issuers in our portfolio for investments by other clients, subject to applicable law; restrictions on our Adviser’s use of “inside information” with respect to potential investments by us; the allocation of certain expenses; and cross transactions.
For instance, our Adviser and its affiliates may receive asset management performance-based, or other fees from certain accounts that are higher than the fees received by our Adviser from us. In addition, certain members of Blue Owl’s Credit platform’s investment committees and other executives and employees of our Adviser or its affiliates will hold and receive interest in Blue Owl
and its affiliates, in addition to cash and carried interest compensation. In these instances, a portfolio manager for our Adviser may have an incentive to favor the higher fee and/or performance-based fee accounts over us and/or to favor Blue Owl. In addition, a conflict of interest exists to the extent our Adviser, its affiliates, or any of their respective executives, portfolio managers or employees have proprietary or personal investments in other investment companies or accounts or when certain other investment companies or accounts are investment options in our Adviser’s or its affiliates’ employee benefit plans or employee offerings. In these circumstances, personnel of our Adviser may have incentive to favor these other investment companies or accounts over us.
Because our Adviser may have incentive to favor other Blue Owl Credit Clients and we may compete for investments with Blue Owl Credit Clients, our Adviser and its affiliates are subject to certain conflicts of interest in evaluating the suitability of investment opportunities and making or recommending investments on our behalf. To mitigate these conflicts, the Blue Owl Credit Advisers will seek to execute such transactions for all of the participating investment accounts, including us, on a fair and equitable basis and in accordance with the Blue Owl Credit Advisers’ investment allocation policy, taking into account such factors as the relative amounts of capital available for new investments; cash on hand; existing commitments and reserves; the investment programs and portfolio positions of the participating investment accounts, including portfolio construction, diversification and concentration considerations; the investment objectives, guidelines and strategies of each client; the clients for which participation is appropriate’ each client’s life cycle; targeted leverage level; targeted asset mix and any other factors deemed appropriate. We may be prohibited under the 1940 Act from participating in certain transactions with our affiliates without the prior approval of our directors who are not interested persons and, in some cases, the prior approval of the SEC. We, our Adviser and certain affiliates have been granted exemptive relief by the SEC to permit us to co-invest with other funds managed by our Adviser or certain of its affiliates in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. See “-Our ability to enter into transactions with our affiliates is restricted.”
Actions taken by our Adviser and its affiliates on behalf of the Blue Owl Credit Clients as a result of any conflict of interest may be adverse to us, which could harm our performance. For example, we may invest in the same credit obligations as other Blue Owl Credit Clients, although, to the extent permitted under the 1940 Act, our investments may include different obligations or levels of the capital structure of the same issuer. Decisions made with respect to the securities held by one of the Blue Owl Credit Clients may cause (or have the potential to cause) harm to the different class of securities of the issuer held by other Blue Owl Credit Clients (including us). While the Blue Owl Credit Advisers and their affiliates have developed general guidelines regarding when two or more funds can invest in different parts of the same company’s capital structure and created a process that they employ to handle those conflicts when they arise, their decision to permit the investments to occur in the first instance or their judgment on how to mitigate the conflict could be challenged or deemed insufficient. If the Blue Owl Credit Advisers and their affiliates fail to appropriately address those conflicts, it could negatively impact their reputation and ability to raise additional funds and the willingness of counterparties to do business with them or result in potential litigation against them.
From time to time, fees and expenses generated in connection with potential portfolio investments that are not consummated may be allocable to us and one or more Blue Owl Credit Clients. These expenses will be allocated in a manner that is fair and equitable over time and in accordance with policies adopted by the Blue Owl Credit Advisers and the Investment Advisory Agreement; however, the method for allocation expenses may vary depending on the nature of the expense and such determinations involve inherent discretion.
In addition, from time to time, our Adviser could cause us to purchase a security or other investment from, or sell a security or other investment to, another Blue Owl Credit Client. Such cross transaction would be in accordance with applicable regulations and our and our Adviser’s valuation and cross-trades policies; however, such cross transactions could give rise to additional conflicts of interest.
Our Board will seek to monitor these conflicts but there can be no assurances that such monitoring will fully mitigate any such conflicts.
Products within Blue Owl’s Real Estate platform may enter into sale lease-back transactions with our portfolio companies or with borrowers under our credit facilities.
From time to time, companies in which we have invested or may invest, may enter into sale-leaseback transactions with products within Blue Owl’s Real Estate platform. As a result of these arrangements we could be a creditor to, or equity owners of, a company at the same time that company is a tenant of a product within Blue Owl’s Real Estate platform. If such a company were to encounter financial difficulty or default on its obligations as a borrower, our Adviser could be required to take actions that may be adverse to those of Blue Owl’s Real Estate platform in enforcing our rights under the relevant facilities or agreements, or vice versa. This could lead to actual or perceived conflicts of interest.
Our access to confidential information may restrict our ability to take action with respect to some investments, which, in turn, may negatively affect our results of operations.
We, directly or through our Adviser, may obtain confidential information about the companies in which we have invested or may invest or be deemed to have such confidential information. Our Adviser may come into possession of material, non-public information through its members, officers, directors, employees, principals or affiliates. In addition, funds managed by GP Strategic
Capital may invest in entities that manage our portfolio companies and, as a result, may obtain additional confidential information about our portfolio companies. The possession of such information may, to our detriment, limit the ability of us and our Adviser to buy or sell a security or otherwise to participate in an investment opportunity. In certain circumstances, employees of our Adviser may serve as board members or in other capacities for portfolio or potential portfolio companies, which could restrict our ability to trade in the securities of such companies. For example, if personnel of our Adviser come into possession of material non-public information with respect to our investments, such personnel will be restricted by our Adviser’s information-sharing policies and procedures or by law or contract from sharing such information with our management team, even where the disclosure of such information would be in our best interests or would otherwise influence decisions taken by the members of the management team with respect to that investment. This conflict and these procedures and practices may limit the freedom of our Adviser to enter into or exit from potentially profitable investments for us, which could have an adverse effect on our results of operations. Accordingly, there can be no assurance that we will be able to fully leverage the resources and industry expertise of our Adviser in the course of its duties. Additionally, there may be circumstances in which one or more individuals associated with our Adviser will be precluded from providing services to us because of certain confidential information available to those individuals or to other parts of our Adviser.
We may be obligated to pay our Adviser incentive fees even if we incur a net loss due to a decline in the value of our portfolio and even if our earned interest income is not payable in cash.
The Investment Advisory Agreement entitles our Adviser to receive an incentive fee based on our pre-incentive fee net investment income regardless of any capital losses. In such case, we may be required to pay our Adviser an incentive fee for a fiscal quarter even if there is a decline in the value of our portfolio or if we incur a net loss for that quarter.
Any incentive fee payable by us that relates to the pre-incentive fee net investment income may be computed and paid on income that may include interest that has been accrued but not yet received or interest in the form of securities received rather than cash (“payment-in-kind” or “PIK” income”). PIK income will be included in the pre-incentive fee net investment income used to calculate the incentive fee to our Adviser even though we do not receive the income in the form of cash. If a portfolio company defaults on a loan that is structured to provide accrued interest income, it is possible that accrued interest income previously included in the calculation of the incentive fee will become uncollectible. Our Adviser is not obligated to reimburse us for any part of the incentive fee it received that was based on accrued interest income that we never receive as a result of a subsequent default.
The quarterly incentive fee on income is recognized and paid without regard to: (i) the trend of pre-incentive fee net investment income as a percent of adjusted capital over multiple quarters in arrears which may in fact be consistently less than the quarterly preferred return, or (ii) the net income or net loss in the current calendar quarter, the current year or any combination of prior periods.
For U.S. federal income tax purposes, we may be required to recognize taxable income in some circumstances in which we do not receive a corresponding payment in cash and to make distributions with respect to such income to maintain our tax treatment as a RIC and/or minimize corporate-level U.S. federal income or excise tax. Under such circumstances, we may have difficulty meeting the Annual Distribution Requirement necessary to maintain RIC tax treatment under the Code. This difficulty in making the required distribution may be amplified to the extent that we are required to pay the incentive fee on income with respect to such accrued income. As a result, we may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital, or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level U.S. federal income tax.
Our ability to enter into transactions with our affiliates is restricted.
We are prohibited under the 1940 Act from participating in certain transactions with certain of our affiliates without the prior approval of a majority of our independent directors and, in some cases, the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities will be our affiliate for purposes of the 1940 Act, and we will generally be prohibited from buying or selling any securities from or to such affiliate on a principal basis, absent the prior approval of our Board and, in some cases, the SEC. The 1940 Act also prohibits certain “joint” transactions with certain of our affiliates, including other funds or clients advised by our Adviser or its affiliates, which in certain circumstances could include investments in the same portfolio company (whether at the same or different times to the extent the transaction involves a joint investment), without prior approval of our Board and, in some cases, the SEC. If a person acquires more than 25% of our voting securities, we will be prohibited from buying or selling any security from or to such person or certain of that person’s affiliates, or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. Similar restrictions limit our ability to transact business with our officers or directors or their affiliates or anyone who is under common control with us. The SEC has interpreted the BDC regulations governing transactions with affiliates to prohibit certain joint transactions involving entities that share a common investment adviser. As a result of these restrictions, we may be prohibited from buying or selling any security from or to any portfolio company that is controlled by a fund managed by either of our Adviser or its affiliates without the prior approval of the SEC, which may limit the scope of investment or disposition opportunities that would otherwise be available to us.
Our Adviser and certain of our affiliates have received an order for exemptive relief (as amended, the “Order”) from the SEC to permit us to co-invest with other funds managed by our Adviser or its affiliates in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. Pursuant to the Order, we generally are permitted to co-invest with certain of our affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act)
of our independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transaction, including the consideration to be paid, are reasonable and fair to us and our shareholders and do not involve overreaching by us or our shareholders on the part of any person concerned, (2) the transaction is consistent with the interests of our shareholders and is consistent with our investment objective and strategies, (3) the investment by our affiliates would not disadvantage us, and our participation would not be on a basis different from or less advantageous than that on which our affiliates are investing, and (4) the proposed investment by us would not benefit our Adviser or its affiliates or any affiliated person of any of them (other than the parties to the transaction), except to the extent permitted by the Order and applicable law, including the limitations set forth in Section 57(k) of the 1940 Act. In addition, we have received an amendment to our Order to permit us to participate in follow-on investments in our existing portfolio companies with certain Affiliated Funds if such private funds are not invested in such existing portfolio company.
In situations when co-investment with our Adviser’s or its affiliates’ other clients is not permitted under the 1940 Act and related rules, existing or future staff guidance, or the terms and conditions of the exemptive relief granted to us by the SEC, our Adviser will need to decide which client or clients will proceed with the investment. Generally, we will not be entitled to make a co-investment in these circumstances and, to the extent that another client elects to proceed with the investment, we will not be permitted to participate. Moreover, except in certain circumstances, we will not invest in any issuer in which an affiliate’s other client holds a controlling interest.
We may make investments that could give rise to a conflict of interest.
We do not expect to invest in, or hold securities of, companies that are controlled by an affiliate’s other clients. However, our Adviser or an affiliate’s other clients may invest in, and gain control over, one of our portfolio companies. If our Adviser or an affiliate’s other client, or clients, gains control over one of our portfolio companies, it may create conflicts of interest and may subject us to certain restrictions under the 1940 Act. As a result of these conflicts and restrictions our Adviser may be unable to implement our investment strategies as effectively as they could have in the absence of such conflicts or restrictions. For example, as a result of a conflict or restriction, our Adviser may be unable to engage in certain transactions that it would otherwise pursue. In order to avoid these conflicts and restrictions, our Adviser may choose to exit such investments prematurely and, as a result, we may forego any positive returns associated with such investments. In addition, to the extent that an affiliate’s other client holds a different class of securities than us as a result of such transactions, our interests may not be aligned.
The recommendations given to us by our Adviser may differ from those rendered to their other clients.
Our Adviser and its affiliates may give advice and recommend securities to other clients which may differ from advice given to, or securities recommended or bought for, us even though such other clients’ investment objectives may be similar to ours, which could have an adverse effect on our business, financial condition and results of operations.
Our Adviser’s liability is limited under the Investment Advisory Agreement, and we are required to indemnify our Adviser against certain liabilities, which may lead our Adviser to act in a riskier manner on our behalf than it would when acting for its own account.
Our Adviser has not assumed any responsibility to us other than to render the services described in the Investment Advisory Agreement (and, separately, under the Administration Agreement), and it will not be responsible for any action of our Board in declining to follow our Adviser’s advice or recommendations. Pursuant to the Investment Advisory Agreement, our Adviser and its directors, officers, shareholders, members, agents, employees, controlling persons, and any other person or entity affiliated with, or acting on behalf of our Adviser will not be liable to us for their acts under the Investment Advisory Agreement, provided that nothing will be deemed to protect the Adviser in respect of any liability by reason of criminal conduct, willful misfeasance, bad faith or gross negligence in the performance of their duties. We have also agreed to indemnify, defend and protect our Adviser and its directors, officers, shareholders, members, agents, employees, controlling persons and any other person or entity affiliated with, or acting on behalf of our Adviser with respect to all damages, liabilities, costs and expenses resulting from acts of our Adviser not arising out of willful misfeasance, bad faith or gross negligence in the performance of their duties. However, in accordance with Section 17(i) of the 1940 Act, neither our Adviser nor any of its affiliates, directors, officers, members, employees, agents, or representatives may be protected against any liability to us or our investors to which it would otherwise be subject by reason of willful malfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of its office. In addition, the Investment Advisory Agreement provides that we will not indemnify the Adviser nor any of its affiliates, directors, officers, members, employees, agents, or representatives for any loss suffered by for any liability or loss suffered by such party, nor will we provide that such party will be held harmless for any loss or liability we suffer, unless all of the following conditions are met: (i) we have determined in good faith that the conduct that caused the loss or liability was in the best interests of the Company; (ii) we have determined in good faith that such party was acting on behalf of or performing services for the Company; (iii) we have determined, in good faith, that such liability or loss was not the result of (A) negligence or misconduct, in the case that such part is the Adviser or an affiliate of the Adviser, or (B) gross negligence or willful misconduct, in the case that such party is a director of the Company who is not also an officer of the Company or the Adviser or an affiliate of the Adviser; and (iv) such indemnification or agreement to hold harmless is recoverable only out of our net assets and not from our stockholders. In addition, such party will not be indemnified for any losses, liabilities or expenses arising from or out of an alleged violation of federal or state securities laws by such party unless one or more of the
following conditions are met: (i) there has been a successful adjudication on the merits of each count involving alleged material securities law violations as to such party; (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to such party; or (iii) a court of competent jurisdiction approves a settlement of the claims against such party and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the SEC and of the published position of any state securities regulatory authority in which shares of our stock were offered or sold as to indemnification for violations of securities laws. These protections may lead our Adviser to act in a riskier manner when acting on our behalf than it would when acting for its own account.
There are risks associated with any potential merger with or purchase of assets of another fund.
Our Adviser may in the future recommend to our Board that we merge with or acquire all or substantially all of the assets of one or more funds including a fund that could be managed by our Adviser or its affiliates (including another BDC). We do not expect that our Adviser would recommend any such merger or asset purchase unless it determines that it would be in our best interests, with such determination dependent on factors it deems relevant, which may include our historical and projected financial performance and that of any proposed merger partner, portfolio composition, potential synergies from the merger or asset sale, available alternative options and market conditions. In addition, no such merger or asset purchase would be consummated absent the meeting of various conditions required by applicable law or contract, at such time, which may include approval of the board of directors and common equity holders of both funds. If our Adviser is the investment adviser of both funds, various conflicts of interest would exist with respect to any such transaction. Such conflicts of interest may potentially arise from, among other things, differences between the compensation payable to our Adviser by us and by the entity resulting from such a merger or asset purchase or efficiencies or other benefits to our Adviser as a result of managing a single, larger fund instead of two separate funds.
Our Adviser’s failure to comply with pay-to-play laws, regulations and policies could have an adverse effect on our Adviser, and thus, us.
A number of U.S. states and municipal pension plans have adopted so-called “pay-to-play” laws, regulations or policies which prohibit, restrict or require disclosure of payments to (and/or certain contacts with) state officials by individuals and entities seeking to do business with state entities, including those seeking investments by public retirement funds. The SEC has adopted a rule that, among other things, prohibits an investment adviser from providing advisory services for compensation to a government client for two years after the adviser or certain of its executives or employees makes a contribution to certain elected officials or candidates. If our Adviser, any of its employees or affiliates or any service provider acting on its behalf, fails to comply with such laws, regulations or policies, such non-compliance could have an adverse effect on our Adviser, and thus, us.
Our Adviser’s inability to attract, retain and develop human capital in a highly competitive talent market could have an adverse effect on our Adviser, and thus us.
The success of our business will continue to depend upon our Adviser attracting, developing and retaining human capital. Competition for qualified, motivated, and highly-skilled executives, professionals and other key personnel in asset management firms is significant. Turnover and associated costs of rehiring, the loss of human capital through attrition, death, or disability and the reduced ability to attract talent could impair our Adviser’s ability to maintain its standards of excellence and have an adverse effect on us.
Our Adviser’s net worth is not available to satisfy our liabilities and other obligations.
The North American Securities Administrators Association (“NASAA”), in its Omnibus Guidelines Statement of Policy adopted on March 29, 1992 and as amended on May 7, 2007 and from time to time, requires that our affiliates and Adviser, or our Sponsor under the Omnibus Guidelines, have an aggregate financial net worth, exclusive of home, automobiles and home furnishings, of 5.0% of the first $20 million of both the gross amount of securities currently being offered in our offering and the gross amount of any originally issued direct participation program securities sold by our affiliates and sponsors within the past 12 months, plus 1.0% of all amounts in excess of the first $20 million. Based on these requirements, our Adviser and its affiliates have an aggregate financial net worth in excess of those amounts required by the Omnibus Guidelines. However, no portion of such net worth will be available to us to satisfy any of our liabilities or other obligations. The use of our own funds to satisfy such liabilities or other obligations could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Business Development Companies
The requirement that we invest a sufficient portion of our assets in qualifying assets could preclude us from investing in accordance with our current business strategy; conversely, the failure to invest a sufficient portion of our assets in qualifying assets could result in our failure to maintain our status as a BDC.
As a BDC, the 1940 Act prohibits us from acquiring any assets other than certain qualifying assets unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. Therefore, we may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets. Conversely, if we fail to invest a sufficient portion of our assets in qualifying assets, we could lose our status as a BDC, which would have a material adverse effect on our business, financial condition and results of operations. Similarly, these rules could prevent us from making additional investments in existing portfolio companies, which could result in the dilution of our position, or could require us to dispose of investments at an
inopportune time to comply with the 1940 Act. If we were forced to sell non-qualifying investments in the portfolio for compliance purposes, the proceeds from such sale could be significantly less than the current value of such investments.
Failure to maintain our status as a BDC would reduce our operating flexibility.
If we do not remain a BDC, we might be regulated as a closed-end investment company under the 1940 Act, which would subject us to substantially more regulatory restrictions, including a greater required asset coverage ratio and additional restrictions on transactions with affiliates, and correspondingly decrease our operating flexibility.
Regulations governing our operation as a BDC and RIC affect our ability to raise capital and the way in which we raise additional capital or borrow for investment purposes, which may have a negative effect on our growth. As a BDC, the necessity of raising additional capital may expose us to risks, including risks associated with leverage.
As a result of the Annual Distribution Requirement to qualify for tax treatment as a RIC, we may need to access the capital markets periodically to raise cash to fund new investments in portfolio companies. Currently, we may issue “senior securities,” including borrowing money from banks or other financial institutions only in amounts such that the ratio of our total assets (less total liabilities other than indebtedness represented by senior securities) to our total indebtedness represented by senior securities plus preferred stock, if any, equals at least 150% after such incurrence or issuance. If we issue senior securities, we will be exposed to risks associated with leverage, including an increased risk of loss. Our ability to issue different types of securities is also limited. Compliance with RIC distribution requirements may unfavorably limit our investment opportunities and reduce our ability in comparison to other companies to profit from favorable spreads between the rates at which we can borrow and the rates at which we can lend. Therefore, we intend to seek to continuously issue equity securities, which may lead to shareholder dilution.
We may borrow to fund investments. If the value of our assets declines, we may be unable to satisfy the asset coverage test under the 1940 Act, which would prohibit us from paying distributions and could prevent us from qualifying for tax treatment as a RIC, which would generally result in a corporate-level U.S. federal income tax on any income and net gains. If we cannot satisfy the asset coverage test, we may be required to sell a portion of our investments and, depending on the nature of our debt financing, repay a portion of our indebtedness at a time when such sales may be disadvantageous. Also, any amounts that we use to service our indebtedness would not be available for distribution to our shareholders.
In addition, as market conditions permit, we have and may continue to securitize our loans to generate cash for funding new investments. To securitize loans, we have and may continue to create a wholly owned subsidiary, contribute a pool of loans to the subsidiary and have the subsidiary issue primarily investment grade debt securities to purchasers who would be expected to be willing to accept a substantially lower interest rate than the loans earn. We have and may continue to retain all or a portion of the equity in the securitized pool of loans. Our retained equity would be exposed to any losses on the portfolio of loans before any of the debt securities would be exposed to such losses. See “ --We are subject to certain risks as a result of our interests in the CLO Preferred Shares”; “The subordination of the CLO Preferred Shares will affect our right to payment”; and “The CLO Indentures require mandatory redemption of the respective CLO Debt for failure to satisfy coverage tests, which would reduce the amounts available for distribution to us.”
Risks Related to Our Investments
Our investments in portfolio companies may be risky, and we could lose all or part of our investments.
Our strategy focuses primarily on originating and making loans to, and making debt and equity investments in, U.S. middle-market companies, with a focus on originated transactions sourced through the networks of our Adviser. Short transaction closing timeframes associated with originated transactions coupled with added tax or accounting structuring complexity and international transactions may result in higher risk in comparison to non-originated transactions.
Most debt securities in which we intend to invest will not be rated by any rating agency and, if they were rated, they would be rated as below investment grade quality and are commonly referred to as “high yield” or “junk.” Debt securities rated below investment grade quality are generally regarded as having predominantly speculative characteristics and may carry a greater risk with respect to a borrower’s capacity to pay interest and repay principal. In addition, some of the loans in which we may invest may be “covenant-lite” loans. We use the term “covenant-lite” loans to refer generally to loans that do not have a complete set of financial maintenance covenants. Generally, “covenant-lite” loans provide borrower companies more freedom to negatively impact lenders because their covenants are incurrence-based, which means they are only tested and can only be breached following an affirmative action of the borrower, rather than by a deterioration in the borrower’s financial condition. Accordingly, to the extent we invest in “covenant-lite” loans, we may have fewer rights against a borrower and may have a greater risk of loss on such investments as compared to investments in or exposure to loans with financial maintenance covenants.
First-Lien Debt. When we make a first-lien loan, we generally take a security interest in the available assets of the portfolio company, including the equity interests of its subsidiaries, which we expect to help mitigate the risk that we will not be repaid. However, there is a risk that the collateral securing our loans may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise, and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital. In some circumstances, our lien is, or could
become, subordinated to claims of other creditors. Consequently, the fact that a loan is secured does not guarantee that we will receive principal and interest payments according to the loan’s terms, or at all, or that we will be able to collect on the loan should we need to enforce our remedies.
Unitranche Loans. In addition, in connection with any unitranche loans (including “last out” portions of such loans) in which we may invest, we would enter into agreements among lenders. Under these agreements, our interest in the collateral of the first-lien loans may rank junior to those of other lenders in the loan under certain circumstances. This may result in greater risk and loss of principal on these loans.
Second-Lien and Mezzanine Debt. Our investments in second-lien and mezzanine debt generally are subordinated to senior loans and will either have junior security interests or be unsecured. As such, other creditors may rank senior to us in the event of insolvency. This may result in greater risk and loss of principal.
Equity Investments. When we invest in first-lien debt, second-lien debt or mezzanine debt, we may acquire equity securities, such as warrants, options and convertible instruments, as well. In addition, we may invest directly in the equity securities of portfolio companies. We may structure such equity investments to include provisions protecting our rights as a minority-interest holder, as well as a “put,” or right to sell such securities back to the issuer, upon the occurrence of specified events. In many cases, we may also seek to obtain registration rights in connection with these equity interests, which may include demand and “piggyback” registration rights, which grants us the right to register our equity interest when either the portfolio company or another investor in the portfolio company files a registration statement with the SEC to issue securities. We seek to dispose of these equity interests and realize gains upon our disposition of these interests. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.
We may invest through joint ventures, partnerships or other special purpose vehicles and our investments through these vehicles may entail greater risks, or risks that we otherwise would not incur, if we otherwise made such investments directly.
We may make indirect investments in portfolio companies through joint ventures, partnerships or other special purpose vehicles (“Investment Vehicles”). In general, the risks associated with indirect investments in portfolio companies through a joint venture, partnership or other special purpose vehicle are similar to those associated with a direct investment in a portfolio company; however, if we are not the sole investor in such Investment Vehicle, the investment may involve risks not present in investments where a third party is not involved. While we intend to analyze the credit and business of a potential portfolio company in determining whether to make an investment in an Investment Vehicle, we will nonetheless be exposed to the creditworthiness of the Investment Vehicle and any third party. In the event of a bankruptcy proceeding against the portfolio company, the assets of the portfolio company may be used to satisfy its obligations prior to the satisfaction of our investment in the Investment Vehicle (i.e., our investment in the Investment Vehicle could be structurally subordinated to the other obligations of the portfolio company). If a third party is involved, we are subject to the risk that such third-party could have financial difficulties resulting in a negative impact on the Investment Vehicle, could have economic or business interests or goals which are inconsistent with ours, or could be in a position to take (or block) action in a manner contrary to our investment objective or the increased possibility of default by, diminished liquidity or insolvency of, the third party, due to a sustained or general economic downturn. In addition, if we are not the sole investor in an Investment Vehicle, we may be required to rely on our partners in the Investment Vehicle when making decisions regarding such Investment Vehicle’s investments, accordingly, the value of the investment could be adversely affected if our interests diverge from those of our partners in the Investment Vehicle.
Any strategic investments that we pursue are subject to risks and uncertainties.
We have pursued and may continue to pursue growth through strategic investments in new businesses, including through investments in our specialty finance vehicles. Completion and timing of any such strategic investments may be subject to a number of contingencies, including the uncertainty in reaching a commercial agreement with our counterparty, our ability to obtain required board, shareholder and regulatory approvals, as well as any required financing (or the risk that these are obtained subject to terms and conditions that are not anticipated). The announcement or consummation of any transaction also may adversely impact our business relationships or engender competitive responses.
In addition, the proposal and negotiation of strategic investments, whether or not completed, as well as the integration of those businesses into our existing portfolio, could result in substantial expenses and the diversion of our Adviser’s time, attention and resources from our day-to-day operations.
Our ability to manage our growth through strategic investments will depend, in part, on our success in addressing these risks. Any failure to effectively implement our acquisition or strategic investment strategies could have a material adverse effect on our business, financial condition or results of operations.
Broadly syndicated loans, including “covenant-lite” loans, may expose us to different risks, including with respect to liquidity, price volatility, ability to restructure loans, credit risks and less protective loan documentation, than is the case with loans that contain financial maintenance covenants.
A significant number of high yield loans in the market, in particular the broadly syndicated loan market, may consist of “covenant-lite” loans. Generally, “covenant-lite” loans provide borrower companies more freedom to negatively impact lenders because their covenants are incurrence-based, which means they are only tested and can only be breached following an affirmative action of the borrower, rather than by a deterioration in the borrower’s financial condition. Ownership of “covenant-lite” loans may expose us to different risks, including with respect to liquidity, price volatility, ability to restructure loans, credit risks and less protective loan documentation, than is the case with loans that contain financial maintenance covenants.
We may be subject to risks associated with our investments in bank loans.
We may invest in bank loans and participations. These obligations are subject to unique risks, including:
•the possible invalidation of an investment transaction as a fraudulent conveyance under relevant creditors’ rights laws,
•so-called lender-liability claims by the issuer of the obligations,
•environmental liabilities that may arise with respect to collateral securing the obligations, and
•limitations on our ability to directly enforce its rights with respect to participations.
In addition, the illiquidity of bank loans may make it difficult for us to sell such investments to access capital if required. As a result, we could realize significantly less than the value at which we have recorded our investments if we were required to sell them for liquidity purposes. Compared to securities and to certain other types of financial assets, purchases and sales of loans take relatively longer to settle. This extended settlement process can (i) increase the counterparty credit risk borne by us; (ii) leave us unable to timely vote, or otherwise act with respect to, loans it has agreed to purchase; (iii) delay us from realizing the proceeds of a sale of a loan; (iv) inhibit our ability to re-sell a loan that it has agreed to purchase if conditions change (leaving us more exposed to price fluctuations); (v) prevent us from timely collecting principal and interest payments; and (vi) expose us to adverse tax or regulatory consequences. To the extent the extended loan settlement process gives rise to short-term liquidity needs, we may hold cash, sell investments or temporarily borrow from banks or other lenders.
In purchasing participations, we generally will have no right to enforce compliance by the borrower with the terms of the loan agreement, nor any rights of set-off against the borrower, and we may not directly benefit from the collateral supporting the debt obligation in which we have purchased the participation. As a result, we will assume the credit risk of both the borrower and the institution selling the participation.
In analyzing each bank loan or participation, our Adviser compares the relative significance of the risks against the expected benefits of the investment. Successful claims by third parties arising from these and other risks will be borne by us.
If the assets securing the loans that we make decrease in value, then we may lack sufficient collateral to cover losses.
To attempt to mitigate credit risks, we intend to take a security interest in the available assets of our portfolio companies. There is no assurance that we will obtain sufficient collateral to cover losses or properly perfect our liens.
There is a risk that the collateral securing our loans may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of a portfolio company to raise additional capital. In some circumstances, our lien could be subordinated to claims of other creditors. Consequently, the fact that a loan is secured does not guarantee that we will receive principal and interest payments according to the loan’s terms, or that we will be able to collect on the loan should we be forced to enforce our remedies.
We may suffer a loss if a portfolio company defaults on a loan and the underlying collateral is not sufficient.
In the event of a default by a portfolio company on a secured loan, we will only have recourse to the assets collateralizing the loan. If the underlying collateral value is less than the loan amount, we will suffer a loss. In addition, we may make loans that are unsecured, which are subject to the risk that other lenders may be directly secured by the assets of the portfolio company. In the event of a default, those collateralized lenders would have priority over us with respect to the proceeds of a sale of the underlying assets. In cases described above, we may lack control over the underlying asset collateralizing our loan or the underlying assets of the portfolio company prior to a default, and as a result the value of the collateral may be reduced by acts or omissions by owners or managers of the assets.
In the event of bankruptcy of a portfolio company, we may not have full recourse to its assets in order to satisfy our loan, or our loan may be subject to “equitable subordination.” This means that depending on the facts and circumstances, including the extent to which we actually provided significant “managerial assistance,” if any, to that portfolio company, a bankruptcy court might re-characterize our debt holding and subordinate all or a portion of our claim to that of other creditors. In addition, certain of our loans are subordinate to other debt of the portfolio company. If a portfolio company defaults on our loan or on debt senior to our loan, or in the event of a portfolio company bankruptcy, our loan will be satisfied only after the senior debt receives payment. Where debt senior to our loan exists, the presence of intercreditor arrangements may limit our ability to amend our loan documents, assign our loans,
accept prepayments, exercise our remedies (through “standstill” periods) and control decisions made in bankruptcy proceedings relating to the portfolio company. Bankruptcy and portfolio company litigation can significantly increase collection losses and the time needed for us to acquire the underlying collateral in the event of a default, during which time the collateral may decline in value, causing us to suffer losses.
Borrowers of broadly syndicated loans may be permitted to designate unrestricted subsidiaries under the terms of their financing agreements, which would exclude such unrestricted subsidiaries from restrictive covenants under the financing agreement with the borrower. Without restriction under the financing agreement, the borrower could take various actions with respect to the unrestricted subsidiary including, among other things, incur debt, grant security on its assets, sell assets, pay dividends or distribute shares of the unrestricted subsidiary to the borrower’s shareholders. Any of these actions could increase the amount of leverage that the borrower is able to incur and increase the risk involved in our investments in broadly syndicated loans accordingly.
If the value of collateral underlying our loan declines or interest rates increase during the term of our loan, a portfolio company may not be able to obtain the necessary funds to repay our loan at maturity through refinancing. Decreasing collateral value and/or increasing interest rates may hinder a portfolio company’s ability to refinance our loan because the underlying collateral cannot satisfy the debt service coverage requirements necessary to obtain new financing. If a borrower is unable to repay our loan at maturity, we could suffer a loss which may adversely impact our financial performance.
We may not realize any income or gains from our equity investments.
We have invested in and may continue to invest in equity-related securities, including common equity, warrants, preferred stock and convertible preferred securities. These equity interests we acquire may not appreciate in value and, in fact, may decline in value if the company fails to perform financially or achieve its growth objectives. We will generally have little, if any, control over the timing of any gains we may realize from our equity investments since these securities may have restrictions on their transfer or may not have an active trading market.
Equity investments also have experienced significantly more volatility in their returns and may under-perform relative to fixed income securities during certain periods. An adverse event, such as an unfavorable earnings report, may depress the value. Also, prices of equity investments are sensitive to general movements in the stock market and a drop in the stock market may depress the price of common stock investments to which we have exposure. Equity prices fluctuate for several reasons including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the relevant stock market, or when political or economic events affecting the issuers occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs increase.
Although we expect to receive current income in the form of dividend payments on any convertible preferred equity investments, a substantial portion of the gains we expect to receive from our investments in such securities will likely be from the capital gains generated from the sale of our equity investments upon conversion of our convertible securities, the timing of which we cannot predict and we cannot guarantee that such sale will happen at all. We do not expect to generate capital gains from the sale of our portfolio investments on a level or uniform basis from quarter to quarter. In addition, any convertible preferred stock instruments will generally provide for conversion upon the portfolio companies’ achievement of certain milestone events, including a qualified public offering and/or a senior exchange listing for their common stock. However, there can be no assurance that our portfolio companies will obtain either a junior or senior exchange listing or, even if a listing is obtained, that an active trading market will ever develop in the common stock of our publicly traded portfolio companies. In addition, even if our portfolio companies obtain an exchange listing, we may be subject to lock-up provisions that prohibit us from selling our investments into the public market for specified periods of time after such listing. As a result, the market price of securities that we hold may decline substantially before we are able to sell these securities following an exchange listing.
Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience. Furthermore, due to the expected growth of our portfolio companies, we do not generally expect to receive dividend income from our common stock investments. In the case of cumulative preferred stock, there is no assurance that any dividends will ever be paid by a portfolio company. Dividends to any equity holders may be suspended or cancelled at any time.
Investments in equity securities can carry additional risks and may have other characteristics that require investments to be made indirectly through blocker entities or otherwise. In addition, if an issuer of equity securities in which we have invested sells additional shares of its equity securities, our interest in the issuer may be diluted and the value of our investment could decrease.
We may invest, to the extent permitted by law, in the equity securities of investment funds that are operating pursuant to certain exceptions to the 1940 Act and in advisers to similar investment funds and, to the extent we so invest, will bear our ratable share of any such company’s expenses, including management and performance fees. We will also remain obligated to pay the base management fee, income based fee and capital gains incentive fee to our investment adviser with respect to the assets invested in the securities and instruments of such companies. With respect to each of these investments, each of our common stockholders will bear his or her share of the base management fee, income based fee and capital gains incentive fee due to our investment adviser as well as indirectly bearing the management and performance fees and other expenses of any such investment funds or advisers.
For the foregoing reasons, investments in equity securities can be highly speculative and carry a substantial risk of loss of investment
To the extent we invest in publicly traded companies, we may be unable to obtain financial covenants and other contractual rights, which subjects us to additional risks.
If we invest in instruments issued by publicly-held companies, we may be subject to risks that differ in type or degree from those involved with investments in privately-held companies. Such risks include, without limitation, greater volatility in the valuation of such companies, increased obligations to disclose information regarding such companies, limitations on our ability to dispose of such instruments at certain times, increased likelihood of shareholder litigation against such companies’ board members and increased costs associated with each of the aforementioned risks. In addition, to the extent we invest in publicly traded debt instruments, we may not be able to obtain financial covenants or other contractual rights that we might otherwise be able to obtain when making privately-negotiated investments. We may not have the same access to information in connection with investments in public debt instruments that we would expect to have in connection with privately-negotiated investments. If we or our Adviser were deemed to have material, nonpublic information regarding the issuer of a publicly traded instrument in which we have invested, we may be limited in our ability to make new investments or sell existing investments in such issue.
The credit ratings of certain of our investments may not be indicative of the actual credit risk of such rated instruments.
Rating agencies rate debt securities based upon their assessment of the likelihood of the receipt of principal and interest payments. Rating agencies do not consider the risks of fluctuations in market value or other factors that may influence the value of debt securities. Therefore, the credit rating assigned to a particular instrument may not fully reflect the true risks of an investment in such instrument. Credit rating agencies may change their methods of evaluating credit risk and determining ratings. These changes may occur quickly and often. While we may give some consideration to ratings, ratings may not be indicative of the actual credit risk of our investments in rated instruments.
Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity.
We are subject to the risk that the investments we make in our portfolio companies may be repaid prior to maturity. When this occurs, we will generally reinvest these proceeds in temporary investments, pending their future investment in new portfolio companies. These temporary investments will typically have substantially lower yields than the debt being prepaid and we could experience significant delays in reinvesting these amounts.
Any future investment in a new portfolio company may also be at lower yields than the debt that was repaid. As a result, our results of operations could be materially adversely affected if one or more of our portfolio companies elect to prepay amounts owed to us. Additionally, prepayments, net of prepayment fees, could negatively impact our return on equity. This risk will be more acute when interest rates decrease, as we may be unable to reinvest at rates as favorable as when we made our initial investment.
A redemption of convertible securities held by us could have an adverse effect on our ability to achieve our investment objective.
A convertible security may be subject to redemption at the option of the issuer at a price established in the convertible security’s governing instrument. If a convertible security held by us is called for redemption, we will be required to permit the issuer to redeem the security, convert it into the underlying common stock or sell it to a third party. Any of these actions could have an adverse effect on our ability to achieve our investment objective.
To the extent original issue discount (OID) and payment-in-kind (PIK) interest income constitute a portion of our income, we will be exposed to risks associated with the deferred receipt of cash representing such income.
Our investments may include OID and PIK instruments. To the extent OID and PIK constitute a portion of our income, we will be exposed to risks associated with such income being required to be included in income for financial reporting purposes in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and taxable income prior to receipt of cash, including the following:
•Original issue discount instruments may have unreliable valuations because the accruals require judgments about collectability or deferred payments and the value of any associated collateral;
•Original issue discount instruments may create heightened credit risks because the inducement to the borrower to accept higher interest rates in exchange for the deferral of cash payments typically represents, to some extent, speculation on the part of the borrower;
•For U.S. GAAP purposes, cash distributions to shareholders that include a component of OID income do not come from paid-in capital, although they may be paid from the offering proceeds. Thus, although a distribution of OID income may come from the cash invested by the shareholders, the 1940 Act does not require that shareholders be given notice of this fact;
•The presence of OID and PIK creates the risk of non-refundable cash payments to our Adviser in the form of incentive fees on income based on non-cash OID and PIK accruals that may never be realized; and
•In the case of PIK, “toggle” debt, which gives the issuer the option to defer an interest payment in exchange for an increased interest rate in the future, the PIK election has the simultaneous effect of increasing the investment income, thus increasing the potential for realizing incentive fees.
Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.
Our strategy focuses on investing primarily in the debt of privately owned U.S. companies with a focus on originated transactions sourced through the networks of our Adviser. Our portfolio companies may have, or may be permitted to incur, other debt that ranks equally with, or senior to, the debt in which we invest. By their terms, such debt instruments may entitle the holders to receive payment of interest or principal on or before the dates on which we are entitled to receive payments with respect to the debt instruments in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, any holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution. After repaying such senior creditors, such portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt instruments in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company and our portfolio company may not have sufficient assets to pay all equally ranking credit even if we hold senior, first-lien debt.
Our portfolio companies may be highly leveraged.
Some of our portfolio companies may be highly leveraged, which may have adverse consequences to these companies and to us as an investor. These companies may be subject to restrictive financial and operating covenants and the leverage may impair these companies’ ability to finance their future operations and capital needs. As a result, these companies’ flexibility to respond to changing business and economic conditions and to take advantage of business opportunities may be limited. Further, a leveraged company’s income and net assets will tend to increase or decrease at a greater rate than if borrowed money were not used.
If we cannot obtain debt financing or equity capital on acceptable terms, our ability to acquire investments and to expand our operations will be adversely affected.
Any working capital reserves we maintain may not be sufficient for investment purposes, and we may require additional debt financing or equity capital to operate. We generally are required to distribute at least 90% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to our shareholders to maintain our tax treatment as a RIC. Accordingly, in the event that we need additional capital in the future for investments or for any other reason we may need to access the capital markets periodically to issue debt or equity securities or borrow from financial institutions in order to obtain such additional capital. These sources of funding may not be available to us due to unfavorable economic conditions, which could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. Consequently, if we cannot obtain further debt or equity financing on acceptable terms, our ability to acquire additional investments and to expand our operations will be adversely affected. As a result, we would be less able to diversify our portfolio and achieve our investment objective, which may negatively impact our results of operations and reduce our ability to make distributions to our shareholders.
Defaults by our portfolio companies could jeopardize a portfolio company’s ability to meet its obligations under the debt or equity investments that we hold which could harm our operating results.
A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its debt financing and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize a portfolio company’s ability to meet its obligations under the debt or equity investments that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of certain financial covenants, with a defaulting portfolio company. In addition, some of the loans in which we may invest may be “covenant-lite” loans. We use the term “covenant-lite” loans to refer generally to loans that do not have a complete set of financial maintenance covenants. Generally, “covenant-lite” loans provide borrower companies more freedom to negatively impact lenders because their covenants are incurrence-based, which means they are only tested and can only be breached following an affirmative action of the borrower, rather than by a deterioration in the borrower’s financial condition. Accordingly, to the extent we invest in “covenant-lite” loans, we may have fewer rights against a borrower and may have a greater risk of loss on such investments as compared to investments in or exposure to loans with financial maintenance covenants.
As part of our lending activities, we may in certain opportunistic circumstances originate loans to companies that are experiencing significant financial or business difficulties, including companies involved in bankruptcy or other reorganization and liquidation proceedings. Any such investment would involve a substantial degree of risk. In any reorganization or liquidation proceeding relating to a company that we fund, we may lose all or part of the amounts advanced to the borrower or may be required to accept collateral with a value less than the amount of the loan advanced by us to the borrower.
Subordinated liens on collateral securing debt investments that we may make to portfolio companies may be subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us.
Certain debt investments that we will make in portfolio companies will be secured on a second priority lien basis by the same collateral securing senior debt of such companies. We also make debt investments in portfolio companies secured on a first priority basis. The first priority liens on the collateral will secure the portfolio company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the portfolio company under the agreements governing the debt. In the event of a default, the holders of obligations secured by the first priority liens on the collateral will generally control the liquidation of and be entitled to receive proceeds from any realization of the collateral to repay their obligations in full before us.
In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the debt obligations secured by the first priority or second priority liens after payment in full of all obligations secured by the first priority liens on the collateral. If such proceeds are not sufficient to repay amounts outstanding under the debt obligations secured by the first priority or second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the portfolio company’s remaining assets, if any.
We may also make unsecured debt investments in portfolio companies, meaning that such investments will not benefit from any interest in collateral of such companies. Liens on any such portfolio company’s collateral, if any, will secure the portfolio company’s obligations under its outstanding secured debt and may secure certain future debt that is permitted to be incurred by the portfolio company under its secured debt agreements. The holders of obligations secured by such liens will generally control the liquidation of, and be entitled to receive proceeds from, any realization of such collateral to repay their obligations in full before us. In addition, the value of such collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of such collateral would be sufficient to satisfy our unsecured debt obligations after payment in full of all secured debt obligations. If such proceeds were not sufficient to repay the outstanding secured debt obligations, then our unsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against the portfolio company’s remaining assets, if any.
The rights we may have with respect to the collateral securing the debt investments we make in our portfolio companies with senior debt outstanding may also be limited pursuant to the terms of one or more inter-creditor agreements that we enter into with the holders of senior debt. Under such an inter-creditor agreement, at any time obligations that have the benefit of the first priority liens are outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the first priority liens: the ability to cause the commencement of enforcement proceedings against the collateral; the ability to control the conduct of such proceedings; the approval of amendments to collateral documents; releases of liens on the collateral; and waivers of past defaults under collateral documents. We may not have the ability to control or direct such actions, even if our rights are adversely affected.
Certain of our investments may be adversely affected by laws relating to fraudulent conveyance or voidable preferences.
Certain of our investments could be subject to federal bankruptcy law and state fraudulent transfer laws, which vary from state to state, if the debt obligations relating to certain investments were issued with the intent of hindering, delaying or defrauding creditors or, in certain circumstances, if the issuer receives less than reasonably equivalent value or fair consideration in return for issuing such debt obligations. If the debt proceeds are used for a buyout of shareholders, this risk is greater than if the debt proceeds are used for day-to-day operations or organic growth. If a court were to find that the issuance of the debt obligations was a fraudulent transfer or conveyance, the court could void or otherwise refuse to recognize the payment obligations under the debt obligations or the collateral supporting such obligations, further subordinate the debt obligations or the liens supporting such obligations to other existing and future indebtedness of the issuer or require us to repay any amounts received by us with respect to the debt obligations or collateral. In the event of a finding that a fraudulent transfer or conveyance occurred, we may not receive any repayment on such debt obligations.
Under certain circumstances, payments to us and distributions by us to our shareholders may be reclaimed if any such payment or distribution is later determined to have been a fraudulent conveyance, preferential payment or similar transaction under applicable bankruptcy and insolvency laws. Furthermore, investments in restructurings may be adversely affected by statutes relating to, among other things, fraudulent conveyances, voidable preferences, lender liability and the court’s discretionary power to disallow, subordinate or disenfranchise particular claims or re-characterize investments made in the form of debt as equity contributions.
There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims.
Although we intend to structure certain of our investments as senior debt, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, including the extent to which we provided managerial assistance to that portfolio company or a representative of us or our Adviser sat on the board of directors of such portfolio company, a bankruptcy court might re-characterize our debt investment and subordinate all or a portion of our claim to that of other creditors. In situations where a bankruptcy carries a high degree of political significance, our legal rights may be subordinated to other creditors.
In addition, a number of U.S. judicial decisions have upheld judgments obtained by borrowers against lending institutions on the basis of various evolving legal theories, collectively termed “lender liability.” Generally, lender liability is founded on the premise that a lender has violated a duty (whether implied or contractual) of good faith, commercial reasonableness and fair dealing, or a similar duty owed to the borrower or has assumed an excessive degree of control over the borrower resulting in the creation of a fiduciary duty owed to the borrower or its other creditors or shareholders. Because of the nature of our investments in portfolio companies (including that, as a BDC, we may be required to provide managerial assistance to those portfolio companies if they so request upon our offer), we may be subject to allegations of lender liability.
We generally will not control the business operations of our portfolio companies and, due to the illiquid nature of our holdings in our portfolio companies, we may not be able to dispose of our interests in our portfolio companies.
We do not currently, and do not expect in the future to control most of our portfolio companies, although we may have board representation or board observation rights, and our debt agreements may impose certain restrictive covenants on our borrowers. As a result, we are subject to the risk that a portfolio company in which we invest may make business decisions with which we disagree and the management of such company, as representatives of the holders of their common equity, may take risks or otherwise act in ways that do not serve our interests as a debt investor. Due to the lack of liquidity for our investments in private companies, we may not be able to dispose of our interests in our portfolio companies as readily as we would like or at a favorable value. As a result, a portfolio company may make decisions that could decrease the value of our portfolio holdings.
We are, and will continue to be, exposed to risks associated with changes in interest rates.
General interest rate fluctuations and changes in credit spreads on floating rate loans may have a substantial negative impact on our investments and investment opportunities and, accordingly, may have a material adverse effect on our rate of return on invested capital, our net investment income and our net asset value. The majority of our debt investments have, and are expected to have, variable interest rates that reset periodically based on benchmarks such as the SOFR, the SONIA, the Euro Interbank Offered Rate, the Federal Funds rate or Prime rate. Increases in interest rates have made and may continue to make it more difficult for our portfolio companies to service their obligations under the debt investments that we will hold and may increase defaults even where our investment income increases. Rising interest rates could also cause borrowers to shift cash from other productive uses to the payment of interest, which may have a material adverse effect on their business and operations and could, over time, lead to increased defaults. Additionally, as interest rates have increased and the corresponding risk of default by borrowers has increased, the liquidity of higher interest rate loans may decrease as fewer investors may be willing to purchase such loans in the secondary market in light of the increased risk of a default by the borrower and the heightened risk of a loss of an investment in such loans. All of these risks may be exacerbated when interest rates rise rapidly and/or significantly. Decreases in credit spreads on debt that pays a floating rate of return would have an impact on the income generation of our floating rate assets. Trading prices for debt that pays a fixed rate of return tend to fall as interest rates rise. Trading prices tend to fluctuate more for fixed rate securities that have longer maturities.
Conversely, if interest rates were to decline, borrowers may refinance their loans at lower interest rates, which could shorten the average life of the loans and reduce the associated returns on the investment, as well as require our Adviser and the Adviser’s personnel to incur management time and expense to re-deploy such proceeds, including on terms that may not be as favorable as our existing loans.
In addition, because we borrow money to make investments, our net investment income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.
Portions of our investment portfolio and our borrowings have floating rate components. As a result, the recent significant changes in market interest rates have increased our interest expense as has the incurrence of additional fixed rate borrowings. In periods of rising interest rates, such as in the current market, our cost of funds increases, which tends to reduce our net investment income. We may hedge against interest rate fluctuations by using standard hedging instruments such as interest rate swap agreements, futures, options and forward contracts, subject to applicable legal requirements, including all necessary registrations (or exemptions from registration) with the Commodity Futures Trading Commission. In addition, our interest expense may not decrease at the same rate as overall interest rates because of our fixed rate borrowings, which could lead to greater declines in our net investment income. These activities may limit our ability to participate in the benefits of lower interest rates with respect to the hedged borrowings. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations.
We do not have a policy governing the maturities of our investments. This means that we are subject to greater risk (other things being equal) than a fund invested solely in shorter-term securities. A decline in the prices of the debt we own could adversely affect our net asset value. Also, an increase in interest rates available to investors could make an investment in our common stock less attractive if we are not able to increase our dividend rate.
International investments create additional risks.
We may make investments in portfolio companies that are domiciled outside of the United States. Our investments in foreign portfolio companies are deemed “non-qualifying assets,” which means that, as required by the 1940 Act, such investments, along with other investments in non-qualifying assets, may not constitute more than 30% of our total assets at the time of our acquisition of any such asset, after giving effect to the acquisition. Notwithstanding the limitation on our ownership of foreign portfolio companies, such investments subject us to many of the same risks as our domestic investments, as well as certain additional risks, including the following:
•foreign governmental laws, rules and policies, including those relating to taxation and bankruptcy and restricting the ownership of assets in the foreign country or the repatriation of profits from the foreign country to the United States and any adverse changes in these laws;
•foreign currency devaluations that reduce the value of and returns on our foreign investments;
•adverse changes in the availability, cost and terms of investments due to the varying economic policies of a foreign country in which we invest;
•adverse changes in tax rates, the tax treatment of transaction structures and other changes in operating expenses of a particular foreign country in which we invest;
•the assessment of foreign-country taxes (including withholding taxes, transfer taxes and value added taxes, any or all of which could be significant) on income or gains from our investments in the foreign country;
•changes that adversely affect the social, political and/or economic stability of a foreign country in which we invest;
•high inflation in the foreign countries in which we invest, which could increase the costs to us of investing in those countries;
•deflationary periods in the foreign countries in which we invest, which could reduce demand for our assets in those countries and diminish the value of such investments and the related investment returns to us; and
•legal and logistical barriers in the foreign countries in which we invest that materially and adversely limit our ability to enforce our contractual rights with respect to those investments.
In addition, we may make investments in countries whose governments or economies may prove unstable. Certain of the countries in which we may invest may have political, economic and legal systems that are unpredictable, unreliable or otherwise inadequate with respect to the implementation, interpretation and enforcement of laws protecting asset ownership and economic interests. In some of the countries in which we may invest, there may be a risk of nationalization, expropriation or confiscatory taxation, which may have an adverse effect on our portfolio companies in those countries and the rates of return that we are able to achieve on such investments. We may also lose the total value of any investment which is nationalized, expropriated or confiscated. The financial results and investment opportunities available to us, particularly in developing countries and emerging markets, may be materially and adversely affected by any or all of these political, economic and legal risks.
We expose ourselves to risks when we engage in risk management activities.
We may in the future enter into hedging transactions, which may expose us to risks associated with such transactions. We may seek to utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates and the relative value of certain debt securities from changes in market interest rates. Use of these hedging instruments may include counter-party credit risk. The scope of risk management activities we undertake varies based on the level of interest rates, prevailing foreign currency exchange rates, the types of investments that are made and other changing market conditions. To the extent we have non-U.S. investments, particularly investments denominated in non-U.S. currencies, our hedging costs will increase.
Hedging against a decline in the values of our portfolio positions would not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions were to decline. However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions may also limit the opportunity for gain if the values of the underlying portfolio positions were to increase. It also may not be possible to hedge against an exchange rate or interest rate fluctuation that is so generally anticipated that we are not able to enter into a hedging transaction at an acceptable price.
The success of our hedging strategy, if any, will depend on our ability to correctly identify appropriate exposures for hedging. Unanticipated changes in currency exchange rates or other exposures that we might hedge may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged may vary, as may the time period in which the hedge is effective relative to the time period of the related exposure. Also, where a put or call option on a particular security is purchased to hedge against price movements in a related security, the price of the put or call option may move more or less than the price of the related security. If restrictions on exercise were imposed, we might be unable to exercise an option we had purchased. If we were unable to close out an option that we had purchased on a security, it would have to exercise the option in order to realize any profit or the option may expire worthless.
For a variety of reasons, we may not seek to (or be able to) establish a perfect correlation between such hedging instruments and the positions being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss. In addition, it may not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities is likely to fluctuate as a result of factors not related to currency fluctuations. Income derived from hedging transactions also is not eligible to be distributed to non-U.S. stockholders free from withholding taxes. Changes to the regulations applicable to the financial instruments we use to accomplish our hedging strategy could affect the effectiveness of that strategy. See “-The market structure applicable to derivatives imposed by the Dodd-Frank Act, the U.S. Commodity Futures Trading Commission (“CFTC”) and the SEC may affect our ability to use over-the-counter (“OTC”) derivatives for hedging purposes” and “We are, and will continue to be, exposed to risks associated with changes in interest rates.”
The market structure applicable to derivatives imposed by the Dodd-Frank Act, the U.S. Commodity Futures Trading Commission (“CFTC”) and the SEC may affect our ability to use over-the-counter (“OTC”) derivatives for hedging purposes.
The Dodd-Frank Act and the CFTC enacted and the SEC has issued rules to implement broad new regulatory and structural requirements applicable to OTC derivatives markets and, to a lesser extent, listed commodity futures (and futures options) markets. Similar changes are in the process of being implemented in other major financial markets.
The CFTC and the SEC have issued final rules establishing that certain swap transactions are subject to CFTC regulation. Engaging in such swap or other commodity interest transactions such as futures contracts or options on futures contracts may cause us to fall within the definition of “commodity pool” under the Commodity Exchange Act and related CFTC regulations. Our Adviser has claimed relief from CFTC registration and regulation as a commodity pool operator with respect to our operations, with the result that we are limited in our ability to use futures contracts or options on futures contracts or engage in swap transactions. Specifically, we are subject to strict limitations on using such derivatives other than for hedging purposes, whereby the use of derivatives not used solely for hedging purposes is generally limited to situations where (i) the aggregate initial margin and premiums required to establish such positions does not exceed five percent of the liquidation value of our portfolio, after taking into account unrealized profits and unrealized losses on any such contracts we have entered into; or (ii) the aggregate net notional value of such derivatives does not exceed 100% of the liquidation value of our portfolio.
The Dodd-Frank Act also imposed requirements relating to real-time public and regulatory reporting of OTC derivative transactions, enhanced documentation requirements, position limits on an expanded array of derivatives, and recordkeeping requirements. Taken as a whole, these changes could significantly increase the cost of using uncleared OTC derivatives to hedge risks, including interest rate and foreign exchange risk; reduce the level of exposure we are able to obtain for risk management purposes through OTC derivatives (including as the result of the CFTC imposing position limits on additional products); reduce the amounts available to us to make non-derivatives investments; impair liquidity in certain OTC derivatives; and adversely affect the quality of execution pricing obtained by us, all of which could adversely impact our investment returns.
Our ability to enter into transactions involving derivatives and financial commitment transactions may be limited.
Rule 18f-4 requires a BDC (or a registered investment company) that uses derivatives to, among other things, comply with a value-at-risk leverage limit, adopt a derivatives risk management program and implement certain testing and board reporting requirements. Rule 18f-4 exempts BDCs that qualify as “limited derivatives users” from the aforementioned requirements, provided that these BDCs adopt written policies and procedures that are reasonably designed to manage the BDC’s derivatives risks and comply with certain recordkeeping requirements. Under Rule 18f-4, a BDC may enter into an unfunded commitment agreement that is not a derivatives transaction, such as an agreement to provide financing to a portfolio company, if the BDC has, among other things, a reasonable belief, at the time it enters into such an agreement, that it will have sufficient cash and cash equivalents to meet its obligations with respect to all of its unfunded commitment agreements, in each case as it becomes due. Collectively, these requirements may limit our ability to use derivatives and/or enter into certain other financial contracts.
We may enter into total return swaps that would expose us to certain risks, including market risk, liquidity risk and other risks similar to those associated with the use of leverage.
A total return swap is a contract in which one party agrees to make periodic payments to another party based on the change in the market value of the assets underlying the total return swap, which may include a specified security or loan, basket of securities or loans or securities or loan indices during the specified period, in return for periodic payments based on a fixed or variable interest rate. A total return swap is typically used to obtain exposure to a security, loan or market without owning or taking physical custody of such security or loan or investing directly in such market. A total return swap may effectively add leverage to our portfolio because, in addition to our total net assets, we would be subject to investment exposure on the amount of securities or loans subject to the total return swap. A total return swap is also subject to the risk that a counterparty will default on its payment obligations thereunder or that we will not be able to meet our obligations to the counterparty. In addition, because a total return swap is a form of synthetic leverage, such arrangements are subject to risks similar to those associated with the use of leverage.
Our portfolio may be focused on a limited number of portfolio companies or industries, which will subject us to a risk of significant loss if any of these companies defaults on its obligations under any of its debt instruments or if there is a downturn in a particular industry.
Beyond the asset diversification requirements associated with our qualification as a RIC for U.S. federal income tax purposes, we do not have fixed guidelines for diversification. While we are not targeting any specific industries, our investments may be focused on relatively few industries. As a result, the aggregate returns we realize may be significantly adversely affected if a small number of investments perform poorly or if we need to write down the value of any one investment. Additionally, a downturn in any particular industry in which we are invested could significantly affect our aggregate returns. Further, any industry in which we are meaningfully concentrated at any given time could be subject to significant risks that could adversely impact our aggregate returns. For example, as of December 31, 2023, our investments in internet software and services represented 11.5% of our portfolio at fair value. Our investments in internet software and services are subject to substantial risks, including, but not limited to, intense competition, changing technology, shifting user needs, frequent introductions of new products and services, competitors in different industries and
ranging from large established companies to emerging startups, decreasing average selling prices of products and services resulting from rapid technological changes, cybersecurity risks and cyber incidents and various legal and regulatory risks.
We cannot guarantee that we will be able to obtain various required licenses in U.S. states or in any other jurisdiction where they may be required in the future.
We are required to have and may be required in the future to obtain various state licenses to, among other things, originate commercial loans, and may be required to obtain similar licenses from other authorities, including outside of the United States, in the future in connection with one or more investments. Applying for and obtaining required licenses can be costly and take several months. We cannot assure you that we will maintain or obtain all of the licenses that we need on a timely basis. We also are and will be subject to various information and other requirements to maintain and obtain these licenses, and we cannot assure you that we will satisfy those requirements. Our failure to maintain or obtain licenses that we require, now or in the future, might restrict investment options and have other adverse consequences.
An investment strategy focused primarily on privately held companies presents certain challenges, including the lack of available information about these companies.
We invest primarily in privately held companies. Investments in private companies pose certain incremental risks as compared to investments in public companies including that they:
•have reduced access to the capital markets, resulting in diminished capital resources and ability to withstand financial distress;
•may have limited financial resources and may be unable to meet their obligations under their debt obligations that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of our realizing any guarantees we may have obtained in connection with our investment;
•may have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and changing market conditions, as well as general economic downturns;
•are more likely to depend on the management talents and efforts of a small group of persons and, therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on the company and, in turn, on us; and
•generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position.
In addition, investments in private companies tend to be less liquid. The securities of private companies are not publicly traded or actively traded on the secondary market and are, instead, traded on a privately negotiated over-the-counter secondary market for institutional investors. These over-the-counter secondary markets may be inactive during an economic downturn or a credit crisis and in any event often have lower volumes than publicly traded securities even in normal market conditions. In addition, the securities in these companies will be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities.
If there is no readily available market for these investments, we are required to carry these investments at fair value as determined by our Board. As a result, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded these investments. We may also face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we, our Adviser or any of its affiliates have material nonpublic information regarding such portfolio company or where the sale would be an impermissible joint transaction under the 1940 Act. The reduced liquidity of our investments may make it difficult for us to dispose of them at a favorable price, and, as a result, we may suffer losses.
Finally, little public information generally exists about private companies and these companies may not have third-party credit ratings or audited financial statements. We must therefore rely on the ability of our Adviser to obtain adequate information through due diligence to evaluate the creditworthiness and potential returns from investing in these companies, and to monitor the activities and performance of these investments. To the extent that we (or other clients of our Adviser) may hold a larger number of investments, greater demands will be placed on our Adviser’s time, resources and personnel in monitoring such investments, which may result in less attention being paid to any individual investment and greater risk that our investment decisions may not be fully informed. Additionally, these companies and their financial information will not generally be subject to the Sarbanes-Oxley Act of 2002 and other rules that govern public companies. If we are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose money on our investments.
Certain investment analyses and decisions by our Adviser may be required to be undertaken on an expedited basis.
Investment analyses and decisions by our Adviser may be required to be undertaken on an expedited basis to take advantage of certain investment opportunities. While we generally will not seek to make an investment until our Adviser has conducted sufficient due diligence to make a determination as to the acceptability of the credit quality of the investment and the underlying issuer, in such cases, the information available to our Adviser at the time of making an investment decision may be limited. Therefore, no assurance
can be given that our Adviser will have knowledge of all circumstances that may adversely affect an investment. In addition, our Adviser may rely upon independent consultants and others in connection with its evaluation of proposed investments. No assurance can be given as to the accuracy or completeness of the information provided by such independent consultants and we may incur liability as a result of such consultants’ actions, many of whom we will have limited recourse against in the event of any such inaccuracies.
We may not have the funds or ability to make additional investments in our portfolio companies.
After our initial investment in a portfolio company, we may be called upon from time to time to provide additional funds to such company or have the opportunity to increase our investment through the exercise of a warrant or other right to purchase common stock. There is no assurance that we will make, or will have sufficient funds to make, follow-on investments. Even if we do have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to increase our level of risk, we prefer other opportunities, we are limited in our ability to do so by compliance with BDC requirements, or in order to maintain our RIC status. Our ability to make follow-on investments may also be limited by our Adviser’s allocation policies. Any decision not to make a follow-on investment or any inability on our part to make such an investment may have a negative impact on a portfolio company in need of such an investment, may result in a missed opportunity for us to increase our participation in a successful investment or may reduce the expected return to us on the investment.
We are subject to certain risks as a result of our interests in the CLO Preferred Shares.
Under the terms of the loan sale agreements entered into in connection with our debt securitization transactions with respect to the CLOs (collectively, the “CLO Transactions”), we and one of ORCC Financing and OR Lending II sold and/or contributed to the Delaware limited liability company, in connection with the particular CLO Transaction, as applicable (the “CLO Issuers”), all of the ownership interest in the portfolio loans and participations held by the CLO Issuers on the closing date for the CLO Transaction for the purchase price and other consideration set forth in such loan sale agreements. As a result of the CLO Transactions, we hold all of the preferred shares issued by the CLO Issuers (collectively, the “CLO Preferred Shares”), which comprise 100% of the equity interests in the CLO Issuers. In the case of CLO XII, we own the equity interests of the CLO Issuers (i.e., the CLO Preferred Shares). As a result, we expect to consolidate the financial statements of the CLO Issuers in our consolidated financial statements. However, once sold or contributed to a CLO, the underlying loans and participation interests have been securitized and are no longer our direct investment, and the risk return profile has been altered. In general, rather than holding interests in the underlying loans and participation interests, the CLO Transactions resulted in us holding equity interests in the CLO Issuers, with the CLO Issuers holding the underlying loans. As a result, we are subject both to the risks and benefits associated with the Preferred Shares and, indirectly, the risks and benefits associated with the underlying loans and participation interests held by the CLO Issuers. In addition, our ability to sell, amend or otherwise modify an underlying loan held by a CLO Issuer is subject to certain conditions and restrictions under the applicable CLO Transactions, which may prevent us from taking actions that we would take if we held such underlying loan directly.
The subordination of the CLO Preferred Shares will affect our right to payment.
The respective CLO Preferred Shares are subordinated to the notes issued and amounts borrowed by the CLO Issuers and CLO Co-Issuers, as applicable (collectively, the “CLO Debt”), respectively, and certain fees and expenses. If an overcollateralization test or an interest coverage test is not satisfied as of a determination date, the proceeds from the underlying loans otherwise payable to a CLO Issuer (which such CLO Issuer could have distributed with respect to the CLO Preferred Shares of such CLO Issuer) will be diverted to the payment of principal on the CLO Debt of such CLO Issuer. See “-The CLO Indentures require mandatory redemption of the respective CLO Debt for failure to satisfy coverage tests, which would reduce the amounts available for distribution to us.”
On the scheduled maturity of the CLO Debt of a CLO Issuer or if such CLO Debt is accelerated after an event of default, proceeds available after the payment of certain administrative expenses will be applied to pay both principal of and interest on the such CLO Debt until such CLO Debt is paid in full before any further payment will be made on the CLO Preferred Shares of such CLO Issuer. As a result, such CLO Preferred Shares would not receive any payments until such CLO Debt is paid in full and under certain circumstances may not receive payments at any time.
In addition, if an event of default occurs and is continuing with respect to the CLO Debt of a CLO Issuer, the holders of such CLO Debt will be entitled to determine the remedies to be exercised under the indenture pursuant to which such CLO Debt was issued (each a “CLO Indenture” and collectively, the “CLO Indentures”). Remedies pursued by the holders of CLO Debt could be adverse to our interests as the holder of CLO Preferred Shares, and the holders of CLO Debt will have no obligation to consider any possible adverse effect on such our interest or the interest of any other person. See “ -The holders of certain CLO Debt will control many rights under the CLO Indentures and therefore, we will have limited rights in connection with an event of default or distributions thereunder.”
The CLO Preferred Shares represent leveraged investments in the underlying loan portfolio of the applicable CLO Issuer, which is a speculative investment technique that increases the risk to us as the owner of the CLO Preferred Shares. As the junior interest in a leveraged capital structure, the CLO Preferred Shares will bear the primary risk of deterioration in the performance of the applicable CLO Issuer and its portfolio of underlying loans.
The holders of certain CLO Debt will control many rights under the CLO Indentures and therefore, we will have limited rights in connection with an event of default or distributions thereunder.
Under each CLO Indenture, as long as any CLO Debt of the applicable CLO Issuer is outstanding, the holders of the senior-most outstanding class of such CLO Debt will have the right to direct the trustee or the applicable CLO Issuer to take certain actions under the applicable CLO Indenture. For example, these holders will have the right, following an event of default, to direct certain actions and control certain decisions, including the right to accelerate the maturity of applicable CLO Debt and, under certain circumstances, the liquidation of the collateral. Remedies pursued by such holders upon an event of default could be adverse to our interests.
Although we, as the holder of the CLO Preferred Shares, will have the right, subject to the conditions set forth in the CLO Indentures, to purchase assets in any liquidation of assets by the collateral trustee, if an event of default has occurred and is continuing, we will not have any creditors’ rights against the applicable CLO Issuer and will not have the right to determine the remedies to be exercised under the applicable CLO Indenture. There is no guarantee that any funds will remain to make distributions to us as the holder of the CLO Preferred Shares following any liquidation of assets and the application of the proceeds from such assets to pay the applicable CLO Debt and the fees, expenses, and other liabilities payable by the applicable CLO Issuer.
The CLO Indentures require mandatory redemption of the respective CLO Debt for failure to satisfy coverage tests, which would reduce the amounts available for distribution to us.
Under the CLO Indentures governing the CLO Transactions, there are two coverage tests applicable to CLO Debt. These tests apply to each CLO Transaction separately. The first such test, the interest coverage test, compares the amount of interest proceeds received and, other than in the case of defaulted loans, scheduled to be received on the underlying loans held by each CLO Issuer to the amount of interest due and payable on the CLO Debt of such CLO Issuer and the amount of fees and expenses senior to the payment of such interest in the priority of distribution of interest proceeds. To satisfy this test interest received on the portfolio loans held by such CLO Issuer must equal at least 120% of the amount equal to the interest payable on the CLO Debt of such CLO Issuer for Class A/B in CLO XIII, plus the senior fees and expenses. The second such test, the overcollateralization test, compares the adjusted collateral principal amount of the portfolio of underlying loans of each CLO Issuer to the aggregate outstanding principal amount of the CLO Debt of such CLO Issuer. To satisfy this second test at any time, this adjusted collateral principal amount for CLO XIII must equal at least 138.80% for Class A/B. In this test, certain reductions are applied to the principal balance of underlying loans in connection with certain events, such as defaults or ratings downgrades to “CCC” levels or below with respect to the loans held by each CLO Issuer. These adjustments increase the likelihood that this test is not satisfied. If either coverage test with respect to a CLO Transaction is not satisfied on any determination date on which such test is applicable, the applicable CLO Issuer must apply available amounts to redeem its CLO Debt in an amount necessary to cause such test to be satisfied. This would reduce or eliminate the amounts otherwise available to make distributions to us as the holder of the CLO Preferred Shares of such CLO Issuer.
Our investments in portfolio companies may expose us to environmental risks.
We may invest in portfolio companies that are subject to changing and increasingly stringent environmental and health and safety laws, regulations and permit requirements and environmental costs that could place increasing financial burdens on such portfolio entities. Required expenditures for environmental compliance may adversely impact investment returns on portfolio companies. The imposition of new environmental and other laws, regulations and initiatives could adversely affect the business operations and financial stability of such portfolio companies.
There can be no guarantee that all costs and risks regarding compliance with environmental laws and regulations can be identified. New and more stringent environmental and health and safety laws, regulations and permit requirements or stricter interpretations of current laws or regulations could impose substantial additional costs on our portfolio companies. Compliance with such current or future environmental requirements does not ensure that the operations of the portfolio companies will not cause injury to the environment or to people under all circumstances or that the portfolio companies will not be required to incur additional unforeseen environmental expenditures. Moreover, failure to comply with any such requirements could have a material adverse effect on a portfolio company, and we can offer no assurance that any such portfolio companies will at all times comply with all applicable environmental laws, regulations and permit requirements.
Climate change and climate-related effects may expose us to systemic, global, macroeconomic risks and could adversely affect our business and the businesses of our products’ portfolio companies.
Global climate change is widely considered to be a significant threat to the global economy. We and the companies in which we invest may face risks associated with climate change, including physical risks such as an increased frequency or severity of extreme weather events and rising sea levels and temperatures. In addition, climate change may also impact our profitability and costs, as well as pose systemic risks for our businesses and those of the companies in which we invest. For example, to the extent weather conditions are affected by climate change, energy use by us or the companies in which we invest could increase or decrease depending on the duration and magnitude of any changes. Increases in the cost of energy could adversely affect the cost of operations of us or the companies in which we invest. On the other hand, a decrease in energy use due to weather changes may affect the financial condition
of some of the companies in which we invest through decreased revenues. Additionally, extreme weather conditions in general require more system backup, adding to costs, and can contribute to increased system stresses, including service interruptions.
Further, the current U.S. presidential administration has focused on climate change policies and has re-joined the Paris Agreement, which includes commitments from countries to reduce their greenhouse gas emissions, among other commitments. The Paris Agreement and other regulatory and voluntary initiatives launched by international, federal, state, and regional policymakers and regulatory authorities as well as private actors seeking to reduce greenhouse gas emissions may expose our business operations, products and products’ portfolio companies to other types of transition risks, such as: (i) political and policy risks, (including changing regulatory incentives, and legal requirements, including with respect to greenhouse gas emissions, that could result in increased costs or changes in business operations), (ii) regulatory and litigation risks, (including changing legal requirements that could result in increased permitting, tax and compliance costs, changes in business operations, or the discontinuance of certain operations, and litigation seeking monetary or injunctive relief related to impacts related to climate change), (iii) technology and market risks, (including declining market for investments in industries seen as greenhouse gas intensive or less effective than alternatives in reducing greenhouse gas emissions), (iv) business trend risks, (including the increased attention to ESG considerations by our investors, including in connection with their determination of whether to invest), and (v) potential harm to our reputation if our shareholders believe that we are not adequately or appropriately responding to climate change and/or climate risk management, including through the way in which we operate our business, the composition of portfolio, our new investments or the decisions we make to continue to conduct or change our activities in response to climate change considerations.
Risks Related to an Investment in Our Common Stock
Our shares are not listed on an exchange or quoted through a quotation system and may not be listed for the foreseeable future, if ever. Therefore, our shareholders will have limited liquidity and may not receive a full return of invested capital (including front-end commissions, fees and expenses), upon selling their shares or upon liquidation of our company.
Our shares are illiquid investments for which there is not a secondary market nor is it expected that any such secondary market will develop in the future. We intend to contemplate a liquidity event for our shareholders within three to four years after the completion of our continuous offering. A future liquidity event could include: (i) a listing of our shares on a national securities exchange; (ii) a merger or another transaction approved by our Board in which our shareholders will receive cash or shares of a listed company; or (iii) a sale of all or substantially all of our assets either on a complete portfolio basis or individually followed by a liquidation. Certain types of liquidity events, such as a listing, would allow us to retain our investment portfolio while providing our shareholders with access to a trading market for their securities.
We do not know at this time what circumstances will exist in the future and therefore we do not know what factors our Board will consider in determining whether to pursue a liquidity event in the future. A liquidity event may include a sale, merger or rollover transaction with one or more affiliated investment companies managed by our Adviser or a listing with either an internal or external management structure.
Also, since a portion of the public offering price from the sale of shares in our offering will be used to pay offering expenses and recurring expenses, the full offering price paid by our shareholders was not invested in portfolio companies. As a result, even if we do complete a liquidity event, you may not receive a return of all of your invested capital. If we do not successfully complete a liquidity event, liquidity for your shares will be limited to participation in our share repurchase program, which may not be for a sufficient number of shares to meet your request and which we have no obligation to maintain. In addition, any shares repurchased pursuant to our share repurchase program may be purchased at a price which may reflect a discount from the purchase price shareholders paid for the shares being repurchased. See “Share Repurchase Program” for a detailed description of the share repurchase program.
If our shares are listed on a national securities exchange or quoted through a quotation system, we cannot assure you a public trading market will develop or, if one develops, that such trading market can be sustained. Shares of companies offered in an initial public offering often trade at a discount to the initial offering price due to underwriting discounts and related offering expenses. Also, shares of closed-end investment companies and BDCs frequently trade at a discount from their net asset value. This characteristic of closed-end investment companies is separate and distinct from the risk that our net asset value per share of common stock may decline. We cannot predict whether our common stock, if listed on a national securities exchange, will trade at, above or below net asset value.
We intend, but are not required, to offer to repurchase shareholders’ shares on a quarterly basis. As a result, shareholders will have limited opportunities to sell their shares.
In the third quarter of 2017, we began offering, and on a quarterly basis, intend to continue offering, to repurchase shares of our common stock on such terms as may be determined by our Board in its complete discretion. Our Board has complete discretion to determine whether we will engage in any share repurchase, and if so, the terms of such repurchase. At the discretion of our Board, we may use cash on hand, cash available from borrowings, and cash from the sale of our investments as of the end of the applicable period to repurchase shares. We have not established limits on the amount of funds we may use from any available sources to repurchase shares; however, we will not borrow funds for the purpose of repurchasing shares if the amount of such repurchases would
exceed our accrued and received Net Revenues for the previous four quarters. Economic events affecting the U.S. economy, such as volatility in the financial markets, inflation, higher interest rates or global or national events that are beyond our control, could cause an increased number of shares to be put to us for repurchase. To the extent that the number of shares put to us for repurchase exceeds the number of shares that we are able to purchase, we will repurchase shares on a pro rata basis, not on a first-come, first-serve basis. Further, we will have no obligation to repurchase shares if the repurchase would violate the restrictions on distributions under federal law or Maryland law. These limits may prevent us from accommodating all repurchase requests made in any quarter.
All shares purchased by us pursuant to the terms of each offer to repurchase will be retired and thereafter will be authorized and unissued shares.
Any periodic repurchase offers are subject in part to our available cash and compliance with the BDC and RIC qualification and diversification rules promulgated under the 1940 Act and the Code, respectively. While we intend to continue to conduct quarterly tender offers as described above, we are not required to do so and may suspend or terminate the share repurchase program at any time.
The timing of our repurchase offers pursuant to our share repurchase program may be at a time that is disadvantageous to our shareholders, and, to the extent shareholders are able to sell their shares under the program, they may not be able to recover the amount of their investment in our shares.
When we make repurchase offers pursuant to the share repurchase program, we may offer to repurchase shares at a price that is lower than the price that shareholders paid for our shares. As a result, to the extent shareholders paid a price that includes the related sales load and to the extent shareholders have the ability to sell their shares pursuant to our share repurchase program, the price at which they may sell shares, which will be the current net offering price per share in effect on each date of repurchase, may be lower than the amount they paid in connection with the purchase of shares in this offering.
A shareholder’s interest in us will be diluted if we issue additional shares, which could reduce the overall value of an investment in us.
Our shareholders do not have preemptive rights to purchase any shares we issue in the future. Our charter authorizes us to issue up to 450 million shares of common stock. Pursuant to our charter, a majority of our entire Board may amend our charter to increase the number of shares of common stock we may issue without shareholder approval. Our Board may elect to sell additional shares in the future or issue equity interests in private offerings. To the extent we issue additional equity interests at or below net asset value, your percentage ownership interest in us may be diluted. In addition, depending upon the terms and pricing of any additional offerings and the value of our investments, you may also experience dilution in the book value and fair value of your shares.
Under the 1940 Act, we generally are prohibited from issuing or selling our common stock at a price below net asset value per share, which may be a disadvantage as compared with certain public companies. We may, however, sell our common stock, or warrants, options, or rights to acquire our common stock, at a price below the current net asset value of our common stock if our Board and independent directors determine that such sale is in our best interests and the best interests of our shareholders, and our shareholders, including a majority of those shareholders that are not affiliated with us, approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our Board, closely approximates the fair value of such securities (less any distributing commission or discount). If we raise additional funds by issuing common stock or senior securities convertible into, or exchangeable for, our common stock, then the percentage ownership of our shareholders at that time will decrease and you will experience dilution.
Certain provisions of our charter and actions of our Board could deter takeover attempts and have an adverse impact on the value of shares of our common stock.
Our charter, as well as certain statutory and regulatory requirements, contain certain provisions that may have the effect of discouraging a third party from attempting to acquire us. Our Board is divided into three classes of directors serving staggered three-year terms, which could prevent shareholders from removing a majority of directors in any given election. Our Board may, without shareholder action, authorize the issuance of shares in one or more classes or series, including shares of preferred stock; and our Board may, without shareholder action, amend our charter to increase the number of shares of our common stock, of any class or series, that we will have authority to issue. These anti-takeover provisions may inhibit a change of control in circumstances that could give the holders of shares of our common stock the opportunity to realize a premium over the value of shares of our common stock.
Investing in our securities involves a high degree of risk.
The investments we make in accordance with our investment objective may result in a higher amount of risk than alternative investment options, including volatility or loss of principal. Our investments in portfolio companies may be highly speculative and aggressive and, therefore, an investment in our common stock may not be suitable for someone with lower risk tolerance.
The net asset value of our common stock may fluctuate significantly.
The net asset value and liquidity, if any, of the market for shares of our common stock may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include:
•changes in the value of our portfolio of investments and derivative instruments as a result of changes in market factors, such as interest rate shifts, and also portfolio specific performance, such as portfolio company defaults, among other reasons;
•changes in regulatory policies or tax guidelines, particularly with respect to RICs or BDCs;
•loss of RIC tax treatment or BDC status;
•distributions that exceed our net investment income and net income as reported according to U.S. GAAP;
•changes in earnings or variations in operating results;
•changes in accounting guidelines governing valuation of our investments;
•any shortfall in revenue or net income or any increase in losses from levels expected by investors;
•departure of our Adviser or certain of its key personnel;
•general economic trends and other external factors; and
•loss of a major funding source.
We may experience fluctuations in our quarterly results.
We could experience fluctuations in our quarterly operating results due to a number of factors, including our ability or inability to make investments in companies that meet our investment criteria, the interest rate payable on the loans or other debt securities we originate or acquire, the level of our expenses (including our borrowing costs), variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any previous period should not be relied upon as being indicative of performance in future periods or the full fiscal year.
The amount of any distributions we may make on our common stock is uncertain. We may not be able to pay distributions to shareholders, or be able to sustain distributions at any particular level, and our distributions per share, if any, may not grow over time, and our distributions per share may be reduced. We have not established any limits on the extent to which we may use borrowings, if any, and we may use sources other than cash flows from operations to fund distributions (which may reduce the amount of capital we ultimately invest in portfolio companies).
Subject to our Board’s discretion and applicable legal restrictions, we intend to authorize and declare cash distributions on a monthly or quarterly basis and pay such distributions on a monthly or quarterly basis. We expect to pay distributions out of assets legally available for distribution. However, we cannot assure you that we will achieve investment results that will allow us to make a consistent targeted level of cash distributions or year-to-year increases in cash distributions. Our ability to pay distributions might be adversely affected by the impact of the risks described herein. In addition, the inability to satisfy the asset coverage test applicable to us as a BDC under the 1940 Act can limit our ability to pay distributions. Distributions from offering proceeds also could reduce the amount of capital we ultimately invest in debt or equity securities of portfolio companies. We cannot assure you that we will pay distributions to our shareholders in the future.
Distributions on our common stock may exceed our taxable earnings and profits. Therefore, portions of the distributions that we pay may represent a return of capital to you. A return of capital is a return of a portion of your original investment in shares of our common stock. As a result, a return of capital will (i) lower your tax basis in your shares and thereby increase the amount of capital gain (or decrease the amount of capital loss) realized upon a subsequent sale or redemption of such shares, and (ii) reduce the amount of funds we have for investment in portfolio companies. We have not established any limit on the extent to which we may use offering proceeds to fund distributions.
We may pay our distributions from offering proceeds in anticipation of future cash flow, which may constitute a return of your capital and will lower your tax basis in your shares, thereby increasing the amount of capital gain (or decreasing the amount of capital loss) realized upon a subsequent sale or redemption of such shares, even if such shares have not increased in value or have, in fact, lost value. Distributions from offering proceeds also could reduce the amount of capital we ultimately have available to invest in portfolio companies.
Our distributions to shareholders may be funded from expense reimbursements or waivers of investment advisory fees that are subject to repayment pursuant to our Expense Support Agreement.
Prior to its termination, substantial portions of our distributions were funded through the reimbursement of certain expenses by our Adviser and its affiliates, including through the waiver of certain investment advisory fees by our Adviser, that are subject to repayment by us within three years. Any such distributions funded through expense reimbursements or waivers of advisory fees will not be based on our investment performance, and can only be sustained if we achieve positive investment performance in future periods and/or our Adviser and its affiliates continue to make such reimbursements or waivers of such fees. Our future repayments of amounts reimbursed or waived by our Adviser or its affiliates will reduce the distributions that shareholders would otherwise receive
in the future. There can be no assurance that we will achieve the performance necessary to be able to pay distributions at a specific rate or at all. Our Adviser and its affiliates have no obligation to waive advisory fees or otherwise reimburse expenses in future periods.
Shareholders will experience dilution in their ownership percentage if they do not participate in our distribution reinvestment plan and may experience dilution in the net asset value of their shares if they do not participate in our distribution reinvestment plan and if our shares are trading at a discount to net asset value
All distributions declared in cash payable to shareholders that are participants in our distribution reinvestment plan will generally be automatically reinvested in shares of our common stock unless the investor opts out of the plan. As a result, shareholders that do not elect to participate in our distribution reinvestment plan will experience dilution over time. Shareholders who do not elect to participate in our distribution reinvestment plan may experience accretion to the net asset value of their shares if our shares are trading at a premium to net asset value and dilution if our shares are trading at a discount to net asset value. The level of accretion or discount would depend on various factors, including the proportion of our shareholders who participate in the plan, the level of premium or discount at which our shares are trading and the amount of the distribution payable to shareholders.
The existence of a large number of outstanding shares and shareholders prior to completion of the listing of our securities on a national securities exchange could negatively affect our stock price.
The ability of our shareholders to liquidate their investments will be limited. If we were to list our common stock on a securities exchange in the future, a large volume of sales of these shares could decrease the prevailing market prices of our common stock and could impair our ability to raise additional capital through the sale of equity securities in the future. Even if a substantial number of shares are not affected, the mere perception of the possibility of these sales could depress the market price of our common stock and have a negative effect on our ability to raise capital in the future. In addition, anticipated downward pressure on our common stock price due to actual or anticipated sales of common stock from this market overhang could cause some institutions or individuals to engage in short sales of our common stock, which may itself cause the price of our stock to decline.
Preferred stock could be issued with rights and preferences that would adversely affect holders of our common stock.
Under the terms of our charter, our Board is authorized to issue shares of preferred stock in one or more series without shareholder approval, which could potentially adversely affect the interests of existing shareholders. In particular, holders of preferred stock are required to have certain voting rights when there are unpaid dividends and priority over other classes of securities as to distribution of assets or payment of dividends.
If we issue preferred stock or convertible debt securities, the net asset value of our common stock may become more volatile.
We cannot assure you that the issuance of preferred stock and/or convertible debt securities would result in a higher yield or return to the holders of our common stock. The issuance of preferred stock or convertible debt would likely cause the net asset value of our common stock to become more volatile. If the dividend rate on the preferred stock, or the interest rate on the convertible debt securities, were to approach the net rate of return on our investment portfolio, the benefit of such leverage to the holders of our common stock would be reduced. If the dividend rate on the preferred stock, or the interest rate on the debt securities, were to exceed the net rate of return on our portfolio, the use of leverage would result in a lower rate of return to the holders of common stock than if we had not issued the preferred stock or convertible debt securities. Any decline in the net asset value of our investment would be borne entirely by the holders of our common stock. Therefore, if the market value of our portfolio were to decline, the leverage would result in a greater decrease in net asset value to the holders of our common stock than if we were not leveraged through the issuance of preferred stock or debt securities. This decline in net asset value would also tend to cause a greater decline in the market price, if any, for our common stock.
There is also a risk that, in the event of a sharp decline in the value of our net assets, we would be in danger of failing to maintain required asset coverage ratios, which may be required by the preferred stock or convertible debt, or our current investment income might not be sufficient to meet the dividend requirements on the preferred stock or the interest payments on the debt securities. In order to counteract such an event, we might need to liquidate investments in order to fund the redemption of some or all of the preferred stock or convertible debt. In addition, we would pay (and the holders of our common stock would bear) all costs and expenses relating to the issuance and ongoing maintenance of the preferred stock, convertible debt, or any combination of these securities. Holders of preferred stock or convertible debt may have different interests than holders of common stock and may at times have disproportionate influence over our affairs.
Holders of any preferred stock that we may issue will have the right to elect certain members of the Board and have class voting rights on certain matters.
The 1940 Act requires that holders of shares of preferred stock must be entitled as a class to elect two directors at all times and to elect a majority of the directors if dividends on such preferred stock are in arrears by two years or more, until such arrearage is eliminated. In addition, certain matters under the 1940 Act require the separate vote of the holders of any issued and outstanding preferred stock, including changes in fundamental investment restrictions and conversion to open end status and, accordingly, preferred shareholders could veto any such changes. Restrictions imposed on the declarations and payment of dividends or other
distributions to the holders of our common stock and preferred stock, both by the 1940 Act and by requirements imposed by rating agencies, might impair our ability to maintain our tax treatment as a RIC for U.S. federal income tax purposes.
Risks Related to an Investment in our Unsecured Notes
Our unsecured notes are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future.
We have issued notes that are unsecured by any of our assets or any of the assets of our subsidiaries. As a result, these unsecured notes are effectively subordinated, or junior, to any secured indebtedness or other obligations we or our subsidiaries have currently incurred and may incur in the future (or any indebtedness that is initially unsecured that we later secure) to the extent of the value of the assets securing such indebtedness. Substantially all of our subsidiaries’ assets are currently pledged as collateral under our credit facilities . In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of the unsecured notes. Secured indebtedness is effectively senior to our unsecured notes to the extent of the value of the assets securing such indebtedness.
Our unsecured notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.
The unsecured notes are exclusively our obligations and not of any of our subsidiaries. None of our subsidiaries are a guarantor of the unsecured notes and the unsecured notes are not required to be guaranteed by any subsidiaries we may acquire or create in the future. Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors (including trade creditors) and holders of preferred stock, if any, of our subsidiaries will have priority over our equity interests in such subsidiaries (and therefore the claims of our creditors, including holders of the unsecured notes) with respect to the assets of such subsidiaries. Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still be effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims. Consequently, the unsecured notes will be structurally subordinated, or junior, to our SPV Asset Facilities all existing and future indebtedness and other obligations (including trade payables) incurred by any of our subsidiaries, financing vehicles or similar facilities and any subsidiaries, financing vehicles or similar facilities that we may in the future acquire or establish. Our subsidiaries may incur indebtedness in the future, all of which would be structurally senior to the unsecured notes.
A downgrade, suspension or withdrawal of the credit rating assigned by a rating agency to us or our notes, if any, or change in the debt markets, could cause the liquidity or market value of our notes to decline significantly.
Our credit ratings are an assessment by rating agencies of our ability to pay our debts when due. Consequently, real or anticipated changes in our credit ratings will generally affect the market value of our notes. These credit ratings may not reflect the potential impact of risks relating to the structure or marketing of our notes. Credit ratings are not a recommendation to buy, sell or hold any security, and may be revised or withdrawn at any time by the issuing organization in its sole discretion.
An increase in market interest rates could result in a decrease in the market value of our unsecured notes.
The condition of the financial markets and prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future, which could have an adverse effect on the market prices of our unsecured notes. In general, as market interest rates rise, debt securities bearing interest at fixed rates of interest decline in value. We cannot predict the future level of market interest rates.
The indenture under which the unsecured notes were issued contains limited protection for holders of our unsecured notes.
The indenture offers limited protection to holders of our unsecured notes. The terms of the indenture and the unsecured notes do not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have an adverse impact on your investment in the unsecured notes. In particular, the terms of the indenture and the unsecured notes will not place any restrictions on our or our subsidiaries’ ability to:
• issue securities or otherwise incur additional indebtedness or other obligations other than an incurrence of indebtedness or other obligations that would cause a violation of Section 18(a)(1)(A) as modified by Section 61(a) of the 1940 Act or any successor provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to us by the SEC. Currently, these provisions generally prohibit us from incurring additional borrowings, including through the issuance of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 150% after such borrowings;
• pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the unsecured notes;
• sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets);
• create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions;
• enter into transactions with affiliates;
• make investments; or
• create restrictions on the payment of dividends or other amounts to us from our subsidiaries.
Furthermore, the terms of the indenture and the unsecured notes do not protect holders of the unsecured notes in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow or liquidity.
Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the unsecured notes may have important consequences for you as a holder of the unsecured notes, including making it more difficult for us to satisfy our obligations with respect to the unsecured notes or negatively affecting the trading value of the unsecured notes.
Certain of our current debt instruments include more protections for their holders than the indenture and the unsecured notes. In addition, other debt we issue or incur in the future could contain more protections for its holders than the indenture and the unsecured notes, including additional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of the unsecured notes.
The optional redemption provision may materially adversely affect your return on the unsecured notes.
The unsecured notes are redeemable in whole or in part at any time or from time to time at our option. We may choose to redeem the unsecured notes at times when prevailing interest rates are lower than the interest rate paid on the unsecured notes. In this circumstance, you may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as that of the unsecured notes being redeemed.
We may not be able to repurchase the unsecured notes upon a Change of Control Repurchase Event.
Upon the occurrence of a Change of Control Repurchase Event, as defined in the indenture that governs the unsecured notes, as supplemented, subject to certain conditions, we will be required to offer to repurchase all outstanding unsecured notes at 100% of their principal amount, plus accrued and unpaid interest. The source of funds for that purchase of the unsecured notes will be our available cash or cash generated from our operations or other potential sources, including borrowings, investment repayments, sales of assets or sales of equity. We cannot assure you that sufficient funds from such sources will be available at the time of any Change of Control Repurchase Event to make required repurchases of the unsecured notes tendered. Our debt instruments may contain restrictions and provisions that we would have to comply with in connection with any repurchase of the unsecured notes. If the holders of the unsecured notes exercise their right to require us to repurchase all the unsecured notes upon a Change of Control Repurchase Event, the financial effect of this repurchase could cause a default under our existing or future debt instruments, even if the Change of Control Repurchase Event itself would not cause a default. It is possible that we will not have sufficient funds at the time of the Change of Control Repurchase Event to make the required repurchase of the unsecured notes or our other debt.
If an active trading market does not develop for the unsecured notes, you may not be able to resell them.
We do not intend to apply for listing of the unsecured notes on any securities exchange or for quotation of the unsecured notes on any automated dealer quotation system. If no active trading market develops, you may not be able to resell the unsecured notes at their fair market value or at all. If the unsecured notes are traded after their initial issuance, they may trade at a discount from their initial offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, general economic conditions, our financial condition, performance and prospects and other factors. We cannot assure you that a liquid trading market will develop for the unsecured notes, that you will be able to sell the unsecured notes at a particular time or that the price you receive when you sell will be favorable. To the extent an active trading market does not develop for the unsecured notes, the liquidity and trading price for the unsecured notes may be harmed. Accordingly, you may be required to bear the financial risk of an investment in the unsecured notes for an indefinite period of time.
Risks Related to U.S. Federal Income Tax
We cannot predict how new tax legislation will affect us, our investments, or our stockholders, and any such legislation could adversely affect our business.
Legislative or other actions relating to taxes could have a negative effect on us. The laws pertaining to U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department. The Biden administration has enacted significant changes to the existing U.S. tax laws, and there are a number of proposals in Congress that would similarly modify the existing U.S. tax rules. The likelihood of any such legislation being enacted is uncertain. New legislation and any U.S. Treasury regulations, administrative interpretations or court decisions interpreting such legislation could have adverse tax consequences, such as significantly and negatively affecting our ability to qualify for tax treatment as a RIC or negatively affecting the U.S. federal income tax consequences applicable to us and our investors as a result of such qualification. Shareholders are urged to consult with their tax advisor regarding tax legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in our common stock.
We will be subject to U.S. federal income tax at corporate rates if we are unable to maintain our tax treatment as a RIC under Subchapter M of the Code or if we make investments through taxable subsidiaries.
To maintain RIC tax treatment under the Code, we must meet the following minimum annual distribution, income source and asset diversification requirements. See “ITEM 1. BUSINESS - Certain U.S. Federal Income Tax Considerations.”
The Annual Distribution Requirement for a RIC generally will be satisfied if we distribute to our shareholders on an annual basis at least 90% of our “investment company taxable income,” which is generally our net ordinary income plus the excess, if any, of realized net short term capital gains over realized net long term capital losses. In addition, a RIC may, in certain cases, satisfy the Annual Distribution Requirement by distributing dividends relating to a taxable year after the close of such taxable year under the “spillover dividend” provisions of Subchapter M. We would be taxed, at regular corporate rates, on retained income and/or gains, including any short term capital gains or long term capital gains. We also must make distributions to satisfy an additional Excise Tax Avoidance Requirement in order to avoid a 4% excise tax on certain undistributed income. Because we may use debt financing, we are subject to (i) an asset coverage ratio requirement under the 1940 Act and may, in the future, be subject to (ii) certain financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirements. If we are unable to obtain cash from other sources, or choose or are required to retain a portion of our taxable income or gains, we could (1) be required to pay excise taxes and (2) fail to qualify for RIC tax treatment, and thus become subject to corporate level income tax on our taxable income (including gains).
The income source requirement will be satisfied if we obtain at least 90% of our annual income from dividends, interest, payments with respect to loans of certain securities, gains from the sale of stock or other securities or foreign currencies, net income from certain “qualified publicly traded partnerships,” or other income derived from the business of investing in stock or securities.
The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year. Specifically, at least 50% of the value of our assets must consist of cash, cash equivalents (including receivables), U.S. government securities, securities of other RICs, and other acceptable securities if such securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and no more than 25% of the value of our assets can be invested in (i) the securities, other than U.S. government securities or securities of other RICs, of one issuer, (ii) the securities, other than the securities of other RICs of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses, or (iii) the securities of certain “qualified publicly traded partnerships.” Failure to meet these requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.
If we fail to qualify for or maintain RIC tax treatment for any reason and are subject to U.S. federal income tax at corporate rates, the resulting taxes could substantially reduce our net assets, the amount of income available for distribution, and the amount of our distributions.
We may invest in certain debt and equity investments through taxable subsidiaries and the net taxable income of these taxable subsidiaries will be subject to U.S. federal and state corporate income taxes. We may invest in certain foreign debt and equity investments, which could be subject to foreign taxes (such as income tax, withholding, and value added taxes).
We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.
For U.S. federal income tax purposes, we may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash. For example, since we will likely hold debt obligations that are treated under applicable tax rules as having OID (such as debt instruments with PIK, secondary market purchases of debt securities at a discount to par, interest or, in certain cases, increasing interest rates or debt instruments that were issued with warrants), we must include in income each year a portion of the OID that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. We may also have to include in income other amounts that we have not yet received in cash, such as unrealized appreciation for foreign currency forward contracts and deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock. Furthermore, we may invest in non-U.S. corporations (or other non-U.S. entities treated as corporations for U.S. federal income tax purposes) that could be treated under the Code and U.S. Treasury regulations as “passive foreign investment companies” and/or “controlled foreign corporations.” The rules relating to investment in these types of non-U.S. entities are designed to limit deferral and generally require the current inclusion of income derived by the entity. In certain circumstances, this could require us to recognize income where we do not receive a corresponding payment in cash.
Unrealized appreciation on derivatives, such as foreign currency forward contracts, may be included in taxable income while the receipt of cash may occur in a subsequent period when the related contract expires. Any unrealized depreciation on investments that the foreign currency forward contracts are designed to hedge are not currently deductible for tax purposes. This can result in increased taxable income whereby we may not have sufficient cash to pay distributions or we may opt to retain such taxable income and pay a 4% excise tax. In such cases we could still rely upon the “spillover provisions” to maintain RIC tax treatment.
We anticipate that a portion of our income may constitute OID or other income required to be included in taxable income prior to receipt of cash. Further, we may elect to amortize market discounts with respect to debt securities acquired in the secondary market and include such amounts in our taxable income in the current year, instead of upon disposition, as an election not to do so would limit our ability to deduct interest expenses for tax purposes. Because any OID or other amounts accrued will be included in our investment company taxable income for the year of the accrual, we may be required to make a distribution to our shareholders in order to satisfy the Annual Distribution Requirement, even if we will not have received any corresponding cash amount. As a result, we may have difficulty meeting the Annual Distribution Requirement necessary to maintain RIC tax treatment under the Code. We may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital, make a partial share distribution, or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, and choose not to make a qualifying share distribution, we may fail to qualify for RIC tax treatment and thus become subject to U.S. federal income tax.
General Risk Factors
Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy.
We and our portfolio companies are subject to regulation by laws at the local, state, and federal levels. These laws and regulations, as well as their interpretation, could change from time to time, including as the result of interpretive guidance or other directives from the U.S. President and others in the executive branch, and new laws, regulations and interpretations could also come into effect. Any new or changed laws or regulations could have a material adverse effect on our business, and political uncertainty could increase regulatory uncertainty in the near term.
Changes to the laws and regulations governing our permitted investments may require a change to our investment strategy. Such changes could differ materially from our strategies and plans as set forth in this report and may shift our investment focus from the areas of expertise of our Adviser. Thus, any such changes, if they occur, could have a material adverse effect on our results of operations and the value of your investment in us.
Heightened scrutiny of the financial services industry by regulators may materially and adversely affect our business.
The financial services industry has been the subject of heightened scrutiny by regulators around the globe. In particular, the SEC and its staff have focused more narrowly on issues relevant to alternative asset management firms, including by forming specialized units devoted to examining such firms and, in certain cases, bringing enforcement actions against the firms, their principals and employees. In recent periods there have been a number of enforcement actions within the industry, and it is expected that the SEC will continue to pursue enforcement actions against asset managers.
While the SEC’s recent lists of examination priorities include such items as assessments of investment advisers’ marketing practices, compensation arrangements and controls to protect non-public information, it is generally expected that the SEC’s oversight of alternative asset managers will continue to focus substantially on concerns related to fiduciary duty transparency and investor disclosure practices. Although the SEC has cited improvements in disclosures and industry practices in this area, it has also indicated that there is room for improvement in particular areas, including fees and expenses (and the allocation of such fees and expenses) and co-investment practices. To this end, many investment advisory firms have received inquiries during examinations or directly from the SEC’s Division of Enforcement regarding various transparency-related topics, including the acceleration of monitoring fees, the allocation of broken-deal expenses, outside business activities of firm principals and employees, group purchasing arrangements and general conflicts of interest disclosures. While we believe we have made appropriate and timely disclosures regarding the foregoing, the SEC staff may disagree.
Further, the SEC has highlighted BDC board oversight and valuation practices as one of its areas of focus in investment adviser examinations and has instituted enforcement actions against advisers for misleading investors about valuation.
If the SEC were to investigate our Adviser and find errors in its methodologies or procedures, our Adviser could be subject to penalties and fines, which could in turn harm our reputation and our business, financial condition and results of operations could be materially and adversely affected. Similarly, from time to time we or our Adviser could become the subject of litigation or other similar claims. Any investigations, litigation or similar claims could continue without resolution for long periods of time and could consume substantial amounts of our management’s time and attention, and that time and attention and the devotion of associated resources could, at times, be disproportionate to the amounts at stake. Investigations, litigations and other claims are subject to inherent uncertainties, and a material adverse impact on our financial statements could occur for the period in which the effect of an unfavorable final outcome in an investigation, litigation or other similar claims becomes probable and reasonably estimable. In addition, we could incur expenses associated with defending ourselves against investigations, litigation and other similar claims, and these expenses could be material to our earnings in future periods.
Government intervention in the credit markets could adversely affect our business.
The central banks and, in particular, the U.S. Federal Reserve, have recently taken significant action to combat elevated inflation and market volatility. It is impossible to predict if, how, and to what extent the United States and other governments would further intervene in the credit markets. Such intervention is often prompted by politically sensitive issues involving family homes, student loans, real estate speculation, credit card receivables, pandemics, etc., and could, as a result, be contrary to what we would predict from an “economically rational” perspective.
On the other hand, recent governmental intervention could mean that the willingness of governmental bodies to take additional extraordinary action is diminished. As a result, in the event of near-term major market disruptions, there might be only limited additional government intervention, resulting in correspondingly greater market dislocation and materially greater market risk.
Provisions of the Maryland General Corporation Law and of our charter and bylaws could deter takeover attempts and have an adverse effect on the price of our common stock.
The Maryland General Corporation Law (the “MGCL”), our charter and our bylaws contain provisions that may discourage, delay or make more difficult a change in control of the Company or the removal of our directors. We are subject to the Maryland Business Combination Act (the “Business Combination Act”), subject to any applicable requirements of the 1940 Act. Our board of directors has adopted a resolution exempting from the Business Combination Act any business combination between us and any other person, subject to prior approval of such business combination by our board, including approval by a majority of our disinterested directors. If the resolution exempting business combinations is repealed or our board or disinterested directors do not approve a business combination, the Business Combination Act may discourage third parties from trying to acquire control of us and may increase the difficulty of consummating such an offer. Our bylaws exempt from the Maryland Control Share Acquisition Act (the “Control Share Acquisition Act”) acquisitions of our stock by any person. If we amend our bylaws to repeal the exemption from the Control Share Acquisition Act, subject to any applicable requirements of the 1940 Act, the Control Share Acquisition Act also may make it more difficult for a third party to obtain control of us and may increase the difficulty of consummating such an offer.
We have also adopted measures that may make it difficult for a third party to obtain control of us, including provisions of our charter classifying our board of directors into three classes serving staggered three-year terms, and provisions of our charter authorizing our board of directors to classify or reclassify shares of our stock into one or more classes or series, to cause the issuance of additional shares of our stock, and to amend our charter from time to time, without stockholder approval, to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have authority to issue. These provisions, as well as other provisions of our charter and bylaws, may discourage, delay, defer, make more difficult or prevent a transaction or a change in control that might otherwise be in stockholders’ best interest.
Our Bylaws include an exclusive forum selection provision, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or other agents.
Our Bylaws require that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City (or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Northern Division) shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf (ii) any action asserting a claim of breach of any standard of conduct or legal duty owed by any of our directors, officers or other agents to us or to our shareholders, (iii) any action asserting a claim arising pursuant to any provision of the MGCL or the Charter or the Bylaws (as either may be amended from time to time), or (iv) any action asserting a claim governed by the internal affairs doctrine. This exclusive forum selection provision in our Bylaws will not apply to claims arising under the federal securities laws, including the Securities Act and the Exchange Act. There is uncertainty as to whether a court would enforce such a provision, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. In addition, this provision may increase costs for shareholders in bringing a claim against us or our directors, officers or other agents. Any investor purchasing or otherwise acquiring our shares is deemed to have notice of and consented to the foregoing provision. The exclusive forum selection provision in our Bylaws may limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other agents, which may discourage lawsuits against us and such persons. It is also possible that, notwithstanding such exclusive forum selection provision, a court could rule that such provision is inapplicable or unenforceable. If this occurred, we may incur additional costs associated with resolving such action in another forum, which could materially adversely affect our business, financial condition and results of operations.
We expend significant financial and other resources to comply with the requirements of being a public entity.
As a public entity, we are subject to the reporting requirements of the Exchange Act and requirements of the Sarbanes-Oxley Act. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting, which are discussed below. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal controls, significant resources and management oversight are required. We have implemented procedures, processes, policies and practices for the purpose of addressing the standards and requirements applicable to public companies. These activities may divert
management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We may experience fluctuations in our operating results.
We may experience fluctuations in our operating results due to a number of factors, including our ability or inability to make investments in companies that meet our investment criteria, interest rates and default rates on the debt investments we make, the level of our expenses, variations in and the timing of the recognition of realized gains or losses, unrealized appreciation or depreciation, the degree to which we encounter competition in our markets, and general economic conditions. These occurrences could have a material adverse effect on our results of operations, the value of your investment in us and our ability to pay distributions to you and our other shareholders.
We are dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect our liquidity, financial condition or results of operations.
Our business is dependent on our and third parties’ communications and information systems. Any failure or interruption of those systems, including as a result of the termination of an agreement with any third-party service providers, could cause delays or other problems in our activities. Our financial, accounting, data processing, portfolio monitoring, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control. There could be:
•sudden electrical or telecommunications outages;
•natural disasters such as earthquakes, tornadoes and hurricanes;
•disease pandemics;
•events arising from local or larger scale political or social matters, including terrorist acts;
•outages due to idiosyncratic issues at specific service providers; and
•cyber-attacks.
These events, in turn, could have a material adverse effect on our operating results and negatively affect the net asset value of our common stock and our ability to pay distributions to our shareholders.
We are subject to risks in using custodians, counterparties, administrators and other agents.
We depend on the services of custodians, counterparties, administrators and other agents to carry out certain transactions and other administrative services, including compliance with regulatory requirements in U.S. and non-U.S. jurisdictions. We are subject to risks of errors and mistakes made by these third parties, which may be attributed to us and subject us or our shareholders to reputational damage, penalties or losses. We depend on third parties to provide primary and back up communications and information systems. Any failure or interruption of those systems, including as a result of the termination of an agreement with any third-party service providers, could cause delays or other problems in our activities. Our financial, accounting, data processing, portfolio monitoring, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control. The terms of the contracts with third-party service providers are often customized and complex, and many of these arrangements occur in markets or relate to products that are not subject to regulatory oversight. Accordingly, we may be unsuccessful in seeking reimbursement or indemnification from these third-party service providers. In addition, we rely on a select number of third-party services providers and replacement of any one of our service providers could be difficult and result in disruption and expense.
Increased data protection regulation may result in increased complexities and risk in connection with the operation of our business.
We operate in businesses that are highly dependent on information systems and technology. The costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by other means. Cybersecurity has become a priority for regulators in the U.S. and around the world. Many jurisdictions in which we operate have laws and regulations relating to data privacy, cybersecurity and protection of personal information. In addition, the SEC remains extremely focused on cybersecurity, has recently adopted new rules related to cybersecurity, and may adopt additional rules and regulations in the future, including testing the implementation of these procedures and controls. Further, the European General Data Protection Regulation (the “GDPR”) came into effect in May 2018. Data protection requirements under the GDPR are more stringent than those imposed under prior European legislation. There are substantial financial penalties for breach of the GDPR, including up to the higher of 20 million Euros or 4% of group annual worldwide turnover. Non-compliance with any of the aforementioned laws or other similar laws, therefore, represents a serious risk to our business. Some jurisdictions have also enacted laws requiring companies to notify individuals of data security breaches involving certain types of personal data. Breaches in security could potentially jeopardize our, our employees’ or our product investors’ or counterparties’ confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our, our employees’, our product investors’, our
counterparties’ or third parties’ operations, which could result in significant losses, increased costs, disruption of our business, liability to our product investors and other counterparties, regulatory intervention or reputational damage. Furthermore, if we fail to comply with the relevant laws and regulations, it could result in regulatory investigations and penalties, which could lead to negative publicity and may cause our product investors and clients to lose confidence in the effectiveness of our security measures. Finally, there have been significant evolution and developments in the use of artificial intelligence technologies, such as ChatGPT. We cannot fully determine the impact or cybersecurity risk of such evolving technology to our business at this time.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2. Properties
Our corporate headquarters are located at 399 Park Avenue, 37th Floor, New York, New York 10022 and are provided by the Adviser in accordance with the terms of our Administration Agreement. We believe that our office facilities are suitable and adequate for our business as it is contemplated to be conducted.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
Neither we nor the Adviser are currently subject to any material legal proceedings, nor, to our knowledge, are any material legal proceeding threatened against us. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. Our business is also subject to extensive regulation, which may result in regulatory proceedings against us. While the outcome of any such future legal or regulatory proceedings cannot be predicted with certainty, we do not expect that any such future proceedings will have a material effect upon our financial condition or results of operations.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.
Share Issuances
We currently have the authority to issue 450,000,000 common shares at $0.01 per share par value. Prior to our continuous public offering, we issued 100 shares of common stock to our Adviser and 277,788 shares of our common stock to certain individuals and entities affiliated with our Adviser in a private placement. We issued 151,364,239 shares of common stock in our continuous public offering prior to its termination on April 30, 2021.
The following table summarizes transactions with respect to shares of our common stock during the years ended December 31, 2023, 2022 and 2021:
December 31, 2023 December 31, 2022 December 31, 2021
($ in thousands, except share amounts) Shares
Amount
Shares
Amount
Shares
Amount
Shares/gross proceeds from the continuous public offering - $ - - $ - 8,050,298 $ 73,299
Reinvestment of distributions 5,367,227 48,104 4,759,464 41,973 4,647,395 41,615
Repurchased Shares (11,530,869) (103,659) (9,630,699) (84,622) (6,769,401) (60,806)
Total shares/gross proceeds (6,163,642) (55,555) (4,871,235) (42,649) 5,928,292 54,108
Sales load - - - - - (1,523)
Total shares/net proceeds (6,163,642) $ (55,555) (4,871,235) $ (42,649) 5,928,292 $ 52,585
Prior to the termination of the Company’s continuous public offering, in the event of a material decline in its net asset value per share, which the Company considered to be a 2.5% decrease below its then current net offering price, the Company’s Board would reduce the offering price in order to establish a new net offering price per share that was not more than 2.5% above the net asset value. The Company will not sell shares at a net offering price below the net asset value per share unless the Company obtains the requisite approval from its shareholders. The changes to the Company’s offering price per share since the commencement of the Company’s initial continuous public offering and associated approval and effective dates of such changes were as follows:
Approval Date Effective Date Gross Offering Price Per Share Net Offering Price Per Share
January 6, 2021 January 6, 2021 $ 9.37 $ 8.90
March 23, 2021 March 24, 2021 $ 9.42 $ 8.95
The Company determined not to file additional post-effective amendments to its registration statement and terminated its offering as of April 30, 2021.
Subsequent to April 30, 2021, shares issued pursuant to the dividend reinvestment plan were issued as follows:
Date of Issuance Record Date Number of Shares Purchase Price
per Share
May 26, 2021 May 25, 2021 364,726 $ 8.93
June 30, 2021 June 29, 2021 450,718 $ 8.99
July 28, 2021 July 27, 2021 392,202 $ 8.95
August 25, 2021 August 24, 2021 389,897 $ 8.95
September 29, 2021 September 28, 2021 384,273 $ 9.00
October 27, 2021 October 26, 2021 387,954 $ 8.96
November 24, 2021 November 23, 2021 389,853 $ 8.95
December 29, 2021 December 28, 2021 387,939 $ 9.00
January 26, 2022 January 25, 2022 389,571 $ 8.98
February 23, 2022 February 22, 2022 390,759 $ 8.98
March 30, 2022 March 29, 2022 391,196 $ 8.88
April 27, 2022 April 26, 2022 392,301 $ 8.88
May 25, 2022 May 24, 2022 393,757 $ 8.87
June 29, 2022 June 28, 2022 395,352 $ 8.69
July 27, 2022 July 26, 2022 398,628 $ 8.66
August 31, 2022 August 30, 2022 396,093 $ 8.74
September 28, 2022 September 27, 2022 390,703 $ 8.77
October 26, 2022 October 25, 2022 391,492 $ 8.77
November 15, 2022 September 20, 2022 58,594 $ 8.77
November 30, 2022 November 29, 2022 390,290 $ 8.76
December 28, 2022 December 27, 2022 380,728 $ 8.86
February 1, 2023 January 31, 2023 379,272 $ 8.89
February 2, 2023 December 31, 2022 126,215 $ 8.89
March 1, 2023 February 28, 2023 380,932 $ 8.88
March 29, 2023 March 28, 2023 376,723 $ 8.90
April 26, 2023 April 25, 2023 377,165 $ 8.90
April 28, 2023 March 31, 2023 125,586 $ 8.90
May 31, 2023 May 30, 2023 380,161 $ 8.88
June 28, 2023 June 27, 2023 366,863 $ 8.96
July 26, 2023 July 25, 2023 365,479 $ 8.97
July 31, 2023 June 30, 2023 121,887 $ 8.97
August 30, 2023 August 29, 2023 366,982 $ 8.99
September 27, 2023 September 26, 2023 355,431 $ 9.08
November 1, 2023 October 31, 2023 428,157 $ 9.02
November 13, 2023 September 30, 2023 356,503 $ 9.00
November 29, 2023 November 28, 2023 432,272 $ 9.04
December 27, 2023 December 26, 2023 427,597 $ 9.03
Distributions
The Board authorized and declared weekly distribution amounts per share of common stock through June 30, 2021, and monthly and/or quarterly distribution amounts per share of common stock thereafter, in each case payable monthly and/or quarterly in arrears. The following table presents cash distributions per share that were declared during the year ended December 31, 2023:
For the Year Ended December 31, 2023
Declaration Date Record Date Payment Date Dividend Distribution Per Share
Distribution Amount
($ in thousands, except per share amounts)
November 1, 2022 January 31, 2023 February 1, 2023 Monthly $ 0.050180 $ 7,352
November 1, 2022 February 28, 2023 March 1, 2023 Monthly 0.050180 7,377
November 1, 2022 March 28, 2023 March 29, 2023 Monthly 0.050180 7,396
February 21, 2023 March 31, 2023 April 28, 2023 Quarterly 0.016731 2,429
February 21, 2023 April 25, 2023 April 26, 2023 Monthly 0.050180 7,285
February 21, 2023 May 30, 2023 May 31, 2023 Monthly 0.050180 7,309
February 21, 2023 June 27, 2023 June 28, 2023 Monthly 0.050180 7,329
May 9, 2023 June 30, 2023 July 31, 2023 Quarterly 0.016731 2,383
May 9, 2023 July 25, 2023 July 26, 2023 Monthly 0.050180 7,146
May 9, 2023 August 29, 2023 August 30, 2023 Monthly 0.050180 7,170
May 9, 2023 September 26, 2023 September 27, 2023 Monthly 0.050180 7,188
September 11, 2023 September 30, 2023 November 13, 2023 Quarterly 0.050000 7,025
September 11, 2023 October 31, 2023 November 1, 2023 Monthly 0.060000 8,431
September 11, 2023 November 28, 2023 November 29, 2023 Monthly 0.060000 8,478
September 11, 2023 December 26, 2023 December 27, 2023 Monthly 0.060000 8,504
November 16, 2023 December 31, 2023 January 30, 2024 Quarterly 0.030000 4,210
Total $ 0.745082 $ 107,012
The following table presents cash distributions per share that were declared during the year ended December 31, 2022:
For the Year Ended December 31, 2022
Declaration Date Record Date Payment Date Dividend Distribution Per Share
Distribution Amount
($ in thousands, except per share amounts)
January 25, 2022 January 25, 2022 January 26, 2022 Monthly $ 0.050180 $ 7,596
January 25, 2022 February 22, 2022 February 23, 2022 Monthly 0.050180 7,616
January 25, 2022 March 29, 2022 March 30, 2022 Monthly 0.050180 7,635
February 23, 2022 April 26, 2022 April 27, 2022 Monthly 0.050180 7,568
February 23, 2022 May 24, 2022 May 25, 2022 Monthly 0.050180 7,588
February 23, 2022 June 28, 2022 June 29, 2022 Monthly 0.050180 7,607
May 3, 2022 July 26, 2022 July 27, 2022 Monthly 0.050180 7,479
May 3, 2022 August 30, 2022 August 31, 2022 Monthly 0.050180 7,499
August 2, 2022 September 30, 2022 November 15, 2022 Quarterly 0.007589 1,120
May 3, 2022 September 27, 2022 September 28, 2022 Monthly 0.050180 7,519
August 2, 2022 October 25, 2022 October 26, 2022 Monthly 0.050180 7,406
August 2, 2022 November 29, 2022 November 30, 2022 Monthly 0.050180 7,429
August 2, 2022 December 27, 2022 December 28, 2022 Monthly 0.050180 7,448
November 1, 2022 December 31, 2022 February 2, 2023 Quarterly 0.016731 2,451
Total $ 0.626480 $ 93,961
The following table presents cash distributions per share that were declared during the year ended December 31, 2021:
For the Year Ended December 31, 2021
Declaration Date Record Date Payment Date Dividend Distribution Per Share
Distribution Amount
($ in thousands, except per share amounts)
November 3, 2020 January 26, 2021 (1)
January 27, 2021 Monthly $ 0.050180 $ 6,776
November 3, 2020 February 23, 2021 (1)
February 24, 2021 Monthly 0.050180 6,895
November 3, 2020 March 30, 2021 (1)
March 31, 2021 Monthly 0.050180 8,763
February 23, 2021 April 27, 2021 (1)
April 28, 2021 Monthly 0.050180 7,036
February 23, 2021 May 25, 2021 (1)
May 26, 2021 Monthly 0.050180 7,089
February 23, 2021 June 29, 2021 (1)
June 30, 2021 Monthly 0.050180 8,884
May 5, 2021 July 27, 2021 July 28, 2021 Monthly 0.050180 7,612
May 5, 2021 August 24, 2021 August 25, 2021 Monthly 0.050180 7,631
May 5, 2021 September 28, 2021 September 29, 2021 Monthly 0.050180 7,650
August 3, 2021 October 26, 2021 October 27, 2021 Monthly 0.050180 7,604
August 3, 2021 November 23, 2021 November 24, 2021 Monthly 0.050180 7,623
August 3, 2021 December 28, 2021 December 29, 2021 Monthly 0.050180 7,649
Total $ 0.602160 $ 91,212
______________
(1)The Board authorized and declared weekly distribution amounts per share of common stock through June 30, 2021, which were paid monthly to shareholders as of the weekly record date.
With respect to distributions, we have adopted an “opt-in” dividend reinvestment plan for common shareholders. As a result, in the event of a declared distribution, each shareholder that has not “opted-in” to the dividend reinvestment plan will have their dividends or distributions automatically received in cash rather than reinvested in additional shares of our common stock. Shareholders who receive distributions in the form of shares of common stock will be subject to the same U.S. federal, state and local tax consequences as if they received cash distributions.
We may fund our cash distributions to shareholders from any source of funds available to us, including but not limited to offering proceeds, net investment income from operations, capital gains proceeds from the sale of assets, dividends or other distributions paid to us on account of preferred and common equity investments in portfolio companies and expense support from the Adviser, which is subject to recoupment. In no event, however, will funds be advanced or borrowed for purpose of distributions, if the amount of such distributions would exceed our accrued and received Net Revenues for the previous four quarters, less paid and accrued operating expenses with respect to such revenues and costs.
Through November 7, 2023, the date on which our Expense Support Arrangement was terminated, a portion of our distributions resulted from expense support from the Adviser, each of which is subject to repayment by us within three years from the date of payment. The purpose of this arrangement was to avoid distributions being characterized as a return of capital. Shareholders should understand that any such distributions were not based on our investment performance. Shareholders should also understand that our future repayments of expense support will reduce the distributions that they would otherwise receive. There can be no assurance that we will achieve the performance necessary to sustain these distributions, or be able to pay distributions at all.
Sources of distributions, other than net investment income and realized gains on a U.S. GAAP basis, include required adjustments to U.S. GAAP net investment income in the current period to determine taxable income available for distributions. The following tables reflect the sources of cash distributions on a U.S. GAAP basis that we have declared on our shares of common stock during the years ended December 31, 2023 and 2022:
Year Ended December 31, 2023
Source of Distribution Per Share Amount Percentage
($ in thousands, except per share amounts)
Net investment income $ 0.84 $ 120,432 112.5 %
Net realized gain on investments - - -
Distributions in excess of (undistributed) net investment income and realized gains (0.09) (13,420) (12.5)
Total $ 0.75 $ 107,012 100.0 %
Year Ended December 31, 2022
Source of Distribution Per Share Amount Percentage
($ in thousands, except per share amounts)
Net investment income $ 0.68 $ 101,473 108.0 %
Net realized gain on investments(1)
- 524 0.6
Distributions in excess of (undistributed) net investment income and realized gains (0.05) (8,036) (8.6)
Total $ 0.63 $ 93,961 100.0 %
______________
(1)The per share amounts round to less than $0.01 per share.
Year Ended December 31, 2021
Source of Distribution Per Share Amount Percentage
($ in thousands, except per share amounts)
Net investment income $ 0.59 $ 89,655 98.3 %
Net realized gain (loss) on investments
- - -
Distributions in excess of net investment income
0.01 1,557 1.7
Total $ 0.60 $ 91,212 100.0 %
Holders
As of March 6, 2024, there were approximately 13 thousand holders of record of our common stock.
Share Repurchases
In the third quarter of 2017, we began offering, and on a quarterly basis, intend to continue offering, to repurchase shares of our common stock on such terms as may be determined by our Board in its complete discretion. The Board has complete discretion to determine whether we will engage in any share repurchase, and if so, the terms of such repurchase. At the discretion of our Board, the Company may use cash on hand, cash available from borrowings, and cash from the sale of our investments as of the end of the applicable period to repurchase shares.
All shares purchased by us pursuant to the terms of each offer to repurchase will be retired and thereafter will be authorized and unissued shares.
Any periodic repurchase offers are subject in part to our available cash and compliance with the BDC and RIC qualification and diversification rules promulgated under the 1940 Act and the Code, respectively. While we intend to continue to conduct quarterly tender offers as described above, we are not required to do so and may suspend or terminate the share repurchase program at any time.
Offer Date Tender Offer Expiration Tender Offer Purchase Price per Share Shares Repurchased
March 10, 2021 April 6, 2021 $ 18,995,153 $ 8.95 1,945,553
June 1, 2021 June 28, 2021 $ 19,621,539 $ 8.99 2,182,596
August 30, 2021 September 27, 2021 $ 11,911,588 $ 9.00 1,323,510
November 29, 2021 December 27, 2021 $ 11,859,682 $ 9.00 1,317,742
March 1, 2022 March 28, 2022 $ 15,362,486 $ 8.88 1,730,010
May 27, 2022 June 27, 2022 $ 25,733,988 $ 8.69 2,961,334
August 29, 2022 September 26, 2022 $ 23,067,664 $ 8.77 2,630,292
November 28, 2022 December 23, 2022 $ 20,458,302 $ 8.86 2,309,063
February 28, 2023 March 27, 2023 $ 23,098,513 $ 8.90 2,595,339
May 26, 2023 June 26, 2023 $ 36,020,345 $ 8.96 4,020,194
August 28, 2023 September 25, 2023 $ 28,143,907 $ 9.08 3,099,549
November 27, 2023 December 22, 2023 $ 16,396,554 $ 9.03 1,815,787
Senior Securities
Information about our senior securities is shown in the following table as of the end of the fiscal years ended December 31, 2023, 2022, 2021, 2020, 2019, 2018, and 2017.
Class and Period Total Amount Outstanding Exclusive of Treasury Securities(1)
($ in millions)
Asset Coverage per Unit(2)
Involuntary Liquidating Preference per Unit(3)
Average Market Value per Unit(4)
Promissory Note(5)
December 31, 2020 $ - $ - $ - N/A
December 31, 2019 $ - $ 2,687 $ - N/A
December 31, 2018 $ - $ 2,397 $ - N/A
December 31, 2017 $ - $ 4,969 $ - N/A
SPV Asset Facility I
December 31, 2023 $ 60.0 $ 2,390 $ - N/A
December 31, 2022 $ 374.2 $ 2,288 $ - N/A
December 31, 2021 $ 412.2 $ 2,213 $ - N/A
December 31, 2020 $ 365.1 $ 2,416 $ - N/A
December 31, 2019 $ 265.7 $ 2,687 $ - N/A
December 31, 2018 $ 302.5 $ 2,397 $ - N/A
December 31, 2017 $ 20.0 $ 4,969 $ - N/A
SPV Asset Facility II
December 31, 2023 $ 125.0 $ 2,390 $ - N/A
December 31, 2022 $ 176.0 $ 2,288 $ - N/A
December 31, 2021 $ 255.0 $ 2,213 $ - N/A
December 31, 2020 $ 191.0 $ 2,416 $ - N/A
CLO XIII
December 31, 2023 $ 260.0 $ 2,390 $ - N/A
2024 Notes
December 31, 2023 $ 100.0 $ 2,390 $ - N/A
December 31, 2022 $ 450.0 $ 2,288 $ - N/A
December 31, 2021 $ 450.0 $ 2,213 $ - N/A
December 31, 2020 $ 350.0 $ 2,416 $ - N/A
December 31, 2019 $ 300.0 $ 2,687 $ - N/A
2026 Notes
December 31, 2023 $ 350.0 $ 2,390 $ - N/A
______________
(1)Total amount of each class of senior securities outstanding at the end of the period presented.
(2)Asset coverage per unit is the ratio of the carrying value of our total assets, less all liabilities excluding indebtedness represented by senior securities in this table, to the aggregate amount of senior securities representing indebtedness. Asset coverage per unit is expressed in terms of dollar amounts per $1,000 of indebtedness and is calculated on a consolidated basis.
(3)The amount to which such class of senior security would be entitled upon our involuntary liquidation in preference to any security junior to it. The “-” in this column indicates information that the SEC expressly does not require to be disclosed for certain types of senior securities.
(4)Not applicable because the senior securities are not registered for public trading.
(5)Promissory Note expired on December 31, 2020.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Reserved.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information contained in this section should be read in conjunction with “ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA”. This discussion contains forward-looking statements, which relate to future events or the future performance or financial condition of Owl Rock Capital Corporation II and involves numerous risks and uncertainties, including, but not limited to, those described in “ITEM 1A. RISK FACTORS”. This discussion also should be read in conjunction with the “Cautionary Statement Regarding Forward Looking Statements” in this Annual Report on Form 10-K. Actual results could differ materially from those implied or expressed in any forward-looking statements.
Overview
Blue Owl Capital Corporation II (the “Company”, “we”, “us”, or “our”) is an externally managed, non-diversified closed-end management investment company that has elected to be treated as a business development company (“BDC”) under the 1940 Act. Formed as a Maryland corporation on October 15, 2015, we are externally managed by Blue Owl Credit Advisors LLC (the “Adviser”, “our Adviser” or “OCA”) which is responsible for sourcing potential investments, conducting due diligence on prospective investments, analyzing investment opportunities, structuring investments and monitoring our portfolio on an ongoing basis. We have elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and we intend to operate in a manner so as to continue to qualify for the tax treatment applicable to RICs. On February 28, 2017, we formed a wholly-owned subsidiary, OR Lending II LLC, a Delaware limited liability company, which holds a California finance lenders license. OR Lending II LLC originates loans to borrowers headquartered in California.
We are managed by our Adviser. Our Adviser is registered with the Securities and Exchange Commission (“SEC”) as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), an indirect affiliate of Blue Owl Capital Inc. (“Blue Owl”) (NYSE: OWL) and part of Blue Owl’s Credit platform, which focuses on direct lending. Subject to the overall supervision of our Board, our Adviser manages the day-to-day operations of, and provides investment advisory and management services, to us. The Adviser or its affiliates may engage in certain origination activities and receive attendant arrangement, structuring or similar fees. Our Adviser is responsible for managing our business and activities, including sourcing investment opportunities, conducting research, performing diligence on potential investments, structuring our investments, and monitoring our portfolio companies on an ongoing basis through a team of investment professionals.
In April 2017, we commenced our continuous public offering, commenced operations and made our first portfolio company investment. We terminated our continuous public offering as of April 30, 2021. Prior to the termination of our continuous public offering, we issued 151,364,239 shares of our common stock for gross proceeds of approximately $1.4 billion, including seed capital contributed by our Adviser in September 2016 and approximately $10.0 million in gross proceeds raised in the private placement from certain individuals and entities affiliated with our Adviser.
Our Adviser also serves as investment adviser to Blue Owl Capital Corporation and Blue Owl Credit Income Corp.
Blue Owl consists of three investment platforms: (1) Credit, which focuses on direct lending, (2) GP Strategic Capital, which focuses on providing capital to institutional alternative asset managers and (3) Real Estate, which focuses on triple net lease real estate strategies. Blue Owl’s Credit platform is comprised of Blue Owl Technology Credit Advisors LLC (“OTCA”), Blue Owl Credit Private Fund Advisors LLC (“OPFA”), Blue Owl Technology Credit Advisors II LLC (“OTCA II”) and Blue Owl Diversified Credit Advisors LLC (“ODCA” and together with OTCA, OPFA, OTCA II and the Adviser, the “Blue Owl Credit Advisers”), which also are investment advisers. As of December 31, 2023, the Adviser and its affiliates had $84.6 billion of assets under management across Blue Owl’s Credit platform.
The management of our investment portfolio is the responsibility of the Adviser and the Diversified Lending Investment Committee. We consider these individuals to be our portfolio managers. The Investment Team is led by Douglas I. Ostrover, Marc S. Lipschultz and Craig W. Packer and is supported by certain members of the Adviser’s senior executive team and Blue Owl’s Credit platform’s investment committees. Blue Owl’s Credit platform has four investment committees each of which focuses on a specific investment strategy (Diversified Lending, Technology Lending, First Lien Lending and Opportunistic Lending). Douglas I. Ostrover, Marc S. Lipschultz, Craig W. Packer and Alexis Maged sit on each of Blue Owl’s Credit platform’s investment committees. In addition to Messers. Ostrover, Lipschultz, Packer and Maged, the Diversified Lending Investment Committee is comprised of Jeff Walwyn, Patrick Linnemann, Meenal Mehta and Logan Nicholson. The Investment Team, under the Diversified Lending Investment Committee’s supervision, sources investment opportunities, conducts research, performs due diligence on potential investments, structures our investments and will monitor our portfolio companies on an ongoing basis.
The Diversified Lending Investment Committee meets regularly to consider our investments, direct our strategic initiatives and supervise the actions taken by the Adviser on our behalf. In addition, the Diversified Lending Investment Committee reviews and determines whether to make prospective investments (including approving parameters or guidelines pursuant to which investments in broadly syndicated loans may be bought and sold), structures financings and monitors the performance of the investment portfolio. Each investment opportunity requires the approval of a majority of the Diversified Lending Investment Committee. Follow-on investments in existing portfolio companies may require the Diversified Lending Investment Committee's approval beyond that obtained when the initial investment in the portfolio company was made. In addition, temporary investments, such as those in cash equivalents, U.S. government securities and other high quality debt investments that mature in one year or less, may require approval
by the Diversified Lending Investment Committee. The compensation packages of certain Diversified Lending Investment Committee members from the Adviser include various combinations of discretionary bonuses and variable incentive compensation based primarily on performance for services provided and may include shares of Blue Owl.
We may be prohibited under the Investment Company Act of 1940, as amended (the “1940 Act”) from participating in certain transactions with our affiliates without the prior approval of our directors who are not interested persons and, in some cases, the prior approval of the SEC. We, our Adviser and certain affiliates, have been granted an order for exemptive relief (as amended, the “Order”) by the SEC to permit us to co-invest with other funds managed by our Adviser or certain of its affiliates, in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. Pursuant to the Order, we generally are permitted to co-invest with certain of our affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act of our independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transactions, including the consideration to be paid, are reasonable and fair to us and our shareholders and do not involve overreaching by us or our shareholders on the part of any person concerned, (2) the transaction is consistent with the interests of our shareholders and is consistent with our investment objective and strategies, (3) the investment by our affiliates would not disadvantage us, and our participation would not be on a basis different from or less advantageous than that on which our affiliates are investing and (4) the proposed investment by us would not benefit our Adviser or its affiliates or any affiliated person of any of them (other than the parties to the transaction), except to the extent permitted by the Order and applicable law, including the limitations set forth in Section 57(k) of the 1940 Act.
In addition, the Order permits us to continue to co-invest in our existing portfolio companies with certain affiliates that are private funds if such private funds did not have an investment in such existing portfolio company. The Blue Owl Credit Advisers’ investment allocation policy seeks to ensure equitable allocation of investment opportunities over time between us and other funds managed by our Adviser or its affiliates. As a result of the Order, there could be significant overlap in our investment portfolio and the investment portfolio of the BDCs, private funds and separately managed accounts managed by the Blue Owl Credit Advisers (collectively, the “Blue Owl Credit Clients”) and/or other funds managed by the Adviser or its affiliates that could avail themselves of the Order and that have an investment objective similar to ours.
From time to time, we may form wholly-owned subsidiaries to facilitate our normal course of business.
Certain of our consolidated subsidiaries are subject to U.S. federal and state corporate-level income taxes.
We have elected to be regulated as a BDC under the 1940 Act and as a RIC for tax purposes under the Code. As a result, we are required to comply with various statutory and regulatory requirements, such as:
•the requirement to invest at least 70% of our assets in “qualifying assets”, as such term is defined in the 1940 Act;
•source of income limitations;
•asset diversification requirements; and
•the requirement to distribute (or be treated as distributing) in each taxable year at least the sum of 90% of our investment company taxable income and tax-exempt interest for that taxable year.
Our Investment Framework
We are a Maryland corporation organized primarily to originate and make loans to, and make debt and equity investments in, U.S. middle-market companies. Our investment objective is to generate current income, and to a lesser extent, capital appreciation by targeting investment opportunities with favorable risk-adjusted returns. Since our Adviser and its affiliates began investment activities in April 2016 through December 31, 2023, our Adviser and its affiliates have originated $90.6 billion aggregate principal amount of investments, of which $86.9 billion aggregate principal amount of investments prior to any subsequent exits or repayments, was retained by either us or a corporation or fund advised by our Adviser or its affiliates. We seek to participate in transactions sponsored by what we believe to be high-quality private equity and venture capital firms capable of providing both operational and financial resources. We seek to generate current income primarily in U.S. middle-market companies, both sponsored and non-sponsored, through direct originations of senior secured loans or originations of unsecured loans, subordinated loans or mezzanine loans, broadly syndicated loans and, to a lesser extent, investments in equity and equity-related securities including warrants, preferred stock and similar forms of senior equity. Except for our specialty financing company investments, our equity investments are typically not control-oriented investments and we may structure such equity investments to include provisions protecting our rights as a minority-interest holder.
We define “middle-market companies” generally to mean companies with earnings before interest expense, income tax expense, depreciation and amortization, or “EBITDA,” between $10 million and $250 million annually and/or annual revenue of $50 million to $2.5 billion at the time of investment, although we may on occasion invest in smaller or larger companies if an opportunity presents itself. We generally seek to invest in companies with a loan-to-value ratio of 50% or below.
We expect that generally our portfolio composition will be majority debt or income producing securities, which may include “covenant-lite” loans (as defined below), with a lesser allocation to equity or equity-linked opportunities, including publicly traded debt instruments, which we may hold directly or through special purpose vehicles. In addition, we may invest a portion of our portfolio in opportunistic investments and broadly syndicated loans, which will not be our primary focus, but will be intended to
enhance returns to our shareholders and from time to time, we may evaluate and enter into strategic portfolio transactions which may result in additional portfolio companies which we are considered to control. These investments may include high-yield bonds and broadly-syndicated loans, including publicly traded debt instruments, which are typically originated and structured by banks on behalf of large corporate borrowers with employee counts, revenues, EBITDAs and enterprise values larger than those of middle-market companies, and equity investments in portfolio companies that make senior secured loans or invest in broadly syndicated loans or structured products, such as life settlements and royalty interests. Our portfolio composition may fluctuate from time to time based on market conditions and interest rates; however, we seek to invest not more than 20% of our portfolio in any single industry classification and target portfolio companies that comprise 1-2% of our portfolio (with no individual portfolio company generally expected to comprise greater than 5% of our portfolio).
Covenants are contractual restrictions that lenders place on companies to limit the corporate actions a company may pursue. Generally, the loans in which we expect to invest will have financial maintenance covenants, which are used to proactively address materially adverse changes in a portfolio company’s financial performance. However, to a lesser extent, we may invest in “covenant-lite” loans. We use the term “covenant-lite” to refer generally to loans that do not have a complete set of financial maintenance covenants. Generally, “covenant-lite” loans provide borrower companies more freedom to negatively impact lenders because their covenants are incurrence-based, which means they are only tested and can only be breached following an affirmative action of the borrower, rather than by a deterioration in the borrower’s financial condition. Accordingly, to the extent we invest in “covenant-lite” loans, we may have fewer rights against a borrower and may have a greater risk of loss on such investments as compared to investments in or exposure to loans with financial maintenance covenants.
We target portfolio companies where we can structure larger transactions. As of December 31, 2023, our average investment size in each of our portfolio companies was approximately $12.9 million based on fair value. As of December 31, 2023, excluding certain investments that fall outside our typical borrower profile, our portfolio companies representing 87.4% of our total debt portfolio based on fair value, had weighted average annual revenue of $879 million, weighted average annual EBITDA of $188 million, an average interest coverage of 1.7x and an average net loan-to value of 43%.
The companies in which we invest use our capital to support their growth, acquisitions, market or product expansion, refinancings and/or recapitalizations. The debt in which we invest typically is not rated by any rating agency, but if these instruments were rated, they would likely receive a rating of below investment grade (that is, below BBB- or Baa3), which is often referred to as “high yield” or “junk”.
Key Components of Our Results of Operations
Investments
We focus primarily on the direct origination of loans to middle-market companies domiciled in the United States.
Our level of investment activity (both the number of investments and the size of each investment) can and will vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle-market companies, the level of merger and acquisition activity for such companies, the general economic environment and the competitive environment for the types of investments we make.
In addition, as part of our risk strategy on investments, we may reduce the levels of certain investments through partial sales or syndication to additional lenders.
Revenues
We generate revenues primarily in the form of interest income from the investments we hold. In addition, we may generate income from dividends on either direct equity investments or equity interests obtained in connection with originating loans, such as options, warrants or conversion rights. Our debt investments typically have a term of three to ten years. As of December 31, 2023, 98.1% of our debt investments based on fair value bear interest at a floating rate, subject to interest rate floors in certain cases. Interest on our debt investments is generally payable either monthly or quarterly.
Our investment portfolio consists primarily of floating rate loans, and our credit facilities bear interest at floating rates. Macro trends in base interest rates like the Secured Overnight Financing Rate (“SOFR”) and any alternative reference rates may affect our net investment income over the long term. However, because we generally originate loans to a small number of portfolio companies each quarter, and those investments vary in size, our results in any given period, including the interest rate on investments that were sold or repaid in a period compared to the interest rate of new investments made during that period, often are idiosyncratic, and reflect the characteristics of the particular portfolio companies that we invested in or exited during the period and not necessarily any trends in our business or macro trends.
Loan origination fees, original issue discount and market discount or premium are capitalized, and we accrete or amortize such amounts under generally accepted accounting principles (“U.S. GAAP”) as interest income using the effective yield method for term instruments and the straight-line method for revolving or delayed draw instruments. Repayments of our debt investments can reduce interest income from period to period. The frequency or volume of these repayments may fluctuate significantly. We record
prepayment premiums on loans as interest income. We may also generate revenue in the form of commitment, loan origination, structuring, or due diligence fees, fees for providing managerial assistance to our portfolio companies and possibly consulting fees.
Dividend income on equity investments is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded companies.
Our portfolio activity also reflects the proceeds from sales of investments. We recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized. We record current period changes in fair value of investments that are measured at fair value as a component of the net change in unrealized gains (losses) on investments in the Consolidated Statements of Operations.
Expenses
Our primary operating expenses include the payment of the management fee, performance based incentive fee, expenses reimbursable under the Administration Agreement and Investment Advisory Agreement, legal and professional fees, interest and other debt expenses and other operating expenses. The management fee and performance based incentive fee compensate our Adviser for work in identifying, evaluating, negotiating, closing, monitoring and realizing our investments.
Except as specifically provided below, all investment professionals and staff of the Adviser, when and to the extent engaged in providing investment advisory and management services to us, and the base compensation, bonus and benefits, and the routine overhead expenses, of such personnel allocable to such services, are provided and paid for by the Adviser. We bear our allocable portion of the compensation paid by the Adviser (or its affiliates) to our Chief Compliance Officer and Chief Financial Officer and their respective staffs (based on a percentage of time such individuals devote, on an estimated basis, to our business affairs). We bear all other costs and expenses of our operations, administration and transactions, including, but not limited to (i) investment advisory fees, including management fees and incentive fees, to the Adviser, pursuant to the Investment Advisory Agreement; (ii) our allocable portion of overhead and other expenses incurred by the Adviser in performing its administrative obligations under the Administration Agreement; and (iii) all other expenses of our operations and transactions including, without limitation, those relating to:
•expenses deemed to be “organization and offering expenses” for purposes of Conduct Rule 2310(a)(12) of Financial Industry Regulatory Authority (exclusive of commissions, the dealer manager fee, any discounts and other similar expenses paid by investors at the time of sale of our stock);
•the cost of corporate and organizational expenses relating to offerings of shares of our common stock;
•the cost of calculating our net asset value, including the cost of any third-party valuation services;
•the cost of effecting any sales and repurchases of our common stock and other securities;
•fees and expenses payable under any dealer manager agreements, if any;
•debt service and other costs of borrowings or other financing arrangements;
•costs of hedging;
•expenses, including travel expense, incurred by the Adviser, or members of the investment team, or payable to third parties, performing due diligence on prospective portfolio companies and, if necessary, enforcing our rights;
•escrow agent, transfer agent and custodial fees and expenses;
•fees and expenses associated with marketing efforts;
•federal and state registration fees, any stock exchange listing fees and fees payable to rating agencies;
•federal, state and local taxes;
•independent directors’ fees and expenses, including certain travel expenses;
•costs of preparing financial statements and maintaining books and records and filing reports or other documents with the SEC (or other regulatory bodies) and other reporting and compliance costs, including registration fees, listing fees and licenses, and the compensation of professionals responsible for the preparation of the foregoing;
•the costs of any reports, proxy statements or other notices to our shareholders (including printing and mailing costs);
•the costs of any shareholder or director meetings and the compensation of personnel responsible for the preparation of the foregoing and related matters;
•commissions and other compensation payable to brokers or dealers;
•research and market data;
•fidelity bond, directors’ and officers’ errors and omissions liability insurance and other insurance premiums;
•direct costs and expenses of administration, including printing, mailing, long distance telephone and staff;
•fees and expenses associated with independent audits, outside legal and consulting costs;
•costs of winding up;
•costs incurred in connection with the formation or maintenance of entities or vehicles to hold our assets for tax or other purposes;
•extraordinary expenses (such as litigation or indemnification); and
•costs associated with reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws.
We expect, but cannot assure, that our general and administrative expenses will increase in dollar terms during periods of asset growth, but will decline as a percentage of total assets during such periods.
Expense Support and Conditional Reimbursement Agreement
On February 6, 2017, we entered into an Expense Support and Conditional Reimbursement Agreement (the “Expense Support Agreement”) with the Adviser, the purpose of which was to ensure that no portion of our distributions to shareholders will represent a return of capital for U.S. federal income tax purposes. The Expense Support Agreement became effective as of April 4, 2017, the date that the Company met the minimum offering requirement and was terminated on November 7, 2023.
Pursuant to the Expense Support Agreement, prior to its termination on November 7, 2023, on a quarterly basis, the Adviser reimbursed us for “Operating Expenses” (as defined below) in an amount equal to the excess of our cumulative distributions paid to our shareholders in each quarter over “Available Operating Funds” (as defined below) received by us on account of our investment portfolio during such quarter. Any payments required to be made by the Adviser pursuant to the preceding sentence are referred to herein as an “Expense Payment”.
Pursuant to the Expense Support Agreement, “Operating Expenses” was defined as all of our operating costs and expenses incurred, as determined in accordance with generally accepted accounting principles for investment companies. “Available Operating Funds” means the sum of (i) our estimated investment company taxable income (including realized net short-term capital gains reduced by realized net long-term capital losses), (ii) our realized net capital gains (including the excess of realized net long-term capital gains over realized net short-term capital losses) and (iii) dividends and other distributions paid to us on account of preferred and common equity investments in portfolio companies, if any (to the extent such amounts listed in clause (iii) are not included under clauses (i) and (ii) above).
Following any quarter in which Available Operating Funds exceed the cumulative distributions paid by us in respect of such quarter (the amount of such excess being hereinafter referred to as “Excess Operating Funds”), we will pay such Excess Operating Funds, or a portion thereof, in accordance with the stipulations below, as applicable, to the Adviser, until such time as all Expense Payments made by the Adviser to us within three years prior to the last business day of such quarter have been reimbursed. Any payments required to be made by us are referred to as a “Reimbursement Payment”.
The specific amount of expenses reimbursed by the Adviser, if any, will be determined at the end of each quarter. Our obligation to make Reimbursement Payments survives the termination of the Expense Support Agreement. As of December 31, 2023, the amount of Expense Support payments provided by our Adviser since inception is $32.8 million. Management believes that Reimbursement Payments by us to the Adviser were not probable under the terms of the Expense Support Agreement as of December 31, 2023.
Reimbursement of Administrative Services
We will reimburse our Adviser for the administrative expenses necessary for its performance of services to us. However, such reimbursement will be made at an amount equal to the lower of our Adviser’s actual costs or the amount that we would be required to pay for comparable administrative services in the same geographic location. Also, such costs will be reasonably allocated to us on the basis of assets, revenues, time records or other reasonable methods. We will not reimburse our Adviser for any services for which it receives a separate fee, for example rent, depreciation, utilities, capital equipment or other administrative items allocated to a controlling person of our Adviser.
Leverage
The amount of leverage we use in any period depends on a variety of factors, including cash available for investing, the cost of financing and general economic and market conditions. Generally, our total borrowings are limited so that we cannot incur additional borrowings, including through the issuance of additional debt securities, if such additional indebtedness would cause our asset coverage ratio to fall below 200%, as defined in the 1940 Act; however, recent legislation has modified the 1940 Act by allowing a BDC to increase the maximum amount of leverage it may incur from an asset coverage ratio of 200% to an asset coverage ratio of 150%, if certain requirements are met. The reduced asset coverage requirement would permit a BDC to double the amount of leverage it could incur. We are permitted to increase our leverage capacity if shareholders representing at least a majority of the votes cast, when quorum is met, approve a proposal to do so. If we receive such shareholder approval, we would be permitted to increase our leverage capacity on the first day after such approval. Alternatively, we may increase the maximum amount of leverage we may incur to an asset coverage ratio of 150% if the required majority (as defined in Section 57(o) of the 1940 Act) of the independent members of our Board approves such increase with such approval becoming effective after one year. In either case, we would be required to extend to our shareholders, as of the date of such approval, the opportunity to sell the shares of common stock that they hold and we would be required to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval to increase our leverage, our leverage capacity and usage, and risks related to leverage. For shareholders accepting such an offer, the Company would be required to repurchase 25% of such shareholders’ eligible shares in each of the four calendar quarters following the calendar quarter in which the approval occurs. In addition, before incurring any such additional leverage, we would have to renegotiate or receive a waiver from the contractual leverage limitations under our existing credit facilities and notes. Our current target leverage ratio is 0.75x.
In any period, our interest expense will depend largely on the extent of our borrowings and we expect interest expense will increase as we increase our leverage over time subject to the limits of the 1940 Act. In addition, we may dedicate assets to financing facilities.
Market Trends
We believe the middle-market lending environment provides opportunities for us to meet our goal of making investments that generate attractive risk-adjusted returns based on a combination of the following factors.
Limited Availability of Capital for Middle-Market Companies. The middle-market is a large addressable market. According to GE Capital’s National Center for the Middle Market Year-End 2023 Middle Market Indicator, there are approximately 200,000 U.S. middle market companies, which have approximately 48 million aggregate employees. Moreover, the U.S. middle market accounts for one-third of private sector gross domestic product (“GDP”). GE defines U.S. middle market companies as those between $10 million and $1 billion in annual revenue, which we believe has significant overlap with our definition of U.S. middle market companies. We believe U.S. middle market companies will continue to require access to debt capital to refinance existing debt, support growth and finance acquisitions. We believe that regulatory and structural factors, industry consolidation and general risk aversion, limit the amount of traditional financing available to U.S. middle-market companies. We believe that many commercial and investment banks have, in recent years, de-emphasized their service and product offerings to middle-market businesses in favor of lending to large corporate clients and managing capital markets transactions. In addition, these lenders may be constrained in their ability to underwrite and hold bank loans and high yield securities for middle-market issuers as they seek to meet existing and future regulatory capital requirements. We also believe that there is a lack of market participants that are willing to hold meaningful amounts of certain middle-market loans. As a result, we believe our ability to minimize syndication risk for a company seeking financing by being able to hold its loans without having to syndicate them, coupled with reduced capacity of traditional lenders to serve the middle-market, present an attractive opportunity to invest in middle-market companies.
Capital Markets Have Been Unable to Fill the Void in U.S. Middle-Market Finance Left by Banks. Access to underwritten bond and syndicated loan markets is challenging for middle-market companies due to loan issue size and liquidity. For example, high yield bonds are generally purchased by institutional investors, such as mutual funds and exchange traded funds (“ETFs”) who, among other things, are focused on the liquidity characteristics of the bond being issued in order to fund investor redemptions and/or comply with regulatory requirements. Accordingly, the existence of an active secondary market for bonds is an important consideration in these entities’ initial investment decision.
Syndicated loans arranged through a bank are done either on a “best efforts” basis or are underwritten with terms plus provisions that permit the underwriters to change certain terms, including pricing, structure, yield and tenor, otherwise known as “flex”, to successfully syndicate the loan, in the event the terms initially marketed are insufficiently attractive to investors. Furthermore, banks are generally reluctant to underwrite middle-market loans because the arrangement fees they may earn on the placement of the debt generally are not sufficient to meet the banks’ return hurdles. Loans provided by companies such as ours provide certainty to issuers in that we have a more stable capital base and have the ability to invest in illiquid assets, and we can commit to a given amount of debt on specific terms, at stated coupons and with agreed upon fees. As we are the ultimate holder of the loans, we do not require market “flex” or other arrangements that banks may require when acting on an agency basis. In addition, our Adviser has teams focused on both liquid credit and private credit and these teams are able to collaborate with respect to syndicated loans.
Secular Trends Supporting Growth for Private Credit. We believe that periods of market volatility, such as the current period of market volatility caused, in part, by elevated inflation and interest rates, and current geopolitical conditions, have accentuated the advantages of private credit. The availability of capital in the liquid credit market is highly sensitive to market conditions whereas we believe private lending has proven to be a stable and reliable source of capital through periods of volatility. We believe the opportunity set for private credit will continue to expand even after the public markets reopen to normal levels. Financial sponsors and companies today are familiar with direct lending and have seen firsthand the strong value proposition that a private solution can offer. Scale, certainty of execution and flexibility all provide borrowers with a compelling alternative to the syndicated and high yield markets. Based on our experience, there is an emerging trend where higher quality credits that have traditionally been issuers in the syndicated and high yield markets are increasingly seeking private solutions independent of credit market conditions. In our view, this is supported by financial sponsors wanting to work with collaborative financing partners that have scale and breadth of capabilities. We believe the large amount of uninvested capital held by funds of private equity firms broadly, estimated by Preqin Ltd., an alternative assets industry data and research company, to be $2.7 trillion as of December 31, 2023, will continue to drive deal activity. We expect that private equity sponsors will continue to pursue acquisitions and leverage their equity investments with secured loans provided by companies such as us.
Attractive Investment Dynamics. An imbalance between the supply of, and demand for, middle-market debt capital creates attractive pricing dynamics. We believe the directly negotiated nature of middle-market financings also generally provides more favorable terms to the lender, including stronger covenant and reporting packages, better call protection, and lender-protective change of control provisions. Additionally, we believe BDC managers’ expertise in credit selection and ability to manage through credit cycles has generally resulted in BDCs experiencing lower loss rates than U.S. commercial banks through credit cycles. Further, we believe that historical middle-market default rates have been lower, and recovery rates have been higher, as compared to the larger market capitalization, broadly distributed market, leading to lower cumulative losses. Lastly, we believe that in the current environment, lenders with available capital may be able to take advantage of attractive investment opportunities and may be able to achieve improved economic spreads and documentation terms.
Conservative Capital Structures. Following the global credit crisis, which we define broadly as occurring between mid-2007 and mid-2009, lenders have generally required borrowers to maintain more equity as a percentage of their total capitalization, specifically to protect lenders during economic downturns. With more conservative capital structures, U.S. middle-market companies have exhibited higher levels of cash flows available to service their debt. In addition, U.S. middle-market companies often are characterized by simpler capital structures than larger borrowers, which facilitates a streamlined underwriting process and, when necessary, restructuring process.
Attractive Opportunities in Investments in Loans. We invest in senior secured or unsecured loans, subordinated loans or mezzanine loans and, to a lesser extent, equity and equity-related securities. We believe that opportunities in senior secured loans are significant because of the floating rate structure of most senior secured debt issuances and because of the strong defensive characteristics of these types of investments. We believe that debt issues with floating interest rates offer a superior return profile as compared with fixed-rate investments, since floating rate structures are generally less susceptible to declines in value experienced by fixed-rate securities in a rising interest rate environment. Senior secured debt also provides strong defensive characteristics. Senior secured debt has priority in payment among an issuer’s security holders whereby holders are due to receive payment before junior creditors and equity holders. Further, these investments are secured by the issuer’s assets, which may provide protection in the event of a default.
Portfolio and Investment Activity
As of December 31, 2023, based on fair value, our portfolio consisted of 68.5% first lien senior secured debt investments (of which 66% we consider to be unitranche debt investments (including “last-out” portions of such loans)), 21.5% second-lien senior secured debt investments, 1.9% unsecured investments, 3.3% preferred equity investments and 4.8% common equity investments.
As of December 31, 2023, our weighted average total yield of the portfolio at fair value and amortized cost was 12.4% and 12.5%, respectively, and our weighted average yield of accruing debt and income producing securities at fair value and amortized cost was 12.7% and 12.7%, respectively.
As of December 31, 2023, we had investments in 159 portfolio companies with an aggregate fair value of $2.0 billion. As of December 31, 2023, we had net leverage of 0.61x debt-to-equity.
We expect to match our originations with the pace of repayments over each quarter. We expect merger and acquisition activity to increase as a result of inflation, low unemployment and current federal policy. In addition we have seen an increase in repayments and as a result we have increased the pace of our originations in order to maintain leverage within our target range. We have seen more new deal opportunities from refinancings, add-on acquisitions and buyout activity over the quarter.
The credit quality of our portfolio has been consistent. We continue to focus on investing in industries we view as recession resistant and that we are familiar with, including service oriented sectors such as software and healthcare, all of which serve diversified and durable end markets, and on additional financings to our existing borrowers. Blue Owl serves as the administrative agent on many of our investments and the majority of our investments are supported by sophisticated financial sponsors who provide operational and financial resources. In addition, the current lending environment is favorable to direct lenders and Blue Owl has invested in several transactions in excess of $1 billion in size, which gives us the ability to structure the terms and spreads of such deals to include wider spreads, lower loan to values, extended call protection, attractive leverage profiles and credit protection. We are continuing to monitor the effect that market volatility, including as a result of an elevated interest rate environment may have on our portfolio companies and our investment activities.
Many of the companies in which we invest are continuing to see solid demand with modest growth in both revenues and EBITDA. However, in the event of further geopolitical, economic and financial market instability, in the U.S. and elsewhere, or in the event of continued high interest rates, it is possible that the results of some of the middle market companies similar to those in which we invest could be challenged. While we are not seeing signs of an overall, broad deterioration in our results or those of our portfolio companies at this time, there can be no assurance that the performance of certain of our portfolio companies will not be negatively impacted by economic conditions, which could have a negative impact on our future results.
We have also continued to invest in specialty financing portfolio companies, including AAM Series 1.1 Rail and Domestic Intermodal Feeder, LLC and AAM Series 2.1 Aviation Feeder, LLC (collectively, “Amergin AssetCo”), Amergin Asset Management LLC, Fifth Season Investments LLC (“Fifth Season”) and LSI Financing 1 DAC (“LSI Financing”). These companies may use our capital to support acquisitions which could lead to increased dividend income across well-diversified underlying portfolios. See “Specialty Financing Portfolio Companies.”
Our investment activity for the following periods is presented below (information presented herein is at par value unless otherwise indicated).
For the Years Ended December 31,
($ in thousands) 2023 2022 2021
New investment commitments
Gross originations $ 264,862 $ 124,959 $ 1,387,479
Less: Sell downs (457) (7,104) (106,509)
Total new investment commitments $ 264,405 $ 117,855 $ 1,280,970
Principal amount of investments funded:
First-lien senior secured debt investments $ 199,135 $ 61,879 $ 813,448
Second-lien senior secured debt investments - 1,882 221,942
Unsecured debt investments - 1,572 26,458
Preferred equity investments 2,473 7,044 44,591
Common equity investments 1,346 7,381 16,647
Total principal amount of investments funded $ 202,954 $ 79,758 $ 1,123,086
Principal amount of investments sold or repaid:
First-lien senior secured debt investments $ (390,343) $ (232,768) $ (648,864)
Second-lien senior secured debt investments (33,356) (7,751) (222,810)
Unsecured debt investments (39) (1,799) -
Preferred equity investments (113) (3,046) -
Common equity investments (6) (3,150) (1,072)
Total principal amount of investments sold or repaid $ (423,857) $ (248,514) $ (872,746)
Number of new investment commitments in new portfolio companies(1)
21 37 65
Average new investment commitment amount in new portfolio companies $ 10,287 $ 2,138 $ 16,728
Weighted average term for new investment commitments (in years) 5.3 5.2 6.3
Percentage of new debt investment commitments at floating rates
97.4 % 96.8 % 98.4 %
Percentage of new debt investment commitments at fixed rates
2.6 % 3.2 % 1.6 %
Weighted average interest rate of new investment commitments 11.3 % (2)
11.2 % (2)
7.3 % (3)
Weighted average spread over applicable base rate of new debt investment commitments at floating rates 5.9 % 6.5 % 6.4 %
______________
(1)Number of new investment commitments represents commitments to a particular portfolio company.
(2)Assumes each floating rate commitment is subject to the greater of the interest rate floor (if applicable) or 3-month SOFR, which was 5.33% and 4.59% as of December 31, 2023 and 2022, respectively.
(3)Assumes each floating rate commitment is subject to the greater of the interest rate floor (if applicable) or 3-month LIBOR, which was 0.21% as of December 31, 2021.
The table below presents investments at fair value and amortized cost as of the following periods:
December 31, 2023 December 31, 2022
($ in thousands) Amortized Cost Fair Value Amortized Cost Fair Value
First-lien senior secured debt investments(1)(2)
$ 1,408,127 $ 1,400,246 $ 1,633,375 $ 1,614,367
Second-lien senior secured debt investments 455,907 440,071 484,086 467,560
Unsecured debt investments 40,619 38,895 36,708 32,663
Preferred equity investments(3)
67,709 67,941 59,750 58,678
Common equity investments(4)
64,338 98,711 55,033 86,224
Total Investments $ 2,036,700 $ 2,045,864 $ 2,268,952 $ 2,259,492
______________
(1)Includes investment in Amergin AssetCo.
(2)66% and 69% of which we consider unitranche loans as of December 31, 2023 and December 31, 2022, respectively.
(3)Includes investments in LSI Financing. See “- Specialty Finance Portfolio Companies” for more information regarding LSI Financing.
(4)Includes investments in Amergin AssetCo and Fifth Season. See “- Specialty Finance Portfolio Companies” for more information regarding Amergin AssetCo and Fifth Season.
The table below describes investments by industry composition based on fair value as of the following periods:
December 31, 2023 December 31, 2022
Advertising and media 1.0 % 0.9 %
Aerospace and defense 4.1 3.4
Asset Based Lending and Fund Finance(1)
2.2 1.4
Automotive 2.0 1.6
Buildings and real estate 3.0 4.2
Business services 3.5 3.1
Chemicals 2.6 2.7
Consumer products 5.3 4.5
Containers and packaging 1.7 1.4
Distribution 2.6 3.2
Education 1.0 1.2
Financial services 1.4 5.3
Food and beverage 8.4 7.4
Healthcare equipment and services 4.5 3.9
Healthcare providers and services 7.1 5.0
Healthcare technology 6.8 5.9
Household products 2.5 2.2
Human resource support services 1.5 1.4
Infrastructure and environmental services 0.5 0.4
Insurance(3)
8.5 7.9
Internet software and services 11.5 13.6
Leisure and entertainment 2.9 2.7
Manufacturing 7.5 7.0
Oil and gas 0.4 1.1
Pharmaceuticals(2)
0.0 (4)
-
Professional services 2.4 2.4
Specialty retail 3.4 3.2
Telecommunications 0.4 -
Transportation 1.3 3.0
Total 100.0 % 100.0 %
______________
(1)Includes investments in Amergin AssetCo. See “- Specialty Finance Portfolio Companies” for more information regarding Amergin AssetCo.
(2)Includes investment in LSI Financing. See “- Specialty Finance Portfolio Companies” for more information regarding LSI Financing.
(3)Includes investments in Fifth Season. See “- Specialty Finance Portfolio Companies” for more information regarding Fifth Season.
(4)Rounds to less than 0.1.
The table below describes investments by geographic composition based on fair value as of the following periods:
December 31, 2023 December 31, 2022
United States:
Midwest 18.7 % 17.4 %
Northeast 16.5 17.6
South 31.3 33.7
West 25.3 23.5
International 8.2 7.8
Total 100.0 % 100.0 %
The table below presents the weighted average yields and interest rates of our investments at fair value as of the following periods:
December 31, 2023 December 31, 2022
Weighted average total yield of portfolio(1)
12.4 % 11.4 %
Weighted average total yield of accruing debt and income producing securities(1)
12.7 % 11.6 %
Weighted average interest rate of accruing debt securities 12.1 % 11.1 %
Weighted average spread over base rate of all accruing floating rate investments 6.7 % 6.7 %
______________
(1)For non-stated rate income producing investments, computed based on (a) the dividend or interest income earned for the respective trailing twelve months ended on the measurement date, divided by (b) the ending fair value. In instances where historical dividend or interest income data is not available or not representative for the trailing twelve months ended, the interest or dividend income is annualized.
The weighted average yield of our accruing debt and income producing securities is not the same as a return on investment for our shareholders but, rather, relates to a portion of our investment portfolio and is calculated before the payment of all of our and our subsidiaries’ fees and expenses. The weighted average yield was computed using the effective interest rates as of each respective date, including accretion of original issue discount and loan origination fees, but excluding investments on non-accrual status, if any. There can be no assurance that the weighted average yield will remain at its current level.
Our Adviser monitors our portfolio companies on an ongoing basis. It monitors the financial trends of each portfolio company to determine if they are meeting their respective business plans and to assess the appropriate course of action with respect to each portfolio company. Our Adviser has several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:
•assessment of success of the portfolio company in adhering to its business plan and compliance with covenants;
•periodic and regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor, to discuss financial position, requirements and accomplishments;
•comparisons to other companies in the portfolio company’s industry; and
•review of monthly or quarterly financial statements and financial projections for portfolio companies.
As part of the monitoring process, our Adviser employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our Adviser rates the credit risk of all investments on a scale of 1 to 5. This system is intended primarily to reflect the underlying risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment (i.e., at the time of origination or acquisition), although it may also take into account the performance of the portfolio company’s business, the collateral coverage of the investment and other relevant factors. The rating system is as follows:
Investment Rating Description
1 Investments rated 1 involve the least amount of risk to our initial cost basis. The borrower is performing above expectations, and the trends and risk factors for this investment since origination or acquisition are generally favorable;
2 Investments rated 2 involve an acceptable level of risk that is similar to the risk at the time of origination or acquisition. The borrower is generally performing as expected and the risk factors are neutral to favorable. All investments or acquired investments in new portfolio companies are initially assessed a rating of 2;
3 Investments rated 3 involve a borrower performing below expectations and indicates that the loan’s risk has increased somewhat since origination or acquisition;
4 Investments rated 4 involve a borrower performing materially below expectations and indicates that the loan’s risk has increased materially since origination or acquisition. In addition to the borrower being generally out of compliance with debt covenants, loan payments may be past due (but generally not more than 120 days past due); and
5 Investments rated 5 involve a borrower performing substantially below expectations and indicates that the loan’s risk has increased substantially since origination or acquisition. Most or all of the debt covenants are out of compliance and payments are substantially delinquent. Loans rated 5 are not anticipated to be repaid in full and we will reduce the fair market value of the loan to the amount we anticipate will be recovered.
Our Adviser rates the investments in our portfolio at least quarterly and it is possible that the rating of a portfolio investment may be reduced or increased over time. For investments rated 3, 4 or 5, our Adviser enhances its level of scrutiny over the monitoring of such portfolio company.
The Adviser has built out its portfolio management team to include workout experts who closely monitor our portfolio companies and who, on at least a quarterly basis, assess each portfolio company’s operational and liquidity exposure and outlook to understand and mitigate risks; and, on at least a monthly basis, evaluates existing and newly identified situations where operating results are deviating from expectations. As part of its monitoring process, the Adviser focuses on projected liquidity needs and where warranted, re-underwriting credits and evaluating downside and liquidation scenarios.
The Adviser focuses on downside protection by leveraging existing rights available under our credit documents; however, for investments that are significantly underperforming or which may need to be restructured, the Adviser’s workout team partners with the investment team and all material amendments, waivers and restructurings require the approval of a majority of the Diversified Lending Investment Committee.
The table below shows the composition of our portfolio on the 1 to 5 rating scale as of the following periods:
December 31, 2023 December 31, 2022
Investment Rating Investments at Fair Value Percentage of Total Portfolio Investments at Fair Value Percentage of Total Portfolio
($ in thousands)
1 $ 327,357 16.0 % $ 339,145 15.0 %
2 1,478,186 72.3 1,700,525 75.3
3 218,914 10.7 209,883 9.3
4 12,310 0.6 - -
5 9,097 0.4 9,939 0.4
Total $ 2,045,864 100.0 % $ 2,259,492 100.0 %
The table below shows the amortized cost of our performing and non-accrual debt investments as of the following periods:
December 31, 2023 December 31, 2022
($ in thousands) Amortized Cost Percentage Amortized Cost Percentage
Performing $ 1,892,893 99.4 % $ 2,132,711 99.0 %
Non-accrual 11,761 0.6 21,458 1.0
Total $ 1,904,654 100.0 % $ 2,154,169 100.0 %
Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected in full. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid current and, in management’s judgment, are likely to remain current. Management may make exceptions to this treatment and determine to not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection.
Specialty Finance Portfolio Companies
Amergin
Amergin AssetCo was created to invest in a leasing platform focused on railcar, aviation and other long-lived transportation assets. Amergin acquires existing on-lease portfolios of new and end-of-life railcars and related equipment and selectively purchases off-lease assets and is building a commercial aircraft portfolio through aircraft financing and engine acquisition on a sale and lease back basis. Amergin consists of Amergin AssetCo and Amergin Asset Management LLC, which has entered into a Servicing Agreement with Amergin AssetCo. We made an initial equity commitment to Amergin AssetCo on July 1, 2022. As of December 31, 2023 our commitment to Amergin AssetCo is $8.2 million, of which $3.5 million is equity and $4.7 million is debt. Our investment in Amergin is a co-investment made with our affiliates in accordance with the terms of the exemptive relief that we received from the SEC. We do not consolidate our equity interest in Amergin AssetCo.
Fifth Season Investments LLC
Fifth Season is a portfolio company created to invest in life insurance based assets, including secondary and tertiary life settlement and other life insurance exposures using detailed analytics, internal life expectancy review and sophisticated portfolio management techniques. On July 18, 2022, we made an initial equity commitment to Fifth Season. As of December 31, 2023 our equity investment in Fifth Season was $2.1 million at fair value. Our investment in Fifth Season is a co-investment with our affiliates in accordance with the terms of the exemptive relief that we received from the SEC. We do not consolidate our equity interest in Fifth Season.
LSI Financing 1 DAC (“LSI Financing”)
LSI Financing is a portfolio company formed to acquire contractual rights to revenue pursuant to earnout agreements generally in the life sciences space. On December 14, 2022, we made an initial investment in LSI Financing. As of December 31, 2023, our investment in LSI Financing was $1.0 million at fair value. Our investment in LSI Financing is a co-investment with our affiliates in accordance with the terms of the exemptive relief that we received from the SEC. We do not consolidate our equity interest in LSI Financing.
Results of Operations
The table below represents the operating results for the following periods:
For the Years Ended December 31,
($ in thousands) 2023 2022 2021
Total Investment Income $ 272,763 $ 218,243 $ 197,731
Less: Net Operating Expenses 149,510 114,813 106,549
Net Investment Income (Loss) Before Taxes 123,253 103,430 91,182
Less: Income tax expense (benefit), including excise tax expense (benefit) 2,821 1,957 1,527
Net Investment Income (Loss) After Taxes 120,432 101,473 89,655
Net change in unrealized gain (loss) 17,089 (28,817) 24,503
Net realized gain (loss) (7,728) 524 (2,144)
Net Increase (Decrease) in Net Assets Resulting from Operations $ 129,793 $ 73,180 $ 112,014
Net increase (decrease) in net assets resulting from operations can vary from period to period as a result of various factors, including the level of new investment commitments, expenses, the recognition of realized gains and losses and changes in unrealized appreciation and depreciation on the investment portfolio. For the year ended December 31, 2023, our net asset value per share increased, primarily driven by gains on the portfolio.
Investment Income
The table below presents the investment income for the following periods:
For the Years Ended December 31,
($ in thousands) 2023 2022 2021
Interest income from investments $ 227,294 $ 180,360 $ 175,735
Payment-in-kind interest income 26,864 21,590 10,516
Dividend income 16,374 13,173 7,882
Other income 2,231 3,120 3,598
Total investment income $ 272,763 $ 218,243 $ 197,731
For the Years Ended December 31, 2023 and 2022
Investment income increased to $272.8 million for the year ended December 31, 2023 from $218.2 million for the same period in prior year primarily due to an increase in interest rates, partially offset by a decrease in our debt portfolio which, at par, decreased from $2.2 billion to $2.0 billion over the same period. Included in investment income is dividend income which includes income earned from our non-controlled, affiliated equity investments. Included in interest income are other fees such as prepayment fees and accelerated amortization of upfront fees from unscheduled paydowns, which are non-recurring in nature and increased from $2.5 million to $3.8 million period over period. For the years ended December 31, 2023 and 2022, PIK income represented 12.0% of investment income. Other income decreased period-over-period due to a decrease in incremental fee income, which are fees that are generally available to us as a result of closing investments and generally paid at the time of closing. We expect that investment income will vary based on a variety of factors, including the pace of our originations and repayments.
For the Years Ended December 31, 2022 and 2021
Investment income increased to $218.2 million for the year ended December 31, 2022 from $197.7 million for the same period in prior year primarily due to an increase in interest rates and an increase in dividend income, which increased from $7.9 million as of December 31, 2021 to $13.2 million as of December 31, 2022, partially offset by a decrease in our debt portfolio which, at par, decreased from $2.3 billion to $2.2 billion over the same period. The dividend income increase was primarily driven by an increase in the dividends received from Windows Entities from $6.2 million to $7.2 million for the years ended December 31, 2021 and 2022, respectively, a one time dividend of $0.8 million from New PLI Holdings, LLC during the year ended December 31, 2022 that was not earned in the same period in prior year and a period-over-period increase in dividend-earning investments. Included in interest income are other fees such as prepayment fees and accelerated amortization of upfront fees from unscheduled paydowns. Period over period, income generated from unscheduled paydown activity decreased from $11.7 million to $2.5 million, for the years ended December 31, 2021 and 2022, respectively. For the years ended December 31, 2022 and 2021, PIK income represented 12.0% and 5.8% of investment income, respectively. Other income decreased period-over-period due to a decrease in incremental fee income, which are fees that are generally available to us as a result of closing investments and generally paid at the time of closing. We expect that investment income will vary based on a variety of factors, including the pace of our originations and repayments.
Expenses
The table below presents expenses for the following periods:
For the Years Ended December 31,
($ in thousands) 2023 2022 2021
Offering costs $ - $ - $ 1,135
Interest expense 67,249 50,010 39,579
Management fee 32,775 35,142 34,735
Performance based incentive fees 28,018 20,006 20,598
Professional fees 5,482 5,208 4,845
Directors’ fees
780 1,194 1,123
Other general and administrative 3,555 3,253 2,766
Total operating expenses $ 137,859 $ 114,813 $ 104,781
Expense Support - - (1,449)
Recoupment of expense support 11,651 - 3,217
Net operating expenses $ 149,510 $ 114,813 $ 106,549
For the Years Ended December 31, 2023 and 2022
Net operating expenses increased to $149.5 million for the year ended December 31, 2023 from $114.8 million for the same period ended December 31, 2022 primarily due to increases in interest expense, recoupment of expense support and performance based incentive fees, partially offset by a decrease in management fees. The increase in interest expense of $17.2 million was driven by rising interest rates resulting in an increase in the weighted average interest rate from 4.4% to 6.4% period over period. The increase in performance based incentive fees of $8.0 million is due to an increase in pre-incentive fee net investment income period over period. The increase in recoupment of expense support of $11.7 million is due to an increase in undistributed net investment income and a decrease in other operating expense ratio as compared to the periods in which we incurred expense support. The decrease in management fees of $2.4 million is due to a decrease in average gross assets driven by sales and repayments of portfolio investments.
For the Years Ended December 31, 2022 and 2021
Net operating expenses increased to $114.8 million for the year ended December 31, 2022 from $106.5 million for the same period ended December 31, 2021 primarily due to a decrease in expense support and increases in interest expense and management fees, partially offset by decreases in recoupment of expense support and performance based incentive fees. The increase in interest expense of $10.4 million was driven by rising interest rates resulting in an increase in the weighted average cost of debt from 3.3% to 4.4% period over period. The increase in management fees of $0.4 million is due to an increase in average gross assets driven by a period over period increase in average fair value of investments. The decrease in performance based incentive fees of $0.6 million is due to a reversal of previously accrued capital gains based incentive fees during the year ended December 31, 2022, partially offset by an increase in pre-incentive fee net investment income period over period. The decrease in recoupment of expense support of $3.2 million is due to an increase in other operating expense ratio as compared to the periods in which we incurred expense support.
Selected Financial Data
The table below sets forth selected consolidated historical financial data for the years ended December 31, 2023, 2022 and 2021. The selected consolidated financial information and other data presented below should be read in conjunction with our consolidated financial statements and notes thereto, which are included elsewhere in this Form 10-K, and the remainder of this “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.”
($ in thousands, except per share amounts) Year Ended December 31, 2023 Year Ended December 31, 2022 Year Ended December 31, 2021
Consolidated Statements of Operations Data
Income
Total investment income $ 272,763 $ 218,243 $ 197,731
Expenses
Total Operating Expenses 137,859 114,813 104,781
Expense Support - - (1,449)
Recoupment of expense support 11,651 - 3,217
Net Operating Expenses 149,510 114,813 106,549
Net investment income before income taxes $ 123,253 $ 103,430 $ 91,182
Income tax, including excise tax expense 2,821 1,957 1,527
Net investment income after income taxes $ 120,432 $ 101,473 $ 89,655
Total net realized and unrealized gain (loss) on investments 9,361 (28,293) 22,359
Increase in net assets resulting from operations $ 129,793 $ 73,180 $ 112,014
Earnings per common share - basic and diluted $ 0.90 $ 0.49 $ 0.74
($ in thousands, except per share amounts) As of December 31, 2023 As of December 31, 2022 As of December 31, 2021
Consolidated Balance Sheet Data
Investments at fair value $ 2,045,864 $ 2,259,492 $ 2,419,528
Cash (including foreign cash) 126,383 47,275 54,067
Total assets 2,190,553 2,326,450 2,501,148
Total debt (net of unamortized debt issuance costs) 881,098 996,673 1,113,945
Total liabilities 927,066 1,030,189 1,141,457
Total net assets 1,263,487 1,296,261 1,359,691
Net asset value per share $ 9.00 $ 8.85 $ 8.98
Other Data:
Number of portfolio companies at year end 159 159 134
Distributions Declared Per Share $ 0.75 $ 0.63 $ 0.60
Total return based on net asset value(1) 10.4 % 5.7 % 7.9 %
Weighted average total yield of portfolio at fair value 12.4 % 11.4 % 7.8 %
Weighted average total yield of portfolio at amortized cost 12.5 % 11.4 % 7.8 %
Weighted average yield of debt and income producing securities at fair value 12.7 % 11.6 % 7.9 %
Weighted average yield of debt and income producing securities at amortized cost 12.7 % 11.6 % 7.9 %
Fair value of debt investments as a percentage of principal 97.3 % 96.9 % 98.4 %
______________
(1)Total return for the Company from April 4, 2017 (commencement of operations) to December 31, 2021 was 40.8% (without upfront sales load) and 33.8% (with upfront sales load). Total return is not annualized. An investment in the Company is subject to a maximum upfront sales load of 5% of the offering price, which will reduce the amount of capital available for investment. Cumulative total return displayed is net of all fees, including all operating expenses such as management fees, incentive fees, general and administrative expenses, organization and amortized offering expenses, and interest expenses.
Selected Quarterly Financial Data (Unaudited)
For the Three Months Ended
($ in thousands, except share and per share amounts) March 31, 2023 June 30, 2023 September 30, 2023 December 31, 2023
Investment income $ 67,223 $ 67,758 $ 68,188 $ 69,594
Net operating expenses 40,335 39,827 33,993 38,176
Net investment income (loss) 26,888 27,931 34,195 31,418
Net realized and unrealized gains (losses) 4,447 3,546 2,580 (1,212)
Increase (decrease) in net assets resulting from operations $ 31,335 $ 31,477 $ 36,775 $ 30,206
Net asset value per share as of the end of the quarter $ 8.89 $ 8.94 $ 9.00 $ 9.00
Earnings (losses) per share - basic and diluted $ 0.21 $ 0.22 $ 0.26 $ 0.21
For the Three Months Ended
($ in thousands, except share and per share amounts) March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022
Investment income $ 48,379 $ 50,219 $ 56,071 $ 63,574
Net operating expenses 25,395 27,566 30,040 33,769
Net investment income (loss) 22,984 22,653 26,031 29,805
Net realized and unrealized gains (losses) (12,979) (36,632) 12,848 8,470
Increase (decrease) in net assets resulting from operations $ 10,005 $ (13,979) $ 38,879 $ 38,275
Net asset value per share as of the end of the quarter $ 8.90 $ 8.65 $ 8.76 $ 8.85
Earnings (losses) per share - basic and diluted $ 0.07 $ (0.09) $ 0.26 $ 0.49
For the Three Months Ended
($ in thousands, except share and per share amounts) March 31, 2021 June 30, 2021 September 30, 2021 December 31, 2021
Investment income $ 42,940 $ 48,341 $ 52,878 $ 53,572
Net operating expenses 21,878 27,910 30,647 27,641
Net investment income (loss) 21,062 20,431 22,231 25,931
Net realized and unrealized gain (loss) on investments 11,201 8,807 3,774 (1,423)
Increase (decrease) in net assets resulting from operations $ 32,263 $ 29,238 $ 26,005 $ 24,508
Net asset value per share as of the end of the quarter $ 8.91 $ 8.95 $ 8.97 $ 8.98
Earnings (losses) per share - basic and diluted $ 0.22 $ 0.19 $ 0.17 $ 0.16
Income Taxes, Including Excise Taxes
We have elected to be treated as a RIC under Subchapter M of the Code, and we intend to operate in a manner so as to continue to qualify for the tax treatment applicable to RICs. To qualify for tax treatment as a RIC, we must, among other things, distribute to our shareholders in each taxable year generally at least 90% of our investment company taxable income, as defined by the Code, and net tax-exempt income for that taxable year. To maintain our tax treatment as a RIC, we, among other things, intend to make the requisite distributions to our shareholders, which generally relieves us from U.S. federal income taxes at corporate rates.
Depending on the level of taxable income earned in a tax year, we can be expected to carry forward taxable income (including net capital gains, if any) in excess of current year dividend distributions from the current tax year into the next tax year and pay a nondeductible 4% U.S. federal excise tax on such taxable income, as required. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such income, we will accrue excise tax on estimated excess taxable income.
For the year ended December 31, 2023, we recorded U.S. federal and state current income tax expenses of $2.8 million, including U.S. federal excise tax expense of 0.4 million. For the year ended December 31, 2022, we recorded U.S. federal and state current income tax expenses of $2.0 million. For the year ended December 31, 2021, we recorded U.S. federal and state current income tax expenses of $1.5 million.
Certain of our consolidated subsidiaries are subject to U.S. federal and state income taxes. For the year ended December 31, 2023 we recorded a current tax benefit of $0.1 million, and for the years ended December 31, 2022 and 2021 we recorded a current tax expense of $1.7 million and $1.0 million, respectively. The income tax expense for our taxable consolidated subsidiaries will vary depending on the level of investment income earnings and realized gains from the exits of investments held by such taxable subsidiaries during the respective periods.
Net Unrealized Gain (Loss)
We fair value our portfolio investments quarterly and any changes in fair value are recorded as unrealized gains or losses. During the following periods, net unrealized gains (losses) were comprised of the following:
For the Years Ended December 31,
($ in thousands) 2023 2022 2021
Net change in unrealized gain on investments $ 50,274 $ 25,055 $ 43,119
Net change in unrealized loss on investments (34,468) (47,541) (14,082)
Income tax (provision) benefit (1,539) (1,308) (2,868)
Translation of assets and liabilities in foreign currencies 2,822 (5,023) (1,666)
Net change in unrealized gain (loss) $ 17,089 $ (28,817) $ 24,503
For the Years Ended December 31, 2023 and 2022
For the year ended December 31, 2023, net appreciation on investments was primarily driven by an increase in the fair value of our debt investments as compared to December 31, 2022. As of December 31, 2023, the fair value of our debt investments as a percentage of principal was 97.3% as compared to 96.9% as of December 31, 2022. The primary driver of our portfolio’s net unrealized gain for the year ended December 31, 2023 was due to market conditions, including credit spreads tightening, and reversals of prior period unrealized losses that were realized during the period in connection with the restructuring of certain debt investments.
The ten largest contributors to the change in net unrealized gain (loss) on investments during the year ended December 31, 2023 consisted of the below:
Portfolio Company
($ in thousands)
Net Change in Unrealized
Gain (Loss)
Remaining portfolio companies $ 6,040
Hg Saturn Luchaco Limited 4,626
Packaging Coordinators Midco, Inc. 3,737
Walker Edison Furniture Company LLC (1)(2)
3,646
Delta TopCo, Inc. (dba Infoblox, Inc.) 2,781
Conair Holdings LLC 2,581
Valence Surface Technologies LLC 2,403
Aviation Solutions Midco, LLC (dba STS Aviation) 1,732
Notorious Topco, LLC (dba Beauty Industry Group) (1,770)
H-Food Holdings, LLC (3,838)
PHM Netherlands Midco B.V. (dba Loparex) (6,132)
Net unrealized gain (loss) on investments $ 15,806
________________
(1)Portfolio company is a non-controlled, affiliated investment.
(2)Our investment in the portfolio company was restructured. See "ITEM 8 -Consolidated Financial Statements and Supplementary Information -Consolidated Schedule of Investments as of December 31, 2023 -Footnote 26."
For the Years Ended December 31, 2022 and 2021
For the year ended December 31, 2022, the net unrealized loss was primarily driven by a decrease in the fair value of our debt investments as compared to December 31, 2021. As of December 31, 2022, the fair value of our debt investments as a percentage of principal was 96.9% as compared to 98.4% as of December 31, 2021. The primary driver of our portfolio’s net unrealized loss was due to current market conditions.
The ten largest contributors to the change in net unrealized gain (loss) on investments during the year ended December 31, 2022 consisted of the below:
Portfolio Company
($ in thousands)
Net Change in Unrealized
Gain (Loss)
Swipe Acquisition Corporation (dba PLI) $ 6,229
PCF Holdco, LLC (dba PCF Insurance Services) 5,104
Remaining portfolio companies (12,548)
Conair Holdings, LLC (4,252)
Valence Surface Technologies LLC (3,878)
Delta TopCo, Inc. (dba Infoblox, Inc.) (2,820)
H-Food Holdings, LLC (2,562)
Nutraceutical International Corporation (2,475)
Packaging Coordinators Midco, Inc. (1,895)
CIBT Global, Inc. (1,749)
Muine Gall, LLC (1,640)
Net unrealized gain (loss) on investments $ (22,486)
Net Realized Gain (Loss)
The realized gains and losses on fully exited and partially exited portfolio companies during the following periods were comprised of the below:
For the Years Ended December 31,
($ in thousands) 2023 2022 2021
Net realized gain (loss) on investments $ (7,718) $ 928 $ (2,304)
Net realized gain (loss) on foreign currency transactions (10) (404) 160
Net realized gain (loss) $ (7,728) $ 524 $ (2,144)
Realized Gross Internal Rate of Return
Since we began investing in 2017 through December 31, 2023, our exited investments have resulted in an aggregate cash flow realized gross internal rate of return to us of over 9.4% (based on total capital invested of $1.7 billion and total proceeds from these exited investments of $2.0 billion). Over seventy-eight percent of these exited investments resulted in an aggregate cash flow realized gross internal rate of return (“IRR”) to us of 8% or greater.
IRR is a measure of our discounted cash flows (inflows and outflows). Specifically, IRR is the discount rate at which the net present value of all cash flows is equal to zero. That is, IRR is the discount rate at which the present value of total capital invested in each of our investments is equal to the present value of all realized returns from that investment. Our IRR calculations are unaudited.
Capital invested, with respect to an investment, represents the aggregate cost basis allocable to the realized or unrealized portion of the investment, net of any upfront fees paid at closing for the term loan portion of the investment.
Realized returns, with respect to an investment, represents the total cash received with respect to each investment, including all amortization payments, interest, dividends, prepayment fees, upfront fees (except upfront fees paid at closing for the term loan portion of an investment), administrative fees, agent fees, amendment fees, accrued interest, and other fees and proceeds.
Gross IRR, with respect to an investment, is calculated based on the dates that we invested capital and dates we received distributions, regardless of when we made distributions to our shareholders. Initial investments are assumed to occur at time zero.
Gross IRR reflects historical results relating to our past performance and is not necessarily indicative of our future results. In addition, gross IRR does not reflect the effect of management fees, expenses, incentive fees or taxes borne, or to be borne, by us or our shareholders, and would be lower if it did.
Aggregate cash flow realized gross IRR on our exited investments reflects only invested and realized cash amounts as described above and does not reflect any unrealized gains or losses in our portfolio.
Financial Condition, Liquidity and Capital Resources
Our liquidity and capital resources are generated primarily from the net proceeds of any offering of our common stock and from cash flows from interest, dividends and fees earned from our investments and principal repayments and proceeds from sales of our investments. The primary uses of our cash are for (i) investments in portfolio companies and other investments and to comply with certain portfolio diversification requirements, (ii) the cost of operations (including paying or reimbursing our Adviser), (iii) debt service, repayment and other financing costs of any borrowings and (iv) cash distributions to the holders of our shares.
We may from time to time enter into additional credit facilities, increase the size of our existing credit facilities or issue additional debt securities. Any such incurrence or issuance would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. In accordance with the 1940 Act, with certain limited exceptions, we are only allowed to incur borrowings, issue debt securities or issue preferred stock, if immediately after the borrowing or issuance, the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock, is at least 200% (or 150% if certain conditions are met). In addition, from time to time, we may seek to retire, repurchase, or exchange debt securities in open market purchases or by other means, including privately negotiated transactions, in each case dependent on market conditions, liquidity, contractual obligations, and other matters. The amounts involved in any such transactions, individually or in the aggregate, may be material.
As of December 31, 2023 and December 31, 2022, our asset coverage ratios were 239% and 229%, respectively. We seek to carefully consider our unfunded commitments for the purpose of planning our ongoing financial leverage. Further, we maintain sufficient borrowing capacity within the 200% (or 150% if certain conditions are met) asset coverage limitation to cover any outstanding unfunded commitments we are required to fund.
Cash as of December 31, 2023, taken together with our available debt, is expected to be sufficient for our investing activities and to conduct our operations in the near term. As of December 31, 2023, we had $126.4 million in cash. During the year ended December 31, 2023, cash provided by operating activities was $358.1 million, primarily as a result of selldowns and repayments of portfolio investments of $521.1 million and other operating activities of $91.3 million, partially offset by funding portfolio investments of $254.4 million. Lastly, we used $279.0 million of cash for financing activities during the period, which was the result of debt issuance costs of $12.9 million, net repayments on our credit facilities of $105.2 million, distributions paid of $57.2 million and repurchased shares of $103.7 million. Our long-term cash needs will include principal payments on outstanding indebtedness and funding of additional portfolio investments. Funding for long-term cash needs will come from unused net proceeds from financing activities. We believe that our liquidity and sources of capital are adequate to satisfy our short and long-term cash requirements. We cannot, however, be certain that these sources of funds will be available at a time and upon terms acceptable to us in sufficient amounts in the future.
As of December 31, 2022, we had $47.3 million in cash. During the year ended December 31, 2022, cash provided by operating activities was $246.0 million, primarily as a result of selldowns and repayments of portfolio investments of $346.9 million and other operating activities of $78.1 million, partially offset by funding portfolio investments of $178.9 million. Lastly, we used $252.8 million in cash for financing activities during the period, which was the result of debt issuance costs of $1.9 million, net repayments on our credit facilities of $116.8 million, distributions paid of $49.5 million and repurchased shares of $84.6 million.
Net Assets
Share Issuances
We currently have the authority to issue 450,000,000 common shares at $0.01 per share par value. Prior to our continuous public offering, we issued 100 shares of common stock to our Adviser and 277,788 shares of our common stock to certain individuals and entities affiliated with our Adviser in a private placement. We issued 151,364,239 shares of common stock in our continuous public offering prior to its termination on April 30, 2021.
The table below summarizes transactions with respect to shares of our common stock during the following periods.
For the Years Ended
December 31, 2023 December 31, 2022 December 31, 2021
($ in thousands, except share amounts) Shares
Amount
Shares
Amount
Shares
Amount
Shares/gross proceeds from the continuous public offering - $ - - $ - 8,050,298 $ 73,299
Reinvestment of distributions 5,367,227 48,104 4,759,464 41,973 4,647,395 41,615
Repurchased Shares (11,530,869) (103,659) (9,630,699) (84,622) (6,769,401) (60,806)
Total shares/gross proceeds (6,163,642) (55,555) (4,871,235) (42,649) 5,928,292 54,108
Sales load - - - - - (1,523)
Total shares/net proceeds (6,163,642) $ (55,555) (4,871,235) $ (42,649) 5,928,292 $ 52,585
Prior to the termination of our continuous public offering, in the event of a material decline in our net asset value per share, our Board reduced the offering price in order to establish a new net offering price per share. We will not sell shares at a net offering price below the net asset value per share unless we obtain the requisite approval from our shareholders. The changes to our offering price per share since the commencement of our initial continuous public offering and associated approval and effective dates of such changes were as follows:
Approval Date Effective Date Gross Offering Price Per Share Net Offering Price Per Share
January 6, 2021 January 6, 2021 $ 9.37 $ 8.90
March 23, 2021 March 24, 2021 $ 9.42 $ 8.95
We determined not to file additional post-effective amendments to our registration statement and terminated our offering as of April 30, 2021.
Subsequent to April 30, 2021, shares issued pursuant to the dividend reinvestment plan were issued as follows:
Date of Issuance Record Date Number of Shares Purchase Price
per Share
May 26, 2021 May 25, 2021 364,726 $ 8.93
June 30, 2021 June 29, 2021 450,718 $ 8.99
July 28, 2021 July 27, 2021 392,202 $ 8.95
August 25, 2021 August 24, 2021 389,897 $ 8.95
September 29, 2021 September 28, 2021 384,273 $ 9.00
October 27, 2021 October 26, 2021 387,954 $ 8.96
November 24, 2021 November 23, 2021 389,853 $ 8.95
December 29, 2021 December 28, 2021 387,939 $ 9.00
January 26, 2022 January 25, 2022 389,571 $ 8.98
February 23, 2022 February 22, 2022 390,759 $ 8.98
March 30, 2022 March 29, 2022 391,196 $ 8.88
April 27, 2022 April 26, 2022 392,301 $ 8.88
May 25, 2022 May 24, 2022 393,757 $ 8.87
June 29, 2022 June 28, 2022 395,352 $ 8.69
July 27, 2022 July 26, 2022 398,628 $ 8.66
August 31, 2022 August 30, 2022 396,093 $ 8.74
September 28, 2022 September 27, 2022 390,703 $ 8.77
October 26, 2022 October 25, 2022 391,492 $ 8.77
November 15, 2022 September 20, 2022 58,594 $ 8.77
November 30, 2022 November 29, 2022 390,290 $ 8.76
December 28, 2022 December 27, 2022 380,728 $ 8.86
February 1, 2023 January 31, 2023 379,272 $ 8.89
February 2, 2023 December 31, 2022 126,215 $ 8.89
March 1, 2023 February 28, 2023 380,932 $ 8.88
March 29, 2023 March 28, 2023 376,723 $ 8.90
April 26, 2023 April 25, 2023 377,165 $ 8.90
April 28, 2023 March 31, 2023 125,586 $ 8.90
May 31, 2023 May 30, 2023 380,161 $ 8.88
June 28, 2023 June 27, 2023 366,863 $ 8.96
July 26, 2023 July 25, 2023 365,479 $ 8.97
July 31, 2023 June 30, 2023 121,887 $ 8.97
August 30, 2023 August 29, 2023 366,982 $ 8.99
September 27, 2023 September 26, 2023 355,431 $ 9.08
November 1, 2023 October 31, 2023 428,157 $ 9.02
November 13, 2023 September 30, 2023 356,503 $ 9.00
November 29, 2023 November 28, 2023 432,272 $ 9.04
December 27, 2023 December 26, 2023 427,597 $ 9.03
Distributions
Our Board has authorized and declared weekly distribution amounts per share of common stock through June 30, 2021, and monthly and/or quarterly distribution amounts per share of common stock thereafter, in each case payable monthly and/or quarterly in arrears. The following table presents cash distributions per share that were declared during the year ended December 31, 2023:
For the Year Ended December 31, 2023
Declaration Date Record Date Payment Date Dividend Distribution Per Share
Distribution Amount
($ in thousands, except per share amounts)
November 1, 2022 January 31, 2023 February 1, 2023 Monthly $ 0.050180 $ 7,352
November 1, 2022 February 28, 2023 March 1, 2023 Monthly 0.050180 7,377
November 1, 2022 March 28, 2023 March 29, 2023 Monthly 0.050180 7,396
February 21, 2023 March 31, 2023 April 28, 2023 Quarterly 0.016731 2,429
February 21, 2023 April 25, 2023 April 26, 2023 Monthly 0.050180 7,285
February 21, 2023 May 30, 2023 May 31, 2023 Monthly 0.050180 7,309
February 21, 2023 June 27, 2023 June 28, 2023 Monthly 0.050180 7,329
May 9, 2023 June 30, 2023 July 31, 2023 Quarterly 0.016731 2,383
May 9, 2023 July 25, 2023 July 26, 2023 Monthly 0.050180 7,146
May 9, 2023 August 29, 2023 August 30, 2023 Monthly 0.050180 7,170
May 9, 2023 September 26, 2023 September 27, 2023 Monthly 0.050180 7,188
September 11, 2023 September 30, 2023 November 13, 2023 Quarterly 0.050000 7,025
September 11, 2023 October 31, 2023 November 1, 2023 Monthly 0.060000 8,431
September 11, 2023 November 28, 2023 November 29, 2023 Monthly 0.060000 8,478
September 11, 2023 December 26, 2023 December 27, 2023 Monthly 0.060000 8,504
November 16, 2023 December 31, 2023 January 30, 2024 Quarterly 0.030000 4,210
Total $ 0.745082 $ 107,012
During certain periods, our distributions may exceed our earnings. As a result, it is possible that a portion of the distributions we make may represent a return of capital. A return of capital generally is a return of a shareholder’s investment rather than a return of earnings or gains derived from our investment activities. Each year a statement on Form 1099-DIV identifying the tax character of the
distributions will be mailed to our shareholders. The tax character of the distributions are not determined until the Company’s taxable year end.
The following table presents cash distributions per share that were declared during the year ended December 31, 2022:
For the Year Ended December 31, 2022
Declaration Date Record Date Payment Date Dividend Distribution Per Share
Distribution Amount
($ in thousands, except per share amounts)
January 25, 2022 January 25, 2022 January 26, 2022 Monthly $ 0.050180 $ 7,596
January 25, 2022 February 22, 2022 February 23, 2022 Monthly 0.050180 7,616
January 25, 2022 March 29, 2022 March 30, 2022 Monthly 0.050180 7,635
February 23, 2022 April 26, 2022 April 27, 2022 Monthly 0.050180 7,568
February 23, 2022 May 24, 2022 May 25, 2022 Monthly 0.050180 7,588
February 23, 2022 June 28, 2022 June 29, 2022 Monthly 0.050180 7,607
May 3, 2022 July 26, 2022 July 27, 2022 Monthly 0.050180 7,479
May 3, 2022 August 30, 2022 August 31, 2022 Monthly 0.050180 7,499
August 2, 2022 September 30, 2022 November 15, 2022 Quarterly 0.007589 1,120
May 3, 2022 September 27, 2022 September 28, 2022 Monthly 0.050180 7,519
August 2, 2022 October 25, 2022 October 26, 2022 Monthly 0.050180 7,406
August 2, 2022 November 29, 2022 November 30, 2022 Monthly 0.050180 7,429
August 2, 2022 December 27, 2022 December 28, 2022 Monthly 0.050180 7,448
November 1, 2022 December 31, 2022 February 2, 2023 Quarterly 0.016731 2,451
Total $ 0.626480 $ 93,961
The following table presents cash distributions per share that were declared during the year ended December 31, 2021:
For the Year Ended December 31, 2021
Declaration Date Record Date Payment Date Dividend Distribution Per Share
Distribution Amount
($ in thousands, except per share amounts)
November 3, 2020 January 26, 2021 (1)
January 27, 2021 Monthly $ 0.050180 $ 6,776
November 3, 2020 February 23, 2021 (1)
February 24, 2021 Monthly 0.050180 6,895
November 3, 2020 March 30, 2021 (1)
March 31, 2021 Monthly 0.050180 8,763
February 23, 2021 April 27, 2021 (1)
April 28, 2021 Monthly 0.050180 7,036
February 23, 2021 May 25, 2021 (1)
May 26, 2021 Monthly 0.050180 7,089
February 23, 2021 June 29, 2021 (1)
June 30, 2021 Monthly 0.050180 8,884
May 5, 2021 July 27, 2021 July 28, 2021 Monthly 0.050180 7,612
May 5, 2021 August 24, 2021 August 25, 2021 Monthly 0.050180 7,631
May 5, 2021 September 28, 2021 September 29, 2021 Monthly 0.050180 7,650
August 3, 2021 October 26, 2021 October 27, 2021 Monthly 0.050180 7,604
August 3, 2021 November 23, 2021 November 24, 2021 Monthly 0.050180 7,623
August 3, 2021 December 28, 2021 December 29, 2021 Monthly 0.050180 7,649
Total $ 0.602160 $ 91,212
______________
(1)The Board authorized and declared weekly distribution amounts per share of common stock through June 30, 2021, which were paid monthly to shareholders as of the weekly record date.
With respect to distributions, we have adopted an “opt-in” dividend reinvestment plan for common shareholders. As a result, in the event of a declared distribution, each shareholder that has not “opted-in” to the dividend reinvestment plan will have their dividends or distributions automatically received in cash rather than reinvested in additional shares of our common stock. Shareholders who receive distributions in the form of shares of common stock will be subject to the same U.S. federal, state and local tax consequences as if they received cash distributions.
We may fund our cash distributions to shareholders from any source of funds available to us, including but not limited to offering proceeds, net investment income from operations, capital gains proceeds from the sale of assets, dividends or other distributions paid to us on account of preferred and common equity investments in portfolio companies and, prior to November 7, 2023, expense support from the Adviser, which is subject to recoupment. In no event, however, will funds be advanced or borrowed for purpose of distributions, if the amount of such distributions would exceed our accrued and received net revenues for the previous four quarters, less paid and accrued operating expenses with respect to such revenues and costs.
Through December 31, 2023, pursuant to the Expense Support Agreement which was terminated by the Adviser on November 7, 2023, a portion of our distributions resulted from expense support from the Adviser which are subject to repayment by us within three years from the date of payment. The purpose of this arrangement was to avoid distributions being characterized as a return of capital for U.S. federal income tax purposes. Shareholders should understand that any such distributions were not based on our investment performance and can only be sustained if we achieve positive investment performance in future periods and/or the Adviser continues to provide expense support. Shareholders should also understand that our future repayments of expense support will reduce the distributions that they would otherwise receive. There can be no assurance that we will achieve the performance necessary to sustain these distributions or be able to pay distributions at all.
Sources of distributions, other than net investment income and realized gains on a U.S. GAAP basis, include required adjustments to U.S. GAAP net investment income in the current period to determine taxable income available for distributions. The tables below reflect the sources of cash distributions on a U.S. GAAP basis that we have declared on our shares of common stock during the following periods:
Years Ended December 31, 2023
Source of Distribution Per Share Amount Percentage
($ in thousands, except per share amounts)
Net investment income $ 0.84 $ 120,432 112.5 %
Net realized gain on investments - - -
Distributions in excess of (undistributed) net investment income and realized gains (0.09) (13,420) (12.5)
Total $ 0.75 $ 107,012 100.0 %
Years Ended December 31, 2022
Source of Distribution Per Share Amount Percentage
($ in thousands, except per share amounts)
Net investment income $ 0.68 $ 101,473 108.0 %
Net realized gain on investments(1)
- 524 0.6
Distributions in excess of (undistributed) net investment income and realized gains (0.05) (8,036) (8.6)
Total $ 0.63 $ 93,961 100.0 %
________________
(1) The per share amount rounds to less than $0.01 per share.
Year Ended December 31, 2021
Source of Distribution Per Share Amount Percentage
($ in thousands, except per share amounts)
Net investment income $ 0.59 $ 89,655 98.3 %
Net realized gain (loss) on investments
- - -
Distributions in excess of net investment income
0.01 1,557 1.7
Total $ 0.60 $ 91,212 100.0 %
Share Repurchases
In the third quarter of 2017, we began offering, and on a quarterly basis, intend to continue offering, to repurchase shares of our common stock on such terms as may be determined by our Board in its complete discretion. The Board has complete discretion to determine whether we will engage in any share repurchase, and if so, the terms of such repurchase. At the discretion of our Board, we may use cash on hand, cash available from borrowings, and cash from the sale of our investments as of the end of the applicable period to repurchase shares.
All shares purchased by us pursuant to the terms of each offer to repurchase will be retired and thereafter will be authorized and unissued shares.
Any periodic repurchase offers are subject in part to our available cash and compliance with the BDC and RIC qualification and diversification rules promulgated under the 1940 Act and the Code, respectively. While we intend to continue to conduct quarterly tender offers as described above, we are not required to do so and may suspend or terminate the share repurchase program at any time.
Offer Date Tender Offer Expiration Tender Offer Purchase Price per Share Shares Repurchased
March 10, 2021 April 6, 2021 $18,995,153 $8.95 1,945,553
June 1, 2021 June 28, 2021 $19,621,539 $8.99 2,182,596
August 30, 2021 September 27, 2021 $11,911,588 $9.00 1,323,510
November 29, 2021 December 27, 2021 $11,859,682 $9.00 1,317,742
March 1, 2022 March 28, 2022 $15,362,486 $8.88 1,730,010
May 27, 2022 June 27, 2022 $25,733,988 $8.69 2,961,334
August 29, 2022 September 26, 2022 $23,067,664 $8.77 2,630,292
November 28, 2022 December 23, 2022 $20,458,302 $8.86 2,309,063
February 28, 2023 March 27, 2023 $23,098,513 $8.90 2,595,339
May 26, 2023 June 26, 2023 $36,020,345 $8.96 4,020,194
August 28, 2023 September 25, 2023 $28,143,907 $9.08 3,099,549
November 27, 2023 December 22, 2023 $16,396,554 $9.03 1,815,787
Total Return Since Inception
Cumulative total return for the period April 4, 2017 to December 31, 2023 was 64.6% (without upfront sales load) and 56.4% (with maximum upfront sales load). The following table presents cumulative total returns for the year ended December 31, 2023, rolling 1-year, 3-year and 5-year periods and since inception.
Shareholder Returns (Without Sales Charge) Shareholder Returns (With
Maximum Sales Charge)
Annualized Total Return Cumulative Total Return
Since Inception
YTD 1-Year 3-Year 5-Year Since Inception Cumulative Total Return
Since Inception
Total Shareholder Returns(1)(2)
10.4% 10.4% 9.0% 9.1% 9.9% 64.6% 56.4%
______________
(1)Compounded monthly.
(2)Total return is calculated as the change in net asset value (“NAV”) per share (assuming dividends and distributions, if any, are reinvested in accordance with the Company’s dividend reinvestment plan), if any, divided by the beginning NAV per share (which for the purposes of this calculation is equal to the net offering price in effect at that time).
Past performance does not guarantee future results. Returns reflect reinvestment of distributions and the deduction of ongoing expenses that are borne by investors, such as management fees, incentive fees, interest expense, offering costs, professional fees, director fees and other general and administrative expenses. An investment in the Company is subject to a maximum upfront sales load of 5% of the offering price, which will reduce the amount of capital available for investment. Operating expenses may vary in the future based on the amount of capital raised, the Adviser’s election to continue expense support, and other unpredictable variables.
Debt
Aggregate Borrowings
Our debt obligations consisted of the below as of the following periods:
December 31, 2023
($ in thousands) Aggregate Principal
Committed Outstanding
Principal Amount
Available(1)
Net Carrying
Value(2)
SPV Asset Facility I $ 250,000 $ 60,000 $ 174,934 $ 58,715
SPV Asset Facility II 325,000 125,000 19,715 120,008
CLO XIII 260,000 260,000 - 257,764
2024 Notes 100,000 100,000 - 101,138
2026 Notes 350,000 350,000 - 343,473
Total Debt $ 1,285,000 $ 895,000 $ 194,649 $ 881,098
______________
(1)The amount available reflects any limitations related to each credit facility’s borrow base.
(2)The carrying value of the Company’s SPV Asset Facility I, SPV Asset Facility II, CLO XIII, 2024 Notes and 2026 Notes are presented net of deferred financing costs of $1.3 million, $5.0 million, $2.2 million, $(1.1) million and $6.5 million, respectively.
December 31, 2022
($ in thousands) Aggregate Principal
Committed Outstanding
Principal Amount
Available(1)
Net Carrying
Value(2)
SPV Asset Facility I $ 500,000 $ 374,222 $ 29,179 $ 374,084
SPV Asset Facility II 325,000 176,000 79,146 172,397
2024 Notes 450,000 450,000 - 450,192
Total Debt $ 1,275,000 $ 1,000,222 $ 108,325 $ 996,673
______________
(1)The amount available reflects any limitations related to each credit facility’s borrow base.
(2)The carrying value of the Company’s SPV Asset Facility I, SPV Asset Facility II and 2024 Notes are presented net of deferred financing costs of $0.1 million, $3.6 million and $(0.2) million, respectively.
For the following periods, the components of interest expense were as follows:
For the Years Ended December 31,
($ in thousands) 2023 2022 2021
Interest expense $ 64,691 $ 48,420 $ 37,259
Amortization of debt issuance costs 2,558 1,590 2,320
Total Interest Expense $ 67,249 $ 50,010 $ 39,579
Average interest rate 6.4 % 4.4 % 3.3 %
Average daily borrowings $ 956,970 $ 1,048,712 $ 1,069,485
SPV Asset Facilities
Certain of our wholly owned subsidiaries are parties to credit facilities (the “SPV Asset Facilities”). Pursuant to the SPV Asset Facilities, we sell and contribute certain investments to these wholly owned subsidiaries pursuant to sale and contribution agreements by and between us and the wholly owned subsidiaries. No gain or loss is recognized as a result of these contributions. Proceeds from the SPV Asset Facilities are used to finance the origination and acquisition of eligible assets by the wholly owned subsidiary, including the purchase of such assets from us. We retain a residual interest in assets contributed to or acquired to the wholly owned subsidiary through our ownership of the wholly owned subsidiary.
The SPV Asset Facilities are secured by a perfected first priority security interest in the assets of these wholly owned subsidiaries and on any payments received by such wholly owned subsidiaries in respect of those assets. Assets pledged to lenders under the SPV Asset Facilities will not be available to pay our debts.
The SPV Asset Facilities contain customary covenants, including certain limitations on the incurrence by us of additional indebtedness and on our ability to make distributions to our shareholders, or redeem, repurchase or retire shares of stock, upon the occurrence of certain events, and customary events of default (with customary cure and notice provisions).
SPV Asset Facility I
On December 1, 2017 (the “SPV Asset Facility I Closing Date”), ORCC II Financing LLC and OR Lending II LLC (collectively, the “Subsidiaries”), each a Delaware limited liability company and a wholly-owned subsidiary of us, entered into a Credit Agreement (the “SPV Asset Facility I”). Parties to the SPV Asset Facility I include ORCC II Financing LLC and OR Lending II LLC, as Borrowers, and the lenders from time to time parties thereto (the “SPV I Lenders”), Goldman Sachs Bank USA as Sole Lead Arranger, Syndication Agent and Administrative Agent, State Street Bank and Trust Company as Collateral Administrator and Collateral Agent and Cortland Capital Market Services LLC as Collateral Custodian. From time to time, the parties to the SPV Asset Facility I have amended the SPV Asset Facility I and the related transaction documents.
The summary below reflects the terms of the SPV Asset Facility I as amended from time to time, including by Amendment No. 1 to the Third Amended and Restated Credit Agreement, entered into on September 20, 2023, by the parties to the SPV Asset Facility I.
From time to time, we sell and contribute certain investments to ORCC II Financing LLC pursuant to a Sale and Contribution Agreement by and between us and ORCC II Financing LLC. No gain or loss will be recognized as a result of these sales and contributions. Proceeds from the SPV Asset Facility I have been and will be used to finance the origination and acquisition of eligible assets by the Subsidiaries, including the purchase of such assets from us. We retain a residual interest in assets contributed to or acquired by the Subsidiaries through our ownership of the Subsidiaries. The maximum principal amount of the SPV Asset Facility I is $250 million (decreased from $500 million on September 20, 2023); the availability of this amount is subject to a borrowing base test, which is based on the amount of the Subsidiaries’ assets from time to time, and satisfaction of certain conditions, including certain concentration limits.
The SPV Asset Facility I provides for a reinvestment period up to and including November 30, 2025. (the “SPV Asset Facility I Commitment Termination Date”). Prior to the SPV Asset Facility I Commitment Termination Date, proceeds received by the Subsidiaries from interest, dividends, or fees on assets must be used to pay expenses and interest on outstanding borrowings, and the excess may be returned to the Company, subject to certain conditions. Proceeds received from principal on assets prior to the SPV Asset Facility I Commitment Termination Date must be used to make quarterly payments of principal on outstanding borrowings. Following the SPV Asset Facility I Commitment Termination Date, proceeds received by the Subsidiaries from interest and principal on collateral assets must be used to make quarterly payments of principal on outstanding borrowings. Subject to certain conditions, between quarterly payment dates prior to and after the SPV Asset Facility I Commitment Termination Date, excess interest proceeds and principal proceeds may be released to the Subsidiaries to make distributions to us.
The SPV Asset Facility I will mature on November 30, 2026. Amounts drawn in USD bear interest at Term SOFR plus a 2.70% spread and the spread is also payable on a portion of any undrawn amounts. The Company borrows utilizing three-month SOFR rate loans. The SPV Asset Facility I contains customary covenants, including certain financial maintenance covenants, limitations on the activities of the Subsidiaries, including limitations on incurrence of incremental indebtedness, and customary events of default. The SPV Asset Facility I is secured by a perfected first priority security interest in our equity interests in the Subsidiaries and in the assets of the Subsidiaries and on any payments received by the Subsidiaries in respect of those assets. Upon the occurrence of certain value adjustment events relating to the assets securing the SPV Asset Facility I, the Subsidiaries will also be required to provide certain cash collateral. Assets pledged to the SPV I Lenders will not be available to pay our debts.
Borrowings of the Subsidiaries are considered our borrowings for purposes of complying with the asset coverage requirements under the 1940 Act.
In connection with the SPV Asset Facility I, we entered into a Non-Recourse Carveout Guaranty Agreement on the SPV Asset Facility I Closing Date, which was amended and restated twice on March 11, 2019 and April 29, 2019, with State Street Bank and Trust Company, on behalf of certain secured parties, and Goldman Sachs Bank USA. Pursuant to the Non-Recourse Carveout Guaranty Agreement, we guarantee certain losses, damages, costs, expenses, liabilities, claims and other obligations incurred in connection with certain instances of fraud or bad faith misrepresentation, material encumbrances of certain collateral, misappropriation of certain funds, certain transfers of assets, and the bad faith or willful breach of certain provisions of the SPV Asset Facility I.
SPV Asset Facility II
On April 14, 2020 (the “SPV Asset Facility II Closing Date”), ORCC II Financing II LLC (“ORCC II Financing II”), a Delaware limited liability company and newly formed subsidiary of us entered into a Credit Agreement (the “SPV Asset Facility II”), with ORCC II Financing II, as Borrower, the lenders from time to time parties thereto (the “SPV II Lenders”), Natixis, New York Branch, as Administrative Agent, State Street Bank and Trust Company as Collateral Agent and Cortland Capital Market Services LLC as Document Custodian. The parties to the SPV Asset Facility II have entered into various amendments, including to increase the maximum principal amount of the SPV Asset Facility II, change the interest rates for amounts drawn in U.S. dollars, to extend the maturity of the SPV Asset Facility II to convert the benchmark rate of the facility from LIBOR to Term SOFR and make certain other changes. The following describes the terms of the SPV Asset Facility II as amended through April 4, 2023 (the “SPV Asset Facility II Third Amendment Date”).
From time to time, we expect to sell and contribute certain investments to ORCC II Financing II pursuant to a Sale and Contribution Agreement by and between us and ORCC II Financing II. No gain or loss will be recognized as a result of these sales and contributions. Proceeds from the SPV Asset Facility II will be used to finance the origination and acquisition of eligible assets by ORCC II Financing II, including the purchase of such assets from us. We retain a residual interest in assets contributed to or acquired by ORCC II Financing II through our ownership of ORCC II Financing II. The maximum principal amount of the SPV Asset Facility II as of the SPV Asset Facility II Third Amendment Date is $325 million; the availability of this amount is subject to an overcollateralization ratio test, which is based on the value of ORCC II Financing II’s assets from time to time, and satisfaction of certain conditions, including an interest coverage ratio test, certain concentration limits and collateral quality tests.
The SPV Asset Facility II provides for the ability to (1) draw term loans and (2) draw and redraw revolving loans under the SPV Asset Facility II through April 4, 2025 unless the revolving commitments are terminated or converted to term loans sooner as provided in the SPV Asset Facility II (the “SPV Asset Facility II Commitment Termination Date”). Unless otherwise terminated, the SPV Asset Facility II will mature on April 4, 2033 (the “SPV Asset Facility II Stated Maturity”). Prior to the SPV Asset Facility II Stated Maturity, proceeds received by ORCC II Financing II from principal and interest, dividends, or fees on assets must be used to pay fees, expenses and interest on outstanding borrowings, and the excess may be returned to us, subject to certain conditions. On the SPV Asset Facility II Stated Maturity, ORCC II Financing II must pay in full all outstanding fees and expenses and all principal and interest on outstanding borrowings, and the excess may be returned to us.
Amounts drawn bear interest at Term SOFR (or, in the case of certain lenders that are commercial paper conduits, the lower of their cost of funds and Term SOFR plus 0.25%) plus, (x) with respect to revolving loans, 2.75% and (y) with respect to term loans, 2.75% during the SPV Asset Facility II’s reinvestment period and 2.75% thereafter. From the SPV Asset Facility II Closing Date to the SPV Asset Facility II Commitment Termination Date, there is a commitment fee of 0.75% per annum on the undrawn amount, if any, of the revolving commitments in the SPV Asset Facility II. The SPV Asset Facility II contains customary covenants, including certain financial maintenance covenants, limitations on the activities of ORCC II Financing II, including limitations on incurrence of incremental indebtedness, and customary events of default. The SPV Asset Facility II is secured by a perfected first priority security interest in the assets of ORCC II Financing II and on any payments received by ORCC II Financing II in respect of those assets. Assets pledged to the SPV II Lenders will not be available to pay the debts of the Company.
Borrowings of ORCC II Financing II are considered our borrowings for purposes of complying with the asset coverage requirements under the 1940 Act.
CLO XIII
On September 12, 2023 (the “CLO XIII Closing Date”), we completed a $399.3 million term debt securitization transaction (the “CLO XIII Transaction”), also known as a collateralized loan obligation transaction, which is a form of secured financing incurred by us. The secured notes and preferred shares issued in the CLO XIII Transaction were issued by our consolidated subsidiary Owl Rock CLO XIII, LLC, a limited liability organized under the laws of the State of Delaware (the “CLO XIII Issuer”) and are backed by a portfolio of collateral obligations consisting of middle market loans and participation interests in middle market loans as well as by other assets of the CLO XIII Issuer.
The CLO XIII Transaction was executed by (A) the issuance of the following classes of notes and preferred shares pursuant to an indenture and security agreement dated as of the CLO XIII Closing Date (the “CLO XIII Indenture”), by and among the CLO XIII Issuer and State Street Bank and Trust Company: (i) $228 million of AAA(sf) Class A Notes, which bear interest at three-month term SOFR plus 2.55% and (ii) $32 million of AA(sf) Class B Notes, which bear interest at three-month term SOFR plus 3.35% (together, the “CLO XIII Secured Notes”). The CLO XIII Secured Notes are secured by middle market loans, participation interests in middle market loans and other assets of the CLO XIII Issuer. The CLO XIII Secured Notes are scheduled to mature on September 20, 2035. The CLO XIII Secured Notes were privately placed by Goldman Sachs & Co. LLC as Placement Agent and NatWest Markets Securities Inc. as Co-Placement Agent.
Concurrently with the issuance of the CLO XIII Secured Notes, the CLO XIII Issuer issued approximately $139.3 million of subordinated securities in the form of 139,300 preferred shares at an issue price of U.S. $1,000 per share (the “CLO XIII Preferred Shares”). The CLO XIII Preferred Shares were issued by the CLO XIII Issuer as part of its issued share capital and are not secured by the collateral securing the CLO XIII Secured Notes. We purchased all of the CLO XIII Preferred Shares. We act as retention holder in connection with the CLO XIII Transaction for the purposes of satisfying certain U.S. and European Union regulations requiring
sponsors of securitization transactions to retain exposure to the performance of the securitized assets and as such are required to retain a portion of the CLO XIII Preferred Shares.
As part of the CLO XIII Transaction, we entered into a loan sale agreement with the CLO XIII Issuer dated as of the CLO XIII Closing Date, which provided for the contribution of approximately $36.4 million funded par amount of middle market loans from us to the CLO XIII Issuer on the CLO XIII Closing Date and for future sales from us to the CLO XIII Issuer on an ongoing basis. No gain or loss will be recognized as a result of these sales and contributions. Such loans constituted part of the initial portfolio of assets securing the CLO XIII Secured Notes. The remainder of the initial portfolio assets securing the CLO XIII Secured Notes consisted of approximately $298.5 million funded par amount of middle market loans purchased by the CLO XIII Issuer from ORCC II Financing LLC, a wholly-owned subsidiary of ours, under an additional loan sale agreement executed on the CLO XIII Closing Date between the CLO XIII Issuer and ORCC II Financing LLC and OR Lending II LLC, a wholly-owned subsidiary of ours. We, ORCC II Financing LLC and OR Lending II LLC each made customary representations, warranties, and covenants to the CLO XIII Issuer under the applicable loan sale agreement.
Through September 20, 2027, a portion of the proceeds received by the CLO XIII Issuer from the loans securing the CLO XIII Secured Notes may be used by the CLO XIII Issuer to purchase additional middle market loans under the direction of the Adviser in its capacity as collateral manager for the CLO XIII Issuer and in accordance with our investing strategy and ability to originate eligible middle market loans.
The CLO XIII Secured Notes are the secured obligations of the CLO XIII Issuer, and the CLO XIII Indenture includes customary covenants and events of default. The CLO XIII Secured Notes have not been registered under the Securities Act, or any state securities (e.g., “blue sky”) laws, and may not be offered or sold in the United States absent registration with the Securities and Exchange Commission or pursuant to an applicable exemption from such registration.
The Adviser will serve as collateral manager for the CLO XIII Issuer under a collateral management agreement dated as of the CLO XIII Closing Date (the “CLO XIII Collateral Management Agreement”). The Adviser is entitled to receive fees for providing these services. The Adviser has waived its right to receive such fees but may rescind such waiver at any time; provided, however, that if the Adviser rescinds such waiver, the management fee payable to the Adviser pursuant to the Investment Advisory Agreement will be offset by the amount of the collateral management fee attributable to the CLO XIII Issuer’s equity or notes owned by us. For further details, see “ITEM 1. - Notes to Consolidated Financial Statements - Note 5. Debt.”
2024 Notes
On November 26, 2019, we issued $300 million aggregate principal amount of our 4.625% notes due November 26, 2024 (the “ 2024 Notes”) in a private placement in reliance on Section 4(a)(2) of the Securities Act, and for initial resale to qualified institutional buyers pursuant to the exemption from registration provided by Rule 144A promulgated under the Securities Act.
On October 21, 2020, we issued an additional $50 million aggregate principal amount of the 2024 Notes, we issued an additional $100 million aggregate principal amount of the 2024 Notes in private placements in reliance on Section 4(a)(2) of the Securities Act, and for initial resale to qualified institutional buyers pursuant to the exemption from registration provided by Rule 144A promulgated under the Securities Act.
The 2024 Notes have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration.
The 2024 Notes were issued pursuant to an Indenture dated as of November 26, 2019 (the “Base Indenture”), between us and Wells Fargo Bank, National Association, as trustee (the “Trustee”), and a First Supplemental Indenture, dated as of November 26, 2019 (the “First Supplemental Indenture” and together with the Base Indenture, the “Indenture”), between us and the Trustee. The 2024 Notes will mature on November 26, 2024, unless repurchased or redeemed in accordance with their terms prior to such date. The 2024 Notes bear interest at a rate of 4.625% per year payable semi-annually on May 26 and November 26 of each year, commencing on May 26, 2020. The 2024 Notes will be our direct, general unsecured obligations and will rank senior in right of payment to all of our future indebtedness or other obligations that are expressly subordinated, or junior, in right of payment to the 2024 Notes. The 2024 Notes will rank pari passu, or equal, in right of payment with all of our existing and future indebtedness or other obligations that are not so subordinated. The 2024 Notes will rank effectively subordinated, or junior, to any of our future secured indebtedness or other obligations (including unsecured indebtedness that we later secure) to the extent of the value of the assets securing such indebtedness. The 2024 Notes will rank structurally subordinated, or junior, to all existing and future indebtedness and other obligations (including trade payables) incurred by our subsidiaries, financing vehicles or similar facilities.
The Indenture contains certain covenants, including covenants requiring us to (i) comply with the asset coverage requirements of the Investment Company Act of 1940, as amended, whether or not it is subject to those requirements, and (ii) provide financial information to the holders of the 2024 Notes and the Trustee if we are no longer subject to the reporting requirements under the Securities Exchange Act of 1934, as amended. These covenants are subject to important limitations and exceptions that are described in the Indenture.
In addition, if a change of control repurchase event, as defined in the Indenture, occurs prior to maturity, holders of the 2024 Notes will have the right, at their option, to require us to repurchase for cash some or all of the 2024 Notes at a repurchase price equal to 100% of the aggregate principal amount of the 2024 Notes being repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.
On November 15, 2023, we caused notice to be issued to the holders of the 2024 Notes regarding its exercise of the option to redeem $350 million in aggregate principal amount of the 2024 Notes at 100% of their principal amount, plus the accrued and unpaid interest thereon through, but excluding, the redemption date, December 15, 2023. On December 15, 2023, we redeemed $350 million in aggregate principal amount of the 2024 Notes at 100% of their principal amount, plus the accrued and unpaid interest thereon through, but excluding, December 15, 2023. As of December 31, 2023, $100 million in aggregate principal amount of the 2024 Notes remained outstanding.
2026 Notes
On November 15, 2023, we issued $350 million aggregate principal amount of its 8.450% notes due November 15, 2026 (the “2026 Notes”) in a private placement in reliance on Section 4(a)(2) of the Securities Act, and for initial resale to qualified institutional buyers pursuant to the exemption from registration provided by Rule 144A promulgated under the Securities Act. The 2026 Notes have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration.
The 2026 Notes were issued pursuant to an Indenture dated as of November 26, 2019 (the “Base Indenture”), between us and Computershare Trust Company, N.A., as successor to Wells Fargo Bank, National Association, as trustee (the “Trustee”), and a Second Supplemental Indenture, dated as of November 15, 2023 (the “Second Supplemental Indenture” and together with the Base Indenture, the “Indenture”), between us and the Trustee. The 2026 Notes will mature on November 15, 2026, unless repurchased or redeemed in accordance with their terms prior to such date. The 2026 Notes bear interest at a rate of 8.450% per year payable semi-annually on May 15 and November 15 of each year, commencing on May 15, 2024. Concurrent with the issuance of the 2026 Notes, we entered into a Registration Rights Agreement (the “2026 Registration Rights Agreement”) for the benefit of the purchasers of the 2026 Notes. Pursuant to the 2026 Registration Rights Agreement, we are obligated to file a registration statement with the SEC with respect to an offer to exchange the 2026 Notes for a new issue of debt securities registered under the Securities Act with terms substantially identical to those of the 2026 Notes (except for provisions relating to transfer restrictions and payment of additional interest) and to use its commercially reasonable efforts to consummate such exchange offer on the earliest practicable date after the registration statement has been declared effective but in no event later than 365 days after the initial issuance of the 2026 Notes. If we fail to satisfy our registration obligations under the 2026 Registration Rights Agreement, we will be required to pay additional interest to the holders of the 2026 Notes.
The 2026 Notes are our direct, general unsecured obligations and rank senior in right of payment to all of our future indebtedness or other obligations that are expressly subordinated, or junior, in right of payment to the 2026 Notes. The 2026 Notes rank pari passu, or equal, in right of payment with all of our existing and future indebtedness or other obligations that are not so subordinated. The 2026 Notes rank effectively subordinated, or junior, to any of our future secured indebtedness or other obligations (including unsecured indebtedness that we later secure) to the extent of the value of the assets securing such indebtedness. The 2026 Notes are structurally subordinated, or junior, to all existing and future indebtedness and other obligations (including trade payables) incurred by our subsidiaries, financing vehicles or similar facilities.
The Indenture contains certain covenants, including covenants requiring us to (i) comply with Section 18(a)(1)(A) of the 1940 Act, as modified by Section 61(a) of the 1940 Act, for the period of time during which the 2026 Notes are outstanding, whether or not it is subject to those requirements, and (ii) provide financial information to the holders of the 2026 Notes and the Trustee if we are no longer subject to the reporting requirements under the Exchange Act. These covenants are subject to important limitations and exceptions that are described in the Indenture.
In addition, if a change of control repurchase event, as defined in the Indenture, occurs prior to maturity, holders of the 2026 Notes will have the right, at their option, to require us to repurchase for cash some or all of the 2026 Notes at a repurchase price equal to 100% of the aggregate principal amount of the 2026 Notes being repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.
Off-Balance Sheet Arrangements
Portfolio Company Commitments
From time to time, we may enter into commitments to fund investments. As of the following periods, we had the below outstanding commitments to fund investments in current portfolio companies:
Portfolio Company Investment December 31, 2023 December 31, 2022
($ in thousands)
3ES Innovation Inc. (dba Aucerna) First lien senior secured revolving loan $ 237 $ 387
AAM Series 1.1 Rail and Domestic Intermodal Feeder, LLC LLC Interest 296 2,500
AAM Series 2.1 Aviation Feeder, LLC LLC Interest 17 2,424
ABB/Con-cise Optical Group LLC First lien senior secured revolving loan - 5
Adenza Group, Inc. First lien senior secured delayed draw term loan - 2,276
Adenza Group, Inc. First lien senior secured revolving loan - 3,496
Alera Group, Inc. First lien senior secured delayed draw term loan 7,133 -
Allied Benefit Systems Intermediate LLC First lien senior secured delayed draw term loan 464 -
AmSpec Group, Inc. (fka AmSpec Services Inc.) First lien senior secured revolving loan - 1,938
Anaplan, Inc. First lien senior secured revolving loan 972 972
Apex Service Partners, LLC First lien senior secured delayed draw term loan 150 -
Apex Service Partners, LLC First lien senior secured revolving loan 59 19
Apptio, Inc. First lien senior secured revolving loan - 196
Aramsco, Inc. First lien senior secured revolving loan - 835
Arctic Holdco, LLC (dba Novvia Group) First lien senior secured delayed draw term loan 1,354 -
Ascend Buyer, LLC (dba PPC Flexible Packaging) First lien senior secured revolving loan 52 79
Associations, Inc. First lien senior secured delayed draw term loan 3 300
Associations, Inc. First lien senior secured revolving loan 3,974 6,146
Bayshore Intermediate #2, L.P. (dba Boomi) First lien senior secured revolving loan 991 826
BCPE Osprey Buyer, Inc. (dba PartsSource) First lien senior secured delayed draw term loan 295 345
BCPE Osprey Buyer, Inc. (dba PartsSource) First lien senior secured revolving loan 36 52
BCTO BSI Buyer, Inc. (dba Buildertrend) First lien senior secured revolving loan 1,527 1,527
BP Veraison Buyer, LLC (dba Sun World) First lien senior secured delayed draw term loan - 6,081
BP Veraison Buyer, LLC (dba Sun World) First lien senior secured revolving loan 1,824 1,824
BradyIFS Holdings, LLC (fka Individual Foodservice Holdings, LLC) First lien senior secured delayed draw term loan 2,430 -
BradyIFS Holdings, LLC (fka Individual Foodservice Holdings, LLC) First lien senior secured revolving loan 2,476 4,529
Brightway Holdings, LLC First lien senior secured revolving loan 289 526
Catalis Intermediate, Inc. (fka GovBrands Intermediate, Inc.) First lien senior secured delayed draw term loan - 259
Catalis Intermediate, Inc. (fka GovBrands Intermediate, Inc.) First lien senior secured revolving loan 122 19
Delinea Buyer, Inc. (f/k/a Centrify) First lien senior secured revolving loan 1,345 -
CivicPlus, LLC First lien senior secured revolving loan 141 213
Portfolio Company Investment December 31, 2023 December 31, 2022
Crewline Buyer, Inc. (dba New Relic) First lien senior secured revolving loan 472 -
Denali BuyerCo, LLC (dba Summit Companies) First lien senior secured delayed draw term loan - 72
Denali BuyerCo, LLC (dba Summit Companies) First lien senior secured revolving loan 125 125
Diamondback Acquisition, Inc. (dba Sphera) First lien senior secured delayed draw term loan - 166
Douglas Products and Packaging Company LLC First lien senior secured revolving loan - 448
EET Buyer, Inc. (dba e-Emphasys) First lien senior secured revolving loan 73 91
Endries Acquisition, Inc. First lien senior secured delayed draw term loan 6,411 -
Entertainment Benefits Group, LLC First lien senior secured revolving loan 80 44
EOS U.S. Finco LLC First lien senior secured delayed draw term loan 1,244 -
Evolution BuyerCo, Inc. (dba SIAA) First lien senior secured delayed draw term loan 4,978 -
Evolution BuyerCo, Inc. (dba SIAA) First lien senior secured revolving loan 2,230 2,230
FARADAY BUYER, LLC (dba MacLean Power Systems) First lien senior secured delayed draw term loan 1,882 -
Finastra USA, Inc. First lien senior secured revolving loan 288 -
Forescout Technologies, Inc. First lien senior secured delayed draw term loan 6,825 6,825
Forescout Technologies, Inc. First lien senior secured revolving loan 700 700
Fortis Solutions Group, LLC First lien senior secured delayed draw term loan - 3
Fortis Solutions Group, LLC First lien senior secured revolving loan 85 78
Gainsight, Inc. First lien senior secured revolving loan 448 872
Galls, LLC First lien senior secured revolving loan 3,417 2,802
Gaylord Chemical Company, L.L.C. First lien senior secured revolving loan 2,609 2,609
Gerson Lehrman Group, Inc. First lien senior secured revolving loan 2,039 2,039
GI Ranger Intermediate, LLC (dba Rectangle Health) First lien senior secured revolving loan 29 66
Global Music Rights, LLC First lien senior secured revolving loan 83 83
H&F Opportunities LUX III S.À R.L (dba Checkmarx) First lien senior secured revolving loan 4,583 4,583
Hercules Borrower, LLC (dba The Vincit Group) First lien senior secured revolving loan 3,343 2,986
HGH Purchaser, Inc. (dba Horizon Services) First lien senior secured delayed draw term loan - 712
HGH Purchaser, Inc. (dba Horizon Services) First lien senior secured revolving loan 38 1,459
Hissho Sushi Merger Sub, LLC First lien senior secured revolving loan 70 56
Hometown Food Company First lien senior secured revolving loan - 376
Hyland Software, Inc. First lien senior secured revolving loan 85 -
Ideal Tridon Holdings, Inc. First lien senior secured revolving loan - 564
IG Investments Holdings, LLC (dba Insight Global) First lien senior secured revolving loan 723 434
Indigo Buyer, Inc. (dba Inovar Packaging Group) First lien senior secured delayed draw term loan - 250
Indigo Buyer, Inc. (dba Inovar Packaging Group) First lien senior secured revolving loan 60 83
Indikami Bidco, LLC (dba IntegriChain) First lien senior secured delayed draw term loan 377 -
Indikami Bidco, LLC (dba IntegriChain) First lien senior secured revolving loan 269 -
Portfolio Company Investment December 31, 2023 December 31, 2022
Integrity Marketing Acquisition, LLC First lien senior secured revolving loan 1,705 1,868
Integrity Marketing Acquisition, LLC First lien senior secured delayed draw term loan 6,857 -
Interoperability Bidco, Inc. (dba Lyniate) First lien senior secured revolving loan 654 326
Kaseya Inc. First lien senior secured delayed draw term loan 30 32
Kaseya Inc. First lien senior secured revolving loan 24 32
KPSKY Acquisition, Inc. (dba BluSky) First lien senior secured delayed draw term loan 58 -
KRIV Acquisition Inc. (dba Riveron) First lien senior secured delayed draw term loan 158 -
KRIV Acquisition Inc. (dba Riveron) First lien senior secured revolving loan 142 -
KWOL Acquisition Inc. (dba Worldwide Clinical Trials) First lien senior secured revolving loan 391 -
Lazer Spot Holdings, Inc. (f/k/a Lazer Spot GB Holdings, Inc.) First lien senior secured revolving loan - 7,542
Lignetics Investment Corp. First lien senior secured delayed draw term loan - 1,225
Lignetics Investment Corp. First lien senior secured revolving loan 245 588
Litera Bidco LLC First lien senior secured revolving loan 1,013 734
Mario Purchaser, LLC (dba Len the Plumber) First lien senior secured delayed draw term loan 149 195
Mario Purchaser, LLC (dba Len the Plumber) First lien senior secured revolving loan 39 55
MHE Intermediate Holdings, LLC (dba OnPoint Group) First lien senior secured revolving loan 1,786 1,536
Milan Laser Holdings LLC First lien senior secured revolving loan 2,837 1,961
MINDBODY, Inc. First lien senior secured revolving loan 1,071 1,071
Ministry Brands Holdings, LLC First lien senior secured delayed draw term loan - 226
Ministry Brands Holdings, LLC First lien senior secured revolving loan 32 34
National Dentex Labs LLC (fka Barracuda Dental LLC) First lien senior secured revolving loan 429 31
Natural Partners, LLC First lien senior secured revolving loan 68 68
Nelipak Holding Company First lien senior secured USD revolving loan 640 752
Nelipak Holding Company First lien senior secured EUR revolving loan 677 535
NMI Acquisitionco, Inc. (dba Network Merchants) First lien senior secured delayed draw term loan - 406
NMI Acquisitionco, Inc. (dba Network Merchants) First lien senior secured revolving loan 218 218
Norvax, LLC (dba GoHealth) First lien senior secured revolving loan 2,727 2,727
Notorious Topco, LLC (dba Beauty Industry Group) First lien senior secured delayed draw term loan - 1,408
Notorious Topco, LLC (dba Beauty Industry Group) First lien senior secured revolving loan 1,972 1,761
OB Hospitalist Group, Inc. First lien senior secured revolving loan 1,798 1,915
Ocala Bidco, Inc. First lien senior secured delayed draw term loan 4,499 4,499
Pacific BidCo Inc. First lien senior secured delayed draw term loan 191 191
Patriot Acquisition TopCo S.A.R.L (dba Corza Health, Inc.) First lien senior secured revolving loan 2,086 2,086
Peter C. Foy & Associates Insurance Services, LLC (dba PCF Insurance Services) First lien senior secured revolving loan 1,035 1,035
Portfolio Company Investment December 31, 2023 December 31, 2022
PetVet Care Centers, LLC First lien senior secured delayed draw term loan 1,993 -
PetVet Care Centers, LLC First lien senior secured revolving loan 2,092 -
Plasma Buyer LLC (dba PathGroup) First lien senior secured delayed draw term loan 176 177
Plasma Buyer LLC (dba PathGroup) First lien senior secured revolving loan 50 76
Pluralsight, LLC First lien senior secured revolving loan 289 647
Project Power Buyer, LLC (dba PEC-Veriforce) First lien senior secured revolving loan 563 563
QAD, Inc. First lien senior secured revolving loan 571 571
Quva Pharma, Inc. First lien senior secured revolving loan 1,182 615
Relativity ODA LLC First lien senior secured revolving loan 1,480 1,480
Sara Lee Frozen Bakery, LLC (fka KSLB Holdings, LLC) First lien senior secured revolving loan 653 220
Securonix, Inc. First lien senior secured revolving loan 153 153
Sensor Technology Topco, Inc. (dba Humanetics) First lien senior secured revolving loan 428 -
SimpliSafe Holding Corporation First lien senior secured delayed draw term loan 75 103
Smarsh Inc. First lien senior secured delayed draw term loan 95 96
Smarsh Inc. First lien senior secured revolving loan 8 48
Sonny's Enterprises, LLC First lien senior secured delayed draw term loan 573 -
Portfolio Company Investment December 31, 2023 December 31, 2022
Sonny's Enterprises, LLC First lien senior secured revolving loan 2,630 2,630
Swipe Acquisition Corporation (dba PLI) First lien senior secured delayed draw term loan 772 772
Swipe Acquisition Corporation (dba PLI) Letter of Credit 882 882
SWK BUYER, Inc. (dba Stonewall Kitchen) First lien senior secured delayed draw term loan - 175
SWK BUYER, Inc. (dba Stonewall Kitchen) First lien senior secured revolving loan 70 46
Tahoe Finco, LLC First lien senior secured revolving loan - 1,744
Tamarack Intermediate, L.L.C. (dba Verisk 3E) First lien senior secured delayed draw term loan 50 -
Tamarack Intermediate, L.L.C. (dba Verisk 3E) First lien senior secured revolving loan 112 92
Tempo Buyer Corp. (dba Global Claims Services) First lien senior secured delayed draw term loan - 198
Tempo Buyer Corp. (dba Global Claims Services) First lien senior secured revolving loan 67 91
The Better Being Co., LLC (fka Nutraceutical International Corporation) First lien senior secured revolving loan 941 -
The Shade Store, LLC First lien senior secured revolving loan 82 164
THG Acquisition, LLC (dba Hilb) First lien senior secured revolving loan 1,455 1,871
Thunder Purchaser, Inc. (dba Vector Solutions) First lien senior secured delayed draw term loan - 1,502
Thunder Purchaser, Inc. (dba Vector Solutions) First lien senior secured revolving loan 481 540
Troon Golf, L.L.C. First lien senior secured revolving loan 4,685 4,685
Ultimate Baked Goods Midco, LLC First lien senior secured revolving loan 2,000 1,475
Unified Women's Healthcare, LP First lien senior secured delayed draw term loan 6,000 33
Unified Women's Healthcare, LP First lien senior secured revolving loan 88 88
USRP Holdings, Inc. (dba U.S. Retirement and Benefits Partners) First lien senior secured revolving loan 183 183
Valence Surface Technologies LLC First lien senior secured revolving loan 12 12
Velocity HoldCo III Inc. (dba VelocityEHS) First lien senior secured revolving loan 322 294
Walker Edison Furniture Company LLC First lien senior secured delayed draw term loan 1,405 -
When I Work, Inc. First lien senior secured revolving loan 143 143
WU Holdco, Inc. (dba Weiman Products, LLC) First lien senior secured delayed draw term loan - -
WU Holdco, Inc. (dba Weiman Products, LLC) First lien senior secured revolving loan 1,620 1,690
XRL 1 LLC (dba XOMA) First lien senior secured delayed draw term loan 150 -
Total Unfunded Portfolio Company Commitments $ 137,815 $ 127,646
We seek to carefully consider our unfunded portfolio company commitments for the purpose of planning our ongoing financial leverage. Further, we consider any outstanding unfunded portfolio company commitments we are required to fund within the 200% asset coverage limitation. As of December 31, 2023, we believe we had adequate financial resources to satisfy the unfunded portfolio company commitments.
Organizational and Offering Costs
The Adviser has incurred organization and offering costs on behalf of us in the amount of $12.4 million for the period from October 15, 2015 (Inception) to December 31, 2023, of which $12.4 million have been charged to us pursuant to the Investment Advisory Agreement. Under the Investment Advisory Agreement and Administration Agreement, the Adviser is entitled to receive up to 1.5% of gross offering proceeds raised in our continuous public offering until all organization and offering costs paid by the Adviser have been recovered.
The Adviser has incurred organization and offering costs on behalf of us in the amount of $12.4 million for the period from October 15, 2015 (Inception) to December 31, 2022, of which $12.4 million has been charged to us pursuant to the Investment Advisory Agreement. Under the Investment Advisory Agreement and Administration Agreement, the Adviser is entitled to receive up to 1.5% of gross offering proceeds raised in our continuous public offering until all organization and offering costs paid by the Adviser have been recovered.
Other Commitments and Contingencies
From time to time, we may become a party to certain legal proceedings incidental to the normal course of our business. As of December 31, 2023, we were not aware of any material pending or threatened litigation that would require accounting recognition or financial statement disclosure.
Contractual Obligations
A summary of our contractual payment obligations under our SPV Asset Facility I, SPV Asset Facility II, CLO XIII, 2024 Notes and 2026 Notes as of December 31, 2023, is as follows:
Payments Due by Period
($ in thousands) Total Less than 1 year 1-3 years 3-5 years After 5 years
SPV Asset Facility I $ 60,000 $ - $ 60,000 $ - $ -
SPV Asset Facility II 125,000 - - - 125,000
CLO XIII 260,000 - - - 260,000
2024 Notes 100,000 100,000 - - -
2026 Notes 350,000 - 350,000 - -
Total Contractual Obligations $ 895,000 $ 100,000 $ 410,000 $ - $ 385,000
Related Party Transactions
We have entered into a number of business relationships with affiliated or related parties, including the following:
•the Investment Advisory Agreement;
•the Administration Agreement;
•the Expense Support Agreement;
•the Dealer Manager Agreement; and
•the License Agreement.
In addition to the aforementioned agreements, we, our Adviser and certain of our Adviser’s affiliates have been granted exemptive relief by the SEC to permit us to co-invest with other funds managed by the Adviser or its affiliates in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. See “ITEM 1. - Notes to Consolidated Financial Statements - Note 3. Agreements and Related Party Transactions” for further details.
Critical Accounting Policies
The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets, and any other parameters used in determining such estimates could cause actual results to differ. Our critical accounting policies should be read in connection with our risk factors as disclosed in “ITEM 1A. - RISK FACTORS.”
Investments at Fair Value
Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds received (excluding prepayment fees, if any) and the amortized cost basis of the investment using the specific identification method without regard to unrealized gains or losses previously recognized, and include investments charged off during the period, net of recoveries. The net change in unrealized gains or losses primarily reflects the change in investment values, including the reversal of previously recorded unrealized gains or losses with respect to investments realized during the period.
Rule 2a-5 under the 1940 Act establishes requirements for determining fair value in good faith for purposes of the 1940 Act. Pursuant to Rule 2a-5, the Board designated the Adviser as our valuation designee to perform fair value determinations relating to the value of assets we held for which market quotations are not readily available.
Investments for which market quotations are readily available are typically valued at the average bid price of those market quotations. To validate market quotations, we utilize a number of factors to determine if the quotations are representative of fair value, including the source and number of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available, as is the case for substantially all of our investments, are valued at fair value as determined in good faith by our Adviser, as valuation designee, based on, among other things, the input of the independent third-party valuation firm(s) engaged at the direction of our Adviser.
As part of the valuation process, our Adviser, as valuation designee, takes into account relevant factors in determining the fair value of our investments, including: the estimated enterprise value of a portfolio company (i.e., the total fair value of the portfolio company’s debt and equity), the nature and realizable value of any collateral, the portfolio company’s ability to make payments based on its earnings and cash flow, the markets in which the portfolio company does business, a comparison of the portfolio company’s securities to any similar publicly traded securities, and overall changes in the interest rate environment and the credit markets that may affect the price at which similar investments may be made in the future. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Board considers whether the pricing indicated by the external event corroborates its valuation.
Our Adviser, as valuation designee, undertakes a multi-step valuation process, which includes, among other procedures, the following:
•With respect to investments for which market quotations are readily available, those investments will typically be valued at the average bid price of those market quotations;
•With respect to investments for which market quotations are not readily available, the valuation process begins with the independent valuation firm(s) providing a preliminary valuation of each investment to the Adviser’s valuation committee;
•Preliminary valuation conclusions are documented and discussed with the Adviser’s valuation committee; and
•Our Adviser, as the valuation designee, reviews the recommended valuations and determines the fair value of each investment;
•Each quarter, our Adviser, as the valuation designee, provides the Audit Committee a summary or description of material fair value matters that occurred in the prior quarter and on an annual basis, our Adviser, as the valuation designee, will provide the Audit Committee with a written assessment of the adequacy and effectiveness of its fair value process; and
•The Audit Committee oversees the valuation designee and will report to the Board on any valuation matters requiring the Board’s attention.
We conduct this valuation process on a quarterly basis.
We apply Financial Accounting Standards Board Accounting Standards Codification 820, Fair Value Measurements (“ASC 820”), as amended, which establishes a framework for measuring fair value in accordance with U.S. GAAP and required disclosures of fair value measurements. ASC 820 determines fair value to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market (which may be a hypothetical market) that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820, we consider its principal market to be the market that has the greatest volume and level of activity. ASC 820 specifies a fair value hierarchy that prioritizes and ranks the level of observability of inputs used in determination of fair value. In accordance with ASC 820, these levels are summarized below:
•Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access.
•Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
•Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
Transfers between levels, if any, are recognized at the beginning of the period in which the transfer occurred. In addition to using the above inputs in investment valuations, we apply the valuation policy approved by our Board that is consistent with ASC 820. Consistent with the valuation policy, our Adviser, as the valuation designee, evaluates the source of the inputs, including any markets in which our investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value. When an investment is valued based on prices provided by reputable dealers or pricing services (that is, broker quotes), our Adviser, as the valuation designee, subjects those prices to various criteria in making the determination as to whether a particular investment would qualify for treatment as a Level 2 or Level 3 investment. For example, our Adviser, as the valuation designee, or the independent valuation firm(s), reviews pricing support provided by dealers or pricing services in order to determine if observable market information is being used, versus unobservable inputs.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Additionally, the fair value of such investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be realized. Further, such investments are generally less liquid than publicly traded securities and may be subject to contractual and other restrictions on resale. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize amounts that are different from the amounts presented and such differences could be material.
In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected herein.
Financial and Derivative Instruments
Rule 18f-4 requires BDCs that use derivatives to, among other things, comply with a value-at-risk leverage limit, adopt a derivatives risk management program, and implement certain testing and board reporting procedures. Rule 18f-4 exempts BDCs that qualify as “limited derivatives users” from the aforementioned requirements, provided that these BDCs adopt written policies and procedures that are reasonably designed to manage the BDC’s derivatives risks and comply with certain recordkeeping requirements. Rule 18f-4 provides that a BDC may enter into an unfunded commitment agreement that is not a derivatives transaction, such as an agreement to provide financing to a portfolio company, if the BDC has, among other things, a reasonable belief, at the time it enters into such an agreement, that it will have sufficient cash and cash equivalents to meet its obligations with respect to all of its unfunded commitment agreements, in each case as it becomes due. Pursuant to Rule 18f-4, when we trade reverse repurchase agreements or similar financing transactions, including certain tender option bonds, we need to aggregate the amount of any other senior securities representing indebtedness (e.g., bank borrowings, if applicable) when calculating our asset coverage ratio. The Company currently qualifies as a “limited derivatives user” and expects to continue to do so. The Company has adopted a derivatives policy and complies with the recordkeeping requirements of Rule 18f-4.
Interest and Dividend Income Recognition
Interest income is recorded on the accrual basis and includes accretion and amortization of discounts or premiums. Certain investments may have contractual payment-in-kind (“PIK”) interest or dividends. PIK interest or dividends represent accrued interest or dividends that are added to the principal amount or liquidation amount of the investment on the respective interest or dividend payment dates rather than being paid in cash and generally becomes due at maturity or at the occurrence of a liquidation event. Discounts and premiums to par value on securities purchased are accreted or amortized into interest income over the contractual life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion or amortization of discounts or premiums, if any. Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan origination fees and unamortized discounts are recorded as interest income in the current period.
Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected in full. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. If at any point we believe PIK interest or dividends are not expected to be realized, the investment generating PIK interest or dividends will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are generally reversed through interest income. Non-accrual loans are restored to accrual status when past due principal and interest is paid current and, in management’s judgment, are likely to remain current. Management may make exceptions to this treatment and determine to not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection.
Dividend income on preferred equity securities is recorded on the accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly-traded portfolio companies.
Distributions
We have elected to be treated for U.S. federal income tax purposes, and intend to qualify annually, as a RIC under Subchapter M of the Code. To obtain and maintain our tax treatment as a RIC, we must distribute (or be deemed to distribute) in each taxable year distributions for tax purposes equal to at least the sum of :
•90% of our investment company taxable income (which is generally our ordinary income plus the excess of realized short-term capital gains over realized net long-term capital losses), determined without regard to the deduction for dividends paid, for such taxable year; and
•90% of our net tax-exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions) for such taxable year.
As a RIC, we (but not our shareholders) generally will not be subject to U.S. federal tax on investment company taxable income and net capital gains that we distribute to our shareholders.
We intend to distribute annually all or substantially all of such income. To the extent that we retain our net capital gains or any investment company taxable income, we generally will be subject to U.S. federal income tax at corporate rates. We can be expected to carry forward our net capital gains or any investment company taxable income in excess of current year dividend distributions and pay the U.S. federal excise tax as described below.
Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% U.S. federal excise tax payable by us. We may be subject to a nondeductible 4% U.S. federal excise tax if we do not distribute (or are treated as distributing) during each calendar year an amount at least equal to the sum of:
•98% of our net ordinary income excluding certain ordinary gains or losses for that calendar year;
•98.2% of our capital gain net income, adjusted for certain ordinary gains and losses, recognized for the twelve-month period ending on October 31 of that calendar year; and
•100% of any income or gains recognized, but not distributed, in preceding years.
While we intend to distribute any income and capital gains in the manner necessary to minimize imposition of the 4% U.S. federal excise tax, sufficient amounts of our taxable income and capital gains may not be distributed and as a result, in such cases, the excise tax will be imposed. In such an event, we will be liable for this tax only on the amount by which we do not meet the foregoing distribution requirement.
We intend to pay monthly distributions to our shareholders out of assets legally available for distribution. All distributions will be paid at the discretion of our Board and will depend on our earnings, financial condition, maintenance of our tax treatment as a RIC, compliance with applicable BDC regulations and such other factors as our Board may deem relevant from time to time.
To the extent our current taxable earnings for a year fall below the total amount of our distributions for that year, a portion of those distributions may be deemed a return of capital to our shareholders for U.S. federal income tax purposes. Thus, the source of a distribution to our shareholders may be the original capital invested by the shareholder rather than our income or gains. Shareholders should read written disclosure carefully and should not assume that the source of any distribution is our ordinary income or gains.
With respect to distributions, the Company has adopted an “opt-in” dividend reinvestment plan for common shareholders. As a result, in the event of a declared distribution, each shareholder that has not “opted-in” to the dividend reinvestment plan will have their dividends or distributions automatically received in cash rather than reinvested in additional shares of our common stock. Shareholders who receive distributions in the form of shares of common stock will be subject to the same U.S. federal, state and local tax consequences as if they received cash distributions.
Income Taxes
We have elected to be treated as a BDC under the 1940 Act. We have also elected to be treated as a RIC under the Code beginning with our taxable year ended December 31, 2017 and intend to continue to qualify for tax treatment as a RIC. So long as we maintain our tax treatment as a RIC, we generally will not pay U.S. federal income taxes at corporate rates on any ordinary income or capital gains that we distribute at least annually to our shareholders as distributions. Rather, any tax liability related to income earned and distributed by us represents obligations of our investors and will not be reflected in our consolidated financial statements.
To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. In addition, to qualify for RIC tax treatment, we generally must distribute to our shareholders, for each taxable year, at least 90% of our “investment company taxable income” for that year, which is generally our ordinary income plus the excess of our realized net short-term capital gains over our realized net long-term capital losses. In addition, a RIC may, in certain cases, satisfy this distribution requirement by distributing dividends relating to a taxable year after the close of such taxable year under the “spillover dividend” provisions of Subchapter M. In order for us to not be subject to U.S. federal excise taxes, we must distribute annually an amount at least equal to the sum of (i) 98% of our net ordinary income (taking into account certain deferrals and elections) for the calendar year, (ii) 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (iii) any net ordinary income and capital gains in excess of capital losses for preceding years that were not distributed during such years. We, at our discretion, may carry forward taxable income in excess of calendar year dividends and pay a 4% nondeductible U.S. excise tax on this income.
Certain of our consolidated subsidiaries are subject to U.S. federal and state corporate-level income taxes.
We evaluate tax positions taken or expected to be taken in the course of preparing our consolidated financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are reserved and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes are included in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof. There were no material uncertain tax positions through December 31, 2023. As applicable, our prior three tax years remain subject to examination by U.S. federal, state and local tax authorities.
Recent Developments
On February 21, 2024, the Board declared regular monthly distributions for April 2024. The regular monthly cash distributions, each in the gross amount of $0.06 per share, will be payable monthly to shareholders of record as of the monthly record date.
On February 21, 2024, the Board declared a special distribution of $0.03 per share, payable on or before May 15, 2023 to shareholders of record as of December 31, 2023.
Credit Facilities
On January 12, 2024, the Company entered into a Senior Secured Credit Agreement (the “Revolving Credit Facility”). The parties to the Revolving Credit Facility include the Company, as Borrower, the lenders and issuing banks from time to time parties thereto (each a “Revolving Credit Facility Lender” and collectively, the “Revolving Credit Facility Lenders”) and Sumitomo Mitsui Banking Corporation, as Administrative Agent.
The Revolving Credit Facility is guaranteed by certain domestic subsidiaries of the Company in existence as of the closing date of the Revolving Credit Facility, and will be guaranteed by certain domestic subsidiaries of the Company that are formed or acquired
by the Company in the future (collectively, the “Revolving Credit Facility Guarantors”). Proceeds of the Revolving Credit Facility may be used for general corporate purposes, including the funding of portfolio investments.
The Revolving Credit Facility provides for a term loan in an initial amount of $25,000,000 and a revolving credit facility in an initial amount of up to $225,000,000, subject to availability under the borrowing base, which is based on the Company’s portfolio investments and other outstanding indebtedness. Maximum capacity under the Revolving Credit Facility may be increased to $1,000,000,000 through the exercise by the Company of an uncommitted accordion feature through which existing and new lenders may, at their option, agree to provide additional financing. The Revolving Credit Facility is secured by a perfected first-priority interest in substantially all of the portfolio investments held by the Company and each Revolving Credit Facility Guarantor, subject to certain exceptions, and includes a $40,000,000 limit for swingline loans. The amount available for borrowing under the Revolving Credit Facility is reduced by any standby letters of credit issued through the Revolving Credit Facility.
The availability period with respect to the revolving credit facility under the Revolving Credit Facility will terminate on January 12, 2028 and the Revolving Credit Facility will mature on January 12, 2029.
The Company may borrow amounts in U.S. dollars or certain other permitted currencies. Amounts drawn under the Revolving Credit Facility in U.S. dollars will bear interest at either term SOFR plus a margin, or the prime rate plus a margin. The Company will also pay a fee of 0.375% on average daily undrawn amounts under the Revolving Credit Facility.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are subject to financial market risks, including valuation risk, interest rate risk, currency risk, credit risk and inflation risk.
Valuation Risk
We have invested, and plan to continue to invest, primarily in illiquid debt and equity securities of private companies. Most of our investments will not have a readily available market price, and we value these investments at fair value as determined in good faith by our Adviser, as our valuation designee, based on, among other things, the input of independent third-party valuation firm(s) engaged at the direction of our Adviser, as our valuation designee, and in accordance with our valuation policy. There is no single standard for determining fair value. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we may realize amounts that are different from the amounts presented and such differences could be material.
Interest Rate Risk
Interest rate sensitivity refers to the change in earnings that may result from changes in the level of interest rates. We intend to fund portions of our investments with borrowings, and at such time, our net investment income will be affected by the difference between the rate at which we invest and the rate at which we borrow. Accordingly, we cannot assure you that a significant change in market interest rates will not have a material adverse effect on our net investment income.
In a low interest rate environment, the difference between the total interest income earned on interest earning assets and the total interest expense incurred on interest bearing liabilities may be compressed, reducing our net income and potentially adversely affecting our operating results. Conversely, in a rising interest rate environment, such difference could potentially increase thereby increasing our net income as indicated per the table below.
As of December 31, 2023, 98.1% of our debt investments based on fair value in our portfolio were at floating rates. Additionally, the weighted average LIBOR floor, based on fair value, of our debt investments was 0.8%. The SPV Asset Facilities bear interest at variable rates with interest floors of 0.0%. CLO XIII bears interest at variable rates. The 2024 Notes and 2026 Notes bear interest at fixed rate.
Based on our Consolidated Statements of Assets and Liabilities as of December 31, 2023, the following table shows the annualized impact on net income of hypothetical base rate changes in interest rates on our debt investments (considering interest rate floors for floating rate instruments) assuming each floating rate investment is subject to 3 month reference rate election and there are no changes in our investment and borrowing structure.
Interest Income Interest Expense Net Income(1)
Up 300 basis points $ 56.2 $ 13.4 $ 42.8
Up 200 basis points $ 37.5 $ 8.9 $ 28.6
Up 100 basis points $ 18.7 $ 4.5 $ 14.2
Down 100 basis points $ (18.7) $ (4.5) $ (14.2)
Down 200 basis points $ (37.5) $ (8.9) $ (28.6)
Down 300 basis points $ (56.2) $ (13.4) $ (42.8)
_____________________
(1)Excludes the impact of income based fees. See Note 3 of our consolidated financial statements for more information on the income based fees.
We may in the future hedge against interest rate fluctuations by using hedging instruments such as additional interest rate swaps, futures, options, and forward contracts. While hedging activities may mitigate our exposure to adverse fluctuations in interest rates, certain hedging transactions that we may enter into in the future, such as interest rate swap agreements, may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio investments.
Currency Risk
From time to time, we may make investments that are denominated in a foreign currency. These investments are translated into U.S. dollars at each balance sheet date, exposing us to movements in foreign exchange rates. We may employ hedging techniques to minimize these risks, but we cannot assure you that such strategies will be effective or without risk to us. We may seek to utilize instruments such as, but not limited to, forward contracts to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates. We also have the ability to borrow in certain foreign currencies under our credit facilities. Instead of entering into a foreign currency forward contract in connection with loans or other investments we have made that are denominated in a foreign currency, we may borrow in that currency to establish a natural hedge against our loan or investment. To the extent the loan or investment is based on a floating rate other than a rate under which we can borrow under our credit facilities, we may seek to utilize interest rate derivatives to hedge our exposure to changes in the associated rate.
Credit Risk
We generally endeavor to minimize our risk of exposure by limiting to reputable financial institutions the counterparties with which we enter into financial transactions. As of December 31, 2023 and December 31, 2022, we held the majority of our cash
balances with a single highly rated money center bank and such balances are in excess of Federal Deposit Insurance
Corporation insured limits. We seek to mitigate this exposure by monitoring the credit standing of these financial institutions.
Inflation Risk
Inflation is likely to continue in the near to medium-term, particularly in the United States, with the possibility that monetary policy may continue to tighten in response. Persistent inflationary pressures could affect our portfolio companies’ profit margins.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Consolidated Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (KPMG, New York, New York, PCAOB ID 185)
Consolidated Statements of Assets and Liabilities as of December 31, 2023 and 2022
Consolidated Statements of Operations for the Years Ended December 31, 2023, 2022 and 2021
Consolidated Schedules of Investments as of December 31, 2023 and 2022
Consolidated Statements of Changes in Net Assets for the Years Ended December 31, 2023, 2022 and 2021
Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022 and 2021
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Blue Owl Capital Corporation II:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of assets and liabilities of Blue Owl Capital Corporation II and subsidiaries (the Company), including the consolidated schedules of investments, as of December 31, 2023 and 2022, the related consolidated statements of operations, changes in net assets, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations, changes in its net assets, and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Such procedures also included confirmation of securities owned as of December 31, 2023 and 2022, by correspondence with custodians, portfolio companies, agents, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of Fair Value of Investments
As discussed in Notes 2 and 6 to the consolidated financial statements, the Company determines fair value for investments that are not publicly traded or for which there is no readily determinable market value by using unobservable inputs and assumptions. As of December 31, 2023, the fair value of such investments (“Level 3 investments”) was $2.0 billion.
We identified the assessment of the fair value measurement of substantially all of the Level 3 investments as a critical audit matter. These fair value measurements involved a high degree of measurement uncertainty and subjectivity, which required specialized skills and knowledge to evaluate. Specifically, the assessment of these fair value measurements encompassed the evaluation of assumptions related to current and expected market yields for similar investments and risk profiles used in yield analyses for debt and other interest-bearing investments and comparable financial performance multiples used in determining enterprise values.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain internal controls related to the fair value measurement process, including controls related to the
development of the market yields and financial performance multiples assumptions used in the Company’s fair value measurements.
We evaluated the Company’s ability to estimate fair value by comparing a selection of prior period fair values to the prices of transactions occurring subsequent to the prior period fair value measurement date. We involved valuation professionals with specialized skills and knowledge who assisted in evaluating the reasonableness of the fair value measurement for a selection of Level 3 investments through developing an independent estimate of the fair value using independent market yields and financial performance multiples that were developed using relevant market and portfolio company financial information and comparing the results of our independent estimate of fair value to the Company's fair value measurement.
/s/ KPMG LLP
We have served as the Company’s auditor since 2016.
New York, New York
March 6, 2024
Blue Owl Capital Corporation II
Consolidated Statements of Assets and Liabilities
(Amounts in thousands, except share and per share amounts)
December 31, 2023 December 31, 2022
Assets
Investments at fair value
Non-controlled, non-affiliated investments (amortized cost of $2,011,352 and $2,255,113 respectively)
$ 2,018,525 $ 2,239,445
Non-controlled, affiliated investments (amortized cost of $25,348 and $13,839, respectively)
27,339 20,047
Total investments at fair value (amortized cost of $2,036,700 and $2,268,952, respectively)
2,045,864 2,259,492
Cash 124,556 44,219
Foreign cash (cost of $1,787 and $3,020, respectively)
1,827 3,056
Interest and dividend receivable 17,811 18,769
Prepaid expenses and other assets 495 914
Total Assets $ 2,190,553 $ 2,326,450
Liabilities
Debt (net of deferred unamortized debt issuance costs of $13,902 and $3,550, respectively)
$ 881,098 $ 996,673
Payables to affiliates 15,545 16,827
Distribution payable 4,210 2,462
Accrued expenses and other liabilities 26,213 14,227
Total Liabilities 927,066 1,030,189
Commitments and contingencies (Note 7)
Net Assets
Common shares $0.01 par value, 450,000,000 shares authorized; 140,341,642 and 146,505,284 shares issued and outstanding, respectively
1,403 1,465
Additional paid-in-capital 1,253,305 1,311,619
Accumulated undistributed (overdistributed) earnings 8,779 (16,823)
Total Net Assets 1,263,487 1,296,261
Total Liabilities and Net Assets $ 2,190,553 $ 2,326,450
Net Asset Value Per Share $ 9.00 $ 8.85
______________
The accompanying notes are an integral part of these consolidated financial statements.
Blue Owl Capital Corporation II
Consolidated Statements of Operations
(Amounts in thousands, except share and per share amounts)
For the Years Ended December 31,
2023 2022 2021
Investment Income
Investment income from non-controlled, non-affiliated investments:
Interest income(1)
$ 226,198 $ 179,513 $ 175,055
Payment-in-kind interest income(1)
26,864 21,590 10,516
Dividend income 15,933 12,346 7,882
Other income 2,121 3,040 3,517
Total investment income from non-controlled, non-affiliated investments 271,116 216,489 196,970
Investment income from non-controlled, affiliated investments:
Interest income 1,096 847 680
Dividend income 441 827 -
Other Income 110 80 81
Total investment income from non-controlled, affiliated investments 1,647 1,754 761
Total Investment Income 272,763 218,243 197,731
Operating Expenses
Offering costs - - 1,135
Interest expense 67,249 50,010 39,579
Management fee 32,775 35,142 34,735
Performance based incentive fees 28,018 20,006 20,598
Professional fees 5,482 5,208 4,845
Directors' fees 780 1,194 1,123
Other general and administrative 3,555 3,253 2,766
Total Operating Expenses 137,859 114,813 104,781
Expense support - - (1,449)
Recoupment of expense support (Note 3) 11,651 - 3,217
Net Operating Expenses 149,510 114,813 106,549
Net Investment Income (Loss) Before Taxes 123,253 103,430 91,182
Income tax expense (benefit), including excise tax expense (benefit) 2,821 1,957 1,527
Net Investment Income (Loss) $ 120,432 $ 101,473 $ 89,655
Net Realized and Change in Unrealized Gain (Loss)
Net change in unrealized gain (loss):
Non-controlled, non-affiliated investments $ 20,022 $ (28,714) $ 29,004
Non-controlled, affiliated investments (4,216) 6,228 33
Income tax (provision) benefit (1,539) (1,308) (2,868)
Translation of assets and liabilities in foreign currencies 2,822 (5,023) (1,666)
Total Net Change in Unrealized Gain (Loss) 17,089 (28,817) 24,503
Net realized gain (loss):
Non-controlled, non-affiliated investments $ (7,718) $ 928 $ (2,304)
Foreign currency transactions (10) (404) 160
Total Net Realized Gain (Loss) (7,728) 524 (2,144)
Total Net Realized and Change in Unrealized Gain (Loss) 9,361 (28,293) 22,359
Net Increase (Decrease) in Net Assets Resulting from Operations $ 129,793 $ 73,180 $ 112,014
Earnings Per Share - Basic and Diluted $ 0.90 $ 0.49 $ 0.74
Weighted Average Shares Outstanding - Basic and Diluted 144,043,515 150,071,461 151,511,486
______________
(1) For the year ended December 31, 2021, interest income and payment-in-kind interest income were reported in aggregate as interest income.
The accompanying notes are an integral part of these consolidated financial statements.
Blue Owl Capital Corporation II
Consolidated Schedule of Investments
As of December 31, 2023
(Amounts in thousands, except share amounts)
Company(1)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
Non-controlled/non-affiliated portfolio company investments
Debt Investments(5)
Advertising and media
Global Music Rights, LLC (13)(20)(21) First lien senior secured loan S + 5.50% 08/2028 $ 919 $ 905 $ 919 0.1 %
Global Music Rights, LLC (2)(6)(20)(21) First lien senior secured revolving loan S + 5.50% 08/2027 - (1) - 0.0 %
904 919 0.1 %
Aerospace and defense
Aviation Solutions Midco, LLC (dba STS Aviation) (13)(21) First lien senior secured loan S + 7.25% 01/2025 37,185 37,037 37,743 3.0 %
Peraton Corp. (13)(16)(21) Second lien senior secured loan S + 7.75% 02/2029 14,494 14,336 14,386 1.1 %
Valence Surface Technologies LLC (13)(20)(21) First lien senior secured loan S + 7.75% 06/2025 34,197 34,066 30,094 2.4 %
Valence Surface Technologies LLC (6)(13)(20)(21) First lien senior secured revolving loan S + 7.75% 06/2025 2,776 2,767 2,442 0.2 %
88,206 84,665 6.7 %
Asset based lending and fund finance
AAM Series 1.1 Rail and Domestic Intermodal Feeder, LLC (18)(20)(21)(23) First lien senior secured loan 12.00% PIK
07/2030 2,196 2,196 2,196 0.2 %
AAM Series 2.1 Aviation Feeder, LLC (18)(20)(21)(23) First lien senior secured loan 12.00% PIK
11/2030 2,609 2,609 2,609 0.2 %
Hg Genesis 8 Sumoco Limited (8)(18)(20)(21) Unsecured facility SA + 6.00% PIK
08/2025 £5,449 7,168 6,946 0.5 %
Hg Genesis 9 SumoCo Limited (10)(18)(20)(21) Unsecured EUR facility E + 7.00% PIK
03/2027 € 1,052 1,153 1,163 0.1 %
Hg Saturn Luchaco Limited (8)(18)(20)(21) Unsecured facility SA + 7.50% PIK
03/2026 £22,353 30,115 28,495 2.3 %
43,241 41,409 3.3 %
Buildings and real estate
Associations, Inc. (13)(21) First lien senior secured loan S + 6.50% (2.50% PIK)
07/2027 40,261 40,029 40,060 3.2 %
Associations, Inc. (6)(13)(17)(20)(21) First lien senior secured delayed draw term loan S + 6.50% (2.50% PIK)
06/2024 325 323 323 0.0 %
Associations, Inc. (6)(13)(20)(21) First lien senior secured revolving loan S + 6.50% 07/2027 2,171 2,136 2,141 0.2 %
REALPAGE, INC. (12)(16)(21) Second lien senior secured loan S + 6.50% 04/2029 6,500 6,428 6,484 0.5 %
48,916 49,008 3.9 %
Business services
Access CIG, LLC (13)(21) Second lien senior secured loan S + 7.75% 02/2026 24,564 24,518 24,564 1.9 %
CIBT Global, Inc. (13)(20)(21)(26) First lien senior secured loan S + 5.25% 05/2026 166 104 111 0.0 %
CIBT Global, Inc. (13)(20)(21)(26) Second lien senior secured loan S + 7.75% PIK
12/2026 11,237 4,715 1,489 0.1 %
Denali BuyerCo, LLC (dba Summit Companies) (13)(20)(21) First lien senior secured loan S + 5.50% 09/2028 5,876 5,793 5,861 0.5 %
Denali BuyerCo, LLC (dba Summit Companies) (2)(6)(20)(21) First lien senior secured revolving loan S + 5.50% 09/2027 - (1) - 0.0 %
Diamondback Acquisition, Inc. (dba Sphera) (12)(20)(21) First lien senior secured loan S + 5.50% 09/2028 626 617 616 0.0 %
Entertainment Benefits Group, LLC (12)(20)(21) First lien senior secured loan S + 5.25% 09/2025 854 849 854 0.1 %
Entertainment Benefits Group, LLC (6)(12)(20)(21) First lien senior secured revolving loan S + 5.25% 09/2025 53 52 53 0.0 %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2023
(Amounts in thousands, except share amounts)
Company(1)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
Gainsight, Inc. (13)(20)(21) First lien senior secured loan S + 6.75% PIK
07/2027 6,192 6,134 6,131 0.5 %
Gainsight, Inc. (6)(13)(20)(21) First lien senior secured revolving loan S + 6.75% PIK
07/2027 444 435 435 0.0 %
Hercules Borrower, LLC (dba The Vincit Group) (13)(21) First lien senior secured loan S + 6.25% 12/2026 27,983 27,749 27,913 2.2 %
Hercules Borrower, LLC (dba The Vincit Group) (2)(6)(20)(21) First lien senior secured revolving loan S + 6.25% 12/2026 - (25) (8) 0.0 %
Hercules Buyer, LLC (dba The Vincit Group) (20)(21)(22)(23) Unsecured notes 0.48% PIK
12/2029 828 828 927 0.1 %
Kaseya Inc. (13)(20)(21) First lien senior secured loan S + 6.25% (2.50% PIK)
06/2029 540 531 538 0.0 %
Kaseya Inc. (6)(13)(17)(20)(21) First lien senior secured delayed draw term loan S + 6.25% (2.50% PIK)
06/2024 2 2 2 0.0 %
Kaseya Inc. (6)(12)(20)(21) First lien senior secured revolving loan S + 5.50% 06/2029 8 8 8 0.0 %
KPSKY Acquisition, Inc. (dba BluSky) (13)(20)(21) First lien senior secured loan S + 5.25% 10/2028 978 963 968 0.1 %
KPSKY Acquisition, Inc. (dba BluSky) (6)(13)(17)(20)(21) First lien senior secured delayed draw term loan S + 5.75% 11/2025 1 - 1 - %
73,272 70,463 5.5 %
Chemicals
Advancion Holdings, LLC (fka Aruba Investments Holdings, LLC) (12)(21) Second lien senior secured loan S + 7.75% 11/2028 22,500 22,267 21,038 1.7 %
Gaylord Chemical Company, L.L.C. (13)(21) First lien senior secured loan S + 6.00% 03/2027 26,947 26,784 26,812 2.1 %
Gaylord Chemical Company, L.L.C. (2)(6)(20)(21) First lien senior secured revolving loan S + 6.00% 03/2026 - (12) (13) 0.0 %
Velocity HoldCo III Inc. (dba VelocityEHS) (13)(20)(21) First lien senior secured loan S + 5.75% 04/2027 5,979 5,896 5,979 0.5 %
Velocity HoldCo III Inc. (dba VelocityEHS) (6)(13)(20)(21) First lien senior secured revolving loan S + 5.75% 04/2026 46 42 46 0.0 %
54,977 53,862 4.3 %
Consumer products
Conair Holdings LLC (12)(21) Second lien senior secured loan S + 7.50% 05/2029 45,000 44,448 43,536 3.4 %
Feradyne Outdoors, LLC (13)(20)(21) First lien senior secured loan S + 6.25% 05/2026 637 637 585 0.0 %
Foundation Consumer Brands, LLC (13)(20)(21) First lien senior secured loan S + 6.25% 02/2027 3,192 3,127 3,192 0.3 %
Lignetics Investment Corp. (13)(20)(21) First lien senior secured loan S + 6.00% 11/2027 10,824 10,731 10,743 0.8 %
Lignetics Investment Corp. (6)(13)(20)(21) First lien senior secured revolving loan S + 6.00% 10/2026 1,225 1,215 1,214 0.1 %
SWK BUYER, Inc. (dba Stonewall Kitchen) (13)(20)(21) First lien senior secured loan S + 5.25% 03/2029 743 731 715 0.1 %
SWK BUYER, Inc. (dba Stonewall Kitchen) (2)(13)(20)(21) First lien senior secured revolving loan S + 5.25% 03/2029 - (1) (3) 0.0 %
WU Holdco, Inc. (dba Weiman Products, LLC) (13)(21) First lien senior secured loan S + 5.50% 03/2026 45,791 45,413 44,762 3.5 %
WU Holdco, Inc. (dba Weiman Products, LLC) (13)(20)(21) First lien senior secured revolving loan S + 5.50% 03/2025 1,902 1,877 1,823 0.1 %
108,178 106,567 8.3 %
Containers and packaging
Arctic Holdco, LLC (dba Novvia Group) (13)(20)(21) First lien senior secured loan S + 6.00% 12/2026 1,891 1,854 1,853 0.1 %
Arctic Holdco, LLC (dba Novvia Group) (2)(6)(17)(20)(21) First lien senior secured delayed draw term loan S + 6.00% 12/2024 - (26) (27) - %
Ascend Buyer, LLC (dba PPC Flexible Packaging) (13)(20)(21) First lien senior secured loan S + 6.40% 10/2028 757 751 755 0.1 %
Ascend Buyer, LLC (dba PPC Flexible Packaging) (6)(12)(20)(21) First lien senior secured revolving loan S + 6.25% 09/2027 26 26 26 0.0 %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2023
(Amounts in thousands, except share amounts)
Company(1)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
Fortis Solutions Group, LLC (13)(20)(21) First lien senior secured loan S + 5.50% 10/2028 893 879 873 0.1 %
Fortis Solutions Group, LLC (6)(13)(20)(21) First lien senior secured revolving loan S + 5.50% 10/2027 4 3 2 0.0 %
Indigo Buyer, Inc. (dba Inovar Packaging Group) (13)(20)(21) First lien senior secured loan S + 6.25% 05/2028 888 881 886 0.1 %
Indigo Buyer, Inc. (dba Inovar Packaging Group) (6)(13)(20)(21) First lien senior secured revolving loan S + 6.25% 05/2028 40 39 40 0.0 %
Pregis Topco LLC (12)(21) Second lien senior secured loan S + 6.75% 08/2029 30,000 29,609 30,000 2.4 %
34,016 34,408 2.8 %
Distribution
ABB/Con-cise Optical Group LLC (13)(20)(21) First lien senior secured loan S + 7.50% 02/2028 850 841 818 0.1 %
Endries Acquisition, Inc. (13)(20)(21) First lien senior secured loan S + 5.25% 12/2028 18,611 18,472 18,472 1.5 %
Endries Acquisition, Inc. (2)(6)(17)(20)(21) First lien senior secured delayed draw term loan S + 5.25% 06/2024 - (34) (35) - %
Endries Acquisition, Inc. (2)(6)(17)(20)(21) First lien senior secured delayed draw term loan S + 5.25% 12/2025 - (13) (13) - %
BradyIFS Holdings, LLC (fka Individual Foodservice Holdings, LLC) (13)(20)(21) First lien senior secured loan S + 6.00% 10/2029 29,230 28,943 28,923 2.3 %
BradyIFS Holdings, LLC (fka Individual Foodservice Holdings, LLC) (6)(13)(17)(20)(21) First lien senior secured delayed draw term loan S + 6.00% 10/2025 789 766 780 0.1 %
BradyIFS Holdings, LLC (fka Individual Foodservice Holdings, LLC) (2)(6)(20)(21) First lien senior secured revolving loan S + 6.00% 10/2029 - (24) (26) 0.0 %
Offen, Inc. (12)(21) First lien senior secured loan S + 5.00% 06/2026 4,660 4,642 4,660 0.4 %
53,593 53,579 4.4 %
Education
Pluralsight, LLC (13)(20)(21) First lien senior secured loan S + 8.00% 04/2027 20,640 20,505 19,970 1.6 %
Pluralsight, LLC (6)(13)(20)(21) First lien senior secured revolving loan S + 8.00% 04/2027 1,006 998 963 0.1 %
21,503 20,933 1.7 %
Financial services
Blackhawk Network Holdings, Inc. (12)(21) Second lien senior secured loan S + 7.00% 06/2026 18,777 18,717 18,777 1.5 %
Finastra USA, Inc. (14)(18)(20)(21) First lien senior secured loan S + 7.25% 09/2029 3,776 3,733 3,738 0.3 %
Finastra USA, Inc. (6)(12)(18)(20)(21) First lien senior secured revolving loan S + 7.25% 09/2029 104 100 100 0.0 %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2023
(Amounts in thousands, except share amounts)
Company(1)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
KRIV Acquisition Inc. (dba Riveron) (13)(20)(21) First lien senior secured loan S + 6.25% 07/2029 1,055 1,026 1,026 0.1 %
KRIV Acquisition Inc. (dba Riveron) (2)(6)(17)(20)(21) First lien senior secured delayed draw term loan S + 6.25% 07/2025 - (2) (2) 0.0 %
KRIV Acquisition Inc. (dba Riveron) (2)(6)(20)(21) First lien senior secured revolving loan S + 6.25% 07/2029 - (4) (4) 0.0 %
NMI Acquisitionco, Inc. (dba Network Merchants) (12)(20)(21) First lien senior secured loan S + 5.75% 09/2025 4,805 4,777 4,781 0.4 %
NMI Acquisitionco, Inc. (dba Network Merchants) (2)(20)(21) First lien senior secured revolving loan S + 5.75% 09/2025 - (1) (1) 0.0 %
Smarsh Inc. (13)(20)(21) First lien senior secured loan S + 5.75% 02/2029 762 756 760 0.1 %
Smarsh Inc. (6)(13)(17)(20)(21) First lien senior secured delayed draw term loan S + 5.75% 02/2024 95 94 95 0.0 %
Smarsh Inc. (6)(20)(21) First lien senior secured revolving loan S + 5.75% 02/2029 - - - 0.0 %
29,196 29,270 2.4 %
Food and beverage
Balrog Acquisition, Inc. (dba Bakemark) (12)(20)(21) Second lien senior secured loan S + 7.00% 09/2029 5,000 4,967 4,938 0.4 %
The Better Being Co., LLC (fka Nutraceutical International Corporation) (12)(20)(21) First lien senior secured loan S + 7.50% 09/2026 33,759 33,512 30,383 2.4 %
The Better Being Co., LLC (fka Nutraceutical International Corporation) (12)(20)(21) First lien senior secured revolving loan S + 7.50% 09/2026 1,524 1,512 1,277 0.1 %
BP Veraison Buyer, LLC (dba Sun World) (13)(21) First lien senior secured loan S + 5.50% 05/2027 14,230 14,121 14,230 1.1 %
BP Veraison Buyer, LLC (dba Sun World) (2)(6)(20)(21) First lien senior secured revolving loan S + 5.50% 05/2027 - (13) - 0.0 %
H-Food Holdings, LLC (13)(16)(21) First lien senior secured loan S + 4.00% 05/2025 1 1 1 0.0 %
H-Food Holdings, LLC (13)(21) Second lien senior secured loan S + 7.00% 03/2026 18,200 18,040 11,921 0.9 %
Hissho Sushi Merger Sub, LLC (13)(20)(21) First lien senior secured loan S + 5.50% 05/2028 892 885 892 0.1 %
Hissho Sushi Merger Sub, LLC (2)(6)(20)(21) First lien senior secured revolving loan S + 5.50% 05/2028 - (1) - 0.0 %
Innovation Ventures HoldCo, LLC (dba 5 Hour Energy) (12)(20)(21) First lien senior secured loan S + 6.25% 03/2027 1,000 987 988 0.1 %
Nellson Nutraceutical, LLC (13)(20)(21) First lien senior secured loan S + 5.75% 12/2025 25,785 25,535 25,334 2.0 %
Rushmore Investment III LLC (dba Winland Foods) (12)(20)(21) First lien senior secured loan S + 6.00% 10/2030 24,400 24,023 24,010 1.9 %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2023
(Amounts in thousands, except share amounts)
Company(1)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
Sara Lee Frozen Bakery, LLC (fka KSLB Holdings, LLC) (13)(21) First lien senior secured loan S + 4.50% 07/2025 4,785 4,761 4,606 0.4 %
Sara Lee Frozen Bakery, LLC (fka KSLB Holdings, LLC) (6)(13)(20)(21) First lien senior secured revolving loan S + 4.50% 07/2025 347 347 309 0.0 %
Shearer's Foods, LLC (12)(21) Second lien senior secured loan S + 7.75% 09/2028 36,000 35,758 36,000 2.8 %
Ultimate Baked Goods Midco, LLC (12)(21) First lien senior secured loan S + 6.25% 08/2027 16,170 15,900 16,170 1.3 %
Ultimate Baked Goods Midco, LLC (2)(6)(20)(21) First lien senior secured revolving loan S + 6.25% 08/2027 - (30) - 0.0 %
180,305 171,059 13.5 %
Healthcare equipment and services
Confluent Medical Technologies, Inc. (13)(20)(21) Second lien senior secured loan S + 6.50% 02/2030 1,000 984 993 0.1 %
CSC MKG Topco LLC (dba Medical Knowledge Group) (12)(20)(21) First lien senior secured loan S + 5.75% 02/2029 841 828 829 0.1 %
Nelipak Holding Company (13)(21) First lien senior secured loan S + 4.25% 07/2026 270 268 270 0.0 %
Nelipak Holding Company (6)(12)(20)(21) First lien senior secured USD revolving loan S + 4.25% 07/2024 240 238 240 0.0 %
Nelipak Holding Company (6)(9)(20)(21) First lien senior secured EUR revolving loan E + 4.50% 07/2024 € 176 175 194 0.0 %
Nelipak Holding Company (13)(21) Second lien senior secured USD term loan S + 8.25% 07/2027 7,994 7,930 7,994 0.6 %
Nelipak Holding Company (10)(20)(21) Second lien senior secured EUR term loan E + 8.50% 07/2027 € 7,170 7,960 7,901 0.6 %
Packaging Coordinators Midco, Inc. (12)(21) Second lien senior secured loan S + 7.00% 12/2029 37,269 36,706 37,174 2.9 %
Patriot Acquisition TopCo S.A.R.L (dba Corza Health, Inc.) (12)(18)(21) First lien senior secured loan S + 6.75% 01/2028 25,262 24,993 25,198 2.0 %
Patriot Acquisition TopCo S.A.R.L (dba Corza Health, Inc.) (6)(13)(18)(20)(21) First lien senior secured revolving loan S + 6.75% 01/2026 569 546 562 0.0 %
Rhea Parent, Inc. (13)(20)(21) First lien senior secured loan S + 5.50% 02/2029 762 750 758 0.1 %
81,378 82,113 6.4 %
Healthcare providers and services
Allied Benefit Systems Intermediate LLC (13)(20)(21) First lien senior secured loan S + 5.25% 10/2030 2,536 2,499 2,498 0.2 %
Allied Benefit Systems Intermediate LLC (2)(6)(17)(20)(21) First lien senior secured delayed draw term loan S + 5.25% 10/2025 - (3) (3) - %
Diagnostic Services Holdings, Inc. (dba Rayus Radiology) (12)(20)(21) First lien senior secured loan S + 5.50% 03/2025 996 996 993 0.1 %
KWOL Acquisition Inc. (dba Worldwide Clinical Trials) (14)(20)(21) First lien senior secured loan S + 6.25% 12/2029 4,111 4,030 4,029 0.3 %
KWOL Acquisition Inc. (dba Worldwide Clinical Trials) (6)(14)(20)(21) First lien senior secured revolving loan S + 6.25% 12/2029 167 156 156 - %
National Dentex Labs LLC (fka Barracuda Dental LLC) (13)(21) First lien senior secured loan S + 8.00% (3.00% PIK)
04/2026 19,837 19,712 19,490 1.5 %
National Dentex Labs LLC (fka Barracuda Dental LLC) (6)(12)(20)(21) First lien senior secured revolving loan S + 7.00% 04/2026 1,288 1,271 1,258 0.1 %
Natural Partners, LLC (13)(18)(20)(21) First lien senior secured loan S + 4.50% 11/2027 915 902 910 0.1 %
Natural Partners, LLC (2)(6)(18)(20)(21) First lien senior secured revolving loan S + 4.50% 11/2027 - (1) - 0.0 %
OB Hospitalist Group, Inc. (13)(20)(21) First lien senior secured loan S + 5.50% 09/2027 18,215 17,967 17,987 1.4 %
OB Hospitalist Group, Inc. (6)(12)(20)(21) First lien senior secured revolving loan S + 5.50% 09/2027 1,133 1,097 1,097 0.1 %
Ex Vivo Parent Inc. (dba OB Hospitalist) (12)(20)(21) First lien senior secured loan S + 9.75% PIK
09/2028 13,276 13,105 13,011 1.0 %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2023
(Amounts in thousands, except share amounts)
Company(1)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
Pacific BidCo Inc. (14)(18)(20)(21) First lien senior secured loan S + 5.75% (3.20% PIK)
08/2029 1,748 1,711 1,730 0.1 %
Pacific BidCo Inc. (2)(6)(17)(18)(20)(21) First lien senior secured delayed draw term loan S + 5.75% 08/2025 - (2) - 0.0 %
PetVet Care Centers, LLC (12)(20)(21) First lien senior secured loan S + 6.00% 11/2030 15,282 15,132 15,122 1.2 %
PetVet Care Centers, LLC (2)(6)(17)(20)(21) First lien senior secured delayed draw term loan S + 6.00% 11/2025 - (10) (1) - %
PetVet Care Centers, LLC (2)(6)(20)(21) First lien senior secured revolving loan S + 6.00% 11/2029 - (22) (22) - %
Phoenix Newco, Inc. (dba Parexel) (12)(20)(21) Second lien senior secured loan S + 6.50% 11/2029 35,000 34,720 35,000 2.8 %
Plasma Buyer LLC (dba PathGroup) (13)(20)(21) First lien senior secured loan S + 5.75% 05/2029 672 661 659 0.1 %
Plasma Buyer LLC (dba PathGroup) (2)(6)(17)(20)(21) First lien senior secured delayed draw term loan S + 5.75% 05/2024 - (1) (2) 0.0 %
Plasma Buyer LLC (dba PathGroup) (6)(13)(20)(21) First lien senior secured revolving loan S + 5.75% 05/2028 25 24 24 0.0 %
Premier Imaging, LLC (dba LucidHealth) (13)(20)(21) First lien senior secured loan S + 6.00% 01/2025 7,518 7,487 7,292 0.6 %
Quva Pharma, Inc. (12)(20)(21) First lien senior secured loan S + 5.50% 04/2028 11,552 11,317 11,466 0.9 %
Quva Pharma, Inc. (2)(6)(20)(21) First lien senior secured revolving loan S + 5.50% 04/2026 - (16) (9) 0.0 %
Tivity Health, Inc. (13)(20)(21) First lien senior secured loan S + 6.00% 06/2029 988 967 980 0.1 %
Unified Women's Healthcare, LP (12)(20)(21) First lien senior secured loan S + 5.25% 06/2029 902 896 902 0.1 %
Unified Women's Healthcare, LP (12)(20)(21) First lien senior secured loan S + 5.50% 06/2029 4,000 3,971 4,000 0.3 %
Unified Women's Healthcare, LP (2)(6)(17)(20)(21) First lien senior secured delayed draw term loan S + 5.50% 10/2025 - (22) - - %
Unified Women's Healthcare, LP (2)(6)(20)(21) First lien senior secured revolving loan S + 5.25% 06/2029 - (1) - - %
Vermont Aus Pty Ltd (13)(18)(20)(21) First lien senior secured loan S + 5.50% 03/2028 983 964 973 0.1 %
XRL 1 LLC (dba XOMA) (20)(21)(23) First lien senior secured loan 9.88% 12/2038 1,950 1,909 1,906 0.2 %
XRL 1 LLC (dba XOMA) (2)(6)(17)(20)(21)(23) First lien senior secured delayed draw term loan 9.88% 12/2025 - (2) (3) - %
141,414 141,443 11.3 %
Healthcare technology
BCPE Osprey Buyer, Inc. (dba PartsSource) (13)(20)(21) First lien senior secured loan S + 5.75% 08/2028 663 655 655 0.1 %
BCPE Osprey Buyer, Inc. (dba PartsSource) (2)(6)(17)(20)(21) First lien senior secured delayed draw term loan S + 5.75% 10/2025 - (3) (1) 0.0 %
BCPE Osprey Buyer, Inc. (dba PartsSource) (6)(12)(20)(21) First lien senior secured revolving loan S + 5.75% 08/2026 16 16 15 - %
GI Ranger Intermediate, LLC (dba Rectangle Health) (13)(20)(21) First lien senior secured loan S + 5.75% 10/2028 908 894 894 0.1 %
GI Ranger Intermediate, LLC (dba Rectangle Health) (6)(13)(20)(21) First lien senior secured revolving loan S + 5.75% 10/2027 44 43 43 - %
Imprivata, Inc. (13)(20)(21) Second lien senior secured loan S + 6.25% 12/2028 882 874 882 0.1 %
Indikami Bidco, LLC (dba IntegriChain) (12)(20)(21) First lien senior secured loan S + 6.00% 12/2030 2,155 2,107 2,107 0.2 %
Indikami Bidco, LLC (dba IntegriChain) (2)(6)(17)(20)(21) First lien senior secured delayed draw term loan S + 6.00% 12/2025 - (3) (2) - %
Indikami Bidco, LLC (dba IntegriChain) (2)(6)(20)(21) First lien senior secured revolving loan S + 6.00% 06/2030 - (6) (6) - %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2023
(Amounts in thousands, except share amounts)
Company(1)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
Intelerad Medical Systems Incorporated (fka 11849573 Canada Inc.) (13)(18)(21) First lien senior secured loan S + 6.50% 08/2026 38,868 38,617 37,799 3.0 %
Intelerad Medical Systems Incorporated (fka 11849573 Canada Inc.) (13)(18)(20)(21) First lien senior secured revolving loan S + 6.50% 08/2026 2,712 2,690 2,637 0.2 %
Interoperability Bidco, Inc. (dba Lyniate) (13)(20)(21) First lien senior secured loan S + 7.00% 12/2026 14,097 14,036 13,885 1.1 %
Interoperability Bidco, Inc. (dba Lyniate) (6)(13)(20)(21) First lien senior secured revolving loan S + 7.00% 12/2024 474 469 457 0.0 %
Ocala Bidco, Inc. (12)(21) First lien senior secured loan S + 6.25% (2.75% PIK)
11/2028 34,254 33,651 33,826 2.7 %
Ocala Bidco, Inc. (2)(6)(17)(20)(21) First lien senior secured delayed draw term loan S + 5.75% 05/2024 - (39) - 0.0 %
Ocala Bidco, Inc. (12)(21) Second lien senior secured loan S + 10.50% PIK
11/2033 26,737 26,369 26,469 2.1 %
RL Datix Holdings (USA), Inc. (14)(18)(20)(21) First lien senior secured USD term loan S + 4.50% 04/2025 10,000 9,867 10,000 0.8 %
RL Datix Holdings (USA), Inc. (14)(18)(20)(21) Second lien senior secured USD term loan S + 7.75% 04/2026 5,000 4,934 5,000 0.4 %
Datix Bidco Limited (dba RLDatix) (8)(18)(20)(21) First lien senior secured GBP term loan SA + 4.50% 04/2025 £637 869 813 0.1 %
Datix Bidco Limited (dba RLDatix) (8)(18)(20)(21) Second lien senior secured GBP term loan SA + 7.75% 04/2026 £1,667 2,266 2,125 0.2 %
138,306 137,598 11.1 %
Household products
Aptive Environmental, LLC (20)(21)(23) First lien senior secured loan 12.00% (6.00% PIK)
01/2026 3,247 2,894 3,328 0.3 %
HGH Purchaser, Inc. (dba Horizon Services) (13)(21) First lien senior secured loan S + 6.50% 11/2025 34,344 34,144 34,000 2.7 %
HGH Purchaser, Inc. (dba Horizon Services) (13)(20)(21) First lien senior secured revolving loan S + 6.50% 11/2025 3,665 3,647 3,628 0.3 %
Mario Purchaser, LLC (dba Len the Plumber) (12)(20)(21) First lien senior secured loan S + 5.75% 04/2029 516 508 514 0.0 %
Mario Purchaser, LLC (dba Len the Plumber) (6)(12)(17)(20)(21) First lien senior secured delayed draw term loan S + 5.75% 04/2024 126 123 125 0.0 %
Mario Purchaser, LLC (dba Len the Plumber) (6)(12)(20)(21) First lien senior secured revolving loan S + 5.75% 04/2028 17 16 16 0.0 %
Mario Midco Holdings, Inc. (dba Len the Plumber) (12)(20)(21) Unsecured facility S + 10.75% PIK
04/2032 191 187 190 0.0 %
SimpliSafe Holding Corporation (12)(20)(21) First lien senior secured loan S + 6.25% 05/2028 811 799 803 0.1 %
SimpliSafe Holding Corporation (6)(12)(17)(20)(21) First lien senior secured delayed draw term loan S + 6.25% 05/2024 27 26 27 0.0 %
42,344 42,631 3.4 %
Human resource support services
Cornerstone OnDemand, Inc. (12)(20)(21) Second lien senior secured loan S + 6.50% 10/2029 16,667 16,469 15,667 1.2 %
IG Investments Holdings, LLC (dba Insight Global) (13)(20)(21) First lien senior secured loan S + 6.00% 09/2028 9,069 8,933 9,001 0.7 %
IG Investments Holdings, LLC (dba Insight Global) (2)(6)(20)(21) First lien senior secured revolving loan S + 6.00% 09/2027 - (9) (5) 0.0 %
25,393 24,663 1.9 %
Infrastructure and environmental services
LineStar Integrity Services LLC (14)(21) First lien senior secured loan S + 7.25% 02/2026 8,344 8,421 7,906 0.6 %
LineStar Integrity Services LLC (13)(20)(21) First lien senior secured revolving loan S + 7.25% 02/2026 1,597 1,570 1,513 0.1 %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2023
(Amounts in thousands, except share amounts)
Company(1)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
Tamarack Intermediate, L.L.C. (dba Verisk 3E) (13)(20)(21) First lien senior secured loan S + 5.75% 03/2028 675 665 666 0.1 %
Tamarack Intermediate, L.L.C. (dba Verisk 3E) (13)(20)(21) First lien senior secured loan S + 5.75% 03/2028 16 16 16 - %
Tamarack Intermediate, L.L.C. (dba Verisk 3E) (6)(13)(17)(20)(21) First lien senior secured delayed draw term loan S + 5.75% 10/2025 25 24 25 - %
Tamarack Intermediate, L.L.C. (dba Verisk 3E) (2)(6)(20)(21) First lien senior secured revolving loan S + 5.75% 03/2028 - (2) (1) 0.0 %
10,694 10,125 0.8 %
Insurance
Alera Group, Inc. (12)(20)(21) First lien senior secured loan S + 6.00% 10/2028 7,296 7,177 7,296 0.6 %
Alera Group, Inc. (2)(6)(17)(20)(21) First lien senior secured delayed draw term loan S + 5.75% 11/2025 - (35) - - %
Ardonagh Midco 2 PLC (16)(18)(20)(21)(23) Unsecured notes 11.50% 01/2027 640 638 634 0.1 %
Ardonagh Midco 3 PLC (8)(18)(20)(21) First lien senior secured GBP term loan SA + 7.25% 07/2026 £5,097 6,384 6,498 0.5 %
Ardonagh Midco 3 PLC (11)(18)(20)(21) First lien senior secured EUR term loan E + 7.25% 07/2026 € 491 543 542 0.0 %
Ardonagh Midco 3 PLC (14)(18)(20)(21) First lien senior secured USD term loan S + 6.00% 07/2026 1,440 1,424 1,440 0.1 %
Brightway Holdings, LLC (14)(20)(21) First lien senior secured loan S + 6.50% 12/2027 4,395 4,356 4,307 0.3 %
Brightway Holdings, LLC (6)(13)(20)(21) First lien senior secured revolving loan S + 6.50% 12/2027 237 233 226 0.0 %
Evolution BuyerCo, Inc. (dba SIAA) (13)(21) First lien senior secured loan S + 6.25% 04/2028 29,207 28,922 28,987 2.3 %
Evolution BuyerCo, Inc. (dba SIAA) (2)(6)(17)(20)(21) First lien senior secured delayed draw term loan S + 6.00% 12/2025 - (25) - - %
Evolution BuyerCo, Inc. (dba SIAA) (2)(6)(20)(21) First lien senior secured revolving loan S + 6.25% 04/2027 - (18) (17) 0.0 %
Integrity Marketing Acquisition, LLC (13)(20)(21) First lien senior secured loan S + 5.80% 08/2026 19,838 19,791 19,838 1.6 %
Integrity Marketing Acquisition, LLC (6)(13)(17)(20)(21) First lien senior secured delayed draw term loan S + 6.00% 02/2025 515 480 515 0.0 %
Integrity Marketing Acquisition, LLC (2)(6)(20)(21) First lien senior secured revolving loan S + 6.50% 08/2026 - (7) - 0.0 %
Norvax, LLC (dba GoHealth) (13)(21) First lien senior secured loan S + 7.50% 09/2025 16,515 16,274 16,309 1.3 %
Norvax, LLC (dba GoHealth) (2)(6)(20)(21) First lien senior secured revolving loan S + 6.50% 09/2024 - (6) (34) 0.0 %
Peter C. Foy & Associates Insurance Services, LLC (dba PCF Insurance Services) (12)(21) First lien senior secured loan S + 6.00% 11/2028 18,427 18,295 18,381 1.5 %
Peter C. Foy & Associates Insurance Services, LLC (dba PCF Insurance Services) (2)(6)(20)(21) First lien senior secured revolving loan S + 6.00% 11/2027 - (7) (3) 0.0 %
PCF Midco II, LLC (dba PCF Insurance Services) (20)(21)(23) First lien senior secured loan 9.00% PIK
10/2031 26,031 24,279 24,208 1.9 %
Tempo Buyer Corp. (dba Global Claims Services) (13)(20)(21) First lien senior secured loan S + 5.50% 08/2028 688 678 683 0.1 %
Tempo Buyer Corp. (dba Global Claims Services) (6)(7)(20)(21) First lien senior secured revolving loan P + 4.00% 08/2027 32 31 31 0.0 %
THG Acquisition, LLC (dba Hilb) (12)(21) First lien senior secured loan S + 5.75% 12/2026 24,658 24,365 24,535 1.9 %
THG Acquisition, LLC (dba Hilb) (6)(12)(20)(21) First lien senior secured revolving loan S + 5.75% 12/2025 416 401 406 0.0 %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2023
(Amounts in thousands, except share amounts)
Company(1)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
USRP Holdings, Inc. (dba U.S. Retirement and Benefits Partners) (14)(20)(21) First lien senior secured loan S + 5.75% 07/2027 1,655 1,634 1,643 0.1 %
USRP Holdings, Inc. (dba U.S. Retirement and Benefits Partners) (2)(6)(20)(21) First lien senior secured revolving loan S + 5.75% 07/2027 - (2) (1) 0.0 %
KUSRP Intermediate, Inc. (dba U.S. Retirement and Benefits Partners) (13)(20)(21) First lien senior secured loan S + 10.50% PIK
07/2030 1,529 1,513 1,525 0.1 %
157,318 157,949 12.4 %
Internet software and services
3ES Innovation Inc. (dba Aucerna) (13)(18)(21) First lien senior secured loan S + 6.75% 05/2025 10,590 10,549 10,590 0.8 %
3ES Innovation Inc. (dba Aucerna) (6)(12)(18)(20)(21) First lien senior secured revolving loan S + 6.75% 05/2025 450 448 450 0.0 %
Anaplan, Inc. (13)(21) First lien senior secured loan S + 6.50% 06/2029 8,508 8,437 8,508 0.7 %
Anaplan, Inc. (2)(6)(20)(21) First lien senior secured revolving loan S + 6.50% 06/2028 - (7) - 0.0 %
Bayshore Intermediate #2, L.P. (dba Boomi) (13)(20)(21) First lien senior secured loan S + 7.50% PIK
10/2028 18,933 18,680 18,696 1.5 %
Bayshore Intermediate #2, L.P. (dba Boomi) (6)(13)(20)(21) First lien senior secured revolving loan S + 6.75% 10/2027 248 230 232 0.0 %
BCTO BSI Buyer, Inc. (dba Buildertrend) (13)(20)(21) First lien senior secured loan S + 7.50% PIK
12/2026 10,680 10,617 10,680 0.8 %
BCTO BSI Buyer, Inc. (dba Buildertrend) (2)(6)(20)(21) First lien senior secured revolving loan S + 7.50% 12/2026 - (12) - 0.0 %
Catalis Intermediate, Inc. (fka GovBrands Intermediate, Inc.) (13)(20)(21) First lien senior secured loan S + 5.50% 08/2027 2,982 2,933 2,878 0.2 %
Catalis Intermediate, Inc. (fka GovBrands Intermediate, Inc.) (6)(13)(20)(21) First lien senior secured revolving loan S + 5.50% 08/2027 64 61 57 0.0 %
Crewline Buyer, Inc. (dba New Relic) (13)(20)(21) First lien senior secured loan S + 6.75% 11/2030 4,528 4,461 4,460 0.4 %
Crewline Buyer, Inc. (dba New Relic) (2)(6)(20)(21) First lien senior secured revolving loan S + 6.75% 11/2030 - (7) (7) - %
Delinea Buyer, Inc. (f/k/a Centrify) (13)(20)(21) First lien senior secured loan S + 5.75% 03/2028 12,939 12,722 12,874 1.0 %
Delinea Buyer, Inc. (f/k/a Centrify) (2)(6)(20)(21) First lien senior secured revolving loan S + 5.75% 03/2027 - (21) (7) 0.0 %
CivicPlus, LLC (13)(20)(21) First lien senior secured loan S + 6.50% (2.50% PIK)
08/2027 2,538 2,521 2,538 0.2 %
CivicPlus, LLC (6)(12)(20)(21) First lien senior secured revolving loan S + 6.00% 08/2027 72 71 72 0.0 %
CP PIK DEBT ISSUER, LLC (dba CivicPlus, LLC) (12)(20)(21) Unsecured notes S + 11.75% PIK
06/2034 541 530 540 0.0 %
Delta TopCo, Inc. (dba Infoblox, Inc.) (13)(21) Second lien senior secured loan S + 7.25% 12/2028 40,000 39,863 40,000 3.2 %
EET Buyer, Inc. (dba e-Emphasys) (13)(20)(21) First lien senior secured loan S + 6.50% 11/2027 893 887 893 0.1 %
EET Buyer, Inc. (dba e-Emphasys) (6)(14)(20)(21) First lien senior secured revolving loan S + 6.50% 11/2027 18 18 18 0.0 %
Forescout Technologies, Inc. (13)(21) First lien senior secured loan S + 8.00% 08/2026 9,841 9,792 9,890 0.8 %
Forescout Technologies, Inc. (2)(6)(17)(20)(21) First lien senior secured delayed draw term loan S + 8.00% 07/2024 - (22) - 0.0 %
Forescout Technologies, Inc. (2)(6)(20)(21) First lien senior secured revolving loan S + 8.00% 08/2026 - (4) - 0.0 %
Genesis Acquisition Co. (dba Procare Software) (13)(20)(21) First lien senior secured loan S + 5.00% 07/2025 1,973 1,967 1,973 0.2 %
Genesis Acquisition Co. (dba Procare Software) (13)(20)(21) First lien senior secured revolving loan S + 5.00% 07/2025 293 292 293 0.0 %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2023
(Amounts in thousands, except share amounts)
Company(1)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
H&F Opportunities LUX III S.À R.L (dba Checkmarx) (12)(18)(20)(21) First lien senior secured loan S + 7.50% 04/2026 14,544 14,349 14,544 1.2 %
H&F Opportunities LUX III S.À R.L (dba Checkmarx) (2)(6)(18)(20)(21) First lien senior secured revolving loan S + 7.50% 04/2026 - (52) - 0.0 %
Hyland Software, Inc. (12)(20)(21) First lien senior secured loan S + 6.00% 09/2030 1,800 1,773 1,773 0.1 %
Hyland Software, Inc. (2)(6)(20)(21) First lien senior secured revolving loan S + 6.00% 09/2029 - (1) (1) 0.0 %
Litera Bidco LLC (12)(21) First lien senior secured loan S + 5.25% 05/2026 25,911 25,711 25,911 2.0 %
Litera Bidco LLC (2)(6)(20)(21) First lien senior secured revolving loan S + 5.25% 05/2026 - (3) - 0.0 %
MessageBird BidCo B.V. (12)(18)(21) First lien senior secured loan S + 6.75% 04/2027 8,000 7,890 7,980 0.6 %
MINDBODY, Inc. (13)(21) First lien senior secured loan S + 7.00% 02/2025 11,511 11,480 11,453 0.9 %
MINDBODY, Inc. (2)(6)(20)(21) First lien senior secured revolving loan S + 7.00% 02/2025 - (2) (5) 0.0 %
Ministry Brands Holdings, LLC (12)(20)(21) First lien senior secured loan S + 5.50% 12/2028 764 752 749 0.1 %
Ministry Brands Holdings, LLC (6)(12)(20)(21) First lien senior secured revolving loan S + 5.50% 12/2027 36 35 35 0.0 %
Project Alpha Intermediate Holding, Inc. (dba Qlik) (12)(16)(20)(21) First lien senior secured loan S + 4.75% 10/2030 10,000 9,804 10,033 0.8 %
Proofpoint, Inc. (12)(16)(20)(21) Second lien senior secured loan S + 6.25% 08/2029 4,900 4,881 4,937 0.4 %
QAD, Inc. (12)(20)(21) First lien senior secured loan S + 5.38% 11/2027 4,351 4,296 4,286 0.3 %
QAD, Inc. (2)(6)(20)(21) First lien senior secured revolving loan S + 5.38% 11/2027 - (7) (9) 0.0 %
Securonix, Inc. (13)(20)(21) First lien senior secured loan S + 6.00% 04/2028 847 841 794 0.1 %
Securonix, Inc. (2)(6)(20)(21) First lien senior secured revolving loan S + 6.50% 04/2028 - (1) (10) 0.0 %
Thunder Purchaser, Inc. (dba Vector Solutions) (13)(20)(21) First lien senior secured loan S + 5.75% 06/2028 14,695 14,597 14,621 1.2 %
Thunder Purchaser, Inc. (dba Vector Solutions) (6)(13)(20)(21) First lien senior secured revolving loan S + 5.75% 06/2027 693 684 687 0.1 %
When I Work, Inc. (13)(20)(21) First lien senior secured loan S + 7.00% PIK
11/2027 862 856 847 0.1 %
When I Work, Inc. (2)(6)(20)(21) First lien senior secured revolving loan S + 6.00% 11/2027 - (1) (3) 0.0 %
222,888 224,250 17.8 %
Leisure and entertainment
Troon Golf, L.L.C. (13)(21) First lien senior secured loan S + 5.50% 08/2027 60,103 59,904 59,803 4.7 %
Troon Golf, L.L.C. (2)(6)(20)(21) First lien senior secured revolving loan S + 5.50% 08/2026 - (12) (23) 0.0 %
59,892 59,780 4.7 %
Manufacturing
BCPE Watson (DE) ORML, LP (14)(18)(20)(21) First lien senior secured loan S + 6.50% 07/2028 1,000 992 995 0.1 %
FARADAY BUYER, LLC (dba MacLean Power Systems) (13)(18)(20)(21) First lien senior secured loan S + 6.00% 10/2028 17,926 17,575 17,568 1.4 %
FARADAY BUYER, LLC (dba MacLean Power Systems) (2)(6)(17)(18)(20)(21) First lien senior secured delayed draw term loan S + 6.00% 11/2025 - (18) (19) - %
Gloves Buyer, Inc. (dba Protective Industrial Products) (12)(20)(21) Second lien senior secured loan S + 8.25% 12/2028 6,300 6,187 6,237 0.5 %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2023
(Amounts in thousands, except share amounts)
Company(1)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
MHE Intermediate Holdings, LLC (dba OnPoint Group) (13)(21) First lien senior secured loan S + 6.00% 07/2027 13,241 13,154 13,241 1.0 %
MHE Intermediate Holdings, LLC (dba OnPoint Group) (2)(6)(20)(21) First lien senior secured revolving loan S + 6.00% 07/2027 - (11) - 0.0 %
PHM Netherlands Midco B.V. (dba Loparex) (13)(20)(21) First lien senior secured loan S + 4.50% 07/2026 192 185 156 0.0 %
PHM Netherlands Midco B.V. (dba Loparex) (13)(21) Second lien senior secured loan S + 8.75% 07/2027 28,000 26,909 21,420 1.7 %
Safety Products/JHC Acquisition Corp. (dba Justrite Safety Group) (12)(21) First lien senior secured loan S + 4.50% 06/2026 3,409 3,396 3,316 0.3 %
Sonny's Enterprises, LLC (13)(21) First lien senior secured loan S + 6.75% 08/2028 43,937 43,350 43,827 3.5 %
Sonny's Enterprises, LLC (6)(13)(17)(20)(21) First lien senior secured delayed draw term loan S + 6.75% 11/2024 427 414 424 0.0 %
Sonny's Enterprises, LLC (2)(6)(20)(21) First lien senior secured revolving loan S + 6.75% 08/2027 - (44) (7) 0.0 %
112,089 107,158 8.5 %
Oil and gas
Project Power Buyer, LLC (dba PEC-Veriforce) (13)(20)(21) First lien senior secured loan S + 7.00% 05/2026 7,796 7,752 7,757 0.6 %
Project Power Buyer, LLC (dba PEC-Veriforce) (2)(6)(20)(21) First lien senior secured revolving loan S + 7.00% 05/2025 - (2) (3) 0.0 %
7,750 7,754 0.6 %
Professional services
Apex Group Treasury, LLC (13)(18)(20)(21) Second lien senior secured loan S + 6.75% 07/2029 11,618 11,466 11,560 0.9 %
Apex Service Partners, LLC (13)(20)(21) First lien senior secured loan S + 7.00% (2.00% PIK)
10/2030 808 788 787 0.1 %
Apex Service Partners, LLC (6)(13)(17)(20)(21) First lien senior secured delayed draw term loan S + 7.00% (2.00% PIK)
10/2025 43 40 40 0.0 %
Apex Service Partners, LLC (6)(13)(20)(21) First lien senior secured revolving loan S + 6.50% 10/2029 5 4 4 - %
Gerson Lehrman Group, Inc. (13)(20)(21) First lien senior secured loan S + 5.25% 12/2024 4,450 4,442 4,450 0.4 %
Gerson Lehrman Group, Inc. (2)(6)(20)(21) First lien senior secured revolving loan S + 5.25% 12/2024 - (3) - 0.0 %
Guidehouse Inc. (12)(20)(21) First lien senior secured loan S + 5.75% (2.00% PIK)
10/2028 914 914 910 0.1 %
Relativity ODA LLC (12)(21) First lien senior secured loan S + 6.50% 05/2027 17,320 17,180 17,320 1.4 %
Relativity ODA LLC (2)(6)(20)(21) First lien senior secured revolving loan S + 6.50% 05/2027 - (12) - 0.0 %
Sensor Technology Topco, Inc. (dba Humanetics) (13)(20)(21) First lien senior secured loan S + 7.00% (2.00% PIK)
05/2026 10,988 10,922 10,961 0.9 %
Sensor Technology Topco, Inc. (dba Humanetics) (10)(20)(21) First lien senior secured EUR term loan E + 7.25% (2.25% PIK)
05/2026 € 1,981 2,139 2,182 0.2 %
Sensor Technology Topco, Inc. (dba Humanetics) (6)(13)(20)(21) First lien senior secured revolving loan S + 6.50% 05/2026 541 536 539 0.0 %
48,416 48,753 4.0 %
Specialty retail
Galls, LLC (13)(20)(21) First lien senior secured loan S + 6.75% 01/2025 18,256 18,201 18,256 1.4 %
Galls, LLC (13)(20)(21) First lien senior secured revolving loan S + 6.75% 01/2024 1,858 1,846 1,858 0.1 %
Milan Laser Holdings LLC (12)(21) First lien senior secured loan S + 5.00% 04/2027 22,463 22,327 22,463 1.8 %
Milan Laser Holdings LLC (2)(6)(20)(21) First lien senior secured revolving loan S + 5.00% 04/2026 - (17) - 0.0 %
Notorious Topco, LLC (dba Beauty Industry Group) (13)(21) First lien senior secured loan S + 6.75% 11/2027 25,960 25,690 24,273 1.9 %
Notorious Topco, LLC (dba Beauty Industry Group) (6)(13)(20)(21) First lien senior secured revolving loan S + 6.75% 05/2027 141 121 4 0.0 %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2023
(Amounts in thousands, except share amounts)
Company(1)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
The Shade Store, LLC (13)(20)(21) First lien senior secured loan S + 6.00% 10/2027 2,227 2,208 2,144 0.2 %
The Shade Store, LLC (6)(13)(20)(21) First lien senior secured revolving loan S + 6.00% 10/2026 145 144 137 0.0 %
70,520 69,135 5.4 %
Telecommunications
EOS U.S. Finco LLC (13)(18)(20)(21) First lien senior secured loan S + 5.75% 10/2029 8,595 8,187 7,865 0.6 %
EOS U.S. Finco LLC (6)(13)(18)(20)(21) First lien senior secured delayed draw term loan S + 5.75% 10/2029 36 6 (42) 0.0 %
8,193 7,823 0.6 %
Transportation
Lytx, Inc. (12)(21) First lien senior secured loan S + 6.75% 02/2028 23,668 23,519 23,609 1.9 %
Motus Group, LLC (12)(21) Second lien senior secured loan S + 6.50% 12/2029 3,615 3,586 3,579 0.3 %
27,105 27,188 2.2 %
Total non-controlled/non-affiliated portfolio company debt investments $ 1,890,007 $ 1,864,505 148.0 %
Equity Investments
Asset based lending and fund finance
AAM Series 1.1 Rail and Domestic Intermodal Feeder, LLC (6)(18)(20)(21)(24)(29) LLC Interest N/A N/A 1,532 1,405 1,406 0.1 %
AAM Series 2.1 Aviation Feeder, LLC (6)(18)(20)(21)(24)(29) LLC Interest N/A N/A 1,792 1,751 1,750 0.1 %
Amergin Asset Management, LLC (18)(20)(21)(24)(29) Class A Units N/A N/A 50,000,000 - - 0.0 %
3,156 3,156 0.2 %
Automotive
CD&R Value Building Partners I, L.P. (dba Belron) (18)(20)(21)(24)(29) LP Interest N/A N/A 1,002 996 1,236 0.1 %
Metis HoldCo, Inc. (dba Mavis Tire Express Services) (20)(21)(23)(24) Series A Convertible Preferred Stock 7.00% PIK
N/A 32,308 38,057 38,851 3.1 %
39,053 40,087 3.2 %
Buildings and real estate
Associations Finance, Inc. (20)(21)(23)(24) Preferred Stock 13.50% PIK
N/A 10,200,000 11,737 11,887 0.9 %
Dodge Construction Network Holdings, L.P. (20)(21)(24)(29) Class A-2 Common Units N/A N/A 431,889 368 295 0.0 %
Dodge Construction Network Holdings, L.P. (13)(20)(21)(24) Series A Preferred Units S + 8.25% N/A - 9 6 0.0 %
12,114 12,188 0.9 %
Business Services
Denali Holding, LP (dba Summit Companies) (20)(21)(24)(29) Class A Units N/A N/A 41,874 425 643 0.1 %
Hercules Buyer, LLC (dba The Vincit Group) (20)(21)(22)(24)(29) Common Units N/A N/A 350,000 350 392 0.0 %
Knockout Intermediate Holdings I Inc. (dba Kaseya Inc.) (20)(21)(23)(24) Perpetual Preferred Stock 11.75% PIK
N/A 400 441 448 0.0 %
1,216 1,483 0.1 %
Consumer Products
ASP Conair Holdings LP (20)(21)(24)(29) Class A Units N/A N/A 12,857 1,286 1,215 0.1 %
1,286 1,215 0.1 %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2023
(Amounts in thousands, except share amounts)
Company(1)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
Food and beverage
H-Food Holdings, LLC (20)(21)(24)(29) LLC Interest N/A N/A 1,625 1,625 388 0.0 %
Hissho Sushi Holdings, LLC (20)(21)(24)(29) Class A units N/A N/A 7,502 75 100 0.0 %
1,700 488 0.0 %
Healthcare equipment and services
KPCI Holdings, L.P. (20)(21)(24)(29) Class A Units N/A N/A 5,665 6,014 8,267 0.7 %
Maia Aggregator, LP (20)(21)(24)(29) Class A-2 Units N/A N/A 112,360 112 113 0.0 %
Patriot Holdings SCSp (dba Corza Health, Inc.) (18)(20)(21)(23)(24) Class A Units 8.00% PIK
N/A 1,370 1,854 1,858 0.1 %
Patriot Holdings SCSp (dba Corza Health, Inc.) (18)(20)(21)(24)(29) Class B Units N/A N/A 18,864 25 313 0.0 %
Rhea Acquisition Holdings, LP (20)(21)(24)(29) Series A-2 Units N/A N/A 119,048 119 161 0.0 %
8,124 10,712 0.8 %
Healthcare providers and services
KOBHG Holdings, L.P. (dba OB Hospitalist) (20)(21)(24)(29) Class A Interests N/A N/A 1,291 1,291 1,138 0.1 %
KWOL Acquisition Inc. (20)(21)(24)(29) Common Stock N/A N/A 30 301 301 - %
Romulus Intermediate Holdings 1 Inc. (dba PetVet) (20)(21)(23)(24) Series A Preferred Stock 15.00% PIK N/A 1,720,596 1,687 1,686 0.1 %
XOMA Corporation (20)(21)(24)(29) Warrants N/A N/A 600 4 4 - %
XOMA Corporation (20)(21)(24)(29) Warrants N/A N/A 600 4 4 - %
XOMA Corporation (20)(21)(24)(29) Warrants N/A N/A 600 4 4 0.0 %
3,291 3,137 0.2 %
Healthcare technology
Minerva Holdco, Inc. (20)(21)(23)(24) Series A Preferred Stock 10.75% PIK
N/A 1,000 1,175 1,156 0.1 %
1,175 1,156 0.1 %
Household products
Evology, LLC (20)(21)(24)(29) Class B Units N/A N/A 113 540 516 0.0 %
540 516 0.0 %
Human resource support services
Sunshine Software Holdings, Inc. (dba Cornerstone OnDemand) (20)(21)(23)(24) Series A Preferred Stock 10.50% PIK
N/A 5,500 6,442 5,848 0.5 %
6,442 5,848 0.5 %
Insurance
Evolution Parent, LP (dba SIAA) (20)(21)(24)(29) LP Interest N/A N/A 8,919 892 1,050 0.1 %
Fifth Season Investments LLC (20)(21)(24) Class A Units N/A N/A 1 2,091 2,091 0.2 %
GoHealth, Inc. (15)(20)(21)(29) Common Stock N/A N/A 15,139 1,163 202 0.0 %
GrowthCurve Capital Sunrise Co-Invest LP (dba Brightway) (20)(21)(24)(29) LP Interest N/A N/A 106 106 102 0.0 %
PCF Holdco, LLC (dba PCF Insurance Services) (20)(21)(24)(29) Class A Units N/A N/A 2,513,848 6,375 11,633 0.9 %
10,627 15,078 1.2 %
Internet software and services
BCTO WIW Holdings, Inc. (dba When I Work) (20)(21)(24)(29) Class A Common Stock N/A N/A 3,000 300 235 0.0 %
Brooklyn Lender Co-Invest 2, L.P. (dba Boomi) (20)(21)(24)(29) Common Units N/A N/A 1,345,119 1,345 1,467 0.1 %
Insight CP (Blocker) Holdings, L.P. (dba CivicPlus, LLC) (18)(20)(21)(24)(29) LP Interest N/A N/A 31,406 31 34 0.0 %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2023
(Amounts in thousands, except share amounts)
Company(1)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
MessageBird Holding B.V. (18)(20)(21)(24)(29) Extended Series C Warrants N/A N/A 25,540 157 30 0.0 %
Project Alpine Co-Invest Fund, LP (18)(20)(21)(24)(29) LP Interest N/A N/A 1,000 1,001 1,182 0.1 %
Thunder Topco L.P. (dba Vector Solutions) (20)(21)(24)(29) Common Units N/A N/A 819,817 820 910 0.1 %
VEPF Torreys Aggregator, LLC (dba MINDBODY, Inc.) (20)(21)(23)(24) Series A Preferred Stock 6.00% PIK
N/A 3,750 4,242 4,200 0.3 %
WMC Bidco, Inc. (dba West Monroe) (20)(21)(23)(24) Senior Preferred Stock 11.25% PIK
N/A 2,385 2,986 2,860 0.2 %
10,882 10,918 0.8 %
Manufacturing
Gloves Holdings, LP (dba Protective Industrial Products) (20)(21)(24)(29) LP Interest N/A N/A 7,000 700 829 0.1 %
Windows Entities (18)(20)(21)(24)(25) LLC Units N/A N/A 10,616 20,106 46,210 3.7 %
20,806 47,039 3.8 %
Pharmaceuticals
LSI Financing 1 DAC (18)(20)(21)(24) Preferred Equity N/A N/A 947,477 933 999 0.1 %
933 999 0.1 %
Total non-controlled/non-affiliated portfolio company equity investments $ 121,345 $ 154,020 12.0 %
Total non-controlled/non-affiliated portfolio company investments $ 2,011,352 $ 2,018,525 160.0 %
Non-controlled/affiliated portfolio company investments
Debt Investments(5)
Advertising and media
Swipe Acquisition Corporation (dba PLI) (14)(20)(21)(28) First lien senior secured loan S + 8.00% 06/2026 5,950 5,932 5,949 0.5 %
Swipe Acquisition Corporation (dba PLI) (6)(14)(20)(21)(28) First lien senior secured delayed draw term loan S + 8.00% 06/2026 1,772 1,772 1,772 0.1 %
Swipe Acquisition Corporation (dba PLI) (6)(20)(21)(28) Letter of Credit S + 8.00% 06/2026 0 0 0 0.0 %
7,704 7,721 0.6 %
Household products
Walker Edison Furniture Company LLC (12)(20)(21)(26)(28) First lien senior secured loan S + 6.75% PIK
03/2027 5,431 4,695 4,997 0.4 %
Walker Edison Furniture Company LLC (6)(17)(20)(21)(26)(28) First lien senior secured delayed draw term loan S + 6.75% PIK
03/2027 0 0 -112 - %
Walker Edison Furniture Company LLC (12)(20)(21)(26)(28) First lien senior secured revolving loan S + 6.25% 03/2027 2,247 2,247 2,101 0.2 %
6,942 6,986 0.6 %
Total non-controlled/affiliated portfolio company debt investments $ 14,646 $ 14,707 1.2 %
Equity Investments
Advertising and media
New PLI Holdings, LLC (dba PLI) (20)(21)(24)(28)(29) Class A Common Units N/A N/A 10,755 5,952 12,121 1.0 %
5,952 12,121 1.0 %
Household Products
Walker Edison Holdco LLC (20)(21)(24)(28)(29) Common Units N/A N/A 49,159 4,750 511 0.0 %
$ 4,750 $ 511 0.0 %
Total non-controlled/affiliated portfolio company equity investments $ 10,702 $ 12,632 1.0 %
Total non-controlled/affiliated portfolio company investments $ 25,348 $ 27,339 2.2 %
Total Investments $ 2,036,700 $ 2,045,864 162.2 %
U ______________
(1)Certain portfolio company investments are subject to contractual restrictions on sales.
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2023
(Amounts in thousands, except share amounts)
(2)The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan. The negative fair value is the result of the capitalized discount on the loan.
(3)Unless otherwise indicated, all investments are considered Level 3 investments.
(4)The amortized cost represents the original cost adjusted for the accretion and amortization of discounts and premiums, as applicable, on debt investments using the effective interest method.
(5)Unless otherwise indicated, loan contains a variable rate structure, and may be subject to an interest rate floor. Variable rate loans bear interest at a rate that may be determined by reference to either the Secured Overnight Financing Rate (“SOFR” or “S,” which can include one-, three- or six- month SOFR), London Interbank Offered Rate (“LIBOR” or “L”) (which can include one-, three-, or six-month LIBOR), Euro Interbank Offered Rate (“EURIBOR” or “E”, which can include one-, two-, three- or six-month EURIBOR), SONIA (“SONIA” or “SA”) or an alternate base rate (which can include the Federal Funds Effective Rate or the Prime Rate (“PRIME” or “P”)), at the borrower’s option, and which reset periodically based on the terms of the loan agreement.
(6)Position or portion thereof is an unfunded loan or equity commitment. See Note 7 “Commitments and Contingencies”.
(7)The interest rate on these loans is subject to PRIME, which as of December 31, 2023 was 8.50%.
(8)The interest rate on this loan is subject to SONIA, which as of December 31, 2023 was 5.19%.
(9)The interest rate on this loan is subject to 1 month EURIBOR, which as of December 31, 2023 was 3.85%.
(10)The interest rate on this loan is subject to 3 month EURIBOR, which as of December 31, 2023 was 3.91%.
(11)The interest rate on this loan is subject to 6 month EURIBOR, which as of December 31, 2023 was 3.86%.
(12)The interest rate on these loans is subject to 1 month SOFR, which as of December 31, 2023 was 5.35%.
(13)The interest rate on these loans is subject to 3 month SOFR, which as of December 31, 2023 was 5.33%.
(14)The interest rate on these loans is subject to 6 month SOFR, which as of December 31, 2023 was 5.16%.
(15)Level 1 investment.
(16)Level 2 investment.
(17)The date disclosed represents the commitment period of the unfunded term loan. Upon expiration of the commitment period, the funded portion of the term loan may be subject to a longer maturity date.
(18)This portfolio company is not a qualifying asset under Section 55(a) of the1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of total assets. As of December 31, 2023, non-qualifying assets represented 12.4% of total assets as calculated in accordance with the regulatory requirements.
(19)Unless otherwise indicated, all or a portion of the Company’s portfolio companies are pledged as collateral supporting the available capacity under the SPV Asset Facilities. See Note 5 “Debt.”
(20)Investment is not pledged as collateral for the SPV Asset Facilities.
(21)Represents co-investment made with the Company’s affiliates in accordance with the terms of exemptive relief that the Company received from the U.S. Securities and Exchange Commission. See Note 3 “Agreements and Related Party Transactions.”
(22)The Company invests in this portfolio company through underlying blocker entities Hercules Blocker 1 LLC, Hercules Blocker 2 LLC, Hercules Blocker 3 LLC, Hercules Blocker 4 LLC, and Hercules Blocker 5 LLC.
(23)Investment does not contain a variable rate structure.
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2023
(Amounts in thousands, except share amounts)
(24)Securities acquired in transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), and may be deemed to be “restricted securities” under the Securities Act. As of December 31, 2023, the aggregate fair value of these securities is $166.5 million, or 13.0% of the Company’s net assets. The acquisition dates of the restricted securities are as follows:
Portfolio Company Investment Acquisition Date
AAM Series 1.1 Rail and Domestic Intermodal Feeder, LLC LLC Interest July 1, 2022
AAM Series 2.1 Aviation Feeder, LLC LLC Interest July 1, 2022
Amergin Asset Management, LLC Class A Units July 1, 2022
ASP Conair Holdings LP Class A Units May 17, 2021
Associations Finance, Inc. Preferred Stock June 10, 2022
BCTO WIW Holdings, Inc. (dba When I Work) Class A Common Stock November 2, 2021
Brooklyn Lender Co-Invest 2, L.P. (dba Boomi) Common Units October 1, 2021
CD&R Value Building Partners I, L.P. (dba Belron) LP Interest December 2, 2021
Denali Holding, LP (dba Summit Companies) Class A Units September 15, 2021
Dodge Construction Network Holdings, L.P. Class A-2 Common Units February 23, 2022
Dodge Construction Network Holdings, L.P. Series A Preferred Units February 23, 2022
Evology, LLC Class B Units January 24, 2022
Evolution Parent, LP (dba SIAA) LP Interest April 30, 2021
Fifth Season Investments LLC Class A Units October 17, 2022
Gloves Holdings, LP (dba Protective Industrial Products) LP Interest December 29, 2020
GrowthCurve Capital Sunrise Co-Invest LP (dba Brightway) LP Interest December 16, 2021
Hercules Buyer, LLC (dba The Vincit Group) Common Units December 15, 2020
H-Food Holdings, LLC LLC Interest November 23, 2018
Hissho Sushi Holdings, LLC Class A Units May 17, 2022
Insight CP (Blocker) Holdings, L.P. (dba CivicPlus, LLC) LP Interest June 8, 2022
Knockout Intermediate Holdings I Inc. (dba Kaseya) Perpetual Preferred Stock June 22, 2022
KOBHG Holdings L.P. (dba OB Hospitalist) Class A Interests September 27, 2021
KPCI Holdings, L.P. Class A Units November 30, 2020
LSI Financing 1 DAC Preferred Equity December 14, 2022
Maia Aggregator, LP Class A-2 Units February 1, 2022
MessageBird Holding B.V. Extended Series C Warrants May 5, 2021
Metis HoldCo, Inc. (dba Mavis Tire Express Services) Series A Convertible Preferred Stock May 4, 2021
Minerva Holdco, Inc Series A Preferred Stock February 15, 2022
New PLI Holdings, LLC (dba PLI) Class A Common Units December 23, 2020
Patriot Holdings SCSp (dba Corza Health, Inc.) Class A Units January 29, 2021
Patriot Holdings SCSp (dba Corza Health, Inc.) Class B Units January 29, 2021
PCF Holdco, LLC (dba PCF Insurance Services) Class A Units November 1, 2021
Project Alpine Co-Invest Fund, LP LP Interest June 13, 2022
Rhea Acquisition Holdings, LP Series A-2 Units February 18, 2022
Sunshine Software Holdings, Inc. (dba Cornerstone OnDemand) Series A Preferred Stock October 15, 2021
Thunder Topco L.P. (dba Vector Solutions) Common Units June 30, 2021
VEPF Torreys Aggregator, LLC (dba MINDBODY, Inc.) Series A Preferred Stock October 15, 2021
Walker Edison Furniture Company LLC Common Units March 1, 2023
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2023
(Amounts in thousands, except share amounts)
Portfolio Company Investment Acquisition Date
Windows Entities LLC Units January 16, 2020
WMC Bidco, Inc. (dba West Monroe) Senior Preferred Stock November 9, 2021
(25)Investment represents multiple underlying investments in related entities under common management. These underlying investments are on identical terms and include Midwest Custom Windows, LLC with a fair value of $8.0 million, Greater Toronto Custom Windows, Corp. with a fair value of $3.3 million, Garden State Custom Windows, LLC with a fair value of $11.1 million, Long Island Custom Windows, LLC with a fair value of $9.6 million, Jemico, LLC with a fair value of $7.7 million, Atlanta Custom Windows, LLC with a fair value of $3.8 million and Fairchester Custom Windows LLC with a fair value of $2.5 million as of December 31, 2023. Greater Toronto Custom Windows, Corp. is considered a non-qualifying asset.
(26)Loan was on non-accrual status as of December 31, 2023.
(27)As of December 31, 2023, the net estimated unrealized gain for U.S. federal income tax purposes was $7.6 million based on a tax cost basis of $2.0 billion. As of December 31, 2023, the estimated aggregate gross unrealized loss for U.S. federal income tax purposes was $43.8 million and the estimated aggregate gross unrealized gain for U.S. federal income tax purposes was $51.4 million.
(28)Under the 1940 Act, the Company is deemed to be an “Affiliated Person” of, as defined in the 1940 Act, this portfolio company, as the Company owns more than 5% of the portfolio company’s outstanding voting securities. Transactions during the year ended December 31, 2023 in which the Company was an Affiliated Person of the portfolio company are as follows:
Company Fair Value at December 31, 2022 Gross Additions(a) Gross Reductions(b) Net Change in Unrealized Gain/(Loss) Realized Gain/(Loss) Transfers Fair Value at December 31, 2023 Other Income Interest Income Dividend Income
Swipe Acquisition Corporation (dba PLI) $ 20,047 $ 35 $ (220) $ (20) $ - $ - $ 19,842 $ 108 $ 1,096 $ 441
Walker Edison Furniture Company LLC - 11,693 - (4,196) - - 7,497 2 - -
Total $ 20,047 $ 11,728 $ (220) $ (4,216) $ - $ - $ 27,339 $ 110 $ 1,096 $ 441
(a)Gross additions may include increases in the cost basis of investments resulting from new investments, amounts related to payment-in-kind (“PIK”) interest capitalized and added to the principal balance of the respective loans, the accretion of discounts, the exchange of one or more existing investments for one or more new investments and the movement at fair value of an existing portfolio company into this controlled affiliated category from a different category.
(b)Gross reductions may include decreases in the cost basis of investments resulting from principal collections related to investment repayments and sales, return of capital, the amortization of premiums and the exchange of one or more existing securities for one or more new securities.
(29)Investment is non-income producing.
The accompanying notes are an integral part of these consolidated financial statements.
Blue Owl Capital Corporation II
Consolidated Schedule of Investments
As of December 31, 2022
(Amounts in thousands, except share amounts)
Company(1)(2)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
Debt Investments(5)
Advertising and media
Global Music Rights, LLC (7)(22)(23) First lien senior secured loan L + 5.50% 08/2028 $ 928 $ 912 $ 928 0.1 %
Global Music Rights, LLC (16)(22)(23)(32) First lien senior secured revolving loan L + 5.50% 08/2027 - (1) - - %
928 911 928 0.1 %
Aerospace and defense
Aviation Solutions Midco, LLC (dba STS Aviation) (7)(23) First lien senior secured loan L + 7.25% 01/2025 37,531 37,244 36,218 2.8 %
Peraton Corp. (6)(18)(23) Second lien senior secured loan L + 7.75% 02/2029 14,562 14,381 13,798 1.1 %
Valence Surface Technologies LLC (14)(22)(23) First lien senior secured loan S + 7.75% (3.88% PIK)
06/2025 32,019 31,808 25,615 2.0 %
Valence Surface Technologies LLC (14)(22)(23)(32) First lien senior secured revolving loan S + 7.75% 06/2025 2,602 2,586 2,079 0.2 %
86,714 86,019 77,710 6.1 %
Asset based lending and fund finance
Hg Genesis 8 Sumoco Limited (10)(20)(22)(23) Unsecured facility SA + 6.00% PIK
08/2025 5,905 6,477 5,905 0.5 %
Hg Genesis 9 SumoCo Limited (11)(20)(22)(23) Unsecured facility E + 7.00% PIK
03/2027 1,015 1,042 1,015 0.1 %
Hg Saturn Luchaco Limited (10)(20)(22)(23) Unsecured facility SA + 7.50% PIK
03/2026 24,042 27,164 23,741 1.8 %
30,962 34,683 30,661 2.4 %
Buildings and real estate
Associations, Inc. (14)(23) First lien senior secured loan S + 6.50% (2.50% PIK)
07/2027 77,823 77,238 77,628 6.0 %
Associations, Inc. (14)(19)(22)(23)(32) First lien senior secured delayed draw term loan S + 6.50% (2.50% PIK)
06/2024 24 21 24 - %
Associations, Inc. (16)(22)(23)(32) First lien senior secured revolving loan S + 6.50% 07/2027 - (46) (15) - %
REALPAGE, INC. (6)(22)(23) Second lien senior secured loan L + 6.50% 04/2029 6,500 6,419 6,224 0.5 %
84,347 83,632 83,861 6.5 %
Business services
Access CIG, LLC (6)(23) Second lien senior secured loan L + 7.75% 02/2026 24,564 24,500 24,441 1.9 %
CIBT Global, Inc. (7)(22)(23)(28) First lien senior secured loan L + 5.25% (4.25% PIK)
06/2025 159 109 83 - %
CIBT Global, Inc. (7)(22)(23)(28) Second lien senior secured loan L + 7.75% PIK
12/2025 11,237 4,717 1,067 0.1 %
Denali BuyerCo, LLC (dba Summit Companies) (7)(23) First lien senior secured loan L + 5.75% 09/2028 5,521 5,425 5,466 0.4 %
Denali BuyerCo, LLC (dba Summit Companies) (7)(19)(22)(23)(32) First lien senior secured delayed draw term loan L + 5.75% 09/2023 343 339 340 - %
Denali BuyerCo, LLC (dba Summit Companies) (16)(22)(23)(32) First lien senior secured revolving loan L + 5.75% 09/2027 - (1) (1) - %
Diamondback Acquisition, Inc. (dba Sphera) (6)(22)(23) First lien senior secured loan L + 5.50% 09/2028 632 621 626 - %
Diamondback Acquisition, Inc. (dba Sphera) (16)(19)(22)(23)(32) First lien senior secured delayed draw term loan L + 5.50% 09/2023 - (1) - - %
Entertainment Benefits Group, LLC (13)(22)(23) First lien senior secured loan S + 4.75% 05/2028 862 855 862 0.1 %
Entertainment Benefits Group, LLC (13)(22)(23)(32) First lien senior secured revolving loan S + 4.75% 04/2027 89 88 89 - %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2022
(Amounts in thousands, except share amounts)
Company(1)(2)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
Gainsight, Inc. (7)(22)(23) First lien senior secured loan L + 6.75% PIK
07/2027 5,512 5,442 5,429 0.4 %
Gainsight, Inc. (16)(22)(23)(32) First lien senior secured revolving loan L + 6.25% 07/2027 - (12) (13) - %
Hercules Borrower, LLC (dba The Vincit Group) (7)(23) First lien senior secured loan L + 6.50% 12/2026 28,270 27,969 28,200 2.2 %
Hercules Borrower, LLC (dba The Vincit Group) (8)(22)(23)(32) First lien senior secured revolving loan L + 6.50% 12/2026 357 324 348 - %
Hercules Buyer, LLC (dba The Vincit Group) (22)(23)(24)(25) Unsecured notes 0.48% PIK
12/2029 825 825 825 0.1 %
Kaseya Inc. (14)(22)(23) First lien senior secured loan S + 5.75% 06/2029 535 525 530 - %
Kaseya Inc. (19)(22)(23)(32) First lien senior secured delayed draw term loan S + 5.75% 06/2024 - - - - %
Kaseya Inc. (16)(22)(23)(32) First lien senior secured revolving loan S + 5.75% 06/2029 - (1) - - %
KPSKY Acquisition, Inc. (dba BluSky) (6)(22)(23) First lien senior secured loan L + 5.50% 10/2028 988 971 963 0.1 %
79,894 72,695 69,255 5.3 %
Chemicals
Aruba Investments Holdings LLC (dba Angus Chemical Company) (6)(23) Second lien senior secured loan L + 7.75% 11/2028 22,500 22,232 22,162 1.6 %
Douglas Products and Packaging Company LLC (13)(23) First lien senior secured loan S + 7.00% 06/2025 3,418 3,384 3,383 0.2 %
Douglas Products and Packaging Company LLC (16)(22)(23)(32) First lien senior secured revolving loan S + 7.00% 06/2025 - (4) (4) - %
Gaylord Chemical Company, L.L.C. (7)(23) First lien senior secured loan L + 6.50% 03/2027 29,859 29,634 29,859 2.3 %
Gaylord Chemical Company, L.L.C. (16)(22)(23)(32) First lien senior secured revolving loan L + 6.50% 03/2026 - (17) - - %
Velocity HoldCo III Inc. (dba VelocityEHS) (8)(22)(23) First lien senior secured loan L + 5.75% 04/2027 6,040 5,937 6,040 0.5 %
Velocity HoldCo III Inc. (dba VelocityEHS) (6)(22)(23)(32) First lien senior secured revolving loan L + 5.75% 04/2026 74 68 74 - %
61,891 61,234 61,514 4.6 %
Consumer products
Conair Holdings, LLC (7)(23) Second lien senior secured loan L + 7.50% 05/2029 45,000 44,381 40,950 3.1 %
Feradyne Outdoors, LLC (13)(22)(23) First lien senior secured loan S + 6.25% 02/2024 745 744 734 0.1 %
Foundation Consumer Brands, LLC (7)(22)(23) First lien senior secured loan L + 5.50% 02/2027 864 864 862 0.1 %
Lignetics Investment Corp. (7)(23) First lien senior secured loan L + 6.00% 11/2027 9,706 9,604 9,512 0.7 %
Lignetics Investment Corp. (16)(19)(22)(23)(32) First lien senior secured delayed draw term loan L + 6.00% 11/2023 - (12) (25) - %
Lignetics Investment Corp. (6)(22)(23)(32) First lien senior secured revolving loan L + 6.00% 10/2026 882 868 853 0.1 %
SWK BUYER, Inc. (dba Stonewall Kitchen) (15)(22)(23) First lien senior secured loan S + 5.25% 03/2029 751 737 728 0.1 %
SWK BUYER, Inc. (dba Stonewall Kitchen) (16)(19)(22)(23)(32) First lien senior secured delayed draw term loan S + 5.25% 03/2024 - (2) (4) - %
SWK BUYER, Inc. (dba Stonewall Kitchen) (13)(22)(23)(32) First lien senior secured revolving loan S + 5.25% 03/2029 25 23 22 - %
WU Holdco, Inc. (dba Weiman Products, LLC) (7)(23) First lien senior secured loan L + 5.50% 03/2026 46,262 45,735 45,105 3.4 %
WU Holdco, Inc. (dba Weiman Products, LLC) (7)(22)(23)(32) First lien senior secured revolving loan L + 5.50% 03/2025 1,831 1,800 1,743 0.1 %
106,066 104,742 100,480 7.7 %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2022
(Amounts in thousands, except share amounts)
Company(1)(2)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
Containers and packaging
Ascend Buyer, LLC (dba PPC Flexible Packaging) (13)(22)(23) First lien senior secured loan S + 6.25% 10/2028 765 758 759 0.1 %
Ascend Buyer, LLC (dba PPC Flexible Packaging) (16)(22)(23)(32) First lien senior secured revolving loan S + 6.25% 09/2027 - (1) (1) - %
Fortis Solutions Group, LLC (7)(22)(23) First lien senior secured loan L + 5.50% 10/2028 899 884 875 0.1 %
Fortis Solutions Group, LLC (19)(22)(23)(32) First lien senior secured delayed draw term loan L + 5.50% 10/2023 - - - - %
Fortis Solutions Group, LLC (8)(22)(23)(32) First lien senior secured revolving loan L + 5.50% 10/2027 12 11 10 - %
Indigo Buyer, Inc. (dba Inovar Packaging Group) (14)(22)(23) First lien senior secured loan S + 5.75% 05/2028 647 641 647 - %
Indigo Buyer, Inc. (dba Inovar Packaging Group) (19)(22)(23)(32) First lien senior secured delayed draw term loan S + 5.75% 05/2024 - - - - %
Indigo Buyer, Inc. (dba Inovar Packaging Group) (14)(22)(23)(32) First lien senior secured revolving loan S + 5.75% 05/2028 17 16 17 - %
Pregis Topco LLC (6)(23) Second lien senior secured loan L + 7.06% 08/2029 30,000 29,562 29,695 2.3 %
32,340 31,871 32,002 2.5 %
Distribution
ABB/Con-cise Optical Group LLC (8)(22)(23) First lien senior secured loan L + 7.50% 02/2028 899 887 897 0.1 %
ABB/Con-cise Optical Group LLC (8)(22)(23)(32) First lien senior secured revolving loan L + 7.50% 02/2028 90 88 89 - %
Aramsco, Inc. (6)(23) First lien senior secured loan L + 5.25% 08/2024 10,195 10,124 10,170 0.8 %
Aramsco, Inc. (6)(22)(23)(32) First lien senior secured revolving loan L + 5.25% 08/2024 209 201 206 - %
Endries Acquisition, Inc. (14)(23) First lien senior secured loan S + 6.25% 12/2025 26,401 26,179 26,401 2.0 %
BradyIFS Holdings, LLC (fka Individual Foodservice Holdings, LLC) (14)(23) First lien senior secured loan S + 6.25% 11/2025 30,335 30,014 30,259 2.3 %
BradyIFS Holdings, LLC (fka Individual Foodservice Holdings, LLC) (16)(22)(23)(32) First lien senior secured revolving loan S + 6.25% 11/2024 - (37) (11) - %
Offen, Inc. (6)(23) First lien senior secured loan L + 5.00% 06/2026 4,674 4,649 4,674 0.4 %
72,803 72,105 72,685 5.6 %
Education
Learning Care Group (US) No. 2 Inc. (7)(23) Second lien senior secured loan L + 7.50% 03/2026 5,393 5,345 5,164 0.4 %
Pluralsight, LLC (7)(23) First lien senior secured loan L + 8.00% 04/2027 20,640 20,440 20,331 1.6 %
Pluralsight, LLC (6)(22)(23)(32) First lien senior secured revolving loan L + 8.00% 04/2027 647 634 628 - %
26,680 26,419 26,123 2.0 %
Financial services
AxiomSL Group, Inc. (6)(23) First lien senior secured loan L + 5.75% 12/2027 43,020 42,630 42,374 3.3 %
AxiomSL Group, Inc. (16)(19)(22)(23)(32) First lien senior secured delayed draw term loan L + 5.75% 07/2023 - (9) (11) - %
AxiomSL Group, Inc. (16)(22)(23)(32) First lien senior secured revolving loan L + 5.75% 12/2025 - (26) (52) - %
Blackhawk Network Holdings, Inc. (7)(23) Second lien senior secured loan L + 7.00% 06/2026 18,777 18,697 18,683 1.4 %
Muine Gall, LLC (8)(20)(22)(23) First lien senior secured loan L + 7.00% PIK
09/2024 55,637 55,956 54,246 4.2 %
NMI Acquisitionco, Inc. (dba Network Merchants) (6)(23) First lien senior secured loan L + 5.75% 09/2025 3,308 3,293 3,267 0.3 %
NMI Acquisitionco, Inc. (dba Network Merchants) (6)(19)(22)(23)(32) First lien senior secured delayed draw term loan L + 5.75% 10/2023 782 772 771 0.1 %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2022
(Amounts in thousands, except share amounts)
Company(1)(2)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
NMI Acquisitionco, Inc. (dba Network Merchants) (16)(22)(23)(32) First lien senior secured revolving loan L + 5.75% 09/2025 - (2) (3) - %
Smarsh Inc. (15)(22)(23) First lien senior secured loan S + 6.50% 02/2029 762 755 754 0.1 %
Smarsh Inc. (15)(19)(22)(23)(32) First lien senior secured delayed draw term loan S + 6.50% 02/2024 95 93 94 - %
Smarsh Inc. (22)(23)(32) First lien senior secured revolving loan S + 6.50% 02/2029 - - - - %
122,381 122,159 120,123 9.4 %
Food and beverage
Balrog Acquisition, Inc. (dba Bakemark) (7)(22)(23) Second lien senior secured loan L + 7.00% 09/2029 5,000 4,963 4,950 0.4 %
BP Veraison Buyer, LLC (dba Sun World) (7)(23) First lien senior secured loan L + 5.50% 05/2027 14,376 14,240 14,268 1.1 %
BP Veraison Buyer, LLC (dba Sun World) (16)(19)(22)(23)(32) First lien senior secured delayed draw term loan L + 5.50% 05/2023 - (6) - - %
BP Veraison Buyer, LLC (dba Sun World) (16)(22)(23)(32) First lien senior secured revolving loan L + 5.50% 05/2027 - (17) (14) - %
H-Food Holdings, LLC (6)(18)(23) First lien senior secured loan L + 4.00% 05/2025 1 1 1 - %
H-Food Holdings, LLC (6)(23) Second lien senior secured loan L + 7.00% 03/2026 18,200 17,979 15,697 1.1 %
Hissho Sushi Merger Sub, LLC (14)(22)(23) First lien senior secured loan S + 5.75% 05/2028 901 893 899 0.1 %
Hissho Sushi Merger Sub, LLC (14)(22)(23)(32) First lien senior secured revolving loan S + 5.75% 05/2028 14 13 14 - %
Hometown Food Company (6)(23) First lien senior secured loan L + 5.00% 08/2023 1,618 1,613 1,618 0.1 %
Hometown Food Company (6)(22)(23)(32) First lien senior secured revolving loan L + 5.00% 08/2023 94 93 94 - %
Innovation Ventures HoldCo, LLC (dba 5 Hour Energy) (13)(22)(23) First lien senior secured loan S + 6.25% 03/2027 1,000 984 980 0.1 %
Nellson Nutraceutical, LLC (13)(23) First lien senior secured loan S + 5.75% 12/2025 25,982 25,643 25,527 2.0 %
Nutraceutical International Corporation (6)(23) First lien senior secured loan L + 7.00% 09/2026 32,343 32,016 29,432 2.3 %
Nutraceutical International Corporation (6)(22)(23) First lien senior secured revolving loan L + 7.00% 09/2025 2,353 2,334 2,141 0.2 %
Sara Lee Frozen Bakery, LLC (fka KSLB Holdings, LLC) (7)(23) First lien senior secured loan L + 4.50% 07/2025 4,836 4,796 4,521 0.3 %
Sara Lee Frozen Bakery, LLC (fka KSLB Holdings, LLC) (7)(22)(23)(32) First lien senior secured revolving loan L + 4.50% 07/2023 780 777 715 0.1 %
Shearer's Foods, LLC (6)(23) Second lien senior secured loan L + 7.75% 09/2028 48,000 47,629 47,760 3.7 %
Ultimate Baked Goods Midco, LLC (6)(23) First lien senior secured loan L + 6.50% 08/2027 16,335 16,004 15,845 1.2 %
Ultimate Baked Goods Midco, LLC (6)(22)(23)(32) First lien senior secured revolving loan L + 6.50% 08/2027 525 487 465 - %
172,358 170,442 164,913 12.7 %
Healthcare equipment and services
Confluent Medical Technologies, Inc. (14)(22)(23) Second lien senior secured loan S + 6.50% 02/2030 1,000 982 947 0.1 %
CSC MKG Topco LLC (dba Medical Knowledge Group) (6)(22)(23) First lien senior secured loan L + 5.75% 02/2029 850 834 831 0.1 %
Nelipak Holding Company (7)(23) First lien senior secured USD term loan L + 4.25% 07/2026 273 270 271 - %
Nelipak Holding Company (7)(22)(23)(32) First lien senior secured USD revolving loan L + 4.25% 07/2024 128 123 121 - %
Nelipak Holding Company (11)(22)(23)(32) First lien senior secured EUR revolving loan E + 4.50% 07/2024 307 300 301 - %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2022
(Amounts in thousands, except share amounts)
Company(1)(2)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
Nelipak Holding Company (7)(23) Second lien senior secured USD term loan L + 8.25% 07/2027 7,994 7,916 7,934 0.6 %
Nelipak Holding Company (12)(22)(23) Second lien senior secured EUR term loan E + 8.50% 07/2027 7,653 7,946 7,557 0.6 %
Packaging Coordinators Midco, Inc. (7)(23) Second lien senior secured loan L + 7.00% 12/2029 37,269 36,646 35,219 2.7 %
Patriot Acquisition TopCo S.A.R.L (dba Corza Health, Inc.) (14)(20)(23) First lien senior secured loan S + 6.75% 01/2028 25,521 25,188 25,202 1.9 %
Patriot Acquisition TopCo S.A.R.L (dba Corza Health, Inc.) (14)(20)(22)(23)(32) First lien senior secured revolving loan S + 6.75% 01/2026 569 535 536 - %
Rhea Parent, Inc. (14)(22)(23) First lien senior secured loan S + 5.75% 02/2029 770 756 753 0.1 %
82,334 81,496 79,672 6.1 %
Healthcare providers and services
Diagnostic Services Holdings, Inc. (dba Rayus Radiology) (6)(22)(23) First lien senior secured loan L + 5.50% 03/2025 998 998 988 0.1 %
National Dentex Labs LLC (fka Barracuda Dental LLC) (7)(23) First lien senior secured loan L + 8.00% (3.00% PIK)
10/2025 19,439 19,247 18,953 1.5 %
National Dentex Labs LLC (fka Barracuda Dental LLC) (7)(22)(23)(32) First lien senior secured revolving loan L + 7.00% 10/2025 1,686 1,660 1,643 0.1 %
Natural Partners, LLC (8)(20)(22)(23) First lien senior secured loan L + 6.00% 11/2027 924 908 906 0.1 %
Natural Partners, LLC (16)(20)(22)(23)(32) First lien senior secured revolving loan L + 6.00% 11/2027 - (1) (1) - %
OB Hospitalist Group, Inc. (7)(22)(23) First lien senior secured loan L + 5.50% 09/2027 18,448 18,144 18,217 1.4 %
OB Hospitalist Group, Inc. (7)(22)(23)(32) First lien senior secured revolving loan L + 5.50% 09/2027 1,016 970 979 0.1 %
Ex Vivo Parent Inc. (dba OB Hospitalist) (7)(22)(23) First lien senior secured loan L + 9.50% 09/2028 11,184 10,989 10,933 0.8 %
Pacific BidCo Inc. (14)(20)(22)(23) First lien senior secured loan S + 5.75% 08/2029 1,718 1,677 1,679 0.1 %
Pacific BidCo Inc. (16)(19)(20)(22)(23)(32) First lien senior secured delayed draw term loan S + 5.75% 08/2025 - (2) (2) - %
Parexel International, Inc. (dba Parexel) (6)(22)(23) Second lien senior secured loan L + 6.50% 11/2029 35,000 34,687 34,300 2.6 %
Plasma Buyer LLC (dba PathGroup) (13)(22)(23) First lien senior secured loan S + 5.75% 05/2029 679 666 667 0.1 %
Plasma Buyer LLC (dba PathGroup) (16)(19)(22)(23)(32) First lien senior secured delayed draw term loan S + 5.75% 05/2024 - (2) (1) - %
Plasma Buyer LLC (dba PathGroup) (16)(22)(23)(32) First lien senior secured revolving loan S + 5.75% 05/2028 - (1) (1) - %
Premier Imaging, LLC (dba LucidHealth) (6)(23) First lien senior secured loan L + 5.75% 01/2025 7,588 7,529 7,493 0.6 %
Quva Pharma, Inc. (7)(23) First lien senior secured loan L + 5.50% 04/2028 11,671 11,391 11,437 0.9 %
Quva Pharma, Inc. (7)(22)(23)(32) First lien senior secured revolving loan L + 5.50% 04/2026 567 544 544 - %
Tivity Health, Inc. (14)(22)(23) First lien senior secured loan S + 6.00% 06/2029 998 974 982 0.1 %
Unified Women's Healthcare, LP (13)(22)(23) First lien senior secured loan S + 5.25% 06/2029 878 872 878 0.1 %
Unified Women's Healthcare, LP (19)(22)(23)(32) First lien senior secured delayed draw term loan S + 5.25% 06/2024 - - - - %
Unified Women's Healthcare, LP (16)(22)(23)(32) First lien senior secured revolving loan S + 5.25% 06/2029 - (1) - - %
Vermont Aus Pty Ltd (14)(20)(22)(23) First lien senior secured loan S + 5.50% 03/2028 993 970 968 0.1 %
113,787 112,219 111,562 8.7 %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2022
(Amounts in thousands, except share amounts)
Company(1)(2)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
Healthcare technology
BCPE Osprey Buyer, Inc. (dba PartsSource) (7)(22)(23) First lien senior secured loan L + 5.75% 08/2028 597 589 584 - %
BCPE Osprey Buyer, Inc. (dba PartsSource) (16)(19)(22)(23)(32) First lien senior secured delayed draw term loan L + 5.75% 08/2023 - (2) (4) - %
BCPE Osprey Buyer, Inc. (dba PartsSource) (16)(22)(23)(32) First lien senior secured revolving loan L + 5.75% 08/2026 - (1) (1) - %
Bracket Intermediate Holding Corp. (7)(22)(23) First lien senior secured loan L + 4.25% 09/2025 73 70 70 - %
Bracket Intermediate Holding Corp. (7)(23) Second lien senior secured loan L + 8.13% 09/2026 3,750 3,708 3,600 0.3 %
GI Ranger Intermediate, LLC (dba Rectangle Health) (14)(22)(23) First lien senior secured loan S + 6.00% 10/2028 917 901 894 0.1 %
GI Ranger Intermediate, LLC (dba Rectangle Health) (14)(22)(23)(32) First lien senior secured revolving loan S + 6.00% 10/2027 7 6 6 - %
Imprivata, Inc. (13)(22)(23) Second lien senior secured loan S + 6.25% 12/2028 882 874 860 0.1 %
Intelerad Medical Systems Incorporated (fka 11849573 Canada Inc.) (14)(20)(23) First lien senior secured loan S + 6.50% 08/2026 39,264 38,935 39,068 3.0 %
Intelerad Medical Systems Incorporated (fka 11849573 Canada Inc.) (13)(20)(22)(23) First lien senior secured revolving loan S + 6.50% 08/2026 1,530 1,520 1,522 0.1 %
Interoperability Bidco, Inc. (dba Lyniate) (14)(22)(23) First lien senior secured loan S + 7.00% 12/2026 14,240 14,162 14,133 1.1 %
Interoperability Bidco, Inc. (dba Lyniate) (7)(22)(23)(32) First lien senior secured revolving loan L + 7.00% 12/2024 326 323 321 - %
RL Datix Holdings (USA), Inc. (15)(20)(22)(23) First lien senior secured USD term loan S + 4.50% 04/2025 10,000 9,831 9,825 0.8 %
RL Datix Holdings (USA), Inc. (15)(20)(22)(23) Second lien senior secured USD term loan S + 7.75% 04/2026 5,000 4,915 4,925 0.4 %
Datix Bidco Limited (dba RLDatix) (10)(20)(22)(23) First lien senior secured GBP term loan SA + 4.50% 04/2025 767 865 753 0.1 %
Datix Bidco Limited (dba RLDatix) (10)(20)(22)(23) Second lien senior secured GBP term loan SA + 7.75% 04/2026 2,005 2,257 1,975 0.2 %
Ocala Bidco, Inc. (7)(23) First lien senior secured loan L + 6.25% (2.75% PIK)
11/2028 33,234 32,536 32,403 2.5 %
Ocala Bidco, Inc. (16)(19)(22)(23)(32) First lien senior secured delayed draw term loan L + 5.75% 05/2024 - (47) (56) - %
Ocala Bidco, Inc. (7)(22)(23) Second lien senior secured loan L + 10.50% PIK
11/2033 22,535 22,153 22,197 1.7 %
135,127 133,595 133,075 10.4 %
Household products
Aptive Environmental, LLC (22)(23)(25) First lien senior secured loan 12.00% (6.00% PIK)
01/2026 3,057 2,564 2,751 0.2 %
HGH Purchaser, Inc. (dba Horizon Services) (7)(23) First lien senior secured loan L + 6.00% 11/2025 26,782 26,537 26,514 2.0 %
HGH Purchaser, Inc. (dba Horizon Services) (13)(19)(22)(23)(32) First lien senior secured delayed draw term loan S + 6.50% 11/2023 7,204 7,154 7,130 0.5 %
HGH Purchaser, Inc. (dba Horizon Services) (13)(22)(23)(32) First lien senior secured revolving loan S + 6.50% 11/2025 2,243 2,216 2,206 0.2 %
Mario Purchaser, LLC (dba Len the Plumber) (13)(22)(23) First lien senior secured loan S + 5.75% 04/2029 522 512 516 - %
Mario Purchaser, LLC (dba Len the Plumber) (13)(19)(22)(23)(32) First lien senior secured delayed draw term loan S + 5.75% 04/2024 81 78 80 - %
Mario Purchaser, LLC (dba Len the Plumber) (16)(22)(23)(32) First lien senior secured revolving loan S + 5.75% 04/2028 - (1) (1) - %
Mario Midco Holdings, Inc. (dba Len the Plumber) (13)(22)(23) Unsecured facility S + 10.75% PIK
04/2032 163 159 161 - %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2022
(Amounts in thousands, except share amounts)
Company(1)(2)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
SimpliSafe Holding Corporation (13)(22)(23) First lien senior secured loan S + 6.25% 05/2028 819 804 809 0.1 %
SimpliSafe Holding Corporation (16)(19)(22)(23)(32) First lien senior secured delayed draw term loan S + 6.25% 05/2024 - (1) - - %
Walker Edison Furniture Company LLC (7)(22)(23)(28) First lien senior secured loan L + 8.75% (3.00% PIK)
03/2027 17,233 16,631 8,789 0.7 %
58,104 56,653 48,955 3.7 %
Human resource support services
Cornerstone OnDemand, Inc. (6)(22)(23) Second lien senior secured loan L + 6.50% 10/2029 16,667 16,445 16,000 1.2 %
IG Investments Holdings, LLC (dba Insight Global) (6)(22)(23) First lien senior secured loan L + 6.00% 09/2028 9,161 9,005 9,047 0.7 %
IG Investments Holdings, LLC (dba Insight Global) (6)(22)(23)(32) First lien senior secured revolving loan L + 6.00% 09/2027 289 278 280 - %
26,117 25,728 25,327 1.9 %
Infrastructure and environmental services
LineStar Integrity Services LLC (8)(23) First lien senior secured loan L + 7.25% 12/2026 9,177 9,202 8,672 0.7 %
Tamarack Intermediate, L.L.C. (dba Verisk 3E) (15)(22)(23) First lien senior secured loan S + 5.75% 03/2028 682 670 668 0.1 %
Tamarack Intermediate, L.L.C. (dba Verisk 3E) (13)(22)(23)(32) First lien senior secured revolving loan S + 5.75% 03/2028 20 18 18 - %
9,879 9,890 9,358 0.8 %
Insurance
Alera Group, Inc. (13)(23) First lien senior secured loan S + 6.00% 10/2028 7,370 7,229 7,315 0.6 %
Ardonagh Midco 2 PLC (18)(20)(22)(23)(25) Unsecured notes 11.50% 01/2027 602 599 569 - %
Ardonagh Midco 3 PLC (10)(20)(22)(23) First lien senior secured GBP term loan SA + 7.00% 07/2026 5,604 5,763 5,604 0.4 %
Ardonagh Midco 3 PLC (12)(20)(22)(23) First lien senior secured EUR term loan E + 7.00% 07/2026 524 541 523 - %
Ardonagh Midco 3 PLC (8)(20)(22)(23) First lien senior secured USD term loan L + 5.75% 07/2026 1,440 1,418 1,429 0.1 %
Ardonagh Midco 3 PLC (11)(20)(22)(23) First lien senior secured GBP delayed draw term loan E + 5.75% 07/2026 527 593 523 - %
Brightway Holdings, LLC (6)(22)(23) First lien senior secured loan L + 6.50% 12/2027 4,440 4,393 4,351 0.3 %
Brightway Holdings, LLC (16)(22)(23)(32) First lien senior secured revolving loan L + 6.50% 12/2027 - (5) (11) - %
Evolution BuyerCo, Inc. (dba SIAA) (14)(23) First lien senior secured loan S + 6.25% 04/2028 29,505 29,166 29,063 2.2 %
Evolution BuyerCo, Inc. (dba SIAA) (16)(22)(23)(32) First lien senior secured revolving loan S + 6.25% 04/2027 - (23) (33) - %
Integrity Marketing Acquisition, LLC (8)(23) First lien senior secured loan L + 5.75% 08/2025 27,288 27,063 27,220 2.1 %
Integrity Marketing Acquisition, LLC (16)(22)(23)(32) First lien senior secured revolving loan L + 5.75% 08/2025 - (12) (5) - %
Norvax, LLC (dba GoHealth) (7)(23) First lien senior secured loan L + 7.50% 09/2025 17,020 16,646 16,764 1.3 %
Norvax, LLC (dba GoHealth) (16)(22)(23)(32) First lien senior secured revolving loan L + 6.50% 09/2024 - (14) (41) - %
Peter C. Foy & Associates Insurance Services, LLC (dba PCF Insurance Services) (8)(23) First lien senior secured loan L + 6.00% 11/2028 22,653 22,465 22,597 1.7 %
Peter C. Foy & Associates Insurance Services, LLC (dba PCF Insurance Services) (16)(22)(23)(32) First lien senior secured revolving loan L + 6.00% 11/2027 - (8) (3) - %
PCF Midco II, LLC (dba PCF Insurance Services) (22)(23)(25) First lien senior secured loan 9.00% PIK
10/2031 23,791 21,901 21,412 1.7 %
Tempo Buyer Corp. (dba Global Claims Services) (7)(22)(23) First lien senior secured loan L + 5.50% 08/2028 695 684 678 0.1 %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2022
(Amounts in thousands, except share amounts)
Company(1)(2)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
Tempo Buyer Corp. (dba Global Claims Services) (16)(19)(22)(23)(32) First lien senior secured delayed draw term loan L + 5.50% 08/2023 - (2) (3) - %
Tempo Buyer Corp. (dba Global Claims Services) (9)(22)(23)(32) First lien senior secured revolving loan P + 4.50% 08/2027 8 6 5 - %
THG Acquisition, LLC (dba Hilb) (6)(23) First lien senior secured loan L + 5.75% 12/2026 24,915 24,531 24,603 1.9 %
THG Acquisition, LLC (dba Hilb) (16)(22)(23)(32) First lien senior secured revolving loan L + 5.75% 12/2025 - (23) (23) - %
USRP Holdings, Inc. (dba U.S. Retirement and Benefits Partners) (7)(22)(23) First lien senior secured loan L + 5.50% 07/2027 1,668 1,641 1,635 0.1 %
USRP Holdings, Inc. (dba U.S. Retirement and Benefits Partners) (16)(22)(23)(32) First lien senior secured revolving loan L + 5.50% 07/2027 - (3) (4) - %
KUSRP Intermediate, Inc. (dba U.S. Retirement and Benefits Partners) (8)(22)(23) First lien senior secured loan L + 9.50% PIK
07/2028 1,505 1,483 1,487 0.1 %
169,555 166,032 165,655 12.6 %
Internet software and services
3ES Innovation Inc. (dba Aucerna) (7)(20)(23) First lien senior secured loan L + 6.50% 05/2025 10,700 10,631 10,647 0.8 %
3ES Innovation Inc. (dba Aucerna) (7)(20)(22)(23)(32) First lien senior secured revolving loan L + 6.50% 05/2025 300 297 297 - %
Anaplan, Inc. (13)(23) First lien senior secured loan S + 6.50% 06/2029 13,508 13,381 13,474 1.0 %
Anaplan, Inc. (16)(22)(23)(32) First lien senior secured revolving loan S + 6.50% 06/2028 - (9) (2) - %
Apptio, Inc. (7)(22)(23) First lien senior secured loan L + 6.00% 01/2025 7,364 7,305 7,364 0.6 %
Apptio, Inc. (7)(22)(23)(32) First lien senior secured revolving loan L + 6.00% 01/2025 294 291 294 - %
Bayshore Intermediate #2, L.P. (dba Boomi) (6)(22)(23) First lien senior secured loan L + 7.75% PIK
10/2028 16,640 16,352 16,307 1.2 %
Bayshore Intermediate #2, L.P. (dba Boomi) (6)(22)(23)(32) First lien senior secured revolving loan L + 6.75% 10/2027 413 391 389 - %
BCPE Nucleon (DE) SPV, LP (8)(20)(22)(23) First lien senior secured loan L + 7.00% 09/2026 35,556 35,182 35,467 2.7 %
BCTO BSI Buyer, Inc. (dba Buildertrend) (14)(22)(23) First lien senior secured loan S + 8.00% PIK
12/2026 10,058 9,978 10,058 0.8 %
BCTO BSI Buyer, Inc. (dba Buildertrend) (16)(22)(23)(32) First lien senior secured revolving loan S + 8.00% 12/2026 - (16) - - %
Centrify Corporation (7)(22)(23) First lien senior secured loan L + 6.00% 03/2028 13,072 12,814 12,908 1.0 %
Centrify Corporation (7)(22)(23) First lien senior secured revolving loan L + 6.00% 03/2027 1,345 1,318 1,329 0.1 %
CivicPlus, LLC (7)(22)(23) First lien senior secured loan L + 6.75% (2.50% PIK)
08/2027 2,475 2,453 2,469 0.2 %
CivicPlus, LLC (16)(22)(23)(32) First lien senior secured revolving loan L + 6.25% 08/2027 - (2) (1) - %
CP PIK DEBT ISSUER, LLC (dba CivicPlus, LLC) (15)(22)(23) Unsecured notes S + 11.75% PIK
06/2034 454 442 448 - %
Delta TopCo, Inc. (dba Infoblox, Inc.) (14)(23) Second lien senior secured loan S + 7.25% 12/2028 40,000 39,843 37,200 2.9 %
EET Buyer, Inc. (dba e-Emphasys) (8)(22)(23) First lien senior secured loan L + 5.25% 11/2027 902 895 902 0.1 %
EET Buyer, Inc. (dba e-Emphasys) (16)(22)(23)(32) First lien senior secured revolving loan L + 5.25% 11/2027 - (1) - - %
Forescout Technologies, Inc. (7)(22)(23) First lien senior secured loan L + 9.28% PIK
08/2026 13,977 13,851 13,947 1.1 %
Forescout Technologies, Inc. (16)(19)(22)(23)(32) First lien senior secured delayed draw term loan L + 8.00% 07/2024 - (30) - - %
Forescout Technologies, Inc. (16)(22)(23)(32) First lien senior secured revolving loan L + 8.50% 08/2025 - (6) - - %
Genesis Acquisition Co. (dba Procare Software) (8)(23) First lien senior secured loan L + 3.75% 07/2024 1,994 1,982 1,954 0.2 %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2022
(Amounts in thousands, except share amounts)
Company(1)(2)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
Genesis Acquisition Co. (dba Procare Software) (8)(22)(23) First lien senior secured revolving loan L + 3.75% 07/2024 293 291 287 - %
GovBrands Intermediate, Inc. (7)(22)(23) First lien senior secured loan L + 5.50% 08/2027 2,459 2,410 2,348 0.2 %
GovBrands Intermediate, Inc. (7)(19)(22)(23)(32) First lien senior secured delayed draw term loan L + 5.50% 08/2023 555 541 521 - %
GovBrands Intermediate, Inc. (7)(22)(23)(32) First lien senior secured revolving loan L + 5.50% 08/2027 166 163 158 - %
H&F Opportunities LUX III S.À R.L (dba Checkmarx) (6)(20)(22)(23) First lien senior secured loan L + 7.50% 04/2026 14,544 14,278 14,544 1.1 %
H&F Opportunities LUX III S.À R.L (dba Checkmarx) (16)(20)(22)(23)(32) First lien senior secured revolving loan L + 7.50% 04/2026 - (75) - - %
Hyland Software, Inc. (6)(22)(23) Second lien senior secured loan L + 6.25% 07/2025 12,145 12,137 11,477 0.9 %
Litera Bidco LLC (13)(23) First lien senior secured loan S + 5.91% 05/2026 26,179 25,947 26,131 2.0 %
Litera Bidco LLC (7)(22)(23)(32) First lien senior secured revolving loan L + 5.75% 05/2026 278 273 273 - %
MessageBird BidCo B.V. (6)(20)(23) First lien senior secured loan L + 6.75% 05/2027 16,000 15,727 15,640 1.2 %
MINDBODY, Inc. (7)(23) First lien senior secured loan L + 7.00% 02/2025 11,936 11,882 11,936 0.9 %
MINDBODY, Inc. (16)(22)(23)(32) First lien senior secured revolving loan L + 7.00% 02/2025 - (4) - - %
Ministry Brands Holdings, LLC (6)(22)(23) First lien senior secured loan L + 5.50% 12/2028 701 688 683 0.1 %
Ministry Brands Holdings, LLC (16)(19)(22)(23)(32) First lien senior secured delayed draw term loan L + 5.50% 12/2023 - (2) (3) - %
Ministry Brands Holdings, LLC (6)(22)(23)(32) First lien senior secured revolving loan L + 5.50% 12/2027 34 33 32 - %
Proofpoint, Inc. (7)(22)(23) Second lien senior secured loan L + 6.25% 08/2029 4,900 4,879 4,692 0.4 %
QAD, Inc. (6)(22)(23) First lien senior secured loan L + 6.00% 11/2027 4,395 4,321 4,285 0.3 %
QAD, Inc. (16)(22)(23)(32) First lien senior secured revolving loan L + 6.00% 11/2027 - (9) (14) - %
Securonix, Inc. (14)(22)(23) First lien senior secured loan S + 6.50% 04/2028 847 840 839 0.1 %
Securonix, Inc. (16)(22)(23)(32) First lien senior secured revolving loan S + 6.50% 04/2028 - (1) (2) - %
Tahoe Finco, LLC (6)(20)(22)(23) First lien senior secured loan L + 6.00% 09/2028 23,256 23,056 22,849 1.8 %
Tahoe Finco, LLC (16)(20)(22)(23)(32) First lien senior secured revolving loan L + 6.00% 10/2027 - (14) (31) - %
Thunder Purchaser, Inc. (dba Vector Solutions) (7)(23) First lien senior secured loan L + 5.75% 06/2028 13,733 13,620 13,458 1.0 %
Thunder Purchaser, Inc. (dba Vector Solutions) (7)(19)(22)(23)(32) First lien senior secured delayed draw term loan L + 5.75% 08/2023 841 833 809 0.1 %
Thunder Purchaser, Inc. (dba Vector Solutions) (7)(22)(23)(32) First lien senior secured revolving loan L + 5.75% 06/2027 282 276 265 - %
When I Work, Inc. (7)(22)(23) First lien senior secured loan L + 7.00% PIK
11/2027 803 797 787 0.1 %
When I Work, Inc. (16)(22)(23)(32) First lien senior secured revolving loan L + 6.00% 11/2027 - (1) (3) - %
303,399 300,228 297,412 22.9 %
Leisure and entertainment
Troon Golf, L.L.C. (8)(23) First lien senior secured loan L + 5.75% 08/2027 60,718 60,474 60,718 4.7 %
Troon Golf, L.L.C. (16)(22)(23)(32) First lien senior secured revolving loan L + 5.75% 08/2026 - (17) - - %
60,718 60,457 60,718 4.7 %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2022
(Amounts in thousands, except share amounts)
Company(1)(2)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
Manufacturing
BCPE Watson (DE) ORML, LP (15)(20)(22)(23) First lien senior secured loan S + 6.50% 07/2028 1,000 991 990 0.1 %
Gloves Buyer, Inc. (dba Protective Industrial Products) (6)(22)(23) Second lien senior secured loan L + 8.25% 12/2028 6,300 6,172 6,205 0.4 %
Ideal Tridon Holdings, Inc. (7)(23) First lien senior secured loan L + 5.25% 07/2024 13,467 13,377 13,467 1.0 %
Ideal Tridon Holdings, Inc. (6)(23)(32) First lien senior secured revolving loan L + 5.25% 07/2023 709 709 709 0.1 %
MHE Intermediate Holdings, LLC (dba OnPoint Group) (15)(23) First lien senior secured loan S + 6.00% 07/2027 20,894 20,726 20,685 1.6 %
MHE Intermediate Holdings, LLC (dba OnPoint Group) (15)(22)(23)(32) First lien senior secured revolving loan S + 6.00% 07/2027 250 236 232 - %
PHM Netherlands Midco B.V. (dba Loparex) (7)(22)(23) First lien senior secured loan L + 4.50% 07/2026 194 185 188 - %
PHM Netherlands Midco B.V. (dba Loparex) (7)(23) Second lien senior secured loan L + 8.75% 07/2027 28,000 26,689 27,300 2.1 %
Safety Products/JHC Acquisition Corp. (dba Justrite Safety Group) (6)(23) First lien senior secured loan L + 4.50% 06/2026 3,445 3,427 3,368 0.3 %
Sonny's Enterprises LLC (14)(23) First lien senior secured loan S + 6.75% 08/2026 44,387 43,865 44,387 3.4 %
Sonny's Enterprises LLC (16)(22)(23)(32) First lien senior secured revolving loan S + 6.75% 08/2025 - (27) - - %
118,646 116,350 117,531 9.0 %
Oil and gas
Project Power Buyer, LLC (dba PEC-Veriforce) (6)(23) First lien senior secured loan L + 6.00% 05/2026 7,876 7,816 7,876 0.6 %
Project Power Buyer, LLC (dba PEC-Veriforce) (16)(22)(23)(32) First lien senior secured revolving loan L + 6.00% 05/2025 - (3) - - %
Zenith Energy U.S. Logistics Holdings, LLC (6)(23) First lien senior secured loan L + 5.50% 12/2024 17,122 16,939 17,122 1.3 %
24,998 24,752 24,998 1.9 %
Professional services
AmSpec Group, Inc. (fka AmSpec Services Inc.) (7)(23) First lien senior secured loan L + 5.75% 07/2024 18,575 18,473 18,435 1.4 %
AmSpec Group, Inc. (fka AmSpec Services Inc.) (9)(22)(23)(32) First lien senior secured revolving loan P + 3.75% 07/2024 523 512 505 - %
Apex Group Treasury, LLC (7)(20)(22)(23) Second lien senior secured loan L + 6.75% 07/2029 11,618 11,448 11,037 0.9 %
Apex Service Partners, LLC (15)(22)(23) First lien senior secured delayed draw term loan S + 5.50% 07/2025 997 985 989 0.1 %
Apex Service Partners, LLC (15)(22)(23)(32) First lien senior secured revolving loan S + 5.25% 07/2025 31 31 31 - %
Gerson Lehrman Group, Inc. (6)(23) First lien senior secured loan L + 5.25% 12/2024 4,497 4,481 4,497 0.3 %
Gerson Lehrman Group, Inc. (16)(22)(23)(32) First lien senior secured revolving loan L + 5.25% 12/2024 - (7) - - %
Guidehouse Inc. (6)(22)(23) First lien senior secured loan L + 6.25% 10/2028 921 913 911 0.1 %
Relativity ODA LLC (6)(23) First lien senior secured loan L + 7.50% PIK
05/2027 16,946 16,775 16,903 1.2 %
Relativity ODA LLC (16)(22)(23)(32) First lien senior secured revolving loan L + 6.50% 05/2027 - (16) (4) - %
54,108 53,595 53,304 4.0 %
Specialty retail
Galls, LLC (7)(23) First lien senior secured loan L + 6.75% (0.50% PIK)
01/2025 18,349 18,247 17,982 1.4 %
Galls, LLC (7)(22)(23)(32) First lien senior secured revolving loan L + 6.75% 01/2024 2,483 2,450 2,377 0.2 %
Milan Laser Holdings LLC (13)(23) First lien senior secured loan S + 5.00% 04/2027 22,694 22,522 22,694 1.8 %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2022
(Amounts in thousands, except share amounts)
Company(1)(2)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
Milan Laser Holdings LLC (16)(22)(23)(32) First lien senior secured revolving loan S + 5.00% 04/2026 - (13) - - %
Notorious Topco, LLC (dba Beauty Industry Group) (14)(23) First lien senior secured loan S + 6.75% 11/2027 24,123 23,814 24,002 1.9 %
Notorious Topco, LLC (dba Beauty Industry Group) (14)(19)(22)(23)(32) First lien senior secured delayed draw term loan S + 6.75% 11/2023 2,102 2,059 2,092 0.2 %
Notorious Topco, LLC (dba Beauty Industry Group) (14)(22)(23)(32) First lien senior secured revolving loan S + 6.75% 05/2027 352 327 342 - %
The Shade Store, LLC (14)(22)(23) First lien senior secured loan S + 6.00% 10/2027 2,250 2,227 2,188 0.2 %
The Shade Store, LLC (14)(22)(23)(32) First lien senior secured revolving loan S + 6.00% 10/2026 64 61 57 - %
72,417 71,694 71,734 5.7 %
Transportation
Lazer Spot Holdings, Inc. (f/k/a Lazer Spot GB Holdings, Inc.) (8)(23) First lien senior secured loan L + 5.75% 12/2025 40,079 39,703 40,079 3.1 %
Lazer Spot Holdings, Inc. (f/k/a Lazer Spot GB Holdings, Inc.) (16)(22)(23)(32) First lien senior secured revolving loan L + 5.75% 12/2025 - (64) - - %
Lytx, Inc. (13)(23) First lien senior secured loan S + 6.75% 02/2026 23,668 23,459 23,491 1.8 %
Motus Group, LLC (6)(22)(23) Second lien senior secured loan L + 6.50% 12/2029 3,615 3,583 3,543 0.3 %
67,362 66,681 67,113 5.2 %
Total non-controlled/non-affiliated portfolio company debt investments $ 2,173,915 $ 2,146,282 $ 2,106,669 162.5 %
Equity Investments
Asset based lending and fund finance
AAM Series 1.1 Rail and Domestic Intermodal Feeder, LLC (20)(22)(23)(26)(31)(32) LLC Interest N/A N/A - - - - %
AAM Series 2.1 Aviation Feeder, LLC (20)(22)(23)(26)(31)(32) LLC Interest N/A N/A 87 88 87 - %
Amergin Asset Management, LLC (20)(22)(23)(26)(31)(32) Class A Units N/A N/A 50,000,000 - - - %
88 87 - %
Automotive
CD&R Value Building Partners I, L.P. (dba Belron) (20)(22)(23)(26)(31) LP Interest N/A N/A 1,002 1,002 1,029 0.1 %
Metis HoldCo, Inc. (dba Mavis Tire Express Services) (22)(23)(25)(26) Series A Convertible Preferred Stock 7.00% PIK
N/A 32,308 35,340 34,895 2.7 %
36,342 35,924 2.8 %
Buildings and real estate
Associations Finance, Inc. (22)(23)(25)(26) Preferred Stock 12.00% PIK
N/A 10,200,000 10,302 10,356 0.8 %
Dodge Construction Network Holdings, L.P. (22)(23)(26)(31) Class A-2 Common Units N/A N/A 431,889 368 367 - %
Dodge Construction Network Holdings, L.P. (14)(22)(23)(26) Series A Preferred Units S + 8.25% PIK
N/A - 9 9 - %
10,679 10,732 0.8 %
Business Services
Denali Holding, LP (dba Summit Companies) (22)(23)(26)(31) Class A Units N/A N/A 41,874 425 539 - %
Hercules Buyer, LLC (dba The Vincit Group) (22)(23)(24)(26)(31) Common Units N/A N/A 350,000 350 368 - %
Knockout Intermediate Holdings I Inc. (dba Kaseya) (22)(23)(25)(26) Perpetual Preferred Stock 11.75% PIK
N/A 400 390 395 - %
1,165 1,302 - %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2022
(Amounts in thousands, except share amounts)
Company(1)(2)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
Consumer Products
ASP Conair Holdings LP (22)(23)(26)(31) Class A Units N/A N/A 12,857 1,286 1,153 0.1 %
1,286 1,153 0.1 %
Food and beverage
H-Food Holdings, LLC (22)(23)(26)(31) LLC Interest N/A N/A 1,625 1,625 1,395 0.1 %
Hissho Sushi Holdings, LLC (22)(23)(26)(31) Class A units N/A N/A 7,502 75 83 - %
1,700 1,478 0.1 %
Healthcare equipment and services
KPCI Holdings, L.P. (22)(23)(26)(31) Class A Units N/A N/A 5,665 6,014 6,425 0.5 %
Maia Aggregator, LP (22)(23)(26)(31) Class A-2 Units N/A N/A 112,360 112 119 - %
Patriot Holdings SCSp (dba Corza Health, Inc.) (20)(22)(23)(25)(26) Class A Units 8.00% PIK
N/A 1,370 1,595 1,615 0.1 %
Patriot Holdings SCSp (dba Corza Health, Inc.) (20)(22)(23)(26)(31) Class B Units N/A N/A 18,864 - 221 - %
Rhea Acquisition Holdings, LP (22)(23)(26)(31) Series A-2 Units N/A N/A 119,048 119 119 - %
7,840 8,499 0.6 %
Healthcare providers and services
KOBHG Holdings L.P. (dba OB Hospitalist) (22)(23)(26)(31) Class A Interests N/A N/A 1,291 1,291 1,199 0.1 %
1,291 1,199 0.1 %
Healthcare technology
LSI Financing 1 DAC (20)(22)(23)(26)(31) Preferred Equity N/A N/A 308,731 311 309 - %
Minerva Holdco, Inc (22)(23)(25)(26) Series A Preferred Stock 10.75% PIK
N/A 1,000 1,051 962 0.1 %
1,362 1,271 0.1 %
Household products
Evology, LLC (22)(23)(26)(31) Class B Units N/A N/A 113 540 795 0.1 %
540 795 0.1 %
Human resource support services
Sunshine Software Holdings, Inc. (dba Cornerstone OnDemand) (22)(23)(25)(26) Series A Preferred Stock 10.50% PIK
N/A 5,500 5,791 5,353 0.4 %
5,791 5,353 0.4 %
Insurance
Evolution Parent, LP (dba SIAA) (22)(23)(26)(31) LP Interest N/A N/A 892 892 892 0.1 %
Fifth Season Investments LLC (22)(23)(26)(31) Class A Units N/A N/A - 1,196 1,196 0.1 %
GoHealth, Inc. (17)(22)(23)(31) Common Stock N/A N/A 15,139 1,163 158 - %
GrowthCurve Capital Sunrise Co-Invest LP (dba Brightway) (22)(23)(26)(31) LP Interest N/A N/A 106 106 105 - %
PCF Holdco, LLC (dba PCF Insurance Services) (22)(23)(26)(31) Class A Units N/A N/A 2,513,848 6,375 11,479 0.9 %
9,732 13,830 1.1 %
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2022
(Amounts in thousands, except share amounts)
Company(1)(2)(3)(21) Investment Interest Maturity Date Par / Units Amortized Cost(4)(29) Fair Value Percentage of Net Assets
Internet software and services
BCTO WIW Holdings, Inc. (dba When I Work) (22)(23)(26)(31) Class A Common Stock N/A N/A 3,000 300 270 - %
Brooklyn Lender Co-Invest 2, L.P. (dba Boomi) (22)(23)(26)(31) Common Units N/A N/A 1,345,119 1,345 1,323 0.1 %
Insight CP (Blocker) Holdings, L.P. (dba CivicPlus, LLC) (20)(22)(23)(26)(31) LP Interest N/A N/A - 31 31 - %
MessageBird Holding B.V. (20)(22)(23)(26)(31) Extended Series C Warrants N/A N/A 25,540 157 18 - %
Project Alpine Co-Invest Fund, LP (20)(22)(23)(26)(31) LP Interest N/A N/A 1,000 1,001 1,000 0.1 %
Thunder Topco L.P. (dba Vector Solutions) (22)(23)(26)(31) Common Units N/A N/A 819,817 820 810 0.1 %
VEPF Torreys Aggregator, LLC (dba MINDBODY, Inc.) (22)(23)(25)(26) Series A Preferred Stock 6.00% PIK
N/A 3,750 3,978 3,939 0.3 %
WMC Bidco, Inc. (dba West Monroe) (22)(23)(25)(26) Senior Preferred Stock 11.25% PIK
N/A 2,385 2,577 2,461 0.2 %
10,209 9,852 0.8 %
Manufacturing
Gloves Holdings, LP (dba Protective Industrial Products) (22)(23)(26)(31) LP Interest N/A N/A 7,000 700 829 0.1 %
Windows Entities (20)(22)(23)(26)(27) LLC Units N/A N/A 10,616 20,106 40,472 3.1 %
20,806 41,301 3.2 %
Total non-controlled/non-affiliated portfolio company equity investments 108,831 132,776 10.2 %
Total non-controlled/non-affiliated portfolio company investments $ 2,255,113 $ 2,239,445 172.7 %
Non-controlled/affiliated portfolio company investments
Debt Investments(5)
Advertising and media
Swipe Acquisition Corporation (dba PLI) (13)(22)(23)(30) First lien senior secured loan S + 8.00% 06/2024 $ 6,120 $ 6,065 $ 6,105 0.6 %
Swipe Acquisition Corporation (dba PLI) (14)(19)(22)(23)(30)(32) First lien senior secured delayed draw term loan S + 8.00% 05/2023 1,822 1,822 1,816 0.1 %
Swipe Acquisition Corporation (dba PLI) (22)(23)(30)(32) Letter of Credit S + 8.00% 06/2024 - - - - %
7,942 7,887 7,921 0.7 %
Total non-controlled/affiliated portfolio company debt investments $ 7,942 $ 7,887 $ 7,921 0.7 %
Equity Investments
Advertising and media
New PLI Holdings, LLC (dba PLI) (22)(23)(26)(30)(31) Class A Common Units N/A N/A 10,755 $ 5,952 $ 12,126 0.9 %
5,952 12,126 0.9 %
Total non-controlled/affiliated portfolio company equity investments 5,952 12,126 0.9 %
Total non-controlled/affiliated portfolio company investments $ 13,839 $ 20,047 1.6 %
Total Investments $ 2,268,952 $ 2,259,492 174.3 %
______________
(1)Certain portfolio company investments are subject to contractual restrictions on sales.
(2)Unless otherwise indicated, all investments are non-controlled, non-affiliated investments. Non-controlled, non-affiliated investments are defined as investments in which the Company owns less than 5% of the portfolio company’s outstanding voting securities and does not have the power to exercise control over the management or policies of such portfolio company.
(3)Unless otherwise indicated, all investments are considered Level 3 investments.
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2022
(Amounts in thousands, except share amounts)
(4)The amortized cost represents the original cost adjusted for the accretion and amortization of discounts and premiums, as applicable, on debt investments using the effective interest method.
(5)Unless otherwise indicated, loan contains a variable rate structure, and may be subject to an interest rate floor. Variable rate loans bear interest at a rate that may be determined by reference to either the London Interbank Offered Rate (“LIBOR” or “L”) (which can include one-, three-, six- or twelve-month LIBOR), Secured Overnight Financing Rate (“SOFR” or “S,” which can include one-, three- or six- month SOFR), Euro Interbank Offered Rate (“EURIBOR” or “E”, which can include one-, two-, three- or six-month EURIBOR), British pound sterling LIBOR (“GBPLIBOR” or “G”), SONIA (“SONIA” or “SA”) or an alternate base rate (which can include the Federal Funds Effective Rate or the Prime Rate (“PRIME” or “P”)), at the borrower’s option, and which reset periodically based on the terms of the loan agreement.
(6)The interest rate on these loans is subject to 1 month LIBOR, which as of December 31, 2022 was 4.39%.
(7)The interest rate on these loans is subject to 3 month LIBOR, which as of December 31, 2022 was 4.77%.
(8)The interest rate on these loans is subject to 6 month LIBOR, which as of December 31, 2022 was 5.14%.
(9)The interest rate on these loans is subject to PRIME, which as of December 31, 2022 was 7.50%.
(10)The interest rate on this loan is subject to SONIA, which as of December 31, 2022 was 3.43%.
(11)The interest rate on this loan is subject to 3 month EURIBOR, which as of December 31, 2022 was 2.13%.
(12)The interest rate on this loan is subject to 6 month EURIBOR, which as of December 31, 2022 was 2.69%.
(13)The interest rate on these loans is subject to 1 month SOFR, which as of December 31, 2022 was 4.36%.
(14)The interest rate on these loans is subject to 3 month SOFR, which as of December 31, 2022 was 4.59%.
(15)The interest rate on these loans is subject to 6 month SOFR, which as of December 31, 2022 was 4.78%.
(16)The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan. The negative fair value is the result of the capitalized discount on the loan.
(17)Level 1 investment.
(18)Level 2 investment.
(19)The date disclosed represents the commitment period of the unfunded term loan. Upon expiration of the commitment period, the funded portion of the term loan may be subject to a longer maturity date.
(20)This portfolio company is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940, as amended (the “1940 Act”). Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of total assets. As of December 31, 2022, non-qualifying assets represented 12.9% of total assets as calculated in accordance with the regulatory requirements.
(21)Unless otherwise indicated, all or a portion of the Company’s portfolio companies are pledged as collateral supporting the available capacity under the SPV Asset Facilities. See Note 5 “Debt.”
(22)Investment is not pledged as collateral for the SPV Asset Facilities.
(23)Represents co-investment made with the Company’s affiliates in accordance with the terms of exemptive relief that the Company received from the U.S. Securities and Exchange Commission. See Note 3 “Agreements and Related Party Transactions.”
(24)The Company invests in this portfolio company through underlying blocker entities Hercules Blocker 1 LLC, Hercules Blocker 2 LLC, Hercules Blocker 3 LLC, Hercules Blocker 4 LLC, and Hercules Blocker 5 LLC.
(25)Investment does not contain a variable rate structure.
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2022
(Amounts in thousands, except share amounts)
(26)Securities acquired in transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), and may be deemed to be “restricted securities” under the Securities Act. As of December 31, 2022, the aggregate fair value of these securities is $144.7 million, or 11.1% of the Company’s net assets. The acquisition dates of the restricted securities are as follows:
Portfolio Company Investment Acquisition Date
AAM Series 1.1 Rail and Domestic Intermodal Feeder, LLC LLC Interest July 1, 2022
AAM Series 2.1 Aviation Feeder, LLC LLC Interest July 1, 2022
Amergin Asset Management, LLC Class A Units July 1, 2022
ASP Conair Holdings LP Class A Units May 17, 2021
Associations Finance, Inc. Preferred Stock June 10, 2022
BCTO WIW Holdings, Inc. (dba When I Work) Class A Common Stock November 2, 2021
Brooklyn Lender Co-Invest 2, L.P. (dba Boomi) Common Units October 1, 2021
CD&R Value Building Partners I, L.P. (dba Belron) LP Interest December 2, 2021
Denali Holding, LP (dba Summit Companies) Class A Units September 15, 2021
Dodge Construction Network Holdings, L.P. Class A-2 Common Units February 23, 2022
Dodge Construction Network Holdings, L.P. Series A Preferred Units February 23, 2022
Evology, LLC Class B Units January 24, 2022
Evolution Parent, LP (dba SIAA) LP Interest April 30, 2021
Fifth Season Investments LLC Class A Units October 17, 2022
Gloves Holdings, LP (dba Protective Industrial Products) LP Interest December 29, 2020
GrowthCurve Capital Sunrise Co-Invest LP (dba Brightway) LP Interest December 16, 2021
Hercules Buyer, LLC (dba The Vincit Group) Common Units December 15, 2020
H-Food Holdings, LLC LLC Interest November 23, 2018
Hissho Sushi Holdings, LLC Class A units May 17, 2022
Insight CP (Blocker) Holdings, L.P. (dba CivicPlus, LLC) LP Interest June 8, 2022
Knockout Intermediate Holdings I Inc. (dba Kaseya) Perpetual Preferred Stock June 22, 2022
KOBHG Holdings L.P. (dba OB Hospitalist) Class A Interests September 27, 2021
KPCI Holdings, L.P. Class A Units November 30, 2020
LSI Financing 1 DAC Preferred Equity December 14, 2022
Maia Aggregator, LP Class A-2 Units February 1, 2022
MessageBird Holding B.V. Extended Series C Warrants May 5, 2021
Metis HoldCo, Inc. (dba Mavis Tire Express Services) Series A Convertible Preferred Stock May 4, 2021
Minerva Holdco, Inc Series A Preferred Stock February 15, 2022
New PLI Holdings, LLC (dba PLI) Class A Common Units December 23, 2020
Patriot Holdings SCSp (dba Corza Health, Inc.) Class A Units January 29, 2021
Patriot Holdings SCSp (dba Corza Health, Inc.) Class B Units January 29, 2021
PCF Holdco, LLC (dba PCF Insurance Services) Class A Units November 1, 2021
Project Alpine Co-Invest Fund, LP LP Interest June 13, 2022
Rhea Acquisition Holdings, LP Series A-2 Units February 18, 2022
Sunshine Software Holdings, Inc. (dba Cornerstone OnDemand) Series A Preferred Stock October 15, 2021
Thunder Topco L.P. (dba Vector Solutions) Common Units June 30, 2021
VEPF Torreys Aggregator, LLC (dba MINDBODY, Inc.) Series A Preferred Stock October 15, 2021
Windows Entities LLC Units January 16, 2020
WMC Bidco, Inc. (dba West Monroe) Senior Preferred Stock November 9, 2021
(27)Investment represents multiple underlying investments, including Midwest Custom Windows, LLC, Greater Toronto Custom Windows, Corp., Garden State Custom Windows, LLC, Long Island Custom Windows, LLC, Jemico, LLC, Atlanta Custom Windows, LLC and Fairchester Custom Windows, LLC. Greater Toronto Custom Windows, Corp. is considered a non-qualifying asset, with a fair value of $3.0 million as of December 31, 2022.
Blue Owl Capital Corporation II
Consolidated Schedule of Investments (continued)
As of December 31, 2022
(Amounts in thousands, except share amounts)
(28)Loan was on non-accrual status as of December 31, 2022.
(29)As of December 31, 2022, the net estimated unrealized loss for U.S. federal income tax purposes was $21.5 million based on a tax cost basis of $2.3 billion. As of December 31, 2022, the estimated aggregate gross unrealized loss for U.S. federal income tax purposes was $61.9 million and the estimated aggregate gross unrealized gain for U.S. federal income tax purposes was $40.4 million.
(30)Under the 1940 Act, the Company is deemed to be an “Affiliated Person” of, as defined in the 1940 Act, this portfolio company, as the Company owns more than 5% of the portfolio company’s outstanding voting securities. Transactions during the year ended December 31, 2022 in which the Company was an Affiliated Person of the portfolio company are as follows:
Company Fair Value at December 31, 2021 Gross Additions(a)
Gross Reductions(b)
Net Change in Unrealized Gain/(Loss) Realized Gain/(Loss) Transfers Fair Value at December 31, 2022 Other Income Interest Income Dividend Income
Swipe Acquisition Corporation (dba PLI) $ 13,398 $ 531 $ (110) $ 6,228 $ - $ - $ 20,047 $ 78 $ 838 $ 827
Total $ 13,398 $ 531 $ (110) $ 6,228 $ - $ - $ 20,047 $ 78 $ 838 $ 827
(a)Gross additions may include increases in the cost basis of investments resulting from new investments, amounts related to payment-in-kind (“PIK”) interest capitalized and added to the principal balance of the respective loans, the accretion of discounts, the exchange of one or more existing investments for one or more new investments and the movement at fair value of an existing portfolio company into this controlled affiliated category from a different category.
(b)Gross reductions may include decreases in the cost basis of investments resulting from principal collections related to investment repayments and sales, return of capital, the amortization of premiums and the exchange of one or more existing securities for one or more new securities.
(31)Investment is non-income producing.
(32)Position or portion thereof is an unfunded loan or equity commitment. See Note 7 “Commitments and Contingencies”.
The accompanying notes are an integral part of these consolidated financial statements.
Blue Owl Capital Corporation II
Consolidated Statements of Changes in Net Assets
(Amounts in thousands)
For the Years Ended December 31,
2023 2022 2021
Increase (Decrease) in Net Assets Resulting from Operations
Net investment income (loss) $ 120,432 $ 101,473 $ 89,655
Net change in unrealized gain (loss) 17,089 (28,817) 24,503
Net realized gain (loss) (7,728) 524 (2,144)
Net Increase (Decrease) in Net Assets Resulting from Operations 129,793 73,180 112,014
Distributions
Distributions declared from earnings(1)
(107,012) (93,961) (91,212)
Net Decrease in Net Assets Resulting from Shareholders' Distributions (107,012) (93,961) (91,212)
Capital Share Transactions
Issuance of shares of common stock - - 71,776
Reinvestment of shareholders' distributions 48,104 41,973 41,615
Repurchased shares (103,659) (84,622) (60,806)
Net Increase (Decrease) in Net Assets Resulting from Capital Share Transactions (55,555) (42,649) 52,585
Total Increase (Decrease) in Net Assets (32,774) (63,430) 73,387
Net Assets, at beginning of period 1,296,261 1,359,691 1,286,304
Net Assets, at end of period $ 1,263,487 $ 1,296,261 $ 1,359,691
______________
(1)For the years ended December 31, 2023, 2022 and 2021, distributions declared from earnings were derived from net investment income and capital gains.
The accompanying notes are an integral part of these consolidated financial statements.
Blue Owl Capital Corporation II
Consolidated Statements of Cash Flows
(Amounts in thousands)
For the Years Ended December 31,
2023 2022 2021
Cash Flows from Operating Activities
Net Increase (Decrease) in Net Assets Resulting from Operations $ 129,793 $ 73,180 $ 112,014
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities:
Purchases of investments, net (254,386) (178,924) (1,286,119)
Proceeds from investments and investment repayments, net 521,140 346,939 1,051,978
Net change in unrealized (gain) loss on investments (15,806) 22,486 (29,037)
Net change in unrealized (gain) loss on translation of assets and liabilities in foreign currencies (2,822) 5,119 1,554
Net realized (gain) loss on investments 7,718 (928) 2,304
Net realized (gain) loss on foreign currency transactions relating to investments 5 254 (8)
Paid-in-kind interest and dividends (33,757) (26,890) (10,034)
Net accretion/amortization of discount/premium on investments (8,465) (8,201) (14,658)
Amortization of debt issuance costs 2,558 1,590 2,320
Amortization of offering costs - - 1,135
Changes in operating assets and liabilities:
(Increase) decrease in interest and dividend receivable 958 (3,582) (4,906)
(Increase) decrease in receivable for investments sold - 11,623 (3,758)
(Increase) decrease in prepaid expenses and other assets 419 (171) 1,347
Increase (decrease) in payables to affiliates (1,282) (116) 7,154
Increase (decrease) in accrued expenses and other liabilities 11,987 3,658 3,609
Net cash provided by (used in) operating activities 358,060 246,037 (165,105)
Cash Flows from Financing Activities
Borrowings on debt 900,000 186,000 780,000
Repayments of debt (1,005,223) (302,777) (569,000)
Debt issuance costs (12,910) (1,904) 3,969
Proceeds from issuance of common shares - - 71,776
Distributions paid to shareholders (57,160) (49,526) (49,597)
Repurchased shares (103,659) (84,622) (60,806)
Net cash provided by (used in) financing activities (278,952) (252,829) 176,342
Net increase (decrease) in cash, including foreign cash 79,108 (6,792) 11,237
Cash, including foreign cash, beginning of period 47,275 54,067 42,830
Cash, including foreign cash, end of period $ 126,383 $ 47,275 $ 54,067
Supplemental and Non-Cash Information
Interest paid during the period $ 57,733 $ 46,249 $ 37,871
Distributions declared during the period $ 107,012 $ 93,961 $ 91,212
Distribution payable $ 4,210 $ 2,462 $ -
Reinvestment of distributions during the period $ 48,104 $ 41,973 $ 41,615
Taxes, including excise tax, paid during the period $ 1,249 $ 240 $ 1,648
The accompanying notes are an integral part of these consolidated financial statements.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements
Note 1. Organization and Principal Business
Blue Owl Capital Corporation II (the “Company”) is a Maryland corporation formed on October 15, 2015. The Company’s investment objective is to generate current income, and to a lesser extent, capital appreciation by targeting investment opportunities with favorable risk-adjusted returns. The Company’s investment strategy focuses primarily on originating and making loans to, and making debt and equity investments in, U.S. middle-market companies. The Company invests in senior secured or unsecured loans, subordinated loans or mezzanine loans and, to a lesser extent, equity-related securities which includes common and preferred stock, securities convertible into common stock, and warrants. The Company may on occasion invest in smaller or larger companies if an attractive opportunity presents itself, especially when there are dislocations in the capital markets, including the high yield and large syndicated loan markets, which are often referred to as “junk” investments. The Company’s target credit investments will typically have maturities between three and ten years and generally range in size between $10 million and $125 million, although the investment size will vary with the size of the Company’s capital base.
The Company has elected to be regulated as a business development company (“BDC”) under the 1940 Act of 1940, as amended (the “1940 Act”). In addition, for tax purposes, the Company is treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). Because the Company has elected to be regulated as a BDC and qualifies as a RIC under the Code, the Company’s portfolio is subject to diversification and other requirements.
On February 28, 2017, the Company formed a wholly-owned subsidiary, OR Lending II LLC, a Delaware limited liability company, which holds a California finance lenders license. OR Lending II LLC originates loans to borrowers headquartered in California. From time to time the Company may form wholly-owned subsidiaries to facilitate the normal course of business.
Blue Owl Credit Advisors, LLC (the “Adviser”) serves as the Company’s investment adviser.. The Adviser is registered with the Securities and Exchange Commission (“SEC”) as an investment adviser under the Investment Advisers Act of 1940 (the “Advisers Act”), an indirect affiliate of Blue Owl Capital Inc. (“Blue Owl”) (NYSE: OWL) and part of Blue Owl’s Credit platform, which focuses on direct lending. Blue Owl consists of three investment platforms: (1) Credit, which focuses on direct lending, (2) GP Strategic Capital, which focuses on providing capital to institutional alternative asset managers and (3) Real Estate, which focuses on triple net lease real estate strategies. Subject to the overall supervision of the Company’s board of directors (the “Board”), the Adviser manages the day-to-day operations of, and provides investment advisory and management services to, the Company.
In April 2017, the Company commenced its continuous public offering, commenced operations and made its first portfolio company investment. The Company terminated its continuous public offering as of April 30, 2021. Prior to the termination of its continuous public offering, the Company issued 151,364,239 shares of its common stock for gross proceeds of approximately $1.4 billion, including seed capital contributed by the Adviser in September 2016 and approximately $10.0 million in gross proceeds raised in the private placement from certain individuals and entities affiliated with the Adviser.
The Board expects to contemplate a liquidity event for the Company’s shareholders three to four years after the completion of the continuous public offering. The Company will consider the offering period to be complete as of the termination date of the most recent public equity offering if the Company has not conducted a public equity offering in any continuous two year period. A liquidity event could include: (i) a listing of shares on a national securities exchange; (ii) a merger or another transaction approved by the Board in which shareholders will receive cash or shares of a publicly traded company; or (iii) a sale of all or substantially all of its assets either on a complete portfolio basis or individually followed by a liquidation to the Company and distribution of cash to its shareholders. A liquidity event may include a sale, merger or rollover transaction with one or more affiliated investment companies managed by the Adviser. A liquidity event involving a merger or sale of all or substantially all of the Company’s assets would require the approval of its shareholders in accordance with the Company’s charter. Certain types of liquidity events, such as one involving a listing of shares on a national securities exchange, would allow the Company to retain its investment portfolio intact. If the Company determines to list securities on a national securities exchange, the Company expects to, although is not required to, maintain its external management structure. If the Company has not consummated a liquidity event by the five-year anniversary of the completion of the offering, the Board will consider (subject to any necessary shareholder approvals and applicable requirements of the 1940 Act) liquidating the Company and distributing cash to its shareholders, and dissolving the Company in an orderly manner. The Board, as part of its ongoing duties, will review and evaluate any potential liquidity events and options as they become available and their favorability given current market conditions; however, there is no assurance that a liquidity event will be completed at any particular time or at all.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
Note 2. Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Company is an investment company and, therefore, applies the specialized accounting and reporting guidance in Accounting Standards Codification (“ASC”) Topic 946, Financial Services - Investment Companies. In the opinion of management, all adjustments considered necessary for the fair presentation of the consolidated financial statements have been included. The Company’s fiscal year ends on December 31.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual amounts could differ from those estimates and such differences could be material.
Cash
Cash consists of deposits held at a custodian bank. Cash is carried at cost, which approximates fair value. The Company deposits its cash with highly-rated banking corporations and, at times, may exceed the insured limits under applicable law.
Investments at Fair Value
Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds received and the amortized cost basis of the investment using the specific identification method without regard to unrealized gains or losses previously recognized, and include investments charged off during the period, net of recoveries. The net change in unrealized gains or losses primarily reflects the change in investment values, including the reversal of previously recorded unrealized gains or losses with respect to investments realized during the period. Rule 2a-5 under the 1940 Act establishes requirements for determining fair value in good faith for purposes of the 1940 Act. Pursuant to Rule 2a-5, the Board designated the Adviser as the Company's valuation designee to perform fair value determinations relating to the value of assets held by the Company for which market quotations are not readily available.
Investments for which market quotations are readily available are typically valued at the average bid price of those market quotations. To validate market quotations, the Company utilizes a number of factors to determine if the quotations are representative of fair value, including the source and number of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available, as is the case for substantially all of the Company’s investments, are valued at fair value as determined in good faith by the Adviser, as the valuation designee, based on, among other things, the input of the independent third-party valuation firm(s) engaged at the direction of the Adviser.
As part of the valuation process, the Adviser, as the valuation designee, takes into account relevant factors in determining the fair value of the Company’s investments, including: the estimated enterprise value of a portfolio company (i.e., the total fair value of the portfolio company’s debt and equity), the nature and realizable value of any collateral, the portfolio company’s ability to make payments based on its earnings and cash flow, the markets in which the portfolio company does business, a comparison of the portfolio company’s securities to any similar publicly traded securities, and overall changes in the interest rate environment and the credit markets that may affect the price at which similar investments may be made in the future. When an external event such as a purchase or sale transaction, public offering or subsequent equity sale occurs, the Adviser, as the valuation designee, considers whether the pricing indicated by the external event corroborates its valuation.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
The Adviser, as the valuation designee, undertakes a multi-step valuation process, which includes, among other procedures, the following:
•With respect to investments for which market quotations are readily available, those investments will typically be valued at the average bid price of those market quotations;
•With respect to investments for which market quotations are not readily available, the valuation process begins with the independent valuation firm(s) providing a preliminary valuation of each investment to the Adviser’s valuation committee;
•Preliminary valuation conclusions are documented and discussed with the Adviser’s valuation committee;
•The Adviser, as the valuation designee, reviews the recommended valuations and determines the fair value of each investment;
•Each quarter, the Adviser, as the valuation designee, will provide the Audit Committee a summary or description of material fair value matters that occurred in the prior quarter and on an annual basis, the Adviser, as the valuation designee, will provide the Audit Committee with a written assessment of the adequacy and effectiveness of its fair value process; and
•The Audit Committee oversees the valuation designee and will report to the Board on any valuation matters requiring the Board’s attention.
The Company conducts this valuation process on a quarterly basis.
The Company applies Financial Accounting Standards Board Accounting Standards Codification (“FASB”) 820, Fair Value Measurements (“ASC 820”), as amended, which establishes a framework for measuring fair value in accordance with U.S. GAAP and required disclosures of fair value measurements. ASC 820 determines fair value to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market (which may be a hypothetical market) that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820, the Company considers its principal market to be the market that has the greatest volume and level of activity. ASC 820 specifies a fair value hierarchy that prioritizes and ranks the level of observability of inputs used in determination of fair value. In accordance with ASC 820, these levels are summarized below:
•Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
•Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
•Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
Transfers between levels, if any, are recognized at the beginning of the period in which the transfer occurs. In addition to using the above inputs in investment valuations, the Company applies the valuation policy approved by its Board that is consistent with ASC 820. Consistent with the valuation policy, the Adviser, as the valuation designee, evaluates the source of the inputs, including any markets in which its investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value. When an investment is valued based on prices provided by reputable dealers or pricing services (such as broker quotes), the Adviser, as the valuation designee, subjects those prices to various criteria in making the determination as to whether a particular investment would qualify for treatment as a Level 2 or Level 3 investment. For example, the Adviser, as the valuation designee, or the independent valuation firm(s), reviews pricing support provided by dealers or pricing services in order to determine if observable market information is being used, versus unobservable inputs.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of such investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be realized. Further, such investments are generally less liquid than publicly traded securities and may be subject to contractual and other restrictions on resale. If the Company were required to liquidate a portfolio investment in a forced or liquidation sale, it could realize amounts that are different from the amounts presented and such differences could be material.
In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected herein.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
Financial and Derivative Instruments
Rule 18f-4 requires BDCs that use derivatives to, among other things, comply with a value-at-risk leverage limit, adopt a derivatives risk management program, and implement certain testing and board reporting procedures. Rule 18f-4 exempts BDCs that qualify as “limited derivatives users” from the aforementioned requirements, provided that these BDCs adopt written policies and procedures that are reasonably designed to manage the BDC’s derivatives risks and comply with certain recordkeeping requirements. Rule 18f-4 provides that a BDC may enter into an unfunded commitment agreement that is not a derivatives transaction, such as an agreement to provide financing to a portfolio company, if the BDC has, among other things, a reasonable belief, at the time it enters into such an agreement, that it will have sufficient cash and cash equivalents to meet its obligations with respect to all of its unfunded commitment agreements, in each case as it becomes due. Pursuant to Rule 18f-4, when we trade reverse repurchase agreements or similar financing transactions, including certain tender option bonds, we need to aggregate the amount of any other senior securities representing indebtedness (e.g., bank borrowings, if applicable) when calculating our asset coverage ratio. The Company currently qualifies as a “limited derivatives user” and expects to continue to do so. The Company has adopted a derivatives policy and complies with Rule 18f-4’s recordkeeping requirements.
Foreign Currency
Foreign currency amounts are translated into U.S. dollars on the following basis:
•cash, fair value of investments, outstanding debt, other assets and liabilities: at the spot exchange rate on the last business day of the period; and
•purchases and sales of investments, borrowings and repayments of such borrowings, income and expenses: at the rates of exchange prevailing on the respective dates of such transactions.
The Company includes net changes in fair values on investments held resulting from foreign exchange rate fluctuations with the change in unrealized gains (losses) on translation of assets and liabilities in foreign currencies on the Consolidated Statements of Operations. The Company’s current approach to hedging the foreign currency exposure in its non-U.S. dollar denominated investments is primarily to borrow the par amount in local currency under the Company’s SPV Asset Facilities to fund these investments. Fluctuations arising from the translation of foreign currency borrowings are included with the net change in unrealized gains (losses) on translation of assets and liabilities in foreign currencies on the Consolidated Statements of Operations.
Investments denominated in foreign currencies and foreign currency transactions may involve certain considerations and risks not typically associated with those of domestic origin, including unanticipated movements in the value of the foreign currency relative to the U.S. dollar.
Interest and Dividend Income Recognition
Interest income is recorded on the accrual basis and includes amortization and accretion of discounts or premiums. Certain investments may have contractual payment-in-kind (“PIK”) interest or dividends. PIK interest and dividends represent accrued interest or dividends that are added to the principal amount or liquidation amount of the investment on the respective interest or dividend payment dates rather than being paid in cash and generally becomes due at maturity or at the occurrence of a liquidation event. For the year ended December 31, 2023, PIK interest and PIK dividend income earned was $32.7 million, representing approximately 12.0% of investment income. For the year ended December 31, 2022, PIK interest and PIK dividend income earned was $26.2 million, representing approximately 12.0% of investment income. For the year ended December 31, 2021, PIK interest and PIK dividend income earned was $11.4 million, representing approximately 5.8% of investment income. Discounts and premiums to par value on securities purchased are amortized into interest income over the contractual life of the respective security using the effective yield method. The amortized cost of investments represents the original cost adjusted for the amortization and accretion of discounts and premiums, if any. Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan origination fees and unamortized discounts are recorded as interest income in the current period.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected in full. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. If at any point the Company believes PIK interest is not expected to be realized, the investment generating PIK interest will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are generally reversed through interest income. Non-accrual loans are restored to accrual status when past due principal and interest is paid current and, in management’s judgment, are likely to remain current. Management may make exceptions to this treatment and determine to not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection.
Dividend income on preferred equity securities is recorded on the accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly-traded portfolio companies.
Other Income
From time to time, the Company may receive fees for services provided to portfolio companies. These fees are generally only available to the Company as a result of closing investments, are generally paid at the closing of the investments, are generally non-recurring and are recognized as revenue when earned upon closing of the investment. The services that the Adviser provides vary by investment, but can include closing, work, diligence or other similar fees and fees for providing managerial assistance to the Company’s portfolio companies.
Offering Expenses
Costs associated with the offering of common shares of the Company were capitalized as deferred offering expenses and were included in prepaid expenses and other assets in the Consolidated Statements of Assets and Liabilities and are amortized over a twelve-month period from incurrence. These expenses consist primarily of legal fees and other costs incurred in connection with the Company’s continuous public offering of its common shares, the preparation of the Company’s registration statement, and registration fees. All remaining capitalized and unamortized offering expenses were expensed in the prior period in connection with the termination of the Company’s offering of common shares as of April 30, 2021.
Debt Issuance Costs
The Company records origination and other expenses related to its debt obligations as deferred financing costs. These expenses are deferred and amortized utilizing the effective yield method over the life of the related debt instrument. Debt issuance costs are presented on the Consolidated Statements of Assets and Liabilities as a direct deduction from the debt liability. In circumstances in which there is not an associated debt liability amount recorded in the consolidated financial statements when the debt issuance costs are incurred, such debt issuance costs will be reported on the Consolidated Statements of Assets and Liabilities as an asset until the debt liability is recorded.
Reimbursement of Transaction-Related Expenses
The Company may receive reimbursement for certain transaction-related expenses in pursuing investments. Transaction-related expenses, which are generally expected to be reimbursed by the Company’s portfolio companies, are typically deferred until the transaction is consummated and are recorded in prepaid expenses and other assets on the date incurred. The costs of successfully completed investments not otherwise reimbursed are borne by the Company and are included as a component of the investment’s cost basis.
Cash advances received in respect of transaction-related expenses are recorded as cash with an offset to accrued expenses and other liabilities. Accrued expenses and other liabilities are relieved as reimbursable expenses are incurred.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
Income Taxes
The Company has elected to be treated as a BDC under the 1940 Act. The Company has elected to be treated as a RIC under the Code beginning with the taxable year ended December 31, 2017 and intends to continue to qualify as a RIC. So long as the Company maintains its tax treatment as a RIC, it generally will not pay U.S. federal income taxes at corporate rates on any ordinary income or capital gains that it distributes at least annually to its shareholders as dividends. Instead, any tax liability related to income earned and distributed by the Company represents obligations of the Company’s investors and will not be reflected in the consolidated financial statements of the Company.
To qualify as a RIC, the Company must, among other things, meet certain source-of-income and asset diversification requirements. In addition, to qualify for RIC tax treatment, the Company must generally distribute to its shareholders, for each taxable year, at least 90% of its “investment company taxable income” for that year, which is generally its ordinary income plus the excess of its realized net short-term capital gains over its realized net long-term capital losses. In order for the Company not to be subject to U.S. federal excise taxes, it must distribute annually an amount at least equal to the sum of (i) 98% of its net ordinary income (taking into account certain deferrals and elections) for the calendar year, (ii) 98.2% of its capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (iii) any net ordinary income and capital gains in excess of capital losses for preceding years that were not distributed during such years. The Company, at its discretion, may carry forward taxable income in excess of calendar year dividends and pay a 4% nondeductible U.S. federal excise tax on this income.
Certain of the Company’s consolidated subsidiaries are subject to U.S. federal and state corporate-level income taxes.
The Company evaluates tax positions taken or expected to be taken in the course of preparing its consolidated financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are reserved and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes are included in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof. There were no material uncertain income tax positions as of December 31, 2023. As applicable, the Company’s prior three tax years remain subject to examination by U.S. federal, state and local tax authorities.
Distributions to Common Shareholders
Distributions to common shareholders are recorded on the record date. The amount to be distributed is determined by the Board and is generally based upon the earnings estimated by the Adviser. In addition, the Board may consider the level of undistributed taxable income carried forward from the prior year for distribution in the current year. Net realized long-term capital gains, if any, would be generally distributed at least annually, although the Company may decide to retain such capital gains for investment.
The Company has adopted a dividend reinvestment plan that provides for reinvestment of any cash distributions on behalf of shareholders who have “opted in” to the dividend reinvestment plan. As a result, if the Board authorizes and declares a cash distribution, then the shareholders who have “opted in” to the dividend reinvestment plan will have their cash distribution automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash distribution. The Company expects to use newly issued shares to implement the dividend reinvestment plan.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
Consolidation
As provided under Regulation S-X and ASC Topic 946 - Financial Services - Investment Companies, the Company will generally not consolidate its investment in a company other than a wholly-owned investment company or controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the accounts of the Company’s wholly-owned subsidiaries that meet the aforementioned criteria in its consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation.
New Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848),” which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848),” which expanded the scope of Topic 848 to include derivative instruments impacted by discounting transition. In December 2022, the FASB issued ASU No. 2022-06, “Reference Rate Reform (Topic 848),” which extended the transition period provided under ASU No. 2020-04 and 2021-01 for all entities from December 31, 2022 to December 31, 2024.
In June 2022, the FASB issued ASU No. 2022-03, “Fair Value Measurement (Topic 820),” which clarifies the guidance in Topic 820 when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The amendments affect all entities that have investments in equity securities measured at fair value that are subject to a contractual sale restriction. ASU 2022-03 is effective for public business entities for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. For all other entities the amendments are effective for fiscal years beginning after December 15, 2024, and interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. An entity that qualifies as an investment company under Topic 946 should apply the amendments in ASU No. 2022-03 to an investment in an equity security subject to a contractual sale restriction that is executed or modified on or after the date of adoption. The Company is currently evaluating the impact of adopting ASU No. 2022-03 on the consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740),” which updates income tax disclosure requirements related to rate reconciliation, income taxes paid and other disclosures. ASU 2023-09 is effective for public business entities for fiscal years beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is currently evaluating the impact of adopting ASU No. 2023-09 on the consolidated financial statements.
Other than the aforementioned guidance, the Company’s management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the accompanying consolidated financial statements.
Note 3. Agreements and Related Party Transactions
As of December 31, 2023, the Company had payables to affiliates of $15.5 million, primarily comprised of $7.9 million of management fees and $6.7 million of accrued performance based incentive fees.
As of December 31, 2022, the Company had payables to affiliates of $16.8 million, primarily comprised of $8.6 million of management fees and $6.3 million of accrued performance based incentive fees.
Administration Agreement
The Company has entered into an amended and restated Administration Agreement (the “Administration Agreement”) with the Adviser. Under the terms of the Administration Agreement, the Adviser performs, or oversees the performance of, required administrative services, which includes providing office space, equipment and office services, maintaining financial records, preparing reports to shareholders and reports filed with the SEC, and managing the payment of expenses, and the performance of administrative and professional services rendered by others. On May 8, 2023, the Board approved the continuation of the Administration Agreement.
The Administration Agreement also provides that the Company reimburses the Adviser for certain offering costs.
The Company reimburses the Adviser for services performed for it pursuant to the terms of the Administration Agreement. In addition, pursuant to the terms of the Administration Agreement, the Adviser may delegate its obligations under the Administration Agreement to an affiliate or to a third party and the Company will reimburse the Adviser for any services performed for it by such affiliate or third party.
For the years ended December 31, 2023, 2022 and 2021, the Company incurred expenses of approximately $2.3 million, $2.0 million and $1.4 million, respectively, for costs and expenses reimbursable to the Adviser under the terms of the Administration Agreement.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
Unless earlier terminated as described below, the Administration Agreement will remain in effect for two years from the date it first became effective, and will remain in effect from year to year if approved annually by (1) the vote of the Board, or by the vote of a majority of its outstanding voting securities, and (2) the vote of a majority of the Company’s directors who are not “interested persons” of the Company, of the Adviser or of any of their respective affiliates, as defined in the 1940 Act. The Administration Agreement may be terminated at any time, without the payment of any penalty, on 60 days’ written notice, by the vote of a majority of the outstanding voting securities of the Company, or by the vote of the Board or by the Adviser.
No person who is an officer, director, or employee of the Adviser or its affiliates and who serves as a director of the Company receives any compensation from the Company for his or her services as a director. However, the Company reimburses the Adviser (or its affiliates) for an allocable portion of the compensation paid by the Adviser or its affiliates to the Company’s Chief Compliance Officer, Chief Financial Officer and their respective staffs (based on the percentage of time those individuals devote, on an estimated basis, to the business and affairs of the Company). Directors who are not affiliated with the Adviser receive compensation for their services and reimbursement of expenses incurred to attend meetings.
Investment Advisory Agreement
The Investment Advisory Agreement became effective on May 18, 2021. Under the terms of the Investment Advisory Agreement, the Adviser is responsible for managing the Company’s business and activities, including sourcing investment opportunities, conducting research, performing diligence on potential investments, structuring its investments, and monitoring its portfolio companies on an ongoing basis through a team of investment professionals. On May 8, 2023, the Board approved the continuation of the Investment Advisory Agreement.
Under the terms of the Investment Advisory Agreement, the Adviser is responsible for managing the Company’s business and activities, including sourcing investment opportunities, conducting research, performing diligence on potential investments, structuring its investments, and monitoring its portfolio companies on an ongoing basis through a team of investment professionals.
The Adviser’s services under the Investment Advisory Agreement are not exclusive, and it is free to furnish similar services to other entities so long as its services to the Company are not impaired.
Unless earlier terminated as described below, the Investment Advisory Agreement will remain in effect for two years from the date it first became effective, and will remain in effect from year-to-year if approved annually by a majority of the Board or by the holders of a majority of the Company’s outstanding voting securities and, in each case, by a majority of independent directors.
The Investment Advisory Agreement will automatically terminate within the meaning of the 1940 Act and related SEC guidance and interpretations in the event of its assignment. In accordance with the 1940 Act, without payment of any penalty, the Company may terminate the Investment Advisory Agreement with the Adviser upon 60 days’ written notice. The decision to terminate the agreement may be made by a majority of the Board or the shareholders holding a majority (as defined under the 1940 Act) of the outstanding shares of the Company’s common stock or the Adviser. In addition, without payment of any penalty, the Adviser may generally terminate the Investment Advisory Agreement upon 60 days’ written notice and, in certain circumstances, the Adviser may only be able to terminate the Investment Advisory Agreement upon 120 days’ written notice.
Under the terms of the Investment Advisory Agreement, the Company will pay the Adviser a base management fee and may also pay a performance based incentive fee. The cost of both the management fee and the incentive fee will ultimately be borne by the Company’s shareholders.
The management fee is payable quarterly in arrears at an annual rate of 1.50% of the average value of the Company’s gross assets. The management fee for any partial quarter is appropriately prorated. The determination of gross assets reflects changes in the fair value of the Company’s portfolio investments. The fair value of derivatives and swaps held in the Company’s portfolio, which will not necessarily equal the notional value of such derivatives and swaps, is included in the calculation of gross assets.
For the years ended December 31, 2023, 2022 and 2021, the Company incurred management fees of approximately $32.8 million, $35.1 million and $34.7 million, respectively.
The incentive fee consists of two components that are independent of each other, with the result that one component may be payable even if the other is not. A portion of the incentive fee will be based on the Company’s pre-incentive fee net investment income and a portion will be based on the Company’s capital gains. The portion of the incentive fee based on pre-incentive fee net investment income is determined and paid quarterly in arrears and equals (a) 100% of the pre-incentive fee net investment income between 1.5% quarterly preferred return, and 1.818%, referred to as the upper level breakpoint, of adjusted capital, plus (b) 17.5% of pre-incentive fee net investment income in excess of 1.818% of adjusted capital. Adjusted capital is defined as cumulative proceeds generated from sales of the Company’s common stock, including proceeds from the Company’s distribution reinvestment plan, net of sales load (upfront selling commissions and upfront dealer manager fees) reduced for (i) distributions paid to the Company’s shareholders that represent a return of capital on a tax basis and (ii) amounts paid for share repurchases pursuant to the Company’s share repurchase program, if any, measured as of the end of the immediately preceding calendar quarter. The quarterly preferred return of 1.5% and upper level breakpoint of 1.818% are also adjusted for the actual number of days in each calendar quarter.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
For the years ended December 31, 2023, 2022 and 2021, the Company incurred net investment income based incentive fees of $28.0 million, $21.3 million and $19.3 million, respectively.
The second component of the incentive fee, the capital gains incentive fee, is payable at the end of each calendar year in arrears, and equals 17.5% of cumulative realized capital gains from inception through the end of each calendar year, less cumulative realized capital losses and unrealized capital depreciation on a cumulative basis from inception through the end of such calendar year, less the aggregate amount of any previously paid capital gains incentive fee for prior periods. In no event will the capital gains incentive fee payable pursuant to the Investment Advisory Agreement be in excess of the amount permitted by the Advisers Act, including Section 205 thereof.
While the Investment Advisory Agreement neither includes nor contemplates the inclusion of unrealized gains in the calculation of the capital gains incentive fee, as required by U.S. GAAP, the Company accrues capital gains incentive fees on unrealized gains. This accrual reflects the incentive fees that would be payable to the Adviser if the Company’s entire investment portfolio was liquidated at its fair value as of the balance sheet date even though the Adviser is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.
For the year ended December 31, 2023, the Company did not incur capital gains based incentive fees. For the year ended December 31, 2022, the Company recorded a reversal of capital gains based incentive fees of $1.3 million. For the year ended December 31, 2021, the Company accrued capital gains based incentive fees of $1.3 million.
Under the terms of the Investment Advisory Agreement, the Adviser is entitled to receive up to 1.5% of gross offering proceeds raised in the continuous public offering until all organization and offering costs paid by the Adviser or its affiliates have been recovered. The Company bears all other expenses of its operations and transactions including, without limitation, those relating to: expenses deemed to be “organization and offering expenses” for purposes of Conduct Rule 2310(a)(12) of Financial Industry Regulatory Authority (exclusive of commissions, the dealer manager fee, any discounts and other similar expenses paid by investors at the time of sale of the Company’s stock); the cost of corporate and organizational expenses relating to offerings of shares of common stock, subject to limitations included in the Investment Advisory Agreement; the cost of calculating the Company’s net asset value, including the cost of any third-party valuation services; the cost of effecting any sales and repurchases of the common stock and other securities; fees and expenses payable under any dealer manager agreements, if any; debt service and other costs of borrowings or other financing arrangements; costs of hedging; expenses, including travel expense, incurred by the Adviser, or members of the Investment Team, or payable to third parties, performing due diligence on prospective portfolio companies and, if necessary, enforcing the Company’s rights; escrow agent, transfer agent and custodial fees and expenses; fees and expenses associated with marketing efforts; federal and state registration fees, any stock exchange listing fees and fees payable to rating agencies; federal, state and local taxes; independent directors’ fees and expenses, including certain travel expenses; costs of preparing financial statements and maintaining books and records and filing reports or other documents with the SEC (or other regulatory bodies) and other reporting and compliance costs, including registration fees, listing fees and licenses, and the compensation of professionals responsible for the preparation of the foregoing; the costs of any reports, proxy statements or other notices to shareholders (including printing and mailing costs); the costs of any shareholder or director meetings and the compensation of personnel responsible for the preparation of the foregoing and related matters; commissions and other compensation payable to brokers or dealers; research and market data; fidelity bond, directors and officers errors and omissions liability insurance and other insurance premiums; direct costs and expenses of administration, including printing, mailing, long distance telephone and staff; fees and expenses associated with independent audits, outside legal and consulting costs; costs of winding up; costs incurred in connection with the formation or maintenance of entities or vehicles to hold the Company’s assets for tax or other purposes; extraordinary expenses (such as litigation or indemnification); and costs associated with reporting and compliance obligations under the Advisers Act and applicable federal and state securities laws. Notwithstanding anything to the contrary contained herein, the Company shall reimburse the Adviser (or its affiliates) for an allocable portion of the compensation paid by the Adviser (or its affiliates) to the Company’s Chief Compliance Officer and Chief Financial Officer and their respective staffs (based on a percentage of time such individuals devote, on an estimated basis, to the business affairs of the Company). Any such reimbursements will not exceed actual expenses incurred by the Adviser and its affiliates. The Adviser is responsible for the payment of the Company’s organization and offering expenses to the extent that these expenses exceed 1.5% of the aggregate gross offering proceeds, without recourse against or reimbursement by the Company.
For the years ended December 31, 2023 and 2022, subject to the 1.5% organization and offering cost cap, the Company did not accrue initial organization and offering expenses. For the year ended December 31, 2021, subject to the 1.5% organization and offering cost cap, the Company accrued initial organization and offering expenses of $0.4 million.
From time to time, the Adviser may pay amounts owed by the Company to third-party providers of goods or services, including the Board, and the Company will subsequently reimburse the Adviser for such amounts paid on its behalf. Amounts payable to the Adviser are settled in the normal course of business without formal payment terms.
Affiliated Transactions
The Company may be prohibited under the 1940 Act from participating in certain transactions with its affiliates without prior approval of the directors who are not interested persons, and in some cases, the prior approval of the SEC. The Company, the Adviser
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
and certain of their affiliates have been granted an order for exemptive relief (as amended, the “Order”) by the SEC for the Company to co-invest with other funds managed by the Adviser or certain affiliates, in a manner consistent with the Company’s investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. Pursuant to the Order, the Company generally is permitted to co-invest with certain of its affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of the Board make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transaction, including the consideration to be paid, are reasonable and fair to the Company and its shareholders and do not involve overreaching by the Company or its shareholders on the part of any person concerned, (2) the transaction is consistent with the interests of the Company’s shareholders and is consistent with its investment objective and strategies, (3) the investment by its affiliates would not disadvantage the Company, and the Company’s participation would not be on a basis different from or less advantageous than that on which its affiliates are investing and (4) the proposed investment by the Company would not benefit the Advisers or its affiliates or any affiliated person of any of them (other than the parties to the transaction), except to the extent permitted by the Order and applicable law, including the limitation set forth in Section 57(k) of the 1940 Act. In addition, the Order permits the Company to participate in follow-on investments in its existing portfolio companies with certain affiliates that are private funds if such private funds did not have an investment in such existing portfolio company.
The Adviser is affiliated with Blue Owl Technology Credit Advisors LLC (“OTCA”), Blue Owl Credit Private Fund Advisors LLC (“OPFA”), Blue Owl Technology Credit Advisors II LLC (“OTCA II”) and Blue Owl Diversified Credit Advisors LLC (“ODCA” together with OTCA, OPFA, OTCA II and the Adviser, the “Blue Owl Credit Advisers”), which are also investment advisers. The Blue Owl Credit Advisers are affiliates of Blue Owl and comprise Blue Owl’s Credit platform, which focuses on direct lending. The Blue Owl Credit Advisers’ investment allocation policy seeks to ensure equitable allocation of investment opportunities over time between the Company and other funds managed by the Adviser or its affiliates. As a result of the Order, there could be significant overlap in the Company’s investment portfolio and the investment portfolios of the BDCs, private funds and separately managed accounts managed by the Blue Owl Credit Advisers (collectively, the “Blue Owl Credit Clients”) and/or other funds managed by the Adviser or its affiliates that could avail themselves of the Order and that have an investment objective similar to the Company.
Dealer Manager Agreement
The Company has entered into a Dealer Manager Agreement (the “Dealer Manager Agreement”) with Blue Owl Securities LLC (“Blue Owl Securities”), an affiliate of the Adviser. On October 1, 2019, the Company entered into the Follow-on Dealer Manager Agreement with Blue Owl Securities (together with the Original Dealer Manager Agreement, the “Dealer Manager Agreement”). The Company has determined not to file additional post-effective amendments to its registration statement and terminated its public offering and the Dealer Manager Agreement as of April 30, 2021. Under the terms of the Dealer Manager Agreement, Blue Owl Securities served as the dealer manager for the Company’s public offering of its shares of common stock. As dealer manager, Blue Owl Securities earned a maximum sales load of up to 5.0% of the price per share for combined upfront selling commissions and dealer manager fees, a portion or all of which may be reallowed to selling broker-dealers. In connection with purchases of shares pursuant to the Company’s distribution reinvestment plan, the upfront selling commissions and dealer manager fees were not paid.
Blue Owl Securities is a broker-dealer registered with the SEC, a member of the Financial Industry Regulatory Authority and a member of the Securities Investor Protection Corporation.
Expense Support and Conditional Reimbursement Agreement
On February 6, 2017, the Company entered into an Expense Support and Conditional Reimbursement Agreement (the “Expense Support Agreement”) with the Adviser, the purpose of which was to ensure that no portion of the Company’s distributions to shareholders will represent a return of capital for U.S. federal income tax purposes. The Expense Support Agreement became effective as of April 4, 2017, the date that the Company met the minimum offering requirement and was terminated on November 7, 2023.
Pursuant to the Expense Support Agreement, prior to its termination on November 7, 2023, on a quarterly basis, the Adviser reimbursed the Company for “Operating Expenses” (as defined below) in an amount equal to the excess of the Company’s cumulative distributions paid to the Company’s shareholders in each quarter over “Available Operating Funds” (as defined below) received by the Company on account of its investment portfolio during such quarter. Any payments required to be made by the Adviser pursuant to the preceding sentence are referred to herein as an “Expense Payment”.
Pursuant to the Expense Support Agreement, “Operating Expenses” was defined as all of the Company’s operating costs and expenses incurred, as determined in accordance with U.S. GAAP for investment companies. “Available Operating Funds” means the sum of (i) the Company’s estimated investment company taxable income (including realized net short-term capital gains reduced by realized net long-term capital losses), (ii) the Company’s realized net capital gains (including the excess of realized net long-term capital gains over realized net short-term capital losses) and (iii) dividends and other distributions paid to the Company on account of preferred and common equity investments in portfolio companies, if any (to the extent such amounts listed in clause (iii) are not included under clauses (i) and (ii) above).
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
Following any quarter in which Available Operating Funds exceed the cumulative distributions paid by the Company in respect of such quarter (the amount of such excess being hereinafter referred to as “Excess Operating Funds”), the Company will pay such Excess Operating Funds, or a portion thereof, in accordance with the stipulations below, as applicable, to the Adviser, until such time as all Expense Payments made by the Adviser to the Company within three years prior to the last business day of such quarter have been reimbursed. Any payments required to be made by the Company are referred to as a “Reimbursement Payment”.
The specific amount of expenses reimbursed by the Adviser, if any, will be determined at the end of each quarter. The Company’s obligation to make Reimbursement Payments survives the termination of the Expense Support Agreement.
As of December 31, 2023, the amount of Expense Support Payments provided by the Adviser since inception is $32.8 million. Management believes that Reimbursement Payments by the Company to the Adviser were not probable under the terms of the Expense Support Agreement as of December 31, 2023.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
The following table presents a summary of all expenses supported, and recouped, by the Adviser for each of the following three month periods in which the Company received Expense Support from the Adviser and the associated dates through which such expenses may be subject to reimbursement from the Company pursuant to the Expense Support Agreement:
For the Quarter Ended Amount of
Expense
Support Recoupment
of Expense
Support Expired
Expense
Support Unreimbursed
Expense
Support Effective
Rate of
Distribution
per Share(1)
Reimbursement
Eligibility
Expiration Operating
Expense
Ratio(2)
($ in thousands)
June 30, 2017 $ 1,061 $ 1,061 $ - $ - 7.0% N/A 16.81%
September 30, 2017 1,023 258 765 - 7.0% September 30, 2020 6.15%
December 31, 2017 856 - 856 - 7.0% December 31, 2020 2.83%
March 31, 2018 1,871 - 1,871 - 6.9% March 31, 2021 2.27%
June 30, 2018 775 - 775 - 6.9% June 30, 2021 1.53%
March 31, 2019 1,835 - 1,835 - 7.0% March 31, 2022 0.91%
June 30, 2019 1,776 - 1,776 - 7.0% June 30, 2022 0.79%
September 30, 2019 1,081 - 1,081 - 7.0% September 30, 2022 0.72%
December 31, 2019 2,351 - 2,351 - 7.0% December 31, 2022 0.69%
March 31, 2020 6,587 5,857 730 - 7.7% March 31, 2023 0.70%
June 30, 2020 5,794 5,794 - - 7.4% N/A 0.70%
September 30, 2020 3,079 - 3,079 - 7.2% September 30, 2023 0.63%
December 31, 2020 3,216 3,216 - - 6.5% N/A 0.71%
March 31, 2021 1,449 - - 1,449 6.4% March 31, 2024 0.60%
Total $ 32,754 $ 16,186 $ 15,119 $ 1,449
______________
(1)The effective rate of distribution per share is expressed as a percentage equal to the projected annualized distribution amount as of the end of the applicable period (which is calculated by annualizing the regular weekly or monthly cash distributions per share as of such date without compounding), divided by the Company’s gross offering price per share as of such date.
(2)The operating expense ratio is calculated by dividing operating expenses, less organizational and offering expenses, base management and incentive fees owed to the Adviser, and interest expense, by the Company’s net assets.
License Agreement
On July 6, 2023, the Company entered into a license agreement (the “License Agreement”), with an affiliate of Blue Owl, pursuant to which the Company was granted a non-exclusive license to use the name “Blue Owl.” Under the License Agreement, the Company has a right to use the Blue Owl name for so long as the Adviser or one of its affiliates remains the Company’s investment adviser. Other than with respect to this limited license, the Company will have no legal right to the “Blue Owl” name or logo.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
Note 4. Investments
The information in the tables below is presented on an aggregate portfolio basis, without regard to whether they are non-controlled non-affiliated, non-controlled affiliated or controlled affiliated investments.
The table below presents investments at fair value and amortized cost as of the following periods:
December 31, 2023 December 31, 2022
($ in thousands) Amortized Cost Fair Value Amortized Cost Fair Value
First-lien senior secured debt investments $ 1,408,127 $ 1,400,246 $ 1,633,375 $ 1,614,367
Second-lien senior secured debt investments 455,907 440,071 484,086 467,560
Unsecured debt investments 40,619 38,895 36,708 32,663
Preferred equity investments 67,709 67,941 59,750 58,678
Common equity investments 64,338 98,711 55,033 86,224
Total Investments $ 2,036,700 $ 2,045,864 $ 2,268,952 $ 2,259,492
The table below presents the industry composition of investments based on fair value as of the following periods:
December 31, 2023 December 31, 2022
Advertising and media 1.0 % 0.9 %
Aerospace and defense 4.1 3.4
Asset based lending and fund finance(1)
2.2 1.4
Automotive 2.0 1.6
Buildings and real estate 3.0 4.2
Business services 3.5 3.1
Chemicals 2.6 2.7
Consumer products 5.3 4.5
Containers and packaging 1.7 1.4
Distribution 2.6 3.2
Education 1.0 1.2
Financial services 1.4 5.3
Food and beverage 8.4 7.4
Healthcare equipment and services 4.5 3.9
Healthcare providers and services 7.1 5.0
Healthcare technology 6.8 5.9
Household products 2.5 2.2
Human resource support services 1.5 1.4
Infrastructure and environmental services 0.5 0.4
Insurance(3)
8.5 7.9
Internet software and services 11.5 13.6
Leisure and entertainment 2.9 2.7
Manufacturing 7.5 7.0
Oil and gas 0.4 1.1
Pharmaceuticals(2)
0.0 (4)
-
Professional services 2.4 2.4
Specialty retail 3.4 3.2
Telecommunications 0.4 -
Transportation 1.3 3.0
Total 100.0 % 100.0 %
______________
(1)Includes investments in AAM Series 1.1 Rail and Domestic Intermodal Feeder, LLC and AAM Series 2.1 Aviation Feeder, LLC (collectively, “Amergin AssetCo”).
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
(2)Includes investment in LSI Financing 1 DAC (“LSI Financing”).
(3)Includes investments in Fifth Season Investment LLC (“Fifth Season”).
(4)Rounds to less than 0.1.
The table below presents the geographic composition of investments based on fair value as of the following periods:
December 31, 2023 December 31, 2022
United States:
Midwest 18.7 % 17.4 %
Northeast 16.5 17.6
South 31.3 33.7
West 25.3 23.5
International 8.2 7.8
Total 100.0 % 100.0 %
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
Note 5. Debt
In accordance with the 1940 Act, with certain limitations, the Company is allowed to borrow amounts such that its asset coverage, as defined in the 1940 Act, is at least 200% (or 150% if certain conditions are met) after such borrowing. The Company’s asset coverage was 239% and 229% as of December 31, 2023 and December 31, 2022, respectively.
Debt obligations consisted of the below as of the following periods:
December 31, 2023
($ in thousands) Aggregate Principal
Committed Outstanding
Principal Amount
Available(1)
Net Carrying
Value(2)
SPV Asset Facility I $ 250,000 $ 60,000 $ 174,934 $ 58,715
SPV Asset Facility II 325,000 125,000 19,715 120,008
CLO XIII 260,000 260,000 - 257,764
2024 Notes 100,000 100,000 - 101,138
2026 Notes 350,000 350,000 - 343,473
Total Debt $ 1,285,000 $ 895,000 $ 194,649 $ 881,098
______________
(1)The amount available reflects any limitations related to each credit facility’s borrow base.
(2)The carrying value of the Company’s SPV Asset Facility I, SPV Asset Facility II, CLO XIII, 2024 Notes and 2026 Notes are presented net of deferred financing costs of $1.3 million, $5.0 million, $2.2 million, $(1.1) million and $6.5 million, respectively.
December 31, 2022
($ in thousands) Aggregate Principal
Committed Outstanding
Principal Amount
Available(1)
Net Carrying
Value(2)
SPV Asset Facility I $ 500,000 $ 374,222 $ 29,179 $ 374,084
SPV Asset Facility II 325,000 176,000 79,146 172,397
2024 Notes 450,000 450,000 - 450,192
Total Debt $ 1,275,000 $ 1,000,222 $ 108,325 $ 996,673
______________
(1)The amount available reflects any limitations related to each credit facility’s borrow base.
(2)The carrying value of the Company’s SPV Asset Facility I, SPV Asset Facility II and 2024 Notes are presented net of deferred unamortized debt issuance costs of $0.1 million, $3.6 million and $(0.2) million, respectively.
For the following periods, the components of interest expense were as follows:
For the Year Ended December 31,
($ in thousands) 2023 2022 2021
Interest expense $ 64,691 $ 48,420 $ 37,259
Amortization of debt issuance costs 2,558 1,590 2,320
Total Interest Expense $ 67,249 $ 50,010 $ 39,579
Average interest rate 6.4 % 4.4 % 3.3 %
Average daily borrowings $ 956,970 $ 1,048,712 $ 1,069,485
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
SPV Asset Facilities
SPV Asset Facility I
On December 1, 2017 (the “SPV Asset Facility I Closing Date”), ORCC II Financing LLC and OR Lending II LLC (collectively, the “Subsidiaries”), each a Delaware limited liability company and a wholly-owned subsidiary of the Company, entered into a Credit Agreement (the “SPV Asset Facility I”). Parties to the SPV Asset Facility I include ORCC II Financing LLC and OR Lending II LLC, as Borrowers, and the lenders from time to time parties thereto (the “SPV I Lenders”), Goldman Sachs Bank USA as Sole Lead Arranger, Syndication Agent and Administrative Agent, State Street Bank and Trust Company as Collateral Administrator and Collateral Agent and Cortland Capital Market Services LLC as Collateral Custodian. From time to time, the parties to the SPV Asset Facility I have amended the SPV Asset Facility I and the related transaction documents.
The summary below reflects the terms of the SPV Asset Facility I as amended from time to time, including by Amendment No. 1 to the Third Amended and Restated Credit Agreement, entered into on September 20, 2023, by the parties to the SPV Asset Facility I.
From time to time, the Company sells and contributes certain investments to ORCC II Financing LLC pursuant to a Sale and Contribution Agreement by and between the Company and ORCC II Financing LLC. No gain or loss will be recognized as a result of these sales and contributions. Proceeds from the SPV Asset Facility I have been and will be used to finance the origination and acquisition of eligible assets by the Subsidiaries, including the purchase of such assets from the Company. The Company retains a residual interest in assets contributed to or acquired by the Subsidiaries through its ownership of the Subsidiaries. The maximum principal amount of the SPV Asset Facility I is $250 million (decreased from $500 million on September 20, 2023); the availability of this amount is subject to a borrowing base test, which is based on the amount of the Subsidiaries’ assets from time to time, and satisfaction of certain conditions, including certain concentration limits.
The SPV Asset Facility I provides for a reinvestment period up to and including November 30, 2025 (the “SPV Asset Facility I Commitment Termination Date”). Prior to the SPV Asset Facility I Commitment Termination Date, proceeds received by the Subsidiaries from interest, dividends, or fees on assets must be used to pay expenses and interest on outstanding borrowings, and the excess may be returned to the Company, subject to certain conditions. Proceeds received from principal on assets prior to the SPV Asset Facility I Commitment Termination Date must be used to make quarterly payments of principal on outstanding borrowings. Following the SPV Asset Facility I Commitment Termination Date, proceeds received by the Subsidiaries from interest and principal on collateral assets must be used to make quarterly payments of principal on outstanding borrowings. Subject to certain conditions, between quarterly payment dates prior to and after the SPV Asset Facility I Commitment Termination Date, excess interest proceeds and principal proceeds may be released to the Subsidiaries to make distributions to the Company.
The SPV Asset Facility I will mature on November 30, 2026. Amounts drawn in USD bear interest at Term SOFR plus a 2.70% spread and the spread is also payable on a portion of any undrawn amounts. The Company borrows utilizing three-month SOFR rate loans. The SPV Asset Facility I contains customary covenants, including certain financial maintenance covenants, limitations on the activities of the Subsidiaries, including limitations on incurrence of incremental indebtedness, and customary events of default. The SPV Asset Facility I is secured by a perfected first priority security interest in the Company’s equity interests in the Subsidiaries and in the assets of the Subsidiaries and on any payments received by the Subsidiaries in respect of those assets. Upon the occurrence of certain value adjustment events relating to the assets securing the SPV Asset Facility I, the Subsidiaries will also be required to provide certain cash collateral. Assets pledged to the SPV I Lenders will not be available to pay the debts of the Company.
Borrowings of the Subsidiaries are considered the Company’s borrowings for purposes of complying with the asset coverage requirements under the 1940 Act.
In connection with the SPV Asset Facility I, the Company entered into a Non-Recourse Carveout Guaranty Agreement on the SPV Asset Facility I Closing Date, which was amended and restated twice on March 11, 2019 and April 29, 2019, with State Street Bank and Trust Company, on behalf of certain secured parties, and Goldman Sachs Bank USA. Pursuant to the Non-Recourse Carveout Guaranty Agreement, the Company guarantees certain losses, damages, costs, expenses, liabilities, claims and other obligations incurred in connection with certain instances of fraud or bad faith misrepresentation, material encumbrances of certain collateral, misappropriation of certain funds, certain transfers of assets, and the bad faith or willful breach of certain provisions of the SPV Asset Facility I.
SPV Asset Facility II
On April 14, 2020 (the “SPV Asset Facility II Closing Date”), ORCC II Financing II LLC (“ORCC II Financing II”), a Delaware limited liability company and newly formed subsidiary of the Company entered into a Credit Agreement (the “SPV Asset Facility II”), with ORCC II Financing II, as Borrower, the lenders from time to time parties thereto (the “SPV II Lenders”), Natixis, New York Branch, as Administrative Agent, State Street Bank and Trust Company as Collateral Agent and Cortland Capital Market Services LLC as Document Custodian. The parties to the SPV Asset Facility II have entered into various amendments, including to increase the maximum principal amount of the SPV Asset Facility II, change the interest rates for amounts drawn in U.S. dollars, to extend the maturity of the SPV Asset Facility II to convert the benchmark rate of the facility from LIBOR to Term SOFR and make certain other
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
changes. The following describes the terms of the SPV Asset Facility II as amended through April 4, 2023 (the “SPV Asset Facility II Third Amendment Date”).
From time to time, the Company expects to sell and contribute certain investments to ORCC II Financing II pursuant to a Sale and Contribution Agreement by and between the Company and ORCC II Financing II. No gain or loss will be recognized as a result of these sales and contributions. Proceeds from the SPV Asset Facility II will be used to finance the origination and acquisition of eligible assets by ORCC II Financing II, including the purchase of such assets from the Company. The Company retains a residual interest in assets contributed to or acquired by ORCC II Financing II through the Company’s ownership of ORCC II Financing II. The maximum principal amount of the SPV Asset Facility II as of the SPV Asset Facility II Third Amendment Date is $325 million; the availability of this amount is subject to an overcollateralization ratio test, which is based on the value of ORCC II Financing II’s assets from time to time, and satisfaction of certain conditions, including an interest coverage ratio test, certain concentration limits and collateral quality tests.
The SPV Asset Facility II provides for the ability to (1) draw term loans and (2) draw and redraw revolving loans under the SPV Asset Facility II through April 14, 2025 unless the revolving commitments are terminated or converted to term loans sooner as provided in the SPV Asset Facility II (the “SPV Asset Facility II Commitment Termination Date”). Unless otherwise terminated, the SPV Asset Facility II will mature on April 4, 2033 (the “SPV Asset Facility II Stated Maturity”). Prior to the SPV Asset Facility II Stated Maturity, proceeds received by ORCC II Financing II from principal and interest, dividends, or fees on assets must be used to pay fees, expenses and interest on outstanding borrowings, and the excess may be returned to the Company, subject to certain conditions. On the SPV Asset Facility II Stated Maturity, ORCC II Financing II must pay in full all outstanding fees and expenses and all principal and interest on outstanding borrowings, and the excess may be returned to the Company.
Amounts drawn bear interest at Term SOFR (or, in the case of certain lenders that are commercial paper conduits, the lower of their cost of funds and Term SOFR plus 0.25%) plus, (x) with respect to revolving loans, 2.75% and (y) with respect to term loans, 2.75% during the SPV Asset Facility II’s reinvestment period and 2.75% thereafter. From the SPV Asset Facility II Third Amendment Date to the SPV Asset Facility II Commitment Termination Date, there is a commitment fee of 0.75% per annum on the undrawn amount, if any, of the revolving commitments in the SPV Asset Facility II. The SPV Asset Facility II contains customary covenants, including certain financial maintenance covenants, limitations on the activities of ORCC II Financing II, including limitations on incurrence of incremental indebtedness, and customary events of default. The SPV Asset Facility II is secured by a perfected first priority security interest in the assets of ORCC II Financing II and on any payments received by ORCC II Financing II in respect of those assets. Assets pledged to the SPV II Lenders will not be available to pay the debts of the Company.
Borrowings of ORCC II Financing II are considered the Company’s borrowings for purposes of complying with the asset coverage requirements under the 1940 Act.
CLO
CLO XIII
On September 12, 2023 (the “CLO XIII Closing Date”), the Company completed a $399.3 million term debt securitization transaction (the “CLO XIII Transaction”), also known as a collateralized loan obligation transaction, which is a form of secured financing incurred by the Company. The secured notes and preferred shares issued in the CLO XIII Transaction were issued by the Company’s consolidated subsidiary Owl Rock CLO XIII, LLC, a limited liability organized under the laws of the State of Delaware (the “CLO XIII Issuer”) and are backed by a portfolio of collateral obligations consisting of middle market loans and participation interests in middle market loans as well as by other assets of the CLO XIII Issuer.
The CLO XIII Transaction was executed by (A) the issuance of the following classes of notes and preferred shares pursuant to an indenture and security agreement dated as of the CLO XIII Closing Date (the “CLO XIII Indenture”), by and among the CLO XIII Issuer and State Street Bank and Trust Company: (i) $228 million of AAA(sf) Class A Notes, which bear interest at three-month term SOFR plus 2.55% and (ii) $32 million of AA(sf) Class B Notes, which bear interest at three-month term SOFR plus 3.35% (together, the “CLO XIII Secured Notes”). The CLO XIII Secured Notes are secured by middle market loans, participation interests in middle market loans and other assets of the CLO XIII Issuer. The CLO XIII Secured Notes are scheduled to mature on September 20, 2035. The CLO XIII Secured Notes were privately placed by Goldman Sachs & Co. LLC as Placement Agent and NatWest Markets Securities Inc. as Co-Placement Agent.
Concurrently with the issuance of the CLO XIII Secured Notes, the CLO XIII Issuer issued approximately $139.3 million of subordinated securities in the form of 139,300 preferred shares at an issue price of U.S. $1,000 per share (the “CLO XIII Preferred Shares”). The CLO XIII Preferred Shares were issued by the CLO XIII Issuer as part of its issued share capital and are not secured by the collateral securing the CLO XIII Secured Notes. The Company purchased all of the CLO XIII Preferred Shares. The Company acts as retention holder in connection with the CLO XIII Transaction for the purposes of satisfying certain U.S. and European Union regulations requiring sponsors of securitization transactions to retain exposure to the performance of the securitized assets and as such is required to retain a portion of the CLO XIII Preferred Shares.
As part of the CLO XIII Transaction, the Company entered into a loan sale agreement with the CLO XIII Issuer dated as of the CLO XIII Closing Date, which provided for the contribution of approximately $36.4 million funded par amount of middle market
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
loans from the Company to the CLO XIII Issuer on the CLO XIII Closing Date and for future sales from the Company to the CLO XIII Issuer on an ongoing basis. No gain or loss will be recognized as a result of these sales and contributions. Such loans constituted part of the initial portfolio of assets securing the CLO XIII Secured Notes. The remainder of the initial portfolio assets securing the CLO XIII Secured Notes consisted of approximately $298.5 million funded par amount of middle market loans purchased by the CLO XIII Issuer from ORCC II Financing LLC, a wholly-owned subsidiary of the Company, under an additional loan sale agreement executed on the CLO XIII Closing Date between the CLO XIII Issuer and ORCC II Financing LLC and OR Lending II LLC, a wholly-owned subsidiary of the Company. The Company, ORCC II Financing LLC and OR Lending II LLC each made customary representations, warranties, and covenants to the CLO XIII Issuer under the applicable loan sale agreement.
Through September 20, 2027, a portion of the proceeds received by the CLO XIII Issuer from the loans securing the CLO XIII Secured Notes may be used by the CLO XIII Issuer to purchase additional middle market loans under the direction of the Adviser in its capacity as collateral manager for the CLO XIII Issuer and in accordance with the Company’s investing strategy and ability to originate eligible middle market loans.
The CLO XIII Secured Notes are the secured obligations of the CLO XIII Issuer, and the CLO XIII Indenture includes customary covenants and events of default. The CLO XIII Secured Notes have not been registered under the Securities Act, or any state securities (e.g., “blue sky”) laws, and may not be offered or sold in the United States absent registration with the Securities and Exchange Commission or pursuant to an applicable exemption from such registration.
The Adviser will serve as collateral manager for the CLO XIII Issuer under a collateral management agreement dated as of the CLO XIII Closing Date (the “CLO XIII Collateral Management Agreement”). The Adviser is entitled to receive fees for providing these services. The Adviser has waived its right to receive such fees but may rescind such waiver at any time; provided, however, that if the Adviser rescinds such waiver, the management fee payable to the Adviser pursuant to the Investment Advisory Agreement will be offset by the amount of the collateral management fee attributable to the CLO XIII Issuer’s equity or notes owned by the Company.
Unsecured Notes
2024 Notes
On November 26, 2019, the Company issued $300 million aggregate principal amount of the Company’s 4.625% notes due November 26, 2024 (the “2024 Notes”) in a private placement in reliance on Section 4(a)(2) of the Securities Act, and for initial resale to qualified institutional buyers pursuant to the exemption from registration provided by Rule 144A promulgated under the Securities Act.
On October 21, 2020, the Company issued an additional $50 million aggregate principal amount of the 2024 Notes the Company issued an additional $100 million aggregate principal amount of the 2024 Notes in private placements in reliance on Section 4(a)(2) of the Securities Act, and for initial resale to qualified institutional buyers pursuant to the exemption from registration provided by Rule 144A promulgated under the Securities Act.
The 2024 Notes have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration.
The 2024 Notes were issued pursuant to an Indenture dated as of November 26, 2019 (the “Base Indenture”), between the Company and Wells Fargo Bank, National Association, as trustee (the “Trustee”), and a First Supplemental Indenture, dated as of November 26, 2019 (the “First Supplemental Indenture” and together with the Base Indenture, the “Indenture”), between the Company and the Trustee. The 2024 Notes will mature on November 26, 2024, unless repurchased or redeemed in accordance with their terms prior to such date. The 2024 Notes bear interest at a rate of 4.625% per year payable semi-annually on May 26 and November 26 of each year, commencing on May 26, 2020. The 2024 Notes are the Company’s direct, general unsecured obligations and rank senior in right of payment to all of the Company’s future indebtedness or other obligations that are expressly subordinated, or junior, in right of payment to the 2024 Notes. The 2024 Notes rank pari passu, or equal, in right of payment with all of the Company’s existing and future indebtedness or other obligations that are not so subordinated. The 2024 Notes are effectively subordinated, or junior, to any of the the Company’s future secured indebtedness or other obligations (including unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness. The 2024 Notes are structurally subordinated, or junior, to all existing and future indebtedness and other obligations (including trade payables) incurred by the Company’s subsidiaries, financing vehicles or similar facilities.
The Indenture contains certain covenants, including covenants requiring the Company to (i) comply with the asset coverage requirements of the Investment Company Act of 1940, as amended, whether or not it is subject to those requirements, and (ii) provide financial information to the holders of the 2024 Notes and the Trustee if the Company is no longer subject to the reporting requirements under the Securities Exchange Act of 1934, as amended. These covenants are subject to important limitations and exceptions that are described in the Indenture.
In addition, if a change of control repurchase event, as defined in the Indenture, occurs prior to maturity, holders of the 2024 Notes will have the right, at their option, to require the Company to repurchase for cash some or all of the 2024 Notes at a repurchase
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
price equal to 100% of the aggregate principal amount of the 2024 Notes being repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.
On November 15, 2023, the Company caused notice to be issued to the holders of the 2024 Notes regarding its exercise of the option to redeem $350 million in aggregate principal amount of the 2024 Notes at 100% of their principal amount, plus the accrued and unpaid interest thereon through, but excluding, the redemption date, December 15, 2023. On December 15, 2023, the Company redeemed in $350 million in aggregate principal amount of the 2024 Notes at 100% of their principal amount, plus the accrued and unpaid interest thereon through, but excluding, December 15, 2023. As of December 31, 2023, $100 million in aggregate principal amount of the 2024 Notes remained outstanding.
2026 Notes
On November 15, 2023, the Company issued $350 million aggregate principal amount of its 8.450% notes due November 15, 2026 (the “2026 Notes”) in a private placement in reliance on Section 4(a)(2) of the Securities Act, and for initial resale to qualified institutional buyers pursuant to the exemption from registration provided by Rule 144A promulgated under the Securities Act. The 2026 Notes have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration.
The 2026 Notes were issued pursuant to the Base Indenture and a Second Supplemental Indenture, dated as of November 15, 2023 (the “Second Supplemental Indenture” and together with the Base Indenture, the “2026 Indenture”), between the Company and the Trustee. The 2026 Notes will mature on November 15, 2026, unless repurchased or redeemed in accordance with their terms prior to such date. The 2026 Notes bear interest at a rate of 8.450% per year payable semi-annually on May 15 and November 15 of each year, commencing on May 15, 2024. Concurrent with the issuance of the 2026 Notes, the Company entered into a Registration Rights Agreement (the “2026 Registration Rights Agreement”) for the benefit of the purchasers of the 2026 Notes. Pursuant to the 2026 Registration Rights Agreement, the Company is obligated to file a registration statement with the SEC with respect to an offer to exchange the 2026 Notes for a new issue of debt securities registered under the Securities Act with terms substantially identical to those of the 2026 Notes (except for provisions relating to transfer restrictions and payment of additional interest) and to use its commercially reasonable efforts to consummate such exchange offer on the earliest practicable date after the registration statement has been declared effective but in no event later than 365 days after the initial issuance of the 2026 Notes. If the Company fails to satisfy its registration obligations under the 2026 Registration Rights Agreement, it will be required to pay additional interest to the holders of the 2026 Notes.
The 2026 Notes are the Company’s direct, general unsecured obligations and rank senior in right of payment to all of the Company’s future indebtedness or other obligations that are expressly subordinated, or junior, in right of payment to the 2026 Notes. The 2026 Notes rank pari passu, or equal, in right of payment with all of the Company’s existing and future indebtedness or other obligations that are not so subordinated. The 2026 Notes rank effectively subordinated, or junior, to any of the Company’s future secured indebtedness or other obligations (including unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness. The 2026 Notes are structurally subordinated, or junior, to all existing and future indebtedness and other obligations (including trade payables) incurred by the Company’s subsidiaries, financing vehicles or similar facilities.
The 2026 Indenture contains certain covenants, including covenants requiring the Company to (i) comply with Section 18(a)(1)(A) of the 1940 Act, as modified by Section 61(a) of the 1940 Act, for the period of time during which the 2026 Notes are outstanding, whether or not it is subject to those requirements, and (ii) provide financial information to the holders of the 2026 Notes and the Trustee if the Company is no longer subject to the reporting requirements under the Exchange Act. These covenants are subject to important limitations and exceptions that are described in the 2026 Indenture.
In addition, if a change of control repurchase event, as defined in the 2026 Indenture, occurs prior to maturity, holders of the 2026 Notes will have the right, at their option, to require the Company to repurchase for cash some or all of the 2026 Notes at a repurchase price equal to 100% of the aggregate principal amount of the 2026 Notes being repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
Note 6. Fair Value of Investments
Investments
The tables below present the fair value hierarchy of investments as of the following periods:
Fair Value Hierarchy as of December 31, 2023
($ in thousands) Level 1 Level 2 Level 3 Total
Cash $ 126,383 $ - $ - $ 126,383
Investments:
First-lien senior secured debt investments $ - $ 10,034 $ 1,390,212 $ 1,400,246
Second-lien senior secured debt investments - 25,806 414,265 440,071
Unsecured debt investments - 634 38,261 38,895
Preferred equity investments - - 67,941 67,941
Common equity investments 202 - 98,509 98,711
Total Investments $ 202 $ 36,474 $ 2,009,188 $ 2,045,864
Fair Value Hierarchy as of December 31, 2022
($ in thousands) Level 1 Level 2 Level 3 Total
Cash $ 47,275 $ - $ - 47,275
Investments:
First-lien senior secured debt investments $ - $ 1 $ 1,614,366 $ 1,614,367
Second-lien senior secured debt investments - 13,798 453,762 467,560
Unsecured debt investments - 569 32,094 32,663
Preferred equity investments - - 58,678 58,678
Common equity investments 158 - 86,066 86,224
Total Investments $ 158 $ 14,368 $ 2,244,966 $ 2,259,492
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
The tables below present 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 Year Ended December 31, 2023
($ in thousands) First-lien senior secured debt investments Second-lien senior secured debt investments Unsecured debt investments Preferred equity investments Common equity investments Total
Fair value, beginning of period $ 1,614,366 $ 453,762 $ 32,094 $ 58,678 $ 86,066 $ 2,244,966
Purchases of investments, net 238,950 (3) - 2,685 4,417 246,049
Payment-in-kind 20,313 4,202 3,847 5,218 139 33,719
Proceeds from investments, net (489,017) (15,750) (38) (113) (2) (504,920)
Net change in unrealized gain (loss) on investments 10,898 (1,278) 2,294 1,304 3,139 16,357
Net realized gain (loss) on investments (7,718) - (5) - - (7,723)
Net accretion/amortization of discount/premium on investments 7,240 889 69 169 - 8,367
Transfers between investment types (4,750) - - - 4,750 -
Transfers into (out of) Level 3(1)
(70) (27,557) - - - (27,627)
Fair value, end of period $ 1,390,212 $ 414,265 $ 38,261 $ 67,941 $ 98,509 $ 2,009,188
_____________________
(1)Transfers between levels, if any, are recognized at the beginning of the period in which the transfers occur. For the year ended December 31, 2023, transfers out of Level 3 were as a result of changes in the observability of significant inputs for certain portfolio companies.
As of and for the Year Ended December 31, 2022
($ in thousands) First-lien senior secured debt investments Second-lien senior secured debt investments Unsecured debt investments Preferred equity investments
Common equity investments
Total
Fair value, beginning of period $ 1,784,325 $ 484,500 $ 34,133 $ 49,313 $ 66,395 $ 2,418,666
Purchases of investments, net 147,763 9,037 1,545 11,828 8,751 178,924
Payment-in-kind 18,098 2,576 2,641 3,417 122 26,854
Proceeds from investments, net (325,280) (10,300) (1,823) (4,900) (4,200) (346,503)
Net change in unrealized gain (loss) on investments (17,600) (17,987) (3,562) (1,988) 14,861 (26,276)
Net realized gain (loss) on investments 61 - (295) 773 137 676
Net accretion/amortization of discount/premium on investments 6,999 861 80 235 - 8,175
Transfers into (out of) Level 3(1)
- (14,925) (625) - - (15,550)
Fair value, end of period $ 1,614,366 $ 453,762 $ 32,094 $ 58,678 $ 86,066 $ 2,244,966
_____________________
(1)Transfers between levels, if any, are recognized at the beginning of the period in which the transfers occur. For the year ended December 31, 2022, transfers out of Level 3 were as a result of changes in the observability of significant inputs for certain portfolio companies.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
As of and for the Year Ended December 31, 2021
($ in thousands) First-lien senior secured debt investments Second-lien senior secured debt investments Unsecured debt investments Preferred equity investments
Common equity investments
Total
Fair value, beginning of period $ 1,542,401 $ 472,245 $ 7,182 $ 2,954 $ 37,604 $ 2,062,386
Purchases of investments, net 968,697 210,291 26,027 43,403 16,135 1,264,553
Payment-in-kind 6,377 - 1,606 1,949 104 10,036
Proceeds from investments, net (757,784) (202,853) - - - (960,637)
Net change in unrealized gain (loss) on investments 11,888 7,048 (739) 917 12,610 31,724
Net realized gain (loss) on investments 396 (4,503) - - (58) (4,165)
Net accretion/amortization of discount/premium on investments 12,225 2,272 57 90 - 14,644
Transfers into (out of) Level 3(1)
125 - - - - 125
Fair value, end of period $ 1,784,325 $ 484,500 $ 34,133 $ 49,313 $ 66,395 $ 2,418,666
_____________________
(1)Transfers between levels, if any, are recognized at the beginning of the period in which the transfers occur. For the year ended December 31, 2021, transfers out of Level 3 were as a result of changes in the observability of significant inputs for certain portfolio companies.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
The table below presents information with respect to the net change in unrealized gains (losses) 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:
($ in thousands) Net change in unrealized gain (loss) for the Year Ended December 31, 2023 on Investments Held at December 31, 2023 Net change in unrealized gain (loss) for the Year Ended December 31, 2022 on Investments Held at December 31, 2022 Net change in unrealized gain (loss) for the Year Ended December 31, 2021 on Investments Held at December 31, 2021(1)
First-lien senior secured debt investments $ 3,078 $ (18,145) $ 10,121
Second-lien senior secured debt investments (5,290) (16,739) 2,624
Unsecured debt investments 2,294 (3,562) (740)
Preferred equity investments 1,304 (1,932) 918
Common equity investments 3,551 15,066 12,613
Total Investments $ 4,937 $ (25,312) $ 25,536
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
The tables below 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 December 31, 2023
($ in thousands) Fair Value Valuation Technique Unobservable Input Range (Weighted Average) Impact to Valuation from an Increase in Input
First-lien senior secured debt investments $ 1,249,284 Yield Analysis Market Yield 9.1% - 27.4% (12.7%)
Decrease
140,928 Recent Transaction Transaction Price 97.5% - 100.0% (98.8%)
Increase
Second-lien senior secured debt investments
$ 412,776 Yield Analysis Market Yield 11.4% - 39.5% (15.3%)
Decrease
1,489 Collateral Analysis Recovery Rate 13.3% - 13.3% (13.3%)
Increase
Unsecured debt investments
$ 37,334 Yield Analysis Market Yield 10.6% - 17.2% (11.8%)
Decrease
927 Market Approach EBITDA Multiple 11.8x - 11.8x (11.8x)
Increase
Preferred equity investments $ 66,255 Yield Analysis Market Yield 13.0% - 24.6% (16.0%)
Decrease
1,686 Recent Transaction Transaction Price 98.0% - 98.0% (98.0%)
Increase
Common equity investments $ 87,626 Market Approach EBITDA Multiple 3.3x - 20.3x (7.8x)
Increase
3,434 Market Approach Revenue Multiple 1.9x - 14.7x (10.6x)
Increase
5,561 Recent Transaction Transaction Price 100.0% - 100.0% (100.0%)
Increase
1,858 Yield Analysis Market Yield 7.9% - 7.9% (7.9%)
Decrease
30 Market Approach Gross Profit Multiple 9.9x - 9.9x (9.9x)
Increase
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
As of December 31, 2022
($ in thousands) Fair Value Valuation Technique Unobservable Input Range (Weighted Average) Impact to Valuation from an Increase in Input
First-lien senior secured debt investments $ 1,602,197 Yield Analysis Market Yield 9.1% - 42.0% (13.0%)
Decrease
8,789 Collateral Analysis Recovery Rate 51.0% - 51.0% (51.0%)
Increase
3,378 Recent Transaction Transaction Price 99.0% - 99.0% (99.0%)
Increase
Second-lien senior secured debt investments
$ 452,695 Yield Analysis Market Yield 12.6% - 21.0% (16.1%)
Decrease
1,068 Collateral Analysis Recovery Rate 9.5% - 9.5% (9.5%)
Increase
Unsecured debt investments $ 31,269 Yield Analysis Market Yield 10.4% - 20.2% (12.4%)
Decrease
825 Market Approach EBITDA Multiple 14.3x - 14.3x (14.3x)
Increase
Preferred equity investments
$ 58,361 Yield Analysis Market Yield 11.9% - 17.0% (13.9%)
Decrease
309 Recent Transaction Transaction Price 100.0% - 100.0% (100.0%)
Increase
9 Market Approach EBITDA Multiple 11.5x - 11.5x (11.5x)
Increase
Common equity investments
$ 81,345 Market Approach EBITDA Multiple 3.8x - 23.3x (8.2x)
Increase
3,420 Market Approach Revenue Multiple 1.8x - 16.6x (10.2x)
Increase
1,283 Recent Transaction Transaction Price 100.0% - 100.0% (100.0%)
Increase
18 Market Approach Gross Profit Multiple 8.6x - 8.6x (8.6x)
Increase
The fair value of the Company’s performing Level 3 debt investments is typically determined 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.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
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.
December 31, 2023 December 31, 2022
($ in thousands) Net Carrying Value(1)
Fair Value Net Carrying Value(2)
Fair Value
SPV Asset Facility I $ 58,715 $ 58,715 $ 374,084 $ 374,084
SPV Asset Facility II 120,008 120,008 172,397 172,397
CLO XIII 257,764 257,764 - -
2024 Notes 101,138 98,750 450,192 428,625
2026 Notes 343,473 360,500 - -
Total Debt $ 881,098 $ 895,737 $ 996,673 $ 975,106
______________
(1)The carrying value of the Company’s SPV Asset Facility I, SPV Asset Facility II, CLO XIII, 2024 Notes and 2026 Notes are presented net of deferred financing costs of $1.3 million, $5.0 million, $2.2 million, $(1.1) million and $6.5 million, respectively.
(2)The carrying value of the Company’s SPV Asset Facility I, SPV Asset Facility II and 2024 Notes are presented net of deferred financing costs of $0.1 million, $3.6 million and $(0.2) million, respectively.
The table below presents fair value measurements of the Company’s debt obligations as of the following periods:
($ in thousands) December 31, 2023 December 31, 2022
Level 1 $ - $ -
Level 2 459,250 428,625
Level 3 436,487 546,481
Total Debt $ 895,737 $ 975,106
Financial Instruments Not Carried at Fair Value
As of December 31, 2023 and December 31, 2022, 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.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
Note 7. Commitments and Contingencies
Portfolio Company Commitments
From time to time, the Company may enter into commitments to fund investments. As of the following periods, the Company had the below outstanding commitments to fund investments in current portfolio companies:
Portfolio Company Investment December 31, 2023 December 31, 2022
($ in thousands)
3ES Innovation Inc. (dba Aucerna) First lien senior secured revolving loan $ 237 $ 387
AAM Series 1.1 Rail and Domestic Intermodal Feeder, LLC LLC Interest 296 2,500
AAM Series 2.1 Aviation Feeder, LLC LLC Interest 17 2,424
ABB/Con-cise Optical Group LLC First lien senior secured revolving loan - 5
Adenza Group, Inc. First lien senior secured delayed draw term loan - 2,276
Adenza Group, Inc. First lien senior secured revolving loan - 3,496
Alera Group, Inc. First lien senior secured delayed draw term loan 7,133 -
Allied Benefit Systems Intermediate LLC First lien senior secured delayed draw term loan 464 -
AmSpec Group, Inc. (fka AmSpec Services Inc.) First lien senior secured revolving loan - 1,938
Anaplan, Inc. First lien senior secured revolving loan 972 972
Apex Service Partners, LLC First lien senior secured delayed draw term loan 150 -
Apex Service Partners, LLC First lien senior secured revolving loan 59 19
Apptio, Inc. First lien senior secured revolving loan - 196
Aramsco, Inc. First lien senior secured revolving loan - 835
Arctic Holdco, LLC (dba Novvia Group) First lien senior secured delayed draw term loan 1,354 -
Ascend Buyer, LLC (dba PPC Flexible Packaging) First lien senior secured revolving loan 52 79
Associations, Inc. First lien senior secured delayed draw term loan 3 300
Associations, Inc. First lien senior secured revolving loan 3,974 6,146
Bayshore Intermediate #2, L.P. (dba Boomi) First lien senior secured revolving loan 991 826
BCPE Osprey Buyer, Inc. (dba PartsSource) First lien senior secured delayed draw term loan 295 345
BCPE Osprey Buyer, Inc. (dba PartsSource) First lien senior secured revolving loan 36 52
BCTO BSI Buyer, Inc. (dba Buildertrend) First lien senior secured revolving loan 1,527 1,527
BP Veraison Buyer, LLC (dba Sun World) First lien senior secured delayed draw term loan - 6,081
BP Veraison Buyer, LLC (dba Sun World) First lien senior secured revolving loan 1,824 1,824
BradyIFS Holdings, LLC (fka Individual Foodservice Holdings, LLC) First lien senior secured delayed draw term loan 2,430 -
BradyIFS Holdings, LLC (fka Individual Foodservice Holdings, LLC) First lien senior secured revolving loan 2,476 4,529
Brightway Holdings, LLC First lien senior secured revolving loan 289 526
Catalis Intermediate, Inc. (fka GovBrands Intermediate, Inc.) First lien senior secured delayed draw term loan - 259
Catalis Intermediate, Inc. (fka GovBrands Intermediate, Inc.) First lien senior secured revolving loan 122 19
Delinea Buyer, Inc. (f/k/a Centrify) First lien senior secured revolving loan 1,345 -
CivicPlus, LLC First lien senior secured revolving loan 141 213
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
Portfolio Company Investment December 31, 2023 December 31, 2022
Crewline Buyer, Inc. (dba New Relic) First lien senior secured revolving loan 472 -
Denali BuyerCo, LLC (dba Summit Companies) First lien senior secured delayed draw term loan - 72
Denali BuyerCo, LLC (dba Summit Companies) First lien senior secured revolving loan 125 125
Diamondback Acquisition, Inc. (dba Sphera) First lien senior secured delayed draw term loan - 166
Douglas Products and Packaging Company LLC First lien senior secured revolving loan - 448
EET Buyer, Inc. (dba e-Emphasys) First lien senior secured revolving loan 73 91
Endries Acquisition, Inc. First lien senior secured delayed draw term loan 6,411 -
Entertainment Benefits Group, LLC First lien senior secured revolving loan 80 44
EOS U.S. Finco LLC First lien senior secured delayed draw term loan 1,244 -
Evolution BuyerCo, Inc. (dba SIAA) First lien senior secured delayed draw term loan 4,978 -
Evolution BuyerCo, Inc. (dba SIAA) First lien senior secured revolving loan 2,230 2,230
FARADAY BUYER, LLC (dba MacLean Power Systems) First lien senior secured delayed draw term loan 1,882 -
Finastra USA, Inc. First lien senior secured revolving loan 288 -
Forescout Technologies, Inc. First lien senior secured delayed draw term loan 6,825 6,825
Forescout Technologies, Inc. First lien senior secured revolving loan 700 700
Fortis Solutions Group, LLC First lien senior secured delayed draw term loan - 3
Fortis Solutions Group, LLC First lien senior secured revolving loan 85 78
Gainsight, Inc. First lien senior secured revolving loan 448 872
Galls, LLC First lien senior secured revolving loan 3,417 2,802
Gaylord Chemical Company, L.L.C. First lien senior secured revolving loan 2,609 2,609
Gerson Lehrman Group, Inc. First lien senior secured revolving loan 2,039 2,039
GI Ranger Intermediate, LLC (dba Rectangle Health) First lien senior secured revolving loan 29 66
Global Music Rights, LLC First lien senior secured revolving loan 83 83
H&F Opportunities LUX III S.À R.L (dba Checkmarx) First lien senior secured revolving loan 4,583 4,583
Hercules Borrower, LLC (dba The Vincit Group) First lien senior secured revolving loan 3,343 2,986
HGH Purchaser, Inc. (dba Horizon Services) First lien senior secured delayed draw term loan - 712
HGH Purchaser, Inc. (dba Horizon Services) First lien senior secured revolving loan 38 1,459
Hissho Sushi Merger Sub, LLC First lien senior secured revolving loan 70 56
Hometown Food Company First lien senior secured revolving loan - 376
Hyland Software, Inc. First lien senior secured revolving loan 85 -
Ideal Tridon Holdings, Inc. First lien senior secured revolving loan - 564
IG Investments Holdings, LLC (dba Insight Global) First lien senior secured revolving loan 723 434
Indigo Buyer, Inc. (dba Inovar Packaging Group) First lien senior secured delayed draw term loan - 250
Indigo Buyer, Inc. (dba Inovar Packaging Group) First lien senior secured revolving loan 60 83
Indikami Bidco, LLC (dba IntegriChain) First lien senior secured delayed draw term loan 377 -
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
Portfolio Company Investment December 31, 2023 December 31, 2022
Indikami Bidco, LLC (dba IntegriChain) First lien senior secured revolving loan 269 -
Integrity Marketing Acquisition, LLC First lien senior secured revolving loan 1,705 1,868
Integrity Marketing Acquisition, LLC First lien senior secured delayed draw term loan 6,857 -
Interoperability Bidco, Inc. (dba Lyniate) First lien senior secured revolving loan 654 326
Kaseya Inc. First lien senior secured delayed draw term loan 30 32
Kaseya Inc. First lien senior secured revolving loan 24 32
KPSKY Acquisition, Inc. (dba BluSky) First lien senior secured delayed draw term loan 58 -
KRIV Acquisition Inc. (dba Riveron) First lien senior secured delayed draw term loan 158 -
KRIV Acquisition Inc. (dba Riveron) First lien senior secured revolving loan 142 -
KWOL Acquisition Inc. (dba Worldwide Clinical Trials) First lien senior secured revolving loan 391 -
Lazer Spot Holdings, Inc. (f/k/a Lazer Spot GB Holdings, Inc.) First lien senior secured revolving loan - 7,542
Lignetics Investment Corp. First lien senior secured delayed draw term loan - 1,225
Lignetics Investment Corp. First lien senior secured revolving loan 245 588
Litera Bidco LLC First lien senior secured revolving loan 1,013 734
Mario Purchaser, LLC (dba Len the Plumber) First lien senior secured delayed draw term loan 149 195
Mario Purchaser, LLC (dba Len the Plumber) First lien senior secured revolving loan 39 55
MHE Intermediate Holdings, LLC (dba OnPoint Group) First lien senior secured revolving loan 1,786 1,536
Milan Laser Holdings LLC First lien senior secured revolving loan 2,837 1,961
MINDBODY, Inc. First lien senior secured revolving loan 1,071 1,071
Ministry Brands Holdings, LLC First lien senior secured delayed draw term loan - 226
Ministry Brands Holdings, LLC First lien senior secured revolving loan 32 34
National Dentex Labs LLC (fka Barracuda Dental LLC) First lien senior secured revolving loan 429 31
Natural Partners, LLC First lien senior secured revolving loan 68 68
Nelipak Holding Company First lien senior secured USD revolving loan 640 752
Nelipak Holding Company First lien senior secured EUR revolving loan 677 535
NMI Acquisitionco, Inc. (dba Network Merchants) First lien senior secured delayed draw term loan - 406
NMI Acquisitionco, Inc. (dba Network Merchants) First lien senior secured revolving loan 218 218
Norvax, LLC (dba GoHealth) First lien senior secured revolving loan 2,727 2,727
Notorious Topco, LLC (dba Beauty Industry Group) First lien senior secured delayed draw term loan - 1,408
Notorious Topco, LLC (dba Beauty Industry Group) First lien senior secured revolving loan 1,972 1,761
OB Hospitalist Group, Inc. First lien senior secured revolving loan 1,798 1,915
Ocala Bidco, Inc. First lien senior secured delayed draw term loan 4,499 4,499
Pacific BidCo Inc. First lien senior secured delayed draw term loan 191 191
Patriot Acquisition TopCo S.A.R.L (dba Corza Health, Inc.) First lien senior secured revolving loan 2,086 2,086
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
Portfolio Company Investment December 31, 2023 December 31, 2022
Peter C. Foy & Associates Insurance Services, LLC (dba PCF Insurance Services) First lien senior secured revolving loan 1,035 1,035
PetVet Care Centers, LLC First lien senior secured delayed draw term loan 1,993 -
PetVet Care Centers, LLC First lien senior secured revolving loan 2,092 -
Plasma Buyer LLC (dba PathGroup) First lien senior secured delayed draw term loan 176 177
Plasma Buyer LLC (dba PathGroup) First lien senior secured revolving loan 50 76
Pluralsight, LLC First lien senior secured revolving loan 289 647
Project Power Buyer, LLC (dba PEC-Veriforce) First lien senior secured revolving loan 563 563
QAD, Inc. First lien senior secured revolving loan 571 571
Quva Pharma, Inc. First lien senior secured revolving loan 1,182 615
Relativity ODA LLC First lien senior secured revolving loan 1,480 1,480
Sara Lee Frozen Bakery, LLC (fka KSLB Holdings, LLC) First lien senior secured revolving loan 653 220
Securonix, Inc. First lien senior secured revolving loan 153 153
Sensor Technology Topco, Inc. (dba Humanetics) First lien senior secured revolving loan 428 -
SimpliSafe Holding Corporation First lien senior secured delayed draw term loan 75 103
Smarsh Inc. First lien senior secured delayed draw term loan 95 96
Smarsh Inc. First lien senior secured revolving loan 8 48
Sonny's Enterprises, LLC First lien senior secured delayed draw term loan 573 -
Sonny's Enterprises, LLC First lien senior secured revolving loan 2,630 2,630
Swipe Acquisition Corporation (dba PLI) First lien senior secured delayed draw term loan 772 772
Swipe Acquisition Corporation (dba PLI) Letter of Credit 882 882
SWK BUYER, Inc. (dba Stonewall Kitchen) First lien senior secured delayed draw term loan - 175
SWK BUYER, Inc. (dba Stonewall Kitchen) First lien senior secured revolving loan 70 46
Tahoe Finco, LLC First lien senior secured revolving loan - 1,744
Tamarack Intermediate, L.L.C. (dba Verisk 3E) First lien senior secured delayed draw term loan 50 -
Tamarack Intermediate, L.L.C. (dba Verisk 3E) First lien senior secured revolving loan 112 92
Tempo Buyer Corp. (dba Global Claims Services) First lien senior secured delayed draw term loan - 198
Tempo Buyer Corp. (dba Global Claims Services) First lien senior secured revolving loan 67 91
The Better Being Co., LLC (fka Nutraceutical International Corporation) First lien senior secured revolving loan 941 -
The Shade Store, LLC First lien senior secured revolving loan 82 164
THG Acquisition, LLC (dba Hilb) First lien senior secured revolving loan 1,455 1,871
Thunder Purchaser, Inc. (dba Vector Solutions) First lien senior secured delayed draw term loan - 1,502
Thunder Purchaser, Inc. (dba Vector Solutions) First lien senior secured revolving loan 481 540
Troon Golf, L.L.C. First lien senior secured revolving loan 4,685 4,685
Ultimate Baked Goods Midco, LLC First lien senior secured revolving loan 2,000 1,475
Unified Women's Healthcare, LP First lien senior secured delayed draw term loan 6,000 33
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
Portfolio Company Investment December 31, 2023 December 31, 2022
Unified Women's Healthcare, LP First lien senior secured revolving loan 88 88
USRP Holdings, Inc. (dba U.S. Retirement and Benefits Partners) First lien senior secured revolving loan 183 183
Valence Surface Technologies LLC First lien senior secured revolving loan 12 12
Velocity HoldCo III Inc. (dba VelocityEHS) First lien senior secured revolving loan 322 294
Walker Edison Furniture Company LLC First lien senior secured delayed draw term loan 1,405 -
When I Work, Inc. First lien senior secured revolving loan 143 143
WU Holdco, Inc. (dba Weiman Products, LLC) First lien senior secured revolving loan 1,620 1,690
XRL 1 LLC (dba XOMA) First lien senior secured delayed draw term loan 150 -
Total Unfunded Portfolio Company Commitments $ 137,815 $ 127,646
As of December 31, 2023, the Company believed they had adequate financial resources to satisfy the unfunded portfolio company commitments.
Organizational and Offering Costs
The Adviser has incurred organization and offering costs on behalf of the Company in the amount of $12.4 million for the period from October 15, 2015 (Inception) to December 31, 2023, of which $12.4 million has been charged to the Company pursuant to the Investment Advisory Agreement. Under the Investment Advisory Agreement and Administration Agreement, the Adviser is entitled to receive up to 1.5% of gross offering proceeds raised in the Company’s continuous public offering until all organization and offering costs paid by the Adviser have been recovered.
Other Commitments and Contingencies
From time to time, the Company may become a party to certain legal proceedings incidental to the normal course of its business. As of December 31, 2023, management was not aware of any material pending or threatened litigation that would require accounting recognition or financial statement disclosure.
Note 8. Net Assets
Share Issuances
The Company currently has the authority to issue 450,000,000 common shares at $0.01 per share par value. Prior to its continuous public offering, the Company issued 100 shares of common stock to the Adviser and 277,788 shares of its common stock to certain individuals and entities affiliated with the Adviser in a private placement. The Company issued 151,364,239 shares of common stock in its continuous public offering prior to its termination on April 30, 2021.
The table below summarizes transactions with respect to shares of the Company’s common stock during the following periods:
For the Years Ended
December 31, 2023 December 31, 2022 December 31, 2021
($ in thousands, except share amounts) Shares
Amount
Shares
Amount
Shares
Amount
Shares/gross proceeds from the continuous public offering - $ - - $ - 8,050,298 $ 73,299
Reinvestment of distributions 5,367,227 48,104 4,759,464 41,973 4,647,395 41,615
Repurchased Shares (11,530,869) (103,659) (9,630,699) (84,622) (6,769,401) (60,806)
Total shares/gross proceeds (6,163,642) (55,555) (4,871,235) (42,649) 5,928,292 54,108
Sales load - - - - - (1,523)
Total shares/net proceeds (6,163,642) $ (55,555) (4,871,235) $ (42,649) 5,928,292 $ 52,585
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
Prior to the termination of the Company’s continuous public offering, in the event of a material decline in its net asset value per share, the Company’s Board reduced the offering price in order to establish a new net offering price per share. The Company will not sell shares at a net offering price below the net asset value per share unless the Company obtains the requisite approval from its shareholders. The changes to the Company’s offering price per share for the prior three fiscal years of the Company’s initial continuous public offering and associated approval and effective dates of such changes were as follows:
Approval Date Effective Date Gross Offering Price Per Share Net Offering Price Per Share
January 6, 2021 January 6, 2021 $ 9.37 $ 8.90
March 23, 2021 March 24, 2021 $ 9.42 $ 8.95
The Company determined not to file additional post-effective amendments to its registration statement and terminated its offering as of April 30, 2021.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
Subsequent to April 30, 2021, shares issued pursuant to the dividend reinvestment plan were issued as follows:
Date of Issuance Record Date Number of Shares Purchase Price
per Share
May 26, 2021 May 25, 2021 364,726 $ 8.93
June 30, 2021 June 29, 2021 450,718 $ 8.99
July 28, 2021 July 27, 2021 392,202 $ 8.95
August 25, 2021 August 24, 2021 389,897 $ 8.95
September 29, 2021 September 28, 2021 384,273 $ 9.00
October 27, 2021 October 26, 2021 387,954 $ 8.96
November 24, 2021 November 23, 2021 389,853 $ 8.95
December 29, 2021 December 28, 2021 387,939 $ 9.00
January 26, 2022 January 25, 2022 389,571 $ 8.98
February 23, 2022 February 22, 2022 390,759 $ 8.98
March 30, 2022 March 29, 2022 391,196 $ 8.88
April 27, 2022 April 26, 2022 392,301 $ 8.88
May 25, 2022 May 24, 2022 393,757 $ 8.87
June 29, 2022 June 28, 2022 395,352 $ 8.69
July 27, 2022 July 26, 2022 398,628 $ 8.66
August 31, 2022 August 30, 2022 396,093 $ 8.74
September 28, 2022 September 27, 2022 390,703 $ 8.77
October 26, 2022 October 25, 2022 391,492 $ 8.77
November 15, 2022 September 20, 2022 58,594 $ 8.77
November 30, 2022 November 29, 2022 390,290 $ 8.76
December 28, 2022 December 27, 2022 380,728 $ 8.86
February 1, 2023 January 31, 2023 379,272 $ 8.89
February 2, 2023 December 31, 2022 126,215 $ 8.89
March 1, 2023 February 28, 2023 380,932 $ 8.88
March 29, 2023 March 28, 2023 376,723 $ 8.90
April 26, 2023 April 25, 2023 377,165 $ 8.90
April 28, 2023 March 31, 2023 125,586 $ 8.90
May 31, 2023 May 30, 2023 380,161 $ 8.88
June 28, 2023 June 27, 2023 366,863 $ 8.96
July 26, 2023 July 25, 2023 365,479 $ 8.97
July 31, 2023 June 30, 2023 121,887 $ 8.97
August 30, 2023 August 29, 2023 366,982 $ 8.99
September 27, 2023 September 26, 2023 355,431 $ 9.08
November 1, 2023 October 31, 2023 428,157 $ 9.02
November 13, 2023 September 30, 2023 356,503 $ 9.00
November 29, 2023 November 28, 2023 432,272 $ 9.04
December 27, 2023 December 26, 2023 427,597 $ 9.03
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
Distributions
The Board has authorized and declared weekly distribution amounts per share of common stock through June 30, 2021, and monthly and/or quarterly distribution amounts per share of common stock in each case thereafter, payable monthly and/or quarterly in arrears. The following table presents cash distributions per share that were declared during the year ended December 31, 2023:
For the Year Ended December 31, 2023
Declaration Date Record Date Payment Date Dividend Distribution Per Share
Distribution Amount
($ in thousands, except per share amounts)
November 1, 2022 January 31, 2023 February 1, 2023 Monthly $ 0.050180 $ 7,352
November 1, 2022 February 28, 2023 March 1, 2023 Monthly 0.050180 7,377
November 1, 2022 March 28, 2023 March 29, 2023 Monthly 0.050180 7,396
February 21, 2023 March 31, 2023 April 28, 2023 Quarterly 0.016731 2,429
February 21, 2023 April 25, 2023 April 26, 2023 Monthly 0.050180 7,285
February 21, 2023 May 30, 2023 May 31, 2023 Monthly 0.050180 7,309
February 21, 2023 June 27, 2023 June 28, 2023 Monthly 0.050180 7,329
May 9, 2023 June 30, 2023 July 31, 2023 Quarterly 0.016731 2,383
May 9, 2023 July 25, 2023 July 26, 2023 Monthly 0.050180 7,146
May 9, 2023 August 29, 2023 August 30, 2023 Monthly 0.050180 7,170
May 9, 2023 September 26, 2023 September 27, 2023 Monthly 0.050180 7,188
September 11, 2023 September 30, 2023 November 13, 2023 Quarterly 0.050000 7,025
September 11, 2023 October 31, 2023 November 1, 2023 Monthly 0.060000 8,431
September 11, 2023 November 28, 2023 November 29, 2023 Monthly 0.060000 8,478
September 11, 2023 December 26, 2023 December 27, 2023 Monthly 0.060000 8,504
November 16, 2023 December 31, 2023 January 30, 2024 Quarterly 0.030000 4,210
Total $ 0.745082 $ 107,012
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
The following table presents cash distributions per share that were declared during the year ended December 31, 2022:
For the Year Ended December 31, 2022
Declaration Date Record Date Payment Date Dividend Distribution Per Share
Distribution Amount
($ in thousands, except per share amounts)
January 25, 2022 January 25, 2022 January 26, 2022 Monthly $ 0.050180 $ 7,596
January 25, 2022 February 22, 2022 February 23, 2022 Monthly 0.050180 7,616
January 25, 2022 March 29, 2022 March 30, 2022 Monthly 0.050180 7,635
February 23, 2022 April 26, 2022 April 27, 2022 Monthly 0.050180 7,568
February 23, 2022 May 24, 2022 May 25, 2022 Monthly 0.050180 7,588
February 23, 2022 June 28, 2022 June 29, 2022 Monthly 0.050180 7,607
May 3, 2022 July 26, 2022 July 27, 2022 Monthly 0.050180 7,479
May 3, 2022 August 30, 2022 August 31, 2022 Monthly 0.050180 7,499
August 2, 2022 September 30, 2022 November 15, 2022 Quarterly 0.007589 1,120
May 3, 2022 September 27, 2022 September 28, 2022 Monthly 0.050180 7,519
August 2, 2022 October 25, 2022 October 26, 2022 Monthly 0.050180 7,406
August 2, 2022 November 29, 2022 November 30, 2022 Monthly 0.050180 7,429
August 2, 2022 December 27, 2022 December 28, 2022 Monthly 0.050180 7,448
November 1, 2022 December 31, 2022 February 2, 2023 Quarterly 0.016731 2,451
Total $ 0.626480 $ 93,961
The following table presents cash distributions per share that were declared during the year ended December 31, 2021:
For the Year Ended December 31, 2021
Declaration Date Record Date Payment Date Dividend Distribution Per Share
Distribution Amount
($ in thousands, except per share amounts)
November 3, 2020 January 26, 2021 (1)
January 27, 2021 Monthly $ 0.050180 $ 6,776
November 3, 2020 February 23, 2021 (1)
February 24, 2021 Monthly 0.050180 6,895
November 3, 2020 March 30, 2021 (1)
March 31, 2021 Monthly 0.050180 8,763
February 23, 2021 April 27, 2021 (1)
April 28, 2021 Monthly 0.050180 7,036
February 23, 2021 May 25, 2021 (1)
May 26, 2021 Monthly 0.050180 7,089
February 23, 2021 June 29, 2021 (1)
June 30, 2021 Monthly 0.050180 8,884
May 5, 2021 July 27, 2021 July 28, 2021 Monthly 0.050180 7,612
May 5, 2021 August 24, 2021 August 25, 2021 Monthly 0.050180 7,631
May 5, 2021 September 28, 2021 September 29, 2021 Monthly 0.050180 7,650
August 3, 2021 October 26, 2021 October 27, 2021 Monthly 0.050180 7,604
August 3, 2021 November 23, 2021 November 24, 2021 Monthly 0.050180 7,623
August 3, 2021 December 28, 2021 December 29, 2021 Monthly 0.050180 7,649
Total $ 0.602160 $ 91,212
______________
(1)The Board authorized and declared weekly distribution amounts per share of common stock through June 30, 2021, which were paid monthly to shareholders as of the weekly record date.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
With respect to distributions, the Company has adopted an “opt-in” dividend reinvestment plan for common shareholders pursuant to which shareholders that have “opted-in” may have the full amount of any cash distribution reinvested in additional shares of the Company’s common stock based on the net offering price per share calculated as if the Company’s offering had not been terminated. As a result, in the event of a declared distribution, each shareholder that has not “opted-in” to the dividend reinvestment plan will have their dividends or distributions automatically received in cash rather than reinvested in additional shares of the Company’s common stock. Shareholders who receive distributions in the form of shares of common stock will be subject to the same U.S. federal, state and local tax consequences as if they received cash distributions.
The Company may fund its cash distributions to shareholders from any source of funds available to the Company, including but not limited to offering proceeds, net investment income from operations, capital gains proceeds from the sale of assets, dividends or other distributions paid to it on account of preferred and common equity investments in portfolio companies and expense support from the Adviser, which is subject to recoupment. In no event, however, will funds be advanced or borrowed for the purpose of distributions, if the amount of such distributions would exceed the Company’s accrued and received revenues for the previous four quarters, less paid and accrued operating expenses with respect to such revenues and costs.
Through December 31, 2023, pursuant to the Expense Support Agreement which was terminated by the Adviser on November 7, 2023, a portion of the Company’s distributions resulted from expense support from the Adviser, which is subject to repayment by the Company within three years from the date of payment. The purpose of this arrangement is to avoid distributions being characterized as a return of capital for U.S. federal income tax purposes. Shareholders should understand that any such distribution is not based on the Company’s investment performance, and can only be sustained if the Company achieves positive investment performance in future periods and/or the Adviser continues to provide expense support. Shareholders should also understand that the Company’s future repayments of expense support will reduce the distributions that they would otherwise receive. There can be no assurance that the Company will achieve the performance necessary to sustain these distributions, or be able to pay distributions at all.
Sources of distributions, other than net investment income and realized gains on a U.S. GAAP basis, include required adjustments to U.S. GAAP net investment income in the current period to determine taxable income available for distributions. The tables below reflect the sources of cash distributions on a U.S. GAAP basis that the Company has declared on its shares of common stock during the following periods:
Year Ended December 31, 2023
Source of Distribution Per Share Amount Percentage
($ in thousands, except per share amounts)
Net investment income $ 0.84 $ 120,432 112.5 %
Net realized gain on investments - - -
Distributions in excess of (undistributed) net investment income and realized gains (0.09) (13,420) (12.5)
Total $ 0.75 $ 107,012 100.0 %
Year Ended December 31, 2022
Source of Distribution Per Share Amount Percentage
($ in thousands, except per share amounts)
Net investment income $ 0.68 $ 101,473 108.0 %
Net realized gain (loss) on investments(1)
- 524 0.6
Distributions in excess of (undistributed) net investment income and realized gains (0.05) (8,036) (8.6)
Total $ 0.63 $ 93,961 100.0 %
______________
(1)The per share amounts round to less than $0.01 per share.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
Year Ended December 31, 2021
Source of Distribution Per Share Amount Percentage
($ in thousands, except per share amounts)
Net investment income $ 0.59 $ 89,655 98.3 %
Net realized gain (loss) on investments
- - -
Distributions in excess of net investment income
0.01 1,557 1.7
Total $ 0.60 $ 91,212 100.0 %
Share Repurchases
In the third quarter of 2017, the Company began offering, and on a quarterly basis, intends to continue offering, to repurchase shares of the Company’s common stock on such terms as may be determined by the Board in its complete discretion. The Board has complete discretion to determine whether the Company will engage in any share repurchase, and if so, the terms of such repurchase. At the discretion of the Board, the Company may use cash on hand, cash available from borrowings, and cash from the sale of investments as of the end of the applicable period to repurchase shares.
All shares purchased by the Company pursuant to the terms of each offer to repurchase will be retired and thereafter will be authorized and unissued shares.
Any periodic repurchase offers are subject in part to the Company’s available cash and compliance with the BDC and RIC qualification and diversification rules promulgated under the 1940 Act and the Code, respectively. While the Company intends to continue to conduct quarterly tender offers as described above, the Company is not required to do so and may suspend or terminate the share repurchase program at any time.
Offer Date Tender Offer Expiration Tender Offer Purchase Price per Share Shares Repurchased
March 10, 2021 April 6, 2021 $ 18,995,153 $ 8.95 1,945,553
June 1, 2021 June 28, 2021 $ 19,621,539 $ 8.99 2,182,596
August 30, 2021 September 27, 2021 $ 11,911,588 $ 9.00 1,323,510
November 29, 2021 December 27, 2021 $ 11,859,682 $ 9.00 1,317,742
March 1, 2022 March 28, 2022 $ 15,362,486 $ 8.88 1,730,010
May 27, 2022 June 27, 2022 $ 25,733,988 $ 8.69 2,961,334
August 29, 2022 September 26, 2022 $ 23,067,664 $ 8.77 2,630,292
November 28, 2022 December 23, 2022 $ 20,458,302 $ 8.86 2,309,063
February 28, 2023 March 27, 2023 $ 23,098,513 $ 8.90 2,595,339
May 26, 2023 June 26, 2023 $ 36,020,345 $ 8.96 4,020,194
August 28, 2023 September 25, 2023 $ 28,143,907 $ 9.08 3,099,549
November 27, 2023 December 22, 2023 $ 16,396,554 $ 9.03 1,815,787
Note 9. Earnings Per Share
The table below sets forth the computation of basic and diluted earnings per common share for the following periods:
Years Ended December 31,
($ in thousands, except per share amounts) 2023 2022 2021
Increase (decrease) in net assets resulting from operations $ 129,793 $ 73,180 $ 112,014
Weighted average shares of common stock outstanding-basic and diluted 144,043,515 150,071,461 151,511,486
Earnings per common share-basic and diluted $ 0.90 $ 0.49 $ 0.74
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
Note 10. Income Taxes
Taxable income generally differs from increase in net assets resulting from operations due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized gains or losses, as unrealized gains or losses are generally not included in taxable income until they are realized.
The Company makes certain adjustments to the classification of net assets as a result of permanent book-to-tax differences, which include differences in the book and tax basis of certain assets and liabilities, and nondeductible federal taxes or losses among other items. To the extent these differences are permanent, they are charged or credited to additional paid in capital, or distributable earnings (losses), as appropriate.
The following reconciles the increase in net assets resulting from operations for the fiscal years ended December 31, 2023, 2022 and 2021:
Years Ended December 31,
($ in thousands) 2023(1)
2022 2021
Increase in net assets resulting from operations $ 129,793 $ 73,180 $ 112,014
Adjustments:
Net unrealized (gain) loss on investments (17,089) 28,817 (24,503)
Other income (loss) for tax purposes, not book (12,230) (8,146) (792)
Deferred organization costs 265 (17) 68
Other book-tax differences 2,821 1,957 1,527
Realized gain/loss differences 7,957 866 6,884
Taxable Income $ 111,517 $ 96,657 $ 95,198
______________
(1)Tax information for the fiscal year ended December 31, 2023 are estimates and are not final until the Company files its tax returns.
For the year ended December 31, 2023
Total distributions declared of $107.0 million resulted in a taxable dividend amount of $109.5 million that consisted of approximately $107.3 million of ordinary income and $2.2 million of long-term capital gains for the tax year ending December 31, 2023. For the calendar year ended December 31, 2023, on a tax basis, the Company had $10.4 million of undistributed ordinary income, $0.3 million of undistributed long term capital gains, as well as $2.2 million of net unrealized gains/(losses) on investments and $(4.1) million of other temporary differences. For the year ended December 31, 2023, 88.7% of distributed ordinary income qualified as interest related dividend which is exempt from U.S. withholding tax applicable to non-U.S. shareholders.
During the year ended December 31, 2023, the Company increased the total distributable earnings (losses) and decreased additional paid in capital. These permanent differences of $2.8 million principally related to U.S. federal income tax, including excise taxes.
As of December 31, 2023, the net estimated unrealized gain for U.S. federal income tax purposes was $7.6 million based on a tax cost basis of $2.0 billion. As of December 31, 2023, the estimated aggregate gross unrealized loss for U.S. federal income tax purposes was $43.8 million and the estimated aggregate gross unrealized gain for U.S. federal income tax purposes was $51.4 million.
For the year ended December 31, 2022
Total distributions declared of $94.0 million resulted in a tax dividend amount of $91.5 million that consisted of approximately $91.1 million of ordinary income and $0.4 million of long-term capital gains for the tax year ending December 31, 2022. For the calendar year ended December 31, 2022, on a tax basis, the Company had $7.0 million of undistributed ordinary income, $2.2 million of undistributed long term capital gains, as well as $(28.4) million of net unrealized gains/(losses) on investments and $2.3 million of other temporary differences. For the year ended December 31, 2022, 89.2% of distributed ordinary income qualified as interest related dividend which is exempt from U.S. withholding tax applicable to non-U.S. shareholders.
During the year ended December 31, 2022, the Company increased the total distributable earnings (losses) and decreased additional paid in capital. These permanent differences of $2.0 million principally related to U.S. federal income tax, including excise taxes.
As of December 31, 2022, the net estimated unrealized loss of U.S. federal income tax purposes was $21.5 million based on a tax cost basis of $2.3 billion. As of December 31, 2022, the estimated aggregate gross unrealized loss for U.S. federal income tax purposes was $61.9 million and the estimated aggregate gross unrealized gain for U.S. federal income tax purposes was $40.4 million.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
For the year ended December 31, 2021
Total distributions declared of $91.2 million consisted of approximately $83.9 million of ordinary income and $7.3 million of long-term capital gains. For the calendar year ended December 31, 2021, on a tax basis, the Company had $4.1 million of undistributed ordinary income, $(2.9) million of net unrealized gains/(losses) on investments and $0.8 million of other temporary differences. For the year ended December 31, 2021, 88.2% of distributed ordinary income qualified as interest related dividend which is exempt from U.S. withholding tax applicable to non-U.S. shareholders.
During the year ended December 31, 2021, the Company increased the total distributable earnings (losses) and decreased additional paid in capital. These permanent differences of $1.5 million principally related to U.S. federal income tax, including excise taxes.
As of December 31, 2021, the net estimated unrealized gain of U.S. federal income tax purposes was $0.1 million based on a tax cost basis of $2.4 billion. As of December 31, 2021, the estimated aggregate gross unrealized loss for U.S. federal income tax purposes was $32.5 million and the estimated aggregate gross unrealized gain for U.S. federal income tax purposes was $32.6 million.
Taxable Subsidiaries
Certain of the Company’s consolidated subsidiaries are subject to U.S. federal and state corporate-level income taxes. For the year ended December 31, 2023 the Company recorded a current tax benefit of approximately $0.1 million, and for the years ended December 31, 2022 and 2021 the Company recorded a current tax expense of $1.7 million and $1.0 million, respectively, for taxable subsidiaries.
The Company recorded net deferred tax liabilities of $9.1 million, $5.3 million and $4.0 million, as of December 31, 2023, 2022 and 2021 for taxable subsidiaries, respectively, which is significantly related to U.S. GAAP to tax outside basis differences in the taxable subsidiaries' investment in certain partnership interests.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
Note 11. Financial Highlights
The below are the financial highlights for a common share outstanding during the following periods:
For the Years Ended December 31,
($ in thousands, except share and per share amounts) 2023 2022 2021 2020 2019
Per share data:
Net asset value, at beginning of period $ 8.85 $ 8.98 $ 8.84 $ 9.03 $ 8.97
Results of operations:
Net investment income(1)
0.84 0.68 0.59 0.64 0.64
Net realized and unrealized gain (loss)(4)
0.06 (0.18) 0.15 (0.17) 0.09
Net increase (decrease) in net assets resulting from operations 0.90 0.50 0.74 0.47 0.73
Shareholder distributions:
Distributions from net investment income(2)
(0.84) (0.68) (0.59) (0.64) (0.66)
Distributions from net realized gains(2)
- - - (7)
- (7)
(0.02)
Undistributed (distributions in excess of) net investment income and net realized gains(2)
0.09 0.05 (0.01) (0.02) -
Net increase (decrease) in net assets from shareholders' distributions (0.75) (0.63) (0.60) (0.66) (0.68)
Capital share transactions:
Issuance of common stock above net asset value - - - (7)
- (7)
0.01
Net increase in net assets resulting from capital share transactions - - - - 0.01
Net asset value, at end of period $ 9.00 $ 8.85 $ 8.98 $ 8.84 $ 9.03
Total Return(5)(6)
10.4 % 5.7 % 7.9 % 5.7 % 7.1 %
Ratios
Ratio of net expenses to average net assets(3)
11.9 % 8.9 % 8.0 % 5.3 % 7.6 %
Ratio of net investment income to average net assets
9.4 % 7.7 % 6.7 % 7.5 % 7.1 %
Portfolio turnover rate 11.8 % 7.7 % 43.6 % 15.3 % 19.4 %
Supplemental Data
Weighted-average shares outstanding 144,043,515 150,071,461 151,511,486 129,370,000 76,023,995
Shares outstanding, end of period 140,341,642 146,505,284 151,376,519 145,448,227 106,034,790
Net assets, end of period $ 1,263,487 $ 1,296,261 $ 1,359,691 $ 1,286,304 $ 957,279
______________
(1)The per share data was derived using the weighted average shares during the period.
(2)The per share data was derived using actual shares outstanding at the date of the relevant transaction.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
(3)Operating expenses may vary in the future based on the amount of capital raised, the Adviser’s election to continue expense support, and other unpredictable variables. For the year ended December 31, 2023 and 2022, the total operating expenses to average net assets were 11.0% and 8.9%, respectively, prior to expense support provided by the Adviser, expense recoupment paid to the Adviser, and management and incentive fee waivers, if any. Past performance is not a guarantee of future results.
(4)The amount shown at this caption is the balancing amount derived from the other figures in the schedule. The amount shown at this caption for a share outstanding throughout the year may not agree with the change in the aggregate gains and losses in portfolio securities for the year because of the timing of sales of the Company’s shares in relation to fluctuating market values for the portfolio.
(5)Total return is calculated as the change in net asset value (“NAV”) per share (assuming dividends and distributions, if any, are reinvested in accordance with the Company’s dividend reinvestment plan), if any, divided by the beginning NAV per share (which for the purposes of this calculation is equal to the net offering price in effect at that time).
(6)Total return is not annualized. An investment in the Company is subject to a maximum upfront sales load of 5% of the offering price, which will reduce the amount of capital available for investment. Total return displayed is net of all fees, including all operating expenses such as management fees, incentive fees, general and administrative expenses, organization and amortized offering expenses, and interest expenses.
(7)The per share amount rounds to less than $0.01 per share.
Blue Owl Capital Corporation II
Notes to Consolidated Financial Statements - Continued
Note 12. Subsequent Events
On February 21, 2024, the Board declared a monthly distribution for April 2024. The regular monthly cash distribution, in the gross amount of $0.06 per share, will be payable monthly to shareholders of record as of the monthly record date.
On February 21, 2024, the Board declared a special distribution of $0.03 per share, payable on or before May 15, 2024 to shareholders of record as of March 31, 2024.
On January 12, 2024, the Company entered into a Senior Secured Credit Agreement (the “Revolving Credit Facility”). The parties to the Revolving Credit Facility include the Company, as Borrower, the lenders and issuing banks from time to time parties thereto (each a “Revolving Credit Facility Lender” and collectively, the “Revolving Credit Facility Lenders”) and Sumitomo Mitsui Banking Corporation, as Administrative Agent.
The Revolving Credit Facility is guaranteed by certain domestic subsidiaries of the Company in existence as of the closing date of the Revolving Credit Facility, and will be guaranteed by certain domestic subsidiaries of the Company that are formed or acquired by the Company in the future (collectively, the “Revolving Credit Facility Guarantors”). Proceeds of the Revolving Credit Facility may be used for general corporate purposes, including the funding of portfolio investments.
The Revolving Credit Facility provides for a term loan in an initial amount of $25,000,000 and a revolving credit facility in an initial amount of up to $225,000,000, subject to availability under the borrowing base, which is based on the Company’s portfolio investments and other outstanding indebtedness. Maximum capacity under the Revolving Credit Facility may be increased to $1,000,000,000 through the exercise by the Company of an uncommitted accordion feature through which existing and new lenders may, at their option, agree to provide additional financing. The Revolving Credit Facility is secured by a perfected first-priority interest in substantially all of the portfolio investments held by the Company and each Revolving Credit Facility Guarantor, subject to certain exceptions, and includes a $40,000,000 limit for swingline loans. The amount available for borrowing under the Revolving Credit Facility is reduced by any standby letters of credit issued through the Revolving Credit Facility.
The availability period with respect to the revolving credit facility under the Revolving Credit Facility will terminate on January 12, 2028 and the Revolving Credit Facility will mature on January 12, 2029.
The Company may borrow amounts in U.S. dollars or certain other permitted currencies. Amounts drawn under the Revolving Credit Facility in U.S. dollars will bear interest at either term SOFR plus a margin, or the prime rate plus a margin. The Company will also pay a fee of 0.375% on average daily undrawn amounts under the Revolving Credit.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
There are not and have not been any disagreements between the Company and its accountant on any matter of accounting principles, practices, or financial statement disclosure.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
(a)Evaluation of Disclosure Controls and Procedures
In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended, we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K and determined that our disclosure controls and procedures are effective as of the end of the period covered by the Annual Report on Form 10-K.
(b)Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 COSO Framework). Based on our evaluation under the framework in Internal Control-Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2023.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
This annual report does not include an attestation report of the company’s registered public accounting firm pursuant to the rules of the Securities and Exchange Commission.
(c)Changes in Internal Controls Over Financial Reporting
There have been no changes in our internal controls over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
Rule 10b5-1 Trading Plans
During the fiscal quarter ended December 31, 2023, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
Our Board of Directors
Our Board consists of six members. The Board is divided into three classes, with the members of each class serving staggered, three-year terms. The terms of our Class I directors will expire at the 2026 annual meeting of shareholders; the terms of our Class II directors will expire at the 2024 annual meeting of shareholders; and the terms of our Class III directors will expire at the 2025 annual meeting of shareholders.
Messrs. Kaye and Woolridge serve as Class I directors (with terms expiring in 2026). Mr. Temple and Ms. Weiler serve as Class II directors (with terms expiring in 2024). Messrs. D’Alelio and Packer serve as Class III directors (with terms expiring in 2025).
Biographical Information
Brief biographies of the members of the Board are set forth below. Also included below following each biography is a brief discussion of the specific experience, qualifications, attributes or skills that led our Board to conclude that the applicable director should serve on our Board at this time. In addition, set forth further below is a biography of each of our executive officers who is not a director.
Name, Address, and Age(1)
Position(s) Held with the Company Principal
Occupation(s)
During the Past
5 Years Term of Office
and Length of
Time Served(2)
Number of
Companies in
Fund
Complex(3)
Overseen by
Director
Other Directorships
Held by Director or
Nominee for Director
Independent Directors
Eric Kaye, 60 Director Founder of Kayezen, LLC (formerly ARQ^EX Fitness Systems) Class I Director since 2016; Term expires in 2026 7 OBDC
OBDC III
OCIC
OTF OTF II
OTIC
Victor Woolridge, 67 Director Managing Director of Barings Real Estate Advisers LLC Class I Director since 2021; Term expires in 2026 7 OBDC
OBDC III
OCIC
OTF
OTF II
OTIC
Christopher M. Temple, 56 Director President of DelTex Capital LLC Class II Director since 2016; Term expires in 2024 7 OBDC
OBDC III
OCIC
OTF
OTF II
OTIC
Plains All American Pipeline Company
HMT, LLC
Melissa Weiler, 59 Director Private Investor
Managing Director and member of the Management Committee of Crescent Capital Group (through 2020) Class II Director since 2021, Term expires in 2024 7 OBDC
OBDC III
OCIC
OTF
OTF II
OTIC
Jefferies Financial Group Inc.
Edward D'Alelio, 71 Chairman of the Board, Director Retired Class III Director since 2016; Term expires in 2025 7 OBDC
OBDC III
OCIC
OTF
OTF II
OTIC
Blackstone/GSO Long Short Credit Fund
Blackstone/GSO Sen. Flt Rate Fund
Interested Directors(4)
Craig W. Packer, 57 Chief Executive Officer, President and Director Co-Founder of Blue Owl Capital Partners
Co-President of Blue Owl
Co-Chief Investment Officer of each of the Blue Owl Credit Advisers
President and Chief Executive Officer of the Blue Owl BDCs (5)
Co-Head of Leveraged Finance in the Americas, Goldman Sachs Class III Director since 2016; Term expires in 2025 7 OBDC
OBDC III
OCIC
OTF
OTF II
OTIC
Blue Owl Capital Inc. (“Blue Owl”)
______________
(1)The address for each director is c/o Blue Owl Capital Corporation II, 399 Park Avenue, 37th Floor, New York, New York 10022.
(2)Directors serve for three-year terms until the next annual meeting of shareholders and until their successors are duly elected and qualified.
(3)The term “Fund Complex” refers to the Blue Owl BDCs. Directors and officers who oversee the funds in the Fund Complex are noted.
(4)“Interested person” of the Company as defined in Section 2(a)(19) of the Investment Company Act of 1940 (the “1940 Act”). Mr. Packer is an “interested person” because of his affiliation with the Adviser.
(5)On January 12, 2024, OBDC III’s board of directors appointed Logan Nicholson to serve as OBDC III’s President. The role of President was previously held by Craig Packer, who continues to serve as OBDC III’s Chief Executive Officer and as a director.
Independent Directors
Mr. Kaye is the founder of Kayezen, LLC, a physical therapy and fitness equipment design company. Prior to founding Kayezen, Mr. Kaye served as a Vice Chairman and Managing Director of UBS Investment Bank, and a member of the division’s Global Operating and U.S. Executive Committees, from June 2001 to May 2012. For the majority of Mr. Kaye’s tenure with UBS, he was a Managing Director and led the firm’s Exclusive Sales and Divestitures Group, where he focused on advising middle-market companies. Prior to joining UBS, Mr. Kaye has served as Global Co-Head of Mergers & Acquisitions for Robertson Stephens, an investment banking firm, from February 1998 to June 2001. Mr. Kaye joined Robertson Stephens from PaineWebber where he served as Executive Director and head of the firm’s Technology Mergers & Acquisitions team. Since March 2016 and November 2016 he has served on the boards of directors of OBDC and the Company, respectively, since August 2018 he has served on the board of directors of OTF, since February 2020 and September 2020 he has served on the boards of directors of OBDC III and OCIC, respectively, and since August 2021 and November 2021 he has served on the boards of directors of OTIC and OTF II, respectively. Mr. Kaye holds a B.A. from Union College and an M.B.A. from Columbia Business School.
We believe Mr. Kaye’s management positions and experiences in the middle-market provide the Board with valuable insight.
Mr. Temple has served as President of DelTex Capital LLC (a private investment firm) since its founding in 2010. Mr. Temple has served as an Operating Executive/Senior Advisor for Tailwind Capital, LLC, a New York based middle-market private equity firm managing over $3.5 billion of committed capital, since June 2011. Prior to forming DelTex Capital, Mr. Temple served as President of Vulcan Capital, the investment arm of Vulcan Inc., from May 2009 until December 2009 and as Vice President of Vulcan Capital from September 2008 to May 2009. Prior to joining Vulcan in September 2008, Mr. Temple served as a managing director at Tailwind Capital, LLC from May to August 2008. Prior to joining Tailwind, Mr. Temple was a managing director at Friend Skoler & Co., Inc. from May 2005 to May 2008. From April 1996 to December 2004, Mr. Temple was a managing director at Thayer Capital Partners. Mr. Temple started his career in the audit and tax departments of KPMG’s Houston office and was a licensed CPA from 1989 to 1993. Mr. Temple has served on the board of directors of GP Holdings, L.P., the general partner of Plains All American Pipeline Company since November 2016 and has served as a member of the Plains GP Holdings, L.P. compensation committee since November 2020 and a director of Plains All American Pipeline, L.P.’s (“PAA”) general partner from May 2009 to November 2016. He was a member of the PAA Audit Committee from 2009 to 2016. Prior public board service includes board and audit committee service for Clear Channel Outdoor Holdings from April 2011 to May 2016 and on the board and audit committee of Charter Communications Inc. from November 2009 through January 2011. In addition to public boards, as part of his role with Tailwind, Mr. Temple has served on private boards including Brawler Industries and National HME, and currently serves on the boards of Loenbro, Inc. Since March 2016 and November 2016 he has served on the boards of directors of OBDC and the Company, respectively, since August 2018 he has served on the board of directors of OTF, since February 2020 and September 2020 he has served on the boards of directors of OBDC III and OCIC, respectively, and since August 2021 and November 2021 he has served on the boards of directors of OTIC and OTF II, respectively. Mr. Temple holds a B.B.A., magna cum laude, from the University of Texas and an M.B.A. from Harvard.
We believe Mr. Temple’s broad investment management background, together with his financial and accounting knowledge, brings important and valuable skills to the Board.
Mr. D’Alelio was formerly a Managing Director and CIO for Fixed Income at Putnam Investments, Boston, where he served from 1989 until he retired in 2002. While at Putnam, he served on the Investment Policy Committee, which was responsible for oversight of all investments. He also sat on various Committees including attribution and portfolio performance. Prior to joining Putnam, he was a portfolio manager at Keystone Investments and prior to that, he was an Investment Analyst at The Hartford Ins. Co. Since 2002, Mr. D’Alelio has served as an Executive in Residence at the University of Mass., Boston-School of Management. He is also chair of the investment committee of the UMass Foundation. He serves on the Advisory Committees of Ceres Farms. Since September 2009, Mr. D’Alelio has served as director of Vermont Farmstead Cheese. Since January 2008 he has served on the board of Blackstone/GSO Long Short Credit Fund & Blackstone/GSO Sen. Flt Rate Fund. Since March 2016 and November 2016, he has served on the boards of directors of OBDC and the Company, respectively, since August 2018 he has served on the board of directors of OTF, since February 2020 and September 2020 he has served on the boards of directors of OBDC III and OCIC, respectively, and since August 2021 and November 2021 he has served on the boards of directors of OTIC and OTF II, respectively. Mr. D’Alelio’s previous corporate board assignments include Archibald Candy, Doane Pet Care, Trump Entertainment Resorts and UMass Memorial Hospital. Mr. D’Alelio is a graduate of the Univ. of Mass Boston and has an M.B.A. from Boston University.
We believe Mr. D’Alelio’s numerous management positions and broad experiences in the financial services sector provide him with skills and valuable insight in handling complex financial transactions and issues, all of which make him well qualified to serve on the Board.
Ms. Weiler was formerly a Managing Director and a member of the Management Committee of Crescent Capital Group, a Los Angeles-based asset management firm (“Crescent”), where she served from January 2011 until she retired in December 2020. During that time, Ms. Weiler was responsible for the oversight of Crescent’s CLO management business from July 2017 through December 2020, and managed several multi-strategy credit funds from January 2011 through June 2017. During her tenure at Crescent, she also served on the Risk Management and Diversity & Inclusion committees. From October 1995 to December 2010, Ms. Weiler was a Managing Director at Trust Company of the West, a Los Angeles-based asset management firm (“TCW”). At TCW, she managed
several multi-strategy credit funds from July 2006 to December 2010, and served as lead portfolio manager for TCW’s high-yield bond strategy from October 1995 to June 2006. Ms. Weiler has served on the board of directors of Jefferies Financial Group Inc. since June 2021. She is a member of the Cedars-Sinai Board of Governors and is actively involved in 100 Women in Finance. Ms. Weiler holds a B.S. in Economics from the Wharton School at the University of Pennsylvania. Ms. Weiler joined the boards of directors of the Company, OBDC, OBDC III, OTF and OCIC in February 2021 and the boards of directors of OTIC and OTF II in August 2021 and November 2021, respectively.
We believe Ms. Weiler’s broad investment management background, together with her financial and accounting knowledge, brings important and valuable skills to the Board of Directors.
Mr. Woolridge was formerly a Managing Director of Barings Real Estate Advisers, LLC (“Barings”), the real estate investment unit of Barings LLC, a global asset management firm. Mr. Woolridge most recently served as Head of the U.S. Capital Markets for Equity Real Estate Funds at Barings. Mr. Woolridge previously served as Vice President and Managing Director and Head of Debt Capital Markets - Equities of Cornerstone Real Estate Advisers LLC (prior to its rebranding under the Barings name) (“Cornerstone”) from January 2013 to September 2016 and as Vice President Special Servicing from January 2010 to January 2013. Prior to joining Cornerstone, Mr. Woolridge served as a Managing Director of Babson Capital Management LLC (“Babson”) from January 2000 to January 2010. Prior to joining Babson, Mr. Woolridge served as Director of Loan Originations and Assistant Regional Director of MassMutual Financial Group from September 1982 to January 2000. Since 2009, Mr. Woolridge has served on the University of Massachusetts (UMass) Board of Trustees and has previously served as Chairman of the Board and as Chairman of the Board’s Committee on Administration and Finance. Mr. Woolridge has also served on the UMass Foundation’s investment committee and as trustee for University of Massachusetts Global since 2021. Since 2022, Mr. Woolridge has served as a director of Trumbull Property Income Fund and Fallon Health. Mr. Woolridge previously served on the Board of Trustees of Baystate Health from 2005 to 2016, which included service as Chairman of the Board and on the Board’s compensation, finance, governance and strategy committees. Mr. Woolridge holds a B.S. from the University of Massachusetts at Amherst and is a Certified Commercial Investment Member. Mr. Woolridge joined the boards of directors of the Company, OBDC, OBDC III, OTF, OCIC, OTIC and OTF II in November 2021.
We believe Mr. Woolridge’s numerous management positions and broad experiences in the asset management and financial services sectors provide him with skills and valuable insight in handling complex financial transactions and issues, all of which makes him well qualified to serve on the Board.
Interested Director
Mr. Packer is the Chief Executive Officer of each of the Blue Owl BDCs, the President of each of the Blue Owl BDCs except OBDC III and is a member of the Diversified Lending Investment Committee and the Technology Lending Investment Committee of the Blue Owl Credit Advisers. Additionally, Mr. Packer is a Co-President and a director of Blue Owl. Mr. Packer is also the Head of the Credit platform and serves as a Co-Chief Investment Officer for each of the Blue Owl Credit Advisers. Previously, Mr. Packer co-founded Owl Rock Capital Partners (“Owl Rock”), the predecessor firm to Blue Owl’s Credit platform. In addition, Mr. Packer has served on the boards of directors of OBDC and the Company since March 2016 and November 2016, respectively, on the board of directors of OTF since August 2018, on the boards of directors of OBDC III and OCIC since February 2020 and September 2020, respectively, and since June 2021 and November 2021 he has served on the boards of directors of OTIC and OTF II, respectively. Mr. Packer also served as President of OBDC III since its inception until January 2024. Prior to co-founding Owl Rock, Mr. Packer was a Partner and Co-Head of Leveraged Finance in the Americas at Goldman, Sachs & Co. Mr. Packer joined Goldman, Sachs & Co. as a Managing Director and Head of High Yield Capital Markets in 2006 and was named partner in 2008. Prior to joining Goldman Sachs & Co., Mr. Packer was the Global Head of High Yield Capital Markets at Credit Suisse First Boston, and before that he worked at Donaldson, Lufkin & Jenrette Mr. Packer serves as Treasurer of the Board of Trustees of Greenwich Academy, and Co-Chair of the Honorary Board of Kids in Crisis, a nonprofit organization that serves children in Connecticut. Mr. Packer is also on the Advisory Board for the Mount Sinai Department of Rehabilitation and Human Performance. In addition, Mr. Packer is on the Foundation Board of Trustees for the McIntire School of Commerce, University of Virginia and is a member for the Board of Trustees of the University of Virginia Athletics Foundation. Mr. Packer earned an M.B.A. from Harvard Business School and a B.S. from the University of Virginia.
We believe Mr. Packer’s depth of experience in corporate finance, capital markets and financial services gives the Board valuable industry-specific knowledge and expertise on these and other matters, and his history with us and the Adviser provide an important skillset and knowledge base to the Board.
Meetings and Attendance
The Board met twenty times during 2023 and acted on various occasions by written consent. All directors then in office attended at least 75% of the aggregate number of meetings of the Board held during the period for which they were a director and of the respective committees on which they served during 2023.
Board Attendance at the Annual Meeting
Our policy is to encourage our directors to attend each annual meeting; however, such attendance is not required at this time.
Board Leadership Structure and Role in Risk Oversight
Overall responsibility for our oversight rests with the Board. We have entered into the Investment Advisory Agreement pursuant to which the Adviser will manage the Company on a day-to-day basis. The Board is responsible for overseeing the Adviser and our other service providers in accordance with the provisions of the 1940 Act, applicable provisions of state and other laws and our charter. The Board is composed of six members, five of whom are directors who are not “interested persons” of the Company or the Adviser as defined in the 1940 Act. The Board meets in person at regularly scheduled quarterly meetings each year. In addition, the Board may hold special in-person or telephonic meetings or informal conference calls to discuss specific matters that may arise or require action between regular meetings. As described below, the Board has established a Nominating and Corporate Governance Committee and an Audit Committee, and may establish ad hoc committees or working groups from time to time, to assist the Board in fulfilling its oversight responsibilities. The Board has appointed Edward D’Alelio, an independent director, to serve in the role of Chairman of the Board. The Chairman’s role is to preside at all meetings of the Board and to act as a liaison with the Adviser, counsel and other directors generally between meetings. The Chairman serves as a key point person for dealings between management and the directors. The Chairman also may perform such other functions as may be delegated by the Board from time to time. The Board reviews matters related to its leadership structure annually. The Board has determined that the Board’s leadership structure is appropriate because it allows the Board to exercise informed and independent judgment over the matters under its purview and it allocates areas of responsibility among committees of directors and the full Board in a manner that enhances effective oversight.
We are subject to a number of risks, including investment, compliance, operational and valuation risks, among others. Risk oversight forms part of the Board’s general oversight of the Company and is addressed as part of various Board and committee activities. Day-to-day risk management functions are subsumed within the responsibilities of the Adviser and other service providers (depending on the nature of the risk), which carry out our investment management and business affairs. The Adviser and other service providers employ a variety of processes, procedures and controls to identify various events or circumstances that give rise to risks, to lessen the probability of their occurrence and to mitigate the effects of such events or circumstances if they do occur. Each of the Adviser and other service providers has their own independent interest in risk management, and their policies and methods of risk management will depend on their functions and business models. The Board recognizes that it is not possible to identify all of the risks that may affect the Company or to develop processes and controls to eliminate or mitigate their occurrence or effects. As part of its regular oversight of the Company, the Board interacts with and reviews reports from, among others, the Adviser, our chief compliance officer, our independent registered public accounting firm and counsel, as appropriate, regarding risks faced by the Company and applicable risk controls. The Board may, at any time and in its discretion, change the manner in which it conducts risk oversight.
Communications with Directors
Shareholders and other interested parties may contact any member (or all members) of the Board by mail. To communicate with the Board, any individual directors or any group or committee of directors, correspondence should be addressed to the Board or any such individual directors or group or committee of directors by either name or title. All such correspondence should be sent to Blue Owl Capital Corporation II, 399 Park Avenue, 37th Floor, New York, New York 10022, Attention: Secretary.
Committees of the Board
The Board has an Audit Committee and a Nominating and Corporate Governance Committee and may form additional committees in the future. A brief description of each committee is included in this Form 10-K and the charters of the Audit and Nominating and Corporate Governance can be accessed on the Company’s website at www.blueowlproducts.com.
As of the date of this Form 10-K, the members of each of the Board’s committees are as follows (the names of the respective committee chairperson are bolded):
Audit Committee Nominating and Corporate Governance Committee
Edward D'Alelio Edward D'Alelio
Christopher M. Temple Christopher M. Temple
Eric Kaye Eric Kaye
Melissa Weiler Melissa Weiler
Victor Woolridge Victor Woolridge
Audit Committee Governance, Responsibilities and Meetings
In accordance with its written charter adopted by the Board, the Audit Committee:
(a)assists the Board’s oversight of the integrity of our financial statements, the independent registered public accounting firm’s qualifications and independence, our compliance with legal and regulatory requirements and the performance of our independent registered public accounting firm;
(b)prepares an Audit Committee report, if required by the SEC, to be included in our annual proxy statement;
(c)oversees the scope of the annual audit of our financial statements, the quality and objectivity of our financial statements, accounting and financial reporting policies and internal controls;
(d)determines the selection, appointment, retention and termination of our independent registered public accounting firm, as well as approving the compensation thereof;
(e)pre-approves all audit and non-audit services provided to us and certain other persons by such independent registered public accounting firm; and
(f)acts as a liaison between our independent registered public accounting firm and the Board.
The Audit Committee had nine formal meetings in 2023.
Our Board has determined that Christopher M. Temple qualifies as an “audit committee financial expert” as defined in Item 407 of Regulation S-K under the Exchange Act.
Each member of the Audit Committee simultaneously serves on the audit committees of three or more public companies, and the Board has determined that each member’s simultaneous service on the audit committees of other public companies does not impair such member’s ability to effectively serve on the Audit Committee.
Nominating and Corporate Governance Committee Governance, Responsibilities and Meetings
In accordance with its written charter adopted by the Board, the Nominating and Corporate Governance Committee:
(a)recommends to the Board persons to be nominated by the Board for election at the Company’s meetings of our shareholders, special or annual, if any, or to fill any vacancy on the Board that may arise between shareholder meetings;
(b)makes recommendations with regard to the tenure of the directors;
(c)is responsible for overseeing an annual evaluation of the Board and its committee structure to determine whether the structure is operating effectively; and
(d)recommends to the Board the compensation to be paid to the independent directors of the Board.
The Nominating and Corporate Governance Committee will consider for nomination to the Board candidates submitted by our shareholders or from other sources it deems appropriate.
The Nominating and Corporate Governance Committee had two formal meetings in 2023.
Director Nominations
Nomination for election as a director may be made by, or at the direction of, the Nominating and Corporate Governance Committee or by shareholders in compliance with the procedures set forth in our bylaws.
Shareholder proposals or director nominations to be presented at the annual meeting of shareholders, other than shareholder proposals submitted pursuant to the SEC’s Rule 14a-8, must be submitted in accordance with the advance notice procedures and other requirements set forth in our bylaws. These requirements are separate from the requirements discussed above to have the shareholder nomination or other proposal included in our proxy statement and form of proxy/voting instruction card pursuant to the SEC’s rules.
Our bylaws require that the proposal or recommendation for nomination must be delivered to, or mailed and received at, the principal executive offices of the Company not earlier than the 150th day prior to the one year anniversary of the date the Company’s proxy statement for the preceding year’s annual meeting, or later than the 120th day prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting. If the date of the annual meeting has changed by more than 30 days from the first anniversary of the date of the preceding year’s annual meeting, shareholder proposals or director nominations must be so received not earlier than the 150th day prior to the date of such annual meeting and not later than the 120th day prior to the date of such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made.
In evaluating director nominees, the Nominating and Corporate Governance Committee considers, among others, the following factors:
•whether the individual possesses high standards of character and integrity, relevant experience, a willingness to ask hard questions and the ability to work well with others;
•whether the individual is free of conflicts of interest that would violate applicable law or regulation or interfere with the proper performance of the responsibilities of a director;
•whether the individual is willing and able to devote sufficient time to the affairs of the Company and be diligent in fulfilling the responsibilities of a director and Board committee member;
•whether the individual has the capacity and desire to represent the balanced, best interests of the shareholder as a whole and not a special interest group or constituency; and
•whether the individual possesses the skills, experiences (such as current business experience or other such current involvement in public service, academia or scientific communities), particular areas of expertise, particular backgrounds, and other characteristics that will help ensure the effectiveness of the Board and Board committees.
The Nominating and Corporate Governance Committee’s goal is to assemble a board that brings to the Company a variety of perspectives and skills derived from high-quality business and professional experience.
Other than the foregoing, there are no stated minimum criteria for director nominees, although the Nominating and Corporate Governance Committee may also consider other factors as they may deem are in the best interests of the Company and its shareholders. The Board also believes it appropriate for certain key members of our management to participate as members of the Board.
The Nominating and Corporate Governance Committee identifies nominees by first evaluating the current members of the Board willing to continue in service. Current members of the Board with skills and experience that are relevant to our business and who are willing to continue in service are considered for re-nomination. If any member of the Board does not wish to continue in service or if the Nominating and Corporate Governance Committee decides not to re-nominate a member for re-election, the Nominating and Corporate Governance Committee identify the desired skills and experience of a new nominee in light of the criteria above. The members of the Board are polled for suggestions as to individuals meeting the aforementioned criteria. Research may also be performed to identify qualified individuals. To date, we have not engaged third parties to identify or evaluate or assist in identifying potential nominees, although we reserve the right in the future to retain a third-party search firm, if necessary.
The Board has not adopted a formal policy with regard to the consideration of diversity in identifying director nominees. In determining whether to recommend a director nominee, the Nominating and Corporate Governance Committee considers and discusses diversity, among other factors, with a view toward the needs of the Board as a whole. The Board generally conceptualizes diversity expansively to include, without limitation, concepts such as race, gender, national origin, differences of viewpoint, professional experience, education, skill and other qualities that contribute to the Board, when identifying and recommending director nominees. The Board believes that the inclusion of diversity as one of many factors considered in selecting director nominees is consistent with the Board’s goal of creating a Board that best serves the needs of the Company and the interests of its shareholders.
Section 16(a) Beneficial Ownership Reporting Compliance
Pursuant to Section 16(a) of the Exchange Act, the Company’s directors and executive officers, and any persons holding more than 10% of its shares, are required to report their beneficial ownership and any changes therein to the SEC and the Company. Specific due dates for those reports have been established, and the Company is required to report herein any failure to file such reports by those due dates. Based on the Company’s review of Forms 3, 4, and 5 filed by such persons and information provided by the Company’s directors and officers, the Company believes that during the fiscal year ended December 31, 2023, all Section 16(a) filing requirements applicable to such persons were timely filed.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct which applies to our executive officers, including our principal executive officer and principal financial officer, as well as every officer, director and employee of the Company. Our Code of Business Conduct and Ethics can be accessed on our website at www.blueowlproducts.com.
There have been no material changes to our corporate code of ethics or material waivers of the code that apply to our Chief Executive Officer or Chief Financial Officer. If we make any substantive amendment to, or grant a waiver from, a provision of our Code of Business Conduct and Ethics, we will promptly disclose the nature of the amendment or waiver on our website at www.blueowlproducts.com or file a Form 8-K with the Securities and Exchange Commission.
Information about Executive Officers Who Are Not Directors
The following sets forth certain information regarding the executive officers of the Company who are not directors of the Company.
Name Age Position Officer Since
Karen Hager 51 Chief Compliance Officer 2018
Bryan Cole 39 Chief Operating Officer 2017
Neena Reddy 46 Vice President and Secretary 2019
Jonathan Lamm 49 Chief Financial Officer 2021
Matthew Swatt 35 Co-Chief Accounting Officer, Co-Treasurer and Co-Controller 2021
Shari Withem 41 Co-Chief Accounting Officer, Co-Treasurer and Co-Controller 2021
Jennifer McMillon 46 Co-Chief Accounting Officer, Co-Treasurer and Co-Controller 2022
The address for each of our executive officers is c/o Blue Owl Capital Corporation II, 399 Park Avenue, 37th Floor, New York, New York 10022.
Ms. Hager is a member of Blue Owl’s Operating Committee and also serves as the Chief Compliance Officer of Blue Owl and each of the Blue Owl Credit Advisers and the Blue Owl BDCs. Prior to joining Owl Rock, the predecessor firm to Blue Owl’s Credit platform in March 2018, Ms. Hager was Chief Compliance Officer at Abbott Capital Management. Previous to Abbott, Ms. Hager worked as SVP, Director of Global Compliance and Chief Compliance Officer at The Permal Group, and as Director of Compliance at Dominick & Dominick Advisors LLC. Prior to joining Dominick & Dominick Advisors LLC, Ms. Hager was a Senior Securities Compliance Examiner/Staff Accountant at the US Securities and Exchange Commission. Ms. Hager received a B.S. in Accounting from Brooklyn College of the City University of New York.
Mr. Cole is the Chief Financial Officer and Chief Operating Officer of each of OCIC and OTIC, the Chief Operating Officer of each of the Company and OBDC III, and is the Chief Accounting Officer and Co-Controller of each of OBDC, OTF and OTF II. Mr. Cole is also a Managing Director of Blue Owl. Prior to joining Owl Rock, the predecessor firm to Blue Owl’s Credit platform, in January 2016, Mr. Cole was Assistant Controller of Business Development Corporation of America, a non-traded business development company, where he was responsible for overseeing the finance, accounting, financial reporting, operations and internal controls functions. Preceding that role, Mr. Cole worked within the Financial Services-Alternative Investments practice of PwC where he specialized in financial reporting, fair valuation of illiquid investments and structured products, internal controls and other technical accounting matters pertaining to alternative investment advisors, hedge funds, business development companies and private equity funds. Mr. Cole received a B.S. in Accounting from Fordham University and is a licensed Certified Public Accountant in New York.
Ms. Reddy is a Vice President and Secretary of each of the Blue Owl BDCs and Chief Legal Officer of each of the Blue Owl Credit Advisers. Ms. Reddy also serves as the General Counsel, Chief Legal Officer and Secretary of Blue Owl, and a member of the Blue Owl’s Executive and Operating Committees . Prior to joining Owl Rock, the predecessor firm to Blue Owls’s Credit platform, Ms. Reddy was associate general counsel at Goldman, Sachs & Co LLC, from 2010 to April 2019 and was dedicated to Goldman Sachs Asset Management L.P. (“GSAM”), where she was responsible for GSAM managed direct alternative products, including private credit. Prior to GSAM, Ms. Reddy practiced as a corporate attorney at Boies Schiller & Flexner LLP and at Debevoise & Plimpton LLP. Prior to becoming an attorney, Ms. Reddy was a financial analyst in the private wealth division at Goldman, Sachs & Co. Ms. Reddy received a J.D. from New York University School of Law and a B.A. in English, magna cum laude, from Georgetown University.
Mr. Lamm is Chief Operating Officer and Chief Financial Officer of each of OBDC, OTF and OTF II, Chief Financial Officer of each of the Company and OBDC III and Vice President of each of OCIC and OTIC. Mr. Lamm is also a Managing Director of Blue Owl. Prior to joining Owl Rock, the predecessor firm to Blue Owl’s Credit platform, in April 2021, Mr. Lamm served as the Chief Financial Officer and Treasurer of Goldman Sachs BDC, Inc. (“GSBD”), a business development company traded on the New York Stock Exchange. Mr. Lamm was responsible for building and overseeing GSBD’s finance, treasury, accounting and operations functions from April 2013 through March 2021, including during its initial public offering in March 2015. During his time at Goldman Sachs, Mr. Lamm also served as Chief Financial Officer and Treasurer of Goldman Sachs Private Middle Market Credit LLC, Goldman Sachs Private Middle Market Credit II LLC and Goldman Sachs Middle Market Lending Corp. prior to the completion of its merger with GSBD in October 2020. Throughout his twenty-two years at Goldman Sachs, Mr. Lamm held various positions. From 2013 to 2021, Mr. Lamm served as Managing Director, Chief Operating Officer and Chief Financial Officer at GSAM Credit Alternatives. From 2007 to 2013, Mr. Lamm served as Vice President, Chief Operating Officer and Chief Financial Officer at GSAM Credit Alternatives. From 2005 to 2007, Mr. Lamm served as Vice President in the Financial Reporting group and, from 1999 to 2005, he served as a Product Controller. Prior to joining Goldman Sachs, Mr. Lamm worked in public accounting at Deloitte & Touche.
Mr. Swatt is the Co-Chief Accounting Officer of the Company, OBDC III, OCIC and OTIC, and is the Co-Treasurer and Co-Controller of each of the Blue Owl BDCs. Mr. Swatt is also a Managing Director of Blue Owl. Prior to joining Owl Rock, the predecessor firm to Blue Owl’s Credit platform in May 2016, Mr. Swatt was an Assistant Controller at Guggenheim Partners in their Private Credit group, where he was responsible for the finance, accounting, and financial reporting functions. Preceding that role, Mr. Swatt worked within the Financial Services--Alternative Investments practice of PwC where he specialized in financial reporting, fair valuation of illiquid investments and structured products, internal controls and other technical accounting matters pertaining to alternative investment advisors, hedge funds, business development companies and private equity funds. Mr. Swatt received a B.S. in Accounting from the University of Maryland and is a licensed Certified Public Accountant in New York.
Ms. Withem is the Co-Chief Accounting Officer of the Company, OBDC III, OCIC and OTIC, and is the Co-Treasurer and Co-Controller of each of the Blue Owl BDCs. Ms. Withem is also a Managing Director of Blue Owl. Prior to joining Owl Rock, the predecessor firm to Blue Owl’s Credit platform, in March 2018, Ms. Withem was Vice President of Sixth Street Specialty Lending, Inc. , a business development company traded on the NYSE , where she was responsible for accounting, financial reporting, treasury and internal controls functions. Preceding that role, Ms. Withem worked for MCG Capital Corporation, a business development company formerly traded on the Nasdaq and Deloitte in the Audit and Assurance Practice. Ms. Withem received a B.S. in Accounting from James Madison University and is a licensed Certified Public Accountant in Virginia.
Ms. McMillon is the Co-Chief Accounting officer of the Company, OBDC III, OCIC and OTIC and is the Co-Treasurer and Co-Controller of each of the Blue Owl BDCs. Ms. McMillon is also a Managing Director of Blue Owl. Before joining Blue Owl, Ms. McMillon led the accounting department of Tiptree Inc., a national capital holding company, as the Vice President of Technical
Accounting and External Reporting from 2017-2022. She was responsible for financial reporting, valuation/purchase accounting, and numerous internal control functions. From 2013-2017, Ms. McMillon served as the Regional Accounting & Reporting Director, Americas of Koch Industries/Georgia Pacific, from 2009-2013 she served as an Accounting Manager at Oaktree Capital and Centerbridge Partners, and prior to that Ms. McMillon worked in public accounting for nearly ten years, spending most of this tenure at PricewaterhouseCoopers. Ms. McMillon earned her B.S. in Accounting from Florida State University and is a licensed Certified Public Accountant in New York.
Portfolio Managers
The management of our investment portfolio is the responsibility of the Adviser and the Adviser’s Diversified Lending Investment Committee. We consider these individuals to be our portfolio managers. The Investment Team, is led by Douglas I. Ostrover, Marc S. Lipschultz and Craig W. Packer and is supported by certain members of the Adviser's senior executive team and Blue Owl’s Credit platform’s investment committees. Blue Owl’s Credit platform has four investment committees each of which focuses on a specific investment strategy (Diversified Lending, Technology Lending, First Lien Lending and Opportunistic Lending). Douglas I. Ostrover, Marc S. Lipschultz, Craig W. Packer and Alexis Maged sit on each of Blue Owl’s credit platforms investment committees. In addition to Messers. Ostrover, Lipschultz, Packer and Maged, the Diversified Lending Investment Committee is comprised of Jeff Walwyn, Patrick Linneman, Meenal Mehta and Logan Nicholson. The Investment Team, under the Diversified Lending Investment Committee’s supervision, sources investment opportunities, conducts research, performs due diligence on potential investments, structures our investments and will monitor our portfolio companies on an ongoing basis. The Diversified Lending Investment Committee meets regularly to consider our investments, direct our strategic initiatives and supervise the actions taken by the Adviser on our behalf. In addition, the Diversified Lending Investment Committee reviews and determines whether to make prospective investments (including approving parameters or guidelines pursuant to which investments in broadly syndicated loans may be made) and monitors the performance of the investment portfolio. Each investment opportunity requires the approval of a majority of the Diversified Lending Investment Committee. Follow-on investments in existing portfolio companies may require the Diversified Lending Investment Committee’s approval beyond that obtained when the initial investment in the portfolio company was made. In addition, temporary investments, such as those in cash equivalents, U.S. government securities and other high quality debt investments that mature in one year or less, may require approval by the Diversified Lending Investment Committee. The compensation packages of certain Diversified Lending Investment Committee members from the Adviser include various combinations of discretionary bonuses and variable incentive compensation based primarily on performance for services provided and may include shares of Blue Owl.
None of the Adviser’s investment professionals receive any direct compensation from us in connection with the management of our portfolio. Certain members of the Diversified Lending Investment Committee, through their financial interests in the Adviser, are entitled to a portion of the profits earned by the Adviser, which includes any fees payable to the Adviser under the terms of the Investment Advisory Agreement, less expenses incurred by the Adviser in performing its services under the Investment Advisory Agreement.
The Investment Team performs a similar role for OBDC, OBDC III and OCIC, and certain members of the Investment Team also perform a similar role for OTF, OTF II and OTIC, from which the Adviser and its affiliates may receive incentive fees. See “ITEM 1. BUSINESS - Affiliated Transactions” for a description of the Blue Owl Credit Advisers’ allocation policy governing allocations of investments among us and other investment vehicles with similar or overlapping strategies, as well as a description of certain other relationships between us and the Adviser. See “ITEM 1A. RISK FACTORS - Our Adviser or its affiliates may have incentives to favor their respective other accounts and clients and/or Blue Owl over us, which may result in conflicts of interest that could be harmful to us.” for a discussion of potential conflicts of interests.
The members of the Diversified Lending Investment Committee function as portfolio managers with the most significant responsibility for the day-to-day management of our portfolio. Information regarding the Diversified Lending Investment Committee, is as follows:
Name Year of Birth
Douglas I. Ostrover 1962
Marc S. Lipschultz 1969
Craig W. Packer 1966
Alexis Maged 1965
Jeff Walwyn 1979
Logan Nicholson 1980
Meenal Mehta 1975
Patrick Linnemann 1983
In addition to managing our investments, as of December 31, 2023, our portfolio managers, also managed investments on behalf of the following entities:
Name Entity Investment Focus Gross Assets
($ in millions)
Blue Owl Capital Corporation Business development company U.S. middle-market lending $ 13,511.4
Blue Owl Capital Corporation III Business development company U.S. middle-market lending $ 3,761.1
Blue Owl Credit Income Corp. Business development company U.S. middle-market lending $ 17,259.0
In addition, as of December 31, 2023, Douglas I. Ostrover, Marc S. Lipschultz, Craig W. Packer and Alexis Maged also managed investments on behalf of the following entities:
Name Entity Investment Focus Gross Assets
($ in millions)
Blue Owl Technology Finance Corp. Business development company U.S. middle-market technology lending $ 6,652.2
Blue Owl Technology Finance Corp. II Business development company U.S. middle-market technology lending $ 3,913.8
Blue Owl Technology Income Corp. Business development company U.S. middle-market technology lending $ 3,327.4
As of December 31, 2023, Douglas I. Ostrover, Marc S. Lipschultz, Craig W. Packer and Alexis Maged also managed private funds (the “Blue Owl Private Credit Funds” and together with the Blue Owl BDCs, the “Blue Owl Credit Clients”) with a total of approximately $8.8 billion in gross assets.
The management and incentive fees payable by the Credit Clients are based on the gross assets or net assets and performance, respectively, of each Credit Client.
Biographical information regarding the members of the Diversified Lending Investment Committee, who is not a director or executive officer of the Company is as follows:
Douglas I. Ostrover
Mr. Ostrover serves as Co-Chief Executive Officer of Blue Owl, a member of the Blue Owl’s Executive Committee and the chairman of Blue Owl’s board of directors. Mr. Ostrover is also the Co-Chief Executive Officer and serves as a Co-Chief Investment Officer of each of the Blue Owl Credit Advisers. Mr. Ostrover is also a member of the Diversified Lending Investment Committee and the Technology Lending Investment Committee of the Blue Owl Credit Advisers. Previously, Mr. Ostrover co-founded Owl Rock, the predecessor firm to Blue Owl’s Credit platform. Mr. Ostrover served on the boards of directors of OBDC and the Company from 2016-2021, on the board of directors of OTF from 2018-2021, and on the boards of directors of OBDC III and OCIC from 2020-2021. Prior to co-founding Owl Rock, Mr. Ostrover was one of the founders of GSO Capital Partners (GSO), Blackstone’s alternative credit platform, and a Senior Managing Director at Blackstone until June 2015. Prior to co-founding GSO in 2005, Mr. Ostrover was a Managing Director and Chairman of the Leveraged Finance Group of Credit Suisse First Boston (CSFB). Prior to his role as Chairman, Mr. Ostrover was Global Co-Head of CSFB's Leveraged Finance Group, during which time he was responsible for all of CSFB’s origination, distribution and trading activities relating to high yield securities, leveraged loans, high yield credit derivatives and distressed securities. Mr. Ostrover joined CSFB in November 2000 when CSFB acquired Donaldson, Lufkin & Jenrette (“DLJ”), where he was a Managing Director in charge of High Yield and Distressed Sales, Trading and Research. Mr. Ostrover had been a member of DLJ’s high yield team since he joined the firm in 1992. Mr. Ostrover is actively involved in non-profit organizations including serving on the Board of Directors of the Michael J. Fox Foundation, the Mount Sinai Health System, and the Leadership Council for Memorial Sloan Kettering. Mr. Ostrover also serves on the investment committee of the Brunswick School. Mr. Ostrover received an M.B.A. from New York University Stern School of Business and a B.A. in Economics from the University of Pennsylvania.
Marc S. Lipschultz
Mr. Lipschultz is Co-Chief Executive Officer of Blue Owl, a member of the firm’s Executive Committee and a member of the firm’s board of directors. Mr. Lipschultz also serves as Co-Chief Investment Officer for each of the Blue Owl Credit Advisers. Previously, Mr. Lipschultz co-founded Owl Rock, the predecessor firm to Blue Owl’s Credit platform. Prior to co-founding Owl Rock, Mr. Lipschultz spent more than two decades at KKR, serving on the firm’s Management Committee and as the Global Head of Energy and Infrastructure. Mr. Lipschultz has a wide range of experience in alternative investments, including leadership roles in private equity, private credit and real assets. Prior to joining KKR, Mr. Lipschultz was with Goldman, Sachs & Co., where he focused
on mergers and acquisitions and principal investment activities. Mr. Lipschultz serves on the board of the Hess Corporation and is actively involved in a variety of nonprofit organizations, serving as a board member of the American Enterprise Institute for Public Policy Research, Michael J. Fox Foundation, Mount Sinai Health System, Riverdale Country School, Stanford University Board of Trustees. Mr. Lipschultz received an M.B.A. with high distinction, Baker Scholar, from Harvard Business School and an A.B. with honors and distinction, Phi Beta Kappa, from Stanford University.
Alexis Maged
Mr. Maged is Chief Credit Officer of Blue Owl’s Credit platform, a member of the Diversified Lending Investment Committee and the Technology Lending Investment Committee of each of the Blue Owl Credit Advisers and the Vice President of each of the Blue Owl BDCs. Mr. Maged is also a Managing Director of Blue Owl. Prior to joining Owl Rock, the predecessor firm to Blue Owl’s Credit platform, in January 2016, Mr. Maged was Chief Financial Officer of Barkbox, Inc., a New York-based provider of pet-themed products and technology from September 2014 to November 2015. Prior to that, Mr. Maged was a Managing Director with Goldman Sachs & Co. from 2007 until 2014. At Goldman Sachs & Co., Mr. Maged held several leadership positions, including Chief Operating Officer of the investment bank’s Global Credit Finance businesses, Co-Chair of the Credit Markets Capital Committee and a member of the Firmwide Capital Committee. Prior to assuming that role in 2011, Mr. Maged served as Chief Underwriting Officer for the Americas and oversaw the U.S. Bank Debt Portfolio Group and US Loan Negotiation Group. From mid-2007 to the end of 2008, Mr. Maged was Head of Bridge Finance Capital Markets in the Americas Financing Group’s Leveraged Finance Group, where he coordinated the firm’s High Yield Bridge Lending and Syndication business. Prior to joining Goldman, Sachs & Co, Mr. Maged was Head of the Bridge Finance Group at Credit Suisse and also worked in the Loan Capital Markets Group at Donaldson, Lufkin and Jenrette (“DLJ”). Upon DLJ’s merger with Credit Suisse in 2000, Mr. Maged joined Credit Suisse’s Syndicated Loan Group and, in 2003, founded its Bridge Finance Group. Earlier in his career, Mr. Maged was a member of the West Coast Sponsor Coverage Group at Citigroup and the Derivatives Group at Republic National Bank, as well as a founding member of the Loan Syndication Group at Swiss Bank Corporation. Mr. Maged received an M.B.A. from New York University Stern School of Business and a B.A. from Vassar College.
Jeff Walwyn
Mr. Walwyn is a Managing Director of Blue Owl, serves as the Head of Underwriting nontechnology for each of the Blue Owl Credit Advisers and serves as a member of the Adviser’s Diversified Lending Investment Committee. Prior to joining Owl Rock, the predecessor firm to Blue Owl’s Credit platform, in 2017, Mr. Walwyn was a Managing Director with Guggenheim Partners from 2015 until 2017. Upon Apollo Global Management’s acquisition of Gulf Stream Asset management in 2011, Mr. Walwyn joined Apollo and was a Principal until 2014. Prior to its acquisition by Apollo, Mr. Walwyn was a Vice President at Gulf Stream Asset Management where he started in 2006. Earlier in his career, Mr. Walwyn worked in Investment Banking with JPMorgan. Mr. Walwyn received an M.B.A. from Duke University’s Fuqua School of Business and a B.A. from Cornell University and is a Chartered Financial Analyst.
Logan Nicholson
Mr. Nicholson is a Managing Director of Blue Owl, a member of the Direct Lending Investment Team, and a member of the Diversified Lending Investment Committee. Mr. Nicholson is also President of OBDC III and Portfolio Manager for certain funds in Blue Owl’s Diversified Lending strategy, including the Company, OBDC, OBDC III and OCIC. Prior to joining Blue Owl in 2023, Mr. Nicholson was a Co-Founder and Partner at Brinley Partners, a startup private credit asset manager, from 2021 to 2023. Previously, Mr. Nicholson was at Goldman Sachs & Co. (“Goldman”) from 2003 to 2021, where he was most recently a Managing Director and Head of U.S. Leveraged Finance Capital Markets. During his time at Goldman, he was responsible for structuring, risk management and distribution of capital commitments for both Leveraged Loans and High Yield bonds, and he was also appointed as a member of the LSTA Board of Directors. Additionally, Mr. Nicholson spent 2021 in a leadership role at healthcare firm Humana Inc., where he was Senior Vice President of Corporate Development and responsible for all M&A activity. Mr. Nicholson received a B.S. in Systems Engineering with a double major in Economics from the University of Virginia.
Meenal Mehta
Ms. Mehta is a Managing Director of Blue Owl, a member of the Adviser’s Investment Team and a member of the Adviser’s Diversified Lending Investment Committee. Ms. Mehta is also a Co-Head of Underwriting for the Adviser’s Investment Team. Before joining Blue Owl, Ms. Mehta was a Managing Director at Antares Capital, a direct lender to middle market firms based in New York. Prior to that, Ms. Mehta was a Vice President at GE Capital. Ms. Mehta began her career as a Manager at L&T Finance Limited, Mumbai India in the Treasury Group. Ms. Mehta received a MS in Management Studies with a specialization in Finance from NMIMS, Mumbai University, an MBA from Goizueta Business School, Emory University and a BS in Commerce and Economics from Sydenham College, Mumbai University.
Patrick Linneman
Mr. Linnemann is a Managing Director of Blue Owl, a member of the Adviser’s Investment Team and, a member of the Adviser’s Diversified Lending Investment Committee. Mr. Linnemann is also a Portfolio Manager for certain funds in Blue Owl’s Diversified Lending strategy, including Blue Owl Diversified Lending Fund. Before joining Owl Rock, the predecessor firm to Blue Owl’s Credit platform, Mr. Linnemann was a Vice President at Angel Island Capital, the credit investment platform of Golden Gate Capital, from 2015 to 2016, where he focused on sourcing and evaluating credit investments. Before that, Mr. Linnemann was Vice President of the Leveraged Finance Capital Markets Group at Goldman Sachs & Co. in New York from 2006 to 2015. Mr. Linnemann received a BA in Economics from the University of Pennsylvania.
The table below shows the dollar range of shares of our common stock to be beneficially owned by the members of the Diversified Lending Investment Committee as of March 1, 2024 stated as one of the following dollar ranges: None; $1-$10,000; $10,001- $50,000; $50,001-$100,000; or Over $100,000. For purposes of this Annual Report, the term “Fund Complex” is defined to include the Blue Owl BDCs.
Name Dollar Range of Equity Securities in Blue Owl Capital
Corporation II(1)(2) Aggregate Dollar Range of Equity Securities in the
Fund Complex(1)(3)
Douglas I. Ostrover None over $100,000
Marc S. Lipschultz over $100,000 over $100,000
Craig W. Packer over $100,000 over $100,000
Alexis Maged None over $100,000
Jeff Walwyn None None
Logan Nicholson None None
Meenal Mehta None $10,001 - $50,000
Patrick Linnemann None None
______________
(1)Beneficial ownership determined in accordance with Rule 16a-1(a)(2) promulgated under the 1934 Act.
(2)The dollar range of equity securities of the Company beneficially owned by directors of the Company, if applicable, is calculated by multiplying the current net asset value per share of the Company times the number of shares beneficially owned.
(3)The dollar range of Equity Securities in the Fund Complex beneficially owned by members of the Diversified Lending Investment Committee, if applicable, is the sum of (1) the closing price per share of Blue Owl Capital Corporation’s common stock as of March 1, 2024, multiplied by the number of shares of Blue Owl Capital Corporation’s common stock beneficially owned by the Diversified Lending Investment Committee member, (2) the closing price per share of Blue Owl Capital Corporation III’s common stock as of March 1, 2024, multiplied by the number of shares of Blue Owl Capital Corporation III’s common stock beneficially owned by the Diversified Lending Investment Committee member, (3) the current net asset value per share of Blue Owl Technology Finance Corp.’s common stock multiplied by the number of shares of Blue Owl Technology Finance Corp.’s common stock, beneficially owned by the Diversified Lending Investment Committee member, (4) the current net offering price per share of Blue Owl Credit Income Corp.’s common stock multiplied by the number of shares of Blue Owl Credit Income Corp.’s common stock beneficially owned by the Diversified Lending Investment Committee member, (5) the current net asset value per share of Blue Owl Technology Finance Corp. II’s common stock, multiplied by the number of shares of Blue Owl Technology Finance Corp. II’s common stock beneficially owned by the Diversified Lending Investment Committee member, (6) the current net offering price per share of Blue Owl Technology Income Corp.’s common stock multiplied by the number of shares of Blue Owl Technology Income Corp.’s common stock beneficially owned by the Diversified Lending Investment Committee member and (7) the total dollar range of equity securities in the Company beneficially owned by the Diversified Lending Investment Committee member.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
We do not currently have any employees and do not expect to have any employees. Services necessary for our business are provided by individuals who are employees of the Adviser or its affiliates, pursuant to the terms of the Investment Advisory Agreement and the Administration Agreement, as applicable. Our day-to-day investment and administrative operations are managed by the Adviser. Most of the services necessary for the origination and administration of our investment portfolio will be provided by investment professionals employed by the Adviser or its affiliates.
None of our executive officers will receive direct compensation from us. We will reimburse the Adviser the allocable portion of the compensation paid by the Adviser (or its affiliates) to our chief compliance officer and chief financial officer and their respective staffs (based on the percentage of time such individuals devote, on an estimated basis, to our business and affairs). The members of the Diversified Lending Investment Committee, through their financial interests in the Adviser, are entitled to a portion of the profits earned by the Adviser, which includes any fees payable to the Adviser under the terms of the Investment Advisory Agreement, less expenses incurred by the Adviser in performing its services under the Investment Advisory Agreement.
Director Compensation
No compensation is expected to be paid to our director who is an “interested person,” as such term is defined in Section 2(a)(19) of the 1940 Act. Our directors who do not also serve in an executive officer capacity for us or the Adviser are entitled to receive annual cash retainer fees, fees for participating in in-person board and committee meetings and annual fees for serving as a committee chairperson, determined based on our net assets as of the end of each fiscal quarter. These directors are Edward D’Alelio, Christopher M. Temple, Eric Kaye, Melissa Weiler and Victor Woolridge. We pay each independent director the following amounts for serving as a director:
Annual Committee Chair Cash Retainer
Assets Under Management
Annual Cash
Retainer Chair of the Board Audit Nominating and Corporate
Governance
$0 to < $2.5 billion
$ 150,000 $ 15,000 $ 10,000 $ 5,000
$2.5 billion to < $5 billion
$ 175,000 $ 15,000 $ 10,000 $ 5,000
$5 billion to < $10 billion
$ 200,000 $ 15,000 $ 10,000 $ 5,000
> $10 billion
$ 250,000 $ 15,000 $ 10,000 $ 5,000
We also reimburse each of the directors for all reasonable and authorized business expenses in accordance with our policies as in effect from time to time, including reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each board meeting and each committee meeting not held concurrently with a board meeting.
The table below sets forth the compensation received by each director from the Company and the Fund Complex for service during the fiscal year ended December 31, 2023:
Name of Director Fees Earned and Paid in Cash by
the Company Total Compensation from the
Company Total Compensation from the Fund
Complex
Edward D'Alelio $ 165,000 $ 165,000 $ 1,465,462
Christopher M. Temple $ 160,000 $ 160,000 $ 1,430,462
Eric Kaye $ 155,000 $ 155,000 $ 1,395,462
Melissa Weiler $ 150,000 $ 150,000 $ 1,360,462
Victor Woolridge $ 150,000 $ 150,000 $ 1,360,462

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. These rules generally provide that a person is the beneficial owner of securities if such person has or shares the power to vote or direct the voting thereof, or to dispose or direct the disposition thereof or has the right to acquire such powers within 60 days. The following table sets forth, as of March 1, 2024 the beneficial ownership as indicated in the Company’s books and records of each current director, the nominees for director, the Company’s executive officers, the executive officers and directors as a group, and each person known to us to beneficially own 5% or more of the outstanding shares of our common stock.
The percentage ownership is based on 141,418,086 shares of our common stock outstanding as of March 1, 2024. To our knowledge, except as indicated in the footnotes to the table, each of the shareholders listed below has sole voting and/or investment power with respect to shares of our common stock beneficially owned by such shareholder.
Shares Beneficially Owned
Name and Address Number of Shares Owned Percentage of Class Outstanding
Interested Directors
Craig W. Packer 116,667 *
Independent Directors
Edward D'Alelio - - %
Eric Kaye - - %
Christopher M. Temple - - %
Melissa Weiler - - %
Victor Woolridge - - %
Executive Officers
Karen Hager - - %
Bryan Cole - - %
Neena Reddy - - %
Jonathan Lamm - - %
Matthew Swatt - - %
Shari Withem - - %
Jennifer McMillon - - %
All officers and directors as a group (13 persons)(1)
116,667 *
______________
*Less than 1%.
(1)The address for each of the directors and officers is c/o Blue Owl Capital Corporation II, 399 Park Avenue, 37th Floor, New York, New York 10022.
Dollar Range of Equity Securities Beneficially Owned by Directors
The table below shows the dollar range of equity securities of the Company and the aggregate dollar range of equity securities of the Fund Complex that were beneficially owned by each director as of March 1, 2024 stated as one of the following dollar ranges: None; $1-$10,000; $10,001- $50,000; $50,001-$100,000; or Over $100,000. For purposes of this Form 10-K, the term “Fund Complex” is defined to include the Company, Blue Owl Capital Corporation, Blue Owl Capital Corporation II, Blue Owl Credit Income Corp., Blue Owl Technology Finance Corp., Blue Owl Technology Finance Corp. II and Blue Owl Technology Income Corp.
Name of Director Dollar Range of Equity Securities in Blue Owl Capital
Corporation II(1)(2)
Aggregate Dollar Range of Equity Securities in the
Fund Complex(1)(3)
Interested Directors
Craig W. Packer over $100,000 over $100,000
Independent Directors
Edward D'Alelio - over $100,000
Eric Kaye - over $100,000
Christopher M. Temple - over $100,000
Melissa Weiler - over $100,000
Victor Woolridge - over $100,000
______________
(1)Beneficial ownership has been determined in accordance with Rule 16a-1(a)(2) of the Exchange Act.
(2)The dollar range of equity securities of the Company beneficially owned by directors of the Company, if applicable, is calculated by multiplying the current net asset value per share by the number of equity securities beneficially owned.
(3)The dollar range of Equity Securities in the Fund Complex beneficially owned by directors of the Company, if applicable, is the sum of: (a) the product obtained by multiplying the current net asset value per share of the Blue Owl Technology Finance Corp. times the number of shares of Blue Owl Technology Finance Corp. beneficially owned, (b) the product obtained by multiplying the current net offering price of Blue Owl Credit Income Corp., times the number of shares of Blue Owl Credit Income Corp. beneficially owned, (c) the product obtained by multiplying the closing price per share of Blue Owl Capital Corporation III as of March 1, 2024 times the number of shares of Blue Owl Capital Corporation III beneficially owned, (d) the product obtained by multiplying the current net asset value per share of the Blue Owl Technology Finance Corp. II times the number of shares of Blue Owl Technology Finance Corp. II beneficially owned, (e) the product obtained by multiplying the current net offering price of Blue Owl Technology Income Corp., times the number of shares of Blue Owl Technology Income Corp. beneficially owned, (f) the product obtained by multiplying the closing price of Blue Owl Capital Corporation common stock as of March 1, 2024 by the number of shares of Blue Owl Capital Corporation beneficially owned, and (g) the total dollar range of equity securities in the Company beneficially owned by the director.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Certain Relationships and Related Transactions
We have entered into both the Investment Advisory Agreement and the Administration Agreement with the Adviser. Pursuant to the Investment Advisory Agreement, we will pay the Adviser a base management fee and an incentive fee. See “ITEM 1. BUSINESS -Investment Advisory Agreement” for a description of how the fees payable to the Adviser will be determined. Pursuant to the Administration Agreement, we will reimburse the Adviser for expenses necessary to perform services related to our administration and operations. In addition, the Adviser or its affiliates may engage in certain origination activities and receive attendant arrangement, structuring or similar fees.
Our executive officers, certain of our directors and certain other finance professionals of Blue Owl also serve as executives of the Blue Owl Credit Advisers and officers and directors of the Company and certain professionals of Blue Owl and the Adviser are officers of Blue Owl Securities LLC (formerly, Blue Owl Securities LLC). In addition, our executive officers and directors and the members of the Adviser and members of its Diversified Lending Investment Committee serve or may serve as officers, directors or principals of entities that operate in the same, or a related, line of business as we do (including the Blue Owl Credit Advisers) including serving on their respective investment committees and/or on the investment committees of investments funds, accounts or other investment vehicles managed by our affiliates which may have investment objective similar to our investment objective. At times we may compete with the Blue Owl Credit Clients for capital and investment opportunities. As a result, we may not be given the opportunity to participate in certain investments made by the Blue Owl Credit Clients. This can create a potential conflict when allocating investment opportunities among us and such other Blue Owl Credit Clients. An investment opportunity that is suitable for multiple clients of the Adviser and its affiliates may not be capable of being shared among some or all of such clients and affiliates due to the limited scale of the opportunity or other factors, including regulatory restrictions imposed by the 1940 Act. However, in order for the Adviser and its affiliates to fulfill their fiduciary duties to each of their clients, the Blue Owl Credit Advisers have put in place an investment allocation policy that seeks to ensure the fair and equitable allocation of investment opportunities over time and addresses the co-investment restrictions set forth under the 1940 Act.
Allocation of Investment Opportunities
The Blue Owl Credit Advisers intend to allocate investment opportunities in a manner that is fair and equitable over time and is consistent with its allocation policy, so that no client of the Adviser or its affiliates is disadvantaged in relation to any other client of the Adviser or its affiliates, taking into account such factors as the relative amounts of capital available for new investments, cash on hand, existing commitments and reserves, the investment programs and portfolio positions of the participating investment accounts, the clients for which participation is appropriate, targeted leverage level, targeted asset mix and any other factors deemed appropriate. The Blue Owl Credit Advisers intend to allocate common expenses among us and other clients of the Adviser and its affiliates in a manner that is fair and equitable over time or in such other manner as may be required by applicable law or the Investment Advisory Agreement. Fees and expenses generated in connection with potential portfolio investments that are not consummated will be allocated in a manner that is fair and equitable over time and in accordance with policies adopted by the Blue Owl Credit Advisers and the Investment Advisory Agreement.
The Blue Owl Credit Advisers have put in place an investment allocation policy that seeks to ensure the equitable allocation of investment opportunities and addresses the co-investment restrictions set forth under the 1940 Act. When we engage in co-investments as permitted by the exemptive relief described below, we will do so in a manner consistent with the Blue Owl Credit Advisers’ allocation policy. In situations where co-investment with other entities managed by the Adviser or its affiliates is not permitted or appropriate, such as when there is an opportunity to invest in different securities of the same issuer, a committee comprised of certain executive officers of the Blue Owl Credit Advisers (including executive officers of the Adviser) along with other officers and employees, will need to decide whether we or such other entity or entities will proceed with the investment. The allocation committee will make these determinations based on the Blue Owl Credit Advisers’ allocation policy, which generally requires that such opportunities be offered to eligible accounts in a manner that will be fair and equitable over time.
The Blue Owl Credit Advisers’ allocation policy is designed to manage the potential conflicts of interest between the Adviser's fiduciary obligations to us and its or its affiliates' similar fiduciary obligations to other clients, including the Blue Owl Credit Clients; however, there can be no assurance that the Blue Owl Credit Advisers’ efforts to allocate any particular investment opportunity fairly among all clients for whom such opportunity is appropriate will result in an allocation of all or part of such opportunity to us. Not all conflicts of interest can be expected to be resolved in our favor.
The allocation of investment opportunities among us and any of the other investment funds sponsored or accounts managed by the Adviser or its affiliates may not always, and often will not, be proportional. In general, pursuant to the Blue Owl Credit Advisers’ allocation policy, the process for making an allocation determination includes an assessment as to whether a particular investment opportunity (including any follow-on investment in, or disposition from, an existing portfolio company held by the Company or another investment fund or account) is suitable for us or another investment fund or account including the Blue Owl Credit Clients. In making this assessment, the Blue Owl Credit Advisers may consider a variety of factors, including, without limitation: the investment objectives, guidelines and strategies applicable to the investment fund or account; the nature of the investment, including its risk-return profile and expected holding period; portfolio diversification and concentration concerns; the liquidity needs of the investment fund or account; the ability of the investment fund or account to accommodate structural, timing and other aspects of the investment process; the life cycle of the investment fund or account; legal, tax and regulatory requirements and restrictions, including, as applicable, compliance with the 1940 Act (including requirements and restrictions pertaining to co-investment opportunities discussed below); compliance with existing agreements of the investment fund or account; the available capital of the investment fund or account; diversification requirements for BDCs or RICs; the gross asset value and net asset value of the investment fund or account; the current and targeted leverage levels for the investment fund or account; and portfolio construction considerations. The relevance of each of these criteria will vary from investment opportunity to investment opportunity. In circumstances where the investment objectives of multiple investment funds or accounts regularly overlap, while the specific facts and circumstances of each allocation decision will be determinative, the Blue Owl Credit Advisers may afford prior decisions precedential value.
Pursuant to the Blue Owl Credit Advisers’ allocation policy, if through the foregoing analysis, it is determined that an investment opportunity is appropriate for multiple investment funds or accounts, the Blue Owl Credit Advisers generally will determine the appropriate size of the opportunity for each such investment fund or account. If an investment opportunity falls within the mandate of two or more investment funds or accounts, and there are no restrictions on such funds or accounts investing with each other, then each investment fund or account will receive the amount of the investment that it is seeking, as determined based on the criteria set forth above.
Certain allocations may be more advantageous to us relative to one or all of the other investment funds, or vice versa. While the Blue Owl Credit Advisers will seek to allocate investment opportunities in a way that it believes in good faith is fair and equitable over time, there can be no assurance that our actual allocation of an investment opportunity, if any, or terms on which the allocation is made, will be as favorable as they would be if the conflicts of interest to which the Adviser may be subject did not exist.
Exemptive Relief
We, the Adviser and certain of our affiliates have been granted an order for exemptive relief (as amended, the “Order”) by the SEC to co-invest with other funds managed by the Adviser or certain affiliates in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. Pursuant to the Order, we generally are permitted to co-invest with certain of our affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transaction, including the consideration to be paid, are reasonable and fair to us and our shareholders and do not involve overreaching by us or our shareholders on the part of any person concerned, (2) the transaction is consistent with the interests of our shareholders and is consistent with our investment objective and strategies, (3) the investment by our affiliates would not disadvantage us, and our participation would not be on a basis different from or less advantageous than that on which our affiliates are investing and (4) the proposed investment by us would not benefit our Adviser or its affiliates or any affiliated person of any of them (other than the parties to the transaction), except to the extent permitted by the Order and applicable law, including the limitations set forth in Section 57(k) of the 1940 Act. In addition, we have received an amendment to the Order to permit us to participate in follow-on investments in our existing portfolio companies with certain affiliates that are private funds if such private funds did not have an investment in such existing portfolio company, the Blue Owl Credit Advisers’ investment allocation policy incorporates the conditions of the Order. As a result of the exemptive relief, there could be significant overlap in our investment portfolio and the investment portfolio of the Blue Owl Credit Clients that could avail themselves of the Order and that have investment objective similar to ours.
Review, Approval or Ratification of Transactions with Related Persons
The Audit Committee is required to review and approve any transactions with related persons (as such term is defined in Item 404 of Regulation S-K).
License Agreement
We have entered into a license agreement (the “License Agreement”), pursuant to which an affiliate of Blue Owl has granted us a non-exclusive license to use the name “Blue Owl.” Under the License Agreement, we have a right to use the Blue Owl name for so long as the Adviser or one of its affiliates remains our investment adviser. Other than with respect to this limited license, we have no legal right to the “Blue Owl” name or logo.
Material Non-Public Information
Our senior management, members of the Adviser’s Diversified Lending Investment Committee and other investment professionals from the Adviser may serve as directors of, or in a similar capacity with, companies in which we invest or in which we are considering making an investment. Through these and other relationships with a company, these individuals may obtain material non-public information that might restrict our ability to buy or sell the securities of such company under the policies of the company or applicable law.
Director Independence
Pursuant to our certificate of incorporation, a majority of the Board will at all times consist of directors who are not “interested persons” of us, of the Adviser, or of any of our or its respective affiliates, as defined in the 1940 Act. We refer to these directors as our “Independent Directors.”
Consistent with these considerations, after review of all relevant transactions and relationships between each director, or any of his or her family members, and the Company, the Adviser, or of any of their respective affiliates, the Board has determined that each of Messrs. Kaye, Temple, Woolridge and D’Alelio and Ms. Weiler is independent, has no material relationship with the Company, and is not an “interested person” (as defined in Section 2(a)(19) of the 1940 Act) of the Company. Mr. Packer is considered an “interested person” (as defined in the 1940 Act) of the Company since he is employed by the Adviser.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services.
KPMG LLP has been appointed by the Board to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2024. KPMG LLP acted as the Company’s independent registered public accounting firm for the fiscal years ended December 31, 2022 and December 31, 2023. The Company knows of no direct financial or material indirect financial interest of KPMG LLP in the Company. A representative of KPMG LLP will be available to answer questions during the Annual Meeting and will have an opportunity to make a statement if he or she desires to do so.
Fees
Set forth in the table below are audit fees, audit-related fees, tax fees and all other fees billed to the Company by KPMG LLP for professional services performed for the fiscal years ended December 31, 2023 and December 31, 2022:
For the Fiscal Year ended December 31, 2023 For the Fiscal Year ended December 31, 2022
Audit Fees(1)
$ 924,100 $ 784,500
Audit-Related Fees(2)
- -
Tax Fees(3)
373,425 240,860
All Other Fees(4)
- -
Total Fees $ 1,297,525 $ 1,025,360
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(1)“Audit Fees” are fees billed for professional services rendered for the audit of the Company’s annual financial statements and review of interim financial statements or services that are normally provided by KPMG LLP in connection with statutory and regulatory filings or engagements.
(2)“Audit-Related Fees” are fees billed for assurance and related services by KPMG LLP that are reasonably related to the performance of the audit or review of the Company’s financial statements that are not reported under “Audit Fees.”
(3)“Tax Fees” are fees billed services rendered by KPMG for tax compliance, tax advice, and tax planning. These services include assistance regarding federal, state and international tax compliance, customs and duties and international tax planning.
(4)“All Other Fees” are fees billed for services other than those stated above.
Pre-Approval Policies and Procedures
The Audit Committee has established a pre-approval policy that describes the permitted audit, audit-related, tax and other services to be provided by KPMG LLP, the Company’s independent registered public accounting firm. The policy requires that the Audit Committee pre-approve the audit and non-audit services performed by the independent auditor in order to assure that the provision of such service does not impair the auditor’s independence.
Any requests for audit, audit-related, tax and other services that have not received general pre-approval must be submitted to the Audit Committee for specific pre-approval, irrespective of the amount, and cannot commence until such approval has been granted. Normally, pre-approval is provided at regularly scheduled meetings of the Audit Committee. The Audit Committee does not delegate its responsibilities to pre-approve services performed by the independent registered public accounting firm to management.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules.
The following documents are filed as part of this annual report:
(1)Financial Statements - Financial statements are included in Item 8. See the Index to the Consolidated Financial Statements on page of this annual report on Form 10-K.
(2)Financial Statement Schedules - None. We have omitted financial statement schedules because they are not required or are not applicable, or the required information is shown in the consolidated statements or notes to the consolidated financial statements included in this annual report on Form 10-K.
(3)Exhibits - The following is a list of all exhibits filed as a part of this annual report on Form 10-K, including those incorporated by reference.
Please note that the agreements included as exhibits to this Form 10-K are included to provide information regarding their terms and are not intended to provide any other factual or disclosure information about us or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement that have been made solely for the benefit of the other parties to the applicable agreement and may not describe the actual state of affairs as of the date they were made or at any other time.
The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:
Exhibit Number Description of Exhibits
3.1 Articles of Amendment and Restatement, dated April 4, 2017, as amended on June 22, 2023 (incorporated by reference Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q, filed on August 10, 2023).
3.2 Amended and Restated Bylaws, dated July 6, 2023 (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K, filed on June 22, 2023).
4.1 Indenture, dated as of November 26, 2019 by and between Owl Rock Capital Corporation II and Wells Fargo Bank, National Association, as trustee (Incorporated by reference to Exhibit 4.1 of the current report on Form 8-K, filed November 26, 2019).
4.2 First Supplemental Indenture, dated as of November 26, 2019, relating to the 4.625% Notes due 2024, by and between Owl Rock Capital Corporation II and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 of the current report on Form 8-K, filed November 26, 3019).
4.3 Form of 4.625% Note due 2024 sold in reliance on Rule 144A of the Securities Act (incorporated by reference to the current report on Form 8-K, filed November 26, 2019).
4.4 Second Supplemental Indenture, dated as of November 15, 2023, relating to the 8.450% Notes due 2026, by and between the Company and Computershare Trust Company, N.A., as successor to Wells Fargo Bank, National Association, as trustee.
4.5 Form of 8.450% Notes due 2026 sold in reliance on Rule 144A of the Securities Act (incorporated by reference to Exhibit 4.2 hereto).
4.6 Form of 8.540% Notes due 2026 sold in reliance on Rule 501(a)(1), (2), (3), (7) or (9) of the Securities Act (incorporated by reference to Exhibit 4.2 hereto).
4.7 Registration Rights Agreement, dated as of November 15, 2023, by and among Wells Fargo Securities, LLC, MUFG Securities Americas Inc., SMBC Nikko Securities America, Inc. Truist Securities, Inc., and Deutsche Bank Securities Inc., as representatives of the Initial Purchasers.
4.8*
Description of Securities.
10.1 Third Amended and Restated Investment Advisory Agreement between Owl Rock Capital Corporation II and Owl Rock Capital Advisors LLC, dated May 18, 2021 (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K, filed on May 19, 2021).
10.2 Form of Custodian Agreement (incorporated by reference to Exhibit (j) to Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on N-2, filed on November 23, 2016).
10.3 Amended and Restated Administration Agreement between Owl Rock Capital Corporation and Owl Rock Capital Advisors LLC, dated May 18, 2021 (incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K, filed on May 19, 2021).
10.4 Form of License Agreement (incorporated by reference to Exhibit (k)(2) to Pre-Effective Amendment No. 1 to the Registrant’s Registration Statement on N-2, filed on November 23, 2016).
10.5 Amended and Restated Expense Support and Conditional Reimbursement Agreement by and among the Registrant and our Adviser, dated August 8, 2017 (incorporated by reference to Exhibit (k)(4) to Post-Effective Amendment No. 2 to the Registrant’s Registration Statement on N-2, filed on August 14, 2017).
10.6 Form of Sale and Contribution Agreement between Owl Rock Capital Corporation II and ORCC II Financing LLC (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed on December 4, 2017).
10.7 Amended and Restated Non-Recourse Carveout Guaranty Agreement, dated as of March 11, 2019, by the Company in favor of State Street Bank and Trust Company, on behalf of certain secured parties, and Goldman Sachs Bank USA (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed March 12, 2019).
10.8 Credit Agreement, dated as of April 14, 2020, among ORCC II Financing II LLC, as Borrower, the Lenders referred to therein, Natixis, New York Branch, as Administrative Agent, State Street Bank and Trust Company, as collateral Agent, Collateral Administrator, Custodian and Cortland Capital Market Services LLC as document custodian (incorporated by reference to Exhibit 10.1 of the current report on Form 8-K, filed April 16, 2020).
10.9 Sale and Contribution Agreement, dated as of April 14, 2020, between Owl Rock Capital Corporation II, as Seller and ORCC II Financing II LLC, as Purchaser (incorporated by reference to Exhibit 10.2 of the current report on Form 8-K, filed April 16, 2020).
10.10 Amendment and Commitment Increase Agreement, dated as of October 30, 2020, among ORCC II Financing II LLC, Natixis, New York Branch, as Administrative Agent, State Street Bank and Trust Company, as collateral agent, collateral administrator and custodian, Cortland Capital Market Services LLC, as document custodian and the Lenders party thereto (incorporated by reference to Exhibit 10.1 of the quarterly report on Form 10-Q, filed November 10, 2020).
10.11 Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 of the current report on Form 8-K filed on February 23, 2021).
10.12 Amendment No. 2 to Credit Agreement, dated as of March 25, 2022, among ORCC II Financing II LLC, as Borrower, the Lenders referred to therein, Natixis, New York Branch, as Administrative Agent, State Street Bank and Trust Company, as Collateral Agent, Collateral Administrator, Custodian and Cortland Capital Market Services LLC as document custodian (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on March 30, 2022).
10.13 Third Amended and Restated Credit Agreement, dated as of May 6, 2022, by and among ORCC II Financing LLC and OR Lending II LLC, as Borrowers, the Lenders from time to time parties thereto, Goldman Sachs Bank USA, as Sole Lead Arranger, Syndication Agent and Administrative Agent, State Street Bank and Trust Company as Collateral Administrator and Collateral Agent, and Cortland Capital Market Services LLC as Collateral Custodian (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed May 10, 2022).
10.14 Amended and Restated Distribution Reinvestment Plan (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q, filed on August 10, 2022).
10.15 Amendment No. 3 to the Credit Agreement, dated as of April 4, 2023, among ORCC II Financing II LLC, as Borrower, the Lenders referred to therein, Natixis, New York Branch, as Administrative Agent, State Street Bank and Trust Company, as Collateral Agent, Collateral Administrator, Custodian and Cortland Capital Market Services LLC as Document Custodian (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on April 6, 2023).
10.16 License Agreement, dated as of July 6, 2023, between Blue Owl Capital Corporation II and Blue Owl Capital Holdings LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on July 6, 2023).
10.17 Indenture and Security Agreement, dated as of September 12, 2023, by and between Owl Rock CLO XIII, LLC, as Issuer, and State Street Bank and Trust Company, as Trustee (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on September 15, 2023).
10.18 Collateral Management Agreement, dated as of September 12, 2023, by and between Owl Rock CLO XIII, LLC and Blue Owl Credit Advisors LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on September 15, 2023).
10.19 Loan Sale Agreement, dated as of September 12, 2023, between Blue Owl Capital Corporation II, as Seller, and Owl Rock CLO XIII, LLC, as Purchaser (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed on September 15, 2023).
10.20 Loan Sale Agreement, dated as of September 12, 2023, between ORCC II Financing LLC and OR Lending II LLC, as Sellers, and Owl Rock CLO XIII, LLC, as Purchaser (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed on September 15, 2023).
10.21 Amendment No. 1 to Credit and Margining Agreement, dated as of September 20, 2023, to (a) the Third Amended and Restated Credit Agreement, dated as of May 6, 2022, by and among ORCC II Financing LLC and OR Lending II LLC, as Borrowers, the Lenders from time to time parties thereto, Goldman Sachs Bank USA as Sole Lead Arranger, Syndication Agent and Administrative Agent, State Street Bank and Trust Company as Collateral Administrator and Collateral Agent and Alter Domus (US) LLC as Collateral Custodian, and (b) the Third Amended and Restated Margining Agreement dated as of April 29, 2019, among ORCC II Financing LLC and OR Lending II LLC, as Borrowers, the Lenders referred to in the Credit Agreement, Goldman Sachs Bank USA, as Administrative Agent, State Street Bank and Trust Company, as Collateral Administrator and Collateral Agent and Cortland Capital Market Services LLC, as Collateral Custodian (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on September 26, 2023).
14.1* Code of Ethics
21.1* Subsidiary List
24.1 Power of Attorney (included on signature page hereto).
31.1* Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1** Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
______________
*Filed herewith.
**Furnished herewith.