KBRA Assigns Rating to Blue Owl Technology Income Corp.';s $75 Million Floating Rate Senior Unsecured Notes

Rhea-AI Summary

KBRA assigns a BBB rating to Blue Owl Technology Income Corporation (OTIC) with a Stable Outlook, reflecting the company's ties to the $79.5 billion Blue Owl direct lending platform, a diversified $2.9 billion investment portfolio, and a solid management team. The company has a gross leverage of 0.77x with regulatory asset coverage of 229% and continues to strengthen its funding profile with the issuance of unsecured debt. However, potential risks include illiquid investments, short operating history, high but declining percentage of secured debt, and retained earnings constraints as a RIC.

Positive

• Ties to the $79.5 billion Blue Owl direct lending platform
• Diversified $2.9 billion investment portfolio
• Solid management team
• Gross leverage of 0.77x with regulatory asset coverage of 229%
• Strengthening funding profile with unsecured debt issuance

Negative

• Illiquid investments
• Short operating history
• High but declining percentage of secured debt
• Retained earnings constraints as a RIC

Insights

Financial Analyst

The BBB rating assigned to Blue Owl Technology Income Corporation's senior unsecured notes is indicative of a moderate credit risk, suggesting that the company maintains a stable financial profile. The tie-in with the Blue Owl direct lending platform and the diversified investment portfolio are positive indicators of the company's ability to manage risk effectively. The focus on technology-focused upper-middle market companies aligns with current market trends towards tech investments, which could lead to favorable outcomes if managed prudently.

With senior secured first lien debt making up a significant portion of the investment portfolio, stakeholders can be assured of a relatively high priority in case of default. However, the company's short operating history might be a cause for concern for some investors, despite the experienced management team. The regulatory asset coverage and lack of non-accruals as of the reported date provide additional comfort regarding the company's current financial health.

It is also noteworthy that the company's strategy to raise capital and the issuance of unsecured debt speaks to a proactive approach to financial flexibility. The lack of non-accruals is a positive sign, although this could also reflect the company's nascent operational phase rather than a longer-term trend. The balance between growth capital and traditional financing within the portfolio is crucial, as it indicates a strategy that seeks to balance risk and growth.

Industry Analyst

The investment strategy of Blue Owl Technology Income Corporation, coinciding with other entities within the Blue Owl family, suggests a harmonized approach that could benefit from economies of scale and shared expertise. The company's ability to co-invest with other funds managed by the advisor and its affiliates could provide access to a broader range of investment opportunities and potentially enhance returns.

However, the potential risks associated with illiquid investments typical of a Business Development Company (BDC) must be acknowledged. The BDC structure allows for investments in less liquid securities, which may offer higher yields but also increase the risk profile. The company's status as a Regulated Investment Company (RIC) necessitates distribution of most taxable income to shareholders, which may constrain retained earnings and affect the company's ability to reinvest in its business.

Overall, the stable outlook reflects a balanced view of the company's creditworthiness, though the rating could be subject to change if economic conditions impact the company's earnings performance or asset quality. The company's association with Blue Owl Capital, a firm with a substantial amount of Assets Under Management (AUM), provides a backdrop of stability and potential support.

Risk Management Expert

The appropriate gross leverage and solid asset coverage cushion suggest that Blue Owl Technology Income Corporation is well-positioned to withstand market volatility, including the risks associated with higher interest rates and inflation. The strong emphasis on risk management, as evidenced by the presence of a dedicated tech investment team and a strategic office location in Menlo Park, CA, aligns with industry best practices for investment firms specializing in technology.

The company's investment in secured debt and its investment portfolio composition are reflective of a conservative risk profile, which may appeal to certain investors. However, the company's rapid growth and the high proportion of secured debt could pose challenges if not managed effectively, particularly in a changing economic landscape.

The rating sensitivities outlined in the report provide a clear framework for potential rating changes. Stakeholders should consider these factors in their assessment of the company's future performance, particularly in relation to the company's ability to maintain asset quality and manage leverage in a rapidly evolving tech market.

NEW YORK--(BUSINESS WIRE)-- KBRA assigns a BBB rating to Blue Owl Technology Income Corporation’s (“OTIC” or “the company”) $75 million floating rate senior unsecured notes due January 15, 2027. The notes bear interest at a rate of SOFR +4.45%. The rating Outlook is Stable. The company changed its name from Owl Rock Technology Income Corporation effective July 6, 2023.

Key Credit Considerations

The rating reflects the company’s ties to the sizeable $79.5 billion Blue Owl direct lending platform, the derived benefits from OTIC’s SEC exemptive relief to co-invest with other funds managed by the advisor and its affiliates, and its diversified $2.9 billion investment portfolio focused on providing financing to technology-focused upper-middle market companies. Senior secured first lien debt comprised 84% of total investments, as of September 30, 2023. The company’s investments classified as traditional financing comprised 88.5% of the debt portfolio while those classified as growth capital comprised 8%, as of September 30, 2023. Investments classified as traditional financing had a weighted average EBITDA and enterprise value of $300 million and $6.2 billion, respectively, whereas investments classified as growth capital had a weighted average enterprise value of $15.2 billion. The rating also reflects the company’s solid management team, which has a long track record of working within the private debt markets with each member of the Investment Committee having an average of over 30 years of experience in the industry. Additionally, the company has a team of approximately 30+ tech-dedicated investment professionals and maintains an office in Menlo Park, CA to support origination and risk management.

The rating reflects the company’s appropriate gross leverage of 0.77x with regulatory asset coverage of 229%, allowing for a solid asset coverage cushion (52.7%) which KBRA believes should help OTIC absorb increased market volatility with higher interest rates and inflation in less favorable markets. The company continues to strengthen its funding profile with this issuance of unsecured debt to provide greater financial flexibility. In addition, the company has $1.8 billion of committed debt facilities (revolver and SVP asset facilities) with approximately $279 million available. The company continues to raise capital quarterly with $294.9 million raised, excluding reinvestment of distributions, and only tendered $39.7 million in 3Q23. The company has no non-accruals, as of September 30, 2023, partially due to the generally short period of operations commencing less than two years ago. The strengths are counterbalanced by the potential risk related to the company’s illiquid investments as a BDC, its short operating history offset by the broader technology lending that has been a core part of the Blue Owl platform, high but declining percentage of secured debt, and retained earnings constraints as a Regulated Investment Company (RIC).

Blue Owl Technology Income Corporation is a private perpetual non-traded, 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 and to be treated as a RIC, which, among other things, must distribute to its shareholders at least 90% of the company’s investment company taxable income. The company was formed in June 2021 as a Maryland Corporation and commenced operations in May 2022. The company is managed by Blue Owl Technology Credit Advisors II LLC, an indirect subsidiary of Blue Owl Capital, Inc. (NYSE: OWL), which had approximately $157 billion of AUM, as of September 30, 2023. The company’s investment strategy coincides with the strategies of Blue Owl Technology Finance Corp. (KBRA Issuer/Senior Unsecured Debt ratings of BBB/Stable Outlook) and Blue Owl Technology Finance Corp. II (KBRA Issuer/Senior Unsecured Debt ratings of BBB/Stable Outlook). Blue Owl’s technology lending products had approximately $17.7 billion of AUM, as of September 30, 2023.

Rating Sensitivities

A rating upgrade is not expected in the near future. The Stable Outlook could be revised to Positive if OTIC’s asset quality remains solid despite the company’s rapid growth and if leverage metrics remain appropriate for the company’s risk profile. A rating downgrade and/or Outlook change to Negative could be considered if there is a significant downturn in the U.S. economy with negative impact on OTIC’s earnings performance, asset quality, or leverage. A significant change in senior management and/or risk management policies could also lead to negative rating action.

To access rating and relevant documents, click here.

Methodologies

Financial Institutions: Finance Company Global Rating Methodology
ESG Global Rating Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

Doc ID: 1002864

View source version on businesswire.com: https://www.businesswire.com/news/home/20231220597335/en/

Analytical Contacts

Teri Seelig, Managing Director (Lead Analyst)

+1 646-731-2386

teri.seelig@kbra.com

Kevin Kent, Director

+1 301-960-7045

kevin.kent@kbra.com

Joe Scott, Senior Managing Director (Rating Committee Chair)

+1 646-731-2438

joe.scott@kbra.com

Business Development Contact

Constantine Schidlovsky, Senior Director

+1 646-731-1338

constantine.schidlovsky@kbra.com

Source: Kroll Bond Rating Agency, LLC

FAQ

What rating did KBRA assign to Blue Owl Technology Income Corporation (OTIC)?

KBRA assigned a BBB rating to Blue Owl Technology Income Corporation (OTIC) with a Stable Outlook.

What are the key credit considerations for the rating?

The rating reflects the company’s ties to the $79.5 billion Blue Owl direct lending platform, a diversified $2.9 billion investment portfolio, and a solid management team.

What are the potential risks associated with Blue Owl Technology Income Corporation?

Potential risks include illiquid investments, short operating history, high but declining percentage of secured debt, and retained earnings constraints as a RIC.

What is the current gross leverage of Blue Owl Technology Income Corporation?

The company has a gross leverage of 0.77x with regulatory asset coverage of 229%.

What steps is the company taking to strengthen its funding profile?

The company continues to strengthen its funding profile with the issuance of unsecured debt.