KBRA Assigns Rating to Blue Owl Credit Income Corp.'s $400 Million Senior Unsecured Notes
KBRA assigns a rating of BBB+ to Blue Owl Credit Income Corp.'s ("OCIC" or "the company") $400 million, 6.60% senior unsecured notes due September 15, 2029, which are an add-on to the $500 million 6.60% senior unsecured notes with original settlement date of May 14, 2024. The rating Outlook is Stable. The proceeds will be used for general corporate purposes and for repayment of existing indebtedness.
Key Credit Considerations
The rating reflects the company's ties to the sizeable $128.4 billion Blue Owl Credit platform where the company has SEC exemptive relief to co-invest with other funds managed by the Adviser and its affiliates, as well as the company's diversified $28.4 billion investment portfolio to 349 companies with a focus on senior secured first lien loans (89.4%) to upper middle market companies in less cyclical sectors as of September 30, 2024. For traditional financing, excluding the company's joint ventures and certain investments that fall outside of the typical borrower profile (91.3% of total debt investments), weighted average annual EBITDA was $266.5 million. 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 decades of experience in the industry. Management has implemented a comparatively favorable and comprehensive set of risk management tools to ensure solid liquidity, funding, and asset quality in less favorable markets.
KBRA views the company's gross leverage as adequate with a debt-to-equity ratio of 0.90x (net leverage 0.86x), below the company's target range of 0.90x to 1.25x for net leverage, and an asset coverage ratio of 207% allowing for a solid cushion to regulatory minimum of 150% as of September 30, 2024. KBRA believes that the company's targeted leverage metrics would allow OCIC to absorb increased volatility in less favorable market conditions.
The company has continued to access the capital markets, with a solid funding mix providing financial flexibility, which includes a bank revolving credit facility, SPV asset facilities, CLOs, and unsecured notes. The percentage of unsecured debt to total debt outstanding is solid at 45.3% which provides less asset encumbrance for the benefit of senior unsecured noteholders and greater financial flexibility as of September 30, 2024. Unsecured debt was further increased with the post 3Q24 quarter end issuance of $1.0 billion of senior unsecured debt in addition to this issuance. Liquidity is adequate with $1.6 billion of bank credit availability and $540 million of unrestricted cash set against $850 million of unsecured debt due within two years of quarter-end and unfunded commitments of $3.4 billion. A portion of the unfunded commitments are tied to covenants and transactions and are not expected to be drawn. Furthermore, as a continuously offered perpetual BDC, OCIC raises capital monthly and offers up to 5% of its shares for repurchase quarterly. For 3Q24, OCIC raised $1.5 billion of equity, including reinvestment of distributions and had $151.6 million in tenders. Since inception through quarter-end, the company raised about $13.9 billion. As a continuously offered perpetual BDC, the company does not have a liquidation event nor does it plan one. The company intends to repurchase up to 5% of the company's outstanding shares each quarter but is not required to do so if market conditions cause undue stress to the operation.
Credit quality remains strong with no non-accruals and while the portfolio is unseasoned 97.8% of the investments at FV having an internal risk rating of a 1 or 2, performing at or above the company's initial underwriting expectations. The strengths are counterbalanced by the potential risks related to the company's illiquid investments, an unseasoned investment portfolio with high portfolio growth, retained earnings constraints as a Regulated Investment Company (RIC), and the potential for increased non-accruals with a more uncertain economic environment with high base rates, inflation, and geopolitical risk.
Blue Owl Credit Income Corp. 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 and intends to elect to be treated as an 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 as a Maryland Corporation on April 22, 2020, commended operations on November 10, 2020, and is managed by Blue Owl Credit Advisors LLC ("Adviser"), affiliate of Blue Owl Capital, Inc. (NYSE:OWL), which had ~$235 billion of AUM as of September 30, 2024. The company's investment strategy coincides with the strategies of Blue Owl Capital Corporation (KBRA Issuer/Senior Unsecured Debt ratings of BBB+ / Stable Outlook) and Blue Owl Capital Corporation II (KBRA Issuer/Senior Unsecured Debt Ratings of BBB+ / Stable Outlook).
Rating Sensitivities
A rating change is not expected in the medium term. 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 OCIC's earnings performance, asset quality, and leverage. A significant change in senior management and/or risk management policies could also lead to negative rating action.
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Methodologies
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), one of the major credit rating agencies (CRA), is a full-service CRA 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 (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan's Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.
Doc ID: 1007535
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Analytical Contacts
Teri Seelig, Managing Director (Lead Analyst)
+1 646-731-2386
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Kevin Kent, Director
+1 301-960-7045
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Business Development Contact
Constantine Schidlovsky, Senior Director
+1 646-731-1338
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