8-K: Blue Owl Capital Corporation Completes Merger, Becomes Second Largest Publicly Traded BDC

Blue Owl Capital Corporation (OBDC) has finalized its merger with Blue Owl Capital Corporation III (OBDE), creating the second-largest publicly traded Business Development Company (BDC) by total assets.

Summary

• Blue Owl Capital Corporation (OBDC) has successfully merged with Blue Owl Capital Corporation III (OBDE).
• The merger positions OBDC as the second-largest externally managed, publicly traded BDC with $18.6 billion in total assets.
• The combined entity holds investments in 232 portfolio companies as of September 30, 2024.
• OBDE shareholders received 0.9779 shares of OBDC common stock for each share of OBDE common stock, plus cash for fractional shares.
• The exchange ratio was determined based on the net asset value per share of OBDC and OBDE as of January 10, 2025.
• Following the merger, legacy OBDC shareholders own approximately 76% and former OBDE shareholders own approximately 24% of the combined company.
• Blue Owl Credit Advisors LLC, OBDC's adviser, will reimburse $4.25 million in merger-related fees and expenses.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to the successful completion of the merger, the creation of a larger entity, and the expectation of enhanced returns. The risks mentioned are standard for such transactions and do not significantly detract from the overall positive tone.

Positives

• The merger creates a larger, more diversified BDC with increased scale.
• The combined company is expected to deliver attractive risk-adjusted returns.
• The merger enhances OBDC's market position.
• The adviser's reimbursement of merger fees reduces costs for the company.
• The merger is expected to increase the diversity of the combined portfolio and maintain strong credit quality.

Risks

• The company faces risks related to realizing the anticipated benefits of the merger.
• There are risks associated with diverting management's attention from ongoing business operations.
• Shareholder litigation related to the merger could result in significant costs.
• Changes in the economy, financial markets, and political environment could impact the company.
• Geopolitical conditions, including the war in Ukraine and the conflict in the Middle East, could affect the company.
• An economic downturn, elevated interest and inflation rates, and supply chain disruptions could impact the company and its portfolio companies.
• The company's success depends on the ability of Blue Owl Credit Advisors LLC to locate suitable investments and manage them effectively.
• The company's success depends on the ability of Blue Owl Credit Advisors LLC to attract and retain highly talented professionals.

Future Outlook

The company will seek to leverage the combined company's enhanced scale to continue to deliver attractive risk-adjusted returns in the near term and across all economic environments.

Management Comments

• Craig W. Packer, Chief Executive Officer of OBDC, stated that the merger enhances OBDC's position as a market-leading BDC.
• He also mentioned that the merger increases the diversity of the combined portfolio and maintains strong credit quality.
• He thanked shareholders for their support and stated that they will seek to leverage the combined company's enhanced scale to continue to deliver attractive risk-adjusted returns.

Industry Context

This merger consolidates two significant players in the BDC space, creating a larger entity that may have increased access to capital and investment opportunities. This is part of a broader trend of consolidation in the financial services industry, where companies seek to achieve economies of scale and enhance their market position.

Comparison to Industry Standards

• The merger creates the second-largest publicly traded BDC by total assets, placing it in a similar size category as Ares Capital Corporation (ARCC), which is often considered the largest BDC.
• The combined entity's $18.6 billion in assets is a significant increase compared to the individual assets of OBDC ($13.4 billion) and OBDE prior to the merger.
• The exchange ratio of 0.9779 shares of OBDC for each share of OBDE reflects a valuation based on the net asset values of both companies, a common practice in BDC mergers.
• The assumption of various debt obligations, including the $325 million in notes and other senior notes, is a typical part of merger transactions in the BDC sector, where companies often utilize leverage to enhance returns.

Related Party Transactions

• Blue Owl Credit Advisors LLC, the investment adviser to OBDC, has agreed to reimburse $4.25 million of fees and expenses associated with the merger.

Stakeholder Impact

• Shareholders of OBDE received OBDC shares and cash for fractional shares.
• Legacy OBDC shareholders now own approximately 76% of the combined company.
• The merger is expected to benefit shareholders through enhanced returns and a more diversified portfolio.
• The merger is expected to benefit the company through increased scale and market position.

Next Steps

• The combined company will operate as Blue Owl Capital Corporation and continue to trade under the ticker OBDC on the New York Stock Exchange.
• The company will focus on integrating the two entities and leveraging the combined scale to deliver attractive risk-adjusted returns.

Key Dates

Keywords

Merger, Business Development Company, BDC, Blue Owl Capital Corporation, OBDC, Blue Owl Capital Corporation III, OBDE, Investment Advisory Agreement, Note Assumption Agreement, Revolving Credit Facility, Collateralized Loan Obligation, CLO