425: Blue Owl Capital Corporations OBDC and OBDE Announce Merger Agreement

Blue Owl Capital Corporation (OBDC) and Blue Owl Capital Corporation III (OBDE) have announced a definitive merger agreement to streamline their BDC platform, expected to close in the first quarter of 2025.

Summary

• Blue Owl Capital Corporation (OBDC) and Blue Owl Capital Corporation III (OBDE) announced a definitive merger agreement.
• The merger aims to streamline the BDC platform and create a larger, more liquid vehicle.
• The combined pro-forma company will have approximately $17.7 billion in total investments, making it the second-largest publicly traded BDC by total assets.
• The merger is expected to close in the first quarter of 2025, subject to customary closing conditions, including shareholder approval.
• Rating agencies are supportive of the merger, with no near-term anticipated ratings changes.
• Post-merger, OBDE bondholders will benefit from a 1-notch Fitch upgrade to BBB, matching OBDC's current rating.

Sentiment

Score: 8

Explanation: The document conveys a positive outlook regarding the merger, highlighting strategic benefits, increased scale, and potential credit rating upgrades. The management's comments are optimistic, and the overall tone suggests confidence in the transaction's success.

Positives

• The merger is expected to provide long-term strategic value to both sets of shareholders.
• Bondholders are expected to benefit from a more streamlined platform with fewer, larger, more liquid vehicles.
• The combined company will have increased scale, leading to better secondary liquidity and performance in unsecured notes.
• Operating expenses are expected to be reduced.
• OBDE bondholders will benefit from a 1-notch Fitch upgrade post-merger.

Risks

• The timing or likelihood of the merger closing is uncertain.
• Expected synergies and savings associated with the merger may not be fully realized.
• The ability to realize the anticipated benefits of the merger, including accretion to net investment income and expense reduction, is not guaranteed.
• Shareholder approval is required, and there is a risk that it may not be obtained.
• Competing offers or acquisition proposals could be made.
• Various conditions to the consummation of the merger may not be satisfied or waived.
• Management's attention could be diverted from ongoing business operations.
• Shareholder litigation in connection with the merger could result in significant costs.
• Changes in the economy, financial markets, and political environment could impact the merger.
• Geo-political conditions, including the war between Russia and Ukraine and the conflict in the Middle-East, could impact the merger.
• Future changes in law or regulations could impact the merger.
• An economic downturn, elevated interest and inflation rates, and ongoing supply chain and labor market disruptions could impact the merger.
• The ability of the Adviser to locate suitable investments for the combined company and to monitor and administer its investments is not guaranteed.
• The ability of the Adviser to attract and retain highly talented professionals is not guaranteed.

Future Outlook

The merger is expected to close in the first quarter of 2025, subject to customary closing conditions, including shareholder approval. The combined company is expected to benefit from increased scale, better liquidity, and reduced operating expenses.

Management Comments

• We are very pleased to report another solid quarter of performance across our BDC platform, in addition to the merger announcement between OBDC and OBDE.
• Not only do we believe the transaction will provide long term strategic value to both sets of shareholders, but we firmly believe bondholders across the BDCs will also benefit from a more streamlined platform, with fewer, larger, more liquid vehicles.
• Consistent with our prior discussions, we believe it makes sense to streamline our BDC platform and market conditions for BDCs broadly have been supportive year to date.

Industry Context

The consolidation of BDCs is a trend that aims to create larger, more liquid entities that can attract a broader investor base and achieve economies of scale. This merger positions the combined company as the second-largest publicly traded BDC by total assets, enhancing its competitive position.

Comparison to Industry Standards

• With $17.7 billion in total investments, the combined entity will be the second-largest publicly traded BDC by total assets, putting it in competition with industry leaders such as Ares Capital Corporation (ARCC).
• The merger aims to improve secondary liquidity and performance in unsecured notes, aligning with the characteristics of larger BDCs that typically trade at tighter spreads.
• The anticipated Fitch ratings upgrade for OBDE bondholders to BBB will bring them in line with OBDC, reflecting a stronger credit profile for the combined entity.

Stakeholder Impact

• Shareholders are expected to benefit from the long-term strategic value of the merger.
• Bondholders are expected to benefit from a more streamlined platform with increased liquidity and potential credit rating upgrades.
• The combined company is expected to have a stronger competitive position in the BDC market.

Next Steps

• Shareholders of OBDC and OBDE need to vote on the proposed merger.
• The companies will file a joint proxy statement/prospectus with the SEC.
• The merger is expected to close in the first quarter of 2025, subject to customary closing conditions.

Key Dates