425: Blue Owl Capital Merger: OBDC to Acquire OBDC II

Blue Owl Capital Corporation (OBDC) and Blue Owl Capital Corporation II (OBDC II) announce a proposed stock-for-stock merger, aiming to create value for shareholders through synergies and enhanced market positioning.

Summary

• OBDC will acquire 100% of OBDC II in a stock-for-stock merger, with shares of OBDC II common stock exchanged for shares of OBDC common stock.
• The number of OBDC shares received by OBDC II shareholders will be determined at merger close based on the Net Asset Value (NAV) per share of both companies and the market price of OBDC common stock.
• The combined company will continue to trade under the ticker OBDC on the New York Stock Exchange.
• Pro forma, the combined entity will have $19.4 billion in total assets and $18.9 billion in total investments at fair value as of September 30, 2025, reinforcing its position as the second largest publicly traded BDC.
• The combined portfolio will consist of investments across 239 portfolio companies, with 80% senior secured investments.
• The pro forma net leverage ratio is 1.17x debt-to-equity, within OBDC's target leverage ratio of 0.90x to 1.25x.
• The combined company is expected to be investment-grade rated by four rating agencies: Moody's, S&P, Fitch, and Kroll.
• Blue Owl Credit Advisors LLC, the investment adviser, will reimburse 50% of merger fees and expenses, up to a cap of $3 million, if the merger is consummated.
• The merger requires an affirmative vote of a majority of outstanding shares at OBDC II, along with regulatory approvals and other customary closing conditions.
• OBDC's Board has approved a $200 million discretionary share repurchase program, effective immediately.
• The transaction is expected to generate approximately $5 million of operational cost savings in the first year.
• There is a significant portfolio overlap, with approximately 98% of OBDC II's investments also present in OBDC's portfolio.
• The structure allows for potential NAV per share accretion to OBDC if its shares are trading above its NAV per share at close.

Sentiment

Score: 8

Explanation: The filing presents a highly positive outlook on the merger, emphasizing significant financial and strategic benefits, including cost synergies, NAV accretion potential, enhanced liquidity, and strengthened market position, with unanimous board approval and a share repurchase program.

Positives

• Expected to generate approximately $5 million of operational cost savings in the first year.
• Enhances shareholder liquidity and potential for broader investor participation due to increased scale and market capitalization.
• Opportunity for Net Asset Value (NAV) per share accretion to OBDC if its shares are trading above its NAV per share at close.
• Acquisition of a known, high-quality portfolio of assets with significant overlap (98% of OBDC II's investments are also in OBDC's portfolio).
• Reinforces position as the second largest publicly traded BDC with strong combined portfolio metrics.
• Potential for net investment income accretion over time through operational synergies and lower cost of financing.
• Combined company is expected to be investment-grade rated by four rating agencies (Moody's, S&P, Fitch, Kroll).
• OBDC's Board has approved a $200 million discretionary share repurchase program, effective immediately.
• No anticipated interruptions to the payment of ordinary course dividends to respective shareholders between announcement and close of the merger.

Risks

• Uncertainties associated with the timing or likelihood of the merger closing.
• Uncertainties regarding the expected synergies and savings associated with the mergers.
• The ability to realize the anticipated benefits of the mergers, including expected accretion to net investment income and elimination or reduction of certain expenses and costs.
• The percentage of OBDC II shareholders voting in favor of the proposals submitted for their approval.
• The possibility that competing offers or acquisition proposals will be made.
• The possibility that any or all of the various conditions to the consummation of the mergers may not be satisfied or waived.
• Risks related to diverting management's attention from ongoing business operations.
• The risk that shareholder litigation in connection with the mergers may result in significant costs of defense and liability.
• Changes in the economy, financial markets, and political environment.
• The impact of geo-political conditions, including the ongoing war between Russia and Ukraine, and political and social unrest in the Middle East and North Africa regions.
• Future changes in law or regulations.
• Conditions to OBDC's and OBDC II's operating areas, particularly with respect to business development companies or regulated investment companies.
• An economic downturn, elevated inflation rates, fluctuating interest rates, ongoing supply chain and labor market disruptions, instability in the U.S. and international banking systems, and the risk of recession.
• The ability of Blue Owl Credit Advisors LLC to locate suitable investments for the combined company and to monitor and administer its investments.
• The ability of Blue Owl Credit Advisors LLC to attract and retain highly talented professionals.

Future Outlook

The merger is anticipated to close in Q1 2026, following the expected filing of the proxy statement/prospectus and registration statement with the SEC in Q4 2025. The combined company intends to declare and pay a regular dividend and any supplemental dividends, calculated as 50% of Net Investment Income (NII) in excess of the regular dividend, subject to Board approval. The transaction is projected to generate approximately $5 million of operational cost savings in the first year and offers the potential for NII accretion over time. Greater scale is expected to improve the cost of debt and enable access to a wider array of financing solutions at more favorable terms. There is also an opportunity for NAV per share accretion to OBDC if its shares are trading above NAV per share at close.

Management Comments

• The board of directors for each of OBDC and OBDC II have unanimously approved the merger and believe the transaction can create meaningful value for shareholders of both companies.
• We believe the merger provides OBDC with a cost-efficient way to raise equity through a known, high-quality portfolio of assets, and creates potential for NII accretion over time.
• We believe the proposed merger creates meaningful value for both sets of shareholders.

Industry Context

This merger significantly strengthens Blue Owl Capital Corporation's position as the second largest publicly traded Business Development Company (BDC) by assets, with pro forma total assets of $19.4 billion. The increased scale is expected to enhance trading liquidity and attract a broader investor base, aligning with the trend that larger publicly traded BDCs generally exhibit greater liquidity. The combined entity's focus on direct lending solutions to U.S. upper middle-market companies, coupled with its expected investment-grade ratings from four agencies, positions it strongly within the competitive BDC landscape.

Comparison to Industry Standards

• The merger reinforces OBDC's position as the second largest publicly traded BDC, indicating a strong competitive standing within the industry.
• The combined company is expected to be investment-grade rated by Moody's (Baa3 Positive), S&P (BBBStable), Fitch (BBB Stable), and Kroll (BBB+ Stable), which are key benchmarks for credit quality in the financial sector.
• The increased scale is expected to lead to enhanced trading liquidity, a characteristic generally observed in larger publicly traded BDCs with market capitalizations exceeding $1 billion.
• The combined portfolio maintains strong credit quality with approximately 1% of the portfolio on non-accrual and 91% 1and 2-rated investments at fair value, which compares favorably to industry averages for BDCs.

Management Changes

Corporate Governance

Legal Proceedings

• There is a risk that shareholder litigation in connection with the mergers may result in significant costs of defense and liability, as noted in the forward-looking statements.

Related Party Transactions

• Blue Owl Credit Advisors LLC, the investment adviser, will reimburse 50% of the fees and expenses associated with the merger, up to a cap of $3 million, if the merger is consummated.

Stakeholder Impact

• **Shareholders (OBDC & OBDC II)**: Expected benefits include immediate cost synergies, enhanced shareholder liquidity, potential for NAV per share accretion, potential for net investment income accretion, and a $200 million share repurchase program for OBDC shareholders. No anticipated interruptions to ordinary course dividends.
• **Customers (Portfolio Companies)**: The combined company's greater scale and potential for improved cost of debt and access to a wider array of financing solutions could benefit the portfolio companies.
• **Creditors**: OBDC's existing debt will remain outstanding, and OBDC II's SPV I and 2026 Notes are expected to be transferred to OBDC. The combined company is expected to maintain investment-grade ratings from four agencies, potentially leading to more favorable financing terms over time.

Next Steps

• File proxy statement/prospectus and registration statement on Form N-14 with the SEC in Q4 2025.
• Begin proxy solicitation for shareholder approval.
• Hold shareholder meetings for approval of the merger.
• Obtain necessary regulatory approvals and satisfy other customary closing conditions.
• Target closing of the merger in Q1 2026.
• Following the anticipated closing, the combined OBDC intends to declare and pay a regular dividend and any supplemental dividends, subject to OBDC Board approval.

Key Dates

Recommendation

The proposed merger is strategically sound, combining two highly overlapping portfolios under the same management, promising immediate cost synergies of $5 million in the first year, and potential for Net Investment Income and Net Asset Value per share accretion. The enhanced scale is expected to boost liquidity and attract a broader investor base, while maintaining strong credit quality and an investment-grade rating. The $200 million share repurchase program further signals management's confidence and commitment to shareholder value. These factors, combined with unanimous board approval, present a compelling investment opportunity.

Keywords

Blue Owl Capital Corporation, OBDC, OBDC II, Merger, Acquisition, BDC, Business Development Company, Direct Lending, Investment Management, Financial Services, Shareholder Liquidity, NAV Accretion, Cost Synergies, Investment Grade, Share Repurchase Program