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

Blue Owl Capital Corporation and Blue Owl Capital Corporation II announce a definitive merger agreement, with OBDC as the surviving entity, expected to close in Q1 2026.

Summary

• Blue Owl Capital Corporation (OBDC) and Blue Owl Capital Corporation II (OBDC II) have entered into a definitive agreement to merge, with OBDC as the surviving entity.
• The merger is a stock-for-stock transaction where OBDC II shareholders will receive newly issued OBDC shares based on an exchange ratio determined by the NAV per share of both entities and OBDC's market price shortly before closing.
• The combined company will add $1.7 billion of investments at fair value, with 87% of these being senior-secured investments.
• The transaction is expected to close in the first quarter of 2026, contingent on shareholder approval and other customary closing conditions.
• Blue Owl Credit Advisors LLC, the adviser for both companies, has agreed to reimburse 50% of merger-related fees and expenses, up to a cap of $3 million, upon consummation of the merger.
• The merger is anticipated to qualify as a tax-free reorganization for federal tax purposes for both OBDC and OBDC II shareholders.
• OBDC's board has approved a new $200 million share repurchase program, which will remain in effect post-closing until May 4, 2027.
• The combined company's management fee structure will remain substantially the same, with a 1.5% management fee on gross assets funded with leverage below 1.0x debt-to-equity, and a reduced 1.0% fee on gross assets funded with leverage exceeding 1.0x debt-to-equity. The incentive fee is 17.5% after a 6.0% hurdle.

Sentiment

Score: 7

Explanation: The merger is strategically positive, offering scale, efficiency, and liquidity benefits for both entities, and is expected to be NII accretive. However, OBDC's recent Q3 financial results show a slight decline in NII per share, NAV per share, and an increase in non-accrual investments, which introduces some caution.

Positives

• Reinforces OBDC's position as the second largest publicly traded Business Development Company (BDC) by total assets.
• Adds $1.7 billion of high-quality investments, 87% of which are senior-secured, to OBDC's portfolio.
• Enhances trading liquidity and increases potential for broader investor participation for the combined entity.
• Creates operational efficiencies and is expected to reduce duplicative expenses by approximately $5 million annually.
• Offers potential for net investment income (NII) accretion over time for OBDC shareholders.
• Provides a potential opportunity for net asset value (NAV) per share accretion to OBDC if its shares trade at a premium to NAV.
• Streamlines Blue Owl's Credit platform and simplifies the BDC complex.
• Offers immediate NII accretion for OBDC II shareholders, driven by operational savings, reduced financing costs, and increased leverage.
• OBDC's higher dividend yield of 9.9% (compared to OBDC II's 7.6%) benefits OBDC II shareholders.
• Increases access to long-term, flexible debt capital and provides an immediate reduction in OBDC II's cost of debt, as OBDC's average cost of debt was more than 250 basis points lower than OBDC II's as of September 30, 2025.
• Meaningfully increases liquidity for OBDC II shareholders through a listed BDC, fulfilling OBDC II's intention to pursue a liquidity event.
• Provides increased investment capacity and regulatory relief due to OBDC's lower minimum asset coverage ratio of 150% (compared to OBDC II's 200%).
• No anticipated interruptions to dividend payments for either company between the announcement and closing.
• No changes to the management team or investment strategy are expected following the merger.

Negatives

• OBDC II's dividend reinvestment program (DRIP) will be suspended in Q4 2025, with dividends paid in cash until the merger closes.
• OBDC II shareholders must approve a charter amendment and the merger, with abstentions counting as votes against the proposals.
• If the merger is not approved, shareholders of both BDCs will not realize the anticipated benefits.
• OBDC's Q3 2025 adjusted NII per share of $0.36 was lower than Q2 2025's $0.40.
• OBDC's net asset value per share decreased to $14.89 in Q3 2025 from $15.03 in Q2 2025, primarily due to unrealized depreciation on a small number of names.
• OBDC's investments on non-accrual increased to 1.3% of the portfolio at fair value in Q3 2025, up from 0.7% in Q2 2025.

Risks

• Uncertainties associated with the timing or likelihood of the Mergers 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 the 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 revolution, insurgency, terrorism or war (e.g., Russia-Ukraine, Middle East/North Africa unrest), on financial market volatility, global economic markets, and various commodity markets.
• Uncertainty with respect to immigration and general uncertainty surrounding the financial and political stability of the United States, the United Kingdom, the European Union, and China.
• 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 (including strikes, work stoppages, or accidents).
• Instability in the U.S. and international banking systems.
• Uncertainties relating to the current Presidential administration, including the impact of tariff enactment and tax reductions, trade disputes with other countries, and the risk of recession or a prolonged shutdown of government services.
• 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.
• Other considerations that may be disclosed from time to time in public filings.

Future Outlook

The merger is expected to close in Q1 2026, creating the second largest publicly traded BDC. It anticipates net investment income accretion over time for OBDC, driven by operational savings of approximately $5 million annually and higher portfolio-level asset yields. The transaction also offers potential for NAV per share accretion to OBDC if its shares trade at a premium to NAV. For OBDC II shareholders, immediate NII accretion, reduced financing costs, and increased liquidity are expected. The combined company will maintain the same management team and investment strategy, and OBDC's $200 million share repurchase program will remain in place.

Management Comments

• We believe the transaction is a logical and low-risk avenue to increase the scale of OBDC.
• We do not anticipate any interruptions to the payment of OBDC or OBDC II dividends between announcement and close.
• There will be no change to the management team or the investment strategy following the merger.
• We are excited to announce today that Blue Owl Capital Corporation (OBDC) (NYSE: OBDC) and Blue Owl Capital Corporation II (OBDC II) have entered into a definitive merger agreement, with OBDC as the surviving company.
• We thank you for your support and partnership and welcome any questions you might have. Craig Packer, Co-President of Blue Owl & CEO of Blue Owl Capital Corporation

Industry Context

This merger significantly consolidates the Business Development Company (BDC) landscape, positioning the combined Blue Owl Capital Corporation as the second largest publicly traded BDC by total assets. The trend towards larger, more liquid BDCs is driven by the desire for operational efficiencies, reduced costs, and broader investor appeal, particularly for institutional investors seeking scale and stability. The transaction also addresses the need for liquidity events for non-traded BDCs like OBDC II, providing its shareholders with access to a publicly listed vehicle. The focus on senior-secured investments aligns with a broader industry preference for lower-risk, income-generating assets in the current economic climate.

Comparison to Industry Standards

• The combined entity will become the second largest publicly traded BDC by total assets, indicating a significant scale advantage compared to many smaller BDCs.
• OBDC's average cost of debt being more than 250 basis points lower than OBDC II's suggests a superior capital structure and market access, which is a key competitive advantage in the BDC sector.
• The reduction in debt-to-equity from 1.22x for stand-alone OBDC to 1.17x for the combined company improves the leverage profile, potentially making it more attractive compared to BDCs with higher leverage ratios.
• OBDC's 150% asset coverage ratio, approved in 2020, provides greater investment capacity and regulatory flexibility compared to the standard 200% ratio applicable to OBDC II, aligning with more modern BDC structures.
• The high percentage of senior-secured investments (87% of OBDC II's portfolio, and 98% performing) reflects a conservative investment strategy, which is often favored by investors seeking stable income and capital preservation in the BDC space.

Management Changes

Corporate Governance

Legal Proceedings

• Risk of shareholder litigation in connection with the Mergers, which may result in significant costs of defense and liability.

Related Party Transactions

• Blue Owl Credit Advisors LLC, the adviser for both OBDC and OBDC II, has agreed to reimburse 50% of fees and expenses associated with the merger, up to a cap of $3 million, if the proposed merger is consummated.

Stakeholder Impact

• **Shareholders (OBDC)**: Expected benefits include increased scale, enhanced liquidity, potential for NII and NAV accretion, operational efficiencies, and a reduced debt-to-equity ratio. The existing $200 million share repurchase program will continue.
• **Shareholders (OBDC II)**: Will receive immediate NII accretion, a higher dividend yield, increased access to flexible debt capital, reduced cost of debt, and significantly enhanced liquidity through a listed BDC, fulfilling the intention for a liquidity event. The transaction is expected to be tax-free for federal tax purposes.
• **Employees**: No changes to the management team or investment strategy are anticipated, suggesting stability for employees.
• **Customers (Portfolio Companies)**: The combined entity's increased investment capacity and regulatory flexibility could lead to more robust and efficient lending capabilities.
• **Creditors**: The pro forma reduction in the combined company's debt-to-equity ratio (from 1.22x to 1.17x) may be viewed positively, indicating a stronger financial position.

Next Steps

• OBDC II shareholders will be asked to approve a charter amendment and the merger at a special shareholder meeting expected in Q1 2026.
• OBDC II plans to file a Proxy Statement with the SEC.
• OBDC plans to file a registration statement on Form N-14 with the SEC, which will include the Proxy Statement and a prospectus.
• A public call is scheduled for Thursday, November 6, 2025, at 10 AM ET to discuss the transaction and OBDC's Q3 2025 financial results.
• A proxy statement/prospectus, including voting instructions, is expected to be mailed to OBDC II stockholders in Q1 2026.
• The merger is expected to close in the first quarter of 2026.
• OBDC II dividends payable between the DRIP suspension (Q4 2025) and the merger close will be paid in cash.
• OBDC II shareholders will be automatically enrolled in OBDC's DRIP following the closing of the merger.
• Financial advisors are encouraged to review their accounts through DST Vision for clients holding OBDC II shares.
• Additional investor-level communications regarding share transfers will be delivered approaching the completion of the transaction.

Key Dates

Recommendation

The merger presents a clear strategic positive, enhancing scale, liquidity, and NII accretion for the combined entity, and offering a beneficial liquidity event for OBDC II shareholders. However, the recent Q3 2025 financial performance for OBDC, showing a slight decline in NII and NAV per share, and an increase in non-accrual investments, introduces a degree of uncertainty. While the long-term outlook appears favorable due to the merger's synergies, the immediate financial trends warrant a 'hold' recommendation until the integration progresses and the combined entity's performance can be more clearly assessed. Investors should monitor the closing conditions, shareholder approval, and future financial reports for the combined entity.

Keywords

Merger, Acquisition, Business Development Company, BDC, Blue Owl Capital Corporation, OBDC, Blue Owl Capital Corporation II, OBDC II, Financial Services, Investment Management, Direct Lending, SEC Filing, Shareholder Approval, Net Investment Income, NAV, Dividend, Share Repurchase, Corporate Governance, Liquidity Event, Tax-Free Reorganization