DEF 14A: Blue Owl Technology Finance Corp. Reports Record 2024 Performance and Strategic Merger, Prepares for 2025 Shareholder Meeting

Blue Owl Technology Finance Corp. announced record net investment income and dividends for 2024, highlighted its strategic merger with OTF II, and outlined proposals for its upcoming virtual 2025 annual shareholder meeting.

Summary

• Blue Owl Technology Finance Corp. (OTF) delivered strong results in 2024, generating record annual net investment income of $1.79 per share and distributing record dividends totaling $1.46 per share to shareholders.
• The company completed its previously announced merger with Blue Owl Technology Finance Corp. II (OTF II) on March 24, 2025, establishing OTF as the largest software-focused Business Development Company (BDC) by total assets.
• The merger is expected to increase the company's scale and diversification, enhance its positioning for a potential future liquidity event, and generate meaningful operational synergies.
• Borrowers across Blue Owl's Credit platform, on average, delivered mid-to-high single-digit growth in both EBITDA and revenue year-over-year in 2024.
• As of December 31, 2024, the weighted average EBITDA of OTF's borrowers was $227 million, based on investments classified as traditional financing, which represented 74.4% of the total portfolio based on fair value.
• The 2025 annual meeting of shareholders will be held virtually on June 26, 2025, at 9:30 a.m. Eastern Time.
• Shareholders will vote on two key proposals: the re-election of Edward DAlelio and Craig W. Packer to the Board of Directors for three-year terms expiring in 2028, and the ratification of KPMG LLP as the independent registered public accounting firm for the fiscal year ending December 31, 2025.
• The Board unanimously recommends that shareholders vote FOR both proposals.
• As of the record date, March 28, 2025, there were 465,122,953 shares of common stock outstanding and entitled to vote.
• KPMG LLP's audit fees for 2024 were $1,154,850, an increase from $911,350 in 2023. Total fees billed by KPMG LLP were $1,323,202 in 2024, up from $1,003,775 in 2023.

Sentiment

Score: 8

Explanation: The document highlights strong financial performance with record net investment income and dividends, successful completion of a strategic merger enhancing scale and diversification, and positive outlook on portfolio durability and growth. While it acknowledges inherent risks and fee structures, the overall tone and reported achievements are highly positive, indicating robust health and strategic positioning.

Positives

• Generated record annual net investment income of $1.79 per share in 2024.
• Distributed record dividends totaling $1.46 per share to shareholders in 2024.
• Successfully closed the merger with Blue Owl Technology Finance Corp. II (OTF II) on March 24, 2025.
• The merger establishes OTF as the largest software-focused BDC by total assets, increasing scale and diversification.
• The merger is expected to enhance positioning for a potential future liquidity event and generate meaningful operational synergies.
• Borrowers across Blue Owl's Credit platform delivered mid-to-high single-digit growth in both EBITDA and revenue year-over-year in 2024.
• The portfolio is strategically constructed with a focus on software and technology-related companies exhibiting market leadership, durable high-quality revenue streams, strong margin profiles, and minimal working capital requirements, which contribute to predictable, stable revenue and free cash flow generation.
• The weighted average EBITDA of OTF's borrowers was $227 million as of December 31, 2024, indicating a focus on larger, more stable middle-market companies.
• Blue Owl meaningfully broadened its Credit platform in the past year, expanding into Alternative and Investment Grade credit, which augments its direct lending capabilities.
• The company entered 2025 from a position of strength, with increased size, scale, and diversification, while maintaining excellent credit quality.
• The Board of Directors demonstrates strong corporate governance, with five out of six directors being independent, an independent non-executive chairman, and an excellent track record of attendance at Board and committee meetings in 2024.

Negatives

• The incentive fee structure allows for the possibility of paying an Incentive Fee even if the company incurs a loss in a calendar quarter due to realized and unrealized capital losses.
• Decreases in the company's net assets due to realized or unrealized capital losses in any given calendar quarter may increase the likelihood that the hurdle rate for the Incentive Fee is reached, potentially leading to a fee payment despite a loss.
• Audit fees billed by KPMG LLP increased from $911,350 in 2023 to $1,154,850 in 2024.
• Total fees billed by KPMG LLP increased from $1,003,775 in 2023 to $1,323,202 in 2024.

Risks

• The company is subject to various risks, including investment, compliance, operational, and valuation risks.
• The incentive fee structure may lead to the company paying an Incentive Fee even if it incurs a loss in a calendar quarter due to realized and unrealized capital losses.
• Decreases in the company's net assets due to realized or unrealized capital losses in any given calendar quarter may increase the likelihood that the hurdle rate for the Incentive Fee is reached, potentially resulting in a fee payment despite a loss.
• Potential conflicts of interest exist in the allocation of investment opportunities among the company and other Blue Owl Credit Clients, and there is no assurance that all conflicts will be resolved in the company's favor.
• Significant overlap may occur between the company's investment portfolio and the investment portfolios of other Blue Owl Credit Clients that utilize the SEC exemptive relief for co-investments.
• Senior management and investment professionals serving as directors of portfolio companies may obtain material non-public information, which could restrict the company's ability to buy or sell securities of such companies.

Future Outlook

The company expects the overall portfolio to continue performing well, based on current visibility, and believes its increased size, scale, and diversification position it as a lender of choice, driving further benefits for shareholders in the years to come. The company is also positioned for a potential future liquidity event following the merger.

Management Comments

• "We delivered strong results in 2024, generating record annual net investment income per share of $1.79 and distributing record dividends totaling $1.46 per share to our shareholders."
• "Our strong results are the outcome of our emphasis on credit selection, ongoing strength of our portfolio, robust investment activity and tailwinds from elevated interest rates."
• "This merger establishes OTF as the largest software-focused BDC by total assets, increases our scale and diversification, enhances our positioning for a potential future liquidity event and generates meaningful operational synergies."
• "We began last year appropriately cautious and prepared for an evolving economic environment. Yet over the course of the year, the borrowers across Blue Owls Credit platform, on average, delivered mid-to-high single digit growth in both EBITDA and revenue year-over-year."
• "Since inception, our approach has been to construct a high-quality, diversified technology focused fund. Our portfolio construction has focused on software and technology-related companies with market leadership, durable high-quality revenue streams, strong margin profiles and minimal working capital requirements."
• "These attributes lead to highly predictable, stable revenue and free cash flow generation which underpin our strong portfolio performance and provide meaningful downside protection."
• "As a lender, we are defensive by nature, and credit quality is always top of mind. We remain confident in the durability of our portfolio and based on the visibility we have today, we expect that the overall portfolio should continue to perform well."
• "As we look to 2025, we entered the year from a position of strength, with increased size, scale and diversification all while maintaining excellent credit quality and leveraging the benefits of the Blue Owl platform."
• "We believe our size and scale position us as a lender of choice and we are confident it will continue to drive further benefits for our shareholders in the years to come."

Industry Context

Blue Owl Technology Finance Corp.'s focus on direct lending to middle-market software and technology-related companies aligns with a growing trend in private credit, where non-bank lenders are increasingly providing financing to companies. The expansion of Blue Owl's Credit platform into alternative and investment-grade credit, alongside its direct lending, reflects a broader industry move towards diversified credit strategies to capture various market opportunities and enhance competitive advantage. The merger with OTF II to become the largest software-focused BDC by total assets positions the company as a significant player in this niche, potentially attracting more deal flow and offering greater stability through scale.

Comparison to Industry Standards

• The company's reported mid-to-high single-digit EBITDA and revenue growth for its borrowers in 2024 indicates healthy performance, especially considering the 'evolving economic environment' mentioned, suggesting resilience compared to broader market slowdowns.
• The weighted average EBITDA of OTF's borrowers at $227 million as of December 31, 2024, suggests a focus on larger middle-market companies, which typically exhibit more operational stability and lower default rates compared to smaller, more volatile segments of the middle market. This scale provides strategic benefits and operational stability that contribute to strong credit quality, potentially outperforming BDCs focused on smaller, less established borrowers.
• The company's emphasis on software and technology-related companies with market leadership, durable high-quality revenue streams, strong margin profiles, and minimal working capital requirements positions it in a segment known for predictable, stable revenue and free cash flow generation, which can offer better downside protection compared to more cyclical or capital-intensive industries.
• The merger with OTF II to become the largest software-focused BDC by total assets provides a competitive advantage in terms of scale and diversification, potentially allowing for larger deal participation and more favorable lending terms compared to smaller BDCs.

Management Changes

Corporate Governance

Related Party Transactions

• The company has entered into an Investment Advisory Agreement and an Administration Agreement with Blue Owl Technology Credit Advisors LLC (the Adviser), an indirect affiliate of Blue Owl Capital Inc., for which the company pays management and incentive fees.
• The company reimburses the Adviser for allocable compensation paid to the Chief Compliance Officer, Chief Financial Officer, and their respective staffs.
• The company's executive officers, certain directors, and other finance professionals of Blue Owl also serve as executives of the Blue Owl Credit Advisers and officers/directors of other Blue Owl BDCs, creating potential conflicts of interest.
• The company may compete with other Blue Owl Credit Clients (private funds and separately managed accounts managed by Blue Owl Credit Advisers) for capital and investment opportunities.
• An investment allocation policy is in place to ensure fair and equitable allocation of investment opportunities over time among the company and other Blue Owl Credit Clients, considering factors like capital availability, investment objectives, and portfolio diversification.
• The company has SEC exemptive relief to co-invest with other funds managed by the Adviser or its affiliates, subject to certain conditions and Independent Director approvals, to ensure fairness and consistency with the company's investment objectives.
• Fees and expenses generated in connection with potential portfolio investments that are not consummated are allocated fairly and equitably.

Stakeholder Impact

• **Shareholders**: Directly benefit from record net investment income ($1.79 per share) and record dividends ($1.46 per share) in 2024. The merger with OTF II is expected to increase scale, diversification, and enhance positioning for a potential future liquidity event, which could positively impact shareholder value. However, they bear the cost of management and incentive fees, and face risks related to potential fee payments even during losses and conflicts of interest in investment allocation.
• **Employees (of Adviser/Affiliates)**: The company does not have direct employees; services are provided by employees of the Adviser or its affiliates. These individuals, particularly the Chief Compliance Officer and Chief Financial Officer and their staffs, have their compensation partially reimbursed by the company. Investment professionals and members of the Investment Committee benefit from the Adviser's profits, which include fees from the company.
• **Customers (Borrowers)**: The company's focus on providing direct lending to middle-market software and technology-related companies supports their growth, as evidenced by mid-to-high single-digit EBITDA and revenue growth among borrowers.
• **Adviser/Affiliates**: The Adviser receives management and incentive fees from the company. The merger increases the total assets under management, potentially leading to higher fees for the Adviser. The SEC exemptive relief allows for co-investment opportunities, benefiting the broader Blue Owl Credit platform.
• **Regulatory Authorities**: The company operates under SEC regulations, including the 1940 Act, and has obtained exemptive relief for co-investment, demonstrating compliance with regulatory frameworks. The proxy statement itself is a legally mandated disclosure.

Next Steps

• Hold the 2025 annual meeting of shareholders virtually on June 26, 2025, to vote on director elections and auditor ratification.
• Continue to leverage increased size, scale, and diversification to drive further benefits for shareholders.
• The Co-Investment Committee will continue to review co-investment transactions pursuant to SEC exemptive relief.
• Shareholders can submit proposals for the 2026 annual meeting by December 4, 2025 (under Rule 14a-8) or between November 4, 2025, and December 4, 2025 (under advance notice procedures).

Key Dates

Recommendation

Keywords

Blue Owl Technology Finance Corp, OTF, SEC filing, Proxy Statement, DEF 14A, Business Development Company, BDC, Net Investment Income, Dividends, Merger, OTF II, Software-focused BDC, Credit Platform, EBITDA growth, Revenue growth, Portfolio performance, Corporate Governance, Board of Directors, Independent Directors, KPMG LLP, Auditor Ratification, Shareholder Meeting, Investment Advisory Fee, Management Fee, Incentive Fee, Capital Gains Incentive Fee, Related Party Transactions, Co-investment, Risk Management, Financial Reporting, Asset Management, Direct Lending, Technology Investing